LASR Q3 Deep Dive: Defense Demand and New Contracts Drive Strong Results, Margin Expansion

Laser company nLIGHT (NASDAQ:LASR) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 18.9% year on year to $66.74 million. On top of that, next quarter’s revenue guidance ($75 million at the midpoint) was surprisingly good and 22.8% above what analysts were expecting. Its non-GAAP profit of $0.08 per share was significantly above analysts’ consensus estimates.

Is now the time to buy LASR? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

nLIGHT delivered a quarter that exceeded Wall Street’s expectations on both revenue and non-GAAP profit, prompting a strong positive market reaction. Management attributed the robust performance to continued momentum in aerospace and defense, where record product sales and strong execution in directed energy and laser sensing programs were key. CEO Scott Keeney highlighted that defense product revenue grew over 70% year-over-year, mainly due to shipments tied to major government contracts and successful transition of amplifier production lines. The team also noted improved gross margins, benefiting from favorable product mix and manufacturing scale.

Looking ahead, nLIGHT’s guidance reflects optimism about sustained growth in aerospace and defense, with management anticipating continued contract wins and expansion in both domestic and international markets. The company expects new and existing programs, including those under the U.S. government’s Golden Dome initiative, to drive further gains. CFO Joseph Corso emphasized ongoing efforts to optimize manufacturing and control costs, while management pointed to a full pipeline and the ability to backfill potential revenue gaps as major contracts wind down. The team remains focused on leveraging its vertically integrated technology and capturing opportunities in directed energy and sensing applications.

Key Insights from Management’s Remarks

Management attributed Q3’s outperformance to strong defense-related demand, favorable product mix, and manufacturing efficiencies, while also addressing margin expansion and updates on major government programs.

• Aerospace and defense momentum: Sales in this segment were driven by high-volume shipments to U.S. and allied defense customers, particularly in directed energy and laser sensing applications. Management noted that progress on the HELSI-2 program and other classified projects underpinned growth.
• Amplifier production scale: Expansion of amplifier manufacturing for defense contracts contributed to margin gains, with management citing over 50% incremental gross margins on key products. The transition to higher-volume production is ongoing and seen as a critical future driver.
• Golden Dome and new contracts: The U.S. government’s focus on non-kinetic defense systems, such as counter-drone and missile detection, has increased demand for nLIGHT’s technology. The company reported a new $50 million laser sensing contract tied to munitions restocking and highlighted a healthy pipeline from both domestic and international defense agencies.
• Microfabrication and industrial stability: While commercial markets remain challenged, management pointed to stabilization in microfabrication sales and slight improvements in industrial products. However, overall commercial demand is expected to remain subdued into next year.
• Restructuring to align with market shifts: The company incurred restructuring charges as it further reduced activities in China and scaled back cutting and welding operations, reallocating resources toward growth areas in defense and advanced manufacturing.

Drivers of Future Performance

Management expects future growth to be led by continued defense contract execution, expanding amplifier volumes, and a steady pipeline of new sensing and directed energy programs.

• Defense pipeline drives outlook: The company’s guidance is based on a robust backlog of booked defense contracts and expectations for additional orders from U.S. and international government agencies. Management believes these will more than offset the eventual ramp-down of large projects like HELSI-2, ensuring revenue continuity.
• Margin dynamics and manufacturing scale: While gross margin expansion is expected to persist due to higher amplifier volumes and product mix, near-term margins may fluctuate with changes in freight, duties, and end-market demand. Management is also focused on operational improvements to further leverage its vertically integrated production model.
• Commercial market headwinds: Despite some recent stabilization, the outlook for industrial and microfabrication markets remains muted. Management anticipates continued declines in commercial sales in the coming year, reinforcing the strategic shift toward defense-driven growth.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace of new contract wins in directed energy and sensing, especially those tied to U.S. government initiatives; (2) execution on amplifier production scaling and margin retention as manufacturing volumes increase; and (3) signs of stabilization or renewed weakness in commercial markets. The potential for international contract acceleration and ongoing restructuring efforts will also be key indicators for nLIGHT’s execution.

nLIGHT currently trades at $34.92, up from $29.72 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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