Luna Innovations Reports First Quarter 2011 Financial Results

Total revenues increase 14% over prior year quarter; Product & license revenues increase 63% over prior year quarter; Third consecutive quarter of positive cash flow

 

ROANOKE, Va., May 10, 2011 — Luna Innovations Incorporated (NASDAQ: LUNA) today announced its financial results for the first quarter ended March 31, 2011.

As compared to the same quarter last year, product and license revenue increased by 63%, from $2.1 million in the first quarter of 2010 to $3.4 million in the first quarter of 2011, while total revenue increased by 14%, from $7.9 million in the first quarter of 2010 to $9.0 million in the first quarter of 2011. Gross profit increased from $2.8 million for the first quarter of 2010 to $3.3 million for the first quarter of 2011. The company reported a net loss attributable to common stockholders of $1.1 million, or $0.08 per common share, for the first quarter of 2011, as compared to a net loss attributable to common stockholders of $1.3 million, or $0.10 per common share for the first quarter of 2010. Adjusted EBITDA, which is earnings before interest, taxes, depreciation and amortization, excluding non-cash stock-based compensation and warrant expense and charges related to the company’s litigation with Hansen Medical, Inc. and its Chapter 11 reorganization, from which the company emerged in January 2010, decreased to $0.3 million for the first quarter of 2011, as compared to $0.5 million for the first quarter of 2010. Cash increased to $7.5 million at March 31, 2011 compared to $7.2 million at December 31, 2010.

My Chung, chief executive officer, provided this overview of Luna’s results: “I am excited to have joined Luna at this important time of growth. The revenue growth in the first quarter demonstrates a continued increase in demand for our fiber optic equipment and our related technologies. Our focus on expense control has allowed us to translate our revenue growth into improvement in our bottom line and achieving our third consecutive quarter of positive cash flow.”

First Quarter Financial and Business Highlights

— Total revenues increased by 14%, from $7.9 million in the first quarter of 2010 to $9.0 million in the first quarter of 2011.

— Product and license revenue increased by 63%, from $2.1 million in the first quarter of 2010 to $3.4 million in the first quarter of 2011. Technology development revenues decreased by 3%, to $5.6 million, for the first quarter of 2011 from $5.8 million for the first quarter of 2010.

— Gross profit for the first quarter of 2011 increased to $3.3 million, or 37% of total revenues, from $2.8 million, or 36% of total revenues, for the corresponding period of 2010.

— Selling, general and administrative expenses increased by 9% to $3.7 million, or 41% of total revenues for the first quarter of 2011, from $3.4 million, or 43% of total revenues, for the first quarter of 2010. Expenses for the first quarter of 2011 include approximately $0.3 million in non-recurring charges related to the acceleration of expense recognized in conjunction with the company’s consulting agreement with its former chief executive officer and the costs associated with a potential proxy contest.

— Total operating expenses increased to $4.2 million, or 47% of total revenues, for the first quarter of 2011 from $3.9 million, or 50% of total revenues for the first quarter of 2010.

— Adjusted EBITDA, which excludes litigation and reorganization related items, decreased to $0.3 million in the first quarter 2011 from $0.5 million in the first quarter of 2010.

— Net loss attributable to common stockholders improved to $1.1 million for the first quarter of 2011 compared to a net loss attributable to common stockholders of $1.3 million for the first quarter of 2010.

— Achieved third consecutive quarter of positive cash flow. Cash and cash equivalents totaled $7.5 million at March 31, 2011 as compared to $7.2 million at December 31, 2010.

— Luna extended its development and supply agreement with Intuitive Surgical, under which Luna is enhancing its fiber optic shape sensing technology for potential incorporation into Intuitive’s products.

— Received orders in the first quarter of 2011 for approximately $2.9 million in test and measurement products compared to $1.2 million in the same quarter of 2010, representing a 142% increase.

Outlook 2011

Based on information as of May 10, 2011, the company continues to expect total revenue for 2011 to be in the range of $37.0 million to $39.0 million, consisting of product and license revenue of $14.0 million to $15.0 million and technology development revenue of $23.0 to $24.0 million. Also for 2011, the company anticipates a net loss to common stockholders in the range of $2.0 million to $2.5 million. For the second quarter of 2011, the company expects revenue of approximately $9.0 million to $10.0 million and a net loss attributable to common stockholders of approximately $0.3 million to $0.6 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. (EDT) today to discuss its financial results and business developments for the first quarter of 2011 and expectations for the remainder of 2011. The call can be accessed by dialing 866.770.7125 domestically or 617.213.8066 internationally prior to the start of the call. The participant access code is 97397780. 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. 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 2011, demand for the company’s fiber optic equipment and technologies and our expanded relationship with Intuitive Surgical. 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 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 www.sec.gov, and at the company’s website at 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
    March 31,
    2011   2010
    (Unaudited)   (Unaudited)
Revenues:        
Technology development revenues   $ 5,621,615     $ 5,811,094  
Product and license revenues     3,377,009       2,074,697  
Total     8,998,624       7,885,791  
         
Cost of revenues :        
Technology development costs     4,086,165       3,832,342  
Product and license costs     1,572,691       1,219,241  
Total     5,658,856       5,051,583  
         
Gross profit     3,339,768       2,834,208  
         
Operating expense:        
Selling, general and administrative     3,725,829       3,421,262  
Research, development, and engineering     512,378       509,899  
Total     4,238,207       3,931,161  
         
Operating loss     (898,439 )     (1,096,953 )
         
Other expense, net        
Interest expense, net     114,423       84,014  
Other, net     1,985       14,877  
Total     116,408       98,891  
         
Loss before income taxes     (1,014,847 )     (1,195,844 )
         
Income tax expense     10,020        
         
Net loss     (1,024,867 )     (1,195,844 )
         
Preferred stock dividend     41,628       81,633  
         
Net loss attributable to common stockholders   $ (1,066,495 )   $ (1,277,477 )
         
Net loss per share of common stock:   $ (0.08 )   $ (0.10 )
         
         

Luna Innovations Incorporated

Condensed Consolidated Balance Sheets

         
   

March 31,

 

December 31,

    2011  

2010

   

(Unaudited)

   
Assets        
Current assets        
Cash and cash equivalents   $ 7,518,020     $ 7,216,580  
Accounts receivable, net     7,185,991       7,669,625  
Inventory     3,532,975       3,106,600  
Prepaid expenses     575,841       665,210  
Other current assets     45,312       45,348  
Total current assets     18,858,139       18,703,363  
         
Property and equipment, net     3,325,399       3,204,670  
Intangible assets, net     636,845       664,418  
Other assets     284,418       303,210  
         
Total assets   $ 23,104,801     $ 22,875,661  
         
Liabilities and stockholders’ equity        
Current Liabilities        
Line of credit   $ 2,500,000     $ 2,500,000  
Current portion of long term debt obligation     1,222,578       1,195,784  
Current portion of capital lease obligation     49,590       2,194  
Accounts payable     1,703,111       2,008,183  
Accrued liabilities     3,493,719       3,549,604  
Deferred credits     2,077,099       1,392,602  
Total current liabilities     11,046,097       10,648,367  
         
Long-term debt obligation     2,296,292       2,611,609  
Long-term lease obligation     221,504        
         
Total liabilities     13,563,893       13,259,976  
         
Stockholders’ equity:        
Preferred stock     1,322       1,322  
Common stock     13,698       13,526  
Additional paid-in capital     57,673,302       56,681,756  
Accumulated deficit     (48,147,414 )     (47,080,919 )
Total stockholders’ equity     9,540,908       9,615,685  
         
Total liabilities and stockholders’ equity   $ 23,104,801     $ 22,875,661  
         
         

Luna Innovations Incorporated

Condensed Consolidated Statements of Cash Flows

         
    Three Months Ended
    March 31,
    2011   2010
    (Unaudited)   (Unaudited)
Cash flows provided by/(used in) operating activities        
Net loss   $ (1,024,867 )   $ (1,195,844 )
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:        
Depreciation and amortization     327,413       328,959  
Share-based compensation     817,711       840,101  
Warrant expense     24,041       47,239  
Change in assets and liabilities:        
Accounts receivable     483,634       (551,599 )
Inventory     (426,375 )     80,168  
Other current assets     89,405       570,896  
Other assets     18,792       33,446  
Accounts payable and accrued expenses     (384,997 )     (1,923,633 )
Deferred credits     684,497       328,525  
         
Net cash provided by/(used in) operating activities     609,254       (1,441,742 )
         
Cash flows used in investing activities        
Acquisition of property and equipment     (102,221 )     (11,010 )
Capitalized intellectual property costs     (44,203 )     (34,362 )
         
Net cash used in investing activities     (146,424 )     (45,372 )
         
Cash flows (used in)/provided by financing activities        
Payments on capital lease obligations     (5,246 )     (1,367 )
Payments on debt obligations     (288,523 )      
Borrowings under line of credit           2,500,000  
Proceeds from the exercise of options and warrants     132,379       226,759  
         
Net cash (used in)/provided by financing activities     (161,390 )     2,725,392  
         
Net change in cash     301,440       1,238,278  
Cash and cash equivalents, beginning of period     7,216,580       5,228,802  
         
Cash and cash equivalents, end of period   $ 7,518,020     $ 6,467,080  
                 
             

Luna Innovations Incorporated

Reconciliation of EBITDA and Adjusted EBITDA to Net Loss

    Three Months Ended March 31,
    2011   2010
    (Unaudited)   (Unaudited)
Reconciliation of net loss to EBITDA and adjusted            
EBITDA            
             
Net loss   $ (1,024,867 )   $ (1,195,844 )
             
Interest expense     114,423       84,014  
Taxes     10,020        
Depreciation and amortization     327,413       328,959  
             
EBITDA     (573,011 )     (782,871 )
             
Share-based compensation and warrant expense     841,752       887,340  
             
Fees associated with Hansen litigation and Chapter 11 reorganization           382,887  
             
Adjusted EBITDA   $ 268,741     $ 487,356  
                 

 

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