Good afternoon, everyone, and thanks for joining our call.
As Allison mentioned, we issued our second quarter fiscal 2019 press release at market close. Q2 was a terrific quarter, with exceptional progress on many fronts.
As always, I must start by thanking the Luna team, who worked together collaboratively, helped support the very strong integration process, in part by welcoming the new colleagues from our recent acquisitions and by each taking responsibility for the results and success of our company. I am very proud of the accomplishments achieved by all of our Luna team members this quarter.
Before I cover the details of the quarter, I want to share with you an important project on which we worked this quarter. In the nearly two years since I took over the CEO position in leading Luna, this company has transformed in many ways.
We have simplified our organization and made some important acquisitions, both of which have allowed us to accelerate growth on the top and bottom lines.
We have clarified our story to make our investment thesis more assessable.
And in the past few months, our team has focused on strengthening the Luna corporate culture, in part by building the foundation of a meaningful vision, mission and values.
We know that our potential is significant, and as we continue to grow, both organically and through acquisition, we know how important it is to have these elements in place to serve our - as our compass, guiding us to the future. I'm incredibly proud of the thoughtful work the team has done and want to share with you the new vision, mission and values for Luna Innovations.
Our vision is enabling the future with fiber. The way we will achieve that vision is through our mission, which is to enhance the safety, security and connectivity of people by leveraging our expertise in fiber optic-based technology and the information it provides. And finally, our values define the way we will work with one another and with all of our customers.
Our values are: Ownership.
We are dedicated to every customer success through personal accountability to meet business goals, improve systems and, ultimately, solve problems.
We expect the Luna team to do the right thing by stressing honesty, openness, ethics and fairness, as our reputation is everything.
We are constantly striving to redefine the standard of excellence in everything we do by challenging conventional views to drive change.
Our colleagues succeed by passionately applying energy and intellect to help us surpass our previous achievements.
And finally, results oriented.
We are determined to be the best at doing what matters the most.
We have begun the process of rolling this out to our whole organization. It's important work, and we want these elements to be something all of our colleagues live and breathe every day.
Now, let me turn and let me provide an overview of the quarter, and then I'll cover progress on acquisitions, integration year-to-date and some of the details of our operations.
The second quarter of 2019 marks the seventh consecutive quarter of double-digit year-over-year growth in our revenues from continuing operations. We grew total revenue 80% in the quarter versus the comparable year-ago period, and gross profit margin grew to 49% from 43%. Revenues from our Product and Licensing segment grew at a robust 155%, while revenues from our Technology Development segment grew at a very strong 18%.
For the second quarter, we reported adjusted EBITDA of $2.4 million, a $1.8 million increase over the second quarter of last year. This is an important metric because it shows two things: First, the robust growth of the Luna legacy business; and second, the accretion from both the Micron Optics acquisition in October of '18, and the General Photonics acquisition in March of this year. Both of these are being combined into our Lightweight Division.
If you recall that when we announced these acquisitions, we committed to both acquisitions being accretive immediately. And despite higher SG&A and R&D expenses from integrating two acquisitions, you'll see a strong increase in our pretax income from continuing operations.
So again, you're seeing the earnings benefit we've gained nearly immediately from these two acquisitions.
Before I cover progress in our operations, I'd like to share an update on the integration progress for Micron Optics and General Photonics. These two companies fit squarely into our vision for long-term growth. We've described our two main target verticals for lightweight product offerings as falling either into fiber optic sensing solutions or solutions for high-speed communications test.
Our acquisition of Micron Optics, whose products fall in the sensing category; and General Photonics, whose products generally being in the comms test area, allow us to bring more value to our customers, garner more share of wallet in existing accounts with a global sales force and accelerate growth through addressing a larger segment of our target markets.
As we discussed on our last call, integration is progressing very rapidly.
We continue to move quickly to merge complementary products into integrated customer solutions and migrate sales, marketing and engineering teams to common systems under centralized management within our Lightweight Division. With both acquisitions, the teams are working very well together to combine sales efforts, integrate product offerings and find operational efficiencies across our engineering and manufacturing organizations.
Significant progress has been made in branding, messaging and marketing.
Our domestic and international sales teams and network of distribution are in the process of being merged, and we're already seeing the benefits in terms of access to a broader market for Luna's key growing product lines.
Now moving on to our businesses, starting with Lightwave.
First the sensing area, and then moving on to communications test.
As a reminder, our fiber optic sensing solutions focused on the integration of optical fiber sensors in and on advanced materials and structures for the measurement of physical qualities, such as strain, temperature and acceleration. They can be combined with our instruments to assess the integrity, quality and reliability of new materials.
So for example, materials used in modern aerospace design, in field applications for long-term health monitoring of bridges and dams, or perimeter sensing.
Our leading sensing products are ODiSI and HYPERION. The sensing group grew significantly in Q2 versus the prior year period, bolstered by the acquisition of Micron Optics.
We recently announced that we signed an exclusive license agreement with Meggitt, a leading international company that specializes in high-performance components and subsystems for the commercial airline industry. Through this agreement, Meggitt will develop and supply its innovative next-generation overheat and fire detection systems for aircraft engines by integrating Luna's proprietary HYPERION fiber optic-based technology, which improves sensor accuracy and reliability, ensuring passenger and crew safety.
Our collaboration with Meggitt will proceed in phases. In the current phase, Meggitt is funding Luna to develop a customized laser module, leveraging Luna's current commercial design, but ruggedized for on-aircraft deployment.
During Phase 2, we will work together with Meggitt's engineering team to develop a fiber optic-based sensing interrogator, leveraging Luna's IP and know-how that will be powered by the laser module developed in Phase 1. In Phase 3, Luna will be Meggitt's exclusive supplier of laser modules for Meggitt's overheat and fire detection systems, the heart of which will be the jointly developed fiber optic-based sensing interrogator.
We expect the time to market for the jointly-developed system to be between two and three years.
We are very excited and believe this is an important indicator of our potential that we will have products integrated into safety systems for commercial aircraft. This development agreement, combined with a large robotics laser order we spoke about on the last earnings call, further underscores the growing commercial demand for Luna's specialized capabilities.
Moving to our communications test vertical. Remember that this business focuses 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 5G mobile networking.
Our products feed the need for speed and include: the OVA, the Optical Vector Analyzer; the OBR, the Optical Backscatter Reflectometer; and our General Photonics portfolio of products.
Growth in this segment for Q2 2019 more than doubled versus the prior year, bolstered by a full quarter of General Photonics products.
In addition, growth of our OVA and OBR family of products was well into the double digits on a year-over-year basis, an indication that our product strategies and investments in sales and marketing are paying off.
We've continued to invest in our communications test segment by adding engineering staff to accelerate our new product platforms, and, as I've mentioned previously, we expect to release two new products in 2019.
In Q2, we began trials with key customers and also made our first customer deliveries of the first of these products, the 6415 Lightweight Component Analyzer. The 6415 is the newest member of our OBR family of products and will help optical component manufacturers, and especially those who work in silicon photonics, make better designs with higher quality, higher throughput and lower cost.
We expect to have more news about the second product when we speak with you in the coming months.
In our communications test segment, the integration of General Photonics continues to progress well. The team in Chino is working closely with our Lightwave team in Blacksburg, to identify and execute on efficiencies and cross-selling opportunities.
All of the work that we've done to lay the foundation of growth in fiber optics is starting to pay off. When I think about this strategically, the timing couldn't have worked out better for us.
While the industry is moving away from steel into lighter-weight materials, they were also moving away from strain gauges and into fiber optics. Lightweighting is getting a lot of momentum, and we're starting to see the penetration outside of R&D and into production and orders. We're excited about the momentum that we're seeing, and you'll hear more about this area in the very near future.
Now moving on to Terahertz.
Our product line is continuing the strong momentum built in previous quarters, with a robust double-digit increase in revenues for the second quarter compared to the prior year period.
New sales and continuing growth into the process control and nondestructive testing markets were strong in Q2.
We continued with our strategy of enhancing market presence and sales channel expansion with the addition of a new distribution partner. This addition accelerated our sales and marketing efforts to deliver both a single-point gauge and a line scan gauge product into new market opportunities.
The main drivers for Terahertz adoption continue to be effective thickness control, lower manufacturing costs, minimization of waste and the optimization of product quality. We've maintained a good balance between ensuring efficiency in our daily operations, while still investing in growth opportunities.
And switching to our technology development group, we again showed double-digit year-over-year growth of 18% for the second quarter. Remember, the recent acquisitions are fully within the Lightwave Division and do not impact the contract research segment.
As the technologies from these contracts mature, we look for ways to get them to market as efficiently as possible. Overall, I am very pleased with the strong performance from our technology development team this quarter.
So with a strong first half performance, today, we are raising our guidance. We now expect full year revenues to be in the range of $66 million to $69 million. This is up from our previous guidance range of $60 million to $65 million.
We also now expect a better pull-through of our full year 2019 adjusted EBITDA to be in the range of $7.2 million to $7.6 million. This is up from our prior guidance range of $6 million to $6.5 million.
In summary, I'll reiterate that I continue to be very pleased with our performance this quarter and the first half of 2019. The integration of the two recent acquisitions is progressing rapidly, and the teams are executing at a pace that exceeds our expectation for the first half of the year. And we continue to focus on executing against our core strategy by delivering high-quality products with a commitment to customer excellence.
Now I'd like to turn the call over to Dale to review our second quarter results in more detail. Dale?