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Published: 2023-11-03 00:00:00 ET
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lasr-20230930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________
FORM 10-Q
________________________________________________________
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
 
Commission File Number 001-38462
________________________________________________________
NLIGHT, INC.
(Exact name of Registrant as specified in its charter)
________________________________________________________
Delaware91-2066376
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification Number)
4637 NW 18th Avenue
Camas, Washington 98607
(Address of principal executive office, including zip code)
(360) 566-4460
(Registrant's telephone number, including area code)
__________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Exchange on which Registered
Common Stock, par value
$0.0001 per share		LASRThe Nasdaq Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                     Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.    
Large Accelerated Filer☐Accelerated Filer☒Non-Accelerated Filer☐Smaller Reporting Company☐
Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.         ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ☐    No ☒

As of October 31, 2023, the Registrant had 46,686,107 shares of common stock outstanding.


TABLE OF CONTENTS
Page
Part II. Other Information
































PART I—FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS

nLIGHT, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)

As of
September 30, 2023December 31, 2022
Assets
Current assets:
    Cash and cash equivalents$52,087 $57,826 
    Marketable securities59,506 50,391 
Accounts receivable, net of allowances of $284 and $290
35,516 37,913 
    Inventory61,590 67,600 
    Prepaid expenses and other current assets15,656 17,026 
          Total current assets224,355 230,756 
Restricted cash255 252 
Lease right-of-use assets12,904 13,893 
Property, plant and equipment, net 54,130 60,693 
Intangible assets, net 2,166 4,041 
Goodwill12,367 12,376 
Other assets, net6,651 7,222 
          Total assets$312,828 $329,233 
Liabilities and Stockholders’ Equity
Current liabilities:
     Accounts payable$14,328 $17,507 
     Accrued liabilities14,179 12,820 
     Deferred revenues2,017 1,407 
     Current portion of lease liabilities3,049 2,758 
          Total current liabilities33,573 34,492 
Non-current income taxes payable5,273 6,699 
Long-term lease liabilities11,451 12,852 
Other long-term liabilities3,012 4,345 
          Total liabilities53,309 58,388 
Stockholders' equity:
  Common stock - $0.0001 par value; 190,000 shares authorized, 46,673 and 45,629 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively
16 16 
     Additional paid-in capital513,794 496,211 
     Accumulated other comprehensive loss(3,225)(2,748)
     Accumulated deficit(251,066)(222,634)
          Total stockholders’ equity259,519 270,845 
          Total liabilities and stockholders’ equity$312,828 $329,233 


See accompanying notes to consolidated financial statements.
1

nLIGHT, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Revenue:
Products$38,103 $48,042 $118,802 $147,283 
Development12,531 12,051 39,227 38,096 
Total revenue50,634 60,093 158,029 185,379 
Cost of revenue:
Products29,015 35,350 84,813 104,801 
Development11,681 11,267 36,907 35,540 
Total cost of revenue40,696 46,617 121,720 140,341 
Gross profit9,938 13,476 36,309 45,038 
Operating expenses:
Research and development10,744 12,716 34,049 40,215 
Sales, general, and administrative11,725 13,741 34,684 36,430 
Total operating expenses22,469 26,457 68,733 76,645 
Loss from operations(12,531)(12,981)(32,424)(31,607)
Other income:
Interest income, net303 167 990 238 
Other income (expense), net536 (31)1,997 (108)
Loss before income taxes(11,692)(12,845)(29,437)(31,477)
Income tax expense (benefit)187 110 (1,005)443 
Net loss$(11,879)$(12,955)$(28,432)$(31,920)
Net loss per share, basic and diluted$(0.26)$(0.29)$(0.62)$(0.72)
Shares used in per share calculations, basic and diluted46,403 44,786 45,857 44,289 

See accompanying notes to consolidated financial statements.

2

nLIGHT, Inc.
Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)


Three Months Ended September 30,Nine Months Ended
September 30,
2023202220232022
Net loss$(11,879)$(12,955)$(28,432)$(31,920)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments(131)(1,709)(816)(3,673)
Unrealized gains on available-for-sale securities21 190 339 190 
Comprehensive loss$(11,989)$(14,474)$(28,909)$(35,403)

See accompanying notes to consolidated financial statements.

3

nLIGHT, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands)
(Unaudited)
Three Months Ended September 30, 2023
 Common stockAdditional paid-in capitalAccumulated other comprehensive lossAccumulated deficitTotal stockholders' equity
SharesAmount
Balance, June 30, 202346,503 $16 $507,649 $(3,115)$(239,187)$265,363 
Net loss— — — — (11,879)(11,879)
Issuance of common stock pursuant to exercise of stock options61 — 53 — — 53 
Issuance of common stock pursuant to vesting of restricted stock awards and units, net of stock withheld for tax109 — (535)— — (535)
Stock-based compensation— — 6,627 — — 6,627 
Unrealized gains on available-for-sale securities— — — 21 — 21 
Cumulative translation adjustment, net of tax— — — (131)— (131)
Balance, September 30, 202346,673 $16 $513,794 $(3,225)$(251,066)$259,519 

Nine Months Ended September 30, 2023
Common stockAdditional paid-in capitalAccumulated other comprehensive lossAccumulated deficitTotal stockholders' equity
SharesAmount
Balance, December 31, 202245,629 $16 $496,211 $(2,748)$(222,634)$270,845 
Net loss— — — — (28,432)(28,432)
Issuance of common stock pursuant to exercise of stock options278 — 385 — — 385 
Issuance of common stock pursuant to vesting of restricted stock awards and units, net of stock withheld for tax632 — (3,667)— — (3,667)
Issuance of common stock under the Employee Stock Purchase Plan134 — 1,220 — — 1,220 
Stock-based compensation— — 19,645 — — 19,645 
Unrealized gains on available-for-sale securities— — — 339 — 339 
Cumulative translation adjustment, net of tax— — — (816)— (816)
Balance, September 30, 202346,673 $16 $513,794 $(3,225)$(251,066)$259,519 



4

nLIGHT, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands)
(Unaudited)
Three Months Ended September 30, 2022
 Common stockAdditional paid-in capitalAccumulated other comprehensive lossAccumulated deficitTotal stockholders' equity
SharesAmount
Balance, June 30, 202245,074 $15 $483,410 $(2,551)$(187,020)$293,854 
Net loss— — — — (12,955)(12,955)
Issuance of common stock pursuant to exercise of stock options86 1 383 — — 384 
Issuance of common stock pursuant to vesting of restricted stock awards and units, net of stock withheld for tax153 — (1,421)— — (1,421)
Restricted stock awards modified in connection with performance achievement(10)— — — — — 
Stock-based compensation— — 7,495 — — 7,495 
Unrealized gains on available-for-sale securities— — — 190 — 190 
Cumulative translation adjustment, net of tax— — — (1,709)— (1,709)
Balance, September 30, 202245,303 $16 $489,867 $(4,070)$(199,975)$285,838 

Nine Months Ended September 30, 2022
Common stockAdditional paid-in capitalAccumulated other comprehensive lossAccumulated deficitTotal stockholders' equity
SharesAmount
Balance, December 31, 202144,248 $15 $470,760 $(587)$(168,055)$302,133 
Net loss— — — — (31,920)(31,920)
Issuance of common stock pursuant to exercise of stock options557 1 1,145 — — 1,146 
Issuance of common stock pursuant to vesting of restricted stock awards and units, net of stock withheld for tax530 — (3,967)— — (3,967)
Restricted stock awards forfeited in connection with transition agreement(140)— — — — — 
Restricted stock awards modified in connection with performance achievement(10)— — — — — 
Issuance of common stock under the Employee Stock Purchase Plan118 — 1,201 — — 1,201 
Stock-based compensation— — 20,728 — — 20,728 
Unrealized gains on available-for-sale securities— — — 190 — 190 
Cumulative translation adjustment, net of tax— — — (3,673)— (3,673)
Balance, September 30, 202245,303 $16 $489,867 $(4,070)$(199,975)$285,838 
See accompanying notes to consolidated financial statements.
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nLIGHT, Inc.
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
Nine Months Ended September 30,
20232022
Cash flows from operating activities:
Net loss$(28,432)$(31,920)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation9,292 8,135 
Amortization2,697 3,492 
Reduction in carrying amount of right-of-use assets947 2,369 
(Recoveries of) provision for losses on accounts receivable(2)2 
Stock-based compensation19,645 20,728 
Deferred income taxes7 (1)
Loss on disposal of property, plant and equipment525 — 
Unrealized gain on available-for-sale securities— (190)
Changes in operating assets and liabilities:
Accounts receivable, net2,308 (3,431)
Inventory5,491 (8,761)
Prepaid expenses and other current assets1,358 1,091 
Other assets, net(442)(308)
Accounts payable(2,079)(5,792)
Accrued and other long-term liabilities161 1,219 
Deferred revenues617 142 
Lease liabilities(1,076)(1,241)
Non-current income taxes payable(1,330)(86)
Net cash provided by (used in) operating activities9,687 (14,552)
Cash flows from investing activities:
Acquisition of business, net of cash acquired— (664)
Purchases of property, plant and equipment(4,386)(16,442)
Acquisition of intangible assets and capitalization of patents— (359)
Purchase of marketable securities(103,008)(50,000)
Proceeds from maturities and sales of marketable securities94,231 — 
Net cash used in investing activities(13,163)(67,465)
Cash flows from financing activities:
Proceeds from employee stock plan purchases1,220 1,201 
Proceeds from stock option exercises385 1,146 
Tax payments related to stock award issuances(3,667)(3,967)
Net cash used in financing activities(2,062)(1,620)
Effect of exchange rate changes on cash(198)(712)
Net decrease in cash, cash equivalents, and restricted cash(5,736)(84,349)
Cash, cash equivalents, and restricted cash, beginning of period58,078 146,784 
Cash, cash equivalents, and restricted cash, end of period$52,342 $62,435 
Supplemental disclosures:
Cash paid for interest, net$20 $— 
Cash paid for income taxes270 250 
Operating cash outflows from operating leases2,890 2,828 
Right-of-use assets obtained in exchange for lease liabilities1,295 2,242 
Accrued purchases of property, equipment and patents561 2,468 
See accompanying notes to consolidated financial statements.
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nLIGHT, Inc.
Notes to Consolidated Financial Statements
Note 1 - Basis of Presentation and New Accounting Pronouncements
Basis of Presentation
The accompanying unaudited consolidated financial statements of nLIGHT, Inc. and our wholly-owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The unaudited financial information reflects, in the opinion of management, all adjustments necessary for a fair presentation of financial position, results of operations, stockholders’ equity, and cash flows for the interim periods presented. The results reported for the interim period presented are not necessarily indicative of results that may be expected for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Critical Accounting Policies
Our critical accounting policies have not materially changed during the nine months ended September 30, 2023, from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

New Accounting Pronouncements
None.

Note 2 - Revenue

We recognize revenue upon transferring control of products and services and the amounts recognized reflect the consideration we expect to be entitled to receive in exchange for these products and services. We consider customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. As part of our consideration of the contract, we evaluate certain factors, including the customer's ability to pay (or credit risk). For each contract, we consider the promise to transfer products, each of which is distinct, as the identified performance obligations.

We allocate the transaction price to each distinct product based on its relative standalone selling price. Master sales agreements or purchase orders from customers could include a single product or multiple products. Regardless, the contracted price with the customer is agreed to at the individual product level outlined in the customer contract or purchase order. We do not bundle prices; however, we do negotiate with customers on pricing for the same products based on a variety of factors (e.g., level of contractual volume). We have concluded that the prices negotiated with each individual customer are representative of the stand-alone selling price of the product.

We often receive orders with multiple delivery dates that may extend across several reporting periods. We allocate the transaction price of the contract to each delivery based on the product standalone selling price and invoice for each scheduled delivery upon shipment or delivery and recognize revenues for such delivery at that point, when transfer of control has occurred. As scheduled delivery dates are generally within one year, under the optional exemption provided by ASC 606-10-50-14a, revenues allocated to future shipments of partially completed contracts are not disclosed as performance obligations for point in time revenue. Further, we recognize, over time, revenue as per ASC 606-10-55-18 (invoice practical expedient) for our cost plus contracts and, accordingly, elect not to disclose information related to those performance obligations under ASC 606-10-50-14b. As of September 30, 2023, we had approximately $33 million of performance obligations relating to firm fixed price contracts with scheduled delivery dates that extended beyond one year, which did not qualify for the aforementioned disclosure exemptions. We expect to recognize approximately 80% of these performance obligations by the end of 2024 and the remaining 20% in 2025.

Rights of return generally are not included in customer contracts. Accordingly, product revenue is recognized upon transfer of control at shipment or delivery, as applicable. Rights of return are evaluated as they occur.

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Revenues recognized at a point in time consist of sales of semiconductor lasers, fiber lasers and other related products. Revenues recognized over time generally consist of development arrangements that are structured based on our costs incurred. For long-term contracts, we estimate the total expected costs to complete the contract and recognize revenue based on the percentage of costs incurred at period end. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, materials, subcontractors costs, other direct costs, and indirect costs applicable on government and commercial contracts.

Contract estimates are based on various assumptions to project the outcome of future events that may span several
years. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, the performance of subcontractors, and the availability and timing of funding from the customer. Billing under these arrangements generally occurs within one month of the costs being incurred or as milestones are reached.

The following tables represent a disaggregation of revenue from contracts with customers for the periods presented (in thousands):
    
Sales by End Market
Three Months Ended September 30,Nine Months Ended
September 30,
 2023202220232022
Industrial$19,607 $22,217 $56,078 $68,112 
Microfabrication12,000 17,682 37,285 51,416 
Aerospace and Defense19,027 20,194 64,666 65,851 
$50,634 $60,093 $158,029 $185,379 

Sales by Geography

Three Months Ended September 30,Nine Months Ended
September 30,
 2023202220232022
North America$31,330 $32,793 $94,750 $103,619 
China2,624 5,230 9,134 17,041 
Rest of World16,680 22,070 54,145 64,719 
$50,634 $60,093 $158,029 $185,379 

Sales by Timing of Revenue

Three Months Ended September 30,Nine Months Ended
September 30,
 2023202220232022
Point in time$37,913 $45,268 $117,361 $138,931 
Over time12,721 14,825 40,668 46,448 
$50,634 $60,093 $158,029 $185,379 

Our contract assets and liabilities were as follows (in thousands):
Balance Sheet ClassificationAs of
 September 30, 2023December 31, 2022
Contract assetsPrepaid expenses and
other current assets		$8,617 $10,377 
Contract liabilitiesDeferred revenues and other long-term liabilities3,477 2,455 
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Contract assets generally consist of revenue recognized on an over-time basis where revenue recognition has been met, but the amounts are subsequently billed and collected in the following period. In our services contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, which is generally monthly, or upon the achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets recorded in unbilled receivables and retentions on the Consolidated Balance Sheets. However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities recorded in customer advances on the Consolidated Balance Sheets. Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements. These assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. For our product revenue, we generally receive cash payments subsequent to satisfying the performance obligation via delivery of the product, resulting in billed accounts receivable. For our contracts, there are no significant gaps between the receipt of payment and the transfer of the associated goods and services to the customer for material amounts of consideration.

During the three and nine months ended September 30, 2023, we recognized revenue of $0.3 million and $1.4 million, respectively, that was included in the deferred revenue balances at the beginning of the period as the performance obligations under the associated agreements were satisfied.

Note 3 - Concentrations of Credit and Other Risks
The following customer accounted for 10% or more of our revenues for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
U.S. Government16%16%17%16%

Financial instruments that potentially expose us to concentrations of credit risk consist principally of receivables from customers. As of September 30, 2023, and December 31, 2022, three and two customers accounted for a total of 39% and 29%, respectively, of net customer receivables. No other customers accounted for 10% or more of net customer receivables at either date. 

Note 4 - Marketable Securities

Marketable securities consist primarily of highly liquid investments with original maturities of greater than 90 days when purchased. Our marketable securities are considered available-for-sale as they represent investments that are available to be sold for current operations. As such, they are included as current assets on our Consolidated Balance Sheets at fair value with unrealized gains and losses included in accumulated other comprehensive loss. Any unrealized gains and losses that are considered to be other-than-temporary are recorded in other income, net on our Consolidated Statements of Operations. Realized gains and losses on the sale of marketable securities are determined using the specific-identification method and recorded in other income, net on our Consolidated Statements of Operations.

Realized gains were $0.8 million and $1.7 million for the three and nine months ended September 30, 2023, respectively. Unrealized gains were immaterial for the three months ended September 30, 2023 and $0.3 million for the nine months ended September 30, 2023. These unrealized gains are considered temporary and are reflected in the Consolidated Statements of Comprehensive Loss. Unrealized gains were $0.2 million for the three and nine months ended September 30, 2022.

See Note 5 for additional information.

Note 5 - Fair Value of Financial Instruments

The carrying amounts of certain of our financial instruments, including cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities are shown at cost which approximates fair value due to the short-term nature of these instruments. The fair value of our term and revolving loans approximates the carrying value due to the variable market rate used to calculate interest payments.
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Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
•Level 1 Inputs: Observable inputs, such as quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date.
•Level 2 Inputs: Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 Inputs: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Our financial instruments that are carried at fair value consist of Level 1 assets which include highly liquid investments and bank drafts classified as cash equivalents and marketable securities.

Our fair value hierarchy for our financial instruments was as follows (in thousands):

September 30, 2023
Level 1Level 2Level 3Total
Cash Equivalents:
  Money market securities $21,502 $— $— $21,502 
  Commercial paper2,488 — — 2,488 
23,990 — — 23,990 
Marketable Securities:
  U.S. treasuries59,506 — — 59,506 
Total$83,496 $— $— $83,496 
December 31, 2022
Level 1Level 2Level 3Total
Cash Equivalents:
  Money market securities$31,658 $— $— $31,658 
  Commercial paper656 — — 656 
32,314 — — 32,314 
Marketable Securities:
  U.S. treasuries50,391 — — 50,391 
Total$82,705 $— $— $82,705 

Cash Equivalents
The fair value of cash equivalents is determined based on quoted market prices for similar or identical securities.

Marketable Securities
We classify our marketable securities as available-for-sale and value them utilizing a market approach that uses observable inputs without applying significant judgment.

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Note 6 - Inventory
Inventory is stated at the lower of average cost (principally standard cost, which approximates actual cost on a first-in, first-out basis) and net realizable value. Inventory includes raw materials and components that may be specialized in nature and subject to obsolescence. On a quarterly basis, we review inventory quantities on hand in comparison to our past consumption, recent purchases, and other factors to determine what inventory quantities, if any, may not be sellable. Based on this analysis, we write down the affected inventory value for estimated excess and obsolescence charges. At the point of loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Inventory consisted of the following (in thousands):
As of
September 30, 2023December 31, 2022
Raw materials$28,258 $32,515 
Work in process and semi-finished goods20,914 19,056 
Finished goods12,418 16,029 
$61,590 $67,600 

Note 7 - Property, Plant and Equipment
Property, plant and equipment consisted of the following (in thousands):
Useful lifeAs of
 (years)September 30, 2023December 31, 2022
Automobiles3$120 $110 
Computer hardware and software
3 - 5
8,976 8,712 
Manufacturing and lab equipment
2 - 7
90,527 89,230 
Office equipment and furniture
5 - 7
2,520 2,410 
Leasehold and building improvements
2 - 12
31,249 30,675 
Buildings309,392 9,392 
LandN/A3,399 3,399 
146,183 143,928 
Accumulated depreciation (92,053)(83,235)
$54,130 $60,693 

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Note 8 - Intangible Assets and Goodwill
Intangible Assets
The details of definite lived intangible assets were as follows (in thousands):
Estimated useful life
(in years) 		As of
 September 30, 2023December 31, 2022
Patents
3 - 5
$6,313 $6,322 
Development programs
2 - 4
7,200 7,200 
Developed technology52,959 2,930 
16,472 16,452 
Accumulated amortization (14,306)(12,411)
$2,166 $4,041 

Amortization related to intangible assets was as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
Amortization expense$633 $660 $1,896 $2,147 

Estimated amortization expense for future years is as follows (in thousands):
2023$514 
2024819 
2025485 
2026348 
Thereafter— 
$2,166 

Goodwill
The carrying amount of goodwill by segment was as follows (in thousands):
Laser ProductsAdvanced DevelopmentTotals
Balance, December 31, 2022$2,128 $10,248 $12,376 
Currency exchange rate adjustment(9)— (9)
Balance, September 30, 2023$2,119 $10,248 $12,367 

Note 9 - Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
As of
September 30, 2023December 31, 2022
Accrued payroll and benefits$9,019 $8,233 
Product warranty, current3,694 2,601 
Other accrued expenses1,466 1,986 
$14,179 $12,820 


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Note 10 - Product Warranties
We provide warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized. The warranty liability is based on historical experience, any specifically identified failures, and our estimate of future costs. The current portion of our product warranty liability is included in the accrued liabilities and the long-term portion is included in other long-term liabilities in our Consolidated Balance Sheets.

Product warranty liability activity was as follows for the periods presented (in thousands):
Nine Months Ended September 30,
 20232022
Product warranty liability, beginning$5,441 $5,371 
Warranty charges incurred, net(2,805)(1,023)
Provision for warranty charges, net of adjustments2,267 971 
Product warranty liability, ending4,903 5,319 
Less: current portion of product warranty liability(3,694)(2,491)
Non-current portion of product warranty liability$1,209 $2,828 

Note 11 - Stockholders' Equity and Stock-Based Compensation

Restricted Stock Awards and Units
Restricted stock award ("RSA") and restricted stock unit ("RSU") activity under our equity incentive plan was as follows:

Number of Restricted Stock Awards and Units (Thousands)Weighted-Average Grant Date Fair Value
Balance, December 31, 20223,115 $18.76 
Granted1,581 10.28 
Vested(1,100)19.97 
Forfeited(304)20.12 
Balance, September 30, 20233,292 14.16 

The total fair value of RSUs and RSAs vested during the nine months ended September 30, 2023, was $22.0 million. Awards outstanding as of September 30, 2023 include 0.9 million performance-based awards that will vest upon meeting certain performance criteria. Approximately 0.5 million total performance-based awards were granted in 2023. These awards vest based on a market metric called Total Shareholder Return ("TSR") for the performance period of three years relative to the TSR of companies in the Russell 2000 Index and had a weighted average grant date fair value of $14.21 per share using a Monte Carlo simulation pricing model.


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Stock Options
The following table summarizes our stock option activity during the nine months ended September 30, 2023:
 Number of Options (Thousands)Weighted-Average Exercise PriceWeighted-Average Remaining Contractual Term (Years)Aggregate Intrinsic Value (Thousands)
Outstanding, December 31, 20221,827 $1.293.4$16,156
Options exercised(278)1.39
Outstanding, September 30, 20231,549 1.282.614,128
Options exercisable at September 30, 20231,549 1.282.614,128
Options vested as of September 30, 2023, and expected to vest after September 30, 20231,549 1.282.614,128

Total intrinsic value of options exercised for the nine months ended September 30, 2023 and 2022, was $2.5 million and $7.5 million, respectively. We received proceeds of $0.4 million and $1.1 million from the exercise of options for the nine months ended September 30, 2023 and 2022, respectively.

Stock-Based Compensation
Total stock-based compensation expense was included in our Consolidated Statements of Operations as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Cost of revenues$508 $712 $1,871 $2,105 
Research and development2,613 3,169 7,537 9,408 
Sales, general and administrative3,506 3,614 10,237 9,215 
$6,627 $7,495 $19,645 $20,728 

Unrecognized Compensation Costs
As of September 30, 2023, total unrecognized stock-based compensation was $36.7 million, which will be recognized over an average expected recognition period of 2.0 years.

Note 12 - Commitments and Contingencies

Leases
See Note 13.

Legal Matters
On March 25, 2022, Lumentum Operations LLC filed a complaint against nLIGHT, Inc. and certain of its employees in the U.S. District Court for the Western District of Washington. The complaint alleges that Lumentum is the partial or full owner of certain of our patents and requests corresponding relief from the court. We are vigorously defending against Lumentum’s allegations. Loss in this matter is not probable or reasonably estimable and, as such, no loss contingency has been recorded.

From time to time, we may be subject to various other legal proceedings and claims in the ordinary course of business. As of September 30, 2023, we believe these matters will not have a material adverse effect on our consolidated financial statements.


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Note 13 - Leases

We lease real estate space under non-cancelable operating lease agreements for commercial and industrial space. Facilities-related operating leases have remaining terms of 0.2 to 11.7 years, and some leases include options to extend up to 15 years. Other leases for automobiles, manufacturing and office and computer equipment have remaining lease terms of 0.1 to 4.6 years. These leases are primarily operating leases; financing leases are not material. We did not include any renewal options in our lease terms for calculating the lease liabilities as we are not reasonably certain we will exercise the options at this time. The weighted-average remaining lease term for the lease obligations was 8 years as of September 30, 2023, and the weighted-average discount rate was 3.7%.

The components of lease expense related to operating leases were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Lease expense:
Operating lease expense$948 $911 $2,763 $2,907 
Short-term lease expense142 185 348 437 
Variable and other lease expense271 224 744 659 
$1,361 $1,320 $3,855 $4,003 

Future minimum payments under our non-cancelable lease obligations were as follows as of September 30, 2023 (in thousands):
2023$922 
20243,471 
20252,217 
20261,714 
20271,672 
Thereafter6,809 
Total minimum lease payments16,805 
Less: interest(2,305)
Present value of net minimum lease payments14,500 
Less: current portion of lease liabilities(3,049)
Total long-term lease liabilities$11,451 

Note 14 - Segment Information
We operate in two reportable segments consisting of the Laser Products segment and the Advanced Development segment. The following table summarizes the operating results by reportable segment (dollars in thousands):
Three Months Ended September 30, 2023
Laser ProductsAdvanced DevelopmentCorporate and OtherTotals
Revenue$38,103 $12,531 $— $50,634 
Gross profit$9,596 $850 $(508)$9,938 
Gross margin25.2 %6.8 %NM*19.6 %
Nine Months Ended September 30, 2023
Laser ProductsAdvanced DevelopmentCorporate and OtherTotals
Revenue$118,802 $39,227 $— $158,029 
Gross profit$35,860 $2,320 $(1,871)$36,309 
Gross margin30.2 %5.9 %NM*23.0 %
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Three Months Ended September 30, 2022
Laser ProductsAdvanced DevelopmentCorporate and OtherTotals
Revenue$48,042 $12,051 $— $60,093 
Gross profit$13,404 $784 $(712)$13,476 
Gross margin27.9 %6.5 %NM*22.4 %
Nine Months Ended September 30, 2022
Laser ProductsAdvanced DevelopmentCorporate and OtherTotals
Revenue$147,283 $38,096 $— $185,379 
Gross profit$44,587 $2,556 $(2,105)$45,038 
Gross margin30.3 %6.7 %NM*24.3 %
*Not meaningful

Corporate and Other is unallocated expenses related to stock-based compensation.

There have been no material changes to the geographic locations of our long-lived assets, net, based on the location of the assets, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Note 15 - Net Loss per Share

Basic and diluted net loss and the number of shares used for basic and diluted net loss calculations were the same for all periods presented because we were in a loss position.

The following potentially dilutive securities were not included in the calculation of diluted shares as the effect would have been anti‑dilutive (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
Restricted stock units and awards918 701 942 1,046 
Common stock options1,413 1,676 1,485 2,052 
 2,331 2,377 2,427 3,098 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, you can identify forward-looking statements by the following words: "ability," "anticipate," "attempt," "believe," "can be," "continue," "could," "depend," "enable," "estimate," "expect," "extend," "grow," "if," "intend," "likely," "may," "objective," "ongoing," "plan," "possible," "potential," "predict," "project," "propose," "rely," "should," "target," "will," "would" or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.

These statements involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements include, but are not limited to, statements about: our business model and strategic plans; our expectations regarding manufacturing; our future financial performance; demand for our semiconductor and fiber laser solutions; our ability to develop innovative products; our expectations regarding product volumes and the introduction of new products; our technology and new product research and development activities; the impact of inflation; the impact of seasonality; the effect on our business of litigation to which we are or may become a party; and the sufficiency of our existing liquidity sources to meet our cash needs.

You should refer to the "Risk Factors" section of this report for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, which although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Overview
    
nLIGHT, Inc., is a leading provider of high‑power semiconductor and fiber lasers for industrial, microfabrication, and aerospace and defense applications. Headquartered in Camas, Washington, we design, develop, and manufacture the critical elements of our lasers, and believe our vertically integrated business model enables us to rapidly introduce innovative products, control our costs and protect our intellectual property.

We operate in two reportable segments consisting of the Laser Products segment and the Advanced Development segment. Sales of our semiconductor lasers, fiber lasers, fiber amplifiers, and other directed energy laser products are included in the Laser Products segment, while revenue earned from research and development contracts are included in the Advanced Development segment.

Revenues decreased to $158.0 million in the nine months ended September 30, 2023 compared to $185.4 million in the same period of 2022 due primarily to decreased sales in the Laser Products segment, particularly in China. We generated a net loss of $28.4 million for the nine months ended September 30, 2023 compared to a net loss of $31.9 million for the same period of 2022.


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Factors Affecting Our Performance

Demand for our Semiconductor and Fiber Laser Solutions

In order to continue to grow our revenues, we must continue to achieve design wins for our semiconductor and fiber lasers. We consider a design win to occur when a customer notifies us that it has selected one of our products to be incorporated into a product or system under development by such customer. For the foreseeable future, our operations will continue to depend upon capital expenditures by customers in the Industrial and Microfabrication markets, which, in turn, depend upon the demand for these customers’ products or services. In addition, in the Aerospace and Defense market, our business depends in large part on continued investment in laser technology by the U.S. government and its allies, and our ability to continue to successfully develop leading technology in this area and commercialize that technology in the future.

Demand for our products also fluctuates based on market cycles, continuously evolving industry supply chains, trade and tariff terms, as well as evolving competitive dynamics in each of our end-markets. Erosion of average selling prices, or ASPs, of established products is typical in our industry, and the ASPs of our products generally decrease as our products mature. We may also negotiate discounted selling prices from time to time with certain customers that purchase higher volumes, or to penetrate new markets or applications. Historically, we have been able to offset decreasing ASPs by introducing new and higher value products, increasing the sales of our existing products, expanding into new applications and reducing our product and manufacturing costs. Although we anticipate further increases in product volumes and the continued introduction of new and higher value products, ASP reduction may cause our revenues to decline or grow at a slower rate.

Technology and New Product Development

We invest heavily in the development of our semiconductor, fiber laser and directed energy technologies to provide solutions to our current and future customers. We anticipate that we will continue to invest in research and development to achieve our technology and product roadmap. Our product development is targeted to specific sectors of the market where we believe the performance of our products provide a significant benefit to our customers. We believe our close coordination with our customers regarding their future product requirements enhances the efficiency of our research and development expenditures.

Manufacturing Costs and Gross Margins

Our product gross profit, in absolute dollars and as a percentage of revenues, is impacted by our product sales mix, sales volumes, changes in ASPs, production volumes, the corresponding absorption of manufacturing overhead expenses, production costs and manufacturing yields. Our product sales mix can affect gross profits due to variations in profitability related to product configurations and cost profiles, customer volume pricing, availability of competitive products in various markets, and new product introductions, among other factors. We have invested heavily in U.S.-based manufacturing capabilities in the last several years. Capacity utilization affects our gross margin because we have a high fixed cost base due to our vertically integrated business model. Increases in sales and production volumes drive favorable absorption of fixed costs, improved manufacturing efficiencies and lower production costs. Gross margins may fluctuate from period to period depending on product mix and the level of capacity utilization.

Our Development gross profit varies with the type and terms of contracts, contract volume, project mix, execution on projects during the period, and estimated costs to project completion. Most of our Development contracts are structured as cost plus fixed fee due to the technical complexity of the research and development services.

Seasonality

Our quarterly revenues can fluctuate with general economic trends, the timing of capital expenditures by our customers, holidays, and general economic trends. In addition, as is typical in our industry, we tend to recognize a larger percentage of our quarterly revenues in the last month of the quarter, which may impact our working capital trends.




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Results of Operations

The following table sets forth our operating results as a percentage of revenues for the periods indicated (which may not add up due to rounding):

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Revenue:
Products75.3 %79.9 %75.2 %79.4 %
Development24.7 20.1 24.8 20.6 
Total revenue100.0 100.0 100.0 100.0 
Cost of revenue:
Products57.3 58.8 53.7 56.5 
Development23.1 18.7 23.3 19.2 
Total cost of revenue80.4 77.5 77.0 75.7 
Gross profit19.6 22.5 23.0 24.3 
Operating expenses:
Research and development21.2 21.2 21.5 21.7 
Sales, general, and administrative23.2 22.9 21.9 19.7 
Total operating expenses44.4 44.1 43.5 41.4 
Loss from operations(24.7)(21.6)(20.5)(17.1)
Other income:
Interest income, net0.6 0.3 0.6 0.1 
Other income (expense), net1.1 (0.1)1.3 (0.1)
Loss before income taxes(23.1)(21.4)(18.6)(17.1)
Income tax expense (benefit)0.4 0.2 (0.6)0.2 
Net loss(23.5)%(21.6)%(18.0)%(17.3)%

Revenues by End Market

Our revenues by end market were as follows for the periods presented (dollars in thousands):
Three Months Ended September 30,Change
2023% of Revenue2022% of Revenue$%
Industrial$19,607 38.7 %$22,217 37.0 %$(2,610)(11.7)%
Microfabrication12,000 23.7 17,682 29.4 (5,682)(32.1)
Aerospace and Defense19,027 37.6 20,194 33.6 (1,167)(5.8)
$50,634 100.0 %$60,093 100.0 %$(9,459)(15.7)%
Nine Months Ended September 30,Change
2023% of Revenue2022% of RevenueAmount%
Industrial$56,078 35.5 %$68,112 36.7 %$(12,034)(17.7)%
Microfabrication37,285 23.6 51,416 27.7 (14,131)(27.5)
Aerospace and Defense64,666 40.9 65,851 35.6 (1,185)(1.8)
$158,029 100.0 %$185,379 100.0 %$(27,350)(14.8)%

The decreases in revenue from the Industrial and Microfabrication markets for the three and nine months ended September 30, 2023, compared to the same periods in 2022, were driven by decreases in unit sales due to lower global market demand, and lower average selling prices in China. The decreases in revenue from the Aerospace and Defense market for the three and nine months ended September 30, 2023, compared to the same periods in 2022, were the result of decreases in product unit sales, offset partially by new development contracts.
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Revenues by Segment

Our revenues by segment were as follows for the periods presented (dollars in thousands):
Three Months Ended September 30,Change
2023% of Revenue2022% of Revenue$%
Laser Products$38,103 75.3 %$48,042 79.9 %$(9,939)(20.7)%
Advanced Development12,531 24.7 12,051 20.1 480 4.0 
$50,634 100.0 %$60,093 100.0 %$(9,459)(15.7)%
Nine Months Ended September 30,Change
2023% of Revenue2022% of RevenueAmount%
Laser Products$118,802 75.2 %$147,283 79.4 %$(28,481)(19.3)%
Advanced Development39,227 24.8 38,096 20.6 1,131 3.0 
$158,029 100.0 %$185,379 100.0 %$(27,350)(14.8)%

The decreases in Laser Products revenue for the three and nine months ended September 30, 2023, compared to the same periods in 2022, were primarily the result of decreased revenue from the Industrial, Microfabrication and Aerospace and Defense markets as discussed above.

The increases in Advanced Development revenue for the three and nine months ended September 30, 2023, compared to the same periods in 2022, were driven by new development contracts. Most of our Advanced Development revenue is generated from cost plus fixed fee research and development contracts, and all Advanced Development revenue is included in the Aerospace and Defense market.

Revenues by Geographic Region

Our revenues by geographic region were as follows for the periods presented (dollars in thousands):
Three Months Ended September 30,Change
2023% of Revenue2022% of Revenue$%
North America$31,330 61.9 %$32,793 54.6 %$(1,463)(4.5)%
China2,624 5.2 5,230 8.7 (2,606)(49.8)
Rest of World16,680 32.9 22,070 36.7 (5,390)(24.4)
$50,634 100.0 %$60,093 100.0 %$(9,459)(15.7)%
Nine Months Ended September 30,Change
2023% of Revenue2022% of RevenueAmount%
North America$94,750 60.0 %$103,619 55.9 %$(8,869)(8.6)%
China9,134 5.8 17,041 9.2 (7,907)(46.4)
Rest of World54,145 34.2 64,719 34.9 (10,574)(16.3)
$158,029 100.0 %$185,379 100.0 %$(27,350)(14.8)%

Geographic revenue information is based on the location to which we ship our products. The decreases in North America revenue for the three and nine months ended September 30, 2023 compared to the same periods in 2022, were driven by decreased revenue from the Industrial, Microfabrication, and Aerospace and Defense markets as previously discussed. The decreases in China revenue for the three and nine months ended September 30, 2023, compared to the same periods in 2022, were the result of decreased revenue from the Industrial and Microfabrication markets due to a decline in market conditions and our decision to exit the fiber laser cutting market in China during the fourth quarter of 2022. The decreases in Rest of World revenue for the three and nine months
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ended September 30, 2023, compared to the same periods in 2022, were the result of decreased revenue from the Microfabrication and Industrial markets due primarily to lower demand.

Cost of Revenues and Gross Margin

Cost of Laser Products revenue consists primarily of manufacturing materials, labor, shipping and handling costs, tariffs and manufacturing-related overhead. We order materials and supplies based on backlog and forecasted demand from our customers. We expense all warranty costs and inventory provisions as cost of revenues.

Cost of Advanced Development revenue consists of materials, labor, subcontracting costs, and an allocation of indirect costs including overhead and general and administrative.

Our gross profit and gross margin were as follows for the periods presented (dollars in thousands):
Three Months Ended September 30, 2023
Laser ProductsAdvanced DevelopmentCorporate and OtherTotal
Gross profit$9,596 $850 $(508)$9,938 
Gross margin25.2 %6.8 %NM*19.6 %
Nine Months Ended September 30, 2023
Laser ProductsAdvanced DevelopmentCorporate and OtherTotal
Gross profit$35,860 $2,320 $(1,871)$36,309 
Gross margin30.2 %5.9 %NM*23.0 %

Three Months Ended September 30, 2022
Laser ProductsAdvanced DevelopmentCorporate and OtherTotal
Gross profit$13,404 $784 $(712)$13,476 
Gross margin27.9 %6.5 %NM*22.4 %
Nine Months Ended September 30, 2022
Laser ProductsAdvanced DevelopmentCorporate and OtherTotal
Gross profit$44,587 $2,556 $(2,105)$45,038 
Gross margin30.3 %6.7 %NM*24.3 %
*NM = not meaningful

The decrease in Laser Products gross margin for the three months ended September 30, 2023, compared to the same period of 2022, was driven by decreased factory utilization due to a decrease in production demand, an increase in production variances, and changes in sales mix, partially offset by decreased manufacturing spend. The decrease in Laser Products gross margin for the nine months ended September 30, 2023, compared to same period of 2022, was not significant.

The changes in Advanced Development gross margin for the three and nine months ended September 30, 2023, compared to the same periods in 2022, were primarily due to changes in the mix of research and development contracts. Most of our Advanced Development revenue consists of cost plus fixed fee contracts, and the fee earned on costs incurred vary by contract.


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Operating Expenses

Our operating expenses were as follows for the periods presented (dollars in thousands):

Research and Development

Three Months Ended September 30,Change
20232022$%
Research and development$10,744 $12,716 $(1,972)(15.5)%
Nine Months Ended September 30,Change
20232022Amount%
Research and development$34,049 $40,215 $(6,166)(15.3)%

The decreases in research and development expense for the three and nine months ended September 30, 2023, compared to the same periods in 2022, were driven by decreases in employee headcount and project-related expenses, and decreases in stock-based compensation of $0.6 million and $1.9 million, respectively.

Sales, General and Administrative
Three Months Ended September 30,Change
20232022$%
Sales, general, and administrative$11,725 $13,741 $(2,016)(14.7)%
Nine Months Ended September 30,Change
20232022Amount%
Sales, general, and administrative$34,684 $36,430 $(1,746)(4.8)%

The decreases in sales, general and administrative expense for the three and nine months ended September 30, 2023, compared to the same periods in 2022, were primarily due to decreases in employee compensation, including incentive compensation, and an increase in administrative costs allocated to development projects, partially offset by an increase in stock-based compensation of $1.0 million for the nine months ended September 30, 2023. In addition, the three months ended September 30, 2023 includes an increase in professional fees and outside services, while the nine months ended September 30, 2023 includes a decrease in professional fees and outside services

Interest Income, net
Three Months Ended September 30,Change
20232022$%
Interest income, net$303 $167 $136 81.4%
Nine Months Ended September 30,Change
20232022Amount%
Interest income, net$990 $238 $752 316.0 %

The increases in interest income, net, for the three and nine months ended September 30, 2023, compared to the same periods in 2022, were driven by increases in interest rates and increased investment in marketable securities.

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Other Income (Expense), net
Three Months Ended September 30,Change
20232022$%
Other income (expense), net$536 $(31)$567 NM*
Nine Months Ended September 30,Change
20232022Amount%
Other income (expense), net$1,997 $(108)$2,105 NM*

*NM = not meaningful

Changes in other income (expense), net, are primarily attributable to realized gains on the sale of marketable securities and changes in net realized and unrealized foreign exchange transactions resulting from currency rate fluctuations.

Income Tax Expense (Benefit)
Three Months Ended September 30,Change
20232022$%
Income tax expense (benefit)$187 $110 $77 70.0 %
Nine Months Ended September 30,Change
20232022Amount%
Income tax expense (benefit)$(1,005)$443 $(1,448)(326.9)%

We record income tax expense (benefit) for taxes in our foreign jurisdictions including Finland, Italy, and Korea. While our tax expense is largely dependent on the geographic mix of earnings related to our foreign operations, we also record tax expense (benefit) for uncertain tax positions taken and associated penalties and interest. We consider all available evidence, both positive and negative, in assessing the extent to which a valuation allowance should be applied against our deferred tax assets. Due to the uncertainty with respect to their ultimate realizability in the United States, Austria, and China, we continue to maintain a full valuation allowance in these jurisdictions as of September 30, 2023.

The increase in income tax expense for the three months ended September 30, 2023, compared to the same period of 2022 was driven by higher profitability in foreign jurisdictions, while the decrease in income tax expense for the nine months ended September 30, 2023, compared to the same period in 2022, was driven by a discrete tax benefit related to expiring statutes of limitations of unrecognized tax positions recorded in the second quarter of 2023.

Liquidity and Capital Resources

We had cash and cash equivalents of $52.1 million and $57.8 million as of September 30, 2023 and December 31, 2022, respectively. In addition, we had marketable securities of $59.5 million and $50.4 million at September 30, 2023 and December 31, 2022, respectively. Our total balance of cash, cash equivalents, restricted cash and marketable securities increased by $3.4 million from December 31, 2022 to September 30, 2023.

For the nine months ended September 30, 2023, our principal uses of liquidity were to fund our working capital needs. The primary source of cash was collections from customers. We believe our existing sources of liquidity will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements may vary materially from period to period and will depend on many factors, including the timing and extent of spending on research and development efforts, the expansion of sales and marketing activities, the continuing market acceptance of our products and ongoing investments to support the growth of our business. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies and intellectual property rights. From time to time, we may explore additional financing sources which could include equity, equity‑linked and debt financing arrangements.
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The following table summarizes our cash flows for the periods presented (in thousands):

Nine Months Ended September 30,
20232022
Net cash provided by (used in) operating activities$9,687 $(14,552)
Net cash used in investing activities(13,163)(67,465)
Net cash used in financing activities(2,062)(1,620)
Effect of exchange rate changes on cash(198)(712)
Net decrease in cash, cash equivalents and restricted cash$(5,736)$(84,349)

Net Cash Provided by (used in) Operating Activities

During the nine months ended September 30, 2023, net cash provided by operating activities was $9.7 million, which was the result of a $28.4 million net loss, offset by increases in working capital of $5.0 million and non-cash expenses totaling $33.1 million related primarily to depreciation, amortization, and stock-based compensation. Changes in working capital were driven by a $5.5 million decrease in inventory, and $2.4 decrease in accounts receivable, net, for the nine months ended September 30, 2023, compared to an $8.8 million increase inventory and a $3.4 million increase in accounts receivable, net, over the comparable period of 2022.
Net Cash Used in Investing Activities

During the nine months ended September 30, 2023, net cash used in investing activities was $13.2 million, which was driven by the net purchase of marketable securities of $8.8 million and capital expenditures of $4.4 million.

Net Cash Used in Financing Activities

During the nine months ended September 30, 2023, net cash used in financing activities was $2.1 million, which consisted of taxes paid on the net settlement of stock awards of $3.7 million, partially offset by proceeds from stock option exercises and employee stock plan purchases of $1.6 million.

Credit Facilities

We have a $40.0 million revolving line of credit, or LOC, with Pacific Western Bank dated September 24, 2018, which is secured by our assets and matures September 24, 2024.

The LOC agreement contains restrictive and financial covenants and bears an unused credit fee of 0.20% on an annualized basis. The interest rate on the LOC is based on the Prime Rate, minus a margin based on our liquidity levels. No amounts were outstanding under the LOC at September 30, 2023 and we were in compliance with all covenants.

Contractual Obligations

There have been no material changes to our contractual obligations as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Inflation

While we do not believe that inflation had a material effect on our business, financial condition or results of operations during the nine months ended September 30, 2023, we experienced increases in wages and other compensation costs, materials, and shipping costs in 2022 and the nine months ended September 30, 2023. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could materially adversely affect our business, financial condition and results of operations.


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For financial market risks related to changes in interest rates and foreign currency exchange rates, reference is made to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in Part II of our Annual Report on Form 10-K for the year ended December 31, 2022. Our exposure to market risk has not changed materially since December 31, 2022.

ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and our chief financial officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and our chief financial officer have concluded that, as of such date, our disclosure controls and procedures were, in design and operation, effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Internal Control

Control systems, including ours, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems’ objectives are being met. Further, the design of any control systems must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of our material pending legal proceedings, see Note 12, Commitments and Contingencies, to our consolidated financial statements included elsewhere in this report.

ITEM 1A. RISK FACTORS

For risk factors related to our business, reference is made to Item 1A, "Risk Factors," contained in Part I of our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.


ITEM 5. OTHER INFORMATION

Securities Trading Plans of Directors and Executive Officers

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During the three months ended September 30, 2023, no director or officer, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408.

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ITEM 6. EXHIBITS

(a) Exhibits
Exhibit
Number		Incorporated by ReferenceFiled
Herewith
DescriptionFormFile No.ExhibitFiling Date
31.1X
31.2X
32.1*X
101.INSInline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)X
101.SCHInline XBRL Taxonomy Extension Schema DocumentX
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.X
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentX
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentX
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)X
*
The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NLIGHT, INC.
(Registrant)
November 3, 2023By:/s/ SCOTT KEENEY
DateScott Keeney
President and Chief Executive Officer
(Principal Executive Officer)
November 3, 2023By:/s/ JOSEPH CORSO
DateJoseph Corso
Chief Financial Officer
(Principal Financial Officer)
November 3, 2023By:/s/ JAMES NIAS
DateJames Nias
Chief Accounting Officer
(Principal Accounting Officer)

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