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Luna Innovations Reports Record Fourth-Quarter and Full-Year 2019 Results

Company provides 2020 outlook

Highlights

  • Total revenues of $19.5 million for the three months ended December 31, 2019, up 44% compared to the three months ended December 31, 2018
  • Products and licensing revenues of $13.0 million for the three months ended December 31, 2019, up 63% compared to the three months ended December 31, 2018
  • Net income from continuing operations of $2.1 million, or $0.07 per fully diluted share, for the three months ended December 31, 2019, compared to $(0.1) million, or $0.00 per fully diluted share, for the prior-year period
  • Adjusted EBITDA improved to $3.2 million for the three months ended December 31, 2019, compared to $1.6 million for the three months ended December 31, 2018
  • Fiscal 2019 total revenues of $70.5 million; Adjusted EBITDA more than triples vs. prior year

ROANOKE, Va.--(BUSINESS WIRE)-- Luna Innovations Incorporated (NASDAQ: LUNA), a global leader in advanced optical technology, today announced its financial results for the three months and full fiscal year ended December 31, 2019.

“2019 marked an exceptional year for Luna, from both a financial and an operational perspective, and was our ninth consecutive quarter, and our second full fiscal year, of significant top- and bottom-line growth,” said Scott Graeff, President and Chief Executive Officer of Luna. “During the year, we achieved record revenue and income from continuing operations while streamlining our balance sheet through a conversion of preferred shares. We completed a $2 million stock repurchase program and realigned the organization for future growth, including the appointment of Gene Nestro as CFO."

" As I reflect on these significant operational and financial achievements, I am particularly struck by the efficient and rapid integration of our two recent acquisitions, Micron Optics ("MOI") and General Photonics ("GP"), and the immediate accretion they had. I continue to be inspired by the focus and hard work of the Luna team, all of whom provided our customers the products and services to fit their unique needs. Our customers recognize and appreciate our performance, as reflected by our strong 2019 results. We look forward to an even stronger 2020.”

Fourth-Quarter Fiscal 2019 Financial Summary

Financial results for the three months ended December 31, 2019 continue the strong momentum from throughout the fiscal year. These results include a full quarter of the business of GP, acquired in March 2019; fourth quarter 2018 did not include GP.

Highlights of the financial results for the three months ended December 31, 2019 are:

 

 

Three Months Ended December 31,

 

 

 

(in thousands of U.S. Dollars, except per share data)

 

2019

 

2018

 

Change

Revenues:

 

 

 

 

 

Products and licensing

 

$

13,032

 

 

$

7,990

 

 

63

%

Technology development

 

6,448

 

 

5,549

 

 

16

%

Total revenues

 

19,480

 

 

13,539

 

 

44

%

 

 

 

 

 

 

Gross profit

 

10,388

 

 

6,572

 

 

58

%

Gross margin

 

53.3

%

 

48.5

%

 

 

 

 

 

 

 

 

Operating expense

 

8,671

 

 

6,149

 

 

41

%

Operating income

 

1,717

 

 

423

 

 

306

%

 

 

 

 

 

 

Other income/(expense) and income taxes

 

429

 

 

(546

)

 

 

 

 

 

 

 

 

 

 

 

Net income/(loss) from continuing operations

 

$

2,146

 

 

$

(123

)

 

1,845

%

Diluted weighted average shares outstanding (in thousands)

 

32,212

 

 

28,067

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share from continuing operations (diluted)

 

$

0.07

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

3,237

 

 

$

1,552

 

 

109

%

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 December 31, 2019 increased compared to the prior year period due to the inclusion of the incremental revenues associated with the acquired operations of GP, as well as increased revenues associated with Luna’s communications test and fiber optic sensing products. Technology development revenues increased for the three months ended December 31, 2019, compared to the prior-year period due to growth in various government research programs. The increase in operating expenses was due to the addition of GP's operating expenses, as well as continued incremental investment in sales and engineering to support Luna's growth. Pre-tax income from continuing operations increased to $1.8 million for the three months ended December 31, 2019, compared to $0.6 million for the prior year fiscal quarter.

Net income from continuing operations was $2.1 million, or $0.07 per fully diluted share, for the three months ended December 31, 2019, compared to a loss of $0.1 million, or $0.00 per fully diluted share, for the prior-year period. The income tax benefit for the quarter and year ended December 31, 2019 includes income tax benefits of $1.1 million and $3.3 million, respectively, due to the release of valuation allowances on net operating loss carryforwards. The increase in net income from continuing operations was driven by Luna's increased revenue and strong operating results.

Adjusted EBITDA was $3.2 million for the three months ended December 31, 2019, compared to $1.6 million for the three months ended December 31, 2018. The growth was driven by revenue growth from both Luna’s legacy business and the MOI and GP acquisitions, as well as prudent expense management.

Full-Year Fiscal 2019 Financial Summary

Highlights of the financial results for the twelve months ended December 31, 2019 are:

 

 

Full Year Ended December 31,

 

 

(in thousands of U.S. Dollars, except per share data)

 

2019

 

2018

 

Change

Revenues:

 

 

 

 

 

 

Products and licensing

 

$

44,491

 

 

$

21,950

 

 

103

%

Technology development

 

26,025

 

 

20,968

 

 

24

%

Total revenues

 

70,516

 

 

42,918

 

 

64

%

 

 

 

 

 

 

 

Gross profit

 

35,182

 

 

19,438

 

 

81

%

Gross margin

 

49.9

%

 

45.3

%

 

 

 

 

 

 

 

 

 

Operating expense

 

31,867

 

 

18,560

 

 

72

%

Operating income

 

3,315

 

 

878

 

 

 

 

 

 

 

 

 

 

Other income and income taxes

 

2,028

 

 

360

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations

 

$

5,343

 

 

$

1,238

 

 

332

%

 

 

 

 

 

 

 

Diluted weighted average shares outstanding (in thousands)

 

31,841

 

 

32,452

 

 

 

 

 

 

 

 

 

 

Net income per share from continuing operations (diluted)

 

$

0.17

 

 

$

0.04

 

 

325

%

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

9,473

 

 

$

3,148

 

 

201

%

A reconciliation of Adjusted EBITDA to net income can be found in the schedules included in this release. Note that revenue and expenses related to Luna's Optoelectronics business, as well as the gain recognized on the sale of that business in July 2018, were classified as discontinued operations in Luna's results of operations beginning in its quarter ended September 30, 2018. Accordingly, net income for fiscal 2018 includes income from discontinued operations. Income from discontinued operations totaled $1.1 million in the fourth-quarter fiscal 2018 and $9.8 million for fiscal 2018. As a reminder, the fourth-quarter fiscal 2019 was the last quarter in which discontinued operations comparisons related to Luna’s optoelectronic business and the gain related to the sale of that business were relevant.

2020 Full-Year Outlook:

For fiscal year 2020, Luna expects:

  • Total revenues in the range of $81 million to $84 million for full fiscal 2020; and
  • Adjusted EBITDA in the range of $10 million to $12 million for full fiscal 2020.

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 months and full year ended December 31, 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 6020329. 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 2020 financial results and outlook 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
(in thousands of U.S. Dollars, except per share data)

 

 

Three months ended December 31,

 

Year ended December 31,

 

2019

2018

 

2019

2018

 

 

 

 

 

 

Revenues:

 

 

 

 

 

Products and licensing revenues

$

13,032

 

$

7,990

 

 

$

44,491

 

$

21,950

 

Technology development revenues

6,448

 

5,548

 

 

26,025

 

20,967

 

Total revenues

19,480

 

13,538

 

 

70,516

 

42,917

 

Cost of revenues:

 

 

 

 

 

Products and licensing costs

4,317

 

2,698

 

 

16,684

 

8,079

 

Technology development costs

4,775

 

4,268

 

 

18,650

 

15,400

 

Total cost of revenues

9,092

 

6,966

 

 

35,334

 

23,479

 

Gross profit

10,388

 

6,572

 

 

35,182

 

19,438

 

Operating expense:

 

 

 

 

 

Selling, general and administrative

6,415

 

4,896

 

 

24,371

 

14,794

 

Research, development and engineering

2,255

 

1,253

 

 

7,496

 

3,766

 

Total operating expense

8,670

 

6,149

 

 

31,867

 

18,560

 

Operating income

1,718

 

423

 

 

3,315

 

878

 

Other expense:

 

 

 

 

 

Other expense, net

(1

)

(1

)

 

(5

)

(17

)

Investment income

69

 

199

 

 

394

 

549

 

Interest expense, net

(1

)

(21

)

 

(16

)

(124

)

Total other income

67

 

177

 

 

373

 

408

 

Income from continuing operations before income taxes

1,785

 

600

 

 

3,688

 

1,286

 

Income tax benefit/(expense)

361

 

(722

)

 

1,655

 

(48

)

Income/(loss) from continuing operations

2,146

 

(122

)

 

5,343

 

1,238

 

Income from discontinued operations, net of income taxes

1,062

 

 

9,766

 

Net income

2,146

 

940

 

 

5,343

 

11,004

 

Preferred stock dividend

67

 

 

286

 

257

 

Net income attributable to common stockholders

$

2,146

 

$

873

 

 

$

5,057

 

$

10,747

 

Net income per share from continuing operations:

 

 

 

 

 

Basic

$

0.07

 

$

 

$

0.19

 

$

0.04

 

Diluted

$

0.07

 

$

 

$

0.17

 

$

0.04

 

Net income per share from discontinued operations:

 

 

 

 

 

Basic

$

$

0.04

 

 

$

$

0.35

 

Diluted

$

$

0.04

 

 

$

$

0.30

 

Net income per share attributable to common stockholders:

 

 

 

 

 

Basic

$

0.07

 

$

0.03

 

 

$

0.18

 

$

0.39

 

Diluted

$

0.07

 

$

0.03

 

 

$

0.16

 

$

0.33

 

Weighted average shares (in thousands):

 

 

 

 

 

Basic

30,159

 

28,067

 

 

28,689

 

27,596

 

Diluted

32,212

 

28,067

 

31,841

 

32,452

 

Luna Innovations Incorporated
Consolidated Balance Sheets
(in thousands of U.S Dollars)

 

 

December 31,
2019

 

December 31,
2018

 

 

 

 

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

25,006

 

 

$

42,460

 

Accounts receivable, net

16,269

 

 

13,037

 

Receivable from sale of HSOR business

2,501

 

 

2,500

 

Contract assets

2,759

 

 

2,422

 

Inventory, net

10,294

 

 

6,874

 

Prepaid expenses

1,287

 

 

935

 

Total current assets

58,116

 

 

68,228

 

Property and equipment, net

3,466

 

 

3,628

 

Intangible assets, net

10,194

 

 

3,302

 

Goodwill

10,542

 

 

101

 

Long term contract assets

449

 

 

337

 

Other assets

3,757

 

 

2

 

Total assets

86,524

 

 

75,598

 

Liabilities and stockholders’ equity

 

 

 

Current liabilities:

 

 

 

Current portion of long term debt obligation

$

 

 

$

619

 

Current portion of capital lease obligation

 

 

41

 

Accounts payable

2,787

 

 

2,396

 

Accrued liabilities

10,369

 

 

6,597

 

Contract liabilities

3,888

 

 

2,486

 

Total current liabilities

17,044

 

 

12,139

 

Long-term deferred rent

 

 

1,036

 

Other long-term liabilities

2,011

 

 

 

Long-term capital lease obligation

 

 

69

 

Total liabilities

19,055

 

 

13,244

 

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

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

 

 

1

 

Common stock, par value $0.001, 100,000,000 shares authorized, 31,788,896 and 29,209,506 shares issued, 30,149,105 and 27,956,401 shares outstanding at December 31, 2019 and 2018, respectively

32

 

 

30

 

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

(4,337

)

 

(2,117

)

Additional paid-in capital

88,022

 

 

85,745

 

Accumulated deficit

(16,248

)

 

(21,305

)

Total stockholders’ equity

67,469

 

 

62,354

 

Total liabilities and stockholders’ equity

$

86,524

 

 

$

75,598

 

Luna Innovations Incorporated
Consolidated Statements of Cash Flows
(in thousands of U.S. Dollars)

 

 

 

Year ended December 31,

 

 

2019

 

2018

 

 

 

 

 

Cash flows provided by/(used in) operating activities:

 

 

 

 

Net income

 

$

5,343

 

 

$

11,004

 

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

 

 

 

 

Depreciation and amortization

 

2,503

 

 

1,219

 

Stock-based compensation

 

1,544

 

 

628

 

Gain on disposal of fixed assets

 

 

 

(1

)

Gain on sale of discontinued operations, net of income taxes

 

 

 

(8,596

)

Tax benefit from release of valuation allowance

 

(3,349

)

 

 

Bad debt

 

538

 

 

6

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

(2,249

)

 

(6,240

)

Contract assets

 

(449

)

 

(762

)

Inventory

 

(723

)

 

(968

)

Other assets

 

(242

)

 

1,850

 

Other long-term assets

 

45

 

 

 

Accounts payable and accrued expenses

 

592

 

 

(462

)

Contract liabilities

 

1,245

 

 

(986

)

Net cash provided by/(used in) operating activities

 

4,798

 

 

(3,308

)

Cash flows (used in)/provided by investing activities:

 

 

 

 

Acquisition of property and equipment

 

(541

)

 

(387

)

Proceeds from sale of property and equipment

 

 

 

1

 

Intangible property costs

 

(270

)

 

(375

)

Acquisition of General Photonics Corporation

 

(19,004

)

 

 

Acquisition of Micron Optics

 

 

 

(5,002

)

Proceeds from sale of discontinued operations, net

 

 

 

15,800

 

Net cash (used in)/provided by investing activities

 

(19,815

)

 

10,037

 

Cash flows used in financing activities:

 

 

 

 

Payments on debt obligations

 

(625

)

 

(1,833

)

Payments on finance lease obligation

 

(40

)

 

(47

)

Purchase of treasury stock

 

(2,220

)

 

(467

)

Proceeds from the exercise of options

 

448

 

 

1,097

 

Net cash used in financing activities

 

(2,437

)

 

(1,250

)

Net change in cash and cash equivalents

 

(17,454

)

 

5,478

 

Cash and cash equivalents—beginning of period

 

42,460

 

 

36,982

 

Cash and cash equivalents—end of period

 

$

25,006

 

 

$

42,460

 

Luna Innovations Incorporated
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
(in thousands of U.S. Dollars)

 

 

Three months ended
December 31,

 

Year ended
December 31,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

Net income

$

2,146

 

 

$

940

 

 

$

5,343

 

 

$

11,004

 

Less income from discontinued operations, net of income taxes

 

 

1,062

 

 

 

 

9,766

 

Net income/(loss) from continuing operations

2,146

 

 

(122

)

 

5,343

 

 

1,238

 

Income tax (benefit)/expense

(361

)

 

722

 

 

(1,654

)

 

48

 

Income from continuing operations before income taxes

1,785

 

 

600

 

 

3,689

 

 

1,286

 

Investment income

(69

)

 

(199

)

 

(394

)

 

(550

)

Interest expense

1

 

 

21

 

 

16

 

 

124

 

Depreciation and amortization

668

 

 

197

 

 

2,503

 

 

909

 

EBITDA

2,385

 

 

619

 

 

5,814

 

 

1,769

 

Share-based compensation

404

 

 

182

 

 

1,544

 

 

628

 

Non-recurring charges

448

 

 

751

 

 

2,115

 

 

751

 

Adjusted EBITDA

$

3,237

 

 

$

1,552

 

 

$

9,473

 

 

$

3,148

 

 

Investor Contacts:
Jane Bomba
Luna Innovations Incorporated
Phone: 303-829-1211
Email: IR@lunainc.com

Sally J. Curley
Luna Innovations Incorporated
614-530-3002
IR@lunainc.com

Source: Luna Innovations Incorporated