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Luna Innovations Reports Strong Third-Quarter 2022 Results

Q3 Highlights

  • Total revenues of $29.2 million, up 43% year-over-year
  • Total revenues in constant currency of $30.1 million; up 48% year-over-year
  • Gross margin of 58%, compared to 62% for the prior-year period
  • Net income of $1.2 million, compared to net income of $0.4 million for the prior-year period
  • Adjusted EBITDA of $4.5 million, compared to $2.1 million for the prior-year period
  • Adjusted EPS of $0.09, compared to $0.03 for the prior-year period

(ROANOKE, VA, November 10, 2022) - Luna Innovations Incorporated (NASDAQ: LUNA), a global leader in advanced optical technology, today announced its financial results for the three and nine months ended September 30, 2022.

"I'm extremely pleased with our performance in Q3, achieving over 40% growth in revenues and more than doubling Adjusted EBITDA versus last year," said Scott Graeff, President and Chief Executive Officer of Luna. "The team was able to achieve these strong financial results while still navigating a challenging supply chain and economic environment. And I’m particularly pleased that this quarter is more normative, positively reflecting the meaningful strategic moves and investments we’ve made over the past two years to refine Luna’s focus and realign our organization appropriately. Today, Luna Innovations is uniquely positioned to offer a breadth of solutions and capabilities in fiber technology.”

Graeff continued, “With three quarters now behind us, we feel very comfortable that we will finish 2022 within the ranges that we provided on our March earnings call. As always, we remain focused on execution, both to capitalize on important growth trends and to advance our strategy of Enabling the Future with Fiber.”

Third-Quarter Fiscal 2022 Financial Summary

Highlights of the financial results for the three months ended September 30, 2022 are:

 

 

 

Three Months Ended
September 30,

 

Change

(in thousands, except share and per share data)

 

2022

 

2021

 

 

Revenues

 

$ 29,153

 

$ 20,329

 

43

%

 

 

 

 

 

 

 

 

Gross profit

 

16,919

 

12,584

 

34

%

Gross margin

 

58 %

 

62 %

 

 

 

 

 

 

 

 

 

Operating expense

 

15,441

 

12,594

 

23

%

Operating income/(loss)

 

1,478

 

(10)

 

 

 

Operating margin

 

5 %

 

— %

 

 

 

 

 

 

 

 

 

 

Other expense, net and income tax expense

 

(310)

 

(334)

 

 

 

 

 

 

 

 

 

 

 

Net income/(loss) from continuing operations

 

$ 1,168

 

$ (344)

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of income taxes

 

28

 

699

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$ 1,196

 

$ 355

 

 

 

 

 

 

 

 

 

 

 

Income per diluted share (EPS)

 

$ 0.04

 

$ 0.01

 

 

 

Adjusted EPS

 

$ 0.09

 

$ 0.03

 

200

%

Diluted weighted average shares outstanding

 

34,104,850

 

33,780,714

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$ 4,544

 

$ 2,110

 

115

%

A reconciliation of Adjusted EPS and Adjusted EBITDA to the nearest comparable figures under generally accepted accounting principles ("GAAP") can be found in the schedules included in this release.

Revenues for the three months ended September 30, 2022 increased 43% compared to the prior-year period; 48% on a constant currency basis. 

Gross margin was 58% for the three months ended September 30, 2022, compared to 62% for the three months ended September 30, 2021, driven primarily by product mix. Operating income and margin were $1.5 million and 5% of total revenues, respectively, for the three months ended September 30, 2022, compared to an operating loss of $10 thousand dollars and less than 1% of total revenues, respectively, for the three months ended September 30, 2021. 

Net income was $1.2 million, or $0.04 per fully diluted share, for the three months ended September 30, 2022, compared to net income of $0.4 million, or $0.01 per fully diluted share, for the three months ended September 30, 2021. Adjusted EPS was $0.09 for the three months ended September 30, 2022 compared to $0.03 for the three months ended September 30, 2021.

Adjusted EBITDA was $4.5 million for three months ended September 30, 2022, compared to $2.1 million for the three months ended September 30, 2021.

Nine Months Ended Fiscal 2022 Financial Summary

Highlights of the financial results for the nine months ended September 30, 2022 are:

 

 

 

Nine Months Ended
September 30,

 

Change

(in thousands, except share and per share data)

 

2022

 

2021

 

 

Revenues

 

77,795

 

63,291

 

23

%

 

 

 

 

 

 

 

 

Gross profit

 

47,162

 

37,436

 

26

%

Gross margin

 

61 %

 

59 %

 

 

 

 

 

 

 

 

 

Operating expense

 

50,510

 

41,061

 

23

%

Operating loss

 

(3,348)

 

(3,625)

 

 

 

Operating margin

 

(4) %

 

(6) %

 

 

 

 

 

 

 

 

 

 

Other expense, net and income tax benefit

 

231

 

1,061

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$ (3,117)

 

$ (2,564)

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of income taxes

 

11,543

 

2,371

 

 

 

 

 

 

 

 

 

 

 

Net income/(loss)

 

$ 8,426

 

$ (193)

 

 

 

 

 

 

 

 

 

 

 

Earnings/(loss) per diluted share (EPS)

 

$ 0.26

 

$ (0.01)

 

 

 

Adjusted EPS

 

$ 0.12

 

$ 0.08

 

50

%

Diluted weighted average shares outstanding

 

32,492,276

 

33,585,973

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$ 7,450

 

$ 4,461

 

67

%

A reconciliation of Adjusted EPS and Adjusted EBITDA to the nearest comparable GAAP figures can be found in the schedules included in this release.

Revenues for the nine months ended September 30, 2022 increased 23% compared to the prior-year period; 25% on a constant currency basis.

Gross profit of $47.2 million for the nine months ended September 30, 2022 increased from $37.4 million for the nine months ended September 30, 2021 primarily due to higher sales. Operating loss and margin improved to $3.3 million and  4% of total revenues, respectively, for the nine months ended September 30, 2022, compared to $3.6 million and 6% of total revenues, respectively, for the nine months ended September 30, 2021.

Net income was $8.4 million, or $0.26 per fully diluted share, for the nine months ended September 30, 2022, compared to a net loss of $0.2 million, or $(0.01) per fully diluted share, for the nine months ended September 30, 2021. Adjusted EPS was $0.12 for the nine months ended September 30, 2022, compared to $0.08 for the nine months ended September 30, 2021.

Adjusted EBITDA was $7.5 million for the nine months ended September 30, 2022, compared to $4.5 million for the nine months ended September 30, 2021.

2022 Full-Year Outlook

Luna is reaffirming the 2022 revenue and adjusted EBITDA outlook it originally provided on March 14, 2022, which included the mid-March divestiture of Luna Labs and the acquisition of Lios. 

  • Total revenue of $109 million to $115 million for the full year 2022
  • Adjusted EBITDA of $10 million to $12 million for the full year 2022

Luna is not providing an outlook for net income, which is the most directly comparable 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, Adjusted EPS and revenue measured on a constant currency basis, which are non-GAAP financial measures. Adjusted EBITDA and Adjusted EPS exclude certain charges and income that are required by GAAP. Adjusted EBITDA and Adjusted EPS provide 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.

The Company calculates revenue measured on a constant currency basis by translating its foreign revenues for the relevant period in U.S. dollars at the average exchange rate in effect for the comparable prior year period. The Company presents revenue in this manner because it is a global company that transacts business in multiple currencies and reports financial information in U.S. dollars. Foreign currency exchange rate fluctuations affect the amounts reported by the Company in U.S. dollars with respect to its foreign revenues. Exchange rate fluctuations can have a significant effect on reported revenues. The Company believes presenting constant currency revenue information provides useful information to investors, as it provides information to assess how its businesses performed excluding the effects of changes in foreign currency exchange rates and assists investors in evaluating the effectiveness of the Company’s operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance.

Adjusted EBITDA, Adjusted EPS and revenue measured on a constant currency basis 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 and Adjusted EPS 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 will conduct an investor conference call at 5:00 pm (ET) today, November 10, 2022, to discuss its financial results for the three and nine months ended September 30, 2022.  The investor conference call will be available via live webcast on the Luna website at www.lunainc.com under the tab "Investor Relations." To participate by telephone, the domestic dial-in number is 1.877.270.2148 and the international dial-in number is.1.412.902.6510. Participants should ask to join the Luna Innovations Incorporated conference call and are advised to dial in at least fifteen minutes prior to the call. A replay of the conference call will be available on the company's website under "Webcasts and Presentations" for 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 a multitude of industries. 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 full year 2022 financial results and outlook, and the Company's ability to capitalize on growth trends. 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, uncertainties related to the ultimate impact of the COVID-19 pandemic and those risks and uncertainties set forth in Luna’s Form 10-Q for the quarter ended September 30, 2022, 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 Contact:

Allison Woody
Phone: 540-769-8465
Email: IR@lunainc.com

Luna Innovations Incorporated
Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)

 

September 30, 2022
(unaudited)

 

December 31, 2021

Assets

 

 

 

Current assets:

 

 

 

  Cash and cash equivalents

$ 7,889

 

$ 17,128

  Accounts receivable, net

29,295

 

20,913

  Contract assets

6,196

 

5,166

  Inventory

32,400

 

22,493

  Prepaid expenses and other current assets

4,744

 

3,793

  Assets held for sale

 

12,952

    Total current assets

80,524

 

82,445

Property and equipment, net

4,827

 

2,988

Intangible assets, net

18,964

 

17,177

Goodwill

27,215

 

18,984

Operating lease right-of-use assets

4,069

 

5,075

Other non-current assets

3,251

 

247

Deferred tax asset

6,397

 

3,321

Total assets

$145,247

 

$ 130,237

Liabilities and stockholders’ equity

 

 

 

Liabilities:

 

 

 

Current liabilities:

 

 

 

  Current portion of long-term debt obligations

$ 2,250

 

$ 4,167

  Accounts payable

5,370

 

2,809

  Accrued and other current liabilities

19,237

 

9,258

  Contract liabilities

4,850

 

4,649

  Current portion of operating lease liabilities

2,115

 

2,101

  Liabilities associated with assets held for sale

 

9,703

    Total current liabilities

33,822

 

32,687

Long-term debt obligations, net of current portion

19,465

 

11,673

Long-term portion of operating lease liabilities

2,374

 

3,509

Deferred tax liability

1,324

 

Other long-term liabilities

408

 

445

Total liabilities

57,393

 

48,314

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

Common stock, par value $0.001, 100,000,000 shares authorized, 34,650,827 and 33,855,725 shares issued, 32,865,870 and 32,116,270 shares outstanding at September 30, 2022 and December 31, 2021, respectively

35

 

34

Treasury stock at cost, 1,784,957 and 1,744,026 shares at September 30, 2022 and December 31, 2021, respectively

(5,542)

 

(5,248)

Additional paid-in capital

103,264

 

98,745

Accumulated deficit

(3,149)

 

(11,575)

Accumulated other comprehensive loss

(6,754)

 

(33)

  Total stockholders’ equity

87,854

 

81,923

    Total liabilities and stockholders’ equity

$ 145,247

 

$ 130,237

 

Luna Innovations Incorporated
Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2022

 

2021

 

2022

 

2021

 

 

 

 

Revenues

$29,153

 

$20,329

 

$77,795

 

$63,291

Cost of revenues

12,234

 

7,745

 

30,633

 

25,855

Gross profit

16,919

 

12,584

 

47,162

 

37,436

Operating expense:

 

 

 

 

 

 

 

  Selling, general and administrative

12,665

 

9,674

 

42,527

 

33,414

  Research, development and engineering

2,776

 

2,920

 

7,983

 

7,647

Total operating expense

15,441

 

12,594

 

50,510

 

41,061

Operating income/(loss)

1,478

 

(10)

 

(3,348)

 

(3,625)

Other income/(expense):

 

 

 

 

 

 

 

  Other income

73

 

 

146

 

  Interest expense, net

(218)

 

(110)

 

(442)

 

(375)

Total other expense, net

(145)

 

(110)

 

(296)

 

(375)

Income/(loss) from continuing operations before income taxes

1,333

 

(120)

 

(3,644)

 

(4,000)

Income tax expense/(benefit)

165

 

224

 

(527)

 

(1,436)

Net income/(loss) from continuing operations

1,168

 

(344)

 

(3,117)

 

(2,564)

Income from discontinued operations, net of income tax (benefit)/expense of ($78), $235, $88 and $381

28

 

699

 

622

 

2,371

  Gain on sale of discontinued operations, net of tax of $3,117

 

 

10,921

 

Net income from discontinued operations

28

 

699

 

11,543

 

2,371

Net income/(loss)

$1,196

 

$355

 

$8,426

 

$ (193)

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

 

 

 

 

 

 

 

  Basic

$ 0.04

 

$(0.01)

 

$(0.10)

 

$(0.08)

  Diluted

$ 0.03

 

$(0.01)

 

$(0.10)

 

$(0.08)

Net income per share from discontinued operations:

 

 

 

 

 

 

 

  Basic

$—

 

$ 0.02

 

$ 0.36

 

$ 0.08

  Diluted

$—

 

$ 0.02

 

$ 0.36

 

$ 0.07

Net income/(loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

  Basic

$ 0.04

 

$ 0.01

 

$ 0.26

 

$(0.01)

  Diluted

$ 0.04

 

$ 0.01

 

$ 0.26

 

$(0.01)

Weighted average shares:

 

 

 

 

 

 

 

  Basic

32,800,690

 

31,944,869

 

32,492,276

 

31,553,998

  Diluted

34,104,850

 

33,780,714

 

32,492,276

 

33,585,973

 

Luna Innovations Incorporated
Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

Nine Months Ended September 30,

 

2022

 

2021

 

 

Cash flows (used in)/provided by operating activities

 

 

 

  Net income/(loss)

$ 8,426

 

$(193)

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

 

 

 

    Depreciation and amortization

3,993

 

3,523

    Share-based compensation

3,204

 

2,230

    Gain from discontinued operations, net of tax

(10,921)

 

    Deferred taxes

(3,374)

 

(23)

  Change in assets and liabilities

 

 

 

    Accounts receivable

(6,166)

 

482

    Contract assets

(2,739)

 

837

    Inventory

(6,662)

 

(1,906)

    Other current assets

2,093

 

(1,752)

    Other long-term assets

599

 

    Accounts payable and accrued and other current liabilities

5,824

 

(1,681)

    Contract liabilities

2,425

 

(287)

    Other long term-liabilities

13

 

      Net cash (used in)/provided by operating activities

(3,285)

 

1,230

Cash flows used in investing activities

 

 

 

  Acquisition of property and equipment

(2,313)

 

(943)

  Intangible property costs

4

 

(215)

  Proceeds from sale of property and equipment

25

 

  Proceeds from sale of discontinued operations

12,973

 

  Acquisition of Lios

(22,085)

 

    Net cash used in investing activities

(11,396)

 

(1,158)

Cash flows provided by/(used in) financing activities

 

 

 

  Payments on finance lease obligations

(36)

 

(36)

  Proceeds from borrowings under debt obligations

22,150

 

  Payments of debt obligations

(16,275)

 

(3,110)

  Repurchase of common stock

(294)

 

(420)

  Proceeds from ESPP

521

 

530

  Proceeds from the exercise of options

1,160

 

2,076

    Net cash provided by/(used in) financing activities

7,226

 

(960)

Effect of exchange rate changes on cash and cash equivalents

(1,784)

 

277

Net decrease in cash and cash equivalents

(9,239)

 

(611)

Cash and cash equivalents-beginning of period

17,128

 

15,366

Cash and cash equivalents-end of period

$7,889

 

$14,755

 

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

(in thousands)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2022

 

2021

 

2022

 

2021

 

 

 

 

Net income/(loss)

$1,196

 

$355

 

$8,426

 

$(193)

Net income from discontinued operations

28

 

699

 

11,543>

 

2,371

Net income/(loss) from continuing operations

1,168

 

(344)

 

(3,117)

 

(2,564)

Interest expense, net

218

 

110

 

442

 

375

Income tax expense/(benefit)

165

 

224

 

(527)

 

(1,436)

Depreciation and amortization

1,299

 

1,131

 

3,993

 

3,440

  EBITDA

2,850

 

1,121

 

791

 

(185)

Share-based compensation

1,027

 

689

 

3,027

 

2,133

Integration and transaction expense

184

 

196

 

2,184

 

2,073

Amortization of inventory step-up

134

 

104

 

391

 

440

Other non-recurring charges (1)

349

 

 

1,057

 

  Adjusted EBITDA

$4,544

 

$2,110

 

$7,450

 

$4,461

(1) - Other non-recurring charges include severance, customer accommodation, facility consolidation and debt refinancing costs.

 

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

(in thousands, except per share data)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2022

 

2021

 

2022

 

2021

 

 

 

 

Net income/(loss)

$1,196

 

$355

 

$8,426

 

$(193)

Net income from discontinued operations

28

 

699

 

11,543

 

2,371

Net income/(loss) from continuing operations

1,168

 

(344)

 

(3,117)

 

(2,564)

Share-based compensation

1,027

 

689

 

3,027

 

2,133

Integration and transaction expense

184

 

196

 

2,184

 

2,073

Amortization of intangible assets

988

 

761

 

2,793

 

2,353

Amortization of inventory step-up

134

 

104

 

391

 

440

Other non-recurring charges (1)

349

 

 

1,057

 

Income tax effect on adjustments

(671)

 

(438)

 

(2,363)

 

(1,750)

  Adjusted income from continuing operations

$3,179

 

$968

 

$3,972

 

$2,685

 

 

 

 

 

 

 

 

Adjusted EPS

$0.09

 

$0.03

 

$0.12

 

$0.08

 

 

 

 

 

 

 

 

Adjusted weighted average shares (in thousands):

 

 

 

 

 

 

 

  Diluted

34,105

 

33,781

 

32,492

 

33,586

(1) - Other non-recurring charges include severance, customer accommodation, facility consolidation and debt refinancing costs.

 

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