Coherent Corp.

Good day and thank you for standing by. Welcome to the Coherent Corp Fiscal Year 24 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded I would now like to hand the conference over to your first speaker today, Paul Silverstein, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Victor, and good morning, everyone. Thank you for joining our third quarter fiscal 2024 earnings call. On the call, we have Coherent Chair and CEO, Dr. Chuck Matera, and a number of Coherent senior leaders who Chuck will introduce shortly. Yesterday, after market closed, we issued a press release, posted a shareholder letter, and an updated investor presentation to the investor relations section of our website. And furnish these documents in Form 8-K. This morning, we filed our 10-Q. The shareholder letter contains the financial statements historically included in our earnings press releases and detailed information regarding our operating performance, outlook, visibility, key trends, and developments. Before we begin, a short statement about forward-looking statements. We may make and or refer to forward-looking statements, including statements about future performance and market outlook. Actual results may differ from those in the forward-looking statements. The shareholder letter in our SEC report set forth risk factors that could cause actual results to differ materially. We assume no obligation to update forward-looking statements. We speak only as of the respective dates. During this call, we may discuss both GAAP and non-GAAP financial measures. If we do, a reconciliation of GAAP to non-GAAP measures is included in the shareholder letter. If we present historical non-GAAP financial measures, we'll limit our discussion to those that are reconciled in the shareholder letter. With that, it is my pleasure to turn the call over to Coherent's chair and CEO, Dr. Chuck Matera.

Thank you, Paul. The excitement continues at Coherent, where we delivered another solid quarter. Before diving into the details, I will comment briefly on the CEO search process. As previously disclosed, our board has retained a leading executive search firm, to help identify and establish a selection committee to evaluate CEO candidates from a pool of both internal and external candidates. Our focus is on preparing for and selecting a new CEO with the necessary skills, knowledge, and experience to seamlessly and successfully succeed me and to help ensure a coherent, sustainable growth and success. With that said, I will not comment on it further during today's call. Rather, I will focus my brief remarks on our super exciting performance in Q3 and the exciting setup for Q4 and fiscal year 25. As I have stated previously, leadership development is among a CEO's most important responsibilities. Given the shareholder letter's extensive disclosures, I have asked the following senior leaders to participate in the Q&A portion of today's call. Rich Martucci, interim chief financial officer. Dr. Giovanni Barbarossa, chief strategy officer and the president of the material segment. Dr. Julie Chardinane, chief technology officer. Dr. Sanjay Papasarathy, chief marketing officer. Magnus Bengtsson, chief commercial officer who leads our global sales and service organization and who came to us through the coherent acquisition Sohil Khan, EVP Silicon Carbide, LLC, Dr. Lee Hsu, EVP Datacom transceivers, and Dr. Beck Mason, EVP Telecom. For the last 20 years, I have been blessed with the privilege of working with the most experienced management team in the industry. As one small measure, those of us on today's call have 300 years of collective experience. We will provide investors a rich source of information about the depth and breadth of our markets, technologies, operations, and overall business. For the quarter, we delivered solid sequential improvement in revenue and EPS, both of which came in above the high end of our guidance. Due primarily to unexpected issues that we've already resolved or expect to soon resolve, the non-GAAP gross margin was below guidance But rigorous operating expense discipline and controls allowed us to deliver non-GAAP operating margin in line with our guidance. The highlights of our third quarter include an almost 7% sequential increase in revenue and a 17 cent or almost 50% sequential increase in non-GAAP EPS. Another quarter of strong AI-related datacom demand for our 800G datacom transceivers we now expect the strength to continue in the current fourth quarter and into fiscal 25. A slower than expected recovery in our telecom markets, continued signs of improving outlook for our industrial market, which accounts for approximately 34% of total revenue, the repayment of $58 million of outstanding debt, and the completion of a repricing of our $2.4 billion secured term loan fee reducing interest rate margins by 25 basis points, which results in an annual savings of approximately $9 million, and the upgrade of our credit rating to BA II by Moody's, reflecting our leadership position in the exciting AI market and their expectation that our financial performance will continue to improve. Our diversification across product, technology, and regional markets is serving us well. AI-related data comp demand remains strong. While still early, we also saw further signs in the quarter of improving demand in our industrial market, along with further signs of stabilization in our instrumentation and electronics markets, which we expect will also eventually return to growth. Despite the macroeconomic backdrop, our diversification strategy has helped distinguish us from the rest of the pack. For the quarter, we posted revenue of 1.209 billion, which was above the high end of our guidance, and non-GAAP EPS of 53 cents, which was also above the high end of our guidance. Operating cash flow was 117 million. We invested 93 million in capital equipment, and we retired 58 million of debt. Turning to our guidance, for the fourth quarter of fiscal 24, We are guiding for revenue of approximately $1.123 to $1.32 billion in non-GAAP earnings per share of approximately $0.52 to $0.68, revenue of approximately $4.62 to $4.7 billion for the year, which is a $70 million increase of the low end of our previous guidance, non-GAAP non-GAAP EPS of approximately 156 to 173 for the year, up from $1.30 to $1.70, which was our previous guidance. Before turning to questions, I would like to say how appreciative and proud I am of the senior leaders and all of our other employees whose tireless dedication to transforming Coherent are setting the stage for broad industry leadership now, next, and beyond. Opportunity is one of the most difficult things in life to recognize early on. However, we have a 50 plus year old track record to point to when I say with confidence and faith that I truly believe that the best is yet to come with that. I'll turn it back over to Paul.