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Edited Transcript of LASR.OQ earnings conference call or presentation 5-Nov-20 10:00pm GMT

·29 min read

Q3 2020 nLIGHT Inc Earnings Call VANCOUVER Nov 10, 2020 (Thomson StreetEvents) -- Edited Transcript of nLIGHT Inc earnings conference call or presentation Thursday, November 5, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Joseph Corso nLIGHT, Inc. - VP of Corporate Development & IR * Ran Bareket nLIGHT, Inc. - VP & CFO * Scott H. Keeney nLIGHT, Inc. - Co-Founder, Chairman, President & CEO ================================================================================ Conference Call Participants ================================================================================ * Gregory William Palm Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst * James Andrew Ricchiuti Needham & Company, LLC, Research Division - Senior Analyst * Jonathan Edward Dorsheimer Canaccord Genuity Corp., Research Division - MD & Analyst * Mark S. Miller The Benchmark Company, LLC, Research Division - Senior Equity Analyst * Thomas Robert Diffely D.A. Davidson & Co., Research Division - MD & Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome to the nLIGHT Third Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Joseph Corso, Vice President, Corporate Development and Investor Relations. Please go ahead. -------------------------------------------------------------------------------- Joseph Corso, nLIGHT, Inc. - VP of Corporate Development & IR [2] -------------------------------------------------------------------------------- Thank you, and good afternoon, everyone. As the operator said, I'm Joe Corso, nLIGHT's Vice President of Corporate Development and Investor Relations. Scott Keeney, Chief Executive Officer of nLIGHT; and Ran Bareket, Chief Financial Officer, will be the speaker on today's call. If you have any questions after the call, please direct them to me at joe.corso@nlight.net. A copy of today's earnings press release and earnings slide presentation are available on the Investor Relations section of our website at investors.nlight.net. In addition, you can access an archived version of today's call from our website. In today's call, our discussion will contain forward-looking statements, including statements about the potential impact of the ongoing COVID-19 pandemic, financial projections, future business growth, trends and related factors, prospects for expanding and penetrating addressable markets and our strategic focus and objectives. Forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today's call. We undertake no obligation to update publicly any forward-looking statement except as required by law. Additionally, certain non-GAAP financial measures will be discussed on this call. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release, which can be found on the Investor Relations section of our website. I will now turn the call over to Scott, who will provide an update on the current environment and the markets we serve. Ran will then go through our financials and outlook. We will then be glad to take your questions. -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [3] -------------------------------------------------------------------------------- Thank you, Joe. Q3 was a record revenue quarter for nLIGHT. On both an organic and inorganic basis, our revenue and profitability exceeded the high end of the guidance we provided in August. We achieved year-over-year growth in each of our end markets and increased sales, which, combined with a favorable mix of business and disciplined OpEx spending, enabled us to improve profitability. While we continue to monitor an uncertain macroeconomic environment, we experienced strong demand from our customers during the quarter, which has continued into Q4. The key driver of our performance in the third quarter was the strong execution of our strategy, which is focused on 2 core areas: increasing sales from key industrial customers outside of China and continued focus on the A&D end market. At the same time, we see sustained demand in microfabrication and the high-power segment of the Chinese fiber laser market. Turning to Slide 4. In the third quarter, we generated $62 million of revenue, which was a record for our company. In China, our revenue grew 10% year-over-year to $19.2 million. Third quarter sales to customers outside of China grew 61% year-over-year to $42.5 million, representing 69% of our total revenue, which is the highest in our company's history. Turning to Slide 5. In addition to growing revenue in all geographies, we also grew in all end markets in the third quarter. Beginning with aerospace and defense, we grew revenues 43% year-over-year on an organic basis and 123%, including the $9.2 million contribution from Nutronics. The ongoing integration of nLIGHT and Nutronics has enabled us to develop products and know-how that is creating additional opportunities for us. In addition to Nutronics, our core A&D business remains strong, and we are seeing additional directed energy applications outside of Nutronics. Within microfabrication, our sales increased 6% compared with the third quarter of 2019. Demand across multiple applications remained relatively flat with the second quarter. However, we are encouraged by the growing number of applications that require laser processing. Finally, our industrial business grew 15% year-over-year in the third quarter. Globally, strength in the quarter was driven by continued demand for both our high-power and programmable fiber lasers. In China, we continue to see a trend towards higher power. In the rest of the world, we have been successful in converting design wins into revenue, which has been driven by strong demand for high-power programmable fiber laser solutions. Moving to Slide 6. Across all geographies, we continue to see our fiber laser sales shift to higher power. During Q3, sales of our 6-kilowatt industrial fiber lasers grew up by approximately 80% compared to Q3 2019 and represented 58% of our total industrial fiber laser sales. We are particularly proud of this achievement as the technical challenges increase as power scales. We continue to invest heavily in our product roadmap to deliver world-class fiber lasers with increasing power, programmability and serviceability to our global customer base. Turning to Slide 7. During the third quarter, we expanded our technology capabilities and our geographic footprint to better serve our industrial customers, in particular for the important growth opportunity in welding applications. In July, we acquired OPI, which was a privately held business in Turin, Italy. We have worked with OPI for several years, and we have a deep understanding of their technology, which includes couplers, collimators, switches, and diode laser packaging technology that we have integrated into our industrial fiber lasers. Post-merger integration has gone well, and we have already qualified and shipped fiber lasers with OPI's technology that are being used in production environments. In the United States, we recently opened an nLIGHT office in Detroit that brings us closer to our important Midwestern industrial customers and partners. Our Detroit facility includes an applications lab and a demo center, which we believe offers significant long-term benefits as we continue to drive adoption of our welding solutions into the industrial market. Turning to Slide 8. Yesterday, we announced the introduction of AFX, a new fiber laser that aims to fundamentally change the economics of metal additive manufacturing. Designed specifically for use in powder bed fusion systems, nLIGHT's AFX laser is the world's first programmable high-power fiber laser that can switch between a true single-mode beam and other larger beam profiles without the use of free space optics. Changing size and beam shapes from inside the laser is the most economical, repeatable and reliable way to maximize productivity of powder bed machine tools. nLIGHT's AFX laser can replace multiple lasers, optics and a scanner. AFX-based powder bed tools have demonstrated higher quality parts at significantly faster build rates, which will enable the use of metal additive manufacturing tools for series production across a broad range of industries and applications. I will now turn the call over to Ran to discuss our third quarter financial results. -------------------------------------------------------------------------------- Ran Bareket, nLIGHT, Inc. - VP & CFO [4] -------------------------------------------------------------------------------- Thank you, Scott, and good afternoon, everyone. Beginning on Slide 10. We achieved record organic and inorganic revenue. Third quarter revenue of $61.7 million was above the high end of our outlook, up 41% year-over-year and up 20% on an organic basis when adjusting for the $9.2 million contribution from Nutronics. Total revenue includes $51.1 million of product revenue and $10.6 million of development revenue. The primary drivers of the better-than-expected revenue was strong demand from North American and rest of the world industrial and microfabrication customers, growth in nLIGHT A&D business, and increased demand of high-power fiber laser in China. Moving to Slide 11. Gross margin was 27.8% in the third quarter compared with 29.6% in the comparable period of 2019. Product gross margin was 32.2% in the third quarter compared to 29.6% in the third quarter of 2019, and development gross margin was 6.5%. Our third quarter product gross margins reflect the strong implementation and execution of our core strategy to focus on strategic customers outside of China, investment in our A&D business and continuing the increased sales of high-power fiber laser in China. Quarter-over-quarter, our Q3 product gross margin improved by 450 basis points. Turning to Slide 12. Operating expenses were $21.1 million during the third quarter compared with $13.7 million in Q3 2019. Operating expenses included $6.2 million of stock-based compensation, an increase of $5.4 million year-over-year. Also included in Q3 results were $696,000 of purchase intangible amortization related to the Nutronics and the OPI acquisition compared with no purchase intangible amortization in Q3 2019. Excluding stock-based compensation and purchase amortization, operating expenses in the third quarter increased by $1.3 million compared with Q3 2019, which was mainly R&D related as we continue to make necessary R&D investment to drive future growth. Moving to Slide 13. GAAP net loss for the third quarter of 2020 was a loss of $2.1 million compared with loss of $800,000 during Q3 2019. GAAP EPS for the third quarter of 2020 was a loss of $0.05 per share compared with a loss of $0.02 per share in the third quarter of 2019. On a non-GAAP basis, our non-GAAP EPS for the third quarter was $0.12 compared with $0.01 during Q3 2019. Income tax expenses for the third quarter was a benefit of $1.5 million compared with an expense of $877,000 in Q3 2019. The change in income tax expense was driven mainly by purchase accounting adjustment related to the Nutronics acquisition. Going forward, we expect to have approximately $300,000 of both cash and tax expenses per quarter. Our adjusted EBITDA for the third quarter was $6.2 million or 10.1% of revenues. This compares to $2.7 million or 6.2% of revenues in Q3 2019. Our third quarter adjusted EBITDA demonstrates the leverage in our operating model. During Q3, we generated $7.7 million of cash from operating activities. Capital expenditures for the quarter were $2.4 million or 4% of revenues. Moving to Slide 14. We ended Q3 with total cash and cash equivalents of $110 million. In the third quarter, we repaid the $15 million that we had used in conjunction with the purchase of our Camas facilities early this year. DSO for the third quarter of 2020 was 35 days. Inventory at the end of the quarter was $53 million, representing 105 days in inventory. Moving to Slide 15 and the outlook for Q4. Based on the information available today, we expect Q4 revenues to be in the range of $59 million to $65 million. At the midpoint of $62 million, this includes approximately $51 million of [products] (corrected by company after the call) sales and approximately $11 million of development sales. Included in our Q4 revenue guidance is approximately $10 million of revenue from Nutronics. While we remain concerned about the impact that COVID-19 could have on our business and global macro-geopolitical concerns, we continue to see positive demand trends across each of our commercial end markets and geographies. Assuming the midpoint of our Q4 guidance, we expect our full year of 2020 revenue to be approximately $219 million, which reflects 24% growth over 2019 revenue and 9% on an organic basis when excluding Nutronics. Based on our current expectation for product mix, we see gross margin for Q4 2020 in a range of 25% to 29%, which includes approximately $600,000 of stock-based compensation. Products gross margin is expected to be in the range of 29% to 33%. We expect development gross margin to be approximately 6.5%. Operating expenses for Q4 2020 are expected to be approximately $21.5 million, which includes approximately $6.3 million of stock-based compensation and approximately $700,000 of purchased intangible amortization related to the Nutronics and the OPI acquisition. For the fourth quarter, we expect adjusted EBITDA in a range of $3 million to $7 million. We expect Q4 average basic share to be approximately 39.5 million. I will now turn the call back over to Scott. -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [5] -------------------------------------------------------------------------------- Thank you, Ran. Turning to Slide 16. At the midpoint of our Q4 guidance, we expect to generate record revenue in 2020, thus extending our long-term compound annual growth rate of 20% revenue growth. In addition, strong sales and a more favorable mix of business has enabled us to improve our margins and overall profitability. 2020 has been a challenging environment in which to operate a global business. We have faced supply chain shortages, the ongoing trade war, geopolitical unrest and a global pandemic. While macro uncertainty persists, the demand for our products has remained strong throughout 2020, and the steps we took earlier this year have allowed us to continue to serve our customers. Our global employee base has performed remarkably in what has been a very challenging year in which to operate. I'd like to acknowledge the dedication and professionalism of our employees, who have enabled us to continue to innovate, support our customers, create a safe workplace and continue to execute our long-term growth opportunities. Finally, turning to Page 17. I would like to announce the addition of Retired Major General Camille Nichols to the nLIGHT Board of Directors. Camille is a proven leader who brings significant professional experience and groundbreaking personal achievements to our Board. During a distinguished 3-decade career in the United States Army, Camille managed complex organizations with significant budgets. Camille spent 20 years working in key roles in Department of Defense acquisition and operations and completed operational assignments in Asia and across the U.S. Camille began her career at the U.S. Army as an enlisted soldier and subsequently matriculated to the United States Military Academy at West Point, where she graduated with an engineering degree as part of the second class that included women at West Point. Camille also received a Master's Degree in Systems Management from the University of Southern California and a PhD in engineering management from the George Washington University. Camille was also a member of the 1984 U.S. Olympic team and currently serves as an independent director for USA Team Handball. Camille offers nLIGHT an important and unique perspective as we continue to grow our A&D business, and I'm thrilled to welcome Camille to the nLIGHT Board. With that, I will turn the call back over to the operator for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from Greg Palm with Craig-Hallum Capital Group. -------------------------------------------------------------------------------- Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [2] -------------------------------------------------------------------------------- I guess just starting out -- I mean one thing that really stood out to us was activity and certainly the growth levels in A&D outside of directed energy. So curious if that was driven by your core customer there. Anything that was maybe onetime or nonrecurring in nature? And how are you thinking specifically about the mix of that versus the other segments for Q4? -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [3] -------------------------------------------------------------------------------- Yes. Good question, Greg. In Q3, we continue to make progress in Nutronics in DE, but in addition to that, we continue to expand customers that go beyond the customers focus solely on Nutronics. And in Q3, we did have a bigger-than-expected new customer -- it is directed energy, but it is a new customer. We don't expect that level of revenue next quarter, but we do expect future revenue from that customer as their programs develop further. -------------------------------------------------------------------------------- Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [4] -------------------------------------------------------------------------------- Okay. Good. And then presumably, I mean if I look at the guidance, for Q4, it implies -- I think even us making some assumptions around A&D that you're taking some share in -- at least in industrial. And just kind of curious how you're thinking about new customer activity. I mean how much of the recent results and certainly the outlook is driven by maybe existing customers that are taking share versus maybe some new customer opportunities for your own products. -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [5] -------------------------------------------------------------------------------- And you're focused solely in industrial now, Greg? Is that what you're getting at? -------------------------------------------------------------------------------- Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [6] -------------------------------------------------------------------------------- Industrial and you can throw microfab in there. But yes, outside of A&D. -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [7] -------------------------------------------------------------------------------- Okay. Good. Let me split it. So I think at microfab, right, we have seen growth there. And we certainly expect to see continued growth in the future with new applications, so our customers that are winning in new applications in that space. We've noted 5G, there's medical applications. It's really a broad range of end applications there. With respect to industrial, we continue to make very good progress with our product development and launches. So we continue to make progress with our industrial high-power fiber lasers going into, first, the cutting market. And programmability continues to be an important dimension there, which is leading to design wins and particularly focused on sales in the rest of the world there. Second, the welding set of applications continues to be an attractive space where we have very limited share today. And so the ability to win in new applications continues to be a good opportunity for us, electric vehicles and other applications. And then finally, I would commend your attention the presentation that we gave just yesterday, launching our new AFX product for the additive manufacturing space. So it again is a programmable laser. In this case, it's a much more refined single-mode programmable laser. And that presentation will give you more details on that, but we are excited about the application space as we continue to enable improved efficiency in additive manufacturing. -------------------------------------------------------------------------------- Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [8] -------------------------------------------------------------------------------- I think additive is a pretty small part of the business today, but how do you view the growth opportunities and maybe the overall size of that market opportunity? -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [9] -------------------------------------------------------------------------------- Indeed, Greg, it's a very small part of our business today. And we are engaged with a good number of customers in different application areas that are working on what I'd call the next-generation additive tools. And with AFX, we're able to take to the next level. And so it is an area that we think that will be an attractive overall market and an important end market for us. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- Our next question comes from Jed Dorsheimer with Canaccord Genuity. -------------------------------------------------------------------------------- Jonathan Edward Dorsheimer, Canaccord Genuity Corp., Research Division - MD & Analyst [11] -------------------------------------------------------------------------------- So congratulations on a great quarter. I guess just starting first, housekeeping. What did you say the provision was, Ran, for next quarter for taxes? -------------------------------------------------------------------------------- Ran Bareket, nLIGHT, Inc. - VP & CFO [12] -------------------------------------------------------------------------------- So this quarter, you saw an income or a benefit of $1.5 million. That was -- the majority of that came from a purchase accounting -- an accounting transaction, if you will. Going forward, you will see roughly $300,000, from cash and expense level perspective, a quarter. -------------------------------------------------------------------------------- Jonathan Edward Dorsheimer, Canaccord Genuity Corp., Research Division - MD & Analyst [13] -------------------------------------------------------------------------------- Got it. And then, Scott, how much of the margin increase that you saw in Q3 was a function of the abatement and -- or easing of price pressure in sort of the sub -- I guess sub-10-kilowatt lasers over in China in the industrial sector. -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [14] -------------------------------------------------------------------------------- Yes. Jed, it's not a big factor in this quarter. And I'll let Ran get more details on the details of the mix and other changes, but that lower power segment wasn't a big factor in changes in the margin. -------------------------------------------------------------------------------- Ran Bareket, nLIGHT, Inc. - VP & CFO [15] -------------------------------------------------------------------------------- Yes. If I may add, we are talking for several quarters about our strategy, as Scott mentioned in the opening remarks, focusing on industrial outside of China, cutting, welding, additive manufacturing, focusing on A&D, focusing as well as move more and more to high-power in China in terms of high-power lasers. This quarter, if you look at our presentation, the high-power worldwide, not just in China, for industrial laser was 58%, which is a record high. So all of those trends, if you will, coming with higher margin. Obviously, the volume helps us. It's record volume, record revenue for us that helps us to improve the margin. However, that mix is significantly important for us to improve the margin. And as we mentioned in the previous quarter, as long as we will continue to grow the company in those areas, the margin will improve as well. -------------------------------------------------------------------------------- Jonathan Edward Dorsheimer, Canaccord Genuity Corp., Research Division - MD & Analyst [16] -------------------------------------------------------------------------------- Got it. One last -- or maybe 2, but just as we look at the shift in the auto sector or the mobility sector in general because it's not -- certainly not limited just to autos and the move from internal combustible to electric, that ostensibly changes the manufacturing facilities for both newcomers that don't have anything, obviously, you have to build as well as the incumbent. So I was wondering if you might be able to comment on the quote activity that you're seeing, whether that -- maybe to throw into this, too, the repatriating manufacturing onshore here domestically, but also just is an extension in the EV sector, what you're seeing in terms of level of activity that might not be hitting the books in terms of backlog at this point in time. -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [17] -------------------------------------------------------------------------------- Great question, Jed. So you're right, it's good to be on autos. But broadly, the EV sector is one in which we're seeing a whole host of new players. That represents a good opportunity for us. Traditionally, the automotive sector has been one in which the designing process is very long. And frankly, as a result of that, we had not prioritized that segment. So our exposure to -- generally in automotive is fairly modest. As we see new players in the broad EV sector from batteries to new assembly processes, we are seeing significant improvement in not only the number of opportunities that we see, but indeed, our ability then to use our differentiated technology to enable those applications. So it's a much more dynamic. And I think innovative in the end set of processes, and that benefits us. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Our next question comes from Jim Ricchiuti with Needham & Company. -------------------------------------------------------------------------------- James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [19] -------------------------------------------------------------------------------- I wanted to go back to the AFX, the laser you've just announced. It does seem like we're seeing a new generation of additive machines. And what I'm struck by is the number of fiber lasers that are going into some of these machines. And so I'm wondering, Scott, if you could help us understand what may be driving the market, what some of the -- and we'll take a look at this presentation that you alluded to. But what may also be differentiating you guys in the market. And I assume it's the programmability. But can you say how many customers you're working with at the moment or in rough numbers? -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [20] -------------------------------------------------------------------------------- Well, it's a reasonable set of customers. We can't specify exactly, Jim, but it's -- we've been working with a number of customers for quite some time in this space. And that funnel is increasing, again, both with interest from the current set of players but also new players in this space. And companies -- in some cases, they're either less well-known or in some cases, some stealth companies. And yes, I do commend the video, and we'll get it up on our website to make it easier to access. So standby on that. But I'll try to give you kind of a quick summary on this. So it is a programmable laser. We believe it's the first single-mode -- truly single-mode programmable laser. And in additive manufacturing, today, for the very fine features, you typically want to use a single-mode laser to provide a very small sort of 75-micron spot to do that centering of the powder to make those parts. As you move to go faster, you can do a couple of things. You can adjust that beam. You can add more lasers. But what we have demonstrated is the more effective way to increase the speed and either maintain or improve the quality of that part is to change that beam to one that will allow that process to go faster to build that part. And throughput is a critical dimension of this process. So that's -- I think we've described that at a high level. The video does a better job of going into some of those details, but that's kind of the high level on this. And we do think it is a profound improvement for a number of applications. -------------------------------------------------------------------------------- James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [21] -------------------------------------------------------------------------------- Would this laser, for instance, enable an additive manufacturer to perhaps not have to use as many fiber lasers in the system because of the functionality of the AFX. -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [22] -------------------------------------------------------------------------------- Yes. I think the short answer, Jim, is yes. It depends on all the particulars, but yes, that is a trade space that -- where we provide a benefit. -------------------------------------------------------------------------------- James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [23] -------------------------------------------------------------------------------- Okay. And if I could also, just on the comment about opening an office in Detroit. Again, we don't normally associate you guys with automotive, but it's also an area that's not just automotive, there's a lot of additive, manufacturing and work being done in that area. Can you talk a little bit about the rationale behind that and what you expect to be able to do with these new applications lab? -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [24] -------------------------------------------------------------------------------- Yes, good. It's about being close to really all of our industrial customers. And certainly, it includes not only automotive but other industrial customers. So having that proximity to the customers, having the right talent that comes from these vertical markets. And it will include not only sales, service, includes applications work that we're doing. And so it's a commitment to the industrial market broadly. -------------------------------------------------------------------------------- James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [25] -------------------------------------------------------------------------------- Okay. And then last question. Are there any material revenues associated with OPI? -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [26] -------------------------------------------------------------------------------- I think short answer is no. I think we have integrated OPI into our products, and it's been very helpful in expanding our products, but we don't view OPI as a material source of external merchant revenue. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from Mark Miller with The Benchmark Company. -------------------------------------------------------------------------------- Mark S. Miller, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [28] -------------------------------------------------------------------------------- Congrats on your quarter. I just had a couple of housekeeping questions. R&D stepped up significantly sequentially, and it looks like it's going to continue to be at that level for the December quarter. What's behind that? -------------------------------------------------------------------------------- Ran Bareket, nLIGHT, Inc. - VP & CFO [29] -------------------------------------------------------------------------------- Say that again? -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [30] -------------------------------------------------------------------------------- Mark it's a little bit hard to hear, but the question is around the step-up in R&D spend, why, I guess? Is that right? -------------------------------------------------------------------------------- Mark S. Miller, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [31] -------------------------------------------------------------------------------- And it looks like it's going to stay that level roughly for the December quarter. Is that correct? -------------------------------------------------------------------------------- Ran Bareket, nLIGHT, Inc. - VP & CFO [32] -------------------------------------------------------------------------------- Yes. First of all, yes, this is correct. If you look -- and we mentioned that if you look at our OpEx spending in general, year-over-year, you will not see much growth. It's roughly without -- I'm sorry. Without stock-based compensation, you will not see much growth. But it's currently mainly on R&D. And we will continue to invest in R&D as necessary. You will not see a significant increase going forward. But yes, the investment in R&D will grow. Based on all of the opportunities that we are talking about, all of the new technology that we are talking about in welding, the OPI acquisition, additive manufacturing, industrial, et cetera, et cetera, all of that will require additional investment in R&D. -------------------------------------------------------------------------------- Mark S. Miller, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [33] -------------------------------------------------------------------------------- I believe you indicated for December, there'll be $6.3 million of stock-based compensation. Is that correct? -------------------------------------------------------------------------------- Ran Bareket, nLIGHT, Inc. - VP & CFO [34] -------------------------------------------------------------------------------- This is correct, yes. -------------------------------------------------------------------------------- Mark S. Miller, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [35] -------------------------------------------------------------------------------- Okay. And you also had a large other income. And what does that do to it? -------------------------------------------------------------------------------- Ran Bareket, nLIGHT, Inc. - VP & CFO [36] -------------------------------------------------------------------------------- It's all -- most of it is exchange rate from euro and RMB. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- Our next question comes from Tom Diffely with D.A. Davidson. -------------------------------------------------------------------------------- Thomas Robert Diffely, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [38] -------------------------------------------------------------------------------- I was wondering if you could talk a little bit about just the pricing and competitive environment. Now that we've had a little bit of an industrial comeback in China, had things basically flattened out from a pricing point of view over the last couple of quarters? And I guess probably more importantly for you, pricing outside of China. -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [39] -------------------------------------------------------------------------------- Yes. So I don't think there's anything substantially different, Tom, than what we had discussed on our last call. We see continued competitive environment, and we certainly expect that in a lot of the lower power applications prices to continue to come down over time. We're continuing to reduce our costs at the same time, so nothing dramatically different from what we have talked about previously. And certainly, as we access the other markets outside of China and markets -- particularly markets where we have our programmable fiber lasers, we're really talking about a different set of products, different set of advantages and higher differentiation. And so certainly, that was one of the benefits that drove margin improvement. -------------------------------------------------------------------------------- Thomas Robert Diffely, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [40] -------------------------------------------------------------------------------- Okay. Great. And then earlier today, II-VI talked about really ramping up their diode or semi-laser capacity. Would that have any kind of material impact on you or your markets? -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [41] -------------------------------------------------------------------------------- It's hard to speculate on that. I'm not exactly sure of all of the specific applications that are driving their decision to ramp. So it's a little hard to speculate. -------------------------------------------------------------------------------- Thomas Robert Diffely, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [42] -------------------------------------------------------------------------------- Okay. And then finally, I guess, just with the change or potential change of administration, does that change your outlook at all for the defense contract part of your business? -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [43] -------------------------------------------------------------------------------- Short answer is no. We've seen strong bipartisan support for directed energy. And with respect to the Washington state delegation and the Oregon delegation, we've had strong support. And it's really certainly both sides of the aisle. So I believe even under Obama, the directed energy budget doubled and it remains a very high priority for DoD. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- Our next question is a follow-up from Mark Miller with The Benchmark Company. -------------------------------------------------------------------------------- Mark S. Miller, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [45] -------------------------------------------------------------------------------- You indicated -- I believe, it was a 42% organic growth in aerospace, but it was up over 100% year-over-year growth. Is that correct? Could you tell me what the total year-over-year growth was, organic and inorganic? -------------------------------------------------------------------------------- Scott H. Keeney, nLIGHT, Inc. - Co-Founder, Chairman, President & CEO [46] -------------------------------------------------------------------------------- Yes. It's 123% overall, 43% organic. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- This concludes our question-and-answer session. I would like to turn the conference back over to Joseph Corso for any closing remarks. -------------------------------------------------------------------------------- Joseph Corso, nLIGHT, Inc. - VP of Corporate Development & IR [48] -------------------------------------------------------------------------------- Thank you, everyone, for joining this afternoon and for your continued interest in nLIGHT. We will be participating in several virtual investor conferences this quarter, and we look forward to speaking with you soon. Have a great day. Thanks. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- The conference has now concluded. Thank you for attending today's presentation.