Luna Announces $50 Million Strategic Investment from White Hat Capital Partners
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Insights
Luna Innovations Incorporated's recent $50 million investment from White Hat Capital Partners is a strategic move that signals confidence in the company's growth trajectory. The investment's allocation towards the acquisition of Silixa and the repayment of existing debt enhances Luna's financial position, potentially resulting in a more robust balance sheet.
From a financial perspective, the terms of the investment, particularly the Series B convertible preferred stock, are noteworthy. The stock's conversion price at a 10% premium to Luna's 30-day volume-weighted average price indicates an optimistic future valuation. Moreover, the dividend structure, offering a choice between an 8.5% cash payout or a 10% in-kind rate, provides flexibility in managing cash flows.
Investors should consider the implications of the preferred stock's potential conversion into common stock, which could lead to dilution of existing shares. However, this dilution is counterbalanced by the potential for accelerated growth and profitability from the strategic initiatives funded by the investment.
The strategic investment in Luna Innovations underscores the increasing demand for fiber optic sensing solutions, particularly in the context of aging infrastructure and heightened security concerns. Luna's positioning to capitalize on this inflection point could lead to sustainable recurring revenue streams.
Additionally, the investment supports Luna's intent to expand manufacturing capacity, which aligns with the trend of growing customer demand in the optics and test & measurement industries. The company's focus on innovation and intellectual property development is essential in maintaining a competitive edge in the technology sector.
The partnership with White Hat Capital Partners could provide Luna with valuable expertise in the optics sector, potentially enhancing its strategic decision-making and market positioning. The acquisition of Silixa also diversifies Luna's portfolio and expands its market reach, which could be a significant factor in driving long-term growth.
The investment in Luna Innovations by White Hat Capital Partners reflects broader economic trends, including the role of technology in energy transition initiatives such as carbon capture and storage (CCS) and electric vehicle (EV) adoption. These initiatives are increasingly important as governments and industries seek to address climate change and energy sustainability.
The deal also highlights the importance of financial flexibility in pursuing strategic growth initiatives. Luna's ability to repay its term loan and strengthen its balance sheet could provide resilience against economic fluctuations and enable more aggressive investment in innovation.
Long-term economic benefits may arise from Luna's enhanced capacity to support critical infrastructure, which is vital for economic stability and growth. The focus on specialized aerospace & defense applications also ties into national security interests, which can have economic implications beyond the company's immediate financial performance.
Investment Proceeds Used to Fund Silixa Acquisition and Enhance Luna’s Financial Flexibility to Pursue Strategic Growth Initiatives
Proceeds from this strategic investment were partially used to fund the acquisition of Silixa, also announced today, and related transaction costs in the aggregate amount of approximately
Luna expects to apply the proceeds of this investment across a range of initiatives already in process to accelerate growth and increase profitability, including:
- Capitalizing on Inflection Point for Adoption of Fiber Optic Sensing Solutions: Aging infrastructure and rising security concerns for pipelines and critical infrastructure have led to increased market adoption of fiber optic sensing technologies for structural health monitoring. Luna is well-positioned to implement its solutions and drive recurring revenue through continuous monitoring of these key assets, such as bridges, tunnels and pipelines.
- Increasing Manufacturing Capacity to Meet Demand Arising from Strategic Partnerships: Luna has cultivated strategic relationships with several large global customers that are now expanding their use of Luna’s solutions, increasing demand for Luna’s products.
- Enhancing Investments in Innovation: Luna intends to leverage its increased financial flexibility to execute against its robust product roadmap and continue to be a leading developer of innovative technologies with new applications, building upon its already large library of intellectual property.
In conjunction with the strategic investment, David Chanley joined Luna’s Board of Directors. Mr. Chanley is a Co-Founder and Managing Partner of White Hat and has more than 20 years of experience in the technology sector. With this addition, Luna’s Board expanded to eight members.
“We are thrilled to welcome White Hat as a new partner,” said Scott Graeff, President and Chief Executive Officer of Luna. “David and his team bring years of experience advising and supporting technology companies, particularly in the optics and test & measurement industries. When I first met them, I was struck by how well they understood both our industry and our technologies. Their investment is not only a vote of confidence in the acquisition of Silixa, but also a strong endorsement of our strategic vision and market opportunities.”
“White Hat is excited to partner with the Luna management team to support the Company in its next stage of growth,” said David Chanley, Managing Partner at White Hat Capital Partners. “Our thorough evaluation highlighted the quality and depth of Luna’s management team and the promising addition of the talented team from Silixa. With additional scale and financial flexibility, Luna is uniquely positioned as the largest pure-play company to address the rising demand for fiber optic sensing solutions in its key end markets. These include pivotal roles in energy transition initiatives like carbon capture and storage (CCS) and electric vehicle (EV) adoption, as well as critical structural health monitoring and specialized aerospace & defense applications. We are eager to partner with Luna as the company accelerates its mission of enabling the future with fiber.”
Summary of Investment Terms
White Hat has initially purchased 52,500 shares of Series B convertible preferred stock at a purchase price of
Cooley LLP acted as legal advisor to Luna and Schulte Roth + Zabel LLP acted as legal advisor to White Hat in the transaction.
About Luna
Luna Innovations Incorporated (www.lunainc.com) is a leader in optical technology, providing unique capabilities in high-performance, fiber optic-based, test products for the telecommunications industry and distributed fiber optic-based sensing for a multitude of industries. Luna’s business model is designed to accelerate the process of bringing new and innovative technologies to market.
About White Hat Capital Partners
Founded in 2016, White Hat Capital Partners LP focuses on concentrated, value-oriented investments in publicly-traded technology companies. White Hat partners with its portfolio companies to improve strategy and capital allocation decisions, implement operational efficiencies and strengthen governance, all with a view toward improving corporate competitiveness and creating shareholder value. The Firm is based in
Forward-Looking Statement
The statements in this release that are not historical facts constitute “forward-looking statements” made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These statements include statements concerning the application of the proceeds of the financing, the investors’ potential investment exercise of their option to purchase additional Series B convertible preferred stock, Luna’s ability to drive recurring revenue growth, the potential increased demand for Luna’s products, Luna’s expectations regarding technological capabilities, industry trends, revenue and market opportunities, market growth, customer relationships and operational efficacy related to its technology and/or products. Management cautions the reader that these forward-looking statements are only predictions and are subject to a number of both known and unknown risks and uncertainties, and actual results, performance, and/or achievements of Luna may differ materially from the future results, performance, and/or achievements expressed or implied by these forward-looking statements as a result of a number of factors. These factors include, without limitation, changes in market needs and technological challenges, competitive forces and other risks and uncertainties set forth in Luna’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 and Luna’s other periodic reports and filings with the Securities and Exchange Commission (“SEC”). Such filings are available on the SEC’s website at www.sec.gov and on Luna’s website at www.lunainc.com. The statements made in this release are based on information available to Luna as of the date of this release and Luna undertakes no obligation to update any of the forward-looking statements after the date of this release.
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Investor Contact:
Allison Woody
Luna Innovations Incorporated
Phone: 540.769.8465
Email: woodya@lunainc.com
Source: Luna Innovations Incorporated
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