Luna(LUNA) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for the quarter ended June 30, 2023, highlighting increased revenues, a net loss, and slight asset growth Consolidated Balance Sheets As of June 30, 2023, total assets increased to $155.1 million, total liabilities rose to $60.3 million, and stockholders' equity reached $94.9 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $93,853 | $87,874 | | Total Assets | $155,131 | $151,007 | | Total Current Liabilities | $30,043 | $33,631 | | Total Liabilities | $60,258 | $57,605 | | Total Stockholders' Equity | $94,873 | $93,402 | Consolidated Statements of Operations For Q2 2023, revenue grew 11% to $29.2 million, operating loss narrowed to $(0.2) million, and net loss from continuing operations improved to $(0.6) million Q2 2023 vs Q2 2022 Statement of Operations (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :--- | :--- | :--- | | Revenue | $29,164 | $26,162 | | Gross Profit | $16,865 | $15,963 | | Operating Loss | $(214) | $(2,462) | | Net Loss from Continuing Operations | $(558) | $(2,942) | | Net Loss per Share (Basic) | $(0.05) | $(0.07) | H1 2023 vs H1 2022 Statement of Operations (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Revenue | $54,209 | $48,642 | | Gross Profit | $31,838 | $30,242 | | Operating Loss | $(2,346) | $(4,827) | | Net Loss from Continuing Operations | $(2,400) | $(4,285) | | Net Loss per Share (Basic) | $(0.10) | $0.22 | Consolidated Statements of Cash Flows For H1 2023, net cash used in operating activities increased to $10.5 million, while cash and cash equivalents decreased by $2.7 million to $3.3 million Consolidated Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,466) | $(7,068) | | Net cash used in investing activities | $(1,243) | $(10,740) | | Net cash provided by financing activities | $8,902 | $6,739 | | Net decrease in cash and cash equivalents | $(2,747) | $(12,264) | | Cash and cash equivalents—end of period | $3,277 | $4,864 | Notes to Unaudited Consolidated Financial Statements The notes detail accounting policies, business operations, and financial line items, including the single reportable segment, revenue disaggregation, debt facilities, and unfulfilled performance obligations - The company operates as a single reportable segment that develops, manufactures, and markets distributed fiber optic sensing products and fiber optic communications test and control products[32] Revenue by Geographic Location - Six Months Ended June 30 (in thousands) | Region | 2023 | 2022 | | :--- | :--- | :--- | | United States | $26,042 | $20,764 | | Asia | $9,382 | $9,017 | | Europe | $13,299 | $12,465 | | Canada, Central and South America | $3,822 | $6,185 | | All Others | $1,664 | $211 | - The approximate value of unfulfilled performance obligations was $52.4 million at June 30, 2023, with 73% expected to be satisfied in 2023[63] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial results, highlighting 11% revenue growth, reduced operating loss, and adequate liquidity for the next twelve months Results of Operations Q2 2023 revenue increased 11% to $29.2 million, gross margin declined to 58%, and operating loss significantly narrowed to $0.2 million - Q2 2023 revenues increased by $3.0 million, or 11%, to $29.2 million compared to Q2 2022, primarily due to revenue growth in sales of sensing products[83] - Q2 2023 gross margin was 58%, compared to 61% for Q2 2022, primarily due to an unfavorable product mix[84] - Q2 2023 selling, general and administrative expense decreased by $1.3 million, or 9%, reflecting efforts to remove redundant expenses on a global basis[85] - H1 2023 revenues increased by $5.6 million, or 11%, to $54.2 million compared to H1 2022, largely due to the Lios acquisition and growth in sensing and communications test products[90] Liquidity and Capital Resources As of June 30, 2023, the company held $3.3 million in cash, with $30.7 million in outstanding debt, and expects adequate liquidity for the next twelve months - At June 30, 2023, total cash and cash equivalents were $3.3 million[97] - As of June 30, 2023, the company had outstanding borrowings of $17.9 million under its Term Loan and $12.8 million under its Revolving Line, with an unused Revolving Line of $2.2 million[98] - Management believes that cash, cash equivalents, and availability under the revolver as of June 30, 2023, will provide adequate liquidity for working capital needs over the next twelve months[102] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include interest rate fluctuations on floating-rate debt and foreign currency exchange rates, with a 0.25% rate increase impacting pre-tax earnings by $77,000 annually - The company's exposure to market risk is limited to interest rate fluctuations on its floating-rate debt and foreign currency exchange rates[107] - A hypothetical 0.25% increase in interest rates would have an unfavorable annual impact on pre-tax earnings and cash flows of approximately $77,000, based on borrowing levels at June 30, 2023[108] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective[112] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, internal controls[113] PART II. OTHER INFORMATION Legal Proceedings The company believes that any ultimate liability from ordinary course legal proceedings will not materially affect its financial position or results - Management currently believes that the amount of ultimate liability, if any, from legal proceedings arising in the normal course of business will not materially affect the company's financial position, results of operations, or liquidity[116] Risk Factors This section details numerous risks, including supply chain dependence, government contracting, inflationary pressures, and cybersecurity threats, which could adversely affect the company's business and financial condition - The company depends on third-party vendors for specialized components, making it vulnerable to supply shortages and price fluctuations[119] - As a U.S. government contractor, the company is subject to federal rules, regulations, audits, and investigations, violations of which could adversely affect the business[121] - The company faces risks from inflationary pressures, including increased labor and materials costs, which could adversely impact profitability and cash flow[169] - The company faces evolving cybersecurity threats and experienced a cyber incident in January 2023, which could lead to adverse consequences if future incidents are not managed effectively[220][223] [Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) The company reported no unregistered sales of equity securities, no use of proceeds from registered equity securities, and no equity purchases during Q2 2023 - The company reported no unregistered sales of equity securities during the three months ended June 30, 2023[241] Other Information (Items 3-6 and Signatures) This section covers standard reporting items, including no defaults on senior securities, no mine safety disclosures, and lists exhibits filed with the report - Items 3 (Defaults Upon Senior Securities), 4 (Mine Safety Disclosures), and 5 (Other Information) are all marked as 'Not applicable'[238][239][240] - Item 6 lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer[242]