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Luna Innovations Incorporated Reports Third Quarter and First Nine Months of 2017 Financial Results

Net income from continuing operations improved to $0.5 million for the three months ended September 30, 2017 compared to a net loss from continuing operations of $(0.4) million for the three months ended September 30, 2016. Cash and cash equivalents were $38.5 million at September 30, 2017.

ROANOKE, Va.--(BUSINESS WIRE)--Nov. 13, 2017-- Luna Innovations Incorporated (NASDAQ: LUNA) today announced its financial results for the three and nine months ended September 30, 2017.

For the three months ended September 30, 2017, Luna reported net income of $15.8 million compared to a net loss of $(0.4) million for the three months ended September 30, 2016. Net income for the 2017 period included an after-tax gain of $15.1 million recognized on the sale of Luna's high speed optical receivers ("HSOR") business in August 2017. Net income from continuing operations improved by $0.9 million, to $0.5 million, or $0.02 per share, for the three months ended September 30, 2017, compared to a net loss from continuing operations of $(0.4) million, or $(0.01) per share, for the three months ended September 30, 2016. Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") was $0.9 million for the three months ended September 30, 2017 compared to $0.3 million for the three months ended September 30, 2016. A reconciliation of net income/(loss) to adjusted EBITDA can be found in the schedules included in this release.

“We are extremely pleased with our third quarter financial results," said Scott Graeff, president and chief executive officer of Luna. "The combination of positive income from our continuing operations for the quarter and the significant liquidity provided by the sale of the HSOR business provides a solid foundation for Luna to continue to drive its fiber optic test & measurement initiative. I am excited to be taking on the leadership of the company at this time of high growth potential within our strategic initiative, supported by a highly dedicated group of talented employees and a strong balance sheet."

Third Quarter Financial Summary

Total revenues for the three months ended September 30, 2017, were $11.6 million compared to $11.2 million for the three months ended September 30, 2016. Technology development revenues increased 11% to $4.6 million for the three months ended September 30, 2017, compared to $4.1 million for the three months ended September 30, 2016. Products and licensing revenues remained substantially unchanged at $7.1 million for the three months ended September 30, 2017 and 2016. The increase in the technology development revenues for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 was realized primarily in Luna's intelligent systems research group.

Gross profit was $4.5 million, or 39% of revenues, for the three months ended September 30, 2017, compared to gross profit of $4.4 million, or 39% of revenues, for the three months ended September 30, 2016.

Selling, general and administrative expenses were $3.3 million for the three months ended September 30, 2017, compared to $3.8 million for the three months ended September 30, 2016. The decrease in selling, general and administrative expense was largely driven by a $0.2 million decrease in bad debt expense and a $0.2 million decrease in sales and marketing expenses resulting from lower headcount in the three months ended September 30, 2017.

Research, development and engineering expenses remained substantially unchanged at $0.8 million for the three months ended September 30, 2017 and 2016.

Net income from continuing operations improved to $0.5 million for the three months ended September 30, 2017, compared to a net loss from continuing operations of $(0.4) million for the three months ended September 30, 2016. Net income from discontinued operations was $15.2 million for the three months ended September 30, 2017, compared to a net loss from discontinued operations of $(0.1) million for the three months ended September 30, 2016. Net income from discontinued operations for the three months ended September 30, 2017, included the recognition of the after tax gain on the sale of the HSOR business of $15.1 million in addition to after tax income of $0.1 million associated with the operations of the HSOR business prior to its sale. Net loss from discontinued operations for the three months ended September 30, 2016, reflect the after tax results of operations of the HSOR business during the period.

Net income attributable to common stockholders for the three months ended September 30, 2017 was $15.7 million, compared to a net loss attributable to common stockholders of $(0.5) million for the three months ended September 30, 2016. Adjusted EBITDA was $0.9 million for the three months ended September 30, 2017, compared to $0.3 million for the three months ended September 30, 2016.

Year to Date Financial Summary

Total revenues for the nine months ended September 30, 2017, were $33.0 million, compared to $30.1 million for the nine months ended September 30, 2016. Technology development revenues increased 14% to $13.4 million for the nine months ended September 30, 2017, compared to $11.8 million for the nine months ended September 30, 2016. The increase in technology development revenues was primarily as a result of increased sales in Luna's intelligent systems, nanomaterials, and biomedical technologies groups. Products and licensing revenues were $19.6 million for the nine months ended September 30, 2017, compared to $18.3 million for the nine months ended September 30, 2016. The increase in Products and Licensing segment revenues was primarily driven by an increase in Luna's sales of optical backscatter reflectometer instruments and optoelectronic components.

Gross profit increased to $12.8 million, or 39% of revenues for the nine months ended September 30, 2017, compared to $11.1 million, or 37% of revenues, for the nine months ended September 30, 2016.

Selling, general and administrative expenses decreased to $10.3 million for the nine months ended September 30, 2017, compared to $11.3 million for the nine months ended September 30, 2016. The decrease in selling, general and administrative expenses year to date was primarily related to a $0.2 million decrease in bad debt expense, a $0.2 million decrease in share based compensation expense, and a $0.4 million decrease in sales and marketing costs.

Research, development and engineering expenses decreased to $2.6 million for the nine months ended September 30, 2017, compared to $2.8 million for the nine months ended September 30, 2016. The decrease was due to lower engineering costs in internal research for Luna's Terahertz product as more engineering time was spent on externally funded research activities and, accordingly, included in Luna's technology development cost of revenues.

Net loss from continuing operations improved to $(0.3) million for the nine months ended September 30, 2017, compared to $(3.0) million for the nine months ended September 30, 2016. Net income from discontinued operations was $14.5 million for the nine months ended September 30, 2017, compared to $0.3 million for the nine months ended September 30, 2016. Net income from discontinued operations for the nine months ended September 30, 2017, included an after tax gain of $15.1 million recognized on the sale of the HSOR business offset by an after tax loss of $(0.6) million related to the operations of the HSOR business prior to its sale. Net income from discontinued operations for the nine months ended September 30, 2016, included the after tax income related to the operations of the HSOR business during the period.

Net income/(loss) attributable to common stockholders improved to a net income of $14.1 million for the nine months ended September 30, 2017, compared to a net loss of $(2.8) million for the nine months ended September 30, 2016. Adjusted EBITDA increased to $1.2 million for the nine months ended September 30, 2017, compared to $(1.2) million for the nine months ended September 30, 2016.

Non-GAAP 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 generally accepted accounting principles (“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 (EST) today to discuss its financial results for the three and nine months ended September 30, 2017, and recent business developments. 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 2469766. 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 speed optoelectronics and high performance fiber optic test products for the telecommunications industry and distributed fiber optic 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 high growth potential within Luna's strategic initiative. 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, technological challenges and those risks and uncertainties set forth in Luna’s periodic reports and other 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 Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
(unaudited) (unaudited)
Revenues:
Technology development $ 4,590,054 $ 4,118,245 $ 13,428,428 $ 11,772,731
Products and licensing 7,052,094   7,066,908   19,593,648   18,301,631  
Total revenues 11,642,148   11,185,153   33,022,076   30,074,362  
Cost of revenues:
Technology development 3,491,840 3,068,360 10,045,261 8,986,312
Products and licensing 3,617,547   3,758,765   10,201,459   9,954,987  
Total cost of revenues 7,109,387   6,827,125   20,246,720   18,941,299  
Gross profit 4,532,761   4,358,028   12,775,356   11,133,063  
Operating expense:
Selling, general and administrative 3,256,074 3,816,679 10,345,964 11,296,389
Research, development and engineering 833,811   812,050   2,581,473   2,789,801  
Total operating expense 4,089,885   4,628,729   12,927,437   14,086,190  
Operating income/(loss) 442,876   (270,701 ) (152,081 ) (2,953,127 )
Other income (expense):
Other expense (3,389 ) (231 ) (4,258 ) (1,904 )
Interest expense (55,099 ) (71,991 ) (179,860 ) (237,081 )
Total other expense (58,488 ) (72,222 ) (184,118 ) (238,985 )
Income/(loss) from continuing operations before income taxes 384,388 (342,923 ) (336,199 ) (3,192,112 )
Income tax (benefit)/expense (130,977 ) 44,797   (63,350 ) (173,801 )
Net income/(loss) from continuing operations 515,365 (387,720 ) (272,849 ) (3,018,311 )
Gain on sale, net of $1,508,373 of related income taxes 15,096,666 15,096,666

Income/(loss) from discontinued operations, net of income tax (benefit)/expense of $(349,515), $(35,095), $(349,515), and $209,678.

145,293   (57,358 ) (644,241 ) 342,685  
Net income/(loss) from discontinued operations 15,241,959   (57,358 ) 14,452,425   342,685  
Net income/(loss) 15,757,324 (445,078 ) 14,179,576 (2,675,626 )
Preferred stock dividend 33,699   28,941   97,331   74,731  
Net income/(loss) attributable to common stockholders $ 15,723,625   $ (474,019 ) $ 14,082,245   $ (2,750,357 )
Net income/(loss) per share from continuing operations:
Basic $ 0.02   $ (0.01 ) $ (0.01 ) $ (0.11 )
Diluted $ 0.02   $ (0.01 ) $ (0.01 ) $ (0.11 )
Net income/(loss) per share from discontinued operations:
Basic $ 0.55   $ 0.00   $ 0.52   $ 0.01  
Diluted $ 0.47   $ 0.00   $ 0.52   $ 0.01  
Net income/(loss) per share attributable to common stockholders:
Basic $ 0.57   $ (0.02 ) $ 0.51   $ (0.10 )
Diluted $ 0.48   $ (0.02 ) $ 0.51   $ (0.10 )
Weighted average common shares and common equivalent shares outstanding:
Basic 27,692,539 27,605,028 27,611,905 27,531,730
Diluted 32,714,389 27,605,028 27,611,905 27,531,730
 
 
Luna Innovations Incorporated
Consolidated Balance Sheets
   

September 30,
2017

December 31,
2016

(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 38,514,437 $ 12,802,458
Accounts receivable, net 8,940,405 10,269,012
Inventory 7,300,035 6,848,835
Prepaid expenses and other current assets 924,196 1,375,659
Current assets held for sale   5,801,629  
Total current assets 55,679,073 37,097,593
Property and equipment, net 3,145,769 3,482,687
Intangible assets, net 3,264,285 3,367,217
Goodwill 502,000 502,000
Long term receivable- sale of HSOR business 4,000,000
Other assets 18,024 38,194
Non-current assets held for sale   10,509,282  
Total assets $ 66,609,151   $ 54,996,973  
Liabilities and stockholders’ equity
Liabilities:
Current liabilities:
Current portion of long-term debt obligations $ 1,833,333 $ 1,833,333
Current portion of capital lease obligations 49,070 52,128
Accounts payable 2,188,776 2,954,742
Accrued liabilities 9,586,554 7,913,544
Deferred revenue 897,023 837,906
Current liabilities held for sale   2,376,703  
Total current liabilities 14,554,756 15,968,356
Long-term deferred rent 1,221,170 1,319,402
Long-term debt obligations 1,057,263 2,420,032
Long-term capital lease obligations 79,246 114,940
Non-current liabilities held for sale   84,555  
Total liabilities 16,912,435   19,907,285  
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.001, 1,321,514 shares authorized, issued and outstanding at September 30, 2017 and December 31, 2016 1,322 1,322
Common stock, par value $0.001, 100,000,000 shares authorized, 28,402,887 and 27,988,104 shares issued, 27,815,060 and 27,541,277 shares outstanding at September 30, 2017 and December 31, 2016 29,074 28,600
Treasury stock at cost, 587,827 and 446,827 shares at September 30, 2017 and December 31, 2016 (746,007 ) (517,987 )
Additional paid-in capital 83,204,263 82,451,958
Accumulated deficit (32,791,936 ) (46,874,205 )
Total stockholders’ equity 49,696,716   35,089,688  
Total liabilities and stockholders’ equity $ 66,609,151   $ 54,996,973  
 
 
Luna Innovations Incorporated
Consolidated Statements of Cash Flows
 
Nine Months Ended September 30,
2017   2016
(unaudited)
Cash flows provided by/(used in) operating activities
Net income/(loss) $ 14,179,576 $ (2,675,626 )
Adjustments to reconcile net income/(loss) to net cash used in operating activities
Depreciation and amortization 2,241,867 2,759,877
Share-based compensation 476,428 665,354
Bad debt expense 40,753 255,522
Loss on disposal of fixed assets 3,640
Gain on sale of discontinued operations (15,096,666 )
Change in assets and liabilities
Accounts receivable 2,127,794 (1,197,885 )
Inventory (2,251,236 ) 964,443
Other current assets 380,858 (381,632 )
Accounts payable and accrued expenses (1,581,608 ) (1,055,060 )
Deferred revenue 59,980   (120,871 )
Net cash provided by/(used in) operating activities 581,386   (785,878 )
Cash flows provided by/(used in) investing activities
Acquisition of property and equipment (893,698 ) (1,433,260 )
Intangible property costs (392,485 ) (317,287 )
Proceeds from sale of property and equipment 3,000
Proceeds from sales of discontinued operations 28,026,528    
Net cash provided by/(used in) investing activities 26,743,345   (1,750,547 )
Cash flows provided by/(used in) financing activities
Payments on capital lease obligations (38,752 ) (44,404 )
Payments of debt obligations (1,375,000 ) (1,375,000 )
Repurchase of common stock (228,020 ) (325,060 )
Proceeds from the exercise of options 29,020    
Net cash used in financing activities (1,612,752 ) (1,744,464 )
Net decrease in cash or cash equivalents 25,711,979 (4,280,889 )
Cash and cash equivalents-beginning of period 12,802,458   17,464,040  
Cash and cash equivalents-end of period $ 38,514,437   $ 13,183,151  
 
 
Luna Innovations Incorporated
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA
     
Three Months Ended Nine Months Ended
September 30,   September 30,
2017   2016   2017   2016
(unaudited) (unaudited)
Net income/(loss) $ 15,757,324 $ (445,078 ) $ 14,179,576 $ (2,675,626 )
Less income/(loss) from discontinued operations, net of income taxes 15,241,959   (57,358 ) 14,452,425   342,685  
Net income/(loss) from continuing operations 515,365 (387,720 ) (272,849 ) (3,018,311 )
Interest expense 55,099 71,991 179,860 237,081
Tax (benefit)/expense (130,977 ) 44,797 (63,350 ) (173,801 )
Depreciation and amortization 279,147   327,235   929,615   1,089,240  
EBITDA 718,634 56,303 773,276 (1,865,791 )
Share-based compensation 154,671   200,326   476,428   665,354  
Adjusted EBITDA $ 873,305   $ 256,629   $ 1,249,704   $ (1,200,437 )
 

Source: Luna Innovations Incorporated

Investor Contact:
Luna Innovations Incorporated
Dale Messick, CFO, 1-540-769-8400
IR@lunainc.com