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LUNA INNOVATIONS INC (LUNA)·Q1 2023 Earnings Summary

Executive Summary

  • Q1 revenue reached $25.0M (+11% YoY; +13% constant currency) with 60% gross margin; adjusted EBITDA was $0.9M and adjusted EPS was $0.00. Management reaffirmed full-year 2023 guidance and introduced Q2 revenue guidance of $29–$31M .
  • Mix shift toward project revenue and facility consolidation costs pressured gross margin vs prior year; management quantified ~100 bps of move-related costs in COGS and flagged some additional Q2 ramp/training costs .
  • Operational highlights: strong demand in Communications Test (lasers/modules +20% YoY) and Terahertz (+27% YoY), continued delivery against a $14M+ Intuitive Surgical blanket order, and multi-year energy/infrastructure wins (Dominion offshore wind monitoring; Northeast U.S. clean energy project) .
  • Outlook catalyst: maintained FY23 revenue/EBITDA ranges with tight execution and visibility from large programs; added Q2 guide. Potential stock reaction drivers: sustained Terahertz adoption in EV/industrial, defense program orders (F‑35 sustainment), and Europe-led infrastructure monitoring momentum .

What Went Well and What Went Wrong

  • What Went Well

    • “Revenues are coming in at the high end of our expectations” for Q1; total revenue $25.0M (+11% YoY; +13% constant currency) and gross margin 60% despite seasonal softness .
    • Product outperformance: Terahertz revenue +27% YoY (EV/industrial adhesives), lasers/modules +20% (RIO into LiDAR/sensing; Phoenix lasers to Intuitive Surgical), and Communications Test +15% YoY .
    • Strategic wins: Dominion Energy offshore wind monitoring (DAS + DTS) and Northeast U.S. clean energy project; each in “low seven figures” with 15–20% service tail for 3–5 years .

  • What Went Wrong

    • Gross margin down vs 64% in Q1’22 to 60% on mix (higher project revenue), Lios timing effects, and facility migration costs (Ann Arbor → Atlanta); ~100 bps move impact in Q1 COGS, with some additional Q2 ramp/training costs .
    • Adjusted EBITDA declined to $0.9M vs $1.7M in Q1’22 due to prior-year M&A timing (Lios/Luna Labs divestiture comparability) and mix .
    • Cash fell to $3.6M (from $6.0M at YE22) amid seasonal low revenue quarter, final Luna Labs tax payment, and higher inventory; total debt rose ~$2M to $25.2M .

Financial Results

Consolidated KPIs and P&L (GAAP and Non-GAAP)

MetricQ3 2022Q4 2022Q1 2023
Revenue ($M)$29.153 $31.702 $25.045
Revenue (Constant Currency, $M)$30.100 $32.478$25.301
Gross Margin (%)58% 61% 60%
Operating Income (Loss) ($M)$1.478 $1.464 $(2.132)
Net Income (Loss) ($M)$1.196 $0.853 $(1.842)
Diluted EPS (GAAP)$0.04 $0.02 $(0.06)
Adjusted EBITDA ($M)$4.544 $4.692 $0.854
Adjusted EPS ($)$0.09 $0.08 $0.00

Notes and drivers:

  • Mix and move costs: GM decline vs prior year due to higher project mix and facility migration costs; Lios stub-timing also affected YoY compares .
  • Non-GAAP adjustments included facility consolidation and one-time insurance deductible within “other non-recurring charges” .

Balance Sheet / Liquidity KPIs

MetricQ4 2022Q1 2023
Cash & Cash Equivalents ($M)$6.024 $3.559
Working Capital ($M)$54.2 $57.3
Total Debt ($M)$23.2 $25.2
Inventory ($M)$36.582 $39.675

Product/Vertical Performance (Q1 2023 YoY)

AreaYoY GrowthCommentary
Terahertz+27% EV battery/industrial adhesives demand; Atlanta consolidation; ruggedized design
Lasers & Modules+20% RIO lasers into LiDAR/sensing; Phoenix lasers to Intuitive Surgical
Communications Test Vertical+15% Double-digit growth across lasers/modules; defense and instrumentation demand
Fiber Optic Sensing Vertical+8% Lios contribution; Odyssey strength; energy/industrial projects

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total RevenueFY 2023$125–$130M (Mar 14, 2023) $125–$130M (Reaffirmed May 9, 2023) Maintained
Adjusted EBITDAFY 2023$14–$18M (Mar 14, 2023) $14–$18M (Reaffirmed May 9, 2023) Maintained
Total RevenueQ2 2023—$29–$31M New Item
Total RevenueQ1 2023$23–$25M (provided Mar 14, 2023) Actual: $25.045M Met/Top End

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2022)Previous Mentions (Q4 2022)Current Period (Q1 2023)Trend
Supply chain and inventoryOngoing PCB/semiconductor constraints; pre-buys and redesigns; book-to-bill strong Still elevated inventory; supply easing more on customer project side Inventory remains high to support new products and 2023 sales; seasonal cash use Gradual improvement
Terahertz expansionPenetrating EV/industrial; capacity plan to 4 units/week; profitable margins +47% YoY in Q4 +27% YoY; Atlanta consolidation executed; international expansion next Growing adoption
Defense/aerospace programsOBR 6200 for F‑35 (Lockheed/Northrop); multi-year IDIQs Northrop $3.4M OBR order; sustained F‑35 support Deliveries on track; Northrop pleased; further units anticipated Durable program revenue
Energy/infrastructure sensingWins across wind farm cables, pipelines, perimeter security Multiple large power cable monitoring; global mining/infrastructure wins Dominion offshore wind (DAS+DTS) and NE clean energy project; service tails 15–20% for 3–5 yrs Expanding pipeline
ERP/One Luna integrationDriving One Luna; cross-selling across assets Integration gains; ~60% GM target reiterated North America on one ERP; Europe on second ERP within ~12 months Integration progressing
Manufacturing footprintPlan to quadruple Terahertz capacity; Atlanta move Continued consolidation Atlanta move complete; near 4/week output; some start-up costs in COGS Scale-up underway

Management Commentary

  • Strategic positioning: “We entered 2023 in a strong position… pure focus on fiber optics… investing to drive robust growth and profitability” .
  • On Q1 performance and guidance: “Revenues are coming in at the high end… Reaffirming the 2023 outlook… Q2 revenues in the range of $29 million to $31 million.” .
  • Mix and margin dynamics: “Gross margin… 60% this quarter versus 64%… due largely to product mix… migration costs… and timing for Lios” .
  • Program scale/tail: “Dominion Energy… and [NE clean energy]… both in the low seven figures… trailing support tail of… 15% to 20%… for about three to five years.” .

Q&A Highlights

  • Atlanta facility migration: Move complete; running near four units/week by quarter-end; most move costs in Q1 COGS (~100 bps), some Q2 ramp/training to follow .
  • Contract sizing and revenue tails: Dominion and NE clean energy projects “low seven figures” each; 15–20% service tail for 3–5 years .
  • ERP consolidation: NA operations on one ERP; Europe moving to a second ERP within ~12 months; no plan to unify to a single global ERP in near term .
  • Terahertz competition and TAM: Competes vs incumbent sensing (capacitive, X‑ray); value in inline thickness/density; TAM “on the order of $10B,” SAM in “several hundred million” and growing .
  • LiDAR timing: Auto LiDAR meaningful volume still “several years away,” with nearer-term opportunities in trucking and wind farms; lasers growth to continue regardless .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2023 revenue and EPS was unavailable via S&P Global for LUNA at the time of analysis; as a result, we cannot provide quantified beat/miss vs consensus for Q1 or the prior two quarters. We default to S&P Global for estimates when available but note the data was not retrievable for this ticker in our system at this time.

Key Takeaways for Investors

  • Reaffirmed FY23 guide with added Q2 revenue outlook supports near-term visibility; Q1 delivered at the top of quarterly guidance despite seasonal softness .
  • Mix-sensitive gross margin remains anchored around ~60% over time; near-term COGS noise from consolidation/training should abate as Atlanta scales .
  • Durable program backlog in defense (F‑35 sustainment) and medical (Intuitive) underpins baseline growth; continued deliveries and follow-ons are catalysts .
  • Terahertz adoption is compounding (EV/industrial adhesives), with capacity in place and international expansion planned; product line is profitable within Sensing .
  • Infrastructure/energy monitoring wins (DAS+DTS) carry multi-year service tails (15–20% of initial value), building a higher-quality recurring revenue mix over time .
  • Balance sheet remains flexible but watch working capital and inventory normalization as supply chain improves; debt edged up with seasonal cash outlays and inventory .
  • Execution watch items: deliver Q2 guide, maintain ~60% GM through mix shifts, accelerate cross-sell under One Luna and complete ERP rollout in Europe on schedule .

Sources

  • Q1 2023 8‑K press release and supplemental slides (May 9, 2023) .
  • Q1 2023 earnings call transcript (May 9, 2023) .
  • Q4 2022 8‑K press release and slides (Mar 14, 2023) .
  • Q4 2022 earnings call transcript (Mar 14, 2023) .
  • Q3 2022 8‑K press release and slides (Nov 10, 2022) .
  • Q3 2022 earnings call transcript (Nov 10, 2022) .