nLIGHT (NYSE: NASDAQ:), a provider of high-performance laser solutions, has reported a first-quarter revenue of $44.5 million, signaling a mixed performance across its various business segments. The company expects to see growth in the second quarter and a stronger performance in the latter half of 2024, primarily driven by its defense business.
Despite facing challenges in the commercial markets, nLIGHT is optimistic about its long-term growth, particularly in the aerospace and defense sectors. The company ended the quarter with a strong balance sheet, boasting $121.3 million in cash and investments, and no debt.
Key Takeaways
- nLIGHT’s Q1 revenue stands at $44.5 million with a gross margin of approximately 17%.
- Aerospace and Defense revenue saw a 3% year-over-year increase to $21.7 million.
- Industrial and microfabrication revenues experienced declines of 40% and 17% year-over-year, respectively.
- The company expects Q2 revenue to be between $47 million and $51 million with improved gross margins.
- nLIGHT has a strong balance sheet with $121.3 million in cash and investments, and no debt.
- Defense business is expected to drive growth with a funded backlog and contract value exceeding $300 million.
- Additive manufacturing business is projected to resume significant growth in 2025 and beyond.
Company Outlook
- nLIGHT is shifting manufacturing from China to the US and investing in new product development.
- The company has acquired Nutronics to enhance its directed energy capabilities.
- Growth is anticipated in the second half of 2024, driven by defense contracts and product revenue.
Bearish Highlights
- Industrial and microfabrication segments are currently struggling with soft demand and inventory corrections.
- The company reported a net loss on a GAAP basis and a decrease in adjusted EBITDA in Q1 compared to the previous year.
Bullish Highlights
- The defense business is gaining visibility and is expected to contribute significantly to future growth.
- The company is investing in laser performance enhancements for applications in metal cutting, welding, and the EV battery space.
Misses
- Despite an overall revenue increase, there have been significant declines in the industrial and microfabrication revenue streams.
Q&A Highlights
- CEO Scott Keeney emphasized the growing interest in directed energy technologies and the progress in defense programs.
- CFO Joe Corso confirmed no major changes to the spending plans and expects growth in the second half of the year.
- Margin improvements are expected from increased volume through facilities and growth in product revenue, particularly from defense contracts.
InvestingPro Insights
In light of nLIGHT’s (ticker: LASR) first-quarter performance and future outlook, InvestingPro provides valuable insights into the company’s financial health and market position. The company’s strong balance sheet is underscored by the fact that it holds more cash than debt, which is a reassuring sign for investors considering the company’s liquidity and financial stability. Furthermore, nLIGHT’s liquid assets exceed its short-term obligations, providing the company with a cushion to navigate through uncertain market conditions.
InvestingPro Data indicates that nLIGHT has a market capitalization of $577.44 million and a negative Price-to-Earnings (P/E) ratio of -11.82, reflecting the market’s expectations of future earnings potential relative to the current loss levels.
The company’s revenue for the last twelve months as of Q1 2024 stands at $200.36 million, although it has experienced a decline of 13.52% during this period. This contraction in revenue aligns with the challenges highlighted in the industrial and microfabrication segments of the business.
An InvestingPro Tip worth noting is that six analysts have revised their earnings downwards for the upcoming period, suggesting that market experts are cautious about nLIGHT’s near-term earnings potential. Moreover, the company’s stock price movements have been quite volatile, with a significant price uptick of 30.54% over the last six months, yet the company has not been profitable over the last twelve months, as reflected in the negative P/E ratio.
For investors looking for more comprehensive analysis and additional insights, there are 8 more InvestingPro Tips available for nLIGHT at Using the coupon code PRONEWS24, readers can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access these valuable tips and make more informed investment decisions.
Full transcript – nLIGHT Inc (LASR) Q1 2024:
Operator: Hello and welcome to the nLIGHT First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the call to Joe Corso, CFO. Please go ahead.
Joe Corso: Thank you, and good afternoon, everyone. I’m Joe Corso, nLight’s Chief Financial Officer. With me today is Scott Keeney, nLIGHT’s Chairman and CEO. Today’s discussion will contain forward-looking statements, including financial projections and plans for our business, some of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today’s call, and we undertake no obligation to update publicly any forward-looking statement, except as required by law. During the call, we will be discussing certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release, which can be found on the Investor Relations section of our website. I will now turn the call over to Scott.
Scott Keeney: Thank you, Joe. First quarter revenue of $44.5 million and overall gross margins of approximately 17% were within the guidance range. Continued careful management of operating expenses, working capital and capital expenditures enabled us to increase cash, cash equivalents and investments to $121 million with no debt. As discussed last quarter, we believe Q1 is our trough revenue quarter and expect growth in the second quarter. We also expect the second half of the year to be stronger than the first half of 2024, with increasing visibility for continued growth driven by our defense business. Before turning to the details of the quarter, I would like to reflect upon nLIGHT’s recent history and business transition. We founded nLIGHT with the vision that laser technology would improve at a rapid rate and open up new applications for lasers in both commercial and defense markets. This past week marked the sixth anniversary of our IPO. Since then, we’ve experienced important changes in our business. Some of the changes have been beyond our control, the most significant of which was a rapid and dramatic geopolitical shift with respect to China. In the face of this change, we made several fundamental changes to our business to position ourselves for long-term growth. We shifted our manufacturing footprint away from China and into the U.S. and a contract manufacturer. We developed innovative products for a nascent but fast-growing metal additive manufacturing market. We acquired Nutronics to deepen our presence in directed energy, and we pursued and won multiple new defense contracts. These changes have been a drag on our income statement performance, but through disciplined OpEx control and working capital management, our balance sheet is strong, and we are well positioned for growth. This growth will be driven by our dual use strategy – we serve both the commercial and defense end markets, each of which has its own set of growth drivers and visibility to understand our long-term revenue opportunity, it’s important to review what we believe is possible in each of these core markets. Aerospace & Defense has emerged as the most significant growth opportunity we have in front of us today. nLIGHT has been focused on the aerospace and defense market since inception, and our most recent investments in technology and capabilities positions us for significant growth in this market. We are working on programs with strategic importance to the U.S. government and with funded backlog plus contract value exceeding $300 million we have strong visibility into our revenue pipeline over the next several years. Geopolitical unrest and ongoing military complex in the Middle East Ukraine and elsewhere, are driving the need for more sophisticated, cost-effective defense solutions built upon semiconductor and fiber laser technology. The COVID-19 pandemic highlighted the fragility of the global supply chain and a critical need to bolster domestic infrastructure required to support the U.S. defense base. Our defense business spans a wide range of laser-based applications and we’ve become a critical supplier to the U.S. Department of Defense and multiple programs for U.S. allies. More specifically, there are two areas of our Aerospace and Defense business that are driving our growth, laser sensing and direct energy. Laser sensing products use lasers for object detection, measurement and inspection and are used in a wide range of land, sea, air and increasingly space applications. A few examples of our laser sensing products include missile guidance, proximity detection range finding and countermeasures. Our products have been incorporated into several significant and long-running defense programs and are expected to enable several new classified large programs. In directed energy, we are designing and building solutions aimed at feeding a growing range of threats to military forces and infrastructure and offer significant advantages over traditional kinetic weapons, including speed of light engagement, low cost per shop and deep magazines. We believe that a combination of our leading technology capabilities and U.S.-based vertically integrated business model provides us with significant competitive differentiation in this market. Our broad portfolio of products for the direct and energy market, which includes semiconductor lasers, fiber amplifiers, beam combined lasers and beam control solutions enables us to engage strategically with domestic and international partners across the entire directed energy ecosystem. As a result, we expect strong growth in Aerospace and Defense business in 2024 with further upside in future years based on current contracts and potential future awards. Turning to our commercial markets. In microfabrication, we pioneered the development of single-emitter fiber-coupled semiconductor lasers and have been a market leader in this area for many years. Our patented high brightness, high-power semiconductor lasers are a critical enabling component of many ability pulse lasers available in the market today. We continue to see increasing number of laser-based manufacturing processes across a wide range of applications in the auto, consumer, communications and electronics industries. We are also in the early stages of adoption of lasers in a handful of medical applications. Taken together, we believe that our microfabrication business is relatively steady and will grow modestly over time. In industrial, where we serve the cutting, wellbeing and additive manufacturing markets, our growth picture is more mixed in the near term. Although each of our markets have specific opportunities and challenges, pervasive inventory corrections combined with persistently soft demand across the industry is impacting each of the end markets we serve today. In cutting, the industry and our business continue to shift towards higher power solutions. Cutting represents the largest portion of our industrial business today and is comprised primarily of our programmable fiber lasers. Although competition from Chinese manufacturers has impacted sales of our standard lower-power lasers – we continue to deliver innovative programmable lasers to customers that are seeking flexible solutions that deliver superior edge quality and overall machine tool performance. Over time, we expect our high-power fiber lasers to continue to displace legacy cutting technologies and will open up additional market applications. In welding, we are focused primarily on the battery and EV market. Wellbeing is a relatively small part of our business today in terms of both revenue and internal resources, but we are optimistic for growth. We’re developing innovative products that address our customers’ most critical pain points and initial customer engagement with products we intend to release over the coming months has been positive. In additive manufacturing, we continue to see strong long-term growth prospects. We are working closely with multiple strategic customers to drive broader adoption of additive manufacturing across multiple industries. Fundamentally, we believe the adoption and growth of the metal additive manufacturing market will be driven by higher tool productivity, resulting in lower overall part cost. The advantages of our Corona AFX lasers are clear. Additive manufacturing tools using Corona AFX have been widely demonstrated to increase build rates by a factor of 2x to 8x, which substantially reduces part cost. Although our additive business is not a driver of our year-over-year growth in 2024, primarily due to the challenges of a single customer, broader customer engagement has been strong and we expect growth to resume in a much more significant way in 2025 and beyond. Overall, although we expect our commercial business in microfabrication and industrial to grow over time, we expect 2024 will be a down year from a top line perspective. Turning to the details for the quarter. In Aerospace and Defense, first quarter revenue increased 3% year-over-year to $21.7 million, representing 49% of total revenue. During the quarter, we continued to execute on our key directed energy programs. HELSI II and DE M-SHORAD, both of which are progressing well. In Industrial, first quarter revenue decreased 40% year-over-year to $12 million, representing 27% of total revenue. While sales of programmable lasers into the cutting market increased year-over-year, sales of non-programmable lasers decreased significantly and revenue from a key additive customer last year did not repeat in Q1. In microfabrication, first quarter revenue decreased 17% year-over-year to $10.8 million, representing 24% of total revenue. We continue to work closely with our key strategic customers but demand has been soft for the last several quarters. In summary, although the first quarter was challenging from a revenue perspective, we believe we were well positioned for growth going forward. 2023 marked a significant shift in both our overall business and manufacturing strategy, and we are confident that we are aligned with the right markets, customers and programs to drive long-term growth. Our balance sheet is strong, and our world-class engineering team continues to introduce innovative products for both the commercial and defense markets. As I indicated last quarter, I remain optimistic for growth in 2024 and for a renewed momentum to carry into the next year and beyond. With that, I will turn the call over to Joe to discuss our first quarter financial results.
Joe Corso: Thank you, Scott. Total revenue in the first quarter of 2024 was $44.5 million, above the midpoint of guidance, but down $9.6 million or 18% compared to $54.1 million in the first quarter of 2023. The Q1 Aerospace and Defense revenue increased 3% year-over-year, but was offset by a decrease from the industrial and microfabrication markets. Products revenue was $29.4 million compared to $41.1 million in the first quarter of 2023, and development revenue was $15.2 million compared to $13 million for the first quarter of 2023. Overall gross margin in the first quarter of 2024 was 17%, near the midpoint of guidance compared to 26% in the first quarter of 2023. Product gross margin was 21% compared to 33% in the first quarter of 2023, and development gross margin was 9% compared to 5% in the first quarter of 2023. As expected, product gross margin in the first quarter of 2024 was negatively impacted by a decrease in production volumes and low absorption of our manufacturing costs. We expect product gross margin to improve as overall volumes increase as we move through 2024. The improvement in development gross margin for the first quarter of 2024 compared to the prior year is the result of new development contracts awarded in the second half of 2023. Turning to OpEx. Non-GAAP operating expenses were $17.2 million in the first quarter of 2024 and compared to $17.3 million in the first quarter of 2023. Adjusted EBITDA for the first quarter of 2024 was a loss of $4.9 million, slightly above the high end of guidance compared to $1.3 million of positive EBITDA in the first quarter of 2023. The decrease in adjusted EBITDA was driven by a decrease in gross profit due to lower overall revenue and gross margin. Net loss on a GAAP basis was $13.8 million or $0.29 per diluted share compared with a GAAP net loss in the first quarter of 2023 of $7.7 million or $0.17 per diluted share. Turning to the balance sheet. Our balance sheet remains strong as we ended the first quarter with total cash, cash equivalents, restricted cash and investments of $121.3 million and no debt. Total cash and investments increased by $8.2 million during the quarter. Cash provided by operating activities was $11.4 million compared to a use of cash in operating activities of $600,000 in the first quarter of 2023. Capital expenditures were $1.6 million compared to $700,000 for the first quarter of 2023. Inventory remained relatively flat during the quarter at approximately $53 million. Accounts receivable decreased by approximately $12 million to $27.5 million as a result of strong collections and timing of customer payments. As noted last quarter, maintaining a strong balance sheet remains a key focus of the company. Strong OpEx control, coupled with careful working capital management and CapEx investment has enabled us to maintain a balance sheet that we believe will enable us to achieve our long-term growth objectives. Turning to guidance. Based on the information available today, we expect revenue for the second quarter to be in the range of $47 million to $51 million. The midpoint of approximately $49 million includes approximately $34 million of product revenue and $15 million of development revenue. Turning to gross margin. Second quarter product gross margin is expected to be in the range of 23% to 27% and development gross margin to be approximately 9%, resulting in an overall gross margin range of 18% to 22%. As we’ve mentioned previously, as a vertically integrated manufacturing business, gross margin improvement is highly dependent on production volumes and absorption of fixed manufacturing costs. In Q2, we expect to have better absorption of our manufacturing costs than we did in Q1, and we expect gross margin to improve further as production volumes and revenue are expected to increase as we move through 2024. Finally, we expect adjusted EBITDA for the first quarter to be in the range of negative $1 million to negative $5 million. We continue to expect breakeven adjusted EBITDA with quarterly revenue in the $55 million to $60 million range. With that, I will turn the call over to the operator for questions.
Operator: Thank you very much. [Operator Instructions] Today’s first question comes from Greg Palm with Craig-Hallum Capital Group. Please go ahead.
Greg Palm: Hi, good afternoon. Thanks for taking the questions. I wanted to start around – Scott, I think you mentioned the term increasing visibility and I guess, maybe a two-part question. Number one, you said you remain optimistic for growth in – for the full year, which obviously implies a pretty big ramp second half. So maybe talk about what your visibility levels are there. But also, you talked about increasing visibility, I think, for growth next year as well or strong growth. And I’m just curious if that’s just around timing of what has currently been won, if it’s new orders, if it’s pipeline, what gives you that confidence to use, again, the term increased visibility?
Scott Keeney: Yes, happy to address that, Greg. First of all, in our last call, we talked about the backlog. A strong backlog we had going in the year, but with the expectation that Q1 was going to be low – and that backlog that I referred to then has continued to improve. And that gives us the visibility not only into the second half of the year, but for further growth – that backlog is largely around – majority of it is in DoD-based applications. And so we can see continued opportunities for growth, both in directed energy and in our sensing space. And I think one example of that that’s public that is a broad catalyst for our – the overall community is the supplemental bill that passed Congress for $1.2 billion to procure iron beam lasers. That’s one example of various initiatives that are going on with respect to lasers.
Greg Palm: Got it. And I guess, I’m curious, outside of A&D or maybe more so the – do you feel like when the market turns that this could become a growth driver. Again, I think you talked about it not being a growth driver this year. I think you’ve talked about additive as being maybe a better growth driver for next year. But I’m just curious how much of it is market related? How much of it is competition related? And if the market gets better, do you think you’re positioned to capitalize on that? Or is it just you’re focusing a lot more on some of these A&D applications in the recent past?
Scott Keeney: Yes. Thanks for following up on that, Greg, because I do think that additive remains an important growth driver. And it’s disappointing to see the reduction in our growth there due to one customer. We’re working closely with their management. And as they build their organization. We’re certainly supporting their plans for growth, but that certainly is disappointing for this year. We are engaged across a much wider range of applications in additive. And there, we do see opportunities for growth we do see additive as a market that – well, in which our differentiated technology enables our customers to drive further growth by increasing productivity and reducing the part cost for these 3D-printed metal parts. We’ll be releasing more information at an upcoming rapid trade show in June. There’ll be more information there. But there, we see growth driven by design wins that we’re working on.
Greg Palm: Okay. Great. I will leave it there. Thanks.
Operator: Thank you. The next question is from Jim Ricchiuti with Needham & Company. Please go ahead.
Jim Ricchiuti: Hi, thanks. Good afternoon. When would you anticipate the commercial business troughing or do you think it troughed in Q1? Because it sounds like you’re still seeing very difficult conditions in both microfabrication and certainly in industrial.
Scott Keeney: Yes. I think – Jim, thanks for the question. I think that we do see some of the difficult macro conditions for sure. But as I mentioned, respect to additive it had more to do with a particular situation with one customer. So we do see growth as we release new products that expand our design wins and expand our presence in additive and also as we release new products in cutting and welding also. So we do see growth there. We have better visibility into more substantial growth in A&D, but we do see growth in industrial also.
Jim Ricchiuti: Got it. What are you seeing in the microfabrication business? Because it’s a lot more diverse. And I feel like we’ve been talking about weakness in that market for just a prolonged period of time. And I’m wondering – is this structurally had things changed there? Is it a competitor? Are there different competitive horses? Or are we just in just a real challenging market, whether it’s end market semi or just some of the other end markets. When would you anticipate the microfabrication piece turning, would that would you anticipate that leading industrial? Or how are you thinking about a recovery in that part of the business?
Scott Keeney: Yes. Thanks, Jim. It is complex and it is challenging. There’s no question about it that the end markets in microfabrication, certainly, the electronics supply chain end markets are challenging as it relates to adjustments, geopolitical adjustments, otherwise with respect to U.S., Europe, China, etcetera. Having said that, we do have a presence in the medical space that we do categorize in microfabrication. That is an area where we are seeing signs of growth. We’re seeing some new applications in other areas of micro fabrication, but I think it is fair to say that, that remains a challenging sector for us.
Joe Corso: And Jim, this is Joe. There is not as much visibility in our microfabrication business as in the industrial business and certainly in the A&D business. And so that business can come back relatively fast without us necessarily seeing it multiple quarters ahead, right? So the first part of your question is also, are we seeing any sort of structural shifts or changes in competitive dynamics, right? The answer to that is not really, right? So a lot of what we’re experiencing right now is just the general malaise in that market, which has been where last couple of quarters at very similar levels for us.
Jim Ricchiuti: And then the last question for me is just on the A&D side, and I think you talked about backlog and much of that backlog is, of course, DoD driven. But what are you seeing in terms of activity on the international side of the business. And a follow-up, just broadly speaking, on the A&D side since it’s difficult sometimes for us to really track what’s happening there? Are there any milestones we should be thinking about over the near-term in that part of the business?
Scott Keeney: Good. Let me address your first question, Jim, on the international side. I did note that it’s not only U.S. programs, but also our engagement in international programs, and those continue to expand. And in direct energy, in particular, the interest from a broad range of our allies has continued to grow. As complex continue to demonstrate the need for non-kinetic defense systems. I highlighted the supplemental for Israel, that is a very, very big catalyst in the market. But there are other programs like the UK announced their demonstration and there are other programs that we hope to be able to provide more information about in the coming quarters. With respect to other milestones, the big programs that we have got over the next couple of quarters, there is not a clear set of milestones that I can highlight right now. I will say that we are making progress as we integrate the technology at higher levels. And certainly, as we are able to, we will announce results.
Jim Ricchiuti: Thank you.
Operator: Thank you. The next question comes from Ruben Roy with Stifel. Please go ahead.
Ruben Roy: Thanks. Scott, the first question, I guess would be just a follow-up on sort of what you just talked about with the milestones and how to think about that for both this year and longer term? And I guess that in the context of increasing visibility around defense revenue later this year. You cited sort of one example of what gives you increased visibility, which is sort of more discussion from the government around kind of what they want to do with lasers and that type of thing. So, would you characterize the increasing visibility as more along the lines of governments’ interest and actions around your technology, or is there some function of some of the programs that you have been working on for quite a while now and that are in various phases. Are you I know you can’t talk too much about milestones with us, but are you getting more comfortable around reaching those milestones, which is giving you visibility?
Scott Keeney: Yes. Ruben, I like how you frame that because it’s really both. Let me answer the second part of your question first. Yes, so the current programs that we have are very important ones. We are continuing to scale power to a much higher levels with the healthy program, and we continue to make progress there. The Army’s M-SHORAD program is a very important program that we continue to make progress against. And there are other programs that we have in-house today. But then in addition to that, I think the interest in this area, the understanding of the importance of this area, in particular, the understanding of just one benefit of directed energy the economics. And I think that has been shown recently, and that’s becoming let’s just say better understood that it’s important to have a portfolio of defensive technologies. And so that interest also is expanding at the same time that we are making progress against our current programs.
Ruben Roy: Very helpful. Thank you, Scott. And as a follow-up, I wanted to maybe ask a longer term and a higher-level strategic question around the commercial markets. I assume even with sort of this prolonged environment, which has been challenging that there is still a lot of activity going on from a development and innovation perspective. And so when you kind of take a step back and look at your various areas of technology, is the strategy still the same? I mean are you still as excited about these markets that you have outlined and thank you for doing that? Meaning cutting medical devices, welding, additive manufacturing and some of the other markets or given that we have got this lull period, Scott, would you say that it might be time to take a look at potentially some other – some of these areas that might be worth investing more in, for instance, it seems like welding could be a very interesting TAM expansion opportunity for fiber lasers whereas cutting, you might have more competition coming online, both in China and ex-China. So, just wondering if the strategy around commercial markets has changed at all or if you are kind of going full speed ahead as you have been?
Scott Keeney: Yes, good. I appreciate that question because it is something that I want to highlight and in subsequent calls, I look forward to being able to announce new product introductions. I think – as these markets shift over time, our product strategy certainly has adjusted. And certainly, these are standard lasers that go into, say, cutting tools that isn’t a core focus for us, but the enhanced performance that we have with our Corona technology and some other software that we add on to the lasers allows us to do things for customers that others can’t do. And that opens up new applications. I have noted thicker metal cutting is one example in the cutting market. In welding, you are right, we have a very limited presence in that market. So, we do see opportunities for growth there, certainly in the EV battery space. And again, in upcoming calls, I hope to be able to share new product announcements. There is a big battery show we will be attending. And as I mentioned, in additive, also, there is a rapid trade show in June. So, we are investing in expanding our – the performance of our lasers for these end markets. And I think that’s one of the shifts we see is that customers are looking for more reliable, higher performance, laser and I will call them subsystems that enable them to do more than they were able to do before, and that’s opening up new markets for us.
Ruben Roy: Got it. Thank you, Scott. And I guess if I could just sneak one last in for Joe. I dialed in a little bit late to the call, Joe, but 90 days into the year here, anything changed one way or the other on how you are thinking about OpEx. I know you have given us guidance here near-term. But generally speaking, as you think about the year, and now it’s going to play out now that you have a little more visibility on how the second half might work out an update on how you are thinking about spending plans would be helpful.
Joe Corso: Yes. No major changes to our plans for spending, Ruben. I think you will see some variable spending come through for bonuses and things like that as we make our way through the year. But with – we are expecting the growth that – in the second half of the year, we want that to really flow through. I think we are pretty well situated from both labor and materials planned for the balance of the year to achieve what we need to achieve in 2024 and set ourselves up well for 2025 and beyond. So, there is no major plans to significantly change OpEx as we move through the – as we move through the year, I mean certainly, we are not trying to choke down OpEx to the extent that we are giving up growth opportunities. So, we are still spending to support the growth. But beyond that, no major changes from what we had talked about in prior quarters.
Ruben Roy: Perfect. Thanks gents.
Scott Keeney: Thank you.
Operator: Thank you. The next question comes from Mark Miller with The Benchmark Company. Please go ahead.
Mark Miller: Thank you for the question. You are projecting growth later this year and you are pointing to improvements in the backlog that you have seen which are being driven by, I guess DoD contracts, but you are also projecting margin improvements. Now, the DoD contract is typically showing margins that are below kind of corporate margins. I am just wondering where the growth in the margins is coming on, is that just higher sales?
Joe Corso: Primarily, Mark, thanks for the question. Primarily, it’s from the fact that we are just going to run more volume through our facility. And remember, on the DoD contracts, we are both doing development work and also building products and components that we are selling through into those programs. And so to the extent that we are building more products and a lot of that is going to be driven by what we are doing in defense, gross margins are expected to improve as we move through the course of the year. We are not projecting that there is going to be major changes in mix. Really what we are suffering from today is just the lack of absorption of fixed costs. And hopefully, we see that ameliorate as our product revenue grows throughout the year.
Mark Miller: Thank you.
Joe Corso: Thank you.
Operator: Thank you. This concludes our question-and-answer session. I would now like to turn the call back over to Joe Corso for closing remarks.
Joe Corso: Yes. Thank you everyone for joining this afternoon and for your continued interest in nLIGHT. We look forward to speaking with you during the quarter. Have a great afternoon.
Operator: The conference has now concluded. Thank you for your participation. You may now disconnect your lines.
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