nLIGHT, Inc. (NASDAQ:LASR) Q3 2023 Earnings Name Transcript November 2, 2023 5:00 PM ET
Firm Members
Joe Corso – Chief Monetary Officer
Scott Keeney – Chairman & Chief Govt Officer
Convention Name Members
Jim Ricchiuti – Needham & Co.
Greg Palm – Craig-Hallum Capital Group
Ruben Roy – Stifel Nicholas
Operator
Good day, and welcome to the nLIGHT Third Quarter 2023 Earnings Convention Name. All individuals will probably be in a listen-only mode. [Operator Instructions]. After in the present day’s presentation, there will probably be a possibility to ask questions. [Operator Instructions]. Please word this occasion is being recorded.
I might now like to show the convention over to Joseph Corso, Chief Monetary Officer. Please go forward.
Joe Corso
Thanks, and good afternoon, everybody. I’m Joe Corso, nLIGHT’s Chief Monetary Officer. With me in the present day is Scott Keeney, nLIGHT’s Chairman and CEO.
At present’s dialogue will comprise forward-looking statements, together with monetary projections and plans for our enterprise, a few of that are past our management, together with the dangers and uncertainties described infrequently in our SEC filings. Our outcomes might differ materially from these projected on in the present day’s name and we undertake no obligation to replace publicly any forward-looking assertion, besides as required by regulation.
Through the name, we will probably be discussing sure non-GAAP monetary measures. Now we have supplied reconciliations of those non-GAAP monetary measures to probably the most immediately comparable GAAP monetary measures in our earnings launch, which could be discovered on the Investor Relations part of our web site.
I’ll now flip the decision over to Scott.
Scott Keeney
Thanks, Joe. Within the third quarter, income of $50.6 million was above the midpoint of the steerage vary. Merchandise gross margin of roughly 24% was beneath the steerage vary, however continued working expense self-discipline enabled us to report adjusted EBITDA throughout the steerage vary. As we’ve got mentioned in prior calls, we proceed to prudently handle working capital and capital expenditures, which enabled us to extend our money and marketable securities spend by roughly $10 million throughout the quarter.
Our stability sheet stays sturdy and we ended the quarter with roughly $112 million of money, money equivalents, marketable securities with no excellent debt, which positions us properly to execute our long-term development goals.
We additionally made vital progress in a number of development areas throughout the quarter. In Aerospace and Protection, we introduced in the present day that we’ve got been awarded further choices on our beforehand introduced HELSI-2 contract, bringing the entire worth of the award to nLIGHT to $171 million, which we count on to execute over the following three years. As well as, we made wonderful progress on one in all our laser sensing packages, which provides engaging long-term income alternatives. In industrial, we secured design wins with a number of international metallic additive manufacturing prospects and commenced transport lasers to a major buyer within the EV battery trade.
Operationally, we proceed to transition our manufacturing from Shanghai to the U.S. and to a contract producer in Thailand. We proceed to mature our U.S.-based automation processes and considerably enhance our quantity with a contract manufacture for semiconductor lasers meeting. I’ll present a quick replace on every of those three initiatives. In Aerospace and Protection, income declined 6% yr over yr to $19 million, representing 38% of complete income. As mentioned, a second in the past, we’re enthusiastic about in the present day’s announcement relating to our HELSI-2 contract. As a reminder, this contract is to supply a high-energy laser prototype as a part of the second section of the DoD’s Excessive-Power Laser Scaling Initiative.
At present’s announcement of further choices roughly doubles our beforehand introduced contract from roughly $86 million to $171 million. Within the second section of the HELSI-2 program, which is anticipated to be executed over the following three years, nLIGHT will construct upon its confirmed modular CBC structure to scale laser supply energy to a megawatt class with improved beam high quality, measurement, and weight. This laser will probably be delivered within the rugged conex appropriate type issue with non-obligatory house allocations to improve with precision long-range monitoring and adaptive optics know-how.
When it comes to HELSI 2 program execution, we have made wonderful technical progress this far and we’re reaching our key program goals thus far. Along with HELSI 2, we have elevated our directed vitality footprint throughout all ranges of vertical integration. As we have talked about over the past a number of quarters, we’re seeing elevated demand for directed vitality laser know-how from our international allies. A number of of our prospects and potential prospects that had deliberate to develop their very own lasers utilizing nLIGHT diodes have transformed to buying nLIGHT lasers, which provides incremental income alternatives for nLIGHT.
Through the third quarter, we delivered preliminary lasers to a number of worldwide prospects, and we continued to work with others to safe further design wins. We additionally continued to put money into each element and system degree know-how to deal with these new worldwide alternatives.
In different areas of protection, we proceed to execute a number of new laser sensing growth packages that we highlighted in prior calls. On one in all these packages, we count on to obtain buy order for preliminary manufacturing items throughout the subsequent a number of months, which is anticipated to transition to low-rate manufacturing volumes throughout the subsequent 12 months to 18 months.
In our core protection merchandise, income decreased 20% yr over yr to roughly $6.5 million. The first driver of the lower in revenues was continued provide chain challenges associated to the acquisition of key parts for one in all our bigger lengthy operating packages. This product stays fairly wholesome because it helps a vital program of report that’s anticipated to develop considerably in 2024 and past. Nevertheless, it will take the remainder of the calendar yr to resolve these residual provide chain points.
Turning to the economic finish market, industrial income within the second quarter declined 12% yr over yr to $19.6 million, representing 39% of complete income. In comparison with the second quarter, industrial income elevated by roughly 18%. In slicing, income from prospects exterior of China elevated yr over yr as we proceed to extend gross sales over excessive energy, all fiber programmable know-how to key strategic prospects. We proceed to show the pliability of our programmable fiber lasers and imagine that the marketplace for high-value purposes stays well-suited for continued development.
On the identical time, we’ve got began to see home Chinese language laser producers who’re providing non-programmable commodity fiber lasers take a extra aggressive pricing method exterior of China.
In welding, we proceed to give attention to delivering progressive laser and course of monitoring options to prospects globally. Since buying plasma, we have elevated our pipeline of certified alternatives and have begun to capitalize on the strategic cross-selling alternatives created by providing, lasers and course of monitoring options. For instance, throughout the quarter, we delivered course of displays to top-tier international EV battery manufacturing prospects that’s anticipated so as to add vital capability over the approaching years. Since profitable this socket, we have additionally launched lasers with differentiated options which this buyer has evaluated and is anticipating to buy someday within the fourth quarter or early in 2024.
In additive manufacturing, we proceed to broaden our enterprise globally and show the advantages of our programmable Corona single-mode AFX fiber laser. Through the quarter, we secured two new design wins with main OEMs for his or her next-generation metallic additive manufacturing machines. Though, we weren’t initially the incumbent both of those prospects, we efficiently demonstrated the advantages of our Corona AFX programmable fiber laser, which provides vital productiveness will increase, and is enabling prospects to cut back their general price per half.
Moreover, our Corona AFX lasers are well-suited to be used throughout a variety of construct sizes and supplies and might cut back negative effects reminiscent of soot, spatter, and porosity which have lengthy plagued laser powder mattress fusion instruments utilizing legacy fiber lasers. We continued to ship new platform-level know-how for the rising multi laser machine market. We delivered our first income product for a multi-layer machine within the third quarter, and we count on deliveries of this product to start to ramp in 2024.
nLIGHT will probably be exhibiting at type subsequent week in Frankfurt, the place we’ll be releasing our new multi-layer merchandise to the broader market. In Microfabrication, income of the third quarter of 2023 declined 32% year-over-year to $12 million, which represented roughly 24% of complete income. In comparison with the second quarter, Microfabrication income decreased roughly 2%. As we have mentioned in prior quarters, income from Microfabrication continues to be at cyclically low ranges globally. We imagine there are three principal components for present income ranges.
First, pure demand for our prospects merchandise stays comparatively muted. Second, our prospects construct extra stock than typical throughout COVID. And third, with enhancing provide chains, our prospects are extra assured in operating their companies with much less security inventory. We have additionally began to see some worth change stress in China, significantly within the decrease finish of the market. Regardless of the present macro challenges, we imagine we stay a market chief and proceed to actively have interaction in our buyer’s subsequent technology designs.
Turning to operations, we proceed to make progress in our broader manufacturing technique. Within the U.S., we’ve got absolutely facilitated our semiconductor automated meeting course of and we’ve got achieved our near-term goal capability plans. Now we have additionally launched further product variance to the road and we proceed to enhance course of flows. We’re making progress on our manufacturing yields, that are anticipated to have a optimistic influence on gross margin enchancment shifting ahead.
Lastly, we executed a discount in our direct labor pressure in Shanghai in October as we have continued to efficiently transition extra of our output to our contract producer in Thailand and to match our present market demand. In abstract, we proceed to make wonderful progress towards our strategic goals. In protection, we have leveraged the success we have had in directed vitality into new packages and contracts.
At present HELSI-2 announcement demonstrates that nLIGHT has confirmed its capabilities and know-how differentiation to the Division of Protection, and as such is a significant beneficiary of the numerous will increase in directed vitality spending anticipated to play out over the following a number of years. Along with our $171 million HELSI-2 contract, we have continued to put money into the event of lasers for the broader international market, considerably growing our international pipeline of alternatives. We stay assured that direct vitality provides a major alternative for long-term development in our enterprise.
In our core protection enterprise, we’re excited concerning the worthwhile development alternatives we’ve got in current vital lengthy operating packages. A few of these packages are anticipated to be prolonged properly into the longer term and at a lot increased unit volumes. Moreover, a number of of our newer packages are anticipated to transition to packages of report over the following yr or so and provide vital long-term development alternatives. In our business enterprise, we proceed to guide the market with our excessive energy, excessive brightness, semiconductor lasers, and extremely versatile programmable fiber lasers.
Additive manufacturing stays a brilliant spot for us and a key driver of our long-term development. The advantages of our single mode Corona programmable fiber lasers, continues to proliferate by the market and we have continued so as to add new prospects in design wins. Over time, we’re properly positioned to change into the main mild supply for metallic additive manufacturing purposes.
I’ll now flip the decision over to Joe to debate our third quarter outcomes and outlook for the fourth quarter.
Joe Corso
Thanks, Scott. As Scott talked about earlier, nLIGHT generated income towards the higher finish of steerage and adjusted EBITDA throughout the vary. Though present income ranges and a major manufacturing transition, can result in variability in quarterly gross margins, our vertically-integrated enterprise mannequin is properly suited to help our rising pipeline of alternatives in Protection and Industrial. On the identical time, we’ve got been rigorously managing working bills, working capital, and CapEx, which has enabled us to extend our stability sheet money and equivalents to roughly $112 million, as of the top of the quarter.
Turning to the third quarter outcomes. Whole income for the third quarter of 2023 was $50.6 million close to the top-end of steerage in comparison with $60.1 million for the third quarter of 2022. Product income was $38.1 million in comparison with $48 million for the third quarter of 2022. Gross margin was 20%, in comparison with 22% for the third quarter of 2022. Product gross margin was 24%, in comparison with 26% for the comparable interval of 2022. Product gross margin within the third quarter was negatively impacted by decrease manufacturing volumes and manufacturing variances, which had been positively offset by decrease general manufacturing spending. Growth gross margin was 7%, which was in line with steerage within the third quarter of 2022.
Non-GAAP working bills had been $16 million, a lower of $3.Three million in comparison with $19.Three million for the third quarter of 2022. The lower in working bills was pushed by a decline in worker compensation prices, primarily resulting from decrease headcount and decreased incentive compensation, decreases in R&D mission spending, and better administrative prices allotted to growth initiatives. On a GAAP foundation, working bills had been $22.5 million a lower of $Four million in comparison with $26.5 million for the third quarter of 2022.
Internet loss on a non-GAAP foundation was $4.9 million or $0.10 per share, in contrast with a internet lack of $5.1 million or $0.11 per share for the third quarter of 2022. Internet loss on a GAAP foundation was $11.9 million or $0.26 per share, in comparison with a internet lack of $13 million or $0.29 per share for the third quarter of 2022.
Adjusted EBITDA was a adverse $1.9 million, which was on the decrease finish of steerage, in comparison with adverse $1.Four million for the third quarter of 2022. Money supplied by operations $13.1 million for the third quarter of 2023, in comparison with money used for operations of $2.eight million for the third quarter of 2022. Money supplied by operations included a $10.eight million lower in accounts receivable and a $3.Three million lower in stock.
Internet capital expenditures had been $2.7 million for the third quarter of 2023 and $4.Four million year-to-date, in comparison with $3.5 million for the third quarter of 2022 and $16.Four million for the primary three quarters of 2022. As mentioned final quarter, general CapEx in 2023 will probably be down considerably year-over-year.
Turning to the stability sheet. Our stability sheet stays sturdy as we ended the third quarter with complete money, money equivalents, restricted money and investments of $111.eight million and no debt. Whole money and investments elevated by roughly $10 million from final quarter and by $3.Four million for the reason that finish of 2022. Our DSO for the quarter was 73 days and stock on the finish of the third quarter was $61.6 million, representing 140 days of stock.
Turning to steerage. Primarily based on the data obtainable in the present day, we count on income for the fourth quarter of 2023 to be in vary of $45 million to $50 million. The midpoint of roughly $47.5 million contains roughly $35.5 million of product income and roughly $12 million of growth income.
Turning to gross margin. Fourth quarter, 2023 merchandise gross margin is anticipated to be within the vary of 20% to 25%, and growth gross margin to be roughly 7%, leading to an general gross margin vary of 16% to 20%.
Lastly, we count on adjusted EBITDA for the fourth quarter of 2023 to be within the vary of roughly adverse $5 million to adverse $2 million. As a reminder, over the past a number of quarters, we’ve got considerably streamlined our price construction and proceed to count on to return to optimistic adjusted EBITDA at a quarterly income run price within the $55 million to $60 million vary.
With that, I’ll flip the decision over to the operator for questions.
Query-and-Reply Session
Operator
[Operator Instructions]. The primary query comes from Jim Ricchiuti from Needham & Firm. Please go forward.
Jim Ricchiuti
Hello, good afternoon. Scott, I believe I heard you point out packages of report a number of occasions, and I am questioning should you may assist us by way of — who to look out over the following two years. What sort of alternative is there for packages of report that might be awarded, say, within the subsequent 12 months, that doubtlessly may influence your protection enterprise over the ‘24 ‘25 timeframe?
Scott Keeney
Yeah, in my commentary, I used to be referring to packages report for our current enterprise. And there are giant packages report for packages we’ve got in the present day and a few new areas which are exterior of directed vitality. These are giant packages and there’s additional upside in these packages. And in order quickly as we’ve got data that we will share, that we’ll achieve this. And I presume you had been additionally alluding to directed vitality? Sure, in directed vitality.
There aren’t any giant packages of report in the present day. There are vital growth packages, and we’ve got been profitable in profitable these packages each within the US and internationally throughout the complete vertical integration from the semiconductor by the high-energy laser. In our plans to proceed to develop, we’ve got not constructed within the assumption of packages of report within the close to time period. We do suppose there are alternatives for that, however these particular packages report will probably be contingent upon the success of the demonstrations over the following 12 months to 24 months. I hope that helps, Jim.
Jim Ricchiuti
It does. And there is clearly been a whole lot of press there’s been discuss Lockheed and the work they’re doing on this space, and I believe lots of people have additionally targeted, sadly, on what’s taking place within the mid-East with Israel and the potential for directed vitality to be utilized in these areas as properly. I imply, I ponder should you may speak a bit of bit extra about what you are seeing available in the market in the present day. I imply, as an illustration, I would be curious if this award that you just introduced in the present day was the scale of this about as anticipated was the timeline about as anticipated? So once more, and there is issues I do know you possibly can’t converse to, however perhaps you would assist us body — assist body what is going on on on the market by way of the exercise degree and the place you are seeing it.
Scott Keeney
Completely, Jim. I believe, this award was one thing, actually once we began HELSI-1, our aim was to win HELSI-2. And there was danger related to our means to execute and danger related to funds, et cetera. And so, we’re excited to have gained this award. And it’s a vital program. It is arguably probably the most vital packages in DoD. So, over the previous few quarters, that is actually what we had been anticipating. However actually, once we kicked this off, it was one thing that we had been striving for. I believe, what we’re seeing is important funding to develop lasers within the U.S. and overseas. And that continues, that’s increasing. I believe, there’s a honest quantity of noise on the market about what is going on on around the globe.
Clearly, what is going on in Israel is — it is a very tough scenario. I’ll say that we’re engaged with the entire key gamers in Israel. And once more, we’ve got know-how from the semiconductor all over to the laser high-energy laser. And we’re supporting our companions there as they work 24/7 proper now. And as there’s data that we will share, actually we’ll achieve this.
Jim Ricchiuti
And that is useful. And if I may simply ask one last query, extra it pertains to the business enterprise, then I am going to soar again within the queue. In the event you — if we take into consideration the business enterprise and also you take a look at areas that you just doubtlessly are seeing a change in demand by some means, say versus the final three months or earlier this yr, the place are you seeing the higher modifications by way of demand? Both approach, both route.
Scott Keeney
Sure, good. I believe that the numerous change that we proceed to see is an additive manufacturing, type subsequent is the large commerce present that happens yearly, and its subsequent week in Frankfurt. We’ll be saying a number of new merchandise. There will be various vital shows. And we’ve got disclosed our technique there up to now round utilizing the Corona AFX know-how to permit for increased productiveness instruments. We’re seeing that be deployed. We’re getting design wins, and so that’s the space of the economic market the place we see vital development alternatives. It takes time for that to point out up in our quarterly income. However the design win exercise goes properly there.
Operator
The following query comes from Greg Palm from Craig-Hallum Capital Group. Please go forward.
Greg Palm
I assume perhaps only one follow-up, clearly, can congrats on the type of growth of HELSI right here, however are you able to present a bit of bit extra background? I do not know if there have been, was had been all the time choices related to this contract that you just had been anticipating to win and I am undecided if it was depending on some occasion or some demonstration. After which simply to be clear, are there further choices exterior of this that may nonetheless be gained or is that this with this particular contract?
Scott Keeney
Good. Thanks, Greg. This was contingent upon success in HELSI-1. And as we had beforehand introduced, we exceeded the targets for that program for a 300-kilowatt class laser. And there have been two awards. It was nLIGHT and Lockheed for this program. And that is to develop a a lot higher-power laser. And there are different packages that may broaden this space, and complement, what we’re doing right here. So, no, this is not the one alternative that we’re engaged on. There are different ones that we’re engaged on the parallel state. And subsequently, there are different alternatives additionally.
Greg Palm
Okay. However are there further, I assume, are there further choices inside HELSI-2? Or was this mentioned by way of further choices that might be one particular with this contract?
Scott Keeney
Greg, for the contract for HELSI-2, that is the contract. There aren’t any, recognized choices that that we’re engaged on for this contract. However their different contracts which are associated, and we’ll proceed to broaden the work happening in in directed vitality lasers.
Greg Palm
Sure. Understood. That is sensible. Thanks for clearing that up. I believe I heard you point out or perhaps you alluded to elevated competitors from a few of the Chinese language gamers exterior of China. And we all know how aggressive, China has gotten. And so perhaps you possibly can simply go into element a bit of little bit of what you’re seeing? What areas particularly? I’m guessing you had been alluding it to slicing, however every other type of commentary alongside these strains can be useful.
Scott Keeney
Positive, Greg. These feedback — specifics behind these feedback are associated to primarily slicing. And by way of geographies, the place we see higher competitors, may be in locations like, South Korea, considerably in sure areas of Europe, some elements of the U.S. And it’s not a dramatic change. We count on to proceed to see competitors. And we wished to notice that, certainly, that is what we’ve got seen play out over the past yr or so.
Greg Palm
Okay. I imply, is there a higher concern that what has advanced or occurred in China particularly over the past three, 4, 5 years that, that might change into a much bigger situation exterior of China, whether or not or not it’s within the U.S. or Europe or different elements of Asia? Or are you simply making an attempt to border it up as, one thing that is perhaps a bit of little bit of a danger, however you do not suppose the identical type of long-term occasion will occur exterior of that area particularly?
Scott Keeney
It’s actually principally the latter Greg. Simply making an attempt to be, exhaustive in our feedback of what we see happening on the market. We proceed to launch new merchandise that proceed to reinforce, the productiveness of what we’re doing. And definitely, the shoppers that we work with are actually serious about ensuring that, they’ve prime quality, that they have dependable provide chain, and I believe these components which are actually vital for these instruments the place the lasers is a very large a part of the productiveness and the bomb of these instruments.
So, it’s one thing we’re noting. But it surely’s not one thing that we really feel like we have to spotlight an entire lot greater than them.
Operator
[Operator Instructions]. Your subsequent query comes from Ruben Roy from Stifle. Please go forward.
Ruben Roy
Scott, I had an analogous query to Jim. So, I hope we’re not repeating ourselves right here, nevertheless it did should do with the timing of the extension and Kress on that. It is nice to see. However simply questioning should you give us a bit of extra element on this type of was that based mostly on, I believe you talked about milestones persevering with to be hit on this system however the $86 million contract that was introduced in Might, I believe, a few of the milestones round that we’re anticipated to start this quarter. So perhaps you can provide us an replace on has that began have there been pullins on that for any motive?
After which simply round this concept of three-year timeline to execute on type of these contracts. I do not suppose I’ve heard that timeline earlier than. So perhaps should you may give us extra element on what the milestones may be or something you would type of discuss for that three-year timeline. That’d be useful. Thanks.
Scott Keeney
This we’ve got kicked off this system. We’re making good progress. We’re on monitor. It’s difficult. That is the very best energy laser that is ever been demonstrated. However we’re on monitor and that laser is essentially targeted on proving out these energy ranges. This laser then will probably be used for additional demonstrations. So, it isn’t a program of report. However over the following couple of years, we’ll proceed to scale the ability after which that laser will probably be used for varied demonstrations. And as quickly as we’ve got data we will share on precisely the place these will probably be we’ll achieve this.
Ruben Roy
After which it is nice to see all of the work and success you are having on the increased vitality space, however I believe over the past a number of weeks, we have heard so much about type of potential use circumstances for decrease vitality, and I say decrease vitality, 20-kilowatt, 30-kilowatt, 50 kilowatt lasers utilizing some protection purposes. And I am questioning as you consider and discuss a few of these further areas that you just’re seeing some discussions in exercise and et cetera are there these areas that we ought to be interested by as potential contributors to income incrementally over the following couple years?
Scott Keeney
We’re engaged throughout the spectrum from low energy, medium energy, high-power. We’re additionally engaged throughout, the stack of know-how from the pumps, the fiber lasers, and the built-in full high-energy lasers. And so sure, there are alternatives on the low water energy ranges specifically internationally. There are a variety of packages and we’ve got been designed into various totally different packages around the globe in that house. And so as soon as once more, it is an space the place there’s a whole lot of data flowing on the market.
And as we’re capable of make clear additional, actually will achieve this. I highlighted the work we’re doing in Israel beforehand, however we’re additionally doing work with our allies elsewhere around the globe. And so, we do see exercise there and as quickly as we’re capable of present extra readability on that actually stay up for getting that out to you all.
Ruben Roy
Nice. Final query for me is type of extra close to time period and interested by the steerage, I haven’t got my notes in entrance of me from final quarter sadly, however I believe you probably did point out Scott, simply type of the type of tips are on magnitude of what the availability constraints would possibly imply. And I am questioning if any of that has modified and as you consider, I believe you talked about on in the present day’s name that a few of that ought to begin to roll out by way of development into ‘24. Ought to we count on a few of that income of the availability constrain charge begin to present up in Q1, or do you suppose it should take longer to begin to see type of the income that you have missed out on to point out up into the mannequin?
Scott Keeney
Now we have Joe take that on the specifics. Joe?
Joe Corso
Sure, Ruben, thanks for the query. Assume the most important points that we have had on this provide chain near-term each within the third quarter by way of the outcomes and the This autumn information. We do count on principally to resolve themselves by the top of the yr. There have been type of particular suppliers and parts which have introduced some challenges for us. We do not count on that to proceed into 2024. So, in these circumstances, there will probably be a push, proper? I imply, we’ll nonetheless construct these merchandise, significantly across the protection merchandise. They will simply probably be pushed into the very early a part of Q1 2024 is what we’re planning for and in addition a part of the explanation for the type of flattish information, proper from Q3 to This autumn.
Operator
No additional questions at the moment. I am going to now hand the convention again over to Joseph Corso for any closing remarks.
Joe Corso
Nice. Thanks for everybody for becoming a member of in the present day and we stay up for talking with you over the course of the quarter. Have a pleasant night.
Operator
The convention has now concluded. Thanks for attending in the present day’s presentation. You could now disconnect.