Luna Innovations Inc. (



Q1 2011 Earnings Call

May 11, 2011 5:00 pm ET


Dale Messick - CFO

My Chung - President and CEO


Mark Dalton

Greg Greenberg



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Good day, ladies and gentlemen, and welcome to the first quarter 2011 Luna Innovations Incorporated Earnings Conference Call. My name is Fanzine and I am your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session.

(Operator Instructions) I would now like to turn the presentation over today’s call Mr. Dale Messick, Chief Financial Officer. Sir, you may proceed.

Dale Messick

Thank you, Fanzine. Good afternoon and thank you for joining us today as we discuss the first quarter of 2011 and some of our expectations for the remainder of 2011.

Before we proceed further with our presentation, let me remind each of you that the statements made in this conference call and our public filings, releases and web sites, which are not historical facts may be forward-looking statements that involve risks and uncertainties and are subject to change at anytime.

We caution investors that any forward-looking statements made by us are management’s beliefs based on currently available information and should not be taken as a guarantee of future results and performance, which may differ materially as a result of a variety of factors discussed in our earnings release and our latest filings with the Securities and Exchange Commission.

We disclaim any obligation to update any such factors or to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.

There is more complete information regarding forward-looking statements, risk and uncertainties in the company’s filings with the SEC available on our Web site. And with that, I’ll turn over to My Chung, President and Chief Executive Officer of Luna Innovations.

My Chung

Thank you Dale. Good afternoon everyone. It is my pleasure to be with you today as I only joined the company a few weeks ago. It’s an exciting time for me as well as for the company.

My first subject is a lot of listening and learning, spending quality time with our employees, customers and shareholders to gain a good understanding of the company’s strengths and weaknesses as well as identify what, where and how, we can potentially accelerate to create additional value.

Luna is a company with very talented individuals and a solid technology foundation. Our expertise across several disciplines such as fiber optics, secured computing and advanced materials to name a few provides us with strong technology platforms that will enable new commercial products and services.

As we reshape Luna’s strategy and culture, we are fortunate to be able to do so within a company that is performing well in many respects. Under the leadership of Dale as acting president, we have achieved our third consecutive quarter of positive cash flow. For the quarter, our product and license revenues increased by 63% compared to the first quarter of 2010.

In our technology development segment, revenues were down slightly compared to the first quarter of 2010 which showed continued improvement over the previous two quarters. As the company discussed in previous calls, our contract win rate suffered during the time of the company's reorganization, but it’s since begun to stabilize.

We expect the effective sourcing of contract research opportunities to continue to play an important part of our strategy for success. With greater focus on builds that are aligned with identified growth opportunities. The company's revenue growth coupled with our active control over operating expenses has resulted in positive-adjusted EBITDA and cash flow for this quarter.

My goal is to make this company even stronger and better. With that I would like to now turn the call back over to Dale to add more color to our financial performance and then we will be happy to take any questions.

Dale Messick

Thank you My. So for the first quarter 2011, we realized a 14% growth in revenues compared to the first quarter 2010 driven by a 63% growth in the product and license segment of our business.

The growth in revenues in the product and license segment was driven by increased sales of our fiber optic test and measurement equipment basically our Optical Backscatter Reflectometer and our Optical Vector Analyzer which increase 85% compared to product sales in the first quarter of the prior year.

Also within segment product development revenues including the work performed for including handset and others grew by 14% versus the first quarter of 2010.

In our technology development segment, revenues decline by 3% for the first quarter versus the first quarter of 2010 and while the revenue was down compared to Q1 of last year revenue has increased sequentially since Q3 of last year indicating some stabilization of revenues in the segment of the company and further reflected in the stave value of contract backlog for segment at $23 million on March 31st of this year compare to $23.1 million on March 31st of last year.

Gross margin improves slightly to 37% in the most recent quarter compared to 36% in the first quarter of last year due to the growth in product sales which typically provides a higher margin than the other areas of our business. Operating expenses increased approximately $300,000 or 8% compared to the same period last year.

Our operating expenses in the first quarter of 2011 included approximately $300,000 associated with the added cost of defending a potential proxy contest in conjunction with our upcoming shareholders meeting and accelerated recognition of the remaining costs associated with the consulting agreement we have with our former CEO.

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