nLight Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 7, 2025

Key Takeaways

  • Positive Sentiment: nLIGHT beat Q2 expectations with 22% revenue growth to $61.7 M and positive adjusted EBITDA of $5.6 M, driven by record Aerospace & Defense sales that rose to 66% of total revenue.
  • Positive Sentiment: nLIGHT made solid progress on the DoD’s $171 M HLSI-2 one-megawatt laser program, shipping key components that powered record defense product revenue and are expected to drive growth through 2025.
  • Positive Sentiment: Gross margin improved to 29.9% in Q2 (products margin 38.5%) on favorable mix and higher factory absorption, with Q3 guidance of 24%–30% total gross margin.
  • Negative Sentiment: Commercial markets revenue rose 11% sequentially in microfabrication and industrial, but nLIGHT does not foresee sustained demand improvement and is reallocating resources toward defense segments.
  • Positive Sentiment: nLIGHT ended Q2 with $114 M in cash and investments, improved working capital, and maintains Q3 adjusted EBITDA guidance of $2 M–$6 M.
AI Generated. May Contain Errors.
Earnings Conference Call
nLight Q2 2025
00:00 / 00:00

There are 10 speakers on the call.

Operator

Okay. We're ready to begin. Now once I transfer your lines, you will hear a silent hold briefly before I do the introduction. Transferring you across in three, two, one. Good afternoon, ladies and gentlemen, and welcome to the Enlight Inc.

Operator

Second Quarter twenty twenty five Earnings Call Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, 08/07/2025. I would now like to turn the conference over to John Marchetti, Vice President of Corporate Development and Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, and good afternoon, everyone. I'm John Marchetti, nLIGHT's VP of Corporate Development and 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.

Speaker 1

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 in 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 Keating. Scott?

Speaker 2

Thank you, John. Our second quarter results represent a strong quarter of execution across the board for nLIGHT. Revenue, gross margin and adjusted EBITDA were all ahead of our expectations. Results were primarily driven by our record Aerospace and Defense products and development revenue. A and D revenue represented approximately 66% of total sales in the quarter, up from 54% in the same quarter a year ago, and we expect this market to continue to be the primary source of growth for the company.

Speaker 2

We are well positioned to drive continued growth in A and 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 U. S. Manufacturing sites. Our products in A and D are also well aligned with many of the DoD's most critical priorities, such as directed energy and laser sensing. And during the quarter, we delivered strong results in both of these critical markets.

Speaker 2

In directed energy, we continue to make solid progress in our HLSI-two program. As a reminder, this is a $171,000,000 DoD program to develop a one megawatt high energy laser with a completion date expected in 2026. The shipment of critical components toward the Healthy II program was a significant driver of our record defense product revenue in the quarter and is expected to be a substantial contributor to growth throughout the remainder of the year. We are actively transitioning our low size weight and power, also known as swap, amplifier products into advanced production by leveraging nLIGHT's experienced manufacturing teams and implementing quality control processes. This transition, while not without risk, is critical as we continue optimizing our amplifier production line for higher volumes.

Speaker 2

Our work on the Army's DEM Shoreditch short range air defense program is nearing completion as we are scheduled to deliver our 50 kilowatt high energy laser and beam director to our partner for integration on the Stryker vehicle. Once this integration is complete, the system will begin field testing. In addition, we continue to respond to RFPs and RFQs associated with the President's Golden Dome executive order, which specifically highlights nonkinetic missile defense capabilities as an area for development. With a mandate to build these systems in The United States, we believe we are well positioned to benefit from this effort over the coming years, and we are hopeful that the coming quarters will provide additional details on the scope and timing of these initiatives. We've also continued to have success in the international markets for direct energy.

Speaker 2

In the second quarter, we began shipping to a new international customer, and we have a growing pipeline of new global opportunities as allied nations look to accelerate directed energy programs for cost effective counter UAS and other threats. 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 U. S. Government, other prime contractors and foreign allies. We also continue to perform well in our laser sensing markets.

Speaker 2

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 the 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 under the Golden Dome initiative have emerged and could also become significant contributors to our growth in defense in 2026 and beyond. The growing pipeline of both directed energy programs and laser sensing opportunities, along with our improved execution, gives me increased confidence that we can grow our revenues in aerospace and defense by at least 40% in 2025. Commercial revenue was also ahead of our expectations in the quarter, up sequentially on increases in both microfabrication and industrial.

Speaker 2

While these improvements are welcomed, we do not expect a sustained improvement in overall demand, particularly with respect to the majority of our industrial applications, and we continue to rationalize our investments in our commercial markets to make sure our resources are properly aligned with our growth opportunities. Longer term, we remain optimistic about growth prospects in additive manufacturing, where we see alignment with our A and D customers and our technology remains differentiated. Let me now turn the call over to Joe to discuss our second quarter financial results. Thank you, Scott. Our second quarter results were characterized by strong execution across the board.

Speaker 2

Better than expected revenue, a strong mix of business and higher factory absorption coupled with exceptional execution from our manufacturing and operations teams drove meaningful upside to our gross margin. That margin upside combined with operating expense discipline resulted in significant bottom line improvement demonstrating the leverage that is inherent in our business model. Total revenue in the second quarter was $61,700,000 an increase of 22% compared to $50,500,000 in the 2024 and up 19.5% compared to the 2025. Aerospace and Defense revenue was a record $40,700,000 in the quarter, up 48.6% year over year and 24% sequentially. A and D growth was driven by record defense products revenue, which grew 74.5% year over year and 18% compared to last quarter, primarily due to increased deliveries of directed energy products.

Speaker 2

Development revenue of $20,900,000 was also a record in the quarter, growing more than 30% both sequentially and year over year. We expect A and D revenue to grow sequentially throughout the remainder of 2025. Second quarter revenue from our commercial markets, which includes industrial and microfabrication, also outperformed our expectations at $21,000,000 a decrease of 9% year over year, but up 11% sequentially. In microfabrication, the biggest driver of the quarter over quarter improvement was satisfying some pent up demand that had been missed while we were transferring the last of our Shanghai manufacturing to our Thai manufacturing partner in the 2024. As a reminder, we no longer have any manufacturing operations in China.

Speaker 2

Revenue from our industrial markets was also up sequentially on better demand for our additive manufacturing solutions. And as Scott mentioned earlier, while we are pleased with the performance of our commercial markets in the second quarter, we do not view the sequential improvements as a sign that the overall demand picture has significantly changed from what we described in prior quarters. Total gross margin in the second quarter was 29.9% compared to 23.5% in the 2024 and twenty six point seven percent last quarter. Total gross margin benefited from better results in both products and development gross margins. Products gross margin in the second quarter was 38.5% compared to 30.3% in the 2024 and thirty three point five percent last quarter.

Speaker 2

Second quarter products gross margin was positively impacted by higher revenue, a favorable mix of business that's skewed towards defense products, higher factory absorption and exceptional execution from our manufacturing and operations teams. Development gross margin was 13.1% compared to 8.7% in the same quarter a year ago and 11.5% in the 2025. The upside in development gross margin was largely the result of better performance on some fixed price programs that were completed during the quarter. Going forward, we still expect development gross margin to remain in the 8% range. Operating expenses were $22,700,000 in the second quarter compared to $24,500,000 in the 2024 and $23,400,000 in the 2025.

Speaker 2

Non GAAP operating expenses were $16,800,000 in the second quarter, down from $18,100,000 in the 2024 and $17,700,000 last quarter. We expect non GAAP OpEx to remain in the $18,000,000 range in the third quarter.

Speaker 3

GAAP net loss for the second quarter was $3,600,000 or $07 per share compared to a net loss of $11,700,000 or $0.25 per share in the same quarter a year ago and a loss of $8,100,000 or $0.16 per share in the 2025.

Speaker 2

On a non GAAP basis, net income for the second quarter was $2,900,000 or $06 per diluted share compared to a non GAAP net loss of $4,600,000 or $0.10 per share in the 2024 and a non GAAP net loss of $1,900,000 or $04 per share last quarter. Adjusted EBITDA for the second quarter was a positive $5,600,000 compared to a loss of $1,600,000 in the second quarter last year and a positive $116,000 in the 2025. Turning to the balance sheet. We ended the second quarter with total cash, cash equivalents, restricted cash and investments of $114,000,000 We continue to make progress on improving our working capital. Our cash flow conversion days have improved over the last several quarters, and we remain focused on further improvement going forward.

Speaker 2

Turning to guidance. Based on the information available today, we expect revenue for the 2025 to be in the range of $62,000,000 to $67,000,000 The midpoint of $64,500,000 includes approximately $45,000,000 of product revenue and $19,000,000 of development revenue. We expect A and D revenue in the 2025 to increase sequentially and year over year. Turning to gross margin. Products gross margin in the third quarter is expected to be in the range of 32% to 36%, and we expect development gross margins to be approximately 8%, resulting in a total gross margin range of 24% to 30%.

Speaker 2

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. Finally, we expect adjusted EBITDA for the third quarter to be in the range of approximately $2,000,000 to $6,000,000 With that, I will turn the call over to the operator for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. You. Your first question comes from the line of Greg Palm from Craig Hallum Capital Group. Your line is now open.

Operator

Please go ahead.

Speaker 4

Yes, thanks. This is Danny Eggerich on for Greg today. Congrats on the really good results, guys.

Speaker 3

Thanks.

Speaker 4

I think we'll just start, obviously, with A and D, really good from both a product and development standpoint. So I guess you gave the guide last quarter and you kind of blew through that. So maybe just looking back, what went better than expected? What drove that outperformance between both product and development? I know there's some some project timing in there and whatnot, but maybe if you could just dig into that a little bit more.

Speaker 5

Yeah. Thanks for the question, Danny. It's fairly simple. We just executed very well in the quarter. These are all existing programs that we have been working on both on the product side and on the development side.

Speaker 5

And so the highlight in the quarter was, you know, continued success that we had with our amplifier sales, right, selling into our l c two program. That was a nice ramp and, you know, a little bit better than we expected purely based on on execution. There was no other customers or things that really dropped in that we had not expected during the quarter. So, you know, we were pleased to see that upside.

Speaker 4

Okay. Got it. And then, you know, you talk about some of these laser sensing programs. I think for the last few quarters, you've kind of mentioned bidding on multiple of these programs. I guess, you got any additional detail around maybe some new wins, start dates, kind of revenue recognition we could we can think about moving forward here, or any any extra detail there would be great.

Speaker 5

Yeah. Sure. So in the laser sensing side of the business continues to go well. I would say that there are really, you know, a couple of different thrusts in that business, the first of which are existing platforms that we've been delivering on for quite a long time. And so that was, you know, a a good quarter, on those programs.

Speaker 5

We expect those, you know, to continue as we as we move forward. And on some of those programs, you know, we expect higher volumes than we have had in the past just as, you know, our customers are needing to restock depleted inventory levels, and, you know, they're finding, some of the platforms are finding new use cases. So those are the things that we've been working on for a long time. And then the things and and the programs that we, that are newer, a handful of which are classified, we still are making good progress on. I think we said in prior quarters that we expect to begin work on, the next phase or the LRIP phase on one of those programs here, in the second half.

Speaker 5

And so that that remains intact, but we feel good about what, you know, we've delivered and the success of our portion of that program. Now it's a little bit of a of a waiting game until, we actually get that that order, but we believe it's forthcoming.

Speaker 4

Okay. Got it. Maybe just one last one on the gross margin, maybe the product margin specifically that 38.5%, that's well above anything we've kind of seen for the product side before. I guess just looking ahead, you've called out kind of mix and overhead being benefits in Q2. The Q3 guide implies sequential revenue growth and obviously growth in A and D as well, but kind of a step down in that gross margin.

Speaker 4

So maybe anything, some puts and takes you can give on the gross margin on the product side there?

Speaker 5

Yeah. Absolutely. So, second quarter gross margin, we were really happy with how it turned out. Right? I mean, we had higher volumes.

Speaker 5

We operated our manufacturing and operations, did, an exceptional job during the quarter. You know, we had better factory absorption. And so, you know, many of the things that we go into any given quarter, you know, seeking to forecast. Right? There's no, you know, one big item that drove that outperformance.

Speaker 5

It's a handful of, you know, small things that this quarter, all went all went very well. And so I think that is a similar answer to, you know, why you saw a little bit of a step down in the gross margin into the third quarter. Some of those things that went, exceptionally well in the second quarter as we forecast going forward, right, we're not gonna forecast that upside. Yeah. Could that happen again?

Speaker 5

Yes. But that's not something that, you know, we're banking on nor do I think that, as you're building your model, you should bank on. But, you know, again, very happy with the performance this this quarter, and I think the read through is that it's indicative of, you know, the type of operating leverage that we have in our model.

Speaker 4

Okay. Got it. Thanks. Excited to see where we go from here.

Speaker 5

Thanks, Danny.

Operator

Your next question comes from the line of Jim Ricchiuti from Needham and Company. Your line is now open. Please go ahead.

Speaker 6

Hi, thank you. Good afternoon. And just given the increase that you have made to the 2025 outlook and given where we are at this point in the year, I'm wondering if you have any initial views on 2026. Just the market seems pretty healthy. You seem to be getting a combination of new awards.

Speaker 6

I think you alluded to one overseas. So maybe if there's anything any color you could provide as to how we might think about 2026 in this area of the business.

Speaker 5

Yeah, Jim. I wish I could give you, more than I'm about to give you. But at this point, it's just a little early for us to really start talking about 2026. I mean, there's, we certainly feel remain confident. Right?

Speaker 5

But there are a lot of things that we're that we're working on. The pipeline is continuing to grow. You know, we continue to have good backlog, but I think it's a little too early for us given the, you know, variability and timing and the like to start talking about 2026. But, you know, absolutely continue to think that, you know, there's there's upside, yeah, from '25.

Speaker 6

Alright. Maybe, let's take a step back and talk about the the increase to 2025. Maybe you could put a little bit more can give us a little bit more help on what's driving that. Is this coming from yes, it sounds like you have some customers that have depleted some inventories and are ordering. Is this coming from new program awards?

Speaker 6

Can you say which areas of your product portfolio the growth is coming from versus what you were thinking, say, three months ago?

Speaker 5

Yeah. So the growth is consistent what we were thinking of three months ago, and it's it's broad based. Right? We have growth from expected growth from some of our existing laser sensing programs As as I I said to in response to Danny's question, we do expect to have some revenue from new sensing program. We're gonna continue to deliver products into existing directed energy programs and continue to make progress on those broader high energy laser programs.

Speaker 5

So right now, as we're looking towards the back half of the year, we expect it to be broad based growth across our entire defense portfolio.

Speaker 6

K. And one other question for me, and I may have missed the significance of it. But you you talked, I think, about a an amplifier transition. Trying to understand what the significance of that is and maybe what the timeline, what it entails, and how meaningful is this for you?

Speaker 7

Hey, Jim. It's John. I I think that the the key there, and we've talked about this a little bit in the past, is, you know, we came into this year still doing the bulk of that amplifier manufacturing out of our, you know, engineering and r and d teams. And, you know, we've, you know, been been really transitioning that production into our normal manufacturing groups. And that that's very, very important for us because as we think about where we hope to take that business over time in order to scale to the to the right number of units and the volumes that we hope to be achieving, you know, we've gotta get that out of the hands of our, you know, r and d teams and and into the hands of our manufacturing folks.

Speaker 7

And so that process has been underway now for, you know, a couple of quarters. Again, as as as Joe mentioned, you know, we we had a lot of really good successes from all of our teams, you know, in the second quarter, which which allowed us to do really well in in in that transition. We still have a little bit of ways to go to make sure we're locking all of that down, but but I think we're making really good progress there. And like I said, it's important for us as we think about how that line, you know, should expand from a a volume perspective as we look out over the next several years.

Speaker 8

K. Thank you.

Operator

Your next question comes from the line of Ruben Roy from Stifel. Your line is now open. Please go ahead.

Speaker 8

Sorry if I'm repeating Jim's question, but I think Scott mentioned that sort of the increase from kind of previous expectations for, I think, 25% growth for A and D in this year moving to 40%, was driven by Healthy 2%. Is that the wrong understanding that I have? I get you on broad based sort of improvement across the Aerospace and Defense business. But it just seemed like compared to ninety days ago, you executed on bitmens into healthy too, and that kind of drove the sort of near term upside. And it sounded to me like that was the program that was going to drive sort of the increased expectations for '25, or am I getting that wrong?

Speaker 8

Thank you.

Speaker 5

Hey, Ruben. No. You're you're absolutely right. As we entered the year, you know, we had an expectation for what we thought we could do in terms of delivering hardware into that healthy two program as we've gone through the year and have continued to make strides in terms of improving our manufacturing of those products and increasing capacity of of of the line. Right?

Speaker 5

That's not something that, you know, happens overnight. It's a it's a journey as we're starting to really ramp up there. So I would say that, you know, that there was an improvement on on that end of it. And there's a there's a follow through, which is, you know, to the extent that we can deliver, hardware into those programs or into the l c two program in particular means we can start to accelerate some of the, you know, development work that we're doing on top of the those, on top of those amplifiers. So, you know, you've got sort of a a knock on effect.

Speaker 5

And then the third piece of it is as we are transitioning, you know, from one program to another or one phase of a program to another in the new laser sensing program, that's another area of of growth. And then finally, we do have a a few new customer wins. Right? We're we we can't be, you know, explicit in terms of names, but we've talked about, you know, the international side of our directed energy business being an opportunity for us. And so, you know, we're starting to convert some of those early opportunities, which is what led me to talk about just sort of, you know, broad based growth across that entire portfolio.

Speaker 8

Mhmm. Yep. Okay. Thank you for clarifying. And then, John, on the amplifier transition or amplifier moving into kind of more of a production setup, are there specific qualification milestones that come with that?

Speaker 8

Or is it sort of just getting know, kind of lines running and, you know, getting the product out and, you know, test it assembled and and and off you go? I'm just trying to understand Yeah. Sure. You know, sort of if there's yeah. Go ahead.

Speaker 7

No. No. I I get it, Wim. And I think what I would say to that is there are certainly internal things that we're looking as we are, you know, continuing to to to go through that transition. So I wouldn't say it's, you know, acceptance criteria for you know, as Joe mentioned, we've been shipping amplifiers now for for a while into a number of these programs.

Speaker 7

So it's it's not like we're doing something differently for, you know, the customer acceptance, but we're certainly internally trying to make sure that we're putting in all the, you know, controls and and and processes that we need specifically around these, these new products to make sure that that transition over to the manufacturing teams, goes as smoothly as possible.

Speaker 8

Got it. Great. Thanks. Congrats on the results and outlook.

Speaker 5

Thank you. Thanks, Ruben.

Operator

Your next question comes from the line of Rodney McMullen from Rothcoast Research. Your line is now open. Please go ahead.

Speaker 9

Hey, thanks guys for taking my questions and congratulations on the great quarter. I know you just talked about the new international customer. I was just wondering if you could maybe shed some light on the size and scope of that opportunity and if you see any execution risk there. And I have a follow on after that.

Speaker 3

Hey, Rodney. It's Scott here. Yeah. I'll I'll say what I can. You know, look, I we do see direct energy is not just a US domestic opportunity, but very strong international set of opportunities, and we continue to get new design wins around the world.

Speaker 3

Can't really comment on any of the particulars beyond that other than to say that, yeah, it's it's material. There's some good sized programs. And and, frankly, these are all still in the early stages, so we see bigger opportunities ahead, both, in The US and around the world.

Speaker 9

Got it. Thanks for that. And then Scott, you mentioned continuing to rationalize investments in commercial markets to align with resources. Just any color on what specific areas you guys might be pulling back from? And I saw one of your main competitors recently.

Speaker 9

It seems like they're starting to lean into more systems. I'm just wondering if you guys have any plans for that or any color you guys could shed on that would be great.

Speaker 3

Absolutely, Ronnie. Yes. I think one of the things we highlighted was that we do see growth in additive and continue to see opportunities with the differentiated technology we have there. But in, you know, in some of the other markets we've talked about, it's an area where, you know, we don't see as attractive growth opportunities. And so, fortunately, you know, the engineers that that helped build some of the the key industrial lasers are are working on, new defense based lasers now.

Speaker 3

So that's the sort of rationalization we're going through. And, you know, fortunately, we're in a great position to have a very strong team that is pivoting over.

Operator

There are no further questions at this time. Please continue, mister John Marchetti.

Speaker 7

Thanks, everyone, for joining us this afternoon, and for your continued interest in nLIGHT. We will be participating in a number of conferences over the the coming weeks and throughout the remainder of the quarter. So I look forward to talking to everybody there, and, hope to talk to you soon. Thanks very much. Have a great day.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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