Luna Innovations Reports First Quarter 2010 Financial Results

Total revenues decrease 7%; Product & license revenues increase 29%; Adjusted EBITDA excluding litigation improves $0.8 million

ROANOKE, Va., May 11, 2010 –Luna Innovations Incorporated (NASDAQ: LUNA), a company focusing on sensing, instrumentation and nanotechnology, today announced its financial results for the first quarter ended March 31, 2010.

As compared to the same quarter last year, product and license revenue increased by 29%, from $1.6 million in the first quarter of 2009 to $2.1 million in the first quarter of 2010, while total revenue decreased by 7%, from $8.5 million in the first quarter of 2009 to $7.9 million in the first quarter of 2010. The decrease in total revenue was largely the result of lower pass-through costs for subcontracts and materials under a research contract in the company’s technology development business segment. Gross profit increased from $2.7 million for the first quarter of 2009 to $2.8 million for the first quarter of 2010. The company reported a net loss attributable to common shareholders of $1.3 million, or $0.10 per common share, for the first quarter of 2010, as compared to a net loss of $40.9 million, or $3.66 per common share for the first quarter of 2009. The net loss for the first quarter of 2009 included one-time charges of $36.3 million for a litigation reserve and $1.3 million for the impairment of intangible assets, and a $0.6 million charge related to the valuation allowance provided against the company’s deferred tax asset. Adjusted EBITDA, which is earnings before interest, taxes, depreciation and amortization, excluding non-cash stock-based compensation expense, non-cash charges for impairment of intangible assets and charges related to the company’s litigation with Hansen Medical, Inc. and its Chapter 11 reorganization, improved to positive $0.5 million for the first quarter of 2010, as compared to negative $0.3 million for the first quarter of 2009. The company consummated a settlement of its litigation with Hansen and emerged from Chapter 11 reorganization in January 2010.

Kent Murphy, Chief Executive Officer, provided this overview of Luna’s results: “I am very pleased with our results since emerging from Chapter 11 reorganization in January. Recovery in demand for our fiber optic equipment during the quarter, along with our continued focus on operating expenses, has resulted in significant improvement in our core operating results that we believe represent progress toward profitability.”

First Quarter Financial Highlights

— Total revenues decreased by 7%, from $8.5 million for the first quarter of 2009 to $7.9 million for the first quarter of 2010.

— Product and license revenues increased by 29% to approximately $2.1 million for the first quarter of 2010 from $1.6 million for the first quarter of 2009. Technology development revenues decreased by 16% to $5.8 million for the first quarter of 2010 from $6.9 million for the first quarter of 2009, primarily due to lower pass-through costs included in 2010 revenues.

— Gross profit for the first quarter of 2010 increased to $2.8 million, or 36% of total revenues, from $2.7 million, or 32% of total revenues, for the corresponding period of 2009.

— Selling, general and administrative expenses decreased by 19% to $3.4 million, or 43% of total revenues for the first quarter of 2010, from $4.2 million, or 50% of total revenues, for the first quarter of 2009.

— Total operating expenses, excluding litigation and reorganization costs, decreased to $3.5 million, or 45% of total revenues for the first quarter of 2010, from $4.4 million, or 52% of total revenues, for the first quarter of 2009.

— Adjusted EBITDA excluding litigation and bankruptcy related items increased to $0.5 million in the first quarter of 2010 from negative $0.3 million in the first quarter of 2009.

— Net loss improved to $1.3 million for the first quarter of 2010, compared to a net loss of $40.9 million for the first quarter of 2009, primarily driven by reductions in amounts accrued with respect to the Hansen litigation in 2009 as well as expenses recognized with respect to impairment of intangible assets and the valuation of deferred tax assets as of March 2009.

— Cash and cash equivalents totaled $6.5 million at March 31, 2010, as compared to $13.2 million at March 31, 2009. The company executed a revolving line of credit providing up to $5 million in borrowing capacity. At March 31, 2010, $2.5 million was outstanding under the line of credit.

First Quarter Business Highlights

— The company emerged from Chapter 11 reorganization on January 12, 2010 with a court approved reorganization plan that provided for payment of 100% of valid claims and allowed stockholders to retain their equity shares.

— The first Optical Vector Analyzer(TM) (OVA) 5000 products were shipped to customers. The OVA 5000 is a device for single-measurement, all-parameter analysis of fiber optic components and assemblies.

— Luna began work under the development and supply agreement with Hansen Medical, entered into as part of the litigation settlement, pursuant to which Luna is integrating its fiber optic shape sensing technology into Hansen’s medical robotic instruments.

— Luna’s technology development division was awarded 12 contracts in the first quarter, including eight Phase Is, two Phase 2s, one option to continue a contract and one subcontract on a Phase I.

Outlook 2010

Based on information as of May 11, 2010, the company continues to expect total revenue for 2010 to be in the range of $35.5 million to $38.0 million, consisting of product and license revenue of $9.5 million to $11.0 million and technology development revenue of $26.0 million to $27.0 million. Also for 2010, the company anticipates a GAAP 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 second quarter of 2010, the company expects revenue of approximately $8.5 million to $9.5 million and a net loss of approximately $0.5 million to $1.0 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. (ET) today to discuss its financial results and business developments for the first quarter of 2010. The call can be accessed by dialing 866.383.8003 domestically or 617.597.5330 internationally prior to the start of the call. The access code is 33764338. 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, 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:

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 our expectations regarding financial results for the second quarter and full year 2010 and the Company’s future profitability. 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 the fact that the outlook for the second quarter of and full year 2010 could change, 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 www.sec.gov. 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, March 31,
      2010       2009  
    (unaudited)
Revenues:        
Technology development   $ 5,811,094     $ 6,882,372  
Product and license     2,074,697       1,611,184  
Total revenues     7,885,791       8,493,556  
         
Cost of revenues        
Technology development     3,832,342       4,897,756  
Product and license     1,219,241       878,601  
Total cost of revenues     5,051,583       5,776,357  
         
Gross profit     2,834,208       2,717,199  
         
Operating expenses:        
Selling, general and administrative     3,421,262       4,235,588  
Research, development and engineering     509,899       995,643  
Litigation reserve           36,303,643  
Impairment of intangible assets           1,310,598  
Total operating expense     3,931,161       42,845,472  
         
Operating loss     (1,096,953 )     (40,128,273 )
         
Other expense        
Interest expense     84,014       158,988  
Other     14,877       923  
Total other expense     98,891       159,911  
         
Loss before income taxes     (1,195,844 )     (40,288,184 )
         
Income tax expense           600,000  
         
Net loss     (1,195,844 )     (40,888,184 )
         
Dividends declared on preferred stock     81,633        
         
Net loss attributable to common shareholders   $ (1,277,477 )   $ (40,888,184 )
         
Net loss per share of common stock   $ (0.10 )   $ (3.66 )
         

 

Luna Innovations Incorporated Consolidated Balance Sheets

         
    March 31,   December 31,
      2010       2009  
    (unaudited)    
Assets        
Current assets:        
Cash and cash equivalents   $ 6,467,080     $ 5,228,802  
Accounts receivable, net     7,754,801       7,203,203  
Inventory     2,822,059       2,890,364  
Prepaid expenses     672,685       560,964  
Other current assets     46,916       729,532  
Total current assets     17,763,541       16,612,865  
         
Property and equipment, net     3,855,226       4,129,015  
Intangible assets, net     553,794       580,785  
Other assets     359,585       435,259  
         
Total assets   $ 22,532,146     $ 21,757,924  
         
Liabilities and stockholders’ equity (deficit)        

Current liabilities not subject to compromise:

       
Line of credit   $ 2,500,000     $  
Current portion of long term debt     1,096,981        
Accounts payable     1,881,731       1,142,267  
Accrued liabilities     3,978,413       3,379,339  
Deferred credits     1,355,541       1,034,526  
         
Total current liabilities     10,812,666       5,556,132  
         
Long term debt     3,903,019        
Liabilities subject to compromise           19,062,000  
         

Total liabilities

    14,715,685       24,618,132  
         
Stockholders’ equity (deficit)        
Preferred stock     1,322        
Common stock     12,786       11,352  
Stock dividend not yet issued     81,633        
Additional paid-in capital     53,098,455       41,228,698  
Accumulated deficit     (45,377,735 )     (44,100,258 )
         
Total stockholders’ equity (deficit)     7,816,461       (2,860,208 )
         

Total liabilities and stockholders’ equity (deficit)

    22,532,146       21,757,924  
 

 

 

Luna Innovations Incorporated Consolidated Statements of Cash Flows

 
    Three months ended March 31,
      2010       2009  
    (unaudited)
Cash flows used in operating activities:        
Net loss   $ (1,195,844 )   $ (40,888,184 )

Adjustments to reconcile not loss to cash used in operating activities:

       
Depreciation and amortization     328,959       619,788  
Impairment of intangible assets           1,310,598  
Share-based compensation     887,340       789,511  
Warrant expense     46,997        
Deferred tax expense           600,000  
Changes in asset and liabilities:        
Accounts receivable     (551,599 )     (589,248 )
Inventory     80,168       (21,336 )
Other current assets     570,896       (5,317 )
Other assets     33,446       17,728  
Accounts payable and accrued expenses     (1,970,872 )     (263,459 )
Litigation reserve           36,303,643  
Deferred credits     328,525       200,260  
Net cash used in operating activities     (1,441,984 )     (1,926,016 )
         
Cash flows used in investing activities        
Acquisition of property and equipment     (11,010 )     (34,037 )
Capitalized intellectual property costs     (34,362 )     (30,749 )
Net cash used in investing activities     (45,372 )     (64,786 )
         
Cash flows provided by (used in) financing activities        
Payments on capital lease obligation     (1,367 )     (2,799 )
Payments on debt obligation           (357,143 )
Borrowings under line of credit     2,500,000        
Proceeds from exercise of options     227,001       10,824  

Net cash provided by (used in) financing activities

    2,725,634       (349,118 )
         
Net change in cash     1,238,278       (2,339,920 )
         
Cash at beginning of period     5,228,802       15,518,960  
Cash at end of period   $ 6,467,080     $ 13,179,040  
                 
 

 

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

 
    Three Months Ended March 31,
      2010       2009  
    (unaudited)
Reconciliation of net loss to adjusted        
EBITDA less litigation        
         
Net loss   $ (1,195,844 )   $ (40,888,184 )
         
Interest     84,014       158,988  
Taxes           600,000  
Depreciation and amortization     328,959       619,788  
Impairment of intangible assets           1,310,598  
EBITDA     (782,871 )     (38,198,810 )
         
Share based compensation     934,337       789,511  
Adjusted EBITDA     151,466       (37,409,299 )
         
Litigation reserve           36,303,643  

Fees associated with litigation and reorganization

    382,887       790,381  
Adjusted EBITDA less litigation   $ 534,353     $ (315,275 )
         
         
         
         
         

Reconciliation of operating expenses to operating expenses less litigation and reorganization related costs

       
         
Operating expenses   $ 3,931,161     $ 42,845,472  
         
Litigation reserve           (36,303,643 )
Intangible asset impairment           (1,310,598 )

Fees associated with litigation and reorganization

    (382,887 )     (790,381 )
         

Operating expenses less litigation and reorganization related costs

  $ 3,548,274     $ 4,440,850  
         

Investor Contact:
Luna Innovations Incorporated
Dale Messick, CFO
1-540-769-8400
[email protected]