Luna Innovations, Inc. · OTC:LUNA
Luna Innovations — Investor Day (May 2023)
86 slides from Luna Innovations's investor day presentation, May 24, 2023
Slide 1: Luna Investor Day May 24, 2023
Luna Investor Day May 24, 2023
Slide 2: Safe Harbor Statement
Safe Harbor Luna Innovations Incorporated © 2 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 This presentation includes information that constitutes “forward-looking statements” made pursuant to the safe harbor provision of the Private Securities Litigation Reform A
Slide 3: Agenda
Agenda Luna Innovations Incorporated © 3 Welcome Allison Woody, Senior Director of Administration Company overview and strategy Scott Graeff, President & Chief Executive Officer Luna opportunity and approach to growth Brian Soller, Chief Technology Officer and Executive Vice President of Corporate D
Slide 4: Why Luna, why now?
President & Chief Executive Officer Scott GraeffWhy Luna, why now? Luna Innovations Incorporated © 4
Slide 5: Key takeaways from today's presentation
Key takeaways from today’s presentation “One Luna” philosophy will drive profitable growth Aligned with macro trends in industries with vast market potential Continue to invest in scalable platforms, processes and people Completed goals set out in last 5-year plan to create a pure-play fiber optics
Slide 6: FY 2022 statistics
FY 2022 statistics Luna Innovations Incorporated © 6 $112M Revenue1 W H O W E A R E Comms Test Sensing $12M AEBITDA 43% 5-year CAGR 1000s Customers ~350 Employees 12 Global locations 700+ Patents 5,000+ Global installations Dozens Long-term contracts 1 Constant currency
Slide 7: Since 2017, Luna has transformed and is well-positioned for growth
Since 2017, Luna has transformed and is now well-positioned for growth Luna Innovations Incorporated © 7 W H O W E A R E Where we’re going • Drive shareholder value through growth and disciplined capital allocation • Solution selling • Recurring revenue • Growth continues to be supported by macro tr
Slide 8: Shared vision, mission, and values
Luna Innovations Incorporated © 8 We are connected by our shared vision, mission, and values Values Ownership Integrity Creativity Enthusiasm Results-oriented Vision Enabling the future with fiber Mission To enhance the safety, security and connectivity of people by leveraging our expertise in fiber
Slide 9: "One Luna" is our operating philosophy and culture
“One Luna” is our operating philosophy and culture Which drives: • Strategy – focus, invest where we’re strong, divest non-core assets • Operating leverage – global footprint, driven by competency-based leadership • Scalability • Performance culture • Customer approach • Integration methodology Luna
Slide 10: Problems we solve for our customers
Problems we solve for our customers • Global aging and safety of critical infrastructure (dams, bridges, buildings, pipelines) • Keeping perimeters secure • Protecting assets from fire • Need for new materials to be lighter and safe • Production of green energy • Ensuring performance and operability
Slide 11: Fiber optic-based technology to enhance safety, security and connectivity
Luna leverages its expertise in fiber optic-based technology to enhance safety, security and connectivity of people Luna Innovations Incorporated © 11 COMMS TEST Luna comms test products measure and control light, enabling and analyzing next-generation optical communications, systems and instruments
Slide 12: Why Luna? Why now?
Why Luna? Why now? Luna Innovations Incorporated © 12
Slide 13: Why Luna? Our investment thesis
Why Luna? Our investment thesis Luna Innovations Incorporated © 13 Enabling the future with fiber Proprietary measurement technology, offering unparalleled combination of resolution, accuracy and speed Customers in large, growing markets: Infrastructure, Energy, Defense, Communications, Automotive &
Slide 14: Why now?
Why now? • Achieved 5-year strategic plan creating pure play in fiber – Divestitures and acquisitions – Scalable platforms, processes and people – Significant international expansion • Market is ready – Shifting away from conventional and toward Luna’s fiber-based solutions – Aligned to current macr
Slide 15: Our growth plan enables us to exceed market growth rates
Luna Innovations Incorporated © Our growth plan enables us to exceed market growth rates 15 $125M - $130M 2023 est revenue $3.5B SAM 10%-12% growth rate $175B TAM 6%-8% growth rate Total Addressable Market (TAM) Size of test, measurement and sensors market Serviceable Addressable Market (SAM) Size o
Slide 16: Roadmap to achieve 15%-20% growth
Luna has a well-planned roadmap to achieve 15% - 20% growth Luna Innovations Incorporated © 16 Move into larger, higher-value opportunities in manufacturing, maintenance & monitoring STRENGTHEN CORE INVEST TO GROW EXPAND TO WIN • Prototype design validation • Silicon Photonics R&D • Composite design
Slide 17: Company goals for next 3-5 years
Luna Innovations Incorporated © 17 Grow organic revenues 15%-20% growth; to $250M+ Execute disciplined M&A Enhance margin and profitability by applying operational best practices Drive One Luna throughout global organization • Achieve operational excellence through global, integrated ops • Culture –
Slide 18: Our purpose
Our purpose Utilize our unique position to enable the future with fiber 18Luna Innovations Incorporated ©
Slide 19: A team is in place to execute growth plans
A team is in place that can execute aggressive growth plans Brian Soller Chief Technology Officer & EVP, Corporate Development Gene Nestro Chief Financial Officer Jackie Kline SVP, Operations Eva Hartmann SVP, Human Resources Salvan Farooqui SVP, Global Sales & Marketing Scott Graeff President & Chi
Slide 20: Scott Graeff quote
Hire the best and brightest, get out of their way, and let them do what they do. • . Scott Graeff Luna Innovations Incorporated © 20
Slide 21: Brian Soller: Why Luna, why now?
Chief Technology Officer and EVP, Corporate Development Brian Soller, PhDWhy Luna, why now? Luna Innovations Incorporated © 21
Slide 22: One Luna approach to growth and innovation
Expand Deliver additional value across the customer’s asset lifecycle by Expanding our scope and activities Diversify Leverage our technology and solutions into adjacent markets to Displace conventional thinking Innovate Develop Disruptive technologies by applying our broad domain knowledge and heri
Slide 23: Fiber optic-based technology for safety, security and connectivity
Luna leverages its expertise in fiber optic-based technology to enhance safety, security and connectivity of people Luna Innovations Incorporated © 23 COMMS TEST Luna comms test products measure and control light, enabling and analyzing next-generation optical communications, systems and instruments
Slide 24: We will drive growth through two market verticals
Fiber optic sensing Photonics test & control Enabling photonics components SENSING COMMS TEST • Energy • Oil & gas • Infrastructure • Aerospace • Automotive EV • Industrial adhesives •Military / defense • Communications • Defense • Silicon photonics • Quantum computing •Medical • Defense • LiDAR • S
Slide 25: Vertically integrated in key components used to build instruments
Luna is vertically integrated in many key components used to build instruments Optical Backscatter Reflectometers (OBRs) Component Analyzer 6415 OVA 5100 Polarization Measurement and Control Test and Measurement InstrumentsFiber Optic Sensing - Interrogators ODiSI HYPERION DTS DAS $ Lasers | Filters
Slide 26: Sensing
Sensing 26Luna Innovations Incorporated ©
Slide 27: An analogy to explain sensing
An analogy to explain sensing 27 Sensor cabling (multiple copper wires per sensor) Optical fiber Traditional data acquisition and measurement systems Distributed fiber optic sensing Fiber optic sensors Multiple sensing points (up to thousands) on single optical fiber • Fiber optic sensors are “nerve
Slide 28: A closer look at sensing solutions
A closer look at SENSING solutions Luna Innovations Incorporated © 28 MEASURE MONITOR Physical property of material or structure 24 x 7 asset monitoring Instruments and sensors to make measurements of physical properties of materials that are unmeasurable using conventional technology Complete solut
Slide 29: Luna sensing capabilities
Luna sensing capabilities provide a spectrum of measurements needed by our customers Luna Innovations Incorporated © 29 Sensing range Se ns in g de ns it y / re so lu ti on Distributed – temperature, strain, acoustics Multi-parameter sensing High-definition distributed temp & strain Luna fiber optic
Slide 30: Sensing targeted industries / mega drivers
Sensing targeted industries / mega drivers Luna Innovations Incorporated © Drivers: • Growth of conventional and green energy demand – 47% growth in energy demand over next 20 years – Offshore wind growing at 16% CAGR • Light-weighting and green initiatives – Expansion of the use of composites in ae
Slide 31: Market outlook and key growth segments
Opportunity: Market outlook and key growth segments (2022 estimated market size and forecasted CAGR) Infrastructure ~ $1.1B SAM Pipelines $14B / 7.8% Source: Report Ocean Research Security / Fire Detection $80B / 6.7% Source: Grandview Research Critical Infrastructure / SHM $2B / 14.7% Source: Strai
Slide 32: Sensing three to five-year growth strategy
Sensing three to five–year growth strategy Strategy focused on: – Product roadmap and enhancements needed to hit growth milestones – Developing additional partnerships – Increasing recurring revenue Expand, Diversify, and Innovate SENSING Fiber optic sensing global market is $2.5B+ with CAGR greater
Slide 33: Comms Test
Comms Test 33Luna Innovations Incorporated ©
Slide 34: Test and measure photonic systems
TEST AND MEASURE PHOTONIC SYSTEMS Instrumentation and solutions to characterize and test photonic components & fiber networks Technology building blocks integrated into photonic laser-based systems • Applications: Research and development of new designs, manufacturing test of optical components, fie
Slide 35: What is Comms Test?
What is Comms Test? Luna Innovations Incorporated © 35 Optical communications has evolved, signals go farther than copper 1980 1990 2000 2010 2020 1 cm 10 cm 1 m 10 m 100 m 1 km 10 km 100 km Metro/lan Long haul Optical Waveguides Optical Fiber PLCs PICs SiPh • # of physical connections grows exponen
Slide 36: Comms test targeted industries / drivers
Communications Defense Medical Quantum Tech • High-speed optical devices • Silicon photonics • Data center connectivity • Field test for aerospace networks • Directed energy • OCT imaging • Guided robotics • Precise control of light Comms test targeted industries / drivers Luna Innovations Incorpora
Slide 37: Market outlook and key growth segments
Opportunity: Market outlook & key growth segments (2022 estimated market size and forecasted CAGR) Optical Device Test ~ $500M SAM Photonics Integrated Circuits/SiPhi $1.16B / 27.4% Source: Report Polaris Research Fiber Optic Components $26.68B / 8.9% Source: MarketsandMarkets Research Specialty Fib
Slide 38: Comms test three to five-year growth strategy
Comms test three to five–year growth strategy Luna Innovations Incorporated © 38 COMMS TEST Expand, Diversify, and Innovate Strategy focused on: – Establishing Luna as standard for test – Expanding out of R&D into production – Growing key OEM accounts Fiber optic comms test global market is $1B+ wit
Slide 39: Summary: Luna is ready to make the most of opportunities
Summary: Luna is ready to make the most of opportunities • Large markets with growing secular demand • Highly differentiated, market-leading technology • Growing base of large, flagship customers • Multiple “shots on goal” proving opportunity for enhanced growth • Investing to support innovation and
Slide 40: Brian Soller quote
Technology is the fuel that propels us forward, but it is our relentless pursuit of innovation that sets us apart. 40 • . Brian Soller Luna Innovations Incorporated ©
Slide 41: Enabling the future with fiber
Luna Innovations Incorporated © 41 Enabling the future with fiber
Slide 42: Eva Hartmann: Why Luna, why now?
Senior Vice President – Human Resources Eva HartmannWhy Luna, why now? Luna Innovations Incorporated © 42
Slide 43: What we look like today – Luna is a global company
What we look like today – Luna is a global company • Moving to next phase of growth and scale • Future-minded • One Luna operating philosophy and culture • Solid HR infrastructure • Top talent to build and sustain innovation and top-line growth • ~350 employees Farnborough, UK Winfrith, UK Portishea
Slide 44: Human Capital goal
Luna Innovations Incorporated © 44 Human Capital goal Deliver a competitive advantage that drives and sustains Luna’s profitable growth over next 3 – 5 years.
Slide 45: Human capital strategy moving forward
Human capital strategy moving forward Drive employee engagement and One Luna operating philosophy1 Lead succession planning and leadership development processes2 Acquire right talent to grow3 Manage HR integration of acquisitions4 Pursue HR operational excellence5 Luna Innovations Incorporated © 45
Slide 46: Drive employee engagement and One Luna operating philosophy
Champion culture so employees feel included and engaged, and share common employee experience • Celebrate our Employer Value Proposition (EVP) • Recognize employee innovation, excellence and achievement • Champion Luna values • Focus on employee wellness • Celebrating diversity • ESPP - employees as
Slide 47: Lead succession planning and leadership development
Build bench strength and ensure future performance and sustainability Luna Innovations Incorporated © 47 Lead succession planning and leadership development2 • Drive succession planning processes – Manage Individual Development Plans (IDPs) for key successor candidates • Build One Luna alignment to
Slide 48: Acquire the right talent to grow Luna
Enable the business to grow and realize a competitive advantage through its people • Attract key talent to take Luna forward – Global recruiting – Build candidate pool – Leverage relationships with local universities • Champion ongoing engagement and retention efforts – Exit interviews for continuou
Slide 49: Manage HR integration of acquisitions
Maximize potential of people and expertise gained through acquisition to realize accretive value of combined firm • HR and business integration as One Luna – Technology, process, people and operating philosophy & culture • Provide merger and acquisition support to maximize investment – Lead HR due d
Slide 50: Pursue HR operational excellence
Ensure processes, programs and tools are implemented consistently, globally and efficiently Luna Innovations Incorporated © 50 • Drive HR operational excellence and process improvement – Leverage global HRIS functionality – Drive employee development – Launch performance management process • Manage
Slide 51: Human Capital: What does success look like?
Human Capital: What does success look like? High employee retention / low turnover Employer value proposition survey feedback Opportunities for growth and development Employee recognition programs Increase shareholder value Luna Innovations Incorporated © 51
Slide 52: Eva Hartmann quote
I love my job -- to realize potential, at the individual and the company level, in order to create a competitive advantage for Luna through its people. 52 • . Eva Hartmann Luna Innovations Incorporated ©
Slide 53: Enabling the future with fiber
Luna Innovations Incorporated © 53 Enabling the future with fiber
Slide 54: Jackie Kline: Why Luna, why now?
Senior Vice President - Operations Jackie KlineWhy Luna, why now? Luna Innovations Incorporated © 54
Slide 55: Operations goal
Luna Innovations Incorporated © 55 Operations goal Achieve operational excellence through global, integrated ops footprint to support scalability, standardization and continuous improvement.
Slide 56: Operations has accomplished much in the last years
Operations has accomplished much in the last 5 years Luna Innovations Incorporated © 56 To scale to planned revenue growth, we will continue transforming to competency-based One Luna To: • Fully-integrated and scalable global operations • Simplified footprint allowing focused investment • Robust cap
Slide 57: The "how" – operational tactics to achieve our goal
Quality 3 Scalability 1 The “how” – operational tactics to achieve our goal One Luna 4 Continuous improvement 2 Luna Innovations Incorporated © 57
Slide 58: Scalability: transform to core competency-based functions
Scalability: Transform operations from vertical independent divisions to core competency-based functions Luna Innovations Incorporated © 58 1 = faster release of value Competencies (One Luna) QualityMaterial/ Logistics ManufacturingPurchasing Continuous improvement Luna in the past Future acquisitio
Slide 59: Drive a continuous improvement philosophy
Drive a continuous improvement philosophy across all Luna operations – project driven 2 Bar coding Platforming Automated measuring and testing equipment Footprint optimization Kanban 5S & warehouse 3D printing Luna Innovations Incorporated © 59
Slide 60: Focus on Quality processes
Focus on Quality processes • ISO 9001 2015 for all Luna • Install quality rigors – Design & process (DFEMA & PFEMA) – Consistency in processes gauge (R&R) – Implement safe launch to reduce escapes • Empower employees (shut it down) 3 Luna Innovations Incorporated © 60
Slide 61: Strengthen and build upon One Luna
Strengthen & build upon “One Luna” by utilizing our operational expertise within all locations • Align critical competencies of all manufacturing division and drive standards • Consolidate footprint to improve absorption • Establish succession plans through operations • Leverage purchasing power • B
Slide 62: Operational tactics align to Luna strategic goals
Operational tactics align to Luna strategic goals 15%-20% organic growth ~ 60% gross margin Invest in strategic marketsM&A Continuous improvement Quality One Luna Scalability Scalability Scalability Scalability One Luna Quality Continuous improvement Luna strategic goals Operational tactics Quality
Slide 63: Operations: What does success look like?
Operations: What does success look like? Luna Innovations Incorporated © 63 ~ 60% gross margin Ship to schedule above 98% Revenue matching booking rates Continuous shareholder value creation Quality - returns less than 1% Safety – zero recordables
Slide 64: Operations quote
You can do anything if you plan for – and execute – it. 64 • . Luna Innovations Incorporated ©
Slide 65: Enabling the future with fiber
Luna Innovations Incorporated © 65 Enabling the future with fiber
Slide 66: Salvan Farooqui: Why Luna, why now?
Senior Vice President of Global Sales Salvan FarooquiWhy Luna, why now? Luna Innovations Incorporated © 66
Slide 67: We've been preparing sales for this moment
We’ve been preparing sales for this moment • Fine-tuned sales model • Introduced uniform sales tools • Focusing on One Luna operating philosophy • Working in sync with Marketing to support Sales • Foundation in place, but will continue to align sales in response to acquisitions and market opportunit
Slide 68: Sales goal
Luna Innovations Incorporated © 68 Sales goal Increase sales 15% - 20% annually by leveraging our ability to provide total solutions to our customers via One Luna.
Slide 69: Current Luna global sales organization
Current Luna global sales organization Sales professionals focused on product sales • Follows classical instrumentation sales model • Technically capable of positioning products to close • Instruments, Lasers & Modules that include Comms Test & Sensing Team focused on large, field- deployable monito
Slide 70: Sales growth strategy
Sales growth strategy for next 3 – 5 years How we get there Retain/grow team and improve effectiveness by cross training Focus on key/strategic account development Grow global distribution channels and VAR network Penetrate and defend key markets via dedicated Business Development team Luna Innovati
Slide 71: Sales: What does success look like?
Sales: What does success look like? Luna Innovations Incorporated © Meet sales targets to double revenue in 4 – 5 years • Cross sell Luna capabilities • Aggressively expand sales funnel through sales and marketing efforts Consistently add and retain sales talent Leverage customer successes to drive
Slide 72: Salvan Farooqui quote
I drive the top line to provide year-over-year growth. 72 • . Salvan Farooqui Luna Innovations Incorporated ©
Slide 73: Enabling the future with fiber
Luna Innovations Incorporated © 73 Enabling the future with fiber
Slide 74: Gene Nestro: Why Luna, why now?
Chief Financial Officer Gene NestroWhy Luna, why now? Luna Innovations Incorporated © 74
Slide 75: Our financial execution has supported Luna's transformation
Our financial execution has supported Luna's transformation 75 Sustained organic top-line growth, enhanced by acquisitions Demonstrated ability to prudently manage expenses and drive margin History of accretive acquisitions and value-creating divestitures New, modern systems allow scalability Luna I
Slide 76: Our financial priorities will support long-term growth
Luna Innovations Incorporated © 76 Our financial priorities will support long-term growth and profitability. Priorities ensure the Finance organization is structured to support continued: • Organic growth • Acquisitions activity, including robust due diligence and integration • Access to capital
Slide 77: Revenue driven by strong organic growth, supplemented by M&A
Revenue has been driven by strong organic growth, supplemented by efficient M&A $22.0 $49.1 $59.1 $87.5 $112.0 FY18 FY19 FY20 FY21 FY22 FY23E Revenue1 (millions) Luna Innovations Incorporated © 77 2023 guidance: $125M - $130M 1Results exclude Luna Labs 2Constant currency CAGR 43% 2
Slide 78: Solid AEBITDA while internally funding initiatives
We have delivered solid AEBITDA, while internally funding many initiatives $1.0 $4.0 $7.9 $7.6 $12.1 FY18 FY19 FY20 FY21 FY22 FY23E Adjusted EBITDA1,2 (millions) Luna Innovations Incorporated © 78 FY23 guidance: $14M to $18M 1Results exclude Luna Labs 2 Adj EBITDA is a non-GAAP measure. Reconciliati
Slide 79: Luna will continue to deploy capital prudently
Luna will continue to deploy capital prudently All investments over past five years – (business and M&A) – were funded using balance sheet through cash and bank debt Future – will deploy capital to generate long-term sustainable growth – Increasing organic sales – Reinvesting in our business – Ident
Slide 80: Financial objectives for next years
Financial objectives for next 5 years Luna Innovations Incorporated © 80 Revenue growth 15% - 20% Double revenue in 4 – 5 years Gross margin 60% Profitability ~20% AEBITDA = increasing shareholder value
Slide 81: Reaffirming 2023 Guidance
Reaffirming 2023 Guidance Luna Innovations Incorporated © 81 Full-year total revenue $125M to $130M Full-year adjusted EBITDA $14M to $18M Top-line revenue guidance for Q2 $29M to $31M
Slide 82: Gene Nestro quote
As a CFO I believe our company’s success is not just measured by our financial performance, but by the impact we have on our stakeholders and the world around us. 82 • . Gene Nestro Luna Innovations Incorporated ©
Slide 83: President & Chief Executive Officer Scott Graeff
President & Chief Executive Officer Scott Graeff Luna Innovations Incorporated © 83
Slide 84: Key takeaways from today's presentation
Key takeaways from today’s presentation “One Luna” philosophy will drive profitable growth Aligned with macro trends in industries with vast market potential Continue to invest in scalable platforms, processes and people Completed goals set out in last 5-year plan to create a pure-play fiber optics
Slide 85: Questions
Luna Innovations Incorporated © 85 Questions
Slide 86: Luna Innovations Incorporated © 86 NASDAQ: Luna
Luna Innovations Incorporated © 86 NASDAQ: Luna