Q4 2020 Luna Innovations Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q4 of China Chinese Luna innovations incorporated earnings conference call. At this time all participants are diminish at all of the mode. After the speaker's presentation, there will be a question and answer session.
Ask the question Joanna the session you will need to press the star one on the telephone.
I would now like has the contract over the first speaker for today Ms. Alison would each ex of administration. Thank you. Please go ahead ma'am.
Thank you good afternoon, and thank you for joining US today. This afternoon, we issued our fourth quarter and full year 'twenty 'twenty earnings Press release. In addition, we posted to the Investor Relations section of our website a presentation with supplemental information for the quarter. If you do not have a copy of the release or the supplemental materials.
Please check our website at Luna each dot com, we will also pose the replay of this call through our website.
Some of the comments and discussions today are based on non-GAAP measures. These adjusted numbers exclude the effect of certain non cash expenses and other items. The adjusted results for a supplement to the GAAP financial statements Luna.
Luna believes the presentation and exclusion of these items is useful in order to focus on what we deem to be of more reliable indicator of ongoing operating performance.
Before we proceed with our presentation today, let us remind you that statements made on this conference call as well as in our public filings releases and websites, which are not historical facts may be forward looking statements that involve risks and uncertainties and are subject to changes at any time, including but not limited to the statements about it alright.
Vacations regarding future operating results or the ongoing prospects of the company.
Actual results may differ materially as a result of a variety of factors more complete information regarding forward looking statements risks and uncertainties is available in the company's SEC filings, which can be found on the SEC's website and our website.
We disclaim any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward looking statements to reflect future events or developments, except as required by law.
After our prepared remarks, Scott Graeff, our president and Chief Executive Officer, Jim <unk>, Our Chief Financial Officer, Brian Solar Senior Vice President and General manager of our Lightwave Division and James Garrett Senior Vice President and General manager of our Luna Labs Division will be available to take your questions and at this time.
I'd like to turn the call over to Scott.
Good afternoon, everyone and thanks for taking the time to join our call I have to admit that as I began to prepare for this call I became very introspective about the year. We just experienced unprecedented for sure 'twenty 'twenty was an extraordinary year for Luna in so many ways that I could not of a V.
Visit.
As we will discuss today Luna had an incredible and record breaking year.
Our results and accomplishments would be impressive in the context of a normal year, but they are even more remarkable given that we executed in the middle of the devastating pandemic.
I looked back at the call that we had with you a year ago.
We had just come off of record breaking 2019, and we gave you our guidance for 2020, not having any idea of what was about to hit the global economy and global consciousness.
Luna entered 2020 with a stronger foundation than ever before.
Having already done an immense amount of work to refine and clarify our strategy and to develop a strong purpose vision mission and values in.
And like so many other organizations we were just getting started in 2020 when the reality of the Covid pandemic set in.
And like so many others, we had to quickly figure out how the pivot to new ways of working as a team.
New ways of marketing new ways of conducting meetings and supporting our customers.
And our purpose to enable the future with fiber did what it was supposed to do.
It served as a clear beacon to help guide us in the right direction. So here we are today announcing the results of yet another record breaking year. Despite the challenges presented by the pandemic.
I am very proud of what we've accomplished really excited about our future opportunities and mostly I'm incredibly grateful for all of my colleagues at Luna and the guidance oversight and support of our outstanding Board of directors.
We are clear about our strategy and focused on bringing forward our best every single day.
Thank you to the Luna team for pushing through everything thrown in your way and continuing to deliver to our customers.
I can't adequately express how very proud I am the work that you've done and how privileged I feel to have each of you as my partner.
In addition, I'm, particularly proud of the fact that we maintained the guidance. We gave in early 2020, which was before any of us could have imagined what this year would look like and we delivered against that guidance.
Certainly part of the reason we were able to do that was because of the companies that needed our technologies as we built our 2020 plan still needed our technologies and largely on the same schedule says before COVID-19 took over the consciousness of our everyday lives.
The Luna team did an impressive job of pivoting to work under Covid standards, and we kept moving forward driving the fiber agenda.
We entered 2020 with plans to continue to invest strategically in our business. So that we can continue to grow and scale significantly well into the future and invest we did.
The team did an extraordinary job driving the ongoing business, while managing multiple initiatives to build out core infrastructure and the foundation.
Let me mention some of these initiatives.
First implementing our new cloud based net suite ERP. This system replaced four legacy Erp's and went live on January 1st of this year.
A major accomplishment for any company and sets us up well for the future.
Secondly, providing critical tools and information to our sales teams through the enterprise implementation of Salesforce Dot Com platform, which is also now complete.
Thirdly, continuing to hire in the midst of the pandemic, even as many other companies, we're trimming and shrinking.
Even excluding acquisitions, our businesses have grown tremendously so maintaining our focus on ensuring we have the talent in place for the company. We are striving to become is critical to our future success.
Fourth entering the year with a robust pipeline of acquisition ideas.
And even in the face of this pandemic, which eliminated any of the business travel we would normally do we completed with robust due diligence two important acquisitions last year, one of which opt the sense was almost three times larger than anything we had ever done before and was truly transformational.
<unk> to our business.
Fifth closing the largest order in our history with Lockheed Martin.
This order was so significant because the foundational work we have done in the last several years has created the platform and scale in our operations to support the fulfillment.
Of increasingly larger orders.
Six establishing an important new banking relationship with PNC bank, giving us even broader financial flexibility and finally nominating a new board member Pam Coe per service on our board of directors.
Pam was most recently an executive with Liberty Media Corporation, and as an attorney who brings important incremental skills and perspectives to our board based on her decades of experience in corporate governance Securities law and compliance.
As I've mentioned before.
I hope you take away from this discussion that all of this investment has created a strong contemporary consistent and scalable Foundation. This foundation will allow us to drive organic and acquisitive growth for the longer term without the need for additional investment in our core infrastructure and systems.
As we continue to do acquisitions. These modern global platforms will allow for much quicker and efficient integration.
Now I'd like to move on to some of the financial highlights for the fourth quarter.
Luna had a very strong financial close to the year and the quarter was punctuated by several important events. One I want to mention here is off the sense the largest acquisition that Luna has ever done.
Given the size of this acquisition I will provide additional color relative to the impact on our financial results. So that you have the visibility to the trends in our ongoing organic operating performance.
This will also make it easier to compare to the guidance. We gave you at the beginning of 'twenty 'twenty.
Jean will provide some additional information and color on certain nuances of the acquisition detailing items like the impact on our year end inventory levels for.
For the fourth quarter total revenues were up a robust 33% to $25 9 million compared to the prior year's quarter.
Excluding off the sense total revenues were $24 4 million up 25%.
The Lightwave segment had an increase of 38% year over year to $19 3 million in total revenues.
And Luna Labs revenue was $6 6 million up 21%.
Operating income, including $2 3 million of transaction costs was $500000.
Excluding both transaction cost and the stub period for Op defense operating income was $3 7 million.
We delivered adjusted EBITDA of $4 3 million in Q4 without off the sense. The adjusted EBITDA was $5 million, an increase of 1.8 million over last year.
Someone recently asked me.
How have you continued to deliver such strong results throughout this year in the face of everything going on I think there are a number of distinct factors that have helped us to drive. The success first we have a superior product portfolio with products that are needed by companies regardless of events like a pandemic.
Second the end markets, we serve have been less affected by COVID-19 than some other industries and the organizations in these markets still require our products third the key megatrends that support Luna as growth continued to be relevant and strong <unk>.
Fiber five G light weighting and civil structure monitoring to mention a few.
Fourth we have been successful in pivoting the way, we are selling effectively leveraging webinars and other tools to sell.
Of course, the rapid adoption of video conferencing has certainly helped.
Fifth from day, one we have taken this virus and the danger of it poses on human life very seriously. We continue to be focused on supporting our employees health safety and wellbeing and finally as I mentioned previously open and frequent communication has been a critical point in <unk>.
Operating safely efficiently and successfully and our ability to operate well is the result of the ultimate team effort with every single employee at Luna involved.
Now, let me discuss lightwave in more detail.
I always like to start any discussion of Lightwave with a brief description of our major lines of businesses within the segment.
As a reminder, our solutions focus on two areas sensing and communications testing.
Starting with sensing our fiber sensing products Odyssey, Hyperion and now opt of sense focus on the integration of optical fiber sensors in and on advanced materials and structures Secondly, our T ray products, which use terahertz waves to see through open.
The materials to measure thickness for process control applications.
Moving to our communications test vertical remember that this is the business focused on ever growing need for more bandwidth in communications networks.
Optical fibers of key enabler to high speed communications and our products in this segment feed the need for speed.
Looking now at Lightwave in totality.
Lightwave maintained continuity of operations throughout the pandemic.
Shifting when necessary between total work from home staggered shifts in the office and other flexible work scenarios. All of this was done with a singular focus on the health safety and wellbeing of our employees.
All Lightwave operations continued to deliver often at record levels in terms of units shipped throughout the entire year.
Lightwave minimize the potential significant disruptions in our global supply chain by working closely and proactively with our global supply base.
From a financial perspective revenues in our Lightwave division were up 38% versus the same period last year.
This increase was 27% excluding off the sense.
We also continue to expand margins through a number of accomplishments first we successfully developed several large repeat strategic accounts and customers.
Second we made robust progress in penetrating certain aerospace OEM companies in part through joint development efforts with Megan.
Third we launched several digital marketing campaigns that resulted in the generation of over 3000 registrants.
The 1300 live attendees and more than 1400 new leads.
Fourth as we announced in Q4, we closed the single largest instrument order in company history.
This approximately $6 $2 million deal with Lockheed Martin further extended a long term relationship.
And finally, we continued with new product development and introduced multiple new high impact products in both the sensing and comms test verticals, including the most significant product launch the portable Ob are 6200.
As I just mentioned, we officially announced late last year. The order for this new product by Lockheed Martin in support of the F 35 program.
We initially developed this product for field support of the F 35 by making the 6200 of portable with an easy to use green light Red light touch screen.
Certainly the order is important because it represents a significant application of this technology, but it also represents the highest quantity order that we've ever received and we are well equipped to fill it.
We're confident that we have the opportunity to move some of our business from the small quantity orders. We have historically received two larger volume orders, which allow for faster and more predictable growth for Luna.
I would be remiss to not call out south an faruqi, our vice president of sales for the tremendous part. He played in building this relationship and ultimately closing this deal.
I believe we're just getting started with this product line as we move into the support operations of the other military aircraft. In addition, we can expand beyond that into civil aircrafts and other applications such as data centers.
Finally in addition to the great execution and multiple advancements in the Lightwave segment throughout the course of 2020. We also completed two acquisitions, both of which are being integrated into Lightwave I'll talk about those in a few minutes.
Let's move on to a discussion of Luna labs, where as a reminder, we leveraged third party contract research to build a portfolio of technologies. These technologies, which are commercialized through direct sales distributors or license agreement or outside our core strategic fiber optic offerings.
Most of the funding for Luna Labs comes from the Federal government, primarily the department of defense. So contracts there have not been materially affected by the pandemic.
But as we've mentioned in previous calls we did experienced some challenges in working with our academic collaborators through last spring and summer as universities remain partially shut down and laboratories were closed or operating on limited schedules by fall we saw significant improvement in this workflow.
As these partners got their labs open.
As you can see our accomplishment in our Q4 financial performance total revenues for the division increased by 21% to a record $6.6 million.
The strong performance was driven in part by a large product shipment for the Air Force.
This follow on work, resulting from a 2018 project expands the use of our products to monitor aircraft and military bases around the world, helping the air force reduced maintenance costs.
We spent the second half of 'twenty 'twenty working to improve our production capacity and optimize processes. So when we received this large order we have labor day, turning around in a relatively short amount of time.
Overall, we're very pleased with what Luna labs was able to accomplish this year.
Now I'd like to move over to the topic of acquisitions and talk about some of the incredible work done by the Luna team.
If you had ever told me that Luna would do a significant transaction in fact, the biggest transactions history in a year, where none of the major players could meet in person to hold initial conversations assess cultural fit and negotiate terms I would've told you you've lost your mind.
And yet that's exactly what we did.
Both companies are great fit with Luna and we're excited about their expected contributions to our organization.
You've seen us evolve over the last several years systematically refocusing our business to pursue our vision of enabling the future with fiber.
We've been aggressive about divesting assets that don't fit with our long term growth strategy and acquiring other key assets that are in our sweet spot and will help to drive further growth.
And we've continued to expand the part of the business with the greatest growth potential fiber optic based test and measurement and fiber optic sensing. This is our lightwave segment.
As a reminder of the first transaction was the tuck in acquisition of New rig technologies, New radio solutions are a perfect complement to our communications test and measurement portfolio.
Although this acquisition is strategically very important to Luna and helps to advance our product roadmap. It is immaterial from a financial perspective.
As a reminder, the integration of new ridges products with Luna as will help our customers enhanced connectivity by developing faster communication networks to support everything from the five G build out to the continued expansion of bandwidth inside of data centers.
We completed the acquisition of new Rich technologies in the fall of 2020, and the asset is already fully integrated in the Lightwave.
The second acquisition of course was off the fence.
One of the most exciting things to me about opt of sense is that it represents a perfect execution of our strategy of.
The sense is a leader in distributed acoustic sensing and with this acquisition, we have enhanced our position as the fiber optic leader and the powerhouse in distributed fiber sensing.
A few moments ago I described the two parts of Luna business of.
The sense fits into the sensing vertical where Luna has market leading products target the integration of optical fiber sensors in and on advanced materials and structures.
And the acquisition filled.
The capability gap at Luna.
When an application requires continuous or distributed measurement. Our odyssey product is used in short range situations like in automotive or aerospace.
Art capability gap was in applications that require the measurement of both continuous and long range the.
<unk> of off the sense filled that gap with one of the largest and strongest players in the space and allow us to reach into the broader distributed fiber optic sensing market by providing fully distributed measurement capabilities over long range applications and to be clear when I say long range I mean coverage area that can occur.
And many many kilometers.
Opt of sense has a blue chip customer base and has significant IP with more than 150 patents issued and pending all of this bolsters Luna existing impressive leadership position.
In addition, opt the sense of the global footprint, which brings the Luna an existing European operation that is already up and running.
With off the sense Luna has the broadest offering with short range high resolution <unk>.
Long range high speed and now with off the sense, adding long range fully distributed products.
We have already begun integration of opt the sense into Luna as Lightwave business. However for at least a portion of this year certain support services will continue to be provided by the former owner under of TSA.
That said our sales and marketing teams are already actively engaged with one another driving sales enablement in both directions.
It is a priority to leverage the strength and reach of the combined entity to drive synergistic sales as early as possible.
In addition, technical teams are working closely to outlined plans to integrate product platforms that lead to broader offerings for our global customers.
You know as I look back and consider the year. It is obvious that it was the success from an M&A standpoint, and the really exciting news is that we're just getting warmed up and have an interesting deal pipeline in place. We will continue to monitor for opportunities and we'll only do those deals that makes sense from both of the.
Financial and cultural perspective.
One of our key priorities will always be the prudent and thoughtful deployment of capital B.
Before I turn the call over to gene I want to cover our outlook for 2021.
As always my leadership team and I spent considerable time recently planning and budgeting for 2021.
I think we all left that process excited about what we can accomplish in this coming year.
Today, we are issuing our 2021 outlook range, which is total revenues.
Of a $120 million to $227 million, adjusted EBITDA of $16 million to $19 million.
As a reminder, on seasonality we've shared before the Luna recognized as approximately 44% to 46% of annual revenue in the first half of the year with a larger portion of the annual results being realized in the second half of the year.
In summary, this has been an unprecedented and challenging year for all of US I know that Luna is clarity about his vision and purpose have served us well and we've navigated the uncertainty.
In a year that was characterized by constant curve balls in the macro environment Luna delivered great results and continued to invest for the future, including the addition of some talented employees completion of a couple of acquisitions, one of which was transformational and our addition to the Russell two.
And Russell 3000 indices I am grateful to the Luna team for their focus and work and I cannot and I could not be more proud that our hard work delivered these record breaking results for all of our stakeholders.
And I'm very confident that Luna has the right strategy and we'll continue to make significant progress against it in the coming year.
I'll now hand, the call over to gene for more of the financial details on the quarter gene.
Thank you Scott I will get the the fourth quarter financials in a moment, but first I want to provide some broad thoughts on our progress last year.
I am really proud of the progress that we made in driving superior operating and financial results. While also putting into place the people processes and platforms that will allow us to scale significantly without further investment in back office infrastructure.
We had a terrific Q4, and 'twenty 'twenty fiscal year, despite the environment in which we were working so let me be clear about our financial position, our sales profitability and cash position are all healthy.
Last quarter I spoke about the implementation of our new ERP as Scott mentioned, we started the year by going live on January 1st which was a great way to celebrate new year's this new system is already paying dividends.
Before I proceed I want to note that our reported numbers include the results of our two recent acquisitions, we completed towards the end of the year, new rich technologies and off the sense and their related transaction expenses.
With that as context ill now shift to cover our fourth quarter results.
As Scott noted our revenues for Q4, 'twenty 'twenty were $25 9 million compared to revenues of $19 5 million for Q4, 2019, representing a 33% year over year increase.
The increase in revenues year over year was composed of a 38% increase in our Lightwave segment, and a 21% increase in our Luna Labs segment.
Within the Lightwave segment year over year growth was driven by strong performance from both our sensing business and our communications test business. The latter of which included shipments related to the large Lockheed Martin order that Scott referenced.
Within Luna labs growth was driven by later stage commercial products.
Our gross profit increased to $13 4 million for the quarter compared to $10 4 million for the same quarter last year, representing a gross margin of 51, 5% in Q4 'twenty 'twenty.
Compared to 53, 3% in Q4 of 2019 remember that Q4 2019 had a very favorable sales mix that resulted in the higher gross margin. Our Q4 'twenty 'twenty gross margin is in line with our recent trends of 51% to 52%.
Operating expenses were $12 8 million, which includes $2 2 million of transaction related expenses in Q4, 'twenty 'twenty compared to $8 7 million in Q4 2019, our Q4 'twenty Opex run rate continues to decline as a percentage of revenue.
Due to the acquisition related expenses of $2 2 million, our operating profit decreased to 500000 in Q4, 'twenty 'twenty compared to $1 7 million in Q4 of last year without off the sense and the related transaction expenses operating income would've been $3 7 million up $2 million versus 2019.
Net loss from continuing operations for Q4, 'twenty 'twenty was 64000 or zero on the per share basis.
Compared to net income from continuing operations of 2.1 or seven cents per share for Q4 2019.
Excluding the App the sense acquisition and the related transaction expenses net income would have been 3.0 million or nine cents per share.
Income tax expense for Q4, 'twenty 'twenty was primarily impacted by a valuation allowance related to op defense. The tax provisions of return true ups and other year end items, we estimate our 2021 effective tax rate to be in the range of 21% to 25%.
And finally, a key metric, reflecting our underlying operations is adjusted EBITDA as Scott mentioned adjusted EBITDA increased to $4 3 million for the fourth quarter 'twenty 'twenty versus $3 2 million for Q4 2019.
The solid performance was driven primarily by top line growth from both our legacy businesses and those businesses, we acquired combined with our ongoing expense management.
Let me now move to the balance sheet.
We ended the quarter and year with $15 4 million of cash and cash equivalents compared to 25 million at the end of 'twenty 19. The decrease was due to the use of approximately $20 million of our cash from our balance sheet towards the purchase of opt of sense in December.
Before I cover working capital and debt I want to take.
A comment about one other balance sheet item that as inventory you will note that inventory increase significantly year over year from $10 3 million in 2019 to $23 6 million in 'twenty 'twenty. The increase is largely due to the inventory add up the sense, which they have in anticipation of future sales.
Our working capital was $45 4 million at December 31, compared to $41 1 million on December 31, 2019, our working capital increased primarily due to the off the fence acquisition.
Remember that at the time of the acquisition. In addition to the new banking relationship with PNC. We also announced the new debt facility comprised of two separate financing vehicles, a term facility and a revolver facility.
On top of the $20 million in cash from our balance sheet that I just mentioned, we funded the acquisition with $20 million in debt the <unk>.
Debt piece comprises $12 5 million of the new term facility and the remaining roughly 8 million was drawn from our new revolving credit line.
We have access to an additional $7 5 million in the revolving credit facility should we need it.
Without repeating the 2021 outlook Scott provided I'll, just say that we again did a comprehensive bottoms up analysis, which provided good insight into our forecast for the year.
In addition through the intense due diligence process for opt the sense, we were able to get comfortable with that company's potential in 2021 and therefore of fold that information into our 2020, one planning and guidance given the timing of the close of the deal. So close to the end of the year and the holidays, we really hadn't begun much integration before we can.
<unk> out the year, but as we've done with every other acquisition, we plan to push hard on integration and would expect that by later this year it will be very difficult to distinguish between organic lightweight and opt the sense.
We understand that this pandemic is not over and we continue to monitor and evaluate the effects on the daily basis to ensure we understand any potential impact on our business.
So overall I'm very proud of what we were able to accomplish despite the unprecedented events of 2020, we exited 2000 twenty's stronger than when the year began as a result of a series of strategic acquisitions continued operational improvements and further investment in the core foundation of our company.
With that I will turn the call back over to Scott.
Thank you Jean at this time I would like to open the call up for questions, Brian Soller Senior Vice President General manager of our Lightwave Division and James Garrett Senior Vice President General manager of our Luna Labs Division are with gene and me at this time and also available to address questions as always I wanted to ensure that the profit.
Folks were on the call today to address any specific business questions you might have.
Donna.
Ladies and gentlemen, I would like to remind everyone to ask a question. Please press star one on the telephone keypad well pause for just the moment to compile the Q&A Russell.
Your first question comes from the line of Barry Sine from Squadron capital. Your line is now open.
Hey, good evening folks how are you.
Hi, Barry.
Hey.
Wanted to start out I thought you did a very good job. Thank you in the slide deck for breaking out the historical for Q in 2020 results by organic and inorganic and also by segment I have a similar question in terms of the guidance that you've just issued if we could unpack that and I know you just said the buy.
You won't be able to differentiate off the fence, but if we could think about the two businesses in terms of our historic growth rates and EBITDA margin and then asking it another way unpack the guidance between our Lightwave and Luna labs. Please.
Yeah, well you know Barry we typically haven't broken that out I think if you look at what we've said in the past.
In where we came in organically you know kind of in 81, and a half or so when we came inorganically in 83 ish on the AR it combining.
Ops of sense.
We've always talked about mid to upper teens, you know kind of 15% to 20%.
Organic growth so when you look at.
If I if you look at a full year of 'twenty 'twenty with off the sense in there for the full year I think on the low end you would see that that that 15, and I think you can see.
The 20% more on the on the top end of that range. I think we continue to sort of feel bullish about being in that in that mid to upper teens now as you know.
The the growth is less in Luna labs.
And the margin is less so.
On the you know the optic side of the business on the Lightwave side of the business. We do plan on growing it will grow in the in the in the twenties.
Other to fall into that into that level of the mid to upper teens overall Luna and it will carry a higher margin. So I would expect us to continue to see those gross margins in the in the low fifties.
And I would continue to see the pull through in that in that somewhere in that 12, 13% pull through overall to the to the adjusted EBITDA line of right now what I have in front of me Barry its so new I don't really I don't feel good about giving guidance I think there'll be a time, where we might but right now I feel.
Good about the overall number I don't know exactly the bucket it will come from necessarily.
So I'm not prepared to break out that yet.
Okay. That's helpful and then on the similar vein regarding guidance.
You talked about the historic breakout from the seasonality standpoint.
Backend weighted towards the second half of the year is that true also for opt the fan.
And then from an EBITDA standpoint, I'm thinking that seasonality will be even more backend weighted and the reason I think that is because I'm.
I'm, assuming that there's integration work to be had and you'll have lower margins before theyre integrated than you will in after they're integrated and you've achieved the merger synergies.
Yeah, I think that net debt.
That's a good point.
You know their year end when they were when they were owned by kinetic was 331. So we're still trying to get our hands around I do believe in how we sat down and did the budget I do believe we'll still be in in that probably the higher end of that range on the first half of the year in that.
Kind of 46% range.
And for right now I think we'll have a better flavor for that the more of the year goes on and and I'll I'll provide that but right now I wouldn't want to.
Wouldn't want to get out ahead of that and that's why we reiterate that 44 to 46 because of Lightwave business prior to off the sense and even the Luna labs business is.
You know a a business that typically Q4 is better than three better than two better than one. So we do experience that that back second half ended load loaded business.
And Barry just to circle back to your first question that you asked.
I would also reiterate that kind of mid to upper single digits on the Luna lab business. So you can take the the number that's out there that we just reported a ply a growth rate to that apply of CAG or to that and say okay.
I know what that number is going to be from of growth perspective, and that will start to give you.
A breakout of what it is if you look at say, 5% to 8% growth in Luna labs over the 'twenty 'twenty number you'll be able to start with that.
And back your way to a degree into what that that blended lightwave number is.
Okay.
I wanted to shift gears and talk about specific customers.
And it not too.
Mention customer names too often.
One that obviously comes to mind is Lockheed and I think Lockheed is I know you just had a big water.
But I think there of customer across the board from multiple products any other major customers that you can call out by name and one thing that caught my ear is during the call is I think it was 2019, when you announced the agreement with Maggie.
And I haven't heard of you mentioned that name. Since then I think I heard you mention them again.
In this call and talk about orders from major aerospace Oems and I can guess, if they're large commercial jet. There's two major ones I can guess, who they might be but if you can give us any more color around customer flow.
Sure.
And Brian can jump in here as well I'll start.
And you did hear me mention Meg It and you know we continue to work with them they had a harder year than than us certainly in 2020 due.
Due to the the pandemic.
But we continue to work on that and I think you'll see start to see some movement here as the as the pandemic weakens and.
Maggie is our partner there the long term third they're the big first tier supplier in the aerospace.
So and I.
I think Airbus has announced that theyre going to come out with an RFP.
Middle of this month on.
On fire detection and temperature of fire suppression and temperature right Bryan so.
We are what we've been working on and that in that RFP will come out on the.
The <unk> hundred 20 the.
The.
Oh, the neo so now we will bid we will be part of that process, just like anyone else but.
But that that is exciting news.
Yes, 2020 in Hawaii per commercial aerospace Barry as you know, but what were seeing here early in 'twenty one.
And that we're referring to there is in the script is the we are seeing that come back to life. So Scott already mentioned it but.
It's about a year late but we're gonna be bidding on and overheat and fire detection system or I should say as of as a supplier to overheat and fire detection system of Meg it and that'll.
Take effect from a revenue perspective.
No not this year, but that's a big that's the big.
That's the Big development, Yeah, you know it is a fine line Barry we don't want of B. We don't we don't mention some of those names very often we wait you know you've heard us beat the drum on Lockheed Martin because you know look at where we've where we've gotten them to and they are a very trusted partner and encouraged us to talk about our work on the F 30.
The five but you start throwing out big names and everyone thinks you're just the name dropper. So we do hold back and wait to talk about until we have something meaningful to talk about that that partnership with Maggie is very meaningful and we look for that that's all now that is the long game that is playing yeah. That's a marathon.
We're getting involved in the developing product with them and going into these large tier erk.
Aircraft manufacturers with them.
No.
Okay. That's helpful. My last question and I apologize for Monopolizing. This is you mentioned and I was surprised by the that Youre still pretty hungry from an acquisition standpoint, and you still have a pretty robust.
New on your plate on your point of view in terms of potential ideas.
What's still out there.
From a product line perspective, but it sounds to me like you've got a lot.
Of the beachfront already covered product wise.
Geographically.
All of the op defense because they.
They were not much in the U S and your warranted much of Europe, and now you can cross sell.
Asia Pacific.
It's a wide open area, so I'm guessing.
You can find the opt the sense of <unk>.
Asia Pacific that would be something ideal for you could you comment on your M&A profile, what what you'd still like to see to fill out your product portfolio of new geographic portfolio.
Yeah.
The first priority here is to make sure that that we work together with Brian and his team in fully integrating off the sense. You know, we bought a wee bit off of pretty big piece of the off the fence and making sure that integration. It gets done done correctly I don't want to I hope I didn't mislead anyone but I.
But I did want to say that there are some things out there that are still attractive to us.
You know that that would be complementary to us I mean, it might be there's other technologies that we have.
Strain, we have long distance, we have high speed high resolution distributed.
<unk> sensing.
You know through acoustics.
Certainly.
As you look and you've heard us talk before about it temperature is something that debt. It goes along with that we have plenty of customers out there that when we're in front of them with the solution. They also want temperature.
And we have folks that that we have preferred partners that will call in and say Hey, do you want to go into this into this proposal with us to provide that.
So I think theres, some things out there that would be complementary and I'll, let I'll, let Brian add to that too, but I know as we sit back every year with our board and go through our three year strap, we're constantly looking down range to see what else could be added we're very focused on the organic growth in the <unk>.
Integration of what we just did that as first and second on our priority list, but.
To look at things that could add incremental growth inorganically.
We certainly have the appetite for.
Yes, and we're looking to accelerate of art, our organic growth through acquisition as well. So we're not looking just to add to add right. So very strategic approach to it. Thank.
I think you saw that in the two we talked about on this call Scott talked about there are others out there of the photonic space does have.
A lot of companies that fit from a size and.
And technology profile perspective into our.
Into our sweet spot, if you will and you know.
We will look to continue to add where it makes sense and Scott already mentioned as well.
In the center side of the business.
You know longer range temperature and strained measurements, we don't we don't have those today on the.
The communications test side of the business more manufacturing.
The solutions sort of oriented products. So.
Those of the types of things that we have our eye on but primarily right now of the focuses on integrating the.
Integrating the business here in getting out of the travel restrictions. So we can we can we can really do that in earnest.
And what about geographic holes in the in the car.
Sales coverage.
Yeah, I mean, so the the if you look at 2020, we were 60% North America about 30%.
<unk>, 27, and 28% APAC or Asia Pacific Region, 10, 10, and 12% in EMEA, so that should that should start to evolve more towards towards Europe as we as we have the.
Of the op defense locations and teams working and then the the next step would be to look at.
Activity in the in Asia Pacific I mean, it's not it's not a well.
Certainly wouldn't be limited by that but.
The growth areas and opportunities there are a pretty pretty significant.
Okay. Thank you for taken all of my questions I appreciate it thanks Barry.
Your next question comes from the line of Jim Margolin from singular Research. Your line is now open.
Yeah.
Yeah, great quarter, and a great here gentlemen.
Yep I was glad I ask about the acquisitions as well so it.
It looks like that's already been answered so maybe I'll just start.
Maybe and I believe the.
Reflecting a little bit in regards to the Airbus but.
Uh huh.
Maybe just a little bit more color as far as cash.
First of all orders in that so the Lockheed Martin is still considered your largest star.
Byron purchaser.
Can you just provide a little bit more color of.
Other companies out there that are now interested in the products that you have will it continue to be in aerospace about other industries can you can you touch upon that.
And I'll leave it to you to give a little bit more color.
Yeah.
Thanks for the question, Jim Brian Why don't you, Yes, sure Hey, Hey, Jim.
Hit on it I mean, the Lockheed Martin is the customer that we've talked a lot about on the last couple of these calls.
And I think rightfully so based on the level of business, we've done with them, but you know the applications do if you just look at the government defense space.
That's one of our bigger segments of about 16% of our revenues for 2020 on the Lightwave side of the business.
All of the other companies that are kind of in that same vein.
Our targets and you know, we're actually doing significant business with the Northrop grumman's of the world and in other companies' Harris L. Three and be a system. So those of the types of companies that are that we work with in that space.
We mentioned a couple of larger orders that we've developed last year those were actually in that space.
Multimillion dollar orders for our polarization products for a handful of application and and defense systems. So that's actually that was a really nice end of the year for us there.
But you know our top two segments, our aerospace in communications and we work with all of the major players in those in those.
And those two industries, so aerospace is pretty easy.
Especially on the commercial side of the Airbus and Boeing but you've got it.
Whole other tier of customers that are below that and we work with with all of those and then the communications we work with a broad range of customers.
Most working in the developing high speed communication systems, whether it be for core networks for data centers or backhaul of five G, but really.
All of the big names for the most part customers don't loved one.
When you when you named drop specifics based on order flow and that sort of thing. So we tend not to do that but.
If you list the top 10 in each one of those segments, where we're definitely working with them.
Excellent. Thank you for the commentary.
Thanks, Jim.
Again to ask the question. Please press star one on your telephone keypad.
I can't answer question of esports, Taiwan on the telephone keypad, Yes. Sir next question comes from the line of Dave Kang from B Riley. Your line is now open.
Thank you. Good afternoon. My first question is for gene regarding your.
Outlook for the share of full for EBIT.
What are your assumptions as far as a gross margin and Opex are concern.
Yeah. So.
Gross margin wise, you know, we've been trending on a blended rate of 51% to 52% and so with that kind of blended across the year of what we have in there for gross margin and then you know what I call, our opex run rate, which would be.
Our our opex ex any type of deal or transaction or integration costs, we're slowly seeing that opex percentage creep down.
We expect that trend to continue I think if you.
Look at that you'll see we've been down in the 41% area and so we expect that the continue to creep down again, what we said as we grow our revenue. Our plan is certainly on a dollar basis will be increasing our opex, but we plan to increase that at a slower rate than our sales and so that's that's still kind of.
Our plan right now.
You know, obviously, if theres transaction costs or things like that that come into any one quarter that that's going to throw off the GAAP numbers, but underlying that that's that's what we're looking at.
So a couple of follow up on those topics first one of gross margin. So the so it sounds like at the sense of gross margin is fairly compatible with yours is that correct.
It is it is yeah.
Okay.
And then you said opex might be.
Trending down the a little bit further but then.
Shouldn't it be opposite as we reopen the economy and people start the travel your engineers and sales are in the folks will start to travel more shouldn't that be driving up the opex.
Yes, so on a.
Unlike I said on a dollar basis, it's going to go up but again, we when we do our budget and how we look at the quarters and are forecasting that's something we try to keep that as a percentage of revenues pretty much consistent.
We try to do that as best as we can so.
Got it Okay. That's helpful and then let's see the regarding of the Lockheed contract. How long is what is the time frame for shipments when the when do you start and when does it wind down and can we expect the <unk>.
The sight the follow on that when this program ends.
Yeah, Hey, David This is Bryan the the order that we announced last year, we're right in the thick of of delivering those and those will all be delivered prior to the end of this year and over the course of time.
Throughout the year and then we are working on several follow up orders both for the F 35 and for other aircraft.
A few of which are.
On the larger side nothing quite as big as what we've announced last year, but.
From some nice large orders that we do expect to see.
To get us follow on this.
The calendar year.
Yes.
Got it and then.
Things like automotive seems to be one of the hottest verticals right now certainly the.
The.
<unk> taken the street.
What's your exposure to the automotive is a fairly material and what do you see from from the automotive customers.
Yeah, well, we saw a lot of progress in 'twenty 'twenty in automotive and EV and battery testing and that goes for both of our fiber optic products in our terahertz products.
So you know the way the automotive.
The way that market segment works. It takes time, it really takes significant time to B b.
The kind of expect in an accepted so revenue wise it wasn't one of our bigger segments last year.
But if things go if things go to plan and especially with all of the all of the infrastructure being built out around green energy within the automotive segment and how that ties into battery of evaluation and test, we see that as a very nice potential upside for even as early as this year.
Got it and then also sticking with automotive there since the certainly the companies that I cover a day or more vocal about the the lidar opportunities I mean, what's your angle on the Lidar development.
Yeah, Let me, let me take a minute to call out of an element of our of our off the fence acquisition that gets a little bit loss, but within the off the fence business. There was another business called REO that you may be familiar with our I O and they make the laser for the for the Das system and its the number one laser source in the world for free.
<unk> applications, but it's also a fantastic laser source for things like Lidar. So our play really now is through that Rio laser that we acquired.
At the end of last year, and we're putting some business development effort into and we've got some potential.
For some nice growth even this year with.
Lidar applications with that laser source at the very long range very coherent and it.
It actually we think it may be one of the better sources for that that longer range lidar applications, so things like trucking and those sorts of things.
True to be clear this is not for test and measurement purpose, but this is actually of a module that will be going to cook.
The cars whenever that the wider market development of correct, that's what you're saying yeah. Yeah. So we're vertically integrated on the component and of course, we use it in our measurement systems and that's how we operate across all of our products. We're vertically integrated on these laser sources.
But in this particular case this would be a an OEM module that would be integrated into our production lidar type of system yet.
Very interesting. Thank you for that my my apologies to pour hugging the platform here, but my last question is regarding up of sense I think when you made the announcement.
Last share certainly.
The das market was impacted.
The impact because of the pandemic can you.
Maybe provide more color as to which verticals were impacted the most lost share because of the pandemic and how should we think about the recovery this year.
Well, Brian you can talk a little bit about that I mean anything that required our services out in the field.
Those were impacted within off the sense.
Kinetic announced that they were going to divest that business and of 2019 of really before the pandemic started and.
So.
So I don't know if they saw that the that this COVID-19. They certainly didn't suit COVID-19 was coming but there were anything that went out in the field. You know that's that's why you carry a little bit of of heavier operating expense number because you've got some of the folks that you've got to keep on staff waiting for that for that business to come so they didn't have.
Have a tremendous the great 2020 due to they were very affected by by Covid.
You want to talk specific about which yeah sure an annual survey of the the oilfield service segment.
And that was really the most effective affected.
You know primarily by Covid, but also by the price of oil dipping down as low as it did with oil being back over 65 are up in that 65 range now we're seeing some really nice signs of life for that segment.
Infrastructure. The other main segment of that business is infrastructure security monitoring linear asset.
And that business, we started to see tick up in December really right as we as we consummated the acquisition of the order flow started to really improve and that's continued through this to the point in Q1. So you.
We had some signs of of recovery.
Certainly on the order flow side and now we just have to be able to get out to the field.
You know affect those revenues and then we think we're gonna be able to do that.
Got it thank you.
Yeah, Hey tax day.
Our dance I asked the question. Please press star one on the telephone Keypad. Your next question comes from the line of Florence from MRI LLC. Your line is now open.
Good evening and thank you very much per a fabulous.
Fourth quarter and year.
Okay.
Thank you.
Two questions of occurred.
I want to say that I read about the Luna as participation with NASA.
Most of them.
Some technology that might be used on the moon shot of if you could talk about the.
And then do you predict the increase in sales of of some of your tech that detects the micro cracks in engines and wings and arrow of aircraft.
As the <unk>.
Pandemic winds down and our.
Our U S cash for flying a lot more thank you.
Alright. Thanks for the question, Yeah, I think James that's probably best answered by you and for the Luna Labs works Thats been done right yeah.
Laurence This is James yes.
Yes, so we sold some sensors to Lockheed Martin for the.
For the Artemis mission.
They're building the Orion space capsule, that's going to return.
Humans to the Moon for that program. These are the.
Variance of our corrosion sensors that we've been selling.
For a couple of years now.
And the Lockheed wanted to put them on that capsule too.
Both look at.
Inside the capsule for how our recycling air inside the capsule was going to affect corrosion and then also outside of the capsule for when it lands.
In the Ocean for example in the Miss transported back to the.
To the launch pad, but that's going to do to those components.
With the saltwater what effect of erosion was going to have on the capsule. Once it came back. So that's that's the program with Lockheed on the on the Artemis missions.
Thank you.
It was on the yeah the aircraft wings right on the cracks.
And then we actually do have a.
The earlier stage more of a research project, but we're doing some non destructive evaluation.
Development, where we're looking at some.
Looking at those turbine engine blades.
And trying to detect early signs of failure through some indeed techniques non destructive evaluation techniques that would allow the technicians to evaluate the blades.
Without having to remove the men and.
Being able to reduce those maintenance costs.
And speed up the the evaluation rather than remove them totally from the from the engine, but that's an earlier stage project right now not something that could be deployed.
This point.
Thank you very much.
Sure. Thank you Laurence.
There are no further question at this time I'll sort of by the call over to Scott. Please proceed.
Alright. Thank you Donna thanks to everyone for joining us today, you've heard me say repeatedly that we believe in what we're doing and we're on the right path with the right vision given the environment. We're in I believe our financial and operational success in 2020 underscores this belief.
We continue to believe in our potential and then we're on the right side of a market shift in trends towards light weighting and five G. In fact, our capabilities can help to accelerate these trends. Please.
Please feel to reach out to Jim Allison or myself with any questions and we look forward to speaking with some of you. Soon thank you for your time and interest in Luna innovations and Donna that concludes our call.
This concludes today's conference call you may now disconnect.
Sure.
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