Good afternoon, everyone and thanks for joining our call.
As Allison mentioned, we issued our fourth quarter and full year 2019 press release at market close.
We are joining you today during a period of incredible market volatility driven by concerns over the unknown. We recognize this noise in the market is uncomfortable.
Nevertheless, we continue to focus on our performance and on our long-term prospects.
As you will hear during our review today, Luna has just exited the best quarter and year in its history. Not only am I incredibly excited to share with you the exceptional results of what we accomplished by executing on focused priorities, but I'm extremely proud of the Luna team. I have to start by recognizing and thanking my Luna colleagues who worked so hard to deliver such great results. Congratulations to the entire team.
In my 17 years at Luna, and then Luna's 30-year history, 2019 marked the best year from both an operational and a financial performance perspective. And I believe we're just getting warmed up.
You will see that we drove very strong financial results for the quarter and the year. I'll start with an overview of the quarterly financials in a moment. But first, I'd like to reflect on several important accomplishments during 2019 that helped to set us up for continued success in 2020 and beyond.
I think about our accomplishments in 4 categories.
First: financial achievements; second: product and customer advancements; third: employee and community focus; and fourth: enhancing oversight.
Here are a few of our financial achievements throughout 2019.
Looking first at revenue and income from continuing operations, we delivered significant growth both quarter-over-quarter and year-over-year. Also, you may recall that in Q3, we did some important work on our capital structure, simplifying our balance sheet by converting preferred shares to common, thus also eliminating a dividend on the related preferred shares.
During that quarter, and because our financial performance was so strong year-to-date, we instituted and completed a $2 million share repurchase program, providing a return to our shareholders and reducing outstanding shares by more than 330,000.
Finally, within this category of financial achievements, we also enhanced balance sheet flexibility by putting in place a new $10 million revolving credit facility.
In the second category, product and consumer advancements. We received a large purchase order for tunable lasers from an industry leading robotics company. We acquired General Photonics, a leader in characterization and control of light for photonic applications. We launched our new Lightwave Component Analyzer, the model 6415, providing breakthrough measurement capabilities for fiber optics. We signed an exclusive license agreement for the supply of fiber optic technology with Meggitt PLC. We were selected as a NASA partner for Moon and Mars technologies. And we delivered the first of our new portable OBR 6200 to Lockheed Martin in support of global sustainment of the F-35.
In the third area of employee and community focus.
Our employees are our greatest asset. We've worked hard this year at clarifying and articulating our vision, mission and values. And I shared those with you in our second quarter 2019 call. We've also implemented new employee policies, demonstrating Luna's continuous quest to provide the best employee experience possible.
Some of these new policies include recognizing and rewarding those with 15 years of service with additional paid time-off. Implementing a high school intern program to help the children of our employees to gain valuable work experience. Updating our parental leave policy, as we recognize that bonding time with the family is important, and a robust tuition reimbursement program to support self-improvement and educational efforts.
We've also been recognized by the business community with a number of awards, including being named as the 2019 Innovator of the Year by the Roanoke-Blacksburg Technology Council.
And finally, in the area of enhancing oversight.
While we believe that executive team and Board oversight is excellent, we are constantly looking for ways to improve.
During the year, we strengthened our Board with the addition of Mary Beth Vitale, a seasoned executive and cyber security expert. We were highly focused on adding diversity, both in experience and gender, and Mary Beth has been an outstanding addition to an already terrific board.
We also welcome Gene Nestro, our new CFO. Gene has strong experience working for public companies and has already been working hard on further refining the foundation that our former CFO Dale Messick, who retired, had created.
We continue to believe that we are on the right path, with the right vision, and our financial and operational success during 2019 underscores this belief.
We also believe that our potential is significant, and that we are witnessing a market shift that could accelerate the adoption of the capabilities provided by Luna. Historically, we had to educate the market about our technology and the advantage of its applications. What we're seeing now is a true market poll, where some very significant players have realized the impact of incorporating optical fiber sensors into their products and are coming to us for assistance.
You will recall that we announced last year a partnership with Meggitt PLC. This partnership combines our fiber optic technology with Meggitt's electronics and sensors to enhance passenger safety by developing a more accurate and versatile overheat and fire detection system. On a recent conference call Meggitt reiterated that the combination of Luna’s best in class optoelectronics, and their market leading capability gives them an important competitive edge in this market.
A major aerospace manufacturer has recently mandated the use of fiber optic solutions on their aircraft.
We expect to see more opportunities as fiber is smaller, lighter and faster, far surpassing the capabilities of legacy copper wire. Luna is in a great position to take advantage of this kind of market pull.
Another example comes from a recent email that I received from an executive at a very important customer. We partnered with this customer on design of the OBR 6200 for a specific aerospace application. I'm going to paraphrase a little bit, but he thanked the Luna team by saying: on behalf of the company and our program, we want to express our sincerest gratitude to the entire Luna team for successful development and delivery of the OBR 6200. Luna's OBR development team, our professionals who met substantial challenges with can do attitudes and delivered a product that exceeded our expectations. The OBR 6200 will significantly reduce equipment downtime, enabling us to quickly assess the condition of the equipment using fiber networks.
I got to tell you, it doesn't get any better than that. Especially when you get unsolicited feedback of that nature. It is really important to all of us at Luna to serve as a trusted partner, and advisor to our customers. And we remain dedicated to delivering on that value. Everything I've spoken about provides a strong foundation as we enter our 2020 fiscal year, in the strongest position ever. And we see the incredible momentum from 2019 continuing.
To that end, I'm pleased today to share with you our 2020 outlook.
We expect full year 2020 total revenues to be in the range of 81 million to 84 million. And we expect adjusted EBITDA to be in the range of 10 million to 12 million.
Now, let me provide some high-level comments on the fourth quarter, and some of the details of our operations. Gene will go into greater detail on the quarter and the fiscal year-end.
The fourth quarter of 2019 marks the 9th consecutive quarter of double-digit year-over-year growth in our revenues from continuing operations. We grew total revenue 44% in the quarter versus last year, and grew gross profit to more than 10 million in the quarter, resulting in gross profit margin of more than 53%. We reported adjusted EBITDA of 3.2 million, an increase of 1.7 million over the fourth quarter of last year.
And despite higher SG&A and R&D expenses from integrating two acquisitions, and making core investments in the organic business, we more than quadrupled our pre-tax income from continuing operations in Q4 to more than $1.7 million.
Before I cover progress in our operations, I wanted to touch on the acquisitions of Micron Optics and General Photonics. Yesterday marked a full year since the General Photonics acquisition and Micron was completed several months before that.
So both have lapped the one year mark, and are fully integrated in to Luna Innovations’ Lightwave division. General Photonics will obviously have two incremental months in 2020 on a comparable basis. But beginning in Q2, all comparisons on a year-over-year basis will have both acquisitions fully incorporated into the comparative numbers.
You've seen the positive impact of these acquisitions on our top and bottom lines throughout 2019. And we expect them to continue to contribute nicely during 2020 and beyond.
We look forward to gaining even further operational and sales leverage across our now broad portfolio of fiber optic-based test and measurement products. Therefore, this is the last time you will hear me call out those businesses by name, as they are fully integrated into Luna Innovations.
Now let's move on to our businesses, starting with Lightwave. 2019 was a transformational year for Luna and our Lightwave division.
For the fourth quarter, product revenues grew by 65% on a year-over-year basis.
For fiscal 2019, Lightwave revenues totaled more than 49 million increasing by 114% compared to 2018.
While significant growth in 2019 came from the acquisitions of Micron Optics and General Photonics.
Our Luna legacy products, the OVA, the OBR, and Odyssey, continue their pace of double-digit revenue growth during Q4.
Although, we don't talk about organic growth rates, because we don't manage the business that way. It’s important for you to know that these rates are incredibly strong and well into the double-digits.
For our group of sensing products, revenue in Q4 2019 versus the prior year period represented a quarter of great double-digit growth.
For fiscal 2019 sensing products nearly doubled.
As a reminder, our solution is focused on two areas.
First, the integration of optical fiber sensors in and on advanced materials and structures. And second, the use of Terahertz waves to see through opaque materials to measure thickness for process control applications.
Our fiber optic sensing products are Odyssey and Hyperion and our Terahertz sensing product is our T-Ray 5000. In Q4 sales of our Odyssey product, the industry's only ultra-high resolution distributed fiber sensing system, were up strongly by double-digits.
During the quarter, we recorded particularly strong sales to international customers and within the automotive market, which demonstrates continued market validation and acceptance of Luna's Odyssey Technology. Within sensing, new orders for our Hyperion platform, which is our long range high-speed sensing solution were strong, with sales to customers deploying our system in the oil and gas industries.
In particular, we received new orders for Hyperion system from several customers for monitoring the health of the flexible risers that bring oil from the sea floor to the surface. These orders will be delivered over the next 12 months. Continuing on with some of the other products in Lightwave, in Q4 we introduced a new dual channel Terahertz control unit. The new product allows multiple sensor heads to be attached to a single control unit. This both reduces the per sensor cost of deployment, as well as opens up new applications that were previously cost prohibitive.
With the same footprint as the single channel system, the dual channel system can control two Terahertz sensors. This dual channel system enables a wide variety of multi sensor applications within the process control market. This additional new capability helped us nearly double our Terahertz revenue in Q4 on a year-over-year basis.
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. Visibility runs the gamut from core telecommunication 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 growth in this segment for Q4 2019 more than doubled versus the prior year. Revenue for 2019 also more than doubled compared to 2018. Two major growth drivers continue to enhance this segment.
The first is the integration of optical and electronic systems in silicon, generally known as silicon photonics. In silicon photonics, our products are used to test and evaluate new designs to ensure high speed capability. They're also used on the production side to enhance the throughput and quality of devices that integrate silicon photonic chips.
The second main growth driver in this segment is the introduction of a new portable version of our OBR, Luna's OBR technology provides advanced design, diagnostic and inspection capabilities to fiber optic manufacturers, developers, and maintainers by illustrating a map in ultrahigh resolution of an optical link, similar to how an X-ray might look. On our last call, we announced the initial orders of this new product were delivered to Lockheed Martin in support of the F-35 program. Remember that we initially developed this product for field support of the F-35 by making the 6200 portable with an easy to use green light red light touchscreen. I am pleased to share that our customer is extremely happy with the performance of the units.
In fact, we have recently received follow-on orders for additional units and expecting OBR 6200 to add nicely to our growth trajectory for 2020. I want 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 them to dependently troubleshoot fiber optic based issues on an aircraft.
While the OBR 6200 was developed for testing military aircraft, we are extremely excited about the many applications of this new product, both military and commercial. This is a great example of amazing results that have come from incredible investments that we've made in engineering staff, and sales resources, which has allowed us to accelerate our new product platforms.
In fact, as I said before, we're seeing the benefits from all the 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 as always, we'll update you on our accomplishments.
Switching to our technology development group, we demonstrated 16% revenue growth in the quarter and 24% growth for full fiscal 2019 versus the prior year.
So, a great performance financially from our technology development group. There are two notable developments from the group in fourth quarter.
First, we're part of a team awarded Project of the Year by the Department of Defense’s Strategic Environmental Research and Development Program. The team including Boeing, North Dakota State University, the Air Force Research Laboratory, and the Naval Air System Command is developing better tests to predict coating performance in severe conditions that lead to damage and corrosion.
And second, we participated in an Air Force pitch day competition designed by the Air Force and agencies across the DoD, who are looking for ways to accelerate the pace of selection. They're using pitch days instead of conventional proposals as an efficient way of evaluating suppliers. Luna won the competition and was awarded on the spot a contract as a result of the event, making it a very productive day.
As a reminder, when the technologies from these contracts mature, we always look for ways to get them to market as efficiently as possible. In most, if not all instances, we retain the intellectual property rights to these technologies. Overall, I'm very pleased with the continued strong performance from our technology development team.
As I mentioned at the onset of this call, I'm very proud of the hardworking and committed Luna team, who delivered exceptional financial and operational accomplishments throughout 2019, including Q4. We started the year by articulating a strong vision of enabling the future with fiber and we're very clear about our purpose. We feel very good about our trajectory and look forward to continuing delivery against our goals including our 2020 outlook. We're just getting started to capitalize on the opportunities in front of us. And as many of you have heard me say before, there's only one out in the second inning of this ballgame for Luna.
With that, let me hand the call over to Gene for more on the financial details. Gene?