Coherent Corp. Q3 FY2025 earnings call

• Strong fiscal third quarter performance with revenue growth and improved non-GAAP gross margin to 38.5%. - Product innovations include 1.6T transceivers with multiple technology versions, 3.2T transceiver development, and expansion of indium phosphide capacity. - New data center Optical Circuit Switch (OCS) platform with customer interest growing. - Strategic portfolio optimization, including exiting non-core product lines and divesting underutilized assets. - Resilient global supply chain with manufacturing in 60+ locations across 14 countries, half in the U.S.

Networking revenue increased 10% sequentially and 45% year-over-year, driven by strong AI data center demand. Laser segment revenue decreased 3% sequentially but increased 4% year-over-year, with growth in excimer annealing lasers for display capital equipment and semi-cap equipment. Materials segment revenue decreased 3% sequentially and 1% year-over-year due to softness in consumer electronics. Fiscal third quarter revenue was a record $1.5 billion, up ~4% sequentially and 24% year-over-year.

• Revenue expected to be between $1.425 billion and $1.575 billion for Q4 2025. - Non-GAAP gross margin forecasted to be between 37% and 39%. - Total operating expenses projected to be between $290 million and $310 million on a non-GAAP basis. - Non-GAAP tax rate expected to be between 21% and 24%. - Non-GAAP EPS anticipated to be between $0.81 and $1.01.

• Uncertain macroeconomic environment posing challenges for industrial end markets. - Tariff policy changes could impact business, though current impact is not significant.

Q: Samik Chatterjee of JPMorgan asks about the significance and timing of product announcements at OFC and impact on revenue.

A: Jim Anderson responds about the 1.6T transceiver developments and timing of revenue impact, noting 1.6T revenue expected to start in current calendar year with progress on engineering and customer qualifications.

Q: Simon Leopold of Raymond James inquires about trends in 800 gig and customer inventory.

A: Jim Anderson states strong demand for 800 gig and that customers deploy transceivers quickly, not seeing obvious inventory issues.

Q: Blayne Curtis of Jefferies asks about traction of EML and guidance by segment.

A: Jim Anderson discusses good traction of internal EMLs, indium phosphide capacity expansion, and guidance with data center/communications up and industrial down sequentially.

Q: Thomas O'Malley of Barclays asks about silicon carbide business revenue and gross margin impact.

A: Jim Anderson says silicon carbide devices/modules were pre-revenue, focusing on substrates/EPI, and Sherri Luther talks about gross margin drivers including mix and cost reductions.

Q: Vivek Arya of Bank of America asks about telecom sub-segment sentiment and mix.

A: Sherri Luther notes cautiously positive sentiment for traditional telecom with DCI driving growth.

Q: Christopher Rolland of Susquehanna asks about manufacturing footprint and EML/CW lasers.

A: Jim Anderson addresses serving U.S. customers from Malaysia and expansion of indium phosphide capacity for EML and CW lasers.

Q: Karl Ackerman of BNP Paribas asks about gross margin impact of portfolio actions and datacom demand.

A: Sherri Luther discusses long-term impact of portfolio actions and Jim Anderson mentions strong datacom demand with focus on share gain.

Q: Meta Marshall of Morgan Stanley asks about industrial demand and aerospace/defense business.

A: Jim Anderson says cautious outlook on industrial due to macro uncertainty but aerospace/defense business doing well.

Q: Ryan Koontz of Needham & Company asks about DCI wallet share and OCS product.

A: Jim Anderson talks about DCI opportunity and OCS product use case, expecting revenue in current calendar year with customer orders.