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Constituent Review
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J. Andrew Braswell, Equity Analyst
Newbridge Institutional Research
Data as of 3-30-07 |
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Nano
Materials |
Review
1/22/07- LUNA announced that it had been awarded $4.0M in nanotech-related R&D contracts by the U.S. Air Force, comprising a $2.3M subcontract through General Dynamics Information Technology (GDIT) and a $1.7M contract from the U.S. Air Force Office of Scientific Research (AFOSR). Both contracts were originally disclosed on the Q3/06 conference call (11/6/06) and will be performed over the next several years. Under the GDIT subcontract, LUNA will collaborate in developing nanomaterial manufacturing capabilities with sufficient yield and efficiency for commercial applications. A pilot plant is expected to be completed during the program, intended to accelerate application of advanced nanostructured material systems. Under the AFSOR contract, the company will support the Department of Defense’s Nanophotonic Component Program in developing components such as solar cells and lighter-weight electromagnetic interference-resistant composites.
3/5/07- Reported results for Q4 and the year ended 12/31/06. Revenue for Q4 was $8.0M (+51% Y/Y), including contract research of $5.8M (+36% Y/Y) and product and license revenue of $2.2M (+108% Y/Y). The increased proportion of product sales helped drive the gross margin to 30% from 17% in Q4/05. Operating expenses increased heavily as well, to $5.3M (+74% Y/Y). The net loss was $2.7M, or $0.27 per share, rising from a net loss of $1.7M in Q4/05. LUNA ended the period with $17.9M in cash.
For 2007, the company is targeting revenue of $30M-$32M (up from $23.5M in 2006), including product and license revenue of $7M-$8M and contract research of $23M-$24M. The net loss is seen at $9.0-$9.5M from a net loss of $9.4M in 2006.
Commentary
LUNA shares have failed to post a positive quarter since the company’s IPO in mid-2006, and that streak held with another 5% slide in Q1. The stock did enjoy a “January effect” rally to nearly $5/share but abruptly reversed course, eventually making new all-time lows following the Q1 earnings release. Those results showed another period of healthy revenue growth accompanied rising net losses. The blended gross margin is benefiting from the increase in product sales, with their associated gross margin of 56%. Contract research, however, had an associated gross margin of just 20%, and accounted for 73% of total revenue. Combined with rising operating expenses, LUNA is struggling to find profitable growth. This is indicated by the 2007 guidance, which implies 32% Y/Y revenue growth but little if any reduction in the net loss. The burn rate upticked in Q4, pushing cash used in operations in 2006 to $9.1M, but the $17.9M in cash on hand at year-end should support the company at least through 2007. |
