Reaffirms 2022 Outlook

Highlights

Total revenues of $26.2 million for the three months ended June 30, 2022, up 19% compared to the three months ended June 30, 2021
Gross margin of 61% for the three months ended June 30, 2022, compared to 57% for the three months ended June 30, 2021
Net loss of $2.4 million for the three months ended June 30, 2022, compared to net loss of $0.2 million for the three months ended June 30, 2021; primarily due to $1.8 million benefit from tax and discontinued operations in the second quarter 2021
Adjusted EBITDA of $1.2 million for the three months ended June 30, 2022, compared to $1.0 million for the three months ended June 30, 2021
Adjusted EPS of $(0.02) for the three months ended June 30, 2022, compared to $0.03 for the three months ended June 30, 2021; impacted by discontinued operations and associated taxes

Luna Innovations Incorporated (NASDAQ:LUNA), a global leader in advanced optical technology, today announced its financial results for the three and six months ended June 30, 2022.

"As I reflect on the first half of 2022, I'm pleased with the team's top-line performance and ability to navigate ongoing macroeconomic and market factors," said Scott Graeff, President and Chief Executive Officer of Luna. "We achieved double-digit revenue growth for the second-quarter in nearly all of our product lines, and I'm proud of the Luna team for their accomplishments. The team's focus and execution will carry us through the remainder of 2022 and will allow us to achieve growth in each business. This, combined with strong bookings, gives me the confidence to reaffirm our 2022 outlook."

Graeff continued, "We've recently completed several acquisitions and one large divestiture. As with all transactions, we are reviewing expense infrastructure to ensure operational efficiency. The strategic actions that we've recently undertaken to enhance operations, expand our IP portfolio and refresh product lines are gaining momentum. As a result, today Luna is a clear leader and a company fully focused on Enabling the Future with Fiber."

Second-Quarter Fiscal 2022 Financial Summary Highlights of the financial results for the three months ended June 30, 2022 are:

	Three Months Ended June 30,						Change
(in thousands, except share and per share data)	2022			2021
Revenues	$	26,162		$	21,965		19	%

Gross profit		15,963			12,581		27	%
Gross margin		61	%		57	%

Operating expense		18,425			14,615		26	%
Operating loss		(2,462	)		(2,034	)
Operating margin		(9	) %		(9	) %

Other expense, net and income tax (expense)/benefit		(480	)		873

Net loss from continuing operations	$	(2,942	)	$	(1,161	)

Income from discontinued operations, net of income taxes		591			931

Net loss	$	(2,351	)	$	(230	)

Loss per diluted share (EPS)	$	(0.07	)	$	(0.01	)
Adjusted EPS	$	(0.02	)	$	0.03
Diluted weighted average shares outstanding		32,478,736			31,494,563

Adjusted EBITDA	$	1,184		$	1,021		16	%

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.

Revenues for the three months ended June 30, 2022 increased 19% compared to the prior-year period, primarily due to revenue generated by the Lios acquisition.

Gross margin increased to 61% for the three months ended June 30, 2022, compared to 57% for the three months ended June 30, 2021, driven primarily by favorable product mix. Operating loss and margin were $2.5 million and 9% of total revenues, respectively, for the three months ended June 30, 2022, compared to $2.0 million and 9% of total revenues, respectively, for the three months ended June 30, 2021. The increase in operating loss was primarily due to our recent acquisitions, partially offset by lower deal and integration costs.

Net loss was $2.4 million, or $0.07 per fully diluted share, for the three months ended June 30, 2022, compared to net loss of $0.2 million, or $0.01 per fully diluted share, for the three months ended June 30, 2021. Adjusted EPS was $(0.02) for the three months ended June 30, 2022 compared to $0.03 for the three months ended June 30, 2021. The second-quarter 2022 results were impacted by discontinued operations and associated taxes.

Adjusted EBITDA was $1.2 million for three months ended June 30, 2022, compared to $1.0 million for the three months ended June 30, 2021.

Six Months Ended Fiscal 2022 Financial Summary Highlights of the financial results for the six months ended June 30, 2022 are:

	Six Months Ended June 30,						Change
(in thousands, except share and per share data)	2022			2021
Revenues		48,642			42,962		13		%

Gross profit		30,242			24,852		22		%
Gross margin		62	%		58	%

Operating expense		35,069			28,466		23		%
Operating loss		(4,827	)		(3,614	)
Operating margin		(10	) %		(8	) %

Other expense, net and income tax benefit		543			1,394

Net loss from continuing operations	$	(4,284	)	$	(2,220	)

Income from discontinued operations, net of income taxes		11,515			1,672

Net income/(loss)	$	7,231		$	(548	)

Earnings/(loss) per diluted share (EPS)	$	0.22		$	(0.02	)
Adjusted EPS	$	0.02		$	0.05		(60	)	%
Diluted weighted average shares outstanding		32,361,560			31,413,451

Adjusted EBITDA	$	2,906		$	2,352		24		%

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

Revenues for the six months ended June 30, 2022 increased compared to the prior-year period, primarily due to revenue generated by the Lios acquisition.

Gross margin of $30.2 million for the six months ended June 30, 2022 increased from $24.9 million for the six months ended June 30, 2021 primarily due to higher sales. Operating loss and margin declined to $4.8 million and 10% of total revenues, respectively, for the six months ended June 30, 2022, compared to $3.6 million and 8% of total revenues, respectively, for the six months ended June 30, 2021. The increase in operating loss was primarily due to our recent acquisitions.

Net income was $7.2 million, or $0.22 per fully diluted share, for the six months ended June 30, 2022, compared to a net loss of $0.5 million, or $(0.02) per fully diluted share, for the six months ended June 30, 2021. Adjusted EPS was $0.02 for the six months ended June 30, 2022, compared to $0.05 for the six months ended June 30, 2021.

Adjusted EBITDA was $2.9 million for the six months ended June 30, 2022, compared to $2.4 million for the six months ended June 30, 2021.

2022 Full-Year Outlook

Luna is confirming the 2022 outlook it originally provided on March 14, 2022, which included the mid-March divestiture of Luna Labs and the acquisition of Lios, and also is providing a third-quarter 2022 outlook:

Total revenue of $109 million to $115 million for the full year 2022
Adjusted EBITDA of $10 million to $12 million for the full year 2022
Total revenues in the range of $28 million to $30 million for the third quarter 2022

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 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, August 11, 2022, to discuss its financial results for the three and six months ended June 30, 2022. The investor conference call will be accessible by telephone and through the internet. Participants may register using this link to obtain dial-in details. Registration details are also available by visiting www.lunainc.com under the tab "Investor Relations." To participate in the webcast, please follow instructions via the links above at least 15 minutes before the call to download the necessary software and to avoid any delays in listening 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 and third quarter 2022 financial results and outlook, and the Company's growth potential. 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 ultimate impact of the COVID-19 pandemic and those risks and uncertainties set forth in Luna's Form 10-Q for the quarter ended June 30, 2022, 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)

	June 30, 2022			December 31, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	4,864		$	17,128
Accounts receivable, net		30,422			20,913
Contract assets		3,369			5,166
Inventory		30,754			22,493
Prepaid expenses and other current assets		6,535			3,793
Assets held for sale		—			12,952
Total current assets		75,944			82,445
Property and equipment, net		4,499			2,988
Intangible assets, net		20,399			17,177
Goodwill		28,441			18,984
Operating lease right-of-use assets		4,774			5,075
Other non-current assets		3,214			247
Deferred tax asset		4,612			3,321
Total assets	$	141,883		$	130,237
Liabilities and stockholders' equity
Liabilities:
Current liabilities:
Current portion of long-term debt obligations	$	2,000		$	4,167
Accounts payable		3,881			2,809
Accrued and other current liabilities		16,413			9,258
Contract liabilities		4,816			4,649
Current portion of operating lease liabilities		2,449			2,101
Liabilities associated with assets held for sale		—			9,703
Total current liabilities		29,559			32,687
Long-term debt obligations, net of current portion		19,218			11,673
Long-term portion of operating lease liabilities		2,767			3,509
Deferred tax liability		1,357			—
Other long-term liabilities		421			445
Total liabilities		53,322			48,314
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.001, 100,000,000 shares authorized, 34,528,065 and 33,855,725 shares issued, 32,752,348 and 32,116,270 shares outstanding at June 30, 2022 and December 31, 2021, respectively		35			34
Treasury stock at cost, 1,784,957 and 1,744,026 shares at June 30, 2022 and December 31, 2021, respectively		(5,542	)		(5,248	)
Additional paid-in capital		102,043			98,745
Accumulated deficit		(4,345	)		(11,575	)
Accumulated other comprehensive loss		(3,630	)		(33	)
Total stockholders' equity		88,561			81,923
Total liabilities and stockholders' equity	$	141,883		$	130,237

Luna Innovations Incorporated Consolidated Statements of Operations (Unaudited) (in thousands, except share and per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021

Revenues	$	26,162		$	21,965		$	48,642		$	42,962
Cost of revenues		10,199			9,384			18,400			18,110
Gross profit		15,963			12,581			30,242			24,852
Operating expense:
Selling, general and administrative		15,760			12,805			29,862			23,739
Research, development and engineering		2,665			1,810			5,207			4,727
Total operating expense		18,425			14,615			35,069			28,466
Operating loss		(2,462	)		(2,034	)		(4,827	)		(3,614	)
Other income/(expense):
Other income		53			—			74			—
Interest expense, net		(111	)		(122	)		(224	)		(265	)
Total other expense, net		(58	)		(122	)		(150	)		(265	)
Loss from continuing operations before income taxes		(2,520	)		(2,156	)		(4,977	)		(3,879	)
Income tax expense/(benefit)		422			(995	)		(693	)		(1,659	)
Net loss from continuing operations		(2,942	)		(1,161	)		(4,284	)		(2,220	)
Income from discontinued operations, net of income tax expense (benefit) of ($856), $101, $166 and $146		591			931			594			1,672
Gain on sale of discontinued operations, net of tax of $3,117		—			—			10,921			—
Net income from discontinued operations		591			931			11,515			1,672
Net (loss)/income	$	(2,351	)	$	(230	)	$	7,231		$	(548	)
Net loss per share from continuing operations:
Basic	$	(0.09	)	$	(0.04	)	$	(0.13	)	$	(0.07	)
Diluted	$	(0.09	)	$	(0.04	)	$	(0.13	)	$	(0.07	)
Net income per share from discontinued operations:
Basic	$	0.02		$	0.03		$	0.36		$	0.05
Diluted	$	0.02		$	0.03		$	0.36		$	0.05
Net (loss)/income per share attributable to common stockholders:
Basic	$	(0.07	)	$	(0.01	)	$	0.22		$	(0.02	)
Diluted	$	(0.07	)	$	(0.01	)	$	0.22		$	(0.02	)
Weighted average shares:
Basic		32,478,736			31,494,563			32,361,560			31,413,451
Diluted		32,478,736			31,494,563			32,361,560			31,413,451

Luna Innovations Incorporated Consolidated Statements of Cash Flows (Unaudited) (in thousands)

	Six Months Ended June 30,
	2022			2021

Cash flows used in operating activities
Net income/(loss)	$	7,231		$	(548	)
Adjustments to reconcile net income/loss to net cash used in operating activities
Depreciation and amortization		2,694			2,360
Share-based compensation		2,177			1,514
Gain from discontinued operations, net of tax		(10,921	)		—
Deferred taxes		(124	)		—
Tax benefit from release of valuation allowance		—			475
Change in assets and liabilities
Accounts receivable		(6,555	)		(473	)
Contract assets		140			763
Inventory		(4,281	)		(1,562	)
Other current assets		(3,870	)		(2,399	)
Other long-term assets		646			—
Accounts payable and accrued and other current liabilities		6,123			(2,185	)
Contract liabilities		1,196			(826	)
Other long term-liabilities		(1,524	)		—
Net cash used in operating activities		(7,068	)		(2,881	)
Cash flows used in investing activities
Acquisition of property and equipment		(1,657	)		(551	)
Intangible property costs		4			(141	)
Proceeds from sale of property and equipment		25			—
Proceeds from sale of discontinued operations		12,973			—
Acquisition of Lios		(22,085	)		—
Net cash used in investing activities		(10,740	)		(692	)
Cash flows provided by/(used in) financing activities
Payments on finance lease obligations		(24	)		(24	)
Proceeds from borrowings under debt obligations		21,150			—
Payments of debt obligations		(15,772	)		(2,072	)
Repurchase of common stock		(294	)		(420	)
Proceeds from ESPP		521			530
Proceeds from the exercise of options		1,158			1,490
Net cash provided by/(used in) financing activities		6,739			(496	)
Effect of exchange rate changes on cash and cash equivalents		(1,195	)		673
Net decrease in cash and cash equivalents		(12,264	)		(3,396	)
Cash and cash equivalents-beginning of period		17,128			15,366
Cash and cash equivalents-end of period	$	4,864		$	11,970

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021

Net (loss)/income	$	(2,351	)	$	(230	)	$	7,231		$	(548	)
Net income from discontinued operations		591			931			11,515			1,672
Net loss from continuing operations		(2,942	)		(1,161	)		(4,284	)		(2,220	)
Interest expense, net		111			122			224			265
Income tax expense/(benefit)		422			(995	)		(693	)		(1,659	)
Depreciation and amortization		1,538			1,109			2,694			2,309
EBITDA		(871	)		(925	)		(2,059	)		(1,305	)
Share-based compensation		934			787			2,000			1,444
Integration and transaction expense		156			991			2,000			1,877
Amortization of inventory step-up		257			168			257			336
Other non-recurring charges ⁽¹⁾		708			—			708			—
Adjusted EBITDA	$	1,184		$	1,021		$	2,906		$	2,352
(1) - Other non-recurring charges include customer accommodation, facility consolidation and debt refinancing costs.

Luna Innovations Incorporated Reconciliation of Net Income/(Loss) to Adjusted EPS (in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021

Net (loss)/income	$	(2,351	)	$	(230	)	$	7,231		$	(548	)
Net income from discontinued operations		591			931			11,515			1,672
Net loss from continuing operations		(2,942	)		(1,161	)		(4,284	)		(2,220	)
Share-based compensation		934			787			2,000			1,444
Integration and transaction expense		156			991			2,000			1,877
Amortization of intangible assets		992			766			1,813			1,592
Amortization of inventory step-up		257			168			257			336
Other non-recurring charges⁽¹⁾		708			—			708			—
Income tax effect on adjustments		(762	)		(678	)		(1,695	)		(1,312	)
Adjusted (loss)/income from continuing operations	$	(657	)	$	873		$	799		$	1,717


Adjusted EPS	$	(0.02	)	$	0.03		$	0.02		$	0.05

Adjusted weighted average shares (in thousands):
Diluted		32,479			31,495			32,362			31,413
(1) - Other non-recurring charges include customer accommodation, facility consolidation and debt refinancing costs.

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Luna Innovations Reports Second-Quarter 2022 Results