nLIGHT's Q3 2025 Earnings Call: Contradictions Emerge on HELSI-2 Timelines, Gross Margins, Defense Revenue, Tariffs, and Microfabrication Outlook

Date of Call: November 6, 2025

Financials Results

• Revenue: $66.7M, up 19% YOY (vs $56.1M in Q3 2024) and up 8% sequentially (vs Q2 2025)
• EPS: GAAP: $(0.14) per share (net loss $6.9M) vs $(0.21) in Q3 2024 and $(0.07) in Q2 2025; Non-GAAP: $0.08 per diluted share (net income $4.3M) vs non-GAAP loss $(0.08) in Q3 2024 and $0.06 in Q2 2025
• Gross Margin: Total gross margin 31.1%, compared to 22.4% in Q3 2024 and 29.9% in prior quarter; Products gross margin 41% (record) vs 28.8% in Q3 2024 and 38.5% in prior quarter; Development gross margin 6.4% vs 4.7% prior year and 13.1% prior quarter

Guidance:

• Q4 2025 revenue expected $72M–$78M (midpoint $75M, ~ $55M product / $20M development)
• Expect sequential A&D revenue growth in Q4 and full-year 2025 A&D growth to exceed prior outlook of at least +40% YOY
• Q4 overall gross margin guide 27%–32%; products gross margin 34%–39%; development gross margin ~8%
• Adjusted EBITDA expected $6M–$11M in Q4 2025
• Non-GAAP OpEx expected to remain in the ~$18M range

Business Commentary:

• Aerospace and Defense Growth:
• nLIGHT's aerospace and defense revenue reached a record $46 million in Q3, growing 19% year-over-year and 70% in the defense segment.

• The growth was driven by a focus on directed energy and laser sensing markets, with key contributions from the HELSI-2 program and increased demand for counter-UAS applications.

• Record Gross Margin Expansion:

• Total gross margin expanded to 31.1% in Q3, with a record 41% in the products segment, up from 29% in the same quarter last year.
• This expansion was due to a favorable customer and product mix, particularly in the aerospace and defense markets, and an increase in manufacturing volume.

• Adjusted EBITDA Improvement:
• Adjusted EBITDA was $7.1 million, exceeding expectations, compared to a loss of about $1 million in the same quarter last year.

• The improvement was driven by healthy revenue growth, favorable product mix, and operating expense discipline.

• Commercial Market Challenges:

• Commercial revenue decreased 18% year-over-year but was slightly ahead of expectations, with $21.2 million in Q3.
• The decline was attributed to continued declines in the cutting and welding sectors, although microfabrication sales aligned with expectations.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted strong execution: "Third quarter revenue of $67 million grew 19% year-over-year" and "products gross margin... came in at a record 41%"; adjusted EBITDA was "more than $7 million." Guidance raised for A&D and Q4 revenue/gross margin ranges, and management stated key programs are "on track" for 2026, supporting a constructive tone.

Q&A:

• Question from Greg Palm (Craig-Hallum Capital Group LLC, Research Division): Based on the results and guide, is there a chance you're pulling ahead the HELSI-2 completion date (previously expected 2026)?
  Response: Management: HELSI-2 remains on track for 2026; no change to the completion timeline.

• Question from Greg Palm (Craig-Hallum Capital Group LLC, Research Division): You're guiding revenue higher sequentially but gross margins lower — what's driving that?
  Response: CFO: Q4 gross-margin guide reflects ~150–200 bps of freight/duties headwind and quarter-to-quarter mix effects; margin swings also stem from volume and factory leverage.

• Question from Sahej Singh (Stifel, Nicolaus & Company, Incorporated, Research Division): On HELSI-2 ($171M), how much incremental margin benefit from amplifiers this quarter and will sensing/international offset HELSI-2 revenue when it ramps down in H2 2026?
  Response: CFO: HELSI-2 is cost-plus and non-linear; amplifiers and other high-margin products are delivering significant margin expansion today, and other directed-energy and sensing programs should replace HELSI-2 revenue as it tails off.

• Question from Sahej Singh (Stifel, Nicolaus & Company, Incorporated, Research Division): DE M-SHORAD is ramping down — is advanced development growth a leading indicator for future A&D product sales?
  Response: CFO: DE M-SHORAD is finishing and won't contribute going forward; advanced development activity signals positioning but does not directly map to long-term product revenue.

• Question from James Ricchiuti (Needham & Company, LLC, Research Division): If HELSI-2 winds down in H2 next year, when do you need new orders to fill that hole — are orders coming in soon enough?
  Response: CFO: The expected hole is already filled by existing wins and bookings; timing of bookings will determine the pace of 2026 growth.

• Question from James Ricchiuti (Needham & Company, LLC, Research Division): The $50M laser sensing contract you mentioned — is that a follow-on to an existing program?
  Response: CEO: Yes — it's a follow-on on an ongoing program of record we've supported for over a decade.

• Question from James Ricchiuti (Needham & Company, LLC, Research Division): What's driving stabilization in microfabrication and industrial markets?
  Response: CFO: Stabilization reflects book-and-ship dynamics across many small customers; microfabrication revenue is hard to predict but has stabilized recently, though commercial is still expected to decline in 2026.

• Question from James Ricchiuti (Needham & Company, LLC, Research Division): Is $8M–$12M a reasonable seasonal range for microfabrication (aside from Q1 seasonality)?
  Response: CFO: Yes — expect microfabrication generally in the ~$8M–$12M range with Q1 seasonality.

• Question from Keith Housum (Northcoast Research Partners, LLC): The amplifier transition continues — once complete, how will results be reflected financially?
  Response: CFO: Amplifier deliveries (notably into HELSI-2) complete through 2026; as manufacturability improves we'll see higher volumes and margin expansion over time.

• Question from Keith Housum (Northcoast Research Partners, LLC): Reason for restructuring charges in China and cutting/welding?
  Response: CFO: Charges reflect rightsizing after shifting assembly from Shanghai to Fabrinet/U.S. and reducing exposure to declining cutting/welding markets.

• Question from Keith Housum (Northcoast Research Partners, LLC): Opportunity in counter-drone (counter-UAS) technology?
  Response: CEO: Yes — counter-UAS is a major application for directed-energy systems.

• Question from Greg Palm (Craig-Hallum Capital Group LLC, Research Division): Are the programs you referenced that will offset HELSI-2 booked or still in pipeline?
  Response: CFO: Those offsetting programs have already been booked.

• Question from Greg Palm (Craig-Hallum Capital Group LLC, Research Division): Are the booked offset programs directed energy or sensing, and what's the status of the two confidential sensing programs (one due to go to LRIP)?
  Response: Management: Booked programs include both directed energy and sensing; the two confidential sensing programs are progressing as expected but specific timing remains sensitive and undisclosed.

• Question from Brian Gesuale (Raymond James & Associates, Inc., Research Division): Describe the domestic and global pipeline and capacity — demand seems vibrant, any capacity constraints?
  Response: CEO: Strong pipeline and engagement across U.S. and international customers; broad demand exists, but no specific capacity constraints were disclosed.

• Question from Brian Gesuale (Raymond James & Associates, Inc., Research Division): Is there accelerating urgency in Europe that will speed adoption over the next few quarters?
  Response: CEO: Yes — Europe shows urgency; forthcoming U.S. acquisition reform should also accelerate procurement and deployments.

• Question from Troy Jensen (Cantor Fitzgerald & Co., Research Division): How many customers/programs comprise your development revenue line?
  Response: CFO: Roughly a dozen development programs/customers (plus or minus).

• Question from Troy Jensen (Cantor Fitzgerald & Co., Research Division): Is sensing upticking relative to directed energy, or are sensing contracts sustaining?
  Response: CEO: Directed energy has greater current visibility and awareness; sensing is important and gaining but is less visible — nLIGHT is well positioned in both.

• Question from Sahej Singh (Stifel, Nicolaus & Company, Incorporated, Research Division): The jump in A&D product revenue — what specifically drove that this quarter and should we expect sequential improvement?
  Response: CFO: Growth was driven by amplifier shipments into HELSI-2 and laser sensing product sales; A&D products are expected to continue improving sequentially.

Contradiction Point 1

HELSI-2 Program Completion Date and Revenue Impact

It involves a contradiction in the expected completion date and revenue recognition for the HELSI-2 program, which could impact investor expectations and financial forecasts.

Could the HELSI-2 program's completion date be accelerated due to the results and guidance? - Greg Palm (Craig-Hallum Capital Group LLC)

2025Q3: We are on track with our HELSI-2 completion date of 2026. - Scott Keeney(CEO)

Can you discuss what exceeded expectations in A&D's product and development? - Daniel James Eggerichs (Craig-Hallum Capital Group)

2025Q2: HELSI-2 is progressing well with full-year 2025 revenue of approximately $65 million, which is an increase of approximately $10 million from our previous expectations. Revenue for HELSI-2 in the second quarter was $16 million, and we expect full-year 2025 revenue to be approximately $65 million. - Joseph Corso(CFO)

Contradiction Point 2

Gross Margin Impact on Revenue and Execution

It involves a contradiction in the explanation for the impact of gross margins on revenue and execution, which can influence investor perceptions of financial performance and operational efficiency.

Why are product revenues up while gross margins are down? - Greg Palm (Craig-Hallum Capital Group LLC)

2025Q3: Gross margin changes are due to increased costs of materials impacting freight and duties, and changes in end market mix. Despite this, we're pleased with gross margin expansion. - Joseph Corso(CFO)

What factors impacted Q2 gross margin and what changes are expected in Q3? - James Andrew Ricchiuti (Needham & Company)

2025Q2: The gross margin in Q2 was better due to higher volumes, improved execution, and better factory absorption. While we don't expect Q3 margins to return to Q2 levels, the operating leverage in our model remains strong. - Joseph Corso(CFO)

Contradiction Point 3

Defense Product Revenue Growth and Pipeline

It involves a contradiction in the explanation for the growth in defense product revenue and the status of the pipeline, which are both crucial for investor expectations regarding future financial performance.

When will new orders be needed to offset the potential gap from HELSI-2 completion? - James Ricchiuti (Needham & Co.)

2025Q3: The hole from HELSI-2 is already filled with new programs booked. Timing of bookings will determine sequential growth in 2026. - Joseph Corso(CFO)

What are your 2026 growth expectations for Aerospace & Defense? - James Andrew Ricchiuti (Needham & Company)

2025Q2: It's still early to discuss 2026 specifics, but we remain confident in upside from 2025. The pipeline continues to grow, and backlog remains strong. - Joseph Corso(CFO)

Contradiction Point 4

Impact of Tariffs on A&D Business

It highlights the differing perspectives on how tariffs are affecting the A&D business, which could influence strategic decision-making and financial forecasting.

What drove the increase in A&D product revenue this quarter? - Sahej Singh(Stifel, Nicolaus & Co.)

2025Q3: Our A&D product revenue grew 186%. Revenue benefited from the HELSI-2 program, as well as increased sales in our amplifiers and laser sensing products. - Joseph Corso(CFO)

What is the tariff-related risk for A&D, and does the impact on input costs in China for the industrial fiber laser business affect everything? - Greg Palm(Craig-Hallum)

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

Contradiction Point 5

Microfabrication Market Stability

It involves differing views on the stability of the microfabrication market, which can impact revenue projections and strategic planning.

What is driving stabilization in microfabrication? - James Ricchiuti(Needham & Co.)

2025Q3: Microfabrication has stabilized, with expectations of continued declines for 2026. It's difficult to predict due to various customer factors. - Joseph Corso(CFO)

Did your full-year commercial market outlook change compared to the previous quarter's expectations? - Ruben Roy(Stifel)

2025Q1: In the commercial side, we did see declines. The declines were a bit more pronounced in the industrial business, which is normal. The microfabrication business was definitely softer as well. - Joseph Corso(CFO)