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Luna Innovations Reports Strong First-Quarter 2019 Results

Highlights

  • Total revenues of $14.8 million for the three months ended March 31, 2019, up 69% compared to the three months ended March 31, 2018
  • Products and licensing revenues of $8.2 million for the three months ended March 31, 2019, up 98% compared to the three months ended March 31, 2018
  • Net income was $1.1 million, or $0.03 per fully diluted share, for the three months ended March 31, 2019, compared to $0.1 million, or $0.00 per fully diluted share, for the three months ended March 31, 2018
  • Adjusted EBITDA improved to $1.0 million for the three months ended March 31, 2019, compared to a loss of $(0.1) million for the three months ended March 31, 2018
  • Reaffirms 2019 outlook

ROANOKE, Va.--(BUSINESS WIRE)--May 8, 2019-- Luna Innovations Incorporated (NASDAQ: LUNA), a global leader in advanced optical technology, today announced its financial results for the three months ended March 31, 2019.

“I continue to be proud of the Luna team and how we’ve driven performance and delivered such a strong first quarter,” said Scott Graeff, President and Chief Executive Officer of Luna. “We continue to build on the momentum we gained in 2018. The Luna team, through all levels of this organization, demonstrated leadership and delivered outstanding customer service, all while closing sales and filling the pipeline. Integration of the Micron Optics and General Photonics acquisitions is going smoothly. It is clear that we acquired excellent talent, strong capabilities and assets that are both strategic and synergistic. In addition, performance in Adjusted EBITDA is a good demonstration of the accretion delivered by our recent acquisitions. Overall, this is a great start to our fiscal 2019.”

First-quarter Fiscal 2019 Financial Summary

Financial results for the three months ended March 31, 2019 reflect strong momentum entering the fiscal year. These results include a full quarter of the business of Micron Optics, Inc. ("MOI"), acquired in October 2018, and one month of the operations of General Photonics ("GP"), acquired on March 1, 2019. Revenue and expenses related to the Company's optoelectronics business, which was divested in July 2018, are classified as discontinued operations in the Company's results of operations for the three months ended March 31, 2018:

   
Three Months Ended March 31,
2019   2018 Change
Revenues:
Technology development $ 6,640,743 $ 4,636,776 43.2 %
Products and licensing $ 8,192,375   $ 4,131,754   98.3 %
Total revenues $ 14,833,118 $ 8,768,530 69.2 %
 
Gross profit $ 6,767,634 $ 3,839,626 76.3 %
Gross margin 45.6 % 43.8 % 180 bps
 
Operating expense $ 7,665,211 $ 4,213,082 81.9 %
Operating loss $ (897,577 ) $ (373,456 ) 140.3 %
 
Net income $ 1,125,879   $ 148,676   $1.0M
 
Adjusted EBITDA $ 958,810   $ (52,339 ) $1.0M
 

A reconciliation of Adjusted EBITDA to net income can be found in the schedules included in this release.

Products and licensing revenue for the three months ended March 31, 2019, increased compared to the prior year period due partially to the inclusion of incremental revenues from the acquisitions of both MOI in October 2018 and GP at the beginning of March 2019. In addition, products and licensing revenue benefited from continued growth in sales of Luna's fiber optic-based sensing products, including its ODiSI products. Technology development revenues increased for the three months ended March 31, 2019, compared to the prior-year period due to growth in various government research programs surrounding applications of optical sensing and advanced materials and Luna's success in winning related research contracts.

The increase in operating expenses was due primarily to $0.9 million in transaction-related costs associated with the acquisition of GP and $1.8 million of expenses associated with the operations of MOI and GP. Neither of these acquisitions were present in the first quarter of 2018.

Pre-tax loss from continuing operations increased to $(0.7) million for the three months ended March 31, 2019, compared to $(0.3) million for the prior year fiscal quarter due primarily to transaction-related expenses associated with the acquisition of GP.

Income tax benefit for the three months ended March 31, 2019, was due to a one-time non-cash benefit resulting from a reduction in the valuation allowance associated with the company's net deferred tax asset following the acquisition of GP.

Net income attributable to common stockholders for the three months ended March 31, 2019, was $1.0 million, or $0.03 per fully diluted share, compared to net income attributable to common stockholders of $0.1 million, or $0.00 per fully diluted share, for the three months ended March 31, 2018. The increase in net income attributable to common stockholders was driven by improved overall performance and included the $1.9 million income tax benefit from the release of valuation allowance, partially offset by $0.9 million of transaction-related costs associated with the acquisition of GP. Net income attributable to common stockholders for the three months ended March 31, 2019, also included $0.5 million of non-cash expenses for share-based compensation and amortization of intangible assets associated with the acquisitions of MOI and GP.

Adjusted EBITDA was $1.0 million for the three months ended March 31, 2019, compared to $(0.1) million for the three months ended March 31, 2018.

2019 Full-year Outlook:

Luna reaffirms:

  • Total revenues in the range of $60 million to $65 million for full fiscal 2019; and
  • Adjusted EBITDA in the range of $6.0 million to $6.5 million for full fiscal 2019.

Luna is not providing an outlook for net income, which is the most directly comparable generally accepted accounting principles ("GAAP") measure to Adjusted EBITDA, because changes in the items that Luna excludes from net income to calculate Adjusted EBITDA, such as share-based compensation, amortization of acquired intangible assets, tax expense, and significant non-recurring charges, among other things, can be dependent on future events that are less capable of being controlled or reliably predicted by management and are not part of Luna's routine operating activities.

The outlook above does not include any future acquisitions, divestitures, or unanticipated events.

Non-GAAP Financial Measures

In evaluating the operating performance of its business, Luna’s management considers Adjusted EBITDA, which excludes certain charges and credits that are required by GAAP. Adjusted EBITDA provides useful information to both management and investors by excluding the effect of certain non-cash expenses and items that Luna believes may not be indicative of its operating performance, because either they are unusual and Luna does not expect them to recur in the ordinary course of its business, or they are unrelated to the ongoing operation of the business in the ordinary course. Adjusted EBITDA should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. Adjusted EBITDA has been reconciled to the nearest GAAP measure in the table following the financial statements attached to this press release.

Conference Call Information

As previously announced, Luna will conduct an investor conference call at 5:00 pm (ET) today to discuss its financial results for the three months ended March 31, 2019. The call can be accessed by dialing 844.578.9643 domestically or 270.823.1522 internationally prior to the start of the call. The participant access code is 5299635. Investors are advised to dial in at least five minutes prior to the call to register. The conference call will also be webcast live over the Internet. The webcast can be accessed by logging on to the “Investor Relations” section of the Luna website, www.lunainc.com, prior to the event. The webcast will be archived under the “Webcasts and Presentations” section of the Luna website for at least 30 days following the conference call.

About Luna

Luna Innovations Incorporated (www.lunainc.com) is a leader in optical technology, providing unique capabilities in high-performance, fiber optic-based, test products for the telecommunications industry and distributed fiber optic-based sensing for the aerospace and automotive industries. Luna is organized into two business segments, which work closely together to turn ideas into products: a Technology Development segment and a Products and Licensing segment. Luna’s business model is designed to accelerate the process of bringing new and innovative technologies to market.

Forward-Looking Statements

The statements in this release that are not historical facts constitute “forward-looking statements” made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These statements include Luna's expectations regarding the integration of its recent acquisitions of MOI and GP, its projected 2019 financial results, and its business focus. Management cautions the reader that these forward-looking statements are only predictions and are subject to a number of both known and unknown risks and uncertainties, and actual results, performance, and/or achievements of Luna may differ materially from the future results, performance, and/or achievements expressed or implied by these forward-looking statements as a result of a number of factors. These factors include, without limitation, failure of demand for Luna's products and services to meet expectations, failure of target market to grow and expand, technological and strategic challenges and those risks and uncertainties set forth in Luna’s Form 10-K for the year ended December 31, 2018, and Luna's other periodic reports and filings with the Securities and Exchange Commission ("SEC"). Such filings are available on the SEC’s website at www.sec.gov and on Luna’s website at www.lunainc.com. The statements made in this release are based on information available to Luna as of the date of this release and Luna undertakes no obligation to update any of the forward-looking statements after the date of this release.

 
Luna Innovations Incorporated
Consolidated Statements of Operations
 
Three Months Ended March 31,
2019   2018
(unaudited)
Revenues:
Technology development $ 6,640,743 $ 4,636,776
Products and licensing 8,192,375   4,131,754  
Total revenues 14,833,118   8,768,530  
Cost of revenues:
Technology development 4,816,146 3,353,501
Products and licensing 3,249,338   1,575,403  
Total cost of revenues 8,065,484   4,928,904  
Gross profit 6,767,634   3,839,626  
Operating expense:
Selling, general and administrative 6,207,318 3,333,490
Research, development and engineering 1,457,893   879,592  
Total operating expense 7,665,211   4,213,082  
Operating loss (897,577 ) (373,456 )
Other income/(expense):
Investment income 171,225 75,912
Other expense (1,729 ) (10,854 )
Interest expense (11,187 ) (40,647 )
Total other income 158,309   24,411  
Loss from continuing operations before income taxes (739,268 ) (349,045 )
Income tax benefit (1,865,147 ) (76,967 )
Net income/(loss) from continuing operations 1,125,879   (272,078 )
Income from discontinued operations, net of income tax of $0 and $78,363   420,754  
Net income from discontinued operations   420,754  
Net income 1,125,879 148,676
Preferred stock dividend 83,058   64,425  
Net income attributable to common stockholders $ 1,042,821   $ 84,251  
Net income/(loss) per share from continuing operations:
Basic $ 0.04   $ (0.01 )
Diluted $ 0.03   $ (0.01 )
Net income per share from discontinued operations:
Basic $   $ 0.02  
Diluted $   $ 0.02  
Net income per share attributable to common stockholders:
Basic $ 0.04   $  
Diluted $ 0.03   $  
Weighted average common shares and common equivalent shares outstanding:
Basic 28,039,080   27,204,989  
Diluted 33,479,935   27,204,989  
 
 
Luna Innovations Incorporated
Consolidated Balance Sheets
   

March 31,
2019

December 31,
2018

(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 24,580,006 $ 42,460,267
Accounts receivable, net 13,505,444 13,037,068
Receivable from sale of HSOR business 2,500,375 2,500,000
Contract assets 2,829,186 2,422,495
Inventory 9,996,054 6,873,742
Prepaid expenses and other current assets 1,087,416   935,185  
Total current assets 54,498,481 68,228,757
Long-term contract assets 359,166 336,820
Property and equipment, net 3,845,748 3,627,886
Intangible assets, net 11,309,181 3,302,270
Goodwill 10,345,249 101,008
Other assets 3,205,983   1,995  
Total assets $ 83,563,808   $ 75,598,736  
Liabilities and stockholders’ equity
Liabilities:
Current liabilities:
Current portion of long-term debt obligations $ 247,726 $ 619,315
Current portion of capital lease obligations 40,586
Accounts payable 4,945,927 2,395,984
Accrued liabilities 8,599,225 6,597,458
Contract liabilities 2,792,119   2,486,111  
Total current liabilities 16,584,997 12,139,454
Long-term deferred rent 1,035,974
Other long-term liabilities 2,970,879
Long-term capital lease obligations   68,978  
Total liabilities 19,555,876   13,244,406  
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.001, 1,321,514 shares authorized, issued and outstanding at March 31, 2019 and December 31, 2018 1,322 1,322
Common stock, par value $0.001, 100,000,000 shares authorized, 29,398,818 and 29,209,506 shares issued, 28,145,713 and 27,956,401 shares outstanding at March 31, 2019 and December 31, 2018, respectively 30,329 30,120
Treasury stock at cost, 1,253,105 shares at March 31, 2019 and December 31, 2018 (2,116,640 ) (2,116,640 )
Additional paid-in capital 86,355,322 85,744,750
Accumulated deficit (20,262,401 ) (21,305,222 )
Total stockholders’ equity 64,007,932   62,354,330  
Total liabilities and stockholders’ equity $ 83,563,808   $ 75,598,736  
 
 
Luna Innovations Incorporated
Consolidated Statements of Cash Flows
 
Three Months Ended March 31,
2019   2018
(unaudited)
Cash flows provided by/(used in) operating activities
Net income $ 1,125,879 $ 148,676
Adjustments to reconcile net income to net cash provided by/(used in) operating activities
Depreciation and amortization 617,309 307,852
Share-based compensation 342,765 94,606
Deferred taxes (1,889,266 )
Change in assets and liabilities
Accounts receivable 1,052,571 (229,535 )
Contract assets (429,037 ) 221,386
Inventory (527,849 ) (110,095 )
Other current assets (41,549 ) 133,293
Accounts payable and accrued expenses 1,196,425 (1,456,154 )
Contract liabilities 149,435   (1,650,363 )

Net cash provided by/(used in) operating activities

1,596,683   (2,540,334 )
Cash flows used in investing activities
Acquisition of property and equipment (215,251 ) (129,720 )
Intangible property costs (60,639 ) (113,108 )
Acquisition of General Photonics Corporation (19,004,250 )  
Net cash used in investing activities (19,280,140 ) (242,828 )
Cash flows used in financing activities
Payments on finance lease obligations (6,763 ) (13,611 )
Payments of debt obligations (375,000 ) (458,333 )
Repurchase of common stock (306,041 )
Proceeds from the exercise of options and warrants 184,959   22,288  
Net cash used in financing activities (196,804 ) (755,697 )
Net decrease in cash and cash equivalents (17,880,261 ) (3,538,859 )
Cash and cash equivalents-beginning of period 42,460,267   36,981,533  
Cash and cash equivalents-end of period $ 24,580,006   $ 33,442,674  
 
 
Luna Innovations Incorporated
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
 
Three Months Ended March 31,
2019   2018
(unaudited)
Net income $ 1,125,879 $ 148,676
Less income from discontinued operations, net of income tax   420,754  
Net income/(loss) from continuing operations 1,125,879 (272,078 )
Interest expense 11,187 40,647
Investment income (171,225 ) (75,912 )
Tax benefit (1,865,147 ) (76,967 )
Depreciation and amortization 617,309   237,365  
EBITDA (281,997 ) (146,945 )
Share-based compensation 342,765 94,606
Non-recurring charges (1) 898,042    
Adjusted EBITDA $ 958,810   $ (52,339 )
 
(1) Non-recurring charges consist of transaction-related expenses incurred during the quarter ended March 31, 2019, related to the acquisition of General Photonics.
 

Source: Luna Innovations Incorporated

Investor Contacts:
Jane Bomba
Luna Innovations Incorporated
Phone: 303-829-1211
Email: [email protected]

Sally J. Curley
Luna Innovations Incorporated
614-530-3002
[email protected]