Luna Innovations Reports Strong Second-Quarter 2019 Results

Raises 2019 Outlook

Highlights

  • Total revenues of $17.8 million for the three months ended June 30, 2019, up 80% compared to the three months ended June 30, 2018
  • Products and licensing revenues of $11.4 million for the three months ended June 30, 2019, up 155% compared to the three months ended June 30, 2018
  • Net income of $0.8 million, or $0.02 per fully diluted share, for the three months ended June 30, 2019, compared to $1.1 million, or $0.03 per fully diluted share, for the prior-year period, which included $0.8 million ($0.02 per share) in income from discontinued operations
  • Adjusted EBITDA improved to $2.4 million for the three months ended June 30, 2019, compared to $0.5 million for the three months ended June 30, 2018
  • Raises 2019 outlook

(ROANOKE, VA, August 7, 2019) – Luna Innovations Incorporated (NASDAQ: LUNA), a global leader in advanced optical technology, today announced its financial results for the three and six months ended June 30, 2019.

“Building on a strong first quarter, the Luna team continued to exceed our goals and deliver excellent performance on the top- and bottom-lines,” said Scott Graeff, President and Chief Executive Officer of Luna. “I was particularly pleased to see continued robust performance from our legacy products, in addition to those products that came to us through the Micron Optics and General Photonics acquisitions. Our first-half performance gives us the confidence to increase our 2019 outlook. For full fiscal 2019, we now expect total revenues to be between $66 million to $69 million and adjusted EBITDA to be between $7.2 million to $7.6 million. With a half year to go, the Luna team remains focused on continuing to execute our strategy and fully integrate the acquisitions, while driving growth and delivering the tailored service and solutions our customers need.”

Second-Quarter Fiscal 2019 Financial Summary

Financial results for the three months ended June 30, 2019, continue the strong momentum from the beginning of the fiscal year.  These results include a full quarter of the businesses of both Micron Optics, Inc. (“MOI”), acquired in October 2018, and General Photonics Corporation (“GP”), acquired in March 2019.  Revenue and expenses related to Luna’s optoelectronics business, which was divested in July 2018, are classified as discontinued operations in Luna’s results of operations for the three months ended June 30, 2018.  Highlights of the financial results for the three months ended June 30, 2019 are:

 

 

 

 

Three Months Ended June 30,

 

 

 

 

 

2019

 

2018

 

Change

Revenues:

 

 

 

 

 

 

Products and licensing

 

$

11,372,664

 

 

$

4,457,084

 

 

155.2

%

Technology development

 

6,440,999

 

 

5,466,280

 

 

17.8

%

 

   Total revenues

 

$

17,813,663

 

 

$

9,923,364

 

 

79.5

%

 

 

 

 

 

 

 

 

Gross profit

 

$

8,751,915

 

 

$

4,230,652

 

 

106.9

%

Gross margin

 

49.1

%

 

42.6

%

 

 

 

 

 

 

 

 

 

 

Operating expense

 

$

7,737,955

 

 

$

4,025,684

 

 

92.2

%

Operating income

 

$

1,013,960

 

 

$

204,968

 

 

394.7

%

 

 

 

 

 

 

 

 

Net income

 

$

840,292

 

 

$

1,067,328

 

 

(21.3

)%

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

2,395,658

 

 

$

549,736

 

 

335.8

%

 

 

 

 

 

 

 

 

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 June 30, 2019, increased compared to the prior year period due largely to the inclusion of the incremental revenues from the acquisitions mentioned above.  In addition, products and licensing revenue strongly increased from revenues associated with Luna’s communications test products and other Luna legacy products.  Technology development revenues increased for the three months ended June 30, 2019, compared to the prior-year period due to growth in various government research programs.

The increase in operating expenses was due primarily to $2.6 million in expenses associated with the acquired operations of MOI and GP.  Neither of these acquisitions were present in the second quarter of 2018.

Pre-tax income from continuing operations increased to $1.1 million for the three months ended June 30, 2019, compared to $0.3 million for the prior year fiscal quarter driven primarily by strong top-line performance and prudent expense management.

Net income attributable to common stockholders for the three months ended June 30, 2019, was $0.8 million, or $0.02 per fully diluted share, compared to net income attributable to common stockholders of $1.0 million, or $0.03 per fully diluted share, for the three months ended June 30, 2018.  The slight decrease in net income attributable to common stockholders was driven by the income from discontinued operations recognized in the second quarter of 2018.  Net income attributable to common stockholders for the three months ended June 30, 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 $2.4 million for the three months ended June 30, 2019, compared to $0.5 million for the three months ended June 30, 2018. The growth was driven by strong top-line growth from both organic businesses and acquisitions, and prudent expense management.

First-Half Fiscal 2019 Financial Summary

Highlights of the financial results for the six months ended June 30, 2019 are:

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

2019

 

2018

 

Change

Revenues:

 

 

 

 

 

 

Products and licensing

 

$

19,565,039

 

 

$

8,588,838

 

 

127.8

%

Technology development

 

13,081,742

 

 

10,103,056

 

 

29.5

%

 

   Total revenues

 

$

32,646,781

 

 

$

18,691,894

 

 

74.7

%

 

 

 

 

 

 

 

 

Gross profit

 

$

15,519,548

 

 

$

8,070,278

 

 

92.3

%

Gross margin

 

47.5

%

 

43.2

%

 

 

 

 

 

 

 

 

 

 

Operating expense

 

$

15,421,944

 

 

$

8,238,766

 

 

87.2

%

Operating income/(loss)

 

$

97,604

 

 

$

(168,488

)

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,966,171

 

 

$

1,216,003

 

 

61.7

%

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

3,335,274

 

 

$

497,398

 

 

570.5

%

 

 

 

 

 

 

 

 

2019 Full-Year Outlook:

Based upon a strong first-half 2019 performance, Luna is raising its 2019 outlook:

  • Total revenues in the range of $66 million to $69 million for full fiscal 2019, up from $60 million to $65 million; and
  • Adjusted EBITDA in the range of $7.2 million to $7.6 million for full fiscal 2019, up from $6.0 million to $6.5 million.

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, 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 and six months ended June 30, 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 1994289. 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 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-Q for the quarter ended March 31, 2019, 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 June 30,

 

Six Months Ended June 30,

 

2019

 

2018

 

2019

 

2018

 

(unaudited)

 

(unaudited)

Revenues:

 

 

 

 

 

 

 

Products and licensing

$

11,372,664

 

 

$

4,457,084

 

 

$

19,565,039

 

 

$

8,588,838

 

Technology development

6,440,999

 

 

5,466,280

 

 

13,081,742

 

 

10,103,056

 

Total revenues

17,813,663

 

 

9,923,364

 

 

32,646,781

 

 

18,691,894

 

Cost of revenues:

 

 

 

 

 

 

 

Products and licensing

4,577,774

 

 

1,747,585

 

 

7,827,112

 

 

3,322,988

 

Technology development

4,483,974

 

 

3,945,127

 

 

9,300,121

 

 

7,298,628

 

Total cost of revenues

9,061,748

 

 

5,692,712

 

 

17,127,233

 

 

10,621,616

 

Gross profit

8,751,915

 

 

4,230,652

 

 

15,519,548

 

 

8,070,278

 

Operating expense:

 

 

 

 

 

 

 

Selling, general and administrative

6,002,613

 

 

3,265,408

 

 

12,228,709

 

 

6,598,898

 

Research, development and engineering

1,735,342

 

 

760,276

 

 

3,193,235

 

 

1,639,868

 

Total operating expense

7,737,955

 

 

4,025,684

 

 

15,421,944

 

 

8,238,766

 

Operating income/(loss)

1,013,960

 

 

204,968

 

 

97,604

 

 

(168,488

)

Other income/(expense):

 

 

 

 

 

 

 

Investment income

76,813

 

 

99,844

 

 

268,020

 

 

175,756

 

Other expense

(3,056

)

 

(9,369

)

 

(4,452

)

 

(20,223

)

Interest expense

(52

)

 

(34,484

)

 

(12,775

)

 

(75,131

)

Total other income

73,705

 

 

55,991

 

 

250,793

 

 

80,402

 

Income/(loss) from continuing operations before income taxes

1,087,665

 

 

260,959

 

 

348,397

 

 

(88,086

)

Income tax expense/(benefit)

247,373

 

 

(38,269

)

 

(1,617,774

)

 

(115,236

)

Net income from continuing operations

840,292

 

 

299,228

 

 

1,966,171

 

 

27,150

 

Income from discontinued operations, net of income tax of ($59,864) and $18,499

 

 

768,100

 

 

 

 

1,188,853

 

Net income

840,292

 

 

1,067,328

 

 

1,966,171

 

 

1,216,003

 

Preferred stock dividend

89,549

 

 

63,235

 

 

172,607

 

 

127,660

 

Net income attributable to common stockholders

$

750,743

 

 

$

1,004,093

 

 

$

1,793,564

 

 

$

1,088,343

 

Net income per share from continuing operations:

 

 

 

 

 

 

 

Basic

$

0.03

 

 

$

0.01

 

 

$

0.07

 

 

$

 

Diluted

$

0.02

 

 

$

0.01

 

 

$

0.06

 

 

$

 

Net income per share from discontinued operations:

 

 

 

 

 

 

 

Basic

$

 

 

$

0.03

 

 

$

 

 

$

0.04

 

Diluted

$

 

 

$

0.02

 

 

$

 

 

$

0.04

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

Basic

$

0.03

 

 

$

0.04

 

 

$

0.06

 

 

$

0.04

 

Diluted

$

0.02

 

 

$

0.03

 

 

$

0.05

 

 

$

0.03

 

Weighted average common shares and common equivalent shares outstanding:

 

 

 

 

 

 

 

Basic

28,246,840

 

 

27,531,361

 

 

28,143,534

 

 

27,368,185

 

Diluted

33,650,790

 

 

31,506,745

 

 

33,588,951

 

 

31,257,277

 

 

Luna Innovations Incorporated
Consolidated Balance Sheets

 

June 30, 2019

 

December 31, 2018

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

23,537,673

 

 

$

42,460,267

 

 

Accounts receivable, net

13,845,438

 

 

13,037,068

 

 

Receivable from sale of HSOR business

2,500,375

 

 

2,500,000

 

 

Contract assets

3,094,279

 

 

2,422,495

 

 

Inventory

9,732,937

 

 

6,873,742

 

 

Prepaid expenses and other current assets

1,063,124

 

 

935,185

 

 

Total current assets

53,773,826

 

 

68,228,757

 

 

Long-term contract assets

386,350

 

 

336,820

 

 

Property and equipment, net

3,752,698

 

 

3,627,886

 

 

Intangible assets, net

10,952,448

 

 

3,302,270

 

 

Goodwill

10,345,249

 

 

101,008

 

 

Other assets

2,978,346

 

 

1,995

 

 

Total assets

$

82,188,917

 

 

$

75,598,736

 

 

Liabilities and stockholders’ equity

 

 

 

 

Liabilities:

 

 

 

 

Current liabilities:

 

 

 

 

Current portion of long-term debt obligations

$

 

 

$

619,315

 

 

Current portion of capital lease obligations

 

 

40,586

 

 

Accounts payable

3,000,066

 

 

2,395,984

 

 

Accrued liabilities

8,972,412

 

 

6,597,458

 

 

Contract liabilities

2,407,830

 

 

2,486,111

 

 

Total current liabilities

14,380,308

 

 

12,139,454

 

 

Long-term deferred rent

 

 

1,035,974

 

 

Other long-term liabilities

2,620,446

 

 

 

 

Long-term capital lease obligations

 

 

68,978

 

 

Total liabilities

17,000,754

 

 

13,244,406

 

 

Commitments and contingencies

 

 

 

 

Stockholders’ equity:

 

 

 

 

Preferred stock, par value $0.001, 1,321,514 shares authorized, issued and outstanding at June 30, 2019 and December 31, 2018

1,322

 

 

1,322

 

 

Common stock, par value $0.001, 100,000,000 shares authorized, 29,606,604 and 29,209,506 shares issued, 28,300,766 and 27,956,401 shares outstanding at June 30, 2019 and December 31, 2018, respectively

30,557

 

 

30,120

 

 

Treasury stock at cost, 1,305,838 and 1,253,105 shares at June 30, 2019 and December 31, 2018, respectively

(2,337,110

)

 

(2,116,640

)

 

Additional paid-in capital

87,004,906

 

 

85,744,750

 

 

Accumulated deficit

(19,511,512

)

 

(21,305,222

)

 

Total stockholders’ equity

65,188,163

 

 

62,354,330

 

 

Total liabilities and stockholders’ equity

$

82,188,917

 

 

$

75,598,736

 

 

 

Luna Innovations Incorporated
Consolidated Statements of Cash Flows

 

Six Months Ended June 30,

 

2019

 

2018

 

(unaudited)

Cash flows provided by/(used in) operating activities

 

 

 

Net income

$

1,966,171

 

 

$

1,216,003

 

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

 

 

 

Depreciation and amortization

1,165,609

 

 

622,577

 

Share-based compensation

720,649

 

 

212,149

 

Bad debt expense

 

 

6,000

 

Gain on sale of discontinued operations, net of tax

 

 

(1,000

)

Accounts receivable

712,805

 

 

(1,522,604

)

Contract assets

(721,315

)

 

(645,824

)

Inventory

(161,196

)

 

(482,194

)

Other current assets

(17,483

)

 

164,809

 

Accounts payable and accrued expenses

(2,313,551

)

 

(253,372

)

Contract liabilities

(234,854

)

 

(2,053,566

)

Net cash provided by/(used in) operating activities

1,116,835

 

 

(2,737,022

)

Cash flows used in investing activities

 

 

 

Acquisition of property and equipment

(405,795

)

 

(198,012

)

Intangible property costs

(136,852

)

 

(185,909

)

Acquisition of General Photonics Corporation

(19,004,250

)

 

 

Proceeds from sale of property and equipment

 

 

1,000

 

Net cash used in investing activities

(19,546,897

)

 

(382,921

)

Cash flows used in financing activities

 

 

 

Payments on finance lease obligations

(14,545

)

 

(25,309

)

Payments of debt obligations

(625,000

)

 

(916,665

)

Repurchase of common stock

(220,470

)

 

(466,894

)

Proceeds from the exercise of options and warrants

367,483

 

 

840,078

 

Net cash used in financing activities

(492,532

)

 

(568,790

)

Net decrease in cash and cash equivalents

(18,922,594

)

 

(3,688,733

)

Cash and cash equivalents-beginning of period

42,460,267

 

 

36,981,533

 

Cash and cash equivalents-end of period

$

23,537,673

 

 

$

33,292,800

 

 

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

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2019

 

2018

 

2019

 

2018

 

(unaudited)

 

(unaudited)

Net income

$

840,292

 

 

$

1,067,328

 

 

$

1,966,171

 

 

$

1,216,003

 

Less income from discontinued operations, net of income tax

 

 

768,100

 

 

 

 

1,188,853

 

Net income from continuing operations

840,292

 

 

299,228

 

 

1,966,171

 

 

27,150

 

Interest expense

52

 

 

34,484

 

 

12,775

 

 

75,131

 

Investment income

(76,813

)

 

(99,844

)

 

(268,020

)

 

(175,756

)

Tax expense/(benefit)

247,373

 

 

(38,269

)

 

(1,617,774

)

 

(115,236

)

Depreciation and amortization

652,585

 

 

236,594

 

 

1,165,609

 

 

473,960

 

EBITDA

1,663,489

 

 

432,193

 

 

1,258,761

 

 

285,249

 

Share-based compensation

377,884

 

 

117,543

 

 

720,649

 

 

212,149

 

Non-recurring charges (1)

43,674

 

 

 

 

941,716

 

 

 

Amortization of inventory step-up

310,611

 

 

 

 

414,148

 

 

 

Adjusted EBITDA

$

2,395,658

 

 

$

549,736

 

 

$

3,335,274

 

 

$

497,398

 

(1) Non-recurring charges consist of transaction-related expenses incurred during the six months ended June 30, 2019, related to the acquisition of General Photonics.

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