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spk00: Good day and thank you for standing by. Welcome to the Q3 2021 Luna Innovations Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Allison Rudy, Director of Administration. Please go ahead.
spk08: Good afternoon and thank you for joining us today. This afternoon we issued our third quarter 2021 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 lunainc.com. We will also post a replay of this call to our website. Some of our 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 are a supplement to the GAAP financial statements. Luna believes the presentation and exclusion of these items is useful in order to focus on what we deem to be a 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 risk and uncertainties and are subject to changes at any time, including but not limited to statements about our expectations 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 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 Graves, our President and Chief Executive Officer, Gene Nestro, our Chief Financial Officer, and Brian Soler, our Chief Operating Officer, will be available to take your questions. And at this time, I'd like to turn the call over to Scott.
spk06: Good afternoon, everyone, and thanks for taking the time to join our call. I'm happy to be with you today as we announce an extremely important step in executing on our strategy to enable the future with fiber. Since early 2018, we've spoken about focusing our strategy and leveraging our unique capabilities to capture the vast opportunities in fiber. Since we established that strategy and began that work, the applications for our fiber optic-based technologies have only grown. For those of you who have been with us for several years, you'll remember that there was a lot of foundational work to be done. And since then, you've seen us simplify our portfolio by divesting non-core assets and putting our capital to work in acquiring extremely complementary technologies that have allowed us to drive strong growth. As a major pivotal step in focusing our portfolio on fiber, we have decided to divest Luna Labs. So you will note that our Luna Labs segment is now classified in discontinued operations, reflecting this intent. We are proud of what has been accomplished in the Luna Labs business by a really talented and committed group of employees, and we believe that the business continues to have tremendous potential. As we've discussed through the past several years, This business, however, does not fit with our strategy of capturing the opportunities from our capabilities in fiber. Just as a reminder, Luna Labs was the business where we leveraged third-party contract research to build a portfolio of technologies. These technologies... which are commercialized through direct sales, distributors, or licensing agreements have been outside our core strategic fiber optic offerings as we have shared with you consistently over the past several years. To the Luna Labs employees, I'm proud of what you've accomplished. Your work is critical and I know you'll continue to stay focused on driving innovation and value for our customers. In terms of the timing of this divestiture, As we completed the acquisition of OptiSense and continue to consider and evaluate the pipeline of additional acquisition opportunities, we decided that this was the right time to take this step. We are considering a number of opportunities related to this divestiture and would hope to announce something in the near term. It is important to mention that we will continue to be an acquisitive company, sharply focused on building our capability and expertise in fiber. As always, we will only do those deals that make sense from both a financial and cultural perspective, as one of our key priorities will always be the prudent and thoughtful deployment of capital. As many of you know, we have streamlined and simplified the Luna portfolio through targeted divestitures while simultaneously adding value-creating assets through acquisitions. In addition, we have continued a steady cadence of making important investments in our people, processes, and platforms in areas like engineering, marketing, and sales, setting us up for incremental growth well into the future. Our capital deployment strategy has not changed. To wrap up on Luna Labs, I just want to say again what a pivotal moment this is and how proud I am of the work that the team has done. We believe strongly in the potential and opportunities for fiber optic-based technologies, and that conviction has only grown since we established our strategy several years ago. As we move forward, LightWave is now the totality of Luna. Any discussion of Luna will be a discussion of the assets that we formerly categorized as the LightWave division. As I mentioned last quarter, Luna products and capabilities have a tremendous positive impact on our customers and society. Whether it's enabling the next generation of a global network of smart infrastructure, or making data centers faster and more reliable, or securing the perimeters and borders of critical assets around the world, Luna's products help make the world a better and safer place. We are extremely well positioned to take advantage of the growing needs across multiple industries for solutions built on the benefits of fiber sensing technology. We are the market leader with thousands of systems already deployed and operating in the field today. And as far as this third quarter is concerned, we saw record-breaking demand for our products as we recorded historic levels of bookings and backlogs. However, as I mentioned in my comment on the earnings release, we have also experienced increasing pressure from COVID-related delays, including supply chain challenges. When we were together in August, I had mentioned that we were beginning to see some trends from the ongoing pandemic that we had not previously seen. But I had also shared that, at that time, our ability to deliver product to customers on a timely basis had not been materially affected, even though we were getting indications that some parts, which we would normally receive in a number of days, were taking longer. And as always, I committed to share with you what I was seeing when I saw it. As we got to the end of the summer, it started to become clear that timing of deliveries for some critical electronic components were not reverting back to a more typical delivery pattern. Recently, it has gotten worse. and our capacity to manufacture on time to meet customer demand is being challenged. In addition, our OptiSense business often involves traveling to customer locations to install or perform services. I had shared with you previously that we had been experiencing some slippage from one quarter to the next due to the fact that our team was experiencing restrictions on travel to customer locations. As the Delta variant became more prevalent, so did some of those trends, thereby pushing our backlog to historic levels and delaying revenue recognition. You will notice this when I talk about our update to guidance to adjust for the reclassification of Luna Labs to discontinued operations and to reflect the pandemic-related impact to revenue. But let me first talk about some of the high-level financial results for the quarter. Remember, now that Luna Labs has been moved to discontinue operations, when I talk about the results for Luna, LightWave is now Luna, Luna is LightWave. For the third quarter of 2021, total revenues were up 32% to $20.3 million compared to the prior year's quarter. For the first nine months, revenues were up 59% versus the first nine months of last year. Both increases were largely driven by the acquisition last year of OptiSense. I do want to point out that we delivered gross margin of 62%, which compares to our historic gross margin performance in the low 50% range, which included Luna Labs. Clearly, the legacy lightweight business operated at a higher gross margin than did the Luna Labs business. Therefore, we would expect to maintain higher levels of gross margin as we move forward. We reported an operating loss of $10,000 for Q3 2021 versus operating income of $1.2 million for Q3 2020. The largest driver of the year-over-year decrease in operating income was the increase in expenses due to our recent acquisitions, as well as the pressure on revenue as a result of the ongoing pandemic that I just described. Reflecting the same dynamic for adjusted EBITDA, we delivered $2.1 million in Q3, compared to $3.1 million in the prior year period. This resulted in adjusted earnings per share figure of 3 cents for Q3 2021 compared with 11 cents for Q3 in the prior year period. Before I move on to a deeper dive on our operations, I do want to talk about guidance. Given the reclassification of the Luna Labs business to discontinued operations, we are modifying the guidance we've given previously that included both business units. In addition, as I've already said, although we had some of the strongest customer demand to date, the effects of COVID on supply chain and on travel have delayed recognition of revenue. The new guidance for 2021, excluding Luna Labs and taking into account the pandemic, is total revenues of 85 to 88 million and adjusted EBITDA of 6 to 8 million. We are continuing to do everything in our power to work on our supply chain, looking for alternative sources for our key components and trying to order certain inputs earlier than we normally would. As we move into the beginning of 2022, we will also be focused trying to work down our significant backlog, pulling all of those orders into revenue. Now, let me discuss what drove our results in more detail. Remember that our solutions focus on two areas, sensing and communications testing. For the third quarter 2021, the revenue growth I just mentioned was driven by both the incremental revenues due to the acquisition of OptiSense and also by strong commercial sales in the comms testing business. Let's dig a little deeper into the sensing segment, which you may recall is the segment where we use the fiber as the physical sensor to create smart materials and structures. Revenues grew by 27% compared to Q3 last year. largely driven by the acquisition of the OptiSense product lines that are included in this segment. As a reminder, we added the OptiSense distributed acoustic sensing, or DAS, technology to gain access to fully distributed measurement capabilities over long-range applications to augment our already industry-leading line of fiber optic sensing products. Staying with our sensing vertical, we made important progress on several strategic growth areas, I shared last quarter that we had delivered a number of major contracts to South American customers for infrastructure monitoring, which further positioned Luna as a trusted supplier and recognized world leader within these markets. In Q3, we continued to build on that momentum by delivering a large order for our mining application in South America. This validates our strategy of penetrating the infrastructure monitoring space with our new quantitative OptiSense DAS solution. We signed a significant deal for a perimeter monitoring system in Indonesia, further expanding our geographic reach. We validated our technology for real-time traffic monitoring systems with a large win for this technology with the Department of Transportation in the western United States. Our Hyperion strain monitoring solution for offshore oil and gas showed continued order strength in the quarter, which has continued into Q4. We won another competitive bid from the Department of Transportation for real-time monitoring of a bridge. This win was significant because I believe that this is the first of what should be multiple, similar, large infrastructure installations over the coming year utilizing our Hyperion products and associated sensors. And finally, we have driven continued successful penetration of the industrial process control market with our Terahertz products. recognizing record bookings in Q3. Now, switching to the communications test vertical. These product lines grew strongly again this quarter, 39% in Q3 this year versus the prior year period. For some additional clarity, remember that the Rio laser business acquired through the acquisition of OptiSense is included in the comms test results. Without OptiSense, our legacy Luna comms test business grew 8% in Q3 2021 versus last year. With the sales of our high-speed communications test equipment, the OVA and OVR growing a robust 31% versus last year. As a reminder, this business is 50% test and measurement for communication devices and 50% optical components and laser modules for a variety of photonic applications such as medical devices, sensing systems, and LIDAR. Our core products, the OVA and OBR, continue to grow strongly on a year-over-year basis, driven by a continuation of the strong commercial environment we've been seeing, as well as the continuation of deliveries of our newest product in this category, the OBR6200. You'll remember that last year, we announced our partnership with Lockheed Martin and their order for over 100 units in Q4 2020. Throughout this year, our deliveries to Lockheed proceeded without interruption, allowing us to complete the order. We had expected to expand on this order in the second half of 2021, but due to COVID-related program delays, we won't start delivering on the expansion until 2022. That said, we are fully approved and a very good line of sight to the growing opportunity for this product in 2022 and the years to come. In general, comms testing drove significant overall improvement in commercial sales over last year with multiple system sales to large corporate customers, reinforcing the point I made earlier. We have seen tremendous and growing levels of customer demand for Luna products. Before I turn the call over to Gene for a deeper dive into the Q3 results, I want to build on some comments I made earlier about the continuing effect of the global pandemic. I think we are all keenly aware that earlier predictions of easing of the supply chain issues have not come to fruition and have actually grown more pronounced. Let me give you an example to illustrate the extent of this issue beyond what you've seen in the press around electronic components. Luna has consistently used a type of epoxy in many of our products. Like toilet paper in the consumer segment, there is no particular reason that this product should be difficult to get. Yet, during the quarter, we were unable to order from anywhere the supplies we needed to produce certain products. In addition to supply challenges, we are also experiencing requested delivery delays from our customers for a variety of delay reasons on their end. One example of this is a customer in Asia with whom we have a firm order and we're able to produce the product and prepare to ship. The customer is experiencing their own supply chain challenges, delaying their readiness. They have asked us to hold on shipping the finished product due to security issues at the customer location. So we have the order and the product but won't recognize revenue until we ship. I could give you a dozen more examples like this. Demand for our products is at historic levels, but recognizing revenue is being delayed by supply chain challenges and customer delays. At this point in time, I would have to say that we expect some of these dynamics to carry into the first part of 2022. In summary, we are continuing to do the fundamental blocking and tackling that allows us to build our company for the long term. When I think about some of the strategic moves we've executed over the last several years, the plan to divest Luna Labs certainly ranks up there as one of the most important. As always, I'm incredibly grateful to the Luna team for their continued focus and work, especially as we have newly experienced some of the pandemic-related challenges that we've been hearing about for the past 18-plus months. I'll now hand the call over to Gene for more of the financial details in the quarter. Gene?
spk02: Thank you, Scott. Before I proceed, I want to note that our reported numbers now include our former LunaLAB segment as discontinued operations. This means our reported numbers exclude LunaLAB's revenue, gross margin, and operating expenses. In addition, like prior quarters, our results also include the two acquisitions we completed towards the end of last year, New Ridge Technologies and OptiSense, and their related integration, transaction, and amortization expenses. Our results also include expenses related to our continuing portfolio activities. With that as background, I'll now shift to cover our third quarter results. As Scott noted, our revenues for Q3 2021 were $20.3 million compared to revenues of $15.4 million for Q3 2020, representing a 32% year-over-year increase. Year-over-year growth in both our sensing and our communications test businesses was driven largely by our recent acquisitions. Our gross profit was $12.6 million for the quarter compared to $9.6 million for the same quarter last year, representing a gross margin of 62% compared to 63% in Q3 2020. As Scott mentioned, without Luna Labs, our gross margin has moved from the low 50% range to the low 60% range, reflecting the higher margins in our lightweight business. The decrease from 63% to 62% is primarily due to product mix. In addition, gross margin in the quarter includes $104,000 of non-cash amortization of inventory step-up related to our recent acquisitions. This is down from $168,000 in quarters one and two of this year, and we expect it to decrease further to $70,000 in Q4, at which point the inventory step-up will be fully amortized. Operating expenses were $12.6 million in Q3 2021 versus $8.4 million in Q3 2020. This increase was primarily driven by the operating expenses of our recent acquisitions, $196,000 of deal integration and transaction costs, and $322,000 of amortization related to our OptiSense acquisition. We recognized an operating loss of $10,000 in Q3 2021 compared to operating income of $1.2 million in Q3 of last year. As a reminder, this operating loss in Q3 2021 includes the amortization in both gross margin and operating expenses that I just discussed. Acquisitions are an important part of LUNA's strategy, and so we will continue to see impacts to gross margin and operating income from these various amortization items, as well as additional amounts, assuming we continue to be acquisitive. While these amounts are not insignificant, we believe we can drive substantial incremental value to LUNA from our acquisitions. To give you a sense of the magnitude, LUNA's total amortization expense for the quarter was $954,000, largely driven by our acquisitions. We do disclose annual amortization by year in our 10-Q, so you can refer to it for future amortization expenses. As a reminder, if we acquire additional companies, we expect to have additional amortization related to those acquisitions. Net income for Q3 2021 was 0.4 million or one cent per share compared to net income of 3.1 million or 10 cents per share for Q3 2020. Income tax expense for Q3 2021 differs from our statutory rate primarily due to the impact of valuation allowances related to our OptiSense acquisition, equity compensation, and R&D tax credits. We estimate our 2021 effective tax rate to be approximately 21%. And finally, a key metric reflecting our underlying operations is adjusted EBITDA. As Scott mentioned, adjusted EBITDA was 2.1 million for Q3 2021 versus 3.1 million for Q3 2020. Adjusted EPS was 3 cents per share for Q3 2021 versus 11 cents for Q3 2020. Let me move now to the balance sheet. We ended the quarter with 14.8 million of cash and cash equivalents compared to 15.4 million at the end of 2020. The decrease was largely due to the cash payment of accrued deal-related expenses during Q1. Our working capital was 49 million at September 31, 2021, compared to $45.4 million on December 31, 2020. Remember that at the time of the OptiSense acquisition, we announced a new debt facility comprised of two separate financing vehicles, a term facility and a revolving facility. So, at the end of the third quarter, we had total debt outstanding of $16.9 million. Of that amount, $9.4 million is in term debt, and $7.5 million was drawn on our revolver. We have access to an additional $7.5 million in the revolving credit facility should we need it. As Scott mentioned, we are revising our guidance due to Luna Labs moving to discontinued operations and pandemic-related issues. To reiterate, the new guidance for 2021 excluding Luna Labs and taking into account the pandemic is total revenues of $85 to $88 million and adjusted EBITDA of $6 to $8 million. In summary, I'll reiterate Scott's sentiments. We are very pleased to see the incredible demand for our products, which validates our strategy of focusing on fiber and demonstrates the potential of our business. We made significant progress on refining our back office systems that we recently implemented, streamlining our processes, and integrating our recent acquisitions. Importantly, we continue to further invest in the core foundation of our company and as we look forward to a time when some of the current pandemic related challenges are resolved. With that, I will turn the call back over to Scott.
spk06: Thank you, Jean. Before I open the call to questions, I want to take a moment to underscore some key trends that we've shared today, especially as we're approaching year end. Reflecting back on this year, we would have never been able to predict that the dynamics from 2020 would continue so far into 2021. If you only take away a few messages from this call, please note the following. First, that the need for high-speed fiber optic technology has exploded, and the opportunities available to us as a result are abundant. And second, that our customers are ordering in record levels, reflecting the demand for Luna's products and capabilities. And finally, Luna Labs. which was the origin of the Luna business and has been a successful part of our history, will be divested. This is a critical step in Luna's strategic execution, as after this transaction, Luna will be a pure play in fiber. So now, Chief Operating Officer Brian Soller, Gene, and I are happy to answer any questions. So, Ashley, please open the call to Q&A.
spk00: As a reminder, to ask a question, you will need to press star 1 on your telephone. Again, that is star 1. To read your question, press the pound key. Your first question comes from Dave Kan with B. Riley.
spk04: Thank you. Good afternoon. My first question is regarding your outlook. If I back out the first three quarters, it looks like the revenue will be approximately $23 million, $24 million today. up $3 million, $4 million sequentially from $20 million in third quarter. Can you just go over some of the assumptions? Assuming demand is there, what about on the supply side? Will you have enough supplies to support that kind of revenues and maybe provide some additional color between sensing versus ComTest for fourth quarter?
spk06: Yeah. You know, Dave, I'll let Brian talk about that. You know, we talked about the bookings, and bookings exceeded what our guidance was. You know, when you bottoms up this thing, which we always do, we look at, obviously, you start at the bottom and say we would have to book X to get to Y, and if Y is in the middle, we would give a range of, you know, A to B or whatever it may be. And I can tell you bookings has exceeded what we modeled out early on. What we're experiencing is what we're continuing to talk about here is the supply chain. And I'll let Brian weigh into what we're looking at in Q4. I can tell you that we spent a lot of time looking at what we were going to give on this discontinued ops model out to you guys from a Q4 or full year, but it ends up being really a quarterly guidance.
spk01: Yeah, hey, Dave, the guidance does take into account the effect on the availability of different parts. So, yeah, I think you're right in the right range there, and we are situated well with what we have. So in that range, we won't be affected by the availability of parts. The sensing segment is, you know, if you compare to Q3, the sensing segment, is expected to be a little bit stronger here as we exit the year relative to what it's been. And as we've said on the last previous quarters and again tonight, communications and in particular the test equipment, the high-speed test equipment has been really strong all year and that continued in Q3.
spk04: Got it. And then speaking of supply chain challenges, I mean, just wondering if you can kind of quantify, you know, both revenue and margin impact. I guess it was down about, what, $1.6 million sequentially. So, clearly, impact was more than $1.6 million. And, you know, we were looking for a few million sequential growth, so maybe 3%. I'm guesstimating maybe four or five million type of impact in third quarter. Is that about right? I think that's right, Gene.
spk01: Yeah, about four. Yeah, that's right in the range. Okay.
spk04: What about margins? I mean, you know, I assume some of the expediting fees and chip costs, they have gone up. How much of a margin impact are we talking about, maybe 100, 200 bps?
spk01: Not nearly as much on the margin side. A little bit of margin pressure, but the numbers that we report, as you see, are pretty strong relative to historical. So there's a little bit there, but in general, the ASPs have held really strong, and that's kind of offset any of the downward pressure on the margins.
spk04: So we shouldn't think about gross margin, you know, going to like maybe, I don't know, 64%, 65% when this thing is over. We should still think of low 60s for out-quarters?
spk06: I think low creeping into mid-60s. You know, we're now, you know, at this mid-to-upper 80s range. And because we can carry that gross margin, I think – I think we'll hover around that. You saw last quarter we were 63 in Q3 of 2020 pre-OptiSense, which pulled us down a little bit. But I think you can plan on low to mid-60s creeping into that 64 range. Wouldn't you say, Gene?
spk02: Yeah, I would say certainly over a four-quarter period.
spk06: For sure.
spk02: In any quarter, OptiSense has relative to the legacy Luna business, OptiSense has relatively large products, and so they can move the needle up or down depending on that project. But, yeah, over the course of four quarters, that's right in the range.
spk06: Yeah, I mean, Dave, think about it. Some of the product coming out of our Blacksburg office, the OVAs, the OBRs, some of the laser components, I can tell you those carried margins that were over 70% this quarter. So it is a product mix, and we're certainly 63, 62, 63 blended here. But it all depends, you know, when that opens up and we were able to get some of that backlog off the dock, you will see that margin come back with a bite.
spk04: Got it. Thank you.
spk06: Thanks.
spk04: Thanks.
spk00: Once again, if you would like to ask a question, you will need to press star one on your telephone. Your next question comes from the line of Charles Knowles.
spk03: Hey, are you there? Yeah, we're here, Charles. Oh, okay. I missed the first three minutes. You may have answered my question, but I hate to hear you divest Luna Labs. That was a fun place to be. but I can understand economically it may be a good thing. But are these employees who seemed really sharp, are they going to be hired elsewhere at Luna?
spk06: Well, you know, what we're doing is moving it to discontinued ops available, you know, kind of available for sale. There is no transaction that has been consummated yet. We'll talk about that transaction, you know, when that happens. But, you know, we're moving it to be available for sale and, You know, we don't know really exactly what that transaction looks like. I can tell you all the interest that we have had so far, you know, is top shelf folks that are interested in all those people doing that work. So you're right. It is incredible work being done by incredible folks. And I think everyone we've talked to. recognizes that the biggest asset inside of that organization are the people. The IP is certainly unique and special, but it's the people that brought that to fruition. I think Luna Labs... as a company not part of Loon Innovations will be fine, if not more than fine. I think it will remove some of the restrictions that they had experienced while being attached to a public company. There are just some things that they were unable to do, Charles, by being part of Loon Innovations, the public company. You know, there's a lot of transactions that happened prior to going public in 2006 with a lot of that IP and those technologies. Once they got the proof of concept, there was a lot of attraction out there doing different deals that we just haven't been able to do while they were part of Loon Innovation. So I think it will be a very positive thing once we consummate a transaction.
spk03: Okay, thank you. seem to be the man. So I'm glad to hear it. All right. Well, thanks, Charles. Talk to you later. Bye. Yep. Talk to you soon.
spk00: Once again, if you would like to ask a question, please press star, then the number one on your telephone. We'll pause for just a moment to compile the Q&A roster. Your next question comes from Chris Sakai with Singular Research. Your line is open.
spk05: Hi, Scott. I guess I'm on for Jim. Hey, Chris.
spk00: How are you?
spk05: Good. Good. Just wanted, I guess, a good overview on the integration with OptiSense. Is that pretty well over? Are you guys seeing any more headwinds there? And just wanted to then ask, you know, with this divestiture, is this opening the opportunity and window for you guys to look for more acquisitions along in the LightWave line?
spk06: Yeah, you know, good questions, Chris. I will say on the integration of OptiSense, we have been charging forward that. Many, many teams have been over now to the U.K. and really working closely engineering sales. All of that is being integrated into Luna. You know, Brian has worked tremendously hard to make sure that happened, including, you know, his guys, David Blaker and others. and Todd Haber and Salvin Faruqi, all folks that have been there in person, integrate that. So that integration is going really, really well. You know, we talked about early on in Q2 about the back office being integrated, you know, and we really needed to move forward on the operation, the sales side. And we have done that. That is making tremendous strides. We just can't get this damn COVID thing out of our way. And, uh, You know, it's a tough one. We've got to travel. We've got to do some of the installations and the services. And that's just a tough thing to happen here. And, you know, we are continuing to plow forward on this. I guess, you know, if I had my choices of higher revenue but pulling it all out of backlog and entering a new quarter with no backlog, I think I'd take where I am where bookings is through the roof. And you know as well as anyone that the true temperature and well-being of the company is how our bookings, and our bookings are unbelievable. Big orders, large orders, small orders, with what Biden signed today already activity in what's going on in some of that infrastructure stuff. So bookings through the roof, the only thing I wish I didn't have is backlog through the roof. I'd rather have bookings through the roof and be able to get the stuff off the dock But we are where we are, and I'll take it all day long if that's what it is. And I hope people don't read it the wrong way because every metric was hit and expanded upon and blown away except for that one called revenue. And I think with it all sitting in backlog, I think you'll see some things here in the future if we can get – get things off the dock and that is being prepared as far as your follow-up there with what does this mean uh yeah i mean i think you know we've talked about you know the number one investment we make is in ourselves i've talked about that investing in our own people in our own infrastructure and things like that we've done a lot of that we've done the engineering and the sales and and marketing we've done some of that and i think we will also look at where we gapped Where technology are we gapped and where we're trying to go with this strategy? So we will continue to be acquisitive and look at some things that we may pick up. So, you know, we'll see. But it certainly does open up for some other opportunities.
spk05: Okay. Great. And then I guess last for me, did you guys have a book-to-bill ratio for the quarter?
spk06: Brian, you kind of know. He was in the 1.2 range. Yeah, around 1.1, 1.2, yeah? 1.2, so.
spk05: Okay. All right, well, great. Yeah, glad to hear.
spk06: Yeah, I mean, you know, Chris, it's, look, I think everyone's experiencing this conundrum, but it's certainly unique for us and has us really looking at, You know, this full year, which ends up being Q4, guidance. You know, you've heard me say it before. I will lay out what I see in front of me. We will lay out what we see in front of us, and we are constantly bottoms up on this thing. And, you know, I said what I said in August because that's what we saw in front of us, and that's why I was so excited. passionate about making those words today, about what we saw then and what it did since then. But we feel like we have really bottomed up this thing and given where we think we will go. It is certainly setting up for some really good things in the future here, I can say that.
spk05: Okay. All right. Great, Scott. Well, thanks. Yeah, thanks, Chris.
spk00: Once again, to ask a question, please press star 1 on your telephone. Your next question comes from Neil Feagins.
spk07: Hey, Scott. Thanks for taking my questions. Yeah, sure, Neil. So I had a couple here. I think they're short answer type questions. You said you expected to have news on how you're going to divest of Luna Labs near term. Does near term mean by year end or closely thereafter? And am I correct in assuming however the divestiture occurs, it's going to result in a meaningful amount of capital coming into Luna?
spk06: Yeah, it's a good question. Near term, I would say what you said is pretty good, by year end or shortly thereafter. And certainly, you know, there's a lot of value in this Luna Labs, as we've talked about in the past. you know, you and I have talked about. So, yeah, there will be, you know, certainly, this is not, we will not divest it to a 501c3. This is going to be something that is meaningful to Luna Labs in where they end up being and how that looks. It will be meaningful to Luna Innovations from what we get from a capital perspective and how we put that to work.
spk07: Okay, and then a second quick question here. You've talked about, well, first of all, I obviously haven't had time to read through the queue, but you've mentioned that Q3 bookings were through the roof and at record levels and, you know, quite excited in your voice about what Q3 bookings were. What were the Q3 bookings and how did that compare to Q2 bookings?
spk06: Yeah. I don't know if we disclose that. Brian, do you?
spk02: Three and two are both strong.
spk06: Yeah. So both strong in Q2 and Q3. But I know it's the most bookings we've ever had, and we've adjusted it for OptiSense. It's not because we added OptiSense why it was the strongest ever. If you looked at Legacy, Luna, Legacy, LightWave, best bookings quarter ever, and OptiSense, similar. So it is.
spk07: But we're talking about by a meaningful margin. In other words, not just a half a million, a million dollar kind of thing.
spk06: That's right. That's right. Okay.
spk07: All right, Scott. And listen, my third and final question. So I've understood what you've been talking to us about really all year is that 2021 was going to be the pivotal year where all the increased spending, all the new systems, the acquisitions, it was all going to result in 2022 being the beginning of a very significant acceleration of our organic growth rates, which if I remember right, have been upper teens. So if we could just say we're in a magical world where COVID's gone and supply chain issues are not an issue anymore, Are we still looking in that scenario at 2022 and beyond being materially higher annualized growth rates for everything fiber than what we've seen in 2019 and 2020?
spk06: Yeah, what we talked about before and you saw, you know, mid to upper teens was the overall Luna growth, you know, on a year-over-year basis. That included Luna Labs, and they were running in the mid to upper single digits from a growth perspective. and then they would perform maybe a little bit higher than that, but certainly brought down the overall growth just because of the nature of their business. So the pure lightweight fiber optic business was running in the kind of low 20s on a year-over-year basis. I believe what you'll see going forward now without Luna Labs is that low to mid-20s in where you'll see that growth organically. And, you know, that's kind of where we've been. We'll certainly see that coming off a year like 2021. I don't feel like we beat our chest in 2020, but we sure went out there and said we got through 2020 without a lot of, you know, bruises in COVID. And, boy, to 2021, you know, because we just couldn't get the supplies. We order so many months out. We never –
spk07: in my career here of 20 plus years have ever seen supply be an issue at at lightweight but scott i just i just want to clarify because for me anyway this is important um if there were no supply chain issues and you weren't dealing with the covet delays um you know we've been uh everything fiber's been growing in the low 20 annualized growth rate so you've been implying that those growth rates were going to materially pick up in 2022 as a result of the spend, the systems, and the acquisition. So, I mean, are you saying that you're not expecting everything fiber annualized growth rates to move much above that low 20 range, even if we didn't have the supply chain issues and the COVID-related delays, or would they be expected to make a meaningfully increase from that if we weren't facing these headwinds based on demand and bookings.
spk06: I don't change what I've said before. I mean, I think your philosophical question of what if, you know, what if, if everything was perfect. I mean, I think if we didn't have COVID and we didn't have supply chain issues, I'm with you, Neil, in that I believe we were low 20s before. We saw nothing but additional growth as we saw the 2Z, 3Z orders turn into 10s and 20s and 50s orders. So I do believe, you know, we're moving from the low 20s to the mid to, say, upper 20s in where we're going as a fiber optic business today. I stand behind what I've said before if we can get beyond COVID and supply issues.
spk07: Okay, Scott. Well, listen, I'm glad I kept pushing it there because mid to upper 20 organic growth is very, very meaningful. I mean, that's putting you up into the high growth rate camp in my book. So, anyway, thanks for taking my questions. I really appreciate it.
spk06: Hey, Neil, don't forget with that over 60% gross margin, I think that is not something to overlook as well.
spk07: No, no, I get it, Scott. Look, it's kind of a salt and pepper quarter here depending on what you want to focus on, but I'll be anxious to see what kind of cash we get from Luna Labs because with the balance sheet where it is and acquisition opportunities abounding, that's going to be very interesting when we get to the point that you report what you've done there. So, again, thanks for the time.
spk06: Yeah, thanks, Neal.
spk00: This concludes the Greenleaf session. I'll now hand it over to Scott Greaves.
spk06: Thank you, Allison, and thanks, everyone, for joining us today. Please feel free to reach out to Gene, Allison, or myself with any questions, and we look forward to speaking with some of you at the Needham Conference tomorrow. Ashley, this concludes our earnings call.
spk00: This concludes the conference call. You may now disconnect.
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