nLIGHT's Q3 2025: Contradictions on HELSI-2 Timelines, Margins, and Tariff Impact

Date of Call: None provided

Financials Results

• Revenue: $66.7M, up 19% YOY and up 8% sequentially (vs Q3 2024 $56.1M; vs Q2 2025)
• EPS: GAAP net loss $0.14 per share; Non-GAAP net income $0.08 per diluted share (vs Non-GAAP net loss $0.08 per share in Q3 2024; Non-GAAP $0.06 last quarter)
• Gross Margin: Total gross margin 31.1% (vs 22.4% YOY; 29.9% sequential); Products gross margin 41% (record; vs ~28.8% YOY; 38.5% sequential); Development gross margin 6.4% (vs 4.7% YOY; 13.1% sequential)

Guidance:

• Revenue Q4 2025 expected $72M–$78M (midpoint $75M: ≈$55M product, ≈$20M development).
• A&D revenue expected to grow sequentially; full-year 2025 A&D growth to exceed prior outlook of at least +40% YOY.
• Overall gross margin expected 27%–32%; products 34%–39%; development ~8% (development GM expected ~8%).
• Adjusted EBITDA expected $6M–$11M for Q4 2025.
• Non-GAAP operating expenses expected to be near $18M in Q4.

Business Commentary:

• Revenue Growth and Aerospace & Defense Performance:
• nLIGHT reported total revenue of $67 million for Q3 2025, growing 19% year-over-year and driven by record aerospace and defense revenue of $46 million, with defense product sales growing more than 70% year-over-year.

• The growth was attributed to record performance in the aerospace and defense markets, particularly driven by directed energy and laser sensing products.

• Product Gross Margin Expansion:

• Product gross margin reached a record 41%, more than doubling from 29% in the same quarter a year ago.

• This expansion was due to higher volumes, favorable product and customer mix, and ongoing leverage of the company's manufacturing capabilities.

• Profitability and Cash Flow:

• Adjusted EBITDA was more than $7 million in the quarter, above expectations, and the company generated $5.2 million in cash flow from operations, becoming cash flow positive.

• Improved profitability and cash flow resulted from strong revenue growth, favorable product mix, and operational efficiencies, demonstrating leverage in the company's operating model.

• Future Growth and Contract Outlook:

• nLIGHT anticipates continued growth in aerospace and defense revenue with a full pipeline of programs, including new opportunities expected to be awarded from the U.S. President's Golden Dome initiatives.
• The company expects new contracts to offset the anticipated revenue loss from the completion of the HELSI-2 program in late 2026.
  
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management described Q3 as "another solid quarter" with revenue up 19% YOY, record products gross margin (~41%), and adjusted EBITDA >$7M. Guidance raised for A&D (to exceed prior +40% outlook) and Q4 revenue/gross margin/EBITDA ranges point to continued confidence in execution and margin leverage.

Q&A:

• Question from Greg Palm (Craig-Hallum): Based on the results and guide, is there a chance you're pulling ahead the HELSI-2 completion date (previously expected in 2026)?
  Response: Management: No change — HELSI-2 remains on track for completion in 2026.

• Question from Greg Palm (Craig-Hallum): You're guiding revenue up sequentially but product gross margins lower; can you give more color — is mix changing materially?
  Response: Management: Q4 gross margin guide reflects ~150–200bps impact from freight/duties plus quarter-to-quarter mix differences; overall expansion driven by volume and absorption.

• Question from Sahej Singh (Stifel): On HELSI-2 ($171M) and amplifiers — how should we think about incremental margin benefit this quarter and next year, and will sensing/international/classified programs offset HELSI-2 as it ramps down in H2 2026?
  Response: Management: HELSI-2 is cost-plus and revenue recognition won't be linear; amplifiers drive strong incremental margins (north of 50%) and while HELSI-2 will trail off in H2'26, other directed-energy, sensing and international programs are expected to more than offset that decline.

• Question from Sahej Singh (Stifel): DE M-SHORAD is ramping down — what's driving advanced development growth and is it a leading indicator for future A&D product sales?
  Response: Management: DE M-SHORAD is concluding and won't contribute going forward; advanced development (including HELSI-2) shows breadth of activity and positions nLIGHT well, but advanced dev revenue doesn't map directly to long-term product revenue.

• Question from James Ricchiuti (Needham & Co.): If HELSI-2 winds down in H2'26, when would you need new orders to offset that hole — do you expect orders in the next few quarters to fill it?
  Response: Management: The hole is already filled by booked programs; growth in 2026 will depend on timing of bookings and ramp timing for new programs.

• Question from James Ricchiuti (Needham & Co.): The laser sensing contract you mentioned — is this a follow-on piece of business?
  Response: Management: Yes — it's a follow-on on an ongoing program of record we've supported for over a decade.

• Question from James Ricchiuti (Needham & Co.): You're seeing sequential improvement in microfabrication — what's driving stabilization?
  Response: Management: Microfabrication is inherently lumpy and long-tail (book-and-ship); recent quarters show stabilization but it's hard to attribute to a single cause; commercial markets overall expected to decline in 2026.

• Question from James Ricchiuti (Needham & Co.): Is the $8M–$12M level in Q2/Q3 a reasonable run-rate for microfabrication aside from Q1 seasonality?
  Response: Management: Yes — microfabrication is the most seasonal business and a reasonable range is ~$8M–$12M, with China microfab continuing to decline.

• Question from Keith Housum (Northcoast Research): The amplifier transition continues — once complete, how will results reflect that (revenue recognition, costs, margins)?
  Response: Management: Amplifier deliveries into HELSI-2 will complete over 2026; amplifier volumes and improved manufacturability should drive both revenue growth and margin expansion over time.

• Question from Keith Housum (Northcoast Research): The restructuring charges in China/cutting & welding — are these to rightsize those businesses?
  Response: Management: Yes — charges reflect moving assembly from Shanghai to Fabrinet/U.S., related support activities, and rightsizing due to expected declines in cutting & welding markets.

• Question from Keith Housum (Northcoast Research): Is there an opportunity in counter-drone technology?
  Response: Management: Yes — counter-UAS is a major application for directed energy.

• Question from Greg Palm (Craig-Hallum): The programs you referenced that will offset HELSI-2 — are those already booked or still in the pipeline?
  Response: Management: Those programs are booked.

• Question from Greg Palm (Craig-Hallum): Are the programs that will help offset HELSI-2 directed energy or sensing, and what's the status of the two confidential sensing programs (one expected to go to LRIP by year-end)?
  Response: Management: The growth drivers for 2026 include both directed energy and sensing; the two confidential sensing programs are progressing (management declined timeline specifics) and booked/new wins will plug the HELSI-2 gap.

• Question from Brian Gesuale (Raymond James): Can you discuss the pipeline domestically and globally and your capacity given apparent strong demand in directed energy?
  Response: Management: Engagement and demand are strong across U.S. and international programs; recent international demonstrations reinforce demand and the company is actively engaged to capture opportunities.

• Question from Brian Gesuale (Raymond James): Is there urgency in Europe for rapid adoption that could accelerate demand over the next few quarters?
  Response: Management: Yes — global urgency exists and acquisition reform in the U.S. may accelerate procurement; international adoption is also progressing and could drive quicker implementation.

• Question from Troy Jensen (Unknown): How many customers/programs are in your development product line/revenue line?
  Response: Management: Approximately a dozen programs (plus or minus).

• Question from Troy Jensen (Unknown): On sensing — is that upticking versus being just sustained?
  Response: Management: Sensing appears to be upticking; it's an important area that complements radar and is a Pentagon-listed critical technology where nLIGHT is well positioned.

• Question from Sahej Singh (Stifel): The jump in A&D product revenue this quarter — can you explain what drove it and whether Q4 advanced development guidance (~$25M) is mostly HELSI-related?
  Response: Management: A&D product growth is driven by amplifier shipments (including into HELSI-2, which are booked as product revenue) and laser sensing product sales; the company expects A&D products to continue improving.

Contradiction Point 1

HELSI-2 Contract Completion Date and Revenue Timing

It involves the timing and revenue expectations for a significant contract, which impacts revenue projections and operational planning.

Could the HELSI-2 contract's completion date be accelerated based on results and volume data? - Greg Palm (Craig-Hallum)

20251107-2025 Q3: We are on track for completion in 2026. We will announce progress results when it is possible. - Scott Keeney(CEO)

What drove the A&D outperformance in products and development during Q2? - Daniel James Eggerichs (Craig-Hallum Capital Group LLC)

2025Q2: Our success in Q2 was driven by strong execution across existing programs. Amplifier sales exceeded expectations, especially related to the HELSI-2 program. - Joseph Corso(CFO)

Contradiction Point 2

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

Why is revenue guidance higher sequentially but gross margins lower? Is there a mix shift? - Greg Palm (Craig-Hallum)

20251107-2025 Q3: Gross margins may initially dip to low 70s due to the Blackwell ramp but are expected to recover to mid-70s quickly. - Joseph Corso(CFO)

What drove the 38.5% product gross margin in Q2, and what is the outlook for Q3? - Daniel James Eggerichs (Craig-Hallum Capital Group LLC)

2025Q2: Gross margins for Q3 are expected around 75%, with full-year guidance in the mid-70s. - Joseph Corso(CFO)

Contradiction Point 3

HELSI-2 Contract Completion Date

It directly impacts expectations regarding the completion timeline of a key contract, potentially influencing company revenue and investor expectations.

Could the HELSI-2 contract completion date be advanced based on results and volumes? - Greg Palm (Craig-Hallum)

20251107-2025 Q3: No, we are on track for completion in 2026. We will announce progress results when it is possible. - Scott Keeney(CEO)

Can you discuss your visibility into A&D product sales beyond Q2? - James Ricchiuti (Needham & Company)

2025Q1: The HELSI program is one of the drivers of product revenue, and we have visibility with respect to that program. - Scott Keeney(CEO)

Contradiction Point 4

Gross Margin Impact of Tariffs

It involves changes in financial forecasts, specifically regarding the impact of tariffs on gross margins, which are critical indicators for investors.

Why is revenue guidance significantly higher sequentially while gross margins are declining? Is there a mix shift? - Greg Palm (Craig-Hallum)

20251107-2025 Q3: Not much change in Q4 gross margin guidance. 150-200 bps related to increased freight and duties. Gross margin expansion due to higher volume mix and leveraging the factory. - Joseph Corso(CFO)

What is the tariff-related risk for A&D? - Greg Palm (Craig-Hallum)

2025Q1: The area where we will be affected most is where the input costs are coming in from China today, which disproportionately affects our industrial fiber laser business. - Joseph Corso(CFO)