Q1 2021 nLIGHT Inc Earnings Call
[music].
Good afternoon, everyone and welcome to the NN life first quarter 2021 earnings conference call on.
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After todays presentation, there will be an opportunity to ask questions Tom.
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At this time I'd like to turn the conference call over to Joseph Corso, Vice President corporate development and Investor Relations. Sir. Please go ahead.
Thank you and good afternoon, everyone with US today are Scott Keeney, enlighten, chairman and CEO and Ron bracket, Chief Financial Officer, today's discussion will contain forward looking statements, including financial projections and plans for our business forward looking statements are subject to risks and uncertainties many 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 measure to the most directly comparable GAAP financial measures in our earnings release, which can be found on the Investor Relations section of our website I will now turn over the call to Scott.
Thank you Joe starting on slide three Q1 was a strong start to the year for Enlink, we generated approximately $61 million of revenue, which was at the upper end of the guidance. We provided in February and the highest first quarter revenue in our history.
Q1 revenue increased by 42% year over year and was driven by broad based growth in each of our end markets.
We continue to see strong secular demands from our high power lasers and there are multiple key themes that continue to drive our growth.
And industrial lasers continue to displace legacy technologies and enable new manufacturing processes. Examples include electric vehicle production and metal additive manufacturing.
In micro fabrication lasers are key to enable advanced electronics and next generation networks.
In defense directed energy lasers are becoming a critical requirement to address emerging threats to our national security.
The trends, we saw from our global semiconductor non fiber laser customers during the quarter have continued into Q2.
We remain confident about the prospects for strong 2021, and our long term growth trajectory.
Turning to slide four to discuss revenue by end market.
Our aerospace and defense segment had another strong quarter Q.
Q1 revenues increased by 47% year over year and represented 40% of our total revenue in the quarter.
Performance this quarter was driven by the strong base of business, we have with our long term core defense customers and the continued progress and directed energy.
In directed energy, we continued to improve our performance across our vertically integrated technologies from high powered diodes fiber amplifiers and beam delivery technologies and we continue to believe in the long term opportunity that we have on this market.
In the industrial market, our business grew 34% year over year in the first quarter, which was driven by growth from both our Chinese and rest of world customers.
We saw an increase in our rest of world customers order patterns as they continue to ramp up to meet their customer demand forecasts.
Driven by increasing demand for our programmable products, our revenue with several key <unk> customers was better than we expected.
And we increased the number of their products into which our lasers are designed in.
In China, we saw the typical lunar new year slowdown, but demand for our highest power fiber lasers increased meaningfully year over year.
We also have continued to make excellent progress in additive manufacturing.
The response, we received to our newly released programmable single mode laser, which we call. The FX 1000 has been positive multi.
Multiple leading metal additive manufacturing tool companies are in the process of qualifying our lasers based on improvements in build rate and part quality.
In micro fabrication, our sales increased 46% compared with the first quarter in 2020.
We grew year over year revenue across all geographies.
Revenue from our <unk> customers grew significantly year over year and exceeded our internal expectations.
We believe that improving demand from our customers is being driven by increased demand for laser processing solutions required to manufacture <unk> infrastructure and handsets and advanced electronics.
Our high brightness high power semiconductor lasers offer the best performance in the industry and are the critical enabling component of many of the leading pulsed nano Pico and Femtosecond lasers available on the market today.
We continue to develop innovative micro fabrication solutions that address advanced electronics medical and other markets.
Turning to slide five to discuss revenue by geography.
In the first quarter, we increased our revenues in all geographies and China Q1 revenues grew 29% year over year to $15 6 million.
First quarter sales to customers outside of China grew 47% year over year to $45 8 million, representing 75% of our total revenue.
I will now turn the call over to Ron to discuss <unk> first quarter financial results.
Thank you Scott and good afternoon, everyone.
Beginning on slide seven.
First quarter revenue of $61 3 million was in the upper end of our guidance range up 42% year over year.
First quarter product revenue was 47 3 million an increase of 28% above the first quarter of 2020 and first quarter development revenues.
Was $14 million, an increase of 123% above Q1 2020.
Although we have stopped reporting on <unk>.
A separate revenue line given the acquisition closed more than a year ago and Neutrolin ex has become an integrated part of our overall business.
The increase in development revenue in the first quarter of 2021 was mainly driven by higher development revenue related to Diavik energy project work, the total and explore form for the U S government.
Turning to slide eight to provide more detail into our gross margin.
Overall gross margin was 28, 8% in the first quarter versus 22% in the comparable period of 2020.
Product gross margin was 35, 8% in the first quarter compared to 24.
5% in the first quarter of 2020.
Although the year over to you margin improvement was the result of higher sales to non China industrial global micro fabrication and aerospace defense customers.
Turning to slide nine.
Non-GAAP operating expenses were $15 1 million during the first quarter compared with $12 1 million in Q1 2020.
The majority of the year over to you increase was related to higher R&D spending.
As we've discussed in the past, we will continue to prioritize R&D spending in order to continue to capitalize on the various organic opportunities we see in our business.
Turning to slide 10.
Non-GAAP net income in the first quarter was $2 6 million compared with a loss of 3 million on during the first quarter of 2020.
Non-GAAP EPS for the first quarter was <unk> <unk> per diluted shares compared with a loss of <unk> <unk> per share in the first quarter of 2020.
On a GAAP basis EPS for the first quarter was a loss of <unk> 15, compared with a loss of 20 during the first quarter of 2020.
First quarter, adjusted EBITDA was $6 million or approximately 10% full sales.
This compares with 237000 in Q1 2020.
Our view overly use improvement in adjusted EBITDA in Q1 was a result of higher gross profit and continued opex discipline.
The first quarter in the first quarter, we generated approximately $4 1 million in operating cash versus a use of $1 1 million in Q1 2020.
Our capital expenditure in Q1, 2021, with a $3 2 million versus $15 5 million in the first quarter of 2020, which included approximately $12 5 million to purchase our <unk> facility.
Capital expenditure in the quarter were related mainly to capacity expansion for our direct energy operation and increased facility automation.
Yes.
Turning to slide 11.
We ended Q1 with total cash and cash equivalents of approximately $186 million.
The range of 26% to 30%.
Gross margin is expected to be on a range of 72% to 76%.
We expect development gross margin to be approximately six 5%.
For the second quarter, we expect adjusted EBITDA to be in the range of 5 million to 8 million on.
Q to adjusted EBITDA range assume that non-GAAP opex increased slightly.
And depreciation and amortization is approximately three $9 million.
We expect Q2 average basis shows to be approximately 43 $3 million, which includes approximately 2.5 million shows issue in conjunction with our March follow on equity offering.
We that I will tell them to call back over the operator for questions.
Ladies and gentlemen at this time, we'll begin the question and answer session.
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And our first question today comes from.
<unk> door Smyre from Kenacort Genuity. Please go ahead with your question.
It's a george migraines or possibly your phone was on mute.
Oh, Yes, sorry can you hear me now.
We can please.
Perfect. So congrats on a strong corner I guess first question is you know if I if I look at your results compared to some others in the space you seem to you know be ex you're executing of of some of your competitors and I'm wondering why.
Current vehicles.
There seems to be a much higher level of automation from a welding and cutting perspective, particularly around battery I was wondering if you might just.
Provide an update on that industrial side in terms of what Youre seeing there and then as my as a.
A follow up.
On the VIX oil side of things or upstream manufacturing I know you have your euro manufacturing any issues in terms of.
From a capacity perspective.
And I'll jump back in queue. Thanks.
Yes.
On your first question, yes, Sir.
Broad secular trend towards EV is one that.
Again.
Provides an attractive growth opportunity for lasers, because the intensity of use and lasers.
For EV from from the battery processes, all the way through to light weighting of vehicles.
On welding and cutting.
Provides for more opportunities for lasers.
And again I think it's a market that.
We will continue to expand and offer more opportunities.
And then on your second question around.
Our fab capacity.
We're in a good position with our fab capacity.
We have made the capex.
Investments over the last few years.
In that.
The front end capacity, we continue to expand in the back end and we continue to expand notably in automation there and.
So.
So we don't see internal capacity constraints on that front.
Thank you.
And our next question comes from Jim Ricchiuti from Needham <unk> Company. Please go ahead with your question.
Alright. Thank you good afternoon.
Scott and I know youre removed, probably a bit from this but what I'm wondering is with all the.
Talk about component constraints and whatnot.
Are you at.
At all concerned that some of the folks who are selling to might be experiencing some disruptions, whether it's in the industrial market or perhaps to some of the solid state laser companies that sales that might be seeing some impact from their customers I don't know, if you're seeing or hearing any yes.
That's a very good question, Jim and absolutely it's one of the topics that.
<unk> been spending more time on.
The way that youre approaching on working with our customers because we are seeing.
Across all kinds of different supply chains.
Various gaps and.
So for example, our industrial customers are facing.
Gaps in terms of.
Being able to hire people.
Being able to source certain components and so they're all very specific detailed examples but yes, we do see that playing out and we do work closely with our customers will be out visiting with one of our key customers in.
We've been exchanging notes on different strategies to address these these topics so.
We don't see it as a fundamental issue that were facing but there are.
<unk> of gaps that we do see out there.
Got it and the follow up question I have is just with respect to additive you guys have been an additive for a while and so I think you probably bring some some a bit of a unique perspective to what's happening on the market and so what youre seeing.
Do you the activity that Youre seeing you talked about being qualified.
Some of the newer customers.
Are you seeing a larger market opportunity is there are there share gains is this market moving to a different level than say versus a couple of years ago.
Yes, good we have been involved in additive for quite some time and we are seeing.
On a very positive migration to fulfilling the promise of additive.
Certainly we will take time to displace higher volume applications.
But we are seeing progress across a wide range of different customers.
That have some different approaches for the technology, but I think <unk>.
Find theme across them all is that it tends to push.
The requirements and on very high performance laser and we're well positioned there.
And additive you need the the laser do you need.
The ability to the various software that's included there and other mechanical processes, but that laser is a critical part of.
Of that laser sintering process.
And what we're seeing is.
Product development from the customers that is fulfilling that promise and then using lasers using more lasers, using some higher power lasers using programmable lasers.
And using lasers that have a higher performance of beam quality.
And that is.
Served us very well.
Any way to size how.
This report this might represent of your industrial business.
Yes were not breaking that out right now, but we do see it as the <unk>.
Growing segments of our of our business there and we're looking forward to some of the trade shows. This fall we're on new products will be introduced and certainly we'll work to try to get more information out to you all on what we see going on there.
Got it thank you.
Thanks, Jim.
And our next question comes from John Marchetti from Stifel. Please go ahead with your question.
Thanks, very much I was wondering Scott if you could just take a moment and talk about some of the success. Obviously you saw this quarter and rest of world. How much of that you think is a function of.
The overall environment getting a little bit better and then things started to open up a little bit post pandemic versus some of the products that you've introduced over the last year year and a half gaining more traction. So if you could just maybe talk a little bit about that dynamic and maybe how we think about it playing out over the next 12 to 24 months.
<unk>.
Yes happy to John.
Similarly, I think it's a bit of both what we're seeing is our customers.
By and large are doing well and in many of them have discussed with me on how they're effectively sold out right now.
And really struggling to meet the demand that they see.
So there is that overall market growth that we see in addition to that.
Kind of further amps line that is the progress we continue to make on our design wins.
And when you get into the rest of the world.
It takes longer to get those design wins, we've been working on them for some time and.
We're making.
Progress thats exceeding even my expectations in a few key customers as they adopt again are newer.
Power levels, and most notably the programmable lasers that we offer so both factors are working together.
Again, we're looking forward to some of these trade shows hope that fab Tech in Chicago will take place in September and certainly that will be at a time, where there'll be I think much more information about some of the new products that are out there.
Great and then maybe just as a follow up on the programmable laser side just curious in terms of feedback that you received.
Where customers see that outperforming.
Some of the competition that's out there because it's a question we get a fair bit about where it really differentiates versus some others out there. So would appreciate your perspective on that.
Yes good.
I think that the whole concept of E beam that can be modified for the material process is one that again, it's been around for quite some time, but in terms of the real verified set of products. That's really been on over last few years that thats really expanded and we're seeing that validated occur.
Ross all the end markets in the industrial markets.
And in cutting.
I think we've got a distinct value proposition in that space.
And then similarly in.
In the additive space.
We know of no other product that can hit the specs that we can hit in that space and welding Theres a few other examples out there.
<unk>.
I think again it validates the need for Programmability.
But theres a few different ways to to provide for that in that space, so cutting and additive or where at least for us with our particular products today, we have greater distinction.
Great. Thanks, so much Scott.
Thanks, Sean.
And our next question comes from parent cash Mitra from <unk>. Please go ahead with your question.
Hi, Thank you good afternoon.
Question on the.
On the pricing trends that youre seeing in the industry and the laser industry I was wondering if you could comment on that.
And I'm asking because there have been some signs of inflation and parts of the semiconductor market. So just curious if you're seeing some of the signs of inflation and lasers as well.
Yeah. Good question so.
Generally lasers have continued to improve performance.
And the price performance has improved dramatically, which has allowed the displacement of other legacy technologies and we see that continuing we continue to drive our costs down.
Through new products higher performance better yields.
And so we see that continuing so we don't see infer.
Inflation directly and anything that I could note today in lasers, we certainly see it in.
Various markets that we serve certainly metal prices and other examples abound for where theres signs of inflation, but we don't see it directly in lasers.
Got it and you haven't announced price hikes for your product.
In recent months either on tobacco Scott.
Correct.
Got it got it and then I mean, realizing your industrial laser business is not just China, it's global.
There had been some weakness in industrial indicators coming out of China recently, so just wondering if youre seeing some of that macro level weakness in your customer order pattern in China or not so much.
Well as you said.
For US 75 percentage of our sales are outside of China.
But in China, we did see growth.
We're seeing continued opportunities for growth in China.
And how those sort of PMI metrics or other metrics may affect the market there.
Hard to say.
So it's not the core set of metrics that we're focused on and.
And we do see continued growth opportunities for us.
Fair enough. Thanks, Scott.
Scott.
Once again, if he would like to ask a question. Please press star and one.
Our next question comes from Greg Palm from Craig Hallum Capital Group. Please go ahead with your question.
Yeah, Thanks, Hi, everyone.
Just following up on the last question I mean based on what you've seen in April and maybe the first week here here in May I mean are you seeing any change in demand trends either by geography or by end market.
Yes.
The outlook that we provided reflects what we see in terms of continued growth.
And.
It's nice now to be vaccinated, and traveling and seeing customers and getting even deeper insights and certainly what I'm picking up in those conversations is that many of our customers are seeing demand that's exceeding what they had anticipated. So yes, we see support for continued growth.
Q2 in China is always.
Typically a stronger quarter.
And then outside of China.
Coming out of COVID-19.
Theres, a fair amount of pent up demand that we can see out there.
Got it makes sense.
Then on on gross margins back to back quarters of 36% for product and if I. If I look at Q2 revenue guide for product Youre guided nicely above this past quarters, but gross margin for that segment is expected to be down a couple of hundred basis points. If my math is right. So.
I'm guessing that's just mix related but wanted to confirm that or ask if there was something else I was missing.
No you're not missing anything that you can see a nice improvement in the last few quarters.
Difficult improvement in the margin and what I'm talking about the margin on.
Talking mainly about the products margin that's device measurement, otherwise you would need to consider that mix between development and product, but when youre looking at the product margin you would see a nice improvement the guidance the guidance that we provided on.
On the.
On the product commodity.
With some slight change in the mix, though this is why we believe that.
We might be a little bit lower but going forward again, keeping in mind that the growth that we are talking about is coming from it's coming from industrial outside of China.
<unk> from Aerospace and defense day.
All of those revenue is coming with the highest ever reach margin that we have right now that will help us to improve the margin and I can just repeat what we said last time.
We are feeling comfortable that in the future that 40% margin product margins as we talked about it couldnt be definitely reachable.
Okay, Great Alright, Thanks best of luck going forward.
Thank you.
Our next question comes from Mark Miller from the Benchmark Company. Please go ahead with your question.
I'm, just wondering what percent of lasers with powers above six kilowatt for in terms of total fiber sales.
Let's see hold on Mark let me pull it up to make sure I can give you that precisely the right number.
<unk> above six kilowatt, Inc, Q1 was 54%.
So we do see continued migration to higher power fiber lasers and and.
And we continue to release new products.
Benefit from that trend.
One of your competitors this week.
Said during their earnings call that they had picked up some share in your addressable being market I'm just wondering.
Any comments on that.
Well I don't I don't know what that was referring to I think that again, what we call programmable beam technology really is the key.
On overarching trend in the industrial markets and so we see that continuing to drive all the end markets. So I'm not sure what they were referring to but we do see it.
Continuing to drive all those markets.
Thank you.
Scott.
And our next question comes from.
Tom definitely from D. A Davidson. Please go ahead with your question.
Yes. Good afternoon, Scott I was hoping you could tell us a little bit more about the sales cycle for the rest of the world industrial markets and maybe some way that we can track your progress over time in this space.
Yes, as I mentioned previously Tom it's a longer sales cycle than it depends on the country.
Certainly some of the key players larger players in Europe, and Japan can be on the.
Longer side, it's multiple years relates to develop the relationships the full product portfolio.
And so there arent.
Great metrics that I can share.
But certainly you can get insights as you see the products are released by our customers as I said the trade shows this fall on.
Good examples of that.
But we do we are making progress with.
Key Oems across all of the industrial segments.
And those are investments that we've made over the last year.
On some cases five years.
And we will see more as we continue to expand the products.
Okay. That's good to hear and then run on the margin front.
It seems like you typically have a fairly wide margin fourth quarter much more so than a lot of companies I'm curious.
Is there a reason is there not a lot of visibility into which tools are going to ship what causes the the 400 basis point range on your gross margin guidance.
It's only mix, it's only mix.
And again.
This could be a mix between the quarter between the end markets.
Space and defense.
Industrials et cetera, and weave in those end markets for example of industrial in China, and the rest of the world.
Different mix revenue is impact of all mortgages and typically you know in Q2, we know that China revenue will be will be higher probably like it used to be if we have recorded after the Chinese new year. So therefore, we might see a slight reduction in margin.
Over the quarter, but again the twin these worked what is important going forward and for the long run the revenue mix that we have that we are seeing going forward and the growth for the company will help us going forward net margin.
Once again, if you would like to ask a question. Please press star and one.
Our next question is a follow up from <unk> from Mr. <unk>. Please go ahead with your follow up.
Alright, Thanks, guys. Thanks for taking my follow up I just wanted to go back on the earlier question on electric vehicle battery manufacturing.
Yeah in that battery manufacturing process do you see the biggest opportunity for NN life.
Is it cutting or welding and any other color provide in terms of what types of lasers, you are selling in terms of power or wavelength.
Yes happy to comment on it.
It's across both welding and cutting.
Probably emphasize wellbeing more.
And it ranges from the battery processes themselves through.
On the manufacturing of the vehicles.
So it is really a fairly wide range of different applications.
Power levels here tend to be.
Lower than what we'd see in the very high performance.
Industrial cutting applications.
And once again that programmable beam.
<unk> pretty universally critical across.
This wide range of applications. So again, I think lasers art.
In a very strong the whole category of lasers are well positioned to support the trend to move to EV vehicles.
Thank you I appreciate that that's all I had.
I appreciate it.
And ladies and gentlemen, im showing no additional questions I'd like to turn the conference call back over to Joseph Corso for any closing remarks.
Yes, I just wanted to thank everybody for their time this afternoon and for your continued interest in <unk> will be participating in.
Various events over the next couple of months and we look forward to speaking with everybody during the quarter have a great afternoon. Thank you.
Ladies and gentlemen that does conclude today's conference call. We do thank you for attending you may now disconnect your lines.