Luna Innovations Reports Fourth Quarter 2009 and Full Year Financial Results

Company Achieves 15% Overall Revenue Growth for the Fourth Quarter; Quarterly Product and License Revenue Grows 128%; Quarterly Adjusted EBITDA Excluding Litigation Improves To $1.0 million

ROANOKE, Va., Mar 04, 2010 — Luna Innovations Incorporated (NASDAQ: LUNA), a company focusing on sensing, instrumentation and nanotechnology, today announced its financial results for the fourth quarter and year ended December 31, 2009.

As compared to the same quarter last year, fourth quarter 2009 revenues grew by 15%, from $7.4 million to $8.5 million, while gross profit increased from $2.3 million to $3.2 million. The company also reported net income for the quarter of $24.9 million, largely due to changes in costs accrued with respect to litigation reserves due to the settlement of litigation with Hansen Medical. Excluding the impact of that one-time benefit, the company would have reported a net loss of $1.7 million for the fourth quarter of 2009 compared to a net loss of $2.2 million for the fourth quarter of 2008. Adjusted EBITDA, excluding litigation and reorganization related costs, improved from break-even in the fourth quarter of 2008 to positive $1.0 million in the fourth quarter of 2009, the upper end of the range previously announced by the company.

For the full year, revenues declined by 6%, from $36.9 million in 2008 to $34.6 million in 2009. Net loss increased from $6.3 million in 2008 to $20.4 million in 2009 due to the costs, including impairment of intangible assets, recognized in connection with the company’s litigation with Hansen Medical and reorganization during 2009. Adjusted EBITDA excluding litigation and bankruptcy related costs improved from $0.3 million in 2008 to $2.3 million in 2009.

Kent Murphy, Chief Executive Officer, provided this overview of Luna’s results: “I am very pleased with the enhancements we continue to make in our financial results as well as our progress in operations. We have started to see some recovery in our product and license business segment which, coupled with our operating expense reductions, has resulted in a significant improvement over the fourth quarter of last year. With the Hansen litigation and Chapter 11 proceedings behind us, we look forward to focusing all of our resources and attention on activities that bring long term value to our shareholders.”

Fourth Quarter Financial Highlights

— Total revenues for the fourth quarter of 2009 increased 15% compared to the fourth quarter of 2008.

— Product and license revenues grew 128% to approximately $3.1 million in the fourth quarter of 2009, compared to $1.4 million in the fourth quarter of 2008. Technology Development revenues decreased to $5.5 million, or 10%, compared to $6.0 million for the fourth quarter of 2008.

— Gross profit for the fourth quarter of 2009 increased to $3.2 million, or 37% of total revenues, from $2.3 million, or 31% of total revenues, for the corresponding period of 2008.

— Selling, general and administrative expenses decreased 16% to $3.3 million, or 39% of total revenues, from $4.0 million, or 54% of total revenues in the fourth quarter of 2008.

— Total operating expenses excluding litigation and reorganization costs decreased to $3.4 million, or 40% of total revenues, from $4.0 million, or 54% of total revenues in the fourth quarter of 2008.

— Adjusted EBITDA excluding litigation and bankruptcy related items increased to $1.0 million in the fourth quarter of 2009 from break-even in the fourth quarter of 2008.

— Net income improved to positive $24.9 million for the fourth quarter of 2009 compared to a net loss of $2.2 million for the fourth quarter of 2008, primarily driven by reductions in amounts accrued with respect to the Hansen litigation.

— Cash and cash equivalents totaled $5.23 million at December 31, 2009, as compared to $15.52 million at December 31, 2008.

Fourth Quarter Business Highlights

— Reached settlement with Hansen Medical resolving outstanding litigation and providing for emergence from Chapter 11 in January 2010.

— Acquired the intellectual property assets of Tego Biosciences, the company’s main competitor in the field of nanomedicine, expanding Luna’s intellectual property portfolio and reinforcing the company’s competitive advantage in this emerging technology area.

— Received orders in the fourth quarter of 2009 for approximately $2.4 million in test & measurement products compared to $1.4 million in orders received in the same quarter in 2008, representing a total increase in orders received of 71% in the fourth quarter of 2009 versus the same quarter of 2008.

2009 Full Year Financial Highlights

— Revenues declined approximately 6% from $36.9 million in 2008 to $34.6 million in 2009.

— Operating expenses increased from $21.3 million in 2008 to $32.1 million in 2009. Excluding costs recognized as a result of litigation and bankruptcy related items, operating expenses decreased from approximately $19.1 million in 2008 to $15.5 million in 2009.

— Adjusted EBITDA excluding litigation improved from positive $0.3 million in 2008 to $2.3 million in 2009.

— Net loss increased to $20.4 million for 2009 compared to a net loss of $6.3 million for 2008, primarily resulting from the costs associated with litigation, settlement, impairment of intangible assets, and reorganization costs in 2009.

Comparison to Previously Disclosed Fourth Quarter 2009 Estimated Range

Technology development revenues of $5.5 million were within our previously estimated range of $5.2 million to $5.6 million.

Product and license revenues of $3.1 million were within our previously estimated range of $2.9 million to $3.1 million.

Gross margin of $3.2 million was within our previously estimated range of $3.0 million to $3.2 million.

Net income of $24.9 million was above our previously estimated range of $23.5 million to $24.0 million due primarily to the impact of a lower price per share of Luna common stock issued to Hansen Medical as part of the litigation settlement, as described in footnote (1) of our January 11, 2010 earnings release.

Adjusted EBITDA excluding litigation and reorganization of $1.0 million was within our previously estimated range of $0.5 million to $1.0 million.

Outlook 2010

For 2010, the company anticipates continued growth in both its product and license segment and its technology development business segment. The company currently expects total revenue for 2010 to be in the range of $35.5 million to $38 million, consisting of product and license revenue of $9.5 million to $11 million and technology development revenue of $26.0 million to $27.0 million. Also for 2010, the company anticipates a net loss in the range of $2.8 million to $3.5 million with positive adjusted EBITDA of $2.4 million to $3.9 million. For the first quarter of 2010, the company expects revenue of approximately $7.0 million to $7.5 million and a net loss of approximately $1.5 million to $1.8 million.

Non-GAAP Measures

In evaluating the operating performance of its business, Luna’s management excludes certain charges and credits that are required by generally accepted accounting principles (“GAAP”). These non-GAAP results provide useful information to both management and investors by excluding 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. These non-GAAP measures should be considered in addition to results and guidance prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. The non-GAAP measures included in this press release have 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 Innovations will conduct an investor conference call at 5:00 p.m. (EST) today to discuss its financial results and business developments for 2009 and expectations for 2010. The call can be accessed by dialing 1.866.804.6923 domestically or 1.857.350.1669 internationally prior to the start of the call. The access code is 79052173. 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 Innovations website, http://www.lunainnovations.com, prior to the event. The webcast will be archived under the “Webcasts and Presentations” section of the Luna Innovations website for at least 30 days following the conference call.

About Luna Innovations:

Luna Innovations Incorporated (www.lunainnovations.com) is focused on sensing and instrumentation, and pharmaceutical nanomedicines. Luna develops and manufactures new-generation products for the healthcare, telecommunications, energy and defense markets. The company’s products are used to measure, monitor, protect and improve critical processes in the markets we serve. Through its disciplined commercialization business model, Luna has become a recognized leader in transitioning science to solutions. Luna is headquartered in Roanoke, Virginia.

Forward-Looking Statements:

This release includes information that constitutes “forward-looking statements” made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995, including statements regarding, but not limited to: expectations regarding financial results for the first quarter of and full year 2010, improvements in operations, and competitive position in the field of nanomedicine. Statements that describe the Company’s business strategy, goals, prospects, opportunities, outlook, plans or intentions are also forward looking statements. Actual results may differ materially from the expectations expressed in such forward-looking statements as a result of various factors, including the fact that the outlook for the first quarter of and full year 2010 could change, lower sales and revenues and higher expenses, patent issues, and also include, without limitations, those risks and uncertainties set forth in the company’s periodic reports and other filings with the Securities and Exchange Commission. Such filings are available at the SEC’s website at http://www.sec.gov, and at the company’s website at http://www.lunainnovations.com. The statements made in this release are based on information available to the company as of the date of this release and Luna Innovations 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   Year Ended
    December 31,   December 31,
    2009   2008   2009   2008
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Revenues:                
Technology development   $ 5,455,505     $ 6,042,895     $ 25,322,889     $ 26,838,592  
Product and license     3,086,123       1,353,653       9,248,998       10,059,728  
Total     8,541,628       7,396,548       34,571,887       36,898,320  
                 
Cost of revenues:                
Technology development     3,890,044       4,067,511       17,238,571       17,626,495  
Product and license     1,461,227       1,008,368       4,576,783       5,231,067  
Total     5,351,271       5,075,879       21,815,354       22,857,562  
                 
Gross profit     3,190,357       2,320,669       12,756,533       14,040,758  
                 
Operating expense:                
Selling, general, and administrative     3,311,760       3,960,749       16,345,578       17,688,065  
Research, development, and engineering     531,490       907,607       2,874,666       3,646,590  
Litigation reserve     (26,633,915 )           9,669,728        
Impairment of intangible assets                 1,310,598        
Reorganization costs     1,024,936             1,897,580        
Total     (21,765,729 )     4,868,356       32,098,150       21,334,655  
                 
Operating income/ (loss)     24,956,086       (2,547,687 )     (19,341,617 )     (7,293,897 )
                 
Other income/(expense)                
Interest expense, net     (80,997 )     (144,156 )     (503,699 )     (189,501 )
Other     18,902       530,630       735       1,197,755  
Total     (62,095 )     386,474       (502,964 )     1,008,254  
                 
Income (loss) before income taxes     24,893,991       (2,161,213 )     (19,844,581 )     (6,285,643 )
                 
Income tax expense                 600,000        
                 
Net income/ (loss)   $ 24,893,991     $ (2,161,213 )   $ (20,444,581 )   $ (6,285,643 )
                                 
 

 

Luna Innovations Incorporated Consolidated Balance Sheets

         
    December 31,   December 31,
    2009   2008
    (Unaudited)    
Assets        
Current Assets        
Cash and cash equivalents   $ 5,228,802     $ 15,518,960  
Accounts receivable, net     7,203,203       7,332,034  
Refundable income taxes           98,092  
Inventory     2,890,364       2,828,991  
Other current assets     1,290,496       342,598  

Total current assets

    16,612,865       26,120,675  
         
Property and equipment, net     4,129,015       5,363,957  
Intangible assets, net     580,785       1,813,643  
Deferred tax asset           600,000  
Other assets     435,259       118,292  
         
Total assets   $ 21,757,924     $ 34,016,567  
         
Liabilities and stockholders’ equity (deficit)        
Liabilities not subject to compromise        
Current portion of long term debt   $     $ 1,428,572  
Current portion of capital lease obligation     7,510       17,396  
Accounts payable     1,142,267       2,667,192  
Accrued liabilities     3,379,339       5,161,308  
Deferred credits     1,027,016       1,854,282  
Total liabilities not subject to compromise     5,556,132       11,128,750  
         
Liabilities subject to compromise     19,062,000        
         
Long term debt           8,571,428  
         
Total liabilities     24,618,132       19,700,178  
         
Stockholders’ equity (deficit)        
Common stock     11,352       11,138  
Additional paid-in capital     41,228,698       37,960,928  
Accumulated deficit     (44,100,258 )     (23,655,677 )
Total stockholders’ equity (deficit)     (2,860,208 )     14,316,389  
         
Total liabilities and stockholders’ equity (deficit)     21,757,924       34,016,567  
                 
 

 

Luna Innovations Incorporated Consolidated Statements of Cash Flows

                 
                 
    Year ended
    December 31,
    2009   2008
    (unaudited)        
Cash used in operating activities                
Net loss   $ (20,444,581 )   $ (6,285,643 )

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

               
Depreciation and amortization     1,853,188       1,933,566  
Impairment of intangible assets     1,310,598        
Share-based compensation     3,216,778       2,867,487  
Deferred tax expense     600,000        
Reorganization expense in excess of cash payments     738,026        
Change in assets and liabilities                
Accounts receivable     128,830       2,384,576  
Refundable income taxes     98,092       297,970  
Inventory     (1,227,780 )     (1,566,809 )
Other assets     (98,458 )     (59,322 )
Accounts payable and accrued expenses     347,355       (157,628 )
Litigation reserve     9,669,728        
Deferred credits     (827,266 )     (172,536 )
Net cash used in operating activities     (4,635,490 )     (758,339 )
                 
Cash used in investing activities                
Acquisition of property and equipment     (53,111 )     (391,210 )
Intangible property costs     (642,875 )     (536,251 )
Net cash used in investing activities     (695,986 )     (927,461 )
                 
Cash from (used in) financing activities                
Payments on capital lease obligations     (9,886 )     (11,160 )
Proceeds from (payment of) debt obligations     (5,000,000 )     5,000,000  
Proceeds from exercise of options     51,204       168,975  
Net cash from (used in) financing activities     (4,958,682 )     5,157,815  
                 
Net change in cash     (10,290,158 )     3,472,015  
Cash and cash equivalents, beginning of period     15,518,960       12,046,945  
Cash and cash equivalents, end of period   $ 5,228,802     $ 15,518,960  
                 
 

 

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

                                 
                                 
    Three months ended   Year ended
    December 31,   December 31,
    2009   2008   2009   2008
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
                                 
Net income/ (loss)   $ 24,893,991     $ (2,161,213 )   $ (20,444,581 )   $ (6,285,643 )
Interest     80,997       144,156       503,699       189,501  
Taxes                 600,000        
Depreciation and amortization     348,977       507,709       1,853,188       1,933,566  
EBITDA     25,323,965       (1,509,348 )     (17,487,694 )     (4,162,576 )
                                 
Share-based compensation     837,810       704,020       3,216,778       2,867,487  
Litigation reserve/ (settlement)     (26,633,915 )             9,669,728       (667,125 )
Impairment of intangible assets                 1,310,598        
Adjusted EBITDA     (472,140 )     (805,328 )     (3,290,590 )     (1,962,214 )
                                 
Costs of reorganization and Hansen litigation     1,474,137       853,159       5,629,145       2,213,248  
                                 

Adjusted EBITDA excluding reorganization and Hansen litigation

  $ 1,001,997     $ 47,831     $ 2,338,555     $ 251,034  
                                 
                                 
                                 
                                 
    Year Ending                
    December 31, 2010                
    Guidance Range                
    Low   High                
                                 
Projected net Loss   $ (3,500,000 )   $ (2,800,000 )                
Projected Interest     500,000       600,000                  
Projected Taxes                            
Projected Depreciation and Amortization     1,300,000       1,400,000                  
Projected EBITDA     (1,700,000 )     (800,000 )                
                                 
Projected Share Based Compensation     3,800,000       4,100,000                  
Projected Reorganization Expenses     300,000       600,000                  
Projected Adjusted EBITDA   $ 2,400,000     $ 3,900,000                  
                                 

 

 

 
 
 

Investor Contact:
Dale Messick, 1-540-769-8400
[email protected]