Q3 2025 nLight Inc Earnings Call
The question and answer session. If you would like to ask a question. Please raise your hand, if you have dialed into todays call. Please press star nine to raise your hand and star six two on mute.
I will now hand, the conference over to John Marchetti, VP corporate development and Investor Relations Jon. Please go ahead.
Good afternoon, everyone. Thank.
Thank you for joining us today to discuss <unk>.
Third quarter 2025 earnings results.
Im John Marchetti, <unk> VP of corporate development and head of Investor Relations.
With me on the call today are Scott Keeney, enlighten, chairman and CEO, and Joe Corso and CFO.
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, except as required by law.
During the call, we'll be discussing certain non-GAAP financial measures we.
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 website.
I will now turn the call over to <unk>, Chairman and CEO Scott Keeney.
Thank you John Q3 represented another solid quarter of execution for <unk> with total revenue at the high end of our guidance range and both gross margin and adjusted EBITDA, beating our expectations.
Third quarter revenue of $67 million grew 19% year over year and were once again, driven by record aerospace and defense revenue of $46 million.
With defense product sales growing more than 70% year over year.
I am, particularly pleased with the expansion of our product gross margin, which came in at a record 41% and increased from 29% in the same quarter a year ago.
Our adjusted EBITDA was also above our expectations at more than $7 million in the quarter.
The expansion in our gross margin and the subsequent growth in our adjusted EBITDA demonstrates the leverage that is inherent in our operating model.
In aerospace and defense, we remain focused on two key markets directed energy and laser sensing.
And revenue from both markets outperformed our expectations in the quarter.
In directed energy, we are uniquely positioned with our vertically integrated and industry, leading high power laser technology developed over the past two decades and spanning the entire technology stack from chips to components to full laser systems and beam directors.
All of which are designed and manufactured in the U S have generated revenue at nearly every level of vertical integration in the directed energy market.
And we have established ourselves as one of the most comprehensive suppliers to U S government other prime contractors and foreign allies.
During the third quarter, we continued to make solid progress on our <unk> program.
As a reminder, this is a $171 million program to develop a one megawatt high energy laser with a completion date expected in 2026.
The shipment of critical components towards the <unk> program was a significant driver of record defense product revenue in the quarter and is expected to be a substantial contributor to growth through the remainder of the year and into 2026.
We continue to transition our latest generation of amplifier products into advanced production by leveraging analytes experienced manufacturing teams and implementing quality and control processes.
This transition while not without risk is progressing well and is critical as we continue to optimize our amplifier production line for higher volumes.
Our work on the Army's GM Shred short range Air Defense program is nearing completion, and we look forward to delivering this 50 kilowatt high energy laser and beam director to our partner.
Once <unk> completed the system will begin field testing.
Overall interest in U S. Direct entry programs remains high, particularly for counter UAS applications, and we expect new contracts to be awarded in the coming quarters from different agencies as part of the President's Golden Dome Executive order, which specifically highlights non kinetic missile defense capabilities as an area for development.
With a mandate to build these systems in the United States. We believe we are well positioned to benefit from these efforts over the coming years and we are hopeful that the coming quarters will provide additional details on the scope and timing of these initiatives.
We've also continued to have success in the international markets for directed energy, we began shipping to a new international customer last quarter, and we have a growing pipeline of new global opportunities as Allied nations look to accelerate direct energy programs for cost effective counter UAS and other threats.
Our laser sensing markets are also performing well.
Our laser sensing products include missile guidance proximity detection range, finding and countermeasures and we've been incorporating several significant and long running defense programs all of which are poised to grow in 2026.
During the third quarter, we signed a new $50 million contract for an existing long running missile program that incorporates one of our laser sensing products.
Enlighten has been a long term supplier into this program, which our customer expects to remain a key priority associated with the nation's munitions restocking efforts.
Our historical performance on these programs and our early success on multiple classified programs has increased both the number of prospects and the size of our sensing pipeline.
In addition, further opportunities under Golden <unk> initiatives have emerged and could also become significant contributors to our growth in 2026 and beyond.
Commercial revenue was slightly ahead of our expectations at $21 2 million on a sequential increase in micro fabrication sales and relatively flat results in our industrial markets.
We have been pleased with the stability of our micro fabrication markets year to date and have been encouraged by the growth our advanced manufacturing products, where we see alignment with our aerospace and defense customers and our technology remains differentiated.
Let me now turn the call over to Joe to discuss our third quarter financial results.
Thank you Scott our third quarter results were characterized by another quarter of strong execution healthy revenue growth a favorable mix of business and continued execution from our manufacturing and operations teams drove meaningful upside to our gross margin.
That upside combined with operating expense discipline resulted in significant improvement to profitability and cash flow demonstrating the leverage that's inherent in our model.
Total revenue in the third quarter was $66 7 million, an increase of 19% compared to $56 1 million in the third quarter of 2024 and up 8% compared to the second quarter of 2025.
Aerospace and defense revenue was a record $45 6 million in the quarter up 50% year over year and 12% sequentially.
A&D growth was driven by record aerospace and defense products revenue, which grew 71% year over year, and 32% compared to last quarter.
<unk> revenue of $19 $1 million grew 28% year over year as we continued to execute on multiple directed energy programs. The.
The quarter over quarter decline of 8% was the result of several smaller programs haven't been completed in the prior quarter.
We expect A&D revenue to continue to grow sequentially in the fourth quarter.
Third quarter revenue from our commercial markets, which includes industrial and micro fabrication was modestly ahead of our expectations at $21 2 million.
A decrease of 18% year over year, but up slightly compared to last quarter.
Revenue from our micro fabrication market was in line with our expectations at $11 $6 million, while revenue of $9 6 million from our industrial markets was slightly better than expected as an increase in demand for our additive manufacturing products offset continued declines in cutting and welding.
While we are pleased with the overall stability that we saw in our commercial markets in the third quarter, we do not believe that the overall demand picture has significantly changed from what we described in prior quarters.
Total gross margin in the third quarter was 31, 1% compared to 22, 4% in the third quarter of 2024, and 29, 9% last quarter.
Product gross margin in the second quarter was a record 41% compared to 28, 8% in the third quarter of 2024, and 38, 5% last quarter.
Third quarter product gross margin was positively impacted by favorable customer and product mix driven by record revenue from our A&D markets and an overall increase in volume.
Development gross margin was six 4% compared to four 7% in the same quarter, a year ago, and 13, 1% last quarter.
The sequential decrease in development gross margin was largely the result of some smaller higher margin programs that finished in the prior quarter and did not contribute to the third quarter results.
Going forward, we expect development gross margin to remain in the 8% range.
GAAP operating expenses were $28 1 million in the third quarter compared to $24 4 million in the third quarter of 2024, and $22 7 million in the second quarter of 2025.
Included in our third quarter GAAP operating expenses were higher stock based compensation expenses associated with previously announced performing shares and a restructuring charge of approximately $1 7 million as we further reduced our activities in China and in cutting and welding.
non-GAAP operating expenses were $17 5 million in the quarter down from $18 3 million in the third quarter of 2024 and up from $16 $8 million last quarter.
We expect non-GAAP opex to remain in the $18 million range in the fourth quarter.
GAAP net loss for the third quarter was $6 9 million or <unk> 14 per share compared to a net loss of $10 3 million or.
Or <unk> 21 per share in the same quarter, a year ago, and a loss of $3 $6 million or <unk> <unk> per share in the second quarter of 2025.
On a non-GAAP basis net income for the third quarter was $4 3 million.
Or <unk> <unk> per diluted share compared to a non-GAAP net loss of $3 7 million or <unk> <unk> per share in the third quarter of 2024, and non-GAAP net income of $2 9 million or <unk> <unk> per diluted share last quarter.
Adjusted EBITDA for the third quarter was a positive $7 1 million compared.
Compared to a loss of approximately $1 million in the same quarter last year and a positive $5 6 million in the second quarter of 2025.
We ended the third quarter with total cash cash equivalents restricted cash and investments of $116 million, we generated $5 2 million in cash flow from operations. Despite continuing to invest in working capital ahead of growth.
We were free cash flow positive in the quarter.
Turning to guidance.
Based on the information available today, we expect revenue for the fourth quarter of 2025 to be in the range of $72 million to $78 million. The midpoint of $75 million includes approximately $55 million of product revenue and $20 million of development revenue.
We expect sequential growth in A&D and the fourth quarter and we expect full year 2025, A&D revenue growth to exceed our prior outlook for A&D growth of at least 40% year over year.
Overall gross margin in the fourth quarter is expected to be in the range of 27% to 32%.
With product gross margin in the range of 34% to 39% and development gross margin of approximately 8%.
As we've mentioned previously as a vertically integrated manufacturing business gross margin is largely dependent on production volumes and absorption of fixed manufacturing costs.
Finally, we expect adjusted EBITDA for the fourth quarter of 2025 to be in the range of 6 million to $11 million with that I will turn over the call to operator for questions.
Thank you.
We'll now begin the question and answer session. Please.
Please limit yourself to one question and one follow up.
If you would like to ask a question. Please raise your hand now.
If you have dialed in to today's call. Please press star nine to raise your hand and star six Killen.
Please standby, while we compile the Q&A roster.
Your first question comes from the line of Greg Palm with Craig Hallum. Your line is open. Please go ahead.
Hi.
Thanks for taking my questions and congrats on the results.
Wondering first if you could just address I hope you are too early based on the results. The guide I mean is there.
Your corner.
<unk> ahead.
The completion date of your I know you've talked about completion 2020, but curious if that timeline assumes that all of this based on.
On the volumes that you are able to complete it.
Hey, Greg It's Scott here, Thanks for the question.
We're on track as the bottom line.
We will announce.
Progress results when we are able to do so but we're on track for 2026.
Jeff.
And then as it relates to.
Through product through the garden revenue up quite a bit sequentially, but gross margin down I know youre coming off of.
Pretty tough compare I guess sequentially when you put up 44% product gross margin, but can you give us a little bit more color, what's going on doesn't sound like mix is going to change all that much.
Yes, no great. Thanks for the question as we've talked about in the past you can have some pretty.
What seemed like a pretty big swings from a gross margin perspective. When you are still talking about revenues at the levels that we're at really not much in terms of Q3 to Q4 on the gross margin guide, probably 150 or 200 bps of it is related to actually freight and duties right as we've had.
The higher cost of materials that are going to.
We're now going to start to feel in Q4, and then the rest is really just mix within each of our end markets. The mix within defense the mix within commercial can change in any given quarter and then theres just a handful of other items that as we forecast in any in any given quarter to that are there but.
Generally speaking, we're pleased that gross margin.
Has expanded and it remains really a function of three things higher volume mix, where we are and then just overall overall, how we're levered.
And the factory, so we're pretty happy with where we were in Q3 and not much to think about for us in Q4.
Operator: After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please raise your hand. If you have dialed into today's call, please press star nine to raise your hand and star six to unmute. I will now hand the conference over to John Marchetti, VP, Corporate Development, and Investor Relations. John, please go ahead.
Congrats again on our progress thank you.
Materials that are going to.
Your next question comes from the line of Ruben Roy with Stifel. Your line is open. Please go ahead, Hey, guys. This is said, saying on for Ruben Roy.
We're now going to start to feel in Q4, and then the rest is really just mix within each of our end markets. The mix within defense the mix within commercial can change in any given quarter and then theres just a handful of other items that as we forecast it.
First off congrats.
You guys are.
Pasture breakeven point, which I think was $55 million to $60 million in turning profitable. So congrats on that thank you.
In any given quarter that are there but.
John Marchetti: Good afternoon, everyone. Thank you for joining us today to discuss nLIGHT's third quarter 2025 earnings results. I'm John Marchetti, nLIGHT's VP of Corporate Development and the Head of Investor Relations. With me on the call today are Scott Keeney, nLIGHT's Chairman and CEO, and Joe Corso, nLIGHT's CFO. 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 except as required by law. During the call, we will be discussing certain non-GAAP financial measures.
Generally speaking we're pleased that gross margin has expanded and it remains really a function of three things higher volume mix, where we are and then just overall overall.
Healthy too I think if I do the math as you said it earlier 171 million dollar contract with.
Three year estimated timeline.
Annualized thats about $57 million ceiling per year.
Leveraging the factory so we're pretty happy with where we were in Q3 and not much to think about for us in Q4.
<unk> is about $14 million lower than what you're operating on a trailing 12 month basis within aerospace and defense products.
Sure.
Congrats again on our progress thank you.
Your next question comes from the line of Ruben Roy with Stifel. Your line is open. Please go ahead.
Two questions there and then I have follow up.
It seems like a fixed firm price contract with the moves you're making on App Wap amplifiers excuse me.
Hey, guys. This is Seth on for Ruben Roy.
First off congrats.
You guys are.
Can you give us some sense of how much incremental margin benefit youre seeing from that this quarter and expect to see.
Pasture breakeven point, which I think was $55 million to $60 million in turning profitable so congrats on that.
Maybe through the course of next year as you as you are ramping down on that contract.
Yes.
John Marchetti: 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 website. I will now turn the call over to nLIGHT's Chairman and CEO, Scott Keeney.
Healthy too I think if I do the math as you said it earlier 171 million dollar contract with.
And the second part to this is as that contract ramps down do you see.
Sensing tied to Golden dome in the classified programs and maybe international sales more than offset that LC to contract.
Three year estimated timeline.
So annualize that's about $57 million ceiling per year.
Revenue loss, which I imagine will be probably star.
Which is about $14 million lower than what you're operating on a trailing 12 month basis within aerospace and defense products.
Starting second half of 'twenty six.
Scott Keeney: Thank you, John. Q3 represented another solid quarter of execution for nLIGHT, with total revenue at the high end of our guidance range, and both gross margin and adjusted EBITDA beating our expectations. Third quarter revenue of $67 million grew 19% year over year, and we were once again driven by record aerospace and defense revenue of $46 million, with defense product sales growing more than 70% year over year. I am particularly pleased with the expansion of our product gross margin, which came in at a record 41% and increased from 29% in the same quarter a year ago. Our adjusted EBITDA was also above our expectations at more than $7 million in the quarter. The expansion in our gross margin and the subsequent growth in our adjusted EBITDA demonstrate the leverage that is inherent in our operating model.
Okay. So theres a lot there. So help me if I don't if I don't get it all right I can follow up I would say healthy to contract first.
So two questions there and then I have follow up.
Seems like a fixed firm price contract with the moves you're making on App Wap amplifiers excuse me.
A good way to look at it right, it's $171 million contract, but it's not going to be recognized linearly right. So it's a firm.
Can you give us some sense of how much incremental margin benefit youre seeing from that this quarter and expect to see you know maybe through the course of next year as you're as you're ramping down on that contract.
It's a cost plus type contract. So it really depends on the type of activities that we're engaged in at any given period of time during that contract. So you shouldnt think about that linearly.
And the second part to this is you know as that contract ramps down do you see.
Certainly it is a big driver of the A&D products revenue that we have been generating and amplifiers are the key components that we are selling into into that contract now more generally as we think about product gross margin expansion.
Thing tied to Golden dome in the classified programs and maybe international sales more than offset that LC to contract revenue loss, which I imagine will be probably.
Starting second half 'twenty six.
Okay. So theres a lot there. So help me if I don't if I don't get it all right I can follow up I would say for a healthy two contract first it's a good way to look at it right, it's $171 million contract, but it's not going to be recognized linearly right. So it's affirmed its a excuse me, it's a cost plus type.
Scott Keeney: In aerospace and defense, we remain focused on two key markets: directed energy and laser sensing, and revenue from both markets outperformed our expectations in the quarter. In directed energy, we are uniquely positioned with our vertically integrated and industry-leading high-power laser technology developed over the past two decades and spanning the entire technology stack, from chips to components to full laser systems and beam directors. All of which are designed and manufactured in the US, have generated revenue at nearly every level of vertical integration in the directed energy market, and we have established ourselves as one of the most comprehensive suppliers to the US government, other prime contractors, and foreign allies. During the third quarter, we continue to make solid progress on our HELSI-2 program. As a reminder, this is a $171 million program to develop a 1-megawatt high-energy laser with a completion date expected in 2026.
We've really focused on products that enable us to drive incremental gross margins of meaningfully north of 50% and so.
Amplifiers and other products that we're selling are meeting that today and we expect that to continue to expand I think the last part of your question just around the trajectory of healthy two into 2026 Youre absolutely right right at some point in the back half of 2026, we'll start to see.
So it really depends on the type of activities that we're engaged in at any given period of time during that contract. So you shouldn't think about that linearly.
Certainly it is a big driver of the A&D product revenues that we have been generating and amplifiers are the key component that we are selling into into that contract now more generally as we think about product gross margin expansion.
The revenue that we're generating from healthy to everything around healthy to start to trail off but.
We've got plenty of other programs, both indirect energy and in laser sensing that will make up for that reduction in the second half second half revenue.
We've really focused on products.
That enable us to drive incremental gross margins of meaningfully north of 50% and so amplifiers and other products that we're selling are meeting that today and we expect that to continue to expand I think the last part of your question just around.
Okay. Thank you very helpful. And then the second follow up the follow up I have is.
On DM sure.
Scott Keeney: The shipment of critical components towards the HELSI-2 program was a significant driver of our record defense product revenue in the quarter, and is expected to be a substantial contributor to growth through the remainder of the year and into 2026. We continue to transition our latest generation of amplifier products into advanced production by leveraging nLIGHT's experienced manufacturing teams and implementing quality and control processes. This transition, while not without risks, is progressing well, and is critical as we continue to optimize our amplifier production line for higher volumes. Our work on the Army's DEMSHORAD short-range air defense program is nearing completion, and we look forward to delivering this 50-kilowatt high-energy laser and beam director to our partner. Once delivery is completed, the system will begin field testing.
Which I guess is now ramping down if im not wrong. Please correct me if I am.
As an R&D contract, which means it probably sits in advanced development.
The trajectory of healthy two into 2026, Youre, absolutely right right at some point in the back half of 2026, we will start to see the revenue that we're generating from healthy to everything around healthy to start to trail off but.
That said advanced development seems to be ramping quite nicely also on a trailing 12 month basis.
Driving that growth and I guess to what degree should we look at that as a leading indicator for future sales on the Andy laser products as youre mentioning into into 'twenty six 'twenty seven let's say.
We've got plenty of other programs, both indirect energy and in laser sensing that will make up for that reduction in the second half second half revenue.
So you are correct that <unk> is ramping down so we are at the very end stages of.
Delivering that.
Okay. Thank you very helpful. And then the second follow up I have is you know.
Product to the customer so that's not really contributing meaningfully at all to revenue this quarter, nor will it contribute to revenue going forward. The advanced development segment of our business includes all of the development revenue that that we do including <unk> and other programs and.
On D M sure AD, which I guess is now ramping down if I'm not wrong. Please correct me if I am.
Scott Keeney: Overall interest in US directed energy programs remains high, particularly for counter-UAS applications, and we expect new contracts to be awarded in the coming quarters from different agencies as part of the President's Golden Dome Executive Order, which specifically highlights non-kinetic missile defense capabilities as an area for development. With a mandate to build these systems in the United States, we believe we are well positioned to benefit from these efforts over the coming years, and we are hopeful that the coming quarters will provide additional details on the scope and timing of these initiatives. We've also continued to have success in the international markets for directed energy. We began shipping to a new international customer last quarter, and we have a growing pipeline of new global opportunities as allied nations look to accelerate directed energy programs for cost-effective counter-UAS and other threats.
R&D contract, which means it probably sits in advanced development.
<unk>.
That said advanced development seems to be ramping quite nicely also on a trailing 12 month basis, whats driving that growth and I guess to what degree should we look at that as a leading indicator for future sales on the Andy laser products as you're mentioning into into 'twenty six 'twenty seven let's say.
While not all of the programs that we're working on that are classified as advanced development go into will ultimately end up as programs of record. It is a good indicator that the activities that we have indirect energy and laser sensing are putting us in a good position so.
So you are correct that <unk> is ramping down so we are at the very end stages of.
That when those programs do transition or there are new programs, where there are opportunities to become program of records that we are well positioned to capture them, but you can't draw a.
Delivering that.
Product to the customer so that's not really contributing meaningfully at all to revenue this quarter, nor will it contribute to revenue going forward. The advanced development segment of our business includes all of the development revenue that.
Line directly from our advanced development revenue to what long term defense product revenue will be understood. Thank you and congrats again thanks.
Scott Keeney: Our laser sensing markets are also performing well. Our laser sensing products include missile guidance, proximity detection, range finding, and countermeasures, and we have been incorporated into several significant and long-running defense programs, all of which are poised to grow in 2026. During the third quarter, we signed a new $50 million contract for an existing long-running missile program that incorporates one of our laser sensing products. nLIGHT has been a long-term supplier into this program, which our customer expects to remain a key priority associated with the nation's munitions restocking efforts. Our historical performance on these programs and our early success on multiple classified programs has increased both the number of prospects and the size of our sensing pipeline. In addition, further opportunities under Golden Dome initiatives have emerged, and could also become significant contributors to our growth in 2026 and beyond.
We do including <unk> and other programs and while not all of the programs that we're working on that are classified as advanced development go into will ultimately end up as programs of record. It is a good indicator that the activities that we have indirect in <unk>.
Your next question comes from the line of Jim The QD from Needham <unk> Co. Your line is open. Please go ahead.
Can you maybe on mute.
<unk> and in laser sensing are putting us in a good position so that when those programs do transition where there are new programs, where there are opportunities to become program of records that we are well positioned to capture them, but you can't draw a line directly from our advanced development revenue to what Lee.
Mr. Kennedy please be on mute.
<unk>.
So the question I had is just relating to the previous.
Question of healthy two does.
Wind down in the second half of the year.
Long term defense product revenue will be understood. Thank you and congrats again thanks.
You've talked about a.
A pretty full pipeline.
If you when would you have to see new orders come in.
Scott Keeney: Commercial revenue was slightly ahead of our expectations at $21.2 million on a sequential increase in microfabrication sales, and relatively flat results in our industrial markets. We have been pleased with the stability of our microfabrication markets year to date, and have been encouraged by the growth in our advanced manufacturing products, where we see alignment with our aerospace and defense customers, and our technology remains differentiated. Let me now turn the call over to Joe to discuss our third quarter financial results.
Your next question comes from the line of Tim The QD and Needham <unk> Co. Your line is open. Please go ahead.
To be able to offset some of the the hole that we could see from having completed healthy too in other words is the.
Do you anticipate orders coming in in the next couple of quarters that would allow you to fill a potential hole related to healthy too in the back half of next year.
Can you maybe on mute.
Mr. Kennedy please use the on mute apologies.
Jim based on what we are working on today. The whole is already filled what what is somewhat dependent upon timing of bookings and how quickly we can get to work on a handful of new programs will determine how much we grow in 2020.
So the question I had is just relating to the previous.
Joe Corso: Thank you, Scott. Our third quarter results were characterized by another quarter of strong execution. Healthy revenue growth, a favorable mix of business, and continued execution from our manufacturing and operations teams drove meaningful upside to our gross margin. That upside, combined with operating expense discipline, resulted in significant improvement to profitability and cash flow, demonstrating the leverage that is inherent in our model. Total revenue in the third quarter was $56.7 million, an increase of 19% compared to $56.1 million in the third quarter of 2024, and up 8% compared to the second quarter of 2025. Aerospace and defense revenue was a record $45.6 million in the quarter, up 50% year over year and 12% sequentially. A&D growth was driven by record aerospace and defense products revenue, which grew 71% year over year and 32% compared to last quarter.
Question at healthy two does.
Wind down in the second half of the year.
Talked about a.
A pretty full pipeline.
If you when would you have to see new orders come in.
Six.
Got it.
Could you also.
To be able to offset some of the the hole that we could see from having completed healthy too in other words is it.
Maybe just clarify I just.
Maybe I misheard on the laser sensing contract that you alluded to is this a follow on piece of business.
Do you anticipate orders coming in in the next couple of quarters that would allow you to fill a potential home related to healthy too in the back half of next year.
Yes is the short answer it's an ongoing program of record.
That we had been supporting for over a decade.
Jim based on what we are working on today the whole is already filled.
Okay. So Scott.
Basically just extends that yes.
What is somewhat dependent upon timing of bookings and how quickly we can get to work on a handful of new programs will determine how much we grow in 2026.
Okay and then one final question I know all of the questions have been around the A&D business, but intra.
Joe Corso: Development revenue of $19.1 million grew 28% year over year as we continued to execute on multiple directed energy programs. The quarter-over-quarter decline of 8% was the result of several smaller programs having been completed in the prior quarter. We expect A&D revenue to continue to grow sequentially in the fourth quarter. Third quarter revenue from our commercial markets, which includes industrial and microfabrication, was modestly ahead of our expectations at $21.2 million, a decrease of 18% year over year, but up slightly compared to last quarter. Revenue from our microfabrication markets was in line with our expectations at $11.6 million, while revenue of $9.6 million from our industrial markets was slightly better than expected, as an increase in demand for our additive manufacturing products offset continued declines in cutting and welding.
Interesting to see I guess, why the second quarter of sequential improvement in the.
Micro fabrication area Youre characterizing it as stabilizing.
Got it.
Could you also maybe just clarify I just.
What is leading to some of the stabilization where is it coming from.
Maybe I misheard on the laser sensing contract that you alluded to is this a follow on piece of business.
Yes, it's coming from.
Certainly in micro fabrication that has always been a business that is difficult for us to predict it's largely book and ship in the corner and during the quarter, It's a really long tail of customers and.
Yes is the short answer it's an ongoing program of record.
That we had been supporting for over a decade.
The last couple of quarters, we've seen some stabilization in that business, it's difficult to point to one or even two things that are that are driving that business, but we're pleased to see stay.
Okay. So Scott this.
Basically just extends that in yep.
Okay, and then one final question.
All of the questions have been around the A&D business, but it's interesting to see I guess why the second quarter of sequential improvement in the micro fabrication area Youre characterizing it as stabilizing.
Stabilization there similarly on the industrial side of our business the quarters have been a frankly, a little bit better than we had expected which is a welcome development for us, but what we will say is our overall view of the commercial business as we go into 2020.
Joe Corso: While we are pleased with the overall stability that we saw in our commercial markets in the third quarter, we do not believe that the overall demand picture has significantly changed from what we described in prior quarters. Total gross margin in the third quarter was 31.1% compared to 22.4% in the third quarter of 2024 and 29.9% last quarter. Product gross margin in the second quarter was a record 41% compared to 28.8% in the third quarter of 2024 and 38.5% last quarter. Third quarter product gross margin was positively impacted by a favorable customer and product mix, driven by record revenue from our A&D markets, and an overall increase in volume. Development gross margin was 6.4% compared to 4.7% in the same quarter a year ago and 13.1% last quarter.
What is leading to some of the stabilization where is it coming from.
Yeah, it's coming from.
<unk> is the same as we've been saying now for a couple of quarters write that business.
Certainly in micro fabrication that has always been a business that is difficult for us to predict it's largely book and ship in the corner in during the quarter. It's a really long tail of customers and in the last couple of quarters, we've seen some.
As expected due again decline in 2026.
Okay.
And just with respect to micro fabrication and the seasonality of that business tends to fall off a little bit in Q1, but the levels that we're seeing Q2 Q3 is that a reasonable level.
Some stabilization in that business. So it's difficult to point to one or even two things that are that are driving that business, but we're pleased to see.
Stabilization there similarly on the industrial side of our business.
Moving aside from the seasonality we might see in Q1 yeah.
Quarters have been a frankly, a little bit better than we had expected which is a welcome development for us, but what we'll say is our overall view of the commercial business. As we go into 2026 is the same as we've been saying now for a couple of quarters break that that business is.
Yeah, Jim Youre, absolutely right that is probably the most seasonal of our businesses and in the last couple of quarters, we've seen.
Joe Corso: The sequential decrease in development gross margin was largely the result of some smaller, higher-margin programs that finished in the prior quarter and did not contribute to the third quarter results. Going forward, we expect development gross margin to remain in the 8% range. GAAP operating expenses were $28.1 million in the third quarter compared to $24.4 million in the third quarter of 2024 and $22.7 million in the second quarter of 2025. Included in our third quarter GAAP operating expenses were higher stock-based compensation expenses associated with previously announced performance shares, and a restructuring charge of approximately $1.7 million as we further reduced our activities in China and in cutting and welding. Non-GAAP operating expenses were $17.5 million in the quarter, down from $18.3 million in the third quarter of 2024, and up from $16.8 million last quarter.
That plus or minus $10 million of revenue I think that a good range for us is probably $8 million to $12 million, we don't have better visibility than that and obviously chi.
<unk> do <unk>.
<unk> decline in 2026.
China Micro fab business has declined.
<unk> declined precipitously over the last couple of years and we've seen continued sequential designs declines in that business as well.
Okay.
And just with respect to micro fabrication seasonality of that business tends to fall off a little bit in Q1, but the levels that we're seeing Q2 Q3 is that a reasonable level.
Thank you.
Thanks, Jeff.
Your next question comes from the line of.
Hudson.
With north.
Moving aside from the seasonality we might see in Q1.
Hi gene.
With <unk> research.
Yeah, Jim Youre, absolutely right that is probably the most seasonal of our businesses and in the last couple of quarters, we've seen.
Your line is open.
Thank you appreciate it and congratulations on a great quarter guys.
I think I heard you guys say the amplify our transition continues to progress.
That plus or minus $10 million of revenue I think that a good range for us is probably $8 million to $12 million, we don't have better visibility than that and obviously, China micro fab business has declined.
One is that correct and then once that's complete.
How should we see that reflected in results.
Joe Corso: We expect non-GAAP OpEx to remain in the $18 million range in the fourth quarter. GAAP net loss for the third quarter was $6.9 million, or $0.14 per share, compared to a net loss of $10.3 million, or $0.21 per share in the same quarter a year ago, and a loss of $3.6 million, or $0.07 per share in the second quarter of 2025. On a non-GAAP basis, net income for the third quarter was $4.3 million, or $0.08 per diluted share, compared to a non-GAAP net loss of $3.7 million, or $0.08 per share in the third quarter of 2024, and non-GAAP net income of $2.9 million, or $0.06 per diluted share last quarter.
You'll make them more efficient and easier recognition of revenue or lower costs or what's going to the financial statement impact from the transition is complete.
<unk> declined precipitously over the last couple of years and we've seen continued sequential designs declines in that business as well.
Well I'm not sure the the amplifier transition is not.
<unk> per se I think what is going to be complete is the amplifiers that are delivered into one particular program, which is healthy too and that will happen over the course of 2026 generally speaking we have a lot of programs into which we are delivery amplifiers domestically.
Thank you.
Thanks, Jeff.
Your next question comes from the line of Keith Hustle.
With north.
Pardon.
With Northcoast research.
Your line is open.
Thank you I appreciate it and congratulations on a great quarter guys.
And as we said the last couple of quarter. There is also opportunities for us that we are working on with a host of allies internationally. So we expect our amplifier business to continue to grow and so that is one of the reasons that you are starting to see some of the margin expansion.
I think I heard you guys say the amplify our transition continues to progress.
Is that correct and then once that's complete.
How should we see that reflected in our results would.
Joe Corso: Adjusted EBITDA for the third quarter was a positive $7.1 million, compared to a loss of approximately $1 million in the same quarter last year and a positive $5.6 million in the second quarter of 2025. We ended the third quarter with total cash, cash equivalents, restricted cash, and investments of $116 million. We generated $5.2 million in cash flow from operations despite continuing to invest in working capital ahead of growth, and we were free cash flow positive in the quarter. Turning to guidance, based on the information available today, we expect revenue for the fourth quarter of 2025 to be in the range of $72 million to $78 million. The midpoint of $75 million includes approximately $55 million of product revenue, and $20 million of development revenue.
You'll make them more efficient and easier recognition of revenue or is it can be lower cost are welcome to the financial statement impact when the transition is complete.
<unk> is due to the fact that we are selling higher volumes of of amplifiers and at the same time, we're working hard to take what is a really difficult.
Well I'm not sure. The the amplifier transition is not complete per se I think what is going to be complete is the amplifiers that are delivered into one particular program, which is healthy too and that will happen over the course of 2026 generally speaking.
Product that is pushing the.
The limitations of physics and make it more manufacturable. So I think over time, you're going to see both.
We have a lot of programs into which we are deliberate amplifiers domestically and as we said the last couple of quarter. There's also opportunities for us that we are working on with a host of allies internationally. So we expect our amplifier business to continue to grow and so.
Revenue growth and margin expansion as we start to mature our ability to manufacture those amplifiers.
That's helpful. I appreciate it.
Your restructuring charges in China, cutting and welding.
Is that more of a right size these businesses based on Europe.
That is one of the reasons that you are starting to see some of the margin expansion is due to the fact that we are selling higher volumes of of amplifiers and at the same time, we're working hard to take what is a really difficult.
Patients going forward or what's the reason behind that.
Joe Corso: We expect sequential growth in A&D in the fourth quarter, and we expect full year 2025 A&D revenue growth to exceed our prior outlook for A&D growth of at least 40% year over year. Overall gross margin in the fourth quarter is expected to be in the range of 27% to 32%, with product gross margin in the range of 34% to 39%, and development gross margin of approximately 8%. As we've mentioned previously, as a vertically integrated manufacturing business, gross margin is largely dependent on production volumes and absorption of fixed manufacturing costs. Finally, we expect adjusted EBITDA for the fourth quarter of 2025 to be in the range of $6 million to $11 million. With that, I will turn over the call to Operator for questions.
That's exactly that's exactly what it is right I mean, we were operating in Shanghai for a very long time, not an easy transition to move our assembly of our lasers from Shanghai to fabricate and to the U S and so there's lots of ongoing support activities that are required to do that and so.
Product that is pushing the.
You know the limitations of physics and make it more manufacturable. So I think over time, you're going to see both.
Youre seeing youre seeing some of that in that restructuring charge and then there is also a bit of expectation that the cutting and welding business are going to continue to decline and so we want to make sure that we are right sizing our investments for our expectations of those markets going forward.
Revenue growth and margin expansion as we start to mature our ability to manufacture those amplifiers.
That's helpful. I appreciate it.
Your restructuring charges, you know in China, cutting and welding.
I appreciate it.
Is that more to right size. These businesses based on your expectations going forward or what's the reason behind that yeah. No. That's exactly that's exactly what it is right. I mean, we were operating in Shanghai for a very long time, not an easy transition to move our assembly of our lasers from Shanghai to fabricate and to the.
I'm not sure that's a true statement or not but is there an opportunity for you guys in a counter drone technology space.
Operator: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed in to today's call, please press star nine to raise your hand and star six to unmute. Please stand by while we compile the Q&A roster. Your first question comes from the line of Greg Palm with Craig-Hallum. Your line is open. Please go ahead.
Sure, Yes, absolutely that's one of the.
Big applications for a directed energy.
Got you got you. So we're still relatively early innings in that area as well, but obviously it gets a lot of press.
Read today.
U S and so there's lots of ongoing support activities that are required to do that and so youre seeing youre seeing some of that in that restructuring charge and then there is also a bit of expectation that the cutting and welding business are going to continue to decline and so we want to make sure that we are right sizing our.
Correct and direct energy goes well beyond counter drugs Yep Yep, absolutely. Okay. Thank you guys I appreciate it thank.
Thank you.
Thank <unk> if he would like to ask a question. Please raise your hand now if you have dialed in to today's call. Please press star nine to raise your hand, and then star six two.
Greg Palm: Hi. Good afternoon. Thanks for taking the questions, and congrats on the results. I was wondering first if you could just address HELSI-2. I mean, based on the results, the guide, I mean, is there a chance that you're pulling ahead the completion date here? I know you talked about completion in 2026, but curious if that timeline has changed at all just based on the volumes that you're able to complete.
Investments for our expectations of those markets going forward.
We have a follow up question from Greg Palm with Craig.
I appreciate it.
Craig Hallum. Your line is open. Please go ahead.
I'm not sure if it's a true statement or not but is there an opportunity for you guys in a counter drone technology space.
Yes.
Is there something that I thought was worth.
Liam.
Sure Yeah, absolutely that's one of the big applications for a directed energy Okay. Gotcha Gotcha. So we're still relatively early innings in that area as well, but obviously it gets a lot of press and we read today.
In terms of.
Programs next year that could offset that.
I can make up.
The absence of health insurance, so I just want to make sure. We're clear are those programs that have been booked or is that.
Joe Corso: Hey, Greg. Scott here. Thanks for the question. No, we're on track is the bottom line. We will announce progress results when we are able to do so, but we're on track for 2026.
Correct, and and direct energy goes well beyond counter drugs Yep Yep, perhaps right. Okay. Thank you guys appreciate it.
Still in the pipeline.
Those are programs that have been been booked Greg.
Thank you.
Thanks, Gary if he would like to ask a question. Please raise your hand now if you have dialed in to today's call. Please press star nine to raise your hand, and then star six killing me.
Okay.
And then I'm just curious.
Can you talk a little bit about.
Are those directed energy are those lasers I've seen it I don't know if I missed it but the two confidential laser sensitive programs one of them was supposed to go to <unk>.
Greg Palm: Yep. Okay. As it relates to product, you're guiding revenue up quite a bit sequentially, but gross margins down. I know you're coming off of a pretty tough compare, I guess, sequentially when you put up 40-plus percent product gross margins. Just can you give us a little bit more color on what's going on? It doesn't sound like mix is going to change all that much.
We have a follow up question from Greg Palm with Craig.
Craig Hallum. Your line is open. Please go ahead.
Yes.
By the end of this year or is that still the case or has that begun in what's the status of the second one.
Is there something that I thought was pretty important in terms of heart programs next year that could offset that could make up the the absence of health insurance. So I just want to.
Good so let's see your first question is.
Joe Corso: Yeah. No, Greg, thanks for the question. As we've talked about in the past, you can have some pretty, what seem like are pretty big swings from a gross margin perspective when you're still talking about revenues at the levels that we are at. Really not much in terms of Q3 to Q4 on the gross margin guide. Probably 150 or 200 basis points of it is related to actually freight and duties, right, as we've had the higher cost of materials that are going to, we're now going to start to feel in Q4. The rest is really just mix within each of our end markets. The mix within defense, the mix within commercial can change in any given quarter. There's just a handful of other items that, as we forecast in any given quarter, that are there.
The.
The work for 26 that is key that we're highlighting in both directed energy and in sensing first.
Make sure. We're clear are those programs that have been booked or is that still the pipeline.
Let's see your second question was around.
Those are programs that have been been booked Greg.
Yes, the two laser effective programs that youre, the confidential ones that we've been talking about our protocols.
Okay, and then I'm just here to.
Can you talk a little bit about what you know.
Multiple quarters.
Yes at this summary is they're both progressing I want to be pretty sensitive to the specifics of the timeline, but theyre both for trusting that supports the outlook that.
Are those directed energy laser testing that I don't know if I missed it but.
Confidential lasers resident programs one of them were supposed to go to L. Rep.
We're providing generally in the business.
By the end of this year or is that still the carrier for that has that begun in what's the status of the second one.
And then could be clear going back to my first question. There are program. These are not the programs that are necessary for us to offset.
Good so let's see your first question is.
The.
So to help with their new additional programs that have been won but that is going to help offset that loss health into your business.
The work for 26 that is key that we're highlighting is in both directed energy and in sensing first.
Joe Corso: Generally speaking, we're pleased that gross margin has expanded, and it remains really a function of three things: higher volume, mix where we are, and then just overall how we're leveraging the factory. We're pretty happy with where we were in Q3, and not much to think about for us in Q4.
Yeah, Greg So let me parse it a little bit more finally for you. So there are programs that we are on today that are not healthy too that we expect to continue to grow there are new programs that we've won that will plug the hole that we will see as healthy too.
Let's see your second question was around.
To measure effective programs that youre, a confidential ones that we've been talking about for the past well.
Well multiple quarters.
Greg Palm: Sure. Okay. All right. Congrats again on the progress.
Yeah, I would say the summary is they're both progressing I want to be pretty sensitive to the specifics of the timeline, but theyre both for us and it supports the outlook that.
Joe Corso: Thank you.
Operator: Your next question comes from the line of Ruben Roy with Stifel. Your line is open. Please go ahead.
Trails off those are both directed energy and laser centering and then there are other very high probability of win and go programs that we expect in 2026 that will drive growth in defense beyond what it is today.
[Analyst] (Stifel): Hey, guys. This is Thad saying on for Ruben Roy. First off, congrats. You guys are past your break-even point, which I think was $55 to 60 million, and turning profitable. So congrats on that.
We're providing generally in the business okay.
Could be clearer going back to my first question. There are program. These are not for programs that are necessary for us to offset.
Our broker new additional programs that ive been on board that are that are going to help offset that loss health care through business.
Joe Corso: Thank you.
Hopefully that helps.
[Analyst] (Stifel): HELSI-2, I think if I do the math, is, you said it earlier, $171 million. Contract with three-year estimated timeline. Annualized, that's about $57 million ceiling per year, which is about $14 million lower than what you're operating on on a trailing 12-month basis within aerospace and defense products. Two questions there, and then I have a follow-up. Seems like a fixed firm price contract with moves you're making on amplifiers, excuse me. Can you give us some sense of how much incremental margin benefit you're seeing from that this quarter and expect to see maybe through the course of next year as you're ramping down on that contract? The second part to this is, as that contract ramps down, do you see.
Okay. All right appreciate the color you got it.
Yeah, Greg So let me parse it a little bit more finally for you. So there are programs that we are on today that are not helps you too that we expect to continue to grow there are new programs that we've won that will plug the hole that we will see as healthy too.
Your next question.
From the line of Brian just slowly.
And James.
You may need to press star six kilo.
Hey, great. Thanks, a lot for taking my questions guys really nice job on the quarter.
I'd like to maybe talk a little bit when I spent some time in D. C. The last few weeks and it just seems like Theres a lot of opportunities around directed energy.
Trails off those are both directed energy and laser centering and then there are other very high probability of win and go programs that we expect in 2026 that will drive growth in defense beyond what it is today.
Could you maybe take give his thoughts on the pipeline.
Both domestically and globally.
And then maybe talk about your capacity.
Because it seems like demand is pretty vibrant right now.
Hopefully that helps.
Yes, Thats right Bryan and spend a lot of time in DC also and I think there is.
Alright, perfect car you got it.
Your next question comes from the line of Brian <unk> from Raymond James.
A lot of.
[Analyst] (Stifel): Sensing tied to Golden Dome and the classified programs, and maybe international sales, more than offset that HELSI-2 contract revenue loss, which I imagine will be probably starting second half of 2026?
A lot of new work, that's going on it's a little frustrating obviously with the details around the shutdown on some of the details but at the senior level we are seeing.
They need to press star six killing me.
Hey, great. Thanks, a lot for taking my questions guys really nice job on the quarter.
Very good engagement across all levels, whether it be from Pentagon to the services.
Joe Corso: Okay, there's a lot there. Help me if I don't get it all right. I can follow up. I would say the HELSI-2 contract first, it's a good way to look at it, right? It's a $171 million contract, but it's not going to be recognized linearly, right? It's a firm, excuse me, it's a cost-plus type contract. It really depends on the type of activities that we are engaged in at any given period of time during that contract. You shouldn't think about that linearly. Certainly, it is a big driver of the A&D products revenue that we have been generating. Amplifiers are the key component that we are selling into that contract. Now, more generally, as we think about products gross margin expansion, we've really focused on products that enable us to drive incremental gross margins meaningfully north of 50%.
I'd like to maybe talk a little bit when I spent some time in D. C. The last few weeks and it just seems like Theres a lot of opportunities around directed energy.
And really across.
The breadth of direct energy from the lower power systems through the higher power systems. So we are seeing continued progress.
Could you maybe take give us some thoughts on the pipeline.
Domestically and globally.
In the U S programs.
And then maybe talk about your capacity.
And that has supported it's reinforced by also some of the international programs I think over the last quarter, we've seen news out of Israel the demonstrations of the <unk>.
It seems like demand is pretty vibrant right now.
Yes, that's right, Brian and spend a lot of time in D. C also and I think there is.
A lot of.
Success of Iron beam.
A lot of new work, that's going on it's a little frustrating obviously with the details around the shutdown on some of the details, but I think at the senior level, we are seeing.
Out of the U K, we've seen success out of Dragon fire and there have been other international efforts that <unk>.
Both are opportunities for us as we engage internationally, but they also have played a role in reinforcing what's going on in the U S. So high level.
Very good engagement across all levels, whether it be from Pentagon to the services.
And really across the.
Direct energy remains a very important area for us in addition to sensing.
The breadth of direct energy from the lower power systems through the higher power systems. So we are seeing continued progress.
Okay Fantastic is there any thoughts on the urgency with some of the things that are happening in Europe, you see more rapid adoption there over the next few quarters, particularly with the government shutdown or it seems like the domestic market has accelerated a lot when I talk to a lot of the customers and look at.
Joe Corso: Amplifiers and other products that we are selling are meeting that today, and we expect that to continue to expand. I think the last part of your question just around the trajectory of HELSI-2 into 2026, you're absolutely right, right? At some point in the back half of 2026, we'll start to see the revenue that we're generating from HELSI-2, everything around HELSI-2, start to trail off. We've got plenty of other programs, both in directed energy and in laser sensing, that will make up for that reduction in the second-half revenue.
In the U S programs.
And that has supported it's reinforced by also some of the international programs I think over the last quarter, we've seen news out of Israel, the demonstrations and the success of iron beam.
Some of their demand outlook over the next year or so yes.
Out of the U K, we've seen success out of Dragon fire and there have been other international efforts that.
Yes, I think thats right and I think in the coming weeks Youll learn more about the acquisition reform, that's being promulgated to address that.
Both are opportunities for us as we engage internationally, but they also have played a role in reinforcing what's going on in the U S. So high level.
So I think we're all eager to see some of that formally launched too.
To change the way that the.
Yes, direct energy remains a very important area for us in addition to sensing.
At least the U S.
[Analyst] (Stifel): Okay. Thank you. Very helpful. The second follow-up I have is, on DEMSHORAD, which I guess is now ramping down, if I'm not wrong, and please correct me if I am. It's an R&D contract, which means it probably sits in advanced development. That said, advanced development seems to be ramping quite nicely also on a trailing 12-month basis. What's driving that growth? I guess to what degree should we look at that as a leading indicator for future sales on the A&D laser products, as you're mentioning, into 2026, 2027, let's say?
Pursues procurement two to more rapidly.
Implement some of these systems. So I think we will see some of that I think there is urgency.
Okay Fantastic is there any thoughts on the urgency with some of the things that are happening in Europe, you see more rapid adoption there over the next few quarters, particularly with the government shutdown or it seems like the domestic market has accelerated a lot when I talk to a lot of the customers and look.
Around the world actually to get the technology implemented in new ways.
Okay.
Fantastic. Thanks for taking my questions guys. Thanks Bryan.
Your next question comes from the line of Triad Johnson Mr. Johnson. Please press star six two on mute.
Some of their demand outlets over the next year or so.
Yes, I think thats right and I think in the coming weeks, you'll learn more about the acquisition reform, that's being promulgated to address that.
Joe Corso: You are correct that DEMSHORAD is ramping down. We are at the very end stages of delivering that product to the customer. That is not really contributing meaningfully at all to revenue this quarter, nor will it contribute to revenue going forward. The advanced development segment of our business includes all of the development revenue that we do, including HELSI-2 and other programs. While not all of the programs that we are working on that are classified as advanced development go into what will ultimately end up as programs of record, it is a good indicator that the activities we have in directed energy and in laser sensing are putting us in a good position so that when those programs do transition or there are new programs where there are opportunities to become programs of record, we are well positioned to capture them.
So I think we are all eager to see some of that formally launched.
Okay.
To change the way that.
Sure, we're not picking up.
At least the U S.
Sorry, guys can you hear me, yes, yes guidance right.
Pursues procurement two to more rapidly.
Alright, sorry about that.
Implement some of these systems. So I think we will see some of that I think there is urgency.
First of all congrats to another great great print for you guys, but just a quick question I know you're getting lots of questions I'm going to build in revenues here, but.
Around the world actually to get the technology implemented in new ways.
Can you just give us the number of customers.
Fantastic. Thanks for taking my questions guys. Thanks Bryan.
On your development product line.
On the line.
Hmm.
Your next question comes from the line of Triad Johnson Mr. Johnson. Please press star six two on mute.
We're probably working in total on.
It doesn't just plus or minus a dozen a dozen programs are all have obviously different sizes and at different periods of time, but that's.
A pretty good number.
Okay, Alright, Thank you and then.
Just on the sensor and stuff I did.
Okay.
Going through your prepared remarks, Scott it kind of felt like Youre uptick on that.
Sure, we're not picking up.
Most of the strength in A&D over this past year or so has been on the directed energy side would that be a true statement do you feel like your uptick in or are these contracts just been a sustained industry.
Sorry, guys can you hear me, yes, yes guidance right.
Joe Corso: You can't draw a line directly from our advanced development revenue to what long-term defense product revenue will be.
Alright, sorry about that.
First of all congrats to another great great print for you guys, but just a quick question I know you're getting lots of questions I'm going to build in revenues here, but can.
On the on the sensing side training.
Yes, specifically, yes, yes, yes.
Yes, you read that correctly I think that.
[Analyst] (Stifel): Understood. Thank you, and congrats again.
Can you just give us the number of customers that are in your development product line.
Joe Corso: Thanks.
Direct energy, there's a there's a greater awareness of the set of applications indirect energy and what's going on.
Our revenue line.
Operator: Your next question comes from the line of Jim Ricchiuti from Needham & Company. Your line is open. Please go ahead.
We're probably working in total on a dozen just plus or minus a dozen a dozen programs are all have obviously different sizes and that different periods of time, but that's a.
It gets a little more challenging to describe how lasers are I would say supplementing augmenting.
A pretty good number.
Radar and other systems, but that is a very important area and listed as one of the critical.
Greg Palm: Jimmy, maybe unmute.
Okay Alright. Thank you and then just on the sensor and stuff I did as you're going through your prepared remarks, Scott it kind of felt like Youre up ticking on that I'm guessing most of the strength in A&D over this past year or so has been on the directed energy side, but would that be a true statement do you feel like your uptick in or are these contracts just kind of sustainable.
Technologies by the Pentagon.
One that we're very well positioned for it.
Operator: Mr. Keating, please use unmute.
Jim Ricchiuti: Apologies. The question I had is just relating to the previous question. If HELSI-2 does wind down in the second half of the year, you've talked about a pretty full pipeline. When would you have to see new orders come in to be able to offset some of the hole that we could see from having completed HELSI-2? In other words, do you anticipate orders coming in in the next couple of quarters that would allow you to fill a potential hole related to HELSI-2 in the back half of next year?
Awesome. Thanks, guys. That's all I got keep up the good work.
Thanks, Craig.
We have a follow up question from the line of Ruben Roy with Stifel. Your line is open. Please go ahead.
On the on the sensor side training.
Yes, nothing specifically, yes, yes, Ivy you read that correctly I think that.
Hey, guys Megan.
Just trying to understand so your comment on <unk> and R&D contract makes sense Weitzen advanced steps.
Direct energy, there's a there's a greater awareness of the set of applications indirect energy and what's going on.
And of course, it is now my mistake, there, but the.
Since then it gets a little more challenging to describe how lasers are I would say supplementing augmenting radar and other systems, but that is a very important area and listed as one of the critical technologies.
Jump up in revenue really looks like it's coming from your products with an M D.
And I know you guided advance Deb twenty-five mill next quarter.
So I'm, assuming that's either I'm, assuming that's mostly healthy but can you maybe talk through the Andy products side, and just help us understand what drove this jump this quarter.
<unk> technologies by the Pentagon.
One that we're very well positioned for it.
Joe Corso: Jim, based on what we are working on today, the hole is already filled. What is somewhat dependent upon timing of bookings, and how quickly we can get to work on a handful of new programs, will determine how much we grow in 2026.
Awesome guys.
That's all I got to keep up the good work. Thank.
I think someone asked whether it was government shutdown or are you expecting this to sort of sequentially improve.
Thank you thanks, Brian.
We have a follow up question from the line of with.
And then Ray with Stifel. Your line is open. Please go ahead.
Yes, we are expecting A&D products to continue to improve.
Hey, guys Megan.
Just trying to understand so your comment on housekeeping and R&D contract makes sense Weitzen advanced stabs.
When we sell so we sell a variety of.
Jim Ricchiuti: Got it. Could you also maybe just clarify? I just maybe misheard. On the laser sensing contract that you alluded to, is this a follow-on piece of business?
Products that are booked as in the products segment.
<unk>.
And of course, it is now my mistake, there, but the the.
<unk> segment of our financial statements amplifiers that we sell into the healthy two program, which is a cost plus development program. Those amplifiers are reflected in our revenue as product revenue. There are also laser sensing products that.
Jump up in revenue really looks like it's coming from your products with an M D.
And I know you guided advance Deb twenty-five mill next quarter.
Joe Corso: Yes, is the short answer. It's an ongoing program of record that we have been supporting for over a decade.
So I'm, assuming that's either how I'm, assuming that's mostly healthy but can you maybe talk through the Andy product side, and just help us understand what drove this jump this quarter.
Are being sold that are A&D product revenue and so you start to look at that and that's why you see the growth in the A&D product side of the revenue.
Jim Ricchiuti: Okay. Scott, this basically just extends that.
I think someone asked whether it was government shutdown or are you expecting this to sort of sequentially improve.
Joe Corso: Yep.
Jim Ricchiuti: Okay. One final question. I know all of the questions have been around the A&D business, but it's interesting to see, I guess, what, a second quarter of sequential improvement in the microfabrication area. You're characterizing it as stabilizing. What is leading to some of the stabilization? Where's it coming from?
That makes sense. Thank you that's all I had.
Yeah, we are expecting Andy products to continue to improve.
Yes.
There are no further questions at this time I will now turn the call back to John.
When we sell so we sell a variety of.
Mark Kenny for closing remarks.
Thanks, everyone for joining us this afternoon.
Products that are booked as in the products segment of our financial statements amplifiers that we sell into the healthy two program, which is a cost plus development program. Those amplifiers are reflected in our revenue as product revenue. There are also laser sensing products.
As always thank you for your continued interest in enlighten, we will be participating in a number of conferences over the next several months. So we look forward to speaking with everybody as we continue to go through the quarter.
Joe Corso: Yeah, it's coming from. Certainly in microfabrication, that has always been a business that is difficult for us to predict. It's largely book and ship in the quarter. During the quarter, it's a really long tail of customers. The last couple of quarters, we've seen some stabilization in that business. It's difficult to point to one or even two things that are driving that business, but we're pleased to see stabilization there. Similarly, on the industrial side of our business, the quarters have been, frankly, a little bit better than we had expected, which is a welcome development for us. What we'll say is our overall view of the commercial business as we go into 2026 is the same as we've been saying now for a couple of quarters, right? That business is expected to again decline in 2026.
And thank you again for joining us today.
This concludes today's call. Thank you for attending you may now disconnect.
That.
Are being sold that are A&D product revenue and so you start to look at that and that's why you see the growth in the A&D product side of the revenue.
That makes sense. Thank you that's all I had.
Yes.
There are no further questions at this time I will now turn the call back to John.
Mark Kenny for closing remarks.
Thanks, everyone for joining us this afternoon.
As always thank you for your continued interest in enlighten, we will be participating in a number of conferences over the next several months. So we look forward to speaking with everybody as we continue to go through the quarter.
And thank you again for joining us today.
This concludes today's call. Thank you for attending you may now disconnect.
Jim Ricchiuti: Okay. Just with respect to microfabrication, the seasonality of that business tends to fall off a little bit in Q1, but the levels that we're seeing Q2, Q3, is that a reasonable level, moving aside from the seasonality we might see in Q1?
Joe Corso: Yeah. Jim, you're absolutely right. That is probably the most seasonal of our businesses. In the last couple of quarters, we've seen that ±$10 million of revenue. I think that a good range for us is probably $8 to 12 million. We don't have better visibility than that. Obviously, China microfab business has declined precipitously over the last couple of years, and we've seen continued sequential declines in that business as well.
Jim Ricchiuti: Thank you.
Joe Corso: Thanks, Jim.
Operator: Your next question comes from the line of Keith with North Coast Research. Apologies. Your line is open.
Jim Ricchiuti: Great. Thank you. Appreciate it. Congratulations on a great quarter, guys. I think I heard you guys say the amplifier transition continues to progress. One, I guess, is that correct? Once that's complete, how should we see that reflected in results? Will it make for more efficient and easier recognition of revenue, or is it going to be lower cost, or what's going to be the financial statement impact when the transition is complete?
Joe Corso: Well, I'm not sure the amplifier transition is not complete per se. I think what is going to be complete is the amplifiers that are delivered into one particular program, which is HELSI-2, and that will happen over the course of 2026. Generally speaking, we have a lot of programs into which we are delivering amplifiers domestically. As we said the last couple of quarters, there's also opportunities for us that we are working on with a host of allies internationally. We expect our amplifier business to continue to grow. That is one of the reasons that you are starting to see some of the margin expansion is due to the fact that we are selling higher volumes of amplifiers. At the same time, we're working hard to take what is a really difficult product that is pushing the.
Joe Corso: Limitations of physics and make it more manufacturable. I think over time, you're going to see both revenue growth and margin expansion as we start to mature our ability to manufacture those amplifiers.
Jim Ricchiuti: That's helpful. Appreciate it. Your instruction charges in China cutting and welding, is that more to right-size these businesses based on your expectations going forward, or what's the reason behind that?
Joe Corso: Yeah, no, that's exactly what it is, right? I mean, we were operating in Shanghai for a very long time, not an easy transition to move assembly of our lasers from Shanghai to Fabrinet and to the US. There are lots of ongoing support activities that are required to do that. You're seeing some of that in that restructuring charge. There's also a bit of expectation that the cutting and welding business are going to continue to decline. We want to make sure that we are right-sizing our investments for our expectations of those markets going forward.
Jim Ricchiuti: Appreciate it. I'm not sure this is a true statement or not, but is there an opportunity for you guys in the counter-drone technology space?
Joe Corso: Sure. Yeah, absolutely. That is one of the big applications for directed energy.
Jim Ricchiuti: Gotcha. Gotcha. We're still relatively early innings in that area as well, but obviously, it gets a lot of press that we read today.
Joe Corso: Correct. Directed energy goes well beyond counter-drones.
Jim Ricchiuti: Yep. Yep. Absolutely. Okay. Thank you, guys. Appreciate it.
Joe Corso: Thanks, Keith.
Operator: Reminder, if you would like to ask a question, please raise your hand now. If you have dialed into today's call, please press star 9 to raise your hand and then star 6 to unmute. We have a follow-up question from Greg Palm, Craig-Hallum. Your line is open. Please go ahead.
Greg Palm: Yeah, thanks. You said something that I thought was pretty important in terms of programs next year that could offset or that could make up the absence of HELSI-2. I just want to make sure we're clear. Are those programs that have been booked, or is that stuff still in the pipeline?
Joe Corso: Those are programs that have been booked, Greg.
Greg Palm: Okay. I'm just curious, can you talk a little bit about are those directed energy, are those laser sensing? I don't know if I missed it, but the two confidential laser sensing programs, one of them was supposed to go to LRIP by the end of this year. Is that still the case, has that begun, and what's the status of the second one?
Joe Corso: Good. Let's see. Your first question is. The work for '26 that is key that we're highlighting is in both directed energy and in sensing first. Let's see. Your second question was around.
Greg Palm: Yeah, the two laser sensing programs that you, the confidential ones that we've been talking about for the past, well, multiple quarters.
Joe Corso: Yeah. The summary is they're both progressing. I want to be pretty sensitive to the specifics of the timeline, but they're both progressing, and it supports the outlook that we're providing generally in the business.
Greg Palm: Okay. To be clear, going back to my first question, there are programs. These are not the programs that are necessarily supposed to offset. It could help, but there are new additional programs that have been won that are going to help offset that lost HELSI-2 business.
Joe Corso: Yeah, Greg, let me parse it a little bit more finely for you. There are programs that we are on today that are not HELSI-2 that we expect to continue to grow. There are new programs that we've won, right, that will plug the hole that we will see as HELSI-2 trails off. Those are both directed energy and laser sensing. There are other very high probability of win-and-go programs that we expect in 2026 that will drive growth in defense beyond what it is today. Hopefully, that helps.
Greg Palm: Yeah. Okay. All right. Appreciate the call.
Joe Corso: You got it.
Operator: Your next question comes from the line of Brian Josweli from Raymond James. You may need to press star 6 to unmute.
Troy Jensen: Hey, great. Thanks a lot for taking my questions, guys. Really nice job on the quarter. I'd like to maybe talk a little bit when I've spent some time in DC the last few weeks, and it just seems like there's a lot of opportunities around directed energy. Could you maybe give us a thought on the pipeline, both domestically and globally, and then maybe talk about your capacity because it seems like demand is pretty vibrant right now?
Joe Corso: Yeah, that's right, Brian. I've been spending a lot of time in DC also, and I think there is a lot of new work that's going on. It's a little frustrating, obviously, with the details around the shutdown and on some of the details, but at the senior level, we are seeing very good engagement across all levels, whether it be from the Pentagon to the services, and really across the breadth of directed energy from the lower power systems through the higher power systems. We are seeing continued progress in the US programs, and that is supported. It's reinforced by also some of the international programs. I think over the last quarter, we've seen news out of Israel of the demonstrations of the success of Iron Beam. Out of the UK, we've seen success out of Dragonfire, and there have been other international efforts that.
Joe Corso: Both are opportunities for us as we engage internationally, but they also have played a role in reinforcing what's going on in the US. High level, yeah, directed energy remains a very important area for us in addition to sensing.
Troy Jensen: Okay. Fantastic. Is there any thoughts on the urgency with some of the things that are happening in Europe? Do you see more rapid adoption there over the next few quarters, particularly with the government shutdown, or it seems like the domestic market has accelerated a lot when I talk to a lot of the customers and look at some of their demand outlooks over the next year or so?
Joe Corso: Yeah, I think that's right. I think in the coming weeks, you'll learn more about the acquisition reform that's being promulgated to address that. I think we're all eager to see some of that formally launched to change the way that, at least the US, pursues procurement to more rapidly implement some of these systems. I think we will see some of that. I think there is urgency around the world, actually, to get the technology implemented in new ways.
Troy Jensen: Fantastic. Thanks for taking my questions, guys.
Joe Corso: Thanks, Brian.
Operator: Your next question comes from the line of Troy Jensen. Mr. Jensen, please press star 6 to unmute.
Greg Palm: Troy, we're not picking you up.
Troy Jensen: Sorry, guys. Can you hear me?
Greg Palm: Yeah.
Joe Corso: Yep. Go ahead, Troy.
Troy Jensen: All right. Yeah, sorry about that. Hey, first of all, congrats to another great print for you guys. Just a quick question. I'm getting lots of questions on the development revenues here. Can you just give us the number of customers that are in your development product line or revenue line?
Joe Corso: We're probably working in total on a dozen, just ± a dozen programs. They're all obviously different sizes and at different periods of time, but that's a pretty good number.
Troy Jensen: All right. Thank you. Just on the sensing stuff, I did, as you were going through your prepared remarks, Scott, it kind of felt like you're upticking on that. I'd guess most of the strength in A&D over this past year or so has been on the directed energy side. Would that be a true statement? Do you feel like you're upticking, or are these contracts just kind of sustaining the strength?
Joe Corso: On the sensing side, Troy, you mean?
Troy Jensen: Yeah, sensing specifically. Yep.
Joe Corso: Yeah. Yes. You read that correctly. I think that directed energy, there's a greater awareness of the set of applications in directed energy and what's going on. Sensing, it gets a little more challenging to describe how lasers are, I would say, supplementing, augmenting radar and other systems, but that is a very important area and listed as one of the critical technologies by the Pentagon and one that we're very well positioned for.
Troy Jensen: Awesome. All right, guys. Well, that's all I got. Keep up the good work.
Joe Corso: Thank you. Thanks, Troy.
Operator: We have a follow-up question from the line of Ruben Roy with Stifel. Your line is open. Please go ahead.
[Analyst] (Stifel): Hey, guys. Me again. Just trying to understand. Your comment on HELSI being an R&D contract makes sense why it's an advanced dev, and of course, it is my mistake there. The jump up in revenue really looks like it's coming from your products within A&D. I know you guided advanced dev to $25 million next quarter. I'm assuming that's mostly HELSI. Can you maybe talk through the A&D product side and just help us understand what drove this jump this quarter? I think someone asked whether it was government shutdown, or are you expecting this to sort of sequentially improve?
Joe Corso: Yeah, we are expecting A&D products to continue to improve. We sell a variety of products that are booked as in the products segment of our financial statements. Amplifiers that we sell into the HELSI-2 program, which is a cost-plus development program, those amplifiers are reflected in our revenue as product revenue. There are also laser sensing products that are being sold that are A&D product revenue. You start to look at that, and that's why you see the growth in the A&D product side of the revenue.
[Analyst] (Stifel): That makes sense. Thank you. That's all I had.
Operator: There are no further questions at this time. I will now turn the call back to John Marchetti for closing remarks.
John Marchetti: Thanks, everyone, for joining us this afternoon. As always, thank you for your continued interest in nLIGHT. We will be participating in a number of conferences over the next several months. We look forward to speaking with everybody as we continue to go through the quarter. Thank you again for joining us today.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.