Good afternoon, everyone and thanks for joining our call.
As Allison mentioned, we issued our third quarter fiscal 2019 press release at market close. Q3 was truly a quarter of significant progress for Luna. And as always, I have to start by thanking my Luna colleagues. Delivering a string of strong consecutive quarterly performance comes from working collaboratively as a team. And this team has worked incredibly hard to deliver the results you’re hearing about today.
You will see that we drove very strong financial results and I’ll cover more of these details of the specific metrics for the quarter in a moment. But first, I’d like to highlight a few important accomplishments that have helped to set us up for continued success.
First, we did some important work on our capital structure. We eliminate the preferred shares, which have been on our balance sheet for many years, converting them to common equity. Prior to that conversion, we were able to meet the requirements that allowed us to eliminate the dividend on those preferred shares.
Secondly in the quarter, we instituted and completed a $2 million share repurchase program, providing a return to our shareholders. Through this program, we reduced our outstanding shares by more than 330,000.
And third, we strengthened our board with the addition of Mary Beth Vitale, a seasoned executive and cybersecurity expert.
As we went through the process, we were highly focused on adding diversity, both in experience and gender. And I couldn’t be more pleased with our success bringing in Mary Beth, who is adding value in an already terrific board.
As I mentioned to you on our last quarter’s call, this company has transformed in many ways in the two years that I’ve been CEO.
We continue to believe that our potential is significant.
Our performance year-to-date combined with the visibility that we have into the remainder of fiscal 2019 gives us the confidence to raise our guidance for the second time this year.
We now expect full year revenues to be in the range of $69 million to $70 million, up from our previous guidance range of $66 million to $69 million.
We also expect continued pull through to our full year 2019 adjusted EBITDA. We now expect adjusted EBITDA to be in the range of $8.2 million to $8.6 million, up from our previous guidance range of $7.2 million to $7.6 million.
Now, let me provide an overview of the quarter and some of the details of our operations.
The third quarter of 2019 marched the 8th consecutive quarter of double-digit year-over-year growth in our revenues from continuing operations.
We grew total revenues 72% in the quarter versus a comparable year ago period and gross profit margin grew to more than 50% from 44%. Revenues from our products and licensing segment grew at a robust 122%, while revenues from our technology development segment grew a very strong 22%.
For the third quarter, we reported net income from continuing operations of $1.2 million or $0.04 per fully diluted share.
I want to note that we reported adjusted EBITDA of $2.9 million, about $2 million more than the third quarter of last year. Adjusted EBITDA is an important metric, because it shows two things.
First, the robust growth of the legacy Luna business and second, the significant accretion from both the Micron Optics acquisition in October of 2018, and the General Photonics acquisition in March of this year. Both of these are being combined into our Lightwave Division.
You may recall that when we announced those acquisitions, we committed to being accretive immediately and despite higher SG&A and R&D expenses from integrating two acquisitions and making core investments in the organic business, we had a strong increase in our pre-tax income from continuing operations in Q3.
Before I cover progress in our operations, I just wanted to make a few comments on Micron Optics and General Photonics.
In fact, just a few weeks ago, we marked the one year anniversary of the Micron Optics acquisition. The integration of these acquisitions has gone better than anticipated. And as I’ve mentioned before, we see the evidence of that success on both the top and bottom lines. And I’m pleased to say that the integration of both Micron and General Photonics is essentially complete.
Now, let me move on to our business, starting with Lightwave. Product revenues grew by 122% led by triple-digit growth in the Lightwave Division on a year-over-year basis.
For our group of sensing products, revenue in Q3 versus the prior year period represented one of the best growth quarters ever bolstered by the Micron Optics acquisition.
As a reminder, our fiber optics sensing solutions focused on the integration of optical fiber sensors in and on advanced materials and structures for the measurement of physical quantities, such as strain, temperature and acceleration.
They can be combined with our investments to access the integrity, quality and reliability of things like new materials and structures.
So for example, materials used in modern aerospace design in field applications for long-term health monitoring of bridges and dams or perimeter security.
Our leading sensing products are ODiSI and Hyperion.
We made significant development progress in Q3 on our ODiSI platform. The ODiSI product is the industry’s only ultra-high resolution distributed fiber sensing system. In Q3, we announced major improvements to the platform, including extended sensor lengths, larger strain measurement range, and improved performance in harsh environments. These improvements will help us better penetrate some of our newer markets such as industrial process monitoring and structural design of civil infrastructure.
Recently, NASA announced that Luna has been selected as one of the only 14 companies to partner with the agency’s Moon to Mars Exploration study. With a $2 million award, Luna’s fiber optics sensors will be embedded within inflatable space habitats to monitor their structural health and safety.
Within sensing, we all had several significant customer wins in Q3 with our Hyperion platform, which is our long range, high speed sensing solution. There are two wins that I want to highlight.
First, we closed a 50 unit blanket order for Hyperion interrogators for delivering over the next 12 months, with our largest security systems integrator.
For this application, our Hyperion systems and associated fiber sensors are the basis of a perimeter intrusion detection system. Hyperion’s optical sensing technology enables our system integrators to provide the market with better detection, lower false alarm rates and better pinpointing capability.
And second, we delivered the first of the newest cloud connected configuration of Hyperion to be used for a bridge monitoring application. The new configuration takes advantage of IoT connectivity and cloud data storage, which will allow us to provide more value and services to our customers over the lifetime of an installation. We’ll provide more updates on this emerging capability in the future.
Moving to the 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. Visibility runs the gamut from core telecommunications networks to data-centric networks to enabling cloud computing and 5G mobile networking.
Our products feed the need for speed and include the OVA or Optical Vector Analyzer, the OBR or Optical Backscatter Reflectometer and a suite of polarization instruments and photonics controllers. Revenue in this segment for Q3 2019 was up on – in the triple-digits versus prior year, bolstered by the addition of General Photonics.
In addition, growth of our legacy OVA and OBR family of products was in the double-digits on a year-over-year basis, indicating that the underlying growth without acquisitions remains very strong.
As I’ve mentioned previously, during the past 18 months, we’ve been investing in this segment by adding engineering staff and sales resources to accelerate our new product platforms.
On last quarter’s call, we discussed the first of these new additions to our portfolio, the 6415 Lightwave Component Analyzer. The 6415 is the newest member of the OBR family of products, and will help optical component manufacturers and especially those that work in silicon photonics make better designs with higher quality, higher throughput and lower cost.
Relative to the second new product, you may remember that a little over a year ago, Luna was recognized as an evolutionary technology supplier by Lockheed Martin. Luna was presented with the award acknowledging the company’s exceptional technology offerings for the support, testing and manufacturing of the F-35 fighter jet. I’m pleased to announce that initial orders of our second new product, the OBR 6200 were delivered as expected to Lockheed Martin in support of the F-35 program.
The OBR technology provides advanced design, diagnostic and inspection capabilities to fiber optic manufacturers, developers and installers by illustrating a map in ultra-high resolution of an optical link similar to how an X-ray might look. In this way, the OBR provides high sensitivity measurements of optical fiber components, assemblies and networks.
For those of you who are familiar with OTDR technology, our OBR can be thought of as a very high resolution OTDR and we have the only such offering on the market.
Luna’s OBR products are used to quickly and easily ensure critical fiber paths are operating properly by verifying that light is being transmitted without loss throughout the entire fiber link.
While the OBR technology historically has been used in lab and manufacturing environments, our new OBR 6200 is aimed at field applications that require portability.
We initially developed this in partnership with Lockheed Martin for field support of the F-35 by making the 6200 portable with an easy-to-use green light-red light touch screen. This allows for ease of use in identify and locating potential issues.
The OBR 6200 is a fully qualified for military operational specifications and it’s designed for field support, maintenance and troubleshooting of military aircraft that employ optical fiber links. The development and delivery of the OBR 6200 is a major accomplishment for Luna, and it demonstrates the critical nature of our products to global programs like the F-35.
I want to thank our engineers who have worked tirelessly on weekends and nights to deliver a product on-time, against a tight timetable and according to rigid military specifications. I am very proud of the team for this accomplishment. I want to take a moment to thank our long-term customer, Lockheed Martin for their incredible collaboration as well as their confidence in us. Their input has been key to successfully developing a user-friendly portable device that will enable their engineers to dependently troubleshoot fiber optic-based issues in an aircraft.
As I’ve said before, we’re now seeing the benefits from all our work that we’ve done to lay the foundation of growth in fiber optics.
We continue to be excited about the momentum that we’re seeing and you’ll continue to hear more about this area from us in the 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 third quarter compared to the prior year period.
New sales and continued growth into the aerospace non-destructive testing, process control and research markets were strong in Q3.
And we continued with our strategy of enhancing market presence by deploying Terahertz sensors in the applications where high precision, high speed measurement or tolerance of harsh environments is required.
During the quarter, we were awarded an Air Force contract to develop and install multiple Terahertz process control sensors used in the refurbishment of aircraft at Hill Air Force Base.
As you’ve heard me say in the past, the main drivers for Terahertz adoption haven’t changed. They are 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 show double-digit year-over-year growth of 22% for the third quarter. Remember, the recent acquisitions are fully within the Lightwave Division and do not impact the contract research segment.
As a reminder, when the technologies from these contracts mature, we will always look for ways to get them to the market as efficiently as possible. In most, if not all instances, we retain the intellectual property rights to these technologies. Overall, I am very pleased with the continued strong performance from our technology development team.
As I’ve mentioned at the onset of this call, this was truly a quarter of noteworthy accomplishments in a number of areas, including operations, financial results, capital structure and governance.
Our accomplishments for the quarter and the strength of the pipeline gives us the confidence to again raise our annual guidance.
Remember that on the last quarter’s call, I outlined our vision, mission and values.
As a reminder, our vision is enabling the future with fiber. And this quarter’s accomplishments clearly advance us in that vision. I’m thankful to the Luna team for delivering on our promises to our customers and grateful that our customers are willing to collaborate with us.
With that, let me hand the call over to Dale for more of the financial details. Dale?