nLIGHT(LASR) - 2020 Q1 - Quarterly Report

Financial Information This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls Unaudited Interim Financial Statements The company reported slightly increased revenues but a widened net loss for Q1 2020, alongside asset growth and improved operating cash flow Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | $116,250 | $117,252 | | Total current assets | $199,811 | $198,593 | | Non-Current Assets | | | | Property, plant and equipment, net | $41,012 | $27,747 | | Total Assets | $271,789 | $249,966 | | Current Liabilities | | | | Total current liabilities | $31,268 | $25,035 | | Non-Current Liabilities | | | | Long-term debt | $15,000 | $— | | Total Liabilities | $58,842 | $33,358 | | Total Stockholders' Equity | $212,947 | $216,608 | Consolidated Statement of Operations (Unaudited) | Metric | Three Months Ended Mar 31, 2020 (in thousands) | Three Months Ended Mar 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total revenue | $43,215 | $41,861 | | Gross profit | $9,501 | $13,514 | | Gross Margin | 22.0% | 32.3% | | Total operating expenses | $16,238 | $14,566 | | Loss from operations | $(6,737) | $(1,052) | | Net loss | $(7,475) | $(1,235) | | Net loss per share, diluted | $(0.20) | $(0.03) | Consolidated Statement of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Three Months Ended Mar 31, 2020 (in thousands) | Three Months Ended Mar 31, 2019 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,079) | $(4,939) | | Net cash used in investing activities | $(15,464) | $(2,734) | | Net cash provided by financing activities | $15,531 | $442 | | Net decrease in cash and cash equivalents | $(1,002) | $(7,112) | - The company adopted the new lease accounting standard (ASU 2016-02, Topic 842) on January 1, 2020, resulting in the recognition of operating lease right-of-use (ROU) assets of $7.6 million and lease liabilities of $7.9 million[25] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth driven by Aerospace and Defense, offset by declines in other markets, and explains the significant drop in gross margin and widened net loss - The company's operations are vulnerable to the effects of the COVID-19 pandemic, which could disrupt manufacturing, supply chains, and customer demand; as of the report date, all global manufacturing facilities were operational[78][79] Revenue by End Market (in thousands) | End Market | Q1 2020 Revenue | Q1 2019 Revenue | % Change | | :--- | :--- | :--- | :--- | | Industrial | $15,990 | $18,124 | (11.8)% | | Microfabrication | $10,419 | $14,533 | (28.3)% | | Aerospace and Defense | $16,806 | $9,204 | 82.6% | | Total | $43,215 | $41,861 | 3.2% | Revenue by Geographic Region (in thousands) | Geographic Region | Q1 2020 Revenue | Q1 2019 Revenue | % Change | | :--- | :--- | :--- | :--- | | North America | $21,046 | $15,770 | 33.5% | | China | $12,042 | $13,653 | (11.8)% | | Rest of World | $10,127 | $12,438 | (18.6)% | | Total | $43,215 | $41,861 | 3.2% | - Gross margin decreased to 22.0% in Q1 2020 from 32.3% in Q1 2019, primarily driven by price reductions in the industrial market, unfavorable product sales mix, increased inventory reserves, and decreased factory utilization[93] - Research and development (R&D) expenses increased by 32.9% to $8.5 million, mainly due to a $1.2 million increase in stock-based compensation and a $0.7 million increase in purchased intangible amortization from the Nutronics acquisition[95] - The company's principal uses of liquidity in Q1 2020 were to acquire a commercial property in Camas, Washington, and to fund working capital, financed by drawing $15.0 million from its revolving line of credit[101][102] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its exposure to financial market risks, including interest rate and foreign currency exchange rates, since year-end 2019 - The company's exposure to market risk, including interest rate and foreign currency exchange rate risks, has not changed materially since December 31, 2019[115] Controls and Procedures Management concluded disclosure controls were effective, with changes made for new lease accounting standards and ongoing integration of acquired company controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[116] - Changes were made to internal controls over financial reporting to accommodate the new lease accounting standard, ASC 842[117] - The company has not yet completed the integration of the internal control over financial reporting for the acquired Nutronics, Inc. business[118] Other Information This section covers legal proceedings, key risk factors, and a list of exhibits filed with the report Legal Proceedings The company reports no material changes to its legal proceedings since the 2019 Annual Report on Form 10-K - There have been no material changes to the legal proceedings disclosed in the Annual Report on Form 10-K for the year ended December 31, 2019[123] Risk Factors The company details significant risks including the impact of COVID-19, a history of net losses, intense competition, reliance on cyclical markets, international operations, and customer concentration - The business is vulnerable to the effects of pandemics, including COVID-19, which are likely to continue disrupting manufacturing and supply chains and could adversely affect operating results[125] - The company has a history of losses, including a net loss of $7.5 million for Q1 2020, and may not be able to maintain profitability as operating costs increase[129] - The company faces intense competition, including from competitors in China who have substantially reduced prices, which could negatively impact revenues and gross margins[137] - Substantial sales and operations in China (28% of revenue in Q1 2020) expose the company to risks from economic downturns, regulatory changes, and US-China trade tariffs[145][147] - The company relies on a small number of customers, with the top ten accounting for 62% of revenues in Q1 2020; the loss of any of these customers could materially harm the business[154] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate bylaws, a purchase agreement, and CEO/CFO certifications - The report includes several filed exhibits, such as the Amended and Restated Bylaws (3.2), a Purchase and Sale Agreement with Sharp Electronics (10.1), and CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906 (31.1, 31.2, 32.1)[247]