nLIGHT, Inc.

Non-GAP operating expenses were $16.8 million in the second quarter, down from $18.1 million in the second quarter of 2024, and $17.7 million last quarter. We expect non-GAP OPEX to remain in the $18 million range in the third quarter. Gap net loss for the second quarter was $3.6 million, or 7 cents per share, compared to a net loss of $11.7 million, or 25 cents per share in the same quarter a year ago, and a loss of $8.1 million, or 16 cents per share in the first quarter of 2025. On a non-GAP basis, net income for the second quarter was $2.9 million, or 6 cents per diluted share, compared to a non-GAP net loss of $4.6 million, or 10 cents per share in the second quarter of 2024, and a non-GAP net loss of $1.9 million, or 4 cents per share last quarter. Adjusted EBITDA for the second quarter was a positive $5.6 million, compared to a loss of $1.6 million in the second quarter last year, and a positive $116,000 in the first quarter of 2025. Turning to the balance sheet. We ended the second quarter with total cash, cash equivalents, restricted cash, and investments of $114 million. We continue to make progress on improving our working capital. Our cashflow conversion days have improved over the last several quarters, and we remain focused on further improvement going forward. Turning to guidance. Based on the information available today, we expect revenue for the third quarter of 2025 to be in the range of $62 million to $67 million. The midpoint of $64.5 million includes approximately $45 million of product revenue and $19 million of development revenue. We expect A&D revenue in the third quarter of 2025 to increase sequentially and year over year. Turning to gross margin. Product gross margin in the third quarter is expected to be in the range of 32% to 36%, and we expect development gross margins to be approximately 8%, resulting in a total gross margin range of 24% to 30%. As we've mentioned previously, as a vertically integrated manufacturing business, gross margin is largely dependent on production volumes and absorption of fixed manufacturing costs. Finally, we expect adjusted EBITDA for the third quarter to be in the range of approximately $2 million to $6 million. With that, I will turn the call over to the operator for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star, followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star, followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from the line of Greg Palm from Greg Hallam Capital Group. Your line is now open. Please go ahead.

Yeah, thanks. This is Danny Egreton for Greg today. Congrats on the really good results guys. Thanks. I think we'll just start obviously with A and D, really good from both a product and development standpoint. So I guess you gave the guy last quarter and you kind of blew through that. So maybe just looking back, what went better than expected, what drove that outperformance between both product and development. I know there's some project timing in there and whatnot, but maybe if you could just dig into that a little bit more.

Yeah, thanks for the question Danny. It's fairly simple. We just executed very well in the quarter. These are all existing programs that we have been working on both on the product side and on the development side. And so the highlight in the quarter was continued success that we had with our amplifier sales, right? Selling into our healthy two program. That was a nice ramp. You know, a little bit better than we expected, purely based on execution. There was no other customers or things that really dropped in that we had not expected during the quarter. So, you know, we were pleased to see that upside.

Okay, got it. And then, you know, you talk about some of these laser sensing programs, I think for the last few quarters, you've kind of mentioned bidding on multiple of these programs. I guess you got any additional detail around maybe some new wins, you know, start dates, you know, some kind of revenue recognition we can think about moving forward here or any extra detail there would be great.

Yeah, sure. So in the laser sensing side of the business continues to go well. I would say that there are really, you know, a couple of different thrusts in that business. The first of which are existing platforms that we've been delivering on for quite a long time. And so that was, you know, a good quarter on those programs. We expect those, you know, to continue as we move forward. And on some of those programs, you know, we expect higher volumes than we have had in the past, just as, you know, our customers are needing to restock depleted inventory levels. And, you know, some of the platforms are finding new use cases. So those are the things that we've been working on for a long time. And then the things and the programs that we, that are newer, a handful of which are classified, we still are making good progress on. I think we said in prior quarters that we expect to begin work on the next phase or the LRIP phase on one of those programs here in the second half. And so that remains intact, but we feel good about what we've delivered and the success of our portion of that program. Now it's a little bit of a waiting game until we actually get that order, but we believe it's forthcoming.

Okay, got it. Maybe just one last one on the gross margin, maybe the product margin specifically that 38 and a half percent, you know, that's well above anything we've kind of seen for the product side before. I guess just looking ahead, you've called out kind of mix and overhead being benefits in Q2, you know, the Q3 guide implies, you know, sequential revenue growth and obviously growth in A and D as well, but kind of a step down in that gross margin. So maybe anything, you know, some puts and takes you can give on the gross margin on the product side there.

Yeah, absolutely. So second quarter gross margin, we were really happy with how it turned out, right? I mean, we had higher volumes, we operated our manufacturing and operations, did an exceptional job during the quarter. You know, we had better factory absorption. And so, you know, many of the things that we go into any given quarter, you know, seeking to forecast, right? There's no, you know, one big item that drove that out performance. It's a handful of, you know, small things that this quarter all went very well. And so I think that is a similar answer to, you know, why you saw a little bit of a step down in the gross margin into the third quarter. Some of those things that went exceptionally well in the second quarter as we forecast going forward, right? We're not gonna forecast that upside. Could that happen again? Yes, but that's not something that, you know, we're banking on, nor do I think that as you're building your model, you should bank on. But, you know, again, very happy with the performance this quarter, and I think the read through is that it's indicative of, you know, the type of operating leverage that we have in our model.

Okay, got it. Thanks, I'm excited to see where we go from here. Thanks, Danny.

Your next question comes from the line of Jim Ricciutti from Neidham & Company. Your line is now open. Please go ahead.

Hi, thank you. Good afternoon. And just given the increase that you have made to the 2025 outlook, and given where we are at this point in the year, I'm wondering if you have any initial views on 2026. Just the market seems pretty healthy. You seem to be getting a combination of new awards. I think you alluded to one overseas. So maybe if there's anything, any color you could provide as to how we might think about 2026 in this area of the business.

Yeah, Jim, I wish I could give you more than I'm about to give you, but at this point, it's just a little early for us to really start talking about 2026. I mean, there's, we certainly feel, remain confident, right? But there are a lot of things that we're working on. The pipeline is continuing to grow. You know, we continue to have good backlog, but I think it's a little too early for us. Given the variability and timing and the light to start talking about 2026, but absolutely continue to think that there's upside from 2025.

All right, maybe let's take a step back and talk about the increase to 2025. Maybe you could put a little bit more, give us a little bit more help on what's driving that. Is this coming from, yeah, it sounds like you had some customers that have depleted some inventories and are ordering, is this coming from new program awards? Can you say which areas of your product portfolio the growth is coming from versus what you were thinking, say, three months ago?

Yeah, so the growth is consistent with what we were thinking of three months ago, and it's broad-based, right? We have growth from, expected growth from some of our existing laser sensing programs. As I said in response to Danny's question, we do expect to have some revenue from new sensing program. We're gonna continue to deliver products into existing directed energy programs and continue to make progress on those broader high-energy laser programs. So right now, as we're looking towards the back half of the year, we expect it to be broad-based growth across our entire defense portfolio.

Okay, one other question for me, and I may have missed the significance of it, but you talked, I think, about an amplifier transition. Trying to understand what the significance of that is and maybe what the timeline, what it entails, and how meaningful is this for you?

Hey, Jim, it's John. I think that the key there, and we've talked about this a little bit in the past, is we came into this year still doing the bulk of that amplifier manufacturing out of our engineering and R&D teams. We've been really transitioning that production into our normal manufacturing groups. That's very, very important for us, because as we think about where we hope to take that business over time, in order to scale to the right number of units and the volumes that we hope to be achieving, we've gotta get that out of the hands of our R&D teams and into the hands of our manufacturing folks. So that process has been underway now for a couple of quarters. Again, as Joe mentioned, we had a lot of really good successes from all of our teams in the second quarter, which allowed us to do really well in that transition. We still have a little bit of ways to go to make sure we're locking all of that down, but I think we're making really good progress there. And like I said, it's important for us as we think about how that line should expand from a volume perspective as we look out over the next several years.

Okay, thank you.

Your next question comes from the line of Ruben Roy from Steefo, your line is now open. Please go ahead.

Sorry if I'm repeating Jim's question, but I think Scott mentioned that sort of the increase from kind of previous expectations for I think 25% growth for A&D in this year moving to 40 was driven by Healthy2. Is that the wrong understanding that I have? I get you on broad based sort of improvement across the aerospace and defense business, but it just seemed like compared to 90 days ago, you executed on bitments into Healthy2 and that kind of drove the sort of near term upside. And it sounded to me like that was the program that was going to drive sort of the increased expectations for 25 or am I getting that wrong? Thank you.

Hey Ruben, no, you're absolutely right. As we entered the year, we had an expectation for what we thought we could do in terms of delivering hardware into that Healthy2 program as we've gone through the year and have continued to make strides in terms of improving our manufacturing of those products and increasing capacity of the line, right? That's not something that happens overnight. It's a journey as we're starting to really ramp up there. So I would say that there was an improvement on that end of it. And there's a follow through, which is to the extent that we can deliver hardware into those programs or into the Healthy2 program in particular means we can start to accelerate some of the development work that we're doing on top of those amplifiers. So you've got sort of a knock on effect. And then the third piece of it is as we are transitioning from one program to another or one phase of a program to another in the new laser sensing program, that's another area of growth. And then finally, we do have a few new customer wins, right? We can't be explicit in terms of names, but we've talked about the international side of our directed energy business being an opportunity for us. And so we're starting to convert some of those early opportunities, which is what led me to talk about just sort of broad-based growth across that entire portfolio.

Yeah,

okay. Thank you for clarifying. And then, John, on the amplifier transition or amplifier, moving into kind of more of a production set up, are there specific qualification milestones that come with that, or is it sort of just getting kind of lines running and getting the product out and test it assembled and off you go? I'm just trying to understand. Yeah, sure. If there's, yeah, go ahead. No,

no, I get it, Ruman. And I think what I would say to that is there are certainly internal things that we're looking as we are continuing to go through that transition. So I wouldn't say it's acceptance criteria. As Joe mentioned, we've been shipping amplifiers now for a while into a number of these programs. So it's not like we're doing something differently for the customer acceptance, but we're certainly internally trying to make sure that we're putting in all the controls and processes that we need specifically around these new products to make sure that that transition over to the manufacturing teams goes as smoothly as possible.

Got it. Great, thanks. Congrats on the results. And I'll look at you. Thank you. Thanks, Ruman.

As a reminder, if you wish to ask a question, please press star one. Your next question comes from the line of Rodney McFaul from Rock Coast Research. Your line is now open. Please go ahead.

Hey, thanks, Gosh, for taking my questions and congratulations on the great quarter. I know you just talked about the new international customer. I was just wondering if you could maybe shed some light on the size and scope of that opportunity and if you see any execution risks there. And I have a follow on after that.

Hey Rodney, Scott here. Yeah, I'll say what I can. Look, we do see Direct Energy is not just a US domestic opportunity but very strong international set of opportunities and we continue to get new design wins around the world. Can't really comment on any of the particulars beyond that other than to say that, yeah, it's material. There's some good size programs. And frankly, these are all still in the early stages. So we see bigger opportunities ahead both in the US and around the world.

Got it, thanks for that. And then Scott, you mentioned continuing to rationalize investments in commercial markets to align with resources. Just any color on what specific areas you guys might be pulling back from. And I saw one of your main competitors recently. It seems like they're starting to lean into more systems. I'm just wondering if you guys have any plans for that or any color you guys could shed on that would be great.

Absolutely, Rodney. Yeah, I think one of the things we highlighted was that we do see growth in additive and continue to see opportunities with the differentiated technology we have there. But in some of the other markets we've talked about, it's an area where we don't see as attractive with small growth opportunities. And so fortunately, the engineers that helped build some of the key industrial lasers are working on new defense-based lasers now. So that's the sort of rationalization we're going through. And fortunately, we're in a great position to have a very strong team that is pivoting over.

Got it, thank you, that's all for me. Thanks, guys. Thanks, Rodney. Thank you.

There are no further questions at this time. Please continue, Mr. John Marchetti.

Thanks, everyone, for joining us this afternoon and for your continued interest in NLIGHT. We will be participating in a number of conferences over the coming weeks and throughout the remainder of the quarter. So I look forward to talking to everybody there and hope to talk to you soon. Thanks very much. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.