nLIGHT, Inc. Aktie

Thank you for joining us, and welcome to the nLIGHT, Inc. First Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to John Marchetti, Vice President of Corporate Development and Head of Investor Relations. John, please go ahead.

Good afternoon, everyone. Thank you for joining us today to discuss nLIGHT's first quarter 2026 Earnings Results. I'm John Marchetti, nLIGHT's VP of Corporate Development and the Head of Investor Relations. With me on the call today are Scott Keeney, nLIGHTs Chairman and CEO; and Joe Corso, nLIGHT's CFO.

Today's discussion will contain forward-looking statements, including financial projections and plans for our business, some 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, and we undertake no obligation to update publicly any forward-looking statement, except as required by law.

During the call, we will be discussing certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and in our earnings presentation, both of which can be found on the Investor Relations section of our website.

I will now turn the call over to nLIGHT's Chairman and CEO, Scott Keeney.

Thank you, John. Q1 represented an exceptional quarter for nLIGHT with total revenue, gross margin and adjusted EBITDA comfortably beating our expectations. First quarter revenue of $80 million grew 55% year-over-year and was driven by aerospace and defense revenue of $55 million, which grew 69% year-over-year.

I'm particularly pleased with the continued expansion of our products gross margin and record adjusted EBITDA in the quarter. Product gross margins were a record 44%, an increase from 33% in the same quarter a year ago. And our adjusted EBITDA was a record $14 million in the quarter. The expansion in our gross margins and the record adjusted EBITDA demonstrate the leverage that is inherent in our model and reinforces our commitment to growing the business profitably.

I would like to focus my prepared remarks today on important developments within our Directed Energy market, which continues to be the most strategic and highest growth opportunity for nLIGHT. Directed Energy remains a key priority for the U.S. and allied governments, driven by the need for highly scalable, low-cost per shot solutions to counter a rapidly evolving threat environment. Our focus remains on supporting customers across a broad range of power levels and mission profiles, and we are increasingly engaged not only as a laser supplier, but also as a system-level partner.

Importantly, we are seeing growing customer demand for solutions that emphasize the three keys to success in Directed Energy. Power scaling, high brightness and atmospheric correction, areas where we believe our 2-decade investment in laser technology provides a meaningful competitive advantage and where we have consistently delivered for our customers. And today, we officially launched our HADES portfolio of scalable beam combined high-energy lasers and effectors with integrated atmospheric correction.

Production-ready HADES is designed around nLIGHT's vertically integrated laser technology stack, encompassing semiconductor laser diodes, fiber amplifiers, beam combination and atmospheric correction. The platform architecture enables system growth to hundreds of kilowatts while maintaining pristine beam quality through advanced atmosphere correction, providing defense customers with a common modular foundation that scales from near-term operational deployments to higher power systems capable of addressing increasingly sophisticated and demanding threats. Each system can be integrated with existing beam directors, sensors and battle management architectures, enabling rapid deployment across a broad range of military platforms and battlefield environments.

One example of this power scaling is the work we are doing on the production of the 1-megawatt CBC high energy laser as part of HELSI-2. We remain on track with this program. And importantly, this laser is based on the same architecture that we use across all our HADES portfolio of CBC lasers, demonstrating the scalability of the platform to deliver solutions that address a wide range of mission scenarios, from counter UAS through counter cruise missile and more.

We also continue to make progress on the U.S. Navy's HELCAP program, where we're combining the 300-kilowatt CBC laser that we delivered under the HELSI-1 program with an nLIGHT advanced beam control system that incorporates our proprietary adaptive optics for atmospheric correction. This work will help accelerate the development and deployment of future multi-hundred kilowatt systems over the coming years.

Looking ahead, we remain encouraged by the pipeline of directed energy opportunities, including follow-on production content, upgrades to existing platforms and new prototype programs that should position us for continued growth over the next several years. Importantly, we have seen the U.S. government follow up on these program successes with increases to budgets associated with Directed Energy. There's currently nearly $400 million in each of the 2027 and 2028 budgeted for Directed Energy prototypes and procurement.

The overall annual budget for Directed Energy laser weapons increases to approximately $1 billion in each of the 2 fiscal years with the inclusion of high-power multi-hundred kilowatt direct energy prototypes that are expected to be funded through the science and technology portion of the budget. We continue to believe that our differentiated CBC high-power laser technology, combined with our advanced atmospheric correction capabilities and our U.S.-based manufacturing positions us favorably to win meaningful new awards in the coming months and years.

The growing pipeline of opportunities in our Directed Energy markets was a primary driver behind our decision to raise additional capital through a follow-on equity offering during the quarter. We raised over $190 million after fees and expenses, which combined with our existing cash leaves us with approximately $330 million on our balance sheet. We intend to use a portion of these proceeds to build out and equip our new 50,000 square foot manufacturing facility in Longmont, Colorado, invest ahead of our demand and supply chain and increase staffing to help accelerate new directed energy product development.

In summary, our strategy remains consistent. Leverage our vertically integrated technology platform, execute with discipline on existing programs and invest to accelerate and support long-term growth and value creation. We believe this approach positions nLIGHT well not only for the remainder of 2026, but for the multiyear opportunities ahead.

Let me now turn the call over to Joe to discuss our first quarter financial results.

Thank you, Scott. We had a very strong first quarter. We delivered our fifth consecutive quarter of product revenue growth and exceptional operational execution enabled us to generate record products gross margins in the quarter. Continued operating expense discipline enabled much of the incremental gross margin to fall through to adjusted EBITDA, which is also a quarterly record. At the same time, our continued focus on working capital management and targeted CapEx enabled us to generate positive operating cash flow for the third consecutive quarter. We significantly strengthened our balance sheet through a well-received equity offering in February, and we remain on healthy financial footing to pursue the growth opportunities we have in front of us.

Turning to the numbers. Total revenue in the first quarter was $80.2 million, an increase of 55% compared to $51.7 million in the first quarter of 2025, and down 1% compared to the fourth quarter of 2025. Aerospace and Defense revenue was $51.1 million in the quarter, up 69% year-over-year. A&D growth was driven by record A&D products revenue, which grew 98% year-over-year and 10% sequentially.

Development revenue of $22 million, grew 38% year-over-year as we continue to execute on multiple Directed Energy and laser sensing programs. The quarter-over-quarter decline of 16% was primarily due to the successful delivery of our 50-kilowatt DE M-SHORAD high-energy laser effector in the fourth quarter of 2025, partially offset by continued increases associated with our work on HELSI-2.

First quarter revenue from our commercial markets, which include industrial and microfabrication was ahead of our expectations at $25 million, an increase of 32% year-over-year. Revenue from our microfabrication markets was slightly better than our expectations at $13 million. Revenue of $12 million from our industrial markets benefited from increased demand for additive manufacturing products and an increase in sales associated with last time buys for our cutting and welding products. As we announced last quarter, we are exiting our legacy cutting and welding markets, and we do not expect to generate material revenue from these markets after the second quarter.

Total gross margin in the first quarter was 33.1% compared to 26.7% in the first quarter of 2025, and 30.7% last quarter. On a non-GAAP basis, excluding the costs associated with stock-based compensation, total gross margin in the first quarter was 34.4%, up from 27.8% in the same period last year and 31.6% last quarter. Products gross margin in the first quarter was a record 43.6%, compared to 33.5% in the first quarter of 2025 and 37.3% last quarter. First quarter products gross margin was positively impacted by favorable customer and product mix driven by record product revenue from our A&D markets and an overall increase in volume.

Non-GAAP product gross margin in the first quarter was 44.6%, compared to 35.1% in the first quarter of 2025 and 38.6% last quarter. Development gross margin was 5.1%, compared to 11.5% in the same quarter a year ago and 16.8% last quarter. The variability in development gross margin is primarily the result of contract mix and the timing of program deliverables in any given quarter. Non-GAAP development gross margin in the quarter was 7.2% compared to 11.5% in the same period a year ago, and 16.8% last quarter.

GAAP operating expenses were $27.2 million in the first quarter, compared to $23.4 million in the first quarter of 2025 and $30.4 million in the prior quarter. The year-over-year increase in GAAP operating expenses is primarily due to higher stock-based compensation. Non-GAAP operating expenses were $17.1 million in the quarter, down from $17.8 million in the first quarter of 2025, and down from $18.4 million last quarter. We expect non-GAAP OpEx to remain in the $17 million to $19 million range for the balance of the year.

The company achieved positive GAAP net income in the first quarter of $645,000, or $0.01 per diluted share, compared to a net loss of $8.1 million, or $0.16 per share in the same quarter a year ago, and a loss of $4.9 million or $0.10 per share in the fourth quarter of 2025. On a non-GAAP basis, net income for the first quarter was $11.8 million or $0.20 per diluted share, compared to a non-GAAP net loss of $1.9 million or $0.04 per share in the first quarter of 2025, and a non-GAAP net income of $7.8 million or $0.14 per diluted share last quarter. Adjusted EBITDA for the first quarter was a record $13.9 million compared to $116,000 in the same quarter last year, and $10.7 million in the fourth quarter of 2025.

We ended the first quarter with total cash, cash equivalents, restricted cash and investments of $332.9 million, which includes approximately $191 million of net proceeds from our February follow-on offering. While revenue growth remains the primary objective for nLIGHT, we also want to manage working capital so that over time, we can grow profitability and cash flow faster than revenue. In the first quarter, our cash flow conversion days were 97 compared to 125 days during the first quarter of 2025. We generated $9.7 million in cash from operations during the quarter.

Turning to guidance. Based on the information available today, we expect revenue for the second quarter of 2026 to be in the range of $75 million to $81 million. The midpoint of $78 million includes approximately $58 million of product revenue and $20 million of development revenue. We expect sequential growth from our A&D markets in the second quarter. Overall gross margin in the second quarter is expected to be in the range of 29% to 33%, with product gross margin in the range of 37% to 41%, and Development gross margin of approximately 8%. As we've mentioned previously, as a vertically integrated manufacturing business, gross margin is largely dependent on production volumes and absorption of fixed manufacturing costs. Finally, we expect adjusted EBITDA for the second quarter of 2026 to be in the range of $8 million to $12 million.

With that, I will turn the call over to the operator for questions.

[Operator Instructions] Your first question comes from the line of Peter Arment with Baird.

Nice results. Scott, I was wondering if you could maybe give us -- you touched upon the funding environment, and you called out a few things around the directed energy. Just how should we think about kind of the timing of all that and how you're kind of expecting it? I know there's timing around all this can be lumpy, but what's your thoughts on that?

Yes. Thanks for the question. As we noted, the budget provides some insights into the importance of Directed Energy. And the data that we're showing is the President's budget. It will take time to work its way through Congress. But I do think that there is signal there, as we noted. And notably, we're seeing increases, particularly from OSW in the core directed energy from the Principal Director and various programs that are going on there. And I think that we do have insights into the priorities that Emil Michael has put forward that further reinforce this. But as you know, the budget process takes time to work its way through Congress, and we hope to have more insights in the coming quarters there. And certainly, you can read the comments from Secretary Hegseth and others with respect to Direct Energy.

Got it. And just as a quick follow-up. The product there, or the HADES scalable kind of high-energy lasers family that you launched, I guess, today and probably -- can you talk a little bit about just kind of the positioning there versus kind of some of your other products, just how you're thinking of that?

Yes. Thanks for asking that. It's something that we've been working on and very excited about this product family. It's our platform for scaling to higher power. And so we're starting with greater than 50-kilowatt class, but it will continue to scale, and that's one of the key benefits to coherent beam combining. It also provides for a brighter beam, a beam, laser beam that can be focused more effectively. And then finally, it provides for the ability to correct for the atmosphere.

So all 3 of those features, we believe, are very important. And it also is in a form factor that is smaller than other products and one that we're -- we have integrated into the Stryker as we've talked about and can be integrated in other platforms. So it's an exciting announcement, and we will be making further announcements as we continue to migrate that product family.

Your next question comes from the line of Louie DiPalma with Blair.

As a follow-up to the question on HADES, can the HADES platform be integrated into aircraft as there was a defense contractor in Israel that recently discussed the incorporation of high-energy lasers into aircraft and helicopters? And it would seem to be a large addressable market. So you mentioned how HADES can be incorporated into the Stryker and other platforms. So I was wondering if you could provide some potential color on those other platforms. Scott?

Yes, absolutely. The platforms that we've talked about in more detail are the Army, the Stryker. And by the way, that's just one platform. What would ultimately be the right platform is to be determined, but I think it's a challenging platform to integrate. It's a very small space. Certainly, the Navy has a number of opportunities for integration. And so the small size of HADES is important for those.

But as you noted, it becomes even more important as you look at airborne applications. And one of the topics that we talked a bit about is our leadership with respect to swap, size, weight and power. And so we have leading performance in that area, and that makes it -- makes us well -- it provides a very good foundation for airborne platforms also. Obviously, you'd engineer the product to be different in those platforms, but we do have leadership with respect to SWaP also.

And there also -- there seems to have been progress with the Army, the 30-kilowatt enduring high energy laser program. Is there the opportunity for you to serve as a supplier for that program, or other programs that are like below the 70 kilowatt threshold that you've established with HADES?

And related to this, how do you view like competition, if there is competition between like the 70-kilowatt and above class versus the class of lasers below 70-kilowatts?

I think that's a very good question. And the short answer is, yes, we are excited about the work that we're doing with partners in the lower power space like the 30-kilowatt where we provide key components that go into that. And it is indeed different from HADES. It doesn't require the same level of sophistication with respect to the coherently combined sources for higher power. So we are partnered with others to provide those components at the lower power level.

And as the requirements go up to higher power, that's where HADES comes in. And I think we're uniquely positioned there to provide not only the higher power, but also the higher beam quality and the atmospheric correction for those threats that require a more sophisticated laser source.

Your next question comes from the line of Jonathan Siegmann with Stifel.

The sales margins were fantastic. It sounds like within products, both sensing and Directed Energy were increasing. Just hoping you could give a sense on kind of which horse was leading the pack in the quarter? And then thinking about how margins demonstrated 500 basis points of upside relative to your own high end of your guidance range for products. Should we think of that as just being the operating leverage of the higher sales? Or how much was it that maybe mix contributing?

Yes. Great. Thanks for the question, John. We had a good quarter across the board. All of our products fared well during the quarter from Directed Energy to laser sensing, even if you look at the end markets, our industrial and microfabrication markets performed well. As you think about the upside relative to the guidance, about half of it was just volume related, just leveraging overhead and selling more through the factory and keeping the factory more occupied. And then the other half was a combination of slightly higher margin. There can be a pretty big mix within any given quarter. And so this quarter, we saw very nice mix as we continue to control the cost. So I think, again, it was a good quarter that we were firing on all cylinders.

And maybe I'll slip one on HADES too, which has to be one of the best franchise names in defense right now. But you've talked a lot about how coherent is differentiated and scalable for high. But you introduced the 30 and the 10-kilowatt systems and talked about having proprietary beam quality that wouldn't be coherent. So maybe can you talk a little bit about what's differentiated in that class power and what is your company's right to win in those areas?

Good, Jonathan, thanks for the question. Yes, just to replay, there's only two ways to combine lasers to preserve a very bright coherent laser source, spectral beam combining and coherent beam combining. We have a very strong position that as you go up in power coherent beam combining is the best way to scale to higher power to provide a brighter source and to also then more effectively allow for atmosphere correction.

For lower power, we do provide spectral beam combined sources. And again, we work with other partners to provide components and combined laser sources there, but we don't integrate it into the full what is known as typically the effector with the beam director in that space. So we have, again, as I mentioned, leading swap, size, weight and power. We have high reliability. We have lasers that are serviceable. There's a whole host of differentiation that we have that's a result of 25 years of building lasers for a broad range of industrial and defense applications that allows us to serve that market well. But we don't integrate as far forward in that -- in the lower power space. Does that help, Jonathan, answer your question?

Your next question comes from the line of Greg Palm with Craig-Hallum.

Going back to segment results, what drove -- I think most of the upside was actually in the industrial segment. So can you just maybe talk about what surprised you? I think Joe, you talked about some last time buys, presumably. Maybe that continues into Q2. But what are we now expecting for the full year whole relative to that $25 million to $30 million number you gave last quarter?

Yes. Thanks, Greg. The industrial -- upside in Industrial was a little bit better than we expected around producing revenue and taking orders for last time buys in our cutting and welding business. But the brighter upside spot really was additive manufacturing. We had a nice quarter in additive manufacturing, and we're seeing that business continue to show better growth than we had anticipated going into the quarter and into the balance of the year.

As you know, it's difficult to predict. We don't guide for a full year basis because we don't have the amount of visibility that we do in the defense business. But I think relative to what we said during our last earnings call, things have gotten better. And so we're starting to chip away at that hole that we talked about, but there's still a lot of work that we need to do as we go through the year to really close that.

Yes. Okay. And then Scott, going back to some of the budget items, and I want to go back to some of the comments on the last call as well, talking about a number of new prototypes that you're going after different power levels. Can you give us maybe an update on -- I know timing is tough, but when would you expect, or when should we hear to expect more on some of those programs that you alluded to last quarter?

Well, I'd like to predict how Congress will work this year, but I've got enough experience to know that there are error bars around that. The budget numbers that we provided were the President's budget request, and that will work its way through the appropriations process in the coming quarters. We should have more insights this fall, but those -- that can be delayed.

I think more specifically, there are opportunities for specific programs in the current budget that we certainly will announce when we're able to do so. The higher-level budgets, though, it will take time for that process to work itself out.

Okay. But just to be clear, the prototypes that you alluded to last quarter, was that not current fiscal year budget? Or was that for '27?

That was for '27. That was -- yes.

[Operator Instructions] Your next question comes from the line of Troy Jensen with Cantor Fitzgerald.

Congrats on the stellar numbers here. Maybe just, I guess, a question for anyone. Just curious if there's any capacity constraints. And what I'm getting to is $81 million in revenues in December, $80 million in March. The high end of guide here is $81 million for June. What needs to happen for you guys to break through that level?

Short answer, Troy, is we are not capacity constrained today. We've really done a great job of improving both the capacity on the lasers that we're building, as well as the efficiency with which we are building those lasers. We've talked about what we were adding in long months. So today, capacity really is not an issue. What we need to continue to break through that $80 million threshold is demand signals from our customers, U.S. government, et cetera, which we're starting to get. But we've got no concerns at all today on capacity.

The new lands will be easily fulfill as they come in. Okay. And just, Joe, for you too, just on the gross margin guidance. I mean you guys kind of started the conference call here with highlighting 44% product gross margins, and it just seems like it should stay around this level. But what's really going to get it down to kind of the lower end of those kind of the guidance range? Or do you think it starts to creep higher here?

Yes. I think there's -- the primary factor of our margin is really volume, both the volume that we are putting through the factory and what we are selling through to the customer in any given quarter. And then beyond that, it's really just the mix of the products as we go through the quarter, right?

On average, as we've gotten out of China as we've narrowed our focus, particularly with the last time buys with customers in cutting and welding. The overall product margins, or the BOM margins on the products that we are selling, are becoming less variable, but there is still some variability as we go quarter-to-quarter. And so that will also have an impact. But again, we're not talking about huge numbers here, Troy. So the margins can swing a couple of hundred basis points, and there's really not all that much to read into it. But we're happy that we've been able to get to a point today where we've consistently at 40% or above product gross margins.

Great. Okay. Just the last one here for Scott. If I remember correctly, I think the delivery date for the 1-megawatt laser was sometime in '26. So just correct me if I'm wrong. And what was the highest power you guys have shown to date and just kind of thoughts on that?

Yes, good. Yes. So that's -- thanks, Troy. It's referring to the HELSI-2 program that is targeting megawatt class laser. And HELSI-1, we exceeded over 300 kilowatts in that program that led to the award for HELSI-2. And we're tracking to that program. However, it's not a delivery of a product. It's a demonstration of that technology. And as soon as we're able to provide more insights into that, we'll certainly do so. I am comfortable saying that we're on track. And there's progress. We're learning a lot from what it takes to scale to much higher power levels and things are on track and going well.

There are no further questions at this time. I will now turn the call back to John Marchetti for closing remarks.

Thanks, everyone, for joining us this afternoon and for your continued interest in nLIGHT. We will be participating in several investor conferences over the next several weeks. We look forward to speaking with you during those events and throughout the remainder of the quarter. Have a great afternoon.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the nLIGHT Inc. Fourth Quarter and Year-End 2025 Earnings Call. [Operator Instructions]

I will now hand the call over to John Marchetti, Vice President of Corporate Development and Head of Investor Relations. Please go ahead.

Good afternoon, everyone. Thank you for joining us today to discuss nLIGHT's Fourth Quarter and Full Year 2025 Financial Results. I'm John Marchetti, nLIGHT's VP of Corporate Development and the Head of Investor Relations. With me on the call today are Scott Keeney, nLIGHT's Chairman and CEO; and Joe Corso, nLIGHT's CFO.

Today's discussion will contain forward-looking statements, including financial projections and plans for our business, some 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, and we undertake no obligation to update publicly any forward-looking statement, except as required by law.

During the call, we will be discussing certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and in our earnings presentation, both of which can be found on the Investor Relations section of our website.

I will now turn the call over to nLIGHT's Chairman and CEO, Scott Keeney.

Thank you, John. 2025 was an exceptional year for nLIGHT with strong growth driven by continued outperformance in our A&D markets, which had a record fourth quarter. Our accelerated revenue growth also drove significant year-over-year improvements in our gross margins, adjusted EBITDA and cash flow, demonstrating the leverage that is inherent in our model.

Revenues for the full year of 2025 were $261 million, up 32% year-over-year. Record A&D revenue of $175 million grew 60% year-over-year as we successfully executed against a number of existing programs, ramped the production of our new fiber amplifiers and secured new contract awards that provide us with visibility into continued growth in A&D. Importantly, we believe a number of new prototypes will be awarded in directed energy over the coming months across different power levels and configurations that will position us for meaningful growth in our A&D markets over the next several years.

In aerospace and defense, we are focused on 2 key markets: directed energy and laser sensing, and both markets experienced accelerated growth in 2025. In directed energy, we are uniquely positioned with our vertically integrated and industry-leading high-power laser technology developed over the past 2 decades and spanning the entire technology stack from chips to components to high-energy beam combined lasers to full laser weapon modules that include beam directors and atmospheric correction.

We have generated revenue at nearly every level of vertical integration in the directed energy market, and we have established ourselves as one of the most comprehensive suppliers of the U.S. government, other prime contractors and foreign allies. During 2025, we had several key successes in the directed energy market. Throughout the year, we continue to make solid progress on our HELSI-2 program. As a reminder, this is a $171 million program to develop a 1-megawatt high-energy laser with an expected completion date in late 2026. The shipment of critical components towards the HELSI-2 program was a significant driver of our record defense product revenue in the year and is expected to be a substantial contributor in 2026.

In the fourth quarter, we substantially completed our work for the Army's DE M-SHORAD defense program, which was to deliver a 50-kilowatt CBC high-energy laser and beam director for integration into a Stryker vehicle. We are pleased to report that we successfully delivered our laser weapon module to our partner for integration and test. The successful delivery of this laser weapons module was an important milestone for our company, and we believe there is significant interest from the Department of War and the U.S. military in developing these meeting power solutions in the coming years. Interest in U.S. directed energy programs is increasing, particularly for counter-UAS applications, and we expect new contracts to be awarded in the coming quarters from different agencies and as part of the President's Golden Dome Executive order, which specifically highlights non-kinetic missile defense capabilities as an area for development.

With a mandate to build these systems in the United States, we believe we are well positioned to benefit from these efforts over the coming years. And we are hopeful that in the coming quarters, we will be able to provide additional details on the scope and timing of these initiatives.

We also continue to have success in the international markets for directed energy. We began shipping to several new international customers during 2025, and we have a growing pipeline of new global opportunities as allies look to accelerate direct energy programs for cost-effective counter-UAS and other threats. Our laser sensing markets also performed well in 2025. Our laser sensing products include missile guidance, proximity detection, range finding and countermeasures, and have been incorporated into several significant and long-running defense programs, which we believe will continue to grow well into the future.

During the third quarter of 2025, we signed a new $50 million contract for an existing long-running missile program that incorporates one of our laser sensing products. nLIGHT has been a long-term supplier into this program with missile guidance, proximity detection, range finding and countermeasures and have been incorporated to several significant and long-running defense programs, which we believe will continue to grow well into the future. During the third quarter of 2025, we signed a new $50 million contract for an existing long-running missile program that incorporates one of our laser sensing products. nLIGHT has been a long-term supplier into this program, which our customer expects to remain a key priority associated with the nation's munitions restocking efforts. And in the fourth quarter, we began the initial stages of low-rate initial production on a new classified sensing program.

Our historical performance on these programs and early success on multiple classified programs has increased both the number of prospects and the size of our sensing pipeline. In addition, further opportunities under the Golden Dome initiative have emerged and could also become significant contributors to our growth in the future. The growing pipeline opportunities in both our directed energy and laser sensing markets was a primary driver behind our decision to raise additional capital through a follow-on equity offering earlier this month. We raised over $190 million after expenses, which combined with our existing cash, leaves us more than $0.25 billion on our balance sheet. We intend to use a portion of these proceeds to build out and equip our new 50,000 square foot manufacturing facility in Longmont, Colorado and to invest ahead of our demand in our supply chain and staffing to begin work on accelerating new product development.

Our commercial markets performed in line with our expectations in 2025, with increases in microfabrication and advanced manufacturing revenue, offset by continued declines in our cutting and welding markets. Given the continued structural weakness in these industrial markets, during the fourth quarter, we made the decision to exit cutting and welding. This decision, while challenging, is a continuation of our resource alignment efforts as we focus on accelerating growth in our A&D markets. With industrial, we will continue to focus on opportunities in advanced manufacturing, specifically metal 3D printing, where we have been encouraged by the early growth and adoption of our products among customers that are aligned with our A&D focus and where our technology is most differentiated.

As I look forward to 2026, I am confident that our growth will continue and that we are well positioned for new contract wins in our key markets of directed energy, laser sensing and advanced manufacturing.

Let me now turn the call over to Joe to discuss our financial results in more detail.

Thank you, Scott. 2025 was a year of exceptional financial and operational execution for nLIGHT. We delivered revenue growth of more than 30% year-over-year, driven by a 60% increase in revenue from A&D. Strong revenue growth, a favorable mix of business and excellent execution from our manufacturing and operations team drove meaningful expansion to our gross margins, which increased to approximately 30% in 2025, up from 17% in 2024.

At the same time, we managed to reduce our non-GAAP operating expenses, which enabled our incremental gross margins to flow through to adjusted EBITDA, which was a record $23.5 million for 2025. Significantly improved adjusted EBITDA, coupled with working capital discipline resulted in cash flow from operations of more than $21 million for the full year. Our full year results demonstrate the leverage that is inherent in our business model.

Let me now review our fourth quarter results. Total revenue in the fourth quarter was a record $81.2 million, an increase of 71% compared to $47.4 million in the fourth quarter of 2024 and up 22% compared to the third quarter of 2025. Aerospace and defense revenue was a record $56.3 million in the quarter, up 87% year-over-year and 24% sequentially. A&D growth was driven by product revenue of $30.2 million, which grew 109% year-over-year and 14% compared to last quarter. Development revenue of $26.1 million represents an increase of 66% year-over-year as we continue to execute on multiple directed energy programs. The quarter-over-quarter increase in development revenue of 36% was primarily the result of the successful delivery of our 50-kilowatt CBC laser to our partner and support the DE M-SHORAD program. We expect development revenue to decline sequentially in the first quarter of 2026 given the successful delivery of our 50-kilowatt laser weapons module.

Fourth quarter revenue from our commercial markets, which includes our industrial and microfabrication markets, was $24.9 million, an increase of 44% year-over-year and 17% compared to last quarter. Revenue from our microfabrication markets was $14.2 million, and revenue from our industrial markets was $10.7 million as an increase in demand for our additive manufacturing products offset continued declines in cutting and welding. As Scott mentioned, during the fourth quarter, we made the decision to exit the cutting and welding markets. We have informed our key customers of this decision, and we are working through last time buys and other wind-down actions. We expect modest revenue contribution from cutting and welding to continue in the first half of 2026, but we expect a full year revenue headwind of approximately $25 million to $30 million associated with this decision. Further, we expect to continue to support our existing customers and are transitioning internal resources that have been focused on cutting and welding to support our A&D and advanced manufacturing effort.

Working our way down the P&L, total gross margin in the fourth quarter was 30.7% compared to 2.4% in the fourth quarter of 2024 and 31.1% last quarter. Product gross margin in the fourth quarter was in line with our expectations at 37.3% compared to 0.7% in the fourth quarter of 2024 and 41% last quarter. The sequential quarterly decline in products gross margin was driven primarily by slightly less favorable mix, lower factory utilization and higher inventory charges related to the exit of the cutting and welding markets. Development gross margin was ahead of expectations at 16.8% compared to 5.8% in the same quarter a year ago and 6.4% last quarter. The sequential increase in development gross margin was largely the result of the successful delivery of the DE M-SHORAD high energy laser and continued execution in other ongoing programs.

GAAP operating expenses were $30.4 million in the fourth quarter compared to $27.6 million in the fourth quarter of 2024 and $28.1 million in the third quarter of 2025. Included in our fourth quarter GAAP operating expenses were higher stock-based compensation expenses associated with the previously announced performance shares and a restructuring charge of approximately $615,000 associated with our decision to exit cutting and welding. Non-GAAP operating expenses were $18.4 million in the quarter, up from $17.7 million in the fourth quarter of 2024 and up from $17.5 million last quarter. We expect quarterly non-GAAP OpEx to remain in the $17 million to $19 million range throughout 2026. GAAP net loss for the fourth quarter was $4.9 million or $0.10 per share compared to a net loss of $25 million or $0.51 per share in the same quarter a year ago and a loss of $6.9 million or $0.14 per share in the third quarter of 2025.

On a non-GAAP basis, net income from the fourth quarter was a positive $7.8 million or $0.14 per diluted share compared to a non-GAAP net loss of $14.5 million or $0.30 per share in the fourth quarter of 2024 and non-GAAP net income of $4.3 million or $0.08 per diluted share last quarter. Adjusted EBITDA for the fourth quarter was a positive $10.7 million compared to a loss of $11.3 million in the same quarter last year and a positive $7.1 million in the third quarter of 2025. We ended 2025 with total cash, cash equivalents, restricted cash and investments of $134 million, up from $101 million at the end of 2024 and $116 million last quarter. We generated $17.4 million in cash from operations in the fourth quarter of 2025 despite continuing to invest in working capital ahead of expected growth, and we were free cash flow positive in the quarter.

With the recently completed follow-on equity offering, our balance sheet boasts more than $0.25 billion of cash, enabling us to accelerate our investments in our own manufacturing capabilities and capacity while working with our supply chain partners to provide them with increased long-term visibility to support our growing demand pipeline.

Before discussing Q1 guidance, I'd like to reiterate that nLIGHT is planning for total revenue growth in 2026. Supporting our growth expectations is approximately $162 million of funded backlog as of December 31, 2025, essentially flat compared to funded backlog of $167 million at the end of 2024. Although execution challenges remained given the highly technical nature of our defense work and we can't control the specific timing of government programs, we are exceptionally well aligned with many of the DOW's highest priority areas. Based on the information available today, we expect revenue for the first quarter of 2026 to be in the range of $70 million to $76 million. The midpoint of $73 million includes approximately $54 million of product revenue and $19 million of development revenue.

Overall gross margin in the first quarter is expected to be in the range of 27% to 32%, with product gross margins in the range of 34% to 39% and development gross margin of approximately 8%. As we've mentioned previously, as a vertically integrated manufacturing business, gross margin is largely dependent on production volumes and absorption of fixed manufacturing costs. Finally, we expect adjusted EBITDA for the first quarter of 2026 to be in the range of $5 million to $10 million.

Let me now turn the call over to the operator for questions.

[Operator Instructions] Your first question comes from the line of Jonathan Siegmann with Stifel.

Congratulations on the strong end of the year. And you mentioned expecting orders in the next few months just on the directed energy side. Can you give a sense of whether this would be more development for new programs, continuing of your existing development programs? Or how soon are we to actual some production orders?

John, it's actually all of the above. There are certainly examples of continuation. There's examples of new programs that certainly build on things we've done. And there are orders for the low rate production program. So really all 3.

Fantastic. And then maybe on the sensing side, you highlighted both opportunities on new programs as well as existing missile programs and the demand signals are really, really exceptional across both. Can you just -- which is greater for the company in terms of near-term prospects for you guys?

Yes. We see both. Maybe, Joe, you want to take the near term, specifically?

Yes. Near term, the existing laser sensing programs that we're working on are in full rate production, John. So those will tend to drive more revenue in the near term. As we think about the new programs that we're working on, as they move into LRIP, they will start to contribute more and then over the next year or 2 will be a much larger proportion of our overall sensing business. But to Scott's point, both are actually growing quite nicely right now.

Your next question comes from Greg Palm with Craig-Hallum.

Congrats on another really successful year here. I wanted to start with the decision to exit cutting and welding. I guess, why now? You sort of position that business as maybe melting ice cube, but revenue with a positive contribution margin. So why exit now? And as we think about sort of the longer-term P&L impacts from a margin standpoint, what should we be expecting?

Yes. Thanks, Greg. It's a good question. And yes, we've been talking about the challenges in the broader industrial market due to the excess capacity evolution, et cetera, those themes. I think the short answer to your question is focus. I'll let Joe comment on the particulars of the near-term financials, but the opportunities that we're addressing in directed energy, in sensing and in the advanced manufacturing, notably additive manufacturing, are very large. And we have an outstanding team that we've built over the years, and we are transitioning people to focus on those core growth opportunities as opposed to some legacy opportunities that have -- that are far less attractive. So the short answer is focus.

Now in terms of the near-term financials, I'll let Joe comment a little further on that.

Yes. Thanks, Greg. Reality is that we are going to transition most of overhead that was allocated or being used by the cutting and welding business to the defense business. We have lots of talented engineers and other professionals inside of the company that are being repurposed from cutting and welding into defense. So in the near term, might there be a little bit of margin headwind as we're going to lose some revenue with positive incremental margin. Yes, but really not all that much. So we don't expect it to have a material impact on the way that we're thinking about margin and cash flow going forward.

Okay. Understood. And in terms of the revenue headwind, can you just maybe unpack that a little bit more? I think you said a $25 million to $30 million headwind. So I just want to be clear, that's on an absolute basis year-over-year specific to industrial? And do you see that starting this quarter to be impacted in a pretty sizable way? Or does that start more like in Q2 and then it basically is full run rate headwind in the second half?

Yes. Thanks, Greg. It's not totally digital. But if you think about the industrial end market in full year 2025, a good way to think about the modeling is just take $25 million off of that as a starting point for where we would be in industrial as we're moving into 2026. There will certainly be some contribution over -- the revenue contribution over the first 2 quarters and potentially a little bit into the third. But by the time we're in the second half of the year, those revenue streams are effectively at 0.

And then the other side of it, what we are still focused on is the advanced manufacturing and metal 3D printing side of the business. And so there's opportunities for us to continue to grow there. And so as we said in the prepared remarks that we think that even with that headwind, our overall revenue as we think about full year 2025 and then 2026 can grow, right? We're still confident in the ability to grow the total revenue.

Okay. And I think by that math, it still implies that you can have double-digit plus growth in the aerospace and defense segment, if you're still expecting to grow overall, maybe you can confirm that. But a bigger question is, is that based on your current backlog? And does some of these new contracts and awards, Scott, that you alluded to, do you need to win some or any of those and have those contribute to revenue to get to that growth number?

Greg, so the short answer is, I think to the first part of your question is yes. The A&D business certainly can grow double digits in 2026. I think the second part of your question was, is that all in backlog today? The answer to that question is yes as well. And then I think when you talk about overall growth in 2026, certainly, we do need to convert some of what we are working on, some of what Scott talked about earlier, we need to convert that into funded backlog and drive revenue from that as well.

Yes, Greg, this is John. I just -- one of the things that we've been talking about for the last couple of quarters, too, is we are -- and Scott mentioned this in his prepared remarks, we are expecting some fairly meaningful new awards in 2026. That's not really reflected in what we're talking about here in terms of being able to grow in 2026. If those new prototypes that we're expecting come through in the first half of the year, then those will contribute above and beyond kind of what we're talking about right now. If those come in a little bit later in the year, then it sets us up, obviously, for a very good '27. So a lot of the timing around those contracts is ultimately going to determine how much we grow this year. But at the end of the day, we are expecting that 2026 is a growth year.

Your next question comes from Jim Ricchiuti with Needham & Company.

I just wanted to follow up on the last line of questioning. You guys had a reasonably decent year in microfabrication. I'm assuming you probably guess that, that portion of the business would be flat to down because if that's the case, [Technical Difficulty], for a reasonably good growth in the A&D business.

Jim, I'm sorry, you broke up on our end. Can you repeat the question again?

Sure. Joe, I'm sorry. So I wanted to go back to that comment about the growth for 2026. And we can back out the welding and cutting exit, but it also seems to imply. And I want to get some clarification on how you're thinking about the microfabrication business because you had a reasonably decent year there. And I would -- it sounds like just given the tone that could be flat to down, in which case, the aerospace and defense business sounds like it's going to be reasonably strong growth as opposed to just double digit. And I'm just trying to get a little color.

Last year at this time, I think you guys said you thought you'd grow the A&D business 25%. You obviously grew at a lot faster than that, and there were some real drivers that resulted in that. But as we're looking at '26 now and the fact that you're going to -- you anticipate having a growth here, it does seem to suggest that the growth could be along those lines that you indicated last year at this time in A&D. Is that -- am I interpreting it correctly?

Jim, I think your interpretation is spot on. Let me touch on microfabrication first. Microfabrication is the market in which we have the least amount of visibility. But also if you just go back over the recent past, that business tends to be somewhere between $8 million and $12 million a quarter. And so depending on what the order patterns look like, I think we're seeing the same thing as we're heading into 2026. The biggest delta between where we are today in microfab and where we have been in the past is that the contribution from the China geography has gone down precipitously. And so that is really no longer in a meaningful part of the overall revenue.

And so then if you think about whether you believe microfab is flat or microfab is down a little bit, then that will have an implication on how fast the A&D business can grow to keep that overall fiscal '26 revenue positive. What I would tell you the difference between where we are today versus where we were in 2025 is that in 2025, it really was a year of execution, right? We had very little go-get in 2025 to hit that 25% number. And then we outperformed from an execution perspective, and then it enabled us to grow faster than the 25%. As we're here in 2026, looking into 2026, there is still a fair bit of execution, but there is a little bit more go-get. So I wouldn't want to suggest that you should think about us growing even faster as we move through the year. As John just said, there are certainly opportunities depending on timing where we could grow faster. But again, the error bars are fairly wide on that.

That's helpful. I wanted a follow-up question just as it relates to the capacity addition in Longmont, the doubling of manufacturing capacity. Is there a way to translate that to revenue potential? And what's the timing on it? And is that decision geared towards an intermediate-term opportunity? Or is it more a reflection of what you see a few years out in terms of making the decision to expand that facility?

Yes. That is a decision that is really driven by our anticipation that this is a market that is going to be quite strong over the next couple of years. As you know, Jim, there are no production lines to build multiple copies of being combined lasers simultaneously. And so we want to be in a position that we can do that. And so in order to do that, we wanted to be out in front, and we wanted to be able to put that capacity in place in order to do that. That was one of the reasons that we went out and we raised equity earlier this month. And so it's a little bit difficult to give you a specific number to say that capacity directly translates into x dollars of revenue, but it certainly positions us very well to be able to deliver multiple copies of being combined lasers.

And the timing?

Yes. We're starting that work right now. We've signed the lease. We're starting to build clean rooms. We're starting to facilitize it, we're starting to staff it. So we're trying to be out ahead of when that demand actually materializes.

And Jim, just to add a little color there. With the approach that the DOW is pursuing, we have good insights into the key priorities. Those are explicit, right? There's the 6 key priorities, and we're absolutely focused on 3 of those. And then underneath that, there's more detail around specific requirements. That's what we're investing in. And key people from DOW have visited the new site, and we're actively building it out right now. And let's just say it's very well received.

[Operator Instructions] Your next question comes from Keith Housum with Northcoast Research.

Congratulations again on the quarter. I'll echo everybody's thoughts here. Joe, in terms of the cash raise you guys did during the quarter, this might be the first public conference call that we might be able to hear. I guess, what are your thoughts in terms of how you plan on using that? I'm sure some of that will go to your facility build in Colorado, but any other thought or priorities with the extra cash that you guys have now? And it certainly looks like, hopefully, you guys are on a path here to free cash flow generation to continue going forward as well.

Yes, Keith, thanks for the question. I think the first piece is we raise the capital because we want to be in a position to accelerate growth. And having this capital will give us the flexibility to pursue multiple opportunities simultaneously. I think as you kind of unpack that, there's really a couple of more specific use cases. One is as we just talked about on the last question, we want to invest ahead of demand, right? We have a really good pipeline of opportunities in both directed energy and in laser sensing that are growing, and we don't want to sit back and wait for firm contracts to be in hand before we really start to build. We talked about the additional CapEx that we will need to use to build out our facility in Colorado and be in a position to deliver -- develop and deliver multiple copies of high-energy lasers and laser weapon modules.

And another piece of it is supply chain is really critical. And so we need to invest alongside with our supply chain partners, whether that's providing them better visibility into our long-term demand applications or help shorten times for critical inputs that we can reduce the tack time that it takes to deliver these lasers. We want to invest in people. We want to invest in new product development. And then last but not least, is we want the flexibility to be at least opportunistic from an M&A perspective. While there's nothing imminent today, we've been successful with M&A in the past, and we want to be able to use capital for M&A if it makes strategic sense for us.

Great. Appreciate it. And Scott, it's been obviously a banner year for you guys, but I'm sure as CEO, you're never going to rest on your laurels. What's keeping you up at night? Or what concerns you as you look out into 2026 and 2027? Consider may be a strong word, but I guess what could go wrong? What worries you?

Well, internally, my team calls me EOR frequently. So I have no trouble worrying about things. And I think it's an important point. I think, actually, when things are going well, you have to be that more vigilant. And I think arrogance is what kills companies. So yes, we are working harder than we have ever worked to stay on top of execution, to stay on top of what's going on in this market. And as I alluded to in my comments, to Jim, that means you need to be very close to what is going on in the Department of War and all the services and around the world and really making sure that you're responsive to the specific requirements there.

So I think it's those topics that require intense focus, I guess. And yes, there's -- you should be worried about all that stuff and you should sweat details there. So yes, that is -- those are some of the topics. I've never been more encouraged with the position that we have with the opportunities and the technology where it is today. But lasers are hard, right? And implementing these new applications takes a lot of work and the devil is always in the details. So working hard and concerned about a lot of topics there to make sure that we execute.

Your next question comes from Troy Jensen with Cantor Fitzgerald.

Congrats, gentlemen. Maybe a couple of easier questions for Joe here. Have you quantified the CapEx that's needed for this capacity expansion?

No, we haven't quantified it specifically, Troy, but it will be expected to be higher than where we were in fiscal 2025, but we're not talking about needing 2 or 3x the amount that we had in 2025, at least in 2026. Beyond that, if we're spending capital, it's largely because we've had lots of success around the opportunities that we have in both directed energy and laser sensing.

Understood. Okay. And Joe, did you say earlier in the call that you expect OpEx to be between $17 million and $19 million every quarter this year?

Yes, we were just trying to give you a sense for what our non-GAAP OpEx would look like as we move through 2026. So that $17 million to $19 million is a good range from a quarterly perspective. It goes up and down a little bit depending on project spends and things like that. But generally, that's a good range to use.

Okay. And then just the last one, when do you think share count is going to be here for Q1 with the new cap raise?

Yes, Q1 share count probably be in the 55-ish million range from a diluted -- for purposes of diluted EPS is probably a decent number to use.

There are no further questions at this time. I will now turn the call back to John Marchetti for closing remarks.

Thank you, everyone, for joining us this afternoon and for your continued interest in nLIGHT. We will be participating in several investor conferences over the next few weeks, and we look forward to speaking with you during those events and throughout the quarter. Have a great afternoon.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to the nLIGHT, Inc. Third Quarter 2025 Earnings Call. After today's prepared remarks, we'll host a question and answer session.

[Operator Instructions]

I will now hand the conference over to John Marchetti, VP, Corporate Development and Investor Relations. John, please go ahead.

Good afternoon, everyone. Thank you for joining us today to discuss nLIGHT's Third Quarter 2025 Earnings Results.

I'm John Marchetti, nLIGHT's VP of Corporate Development and the Head of Investor Relations. With me on the call today are Scott Keeney, nLIGHT's Chairman and CEO; and Joe Corso, nLIGHT's CFO.

Today's discussion will contain forward-looking statements, including financial projections and plans for our business, some 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, and we undertake no obligation to update publicly any forward-looking statement, except as required by law.

During the call, we will be discussing certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and in our earnings presentation, both of which can be found on the Investor Relations section of our website.

I will now turn the call over to nLIGHT's Chairman and CEO, Scott Keeney.

Thank you, John. Q3 represented another solid quarter of execution for nLIGHT with total revenue at the high end of our guidance range and both gross margin and adjusted EBITDA beating our expectations. Third quarter revenue of $67 million grew 19% year-over-year and were once again driven by record aerospace and defense revenue of $46 million, with defense product sales growing more than 70% year-over-year.

I am particularly pleased with the expansion of our product gross margin, which came in at a record 41% and increased from 29% in the same quarter a year ago.

Our adjusted EBITDA was also above our expectations at more than $7 million in the quarter. The expansion in our gross margin and the subsequent growth in our adjusted EBITDA demonstrate the leverage that is inherent in our operating model.

In Aerospace and Defense, we remain focused on 2 key markets: directed energy and laser sensing. And revenue from both markets outperformed our expectations in the quarter.

In directed energy, we are uniquely positioned with our vertically integrated and industry-leading high-power laser technology, developed over the past 2 decades, and spanning the entire technology stack from chips to components to full laser systems and beam directors. All of which are designed and manufactured in the U.S., have generated revenue at nearly every level of vertical integration in the directed energy market, and we have established ourselves as one of the most comprehensive suppliers to the U.S. government, other prime contractors and foreign allies.

During the third quarter, we continued to make solid progress on our HELSI-2 program. As a reminder, this is a $171 million program to develop a 1-megawatt high-energy laser with a completion date expected in 2026.

The shipment of critical components towards the HELSI-2 program was a significant driver of our record defense product revenue in the quarter and is expected to be a substantial contributor to growth through the remainder of the year and into 2026.

We continue to transition our latest generation of amplifier products into advanced production by leveraging nLIGHT's experienced manufacturing teams and implementing quality and control processes. This transition, while not without risk, is progressing well and is critical as we continue to optimize our amplifier production line for higher volumes. Our work on the Army's DE M-SHORAD, Short-Range Air Defense program is nearing completion, and we look forward to delivering this 50-kilowatt high-energy laser and beam director to our partner.

Once delivery is completed, the system will begin field testing. Overall interest in U.S. directed energy programs remains high, particularly for counter-UAS applications, and we expect new contracts to be awarded in the coming quarters from different agencies as part of the President's Golden Dome executive order, which specifically highlights non-kinetic missile defense capabilities as an area for development.

With a mandate to build these systems in the United States, we believe we are well positioned to benefit from these efforts over the coming years, and we are hopeful that the coming quarters will provide additional details on the scope and timing of these initiatives.

We've also continued to have success in the international markets for directed energy. We began shipping to a new international customer last quarter, and we have a growing pipeline of new global opportunities as allied nations look to accelerate directed energy programs for cost-effective counter-UAS and other threats.

Our laser sensing markets are also performing well. Our laser sensing products include missile guidance, proximity detection, range finding and countermeasures, and we have been incorporating in several significant and long-running defense programs, all of which are poised to grow in 2026.

During the third quarter, we signed a new $50 million contract for an existing long-running missile program that incorporates one of our laser sensing products.

nLIGHT has been a long-term supplier into this program, which our customer expects to remain a key priority associated with the nation's munitions restocking efforts. Our historical performance on these programs and our early success in multiple classified programs has increased both the number of prospects and the size of our sensing pipeline.

In addition, further opportunities under Golden Dome initiatives have emerged and could also become significant contributors to our growth in 2026 and beyond.

Commercial revenue was slightly ahead of our expectations at $21.2 million on a sequential increase in microfabrication sales and relatively flat results in our industrial markets.

We have been pleased with the stability of our microfabrication markets year-to-date and have been encouraged by the growth in our advanced manufacturing products, where we see alignment with our aerospace and defense customers and our technology remains differentiated.

Let me now turn the call over to Joe to discuss our third quarter financial results.

Thank you, Scott. Our third quarter results were characterized by another quarter of strong execution.

Healthy revenue growth, a favorable mix of business and continued execution from our manufacturing and operations teams drove meaningful upside to our gross margin.

That upside, combined with operating expense discipline, resulted in significant improvement to profitability and cash flow, demonstrating the leverage that is inherent in our model.

Total revenue in the third quarter was $66.7 million, an increase of 19%, compared to $56.1 million in the third quarter of 2024 and up 8%, compared to the second quarter of 2025.

Aerospace and defense revenue was a record $45.6 million in the quarter, up 50% year-over-year and 12% sequentially. A&D growth was driven by record aerospace and defense products revenue, which grew 71% year-over-year and 32% compared to last quarter.

Development revenue of $19.1 million grew 28% year-over-year as we continue to execute on multiple directed energy programs. The quarter-over-quarter decline of 8% was the result of several smaller programs having been completed in the prior quarter.

We expect A&D revenue to continue to grow sequentially in the fourth quarter. Third quarter revenue from our commercial markets, which includes industrial and microfabrication, was modestly ahead of our expectations at $21.2 million, a decrease of 18% year-over-year, but up slightly compared to last quarter.

Revenue from our microfabrication markets was in line with our expectations at $11.6 million, while revenue of $9.6 million from our industrial markets was slightly better than expected as an increase in demand for our additive manufacturing products offset continued declines in cutting and welding.

While we are pleased with the overall stability that we saw in our commercial markets in the third quarter, we do not believe that the overall demand picture has significantly changed from what we described in prior quarters. Total gross margin in the third quarter was 31.1% compared to 22.4% in the third quarter of 2024 and 29.9% last quarter. Products gross margin in the second quarter was a record 41%, compared to 28.8% in the third quarter of 2024 and 38.5% last quarter. Third quarter products gross margin was positively impacted by a favorable customer and product mix driven by record revenue from our A&D markets and an overall increase in volume.

Development gross margin was 6.4%, compared to 4.7% in the same quarter a year ago and 13.1% last quarter. The sequential decrease in development gross margin was largely the result of some smaller, higher-margin programs that finished in the prior quarter and did not contribute to the third quarter results.

Going forward, we expect development gross margin to remain in the 8% range. GAAP operating expenses were $28.1 million in the third quarter, compared to $24.4 million in the third quarter of 2024 and $22.7 million in the second quarter of 2025.

Included in our third quarter GAAP operating expenses were higher stock-based compensation expenses associated with previously announced performance shares and a restructuring charge of approximately $1.7 million as we further reduced our activities in China and in cutting and welding.

Non-GAAP operating expenses were $17.5 million in the quarter, down from $18.3 million in the third quarter of 2024 and up from $16.8 million last quarter.

We expect non-GAAP OpEx to remain in the $18 million range in the fourth quarter. GAAP net loss for the third quarter was $6.9 million or $0.14 per share compared to a net loss of $10.3 million or $0.21 per share in the same quarter a year ago and a loss of $3.6 million or $0.07 per share in the second quarter of 2025.

On a non-GAAP basis, net income for the third quarter was $4.3 million or $0.08 per diluted share compared to a non-GAAP net loss of $3.7 million or $0.08 per share in the third quarter of 2024 and non-GAAP net income of $2.9 million or $0.06 per diluted share last quarter.

Adjusted EBITDA for the third quarter was a positive $7.1 million, compared to a loss of approximately $1 million in the same quarter last year and a positive $5.6 million in the second quarter of 2025.

We ended the third quarter with total cash, cash equivalents, restricted cash and investments of $116 million.

We generated $5.2 million in cash flow from operations despite continuing to invest in working capital ahead of growth, and we were free cash flow positive in the quarter.

Turning to guidance. Based on the information available today, we expect revenue for the fourth quarter of 2025 to be in the range of $72 million to $78 million.

The midpoint of $75 million includes approximately $55 million of product revenue and $20 million of development revenue. We expect sequential growth in A&D in the fourth quarter, and we expect full year 2025 A&D revenue growth to exceed our prior outlook for A&D growth of at least 40% year-over-year.

Overall gross margin in the fourth quarter is expected to be in the range of 27% to 32%, with products gross margin in the range of 34% to 39% and development gross margin of approximately 8%.

As we've mentioned previously, as a vertically integrated manufacturing business, gross margin is largely dependent on production volumes and absorption of fixed manufacturing costs.

Finally, we expect adjusted EBITDA for the fourth quarter of 2025 to be in the range of $6 million to $11 million. With that, I will turn over the call to operator for questions.

Your first question comes from the line of Greg Palm with Craig-Hallum.

Congrats on the results. I was wondering, first, if you could just address HELSI-2, I mean, based on the results, the guide, I mean, is there a chance that you're pulling ahead the completion date here?

I know you've talked about completion in 2026, but curious if that time line has changed at all just based on the volumes that you're able to complete.

Greg, it's Scott here. Thanks for the question. No, we're on track is the bottom line. We will announce progress results when we are able to do so, but we're on track for 2026.

And then as it relates to product, so your guiding revenue up quite a bit sequentially, but gross margins down. I know you're coming off of a pretty tough compare, I guess, sequentially when you put up 40-plus percent product gross margins.

But just can you give us a little bit more color what's going on? It doesn't sound like mix is going to change all that much?

Yes. No, Greg, thanks for the question. As we've talked about in the past, you can have some pretty -- what seems like a pretty big swings from a gross margin perspective when you're still talking about revenues at the levels that we are at. Really not much in terms of Q3 to Q4 on the gross margin guide, probably 150 or 200 bps of it is related to actually freight and duties, right, as we've had the higher cost of materials that are going to -- we're now going to start to feel in Q4.

And then the rest is really just mix within each of our end markets. The mix within defense, the mix within commercial can change in any given quarter.

And then there's just a handful of other items that as we forecast in any given quarter that are there. But generally speaking, we're pleased that gross margin has expanded, and it remains really a function of 3 things: higher volume mix, where we are and then just overall how we're levering the factory. So we're pretty happy with where we were in Q3 and not much to think about for us in Q4.

Your next question comes from the line of Ruben Roy with Stifel.

This is Sahej Singh on for Ruben Roy. First off, congrats. You guys are past your breakeven point, which I think was $55 million to $60 million and turning profitable, so congrats on that.

HELSI-2, I think if I do the math is, you said it earlier, $171 million contract with 3-year estimated time line. So annualized, that's about $57 million ceiling per year, which is about $14 million lower than what you're operating on, on a trailing 12-month basis within Aerospace and Defense products.

So 2 questions there, and then I have a follow-up. It seems like a fixed firm price contract with the moves you're making on amplifiers. Can you give us some sense of how much incremental margin benefit you're seeing from that this quarter and expect to see maybe through the course of next year as you're ramping down on that contract?

And the second part to this is as that contract ramps down, do you see sensing tied to Golden Dome and the classified programs and maybe international sales more than offset that HELSI-2 contract revenue loss, which I imagine will be probably starting second half of '26?

So there's a lot there. So help me if I don't get it all right, I can follow up. I would say on the HELSI-2 contract, first, it's a good way to look at it, right, it's $171 million contract, but it's not going to be recognized linearly, right?

So it's a cost-plus type contract. So it really depends on the type of activities that we are engaged in at any given period of time during that contract.

So you shouldn't think about that linearly. Certainly, it is a big driver of the A&D products revenue that we have been generating and amplifiers are the key component that we are selling into that contract.

Now more generally, as we think about products gross margin expansion, we've really focused on products that enable us to drive incremental gross margins of meaningfully north of 50%.

And so amplifiers and other products that we are selling are meeting that today, and we expect that to continue to expand. I think the last part of your question just around the trajectory of HELSI-2 into 2026, you're absolutely right, right?

At some point in the back half of 2026, we'll start to see the revenue that we're generating from HELSI-2, everything around HELSI-2, start to trail off.

But we've got plenty of other programs, both in directed energy and in laser sensing that will make up for that reduction in the second half revenue.

Very helpful. And then the second -- the follow-up I have is -- on DE M-SHORAD, which I guess is now ramping down, if I'm not wrong, and please correct me if I am, it's an R&D contract, which means it probably sits in advanced development.

That said, advanced development seems to be ramping quite nicely also on a trailing 12-month basis. What's driving that growth? And I guess, to what degree should we look at that as a leading indicator for future sales on the A&D laser products, as you're mentioning into '26, '27, let's say?

So you are correct that DE M-SHORAD is ramping down. So we are at the very end stages of delivering that product to the customer. So that's not really contributing meaningfully at all to revenue this quarter nor will it contribute to revenue going forward.

The advanced development segment of our business includes all of the development revenue that we do, including HELSI-2 and other programs. And while not all of the programs that we are working on that are classified as advanced development go into -- will ultimately end up as programs of record, it is a good indicator that the activities that we have in directed energy and in laser sensing are putting us in a good position so that when those programs do transition or there are new programs, where there are opportunities to become program of records that we're well positioned to capture them.

But you can't draw a line directly from our advanced development revenue to what long-term defense product revenue will be.

Your next question comes from the line of Jim Ricchiuti from Needham & Co.

So the question I had is just relating to the previous question. If HELSI-2 does wind down in the second half of the year, you've talked about a pretty full pipeline. If you -- when would you have to see new orders come in, should be able to offset some of the hole that we could see from having completed HELSI-2.

In other words, is it -- do you anticipate orders coming in, in the next couple of quarters that would allow you to fill a potential hole related to HELSI-2 in the back half of next year?

Jim, based on what we are working on today, the hole is already filled. What is somewhat dependent upon timing of bookings and how quickly we can get to work on a handful of new programs will determine how much we grow in 2026.

Could you also maybe just clarify, I just maybe misheard. On the laser sensing contract that you alluded to, is this a follow-on piece of business?

Yes is the short answer. It's an ongoing program of record that we have been supporting for over a decade.

So Scott, this basically just extends that. And then one final question. I know all of the questions have been around the A&D business, but it's interesting to see, I guess, what, a second quarter of sequential improvement in the microfabrication area. You're characterizing it as stabilizing. What is leading to some of the stabilization? Where is it coming from?

Yes, it's coming from -- certainly, in microfabrication, that has always been a business that is difficult for us to predict.

It's largely book and ship in the -- during the quarter, it's a really long tail of customers. And the last couple of quarters, we've seen some stabilization in that business. So it's difficult to point to 1 or even 2 things that are driving that business, but we're pleased to see stabilization there.

Similarly, on the industrial side of our business, the quarters have been, frankly, a little bit better than we had expected, which is a welcome development for us.

But what we'll say is our overall view of the commercial business as we go into 2026 is the same as we've been saying now for a couple of quarters, right? That business is expected to again decline in 2026.

And just with respect to microfabrication, the seasonality of that business tends to fall off a little bit in Q1. But the levels that we're seeing Q2, Q3, is that a reasonable level moving aside from the seasonality we might see in Q1?

Yes. Jim, you're absolutely right. That is probably the most seasonal of our businesses. And in the last couple of quarters, we've seen that plus or minus $10 million of revenue. I think that a good range for us is probably $8 million to $12 million.

We don't have better visibility than that. And obviously, China microfab business has declined precipitously over the last couple of years, and we've seen continued sequential declines in that business as well.

Your next question comes from the line of Keith Housum with Northcoast Research.

Congratulations on a great quarter, guys. I think I heard you guys say the amplifier transition continues to progress. One, I guess, is that correct?

And then once that's complete, how should we see that reflected in results? Will it make for more efficient and easier recognition of revenue? Or is it going to be lower cost? Or what's going to be the financial statement impact when the transition is complete?

Well, I'm not sure the amplifier transition is not complete per se. I think what is going to be complete is the amplifiers that are delivered into one particular program, which is HELSI-2, and that will happen over the course of 2026.

Generally speaking, we have a lot of programs into which we are delivering amplifiers domestically. And as we've said the last couple of quarters, there's also opportunities for us that we are working on with a host of allies internationally. So we expect our amplifier business to continue to grow. And so that is one of the reasons that you are starting to see some of the margin expansion is due to the fact that we are selling higher volumes of amplifiers.

And at the same time, we're working hard to take what is a really difficult product that is pushing the limitations of physics and make it more manufacturable. So I think over time, you're going to see both revenue growth and margin expansion as we start to mature our ability to manufacture those amplifiers.

That's helpful. Appreciate it. Your restructuring charges in China cutting and welding, is that more to rightsize these businesses based on your expectations going forward? Or what's the reason behind that?

Yes. No, that's exactly what it is, right? I mean we were operating in Shanghai for a very long time, not an easy transition to move assembly of our lasers from Shanghai to Fabrinet and to the U.S.

And so there's lots of ongoing support activities that are required to do that. And so you're seeing some of that in that restructuring charge.

And then there's also a bit of expectation that the cutting and welding business are going to continue to decline. And so we want to make sure that we are rightsizing our investments for our expectations of those markets going forward.

Appreciate it. And then I'm not sure if it's a true statement or not, but is there an opportunity for you guys in the counter-drone technology space?

Sure. Yes, absolutely. That's one of the big applications for directed energy.

So we're still in relatively early innings in that area as well. But obviously, it gets a lot of press that we read today.

Correct. And direct energy goes well beyond counter drones.

[Operator Instructions]

We have a follow-up question from Greg Palm with Craig-Hallum.

You said something that I thought was pretty important in terms of programs next year that could offset or that could make up the absence of HELSI-2. So I just want to make sure we're clear.

Are those programs that have been booked? Or is that still in the pipeline?

Those are programs that have been booked, Greg.

And then I'm just curious, can you talk a little bit about -- are those directed energy? Are those laser sensing? And I don't know if I missed it, but the 2 confidential laser sensing programs, one of them was supposed to go to LRIP by the end of this year.

Is that still the case? Has that begun? And what's the status of the second one?

Good. So let's see your first question is the work for '26 that is key that we're highlighting is in both directed energy and in sensing first. Let's see your second question was around.

Yes, the 2 major sensing programs that you -- the confidential ones that we've been talking about for the past, well, multiple quarters.

Yes. The summary is they're both progressing. I want to be pretty sensitive to the specifics of the time line, but they're both progressing that supports the outlook that we're providing generally in the business.

But -- and then to be clear, going back to my first question, there are programs -- these are not the programs that are necessarily supposed to offset, it could help, but there's new additional programs that have been once booked, that is going to help offset that loss in HELSI-2 business.

Yes, Greg, so let me parse it a little bit more finely for you. So there are programs that we are on today that are not HELSI-2 that we expect to continue to grow.

There are new programs that we've won, right, that will plug the hole that we will see as HELSI-2 trails off. Those are both directed energy and laser sensing. And then there are other very high probability of win and go programs that we expect in 2026 that will drive growth in defense beyond what it is today. Hopefully, that helps.

Your next question comes from the line of Brian Gesuale from Raymond James.

Really nice job on the quarter. I'd like to maybe talk a little bit when I've spent some time in D.C. the last few weeks, and it just seems like there's a lot of opportunities around directed energy.

Could you maybe take -- give us the thoughts on the pipeline, both domestically and globally? And then maybe talk about your capacity because it seems like demand is pretty vibrant right now.

Yes, that's right, Brian. I've been spending a lot of time in D.C. also. And I think there is a lot of new work that's going on. It's a little frustrating, obviously, with the details around the shutdown on some of the details.

But at the senior level, we are seeing very good engagement across all levels, whether it be from Pentagon to the services and really across the breadth of direct energy from the lower power systems through the higher power systems.

So we are seeing continued progress in the U.S. programs and that is supported, it's reinforced by also some of the international programs. I think over the last quarter, we've seen news out of Israel of the demonstrations of the success of Iron Beam out of the U.K. We've seen success out of Dragonfire, and there have been other international efforts that both are opportunities for us as we engage internationally, but they also have played a role in reinforcing what's going on in the U.S. So high level, yes, direct energy remains a very important area for us in addition to sensing.

Fantastic. Is there any thoughts on the urgency with some of the things that are happening in Europe? Do you see more rapid adoption there over the next few quarters, particularly with the government shutdown or it seems like the domestic market has accelerated a lot when I talk to a lot of the customers and look at some of their demand outlook over the next year or so.

Yes, I think that's right. And I think in the coming weeks, you'll learn more about the acquisition reform that's being promulgated to address that. So I think we're all eager to see some of that formally launched to change the way that at least the U.S. pursues procurement to more rapidly implement some of these systems. So I think we will see some of that. I think there is urgency around the world actually to get the technology implemented in new ways.

Your next question comes from the line of Troy Jensen.

Sorry, can you hear me?

Yes.

Sorry about that. So first of all, congrats to another great print for you guys. Just a quick question. I know you're getting lots of questions on the development revenues here, but can you just give us the number of customers that are in your development product line or revenue line?

We're probably working in total on a dozen, just plus or minus a dozen programs. They're all of obviously different sizes and at different periods of time, but that's a pretty good number.

And then just on the sensing stuff, I did -- as you were going through your prepared remarks, Scott, it kind of felt like you're upticking on that. I guess most of the strength in A&D over this past year or so has been on the directed energy side. Would that be a true statement? Do you feel like you're upticking? Or are these contracts just kind of sustaining?

On the sensing side, Troy, you mean?

Yes, sensing specifically.

Yes. Yes, I think you read that correctly. I think that direct energy, there's a greater awareness of the set of applications in directed energy and what's going on. Sensing, it gets a little more challenging to describe how lasers are, I would say, supplementing, augmenting radar and other systems, but that is a very important area and listed as one of the critical technologies by the Pentagon and one that we're very well positioned for.

We have a follow-up question from the line of Ruben Roy with Stifel.

Just trying to understand, so your comment on HELSI being an R&D contract makes sense, while it's an advanced dev. And of course, it is my mistake there. But the jump up in revenue really looks like it's coming from your products within A&D.

And I know you guided advanced dev to $25 million next quarter. So I'm assuming that's either -- I'm assuming that's mostly HELSI.

But can you maybe talk through the A&D product side and just help us understand what drove this jump this quarter? I think someone asked whether it was government shutdown or are you expecting this to sort of sequentially improve?

Yes, we are expecting A&D products to continue to improve. When we sell -- so we sell a variety of products that are booked as in the products segment of our financial statements.

Amplifiers that we sell into the HELSI-2 program, which is a cost-plus development program, those amplifiers are reflected in our revenue as product revenue. There are also laser sensing products that are being sold that are A&D product revenue. And so you start to look at that, and that's why you see the growth in the A&D product side of the revenue.

There are no further questions at this time. I will now turn the call back to John Marchetti for closing remarks.

Thanks, everyone, for joining us this afternoon. And as always, thank you for your continued interest in nLIGHT. We will be participating in a number of conferences over the next several months.

So we look forward to speaking with everybody as we continue to go through the quarter. And thank you again for joining us today.

This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon, ladies and gentlemen, and welcome to the nLIGHT, Inc. Second Quarter 2025 Earnings Call Conference Call. [Operator Instructions] This call is being recorded on Thursday, August 7, 2025.

I would now like to turn the conference over to John Marchetti, Vice President of Corporate Development and Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. I'm John Marchetti, nLIGHT's VP of Corporate Development and Head of Investor Relations. With me on the call today are Scott Keeney, nLIGHT's Chairman and CEO; and Joe Corso, nLIGHT's CFO.

Today's discussion will contain forward-looking statements, including financial projections and plans for our business, some 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, and we undertake no obligation to update publicly any forward-looking statement, except as required by law. During the call, we will be discussing certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and in our earnings presentation, both of which can be found on the Investor Relations section of our website.

I will now turn the call over to nLIGHT's Chairman and CEO, Scott Keeney. Scott?

Thank you, John. Our second quarter results represent a strong quarter of execution across the board for nLIGHT. Revenue, gross margin and adjusted EBITDA were all ahead of our expectations. Results were primarily driven by our record aerospace and defense products and development revenue. A&D revenue represented approximately 66% of total sales in the quarter, up from 54% in the same quarter a year ago, and we expect this market to continue to be the primary source of growth for the company.

We are well positioned to drive continued growth in A&D with leading high-power laser technology developed over the past 2 decades across the entire technology stack from chips to full laser systems, which is supported by our U.S. manufacturing sites. Our products in A&D are also well aligned with many of the DoD's most critical priorities such as directed energy and laser sensing. And during the quarter, we delivered strong results in both of these critical markets.

In directed energy, we continue to make solid progress in our HELSI-2 program. As a reminder, this is a $171 million DoD program to develop a 1-megawatt high-energy laser with a completion date expected in 2026. The shipment of critical components toward the HELSI-2 program was a significant driver of our record defense product revenue in the quarter, and is expected to be a substantial contributor to growth throughout the remainder of the year.

We are actively transitioning our low size, weight and power, also known as SWaP amplifier products into advanced production by leveraging nLIGHT's experienced manufacturing teams and implementing quality control processes. This transition, while not without risk, is critical as we continue optimizing our amplifier production line for higher volumes.

Our work on the Army's DE M-SHORAD short-range air defense program is nearing completion as we are scheduled to deliver our 50-kilowatt high-energy laser and beam director to our partner for integration on the Stryker vehicle. Once this integration is complete, the system will begin field testing.

In addition, we continue to respond to RFPs and RFQs associated with the President's Golden Dome executive order, which specifically highlights non-kinetic missile defense capabilities as an area for development. With a mandate to build these systems in the United States, we believe we are well positioned to benefit from this effort over the coming years, and we are hopeful that the coming quarters will provide additional details on the scope and timing of these initiatives.

We've also continued to have success in the international markets for directed energy. In the second quarter, we began shipping to a new international customer, and we have a growing pipeline of new global opportunities as allied nations look to accelerate directed energy programs for cost-effective counter UAS and other threats.

We have generated revenue at nearly every level of vertical integration in the directed energy market, and we have established ourselves as one of the most comprehensive suppliers to the U.S. government, other prime contractors and foreign allies.

We also continue to perform well in our laser sensing markets. Our laser sensing products include missile guidance, proximity detection, range finding and countermeasures, and have been incorporated into several significant and long-running defense programs, all of which remain key defense priorities under the current administration.

Our historical performance on these programs and our early success on multiple classified programs have created many new opportunities for us in the market.

Over the last several quarters, we have bid on multiple new programs that have increased both the number of opportunities and the size of our sensing pipeline. In addition, further opportunities under the Golden Dome initiative have emerged and could also become significant contributors to our growth and defense in 2026 and beyond.

The growing pipeline of both directed energy programs and laser sensing opportunities, along with our improved execution, gives me increased confidence that we can grow our revenues in aerospace and defense by at least 40% in 2025.

Commercial revenue was also ahead of our expectations in the quarter, up sequentially on increases in both microfabrication and industrial. While these improvements are welcomed, we do not expect a sustained improvement in overall demand, particularly with respect to the majority of our industrial applications, and we continue to rationalize our investments in our commercial markets to make sure our resources are properly aligned with our growth opportunities. Longer term, we remain optimistic about growth prospects in additive manufacturing, where we see alignment with our A&D customers and our technology remains differentiated.

Let me now turn the call over to Joe to discuss our second quarter financial results.

Thank you, Scott. Our second quarter results were characterized by strong execution across the board. Better-than-expected revenue, a strong mix of business and higher factory absorption, coupled with exceptional execution from our manufacturing and operations teams drove meaningful upside to our gross margin. That margin upside, combined with operating expense discipline, resulted in significant bottom line improvement, demonstrating the leverage that is inherent in our business model.

Total revenue in the second quarter was $61.7 million, an increase of 22% compared to $50.5 million in the second quarter of 2024 and up 19.5% compared to the first quarter of 2025. Aerospace and Defense revenue was a record $40.7 million in the quarter, up 48.6% year-over-year and 24% sequentially. A&D growth was driven by record defense products revenue, which grew 74.5% year-over-year and 18% compared to last quarter, primarily due to increased deliveries of directed energy products. Development revenue of $20.9 million was also a record in the quarter, growing more than 30%, both sequentially and year-over-year. We expect A&D revenue to grow sequentially throughout the remainder of 2025.

Second quarter revenue from our commercial markets, which includes industrial and microfabrication, also outperformed our expectations at $21 million, a decrease of 9% year-over-year, but up 11% sequentially. In microfabrication, the biggest driver of the quarter-over-quarter improvement was satisfying some pent-up demand that had been missed while we were transferring the last of our Shanghai manufacturing to our Thai manufacturing partner in the second half of 2024. As a reminder, we no longer have any manufacturing operations in China.

Revenue from our industrial markets was also up sequentially on better demand for our additive manufacturing solutions. And as Scott mentioned earlier, while we are pleased with the performance of our commercial markets in the second quarter, we do not view the sequential improvements as a sign that the overall demand picture has significantly changed from what we described in prior quarters.

Total gross margin in the second quarter was 29.9% compared to 23.5% in the second quarter of 2024 and 26.7% last quarter. Total gross margin benefited from better results in both products and development gross margins.

Products gross margin in the second quarter was 38.5% compared to 30.3% in the second quarter of 2024 and 33.5% last quarter. Second quarter products gross margin was positively impacted by higher revenue, a favorable mix of business that skewed towards defense products, higher factory absorption and exceptional execution from our manufacturing and operations teams. Development gross margin was 13.1% compared to 8.7% in the same quarter a year ago and 11.5% in the first quarter of 2025. The upside in development gross margin was largely the result of better performance on some fixed price programs that were completed during the quarter. Going forward, we still expect development gross margin to remain in the 8% range.

Operating expenses were $22.7 million in the second quarter compared to $24.5 million in the second quarter of 2024 and $23.4 million in the first quarter of 2025. Non-GAAP operating expenses were $16.8 million in the second quarter, down from $18.1 million in the second quarter of 2024 and $17.7 million last quarter. We expect non-GAAP OpEx to remain in the $18 million range in the third quarter.

GAAP net loss for the second quarter was $3.6 million or $0.07 per share compared to a net loss of $11.7 million or $0.25 per share in the same quarter a year ago and a loss of $8.1 million or $0.16 per share in the first quarter of 2025.

On a non-GAAP basis, net income for the second quarter was $2.9 million or $0.06 per diluted share compared to a non-GAAP net loss of $4.6 million or $0.10 per share in the second quarter of 2024 and a non-GAAP net loss of $1.9 million or $0.04 per share last quarter.

Adjusted EBITDA for the second quarter was a positive $5.6 million compared to a loss of $1.6 million in the second quarter last year and a positive $116,000 in the first quarter of 2025.

Turning to the balance sheet. We ended the second quarter with total cash, cash equivalents, restricted cash and investments of $114 million. We continue to make progress on improving our working capital. Our cash flow conversion days have improved over the last several quarters, and we remain focused on further improvement going forward.

Turning to guidance. Based on the information available today, we expect revenue for the third quarter of 2025 to be in the range of $62 million to $67 million. The midpoint of $64.5 million includes approximately $45 million of product revenue and $19 million of development revenue. We expect A&D revenue in the third quarter of 2025 to increase sequentially and year-over-year.

Turning to gross margin. Products gross margin in the third quarter is expected to be in the range of 32% to 36%, and we expect development gross margins to be approximately 8%, resulting in a total gross margin range of 24% to 30%. As we've mentioned previously, as a vertically integrated manufacturing business, gross margin is largely dependent on production volumes and absorption of fixed manufacturing costs.

Finally, we expect adjusted EBITDA for the third quarter to be in the range of approximately $2 million to $6 million.

With that, I will turn the call over to the operator for questions.

[Operator Instructions] Your first question comes from the line of Greg Palm from Craig-Hallum Capital Group.

This is Daniel Eggerichs on for Greg today. Congrats on the really good results, guys. I think we'll just start, obviously, with A&D, really good from both a product and development standpoint. So I guess you gave the guide last quarter and you kind of blew through that. So maybe just looking back, what went better than expected? What drove that outperformance between both product and development? I know there's some project timing in there and whatnot, but maybe you could just dig into that a little bit more.

Yes. Thanks for the question, Danny. It's fairly simple. We just executed very well in the quarter. These are all existing programs that we have been working on, both on the product side and on the development side. And so the highlight in the quarter was continued success that we had with our amplifier sales, right, selling into our HELSI-2 program. That was a nice ramp -- a little bit better than we expected, purely based on execution. There was no other customers or things that really dropped in that we had not expected during the quarter. So we were pleased to see that upside.

Okay. Got it. And then you talked about some of these laser sensing programs. I think for the last few quarters, you've kind of mentioned bidding on multiple of these programs. I guess you got any additional detail around maybe some new wins, start dates, some kind of revenue recognition we can think about moving forward here? Or any extra detail there would be great.

Yes, sure. So in the laser sensing side of the business continues to go well. I would say that there are really a couple of different thrusts in that business, the first of which are existing platforms that we've been delivering on for quite a long time. And so that was a good quarter on those programs. We expect those to continue as we move forward. And on some of those programs, we expect higher volumes than we have had in the past, just as our customers are needing to restock depleted inventory levels and they're finding -- some of the platforms are finding new use cases. So those are the things that we've been working on for a long time.

And then the things and the programs that are newer, a handful of which are classified, we still are making good progress on. I think we said in prior quarters that we expect to begin work on the next phase or the LRIP phase on one of those programs here in the second half. And so that remains intact. But we feel good about what we've delivered and the success of our portion of that program. Now it's a little bit of a waiting game until we actually get that order, but we believe it's forthcoming.

Got it. Maybe just one last one on the gross margin, maybe the product margin specifically, that 38.5%, that's well above anything we've kind of seen for the product side before. I guess just looking ahead, you've called out kind of mix and overhead being benefits in Q2. The Q3 guide implies sequential revenue growth and obviously, growth in A&D as well, but kind of a step down in that gross margin. So maybe anything -- some puts and takes you can give on the gross margin on the product side there?

Yes, absolutely. So second quarter gross margin, we were really happy with how it turned out, right? I mean we had higher volumes. We operated -- our manufacturing and operations did an exceptional job during the quarter. We had better factory absorption. And so many of the things that we go into any given quarter seeking to forecast, there's no one big item that drove that outperformance. It's a handful of small things that this quarter all went very well. And so I think that is a similar answer to why you saw a little bit of a step down in the gross margin into the third quarter. Some of those things that went exceptionally well in the second quarter as we forecast going forward, right, we're not going to forecast that upside. Could that happen again? Yes, but that's not something that we're banking on nor do I think that as you're building your model, you should bank on. But again, very happy with the performance this quarter. And I think the read-through is that it's indicative of the type of operating leverage that we have in our model.

Your next question comes from the line of Jim Ricchiuti from Needham & Company.

Just given the increase that you have made to the 2025 outlook and given where we are at this point in the year, I'm wondering if you have any initial views on 2026. Just the market seems pretty healthy. You seem to be getting a combination of new awards. I think you alluded to one overseas. So maybe if there's anything -- any color you could provide as to how we might think about 2026 in this area of the business.

Yes, Jim, I wish I could give you more than I'm about to give you. But at this point, it's just a little early for us to really start talking about 2026. I mean there's -- we certainly feel remain confident, right? But there are a lot of things that we're working on. The pipeline is continuing to grow. We continue to have good backlog, but I think it's a little too early for us given the variability in timing and the like to start talking about 2026, but absolutely continue to think that there's upside from '25.

All right. Maybe let's take a step back and talk about the increase to 2025. Maybe you could put a little bit more -- give us a little bit more help on what's driving that. Is this coming from -- yes, it sounds like you had some customers that have depleted some inventories and are ordering. Is this coming from new program awards? Can you say which areas of your product portfolio the growth is coming from versus what you were thinking, say, 3 months ago?

Yes. So the growth is consistent with what we were thinking of 3 months ago, and it's broad-based, right? We have growth from -- expected growth from some of our existing laser sensing programs. As I said in response to Danny's question, we do expect to have some revenue from new sensing program. We're going to continue to deliver products into existing directed energy programs and continue to make progress on those broader high-energy laser programs. So right now, as we're looking towards the back half of the year, we expect it to be broad-based growth across our entire defense portfolio.

Okay. One other question for me, and I may have missed the significance of it, but you talked, I think, about an amplifier transition. Trying to understand what the significance of that is and maybe what the time line, what it entails and how meaningful is this for you?

Jim, it's John. I think the key there, and we've talked about this a little bit in the past, is we came into this year, still doing the bulk of that amplifier manufacturing out of our engineering and R&D teams. And we've been really transitioning that production into our normal manufacturing groups. And that's very, very important for us because as we think about where we hope to take that business over time, in order to scale to the right number of units and the volumes that we hope to be achieving, we've got to get that out of the hands of our R&D teams and into the hands of our manufacturing folks. And so that process has been underway now for a couple of quarters.

Again, as Joe mentioned, we had a lot of really good successes from all of our teams in the second quarter, which allowed us to do really well in that transition. We still have a little bit of ways to go to make sure we're locking all of that down, but I think we're making really good progress there. And like I said, it's important for us as we think about how that line should expand from a volume perspective as we look out over the next several years.

Your next question comes from the line of Ruben Roy from Stifel.

Sorry if I'm repeating James' question, but I think Scott mentioned that sort of the increase from kind of previous expectations for, I think, 25% growth for A&D and this year moving to 40% was driven by HELSI-2. Is that the wrong understanding that I have? I get you on broad-based sort of improvement across the Aerospace and Defense business. But it just seemed like compared to 90 days ago, you executed on shipments into HELSI-2 and that kind of drove the sort of near-term upside. And it sounded to me like that was the program that was going to drive sort of the increased expectations for '25? Or am I getting that wrong?

Ruben, no, you're absolutely right. As we entered the year, we had an expectation for what we thought we could do in terms of delivering hardware into that HELSI-2 program as we've gone through the year and have continued to make strides in terms of improving our manufacturing of those products and increasing capacity of the line, right? That's not something that happens overnight. It's a journey as we're starting to really ramp up there. So I would say that there was an improvement on that end of it.

And there's a follow-through, which is to the extent that we can deliver hardware into those programs or into the HELSI-2 program in particular, means we can start to accelerate some of the development work that we're doing on top of those amplifiers. So you've got sort of a knock-on effect.

And then the third piece of it is as we are transitioning from one program to another or one phase of a program to another in the new laser sensing program, that's another area of growth. And then finally, we do have a few new customer wins, right? We can't be explicit in terms of names, but we've talked about the international side of our directed energy business being an opportunity for us. And so we're starting to convert some of those early opportunities, which is what led me to talk about just sort of broad-based growth across that entire portfolio.

Okay. And then, John, on the amplifier transition per amplifier moving into kind of more of a production setup. Are there specific qualification milestones that come with that? Or is it sort of just getting kind of lines running and getting the product out and tested assembled and off you go? I'm just trying to understand sort of if there's...

No, I get it, Ruben. I think what I would say to that is there are certainly internal things that we're looking as we are continuing to go through that transition. So I wouldn't say it's acceptance criteria -- as Joe mentioned, we've been shipping amplifiers now for a while into a number of these programs. So it's not like we're doing something differently for the customer acceptance, but we're certainly internally trying to make sure that we're putting in all the controls and processes that we need specifically around these new products to make sure that, that transition over to the manufacturing teams goes as smoothly as possible.

[Operator Instructions] Your next question comes from the line of Rodney McFall from Northcoast Research.

Congratulations on the great quarter. I know you just talked about the new international customer. I was just wondering if you could maybe shed some light on the size and scope of that opportunity and if you see any execution risk there? And I have a follow-on after that.

Rodney, it's Scott here. Yes, I'll say what I can. Look, we do see directed energy is not just a U.S. domestic opportunity, but very strong international set of opportunities, and we continue to get new design wins around the world. I can't really comment on any of the particulars beyond that other than to say that, yes, it's material. There's some good-sized programs. And frankly, these are all still in the early stages. So we see bigger opportunities ahead, both in the U.S. and around the world.

Got it. And then, Scott, you mentioned continuing to rationalize investments in commercial markets to align with resources. Just any color on what specific areas you guys might be pulling back from? And I saw one of your main competitors recently, it seems like they're starting to lean into more systems. I'm just wondering if you guys have any plans for that? Or any color you guys could share on that would be great.

Absolutely right. Yes. I think one of the things we highlighted was that we do see growth in additive and continue to see opportunities with the differentiated technology we have there. But in some of the other markets that we've talked about, it's an area where we don't see as attractive growth opportunities. And so fortunately, the engineers that help build some of the key industrial lasers are working on new defense-based lasers now. So that's the sort of rationalization we're going through. And fortunately, we're in a great position to have a very strong team that is pivoting over.

There are no further questions at this time. Please continue, Mr. John Marchetti.

Thanks, everyone, for joining us this afternoon and for your continued interest in nLIGHT. We will be participating in a number of conferences over the coming weeks and throughout the remainder of the quarter. So I look forward to talking to everybody there, and I hope to talk to you soon. Thanks very much. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.