LASR - Earnings call transcript Q2 2019

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Operator

Good day and welcome to the nLIGHT Second Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Mr. of Director Senior Willey, Investor Relations. Jason ahead. go Please

Jason Willey

Thank you, good afternoon and everyone.

Executive said, operator Corporate Willey, Chief speakers and on I will nLIGHT's Financial the Bareket, Development. of Chief Ran Senior Keeney, today's and Jason be Relations am As Officer nLIGHT; Investor Director Scott call. Officer of

release after at call, at of copy jason.willey@nlight.net. direct have is on to website them press our available you If the me any www.nlight.net. A today’s questions please at or earnings XXX-XXX-XXXX

an access website. can In version of our you addition, from call archived today's

future In addressable forward-looking today's prospects call, statements, strategic including our penetrating growth objectives. discussion and markets, will statements contain about trends, and financial business and focus factors, related and our for expanding projections,

beyond time-to-time including described our and uncertainties Forward-looking our in risks control, uncertainties, statements are subject are risks the from to filings. and SEC which many of

Our We call. forward-looking projected-on results undertake publicly from no differ may any those update statement. to today's materially obligation

measures certain will be financial this on discussed Additionally, non-GAAP call.

against non-GAAP Relations section release, We which Investor found the have website. earnings provided on comparable measures can our these reconciliations be financial of financial the in directly of measures GAAP our most

will I the provide will the to Scott over to additional through now the outlook. and color call go on business. financials Ran turn then

take We your will glad then be to questions.

Ran Bareket

and X.X% margin, Revenues afternoon for down second Thank and you, the range million, Jason second provided gross delivered year-over-year. early-May. in good were adjusted everyone. the quarter revenues, We we EBITDA within quarter XX

total industrial the and to sales were year-over-year. million, XX% QX, markets revenues During XX.X representing down XX% end of

million XX%, of the revenues and defense quarter revenues XXXX. with million or XX% X total Aerospace down were second and X% XX.X markets end were total compared year-over-year. and XX% of microfabrication or to Sales grew sales of

XX.X XX% with were sales quarter second quarter basis, in $XX.X America or down XXXX. total XX% On total to second XX.X were XX% XX% were flat of XX% the of QX of revenues compared Sales year-over-year. were XXXX sales geographic North revenues. revenues, total and million, in the of China compared of the XXXX representing world with and up of million, Rest million

XX% was impacted the the XXXX, XXX second by decrease quarter, in approximately the a QX was related basis past was negatively XXX $XXX,XXX Gross in year-over-year. margin margin of Gross second points impacted gross or U.S.-China pricing tariff basis in margin Compared XXXX points by the Chinese the also negatively in to quarter market. reduced industrial of implemented year. end to

The aerospace offset period by product comparable represented of approximately defense These market second and cost XX% with Chinese industrial quarter increased during from revenues and mix partially headwinds laser XX% overall fiber the were and XXXX, positive in end contribution. reduction XXXX. high-power compared of in the

include with Operating increase XXXX XX.X compared an million expenses expenses million in approximately of XXXX. million during X.X quarter, XX.X the operating compensation, of QX quarter second were million stock-based of X.X the second year-over-year.

compensation, our Operating for rate expenses On public we and R&D excluding reflect expenses, were operating substantial laser to markets. flat. long-term in the post across high-power the stock-based see in a G&A an opportunity growth offering XXXX, business position high investment our basis run expenses essentially April

X.X% second the income revenues of quarter XX.X% of compared with of of of million was or profit quarter operating Second operating $XXX,XXX in revenues XXXX. X.X and

$X.X adjusted of XX.X% million compares of in or EBITDA the quarter revenues second for was to This million Our XXXX. $X.X or revenues. XX.X% QX

XXXX. net with share income second QX quarter $X.XX $XXX,XXX, compared of in X.X quarter compared quarter with of diluted the share XXXX. the the XXXX diluted for income loss of per XXXX of net GAAP second for EPS million net second per was $X.XX GAAP was in of

diluted QX XXXX, of share compensation per was in the to share stock all XXXX. $X.XX diluted common and the assume $X.XX exclude stock-based preferred which stock per EPS, period outstanding Non-GAAP QX in in conversion impact of compared the with

XX Turning We at second quarter XXX million. XXXX QX to cash DSO cash the in the was of total with end XXX representing days XX equivalents of for the the Inventory balance the was inventory. days. quarter million, sheet. ended and of

generated improve Capital of reflecting X.X% expansion. of by During of million capital cash and the automation in or $X.X for were operating we expenditures revenues, million in QX, investment activities, conversation. X.X driven quarter working capacity

XXXX. Turning to the quarter for third guidance the of

expect XX of a We XX range revenues in million. to million to be

generate growth US, the full-year and had it increasing previously global we unlikely forecasted XXXX. the ongoing we China tension of revenue trade uncertainties, will Given is macro for modest

range which $X Based a million and for QX tariff current mix, approximately points. impact margin September or XX%, of negatively on of our expectation for to approximately last $XXX,XXX from basis compensation, XXX we introduced includes see XXXX gross of XX% since in product stock-based

Operating QX million, are be which include X.X million expected approximately stock-based expenses for XX.X of approximately to compensation.

of expect the quarter, X For in to third million X we EBITDA a adjusted range million.

be We approximately expect fully-diluted approximately to QX XX.X million basis average million. shares average and shares XX.X an of

the Scott. now to turn will over I call

Scott Keeney

Ran. you, Thank

our reviewed, areas. Ran across a quarter of key second solid As reflect results number execution

is However, headwinds our Chinese into well business competition U.S.-China these by we expected what our beyond fiber have tensions, the XXXX uncertainties, persisted economic and when trade market. and global laser in ongoing impacted negatively will was limited. visibility in headwinds growing These lift market

we key these in of areas. Despite a challenges, growth number progress see continue to

year-over-year grew year-over-year. business market. quarter of Our this The double-digit consecutive for end aerospace growth and XX% sixth defense

of grew outside XX% business industrial year-over-year. Our China

large laser. customers Here we to driven differentiation global continue with Corona by gain our traction with

began fiber sales laser to of during of our We Chinese segment us XX-kilowatt a growing quarter, the address ramp enabling market. the also to

fabrication, not markets. displace laser continue technologies Our and changed. underlying to across the industrial, legacy defense end view We and opportunities of see in high-power aerospace micro fundamentals has growth driving the lasers for market

the double-digit and industrial rest America was in industrial revenue revenues all both as growth improvement both of and will this the the In market year-over-year cost quarter, of our China, continued in reduction believe performance support in second We market, the we declined XX% in over world. the longer-term. year-over-year end North grew

a and we than operating environment have XX trade experienced competitive the different months very China, just uncertainties In rapidly ago. created landscape evolving

While in market the year-over-year XXXX. market one for Chinese industrial has time lasers, declined entered is China this expect of industrial the China we since largest to This remains decline the markets we XXXX. in laser first

decline We believe to aggressive pricing. combination of projected and sales is war in the due a trade this

the China Our high-power on is focus in serving market.

QX, second generate we continue revenue from During to ultra-high-power our and product for XX-kilowatt our the volumes ramp products in expect to half.

the second limited is There China, landscape. more offerings interest of in a growing where remains customer there in high-power competitive a market

During above QX, year-over-year. laser grew our sales and fiber X-kilowatt

to approximately approximately laser XX% compares period the comparable QX sales Sales in XXXX. range of for which XX% this of XX% category in X-kilowatt in in were total fiber to the Sales laser in X-kilowatt sales, accounted fiber our XXXX.

June, continue we enhances geographies see X-kilowatt in In Corona outside differentiation programmable solution. competitive and Corona, profile power interest by of in to X-kilowatt China, Corona solutions. and nodes. laser the addressable expansion further for variable fiber released strong being broadens our This applications we our the Late

customers support. While our and China laser applications manufacturing. Cutting as embrace Corona customers sales coming additive In and is we continue welding interest today, quarters, expect the driving and as expand we strong differentiated customer outside business technology other to growing fiber seeing to such from are our

trends. activity serving Sales consumer into the market with but experiencing X% quarter, revenues is impact slower most and customers in are from second this end the This evident the declined microfabrication rebounded electronics some market global first during The quarter. applications. year-over-year demand from softer

set serve reminder, a of this a we end and market. As customers in wide applications

lasers Our consumer critical lasers semiconductor including solid-state medical, products. the scientific, for leading and world's electronics, are components diode-pumped serving automotive, applications R&D

applications second during our market, We to evident enabling marking the where new and as base to our quarter. new expand and drilling continue cutting markets. our microfabrication in and cost of existing various ceramic glass. non-metal customer in We UV that This we a from are of across variety performance applications, activity improvements as the semiconductor integrating serve lasers, for is see and see growing lasers customers well

the track us leading and well we and revenues from for aerospace are programs technology across lasers innovation long-term We XX% year-over-year several Results believe long quarter. applications. our critical the In in our reliability components. positions the running second industry and with positive of trends in where benefited defense semiconductor record again aerospace grew market, at activity QX laser higher investment current defense and

and of size our Within customers. into smaller continue directed leading directed a The aggressively energy latest prototypes industry, developing driving semiconductor capabilities. energy, with to our leading recently traction further delivered efficiency customer, we gain technology and our we and power, lasers are lower weight leading

for While from growth over years, current opportunity market. on activity this development focused and see directed energy we significant the programs, remains coming

of in results our and future solid demonstrated markets conclusion, second growth, industrial the and execution defense. areas China key our expectations for and aerospace In met including quarter for outside the

China. in has quarters anticipated, over industrial However, than been market the more the several particularly challenging environment in the past

uncertain are nLIGHT current team But we outlook limited long that end in positioned We closing, visibility each environment are disappointed allowing. term ensure second driving for the with to on we thank their the quarter. remain in our during like focused entire In I would growth the nevertheless and is for well our to market markets. efforts of the technology today's

And call over with that, Q&A. for we now hand the

Operator

Craig-Hallum comes We our Greg of session. first Capital Palm answer Group. go will now And question Please begin the from ahead. [Operator and Instructions] question

Greg Palm

last somewhat I'm taking the it's to environment. suggested checks Yes, with our talking specifically on weeks. some guess questions, of I China good guess weeks Thanks the I intensified side. starting for fiber In afternoon. have specifically, just pricing that And eight the six the over

So, can seeing a detail there? on more you what talk you're over little bit

Scott Keeney

Greg. absolutely, Yes,

the correct. in think price see declines than greater We've I what seen historical led past that of has your competition are of around average checks XX%. to we So, the are increasing

lasers due greater seeing primarily power China. in we're lower So, fiber the to price declines competition, in

growth, competition. higher where see though, the segment we see to continue power limited in We

Greg Palm

gross margin from I terms to of margin of terms the competitive for And guidance? baked quantify a any QX, gross Okay. way what's sort in the in of standpoint guidance mean, in

Ran Bareket

estimate majority it’s for things that But but quantify separately. low thing will there. we impacted markets, that did many we end the mix did the mix, between tariff, between that many power, of see our that not the additional if between this roughly power you $X and higher of other the mix impact you only them and guided. of is do each the impact There be So, the for many, going product, what margin, are the and we the the pricing, can million is we quarters QX to quantified calculation, this it's the like mix

Greg Palm

fair And ramp. will think half ticked the Okay, expecting of know sequentially, were doesn't that previously again a you that to this like I occur inventory it more year. I Obviously, look alluded you second enough. up fact

work of that So, level what start comfort in I guess point off? there? At do your what's some you

Ran Bareket

we and The way our XXX. anywhere and XXX comfortable level right that inventory can we of inventory the are inventory is we going this is to our between inventory comfortable the that we it's on feeling see target. mainly the XXX This you than we be are looking to quarter days days at inventory, now, with to as are but have feeling higher reduce If try level that was it. will the

Greg Palm

perfect. the for hop in color. Thanks I'll queue. the Okay, back

Ran Bareket

Sure, thank you.

Operator

from comes question Company. next Please ahead. go of Our Needham Jim Ricchiuti &

Jim Ricchiuti

Good you afternoon. just correctly. thanks. was XX% make think If we want that heard I Ran, I Hi, Hi, year-over-year? Industrial, sure to down China about about

Ran Bareket

of we that if it XX% We China end there China. in the growth. higher not in down industrial much how we level outside went but No, not Obviously, the at are look market it than going XX%. a you to because was markets was general, had year-over-year industrial disclose did the China Industrial, end on

Jim Ricchiuti

up the ask quarter? China let this. Well, business the in you microfabrication Was me for

Ran Bareket

yes. Good, Jim.

are markets micro geography. the – the by end not out breaking We or

Jim Ricchiuti

trying you the out. to. microfabrication or getting find Are the just has to up in seeing weakness I'm well business What held that as part business better? of I'm

Scott Keeney

Yes. is Jim, Scott. this

you So, directionally know, yes. I think, there,

are We in microfabrication. actually of, in growth better signs China seeing

and launched well So, products the seen customers by new we've around adoption we I China. world, but the have think new that in have also done

Jim Ricchiuti

fair not but Okay. to for QX, assume how those you along would questions. two lines? normally sequentially in Is And think weakness. think we guidance for might wondering should see know seasonal quick QX. we asking then I'm it you I'm And about seasonality

Ran Bareket

right. is want you this are And we we remarks. theoretically, mentioned in assume, the Jim, to but what opening as

on difficult very, It specifically in say that You just China know right recent the to very in happen heard cannot related news with the environment China? repeat now, that we what to is have will QX. we China,

Jim Ricchiuti

you were kind the business? feeling about and How part this remained pretty this thinking we understand. on are holding That's but going the see thought up year, second strong. really maintain and of half necessarily better into the Can growth, of of thought aerospace would we I kind slowing, defense? I I optimistic this not but some it's that – about

Scott Keeney

Jim, right, there. in that you're have many Well, And And think programs – energy there, space. well. yes, I little in got we've ongoing difficult years We've directed going of the key that about growth. strong we details we got the even And to continued a bit track term, – – more we for get expected. going very seen growth this are record And be some Longer you we we've tell better cases programs do continue than what's to to design drivers while the to wins. forecast we continue can it's on there. of some exactly

very technology very is size, where And program, one we're we're we the the positioned Navy one which this efficient. technology. larger got that programs laser differentiated can supplying in mention is, well semiconductor weight, think HELIOS lower the particular One smaller key is we of We've space.

Jim Ricchiuti

very Thanks it. much. Got

Scott Keeney

Thanks Jim.

Operator

DeGasperi comes Davidson. question go Diffely go Tom [Technical Our Andrew of next question ahead. next ahead. Berenberg. comes Please Please of from Our from Difficulty] D.A.

Tom Diffely

Good digging that Yes. guess industrial of that more I in previous the seeing is a your your the mid-range like that versus afternoon. calendar expectations guidance quarter, sounds commentary on the the difference it for a most into from third bit you're market. of little

Sounds pretty like holding as is much the high-end expected? up

Scott Keeney

Tom. that's I right, think Yes,

in we one with You continue semiconductor also. we've And, progress power the know, to end seeing new that products along limited the new defense but you and very the products strength in in lasers. with the launched know, are our visibility those we see noise continue is have higher of in markets, we all

Tom Diffely

you Have in seen space participating this any shifting on meaningful in Okay. share mainly it price is going everyone's or declines? the

Scott Keeney

China to specifically, Are Tom? referring you

Tom Diffely

Yes. specifically? China

Scott Keeney

than decline the of price as In Chinese China, previously, the talked China see is we've what It's in ever we've as in first happen. time, those the domestic about noted I expected a this are And is, declines, notably. lower And players past. we've as where seen seen overall greater market result to the that's we in power lasers we've industrial that, for that seen segment, year.

the lower the we there's in of get pressure where so, in And at competition. all levels, limited particular to higher when much levels. you see China, power Again, players on power the more that's

Tom Diffely

players kind pricing pain level there Okay. And at as the there ascertain space second, a third that in where is can this be as anything of of far some and Whereas, smaller might you the to point? the tier health backstop is?

Scott Keeney

you it's believe there the know, you details assembly know, China. our China, Even for understand all we hard You players. those in to the challenging of power is for in that of, economics, the pricing but own levels, have manufacturing we very lower know, the certainly

structure. a cost got we've of So, the good understanding

challenging that that So, for growth. very for the certainly we're believe China. to end be I even it's is the looking low one not of players sure that market for one think And in will I

Tom Diffely

is that be wafer the When to the So, last going impact, your packaged? Chinese tariff China? And tariff just is wafers at you're sending Okay. for to on question. look then you the

Ran Bareket

last a It the talking only in we point last pricing up the this to tariff the year additional about, or tell with impact, that about we you is just We be of one in take XX% that. of and a of that If reasons – XX.X% was gross is implemented the The the quarter reason we mainly in year than quarter. as is the thing quantified general. but quarter would tariff, not I can one margin. important all matter margin which year, it, topics this are as will tariff change margin margin the our that the explain on the end that have that that, the with margin. higher last everything of versus without fact reference

the order changing we have year, from tariff, Unlike chain U.S. from of at to to actively including China the moving tariff vice impact in that manufacturing we the for as to things versa, the the reduce China of here stay the we to U.S. the looking doing of are few and at supply probably a the and beginning including are some

cost. of All will help see everything and that mitigate expect we reduce And equal. us to to that being

action an those impact see the of beginning to expect year. of at We next

Tom Diffely

Alright.

time. Sounds your for good. Thanks

Ran Bareket

Thank you.

Operator

Ryzhik comes Financial Our from Please question Group. go David next Susquehanna of ahead.

David Ryzhik

much Hi. the for questions. Thanks, taking so

clarify HELIOS. to contract? the Are on Navy provider want the Just sole to to you clarify the laser HELIOS? To Just that?

Scott Keeney

Yes. Good.

we can't Other that are for providing laser technology comment we Sorry, program. say that that we on that. announce. can't others have program to details further to leave semiconductor

David Ryzhik

the And that in stage anyways R&D you when from – about into products field? actual program emerges putting think

Scott Keeney

are of comment and the pull sooner to of development programs than still two we development are one relative programs slow there. number stages, – but but be thought. launched? I much notionally seeing of they'll what it's are One, trends. mean, But in the difficult Yes, are programs little to we're technology many when fairly seeing programs we in seeing in science a specifically, milestones, seeing more some those pull-ins we're programs terms commercial and still we of those on. markets There's generally previously to be and increased It's

David Ryzhik

why talk just Got now, it. And Corona, but of for very of China's Corona right your why are a remind Chinese outside industrial you what Thank us China? challenged you. about make market sense you realize I Corona can would some the customers? on not reasons

Scott Keeney

that Corona question. all around of yes, a highlighting noise Yes, world. it we sense it's given But certainly the We're China. now, the of believe makes not the good in right economics

of outside the China, only around serve applications time, address future, bit welding detail, also think in But that the China. address now, and world certainly the will we in but all of right markets, cutting, from but really more primarily in additive interest, a seeing it little in so, we to significant not that And we're we'll over manufacturing.

David Ryzhik

for And are of the opportunity. What conversations start Corona? the last like about you on are some me you are in just What to Maybe industry? What before, hearing? then reception welding seeing? talked that welding traction with and for we've customers, when kind getting in this can Great. perhaps we were auto the welding see one topic, you What Corona? with

Scott Keeney

more automotive and to It benefit wells quarters, strong a strong explicitly, we're areas about from of Corona has announcing the But there's customers that application well-received, in now. be and publicly the that nothing quality interest coming getting Good. of been Yes. talking provides. we're there's where right is that one we'll the

David Ryzhik

so Scott. Thanks much, Great.

Operator

Our next ahead. question Please comes go Berenberg. from Andrew DeGasperi of

Andrew DeGasperi

with for Europe, taking in June-July first, but could is pricing lot us Thanks seeing question. in when Is Maybe my could the of I not X? let or if a June to been activity – look outside being of know it's we deteriorating consistent you how that's it prior what moving? portion and big you're know China it faster revenue, at a

Scott Keeney

the very it's seeing of in noisy, trends certainly but Yes, obviously macro the day. we're paper sort every that

we're broad a CapEx consumer also decisions in industrial anecdotally, of equipment. know, markets on seeing range really different that from through, electronics You

anecdotal is we're partial, and macro we're data general but our So, support would seeing. certainly that it trends the certainly

Andrew DeGasperi

And the in it. then Got side. ultra-high-power

to been know, customer curious players been you have growth or traditionally had? two that Just from the you've base broaden with sales to one what's your able

Scott Keeney

the a in a You range We're adoption with occurring more Corona been range of recently we for area and power. on it high more a know, customers broader of broader that's see of hasn't where customers. us focused for significant emphasis

Andrew DeGasperi

Got very much. you it. Thank

Operator

come [Operator Ho next go Please will Stifel. Patrick question Instructions] of ahead. And our from

Patrick Ho

terms them share Did color you, in of hit? because can of you years? decide, pricing do from margin last range? first over low potential a the much, pressures in you guess, business the the a How rationalize you taking Maybe accepting mentioned versus couple very away guess, power how gain between walking on there, a of in and the give deal off, you the little I I you Thank that and China especially just conditions business Scott. challenges

Scott Keeney

power the very different. that competitive detail set a focused low-end we're Patrick, see the we that is are of we many obviously, But, and a general, specific products with good. of China on through. in very really less reliability set competitive where just very where are high of at in that there it's pressure in go cases products Yes, different, analysis the

from really apples the it's that's So, comparing if And case, opportunities. those oranges. we to yes, work will

Patrick Ho

have you've that's XX like ultra-high-powered mentioned towards given lasers and given the that kilowatts mix demand targets the the haven't you've pressures there that lasers shift And, Great, you seen the also Chinese current the and ultra-high-powered these seen the environment? the helpful. the the introduced but yet, pricing be And for market you I drivers your application guess that there you mentioned market.

Scott Keeney

to But is performance, Corona Yes, get our we we power much a will China even roadmap very continued indeed And, and continue for to power. bigger to we interest seen strong think have. with in higher increase we drive We've higher addition even worldwide. perhaps of opportunity at lower where to a continue that, and too outside levels. power. Really

see the looking cases many industrial the of in in then and China. where we near-term In and ahead, markets obviously sector. is defense aerospace in there interesting growth outside So, are

Patrick Ho

Thank much. Great. very you

Scott Keeney

Pleasure.

Operator

concludes Willey remarks. This would and closing now over back to to turn the like for Jason question I any session. answer conference our

Jason Willey

everyone your any additional free great for reach to questions. out to feel like of your rest to you day. Have say interest. Please continued anyone thank has a I'd if

Operator

is conference for Thank now The concluded. presentation. attending today’s you

disconnect. You may now

nLIGHT (LASR) 5 Aug 192019 Q2 Earnings call transcript