Q1 2025 nLIGHT Inc Earnings Call

May 8, 2025

All lines are in listen only mode. Following the presentation, we will conduct a question and answer session.

If at any time during this call you require immediate assistance. Please press star zero for the operator.

This call is being recorded on Thursday may eight 2025, I would now like to turn the conference over to John Marchetti, VP of corporate development and head of Investor Relations.

Speaker Change: Thank you and good afternoon, everyone.

Speaker Change: Im John Marchetti, Unlike VP of corporate development and head of Investor Relations.

Scott King: With me on the call today are Scott, King and whites, Chairman and CEO, and Joe Corso and light CFO.

Scott King: 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.

Scott King: Our results may differ materially from those projected on today's call and we undertake no obligation to update publicly any forward looking statements except as required by law.

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

Scott King: We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and in our earnings presentation, both of which can be found on the Investor Relations section of our whole website.

Speaker Change: I will now turn the call over to <unk>, Chairman and CEO, Scott King Scott.

Scott King: Thank you John our first quarter results represent a strong start to 2025.

Scott King: With revenue gross margin and adjusted EBITDA, all above the high end of our guidance range.

Scott King: The outperformance was primarily driven by another quarter of record defense revenue, which represented more than 63% of total sales in the quarter up.

Scott King: Up from 49% in the same quarter a year ago.

Scott King: Furthermore, this growth was supported by significant expansion in our defense product sales, which grew more than 150% year over year.

Scott King: We are uniquely positioned to drive continued growth in A&D with leading high power laser technology developed over the past two decades across the entire technology stack from chips to full laser systems, which is supported by our U S manufacturing sites.

Scott King: Our products and A&D are also well aligned with many of department of defense, most critical priorities, such as directed energy and laser sensing.

Scott King: And during the first quarter, we delivered strong results in each of these critical markets.

Scott King: Directed energy lasers complement traditional kinetic defenses by operating a deep magazine low cost per engagement and speed of light delivery.

Scott King: These systems can neutralize a wide range of targets, including drones rockets artillery mortars and missiles.

Scott King: While also rebalancing the economics of protecting key assets.

Scott King: We continue to make progress on our healthy two program.

Scott King: As a reminder, this is a $171 million Dod program to develop a one megawatt high energy laser with a completion date expected in 2026.

Scott King: Shifting of critical components towards this program was a significant driver of our record defense product revenue in the quarter and is expected to be a substantial contributor to the growth through the remainder of the year.

Scott King: Our work on the Army's <unk> short effort, which is program to develop a 50 kilowatt high energy laser for short range Air Defense continues to progress and we expect to complete our work on this contract in the middle of the year.

Scott King: The success, we have achieved to date in key programs reinforces the importance of our vertical integration strategy in the directed energy market, where we leverage our entire technology stack to deliver the highest performing and most cost effective high energy lasers. This success has increased interest in our directed energy capabilities, both domestically and among our international al.

Scott King: <unk>.

Scott King: In the U S. We continue to respond to Rfps and <unk> associated with the presence of women dome executive order, which specifically highlights non kinetic missile defense capabilities as an area for development.

Scott King: With mandate to build these systems in the United States. We believe we are well positioned to benefit from this effort over the coming years.

Scott King: Internationally, our work to support Israeli Iron beam program is progressing and we have a growing pipeline of new opportunities that we expect to begin closing in the coming quarters.

Scott King: We have generated revenue at nearly every level of vertical integration that direct energy market and we have established ourselves as one of the most comprehensive supplier to the U S government other prime contractors and foreign allies.

Operator: conference. At this time, all lines are in listen-only mode.

Porter.

Specifically highlights non kinetic missile defense capabilities as an area for development.

Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.

Scott King: We also continued to gain momentum in our laser sensing markets.

With the mandate to build these systems in the United States. We believe we are well positioned to benefit from this effort over the coming years.

Scott King: Our laser sensing products include missile guidance proximity detection range, finding and countermeasures and had been incorporated into several significant and long running defense programs all of which remain key defense priorities under the current administration.

Internationally, our work to support Israeli Iron beam program is progressing and we have a growing pipeline of new opportunities could we expect to begin closing in the coming quarters.

Operator: This call is being recorded on Thursday, May 8, 2020.

John Marchetti: I would now like to turn the conference over to John Marchetti, VP of Corporate Development and Head of Investor Relations. Thank you and good afternoon, everyone. I'm John Marchetti, Nlight's VP of Corporate Development and the Head of Investor Relations.

Scott King: Our historical performance on these programs and our early success on multiple classified programs have created many new opportunities for us in this market.

We have generated revenue at nearly every level of vertical integration that direct energy market and we have established ourselves as one of the most comprehensive suppliers in the U S government other prime contractors and foreign allies.

Scott King: Over the last several quarters, we have been on multiple new programs that have increased both the number of opportunities and the size of our sensing pipeline.

John Marchetti: With me on the call today are Scott Keeney, Nlight's Chairman and CEO, and Joe Corso, Nlight's CEO.

We also continue to gain momentum in our laser sensing markets.

Scott King: In addition, further opportunities in the Golden Dome initiative have emerge and could become a significant contributor to our growth in defense in 2026 and beyond.

Our laser sensing products include missile guidance proximity detection range, finding and countermeasures and have been incorporated into several significant and long running defense programs.

John Marchetti: 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.

Scott King: The solid start to the year combined with a growing pipeline of both directed energy programs and laser sensing opportunities gives me increased confidence that we can grow our revenue in aerospace and defense by at least 25% in 2025.

Which remain key defense priorities under the current administration.

Our historical performance on these programs and our early success on multiple classified programs have created many new opportunities for us in this market.

Scott King: Turning to our commercial markets.

Over the last several quarters, we have been on multiple new programs that have increased both the number of opportunities and the size of our sensing pipeline.

Scott King: Overall, our industrial and micro fabrication markets remained challenging, but we did see some improvement compared to last quarter.

John Marchetti: During the call, we will be discussing certain non-GAAP financial. We have provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and in our earnings presentation, both of which can be found on the investor relations section of our bullet website.

Scott King: Sequential growth in our commercial markets was driven by an increase in micro fabrication sales as operations at our Thai contract manufacturing partner of stabilized, enabling us to satisfy customer demand.

In addition, further opportunities in the Golden Dome initiative have emerge and could become a significant contributor to our growth in defense in 2026 and beyond.

The solid start to the year combined with a growing pipeline of both directed energy programs and laser sensing opportunities gives me increased confidence that we can grow our revenue in aerospace and defense by at least 25% in 2025.

Scott King: While we are pleased with the stabilization of manufacturing demand is expected to remain weak through the remainder of the year.

Scott Keeney: I will now turn the call over to Nlight's Chairman and CEO, Scott Keeney. Thank you, John. Our first quarter results represent a strong start to 2025 with revenue, gross margin, and adjusted EBITDA all above the high end of our guidance range. The outperformance was primarily driven by another quarter of record defense revenue, which represented more than 63% of total sales in the quarter, up from 49% in the same quarter a year ago. Furthermore, this growth was supported by significant expansion in our defense products. which grew more than 150% year over year. We are uniquely positioned to drive continued growth in A&E with leading high power laser technology developed over the past two decades across the entire technology stack from chips to full laser systems, which is supported by our U.S.

Scott King: Longer term, we remain optimistic about opportunities for growth in metal additive manufacturing, particularly within the aerospace and defense markets as they look to accelerate prototyping timelines and build resiliency into supply chain with domestic capabilities.

Turning to our commercial markets.

Overall, our industrial and micro fabrication markets remained challenging, but we did see some improvement compared to last quarter.

Scott King: Yeah.

Scott King: Before I turn the call over to Joe to review, our first quarter financial results I'd like to briefly touch on the topic of tariffs.

The sequential growth in our commercial markets was driven by an increase in micro fabrication sales as operations at our Thai contract manufacturing partner of stabilize enabling us to satisfy customer demand.

Scott King: We have spent a significant amount of time over the last couple of months evaluating many different scenarios and while there continues to be a significant amount of debate and uncertainty around what the tariff landscape will ultimately look like the impact of these extraordinarily high tariffs on the overall economy demand from our customers and material costs for our products.

While we are pleased with the stabilization of manufacturing demand is expected to remain weak through the remainder of the year.

Longer term, we remain optimistic about opportunities for growth in metal additive manufacturing, particularly within the aerospace and defense markets as they look to accelerate prototyping timelines and build resiliency into supply chain with domestic capabilities.

Scott King: There are a few comments I would like to make.

Scott King: First we do not expect a significant impact on our business and defense over the long term.

Scott Keeney: manufacturing. Our products in A&E are also well aligned with many of the Department of Defense's most critical priorities. such as directed energy and laser sensing. And during the first quarter, we delivered strong results in each of these critical markets. Directed energy lasers complement traditional kinetic defenses by offering a deep magazine, low cost per engagement, and speed of light delivery. These systems can neutralize a wide range of targets, including drones, rockets, artillery, mortars. while also rebalancing the economics of protecting key assets. We continue to make progress on our Healthy Tube program. As a reminder, this is a $171 million DOD program to develop a 1-megawatt high-energy laser with a completion date expected.

Scott King: Over the short term however, there may be some margin variability in our defense products as a result of the tariffs placed on some of the imports of materials used to manufacture these solutions.

Before I turn the call over to Joe to review, our first quarter financial results I'd like to briefly touch on the topic of tariffs.

We have spent a significant amount of time up last couple of months evaluating many different scenarios and while there continues to be a significant amount of debate and uncertainty around what the tariff landscape will ultimately look like the impact of these extraordinarily high tariffs on the overall economy demand from our customers and material costs for our products there are.

Scott King: While the ultimate impact of tariffs on these products is still to be determined we do not expect them to have a significant negative effect on our demand or our long term profitability of these solutions.

Scott King: Outside of defense, we have shifted the production of our commercial lasers from Shanghai, which we closed in late 2024 to our automated facility in the Pacific northwest into our contract manufacturing partner in Thailand.

Comments I would like to make.

First we do not expect a significant impact on our business and defense over the long term.

Scott King: Our ability to shift manufacturing between the U S and Thailand should enable us to better manage tariff associated risks.

Over the short term however, there may be some margin variability in our defense products as a result of the tariffs placed on some of the imports of materials used to manufacture these solutions.

Scott King: In summary, I am pleased with the strong start to 2025, particularly around the ramp up of our defense products and I'm increasingly confident about the long term growth in A&D based on our unique leadership across the technology stack for high power lasers.

While the ultimate impact of tariffs on these products is still to be determined we do not expect them to have a significant negative effect on our demand or our long term profitability of these solutions.

Scott Keeney: The shipment of critical components towards this program was a significant driver of a record defense product revenue in the quarter and is expected to be a substantial contributor to the growth through the remainder of the year. Our work on the Army's DEM short effort, which is programmed to develop a 50 kilowatt high-energy laser for short-range air defense, continues to progress, and we expect to complete our work on this contract in the middle of the year. The success we have achieved to date in key programs reinforces the importance of our vertical integration strategy in the directed energy market, where we leverage our entire technology stack to deliver the highest performing and most cost effective high energy labor.

Scott King: Let me now turn the call over to Joe to discuss our first quarter financial results.

Outside of defense, we have shifted the production of our commercial lasers from Shanghai, which we closed in late 2024 to our automated facility in the Pacific northwest into our contract manufacturing partner in Thailand.

Joe: Thank you Scott.

Joe: Total revenue in the first quarter of 2025 was $51 7 million, an increase of 16% compared to $44 5 million in the first quarter of 2024.

Our ability to shift manufacturing between the U S and Thailand should enable us to better manage tariff associated risk.

Joe: Aerospace and defense revenue was $32 $7 million in the quarter up 54% year over year and eight 6% sequentially.

In summary, I am pleased with the strong start to 2025, particularly around the ramp up of our defense products and I'm increasingly confident about the long term growth in A&D based on our unique leadership across the technology stack for high power lasers.

Joe: Growth in the quarter was driven by increased defense products revenue, which increased more than 150% compared to the same quarter a year ago, primarily due to increased deliveries of components into a healthy two directed energy laser program.

Scott Keeney: This success has increased interest in our directed energy capabilities, both domestically and among our international allies. In the U.S., we continue to respond to RFPs and RFQs associated with the President's Goldman Dome Executive Order, which specifically highlights non-kinetic missile defense capabilities as an area for development. With the mandate to build these systems in the United States, we believe we are well-positioned to benefit from this effort over the coming years. Internationally, our work to support the Israeli Iron Beam program is progressing, and we have a growing pipeline of new opportunities that we expect to begin closing in the coming quarter.

Let me now turn the call over to Joe to discuss our first quarter financial results.

Joe: Thank you Scott.

Joe: We expect A&D revenue to grow sequentially in the second quarter of 2025, and as Scott mentioned earlier, we feel increasingly confident that full year revenue from our A&D market should grow at least 25% year over year.

Joe: Total revenue in the first quarter of 2025 was $51 7 million, an increase of 16% compared to $44 5 million in the first quarter of 2024.

Joe: Aerospace and defense revenue was $32 $7 million in the quarter up 54% year over year and eight 6% sequentially.

Joe: First quarter revenue from our commercial markets, which include industrial and micro fabrication was $19 million a decrease of 16, 8% year over year, but up nine 9% sequentially.

Joe: Growth in the quarter was driven by increased defense products revenue, which increased more than 150% compared to the same quarter a year ago <unk>.

Joe: Revenue from these markets was largely in line with expectations as industrial demand remained weak in the quarter over quarter improvement in micro fabrication sales was largely a result of our manufacturing partner being able to satisfy orders that had been previously unable to ship.

Joe: Primarily due to increased deliveries of components into a healthy two directed energy laser program.

Scott Keeney: We have generated revenue at nearly every level of vertical integration in the direct energy market, and we have established ourselves as one of the most comprehensive suppliers to the U.S. government, other prime contractors, and foreign investors. We also continue to gain momentum in our laser sensing. Our laser sensing products include missile guidance, proximity detection, range finding, and counter. and have been incorporated into several significant and long-running. all which remain key defense priorities under the current administration. Our historical performance on these programs and our early success on multiple classified programs have created many new opportunities for us in this Over the last several quarters, we have been on multiple new programs that have increased both the number of opportunities and the size of our sensing In addition, further opportunities in the Golden Gnome Initiative have emerged and could become a significant contributor to our growth in defense in 2026 and beyond.

Joe: Product revenue for the first quarter was $35 7 million.

Joe: An increase of 21, 5% compared to $29 4 million in the first.

Joe: First quarter revenue from our commercial markets, which include industrial and micro fabrication was $19 million a decrease of 16, 8% year over year, but up nine 9% sequentially.

Joe: Quarter of 2024.

Joe: The year over year increase in product sales was due to growth in defense product revenue, partially offset by a decline in commercial revenue.

Joe: Development revenue $16 million in the first quarter increased five 4% compared to the same quarter a year ago.

Joe: Total gross margin in the first quarter was 26, 7% compared to 16, 8% in the first quarter of 2024.

Joe: Product revenue for the first quarter was $35 $7 million an increase.

Joe: First quarter gross margin included approximately $1 9 million benefit related to duty replay.

Joe: A 21, 5% compared to $29 4 million in the first quarter of 2024.

Joe: Excluding the impact of this benefit total gross margin for the first quarter would have been approximately 23%, which is still above the high end of our guidance range as both product gross margin and development gross margin were ahead of expectations.

Joe: The year over year increase in product sales was due to growth in defense product revenue, partially offset by a decline in commercial revenue.

Scott Keeney: The solid start to the year, combined with a growing pipeline of both direct energy programs and laser sensing opportunities, gives me increased confidence that we can grow our revenue in aerospace and defense by at least 25%.

Joe: Development revenue $16 million in the first quarter increased five 4% compared to the same quarter a year ago.

Joe: Product gross margin in the first quarter was 33, 5% compared to 29% in the first quarter of 2024.

Joe: Total gross margin in the first quarter was 26, 7% compared to 16, 8% in the first quarter of 2024.

Scott Keeney: turning to a commercial mark. Overall, our industrial and microfabrication markets remain challenging, but we did see some improvement compared to last year. A sequential growth in our commercial markets was driven by an increase in microfabrication sales as operations at our Thai contract manufacturing partner have stabilized, enabling us to satisfy customer demand. While we are pleased with the stabilization of manufacturing, demand is expected to remain weak through the remainder of the year. Longer term, we remain optimistic about opportunities for growth in metal additive manufacturing, particularly within the aerospace and defense as they look to accelerate prototyping timelines and build resiliency into supply chains with domestic capability.

Joe: First quarter product gross margin was positively impacted by higher product volumes, a favorable mix and duty reclaim.

Joe: First quarter gross margin included approximately a $1 9 million benefit related to duty reclaim.

Joe: Development gross margin was 11, 5% compared to eight 9% in the same quarter a year ago.

Joe: The upside and development gross margin was largely result of program mix in the quarter.

Joe: Going forward, we still expect development gross margin to remain in the 8% range.

Joe: Operating expenses were $23 4 million in the first quarter compared to $22 2 million in the first quarter of 2024.

Joe: Product gross margin in the first quarter was 33, 5% compared to 29% in the first quarter of 2024.

Joe: Okay.

Joe: non-GAAP operating expenses were $17 8 million in the first quarter, a slight increase compared to $17 2 million in the first quarter of 2024.

Joe: First quarter product gross margin was positively impacted by higher product volumes, a favorable mix and duty reclaim.

Joe: Development gross margin was 11, 5% compared to eight 9% in the same quarter a year ago.

Scott Keeney: Before I turn the call over to Joe to review our first quarter financial results, I'd like to briefly touch on the topic of tariffs. We've spent a significant amount of time over the last couple of months evaluating many different scenarios, and while there continues to be a significant amount of debate and uncertainty around what the tariff landscape will ultimately look like, the impact of these extraordinarily high tariffs on the overall economy, demand from our customers, and material costs for our products For more information visit www.FEMA.gov There are a few comments I would like to make.

Joe: GAAP net loss for the first quarter was $8 1 million or <unk> 16 per share compared to a net loss of $13 8 million or <unk> 29 per share in the same quarter a year ago.

Joe: The upside and development gross margin was largely result of program mix in the quarter.

Joe: Going forward, we still expect development gross margin to remain in the 8% range.

Joe: Adjusted EBITDA for the first quarter was $116000 compared to a loss of $4 $9 million in the first quarter of 2024.

Joe: Operating expenses were $23 4 million in the first quarter compared to $22 2 million in the first quarter of 2024.

Joe: Turning to the balance sheet. We ended the first quarter with total cash cash equivalents restricted cash and investments of $117 million during.

Joe: Okay.

Joe: non-GAAP operating expenses were $17 8 million in the first quarter, a slight increase compared to $17 2 million in the first quarter of 2024.

Scott Keeney: First, we do not expect a significant impact on our business and defense over the long Over the short term, however, there may be some margin variability in our defense products as a result of the tariffs placed on some of the imported materials used to manufacture these solutions. While the ultimate impact of tariffs on these products is still to be determined, we do not expect them to have a significant negative effect on our demand or long-term profitability of these. Outside of defense, we have shifted the production of our commercial lasers from Shanghai, which we closed in late 2024, to our automated facility in the Pacific Northwest, and to our contract manufacturing partner in Taiwan.

Joe: During the quarter, we drew down $20 million from our $40 million line of credit.

Joe: Given the ongoing uncertainty surrounding the impact of tariffs and our expectation for increased working capital needs to support the growth in our A&D markets. We thought it was prudent to put a cash buffer in place on our balance sheet.

Joe: GAAP net loss for the first quarter was $8 1 million or <unk> 16 per share compared to a net loss of $13 8 million or 29 cents per share in the same quarter a year ago.

Joe: Inventory increased to $43 8 million at the first quarter compared to $40 8 million at the end of 2024.

Joe: Adjusted EBITDA for the first quarter was $116000 compared to a loss of $4 9 million in the first quarter of 2024.

Joe: The increase in inventory is primarily to support the forecasted ramp and directed energy products.

Joe: Turning to the balance sheet. We ended the first quarter with total cash cash equivalents restricted cash and investments of $117 million during.

Joe: Turning to guidance.

Joe: Based on the information available today, we expect revenue for the second quarter to be in the range of $53 million to $59 million.

Joe: During the quarter, we drew down $20 million from our $40 million line of credit.

Scott Keeney: Our ability to shift manufacturing between the US and Thailand should enable us to better manage tariff associated.

Joe: The midpoint of $56 million includes approximately $38 million of product revenue and $18 million of development revenue.

Scott Keeney: In summary, I'm pleased with the strong start to 2025, particularly around the ramp of our defense products, and I'm increasingly confident about the long-term growth in A&D based on our unique leadership across the technology stack for high-powered Let me now turn the call over to Joe to discuss our first quarter financial Thank you, Scott.

Joe: We expect to A&D revenue in the second quarter of 2025% increase sequentially and year over year and weakness in our industrial and micro fabrication markets to continue throughout the year.

Joe: Inventory increased to $43 8 million at the first quarter compared to $40 8 million at the end of 2024.

Joe: Turning to gross margin.

Joe: The increase in inventory is primarily to support the forecasted ramp indirect energy products.

Joe: Product gross margin in the second quarter are expected to be in the range of 27% to 33%.

Joe Corso: Total revenue in the first quarter of 2025 was $51.7 million, an increase of 16% compared to $44.5 million in the first quarter of 2020. Aerospace and defense revenue is $32.7 million in the quarter, up 50.4% year-over-year and 8.6% sequentially. Growth in the quarter was driven by increased defense products revenue, which increased more than 150% compared to the same quarter a year. primarily due to increased deliveries of components into our healthy two direct energy laser. We expect A&D revenue to grow sequentially in the second quarter of 2025. And as Scott mentioned earlier, we feel increasingly confident that full year revenue from our A&D market should grow at least 25 percent.

Joe: Turning to guidance.

Joe: Based on the information available today, we expect revenue for the second quarter to be in the range of $53 million to $59 million.

Joe: And we expect development gross margins to be approximately 8%, resulting in a total gross margin range of 19% to 25%.

Joe: The midpoint of $56 million includes approximately $38 million of product revenue and $18 million of development revenue.

Joe: As we've mentioned previously is a vertically integrated manufacturing business gross margin is largely dependent on production volumes and absorption of fixed manufacturing costs. In addition, we are navigating a highly uncertain global trade market, while we don't expect a significant negative impact to our margins in the second quarter, we could experience further margin pressure.

Joe: We expect A&D revenue in the second quarter of 2025% increase sequentially and year over year in.

Joe: And weakness in our industrial and micro fabrication markets that continue throughout the year.

Joe: Turning to gross margin.

Joe: <unk> and subsequent quarters, if the current structure and level of tariffs remain in place for the rest of fiscal year.

Joe: Product gross margin in the second quarter are expected to be in the range of 27% to 33%.

Joe: And we expect development gross margins to be approximately 8%, resulting in a total gross margin range of 19% to 25%.

Joe: Finally, we expect adjusted EBITDA for the second quarter to be in the range of approximately negative $4 million to positive $1 million. We continue to expect breakeven adjusted EBITDA with quarterly revenue in the $55 million to $60 million range with that I will turn the call over to the operator for questions.

Joe Corso: First quarter revenue from our commercial markets, which includes industrial and microfabrication, was $19 million, a decrease of 16.8% year over year, but up 9.9%. Revenue from these markets was largely in line with expectations as industrial demand remained weak and the quarter-over-quarter improvement in microfabrication sales was largely the result of our manufacturing partner being able to satisfy orders that had been previously unable For more information visit www.FEMA.gov Product revenue for the first quarter was $35.7 million. an increase of 21.5% compared to $29.4 million in the first quarter of 2020. The year-over-year increase in product sales was due to growth in defense product revenue, partially offset by a decline in commercial sales.

Joe: Thank you.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone you will hear a prompt Nick Yurick had has been raised.

Joe: In subsequent quarters, if the current structure and level of tariffs remain in place for the rest of fiscal year.

Speaker Change: Should you wish to decline from the polling process. Please press star followed by the number two if.

Speaker Change: If you are using a speaker phone please lift the handset before pressing and nicky's.

Jim Ricchiuti: Your first question comes from Jim Ricchiuti.

Jim Ricchiuti: Of Needham and company. Please go ahead.

Joe: Thank you.

Jim Ricchiuti: Hi, Thanks, good afternoon.

Joe: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone you will hear a prompt Mr. Han has been raised.

Joe Corso: Development revenue of $16 million in the first quarter increased 5.4% compared to the same quarter a year ago. Total gross margin in the first quarter was 26.7%, compared to 16.8% in the first quarter of 2020. First quarter gross margin included approximately a $1.9 million benefit related to duty. Excluding the impact of this benefit, total gross margin for the first quarter would have been approximately 23%, which is still above the high end of our guidance. As both product gross margin and development gross margin, we're ahead of that. Products grossed margin in the first quarter was 33.5% compared to 20.9% in the first quarter of 2020.

Jim Ricchiuti: To start off with.

Jim Ricchiuti: Can you talk to us about the.

Jim Ricchiuti: The line of sight, you have to the product sales and A&D is looking past Q2, I mean, you've talked about the growth you're expecting in <unk>.

Joe: Should you wish to decline from the polling process. Please press star followed by the number two if you are using a speaker phone. Please lift the handset before pressing any keys.

Jim Ricchiuti: For the full year I'm, just trying to get a sense as to what kind of visibility you have to product sales.

Joe: Your first question comes from Jim Ricchiuti of Needham and company. Please go ahead.

Jim Ricchiuti: Hello.

Jim Ricchiuti: Alright.

Speaker Change: Hi, Thanks, good afternoon.

Jim Ricchiuti: Jim can you hear me Jim.

Joe: To start off with.

Jim Ricchiuti: I can Scott did you get that question should I repeat it I apologize for the audio problems.

Speaker Change: Can you talk to us about the.

Speaker Change: The line of sight, you have to the product sales in A&D and.

Speaker Change: Thanks for the question, Jim I think the.

Joe Corso: First quarter products gross margin was positively impacted by higher product volumes, a favorable mix, and duty. Development Gross Margin was $11.5 compared to 8.9% in the same quarter a year ago. The upside in development gross margin was largely a result of program mix. Going forward, we still expect development gross margin to remain at 8%. Operating expenses were $23.4 million in the first quarter compared to $22.2 million in the first quarter. Non-GAAP operating expenses were $17.8 million in the first quarter, a slight increase compared to $17.2 million in the first quarter.

Jim Ricchiuti: As we noted in.

Speaker Change: Looking past Q2, I mean, you've talked about the growth youre expecting in A&D for the full year I'm, just trying to get a sense as to what kind of visibility you have to product sales.

Jim Ricchiuti: Comments the healthy program is certainly one of the drivers of the product revenue, which certainly we have visibility with respect to to that program.

Jim Ricchiuti: We certainly have also increasing.

Jim Ricchiuti: Both orders in the funnel of opportunities and products that further contribute to.

Speaker Change: Hello.

Jim Ricchiuti: Our our outlook to continue to improve.

Speaker Change: Alright.

Speaker Change: Jim can you hear me Jim.

Speaker Change: I can Scott did you get that question should I repeat I apologize for the audio problems.

Jim Ricchiuti: Defense broadly, but products in particular on that 150% growth.

In the quarter was certainly one of the highlights for the quarter.

Speaker Change: Thanks for the question, Jim I think the.

Speaker Change: As we noted in.

Jim Ricchiuti: Okay.

Speaker Change: Comments the healthy program is certainly one of the drivers of the product revenue is certainly we have visibility with respect to to that program.

Jim Ricchiuti: On the tariffs.

Jim Ricchiuti: The issue of tariffs help us understand where you could be impacted more so than a micro fabrication business is it.

Joe Corso: Gap net loss for the first quarter was $8.1 million, or $0.16 per share, compared to a net loss of $13.8 million, or $0.29 per share in the same quarter a year. Adjusted EBITDA for the first quarter was $116,000 compared to a loss of $4.9 million in the first quarter of 2020.

Speaker Change: We certainly have also increasing.

Speaker Change: Both orders in the funnel of opportunities in products.

Jim Ricchiuti: Relating to.

Speaker Change: Further contribute to.

Jim Ricchiuti: The production in Thailand, maybe just in broad strokes, how should we think about that going forward, assuming the situation doesn't change doesn't change or improve.

Speaker Change: Our our outlook to continue to improve.

Speaker Change: <unk>, probably but products in particular on that 150% growth.

Joe Corso: Turning to the balance. We ended the first quarter with total cash, cash equivalents, restricted cash, and investments of $117 million. During the quarter, we drew down $20 million from our $40 million line of credit. Given the ongoing uncertainty surrounding the impact of tariffs and our expectations for increased working capital needs to support the growth in our A&E markets, we thought it was prudent to put a cash buffer in place. Inventory increased to $43.8 million at the first quarter compared to $40.8 million at the end of 2020. The increase in inventory is primarily to support the forecasted ramp in direct energy.

Speaker Change: In the quarter was certainly in one of the highlights for the quarter.

Joe: Yeah, Hi, Jim This is Joe I'll take that one the area, where we will be affected most frankly is where the the.

Speaker Change: Okay.

Speaker Change: On the tariffs.

Jim Ricchiuti: Input costs are coming in from China today.

Speaker Change: The issue of tariffs help us understand where you could be impacted more so than a micro fabrication business is it.

And that is disproportionately affects our industrial fiber laser business, but.

Jim Ricchiuti: Remember as we think about where we are right now we're still sitting on some in.

Speaker Change: Relating to.

Jim Ricchiuti: Inventory and the like and so we don't expect a big impact at all in the second quarter.

Speaker Change: The production in Thailand, maybe just in broad strokes, how should we think about that going forward, assuming the situation doesn't change it doesn't change or improve.

Jim Ricchiuti: As we go throughout the year, depending on what the situation is and where these tariff rates ultimately shake out.

Joe: Yeah, Hi, Jim This is Joe I'll take that one the area, where we will be affected most frankly is where the <unk>.

Joe Corso: Turning to God. Based on the information available today, we expect revenue for the second quarter to be in the range of $53 million to $59 million. The midpoint of $56 million includes approximately $38 million of product revenue and $18 million of development. We expect A&E revenue in the second quarter of 2025 to increase sequentially and year-over-year and weakness in our industrial and microfabrication markets to continue throughout the year.

Jim Ricchiuti: Have an impact in Q3 and Q4, but we're not talking about anything that we feel today is a significant right on the order of a couple of hundred basis points.

Joe: The input costs are coming in from China today.

Joe: And that is disproportionately affects our industrial fiber laser business, but.

Speaker Change: Okay are you more concerned.

Speaker Change: About the the potential indirect impact as it relates to just demand across some of the markets on the commercial side of the business. Yes, I think that's the thing that gives US pause is just how is how are these dramatic increases in tariffs go into effect.

Joe: Remember as we think about where we are right now we're still sitting on some.

Joe: Inventory and the like and so we don't expect a big impact at all in the second quarter.

Joe: As we go throughout the year, depending on what the situation is and where these tariff rates ultimately shake out could have an impact.

Joe Corso: turning to gross. Products gross margin in the second quarter are expected to be in the range of 27% to 33%. And we expect development gross margins to be approximately 8%, resulting in a total gross margin range of 19%. As we've mentioned previously, as a vertically integrated manufacturing business, gross margin is largely dependent on production volumes and absorption of fixed manufacturing. In addition, we are navigating a highly uncertain global trade war. While we don't expect a significant negative impact to our margins in the second quarter, we could experience further margin pressure in subsequent quarters if the current structure and level of tariffs remain in place for the rest of fiscal year.

Speaker Change: Broader markets indirectly.

Speaker Change: And.

Speaker Change: That's.

Joe: <unk> in Q3, and Q4, but we're not talking about anything that we feel today is a significant right on the order of a couple of hundred basis points.

Speaker Change: Something that we can't possibly forecast, but our business with especially with the defense business.

Speaker Change: There is a relatively more insulated to impact.

Speaker Change: Okay are you more concerned.

Speaker Change: Thank you.

Speaker Change: About the potential indirect impact as it relates to just demand across some of the markets on the commercial side of the business, Yes, I think thats. The thing that gives US pause is just how is how are these dramatic increases in tariffs go into effect.

Speaker Change: Your next question comes from Craig Palm of Craig Hallum. Please go ahead.

Craig Palm: Yes. Thanks.

Speaker Change: Submissions, joining so if you've already talked about some of the stuff apologies, but.

Speaker Change: Broader markets indirectly.

Speaker Change: You kept your A&D outlook, the same but I think you mentioned you're increasingly confident so I guess what.

Speaker Change: And.

Speaker Change: That's.

Speaker Change: Something that we can't possibly forecast, but our business with especially with the defense business.

Joe Corso: Finally, we expect just at EBITDA for the second quarter to be in the range of approximately negative $4 million to positive $1 million. We continue to expect breakeven adjusted EBITDA with quarterly revenue in the $55 million to $60 million.

Speaker Change: What's changed in the last couple of months and what would you need to happen to receive for you to actually increase the full year guide at some point this year.

Speaker Change: There is a relatively more insulated impact.

Speaker Change: Yeah. Good thanks, Greg sorry about the audio problems.

Speaker Change: Thank you.

Speaker Change: Good question.

Craig Palm: Your next question comes from Craig Palm of Craig Hallum. Please go ahead.

Speaker Change: Continued to see.

Operator: With that, I will turn the call over to the operator for questions. Thank.

Speaker Change: Traction in not only the us but also the international markets for <unk>.

Craig Palm: Yes. Thanks.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number 1 on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any key.

Speaker Change: <unk> energy.

Speaker Change: Submissions, joining so if you've already talked about some of the stuff apologies, but.

Speaker Change: And our other applications, so I think thats.

Speaker Change: A theme that we will continue to provide more information as we can release more information there.

Speaker Change: You kept your A&D outlook, the same but I think you mentioned you're increasingly confident so I guess what.

Speaker Change: But as we just talked about that.

Speaker Change: What's changed in the last couple of months and what would you need to happen to receive for you to actually increase the full year guide at some point this year.

Speaker Change: The tariffs certainly add some.

Speaker Change: Degree of uncertainty in the global environment, and it's just hard to determine what that's going to be again, it's not something that.

Speaker Change: Yeah. Good thanks, Greg sorry about the audio problems.

Jim Ricchiuti: Your first question comes from Jim Ricchiuti of Needham and Company. Please go ahead. Hi, thanks. Good afternoon.

Speaker Change: Good question.

Speaker Change: Continue to see.

Speaker Change: <unk> is going to directly affect us.

Speaker Change: Traction not only the us but also the international markets for.

Speaker Change: As much as perhaps others, but it certainly is a question mark in terms of how the overall economy.

Speaker Change: Direct energy.

Scott Keeney: Maybe to start off with Can you talk to us about the line of sight you have to the product sales in A&D, looking past Q2? I mean, you've talked about the growth you're expecting in A&D for the full year. I'm just trying to get a sense as to what kind of visibility you have to product sales. Hello? Right. Jim, can you hear me, Jim? I can. Scott, did you get that question? Or should I repeat it? I apologize for the audio problems. Thanks for the question, Jim. I think as we noted in my comments, the Healthy Program is certainly one of the drivers of the product revenue, and certainly we have this ability with respect to that program.

Speaker Change: And our other applications, so I think thats.

Speaker Change: <unk> continues to progress.

Speaker Change: A theme that we will continue to provide more information as we can release more information there.

Speaker Change: Can you address what the tariff related risk is specifically for Andy I know you mentioned that the input cost in China on the <unk>.

Speaker Change: But as we just talked about.

Speaker Change: The tariffs certainly add some.

Speaker Change: I think more on the sort of the industrial fiber laser business, but is that something that that impacts everything.

Speaker Change: Degree of uncertainty in global environment, and it's just hard to determine what that's going to be.

Speaker Change: Yes.

Speaker Change: We think about certainly where we buy our products and services.

Speaker Change: It's not something that.

Speaker Change: It's going to directly affect us.

Speaker Change: Significant exposure there.

Speaker Change: Thank you our suppliers have.

Speaker Change: As much as perhaps others, but it certainly is a question mark in terms of how the overall economy.

Speaker Change: Secondary pusher rate, that's where you just it's difficult to fully address how those tariffs are going to flow through the broader supply chain. So it's more of that.

Speaker Change: Continues to progress.

Speaker Change: Can you address what the tariff related risk is specifically for AMD I know you mentioned that the input cost in China on that.

Speaker Change: Okay.

Speaker Change: Just to be clear.

Speaker Change: I mean, whether it's zero or some of your suppliers I mean are there secondary sources outside of China. If the if the current tariff rate sticks like what's everybody doing to mitigate it.

Speaker Change: I think more on the sort of the industrial fiber laser business, but is that something that that impacts everything.

Scott Keeney: We certainly have also increasing both orders and the funnel of opportunities and products that further contribute to our outlook to continue to improve defense broadly, but products in particular. And that 150% growth in the quarter was certainly one of the highlights for the quarter.

Speaker Change: Yes.

That risk.

Speaker Change: We think about certainly where we buy our products and certainly we don't.

Speaker Change: Well I mean.

Speaker Change: As we talked about in our comments and certainly where we're pleased that we have our operations running in Thailand and things like that certainly we're doing others are doing.

Speaker Change: Significant exposure there.

Speaker Change: Thank you our suppliers have secondary pusher rate, that's where you just it's difficult to fully address how those tariffs are going to flow through the broader supply chain. So it's more of that.

Speaker Change: And I think I'll be every management team out there is scrambling to try to figure out what to do.

Speaker Change: Okay, and just to be clear.

Speaker Change: And.

Speaker Change: But I do think that.

Speaker Change: I mean, whether it's zero or some of your suppliers I mean are there secondary sources outside of China.

Jim Ricchiuti: Great.

Joe Corso: On the on the tariff. The issue of tariffs, help us understand where you could be impacted more. Is it in the microfabrication business? Is it relating to the production in Thailand? Maybe just in broad strokes. How should we think about that going forward, assuming the situation doesn't change? Yeah, hi, Jim, this is Joe. I'll take that one. The area where we will be affected most, frankly, is where the the input costs are coming in from China today. And that is disproportionately affects our industrial fiber laser business. But, you know, remember, as we think about where we are right now, we're still sitting on some inventory and the like.

Speaker Change: We have relatively.

Speaker Change: Limited exposure.

Speaker Change: If the current tariff rate sticks like what's everybody doing to mitigate to mitigate that risk.

Speaker Change: Especially within our energy.

Speaker Change: A&D business.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: I guess lastly, just can you can you address the line of credit I mean.

Speaker Change: Well I mean.

Speaker Change: <unk> talked about in our comments and certainly where we're pleased that we have our operations in Thailand and things like that certainly we're doing others are doing.

Greg: Without tapping that you would've ended the quarter with close to $100 million of cash I mean that seems like a pretty good buffer to me even with all of these uncertainties. So maybe you can give a little bit more color there yes, Greg.

Speaker Change: And I think of every management team out there is scrambling to try to figure out what to do.

Greg: Fairly simple we are expecting that the business.

Speaker Change: And.

Speaker Change: But I do think that.

Greg: Is going to grow in the second half of the year, we've talked about the 25% increase year over year in defense.

Speaker Change: We have relatively.

Speaker Change: Limited exposure.

Speaker Change: Especially within R&D.

Speaker Change: Andy business.

Greg: In our remarks, we talked about we're getting more confident about that we want to make sure that we are thinking about allocating capital appropriately we've got a really attractive credit.

Speaker Change: Okay.

Speaker Change: I guess lastly, just can you can you address the line of credit I mean.

Speaker Change: Without tapping that you would've ended the quarter with close to $100 million of cash I mean that seems like a pretty good buffer to me even with all these uncertainties. So maybe you can give a little bit more color there yes, Greg.

Joe Corso: And so we don't expect a big impact at all in the second quarter. You know, as we go throughout the year, depending on what the situation is and where these tariff rates ultimately shake out, you know, could have an impact in Q3 and Q4. But we're not talking about anything that we feel, you know, today is significant right on the order of a couple hundred basis points.

Greg: Really attractive credit line.

Greg: The economy of the world a little bit bumpy right now to be able to leverage that credit line to fund some of that working capital that gives us the ability to continue to do all the other things we're doing in the businesses.

Speaker Change: Fairly simple we are expecting that the business.

Greg: Why we why we why we draw on it.

Speaker Change: He is going to grow in the second half of the year, we've talked about the 25% increase year over year in defense.

Speaker Change: I mean is there a certain level of cash that you want on the balance sheet as a buffer no matter. What I mean is there is there a certain number that you're sort of looking at there.

Speaker Change: In our remarks, we talked about we're getting more confident about that we want to make sure that we are thinking about allocating capital appropriately we've got a really attractive credible.

Joe Corso: Okay, are you more concerned in that about the potential indirect impact as it relates to just demand across some of the markets and the commercial side of the business? Yeah, I think that that's the thing that gives us pause is just how is how are these, you know, dramatic increases in tariffs going to affect, you know, broader markets indirectly. And, you know, that's something that, you know, we can't possibly forecast. But, you know, our business with especially with the defense business, there's a relatively, you know, more insulated impact. Okay.

Greg: There is no magic number I think we talk a lot internally about being.

Speaker Change: Really attractive credit line.

Speaker Change: <unk>.

Speaker Change: More than adequately capitalized at around $100 million, but again, you have quarters in which you are going to need to invest in working capital or in Capex that we want to try to make sure that we are funding that appropriately.

Speaker Change: The economy of the world a little bit bumpy right now to be able to leverage that credit line to fund some of that working capital that gives us the ability to continue to do all the other things we're doing in the business is.

Speaker Change: Why we why we why we draw on it.

Speaker Change: Yes, okay.

Speaker Change: Right.

Speaker Change: Probably been a while since Ive said it but congrats on the quarter was pretty impressive result, I appreciate it great. Thank you. Thank you.

Speaker Change: Yeah.

Craig Palm: Your next question comes from Craig Palm of Craig Hallam. Please go ahead. Yeah, thanks. I had some issues joining. So if you've already talked about some of this stuff, apologies. But, you know, you kept your, you know, A&E outlook the same, but I think you mentioned you're increasingly confident. So I guess what, you know, what's changed in the last couple months?

Speaker Change: Your next question comes from Ruben Roy of Stifel. Please go ahead.

Ruben Roy: Hey, guys I also had some issues.

Speaker Change: Joining but I guess the upside is I've got conference call music in my head for a few hours or so.

Ruben Roy: Okay I guess.

Speaker Change: Did you talk about it's great to hear by the way and then congrats on your continued visibility in.

Scott Keeney: And what would you need to happen or see for you to actually increase the full year guide at some point this year? Yeah, good. Thanks, Greg. Sorry about the audio problems. And good question. You know, we continue to see traction in not only the US, but also international markets for direct energy and our other applications. So I think that's, you know, a theme that we will continue to provide more information as we can, you know, release more information there. But, you know, as we just talked about, the tariffs certainly add, you know, some degree of uncertainty in the global environment, and it's just hard to determine what that's going to be.

Speaker Change: Yes, Okay alright.

Speaker Change: Execution around A&D did you give an update on the commercial markets in terms of full year has that changed kind of from the way Youre looking at that business last quarter. I think you said, maybe down 15% to 20% a little bit.

Speaker Change: Probably been a while since Ive said it but congrats on the quarter was a pretty impressive result.

Speaker Change: Great. Thank you. Thank you.

Speaker Change: Your next question comes from Ruben Roy of Stifel. Please go ahead.

Speaker Change: I think the guidelines, but any update there Joe no Rubin, that's still where we think we are we had a little bit of a better quarter. This quarter, particularly in the micro fabrication business as we were able to catch up with some pent up demand to certain customers. So it's a little bit.

Ruben Roy: Hey, guys I also had some issues.

Speaker Change: Joining but I guess the upside is that Ive got conference call music in my head for a few hours or so.

Ruben Roy: But I guess.

Ruben Roy: Did you talk about it's great to hear by the way and then congrats on your continued visibility in.

Speaker Change: A better quarter in micro, but the general themes that we have been talking about in the broader commercial businesses are still the same and then on top of that we've got some incremental risk from demand related to tariffs and the like but but broadly speaking no real change here.

Scott Keeney: Again, it's not something that is going to directly affect us as much as perhaps others, but it certainly is a question mark in terms of how the overall, you know, economy continues to progress.

Speaker Change: I think the guidelines, but any update there Joe.

Ruben Roy: Rubin.

Ruben Roy: That's still where we think we are we had a little bit of a better quarter. This quarter, particularly in the micro fabrication business as we were able to catch up with some pent up demand to certain customers. So it's a little bit of a better quarter in micro but the general themes that we have been talking about.

Speaker Change: Okay. Thanks, and then just a follow up on the tariff discussion.

Scott Keeney: Can you address what the tariff related risk is specifically for A&E? I know you mentioned that the input cost in China on the, I think more on the sort of the industrial fiber laser business, but is that something that impacts everything? Yeah, I mean, you know, we think about certainly where we buy our products and certainly we don't have significant exposure there, but do our suppliers have secondary exposure, right? That's where you just, it's difficult to fully address how those tariffs are going to flow through, you know, the broader supply chains. It's more of that.

Speaker Change: Some companies.

Speaker Change: There's a lot of moving parts here and uncertainty and it has been changing pretty rapidly but a.

Speaker Change: A lot of companies have been telling us that they potentially could pass through some costs. It doesn't sound like that's an outcome that you guys are thinking that would that would be appropriate for your business is that correct and if so.

Ruben Roy: In the broader commercial businesses are still the same and then on top of that we've got some incremental risk from demand related to tariffs and the like but.

Speaker Change: Are there some remedies or should we be thinking about.

Speaker Change: Some level of gross margin impact.

Ruben Roy: Broadly speaking no real change here.

Speaker Change: Given that there are some tariffs and costs going up I mean, even if we kind of stay steady state from here into the second half yes.

Ruben Roy: Okay. Thanks, and then.

Ruben Roy: Then just to follow up on the tariff discussion.

Ruben Roy: Yes, some companies and obviously theres a lot of moving parts here and uncertainty and it's been changing pretty rapidly but.

Scott Keeney: Okay. And just to be clear, I mean, whether it's you or some of your supplies, I mean, are there secondary sources outside of China? If the current tariff rate sticks, like what's everybody doing to mitigate that risk? Well, I mean, as we talked about in our comments, certainly we're pleased that we have our operations funding in Thailand, things like that, certainly we're doing, others are doing, and I think probably every management team out there is scrambling to try to figure out what to do. And, but I do think that, you know, we have relatively limited exposure, especially in our A&E business.

Speaker Change: Yes, we're I mean, it's a very complex topic obviously.

Speaker Change: Certainly there are places, where we can pass on costs.

Ruben Roy: A lot of companies have been telling us that they potentially could pass through some costs. It doesn't sound like that's an outcome that you guys are thinking that would that would be appropriate for your business does that.

Speaker Change: And to mitigate theres areas, where we can shift production to mitigate.

Speaker Change: There's even some regulatory.

Speaker Change: Aspects of the A&D market, where we can mitigate.

Ruben Roy: <unk>.

Ruben Roy: And if so.

Speaker Change: So it's a complex set of topics that were trying to grapple with and.

Ruben Roy: Again are there some remedies or.

Ruben Roy: Should we be thinking about some level of gross margin impact.

Speaker Change: Who knows what the assumption should be for where these tariffs will land.

Ruben Roy: Given that there are some tariffs and costs going up I mean, even if we kind of stay steady state from here into the second half.

Speaker Change: I think the broad outlook that we have as Joe said is that we don't see.

Speaker Change: Near term any dramatic effect on the business.

Ruben Roy: Yes, we're I mean, it's a very complex topic, obviously, certainly there are places where we can pass on costs.

Speaker Change: Longer term just depends on how long they last and how it affects the broader economy. So that just gives us some pause about uncertainty in the world, but I don't think Theres anything we can really comment on the specific in terms of outlook Tony.

Ruben Roy: And to mitigate theres areas, where we can shift production to mitigate.

Ruben Roy: There's been some regulatory.

Joe Corso: Okay, I guess lastly, just can you can you address the line of credit? I mean, without tapping that, you would have ended the quarter with close to 100 million of cash. I mean, that seems like a pretty good buffer to me, even with all these uncertainties. So maybe you can give a little bit more color there. Yeah, Greg, it's fairly simple. We are expecting that the business is going to grow in the second half of the year. We've talked about the 25% increase year over year in defense. In our remarks, we talked about we're getting more confident about that.

Ruben Roy: Aspects of the A&D market, where we can mitigate.

Ruben Roy: So it's a complex set of topics that were trying to grapple with and who knows what the assumption should be for where these tariffs will land.

Speaker Change: The only thing I would add proven is that it's caused us to think.

Speaker Change: Widen our margin range, a little bit, but it's simply to account for some of that level of uncertainty not more than that.

Ruben Roy: I think the broad outlook that we have as Joe said is that we don't see.

Ruben Roy: Near term any dramatic effect on the business.

Speaker Change: Okay got it and then last question any update on.

Ruben Roy: Longer term just depends on how long they last and how it affects the broader economy. So that just gives us some pause about uncertainty in the world, but I don't think Theres anything we can really comment on the specific in terms of outlook Joe.

Funded and unfunded backlog progression there.

Speaker Change: As you got through Q1, yes, no Rubin no no major update I think we're not in the position.

Joe Corso: We want to make sure that we are thinking about allocating capital appropriately. We've got a really attractive credit, really attractive credit line. You know, the economy, the world's a little bit bumpy right now to be able to, you know, leverage that credit line to fund some of that working capital that gives us the ability to continue to do all the other things we're doing in the business is why we why we why we draw on it. I mean, is there a certain level of cash that you want on the balance sheet as a buffer, no matter what?

Speaker Change: Today, where we're going to provide that update quarter over quarter. So.

Ruben Roy: The only thing I would add proven is that it's caused us to think.

Speaker Change: But I would say that as we continue to execute on the program that we still have the right level of funded backlog plus the unfunded portion and then as Scott talked about.

Ruben Roy: Widen our margin range, a little bit, but it's simply to account for some of that level of <unk>.

Ruben Roy: Uncertainty not more than that.

Speaker Change: Our activity around responding to proposals continues to increase and be at healthy level. So generally speaking we are pleased with the direction of the defense business in terms of backlog execution and the development of pipeline.

Speaker Change: Okay got it and the last question any update on.

Ruben Roy: Funded and unfunded backlog progression there.

Speaker Change: Got through Q1.

Speaker Change: No Reuben note no major update I think we're not in the position.

Joe Corso: I mean, is there a certain number that you're sort of looking at? There's no magic number. I think we talk a lot internally about being more than adequately capitalized at around $100 million, but again, you have quarters in which you are going to need to invest in working capital or in CapEx that we want to try to make sure that we are funding that appropriately.

Speaker Change: Day, where we're going to provide that update quarter over quarter. So.

Speaker Change: Helpful. Thank you Joe Thank you.

Speaker Change: But I would say that as we continue to execute on the program that we still have the right level of funded backlog plus the unfunded portion and then as Scott talked about our activity around responding to proposals continues to increase and be at healthy <unk>.

Speaker Change: Your next question comes from Troy Jensen of Cantor Fitzgerald. Please go ahead.

Speaker Change: Okay, I'm still last night Greg.

Speaker Change: The accounting for that.

It's on the good results here.

Joe Rubin: Thanks, Ryan for Joe.

Speaker Change: Level. So generally speaking we are.

Speaker Change: I didn't feel free I heard you say $1 $9 million or are you talking about the cost of goods sold did I hear that it's an adjustment to get kind of a onetime event.

Gregory Palm: Yep, okay. All right, I know it's probably been a while since I've said it, but you know, congrats on the quarter. It was a pretty impressive result. Appreciate it. Thank you.

Speaker Change: <unk> with the direction of that.

Speaker Change: Defense business in terms of backlog execution and the development of pipeline.

Speaker Change: That's the way to think about it I wouldn't say so much one time Troy. It was just obviously in light of what's going on in the world with tariffs right. We took a really hard look at opportunities this quarter and we were able to.

Ruben Roy: Your next question comes from Ruben Roy of Stifel. Please go ahead. Hey guys, I also had some issues joining, but I guess the upside is I've got conference call music in my head for a few hours. So I guess It's great to hear, by the way, and congrats on continued visibility and execution around A&D.

Joe: Helpful. Thank you Joe Thank you.

Speaker Change: Your next question comes from Troy Jensen of Cantor Fitzgerald. Please go ahead.

Speaker Change: Effectively reclaim duties that were paid and it had a nice benefit to margin during the quarter. We will continue to reclaim duties, but we don't expect it to be quite at that level as we move forward here in the near term now as.

Speaker Change: Okay, I'm still last night Greg.

Speaker Change: The accounting for that.

Speaker Change: Congrats on the good results here.

Speaker Change: Hey, Joe.

Speaker Change: Does it feel free I heard you say $1 9 million, where you're talking about the cost of goods sold did I hear that it's on the definitely to get kind of a onetime event, yes. That's the way to think about it I wouldn't say so much one time Troy. It was just obviously in light of what's going on in the world with tariffs right. We took a really hard look.

Joe Corso: Did you give an update on the commercial markets in terms of full year? Has that changed from the way you were looking at that business last quarter? I think you said maybe down 15% to 20% a little bit. Those were, I think, the guidelines, but any update there, Joe? No, Ruben. That's still where we think we are. We had a little bit of a better quarter this quarter, particularly in the microfabrication business, as we were able to catch up with some pent-up demand to certain customers. So it's a little bit of a better quarter in micro, but the general themes that we have been talking about in the broader commercial businesses are still the same.

Speaker Change: Tariffs continue either continue they go up a change that will have an impact on what that.

Speaker Change: That duty reclaimed number is but we wanted to make sure that we call that out specifically to give you a sense for what normalized gross margin would be and so that had an impact of call it 500 basis points or so.

Speaker Change: Opportunities this quarter and we were able to.

Speaker Change: Can you maybe talk us through what you think gross margins could look like here in the middle ear.

Speaker Change: Yes, I think we.

Speaker Change: We expect gross margins to continue to expand if you look at.

Speaker Change: The midpoint of the mid point of the.

Speaker Change: Tariffs continue either continue they go up a change that will have an impact on what that.

Joe Corso: And then on top of that, we've got some incremental risk from demand related to tariffs and the like. But broadly speaking, no real changes.

Speaker Change: Guidance right.

Speaker Change: Products gross margin is about 30%.

Speaker Change: That duty reclaim number is but we wanted to make sure that we call that out specifically to give you a sense for what normalized gross margin would be and so that had an impact of call it 500 basis points or so.

Speaker Change: Slight expansion from where we were in Q1 in Q1 the margin did what we hoped it would do as we drove higher volumes or mix improved as we shipped more A&D product, we recovered in micro fab and we saw some benefit from duty.

Ruben Roy: Okay, thanks. And then just to follow up on the tariff discussion, you know, some some companies, you know, and obviously, there's a lot of moving parts here and uncertainty, and it's been changing pretty rapidly. But a lot of companies have been telling us that they potentially could pass through some costs. It doesn't sound like that's, you know, an outcome that you guys are thinking that would that would be appropriate for your business. Is that, you know, correct? And if so, again, you know, are there some remedies or be thinking about, you know, some level of gross margin impact, you know, given that there are some, you know, tariffs and costs going up.

Speaker Change: Can you maybe talk us through what you think gross margins could look like here at Kennametal ear.

Speaker Change: Yes, I think we.

Speaker Change: The duty reclaim as we look to the second quarter right. It's.

Speaker Change: We expect gross margins to continue to expand if you look at.

Speaker Change: A couple of hundred basis points. Some of that is continued growth in A&D right as we talked about we don't expect.

Speaker Change: The midpoint of the the mid point of the.

Speaker Change: Guidance right our products gross margin is about 30%.

Speaker Change: To see the same revenue expansion and micro fab micro fab has pretty good margins. So we think as we continue to drive higher volumes will get better absorption and the mix of business is at the right levels that we would expect directionally our margins to continue to progressing.

Scott Keeney: Yeah, Ruben, it's a very complex topic, obviously. Certainly, there are places where we can pass on costs. And to mitigate, there's areas where we can shift production to mitigate. There's even some regulatory, you know, aspects of the A&D market where we can mitigate. So it's a complex set of topics that we're trying to grapple with. And who knows what the assumption should be for where these tariffs will land. I think, you know, the broad outlook that we have, as Joe said, is that we don't see, you know, near term, any dramatic effect on the business.

Speaker Change: Get better as we move throughout the year.

Speaker Change: Duty reclaim as we look to the second quarter right.

Speaker Change: Alright, perfect and just maybe to follow up on Greg's question too about the line of credit is there any government customers that require you to have healthier balance sheets.

Speaker Change: A couple of hundred basis points. Some of that is continued growth in A&D right as we talked about we don't expect.

Speaker Change: Any chance of a reason why you do this too.

Speaker Change: No not at all.

Speaker Change: Yeah.

Speaker Change: Okay, all right perfect guys. Good luck going forward.

Speaker Change: Thanks, Greg.

Speaker Change: As a reminder, if you wish to ask a question. Please press star followed by the number one.

Joe Corso: Longer term, just depends on how long they last and how it affects the broader economy. So that just gives us, you know, some pause about, you know, uncertainty in the world. But I don't think there's anything we can really comment on that's specific in terms of outlook. Joe, do you want to add anything? No, the only thing I would add, Ruben, is that it's caused us to think, widen our margin range a little bit, but it's simply to account for some of that level of uncertainty, not more than that.

Speaker Change: Next question comes from Mark Miller of Benchmark. Please go ahead.

Speaker Change: Get better as we move throughout the year.

Speaker Change: Thank you for the question.

Speaker Change: Alright, perfect and just maybe to follow up on Greg's question too about the line of credit is there any government customer has that require you to have healthier balance sheets.

Speaker Change: Just what we're hearing today.

Speaker Change: Previously it sounds like the second half will be somewhat stronger than the first half.

Is that a good assumption.

Speaker Change: Any chance.

Mark: Mark simply put yes, it's a good assumption, we expect the second half to be better than the first.

Speaker Change: The reason why you do this too.

Speaker Change: No not at all.

Speaker Change: Okay, all right perfect guys. Good luck going forward.

Mark: One of your competitors reported the healthy results in additive manufacturing applications I was just wondering how additive.

Speaker Change: Thanks, Greg.

Speaker Change: As a reminder, if you wish to ask a question. Please press star followed by the number one.

Ruben Roy: Okay, got it.

Mark: The business is growing for you.

Joe Corso: And the last question, any update on funded and unfunded backlog, you know, progression there, you know, as you, as you got through. Yeah, no, Ruben, no, no major update. I think we're not in the position, you know, today where we're going to provide that update quarter over quarter. So, But I would say that as we continue to execute on the program, we still have the right level of, you know, funded backlog, plus the unfunded portion. And then as Scott talked about Our activity around responding to proposals continues to increase and be at healthy level. So generally speaking, we are pleased with the direction of the defense business in terms of backlog execution and the development of pipelines.

Speaker Change: We're making good progress in additives.

Speaker Change: Your next question comes from Mark Miller of Benchmark. Please go ahead.

Speaker Change: And but we are focused on customers in the U S and Europe.

Speaker Change: Thank you for the question.

Speaker Change: Just what we're hearing today.

Speaker Change: And.

Speaker Change: Previous it sounds like the second half will be somewhat stronger than the first half.

Speaker Change: That's an area, where there is more limited growth in the market realm.

Speaker Change: Is that a good assumption.

Speaker Change: Relative to.

Mark Miller: Mark simply put yes, it's a good assumption, we expect the second half to be better than the first.

Speaker Change: The market.

Speaker Change: In some other countries.

Speaker Change: Thank you.

Speaker Change: One of your competitors reported healthy results in additive manufacturing applications I was just wondering how additive.

Speaker Change: Mark.

Speaker Change: Okay.

Mark Miller: The business is growing for you.

Speaker Change: Thank you, ladies and gentlemen that concludes our question and answer session I will now turn the conference back over to John Marchetti.

Mark Miller: We're making good progress in additives.

Mark Miller: And but we are focused on customers in the U S and Europe.

John Marchetti: Thank you everyone for joining us this afternoon and for your continued interest in enlighten, we will be participating in several investor conferences. This quarter. We look forward to speaking with you during those events throughout the quarter have a great afternoon.

Mark Miller: And.

Mark Miller: That's an area, where there's more limited growth in the market realm.

Mark Miller: Relative to.

Joe Corso: Thank you, Joe. Thank you, Ruben.

Mark Miller: The market.

John Marchetti: This concludes today's conference. Thank you for attending you may now disconnect your lines.

Troy Jensen: Your next question comes from Troy Jensen of Cantor Fitzgerald. Please go ahead. Okay, first, I'm still laughing at Greg's little comment, but congrats on the good results here. Hey, for Joe, I heard you say 1.9 million when you were talking about cost of goods sold. Did I hear that it's an adjustment to get kind of a one-time event? Yeah, that's the way to think about it. I wouldn't say it so much one-time, Troy. It was just obviously in light of what's going on in the world with tariffs, right? We took a really hard look at opportunities this quarter, and we were able to effectively reclaim duties that were paid, and it had a nice benefit to margin during the quarter.

Mark Miller: In some other countries.

Mark Miller: Thank you.

Mark Miller: Right.

Mark Miller: Okay.

Mark Miller: Thank you ladies and gentlemen.

Mark Miller: That concludes our question and answer session I will now turn the conference back over to John Marchetti.

Speaker Change: Thank you everyone for joining us this afternoon and for your continued interest in enlighten.

Participating in several investor conferences. This quarter, we look forward to speaking with you during those events throughout the quarter have a great afternoon.

Speaker Change: This concludes today's conference. Thank you for attending you may now disconnect your lines.

Joe Corso: We will continue to reclaim duties, but we don't expect it to be quite at that level as we move forward here in the near term.

Joe Corso: Now, as https://www.youtube.com or the link in the description below. Can you kind of maybe talk us through what you think gross margins could look like here in the middle of the year? Yeah, I think we expect gross margins to continue to expand if you look at the midpoint of the guidance, right? Our products gross margin is about 30%. That's a slight expansion from where we were in Q1. In Q1, the margin did what we hoped it would do as we drove higher volumes. Our mix improved as we shipped more A&D product. We recovered in Microfab and we saw some benefit from duty reclaim.

Joe Corso: As we look to the second quarter, it's up a couple hundred basis points. Some of that is continued growth in A&D. As we talked about, we don't expect to see the same revenue expansion in Microfab. Microfab has pretty good margins. So we think as we continue to drive higher volumes, we'll get better absorption, the mix of business is at the right levels that we would expect. Directionally, our margins to continue to progress and get better as we move throughout the year.

Joe Corso: All right, perfect. And just maybe to follow up on Greg's questions too about the line of credit, is there any government customers that require you to have healthier balance sheets? Is that any chance and a reason why you do this too? No, no, not at all. Okay, all right, perfect, guys. All right, well good luck going forward.

Troy Jensen: Thank you. Thanks, Fred.

Operator: As a reminder, if you wish to ask a question, please press star followed by the number 1.

Mark Miller: Your next question comes from Mark Miller of Benchmark. Please go ahead. Thank you for the question. Just what we're hearing today and previous, it sounds like the second half will be somewhat stronger than the first half, and is that a good assumption? But Mark simply put, yes, it's a good assumption. We expect the second half to be better than the first.

Scott Keeney: One of your competitors reported healthy results in additive manufacturing applications. I'm just wondering how additive business is going for you. We're making good progress in additive, but we are focused on customers in the U.S. and And, you know, that's an area where there's more limited growth in the market relative to, you know, the markets in some other countries.

Operator: Thank you. Thank you, ladies and gentlemen.

John Marchetti: That concludes our question and answer session.

John Marchetti: I will now turn the conference back over to John Marchetti. Thank you, everyone, for joining us this afternoon and for your continued interest in Nlight. We will be participating in several investor conferences this quarter. We look forward to speaking with you during those events and throughout the quarter.

Operator: Have a great afternoon.

Operator: This concludes today's conference. Thank you for attending.

Operator: You may now disconnect your line.

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