Good morning, everyone. it’s great to be with all of you today and thanks for accommodating the change in our quarterly conference call to this early time slot. We felt that this timeframe better suited our ability to interact with customers, investors, employees and suppliers during the course of the day. I am excited to share with you our very strong results for both the second quarter and the first quarter of 2018, and also to discuss the particulars of the divestiture we announced this morning. Both of which are covered in more detail in the supplemental deck that we posted to our website.
As I review the specifics of both, you will see that we have accelerated the progress of executing our strategy to drive robust growth through a focus on our core fiber optic-based capabilities.
The second quarter of 2018 marks the fifth consecutive quarter of year-over-year top-line growth and positive earnings for Luna. In the quarter, we achieved growth of roughly 22% in revenue and close to 30% in gross profit versus the same quarter last year. I’m very proud of all the members of the Luna team, who have focused hard to deliver these results. And I’m excited about our progress as we see this performance as a validation of our strategy is working and that our target markets are rich with opportunity for continued growth. We’ve capitalized on the advancement of optical-based technologies and as I’ve mentioned before, we are squarely in the sweet spot of this growth. We feel we are well positioned to continue to benefit from trends such as demand for higher bandwidth in data communications and data centers, and the growing use of composites and other advanced materials. Dale and I will spend more time on earnings in a moment. But first, let me cover the divesture we announced today. Hopefully, you’ve had a chance to review the release.
As I’ve mentioned in the past, we will look for opportunities to focus on our core strengths, while being prudent about how we manage our cash position with a strong focus on long-term sustainable growth. We announced this morning that we’ve closed on the sale of our Optoelectronic Solutions business to OSI Optoelectronics, a subsidiary of OSI Systems with a cash sale price of up to $18.5 million. Of this, we received $17.5 million at closing and have the opportunity to earn an additional $1 million based upon an 18-month post-close revenue target. We feel that the revenue target subject to be earn-out are reasonable based on the current trajectory of the OPTO business.
You may remember that this business became part of the Luna through the merger with API in 2015 and had operations both in Camarillo, California and Montreal, Quebec. OPTO is a strong business with talented employees, but it is outside of our core business, which is what drove the decision to divest.
In addition, we believe that OSI is the optimal home for this asset and will provide business continuity to our customers and a great place to work for the OPTO employees. This divestiture is another important step towards the streamlining of our product portfolio and our businesses, and is highly consistent with the long-term strategic vision that we’ve shared previously.
We are focusing investment on our core strengths and competitive advantages in the fiber-optic test and measurement business. I believe that we have immense opportunity in the rapidly expanding markets we serve, and I also believe there is opportunity for us to drive growth both organically and through acquisition. We maintain a strong balance sheet with financial flexibility and the liquidity this divesture provides will be used to grow in scale Luna with a focus on our optical technology expertise.
We continue to focus on driving long-term sustainable growth through a combination of internal R&D investment necessary to advance our technology offerings and investing in sales and marketing resources as well as looking for external investments that have a strong, strategic and financial fit.
We’re beginning to see the payoff in some of the internal investments as evidenced by our strong top-line growth. And I’m pleased to say that the existing businesses continue to perform well, any additional investments in M&A would just accelerate our performance in our two important market verticals.
As we discussed last quarter, we would be very disciplined in the deployment of any capital and therefore, are taking a targeted and deliberate approach towards any potential strategic transaction. and certainly, our focus is on transactions that we expect to be accretive within a reasonable timeframe. To wrap up on the sale, we are extremely pleased with the progress in streamlining our company and creating additional liquidity to invest in our core business.
Okay, let’s switch gears now to the second quarter, which I’ll briefly review and then we’ll turn the call over to Dale who will review the financials.
As we discussed in Q1, we came into 2018 with momentum and a healthy backlog, which allowed us to overcome the obstacles that historically contributed to a slow start to the year. We drove revenue growth of 22% in the quarter and 21% in the first half of 2018 versus the comparable year-ago periods with gross profit margins growing from 39% to 41% in both the second quarter and the first half. Revenues from our products and licensing segment, which includes Lightwave and ODiSI grew 24%.
As a reminder, Lightwave includes our instruments for testing optical components and networks. These products target the growing demand for bandwidth fueling the development of silicon photonics in the building of more and more data centers.
Our ODiSI instruments measure structural health and integrity of components.
Before handing over to Dale, I’d like to highlight the progress and status of the various business divisions at Luna. Starting with our Lightwave segment. Total Lightwave products were up 12% over the same quarter last year; certainly, some of the strongest performance we saw was in our sensing equipment, which was up 146%. And from our ODiSI sensing product in particular, which delivered 123% year-over-year increase for the quarter. Sales of the newest version of our ODiSI product, which we launched in late 2017, continue to grow with a total of 14 systems shipped in Q2 versus eight in Q1.
As we’ve discussed, there are some very positive trends that are driving the strong performance in the sensing segment. Lightwave materials like composites in aerospace and automotive designs continue to be a main driver behind the growth in our sensing segment. Included in the new orders in Q2 for our ODiSI sensing system, we’re multiple units to major OEMs and research institutes in the automotive industry and an order from one of the largest military aerospace companies in the market. In the Communications Test segment, we had a significant win as we penetrated the verification test side of one of the largest computer chip manufacturers in the world. Previously, all of our sales have been in R&D. We’ve mentioned the silicon photonics space on many previous calls and this win is evidence of our continued progress in penetrating a rapidly growing space.
As a result of a strong Q2 2017 with several multiple unit orders along with certain orders in the Asia being delayed in 2018, revenues in our Communications Test segment were down 24% on a year-over-year basis.
We have a strong pipeline going into Q3 and Q4, and expect the performance in this segment will continue to grow.
Our Terahertz division is continuing the strong momentum built in Q1 and while a smaller part of our business, the division experienced a more than doubling of product revenue year-over-year.
We continued with our strategy of enhancing market presence and sales channel expansion with the increased visibility resulting in new opportunities and customers that are more educated.
We also are adding distributors and value-added resellers.
As an example, we are transitioning the aerospace market from direct sales to distribution in order to expand defense and commercial opportunities, which we expect to improve our reach into these larger customers. In the second quarter, we continued our targeted product development while maintaining operating efficiencies. We successfully developed a higher performing sensor that will enable new market opportunities in coated customer products, pipe coatings and plastics. I’m extremely proud of this high level of performance, which is a result of both efficiencies within the Terahertz team and strong collaboration within Luna.
Our technology development segment, which for the most part represents funded research under U.S. government contracts, grew 19% for the quarter on a year-over-year basis. Approaching contract research with a product mindset has been important in our ability to increase the program funding that we get on these research contracts.
As an example to some of the work we’re doing, Luna sent three different material samples to the International Space Station to test their durability in space. We’ve discussed previously that there are solid synergies from having this division and the demonstration of our ability to innovate quickly and efficiently and I’m pleased with the progress, and the breadth and depth of the IP portfolio that has developed in this area.
Going forward at Luna, I continue to be excited about the growth we’ve seen so far in 2018 and we remain focused on capturing the expanding opportunities that our products target in the test and measurement market.
We continue to believe that within our two market verticals, comp test and structural test for sensing, we still have some interesting outside opportunities, we could capture to improve and grow the profile of that business.
As I’ve stated before, we will be very disciplined in the deployment of any capital and therefore, we’re taking a very targeted and deliberate approach towards any potential strategic transaction as always we’ll keep everyone apprised of the progress we made.
Finally, but importantly, I would like to thank our employees for their hard work and achievements delivered this quarter. I know that they remain committed and focused on driving future results. And with that, I will turn the call over to Dale.