Luna Innovations Inc (LUNA) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Luna Innovations, Inc. Earnings Conference Call. My name is Francine and I am 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 presentation over to your host for today's call, Mr. Dale Messick, Chief Financial officer. Sir, you may proceed.

Thank you, Francine. 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 statements made in this conference call and 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 to change at any time. 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 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 results 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. And with that, I'd now like to turn the call over to My Chung, President and Chief Executive Officer of Luna Innovations.

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. This is an exciting time for me as well as for the Company.

My first objective 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 [but] 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, secure 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 with 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, but 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 has 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 bids that are better 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.

Thank you, My. So for the first quarter of 2011, we realized a 14% growth in revenues compared to the first quarter of 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, principally our optical backscatter reflectometer and our optical vectory analyzer, which increased 85% compared to our sales in the first quarter of the prior year.

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

In our technology development segment, revenues declined 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 this segment of the Company and further reflected in the steady value of contract backlog for this segment, $23 million on March 31 of this year compared to $23.1 million on March 31 of last year.

Gross margins improved 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 the accelerated recognition of the remaining costs associated with the consulting agreement we have with our former CEO.

Our net loss improved to $1.1 million, or $0.08 per share for the first quarter of this year, compared to $1.3 million, or $0.10 per share last year and was also ahead of our previous guidance for the quarter.

Adjusted EBITDA, which is reconciled for you in our press release today, declined by approximately $200,000, compared to the first quarter of last year, due to those incremental costs of proxy matters and the consulting agreement I mentioned just a moment ago. Absent those costs, the adjusted EBITDA would have also improved versus last year.

We achieved our third consecutive quarter of positive cash flow with a $300,000 improvement in cash compared to year end. Over the past three quarters, we have accumulative positive cash flow of nearly $1.3 million.

Looking forward to Q2 and the remainder of the year, we currently expect our revenue for the second quarter to be in the range of $9 million to $10 million and a net loss to common stockholders in the range of $300,000 to $600,000. For the year, we continue to expect results to fall within our previous guidance of revenues ranging from $37 million to $39 million and a net loss for the year in the range of $2 million to $2.5 million. With that, I'd now like to turn the call back to My.

Thank you, Dale. And, Francine, we would now like to open up the call for questions.

Yes, sir.

(Operator Instructions)

Our first question comes from the line of Mark Dalton. Please proceed.

Yes. Congratulations on your good quarter. And I was wondering if you could comment just briefly on why the Company is against Mr. Murphy's proxy ballot, please?

Well, the Company has gone through the normal process of vetting candidates through its nominating and governance committee. The committee considered the areas of the board where we could best use additional talents to supplement the resources that we currently have on the board and the committee came to the conclusion that the candidates that were identified in our proxy statement were the best suited for the needs of the Company.

Okay. And you also -- you folks -- the Company itself, is against, or is against Mr. Murphy's motion to limit the current board, so it would be fair to say the Company is in favor of possibly increasing the size of the board, if necessary?

Yes, that's correct. We'd like to keep that option open to expand the board. Again, as the Company identifies additional needs where it can make benefit of additional resources on the board, additional talents of new board members, we'd like to have that flexibility.

Okay, thank you. And to your knowledge, is that proxy contest still on tap for the shareholders meeting?

Mr. Murphy has not filed any document at this point.

Okay. Thank you very much and congratulations again.

Thank you very much, Mark.

(Operator Instructions)

We have a question coming in from the line of Greg Greenberg.

Yes, hi, I'm a little bit new to the Company. I was wondering if you can describe what - are there revenue opportunities available from Phillips' sublicensing, the royalty fee from Hanson?

Okay, so we talked about on our last call, Greg -- I'm not sure if you were able to join that one or not -- but on the last call, we mentioned that Phillips had entered into an agreement with Hanson Medical where Hanson's sublicensed to Phillips certain rights to IP that we gave to Hanson as a part of the litigation settlement. So that is not a direct relationship between Luna and Phillips. We have had some conversations with Phillips. We would certainly be very interested in a broader relationship with Phillips to expand the use of our technology, but there's just nothing for us -- there's no deal that's been executed. As I said, we've had some conversations with Phillips. I think that both parties are interested and some relationship is in the future but it will take us some time to work through that.

Okay. Any update on the nanomedicine division?

Nothing significant to update there. That group is still working through its NIH grants related to the contrast agent but there's not been any significant new developments there.

Thank you.

Sure. Thank you very much, Greg.

We have no further questions in the queue.

Okay. So what I would like to do is thank you everyone for your participation today. As a reminder, our annual shareholders meeting will be held in Roanoke on Tuesday, May 24. I hope to have the opportunity at that time to meet you there. We will now conclude today's call.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. Have a great day.