nLIGHT Inc.

11/08/2024 | Press release | Distributed by Public on 11/08/2024 12:13

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

lasr-20240930
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________
FORM 10-Q
________________________________________________________
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number001-38462
________________________________________________________
NLIGHT, INC.
(Exact name of Registrant as specified in its charter)
________________________________________________________
Delaware 91-2066376
(State or other jurisdiction of
incorporation or organization) 		(I.R.S. Employer
Identification Number)
4637 NW 18thAvenue
Camas, Washington 98607
(Address of principal executive office, including zip code)
(360) 566-4460
(Registrant's telephone number, including area code)
__________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol Name of Exchange on which Registered
Common Stock, par value
$0.0001 per share 		LASR The Nasdaq Stock Market LLC
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ Accelerated Filer ☒ Non-Accelerated Filer ☐ Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 5, 2024, the Registrant had 48,429,356 shares of common stock outstanding.
TABLE OF CONTENTS
Page
Part I. Financial Information
1
Item 1. Unaudited Interim Financial Statements
1
Consolidated Balance Sheets: September 30, 2024 and December 31, 2023 (unaudited)
1
Consolidated Statements of Operations: Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)
2
Consolidated Statements of Comprehensive Loss: Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)
3
Consolidated Statements of Stockholders' Equity: Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)
4
Consolidated Statements of Cash Flows: Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)
6
Notes to Consolidated Financial Statements (unaudited)
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
17
Item 3. Quantitative and Qualitative Disclosures About Market Risk
25
Item 4. Controls and Procedures
26
Part II. Other Information
26
Item 1. Legal Proceedings
27
Item 1A. Risk Factors
27
Item 5. Other Information
27
Item 6. Exhibits
28
Signatures
29
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
nLIGHT, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
As of
September 30, 2024 December 31, 2023
Assets
Current assets:
Cash and cash equivalents $ 41,456 $ 53,210
Marketable securities 65,241 59,672
Accounts receivable, net of allowances of $1,810 and $315
40,282 39,585
Inventory 48,828 52,160
Prepaid expenses and other current assets 14,975 15,927
Total current assets 210,782 220,554
Restricted cash 258 256
Lease right-of-use assets 11,270 12,616
Property, plant and equipment, net 47,889 52,300
Intangible assets, net 981 1,652
Goodwill 12,408 12,399
Other assets, net 7,706 7,026
Total assets $ 291,294 $ 306,803
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 16,467 $ 12,166
Accrued liabilities 14,141 12,556
Deferred revenues 2,921 4,849
Current portion of lease liabilities 2,616 3,181
Total current liabilities 36,145 32,752
Non-current income taxes payable 5,638 5,391
Long-term lease liabilities 10,017 10,978
Other long-term liabilities 4,224 3,263
Total liabilities 56,024 52,384
Stockholders' equity:
Common stock - $0.0001 par value; 190,000 shares authorized, 48,343 and 47,266 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively
16 16
Additional paid-in capital 537,776 521,184
Accumulated other comprehensive loss (2,388) (2,477)
Accumulated deficit (300,134) (264,304)
Total stockholders' equity 235,270 254,419
Total liabilities and stockholders' equity $ 291,294 $ 306,803
See accompanying notes to consolidated financial statements.
1
nLIGHT, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Revenue:
Products $ 41,132 $ 38,103 $ 104,960 $ 118,802
Development 14,997 12,531 46,207 39,227
Total revenue 56,129 50,634 151,167 158,029
Cost of revenue:
Products 29,286 29,015 76,528 84,813
Development 14,293 11,681 42,751 36,907
Total cost of revenue 43,579 40,696 119,279 121,720
Gross profit 12,550 9,938 31,888 36,309
Operating expenses:
Research and development 11,328 10,744 33,723 34,049
Sales, general, and administrative 13,021 11,725 37,372 34,684
Total operating expenses 24,349 22,469 71,095 68,733
Loss from operations (11,799) (12,531) (39,207) (32,424)
Other income:
Interest income, net 394 303 1,308 990
Other income, net 1,331 536 2,594 1,997
Loss before income taxes (10,074) (11,692) (35,305) (29,437)
Income tax expense (benefit) 261 187 525 (1,005)
Net loss $ (10,335) $ (11,879) $ (35,830) $ (28,432)
Net loss per share, basic and diluted $ (0.21) $ (0.26) $ (0.75) $ (0.62)
Shares used in per share calculations, basic and diluted 48,133 46,403 47,679 45,857
See accompanying notes to consolidated financial statements.
2
nLIGHT, Inc.
Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
Three Months Ended September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
Net loss $ (10,335) $ (11,879) $ (35,830) $ (28,432)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 335 (131) 47 (816)
Unrealized gains (losses) on available-for-sale securities (216) 21 42 339
Comprehensive loss $ (10,216) $ (11,989) $ (35,741) $ (28,909)
See accompanying notes to consolidated financial statements.
3
nLIGHT, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands)
(Unaudited)
Three Months Ended September 30, 2024
Common stock Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total stockholders' equity
Shares Amount
Balance, June 30, 2024 48,099 $ 16 $ 531,822 $ (2,507) $ (289,799) $ 239,532
Net loss - - - - (10,335) (10,335)
Issuance of common stock pursuant to exercise of stock options 105 - 84 - - 84
Issuance of common stock pursuant to vesting of restricted stock awards and units, net of stock withheld for tax 139 - (657) - - (657)
Stock-based compensation - - 6,527 - - 6,527
Unrealized losses on available-for-sale securities - - - (216) - (216)
Cumulative translation adjustment, net of tax - - - 335 - 335
Balance, September 30, 2024 48,343 $ 16 $ 537,776 $ (2,388) $ (300,134) $ 235,270
Nine Months Ended September 30, 2024
Common stock Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total stockholders' equity
Shares Amount
Balance, December 31, 2023 47,266 $ 16 $ 521,184 $ (2,477) $ (264,304) $ 254,419
Net loss - - - - (35,830) (35,830)
Issuance of common stock pursuant to exercise of stock options 247 - 221 - - 221
Issuance of common stock pursuant to vesting of restricted stock awards and units, net of stock withheld for tax 684 - (3,945) - - (3,945)
Issuance of common stock under the Employee Stock Purchase Plan 146 - 1,355 - - 1,355
Stock-based compensation - - 18,961 - - 18,961
Unrealized gains on available-for-sale securities - - - 42 - 42
Cumulative translation adjustment, net of tax - - - 47 - 47
Balance, September 30, 2024 48,343 $ 16 $ 537,776 $ (2,388) $ (300,134) $ 235,270
4
Three Months Ended September 30, 2023
Common stock Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total stockholders' equity
Shares Amount
Balance, June 30, 2023 46,503 $ 16 $ 507,649 $ (3,115) $ (239,187) $ 265,363
Net loss - - - - (11,879) (11,879)
Issuance of common stock pursuant to exercise of stock options 61 - 53 - - 53
Issuance of common stock pursuant to vesting of restricted stock awards and units, net of stock withheld for tax 109 - (535) - - (535)
Stock-based compensation - - 6,627 - - 6,627
Unrealized gains on available-for-sale securities - - - 21 - 21
Cumulative translation adjustment, net of tax - - - (131) - (131)
Balance, September 30, 2023 46,673 $ 16 $ 513,794 $ (3,225) $ (251,066) $ 259,519
Nine Months Ended September 30, 2023
Common stock Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total stockholders' equity
Shares Amount
Balance, December 31, 2022 45,629 $ 16 $ 496,211 $ (2,748) $ (222,634) $ 270,845
Net loss - - - - (28,432) (28,432)
Issuance of common stock pursuant to exercise of stock options 278 - 385 - - 385
Issuance of common stock pursuant to vesting of restricted stock awards and units, net of stock withheld for tax 632 - (3,667) - - (3,667)
Issuance of common stock under the Employee Stock Purchase Plan 134 - 1,220 - - 1,220
Stock-based compensation - - 19,645 - - 19,645
Unrealized gains on available-for-sale securities - - - 339 - 339
Cumulative translation adjustment, net of tax - - - (816) - (816)
Balance, September 30, 2023 46,673 $ 16 $ 513,794 $ (3,225) $ (251,066) $ 259,519
See accompanying notes to consolidated financial statements.
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nLIGHT, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended September 30,
2024 2023
Cash flows from operating activities:
Net loss $ (35,830) $ (28,432)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation 9,356 9,292
Amortization 3,403 2,697
Reduction in carrying amount of right-of-use assets 1,367 947
Provision for losses on (recoveries of) accounts receivable 1,489 (2)
Stock-based compensation 18,961 19,645
Deferred income taxes - 7
Loss on disposal of property, plant and equipment 76 525
Changes in operating assets and liabilities:
Accounts receivable, net (2,119) 2,308
Inventory 3,348 5,491
Prepaid expenses and other current assets 954 1,358
Other assets, net (3,351) (442)
Accounts payable 4,628 (2,079)
Accrued and other long-term liabilities 2,511 161
Deferred revenues (1,931) 617
Lease liabilities (1,546) (1,076)
Non-current income taxes payable 212 (1,330)
Net cash provided by operating activities 1,528 9,687
Cash flows from investing activities:
Purchases of property, plant and equipment (5,313) (4,386)
Purchase of marketable securities (88,643) (103,008)
Proceeds from maturities and sales of marketable securities 83,033 94,231
Net cash used in investing activities (10,923) (13,163)
Cash flows from financing activities:
Proceeds from employee stock plan purchases 1,355 1,220
Proceeds from stock option exercises 221 385
Tax payments related to stock award issuances (3,945) (3,667)
Net cash used in financing activities (2,369) (2,062)
Effect of exchange rate changes on cash 12 (198)
Net decrease in cash, cash equivalents, and restricted cash (11,752) (5,736)
Cash, cash equivalents, and restricted cash, beginning of period 53,466 58,078
Cash, cash equivalents, and restricted cash, end of period $ 41,714 $ 52,342
Supplemental disclosures:
Cash paid for interest, net $ 40 $ 20
Cash paid for income taxes 302 270
Operating cash outflows from operating leases 3,057 2,890
Right-of-use assets obtained in exchange for lease liabilities 995 1,295
Accrued purchases of property, equipment and patents 415 561
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents $ 41,456 52,087
Restricted cash 258 255
Total cash, cash equivalents, and restricted cash $ 41,714 $ 52,342
See accompanying notes to consolidated financial statements.
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nLIGHT, Inc.
Notes to Consolidated Financial Statements
Note 1 - Basis of Presentation and New Accounting Pronouncements
Basis of Presentation
The accompanying unaudited consolidated financial statements of nLIGHT, Inc. and our wholly-owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The unaudited financial information reflects, in the opinion of management, all adjustments necessary for a fair presentation of financial position, results of operations, stockholders' equity, and cash flows for the interim periods presented. The results reported for the interim period presented are not necessarily indicative of results that may be expected for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Critical Accounting Policies
Our critical accounting policies have not materially changed during the nine months ended September 30, 2024, from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
New Accounting Pronouncements
ASU 2023-07
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Improvements to Reportable Segment Disclosures. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We will adopt ASU 2023-07 in the fourth quarter of 2024 using a retrospective transition method. We are
currently evaluating the impact of this guidance on our consolidated financial statements.
ASU 2023-09
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This ASU requires enhanced jurisdictional and other disaggregated disclosures for the effective tax rate reconciliation and income taxes paid and is effective for fiscal years beginning after December 15, 2024. This ASU requires additional disclosures and, accordingly, we do not expect the adoption of ASU 2023-09 to have a material effect on our financial position, results of operations or cash flows.
Note 2 - Revenue
We recognize revenue upon transferring control of products and services and the amounts recognized reflect the consideration we expect to be entitled to receive in exchange for these products and services. We consider customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. As part of our consideration of the contract, we evaluate certain factors, including the customer's ability to pay (or credit risk). For each contract, we consider the promise to transfer products, each of which is distinct, as the identified performance obligations.
We allocate the transaction price to each distinct product based on its relative standalone selling price. Master sales agreements or purchase orders from customers could include a single product or multiple products. Regardless, the contracted price with the customer is agreed to at the individual product level outlined in the customer contract or purchase order. We do not bundle prices; however, we do negotiate with customers on pricing for the same products based on a variety of factors (e.g., level of contractual volume). We have concluded that the prices negotiated with each individual customer are representative of the stand-alone selling price of the product.
We often receive orders with multiple delivery dates that may extend across several reporting periods. We allocate the transaction price of the contract to each delivery based on the product standalone selling price and invoice for each scheduled delivery upon shipment or delivery and recognize revenues for such delivery at that point, when transfer of control has occurred. As scheduled delivery dates are generally within one year, under the optional exemption provided by ASC 606-10-50-14a, revenues allocated to future shipments of partially completed contracts are not disclosed as performance obligations for point in time revenue. Further, we recognize, over time, revenue as per ASC 606-10-55-18 (invoice practical expedient) for our cost plus contracts and, accordingly, elect not to disclose
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information related to those performance obligations under ASC 606-10-50-14b. As of September 30, 2024, we had $10 million of performance obligations relating to firm fixed price contracts that did not qualify for the aforementioned disclosure exemptions. We expect to recognize 50% of these performance obligations by the end of 2024 and the remainder by the end of 2025.
Rights of return generally are not included in customer contracts. Accordingly, product revenue is recognized upon transfer of control at shipment or delivery, as applicable. Rights of return are evaluated as they occur.
Revenues recognized at a point in time consist of sales of semiconductor lasers, fiber lasers and other related products. Revenues recognized over time generally consist of development arrangements that are structured based on our costs incurred. For long-term contracts, we estimate the total expected costs to complete the contract and recognize revenue based on the percentage of costs incurred at period end. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, materials, subcontractors costs, other direct costs, and indirect costs applicable on government and commercial contracts.
Contract estimates are based on various assumptions to project the outcome of future events that may span several
years. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, the performance of subcontractors, and the availability and timing of funding from the customer. Billing under these arrangements generally occurs within one month of the costs being incurred or as milestones are reached.
The following tables represent a disaggregation of revenue from contracts with customers for the periods presented (in thousands):
Sales by End Market
Three Months Ended September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
Industrial $ 11,588 $ 19,607 $ 36,478 $ 56,078
Microfabrication 14,263 12,000 35,276 37,285
Aerospace and Defense 30,278 19,027 79,413 64,666
$ 56,129 $ 50,634 $ 151,167 $ 158,029
Sales by Geography
Three Months Ended September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
North America $ 36,332 $ 31,330 $ 100,696 $ 94,750
China 2,371 2,624 8,877 9,134
Rest of World 17,426 16,680 41,594 54,145
$ 56,129 $ 50,634 $ 151,167 $ 158,029
Sales by Timing of Revenue
Three Months Ended September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
Point in time $ 41,070 $ 37,913 $ 105,062 $ 117,361
Over time 15,059 12,721 46,105 40,668
$ 56,129 $ 50,634 $ 151,167 $ 158,029
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Our contract assets and liabilities were as follows (in thousands):
Balance Sheet Classification As of
September 30, 2024 December 31, 2023
Contract assets Prepaid expenses and
other current assets 		$ 8,802 $ 7,298
Contract liabilities Deferred revenues and other long-term liabilities 5,769 6,368
Contract assets generally consist of revenue recognized on an over-time basis where revenue recognition has been met, but the amounts are billed and collected in a subsequent period. In our services contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, which is generally monthly, or upon the achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets recorded in prepaid expenses and other current assets on the Consolidated Balance Sheets. However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities recorded in deferred revenues on the Consolidated Balance Sheets. Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements. These assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. For our product revenue, we generally receive cash payments subsequent to satisfying the performance obligation via delivery of the product, resulting in billed accounts receivable. For our contracts, there are no significant gaps between the receipt of payment and the transfer of the associated goods and services to the customer for material amounts of consideration.
During the three and nine months ended September 30, 2024, we recognized revenue of $43 thousand and $4.3 million that was included in the deferred revenues balance at the beginning of the period as the performance obligations under the associated agreements were satisfied.
Note 3 - Concentrations of Credit and Other Risks
The following customers accounted for 10% or more of our revenues for the periods presented:
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
U.S. Government* 12% 16% 15% 17%
Raytheon Technologies
(1)
(1)
10%
(1)
KORD Technologies 19%
(1)
14%
(1)
*Excludes sales to customers who sell our products and services exclusively to the U.S. Government
(1) Represents less than 10% of total revenues.
Financial instruments that potentially expose us to concentrations of credit risk consist principally of receivables from customers. As of September 30, 2024 and December 31, 2023, two customers accounted for a total of 22% and 24%, respectively, of net customer receivables. No other customers accounted for 10% or more of net customer receivables at either date.
Note 4 - Marketable Securities
Marketable securities consist primarily of highly liquid investments with original maturities of greater than 90 days when purchased. Our marketable securities are considered available-for-sale as they represent investments that are available to be sold for current operations. As such, they are included as current assets on our Consolidated Balance Sheets at fair value with unrealized gains and losses included in accumulated other comprehensive loss. Any unrealized gains and losses that are considered to be other-than-temporary are recorded in other income, net on our Consolidated Statements of Operations. Realized gains and losses on the sale of marketable securities are determined using the specific-identification method and recorded in other income, net on our Consolidated Statements of Operations.
Realized gains were $1.1 million and $2.5 million for the three and nine months ended September 30, 2024, respectively. Unrealized losses were $0.2 million and immaterial for the three and nine months ended September
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30, 2024, respectively. These unrealized gains are considered temporary and are reflected in the Consolidated Statements of Comprehensive Loss. Realized gains were $0.8 million and $1.7 million for the three and nine months ended September 30, 2023, respectively. Unrealized gains were immaterial for the three months ended September 30, 2023 and $0.3 million for the nine months ended September 30, 2023.
See Note 5 for additional information.
Note 5 - Fair Value of Financial Instruments
The carrying amounts of certain of our financial instruments, including cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities are shown at cost which approximates fair value due to the short-term nature of these instruments. The fair value of our term and revolving loans approximates the carrying value due to the variable market rate used to calculate interest payments.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
•Level 1 Inputs: Observable inputs, such as quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date.
•Level 2 Inputs: Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 Inputs: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Our financial instruments that are carried at fair value consist of Level 1 assets which include highly liquid investments and bank drafts classified as cash equivalents and marketable securities.
Our fair value hierarchy for our financial instruments was as follows (in thousands):
September 30, 2024
Level 1 Level 2 Level 3 Total
Cash Equivalents:
Money market securities $ 20,189 $ - $ - $ 20,189
Commercial paper 2,446 - - 2,446
22,635 - - 22,635
Marketable Securities:
U.S. treasuries 65,241 - - 65,241
Total $ 87,876 $ - $ - $ 87,876
December 31, 2023
Level 1 Level 2 Level 3 Total
Cash Equivalents:
Money market securities $ 22,441 $ - $ - $ 22,441
Commercial paper 1,995 - - 1,995
24,436 - - 24,436
Marketable Securities:
U.S. treasuries 59,672 - - 59,672
Total $ 84,108 $ - $ - $ 84,108
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Cash Equivalents
The fair value of cash equivalents is determined based on quoted market prices for similar or identical securities.
Marketable Securities
We classify our marketable securities as available-for-sale and value them utilizing a market approach that uses observable inputs without applying significant judgment.
Note 6 - Inventory
Inventory is stated at the lower of average cost (principally standard cost, which approximates actual cost on a first-in, first-out basis) and net realizable value. Inventory includes raw materials and components that may be specialized in nature and subject to obsolescence. On a quarterly basis, we review inventory quantities on hand in comparison to our past consumption, recent purchases, and other factors to determine what inventory quantities, if any, may not be sellable. Based on this analysis, we write down the affected inventory value for estimated excess and obsolescence charges. At the point of loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Inventory consisted of the following (in thousands):
As of
September 30, 2024 December 31, 2023
Raw materials $ 20,278 $ 23,426
Work in process and semi-finished goods 22,113 19,640
Finished goods 6,437 9,094
$ 48,828 $ 52,160
Note 7 - Property, Plant and Equipment
Property, plant and equipment consisted of the following (in thousands):
Useful life As of
(years) September 30, 2024 December 31, 2023
Automobiles 3 $ 518 $ 109
Computer hardware and software
3 - 5
16,037 9,145
Manufacturing and lab equipment
2 - 7
85,964 91,050
Office equipment and furniture
5 - 7
4,990 2,634
Leasehold and building improvements
2 - 12
30,937 31,988
Buildings 30 9,392 9,392
Land N/A 3,399 3,399
151,237 147,717
Accumulated depreciation (103,348) (95,417)
$ 47,889 $ 52,300
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Note 8 - Intangible Assets and Goodwill
Intangible Assets
The details of definite lived intangible assets were as follows (in thousands):
Estimated useful life
(in years) 		As of
September 30, 2024 December 31, 2023
Patents
3 - 5
$ - $ 6,345
Development programs
2 - 4
7,200 7,200
Developed technology 5 2,959 2,959
10,159 16,504
Accumulated amortization (9,178) (14,852)
$ 981 $ 1,652
Amortization related to intangible assets was as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Amortization expense $ 149 $ 633 $ 671 $ 1,896
Estimated amortization expense for future years is as follows (in thousands):
2024 $ 149
2025 484
2026 348
Thereafter -
$ 981
Goodwill
The carrying amount of goodwill by segment was as follows (in thousands):
Laser Products Advanced Development Totals
Balance, December 31, 2023 $ 2,151 $ 10,248 $ 12,399
Currency exchange rate adjustment 9 - 9
Balance, September 30, 2024 $ 2,160 $ 10,248 $ 12,408
Note 9 - Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
As of
September 30, 2024 December 31, 2023
Accrued payroll and benefits $ 10,497 $ 7,898
Product warranty, current 2,440 3,339
Other accrued expenses 1,204 1,319
$ 14,141 $ 12,556
Note 10 - Product Warranties
We provide warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized. The warranty liability is based on historical experience, any specifically identified failures, and our estimate of future costs. The current portion of our product warranty liability is
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included in the accrued liabilities and the long-term portion is included in Other long-term liabilities in our Consolidated Balance Sheets.
Product warranty liability activity was as follows for the periods presented (in thousands):
Nine Months Ended September 30,
2024 2023
Product warranty liability, beginning $ 4,469 $ 5,441
Warranty charges incurred, net (3,492) (2,805)
Provision for warranty charges, net of adjustments 2,597 2,267
Product warranty liability, ending 3,574 4,903
Less: current portion of product warranty liability (2,440) (3,694)
Non-current portion of product warranty liability $ 1,134 $ 1,209
Note 11 - Stockholders' Equity and Stock-Based Compensation
Restricted Stock Awards and Units
Restricted stock unit ("RSU") and restricted stock awards ("RSA") activity under our equity incentive plan was as follows:
Number of Restricted Stock Units (Thousands) Weighted-Average Grant Date Fair Value
Balance, December 31, 2023 2,817 $ 13.27
Granted 1,787 14.09
Vested (998) 15.08
Forfeited (77) 13.94
Balance, September 30, 2024 3,529 13.16
Number of Restricted Stock Awards (Thousands) Weighted-Average Grant Date Fair Value
Balance, December 31, 2023 133 $ 30.44
Vested (96) 29.20
Balance, September 30, 2024 37 33.66
The total fair value of RSUs vested during the nine months ended September 30, 2024, was $15.0 million. Awards outstanding as of September 30, 2024 include 1.3 million performance-based awards that will vest upon meeting certain performance criteria. 0.5 million performance-based awards were granted during the nine months ended September 30, 2024.
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Stock Options
The following table summarizes our stock option activity during the nine months ended September 30, 2024:
Number of Options (Thousands) Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (Thousands)
Outstanding, December 31, 2023 1,398 $1.24 2.5 $17,142
Options exercised (247) 0.89
Outstanding, September 30, 2024 1,151 1.31 1.9 10,795
Options exercisable at September 30, 2024 1,151 1.31 1.9 10,795
Options vested as of September 30, 2024, and expected to vest after September 30, 2024 1,151 1.31 1.9 10,795
Total intrinsic value of options exercised for the nine months ended September 30, 2024 and 2023, was $2.7 million and $2.5 million, respectively. We received proceeds of $0.2 million and $0.4 million from the exercise of options for the nine months ended September 30, 2024 and 2023, respectively.
Stock-Based Compensation
Total stock-based compensation expense was included in our Consolidated Statements of Operations as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Cost of revenues $ 629 $ 508 $ 1,829 $ 1,871
Research and development 2,046 2,613 5,834 7,537
Sales, general and administrative 3,852 3,506 11,298 10,237
$ 6,527 $ 6,627 $ 18,961 $ 19,645
Unrecognized Compensation Costs
As of September 30, 2024, total unrecognized stock-based compensation was $36.5 million, which will be recognized over an average expected recognition period of 2.0 years.
Note 12 - Commitments and Contingencies
Leases
See Note 13.
Legal Matters
On March 25, 2022, Lumentum Operations LLC (Lumentum) filed a complaint against nLIGHT, Inc. and certain of its employees in the U.S. District Court for the Western District of Washington. The complaint alleges that Lumentum is the partial or full owner of certain of our patents and requests corresponding relief from the court. We are vigorously defending against Lumentum's allegations. Loss in this matter is not probable or reasonably estimable and, as such, no loss contingency has been recorded.
From time to time, we may be subject to various other legal proceedings and claims in the ordinary course of business. As of September 30, 2024 we believe these matters will not have a material adverse effect on our consolidated financial statements.
Note 13 - Leases
We lease real estate space under non-cancelable operating lease agreements for commercial and industrial space. Facilities-related operating leases have remaining terms of 0.1 to 10.7 years, and some leases include options to extend up to 15 years. Other leases for automobiles, manufacturing and office and computer equipment have remaining lease terms of 0.1 to 4.1 years. These leases are primarily operating leases; financing leases are not
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material. We did not include any renewal options in our lease terms for calculating the lease liabilities as we are not reasonably certain we will exercise the options at this time. The weighted-average remaining lease term for the lease obligations was 7 years as of September 30, 2024, and the weighted-average discount rate was 4.0%.
The components of lease expense related to operating leases were as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Lease expense:
Operating lease expense $ 943 $ 948 $ 2,773 $ 2,763
Short-term lease expense 139 142 265 348
Variable and other lease expense 273 271 793 744
$ 1,355 $ 1,361 $ 3,831 $ 3,855
Future minimum payments under our non-cancelable lease obligations were as follows as of September 30, 2024 (in thousands):
2024 $ 959
2025 2,669
2026 1,971
2027 1,886
2028 1,617
Thereafter 5,445
Total minimum lease payments 14,547
Less: interest (1,914)
Present value of net minimum lease payments 12,633
Less: current portion of lease liabilities (2,616)
Total long-term lease liabilities $ 10,017
Note 14 - Segment Information
We operate in two reportable segments consisting of the Laser Products segment and the Advanced Development segment. The following table summarizes the operating results by reportable segment (dollars in thousands):
Three Months Ended September 30, 2024
Laser Products Advanced Development Corporate and Other Totals
Revenue $ 41,132 $ 14,997 $ - $ 56,129
Gross profit $ 12,475 $ 704 $ (629) $ 12,550
Gross margin 30.3 % 4.7 % NM* 22.4 %
Nine Months Ended September 30, 2024
Laser Products Advanced Development Corporate and Other Totals
Revenue $ 104,960 $ 46,207 $ - $ 151,167
Gross profit $ 30,261 $ 3,456 $ (1,829) $ 31,888
Gross margin 28.8 % 7.5 % NM* 21.1 %
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Three Months Ended September 30, 2023
Laser Products Advanced Development Corporate and Other Totals
Revenue $ 38,103 $ 12,531 $ - $ 50,634
Gross profit $ 9,596 $ 850 $ (508) $ 9,938
Gross margin 25.2 % 6.8 % NM* 19.6 %
Nine Months Ended September 30, 2023
Laser Products Advanced Development Corporate and Other Totals
Revenue $ 118,802 $ 39,227 $ - $ 158,029
Gross profit $ 35,860 $ 2,320 $ (1,871) $ 36,309
Gross margin 30.2 % 5.9 % NM* 23.0 %
*Not meaningful
Corporate and Other is unallocated expenses related to stock-based compensation.
There have been no material changes to the geographic locations of our long-lived assets, net, based on the location of the assets, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Note 15 - Net Loss per Share
Basic and diluted net loss and the number of shares used for basic and diluted net loss calculations were the same for all periods presented because we were in a loss position.
The following potentially dilutive securities were not included in the calculation of diluted shares as the effect would have been anti-dilutive (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Restricted stock units and awards 715 918 947 942
Common stock options 1,082 1,413 1,177 1,485
1,797 2,331 2,124 2,427
Note 16 - Subsequent Event
In October 2024, we gave notice to employees at our Shanghai manufacturing facility of a reduction in force. A severance charge of approximately $3.8 million will be recorded in the fourth quarter of 2024.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, you can identify forward-looking statements by the following words: "ability," "anticipate," "attempt," "believe," "can be," "continue," "could," "depend," "enable," "estimate," "expect," "extend," "grow," "if," "intend," "likely," "may," "objective," "ongoing," "plan," "possible," "potential," "predict," "project," "propose," "rely," "should," "target," "will," "would" or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.
These statements involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements include, but are not limited to, statements about: our business model and strategic plans; our expectations regarding manufacturing; our future financial performance; demand for our semiconductor and fiber laser solutions; our ability to develop innovative products; our expectations regarding product volumes and the introduction of new products; our technology and new product research and development activities; the impact of inflation; the impact of seasonality; the effect on our business of litigation to which we are or may become a party; and the sufficiency of our existing liquidity sources to meet our cash needs.
You should refer to the "Risk Factors" section of this report for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, which although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Overview
nLIGHT, Inc. is a leading provider of high-power semiconductor and fiber lasers for industrial, microfabrication, and aerospace and defense applications. Headquartered in Camas, Washington, we design, develop, and manufacture the critical elements of our lasers, and believe our vertically integrated business model enables us to rapidly introduce innovative products, control our costs and protect our intellectual property.
We operate in two reportable segments-Laser Products and Advanced Development -and we serve three primary end-markets-Industrial, Microfabrication, and Aerospace and Defense. Sales of our semiconductor lasers, fiber lasers, fiber amplifiers, and other directed energy laser products are included in the Laser Products segment, while revenue earned from research and development contracts are included in the Advanced Development segment.
Revenues decreased to $151.2 million in the nine months ended September 30, 2024 compared to $158.0 million in the same period of 2023 due primarily to decreased sales in the Laser Products segment. We generated a net loss of $35.8 million for the nine months ended September 30, 2024 compared to a net loss of $28.4 million for the same period of 2023.
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Factors Affecting Our Performance
Demand for our Semiconductor and Fiber Laser Solutions
Our revenue growth depends on market demand and achievement of design wins for our semiconductor and fiber lasers. We consider a design win to occur when a customer notifies us that it has selected one of our products to be incorporated into a product or system under development by such customer. For the foreseeable future, our operations will continue to depend upon capital expenditures by customers in the Industrial and Microfabrication markets, which, in turn, depend upon the demand for these customers' products or services. In addition, in the Aerospace and Defense market, our business depends in large part on continued investment in laser technology by the U.S. government and its allies, and our ability to continue to successfully develop leading technology in this area and commercialize that technology in the future.
Demand for our products also fluctuates based on market cycles, continuously evolving industry supply chains, trade and tariff terms, as well as evolving competitive dynamics in each of our end-markets. Erosion of average selling prices, or ASPs, of established products is typical in our industry, and the ASPs of our products generally decrease as our products mature. We may also negotiate discounted selling prices from time to time with certain customers that purchase higher volumes, or to penetrate new markets or applications. Historically, we have been able to offset decreasing ASPs by introducing new and higher value products, increasing the sales of our existing products, expanding into new applications and reducing our product and manufacturing costs. Although we anticipate further increases in product volumes and the continued introduction of new and higher value products, ASP reduction may cause our revenues to decline or grow at a slower rate.
Technology and New Product Development
We invest heavily in the development of our semiconductor, fiber laser, directed energy, and laser-sensing technologies to provide solutions to our current and future customers. We anticipate that we will continue to invest in research and development to achieve our technology and product roadmap. Our product development is targeted to specific sectors of the market where we believe the performance of our products provides a significant benefit to our customers. We believe our close coordination with our customers regarding their future product requirements enhances the efficiency of our research and development expenditures.
Manufacturing Costs and Gross Margins
Our product gross profit, in absolute dollars and as a percentage of revenues, is impacted by our product sales mix, sales volumes, changes in ASPs, production volumes, the corresponding absorption of manufacturing overhead expenses, the cost of purchased materials, production costs and manufacturing yields. Our product sales mix can affect gross profits due to variations in profitability related to product configurations and cost profiles, customer volume pricing, availability of competitive products in various markets, and new product introductions, among other factors. We have invested heavily in U.S.-based manufacturing capabilities in the last several years. Capacity utilization affects our gross margin because we have a high fixed cost base due to our vertically integrated business model. Increases in sales and production volumes drive favorable absorption of fixed costs, improved manufacturing efficiencies and lower production costs. Gross margins may fluctuate from period to period depending on product mix and the level of capacity utilization.
Our Advanced Development gross profit varies with the type and terms of contracts, contract volume, project mix, changes in the estimated cost of projects at completion, and successful execution on projects during the period. Most of our Advanced Development contracts have historically been structured as cost plus fixed fee due to the technical complexity of the research and development services, but we also perform work under fixed price contracts where gross margin can change from period to period based on the estimated cost of the project at completion.
Seasonality
Our quarterly revenues can fluctuate with general economic trends, the timing of capital expenditures by our customers, holidays, and general economic trends. In addition, as is typical in our industry, we tend to recognize a larger percentage of our quarterly revenues in the last month of the quarter, which may impact our working capital trends.
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Results of Operations
The following table sets forth our operating results as a percentage of revenues for the periods indicated (which may not add up due to rounding):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Revenue:
Products 73.3 % 75.3 % 69.4 % 75.2 %
Development 26.7 24.7 30.6 24.8
Total revenue 100.0 100.0 100.0 100.0
Cost of revenue:
Products 52.2 57.3 50.6 53.7
Development 25.4 23.1 28.3 23.3
Total cost of revenue 77.6 80.4 78.9 77.0
Gross profit 22.4 19.6 21.1 23.0
Operating expenses:
Research and development 20.2 21.2 22.3 21.5
Sales, general, and administrative 23.2 23.2 24.7 21.9
Total operating expenses 43.4 44.4 47.0 43.5
Loss from operations (21.0) (24.7) (25.9) (20.5)
Other income:
Interest income, net 0.7 0.6 0.9 0.6
Other income, net 2.4 1.1 1.7 1.3
Loss before income taxes (17.9) (23.1) (23.3) (18.6)
Income tax expense (benefit) 0.5 0.4 0.3 (0.6)
Net loss (18.4) % (23.5) % (23.6) % (18.0) %
Revenues by End Market
Our revenues by end market were as follows for the periods presented (dollars in thousands):
Three Months Ended September 30, Change
2024 % of Revenue 2023 % of Revenue $ %
Industrial $ 11,588 20.6 % $ 19,607 38.7 % $ (8,019) (40.9) %
Microfabrication 14,263 25.4 12,000 23.7 2,263 18.9
Aerospace and Defense 30,278 54.0 19,027 37.6 11,251 59.1
$ 56,129 100.0 % $ 50,634 100.0 % $ 5,495 10.9 %
Nine Months Ended September 30, Change
2024 % of Revenue 2023 % of Revenue Amount %
Industrial $ 36,478 24.1 % $ 56,078 35.5 % $ (19,600) (35.0) %
Microfabrication 35,276 23.4 37,285 23.6 (2,009) (5.4)
Aerospace and Defense 79,413 52.5 64,666 40.9 14,747 22.8
$ 151,167 100.0 % $ 158,029 100.0 % $ (6,862) (4.3) %
The decreases in revenue from the Industrial market for the three and nine months ended September 30, 2024, compared to the same periods in 2023, were driven by decreases in unit sales due to deteriorating market conditions and lower customer demand in cutting and additive manufacturing.
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The increase in revenue from the Microfabrication market for the three months ended September 30, 2024 compared to the same period in 2023 was primarily attributable to an increase in unit sales of semiconductor lasers to Rest of World customers due to improved demand. The decrease in revenue from the Microfabrication market for the nine months ended September 30, 2024 compared to the same period in 2023 was driven by lower unit sales for the first six months of 2024 that was partially offset by an increase in unit sales for the third quarter of 2024.
The increases in revenue from the Aerospace and Defense market for the three and nine months ended September 30, 2024, compared to the same periods in 2023, were the result of increased unit sales of products due to higher market demand, an increase in ASPs, and increased development revenue from development contracts awarded primarily in the second half of 2023.
Revenues by Segment
Our revenues by segment were as follows for the periods presented (dollars in thousands):
Three Months Ended September 30, Change
2024 % of Revenue 2023 % of Revenue $ %
Laser Products $ 41,132 73.3 % $ 38,103 75.3 % $ 3,029 7.9 %
Advanced Development 14,997 26.7 12,531 24.7 2,466 19.7
$ 56,129 100.0 % $ 50,634 100.0 % $ 5,495 10.9 %
Nine Months Ended September 30, Change
2024 % of Revenue 2023 % of Revenue Amount %
Laser Products $ 104,960 69.4 % $ 118,802 75.2 % $ (13,842) (11.7) %
Advanced Development 46,207 30.6 39,227 24.8 6,980 17.8
$ 151,167 100.0 % $ 158,029 100.0 % $ (6,862) (4.3) %
The increase in Laser Products revenue for the three months ended September 30, 2024 compared to the same period in 2023 was the result of increased revenue from the Microfabrication and Aerospace and Defense markets as discussed above, offset partially by a decrease in revenue from the Industrial market. The decrease in Laser Products revenue for the nine month ended September 30, 2024 compared to the same period in 2023 was the result of decreased revenue from the Industrial and Microfabrication markets as discussed above, offset partially by an increase in revenue from the Aerospace and Defense market.
The increases in Advanced Development revenue for the three and nine months ended September 30, 2024, compared to the same periods in 2023, were driven by development contracts awarded primarily in the second half of 2023. All Advanced Development revenue is included in the Aerospace and Defense market.
Revenues by Geographic Region
Our revenues by geographic region were as follows for the periods presented (dollars in thousands):
Three Months Ended September 30, Change
2024 % of Revenue 2023 % of Revenue $ %
North America $ 36,332 64.7 % $ 31,330 61.9 % $ 5,002 16.0 %
China 2,371 4.2 2,624 5.2 (253) (9.6)
Rest of World 17,426 31.1 16,680 32.9 746 4.5
$ 56,129 100.0 % $ 50,634 100.0 % $ 5,495 10.9 %
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Nine Months Ended September 30, Change
2024 % of Revenue 2023 % of Revenue Amount %
North America $ 100,696 66.6 % $ 94,750 60.0 % $ 5,946 6.3 %
China 8,877 5.9 9,134 5.8 (257) (2.8)
Rest of World 41,594 27.5 54,145 34.2 (12,551) (23.2)
$ 151,167 100.0 % $ 158,029 100.0 % $ (6,862) (4.3) %
Geographic revenue information is based on the location to which we ship our products. The increases in North America revenue for the three and nine months ended September 30, 2024 compared to the same periods in 2023, were primarily attributable to increased revenue from the Aerospace and Defense market as previously discussed, offset partially by decreased revenue from the Industrial market.
The decrease in China revenue for the three months ended September 30, 2024 compared to the same period in 2023 was the result of decreased revenue from the Microfabrication and Industrial markets. The decrease in China revenue for the nine months ended September 30, 2024 compared to the same period in 2023 was driven by a decreased in revenue from the Industrial market offset partially by an increase in revenue from the Microfabrication market.
The increase in Rest of World revenue for the three months ended September 30, 2024 compared to the same period in 2023 was the result of increased revenue from the Aerospace and Defense and Microfabrication markets, offset partially by decreased revenue from the Industrial market. The decrease in Rest of World revenue for the nine months ended September 30, 2024 compared to the same period in 2023 was the result of decreased revenue from both the Industrial and Microfabrication markets, offset partially by increased revenue from the Aerospace and Defense market.
Cost of Revenues and Gross Margin
Cost of Laser Products revenue consists primarily of manufacturing materials, labor, shipping and handling costs, tariffs and manufacturing-related overhead. We order materials and supplies based on backlog and forecasted demand from our customers. We expense all warranty costs and inventory provisions as cost of revenues.
Cost of Advanced Development revenue consists of materials, labor, subcontracting costs, and an allocation of indirect costs including overhead and general and administrative.
Our gross profit and gross margin were as follows for the periods presented (dollars in thousands):
Three Months Ended September 30, 2024
Laser Products Advanced Development Corporate and Other Total
Gross profit $ 12,475 $ 704 $ (629) $ 12,550
Gross margin 30.3 % 4.7 % NM* 22.4 %
Nine Months Ended September 30, 2024
Laser Products Advanced Development Corporate and Other Total
Gross profit $ 30,261 $ 3,456 $ (1,829) $ 31,888
Gross margin 28.8 % 7.5 % NM* 21.1 %
Three Months Ended September 30, 2023
Laser Products Advanced Development Corporate and Other Total
Gross profit $ 9,596 $ 850 $ (508) $ 9,938
Gross margin 25.2 % 6.8 % NM* 19.6 %
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Nine Months Ended September 30, 2023
Laser Products Advanced Development Corporate and Other Total
Gross profit $ 35,860 $ 2,320 $ (1,871) $ 36,309
Gross margin 30.2 % 5.9 % NM* 23.0 %
*NM = not meaningful
The increase in Laser Products gross margin for the three months ended September 30, 2024 compared to the same period of 2023 was driven primarily by positive changes in sales mix and increases in ASPs in the Aerospace and Defense market. Our average gross margins on sales for the Industrial market have been lower than those for the Microfabrication and Aerospace and Defense markets. The decrease in Laser Products gross margin for the nine months ended September 30, 2024 compared to same period of 2023, was driven by the impact of lower production volumes on fixed manufacturing costs due to the decrease in overall customer demand, partially offset by positive changes in sales mix.
The decrease in Advanced Development gross margin for the three months ended September 30, 2024 compared to the same period in 2023 was driven by changes in the composition of research and development contracts and a increase in the estimated cost at completion on a significant fixed priced contract in the third quarter of 2024. The increase in Advanced Development gross margin for the nine months ended September 30, 2024 compared to the same periods in 2023 was primarily the result of changes in the composition of research and development contracts. The nine month period ended September 30, 2024 included more revenue from fixed priced contracts that carried higher average gross margins than cost-plus fixed fee contracts during the period.
Operating Expenses
Our operating expenses were as follows for the periods presented (dollars in thousands):
Research and Development
Three Months Ended September 30, Change
2024 2023 $ %
Research and development $ 11,328 $ 10,744 $ 584 5.4 %
Nine Months Ended September 30, Change
2024 2023 Amount %
Research and development $ 33,723 $ 34,049 $ (326) (1.0) %
The increase in research and development expense for the three months ended September 30, 2024 compared to the same period in 2023 was primarily attributable to an increase in employee compensation costs and project-related spending, offset partially by a decrease in stock-based compensation of $0.6 million. The decrease in research and development expense for the nine months ended September 30, 2024 compared to the same period in 2023 was driven by a decrease in stock-based compensation of $1.7 million, offset partially by increases in employee compensation costs and project-related spending.
Sales, General and Administrative
Three Months Ended September 30, Change
2024 2023 $ %
Sales, general, and administrative $ 13,021 $ 11,725 $ 1,296 11.1 %
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Nine Months Ended September 30, Change
2024 2023 Amount %
Sales, general, and administrative $ 37,372 $ 34,684 $ 2,688 7.7 %
The increases in sales, general and administrative expense for the three and nine months ended September 30, 2024, compared to the same periods in 2023, were primarily due to increases in bad debt expense and stock-based compensation of $0.3 million and $1.1 million for the three and nine months ended September 30, 2024, respectively.
Interest Income, net
Three Months Ended September 30, Change
2024 2023 $ %
Interest income, net $ 394 $ 303 $ 91 30.0%
Nine Months Ended September 30, Change
2024 2023 Amount %
Interest income, net $ 1,308 $ 990 $ 318 32.1 %
The increases in interest income, net, for the three and nine months ended September 30, 2024, compared to the same periods in 2023, were driven by increases in interest rates and increased investment in marketable securities.
Other Income, net
Three Months Ended September 30, Change
2024 2023 $ %
Other income, net $ 1,331 $ 536 $ 795 148.3 %
Nine Months Ended September 30, Change
2024 2023 Amount %
Other income, net $ 2,594 $ 1,997 $ 597 29.9 %
Changes in other income, net, are primarily attributable to realized gains on the sale of marketable securities and changes in net realized and unrealized foreign exchange transactions resulting from currency rate fluctuations.
Income Tax Expense (Benefit)
Three Months Ended September 30, Change
2024 2023 $ %
Income tax expense (benefit) $ 261 $ 187 $ 74 39.6 %
Nine Months Ended September 30, Change
2024 2023 Amount %
Income tax expense (benefit) $ 525 $ (1,005) $ 1,530 152.2 %
We record income tax expense for taxes in our foreign jurisdictions including Austria, Finland, Italy, and South Korea. While our tax expense is largely dependent on the geographic mix of earnings related to our foreign operations, we also record tax expense for uncertain tax positions taken and associated penalties and interest. We consider all available evidence, both positive and negative, in assessing the extent to which a valuation allowance should be applied against our deferred tax assets. Due to the uncertainty with respect to their ultimate realizability in
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the United States and China, we continue to maintain a full valuation allowance in these jurisdictions as of September 30, 2024.
The increase in income tax expense for the nine months ended September 30, 2024 compared to the same period in 2023 is primarily due to a benefit for expiring statutes of limitations on unrecognized tax positions in the second quarter of 2023 and accrued interest on unrecognized tax positions. The increase in income tax expense for the three months ended September 30, 2024 compared to the same period in 2023 was mainly driven by an increase in income in foreign jurisdictions.
Liquidity and Capital Resources
We had cash and cash equivalents and restricted cash of $41.7 million and $53.5 million as of September 30, 2024 and December 31, 2023, respectively. In addition, we had marketable securities of $65.2 million and $59.7 million at September 30, 2024 and December 31, 2023, respectively. Our total balance of cash, cash equivalents, restricted cash and marketable securities decreased by $6.2 million from December 31, 2023 to September 30, 2024.
For the nine months ended September 30, 2024, our principal source of liquidity was cash collected from customers. We believe our existing sources of liquidity will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements may vary materially from period to period and will depend on many factors, including the timing and extent of spending on research and development efforts, the expansion of sales and marketing activities, the continuing market acceptance of our products and ongoing investments to support the growth of our business. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies and intellectual property rights. From time to time, we may explore additional financing sources which could include equity, equity-linked and debt financing arrangements.
The following table summarizes our cash flows for the periods presented (in thousands):
Nine Months Ended September 30,
2024 2023
Net cash provided by operating activities $ 1,528 $ 9,687
Net cash used in investing activities (10,923) (13,163)
Net cash used in financing activities (2,369) (2,062)
Effect of exchange rate changes on cash 12 (198)
Net decrease in cash, cash equivalents and restricted cash $ (11,752) $ (5,736)
Net Cash Provided by Operating Activities
During the nine months ended September 30, 2024, net cash provided by operating activities was $1.5 million, which was the result of a $35.8 million net loss, offset by a decrease in net working capital of $2.7 million and non-cash expenses totaling $34.7 million related primarily to depreciation, amortization, and stock-based compensation. The decrease in net working capital in the nine months ended September 30, 2024 was driven by a $3.3 million decrease in inventory, a $1.0 million decrease in prepaid expenses and other current assets, a $4.6 million increase in accounts payable and a $2.5 million increase in accrued and other long-term liabilities. These increases were offset by a $2.1 million increase in accounts receivable, a $3.4 million increase in other assets, net, a $1.9 million decrease in deferred revenues and a $1.5 million decrease in lease liabilities.
Net Cash Used in Investing Activities
During the nine months ended September 30, 2024, net cash used in investing activities was $10.9 million, which was driven by the net purchase of marketable securities of $5.6 million and capital expenditures of $5.3 million.
Net Cash Used in Financing Activities
During the nine months ended September 30, 2024, net cash used in financing activities was $2.4 million, which consisted of taxes paid on the net settlement of stock awards of $3.9 million, partially offset by proceeds from stock option exercises and employee stock plan purchases of $1.6 million.
Credit Facilities
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We have a $40.0 million revolving line of credit, or LOC, with Banc of California dated September 24, 2018, which is secured by our assets.
On September 27, 2024, we amended the LOC to extend the maturity date to September 24, 2027, updated financial covenants, and amend the unused line fee and interest rate applicable to revolving loans.
The LOC agreement contains restrictive and financial covenants and bears an unused credit fee of 0.25% on an annualized basis. The interest rate on the LOC is based on the Prime Rate, minus a margin based on our liquidity levels. No amounts were outstanding under the LOC at September 30, 2024 and we were in compliance with all covenants.
Contractual Obligations
There have been no material changes to our contractual obligations as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Inflation
We do not believe that inflation had a material effect on our business, financial condition or results of operations during the three and nine months ended September 30, 2024, If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could materially adversely affect our business, financial condition and results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For financial market risks related to changes in interest rates and foreign currency exchange rates, reference is made to Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," contained in Part II of our Annual Report on Form 10-K for the year ended December 31, 2023. Our exposure to market risk has not changed materially since December 31, 2023.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and our chief financial officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and our chief financial officer have concluded that, as of such date, our disclosure controls and procedures were, in design and operation, effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal Control
Control systems, including ours, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems' objectives are being met. Further, the design of any control systems must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
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PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, see Note 12 - Commitments and Contingencies to our consolidated financial statements included elsewhere in this report.
ITEM 1A.RISK FACTORS
For risk factors related to our business, reference is made to Item 1A, "Risk Factors," contained in Part I of our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 5. OTHER INFORMATION
Securities Trading Plans of Directors and Executive Officers
During our last fiscal quarter, no director or officer, as defined in Rule 16a-1(f), adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," each as defined in Regulation S-K Item 408.
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ITEM 6. EXHIBITS
(a) Exhibits
Exhibit
Number 		Incorporated by Reference Filed
Herewith
Description Form File No. Exhibit Filing Date
10.1 8-K 001-38462 10.1 September 27, 2024
31.1
Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1*
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) X
101.SCH Inline XBRL Taxonomy Extension Schema Document X
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. X
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) X
*
The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NLIGHT, INC.
(Registrant)
November 8, 2024 By: /s/ SCOTT KEENEY
Date Scott Keeney
President and Chief Executive Officer
(Principal Executive Officer)
November 8, 2024 By: /s/ JOSEPH CORSO
Date Joseph Corso
Chief Financial Officer
(Principal Financial Officer)
November 8, 2024 By: /s/ JAMES NIAS
Date James Nias
Chief Accounting Officer
(Principal Accounting Officer)
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