nLIGHT, Inc.

Ladies and gentlemen, thank you for standing by. The conference will begin shortly. Please continue to hold and thank you for your patience. Thank you. Good afternoon and welcome to the NLITE fourth quarter 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal 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 on your telephone keypad. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Joe Corso, CFO. 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, some of which are beyond our control, including the risks and uncertainties described from time to time on 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. Fourth quarter revenue of $51.9 million was above the high end of guidance, driven by a strong quarter in aerospace and defense. We ended the year with approximately $108 million in backlog, an increase of 34% compared to December 31st, 2022. Gross margin and adjusted EBITDA were above the midpoint as we continued to improve our overall global manufacturing capabilities and control spending. Maintaining a strong balance sheet was a key goal during 2023. We increased cash, cash equivalents, and investments by approximately $5 million ending the year with $113 million. We have no outstanding debt and we remain well positioned to execute against our long-term growth plan. I'd like to discuss key highlights from the year. Operationally, we've significantly transitioned our manufacturing base and have improved our global manufacturing capabilities. Prior to 2023, we relied on our Shanghai facility to assemble the vast majority of our semiconductor lasers and a substantial portion of our fiber lasers. From a revenue perspective, almost all of our commercial revenue historically has been dependent upon products or components that were assembled in Shanghai. Today, we've reduced this exposure to below 10%. To accomplish this, we established an automated manufacturing line in Camas, Washington, and qualified and ramped a third-party contract manufacturer in Thailand. Our U.S.-based manufacturing enables us to distinctly serve the defense market, while our outsourced manufacturing partnership offers a scalable and flexible capacity for our commercial business. 2023 also marked our first full year of working with our new ERP system. The new ERP system has enabled us to streamline a number of processes, more efficiently operate our business, and provides a stronger platform to support our long-term growth. Turning to revenue by market, aerospace and defense remains a core area of focus for Endlight, as well as a long-term growth opportunity. In 2023, we added significantly to our backlog in both directed energy and other areas of defense. In directed energy, we were awarded over $200 million of new contracts in 2023. After the successful demonstration and formal acceptance of our 300-kilowatt beam combined laser, we announced in May an $86 million contract to produce a high-energy laser prototype for the next phase of development in support of the U.S. Department of Defense's high-energy laser scaling initiative called HELSI. In November, we announced the expansion of this award to $171 million to scale laser source power to the megawatt class with improved beam quality, size, and weight. We also announced that we were awarded a $34.5 million contract to provide a high-energy laser in support of the U.S. Army's Direct Energy Maneuver Short Range Air Defense, or DEM-SHORAD program. DEM-SHORAD is a component of the U.S. Army's broader modernization strategy for air and missile defense. It focuses on integrating a 50-kilowatt class laser weapon into a strike or combat vehicle to provide defensive capabilities against unmanned aircraft systems, rockets, artillery, mortar, embroidery, and fixed-wing aircraft. Looking forward, Directed energy remains an important and significant growth opportunity for Enlight. We are leveraging our deep technical expertise and U.S.-based manufacturing capabilities and capacity to deliver strong execution across critical domestic directed energy programs. The demand for directed energy lasers continues to grow as the number of geopolitical conflicts is increasing and the type of threats against the U.S. and its allies continues to favor the deployment of directed energy lasers. We are finally seeing high-energy lasers moving out of the laboratory and into the field. We remain closely aligned with multiple large, well-funded domestic programs today, and our international pipeline of opportunities continues to grow. Outside of direct energy, we remain engaged across multiple long-running defense platforms that we expect to run for many more years, if not decades. In 2023, we added several new programs that offer significant long-term growth opportunities. By continuing to invest in our core manufacturing and technology capabilities, we expect to compete for additional programs in the future. For the full year of 2023, aerospace and defense revenue increased by 4% year over year to $91.4 million, representing 44% of total revenue. Aerospace and defense development revenues increased by 8% to $53.3 million, partially offset by a slight increase in aerospace and defense product revenues. For the fourth quarter, aerospace and defense revenue decreased by 20% year-over-year to $26.7 million, representing 52% of total revenue. Development revenues increased by 24% to $14 million, and aerospace and defense products revenue increased by 15% to $12.7 million. The improvement in fourth quarter defense revenue reflects an increase in both contracts for directed energy and in product sales. Turning to our commercial markets, we've seen a significant transformation in the industrial market over the last several years. In Q2 2018, the quarter of our IPO, only 30% of our industrial revenue was from customers outside of China. For the full year of 2023, over 90% of our revenue was from customers outside of China. This equates to a more than doubling of industrial revenue outside of China over a five-year period. Today, Enlight is focused on developing innovative solutions largely built upon core Corona programmable fiber laser technology to customers in cutting, welding, and additive manufacturing markets. In cutting, we continue to leverage our core programmable technology as a competitive differentiator in the market. We continue to see a trend towards higher power in the cutting market as many end customers seek flexible solutions that we can address with our programmable lasers that deliver superior edge quality and can be optimized across a wide range of applications. In 2023, the percentage of our sales of cutting programmable lasers reached a new record as more customers adopt these solutions. At the same time, growth in these products was offset by declining sales in our non-programmable fiber lasers, primarily due to pressure from domestic Chinese suppliers in the lower end of the market. In welding, we continue to focus on electric vehicle applications for both our lasers and process monitoring solutions. While our overall business in welding today is relatively small, we believe there could be a significant opportunity for our range of laser and process monitoring solutions. The design and process for welding solutions can be lengthy and requires significant interaction between laser vendor, OEM, and end user. As such, we believe that the current supply demand imbalance in electric vehicle battery actually offers Enlite a better opportunity to work with customers in both our apps lab and theirs to demonstrate the advantages of Enlite solutions. In 2023, we're pleased that several top tier battery manufacturers purchased Enlite Process Monitoring or laser solutions, or both. Over the next several quarters, we expect to introduce new products that address many of our customers' and potential customers' pain points, thereby affording incremental opportunities for growth in this market. In additive manufacturing, we continue to see strong long-term growth prospects. In 2023, we continue to demonstrate the capabilities of KRONA AFX, our single-mode programmable fiber laser, secured multiple new design wins, and introduced new higher-power products to the multi-laser tool market. Our products have helped customers increase productivity and lower cost per part. To further address this growing market, Enlight has developed a modular laser design that incorporates multiple ChronoFX lasers into a single integrated subsystem that offers significant benefits. Our modular approach reduces cost and complexity for power and thermal management and greatly simplifies integration into OEM machine tools. 2023 industrial revenue declined 22% year-over-year to $71 million, representing 34% of total revenue. Revenue from cutting increased slightly year-over-year, but was offset primarily by a decline in revenue from attitude manufacturing, where a large customer in 2022 did not repeat in 2023. Our engagement in metal additive manufacturing has been broad. We work with both innovative early-stage companies as well as many of the long-standing market leaders. We are encouraged with the traction that we are getting across the spectrum of customers, but this market is rapidly developing, and as such, our revenue can increase or decline significantly in a given quarter or year as our customers continue to scale and demand for our lasers can be lumpy. Fourth quarter industrial revenue decreased by 35% year-over-year to $15 million, representing 29% total revenue. The year-over-year decline was driven by lower sales of non-programmed lasers and cutting and lower sales in-app. In microfabrication, we believe we remain the market leader for high-power high-brightness semiconductor lasers, where lasers are critical to manufacturing processes in a diverse range of applications, including auto, consumer, communications, electronics, display, medical, and semiconductor end markets. We are optimistic about continued growth in our medical laser business. Our medical lasers enable a range of applications, ranging from therapeutic surgical to aesthetic dermatological procedures. During 2023, we saw measurable growth from existing medical customers, and we were awarded a design win from another large strategic customer that has the potential to further improve the growth profile of this business over the next several years. 2023 microfabrication revenue declined 24% year-over-year to $47.5 million, representing 23% of total revenue. Fourth quarter microfabrication revenue decreased by 10% year-over-year to $10.2 million, representing 20% of total revenue. Macroeconomic headwinds contributed to sluggish demand and inventory digestion through 2023 and in the fourth quarter. In summary, 2023 was an important transition year for Enlite. Operationally, we pursued a de-risking and global manufacturing strategy that is well positioned to support our focus on two key growth areas, aerospace and defense and additive manufacturing. As I look forward to 2024, I am optimistic that we can return to growth this year. Although we still face an uncertain macroeconomic environment, we remain deeply engaged with our strategic customers and the work we are doing in defense provides good visibility into 2024 and beyond. From a financial perspective, our funded backlog plus contract value exceeded $300 million at the end of the year, the highest in our history. I'd like to thank all the inline employees for their hard work and execution over the past year. They continue to deliver great results for our customers and are the critical driver of building an enduring dual use technology company. With that, I will turn the call over to Joe to discuss our fourth quarter and full year financial results.