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Luna Innovations Reports Record Second Quarter 2018

(ROANOKE, VA, August 1, 2018) - Luna Innovations Incorporated (NASDAQ: LUNA), a global leader in advanced optical technology, today reported record financial results for the three and six months ended June 30, 2018.

  • Fifth consecutive quarter of year-over-year revenue growth and positive net income from continuing operations
  • Total revenues of $13.8 million for the three months ended June 30, 2018, up 22% compared to the three months ended June 30, 2017
  • Net income improved significantly to $1.1 million for the three months ended June 30, 2018, compared to $(0.2) million for the prior-year fiscal quarter
  • Adjusted EBITDA improved to $1.3 million for the three months ended June 30, 2018 compared to $0.6 million for the prior-year fiscal quarter

Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") is a non-GAAP financial metric used by management to measure operating performance. This term is defined elsewhere in this release. Please see schedules appearing later in this release for reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures.

“I’m very proud of the Luna team for driving the businesses to another strong quarter of growth,” said Scott Graeff, President and Chief Executive Officer of Luna.  “The double-digit revenue percentage increases we saw across our business segments led to strong revenue growth year-over-year, and we achieved positive net income from continuing operations for a record fifth consecutive quarter.”

In a separate release issued today, Luna also announced it has sold its Optoelectronic Solutions business to OSI Optoelectronics, Inc. a subsidiary of OSI Systems, Inc., a leader in the development and manufacture of optoelectronic OEM and custom solutions for leading technologies and industries.

“As we’ve mentioned previously, we are well positioned to drive growth in Luna’s core fiber optic-based test and measurement business to better serve this rapidly expanding market, which is projected to grow to more than $9 billion by 2025,” Graeff continued. “Divesting our Optoelectronics Solutions business to an industry leader such as OSI allows us to focus on our core strengths and competitive advantages, as well as underscores our overall reputation for technological excellence. Culturally, the divestiture is a great fit with OSI, and we thank all of the Optoelectronic Solutions employees for their many contributions while they were part of the Luna team.”

Second-Quarter and Six-Month Financial Summary

Total revenues for the three months ended June 30, 2018 were $13.8 million compared to $11.3 million for the three months ended June 30, 2017.  Technology development revenues increased 19% to $5.5 million for the three months ended June 30, 2018, compared to $4.6 million for the three months ended June 30, 2017.  Total products and licensing revenues increased 24% to $8.3 million for the three months ended June 30, 2018, compared to $6.7 million for the three months ended June 30, 2017.    The increase in the products and licensing revenues for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 was partially due to a 146% increase in sensing equipment, which includes Luna's ODiSI products.   The increase in technology development revenues for the three months ended June 30, 2018 compared to the prior-year period was due to continued growth in government research in advancing optical and bio-medical technologies and Luna's success in winning these research contracts.

Gross profit was $5.7 million, or 41% of revenues, for the three months ended June 30, 2018, compared to gross profit of $4.4 million, or 39% of revenues, for the three months ended June 30, 2017.

Selling, general and administrative ("SG&A") expenses were $3.8 million for the three months ended June 30, 2018, compared to $3.4 million for the three months ended June 30, 2017.  Research, development and engineering ("R&D") expenses were $1.0 million for the three months ended June 30, 2018, compared to $0.8 million for the three months ended June 30, 2017. The increase in SG&A and in R&D expenses were due partially to the hiring of additional sales and marketing professionals as well as engineers in the Lightwave division, Luna's fiber optic test and measurement business.

Net income from continuing operations improved to $1.1 million for the three months ended June 30, 2018, compared to $0.1 million for the three months ended June 30, 2017.

Net income attributable to common stockholders for the three months ended June 30, 2018 was $1.0 million, compared to a net loss attributable to common stockholders of $(0.3) million for the three months ended June 30, 2017.  Adjusted EBITDA was $1.3 million for the three months ended June 30, 2018, compared to $0.6 million for the three months ended June 30, 2017.

For the first six months of fiscal 2018, Luna reported net income of $1.2 million compared to a net loss of $(1.6) million.  Net income from continuing operations improved by $2.0 million, to $1.2 million, or $0.04 per share, for the six months ended June 30, 2018, compared to a net loss from continuing operations of $(0.8) million, or $(0.03) per share, for the six months ended June 30, 2017.  Adjusted EBITDA was $1.9 million for the six months ended June 30, 2018 compared $0.4 million for the six months ended June 30, 2017.  A reconciliation of net income/(loss) to adjusted EBITDA can be found in the schedules included in this release.

Non-GAAP 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 generally accepted accounting principles (“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 8:30 am (EDT) today to discuss its financial results for the three and six months ended June 30, 2018, the sale of the Optoelectronic Solutions business  and other recent business developments. 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 9985726. 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 test products for the telecommunications industry and distributed fiber optic 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 growth potential, the growth of the fiber optic-based test and measurement market, 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 periodic reports and other 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.

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Luna Innovations Incorporated
Consolidated Statements of Operations

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

2018

 

2017

 

 

2018

 

2017

 

(unaudited)

 

 

(unaudited)

Revenues:

 

 

 

 

 

 

 

 

Technology development

$

5,466,281

 

 

$

4,602,272

 

 

 

$

10,103,056

 

 

$

8,838,375

 

Products and licensing

8,306,367

 

 

6,690,759

 

 

 

15,862,763

 

 

12,541,554

 

Total revenues

13,772,648

 

 

11,293,031

 

 

 

25,965,819

 

 

21,379,929

 

Cost of revenues:

 

 

 

 

 

 

 

 

Technology development

3,945,126

 

 

3,443,954

 

 

 

7,298,628

 

 

6,553,423

 

Products and licensing

4,155,054

 

 

3,482,867

 

 

 

7,968,605

 

 

6,583,913

 

Total cost of revenues

8,100,180

 

 

6,926,821

 

 

 

15,267,233

 

 

13,137,336

 

Gross profit

5,672,468

 

 

4,366,210

 

 

 

10,698,586

 

 

8,242,593

 

Operating expense:

 

 

 

 

 

 

 

 

Selling, general and administrative

3,767,456

 

 

3,367,716

 

 

 

7,577,072

 

 

7,089,889

 

Research, development and engineering

1,003,863

 

 

818,891

 

 

 

2,105,352

 

 

1,747,662

 

Total operating expense

4,771,319

 

 

4,186,607

 

 

 

9,682,424

 

 

8,837,551

 

Operating income/(loss)

901,149

 

 

179,603

 

 

 

1,016,162

 

 

(594,958

)

Other income/(expense):

 

 

 

 

 

 

 

 

Investment income

100,846

 

 

 

 

 

175,756

 

 

 

Other income/(expense)

1,187

 

 

(1,225

)

 

 

2,583

 

 

(869

)

Interest expense

(33,988

)

 

(60,386

)

 

 

(75,234

)

 

(124,760

)

Total other income/(expense)

68,045

 

 

(61,611

)

 

 

103,105

 

 

(125,629

)

Income/(loss) from continuing operations before income taxes

969,194

 

 

117,992

 

 

 

1,119,267

 

 

(720,587

)

Income tax (benefit)/expense

(98,133

)

 

40,937

 

 

 

(96,736

)

 

67,627

 

Net income/(loss) from continuing operations

1,067,327

 

 

77,055

 

 

 

1,216,003

 

 

(788,214

)

Loss from discontinued operations, net of income tax of $0

 

 

(298,817

)

 

 

 

 

(789,534

)

Net loss from discontinued operations

 

 

(298,817

)

 

 

 

 

(789,534

)

Net income/(loss)

1,067,327

 

 

(221,762

)

 

 

1,216,003

 

 

(1,577,748

)

Preferred stock dividend

63,235

 

 

29,536

 

 

 

127,660

 

 

63,632

 

Net income/(loss) attributable to common stockholders

$

1,004,092

 

 

$

(251,298

)

 

 

$

1,088,343

 

 

$

(1,641,380

)

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

 

 

 

 

 

 

 

 

Basic

$

0.04

 

 

$

 

 

 

$

0.04

 

 

$

(0.03

)

Diluted

$

0.03

 

 

$

 

 

 

$

0.04

 

 

$

(0.03

)

Net loss per share from discontinued operations:

 

 

 

 

 

 

 

 

Basic

$

 

 

$

(0.01

)

 

 

$

 

 

$

(0.03

)

Diluted

$

 

 

$

(0.01

)

 

 

$

 

 

$

(0.03

)

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

 

 

 

 

 

 

 

 

Basic

$

0.04

 

 

$

(0.01

)

 

 

$

0.04

 

 

$

(0.06

)

Diluted

$

0.03

 

 

$

(0.01

)

 

 

$

0.03

 

 

$

(0.06

)

Weighted average common shares and common equivalent shares outstanding:

 

 

 

 

 

 

 

 

Basic

27,531,361

 

 

27,600,147

 

 

 

27,368,185

 

 

27,570,919

 

Diluted

31,506,745

 

 

32,579,379

 

 

 

31,257,277

 

 

27,570,919

 

 

Luna Innovations Incorporated
Consolidated Balance Sheets

 

June 30, 2018

 

December 31, 2017

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

33,292,800

 

 

$

36,981,533

 

 

Accounts receivable, net

9,385,772

 

 

7,869,168

 

 

Receivable from sale of HSOR business

4,001,833

 

 

4,000,976

 

 

Contract assets

3,231,770

 

 

1,778,142

 

 

Inventory

6,906,998

 

 

6,951,110

 

 

Prepaid expenses and other current assets

1,054,984

 

 

1,220,650

 

 

Total current assets

57,874,157

 

 

58,801,579

 

 

Long-term contract assets

308,093

 

 

209,699

 

 

Property and equipment, net

3,323,749

 

 

3,453,741

 

 

Intangible assets, net

3,137,083

 

 

3,237,593

 

 

Goodwill

502,000

 

 

502,000

 

 

Other assets

18,024

 

 

18,024

 

 

Total assets

$

65,163,106

 

 

$

66,222,636

 

 

Liabilities and stockholders’ equity

 

 

 

 

Liabilities:

 

 

 

 

Current liabilities:

 

 

 

 

Current portion of long-term debt obligations

$

1,527,828

 

 

$

1,833,333

 

 

Current portion of capital lease obligations

34,661

 

 

43,665

 

 

Accounts payable

3,787,701

 

 

2,962,863

 

 

Accrued liabilities

5,554,481

 

 

6,557,649

 

 

Contract liabilities

1,400,922

 

 

3,428,625

 

 

Total current liabilities

12,305,593

 

 

14,826,135

 

 

Long-term deferred rent

1,109,397

 

 

1,184,438

 

 

Long-term debt obligations

 

 

603,007

 

 

Long-term capital lease obligations

54,970

 

 

71,275

 

 

Total liabilities

13,469,960

 

 

16,684,855

 

 

Commitments and contingencies

 

 

 

 

Stockholders’ equity:

 

 

 

 

Preferred stock, par value $0.001, 1,321,514 shares authorized, issued and outstanding at June 30, 2018 and December 31, 2017

1,322

 

 

1,322

 

 

Common stock, par value $0.001, 100,000,000 shares authorized, 29,025,529 and 28,354,822 shares issued, 27,772,424 and 27,283,918 shares outstanding at June 30, 2018 and December 31, 2017

29,897

 

 

29,186

 

 

Treasury stock at cost, 1,253,105 and 1,070,904 shares at June 30, 2018 and December 31, 2017

(2,116,640

)

 

(1,649,746

)

 

Additional paid-in capital

84,742,385

 

 

83,563,208

 

 

Accumulated deficit

(30,963,818

)

 

(32,406,189

)

 

Total stockholders’ equity

51,693,146

 

 

49,537,781

 

 

Total liabilities and stockholders’ equity

$

65,163,106

 

 

$

66,222,636

 

 

 

Luna Innovations Incorporated
Consolidated Statements of Cash Flows

 

Six Months Ended June 30,

 

2018

 

2017

 

(unaudited)

Cash flows used in operating activities

 

 

 

Net income/(loss)

$

1,216,003

 

 

$

(1,577,748

)

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

 

 

 

Depreciation and amortization

622,577

 

 

1,753,748

 

Share-based compensation

212,149

 

 

321,756

 

Bad debt expense

6,000

 

 

40,753

 

Gain on disposal of fixed assets

(1,000

)

 

(670

)

Change in assets and liabilities

 

 

 

Accounts receivable

(1,522,604

)

 

1,433,014

 

Contract assets

(645,824

)

 

(326,333

)

Inventory

(482,194

)

 

(1,170,519

)

Other current assets

164,809

 

 

325,005

 

Accounts payable and accrued expenses

(253,372

)

 

(894,315

)

Contract liabilities

(2,053,566

)

 

(215,555

)

Net cash used in operating activities

(2,737,022

)

 

(314,321

)

Cash flows used in investing activities

 

 

 

Acquisition of property and equipment

(198,012

)

 

(796,217

)

Intangible property costs

(185,909

)

 

(318,942

)

Proceeds from sale of property and equipment

1,000

 

 

3,000

 

Net cash used in investing activities

(382,921

)

 

(1,112,159

)

Cash flows used in financing activities

 

 

 

Payments on capital lease obligations

(25,309

)

 

(25,611

)

Payments of debt obligations

(916,665

)

 

(916,666

)

Repurchase of common stock

(466,894

)

 

(143,266

)

Proceeds from the exercise of options and warrants

840,078

 

 

820

 

Net cash used in financing activities

(568,790

)

 

(1,084,723

)

Net decrease in cash or cash equivalents

(3,688,733

)

 

(2,511,203

)

Cash and cash equivalents-beginning of period

36,981,533

 

 

12,802,458

 

Cash and cash equivalents-end of period

$

33,292,800

 

 

$

10,291,255

 

 

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

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2018

 

2017

 

2018

 

2017

 

(unaudited)

 

(unaudited)

Net income/(loss)

$

1,067,327

 

 

$

(221,762

)

 

$

1,216,003

 

 

$

(1,577,748

)

Less loss from discontinued operations, net of income taxes

 

 

(298,817

)

 

 

 

(789,534

)

Net income/(loss) from continuing operations

1,067,327

 

 

77,055

 

 

1,216,003

 

 

(788,214

)

Interest expense

33,988

 

 

60,386

 

 

75,234

 

 

124,760

 

Investment income

(100,846

)

 

 

 

(175,756

)

 

 

Tax expense

(98,133

)

 

40,937

 

 

(96,736

)

 

67,627

 

Depreciation and amortization

314,725

 

 

285,253

 

 

622,577

 

 

646,145

 

EBITDA

1,217,061

 

 

463,631

 

 

1,641,322

 

 

50,318

 

Share-based compensation

117,823

 

 

151,672

 

 

212,149

 

 

321,756

 

Adjusted EBITDA

$

1,334,884

 

 

$

615,303

 

 

$

1,853,471

 

 

$

372,074

 

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Investor Contact:
Jane Bomba
Luna Innovations Incorporated
Phone: 1.303.829.1211
Email: [email protected]