nLIGHT, Inc. (NASDAQ:LASR) is a leading provider of high-power semiconductor and fiber lasers for industrial, microfabrication, and aerospace and defense applications. Founded with the vision that laser technology would rapidly improve and open up new applications, nLIGHT has undergone significant business and manufacturing strategy shifts in recent years to position itself for long-term growth.

Financials

In 2023, nLIGHT reported annual revenue of $209.9 million and a net loss of $41.7 million. The company generated annual operating cash flow of $10.1 million and free cash flow of $4.8 million. While the financial performance was impacted by various headwinds, nLIGHT has taken strategic actions to navigate these challenges and capitalize on emerging opportunities.

Strategic Changes

One of the most significant changes for nLIGHT was the rapid and dramatic geopolitical shift with respect to China. In response, the company shifted its manufacturing footprint away from China and into the U.S. and a contract manufacturer. This strategic move, coupled with the development of innovative products for the metal additive manufacturing market and the acquisition of Nutronics to deepen its presence in directed energy, has been a drag on nLIGHT's recent financial performance. However, the company's disciplined operational expense control and working capital management have strengthened its balance sheet, with $121.3 million in cash, cash equivalents, restricted cash, and investments as of the end of the first quarter of 2024.

Business Overview

nLIGHT operates in two reportable segments: Laser Products and Advanced Development. In the first quarter of 2024, the company reported revenue of $44.5 million, down 17.7% year-over-year. The Laser Products segment generated $29.4 million in revenue, while the Advanced Development segment contributed $15.2 million. The decrease in Laser Products revenue was driven by lower sales across the Industrial and Microfabrication markets, partially offset by growth in the Aerospace and Defense market.

The company's gross margin in the first quarter of 2024 was 16.8%, compared to 26.4% in the same period of the prior year. The decrease in gross margin was primarily due to the impact of lower production volumes on fixed manufacturing costs in the Laser Products segment. nLIGHT expects product gross margin to improve as overall volumes increase throughout 2024.

Outlook

Looking ahead, nLIGHT sees significant growth opportunities in its Aerospace and Defense business, which accounted for 48.9% of total revenue in the first quarter of 2024. The company is working on programs with strategic importance to the U.S. government and has a funded backlog plus contract value exceeding $300 million, providing strong visibility into its revenue pipeline over the next several years.

Specifically, nLIGHT's laser sensing and directed energy products are driving growth in the Aerospace and Defense segment. Laser sensing products, used in applications such as missile guidance, proximity detection, and countermeasures, have been incorporated into several significant and long-running defense programs. In directed energy, the company is designing and building solutions aimed at addressing a growing range of threats to military forces and infrastructure, leveraging its leading technology capabilities and vertically integrated business model.

While the company's commercial markets in Microfabrication and Industrial are expected to grow over time, nLIGHT anticipates 2024 will be a down year from a top-line perspective due to persistent inventory corrections and soft demand across the industry. However, the company remains optimistic about the long-term growth prospects in these markets, particularly in the metal additive manufacturing space, where its innovative products have demonstrated the ability to significantly increase build rates and reduce part costs.

Q2 2024 Guidance

In the second quarter of 2024, nLIGHT expects revenue to be in the range of $47 million to $51 million, with product gross margin between 23% and 27% and development gross margin of approximately 9%. The company also expects adjusted EBITDA to be in the range of negative $1 million to negative $5 million, with the goal of reaching breakeven adjusted EBITDA at quarterly revenue levels of $55 million to $60 million.

Geographic Revenue Breakdown

nLIGHT's geographic revenue breakdown in the first quarter of 2024 showed that North America accounted for 64.5% of total revenue, followed by the Rest of World at 27.8% and China at 7.7%. The company's revenue mix by end market was 48.9% Aerospace and Defense, 26.9% Industrial, and 24.2% Microfabrication.

Conclusion

Despite the challenges faced in 2023, nLIGHT remains well-positioned for long-term growth. The company's strong balance sheet, innovative product portfolio, and strategic focus on the Aerospace and Defense market provide a solid foundation for future success. As nLIGHT navigates the current market environment, investors will be closely watching the company's ability to execute on its growth plans and capitalize on the emerging opportunities in its key markets.