Advanced Photonix's (API) CEO Richard Kurtz On Q1 2015 Results - Earnings Call Transcript

Aug.11.14 | About: Advanced Photonix, (API)

Advanced Photonix Inc. (NYSEMKT:API)

Q1 2015 Earnings Conference Call

August 11, 2014 4:30 pm ET

Executives

Jeffrey Anderson - CFO

Rob Risser - COO and Director

Richard D. Kurtz - CEO and Director

Analysts

Dave Kang - B. Riley & Co.

Gregg Hillman - First Wilshire Securities Management

Operator

Good day, everyone, and welcome to the Advanced Photonix's 2015 First Quarter Earnings Conference Call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the conference call over to Mr. Jeff Anderson, Advanced Photonix's CFO. Please go ahead, sir.

Jeffrey Anderson

Thank you. Before we get started, I want to remind listeners that this conference call will contain forward-looking statements which involve known and unknown risks and uncertainties about the Company's business and the economy and other factors that may cause actual results to differ materially from our expected achievements and anticipated results, including unforeseen technological obstacles, which may prevent or slow the development and/or manufacture of new products; problems with the integration of acquired companies and technology and possible inability to achieve expected synergies; and limited or slower-than-anticipated customer acceptance of new products, which have been and are being developed by the Company.

Please see our press release of today and our periodic reports filed with the Securities and Exchange Commission for a fuller statement of such risk factors. Given these uncertainties, listeners are cautioned not to place undue reliance on any forward-looking statements contained in this conference call.

The forward-looking information given during this teleconference represents management's expectations and beliefs as of the date hereof. The continued availability of this teleconference on the Internet, or through other media, does not mean that the Company is reaffirming or confirming its continued validity. Except as may otherwise be required by law, the Company expressly disclaims any obligation to update or alter any of the forward-looking statements made herein as a result of any event occurrence after the date hereof.

This conference call also contains a presentation of non-GAAP financial measures, as defined in the SEC's Regulation G. Reconciliations of the non-GAAP financial measures to the Company's GAAP-based financial statements are included in the Company's first quarter earnings press release dated June 27, 2014, and are available on our Web-site at www.advancedphotonix.com.

On today's call, I will briefly review a few financial highlights from our first quarter 2015 fiscal year, and then I'll turn the call over to Rob Risser, COO, for an update on business activities. We'll pass the call on to Richard Kurtz, CEO, for closing remarks.

Our revenues for the quarter ended June 27, 2014 were approximately $7.7 million, an increase of 8% or $585,000 from revenues of $7.1 million for the quarter ended June 28, 2013. Revenues increased 10% from the prior quarter. We experienced revenue increases in two of our four markets for the quarter ended June 27, 2014 compared to the prior year period.

The test and measurement market revenue was approximately $4.5 million in the first quarter of fiscal 2015, an increase of $37,000 over the prior year quarter. The small improvement was attributable to the strength we have seen in the Comtest market although declines in Terahertz development contracts offset much of the improvement. Sequentially, revenues increased approximately 3%, or $147,000 from the fourth quarter of fiscal 2014 as Comtest sales growth offset some seasonal declines in our Optosolutions products.

Telecommunication transmission revenue in the first quarter of fiscal 2015 was $2.4 million, an increase of approximately 94% or $1.2 million from the prior year first quarter. The improvement was due primarily to higher 100-gigabyte line side sales as supply chain constraints from last year have been resolved. Telecommunications revenue on a consecutive quarterly basis increased 30%, or approximately $570,000, from the fourth quarter of fiscal 2014 due to the further expansion of our production capability by adding a second shift.

Military/Aerospace market revenue in the first quarter of fiscal 2015 was $644,000, a decrease of 38% or $403,000 from the comparable prior year period due to the slowdown we have seen on certain Optosolutions military missile programs. With the current and expected Terahertz contract awards, this trend should reverse as we expect to see substantial growth later in the year. Sequentially, we had a $102,000 improvement in revenues given the resumption of volume production on one of the missile programs

Medical market revenues in the first quarter of fiscal 2015 were $101,000, a decrease from the prior year quarter of $235,000 and a decrease of $132,000 from the fourth quarter of fiscal 2014. Both decreases were primarily due to the timing of shipments related to one customer.

Gross profit for the first quarter of fiscal 2015 was $2.9 million, which was similar to the first quarter of fiscal 2014. Gross profit percentage was 38% for the first quarter of fiscal 2015 compared to 41% in the first quarter of fiscal 2014, given the absence of Terahertz development contract revenues enjoyed in last year’s first quarter that have not yet been replaced.

Our gross margin percentage in the fourth quarter of fiscal 2014 was 29% and improved to 38% in the first quarter of 2015 on the higher volume and cost savings from the previously announced outsourcing of our silicon photodiode fabrication, and material cost reductions in HSOR products.

Total operating expenses for the quarter ended June 27, 2014 were $3.1 million, a decrease of $393,000 over the comparable fiscal 2014 period and similar when compared to the fourth quarter of fiscal 2014. The reduction from last year is due primarily to completion of several engineering projects or contracts which allowed us to reduce our headcount and return to be more in line with our revenue profile.

The non-cash expensing of stock option and restricted stock grants included in operating expenses was $21,000 for the three month period ended June 27, 2014 compared to $29,000 for the three month period ended June 28, 2013, as the Board of Directors have continued to voluntarily waive their annual stock award. Other expense items in the first quarter of 2015 were down $272,000 from the first quarter of 2014 mostly because of favorable warrant adjustments.

We realized a GAAP net loss for the first quarter of fiscal 2015 of approximately $268,000 or $0.01 per share, as compared to a net loss of $925,000 or $0.03 per share in the first quarter of fiscal 2014, and a loss of $1.1 million or $0.04 per share in the fourth quarter of 2014. The year-over-year improvement in income of approximately $657,000 is primarily attributable to the lower operating expenses of $393,000 and non cash fluctuations in the fair value of our outstanding warrants of $241,000. The sequential improvement of $875,000 in the net loss has been driven by improving volume and cost reductions.

At June 27, 2014, we had cash and cash equivalents of $1.4 million, an increase of approximately $1.3 million from the March 31, 2014 balance. The higher cash balance is attributable to the recent receipt of $2.9 million in net proceeds from issuance of 6.2 million shares of our Class A common stock in June 2014. This equity issuance has provided us the liquidity we need to extend our line of credit and reduce our leverage. Combined with the June 2014 revised covenants with SVB and PFG, expected positive EBITDA and the current SVB line of credit availability, we believe that our existing cash and cash equivalents will be sufficient for the next twelve months.

I would now like to turn the call over to our COO, Rob Risser.

Rob Risser

Thank you, Jeff, and good afternoon everyone and thank you for joining us on the call today. We continued to make progress in our first quarter toward the two near term goals that we believe will drive shareholder value, revenue growth and positive adjusted EBITDA.

Revenue grew 8% compared to last year's first quarter and we returned to a meaningful positive adjusted EBITDA of $267,000 for the first time in 11 quarters. In addition, we were very close to reporting non-GAAP profit for the quarter, recording a $3,000 loss compared to a loss of $403,000 in the first quarter of last year and a loss of $887,000 last quarter.

Our revenue growth was driven by an 87% growth in our high-speed optical receiver product platform including a 94% growth in our transmission products driven primarily by our 100-gig coherent receiver product offerings, and a 76% growth in our Comtest product offerings.

Growing global bandwidth demand to deliver high-definition video anytime anywhere is driving long-haul network upgrades over the next several years to support 4G wireless deployments as the long haul and the metro networks transition from 10 and 40 gigabits per second to 100 gigabits per second. Our success in gaining market share in the 100-gig long-haul telecom market in China has contributed to our growth this quarter.

In addition, the move to cloud computing is also demanding more bandwidth in the enterprise data center market, which is in the early stages of transitioning to 100 gigabits per second, although they won't be using coherent technology in this market segment.

Our Comtest new products introduced in the second half of last year, which we report in the test and measurement market, are used to test the next-generation transponders necessary to support high-bandwidth cloud computing. Our high-speed optical receiver revenue growth was offset by a decrease of 18% compared to the same quarter last year in our Optosolutions product platform with softness in all three of its markets, test and measurement, military and medical, and a decrease of 41% in our Terahertz product platform due primarily to delays in government contract revenue. Despite setbacks in two of the three product platforms, revenue grew 8% on a comparative basis.

As we have reiterated in past updates, investment in new product development is key to continuing growth in our fast growing markets. This is highlighted by the fact that revenue from products introduced in the last two years accounted for more than 40% of revenue in the quarter and 55% of revenue in our high-speed optical receiver product platform.

Much of this growth came from the telecom related markets, both transmission and Comtest, with the successful introduction of receivers developed last year. These include our 100 gig coherent receivers with increased functionality, our CCRx-100D product family, and the successful introduction of our next-generation Comtest product, the DGM-32xr, which is targeted at testing optical transceivers used in the enterprise and access markets. In addition, the Optosolutions product platform's successful acquisition of Advanced Photonix Canada last year provided a suite of new products, including our currency validation product platform.

We are focusing new product development in high-speed optical receiver products and Terahertz application development. In the HSOR product platform, we are developing next generation 100 and 200 gigabit per second products optimized for the metro market and enterprise markets, 100-gig Comtest receivers targeted at the enterprise market and 2.5 and 10 gigabit per second avalanche photodiodes targeted at the last mile or so called fiber-to-the-home market. In Terahertz, we are focused on application development and value-added features to support market adoption.

Our Terahertz product platform is in a year of transition, marked by growing product sales and a reduced dependence on contract revenue. Terahertz revenue was negatively impacted by delays in the start of two follow on government contracts in the quarter. Typically, the time between submitting an invited proposal and receiving notification that the contract will be awarded is four months, and a contract is typically signed two months later. This translates into a total of six months from proposal submission to contract start.

Unfortunately, in the case of both of the recent defense contracts, the government has had more than its typical delays and administrative changes, resulting in a much longer delay than is typical. We did recently began a contract with the Navy late in the first quarter which we anticipated would've started early in the quarter. We had also anticipated receiving a follow-on Air Force F-35 contract during the first quarter. However, that now looks to have slipped to late in the second quarter due to administrative delays by the Air Force. Difficulty in accurately forecasting when government contracts will start makes it difficult to accurately forecast Terahertz contract revenue.

In addition, end customer capital expenditure cycles associated with the adoption of new Terahertz products used in manufacturing are subject to delays, especially in initial deployments, which also makes them difficult to forecast. As a result of both of these factors, Terahertz product revenue is likely to be lumpy as we cross the chasm of volume product adoption and deployment.

Operationally, we continue to executing on our priorities during the quarter. For our high-speed optical receiver product platform, this included increasing production capacity, developing next-generation products for targeted high-growth markets and penetrating the fiber-to-the-home market. Our Terahertz team focused on application development, training the value-added reseller channel to accelerate product adoption and cost reduction to expand vertical markets. Our Optosolutions team focused on the smooth transition of photodiode outsourcing to more cost-effective suppliers, outsourcing the assembly and test of many industrial products to a contract manufacturer in China and reducing the facility footprint in California.

We continued our relentless building material cost reduction initiatives this quarter in our high-speed optical receiver and Terahertz product platforms. As we have previously indicated, aggressive cost reductions are necessary in order to stay competitive in the fast-growing telecom sector which typically has annual price reductions that need to be offset by product cost reductions. Cost reductions in our T-Ray 5000 product platform are necessary to penetrate the volume markets of manufacturing process and quality control in order to accelerate market adoption.

We will be exhibiting our high-speed optical receiver products at two trade shows in the second quarter, the European Conference on Optical Communications or ECOC in late September in France, and the Chinese International Optoelectronic Exhibit or CIOE held in Shenzhen in early September. ECOC is the largest conference in Europe targeted at the optical communication market and we will have our own booth at this show. CIOE is the largest Chinese optical communication conference and we will exhibit our products in our distributor's booth. In mid-September, we will exhibit our Terahertz product platform at the International Conference on Infrared, Millimeter, and Terahertz Waves in Tucson Arizona. This show is targeted at the scientific and research market.

In summary, we returned to positive adjusted EBITDA in the first quarter and continued making progress in our product platform that we believe will increase shareholder value. Our high-speed optical receiver product platform exceeded planned revenue and profitability, our Optosolutions product platform fell short on revenue but exceeded planned profitability, but our Terahertz missed on both revenue and profitability due to delays in the start of government contracts.

I'd now like to turn the call over to Rick. Rick?

Richard D. Kurtz

Thank you, Rob, and good afternoon everyone and thank you for joining us on the call today. Our first quarter was a validation of the cost savings actions and the investments we made last year. It's also a great indication of what we can expect in our growth and revenues and EBITDA for this fiscal year.

As already mentioned by Jeff and Rob, we grew our revenues by over 10% over the prior quarter. We had a better than expected product mix which raised our gross margins, even without receiving a major governmental contract for the F-35 program. We are now expecting to receive this $1.5 million Terahertz development contract in the second quarter.

This contract will deliver a fully commercialized version of a prototype handheld measurement sensor that was delivered under an earlier contract. We expect follow-on product sales as a result of this in not only domestic but also international OEMs in the coming years after completion.

We are continuing to see a strong buildup in potential T-Gauge orders in the industrial market. We will be exhibiting at the International Conference on Infrared, Millimeter, and Terahertz Waves or IRMMW-THz Conference in Tucson, Arizona, which runs from September 14 till September 16. This conference is focused on the research market and brings together researchers from around the world, with 90% of the conference and papers focused on Terahertz's research. While we've had long-standing presence in this market, with our new T-Ray product line we are expecting to more than double the number of T-Ray product sales to the research market in the next 12 months.

We have a growing backlog in our high-speed optical receivers and 100-gig products, being driven by China and European markets. The news out of the telecom market is one of growth and opportunity. As Rob has already mentioned, in our major telecom business demand grew substantially on a comparative quarterly basis year-over-year by more than 94%. We continue to expect year-over-year growth each quarter. We continue to make progress in our new 10-gig product for fiber-to-the-home or curb, we expect to have samples available during the calendar year.

We're expecting to receive a contract renewal order from a major military OEM greater than 1.5 million in the second quarter for the Optosolutions product platform, which will be shipped on monthly releases over an 18 month period. This is one of the reasons we believe that we will see a growth in the military/aerospace market segment over the last year. The medical market is somewhat in flux and may decline slightly as customers transition to new designs.

We're looking forward to the coming year and projecting 20% revenue growth year-over-year. This will be driven by both our HSOR and Terahertz product platforms. We expect that the Optosolutions product platform would continue to grow, especially in the military/aerospace market, but at a lower rate than the other market segments.

We've already seen the positive effects of our changing business model for Optosolutions to the bottom line. We're looking forward to building on these positive effects with a growth in the existing and new HSOR products and additional VAR or value-added reseller channels for our T-Gauge product sales this year. While there may be fluctuations quarter to quarter, we continue to expect to generate positive EBITDA and positive non-GAAP profits for this year. We believe that these positive results should drive higher shareholder value.

On behalf of our team, we appreciate your continued support and I'd now like to open up this call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Dave Kang from B. Riley. Please go ahead with your question.

Dave Kang - B. Riley & Co.

The first question is regarding gross margin. Certainly a nice increase from the previous quarter. Just can you provide more color, when I saw that number I thought it was Terahertz but looks like it wasn't Terahertz, so any more color regarding the sequential increase, and where does it go from here I guess?

Jeffrey Anderson

Dave, this is Jeffrey Anderson. It's a good question. I think last quarter we had a real difficult mix. That did change around this quarter here. We had good growth in HSOR. That added some volume that was good fall-through for us, but I think the cost reduction activities that we've been talking about in Optosolutions where we're outsourcing our photodiode production really kicked in, in the quarter. It wasn't there in the last quarter, we did see it this quarter. And then we also had material cost reductions in HSOR. So remember, last quarter was impacted because we kind of had our annual contract award kind of cycle with one of our major customers. We're starting to catch up with some of those cost decreases that we had to give out on the top line by decreasing the material cost as Rob talked about.

Dave Kang - B. Riley & Co.

So you [can put] 38% without Terahertz, and I hate to ask but when Terahertz does get going, I mean can we expect like mid-40%, I mean is that something realistic or maybe at least low 40s?

Jeffrey Anderson

In the near-term we've got some consolidation activities to do yet here. So I don't think you're going to see us reach our mix this coming quarter. I think you had us at 35%, we did 38%. One thing that you didn't hear me mention also was that we did have some tailwind for the quarter because we built WIP and finished goods too, so we're not going to have a recurrence of that. And so, this next quarter I think we'll normalize, and then from there we'll see the buildup as Terahertz grows to some good numbers for the year, but I wouldn't change your total year forecast dramatically from what I've said.

Dave Kang - B. Riley & Co.

Got it, got it. And then I guess the OpEx $3.1 million, is that sort of a normalized run rate going forward?

Jeffrey Anderson

I think you've got us styled in pretty well on what we expect in the out (inaudible), you are very close to the total.

Dave Kang - B. Riley & Co.

And then Rob, on the optical side, obviously we saw nice pop there but is it more of a ZTE driven or both ALU and ZTE driven and how is the visibility for both customers? Obviously I've been hearing the U.S. market being a little bit soft whereas China seems to be very robust. So, is it more ZTE driven at this point for you guys?

Rob Risser

I would say that looking at the last quarter, it was a pretty good contribution from both. But when you look at the visibility, I'd say there tends to be a little better visibility coming out of China at the moment than domestically here. So I think we probably don't see quite as much as maybe some of the others have reported but there is a little bit of reduced visibility in the North American market, AT&T and Verizon have been preoccupied.

Dave Kang - B. Riley & Co.

Yes, got it. So if that is the case, if it's more ZTE driven rather than ALU, then what kind of margin degradation are we talking about, if any?

Rob Risser

I'd say that you get a little bit of margin degradation over there. And we sell through distribution there. If you look at what the end user pays, it's not too far off. Our sales price through distribution, we take a little bit of a haircut on that. But I would say that the Chinese market – 100-gig is still in its early phase slot. The huge lead that ALU had is they no longer have that lead. So the others are really ramping up. And so, the volumes out of China and out of the design wins we have there are pretty healthy volumes.

Dave Kang - B. Riley & Co.

And right now obviously it's really China Mobile driven but I saw an article this morning, I guess China Unicom finally seems to be spending. So it looks like the runway, at least the Chinese runway looks pretty healthy as this point.

Rob Risser

It's healthy. The Chinese runway is probably going to be well over 50% of the worldwide market this calendar year.

Dave Kang - B. Riley & Co.

Okay. And then you talked about cloud and data center, but obviously they're not using coherent, they're using CFP. So what's the receiver for that, 100-gig CFP, do you have a similar product on the receiving side?

Rob Risser

Okay, so the first participation in the enterprise data center market which is driven by cloud is coming from the Comtest piece where we've got that proprietary technology broad-wavelength receiver that can handle fiber channel which is 780 nanometers and Ethernet which is 850 nanometers all the way up to the 1,310 which is kind of the access market. So we have rolled that out, that's been an important contributor and it's continuing to gain traction for the testing of transceivers, 32-gig fiber channel and the 100-gig Ethernet market. So currently the way we participate in there is through the Comtest piece. But we have in development a 25 gigabit per second avalanche photodiode which will be important in the access market to get…

Dave Kang - B. Riley & Co.

So that will be the counterpoint, I guess that would match up with CFP or CFP2?

Rob Risser

Correct, yes.

Dave Kang - B. Riley & Co.

I see, I see.

Rob Risser

It will match them. And it really gets them, the PIN-based receivers gets you to about 10 kilometers and to O-Flys which is not very far as the fiber winds around. So after that, they need APDs and these high-speed APDs. So we don't anticipate any significant revenue out of that, that's a product development. So we don't anticipate revenue out of that this year, but that's okay because 100…

Dave Kang - B. Riley & Co.

So 2015?

Rob Risser

Market is a 2015 market anyway, yes.

Dave Kang - B. Riley & Co.

And speaking of APDs, what about 10G, is that more of a second half or is it over 2015?

Rob Risser

Yes, that's right, that's the second half.

Dave Kang - B. Riley & Co.

It's calendar, right, calendar second half or is it fiscal?

Rob Risser

It's fiscal year second half. We have 2.5-gig and 10-gig and we have traction in various different design wins there, but rolling that out, it just takes a while for design wins on both of those.

Dave Kang - B. Riley & Co.

And are those going to have a different margin profile compared to your HSOR?

Rob Risser

The chip-only sales will have a higher gross margin. The package sales will be a similar gross margin of transmission products.

Dave Kang - B. Riley & Co.

Got it.

Rob Risser

Or probably just higher volume but similar gross margin. And if you recall, I think we mentioned this on the last call, we have outsourced the assembly of that to Chinese CM. So we provide the whole building material and the design and the semiconductors and they do all the assembly for us.

Dave Kang - B. Riley & Co.

Great. Alright, that was it for me. Thank you. Good job.

Operator

Our next question comes from Gregory Hillman from First Wilshire Securities Management. Please go ahead with your question.

Gregg Hillman - First Wilshire Securities Management

Could you talk about the HSOR market? It had such a large percentage increase. Was there something abnormal for the spike up and do you think that will mitigate or continue to grow at that rate or at a faster rate for that matter?

Rob Risser

The markets are going fast but part of that comparative quarter analysis comes from the fact that we were coming off of some supply chain shortages that restricted some of our shipping at the same time last year, except first quarter last year. So the pop is – there is quite a bit of demand but the markets aren't growing at 100% a year in that coherent receivers, they're growing at more like 50% or so. So you get a little bit of a combination of that, but it is a pretty good pop on the Comtest side where the fiber channel, the 32-gig fiber channel just entered that market. So, that's coming from a zero base growth on that.

Gregg Hillman - First Wilshire Securities Management

And that's a test kind of production product, that's just a test product?

Rob Risser

That's a test product testing the production of the transceivers that go into the enterprise market.

Gregg Hillman - First Wilshire Securities Management

Okay. And your capacity, are you going to have any capacity, do you have all your ducks lined up to build capacity in HSOR that's like 2x or 3x higher than what it is right now?

Rob Risser

We started our year with a plan, we kind of snapped the top line. Our fiscal year is April 1-March 31, we snapped our top line for our planned capacity back in February and we have had to revise that planned capacity upwards by a significant percentage, and actually in the first quarter got that implemented, got partway there. So our plan was, it's almost a doubling of capacity by the second quarter compared to what we came into the fiscal year planned capacity, and we're now trying to plan what might happen beyond that. So most of this capacity, we haven't intended to have any significant CapEx expenditures for that, but there is a little bit of a lag because we have to add second shifts, which means training, and there is a lag of training. So I guess to answer your question, that's a lot of words but to answer your question, we think we'll be able to ramp up but right now we're still not quite ahead of the curve on ramping up.

Gregg Hillman - First Wilshire Securities Management

And then Jeff, in terms of your fixed and working capital requirements necessary to execute your business plan, you mentioned your 12 months out here okay, but how about two to three years out?

Jeffrey Anderson

I still think with the EBITDA, we're expecting our [indiscernible] will be fine as we get out into that two, three year range. Our need for capital has declined since we shut down the silicon photodiode production capability in-house. So our traditional CapEx as a percentage of revenue has declined now. And where we would have significant CapEx would be if we went and say we want to add a whole new HSOR line. Today we're running, say, two shifts and we maybe could go to a third shift and then we might need a whole new line at that point in time, that's when we'd add in a lump of CapEx. But for now, we've got the capacity that we need in the near term because we're running one or two shifts on pretty much everything.

Gregg Hillman - First Wilshire Securities Management

What would it take to open up a new line in terms of training costs and capital equipment cost?

Rob Risser

The capital equipment cost probably will be $0.5 million. Training costs, the real cost of training is the reduced productivity of your best production workers during their training period, and that just means that you don't get the capacity online quite as quick. That's really where the true cost is on that.

Gregg Hillman - First Wilshire Securities Management

Okay. And then finally on the T-Gauge, the adoption and you're talking about the [indiscernible] going from these contracts to more of a steady-state production. I guess what's your take on that, I mean are there any verticals you think are going to take off anytime soon for that and do you have the right team in place to train the value-added resellers all over the world in terms of what it can do?

Richard D. Kurtz

This is Rick, Gregg. I think that we've started the process with regards to our value-added resellers. We are working with them to do what we refer to as the field trials in various vertical markets where we take the equipment and provide the equipment to them, they take it in, they stood up the line, they start the line and they run it for a couple of days to collect the data that they necessarily need to demonstrate the ROI on increased quality or reduced material usage that the end user would be getting. So we've done that and we're continuing to do that.

There are other opportunities out there. We talked a little bit about the large purchaser we received from an European equipment manufacturer. We're hoping to have a major open house with them in November timeframe where they'll be doing a major introduction on multiple systems with our T-Gauge sensor on the process control. So, all these things are, again, just starting to build.

Rob Risser

And Rick, I might just add on top of that, these value-added resellers then, once they are trained and we have worked hand-in-hand with them on the first few verticals for successful installations, they have leveraged quite a bit. So there the big guys are multinational in verticals, which service world markets. So it's a growing field, sales and service force. Ss we're feeling pretty good about all of that.

Gregg Hillman - First Wilshire Securities Management

Okay. And then finally, how can I tell when fiber-to-the home or a metro-link is taking off in terms of part when you finally report sales, but what would indicate before then if it's going to actually happen and if it's going to affect you in the near term?

Rob Risser

Fiber-to-the-home, the thing that's really driving that is Asia, China, and so we're working on design wins. So you will probably see as we deploy, as it moves out of the product evaluation stage and into the deployment stage, you'll probably see press releases ahead of, so you can look through the product windshield rather than through the rear-view mirror, because if you wait until we report significant revenue, that's going to be a rear-view mirror look.

Gregg Hillman - First Wilshire Securities Management

Okay. And for the metro?

Rob Risser

To the metro side, it's 100 gig coherent, and that market there are some metro 100-gig deployments right now with the current Gen-1 types of products. And when I say Gen-1, I refer to the optical interface forum, OIF, generation receivers. The metro market will really start taking off probably in 2015 and you will see us introduce a product introduction targeted at that, which is a little bit of a reduced performance. It has less features for the metro market than the long-haul market for a100 gig coherent. So you'll see the product introduction announcement, and then you can figure six months after or something like that is when you'll start seeing some traction.

Gregg Hillman - First Wilshire Securities Management

Okay. And for the data center, do you have like a non-test product to go through the data center share, like production product that you ship all the time?

Rob Risser

We have one that used to go into the data center which was a 40 gig serial transmission, OC-768, but that is we still ship some of those but that market is on the downtick dramatically. 100 gig has been 10 times 10 gigabit per second over the last year. That's going to transition, and we don't participate in that on the transmission side, that is likely to, that will transition to 4x25 gigabits per second, and we anticipate participating in that market segment with both our PIN arrays as well as our 28 gigabit per second avalanche photodiode. Those will probably be chip sales and not packaged product sales.

Gregg Hillman - First Wilshire Securities Management

Okay, and when will that start to happen?

Rob Risser

That won't happen until next fiscal year. You won't see samples in the 25 gigabit avalanche photodiode. That won't be sampled until late in the fourth quarter of this fiscal year or early next fiscal year. You have to prove – you have a lot of reliability testing and that's still in the product development phase.

Gregg Hillman - First Wilshire Securities Management

Okay. Thanks very much, guys.

Operator

Our next question comes from [Randy Knutson] (ph) who is a private investor. Please go ahead with your question.

Unidentified Participant

Big congratulations. It was a great conference call and great results this quarter, so a big pat on the back for everyone there. I know we've gone through some roads to get here and I'm really excited about what you've told us today. So thank you. No mention today of – Rick mentioned last time on the last conference call about new product line coming out as I understood from API Canada.

Richard D. Kurtz

Yes, the TLS, tunable light source we talked a little bit about during the mid confidence call too. That's still under development. And again, I don't expect it to have any sales this calendar year, at least we're not forecasting any. But we're excited because it will open up some new market opportunities for us. So we have to go through not only the engineering development but also the market requirements documentation we'll call it, we refer to as MRD, that identifies who would be early adopters, what the price points are, how would we go about attacking those markets or getting the introduction to those markets. So that's still an ongoing development we'll say but we are excited about that and hopefully by the end of the calendar year we'll be able to talk about what the product configuration is going to look like and who the first customer may be.

Rob Risser

I'd say that's still on kind of the technology development and market development phase versus the kind of product development phase.

Unidentified Participant

But it's something brand-new and it's going to bring some new income in if it's successful and you're able to…?

Richard D. Kurtz

That's right.

Unidentified Participant

Great. HSOR, did I misunderstand or you're actually looking towards the development of a 200-gig product line?

Rob Risser

So let me explain that a little bit. So 200 gigabits per second is, in coherent technology is just, today the primary approach is just using two 100 gigabit receivers together using the same, you'd use, it's called 16-QAM modulation format. So that's really how that market would occur. Some customers may want us to put both of the receivers in one package, most would just use two receivers together, just soldered to a printed circuit board. So, that is the current state of 200-gig.

When you go to 400 gigabit per second, they might want a little higher analog speed. The speed that is used, the analog electrical speed used to deliver 100 gigabit per second is about 20 GHz per channel. So really it's a modulation technique that provides multiple bits of information per pulse and that's how you get to a 100 gigabit per second payload, which requires some sophisticated front-end optics on receivers, so the receivers are much more complicated.

But anyway, it's a long-winded way of saying that it's not a separate 200-gig development, it's more of a market adoption of 100 gig receiver technology.

Unidentified Participant

Okay, thank you for clarifying that. And then I know you can't talk specifically about Terahertz companies or companies – but are you expanding into new markets beyond the ones we've been in, in the past?

Richard D. Kurtz

I mean, again, there are some other areas where people are interested in measuring density measurements we'll say on a product that really can't be done in a direct method without using Terahertz technology. There is also, some people are interested in doing measurements of where something is in-between layers, sometimes it's referred to as balance. So there's a couple of new vertical niches that we're looking at and we'll be doing trials on some of these and hopefully be able to make some announcements in the coming quarters.

Unidentified Participant

And then I know that our T-Gauge is not used exclusively for nuclear gauge replacement, I'm correct about that?

Richard D. Kurtz

That's correct, yes. Nuclear gauges are used to measure the fitness of asphalt on roads. So it wouldn't be used for that.

Unidentified Participant

Okay, so everything beyond that particular purpose is not a nuclear gauge replacement, it is process control?

Richard D. Kurtz

That's correct. Now there is nuclear gauge process control that are measuring fluids in pipes, okay. But again, that's a volume indicator not a process control indicator. So that again would not be 100% replacement on that particular application. Again, we're focused on where they are used to control a manufacturing process.

Unidentified Participant

And then you mentioned in the F-35 contract that's still looming, you anticipate that the handheld device that I know you've shown some pictures of in the past, is going to be marketable in other situations. Did I understand that correctly?

Richard D. Kurtz

Other OEM, so you remember the F-35 is made up of an alliance of a number of countries that contribute not only money to the program but capabilities. So, you have the ability to sell to other countries that same tool for quality control and quality control checks out there. So ultimately, whether it'd be at an allied facility depot for inspection or it'd be a domestic depot inspection, we believe in there being opportunity to sell into those markets.

Unidentified Participant

And when we talk about handheld devices, that obviously brings up the anomaly detection device and is there – I know last time you didn't have any news to bring to us about any new thing with key essay but is there any movement at all there?

Richard D. Kurtz

No, there really isn't. One of the things that we thought we'd do is bring the device to the IRMMW Show to show other researchers, and maybe we can stir some interest overseas.

Unidentified Participant

Great, that's a great idea. Last thing, and this is something that you can't control but I just want to ask the question, I looked on your VAR sites and I've been not there looking for information on Terahertz all the time. I can't find where any of them even mentioned a partnership with us or a relationship to us, can't find Terahertz on their sites, and I just am kind of curious, has anyone noticed that? I mean maybe it's…

Richard D. Kurtz

Again, what we're talking about is some of the bigger guys don't have it listed on their sites, which is a little bit of a disappointment for us, but again, we're looking at, at what point do we have the critical mass within their own organization for the number of sales to really justify them to start advertising on their own sites. So that's one of the things that we're working on as we speak. Like I said, we've got some trials going on this week with a couple of people. So hopefully we'll be able to move that to get a little bit more exposure in the future here.

Unidentified Participant

Once again, great job and look forward to hearing from you the next report.

Operator

Our next question comes from [Sally Prescott] (ph) who also is a private investor. Please go ahead with your question.

Unidentified Participant

I just wanted to congratulate them on increasing the potential for the future. And I know that it's been a slow long haul, I've been a shareholder for a long time, but I'm patient because I think a lot of this is going to come to fruition. And I really am interested in the little handheld device. I think there are many uses for it that people are unaware of and I'm glad you're going to be showing it at your next presentation and I hope that something good comes from it. But I just want to say, a lot of us are going to hang in there with you and wait for things to do better in Washington after the literal frozen situation there as far as buying and everything is concerned. I think the future looks bright and I want to be there with you and thank you so much for all your efforts.

Richard D. Kurtz

Thank you, Sally.

Rob Risser

Thanks Sally.

Operator

Ladies and gentlemen, at this time I'm showing no additional questions. I'd like to turn the conference call back over for any closing remarks.

Richard D. Kurtz

I don't have anything to add other than thank you everybody for taking the time to listen to our report today. I appreciate, and for our entire team, we appreciate your continued support of our Company. We are very focused on growing our revenues and increasing both non-GAAP and EBITDA and transferring this into GAAP profits. So have a good week and thank you again.

Operator

Thank you again everyone. That does conclude today's conference call. We do appreciate your participation. You may now disconnect your telephone lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Advanced Photonix (NYSEMKT:API): FQ1 EPS of $0 beats by $0.01. Revenue of $7.7M beats by $0.2M.