Luna Innovations Incorporated ( LUNA)

Q4 2011 Earnings Conference Call

March 8, 2012 5:00 PM ET


My Chung – President and Chief Executive Officer

Dale Messick – Chief Financial Officer


Greg Greenberg – Wells Fargo Advisors

Mark Dalton [ph]



Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Luna Innovations Incorporated Earnings Conference Call. My name is Larry and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator instructions)

I would now like to turn the conference over to your host for today, Mr. Dale Messick, Chief Financial Officer of Luna Innovations. Please proceed.

Dale Messick

Thank you, Larry. Good afternoon, everyone and thank you for joining us today as we review Luna's results for the fourth quarter and full year 2011.

Before we proceed with our presentation today, let me remind each of you that statements made in this conference call, as well as in our public filings, releases, and websites, which are not historical facts, may be forward-looking statements that involve risks and uncertainties and are subject to change at any time, including, but not limited to, statements about future financial and operating performance.

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 or performance. Actual results may differ materially as a result of a variety of factors discussed in our earnings release and our latest Forms 10-K and 10-Q filed 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, risks, and uncertainties in the company's filings with the SEC available on our website.

At this time, I'd like to turn the call over to My Chung, President and CEO of Luna Innovations.

My Chung

Thank you, Dale. Today, I would like to give you an update on the strategic initiatives that we laid out on our last call, as well as our plans for future interaction with you, our investors, our customers, and the public overall. Following my comments, I will turn the call back over to Dale for a discussion of our operating results for the quarter and the year. And then I will be happy to take any questions you might have.

Overall, I am pleased with the progress we have made in Luna since my arrival nearly a year ago. I remain very optimistic about the company's future as we pursue our growth initiatives. I'll begin our initiative in fiber optic shape sensing for minimally invasive medical procedures.

Here, we are talking specifically about our current relationships with Intuitive Surgical and Hansen Medical for shape sensing technologies that have the potential to improve robotic medical procedures. For the past few years, we have been working to enhance the technology to meet various technical specifications for our customers. Over the next several months, we will be focusing our efforts on the stability, repeatability, and reliability of each of the platforms.

With incredible progress having been made in our capability for shape sensing and localization with these important customers, our teams are now focused on moving from technology to commercialization.

In the Secure Computing group, during 2011, we were awarded a $12 million follow-on contract to continue the advancement of the unique technology capability created by this group. As part of our strategic initiative for growth in this area, our initial activities are centered around introducing our capabilities to key government agencies and the large government prime contractors. We have begun these introductions and are receiving favorable reception to our offerings. These marketing efforts will continue to be the focus for the next several quarters.

With regard to the use of fiber optics to measure strain and temperature, we have begun to receive orders from early adopters for our ODiSI product, which we introduced last year.

As I mentioned on our last call, our initial rollout of this product identified improvements that we should make in some of the technical specifications in order to really penetrate the market opportunity in sensing for composite materials. We have since put together a high-performance development team, dedicated solely to that objective. I have been impressed with the focus, energy, and the dedication from this team. They are on track to deliver some incredible results in record time.

Of course, a large portion of our revenues continue to be earned through our telecom test products and contract research with our government customers. I am happy to say we saw a return to growth in our contract research outside of Secure Computing in 2011 after two years of decline.

In order to maintain momentum in this area, our groups will be focused on increasing their win rates in the follow-on Phase II proposal opportunities, as well as more aggressively seeking new opportunities outside of the SBIR program, as our Secure Computing group has successfully done. In the telecom market, we will continue to introduce enhancements to our products to maintain our technology leadership.

Let me now touch briefly on additional marketing related activities. When I joined Luna, it was clear to me that within the company, marketing had never been given the priority that was needed, whether in terms of clearly understanding the drivers in our target markets, developing a concise message to describe our company and goals, or even to keep up-to-date with a consistent presence and image to the public.

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