nLIGHT's EPS Miss: A Blip or a Trend?

nLIGHT, Inc. (NASDAQ: LASR), a leading provider of high-power semiconductor and fiber lasers, reported its full year 2024 earnings on February 27, 2025. While the company's revenue and gross margin showed improvements compared to the previous year, its earnings per share (EPS) missed expectations, raising concerns about its long-term growth prospects. In this article, we'll delve into the factors contributing to nLIGHT's EPS miss and explore the expectations for its aerospace and defense segment in the coming years.

Factors Contributing to nLIGHT's EPS Miss

1. Revenue decline: Revenues of $198.5 million for the full year 2024 were down 5.4% compared to $209.9 million for the full year 2023. This decline in revenue directly impacted the company's earnings.
2. Gross margin decrease: Gross margin was 16.6% for the full year 2024 compared to 22.0% for the full year 2023. The decrease in gross margin further eroded the company's earnings.
3. Increased loss from operations: Loss from operations was $65.6 million in 2024, up from $46.8 million in 2023, representing a 40.3% increase. This significant increase in operating losses contributed to the earnings shortfall.
4. Net loss increase: GAAP net loss for the full year 2024 was $60.8 million, or $1.27 per diluted share, compared to a net loss of $41.7 million, or $0.90 per diluted share, for the full year 2023. This increase in net loss is a direct result of the factors mentioned above.

Aerospace and Defense Segment: A Primary Growth Driver

Despite the EPS miss, nLIGHT's aerospace and defense segment has been a primary growth driver for the company. In 2024, this segment grew 20% year-over-year to a record of $110 million, representing approximately 55% of the company's overall sales. The segment's backlog also increased by more than 50% year-over-year in 2024, to a record $167 million, as the company continues to qualify new opportunities in both directed energy and laser sensing.

However, the company's preliminary Q4 results reveal that the company expects to report revenue between $46-48 million, falling short of their earlier guidance of $49-54 million. This revenue shortfall is attributed to ongoing weakness in industrial markets, execution challenges in microfabrication business, and timing issues with defense product deliveries. The company anticipates both gross margin and Adjusted EBITDA to be materially below previous guidance due to lower product revenue and non-recurring charges related to rightsizing their industrial business.



Strategic Adjustments and Cost-Cutting Measures

To address the challenges in its industrial and microfabration segments, nLIGHT is implementing strategic adjustments and cost-cutting measures. These include rightsizing the industrial business and addressing execution challenges in microfabrication. These changes are expected to have a material impact on the company's overall financial performance, with the "non-recurring charges" related to rightsizing the industrial business likely resulting in lower gross margins and Adjusted EBITDA.

Conclusion

nLIGHT's EPS miss in the full year 2024 can be attributed to several specific factors, including a decline in revenue, a decrease in gross margin, an increase in operating losses, and an increase in net loss. While the company's aerospace and defense segment has been a primary growth driver, the company's preliminary Q4 results reveal a revenue shortfall and expectations for lower gross margin and Adjusted EBITDA. To address the challenges in its industrial and microfabrication segments, nLIGHT is implementing strategic adjustments and cost-cutting measures. As the company looks to the future, investors will be watching closely to see if these changes can help nLIGHT return to earnings growth and maintain its position as a leading provider of high-power semiconductor and fiber lasers.