Good day and welcome to the nLIGHT First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Joe Corso, nLIGHT's Chief Financial Officer. Please go ahead, sir.

Thank you; and good afternoon, everyone. I am Joe Corso, nLIGHT's Chief Financial Officer. With me today is Scott Keeney, nLIGHT's Chairman and CEO. Today's discussion will contain forward-looking statements including financial projections and plans for our business. Forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today's call, and we undertake no obligation to update publicly any forward-looking statement, except as required by law. During the call, we will be discussing certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release, which can be found on the Investor Relations section of our website. I will now turn the call over to Scott.

Thank you, Joe. Starting on slide three. Q1 was a good start to the year for nLIGHT despite a highly dynamic global manufacturing environment that was exacerbated by the start of the COVID lockdown in Shanghai. We met or exceeded guidance and made important progress in all of our key growth opportunities. Turning to slide four. We generated $64.5 million of revenue, which was above the midpoint of our guidance range. First quarter revenue reflects the continued transition in the geographic focus of our business. Revenue from customers outside of China grew by 25% year-over-year to approximately $57 million, or approximately 89% of total revenue. Overall revenue increased 5% year-over-year. Each of our top 10 customers during the quarter were from regions outside of China, and a favorable mix of business enabled us to exceed the high end of gross margin and adjusted EBITDA guidance. Operationally, we continue to navigate a highly challenging global manufacturing environment. While our global supply chain and manufacturing team did an outstanding job satisfying our customers' demand, we continue to see significant constraints in the supply chain, elevated material prices, component shortages, and increases in freight and logistics costs. These issues were significantly exacerbated by the unexpected COVID lockdowns in Shanghai and other cities in China. In Q1, the impact of these lockdowns on our business was relatively minimal, although it did preclude us from shipping and receiving material, and we were unable to recognize several million dollars of revenue during the quarter. The inventory investments we have been making have enabled us to support our customers during these lockdowns. But the fulfillment of current and projected near-term customer demand requires productive capacity from our facility in Shanghai. As we've discussed in prior quarters, we continue to add automated capacity to our U.S. facilities. In Q1, we completed the installation of the equipment recorded for the first phase of our automated manufacturing ramp and remain on track for our internal automation goals. Turning to slides five and six, where I will discuss revenue by end market. In microfabrication, we had a strong first quarter. Revenue increased 14% year-over-year to $17.3 million, representing approximately 27% of total revenue. Demand during the quarter was stable and our continued strong performance in this market demonstrates the importance of our high power, high brightness semiconductor lasers to our customers. We continue to develop and release innovative products that enable our customers to differentiate their solutions. For example, this quarter we released an update to our element family of semiconductor lasers that provides up to 30% improvement in output power in the same package, enabling our customers to rapidly scale power and reduce system costs. We also continue to expand our product portfolio and access new markets. In April, we launched a new fiber laser that leverages our core semiconductor laser technology and fiber laser manufacturing scale to produce a two-micron wavelength laser. This technology is important for applications in all of our end markets with an initial focus on the medical market. We have won several design wins and our lasers are being used to dramatically improve outcomes in the treatment of kidney stones and other urology applications. In aerospace and defense, first quarter revenue declined 6% year-over-year to $23.1 million, representing 36% of total sales. Despite lower revenue, we've made significant progress in this market as we continue to demonstrate the performance and scalability of our high energy laser technology. Our leading performance at every level of vertical integration in directed energy offers us multiple opportunities for both near and long-term revenue growth. Our low swap diodes and fiber amplifiers deliver high power, brightness, and reliability in small lightweight packages. In addition to our leadership position in diode technology, we've also developed fiber amplifiers that we believe offer the most compelling power-to-weight ratio available today. Our vertical integration with U.S. manufacturing enables us to engage with customers at multiple product levels, including diodes, fiber amplifiers, and beam combined lasers, thereby significantly increasing our overall market opportunity in direct energy. As an example, during the quarter our fiber amplifiers were designed in at a key department of defense prime contractor. We've been successful in engaging with customers in the U.S. and abroad, and our full technology stack enables us to develop high power lasers that are effective against a wide range of threats. During Q1, we also saw continued news that reinforces the importance of this technology in a changing global landscape. There were several important directed energy demonstrations that further validate the importance of directed energy, and the newly released DOD budget contemplates continued growth in directed energy laser spending in the coming year. Finally, turning to the industrial end market. Revenue grew 12% year-over-year in the first quarter to $24 million, representing 37% of total sales. More importantly, industrial revenues from customers outside of China increased 77% year-over-year to record $20.7 million. On a percentage of revenue basis, Q1 industrial revenue from customers outside of China increased to 86% versus 54% in the same period in 2021. Industrial growth outside of China has come from strategic customers where we continue to increase our share of spend. In several cases, we've been selected as our customers' exclusive laser provider. We view our customers as partners and we focus on supporting them with innovative solutions that enable them to differentiate their products. We continue to see opportunities to expand based on our differentiated programmable beam shaping technologies in additive manufacturing, cutting, and welding. I will now turn the call over to Joe to discuss nLIGHT's first quarter financial results.

Thank you, Scott. And good afternoon to everyone. Beginning on slide eight. Total revenue for the first quarter of 2022 was $64.5 million, an increase of $3.1 million or 5% compared to the first quarter of the prior year and above the midpoint of our guidance range. Product revenue for the first quarter of 2022 was $51.1 million, an increase of $3.7 million or 8% compared to the first quarter of the prior year. The increase in product revenue year-over-year was driven by higher sales to strategic customers outside of China in both industrial and microfabrication, which was partially offset by a decrease in sales to customers in China. Development revenue for the first quarter of 2022 was $13.4 million, a decrease of $600,000 or 4% compared to the first quarter of the prior year. The decrease in development revenue is attributable to the timing of project-based work we perform in the defense market. Turning to slide nine. Overall gross margin for the first quarter of 2022 was 25.1% compared to 28.8% for the first quarter in the prior year, but above the top end of our guidance range. Product gross margin for the first quarter of 2022 was 30% compared to 35.8% for the first quarter of the prior year, but above the top end of our guidance range. The year-over-year decrease in product gross margin was driven by sales mix, and as discussed last quarter, decreased capacity utilization of our Shanghai manufacturing facility, increased investments in U.S.-based manufacturing and continued increases in production and freight costs. Turning to slide 10. Non-GAAP operating expenses for the first quarter of 2022 were $18.2 million or 28% of revenue, compared to $15.1 million or 25% of revenue for the first quarter of the prior year. The majority of the year-over-year increase was related to higher R&D investments to support our product roadmap and long-term growth opportunities. Turning to slide 11. Non-GAAP net loss for the first quarter of 2022 was $1.6 million or $0.04 per diluted share, compared to non-GAAP net income of $2.6 million or $0.06 per diluted share for the first quarter of the prior year. The year-over-year decrease in non-GAAP profitability was driven by a combination of the decrease in product gross profit and increase in R&D spending. On a GAAP basis, net loss for the first quarter of 2022 was $8.6 million or $0.20 per diluted share, compared to $6.1 million or $0.15 per diluted share for the first quarter of the prior year. Adjusted EBITDA for the first quarter of 2022 was $2 million, compared with $6 million for the first quarter of the prior year, but well above our guidance range. Net cash used by operating activities was $7 million for the first quarter of 2022 compared to net cash provided by operating activities of $4.1 million for the first quarter of 2021. The decrease in operating cash is being driven by working capital. While the primary driver of working capital this quarter is due to the timing of payments and receipts, we continue to make investments in inventory to mitigate supply chain disruptions. Our capital expenditures for the first quarter of 2022 were $5 million compared to $3.1 million for the first quarter of the prior year. We continue to invest in directed energy for the defense market and to automate our U.S. facilities to serve our customers outside of China. Turning to slide 12. We ended the first quarter with cash and cash equivalents of approximately $135 million and no debt. DSO for the first quarter of 2022 was 55 days, and we had 141 days in inventory. Turning to slide 13 for the outlook for the second quarter. As Scott mentioned earlier, the restrictions imposed by the Chinese government required us to temporarily close our manufacturing facility in Shanghai, and city-wide limitations on transportation and logistics have continued to impact our business in the second quarter. We have a limited staff in our facility today, but there are encouraging signs that operating conditions in the Shanghai region and China are improving, but the situation remains dynamic and unpredictable. Today, we can meet a significant portion of our U.S. and non-China customer demand by utilizing inventory we had strategically put in place as part of our supply chain risk mitigation strategy, and through U.S. production capacity, although ongoing COVID-related lockdowns and further disruptions to the supply chain have created significant uncertainty in our operating activities, making it more challenging than typical to predict our business in the second quarter. Based on the information available today, which includes our expected production ramp in Shanghai, we expect Q2 revenue to be in the range of $59 million to $67 million. At the midpoint of $63 million this includes approximately $48 million of product sales and approximately $15 million of development sales. Turning to gross margin. Q2 product gross margin is expected to be in the range of 26% to 30% and development gross margin to be approximately 6.5%, resulting in an overall gross margin range of 21% to 25%. For the second quarter, we expect adjusted EBITDA to be between negative $2 million and positive $1 million. We expect Q2 average basic shares to be approximately 45.2 million and non-GAAP diluted shares to be approximately 47.9 million. Before turning the call back over to the operator, I'd like to take a moment to thank our employees in China for their continued efforts during an extraordinarily challenging time, and our customers and suppliers for working collaboratively with us. With that, I will turn the call over to the operator for questions.

Thank you. We will now begin the question and answer session. And our first question will come from Greg Palm with Craig-Hallum Capital Group. Please go ahead.

Yes. Hey, everyone, thanks. Good afternoon. I wanted to start off with the Q2 guide and dig into some of the underlying assumptions there. So I guess number one, does it assume that some production comes back in the China facility as we progress through the quarter? And then, you've talked about the ability to produce some of that in the U.S. facility. So I guess maybe looking ahead as we exit Q2 or further, I mean, do you feel like you'll have all your most capacity here in the U.S. where you really won't need that facility anymore? Maybe just dig into that a little bit if you could? Thanks.

Yes, sure. Greg. This is Joe. Happy to take that question. So, the short answer is yes, there is some capacity ramp and productive capacity ramp that we need that we assume happens over the course of the next two months. And it does. So our ability and we've looked at our Q2 guidance with assumptions that we don't ever get back to full production during the quarter, but we certainly ramp through the quarter and there's a lot of factors that go into that. In terms of the next portion of your question, where will we be with respect to the reliance on Shanghai over the next coming quarters and over time? So over the next couple of quarters, certainly Shanghai is going to remain an important part of our productive capacity. And as we move through that by the end of the year, just to try to put a little bit of a finer point on that, by the time we move through the end of the year, our assumption is that we're looking at probably two-thirds of our fiber laser pumping capacity coming out of our facilities here in the U.S. and then over time, we will be in a better position to optimize what we're doing out of the U.S., what we're doing out of Shanghai. But current plans aren't a full exit of the Shanghai facility just to be clear.

Okay. That's helpful in relative to normal seasonality trends, I guess that delta between what you're guiding to and what you normally would see in Q2 do you sort of consider those as lost sales? Is there a potential for maybe a catch up in terms of a more pronounced seasonality to the upside in the second half? How are you looking at that?

Yes. Good question, Greg. On Scott's prepared remarks, he talked about us having several million dollars of revenue that effectively we did not recognize during the first quarter. And then, as we look at our guidance, it's not an exact science because we are looking at the timing of when customer needs products, when we are going to deliver them. We certainly think we'll recover some of that lost revenue, but we won't recover all of it during the next couple of quarters.

Okay. And then, last one, in terms of the growth outside of China, which has continued to be really encouraging. How much of that is driven by new logos and just sort of noticed after over the last few quarters, the mix of low power lasers has been steadily increasing. So curious if that's a byproduct of that. Maybe that's use cases outside of traditional cutting. What's driving that shift?

Yes, Greg. It's Scott here. So I think to answer the second part of your question first, yes, I think you're noting it that the low power is growing nicely. And that's due to growth outside of the traditional cutting market, notably additive manufacturing. We've had some very nice design wins there and are really helping to transform that market where customers are using both more lasers and more effective lasers with our beam control to significantly reduce the cost of parts made with additive manufacturing. And so, it's an exciting space and we're making good progress there. And that leads to the first part of the question, which is, yes, it's both new customers and existing customers, we're expanding. So seeing, as you saw on the numbers, nice growth outside of China in the industrial market.

Okay, good. All right. I'll leave it there. Best of luck going forward. Thanks.

Thanks, Greg.

Our next question will come from Patrick Ho with Stifel. Please go ahead.

Thank you very much. And I also want to commend you guys for executing in an extremely challenging environment. Maybe for either you Scott or Joe, it's always hard with the many variables going on with the supply chain, COVID lockdowns, increased inflationary and input costs. If you could just qualify first, which is the biggest impact that you're going to see in the June quarter, are the lockdowns the biggest issue? And maybe secondly, on top of that, can you quantify in terms of how much that effect will have on the gross margin, like how many basis points of impact is that? Thank you.

Yes, sure, Patrick. So for sure, probably the biggest impact on our Q2 results, and our Q2 guidance is the uncertainty around Shanghai, right? We have some visibility, and we have plans, but it's such an uncertain environment in terms of what portions of what city are going to be open at what time and what the abilities will be to ship and receive both materials and finished goods that we did our best to gauge what's happening in the quarter. What I will tell you is that demand has been very good. So as we've looked to work with our customers across the globe, we haven't really seen any major changes to the demand that we've seen in our business. Really, what's going to swing our results this quarter is just our ability to get people back into the factory over what period of time. And then, two, just to be able to move material in and out of our facilities and around the world. So I would say that is the biggest piece of Q2. At the same time, I think you've heard it from other companies as well. Our freight costs are rising, labor costs are rising, and we are still clearly in a rising cost environment. So, all of that we took into consideration when we were looking at our gross margins. To address your question more specifically what we've modeled in our gross margins for the second quarter, due to the lockdowns and the uncertainty in China right now is really a couple of hundred basis points. So the other way to think about that is, had we been running at full production capacity through the quarter, the way that the business has continued to shift, and the mix of business within the geographical focus, our gross margins, we've actually been pretty pleased with the way that they've moved sequentially.

That was my follow-up question for Scott. You gave a little bit of color on some of the continued growth and diversification there. On the microfabrication side of things, you've also saw significant expansion over the last couple of years and it showed both again in Q1. Again, maybe a two-part question. One, are you seeing any expansion for new market applications? Or are they still the same ones that have driven the growth? And maybe secondly, are you seeing new customer adoption? Or are the existing customer adoption just buying more?

Yes, Patrick. And really, I think all three factors are playing a part. One, there's a recovery from -- I think you recall some inventory builds that were used a couple of years ago. So there's some recovery there with existing customers, with existing applications. Second, we are seeing an expansion of applications as our customers use their high-performance short-pulse lasers in new areas. And we believe that those markets will continue to proliferate and continue to drive demand. And then finally, we are seeing expansion into new markets for us too. We've noted the release of the medical product in the quarter. And that's an exciting new market for us. We've always had a relatively small exposure in medical, and we anticipate continued growth in that market also.

Great. Thank you very much.

Thanks, Patrick.

Thank you.

Our next question will come from Brian Gesuale with Raymond James. Please go ahead.

Hey, good evening, and thanks for taking my questions. I want to focus on the defense business with my first one since we think that can be high eight or nine figures of EBITDA in a few years. Can you maybe help us with the milestones later this year for a 300 kilowatt laser, according to the Department of Defense? Can you talk about how we might think of the cadence of development revenue and supportive those milestones?

Sure, Brian. I think first, I just would like to highlight the fact that we are seeing continued good progress around the world in direct energy. I think there's some good news in the quarter around demonstrations both in the U.S., in Israel and elsewhere that further validates the use of lasers in these new application areas. And that is both driving increased demand for us for the products that we sell in the space, but it's also certainly reinforcing the development revenue and the development opportunities that we see ahead. There is nothing that we can publicly report on that today. But we certainly are seeing continued support for these programs. And, indeed, that healthy program for the 300 kilowatt laser remains one of the most important programs in the U.S., and we certainly anticipate more news on that over the coming quarters.

Great. That's helpful. And then I wanted to maybe talk about your non-DE defense products. We've seen in the industry for much of the first quarter, we were under a continuing resolution and things were kind of moving through contracting officers slowly. Can you talk maybe how we might think about that business picking up with a defense budget and certainly the incremental geopolitical tensions that we've seen globally?

Yes. It's always complex because it's unclear with the specific programs, but I can say that we are seeing opportunities to expand outside of the directed energy. So that is something that is ongoing. And with the changes in the geopolitical global environment, certainly, we see more pressure there. With the specific programs that are the legacy programs for us, the particulars matter a lot more, so I think it's harder to comment on those. But I think everything else being equal, certainly concluding the continuing resolution, that was a good thing, it released some demand for us. But there isn't really a summary way to think about that for the current programs other than saying that we do anticipate expansion beyond directed energy also.

Okay, fantastic. And if I could just sneak one last one in. I just wanted to follow up on some of the discussions and disclosures you guys had around Shanghai. If we think about that, costing a couple million dollars of revenue, I would expect that that would run through the microfab line. And then given that it's microfabrication, that tends to be a fairly profitable unit for you. Is that why we see the couple of hundred basis points kind of headwind to gross profits as we move through the second quarter?

Yes, that's right, Brian. That's exactly right.

Our next question will come from Hans Chung with D.A. Davidson. Please go ahead.

Thanks for taking my question. So I want to first follow up on the same quarter guidance. So, I'm sorry if I've missed that. I think you've mentioned that there's a few million dollars not recognized in the first quarter. How about the same quarter? Can you quantify that? And then also, if you look at the range, low end versus high end. So what's the underlying assumption regarding our Shanghai situation? What kind of scenario like kind of make the guidance to low end versus high end?

Hans, I think I've got part of your question. So let me try the first part first. So, the Q1 numbers, you're right, we referenced several million dollars of revenue that we didn't ship in Q1. Some of that will ship in Q2. We expect to ship in Q2. And then certainly when you look at our guidance, our revenue guidance range, it's a little wider than what we would typically provide at this point in the quarter. But we haven't quantified specifically what the impact will be. What I can tell you is that directionally without the impact of Shanghai if everything was running at full capacity and we were in a more normal operating environment. When I mean more normal, I mean kind of pre-China COVID-related lockdown, I expect that we would have guided up sequentially. Right. So hopefully, that helps. And then the second part of your question, I'm sorry, I couldn't quite hear. Your audio got cut off. So if you would -- if you please ask again.

Yes. Second part is like, what kind of scenario regarding the Shanghai situation like to relate it to the low end and high end guidance. Like say, for example, is low end to assume the shutdown will continue throughout the quarter? And the high end it's like okay maybe it's going to be the mid-May or even earlier, everything going to normalize, just kind of wanting to see if there's any scenario assumption underlying the guidance?

Yes, sure, Hans. So the scenario that we have for the Q2 guidance range really is dependent on two factors. The timing, when we can ramp it back up to a more normalized level of production. As I said earlier, we're not assuming that we get to 100% production. And then the second piece of it is how quickly and how efficiently based on the lifting of regulations we're not totally clear yet how efficient that we can be when our factory is back up at the production levels that we are assuming. So really, that's what we're talking about. We're not talking about modeling a scenario where there is a protracted period of time where we are not operating in an optimal way in our Shanghai facility.

Got it. Okay. And then our next question is regarding the non-China industrial revenue that's very, very strong. And, of course, 77% year-over-year and also growth sequential. And so, can you elaborate more on the trends, the underlying driver here? And then how should we think about the trend going forward? Maybe throughout the year?

Yes, Hans, it's Scott here. I think what we're seeing globally is continued adoption of lasers across all of the industrial markets, cutting, welding, additive manufacturing and other applications. And that's being driven by a whole host of factors, sort of macro factors around companies that are pursuing new supply chains and greater automation, but then also just the continued secular adoption of lasers as we displace legacy technologies. We continue to launch products that are driving significant improvements, whether it be in even legacy cutting applications with our programmable beams that allow customers to have a much more flexible and more productive approach to cutting a wide range of different metal thicknesses. Two, as I mentioned, the additive products, where it's really a significant change in the economics of 3D printing metal parts going from what was before niche, really specialty parts in aerospace to a broader range of opportunities. They are in. And so we're playing a really important role there. And I think we've got a position to continue to drive new products that continue to drive the expansion of both new customers and expansion with existing customers.

Got it. And a quick follow-up. It seems like the additive manufacturing has been a bright spot for the past quarter. So what kind of the size of the business right now? And where would you think the business to be, like say, in a medium term maybe two to three years out?

Yes, Hans, this is Joe. To answer the question, I think additive has been a bright spot for us. As we've talked about, we think as you look at the different applications that we serve, primarily cutting, welding, and additive. We believe that the highest growth potential for us as we're seeing it here today is in the additive space. So that is being driven. There was an earlier question by whether they're new logos, or it's greater share with some of these customers. And for us, it has been both. And so, I think over the long term, we expect the additive business to be among the higher growing businesses in our portfolio inside of our industrial fiber laser business.

Got it. Thank you.

You're welcome.

Our next question will come from Chris Grenga with Needham. Please go ahead.

Hi, good afternoon, and thanks for taking the questions. Rest of world growth was very healthy during the quarter. Any color on which regions in particular drove that? And if you're seeing any change in demand in Europe in light of conflict?

Yes, Chris, thanks. For us, we're not seeing changes, to answer the second part of the question first, not seeing changes in demand in Europe. But look, if there is a lag here, so we just finished our big trade show in Europe, and it wasn't a front and center topic. But I think there's certainly an expectation that the macro environment in Europe will be challenging, undoubtedly. And so, the more fundamental question is just in terms of growth outside of in the rest of the world. We're seeing it broadly across all geographies and I suppose some really good strength in the U.S., but we do see strength in all of our geographies in that space.

And to the extent that freight and component costs remain elevated. What ability do you have to take pricing action or have you contemplated taking any pricing action?

We have and we've taken some. But I think that in lasers, there is a secular trend to continue to improve both price and performance, and we continue to drive dramatically improved productivity of converting electrons into photons to be useful in these applications. And so that is an ongoing trend that continues. And so, the opportunities to raise price are fairly limited. We have in select cases, but generally, we're seeing opportunities to continue to drive costs down despite changes in some of the component costs.

Great, thanks very much.

Our next question will come from Paretosh Misra with Berenberg Capital Markets. Please go ahead.

Thanks for taking my question. With regards to freight and logistics cost, can you give us any sense of what is typical freight logistics costs for you maybe as a percentage of sales? And how much above that typical average or range are you currently paying?

Yes, Paretosh, I don't think we want to get into that level of detail in terms of what the freight and logistics costs are as a percentage of sales. What I would tell you directionally is that this past quarter, while the sales remained elevated, there probably wasn't as much of an increase as we had seen in prior quarters. So when we're thinking about the business, and we're thinking about the guidance we provided in Q2 and beyond, these elevated costs, we don't expect to abate. I think if you looked at it historically, right, it's cost us a little bit on gross margin, 100 basis points or two depending on how you look at it, what period, what products. It really does depend on mix and location to the customer, but that's kind of where we are today with respect to freight and logistics.

Got it. That's useful color. And then, regarding capital allocation. How much CapEx are you targeting for this year, and any comment on appetite for M&A in this market?

Sure. So our capital allocation remains consistent with where it has been really over I would say the last 18 months, which is we look at the business and we've got a significant amount of organic growth potential. So we evaluate everything we're doing around what we feel like we have the most control over which is our own ability to drive new products and existing products with customers. As we've talked about in the past, the number one priority for our cash is to invest in automation, primarily for our U.S. facilities. So this quarter, CapEx was around $5 million. Historically, we've been lower than that. I think going forward, the sort of 7% to 8% of revenue is probably a reasonably good range. It always has a lot of the equipment that we've ordered or we are ordering; there's long lead time. So that can move a little bit either way. But I would tell you that that is the priority for our business right now.

Thanks. Very clear. And last one for me. Regarding your industrial business, so I guess just based on your order book or other demand indicators, do you expect that industrial business to have a stronger second half than the first half? Or just given some of the moving parts you described in Europe and whatnot, maybe it's not entirely clear?

It's a good question, Paretosh. I would say this. It's certainly less clear today than it was even a couple of months ago. We do expect the industrial business, as we said, over the long term to grow. I think as you look at the quarterly trajectory of our business, we had some very good growth in industrial last year. We expect that on balance to continue this year. I would not highlight 77% as the quarterly year-over-year growth target, but I think over time, we expect again the industrial business to be among the faster-growing areas of our business.

Got it. Thanks, guys, that's all ahead.

Thanks, Paretosh.

[Operator Instructions] Our next question will come from Mark Miller with the Benchmark Company. Please go ahead.

Thanks for the question. I believe you estimated last quarter that logistic headwinds, including shipping costs impacted margins by approximately 280 basis points in the December quarter. Do you have an estimate of what was the impact on the March quarter?

Yes, Mark. There wasn't a significant difference in terms of the impact of freight and logistics this quarter versus last quarter. It was actually, you look at the overall revenue level wasn't dissimilar. So I think the overall impact to gross margin this quarter wasn't materially different, or at least not worth getting into any level of real detail.

Can we also talk about the trend of increasing DSOs and days of inventory you've seen over the last several quarters?

Sure. I think I'll take those two separately. Really on the DSO side, that's just timing. We don't really have any challenges from a collections perspective sort of the business in terms of when we're selling product, and what time of the quarter typically has the biggest impact on our DSO. So I don't think there's a whole lot to read into on the changes of DSO. On the inventory side, however, it has been much more strategic. I think one of the things that we've invested in really, in order to make sure that we are able to build the products for the existing demand that we have and with several of our customers' success in the market, and given the position that we have, in many instances, as a sole source supplier to some of these customers, we want to be able to make sure we deliver. So we have strategically invested in our inventory exactly for some of the reasons that we're seeing today to mitigate some of these supply chain risks that we're all living through today.

Okay. That makes sense. Thank you for the questions.

Thank you, Mark.

This concludes our question-and-answer session. I would like to turn the conference back over to Joseph Corso for any closing remarks.

Yes. Thank you, everyone, for joining us this quarter, and we look forward to talking to you throughout the quarter in our next call. Thanks again.

The conference has now concluded. Thank you for attending.