LUNA Luna Innovations Incorporated

Net loss improved to $(0.2) million for the three months ended June 30, 2017 compared to $(0.8) million for the three months ended June 30, 2016. Adjusted EBITDA improved to $0.8 million for the three months ended June 30, 2017 compared to $0.4 million for the three months ended June 30, 2016.

Luna Innovations Incorporated (NASDAQ: LUNA) today announced its financial results for the three and six months ended June 30, 2017.

For the three months ended June 30, 2017, Luna reported revenues of $13.6 million and a net loss of $(0.2) million compared to revenues of $14.6 million and a net loss of $(0.8) million for the three months ended June 30, 2016. Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") was $0.8 million for the three months ended June 30, 2017 compared to $0.4 million for the three months ended June 30, 2016. A reconciliation of net loss to Adjusted EBITDA can be found in the schedules included in this release.

“The second quarter saw a significant rebound in sales of our test & measurement instruments," said My Chung, president and chief executive officer of Luna. "Product sales in our Luna Technologies brand in the second quarter increased 22% year over year and 62% sequentially, substantially offsetting the financial impact of continued softness in the China market for optical receivers. With the higher margins provided by growth in our test & measurement product sales and continued focus on expense control, we improved our net loss by $0.5 million year over year. The recently announced sale of our high speed optical receiver business provides the opportunity for a more dedicated focus on growing the higher margin instrument business."

Second Quarter Financial Summary

Total revenues for the three months ended June 30, 2017 were $13.6 million compared to $14.6 million for the three months ended June 30, 2016. Technology development revenues increased 12% to $4.6 million for the three months ended June 30, 2017, compared to $4.1 million for the three months ended June 30, 2016. Products and licensing revenues were $9.0 million for the three months ended June 30, 2017, compared to $10.5 million for the three months ended June 30, 2016. The decrease in Products and licensing revenues was primarily driven by lower sales of Luna's 100G integrated coherent receivers in China.

Gross profit was $5.1 million, or 37% of revenues, for the three months ended June 30, 2017, compared to gross profit of $5.2 million, or 35% of revenues, for the three months ended June 30, 2016. The increase in gross margin in the second quarter of 2017 resulted from increased sales of test & measurement products, which typically have higher average margins than Luna's other products and services.

Selling, general and administrative expenses were $3.9 million for the three months ended June 30, 2017, compared to $4.6 million for the three months ended June 30, 2016. The decrease in selling, general and administrative expense was due to a $0.2 million decrease in incentive compensation, a $0.1 million reduction in share-based compensation expense, a $0.2 million reduction in sales-related expenses, and a $0.1 million reduction in amortization expense.

Research, development and engineering expenses increased slightly to $1.3 million for the three months ended June 30, 2017 compared to $1.2 million for the three months ended June 30, 2016.

Operating loss improved to $(0.1) million for the three months ended June 30, 2017, compared to an operating loss of $(0.7) million for the three months ended June 30, 2016. Net loss attributable to common stockholders improved to $(0.3) million for the three months ended June 30, 2017, compared to a net loss attributable to common stockholders of $(0.8) million for the three months ended June 30, 2016. Adjusted EBITDA was $0.8 million for the three months ended June 30, 2017 compared to $0.4 million for the three months ended June 30, 2016.

Year to Date Financial Summary

Total revenues for the six months ended June 30, 2017, were $26.7 million, compared to $28.6 million for the six months ended June 30, 2016. Technology development revenues increased 13% to $8.9 million for the six months ended June 30, 2017, compared to $7.9 million for the six months ended June 30, 2016. Products and licensing revenues were $17.8 million for the six months ended June 30, 2017, compared to $20.8 million for the six months ended June 30, 2016. Revenues from sales of test & measurement instruments increased 16%, partially offsetting lower revenues from high speed optical receiver products in China.

Gross profit decreased to $9.8 million, or 37%, of revenues for the six months ended June 30, 2017, compared to $10.0 million, or 35% of revenues, for the six months ended June 30, 2016.

Selling, general and administrative expenses decreased to $8.4 million for the six months ended June 30, 2017, compared to $9.2 million for the six months ended June 30, 2016. The decrease in selling, general and administrative expenses resulted primarily from lower selling related expenses due to lower revenues in the products and licensing segment in addition to lower share based compensation expense.

Research, development and engineering expenses were substantially unchanged at $2.7 million for the six months ended June 30, 2017 and $2.8 million for the six months ended June 30, 2016.

Operating loss improved to $(1.4) million for the six months ended June 30, 2017, compared to $(2.0) million for the six months ended June 30, 2016. Net loss attributable to common stockholders improved to $(1.6) million for the six months ended June 30, 2017, compared to $(2.3) million for the six months ended June 30, 2016. Adjusted EBITDA increased to $0.7 million for the six months ended June 30, 2017, compared to $0.3 million for the six months ended June 30, 2016.

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 11:30 a.m. (EDT) today to discuss its financial results for the three and six months ended June 30, 2017, and 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 56973945. 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 speed optoelectronics and 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 the potential benefits of Luna’s sale of its high speed optical receiver business. 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, technological 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.

 

Luna Innovations Incorporated

Consolidated Statements of Operations

        Three Months Ended June 30,     Six Months Ended June 30, 2017     2016 2017     2016 (unaudited) (unaudited) Revenues: Technology development $ 4,625,175 $ 4,137,382 $ 8,901,624 $ 7,860,644 Products and licensing   8,951,296     10,509,522     17,793,232     20,773,273   Total revenues   13,576,471     14,646,904     26,694,856     28,633,917   Cost of revenues: Technology development 3,439,118 3,181,447 6,661,474 6,061,282 Products and licensing   5,056,449     6,294,607     10,277,225     12,558,180   Total cost of revenues   8,495,567     9,476,054     16,938,699     18,619,462   Gross profit   5,080,904     5,170,850     9,756,157     10,014,455   Operating expense: Selling, general and administrative 3,936,207 4,581,776 8,431,911 9,227,060 Research, development and engineering   1,263,911     1,240,655     2,708,738     2,791,146   Total operating expense   5,200,118     5,822,431     11,140,649     12,018,206   Operating loss   (119,214 )   (651,581 )   (1,384,492 )   (2,003,751 ) Other income (expense): Other expense (1,225 ) (39,489 ) (869 ) (35,545 ) Interest expense   (60,386 )   (78,906 )   (124,760 )   (165,079 ) Total other expense   (61,611 )   (118,395 )   (125,629 )   (200,624 ) Loss before income taxes (180,825 ) (769,976 ) (1,510,121 ) (2,204,375 ) Income tax expense   40,937     1,000     67,627     26,175   Net loss (221,762 ) (770,976 ) (1,577,748 ) (2,230,550 ) Preferred stock dividend   29,536     24,580     63,632     45,790   Net loss attributable to common stockholders $ (251,298 ) $ (795,556 ) $ (1,641,380 ) $ (2,276,340 ) Net loss per share attributable to common stockholders: Basic and diluted $ (0.01 ) $ (0.03 ) $ (0.06 ) $ (0.08 ) Weighted average common shares and common equivalent shares outstanding: Basic and diluted   27,600,147     27,557,960     27,570,919     27,517,792      

Luna Innovations Incorporated

Consolidated Balance Sheets

        June 30, 2017     December 31, 2016 (unaudited) Assets Current assets: Cash and cash equivalents $ 10,291,255 $ 12,802,458 Accounts receivable, net 13,150,291 14,297,725 Inventory 9,540,754 8,370,235 Prepaid expenses and other current assets   1,266,090     1,627,175   Total current assets 34,248,390 37,097,593 Property and equipment, net 6,882,576 6,780,838 Intangible assets, net 8,003,009 8,681,263 Goodwill 2,348,331 2,348,331 Other assets   68,778     88,948   Total assets $ 51,551,084   $ 54,996,973   Liabilities and stockholders’ equity Liabilities: Current liabilities: Current portion of long-term debt obligations $ 1,833,333 $ 1,833,333 Current portion of capital lease obligations 52,404 52,128 Accounts payable 3,958,144 4,466,192 Accrued liabilities 8,131,316 8,667,100 Deferred revenue   946,146     949,603   Total current liabilities 14,921,343 15,968,356 Long-term deferred rent 1,337,893 1,403,957 Long-term debt obligations 1,511,520 2,420,032 Long-term capital lease obligations   89,054     114,940   Total liabilities   17,859,810     19,907,285   Commitments and contingencies Stockholders’ equity: Preferred stock, par value $0.001, 1,321,514 shares authorized, issued and outstanding at June 30, 2017 and December 31, 2016 1,322 1,322 Common stock, par value $0.001, 100,000,000 shares authorized, 28,226,436 and 27,988,104 shares issued, 27,688,710 and 27,541,277 shares outstanding at June 30, 2017 and December 31, 2016 28,878 28,600 Treasury stock at cost, 537,727 and 446,827 shares at June 30, 2017 and December 31, 2016 (661,253 ) (517,987 ) Additional paid-in capital 82,837,888 82,451,958 Accumulated deficit   (48,515,561 )   (46,874,205 ) Total stockholders’ equity   33,691,274     35,089,688   Total liabilities and stockholders’ equity $ 51,551,084   $ 54,996,973      

Luna Innovations Incorporated

Consolidated Statements of Cash Flows

        Six Months Ended June 30, 2017     2016 (unaudited) Cash flows provided by/(used in) operating activities Net loss $ (1,577,748 ) $ (2,230,550 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 1,753,748 1,861,603 Share-based compensation 321,756 465,028 Bad debt expense 40,753 50,515 Gain on disposal of fixed assets (670 ) — Change in assets and liabilities Accounts receivable 1,106,681 (167,749 ) Inventory (1,170,519 ) 474,072 Other current assets 325,005 (306,371 ) Accounts payable and accrued expenses (1,109,870 ) (1,076,784 ) Deferred revenue   (3,457 )   (81,830 ) Net cash used in operating activities   (314,321 )   (1,012,066 ) Cash flows provided by/(used in) investing activities Acquisition of property and equipment (796,217 ) (1,294,775 ) Intangible property costs (318,942 ) (244,198 ) Proceeds from sale of property and equipment   3,000     —   Net cash used in investing activities   (1,112,159 )   (1,538,973 ) Cash flows provided by/(used in) financing activities Payments on capital lease obligations (25,611 ) (32,149 ) Payments of debt obligations (916,666 ) (916,667 ) Repurchase of common stock (143,266 ) (156,386 ) Proceeds from the exercise of options   820     —   Net cash used in financing activities   (1,084,723 )   (1,105,202 ) Net decrease in cash or cash equivalents (2,511,203 ) (3,656,241 ) Cash and cash equivalents-beginning of period   12,802,458     17,464,040   Cash and cash equivalents-end of period $ 10,291,255   $ 13,807,799      

Luna Innovations Incorporated

Reconciliation of Net Loss to EBITDA and Adjusted EBITDA

        Three Months Ended June 30,     Six Months Ended June 30, 2017     2016 2017     2016 (unaudited) (unaudited) Net loss $ (221,762 ) $ (770,976 ) $ (1,577,748 ) $ (2,230,550 ) Interest expense 60,386 78,906 124,760 165,079 Tax expense 40,937 1,000 67,627 26,175 Depreciation and amortization   792,983     921,802     1,753,748     1,861,603   EBITDA 672,544 230,732 368,387 (177,693 ) Share-based compensation   151,672     206,225     321,756     465,028   Adjusted EBITDA $ 824,216   $ 436,957   $ 690,143   $ 287,335    

View source version on businesswire.com: http://www.businesswire.com/news/home/20170810005650/en/

Investor Contact:Luna Innovations IncorporatedDale Messick, CFO, 1-540-769-8400IR@lunainc.com