nLIGHT, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. nLIGHT designs and manufactures high-power semiconductor and fiber lasers, reporting Laser Products and Advanced Development segments. Amounts below are in millions except per-share data and percentages.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $60.1 | $72.2 | $185.4 | $202.7 |
| Gross profit / margin | $13.5 / 22.4% | $21.4 / 29.6% | $45.0 / 24.3% | $59.4 / 29.3% |
| Operating loss | $(13.0) | $(6.8) | $(31.6) | $(21.6) |
| Net loss | $(13.0) | $(6.9) | $(31.9) | $(20.9) |
| Net loss per share | $(0.29) | $(0.16) | $(0.72) | $(0.50) |
- Q3 revenue fell 16.8% year over year; nine-month revenue fell 8.5%. Product revenue was $48.0 million in Q3 and $147.3 million year to date; development revenue was $12.1 million and $38.1 million, respectively.
- Q3 segment gross margins were 27.9% for Laser Products and 6.5% for Advanced Development, versus 38.5% and 6.7% a year earlier. Nine-month segment margins were 30.3% and 6.7%, versus 37.5% and 6.1%.
- Nine-month operating cash flow was $(14.6) million, compared with $2.7 million provided in 2021. Capital expenditures were $16.4 million. Investing cash outflow of $67.5 million included $50.0 million invested in marketable securities.
- At September 30, cash and cash equivalents were $62.2 million and marketable securities were $50.2 million; current assets totaled $251.0 million and current liabilities $38.7 million. No amounts were drawn on the $40 million revolving credit facility; the company reported covenant compliance. Lease liabilities totaled $16.2 million; no term-loan balance is reported.
Changes, outlook, and risks
- Revenue declined across the year-to-date period, primarily from lower China sales and reduced development-contract activity. China revenue was $17.0 million for nine months versus $48.0 million in 2021. The Shanghai facility was shut for about two months in Q2 due to COVID-related restrictions.
- Management attributed weaker Laser Products margins to sales mix, lower factory utilization, investment in U.S. manufacturing, and higher production and freight costs; duty reclaim partly offset these pressures. Inventory increased to $80.7 million from $73.7 million at year-end, reflecting safety stock and anticipated demand as well as lower China demand.
- Management expects existing liquidity to fund working capital and capital spending for at least the next 12 months; the filing gives no numerical revenue or earnings guidance. It notes continuing exposure to demand and customer-capex cycles, supply-chain disruption, inflation in wages/materials/shipping, pricing pressure, and COVID-related closures.
- In October 2022, nLIGHT notified employees at its Shanghai manufacturing facility of a reduction in force; it expects to record approximately $0.9 million of severance expense in Q4.
- Lumentum filed a patent-ownership lawsuit in March 2022; nLIGHT says it is vigorously defending the claims. New U.S. export controls affecting certain China-related products, technology, entities, and components could restrict sales or sourcing. The U.S. Government represented 16% of Q3 and nine-month revenue; Marubun Corporation represented 11% of Q3 revenue.
Important facts for investors to verify
- Whether demand, China sales, and Advanced Development contract activity recover, and whether the Shanghai workforce reduction affects production or customer delivery.
- Whether margins stabilize as factory utilization, U.S. manufacturing investment, and freight and input costs evolve.
- Cash conversion and inventory levels: operating cash use and inventory growth warrant monitoring, while reported investing outflow includes purchases of marketable securities.
- Potential financial and operational impact of the Lumentum litigation and evolving U.S.-China export restrictions.