nLIGHT, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. nLIGHT designs and manufactures high-power semiconductor and fiber lasers. It reports Laser Products and Advanced Development segments. Comparisons are with Q1 2020 unless otherwise noted. Dollar amounts are in millions except per-share data.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $61.3 | $43.2 |
| Gross profit / margin | $17.6 / 28.8% | $9.5 / 22.0% |
| Operating expenses | $23.4 | $16.2 |
| Operating loss | ($5.8) | ($6.7) |
| Net loss | ($6.1) | ($7.5) |
| Basic and diluted loss per share | ($0.15) | ($0.20) |
| Operating cash flow | $4.1 | ($1.1) |
| Capital expenditures | $3.1 | $15.2 |
Revenue increased 42.0%. Laser Products revenue rose 28.2% to $47.3 million; Advanced Development revenue rose 122.9% to $14.0 million, mainly from increased activity on existing R&D contracts. Revenue increased across all end markets: Industrial 33.8%, Microfabrication 46.0%, and Aerospace and Defense 47.1%.
Gross margin improved to 28.8%, primarily reflecting stronger Laser Products mix, product cost improvements, and better factory utilization; lower Industrial average selling prices partly offset these gains. Laser Products gross margin increased to 36.8% from 25.4%, while Advanced Development margin declined to 5.0% from 7.5%, reflecting contract mix and timing. R&D expense rose 37.2% and SG&A rose 52.1%; management attributed the increases partly to higher stock-based compensation, headcount, and project or professional-service costs. Stock-based compensation totaled $8.1 million versus $3.8 million.
Cash, liquidity, debt, and balance sheet
Cash and cash equivalents were $185.6 million at March 31, 2021, versus $102.3 million at December 31, 2020. Operating activities provided $4.1 million; investing activities used $3.5 million; financing activities provided $82.9 million, primarily from the March follow-on offering. The offering issued approximately 2.5 million shares at $34 per share and generated approximately $82.4 million net proceeds.
Total assets were $375.1 million and stockholders’ equity was $304.1 million. Inventory was $58.8 million, up from $54.7 million at year-end; management said the increase supported expected future sales. Long-term debt was $0.029 million, with no amount outstanding under the $40 million secured revolving credit facility, which expires in September 2021. The company reported covenant compliance. Lease liabilities totaled $18.6 million, including $2.8 million current.
Management believes existing liquidity will cover working capital and capital expenditure needs for at least the next 12 months, while noting that additional capital may be needed for commercialization, operations, R&D, or growth investments.
Outlook, risks, and notable disclosures
- No specific revenue, earnings, or margin guidance was provided in the filing. Management’s outlook statement is its assessment of liquidity for at least the next 12 months.
- Two customers represented approximately 40% of net receivables at quarter-end; two customers represented approximately 43% at December 31, 2020. The U.S. Government accounted for 10% of Q1 2020 revenue; no customer accounted for 10% or more of Q1 2021 revenue.
- The company maintains full valuation allowances against U.S. and China deferred tax assets because it has not established sufficient evidence of sustained profitability or realizability. It recorded $0.3 million income tax expense despite a pretax loss.
- New and modified operating leases increased contractual obligations; the filing reports an approximately $6.5 million increase in one disclosure and an approximately $5.9 million increase in another. The filing text does not provide a clear reconciled value.
- nLIGHT reported no material legal proceedings and no material changes to the risk factors in its 2020 Form 10-K. It said disclosure controls were effective and reported no material internal-control changes; integration of OPI Photonics’ financial controls was not complete.
- Management said inflation had not materially affected results but warned it might not be able to offset significant future cost increases through pricing.
Important facts for investors to verify
- Whether revenue growth and improved Laser Products margins persist, particularly given lower Industrial selling prices and weaker Advanced Development margin.
- How much of operating cash generation reflects sustainable operations versus noncash stock compensation and working-capital movements.
- Use of the offering proceeds, future share dilution, and the impact of substantial stock-based compensation and outstanding awards.
- Customer concentration in receivables, inventory build and obsolescence exposure, and the company’s ability to meet growth-related commitments.
- Renewal or replacement of the revolving credit facility before its September 2021 expiration, and the exact increase in lease commitments.
- Progress integrating OPI’s internal controls and any changes in the company’s liquidity needs or deferred-tax-asset valuation assessments.