Q4 2023 nLIGHT Inc Earnings Call
Operator: Good afternoon, and welcome to the Nlight fourth quarter 2023 earnings conference. All participants will be in listen only mode.
Good afternoon, and welcome to the N light Fourthquarter 20 twenty-three earnings conference call, all participants will be and listen only mode should you need assistance. Please signal conference specialist per person the star key followed by zero.
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Operator: To withdraw from the question queue, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Ho, Joe, and Corso, CFO. Please go ahead.
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Please note this event is being recorded.
Oh now like to turn the comfort Ho Jo Corso CFO. Please go ahead.
Joe Corso: Thank you, and good afternoon, everyone. I'm Joe Corso, NLHG Financial. With me today is Scott Keeney, and Nlight's chairman. Today's discussion will contain forward-looking statements, including financial projections, http://TheBusinessProfessor.com. 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 matters. 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 in the investor relations section of our website. I will now turn the call over to Scott. Thank you, Joe.
Thank you and good afternoon, everyone I've joke, or so unless chief financial officer with me today, Scott Katie Enlighten Chairman and CEO.
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 on our SEC filings.
Results may differ materially from those projected on today's call and we undertake no obligation to update publicly any forward looking statements 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 website I will now turn the call over to Scott.
Thank you Joe Forton.
Scott H. Keeney: Fourth quarter revenue of $51.9 million was above the high end of guidance, driven by a strong quarter in aerospace and. We ended the year with approximately $108 million in backlog, an increase of 34% compared to December 31st, 2015. Gross margin and adjusted EBITDA were above the midpoint as we continue to improve our overall global manufacturing capabilities and controls. Maintaining a strong balance sheet was a key goal during 2023. We increased cash, cash equivalents, and investments by approximately $5 million, ending the year with $113 million. We have no outstanding debt, and we remain well positioned to execute against our long-term growth strategy. I'd like to discuss the key highlights from the year.
Fourth quarter revenue at $51.9 million was above the high end of guidance driven by a strong quarter in aerospace and defense.
We ended the year with approximately $108 million in backlog, an increase of 34% compared to December 31st 2022.
Gross margin and adjusted EBITDA, we're above the midpoint as we continue to improve our overall global manufacturing capabilities and control spending.
Maintaining a strong balance sheet with a kiko during 2023.
We increased cash cash equivalents and investments by approximately $5 million any of the year with $113 million.
We have no outstanding debt and we remain well positioned to execute against her longterm growth plan.
I'd like to discuss key highlights from the year.
Scott H. Keeney: Operationally, we've significantly transitioned our manufacturing base and improved our global manufacturing capability. Prior to 2023, we relied on our Shanghai facility to assemble the vast majority of our semiconductor lasers and a substantial portion of our fiber lasers. From a revenue perspective, almost all of our commercial revenue historically has been dependent upon products or components that were assembled and changed. Today, we've reduced this exposure to below 10.
Operationally, we significantly transition or manufacturing base, and an improved our global manufacturing capabilities.
Prior to 2023, we relied on our Shanghai facility to assemble the vast majority of our semiconductor lasers and a substantial portion of our fibre lasers.
From a revenue perspective, almost all of our commercial revenue historically has been dependent upon products are components that were assembled in Shanghai.
Today, we've reduced this exposure to below 10 per cent.
Scott H. Keeney: To accomplish this, we established an automated manufacturing line in Kamas, Washington, and qualified and ramped a third-party contract manufacturer in Thailand. Our US-based manufacturing enables us to distinctly serve the defense market, while our outsourced manufacturing partnership offers a scalable and flexible capacity for a commercial. 2023 also marked our first full year of working with our new year piece. The new ERP system has enabled us to streamline a number of processes, more efficiently operate our business, and provide a stronger platform to support our long-term growth. Turning to Revenue by Market. Aerospace and Defense remains a core area of focus for Enlight, as well as a long-term growth opportunity. In 2023, we added significantly to our backlog in both direct energy and other areas. In Directed Energy, we were awarded over $200 million of new contracts in 2023. After the successful demonstration and formal acceptance of our 300-kilowatt beam combined, we announced in May an $86 million contract to produce a high-energy laser prototype for the next phase of development in support of the U.S. Department of Energy's High Energy Laser Scaling Initiative called HealthSmart.
To accomplish this we established an automated manufacturing line in <unk>, Washington, and qualified and ramped a third party contract manufacturer in Thailand.
R. U S based manufacturing enables us two distinctly served the defense market, while our outsource manufacturing partnership offers a scalable flexible capacity for a commercial business.
2023 also marked our first full year of working with our new ERP system.
The new era pieces and has enabled us to streamline a number of processes more efficiently operator business and provides a stronger platform to support our longterm growth.
Turning to revenue by market.
Aerospace and defense remains a core area of focus friendly as well as a longterm growth opportunity in 2023, we added significantly to our backlog in about threatened energy and other areas of defense.
And directed energy were awarded over $200 million of new contracts in 2023.
After the successful demonstration in formal acceptance or 300 kilowatt being combined laser.
We announced in May and 86 million dollar contract to produce a high energy laser prototype for the next phase of development in support of the U S Department of defenses high energy laser scaling in addition to call healthy.
Scott H. Keeney: In November, we announced the expansion of this award to $171 million to scale laser source power to the megawatt class with improved beam quality, size, and weight. We also announced that we were awarded a $34.5 million contract to provide a high-energy laser in support of the U.S. Army's Direct Energy Maneuver Short-Range Air Defense, or DEM, SHORAD program.
In November we announced the expansion of this war $271 million to scale laser source power to megawatt class with improved beam quality size and weight.
We also announced that we were ordered to 34.5 million dollar contract to provide a high energy laser in support of the U S. Army is direct energy maneuver short range Air defense or D E I'm sure It program.
Scott H. Keeney: Shorad is a component of the U.S. Army's broader modernization strategy. For air missile defense, it focuses on integrating a 50 kilowatt class laser weapon into a strike or combat vehicle to provide defensive capabilities against Aircraft Systems, Rockets, Artillery, Mortar, and Rotary, and Fixed Wing. Looking forward, Directed Energy remains an important and significant growth opportunity for Enel. We are leveraging our deep technical expertise and U.S.-based manufacturing capabilities and capacity to deliver strong execution across critical domestic direct, The demand for directed-energy lasers continues to grow as the number of geoclinical conflicts increases and the type of threats against the U.S. and its allies continues to favor the deployment of directed-energy lasers. We are finally seeing high- We remain closely aligned with multiple large, well-funded domestic programs today, and our international pipeline of opportunities continues to grow.
Sure. It is a component of the <unk> armies broader modernization strategy for air missile defense. It focuses on integrating at 50 kilowatt class laser weapon into a striker comeback vehicle to provide defensive capabilities against unmanned.
Aircraft systems rockets artillery mortar and Burger and fixed wing aircraft.
Looking forward directed energy remains an important and significant growth opportunity for and light.
We are leveraging our deep technical expertise and U S based manufacturing capabilities and capacity to deliver strong execution across critical domestic directed energy programs.
The demand for directed energy lasers continues to grow as the number of geopolitical conflicts is increasing and the type of threats against the us and its allies continues to favor the deployment directed energy lasers.
We're finally seeing high energy laser is moving out of the laboratory and into the field we.
We remain closely aligned with multiple large well funded domestic programs today and our international pipeline of opportunities continues to grow.
Scott H. Keeney: Outside of DirectEnergy, we remain engaged across multiple long-running defense platforms that we expect to run for many more years, if not decades. In 2023, we added several new programs that offer significant long-term growth opportunities. By continuing to invest in our core manufacturing and technology capabilities, we expect to compete for additional programs in the future. For the full year of 2023, aerospace and defense revenue increased by 4% year over year to $91.4 million, representing 44% of total revenue. Aerospace and defense development revenues increased by 8% to $53.3 million, partially offset by flight revenue in Aerospace and Defense prior. For the fourth quarter, aerospace and defense revenue decreased by 20% year-over-year to $26.7 million, representing 52% of total.
Outside of direct energy, we remain engaged across multiple long running defense platforms that we expect to run for many more years not decades.
In 2023, we added several new programs that offer significant longterm growth opportunities.
By continuing to invest in our core manufacturing and technology capabilities, we expect to compete for additional programs in the future.
For the full year of 2023, aerospace and defense revenue increased by 4% year over year $291.4 million, representing 44% of total revenue.
Aerospace and defense development revenues increased by 8% to $53.3 million, partially offset by slight increase.
In aerospace and defense product revenues.
For the fourth quarter Aerospace and defense revenue decreased by 20% year over year to $26 $70 million, representing 52 per cent of total revenue.
Scott H. Keeney: Development revenues increased by 24% to $14 million, and aerospace and defense products revenue increased by 15% to $12.7 million. The improvement in fourth quarter defense revenue reflects an increase in both contracts for directed energy and in products. Turning to our commercial markets, we've seen a significant transformation in the industrial market over the last several years. In Q2 2018, the quarter of our IPO, only 30% of our industrial revenue was from customers outside of China. For the full year of 2023, over 90% of our revenue will be from customers outside of China. This equates to more than doubling of industrial revenue outside of China over a five-year period. Today, Nlight is focused on developing innovative solutions largely built upon core Corona programmable fiber laser technology for customers in cutting, welding, and additive manufacturing.
Development revenues increased by 24% to $14 million in aerospace and defense products revenue increased by 15% to $12.7 million.
Improvement in fourth quarter defense revenue reflects an increase in both contracts were directed energy ended product sales.
Turning to our commercial markets.
We've seen a significant transformation in the industrial market over the last several years.
In Q2 2018, the corner of her IPO.
30 per cent of our industrial revenue was from customers outside of China.
For the full year of 2023 over 90% of our revenue was from customers outside of China.
This equates to a more than doubling of industrial revenue outside of China over a five year period.
Today, and I just focus on developing innovative solutions largely built upon core Corona programmable fiber laser technology.
Two customers and cutting wellbeing and additive manufacturing markets.
Scott H. Keeney: In cutting, we continue to leverage our core programmable technology as a competitive differentiator. We continue to see a trend towards higher power in the cutting market, as many end customers seek flexible solutions that we can address with our programmable lasers that deliver superior edge quality and can be optimized across a wide range of applications. In 2023, the percentage of our sales of cutting programmable lasers reached a new record as more customers adopted these solutions. However, growth in these products was offset by declining sales of our non-programmable fiber lasers, primarily due to pressure from domestic Chinese suppliers in the lower. In welding, we continue to focus on electric vehicle applications for both our lasers and process monitoring solutions. While our overall business in welding today is relatively small, we believe there could be a significant opportunity for our range of laser and process monitoring solutions. The design and process for welding solutions can be lengthy and requires significant interaction between the laser vendor, the OEM, and the end user.
And cutting we continue to leverage our core programmable technology.
As a competitive differentiator in the market, we continue to see a trend towards higher power in the cutting market as many and customers seek flexible solutions that we can address with are programmable lasers that deliver superior edge quality and can be optimized across a wide range of applications.
In 2023, the percentage of our sales are cutting programmable lasers reached a new record as more customers adopt these solutions.
At the same time broken these products was offset by declining sales and our nonprogramming pull fiber lasers, primarily due to pressure from domestic Chinese suppliers and the lower end of the market.
And wellbeing, we continue to focus on electric vehicle applications for both our lasers and process monitoring solutions.
While our overall business and welding today is relatively small we believe there could be a significant opportunity for our range of laser and process monitoring solutions.
The designing process for wellness solutions can be lengthy requires significant interaction between laser vendor OEM and end user as.
Scott H. Keeney: As such, we believe that the current supply, demand, and balance in electric vehicle batteries actually offers M-Lite a better opportunity to work with customers, in both our Apps Lab and theirs, to demonstrate the advantages of Nlight's solutions. In 2023, we're pleased that several top-tier battery manufacturers purchased Nlight Process, or Laser Solutions, or both. Over the next several quarters, we expect to introduce new products that address many of our customers' and potential customers' pain points, thereby affording incremental opportunities for growth in this market. In additive manufacturing, we continue to see strong long-term growth. In 2023, we continue to demonstrate the capabilities of Chroma AFX, our single-mode programmable fiberless, secured multiple new design wins, and introduced new higher power products to the multi-laser tool market. Our products have helped customers increase productivity and lower cost per part. To further address this growing market, Nlight has developed a modular laser design that incorporates multiple ChronoFX lasers into a single integrated subsystem that offers significant benefits.
As such we believe that the current current supply demand imbalance electric vehicle battery actually offers and light a better opportunity to work with customers and both are epsilon and theirs to demonstrate the advantages and light solutions.
2023, we're pleased with several top tier battery manufacturers purchase and like process monitoring.
Or a laser solutions for both.
Over the next several quarters, we expect to introduce new products that address many of our customers and potential customers pinpoints, thereby affording incremental opportunities for growth in this market.
An additive manufacturing, we continue to see strong long term growth prospects.
In 2023, we continued to demonstrate the capabilities of crummy effects are single note programmable fiber laser.
Secured multiple new design wins and.
And introduce new hydropower products to the multi laser tool market.
Our products that help customers increase productivity and lower cost per part.
To further address this growing market and light has developed modular laser design that incorporates multiple code of ethics lasers into a single integrated sub system that offers significant benefits.
Scott H. Keeney: Our modular approach reduces cost and complexity for power and thermal management and greatly simplifies integration into OEM machines. 2023 industrial revenue declined 22% year over year to $71 million, representing 34% of total revenue. Revenue from cutting increased slightly year over year, but was offset primarily by a decline in revenue from attitude manufacturing, where a large customer in 2022 did not repeat our engagement in metal additive manufacturing. We've worked with both innovative early stage companies as well as many of the long-standing market. We are encouraged by the traction that we are getting across the spectrum of customers.
A modular approach reduces cost and complexity for power internal management and greatly simplifies integration OEM machine tools.
2023, industrial revenue declined 22% year over year $271 million, representing 34% of total revenue.
Revenue from cutting increased slightly year over year, but it was offset primarily by declining revenue from attitude manufacturing, where large customer in 2022 did not repeat in 2023.
Our engagement in metal additive manufacturing has.
Has been broad we work with both innovative early stage companies as well as many of the long standing market leaders.
We are encouraged with attraction that we're getting across the spectrum of customers, but this market is rapidly developing and as such a revenue can increase or declined significantly in a given quarter per year as our customers continue to scale and demand for advice, which can be lumpy.
Scott H. Keeney: But this market is rapidly developing, and as such, our revenue can increase or decline significantly in a given quarter or year as our customers continue to scale and demand for our lasers can be Four quarter industrial revenue decreased by 35% year over year to $15 million, representing 29% Total Rep. The year-over-year decline was driven by lower sales of non-programmable lasers and cutting, and lower sales... In microfabrication, we believe we remain the market leader for high-power, high-brightness semiconductor lasers, where lasers are critical to manufacturing processes in a diverse range of applications, including auto, consumer, communications, electronics, display, medical, and semiconductor and marketing. We are optimistic about continued growth in our medical laser business. Our medical lasers enable a range of applications, ranging from therapeutic surgical to aesthetic to rheological procedures.
Fourth quarter industrial revenue decreased by 35% a year over year $215 million, representing 29% total revenue.
The year over year decline was driven by lower sales of non remember lasers, and cutting and lower sales.
In Microfabrication, we believe we remained the market leader for high power high brightness semiconductor lasers were lasers are critical to manufacturing processes and diverse range of applications, including auto consumer communications electronics display medical and semiconductor markets.
We are optimistic about continued growth and our medical laser business.
Our medical lasers enabled range of applications ranging from therapeutic surgical to aesthetic dermatological procedures.
Scott H. Keeney: During 2023, we saw measurable growth from existing medical customers, and we were awarded a design win from another large strategic customer that has potential to further improve the growth profile of this business over the next several years. However, 2023 microfabrication revenue declined 24% year over year to $47.5 million, representing 23% of total revenue. Fourth quarter microfabrication revenue decreased by 10% year over year to $10.2 million, representing 20% of total revenue. Macroeconomic headwinds contributed to sluggish demand and Inventory Digestion through 2020. The Bulletproof Executive 2013, In summary, 2023 was an important transition year for Nlight. Operationally, we've pursued a de-risking and global manufacturing strategy that is well-positioned to support our focus on two key growth areas, aerospace and defense, and additive manufacturing. As I look forward to 2024,
During 2023, we saw miserable goes from existing medical customers and we were awarded its design wind from another larger strategic customer that has the potential to further improve the growth profile of this business over the next several years.
2023, Microfabrication revenue declined 24% year over year to $47.5 million.
Representing 23 per cent of total revenue.
Fourth quarter Microfabrication revenue decreased by 10% year over year to $10.2 million, representing 20 per cent of total revenue.
Macroeconomic headwinds contributed to sluggish demand.
An inventory digestion through 2023 and in the fourth quarter.
In summary, 2023 was an important transition year we're in line.
Operationally, we pursued derisking and global manufacturing strategy that is well positioned to support our focus on two key growth areas aerospace and defense and at manufacturing.
As I look forward to 2024.
I'm optimistic that we can return to growth this year although.
Although we still face an uncertain macroeconomic environment, we remain deeply engaged with our strategic customers and the work. We are doing the defense provides good visibility into 2024 and beyond.
From a financial perspective are funded backlog plus contract value exceeded $300 million at the end of the year the highest in our history.
Scott H. Keeney: I'm optimistic that we can return to growth this year. Although we still face an uncertain macroeconomic environment, we remain deeply engaged with our strategic... And the work we are doing in defense provides good visibility into 2024. From a financial perspective, our funded backlog plus contract value exceeded $300 million at the end of the year, the highest in our history.
I'd like to thank all the online employees for their hard work and execution over the past year.
They continued to deliver great results for our customers and are the critical driver building enduring dual use technology company.
With that I will turn the call over to Joe to discuss our fourth quarter and full year financial results.
Thank you Scott total revenue in the fourth quarter of 2023 was $51.9 million above the top end of guidance and up 2% compared to $56 million in the third quarter of 2023, but down 8% compared to $56 $7 million in the fourth quarter of 2022.
Joe Corso: I'd like to thank all the in-line employees for their hard work and execution over the past year. They continue to deliver great results for our customers and are the critical driver of building during dual use technology. With that, I will turn the call over to Joe to discuss our fourth quarter and full year financial results. Thank you, Scott.
Decrease in revenue from the industrial and Microfabrication markets was offset by an increase in revenue from the aerospace and defense market.
Joe Corso: Total revenue in the fourth quarter of 2023 was $51.9 million, above the top end of guidance and up 2% compared to $50.6 million in the third quarter of 2023, but down 8% compared to $56.7 million in the fourth quarter of 2018. The decrease in revenue from the industrial and microfabrication markets was offset by an increase in revenue from the aerospace and defense sector. The primary driver of our Q4 revenues above the high end of guidance was upside defense revenue in the fourth quarter that had originally been forecasted for the first quarter. Products revenue for the fourth quarter of 2023 was $37.9 million, compared to $38.1 million in the third quarter and $45.4 million in the fourth quarter. For the year, total revenue in 2023 was $209.9 million, a decrease of 13% compared to $242.1 million in 2020.
The primary driver of our queue for revenues above the high end of guidance was upside defense revenue in the fourth quarter that had originally been forecasted for the first quarter of 2024 <unk>.
Product revenue for the fourth quarter of 2023 was 37 $9 million compared to $38 $1 billion in the third quarter and $45 $4 million in the fourth quarter of 2022.
For the year total revenue in 2023 was $209 $9 million Ah decreased 13% compared to $242.1 billion in 2022.
The decrease in total revenue consisted of a $36 million or 19% decrease in product revenue that was partially offset by a $3.9 million or 8% increase in development revenue.
The decrease in product revenue for 2023 was driven primarily by lower customer demand in industrial and Microfabrication, while the increase in development revenue was the result of new contracts in the market <unk>.
Revenue from the China market in 2023 decreased nine $4 million or 44% to 11 $9 million compared to $21.3 million in 2022.
Revenue from the China market represents approximately 6% of total revenue in 2023 compared to 9% of total revenue in 22, and 21% of total revenue in 2021.
Joe Corso: The decrease in total revenue consisted of a $36 million or 19% decrease in product revenue, that was partially offset by a $3.9 million or 8% increase in development. The decrease in product revenue for 2023 was driven primarily by lower customer demand in industrial and microfabrication, while the increase in development revenue was the result of new contracts in A&E. Revenue from the Chinese market in 2023 decreased $9.4 million, or 44%, to $11.9 million compared to $21.3 million in 2022.
Turning the gross margin.
Total gross margin in the fourth quarter of 2023 was 19% above the mid point of guidance compared to 10% in the fourth quarter of 2022 <unk>.
Product gross margin in the fourth quarter of twenty-three was 22% compared to 11% in the fourth quarter of 2022, which included approximately $3.8 million related to restructuring activities in inventory reserves.
Development gross margin was 9% in the fourth quarter of 2023 compared to 7% in the third quarter of 2023 and 8% in the fourth quarter of 2022.
Joe Corso: Revenue from the Chinese market represents approximately 6% of total revenue in 2023, compared to 9% of total revenue in 22 and 21% of total revenue in. Turning to the Gross Market, total gross margin in the fourth quarter of 2023 was 19% above the midpoint of guidance compared to 10% in the fourth quarter of 2020. Products gross margin in the fourth quarter of 23 was 22% compared to 11% in the fourth quarter of 2022, which included approximately $3.8 million related to restructuring activities and inventory. Development gross margin was 9% in the fourth quarter of 2020, compared to 7% in the third quarter of 2020 and 8% in the fourth quarter of 2020. For the year, total gross margin was 22% in 2023, compared with 21% in 2022.
For the year total gross margin was 22% in 2023 compared with 21% in 2022 and progress gross margins, 27% in 2003 compared to 25% in 2022 the.
The improvement in gross margins in 2023 compared to 2022 was driven by a reduction in variable manufacturing costs and improved product mix that was partially offset by lower production volumes and lower absorption of fix manufacturing costs full.
Full year 2023 gross margin benefit from the restructuring we executed in the fourth quarter of 2022 as in enabled us to reduce overall costs and reposition our manufacturing footprint for long term growth.
Turning to Opex non.
<unk> operating expenses were $17 $4 million in the fourth quarter compared to $19.5 million in the fourth quarter of 2022 for.
For the year non-GAAP operating expenses were 67 $2 million compared to $76 $3 billion in 2022.
Joe Corso: And the product gross margin was 27% compared to 25%. The improvement in gross margins in 2023 compared to 2022 was driven by a reduction in variable manufacturing costs and improved products, that was partially offset by lower production volumes and lower absorption of fixed manufacturing costs. Full year 2023 gross margin benefited from the restructuring we executed in the fourth quarter of 2022, as it enabled us to reduce overall costs and reposition our manufacturing footprint for the long term. Turning a dog, Non-GAAP operating expenses were $17.4 million in the fourth quarter compared to $19.5 million in the fourth quarter of 2020. For the year, non-GAAP operating expenses were $67.2 million, compared to $76.3 million in 2020.
The year over year decrease in operating expenses was the result of plan decreases and head count and lower project related spending based on our restructuring activities in the fourth quarter of 2022.
We continue to be reviewed the appropriate level of operating expenses for our business and we believe our current level of Opex is sufficient to support our long term growth objectives.
Adjusted EBITDA for the fourth quarter of 2023 was a loss of $3.3 million near the midpoint of guidance compared to a net loss of $9.5 million in the fourth quarter of 2022.
Adjusted EBITDA for 2023.
A loss of $4 $1 million compared to a loss of $8 $8 million in 2022.
Adjusted EBITDA loss narrowed year over year, despite lower revenues due to improved gross margins and a decrease in operating expenses.
non-GAAP loss in the fourth quarter of 2023 $6 million.
Joe Corso: The Year-over-Year Decrease in Operating Expenses was the result of planned decreases in head count and lower project-related spending based on our restructuring activities in the fourth quarter of 2020. We continually review the appropriate level of operating expenses for our business, and we believe our current level of OPEX is sufficient to support our long-term growth. Adjusted EBITDA for the fourth quarter of 2023 was a loss of $3.3 million, near the midpoint of guidance, compared to a net loss of $9.5 million in the fourth quarter. Adjusted EBITDA for 2023 was a loss of $4.1 million, compared to a loss of $8.8 million. Adjusted EBITDA losses narrowed year-over-year, despite lower revenues due to improved gross margin Non-GAAP loss in the fourth quarter of 2023 was $6 million, or $0.13 per diluted share, compared with a non-GAAP loss in the fourth quarter of 22 of 12.3 million dollars, or 27 cents per diluted share.
13 cents per diluted share compared with the non-GAAP loss.
In the fourth quarter of 2002 of $12.3 million or 27 cents per diluted share.
Net loss on a gap basis in the fourth quarter of 2023 was $13 $2 million.28 per diluted share <unk>.
Compared with a gap net loss in the fourth quarter of 2022 of $22.7 million or 50 permanently to cheer.
Net loss on a gap basis in the fourth quarter of 2023 includes restructuring charges of approximately $800000 compared to restructuring charges in the fourth quarter of 2022 of $3 $90 million.
non-GAAP net loss in 2023 with $13 $6 million or 30, preventing a chair compared to non-GAAP net loss in 2022 of $22.3 million or 50 cents per diluted share.
On a gap basis net loss in 2023 was $41.7 million or 90 cents per diluted share compared to a net loss in 2022, $54 $6 million or $1.23 preventative you share.
In addition to higher gross margins and lower operating expenses net loss and non-GAAP loss will positively impact by an increase in investment income that we generated from investments.
Joe Corso: Net loss on a gap basis in the fourth quarter of 2023 was $13.2 million, 28 cents per diluted share, compared with a gap net loss in the fourth quarter of 2022 of $22.7 million, or $0.50 per valued share. Net loss on a gap basis in the fourth quarter of 2023 includes restructuring charges of approximately $800,000 compared to restructuring charges in the fourth quarter of 2022 of $3.9 million. Non-GAAP net loss in 2023 was $13.6 million, or $0.30 per diluted share, compared to a non-GAAP net loss in 2022 of $22.3 million, or $0.50 per diluted share.
Turning now to the balance sheet, our balance sheet remains strong as we ended 2023 total cash and investments of $113 $1 billion in new debt.
Total cash investments increased by $4.7 million in 2023.
Cash provided by operations in 2023, it was $10 $1 million compared to a use of cash and operations of $14.5 million in 2022.
Capital expenditures in 2020 $353 million compared to $21 $4 million in 2022.
We reduced inventory from $62 million at the end of the third quarter $253 million as of December 31, 2023, which represents 122 days of inventory R.
R D S O for the quarter was 65 days.
Joe Corso: On a gap basis, net loss in 2023 was $41.7 million, or $0.90 per diluted share, compared to a net loss in 2022 of $54.6 million, or $1.23 per diluted share. In addition to higher gross margins and lower operating expenses, net loss and non-GAAP loss were positively impacted by an increase in investment income that we generated. Turning now to the balance sheet. Our balance sheet remains strong as we ended 2023 with total cash and investments of $113.1 million, and total capital investments increased by $4.7 million. Cash provided by operations in 2023 was $10.1 million compared to a use of cash in operations of $14.5 million in 2020, and capital expenditures in 2023 were $5.3 million compared to $21.4 million in We reduced inventory from $62 million at the end of the third quarter to $53 million as of December 31, 2023, which represents 122 days. Our DSO for the quarter was $65,000.
Maintaining a strong balance sheet, particularly in light of the macroeconomic headwinds we face in our commercial markets in 2023 remains a key focus of the company straw.
Strong opex control, coupled with careful working capital management and Capex investment.
Has enabled us to maintain a balance sheet that we believe will enable us to achieve our long term growth objectives.
<unk> out of guidance.
Based on the information available today, we expect revenue for the first quarter of 2024 to be in the range of $42 million $46 million, which is lower than otherwise expected due to the acceleration some customer demand in the fourth quarter as I discussed a few moments ago.
The midpoint of approximately $44 million includes approximately $31 million of product revenue and $13 million of development revenue.
We are optimistic that our revenue will grow for the full year in 2024.
As of December 31, we had $108 million a backlog an increase of 34% versus December 31 2022.
And in addition, we are executing against contracts with more than $200 million of aggregate value.
Significant execution challenges remain given the highly technical nature of our defense work, particularly indirect energy. We believe we are aligned with the right programs and customers to drive growth in 2024 and beyond.
Joe Corso: Maintaining a strong balance sheet, particularly in light of the macroeconomic headwinds we face in our commercial markets in 2023, remains a key focus of the company. Strong OpEx control, coupled with careful working capital management and CapEx investment, has enabled us to maintain a balance sheet that we believe will enable us to achieve our long-term growth, turning down a guy. Based on the information available today, we expect revenue for the first quarter of 2024 to be in the range of $42 million to $46 million, which is lower than otherwise expected due to the acceleration of some customer demand in the fourth quarter, as I discussed a few moments ago. The midpoint of approximately $44 million includes approximately $31 million of product revenue and $13 million of development. We are optimistic that our revenue will grow for the full year in 2020. As of December 31st, we had $108 million in backlog, an increase of 34% versus December 31st, 2022.
Primarily by our defense business, we expect to deliver sequential revenue growth in the second quarter and we expect further growth in the second half of the year.
The gross margin.
First quarter 2024 product gross margin is expected to be in the range of 20% to 25% and development gross margin to be approximately 7%, resulting in an overall gross margin range of 15% to 20%.
As we've mentioned previously as a vertically integrated manufacturing business gross margin improvement is largely dependent on production volumes and absorption of fixed manufacturing costs. In Q1, we expect to have poor absorption of our manufacturing costs due to a trough and revenue. However, we expect gross margin to prove later in the year as production volumes and revenue.
Increase.
Finally, we expect adjusted EBITDA for the first quarter of 2024 to be in the range of approximately negative seven to negative $5 million.
And we continue to expect breakeven adjusted EBITDA at quarterly revenue levels of 55% to $60 million with that I will turn the call over to the operator for questions.
Joe Corso: And in addition, we are executing against contracts with more than $200 million in aggregate value, although significant execution challenges remain given the highly technical nature of our defense. Particularly in Directed Energy, we believe we are aligned with the right programs and customers to drive growth in 2024. Led primarily by our defense business, we expect to deliver sequential revenue growth in the second quarter, and we expect further growth in the second half. Turning to Gross-Morgan. First quarter 2024 product gross margin is expected to be in the range of 20 to 25, and development gross margin to be approximately seven, resulting in an overall gross margin range of 15 to 20 percent. As we've mentioned previously, as a vertically integrated manufacturing company, Gross Margin Improvement is largely dependent on production volumes and absorption of fixed manufacturing costs. In Q1, we expect to have poor absorption of our manufacturing costs due to a trough in revenue. However, we expect gross margin to improve later in the year as production volumes and revenue increase. Finally, we expect adjusted EBITDA for the first quarter of 2024 to be in the range of approximately negative seven to negative five million dollars.
We will now begin the question and answer session to ask a question in my <unk> one of your telephone keypad.
Excuse me to speak phone please pick up your handset before pressing the keys.
To withdrawal from the question queue. Please first store then too.
At this time, no pause momentarily to assemble our roster.
Our first question will come from Jim.
Company.
I'll go ahead.
Alright. Thank you good afternoon, Joe the Pullman that you alluded to the the business just Wanna make sure I have that straight.
Great. It was that pulling mainly on the products that it'd be advanced development. So I just need to keep it.
<unk>.
A bit of both Jim and so just to kind of help with the quantum if we had not had that pulling we would not have been over the top end of the guidance range. We would have been very comfortably within guidance, but that's what we just wanted to be clear that that was the driver of some of the output.
Performing in the fourth quarter as well as as you look at the trajectory of the Q1 guide that also had an impact on what we thought we were going to deliver in Q1 that ultimately came in Q4.
Got it and.
So on the.
Development side of the business.
I assume you've got some lineup better line of sight to that is that Q1 level mmm that's indicative.
Run right as we think of that the <unk>.
Yeah, Jim Scott here.
I think.
The way I think about Q1, there is at least three key factors for the lower level. In Q1 first is what Joe just described which is in Poland for customers wanted.
Operator: And we continue to expect break-even, and adjust-it-even down at quarterly revenue levels of 55. With that, I will turn the call over to the operator for questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone. Thank you for using the speakerphone. To draw from the question cube, please press star then X.
More deliveries and.
There is AMD programs in queue for second.
Driver of Q1 is in additive.
And it was disappointing to learn about.
Operator: At this time, we will pause momentarily to assemble our... Our first question will come from Jim Ricchiuti with Needham in Canada. You may now go ahead. Hi, thank you. Good afternoon.
The issues in the strategic alternatives process that that <unk>, having to go through especially after.
Jim Ricchiuti: Joe, the pull-in that you alluded to in the A&D business, I just want to make sure I have that straight. Was that pull-in mainly on the product side or the advanced development side? You may have given it.
<unk> so dramatically from a small player to one of the key players in additive and really do have a fundamentally strong technology.
And they're working through those issues, but it's not the plan that we had hoped for Q1 and.
Joe Corso: I may have just missed it. A bit of both, Jim, and so just to kind of help with the quantification, if we had not had that pull-in, we would not have been over the, you know, top end of the guidance range. We would have been very comfortably within, you know, guidance, but that's what we just wanted to be clear that that was the driver of some of the outperformance in the fourth quarter, as well as, as you look at the trajectory of the Q1 guide, that also had an impact on what we thought we were going to do. What we thought we were going to deliver in Q1 ultimately came down. Got it. And, um, on the advanced development side of the business. I assume you've got some line of better line of sight on that.
The first half of the year and then finally the.
The in the industrial cutting market seen a continued decline in the standard cutting lasers with competition from China and just the size of the market declining we are making progress with more advanced lasers and sustaining our customers there, but those are the three factors that.
That drive.
Specifics of Q1.
The backlog that we highlighted does give us visibility into our.
Our our growth plans.
Scott H. Keeney: Is that Q1 level, is that indicative of a quarterly run rate as we think about output? Yeah, Jim. Scott here. No, I think the way I think about Q1, there are at least three key factors for the lower level in Q1. First is what Joe just described, which is a pull-in.
Okay Uhm Sky last question for me and I'll jump back into the queue.
Yeah as I look at the business rest of the world business.
L lowest level, we've seen in some time I have to go back to.
Scott H. Keeney: The customers wanted, you know, more deliveries and there are A&D programs in Q4. The second driver of Q1 is additive. And, you know, it was disappointing to learn about the issues and the strategic alternatives process that Bellows is having to go through, especially after, you know, they grew so dramatically from a small player to one of the key players and additives and really do have a fundamentally strong technology. And, you know, they're working through those issues, but it's not the plan that we had hoped for for Q1 and certainly the first half of the And then finally, you know, in the industrial cutting market, seeing a continued decline in the standard cutting lasers with competition from China and just the size of the market declining, we are making progress with more advanced lasers and sustaining our key customers there. But those are the three factors that drive the specifics of Q1.
Q1 of 2021 is that is that Europe slowing is it both industrial and Microfabrication.
Yeah, the decline that we've seen our industrial and Microfabrication and different factors going on here.
In Microfabrication, we highlighted.
You know the opportunity we see in for example, the display market.
And that is something that.
Has pushed out from 23.
Certainly there are plans for 24.
That could drive our business there I just talked about the industrial cutting market.
And then and then really with respect to additive it does have to do more with the particulars.
Of Velo in our case, we're making very good progress with releasing new products into attitude with new customers, but as you know it takes time for those to ramp up.
Got it.
Mmm.
Scott H. Keeney: But the backlog that we highlighted does give us visibility into, you know, our growth plans. Okay, Scott, last question for me, and I'll jump back into the queue. You know, as I look at the business, rest of the world business, the lowest level we've seen in some time, I think you'd have to go back to Q1 of 2021. Is that in Europe slowing?
Our next question will come from Reuben Roy with Stifel.
You may not go ahead.
Thank you thanks, guys for taking my question.
I want to follow up on Jamie's question, just around net service weakness breath of World and now your commentary on cutting given that China's come down materially as you noted in your prepared remarks can you just comment on the company's competitive environment for putting outside of China.
Scott H. Keeney: Is it both industrial and microfabrication? Yeah, the decline that we've seen is industrial and microfabrication and, you know, different factors going on here. In microfabrication, we highlighted, you know, the opportunity we see in, for example, the display market, and that is something that has been pushed out from 23. Certainly, there are plans for 24 that could drive our business there. I just talked about the, you know, industrial cutting market. And then, really, with respect to additives, it does have to do more with the particulars of Velo, in our case.
Yeah. It's.
And it's been.
You know a continuation of what we've discussed before so.
Wouldn't highlight anything that is different but as it continued trend for the more.
Standard lasers.
To become more competitive and and with.
Competitors from China, who have a much smaller market now in China that are desperate to try to gain.
Scott H. Keeney: We're making very good progress with releasing new products into additive with new customers, but as you know, it takes time for those to ramp up. Got it, got it. Our next question will come from Ruben Roy, with, You may now go ahead. Thank you. Thanks guys for taking my question. Scott, I want to follow up on Jim's question just around service weakness, the rest of the world, and your commentary on cutting, given that China's come down materially, as you noted in your prepared remarks. Can you just comment on the competitive environment for cutting outside of China? Yeah, thanks, Reuben.
Gainshare outside of China.
So that part of the market is challenging having.
Having said that the.
The Corona technology. We have is differentiated is patent protected and it is something that adds a lot of value to our customers and so it has allowed us to sustain key customers and.
You know as we look ahead.
We are looking at launching new products that will continue to enhance what we're doing in that space certainly not calling out cutting is a key growth area, but we do see the ability to mitigate.
Scott H. Keeney: It's been a continuation of what we've discussed before, so I wouldn't highlight anything that is different, but there is a continued trend for the more standard lasers to become more competitive, and with competitors from China who have a much smaller market now in China that are desperate to try to gain share outside of China. So that part of the market is challenging. Having said that, the Corona technology we have is differentiated, it is patent-protected, and it is something that adds a lot of value to our customers.
That that.
That trend in that space.
I appreciate that detail Scott and then a little bit of a longer term question. It's always interesting to commentary you add on the E V sort of policy, we have here getting some placements with your process technology and.
You'd be manufacturers and sort of.
Your remarks on new products and I'm wondering.
About those new products were they on the roadmap you're getting strategic direction from these customers that you've been engaging with and has that changed I mean, it's sort of the way you're thinking about.
Scott H. Keeney: And so it has allowed us to sustain key customers, and as we look ahead, we are looking at launching new products that will continue to enhance what we're doing in that space. Certainly not calling out cutting as a key growth area, but we do see the ability to mitigate that trend in that space. Scott Keeney, Ran Bareket, Jason Willey, Nlight Inc., about those new products. Were they on the roadmap?
R and D investments at all you know kind of in the medium term.
Yeah. There's one thing we highlighted this sector. We've also acknowledged luck. It's small it's not a big part of our revenue today, and we're not calling it out as a key driver in the near term, having said that yeah. We've made some.
Scott H. Keeney: You're getting strategic direction from these customers that you've been engaging with, and has that changed the way you're thinking about R&D investments at all, you know, kind of in the medium term? Yeah, it's one thing, you know; we highlighted this sector. But we've also acknowledged, look, it's small. It's not a big part of our revenue today, and we're not calling it out as a key driver in the near term. Having said that, yeah, we've made some great progress with new products in that space, both on the lasers and the process control, which are exciting. With some important customers that are working on new battery technology.
Some great progress with new products in that space.
Both on the lasers in the process control.
That are exciting with some important customers that are working on new battery technology and so we wanted to note that we aren't calling it out as a key driver in the near term, but it is an area, where we're seeing good traction and we do think that you know over the longer term.
Scott H. Keeney: And so we wanted to note that we aren't calling it out as a key driver in the near term, but it is an area where we're seeing good traction. And we do think that, you know, over the longer term, welding will remain an important part of the overall market. Okay. Thank you, Scott. And then just a quick one for Joe.
<unk> will remain.
And part of the overall market.
Alright, Okay. Thank you start and then just a quick one for Joe on the gross margin.
Mmm thinking through absorption cloth and potentially a little bit of a recovery in revenue in Q2.
I I I would imagine that you have some higher fixed author inventory, though that you have to run through a table, maybe give us a little bit of.
Joe Corso: On the gross margin, Joe, just thinking through absorption costs and potentially a little bit of recovery and revenue in Q2. I would imagine that you have some higher fixed cost inventory that you have to run through. Can you maybe give us a little bit of a forward look into how to think about gross margins once you get past Q1? Absolutely, Ruben.
Log into how to think about gross margins once you get past the one.
Absolutely Ruben so I think on a high level right if you.
Think about the fact that we believe that we will end the year in better shape from a top line perspective.
We think that the margin will follow suit right. The biggest challenge that we are having today is that we've got a fixed manufacturing base that is sized for a much larger products AD revenue base that we are in in queue for certainly in queue.
Joe Corso: So I think on a high level, right, if you think about the fact that we believe that we will end the year in better shape from a top-line perspective, we think that the margin will follow soon, right? The biggest challenge that we are having today is that we've got a fixed manufacturing base that is sized for a much larger product revenue base than we are in Q4 or certainly in Q1. So we're suffering from just, you know, the underutilization of that fixed production capacity. But we've actually done a pretty good job, you know, reducing our inventory. So obviously, you know, when you think about gross margin, you've got to think about all of the components, right?
<unk>. So we're suffering from just the under utilization of that fixed production capacity, we've actually done a pretty good job.
Reducing our inventory. So obviously you know when you think about gross margin you've gotta think about all of the the components. Rachel So the spend if you look at our spending on manufacturing right you're over a year that has come down right. It's enabled us to keep the products gross margin.
At similar levels are better levels in 2022 at lower revenues right that we had in 2023, we don't anticipate having kit increase that spending at all during the course of the year. So as the revenue base goes off even at today's mix level, we think the mix will improve.
Joe Corso: So the spend, if you look at our spending on manufacturing, right, year over year, that has come down, right? It's enabled us to keep the product gross margin at similar levels or better levels in 2022 at lower revenues than we had in 2023. We don't anticipate having to increase that spending at all during the course of the year.
Uh-uh.
And then you've got better absorption of those fixed of those fixed costs, we expect to drive a better product gross margin as we go through the year.
Joe Corso: So as the revenue base goes up, even at today's mix level, we think the mix will improve, and then you've got better absorption of those fixed costs. You know, we expect to drive better product gross margin as we go through the year.
Got it can I start off.
Thank god. Thank.
Thank you <unk>.
Our next question will come from Greg Palm with Craig Hallum Capital Group You May now go ahead.
Hey, Thanks, I just wanted to dig into the demand I'll look a little bit more you know in terms of what you're seeing out there you know how much of the.
Joe Corso: Thanks, Jeff. Thanks, guys. Thank you, Ruben.
Greg Palm: Our next question will come from Greg Palm with Craig Hallam. Hey, thanks. I just wanted to dig into the demand outlook a little bit more, you know, in terms of what you're seeing out there, you know, how much of the maybe the softness is driven by, you know, whether it's competition, whether it's lower demand versus, you know, inventory drawdowns, any way to quantify sort of those three buckets? Yeah, Greg, I think you really have to, you know, segmented by our I think in our microfabrication space, I think that is one where you have to look at those, you know, both cyclical and secular trends that drive that business. We're way back in the chain there.
The the softness is driven by you know whether it's competition, whether it's lower demand versus you know inventory drawdowns any way to quantify sort of those three buckets.
Yeah, Greg I think you really have to you know segmented by our end markets I think in our Microfabrication space I think that is one where you have to look at those.
Both cyclical and secular trends that drive that business, we're way back in the chain. There. So as I mentioned the display market is one example of a driver in that space I think in cutting you do get some macro trends and you get this competitive trends I've already highlighted but I think with respect to the key.
Scott H. Keeney: So, as I mentioned, the display market is one example of a driver in that space. I think in cutting, you do get some macro trends, and you get those competitive trends I've already highlighted. But I think with respect to the key growth drivers for our business, it is about design wins of the roadmap that we're driving to significantly advance the end applications, whether it be in welding, in additive, and certainly in aerospace and defense. And so it has more to do with, you know, really the design in process in the commercial space and the programs in the defense space. And those will be the key drivers to drive our growth. I understand it.
Growth drivers for our business it is about design wins.
You know the roadmap that were driving to significantly advance.
And applications, whether it be in and welding and additive and certainly in aerospace and defense.
And so it has more to do with.
You know really the designing process and the commercial space and the programs on the defense space.
And those will be the key drivers to drive our growth.
Got it understood.
Scott H. Keeney: And if I kind of think back to, you know, certainly the last couple quarters, you know, throughout 2023, I think you were much more excited about your revenue growth prospects this year. And I know a lot's changed, but what's your visibility like, you know? Because, you know, yeah, I think the characterization you used is that we're optimistic we can return to revenue growth, which I think is, you know, implicitly a lot lower than what your expectations were maybe three months ago, but correct me if I'm wrong. Yeah, I think, you know, a couple things.
And if I kind of think back to you know certainly last couple of quarters throat 2023, I think you were much more excited about your revenue growth prospects. This year and I I know a lot of change, but what what's your visibility like you know because you know yeah I I think.
<unk> characterization you used as we're optimistic we can return to revenue growth, which I think is it.
<unk> a lot lower than what your expectations were maybe three months ago, but correct me if I'm wrong.
Yeah, I think a couple of things one the the backlog in contracts that we highlighted are significant <unk>.
Scott H. Keeney: One, the backlog in contracts that we highlighted is significant. Significant growth in the backlog and, you know, really quite significant increase in the contracts that give us visibility into growth. And notably, while it's a mix of both industrial and aerospace and defense, the primary drivers there, the signal, I guess, is in aerospace and defense. And then, I think, you know, with respect to the industrial markets. As I noted, it's disappointing to see the issues that Bill is having to work through that affect our revenue in the near term, but the design and work that we're doing and the advanced new products that we're releasing, yes, we are in additive. We are seeing the benefits of the roadmap that we've discussed, and I do think that 3D printed metal parts is a very important market, and it won't play out over the near-term Got it, got it.
Significant growth in the backlog and.
Really quite significant increase in the contracts that gives visibility.
To to growth.
And notably while it's a mix of both industrial and aerospace and defense. The primary drivers there signal I guess is in aerospace and defense and.
And then I think you know with respect to the industrial markets.
As I noted is you know it's disappointing to see the the issues that the bill is having to work through that affect our revenue in the near term.
But the design work that we're doing in the advanced new products that were really seen uhm. Yes. We are an additive we are seen the benefits of that.
Roadmap that we've discussed and I do think that.
Three D printed metal parts is a very important market.
And it won't play out over the near term quarters, you know as we'd hoped but it is playing out with key players in the space.
Got it got it is interesting.
Joe Corso: Clarification in terms of your stated backlog versus your funded backlog. Yes, sure, Greg. So the stated backlog today is $108 million. And the way, and we'll publish our 10k, so you'll see all that detail.
Clarification in terms of your stated backlog versus refunded backlog.
Yes, sure Greg So the stated backlog today is $108 million.
With a wave and we'll publish our 10-K, so you'll see all that detail but.
Joe Corso: But the way that we think about it is the 108 million is, you know, the firm POs or funded portion of our contracts that will be executed over the next 24 months. There's an incremental almost $220 million of contracts that we've been awarded, but for which funding needs to be added. And so that's how we separate those two.
But the way that we think about it is the 108 million is firm P. O's or funded portion of our contracts that will be executed over the next 24 months. The increments, there's an incremental 200 of almost $220 million of <unk>.
[noise] contracts that we've been awarded but for which funding needs to be added and so that's how we separate that's how we separate those two to be clear we expect that the programs that we are working on under contract that have been awarded will be funded right and so we feel really good about the <unk>.
Joe Corso: To be clear, we expect that the programs that we are working on under contracts that have been awarded will be funded, right? And so we feel really good about the revenue opportunity over the next 12, 24, 36 months that those types of contract awards afford us.
<unk> you opportunity over the next 12 to 24 36 months that those type of contract awards afford us.
Greg Palm: Okay. I will leave it there. Thanks. Our next question will come from Keith Eamson with North Coast, http://TheBusinessProfessor.com. Good afternoon, guys. Thanks. I appreciate it. Just unpacking, Joe, unpacking that comment regarding the backlog, if you don't mind, maybe because I'm new to the story here. Can you remind me, in terms of, does that include both the industrial as well as the A&D contracts? And then...
Got it okay I will leave it there thanks.
Our next question will come from Keith <unk> with Northcoast Research you may not go ahead.
Good afternoon, guys. Thanks, I appreciate it I'm, just unpack and show them, how can that comment regarding the backlog. If you don't mind, maybe cause I'm due to the story here could you remind me in terms of does that include both the industrial as well as the AMD contract and then.
Keith Eamson: I'll stop there. Go ahead. Yeah, sure. So the short answer is yes, it includes both industrial and A&D. However, the vast majority of that backlog is A&D related, right? I mean, the firm POs that we have outside of A&D tend to be, you know, relatively short lead times. So, you know, they're technically included in the backlog, but that tends not to be a backlog-driven business. It's really a read through to what we've been doing in A&D. Great. I apologize.
Yeah sure. So the short answer is yes. It includes both industrial and.
However, the vast majority of that backlog is a N D related right I mean, the firm P. O is that we have outside of A&D tend to be relatively short lead time. So yeah. They're technically included in backlog, but that tends not to be eight.
Backlog driven business, it's really read through to what we've been doing in AMD.
Great I appreciate that.
Joe Corso: I'm getting some echo here, so I guess one more quick question. You asked reference to the supply chain issues that you were having in the A&D segment. I guess one, that was just about complete.
Apologize I'm getting some echo here, so I guess one more quick question.
Yeah, it's a reference to supply chain issues that you were having in the a M. D segment I guess are the ones that was just about complete men to what was the impact on revenue of 2023 for that.
Joe Corso: And then two, what was the impact on revenue in 2023 for that? Yeah, no, so we are largely through the supply chain issues that we highlighted last quarter. So we're pleased by that, you know, I think it quantifies where the supply chain will be affected in 2023, really limited primarily to the defense products market. And, you know, we will largely be caught up there, you know, in the next quarter or two. So, you know, it was millions of dollars, but I don't think it would significantly change the trajectory or, you know, what the financials look like over the full year period. Thank you. I appreciate it.
Yeah, no. So we are largely through the supply chain issues that we highlighted last quarter. So we're pleased by that I think.
To quantify where.
The supply chain impacted 2023, really limited primarily to the defense products market and we will largely be caught up there in the <unk>.
Next quarter or two so you know it was millions of dollars, but I don't think it significantly change the trajectory or what the financials look like over the full year period.
<unk>. Thank you appreciate it.
Joe Corso: Our next question will be a follow-up from Jim Ricchiuti. Scott, I may have a question for you. We've been trying to listen in on where trends may be going on the A&E side, and you know, it appears that the customer is leaning toward transitioning to programs of record, perhaps sooner. What is your stance, to the extent that you can comment on the level of activity as to when we might see some of this transition? Yeah, Jim, happy to comment on that. And, you know, in order to answer your question, I'll, you know, draw on, you know, sort of an integrated experience. I've been doing work in direct energy for 20 years. So, you know, I've seen all aspects of the cycle from, you know, areas where it got a little too hyped up and areas where there's too much to spare.
Our next question will be a follow up from Jim.
Company you may not go ahead.
Scott maybe it was a question for you.
We've been mmm trying to loosen it in.
Mmm, where trends may be going on the a N D side yeah.
It appears that.
The the customer.
Leaning toward.
<unk>.
Transitioning to programs of record perhaps sooner.
What is your Sanchez you yeah cause the thing you can comment on that.
The level of activity.
<unk> to some of this transition.
Yeah, Jim happy to comment on that and you know in order to answer your question of drawn and sort of an integrated experienced had been doing work in direct energy for 20 years, So I've seen.
You know all aspects of the cycle from.
Areas, where it got a little too hyped in areas, where there's too much despair and I think what I see going on right now Jim is a drive to deploy lasers in the relative near term certainly in the next 18 to 24 months I would expect to see.
Joe Corso: And I think what I see going on right now, Jim, is a drive to deploy lasers in the relatively near term. Certainly, in the next 18 to 24 months, I would expect to see opportunities for lasers to be deployed, and whether that is a program of record or not is a budgetary matter, but certainly with the tensions that we're seeing around the world, whether it be the Red Sea or elsewhere, certainly we're seeing that, And, you know, it's a challenging technology.
Opportunities for lasers to be deployed and whether that is a program of record or not is a budgetary matter.
But certainly with the <unk>.
Tensions that were seen around the world, whether it be the red sea or elsewhere.
Certainly we're seen that.
Desire increase.
And.
You know, it's a challenging technology, so it's not going to happen overnight.
Scott H. Keeney: So it's not going to happen overnight. But at least on the margin, certainly over the last quarter, we've seen a stronger desire to deploy lasers in various applications. Hope that helps.
At least on the margin.
Certainly over the last quarter, we've talked a stronger desire.
To deploy lasers and various applications hope that helps.
Scott H. Keeney: And maybe the final question for me is just the level of activity that you're seeing in this area of business outside the U.S. How would you characterize that? Significant. You know, we've talked in the past about our involvement with Israel, but there's involvement from our allies around the world in this area. So, yeah, it's not just a U.S. DOD level of engagement. There's a fairly broad engagement, and it's fairly advanced in places like Israel.
It does it may be the final question for me is just on the level of activity.
You sing in the spirit of the business outside the U S. How would you characterize that <unk>.
Significant.
We talked in the past about our involvement with Israel.
But there's involvement with our allies around the world.
In this area.
So yeah. It is not just a U S D O D.
Scott H. Keeney: Thank you. Again, if you have a question, please press star then 1. The next question will come from Mark Miller with the Benchmark. Thank you for the question. I looked at your mix of high-power lasers versus lower-power lasers, and that improved or grew richer as 2023 progressed compared to prior years. I'm just wondering if you can comment about the backlog in terms of the margin profile of your backlog. Is that similar to what you've been reporting recently, or has that improved? Yeah, no, thanks, Mark. It's improved, right?
Level of engagement fairly broad engagement.
And fairly advanced and certainly places like Israel.
Thank you.
Okay.
Okay and if you have a question. Please press Star then one.
Our next question will come from Mark Miller with a benchmark though.
I'll go ahead and thank you for the question I would look at it.
Your your maximum high power lasers versus lower powers isn't that improved.
For richer.
2023 progress compared to prior years I'm just wondering if you can comment about the backlog in terms of like marching profile of your backlog. So it's similar to what you're you've been reporting recently or is that improved.
Yeah.
<unk> <unk>.
It's improved right.
Joe Corso: As we've seen, as you've seen, right from that power mix, I think the takeaway there is two things. One, we are seeing, generally, that continued evolution of higher power lasers in the cutting market, right, which I think our competitors are seeing as well. For us, and what's probably a bigger driver of the improved standard margin or gross margin is the fact that a greater proportion of our higher power cutting lasers are programmable. And so that is, that's, that's positive for us, right? And even on the lower power side, right? You know, the single mode Corona lasers as well, they tend to carry better; it's a better margin.
As we've as you've seen right from that that that power mix.
The takeaway there's two things one we are seeing generally that continued evolution of higher power lasers in the in the in the cutting market right, which I think our competitors are seeing as well for us and what's probably a bigger driver of the improved standard margin gross margin is the fact that a gray.
Or a proportion of our higher power cutting lasers are programmable and so that is that's that's that's positive for us right and even on the lower power side right.
The single mode, Corona lasers, as well those tend to carry bedroom, it's a better margin profile.
From your even.
Joe Corso: Premier, it looks like the OPEX for the first quarter is going to be kind of flat-ish, or am I off there? Is it lower or flat? No, it'll be up a little bit, Mark, but not meaningfully. And just one last one: how should we be modeling taxes in 2024? Yeah, taxes in 2024, I think you can kind of keep it at, you know, call it 150k a quarter, right, still relatively low. Thank you.
It looks like the the <unk>. The first quarter is gonna be kind of flattish round my off there is it lower or blood no it'll it'll it'll be a little bit mark, but not not not meaningfully right not not meaningfully.
Just one last one how how should we be modeling <unk> 2024.
Yeah taxes in 2024, I think you can kind of keep it and call. It a 150 K a quarter red still relatively low.
Joe Corso: You're welcome. And that concludes our question and answer session. I would like to turn the comments back over to Joe Corso. I thank you all for joining us this afternoon and for your continued interest in Nlight. We look forward to speaking to you during the quarter. Thanks. This conference is now concluded.
You're welcome.
This concludes our question and answer session I would like to turn it back over to Joe.
For any closing remarks.
Thank you everyone for joining this afternoon for.
For your continued interest in in light and we look forward to speaking with.
During the quarter <unk> have a good afternoon. Thanks.
The conference has now concluded. Thank you for telling today's presentation you may not disconnect.