Luna Innovations Incorporated Reports Second Quarter and First Half of 2017 Financial Results

Net loss improved to $(0.2) million for the three months ended June 30, 2017 compared to $(0.8) million for the three months ended June 30, 2016.  Adjusted EBITDA improved to $0.8 million for the three months ended June 30, 2017 compared to $0.4 million for the three months ended June 30, 2016.

(ROANOKE, VA, August 10, 2017) – Luna Innovations Incorporated (NASDAQ: LUNA) today announced its financial results for the three and six months ended June 30, 2017.

For the three months ended June 30, 2017, Luna reported revenues of $13.6 million and a net loss of $(0.2) million compared to revenues of $14.6 million and a net loss of $(0.8) million for the three months ended June 30, 2016. Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) was $0.8 million for the three months ended June 30, 2017 compared to $0.4 million for the three months ended June 30, 2016.  A reconciliation of net loss to Adjusted EBITDA can be found in the schedules included in this release.

“The second quarter saw a significant rebound in sales of our test & measurement instruments,” said My Chung, president and chief executive officer of Luna. “Product sales in our Luna Technologies brand in the second quarter increased 22% year over year and 62% sequentially, substantially offsetting the financial impact of continued softness in the China market for optical receivers.  With the higher margins provided by growth in our test & measurement product sales and continued focus on expense control, we improved our net loss by $0.5 million year over year.  The recently announced sale of our high speed optical receiver business provides the opportunity for a more dedicated focus on growing the higher margin instrument business.”

Second Quarter Financial Summary

Total revenues for the three months ended June 30, 2017 were $13.6 million compared to $14.6 million for the three months ended June 30, 2016.  Technology development revenues increased 12% to $4.6 million for the three months ended June 30, 2017, compared to $4.1 million for the three months ended June 30, 2016.  Products and licensing revenues were $9.0 million for the three months ended June 30, 2017, compared to $10.5 million for the three months ended June 30, 2016. The decrease in Products and licensing revenues was primarily driven by lower sales of Luna’s 100G integrated coherent receivers in China.

Gross profit was $5.1 million, or 37% of revenues, for the three months ended June 30, 2017, compared to gross profit of $5.2 million, or 35% of revenues, for the three months ended June 30, 2016.   The increase in gross margin in the second quarter of 2017 resulted from increased sales of test & measurement products, which typically have higher average margins than Luna’s other products and services.

Selling, general and administrative expenses were $3.9 million for the three months ended June 30, 2017, compared to $4.6 million for the three months ended June 30, 2016.  The decrease in selling, general and administrative expense was due to a $0.2 million decrease in incentive compensation, a $0.1 million reduction in share-based compensation expense, a $0.2 million reduction in sales-related expenses, and a $0.1 million reduction in amortization expense.

Research, development and engineering expenses increased slightly to $1.3 million for the three months ended June 30, 2017 compared to $1.2 million for the three months ended June 30, 2016.

Operating loss improved to $(0.1) million for the three months ended June 30, 2017, compared to an operating loss of $(0.7) million for the three months ended June 30, 2016.  Net loss attributable to common stockholders improved to $(0.3) million for the three months ended June 30, 2017, compared to a net loss attributable to common stockholders of $(0.8) million for the three months ended June 30, 2016.  Adjusted EBITDA was $0.8 million for the three months ended June 30, 2017 compared to $0.4 million for the three months ended June 30, 2016.

 Year to Date Financial Summary

Total revenues for the six months ended June 30, 2017, were $26.7 million, compared to $28.6 million for the six months ended June 30, 2016.  Technology development revenues increased 13% to $8.9 million for the six months ended June 30, 2017, compared to $7.9 million for the six months ended June 30, 2016.  Products and licensing revenues were $17.8 million for the six months ended June 30, 2017, compared to $20.8 million for the six months ended June 30, 2016.  Revenues from sales of test & measurement instruments increased 16%, partially offsetting lower revenues from high speed optical receiver products in China.

Gross profit decreased to $9.8 million, or 37%, of revenues for the six months ended June 30, 2017, compared to $10.0 million, or 35% of revenues, for the six months ended June 30, 2016.

Selling, general and administrative expenses decreased to $8.4 million for the six months ended June 30, 2017, compared to $9.2 million for the six months ended June 30, 2016.  The decrease in selling, general and administrative expenses resulted primarily from lower selling related expenses due to lower revenues in the products and licensing segment in addition to lower share based compensation expense.

Research, development and engineering expenses were substantially unchanged at $2.7 million for the six months ended June 30, 2017 and $2.8 million for the six months ended June 30, 2016.

Operating loss improved to $(1.4) million for the six months ended June 30, 2017, compared to $(2.0) million for the six months ended June 30, 2016. Net loss attributable to common stockholders improved to $(1.6) million for the six months ended June 30, 2017, compared to $(2.3) million for the six months ended June 30, 2016.  Adjusted EBITDA increased to $0.7 million for the six months ended June 30, 2017, compared to $0.3 million for the six months ended June 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 11:30 a.m. (EDT) today to discuss its financial results for the three and six months ended June 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 56973945. 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 potential benefits of Luna’s sale of its high speed optical receiver business. 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
 June 30,

 

 

Six Months Ended
 June 30,

 

 

2017

 

2016

 

 

2017

 

2016

 

 

(unaudited)

 

 

(unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

Technology development

$

4,625,175

 

 

$

4,137,382

 

 

 

$

8,901,624

 

 

$

7,860,644

 

 

Products and licensing

8,951,296

 

 

10,509,522

 

 

 

17,793,232

 

 

20,773,273

 

 

Total revenues

13,576,471

 

 

14,646,904

 

 

 

26,694,856

 

 

28,633,917

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

Technology development

3,439,118

 

 

3,181,447

 

 

 

6,661,474

 

 

6,061,282

 

 

Products and licensing

5,056,449

 

 

6,294,607

 

 

 

10,277,225

 

 

12,558,180

 

 

Total cost of revenues

8,495,567

 

 

9,476,054

 

 

 

16,938,699

 

 

18,619,462

 

 

Gross profit

5,080,904

 

 

5,170,850

 

 

 

9,756,157

 

 

10,014,455

 

 

Operating expense:

 

 

 

 

 

 

 

 

 

Selling, general and administrative

3,936,207

 

 

4,581,776

 

 

 

8,431,911

 

 

9,227,060

 

 

Research, development and engineering

1,263,911

 

 

1,240,655

 

 

 

2,708,738

 

 

2,791,146

 

 

Total operating expense

5,200,118

 

 

5,822,431

 

 

 

11,140,649

 

 

12,018,206

 

 

Operating loss

(119,214

)

 

(651,581

)

 

 

(1,384,492

)

 

(2,003,751

)

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Other expense

(1,225

)

 

(39,489

)

 

 

(869

)

 

(35,545

)

 

Interest expense

(60,386

)

 

(78,906

)

 

 

(124,760

)

 

(165,079

)

 

Total other expense

(61,611

)

 

(118,395

)

 

 

(125,629

)

 

(200,624

)

 

Loss before income taxes

(180,825

)

 

(769,976

)

 

 

(1,510,121

)

 

(2,204,375

)

 

Income tax expense

40,937

 

 

1,000

 

 

 

67,627

 

 

26,175

 

 

Net loss

(221,762

)

 

(770,976

)

 

 

(1,577,748

)

 

(2,230,550

)

 

Preferred stock dividend

29,536

 

 

24,580

 

 

 

63,632

 

 

45,790

 

 

Net loss attributable to common stockholders

$

(251,298

)

 

$

(795,556

)

 

 

$

(1,641,380

)

 

$

(2,276,340

)

 

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic and diluted

$

(0.01

)

 

$

(0.03

)

 

 

$

(0.06

)

 

$

(0.08

)

 

Weighted average common shares and common equivalent shares outstanding:

 

 

 

 

 

 

 

 

 

Basic and diluted

27,600,147

 

 

27,557,960

 

 

 

27,570,919

 

 

27,517,792

 

 

 

Luna Innovations Incorporated
Consolidated Balance Sheets

 

 

June 30, 2017

 

December 31, 2016

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

10,291,255

 

 

$

12,802,458

 

 

Accounts receivable, net

13,150,291

 

 

14,297,725

 

 

Inventory

9,540,754

 

 

8,370,235

 

 

Prepaid expenses and other current assets

1,266,090

 

 

1,627,175

 

 

Total current assets

34,248,390

 

 

37,097,593

 

 

Property and equipment, net

6,882,576

 

 

6,780,838

 

 

Intangible assets, net

8,003,009

 

 

8,681,263

 

 

Goodwill

2,348,331

 

 

2,348,331

 

 

Other assets

68,778

 

 

88,948

 

 

Total assets

$

51,551,084

 

 

$

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

52,404

 

 

52,128

 

 

Accounts payable

3,958,144

 

 

4,466,192

 

 

Accrued liabilities

8,131,316

 

 

8,667,100

 

 

Deferred revenue

946,146

 

 

949,603

 

 

Total current liabilities

14,921,343

 

 

15,968,356

 

 

Long-term deferred rent

1,337,893

 

 

1,403,957

 

 

Long-term debt obligations

1,511,520

 

 

2,420,032

 

 

Long-term capital lease obligations

89,054

 

 

114,940

 

 

Total liabilities

17,859,810

 

 

19,907,285

 

 

Commitments and contingencies

 

 

 

 

Stockholders’ equity:

 

 

 

 

Preferred stock, par value $0.001, 1,321,514 shares authorized, issued and outstanding at June 30, 2017 and December 31, 2016

1,322

 

 

1,322

 

 

Common stock, par value $0.001, 100,000,000 shares authorized, 28,226,436 and 27,988,104 shares issued, 27,688,710 and 27,541,277 shares outstanding at June 30, 2017 and December 31, 2016

28,878

 

 

28,600

 

 

Treasury stock at cost, 537,727 and 446,827 shares at June 30, 2017 and December 31, 2016

(661,253

)

 

(517,987

)

 

Additional paid-in capital

82,837,888

 

 

82,451,958

 

 

Accumulated deficit

(48,515,561

)

 

(46,874,205

)

 

Total stockholders’ equity

33,691,274

 

 

35,089,688

 

 

Total liabilities and stockholders’ equity

$

51,551,084

 

 

$

54,996,973

 

 

 

 

Luna Innovations Incorporated
Consolidated Statements of Cash Flows

 

 

Six Months Ended June 30,

 

2017

 

2016

 

(unaudited)

Cash flows provided by/(used in) operating activities

 

 

 

Net loss

$

(1,577,748

)

 

$

(2,230,550

)

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

 

 

 

Depreciation and amortization

1,753,748

 

 

1,861,603

 

Share-based compensation

321,756

 

 

465,028

 

Bad debt expense

40,753

 

 

50,515

 

Gain on disposal of fixed assets

(670

)

 

 

Change in assets and liabilities

 

 

 

Accounts receivable

1,106,681

 

 

(167,749

)

Inventory

(1,170,519

)

 

474,072

 

Other current assets

325,005

 

 

(306,371

)

Accounts payable and accrued expenses

(1,109,870

)

 

(1,076,784

)

Deferred revenue

(3,457

)

 

(81,830

)

Net cash used in operating activities

(314,321

)

 

(1,012,066

)

Cash flows provided by/(used in) investing activities

 

 

 

Acquisition of property and equipment

(796,217

)

 

(1,294,775

)

Intangible property costs

(318,942

)

 

(244,198

)

Proceeds from sale of property and equipment

3,000

 

 

 

Net cash used in investing activities

(1,112,159

)

 

(1,538,973

)

Cash flows provided by/(used in) financing activities

 

 

 

Payments on capital lease obligations

(25,611

)

 

(32,149

)

Payments of debt obligations

(916,666

)

 

(916,667

)

Repurchase of common stock

(143,266

)

 

(156,386

)

Proceeds from the exercise of options

820

 

 

 

Net cash used in financing activities

(1,084,723

)

 

(1,105,202

)

Net decrease in cash or cash equivalents

(2,511,203

)

 

(3,656,241

)

Cash and cash equivalents-beginning of period

12,802,458

 

 

17,464,040

 

Cash and cash equivalents-end of period

$

10,291,255

 

 

$

13,807,799

 

 

 

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

 

 

Three Months Ended
 June 30,

 

 

Six Months Ended
 June 30,

 

 

2017

 

2016

 

 

2017

 

2016

 

 

(unaudited)

 

 

(unaudited)

 

Net loss

$

(221,762

)

 

$

(770,976

)

 

 

$

(1,577,748

)

 

$

(2,230,550

)

 

Interest expense

60,386

 

 

78,906

 

 

 

124,760

 

 

165,079

 

 

Tax expense

40,937

 

 

1,000

 

 

 

67,627

 

 

26,175

 

 

Depreciation and amortization

792,983

 

 

921,802

 

 

 

1,753,748

 

 

1,861,603

 

 

EBITDA

672,544

 

 

230,732

 

 

 

368,387

 

 

(177,693

)

 

Share-based compensation

151,672

 

 

206,225

 

 

 

321,756

 

 

465,028

 

 

Adjusted EBITDA

$

824,216

 

 

$

436,957

 

 

 

$

690,143

 

 

$

287,335

 

 

###

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