Transcript: nLight Q2 2026 Earnings Conference Call

On Thursday, nLight (NASDAQ:LASR) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

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The full earnings call is available at https://events.q4inc.com/attendee/189677464

Summary

nLight reported a strong Q2 2026 with record revenues of $83 million, a 34% increase year-over-year, driven by a 45% increase in product revenue.

The company secured the Joint Laser Weapon System contract with a ceiling of over $600 million, which will significantly contribute to revenue starting in late 2026 and beyond.

Gross margins improved year-over-year but faced slight sequential declines due to higher manufacturing spending.

nLight is experiencing supply chain challenges, particularly from Chinese suppliers affecting commercial product deliveries, which impacts Q3 guidance.

Despite supply chain issues, demand remains strong across defense and commercial markets, with continued growth in laser sensing and advanced manufacturing opportunities.

Full Transcript

OPERATOR

Hello everyone. Thank you for joining us and welcome to nLight's second quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to John Marchetti. John, please go ahead.

John Marchetti, VP of Corporate Development and Head of Investor Relations

Good afternoon everyone. Thank you for joining us today to discuss nLight's second quarter 2026 earnings results. I'm John Marchetti, nLight's VP of Corporate Development and the Head of Investor Relations, and with me on the call today are Scott Keeney, nLight's chairman and CEO, and Joe Corso, nLight's CFO. Today's discussion will contain forward-looking statements, including statements related to our financial projections and plans for our business, our growth opportunities and demand for our products, the impact of export controls and related supply chain challenges on our product manufacturing and delivery, and our mitigation strategies to address such supply chain challenges. These forward-looking statements are subject to risks, uncertainties and assumptions that could cause our actual results to differ materially from these statements, including the risks mentioned in today's earnings release as well as other risks and uncertainties described from time to time in our SEC filings, including without limitation our most recent annual report on Form 10-K and our subsequent quarterly reports on Form 10-Q. We undertake no obligation to update any forward-looking statement except as required by law. During the call we will also be discussing certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings press release and in our earnings presentation, both of which can be found on the Investor Relations section of our website. I will now turn the call over to nLight's chairman and CEO, Scott Keeney.

Scott Keeney, CEO

Thank you, John. Q2 represented another strong quarter of execution for nLight with revenue, gross margin and adjusted EBITDA at or above our expectations. Our second quarter revenue was a record 83 million and grew 34% year over year, driven by record products revenue of $59 million which grew 45% year over year. Adjusted EBITDA in the quarter was a solid $11 million and we generated a record $21 million in cash from operations. During the second quarter we saw increased demand for our solutions across both defense and advanced manufacturing markets.

Our pipeline of new opportunities in directed energy significantly expanded with the recent award of the Department of Defense's Joint Laser Weapon System contract. Our laser sensing and advanced manufacturing opportunities also continue to grow, providing us with a broad base of new and existing programs and customers that we expect will continue to provide long-term growth opportunities for nLight. Directed energy is an increasingly important priority for the US and our allies, driven by the need for highly scalable, low cost per shot solutions to counter a rapidly evolving threat environment.

Our focus remains on supporting customers across a broad range of power levels and mission profiles, and we are increasingly engaged not only as a laser supplier but also as a system-level partner. nLight's high energy lasers are differentiated across three key dimensions: power, brightness and atmospheric correction. We believe all are essential to the successful deployment of directed energy laser weapons, and it's across all three dimensions where we believe our HADES family of directed energy products outperforms competing solutions.

HADES can scale from tens of kilowatts to a megawatt of power while maintaining exceptional beam quality. When combined with our proprietary atmospheric correction technology, HADES provides defense customers with an operational solution capable of neutralizing a wide range of threats. Designed to be low SWaP, HADES can be delivered in a variety of form factors, enabling rapid deployment across a broad range of military platforms and battlefield environments.

HADES was instrumental in helping us win the recent Joint Laser Weapon System, or JLWS, award, a new multi-year DoD agreement with a contract ceiling of over $600 million. Under JLWS, nLight will develop, integrate and deliver multiple high energy laser weapon systems that build on the successful delivery of our 300 kilowatt high energy HELSI 1 laser and our 50 kilowatt high energy DE M-SHORAD laser. nLight will leverage its proprietary coherent beam combination and atmospheric correction technology and its vertically integrated manufacturing to deliver modular containerized systems that can be integrated across a variety of platforms and rapidly deployed in theater. With increasing US defense prioritization of directed energy lasers and planned demonstrations of operational systems expected as early as 2028, JLWS represents a critical step forward in fielding production-ready laser weapon systems at scale. We also continued to make progress with existing directed energy programs in the second quarter. Our work on the production of our 1 megawatt CBC high energy laser as part of HELSI 2 continues to go well and we remain on track for this program.

Importantly, this laser is based on the same architecture that we use across our HADES portfolio of CBC lasers, demonstrating the scalability of the platform to deliver solutions that address a wide range of mission scenarios. We are making steady progress on the US Navy's Hellcat program for anti-ship cruise missile defense where we are integrating our 300 kilowatt CBC laser that we delivered under the HELSI 1 program with a proprietary advanced beam control system that incorporates our adaptive optics for atmospheric correction.

We believe this work will continue to accelerate the development and deployment of future multi-hundred kilowatt systems over the coming years. We also continue to see increased interest in our defense products outside of directed energy. In the second quarter we delivered strong growth in our products for kinetic weapons which remains an important growth driver within our defense markets. These products are delivered into long-standing programs of record and are in high demand due to global restocking efforts as well as new mission applications where the use case for weapons is expanding.

Within the space domain we see accelerating need for both our laser sensing and advanced manufacturing products. Our high energy pulsed lasers are being designed into several new programs that are in the early stages of adoption across the commercial and defense markets and we have a growing pipeline of customers using our commercial fiber lasers with our proprietary dynamic beam shaping technology in the launch ammunition markets as well. In summary, I'm extremely encouraged by the growing pipeline of opportunities across our entire portfolio of defense and advanced manufacturing solutions and demand for our products remains strong.

Our strategy remains consistent: leverage our vertically integrated technology platform, execute with discipline on existing programs and invest to accelerate and support long-term growth and value creation. We believe this approach positions nLight to succeed across the multi-year opportunities that remain ahead of us. Let me now turn the call over to Joe to discuss our second quarter financial results.

Joe Corso (CFO)

Thank you, Scott. We had a strong second quarter with record product revenue and solid execution. Demand for our products across both our space and defense and our advanced manufacturing markets continued to accelerate, and our pipeline of new opportunities continues to build. Further, our focus on working capital management and targeted capex enabled us to generate record operating cash flow in the quarter while positioning ourselves for long-term growth.

Turning to the results, total revenue in the second quarter was $82.6 million, an increase of 34% compared to $61.7 million in the second quarter of 2025, and up 3% compared to the prior quarter. Aerospace and defense revenue was a record $57.3 million in the quarter, up 41% year over year. A and D growth was driven by record A and D product revenue, which grew 72% year over year and 3% sequentially. Development revenue of $23.2 million grew 11% year over year and 5% compared to the prior quarter.

The year-over-year and sequential growth in our revenue from the aerospace and defense market was primarily driven by continued progress in our HELSI 2 program, growth in our munitions program, and execution across multiple other directed energy and laser sensing programs. Second quarter revenue from our commercial markets, which include industrial and microfabrication, was $25.3 million, an increase of 20% year over year and 1% compared to the prior quarter.

Revenue from our microfabrication markets was $13.3 million. Revenue of $12 million from our industrial markets benefited from increased demand for our additive manufacturing products and an increase in sales associated with last-time buys of our cutting and welding products. As we previously announced, we are exiting our legacy cutting and welding markets, and we do not expect to generate material revenue from these markets in the second half of the year.

Total gross margin in the second quarter was 31.1% compared to 29.9% in the second quarter of 2025 and 33.1% last quarter. On a non-GAAP basis, which excludes stock-based compensation, total gross margin in the second quarter was 32.6%, up from 30.9% in the same period last year and 34.4% last quarter. Products gross margin in the second quarter was 41.2% compared to 38.5% in the second quarter of 2025 and 43.6% last quarter. The year-over-year increase in products gross margin was primarily driven by sales mix and the positive impact of higher production volumes on fixed manufacturing costs.

Products gross margins were at the high end of our guidance range but down sequentially on higher manufacturing spend, partially offset by increased volumes. Non-GAAP products gross margin in the quarter was 42.4% compared to 40% in the second quarter of 2025 and 44.6% last quarter. Development gross margin was 5.6% compared to 13.1% in the same quarter a year ago and 5.1% last quarter. The variability in development gross margin is primarily the result of contract mix and the timing of program deliverables in any given quarter.

Non-GAAP development gross margin in the quarter was 7.5% compared to 13.1% in the same period a year ago and 7.2% last quarter. Moving down the income statement, GAAP operating expenses were $29.3 million in the second quarter compared to $22.7 million in the second quarter of 2025 and $27.2 million in the prior quarter. The year-over-year increase in GAAP operating expenses is primarily due to higher stock-based compensation. Non-GAAP operating expenses were $19.5 million in the quarter, up from $16.8 million in the second quarter of 2025 and $17.1 million last quarter.

The increase in non-GAAP operating expenses was primarily due to higher employee compensation expenses and an increase in R and D material spend. We expect non-GAAP OPEX to remain in the $17 to $19 million per quarter range in the second half of 2026. GAAP net loss in the second quarter of 2026 was $1.3 million, or $0.02 per share, compared to a net loss of $3.6 million, or $0.07 per share in the same quarter a year ago, and positive net income of $645,000, or $0.01 per diluted share last quarter.

On a non-GAAP basis, net income for the second quarter was $9.6 million, or $0.15 per diluted share, compared to $2.9 million, or $0.06 per diluted share in the second quarter of 2025 and $11.8 million, or $0.20 per diluted share last quarter. Adjusted EBITDA for the second quarter was $10.7 million, compared to $5.6 million in the same quarter last year and $13.8 million in the first quarter of 2026. Turning to the balance sheet, we ended the second quarter with total cash, cash equivalents, restricted cash, and investments of $330.8 million.

During the second quarter, we repaid the $20 million that we had previously drawn down on our $40 million line of credit, and we generated a record $20.7 million in cash from operations during the quarter. Turning to guidance, based on the information available today, we expect revenue for the third quarter of 2026 to be in the range of $63 to $73 million. The midpoint of $68 million includes approximately $43 million of product revenue and $25 million of development revenue.

Please note that our revenue guidance for the third quarter excludes approximately $17 million of product revenue that we would have expected to ship in the third quarter but is now expected to be delivered in future quarters. We are currently experiencing challenges in getting some parts and materials from certain Chinese suppliers. While these materials do not represent a large portion of the overall bill of material of our products, delays in sourcing these materials, which primarily affect our commercial products, will not allow us to fully satisfy our customer demand in the third quarter.

Overall gross margin in the third quarter is expected to be in the range of 24% to 30%, with product gross margin in the range of 34% to 40% and development gross margin of approximately 8%. The expected sequential decline in products gross margin is largely driven by the lower expected product volumes. As we've mentioned previously, as a vertically integrated manufacturing business, gross margin is largely dependent on production volumes and absorption of fixed manufacturing costs.

We expect adjusted EBITDA for the third quarter of 2026 to be in the range of $1 to $7 million. With that, I will turn the call over to the operator for questions.

OPERATOR

We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jonathan Siegman with Stifel.

Jonathan, your line is open. Please go ahead.

Jonathan Siegman, Analyst at Stifel

Good evening. Thank you so much for the time. Congratulations on strong results. Could you maybe talk a little bit about how the JLWS award rolls into '26 and '27? I realize you may not give exact numbers on that, but maybe you can square that with the headwind that you might see for HELSI 2? Thank you very much.

Joe Corso (CFO)

Hi, John. The JLWS award will start to contribute revenue in the current quarter, will run into the into the fourth quarter, and then, you know, really start to ramp up in 2027. But the second half of the year will be, you know, just really the initial stages of the program.

Jonathan Siegman, Analyst at Stifel

Its contribution in '27, how should we think about how much of that helps relative to the headwind you might see with HELSI 2?

Scott Keeney, CEO

Actually, I'll characterize it as it will be a nice replacement and then some relative to the HELSI 2 program. So a couple of quarters ago, there was some concern that the HELSI 2 program was going to fall off, and we knew it would trail off. But with the award, the win with JLWS will more than make up for that as we get into 2027.

OPERATOR

Your next question comes from the line of Louis De Palma with William Blair. Louis, your line is open. Please go ahead.

Louis De Palma, Analyst at William Blair

Joe and John, good afternoon.

Scott Keeney, CEO

Hi, Louie.

Louis De Palma, Analyst at William Blair

From a technology standpoint, how is the prototype for the Joint Laser Weapon System that you're developing different from the HELSI 2 prototype and your HADES platform?

Scott Keeney, CEO

Hey, Louis, this is Scott. Thanks for the question. The program that we just won, JLWS, is, as Joe just mentioned, a continuation, extension, transition, if you will, for the work we've done on HELSI to demonstrate the technology. JLWS is a program that's focused on transitioning that into products at, again, the high power levels. So it builds on what we've done with HELSI, it builds on the HADES product family, and continues to both expand our product line at various power levels.

Louis De Palma, Analyst at William Blair

Okay, and I guess from a high level related to HELSI 2 and JLWS and HADES, what would you estimate is the projected timeline on when some of the laser systems will be fielded at scale?

Scott Keeney, CEO

Yeah, that will depend on how the U.S. budgets in particular progress. And we're seeing continued expansion and interest in those programs. But we don't anticipate that there will be a program of record over the next year. We do anticipate that we will see increasing interest and increasing demand, and we will transition to initial prototypes for the higher power levels in the coming couple of years. And from there it goes to a low-rate production set of opportunities, and it will scale from there.

Louis De Palma, Analyst at William Blair

Great. And one final question. As you know, the missile industry is in the midst of a dynamic period with multi-year agreements established for many of the top 15 programs. Should this have a positive impact on your sensing business, and is there a potential for you to be incorporated as a second supplier on some of these missile programs that you aren't involved in today?

Scott Keeney, CEO

Yeah, good question, Louis. The short answer is yes. I think the restocking that we are seeing of traditional kinetic munitions, particularly on the missile side, will be a benefit to nLight. If you go back over the last 18 months, for example, we announced a $25 million award just roughly 18 months ago. We followed up at the end of last year with a $50 million award. Both of those awards were for roughly the same period of performance. So roughly we are seeing in certain programs our number of units continue to grow and our content continue to grow.

We expect that to continue here in the coming years. And then the second part of your question: it is part of our plan from a sensing perspective to expand the number of opportunities that we have with missiles in particular. Now, as you know, that gestation period is and can be long, but it's certainly something that is in the plan for us.

Louis De Palma, Analyst at William Blair

Good. Thanks, everyone.

Scott Keeney, CEO

Thank you.

OPERATOR

Your next question comes from the line of Jim Riccudi with Needham and Company. Jim, your line is open. Please go ahead.

Jim Riccudi, Analyst at Needham & Company

Thanks. I was hoping to better understand the supply chain situation. I wonder if you could elaborate on the component or material that is creating that shortfall in the Q3 guide, because otherwise it would sound like your Q3 product guide would be significantly better and overall revenue much higher. I'm trying to get a better sense as to when this could be resolved, what some of the challenges are.

Scott Keeney, CEO

Jim, this is Scott, I appreciate the question, and you're exactly right. You know, Q2 was a record quarter and we've got very strong demand across the board. And we would have guided higher had it not been for these supply chain challenges that we're seeing. And those challenges come from what appears to be China increasing scrutiny on dual-use products for defense tech products. And the particular commodity that I would highlight would be optics.

These are not specialized components. They're materials where China has built out an outsized portion of the overall supply chain over time and we're seeing delays in the ability to get some of those components. That's affecting Q3 in terms of the outlook. I'll let Joe chime in a little further to expand upon that.

Joe Corso (CFO)

Jim, your observation was absolutely right. We have very strong demand in the third quarter and we wanted to try to quantify that and give you some direction to give you a sense that we would have expected that. Well, we do expect that. Demand is still there. The forecast is still strong, backlog is strong. Our ability to execute on that backlog in the fourth quarter is still a little bit of a question mark for us at this point.

Jim Riccudi, Analyst at Needham & Company

Well, again, if the supply is coming out of China and do you have it sounds like they control a fair amount of the supply chain for this material. So what's the risk that this just ends up going on for more than a few quarters? I guess trying to get a sense as to how and I assume this is affecting more of your defense business, is that right, Jim?

Joe Corso (CFO)

Good question. No, the actual impact of it is more on the commercial side of the business and the products that we build. As Scott said, this is largely related to the dual-use nature of our products. As you know, we've spent a lot of time over the last couple of years de-risking and moving manufacturing out of China. Our revenue base has certainly moved out of China. A good bit of our supply chain has moved out of China. So from an overall percentage of the bill of materials, we're not talking about a lot of the BOM, but it doesn't take more than just a couple of components for us to complete the build.

So, you know, we could see that this could resolve itself quite quickly or, you know, it'll take, you know, months to quarters depending on what the particular mitigation strategy is. Right.

Jim Riccudi, Analyst at Needham & Company

Okay, I'll jump back in the queue. Thank you.

OPERATOR

Your next question comes from the line of Greg Palm with Craig-Hallum. Greg, your line is open. Please go ahead.

Greg Palm, Analyst at Craig-Hallum

Yeah, thanks. I'm going to I guess follow up on, on, on that because my very next question was going to be what is your current mitigation strategy? I mean, can you find, you know, these components outside of China? Presumably you're already trying, but just give us some sense on what the availability is at this point.

Scott Keeney, CEO

Yeah, Greg, it's Scott here. You know, again, we have been de-risking China for some time now. We've shifted our focus to markets outside of China. We've moved our manufacturing out of China. But it does take time on the supply chain side to re-qualify, redesign some of these complex lasers. And so we're in the midst and we've been working on this, on working with our existing supply chain partners. We're evaluating and qualifying new partners and where we can, we're evaluating redesign of our products to provide more flexibility for the future.

So those are some of the themes that we're focused on here. And this is something we've talked about, but it's something that has even greater focus now.

Greg Palm, Analyst at Craig-Hallum

Okay. And I just want to be clear, I think you said it mostly impacts commercial. Is there any chance that this could or would impact anything in defense and specifically, you know, for instance, the ramp up or potential contribution of JLWS?

Scott Keeney, CEO

Yeah, as Joe said, this is mostly commercial as part of our dual-use strategy. But there's some exposure here, even if it's indirect, to our defense products. The majority of our defense supply chain is domestic. But we do use some of our own commercial items which do have exposure to some of these Chinese components that go into our defense products. And in terms of the implications for JLWS, I think I would just put that in that context that these, this is a fairly small number of products, but it is something that we're working through.

Joe Corso (CFO)

And Greg, just to be clear, the initial work that we are gonna do on JLWS will largely be unaffected by this supply chain issue. So for us right now, that program is all systems go.

Greg Palm, Analyst at Craig-Hallum

Yeah. And just to be clear, you're referring to the 44 million. Is that what you call the initial work?

Joe Corso (CFO)

Well, that's the initial funded work. The, you know, initial plan is beyond the 44 million. And I'm also referring to significant work beyond the 44 million in JLWS that will be unaffected by these issues. Thank you.

OPERATOR

Your next question comes from the line of Keith Housum with Northcoast Research. Keith, your line is open. Please go ahead.

Keith Housum, Analyst at Northcoast Research

Thanks, guys. And sorry to, you know, political point here, but I just want to make sure this is more of a political football as opposed to a manufacturing delay. Correct.

Scott Keeney, CEO

It's not at all related to manufacturing. Manufacturing products, no.

Keith Housum, Analyst at Northcoast Research

Okay, gotcha. And how long has this been going on for? I mean, is there. I know you don't have a crystal ball and you can predict might when it might be resolved, but just trying to understand how long it's been going on to give us an idea if there's any chance of just being quick come and go.

Scott Keeney, CEO

This has been a very recent development, just over the past handful of weeks as this started to crop up.

Keith Housum, Analyst at Northcoast Research

Okay. And I guess finally, any chance that your customers actually will go looking elsewhere at competitors for this or your lasers are so unique and design inspect into their products that they'll be patient and wait?

Scott Keeney, CEO

Yeah, I think that the short answer is we see very strong demand. This is a supply chain delay. We're working through that and that demand remains strong and we're eager to ship those products as soon as possible.

Keith Housum, Analyst at Northcoast Research

Okay. I guess changing subjects in a little more happier tone. There's so much going on now with the space development in terms of rockets and, you know, perhaps data centers in the sky. As you're thinking about your sensing lasers, are you having discussions that, you know, are opening up new use cases with some of these, you know, various conversations about how to utilize space more effectively here?

Scott Keeney, CEO

Short answer is yes. You know, I mentioned space briefly in my comments and in subsequent calls. Look forward to providing, you know, more information about where we're engaged. It gets complex due to the nature of those programs. But, Keith, yes, the short answer to question is sensing and other applications are important in space also.

Keith Housum, Analyst at Northcoast Research

All right, so we'll stay in duty for more. Appreciate it. Thank you.

OPERATOR

Your next question comes from the line of Kieran McCabe with Cantor Fitzgerald. Kieran, your line is open. Please go ahead.

Kieran McCabe, Analyst at Cantor Fitzgerald

Great. Thank you for taking my question for Troy Jensen. I guess maybe my first question, and I apologize, we're kind of maybe looking at too close here splitting hairs, but the 3Q guidance is a little bit wider range than normal. Is that kind of driven by the supply chain issue or timing of projects or just kind of more conservatism in your forecast and maybe how that relate to 4Q and going into 2027?

Joe Corso (CFO)

Yeah. The slightly wider range this quarter is related exclusively to supply chain.

Kieran McCabe, Analyst at Cantor Fitzgerald

Kieran, great thanks. And if my second question is on, you mentioned strong demand and additive manufacturing. I know in our survey work we're seeing a lot of strong demand for metal printing and also in the A and D sector. And also I believe one of the companies that reported this just this week talked about strengths in demand in rocketry and stuff. And they kind of answered a portion partially in the prior question. But any kind of call you can provide maybe on what you're seeing in the additive manufacturing space and kind of the trends and demands that you're seeing there.

Scott Keeney, CEO

Yeah, Kieran, we're seeing strong demand across really all the segments of our business, including additive. And you highlighted two of the key drivers there. Certainly rocket engines is one, but a broader range of aerospace and defense components. We're seeing significant demand increases there.

Kieran McCabe, Analyst at Cantor Fitzgerald

Great. Thank you for taking my questions.

OPERATOR

As a reminder, if you would like to ask a question, please press Star one to raise your hand. Your next question comes from the line of Jan Engelbrecht with Baird. Jan, your line is open. Please go ahead.

Jan Engelbrecht, Analyst at Baird

Afternoon, Scott. Joe and John. Congrats on another nice set of results. I think I'll stay with JLWS and just wanted to see that contract structure. Should we assume that sort of HELSI 2 rolls into that or are they two separate things? If there's additional work that the government wants to do on HELSI 2. And then just a quick cleanup on that sort of announcement. I noticed that the ceiling value for nLight was listed as 607 million. And then I think the Department of Defense put out a ceiling value for the second vendor and yourself of 847.

Should we sort of read into that that you're sort of getting three. Basically about 75% of that contract if the ceiling values are reached. Or is that. Would you caution us against that? Thank you.

Scott Keeney, CEO

No. Second question first. Your math is right on that, Jan. So the 627 is the ceiling for the contract that we were awarded. And then to your first part of your question. HELSI 2 and JLWS are two separate contracts. JLWS has a particular scope of work that was defined in our release and in the Department of Defense's release. And HELSI 2 remains on track for us to deliver the 1 megawatt laser late in 2026.

Jan Engelbrecht, Analyst at Baird

Perfect. Thanks. If I may with a quick follow up, there was some recent announcement on the infantry squad vehicle heavy program. I think they want to procure just three prototypes initially, but there's plans for for 600 vehicles over the lifetime. And I think the, the whole idea that the government wants to do there is to sort of have a hybrid onboard power, sort of a generator and then a battery. And I think that directly would benefit nLight, just as we think about sort of mobile platforms that can actually have enough power to, to, to house these laser weapon systems.

Is that how you guys are seeing it? And are you seeing enough work being done and sort of maybe call it VC funding or just investments in general that are going to actually solving the power bottleneck? Because it does seem like beam quality and lethality is not really the issue here for laser weapon systems, it's power constraints. So just wanted to get your thoughts on that. Thank you.

Scott Keeney, CEO

Yeah, Jan, I think that that program is one example of improvements in the broader set of technology that is important here. And you're exactly right that having power supplies continue to improve is important. But it's one of many programs that are going on that are addressing those issues. Ground, naval, airborne, other platforms. Important work going on there and we're seeing progress there.

Jan Engelbrecht, Analyst at Baird

Thanks, Scott. Appreciate it. Thanks for taking my question.

Scott Keeney, CEO

Thanks, Jan.

OPERATOR

Your next question comes from the line of Greg Palm with Craig-Hallum. Greg, your line is open. Please go ahead.

Greg Palm, Analyst at Craig-Hallum

Yeah, thanks for taking the follow up. Just given this $17 million impact, I'm just curious how that is impacting your assumptions by segment. And so I guess my question is, can you give us a little bit better sense of how you're thinking about revenue? I'm like, was there no change to defense relative to what you were thinking a couple weeks ago? And this is like 100% coming out of industrial and microfab. And of the two, is there one where it's more impacted versus the other?

Scott Keeney, CEO

Yeah. So first, Greg, the demand, when we talk about a strong demand environment, as you've seen in the first two quarters of the year, it really has been broad based. And then when we look at the expected unfulfilled demand in the third quarter at the midpoint of our guide, certainly much more of it is coming from the commercial end markets than the defense end markets. But as you know, there's some commercial items that we sell that are reported as.

And so it's not 100% of it, but it's largely commercial oriented. In terms of the shortfall,

Greg Palm, Analyst at Craig-Hallum

I guess what I'm getting at, I mean, should we assume that commercial revenues are down significantly year over year because of this or not necessarily?

Scott Keeney, CEO

No, I mean, Greg, we don't, we don't, we don't guide with that level of specificity. I think what we talked about at the end of 2025 was that there was going to be a headwind from the cutting and welding business. We've done a little bit better than we thought there. The additive manufacturing business has had better demand and better performance than we had anticipated. And as has the microfabrication market. Right. We've talked about a kind of through cycle range of 8 to 12 million dollars a quarter.

We've been performing this year on the upper end of that range. And we would have expected that to continue in the second half of the year if not for some of these supply chain challenges. So the demand is still there, timing of execution. That's where we're a little bit less certain. Around Q4 at this point.

Greg Palm, Analyst at Craig-Hallum

Yeah. Okay, I think you're clear. Thanks.

Scott Keeney, CEO

Thank you.

OPERATOR

We have reached the end of the Q and A session. I will now turn the call back to John Marchetti for closing remarks.

John Marchetti, VP of Corporate Development and Head of Investor Relations

Thank you, everyone, for joining us this afternoon and for your continued interest in nLight. We will be participating in several investor conferences over the next several weeks, and we look forward to speaking with you during those events and throughout the quarter. Have a great day.

OPERATOR

This concludes today's call. Thank you for attending. You may now disconnect.

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