nLIGHT, Inc. (NASDAQ:LASR) Q1 2025 Earnings Call Transcript

nLIGHT, Inc. (NASDAQ: LASR ) Q1 2025 Earnings Call Transcript May 8, 2025

nLIGHT, Inc. beats earnings expectations. Reported EPS is $-0.04, expectations were $-0.18.

Operator: Good evening, ladies and gentlemen. And welcome to the nLIGHT, Inc. First Quarter 2025 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call, you require immediate assistance, please press 0 for the operator. This call is being recorded on Thursday, 05/08/2025. I would now like to turn the conference over to John Marchetti, VP of Corporate Development and Head of Investor Relations. Thank you, and good afternoon, everyone.

John Marchetti: I'm John Marchetti, nLIGHT's VP of Corporate Development and the Head of Investor Relations. With me on the call today are Scott Keeney, nLIGHT's Chairman and CEO, and Joe Corso, nLIGHT's CFO. Today's discussion will contain forward-looking statements, including financial projections and plans for our business, some of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today's call, and we undertake no obligation to update publicly any forward-looking statement except as required by law. During the call, we will be discussing certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and our earnings presentation, both of which can be found on the Investor Relations section of our website.

I will now turn the call over to nLIGHT's Chairman and CEO, Scott Keeney. Scott?

Scott Keeney: Thank you, John. Our first quarter results represent a strong start to 2025, with revenue, gross margin, and adjusted EBITDA all above the high end of our guidance range. The outperformance was primarily driven by another quarter of record defense revenue, which represented more than 63% of total sales in the quarter, up from 49% in the same quarter a year ago. Furthermore, this growth was supported by significant expansion in defense product sales, which grew more than 50% year over year. We are uniquely positioned to drive continued growth in A&D with leading high-power laser technology developed over the past two decades across the entire technology stack from chips to full laser systems, which is supported by our US manufacturing sites.

Our products in A&D are also well aligned with many of the Department of Defense's most critical priorities, such as directed energy and laser sensing. During the first quarter, we delivered strong results in each of these critical markets. Directed energy lasers complement traditional kinetic defense by offering a deep magazine, low cost per engagement, and speed of flight delivery. These systems can neutralize a wide range of targets, including drones, rockets, artillery, mortars, and missiles, while also rebalancing the economics of protecting key assets. We continue to make progress on our HEL-TD program. As a reminder, this is a $171 million DoD program to develop a one-megawatt high-energy laser with a completion date expected in 2026.

The shipment of critical components towards this program was a significant driver of record defense product revenue in the quarter and is expected to be a substantial contributor to growth through the remainder of the year. Our work on the Army's DEM SHORAD effort, which is programmed to develop a 50-kilowatt high-energy laser for short-range air defense, continues to progress, and we expect to complete our work on this contract in the middle of the year. The success we have achieved to date in key programs reinforces the importance of our vertical integration strategy in the directed energy market, where we leverage our entire technology stack to deliver the highest performing and most cost-effective high-energy lasers. This success has increased interest in our directed energy capabilities both domestically and among our international allies.

In the US, we continue to respond to RFPs associated with the President's Golden Dome executive order, which specifically highlights non-kinetic missile defense capabilities as an area for development. With the mandate to build these systems in the United States, we believe we are well-positioned to benefit from this effort over the coming years. Internationally, our work to support the Israeli Iron Beam program is progressing, and we have a growing pipeline of new opportunities that we expect to begin closing in the coming quarters. We have generated revenue at nearly every level of vertical integration in the directed energy market, and we have established ourselves as one of the most comprehensive suppliers to the US government, other prime contractors, and foreign allies.

We also continue to gain momentum in our laser sensing markets. Our laser sensing products include missile guidance, proximity detection, range finding, and countermeasures, and have been incorporated into several significant and long-running defense programs, all of which remain key defense priorities under the current administration. Our historical performance on these programs and our early success on multiple classified programs have created many new opportunities for us in this market. Over the last several quarters, we have bid on multiple new programs that have increased both the number of opportunities and the size of our sensing pipeline. In addition, further opportunities in the Golden Dome initiative have emerged and could become a significant contributor to our growth in defense in 2026 and beyond.

The solid start to the year combined with our growing pipeline of both directed energy programs and laser sensing opportunities gives me increased confidence that we can grow our revenue in aerospace and defense by at least 25% in 2025. Turning to our commercial markets, overall, our industrial and microfabrication markets remain challenging, though we did see some improvement compared to last quarter. The sequential growth in our commercial markets was driven by an increase in microfabrication sales, as operations at our Thai contract manufacturing partner have stabilized, enabling us to satisfy customer demand. While we are pleased with the stabilization of manufacturing, demand is expected to remain weak through the remainder of the year.

Longer term, we remain optimistic about opportunities for growth in metal additive manufacturing, particularly within the aerospace and defense markets, as they look to accelerate prototyping timelines and build resiliency into supply chains with domestic capabilities. Before I turn the call over to Joe to review our first quarter financial results, I'd like to briefly touch on the topic of tariffs. We have spent a significant amount of time over the last couple of months evaluating many different scenarios, and while there continues to be a significant amount of debate and uncertainty around what the tariff landscape will ultimately look like, the impact of these extraordinarily high tariffs on the overall economy, demand from our customers, and material costs for our products, there are a few comments I would like to make.

First, we do not expect a significant impact on our business in defense over the long term. Over the short term, however, there may be some margin variability in our defense products as a result of the tariffs placed on some of the important materials used to manufacture these solutions. While the ultimate impact of tariffs on these products is still to be determined, we do not expect them to have a significant negative effect on our demand or long-term profitability of these solutions. Outside of defense, we have shifted the production of our commercial lasers from Shanghai, which we closed in late 2024, to our automated facility in the Pacific Northwest and to our contract manufacturing in Thailand. Our ability to shift manufacturing between the US and Thailand should enable us to better manage tariff-associated risk.

In summary, I'm pleased with the strong start to 2025, particularly around the ramp of our defense products, and I'm increasingly confident about the long-term growth in A&D based on our unique leadership across the technology stack for high-power lasers. Let me now turn the call over to Joe to discuss our first quarter financial results.

Joe Corso: Thank you, Scott. Total revenue in the first quarter of 2025 was $51.7 million, an increase of 16% compared to $44.5 million in the first quarter of 2024. Aerospace and defense revenue was $32.7 million in the quarter, up 50.4% year over year and 8.6% sequentially. Growth in the quarter was driven by increased defense products revenue, which increased more than 150% compared to the same quarter a year ago, primarily due to increased deliveries of components into our HEL-TD direct energy laser program. We expect A&D revenue to grow sequentially in the second quarter of 2025, and as Scott mentioned earlier, we feel increasingly confident that full-year revenue from our A&D market will grow at least 25% year over year.

First quarter revenue from our commercial markets, which includes industrial and microfabrication, was $19 million, a decrease of 16.8% year over year but up 9.9% sequentially. Revenue from these markets was largely in line with expectations as industrial demand remained weak, and the quarter-over-quarter improvement in microfabrication sales was largely a result of our manufacturing partner being able to satisfy orders that had been previously unable to ship. Product revenue for the first quarter was $35.7 million, an increase of 21.5% compared to $29.4 million in the first quarter of 2024. The year-over-year increase in product sales was due to growth in defense product revenue, partially offset by a decline in commercial revenue. Development revenue of $16 million in the first quarter increased 5.4% compared to the same quarter a year ago.

Total gross margin in the first quarter was 26.7%, compared to 16.8% in the first quarter of 2024. First quarter gross margin included approximately a $1.9 million benefit related to duty reclaim. Excluding the impact of this benefit, total gross margin for the first quarter would have been approximately 23%, which is still above the high end of our guidance range, as both product gross margin and development gross margin were ahead of expectations. Products gross margin in the first quarter was 33.5%, compared to 20.9% in the first quarter of 2024. First quarter products gross margin was positively impacted by higher product volumes, a favorable mix, and duty reclaim. Development gross margin was 11.5%, compared to 8.9% in the same quarter a year ago.

The upside in development gross margin was largely a result of program mix in the quarter. Going forward, we still expect development gross margin to remain in the 8% range. Operating expenses were $23.4 million in the first quarter, compared to $22.2 million in the first quarter of 2024. Non-GAAP operating expenses were $17.8 million in the first quarter, a slight increase compared to $17.2 million in the first quarter of 2024. GAAP net loss for the first quarter was $8.1 million or $0.16 per share, compared to a net loss of $13.8 million or $0.29 per share in the same quarter a year ago. Adjusted EBITDA for the first quarter was $116,000 compared to a loss of $4.9 million in the first quarter of 2024. Turning to the balance sheet, we ended the first quarter with total cash, cash equivalents, restricted cash, and investments of $117 million.

During the quarter, we drew down $20 million from our $40 million line of credit. Given the ongoing uncertainty surrounding the impact of tariffs and our expectations for increased working capital needs to support the growth in our A&D markets, we thought it was prudent to put a cash buffer in place on our balance sheet. Inventory increased to $43.8 million at the first quarter compared to $40.8 million at the end of 2024. The increase in inventory is primarily to support the forecasted ramp in direct energy products. Turning to guidance, based on the information available today, we expect revenue for the second quarter to be in the range of $53 million to $59 million. The midpoint of $56 million includes approximately $38 million of product revenue and $18 million of development revenue.

We expect A&D revenue in the second quarter of 2025 to increase sequentially and year over year, and weakness in our industrial and microfabrication markets to continue throughout the year. Turning to gross margin, products gross margin in the second quarter is expected to be in the range of 27% to 33%, and we expect development gross margins to be approximately 8%, resulting in a total gross margin range of 19% to 25%. As we've mentioned previously, as a vertically integrated manufacturing business, gross margin is largely dependent on production volumes and absorption of fixed manufacturing costs. In addition, we are navigating a highly uncertain global trade market. While we don't expect a significant negative impact to our margins in the second quarter, we could experience further margin pressure in subsequent quarters if the current structure and level of tariffs remain in place for the rest of the fiscal year.

Finally, we expect adjusted EBITDA for the second quarter to be in the range of approximately negative $4 million to positive $1 million. We continue to expect breakeven adjusted EBITDA with quarterly revenue in the $55 million to $60 million range. With that, I will turn the call over to the operator for questions.

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