Stock Story -
Laser company nLIGHT (NASDAQGS:LASR) reported results ahead of analysts' expectations in Q2 CY2024, with revenue down 5.2% year on year to $50.51 million. The company expects next quarter's revenue to be around $55.5 million, in line with analysts' estimates. It made a non-GAAP loss of $0.10 per share, improving from its loss of $0.19 per share in the same quarter last year.
Is now the time to buy nLIGHT? Find out by reading the original article on StockStory, it's free.
nLIGHT (LASR) Q2 CY2024 Highlights:
- Revenue: $50.51 million vs analyst estimates of $49.19 million (2.7% beat)
- EPS (non-GAAP): -$0.10 vs analyst estimates of -$0.13
- Revenue Guidance for Q3 CY2024 is $55.5 million at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 23.5%, up from 22.7% in the same quarter last year
- Free Cash Flow was -$6.38 million, down from $9.82 million in the previous quarter
- Market Capitalization: $574.1 million
Founded by a former CEO and Harvard-educated entrepreneur Scott Keeneyn, nLIGHT (NASDAQGS:LASR) offers semiconductor and fiber lasers to the industrial, aerospace & defense, and medical sectors.
Electronic ComponentsLike many equipment and component manufacturers, electronic components companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include data centers and telecommunications, which can benefit companies whose optical and transceiver offerings fit those markets. But like the broader industrials sector, these companies are also at the whim of economic cycles. Consumer spending, for example, can greatly impact these companies’ volumes.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Regrettably, nLIGHT's sales grew at a weak 1.1% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. nLIGHT's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 13.7% annually. nLIGHT isn't alone in its struggles as the Electronic Components industry experienced a cyclical downturn, with many similar businesses seeing lower sales at this time.
We can better understand the company's revenue dynamics by analyzing its most important segments, Laser Products and Advanced Developments, which are 68.2% and 31.8% of revenue. Over the last two years, nLIGHT's Laser Products revenue (lasers, amplifiers, and directed energy products) averaged 17.3% year-on-year declines while its Advanced Developments revenue (R&D contracts) was flat.
This quarter, nLIGHT's revenue fell 5.2% year on year to $50.51 million but beat Wall Street's estimates by 2.7%. The company is guiding for revenue to rise 9.6% year on year to $55.5 million next quarter, improving from the 15.7% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 18.9% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Unprofitable industrials companies require extra attention because they could get caught swimming naked if the tide goes out. It's hard to trust that nLIGHT can endure a full cycle as its high expenses have contributed to an average operating margin of negative 16.9% over the last five years. This result isn't too surprising given its low gross margin as a starting point.
Looking at the trend in its profitability, nLIGHT's annual operating margin decreased by 15.1 percentage points over the last five years. The company's performance was poor no matter how you look at it. It shows operating expenses were rising and it couldn't pass those costs onto its customers.
This quarter, nLIGHT generated an operating profit margin of negative 25.1%, down 3.2 percentage points year on year. Since nLIGHT's operating margin decreased more than its gross margin, we can assume the company was recently less efficient because expenses such as sales, marketing, R&D, and administrative overhead increased.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Sadly for nLIGHT, its EPS declined by 58.3% annually over the last five years while its revenue grew by 1.1%. This tells us the company became less profitable on a per-share basis as it expanded.
We can take a deeper look into nLIGHT's earnings to better understand the drivers of its performance. As we mentioned earlier, nLIGHT's operating margin declined by 15.1 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For nLIGHT, its two-year annual EPS declines of 26.5% show it's still underperforming. These results were bad no matter how you slice the data.
In Q2, nLIGHT reported EPS at negative $0.10, up from negative $0.19 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts are projecting nLIGHT's EPS of negative $0.93 in the last year to reach break even.
Key Takeaways from nLIGHT's Q2 ResultsWe were impressed by how significantly nLIGHT blew past analysts' EPS expectations this quarter. We were also glad its Advanced Developments revenue topped Wall Street's estimates. Zooming out, we think this was an impressive quarter that should delight shareholders. The stock traded up 5% to $11.78 immediately after reporting.
