Luna Innovations Incorporated Reports Third Quarter 2013 Financial Results

  Luna Innovations Incorporated Reports Third Quarter 2013 Financial Results

Total revenues decrease 16% from prior year quarter; Net loss of $0.6 million
                            for the third quarter

Business Wire

ROANOKE, Va. -- November 7, 2013

Luna Innovations Incorporated (NASDAQ: LUNA) today announced its financial
results for the third quarter and nine months ended September30, 2013.

As compared to the same quarter last year, total revenue decreased by 16%,
from $6.8 million in the third quarter of 2012 to $5.7 million in the third
quarter of 2013. Revenues declined by 4% compared to the second quarter of
2013. Technology development revenues decreased by 15% compared to the third
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 12% compared to the second quarter of 2013. Products
and licensing revenues decreased $0.6 million, or 18%, compared to the third
quarter of 2012 primarily resulting from sales of prototype shape sensing
instruments in the third quarter of 2012 that did not recur in the third
quarter of 2013. Gross profit decreased from $2.9 million for the third
quarter of 2012 to $2.2 million for the third quarter of 2013. Operating
expenses for the third quarter of 2013 decreased by $0.4 million, or 14%, from
the third quarter of 2012.

The company reported a net loss attributable to common stockholders of $0.6
million, or $0.04 per diluted common share, for the third quarter of 2013,
compared to a net loss of $0.3 million, or $0.02 per diluted 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
$(0.1) million for the third quarter of 2013, as compared to $0.5 million for
the third quarter of 2012.

“We are pleased to see continued sequential growth in the government contracts
segment of our business,” said My Chung, chief executive officer of Luna.
“Softness in the sales of telecom products continued to adversely impact our
overall results for the quarter. We remain keenly focused on the enhancement
of our ODiSI platform for distributed strain and temperature sensing and our
fiber optic shape sensing technology for minimally invasive medical
applications to drive our growth in future quarters.”

Third Quarter Financial and Business Summary

  *Total revenues decreased by 16%, from $6.8 million in the third quarter of
    2012 to $5.7 million in the third quarter of 2013.
  *Technology development revenues decreased by 15%, to $3.1 million, for the
    third quarter of 2013, from $3.7 million for the third quarter of 2012.
    Technology development revenues increased by 12% compared to the second
    quarter of 2013.
  *Products and licensing revenue decreased by 18%, from $3.2 million in the
    third quarter of 2012 to $2.6 million in the third quarter of 2013.
  *Gross profit for the third quarter of 2013 decreased to $2.2 million, or
    39% of total revenues, from $2.9 million, or 42% of total revenues, for
    the third quarter of 2012.
  *Selling, general and administrative expenses decreased by 14% to $2.2
    million, or 39% of total revenues, for the third quarter of 2013, from
    $2.6 million, or 38% of total revenues, for the third quarter of 2012.
  *Total operating expenses decreased to $2.8 million, or 49% of total
    revenues, for the third quarter of 2013 from $3.2 million, or 47% of total
    revenues for the third quarter of 2012.
  *Adjusted EBITDA decreased to $(0.1) million in the third quarter 2013 from
    $0.5 million in the third quarter of 2012.
  *Net loss attributable to common stockholders for the third quarter of 2013
    increased to $0.6 million for the third quarter of 2013 from $0.3 million
    for the third quarter of 2012.
  *Cash and cash equivalents totaled $8.2 million at September30, 2013, as
    compared to $6.3 million at December31, 2012 and $8.7 million at June 30,
    2013.

Nine Months Ended September30, 2013 Financial Summary

  *Total revenue decreased by 20% to $16.2 million for the nine months ended
    September30, 2013 compared to $20.2 million for the nine months ended
    September30, 2012.
  *Technology development revenues decreased by 26%, from $11.5 million for
    the nine months ended September30, 2012 to $8.6 million for the nine
    months ended September30, 2013.
  *Products and licensing revenue decreased by 13%, from $8.7 million for the
    nine months ended September30, 2012 to $7.6 million for the nine months
    ended September30, 2013.
  *Gross profit for the nine months ended September30, 2013 decreased by
    28%, to $6.0 million, compared to a gross profit of $8.3 million for the
    nine months ended September30, 2012. Gross margin percentages decreased
    to 37% of revenues for the nine months ended September 30, 2013 from 41%
    of revenues for the nine months ended September 30, 2012.
  *Selling, general and administrative expenses decreased 5% to $7.4 million,
    or 46% of total revenues for the nine months ended September30, 2013
    compared to $7.8 million, or 38% of total revenues for the nine months
    ended September30, 2012.
  *Total operating expenses decreased to $9.5 million, or 58% of total
    revenues, for the nine months ended September30, 2013, from $9.7 million,
    or 48% of total revenues, for the nine months ended September30, 2012.
  *Adjusted EBITDA decreased to $(1.8) million for the nine months ended
    September30, 2013 from $1.0 million for the nine months ended
    September30, 2012.
  *Net income attributable to common stockholders improved to $1.1 million
    for the nine months ended September30, 2013, compared to a net loss
    attributable to common stockholders of $0.9 million for the nine months
    ended September30, 2012, largely resulting from a net after-tax gain of
    $3.7 million realized on the sale of the company’s Secure Computing and
    Communications group for the nine months ended September 30, 2013.

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. (EST) today to discuss its financial results and business developments
for the third quarter of 2013. The call can be accessed by dialing
866.318.8611 domestically or 617.399.5130 internationally prior to the start
of the call. The participant access code is 37313561. 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                  Nine Months Ended
                       September 30,                         September 30,
                       2013             2012               2013             2012
                       (unaudited)                           (unaudited)
Revenues:
Technology
development            $ 3,130,206        $ 3,691,154        $ 8,564,744        $ 11,528,700
revenues
Products and            2,587,763        3,155,953        7,623,203        8,715,630  
licensing revenues
Total revenues           5,717,969          6,847,107          16,187,947         20,244,330
Cost of revenues:
Technology               2,282,061          2,646,293          6,663,194          8,074,595
development costs
Products and            1,228,134        1,307,285        3,516,196        3,821,980  
licensing costs
Total cost of            3,510,195          3,953,578          10,179,390         11,896,575
revenues
Gross Profit            2,207,774        2,893,529        6,008,557        8,347,755  
Operating expense:
Selling, general         2,221,428          2,592,908          7,388,835          7,777,206
and administrative
Research,
development and         558,214          630,059          2,065,337        1,923,300  
engineering
Total operating          2,779,642          3,222,967          9,454,172          9,700,506
expense
Operating loss          (571,868   )      (329,438   )      (3,445,615 )      (1,352,751 )
Other
income/(expense):
Other
(expenses)/income,       (1,521     )       37,866             85,289             85,083
net
Interest expense        (42,654    )      (68,455    )      (150,732   )      (222,473   )
Total other             (44,175    )      (30,589    )      (65,443    )      (137,390   )
expense
Loss from
continuing               (616,043   )       (360,027   )       (3,511,058 )       (1,490,141 )
operations before
income taxes
Income tax              (131,784   )      15,618           (1,087,839 )      21,417     
(benefit)/expense
Loss from
continuing               (484,259   )       (375,645   )       (2,423,219 )       (1,511,558 )
operations
(Loss)/income from
discontinued            (129,653   )      155,436          3,642,822        714,081    
operations, net of
income taxes
Net (loss)/income        (613,912   )       (220,209   )       1,219,603          (797,477   )
Preferred stock         26,166           34,095           76,161           94,974     
dividend
Net (loss)/income
attributable to        $ (640,078   )     $ (254,304   )     $ 1,143,442       $ (892,451   )
common
stockholders
Net loss per share
from continuing
operations:
Basic                  $ (0.03      )     $ (0.03      )     $ (0.17      )     $ (0.11      )
Diluted                $ (0.03      )     $ (0.03      )     $ (0.17      )     $ (0.11      )
Net (loss)/income
per share from
discontinued
operations:
Basic                  $ (0.01      )     $ 0.01             $ 0.25             $ 0.05
Diluted                $ (0.01      )     $ 0.01            $ 0.22            $ 0.04       
Net (loss)/income
per share
attributable to
common
stockholders:
Basic                  $ (0.04      )     $ (0.02      )     $ 0.08             $ (0.06      )
Diluted                $ (0.04      )     $ (0.02      )     $ 0.07            $ (0.06      )
Weighted average
common shares and
common equivalent
shares
outstanding:
Basic                    14,441,707         13,939,938         14,285,829         13,903,809
Diluted                  14,441,707         16,312,622         16,593,102         16,269,306
                                                                                             


Luna Innovations Incorporated
Condensed Consolidated Balance Sheets


                                         September 30,     December 31,
                                           2013                2012
                                           (unaudited)
Assets
Current assets:
Cash and cash equivalents                  $ 8,184,665         $ 6,340,461
Accounts receivable, net                     5,656,564           7,059,635
Inventory, net                               3,775,508           3,336,916
Prepaid expenses                             492,696             667,773
Other current assets                        70,208            35,629      
Total current assets                         18,179,641          17,440,414
Property and equipment, net                  2,155,032           2,426,638
Intangible assets, net                       327,293             437,839
Other assets                                61,501            152,877     
Total assets                               $ 20,723,467       $ 20,457,768  
Liabilities and stockholders’ equity
Liabilities:
Current Liabilities
Current portion of long term debt          $ 1,500,000         $ 1,500,000
obligation
Current portion of capital lease             65,627              54,091
obligation
Accounts payable                             1,270,190           1,797,571
Accrued liabilities                          2,717,560           2,747,175
Deferred credits                             558,076           832,822     
Total current liabilities                    6,111,453           6,931,659
Long-term debt obligation                    1,000,000           2,125,000
Long-term lease obligation                  127,337           128,917     
Total liabilities                            7,238,790           9,185,576
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $ 0.001,
1,321,514 shares authorized, issued          1,322               1,322
and outstanding at September 30, 2013
and December 31, 2012
Common stock, par value $ 0.001,
100,000,000 shares authorized,
14,483,900 and 14,009,280 shares             14,779              14,245
issued and outstanding at September
30, 2013 and December 31, 2012,
respectively
Additional paid-in capital                   62,430,014          61,361,505
Accumulated deficit                         (48,961,438 )      (50,104,880 )
Total stockholders’ equity                  13,484,677        11,272,192  
Total liabilities and stockholders’        $ 20,723,467       $ 20,457,768  
equity
                                                                             


Luna Innovations Incorporated
Condensed Consolidated Statements of Cash Flows


                                           Nine months ended
                                             September 30,
                                             2013             2012
                                             (unaudited)
Cash flows used in operating activities
Net income/(loss)                            $ 1,219,603        $ (797,477   )
Adjustments to reconcile net
income/(loss) to net cash used in
operating activities
Depreciation and amortization                  711,375            814,498
Share-based compensation                       896,554            1,411,672
Warrant expense                                —                  52,889
Gain on sale of discontinued operations,       (3,738,697 )       —
net of income taxes
Allowance for doubtful accounts                124,810            —
Tax benefit from utilization of net            (1,157,833 )       —
operating loss carryforward
Change in assets and liabilities:
Accounts receivable                            1,880,545          (1,771,022 )
Inventory                                      (438,592   )       (243,565   )
Other current assets                           26,931             107,826
Other assets                                   91,376             56,375
Accounts payable and accrued expenses          (600,471   )       (36,216    )
Deferred credits                              (274,746   )    (359,250   )
Net cash used in operating activities         (1,259,145 )    (764,270   )
Cash flows provided by/(used in)
investing activities
Acquisition of property and equipment          (161,519   )       (242,396   )
Intangible property costs                      (187,928   )       (131,727   )
Proceeds from sale of discontinued            4,522,460      —          
operations, net of fees
Net cash provided by/(used in) investing      4,173,013      (374,123   )
activities
Cash flows used in financing activities
Payments on capital lease obligations          (40,993    )       (37,924    )
Payment of debt obligations                    (1,125,000 )       (1,125,000 )
Proceeds from the exercise of options         96,329         84,501     
and warrants
Net cash used in financing activities         (1,069,664 )    (1,078,423 )
Net increase/(decrease) in cash or cash        1,844,204          (2,216,816 )
equivalents
Cash and cash equivalents—beginning of        6,340,461      8,939,127  
period
Cash and cash equivalents—end of period      $ 8,184,665     $ 6,722,311  
                                                                             


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

                                                                  
                      Three Months Ended                Nine Months Ended
                      September 30,                     September 30,
                      2013             2012             2013               2012
                      (unaudited)                       (unaudited)
                                                                                        
Net (loss)/income     $ (613,912 )     $ (220,209 )     $ 1,219,603        $ (797,477   )
Less
(loss)/income
from discontinued      (129,653 )      155,436        3,642,822        714,081    
operations, net
of income taxes
                                                                                        
Loss from
continuing              (484,259 )       (375,645 )       (2,423,219 )       (1,511,558 )
operations
Interest expense        42,654           68,455           150,732            222,473
Tax                     (131,784 )       15,618           (1,087,839 )       21,417
(benefit)/expense
Depreciation and       222,131        286,386        711,375          814,498    
amortization
                                                                                        
                                                                                        
EBITDA                  (351,258 )       (5,186   )       (2,648,951 )       (453,170   )
Share-based             278,468          483,304          896,554            1,411,672
compensation
Warrant expense        —              40,857         —                52,889     
                                                                                        
                                                                                        
Adjusted EBITDA       $ (72,790  )     $ 518,975       $ (1,752,397 )     $ 1,011,391  
                                                                                        

Contact:

Luna Innovations Incorporated
Investor Contact:
Dale Messick, CFO
Phone: 1.540.769.8400
Email: IR@lunainc.com
 
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