Q2 2024 nLIGHT Inc Earnings Call

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Operator: Good afternoon, and welcome to Nlight's second quarter 2024 earnings conference call. After today's presentation, there will be an opportunity to ask questions.

Operator: Good afternoon and welcome to NLite's second quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: Good afternoon and welcome to Nlight's second quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: After today's 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 your question, please press star, then two.

Speaker Change: 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 your question, please press star, then 2.

Operator: Please note, this event is being recorded.

Operator: I would now like to turn the conference over to Joseph Corso, Chief Financial Officer. Please go ahead.

Speaker Change: Please note, this event is being recorded.

I would now like to turn the conference over to Joseph Corso, Chief Financial Officer. Please go ahead.

Joseph Corso: Thank you and good afternoon, everyone. I'm Joe Corso, Nlight's Chief Financial Officer, whose biography can be found in the investor relations section of our website.

Joseph Corso: Thank you and good afternoon, everyone. I'm Joe Corso, NLite's Chief Financial Officer.

Speaker Change: 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 .

Scott Keeney: With me today, it's Scott Keeney, NLite's 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. Our results may differ materially from those projected on today's call, and we undertake no obligation to update publicly any forward-looking statement accepted required by law.

Speaker Change: 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.

Speaker Change: 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 on the Investor Relations section of our website.

Speaker Change: During the call, we will be discussing certain non-GAAP financial measures.

Speaker Change: We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release.

Scott Keeney: I will now turn the call over to Scott. Thank you, Joe. Second quarter revenue of $50.5 million was at the upper end of our guidance range and grew 13% compared to our first quarter. We had a strong quarter in aerospace defense, which grew 26% sequentially. Our commercial business, which includes our industrial and micro fabrication end markets, increased approximately 1% from the first quarter. Overall gross margins improved to approximately 24% in the second quarter, and products gross margin expanded to approximately 30%. Slightly above the top end of our guidance range, we ended the quarter with cash coolants and investments of $150 million, with no debt.

Speaker Change: which can be found in the investor relations section of our website.

Speaker Change: I will now turn the call over to Scott.

Scott Keeney: We had a strong quarter in aerospace and defense, which grew 26% sequentially.

Joseph Corso: Overall gross margins improved to approximately 24% in the second quarter, and product gross margin expanded to approximately 30%, slightly above the top end of our guidance range. We ended the quarter with cash equivalents and investments of $115 million with no debt, which is a multi-year DoD-funded $171 million program to develop a one megawatt laser with completion expected sometime in 2026. Another critical program for Nlight is the Army's DEM Short effort, which is to develop a 50 kilowatt high-energy laser for short-range air missiles.

Scott Keeney: Overall gross margins improved to approximately 24% in the second quarter and products gross margin expanded to approximately 30% slightly above the top end of our guidance range. We ended the quarter with cash equivalents and investments of $115 million with no debt.

Scott Keeney: Aerospace defense remains a significant growth opportunity for our business and made a strong quarter in both directed energy and laser sensing. In directed energy, we continue to see strong interest in our solutions. Ongoing military operations in the Middle East and Ukraine highlight the increasing need for advanced, cost-effective defensive weapons technology. We believe directed energy lasers will be a critical part of the U.S. and foreign allies' later defense strategy as they offer a significant operating cost advantage compared to traditional kinetic weapons and a deep magazine. During the quarter, we had strong execution on multiple high visibility strategically important domestic directed energy programs. We continue to make good progress in our LC2 program, which is a multi-year DOD-funded $171 million program to develop a one megawatt laser, with completion expected sometime in 2026.

Speaker Change: In directed energy, we continue to see strong interest in our solutions. Ongoing military operations in the Middle East and Ukraine highlight the increasing need for advanced, cost-effective defensive weapons technology.

Speaker Change: We believe directed energy lasers will be a critical part of the U.S. and foreign allies layered defense strategy.

Scott Keeney: Another critical program for N-Lite is the Army's DEM short effort, which is to develop a 50 kilowatt high energy laser for short range air missile defense. On this program, N-Lite is responsible for delivering a 50 kilowatt high energy laser to a prime contractor in the first half of 2025. N-Lite's vertical integration from semiconductor chip through beam combined laser is a unique and critical differentiator for us in this month. We design, manufacture, and integrate the most critical components of the high energy lasers we deliver to the direct energy market. Our vertically integrated approach to the direct energy market enables us to design and manufacture decisions at the component and system level that optimizes system level performance at an attractive cost point.

Joseph Corso: On this program, Nlight is responsible for delivering a 50 kilowatt high-energy laser to a prime contractor in the first half of 2025. We design, manufacture, and integrate the most critical components of the high-energy lasers we deliver to the direct-to-energy market. Our vertically-integrated approach to the direct energy market enables us to design and manufacture decisions at the component and subsystem level that optimizes system-level performance at an attractive cost-benefit ratio. Moreover, it allows us to address this market at every level of vertical integration.

Enlight: On this program, Enlight is responsible for delivering a 50 kilowatt high energy laser to a prime contractor in the first half of 2025.

Scott Keeney: Nlight's vertical integration from semiconductor chip through beam combined laser is a unique and critical differentiator for us in this market. We design, manufacture, and integrate the most critical components of the high energy lasers we deliver to the directed energy market.

Scott Keeney: Our vertically integrated approach to the direct energy market enables us to design and manufacture decisions at the component and subsystem level that optimizes system level performance at an attractive cost point.

Scott Keeney: Moreover, it allows us to address this market at every level of vertical integration. Today, we have generated revenue at nearly every level of vertical integration, which makes us an ideal supplier to the U.S. government, other prime contractors, and for analysis.

Speaker Change: Today, we have generated revenue at nearly every level of vertical integration, which makes us an ideal supplier to the U.S. government, other prime contractors, and foreign allies.

Scott Keeney: In the second half of 2024, we expect to finalize the design and begin to manufacture some of the most critical hardware components of our beam combined lasers.

Joseph Corso: In the second half of 2024, we expect to finalize the design and begin to manufacture some of the most critical hardware components, such as beam-combined lasers. We also have a strong quarter in laser sensing. Nlight has been a long-term supplier to this program, which our customer expects to continue to expand in the coming years. In microfabrication, we provide high-brightness, high-power semiconductor lasers to many of the world's leading diode-pulse solid-state laser vendors. Over the last several quarters, our overall revenue from microfabrication has been in the $10 million to $11 million range, which is below the $14 million average quarterly run rate in the prior several years for cutting, which represents the largest portion of our industrial business today.

Scott Keeney: We also have a strong quarter in laser sensing. As a reminder, laser sensing products use lasers for object detection, measurement, and inspection and are used in a wide range of lands, sea, air, and space applications. Our laser sensing products include missile guidance, proximity detection, range binding, and countermeasures, and we've been incorporated into several significant and long-running defense programs. In the second quarter, we signed a new $25 million contract for an existing long-running missile program that incorporates one of our laser sensing products. Enlight has been a long term supplier into this program, which our customer expects to continue to expand in the coming years.

Speaker Change: are beam combined lasers.

Scott Keeney: We also have strong quarter in laser sensing.

Scott Keeney: As a reminder, laser sensing products use lasers for object detection, measurement, and inspection, and are used in a wide range of land, sea, air, and space applications.

Scott Keeney: Our laser-sensing products include missile guidance, proximity detection, range finding, and countermeasures. And we've been incorporated into several significant and long-running defense programs.

Scott Keeney: We've also continued to make excellent progress on a handful of classified programs. In one of these programs, we shipped our first EMD, or Engineering and Manufacturing Development unit. The EMD phase is focused on developing, building, testing, and evaluating solutions to ensure they meet all the operational requirements and is a precursor to initial low-rate production or LRIP. Our customer's forecast suggests that LRIP will start sometime in the latter half of 2025, and we expect this program, as well as other programs like this one, to contribute significantly to our defense products revenue well into the future.

Scott Keeney: Our customer's forecast suggests that LREP will start sometime in the latter half of 2025, and we expect this program, as well as other programs like this one, to contribute significantly to our defense products revenue well into the future.

Scott Keeney: Turning to our commercial markets. In micro fabrication, we provide high brightness, high power semiconductor lasers to many of the world's leading diode pulse solace laser ventures, which are used across a wide range of applications. Over the last several quarters, our overall revenue for micro fabrication has been in the $10 to $11 million range, which is below the $14 million average quarterly run rate in the prior several years. In the second quarter, while micro fabrication was down 5% sequentially, we begin to see signs of renewed demand. During COVID, our customers build significant inventory to mitigate pervasive supply change challenges.

Speaker Change: Over the last several quarters, our overall revenue for microfabrication has been in the ten to eleven million dollar range, which is below the fourteen million dollar average quarterly run rate in the prior several years.

Scott Keeney: In the second quarter, while microfabrication was down 5% sequentially, we began to see signs of renewed demand. During COVID, our customers built significant inventory to mitigate pervasive supply chain challenges.

Scott Keeney: We believe we are finally at the point at which we are seeing more stable inventory levels and an increase in overall broad-based demand for semiconductor lasers. In industrial, we serve three end markets: cutting, welding, and additive manufacturing markets, each which have their own opportunities and risks. In cutting, which represents the largest portion of our industrial business today, the industry and our business continue to shift towards higher power solutions. Our revenue and cutting is comprised primarily of our innovative high power programmable lasers, which continue to be adopted by our leading customers. We continue to innovate our product offerings to meet our customers' most critical pain points.

Scott Keeney: in cutting, which represents the largest portion of our industrial business today.

Joseph Corso: Our revenue and cutting is comprised primarily of our innovative high power programmable lasers, which continue to be adopted by our leading customers. In welding, we are focused on solving our customers' most critical pain points in the EV and battery market. In the second quarter, we released several new products at the Battery Show in Europe.

Scott Keeney: We continue to innovate our product offerings to meet our customers' most critical pain points.

Scott Keeney: As we discussed in prior quarters, Chinese laser suppliers have increased their market share, and standard lasers as machine tool customers are adopting a bifurcated strategy using Chinese suppliers. In welding, we are focused on solving our customers' most critical pain points in the EV and battery markets. In the second quarter, we release several new products at the Battery Show in Europe. The first we call APT is an automatic parameter tuning software for the process monitoring market. This product reduces the time it takes to implement process monitoring solutions into a welding line. We also release a product called Well Form which combines spatial and temporal controls to optimize the male pool, reducing deleteries of defects such as spattering and porosity.

Scott Keeney: As we've discussed in prior quarters, Chinese laser suppliers have increased their market share of standard lasers as machine tool customers are adopting a bifurcated strategy using Chinese suppliers.

Scott Keeney: In the second quarter, we've released several new products at the Battery Show in Europe .

Joseph Corso: The first, which we call APT, is an automatic parameter tuning software for the process monitoring market. This product reduces the time it takes to implement process monitoring solutions into a well-liked. Lastly, we released ProcessGuard, which integrates process monitoring capabilities within the laser itself, further simplifying the integration into a factory line, improving reliability, and significantly lowering cost. ProcessGuard is the first product that we've introduced that fully integrates Nlight laser technology and Plasmo process monitoring technology.

Scott Keeney: The first, we call APT, is an automatic parameter tuning software for the process monitoring market. This product reduces the time it takes to implement process monitoring solutions into a welling line.

Scott Keeney: We also released a product called Weldform, which combines spatial and temporal controls to optimize the melt pool, reducing deleterious defects such as spattering and porosity.

Scott Keeney: Lastly, we release Process Guard, which integrates process monitoring capabilities within the laser itself, further simplifying the integration into a battery line, improving reliability and significantly lowering cost. Process guard is the first product that we've introduced that fully integrates in light laser technology and plasma process monitoring technology. Although welding remains a small part of our business today, our new product introductions address many of our customers' key pain points and have been well received to date. In additive manufacturing, we work closely with many strategic customers that are focused on driving broader adoption of metal-3 printing technologies to multiple end markets.

Scott Keeney: Lastly, we released ProcessGuard, which integrates process monitoring capabilities within the laser itself, further simplifying the integration into a factory line, improving reliability and significantly lowering cost.

Joseph Corso: Although welding remains a small part of our business today, our new product introductions address many of our customers' key pain points and have been well-received to date. In additive manufacturing, we work closely with many strategic customers that are focused on driving broader adoption of metal 3D printing technologies to multiple applications. One of the most critical challenges facing the additive manufacturing industry is to reduce the overall build time of a part as shorter build times directly translate into a lower cost per part produced by that machine.

Scott Keeney: In additive manufacturing, we work closely with many strategic customers that are focused on driving broader adoption of metal 3D printing technologies to multiple end markets.

Scott Keeney: One of the most critical challenges facing the additive manufacturing industry is to reduce the overall build time of a part, as shorter build times directly translate into a lower cost per part produced by that machine.

Scott Keeney: In the second quarter, we announced a collaboration agreement with one of our customers, EOS, an industry leader in additive manufacturing. In light in EOS, each possess a complementary set of technologies, and we believe that by working together we can optimize the additive manufacturing light engine. In Light's programmable beam-shaping laser, Corona AFX, offers seven different beam profiles from a single laser, ranging from an 85 micron spot for printing high precision features and contouring smooth surfaces to a 210 micron ring profile for faster printing of bulk material, improved mechanical properties, and reduced sit and spatter. In light, Corona AFX lasers delivered printing speeds of up to three times faster for steel and aluminum alloys compared to a standard 400-watt laser process.

Scott Keeney: In the second quarter we announced a collaboration agreement with one of our customers EOS, an industry leader in additive manufacturing. Nlight and EOS each possess a complementary set of technologies and we believe that by working together we can optimize the additive manufacturing light engine.

Joseph Corso: Nlight's programmable beam-shaping laser, Corona AFX, offers seven different beam profiles from a single laser, ranging from an 85-micron spot for printing high-precision features and contouring smooth surfaces to a 210-micron ring profile for faster printing of bulk material, improved mechanical properties, and reduced soot and spatter.

Scott Keeney: ranging from an 85 micron spot for printing high-precision features and contouring smooth surfaces to a 210 micron ring profile for faster printing of bulk material, improved mechanical properties, and reduced soot and spatter.

Scott Keeney: In-light Krona AFX lasers deliver printing speeds of up to three times faster for steel and aluminum alloys compared to a standard 400 watt laser process.

Scott Keeney: The flexibility and performance gains of in light's beam-shaping laser technology is expected to drive significant productivity gains and thus lower cost per part for EOS's metal 3D printing systems. In summary, we made good progress in multiple defense and commercial end markets, and we continue to expect strong growth in the second half of the year compared with the first half. Moreover, we remain very well positioned for profitable growth in 2025 and beyond.

Speaker Change: The flexibility and performance gains of Nlight's beam-shaping laser technology is expected to drive significant productivity gains and thus lower cost per part for U.S.'s metal 3D printing systems.

Scott Keeney: Moreover, we remain very well positioned for profitable growth in 2025 and beyond.

Joseph Corso: With that, I'll turn the call over to Joe to discuss our second quarter of financial results. Thank you, Scott. Total revenue in the second quarter of 2024 was $50.5 million, an increase of 13% compared to the prior quarter, but down 5% compared to the second quarter of 2023. Product's revenue was $34.5 million, an increase of 17% compared to the prior quarter, but down 13% compared to the second quarter of 2020. 3. Development revenue was $16.1 million dollars and increase of 6% compared to the prior quarter and up 17% compared to the second quarter of 2023.

Scott Keeney: With that, I'll turn the call over to Joe to discuss our second quarter financial results.

Joseph Corso: Thank you, Scott. Total revenue in the second quarter of 2024 was $50.5 million, an increase of 13% compared to the prior quarter, but down 5% compared to the second quarter of 2023. Products revenue was $34.5 million, an increase of 17% compared to the prior quarter, but down 13% compared to the second quarter of 2020. Development revenue was $16.1 million, an increase of 6% compared to the prior quarter, and up 17% compared to the second quarter of 2020.

Joe Corso: Thank you, Scott. Total revenue in the second quarter of 2024 was $50.5 million, an increase of 13% compared to the prior quarter, but down 5% compared to the second quarter of 2023.

Joseph Corso: In aerospace and defense, second quarter revenue of $27.4 million dollars, which represented 54% of total revenue, increased 26% compared to the prior quarter and 12% compared to the second quarter of 2023. A&D products revenue grew 5% year over year and 72% quarter over quarter, primarily due to strong execution against the new $25 million dollar contracts got mentioned earlier. In industrial, second quarter revenue of $12.9 million, which represented 26% of total revenue, increased 8% compared to the prior quarter, but decreased 22% compared to the second quarter of 2023. While sales of programmable lasers into the cutting market increased year over year, sales of non-programmed lasers decreased, and revenue from a key additive customer last year did not repeat during the second quarter.

Joseph Corso: In aerospace and defense, second quarter revenue of $27.4 million, which represented 54% of total revenue, increased 26% compared to the prior quarter and 12% compared to the second quarter of 2023. A&E products revenue grew 5% year over year and 72% quarter over quarter, primarily due to strong execution against the new $25 million contract Scott mentioned earlier. In Industrial, second quarter revenue of $12.9 million, which represented 26% of total revenue, increased 8% compared to the prior quarter, but decreased 22% compared to the second quarter of 2020.

Joe Corso: In aerospace and defense, second quarter revenue of $27.4 million, which represented 54% of total revenue, increased 26% compared to the prior quarter, and 12% compared to the second quarter of 2023.

Speaker Change: A&D products revenue grew 5% year over year and 72% quarter over quarter primarily due to strong execution against the new 25 million dollar contract Scott mentioned earlier

Joe Corso: In industrial, second quarter revenue of 12.9 million dollars, which represented 26% of total revenue, increased 8% compared to the prior quarter, but decreased 22% compared to the second quarter of 2023.

Joseph Corso: While sales of programmable lasers into the cutting market increased year over year, sales of non-programmable lasers decreased, and revenue from a key additive customer last year did not repeat during the second quarter. Turning to gross margin,

Speaker Change: While sales of programmable lasers into the cutting market increased year over year, sales of non-programmable lasers decreased and revenue from a key additive customer last year did not repeat during the second quarter.

Joseph Corso: In microfabrication, second quarter revenue of $10.2 million dollars, which represented 20% of total revenue, decreased 5% compared to the prior quarter and 16% compared to the second quarter of 2023.

Joe Corso: In microfabrication, second quarter revenue of $10.2 million, which represented 20% of total revenue, decreased 5% compared to the prior quarter and 16% compared to the second quarter of 2023.

Joseph Corso: Turning to gross margin. Total gross margin in the second quarter was 24%, which was above the guidance range compared to 17% in the prior quarter and 23% in the second quarter of 2023. Product gross margin was 30%, compared to 21% in the prior quarter and 29% in the second quarter of 2023. Product gross margin in the second quarter was positively impacted by favorable sales mix, pricing, and certain contracts completed during the period with higher-than-expected margins. The positive impact of sales mix and pricing was partially offset by the decrease in production volumes and lower absorption of our fixed manufacturing costs compared to the second quarter last year.

Joseph Corso: Total gross margin in the second quarter was 24%, which was above the guidance range, compared to 17% in the prior quarter and 23% in the second quarter of 2020. As discussed previously, product gross margin is expected to improve as overall production volumes increase relative to our fixed manufacturer. Development gross margin was 9% compared to 9% in the prior quarter and 6% in the second quarter of 2023. The improvement in development gross margin for the second quarter of 2024 compared to the prior year is the result of new development contracts awarded in the second half of 2020.

Speaker Change: Turning to gross margin.

Speaker Change: Total gross margin in the second quarter was 24% which was above the guidance range compared to 17% in the prior quarter and 23% in the second quarter of 2023.

Joe Corso: Product gross margin was 30%.

Speaker Change: Products gross margin in the second quarter was positively impacted by favorable sales mix, pricing, and certain contracts completed during the period with higher than expected margins.

Speaker Change: The positive impact of sales mix and pricing was partially offset by the decrease in production volumes and lower absorption of our fixed manufacturing costs compared to the second quarter last year.

Joseph Corso: As discussed previously, product gross margin is expected to improve as overall production volumes increased relative to our fixed manufacturing costs. Development gross margin was 9%, compared to 9% in the prior quarter and 6% in the second quarter of 2023. The improvement in development gross margin for the second quarter of 2024 compared to the prior year is the result of new development contracts awarded in the second half of 2023.

Speaker Change: As discussed previously, product gross margin is expected to improve as overall production volumes increase relative to our fixed manufacturing costs.

Speaker Change: Development gross margin was 9% compared to 9% in the prior quarter and 6% in the second quarter of 2023.

Speaker Change: The improvement in development gross margin for the second quarter of 2024 compared to the prior year is the result of new development contracts awarded in the second half of 2023.

Joseph Corso: Non-GAAP operating expenses were $18 million dollars in the second quarter of 2024, compared to $17.2 million in the prior quarter and $16.6 million in the second quarter of 2023. The overall increase in non-GAAP operating expenses were driven by higher salaries, research and development projects, incentive compensation, and reserves accounts receivable. Adjusted EBITDA for the second quarter of 2024 was a loss of $1.6 million compared to a loss of $4.9 million in the prior quarter and approximately break even in the second quarter of 2023. Net loss on a gap basis was $11.7 million or $25 cents per diluted share, compared with a gap net loss in the prior quarter of $13.8 million or $29 cents per diluted share, and $8.8 million or $19 cents per diluted share in the second quarter of 2020.

Joseph Corso: Non-GAAP operating expenses were $18 million in the second quarter of 2024, compared to $17.2 million in the prior quarter and $16.6 million in the second quarter of 2023, and $900,000, or $0.02 per diluted share, in the second quarter of 2020. Our balance sheet remains strong as we ended the second quarter with total cash, cash equivalents, restricted cash, and investments of approximately $115 million and no debt. Total cash and investments have increased by $1.7 million since the end of 2023, and cash provided by operating activities year to date through the second quarter of 2024 is $7.1 million.

Speaker Change: Non-GAAP operating expenses were $18 million in the second quarter of 2024 compared to $17.2 million in the prior quarter and $16.6 million in the second quarter of 2023.

Speaker Change: The overall increase in non-GAAP operating expenses were driven by higher salaries, research and development projects, incentive compensation, and reserves on accounts receivable.

Speaker Change: Adjusted EBITDA for the second quarter of 2024 was a loss of 1.6 million dollars compared to a loss of 4.9 million dollars in the prior quarter and approximately break-even in the second quarter of 2023.

Speaker Change: Net loss on a GAAP basis was $11.7 million or 25 cents per diluted share compared with a GAAP net loss in the prior quarter of $13.8 million or 29 cents per diluted share and $8.8 million or 19 cents per diluted share in the second quarter of 2023.

Joseph Corso: 3. Net loss on a non-GAAP basis was $4.6 million or 10 cents per diluted share, compared with a non-GAAP net loss in the prior quarter of $8.2 million or 17 cents per diluted share, and $900,000 or 2 cents per diluted share in the second quarter of 2023.

Joseph Corso: Turning now to the balance sheet. Our balance sheet remains strong as we ended the second quarter with total cash, cash equivalence, restricted cash, and investments of approximately $115 million and no debt. Total cash and investments have increased by $1.7 million since the end of 2023, and cash provided by operating activities year-to-date through the second quarter of 2024 are $7.1 million, compared to a use of cash of $3.5 million for the comparable period of 2023. Capital expenditures through the second quarter of 2024 are $3.7 million, compared to $1.6 million for the first quarter of 2023. Inventory remain relatively flat during the quarter at approximately $53 million.

Speaker Change: Turning now to the balance sheet. Our balance sheet remains strong as we ended the second quarter with total cash, cash equivalents, restricted cash, and investments of approximately $115 million and no debt.

Speaker Change: Total cash and investments have increased by 1.7 million dollars since the end of 2023 and cash provided by operating activities year-to-date through the second quarter of 2024 are 7.1 million dollars compared to a use of cash of 3.5 million dollars for the comparable period of 2023.

Joseph Corso: Capital expenditures through the second quarter of 2024 were $3.7 million, compared to $1.6 million for the first quarter of 2023. Days of inventory were 123 days compared to 144 days in the second quarter of 2023. Accounts receivable increased approximately $4.6 million to $32.2 million due to an increase in revenue and the timing of customer payments. As noted last quarter, we received an earlier customer payment of approximately $5 million at the end of the first quarter.

Speaker Change: Capital expenditures through the second quarter of 2024 are 3.7 million dollars compared to 1.6 million dollars for the first quarter of 2023.

Speaker Change: Inventory remained relatively flat during the quarter at approximately $53 million.

Joseph Corso: Days of inventory was 123 days, compared to 144 days in the second quarter of 2023. Account's receivable increased approximately $4.6 million to $32.2 million due to an increase in revenue in the timing of customer payments. As noted last quarter, we received an earlier customer payment of approximately $5 million at the end of the first quarter. Average day sales outstanding for the second quarter of 2024 were 53 days, compared to 68 days for the first quarter of 2024 and 70 days for the second quarter of 2023.

Speaker Change: Days of inventory was 123 days compared to 144 days in the second quarter of 2023.

Speaker Change: Accounts receivable increased approximately 4.6 million dollars to 32.2 million dollars due to an increase in revenue in the timing of customer payments.

Speaker Change: As noted last quarter, we received an earlier customer payment of approximately $5 million at the end of the first quarter.

Joseph Corso: Average day sales outstanding for the second quarter of 2024 were 53 days compared to 68 days for the first quarter of 2024 and 70 days for the second quarter of 2023. Finally, we expect Adjusted EBITDA for the third quarter to be in the range of negative two to positive $1 million. We continue to see breakeven Adjusted EBITDA with quarterly revenues in the range of 55 to $60 million.

Speaker Change: Average day sales outstanding for the second quarter of 2024 were 53 days compared to 68 days for the first quarter of 2024 and 70 days for the second quarter of 2023.

Joseph Corso: As noted last quarter, maintaining a strong balance sheet remains a key focus of the company. Spend control coupled with 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. Based on the information available today, we expect continued sequential revenue growth for the third quarter of 2024 in the range of $53 to $58 million. The midpoint of approximately $55.5 million includes $39.5 million of product revenue and $16 million of development revenue.

Speaker Change: Turning to guidance.

Speaker Change: Based on the information available today, we expect continued sequential revenue growth for the third quarter of 2024, in the range of $53 to $58 million.

Joseph Corso: Turning to gross margin. Third quarter, 2024 products gross margin is expected to be in the range of 28 to 32 percent, and development gross margin to be approximately 8 percent, resulting in an overall gross margin range of 22 to 26 percent. Finally, we expect adjusted EBITDA for the third quarter to be in the range of negative two to positive $1 million. We continue to see break even adjusted EBITDA with quarterly revenues in the $55 to $60 million range.

Speaker Change: Turning to gross margin.

Speaker Change: Third quarter 2024 products gross margin is expected to be in the range of 28 to 32 percent and development gross margin to be approximately 8 percent, resulting in an overall gross margin range of 22 to 26 percent.

Speaker Change: Finally, we expect adjusted EBITDA for the third quarter to be in the range of negative two to positive one million dollars. We continue to see break-even adjusted EBITDA with quarterly revenues in the fifty five to sixty million dollar range.

Operator: 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 one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To draw your question, please press star, then two.

Speaker Change: With that, I will turn the call over to the operator for questions.

Operator: To withdraw your question, please press star then 2. Mr. Palm, your line is open on our end. Perhaps it's muted on yours.

Speaker Change: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

Operator: At this time, we will pause momentarily to assemble a roster.

Greg Palm: The first question today is from Greg Palm with Craig Hallum, Capitol Group. Please go ahead.

Speaker Change: The first question today is from Greg Palm with Craig Hallam Capital Group. Please go ahead.

Greg Palm: Mr. Palm, your line is open on our end; perhaps it's muted on yours. Can you guys hear me now?

Operator: Mr. Palm, your line is open on our end. Perhaps it's muted on yours.

Operator: Yes, we can. All right, awesome. Sorry about that.

Greg Palm: Thanks for taking the questions, and congrats, guys, on the progress here. Maybe just a little bit of a sort of high-level overview of kind of how you're seeing the lay of the land right now by segment. It sounds like maybe a little bit of visibility in Microfab, but what are you seeing across segments and specifically as it relates to the quarter? Was the upside towards the high end of that. The guidance range was that driven by Andy? Is that a fair characterization?

Mr. Palm: Yes, we can.

Mr. Palm: All right, awesome. Sorry about that. Thanks for taking the questions and Congrats guys on the on the progress here. I maybe just a little bit of a

Scott Keeney: Yeah, I think you summarized it well, Greg. This is Scott.

Scott Keeney: Yeah, I think you summarized well, Greg.

Scott Keeney: This is Scott. Yeah, we're, you know, we described a bit of the visibility in Micro, but yeah, I think I'd highlight the, you know, up 26 percent, you know, even more significantly up in products. And, you know, as we've been talking about, we're seeing traction in not only, you know, the new applications and directed energy, but also our existing programs or records. So, yeah, that's certainly one of the highlights from the quarter.

Scott Keeney: Yeah, we're, you know, we described a bit of the visibility in micro, but yeah, I think I'd highlight the AMD, you know, up 26%, you know, even more significantly up in products. And, you know, as we've been talking about, we're seeing traction in not only the new applications in Directed Energy but also our existing programs or records. So, yeah, that's certainly one of the highlights from the quarter.

Scott Keeney: Yeah, I think you summarized it well, Greg. This is Scott.

Scott Keeney: and you know as we've been talking about we're seeing traction in not only you know the new applications in Directed Energy but also our existing programs or records so yeah that's certainly one of the highlights from the quarter.

Greg Palm: And, Scott, I think you mentioned in the end of your prepared remarks, you know, profitable growth for fiscal 25. I know in past calls, you've been, you know, targeting, you know, you're over your revenue growth and fiscal 24.

Speaker Change: In the end of your prepared remarks, you know, profitable growth for fiscal 25, I know

Joseph Corso: Do you still feel comfortable with that? It implies a still a pretty big ramp up in Q4 relative to your outlook or your guidance in Q3, but just kind of curious to get your thoughts on this sequential progress in the second half.

Greg Palm: Yeah, Greg, this is Joe. I'll take that one. So obviously, the midpoint of our guidance is up again relative to the second quarter. And we continue to expect the second half of the year; not much has changed since we talked a quarter ago, so we do still expect the second half to be higher than the first half. I think what we said about the year is that we were optimistic that we had an opportunity to grow full year over 2023. Last year, we did about 210 million. You know, plus or minus, we still feel like that's a, you know, reasonably, you know, reasonably good, a good directional range.

Scott Keeney: Yeah, Greg, this is Joe. I'll take that one. So, obviously, the midpoint of our guidance is up again relative to the second quarter, and we continue to expect the second half of the year. Not much has changed since we talked a quarter ago, so we do still expect the second half to be higher than the first half. I think what we said about the year is that we were optimistic that we had an opportunity to grow full year over 2023. Last year, we did about $210 million. Plus or minus, we still feel like that's a reasonably good directional range. That being said, we don't have...

Joseph Corso: That being said, we don't have great visibility to that level of detail in the sort of outside of one quarter forward. So, but generally nothing has changed. We're still optimistic that, you know, business momentum is picking up going into the second half. Certainly, on the defense side, we're seeing so a little bit more stabilization on the commercial side. And we're sending ourselves up well for growth in 2025 and beyond. Yeah. Okay. That's that's helpful.

Speaker Change: great visibility to that level of detail in the in this sort of outside of one quarter forward so But but generally nothing has changed. We're still optimistic that you know business momentum is picking up going into the second half

Gregory Palm: Yep, okay, that's helpful. And if I could ask one more on margins, revenue from laser products looks to be up, I don't know, around 15% sequentially from Q2, but gross margin is expected to be really flat or even down slightly at the midpoint. I'm guessing that's just mix-related, but surprised that gross margin guidance wouldn't be a little bit better just given the higher level of revenue contribution.

Greg Palm: And if I could ask one more on margins, so revenue from laser products is looks to be up around 15% sequentially from Q2, but gross margin expected to be really flat or even down slightly at the midpoint. You know, guessing that's just mixed related, but surprise that gross margin guidance won't be a little bit better just given that given the higher level of revenue contributions. Yeah, no, very, very fair point, Greg. So I'll provide a little bit of color in the second quarter. What we had, we didn't have better mixing. And we had a couple of deals that ended up contributing to margin that was better than we expected.

Speaker Change: Yep, okay, that's that's helpful

Gregory Palm: And if I could ask one more on margins, so revenue from laser products looks to be up, I don't know, around 15%.

Gregory Palm: sequentially from from Q2 but gross margin expected to be you know really flat or even down slightly at the at the midpoint what you know I'm guessing that's just mixed related but

Gregory Palm: So surprise that gross margin guidance wouldn't be a little bit better just given that given the higher level of revenue contribution

Joseph Corso: Yeah, no, a very fair point, Greg. So I'll provide a little bit of color. In the second quarter, what we had, we did have a better mix, and we had a couple of deals that ended up contributing to a margin that was better than we expected. And so, you know, probably to the tune of a couple hundred basis points. So if you were to back out those sort of one-time-ish bumps that we got in the second quarter, you'd see a more normalized flow through from the second quarter to the midpoint of the third quarter guidance.

Joseph Corso: Yeah, no very fair point Greg, so I'll provide a little bit of color in the

Joseph Corso: second quarter, what we had, we did have better mix and we had a couple of deals that ended up contributing to

Joseph Corso: And so, you know, probably to the tune of a couple hundred basis points. So if you were to back out those sort of one time is. Bumps that we got in the second quarter; you'd see a more normalized, you know, flow through from the second quarter to the midpoint of the third quarter guidance. I think the one thing that we are pleased about is that we've worked, you know, pretty hard to keep our manufacturing expenses low. And our absorption high adds the revenue continues to grow. So, you know, I feel good even absent, you know, that couple hundred basis point tailwind in the second quarter that, you know, we're in a much better spot to continue to grow gross margins as the top line, particularly the product top line expansion.

Joseph Corso: If you were to back out those sort of one-time-ish

Joseph Corso: bumps that we got in the second quarter, you'd see a more normalized, you know, flow through from the second quarter to the midpoint of the third quarter guidance. I think the one thing that we are pleased about is that we've worked

Joseph Corso: I think the one thing that we are pleased about is that we've worked, you know, pretty hard to keep our manufacturing expenses low and our absorption high as revenue continues to grow. So, you know, I feel good even absent, you know, that couple hundred basis point tailwind in the second quarter. We're in a much better spot to continue to grow gross margins as the top line, particularly the product top line, expands.

Greg Palm: Okay, I will leave it there. Thanks, and best of luck.

Operator: Again, if you have a question, please press star then 1.

Keith Housum: Again, if you have a question, please press star, then one. The next question is from Keith Housum with North Coast Research.

Keith Housum: Please go ahead. Good afternoon, gentlemen.

Scott Keeney: Good afternoon, gentlemen. Scott, perhaps, provide a little bit more context or color around the EOS announcement in terms of, like, perhaps, the contribution it will have to you guys, and where do you think those benefits will go? Obviously, it's nice to have a second, you know, big partner in that space.

Scott Keeney: It's got perhaps a little more context or color around the EOS announcement in terms of the press contribution that we'll have to you guys. Where do you all benefit? Obviously, it's nice to have a second big partner in that space. Good.

Scott Keeney: Good afternoon gentlemen. Scott, perhaps provide a little more context or color around the EOS announcement in terms of like perhaps contribution it will have to you guys and where do you think those benefit obviously it's nice to have a second you know big partner in that space.

Scott Keeney: Good. Keith, I think I have got all the questions surrounding the EOS announcement. You know, as you may know, EOS is one of the oldest companies in the additive space and one of the clear leaders in laser additive manufacturing. And, you know, we've been working with them for some time. And, you know, it was an announcement that reflected the strength of our Corona AFX technology to be a key enabler of the next generation of products in this space.

Scott Keeney: Keith, I think I got all the questions around the EOS announcement. As you may know, EOS is one of the oldest companies in the additive space and one of the clear leaders in laser additive manufacturing. We've been working with them for some time. It was an announcement that reflects the strength of our Corona AFX technology to be a key enabler of the next generation products in this space. We had a very good conference at the Rapid Conference recently. There's a lot of continued progress on integrating our current lasers and developing the roadmap for future lasers into their roadmap.

Scott Keeney: You know, it was an announcement that reflects the strength of our Corona AFX technology to, you know, be a key enabler of the next generation products in this space.

Scott Keeney: And we had a very good conference at the Rapid Conference recently. And, you know, there's a lot of continued progress on integrating our current lasers and developing the roadmap for future lasers into their roadmap. And we're looking forward to announcing more in the coming quarters. Notably, you know, the big trade show for additives is in Frankfurt later this year. But yeah, it reflects their understanding of the roadmap to integrate the beam shaping technology that we have.

Scott Keeney: and we had a very good conference at the RAPID conference recently and you know there's a lot of continued progress on integrating

Scott Keeney: We're looking forward to announcing more in the coming quarters.

Scott Keeney: and we're looking forward to announcing more in the coming quarters, notably.

Scott Keeney: Notably, the big trade show and additive is in Frankfurt later this year. It reflects their understanding of the roadmap to integrate the beam shaping technology that we have. We expect that we have a better relationship to be additive. No pun intended, of course, to the existing relationship and existing contribution that make to your business. Indeed. It is not a relationship that prevents us from working with others, but it does reflect the integrated work we're doing to support their roadmap. Great.

Speaker Change: So we expect this expanded relationship to be additive I guess not that no pun intended of course to the existing relationship this is existing contribution they currently make to your business.

Scott Keeney: Great. Thanks. I appreciate it. If I can get a second one here,

Keith Housum: Thanks. Appreciate it.

Keith Housum: If I get a second one here, you know, you're a marked difference versus perhaps other competitors, certainly industrial space and laser space.

Scott Keeney: Is there something unique to the success you're seeing in China in this quarter versus others? No, Keith, overall revenue in China is such a small part of our business. We've served the China micro fabrication from market for a really long time. There's a lot of SKUs, and we just saw, you know, slightly better ordering patterns and delivery of revenue this quarter, but on a relatively small, you know, there's not a lot of sort of meaningful read-through there for us.

Scott Keeney: Great. Thank you. I appreciate it.

Keith Housum: Great.

Keith Housum: Thank you. Appreciate it.

Mark Miller: The next question is from Mark Miller with the Benchmark Company. Please go ahead.

Operator: The next question is from Mark Miller with the Benchmark Company. Please go ahead.

Mark Miller: Great. Thank you. Appreciate it.

Speaker Change: The next question is from Mark Miller with the Benchmark Company. Please go ahead.

Mark Miller: Terms of your existing backlog. What does the margin profile look like? Does it look like similar to what you've been reporting at your higher six kilowatt sales last quarter with margins, I assume?

Mark Miller: In terms of your existing backlog, what does the margin profile look like? Does it look similar to what you've been reporting? You had higher 6 kilowatt sales in the last quarter, which helped you with margins, I assume. I'm just wondering about the backlog. What does it look like from a margin perspective?

Mark Miller: In terms of your existing backlog, what does the margin profile look like? Does it look like similar to what you've been reporting?

Mark Miller: I'm just wondering about the backlog. What does it look like from a margin perspective?

Speaker Change: Page 10 of 10

Mark Miller: I'm just wondering about the backlog. What does it look like from a margin perspective? Yeah, thanks, Mark. So, certainly on the commercial side, you know, as you can see from the numbers, we're skewing towards

Scott Keeney: Yeah. Thanks, Mark. So, on the certainly on the commercial side, you know, as you can see from the numbers, we're skewing towards higher power sales on the fiber laser or the industrial side. And you know, most of that revenue at this point is really on the programmable fiber laser side. So that's that's good. And that's additive from a gross margin perspective.

Scott Keeney: And then our microfabrication business, which I think in our prepared marks, we talked about seeing some better demand and customer forecast. And so that will also benefit the overall, benefit the overall margins.

Speaker Change: Thank you. Thank you.

Operator: This concludes our question and answer session.

Joseph Corso: Let's turn the conference back over to Joe Corso for any closing remarks. Yeah, thank you everyone for joining this afternoon and for your continued interest in sunlight. We look forward to speaking with you during the quarter. Have a great afternoon.

Mark Miller: This concludes our question and answer session. I would like to turn the conference back over to Joe Corso for any closing remarks.

Joseph Corso: 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.

Operator: The conference is now concluded. Thank you for attending today's presentation.

Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: You may now disconnect.

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