Good afternoon, everyone, and thanks for joining our call.
As Alison mentioned, we issued our first quarter fiscal 2019 press release at market close. Since it is our first quarter and a relatively straight forward one, we will keep our prepared remarks brief before we move into Q&A.
Although we were together on our last conference call only two short months ago, we have made some great progress and continued to build on the momentum we created in 2018.
As always, I must start by thanking the Luna team who stayed laser-focused on delivering our goals and who continue to serve our customers with excellence. I am very proud of our work this quarter and I’m encouraged by the strength of our deep management bench.
Even as we juggle the due diligence process for General Photonics, one of the largest acquisitions we’ve ever done, we asked our leaders to continue to sell, build and deliver product to customers and they really rose to the occasion and delivering an exceptionally strong first quarter performance.
In addition to the strong performance, Luna just received the 2019 Innovator of the Year award by the Roanoke-Blacksburg Technology Council. This award is given to “a company that sets the standards for thought leadership and innovation in their respective field. They are doing something new or different and they’re doing it well. And their innovation represents a significant technological breakthrough or addresses a great market opportunity.” The whole Luna team was very honored by this recognition of the work we are doing.
Let me now start with an overview of the quarter and then I’ll cover some of the detail of our operations and progress on acquisition integration.
The first quarter of 2019 marks the sixth consecutive quarter of double-digit year-over-year growth in our revenues from continuing operations. Digging into more details on the financial performance, we grew revenue 69% in the quarter versus a comparable year-ago period, and gross profit margins grew from 44% to 46%. Revenues from our Products and Licensing segment grew at a robust 98%, while revenue from our Technology Development segment grew a very strong 43%.
Before I move on to discuss some of the progress we’ve made in our various business divisions, I want to cover one last financial metric, adjusted EBITDA. We improved from slightly negative adjusted EBITDA in the first quarter of 2018 to $1 million of positive in the first quarter of 2019. This is an important metric because it shows two things; first, the robust growth of our existing businesses; and second, the accretion from both the Micron Optics acquisition in October of 2018 and the General Photonics acquisition in March. Recall that when I announced those acquisitions, I committed to both being accretive immediately.
Now moving onto our Lightwave business. We made significant progress within our Sensing segment, growing sales of our ODiSI product, a robust 91% over the same quarter last year.
While the main drivers behind the adoption of ODiSI technology continued to be the use of new lighter weight materials in industries such as automotive and aerospace, sales in Q1 were to a well diversified customer group. This includes our first sale to a major air frame manufacturer in the U.S. as well as sales related to industrial process monitoring and large civil structure monitoring. The adoption of ODiSI across multiple industries and applications is a positive indicator of the continued growth we expect in the future. Last week we announced a significant order for the Phoenix 1000 Tunable Laser. The order from an industry leading robotics company was valued at more than $6 million and will be delivered over four years.
We expect to begin deliveries this summer.
While robotics are an excellent example of the capability we can deliver to precise applications, laser-based fiber optic sensing systems are now widely deployed across many industries. This ability is due to the benefits of optical fiber over traditional techniques in terms of precision and scalability. Luna’s collaboration with an industry leading robotics company demonstrates how far our optical sensing technology has advanced. From a commercialization standpoint, an order of this magnitude allows us to achieve greater economies of scale on existing and future products. In our Communications Test segment, the integration of General Photonics has progressed well, with sales and operations teams already working together to identify and execute on efficiencies and cross-selling opportunities. Also in comms testing, we introduced our newest product, the 6415. The Luna 6415 Lightwave Analyzer supports measurements for deployment and manufacturing of high – of modern high speed optical components and networks.
So what does that all mean? It means we have a critical product that enables the next generation high speed networks from data centers to the cloud to 5G mobile, all of which require an ultra fast economical optical network.
Our Terahertz business is focused on process control applications, where there is growing demand for thinner buried lay layer measurements. The control and testing requirements are increasing at a continuous rate, driving demand for accurate process control with high repeatability and the ability to reproduce easily. The main drivers for Terahertz adoption continue to be effective thickness control, lower manufacturing costs, minimalization of waste and the optimization of product quality.
As an example, our Terahertz division is currently capitalizing on our unique ability to measure thin buried layers in plastic for food packaging such as a yogurt cup.
While the end user is deploying our technology for examining the final package, they are also requiring their suppliers to incorporate Terahertz into the production of the package. In our Technology Development business, we delivered a strong quarter of double-digit top line growth. Growth is being driven by our continued quality performance in Phase 1 and Phase 2 contract wins as well as success in winning contracts that fund later-stage product development and demonstration projects. I want to provide a few product examples to give you a sense for the work we’re doing in this segment.
First, we’re working on an air force qualification project to transition one of our codings for flight testing. In Q1 we coded full scale prototype F16 canopies for validation testing. Also, we began a navy project to qualify our corrosion sensors to meet the requirements for the navy’s new heavy lift helicopter from Sikorsky.
Importantly, both of these efforts are fully externally funded. This allows us to build expertise and intellectual property to strengthen and diversify Luna’s technology portfolio and set us up for future growth. Overall, I am very pleased with a strong performance from our Technology Development team this quarter.
Now I’d like to provide an update on the integration progress for our two recent acquisitions, both of which are being combined into our Lightwave Division.
First, I want to provide an overview, as we anticipated, integration has progressed very rapidly and in many cases we’re no longer distinguishing between legacy Luna and the two new companies.
We have moved quickly to merge complimentary products into integrated customer solutions and migrate sales teams to common compensation systems. And in many other ways, we are working as a single integrated company.
As a reminder, these two companies fits squarely into our vision for long-term growth. Lightwave is home to our fiber optic-based test and measurement products. Historically, we’ve described our two main target verticals for Lightwave products, as being either sensing, structural test or in the communications test. The Sensing segment focuses on the integration of optical fiber sensors in and on advanced materials and structures for the measurement of physical quantities such as train, temperature and acceleration.
Our optical fiber sensors are combined with our instruments and used in the lab to assess the integrity, quality and reliability of new materials.
As an example, I’m talking about materials used in modern aerospace design, our products can also be used in field applications for long-term health monitoring of civil structures, such as bridges and dams or to enhance the security of a perimeter. This quote, sensing vertical includes our primary products of Odyssey, Hyperion and associated sensors. Target markets include aerospace, automotive, security and energy, all with strong macro drivers for our fiber optic-based sensing technology and products. Because the products of Micron Optics were so complimentary, we are experiencing a smooth integration with our existing product lines. And we now have the ability to provide our customers with a broader range of capabilities, including higher speeds and sensing over longer ranges.
Moving to our communications test vertical, remember that this is the business focused on the ever growing need for more bandwidth in communications networks. Optical fiber is a key enabler to high speed communications, this ability runs the gamut from core telecommunications networks to data centric networks found in data centers to enabling cloud computing and mobile networking.
Our products feed the need for speed and include the OVA, the Optical Vector Analyzer and the OBR, the Optical Backscatter Reflectometer. OVA and OBR measure the performance of optical components in short-haul networks to ensure top speed and provide pinpoint diagnostics when networks aren’t performing as they should. The acquisition of general photonics brings strong opportunities for deeper penetration into our existing customer base with complimentary capabilities at differing price points. The combination also allows Luna to continue to bring more value to customers in critical applications, such as precise measurement in high speed communications networks and data centers. It also adds to our capability to deliver products that precisely control light in photonic applications.
For example, these products drive faster networks and higher performance devices at a lower cost. Precision assemblies using guided weapons deployed in our country’s security systems and precise measurements used to make better LiDAR systems, which are key to autonomous vehicles. With both acquisitions, the teams are working very well together to combine sales efforts, integrate product offerings and messaging and find operational efficiencies across our engineering and manufacturing organizations. Significant progress has been made in branding, messaging and marketing, as well as in sales. And the integration of many of our back office functions are proceeding right on target. Both Micron and General Photonics have proven to be a strong cultural fit with Luna. Collaboration across our team has been terrific and managers are really stepping up their leadership. We’ve acquired excellent talent through these two transactions.
Before I turn things over to Dale, I’d like to remind you of the outlook we provided on our last call. Full year revenues to be in the range of $60 million to $65 million, with full year 2019 adjusted EBITDA to be in the range of $6 million to $6.5 million. And we are still very comfortable with that range. Overall, this is a great start to the fiscal year and I’m proud and pleased that our team continues to deliver our momentum that we gained in fiscal 2018. The integration of the two recent acquisitions is progressing rapidly. And the teams are executing at a pace that is delivering well against our initial expectations.
We continue to focus on delivering high quality products with a commitment to customer excellence and some of our recent orders underscore our progress in that area. With that, I’ll turn the call over to Dale to review our first quarter results in more detail. Dale?