Executive Summary / Key Takeaways

• Defense-Driven Transformation: nLIGHT has successfully pivoted to become a defense-centric company, with Aerospace and Defense (A&D) revenue comprising over 60% of total sales by late 2024 and projected to grow over 40% in 2025, fueled by critical directed energy and laser sensing programs.
• Technological Leadership and Vertical Integration: The company's proprietary, vertically integrated high-power laser technology, spanning from semiconductor chips to full laser systems, provides a significant competitive moat, enabling superior performance and cost-effectiveness in demanding defense applications.
• Improving Financial Trajectory: Strong execution in A&D is driving meaningful improvements in gross margins, with product gross margin reaching a record 41% in Q3 2025, and adjusted EBITDA turning positive, demonstrating the inherent leverage in nLIGHT's operating model.
• Robust Backlog and Future Visibility: A substantial funded and unfunded backlog of approximately $399 million as of December 31, 2024, including $167 million in funded contracts for 2025-2026, provides solid revenue visibility and underpins confidence in future growth, even as major programs like HELSI-2 mature.
• Strategic Rationalization and Risk Mitigation: nLIGHT has strategically exited China manufacturing, consolidated operations, and is reallocating resources from challenged commercial markets to high-growth defense opportunities, while actively managing tariff-associated risks.

The Dawn of a New Era: nLIGHT's Strategic Ascent in High-Power Lasers

nLIGHT, Inc. (NASDAQ:LASR), founded in 2000, has evolved into a pivotal player in the high-power laser industry, strategically shifting its core focus to the burgeoning Aerospace and Defense (A&D) sector. This transformation is rooted in over two decades of innovation, establishing a vertically integrated approach that spans from proprietary gallium arsenide semiconductor chips, manufactured in Vancouver, Washington, to advanced fiber laser systems and beam directors. These foundational strengths position nLIGHT as a comprehensive supplier to the U.S. government, prime contractors, and international allies, aligning directly with critical defense priorities such as directed energy and laser sensing.

The global landscape for defense technologies is undergoing a significant transformation, driven by the increasing need for advanced, cost-effective defensive weapons. Directed energy lasers, in particular, are gaining prominence for their ability to offer a deep magazine, low cost per engagement, and speed-of-light delivery, complementing traditional kinetic defenses against a wide array of threats including drones, rockets, artillery, mortars, and missiles. This rebalances the economics of protecting key assets. The President's "Golden Dome" executive order, emphasizing non-kinetic missile defense capabilities and domestic system development, further underscores the strategic importance of nLIGHT's offerings. International initiatives, such as Israel's Iron Beam program and the U.K.'s Dragonfire, also highlight a global acceleration in directed energy adoption, creating a growing pipeline of opportunities for nLIGHT.

Technological Edge: Powering the Future of Defense

nLIGHT's competitive advantage is deeply embedded in its proprietary laser technology, which it has honed over 25 years. The company's core technology encompasses high-power semiconductor lasers, advanced fiber amplifiers, and sophisticated beam combination and control systems. This vertical integration allows nLIGHT to control every aspect of laser performance, from the chip level to the final system.

A key differentiator is nLIGHT's ability to produce high-brightness lasers, recently demonstrating a 300-kilowatt system. This capability is critical for directed energy applications, where power, beam quality, and efficiency are paramount. The company is a central participant in the $171 million HELSI-2 program, a multi-year Department of Defense (DoD) initiative to develop a 1-megawatt high-energy laser, with completion expected in 2026. This program leverages nLIGHT's latest generation of low size, weight, and power (SWaP) amplifier products, which are currently being transitioned into advanced production. This transition, while not without risk, is progressing well and is critical for optimizing the amplifier production line for higher volumes, ultimately leading to more cost-effective and scalable defense solutions. Management notes that products enabling incremental gross margins meaningfully north of 50%, such as these amplifiers, are meeting this target.

Furthermore, nLIGHT's work on the Army's DE M-SHORAD program, developing a 50-kilowatt high-energy laser for short-range air defense, is nearing completion, with delivery and field testing anticipated soon. In laser sensing, the company's products for missile guidance, proximity detection, range finding, and countermeasures are incorporated into several significant and long-running defense programs. A new $50 million contract for an existing missile program was secured in Q3 2025, and a classified program is expected to enter low-rate initial production (LRIP) in the latter half of 2025. These technological advancements and operational milestones directly contribute to nLIGHT's competitive moat, enabling higher average selling prices (ASPs), lower manufacturing costs through scale, and ultimately, better margins and a stronger market position in critical defense sectors.

Strategic Pivot and Operational Execution Driving Momentum

nLIGHT's strategic pivot towards the A&D market has been a defining factor in its recent performance. By the end of 2024, A&D revenue constituted over 60% of total sales, solidifying its position as the primary growth driver. This segment saw a 20% year-over-year increase to a record $109.5 million in 2024, with funded backlog surging 55% year-over-year to $167 million as of December 31, 2024. This momentum continued into 2025, with A&D revenue growing over 50% year-over-year in Q1 and Q2, and reaching a record $45.6 million in Q3 2025.

The company's operational execution has been critical to this success. The transition of amplifier products into advanced production, leveraging experienced manufacturing teams and quality control processes, is vital for scaling volumes. Management also highlighted the strategic rationalization of its commercial markets. In late 2024, nLIGHT completed the transition of its manufacturing operations out of China, relocating production to its automated facility in the Pacific Northwest and to a contract manufacturing partner in Thailand. This move, while presenting initial execution challenges and some missed demand in microfabrication, has stabilized operations and is intended to mitigate tariff-associated risks. The company is also rightsizing investments in areas like cutting and welding, reallocating engineering talent to defense-focused projects. Despite these shifts, nLIGHT remains optimistic about longer-term growth in metal additive manufacturing, particularly within the A&D sector, where its Corona AFX dynamic beam-shaping technology offers differentiated capabilities for faster and more flexible printing.

Financial Performance and Outlook: A Clear Trajectory

nLIGHT's financial performance reflects the successful execution of its defense-centric strategy. For the nine months ended September 30, 2025, total revenue increased to $180.1 million from $151.2 million in the same period of 2024. This growth was primarily driven by the A&D market, which saw increased unit sales of directed energy laser products and progress on R&D contracts. The company significantly narrowed its net loss, reporting $18.6 million for the nine months ended September 30, 2025, compared to $35.8 million in the prior year period.

Profitability has seen notable improvements, particularly in the Laser Products segment. Product gross margin reached a record 41% in Q3 2025, up from 29% in Q3 2024, driven by a favorable product sales mix, increased sales of directed energy laser products, and higher production volumes impacting fixed manufacturing costs. The first nine months of 2025 also benefited from duty reclaim and improved manufacturing yields. Overall gross margin for Q3 2025 was 31.1%, a substantial increase from 22.4% in Q3 2024. Adjusted EBITDA turned positive, reaching $7.1 million in Q3 2025, compared to a loss of approximately $1 million in the same quarter last year, demonstrating significant operating leverage.

From a liquidity standpoint, nLIGHT ended Q3 2025 with $116 million in cash, cash equivalents, restricted cash, and investments. The company generated $5.2 million in cash flow from operations and was free cash flow positive in the quarter, despite ongoing investments in working capital to support growth. A $20 million draw on its $40 million revolving Line of Credit (LOC) in Q1 2025 provided a cash buffer, with $20 million remaining available. This robust liquidity position is expected to meet working capital and capital expenditure needs for at least the next 12 months.

Looking ahead, nLIGHT's guidance for Q4 2025 projects revenue in the range of $72 million to $78 million, with a midpoint of $75 million. This includes approximately $55 million in product revenue and $20 million in development revenue. The company anticipates sequential growth in A&D revenue in Q4, and has raised its full-year 2025 A&D revenue growth outlook to exceed 40% year-over-year. Overall gross margin for Q4 is expected to be between 27% and 32%, with product gross margin in the range of 34% to 39%, and development gross margin around 8%. Adjusted EBITDA for Q4 2025 is projected between $6 million and $11 million. Management reiterates that breakeven adjusted EBITDA is expected with quarterly revenue in the $55 million to $60 million range. For 2026, management has indicated that existing booked programs in both directed energy and laser sensing are expected to offset the revenue impact as the HELSI-2 program trails off in the second half of the year, with additional high-probability programs poised to drive further growth. Conversely, the commercial business is expected to decline again in 2026, with microfabrication revenue likely to remain in the $8 million to $12 million range.

Competitive Positioning and Strategic Advantages

nLIGHT operates in a competitive landscape against both specialized laser manufacturers and larger defense contractors. Key direct competitors include IPG Photonics , Coherent Inc. , and Lumentum Holdings , all of whom offer various laser technologies for industrial, microfabrication, and defense applications.

nLIGHT's primary competitive advantage stems from its deep vertical integration and specialized focus on high-power lasers for defense. While larger competitors like IPG Photonics (IPGP) may boast greater scale and broader market presence in industrial applications, potentially leading to lower operating costs and higher overall profitability, nLIGHT differentiates itself through superior performance in mission-critical defense applications. Its proprietary fiber amplifiers and beam control systems offer significantly higher efficiency and precision in directed energy systems, providing a distinct edge in demanding environments. This technological superiority allows nLIGHT to command better pricing power and capture market share in specialized defense segments, where performance often outweighs initial cost considerations.

Compared to Coherent Inc. , which has a broad product portfolio across industrial, communications, and scientific markets, nLIGHT's focused innovation in defense-specific technologies provides greater adaptability and faster development cycles for advanced defense tech. While Coherent Inc.'s (COHR) diversified revenue streams might offer more stable profitability, nLIGHT's emphasis on advanced development, such as beam control for directed energy, positions it for leadership in emerging defense capabilities. Similarly, against Lumentum Holdings (LITE), which excels in optical and photonic products for telecom and 3D sensing, nLIGHT's direct sales force in key regions fosters closer customer relationships, particularly in defense, enabling a more tailored approach to complex program requirements.

However, nLIGHT's smaller scale compared to these larger rivals can lead to higher operating costs and potentially lower overall margins, impacting its financial efficiency. The company also faces vulnerabilities related to supply chain dependencies, particularly for components sourced from China, which disproportionately affects its industrial fiber laser business. To mitigate these, nLIGHT's ability to shift commercial laser production between its U.S. facilities and its Thai contract manufacturer is a strategic response to tariff-associated risks. The high R&D costs and stringent regulatory requirements inherent in defense applications also act as significant barriers to entry, protecting nLIGHT's market position and favoring its innovation-driven strategy.

Conclusion

nLIGHT stands at a pivotal juncture, having successfully transformed into a defense-centric high-power laser company. Its core investment thesis is firmly rooted in its technological leadership, vertical integration, and strategic alignment with critical U.S. and international defense priorities. The company's robust backlog, strong execution on key programs like HELSI-2 and new laser sensing contracts, and improving financial metrics—including record product gross margins and positive adjusted EBITDA—underscore its operational effectiveness and the inherent leverage in its business model.

While challenges persist in the commercial markets and global trade policies introduce uncertainties, nLIGHT's decisive actions to rationalize these segments and mitigate risks position it for sustained growth. The company's unique ability to translate commercial innovation into cost-effective, high-performance defense solutions, coupled with its deep engagement in next-generation defense technologies, provides a compelling long-term growth trajectory. Investors should closely monitor the continued ramp of A&D programs, the successful transition of amplifier production, and the realization of new opportunities under initiatives like Golden Dome, as these factors will be instrumental in solidifying nLIGHT's position as a leader in the evolving landscape of high-power laser defense.