nLIGHT, Inc.

Good afternoon and welcome to the NLITE first quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Joseph Corso, Chief Financial Officer. Please go ahead.

Thank you and good afternoon, everyone. I'm Joe Corso, Enlight's Chief Financial Officer. With me today is Scott Keeney, Enlight's Chairman and CEO. Today's discussion will contain forward-looking statements, including financial projections and plans for our business. Forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today's call, and we undertake no obligation to update publicly any forward looking statement, except as required by law. During the call, we will be discussing certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release, which can be found on the investor relations section of our website. I will now turn the call over to Scott.

Thank you, Joe. Q1 was a good start to the year for Enlight. Financial results were better than our expectations. Revenue of $54.1 million was above the midpoint of the guidance range. Product gross margin of 33% and adjusted EBITDA of $1.3 million were both above our guidance range. And finally, we generated positive cash flow and ended the quarter with over $108 million of cash with no debt. In addition to strong financial results, we made significant progress in three areas critical to our strategic growth objectives. In aerospace and defense, we made excellent progress in programs and applications. In industrial, we continue to position ourselves well in key applications outside of China. And operationally, we executed on a range of key initiatives that will enable us to generate profitable revenue growth. I will provide a brief update on each of these three initiatives and then turn the call over to Joe for a more detailed financial review of the quarter. In aerospace and defense, I'm pleased to report that we've made significant progress in directed energy. Earlier this afternoon, we announced that we have been awarded a new $86 million contract to produce a high energy laser prototype in support of the Department of Defense High Energy Laser Scaling Initiative, HELSI. Today's award is a follow on to the $48 million award we received in 2019 to produce a 300 kilowatt class high energy laser as part of the first phase of HELSI. In late 2022, we demonstrate power exceeding healthy program objectives and the scalability of our coherent beam combining architecture. We believe our technology is capable of both scaling to higher powers and providing higher performance. Today's award is part of a multi-year development program that's expected to commence late in the third quarter of 2023. Now turning to the first quarter, aerospace and defense revenue declined 9% year over year to $21.1 million, representing 39% of total revenue. First quarter development revenue was $13 million, and defense products revenue was approximately $8.1 million. We continue to remain excited about the opportunities we see in directed energy, and we continue to invest in this market. We believe that we are uniquely positioned in directed energy. Our broad portfolio of products for the directed energy market includes diodes, fiber amplifiers, beam combined lasers, and beam control solutions. And this enables us to engage strategically with domestic and international partners across the entire directed energy ecosystem. Although it's difficult to predict the ultimate timing of this market, it remains a high modernization priority for the U.S. government and our foreign allies as we continue to see increased demand for each of our products. In defense outside of directed energy, we are increasingly optimistic about the work we are doing on a number of new programs. Development revenue from these programs began to ramp in the first quarter and is expected to contribute to development revenue over the next several quarters. Moreover, these programs are expected to offer long-term revenue opportunities when they transfer to production, which we currently expect to be in calendar 2024. As we've mentioned in the past, the timing of all of our development programs can be uncertain and have a significant impact on quarterly revenue. Turning to the industrial end market, industrial revenue in the first quarter declined 17% year over year to $19.9 million, representing 37% of total revenue. Outside of China, industrial revenue decreased 9% year over year to $18.9 million. On a percentage basis, industrial revenue from customers outside of China increased to 95% of revenue in the first quarter compared to 86% in the first quarter of 2022 and 54% in the first quarter of 2021. In cutting, we continue to leverage our all programmable fiber lasers to deliver innovative high power solutions to our customers. our customers are continually increasing in average laser power purchase, which enables higher productivity and better processing of thicker metals. In the first quarter, we received a record number of orders for 15 kilowatt and 20 kilowatt lasers. In welding, we continue to focus on the e-mobility market. Our portfolio of beam shaping lasers, single mode lasers, and process monitoring systems provide solutions for our customers at both the welding cell level and directly with electric vehicle OEMs. We will be exhibiting at the Battery Show in Stuttgart, May 23rd through 25th, and at ALA in Detroit, June 14th through 15th, showcasing our EV battery welding solutions, which feature our programmable beam shaping laser and process monitoring system. Additive continues to be a bright spot for Enlite. Over the last several years, we've introduced multiple programmable lasers for this market, including a higher-power 1.5-kilowatt Corona single-mode AFX laser in the fourth quarter of 2022. As the market continues to shift toward multi-laser tools, we remain uniquely positioned to enable our customers to design tools that reduce overall per-part build cost. This week at the Rapid Trade Show in Chicago, DMG Moria announced the release of a new powder bed fusion machine with adaptive beam control, exclusively using Enlight's single-mode programmable laser. In microfabrication, revenue in the first quarter of 2023 declined 25% year-over-year to $13.1 million of revenue, which represented approximately 24% of total revenue. In microfabrication, we offer high power, high brightness semiconductor lasers to many of the world's leading short pulse and UV solid state lasers and systems companies. There are a wide range of applications that are enabled by our semiconductor lasers, including electronics manufacturing processes, such as drilling flexible circuits, laser marking, to cutting glass or sapphire. In addition, we also enable medical applications where lasers are used for applications ranging from therapeutic surgical to aesthetic dermatological procedures. We continue to believe that we are a leader in this market, and current revenue performance is largely a function of the broader demand environment, which remains muted as customers across the globe continue to work through their higher than typical inventories. However, we are seeing some signs of recovery. Revenue from customers outside of China grew 17% quarter over quarter. In medical applications, which are reported as part of our microfabrication end market, we continue to experience strong adoption of our newly released lasers targeted urological applications. We are currently generating revenue from multiple customers and we are actively engaged with several others. We remain on track to generate growth from this product in 2023 and beyond. Turning to operations, we continue to make excellent progress on the automation of our manufacturing facilities in the U.S. during the first quarter. As we've discussed in the past, greater automation in the US will enhance our position as a key strategic supplier to both defense and industrial markets in the US, enable us to exert more control over our manufacturing output, and reduce overall supply chain risk. Over the last several quarters, we've been focused on installing and increasing the yield of our automated equipment, and we currently are at greater than 80% utilization rate of our installed automated equipment in the U.S. We expect to make further yield and efficiency improvements over the coming quarters. Last quarter, we announced that we executed a plan to better align our spending with our most important near and long-term revenue opportunities. By refocusing our engineering teams and reducing project material spending, we were able to reduce overall non-GAAP operating expenses for the first quarter of 2023 by approximately $2 million compared to the fourth quarter of 2022. In summary, We remain highly optimistic about our long-term growth prospects. Our continued focus on two core strategic growth initiatives, industrial outside of China and aerospace and defense, make us well positioned to take advantage of strong secular growth trends for lasers in both the industrial and defense markets. In the immediate term, we are very excited to be entering the next phase of healthy development and what it means to our growth trajectory as we move to the second half of the year and into 2024. I will now turn the call over to Joe.