nLIGHT, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. nLIGHT designs and manufactures semiconductor and fiber lasers for industrial, microfabrication, and aerospace and defense markets. Its reportable segments are Laser Products and Advanced Development.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $64.5 million | $61.3 million |
| Gross profit / margin | $16.2 million / 25.1% | $17.6 million / 28.8% |
| Operating loss | $8.3 million | $5.8 million |
| Net loss | $8.6 million | $6.1 million |
| Diluted loss per share | $0.20 | $0.15 |
| Operating cash flow | $(7.0) million | $4.1 million |
| Capital expenditures | $5.0 million | $3.1 million |
- Revenue increased 5.1%. Laser Products revenue rose 7.9% to $51.1 million; Advanced Development revenue fell 4.4% to $13.4 million.
- Industrial revenue increased 12.1% and Microfabrication increased 13.8%; Aerospace and Defense revenue declined 6.4%.
- Geographically, North America revenue rose 12.9% to $35.1 million and Rest of World rose 51.5% to $22.2 million. China revenue fell 54.2% to $7.1 million.
- Laser Products gross margin decreased to 31.3% from 36.8%; Advanced Development margin increased to 6.6% from 5.0%. Overall gross margin declined to 25.1% from 28.8%.
- Research and development expense increased 17.1% to $13.7 million, while sales, general and administrative expense decreased 8.0% to $10.8 million. The SG&A reduction chiefly reflected lower stock-based compensation following the CFO’s transition.
Liquidity, cash flow, and balance sheet
- Cash and cash equivalents were $134.9 million at March 31, 2022, down from $146.5 million at year-end 2021. Cash, cash equivalents, and restricted cash decreased $11.6 million during the quarter.
- Operating cash use was $7.0 million, reflecting the net loss and working-capital use, including higher prepaid expenses and inventory and lower accounts payable. Inventory was $77.2 million, up from $73.7 million at year-end; management cited safety stock built to address supply-chain and manufacturing disruption risks.
- Investing cash use was $5.1 million, primarily for manufacturing equipment and facility improvements. Financing cash provided $0.6 million, mainly from stock-option exercises; the comparable 2021 period included $82.8 million of net proceeds from a follow-on offering.
- No amounts were outstanding on the company’s $40 million revolving credit line at quarter-end, and the company reported compliance with its covenants. Management stated existing liquidity should meet working-capital and capital-expenditure needs for at least 12 months, while noting possible future financing needs.
- Total liabilities were $67.3 million, including $18.3 million of lease liabilities. No revolving-credit borrowings were outstanding; the filing does not provide a separate total debt figure.
Outlook, risks, and unusual items
- The COVID-related Shanghai lockdown halted the company’s Shanghai manufacturing operations on March 28, 2022. It did not materially affect Q1 results, but management warned it could adversely affect Q2 and future periods if prolonged. The facility supplies end customers and U.S. operations.
- Management cited supply delays, port congestion, labor constraints, higher wages and compensation, and increased shipping costs. It cautioned that inflationary costs may not be fully offset by price increases.
- Management’s operating outlook depends on design wins, customer capital spending, product development, and continued investment in aerospace and defense technology. The filing gives no specific revenue or earnings guidance.
- Product margins were pressured by sales mix, lower Shanghai factory utilization, investment in U.S. manufacturing, and higher production and freight costs. Management also identified typical product-price erosion and market-cycle variability.
- On March 25, 2022, Lumentum Operations LLC sued nLIGHT and certain employees, alleging partial or full ownership of certain nLIGHT patents and seeking related relief. nLIGHT said it intends to vigorously defend itself; the filing does not quantify a potential financial exposure.
- One customer represented approximately 21% of net receivables at March 31, 2022. The U.S. Government accounted for 17% of Q1 revenue; Raytheon Technologies was below 10% in Q1 2022.
Important facts for investors to verify
- Whether and when Shanghai manufacturing resumed, and the resulting effects on Q2 production, shipments, and margins.
- Whether gross-margin pressure, supply costs, and U.S. manufacturing investment persist, and whether revenue growth translates into improved profitability.
- Working-capital needs, operating cash burn, capital spending, and the adequacy of liquidity if disruption or investment requirements continue.
- Developments in the Lumentum patent litigation and any resulting operational or financial exposure.
- Customer and geographic concentration, particularly the sharp Q1 decline in China revenue and the receivables concentration.