Q2 2023 Coherent Corp Earnings Call
Okay.
Good day and thank you for standing by welcome to the go here at Corp. FY2023 second quarter earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session will need to press star one on your telephone you will then hear an automated message advising your hands raised.
Withdraw your question. Please press star wasn't one again I would now like to hand, the cops over to your speaker today, Mary Jane Raymond Chief Financial Officer. Please go ahead.
Thank you, Kevin and good morning, I'm, Mary Jane Raymond the Chief Financial Officer here at coherent Corp.
Welcome to our earnings call today for the second quarter of fiscal year 2023.
This call is being recorded on Wednesday February eight 2023.
With me today on the call is Dr. Chuck Mattera, our chair and Chief Executive Officer.
After our prepared remarks.
Doctors Giovanni Barbarossa, our Chief strategy Officer, and the President of the materials segment and Doctor Marc Sobey. The precedent of the laser segment will join us during the Q&A to discuss the unique benefits of our strategy our results and.
The exciting prospects across several broad markets.
For today's call the press release and the Investor presentation are available in the Investor Relations section of our website coherent dot com.
Today's results include certain non-GAAP measures.
non-GAAP financials are not a substitute for nor are they superior to financials prepared in accordance with GAAP. A detailed reconciliation of these non-GAAP measures to our GAAP results is included in todays documents.
I remind you that during this call we will make certain forward looking statements.
These include but are not limited to statements regarding geopolitical and macro economic trends expectations for our revenue our market trends and.
Our expected financial performance.
Clothing, our guidance. In addition, we will discuss our progress on integration, including our delivery of the projected synergies. All forward looking statements are based on today's expectations forecasts and assumptions.
Involve risks and uncertainties that could cause actual results to differ materially from our comments today.
Our comments should be viewed in the context of the risk factors detailed in our most recent Form 10-K for the fiscal year ended June 30th 2022.
Oh here it assumes no obligation to update the information discussed during this call except as required by law with that let me turn it over to Dr. Chuck Mattera Chuck.
Thanks, Mary Jane.
Thank you all for joining us today.
Coherent Corp posted a record revenue quarter of $1 37 billion.
Consistent with the midpoint of our guidance.
And grew 70% year over year.
And 2% sequentially.
Looking closer at legacy two six impressively.
Organic growth was 23% year over year and.
And 4% sequentially.
While the consolidated pro forma growth.
15% year over year.
Regarding the composition of our sales by the four major markets.
Industrial accounted for 33%.
Communications, 44%.
15% from electronics.
And 9% from instrumentation.
Turning to the distribution of our revenues by region. This.
Second quarter was similar to the first quarter.
North America accounted for 55% Euro.
Europe , 18%.
Korea, and Japan, combined with a 13%.
China was 11% and 3% to the rest of the world.
Our non-GAAP EPS was <unk> 95.
We continued our disciplined approach to capital allocation during the quarter.
We generated $220 million in cash from operations and invested $106 million in capital equipment.
$114 million and free cash flow.
We also paid off $133 million of the debt.
Our investments in our silicon carbide platform, where nearly half of our total capital investment as we execute our multiyear roadmap for the electrification of transportation and renewable energy infrastructure.
Our commitment to sustainability.
Last week during photonics west.
Had a strong showing of our broad portfolio of new products and technology innovations that are enabling a wide range of applications across our four end markets.
Our thought leaders presented at various events workshops and technical sessions as we had several significant new product announcements.
These included the introduction of Python, our next generation OLED annealing solid state laser targeted at new Gen eight OLED fabs.
This is the culmination of four years of innovation and development.
Retained coherent is positioned as the kneeling process of record.
While improving performance and significantly reducing cost per panel.
We believe our innovations in this system will drive adoption into more price sensitive displays such as tablets laptops and monitors.
To further secure our position as an industry leader in ultrafast cutting of OLED panels, we introduced two new ultrafast lasers.
We also introduced our next generation pump laser diodes for fiber lasers with the first semiconductor chip in the industry to our knowledge to achieve 50 watts of output power.
And we showcased our fully automated contactless laser system for texturing, and marking implantable medical devices.
Turning now to our performance by market, our revenue and electronics grew 131% year over year, and 11% sequentially setting another record by hitting the $200 million quarterly Mark.
Growth was driven primarily from sensing.
And the seasonal tailwind of a new product cycle, which we described on our last call.
This is the second of the seasonally high two quarters.
And then the second half of the fiscal year, we will enter the seasonally low period during which we expect to have considerably lower revenue when compared to the first half.
Our customer intimacy and this market gives us optimism about the future opportunity in consumer electronics, there is still much broader than just <unk> for <unk> sensing.
We believe that Samsung will become ubiquitous and met a risk hardware and Wearables and lidar.
And other emerging applications.
Our strategic engagements are growing across the mall.
For our Silicon carbide power electronics, and wireless semiconductor business, we continued to invest in silicon carbide substrate and epitaxial capacity to accelerate the pace of our shipments as demand continues to exceed our ability to supply.
In the electric vehicle market Evs represented 10% of all vehicles sold globally in calendar year 2022.
As Evs continue to grow.
Industry estimates expect the adoption of Silicon carbide electronics will also grow but at twice the rate of the overall EV market.
We are steadily gaining share in what we believe will be an underserved market for many years to come perhaps even through the end of this decade.
Communications revenue grew 18% year over year, and 3% sequentially led by both telecom and Datacom each of which achieved record revenue.
Telecom growth was led by broadband initiatives, which in turn drove demand in the metro edge to access networks.
We are encouraged by the opportunity that we expect to result.
From the U S as planned $65 billion investment in broadband access from the infrastructure investment and jobs Act.
We expect that it will be a major catalyst for optical communications and specifically our telecom business at all levels of the value chain.
As access networks grow they drive upgrades in the metro long haul and submarine networks, all requiring our coherent transceivers and the road and integrated product solutions.
Our Datacom business also hit a quarterly record.
Our industry, leading position in 200 gene and above remains strong at 51% of our Datacom transceiver business compared to 33% a year ago.
Our leadership in this area stems in part from our vertical integration of our high speed lasers optics, and electronics and our transceiver modules.
In addition to our growth of 200 G 400 G. Datacom Transceivers, we continued to see accelerated deployments of 800 G transceivers, enabling open AI and machine learning applications.
We are ramping our full capacity to meet the growing customer demand over the next few quarters.
Our optical communications business was honored yesterday ahead of the optical fiber conference in March with awards for three of our products. That's a 2023.
<unk> innovation review singled out.
First our 100 G 's EUR, <unk> 28, which will enable service providers to upgrade millions of Teng Ethernet links to 100 G at the optical network edge.
Second our 200 G indium phosphide electro absorption modulated laser which is critical for next generation data Center Interconnects.
And third our wave maker <unk>.
Programmable optical spectrum synthesizer.
These awards showcase our innovation leadership across our broad optical communications portfolio.
Revenue went to the industrial market was mixed.
<unk> grew 38% year over year.
Also we achieved record revenues from products related to precision manufacturing of electric vehicle batteries.
In flat panel displays.
One less large excimer line beam system shipment a concert for almost all of the quarterly change in the laser segment revenues.
We saw sequential declines in the advanced packaging and interconnect markets such as printed circuit board via hole drilling and backend semiconductor applications such as marking.
This was offset however by strength in the semiconductor front end, where we set another quarterly record for shipments of lasers for wafer inspection as well as wafer annealing for logic devices.
We also delivered the first full laser and optics sub system to an industry leader for an exciting new memory application, which had previously been a non laser based solution.
We had a record quarter for our advanced materials and metal matrix composites into the front end of the semi cap equipment market.
These novel materials allow customers to push the performance limits of their wafer fab equipment, including for immersion and <unk>.
And for wafer stages and wafer chucks.
We've worked hard throughout the last few years to scale, our capacity and our output to allow our customers to mitigate the semiconductor shortages by increasing tool capacity.
<unk>.
So we were delighted to be recognized by applied materials, the world's leader in wafer fab equipment with their supplier Excellence award for our collaboration.
We also had record excimer laser revenues for a pulse laser a deposition equipment.
Our rapidly growing product line, serving the semi cap equipment market.
Customers are leveraging this new enabling technology for diverse applications from high temperature superconducting tape for next generation fusion reactors.
<unk> filters and mobile phones.
We are a market leader and a pioneer in pulse laser that position.
This technology has the promise of enabling enabling the production of novel semiconductor materials through the engineering of Adams and photons are Great example of the sooner just the power of our combinations.
Our instrumentation business sustained record levels growing 2% sequentially.
Well PCR based Covid testing is tapering off our growth in bio instrumentation from other applications allowed this market to maintain the higher level of revenue achieved during the growth for PCR testing.
We also had strong revenue for our products and advanced imaging applications for neuroscience and disease studies.
These applications require ultra short pulse lasers.
Part of our portfolio, where we excel.
Before I turn it over to Mary Jane.
That you all have now seen our other exciting news today.
Our move to list our stock on the New York Stock Exchange.
On February 20 <unk>.
NASDAQ has served us well since our IPO on October 2nd 1987, as we are very appreciative.
Of that support.
With our recent growth our continuing aspiration to be the best at what we do and our global platform. We believe that the New York stock exchange complements our new coherent brand and is the right place for us to be at this time alongside many of the world's most prestigious companies.
With that I'll turn it over to Mary Jane Mary Jane.
Thank you Chuck our revenue of 1.3 dollars $7 billion was negatively.
Affected by $6 million from currency compared to Q1, FY2023 with immaterial effects on the Aps.
Our backlog was $2 9 billion at 12 31.
And remains solid as customers return to more normal patterns of ordering and inventory management.
Our Q2 non-GAAP gross margin was 39, 8% and the non-GAAP operating margin was 23%, thus negatively affected by $3 million in currency or 20 basis points compared to Q1.
Supply chain costs were $10 million and are not excluded to arrive at the non-GAAP results.
At the segment level, the non-GAAP operating margins were 19, 4% for networking and 26, 2% for materials.
And 15, 7% for lasers.
GAAP operating expenses SG&A, plus R&D were $403 million in Q2, excluding $90 million of amortization $29 million of stock comp and $16 million of transaction and integration costs non-GAAP Opex.
With $268 million or 19, 6% of revenue.
Our total stock comp is expected to be $30 million to $32 million per quarter for each of Q3 and Q4.
Synergies have now reached $30 million on an annualized basis, and we are making good progress in all categories.
Quarterly GAAP EPS was a loss of <unk> 58 cents and non-GAAP EPS was <unk> 95.
With after tax non-GAAP adjustments of $217 million in total.
The diluted share count for the GAAP results was 139 million shares.
For the non-GAAP results the share count was 150 million shares.
The GAAP and non-GAAP EPS calculations are on table, six and seven of our press release.
Interest expense in the quarter was $71 million and for the six months ended December 31 <unk>.
Interest expense was $132 million.
Our original outlook for interest cost and August was $274 million on the basis of the one month LIBOR, reaching four 2% it.
It is now forecast on the yield curve to achieve five 1% should that happen on the schedule expected our goal along with our debt repayments will be to limit the change in our initial estimate to $5 million to $7 million for a total of 279.
$281 million.
Our December 31 balance of cash items was $913 million, an increase from the prior quarter of $15 million.
After paying down $133 million of debt in Q2.
Our total debt position on December 31 was $4 6 billion.
Using the trailing 12 months of adjusted EBITDA on a pro forma basis for the combined company at December 31 <unk>.
The gross leverage was three six times and net leverage was two nine times without the synergy credit.
Including the synergy credit of $235 million that is allowed by our credit facility definition. The gross leverage is three times and the net leverage is two four times.
Note that $15 million of synergies are already in the results.
The effective tax rate in the quarter was 32% the non-GAAP tax rate is 19%, we expect the tax rate for the remainder of fiscal year 'twenty three to be between 18 and 22, assuming the current mix of earnings.
No adoption of new or additional tax filings.
Returning to turning to the outlook for Q3 fiscal year 'twenty three our outlook for revenue for the third fiscal quarter ended March 31, 2023 is expected to be 132.
To $137 billion and earnings per share on a non-GAAP basis.
75 to 90.
Sure.
With respect to our expectations on full year revenue, we expect revenue to range from $5 35.
To $555 million.
Our non-GAAP EPS.
Estimate assumes the effects of purchase accounting, which are all still preliminary.
We will be added back to GAAP EPS other than the depreciation that is about $5 million in Q3.
The share count is 152 million shares for the entire guidance range.
The EPS calculation, including the dividend treatment as detailed on table eight of the press release or the guidance range.
This table also shows the earnings at which the series B preferred stock is dilutive.
All of the foregoing is at today's exchange rates and an estimated tax rate of 19%.
For the non-GAAP earnings per share, we add back to the GAAP earnings pre tax amount of $140 million to $145 million, consisting of 95 million and amortization $30 million in stock compensation and $15 million to $20 million for transaction integration and restructuring.
The actual dollar amount of non-GAAP items, the tax rate the exchange rates the purchase price accounting on the share counts are all subject to change.
As a reminder, our answers today during the Q&A may contain forecast from which our actual results may differ for a variety of factors.
These include changes in the mix customer requirements supply chain availability competition and economic conditions.
With that Kevin you May open the line for questions.
Hello, Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Okay.
First question comes from Ananda Baruah with loop capital Your line is open.
Yes, good morning, guys.
Congrats on.
Solid results and ongoing strong execution, thanks for taking the question.
Two quick ones if I could.
Chuck would you see any.
I guess, what you've inherited the meaningful softening.
And any of the business isn't even meaningful businesses.
And then could you give us an update on supply constraints and then I have a quick follow up thanks.
Okay.
Thanks for your question, let's take the supply chain first.
Yes.
In the second.
Second quarter.
The supply chain constraints that affected us to a level of <unk>.
$67 million.
And so that'll give you some sense, it's considerably lower than it was couple of quarters ago.
It's definitely getting better.
But it did have an impact on us.
That's first.
Second.
I tried to give you the color all the color we could about the markets about the regions about the products in our prepared comments.
And I would say from the last 90 days, if you look at our revenue guidance.
The only thing that you can see which is different is that we have a greater confidence on picking up the bottom end of that revenue guidance and reshape just a little bit off the top end.
And all of that takes into account our best judgment today and.
And wherever there are small pockets or pockets of.
Slowdown.
We have the versatility the resiliency the.
Backlog and the determination to blow past.
Okay.
That's very helpful and as far as the follow up.
Wanted to get a sense, where you guys believe.
Legacy coherent in the index in the display business cycle.
That's it for me thanks.
Okay, I'll ask mark to take that one.
Alright. Thanks for the question I think as we discussed in our prior call in November .
The excimer annealing business represents between 20 and 25% of our quarterly revenue and we're still we're still very much in that phase So I think I.
Thank you.
Forward looking growth opportunity that we see and it displays.
Displays specifically tablets and laptops has in front of us.
Probably one to two years out, but we're in a pretty steady pace.
Very helpful. Thanks, a lot guys.
One moment for our next question.
Okay.
Next question comes from Simon Leopold of Raymond James Your line is open.
Thank you very much for taking the question I appreciate the details today I wanted to see if we could dig into your updates on your exposure to the hyperscale or web scale.
I'm.
Estimating that theyre, probably close to 10% of total revenue, maybe a little bit.
Blow that following the integration with the old coherent.
But given some of the capital spending trends I'm wondering if you can update us on your thoughts how.
How much of your business is coming from there and what your expectations are for the balance of calendar 'twenty three thank you.
Thanks Simon.
Giovanni too.
Yes. Your question. Thanks for your question.
Thanks, Chuck and thanks, Tom for the question so.
Of course, it does change the percentage of the exposure to Hyperscale is quarter by quarter, but roughly is about 30% of the total we said this in the past is about let's.
Let's say, 30% Hyperscale is.
30% would call clouds about maybe.
Global 30 customers and then the long tail does the rest of it will divest the 30%. So we have not really seen any slowdown whatsoever.
At least for the second half of the year, we don't really see any slowdown in demand.
It could be explained.
By a number of factors probably one is the fact that.
The higher the speed.
Product, so, let's say, it's 100 G and above now almost represents 50% of our total okay. So thats, where most of them investments are growing.
Particularly of course with the Hyperscale is we tend to innovate and introduce higher data rates than opposite.
General cloud or even the long tail of the customers. So that's one reason the other one as I said earlier.
In previous quarters, we see is still an opportunity to regain share that we think the loss over the past, let's say three years between the.
Transition from Phoenix to two six in our Cleveland. So there is still pockets of markets, where we think we can continually.
To continue to grow our share. So the two combined explains why we don't see any slowdown if anything we're very we're quite bullish about the near term future.
And just a quick clarification that 30% value you referenced is 30% of your networking segment.
No 30% of the data com.
30% of Datacom, and what's that as a percent of networking.
Okay, so 30% of 50% so it will be like 15%.
Thank you very much appreciate it.
Sure.
Our next question comes from Jim Ricchiuti with Needham Your line is open.
Just wanted to.
Talk a little bit more about the laser business.
In that we saw.
Steps down in laser operating margins I was hoping you could give a little bit more color around what contributed to that.
Jane do you want to take the horse.
Sure.
Generally speaking what affect any of our segments.
On the margin.
Isn't it.
We are I would say that that is probably a little bit more pronounced in the laser segment that is generally true across all the segments.
And the line being that you alluded to that.
Contributed to some of the mixed results in industrial is that a case, where that DLA tool is slipping a quarter or is that potentially going out a little further and maybe what contributed to that is that just.
Customer site, not being ready or is there some change in potentially seeing some signs of changing demand in the display market near term.
Extending Kevin this is mark.
That's a good question.
It wasn't actually.
It wasn't I appreciate it.
We were anticipating a shift.
One large landing system.
During the quarter. So there was no. There was really are really based on customer demand and sort of what changed there.
We had anticipated being able to offset with some other upside business.
But as you Eric we still had some supply chain challenges that affected some of our other businesses.
Got it thank you.
Our next question comes from Dave Kang with B Riley Your line is open.
Okay.
Thank you good morning, just wanted to.
Clarify about your comment Joe Bob your comments about.
Telecom versus Datacom. So it's 50 50 between telecom and Datacom is that what you said about <unk> question.
Yes, I'd say <unk> is about to be accurate as 50 446.
So.
For the six one.
Okay.
Sure.
Got it and then my question is on the backlog side.
It was down a little bit from three 5% to $2 9 billion.
Just wondering if sort of backlog.
Apparently peak already if you can talk about.
That the K right when does it normalize and also can you provide the composition of the backlog.
So we don't normally.
The composition of the backlog number one but two Dave you may remember on the last call.
<unk>.
As well as in various conferences one of the things that I noted was that investors should not be worried if the backlog starts to.
Ill go down we don't necessarily consider it a decay.
The goal is to start to ship within that backlog. So we are seeing customers returning to more normal patterns of ordering and that's exactly the behavior. We saw in the second quarter is exactly what we expected.
And.
Got it.
I would add David I think that but as we told to normal ordering patterns will take place over the next few quarters.
Got it and then my follow up is your.
Terry about deceleration in some of the.
And Mark is just wondering if you can specify.
Which end markets are decelerating or expected to decelerate.
Thanks, David I would point to.
The industrial section of my comments.
About the backend of the line for the semiconductor equipment.
Gave you some some sense for <unk>.
Little bit of a slowdown as it relates to lasers for via hole drilling and for marketing.
And I also balanced that with the really substantial growth that we've seen both in <unk>.
On the industrial side and battery welding on the industrial side.
Then also in our materials for front end of the line equipment and semi cap. So it's a mix and I said, so that's probably the best the Best example.
Okay very clear.
Youre not drilling in.
The sensing segment as part of the segment that is slowing.
I also in my commentary, Dave I also pointed to the.
The fact that in the first two quarters of our fiscal year, we have seasonal tailwind and I also also made made it clear remark.
The second half of the year that we expect to be considerably lower than the first time.
Okay.
Because of our seasonality not necessarily.
Demand right.
Joining me wanted to elaborate on that.
Yes, sure Hey, Dave tariff costs.
Demand.
Yeah.
Not something that.
We are seeing that slowing down.
This is why we talk about seasonality seasonality.
It's all about the introduction of new products from our customers and we follow the pattern. So it's completely unrelated to the map.
Got it.
Thank you.
Our next question comes from semi strategy with J P. Morgan Your line is open.
Hi, Thanks for taking my questions I have a couple of and maybe if I can start with a question on backlog and.
Okay, I understand your sort of view.
And for you in terms of the backlog will start to moderate a bit as supply improves and order patterns normalize how are you thinking about backlog.
Sort of exiting the year or does it remain elevated and just trying to match that up against sort of the decision to take some up somewhat the high end of the revenue guide.
Lower.
Mean.
How does that sort of match up with the backlog still remaining quite high at this point kind of a follow up.
First of all Jay.
Yes, sure Chuck Thanks.
I would say that.
On the one hand, while not necessarily I know we only.
I have to go here forecasting the backlog last quarter I had indicated if we saw arresting backlog over time not necessarily by 630, but over time coming down more toward two and a half two six.
Wouldn't be surprised but I don't I don't necessarily think it will be at that level.
630.
It's the first thing I would say that probably really in some ways unrelated to each other we just the backlog does remain very high but do keep in mind that that backlog is over 12 months and as we've indicated in the past typically.
The individual items that are in the backlog are timed they may not necessarily all be timed to being shipped by 630. So we have some customers who.
Routinely will give us.
Relatively long dated order or scaling back selling across the entire 12 months. So it really has not nothing so much to do with the backlog coming down a little bit the change in the top and its just more trailing up the forecast as we've gone along here.
Got it.
A follow up I think Chuck and Mary Jane you, both talked about sort of the mix.
Mixed set of end market outlook that you're seeing with certain markets are meeting, but it's strong certain sort of pockets of weakness.
Aggregate all of that together like how has the book to Bill looking particularly as you sort of go through the last few months of the quarter like we continue to see you set up a step down in the aggregate book to Bill is that because of the diversification that you have remaining quite robust.
Well again, the book to Bill is not nearly as relevant really right now as the backlog itself I mean customers are changing their ordering patterns.
But generally I would say there are variations certainly in bookings in particular areas, where our customers have.
I had given much much longer dated orders and now say 12 months. When there are historical ordering pattern is more like six or they're returning to <unk>, but generally speaking I would say that we're very very positive about the outlook for the company given the strength of that backlog Chuck would you like to add anything to that.
No.
I think what we said stands over the next few quarters, we can expect it to the book to Bill.
Ratio as we see it to get to more normal patterns that we would've seen before the last couple of years events, including with the supply chain shortages started.
Okay. Thank you thanks for taking the questions.
Sure.
Our next question comes from Mark Miller with the Benchmark Company. Your line is open.
Alright. Thank you for the question I just wanted to talk about you said that the supply constraints again impacted sales rose by $67 million I'm wondering how that broke out between networking and lasers.
It was mostly networking thanks for your question by the way good morning, Mark.
It was yes it was.
Nearly all networking, but there was an impact of the lasers segment.
I just was wondering.
In terms of other expense, it's jumped around the last couple of quarters can we expect other expense in the March quarter to be similar what you saw in December .
I would say that it's probably going to be somewhat lower probably closer to plus or minus $1 million. It does move around for an awful lot of things some of which are still related to purchase accounting, but.
It's probably for Q3, plus or minus $1 million.
Thank you.
Our next question comes from Jed <unk> with William Blair. Your line is open.
Hi, Thanks, and thanks for taking my questions I, just have one and a follow up.
I get that Mary Jane or Chuck did I hear that correctly from a capex split that 50% was going to silicon carbide could you just.
Clarify that for me.
Probably in the neighborhood of the <unk>.
35% to 50% is going into silicon carbide, it's a.
A significant part of our Capex for the year.
Got it.
And then.
I didn't hear you talk much and maybe I missed this but it seems like you have.
A truly differentiated position with high quality 200 millimeter.
Whereas.
Rest of the market is struggling with 150 other than one other competitor. So I'm just I'm just curious if you could elaborate on sort of what you have that.
That may be different or the prop.
Getting into process et cetera that I am sure you wouldn't be entering but just what would you like to say about sort of the strategy around 200, and I think in your recent presentation, you even talked about getting to 300 millimeter.
Okay. Good morning, Jed Thanks for your question.
Just just quickly and.
And at a very high level, that's all that's required.
We have designed a process technology for growing substrates silicon carbide substrates around a set of materials and equipment.
Which we designed in house.
Our equipment Crystal growth equipment allows us to scale such that we can grow 200 millimeter substrates and the same equipment that we grow $1 50.
We announced in 2015.
First high quality 200 millimeter silicon carbide substrates introduced to the marketplace.
Eight years ago.
So I would say the one thing that we have is proprietary advantage.
Second is a scalable platform.
Third is nearly 10 years of experience.
And we are dedicating some part of our capacity today.
Which is overwhelmingly in demand for 150 millimeter substrates.
We are still dedicated capacity to improve and scale and position us for the 200 millimeter market. So it's not a question of technology its really a question of capacity.
And our investments in even more capital again another tranche later this year and then again next year, we will have both the market opportunity and the market demand in front of US both for $1 50 and 200.
Okay.
That's great. Thank you.
Our next question comes from Richard Shannon with Craig Hallum. Your line is open.
Great guys. Thanks for taking my question, maybe a kind of a two parter here on your broader sense in category.
The first part of this is Chuck or Giovanni how do you see the share position with the kind of three D. Sensing is when you get into the next generation do you see an upward or a downward bias to that and then maybe if you can paint us a bigger picture on the broader sense in category outside of three D. Sensing how do you see this ramping applications and kind of a thought process and timeframe when that becomes a lot bigger than this.
Today.
Okay.
Hi, Good morning. Thanks for your question, So I think.
It's hard to exactly.
Measure the share we think that we've been growing our share generally speaking.
And.
Due to thanks to the.
Level of event through the integration, which we think is still unique let alone the scale that we have so it has been very favorable to our ability to be very competitive.
Our scale.
Scale wise cost wise, and most importantly quality wise.
We think that the.
We have reached a point, where we have the we believe we are the share leader.
In many ways.
So we have a number of opportunities in front of us for new designs and new applications.
New markets.
You also new technologies that.
Should be able to.
It should be able to.
No.
To let us continue to enjoying this set of leadership.
Not only in <unk>, but also as I said in the optical sensing, particularly optical sensing enabled by <unk>.
Semiconductor lasers.
So there's a number of.
New applications emerging.
We are working on.
<unk>.
All of them, though obviously there.
So there are many ways and we can't really talk about all the details, but we think we are.
Very well positioned to continue to enjoy very close partnership and.
With our with our key customers generally speaking.
Okay fair enough. Thanks for all that details you have on a follow up on a specific topic within datacom.
You've talked about in the last few conference calls about 800 gig here.
I guess, it's probably my assumption I think most people would assume that's a very small piece of your datacom business.
Maybe you could just verify that still the case or kind of give us a sense of where it's at but I think the bigger question here is thinking about share in that category.
<unk> had to battle back from a disappointing start in the 100 to 200 to 400 gig generation, but where do you sit in 800 gig and when does that become a more noticeable part of your business does that will that happen in this calendar year or is it more of a 24 story.
Okay.
Okay. Thanks, Richard well <unk> very early as you know is still small compared to.
Lower data rates so.
We are shipping <unk> today, we think we are very competitive.
Solutions, Thanks to as you know the the integration of our electronics.
Photonics and download the assembly and automation that we have we have.
We think we have the most competitive blocks from Alta.
It's definitely not going to something that is going to.
Be material this fiscal year, but.
Next year.
We will ramp up a very rapidly and.
We will better position as we have been in the past and support.
Demand primarily.
Matt as we said earlier primarily from Hyperscale.
I think we're very well positioned to get the the largest shale to market them.
Great. Thanks, guys. That's all for me.
Our next question comes from Tim <unk> with Northland Capital markets. Your line is open.
Hi, good morning.
I wanted to talk about kind of overall.
Growth expectations heading forward.
Specifically in fiscal 'twenty, four and moving forward I think you've talked in the past about.
Expectations for double digit growth rate for coherent.
I wonder given some of the macro.
Stuff that youre seeing whether that remains the case or if you can give us any color on that and then.
Along with that as you look at your.
And your major segments across networking materials and lasers.
How do you expect those three to contribute to the baseline of growth that you're expecting.
Hey, Tim Good morning, Thanks for your question.
Tim.
We are determined to continue this.
This leadership position in the market.
We have another few months to play out as it relates to collecting up.
New orders.
Working on the backlog positioning the portfolio.
We're not going to give an FY 'twenty four guidance today, but.
We are determined to outpace the growth of the market.
And even with some of these pockets of softness.
We have to determine whether or not we're looking at one quarter or a two quarter effect and.
We are intensely engaged with customers now.
So I would say, we're enthusiastic we're making making all the right bets and all the right places.
We're taking bold steps and making good progress even with new customers as we try to stitch together the advantages.
For example in materials in the lasers portfolio and it's coming along.
So I would just leave it at yes, it's true that our aspiration is to grow double digit.
Into 2000 and for what it's going to take US another few months to sort through that and we'll provide an update over the course of the next 90 days, probably as we head into May and then and then possibly into August okay.
Great.
Sorry, if I can follow up real quick I appreciate that answer on that.
Telecom side, you seem to put up some pretty good sequential growth there.
I imagine a lot of that is driven by supply improvement, but are there any particular product categories within telecom.
Where you saw either.
Strong demand or improve supply to drive that sequential growth.
Tim Thanks, I'll take that one too.
I think you hit on all of them. It really was a nice mix we had.
<unk> had and have a good backlog that is true.
Parts of the supply chain.
Constraints were broken that is true.
And we do have demand across the entire telecom portfolio.
Coherent transceivers wavelength selective switches and <unk> III.
So it's just a question of timing order timing and then execution of the <unk>.
Through the operations taking into account improvements improvements and then some cases not not so it's not so much improvement in the supply chain situation that did hold us back somewhat on telecom again this quarter.
Okay. Thanks very much.
Our next question comes from Paul Silverstein with Cowen Your line is open.
Good morning, guys.
As you and others on the call.
Already asked and answered my line dropped.
First off I assume your previously stated 38% to 42% range for Golar, maintaining over 40% gross margin Hasnt changed.
And Mary Jane if you can provide us.
There is positive and negative levers.
And I think last quarter, you excited and FX impact on gross margin I may have that wrong, but did you mentioned any appreciable FX impact this quarter.
So a couple of things one our range on the gross margin has not changed.
The.
That's on the margin last quarter, I think was $6 million positive this quarter was $3 million negative.
So.
The currency is theres, a little havoc being played with the currencies, which is a little bit challenging.
And secondly are.
Cost to obtain short supply parts also increased a little bit, but having said that it is still absolutely. The company's goal to continue to push this gross margin and absolutely every operating leader.
In our company.
Noticed that in this behavior is a very great partner in helping to make that happen.
Marriage, I think virtually every coffee was earnings cycle is cited ongoing supply chain challenges, but visibility as to improvement with quite a number.
Indicating that the father before resolution in calendar 'twenty three any thoughts you can share on that on a go.
Sure.
I think based on what our guys think too that it's actually.
Sarah.
Fairly decent chance that by the time, we get to what would be our fiscal year 'twenty four which is the back half of 'twenty three that we may start to say most of the issues behind us.
So I think we still have a quarter or so to go here on it but I do think probably by the end of the year if not.
930 quarter, we should see that starting to get behind us.
Okay.
And then I appreciate the more challenging macro excusing macro environment and I know, it's still process. We were early with respect to the acquisition.
Are there any early data points as revenue synergies, where coherent and perhaps shock Giovanna emerging York compared through progress in furniture, if I recall I think it was within three quarters of the close of that deal that you got that Sherman facility qualified and shipping on the VIX tools I think at the time <unk> had little if any.
With Hyperscale or some I think you know through before you just said it.
30% of your Datacom, 15% Comms revenue.
Any.
Early signs of that nature that would speak to enhancement coherent as competitive position and wallet share with customers.
Thanks, Paul for your question.
So first and its very James joining look to or Mark I would like to add they can.
I think as it relates to your question regarding revenue synergies.
Yes.
It's.
It's clear.
That.
Of course, there are revenue synergies.
Existing in our networking business, but.
Across industrial.
Life Sciences.
Semi cap equipment.
Our aerospace and defense business.
There are those opportunities.
And between the key account managers.
Between the strategic marketing team and the product managers, especially in the businesses that Giovanni and Merck lead.
There are lots of engagements.
That are happening, including driven by our customers themselves.
Who are desiring to pull us together.
To understand how the combined portfolio can help them enable yet another disruption.
So those conversations are happening in the markets that I. Just described are those markets that we're focused on.
Joining would you like to add anything remark.
So Chuck I think you summarized well there is.
There is no doubt.
Synergistic deal combination to begin with which we.
Really.
<unk> is used to explain the rationale of the combination since the beginning across those four verticals that Chuck mentioned, so I think it's.
Every day.
Learning opportunity for us to really figure it out.
Substantially more synergies than we ever fall during due diligence just because.
We will somehow limited by.
Bye bye.
Our relative.
Antitrust lawyers to really talk too much about it and so now we are discovering.
It's incredible.
A combination that we can leverage to grow the business even more.
I would just add it's a great question actually I would just add just.
Specifically in our instrumentation space to use that as a really easy example, our two leading customers that we typically engage with both companies separately prior to the prior to the acquisition.
Might get an audience is going be 10, or 15 people and maybe some vice President's and we recently Onyx West show had meetings with two of our leading instrumentation customers with over 40 participants from each of the customers.
And we essentially got executive suite at.
<unk> there that we would previously have not done.
I think.
Several of our customers have commented that they like the fact that the.
She is much more as a strategic partner rather than just maybe.
A leading vendor so I think I think we've got early indications in multiple in multiple markets and multiple spaces, but that's just an easy example of basic photonics west in the last few weeks.
I appreciate the responses. Thank you.
Our next question comes from Vivek Arya with Bank of America. Your line is open.
Thanks for taking my question I wanted to revisit your silicon carbide opportunity first.
How much did silicon carbide contribute by way of sales for.
The December quarter, how much did it grow year on year and how do you think about the growth outlook. This year.
Yes, if you want to take the growth question I'll find the other ones.
Okay.
The revenues Vivek good morning revenues.
Above.
About 10% or so.
Sequentially.
Yeah.
And.
Mary Jane can at least range the revenues, maybe where the best view for the full year.
They are growing we expect them to continue to grow.
They're capped.
At the kind of <unk>.
Band of revenue that we have today.
On the basis of the capacity that we have installed capacity that we have in place.
That capacity is being added tranche by tranche.
Large numbers of furnaces at a time.
And we've given some guidance over the last couple of calls as to how we expect that.
Two to evolve.
I wanted to give a range for revenue.
<unk>.
The revenue was about 3% to 4% of the.
Total company and if you think about that Havent been 5% of the previous company, which was a smaller size.
It shows some very very nice growth with as Chuck said, 10% growth year over year.
Addition of capacity is very very essential ask Chuck just described and we're looking forward to that coming online. So that we can continue to deliver on the demand that we're right now cap capacity wise for.
Okay and is it an opportunity to appeal for visited chips Act funding or other state or federal.
Funding because when I look at number of your competitors they are building out.
A lot of capacity as well so as much as I know you are spending a lot in your capex half of your capex or at least a third of it is going towards this opportunity, but there is a window right now to be investing in this assuming that this is a market that you want to be a big player in.
Then why not.
Try to spend more or try to get more funding from these government agencies.
So you can really take advantage of what could be a meaningful growth area or go ahead.
Okay David.
This is a meaningful growth opportunity for us.
And we couldnt be more excited about it so we're focused on that that's for sure.
To your point.
We are in discussions.
With elected officials and with government agencies, both at the federal government level in the U S and at the state level.
These discussions are.
Our ongoing and growing more intense here most recently.
Thank you.
Our next question comes from meta Marshall with Morgan Stanley . Your line is open.
Great. Thanks for squeezing me in.
Just in terms of.
China reopening just any impact or kind of step back and what you saw in terms of supply chain challenges or just production capability demand just anything to kind of note there and whether you've seen kind of.
Getting through that pass any maybe COVID-19 wave sort of pass through there and then as a second question just for Mary Jane.
Any changes kind of minimum minimum cash that you would want to keep on hand, given macro or should we still consider use of cash primarily debt paydown and capex in the near term that's it for me. Thanks.
Mary Jane.
Mary Jane.
I'll go first just on the.
The environment in China, and then if you would address.
The financial question.
<unk>.
I would say.
As it relates to this.
Let's call it the last 60 to 90 days or so.
For us for all intents and purposes.
It's pretty much the same as it's been for the last two or three years, it's been one story.
Resilient flexible.
While enthusiastic.
And able to confront whatever headwinds.
And let them just blow right by.
The operational team and the team in China is really just done a fantastic job.
Despite the challenges and they are already on too.
Looking forward to the opportunity over the next few quarters or so to position.
Our company there as best as we possibly can.
With respect to the cash question I'm pretty sure you have never met a CFO that didnt want more cash so.
But generally speaking there's really no change in the minimum cash we have.
As we indicated last quarter, Ron you just summarized it very well.
We have changed our thinking a little bit to include debt paydown during fiscal year 'twenty three as well as capex priorities that does not slow down the speed with which we're starting to in the.
Synergies.
And then we're going to continue along that path.
Great. Thanks.
Question comes from Tom O'malley with Barclays. Your line is open.
Hey, guys. Thanks for taking my question I, just wanted to dive into the electronics segment here could you breakdown within electronics, how much of that segment is <unk> sensing in the December quarter. Thank you.
As a general matter sensing overall, the consumer side overall is the majority of it.
Okay.
I think Giovanni made some comment that I think Chuck echo them as well that on the consumer side. The second half of the year tends to be a lot weaker than the first half of the year. There is just obviously a large cyclical customer there, but when you look at your fiscal year Guide you have an acceleration in revenue to get to your full year could you just talk about what other end market.
<unk> are accelerating that can offset the seasonality of the electronic segment. Thank you.
Well, it's pretty much the same thing we've seen for the last couple of years at least on the legacy <unk> side.
Which is that the fourth quarter tends to be the strongest quarter in general it is perhaps less enormously strong than it had been prior to <unk> sensing thing are essentially market being in the numbers.
But generally I would say, we would expect to see kind of typical seasonality and some strengthening in the other end markets.
Hey, Tom This is Giovanni just wanted to add.
Sure.
New features new functions.
New technology gets in and out of <unk> over time, what we've seen is that generally speaking.
Consumer automotive.
Anywhere there is a need for interactivity with the machine.
Lasers.
And.
Total dials imaging generally speaking of the power.
Powerful way too.
Since the walls and provides.
<unk>.
And AI engine inside the machine to respond and make decisions. So that's a trend which will continue and we will also.
Increase in terms of.
The actual ability to again.
In the bulk of tenants.
Not only physically but also.
<unk>.
For example.
From a target perspective, they need a different type of sources.
Depending on the application of these of the firm.
The level of power et cetera, so that we have seen in <unk>.
Guys have seen has the number of lasers, the number of photo diodes, the number of solutions that get.
Through consumer electronics products, and then automotive inside or outside the car.
It just will keep increasing so it's all whether.
Whether or not <unk>.
So there's going to be more phones more cars sold eventually it may be more phones, but it's even assuming they are multiple phones and such related as the number we think that the adoption of this technology will continue to grow and so you can expect future products be adopted.
To enhance the functionality of the of these pilots.
Also let me just clarify something I should've helps us hear more on our silicon carbide growth.
The answer is that its 10% growth is 10% year over year.
It's pretty flat sequentially for exactly the same reason Chuck gave which is the capacity constraint.
Our next question comes from Ruben Roy with Stifel. Your line is open.
Thank you Chuck a lot of details so far but if we could spend a minute on theres a comment in the press release around the pricing and thoughtfully increasing pricing in some areas, obviously that with the business, becoming more diversified I'm wondering if you could just kind of maybe give us a little bit of detail around how you're seeing the pricing environment evolves.
Especially in the context of input costs and supply constraints, improving and then I guess.
You talked about positioning the portfolio of the diversified company and how thats playing in to how youre thinking about longer term pricing strategy that'd be helpful. Thanks.
Okay.
<unk>.
I'll start thanks for your question I'll start and then I'll ask Giovanni.
Add onto it.
To provide even more color.
Last.
Six months.
We've put.
The entire product management.
Team of the combined company through a fairly rigorous training.
Cycle.
And those product managers.
In.
Conjunction with in connection with the global sales and service organization.
<unk> had a strategic imperative.
To improve the operating margins.
And to position us for competitive pricing.
Reflect the true value that we bring to the marketplace.
Those conversations have been going on.
Even long before we combined with legacy coherent.
But we really stepped it up in the last six months.
And whereas you'd like to do it across the board is not practical.
And so you have to be.
Focus on it you have to have a strategy for it and an intimacy with the customers with regard to a long range value proposition and long reach partnership, which we always focus on developing.
Joining do you want to point out one or two examples of.
Success in the last six to 12 months.
Hello Chuck.
Yes.
The.
We've been quite successful in.
And the very cooperative environment with our customers understanding that some of our costs, particularly in those products that require transformation. So we'll talk about material cost.
Also seeing material transformation, where there's a significant amount of energy needed that we have been able to.
Increased price.
In a reasonable way.
And I think that the.
Customers have been very pleased in some cases, we have been offered pies increases too.
By the customer too.
Secure share.
In this in these kind of environments, where they realize that could have been the risk of supply. So it's been a combination of.
US asking us.
To increase prices, which we've been quite successful with and then customers in some cases offering price increases through again.
Continue and secure.
Neutral supply for some of these pauses, which which again have been.
In fact, it by the number of inflation.
Effects that we wont know, particularly at home.
Energy supply.
I appreciate all that detail that's all I had thank you very much.
Thank you. Our next question comes from Mike Genovese with Rosenblatt. Your line is open.
Great. Thanks, so much thanks for squeezing me in.
First question now that we're in a good part of the 400 GB data data center transceiver cycle can you talk a bit.
So 400 G versus 100 G. If it's meaningfully different and then importantly, if there are any.
Technology Moats that you can build 400 genes versus 100 GB because of the greater investment need digital technology. Thank you.
So first of all.
Just for the sake of clarity as you know we see two onto 408 onward.
<unk> as far as we know all about 100 gigabit per second and then Youre talking about database. So we have to distinguish between.
Speed and data rates are not exactly the same so even if <unk> may actually be four times one onward.
200, maybe two times one onward.
<unk>.
We have.
Wireline to energy, we just announced in AML.
Do you have beyond conference last September .
First in the World we think.
And eventually will be a significant shift in bits per second.
Not necessarily.
Data rate, but is it speed so.
Although those complications.
Combining our one <unk> optical lanes into two armed with full on the eighth onward.
Several solution on several standards.
So.
Fortunately the ability to support all of those form factors all of those data rates and we obviously own.
A substantial vertical level, sorry vertical level of integration.
In terms of the lasers in terms of the Ics in terms of the optics that go into those products, so I wouldn't necessarily clay.
Claim and nobody could claim.
He is a strength in 400 G.
But there is no strains is one of the <unk> because the same fees at the <unk> level.
So it strengthens the speed level not necessarily the bit rate level. So I think we are well position 100 G.
Really well positioned for 200 G speed and so all of the data rates from transitory and above I think we'll be well positioned to do again as I said earlier to continue to gain share in.
In the marketplace. We are seeing Cisco does give you an order of magnitude it does last year.
We will.
At about maybe 15% then they went to 30% and now we're about 50 points of the total data of sales actually up 200, G and above which is a.
We signed that we were really focused on the high end of the market. Thanks to the again the combination of the portfolio of component level that we own and we're vertically integrated with.
Okay, great very helpful. If I could follow up just another question on the R&D path.
Your name is coherent.
Not aware of any DSP products.
Or 400, ZR or any any ESP products of the company.
Do you have R&D and DSP is and what are your thoughts on adding DSP is going forward.
Yes.
We should probably take it offline because we did announce in.
The past our own DSP and we of course, we have them.
Several of coherent products, where we have an entire divvy.
Division around it and we'll walk you through all of the offerings were very well positioned we have started with our own.
Our own DSP design team based in Germany.
We have started with.
I would call it is simple.
And we will eventually.
Me too.
Migrate to more complex products over time and be as Bethany integrators, we can be with our own DSP. That's our plan. We have to we started we all know on a good path.
The most significant of deposits of course through the <unk>.
ZR, which.
Its own DSP in it and we announced cup.
A couple of quarters ago, and so that's an example, but we walked you through where we are 101 with more details if you like.
Thank you.
And im not showing any further question at this time I will turn the call back over to Mary Jane for any closing comments.
We want to thank all of you for joining US today. Thank you for being patient with the time, thanks to Chuck Giovanni and Mark and we will talk to you soon.
Have a good day.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Okay.