Press release

Luna Innovations Reports Third Quarter 2023 Results

0
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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, 2023.

“We delivered solid performance this quarter in spite of continued macroeconomic headwinds,” said Scott Graeff, President and Chief Executive Officer of Luna. “We realized multiple significant wins in our Sensing business, providing further proof of the breadth of applications and abundance of opportunities for our fiber sensing solutions. We also recognized a particularly strong showing from our Communications Test business, where we saw significant increase in revenue after realizing moderate recovery from the headwinds this business faced last quarter.”

Third Quarter Fiscal 2023 Financial Summary

Highlights of the financial results for the three months ended September 30, 2023 are:

 

 

Three Months Ended September 30,

 

Change

(in thousands, except share and per share data)

 

 

2023

 

 

 

2022

 

 

 

Revenue

 

$

30,703

 

 

$

29,153

 

 

5

%

 

 

 

 

 

 

 

Gross profit

 

 

17,629

 

 

 

16,919

 

 

4

%

Gross margin

 

 

57

%

 

 

58

%

 

 

 

 

 

 

 

 

Operating expense

 

 

16,477

 

 

 

15,441

 

 

7

%

Operating income

 

 

1,152

 

 

 

1,478

 

 

 

Operating margin

 

 

4

%

 

 

5

%

 

 

 

 

 

 

 

 

Other expense, net and income tax expense

 

 

(691

)

 

 

(310

)

 

 

 

 

 

 

 

 

 

Net income from continuing operations

 

$

461

 

 

$

1,168

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of tax of $— and $(78)

 

 

 

 

 

28

 

 

 

 

 

 

 

 

 

 

Net income

 

$

461

 

 

$

1,196

 

 

 

 

 

 

 

 

 

 

Earnings per diluted share (EPS)

 

$

0.01

 

 

$

0.04

 

 

 

Adjusted EPS

 

$

0.07

 

 

$

0.09

 

 

 

Diluted weighted average shares outstanding

 

 

35,218,547

 

 

 

34,104,850

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

4,172

 

 

$

4,544

 

 

(8

)%

A reconciliation of Adjusted EPS and Adjusted EBITDA to the nearest comparable figures under generally accepted accounting principles (“GAAP”) can be found in the schedules included in this release.

Revenue for the three months ended September 30, 2023 increased 5% compared to the prior-year period.

Gross margin was 57% for the three months ended September 30, 2023, compared to 58% for the three months ended September 30, 2022, driven primarily by product mix. Operating income and margin were $1.2 million and 4% of total revenue, respectively, for the three months ended September 30, 2023, compared to an operating income of $1.5 million and 5% of total revenue, respectively, for the three months ended September 30, 2022.

Net income was $0.5 million, or $0.01 per fully diluted share, for the three months ended September 30, 2023, compared to net income of $1.2 million, or $0.04 per fully diluted share, for the three months ended September 30, 2022. Adjusted EPS was $0.07 for the three months ended September 30, 2023 compared to $0.09 for the three months ended September 30, 2022.

Adjusted EBITDA was $4.2 million for three months ended September 30, 2023, compared to $4.5 million for the three months ended September 30, 2022.

Nine Months Ended Fiscal 2023 Financial Summary

Highlights of the financial results for the nine months ended September 30, 2023 are:

 

 

Nine Months Ended September 30,

 

Change

(in thousands, except share and per share data)

 

 

2023

 

 

 

2022

 

 

 

Revenue

 

$

84,912

 

 

$

77,795

 

 

9

%

 

 

 

 

 

 

 

Gross profit

 

 

49,467

 

 

 

47,162

 

 

5

%

Gross margin

 

 

58

%

 

 

61

%

 

 

 

 

 

 

 

 

Operating expense

 

 

50,661

 

 

 

50,510

 

 

%

Operating loss

 

 

(1,194

)

 

 

(3,348

)

 

 

Operating margin

 

 

(1

)%

 

 

(4

)%

 

 

 

 

 

 

 

 

Other expense, net and income tax benefit

 

 

(745

)

 

 

231

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(1,939

)

 

$

(3,117

)

 

 

 

 

 

 

 

 

 

Net (loss)/income from discontinued operations, net of income taxes of $(346) and $3,205

 

 

(1,038

)

 

 

11,543

 

 

 

 

 

 

 

 

 

 

Net (loss)/income

 

$

(2,977

)

 

$

8,426

 

 

 

 

 

 

 

 

 

 

(Loss)/earnings per diluted share (EPS)

 

$

(0.09

)

 

$

0.26

 

 

 

Adjusted EPS

 

$

0.11

 

 

$

0.12

 

 

(8

)%

Diluted weighted average shares outstanding

 

 

33,631,654

 

 

 

32,492,276

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

7,759

 

 

$

7,450

 

 

4

%

A reconciliation of Adjusted EPS and Adjusted EBITDA to the nearest comparable GAAP figures can be found in the schedules included in this release.

Revenue for the nine months ended September 30, 2023 increased 9% compared to the prior-year period.

Gross profit of $49.5 million for the nine months ended September 30, 2023 increased from $47.2 million for the nine months ended September 30, 2022 primarily due to higher sales. Operating loss and margin improved to $1.2 million and 1% of total revenue, respectively, for the nine months ended September 30, 2023, compared to $3.3 million and 4% of total revenue, respectively, for the nine months ended September 30, 2022.

Net loss was $3.0 million, or $0.09 per fully diluted share, for the nine months ended September 30, 2023, compared to a net income of $8.4 million, or $0.26 per fully diluted share, for the nine months ended September 30, 2022, due to the gain on sale of Luna Labs. Adjusted EPS was $0.11 for the nine months ended September 30, 2023, compared to $0.12 for the nine months ended September 30, 2022.

Adjusted EBITDA was $7.8 million for the nine months ended September 30, 2023, compared to $7.5 million for the nine months ended September 30, 2022.

Q3 and Recent Business Highlights

  • Named George Gomez-Quintero as Chief Financial Officer

  • Awarded a multi-year service contract for system deployed on the largest fiber-optic monitoring solution ever installed

  • Secured multiple sales of seismic monitoring DAS instruments to American seismic labs and the U.S. government

  • Secured $1.5M+ in new orders for DAS and DTS systems for pipeline monitoring from the largest energy company in the UAE

  • Renewed global supply partnership agreement for infrastructure monitoring with one of the world’s largest multinational conglomerates

  • Successfully deployed fiber optic-sensing based traffic monitoring for the Utah Department of Transportation

2023 Full-Year Outlook

Luna is updating the 2023 revenue outlook and maintaining the adjusted EBITDA outlook:

  • Total revenue of $120 million to $125 million for the full year 2023

  • Adjusted EBITDA of $14 million to $18 million for the full year 2023

Luna is not providing an outlook for net income, which is the most directly comparable 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 and Adjusted EPS, which are non-GAAP financial measures. Adjusted EBITDA and Adjusted EPS exclude certain charges and income that are required by GAAP. Adjusted EBITDA and Adjusted EPS provide 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 and Adjusted EPS 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 and Adjusted EPS have 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 (ET) today, November 14, 2023, to discuss its financial results for the three and nine months ended September 30, 2023. 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 1.800.715.9871 .and the international dial-in number is.1.646.307.1963. Participants should ask to join the Luna Innovations Incorporated conference call, conference ID 6862329, and are advised to dial in at least fifteen minutes prior to the call. A replay of the conference call will be available 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 a multitude of industries. 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 full year 2023 financial results and outlook, and the Company’s ability to secure additional significant wins. 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, uncertainties related to the macroeconomic conditions and those risks and uncertainties set forth in Luna’s Form 10-Q for the quarter ended September 30, 2023, 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 Balance Sheets (Unaudited)

(in thousands, except share data)

 

 

September 30, 2023

 

December 31, 2022

 

(unaudited)

 

 

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

6,028

 

 

$

6,024

 

Accounts receivable, net

 

39,304

 

 

 

33,249

 

Contract assets

 

7,324

 

 

 

7,691

 

Inventory

 

43,318

 

 

 

36,582

 

Prepaid expenses and other current assets

 

4,207

 

 

 

4,328

 

Total current assets

 

100,181

 

 

 

87,874

 

Property and equipment, net

 

4,892

 

 

 

4,893

 

Intangible assets, net

 

16,143

 

 

 

18,750

 

Goodwill

 

26,896

 

 

 

26,927

 

Operating lease right-of-use assets

 

7,999

 

 

 

4,661

 

Other non-current assets

 

3,338

 

 

 

3,255

 

Deferred tax asset

 

5,645

 

 

 

4,647

 

Total assets

$

165,094

 

 

$

151,007

 

Liabilities and stockholders’ equity

 

 

 

Liabilities:

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt obligations

$

3,000

 

 

$

2,500

 

Accounts payable

 

10,617

 

 

 

8,109

 

Accrued and other current liabilities

 

14,705

 

 

 

16,694

 

Contract liabilities

 

4,619

 

 

 

4,089

 

Current portion of operating lease liabilities

 

2,069

 

 

 

2,239

 

Total current liabilities

 

35,010

 

 

 

33,631

 

Long-term debt obligations, net of current portion

 

28,887

 

 

 

20,726

 

Long-term portion of operating lease liabilities

 

6,178

 

 

 

2,804

 

Other long-term liabilities

 

407

 

 

 

444

 

Total liabilities

 

70,482

 

 

 

57,605

 

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

Common stock, par value $0.001, 100,000,000 shares authorized, 35,781,127 and 34,901,954 shares issued, 33,943,453 and 33,105,080 shares outstanding at September 30, 2023 and December 31, 2022, respectively

 

36

 

 

 

35

 

Treasury stock at cost, 1,837,674 and 1,796,862 shares at September 30, 2023 and December 31, 2022, respectively

 

(6,043

)

 

 

(5,607

)

Additional paid-in capital

 

109,634

 

 

 

104,893

 

Accumulated deficit

 

(5,273

)

 

 

(2,296

)

Accumulated other comprehensive loss

 

(3,742

)

 

 

(3,623

)

Total stockholders’ equity

 

94,612

 

 

 

93,402

 

Total liabilities and stockholders’ equity

$

165,094

 

 

$

151,007

 

 

Luna Innovations Incorporated

Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

 

 

Revenue

$

30,703

 

 

$

29,153

 

 

$

84,912

 

 

$

77,795

 

Cost of revenue

 

13,074

 

 

 

12,234

 

 

 

35,445

 

 

 

30,633

 

Gross profit

 

17,629

 

 

 

16,919

 

 

 

49,467

 

 

 

47,162

 

Operating expense:

 

 

 

 

 

 

 

Selling, general and administrative

 

12,829

 

 

 

11,678

 

 

 

39,565

 

 

 

39,733

 

Research, development and engineering

 

2,719

 

 

 

2,776

 

 

 

8,257

 

 

 

7,983

 

Amortization of intangible assets

 

929

 

 

 

987

 

 

 

2,839

 

 

 

2,794

 

Total operating expense

 

16,477

 

 

 

15,441

 

 

 

50,661

 

 

 

50,510

 

Operating income/(loss)

 

1,152

 

 

 

1,478

 

 

 

(1,194

)

 

 

(3,348

)

Other income/(expense):

 

 

 

 

 

 

 

Other income

 

115

 

 

 

73

 

 

 

98

 

 

 

146

 

Interest expense, net

 

(613

)

 

 

(218

)

 

 

(1,566

)

 

 

(442

)

Total other expense, net

 

(498

)

 

 

(145

)

 

 

(1,468

)

 

 

(296

)

Income/(loss) from continuing operations before income taxes

 

654

 

 

 

1,333

 

 

 

(2,662

)

 

 

(3,644

)

Income tax expense/(benefit)

 

193

 

 

 

165

 

 

 

(723

)

 

 

(527

)

Net income/(loss) from continuing operations

 

461

 

 

 

1,168

 

 

 

(1,939

)

 

 

(3,117

)

Income/(loss) from discontinued operations, net of income tax expense/(benefit) of $—, $(78), $(346), and $3,205.

 

 

 

 

28

 

 

 

(1,038

)

 

 

622

 

Gain on sale of discontinued operations, net of tax of $3,117

 

 

 

 

 

 

 

 

 

 

10,921

 

Net income/(loss) from discontinued operations

 

 

 

 

28

 

 

 

(1,038

)

 

 

11,543

 

Net income/(loss)

$

461

 

 

$

1,196

 

 

$

(2,977

)

 

$

8,426

 

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

 

 

 

 

 

 

 

Basic

$

0.01

 

 

$

0.04

 

 

$

(0.06

)

 

$

(0.10

)

Diluted

$

0.01

 

 

$

0.03

 

 

$

(0.06

)

 

$

(0.10

)

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

 

 

 

 

 

 

 

Basic

$

 

 

$

 

 

$

(0.03

)

 

$

0.36

 

Diluted

$

 

 

$

 

 

$

(0.03

)

 

$

0.36

 

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

 

 

 

 

 

 

 

Basic

$

0.01

 

 

$

0.04

 

 

$

(0.09

)

 

$

0.26

 

Diluted

$

0.01

 

 

$

0.04

 

 

$

(0.09

)

 

$

0.26

 

Weighted average shares:

 

 

 

 

 

 

 

Basic

 

33,917,700

 

 

 

32,800,690

 

 

 

33,631,654

 

 

 

32,492,276

 

Diluted

 

35,218,547

 

 

 

34,104,850

 

 

 

33,631,654

 

 

 

32,492,276

 

 

Luna Innovations Incorporated

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

Nine Months Ended September 30,

 

 

2023

 

 

 

2022

 

 

 

Cash flows used in by operating activities

 

 

 

Net (loss)/income

$

(2,977

)

 

$

8,426

 

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

 

 

 

Depreciation and amortization

 

4,092

 

 

 

3,993

 

Share-based compensation

 

3,219

 

 

 

3,204

 

Loss on disposal of property and equipment

 

281

 

 

 

 

Gain on sale of discontinued operations, net of tax

 

 

 

 

(10,921

)

Deferred taxes

 

(998

)

 

 

(3,374

)

Change in assets and liabilities

 

 

 

Accounts receivable

 

(6,095

)

 

 

(6,166

)

Contract assets

 

1,145

 

 

 

(2,739

)

Inventory

 

(6,520

)

 

 

(6,662

)

Other current assets

 

202

 

 

 

2,093

 

Other non-current assets

 

(121

)

 

 

599

 

Accounts payable and accrued and other current liabilities

 

(479

)

 

 

5,824

 

Contract liabilities

 

111

 

 

 

2,425

 

Other non-current liabilities

 

 

 

 

13

 

Net cash used in operating activities

 

(8,140

)

 

 

(3,285

)

Cash flows used in investing activities

 

 

 

Acquisition of property and equipment

 

(1,750

)

 

 

(2,313

)

Acquisition of intangible property

 

(95

)

 

 

 

Proceeds from sale of discontinued operations

 

 

 

 

12,973

 

Acquisition of Luna Innovations Germany GmbH

 

 

 

 

(22,085

)

Other

 

 

 

 

29

 

Net cash used in investing activities

 

(1,845

)

 

 

(11,396

)

Cash flows provided by financing activities

 

 

 

Payments on finance lease obligations

 

(37

)

 

 

(36

)

Proceeds from borrowings under debt obligations

 

10,400

 

 

 

22,150

 

Payments of debt obligations

 

(1,750

)

 

 

(16,275

)

Repurchase of common stock

 

(436

)

 

 

(294

)

Proceeds from ESPP

 

546

 

 

 

521

 

Proceeds from the exercise of stock options

 

1,272

 

 

 

1,160

 

Net cash provided by financing activities

 

9,995

 

 

 

7,226

 

Effect of exchange rate changes on cash and cash equivalents

 

(6

)

 

 

(1,784

)

Net increase/(decrease) in cash and cash equivalents

 

4

 

 

 

(9,239

)

Cash and cash equivalents—beginning of period

 

6,024

 

 

 

17,128

 

Cash and cash equivalents—end of period

$

6,028

 

 

$

7,889

 

 

Luna Innovations Incorporated

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

(in thousands)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

 

2022

 

 

 

 

 

Net income/(loss)

$

461

 

$

1,196

 

$

(2,977

)

 

$

8,426

 

Net income/(loss) from discontinued operations

 

 

 

28

 

 

(1,038

)

 

 

11,543

 

Net income/(loss) from continuing operations

 

461

 

 

1,168

 

 

(1,939

)

 

 

(3,117

)

Interest expense, net

 

613

 

 

218

 

 

1,566

 

 

 

442

 

Income tax expense/(benefit)

 

193

 

 

165

 

 

(723

)

 

 

(527

)

Depreciation and amortization

 

1,353

 

 

1,299

 

 

4,092

 

 

 

3,993

 

EBITDA

 

2,620

 

 

2,850

 

 

2,996

 

 

 

791

 

Share-based compensation

 

1,046

 

 

1,027

 

 

3,219

 

 

 

3,027

 

Integration and transaction expense

 

59

 

 

184

 

 

308

 

 

 

2,184

 

Amortization of inventory step-up

 

 

 

134

 

 

 

 

 

391

 

Other non-recurring charges (1)

 

447

 

 

349

 

 

1,236

 

 

 

1,057

 

Adjusted EBITDA

$

4,172

 

$

4,544

 

$

7,759

 

 

$

7,450

 

 

 (1) – Other non-recurring charges primarily include facility consolidation/set-up costs and one-time insurance deductible.

 

Luna Innovations Incorporated

Reconciliation of Net Income/(Loss) to Adjusted EPS

(in thousands, except per share data)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

 

 

Net income/(loss)

$

461

 

 

$

1,196

 

 

$

(2,977

)

 

$

8,426

 

Net income/(loss) from discontinued operations

 

 

 

 

28

 

 

 

(1,038

)

 

 

11,543

 

Net income/(loss) from continuing operations

 

461

 

 

 

1,168

 

 

 

(1,939

)

 

 

(3,117

)

Share-based compensation

 

1,046

 

 

 

1,027

 

 

 

3,219

 

 

 

3,027

 

Integration and transaction expense

 

59

 

 

 

184

 

 

 

308

 

 

 

2,184

 

Amortization of intangible assets

 

929

 

 

 

988

 

 

 

2,839

 

 

 

2,793

 

Amortization of inventory step-up

 

 

 

 

134

 

 

 

 

 

 

391

 

Other non-recurring charges (1)

 

447

 

 

 

349

 

 

 

1,236

 

 

 

1,057

 

Income tax effect on adjustments

 

(620

)

 

 

(671

)

 

 

(1,901

)

 

 

(2,363

)

Adjusted income from continuing operations

$

2,322

 

 

$

3,179

 

 

$

3,762

 

 

$

3,972

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EPS

$

0.07

 

 

$

0.09

 

 

$

0.11

 

 

$

0.12

 

 

 

 

 

 

 

 

 

Adjusted weighted average shares:

 

 

 

 

 

 

 

Diluted

 

35,219

 

 

 

34,105

 

 

 

33,632

 

 

 

32,492

 

 

 (1) – Other non-recurring charges primarily include facility consolidation/set-up costs and one-time insurance deductible.