Luna Innovations Reports Third Quarter 2011 Financial Results

Quarterly net income of $0.2 million; Total revenues increase 3% over prior year quarter; Technology development division revenues increase 23% over prior year quarter

ROANOKE, Va., Nov 14, 2011 — Luna Innovations Incorporated (NASDAQ: LUNA) today announced its financial results for the third quarter and nine months ended September 30, 2011.

For the third quarter of 2011, Luna achieved its first quarterly positive net income since its IPO (excluding the fourth quarter of 2009, in which net income resulted primarily from the reversal of previous litigation accruals). Net income attributable to common stockholders of $0.2 million for the third quarter of 2011 reflects an improvement of $0.7 million compared to net loss attributable to common stockholders of $0.5 million for the third quarter of 2010, as revenues increased while operating expenses declined.

Also, as compared to the same quarter last year, total revenue increased by 3%, from $8.6 million in the third quarter of 2010 to $8.8 million in the third quarter of 2011. Revenue in the company’s technology development segment improved by 23% from $5.0 million in the third quarter of 2010 to $6.2 million in the third quarter of 2011, while product and license revenue decreased by 25%, from $3.6 million in the third quarter of 2010 to $2.7 million in the third quarter of 2011. Gross profit increased from $3.4 million for the third quarter of 2010 to $3.5 million for the third quarter of 2011.

Adjusted EBITDA, a non-GAAP measure, which is earnings before interest, taxes, depreciation and amortization, excluding litigation and reorganization related items and non-cash stock-based compensation and warrant expense, improved to $1.1 million for the third quarter of 2011, as compared to $0.9 million for the third quarter of 2010. Cash decreased from $8.1 million at June 30, 2011 to $6.8 million at September 30, 2011.

“Our third quarter results reflect the achievement of a significant milestone in our financial and operational objectives,” said My Chung, chief executive officer of Luna. “I am extremely pleased that during a weak economy for product sales our team was able to deliver bottom line results that exceeded expectations. Moving forward we will focus our efforts on accelerating growth within the company through a principal focus on opportunities in fiber optic sensing and secure computing.”

Third Quarter Financial and Business Summary

— Total revenues increased by 3%, to $8.8 million for the third quarter of 2011, from $8.6 million for the third quarter of 2010.

— Technology development revenues increased by 23%, to $6.2 million for the third quarter of 2011, from $5.0 million for the third quarter of 2010. Growth in this segment of the business included the recognition of approximately $0.8 million in revenue from the completion of four short-term contracts in the secure computing and communications group.

— Product and license revenue decreased by 25%, to $2.7 million in the third quarter of 2011, from $3.6 million in the third quarter of 2010, reflecting lower sales of fiber optic test and measurement equipment.

— Gross profit increased to $3.5 million, or 40% of total revenues, for the third quarter of 2011, from $3.4 million, or 40% of total revenues, for the third quarter of 2010.

— Selling, general and administrative expenses decreased by 32% to $2.3 million, or 26% of total revenues for the third quarter of 2011, from $3.4 million, or 39% of total revenues, for the third quarter of 2010, driven primarily by a $0.2 million reduction in outside legal costs and a $0.4 million decrease in stock-based compensation expense.

— Total operating expenses decreased to $3.2 million, or 36% of total revenues, for the third quarter of 2011, from $3.7 million, or 44% of total revenues for the third quarter of 2010.

— Adjusted EBITDA increased to $1.1 million for the third quarter of 2011, from $0.9 million for the third quarter of 2010.

— Net income attributable to common stockholders improved to $0.2 million, or $0.02 per basic common share and $0.01 per diluted common share, for the third quarter of 2011, compared to a net loss attributable to common stockholders of $0.5 million or $0.04 per basic and diluted common share, for the third quarter of 2010.

— Cash and cash equivalents totaled $6.8 million at September 30, 2011, as compared to $7.2 million at December 31, 2010 and $8.1 million at June 30, 2011. The decrease in cash during the third quarter of 2011 reflects a high concentration of the quarter’s revenues being earned during the last month of the quarter and, accordingly, not converted from accounts receivable to cash by September 30. Although cash decreased by approximately $1.2 million during the quarter, accounts receivable increased by approximately $1.2 million.

Nine Months Ended September 30, 2011 Financial Summary

— Total revenue increased $2.0 million, or 8%, to $27.5 million for the nine months ended September 30, 2011, compared to $25.5 million for the nine months ended September 30, 2010.

— Product and license revenue increased by 18%, to 10.1 million for the nine months ended September 30, 2011, from $8.5 million for the nine months ended September 30, 2010.

— Technology development revenues increased by 3%, to $17.4 million for the nine months ended September 30, 2011, from $16.9 million for the nine months ended September 30, 2010.

— Gross profit increased by 10%, to $10.5 million for the nine months ended September 30, 2011, from $9.6 million for the nine months ended September 30, 2010.

— Selling, general and administrative expenses decreased by 7% to $9.3 million, or 34% of total revenues, for the nine months ended September 30, 2011, from $10.0 million, or 39% of total revenues, for the nine months ended September 30, 2010.

— Total operating expenses decreased by 1% to $11.3 million, or 41% of total revenues, for the nine months ended September 30, 2011, from $11.5 million, or 45% of total revenues, for the nine months ended September 30, 2010.

— Adjusted EBITDA remained relatively unchanged at $2.1 million for the nine months ended September 30, 2011 and 2010.

— Net loss attributable to common stockholders improved to $1.1 million, or $0.08 per basic and diluted common share, for the nine months ended September 30, 2011, compared to a net loss attributable to common stockholders of $2.5 million, or $0.19 per basic and diluted common share, for the nine months ended September 30, 2010.

Outlook for the Remainder of 2011

Based on information as of November 14, 2011, the company expects total revenue for 2011 to be in the range of $35.6 million to $36.1 million. Also for 2011, the company anticipates a net loss to common stockholders in the range of $1.8 million to $2.0 million. For the fourth quarter of 2011, the company expects revenue of approximately $8.0 million to $8.5 million and a net loss attributable to common stockholders of approximately $0.7 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. (EST) today to discuss its financial results and business developments for the third quarter of 2011 and expectations for the remainder of 2011. The call can be accessed by dialing 866.730.5763 domestically or 857.350.1587 internationally prior to the start of the call. The participant access code is 10860626. 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. 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 fourth quarter and full year 2011, as well as the company’s focus on opportunities in fiber optic sensing and secure computing. 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 fourth quarter and full year 2011 could change, failure of demand for the company’s products and services to meet expectations, and 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
Condensed Consolidated Statements of Operations
                             
   

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

    2011   2010   2011   2010
    (unaudited)   (unaudited)
Revenues:                            
Technology development revenues   $ 6,161,826     $ 5,027,024     $ 17,406,515     $ 16,929,621  
Product and license revenues     2,681,184       3,558,118       10,058,709       8,539,953  
                           
Total revenues     8,843,010       8,585,142       27,465,224       25,469,574  
                           
Cost of revenues:                            
Technology development costs     3,630,163       3,534,089       11,910,771       11,559,351  
Product and license costs     1,719,039       1,613,499       5,059,507       4,332,600  
                             
Total cost of revenues     5,349,202       5,147,588       16,970,278       15,891,951  
                             
Gross Profit     3,493,808       3,437,554       10,494,946       9,577,623  
Operating expense:                            
                           
Selling, general and administrative     2,303,325       3,383,121       9,340,545       10,044,549  
Research, development, and engineering     877,741       307,777       1,950,275       1,249,385  
Reorganization expense           53,597             161,801  
                             
Total operating expense     3,181,066       3,744,495       11,290,820       11,455,735  
                           
Operating net income/(loss)     312,742       (306,941 )     (795,874 )     (1,878,112 )
                           
Other income/(expense):                            
Other income/(expense)     21,953       10,000       57,793       (5,477 )
Interest expense     (91,908 )     (124,756 )     (290,634 )     (352,282 )
                           
Total other income/(expense)     (69,955 )     (114,756 )     (232,841 )     (357,759 )
                             
Income/(loss) before income taxes     242,787       (421,697 )     (1,028,715 )     (2,235,871 )
Income tax expense     287       1,817       10,307       1,817  
                             
Net income (loss)     242,500       (423,514 )     (1,039,022 )     (2,237,688 )
                           
Preferred stock dividend     20,616       93,000       94,952       267,633  
                           
Net income/(loss) attributable to common stockholders   $ 221,884     $ (516,514 )   $ (1,133,974 )   $ (2,505,321 )
                           
Net income/(loss) per share of common stock:                            
Basic   $ 0.02     $ (0.04 )   $ (0.08 )   $ (0.19 )
Diluted   $ 0.01      

N/A

     

N/A

     

N/A

 
                             
                           
Weighted average shares:                            
Basic     13,669,724       13,188,913       13,598,249       12,890,752  
Diluted     15,898,639       N/A       N/A       N/A  
                             
         
Luna Innovations Incorporated
Condensed Consolidated Balance Sheets
         
   

September 30,

2011

 

December 31,

2010

    (unaudited)    
Assets        
Current assets        
Cash and cash equivalents   $ 6,833,450     $ 7,216,580  
Accounts receivable, net     7,908,792       7,669,625  
Inventory, net     3,570,266       3,106,600  
Prepaid expenses     849,090       665,210  
Other current assets     35,717       45,348  
         
         
Total current assets     19,197,315       18,703,363  
Property and equipment, net     3,010,999       3,204,670  
Intangible assets, net     652,050       664,418  
Other assets     246,835       303,210  
         
         
Total assets   $ 23,107,199     $ 22,875,661  
         
Current Liabilities:        
Revolving line of credit   $     $ 2,500,000  
Current portion of long term-debt obligation     1,500,000       1,195,784  
Current portion of capital lease obligation     50,192       2,194  
Accounts payable     1,860,793       2,008,183  
Accrued liabilities     3,515,097       3,549,604  
Deferred credits     1,408,562       1,392,602  
         
         
Total current liabilities     8,334,644       10,648,367  
Long-term debt obligation     4,000,000       2,611,609  
Long-term lease obligation     196,033        
         
         
         
Total liabilities     12,530,677       13,259,976  
         
Commitments and contingencies        
Stockholders’ equity:        
Preferred stock     1,322       1,322  
Common stock     13,835       13,526  
Additional paid-in capital     58,776,258       56,681,756  
Accumulated deficit     (48,214,893 )     (47,080,919 )
         
Total stockholders’ equity     10,576,522       9,615,685  
         
Total liabilities and stockholders’ equity   $ 23,107,199     $ 22,875,661  
         
         
Luna Innovations Incorporated
Condensed Consolidated Statements of Cash Flows
         
   

Nine months ended

September 30,

    2011   2010
    (unaudited)
Cash flows used in operating activities        
Net loss   $ (1,039,022 )   $ (2,237,688 )
Adjustments to reconcile net loss to net cash used in operating activities        
Depreciation and amortization     1,042,700       953,630  
Share-based compensation     1,737,220       2,616,024  
Warrant expense     41,752       149,850  
Change in assets and liabilities:        
Accounts receivable     (239,167 )     625,016  
Inventory     (463,666 )     (140,220 )
Other current assets     (174,249 )     736,834  
Other assets     56,375       71,029  
Accounts payable and accrued expenses     (223,648 )     (3,417,135, )
Deferred credits     (174,040 )     316,332  
         
       
Net cash provided by/(used in) operating activities     564,255       (326,328 )
         
       
Cash flows used in investing activities        
Acquisition of property and equipment     (289,777 )     (50,540 )
Intangible property costs     (272,741 )     (152,404 )
         
       
Net cash used in investing activities     (562,518 )     (202,944 )
         
       
Cash flows provided by (used in) financing activities        
       
Payments on capital lease obligations     (30,113 )     (4,000 )
Proceeds from debt obligations     6,000,000       2,500,000  
Payment of debt obligations     (6,617,393 )     (842,699 )
Proceeds from the exercise of options and warrants     262,639       799,397  
         
       
Net cash provided by (used in) financing activities     (384,867 )     2,452,698  
         
Net change in cash     (383,130 )     1,923,426  
Cash and cash equivalents–beginning of period     7,216,580       5,228,802  
         
Cash and cash equivalents–end of period   $ 6,833,450     $ 7,152,228  
                 
                 
Luna Innovations Incorporated
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
                 
   

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

    2011   2010   2011   2010
    (unaudited)   (unaudited)
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA:                
Net income (loss)   $ 242,500   $ (423,514 )   $ (1,039,022 )   $ (2,237,688 )
                 
Interest expense     91,908     124,756       290,634       352,282  
Income tax expense     287     1,817       10,307       1,817  
Depreciation and amortization     332,432     311,652       1,042,700       953,630  
                 
EBITDA     667,127     14,711       304,619       (929,959 )
                 
Stock-based compensation and warrant expense     462,073     880,676       1,778,972       2,765,874  
Fees associated with Hansen litigation and Chapter 11 reorganization         53,597             284,193  
                 
Adjusted EBITDA   $ 1,129,200   $ 948,984     $ 2,083,591     $ 2,120,108  
                 

 

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