Q1 2024 nLIGHT Inc Earnings Call
Operator: Hello and welcome to the Nlight First Quarter 2024 earnings conference call. All participants will be in listen-only mode.
Hello, and welcome to the unlike first quarter 'twenty 'twenty four earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw from the question queue, you may press star, then 2. As a reminder, this conference is being recorded. I would now like to hand the call to Joe Corso, CFO. Please go ahead.
Operator: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw from the question queue. You May Press Star then two.
Joseph Corso: As a reminder, this conference is being recorded.
Operator: I'd now like to hand, the call to Joe Corso CFO. Please go ahead.
Joseph Corso: Thank you and good afternoon, everyone. I'm Joe Corso, Nlight's Chief Financial Officer. With me today is Scott Keeney, Nlight's 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 in our SEC filing. 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.
Operator: Thank you and good afternoon, everyone I'm, Joe Corso and Mike <unk>, Chief Financial Officer with me today is Scott Keeney, Enlighten chairman and CEO.
Joseph Corso: Today's discussion will contain forward looking statements, including financial projections and plans for our business some of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings.
Joseph Corso: 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.
Joseph Corso: 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 in the investor relations section of our website. I will now turn the call over to Scott.
Scott H. Keeney: During the call we will be discussing certain non-GAAP financial measures. We've 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.
Scott: Thank you Joe.
Scott H. Keeney: First quarter revenue of $44.5 million and overall gross margins of approximately 17% were within the guidance range. Continued careful management of operating expenses, working capital, and capital expenditures enabled us to increase cash, cash coupons, and investments to $121 million with no debt. As discussed last quarter, we believe Q1 is our trough revenue quarter and expect growth in the second quarter. We also expect the second half of the year to be stronger than the first half of 2024 with increasing visibility for continued growth driven by our defense business.
Scott: First quarter revenue of $44 $5 million in overall gross margins of approximately 17% were within the guidance range.
Scott H. Keeney: Careful management of operating expenses, working capital and capital expenditures enabled us to increase cash cash equivalents and investments to $121 million with no debt.
Scott H. Keeney: As discussed last quarter, we believe Q1 is our trough revenue quarter and expect growth in the second quarter.
Scott H. Keeney: We also expect the second half of the year to be stronger than the first half of 'twenty 'twenty four with increasing visibility for continued growth driven by our defense business.
Scott H. Keeney: Before turning to the details of the quarter, I would like to reflect upon Nlight's recent history and business transition. We founded Nlight with the vision that laser technology would improve at a rapid rate and open up new applications for lasers in both commercial and defense markets. This past week marked the sixth anniversary of our initial public offering. Since then, we've experienced important changes in our business. Some of the changes have been beyond our control, the most significant of which was a rapid and dramatic geopolitical shift with respect to China.
Scott H. Keeney: Before turning to the details of the quarter I would like to reflect upon enlighten recent history and business transition.
Scott H. Keeney: We founded in light with the vision that laser technology would improve at a rapid rate and open up new applications for lasers in both commercial and defense markets.
Scott H. Keeney: This past week marked the sixth anniversary of our IPO.
Scott H. Keeney: Since then we've experienced important changes in our business.
Scott H. Keeney: Some of the changes have been beyond our control the most significant of which was a rapid and dramatic geopolitical shift with respect to China.
Scott H. Keeney: In the face of this change, we made several fundamental changes to our business to position ourselves for long-term growth. We shifted our manufacturing footprint away from China and into the U.S. and as a contract manufacturer. We developed innovative products for a nascent but fast-growing metals additive manufacturing market. We acquired Neutronics to deepen our presence in directed energy, and we pursued and won multiple new defense contracts. These changes have been a drag on our income statement performance, but through disciplined OPEX control and working capital management, our balance sheet is strong, and we are well positioned for growth.
Scott H. Keeney: In the face of this change we made several fundamental changes to our business to position ourselves for long term growth.
Scott H. Keeney: We shifted our manufacturing footprint away from China into the U S and a contract manufacturer.
Scott H. Keeney: We developed innovative products for our nascent but fast growing metals additive manufacturing market.
Scott H. Keeney: We acquired new Tronox to deepen our presence and directed energy.
Scott H. Keeney: And we pursued and won multiple new defense contracts.
Scott H. Keeney: These changes have been a drag on our income statement performance, but through disciplined opex control and working capital management, our balance sheet is strong and we are well positioned for growth.
Scott H. Keeney: This growth will be driven by our dual-use strategy. We serve both the commercial and defense end markets, each of which has its own set of growth drivers and challenges. To understand our long-term revenue opportunity, it's important to review what we believe is possible in each of these core markets.
Scott H. Keeney: This growth will be driven by our dual use strategy. We serve both the commercial and defense end markets each of which has its own set of growth drivers and visibility.
Scott H. Keeney: To understand our long term revenue opportunity. It's important to review what we believe is possible in each of these core markets.
Scott H. Keeney: Aerospace and defense has emerged as the most significant growth opportunity we have in front of us today. Nlight has been focused on the aerospace and defense market since inception, and our most recent investments in technology and capabilities position us for significant growth in this market. We are working on programs with strategic importance to the U.S. government, and with funded backlog plus contract value exceeding $300 million, we have strong visibility into our revenue pipeline over the next several years.
Scott H. Keeney: Aerospace and defense has emerged as the most significant growth opportunity we have in front of us today.
Scott H. Keeney: Enlighten has been focused on the aerospace and defense market since inception, and our most recent investments in technology and capabilities positions us for significant growth in this market.
Scott H. Keeney: We are working on programs with strategic importance to the U S government and with funded backlog plus contract value exceeding $300 million, we have strong visibility into our revenue pipeline over the next several years.
Scott H. Keeney: Geopolitical unrest and ongoing military conflicts in the Middle East, Ukraine, and elsewhere are driving the need for more sophisticated, cost-effective defense solutions built upon semiconductor and fiber laser technology. The COVID-19 pandemic highlighted the fragility of the global supply chain and a critical need to bolster domestic infrastructure required to support the U.S. defense base.
Scott H. Keeney: Geopolitical unrest in ongoing military complex in the Middle East, Ukraine, and elsewhere are driving the need for more sophisticated cost effective defense solutions built upon semiconductor and fiber laser technology.
Scott H. Keeney: The COVID-19 pandemic highlighted the <unk> of the global supply chain and a critical need to bolster domestic infrastructure required to support the U S defense space.
Scott H. Keeney: Our defense business spans a wide range of laser-based applications, and we've become a critical supplier to the U.S. Department of Defense and multiple programs for U.S. allies. More specifically, there are two areas of our aerospace and defense business that are driving our growth: laser sensing and directed energy. Laser sensing products use lasers for object detection, measurement, and inspection and are used in a wide range of land, sea, air, and increasingly, space applications.
Scott H. Keeney: Our defense business spans a wide range of laser based applications and will become a critical supplier to the U S Department of defense and multiple programs for U S allies.
Scott H. Keeney: A few examples of our laser-sensing products include missile guidance, proximity detection, range finding, and countermeasure. Our products have been incorporated into several significant and long-running defense programs and are expected to enable several new classified large programs. In Directed Energy, we are designing and building solutions aimed at defeating a growing range of threats to military forces and infrastructure and offering significant advantages over traditional kinetic weapons, including speed of light engagement, low cost per shot, and deep magnitude.
Scott H. Keeney: More specifically there are two areas of our aerospace and defense business that are driving our growth laser sensing and directed energy.
Scott H. Keeney: Laser sensing products use lasers for object detection measurement and inspection and are using a wide range of land sea and air and increasingly space applications.
Scott H. Keeney: A few examples of our laser sensing products include missile guidance proximity detection range, finding and countermeasures are products had been a corporate into several significant and long running defense programs and are expected to enable several new classified large programs.
Scott H. Keeney: In directed energy, we are designing and building solutions aimed at defeating a growing range of threats to military forces and infrastructure and offers significant advantages over traditional kinetic weapons, including speed of light engagement low cost per shop and deep magazines.
Scott H. Keeney: We believe that a combination of our leading technology capabilities and U.S.-based vertically integrated business model provides us with significant competitive differentiation in this market. Our broad portfolio of products for the directed energy market, which includes semiconductor lasers, fiber amplifiers, beam combined lasers, and beam control solutions, enables us to engage strategically with domestic and international partners across the entire directed energy ecosystem. As a result, we expect strong growth in our aerospace and defense business in 2024 with further upside in future years based on current contracts and potential future awards. Turning to our commercial market,
Scott H. Keeney: We believe that a combination of our leading technology capabilities and U S. Based vertically integrated business model provides us with significant competitive differentiation in this market.
Scott H. Keeney: Our broad portfolio of products for the directed energy market, which includes semiconductor lasers fiber amplifiers beam combined lasers and beam control solutions enables us to engage strategically with domestic and international partners across the entire directed energy ecosystem.
Scott H. Keeney: As a result, we expect strong growth in aerospace and defense business in 'twenty 'twenty four with further upside in future years based on current contracts and potential future Awards.
Scott H. Keeney: Turning to our commercial markets.
Scott H. Keeney: In microfabrication, we pioneered the development of single emitter fiber-coupled semiconductor lasers and have been a market leader in this area for many years. Our patented high brightness, high power semiconductor lasers are a critical enabling component of many of the leading pulse lasers available in the market.
Scott H. Keeney: In micro fabrication, we pioneered the development of single emitter fibre coupled semiconductor lasers, and it's been a market leader in this area for many years, our patented high brightness high power semiconductor lasers are a critical enabling component of many of the leading pulsed lasers available in the market today.
Scott H. Keeney: We continue to see an increasing number of laser-based manufacturing processes across a wide range of applications in the auto, consumer, communications, and electronics industries. We are also in the early stages of adoption of lasers in a handful of medical applications. Taken together, we believe that our microfabrication business is relatively steady and will grow modestly over time. In industrial, where we serve the cutting, welding, and additive manufacturing markets, our growth picture is more mixed in the near term.
Scott H. Keeney: We continue to see increasing number of laser based manufacturing processes across a wide range of applications in the auto consumer communications and electronics industries.
Scott H. Keeney: We are also in the early stages of adoption of lasers in a handful of medical applications.
Scott H. Keeney: Taken together, we believe that our micro fabrication business is relatively steady and will grow modestly over time.
Scott H. Keeney: In industrial where we serve the cutting welding and additive manufacturing markets. Our growth picture is more mixed in the near term.
Scott H. Keeney: Although each of our markets has specific opportunities and challenges, pervasive inventory corrections combined with persistently soft demand across the industry are impacting each of the end markets we serve today. In addition, the industry and our business continue to shift toward higher power solutions. Cutting represents the largest portion of our industrial business today, and it's comprised primarily of our programmable fiber lasers. Although competition from Chinese manufacturers has impacted sales of our standard lower power lasers, we continue to deliver innovative programmable lasers to customers that are seeking flexible solutions that deliver superior edge quality and overall machine tool performance.
Scott H. Keeney: Although each of our markets have specific opportunities and challenges pervasive inventory corrections combined with persistently soft demand across the industry is impacting each of the end markets we serve today.
Scott H. Keeney: And cutting the industry and our business continued to shift towards higher power solutions.
Scott H. Keeney: Cutting represents the largest portion of our industrial business to date and is comprised primarily of our programmable fiber lasers.
Scott H. Keeney: Although competition from Chinese manufacturers has impacted sales of our standard lower power lasers, we continue to deliver innovative programmable lasers to customers that are seeking flexible solutions that.
Scott H. Keeney: Deliver superior edge quality and overall machine tool performance.
Scott H. Keeney: Overtime, we expect our high power fiber lasers to continue to displace legacy cutting technologies and will open up additional market applications.
Scott H. Keeney: Over time, we expect our high-power fiber lasers to continue to displace legacy cutting technology, and we'll open up additional market applications. For welding, we are focused primarily on the battery and EV market. Welding is a relatively small part of our business today, in terms of both revenue and internal resources, but we are optimistic about growth. We're developing innovative products that address our customers' most critical pain points, and initial customer engagement with products we intend to release over the coming months has been positive.
Scott H. Keeney: In welding, we are focused primarily on the battery and EV market.
Scott H. Keeney: Wellbeing is a relatively small part of our business today in terms of both revenue and internal resources, but we are optimistic for growth.
Scott H. Keeney: We're developing innovative products that address our customers' most critical pain points and initial customer engagement with products, we intend to release over the coming months has been positive.
Scott H. Keeney: In additive manufacturing, we continue to see strong long-term growth. We are working closely with multiple strategic customers to drive broader adoption of additive manufacturing across multiple industries. Fundamentally, we believe the adoption and growth of the metal additive manufacturing market will be driven by higher tool productivity, resulting in lower overall part costs. The advantages of our Krona AFX lasers are clear.
Scott H. Keeney: In additive manufacturing, we continue to see strong long term growth prospects. We are working closely with multiple strategic customers to drive broader adoption of additive manufacturing across multiple industries.
Scott H. Keeney: Fundamentally we believe the adoption and growth of the metal additive manufacturing market will be driven by higher tool productivity, resulting in lower overall part cost.
Scott H. Keeney: The advantages of a krona FX lasers are clear.
Scott H. Keeney: Additive manufacturing tools using Krona AFX have been widely demonstrated to increase build rates by a factor of two to eight times, which substantially reduces park costs. Although our additive business is not a driver of our year-over-year growth in 2024, primarily due to the challenges of a single customer, broader customer engagement has been strong, and we expect growth to resume in a much more significant way in 2025 and beyond. Overall, although we expect our commercial business in microfabrication and industrial to grow over time, we expect 2024 will be a down year from a top line perspective.
Scott H. Keeney: Add to manufacturing tools using corona effects have been widely demonstrated to increased build rates by a factor of two to eight times, which substantially reduces part cost.
Scott H. Keeney: Although our additive business is not a driver of our year over year growth in 2024, primarily due to the challenges of a single customer and broader customer engagement has been strong and we expect growth to resume in a much more significant way in 2025 and beyond.
Scott H. Keeney: Overall, although we expect our commercial business and micro fabrication and industrial to grow overtime. We expect 2024 will be a down year from a top line perspective.
Scott H. Keeney: Turning to the details for the quarter, in aerospace and defense, first quarter revenue increased 3% year over year to $21.7 million, representing 49% of total revenue. During the quarter, we continue to execute on our key directed energy programs, HELSI II and DEM SHORAD, both of which are progressing well. In the industrial sector, first quarter revenue decreased 40% year over year to $12 million, representing 27% of total revenue. While sales of programmable lasers into the cutting market increased year over year, sales of non-programmable lasers decreased significantly, and revenue from a key additive customer last year did not repeat in Q1. For microfabrication, first quarter revenue decreased 17% year over year to $10.8 million, representing 24% of total revenue.
Scott H. Keeney: Turning to the details for the quarter.
Scott H. Keeney: In aerospace and defence first quarter revenue increased 3% year over year to $21 $7 million, representing 49% of total revenue.
Scott H. Keeney: During the quarter, we continued to execute on our key directed energy programs <unk> and D. I'm sure it both which are progressing well.
Scott H. Keeney: In industrial first quarter revenue decreased 40% year over year to $12 million, representing 27% of total revenue.
Scott H. Keeney: While sales of programmable lasers into the cutting market increased year over year sales of non programmable lasers decreased significantly and revenue from our key additive customer last year did not repeat in Q1.
Scott H. Keeney: In micro fabrication first quarter revenue decreased 17% year over year to $10 8 million, representing 24% of total revenue.
Joseph Corso: We continue to work closely with our key strategic customers, but demand has been soft for the last several quarters. In summary, although the first quarter was challenging from a revenue perspective, we believe we are well positioned for growth going forward. 2023 marked a significant shift in both our overall business and manufacturing strategy, and we are confident that we are aligned with the right markets, customers, and programs to drive long-term growth.
Scott H. Keeney: We continue to work closely with their key strategic customers, but demand has been soft for the last several quarters.
Joseph Corso: In summary, although the first quarter was challenging from a revenue perspective, we believe we were well positioned for growth going forward 2023 market significant shipped both our overall business and manufacturing strategy and we're confident that we are aligned with the right markets customers and programs to drive long term growth.
Joseph Corso: Our balance sheet is strong, and our world-class engineering team continues to introduce innovative products for both the commercial and defense markets. As I indicated last quarter, I remain optimistic about growth in 2024 and for renewed momentum to carry into the next year and beyond. With that, I will turn the call over to Joe to discuss our first quarter financial results.
Joseph Corso: Our balance sheet is strong and our world class Engineering team continues to introduce innovative products for both the commercial and defense markets.
Joe: As I indicated last quarter I remain optimistic for growth in 2024, and four a renewed momentum to carry into the next year and beyond.
Joseph Corso: With that I will turn the call over to Joe to discuss our first quarter financial results.
Joe: Thank you Scott.
Joseph Corso: Total revenue in the first quarter of 2024 was $44.5 million, above the midpoint of guidance, but down $9.6 million, or 18%, compared to $54.1 million in the first quarter of 2024. Q1 aerospace and defense revenue increased 3% year over year, but was offset by a decrease from Industrial and Microfabrication.
Joe: Total revenue in the first quarter of 2024 was $44 $5 million above the midpoint of guidance, but down $9 6 million or 18% compared to $54 1 million in the first quarter of 2023.
Joseph Corso: Q1, aerospace and defense revenue increased 3% year over year, but was offset by a decrease.
Joseph Corso: From the industrial and micro fabrication markets.
Joseph Corso: Product revenue was $29.4 million compared to $41.1 million in the first quarter of 2023, and development revenue was $15.2 million compared to $13 million for the first quarter of 2020. Overall gross margin in the first quarter of 2024 was 17 percent, near the midpoint of guidance, compared to 26 percent in the first quarter of 2020. Product gross margin was 21%, compared to 33% in the first quarter of 2023. And the development gross margin was 9% compared to 5% in the first quarter.
Joseph Corso: <unk> revenue was $29 4 million compared to $41 $1 million in the first quarter of 2023 and development revenue was $15 $2 million.
Joseph Corso: Compared to $13 million for the first quarter of 2023.
Joseph Corso: Overall gross margin in the first quarter of 2024 was 17% near the midpoint of guidance compared to 26% in the first quarter of 2023.
Joseph Corso: Product gross margin was 21% compared to 33% in the first quarter of 2023 and development gross margin was 9% compared to 5% in the first quarter of 2023.
Joseph Corso: As expected, product gross margin in the first quarter of 2024 was negatively impacted by a decrease in production volumes and low absorption of our manufacturing. We expect product gross margin to improve as overall volumes increase as we move through 2020. The improvement and development gross margin for the first quarter of 2024, compared to the prior year, is the result of new development contracts awarded in the second half.
Joseph Corso: As expected product gross margin in the first quarter of 2024 was negatively impacted by a decrease in production volumes and lower absorption of our manufacturing costs.
Joseph Corso: We expect product gross margin to improve as overall volumes increase as we move through 2024, the improvement and development gross margin for the first quarter of 2024 compared to the prior year as a result of new development contracts awarded in the second half of 2023.
Speaker Change: Turning to Opex.
Joseph Corso: [inaudible] Non-GAAP operating expenses were $17.2 million in the first quarter of 2024, compared to $17.3 million in the first quarter of 2020. Adjusted EBITDA for the first quarter of 2024 was a loss of $4.9 million, slightly above the high end of guidance, compared to $1.3 million of positive EBITDA in the first quarter. The decrease in adjusted EBITDA was driven by a decrease in gross profit due to lower overall revenue in gross.
Joseph Corso: non-GAAP operating expenses were $17 2 million in the first quarter of 2024 compared to $17 $3 million in the first quarter of 2023.
Joseph Corso: Adjusted EBITDA for the first quarter of 2024 was a loss of $4 9 million slightly above the high end of guidance.
Joseph Corso: <unk> to $1 $3 million of positive EBITDA in the first quarter of 2023.
Joseph Corso: The decrease in adjusted EBITDA was driven by the decrease in gross profit due to lower overall revenue and gross margin.
Joseph Corso: The net loss on a gap basis was $13.8 million, or $0.29 per diluted share, compared with a gap net loss in the first quarter of 2023 of $7.7 million, or $0.17 per diluted share, turn into the balance.
Joseph Corso: Net loss on a GAAP basis was $13 8 million or 29 cents per diluted share compared with a GAAP net loss in the first quarter of 2023 of $7 7 million.
Joseph Corso: Or 17 cents per diluted share.
Joseph Corso: Turning to the balance sheet our.
Joseph Corso: Our balance sheet remains strong as we ended the first quarter with total cash, cash equivalents, restricted cash, and investments of $121.3 million. End note. Total cash and investments increased by $8.2 million during the quarter. Cash provided by Operating Activities was $11.4 million compared to a use of cash in Operating Activities of $600,000 in the first quarter of 2020. Capital expenditures were $1.6 million compared to $700,000 for the first quarter. Inventory remained relatively flat during the quarter at approximately $53 million.
Joseph Corso: Our balance sheet remains strong as we ended the first quarter with total cash cash equivalents restricted cash and investments of $121 3 million and no debt.
Joseph Corso: Total cash and investments increased by $8 $2 million during the quarter cash.
Joseph Corso: Cash provided by operating activities was $11 4 million.
Joseph Corso: Impaired to a use of cash in operating activities of $600000 in the first quarter of 2023.
Joseph Corso: Capital expenditures were $1 $6 million compared to $700000 for the first quarter of 2023.
Joseph Corso: Inventory remained relatively flat during the quarter at approximately $53 million.
Joseph Corso: Accounts receivable decreased by approximately $12 million to $27.5 million as a result of strong collections and timing of customers. As noted last quarter, maintaining a strong balance sheet remains a key focus of the company. Strong OpEx control coupled with careful work in 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 to God.
Joseph Corso: As noted last quarter, maintaining a strong balance sheet 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 objectives.
Joseph Corso: Turning to guidance.
Joseph Corso: Based on the information available today, we expect revenue for the second quarter to be in the range of $47 to $51 million. The midpoint of approximately $49 million includes approximately $34 million of product revenue and $15 million of development. Turning the Gross Mark.
Joseph Corso: Based on the information available today, we expect revenue for the second quarter to be in the range of $47 million to $51 million. The midpoint of approximately $49 million includes approximately $34 million of product revenue and $15 million of development revenue.
Joseph Corso: Turning to gross margin.
Joseph Corso: Second quarter products gross margin is expected to be in the range of 23% to 27%, and development gross margin to be approximately 9%, resulting in an overall gross margin range of 18% to 22%. As we've mentioned previously, as a vertically-integrated manufacturing business, gross margin improvement is highly dependent on production volumes and absorption of fixed manufacturing. In Q2, we expect to have better absorption of our manufacturing costs than we did in Q1, and we expect gross margin to improve further as production volumes and revenue are expected to increase as we move through 2020.
Joseph Corso: As we've mentioned previously as a vertically integrated manufacturing business gross margin improvement is highly dependent on production volumes and absorption of fixed manufacturing costs.
Joseph Corso: Finally, we expect adjusted EBITDA for the first quarter to be in the range of negative one to negative five million dollars. We continue to expect break-even, and adjusted-it-even with quarterly revenue in the $55 to $60 million. With that, I will turn the call over to the operator for questions.
Operator: Thank you very much. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star, then 2. We will pause momentarily to assemble our roster. Today's first question comes from Greg Palm of Craig Hallam Capital Group. Please go ahead.
Speaker Change: Thank you very much we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Operator: We will pause momentarily to assemble our roster.
Gregory William Palm: Hey, good afternoon. Thanks for taking the questions. I wanted to start off, Scott, I think you mentioned the term increasing visibility, and I guess maybe a two-part question. Number one, you said you remain optimistic about growth for the full year, which obviously implies a pretty big ramp in the second half, so maybe talk about what your visibility levels are there. But also, you talked about increasing visibility, I think, for growth next year as well, or strong growth, and I'm just curious if that's just around the timing of what has currently been won, if it's new orders, if it's pipeline, what gives you that confidence to use, again, the term increased visibility?
Scott H. Keeney: Yeah, happy to address that, Greg. First of all, on our last call, we talked about the backlog, a strong backlog we had going into the year, but with the expectation that Q1 was going to be low. And that backlog that I referred to then has continued to improve, and that gives us visibility not only into the second half of the year but for further growth. You know, that backlog is largely around; the majority of it is in DOD-based applications.
Scott H. Keeney: And so we see, you know, continued opportunities for growth, both in directed energy and in our sensing space. And, you know, I think, you know, the one example of that that is public and that is a broad catalyst for our, the overall DE community is the supplemental bill that passed Congress for 1.2 billion to procure iron beam lasers. You know, that's just one example of various initiatives that are going on with respect to lasers.
Gregory William Palm: Got it. And I guess I'm curious outside of A&D or maybe more so D. Do you feel like, you know, when the market turns, this could become a growth driver? Again, I think you talked about it not being a growth driver this year. I think you've talked about additive manufacturing as being, you know, maybe a better growth driver for next year. But I'm just, you know, curious how much of it is market related, how much of it is competition related, and if the market gets better, do you think you're positioned to capitalize on that? Or is it just that you've been focusing a lot more on some of these A&E applications in the recent past? Yeah,
Scott H. Keeney: Yeah, thanks for following up on that, Greg, because I do think that additive remains an important growth driver and, you know, it's disappointing to see the reduction in our growth there due to, you know, one customer. We're working closely with their management, and as they, you know, build their organization, we're certainly supporting their plans for growth, but that certainly is disappointing for this year.
Gregory William Palm: We are engaged across a, you know, much wider range of applications in additive, and there we do see opportunities for growth. We do see additive as a market that, well, our differentiated technology enables our customers to drive further growth by increasing productivity and reducing part costs for these 3D printed metal parts. You know, we'll be releasing more information at an upcoming rapid trade show in June. There will be more information there, but there we see, you know, growth driven by, you know, design wins that we're working on.
Operator: Okay, great. I will leave it there. Thanks.
James Andrew Ricchiuti: Thank you. The next question is from Jim Ricchuti with Needham & Company. Please go ahead.
James Andrew Ricchiuti: Hi, thanks. Good afternoon.
James Andrew Ricchiuti: When would you anticipate the commercial business dropping, or do you think it dropped in Q1? Because it sounds like you're still seeing very difficult conditions in both micro fabrication and certainly in industrial.
Scott H. Keeney: Yeah, I think, Jim, thanks for the question. You know, I think that we do see some of the difficult macro conditions, for sure, but, you know, as I mentioned, with respect to additives, it had more to do with a particular situation with one customer. So we do see growth as we release new products that expand, you know, our design wins and expand our presence in additive manufacturing and also as we release new products in cutting and welding also. So we do see growth there. We have better visibility into more substantial growth in A&E, but we do see growth in industrial also.
Scott H. Keeney: Scott, what are you seeing in the microfabrication business? Because it's a lot more diverse. And I feel like we've been talking about weakness in that market for just a prolonged period of time. And I'm wondering, you know, whether this is structurally, have things changed there? Is it competitive, are there different competitive forces? Or are we just in a real, challenging market, whether it's end market semi-finished or just some of the other end markets? When would you anticipate the microfabrication piece turning? Would you anticipate that leading industrial sector, or how are you thinking about a recovery in that part of the business?
Scott H. Keeney: Yeah, thanks Jim. It is complex, and it is challenging. There's no question about it that the end markets for microfabrication, certainly the electronics supply chain and markets, are challenging as it relates to, you know, adjustments, geopolitical adjustments otherwise, with respect to the US, Europe, China, etc. Having said that, you know, we do have a presence in the medical space that we do categorize as microfabrication. That is an area where we are seeing signs of growth.
Scott H. Keeney: We do have a presence in the medical space that we do categorize micro fabrication that is an area, where we are seeing.
Scott H. Keeney: Signs of growth.
Scott H. Keeney: Seeing some new applications in other areas of micro fabrication, but I think it is fair to say that that that remains a challenging sector.
Scott H. Keeney: We're seeing some new applications in other areas of microfabrication, but I think it is fair to say that that remains a challenging sector for us. Jim, this is Joe. There is, of course, not as much visibility in our microfabrication business as in the industrial business and certainly in the A&E business. And so that business can come back relatively fast without us necessarily seeing it, you know, multiple, multiple quarters ahead, right?
Joe: For us.
Scott H. Keeney: This is Joe there is.
Scott H. Keeney: Not as much visibility in our micro fabrication business as in the industrial business and certainly in the A&D business and so that business.
Joe: Can come back relatively fast without us necessarily seeing it multiple multiple quarters ahead right. So the first part of your question is also are we seeing any sort of structural shifts or changes in competitive dynamics, Mike the answer to that is not not really right. So.
Scott H. Keeney: So the first part of your question is also, are we seeing any sort of structural shifts or, you know, changes in competitive dynamics, right? The answer to that is not, not really, right? So a lot of what we're experiencing right now is just the general malaise in that market, which has been where the last couple of quarters at very similar levels.
Scott H. Keeney: A lot of what we're experiencing right now is just the general malaise in that market, which has been where.
Scott H. Keeney: Last couple of quarters it at very similar levels for us.
James Andrew Ricchiuti: And the last question for me is just on the A&E side, and I think you talked about backlog, and you know much of that backlog is, of course, D.O.D. driven, but what are you seeing in terms of activity on the international side of the business and follow-up, just broadly speaking, on the A&E side since it's difficult sometimes for us to really track what's happening there? Are there any milestones we should be thinking about over the near term in that part of the world?
Speaker Change: And then the last question for me is just on the A&D side and I. Thank you.
James Andrew Ricchiuti: D O D driven but.
James Andrew Ricchiuti: What are you seeing in terms of activity on the <unk>.
James Andrew Ricchiuti: On the international side of the business.
Scott H. Keeney: On the international side, I did note that it's not only U.S. programs but also our engagement in international programs, and those continue to expand. And in direct energy, in particular, the interest from a broad range of our allies has continued to grow as conflicts continue to demonstrate the need for non-kinetic defense systems. I highlighted the supplemental for Israel.
Scott H. Keeney: Let me
Speaker Change: Good let me address your first question Jim on the international side.
Scott H. Keeney: I did note that that it's not only U S programs, but also our engagement in Internet international programs and those continue to.
Scott H. Keeney: Spanned.
Scott H. Keeney: The interest from a broad range of our allies.
Scott H. Keeney: It's continued to grow.
Scott H. Keeney: I highlighted.
Scott H. Keeney: The supplemental Ford is real and that is it.
Scott H. Keeney: That is a very, very big catalyst for the market. But there are other programs, like the UK announced their demonstration, and there are other programs that we hope to be able to provide more information about in the coming quarters. With respect to other milestones, the big programs that we've got over the next couple quarters, there's not a clear set of milestones that I can highlight right now. I will say that we are making progress as we integrate the technology into higher levels, and certainly, as we're able to, we'll announce results.
Scott H. Keeney: But there are other programs like the U K.
Ruben Roy: Thank you. The next question comes from Ruben Roy with Stiefel. Please go ahead.
Ruben Roy: Thanks. Scott, the first question I guess would be just to follow up on, you know, sort of what you just talked about with milestones and how to think about that, you know, for both this year and the longer term, and I guess that in the context of increasing visibility around defense revenue later this year. You cited one example of what gives you increased visibility, which is more discussion from the government around what they want to do with lasers and that type of thing.
Ruben Roy: So would you characterize the increasing visibility as more along the lines of, you know, government interest and actions around your technology, or is there some function to some of the programs that you've been working on for quite a while now and that are in various phases? You know, are you, I know you can't talk too much about milestones with us, but are you getting, you know, more comfortable around, you know, reaching those milestones, which is giving you visibility?
Scott H. Keeney: Yeah, Ruben, I like how you frame that because it's really both. Let me answer the second part of your question first. Yeah, so the current programs that we have are very important ones. We're continuing to scale power to much higher levels with the HELSI program, and we continue to make progress there. The Army's M-SHORAD program is a very important program that we continue to make progress on.
Scott H. Keeney: and there are other programs that we have in-house today, but then, in addition to that, I think the interest in this area, the understanding of the importance of this area, you know, in particular the understanding of just one benefit of directed energy, the economics. And I think that has been shown recently and that's becoming, you know. This is better understood to be important to have a portfolio of defensive technologies, and so that interest also is expanding at the same time that we're making progress against our current programs.
Scott H. Keeney: Just one benefit of directed energy economics.
Scott H. Keeney: And I think that has been shown recently.
Scott H. Keeney: And that's becoming.
Scott H. Keeney: So that interest also is expanding at the same time that we're making progress against our current programs.
Speaker Change: Very helpful. Thank you Scott and.
Ruben Roy: Very helpful. Thank you, Scott. As a follow-up, I wanted to maybe ask a longer-term and higher-level strategic question around the commercial markets. I assume, you know, even with, you know, sort of this pro-long
Speaker Change: As a follow up I wanted to maybe ask a longer term and higher level strategic question around the commercial markets I assume you know even with sort of prolonged.
Speaker Change: Environment, which has been challenging that theres still a lot of activity going on from a development and innovation perspective, and so when you kind of take a step back and look at your various areas of.
Ruben Roy:
Ruben Roy: Technology.
Speaker Change: It has.
Ruben Roy: Is the strategy still the same? Are you still as excited about these markets that you've outlined? And thank you for doing that, meaning cutting, medical devices, welding, additive manufacturing, and some of the other markets. Given that we've got this lull period, Scott, would you say that it might be time to take a look at some of these areas that might be worth investing more in? For instance, it seems like welding could be a very interesting TAM expansion opportunity for fiber lasers, whereas cutting, you might have more competition coming online, both in China and outside China. So just wondering if the strategy around commercial markets Thank you.
Speaker Change: It's a strategy that sort of thing I mean are you are you still as excited about.
Ruben Roy: You know these markets that you've outlined and thank you for doing that mean cutting medical devices welding additive manufacturing and in some of the other markets are you know given that we've got this lull period Scott.
Ruben Roy: You say that it might be time to take a look at potentially some other yeah.
Ruben Roy: Some of these areas that might be worth investing more in for instance, you know it seems like welding.
Ruben Roy: You know it could be a very interesting you know tam expansion opportunity for fiber lasers, whereas cutting you might have more.
Ruben Roy: Competition coming online both in China, and ex China. So just wondering if you.
Ruben Roy: The strategy around commercial markets.
Ruben Roy: It's changed at all or if Youre kind of got it going full speed ahead as you as you have been.
Scott H. Keeney: Yeah, good. I appreciate that question because it is something that I want to highlight. And on subsequent calls, I look forward to being able to announce, you know, new product introductions. I think, you know, as these markets shift over time, our product strategy certainly has adjusted. And certainly, the sort of standard lasers that go into, say, cutting tools, that isn't a core focus for us. But the enhanced performance that we have with our current technology and some other software that we add onto the lasers allows us to do things for customers that others can't do. And that opens up new applications.
Ruben Roy: Yeah. Good I appreciate that question because it is something that I want to highlight and in subsequent calls I look forward to being able to announce new product introductions I think.
Scott H. Keeney: As as these markets shift over time, our product strategy, certainly has adjusted and certainly that sort of standard lasers that go into say cutting tools that that isn't a core focus for us but the enhanced.
Scott H. Keeney: Performance that we have with our current technology and some other software that we add onto the lasers allows us to do things for customers that others can't do and that opens up new applications. I've noted thicker metal cutting is one example in the cutting market.
Scott H. Keeney: I've noted, you know, thicker metal cutting is one example in the cutting market. In welding, you're right; we have a very limited presence in that market. So we do see opportunities for growth there, certainly in the EV battery space. And again, on upcoming calls, I hope to be able to share new product announcements. There's a big battery show where we'll be attending, and as I mentioned, an additive also. There's the rapid trade show in June.
Scott H. Keeney: Well, you're right we have a very limited presence in that market. So we do see opportunities for growth there certainly in the EV battery space.
Scott H. Keeney: And again in upcoming calls.
Scott H. Keeney: To be able to share new product announcements theres, a big battery show, where we will be attending and as I mentioned in additive also there is the rapid trade show in June.
Scott H. Keeney: So we are investing in expanding the performance of our lasers for these end markets. And I think that's one of the shifts we see is that customers are looking for, you know, more reliable, higher performance lasers, and I'll call them subsystems that enable them to do more than they were able to do before. And that's opening up new markets.
Scott H. Keeney: So yeah, we are investing.
Scott H. Keeney: In expanding our the performance of our lasers for these end markets and I think that's one of the shifts we see is that customers are looking for.
Scott H. Keeney: More reliable higher performance laser and I'll call them sub systems that enable them to do more than they were able to do before and that's opening up new markets for us.
Ruben Roy: Thank you, Scott. I guess I could just sneak one last one in for Joe. I dialed in a little bit late to the call, Joe, but 90 days into the year here, has anything changed one way or the other on how you're thinking about OPEX? I know you've given us guidance here in the near term, but generally speaking, as you think about the year and how it's going to play out now that you have a little more visibility and how the second half might work out, an update on how you're thinking about spending plans would be helpful.
Speaker Change: Got it thank you Scott and I guess, if I could just sneak one last one in for Joe.
Speaker Change: I dialed in a little bit late to the call Joe, but you know 90 days into the year here anything changed one way or the other on how youre thinking about Opex I know you've given us guidance.
Ruben Roy: Here near term, but you know.
Ruben Roy: Generally speaking as you think about the year and how it's going to play out now that you have a lot more visibility on how the second half might work out an update on how you're thinking about spending plans would be helpful.
Joseph Corso: Yeah, no major changes to our plans for spending, Ruben. I think you'll see some variable spending come through for bonuses and things like that as we make our way through the year. But we're expecting growth in the second half of the year; we want that to really flow through. I think we are pretty well situated from both a labor and materials plan for the balance of the year to achieve what we need to achieve in 2024 and set ourselves up well for 2025 and beyond.
Joe: Yeah, no major changes to our plans for spending Ruben I think youll see some variable.
Joseph Corso: Spending come through for bonuses and things like that as we make our way through the year, but with the.
Joseph Corso: We're expecting the growth in the second half of the year.
Joseph Corso: We want that to really flow through I think we are pretty well situated from both.
Joseph Corso: Labour and materials planned for the balance of the year to achieve what we need to achieve in 2024 and set ourselves up well for 2025 and beyond so there's no major plans to significantly change opex as we move through the.
Joseph Corso: So there's no major plans to significantly change OPEX as we move through the year. I mean, certainly, we are not trying to choke down OPEX to the extent that we are giving up growth opportunities. So we're still, you know, spending, um, to support growth. Uh, but, but beyond that, no major changes from what we had talked about earlier. Perfect.
Joseph Corso: As we move through the year I mean, certainly we.
Joseph Corso: We are not trying to choke down opex to the extent that we are giving up growth opportunity. So we're still spending.
Joseph Corso: To support the growth.
Joseph Corso: But beyond that no major changes from what we had talked about in prior quarters.
Ruben Roy: Perfect. Thanks, gents.
Speaker Change: Perfect. Thanks Gents.
Speaker Change: Thank you.
Mark S. Miller: Thank you. The next question comes from Mark Miller with The Benchmark Company. Please go ahead.
Ruben Roy: Thank you. The next question comes from Mark Miller with the Benchmark Company. Please go ahead.
Mark S. Miller: Thank you for the question. The improvements in the backlog that you've seen, which are being driven by, I guess, DOD contracts, which are also projecting margin improvements.
Mark S. Miller: Thank you for the question you're projecting growth.
Mark S. Miller: Later this year.
Mark S. Miller: Pointing toward.
Mark S. Miller: Improvements in our backlog that you've seen.
Mark S. Miller: Which are being driven by I guess D O D contracts mature also projecting.
Mark S. Miller: Margin improvements now.
Mark S. Miller: The DOD contracts typically carry margins that are below. I'm just wondering where the growth in the margins is coming from. Yeah, primarily Mark.
Mark S. Miller: What are your contracts typically carry margins that are below corporate margins I'm, just wondering where the growth in our margins is coming one or is that just higher sales.
Joseph Corso: Yeah, primarily, Mark, thanks for the question. Specifically, it's from the fact that we're just going to run more volume through our facility. And remember, on the DOD contracts, we are both doing, you know, development work and also building products and components that we are, you know, selling through those programs. So, to the extent that we're building more products, and a lot of that is going to be driven by what we're doing in defense, gross margins are expected to improve as we move, you know, through the course of the year.
Mark: Yes, primarily mark Thanks for the question primarily from the fact that we're just going to run more volume through our facility and remember on the Dod contract. We are both doing.
Joseph Corso: <unk> work and also building products and components that we are selling through into those programs. So to the extent that we're building more products and a lot of that is going to be driven by what we're doing in defense gross margins are expected to improve as we move through the course of the year we're not.
Joseph Corso: We're not projecting that there are going to be major changes in mix. Really, what we're suffering from today is just a lack of absorption of fixed costs. And hopefully, we will see that ameliorate as our product revenue grows throughout the year.
Joseph Corso: Projecting that theres going to be major changes in mix really what we're suffering from today is just a lack of absorption of fixed costs and hopefully we see that ameliorate as our product revenue growth throughout the year.
Speaker Change: Thank you.
Speaker Change: Thank you.
Joseph Corso: Thank you. This concludes our question and answer session. I would now like to turn the call back over to Joe Corso for closing remarks.
Joseph Corso: Thank you. This concludes our question and answer session I would now like to turn the call back over to Joe <unk> for closing remarks.
Joseph Corso: Yeah, thank you everyone for joining us this afternoon and for your continued interest in Nlight. We look forward to speaking with you during the quarter. Have a great afternoon. The conference has begun.
Joseph Corso: Yes. Thank you everyone for joining this afternoon and for your continued interest in enlighten. We look forward to speaking with you during the quarter have a great afternoon.
Operator: The conference has now concluded. Thank you for your participation. You may now disconnect your line.
Speaker Change: The conference has now concluded. Thank you for your participation you may now disconnect your lines.
Operator: .. .. ... ??
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