LASR - Earnings call transcript Q4 2019

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Operator

Good afternoon and welcome to the nLIGHT Fourth 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 Jason Willey, Senior Director of Investor Relations. ahead. go Please

Jason Willey

good and Thank afternoon you everyone.

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

our me earnings are have you of press Relations the slide presentation to release on after or the jason.willey@nlight.net. section please direct the and at If XXX-XXX-XXXX call, Copy available Investor questions them any www.nlight.net. at website of today's earnings

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

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

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

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

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

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

Scott, now call back on over will turn will strategy. outlook turning the over go and before remarks. to the market through call to an then I for update and will provide who the Ran long-term our the closing financials Scott

your take to glad be questions. then will We

Scott Keeney

section order Investor will be earnings website. In can of provide Jason. presentation on we XXXX presentation refer on Relations you, Thank QX call, better our the found to the help a update to this that

To begin X. to please refer slide

and commercial the become our opportunity, COVID-XX environment. environment markets, performance make near-term however, the been XXXX impacting will on few virus several quarter, across of saw past demand clear over our into signs Exiting we that the our a it's is improvement I demand the current diving weeks our end internal comments and operations. long-term business fourth Before the

employees focus health respect China. in is the ensure of to with primary virus to the Our our and safety

most that long-term be assuming strategy. we'll will are the our on remain of effects growth business and We temporary focused

closely Ran the the additional provide call. in impact monitoring We are will details and later

today, update I our address topics: core first, On market on laser three the is by drive an laser improvements technology provide opportunity, will will we created adoption. call continuing to that in

positioned markets. Second, is end to and of capitalize each integration these three through differentiated I our opportunities will how product offerings describe on and vertical in nLIGHT our

first an Finally, on our the performance Ran for financial provide our will quarter. update outlook and

the challenging pricing high-powered various X. to U.S.-China the the year refresh a global overall growth. from tariffs, electronics was year-over-year applications Chinese with for solid in laser and double-digits Moving while and the slide to fiber electronics slowdown laser industrial aerospace cycle. broad-based a XXXX market, industry showed headwinds, consumer declining Industrial and and aggressive market faced markets headwinds due defense consumer muted

For following period nLIGHT, our expansion years. the significant overall five revenue past X.X%, over a of declined

through While an saw year, defense, driven growth to level in the overall resources: directed point The and delivered where areas outside believe with industrial inflection we we not China of for particularly we are we we and aerospace continue our revenue full energy. market, opportunity for satisfied the we focusing outpace of are where the market the by

X. slide to Moving

areas: for outside under-penetrated. remain Looking fiber laser a of in first, geographies long-term industrial where market significant opportunity China, forward, we in to continue key applications growth in see two products

the in challenges, deploying over long-term is industry continue as the laser defense, field. and directed several focus opportunity for significant there aerospace laser both the technology the we their expand governments increase Despite to opportunity fiber years in next energy meaningfully the near-term continues to expect Second, expansion improve and we on where nLIGHT. technology to believe and

in each end strategy our markets. I of discuss Now our three will

to microfabrication semiconductor laser go-to-market Turning component technology. with leading the at our X, slide within we level

We our in innovative various non-laser-based products launch medical markets increasingly processes that across research. displacing are customers and to scientific are enabling electronics, automotive,

as year as XXXX microfabrication for strong was ever market. While a difficult end our technology this in leadership remains

during slower conference QX call, As we've and our automotive electronics on activity discussed consumer focus our applications. across much seen and customers'

applications, Specifically in manufacturing consumer technology more refreshes and electronics in we muted believe resulted retooling. limited design have

a technology. of could and devices consumer expect of generate that We retooling. networks, meaningful lasers This a electronics for the generation purchases supply our customers' new of XG incorporate initial core semiconductor certain rollout is next laser of key the driver chain of number our

technology. innovations our drove product in slide significant legacy to laser X, our new performance our cost portfolio XXXX opportunities enable to us focus brightness and maintain across semiconductor our open believe lasers and improving displace for leading in application We leadership technologies. Moving we to enhancing on

product each We across number have excess lightweight products in three serves end in foundational a can generate watts in markets. of power this eXXi introduced which including This of a a single of technology new as area the of our package. XXX

Turning we welding products customers to in our and into metal additive manufacturing. and X, the slide industrial market integrate integrated fiber systems semiconductor their from end lasers our cutting, through within applications are for

vertical enables to high-performance Our high-reliability integration us products. develop to continue

XXXX up of more proved XX-kilowatt This our offering. of launched We products market new China. portions up number fiber particularly a our during is power laser highest power ability in including attractive to crucial in in scale the opening

shown sales. continues on X As our higher-power to fiber shift and power slide ultra-high business towards laser

of laser our in XXXX. almost above doubled accounted fiber total which year-over-year. our laser During fiber of category sales in approximately XX% in Sales fiber period to sales sales comparable for and this laser total the QX X-kilowatt compares XX%

the lasers in of slide to offering we in welding enhancements and progress end manufacturing. market. this released our We fiber understanding XXXX across end differentiated several drove additive differentiated within expanding industrial made cutting, our truly to significant product Corona, programmable XX, improved offerings user Moving and

platform in applications electric particularly welding batteries an the view offering of spans while end is evolution opportunity, key historical fiber our to as has a offering enhanced of attractive been opportunity exposure shift manufacturing the the market XXXX adoption. an relatively laser true We laser the overall greatly laser welding vehicle future with limited, platform. that for Corona through our the This and introduction with automation to our driver welding various product in near-term

Corona in driving our progress slide Turning of platforms sales the our to growing in and our industrial performance with reflected year-over-year non-China in XX, fiber almost laser XX% is XXXX.

key business America new have XXXX. We footprint Corona North design our progress within in and of made in across Europe significant Asia, customer a expanding driving number with wins and accounts

nLIGHT our long-standing supplied business key Turning laser defense, to positioning slide long-standing XX. future Within space for focus and delivered a market we aerospace and have for Aerospace has been growth. as specialized a a year we is defense applications. driver growth XXXX, defense and into of historically and programs. various supported several solutions by This in another with critical core solid view

a opportunity portion received continuation business and defense aerospace with contractor. a million long-standing is $XX within this QX Reinforcing our in for the large defense of ongoing the order of a program

to We over XXXX. delivered XXXX expect order the and of course be this

from serve With of and the as acquisition nLIGHT enhanced directed we integrated to vertically significantly control. position a Nutronics our through beam chip supplier the in market energy November, capabilities

partners with pleased and of community. integration energy we potential within Nutronics progressing initial the are is Our from response directed the and plan to customers

deliver on long-term directed see key opportunity a ramping to are on market. contracts. several capabilities energy meaningful directed and serve We focused the within to our We market the energy

call turn I'll over that, Ran. With to the

Ran Bareket

points. Thank X.X% basis tariff and were impact XX.X%, XX, Beginning XXX you, down approximately war, Scott, everyone. good which was XXXX U.S. slide revenues Gross $XXX on trade afternoon, for margin million, year-over-year. includes

aerospace $X.X and EBITDA segment outside of Adjusted China. of we We was of million continue end revenues. in defense And the market. within year delivered China. in industrial to market drive growth or another our And end X.X%, strong high-power growth,

in industrial offset market, were headwinds, of the the positives and segment in Chinese market. the by global low-power These slowdown microfabrication the

results to quarter. XX, the for Turning focusing slide fourth on

year-over-year. with X.X% $XX.X Revenues China compared, XXXX were X.X% XXXX. sales fourth or QX in total geographic of basis, to million, revenues, $XX.X were On up of a million, quarter the XX% down

were million, in compared of of fourth down representing, $XX.X sales were America million the XX% declining world Rest with total and XXXX. were XX% revenues. Sales total of of the $XX.X X.X%, year-over-year. XX% North And revenue quarter

$XX.X QX end of were X.X% markets XX% XX% slide XX, markets of industrial representing to Turning the were revenue. Sales total year-over-year. microfabrication or up million during to year-over-year. sales And $XX.X end total XX% to revenues. million, down And

million were total XX% or grew revenues. with the of and $XX compared sales of quarter defense And XX% Aerospace XXXX. fourth

we lower microfabrication saw with with encouraging, meaningful and growth negative a the margin. our market impact had While gross the significant end on and quarter industrial fourth is a aerospace mix defense,

of related, of volume margin fourth comparable Moving in XX.X%, the reduced to Approximately the XX.X% slide was was with mix. XXXX. quarter, in and unfavorable compared gross to period basis points X,XXX XX, decline the

overall contribution revenues in the significantly reduction from And end This microfabrication $X.X includes year-over-year a a market. of lower million.

of basis margin mid-XXXX, U.S.-China gross points implemented, was XXX approximately with impact approximately XXX points, QX compared basis on an tariff $X.X XXXX. in since QX impact million The or

tariff increased costs higher generation our U.S. laser fiber platform, XXXX manufactured in quarter increased in and rates is the of which latest during The the reflect fourth China of sales currently

XX, XXXX. year-over-year. include increase million during operating slide $XX.X expenses fourth to million QX the million operating Moving were XXXX an quarter, quarter, $XX of $X fourth compensation, of expenses stock-based of million the in compared with $X.X

Also Nutronics included of were $XXX,XXX the intangible non-recurring with And transaction-related of purchase amortization. results $XXX,XXX associated in QX expenses acquisition.

Turning to XX. Slide

of a of was revenues. $X.X GAAP during fourth million compares the loss a to QX million for XX.X% the positive for negative EBITDA with adjusted compared million $X.X loss net or This in of XXXX income Our was of million XXXX. loss or X.X% $XX.X of quarter $X.X of QX XXXX. revenues fourth quarter

for fourth $X.XX GAAP the share was the XXXX. loss per EPS in on with foreign tax deferred net loss of compared GAAP the of fourth million XXXX assets. allowance valuation quarter for fourth quarter income $X.XX diluted of quarter $X.X a includes of

full XXXX directly of Non-GAAP EPS QX diluted SEC the in per release of income loss compared in share and earnings per was $X.XX metrics to QX comparable most found XXXX. A GAAP related our the filing. with in a non-GAAP reconciliation shares is $X.XX metrics of

acquisition Nutronics of restricted in stock $XX.X On closed units. we XX the and November $XX.X million of for million cash

For quarter on added Nutronics the fourth to Gross margin the this $X.X our was acquisition, million defense post and revenue. period XX.X%. aerospace revenue of

Nutronics intangible generated business adjusted of amortization $XXX,XXX operating of GAAP had and revenue. of the mainly of purchase XX% or EBITDA approximately approximately expenses, of XXX

activities, X.X% operating by million offset QX, reflecting from of in expenditure for cash lower we $X.X million of $X.X revenues. partially Capital quarter was improvement used income, working the net capital. During or

in For million the million used XXXX, operating or expenditure $X.X full cash invested $XX.X revenues. of we and X.X% activity of capital of year in

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

liquidity needed strategy. the execute with us provide believe our we and long-term to strong remains sheet balance Our

Turning to sales include products first slide segments: including will we XX. Products our traditional commercial present defense call Beginning segment, which to we XXXX in quarter will earnings, first our financial will two with The contractors. prime Laser our

The Advanced second The our U.S. Advanced Development development call government mainly government historical development segment was include in Development will aerospace the and research what segment our activity. defense. and will which with include Nutronics we work and

recognized Development this Advantage of and segment, all be cost in the lines. – revenue the essentially [ph] So expense will

of to to midpoint Laser outlook sales this $XX Advanced expect At and $XX range million available on for includes approximately sales. the the we approximately $X QX million Moving to $XX of XXXX. our be $XX revenues Development Product in million QX for Based the today, million information of million.

product XXX for expectation current stock-based are expected the which million QX in be the see X.X%. XX% approximately in of $X be margin tariff XXXX expected to to introduced and or around approximately development XX% our XX%, compensation since approximately on to of XX% of range margins margin basis are we product negative advanced from points. $XXX,XXX gross impact includes mid-XXXX gross for of mix, to range Laser gross Based and

QX approximately to Operating expenses approximately be XXXX which compensation of $XXX,XXX related acquisition. expected stock-based the for $X.X purchase $XX intangible Nutronics and amortization includes million are to million, of

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

shares be million. to expect average QX approximately We basic $XX.X

a The includes approximately and revenue, additional of the points in reduction The estimated approximately impact costs. currently outlook basis XXXX to on to XXX due QX is million anticipated full business virus. due at utilization revenue, impact margin mitigation a the disruption from gross manufacturing lower COVID-XX for company lower $X the

and on due information and multiple within demand in is our of based inability sourcing and business Forecasting available our identified global in This virus China. this impact at today This the impact our the of China are a point. businesses meet to and the best very delay reflect chain to manufacturing variables. the in supply estimate on our challenging our includes combination operation

disruption delay expect Additionally, no that the we demand realized outlooks These to as will delayed and comments order assume future and uncertainty today information general of the due of certain be available of the believe currently related situation. quarters. to have future worsening the the the customer We most virus. temporary in assume provide and we

around COVID-XX we our financial market we Given the virus, uncertainty for will impact level what of commentary of of global individual first quarter this XXXX. not for provide beyond provided have the the end

in between expect continue revenue We to $XX million during Nutronics XXXX. contribute to to million $XX

I call some for back the turn will closing Scott now to comments.

Scott Keeney

Thank you Ran.

our market the we expect high-powered environment number industry of near-term continue significant growth to addressable across see expand has laser presented a we market challenges and market the While share. and to long-term opportunity

areas core opportunity we offer two on growth. focused remain outsized believe for We

markets of geographies laser see We in a world. in We in welding under-penetrated differentiated opportunity market fiber First, fiber in products. the the number of significant rest laser particular. our remain industrial global for and

aerospace the in and Second, to expand market the defense, next meaningfully years. several we directed energy over expect

of opportunity. and core the beam positions control capabilities capitalize technology this beam semiconductor Our us Nutronics combined to laser on uniquely with combination

now we'll call the open for questions. that, With

Operator

And We Please Davidson. Diffely comes Tom [Operator ahead. now D.A. go the begin Instructions] will question-and-answer session. first our question of from

Tom Diffely

Yes. afternoon. Good

coronavirus question you pieces? a demand of on and two out the $X parse the driven, Is or first million impact. that Just versus supply-driven the most can

Ran Bareket

Hey, Tom. for you the Thank question.

some is to is of it related demand. supply, Some of related to it

area closely, But our China definitely not in demand is to manufacturing believe very we There supply -- is there well. understand to supply in site be some there the also fully this utilized. monitor impact side, chain is as side need as going our on is and we from well. You impact the

Tom Diffely

guess or that something of basis I you at level along when from impact. a those some revenue? lines? parts for Is just And XXX Are increased costs the seeing look Okay. you lower points expediting

Ran Bareket

reduction It that of the we of demand cost some is Both. there is would to fulfill quarter. like additional an going but to mainly the revenue mitigate the some obviously, to be in due have this to that risk we

of reduction cost. most it it million be is to going from additional revenue. So But is in the $X

Tom Diffely

Okay. lumpy Is fairly is it when over then you a be milestones, And revenue stream when forward. the time based as on through going at Neumonics revenue a finish stream stream metered be you go finally to pretty you that look or projects? certain going revenue to going

Scott Keeney

Yes. Tom this is Scott.

based thinking have and It's you're upon intake think milestones. I upon not about contracts, the they're right them. way milestones will milestone different they're big -- some in it's it's not it's based. like those order variation based But

Tom Diffely

Okay. for you time. your Thank

Ran Bareket

Tom. you, Thank

Operator

from next comes ahead. Our question Please go of John Stifel. Marchetti

John Marchetti

Scott, just Nutronics following on some that up stuff. of

of bulk was A&D contract, about some $XX million we You XQ? do also in talked the How see signing in in that think that should of the that we that given signed that that? of XXXX, contributing

Scott Keeney

good. Yes

and It's quarter. fourth the in over revenue for 'XX. signed we'll was XXXX that and a that into see So long-standing business

John Marchetti

diced guys us -- then the way Can laser laser products about that given and a now product, set, you have how same been got at XQ from XXXX? the growth of if go you we would it as Just a in forward that sense perspective? so we're that I aerospace you defense. are level guess just just and the And talking way versus what looking I've help Okay.

Ran Bareket

end microfabrication. two if forward, those different it's you segments. So -- in our defense, of the The legacy including will going and three that industrial all financial will nLIGHT have we we product markets present product aerospace and in three laser

under mainly the from profit but same fixed Development the is as there as within revenue which The And going nLIGHT will some be Advanced revenue There Nutronics it's it's we some also revenue, is it fee therefore, segment. portfolio that is legacy Advanced Nutronics contract. Development to well. nLIGHT the present

During will standalone. is XXXX, revenue provide the Nutronics a also we from what as

versus So it's compare and going to inorganic organic apple-to-apple to be easier growth.

John Marchetti

Excellent.

at of look I in. as drivers coronavirus the to demand little lastly mentioned Scott just a had the to bit firm you up coming appearing impact then And of Okay. the XXXX, some prior

expanding of or across was different could whether spend sort minute little whether driven, you wondering a seen that markets, you've Just a that two if it mix bit couple of on a sense half start impacts more of the 'XX corona near-term some and even as and about think just there but the you. of think maybe beyond to out Thank there? we second beyond

Scott Keeney

some Yes gain seeing different other ability there. in and good. in indicators addition, world like there broad are our continued of certainly seeing in interest that in certainly, to broad-based We outlook certainly we're the microfabrication share then we And overall. XG saw from the market around areas improvement progress the factors then

we So temporary that it term, we're be an has the we impact closely. it COVID-XX do very -- certainly it in near do the virus think watching will believe and

John Marchetti

Thank you.

Operator

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

Jim Ricchiuti

afternoon. Thanks. Good

Just again results. virus there microfabrication Is a question bigger on a what given as hit? margin the on on just business been the previously the impact the discussing have impact we of the QX

Ran Bareket

go million not However the end to which the will beginning can we $X the the markets? you, it's at end opening Jim at demand at I end What what exactly we mentioned this beginning, markets. that in at tell all as quarter, before Scott from of level. that No. in Year across quarter the the the is remarks saw virus strength the Chinese before coming of where beginning New last of – the

coming well be what end million Unfortunately, have will we $X and microfabrication we that based that markets. virus know it's as from the as estimated on impact currently industrial

Jim Ricchiuti

is facility Is And your – that Okay. right? Shanghai. near in

Scott Keeney

Correct.

Ran Bareket

Yes. Shanghai. Pudong In Correct.

Jim Ricchiuti

Yes.

– the bit in to curious within talk that facility? you you folks workforce, in disruption of what terms back in workforce the And just facility. many just little of the kind can So have maybe got a how

Scott Keeney

the restrictions. is ability in term significant back on And leave New we've And the it's even there's Chinese a limitations that good. also. Year impact then to people as seen were coming there travel quarantines that's Yes and certainly near There's from were apartment. one's what

up come – So back of we certainly running. we And those are all factors together. and

capacity with. had more to start limited We

to certainly, into substantially as over get be to then. So there's the we'll we But more back by month, think a back March, – I next significant impact. normal

to been of been rely yes, bit data Johns to comes And impact it's know in Hopkins, I've data The there's But little difficult Shanghai. Shanghai. to which exactly limited out a according that in China relatively more on.

our back we're So coming together. and is team fortunate

Jim Ricchiuti

with Nutronics. in that business, or to margin wondering margin think what in terms quarter? we should I'm about of Is we you've Got that respect the profile that how saw of it. that outlined Is And Ran, way you section? part the for outlook – gross the about think to of one should it

Ran Bareket

the I what gross Advanced margin way be be with will close to you I therefore honest cost going be sold mentioned look recorded not majority, at to be as in the section. Nutronics, before, the segment, to and numbers it's be going And the margin. is Yes, high-single-digit which to well of those outlined profit The going again in be costs will Development all EBITDA. it is the as outlook the to the if of the goods mainly as to

million going the from $X.X the forward should it's but from roughly XX%. contribution EBITDA the going Nutronics segments. The in for expect little $X.X Advanced EBITDA Development be this to bit that maybe we is million, than or a was that lower And roughly to QX Nutronics get

Jim Ricchiuti

through possibly on about to business. maybe able this I because could bit can we revenue the tighten that at just the business. going through think year, as maybe are I'm go from you back-end just little seeing should how be is point this we I'm contribution wondering year, understand be a yes, is wondering, Or just going get granularity of the to business as being the that you're range we the more go And from loaded? to what we it's milestone-driven. difficult

Ran Bareket

Yes.

be And we smaller and obviously, and will range it milestone-driven. smaller. yes more more will – we year give Scott the that and as As you progress is mentioned, will with we information

that we business can that can information So we and as the we we as we much you give as on milestones. those as will move much deliver Nutronics accurate as for information as

Jim Ricchiuti

industrial I you QX much if on don't not forward going going just. And gave and last and the I probably if China. to Okay. business QX, business outside this know but question industrial inside hear we'll may color the

Scott Keeney

Yes.

will of there we grow growth think roughly outside XX%. I to China and it's down So XX% inside continue China,

Corona in the So of we're around China world. larger particularly seeing outside growth with OEMs adoption

Jim Ricchiuti

you. Okay. Thank

Scott Keeney

Thank you, Jim.

Operator

from Please comes Capital of question Group. Palm next go Our Greg Craig-Hallum ahead.

Greg Palm

Thanks. Yeah.

of at here. You us threw bunch a numbers

Nutronics in QX I what missed was but have may that? So contribution it,

Ran Bareket

in again It or revenue. top line So was I'm sorry $XXX,XXX -- Nutronics the roughly and margin QX $X.X was on margin gross contribution million the XX.X% EBITDA. on XX%

Greg Palm

Okay.

-- stripping on above was so revenue And high so it that out a the outlook end. little still looks bit the previous like

whether I that related mean your what that's or based segment in drove strength the versus So mind guidance geography? previous on

Ran Bareket

You the right? about for $XX.X nLIGHT $XX are -- talking roughly million million

Greg Palm

million the Yes, to yes $XX versus $XX million?

Ran Bareket

of the China Correct. is industrial came from in rest It from and the but specifically China, more industrial in came yes. world mainly mainly

Greg Palm

at Ran, the visibility of what's about in certain out And something million shortfall you pushed to point? later some point what's I out the Okay. what's I the your $X guess guess maybe get revenue quarters realized guess periods. this next? gets mean that in your mean your will that this I to or I best further expectation best there? pushed mean or mentioned this year

Ran Bareket

this be today. be difficult factory Chinese Year. QX are full have can will come of say. we all when utilization at the deliver will in really, New have business really it we comparing were only really we to Those where The we now in Chinese is demand. right only virus Year will QX China And point. $X assumption This when that really, are to to specifically before the back and It's the today. or that are that assumption our say before where million that in logic we a the will have before we we able we New assessment best the was the If hard or when where is

Greg Palm

some you Do impacted of better supply visibility you -- chain these mentioned? have into impacts that

Ran Bareket

No.

Greg Palm

one. I And guess just Okay. last

relates to activity of customer is Tier hold? announcement on you Has changed call. last expecting anything the Are on, X it this the customer or with everything year anything that's with those still a mentioned you ramp-up initial As given that that on expectations? going

Scott Keeney

we're China. Yes, expecting And outside the still ramp largely this that's of year.

So there chain certainly be some first will supply that progressing to still but ahead. interruptions, is order

Greg Palm

That’s Thanks. I Okay. figure. right. what All

Scott Keeney

you. Thank

Operator

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

Andrew DeGasperi

Yeah. Thanks for taking my questions.

First side. on given acquisition I that in to know XXXX XX% be have it take product do event, you might be you margin level? it and the Could that? QX wanted a or margin mix QX do longer plus think think of gross do in than when to the able the would return -- in to gross terms you and you you

Ran Bareket

question. Good

right? first with Advanced Again the come between we when distinguish again we have, all the So is will which of segments mainly are margin, the margin. two a talking Development important about that low Nutronics to it's

Laser going the to I versus Product where a is Development. As margin segments, what the take mentioned that equation. like the we will on out did we easier is XX% above why before, so separate XX%, that our have understand roughly Advanced in to And to apples-to-apples high investors in the we will of reasons what two to be And it's be our in you the is that you this single-digit have or for we margin. were one need with it to compare from the report margin order main it

was that, revenue. It Products out. volume low the Laser revenue comparing So are was without It on was mix I reason this make low mix is the point and want main we obviously. a If lower need we – to And take then and that a was QX apple-to-apple XX%. in first revenue. definitely Nutronics to

the If water-flow presentation last on we a – you XXXX. QX presented will if to in see in our can you it QX that find just refer versus margin slide – back and can you of I XX, our XXXX website

and There et XX% to basis microfabrication cetera, a with more points impact volume. due well et from cetera lower due revenue our was mix the impact impact or X,XXX mix The to as revenue. the lower the China margin as the

really on growing put coronavirus, variable the laser opportunities we of forward going that forward product company again it the we outside but well, However, put what China. have aside mainly to it's as difficult that about are and is the that talk going aside

hard to in normal call where the That top of top we the line with and China defense. grow and aerospace outside continue microfabrication But industrial as on than go with it the it and able will the we definitely to the aerospace line we XXXX rest – XX-XX back grow of Going additional grew level it's mix to improve better defense. to When revenue line, as revenue of definitely it's call that, quality improve plus and we margin. long margin back will top percent margin well grow QX the to revenue continue world were as as will say. to will be to continue the

Andrew DeGasperi

– noticed that, think. to year? of it the acquisition/timing follow-up of I'm not this was perked a I similar And it. in maybe comp. due assume in stock-based the be me, as sure I forward, I'm QX, some in up level correct end that's wrong of kind then rate or QX. terms Should going there Got that a we if the

Ran Bareket

of is was in compensation OpEx. So – it rest of the the around COGS, million quarter it $XXX,XXX $X.X the in roughly where almost out was impact on in stock-based QX,

result quarter. $X.X four years our $X million the it's RSUs out of you of over of did RSUs. we acquisition As recognized with a already roughly cost those Those We if in QX. recall RSUs the Nutronics, million that in that we $XX.X it provided million vested a

roughly compensation an should stock-based $X.X more by higher Therefore, it XXXX. we QX. to what expect than $X.X in So QX million have will in was million costs that the additional you QX be

Andrew DeGasperi

Got it. This is very clear. Thank you.

Ran Bareket

you. Thank

Operator

Our next Miller Benchmark Company. Please of go ahead. Mark from The question comes

Mark Miller

for question. taking you Thank my

in pickup uptake were orders prior semiconductor that customers? you to diode Does a microfabrication. pickup seeing coronavirus mentioned a include in You from our that

Scott Keeney

end We Yeah. there. demand, break out Mark don't the

the cases are So – products many we where frankly, and going. don't know in end

laser different use So markets. a sell and manufacturers range wide solid-state end manufacturers diode-pumped they we into of their they products laser in and

So yeah, we saw a there. pickup

Mark Miller

Just there was that there be your of some you chain some was concern customers? about might chain have supply wondering inventory builds Apple disruptions at Do are supply disruptions. a if some concerned

Scott Keeney

inventory you of Do or So you're... COVID-XX? the past mean in because

Mark Miller

the can't acquiring them involves up your because people products can't inventory a certain but using say or can't make they're might building not components they're since – in builds. product that – they Because people diodes build that whatever the they start

Scott Keeney

Yeah. really all happen permutations. To in trying likely to and be as our hard certainly what's it's to see products. thought we we're about there speculate there to there. building ramifications We and together honest the now, get back team Right demand haven't

Mark Miller

just and level tick at that of roughly in the The R&D December in was quarter continue through rest XXXX? up expected that Nutronics that's to

Ran Bareket

So, pickup investment first in did all in of Product that was the or Laser Most investment nLIGHT. of here no. QX was we

QX, OpEx, there few. In two there unique items a the are of terms in were think OpEx. In that, the I

them was the acquisition. of amortization intangibles the of as of One a result

was related one million $X.X other acquisition. the The to expenses

XXXX, of that. roughly OpEx compensation, result merit it up type -- than as not those stock-based increase will will of maybe slightly be will but without during a forward go in be Going more costs, flat;

Mark Miller

a So go it to what roughly you XXXX? for XX% it going to be is type are or modeling of down? tax quarter, going Is expense

Ran Bareket

it at it's to right to look it not $XXX,XXX at roughly anywhere to look to of $XXX,XXX going a revenue. way is right quarter. be expense a percentage way between as The The

Mark Miller

Thank you.

Ran Bareket

are You welcome.

Operator

question go comes from of Edgewater ahead. Joe Please Our next Research. Wittine

Joe Wittine

quick portion Thank or you. the China specific do industrial to have of intensity updates if there In wondering on any fiber thoughts you I'm market, competitive Scott, China the fiber?

Scott Keeney

QX? from Meaning

Joe Wittine

Yes.

Scott Keeney

past similar QX over seen we that few trends of sort saw Yes. we've years.

there. So, no big uptick

We continue fiber to higher-power for welding also our make progress cutting and progress in lasers market. also with that making in

Joe Wittine

Okay. And sticking fiber. with

overall what Corona, a of expectations as is will kind -- the what fiber is -- segment? represent adjustable for baseline a piece For your your percent big how of industrial what Scott of

Scott Keeney

Yes.

the that's majority necessarily we're applications minority. those in we're vast Corona what are Corona. design Majority significant at looking new the customers with of that aren't design it's and certain value. adds new wins. looking of wins, most As But customers There at is working

design those for key a wins. it's So

Joe Wittine

Development scale which Nutronics. stay margin Ran, going model then AD business, Do the COGS. that by selling to Okay of secondarily, grow of because room kind economies your of has Advanced to kind we primes, stable? of great. apples-to-apples that then, does disclosed you it you're you that? OpEx or an show -- the essentially And some EBIT that And does helpful have kind so does EBITDA perhaps into finally you or described forward have can gross is how and other on to really relatively way, stuffed comparison

Scott Keeney

Yes -- let me maybe too. can in and Joe Ran I'll start jump

what overview give this is gross -- think we broke this business different. other the DARPA like because I there. not is economics helpful good or in frankly the Ran place reason had a metric. always contracts We've of just with where So, And contracts EBITDA a look out the margins the really the government-funded economics looks of business research super the

that's So it we out. broke why

we'll show breaking and business. out Nutronics so And be our to legacy

our you're laser transition where products in As those talking core and that's there. time, past. in about just then And over development And are where those business. go the products that's gone different economics into programs programs they've those

Joe Wittine

I see. Thank you.

Operator

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

Jason Willey

have their to day. good a we're you And everyone over today. for participation like Have and of your thank know follow-up let I'd days any coming weeks if the questions. available rest you

Operator

attending Thank for now has presentation. you conference today's The concluded.

You may now disconnect.

nLIGHT (LASR) 19 Feb 202019 Q4 Earnings call transcript