nLight Q3 2026 Earnings Call Transcript

nLight (NASDAQ:LASR) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

nLight reported Q3 2026 revenue of $73.8 million, an 11% year-over-year increase, exceeding previous guidance despite supply chain constraints.

Record product gross margins and adjusted EBITDA of over $11 million were achieved, signaling strong business model leverage.

Directed energy systems, particularly the JLWS contract, are key strategic focuses, with a shift from development to operational deployment anticipated by 2028.

Supply chain issues persist, but the company is taking steps to mitigate risks, including reshoring and diversifying suppliers.

Fourth quarter revenue guidance is set between $84 and $90 million, excluding $15 million due to supply chain constraints, with expectations to fulfill this demand in the first half of 2027.

Full Transcript

OPERATOR

We will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to John Marchetti. John, please go ahead.

John Marchetti (Vice President, Corporate Development and Head of Investor Relations)

Good afternoon everyone. Thank you for joining us today to discuss nLight’s third quarter 2026 earnings results. I’m John Marchetti, nLight’s VP of Corporate Development and the Head of Investor Relations. With me on the call today are Scott Keeney, nLight’s Chairman and CEO, and Joe Corso, nLight’s CFO. Today’s discussion will contain forward-looking statements, including statements related to our financial projections and plans for our business, our growth opportunities and demand for our products, the impact of export controls and related supply chain challenges on our product manufacturing and delivery, and our mitigation strategies to address such supply chain challenges.

These forward-looking statements are subject to risks, uncertainties and assumptions that could cause our actual results to differ materially from these statements, including the risks mentioned in today’s earnings release as well as other risks and uncertainties described from time to time in our SEC filings, including, without limitation, our most recent annual report on Form 10-K and our subsequent quarterly reports on Form 10-Q. We undertake no obligation to update any forward-looking statement except as required by law.

During the call, we will also 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 press release and in our earnings presentation, both of which can be found on the investor relations section of our website. I will now turn the call over to nLight’s Chairman and CEO, Scott Keeney.

Scott Keeney (President and CEO)

Thank you, John. The third quarter represented another period of strong execution for nLight. Revenue was $73.8 million, an increase of 11% year over year and exceeded the high end of the guidance range we provided in August. We delivered these results despite continuing supply chain constraints that limited our ability to fully satisfy customer demand. At the same time, we generated record product gross margins and adjusted EBITDA of more than $11 million, demonstrating the underlying strength and leverage of our business model.

Demand for our products remains strong across our Defense and Space and Advanced Manufacturing markets. Our opportunity pipeline continues to expand and we remain focused on converting that demand into sustained growth through disciplined program execution, increased manufacturing capacity, and by building a more resilient supply chain. Directed energy continues to transition from technology development toward operational deployment. The strategic need for directed energy laser weapons is increasingly clear and our customers want scalable and cost-effective solutions capable of addressing a broad range of threats from drones to missiles without relying exclusively on high cost per shot kinetic interceptors. Since our last earnings call, public comments from defense officials have reinforced the urgency of this transition.

The Department of Defense has discussed plans to move the Joint Laser Weapon System, or JLWS, towards fielding in 2028 and has emphasized that the next phase of the market will be defined not only by technical performance, but also by producibility, affordability and deployability of systems in meaningful quantities. We believe nLight is uniquely positioned for the next phase. Our HADES platform combines three capabilities that are essential to effective high energy laser systems: scalable power, exceptional beam quality and atmospheric correction. HADES is based on a common modular architecture that can scale from tens of kilowatts to a megawatt while maintaining the performance required to address increasingly difficult threats and our $627 million JLWS award is an important validation of this approach.

Under this multi-year agreement we are developing and integrating complete containerized high energy laser weapon systems. Building on the technology and experience we have gained through prior successful high energy laser programs including HELSI 1, HELSI 2 and DE M-SHORAD, JLWS expands our role from a critical laser supplier to a system-level partner and represents an important bridge from prototype development toward deployable systems and future product opportunities.

Outside of directed energy, we continue to see attractive growth opportunities in laser sensing, kinetic weapons and space. Our laser sensing products support a growing number of missile intelligence and space-related applications. These systems complement our directed energy portfolio because future layered defense architectures will require the ability to detect, track, identify and ultimately defeat increasingly complex threats. Demand also remains strong for our products used in kinetic weapons.

The demand for these products, which support established programs of record, is being driven by global inventory replenishment, increased production rates and broader mission requirements across the defense technology sector. Our U.S. government and armed services customers are increasingly focused on the capabilities required to deliver next generation weapon platforms at scale and this has also been a key priority for nLight. We are investing in our manufacturing capacity, building appropriate long-lead inventory and strengthening critical portions of our supply chain. Our balance sheet with more than $300 million in cash and investments gives us the flexibility to make these strategic investments and continue to fund product development and evaluate strategic opportunities that could accelerate our growth or improve control over critical technologies and supply.

International demand is another important long-term opportunity. Allied governments are increasingly seeking locally supported, rapidly deployable counter-UAS and directed energy capabilities. We are pursuing a disciplined approach to these opportunities, working with customers and partners to determine where local assembly, integration or support can improve our competitive position while protecting our core intellectual property. Before I turn the call over to Joe for a review of our financial performance, I want to provide an update to the supply chain challenges we outlined last quarter. We have been reducing our exposure to China for a number of years, including reshoring manufacturing to the U.S., qualifying alternative sources of supply, and during the third quarter we completed our efforts to cease all operations in the country. However, the optical supply chain remains heavily concentrated in China and qualifying a new source takes time.

Our mitigation efforts are progressing along several parallel paths. We continue to work with existing suppliers to obtain available material and to establish supply from locations outside of China. We are bringing qualified second sources online, evaluating new suppliers and, where appropriate, modifying product designs to give us greater sourcing flexibility in selected cases. We are also evaluating opportunities to bring critical capabilities in-house.

These actions require additional investment and may carry higher near-term costs, but are intended to create a more resilient supply chain and better position us to support substantially higher volumes over time. As we work through these issues, we believe the appropriate way to manage the business is to remain conservative in our near-term planning while aggressively executing the mitigation actions within our control. Importantly, this is a supply chain issue rather than a demand issue and we expect to deliver these deferred product shipments in coming quarters.

In summary, demand across our markets remains strong and the long-term opportunities for nLight continue to expand. We are executing on a broad portfolio of directed energy, laser sensing, kinetic and advanced manufacturing opportunities while taking decisive action to strengthen our supply chain and manufacturing capacity. Our strategy remains consistent: leverage our vertically integrated technology platform, execute with discipline on existing programs, invest ahead of demand and position the company to support customers as defense technologies move from development into fielding and production.

We believe this combination of differentiated technology, system-level capability, manufacturing investment and balance sheet strength positions nLight to create substantial long-term value. Let me now turn the call over to Joe to discuss our third quarter financial results and the outlook for the remainder of the year.

Joe Corso (Chief Financial Officer)

Thank you, Scott. We had a strong operational quarter in the third quarter, particularly in light of the significant supply chain challenges we faced. Despite a sequential decline in revenue, we delivered record product gross margins and healthy adjusted EBITDA. Demand for our products across both our Defense and Space and Advanced Manufacturing markets accelerated and our pipeline of new opportunities continued to build. We remain focused on making deliberate working capital and targeted capex investments to ensure we are expanding our manufacturing capacity and acquiring the critical inventory required to meet expected future demand.

Turning to the results, total revenue in the third quarter was $73.8 million, an increase of 11% compared to $66.7 million in the third quarter of 2025 and down 11% compared to the prior quarter. Third quarter revenue excludes approximately $15 million of product revenue that we were unable to ship due to supply chain constraints and while the supply chain situation continues to improve, we do not expect to ship most of this pent-up demand until the first half of 2027.

Defense and space revenue was $52.5 million in the quarter, up 15% year over year. The year over year growth in defense and space was driven by both products and development revenue. The sequential decline in defense and space products revenue is primarily the result of the change in the composition of revenue associated with our HELSI 2 program where we are now largely finished with shipping amplifier power and have shifted our efforts to the assembly of the 1 megawatt laser. During the quarter, we continued to serve multiple international customers across our entire stack of products including semiconductor lasers, amplifiers and beam combined lasers, and continue to execute on both our long running and newly ramping laser sensing programs.

As a result, in the fourth quarter we expect product revenue or defense and space market to increase sequentially. Development revenue of $25.7 million grew 34% year over year and 11% compared to the prior quarter. The year over year and sequential growth in our development revenue was primarily driven by continued progress in our HELSI 2 program and the initial ramp of our JLWS contract. As a result of our decision to exit the cutting and welding markets, we have combined our legacy microfabrication and industrial end markets into a new end market we are calling advanced manufacturing.

Third quarter revenue from our advanced manufacturing market, which includes sales of semiconductor and fiber lasers used in semiconductor manufacturing, electronics production, additive manufacturing and other applications, was $21.3 million, essentially flat year over year and down 16% compared to the prior quarter. The sequential decline in advanced manufacturing revenue was the result of supply chain constraints which limited our ability to satisfy all of our customer demand.

Had we not had these constraints, third quarter advanced manufacturing revenue would have grown on both an annual and sequential basis even after factoring in the revenue headwind caused by our exit of the legacy cutting and welding markets. Demand in our advanced manufacturing market continued to strengthen in the third quarter and we expect fourth quarter revenue to grow sequentially. Total gross margin in the third quarter was 33.1% compared to 31.1% in the third quarter of 2025 and 31.1% last quarter. On a non-GAAP basis, which excludes stock-based compensation, total gross margin in the third quarter was 34.7%, up from 32% in the same period last year and 32.6% last quarter. Products gross margin in the third quarter was a record 47.4% compared to 41% in the third quarter of 2025 and 41.2% last quarter. The sequential increase in products gross margin was primarily driven by a favorable mix, strong factory absorption, lower reserves and a decrease in tariff spending.

Non-GAAP products gross margin in the quarter was a record 48.8% compared to 42.3% in the third quarter of 2025 and 42.4% last quarter. Development gross margin was 6.5% compared to 6.4% in the same quarter a year ago and 5.6% last quarter. The variability in the development gross margin is primarily the result of contract mix and the timing of program deliverables in any given quarter. Non-GAAP development gross margin was 8.3% compared to 6.4% in the same period a year ago and 7.5% last quarter.

Moving down the income statement, GAAP operating expenses were $33.7 million in the third quarter compared to $28.1 million in the third quarter of 2025 and $29.3 million in the prior quarter. Third quarter operating expenses included approximately $7.5 million in non-recurring restructuring charges primarily associated with the completion of our efforts to cease all operations in China. Excluding these restructuring charges, GAAP operating expenses were lower on both a year over year and sequential basis.

Non-GAAP operating expenses were $17.4 million in the quarter, down from $17.5 million in the third quarter of 2025 and $19.5 million last quarter. The sequential decrease in non-GAAP operating expenses was primarily due to lower employee compensation expenses, including taxes on RSUs and a decrease in depreciation. We expect non-GAAP OpEx to increase sequentially but remain in the $17 to $19 million range in the fourth quarter of 2026. GAAP net loss in the third quarter of 2026 was $7.2 million or a loss of $0.12 per share compared to a net loss of $6.9 million or a loss of $0.14 per share in the same quarter a year ago and a net loss of $1.3 million or a loss of $0.02 per share last quarter. On a non-GAAP basis, net income for the third quarter was $10.2 million or $0.16 per diluted share compared to $4.3 million or $0.08 per diluted share in the third quarter of 2025 and $9.6 million or $0.15 per diluted share last quarter.

Adjusted EBITDA for the third quarter was $11.1 million compared to $7.1 million in the same quarter last year and $10.7 million last quarter. Turning to the balance sheet, we ended the third quarter with total cash, cash equivalents, restricted cash and investments of $314.5 million, providing us with ample capital to continue our targeted investments in working capital and production capacity expansion while also giving us the flexibility to evaluate opportunities to accelerate our long-term growth.

Let me now turn to guidance. Based on the information available today, we expect revenue for the fourth quarter of 2026 to be in the range of $84 to $90 million. The midpoint of $87 million includes approximately $63 million of product revenue and $24 million of development revenue. Please note that due to ongoing supply chain constraints, nLight’s fourth quarter revenue guidance excludes approximately $15 million of product revenue. When we provided Q3 guidance on our last earnings call, we noted that the midpoint of our revenue guidance range excluded approximately $17 million of product revenue due to supply chain constraints, and that is largely what occurred today. While our supply chain has improved to the point where we can meet current customer demand, we do not yet have enough supply to also catch up on the $15 million of pent-up demand created last quarter. We expect to be able to ship this revenue in the first half of 2027.

Overall gross margin in the fourth quarter is expected to be in the range of 30% to 36%, with products gross margin in the range of 40% to 46% and development gross margin of approximately 8%. We expect adjusted EBITDA for the fourth quarter to be in the range of $12 to $18 million. With that, I will turn the call over to the operator for questions.

OPERATOR

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jonathan Seageman with Stifel. Jonathan, your line is open. Please go ahead.

Jonathan Seageman (Analyst)

Good afternoon. Thanks for taking my question. Joe, just to clarify on your comments, the $15 million from that was deferred from Q3 isn’t going to ship until the first half, but there’s an incremental $15 million that you’re embedding in your Q4 guidance?

Joe Corso (Chief Financial Officer)

No. Thanks for the question, John. The Q4 guidance does not include the $15 million that, if we had excess supply, we could have shipped in the fourth quarter. Instead, we expect to be able to catch up and ship that 15, you know, in the first and second quarter of 2027.

Jonathan Seageman (Analyst)

Thank you for that. And learnings from this experience, can you talk a little bit about kind of what the customer reaction has been to all this and just longer term what you may do differently to avoid these disruptions? Thank you.

Scott Keeney (President and CEO)

Yeah, John, I think a couple topics that we addressed somewhat on the last call was that this was something that we’ve been working on as we’ve been pursuing our de-risking strategy, you know, really for the past five to seven years. So this is not new. And we’ll continue to pursue our de-risking strategy. And with respect to customer responses, obviously some of these delays create issues for our customers. We’ve been able to work through those and there are no material impacts to the revenue that we expect to ship, you know, that we have shipped and we will continue to ship into next year.

Jonathan Seageman (Analyst)

Thank you very much.

OPERATOR

Your next question comes from the line of Jan Engelbrecht with Baird. Jan, your line is open. Please go ahead.

Jan Engelbrecht (Analyst)

Good afternoon, Scott and Joe and John. Thanks for taking our questions. I just wanted to ask about the fourth quarter EBITDA margin. I think it looks at about 17.2% versus 15% that you just did in this quarter. But it does look like the product’s gross margin is going to decline from 47% in the third quarter to around 40% to 46%. So can you help us bridge that? You know, the product margins declining, but EBITDA margins overall expanding sequentially about 200 basis points.

Thank you.

Joe Corso (Chief Financial Officer)

Yeah, thanks for the question, Jan. So first thing on the product side, we expect product revenue to increase from Q3 to Q4. And so while the margin on products we expect to decline a little bit sequentially, largely because we had a few things in the third quarter that are not likely to repeat, or if they are going to repeat, we’re not forecasting that they are going to repeat at the same level. But with the incremental volume that we are selling through without having to really increase our overhead expense, operating expenses will be relatively flat to where we were in Q3.

We’ll have a pretty strong flow-through to the adjusted EBITDA line, which gets us to that 17-ish percent at the midpoint.

Jan Engelbrecht (Analyst)

Thanks, Joe. And then if I may, a quick follow-up, just a clarifying question. So I know you guys called out $17 million in the third quarter that was delayed. And then it looks like the demand from the fourth quarter, Joe, that is being pushed, the pent-up demand from the fourth quarter is around $15 million that’s being deferred into the first half of 2027. So if we just come back to that original $17 million, I know it seems like it’s different than the 15.

How much of that has been sort of worked off or liquidated, if you will? Or is that not a fair question?

Joe Corso (Chief Financial Officer)

No, it’s a very fair question. And you’ve picked up on exactly what happened, which is we were able to deliver, of that $17 million that we talked about being pent up at the midpoint in Q3, we were able to ship a couple million dollars of it, but we’re not going to be able to ship all of it at the same time. When you look at the natural demand going from Q3 to Q4, you can see the sequential improvement in revenue that we are guiding to. On top of that, we expect to be able to deliver an incremental 15 in the first half of the year.

So just a couple million dollars of what we called out at this quarter last time we were able to actually deliver on in the third quarter.

Jan Engelbrecht (Analyst)

Great. Thanks Scott. Thanks Joe. Appreciate it.

OPERATOR

Thank you. Your next question comes from the line of Greg Palm with Craig-Hallum. Greg, your line is open. Please go ahead.

Jackson Schrader (Analyst)

Hi, this is Jackson Schrader on for Greg Palm. Congrats on the quarter. Appreciate taking the question. Want to start with just kind of giving the floor here for how much the business has changed in the last two years. If you kind of talk about how the strategy has changed and how you’re looking to approach the market now, if you’re kind of seeing nLight and if we should see nLight as more of a going for programs and being a prime in the directed energy space versus being more of a supplier or partner to some other programs, I guess how do we think about this business in the long term going forward?

Scott Keeney (President and CEO)

Yeah, thanks for the question. Let me take the defense and space piece of it first. From a strategy perspective, not much has really changed over the last couple of years, right? We’ve said that we want to continue to deliver high power lasers into the directed energy market and into the laser sensing market. Over the last couple of years we’ve continued to execute on a handful of programs, pretty high profile directed energy laser programs. We’ve continued to deliver amplifiers and semiconductor lasers and other components into those markets.

We’ve delivered on some of our traditional laser sensing programs that are really tied to munitions and air defense. And we’ve started to really ramp on our newer laser sensing program. So that has all gone according to plan. From a strategic perspective, what’s changed there is that those opportunities have continued to increase in terms of the number, the size, and what we believe is the importance given what’s going on geopolitically. So not a lot of change strategically there.

Where we have seen a change is really in the advanced manufacturing markets, the biggest of which is our decision to exit the cutting and welding markets. Right. If you go back to 2018 when the company went public, a big driver of going public at that time was to serve customers in the fiber laser market. Right. We’ve talked a lot over the last couple of years of the changes in that market, particularly with the commoditization that we experienced from China.

So we made a difficult, but we believe a good decision to rationalize that piece of our business, exit and shift the broader portfolio that is much more heavily weighted to the space and defense market. Now at the same time we are also continuing to pursue opportunities in additive manufacturing, which is something we report in advanced manufacturing, with the same core high power programmable lasers. That is also doing quite well. Even as we think about the Q4 guidance, we expect that piece of the business to continue to grow.

Joe Corso (Chief Financial Officer)

Yeah, sure. So from a revenue growth perspective, we expect both the advanced manufacturing and the space and defense portion of our business to grow from Q3 to Q4, which is implied in the guide that we’ve provided. We also expect that growth to continue based on the demand and backlog we are currently seeing into the first part of the year. That will be somewhat helped by the $15 million of pent-up demand that we are seeing now. It’s still a little early for us to comment on the latter part of 2027.

We just don’t have that type of visibility that I’m comfortable sharing today. To the next part of your question on gross margin, what I would tell you is that we expect our product gross margins to remain comfortably above 40% every quarter. There will be some puts and takes, Q3 being a very good example of we had a few things that went right and we were able to drive product gross margins above 47%. But I think as we move forward, north of 40% is now a good new comfortable level for our business.

I think the last part of your question was talking about inventory. You can see on the balance sheet that the inventory grew. There was a prior question talking about lessons learned. One of the things that we’ve done is we’ve leaned in and we’ve secured some supply so that we are able to meet our growth. So that’s what you saw in the third quarter with respect to inventory levels that were a little bit higher than where they’ve been previously.

OPERATOR

As a reminder, if you would like to ask a question, please press Star one to raise your hand. Your next question comes from the line of Noah Levitz with William Blair. Noah, your line is open. Please go ahead.

Noah Levitz (Analyst)

Thanks, guys, and appreciate the questions. I just wanted to confirm that the 15 million of deferred revenue, that falls into advanced manufacturing, right, not defense and space? And then can you just remind us how the supply chain issues are impacting advanced manufacturing versus defense and space? Thanks.

Joe Corso (Chief Financial Officer)

Sure. Yeah, you’re correct. Confirm that the 15 million of pent-up demand is largely related to advanced manufacturing. And then remind me the second part of your question around supply chain. Can you just say that again?

Noah Levitz (Analyst)

How the supply chain impacts advanced manufacturing versus defense and space. Like is it only on advanced manufacturing or is there a point in time where it could impact defense and space?

Scott Keeney (President and CEO)

Well, certainly in the near term the overwhelming impact is on the advanced manufacturing business. As a commercial-oriented defense technology company, we do leverage our commercial products to deliver into our defense applications over time. But that for us is not a first-order concern today.

Noah Levitz (Analyst)

Gotcha. Thank you. And then the high-level question, but can you talk about the evolving competitive landscape for directed energy lasers specifically? I mean, you’re the definitive leaders in CBC technology, but there’s a lot of other providers that have some SBC presence and some of them are starting to talk about their own CBC-type capabilities. So I guess what’s your moat against these providers and why do customers keep coming back to you? Thanks.

Scott Keeney (President and CEO)

Good, Noah. I think I’d start with the summary that you’ve noted that SBC, spectral beam combining, is one approach. And by the way, we also provide products with spectral beam combining. And the other approach is coherent beam combining, CBC. The two approaches both are technically good solutions for direct energy. However, there are trade-offs between them. Spectral beam combining, we believe, is the better approach for relatively lower power applications with a more modest set of threats, whereas coherent beam combining is superior for higher power applications where you need better beam quality, you need to be able to scale higher powers, and you need to have what’s known as atmospheric correction.

And so if you break the market into those two categories, you’re correct. There are a number of players for spectral beam combining. And in that space we do have advantages based upon our long track record and highly reliable products. So it’s more than just demonstrating the capability. There is our manufacturing capabilities also. And as you noted, with coherent beam combining, we have a very strong leadership position. I think you always want to be paranoid in building your business, and so there are other players who have some technology in that space, but we do have the highest power lasers in the world.

We have the most advanced atmospheric correction, and we’re building that on top of our 25 years of manufacturing experience. So we do believe we’ve got a very strong position in the market.

Noah Levitz (Analyst)

Thanks for the color. Appreciate it.

OPERATOR

We have reached the end of our Q and A session. I will now turn the call back to John Marchetti for closing remarks.

John Marchetti (Vice President, Corporate Development and Head of Investor Relations)

Thanks, everybody, for joining us this afternoon and for your continued interest in nLight. We will be participating in several investor conferences over the next several weeks. We look forward to speaking with you during those events and throughout the quarter. Have a great afternoon.

OPERATOR

This concludes today’s call. Thank you for attending. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.