Luna Innovations Reports Third Quarter 2009 Financial Results

November 12, 2009

Revenues Decrease by $1.8 Million Compared to Third Quarter 2008; Operating Costs Continue to Improve; Net Loss at $2 Million

ROANOKE, Va.–Nov. 12, 2009–Luna Innovations Incorporated (NASDAQ:LUNA), a company focusing on sensing & instrumentation and pharmaceutical nanomedicines, today announced its financial results for the quarter endedSeptember 30, 2009.

As compared to the same quarter last year, third quarter 2009 revenues decreased from$10.7 million to $8.9 million, gross profit decreased from$4.3 million to $3.5 million, and loss per share increased from$0.04 to $0.18.

Kent Murphy, Chairman and Chief Executive Officer, provided this comment related to third quarter results: “In the third quarter, we recognized approximately$0.9 millionof reorganization costs in addition to approximately$0.7 millionof legal fees related to our litigation withHansen Medical. Excluding these costs and fees in both periods, our operating expenses for the most recent quarter would have decreased by approximately$1.0 millioncompared to the same period last year, and our operating loss would have been an improvement compared to the third quarter of last year. When we normalize our results by excluding the costs associated with our reorganization and the Hansen litigation, our Adjusted EBITDA of$0.8 millionrepresents an increase of$0.2 millionover the third quarter of 2008 and our Adjusted EBITDA of$1.3 millionyear to date reflects an increase of$1.1 millioncompared to last year. I am pleased with our continued improvement in the financial results of our core operations and our progress in developing and launching new products.”

Third Quarter Financial Highlights

  • Total revenues for the third quarter of 2009 decreased by$1.8 millionto$8.9compared to$10.7 millionduring the third quarter of 2008.
  • Product and license revenues decreased$1.2 millionto approximately$2.3 millionin the third quarter of 2009 compared to$3.5 millionin the third quarter of 2008.
  • Technology Development Division revenues decreased by$0.7 millionto approximately$6.5 millioncompared to$7.2 millionin the third quarter of 2008. Backlog was approximately$25.7 millionatSeptember 30, 2009and atSeptember 30, 2008.
  • Gross profit for the third quarter of 2009 decreased to$3.5 millionfrom$4.3 millionfor the corresponding period of 2008.
  • Operating expenses remained approximately flat at$5.4 millionin the third quarter. Legal fees and reorganization expenses were approximately$1.6 millionduring the third quarter of 2009.
  • Net loss per share for the third quarter of 2009 was$0.18per share, an increase from a loss per share of$0.04for the third quarter of 2008. Net loss in 2008 included a one-time benefit of$0.7 millionin net gain recognized on a litigation settlement.
  • Cash and cash equivalents decreased to$5.7 millionatSeptember 30, 2009, compared to$12.1 millionat the end of last quarter. During the quarter, the company repaid the outstanding balance on its bank debt facility in the amount of$4.3 million.
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) excluding the costs for reorganization and the Hansen litigation are$0.8 millioncompared to$0.6 millionin the third quarter of 2008 and$1.3 millionyear to date compared to$0.2 millionfor the first nine months of 2008.

Third Quarter Business Highlights

  • Booked approximately$3.4 millionin technology development contracts in the third quarter, including a award from theNational Institutesof Health’sNational Institute of Environmental Health Sciencesto examine the effects of Luna’s fullerene derivatives on the allergic response.
  • Launched new product in the Optical Vector Analyzerâ„¢ platform, the OVA 5000, an instrument providing complete, rapid, single-scan measurement of all parameters of optical networks in real-time.

Outlook for Remainder of 2009

Given the uncertainties associated with Luna’s Chapter 11 reorganization and the Hansen litigation, the company is unable to provide a reasonable projection for its expected results of operations for the remainder of 2009 at this time.

Conference Call Information

As previously announced, Luna Innovationswill conduct an investor conference call at 5:00 p.m. (EST)today to discuss its financial results for the third quarter of 2009. The call can be accessed by dialing 1.866.804.6927 domestically or 1.857.350.1673 internationally prior to the start of the call. The access code is 86243063. 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 Innovations website, http://www.lunainnovations.com, prior to the event. The webcast will be archived under the “Webcasts and Presentations” section of theLuna Innovations website for at least 30 days following the conference call.

About Luna Innovations:

Luna Innovations Incorporated(www.lunainnovations.com) develops and manufactures new-generation products for the healthcare, telecommunications, energy and defense markets. Our products are used to measure, monitor, protect and improve critical processes in the markets we serve. Through its disciplined commercialization business model, Luna has become a recognized leader in transitioning science to solutions. Luna is headquartered inRoanoke, Virginia.

Forward Looking Statements:

This release includes information that constitutes “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding, but not limited to (i) Luna’s intention to continue to serve its customers’ needs; (ii) improvements in operating efficiencies and expenses; and (iii) the company’s position if it can emerge from Chapter 11 quickly under its filed plan of reorganization. The company attempts, whenever possible, to identify forward-looking statements by words such as “intends,” “will,” “plans,” “anticipates,” “expects,” “may,” “estimates,” “believes,” “should,” “projects,” or “continue,” or the negative of those words and other comparable words. Similarly, statements that describe the company’s business strategy, goals, prospects, opportunities, outlook, objectives, plans or intentions are also forward-looking statements. Actual events or results may differ materially from the expectations expressed in such forward-looking statements as a result of various factors, including risks and uncertainties, many of which are beyond the company’s control. Factors that could cause actual results to differ materially from the expectations expressed in such forward-looking statements include, but are not limited to risks inherent in current or future litigation proceedings, particularly with respect to Hansen Medical, Inc.; the company’s inability to continue to operate its business in the normal course; whether the company can emerge from Chapter 11 reorganization in the near future; and difficulties with the application of the company’s technologies. Additional factors that may affect the future results of the company are set forth in the company’s quarterly and annual reports on Form 10-Q and Form 10-K, respectively, and other filings with the Securities and Exchange Commission(“SEC”), which are available at the SEC’s website at http://www.sec.gov , and at the company’s website at http://www.lunainnovations.com. These risk factors are updated from time to time through the filing of periodic reports with theSEC. The statements made in this press release are based on information available to the company as of the date of this release andLuna Innovations undertakes no obligation to update any of the forward-looking statements herein after the date of this press release.

 

Luna Innovations Incorporated Consolidated Statements of Operations
                 
                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
      2009       2008       2009       2008  
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Revenues:                
Technology development   $ 6,538,041     $ 7,246,674     $ 19,867,384     $ 20,795,697  
Product and license     2,336,884       3,456,872       6,162,875       8,706,075  

Total

     8,874,925       10,703,546       26,030,259       29,501,772  
                 
Cost of revenues:                
Technology development     4,179,518       4,983,336       13,348,527       13,558,984  
Product and license     1,188,706       1,453,467       3,115,556       4,222,699  
Total     5,368,224       6,436,803       16,464,083       17,781,683  
                 
Gross profit     3,506,701       4,266,743       9,566,176       11,720,089  
                 
Operating expense:                
Selling, general, and administrative     3,892,238       4,330,358       13,033,818       13,727,316  
Research, development, and engineering     660,836       1,041,172       2,343,176       2,738,983  
Litigation reserve     –       –       36,303,643       –  
Impairment of intangible assets     –       –       1,310,598       –  
Reorganization costs     872,644       –       872,644       –  

Total

     5,425,718       5,371,530       53,863,879       16,466,299  
                 
Operating loss     (1,919,017 )     (1,104,787 )     (44,297,703 )     (4,746,210 )
                 
Other income/(expense)                
Interest expense, net     (124,208 )     (36,323 )     (422,702 )     (45,345 )
Other     –       667,125       (18,167 )     667,125  
Total     (124,208 )     630,802       (440,869 )     621,780  
                 
Loss before income taxes     (2,043,225 )     (473,985 )     (44,738,572 )     (4,124,430 )
                 
Income tax expense     –       –       600,000       –  
                 
Net loss   $ (2,043,225 )   $ (473,985 )   $ (45,338,572 )   $ (4,124,430 )
                 
Net loss per share, basic and diluted   $ (0.18 )   $ (0.04 )   $ (4.05 )   $ (0.38 )
                 
Weighted average shares outstanding     11,247,749       11,055,613       11,205,575       10,924,596  
 

Luna Innovations Incorporated Consolidated Balance Sheets
 
    September 30,   December 31,
      2009       2008  
Assets   (Unaudited)    
Current Assets        
Cash and cash equivalents   $ 5,653,856     $ 15,518,960  
Accounts receivable, net     7,595,653       7,332,034  
Refundable income taxes     98,092       98,092  
Inventory     2,844,485       2,828,991  
Other current assets     871,410       342,598  
Total current assets     17,063,496       26,120,675  
         
Property and equipment, net     4,408,594       5,363,957  
Intangible assets, net     155,503       1,813,643  
Deferred tax asset     –       600,000  
Other assets     790,468       118,292  
         
Total assets   $ 22,418,061     $ 34,016,567  
         
Liabilities and stockholders’ equity        
Liabilities not subject to compromise        
Current portion of long term debt   $ –     $ 1,428,572  
Current portion of capital lease obligation     9,469       17,396  
Accounts payable     330,179       2,667,192  
Accrued liabilities     2,212,131       5,161,308  
Deferred credits     1,751,891       1,854,282  
Total liabilities not subject to compromise     4,303,670       11,128,750  
         
Liabilities subject to compromise     46,722,047       –  
         
Long term debt     –       8,571,428  
         
Total liabilities     51,025,717       19,700,178  
         
Stockholders’ equity        
Common stock     11,266       11,138  
Additional paid-in capital     40,375,326       37,960,928  
Accumulated deficit     (68,994,248 )     (23,655,677 )
Total stockholders’ equity     (28,607,656 )     14,316,389  
         
Total liabilities and stockholders’ equity     22,418,061       34,016,567  
 

Luna Innovations Incorporated Consolidated Statements of Cash Flows
 
    Nine months ended
    September 30,
      2009       2008  
    (unaudited)   (unaudited)
Cash used in operating activities        
Net loss   $ (45,338,572 )   $ (4,124,430 )

Adjustments to reconcile net loss to net cash used in operating activities

        
Depreciation and amortization     1,504,211       1,425,857  
Impairment of intangible assets     1,310,598       –  
Share-based compensation     2,378,968       2,163,467  
Deferred tax expense     600,000       –  
Reorganization expense in excess of cash payments     88,210       –  
Change in assets and liabilities        
Accounts receivable     (263,620 )     (698,641 )
Refundable income taxes     –       5,401  
Inventory     (1,181,901 )     (1,029,786 )
Other assets     (34,581 )     (258,906 )
Accounts payable and accrued expenses     44,008       1,493,982  
Litigation reserve     36,303,643       –  
Deferred credits     (102,391 )     (294,499 )
Net cash used in operating activities     (4,691,427 )     (1,317,555 )
         
Cash used in investing activities        
Acquisition of property and equipment     (49,295 )     (318,436 )
Intangible property costs     (152,011 )     (378,780 )
Net cash used in investing activities     (201,306 )     (697,216 )
         
Cash from (used in) financing activities        
Payments on capital lease obligations     (7,927 )     (7,098 )
Proceeds from (payment of) debt obligations     (5,000,000 )     5,000,000  
Proceeds from exercise of options     35,556       156,189  
Net cash from (used in) financing activities     (4,972,371 )     5,149,091  
         
Net change in cash     (9,865,104 )     3,134,320  
Cash and cash equivalents, beginning of period     15,518,960       12,046,945  
Cash and cash equivalents, end of period   $ 5,653,856     $ 15,181,265  

 

Luna Innovations Incorporated Reconciliation of EBITDA and Adjusted EBITDA to Net Loss
                 
    Three months ended   Nine months ended
    September 30,   September 30,
      2009       2008       2009       2008  
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Net loss   $ (2,043,225 )   $ (473,985 )   $ (45,338,572 )   $ (4,124,430 )
Interest     124,208       36,323       422,702       45,345  
Taxes     –       –       600,000       –  
Depreciation and amortization     361,365       466,904       1,504,211       1,425,857  

EBITDA

     (1,557,652 )     29,242       (42,811,659 )     (2,653,228 )
                 
Share-based compensation     809,925       740,565       2,378,968       2,163,467  
Litigation reserve     –       –       36,303,643       –  
Litigation settlement     –       (667,125 )     –       (667,125 )
Impairment of intangible assets     –       –       1,310,598       –  
Adjusted EBITDA     (747,727 )     102,682       (2,818,450 )     (1,156,886 )
                 
Costs of reorganization and Hansen litigation     1,556,952       509,244       4,155,008       1,360,089  
                 

Adjusted EBITDA excluding reorganization and Hansen litigation

   $ 809,225     $ 611,926     $ 1,336,558     $ 203,203  

Luna Innovations Incorporated
Investor Contact:
Dale Messick, CFO
1-540-769-8400
IR@lunainnovations.com
or
Media Contact:
Karin Clark
1-540-769-8400
kclark@lunainnovations.com