Luna reports ‘strong’ 2018 results, buys General Photonics for $20m

08 Mar 2019

Company announces growth, positive outlook, and acquisition of 'complementary' General Photonics.

Luna Innovations, a developer of advanced fiber optic-based technology, has reported what it describes as “strong” financial results for the three months and fiscal year ended December 31. The company simultaneously announced the acquisition of General Photonics, a Chino, California-based developer of components, modules and test equipment for fiber optic applications; the purchase price was $20 million (see below).

Luna's total revenues for the three months ended December 31, 2018 were $13.5 million, compared to $9.9 million for the three months ended December 31, 2017. Total products and licensing revenues increased to $8.0 million for the three months ended December 31, 2018, compared to $4.7 million for the three months ended December 31, 2017.

Scott Graeff, President and CEO of Luna, commented, “Our strong financial results underscore how we have executed on our strategy to realign Luna's business to focus on our core, fiber optic-based test and measurement offerings. Recent acquisitions and divestments, combined with the strength of our customer base in rapid-growth industries, have driven Luna’s fiscal 2018 performance, and we are well positioned for growth.”

“We believe that the acquisition of General Photonics, a leader in characterization and control of light for photonics applications, will only continue to drive Luna’s growth. This acquisition, and the acquisition of Micron Optics completed last year, reveal Luna’s ability to acquire assets that fit squarely within our core while delivering an excellent return.”

Financial highlights

The increase in the products and licensing revenues for the three months ended December 31, 2018, compared to the three months ended December 31, 2017, included revenues realized from the acquisition of Micron Optics, Inc. in October 2018 along with continued growth in sales of Luna's fiber optic-based sensing products, including its ODiSI and Terahertz products.

Technology development revenues increased to $5.5 million for the three months ended December 31, 2018, compared to $5.1 million for the three months ended December 31, 2017. The increase in technology development revenues for the three months ended December 31, 2018 compared to the prior-year period was due to growth in various government research programs surrounding applications of advanced materials and Luna's success in winning related research contracts.

Gross profit was $6.6 million, or 49% of revenues, for the three months ended December 31, 2018, compared to gross profit of $4.2 million, or 42% of revenues, for the three months ended December 31, 2017.

Pre-tax income from continuing operations improved to $0.6 million for the three months ended December 31, 2018 compared to a pre-tax loss from continuing operations of $(0.5) million for the three months ended December 31, 2017. Net income from continuing operations declined slightly to $(0.1) million for the three months ended December 31, 2018, compared to breakeven for the prior-year fiscal quarter due to the allocation of income taxes between continuing and discontinued operations.

For the full year fiscal 2018, Luna reported total revenues of $42.9 million, an increase of 30% compared to total revenues of $33.1 million for fiscal 2017. Gross profit improved to $19.4 million, or 45% of revenues, for 2018 compared to $13.4 million, or 40% or revenues, for 2017. SG&A expenses increased to $14.8 million for 2018 compared to $12.9 million in 2017. The increase in SG&A expenses included $0.8 million in costs associated with the acquisition of MOI. R&D expenses were $3.8 million in 2018 compared to $2.7 million in 2017.

Pre-tax income from continuing operations improved to $1.3 million for fiscal 2018 compared to a pre-tax loss from continuing operations of $(2.4) million for fiscal 2017. Income from continuing operations improved to $1.2 million compared to a loss from continuing operations of $(1.3) million for 2017.

Outlook

Luna commented that it expects to see the following business achievements during the resst of 2019:

• Total revenues in the range of $60 million to $65 million for full fiscal 2019; and
• Adjusted EBITDA in the range of $6.0 million to $6.5 million for full fiscal 2019.
• This outlook includes the expected operating results from Luna's acquisition of General Photonics; it does not include future acquisitions, divestitures, or unanticipated events.

Acquisition of General Photonics for $20 million

Luna Innovations announced March 4th that it has acquired General Photonics , a developer of components, modules and test equipment focused on the generation, measurement and control of polarized light critical in fiber optic-based applications. The purchase price was $20 million, which includes a potential $1 million earnout payment. General Photonics provides customers with advanced technological solutions across a variety of industries, including those within Luna’s strategic markets.

Luna commented that General Photonics’ component and module product lines “are an ideal addition to Luna’s overall product portfolio. Its polarization measurement instruments are highly complementary to Luna’s industry-leading line of optical measurement tools.” Integrated into Luna’s Lightwave division, General Photonics’ product portfolio is expected to add both breadth and depth to Luna’s offering, and facilitate greater penetration within Luna’s target customer base.