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, November 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
 September 30,

 

Nine Months Ended
 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
 September 30,

 

 

Nine Months Ended
 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

)

 

###

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