Luna Innovations Incorporated Reports Fourth Quarter and Full Year 2015 Financial Results

 

Adjusted EBITDA of $0.4 million for the fourth quarter of 2015 versus $(0.2) million for the fourth quarter of 2014
Net income of $7.9 million for the fourth quarter of 2015 versus net loss of $(0.9) million for the fourth quarter of 2014

 Adjusted EBITDA of $1.0 million for the full year 2015 versus $(2.5) million for 2014
Net income of $2.3 million for the full year 2015 versus $6.0 million for 2014 

(ROANOKE, VA, March 22, 2016) – Luna Innovations Incorporated (NASDAQ: LUNA) today announced its financial results for the fourth quarter and year ended December 31, 2015.

Following the company’s merger with Advanced Photonix, Inc. (“API”) in May 2015, adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) improved to $0.4 million for the quarter ended December 31, 2015 compared to an adjusted EBITDA loss of $(0.2) million for the quarter ended December 31, 2014.  Adjusted EBITDA is reconciled to net income or loss for the respective period within the tables included in this release.  Revenues increased to $15.5 million for the three months ended December 31, 2015 compared to $6.2 million for the three months ended December 31, 2014.  After the realization of an $8.3 million gain associated with the receipt in December 2015 of the final payments earned with respect to the company’s sale of its medical shape sensing technology in 2014, the company recognized net income attributable to common stockholders of $7.9 million for the three months ended December 31, 2015, compared to a net loss attributable to common stockholders of $(0.9) million for the three months ended December 31, 2014.

“The combination of our overall growth from merging with API earlier this year plus a significantly stronger balance sheet resulting from the $9.0 million payment from Intuitive Surgical in December leaves us well-positioned for executing our growth strategy as we head into 2016,” said My Chung, president and chief executive officer.  “Our recently announced order for avalanche photodiodes demonstrates our ability to participate in the growing fiber to the premise market, which was a significant factor in our decision to merge with API last year.  We have been successful in capturing many of the operating synergies we expected to achieve following the merger, and we believe the combination of those synergies with the expected growth in our fiber optic products should lead to continued improving financial results in 2016.”

Fourth Quarter Financial Highlights

Total revenues for the three months ended December 31, 2015 were $15.5 million, compared to $6.2 million for the three months ended December 31, 2014.  Total revenues of $15.5 million included $8.8 million of revenue from the operations of API for the fourth quarter of 2015.  Product and licensing revenue grew to $11.7 million for the three months ended December 31, 2015, compared to $2.9 million for the three months ended December 31, 2014.  On a pro forma basis, this represented a 34% growth in product and licensing revenue compared to the combined revenues of Luna and API for the three months ended December 31, 2014. Technology development revenues increased to $3.7 million for the three months ended December 31, 2015 compared to $3.2 million for the three months ended December 31, 2014.

With the inclusion of API operating results in the fourth quarter of 2015, gross profit increased to $5.0 million, or 33% of total revenue, for the three months ended December 31, 2015, compared to gross profit of $2.2 million, or 36% of total revenue, for the three months ended December 31, 2014.  The decline in gross margin resulted from product mix in the fourth quarter of 2015, principally due to a larger volume of sales of integrated coherent receivers, which typically carry a lower gross margin than do sales of Luna’s historical instruments.

Selling, general and administrative expenses increased to $4.2 million for the three months ended December 31, 2015, compared to $2.7 million for the three months ended December 31, 2014.  Selling, general and administrative expenses included $0.5 million of amortization expense associated with the step-up in bases of the API assets acquired in the merger.  In addition to this amortization expense, the selling, general and administrative expenses associated with the operations of API were $1.1 million for the fourth quarter of 2015. Research, development and engineering expenses increased to $1.6 million for the three months ended December 31, 2015 compared to $0.4 million for the three months ended December 31, 2014, reflecting $1.1 million of research and development expense associated with the operations of API for the fourth quarter of 2015.

After tax, Luna recognized a loss from continuing operations of $(0.4) million for the three months ended December 31, 2015 compared to a loss from continuing operations of $(1.2) million for the three months ended December 31, 2014.

Income from discontinued operations was $8.3 million for the three months ended December 31, 2015, compared to income from discontinued operations of $0.3 million for the three months ended December 31, 2014.  Discontinued operations for the 2015 period represents the payment received in December 2015 to settle all remaining obligations associated with future technical milestone achievement and royalties related to the sale of Luna’s medical shape sensing business sold to Intuitive Surgical in January 2014.

With the income from discontinued operations, Luna recognized net income attributable to common stockholders for the three months ended December 31, 2015 of $7.9 million, compared to net loss attributable to common stockholders of $(0.9) million for the three months ended December 31, 2014.  Adjusted EBITDA improved $0.6 million, to $0.4 million for the three months ended December 31, 2015, compared to an adjusted EBITDA loss of $(0.2) million for the three months ended December 31, 2014.

Cash and cash equivalents improved to $17.5 million as of December 31, 2015, compared to $7.1 million as of September 30, 2015, and $14.1 million at December 31, 2014.  The increase in cash resulted from the $9.0 million payment from Intuitive Surgical, $1.0 million additional proceeds under Luna’s debt agreement with SVB to fund future capital expenditures, and $0.4 million positive cash flow associated with Luna’s ongoing business activities in the fourth quarter of 2015.

Full Year 2015 Financial Highlights

Total revenues were $44.0 million for the year ended December 31, 2015, compared to $21.3 million for the year ended December 31, 2014.  Revenues for 2015 included $20.6 million of revenue associated with the operations of API for the period from the closing of the merger on May 8, 2015 through December 31, 2015.  Products and licensing revenues increased to $30.4 million for the year ended December 31, 2015, compared to $9.1 million for the year ended December 31, 2014.  Technology development revenues increased to $13.6 million for the year ended December 31, 2015 compared to $12.2 million for the year ended December 31, 2014.

Gross profit for 2015 increased to $16.5 million, or 37% of total revenue, compared to gross profit of $7.8 million, or 37% of total revenue, for 2014.

Selling, general and administrative expenses increased to $18.5 million for the year ended December 31, 2015, compared to $10.3 million for the year ended December 31, 2014. The increase in selling, general and administrative expenses includes an increase of $3.5 million in transaction related expenses incurred in 2015 versus 2014, $1.1 million in amortization expense associated with the step-up in bases of the assets acquired in the merger with API, and $3.1 million in other selling, general and administrative expenses associated with the operations of API for the period from the closing of the merger on May 8, 2015 through December 31, 2015.

Research, development and engineering expenses increased to $4.3 million for the year ended December 31, 2015, compared to $2.1 million for the year ended December 31, 2014.  Research, development and engineering expenses in 2015 include $2.5 million associated with the operations of API for the period from the closing of the merger with API on May 8, 2015 through December 31, 2015.

The $3.5 million increase in transaction related expenses in 2015 compared to 2014 in addition to the $1.1 million amortization of intangible assets associated with the step-up in bases of the API assets acquired in the merger contributed to a $1.7 million increase in Luna’s operating loss for 2015 compared to 2014.  For the year ended December 31, 2015, Luna’s operating loss was $6.2 million, compared to an operating loss of $4.5 million for the year ended December 31, 2014.

Income from discontinued operations was $8.3 million for the year ended December 31, 2015, compared to $9.3 million for the year ended December 31, 2014. Income from discontinued operations in each of these years related primarily to the after-tax gain recognized in the respective year for the sale of Luna’s medical shape sensing business to Intuitive Surgical in January 2014.  Proceeds from this sale included $12.0 million paid to Luna in 2014 and an additional $9.0 million paid to us in December 2015.

Net income attributable to common stockholders was $2.2 million for the year ended December 31, 2015, compared to net income attributable to common stockholders of $5.9 million for the year ended December 31, 2014.  Adjusted EBITDA improved $3.5 million, to $1.0 million for the year ended December 31, 2015 compared to an adjusted EBITDA loss of $(2.5) million for the year ended December 31, 2014. 

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 the company believes may not be indicative of its operating performance, because either they are unusual and the company 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 p.m. (EDT) today to discuss its financial results and business developments for the fourth quarter of 2015 and the full year. The call can be accessed by dialing 855.236.2056 domestically or 267.753.2162 internationally prior to the start of the call. The participant access code is 73296021. 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) develops high speed optics and high performance fiber optic test products that provide unique capabilities for the aerospace, automotive, energy, defense, and telecommunications industries. Luna develops, manufactures and markets high definition fiber optic sensing (HD-FOS) products and fiber optic test and measurement instrumentation, and packages optoelectronic semiconductors into high-speed optical receivers (HSOR products), custom optoelectronic subsystems (Optoelectronics products) and Terahertz (THz) instrumentation.  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 the company’s expectations regarding the company’s future financial performance, the value of operating synergies following the merger with API, and the potential demand for the company’s products. 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 the company 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 the company’s products and services to meet expectations, integration or other operational issues related to the merger, technological challenges and those risks and uncertainties set forth in the company’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 the company’s website at www.lunainc.com. The statements made in this release are based on information available to the company 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 December 31,

 

Years ended December 31,

 

2015

 

2014

 

2015

 

2014

 

(unaudited)

 

 

 

(unaudited)

 

 

Revenues:

 

 

 

 

 

 

 

Technology development revenues

$

3,717,820

 

 

$

3,243,980

 

 

$

13,599,048

 

 

$

12,205,889

 

Products and licensing revenues

11,732,459

 

 

2,945,302

 

 

30,421,310

 

 

9,054,101

 

Total revenues

15,450,279

 

 

6,189,282

 

 

44,020,358

 

 

21,259,990

 

Cost of revenues:

 

 

 

 

 

 

 

Technology development costs

3,159,858

 

 

2,583,424

 

 

10,378,616

 

 

9,376,485

 

Products and licensing costs

7,254,523

 

 

1,392,580

 

 

17,141,079

 

 

4,046,885

 

Total cost of revenues

10,414,381

 

 

3,976,004

 

 

27,519,695

 

 

13,423,370

 

Gross profit

5,035,898

 

 

2,213,278

 

 

16,500,663

 

 

7,836,620

 

Operating expense:

 

 

 

 

 

 

 

Selling, general and administrative

4,209,480

 

 

2,702,335

 

 

18,481,270

 

 

10,253,847

 

Research, development, and engineering

1,641,783

 

 

380,684

 

 

4,268,988

 

 

2,087,874

 

Total operating expense

5,851,263

 

 

3,083,019

 

 

22,750,258

 

 

12,341,721

 

Operating loss

(815,365

)

 

(869,741

)

 

(6,249,595

)

 

(4,505,101

)

Other (expense)/income:

 

 

 

 

 

 

 

Other income, net

(4,769

)

 

21

 

 

(9,967

)

 

111,452

 

Interest expense, net

(83,882

)

 

(15,287

)

 

(220,403

)

 

(96,229

)

Total other (expense)/ income, net

(88,651

)

 

(15,266

)

 

(230,370

)

 

15,223

 

Loss from continuing operations before income taxes

(904,016

)

 

(885,007

)

 

(6,479,965

)

 

(4,489,878

)

Income tax (benefit)/expense

(489,709

)

 

282,654

 

 

(470,605

)

 

(1,137,228

)

Loss from continuing operations

(414,307

)

 

(1,167,661

)

 

(6,009,360

)

 

(3,352,650

)

Operating loss from discontinued operations, net of $0.0 million of related income taxes in each period

 

 

(6,364

)

 

 

 

(34,491

)

Gain on sale, net of $0.7 million, $(0.3) million, $0.7 million, and $1.3 million of related income taxes

8,328,790

 

 

288,680

 

 

8,326,386

 

 

9,381,948

 

Income from discontinued operations, net of income taxes

8,328,790

 

 

282,316

 

 

8,326,386

 

 

9,347,457

 

Net income/(loss)

7,914,483

 

 

(885,345

)

 

2,317,026

 

 

5,994,807

 

Preferred stock dividend

21,012

 

 

28,567

 

 

85,830

 

 

112,197

 

Net income/(loss) attributable to common stockholders

$

7,893,471

 

 

$

(913,912

)

 

$

2,231,196

 

 

$

5,882,610

 

Net loss per share from continuing operations:

 

 

 

 

 

 

 

Basic and diluted

$

(0.02

)

 

$

(0.08

)

 

$

(0.26

)

 

$

(0.23

)

Net income per share from discontinued operations:

 

 

 

 

 

 

 

Basic and diluted

$

0.30

 

 

$

0.02

 

 

$

0.36

 

 

$

0.63

 

Net income/(loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

Basic and diluted

$

0.29

 

 

$

(0.06

)

 

$

0.10

 

 

$

0.40

 

Weighted average shares:

 

 

 

 

 

 

 

Basic and diluted

27,464,993

 

 

14,485,882

 

 

23,026,494

 

 

14,880,697

 

 

 

Luna Innovations Incorporated
Consolidated Balance Sheets

 

December 31, 2015

 

December 31, 2014

 

(unaudited)

 

 

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

17,464,040

 

 

$

14,116,969

 

Accounts receivable, net

11,034,557

 

 

5,689,615

 

Inventory, net

8,863,167

 

 

3,364,233

 

Prepaid expenses

1,388,439

 

 

715,302

 

Total current assets

38,750,203

 

 

23,886,119

 

Property and equipment, net

6,614,238

 

 

3,497,057

 

Intangible assets, net

10,404,312

 

 

199,277

 

Goodwill

2,274,112

 

 

 

Other assets

88,948

 

 

1,995

 

Total assets

$

58,131,813

 

 

$

27,584,448

 

Liabilities and stockholders’ equity

 

 

 

Current Liabilities:

 

 

 

Current portion of long term debt obligation

1,833,333

 

 

625,000

 

Current portion of capital lease obligation

31,459

 

 

70,725

 

Accounts payable

4,054,425

 

 

1,447,177

 

Accrued liabilities

8,302,809

 

 

5,468,849

 

Deferred revenue

1,109,759

 

 

861,081

 

Total current liabilities

15,331,785

 

 

8,472,832

 

Long-term deferred rent

1,564,229

 

 

1,570,377

 

Long-term debt obligation

4,291,667

 

 

 

Long-term capital lease obligation

35,237

 

 

39,582

 

Total liabilities

21,222,918

 

 

10,082,791

 

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

Preferred stock, par value $0.001, 1,321,514 shares authorized, issued and outstanding at December 31, 2015 and 2014

1,322

 

 

1,322

 

Common stock, par value $0.001, 100,000,000 shares authorized, 27,644,833 and 15,110,924 shares issued, 27,477,181 and 15,088,199 shares outstanding at December 31, 2015 and 2014, respectively

28,178

 

 

15,541

 

Treasury stock at cost, 167,652 shares at December 31, 2015 and 22,725 shares at December 31, 2014

(184,934

)

 

(32,221

)

Additional paid-in capital

81,461,907

 

 

64,147,666

 

Accumulated deficit

(44,397,578

)

 

(46,630,651

)

Total stockholders’ equity

36,908,895

 

 

17,501,657

 

Total liabilities and stockholders’ equity

$

58,131,813

 

 

$

27,584,448

 

 

 

Luna Innovations Incorporated
Consolidated Statements of Cash Flows

 

 

 

Years ended December 31,

 

 

2015

 

2014

 

 

(unaudited)

 

 

Cash flows used in operating activities:

 

 

 

 

Net income

 

$

2,317,026

 

 

$

5,994,807

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

Depreciation and amortization

 

2,457,032

 

 

607,693

 

Stock-based compensation

 

1,124,379

 

 

1,019,445

 

Gain on sale of discontinued operations, net of income taxes

 

(8,326,386

)

 

(9,381,948

)

Allowance for doubtful accounts or bad debt expense

 

10,375

 

 

 

Tax benefit from utilization of loss from current year operations

 

(510,772

)

 

(1,148,941

)

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

(2,040,323

)

 

(281,334

)

Inventory

 

(252,934

)

 

(56,421

)

Other assets

 

(131,411

)

 

50,696

 

Accounts payable and accrued expenses

 

16,429

 

 

311,627

 

Deferred credits

 

248,678

 

 

169,657

 

Net cash used in operating activities

 

(5,087,907

)

 

(2,714,719

)

Cash flows provided by investing activities:

 

 

 

 

Acquisition of property and equipment

 

(710,348

)

 

(255,242

)

Intangible property costs

 

(367,050

)

 

(252,083

)

Cash acquired in business combination

 

374,517

 

 

 

Proceeds from sale of discontinued operations, net

 

8,997,595

 

 

10,927,268

 

Net cash provided by investing activities

 

8,294,714

 

 

10,419,943

 

Cash flows provided by/(used in) financing activities:

 

 

 

 

Payments on debt obligations

 

(6,712,355

)

 

(1,500,000

)

Payments on capital lease obligation

 

(77,184

)

 

(66,617

)

Purchase of treasury stock

 

(152,713

)

 

(32,221

)

Borrowings under term loans

 

7,000,000

 

 

 

Proceeds from the exercise of options and warrants

 

82,516

 

 

232,042

 

Net cash provided by/(used in) financing activities

 

140,264

 

 

(1,366,796

)

Net change in cash and cash equivalents

 

3,347,071

 

 

6,338,428

 

Cash and cash equivalents—beginning of period

 

14,116,969

 

 

7,778,541

 

Cash and cash equivalents—end of period

 

$

17,464,040

 

 

$

14,116,969

 

Supplemental disclosure of cash flow information

 

 

 

 

Cash paid for interest

 

$

187,017

 

 

$

87,354

 

Dividend on preferred stock, 79,292 shares of common stock issuable for each of the years ended December 31, 2015 and 2014, respectively

 

85,830

 

 

112,197

 

Cash paid for income taxes

 

$

40,167

 

 

$

150,000

 

 

 

Luna Innovations Incorporated
Reconciliation of Net Income/(Loss) to EBITDA and Adjusted EBITDA

 

Three months ended
 December 31,

 

Year ended
December 31,

 

2015

 

2014

 

2015

 

2014

 

(unaudited)

 

(unaudited)

Net income/(loss)

$

7,914,483

 

 

$

(885,345

)

 

$

2,317,026

 

 

$

5,994,807

 

Less income from discontinued operations, net of income taxes

8,328,790

 

 

282,316

 

 

8,326,386

 

 

9,347,457

 

Net loss from continuing operations

(414,307

)

 

(1,167,661

)

 

(6,009,360

)

 

(3,352,650

)

Interest expense

83,882

 

 

15,287

 

 

220,403

 

 

96,229

 

Tax benefit

(489,709

)

 

282,654

 

 

(470,605

)

 

(1,137,228

)

Depreciation and amortization

908,224

 

 

127,792

 

 

2,457,032

 

 

607,693

 

EBITDA

88,090

 

 

(741,928

)

 

(3,802,530

)

 

(3,785,956

)

Share-based compensation

277,714

 

 

450,861

 

 

1,124,379

 

 

1,019,445

 

Transaction costs

54,840

 

 

125,489

 

 

3,704,019

 

 

242,762

 

Adjusted EBITDA

$

420,644

 

 

$

(165,578

)

 

$

1,025,868

 

 

$

(2,523,749

)

 

###
Investor Contact:
Dale Messick, CFO
Luna Innovations Incorporated
Phone: 1.540.769.8400
Email: IR@lunainc.com