Luna Innovations Reports First Quarter 2012 Financial Results

May 9, 2012

 Net loss improves 67% from prior year quarter; Total revenues decrease 7% from prior year quarter; Operating expenses decrease 18% from prior year quarter

ROANOKE, Va.–(BUSINESS WIRE)–May. 9, 2012–Luna Innovations Incorporated (NASDAQ: LUNA) today announced its financial results for the first quarter endedMarch 31, 2012.

As compared to the same quarter last year, Luna improved its net loss to$0.3 millionfor the first quarter of 2012 from a net loss of$1.0 million, as lower operating expenses more than offset a decline in revenues. Total revenues decreased to$8.4 millionin the first quarter of 2012 compared to$9.0 millionin the first quarter of 2011, primarily due to lower revenues from sales of fiber optic test and measurement equipment. Gross profit decreased to$3.2 millionfor the first quarter of 2012 compared to$3.3 millionfor the first quarter of 2011.

Luna also reduced its operating expenses to$3.5 millionin the first quarter of 2012 compared to$4.2 millionin the first quarter of the prior year. Adjusted EBITDA, a non-GAAP measure, which is earnings before interest, taxes, and non-cash expenses of stock based compensation, depreciation, amortization and warrant expense, improved to$0.5 millionfor the first quarter of 2012, as compared to$0.3 millionfor the first quarter of 2011. Cash decreased to$7.9 millionatMarch 31, 2012from$8.9 millionatDecember 31, 2011.

“We continue to make progress towards achieving the corporate growth strategies that we outlined late last year,” saidMy Chung, chief executive officer of Luna. “For example, we are focusing our efforts on accelerating product sales in fiber optic sensing through ongoing development of our ODiSi platform. Secondly, we recently announced a new development agreement withPhilips Healthcare, which further strengthens our position in the medical field. And finally, we are continuing to advance our cybersecurity solutions. We remain confident that achievement of these strategies will drive long-term growth and increased shareholder value.”

First Quarter Financial and Business Highlights

— Total revenues decreased by 7%, from$9.0 millionin the first quarter of 2011 to$8.4 millionin the first quarter of 2012.

— Products and licensing revenue decreased by 20%, from$3.4 millionin the first quarter of 2011 to$2.7 millionin the first quarter of 2012. Technology development revenues increased by 1%, to$5.7 millionfor the first quarter of 2012 from$5.6 millionfor the first quarter of 2011.

— Gross profit for the first quarter of 2012 decreased to$3.2 million, or 38% of total revenues, from$3.3 million, or 37% of total revenues, for the corresponding period of 2011.

— Selling, general and administrative expenses decreased by 25% to$2.8 million, or 33% of total revenues for the first quarter of 2012, from$3.7 million, or 41% of total revenues, for the first quarter of 2011. This decrease was attributable to a$0.4 millionreduction in our stock compensation expense, a$0.3 millionreduction in legal and other professional fees, primarily the result of a threatened proxy contest in 2011, and$0.2 millionof consulting fees to Dr.Kent Murphyincurred in the first quarter of 2011 as a result of accelerating expense recognition under our consulting agreement with him.

— Total operating expenses decreased to$3.5 million, or 42% of total revenues, for the first quarter of 2012 from$4.2 million, or 47% of total revenues for the first quarter of 2011.

— Adjusted EBITDA increased to$0.5 millionin the first quarter 2012 from$0.3 millionin the first quarter of 2011.

— Net loss attributable to common stockholders improved to$0.4 millionfor the first quarter of 2012 compared to$1.1 millionfor the first quarter of 2011.

— Cash and cash equivalents totaled$7.9 millionatMarch 31, 2012as compared to$8.9 millionatDecember 31, 2011.

— Luna extended its development and supply agreement withIntuitive Surgical, as the companies work towards the integration of Luna’s shape and position sensing technology into Intuitive’s medical robotic products.

— Luna was recognized with aU.S. Army Small Business Innovation Research(SBIR) Achievement award for its successful development of high-performance antennas for military vehicles.

— Luna announced a development agreement withPhilips Healthcareto conduct work in advancing Luna’s technology towards the commercialization of fiber-optic shape sensing in the non-robotic medical field.

Outlook 2012

Based on information as ofMay 9, 2012, Luna continues to expect total revenue for 2012 to be in the range of$32.5 million to $37.0 million. Also for 2012, we continue to anticipate a net loss to common stockholders in the range of$0.2 million to $1.2 million. For the second quarter of 2012, we expect revenue of$8.5 million to $9.0 millionand a net loss attributable to common stockholders of$0.1 million to $0.3 million.

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 Innovationswill conduct an investor conference call at 5:00 p.m. (EDT)today to discuss its financial results and business developments for the first quarter of 2012 and expectations for the remainder of 2012. The call can be accessed by dialing 866.356.4441 domestically or 617.597.5396 internationally prior to the start of the call. The participant access code is 56519917. 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 Innovations website, 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) 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. 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:

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 financial results for the second quarter and full year 2012, the company’s focus on accelerating product sales in fiber optic sensing, continuing development of shape sensing technology in the medical area and advancing cybersecurity solutions, demand for the company’s fiber optic equipment and technologies, our expanded relationship with Intuitive Surgical, and our new relationship with Philips Healthcare. 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 the fact that the outlook for the second quarter of and full year 2012 could change, 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 http://www.sec.gov, and at the company’s website at http://www.lunainnovations.com. The statements made in this 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 after the date of this release.

         
Luna Innovations Incorporated
Condensed Consolidated Statements of Operations
         
    Three Months Ended
    March 31,
      2012       2011  
    (Unaudited)   (Unaudited)
Revenues:        
Technology development   $ 5,659,496     $ 5,621,615  
Products and licensing     2,713,814       3,377,009  
Total     8,373,310       8,998,624  
         
Cost of revenues:        
Technology development costs     3,902,900       4,086,165  
Products and licensing costs     1,247,494       1,572,691  
Total     5,150,394       5,658,856  
         
Gross profit     3,222,916       3,339,768  
         
Operating expense:        
Selling, general, and administrative     2,800,317       3,725,829  
Research, development, and engineering     695,155       512,378  
Total     3,495,472       4,238,207  
         
Operating loss     (272,556 )     (898,438 )
         
Other expense, net        
Other income (expense), net     23,265       (1,985 )
Interest expense     (79,658 )     (114,423 )
Total     (56,393 )     (116,408 )
         
Loss before income taxes     (328,949 )     (1,014,847 )
         
Income tax expense     5,799       10,020  
         
Net loss     (334,748 )     (1,024,867 )
         
Preferred stock dividend     34,096       41,628  
         
Net loss attributable to common stockholders   $ (368,844 )   $ (1,066,495 )
         
Net loss per share of common stock:   $ (0.03 )   $ (0.08 )
         
Luna Innovations Incorporated
Condensed Consolidated Balance Sheets
         
    March 31,   December 31,
      2012       2011  
    (Unaudited)    
Assets        
Current Assets        
Cash and cash equivalents   $ 7,879,363     $ 8,939,127  
Accounts receivable, net     6,824,530       5,958,086  
Inventory, net     3,273,384       3,330,773  
Prepaid expenses     930,689       1,071,438  
Other current assets     36,796       35,717  
Total current assets     18,944,762       19,335,141  
         
Property and equipment, net     2,711,445       2,816,674  
Intangible assets, net     513,656       539,563  
Other assets     209,252       228,043  
         
Total assets   $ 22,379,115     $ 22,919,421  
         
Liabilities and stockholders’ equity        
Current Liabilities        
Current portion of long term debt obligation   $ 1,500,000     $ 1,625,000  
Current portion of capital lease obligation     51,717       50,949  
Accounts payable     1,649,169       1,656,602  
Accrued liabilities     3,570,589       3,612,193  
Deferred credits     1,211,972       1,462,603  
Total current liabilities     7,983,447       8,407,347  
         
Long-term debt obligation     3,375,000       3,625,000  
Long-term lease obligation     169,787       183,008  
         
Total liabilities     11,528,234       12,215,355  
         
Stockholders’ equity        
Preferred stock     1,322       1,322  
Common stock     14,063       13,969  
Additional paid-in capital     59,805,081       59,289,516  
Accumulated deficit     (48,969,585 )     (48,600,741 )
Total stockholders’ equity     10,850,881       10,704,066  
         
Total liabilities and stockholders’ equity   $ 22,379,115     $ 22,919,421  
         
Luna Innovations Incorporated
Condensed Consolidated Statements of Cash Flows
         
    Three months ended
    March 31,
      2012       2011  
    (Unaudited)   (Unaudited)
Cash (used in)/provided by operating activities        
Net loss   $ (334,748 )   $ (1,024,867 )

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

        
Depreciation and amortization     284,101       327,413  
Share-based compensation     454,584       817,711  
Warrant Expense     11,886       24,041  
Changes in operating assets and liabilities:        
Accounts receivable     (866,444 )     483,634  
Inventory     57,389       (426,375 )
Other current assets     139,670       89,405  
Other assets     18,791       18,792  
Accounts payable and accrued expenses     (60,923 )     (384,997 )
Deferred credits     (250,631 )     684,497  
         
Net cash (used in)/provided by operating activities     (546,325 )     609,254  
         
Cash flows used in investing activities        
Acquisition of property and equipment     (104,719 )     (102,221 )
Intangible property costs     (48,246 )     (44,203 )
         
Net cash used in investing activities     (152,965 )     (146,424 )
         
Cash flows used in financing activities        
         
Payments on capital lease obligations     (12,453 )     (5,246 )
Payments of debt obligations     (375,000 )     (288,523 )
Proceeds from exercise of options and warrants     26,979       132,379  
         
Net cash used in financing activities     (360,474 )     (161,390 )
         
Net change in cash     (1,059,764 )     301,440  
Cash and cash equivalents, beginning of period     8,939,127       7,216,580  
         
Cash and cash equivalents, end of period   $ 7,879,363     $ 7,518,020  
           
Luna Innovations Incorporated
Reconciliation of EBITDA and Adjusted EBITDA to Net Loss
           
    Three Months Ended March 31,
      2012         2011  
    (Unaudited)     (Unaudited)
           
Net loss   $ (334,748 )     $ (1,024,867 )
           
Interest expense     79,658         114,423  
Taxes     5,799         10,020  
Depreciation and amortization     284,101         327,413  
           

EBITDA

     34,810         (573,011 )
           
Share-based compensation and warrant expense     466,470         841,752  
           
Adjusted EBITDA   $ 501,280       $ 268,741  

Source:Luna Innovations Incorporated

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