Luna Innovations Incorporated Reports Second Quarter 2016 Financial Results

 

Revenues grew $4.6 million for the second quarter of 2016 above the $10.0 million reported for second quarter of 2015.  Net loss also improved by $1.4 million during the second quarter of 2016 compared to the second quarter of 2015.

(ROANOKE, VA, August 9, 2016) – Luna Innovations Incorporated (NASDAQ: LUNA) today announced its financial results for the three and six months ended June 30, 2016.

Following Luna’s merger with Advanced Photonix, Inc. (“API”) in May 2015, for the three months ended June 30, 2016, revenues increased by $4.6 million, net loss improved by $1.4 million, and adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) decreased by $0.1 million, compared to the three months ended June 30, 2015.  A reconciliation of net loss to Adjusted EBITDA can be found in the schedules included in this release.

“We are pleased with the inter-divisional interactions and financial results from the API merger.  This quarter we had strong growth in the sales of our high speed optical receivers and our distributed fiber optic sensing test systems,” said My Chung, president and chief executive officer of Luna. “The second quarter continued to deliver strong demand for our 100G optical receivers for the long haul data transmission market, 2.5G avalanche photodiodes for the fiber to the premise market and increasing adoption of our ODiSI systems for the measurement of strain in composite materials. We continue to believe that our focus on these strategic initiatives will provide significant growth opportunities for us, providing enhanced value to our customers and to our stockholders.”

Second Quarter Financial Summary

Total revenues for the three months ended June 30, 2016, were $14.6 million compared $10.0 million for the three months ended June 30, 2015.  This reflects an 18% increase over the combined revenues of $12.4 million for Luna and API for the second quarter of 2015.  Product and licensing revenues grew to $10.5 million for the three months ended June 30, 2016, compared to $6.3 million for the three months ended June 30, 2015.  Products and licensing revenues grew 22% compared to the combined products and licensing revenues of $8.6 million for Luna and API combined for the second quarter of 2015.  Technology development revenues were $4.1 million for the three months ended June 30, 2016, compared to $3.7 million for the three months ended June 30, 2015.  Technology development revenues grew 5% compared to the combined technology development revenues of $3.9 million for Luna and API for the three months ended June 30, 2015.

Gross profit increased to $5.2 million, or 35% of total revenues, for the three months ended June 30, 2016, compared to gross profit of $4.2 million, or 42% of total revenues, for the three months ended June 30, 2015.  The decrease in the gross margin percentage in the second quarter of 2016 resulted from a greater proportion of revenues being generated from the sales of high speed optical receiver (“HSOR”) products, which typically have a lower gross margin percentage than the test & measurement products of Luna’s historical business.

Selling, general and administrative expenses were $4.6 million for the three months ended June 30, 2016, compared to $5.5 million for the three months ended June 30, 2015. Selling, general and administrative expenses for the three months ended June 30, 2016 included $0.5 million of amortization of intangible assets recognized from the merger with API.  Selling, general and administrative expenses for the three months ended June 30, 2015 included $1.7 million in non-recurring merger-related expenses.

Research, development and engineering expenses increased to $1.2 million for the second quarter of 2016 compared to $0.8 million for the second quarter of 2015.  The operations of API were not included in our research, development and engineering expenses prior to the closing of our merger on May 8, 2015, resulting in this increase in research development and engineering expense.

Operating loss improved to $(0.7) million for the three months ended June 30, 2016, compared to an operating loss of $(2.1) million for the three months ended June 30, 2015.  Net loss attributable to common stockholders improved to $(0.8) million for the three months ended June 30, 2016, compared to a net loss attributable to common stockholders of $(2.2) million for the three months ended June 30, 2015.  Adjusted EBITDA decreased to $0.4 million for the three months ended June 30, 2016 compared to $0.6 million for the three months ended June 30, 2015.

Year to Date Financial Summary

For the six months ended June 30, 2016, total revenues were $28.6 million compared to $15.4 million for the six months ended June 30, 2015.  Total revenues of $28.6 million for the six months ended June 30, 2016 reflect an increase of 18% compared to total combined revenues of $24.2 million for Luna and API for the six months ended June 30, 2015.

Gross profit increased to $10.0 million, or 35% of total revenues, for the six months ended June 30, 2016 compared to $6.5 million, or 42% of total revenues, for the first six months of 2015.  The decline in the gross margin percentage is attributable to a greater proportion of revenues being generated from the sales of HSOR products, which typically carry a lower gross margin than the test & measurement products of Luna’s historical business.

Selling, general and administrative expenses decreased to $9.2 million for the six months ended June 30, 2016 compared to $10.1 million for the six months ended June 30, 2015.  Selling, general and administrative expenses for the first six months of 2015 included $3.6 million of non-recurring merger-related expenses.  Research, development and engineering expenses were $2.8 million for the six months ended June 30, 2016 compared to $1.1 million for the first six months of 2015.  The operations of API were not included in our research, development, and engineering expenses prior to the closing of our merger on May 8, 2015, resulting in this increase in research, development and engineering expense.

Net loss attributable to common stockholders was $(2.3) million for the six months ended June 30, 2016 compared to net income attributable to common stockholders of $(4.8) million for the six months ended June 30, 2015. Adjusted EBITDA improved to $0.3 million for the six months ended June 30, 2016 compared to $0.2 million for the six months ended June 30, 2015.

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, including expenses incurred in connection with Luna’s merger with API. 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 for the three and six months ended June 30, 2016 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 60786823. 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 products and fiber optic test and measurement instrumentation, and packages optoelectronic semiconductors into 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 Luna’s expectations regarding Luna’s future financial performance, continuing synergies following the merger with API, and potential growth opportunities. 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, integration or other operational issues related to the merger, 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
 June 30,

 

Six Months Ended
 June 30,

 

2016

 

2015

 

2016

 

2015

 

(unaudited)

 

(unaudited)

Revenues:

 

 

 

 

 

 

 

Technology development

$

4,137,382

 

 

$

3,728,271

 

 

$

7,860,644

 

 

$

6,603,786

 

Products and licensing

10,509,522

 

 

6,297,475

 

 

20,773,273

 

 

8,761,062

 

Total revenues

14,646,904

 

 

10,025,746

 

 

28,633,917

 

 

15,364,848

 

Cost of revenues:

 

 

 

 

 

 

 

Technology development

3,181,447

 

 

2,576,145

 

 

6,061,282

 

 

4,659,769

 

Products and licensing

6,294,607

 

 

3,252,627

 

 

12,558,180

 

 

4,219,317

 

Total cost of revenues

9,476,054

 

 

5,828,772

 

 

18,619,462

 

 

8,879,086

 

Gross profit

5,170,850

 

 

4,196,974

 

 

10,014,455

 

 

6,485,762

 

Operating expense:

 

 

 

 

 

 

 

Selling, general and administrative

4,581,776

 

 

5,518,656

 

 

9,227,060

 

 

10,087,609

 

Research, development and engineering

1,240,655

 

 

801,221

 

 

2,791,146

 

 

1,136,111

 

Total operating expense

5,822,431

 

 

6,319,877

 

 

12,018,206

 

 

11,223,720

 

Operating loss

(651,581

)

 

(2,122,903

)

 

(2,003,751

)

 

(4,737,958

)

Other income (expense):

 

 

 

 

 

 

 

Other (expense) income, net

(39,489

)

 

4,264

 

 

(35,545

)

 

4,109

 

Interest expense

(78,906

)

 

(49,966

)

 

(165,079

)

 

(59,103

)

Total other expense

(118,395

)

 

(45,702

)

 

(200,624

)

 

(54,994

)

Loss before income taxes

(769,976

)

 

(2,168,605

)

 

(2,204,375

)

 

(4,792,952

)

Income tax expense

1,000

 

 

 

 

26,175

 

 

2,808

 

Net loss

(770,976

)

 

(2,168,605

)

 

(2,230,550

)

 

(4,795,760

)

Preferred stock dividend

24,580

 

 

20,021

 

 

45,790

 

 

46,581

 

Net loss attributable to common stockholders

$

(795,556

)

 

$

(2,188,626

)

 

$

(2,276,340

)

 

$

(4,842,341

)

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

Basic and diluted

$

(0.03

)

 

$

(0.10

)

 

$

(0.08

)

 

$

(0.26

)

Weighted average common shares and common equivalent shares outstanding:

 

 

 

 

 

 

 

Basic and diluted

27,557,960

 

 

21,997,768

 

 

27,517,792

 

 

18,577,006

 

 

Luna Innovations Incorporated
Consolidated Balance Sheets

 

 

June 30, 2016

 

December 31, 2015

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

13,807,799

 

 

$

17,464,040

 

 

Accounts receivable, net

11,151,791

 

 

11,034,557

 

 

Inventory

8,389,095

 

 

8,863,167

 

 

Prepaid expenses and other current assets

1,694,810

 

 

1,388,439

 

 

Total current assets

35,043,495

 

 

38,750,203

 

 

Property and equipment, net

7,362,464

 

 

6,614,238

 

 

Intangible assets, net

9,490,702

 

 

10,404,312

 

 

Goodwill

2,348,331

 

 

2,274,112

 

 

Other assets

88,948

 

 

88,948

 

 

Total assets

$

54,333,940

 

 

$

58,131,813

 

 

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

50,335

 

 

31,459

 

 

Accounts payable

3,889,383

 

 

4,054,425

 

 

Accrued liabilities

7,524,569

 

 

8,304,686

 

 

Deferred revenue

1,027,929

 

 

1,109,759

 

 

Total current liabilities

14,325,549

 

 

15,333,662

 

 

Long-term deferred rent

1,481,824

 

 

1,564,229

 

 

Long-term debt obligations

3,375,000

 

 

4,291,667

 

 

Long-term capital lease obligations

141,457

 

 

35,237

 

 

Total liabilities

19,323,830

 

 

21,224,795

 

 

Commitments and contingencies

 

 

 

 

Stockholders’ equity:

 

 

 

 

Preferred stock, par value $0.001, 1,321,514 shares authorized, issued and outstanding at June 30, 2016 and December 31, 2015

1,322

 

 

1,322

 

 

Common stock, par value $0.001, 100,000,000 shares authorized, 27,988,103 and 27,644,832 shares issued, 27,692,776 and 27,477,181 shares outstanding at June 30, 2016 and December 31, 2015

28,241

 

 

28,178

 

 

Treasury stock at cost, 300,327 and 167,652 shares at June 30, 2016 and December 31, 2015

(341,320

)

 

(184,934

)

 

Additional paid-in capital

81,997,662

 

 

81,461,907

 

 

Accumulated deficit

(46,675,795

)

 

(44,399,455

)

 

Total stockholders’ equity

35,010,110

 

 

36,907,018

 

 

Total liabilities and stockholders’ equity

$

54,333,940

 

 

$

58,131,813

 

 

 

 

Luna Innovations Incorporated
Consolidated Statements of Cash Flows

 

 

Six Months Ended June 30,

 

2016

 

2015

 

(unaudited)

Cash flows used in operating activities

 

 

 

Net loss

$

(2,230,550

)

 

$

(4,795,760

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

Depreciation and amortization

1,861,603

 

 

824,251

 

Share-based compensation

465,028

 

 

571,439

 

Bad debt expense

50,515

 

 

10,375

 

Change in assets and liabilities

 

 

 

Accounts receivable

(167,749

)

 

(335,811

)

Inventory

474,072

 

 

(1,345,687

)

Other current assets

(306,371

)

 

(358,794

)

Accounts payable and accrued expenses

(1,076,784

)

 

(1,271,686

)

Deferred revenue

(81,830

)

 

(154,189

)

Net cash used in operating activities

(1,012,066

)

 

(6,855,862

)

Cash flows (used in) provided by investing activities

 

 

 

Acquisition of property and equipment

(1,294,775

)

 

(50,175

)

Intangible property costs

(244,198

)

 

(123,578

)

Cash acquired in business combination

 

 

374,517

 

Net cash (used in) provided by investing activities

(1,538,973

)

 

200,764

 

Cash flows (used in) provided by financing activities

 

 

 

Payments on capital lease obligations

(32,149

)

 

(36,406

)

Payments of debt obligations

(916,667

)

 

(5,962,355

)

Repurchase of common stock

(156,386

)

 

(33,113

)

Proceeds from term loan

 

 

6,000,000

 

Proceeds from the exercise of options

 

 

82,516

 

Net cash (used in) provided by financing activities

(1,105,202

)

 

50,642

 

Net decrease in cash or cash equivalents

(3,656,241

)

 

(6,604,456

)

Cash and cash equivalents-beginning of period

17,464,040

 

 

14,116,969

 

Cash and cash equivalents-end of period

$

13,807,799

 

 

$

7,512,513

 

 

 

Luna Innovations Incorporated
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA

 

 

Three Months Ended
 June 30,

 

Six Months Ended
 June 30,

 

 

2016

 

2015

 

2016

 

2015

 

 

(unaudited)

 

(unaudited)

 

Net loss

$

(770,976

)

 

$

(2,168,605

)

 

$

(2,230,550

)

 

$

(4,795,760

)

 

Interest expense

78,906

 

 

49,966

 

 

165,079

 

 

59,103

 

 

Tax expense

1,000

 

 

 

 

26,175

 

 

2,808

 

 

Depreciation and amortization

921,804

 

 

659,170

 

 

1,861,603

 

 

824,251

 

 

EBITDA

230,734

 

 

(1,459,469

)

 

(177,693

)

 

(3,909,598

)

 

Share-based compensation

206,225

 

 

300,362

 

 

465,028

 

 

571,439

 

 

Non-recurring merger-related charges

 

 

1,740,286

 

 

 

 

3,541,502

 

 

Adjusted EBITDA

$

436,959

 

 

$

581,179

 

 

$

287,335

 

 

$

203,343

 

 

###

Investor Contact:
Dale Messick, CFO
Luna Innovations Incorporated
Phone: 1.540.769.8400
Email: [email protected]