Coherent Corp.

Good day, and welcome to the Coherence First Quarter Fiscal Year 2020 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask a question. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to introduce Mr. Brett DeMarco, Executive Vice President and General Counsel. Please go ahead.

Thank you, Sean, and good afternoon, everyone. Welcome to today's conference call to discuss coherence results from its first fiscal quarter ended December 28, 2019. On the call with me are John Ambrosio, our President and Chief Executive Officer, and Kevin Platnick, our Executive Vice President and Chief Financial Officer. I would like to remind everyone that some information provided during this call may include forward-looking statements, including without limitation, statements about coherent future events, anticipated financial results, business trends, and the expected timing and benefits, if any, of such trends. These forward-looking statements may contain such words as project, outlook, future, expects, will, anticipates, believes, intends, or referred to as baggage. These forward-looking statements reflect beliefs, estimates, and predictions as of today, and Coherent expressly assumes no obligation to update any such forward-looking statements. These forward-looking statements are only predictions and are subject to substantial risk, uncertainties, and assumptions that are difficult to predict and may cause actual results, performance, or achievement to materially differ from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, risks associated with global demand acceptance and adoption of our products, the worldwide demand for flat panel displays and adoption of OLED for mobile displays, the pricing and availability of OLED displays, the demand for and use of our products and commercial applications, our ability to generate sufficient cash to fund capital spending or debt repayment, our successful implementation of our customer design wins, our and our customers' exposure to risks associated with worldwide economic conditions, in particular in China and the Eurozone, our customers' ability to cancel long-term purchase orders, the ability of our customers to forecast their own end market, our ability to accurately forecast future periods, continued timely availability of products and materials from our suppliers, our ability to timely ship our products and our customers' ability to accept such shipments, our ability to have our customers qualify our products, worldwide government economic policies including trade relations between the United States and China, Our ability to integrate the business of ROSEN and other acquisitions successfully, manage our expanded operations and achieve anticipated synergies, our ability to successfully manage our planned site consolidation projects and other cost reduction programs, and to achieve the related anticipated savings and improved operational efficiency. The impact on global trade arising from coronavirus-related actions by world governments and other risks identified in the company's SEP filings. For a detailed description of risks and uncertainties which could impact these forward-looking statements, you should review Coherent's periodic SEC filings, including its most recent Form 10-K, Form 10-Q, and Forms 8-K, including the risks identified in today's financial press release. I will now turn the call over to John Ambrosio, our President and Chief Executive Officer.

Thanks, Brett, and welcome everyone to the call. There are several encouraging takeaways from our first fiscal quarter of 2020. The book-to-bill was well above 1 due to strong demand from multiple applications. The full-year outlook is improving in certain key markets, and competitive dynamics in China, while still aggressive, are mostly unchanged. The news was positive across the microelectronics market. Display orders were up significantly for LineBeam systems and service. The system orders were for LineBeam 1000s destined for China. This is the third consecutive quarter that we have received new system orders, which aligns well with our prior industry commentary on Phase II investments. The increase in service orders reflects higher demand for OLED-equipped smartphones in the fourth calendar quarter of 2019. In addition to the ELA orders, bookings for OLED cutting using short pulse and CO2 lasers were also up as the industry prepares for a projected 60% ramp and flexible OLED units in 2020. There is a small contribution from foldable displays in the 2020 ramp, but the penetration is likely to remain low for two to three years as manufacturers and suppliers lock down the specs and material sets. Following CES, the number of predictions and questions regarding micro LEDs has, to no one's surprise, gone up. The demos at CES from the likes of Samsung, Sony and others were impressive. Samsung's wall covered 292 inches, and tiles could be added while the display was running. The technology clearly has potential, but costs remain prohibitive. It will likely take years for micro-LED to achieve mass market viability. The full-year outlook for semi-CAPEX spending changed dramatically in the last 90 days, with TSMC and Samsung both announcing higher CAPEX spending. TSMC is reportedly adding capacity at 5 nanometers and 7 nanometers for AI, servers, and 5G chips. Samsung is reportedly seeing renewed demand for memory. Our OEM integrated partners responded by raising their build plans for a variety of inspection and metrology tools. Consequently, our laser orders for SemiNet applications were upped sharply on a sequential basis. Our service bookings benefited from sustained high utilization and a timing of annual service contracts. Rounding out the microelectronics picture is API, which also enjoyed double-digit sequential growth in orders arising from increased service demand and marking subsystems for semiconductor chips. We are also seeing an uptick for 5G-related technology due to Chinese government programs to drive adoption. Current circuit board designs for 5G are currently trending towards 45 to 50 micron HDIs that support 20 plus percent higher circuit density. These requirements should drive a double digit increase in HDI tool demand during calendar 2020. We also expect to see a corresponding demand uptick in upcoming quarters for lasers used to manufacture 5G antennas. The materials processing market appears destabilizing. PMIs in North America signal modest expansion. China's PMI moved into positive territory on the strength of domestic demand, although exports are still lagging. Europe still faces headwinds partially due to a depressed global market for autos. Germany's PMI is well below the Europe zone average. The data for our business reflects a stabilizing market. The book-to-go was won for our seasonally adjusted first fiscal quarter, and bookings were within a few percent of the prior year period. Within the various sub-markets, orders for high-power CO2 lasers used in cutting outperformed the broader cutting market, and medical device manufacturing systems held up well, following a very strong prior quarter. Orders for automotive applications were up sequentially, but the overall market conditions remained challenging due to weak automotive demand and the shifting standards of portfolio mix from internal combustion engines to electric vehicles. Competition in the Chinese market is rising for components and lasers. Chinese laser manufacturers are sourcing more pump diodes domestically due to pricing and to a desire or directive to become independent from Western suppliers. We have heard from end users that domestic Chinese fiber laser manufacturers are taking share at the 3 to 6 kilowatt power level. As output powers increase, manufacturers will shift along the wavelength of pumps, which currently favors Western diode suppliers. Instrumentation and OACOM component bookings were lower following a record-setting performance in the prior quarter. This is neither surprising nor indicative of a change in long-term demand or market share. Bio-instrumentation applications like flow cytometry are experiencing greater clinical adoption. One of the capabilities that is driving this trend is the ability of UV-activated reagents to study small particles that are critical to cell functionality. Our OBIS platform is the leading laser solution for exciting ultraviolet reagents, and we expect multi-year growth from this product platform. Our medical business is also in solid shape. One of our OEM integrators is making inroads at China for cataract therapy. The aesthetic business saw good demand from new and legacy procedures. And finally, the aerospace and defense business is on track for strong double-digit annual growth, mostly in conjunction with North American products. I'll now turn the call over to Kevin Palotnik, our Chief Financial Officer.