nLIGHT's Aerospace & Defense Segment: A Catalyst for Margin Expansion and Revenue Surge in a High-Growth Sector

In a sector where defense spending is surging globally, nLIGHT, Inc. (NASDAQ: LASR) has emerged as a standout performer. The company's Aerospace & Defense (A&D) segment, which accounts for nearly two-thirds of its revenue, is accelerating at an unprecedented pace. With Q3 2025 results revealing 18.9% year-over-year revenue growth to $66.74 million-surpassing analyst estimates by a wide margin-the firm is demonstrating not just top-line momentum but also significant operational leverage, according to a TradingView report. This dual engine of growth and margin expansion positions nLIGHT as a compelling case study in how strategic focus on high-margin defense applications can drive value creation in a capital-intensive industry.

Near-Term Revenue Momentum: A&D as the Engine of Growth

nLIGHT's A&D segment has become the linchpin of its financial performance. For Q3 2025, the segment delivered record revenue, contributing to a full-year A&D growth projection exceeding 40%-a sharp acceleration from its prior outlook, as reported in the Nasdaq press release. This surge is fueled by robust demand for high-power fiber lasers in military and aerospace applications, including directed energy systems and advanced manufacturing.

Sequential growth within the segment has also been striking. From Q1 to Q3 2025, A&D revenue expanded by 24% quarter-over-quarter, with Q2 alone hitting $40.7 million-a 49% year-over-year increase, according to the Investing.com Q2 2025 slides. The segment's dominance in the revenue mix now stands at 66%, reflecting a strategic realignment toward defense applications, which typically offer higher margins and more stable demand compared to commercial markets, as noted in the Investing.com Q2 2025 slides.

Margin Expansion: Operational Leverage and Cost Discipline

The company's margin trajectory is equally impressive. Q3 2025 gross margin climbed to 31.1%, up from 22.4% in the same period of 2024, driven by improved manufacturing efficiency and pricing power in defense contracts, according to the Nasdaq press release. Adjusted EBITDA, a key metric of profitability, soared to $7.11 million-a dramatic turnaround from a negative $994,000 in Q3 2024, as reported in the Nasdaq press release.

This margin expansion is underpinned by disciplined cost management. For instance, nLIGHT reduced days sales outstanding (DSO) from 73 days in Q2 2023 to 59 days in Q2 2025, while days of inventory (DOI) fell from 143 to 87 days over the same period, as detailed in the Investing.com Q2 2025 slides. These improvements reflect tighter working capital controls and a leaner cost structure. Additionally, product gross margins in the A&D segment hit 38.5% in Q2 2025, up from 30.3% in Q2 2024, highlighting the company's ability to scale production without sacrificing profitability, as noted in the Investing.com Q2 2025 slides.

Strategic Operational Leverage: Fueling Sustained Growth

nLIGHT's success is not merely a function of favorable market conditions but also a result of deliberate operational strategies. The company has prioritized automation and vertical integration to reduce reliance on third-party suppliers, a move that has cut production costs and improved delivery timelines, according to the TradingView report. Furthermore, R&D investments are increasingly focused on defense-specific applications, which command premium pricing and longer contract cycles.

Management's guidance for Q4 2025 reinforces confidence in the model. The firm expects gross margins to remain in the 27-32% range and Adjusted EBITDA between $6 million and $11 million, as reported in the Nasdaq press release. These forecasts suggest that the margin expansion observed in Q3 is not a one-off but part of a broader trend of operational leverage.

Outlook: A High-Growth Play in a Strategic Sector

With defense budgets in the U.S. and key allies projected to grow through 2027, nLIGHT's A&D segment is well-positioned to capitalize on secular tailwinds. The company's ability to convert this demand into margin expansion-while maintaining disciplined cost structures-sets it apart from peers. For investors, the combination of near-term revenue acceleration and improving profitability metrics makes nLIGHT a compelling long-term play in a sector where operational excellence is increasingly rewarded.