Luna Innovations Incorporated Reports Second Quarter 2013 Financial Results

  Luna Innovations Incorporated Reports Second Quarter 2013 Financial Results

 Products and licensing revenues increase 11% over prior year quarter; Total
                revenues decrease 11% from prior year quarter

Business Wire

ROANOKE, Va. -- August 6, 2013

Luna Innovations Incorporated (NASDAQ: LUNA) today announced its financial
results for the second quarter and six months ended June 30, 2013.

As compared to the same quarter last year, total revenue decreased by 11%,
from $6.7 million in the second quarter of 2012 to $6.0 million in the second
quarter of 2013. Products and licensing revenues increased 11% compared to the
second quarter of 2012 driven by higher sales of the company’s ODiSI product
line in addition to increased revenue from the development of the company’s
fiber optic shape sensing product. Products and licensing revenues for the
second quarter also increased 69% compared to the first quarter of 2013.

Technology development revenues declined by 28% compared to the second quarter
of 2012 due primarily to the continued lower level of contract research
projects within the company’s optical systems group. Technology development
revenues grew by 7% compared to the first quarter of 2013. Gross profit
decreased from $2.7 million for the second quarter of 2012 to $2.4 million for
the second quarter of 2013. Operating expenses for the second quarter of 2013
increased $0.2 million, or 6%, over the second quarter of 2012.

The company reported a net loss attributable to common stockholders of $1.0
million, or $0.07 per common share, for the second quarter of 2013, compared
to a net loss of $0.3 million, or $0.02 per common share, in the same quarter
last year. Adjusted EBITDA, a non-GAAP measure, which is earnings before
interest, taxes, and non-cash expenses of share-based compensation,
depreciation, amortization and warrant expense, decreased to $(0.3) million
for the second quarter of 2013, as compared to $0.4 million for the second
quarter of 2012.

“I am pleased to report growth in the Products and Licensing segment of our
business,” said My Chung, chief executive officer of Luna. “Growth in sales of
our ODiSI products for measuring strain and temperature continued to offset
the softness of the telecom test and measurement market for us. The multi-year
renewal of our agreement with Intuitive Surgical during the second quarter
also provides a strong base for growth in the future as we work toward the
commercialization of the shape sensing platform.”

Second Quarter Financial and Business Summary

-- Total revenues decreased by 11%, from $6.7 million in the second quarter of
2012 to $6.0 million in the second quarter of 2013.

--Technology development revenues decreased by 28%, to $2.8 million, for the
second quarter of 2013, from $3.9 million for the second quarter of 2012.
Technology development revenues increased by 7% compared to the first quarter
of 2013.

-- Products and licensing revenue increased by 11%, from $2.8 million in the
second quarter of 2012 to $3.2 million in the second quarter of 2013. Products
and licensing revenue increased 69% over the first quarter of 2013.

-- Gross profit for the second quarter of 2013 decreased to $2.4 million, or
40% of total revenues, from $2.7 million, or 41% of total revenues, for the
second quarter of 2012.

-- Selling, general and administrative expenses increased by 5% to $2.7
million, or 45% of total revenues for the second quarter of 2013, from $2.5
million, or 37% of total revenues, for the second quarter of 2012.

-- Total operating expenses increased to $3.3 million, or 56% of total
revenues, for the second quarter of 2013 from $3.1 million, or 47% of total
revenues for the second quarter of 2012.

-- Adjusted EBITDA decreased to $(0.3) million in the second quarter 2013 from
$0.4 million in the second quarter of 2012.

-- Net loss attributable to common stockholders for the second quarter of 2013
increased to $1.0 million from $0.3 million for the second quarter of 2012.

-- Cash and cash equivalents totaled $8.7 million at June 30, 2013, as
compared to $6.3 million at December 31, 2012 and $10.3 million at March 31,
2013. Net cash used during the quarter was adversely impacted by a $1.1
million increase in accounts receivable at June 30 compared to March 31,
driven primarily by the timing of sales during the second quarter.

Six Months Ended June 30, 2013 Financial Summary

-- Total revenue decreased by 22% to $10.5 million for the six months ended
June 30, 2013 compared to $13.4 million for the six months ended June 30,
2012.

--Technology development revenues decreased by 31%, from $7.8 million for the
six months ended June 30, 2012 to $5.4 million for the six months ended June
30, 2013.

-- Products and licensing revenue decreased by 9%, from $5.6 million for the
six months ended June 30, 2012 to $5.0 million for the six months ended June
30, 2013.

-- Gross profit for the six months ended June 30, 2013 decreased by 30%, to
$3.8 million, compared to a gross profit of $5.5 million for the six months
ended June 30, 2012. Gross margin percentages decreased to 36% of revenues for
the first six months of 2013 from 41% of revenues for the first six month of
2012.

-- Selling, general and administrative expenses was relatively unchanged at
$5.2 million, representing 49% of total revenues for the six months ended June
30, 2013 compared to 39% of total revenues for the six months ended June 30,
2013.

-- Total operating expenses increased to $6.7 million, or 64% of total
revenues, for the six months ended June 30, 2013, from $6.5 million or 48% of
total revenues, for the six months ended June 30, 2012.

-- Adjusted EBITDA decreased to $(1.7) million for the six months ended June
30, 2013 from $0.5 million for the six months ended June 30, 2012.

-- Net income attributable to common stockholders improved to $1.8 million for
the six months ended June 30, 2013, compared to a net loss attributable to
common stockholders of $0.6 million for the six months ended June 30, 2012
largely the result of a net after-tax gain of $3.9 million realized on the
sale of the company’s Secure Computing and Communications group in the first
quarter.

Non-GAAP Measures

In evaluating the operating performance of its business, Luna’s management
excludes certain charges and credits that are required by generally accepted
accounting principles (“GAAP”). These non-GAAP results provide useful
information to both management and investors by excluding items that the
company believes may not be indicative of its operating performance, because
either they are unusual and the company 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. These non-GAAP measures should be
considered in addition to results and guidance prepared in accordance with
GAAP, but should not be considered a substitute for, or superior to, GAAP
results. The non-GAAP measures included in this press release 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 5:00
p.m. (EDT) today to discuss its financial results and business developments
for the second quarter of 2013. The call can be accessed by dialing
800.299.9630 domestically or 617.786.2904 internationally prior to the start
of the call. The participant access code is 24290407. 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 focused on sensing and
instrumentation. Luna develops and manufactures new-generation products for
the healthcare, telecommunications, energy and defense markets. The company’s
products are used to measure, monitor, protect and improve critical processes
in the markets it serves.

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 our expectations regarding the
company’s future growth and commercialization of the company’s shape sensing
platform. 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, technological challenges and those risks and uncertainties set
forth in the company’s periodic reports and other filings with the Securities
and Exchange Commission. Such filings are available at the SEC’s website at
www.sec.gov and at the company’s website at www.lunainc.com. The statements
made in this release are based on information available to the company 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
Condensed Consolidated Statements of Operations
                                                                                    
                    Three Months Ended                Six Months Ended
                    June 30,                          June 30,
                    2013             2012             2013             2012
                    (unaudited)                       (unaudited)
Revenues:
Technology
development         $ 2,807,296      $ 3,894,846      $ 5,434,537      $ 7,837,546
revenues
Products and
licensing            3,165,764       2,845,864       5,035,439       5,559,677
revenues
                                                                                    
                                                                     
Total revenues        5,973,060        6,740,710        10,469,976       13,397,223
                                                                     
Cost of revenues:
Technology            2,209,158        2,729,108        4,381,135        5,428,304
development costs
Products and         1,355,643       1,267,201       2,288,062       2,514,696
license costs
                                                                                    
                                                                     
Total cost of        3,564,801       3,996,309       6,669,197       7,943,000
revenues
                                                                                    
                                                                     
Gross Profit         2,408,259        2,744,401        3,800,779        5,454,223
                                                                     
Operating
expense:
Selling, general
and                   2,658,605        2,526,638        5,167,251        5,183,614
administrative
Research,
development, and     666,632         608,459         1,507,124       1,293,240
engineering
                                                                                    
                                                                     
Total operating      3,325,237       3,135,097       6,674,375       6,476,854
expense
                                                                                    
                                                                     
Operating loss        (916,978   )     (390,696   )     (2,873,596 )     (1,022,631 )
                                                                     
Other
income/(expense):
Other income, net     15,307           23,265           86,540           46,533
Interest expense     (49,781    )    (74,357    )    (107,960   )    (154,015   )
                                                                                    
                                                                     
Total other           (34,474    )     (51,092    )     (21,420    )     (107,482   )
expense
                                                                     
Loss from
continuing            (951,452   )     (441,788   )     (2,895,016 )     (1,130,113 )
operations before
income taxes
Income tax           (160,855   )    -               (956,055   )    5,799
(benefit)/expense
                                                                                    
                                                                     
Loss from
continuing            (790,597   )     (441,788   )     (1,938,961 )     (1,135,912 )
operations
(Loss)/income
from discontinued     (161,485   )     199,268          3,772,476        558,644
operations, net
of income taxes
Net (loss)/income     (952,082   )     (242,520   )     1,833,515        (577,268   )
                                                                     
Preferred stock       26,366           26,784           49,995           60,880
dividend
                                                                     
Net (loss)/income
attributable to     $ (978,448   )   $ (269,304   )   $ 1,783,520      $ (638,148   )
common
stockholders
                                                                                    
                                                                     
Net loss per
share from
continuing
operations:
Basic               $ (0.06      )   $ (0.03      )   $ (0.14)         $ (0.08      )
Diluted             $ (0.06      )   $ (0.03      )   $ (0.14)        $ (0.08      )
Net (loss)/income
per share from
discontinued
operations:
Basic               $ (0.01      )   $ 0.01           $ 0.27           $ 0.04
Diluted             $ (0.01      )   $ 0.01          $ 0.23           $ 0.03
Net (loss)/income
per share
attributable to
common
stockholders:
Basic               $ (0.07      )   $ (0.02      )   $ 0.13           $ (0.05      )
Diluted             $ (0.07      )   $ (0.02      )   $ 0.11           $ (0.05      )
Weighted average
common shares and
common equivalent
shares
outstanding:
Basic                 14,362,494       13,892,816       14,206,598       13,885,684
Diluted               14,362,494       16,314,620       16,558,357       16,325,402
                                                                                    

                                                            
Luna Innovations Incorporated
Condensed Consolidated Balance Sheets
                                                                             
                                             June 30,          December 31,
                                             2013              2012
                                             (unaudited)
Assets
Current assets:
Cash and cash equivalents                    $ 8,742,869       $ 6,340,461
Accounts receivable, net                       6,702,987         7,059,635
Inventory, net                                 3,646,133         3,336,916
Prepaid expenses                               560,275           667,773
Other current assets                          70,207           35,629
                                                                             
Total current assets                           19,722,471        17,440,414
Property and equipment, net                    2,141,390         2,426,638
Intangible assets, net                         377,638           437,839
Other assets                                  80,293           152,877
                                                                             
Total assets                                 $ 22,321,792      $ 20,457,768
                                                                             
Liabilities and stockholders’ equity
Liabilities :
Current Liabilities
Current portion of long term debt              1,625,000         1,500,000
obligation
Current portion of capital lease               55,734            54,091
obligation
Accounts payable                               2,238,501         1,797,571
Accrued liabilities                            2,531,515         2,747,175
Deferred credits                              611,269          832,822
                                                                             
Total current liabilities                      7,062,019         6,931,659
Long-term debt obligation                      1,375,000         2,125,000
Long-term lease obligation                    100,633          128,917
                                                                             
Total liabilities                              8,537,652         9,185,576
                                                             
Commitments and contingencies
Stockholders’ equity:
Preferred stock                                1,322             1,322
Common stock                                   14,688            14,245
Additional paid-in capital                     62,089,490        61,361,505
Accumulated deficit                           (48,321,360 )    (50,104,880 )
                                                                             
Total stockholders’ equity                    13,784,140       11,272,192
                                                                             
Total liabilities and stockholders’ equity   $ 22,321,792      $ 20,457,768
                                                                             

                                                             
Luna Innovations Incorporated
Condensed Consolidated Statements of Cash Flows
                                                                             
                                               Six months ended
                                               June 30,
                                               2013             2012
                                               (unaudited)
Cash used in operating activities
Net income (loss)                              $ 1,833,515      $ (577,268   )
Adjustments to reconcile net income (loss)
to net cash used in operating activities
Depreciation and amortization                    489,244          528,113
Share-based compensation                         618,084          928,368
Warrant expense                                  -                12,032
Gain on sale of discontinued operations, net     (3,868,114 )     -
of income taxes
Allowance for doubtful accounts or bad debt      124,810          -
expense
Change in assets and liabilities:
Accounts receivable                              834,122          (1,212,864 )
Inventory                                        (309,217   )     (69,186    )
Other current assets                             (40,647    )     150,289
Other assets                                     72,584           37,583
Accounts payable and accrued expenses            174,916          (847,341   )
Deferred credits                                (221,553   )    (328,491   )
                                                                             
Net cash used in operating activities           (1,313,794 )    (1,378,765 )
                                                                             
Cash flows provided by/(used in) investing
activities
Acquisition of property and equipment            (69,108    )     (123,732   )
Intangible property costs                        (145,858   )     (55,847    )
Proceeds from sale of discontinued              4,522,460       -
operations, net of fees
                                                              
Net cash provided by/(used in) investing        4,307,494       (179,579   )
activities
                                                              
Cash flows used in financing activities
                                                              
Payments on capital lease obligations            (26,641    )     (25,094    )
Payment of debt obligations                      (625,000   )     (750,000   )
Proceeds from the exercise of options and       60,349          33,830
warrants
                                                              
Net cash used in financing activities           (591,292   )    (741,264)
                                                                             
Net increase/(decrease) in cash or cash          2,402,408        (2,299,608 )
equivalents
Cash and cash equivalents, beginning of         6,340,461       8,939,127
period
                                                              
Cash and cash equivalents, end of period       $ 8,742,869      $ 6,639,519
                                                                             

                                                            
Luna Innovations Incorporated
Reconciliation of Net Income/(Loss) to EBITDA and Adjusted EBITDA
                                                                              
                Three Months Ended             Six Months Ended
                June 30,                       June 30,
                2013            2012           2013              2012
                (unaudited)                    (unaudited)
                                                                              
                                                               
Net             $ (952,082  )   $ (242,520 )   $ 1,833,515       $ (577,268   )
income/(loss)
Less
(loss)/income
from
discontinued      (161,485  )     199,268        3,772,476         558,644
operations,
net of income
taxes
Loss from
continuing        (790,597  )     (441,788 )     (1,938,961  )     (1,135,912 )
operations
Interest          49,781          74,357         107,960           154,015
expense
Tax (benefit)     (160,855)       -              (956,055    )     5,799
expense
Depreciation
and              260,979        244,012       489,244          528,113
amortization
                                                                              
EBITDA            (640,692  )     (123,419 )     (2,297,812  )     (447,985   )
Share-based       304,568         473,784        618,084           928,368
compensation
Warrant          -              147           -                12,032
expense
                                                                              
Adjusted        $ (336,124  )   $ 350,512      $ (1,679,728)     $ 492,415
EBITDA
                                                                              

Contact:

Luna Innovations Incorporated
Dale Messick, CFO
1-540-769-8400
IR@lunainc.com
 
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