Luna Innovations Reports Strong First-Quarter 2019 Results

Highlights

  • Total revenues of $14.8 million for the three months ended March 31, 2019, up 69% compared to the three months ended March 31, 2018
  • Products and licensing revenues of $8.2 million for the three months ended March 31, 2019, up 98% compared to the three months ended March 31, 2018
  • Net income was $1.1 million, or $0.03 per fully diluted share, for the three months ended March 31, 2019, compared to $0.1 million, or $0.00 per fully diluted share, for the three months ended March 31, 2018
  • Adjusted EBITDA improved to $1.0 million for the three months ended March 31, 2019, compared to a loss of $(0.1) million for the three months ended March 31, 2018
  • Reaffirms 2019 outlook

(ROANOKE, VA, May 8, 2019) – Luna Innovations Incorporated (NASDAQ: LUNA), a global leader in advanced optical technology, today announced its financial results for the three months ended March 31, 2019.

“I continue to be proud of the Luna team and how we’ve driven performance and delivered such a strong first quarter,” said Scott Graeff, President and Chief Executive Officer of Luna. “We continue to build on the momentum we gained in 2018. The Luna team, through all levels of this organization, demonstrated leadership and delivered outstanding customer service, all while closing sales and filling the pipeline.  Integration of the Micron Optics and General Photonics acquisitions is going smoothly. It is clear that we acquired excellent talent, strong capabilities and assets that are both strategic and synergistic.  In addition, performance in Adjusted EBITDA is a good demonstration of the accretion delivered by our recent acquisitions.  Overall, this is a great start to our fiscal 2019.”

First-quarter Fiscal 2019 Financial Summary

Financial results for the three months ended March 31, 2019 reflect strong momentum entering the fiscal year.  These results include a full quarter of the business of Micron Optics, Inc. (“MOI”), acquired in October 2018, and one month of the operations of General Photonics (“GP”), acquired on March 1, 2019.  Revenue and expenses related to the Company’s optoelectronics business, which was divested in July 2018, are classified as discontinued operations in the Company’s results of operations for the three months ended March 31, 2018:

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

2019

 

2018

 

Change

Revenues:

 

 

 

 

 

 

Technology development

 

$

6,640,743

 

 

$

4,636,776

 

 

43.2

%

Products and licensing

 

$

8,192,375

 

 

$

4,131,754

 

 

98.3

%

 

   Total revenues

 

$

14,833,118

 

 

$

8,768,530

 

 

69.2

%

 

 

 

 

 

 

 

 

Gross profit

 

$

6,767,634

 

 

$

3,839,626

 

 

76.3

%

Gross margin

 

45.6

%

 

43.8

%

 

180 bps

 

 

 

 

 

 

 

 

Operating expense

 

$

7,665,211

 

 

$

4,213,082

 

 

81.9

%

Operating loss

 

$

(897,577

)

 

$

(373,456

)

 

140.3

%

 

 

 

 

 

 

 

 

Net income

 

$

1,125,879

 

 

$

148,676

 

 

$1.0M

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

958,810

 

 

$

(52,339

)

 

$1.0M

 

 

 

 

 

 

 

 

A reconciliation of Adjusted EBITDA to net income can be found in the schedules included in this release.

Products and licensing revenue for the three months ended March 31, 2019, increased compared to the prior year period due partially to the inclusion of incremental revenues from the acquisitions of both MOI in October 2018 and GP at the beginning of March 2019.  In addition, products and licensing revenue benefited from continued growth in sales of Luna’s fiber optic-based sensing products, including its ODiSI products.  Technology development revenues increased for the three months ended March 31, 2019, compared to the prior-year period due to growth in various government research programs surrounding applications of optical sensing and advanced materials and Luna’s success in winning related research contracts.

The increase in operating expenses was due primarily to $0.9 million in transaction-related costs associated with the acquisition of GP and $1.8 million of expenses associated with the operations of MOI and GP.  Neither of these acquisitions were present in the first quarter of 2018.

Pre-tax loss from continuing operations increased to $(0.7) million for the three months ended March 31, 2019, compared to $(0.3) million for the prior year fiscal quarter due primarily to transaction-related expenses associated with the acquisition of GP.

Income tax benefit for the three months ended March 31, 2019, was due to a one-time non-cash benefit resulting from a reduction in the valuation allowance associated with the company’s net deferred tax asset following the acquisition of GP.

Net income attributable to common stockholders for the three months ended March 31, 2019, was $1.0 million, or $0.03 per fully diluted share, compared to net income attributable to common stockholders of $0.1 million, or $0.00 per fully diluted share, for the three months ended March 31, 2018.  The increase in net income attributable to common stockholders was driven by improved overall performance and included the $1.9 million income tax benefit from the release of valuation allowance, partially offset by $0.9 million of transaction-related costs associated with the acquisition of GP.  Net income attributable to common stockholders for the three months ended March 31, 2019, also included $0.5 million of non-cash expenses for share-based compensation and amortization of intangible assets associated with the acquisitions of MOI and GP.

Adjusted EBITDA was $1.0 million for the three months ended March 31, 2019, compared to $(0.1) million for the three months ended March 31, 2018.

2019 Full-year Outlook:

Luna reaffirms:

  • Total revenues in the range of $60 million to $65 million for full fiscal 2019; and
  • Adjusted EBITDA in the range of $6.0 million to $6.5 million for full fiscal 2019.

Luna is not providing an outlook for net income, which is the most directly comparable generally accepted accounting principles (“GAAP”) measure to Adjusted EBITDA, because changes in the items that Luna excludes from net income to calculate Adjusted EBITDA, such as share-based compensation, amortization of acquired intangible assets, tax expense, and significant non-recurring charges, among other things, can be dependent on future events that are less capable of being controlled or reliably predicted by management and are not part of Luna’s routine operating activities.

The outlook above does not include any future acquisitions, divestitures, or unanticipated events.

Non-GAAP Financial 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 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 5:00 pm (ET) today to discuss its financial results for the three months ended March 31, 2019.  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 5299635. 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-performance, fiber optic-based, test products for the telecommunications industry and distributed fiber optic-based 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 integration of its recent acquisitions of MOI and GP, its projected 2019 financial results, and its business focus.  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, failure of target market to grow and expand, technological and strategic challenges and those risks and uncertainties set forth in Luna’s Form 10-K for the year ended December 31, 2018, and Luna’s other periodic reports and 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.

Investor Contacts:

Jane Bomba                                                                                        Sally J. Curley
Luna Innovations Incorporated                                                 Luna Innovations Incorporated
Phone: 303-829-1211                                                                 614-530-3002
Email: [email protected]                                                                 [email protected]

 

 

Luna Innovations Incorporated
Consolidated Statements of Operations

 

Three Months Ended March 31,

 

2019

 

2018

 

(unaudited)

Revenues:

 

 

 

Technology development

$

6,640,743

 

 

$

4,636,776

 

Products and licensing

8,192,375

 

 

4,131,754

 

Total revenues

14,833,118

 

 

8,768,530

 

Cost of revenues:

 

 

 

Technology development

4,816,146

 

 

3,353,501

 

Products and licensing

3,249,338

 

 

1,575,403

 

Total cost of revenues

8,065,484

 

 

4,928,904

 

Gross profit

6,767,634

 

 

3,839,626

 

Operating expense:

 

 

 

Selling, general and administrative

6,207,318

 

 

3,333,490

 

Research, development and engineering

1,457,893

 

 

879,592

 

Total operating expense

7,665,211

 

 

4,213,082

 

Operating loss

(897,577

)

 

(373,456

)

Other income/(expense):

 

 

 

Investment income

171,225

 

 

75,912

 

Other expense

(1,729

)

 

(10,854

)

Interest expense

(11,187

)

 

(40,647

)

Total other income

158,309

 

 

24,411

 

Loss from continuing operations before income taxes

(739,268

)

 

(349,045

)

Income tax benefit

(1,865,147

)

 

(76,967

)

Net income/(loss) from continuing operations

1,125,879

 

 

(272,078

)

Income from discontinued operations, net of income tax of $0 and $78,363

 

 

420,754

 

Net income from discontinued operations

 

 

420,754

 

Net income

1,125,879

 

 

148,676

 

Preferred stock dividend

83,058

 

 

64,425

 

Net income attributable to common stockholders

$

1,042,821

 

 

$

84,251

 

Net income/(loss) per share from continuing operations:

 

 

 

Basic

$

0.04

 

 

$

(0.01

)

Diluted

$

0.03

 

 

$

(0.01

)

Net income per share from discontinued operations:

 

 

 

Basic

$

 

 

$

0.02

 

Diluted

$

 

 

$

0.02

 

Net income per share attributable to common stockholders:

 

 

 

Basic

$

0.04

 

 

$

 

Diluted

$

0.03

 

 

$

 

Weighted average common shares and common equivalent shares outstanding:

 

 

 

Basic

28,039,080

 

 

27,204,989

 

Diluted

33,479,935

 

 

27,204,989

 

 

Luna Innovations Incorporated
Consolidated Balance Sheets

 

 

March 31, 2019

 

December 31, 2018

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

24,580,006

 

 

$

42,460,267

 

 

Accounts receivable, net

13,505,444

 

 

13,037,068

 

 

Receivable from sale of HSOR business

2,500,375

 

 

2,500,000

 

 

Contract assets

2,829,186

 

 

2,422,495

 

 

Inventory

9,996,054

 

 

6,873,742

 

 

Prepaid expenses and other current assets

1,087,416

 

 

935,185

 

 

Total current assets

54,498,481

 

 

68,228,757

 

 

Long-term contract assets

359,166

 

 

336,820

 

 

Property and equipment, net

3,845,748

 

 

3,627,886

 

 

Intangible assets, net

11,309,181

 

 

3,302,270

 

 

Goodwill

10,345,249

 

 

101,008

 

 

Other assets

3,205,983

 

 

1,995

 

 

Total assets

$

83,563,808

 

 

$

75,598,736

 

 

Liabilities and stockholders’ equity

 

 

 

 

Liabilities:

 

 

 

 

Current liabilities:

 

 

 

 

Current portion of long-term debt obligations

$

247,726

 

 

$

619,315

 

 

Current portion of capital lease obligations

 

 

40,586

 

 

Accounts payable

4,945,927

 

 

2,395,984

 

 

Accrued liabilities

8,599,225

 

 

6,597,458

 

 

Contract liabilities

2,792,119

 

 

2,486,111

 

 

Total current liabilities

16,584,997

 

 

12,139,454

 

 

Long-term deferred rent

 

 

1,035,974

 

 

Other long-term liabilities

2,970,879

 

 

 

 

Long-term capital lease obligations

 

 

68,978

 

 

Total liabilities

19,555,876

 

 

13,244,406

 

 

Commitments and contingencies

 

 

 

 

Stockholders’ equity:

 

 

 

 

Preferred stock, par value $0.001, 1,321,514 shares authorized, issued and outstanding at March 31, 2019 and December 31, 2018

1,322

 

 

1,322

 

 

Common stock, par value $0.001, 100,000,000 shares authorized, 29,398,818 and 29,209,506 shares issued, 28,145,713 and 27,956,401 shares outstanding at March 31, 2019 and December 31, 2018, respectively

30,329

 

 

30,120

 

 

Treasury stock at cost, 1,253,105 shares at March 31, 2019 and December 31, 2018

(2,116,640

)

 

(2,116,640

)

 

Additional paid-in capital

86,355,322

 

 

85,744,750

 

 

Accumulated deficit

(20,262,401

)

 

(21,305,222

)

 

Total stockholders’ equity

64,007,932

 

 

62,354,330

 

 

Total liabilities and stockholders’ equity

$

83,563,808

 

 

$

75,598,736

 

 

 

 

Luna Innovations Incorporated
Consolidated Statements of Cash Flows

 

 

Three Months Ended March 31,

 

2019

 

2018

 

(unaudited)

Cash flows provided by/(used in) operating activities

 

 

 

Net income

$

1,125,879

 

 

$

148,676

 

Adjustments to reconcile net income to net cash provided by/(used in) operating activities

 

 

 

Depreciation and amortization

617,309

 

 

307,852

 

Share-based compensation

342,765

 

 

94,606

 

                Deferred taxes

(1,889,266

)

 

 

Change in assets and liabilities

 

 

 

Accounts receivable

1,052,571

 

 

(229,535

)

Contract assets

(429,037

)

 

221,386

 

Inventory

(527,849

)

 

(110,095

)

Other current assets

(41,549

)

 

133,293

 

Accounts payable and accrued expenses

1,196,425

 

 

(1,456,154

)

Contract liabilities

149,435

 

 

(1,650,363

)

Net cash provided by/(used in) operating activities

1,596,683

 

 

(2,540,334

)

Cash flows used in investing activities

 

 

 

Acquisition of property and equipment

(215,251

)

 

(129,720

)

Intangible property costs

(60,639

)

 

(113,108

)

Acquisition of General Photonics Corporation

(19,004,250

)

 

 

Net cash used in investing activities

(19,280,140

)

 

(242,828

)

Cash flows used in financing activities

 

 

 

Payments on finance lease obligations

(6,763

)

 

(13,611

)

Payments of debt obligations

(375,000

)

 

(458,333

)

Repurchase of common stock

 

 

(306,041

)

Proceeds from the exercise of options and warrants

184,959

 

 

22,288

 

Net cash used in financing activities

(196,804

)

 

(755,697

)

Net decrease in cash and cash equivalents

(17,880,261

)

 

(3,538,859

)

Cash and cash equivalents-beginning of period

42,460,267

 

 

36,981,533

 

Cash and cash equivalents-end of period

$

24,580,006

 

 

$

33,442,674

 

 

 

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

 

 

Three Months Ended March 31,

 

2019

 

2018

 

(unaudited)

Net income

$

1,125,879

 

 

$

148,676

 

Less income from discontinued operations, net of income tax

 

 

420,754

 

Net income/(loss) from continuing operations

1,125,879

 

 

(272,078

)

Interest expense

11,187

 

 

40,647

 

Investment income

(171,225

)

 

(75,912

)

Tax benefit

(1,865,147

)

 

(76,967

)

Depreciation and amortization

617,309

 

 

237,365

 

EBITDA

(281,997

)

 

(146,945

)

Share-based compensation

342,765

 

 

94,606

 

Non-recurring charges (1)

898,042

 

 

 

Adjusted EBITDA

$

958,810

 

 

$

(52,339

)

 

(1) Non-recurring charges consist of transaction-related expenses incurred during the quarter ended March 31, 2019, related to the acquisition of General Photonics.

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