Q3 2021 nLIGHT Inc Earnings Call
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Good day and welcome to the N. My third quarter 2021 earnings Conference call.
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I would now like to turn the conference over to Joseph Corso, Vice President corporate development and industrial Relations. Please go ahead.
Thank you and good afternoon, everyone with us today, or Scott Teeny, Enlighten, chairman and CEO and Ron Brackett 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 measures to the most directly comparable GAAP financial measures in our earnings release, which can be found on the Investor Relations section of our web site I will now turn the call over to Scott.
Thank you Joe starting on slide three Q.
Q3 was a strong quarter friend light, we generated a record 72 million of revenue, which was a 17% increase year over year Oprah.
Overall revenue growth this quarter was driven by growth in each of our end markets, which highlights the diversity in our business model.
We continue to focus on serving customers in multiple attractive markets and geographies with a diverse portfolio of high powered laser solutions.
In the third quarter more than 80% of our total revenue was from outside of China.
Based on a wide range of exciting programs and projects.
Turning to slide four to discuss quarterly revenue by end market in the third quarter Aerospace and defense revenues increased by 8% year over year and represented 38% of total revenue.
Year over year growth was driven by an increase in revenue from the direct energy development work, we are performing for the U S government.
Indirect energy the capability and performance of our semiconductor lasers amplifiers beam combination and beam control solutions continuing to improve at a rapid pace.
Moreover, we are engaged in multiple new direct energy related activities that can create additional long term opportunities for our <unk> business.
As a result, our development revenue in the third quarter increased by 68% year over year to $17 8 million.
Put that in context in Q1, 2020, which was the first full quarter post the acquisition of new Tronox, we generated approximately $6 $3 million of revenue.
In our core A&D business outside of direct energy, we have long term contracts to deliver mission critical products to defense customers.
Revenue was lower this quarter than the comparable quarter, a year ago, as we experienced certain temporary materials shortages and vendor quality issues related to some of the products, we sell to core defense customers.
In industrial our business grew 22% year over year in the third quarter to $26 7 million a new record for our business.
Furthermore, revenue from industrial customers outside of China was the highest in our company's history and was 40% higher than our previous record, which we achieved just last quarter.
Driven by Longterm design wins, and our customers current and next generation products across a wide range of applications and geographies.
We continue to see favorable demand trends from a wide range of applications ranging from consumer electronics displays solar cell manufacturing and EBIT production.
Turning to slide five to discuss revenue by geography.
In the third quarter sales to customers outside of China grew 38% year over year to $58.5 million, which represented approximately 81% of total revenue.
Third quarter revenue from outside of China was another record for and light on both an absolute basis and a percentage of total revenue.
And China Q3 revenues declined approximately 29% year over year $213.7 million.
A year over year revenue decline in China was driven by lower sales of fiber lasers into the industrial and market offset by year over year increases in sales to microfabrication customers.
As you May recall and light serves both the Microfabrication and industrial markets in China. Each of these markets required a different set of <unk> products and have different competitors and customers.
And Microfabrication, we sell primarily semiconductor lasers to manufacturers of high powered Dio pump solid state lasers, and we focused primarily on providing technically challenging products for the most demanding applications in this market.
While we faced competition.
Like we do in every market in which we compete we believe that our multi decade history of continued development of the brightest most reliable semiconductor lasers offices offers us a significant and sustainable competitive advantage.
An industrial we sell primarily fiber lasers for cutting and welding applications as.
As we've discussed in the past the industrial fiber laser market in China, particularly in cutting has continued to deteriorate as.
As prices continue to erode, we are being even more selective with respect to the business, we are pursuing and the China industrial fiber laser market.
In summary, I'm pleased with our quarterly results, which I believe reflect the execution of our business strategy.
Our core strategy to serve customers in the global industrial in Aerospace and defense market has enabled us to increase gauthreaux revenue and our profitability.
Multiple positive secular trends across each of our end markets continue to drive the adoption of lasers and the demand of our products.
Gross margin was 29, 6% in the third quarter versus 27, 8% in the comparable period of 2020.
Product gross margin was 77, 1% in the third quarter compared to 72, 2% in the second quarter of 2020, an improvement of approximately 490 basis points.
Although the year over the unit margin improvement was a direct result of the implementation of our strategy to increase sales to the rest of the world industrial and A&D customers.
Additional leverage on our fixed cost manufacturing.
And further cost reduction efforts.
Turning to slide nine.
Non-GAAP operating expenses were $18 1 million during the second quarter compared with $14 3 million in Q3 2020.
The majority of the year over year increase was related to higher R&D investment to support our product roadmap and long term growth opportunity.
The percentage of revenue our total Q3, non-GAAP Opex was 25% consistent with the prior quarter and with Q3 2020.
Turning to slide 10.
Non-GAAP net income in the third quarter was $3 9 million compared with $5 3 million in the sales quarter of 2020.
Non-GAAP EPS for the second quarter was <unk> <unk> per diluted shares compared with 12 cents per diluted shares for the third quarter of 2020.
The decrease in non-GAAP net income and EPS compared to the prior year was mainly driven by a noncash tax credit in Q3 2020 related to foreign taxes.
<unk> $1 5 million or four four cents per diluted shares.
Going forward, we expect tax expense to be approximately 200000 to 400000 per quarter.
On a GAAP basis EPS for the second quarter was a loss of $60.
Compared with a loss of five cents during the third quarter of 2020.
The increase in loss per share compared to the comparable period in the prior year was driven by an increase in stock based compensation cost and tax credit previously discussed.
Yeah.
Third quarter, adjusted EBITDA was $7 2 million compared with six 2 million in Q3 2020.
Our year over year improvement in adjusted EBITDA. In Q3 was a result of higher gross profit partially offset by continued investment in R&D.
Based on the information available today, we expect Q4 to be in a range of 66 million to $72 million.
The midpoint of 69 million.
This includes approximately $49 million of product sales and approximately 20 minutes.