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. I would now like to turn the conference over to Allison Woody, Director of Administration. Please go ahead..

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 risks 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 Graeff, our President and Chief Executive Officer; Gene Nestro, our Chief Financial Officer and Brian Soller, 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..

Good afternoon, everyone, and thanks for taking the time to join our call. I'm happy to meet with you today as we announced 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've 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 complimentary 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 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 OptaSense and continued 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 makes 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 to 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 formally categorized as the Lightwave divisions.

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 backlog. 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'd 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 OptaSense business often involves traveling to customer locations to install or perform services. I had shared 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 just 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 OptaSense. I do want to point out that we deliver 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 $0.03 for Q3 2021 compared with $0.11 for Q3 in the prior year period. Before I move on to a deeper dive on our operations, I did 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 laid recognition of revenue.

When you guys for 2021, excluding Luna labs and taking into account, the pandemic is total revenues of 85 to 88 million and adjusted EBITDA of six 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 opposites, 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 OptaSense product lines that are included in this segment.

As a reminder, we added the opposite sense, 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 continue to build on that momentum by delivering a large order from mining application south America.

This validates our strategy of penetrating the infrastructure monitoring space with our new quantitative opposites DAS solution. We signed a significant deal for a perimeter monitoring system in Indonesia, further expanding our geographic reach.

We've 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 continue 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 wind 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 REO laser business acquired through the acquisition of opposites is included in the comms test results without opposites.

Our legacy Luna comms test business grew 8% in Q3 2021 versus last year where the sales of our high-speed communications test equipment, the ova, and OBR 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 strong 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 OVA 6,200.

You'll remember that last year, we announced our partnership with Lockheed Martin and their order for over a hundred units in Q4 2020, the route this year, our delivery still 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 systems 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 easy 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 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'll able, 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 had 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're 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 on the quarter..

Thank you, Scott. Before I proceed, I want to note that our reported numbers now include our former Luna lag segments as discontinued operations. This means our reported numbers exclude Luna labs, 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 OptaSense 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 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 OptaSense 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 Linda'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 950, 4,000 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 $0.01 per share compared to net income of $3.1 million or $0.10 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 up to cents 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 $0.03 per share for Q3 2021 versus $0.11 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 a crude 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 OptaSense acquisition, we announced a new debt facility comprised of two separate financing vehicles, a term facility, and they 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 that 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 million to $88 million and adjusted EBITDA of $6 million to $8 million. In summary, I'll reiterate Scott sediments. 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.

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..

Thank you, Gene. Before I opened 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 Linda'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, strategic execution as after this transaction little BA pure play in fiber. So now chief operating officer Brian, solar, Jean, and I are happy to answer any questions. So Ashley, please open the call to Q&A..

Your first question comes from Dave Kang with B Riley..

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 up $3 million, $4 million sequentially from $20 million in the third quarter.

Can you just go over some of the assumptions, I assume -- 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 contests for fourth quarter?.

Yeah Dave, I'll let Brian talk about that. We talked about the bookings and bookings exceeded what our guidance was. 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 A to B or whatever it may be.

And, I can tell you, bookings has exceeded what we bottled 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 spend 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..

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, compared 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 said on the last previous quarters, and again tonight, communications and in particular, the test equipment has been really strong all year. And that continued in Q3..

Got it. And then speaking of our supply chain challenges, just wondering if you can kind of quantify 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, we were looking for a few million sequential growth.

So maybe I'm guesstimating, maybe $4 million, $5 million type of impact in third quarter. Is that about right? Or….

I think that's right gene..

Yeah. Yeah..

And what about margins? I assume some of the expediting fees and tip calls they have gone up, how much of a margin impact are we talking about? Maybe 100 Bps, 200 Bps,.

Not, 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 margin..

So we shouldn’t think about gross margin going to like maybe, I don't know, 64%, 65%, when this thing is over, we should still think of low 60% for out quarters,.

I think low to -- low creeping into mid-sixties, we're now at that, at this mid to upper eighties range. And because we can carry that gross margin, I think we will hover around that.

You saw last quarter, we were 63% in Q3 of 2020 OptaSense, which pulled us down a little bit, but I think you can plan on low to mid sixties creeping into that 64% range. What you say Gene..

Yeah. I would say, over, certainly over a four quarter period for sure, in any quarter OptaSense has relative to the legacy Luna business OptaSense has large, 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..

Yeah. I mean, Dave, think about it, some of the, the product coming out of our Blacksburg office, the OVAs the OS some of the laser components I can tell you, those carried margins that, 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, when that opens up and, and we were able to get some of that backlog off the, off the off the dock, you will see that, that margin come back with a bite..

Got it. Thank you..

Your next question comes from the line of Charles Mills..

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 that may be a good thing, but are these in employees who seemed really sharp? Are they going to be hired elsewhere at Atlanta?.

Well, what we're doing is, is moving it to discontinued ops available, kind of available for sale. There is no transaction that has been consummated yet. We'll talk about that transaction. When that happens, but we're moving it to, to be available for sale. We don't know really exactly what that transaction looks like.

I can tell you all the interest that we have had so far is top shelf folks that are interested in all those, all those people doing that work. So it's, you're right. It is incredible work being done by incredible folk folks.

And I think everyone we've talked to recognizes that the biggest asset in inside of that organization are, are, are the people, the IP is, is certainly unique and special, but it's the people that brought that, to fruition. So I think, Luna labs, as a company, not part of Lu innovations will be, 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. They're just some things that, that they were unable to do Charles, by being part of Luna innovations, the public company.

There's a lot of transactions that happened prior to going public in 2006, with those, 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 of Lu innovation.

So I think it will be a very positive thing once we consummate a transaction..

Your next question comes from Chris Sakai with Singular Research. Chris your line is open..

Just wanted to I guess good overview on the integration with OptaSense, is that pretty well over, are you guys seeing any more headwinds there? And just wanted to then ask, with this divestiture is this opening opportunity and window for you guys to look for more acquisitions along in the light wave line?.

Yeah. Good questions, Chris. I will say on the integration of OptaSense, we have been charging for that many, many teams have been over now to the UK and really working closely engineering sales, all of that is being integrated into Luna.

Brian has worked tremendously hard to make sure that happened, including, his guys David Blaker and Todd Haber and Sal Faruki; all folks that have been there in person integrating that. So that integration is going really, really well.

We talked about early on in Q2 about the back office being integrated 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, 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, we are continuing to plow forward on this, I guess, 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 take where I am, where bookings is through the roof.

And, as well as anyone that, the true temperature and wellbeing of the company is how our bookings and our bookings are unbelievable, big orders, large, orders, small orders, with what Biden sign today, already activity in what's going on and 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 an all sitting in backlog, I think you'll see some things here in the future, if we can get things off the dock, and that is being prepared. As far as your follow up there with what does this mean? Yeah. I think, we've talked about, 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 marketing. We've done some of that and I think we will also look at where are 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, we we'll see, but it certainly does open up for some other opportunity..

Okay. great. And then, I guess last for me did you guys have a book-to-bill ratio for the quarter,.

Brian? You kind of know. I haven't looked….

It was 1.2 range, 1.2. Yeah. Round 1.2. So,.

Okay. Right. Well, great. Yeah, glad to hear..

Yeah., Chris, look, I think I everyone's experiencing this conundrum, but it's certainly you unique for us and has us really looking at this full year, which ends up being Q4 guidance. 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 I, said what I said in August, because that's what we saw in front of us and that's why I was so passionate about making those words today about what we saw then and what it did since then, but we feel like, we have really bottom 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..

Your next question comes from 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 dive vest of Luna labs near term, does near term win 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, of, of capital coming into Luna?.

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 there's a lot of value in, in, in this Luna labs, as we've talked about in the past you and I have talked about, so yeah, there will be certainly this is not we will not divest, this is going to be something that, that is meaningful to Luna labs in, in, in where are they end up being and how that looks, it'll be meaningful to loo innovations from a, from what we get from a capital perspective and, and how we put that to work..

Okay. And then second quick question here.

You've, you've talked about, well, first of all, I obviously haven't had time to read through the Q, but you've mentioned that Q3 bookings were through the roof and at record levels and quite excited in your voice about what Q3 bookings were, what were the Q3 bookings and how did that compare to Q2 bookings?.

Yeah. I don't know if we, disclosed that Brian do you three, three and two are both strong, so yeah. So both strong and Q2 and Q3. Well, I know it was, it was it's the most bookings we've ever had and we've adjusted it for opposite. It's not because we added off the sense why it was the strongest ever.

If you looked at legacy Luna, legacy, light wave, best bookings quarter ever, and, and opt the sense similar. So it is okay but we're talking about by a meaningful margin, in other words, not just a half a million, a million dollar kind of.

All right, Scott, and listen, my third and final question I've understood what you've been talking to us about really all year is that 2021 was going to be the, the pivotal year where all the increase 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, an, 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, O's gone and supply chain issues are not an issue.

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?.

Yeah. What, what we talked about before, and you saw mid to upper teens was the overall Luna growth, on a year-over-year basis, that included Luna labs. And they were running in the, in the mid to upper single digits from a growth perspective.

And then they would perform maybe a little bit high, 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 low twenties on a year-over-year basis.

I believe what you'll see going forward now that without Luna labs is that low to mid-twenties in where you'll see that growth organically. And, that's where we've been. We'll certainly see that coming off a year, like 2021.

I don't feel like I beat, we, we beat our chest in 2020, but we, we sure went out there and said we got through 2020 without a lot of bruises in COVID and voided 2021, with because we just couldn't get the supplies we order so many months out.

We never in my career here of 20 plus years have ever seen supply, be an issue at, at, at lightweight is what, but, but Scott, I just, want to clarify because for me, anyway, this is important.

If there were no O supply chain issues and you weren't dealing with the COVID delays we've been everything fiber's been growing in the low 20% annualized growth rates. So you've been implying that those growth rates were gonna materially pick up in 2022 as a result of the spend the systems and the acquisition.

So, 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, I don't change what I've said before.

I think your philosophical question of what if everything was perfect, I think if we didn't have bid and we didn't have supply chain issues, I'm with you Neil, in that I believe we were low twenties before we saw nothing but additional growth as we saw the 2Z, 3Z orders turn into tens and twenties and fifties orders.

So I do believe we're moving from the low twenties to the mid to say upper twenties in where we're going as a fiber optic business. I stand behind what I said before, if we can get beyond COVID and, and supply issues..

Okay, Scott, well, listen, I'm glad I kept pushing it there because mid to upper 20 organic growth is, is, is, 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.

Yeah. And Hey, Neil, don't forget with that over 60% gross margin. I think that is, is not something to overlook as well..

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 an -- 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 or bounding, that's going to be very interesting when, when, when we get to the point that you report what you've done there.

So again, thanks for, thanks for the time..

This concludes the Q&A session. I'll now hand it over to Scott Graeff..

Thank you, Allison. And thanks everyone for joining us today. Please feel free to reach out to Jean Allison or myself with any questions. And we look forward to speak with some of you at the Needham conference tomorrow. Ashley, this concludes our earnings call..

This concludes today's conference call. You may now disconnect..