Luna Innovations Inc (LUNA) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Luna Innovations Incorporated second quarters 2015 earnings conference call.

At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time.

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Dale Messick, Chief Financial Officer. You may begin.

Thank you, Nicole. Good afternoon, everyone and thank you for joining us today as we review our operating results for the second quarter of 2015.

A recording of this conference call will subsequently be posted on our website.

Before we proceed with our presentation today, let me remind each of you that statements made in this conference call, as well as in our public filings, releases and websites which are not historical facts may be forward-looking statements that involve risk and uncertainties and are subject to changes at any time, including but not limited to statements about our expectations regarding future operating results or the ongoing prospects of the Company following our combination with Advanced Photonix.

We caution investors that any forward-looking statements made by us are management's beliefs based on currently available information and should not be taken as a guarantee of future results or performance.

Actual results may differ materially as a result of a variety of factors discussed in our latest forms filed with the Securities and Exchange Commission.

We disclaim any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments except as required by law.

There is more complete information regarding forward-looking statements, risks and uncertainties in the Company's filings with the SEC available on the SEC website and our website.

And at this time I'd like to turn the call over to My Chung, President and CEO of Luna Innovations.

Thank you, Dale and thank you all for joining us today. This is an exciting time for Luna and I'm happy to be here today to share with you the progress that we have made following the merger with Advanced Photonix.

As the transaction was completed mid-quarter in May, the financial results we released today reflect the results for the full quarter for the historical Luna entity, but only about a half of the quarter of the results for the historical API entity. However, these partial results confirms our belief that this transaction will accelerate our path to profitability as we will already able to achieve the positive adjusted EBITDA in our first combined quarter.

The savings in having only one publicly listed company rather than two and the leveraging of shared expenses and resources will accelerate our path to profitability while creating a bigger and stronger company.

We are seeing traction in each of our key strategic growth initiatives and we are optimistic about our ability to continue to grow. Our product and license revenues were $6.3 million for the second quarter which included $3.6 million of revenue from API for this partial period.

We had $2.7 million of revenue from the historical Luna product operations which represents the 35% growth over the second quarter of last year.

This growth came largely from sales of our ODiSI system for distributed high resolution measurements of strain and temperature. We are making good headway in penetrating the strain measurement market especially as it relates to the testing of composite elements and structures.

We are pleased to be able to tell you today that during the second quarter we had our first multi-unit shipment of ODiSI systems to a large multinational aerospace manufacturer. We view this multi-unit order as confirmation of the value that our solution offers in providing far greater insight into the performance of composite structures than one is able to get using conventional electrical strain gages and thermocouples.

The key strategic growth initiative for API relates to the increasing demand for their Picometrix high speed optical receivers for next generation 100 gigabit systems and the deployment of fiber-to-the-home and premise.

We are actively working with system and component manufacturers to capitalize in this opportunity. In anticipation of this increased demand, we are also in the process of expanding our manufacturing capabilities in Ann Arbor. Our pro forma revenues were $12.4 million for the second quarter of 2015 compared to combined revenues of $12.9 million for the June quarter of 2014.

Those of you who have followed API for some time will recall that the Company had very strong performance in the June and September quarters of 2014 with revenues in the neighborhood of $7.5 million in each of those quarters and then dropping significantly down to $5.8 million in the December quarter driven principally in the high speed optical receiver part of the business as a couple of very large customers pushed out their capital spending.

In the first half of 2015, we have in fact seen the HSOR business picking back up, not yet to the level of mid-2014 but growing steadily from the December low. The remaining areas of our business the Optosolutions group focused on custom optoelectronic components and sub systems, the technology development group focused on contract research largely funded by US government and the Terahertz Group focused on sensing solutions utilizing Terahertz frequencies all performed solidly and were in line with our expectation for the quarter.

The Terahertz team in fact was successful in winning a multi-unit deal which unfortunately we cannot share any details at this time, but does provide us with continued confidence in this new technology.

From an operation standpoint as you might imagine, we have spent a good deal of time visiting the various locations meeting with employees and improving our understanding of the operations.

We have been very impressed by the quality of the team, their knowledge of their markets, customers and products and operations and the excitement of our employees in that potential this merger represents in creating a stronger and more successful company.

With that, I would turn the call back over to Dale.

Thank you, My. As you know, our merger with API was completed on May 8th and so our reported results include the operations of API from that closing of the merger through June 30. With API results being included for just a portion of the current quarter and not at all in comparative year ago period, results are little more difficult to compare and analyze and so I will focus on the revenue growth in the legacy Luna business to be comparative.

Before I go into the Luna numbers, let me level that with a $10 million revenue we recognized in the second quarter, $4 million of that was realized from the operations of API including $3.6 million of product revenue and $0.4 million of technology development revenue.

Revenues therefore from the legacy Luna business were $6 million consisting of $2.7 million of product and licensing revenue and $3.3 million of technology development revenue.

Luna's historical business grew approximately 15% over Q2 of last year from $5.2 million to $6 million that growth came primarily from the product and license segment with the historical technology development business segment growing approximately $100,000.

Luna's product and licensing revenues was $2.7 million in the second quarter of 2015 compared to $2 million for the second quarter of last year or growth of 35% and as My mentioned in his comments the increased sales of ODiSI products drove the growth in the Luna products revenue versus Q2 of last year.

Gross profit from the legacy Luna business was $2.7 million or 44% of revenues for the second quarter 2015 compared to $2 million or 38% of revenues for the second quarter of 2014. As the products and license segment continues to grow to represent a greater proportion of total revenues we continue to see margin improvement. With the inclusion of API, our overall gross profit was $4.2 million or 42% of revenues.

Operating expenses increased to $6.3 million in the second quarter of 2015 compared to $3 million in the second quarter of 2014. Operating expenses in Q2 of 2015 included approximately $1.7 million of non-recurring cost associated with the merger transaction including legal accounting fees investment banker cost and cost of preparing and distributing registration statement.

The operations of API also added approximately $1.1 million to our operating expenses for the period. In addition, the allocation of purchase price from the merger resulted in a step-up in basis of certain assets and the recognition of new intangible assets the depreciation and amortization of which added an incremental $0.3 million of operating expenses for the period.

Because of the impact of the transaction cost our results for the quarter, our operating loss grew to $2.2 million compared to $1 million in Q2 of last year. Again, excluding those transaction cost our operating expenses improved significantly -- our operating loss improved significantly to approximately $400,000, if it would have been more than $0.5 million improvement over the prior year quarter.

With non-recurring charges for the merger in Q2 and the increased amortization for purchase accounting our operating improvement and the benefit of the merger can be better understood from an adjusted EBITDA perspective.

After excluding the non-recurring charges associated with the merger of $1.7 million, our adjusted EBITDA for the second quarter of 2015 was positive $581,000 compared to a negative adjusted EBITDA of $542,000 in second quarter of 2015.

Year-to-date, we've recognized revenues of $15.4 million compared to $9.7 million of revenue for the first half of 2014. Again the merger with API during the second quarter contributed $4 million to our year-to-date revenue.

The historical Luna business grew 17% to $11.4 million for the first half of 2015 compared to $9.7 million for the first half of 2014. Revenue for the historical Luna TDD business improved to $6.2 million year-to-date compared to $5.9 million for the first half of 2014.

Revenues from the historical Luna product and licensing segment grew 36% to $5.2 million for the first six months of 2015 compared to $3.8 million for the first six months of 2014.

Increased sales of Luna's ODiSI products and optical backscatter reflectometer products primarily drove the 36% increase in products and licensing revenues associated with historical business.

Year-to-date gross profit for the legacy Luna business improved to $4.9 million or 43% revenue compared to $3.5 million or 36% revenues for the first half of last year.

Again a greater concentration of products and licensing revenues as part of our overall revenue mix drives improved margins. With the inclusion of API our overall gross margin was 42%.

Operating expenses were $11.2 million for the first half of 2015 compared to $6.5 million for the first half of 2014. Operating expenses for the first six months of 2015 included 3.5 million of transaction related expenses.

As noted in the quarterly results, operating expenses year-to-date also include $1.1 million from the operations of API during the stub period and $0.3 million of incremental depreciation and amortization during this stub period.

As a result of the non-recurring transaction cost, our operating loss grew to $4.7 million for the first half of 2015 versus an operating loss of $2.9 million for the first half of 2014.

The sale of our medical shape-sensing business to Intuitive Surgical in January of 2014 provided a total benefit of $10.5 million in discontinued operations and income taxes to the bottom line for first half of 2014.

There were no discontinued operations in our results for the first six months of 2015. And accordingly, with that $10.5 million benefit, we reported a net income of $7.6 million or $0.51 per share for the first half of 2014 compared to a net loss including transaction related expenses of $4.8 million or $0.26 per share for the first six months of 2015.

Again, looking at adjusted EBITDA to normalize out the non-recurring charges and benefits, for the first half of 2015 we achieved positive adjusted EBITDA of $203,000 compared to an adjusted EBITDA loss of nearly $2 million for the first half of 2014.

Turning to the balance sheet, accounting for the merger with API increased our total assets to $47.7 million at June 30th compared to $27.6 million of December 31st. In addition to the intangible assets that we've acquired in the merger, we've recorded -- I'm sorry, in addition to the tangible assets we acquired the merger -- we recorded approximately $12 million in intangible assets as part of our preliminary purchase price allocation.

We've also entered into a new $6 million debt facility to replace the historical API loans that were outstanding and $5.9 million of that was outstanding as of June 30th. That loan will amortize over four years with monthly payments of $125,000 plus accrued interest.

For those who have followed Luna for some time you may recall we previously had a similar $6 million term loan that was just ending at the time of the merger and also had been caring similar amortization of $125,000 per month. So from a cash flow perspective payments under this new loan will be very similar to the cash flow that we have been experiencing over previous 4 years.

We ended the second quarter 2015 with cash of $7.5 million compared to $14.1 million at the December 31, 2014 and $13.3 million at the end of Q1. This higher level cash usage from second quarter of 2015 included cash payments of approximately $3.9 million of cost associated with the merger and some subsequent severance payments.

In addition, our payables balance at API had grown during the period leading up to the merger and we had to use some cash right afterward to get back to the more current status on our payables. If you look at the cash flow statement you'll see that from a working capital perspective we also made some investment in inventory as we ramp up for planned growth as My mentioned in his comments as well.

With that I'd like to turn the call back over to My.

Thank you, Dale. And as I mentioned at the beginning of the call, I think that the primary takeaway to understand our performance for the quarter and the benefits we can realize from the merger is to look at the positive adjusted EBITDA in this first period.

We're excited about our prospects. We're pleased with the team that has now joined Luna. And at this point, I would be happy to take any questions that you may have.

(Operator Instructions)

Our first question comes from the line of Neil Cataldi of Blueprint. Your line is now open.

Hi, guys. Nice quarter.

I got a few questions. So correct me, if I'm wrong, but API would have done $6.1 million in this past quarter if you'd captured all three months right?

Right. That's correct.

Okay. Can you tell us what API did in the first quarter? Since I don't think they ever put those numbers out.

Yes so I think -- if you look at the first half of 2015 they would have -- we would have pro forma revenues of 12.4 -- so the API revenues were about the same in the first quarter.

Okay. So roughly $6 million as well. All right well that means that that business has stabilized which is a good a sign.

The S4 related to the merger which is filed in March discloses some projections for the -- both of the businesses moving forward. I'm just curious what's your view today on how investors should look those projections given where you are? I think if we annualize the revenue we're little bit behind the $60 million schedule but EBITDA seems to be quite a bit ahead. Any comments on that?

Yeah, I would say that it was a slower start for them then they had recently anticipated. I've got to believe that this transaction impacted some of their business. But our projection going forward is pretty much tracking the tables says that are in the S4. Little bit delayed little bit but clearly the opportunity are the same.

Okay. And should we expect positive EBITDA going forward on the quarterly basis?

That's kind of how we are mapping it out.

Okay. Along the same lines of -- or the same subject to those projections I see that the Luna products and licensing segment is sort of sueded for 50% type growth next year I mean you guys just had a great quarter. Can you tell us little bit more about the catalyst for this growth? Have there been recent customer wins or anything? I mean we don't see lot of press releases. So what should we use to sort of gets on hands around where the growth is coming from today?

The announcement I made today in terms of a big win from a major aerospace company I think is the positive indication that we've got, that we're on the right track. Right, the two biggest markets for us for composite testing is automotive is by far the largest and then aerospace is the one that's there today.

Okay. Have there been -- I mean this is great news that there has been a multi-unit shipment. Is there a way to quantify the number of wins or any way for you to quantify what the pipeline looks like for us?

I know I think it was on a call last November, you had noted that companies across both of these industries were on various stages of testing and proving out the technology. How have those tests progressed?

I think that the progress that we're making is indicated by growth both in the quarter as well in the half -- supports our belief that we're in the right space. Our limiting factor by far is the speed with which we're going add direct sales people.

Early on last year we came to the conclusion that current channel selling strain gages or thermocouples were not actively selling our products, so we bit the bullet and said no, we're going to build our own direct sales force.

We staffed up here in North America with two very, very strong sales people, more in the midst of [Maddy], another person in Europe and we're looking for major expansion in Asia as well. So we gated in a nutshell by the speed with which we can add direct people.

Okay. Okay.

Shifting gears to the API side. Same type of question, these projections showed quite a bit of growth very next year. I think the numbers are 60%. In the past, API had announced and disclosed some design wins. Just curious if there have been any design wins you guys can talk about this year?

And also in the press release today you talked about the market in North America and Asia, what should the geographic mix look like going forward, and maybe specifically touch on China that would be great.

Yeah, so we continued to do well in that high-speed optical receiver market, we did take a step back in Q4 last year and slow ramp up in the January quarter, but things have picked up.

I think the leading indicator is the comment that I made about expanding our manufacturing capacity, trying to get ahead of the curve. The two major drivers for this business will be the rollout of 100 gigabit for data centers as well as for the metro as well as fiber to the home, especially within China.

Okay. One more question on China.

I know, Alcatel-Lucent is a big customer of the Company and ZTE is a big Chinese company that had received the design win last year that API had announced and that other sales side analyst in the past had talked about. Both of these companies appeared to have a very strong position in China right now.

Alcatel-Lucent actually announced a $1 billion plus order recently. So what is the nature of the relationships as it pertains to your opportunity with optics and should very success infrastructure rollouts correlate or flow through to your revenue in any way.

I would expect that to be the case.

Yes, okay.

Customers are very good partners for us. Alcatel-Lucent took a step back a little bit when they sold that manufacturing site that they have in Italy to Flextronics. They are back in the process of ramping backup and I think the ZTE took a step back a little bit with the political situation in China. But I think that's settling out and they should be back in a growth mode.

Okay. Two more real quick and then I'll get back in the queue. Synergies with the acquisition, the filing noted $3 million as a number we can circle, how much have you realized thus far? I think public company costs and salaries accounts for $2 million in that? So has most of that $2 million been captured already?

I believe so. As you see from the positive adjusted EBITDA that we've achieved at the revenue level, we're well ahead of where we recently have projected.

Okay. So maybe a little bit more to go but the low hanging fruit has been captured.

Exactly.

Okay. Last question any update on the progress which Intuitive Surgical and royalty payments?

No, they continue to work feverishly on trying to achieve that milestone and we continue to send someone there over to run test on a regular basis. So nothing in particular to announce today, other than we do see the energy level being put into it.

Okay. All right, great. Thanks guys.

Thanks Neil.

Thanks Neil.

Thank you. Our next question comes from the link of JD Padgett of Almak Capital. Your line is now open.

Yes, hi, Neil was very thorough there so that was helpful, but a couple of follow-on questions to that for those that are less familiar with the story. With the Intuitive dynamic what specifically are the milestones that we need to achieve there to be able to capture that additional income stream?

The milestone that they are striving to achieve is the ability to accurately tell where the tip of the fiber is without the need for camera or an x-ray. So keep in mind that the application is a robotic surgical system, whereby they manipulated that flexible cather into the body.

And they want to know exactly where that tip is before they start cutting. So suspect that or we had always been working with Intuitive on was to indeed pinpoint that tip of that fiber in location to a very high degree of accuracy in order to give the physician the confidence to start the surgical procedure.

You guys have confidence from a technological standpoint, that's achievable?

No, absolutely. And the team that we send over along with a transaction to Intuitive was some of our brightest engineers. They took our CTO first that was the first criteria that they had to do transaction and once Mark agreed then he picked - I'll tell you he picked a top notch team to go along with him.

And what is kind of the threshold that dictates when that milestone payment is due or not if there is some third party that needs to sign off on -- in terms of validating that technology or how does that work?

Well there is a test procedure that was well documented early on to prove that the technology met the specs. They have multiple systems set up to tests for repeatability and that is a system that will be used to confirm whether they have achieved it or not. They have to do it multiple times on multiple systems.

Okay. So you are still optimistic that that's achievable and some point we could get that milestone revenue and hopefully participate in royalties beyond that?

Yes, the team over there is incentivized as well. I mean this is such a high important project for Intuitive, I've got to believe that they are getting constant calls from the folks in California.

Right. Okay. And then on cash usage, looking forward are most of the kind of transaction related expenses behind us or there any sort of one time dynamics that are going to drain additional cash looking forward?

Certainly, the big expenses of the transaction are behind us. So we should get to a much more normalized cash dynamic here is in Q3 and beyond. Now My mentioned that we are doing some capacity expansion, so there is some CapEx that has to go along with that.

There is also some financing opportunities for that CapEx as well, we're looking into. I don't think you're going to continue to see anything like a cash usage that we saw in Q2.

Okay. And the staffing requirements you talked about in terms of fielding and direct sales force, is that kind of embodied in some of the projections that were previously shared in the prospectus or in terms of just impacting expenses line?

Yes, so the model that we use for revenue projections as well as the additional sales people is that -- for every sales person that we bring on board we give them as a starting point a $1 million sales quota. So if you take the sensing number, or project out what the sensing number would be and divide it by a 1 million roughly that would be the number sales people that we would look to hire over the next three years.

Okay. Was that sensing number split out specifically from the product and licensing segment?

I don't think we actually broke it out.

It's not, but if you look at the growth in the product and licensing segment that is predominantly sensing driven.

Right.

Okay. And sensing being the ODiSI product?

Correct.

Okay. And you've talked about the year-over-year delta and the revenue there is that really the first kind of initial increment of revenue from ODiSI.

No, we actually introduced a very first product prematurely in 2011, came out with a new enhanced product the first quarter of 2012 and the last year when we bought back one of the original designers for our telecomm products we revamped the ODiSI platform to the point where as we mentioned what the major aerospace company has now endorsed it.

So there was even through 2014 some material revenue from ODiSI?

It wasn't. I would say it was just getting started.

Okay.

All right, the big ramp up was in the second half of 2014 and is continued.

Okay. And for the telecomm the T&M segment of that business is your outlook there that just kind of more flattish through the next couple of years?

No, actually. With the pickup in telecomm market was actually you've seen some nice increases on the telecomm product side.

From a forecasting perspective, we would look at the sensing platform going at a much quicker rate, but we do have something in the T&M side as well.

Okay. And I guess just final question from me. Now you kind of had three months with API, and you kind of alluded this in the earlier questioning with. Are you comfortable with - granted you just said it was pushed out a little bit, but do they seem overall optimistic with some of the growth expectations they have for their individual product lines or you think that they just [work] can truly ramp that dramatically.

At this stage, we're very confident of their growth opportunities. It appears as if they have some unique capabilities and meaning service packs and the relationships that they have with certain customers seem very solid then which we point we signed off on them expanding their manufacturing capacity ahead of getting the purchase orders.

Okay. So stay tune for that down.

Right. Hopefully not.

You think you get any additional sell side or I don't think there is any sell side coverage for the stock right now from [B. Reilly] or anticipate that in the future.

Well, B. Reilly was covering API

Right.

I'm not sure if Brian is on the line, but I believe he is continuing to cover us. Dave, rather, Brian - Dave, I'm sorry.

Okay. Thank you, guys very much.

Thank you. And our next question comes from the line of Edward Perry a private Investor. Your line is now open.

Well, good afternoon, good Q, are you executed the merge very well it appears.

Could you speak up a little bit louder, I'm having trouble hearing you.

I'm sorry.

I'm having a little bit of trouble hearing you.

Okay. It looks like a good Q and that you've executed well on the merger.

Yes, no, we are very pleased and I think part of it was that we had a group of people that were really excited about doing something game changing.

Good.

Very well received by both sides of the companies and it went right from doing the merger to execution.

And I'm glad to see that you retained [Don Pastore]. I think you one of the few people that understands the scope of what API's products are. Are there any residuals from those spurious lawsuits that came post-merger?

Yes, those lawsuits are still out there and we've not affected a settlement yet, but we still don't believe that there is significant exposure on us.

Okay. Good. Another question. You mentioned that you're expanding HSOR manufacturing in Ann Arbor. Does that include like a second shift?

That does

Good.

As well as it is enhancing the equipment.

Okay. And I've noticed going over the bios carefully on the Luna's executive team as well as their directorships. Luna has very significant depth of experience and new product development marketing and acceptance in commercial markets. Is Luna going to provide any kind of - oh God -- assistance -- helping API achieve a faster, acceptance of the Terahertz Group products?

Terahertz is actually is doing very well today. As I mentioned in the script they've actually won a multi-unit deal. So very stable, still trying to build their business overall, but far ahead this year than they have been previously.

Good, good, good, we missed the last conference call, so we don't have that information. Okay. When you mentioned you're moving towards direct sales approach, does that include API side because they were using VARs, value added resellers to do their sales.

yes, no, we'll be only for our sensing product.

I see. Okay. And - now what about the old [Silo mix], so what API used to call API Canada, is that still in the Optoelectronic.

That is. I believe there is staff of three or four people still up in Canada

Okay. All right, good. And okay, that's all I have for now. Thank you so much.

Thank you for joining us today.

Thank you. Our next question comes from the line of Gregg Hillman of First Wilshire Securities Management. Your line is now open.

Hey, good afternoon.

Hey, Gregg.

Hi, hey you know on the fiber to the home, how can we tell -- what you've been reading recently in terms of what's going on in that and like you're your independent indicators could I look through the see if that markets trying to gain traction before even appears sales acceleration here for API.

I missed -- what market are you asking about?

Fiber to the home, like in China for example.

Fiber to the home.

What indications are you getting right now and where could I look for into get independent confirmation that market is going to start takeoff to achieve significant sales growth?

I would say they are getting ready to get back to deployment. I think the setback that they had was the political situation with the head of all the carriers in China but I believe that's all been settled now and the indications that we're getting is that over the next quarter or so you'll see the ramp up start up again.

Okay. And My just wondering maybe if you could explain to me the (cost) divisions for API versus Luna. I think you referred to this and to Luna, but I mean API had some -- other than HSOR and Terahertz they had some other innovations that I think made optical test equipment just as you had some optical test equipment. Could you compare and contrast those two businesses reach of the companies and kind of exactly explain me what they are.

Yes, I think the only test equipment [entity] that they have is Terahertz product line. The opponents that they make out in the camera real California are Optoelectronic solutions, again [promote] components or small sub-assemblies than it is test products.

Okay.

And then - and do you make optical, do you make similar types -- and then all of your businesses are pretty much test type equipment at Luna.

That is correct.

Okay. And then what was happening in the quarter with their -- quarter just reporeed for their optical components at API? And do you anticipate growth for that? I mean do you know what the amount was, a dollar amount for the quarter just reported?

Yes so -- Gregg, it's Dale. We haven't broken out anywhere the split of revenues within API. I think that we talked about the overall API business for Q1 and Q2 being up a little bit from the low that we had in the December quarter. I would characterize that as we had a little bit of growth in the HSOR side, a little bit of softer on the Opto Solutions side but not dramatically.

So - but the growth that we did see from Q4 through Q1 and 2 was more on the HSOR side.

Okay. And then for multi-client win that you mentioned for the Terahertz, what vertical was that in aerospace or what was that in? Security...

No. It was actually in manufacturing, a pipe manufacturing.

Okay.

They continue to work the aerospace, right, they have a government contract to work on that, but the big win for them were -- was multi-unit order for a manufacturing setup.

And have they been able to bring the price down for the Terahertz unit, I think used to be by $100,000..

(Multiple Speakers)

Yes, they have done an excellent job of cost reducing that system.

So what's the price down to -- is it down...

It is closer to $50,000 then.

Yes, more than $50,000 price range.

Okay. So that's a pretty significant win for them.

Yes, that team is very pumped up right now.

And similarly what is the minimum ODiSI system cost or what is one test unit cost for ODiSI?

About $50,000.

About what?

$50,000

So surprisingly similar, but you have to buy multiple systems, assembly lines aircraft, you need more than one system.

Yes, because if you look at the structure that you're trying to test and with composites you're trying to cover as much of the surfaces you possibly can and so depending on the way that you've laid out the aircraft for the test you'll need multiple systems as well as multiple fibers.

Okay.

If you look little bit further out in our product roadmap clearly the market is looking for multi-channel system. So as we truly get into the final testing side you'll see that being rolled out.

Which would be a much larger ticket item for you.

Right.

So being the hundreds of thousands of dollars for multi.

Right.

Channel test systems. Okay. Sounds good. And then Terahertz you have a sense of the market size for it at this point.

I think we're still trying to wrap our arms around that, it's new technology that you're trying to displace existing ones. It's hard to say, to tell you the truth. And I think that's what is making every Terahertz manufacturer kind of hesitate a little bit at this point.

Okay. Well, anyways congratulations as you're doing really good so far on the integration. Keep up the good work and we'll talk again soon.

Okay. Thanks a lot Greg.

Thank you. And our next question comes from the line of Bill Ackman, a Private Investor. Your line is now open.

Hey Bill.

Please check your mute button Mr. Ackman.

Bill?

Again Mr. Ackman, please check your mute button.

Our next question comes from the line of JD Padgett of Almak Capital. Your line is now open

Just a couple of quick follow-ups. Fiber-to-the-home with Verizon, is there any positioning on either the Luna side or the API side there?

I don't believe so, I have never heard them mentioning also an opportunity with Verizon.

Is it just a different set of technology and what's being here China, for instance, or--?

I've got to believe that one of the hurdles is that they are fairly well-established. It's not a Greenfield as it would be to attacking the Asia market. It's the only thing I can think of.

Bio spin around for decades, right. First one is to rollout fiber-to-the-home.

And is it kind of a similar dynamic for you with the core test stuff from the Luna side, because wouldn't that stuff fit well into being able to test their network and so forth?

It does. We're more in the engineering development rather than deployment. But yes, we've seen an uptick in our [Prar X] for that same application or the same technology.

And then what will be the full share count once the next quarter is reported?

Yeah, we're there about 28.5 million shares outstanding.

Okay. And then just one background question. You pronounced Carilion, a large shareholder for Luna?

Correct.

How did they come to be such a large shareholder?

They were an early investor in the Company when the Company was private. They are a non-profit health organization here in [Runo]. In fact, until recently we operated one of the buildings.

Okay. They have just been our supporter of the technology and...

Very, very supportive, yes.

A passive player along for the ride for the long-term?

Yeah. Absolutely.

Okay. Thank you guys very much.

Thank you.

Thank you. (Operator Instructions)

And I'm showing no further questions at this time. I'd like to hand the call back over to My Chung for any closing remarks.

So, I want to thank everyone for joining us today. This has to be one of our most successful conference call, I'm impressed. But we're excited. Things are going very, very well with the transaction and we look to deliver very, very positive results in the near future.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day everyone