UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 7, 2019
Luna Innovations Incorporated
(Exact name of registrant as specified in its charter)
301 1st Street SW, Suite 200
Roanoke, VA 24011
(Address of principal executive offices, including zip code)
540-769-8400
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $0.001 par value per share | LUNA | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth Company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b‑2 of the Securities Exchange Act of 1934 (§240.12b‑2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02. | Results of Operations and Financial Condition |
On August 7, 2019, Luna Innovations Incorporated (the “Company”) issued a press release announcing its financial results for the three and six months ended June 30, 2019, as well as information regarding a conference call to discuss these financial results. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Also on August 7, 2019, the Company is posting an updated slide presentation on its corporate website and will be using the presentation in connection with the conference call discussed above. A copy of the presentation is furnished herewith as Exhibit 99.2 to this Current Report on Form 8-K.
The information in this Current Report on Form 8-K and Exhibits 99.1 and 99.2 attached hereto are being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01. | Financial Statements and Exhibits |
(d) | Exhibits. |
Exhibit | Description | |
99.1 | ||
99.2 | ||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Luna Innovations Incorporated | ||
By: | /s/ Scott A. Graeff | |
Scott A. Graeff President and Chief Executive Officer | ||
Date: August 7, 2019
Exhibit 99.1
Luna Innovations Reports Strong Second-Quarter 2019 Results
Raises 2019 Outlook
Highlights
• | Total revenues of $17.8 million for the three months ended June 30, 2019, up 80% compared to the three months ended June 30, 2018 |
• | Products and licensing revenues of $11.4 million for the three months ended June 30, 2019, up 155% compared to the three months ended June 30, 2018 |
• | Net income of $0.8 million, or $0.02 per fully diluted share, for the three months ended June 30, 2019, compared to $1.1 million, or $0.03 per fully diluted share, for the prior-year period, which included $0.8 million ($0.02 per share) in income from discontinued operations |
• | Adjusted EBITDA improved to $2.4 million for the three months ended June 30, 2019, compared to $0.5 million for the three months ended June 30, 2018 |
• | Raises 2019 outlook |
(ROANOKE, VA, August 7, 2019) - Luna Innovations Incorporated (NASDAQ: LUNA), a global leader in advanced optical technology, today announced its financial results for the three and six months ended June 30, 2019.
“Building on a strong first quarter, the Luna team continued to exceed our goals and deliver excellent performance on the top- and bottom-lines,” said Scott Graeff, President and Chief Executive Officer of Luna. “I was particularly pleased to see continued robust performance from our legacy products, in addition to those products that came to us through the Micron Optics and General Photonics acquisitions. Our first-half performance gives us the confidence to increase our 2019 outlook. For full fiscal 2019, we now expect total revenues to be between $66 million to $69 million and adjusted EBITDA to be between $7.2 million to $7.6 million. With a half year to go, the Luna team remains focused on continuing to execute our strategy and fully integrate the acquisitions, while driving growth and delivering the tailored service and solutions our customers need.”
Second-Quarter Fiscal 2019 Financial Summary
Financial results for the three months ended June 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, which was divested in July 2018, are classified as discontinued operations in Luna's results of operations for the three months ended June 30, 2018. Highlights of the financial results for the three months ended June 30, 2019 are:
Three Months Ended June 30, | ||||||||||||
2019 | 2018 | Change | ||||||||||
Revenues: | ||||||||||||
Products and licensing | $ | 11,372,664 | $ | 4,457,084 | 155.2 | % | ||||||
Technology development | 6,440,999 | 5,466,280 | 17.8 | % | ||||||||
Total revenues | $ | 17,813,663 | $ | 9,923,364 | 79.5 | % | ||||||
Gross profit | $ | 8,751,915 | $ | 4,230,652 | 106.9 | % | ||||||
Gross margin | 49.1 | % | 42.6 | % | ||||||||
Operating expense | $ | 7,737,955 | $ | 4,025,684 | 92.2 | % | ||||||
Operating income | $ | 1,013,960 | $ | 204,968 | 394.7 | % | ||||||
Net income | $ | 840,292 | $ | 1,067,328 | (21.3 | )% | ||||||
Adjusted EBITDA | $ | 2,395,658 | $ | 549,736 | 335.8 | % | ||||||
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 June 30, 2019, increased compared to the prior year period due largely to the inclusion of the incremental revenues from the acquisitions mentioned above. In addition, products and licensing revenue strongly increased from revenues associated with Luna’s communications test products and other Luna legacy products. Technology development revenues increased for the three months ended June 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 $2.6 million in expenses associated with the acquired operations of MOI and GP. Neither of these acquisitions were present in the second quarter of 2018.
Pre-tax income from continuing operations increased to $1.1 million for the three months ended June 30, 2019, compared to $0.3 million for the prior year fiscal quarter driven primarily by strong top-line performance and prudent expense management.
Net income attributable to common stockholders for the three months ended June 30, 2019, was $0.8 million, or $0.02 per fully diluted share, compared to net income attributable to common stockholders of $1.0 million, or $0.03 per fully diluted share, for the three months ended June 30, 2018. The slight decrease in net income attributable to common stockholders was driven by the income from discontinued operations recognized in the second quarter of 2018. Net income attributable to common stockholders for the three months ended June 30, 2019, also included $0.5 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 $2.4 million for the three months ended June 30, 2019, compared to $0.5 million for the three months ended June 30, 2018. The growth was driven by strong top-line growth from both organic businesses and acquisitions, and prudent expense management.
First-Half Fiscal 2019 Financial Summary
Highlights of the financial results for the six months ended June 30, 2019 are:
Six Months Ended June 30, | ||||||||||||
2019 | 2018 | Change | ||||||||||
Revenues: | ||||||||||||
Products and licensing | $ | 19,565,039 | $ | 8,588,838 | 127.8 | % | ||||||
Technology development | 13,081,742 | 10,103,056 | 29.5 | % | ||||||||
Total revenues | $ | 32,646,781 | $ | 18,691,894 | 74.7 | % | ||||||
Gross profit | $ | 15,519,548 | $ | 8,070,278 | 92.3 | % | ||||||
Gross margin | 47.5 | % | 43.2 | % | ||||||||
Operating expense | $ | 15,421,944 | $ | 8,238,766 | 87.2 | % | ||||||
Operating income/(loss) | $ | 97,604 | $ | (168,488 | ) | |||||||
Net income | $ | 1,966,171 | $ | 1,216,003 | 61.7 | % | ||||||
Adjusted EBITDA | $ | 3,335,274 | $ | 497,398 | 570.5 | % | ||||||
2019 Full-Year Outlook:
Based upon a strong first-half 2019 performance, Luna is raising its 2019 outlook:
• | Total revenues in the range of $66 million to $69 million for full fiscal 2019, up from $60 million to $65 million; and |
• | Adjusted EBITDA in the range of $7.2 million to $7.6 million for full fiscal 2019, up from $6.0 million to $6.5 million. |
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 six months ended June 30, 2019. 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 1994289. 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-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 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 Form 10-Q for the quarter ended March 31, 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.
Investor Contacts:
Jane Bomba Sally J. Curley
Luna Innovations Incorporated Luna Innovations Incorporated
Phone: 303-829-1211 614-530-3002
Email: IR@lunainc.com IR@lunainc.com
Luna Innovations Incorporated
Consolidated Statements of Operations
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(unaudited) | (unaudited) | ||||||||||||||
Revenues: | |||||||||||||||
Products and licensing | $ | 11,372,664 | $ | 4,457,084 | $ | 19,565,039 | $ | 8,588,838 | |||||||
Technology development | 6,440,999 | 5,466,280 | 13,081,742 | 10,103,056 | |||||||||||
Total revenues | 17,813,663 | 9,923,364 | 32,646,781 | 18,691,894 | |||||||||||
Cost of revenues: | |||||||||||||||
Products and licensing | 4,577,774 | 1,747,585 | 7,827,112 | 3,322,988 | |||||||||||
Technology development | 4,483,974 | 3,945,127 | 9,300,121 | 7,298,628 | |||||||||||
Total cost of revenues | 9,061,748 | 5,692,712 | 17,127,233 | 10,621,616 | |||||||||||
Gross profit | 8,751,915 | 4,230,652 | 15,519,548 | 8,070,278 | |||||||||||
Operating expense: | |||||||||||||||
Selling, general and administrative | 6,002,613 | 3,265,408 | 12,228,709 | 6,598,898 | |||||||||||
Research, development and engineering | 1,735,342 | 760,276 | 3,193,235 | 1,639,868 | |||||||||||
Total operating expense | 7,737,955 | 4,025,684 | 15,421,944 | 8,238,766 | |||||||||||
Operating income/(loss) | 1,013,960 | 204,968 | 97,604 | (168,488 | ) | ||||||||||
Other income/(expense): | |||||||||||||||
Investment income | 76,813 | 99,844 | 268,020 | 175,756 | |||||||||||
Other expense | (3,056 | ) | (9,369 | ) | (4,452 | ) | (20,223 | ) | |||||||
Interest expense | (52 | ) | (34,484 | ) | (12,775 | ) | (75,131 | ) | |||||||
Total other income | 73,705 | 55,991 | 250,793 | 80,402 | |||||||||||
Income/(loss) from continuing operations before income taxes | 1,087,665 | 260,959 | 348,397 | (88,086 | ) | ||||||||||
Income tax expense/(benefit) | 247,373 | (38,269 | ) | (1,617,774 | ) | (115,236 | ) | ||||||||
Net income from continuing operations | 840,292 | 299,228 | 1,966,171 | 27,150 | |||||||||||
Income from discontinued operations, net of income tax of ($59,864) and $18,499 | — | 768,100 | — | 1,188,853 | |||||||||||
Net income | 840,292 | 1,067,328 | 1,966,171 | 1,216,003 | |||||||||||
Preferred stock dividend | 89,549 | 63,235 | 172,607 | 127,660 | |||||||||||
Net income attributable to common stockholders | $ | 750,743 | $ | 1,004,093 | $ | 1,793,564 | $ | 1,088,343 | |||||||
Net income per share from continuing operations: | |||||||||||||||
Basic | $ | 0.03 | $ | 0.01 | $ | 0.07 | $ | — | |||||||
Diluted | $ | 0.02 | $ | 0.01 | $ | 0.06 | $ | — | |||||||
Net income per share from discontinued operations: | |||||||||||||||
Basic | $ | — | $ | 0.03 | $ | — | $ | 0.04 | |||||||
Diluted | $ | — | $ | 0.02 | $ | — | $ | 0.04 | |||||||
Net income per share attributable to common stockholders: | |||||||||||||||
Basic | $ | 0.03 | $ | 0.04 | $ | 0.06 | $ | 0.04 | |||||||
Diluted | $ | 0.02 | $ | 0.03 | $ | 0.05 | $ | 0.03 | |||||||
Weighted average common shares and common equivalent shares outstanding: | |||||||||||||||
Basic | 28,246,840 | 27,531,361 | 28,143,534 | 27,368,185 | |||||||||||
Diluted | 33,650,790 | 31,506,745 | 33,588,951 | 31,257,277 | |||||||||||
Luna Innovations Incorporated
Consolidated Balance Sheets
June 30, 2019 | December 31, 2018 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 23,537,673 | $ | 42,460,267 | ||||
Accounts receivable, net | 13,845,438 | 13,037,068 | ||||||
Receivable from sale of HSOR business | 2,500,375 | 2,500,000 | ||||||
Contract assets | 3,094,279 | 2,422,495 | ||||||
Inventory | 9,732,937 | 6,873,742 | ||||||
Prepaid expenses and other current assets | 1,063,124 | 935,185 | ||||||
Total current assets | 53,773,826 | 68,228,757 | ||||||
Long-term contract assets | 386,350 | 336,820 | ||||||
Property and equipment, net | 3,752,698 | 3,627,886 | ||||||
Intangible assets, net | 10,952,448 | 3,302,270 | ||||||
Goodwill | 10,345,249 | 101,008 | ||||||
Other assets | 2,978,346 | 1,995 | ||||||
Total assets | $ | 82,188,917 | $ | 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 | 3,000,066 | 2,395,984 | ||||||
Accrued liabilities | 8,972,412 | 6,597,458 | ||||||
Contract liabilities | 2,407,830 | 2,486,111 | ||||||
Total current liabilities | 14,380,308 | 12,139,454 | ||||||
Long-term deferred rent | — | 1,035,974 | ||||||
Other long-term liabilities | 2,620,446 | — | ||||||
Long-term capital lease obligations | — | 68,978 | ||||||
Total liabilities | 17,000,754 | 13,244,406 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, par value $0.001, 1,321,514 shares authorized, issued and outstanding at June 30, 2019 and December 31, 2018 | 1,322 | 1,322 | ||||||
Common stock, par value $0.001, 100,000,000 shares authorized, 29,606,604 and 29,209,506 shares issued, 28,300,766 and 27,956,401 shares outstanding at June 30, 2019 and December 31, 2018, respectively | 30,557 | 30,120 | ||||||
Treasury stock at cost, 1,305,838 and 1,253,105 shares at June 30, 2019 and December 31, 2018, respectively | (2,337,110 | ) | (2,116,640 | ) | ||||
Additional paid-in capital | 87,004,906 | 85,744,750 | ||||||
Accumulated deficit | (19,511,512 | ) | (21,305,222 | ) | ||||
Total stockholders’ equity | 65,188,163 | 62,354,330 | ||||||
Total liabilities and stockholders’ equity | $ | 82,188,917 | $ | 75,598,736 | ||||
Luna Innovations Incorporated
Consolidated Statements of Cash Flows
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
(unaudited) | |||||||
Cash flows provided by/(used in) operating activities | |||||||
Net income | $ | 1,966,171 | $ | 1,216,003 | |||
Adjustments to reconcile net income to net cash provided by/(used in) operating activities | |||||||
Depreciation and amortization | 1,165,609 | 622,577 | |||||
Share-based compensation | 720,649 | 212,149 | |||||
Bad debt expense | — | 6,000 | |||||
Gain on sale of discontinued operations, net of tax | — | (1,000 | ) | ||||
Accounts receivable | 712,805 | (1,522,604 | ) | ||||
Contract assets | (721,315 | ) | (645,824 | ) | |||
Inventory | (161,196 | ) | (482,194 | ) | |||
Other current assets | (17,483 | ) | 164,809 | ||||
Accounts payable and accrued expenses | (2,313,551 | ) | (253,372 | ) | |||
Contract liabilities | (234,854 | ) | (2,053,566 | ) | |||
Net cash provided by/(used in) operating activities | 1,116,835 | (2,737,022 | ) | ||||
Cash flows used in investing activities | |||||||
Acquisition of property and equipment | (405,795 | ) | (198,012 | ) | |||
Intangible property costs | (136,852 | ) | (185,909 | ) | |||
Acquisition of General Photonics Corporation | (19,004,250 | ) | — | ||||
Proceeds from sale of property and equipment | — | 1,000 | |||||
Net cash used in investing activities | (19,546,897 | ) | (382,921 | ) | |||
Cash flows used in financing activities | |||||||
Payments on finance lease obligations | (14,545 | ) | (25,309 | ) | |||
Payments of debt obligations | (625,000 | ) | (916,665 | ) | |||
Repurchase of common stock | (220,470 | ) | (466,894 | ) | |||
Proceeds from the exercise of options and warrants | 367,483 | 840,078 | |||||
Net cash used in financing activities | (492,532 | ) | (568,790 | ) | |||
Net decrease in cash and cash equivalents | (18,922,594 | ) | (3,688,733 | ) | |||
Cash and cash equivalents-beginning of period | 42,460,267 | 36,981,533 | |||||
Cash and cash equivalents-end of period | $ | 23,537,673 | $ | 33,292,800 | |||
Luna Innovations Incorporated
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(unaudited) | (unaudited) | ||||||||||||||
Net income | $ | 840,292 | $ | 1,067,328 | $ | 1,966,171 | $ | 1,216,003 | |||||||
Less income from discontinued operations, net of income tax | — | 768,100 | — | 1,188,853 | |||||||||||
Net income from continuing operations | 840,292 | 299,228 | 1,966,171 | 27,150 | |||||||||||
Interest expense | 52 | 34,484 | 12,775 | 75,131 | |||||||||||
Investment income | (76,813 | ) | (99,844 | ) | (268,020 | ) | (175,756 | ) | |||||||
Tax expense/(benefit) | 247,373 | (38,269 | ) | (1,617,774 | ) | (115,236 | ) | ||||||||
Depreciation and amortization | 652,585 | 236,594 | 1,165,609 | 473,960 | |||||||||||
EBITDA | 1,663,489 | 432,193 | 1,258,761 | 285,249 | |||||||||||
Share-based compensation | 377,884 | 117,543 | 720,649 | 212,149 | |||||||||||
Non-recurring charges (1) | 43,674 | — | 941,716 | — | |||||||||||
Amortization of inventory step-up | 310,611 | — | 414,148 | — | |||||||||||
Adjusted EBITDA | $ | 2,395,658 | $ | 549,736 | $ | 3,335,274 | $ | 497,398 | |||||||
(1) Non-recurring charges consist of transaction-related expenses incurred during the six months ended June 30, 2019, related to the acquisition of General Photonics.
###
Investor Supplemental Materials August 7, 2019
Safe Harbor Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 This presentation includes information that constitutes “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 the company's expectations regarding the company's future financial performance and the potential demand for its products, the company's growth potential, its business focus and competitive advantages, and its expectations about the benefits of its acquisition of General Photonics. 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 the company 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 the company’s products and services to meet expectations, failure of target market to grow and expand, technological and strategic challenges, market valuation of the company and those risks and uncertainties set forth in the company’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 the company’s website at www.lunainc.com. The statements made in this presentation are based on information available to Luna as of the date of this presentation and Luna undertakes no obligation to update any of the forward-looking statements after the date of this presentation, except as required by law. Adjusted Financial Measures In addition to U.S. GAAP financial information, this presentation includes Adjusted EBITDA, a non-GAAP financial measure. This non-GAAP financial measure is in addition to, and not a substitute for or superior to, measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of Adjusted EBITDA to Net Income is included in the appendix to this presentation. NASDAQ: LUNA Luna Innovations Incorporated© 2019
2Q FY19 Results
Second-Quarter 2019 Financial Results Raises FY19 outlook: . Total revenues of $66M to $69M; up from $60M to $65M . Adjusted EBITDA of $7.2M to $7.6M; up from $6.0M to $6.5M Strong financial performance: . Seventh consecutive quarter of year-over-year, double-digit revenue growth from continuing operations . $1.5M improvement in Adjusted EBITDA year-over-year Total revenues of $17.8M; up 80% year-over-year: . Products and licensing revenue of $11.4M; up 155% year-over-year . Technology development revenue of $6.4M; up 18% year-over-year Net income attributable to common stockholders of $0.8M or $0.02 per fully diluted share for the three months ended June 30, 2019, compared to $1.0M or $0.03 per fully diluted share for the three months ended June 30, 2018 . Q2FY18 included $0.8M ($0.02 per share) in income from discontinued operations Adjusted EBITDA1 improved to $2.4M for the three months ended June 30, 2019, compared to $0.5M for the three months ended June 30, 2018 1Adj EBITDA is a non-GAAP measure. Reconciliation of comparable GAAP measures to non-GAAP measures are included in the appendix to this presentation. NASDAQ: LUNA Luna Innovations Incorporated© 2019
Strong H1 FY19 Results in Guidance Raise Revenue1 Adjusted EBITDA1, 2 (millions) (millions) FY19E $7.2 - $7.6 FY19E $66 - $69 Original guidance: Original $6.0M-$6.5M guidance: $60M-$65M H1: $3.3 $3.0 $42.9 H1: $33.1 $32.6 $0.3 $26.6 $29.6 ($1.0) ($2.0) FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19 1 Based on management’s estimates as of August 7, 2019 of the impact from the divestiture of Optoelectronics. Includes the acquisitions of Micron Optics and General Photonics. 2Adj EBITDA is a non-GAAP measure. Reconciliation of comparable GAAP measures to non-GAAP measures are included in the appendix to this presentation. NASDAQ: LUNA Luna Innovations Incorporated© 2019
Update on Acquisitions Integration Rapid integration . Merged complementary products into integrated customer solutions . Migrated sales teams to common rewards systems Working as a single integrated company Micron Optics . Integration nearly complete; sales force training complete . Continued positive feedback from customers regarding product offerings General Photonics . Integration proceeding smoothly; no significant “hiccups” to date • Sales force education completed • Customer feedback is positive regarding product offerings • Complementary, additive product lines already contributing to growth NASDAQ: LUNA Luna Innovations Incorporated© 2019
A Flexible Balance Sheet and Strong Cash Position Balance sheet on June 30, 2019: . $82.2M in total assets • $23.5M in cash and cash equivalents • $39.4M in working capital Focus on working capital and reinvestment in business in order to generate long-term sustainable growth Financial Performance NASDAQ: LUNA Luna Innovations Incorporated© 2019
Pro-forma Luna Financials, Adjusted for the sale of Optoelectronics and the Acquisitions of Micron Optics and General Photonics 1 Unaudited pro forma financials assumes the Optoelectronics business was sold and the Micron Optics and General Photonics businesses were acquired on January 1, 2018. 2 Includes $751,000 of costs associated with the acquisition of Micron Optics. 3 Includes $898,000 of costs associated with the acquisition of General Photonics. NASDAQ: LUNA Luna Innovations Incorporated© 2019
Why Invest in Luna? Proprietary, measurement technology, offering unprecedented combination of resolution, accuracy and speed Customers in attractive markets: Aerospace, Automotive, Communications, Energy and Defense Positioned to take advantage of trends such as vehicle light-weighting and increasing demands on data centers and broadband capacity Adequately capitalized to fund growth Long-tenured, experienced executive team / board Corporate culture of innovation and integrity Compelling value: currently trading at an attractive multiple Summary NASDAQ: LUNA Luna Innovations Incorporated© 2019
Appendix
Reconciliation of Net Income to Adjusted EBITDA Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 (unaudited) (unaudited) Net income $ 840,292 $ 1,067,328 $ 1,966,171 $ 1,216,003 Less income from discontinued operations, net of income tax — 768,100 — 1,188,853 Net income from continuing operations 840,292 299,228 1,966,171 27,150 Interest expense 52 34,484 12,775 75,131 Investment income (76,813) (99,844) (268,020) (175,756) Tax expense/(benefit) 247,373 (38,269) (1,617,774) (115,236) Depreciation and amortization 652,585 236,594 1,165,609 473,960 EBITDA 1,663,489 432,193 1,258,761 285,249 Share-based compensation 377,884 117,543 720,649 212,149 Non-recurring charges (1) 43,674 — 941,716 — Amortization of inventory step-up 310,611 — 414,148 — Adjusted EBITDA $ 2,395,658 $ 549,736 $ 3,335,274 $ 497,398 1 Non-recurring charges consist of transaction-related expenses incurred during the quarter ended June 30, 2019, related to the acquisition of General Photonics. NASDAQ: LUNA Luna Innovations Incorporated© 2019
Reconciliation of Net Income to Adjusted EBITDA: Full Fiscal Year For the year ended December 31, 2016 2017 2018 (unaudited) Net income $ (2,369,492) $ 14,614,905 $ 11,004,241 Less Income from disc ops 1,538,624 15,865,720 9,766,431 Net income from continuing ops (3,908,116) (1,250,815) 1,237,810 Interest expense 316,975 217,352 124,344 Investment income - - (549,580) Tax provision (135,567) (1,148,579) 47,818 Depreciation and amortization 905,956 1,136,729 908,347 EBITDA (2,820,752) (1,045,313) 1,768,739 Share based compensation 860,215 715,094 527,189 Non-recurring charges (1) - 595,992 751,102 Adjusted EBITDA $ (1,960,537) $ 265,773 $ 3,047,030 (1)- Non-recurring charges include the following: 2017: CEO separation costs and other share-based compensation 2018: Transaction-related expenses associated with the acquisition of Micron Optics, Inc. NASDAQ: LUNA Luna Innovations Incorporated© 2019