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What changed in NLIGHT, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NLIGHT, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+228 added−296 removedSource: 10-K (2024-02-26) vs 10-K (2023-02-27)

Top changes in NLIGHT, INC.'s 2023 10-K

228 paragraphs added · 296 removed · 124 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

0 edited+74 added−146 removed0 unchanged
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Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm 34 Consolidated Balance Sheets 36 Consolidated Statements of Operations 37 Consolidated Statements of Comprehensive Loss 38 Consolidated Statements of Stockholders' Equity 39 Consolidated Statements of Cash Flows 40 Notes to Consolidated Financial Statements 41 33 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors nLIGHT, Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of nLIGHT, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements).
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ITEM 1. BUSINESS Overview nLIGHT, Inc., is a leading provider of high‑power semiconductor and fiber lasers for industrial, microfabrication, and aerospace and defense applications.
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We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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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 segments, Laser Products and Advanced Development, and we address three primary end markets: Industrial, Microfabrication, and Aerospace and Defense.
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In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
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Products Overview We design, manufacture, and sell a range of high-power semiconductor lasers and fiber lasers that are typically integrated into laser systems or manufacturing tools built by our customers.
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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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We also make fiber amplifiers and beam combination and control systems for use in high-energy laser (HEL) systems in directed energy applications, and laser sensing products used in a wide range of defense applications.
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Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting.
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Our vertical integration enables us to develop products that leverage the same underlying technology, thereby enabling us to offer innovative and reliable products to customers in each of our end markets. Semiconductor Lasers We sell high-power semiconductor lasers with a broad range of power levels, wavelengths, and output fiber sizes.
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Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.
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Our semiconductor lasers are typically used as an integrated energy source for our OEM customers’ solid-state lasers, which are used primarily in a wide range of microfabrication, and aerospace and defense applications. The core building block of our products is a compound semiconductor laser chip manufactured from a gallium arsenide wafer.
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We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
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We use our patented multiplexed single-chip architecture to combine and package multiple semiconductor laser chips into what we believe are the most brilliant semiconductor lasers commercially available. Fiber Lasers We offer programmable and serviceable high-power fiber lasers primarily for use in industrial and aerospace and defense applications.
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We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
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Our fiber lasers use a proprietary active fiber that is doped with a rare-earth element to amplify the light from multiple of our semiconductor lasers into a brighter, more powerful laser beam. Our single- and multi-mode fiber lasers enable fast, high-quality, and efficient processing of materials.
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Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
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Our fiber lasers offer many features, including all-fiber programmable beam sizes and shapes, programmable waveforms, high-speed waveform modulation capabilities, hardware back-reflection suppression, operability in harsh environments, quick and easy serviceability, and exceptional power stability. The programmability and wide operating range of our fiber lasers make them easy for our customers to use and expands their applicability.
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Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
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For example, in some cases, a single programmable fiber laser with the ability to program the size and shape of its output beam can take the place of several less flexible lasers. We have also designed our fiber lasers to be easily field serviceable, which results in higher machine uptime, lower cost of ownership and improved customer experience.
Removed
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.
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Laser Sensing Products We offer a range of laser sensors, including light detection and ranging (LiDAR) technologies, that are critical enablers of laser-based systems that are used for intelligence, surveillance and reconnaissance (ISR) applications. We leverage our design and manufacturing capabilities to offer high-efficiency, high-reliability, cost-effective and ruggedized solutions to a wide range of applications including communication, guidance, and imaging.
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We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
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Directed Energy Products We sell standalone fiber amplifiers and we are developing beam combination and control products for directed energy applications within aerospace and defense. We believe that our proprietary fiber amplifiers and beam combination and control technology will enable the development of scalable, high-performance and cost-effective HEL systems.
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A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable 34 Table of Contents assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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Markets We sell our products into three primary end markets: Industrial, Microfabrication, and Aerospace and Defense. 1 Table of Contents Semiconductor and fiber lasers are displacing legacy lasers and non-laser energy sources across a wide range of applications in the Industrial, Microfabrication, and Aerospace and Defense markets.
Removed
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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In the Industrial market, high-power semiconductor and fiber lasers have enabled the creation of next-generation industrial systems to perform manufacturing processes such as cutting, welding, and drilling, as well as advanced manufacturing techniques such as additive manufacturing.
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Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
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In the Microfabrication market, many of the critical microscale features incorporated into products in the automotive, electronics, medical, semiconductor and other markets are made commercially viable by the precise power delivery of lasers.
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The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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In the Aerospace and Defense market, high-power semiconductor and fiber lasers are currently used across a wide range of mission critical applications, such as defending aircraft against missiles, and are enabling next-generation defense systems.
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Excess and obsolete inventory As discussed in Note 8 to the consolidated financial statements, the Company’s inventories were $67.6 million as of December 31, 2022. The Company records its inventories at the lower of average cost or net realizable value.
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Industrial The productivity, efficiency and versatility offered by programmable fiber lasers have been critical in making them a key part of the evolution of the industrial ecosystem. Material processing applications, such as cutting, welding, additive manufacturing, cladding, and heat treating, comprise most of the industrial laser market.
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The Company records an adjustment to the cost basis of inventory when evidence exists that the net realizable value of inventory is lower than its cost, which occurs when the Company has excess and/or obsolete inventory.
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Programmable fiber lasers continue to replace CO2 lasers and other non-laser techniques for cutting, due to their significantly faster speed, higher quality and lower cost when used across a wide range of metals. Programmable fiber lasers are also expanding into other applications such as cutting metal tubes and other three-dimensional parts.
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The Company’s model to estimate the excess and/or obsolete inventory is based on an analysis of certain existing inventory quantities compared to past consumption and recent purchases to determine what inventory quantities, if any, may not be sellable. Based on this analysis, the Company writes down the affected inventory value for any estimated excess and/or obsolete inventory.
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The factors driving the adoption of fiber lasers in metal welding applications include increased speed, higher quality, and lower cost. Fiber laser welding can achieve deeper penetration with fewer heat affected zones than traditional methods like arc welding.
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We identified the assessment of the value of certain excess and obsolete inventory as a critical audit matter.
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These advantages have enabled fast adoption of fiber lasers across the electric vehicle battery, automotive, and energy industries where system productivity, high level of automation, and versatility are critical. In addition to improving traditional manufacturing processes, fiber lasers are also enabling new technologies such as metal additive manufacturing.
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Subjective auditor judgment was required to evaluate the assumptions used to estimate future consumption of certain inventory, including whether past consumption and recent purchases were indicative of future consumption, due to the dynamic business environment the Company competes in, which is characterized by rapid technology and product evolution.
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Additive manufacturing is chosen for fabrication as it enables the manufacturing of designs not feasible with traditional technologies such as casting, forging or machining. Additive manufacturing can be integrated into existing production lines, and mitigate long lead-time issues and enhance performance in critical sub-systems.
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The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s excess and obsolete inventory process, including controls over the assumptions used to estimate future consumption of inventory.
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Fiber lasers provide the power needed to melt metal powders or wire to form functional products for use in industries such as aerospace, defense, automotive, medical, and energy. Advancements in laser technology are critical in enabling manufacturers to produce ever-larger parts with more complex geometries at faster speeds and lower costs.
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We evaluated the assumptions used to estimate future consumption by: (1) inquiring of relevant Company personnel in order to identify relevant changes to the Company’s business environment as it relates to key customers and product lines, and evaluating whether changes to key customers or product lines were properly assessed by the Company in determining the value of excess and obsolete inventory, (2) selecting a sample of inventory items and, for each sample selection, agreeing the historical consumption and historical purchases to underlying documents and evaluating whether the historical data accurately supported the Company’s assumptions regarding future consumption based on changes to the Company’s business environment, and (3) performing a retrospective review of prior year inventory adjustments and analyzing current year sales for identified excess and obsolete inventories to evaluate the Company’s ability to accurately estimate. /s/ KPMG LLP We have served as the Company's auditor since 2003.
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The need for larger more productive machines has driven a trend towards multi-laser systems that are increasingly demanded by additive manufacturing customers. Overall, the trend towards an increased number of lasers in additive manufacturing machines is driving strong growth in the laser market.
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Portland, Oregon February 27, 2023 35 Table of Contents nLIGHT, Inc.
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Microfabrication Microfabrication refers to the process of creating three-dimensional microscale structures, typically by ablating, annealing, etching, drilling, and precision marking. Many of the microscale features incorporated into products in the automotive, electronics, medical, semiconductor and other markets are made commercially viable by laser-based precision manufacturing techniques.
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Consolidated Balance Sheets (In thousands) As of December 31, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 57,826 $ 146,534 Marketable securities 50,391 — Accounts receivable, net of allowances of $290 and $303 37,913 41,574 Inventory 67,600 73,746 Prepaid expenses and other current assets 17,026 15,350 Total current assets 230,756 277,204 Restricted cash 252 250 Lease right-of-use assets 13,893 17,048 Property, plant and equipment, net 60,693 56,101 Intangible assets, net 4,041 6,698 Goodwill 12,376 12,420 Other assets, net 7,222 3,897 Total assets $ 329,233 $ 373,618 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 17,507 $ 26,347 Accrued liabilities 12,820 14,730 Deferred revenues 1,407 1,629 Current portion of lease liabilities 2,758 3,066 Total current liabilities 34,492 45,772 Non-current income taxes payable 6,699 7,149 Long-term lease liabilities 12,852 14,612 Other long-term liabilities 4,345 3,952 Total liabilities 58,388 71,485 Stockholders' equity: Common stock - $0.0001 par value; 190,000 shares authorized, 45,629 and 44,248 shares issued and outstanding at December 31, 2022 and 2021 respectively 16 15 Additional paid-in capital 496,211 470,760 Accumulated other comprehensive loss (2,748) (587) Accumulated deficit (222,634) (168,055) Total stockholders’ equity 270,845 302,133 Total liabilities and stockholders’ equity $ 329,233 $ 373,618 See accompanying notes to consolidated financial statements. 36 Table of Contents nLIGHT, Inc.
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Preferences for brighter, more vibrant displays in mobile phones, tablets and televisions, and the desire for thinner products with improved battery life and energy efficiency are placing greater importance on the need for components that are smaller, more robust and less expensive, which we believe will continue to drive demand for lasers.
Removed
Consolidated Statements of Operations (In thousands, except per share data) Year Ended December 31, 2022 2021 2020 Revenue: Products $ 192,658 $ 206,195 $ 184,841 Development 49,400 63,951 37,948 Total revenue 242,058 270,146 222,789 Cost of revenue: Products 145,272 132,867 128,255 Development 45,965 59,972 35,170 Total cost of revenue 191,237 192,839 163,425 Gross profit 50,821 77,307 59,364 Operating expenses: Research and development 53,773 54,814 41,164 Sales, general, and administrative 48,258 52,710 39,248 Restructuring 3,892 — — Total operating expenses 105,923 107,524 80,412 Loss from operations (55,102) (30,217) (21,048) Other income (expense): Interest income (expense), net 529 (163) 78 Other income, net 338 336 378 Loss before income taxes (54,235) (30,044) (20,592) Income tax expense (benefit) 344 (375) 340 Net loss $ (54,579) $ (29,669) $ (20,932) Net loss per share, basic and diluted $ (1.23) $ (0.70) $ (0.55) Shares used in per share calculations, basic and diluted 44,436 42,142 38,367 See accompanying notes to consolidated financial statements. 37 Table of Contents nLIGHT, Inc.
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Aerospace and Defense Lasers are used today in a variety of aerospace and defense applications, such as range finding, imaging, communications, and directed energy defense systems. LiDAR technologies are also increasingly being used for a wide range of ISR applications.
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Consolidated Statements of Comprehensive Loss (In thousands) Year Ended December 31, 2022 2021 2020 Net loss $ (54,579) $ (29,669) $ (20,932) Other comprehensive loss, net of tax: Foreign currency translation adjustments (2,555) (328) 2,426 Unrealized gains on available-for-sale securities 394 — — Comprehensive loss $ (56,740) $ (29,997) $ (18,506) See accompanying notes to consolidated financial statements. 38 Table of Contents nLIGHT, Inc.
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Directed energy defense systems utilize concentrated electrical or optical energy rather than chemical or kinetic force to incapacitate, damage, disable or destroy a wide range of threats. Compared to conventional weapons, directed energy weapons using high-power fiber lasers offer ultra-precise targeting, low cost per use and a nearly unlimited magazine.
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Consolidated Statements of Stockholders' Equity (In thousands) Common stock Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total stockholders' equity Shares Amount Balance, December 31, 2019 38,084 $ 15 $ 336,732 $ (2,685) $ (117,454) $ 216,608 Net loss — — — — (20,932) (20,932) Issuance of common stock pursuant to exercise of stock options 862 — 1,375 — — 1,375 Issuance of common stock pursuant to vesting of restricted stock awards and units, net of stock withheld for tax 769 — (6,420) — — (6,420) Issuance of common stock under the Employee Stock Purchase Plan 78 — 1,393 — — 1,393 Stock-based compensation — — 25,464 — — 25,464 Cumulative translation adjustment, net of tax — — — 2,426 — 2,426 Balance, December 31, 2020 39,793 15 358,544 (259) (138,386) 219,914 Net loss — — — — (29,669) (29,669) Proceeds from follow-on offering, net of offering costs 2,537 — 82,354 — — 82,354 Issuance of common stock pursuant to exercise of stock options 896 — 1,145 — — 1,145 Issuance of common stock pursuant to vesting of restricted stock awards and units, net of stock withheld for tax 952 — (10,606) — — (10,606) Issuance of common stock under the Employee Stock Purchase Plan 70 — 1,603 — — 1,603 Stock-based compensation — — 37,720 — — 37,720 Cumulative translation adjustment, net of tax — — — (328) — (328) Balance, December 31, 2021 44,248 15 470,760 (587) (168,055) 302,133 Net loss — — — — (54,579) (54,579) Issuance of common stock pursuant to exercise of stock options 585 1 1,197 — — 1,198 Issuance of common stock pursuant to vesting of restricted stock awards and units, net of stock withheld for tax 705 — (4,861) — — (4,861) Restricted stock awards forfeited in connection with transition agreement (140) — — — — — Restricted stock awards adjusted in connection with performance achievement (10) — — — — — Issuance of common stock under the Employee Stock Purchase Plan 241 — 2,358 — — 2,358 Stock-based compensation — — 26,757 — — 26,757 Unrealized gains on available-for-sale securities — — — 394 — 394 Cumulative translation adjustment, net of tax — — — (2,555) — (2,555) Balance, December 31, 2022 45,629 $ 16 $ 496,211 $ (2,748) $ (222,634) $ 270,845 See accompanying notes to consolidated financial statements. 39 Table of Contents nLIGHT, Inc.
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Over the past decade, directed energy technologies have improved steadily, culminating in a series of successful demonstrations of significantly higher power, multi-kilowatt systems. Systems using high-power fiber lasers have shown the highest degree of operational viability.
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Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2022 2021 2020 Cash flows from operating activities: Net loss $ (54,579) $ (29,669) $ (20,932) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation 11,085 9,179 7,710 Amortization 4,614 5,880 5,975 Reduction in carrying amount of right-of-use assets 3,000 3,253 2,916 Provision for (recoveries of) losses on accounts receivable 4 (70) 88 Stock-based compensation 26,757 37,720 25,464 Deferred income taxes 4 37 (11) Loss on disposal of assets 51 16 — Non-cash restructuring charges 2,758 — — Changes in operating assets and liabilities: Accounts receivable, net 2,757 (9,509) (4,009) Inventory 4,623 (18,994) (6,937) Prepaid expenses and other current assets (1,753) (3,630) (3,442) Other assets, net (5,219) (570) (3,463) Accounts payable (5,904) 3,463 7,306 Accrued and other long-term liabilities (577) (199) 2,269 Deferred revenues (208) (909) 1,800 Lease liabilities (1,942) (2,934) (2,820) Non-current income taxes payable (13) (507) 1,127 Net cash (used in) provided by operating activities (14,542) (7,443) 13,041 Cash flows from investing activities: Acquisition of business, net of cash acquired (664) (291) (190) Purchases of property, plant and equipment (21,388) (19,317) (23,416) Acquisition of intangible assets and capitalization of patents (332) (2,245) (933) Purchase of marketable securities (99,985) — — Proceeds from maturities and sales of marketable securities 49,988 — — Net cash used in investing activities (72,381) (21,853) (24,539) Cash flows from financing activities: Proceeds from public offerings, net of offering costs — 82,354 — Proceeds from term loan — — 15,000 Principal payments on term loan, debt and financing leases — (428) (15,115) Payment of contingent consideration related to acquisition — (326) — Proceeds from employee stock plan purchases 2,358 1,603 1,393 Proceeds from stock option exercises 1,197 1,145 1,375 Tax payments related to stock award issuances (4,861) (10,606) (6,420) Net cash (used in) provided by financing activities (1,306) 73,742 (3,767) Effect of exchange rate changes on cash (477) (235) 545 Net increase (decrease) in cash, cash equivalents, and restricted cash (88,706) 44,211 (14,720) Cash, cash equivalents, and restricted cash, beginning of period 146,784 102,573 117,293 Cash, cash equivalents, and restricted cash, end of period $ 58,078 $ 146,784 $ 102,573 Supplemental disclosures: Cash paid for interest, net $ — $ 117 $ (311) Cash paid for income taxes 442 526 647 Operating cash outflows from operating leases 3,925 3,513 2,919 Right-of-use assets obtained in exchange for lease liabilities 1,349 8,012 15,127 Accrued purchases of property, equipment and patents 207 2,522 788 See accompanying notes to consolidated financial statements. 40 Table of Contents nLIGHT, Inc.
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Research and Development Our research and development activities include innovation of improvements to existing products that enhance performance at reduced cost, and the design of new products that address select market opportunities. While we seek to improve our products on all operating characteristics, we believe we lead the market in terms of semiconductor laser chip brilliance.
Removed
Notes to Consolidated Financial Statements Note 1 - Basis of Presentation and Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of nLIGHT, Inc. and our wholly owned subsidiaries Arbor Photonics, LLC, nLIGHT Cayman Ltd., nLIGHT Laser Technology (Shanghai) Co. Ltd, nLIGHT Oy (Finland), nLIGHT Korea Inc., nLIGHT GmbH, Nutronics, Inc., and OPI Photonics S.r.l.
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Our programmable fiber lasers use a proprietary solution that allows our 2 Table of Contents customers to program laser beam strength and shape and real-time pulse timing to optimize the performance of their solution for specific commercial and defense applications.
Removed
Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
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We work closely with customers to develop products to meet customer application and performance needs, making our research and development efforts more efficient. We also benefit from our vertically integrated business model, as we can conduct design cycles more rapidly through control of the full production process.
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On an ongoing basis, we evaluate our estimates, including those related to inventory valuation, allowances for doubtful accounts, warranty, sales return reserves and the recoverability of long-lived assets. Management bases its estimates on historical experience and on various other assumptions. Actual results could differ from those estimates.
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We intend to continue our commitment to research and development and to introduce new products, solutions, and complementary products to maintain and strengthen our competitive position.
Removed
Revenue Recognition See Note 3 for a detailed description of our revenue recognition policies. Cash and Cash Equivalents We consider all highly liquid investments with an original maturity of three months or less when acquired to be cash equivalents. Cash and cash equivalents included $32.3 million and $127.1 million of highly liquid investments at December 31, 2022 and 2021, respectively.
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Intellectual Property Our success depends in part upon our ability to continue to innovate and invest in research and development to meet the needs of our customers, and to maintain and protect our proprietary technology.
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Cash equivalents are carried at cost, which approximates fair value. Inventory See Note 8 for a detailed description of our inventory accounting policies. Property, Plant and Equipment Property, plant and equipment are stated at cost, net of accumulated depreciation. Improvements and replacements are capitalized. Repair and maintenance costs are expensed as incurred.
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To accomplish this, we rely on a combination of intellectual property rights, including patents, trade secrets and trademarks, as well as customary contractual protections with our customers, suppliers, employees, and consultants that access our material intellectual property.
Removed
Depreciation is computed using the straight‑line method over the estimated useful life of each asset, generally 2 to 12 years for property and equipment, and 30 years for buildings. Land is not depreciated. Goodwill Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net assets acquired.
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We have generated, and continue to generate and maintain, patents and other intellectual property rights covering innovations that are intended to create a competitive advantage, and to support the protection of our investments in research and development.
Removed
Goodwill is not amortized and is tested for impairment at least annually and more frequently if material changes in events or circumstances arise. We perform an annual impairment review of goodwill in the fourth quarter of each year using either a qualitative assessment or a quantitative goodwill impairment test.
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Although we believe that our patents and other intellectual property rights have significant value, we do not believe that maintaining or growing our business is materially dependent on any single patent.
Removed
If the qualitative assessment is selected and determines that the fair value of each reporting unit more likely than not exceeds its carrying value, no further assessment is necessary.
Added
Due to the rapid pace of innovation within the markets that we serve, it is possible that our protection through patents may be less important than factors such as our technological expertise, continuing development of new products and technologies, protection of trade secrets, market penetration, customer relationships, and our ability to provide support and service to customers worldwide.
Removed
If a quantitative test is determined necessary and an impairment is indicated, the impairment loss is recorded to the extent that the reporting unit’s carrying amount exceeds the reporting unit’s fair value. An impairment loss cannot exceed the total amount of goodwill allocated to the reporting unit.
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No assurance can be given that any of our patents will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide us with a sustained competitive advantage.
Removed
Based on qualitative assessments performed in fiscal years 2022, 2021 and 2020, the fair values of the Laser Products and Advanced Development reporting units exceeded their carrying values, and no impairment charges were recorded. See Note 11 for additional information. Intangible Assets Definite-lived intangible assets consist of acquisition-related development programs, developed technology, and intellectual property.
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In addition, there can be no assurance that we will be able to protect our technology, or that competitors will not be able to independently develop similar or functionally competitive technologies, design around our patents, or attempt to manufacture and sell infringing products in countries that do not strongly enforce intellectual property rights.
Removed
The intangible assets are being amortized using the straight-line method over periods of 2 to 5 years, which reflect the pattern in which economic benefits of the assets are expected to be realized. See Note 11 for additional information. 41 Table of Contents Other Assets Other assets, net primarily consist of long-term accounts receivable, demonstration ("demo") assets and deposits.
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Sales and Marketing In the Industrial and Microfabrication markets, we sell our products through our direct sales force located in the United States, China, South Korea and various European countries. To supplement our direct sales team, we also sell through independent sales representatives and distributors in Asia, Australia, Europe, the Middle East, and South America.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

62 edited+19 added−12 removed132 unchanged
Biggest changeFor example, the U.S. government recently announced new controls restricting the ability to send certain products and technology related 13 Table of Contents to semiconductors, semiconductor manufacturing and supercomputing to China without an export license. These new controls including the licensing requirement also apply to certain hardware containing these specified integrated circuits (ICs).
Biggest changeThe United States and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of certain products, technologies, and software. For example, the U.S. government has continued to expand controls restricting the ability to send certain products and technology related to lasers, semiconductors, semiconductor manufacturing and supercomputing to and within China and additional destinations.
We are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws, and non-compliance with such laws can subject us to criminal penalties or significant fines and harm our business and reputation. We are subject to anti-corruption and anti-bribery and similar laws.
We are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws, and non-compliance with such laws can subject us to criminal penalties or significant fines and harm our business and reputation. We are subject to anti-corruption, anti-bribery and similar laws.
Judgment is required in evaluating our worldwide provision for income taxes. During the ordinary course of business, there are many transactions for which the ultimate tax determination is uncertain. We are subject to audit in various jurisdictions, and such jurisdictions may assess additional income tax against us.
Significant judgment is required in evaluating our worldwide provision for income taxes. During the ordinary course of business, there are many transactions for which the ultimate tax determination is uncertain. We are subject to audit in various jurisdictions, and such jurisdictions may assess additional income tax against us.
We depend on internal production and outside single- or limited-source suppliers for many of our key components and raw materials. We rely exclusively on our own production capabilities to manufacture certain of our key components, such as semiconductor lasers, specialty optical fibers and optical components.
We depend on internal production and outside single- or limited-source suppliers for many of our key components and raw materials. We rely on our own production capabilities to manufacture certain of our key components, such as semiconductor lasers, specialty optical fibers and optical components.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, stockholders, officers or other employees to us or our stockholders, (3) any action arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws or (4) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware), except for any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court or for which such court does not have subject matter jurisdiction.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, stockholders, officers or other employees to us or our stockholders, (3) any action arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws or (4) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware), except for any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court or for which 19 Table of Contents such court does not have subject matter jurisdiction.
Other factors which have had or may in the future have an influence on our results of operations in a particular quarter include: • the increase, decrease, cancellation or rescheduling of significant customer orders; • declines in selling prices for our products; • government-mandated quarantines or closures applicable to our facilities or the facilities of our customers or suppliers; • delays in our product-shipment timing, obtaining licenses or other import/export approvals, customer or end user sales or deployment cycles, or work performed under development contracts; • seasonality attributable to different purchasing patterns and levels of activity throughout the year in the areas where we operate; • the impact of new acquisitions and the success of our integration efforts; • the timing of revenue recognition based on the installation or acceptance of certain products shipped to our customers; • the timing and execution of government development projects; • timing variability in product introductions, enhancements, services and technologies by us and our competitors and market acceptance of these new or enhanced products, services and technologies; • different capital expenditure and budget cycles for our customers, which affect the timing of their spending; • our ability to obtain export licenses for our products on a timely basis or at all; • changes in tariffs imposed by the U.S., China and other foreign governments; • the rate at which our present and future customers and end users adopt our technologies; • the gain or loss of a key customer; • product or customer mix; • competitive pricing pressures and new market entrants; • our ability to manage our inventory levels and any write-downs for excess or obsolete inventory; • our ability to collect outstanding accounts receivable balances; • changes in the amount and timing of our operating costs; • impairment of values for goodwill, intangibles and other long-lived assets; • foreign currency fluctuations; • the impact of public health crises, including on macroeconomic conditions and our business, results of operations and financial condition; • changes in jurisdictional income mix and tax rules and regulations in countries where we operate; and • economic and market conditions in a particular geography or country.
Factors which have had or may in the future have an influence on our results of operations in a particular quarter include: • the increase, decrease, cancellation or rescheduling of significant customer orders; • declines in selling prices for our products; • delays in our product-shipment timing, obtaining licenses or other import/export approvals, customer or end user sales or deployment cycles, or work performed under development contracts; • seasonality attributable to different purchasing patterns and levels of activity throughout the year in the areas where we operate; • the impact of new acquisitions and the success of our integration efforts; • the timing of revenue recognition based on the installation or acceptance of certain products shipped to our customers; • the timing and execution of government development projects; • timing variability in product introductions, enhancements, services and technologies by us and our competitors and market acceptance of these new or enhanced products, services and technologies; • different capital expenditure and budget cycles for our customers, which affect the timing of their spending; • our ability to obtain export licenses for our products on a timely basis or at all; • changes in tariffs imposed by the U.S., China and other foreign governments; • the rate at which our present and future customers and end users adopt our technologies; • the gain or loss of a key customer; • product or customer mix; • competitive pricing pressures and new market entrants; • our ability to manage our inventory levels and any write-downs for excess or obsolete inventory; • our ability to collect outstanding accounts receivable balances; • changes in the amount and timing of our operating costs; • impairment of values for goodwill, intangibles and other long-lived assets; • foreign currency fluctuations; • the impact of public health crises, including on macroeconomic conditions and our business, results of operations and financial condition; • changes in jurisdictional income mix and tax rules and regulations in countries where we operate; and • economic and market conditions in a particular geography or country.
If any pending or future intellectual property-related litigation proceedings result in an adverse outcome, then we could be required to: • cease the manufacture, use or sale of the infringing products, processes, or technology; • pay substantial damages for infringement; • expend significant resources to develop non-infringing products, processes, or technology; • license technology from the party claiming infringement, which license may not be available on commercially reasonable terms, or at all; • cross-license our technology to a competitor or commit to covenant-not-to-sue to resolve an infringement claim, which could weaken our ability to compete with that competitor; or 16 Table of Contents • pay substantial damages to our direct or indirect customers to cause our end users to discontinue their use of, or replace, infringing products with non-infringing products.
If any pending or future intellectual property-related litigation proceedings result in an adverse outcome, then we could be required to: • cease the manufacture, use or sale of the infringing products, processes, or technology; • pay substantial damages for infringement; • expend significant resources to develop non-infringing products, processes, or technology; • license technology from the party claiming infringement, which license may not be available on commercially reasonable terms, or at all; • cross-license our technology to a competitor or commit to covenant-not-to-sue to resolve an infringement claim, which could weaken our ability to compete with that competitor; or • pay substantial damages to our direct or indirect customers to cause our end users to discontinue their use of, or replace, infringing products with non-infringing products.
In addition, if any of our third-party manufacturers were unable or unwilling to manufacture our products or product components in required volumes and at high quality levels or continue to manufacture our products and product components at all, we would need to identify and select alternative manufacturers, which may not be available to us on favorable terms, if at all.
In addition, if any of our third-party manufacturers are unable or unwilling to manufacture our products or product components in required volumes and at high quality levels or continue to manufacture our products and product components at all, we would need to identify and select alternative manufacturers, which may not be available to us on favorable terms, if at all.
The consequences of such loss, possible misuse of our proprietary and confidential information, or operational disruptions could include, among other things, unfavorable publicity, damage to our reputation, difficulty marketing our products, customer allegations of breach-of-contract, claims and litigation by affected parties, investigations by and other proceedings involving governmental authorities and possible financial liabilities for damages, any of which could materially adversely affect our business, financial condition, reputation and relationships with customers and partners.
The consequences of such loss, possible misuse of our proprietary and confidential information, or operational disruptions could include, among other things, unfavorable publicity, damage to our reputation, difficulty marketing our products, customer allegations of breach-of-contract, claims and litigation by affected parties, investigations by and other proceedings involving governmental authorities and possible financial liabilities for damages, any of which could materially adversely affect 10 Table of Contents our business, financial condition, reputation and relationships with customers and partners.
Because the techniques used to obtain unauthorized access to or sabotage security systems change frequently and are often not recognized until after an attack, we and our third-party service 10 Table of Contents providers may be unable to anticipate the techniques or implement adequate preventative measures, thereby exposing us to material adverse effects on our business, financial condition, results of operations and growth prospects.
Because the techniques used to obtain unauthorized access to or sabotage security systems change frequently and are often not recognized until after an attack, we and our third-party service providers may be unable to anticipate the techniques or implement adequate preventative measures, thereby exposing us to material adverse effects on our business, financial condition, results of operations and growth prospects.
In general, we may potentially use these NOLs to offset taxable income for U.S. federal and state income tax purposes. Furthermore, U.S. federal NOLs arising in tax years beginning after December 31, 2017 may only be used to offset 80% of our taxable income.
In general, we may potentially use these NOLs to offset taxable income for U.S. federal and state income tax purposes. Furthermore, U.S. federal NOLs arising in tax years beginning after December 31, 2017 may only be used to offset 80% of our current year taxable income.
If any of our principal customers discontinues its relationship with us, develops its own products instead of using ours, replaces us as a vendor for certain products or suffers downturns in its business resulting in a cancellation of orders or an inability to place new orders from us, then our business, financial condition, results of operations and growth prospects could be materially adversely affected.
If any of our principal customers discontinues its relationship with us, develops its own products instead of using ours, replaces us as a vendor for certain products or suffers downturns in its business resulting in a 7 Table of Contents cancellation of orders or an inability to place new orders from us, then our business, financial condition, results of operations and growth prospects could be materially adversely affected.
These provisions prohibit a "target corporation" from engaging in any of a broad range of business 18 Table of Contents combinations with any stockholder constituting an "acquiring person" for a period of five years following the date on which the stockholder became an "acquiring person." The exclusive forum provisions of our bylaws could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, stockholders or employees.
These provisions prohibit a "target corporation" from engaging in any of a broad range of business combinations with any stockholder constituting an "acquiring person" for a period of five years following the date on which the stockholder became an "acquiring person." The exclusive forum provisions of our bylaws could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, stockholders or employees.
Relying on third-party manufacturers could present a number of risks, including capacity constraints, reduced control over manufacturing and delivery timing and quality, shortages during periods of high demand or supply constraints, the inability to achieve acceptable yields on a timely basis, misappropriation of our intellectual property and potential increased exposure to fluctuations in manufacturing costs, including due to inflation, any of which could adversely impact our business, financial condition, results of operations and growth prospects.
Reliance on third-party manufacturers presents a number of risks, including capacity constraints, reduced control over manufacturing and delivery timing and quality, shortages during periods of high demand or supply constraints, the inability to achieve acceptable yields on a timely basis, misappropriation of our intellectual property and potential increased exposure to fluctuations in manufacturing costs, including due to inflation, any of which could adversely impact our business, financial condition, results of operations and growth prospects.
ITEM 1A. RISK FACTORS You should carefully consider the following risk factors, in addition to the other information contained in this report, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. This report also contains forward-looking statements that involve risks and uncertainties.
ITEM 1A. RISK FACTORS 5 Table of Contents You should carefully consider the following risk factors, in addition to the other information contained in this report, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. This report also contains forward-looking statements that involve risks and uncertainties.
To the extent customers defer or cancel orders for existing products due to a slowdown in demand or in the expectation of a new product release, or if there is any delay in development or introduction of our new products or enhancements of our products, our business, financial condition, results of operations and growth prospects would be materially adversely affected.
To the extent customers defer or cancel orders for existing products due to a slowdown in 6 Table of Contents demand or in the expectation of a new product release, or if there is any delay in development or introduction of our new products or enhancements of our products, our business, financial condition, results of operations and growth prospects would be materially adversely affected.
As semiconductor and fiber lasers reach higher levels of penetration in core materials processing 7 Table of Contents applications, the development of new applications, end-markets and products outside our core applications becomes more important to our growth. Our current and potential customers may have substantial investment in, and know-how related to, their existing laser and non-laser technologies.
As semiconductor and fiber lasers reach higher levels of penetration in core materials processing applications, the development of new applications, end-markets and products outside our core applications becomes more important to our growth. Our current and potential customers may have substantial investment in, and know-how related to, their existing laser and non-laser technologies.
Our failure to manage the foregoing risks associated with our existing and potential future international business operations could materially adversely affect our business, financial condition, results of operations and growth prospects. We are exposed to foreign currency risk, which may materially adversely affect our revenues, cost of revenues and operating margins and could result in exchange losses.
Our failure to manage the foregoing risks associated with our existing and potential future international business operations could materially adversely affect our business, financial condition, results of operations and growth prospects. 13 Table of Contents We are exposed to foreign currency risk, which may materially adversely affect our revenues, cost of revenues and operating margins and could result in exchange losses.
A breach of our information technology and security systems could materially adversely affect our business. We use information technology and security systems to maintain our facility's physical security and to protect proprietary and confidential information, including that of our customers, suppliers and employees.
A breach of our information technology and security systems could materially adversely affect our business. We use information technology and security systems to maintain our facilities' physical security and to protect proprietary and confidential information, including that of our customers, suppliers and employees.
In addition, because we design and manufacture our key components, insufficient demand for our products will subject us to the risks of high inventory carrying costs and increased inventory obsolescence. For example, discontinued product lines contributed to increased inventory reserves in the fourth quarter of 2022, and we may experience similar increases in the future.
In addition, because we design and manufacture our key components, insufficient demand for our products subjects us to the risks of high inventory carrying costs and increased inventory obsolescence. For example, discontinued product lines contributed to increased inventory reserves in the fourth quarter of 2022, and we may experience similar increases in the future.
The United States federal and various state and foreign governments have adopted or proposed requirements regarding the collection, distribution, use, security and storage of personal data and other data relating to individuals, and federal and state consumer protection laws are being applied to enforce regulations related to the online collection, use and dissemination of data.
The United States federal and various 15 Table of Contents state and foreign governments have adopted or proposed requirements regarding the collection, distribution, use, security and storage of personal data and other data relating to individuals, and federal and state consumer protection laws are being applied to enforce regulations related to the online collection, use and dissemination of data.
Furthermore, any changes in, or unexpected interpretations of, the trade secret and other intellectual property laws in any country in which we operate may materially adversely affect our ability to enforce our trade secret and intellectual property positions. In the past, certain of our employees have been hired by our competitors.
Furthermore, any 16 Table of Contents changes in, or unexpected interpretations of, the trade secret and other intellectual property laws in any country in which we operate may materially adversely affect our ability to enforce our trade secret and intellectual property positions. In the past, certain of our employees have been hired by our competitors.
Our manufacturing capacity and operations may not be appropriate for future levels of demand and may materially adversely affect our gross margins. When there are changes in market demand we must be able to rapidly and effectively increase or decrease our manufacturing capacity in the appropriate locations.
Our manufacturing capacity and operations may not be appropriate for future levels of demand and may materially adversely affect our gross margins. 8 Table of Contents When there are changes in market demand we must be able to rapidly and effectively increase or decrease our manufacturing capacity in the appropriate locations.
Factors that could cause fluctuations in the trading price of our common stock include the following: • price and volume fluctuations in the overall stock market from time to time; • changes in operating performance, stock market valuations and volatility in the market prices of other technology companies generally, or those in our industry in particular; • actual or anticipated quarterly variations in our results of operations or those of our competitors; • actual or anticipated changes in our growth rate relative to our competitors; • announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments; • manufacturing, labor or supply interruptions; • developments with respect to intellectual property rights; • our ability to develop and market new and enhanced products on a timely basis; • commencement of, or our involvement in, litigation; 17 Table of Contents • major changes in our Board of Directors or management; • changes in governmental regulations or in the status of our regulatory approvals; • actual or perceived privacy, data protection or cybersecurity breaches or incidents; • the trading volume of our stock; • any future sales or repurchases of our common stock or other securities; or the perception that these sales or repurchases could occur; • failure of financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company or our failure to meet these estimates or the expectations of investors; • spending on defense-related projects by the U.S. government; • the impact of public health crises, including on macroeconomic conditions and our business, results of operations and financial condition; • fluctuations in the values of companies perceived by investors to be comparable to us; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; and • general economic conditions and slow or negative growth of related markets.
Factors that could cause fluctuations in the trading price of our common stock include the following: • price and volume fluctuations in the overall stock market from time to time; • changes in operating performance, stock market valuations and volatility in the market prices of other technology companies generally, or those in our industry in particular; • actual or anticipated quarterly variations in our results of operations or those of our competitors; • actual or anticipated changes in our growth rate relative to our competitors; • announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments; • manufacturing, labor or supply interruptions; • developments with respect to intellectual property rights; • our ability to develop and market new and enhanced products on a timely basis; • commencement of, or our involvement in, litigation; • major changes in our Board of Directors or management; • changes in governmental regulations or in the status of our regulatory approvals; • actual or perceived privacy, data protection or cybersecurity breaches or incidents; • the trading volume of our stock; • any future sales or repurchases of our common stock or other securities, or the perception that these sales or repurchases could occur; • failure of financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company or our failure to meet these estimates or the expectations of investors; • spending on defense-related projects by the U.S. government; • the impact of public health crises, including on macroeconomic conditions and our business, results of operations and financial condition; • fluctuations in the values of companies perceived by investors to be comparable to us; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; and • general economic conditions and slow or negative growth of related markets. 18 Table of Contents The stock market in general, and market prices for the securities of technology companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies.
Our international operations are significant to our revenues and net income. While we report our financial results in U.S. dollars, we incur certain costs in other currencies, and have certain foreign currency denominated assets and liabilities. We, therefore, face exposure to fluctuations in currency exchange rates.
Our international operations are significant to our revenues and profitability. While we report our financial results in U.S. dollars, we incur certain costs in other currencies, and have certain foreign currency denominated assets and liabilities. We, therefore, face exposure to fluctuations in currency exchange rates.
Certain of our components, such as our semiconductor lasers, which are manufactured at our Camas and Vancouver, Washington facilities, and our active fibers, which are manufactured at our Lohja, Finland facility, rely on processes and equipment that cannot be easily moved or replaced.
Certain of our components, such as our semiconductor lasers, which are manufactured at our Camas and Vancouver, Washington facilities, and our active fibers, which are manufactured at our Lohja, Finland facility, rely on processes and equipment that cannot be easily moved or 9 Table of Contents replaced.
Our existing NOLs and credit carryforwards are subject to limitations arising from previous ownership changes. Our ability to use our NOLs and credit carryforwards could be further limited by Section 382 of the Code if we undergo any future ownership change.
Our existing NOLs and credit carryforwards are subject to limitations arising from previous ownership changes. Our ability to use our NOLs and credit carryforwards could be further limited by Sections 382 and 383 of the Code if we undergo any future ownership change.
We also may not be able to develop the underlying core 6 Table of Contents technologies necessary to create new products and enhancements, or to license these technologies from third parties.
We also may not be able to develop the underlying core technologies necessary to create new products and enhancements, or to license these technologies from third parties.
Our foreign operations and revenues are subject to a number of risks, including the impact of recessions and other economic conditions in economies outside the United States, unexpected changes in regulatory requirements, certification requirements, environmental regulations, reduced protection for intellectual property rights in some countries, potentially adverse tax consequences, political and economic instability, import/export regulations, tariffs and trade barriers, compliance with applicable United States and foreign anti-corruption laws, cultural and management differences, pandemic illness, reliance in some jurisdictions on third-party revenues from channel partners, preference for locally produced products, shipping, or other logistics complications, and longer accounts 12 Table of Contents receivable collection periods.
Our foreign operations and revenues are subject to a number of risks, including the impact of various macroeconomic conditions, unexpected changes in regulatory requirements, certification requirements and environmental and other regulations; reduced protection for intellectual property rights in some countries; potentially adverse tax consequences; political and economic instability; import/export regulations, tariffs and trade barriers; compliance with applicable United States and foreign anti-corruption laws; cultural and management differences; reliance in some jurisdictions on third-party revenues from channel partners; preference for locally produced products; supply chain, shipping, and other logistics complications; and longer accounts receivable collection periods.
Because we lack long-term purchase commitments from our customers, our revenues can be difficult to predict, which could lead to excess or obsolete inventory and materially adversely affect our results of operations. Our business is characterized by short-term purchase orders and shipment schedules and, in some cases, orders may be canceled or delayed without penalty.
Because we generally do not enter into long-term purchase commitments with our customers, our revenues can be difficult to predict, which could lead to excess or obsolete inventory and materially adversely affect our results of operations. Our business is characterized by short-term purchase orders and shipment schedules and, in some cases, orders may be canceled or delayed without penalty.
Some of the NOLs and federal research and development credit carryforwards began expiring in 2022. Insufficient future taxable income and income taxes payable will adversely affect our ability to use these NOLs and credit carryforwards to reduce future taxable income or offset income taxes due.
Some of the NOLs and U.S. federal research and development credit carryforwards began expiring in 2022. Insufficient future taxable income 17 Table of Contents and income taxes payable will adversely affect our ability to use these NOLs and credit carryforwards to reduce future taxable income or income taxes due.
We must comply with and are affected by laws and regulations relating to the award, administration and performance of U.S. government contracts. Awards received from the U.S. government may be cancelled or lose funding.
Our agreements with the U.S. government and suppliers to the U.S. government subject us to particular risks. We must comply with and are affected by laws and regulations relating to the award, administration and performance of U.S. government contracts. Awards received from the U.S. government may be cancelled or lose funding.
Our business could also be impacted by international conflicts, terrorist and military activity, civil unrest and pandemic illness, including COVID-19, which could cause a slowdown in customer orders, cause customer order cancellations or negatively impact availability of supplies or limit our ability to produce or timely service our installed base of products.
Our business could also be impacted by international conflicts, terrorist and military activity, civil unrest and public health crisis, which could cause a slowdown in customer orders, lengthen sales cycles, cause customer order cancellations or negatively impact availability of supplies or limit our ability to produce or timely service our installed base of products.
These companies will likely be able to expand into broader products, geographies, and end markets, which may result in 5 Table of Contents additional competitive pressures on us. Certain competitors also have higher sales volume than we do, which can enable them to lower the prices of their products.
These companies will likely be able to expand into broader products, geographies, and end markets, which may result in additional competitive pressures on us. Certain competitors also have higher sales volume than we do, which can enable them to lower the prices of their products. Moreover, our OEM customers' internal production of laser technologies presents additional competitive pressure.
Our results of operations can be adversely affected by labor shortages, turnover, labor cost increases and our ability to recruit and retain qualified personnel. We have from time-to-time experienced labor shortages and other labor-related issues. Labor issues have become more pronounced since the beginning of the COVID-19 pandemic.
Our results of operations can be adversely affected by labor shortages, turnover, labor cost increases and our ability to recruit and retain qualified personnel. We have from time-to-time experienced labor shortages and other labor-related issues.
We may in the future rely on third parties to manufacture certain of our products and product components, which could expose us to a number of risks that could negatively impact our results of operations. 8 Table of Contents We may in the future choose to outsource the manufacturing of certain of our products and product components to third-parties.
We rely on third parties to manufacture certain of our products and product components, which could expose us to a number of risks that could negatively impact our results of operations. We outsource the manufacturing of certain of our products and product components to third-parties located in both the United States and internationally.
In particular, the economic, political, legal, and regulatory climate in China, both nationally and regionally, is fluid and unpredictable, and operating in China exposes us to economic, political and legal risks.
In particular, the economic, political, legal, and regulatory climate in China, both nationally and regionally, is fluid and unpredictable, and operating in China exposes us to related risks that could materially adversely impact our business.
Competition for qualified resources is intense and other companies may have greater resources available to provide substantial inducements to lure key personnel away from us or to offer more competitive compensation packages to individuals we are trying to hire.
Competition for qualified resources is intense and other companies may have greater resources available to provide substantial inducements to lure key personnel away from us or to offer more competitive compensation packages to individuals we are trying to hire. 11 Table of Contents Fluctuations in our quarterly results of operations may be difficult to predict.
As of December 31, 2022, we had estimated U.S. federal and state net operating loss carryforwards (NOLs) of $162.2 million and $38.4 million, respectively, and federal research and development credit carryforwards of $7.8 million, which we may use to reduce future taxable income or offset income taxes due.
As of December 31, 2023, we had estimated U.S. federal and state net operating loss carryforwards (NOLs) of $161.0 million and $43.2 million, respectively, and federal research and development credit carryforwards of $9.3 million, which we may use to reduce future taxable income or income taxes due.
There can be no assurance that our expectations will prove correct, and even if such matters are resolved in our favor or without significant cash settlements, such matters, and the time and resources necessary to litigate or resolve them, could harm our business, financial condition, results of operations and growth prospects. 15 Table of Contents If we are unable to protect our proprietary technology and intellectual property rights, our competitive position could be harmed and our results of operations could be materially adversely affected.
There can be no assurance that our expectations will prove correct, and even if such matters are resolved in our favor or without significant cash settlements, such matters, and the time and resources necessary to litigate or resolve them, could harm our business, financial condition, results of operations and growth prospects.
Internal Revenue Code (the Code), a corporation that experiences a more than 50% ownership change by one or more stockholders or groups of stockholders who own at least 5% of a company’s stock over a three-year testing period is limited in its ability to use its prechange NOLs and other tax assets to offset future taxable income or income taxes.
In addition to the potential NOL and U.S. federal research and development credit carryforward limitations noted above, under Sections 382 and 383 of the Code, a corporation that experiences a more than 50% ownership change by one or more stockholders or groups of stockholders who own at least 5% of a company’s stock over a three-year testing period is limited in its ability to use its prechange NOLs and other tax assets to offset future taxable income or income taxes.
Any failure to compete successfully will materially adversely affect our business, financial condition, results of operations and growth prospects. Changes in the markets we serve could materially adversely affect our revenues and profitability. Our results of operations may vary based on the impact of changes in the markets we serve or in the global economy.
Changes in the markets we serve could materially adversely affect our revenues and profitability. Our results of operations may vary based on the impact of changes in the markets we serve or in the global economy.
These and other future requirements could require us to modify our policies and practices, increase our costs, impair our ability to grow our business, or restrict our ability to store and process data, and may subject us to liability.
These and other requirements, including future requirements resulting from new or changed laws or regulations or modifications in the interpretation of laws or regulations, could require us to modify our policies and practices, increase our costs, impair our ability to grow our business, or restrict our ability to store and process data, and may subject us to liability.
We have recently implemented a new enterprise resource planning (ERP) system, which replaces or enhances certain internal financial and operating systems that are critical to our business operations.
We may experience increased costs, disruptions or other difficulties with the implementation, operation and functionality of our new enterprise resource planning system. We have recently implemented a new enterprise resource planning (ERP) system, which replaces or enhances certain internal financial and operating systems that are critical to our business operations.
Such delays could result in decreased revenues and could materially adversely affect our results of operations in any given period. Products in the laser industry are experiencing declining average selling prices, and future success depends in part on our ability to increase our volumes and decrease our costs to offset potential declines in the average selling prices of our products.
Products in the laser industry are experiencing declining average selling prices, and our future success depends in part on our ability to increase our volumes and decrease our costs to offset potential declines in the average selling prices of our products.
In addition, if quality issues arise with these outsourced materials and go undetected by us, the use of such defective materials in our products could compromise their quality and harm our reputation. 9 Table of Contents For certain long lead-time supplies or in order to lock in pricing, we may be obligated to place purchase orders which are not cancelable or otherwise assume liability for a large amount of the ordered supplies, which limits our ability to adjust down our inventory liability in the event of market downturns or other customer cancellations or rescheduling of their purchase orders for our products.
For certain long lead-time supplies or in order to lock in pricing, we may be obligated to place purchase orders which are not cancellable or otherwise assume liability for a large amount of the ordered supplies, which limits our ability to adjust down our inventory liability in the event of market downturns or other customer cancellations or rescheduling of their purchase orders for our products.
Any actual or perceived security breach or other security incident may also harm our reputation and market position. Any of the foregoing matters could harm our operating results and financial condition. We may experience increased costs, disruptions or other difficulties with the implementation, operation and functionality of our new enterprise resource planning system.
Any actual or perceived security breach or other security incident may also harm our reputation and market position. Any of the foregoing matters could harm our operating results and financial condition.
These controls may impact our ability to export certain products and technology to China and restrict our ability to use certain ICs in our products. Additionally, these restrictions could disrupt the ability of China to produce semiconductors and other electronics and impact our ability to source components from China.
Additionally, these restrictions could disrupt the ability of China to produce semiconductors and other electronics and impact our ability to source components from China. These restrictions could impact the cost of components or inputs used to produce our products.
We have incurred recurring net losses since our inception in 2000. If we fail to grow revenues or reduce costs to achieve and sustain profitability, our business, financial condition, results of operations and growth prospects will be materially adversely affected. Our revenue growth rate in prior periods may not be indicative of our future performance.
If we fail to grow revenues or reduce costs to achieve and sustain profitability, our business, financial condition, results of operations and growth prospects will be materially adversely affected.
Significant fluctuations in exchange rates between the U.S. dollar and foreign currencies may adversely affect our revenues and earnings. Risks Related to Litigation, Taxation and Regulatory Compliance Our agreements with the U.S. government and suppliers to the U.S. government subject us to particular risks.
Significant fluctuations in exchange rates between the U.S. dollar and foreign currencies may adversely affect our revenues and earnings.
If our products fail to gain and maintain market acceptance, it could materially adversely affect our business, financial condition, results of operations and growth prospects. Risks Related to Our Business and Operations We have a history of losses and we may not be able to achieve or maintain profitability in the future.
If our products fail to gain and maintain market acceptance, it could materially adversely affect our business, financial condition, results of operations and growth prospects.
Our U.S. federal NOLs arising in tax years ending on or before December 31, 2017 will expire between 2023 and 2042. U.S. federal NOLs arising in tax years ending after December 31, 2017 are not subject to expiration. Our state NOLs will expire between 2023 and 2042.
Our U.S. federal NOLs arising in tax years beginning before January 1, 2018 began expiring in 2023, with the remainder expiring by 2042. Our U.S. federal NOLs arising in tax years beginning after December 31, 2017 are not subject to expiration. Our state NOLs began expiring in 2023, with the remainder expiring by 2042.
Moreover, our OEM customers' internal production of laser technologies presents additional competitive pressure. To compete, we have reduced prices of some of our products in the past and we may be forced to lower our prices further in the future, which could negatively impact our revenues and gross margins.
To compete, we have reduced prices of some of our products in the past and we may be forced to lower our prices further in the future, which could negatively impact our revenues and gross margins. To remain competitive, we believe that we will be required to continue to invest significantly in research and development and manufacturing facilities.
We participate in markets that are subject to rapid technological change and require significant research and development expenses to develop and maintain products that can achieve market acceptance. The markets for our products are characterized by rapid technological change, frequent product introductions, substantial capital investment, volatility of product supply and demand, changing customer requirements and evolving industry standards.
The markets for our products are characterized by rapid technological change, frequent product introductions, substantial capital investment, volatility of product supply and demand, changing customer requirements and evolving industry standards. Our future performance depends in part on our successful development, introduction and market acceptance of new and enhanced products that address these changes and current and potential customer requirements.
Fluctuations in our quarterly results of operations may be difficult to predict. We have experienced, and expect to continue to experience, fluctuations in our quarterly results of operations.
We have experienced, and expect to continue to experience, fluctuations in our quarterly results of operations including restructuring charges in the fourth quarter of 2022 and 2023.
There can be no assurances that our reserves would be adequate to cover such a contingency. 14 Table of Contents We are subject to various environmental laws and regulations that could impose substantial costs upon us and may materially adversely affect our business, financial condition, results of operations and growth prospects.
There can be no assurance that our effective tax rates or tax payments will not be adversely affected by these or other developments or changes in law. We are subject to various environmental laws and regulations that could impose substantial costs upon us and may materially adversely affect our business, financial condition, results of operations and growth prospects.
We are subject to governmental export and import controls that could subject us to liability, impair our ability to compete and otherwise adversely affect our business, financial condition, results of operations and growth prospects. The United States and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of certain products, technologies, and software.
Risks Related to Litigation, Taxation and Regulatory Compliance We are subject to governmental export and import controls that could subject us to liability, impair our ability to compete and otherwise adversely affect our business, financial condition, results of operations and growth prospects.
While we have policies and procedures to address compliance with these laws, we cannot assure you that our employees, representatives, contractors, business partners and agents will not take actions that violate our policies or applicable law, for which we can be held liable.
While we have policies and procedures to address compliance with these laws, we cannot assure you that our employees, representatives, contractors, business partners and agents will not take actions that violate our policies or applicable law, for which we can be held liable. 14 Table of Contents If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, financial condition, results of operations and growth prospects could be materially adversely affected.
You should not rely on our results for any quarter or year as an indication of our future performance. Risks Related to Our International Sales and Operations Our inability to manage risks associated with our international customers and operations could materially adversely affect our business.
Risks Related to Our International Sales and Operations Our inability to manage risks associated with our international customers and operations could materially adversely affect our business.
Denials of export licenses or limitations imposed on our ability to export or sell our products imposed by these laws, may harm our international and domestic revenues. Furthermore, noncompliance with these laws could have negative consequences, including government investigations, penalties and reputational harm.
We must export our products in compliance with U.S. export controls and we may not always be successful in obtaining necessary export licenses. Denials of export licenses or limitations imposed by these laws on our ability to export or sell our products, may harm our international and domestic revenues.
To remain competitive, we believe that we will be required to continue to invest significantly in research and development and manufacturing facilities. We may not have sufficient resources to continue to make these investments and we may not be able to make the technological advances or price adjustments necessary to compete successfully.
We may not have sufficient resources to continue to make these investments and we may not be able to make the technological advances or price adjustments necessary to compete successfully. Any failure to compete successfully will materially adversely affect our business, financial condition, results of operations and growth prospects.
In many cases, these licenses are subject to a policy of denial and will not be issued. The U.S. government also recently added additional entities in China to restricted party lists impacting the ability of U.S. companies to provide products and technology to these entities.
The U.S. government also continues to add additional entities in China and elsewhere to restricted party lists impacting the ability of U.S. companies to provide products and technology to these entities. These controls may impact our ability to export certain products and technology to China and other destinations and restrict our ability to use certain ICs in our products.
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Our future performance depends in part on our successful development, introduction and market acceptance of new and enhanced products that address these changes and current and potential customer requirements.
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Such delays could result in decreased revenues and could materially adversely affect our results of operations in any given period. We participate in markets that are subject to rapid technological change and require significant research and development expenses to develop and maintain products that can achieve market acceptance.
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Our historical revenue growth rate may not be indicative of future revenue growth, and we may not achieve similar revenue growth rates in future periods. You should not rely on our revenues for any prior quarterly or annual periods as an indication of our future revenues or revenue growth.
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Risks Related to Our Business and Operations We have a history of losses and we may not be able to achieve or maintain profitability in the future. We have incurred recurring net losses since our inception in 2000.
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Our results of operations may vary as a result of a number of factors, including our ability to execute on our business strategy and expand our manufacturing capacity, the general economic conditions and the legal and regulatory environment in the United States, China and globally, and competitive pressures as well as other factors that are outside of our control.
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In addition, if quality issues arise with these outsourced materials and go undetected by us, the use of such defective materials in our products could compromise their quality and harm our reputation.
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The COVID-19 pandemic disrupted our operations, manufacturing and supply chain and may continue to adversely affect our business, financial condition and operating results. The COVID-19 pandemic adversely impacted our end-markets, including reduced economic activity and demand for our products, delayed capital expenditure decisions and implementations, and resulted in restrictions on individual and business activities and travel.
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While we maintain insurance that may cover certain liabilities in connection with a security breach or incident, we cannot be certain that our insurance coverage will be adequate for data handling or information security liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
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Government-imposed health and safety restrictions impacted our ability to manufacture our products on time. For example, the COVID-related lockdown of Shanghai by the Chinese government forced us to halt operations in our Shanghai manufacturing for approximately two months during the second quarter of 2022.
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The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, premiums, or deductibles could have a material adverse effect on our business, including our financial condition, operating results, and reputation .
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Our Shanghai facility manufactures products that are sold directly to end-customers as well as components that are shipped to our facilities in the United States to be integrated into finished products.
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You should not rely on our results for any quarter or year as an indication of our future performance. We use estimates when accounting for certain fixed price contracts and any changes in such estimates could have an adverse effect on our earnings and overall financial performance.
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Although we are increasing our manufacturing capabilities in the United States and may outsource the manufacturing of certain products and product components to third-parties, our Shanghai manufacturing facility currently remains an important part of our global operations. Any additional closures, or partial closures, of our Shanghai facility in the future could have an adverse impact on future periods.
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Revenues and profits on some of our fixed price defense contracts may be recognized on an over-time basis. Contract accounting requires judgment of these contracts relative to assessing risks, estimating contract revenues and costs, and making assumptions for project schedule and technical issues.
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For example, in the fourth quarter of 2022, we recorded restructuring charges which included employee severance and 11 Table of Contents abandoned in-process capital equipment projects related to production capacity, and incurred inventory charges related to discontinued product lines.
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We calculate the percent complete under the contract and apply the percentage to determine revenues earned and the appropriate portion of total estimated costs. Accordingly, purchase price and cost estimates are reviewed periodically as the work progresses, and adjustments proportionate to the percentage complete are reflected in the period when such estimates are revised.
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It also is possible that the Chinese government will retaliate in ways that could impact our business. We must export our products in compliance with U.S. export controls and we may not always be successful in obtaining necessary export licenses.
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As part of this process, we review information including, but not limited to, key contract terms and conditions, project schedule, progress towards completion and identified risks and opportunities. The risks and opportunities include judgments about the ability and cost to achieve the contract milestones and other technical 12 Table of Contents contract requirements.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changePROPERTIES Our principal facilities are owned or leased and include the following: 19 Table of Contents Location Lease Expiration Approximate Size (sq. ft.) Primary Functions Segment(s) Camas, Washington Owned 164,600 Corporate headquarters, manufacturing and distribution, product design, research and development, sales, marketing and administration Laser Products, Advanced Development Vancouver, Washington November 30, 2024 - May 31, 2035 122,400 Manufacturing and distribution, product design, research and development, service and repair, and administration Laser Products, Advanced Development Hillsboro, Oregon January 31, 2033 30,200 Manufacturing and distribution, and product design Laser Products Longmont, Colorado July 31, 2028 46,400 Research and development Advanced Development Lohja, Finland March 31, 2025 31,800 Manufacturing and distribution, product design, research and development and administration Laser Products Shanghai, China January 15 2023 ‑ April 17, 2025 66,500 Manufacturing and distribution, service and repair, product design, research and development, sales and administration Laser Products
Biggest changePROPERTIES Our principal facilities are owned or leased and include the following: Location Lease Expiration Approximate Size (sq. ft.) Primary Functions Segment(s) Camas, Washington Owned 164,600 Corporate headquarters, manufacturing and distribution, product design, research and development, sales, marketing and administration Laser Products, Advanced Development Vancouver, Washington November 30, 2024 - May 31, 2035 122,400 Manufacturing and distribution, product design, research and development, service and repair, and administration Laser Products, Advanced Development Hillsboro, Oregon January 31, 2033 30,200 Manufacturing and distribution, and product design Laser Products Longmont, Colorado July 31, 2028 46,400 Research and development Advanced Development Lohja, Finland March 31, 2025 31,800 Manufacturing and distribution, product design, research and development and administration Laser Products Shanghai, China January 31, 2025 ‑ November 30, 2025 66,500 Manufacturing and distribution, service and repair, product design, research and development, sales and administration Laser Products

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS For a description of our material pending legal proceedings, see Note 14, Commitments and Contingencies, of Notes to our Consolidated Financial Statements included elsewhere in this report. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS For a description of our material pending legal proceedings, see Note 12, Commitments and Contingencies, of Notes to our Consolidated Financial Statements included elsewhere in this report. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis graph assumes that the value of the investment in our common stock and each index (including reinvestment of dividends) was $100 on April 26, 2018. The stock price performance shown on the graph above is not necessarily indicative of future price performance.
Biggest changeThe graph covers the period from December 31, 2018 through December 31, 2023. No cash dividends have been declared on shares of our common stock. This graph assumes that the value of the investment in our common stock and each index (including reinvestment of dividends) was $100 on December 31, 2018.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Information About Our Common Stock Our common stock is listed on the Nasdaq Global Select Market under the symbol "LASR." As of February 21, 2023, there were 112 registered holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Information About Our Common Stock Our common stock is listed on the Nasdaq Global Select Market under the symbol "LASR." As of February 21, 2024, there were 112 registered holders of record of our common stock.
During the year ended December 31, 2022, we did not repurchase any shares and, as of December 31, 2022, $10 million remained available for future repurchases. 20 Table of Contents Stock Performance Graph The following graph compares the cumulative total stockholder return on our common stock with the Nasdaq Composite Index and the Russell 2000 Index.
During the year ended December 31, 2023, we did not repurchase any shares and, as of December 31, 2023, $10 million remained available for future repurchases. 21 Table of Contents Stock Performance Graph The following graph compares the cumulative total stockholder return on our common stock with the Nasdaq Composite Index, the Russell 2000 Index, and the S&P 600 Technology Hardware & Equipment Industry Group Index.
Information used in the graph was obtained from the Nasdaq Global Select Market, a source believed to be reliable, but we are not responsible for any errors or omissions in such information.
The stock price performance shown on the graph above is not necessarily indicative of future price performance. Information used in the graph was obtained from the Nasdaq Global Select Market, a source believed to be reliable, but we are not responsible for any errors or omissions in such information.
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The graph covers the period from April 26, 2018, using the closing price for the first day of trading immediately following the effectiveness of our initial public offering per SEC regulations, through December 31, 2022. No cash dividends have been declared on shares of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults 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): Year Ended December 31, 2022 2021 2020 Revenue: Products 79.6 % 76.3 % 83.0 % Development 20.4 23.7 17.0 Total revenue 100.0 100.0 100.0 Cost of revenue: Products 60.0 49.2 57.6 Development 19.0 22.2 15.8 Total cost of revenue 79.0 71.4 73.4 Gross profit 21.0 28.6 26.6 Operating expenses: Research and development 22.2 20.3 18.5 Sales, general and administrative 19.9 19.5 17.6 Restructuring 1.6 — — Total operating expenses 43.8 39.8 36.1 Loss from operations (22.8) (11.2) (9.4) Other income (expense): Interest income (expense), net 0.2 (0.1) — Other income, net 0.1 0.1 0.2 Loss before income taxes (22.4) (11.2) (9.2) Income tax expense (benefit) 0.1 (0.1) 0.2 Net loss (22.5) % (11.1) % (9.4) % Revenues by End Market Our revenues by end market were as follows (dollars in thousands): Year Ended December 31, Change 2022 % of Revenue 2021 % of Revenue Amount % Industrial $ 91,098 37.6 % $ 94,795 35.1 % $ (3,697) (3.9) % Microfabrication 62,769 25.9 70,412 26.1 (7,643) (10.9) Aerospace and Defense 88,191 36.4 104,939 38.8 (16,748) (16.0) $ 242,058 100.0 % $ 270,146 100.0 % $ (28,088) (10.4) % Year Ended December 31, Change 2021 % of Revenue 2020 % of Revenue Amount % Industrial $ 94,795 35.1 % $ 84,478 37.9 % $ 10,317 12.2 % Microfabrication 70,412 26.1 51,649 23.2 18,763 36.3 Aerospace and Defense 104,939 38.8 86,662 38.9 18,277 21.1 $ 270,146 100.0 % $ 222,789 100.0 % $ 47,357 21.3 % 24 Table of Contents The decrease in Industrial and Microfabrication market revenue for 2022 compared to 2021 was driven by a decrease in unit sales in China, partially offset by an increase in unit sales outside of China.
Biggest changeIn 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. 24 Table of Contents 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): Year Ended December 31, 2023 2022 2021 Revenue: Products 74.6 % 79.6 % 76.3 % Development 25.4 20.4 23.7 Total revenue 100.0 100.0 100.0 Cost of revenue: Products 54.4 60.0 49.2 Development 23.6 19.0 22.2 Total cost of revenue 78.0 79.0 71.4 Gross profit 22.0 21.0 28.6 Operating expenses: Research and development 22.0 22.2 20.3 Sales, general and administrative 21.8 19.9 19.5 Restructuring 0.4 1.6 — Total operating expenses 44.2 43.8 39.8 Loss from operations (22.2) (22.8) (11.2) Other income (expense): Interest income (expense), net 0.5 0.2 (0.1) Other income, net 1.3 0.1 0.1 Loss before income taxes (20.4) (22.4) (11.2) Income tax expense (benefit) (0.5) 0.1 (0.1) Net loss (19.9) % (22.5) % (11.1) % Revenues by End Market Our revenues by end market were as follows (dollars in thousands): Year Ended December 31, Change 2023 % of Revenue 2022 % of Revenue Amount % Industrial $ 71,044 33.8 % $ 91,098 37.6 % $ (20,054) (22.0) % Microfabrication 47,483 22.6 62,769 25.9 (15,286) (24.4) Aerospace and Defense 91,394 43.6 88,191 36.4 3,203 3.6 $ 209,921 100.0 % $ 242,058 100.0 % $ (32,137) (13.3) % Year Ended December 31, Change 2022 % of Revenue 2021 % of Revenue Amount % Industrial $ 91,098 37.6 % $ 94,795 35.1 % $ (3,697) (3.9) % Microfabrication 62,769 25.9 70,412 26.1 (7,643) (10.9) Aerospace and Defense 88,191 36.4 104,939 38.8 (16,748) (16.0) $ 242,058 100.0 % $ 270,146 100.0 % $ (28,088) (10.4) % The decrease in Industrial and Microfabrication market revenue for 2023 compared to 2022 was the result of decreased unit sales across all regions due primarily to lower customer demand and deteriorating market 25 Table of Contents conditions.
Net Cash Used in Investing Activities During the year ended December 31, 2022, net cash used in investing activities was $72.4 million, including the net purchase of $50.0 million of marketable securities and $21.4 million of capital expenditures related to investments in directed energy, manufacturing equipment and facilities.
During the year ended December 31, 2022, net cash used in investing activities was $72.4 million, including the net purchase of $50.0 million of marketable securities and $21.4 million of capital expenditures related to investments in directed energy, manufacturing equipment and facilities.
Net Cash (Used in) Provided by Financing Activities During the year ended December 31, 2022, net cash used in financing activities was $1.3 million, which was primarily driven by $4.9 million of withholding tax payments related to the vesting of stock awards, partially offset by $3.6 million of proceeds from stock options exercises and employee stock plan purchases.
During the year ended December 31, 2022, net cash used in financing activities was $1.3 million, which was primarily driven by $4.9 million of withholding tax payments related to the vesting of stock awards, partially offset by $3.6 million of proceeds from stock options exercises and employee stock plan purchases.
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.
Technology and New Product Development We invest heavily in the development of our semiconductor, fiber laser, directed energy, and laser-sensing 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.
The decrease in revenue from the Aerospace and Defense market for 2022 compared to 2021 was due to decreased activity on research and development contracts, and a decrease in product sales in the second half of 2022 due primarily to supply chain disruptions.
The decrease in revenue from the Aerospace and Defense market for 2022 compared to 2021 was due to decreased activity on development contracts, and a decrease in product sales in the second half of 2022 due primarily to supply chain disruptions.
In some 21 Table of Contents 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.
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," 22 Table of Contents "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.
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.
Rights of return are evaluated as they occur. Revenues recognized at a point in time consist of sales of semiconductor lasers, fiber lasers, and certain defense and other products. Revenues recognized over time generally consist of development arrangements that are structured based on our costs incurred.
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.
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., headquartered in Camas, Washington, is a leading provider of high‑power semiconductor and fiber lasers for industrial, microfabrication, and aerospace and defense applications.
The increase in Advanced Development gross margin for 2022 compared to 2021 was not significant and was primarily the result of changes in the composition of research and development contracts.
The increase in Advanced Development gross margin for 2022 compared to 2021 was not significant and was primarily the result of changes in the mix of research and development contracts.
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.
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, the cost of purchased materials, production costs and manufacturing yields.
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 31 Table of Contents any, may not be sellable. Based on this analysis, we write down the affected inventory value for estimated excess and obsolescence charges.
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.
Forward-looking statements include, but are not limited to, statements about: our business model and strategic plans; our expectations regarding manufacturing; the impact of the COVID-19 pandemic and the related lockdown in Shanghai on our business; 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 the implementation of our new ERP system; the impact of new import and export controls; 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.
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 the implementation of our new ERP system; the impact of new import and export controls; 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.
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 December 31, 2022.
Due to the uncertainty with respect to their ultimate realizability in the United States and China, we continue to maintain a full valuation allowance in these jurisdictions as of December 31, 2023.
In addition, in the 22 Table of Contents 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.
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.
Changes in working capital were driven by a $5.9 million decrease in accounts payable and a $4.6 million decrease in inventory.
Changes in working capital were driven by a $5.9 million decrease in accounts payable and a $4.6 million decrease in inventory due to a decrease in inventory purchasing.
Sales of our semiconductor lasers, fiber lasers and directed energy products are included in the Laser Products segment, while revenue earned from research and development contracts are included in the Advanced Development segment.
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 directed energy products are included in the Laser Products segment, while revenue earned from research and development contracts are included in the Advanced Development segment.
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.
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.
Revenues by Geographic Region Our revenues by geographic region were as follows (dollars in thousands): Year Ended December 31, Change 2022 % of Revenue 2021 % of Revenue Amount % North America $ 137,454 56.8 % $ 143,232 53.0 % $ (5,778) (4.0) % China 21,287 8.8 55,446 20.5 (34,159) (61.6) Rest of World 83,317 34.4 71,468 26.5 11,849 16.6 $ 242,058 100.0 % $ 270,146 100.0 % $ (28,088) (10.4) % 25 Table of Contents Year Ended December 31, Change 2021 % of Revenue 2020 % of Revenue Amount % North America $ 143,232 53.0 % $ 107,624 48.3 % $ 35,608 33.1 % China 55,446 20.5 70,882 31.8 (15,436) (21.8) Rest of World 71,468 26.5 44,283 19.9 27,185 61.4 $ 270,146 100.0 % $ 222,789 100.0 % $ 47,357 21.3 % Geographic revenue information is based on the location to which we deliver our products and services.
Revenues by Geographic Region Our revenues by geographic region were as follows (dollars in thousands): Year Ended December 31, Change 2023 % of Revenue 2022 % of Revenue Amount % North America $ 129,311 61.6 % $ 137,454 56.8 % $ (8,143) (5.9) % China 11,890 5.7 21,287 8.8 (9,397) (44.1) Rest of World 68,720 32.7 83,317 34.4 (14,597) (17.5) $ 209,921 100.0 % $ 242,058 100.0 % $ (32,137) (13.3) % 26 Table of Contents Year Ended December 31, Change 2022 % of Revenue 2021 % of Revenue Amount % North America $ 137,454 56.8 % $ 143,232 53.0 % $ (5,778) (4.0) % China 21,287 8.8 55,446 20.5 (34,159) (61.6) Rest of World 83,317 34.4 71,468 26.5 11,849 16.6 $ 242,058 100.0 % $ 270,146 100.0 % $ (28,088) (10.4) % Geographic revenue information is based on the location to which we deliver our products and services.
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.
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.
Other Income, net Year Ended December 31, Change 2022 2021 Amount % Other income, net $ 338 $ 336 $ 2 0.6 Year Ended December 31, Change 2021 2020 Amount % Other income, net $ 336 $ 378 $ (42) 11.1 The changes in other income, net, in 2022 compared to 2021, and 2021 compared to 2020 , are primarily attributable to changes in net realized and unrealized foreign exchange transactions resulting from currency rate fluctuations. 28 Table of Contents Income Tax Expense (Benefit) Year Ended December 31, Change 2022 2021 Amount % Income tax expense (benefit) $ 344 $ (375) $ 719 191.7 Year Ended December 31, Change 2021 2020 Amount % Income tax expense (benefit) $ (375) $ 340 $ (715) (210.3) We record income tax expense for taxes in our foreign jurisdictions including Finland, Italy, and South Korea.
The change in other income, net, in 2022 compared to 2021 was not significant and consisted primarily of net realized and unrealized foreign exchange transactions resulting from currency rate fluctuations. 29 Table of Contents Income Tax Expense (Benefit) Year Ended December 31, Change 2023 2022 Amount % Income tax expense (benefit) $ (978) $ 344 $ (1,322) (384.3) Year Ended December 31, Change 2022 2021 Amount % Income tax expense (benefit) $ 344 $ (375) $ 719 191.7 We record income tax expense for taxes in our foreign jurisdictions including Finland, Italy, Austria, and South Korea.
Sales, General and Administrative Year Ended December 31, Change 2022 2021 Amount % Sales, general, and administrative $ 48,258 $ 52,710 $ (4,452) (8.4) Year Ended December 31, Change 2021 2020 Amount % Sales, general, and administrative $ 52,710 $ 39,248 $ 13,462 34.3 The decrease in sales, general and administrative expense for 2022 compared to 2021 was primarily due to a decrease in stock-based compensation of $9.4 million, partially offset by increases in salary costs, professional service fees and facility expenses, and a decrease in administrative costs allocated to development projects.
Sales, General and Administrative Year Ended December 31, Change 2023 2022 Amount % Sales, general, and administrative $ 45,899 $ 48,258 $ (2,359) (4.9) Year Ended December 31, Change 2022 2021 Amount % Sales, general, and administrative $ 48,258 $ 52,710 $ (4,452) (8.4) The decrease in sales, general and administrative expense for 2023 compared to 2022 was primarily due to a decrease in salary costs and incentive compensation, and an increase in administrative costs allocated from sales, general and administrative to development projects, partially offset by an increase in stock-based compensation of $1.2 million.
From time to time, we may explore additional financing sources which could include equity, equity‑linked and debt financing arrangements. 29 Table of Contents The following table summarizes our cash flows for the periods presented (in thousands): Year Ended December 31, 2022 2021 2020 Net cash (used in) provided by operating activities $ (14,542) $ (7,443) $ 13,041 Net cash used in investing activities (72,381) (21,853) (24,539) Net cash (used in) provided by financing activities (1,306) 73,742 (3,767) Effect of exchange rate changes on cash (477) (235) 545 Net increase (decrease) in cash, cash equivalents, and restricted cash $ (88,706) $ 44,211 $ (14,720) Net Cash (Used in) Provided by Operating Activities During the year ended December 31, 2022, net cash used in operating activities was $14.5 million, which was the result of a $54.6 million net loss and use of cash for working capital of $8.2 million, offset partially by non‑cash expenses totaling $48.3 million related primarily to depreciation, amortization, and stock-based compensation.
The following table summarizes our cash flows for the periods presented (in thousands): Year Ended December 31, 2023 2022 2021 Net cash provided by (used in) operating activities $ 10,091 $ (14,542) $ (7,443) Net cash used in investing activities (14,100) (72,381) (21,853) Net cash (used in) provided by financing activities (859) (1,306) 73,742 Effect of exchange rate changes on cash 256 (477) (235) Net (decrease) increase in cash, cash equivalents, and restricted cash $ (4,612) $ (88,706) $ 44,211 30 Table of Contents Net Cash Provided by (Used in) Operating Activities During the year ended December 31, 2023, net cash provided by operating activities was $10.1 million, which was the result of a $41.7 million net loss, offset by cash provided by working capital of $8.1 million and non‑cash expenses totaling $43.7 million related primarily to depreciation, amortization, and stock-based compensation.
The increase in Industrial market revenue for 2021 compared to 2020 was driven by increases in unit sales outside of China, partially offset by a decrease in unit sales in China and lower average selling prices due to changes in product mix.
The decrease in Industrial and Microfabrication market revenue for 2022 compared to 2021 was driven by a decrease in unit sales in China, partially offset by an increase in unit sales outside of China.
During the year ended December 31, 2021, net cash used in operating activities was $7.4 million, which was primarily driven by $29.7 million of net loss and use of cash for working capital of $33.7 million, partially offset by non-cash expenses totaling $56.0 million related to depreciation and amortization, stock-based compensation, and other items.
During the year ended December 31, 2022, net cash used in operating activities was $14.5 million, which was the result of a $54.6 million net loss and use of cash for working capital of $8.2 million, offset partially by non‑cash expenses totaling $48.3 million related primarily to depreciation, amortization, and stock-based compensation.
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.
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.
Interest Income (Expense), net Interest income (expense), net was as follows (in thousands): Year Ended December 31, Change 2022 2021 Amount % Interest income (expense), net $ 529 $ (163) $ 692 424.5 Year Ended December 31, Change 2021 2020 Amount % Interest income (expense), net $ (163) $ 78 $ (241) (309.0) The increase in net interest income for 2022 compared to 2021 was driven by increases in interest rates and the investment in marketable securities during the second quarter of 2022, as well as the payoff of our long-term debt in the third quarter of 2021.
The increase in net interest income for 2022 compared to 2021 was driven by increases in interest rates and the investment in marketable securities during the second quarter of 2022, as well as the payoff of our long-term debt in the third quarter of 2021.
No amounts were outstanding under the LOC at December 31, 2022 and 2021 and we were in compliance with all covenants. 30 Table of Contents Contractual Obligations The following table sets forth a summary of our significant contractual obligations to make future payments in cash as of December 31, 2022 (in thousands): Payments Due by Year 2023 2024 2025 2026 2027 Thereafter Total Purchase commitments $ 47,308 $ — $ — $ — $ — $ — $ 47,308 Lease obligations 3,235 2,848 2,037 1,654 1,655 6,806 18,235 Total $ 50,543 $ 2,848 $ 2,037 $ 1,654 $ 1,655 $ 6,806 $ 65,543 Critical Accounting Policies and Significant Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP).
Contractual Obligations The following table sets forth a summary of our significant contractual obligations to make future payments in cash as of December 31, 2023 (in thousands): Payments Due by Year 2024 2025 2026 2027 2028 Thereafter Total Purchase commitments $ 33,979 $ — $ — $ — $ — $ — $ 33,979 Lease obligations 3,687 2,408 1,741 1,688 1,413 5,410 16,347 Total $ 37,666 $ 2,408 $ 1,741 $ 1,688 $ 1,413 $ 5,410 $ 50,326 Critical Accounting Policies and Significant Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the 31 Table of Contents United States of America (GAAP).
We may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies and intellectual property rights.
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.
Operating Expenses Our operating expenses were as follows (dollars in thousands): Research and Development Year Ended December 31, Change 2022 2021 Amount % Research and development $ 53,773 $ 54,814 $ (1,041) (1.9) Year Ended December 31, Change 2021 2020 Amount % Research and development $ 54,814 $ 41,164 $ 13,650 33.2 The decrease in research and development expense for 2022 compared to 2021 was driven by a decrease in stock-based compensation of $1.8 million and a decrease in purchased intangible amortization of $1.2 million, partially offset by increases in salary costs and project-related expenses.
Operating Expenses Our operating expenses were as follows (dollars in thousands): Research and Development Year Ended December 31, Change 2023 2022 Amount % Research and development $ 46,163 $ 53,773 $ (7,610) (14.2) Year Ended December 31, Change 2022 2021 Amount % Research and development $ 53,773 $ 54,814 $ (1,041) (1.9) The decrease in research and development expense for 2023 compared to 2022 was due primarily to decreases in salary costs and project-related expenses, an increase in costs allocated from research and development to development projects, and a decrease in stock-based compensation of $1.8 million.
During the year ended December 31, 2021, net cash provided by financing activities was $73.7 million, which was primarily driven by our follow-on public offering of $82.4 million, net of offering costs, and $2.7 million of proceeds from stock options exercised and employee stock plan purchases, partially offset by $10.6 million of withholding tax payments related to vesting of restricted stock awards.
Net Cash (Used in) Provided by Financing Activities During the year ended December 31, 2023, net cash used in financing activities was $0.9 million, which was primarily driven by $4.0 million of withholding tax payments related to the vesting of stock awards, partially offset by $3.1 million of proceeds from stock options exercises and employee stock plan purchases.
Revenues by Segment Our revenues by segment were as follows (dollars in thousands): Year Ended December 31, Change 2022 % of Revenue 2021 % of Revenue Amount % Laser Products $ 192,658 79.6 % $ 206,195 76.3 % $ (13,537) (6.6) % Advanced Development 49,400 20.4 63,951 23.7 (14,551) (22.8) $ 242,058 100.0 % $ 270,146 100.0 % $ (28,088) (10.4) % Year Ended December 31, Change 2021 % of Revenue 2020 % of Revenue Amount % Laser Products $ 206,195 76.3 % $ 184,841 83.0 % $ 21,354 11.6 % Advanced Development 63,951 23.7 37,948 17.0 26,003 68.5 $ 270,146 100.0 % $ 222,789 100.0 % $ 47,357 21.3 % The decrease in Laser Products revenue for 2022 compared to 2021 was driven by decreased units sales across each end market as discussed above.
Revenues by Segment Our revenues by segment were as follows (dollars in thousands): Year Ended December 31, Change 2023 % of Revenue 2022 % of Revenue Amount % Laser Products $ 156,666 74.6 % $ 192,658 79.6 % $ (35,992) (18.7) % Advanced Development 53,255 25.4 49,400 20.4 3,855 7.8 $ 209,921 100.0 % $ 242,058 100.0 % $ (32,137) (13.3) % Year Ended December 31, Change 2022 % of Revenue 2021 % of Revenue Amount % Laser Products $ 192,658 79.6 % $ 206,195 76.3 % $ (13,537) (6.6) % Advanced Development 49,400 20.4 63,951 23.7 (14,551) (22.8) $ 242,058 100.0 % $ 270,146 100.0 % $ (28,088) (10.4) % The decrease in Laser Products revenue for 2023 compared to 2022 was primarily due to decreased units sales to the Industrial and Microfabrication markets as discussed above.
Our gross profit and gross margin were as follows (dollars in thousands): Year Ended December 31, 2022 Laser Products Advanced Development Corporate and Other Total Gross profit $ 50,063 $ 3,435 $ (2,677) $ 50,821 Gross margin 26.0 % 7.0 % NM* 21.0 % Year Ended December 31, 2021 Laser Products Advanced Development Corporate and Other Total Gross profit $ 75,833 $ 3,979 $ (2,505) $ 77,307 Gross margin 36.8 % 6.2 % NM* 28.6 % Year Ended December 31, 2020 Laser Products Advanced Development Corporate and Other Total Gross profit $ 58,207 $ 2,778 $ (1,621) $ 59,364 Gross margin 31.5 % 7.3 % NM* 26.6 % *NM - Not meaningful. 26 Table of Contents The decrease in Laser Products gross margin for 2022 compared to 2021 was driven by sales mix, decreased factory utilization, increased labor and material costs, and increased freight costs, partially offset by an increase in duty reclaim.
Our gross profit and gross margin were as follows (dollars in thousands): Year Ended December 31, 2023 Laser Products Advanced Development Corporate and Other Total Gross profit $ 44,891 $ 3,628 $ (2,406) $ 46,113 Gross margin 28.7 % 6.8 % NM* 22.0 % Year Ended December 31, 2022 Laser Products Advanced Development Corporate and Other Total Gross profit $ 50,063 $ 3,435 $ (2,677) $ 50,821 Gross margin 26.0 % 7.0 % NM* 21.0 % Year Ended December 31, 2021 Laser Products Advanced Development Corporate and Other Total Gross profit $ 75,833 $ 3,979 $ (2,505) $ 77,307 Gross margin 36.8 % 6.2 % NM* 28.6 % *NM - Not meaningful. 27 Table of Contents The increase in Laser Products gross margin for 2023 compared to 2022 was driven by a decrease in direct labor and other variable manufacturing costs, and a decrease in manufacturing variances, partially offset by the impact of lower production volumes on fixed manufacturing costs due to the decrease in customer demand.
The decrease in Advanced Development revenue for 2022 compared to 2021 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.
The increase in Advanced Development revenue was driven by new development contracts. Most of our Advanced Development revenue in 2023 was generated from cost plus fixed fee development contracts, and all Advanced Development revenue is included in the Aerospace and Defense market.
We order materials and supplies based on backlog and forecasted customer orders. We expense all warranty costs and inventory provisions as cost of revenues. Cost of Advanced Development revenue consists of materials, labor, subcontracting costs, an allocation of indirect costs including overhead and general and administrative.
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 customer orders. We expense all warranty costs and inventory provisions as cost of revenues.
Our Development gross profit varies with the type and terms of contracts, contract volume, project mix, and successful execution on projects during the period. Most of our Development contracts are structured as cost plus fixed fee due to the technical complexity of the research and development services.
Our Development gross profit varies with the type and terms of contracts, contract volume, project mix, changes in the estimated cost of projects at completion, and successful execution on projects during the period.
During the year ended December 31, 2021, net cash used in investing activities was $21.9 million, including $19.3 million of capital expenditures related primarily to investments in manufacturing equipment and improvements to our corporate facility.
Net Cash Used in Investing Activities During the year ended December 31, 2023, net cash used in investing activities was $14.1 million, including the net purchase of $8.8 million of marketable securities and $5.3 million of capital expenditures related to investments in directed energy, manufacturing equipment and facilities.
In addition, we had marketable securities of $50.4 million as of December 31, 2022. Total cash, cash equivalents and marketable securities were $108.2 million as of December 31, 2022. For the year ended December 31, 2022, our principal uses of liquidity were to fund operating activities, acquire plant and equipment and tax payments related to stock award issuances.
For the year ended December 31, 2023, our principal uses of liquidity were to fund operating activities, acquire plant and equipment and tax payments related to stock award issuances. The primary source of cash was collections from customers.
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. Recent Accounting Pronouncements See Note 1 of Notes to Consolidated Financial Statements.
Our inability or failure to do so could materially adversely affect our business, financial condition and results of operations. 32 Table of Contents Recent Accounting Pronouncements See Note 1 of Notes to Consolidated Financial Statements.
The increase in North America revenue for 2021 compared to 2020 was primarily driven by increased revenue from the Aerospace and Defense and Industrials markets. The decrease in China revenue for 2021 compared to 2020 was due to decreased sales in the Industrial market as a result of deteriorating market conditions.
The decrease in North America revenue for 2023 compared to 2022 was the result of decreased revenue from the Industrial and Microfabrication markets, partially offset by an increase in revenue from the Aerospace and Defense market.
Revenues decreased to $242.1 million in the year ended December 31, 2022 compared to $270.1 million in the same period of 2021 due primarily to decreases in product sales to customers in China and development revenue, partially offset by an increase in product sales to customers outside of China.
Revenues decreased to $209.9 million in the year ended December 31, 2023 compared to $242.1 million in 2022 due to a decrease in sales in the Laser Products segment that was partially offset by an increase in sales in the Advanced Development segment.
The increase in Laser Products gross margin for 2021 compared to 2020 was primarily due to sales mix and improved factory utilization from higher production volume, offset partially by increases in manufacturing costs. The decrease in Advanced Development gross margin was driven primarily by changes in the composition of research and development contracts.
The decrease in Laser Products gross margin for 2022 compared to 2021 was driven by sales mix, decreased factory utilization, increased labor and material costs, and increased freight costs, partially offset by an increase in duty reclaim.
The increase in research and development expense for 2021 compared to 2020 was driven primarily by an increase in stock-based compensation costs of $3.7 million, and increased employee headcount and related costs, and project-related expenses, to support our development efforts.
The decrease in research and development expense for 2022 compared to 2021 was driven by a decrease in stock-based compensation of $1.8 million and a decrease in purchased intangible amortization of $1.2 million, partially offset by increases in salary costs and project-related expenses.
The increase in Microfabrication market revenue for 2021 compared to 2020 was attributable to increases in customer demand and unit sales of semiconductor lasers. The increase in Aerospace and Defense market revenue for 2021 compared to 2020 was primarily due to increased activity on existing research and development contracts, offset partially by a decrease in product sales.
The increase in Aerospace and Defense market revenue in 2023 compared to 2022 was driven by new development contracts, offset partially by a decrease in product sales.
Inflation While we do not believe that inflation had a material effect on our business, financial condition or results of operations during the year ended December 31, 2022, we experienced higher than expected increases in wages and other compensation costs, materials, and shipping costs during 2022. We expect these increases will continue to impact our cost structure.
Inflation We do not believe that inflation had a material effect on our business, financial condition or results of operations during the year ended December 31, 2023. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.
The increase in sales, general and administrative expense for 2021 compared to 2020 was primarily driven by an increase in stock-based compensation costs of $7.6 million , increased headcount and compensation costs, and increased professional fees. 27 Table of Contents Restructuring Restructuring in 2022 included the following (in thousands): Year Ended December 31, 2022 Employee termination costs $ 1,271 Write-off of long-lived assets 2,566 Other 55 $ 3,892 During the fourth quarter of 2022, we implemented a restructuring plan which included headcount reductions in both the U.S. and China, and the write-down of certain in-process capital equipment projects related to production capacity that were never completed or placed into service.
During the fourth quarter of 2022, we implemented a restructuring plan which included headcount reductions in both the U.S. and China, and the write-down of certain in-process capital equipment projects related to production capacity that were never completed or placed into service.
We generated a net loss of $54.6 million for the year ended December 31, 2022 compared to a net loss of $29.7 million for the same period of 2021.
We generated a net loss of $41.7 million for the year ended December 31, 2023 compared to a net loss of $54.6 million in 2022. Factors Affecting Our Performance Demand for our Semiconductor and Fiber Laser Solutions Our revenue growth depends on market demand and achievement of design wins for our semiconductor and fiber lasers.
The closure of our Shanghai facility during the second quarter of 2022 had a negative impact on our 2022 annual financial results, and any additional closures, or partial closures, could have an adverse impact on future periods. Seasonality Our quarterly revenues can fluctuate with general economic trends, the timing of capital expenditures by our customers, holidays, and general economic trends.
Seasonality Our quarterly revenues can fluctuate with general economic trends, the timing of capital expenditures by our customers, holidays, and general economic trends.
Changes in working capital were driven by a $19.0 million increase in inventory, a $9.5 million increase in accounts receivable and a $3.6 million increase in prepaid expenses and other current assets.
Changes in working capital were driven by a $14.9 million decrease in inventory, partially offset by a $4.5 million decrease in accounts payable.
The interest rate on the LOC is based on the Prime rate, minus a margin based on our liquidity levels.
The interest rate on the LOC is based on the Prime rate, minus a margin of 0.50% to 1.40% based on our liquidity levels. No amounts were outstanding under the LOC at December 31, 2023 and 2022 and we were in compliance with all covenants.
The increase in Laser Products revenue for 2021 compared to 2020 was primarily due to higher revenue and demand from the Industrial and Microfabrication markets outside of China, offset partially by a decrease in product sales to the Aerospace and Defense market.
The decrease in China and Rest of World revenue for 2023 compared to 2022 was driven by decreases in revenue from the Industrial and Microfabrication markets as discussed above.
The increase in Advanced Development revenue for 2021 compared to 2020 was driven by increased activity on existing research and development contracts with the U.S. Government.
The decrease in Laser Products revenue for 2022 compared to 2021 was driven by decreased units sales across each end market as discussed above. The decrease in Advanced Development revenue for 2022 compared to 2021 was primarily due to decreased activity on development contracts.
Removed
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.
Added
Erosion of average 23 Table of Contents 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.
Removed
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.
Added
Most of our Development contracts have historically been structured as cost plus fixed fee due to the technical complexity of the research and development services, but we also perform work under fixed price contracts where gross margin can change from period to period based on the estimated cost of the project at completion.
Removed
COVID-19 Pandemic The COVID-19 pandemic and related global liquidity concerns and macro-economic volatility adversely impacted our end-markets, including reduced economic activity and demand for our products, and delays in new capital expenditure decisions and implementations.
Added
Cost of Advanced Development revenue consists of materials, labor, subcontracting costs, an allocation of indirect costs including overhead and general and administrative.
Removed
While our manufacturing operations generally remained open throughout the pandemic, including our manufacturing facilities in the United States, the COVID-related lockdown of Shanghai by the Chinese government forced us to halt operations in our Shanghai manufacturing facility for approximately two months during the second quarter of 2022.
Added
Manufacturing variances in 2022 included inventory charges related to business restructuring and the discontinuation of certain product lines in the fourth quarter of 2022. The decrease in Advanced Development gross margin for 2023 compared to 2022 was not significant and was primarily the result of changes in the composition of research and development contracts.
Removed
Our Shanghai facility manufactures products that are sold directly to end customers as well as components that are shipped to our facilities in the United States to be integrated into finished products. Although we are increasing our manufacturing capabilities outside of China, our Shanghai manufacturing facility remains an important part of our global operations.
Added
The decrease in sales, general and administrative expense for 2022 compared to 2021 was primarily due to a decrease in stock-based compensation of $9.4 million, partially offset by increases in salary costs, professional service fees and facility expenses, and a decrease in administrative costs allocated from sales, general and 28 Table of Contents administrative to development projects.
Removed
In addition, as is typical in our industry, we tend to recognize a 23 Table of Contents larger percentage of our quarterly revenues in the last month of the quarter, which may impact our working capital trends.
Added
Restructuring Restructuring included the following (in thousands): Year Ended December 31, Change 2023 2022 Amount % Employee termination costs $ 737 $ 1,271 $ (534) (42.0) % Write-off of long-lived assets — 2,566 (2,566) (100.0) Other 79 55 24 43.6 $ 817 $ 3,892 $ (3,075) (79.0) % We implemented a restructuring plan in the fourth quarter of 2023 which resulted in a reduction of headcount in China.
Removed
The increase in unit sales outside of China was driven by increased customer demand for fiber lasers used in cutting applications and new products for additive manufacturing, while the decrease in unit sales in China was the result of increased competitive pressure and declining sales prices for fiber lasers used in cutting applications.
Added
Interest Income (Expense), net Interest income (expense), net was as follows (in thousands): Year Ended December 31, Change 2023 2022 Amount % Interest income, net $ 1,342 $ 529 $ 813 153.7 Year Ended December 31, Change 2022 2021 Amount % Interest income (expense), net $ 529 $ (163) $ 692 424.5 The increase in net interest income for 2023 compared to 2022 was driven by an increase in marketable securities and interest rates.
Removed
The increase in Rest of World revenue for 2021 compared to 2020 was primarily due to increased sales in the Microfabrication and Industrial markets. 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.
Added
Other Income, net Year Ended December 31, Change 2023 2022 Amount % Other income, net $ 2,776 $ 338 $ 2,438 721.3 Year Ended December 31, Change 2022 2021 Amount % Other income, net $ 338 $ 336 $ 2 0.6 The increase in other income, net, in 2023 compared to 2022, was driven by realized gains on the sale of marketable securities.
Removed
Most of the Advanced Development segment revenue in 2021 was generated from cost plus fixed fee research and development contracts.
Added
The income tax benefit for 2023 compared to the income tax expense for 2022 was driven by a discrete tax benefit related to expiring statutes of limitations of unrecognized tax positions recorded in the second quarter of 2023.
Removed
There were no restructuring charges in 2021 or 2020.
Added
Liquidity and Capital Resources Total cash, cash equivalents and marketable securities were $113.1 million and $108.5 million as of December 31, 2023 and 2022, respectively.
Removed
The higher net interest expense for 2021 compared to 2020 was primarily attributable to an increase in bank charges and changes in the market rates on money market funds, offset partially by the March 2021 cash proceeds from our public offering of stock.
Added
We had cash and cash equivalents of $53.5 million and $58.1 million as of December 31, 2023 and 2022, respectively, and marketable securities of $59.7 million and $50.4 million as of December 31, 2023 and 2022, respectively.
Removed
The tax benefit for 2021 was primarily related to the release of tax expense, interest and penalties associated with uncertain tax positions for which statutes of limitations have expired and prior year true ups in foreign jurisdictions.
Removed
Our 2021 tax benefit was impacted by the geographic location of our pre-tax book income and was primarily related to our operations in Finland and foreign withholding taxes on undistributed earnings. Liquidity and Capital Resources We had cash and cash equivalents of $57.8 million and $146.5 million as of December 31, 2022 and 2021, respectively.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−0 removed4 unchanged
Biggest changeBorrowings under the Revolving Credit Facility bear interest at a per annum rate, depending on certain liquidity thresholds, ranging from prime rate minus 1.40% to 0.50%.
Biggest changeBorrowings under the Revolving Credit Facility bear interest at a per annum rate, depending on certain liquidity thresholds, ranging from the Prime rate minus 0.50% to 1.40%.
We are subject to interest rate risk in connection with the borrowings under our loan facility. We have a $40.0 million revolving credit facility. As of December 31, 2022, we had no outstanding principal amount under the revolving loan facility.
We are subject to interest rate risk in connection with the borrowings under our loan facility. We have a $40.0 million revolving credit facility. As of December 31, 2023, we had no outstanding principal amount under the revolving loan facility.
At December 31, 2022, our foreign currency exposure was related to our net investment in our foreign subsidiaries. The potential loss in fair value resulting from a hypothetical 10% adverse change in foreign exchange rates would be approximately $0.7 million.
At December 31, 2023, our foreign currency exposure was related to our net investment in our foreign subsidiaries. The potential loss in fair value resulting from a hypothetical 10% adverse change in foreign exchange rates would be approximately $0.5 million.
Foreign exchange rate gains or losses on foreign investments as of December 31, 2022 are reflected as a cumulative translation adjustment, net of tax, and do not affect our results of operations. 32 Table of Contents
Foreign exchange rate gains or losses on foreign investments as of December 31, 2023 are reflected as a cumulative translation adjustment, net of tax, and do not affect our results of operations. 33 Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk As of December 31, 2022, we had cash and cash equivalents of $57.8 million and investments in marketable securities of $50.4 million with maturities of less than one year. The goals of our investment policy are liquidity and capital preservation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk As of December 31, 2023, we had cash and cash equivalents of $53.2 million and investments in marketable securities of $59.7 million with maturities of less than one year. The goals of our investment policy are liquidity and capital preservation.

Other LASR 10-K year-over-year comparisons