Coherent Corp.

2025 second quarter earnings webcast. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paul Silverstein, Senior Vice President of Investor Relations for Coherent. Please go ahead.

Thank you, Operator, and good afternoon, everyone. With me today are Tim Anderson, Coherent CEO, and Sherry Luther, Coherent CFO. During today's call, we will provide a financial and business review of the second quarter of fiscal 2025 and the business outlook for the third quarter of fiscal 2025. Our earnings press release can be found in the investor relations section of our company website at coherent.com. I would like to remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events, for the future financial performance of the company. We wish to caution you that such statements or predictions based on information that is currently available and that actual results may differ materially. We refer you to the documents that the company files with the SEC, including our 10-Ks, 10-Qs, and 8-Ks. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This call includes and constitutes the company's official guidance for the third quarter fiscal 2025. If, at any time after this call, we communicate any material changes to this guidance, we intend that such updates will be done using a public forum such as a press release or publicly announced conference call. We will refer to both GAAP and non-GAAP financial measures during this call. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends. For historical periods, we provided reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the investor relations section of our website at coherent.com. Let me now turn the call over to our CEO, Jim Anderson.

Thank you, Paul, and thank you, everyone, for joining today's call. I'd like to start by thanking my Coherent teammates for the strong execution in our fiscal second quarter and the continued focus and great progress on driving market-leading innovation. For our fiscal second quarter, revenue increased by approximately 6% sequentially and 27% year-over-year to a record $1.43 billion. This was driven by growth in multiple areas, including strong AI-related Datacom transceiver growth, a second quarter of sequential growth in our telecom revenue, and sequential growth across multiple key industrial end markets. As I mentioned when I first joined the company, in addition to growing the top line, Expansion in our gross margin would be a strategic focus area for the company, driven by parallel initiatives on both pricing optimization as well as product cost improvements. During our fiscal second quarter, we made solid progress towards our goal of achieving durable company-wide gross margin of over 40%. Q2 non-gap gross margin of 38.2% marked strong improvement on both a sequential and year-over-year basis. While we have a lot more work to do on gross margin, I'm pleased with the team's focus and progress in this area. While we continue to invest in strategic R&D to fuel the long-term growth of the company, we remain focused on driving greater operational leverage and efficiency across the company. With revenue growth, gross margin expansion, and disciplined OpEx management, we drove significant expansion and profitability in Q2, with non-GAAP EPS growing over 40% sequentially and more than tripling on a year-over-year basis. Again, we have much more work ahead of us, but we remain focused on driving long-term shareholder value. Let me shift gears and share some thoughts on our products and end markets. Starting with our data center and communications market, Q2 revenue increased 6% sequentially and by 58% year-over-year. The sequential and year-over-year increases were driven by another strong quarter of growth in our Datacom revenue. and a second quarter of sequential growth in our telecom revenue. We achieved record Q2 datacom revenue, which grew 4% sequentially and by 79% year-over-year due to ongoing strong AI data center demand. We continue to see expansion in the number of customers adopting and ramping our 800 gig transceivers. And in addition, revenue from our 400 gig and below transceivers remains strong. We also continue to make solid progress on our 1.6T transceiver products as we move through key engineering milestones with our customers. After delivering initial samples of our 1.6T Datacom transceivers to customers last year, we remain on track to begin ramping sales in calendar 2025, and we are seeing continued expansion of our customer engagements on 1.6T. Even as we focus on the 1.6T ramp, we are investing and innovating for the future. We are both developing our 3.2T transceivers and investing in the key ingredient technologies that underlie our transceiver roadmap and that can support a variety of form factors of optical data transmission. We have the broadest and deepest portfolio in the industry of photonic technologies required for high-speed optical data transmission. Our customers view our technology portfolio as an important competitive advantage of coherent in optical data transmission applications. For example, one of the key capabilities that we've had in-house for over 20 years is our indium phosphide platform, which is the key technology behind our EML and CW lasers. The U.S. government recently announced plans to use CHIPS Act funding to help with the expansion of indium phosphide capacity at our Sherman, Texas facility. In our fiscal Q2, our indium phosphide production output tripled on a year-over-year basis. This enabled rapid year-over-year growth in our 800-gig transceiver products, some of which are EML-based and some of which are based on CW lasers combined with our silicon photonics solution. We expect to continue to expand our indium phosphide capacity over the coming quarters to support our long-term growth in both EML and CW laser capacity. We also continue to execute on a roadmap of important ingredient laser technologies, such as our 200-gig differential EMLs 200-gig Vixels, and high-power CW lasers for our silicon photonics solutions. In addition to our key laser technologies, we are investing and innovating across a broad spectrum of important enabling technologies for our optical data transmission, including optical lens arrays, garnet, isolators, micro-optics, and thermal management solutions. Beyond transceivers and ingredient technologies, our new data center optical circuit switch, or OCS platform, is progressing well and our customer engagements are expanding. This platform enables significant expansion in our data center addressable market, and I'm very pleased to announce that in Q2, we received our first customer order for this differentiated new platform. Unlike other mechanical MEMS-based solutions, Our platform uses field proven digital liquid crystal technology that provides tremendous advantages to our customers. We expect initial OCS revenue in calendar 2025 and we'll share more details about this innovative product and its revenue potential over the course of the coming quarters. In telecom, our Q2 revenue increased by 16% sequentially and by 11% year over year. Q2 is the second quarter in a row of sequential improvement. Revenue growth in Q2 was driven primarily by data center interconnect, with some improvement in the traditional transport market as well. We saw continued growth in the ramp of new products, including our 100-gig, 400-gig, and 800-gig ZR, ZR Plus coherent transceivers, and expect these products to continue to ramp over the coming quarters. In our remaining markets, which are primarily industrial-related applications, aggregate revenue increased 7% sequentially, and was flat year-over-year. We saw sequential growth across multiple industrial and markets. In particular, display capital equipment grew on both a sequential and year-over-year basis. Ongoing display strength is being driven by demand for our highly differentiated Eximer lasers for OLED screen manufacturing, resulting from expanding OLED adoption in smartphones and the beginning of OLED adoption in larger format devices, like new laptop and tablet computers. We also saw healthy sequential and year-over-year growth in the semi-cap equipment market, where our lasers and advanced materials are critical enabling technologies for our customers. While we are still taking a cautious near-term outlook on the broad-based industrial end markets, we expect the industrial market to be an important long-term secular growth driver for the company as the broader end markets eventually recover and as our new products continue to ramp. Before wrapping up, I'd also like to provide a brief update on our strategic portfolio optimization. We've made good progress on implementing the strategic portfolio assessment that we completed in the September quarter. As part of the process of divesting or shutting down product lines and assets that are non-strategic, we announced in December that we are evaluating strategic alternatives for our advanced lithium ion battery recycling technology. This announcement follows the sale of our Newton A. Cliff facility and our announcement that we are evaluating strategic alternatives for our lithium sulfur battery platform, as well as other portfolio optimization activities that are well underway. As we optimize our portfolio over the coming quarters, we'll provide further updates, including at our upcoming Investor Day this May. In summary, I'm very pleased with the progress we made in our fiscal second quarter. While some near-term softness persists in our industrial-related end markets, We expect fiscal 2025 overall to be a strong growth year for the company. I'll now turn the call over to our CFO, Sherry Luther.