NLIGHT INC

Previous wording

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.

Current wording

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 new import and export controls; the impact of changes in regulations and customs, tariffs and trade barriers, or the perception that any of them could occur; 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.

Previous wording

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.

Current wording

We operate in two reportable segments consisting of the Laser Products segment and the Advanced Development segment.

Previous wording

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.

Current wording

Revenues increased to $51.7 million in the three months ended March 31, 2025 compared to $44.5 million in the same period in 2024 due primarily to an increase in both product and development revenue from the Aerospace and Defense end market. We generated a net loss of $8.1 million for the three months ended March 31, 2025 compared to a net loss of $13.8 million for the same period in 2024.

Previous wording

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.

Current wording

Our revenue depends largely on market conditions, competitive pressure, and achievement of design wins. 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. In the Aerospace and Defense market, our business also 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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

Product gross profit, in absolute dollars and gross margin, may fluctuate from period to period based on 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. 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. Even though certain of our products are built offshore by contract manufacturers, capacity utilization affects gross margin because of the fixed cost associated with our U.S.-based manufacturing capabilities. Change in sales and production volumes impact absorption of fixed costs, manufacturing efficiencies and production costs.

Previous wording

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.

Current wording

Our 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 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.

Previous wording

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.

Current wording

The increase in Laser Products revenue for the three months ended March 31, 2025 compared to the same period in 2024 was the result of increased units sales from the Aerospace and Defense end market, partially offset by lower units sales from the Industrial and Microfabrication markets. The increase in Advanced Development revenue for the three months ended March 31, 2025 compared to the same period in 2024 was driven by progress on existing research and development contracts. All Advanced Development revenue is included in the Aerospace and Defense market.

Previous wording

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.

Current wording

Geographic revenue information is based on the location to which we ship our products. The increase in North America Revenue for the three months ended March 31, 2025 was due to increased revenue from the Aerospace and Defense market, partially offset by decreased revenue from the Industrial and Microfabrication markets. The decrease in Asia Pacific revenue for the three months ended March 31, 2025 compared to the same period in 2024 was the result of decreased revenue from the Industrial and Microfabrication markets, partially offset by increased revenue from the Aerospace and Defense market. The increase in EMEA revenue for the three months ended March 31, 2025 compared to the same period in 2024 was due to increased revenue from the Microfabrication market and Aerospace and Defense market, partially offset by decreased revenue from the Industrial market.

Previous wording

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.

Current wording

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 customer orders. We expense all warranty costs and inventory provisions as cost of revenues.

Previous wording

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.

Current wording

The increase in Laser Products gross margin for the three months ended March 31, 2025 compared to the same period in 2024 was driven primarily by product sales mix and the impact of increased production volumes on fixed manufacturing costs due to the overall increase in sales as previously discussed. The first quarter of 2025 also benefited from an increase in duty reclaim. The increase in Advanced Development gross margin for the three months ended March 31, 2025 compared to the same period in 2024 was primarily the result of an increase in revenue from fixed priced contracts that carried higher average gross margins than cost-plus fixed fee contracts.

Previous wording

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.

Current wording

The increase in research and development expense for the three months ended March 31, 2025 compared to the same period in 2024 was driven by an increase in project-related expenses, incentive compensation, and an increase in stock-based compensation of $0.2 million, partially offset by a decrease in employee compensation due to a reduction in headcount.

Previous wording

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.

Current wording

The increase in interest income, net, for the three months ended March 31, 2025 compared to the same period in 2024 was driven primarily by an increase in income earned from marketable securities and imputed interest on a long-term customer receivable.

Previous wording

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.

Current wording

Other income, net is primarily attributable to changes in net realized and unrealized foreign exchange transactions resulting from currency rate fluctuations.

Previous wording

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 the United States and China, we continue to maintain a full valuation allowance in these jurisdictions as of September 30, 2024.

Current wording

We record income tax expense for taxes in our foreign jurisdictions including Finland, Italy, Austria, 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, we continue to maintain a full valuation allowance on deferred tax assets in the United States, and a partial valuation allowance in China as of March 31, 2025. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to U.S. federal, state or foreign tax laws, future expansion into areas with varying country, state, and local income tax rates and deductibility of certain costs and expenses by jurisdiction.

Previous wording

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.

Current wording

We had cash and cash equivalents and restricted cash of $82.5 million and $66.1 million as of March 31, 2025 and December 31, 2024, respectively. In addition, we had marketable securities of $34.5 million and $34.9 million at March 31, 2025 and December 31, 2024, respectively. Our total balance of cash, cash equivalents, restricted cash and marketable securities increased by $16.0 million from December 31, 2024 to March 31, 2025.

Previous wording

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.

Current wording

For the three months ended March 31, 2025, our principal sources of liquidity included the draw of $20 million on our LOC and 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.

Previous wording

Net Cash Provided by Operating Activities

Current wording

Net Cash (Used in) Provided by Operating Activities

Previous wording

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.

Current wording

During the three months ended March 31, 2025, net cash used in operating activities was $20.0 thousand, which was the result of an $8.1 million net loss and cash used in net working capital of $0.5 million, offset by non-cash expenses totaling $8.6 million related primarily to depreciation, amortization, and stock-based compensation. The cash used in net working capital in the three months ended March 31, 2025 was driven by a $2.8 million increase in inventory, a $1.0 million increase in prepaid expenses and other current assets, a $0.8 million increase in accounts receivable and a $0.7 million decrease in deferred revenues. These uses of cash were offset by a $2.0 million increase in accounts payable, a $1.7 million increase in accrued and other long-term liabilities, a $0.5 million increase in lease liabilities, and a $0.5 million decrease in other assets, net.

Previous wording

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.

Current wording

During the three months ended March 31, 2025, net cash used in investing activities was $2.4 million, which was driven by the net purchase of marketable securities of $0.2 million and capital expenditures of $2.3 million.

Previous wording

Net Cash Used in Financing Activities

Current wording

Net Cash Provided by Used in Financing Activities

Previous wording

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.

Current wording

During the three months ended March 31, 2025, net cash provided by financing activities was $18.8 million, which consisted of a draw of $20.0 million from our LOC and proceeds from stock option exercises of $0.1 million, partially offset by taxes paid on the net settlement of stock awards of $1.4 million.

Previous wording

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.

Current wording

We have a $40.0 million revolving LOC with Banc of California dated September 24, 2018, which is secured by our assets and matures on September 24, 2027. The LOC agreement contains restrictive and financial covenants, including a minimum total cash covenant, and bears an unused credit fee of 0.25% on an annualized basis. The interest rate of 7.0% on the LOC at March 31, 2025 is based on the Prime Rate, minus a margin based on our liquidity levels.

Previous wording

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.

Current wording

Other than the draw of $20.0 million on our LOC, 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, 2024.

Previous wording

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.

Current wording

We do not believe that inflation had a material effect on our business, financial condition or results of operations during the three months ended March 31, 2025. 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.