Summary of nLIGHT Conference Call Company Overview - nLIGHT is a founder-led defense laser technology company with a vertically integrated platform based in the U.S. [1] - The company specializes in high-power semiconductor lasers, with applications in both commercial and defense sectors [2][4]. - nLIGHT is headquartered in the Pacific Northwest, near major semiconductor fabs like Intel and TSMC, and has a site in Colorado [2]. Core Technologies and Applications - nLIGHT's technology stack includes semiconductor chips that produce tens of watts of power, which can be scaled to high-power laser systems [3][4]. - The company focuses on three core areas: directed energy, sensing, and advanced manufacturing [5][12]. Directed Energy - Directed energy applications utilize high-power lasers to damage or destroy various threats, including drones and missiles [5][6]. - nLIGHT claims to have the highest power laser in the world at over 300 kW, with plans to scale to 1 MW [9]. - The company emphasizes the importance of coherent beam combining for higher power applications, which offers advantages in brightness and atmospheric compensation [8][10]. Sensing - Sensing applications involve using pulse lasers for range finding and LiDAR, providing high-resolution data in a stealthy manner [11]. - nLIGHT has been involved in programs for over a decade and is currently deployed on various missiles [11]. Advanced Manufacturing - The company is engaged in laser additive manufacturing, which is crucial for producing complex parts for hypersonics and rocket engines [12][13]. - nLIGHT's technology is also applied in the automotive sector, with lasers used in the production of high-performance vehicles [28]. Market Dynamics - The defense sector is currently the core market driving nLIGHT's growth, with a strong alignment with the Department of Defense's priorities [5]. - The industrial market has seen significant growth, particularly in China, which is now the largest market for industrial lasers [29]. - However, the company has faced challenges due to excess capacity in the industrial market stemming from China [30]. Financial Position and Growth Strategy - nLIGHT recently raised $200 million to strengthen its balance sheet, which now exceeds $250 million [23][24]. - The capital will be used for product development, capital expenditures, and potential mergers and acquisitions [26][27]. - The company aims to invest ahead of program records to capitalize on known applications in directed energy [25]. Vertical Integration - nLIGHT's vertical integration strategy allows for rapid adaptation to technological changes and reduces transaction costs associated with external partnerships [34]. - The acquisition of Nutronics enhanced nLIGHT's capabilities in coherent beam combining and atmospheric correction, demonstrating the benefits of vertical integration [35][36]. Future Outlook - nLIGHT is optimistic about growth in the sensing and directed energy markets, which are expected to expand significantly [38]. - The company is also focused on addressing challenges in the U.S. Indo-Pacific Command, where both directed energy and sensing technologies are critical [39]. Additional Insights - The management highlighted the importance of thermal management in laser systems, which is critical for performance [18]. - nLIGHT is exploring partnerships with various government agencies and primes in both sensing and directed energy sectors [20].

Financial Data and Key Metrics Changes - Total revenue for the second quarter was $61.7 million, an increase of 22% compared to $50.5 million in the same quarter last year and up 19.5% compared to the previous quarter [12] - Aerospace and Defense (A&D) revenue reached a record $40.7 million, up 48.6% year over year and 24% sequentially [12] - Gross margin for the second quarter was 29.9%, compared to 23.5% in the same quarter last year and 26.7% in the previous quarter [14] - Non-GAAP net income for the second quarter was $2.9 million, or $0.06 per diluted share, compared to a non-GAAP net loss of $4.6 million, or $0.10 per share in the same quarter last year [18] Business Line Data and Key Metrics Changes - A&D revenue growth was driven by record defense products revenue, which grew 74.5% year over year and 18% compared to the last quarter [12] - Development revenue was $20.9 million, also a record, growing more than 30% both sequentially and year over year [13] - Commercial revenue was $21 million, a decrease of 9% year over year but up 11% sequentially [13] Market Data and Key Metrics Changes - A&D revenue represented approximately 66% of total sales in the quarter, up from 54% in the same quarter a year ago [4] - The company began shipping to a new international customer in the directed energy market, indicating a growing pipeline of global opportunities [9] Company Strategy and Development Direction - The company is well positioned to drive continued growth in A&D with leading high-power laser technology developed over the past two decades [5] - The focus remains on directed energy and laser sensing, aligning with critical priorities of the Department of Defense [5] - The company is rationalizing investments in commercial markets to align resources with growth opportunities, particularly in additive manufacturing [11][62] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in growing A&D revenues by at least 40% in 2025, supported by a growing pipeline of directed energy programs and laser sensing opportunities [10] - The company expects revenue for 2025 to be in the range of $62 million to $67 million, with A&D revenue expected to grow sequentially and year over year [19] - Management noted that while there were improvements in commercial markets, they do not expect sustained demand growth in the majority of industrial applications [11] Other Important Information - The company ended the second quarter with total cash, cash equivalents, restricted cash, and investments of $114 million [18] - The transition of amplifier products into advanced production is critical for scaling operations and increasing volume [44] Q&A Session Summary Question: What drove the outperformance in A&D? - Management attributed the outperformance to strong execution in existing programs, particularly in amplifier sales [25] Question: Any updates on laser sensing programs? - Management indicated continued success in existing platforms and expected higher volumes as customers restock inventory [29] Question: Insights on gross margin expectations? - Management noted that the high gross margin in Q2 was due to better factory absorption and execution, but a step down is expected in Q3 [31] Question: Initial views on 2026? - Management stated it is too early to provide guidance for 2026 but remains confident in the growth pipeline [39] Question: Details on the amplifier transition? - The transition involves moving amplifier manufacturing from R&D to normal manufacturing groups, which is crucial for scaling production [43]

Financial Data and Key Metrics Changes - Total revenue for Q1 2025 was $51.7 million, a 16% increase from $44.5 million in Q1 2024 [13] - Aerospace and Defense (A&D) revenue was $32.7 million, up 50.4% year over year and 8.6% sequentially [13] - Gross margin for Q1 2025 was 26.7%, compared to 16.8% in Q1 2024, with a benefit of approximately $1.9 million related to duty reclaim [15][16] - GAAP net loss for Q1 2025 was $8.1 million or $0.16 per share, an improvement from a net loss of $13.8 million or $0.29 per share in the same quarter a year ago [17] Business Line Data and Key Metrics Changes - Defense product sales grew more than 150% year over year, significantly contributing to the overall revenue increase [4][13] - Commercial markets, including industrial and microfabrication, saw revenue of $19 million, a decrease of 16.8% year over year but up 9.9% sequentially [14] Market Data and Key Metrics Changes - The defense sector represented over 63% of total sales in Q1 2025, up from 49% in the same quarter a year ago [4] - The company expects A&D revenue to grow at least 25% year over year in 2025, driven by a strong pipeline of opportunities [9][13] Company Strategy and Development Direction - The company is focused on vertical integration in the directed energy market, leveraging its technology stack to deliver high-performance lasers [6][7] - The Healthy II program, a $171 million DoD initiative, is expected to be a significant growth driver through 2026 [6] - The company is optimistic about long-term growth in metal additive manufacturing, particularly in aerospace and defense [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth of A&D revenue, citing strong demand and a growing pipeline of opportunities [9][12] - Concerns were raised about the potential impact of tariffs on margins, particularly in the industrial fiber laser business [26][27] - The company does not expect a significant long-term impact from tariffs on defense business but acknowledges potential short-term margin variability [11][20] Other Important Information - The company ended Q1 2025 with total cash and investments of $117 million and drew down $20 million from its $40 million line of credit [17][18] - Inventory increased to $43.8 million, primarily to support the forecasted ramp in directed energy products [18] Q&A Session Summary Question: Visibility on A&D product sales beyond Q2 - Management indicated strong visibility due to the Healthy II program and increasing orders contributing to defense revenue growth [22][25] Question: Impact of tariffs on different business segments - The industrial fiber laser business is expected to be most affected by tariffs, with potential indirect impacts on demand across commercial markets [26][28] Question: Changes in A&D outlook and conditions for guidance increase - Management noted continued traction in both US and international markets for directed energy applications, with tariffs adding uncertainty [32] Question: Update on commercial market outlook - The outlook remains unchanged, with expectations of a decline of 15% to 20% in the commercial segment, despite a better quarter in microfabrication [42][44] Question: Gross margin expectations and tariff-related risks - Management acknowledged the complexity of passing through costs and indicated a potential impact on gross margins depending on the tariff situation [46][48] Question: Funded and unfunded backlog updates - No major updates were provided, but management expressed satisfaction with the current level of backlog and pipeline development [49]