nLIGHT, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. nLIGHT designs and manufactures semiconductor and fiber lasers and reports Laser Products and Advanced Development segments. Amounts below are in millions unless noted.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $60.8 | $69.1 | $125.3 | $130.5 |
| Gross profit | $15.4 | $20.3 | $31.6 | $38.0 |
| Gross margin | 25.3% | 29.4% | 25.2% | 29.1% |
| Operating loss | $(10.3) | $(9.0) | $(18.6) | $(14.8) |
| Net loss | $(10.3) | $(7.9) | $(19.0) | $(14.0) |
| Basic and diluted loss per share | $(0.23) | $(0.19) | $(0.43) | $(0.34) |
- Q2 product revenue was $48.2 million, down 10% year over year; development revenue was $12.6 million, down 19%. For the first six months, product revenue was $99.2 million and development revenue was $26.0 million.
- Q2 Laser Products gross margin was 31.5%, compared with 37.1% a year earlier; Advanced Development margin was 7.0%, compared with 6.5%. For the first half, the respective margins were 31.4% and 6.8%.
- Operating expenses were $25.7 million in Q2 and $50.2 million for the first half. Six-month research and development expense rose 6% to $27.5 million; sales, general and administrative expense fell 15% to $22.7 million, primarily reflecting lower stock-based compensation.
- Six-month operating cash flow was $(11.8) million, versus positive $3.1 million in 2021. Investing cash outflow was $63.1 million, including $50.0 million invested in marketable securities and $12.9 million in capital expenditures. Financing cash outflow was $0.6 million.
- At June 30, cash and cash equivalents were $70.6 million, marketable securities were $50.0 million, and restricted cash was $0.25 million. Total current assets were $261.4 million and current liabilities $41.5 million. Total liabilities were $66.6 million; stockholders’ equity was $293.9 million.
- No amount was drawn on the $40.0 million revolving credit line, which matures in September 2024; the company reported compliance with its covenants. Lease liabilities totaled $17.1 million, including current and long-term portions.
Changes versus the prior comparable period
- Revenue fell 12% in Q2 and 4% for the six-month period. China revenue declined 75% in Q2 and 66% for the first half; North America and Rest of World revenue increased.
- Revenue declined across Industrial, Microfabrication, and Aerospace and Defense markets in Q2. For the first half, declines were 0.9% in Industrial, 4.9% in Microfabrication, and 6.2% in Aerospace and Defense.
- Gross margin fell by 4.1 percentage points in Q2 and 3.9 points for the first half. Management attributed the product-margin pressure to sales mix, lower Shanghai factory utilization and temporary closure, increased U.S. manufacturing investment, and higher production and freight costs.
- Net loss widened to $19.0 million for the first half from $14.0 million. Operating cash flow also moved from a $3.1 million inflow to an $11.8 million outflow.
Outlook, commentary, and risks
- Management believes existing liquidity is sufficient for working capital and capital expenditure needs for at least the next 12 months. The filing provides no quantified revenue or earnings guidance.
- Shanghai manufacturing operations were halted for approximately two months in Q2 because of COVID-related restrictions. The facility remains important to production; further closures could affect future results. Supply-chain delays, labor availability and wage increases, inflation, and higher materials and shipping costs are additional concerns.
- Management expects continued investment in research and development and U.S.-based manufacturing capacity. Results may be affected by customer capital spending, product mix, selling-price erosion, production volumes, and manufacturing utilization.
- Lumentum Operations LLC filed a patent ownership and related-relief complaint against nLIGHT and certain employees on March 25, 2022. nLIGHT intends to vigorously defend the allegations; the filing does not provide a quantified estimate of potential exposure.
- The U.S., Austria, and China continued to carry full valuation allowances against deferred tax assets. The company reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Shanghai operations and supply chains have recovered, and whether the temporary shutdown or China market weakness continues to affect sales and factory utilization.
- Whether product gross margins stabilize as U.S. manufacturing investment, production costs, freight costs, sales mix, and capacity utilization change.
- Whether working-capital investment—particularly inventory, which rose to $80.2 million from $73.7 million at year-end—and operating cash outflows moderate.
- Whether the $120.6 million in cash, cash equivalents, and marketable securities remains adequate if losses and capital spending persist; management’s liquidity statement is an outlook, not a guarantee.
- Developments in the Lumentum patent litigation and any resulting financial or operational consequences.