Summary of Significant Accounting Policies


(a)	Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The consolidated financial statements include the accounts of nLIGHT, Inc. and those of its wholly-owned subsidiaries. All intercompany balances have been eliminated.

In the opinion of the Company's management, the unaudited financial information for the interim periods presented reflects all adjustments necessary for a fair presentation of the Company's financial position, results of operations and cash flows. The results reported in these consolidated financial statements are not necessarily indicative of results that may be expected for the full year.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2017 included in the Company's prospectus dated April 25, 2018, filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, referred to as the Prospectus.


(b)	Revenue Recognition

Revenues are recognized when there is persuasive evidence of an arrangement, product delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Title and risk of loss generally pass to the customer at the time of delivery of the product as indicated by the shipping terms. Revenues are recognized upon such delivery. In limited circumstances when customer‑specified acceptance criteria exist, revenue is deferred until customer acceptance if the Company cannot demonstrate the product meets the specifications prior to shipment. If installation is included with the sale of a product, installation revenues are deferred until installation is complete. Taxes collected on behalf of a governmental entity are excluded from revenues.

The recognition of revenues on arrangements with multiple elements is consistent with guidance provided by FASB ASC Subtopic 605‑25, Revenue Recognition-Multiple‑Element Arrangements. For arrangements with multiple elements, revenues are allocated across the separately identified deliverables and may be recognized or deferred. When vendor‑specific objective evidence does not exist for undelivered elements, revenues are allocated to the elements based on third‑party evidence, if available, or management’s best estimate of fair value.

The Company also has a limited number of design and development contracts, principally with governmental customers, which are accounted for in accordance with the provisions of FASB ASC Subtopic 605‑35, Revenue Recognition-Construction‑Type and Production‑Type Contracts, using the percentage‑of‑completion method.


(c)	Stock‑Based Compensation

Stock‑based compensation is recognized at the grant date fair value for the portion of the award that is ultimately expected to vest and is recognized as expense over the requisite service period. The Company recognizes stock‑based compensation expense on a straight‑line basis. The expenses recognized during the three months ended March 31, 2018 and 2017 were $162 thousand and $73 thousand, respectively.


(d)	Demonstration Assets

Demonstration (demo) assets are equipment that is used for demonstration and other purposes with existing and prospective customers and partners. Demo assets are recorded at cost and amortized over an estimated useful life of two years. As of March 31, 2018 and December 31, 2017 the demo assets balance was $2.1 million and $2.2 million, respectively, included within the other assets on the consolidated balance sheets. Amortization expense for demo assets totaled $0.4 million and $0.5 million for the three months ended March 31, 2018 and 2017, respectively.


(e)	Fair Value of Financial Instruments

The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable and accounts payable, are shown at cost which approximates fair value due to the short term nature of these instruments. The fair value of the Company’s term and revolving loans with Pacific Western Bank, also described in Note 9, approximates the carrying value due to the variable market rate used to calculate interest payments.

The Company’s financial instruments that are carried at fair value consist of Level 1 assets and Level 2 liabilities. Level 1 assets include highly liquid bank drafts classified as cash equivalents. Level 2 liabilities consist of the Company’s loan with Pacific Western Bank.


(f)	Recently Issued Accounting Standards

The FASB issued ASU No. 2014‑09, Revenue from Contracts with Customers, in May 2014. ASU 2014‑09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU No. 2014‑09 is effective for annual reporting periods beginning after December 15, 2018 for private entities. The Company expects to implement the provisions of ASU 2014‑09 as of January 1, 2019. While the Company continues to assess the potential impacts of ASU 2014‑09, and anticipates ASU 2014‑09 could have an impact on the consolidated financial statements, the Company cannot reasonably estimate the quantitative impact on the financial statements at this time.

The FASB issued ASU No. 2016‑02, Leases (Topic 842), in February 2016. ASU 2016‑02 requires a lessee to recognize a right of use asset and a lease liability for virtually all leases, other than leases that meet the definition of short‑term. The standard is effective for annual reporting periods beginning after December 15, 2019. The Company expects to implement the provisions of ASU 2016‑02 as of January 1, 2020. The Company is currently evaluating the impact of this ASU and cannot reasonably estimate the quantitative impact on the financial statements at this time.