nLIGHT, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. nLIGHT designs and manufactures semiconductor and fiber lasers for industrial, microfabrication, and aerospace and defense markets. It reports Laser Products and Advanced Development segments. Amounts below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $72.2 | $61.7 | $202.7 | $157.1 |
| Gross profit / margin | $21.4 / 29.6% | $17.2 / 27.8% | $59.4 / 29.3% | $39.7 / 25.3% |
| Operating loss | $(6.8) | $(4.0) | $(21.6) | $(16.8) |
| Net loss | $(6.9) | $(2.1) | $(20.9) | $(16.4) |
| Diluted loss per share | $(0.16) | $(0.05) | $(0.50) | $(0.43) |
- Q3 revenue rose 17% year over year; nine-month revenue rose 29%. Advanced Development revenue increased 68% in Q3 and 98% year to date, while Laser Products revenue grew 6% and 17%, respectively.
- Nine-month revenue increased across all end markets. Microfabrication grew 37%, aerospace and defense 32%, and industrial 21%. China revenue fell 9% year to date, while North America and rest-of-world revenue grew 39% and 69%.
- Gross margin improved, led by Laser Products: 38.5% in Q3 versus 33.2%, and 37.5% year to date versus 29.4%. Advanced Development margins were 6.7% and 6.1%, respectively, versus 6.5% and 7.1% a year earlier.
- Operating expenses increased 33% in Q3 and 43% year to date, driven in part by higher stock-based compensation, headcount, project spending, and professional fees. Stock-based compensation was $29.7 million for the first nine months, versus $16.5 million.
Cash, liquidity, and debt
- Cash and cash equivalents were $165.6 million at September 30, 2021, compared with $102.3 million at December 31, 2020. The company reported no outstanding debt; it had repaid the prior term debt.
- Nine-month cash flow: $2.7 million provided by operations, $14.2 million used in investing, and $75.1 million provided by financing. Operating cash flow declined from $14.7 million in 2020, reflecting the net loss and increases in inventory and receivables, partly offset by non-cash expenses and higher payables.
- Capital expenditures were $13.6 million, primarily for manufacturing equipment and facility improvements. Inventory rose to $70.7 million from $54.7 million, which management attributed primarily to expected future-period sales.
- The company raised $82.4 million net in a March follow-on stock offering. Its $40 million secured revolving credit facility was amended to mature September 24, 2024; none was drawn at quarter-end, and the company reported covenant compliance.
Outlook, commentary, and risks
- Management said existing liquidity should cover working capital and capital expenditure needs for at least 12 months, but noted that additional capital may be needed to expand commercialization, fund operations, and support research and development. No specific revenue or earnings guidance was provided.
- Management reported higher-than-expected wage, compensation, and shipping costs and expects them to continue affecting costs. It cautioned that price increases may not fully offset significant inflationary pressure.
- Customer concentration is notable: the U.S. Government accounted for 21% of nine-month revenue. Two customers represented approximately 33% of net receivables at September 30, 2021.
- Other items to monitor include the widening net loss, significant stock-based compensation, inventory growth, exposure to China sales, and the low gross margin of Advanced Development. The company maintained full valuation allowances on U.S. and China deferred tax assets. It reported no material legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether Laser Products growth and improved product margins continue, and whether Advanced Development contract mix supports better margins.
- Whether inventory converts to sales and operating cash flow improves after the year-to-date working-capital outflows.
- How inflation in labor and shipping costs, and lower China sales, affect future margins and demand.
- The impact of stock-based compensation and equity issuance on expenses and shareholder dilution.
- Whether the company’s stated 12-month liquidity outlook remains adequate for planned investment and growth.