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NLIGHT, INC. - Quarter Report: 2023 March (Form 10-Q)


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 March 31, 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 May 2, 2023, the Registrant had 45,850,661 shares of common stock outstanding.


TABLE OF CONTENTS
Page
Part II. Other Information


































PART I


ITEM 1. FINANCIAL STATEMENTS

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

As of
March 31, 2023December 31, 2022
Assets
Current assets:
    Cash and cash equivalents$48,402 $57,826 
    Marketable securities59,966 50,391 
Accounts receivable, net of allowances of $290 and $290
36,140 37,913 
    Inventory67,157 67,600 
    Prepaid expenses and other current assets21,586 17,026 
          Total current assets233,251 230,756 
Restricted cash253 252 
Lease right-of-use assets13,900 13,893 
Property, plant and equipment, net 58,978 60,693 
Intangible assets, net 3,408 4,041 
Goodwill12,388 12,376 
Other assets, net7,586 7,222 
          Total assets$329,764 $329,233 
Liabilities and Stockholders’ Equity
Current liabilities:
     Accounts payable$17,759 $17,507 
     Accrued liabilities14,708 12,820 
     Deferred revenues1,271 1,407 
     Current portion of lease liabilities3,001 2,758 
          Total current liabilities36,739 34,492 
Non-current income taxes payable6,920 6,699 
Long-term lease liabilities12,576 12,852 
Other long-term liabilities4,367 4,345 
          Total liabilities60,602 58,388 
Stockholders' equity:
  Common stock - $0.0001 par value; 190,000 shares authorized, 45,785 and 45,629 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively
16 16 
     Additional paid-in capital501,675 496,211 
     Accumulated other comprehensive loss(2,165)(2,748)
     Accumulated deficit(230,364)(222,634)
          Total stockholders’ equity269,162 270,845 
          Total liabilities and stockholders’ equity$329,764 $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 March 31,
20232022
Revenue:
Products$41,107 $51,061 
Development12,984 13,398 
Total revenue54,091 64,459 
Cost of revenue:
Products27,526 35,768 
Development12,302 12,514 
Total cost of revenue39,828 48,282 
Gross profit14,263 16,177 
Operating expenses:
Research and development11,301 13,711 
Sales, general, and administrative11,169 10,775 
Total operating expenses22,470 24,486 
Loss from operations(8,207)(8,309)
Other income:
Interest income, net337 — 
Other income, net404 29 
Loss before income taxes(7,466)(8,280)
Income tax expense264 343 
Net loss$(7,730)$(8,623)
Net loss per share, basic and diluted$(0.17)$(0.20)
Shares used in per share calculations, basic and diluted45,706 43,655 

See accompanying notes to consolidated financial statements.

2

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


Three Months Ended March 31,
20232022
Net loss$(7,730)$(8,623)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments369 (96)
Unrealized gains on available-for-sale securities214 — 
Comprehensive loss$(7,147)$(8,719)

See accompanying notes to consolidated financial statements.

3

nLIGHT, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands)
(Unaudited)
Three Months Ended March 31, 2023
 Common stockAdditional paid-in capitalAccumulated other comprehensive lossAccumulated deficitTotal stockholders' equity
SharesAmount
Balance, December 31, 2022 45,629 $16 $496,211 $(2,748)$(222,634)$270,845 
Net loss— — — — (7,730)(7,730)
Issuance of common stock pursuant to exercise of stock options117 — 143 — — 143 
Issuance of common stock pursuant to vesting of restricted stock awards and units, net of stock withheld for tax39 — (182)— — (182)
Stock-based compensation— — 5,503 — — 5,503 
Unrealized gains on available-for-sale securities— — — 214 — 214 
Cumulative translation adjustment, net of tax— — — 369 — 369 
Balance, March 31, 202345,785 $16 $501,675 $(2,165)$(230,364)$269,162 

Three Months Ended March 31, 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— — — — (8,623)(8,623)
Issuance of common stock pursuant to exercise of stock options423 — 689 — — 689 
Issuance of common stock pursuant to vesting of restricted stock awards and units, net of stock withheld for tax7 — (78)— — (78)
Restricted stock awards forfeited in connection with transition agreement(140)— — — — — 
Stock-based compensation— — 6,553 — — 6,553 
Cumulative translation adjustment, net of tax— — — (96)— (96)
Balance, March 31, 202244,538 $15 $477,924 $(683)$(176,678)$300,578 

See accompanying notes to consolidated financial statements.
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nLIGHT, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended March 31,
20232022
Cash flows from operating activities:
Net loss$(7,730)$(8,623)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation3,105 2,556 
Amortization872 1,182 
Reduction in carrying amount of right-of-use assets6 867 
Recoveries of losses on accounts receivable(2)— 
Stock-based compensation5,503 6,553 
Deferred income taxes— (4)
Changes in operating assets and liabilities:
Accounts receivable, net1,905 4,690 
Inventory662 (3,433)
Prepaid expenses and other current assets(4,549)(5,061)
Other assets, net(540)(317)
Accounts payable(411)(3,019)
Accrued and other long-term liabilities1,855 (1,088)
Deferred revenues(142)(647)
Lease liabilities(45)(813)
Non-current income taxes payable155 153 
Net cash provided by (used in) operating activities644 (7,004)
Cash flows from investing activities:
Purchases of property, plant and equipment(684)(5,019)
Acquisition of intangible assets and capitalization of patents— (114)
Purchase of marketable securities(34,359)— 
Proceeds from maturities and sales of marketable securities24,998 — 
Net cash used in investing activities(10,045)(5,133)
Cash flows from financing activities:
Proceeds from stock option exercises143 689 
Tax payments related to stock award issuances(182)(78)
Net cash (used in) provided by financing activities(39)611 
Effect of exchange rate changes on cash17 (59)
Net decrease in cash, cash equivalents, and restricted cash(9,423)(11,585)
Cash, cash equivalents, and restricted cash, beginning of period58,078 146,784 
Cash, cash equivalents, and restricted cash, end of period$48,655 $135,199 
Supplemental disclosures:
Cash paid for interest, net$— $— 
Cash paid for income taxes144 79 
Operating cash outflows from operating leases923 1,097 
Right-of-use assets obtained in exchange for lease liabilities731 1,470 
Accrued purchases of property, equipment and patents697 2,268 

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 three months ended March 31, 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, the Company recognizes over time revenue as per ASC 606-10-55-18 (invoice practical expedient) for its cost plus contracts and, accordingly, elects not to disclose information related to those performance obligations under ASC 606-10-50-14b.

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.

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. Because control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer. Billing under these arrangements generally occurs within one month after the work is completed.


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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 March 31,
 20232022
Industrial$19,902 $23,996 
Microfabrication13,058 17,319 
Aerospace and Defense21,131 23,144 
$54,091 $64,459 

Sales by Geography

Three Months Ended March 31,
 20232022
North America$29,103 $35,144 
China3,646 7,139 
Rest of World21,342 22,176 
$54,091 $64,459 

Sales by Timing of Revenue

Three Months Ended March 31,
 20232022
Point in time$40,272 $48,215 
Over time13,819 16,244 
$54,091 $64,459 

Our contract assets and liabilities are as follows (in thousands):
Balance Sheet ClassificationAs of
 March 31, 2023December 31, 2022
Contract assetsPrepaid expenses and
other current assets		$16,547 $10,377 
Contract liabilitiesDeferred revenues and other long-term liabilities2,511 2,455 


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.

During the three months ended March 31, 2023 and 2022, we recognized revenue of $0.8 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.

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Note 3 - Concentrations of Credit and Other Risks
The following customers accounted for 10% or more of our revenues for the periods presented:
Three Months Ended March 31,
20232022
U.S. Government16%17%
Raytheon Technologies
(1)
10%
(1)Represents less than 10% of total revenues.

Financial instruments that potentially expose us to concentrations of credit risk consist principally of receivables from customers. As of March 31, 2023, and December 31 2022, two customers accounted for a total of 33% 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 $0.4 million for three months ended March 31, 2023. Unrealized gains were $0.2 million for the three months ended March 31, 2023. These unrealized gains are considered temporary and are reflected in the Statements of Comprehensive Loss. There were no realized or unrealized gains or losses for the three months ended March 31, 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.
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.
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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):

March 31, 2023
Level 1Level 2Level 3Total
Cash Equivalents:
  Money market securities $26,000 $— $— $26,000 
  Commercial paper557 — — 557 
26,557 — — 26,557 
Marketable Securities:
  U.S. treasuries59,966 — — 59,966 
Total$86,523 $— $— $86,523 
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.

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
March 31, 2023December 31, 2022
Raw materials$32,665 $32,515 
Work in process and semi-finished goods20,137 19,056 
Finished goods14,355 16,029 
$67,157 $67,600 

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Note 7 - Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
Useful lifeAs of
 (years)March 31, 2023December 31, 2022
Automobiles3$114 $110 
Computer hardware and software
3 - 5
8,673 8,712 
Manufacturing and lab equipment
2 - 7
90,153 89,230 
Office equipment and furniture
5 - 7
2,482 2,410 
Leasehold and building improvements
2 - 12
31,217 30,675 
Buildings309,392 9,392 
LandN/A3,399 3,399 
145,430 143,928 
Accumulated depreciation (86,452)(83,235)
$58,978 $60,693 

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
 March 31, 2023December 31, 2022
Patents
3 - 5
$6,334 $6,322 
Development programs
2 - 4
7,200 7,200 
Developed technology52,960 2,930 
16,494 16,452 
Accumulated amortization (13,086)(12,411)
$3,408 $4,041 

Amortization related to intangible assets was as follows (in thousands):
Three Months Ended March 31,
 20232022
Amortization expense$654 $776 

Estimated amortization expense for future years is as follows (in thousands):
2023$1,581 
2024929 
2025593 
2026305 
Thereafter— 
$3,408 

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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 adjustment12 — 12 
Balance, March 31, 2023$2,140 $10,248 $12,388 

Note 9 - Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
As of
March 31, 2023December 31, 2022
Accrued payroll and benefits$9,888 $8,233 
Product warranty, current2,540 2,601 
Other accrued expenses2,280 1,986 
$14,708 $12,820 

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):
Three Months Ended March 31,
 20232022
Product warranty liability, beginning$5,441 $5,371 
Warranty charges incurred, net(782)(1,490)
Provision for warranty charges, net of adjustments572 1,560 
Product warranty liability, ending5,231 5,441 
Less: current portion of product warranty liability(2,540)(2,601)
Non-current portion of product warranty liability$2,691 $2,840 

Note 11 - Stockholders' Equity and Stock-Based Compensation

Restricted Stock Awards and Units
There was no restricted stock award activity in the first quarter of 2023. Restricted stock unit ("RSU") activity under our equity incentive plan was as follows (in thousands, except weighted-average grant date fair values):

Number of Restricted Stock UnitsWeighted-Average Grant Date Fair Value
RSUs at December 31, 20222,784 $17.63 
Awards granted152 11.55 
Awards vested(57)18.09 
Awards forfeited(223)21.49 
RSUs at March 31, 20232,656 16.95 

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The total fair value of RSUs vested during the three months ended March 31, 2023, was $1.0 million. Awards outstanding as of March 31, 2023 include 0.6 million performance-based awards that will vest upon meeting certain performance criteria.

Stock Options
The following table summarizes our stock option activity during the three months ended March 31, 2023 (in thousands, except weighted-average exercise prices):
 Number of OptionsWeighted-Average Exercise PriceWeighted-Average Remaining Contractual Term (Years)Aggregate Intrinsic Value
Outstanding, December 31, 20221,827 $1.293.4$16,156
Options exercised(117)1.22
Outstanding, March 31, 20231,710 1.303.215,181
Options exercisable at March 31, 20231,710 1.303.215,181
Options vested as of March 31, 2023, and expected to vest after March 31, 20231,710 1.303.215,181

Total intrinsic value of options exercised for the three months ended March 31, 2023 and 2022, was $1.1 million and $6.4 million, respectively. We received proceeds of $0.1 million and $0.7 million from the exercise of options for the three months ended March 31, 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 March 31,
20232022
Cost of revenues$700 $709 
Research and development2,098 3,122 
Sales, general and administrative2,705 2,722 
$5,503 $6,553 

Unrecognized Compensation Costs
As of March 31, 2023, total unrecognized stock-based compensation was $34.8 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 March 31, 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 one month to 12.2 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 0.2 to 4.3 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 March 31, 2023, and the weighted-average discount rate was 3.6%. The weighted-average remaining lease term for the lease obligations was 8 years as of December 31, 2022, and the weighted-average discount rate was 3.6%.

The components of lease expense related to operating leases were as follows (in thousands):
Three Months Ended March 31,
20232022
Lease expense:
Operating lease expense$921 $1,031 
Short-term lease expense93 121 
Variable and other lease expense225 194 
$1,239 $1,346 

Future minimum payments under our non-cancelable lease obligations were as follows as of March 31, 2023 (in thousands):
2023$2,658 
20243,232 
20252,067 
20261,654 
20271,655 
Thereafter6,806 
Total minimum lease payments18,072 
Less: interest(2,495)
Present value of net minimum lease payments15,577 
Less: current portion of lease liabilities(3,001)
Total long-term lease liabilities$12,576 

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 March 31, 2023
Laser ProductsAdvanced DevelopmentCorporate and OtherTotals
Revenue$41,107 $12,984 $— $54,091 
Gross profit$14,281 $682 $(700)$14,263 
Gross margin34.7 %5.3 %NM*26.4 %
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Three Months Ended March 31, 2022
Laser ProductsAdvanced DevelopmentCorporate and OtherTotals
Revenue$51,061 $13,398 $— $64,459 
Gross profit$16,002 $884 $(709)$16,177 
Gross margin31.3 %6.6 %NM*25.1 %

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 March 31,
 20232022
Restricted stock units and awards845 1,313 
Common stock options1,574 2,090 
 2,419 3,403 

Note 16 - Subsequent Event
On May 4, 2023, we announced that we had been awarded an $86 million contract to produce a High Energy Laser (HEL) prototype for the next phase of development in support of the U.S. Department of Defense’s (DoD) High Energy Laser Scaling Initiative (HELSI). The award is part of a multi-year development program that is expected to commence in the third quarter of 2023.
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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 $54.1 million in the three months ended March 31, 2023 compared to $64.5 million in the same period of 2022 due primarily to decreased sales in the Laser Products segment. We generated a net loss of $7.7 million for the three months ended March 31, 2023 compared to a net loss of $8.6 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 March 31,
20232022
Revenue:
Products76.0 %79.2 %
Development24.0 20.8 
Total revenue100.0 100.0 
Cost of revenue:
Products50.9 55.5 
Development22.7 19.4 
Total cost of revenue73.6 74.9 
Gross profit26.4 25.1 
Operating expenses:
Research and development20.9 21.3 
Sales, general, and administrative20.6 16.7 
Total operating expenses41.5 38.0 
Loss from operations(15.2)(12.9)
Other income:
Interest income, net0.6 — 
Other income, net0.7 — 
Loss before income taxes(13.8)(12.9)
Income tax expense0.5 0.5 
Net loss(14.3)%(13.4)%


Revenues by End Market

Our revenues by end market were as follows for the periods presented (dollars in thousands):
Three Months Ended March 31,Change
2023% of Revenue2022% of Revenue$%
Industrial$19,902 36.8 %$23,996 37.2 %$(4,094)(17.1)%
Microfabrication13,058 24.1 17,319 26.9 (4,261)(24.6)
Aerospace and Defense21,131 39.1 23,144 35.9 (2,013)(8.7)
$54,091 100.0 %$64,459 100.0 %$(10,368)(16.1)%

The decreases in revenue from the Industrial and Microfabrication markets for the three months ended March 31, 2023 compared to the same period of 2022 were a result of decreased unit sales due to lower market demand, particularly in China. The decrease in revenue from the Aerospace and Defense market for the three months ended March 31, 2023 compared to the same period of 2022 was driven primarily by a decrease in unit sales and decreased activity on research and 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 March 31,Change
2023% of Revenue2022% of Revenue$%
Laser Products$41,107 76.0 %$51,061 79.2 %$(9,954)(19.5)%
Advanced Development12,984 24.0 13,398 20.8 (414)(3.1)
$54,091 100.0 %$64,459 100.0 %$(10,368)(16.1)%

The decrease in Laser Products revenue for the three months ended March 31, 2023 compared to the same period of 2022 was driven by decreased units sales across each end market as discussed above. The decrease in Advanced Development revenue for the three months ended March 31, 2023 compared to the same period of 2022 was primarily due to decreased activity on research and 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 March 31,Change
2023% of Revenue2022% of Revenue$%
North America$29,103 53.8 %$35,144 54.5 %$(6,041)(17.2)%
China3,646 6.7 7,139 11.1 (3,493)(48.9)
Rest of World21,342 39.5 22,176 34.4 (834)(3.8)
$54,091 100.0 %$64,459 100.0 %$(10,368)(16.1)%

Geographic revenue information is based on the location to which we ship our products. The decrease in North America revenue for the three months ended March 31, 2023 compared to the same period of 2022 was a result of decreased revenue across each end market as discussed above. The decrease in China revenue for the three months ended March 31, 2023 compared to the same period of 2022 was 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 decrease in Rest of World revenue for the three months ended March 31, 2023 compared to the same period of 2022 was due to decreased revenue from the Microfabrication market, partially offset by increased revenue from the Industrial market.

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.
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Our gross profit and gross margin were as follows for the periods presented (dollars in thousands):

Three Months Ended March 31, 2023
Laser ProductsAdvanced DevelopmentCorporate and OtherTotal
Gross profit$14,153 $682 $(572)$14,263 
Gross margin34.4 %5.3 %NM*26.4 %

Three Months Ended March 31, 2022
Laser ProductsAdvanced DevelopmentCorporate and OtherTotal
Gross profit$16,002 $884 $(709)$16,177 
Gross margin31.3 %6.6 %NM*25.1 %
*NM = not meaningful

The increase in Laser Products gross margin for the three months ended March 31, 2023 compared to the same period of 2022 was driven by changes in sales mix, decreased unit sales of products for the Industrial market with low gross margins, and decreased manufacturing costs. The decrease in Advanced Development gross margin for the three months ended March 31, 2023 compared to the same period of 2022 was not significant and was primarily the result of changes in the mix of research and development contracts.

Operating Expenses

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

Research and Development
Three Months Ended March 31,Change
20232022$%
Research and development$11,301 $13,711 $(2,410)(17.6)%

The decrease in research and development expense for the three months ended March 31, 2023 compared to the same period in 2022 was driven by a decrease in salary costs and project-related expenses, a decrease in stock-based compensation of $1.0 million and a decrease in purchased intangible amortization of $0.1 million.

Sales, General and Administrative
Three Months Ended March 31,Change
20232022$%
Sales, general, and administrative$11,169 $10,775 $394 3.7 %

The increase in sales, general and administrative expense for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to increases in rep commissions, professional service fees, and trade show related expenses.
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Interest Income, net
Three Months Ended March 31,Change
20232022$%
Interest income, net$337 $— $337 —%

The increase in interest income, net, for the three months ended March 31, 2023 compared to the same period in 2022 was driven by an increase in interest rates and the investment in marketable securities during the second quarter of 2022.

Other Income, net
Three Months Ended March 31,Change
20232022$%
Other income, net$404 $29 $375 1,293.1%

Changes in other income, net are primarily attributable to realized gains and losses on the sale of marketable securities and changes in net realized and unrealized foreign exchange transactions resulting from currency rate fluctuations. The increase in other income, net for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to realized gains on the sale of marketable securities.

Income Tax Expense
Three Months Ended March 31,Change
20232022$%
Income tax expense$264 $343 $(79)(23.0)%

We record income tax expense for taxes in our foreign jurisdictions including Finland, Italy, and South Korea. While our tax expense is largely dependent on the geographic mix of earnings related to our foreign operations, we also record tax expense 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 March 31, 2023.

There was no significant change in income tax expense for the three months ended March 31, 2023 compared to the same period in 2022.

Liquidity and Capital Resources

We had cash and cash equivalents of $48.4 million and $57.8 million as of March 31, 2023 and December 31, 2022, respectively. In addition, we had marketable securities of $60.0 million and $50.4 million at March 31, 2023 and December 31, 2022, respectively.

For the three months ended March 31, 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):

Three Months Ended March 31,
20232022
Net cash provided by (used in) operating activities$644 $(7,004)
Net cash used in investing activities(10,045)(5,133)
Net cash (used in) provided by financing activities(39)611 
Effect of exchange rate changes on cash17 (59)
Net decrease in cash, cash equivalents and restricted cash$(9,423)$(11,585)

Net Cash Provided by (Used in) Operating Activities

During the three months ended March 31, 2023, net cash provided by operating activities was $0.6 million, which was the result of an $7.7 million net loss and use of cash for working capital of $1.1 million, offset by non-cash expenses totaling $9.5 million related primarily to depreciation, amortization, and stock-based compensation.
Changes in working capital were driven by a $4.5 million increase in prepaid expenses and other current assets, which was partially offset by a $2.1 million increase in accrued expenses and other long-term liabilities and a $1.9 million decrease in accounts receivable, net. The increase in prepaid expenses and other current assets related primarily to contract assets that will be billed in the second quarter of 2023, and the increase in accrued expenses and other long-term liabilities was driven by the timing of payroll related payments and the employee stock purchase plan.
Net Cash Used in Investing Activities
During the three months ended March 31, 2023, net cash used in investing activities was $10.0 million, which was driven by the net purchase of marketable securities of $9.4 million and capital expenditures of $0.7 million.

Net Cash Provided by (Used in) Financing Activities

During the three months ended March 31, 2023, net cash used in financing activities was less than $0.1 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 March 31, 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 three months ended March 31, 2023, we experienced increases in wages and other compensation costs, materials, and shipping costs in 2022. We expect costs will continue to increase in 2023 and continue to impact our cost structure. 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

In January 2023, we launched our new enterprise resource planning (“ERP”) system and consequently, modified the design of certain internal controls over activities related to accumulation, recording and reporting of information in our financial statements. Other than these ERP system implementation changes, there have been no other changes in our internal controls over financial reporting that occurred during the first quarter of 2023 that have materially affected or are reasonably likely to materially affect our internal controls 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

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.


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ITEM 6. EXHIBITS

(a) Exhibits
Exhibit
Number		Incorporated by ReferenceFiled
Herewith
DescriptionFormFile No.ExhibitFiling Date
3.2+X
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
+This exhibit was originally filed as Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on December 20, 2022. It is being refiled with this Quarterly Report on Form 10-Q solely to correct formatting errors to the section numbering in the original filing as it appears on EDGAR. No changes were made to the actual Amended and Restated Bylaws of the registrant since the original filing.
*
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)
May 5, 2023By:/s/ SCOTT KEENEY
DateScott Keeney
President and Chief Executive Officer
(Principal Executive Officer)
May 5, 2023By:/s/ JOSEPH CORSO
DateJoseph Corso
Chief Financial Officer
(Principal Financial Officer)
May 5, 2023By:/s/ JAMES NIAS
DateJames Nias
Chief Accounting Officer
(Principal Accounting Officer)

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