Luna(US:LUNA)2023-05-09 11:05PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Q1 2023 revenue increased to $25.0 million, but net loss widened, and cash decreased due to higher operating cash usage Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2023 ($ in thousands) | December 31, 2022 ($ in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 3,559 | 6,024 | | Accounts receivable, net | 31,924 | 33,249 | | Inventory | 39,675 | 36,582 | | Total current assets | 89,974 | 87,874 | | Total assets | 152,134 | 151,007 | | Liabilities & Equity | | | | Total current liabilities | 32,659 | 33,631 | | Long-term debt obligations | 22,480 | 20,726 | | Total liabilities | 58,066 | 57,605 | | Total stockholders' equity | 94,068 | 93,402 | Consolidated Statement of Operations Highlights (Unaudited) | Metric | Three Months Ended March 31, 2023 ($ in thousands) | Three Months Ended March 31, 2022 ($ in thousands) | | :--- | :--- | :--- | | Revenue | 25,045 | 22,481 | | Gross profit | 14,973 | 14,279 | | Operating loss | (2,132) | (2,366) | | Net loss from continuing operations | (1,842) | (1,343) | | Net (loss)/income per share (Diluted) | (0.06) | 0.30 | Consolidated Statement of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2023 ($ in thousands) | Three Months Ended March 31, 2022 ($ in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | (4,509) | (2,373) | | Net cash used in investing activities | (510) | (9,964) | | Net cash provided by financing activities | 2,484 | 6,429 | | Net decrease in cash and cash equivalents | (2,465) | (6,340) | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Q1 2023 revenue growth was acquisition-driven, gross margin declined to 60% due to product mix, and liquidity is sufficient - Revenue for Q1 2023 increased by $2.6 million (11%) to $25.0 million, primarily driven by revenues from the Lios acquisition completed in March 202280 - Gross margin decreased to 60% in Q1 2023 from 64% in Q1 2022, which was attributed to an unfavorable product mix81 - Backlog was $51.8 million at March 31, 2023, a slight decrease from $52.9 million at December 31, 202273 - As of March 31, 2023, the company had $3.6 million in cash and cash equivalents, with an additional $8.2 million available under its revolving credit facility8891 - Net cash used in operating activities increased to $4.5 million in Q1 2023, up from $2.4 million in Q1 2022, driven by an increase in working capital, particularly higher inventory levels95 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Primary market risks are interest rate fluctuations on variable debt and foreign currency exposure, with no derivative use - The company is exposed to interest rate risk on its Term Loan and Revolving Line, which have floating rates based on the Daily Simple SOFR plus a margin99 - As of March 31, 2023, a 0.25% increase in interest rates would result in an unfavorable annual impact on pre-tax earnings and cash flows of approximately $63,00099 - Foreign currency exposure is mainly related to the net investment in foreign subsidiaries, with translation gains and losses recorded in accumulated other comprehensive loss, not affecting the results of operations100 ITEM 4. CONTROLS AND PROCEDURES Management concluded disclosure controls were effective as of March 31, 2023, with no material internal control changes - Based on an evaluation as of the end of the period, the President and Chief Executive Officer and the Chief Financial Officer concluded that the company's disclosure controls and procedures were effective103 - No changes occurred in the company's internal control over financial reporting during the quarter ended March 31, 2023, that materially affected, or are reasonably likely to materially affect, these controls104 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Management believes current legal proceedings will not materially affect the company's financial position or operating results - Management does not believe that any current legal proceedings will materially affect the company's financial position or results of operations107 ITEM 1A. RISK FACTORS The company faces diverse risks including supply chain, regulatory, IP, operational, and cybersecurity threats - Business Risks: The company depends on third-party vendors for specialized components, is subject to complex U.S. government contracting rules, and relies on a critical technology license from Intuitive Surgical, which is revocable under certain conditions109110119 - Operational Risks: The business is experiencing impacts from inflationary pressures on labor and materials costs. It also faces risks related to the successful integration of acquired businesses, such as LIOS Sensing, and potential disruptions from health epidemics like COVID-19149160162 - Regulatory & IP Risks: Operations are subject to numerous domestic and foreign laws, including export controls (ITAR) and data privacy regulations (GDPR, CCPA). The company's success also depends on its ability to protect its proprietary technology and defend against infringement claims from third parties166177193 - Cybersecurity Risks: The company faces evolving cybersecurity threats and disclosed that it detected a cyber incident in January 2023, for which it launched an investigation and notified law enforcement210213 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No unregistered equity sales, use of registered proceeds, or equity purchases were reported this quarter - The item is marked as 'Not applicable' for the quarter231 ITEM 6. EXHIBITS Key exhibits filed include amended bylaws, loan agreement amendments, and required CEO and CFO certifications - Key exhibits filed with this report include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL financial data (101)232