NLIGHT, INC. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, you can identify forward-looking statements by the following words: "ability," "anticipate," "attempt," "believe," "can be," "continue," "could," "depend," "enable," "estimate," "expect," "extend," "grow," "if," "intend," "likely," "may," "objective," "ongoing," "plan," "possible," "potential," "predict," "project," "propose," "rely," "should," "target," "will," "would" or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements include, but are not limited to, statements about: our ability to develop new technology, designs and applications for our lasers; the implementation of our business model and strategic plans, including estimates regarding future sales, revenues, expenses, acquisitions, investments and capital requirements; our future financial performance; our utilization of vertical integration; our ability to adequately protect our intellectual property rights; the effect on our business of litigation to which we are or may become a party; and the sufficiency of our existing liquidity sources to meet our cash needs; and our ability to sustain and manage growth in our business. You should refer to the "Risk Factors" section of this report and those risk factors discussed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, which although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. OverviewnLIGHT, Inc. , is a leading provider of highpower semiconductor and fiber lasers for industrial, microfabrication, and aerospace and defense applications. Headquartered inCamas, Washington , we design, develop and manufacture the critical elements of our lasers, and believe our vertically integrated business model enables us to rapidly introduce innovative products, control our costs and protect our intellectual property. We operate in two reportable segments consisting of the Laser Products segment and theAdvanced Development segment. Sales of our semiconductor lasers, fiber lasers and directed energy products are included in the Laser Products segment, while revenue earned from research and development contracts are included in theAdvanced Development segment. Revenues increased to$130.5 million in the six months endedJune 30, 2021 compared to$95.4 million in the same period of 2020 as a result of higher revenue across all end markets. We generated a net loss of$14.0 million for the six months endedJune 30, 2021 compared to a net loss of$14.3 million for the same period of 2020. 16
-------------------------------------------------------------------------------- Table of Contents Factors Affecting Our Performance
For factors affecting our performance, reference is made to Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contained in Part II of our Annual Report on Form 10-K for the year
ended
Results of Operations
The following table sets forth our operating results as a percentage of revenues for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Revenue:
Products 77.5 % 86.5 % 77.3 % 86.0 %
Development 22.5 13.5 22.7 14.0
Total revenue 100.0 100.0 100.0 100.0
Cost of revenue:
Products 49.5 62.5 49.5 63.4
Development 21.1 12.5 21.4 12.9
Total cost of revenue 70.6 75.0 70.9 76.3
Gross profit 29.4 25.0 29.1 23.7
Operating expenses:
Research and development 20.7 18.1 19.9 18.9
Sales, general, and administrative 21.8 18.5 20.5 18.2
Total operating expenses 42.5 36.6 40.4 37.1
Loss from operations (13.1) (11.6) (11.3) (13.4)
Other income (expense):
Interest income (expense), net - (0.1) (0.1) 0.2
Other income (expense), net 0.2 (0.6) 0.1 (0.4)
Loss before income taxes (12.9) (12.3) (11.3) (13.6)
Income tax expense (benefit) (1.5) 0.8 (0.5) 1.4
Net loss (11.4) % (13.1) % (10.8) % (15.0) %
Revenues by Segment
Our revenues by segment were as follows for the periods presented (dollars in thousands):
Three Months Ended June 30, Change
2021 % of Revenue 2020 % of Revenue $ %
Laser Products $ 53,561 77.5 % $ 45,104 86.5 % $ 8,457 18.8 %
Advanced Development 15,552 22.5 7,034 13.5 8,518 121.1
$ 69,113 100.0 % $ 52,138 100.0 % $ 16,975 32.6 %
Six Months Ended June 30, Change
2021 % of Revenue 2020 % of Revenue $ %
Laser Products $ 100,896 77.3 % $ 82,034 86.0 % $ 18,862 23.0 %
Advanced Development 29,562 22.7 13,319 14.0 16,243 122.0
$ 130,458 100.0 % $ 95,353 100.0 % $ 35,105 36.8 %
17-------------------------------------------------------------------------------- Table of Contents The increase in Laser Products revenue for the three and six months endedJune 30, 2021 , compared to the same period of 2020, was driven by increased sales from the Industrial and Microfabrication markets as discussed below. The increase inAdvanced Development revenue was primarily due to increased activity on existing research and development contracts.
Revenues by End Market
Our revenues by end market were as follows for the periods presented (dollars in
thousands):
Three Months Ended June 30, Change
2021 % of Revenue 2020 % of Revenue $ %
Industrial $ 24,907 36.1 % $ 22,630 43.4 % $ 2,277 10.1 %
Microfabrication 20,274 29.3 14,300 27.4 5,974 41.8
Aerospace and Defense 23,932 34.6 15,208 29.2 8,724 57.4
$ 69,113 100.0 % $ 52,138 100.0 % $ 16,975 32.6 %
Six Months Ended June 30, Change
2021 % of Revenue 2020 % of Revenue $ %
Industrial $ 46,307 35.5 % $ 38,620 40.5 % $ 7,687 19.9 %
Microfabrication 35,489 27.2 24,719 25.9 10,770 43.6
Aerospace and Defense 48,662 37.3 32,014 33.6 16,648 52.0
$ 130,458 100.0 % $ 95,353 100.0 % $ 35,105 36.8 %
The increases in revenue from the Industrial market for the three and six months
ended June 30, 2021 , compared to the same period of 2020, were driven by
increases in unit sales, partially offset by lower average selling prices due to
changes in product mix. The increases in revenue from the Microfabrication
market for the three and six months ended June 30, 2021 , compared to the same
periods of 2020, were driven by increases in demand and unit sales of
semiconductor lasers. The increases in revenue from the Aerospace and Defense
market for the three and six months ended June 30, 2021 , compared to the same
periods of 2020, were primarily due to increased activity on existing research
and development contracts.
Revenues by Geographic Region Our revenues by geographic region were as follows for the periods presented (dollars in thousands):
Three Months Ended June 30, Change
2021 % of Revenue 2020 % of Revenue $ %
North America $ 33,095 47.9 % $ 20,494 39.3 % $ 12,601 61.5 %
China 18,759 27.1 21,495 41.2 (2,736) (12.7)
Rest of World 17,259 25.0 10,149 19.5 7,110 70.1
$ 69,113 100.0 % $ 52,138 100.0 % $ 16,975 32.6 %
Six Months Ended June 30, Change
2021 % of Revenue 2020 % of Revenue $ %
North America $ 64,229 49.2 % $ 41,540 43.6 % $ 22,689 54.6 %
China 34,336 26.3 33,537 35.2 799 2.4
Rest of World 31,893 24.4 20,276 21.2 11,617 57.3
$ 130,458 100.0 % $ 95,353 100.0 % $ 35,105 36.8 %
18-------------------------------------------------------------------------------- Table of Contents Geographic revenue information is based on the location to which we ship our products. The increases inNorth America revenue for the three and six months endedJune 30, 2021 , compared to the same periods of 2020, were primarily driven by increased revenue from the Aerospace and Defense market. The decrease inChina revenue for the three months endedJune 30, 2021 , compared to the same period of 2020, was primarily due to decreased sales in the Industrial market, while the increase inChina revenue for the six months endedJune 30, 2021 , compared to the same period of 2020, was driven by higher sales in all markets. The increases in Rest of World revenue for the three and six months endedJune 30, 2021 , compared to the same periods of 2020, were primarily due to increased sales in the Microfabrication market.
Cost of Revenues and Gross Margin
Cost of Laser Products revenue consists primarily of manufacturing materials, payroll, shipping and handling costs, tariffs and manufacturing-related overhead. We order materials and supplies based on backlog and forecasted customer orders. We expense all warranty costs and inventory provisions as cost of revenues. Cost ofAdvanced Development revenue consists of materials, labor, subcontracting costs, and an allocation of indirect costs including overhead and general and administrative.
Our gross profit and gross margin were as follows for the periods presented (dollars in thousands):
Three Months Ended June 30 , 2021
Laser Products Advanced Development Corporate and Other Total
Gross profit $ 19,871 $ 1,004 $ (550) $ 20,325
Gross margin 37.1 % 6.5 % NM 29.4 %
Six Months Ended June 30, 2021
Laser Products Advanced Development Corporate and Other Total
Gross profit$ 37,302 $ 1,709 $ (1,041)$ 37,970 Gross margin 37.0 % 5.8 % NM 29.1 % Three Months Ended June 30, 2020 Laser Products Advanced Development Corporate and Other Total Gross profit$ 12,846 $ 549 $ (339)$ 13,056 Gross margin 28.5 % 7.8 % NM 25.0 % Six Months Ended June 30, 2020 Laser Products Advanced Development Corporate and Other Total Gross profit$ 22,221 $ 1,020 $ (684)$ 22,557 Gross margin 27.1 % 7.7 % NM 23.7 % The increases in Laser Products gross margin for the three and six months endedJune 30, 2021 , compared to the same periods of 2020, were driven primarily by sales mix, product cost improvements, and improved factory utilization from higher production volume. The decreases inAdvanced Development gross margin for the three and six months endedJune 30, 2021 , compared to the same periods of 2020, were primarily due to changes in the composition of research and development contracts. 19 -------------------------------------------------------------------------------- Table of Contents Operating Expenses Our operating expenses were as follows for the periods presented (dollars in thousands): Research and Development Three Months Ended June 30, Change 2021 2020 $ % Research and development$ 14,282 $ 9,472 $ 4,810 50.8 % Six Months Ended June 30, Change 2021 2020 $ %
Research and development $ 25,992 $ 18,010 The increases in research and development expense for the three and six months endedJune 30, 2021 , compared to the same periods in 2020, were primarily due to increases in stock-based compensation of$1.4 million and$2.6 million , respectively, and increased employee costs and project-related expenses to support our development efforts.
Sales, General and Administrative
Three Months Ended June 30, Change
2021 2020 $ %
Sales, general, and administrative $ 15,057 $ 9,633 $ 5,424 56.3 %
Six Months Ended June 30, Change
2021 2020 $ %
Sales, general, and administrative $ 26,771 $ 17,333 $ 9,438 54.5 %
The increases in sales, general and administrative expense for the three and six
months ended June 30, 2021 , compared to the same periods in 2020 were primarily
due to increase in stock-based compensation of $3.9 million and $6.9 million ,
respectively, and increased employee costs and professional service fees to
support our continued growth.
Interest Income (Expense), net
Three Months Ended June 30, Change
2021 2020 $ %
Interest income (expense), net $ (32) $ (65) $ 33 50.8%
Six Months Ended June 30, Change
2021 2020 $ %
Interest income (expense), net $ (106) $ 218 The changes in interest income (expense), net, for the three and six months endedJune 30, 2021 , compared to the same periods in 2020 were primarily attributable to decreases in the market rates on money market funds, offset partially by theMarch 2021 cash infusion from our public offering of stock. Other Income (Expense), net Three Months Ended June 30, Change 2021 2020 $ % Other income (expense), net $ 118$ (298) $ 416 139.6% 20
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Six Months Ended June 30, Change
2021 2020 $ %
Other income (expense), net $ 144 $ (414) $ 558 134.8%
The increases in other income (expense), net for the three and six months ended
June 30, 2021 , compared to the same periods in 2020 were primarily attributable
to changes in net realized and unrealized foreign exchange transactions
resulting from currency rate fluctuations.
Income Tax Expense (Benefit)
Three Months Ended June 30, Change
2021 2020 $ %
Income tax expense (benefit) $ (1,038) $ 418 $ (1,456) (348.3) %
Six Months Ended June 30, Change
2021 2020 $ %
Income tax expense (benefit) $ (716) $ 1,323 $ (2,039) (154.1) %
We record income tax expense for taxes in our foreign jurisdictions including
Finland , Italy and Korea . We also record tax expense for uncertain tax positions
taken and associated penalties and interest. We consider all available evidence,
both positive and negative, in assessing the extent to which a valuation
allowance should be applied against our deferred tax assets. Due to the
uncertainty with respect to their ultimate realizability in the U.S. and China ,
we continue to maintain a full valuation allowance in both jurisdictions as of
June 30, 2021 .
The decreases in income tax expense for the three and six months ended June 30,
2021 , compared to the same periods in 2020 were driven by decreases in income
from our Finland operations and a discrete tax benefit related to return to
provision true ups and expiring statue of limitation of unrecognized tax
positions. Our tax expense is dependent on the geographic mix of earnings and
primarily related to our foreign operations.
Liquidity and Capital Resources
We had cash and cash equivalents of
For the six months endedJune 30, 2021 , our principal uses of liquidity were to fund our working capital needs. Our principal sources of liquidity for the six months endedJune 30, 2021 was from our equity offering and cash flows from operations. We believe our existing sources of liquidity will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. However, we may need to raise additional capital to expand the commercialization of our products, fund our operations and further our research and development activities. Our future capital requirements may vary materially from period to period and will depend on many factors, including the timing and extent of spending on research and development efforts, the expansion of sales and marketing activities, the continuing market acceptance of our products and ongoing investments to support the growth of our business. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies and intellectual property rights. From time to time, we may explore additional financing sources which could include equity, equitylinked and debt financing arrangements. 21
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The following table summarizes our cash flows for the periods presented (in
thousands):
Six Months Ended June 30,
2021 2020
Net cash provided by operating activities $ 3,085 $ 7,002
Net cash used in investing activities (8,469) (17,668)
Net cash provided by financing activities 78,551 14,340
Effect of exchange rate changes on cash (126) (27)
Net increase in cash, cash equivalents and restricted cash
Net Cash Provided by Operating Activities
During the six months endedJune 30, 2021 , net cash provided by operating activities was$3.1 million , which was primarily driven by noncash expenses totaling$28.6 million related to depreciation and amortization, stock-based compensation, and other items, a$3.3 million increase in accounts payable and a$1.3 million increase in accrued and other long-term liabilities. These items were partially offset by our net loss of$14.0 million and increases of$8.6 million in inventory and$4.8 million in accounts receivable. The increase in inventory was driven primarily by an expected increase in future period sales, the increase in accounts receivable was attributable to the increase in revenue and timing of shipments during the quarter, and the increase in accounts payable was attributable to the increase in inventory and the timing of vendor payments. During the six months endedJune 30, 2020 , net cash provided by operating activities was$7.0 million , which was primarily driven by non-cash expenses totaling$17.7 million related to depreciation and amortization, stock-based compensation, and other items, a$7.4 million increase in accounts payable and a$3.0 million decrease in account receivable. These items were partially offset by our net loss of$14.3 million , a$4.5 million increase in inventory, a$1.8 million increase in prepaid expenses and other current assets and a$2.1 million increase in other assets. The increase in inventory supported new product introductions, decreased customer lead times and increased safety stock. The increase in accounts payable was primarily driven by the timing of vendor payments.
During the six months endedJune 30, 2021 , net cash used in investing activities was$8.5 million , primarily resulting from$8.0 million of capital expenditures related to investments in manufacturing equipment and improvements to our corporate facility.
During the six months ended
Net Cash Provided by Financing Activities
During the six months endedJune 30, 2021 , net cash provided by financing activities was$78.6 million , which was primarily driven by our follow-on public offering of$82.4 million , net of offering costs, and$1.5 million of proceeds from stock options exercises and employee stock program purchases, partially offset by$4.6 million of withholding tax payments related to the vesting of stock awards. During the six months endedJune 30, 2020 , net cash provided by financing activities was$14.3 million , which was primarily driven by proceeds from our revolving line of credit of$15.0 million to acquire commercial property, and$1.5 million of proceeds from stock options exercises and employee stock program purchases, offset by$2.2 million of withholding tax payments related to the vesting of stock awards. 22
-------------------------------------------------------------------------------- Table of Contents Credit Facilities We have a$40.0 million revolving line of credit withPacific Western Bank which is secured by our assets and expires inSeptember 2021 . Interest on the line of credit is based primarily on the London Interbank Offered Rate (LIBOR), or an alternative rate such as the Prime rate, plus or minus, respectively, a margin based on certain liquidity levels. The loan agreement contains restrictive and financial covenants and bears an unused credit fee of 0.20% on an annualized basis. As ofJune 30, 2021 , no amounts were outstanding under the line of credit, and we were in compliance with all covenants under the loan agreement.
Contractual Obligations
For the six months ended
Off-Balance Sheet Arrangements
Since inception, we have not had any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for another contractually narrow or limited purpose.
Inflation
While we do not believe that inflation had a material effect on our business, financial condition or results of operations throughJune 30, 2021 , we experienced wage and benefits increases during the three months endedJune 30, 2021 . We expect that those increases will continue to impact our labor costs. If our costs, including labor costs, were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could materially adversely affect our business, financial condition and results of operations.
Recent Accounting Pronouncements
See Note 1 of Notes to Consolidated Financial Statements.
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