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Luna Innovations Reports Strong Third-Quarter 2019 Results

November 5, 2019

ROANOKE, Va.--(BUSINESS WIRE)--Nov 5, 2019--

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, 2019.

“This was truly a quarter of noteworthy accomplishments, including continued margin expansion and reporting our eighth consecutive quarter of double-digit, year-over-year growth in revenues,” said Scott Graeff, President and Chief Executive Officer of Luna. “Given the strength of our year-to-date financial results and the visibility we have into the end of this fiscal year, we are again raising our 2019 outlook. We expect total revenues to be between $69 million to $70 million, and adjusted EBITDA to be between $8.2 million to $8.6 million.”

Graeff continued, “In addition, with Carilion’s conversion of their preferred shares to common, and the associated termination of preferred dividends, we significantly improved and simplified our capital structure. We also initiated and completed a $2 million stock buyback program. As a company, we will continue to focus on the execution of our strategic plan and initiatives that we believe will lead to substantial profitable growth.”

Third-Quarter Fiscal 2019 Financial Summary

Financial results for the three months ended September 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, as well as the gain recognized on the sale of that business in July 2018, are classified as discontinued operations in Luna’s results of operations for the three months ended September 30, 2018. Accordingly, net income for the third quarter of 2018 was significantly higher due to the inclusion of $7.6 million of income from discontinued operations. The third-quarter fiscal 2019 will be the last quarter in which discontinued operations comparisons related to Luna’s optoelectronic business and the gain related to the sale of that business will be relevant.

Highlights of the financial results for the three months ended September 30, 2019 are:

 

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

2019

 

2018

 

Change

Revenues:

 

 

 

 

 

Products and licensing

 

$

11,926,178

 

 

$

5,371,165

 

 

122

%

Technology development

 

6,494,832

 

 

5,315,861

 

 

22

%

 

Total revenues

 

18,421,010

 

 

10,687,026

 

 

72

%

 

 

 

 

 

 

 

Gross profit

 

9,285,174

 

 

4,688,611

 

 

98

%

Gross margin

 

50.4

%

 

43.9

%

 

 

 

 

 

 

 

 

 

Operating expense

 

7,801,173

 

 

4,107,114

 

 

90

%

Operating income

 

1,484,001

 

 

581,497

 

 

155

%

 

 

 

 

 

 

 

Other income and income taxes

 

(253,749)

 

711,279

 

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations

 

$

1,230,252

 

 

$

1,292,776

 

 

(5)

%

Diluted weighted average shares outstanding

 

32,115,847

 

 

33,055,881

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share from continuing operations (diluted)

 

$

0.04

 

 

$

0.04

 

 

--

%

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

2,883,429

 

 

$

935,302

 

 

204

%

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 September 30, 2019 increased compared to the prior year period, due to the inclusion of the incremental revenues associated with the acquired operations of MOI and GP, as well as increased revenues associated with Luna’s communications test products and Luna’s other legacy products. Technology development revenues increased for the three months ended September 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 an increase in expenses associated with the acquired operations of MOI and GP. Pre-tax income from continuing operations increased to $1.6 million for the three months ended September 30, 2019, compared to $0.7 million for the prior year fiscal quarter, driven primarily by revenue performance and prudent expense management.

Net income from continuing operations was $1.2 million, or $0.04 per fully diluted share, for the three months ended September 30, 2019, compared to $1.3 million, or $0.04, for the prior-year period. Net income attributable to common stockholders for the three months ended September 30, 2019, was $1.1 million, or $0.03 per fully diluted share, compared to net income attributable to common stockholders of $8.8 million, or $0.27 per fully diluted share, for the three months ended September 30, 2018. The decrease in net income attributable to common stockholders was driven by $7.6 million, or $0.23 per share, in income from discontinued operations recognized in the third quarter of 2018. Net income attributable to common stockholders for the three months ended September 30, 2019, also included $0.7 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 $2.9 million for the three months ended September 30, 2019, compared to $0.9 million for the three months ended September 30, 2018. The growth was driven by revenue growth from both Luna’s legacy business and the MOI and GP acquisitions, and prudent expense management.

Nine Months Year-to-Date Fiscal 2019 Financial Summary

Highlights of the financial results for the nine months ended September 30, 2019 are:

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

2019

 

2018

 

Change

Revenues:

 

 

 

 

 

 

Products and licensing

 

$

31,459,323

 

 

$

13,960,003

 

 

125

%

Technology development

 

19,576,574

 

 

15,418,919

 

 

27

%

 

Total revenues

 

51,035,897

 

 

29,378,922

 

 

74

%

 

 

 

 

 

 

 

 

Gross profit

 

24,803,780

 

 

12,865,624

 

 

93

%

Gross margin

 

48.6

%

 

43.8

%

 

 

 

 

 

 

 

 

 

 

Operating expense

 

23,205,283

 

 

12,411,561

 

 

87

%

Operating income

 

1,598,497

 

 

454,063

 

 

 

 

 

 

 

 

 

 

 

Other income and income taxes

 

1,597,925

 

 

906,096

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations

 

$

3,196,422

 

 

$

1,360,159

 

 

135

%

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

31,768,575

 

 

32,721,860

 

 

 

 

 

 

 

 

 

 

Net income per share from continuing operations (diluted)

 

$

0.10

 

 

$

0.04

 

 

150

%

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

6,235,310

 

 

$

1,507,294

 

 

314

%

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

2019 Full-Year Outlook:

Luna also is raising its 2019 outlook:

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 nine months ended September 30, 2019. 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 844.578.9643 and the international dial-in number is 270.823.1522. The participant access code is 8784037. Investors are advised to dial in at least five minutes prior to the call to register. The webcast will be archived 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 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 outlook, the strength and improvement in capital structure and the solidity of its balance sheet and cash flows, and growth potential. 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 September 30, 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.

 

Luna Innovations Incorporated

Consolidated Statements of Operations

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2019

 

2018

 

2019

 

2018

 

(unaudited)

 

(unaudited)

Revenues:

 

 

 

 

 

 

 

Products and licensing

$

11,926,178

 

 

$

5,371,165

 

 

$

31,459,323

 

 

$

13,960,003

 

Technology development

6,494,832

 

 

5,315,861

 

 

19,576,574

 

 

15,418,919

 

Total revenues

18,421,010

 

 

10,687,026

 

 

51,035,897

 

 

29,378,922

 

Cost of revenues:

 

 

 

 

 

 

 

Products and licensing

4,561,801

 

 

2,079,749

 

 

12,357,961

 

 

5,381,333

 

Technology development

4,574,035

 

 

3,918,666

 

 

13,874,156

 

 

11,131,965

 

Total cost of revenues

9,135,836

 

 

5,998,415

 

 

26,232,117

 

 

16,513,298

 

Gross profit

9,285,174

 

 

4,688,611

 

 

24,803,780

 

 

12,865,624

 

Operating expense:

 

 

 

 

 

 

 

Selling, general and administrative

5,753,649

 

 

3,233,485

 

 

17,964,524

 

 

9,898,064

 

Research, development and engineering

2,047,524

 

 

873,629

 

 

5,240,759

 

 

2,513,497

 

Total operating expense

7,801,173

 

 

4,107,114

 

 

23,205,283

 

 

12,411,561

 

Operating income

1,484,001

 

 

581,497

 

 

1,598,497

 

 

454,063

 

Other income/(expense):

 

 

 

 

 

 

 

Investment income

72,728

 

 

171,896

 

 

324,139

 

 

350,976

 

Other income/(expense)

278

 

 

8,319

 

 

(4,459

)

 

(16,001

)

Interest expense

(2,032

)

 

(28,029

)

 

(14,806

)

 

(103,208

)

Total other income

70,974

 

 

152,186

 

 

304,874

 

 

231,767

 

Income from continuing operations before income taxes

1,554,975

 

 

733,683

 

 

1,903,371

 

 

685,830

 

Income tax expense/(benefit)

324,723

 

 

(559,093

)

 

(1,293,051

)

 

(674,329

)

Net income from continuing operations

1,230,252

 

 

1,292,776

 

 

3,196,422

 

 

1,360,159

 

(Loss)/income from discontinued operations, net of income tax of $216,813 and $235,312 for the three and nine months ended September 30, 2018, respectively

 

 

(56,418

)

 

 

 

1,132,436

 

Gain on sale, net of income taxes of $1,866,232 and $1,508,373 for the three and nine months ended September 30, 2018, respectively

 

 

7,612,044

 

 

 

 

7,571,810

 

Net income from discontinued operations

 

 

7,555,626

 

 

 

 

8,704,246

 

Net income

1,230,252

 

 

8,848,402

 

 

3,196,422

 

 

10,064,405

 

Preferred stock dividend

112,846

 

 

63,235

 

 

285,450

 

 

190,895

 

Net income attributable to common stockholders

$

1,117,406

 

 

$

8,785,167

 

 

$

2,910,972

 

 

$

9,873,510

 

Net income per share from continuing operations:

 

 

 

 

 

 

 

Basic

$

0.04

 

 

$

0.05

 

 

$

0.11

 

 

$

0.05

 

Diluted

$

0.04

 

 

$

0.04

 

 

$

0.10

 

 

$

0.04

 

Net income per share from discontinued operations:

 

 

 

 

 

 

 

Basic

$

 

 

$

0.27

 

 

$

 

 

$

0.32

 

Diluted

$

 

 

$

0.23

 

 

$

 

 

$

0.27

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

Basic

$

0.04

 

 

$

0.31

 

 

$

0.10

 

 

$

0.36

 

Diluted

$

0.03

 

 

$

0.27

 

 

$

0.09

 

 

$

0.30

 

Weighted average common shares and common equivalent shares outstanding:

 

 

 

 

 

 

 

Basic

28,291,297

 

 

27,901,631

 

 

28,193,330

 

 

27,547,955

 

Diluted

32,115,847

33,055,881

31,768,575

32,721,860

 
 

Luna Innovations Incorporated
Consolidated Balance Sheets

 

 

September 30, 2019

 

December 31, 2018

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

21,414,272

 

 

$

42,460,267

 

 

Accounts receivable, net

16,796,252

 

 

13,037,068

 

 

Receivable from sale of HSOR business

2,500,941

 

 

2,500,000

 

 

Contract assets

3,441,771

 

 

2,422,495

 

 

Inventory

9,644,864

 

 

6,873,742

 

 

Prepaid expenses and other current assets

1,119,622

 

 

935,185

 

 

Total current assets

54,917,722

 

 

68,228,757

 

 

Long-term contract assets

423,830

 

 

336,820

 

 

Property and equipment, net

3,626,833

 

 

3,627,886

 

 

Intangible assets, net

10,570,347

 

 

3,302,270

 

 

Goodwill

10,345,250

 

 

101,008

 

 

Other assets

3,003,813

 

 

1,995

 

 

Total assets

$

82,887,795

 

 

$

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

2,636,783

 

 

2,395,984

 

 

Accrued liabilities

9,694,722

 

 

6,597,458

 

 

Contract liabilities

3,389,417

 

 

2,486,111

 

 

Total current liabilities

15,720,922

 

 

12,139,454

 

 

Long-term deferred rent

 

 

1,035,974

 

 

Other long-term liabilities

2,257,958

 

 

 

 

Long-term capital lease obligations

 

 

68,978

 

 

Total liabilities

17,978,880

 

 

13,244,406

 

 

Commitments and contingencies

 

 

 

 

Stockholders’ equity:

 

 

 

 

Preferred stock, par value $0.001, 1,321,514 shares authorized, 0 and 1,321,514 issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

1,322

 

 

Common stock, par value $0.001, 100,000,000 shares authorized, 31,798,062 and 29,209,506 shares issued, 30,158,271 and 27,956,401 shares outstanding at September 30, 2019 and December 31, 2018, respectively

31,998

 

 

30,120

 

 

Treasury stock at cost, 1,639,791 and 1,253,105 shares at September 30, 2019 and December 31, 2018, respectively

(4,337,107

)

 

(2,116,640

)

 

Additional paid-in capital

87,608,274

 

 

85,744,750

 

 

Accumulated deficit

(18,394,250

)

 

(21,305,222

)

 

Total stockholders’ equity

64,908,915

 

 

62,354,330

 

 

Total liabilities and stockholders’ equity

$

82,887,795

 

 

$

75,598,736

 

 

 

Luna Innovations Incorporated
Consolidated Statements of Cash Flows

 

 

Nine Months Ended September 30,

 

2019

 

2018

 

(unaudited)

Cash flows provided by/(used in) operating activities

 

 

 

Net income

$

3,196,422

 

 

$

10,064,405

 

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

 

 

 

Depreciation and amortization

1,834,594

 

 

898,215

 

Share-based compensation

1,140,202

 

 

345,582

 

Bad debt expense

 

 

6,000

 

Gain on disposal of fixed assets

 

 

(1,000

)

Gain on sale of discontinued operations, net of tax

 

 

(7,571,810

)

Tax benefit from release of valuation allowance

(1,889,266

)

 

 

Change in assets and liabilities

 

 

 

Accounts receivable

(2,238,234

)

 

(4,056,716

)

Contract assets

(1,106,286

)

 

(957,012

)

Inventory

(73,122

)

 

(992,075

)

Other current assets

(74,321

)

 

482,155

 

Other long term assets

(338,347

)

 

 

Accounts payable and accrued expenses

(113,414

)

 

243,965

 

Contract liabilities

746,732

 

 

(1,906,117

)

Net cash provided by/(used in) operating activities

1,084,960

 

 

(3,444,408

)

Cash flows (used in)/provided by investing activities

 

 

 

Acquisition of property and equipment

(500,562

)

 

(272,039

)

Intangible property costs

(192,203

)

 

(277,068

)

Acquisition of General Photonics Corporation

(19,004,250

)

 

 

Proceeds from sale of property and equipment

 

 

1,000

 

Proceeds from sales of discontinued operations

 

 

14,775,541

 

Net cash (used in)/provided by investing activities

(19,697,015

)

 

14,227,434

 

Cash flows used in financing activities

 

 

 

Payments on finance lease obligations

(26,901

)

 

(33,064

)

Payments of debt obligations

(625,000

)

 

(1,375,000

)

Repurchase of common stock

(2,220,467

)

 

(466,894

)

Proceeds from the exercise of options and warrants

438,428

 

 

1,255,118

 

Net cash used in financing activities

(2,433,940

)

 

(619,840

)

Net (decrease)/increase in cash and cash equivalents

(21,045,995

)

 

10,163,186

 

Cash and cash equivalents-beginning of period

42,460,267

 

 

36,981,533

 

Cash and cash equivalents-end of period

$

21,414,272

 

 

$

47,144,719

 

 

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

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2019

 

2018

 

2019

 

2018

 

(unaudited)

 

(unaudited)

Net income

$

1,230,252

 

 

$

8,848,402

 

 

$

3,196,422

 

 

$

10,064,405

 

Less income from discontinued operations, net of income tax

 

 

7,555,626

 

 

 

 

8,704,246

 

Net income from continuing operations

1,230,252

 

 

1,292,776

 

 

3,196,422

 

 

1,360,159

 

Interest expense

2,032

 

 

28,029

 

 

14,806

 

 

103,208

 

Investment income

(72,728

)

 

(171,896

)

 

(324,139

)

 

(350,976

)

Tax expense/(benefit)

324,723

 

 

(559,093

)

 

(1,293,051

)

 

(674,329

)

Depreciation and amortization

668,985

 

 

212,054

 

 

1,834,594

 

 

723,650

 

EBITDA

2,153,264

 

 

801,870

 

 

3,428,632

 

 

1,161,712

 

Share-based compensation

419,553

 

 

133,432

 

 

1,140,202

 

 

345,582

 

Non-recurring charges (1)

 

 

 

 

941,716

 

 

 

Amortization of inventory step-up

310,612

 

 

 

 

724,760

 

 

 

Adjusted EBITDA

$

2,883,429

 

 

$

935,302

 

 

$

6,235,310

 

 

$

1,507,294

 

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

View source version on businesswire.com:https://www.businesswire.com/news/home/20191105005959/en/

CONTACT: Investor Contacts:

Jane Bomba

Luna Innovations Incorporated

Phone: 303-829-1211

Email:IR@lunainc.comSally J. Curley

Luna Innovations Incorporated

614-530-3002

IR@lunainc.com

KEYWORD: UNITED STATES NORTH AMERICA DISTRICT OF COLUMBIA VIRGINIA

INDUSTRY KEYWORD: SOFTWARE TECHNOLOGY NANOTECHNOLOGY TELECOMMUNICATIONS

SOURCE: Luna Innovations Incorporated

Copyright Business Wire 2019.

PUB: 11/05/2019 04:05 PM/DISC: 11/05/2019 04:05 PM

http://www.businesswire.com/news/home/20191105005959/en