nLIGHT, Inc.

Hello and welcome to the NLITE first quarter 2024 earnings conference call. All participants will be in 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 one on your telephone keypad. To withdraw from the question queue, you may press star, then two. As a reminder, this conference is being recorded. I would now like to hand the call to Joe Corso, CFO. Please go ahead.

Thank you, and good afternoon, everyone. I'm Joe Corso, NLAGE Chief Financial Officer. With me today is Scott Keeney, NLAGE 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 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. First quarter revenue of $44.5 million and overall gross margins of approximately 17% were within the guidance range. Continued careful management of operating expenses, working capital, and capital expenditures enabled us to increase cash, cash coupons and investments to $121 million with no debt. As discussed last quarter, we believe Q1 is our trough revenue quarter and expect growth in the second quarter. We also expect the second half of the year to be stronger than the first half of 2024 with increasing visibility for continued growth driven by our defense business. Before turning to the details of the quarter, I would like to reflect upon Enlight's recent history and business transition. We founded Enlight with the vision that laser technology would improve at a rapid rate and open up new applications for lasers in both commercial and defense markets. This past week marked the sixth anniversary of our IPO. Since then, we've experienced important changes in our business. Some of the changes have been beyond our control, the most significant of which was a rapid and dramatic geopolitical shift with respect to China. In the face of this change, we made several fundamental changes to our business to position ourselves for long-term growth. We shifted our manufacturing footprint away from China and into the U.S. and a contract manufacturer. We developed innovative products for a nascent but fast-growing metal additive manufacturing market. We acquired neutronics to deepen our presence in directed energy. and we pursued and won multiple new defense contracts. These changes have been a drag on our income statement performance, but through disciplined OPEX control and working capital management, our balance sheet is strong and we are well positioned for growth. This growth will be driven by our dual use strategy. We serve both the commercial and defense end markets, each of which has its own set of growth drivers and visibility. To understand our long-term revenue opportunity, it's important to review what we believe is possible in each of these core markets. Aerospace and defense has emerged as the most significant growth opportunity we have in front of us today. Enlight has been focused on the aerospace and defense market since inception, and our most recent investments in technology and capabilities positions us for significant growth in this market. We are working on programs with strategic importance to the U.S. government and with funded backlog plus contract value exceeding $300 million We have strong visibility into our revenue pipeline over the next several years. Geopolitical unrest and ongoing military conflicts in the Middle East, Ukraine, and elsewhere are driving the need for more sophisticated, cost-effective defense solutions built upon semiconductor and fiber laser technology. The COVID-19 pandemic highlighted the fragility of the global supply chain and a critical need to bolster domestic infrastructure required to support the U.S. defense base. Our defense business spans a wide range of laser-based applications, and we've become a critical supplier to the U.S. Department of Defense and multiple programs for U.S. allies. More specifically, there are two areas of our aerospace and defense business that are driving our growth, laser sensing and directed energy. Laser sensing products use lasers for object detection, measurement, and inspection, and are used in a wide range of land, sea, air, and increasingly space applications. A few examples of our laser sensing products include missile guidance, proximity detection, range finding, and countermeasures. Our products have been incorporated into several significant and long-running defense programs and are expected to enable several new classified large programs. In Directed Energy, we are designing and building solutions aimed at defeating a growing range of threats to military forces and infrastructure, and offer significant advantages over traditional kinetic weapons, including speed of light engagement, low cost per shot, and deep magazines. We believe that a combination of our leading technology capabilities and US-based vertically integrated business model provides us with significant competitive differentiation in this market. Our broad portfolio of products for the directed energy market, which includes semiconductor lasers, fiber amplifiers, beam combined lasers, and beam control solutions, enables us to engage strategically with domestic and international partners across the entire directed energy ecosystem. As a result, we expect strong growth in aerospace and defense business in 2024, with further upside in future years based on current contracts and potential future awards. Turning to our commercial markets. In microfabrication, we pioneered the development of single emitter fiber coupled semiconductor lasers and have been a market leader in this area for many years. Our patented high brightness, high power semiconductor lasers are a critical enabling component of many of the leading pulse lasers available in the market today. We continue to see increasing number of laser-based manufacturing processes across a wide range of applications in the auto, consumer, communications, and electronics industries. We are also in the early stages of adoption of lasers in a handful of medical applications. Taken together, we believe that our microfabrication business is relatively steady and will grow modestly over time. In industrial, where we serve the cutting, welding, and additive manufacturing markets, our growth picture is more mixed in the near term. Although each of our markets have specific opportunities and challenges, pervasive inventory corrections combined with persistently soft demand across the industry is impacting each of the end markets we serve today. In cutting, the industry and our business continue to shift towards higher power solutions. Cutting represents the largest portion of our industrial business today and is comprised primarily of our programmable fiber lasers. Although competition from Chinese manufacturers has impacted sales of our standard lower power lasers, we continue to deliver innovative programmable lasers to customers that are seeking flexible solutions that deliver superior edge quality and overall machine tool performance. Over time, we expect our high power fiber lasers to continue to displace legacy cutting technologies and will open up additional market applications. In welding, we are focused primarily on the battery and EV market. Welding is a relatively small part of our business today in terms of both revenue and internal resources, but we are optimistic for growth. We're developing innovative products that address our customers' most critical pain points and initial customer engagement with products we intend to release over the coming months has been positive. In additive manufacturing, we continue to see strong long-term growth prospects. We are working closely with multiple strategic customers to drive broader adoption of additive manufacturing across multiple industries. Fundamentally, we believe the adoption and growth of the metal additive manufacturing market will be driven by higher tool productivity, resulting in lower overall part cost. The advantages of our Chrono AFX lasers are clear. Additive manufacturing tools using Krona AFX have been widely demonstrated to increase build rates by a factor of two to eight times, which substantially reduces part cost. Although our additive business is not a driver of our year-over-year growth in 2024, primarily due to the challenges of a single customer, broader customer engagement has been strong, and we expect growth to resume in a much more significant way in 2025 and beyond. Overall, although we expect our commercial business in microfabrication and industrial to grow over time, we expect 2024 will be a down year from a top-line perspective. Turning to the details for the quarter. In aerospace and defense, first quarter revenue increased 3% year-over-year to $21.7 million, representing 49% of total revenue. During the quarter, we continued to execute on our key directed energy programs, Healthy2 and DEM ShoreEd, both which are progressing well. In industrial, first quarter revenue decreased 40% year-over-year to $12 million, representing 27% of total revenue. While sales of programmable lasers into the cutting market increased year-over-year, sales of non-programmable lasers decreased significantly, and revenue from a key additive customer last year did not repeat in Q1. In microfabrication, first quarter revenue decreased 17% year over year to $10.8 million, representing 24% of total revenue. We continue to work closely with our key strategic customers, but demand has been soft for the last several quarters. In summary, although the first quarter was challenging from a revenue perspective, we believe we were well positioned for growth going forward. 2023 marked a significant shift in both our overall business and manufacturing strategy, and we are confident that we are aligned with the right markets, customers, and programs to drive long-term growth. Our balance sheet is strong, and our world-class engineering team continues to introduce innovative products for both the commercial and defense markets. As I indicated last quarter, I remain optimistic for growth in 2024 and for a renewed momentum to carry into the next year and beyond. With that, I will turn the call over to Joe to discuss our first quarter financial results.