nLIGHT, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with the three months ended March 31, 2022 unless noted. nLIGHT designs and manufactures high-power semiconductor and fiber lasers. Its reportable segments are Laser Products and Advanced Development.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $54.1 million | $64.5 million |
| Gross profit / margin | $14.3 million / 26.4% | $16.2 million / 25.1% |
| Operating loss | $8.2 million | $8.3 million |
| Net loss | $7.7 million; $0.17 per share | $8.6 million; $0.20 per share |
| Operating cash flow | +$0.6 million | −$7.0 million |
| Cash, cash equivalents and marketable securities at period-end | $108.4 million | Not stated here for the comparable date |
Revenue declined 16.1% to $54.1 million, chiefly as Laser Products sales fell 19.5% to $41.1 million; Advanced Development revenue declined 3.1% to $13.0 million. By end market, Industrial revenue fell 17.1%, Microfabrication 24.6%, and Aerospace and Defense 8.7%. China revenue fell 48.9%, partly reflecting lower market demand and the company’s exit from the China fiber-laser cutting market in Q4 2022.
Gross margin improved to 26.4% from 25.1%, with Laser Products margin at 34.4% versus 31.3%; management cited product mix, lower sales of low-margin Industrial products, and lower manufacturing costs. Operating expenses decreased 8.2% to $22.5 million: R&D fell 17.6%, while SG&A increased 3.7%. Despite lower operating expenses, the operating loss was broadly unchanged and the operating loss margin widened to 15.2% from 12.9% as revenue declined. Net loss narrowed year over year, aided in part by interest and other income.
At March 31, 2023, total assets were $329.8 million, total liabilities $60.6 million, and stockholders’ equity $269.2 million. Current assets were $233.3 million and current liabilities $36.7 million. The company had no borrowings under its $40 million revolving credit line and reported covenant compliance. Net cash and restricted cash decreased $9.4 million in the quarter. Investing cash outflow was $10.0 million, primarily net purchases of marketable securities of $9.4 million and capital expenditures of $0.7 million.
Changes, outlook and key risks
- Liquidity outlook: Management believes existing liquidity is sufficient for working capital and capital expenditure needs for at least the next 12 months. The filing provides no numerical revenue or earnings guidance.
- Subsequent contract: On May 4, 2023, the company announced an $86 million contract to produce a High Energy Laser prototype for the U.S. Department of Defense’s High Energy Laser Scaling Initiative. The multi-year program is expected to commence in Q3 2023.
- Demand and costs: Management cited lower demand, particularly in China, customer capital-spending cycles, competition and product-price erosion as factors affecting results. It expects wages, compensation, materials and shipping costs to continue increasing in 2023 and cautioned that it may not fully offset inflation through pricing.
- Legal contingency: Lumentum Operations LLC alleges ownership of certain nLIGHT patents and seeks related relief. nLIGHT is defending the matter; management says a loss is not probable or reasonably estimable and has recorded no contingency.
- Concentrations and operations: The U.S. Government represented 16% of Q1 revenue. Two customers together represented 33% of accounts receivable at quarter-end. The company launched a new ERP system in January and modified certain related controls; management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether demand and unit sales in Industrial and Microfabrication markets, especially China, stabilize or recover.
- Whether improved Laser Products gross margin is sustainable amid lower revenue, product mix changes, pricing pressure and inflation.
- The timing, performance milestones, funding and revenue recognition for the $86 million defense contract.
- Cash use, working-capital movements and the adequacy of liquidity as the company continues to report losses.
- Developments in the Lumentum patent litigation and the impact, if any, of ERP implementation on internal controls.