Q3 2023 Coherent Corp Earnings Call

Okay.

Yeah.

Speaker 1: Good day. Thank you for standing by. Welcome to the coherent Corp FY 23 third quarter earnings call. At this time, while participants are on to listen ononly mode, after the speaker's presentation, there'll be a question and answer session. To ask a question during the session, lead depressed star one on yourtelephone. You will then here to autom a message advising your hand to raise to as rarow your question.

Good day, and thank you for standing by and welcome to the coherent Corp. FY2023 third quarter earnings 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 need to press star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please.

Speaker 1: Please press star 1, one again. Please be advised this conference being recorded. I want to like to the comce over your speaker today, Mary Jan aymond. Please go ahead.

Press Star one again.

Be advised this conference is being recorded I would now like to turn the conference over to your Speaker today Mary Jane Raymond. Please go ahead.

Speaker 2: Thank you Kevin, and good morning. I'm Mary Jane Raymond, coherence Chief Financial Officer. Welcome to our earnings call today for the third quarter of fiscal year 2020 -three.

You, Kevin and good morning, I'm, Mary Jane Raymond coherent Chief Financial Officer.

Welcome to our earnings call today for the third quarter of fiscal year 2023.

Speaker 2: This call is being recorded on Wednesday, may tenth 2020 -three.

This call is being recorded on Wednesday May 10 2023.

Speaker 2: With me today on the call is DR Chuck mtera, our Chair and Chief Executive Officer. After our prepared remarks, Chuck and I will be joined by DR givanni barosa, our Chief strategy Officer, and the President of the materials segment, DR Mark sovi, our President of the laser segment, and Bob basasoff, our President.

With me today on the call is Dr. Chuck Mattera, our chair and Chief Executive Officer.

After our prepared remarks, Chuck and I will be joined by Dr. Giovanni Barbarossa, Our chief strategy Officer, and the President of the materials segment, Dr. Marc <unk>, our president of the laser segment and Bob <unk> our president.

Speaker 2: They will participate in the QA to discuss our strategy results and the exciting prospects across our end markets.

They will participate in the Q&A to discuss our strategy results in the exciting prospects across our end markets.

Speaker 2: For today's call. The press release and investor presentation are available in the Investor Relations section of our website, coherent com. Today's results includes 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 today's documents.

Today's call the press release and 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.

Speaker 2: I remind you that, during this call, we will make certain forward-looking statements.

I remind you that during this call we will make certain forward looking statements.

Speaker 2: These include, but are not limited to, statements regarding geopolitical and macroeconomic trends, as well as expectations for our revenue, relevant market trends and financial performance, including our guidance.

These include but are not limited to stay.

Statements regarding geopolitical and macroeconomic trends as well as expectations for our revenue relevant market trends and financial performance, including our guidance.

Speaker 2: In addition, we will discuss our progress on integration, including our delivery of the projected synergies and certain restructuring matters.

In addition.

We will discuss our progress on integration, including our delivery of the projected synergies and certain restructuring matters.

Speaker 2: All forward-looking statements are based on today's expectations, forecasts and assumptions.

All forward looking statements are based on today's expectations forecasts and assumptions.

Speaker 2: They 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 thirtieth 2022 and subsequent SEC filings.

They involve risks and uncertainties that could cause actual results to differ materially from our comments today are.

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 32022, and subsequent SEC filings.

Speaker 2: Coherence assumes no obligation to update the information discussed during this call, except as required by law. With that, let me turn the call over to DR Chuck metera Chuck.

Coherent assumes no obligation to update the information discussed during this call except as required by law.

With that let me turn the call over to Dr. Chuck Mattera Chuck Thank.

Speaker 3: Thank you, Mary Jane, and thank you wool, for joining us today.

Thank you Mary Jane.

And thank you all for joining us today.

Speaker 3: Coherent Corp posted third quarter revenues of one point two four billion, 6% below the low end of our guidance and 8% lower than the midpoint of our guidance.

Coherent Corp posted third quarter revenues of $1 4 billion, 6% below the low end of our guidance and 8% lower than the midpoint of our guidance.

Speaker 3: Revenues were up 4% year-over-year on a pro forma basis.

Revenues were up 4% year over year on a pro forma basis.

Speaker 3: Organic revenue growth was up 6% year-over-year.

<unk> revenue growth was up 6% year over year.

Speaker 3: Our non-GAAP EPS was 58 cents. Our operating cash flow was 152 million. We invested 97 million of capital equipment. We generated 55 million of free cash flow and we retardred 78 million of our debt.

Our non-GAAP EPS was <unk> 58.

Our operating cash flow was $152 million, we invested $97 million of capital equipment, we generated $55 million of free cash flow and we returned $78 million of our debt.

Speaker 3: We were intensely focused on controlling costs, managing cash and continuing our disciplined approach to capital allocation during the quarter.

We were intensely focused on controlling costs managing cash.

And continuing our disciplined approach to capital allocation during the quarter.

Speaker 3: The integration of coherent continues to go well.

The integration of coherent continues to go well.

Speaker 3: Our third quarter performance was impacted by some of our larger customers requesting us to delay schedule shipments, primarily in the networking segment.

Our third quarter performance was impacted by some of our larger customers requesting us to delay scheduled shipments primarily in the networking segment.

Speaker 3: Our long-term strategy of market technology and business diversification is clearly in advantage for us in these market conditions.

Our long term strategy of market technology and business diversification is clearly an advantage for us in these market conditions.

Speaker 3: That diversification, together with continued strong market share performance across our recore markets, helped mitigate the impact of the communications market challenges that we experienced in the quarter.

That diversification together with continued strong market share performance across our core markets helped mitigate the impact of the communications market challenges that we experienced in the quarter.

Speaker 3: Specifically the solid performance of the materials segment, coupled with the solid performance of the legacy coherent business- now our lasers segment- provided diversification and stability by exposing us to multiple and different growth markets.

Specifically the solid performance of the materials segment, coupled with the solid performance of the legacy coherent business now our lasers segment provided diversification and stability.

Exposing us to multiple different growth markets.

Speaker 3: Revenues in the quarter by segment were a: 551 million for networking, 365 million for lasers and 324 million for materials.

Revenues in the quarter by segment were $551 million for networking $365 million for lasers and $324 million for materials.

Speaker 3: Turning to the composition of our sales by our four major markets, 35% was into industrial, 44% into communications, 11% into electronics and 10% into instrumentation.

Turning to the composition of our sales by our four major markets, 35% was into industrial 44% into communications, 11% into electronics and 10% into instrumentation.

Speaker 3: Regarding the distribution of our revenues by region, North America accounted for 53%, Europe was 20%, Japan and Koa were 14%.

Regarding the distribution of our revenues by region North America accounted for 53% Europe was 20%, Japan and Korea were 14%.

Speaker 3: China was 11% and 3% went into the rest of the world.

China was 11% and 3% went into the rest of the world.

Speaker 3: In the face of the macro challenges in the quarter, customers are now taking proactive measures to manage inventory and cash.

In the face of the macro challenges in the quarter customers are now taking proactive measures to manage inventory and cash.

Speaker 3: We expect to constrain market conditions to persist into FY' twenty-four and.

We expect the constrained market conditions to persist into FY 'twenty four.

Speaker 3: With this temporary slowdown in the market. We've wasted no time in aligning our cost structure with market realities.

With this temporary slowdown in the market, we've wasted no time and aligning our cost structure with market realities.

Speaker 3: To this end, we are pulling up the schedule for some of the actions plan as part of our multiyear synergy, integration and transformation efforts.

To this end we are pulling up the schedule for some of the actions planned as part of our multiyear synergy integration and transformation efforts.

Speaker 3: We have begun the next phase of the coherence acquisition integration plan, including those actions involving consolidations and moves to lower-cost sites.

We have begun the next phase of the coherent acquisition integration plan, including those actions involving consolidations and moves to lower cost sites.

Speaker 3: These moves, alongside our other actions, will keep us on track for delivering the previously announced 25 million synergy plan.

These moves alongside our other actions, we will keep us on track for delivering the previously announced $250 million synergy plan.

Speaker 3: We also undertook a number of actions to align our cost with current market realities as we begin the fourth quarter.

We also undertook a number of actions to align our cost with current market realities as we begin the fourth quarter we.

Speaker 3: We are accelerating the restructuring actions we began in Q3 and announced today.

We are accelerating the restructuring actions, we began in Q3 and announced today.

Speaker 3: It is focused on workforce reductions to reduce cost and expenses.

It is focused on workforce reductions to reduce cost and expenses.

Speaker 3: And facility rationalization, including the relocation of certain facilities, to increase our resiliency and to lower our costs.

And facility rationalization, including the relocation of certain facilities to increase our resiliency and to lower our costs.

Speaker 3: We are also planning to implement a multiyear digital transformation that will help enable us to improve our manufacturing productivity and efficiency and to provide lower-cost gna services.

We are also planning to implement a multiyear digital transformation that will help enable us to improve our manufacturing productivity and efficiency.

Provide lower cost G&A services.

Speaker 3: We expect to realize 100 to 100, twenty-five million of restructuring savings on an annual basis by FY twenty-five.

We expect to realize 100 to 125 million of restructuring savings on an annual basis by FY 'twenty five.

Speaker 3: cumultiative savings for the period FY 23 to FY 25 will range from two million to three hundred million.

Cumulative savings for the period FY2023 to FY 'twenty, five will range from $200 million to $300 million.

Speaker 3: The cost to achieve these savings will be between 115 and two hundred million.

The cost to achieve these savings will be between $150 and $200 million.

Speaker 3: The good news is that it's very clear to me that our continued investment in the markets we serve with best-in-class people and technology has earned us a strategic and highly competitive position at a growing number of customers.

The good news is that is very clear to me that our continued investment in the markets. We serve with best in class people and technology has earned us a strategic and highly competitive position at a growing number of customers.

Speaker 3: We've been planning and executing this evolution for a long time, including the most recent acquisitions of fininesur and coherent.

We've been planning and executing this evolution for a long time, including but most recent acquisitions of <unk> and coherent.

Speaker 4: The power of our diversified and larger scale model is very clear to me.

The power of our diversified and larger scale model is very clear to me.

Speaker 3: Our work is not done, rather it just beginning.

Our work is not done.

Rather it's just beginning.

Speaker 3: We are confident that our new product portfolio, technology and manufacturing platforms will be ready as the growth resumes.

We are confident that our new product portfolio technology and manufacturing platforms, we will be ready as the growth resumes.

Speaker 3: I also am confident in our ability to secure new design wins across our key product lines to drive long-term differentiated performance.

I also am confident in our ability to secure new design wins across our key product lines to drive long term differentiated performance.

Speaker 3: We are very well positioned to continue benefiting from strong and durable technology trends that we do not see abating anytime soon.

We are very well positioned to continue benefiting from strong and durable technology trends that we do not see abating anytime soon.

Speaker 3: With respect to our four -end markets and communications. We experienced a near-term slowdown in the datacom market, with some hyperscale and enterprise computing customers and with our telecom and cable TV customers as well, as many abruptly shifted their focus in the quarter from managing their supply chain shortages to managing their inventory Surpluses.

With respect to our four end markets and communications, we experienced a near term slowdown in the datacom market with some hyperscale and enterprise computing customers and with our telecom and cable TV customers as well as many abruptly shifted their focus in the quarter for managing their supply chain shortages.

To managing their inventory surpluses.

Speaker 3: These affected our telecom and dataccom businesses about equally.

These affected our telecom and datacom businesses about equally.

Speaker 3: Data com revenues were 294 million compared to 332 million in Q3 of FY 22, and telecom revenues were 245 million compared to two hundred and 22 million, also in Q3 FY 22.

Datacom revenues were $294 million compared to $332 million in Q3 of FY 'twenty two and.

In telecom revenues were $245 million compared to $222 million also in Q3 FY 'twenty two.

Speaker 3: We believe this is a temporary interruption in the growth trajectory of these markets that will continue into FY 20, FY twenty-four.

We believe this is a temporary interruption in the growth trajectory of these markets that will continue into FY 'twenty FY 'twenty four.

Speaker 3: We also believe that the fundamental growth drivers of our communications market are intact, including increasing Internet traffic, the proliferation of network devices and increased broadband in mobile data rates.

We also believe that the fundamental growth drivers of our communications market are intact, including increasing internet traffic the proliferation of network devices and increased broadband and mobile data rates.

Speaker 3: While datacom will be partially affected in the short term by the temporary pullback in investments in infrastructure, including the metavverus.

While datacom will be partial we affected in the short term by the temporary pullback and investments in infrastructure, including the meta versus.

Speaker 3: It is expected to come back, strongly driven by the deployments of hyperscale computing and for artificial intelligence and machine learning.

It is expected to come back strongly driven by the deployment of Hyperscale computing and for artificial intelligence and machine learning.

Speaker 3: In fact, we believe that we are at another inflection point in a decade-long meatrend forming with artificial intelligence in machine learning, and we expect these trends to account for more than half of all data contran shipments by 2020 -eight.

In fact, we believe that we are at another inflection point in a decade long mega trend, forming with artificial intelligence and machine learning and we expect these trends to account for more than half of all datacom transceiver shipments by 2028.

Speaker 3: Despite the current datacom market reset, our industry-leading position in 200 GE and above remains very strong.

Despite the current datacom market reset our industry, leading position in 200 gene and above remains very strong.

Speaker 3: Our leadership in this area derives from the vertical integration of our high-speed lasers, optics and electronics and our transiver module, S and our ability to scale to meet aggressive volume reps of the world's leading data center operators.

Our leadership in this area to rise from the vertical integration of our high speed lasers optics, and electronics, and our transceiver modules and our ability to scale to meet aggressive volume ramps of the world's leading data center operators.

Speaker 3: In addition to the growth of our two hundredg and 400 G dataaccom transceivers, we are accelerating our 800 G shipments in anticipation of exponential growth beginning in FY twenty-four.

In addition to the growth of our 204 hundred <unk> Datacom Transceivers, we are accelerating our 800 G shipments in anticipation of exponential growth beginning in FY 'twenty four.

Speaker 3: In telecom, we are a vertically integrated market leader with our coherent transceivers and disaggregated solutions.

In telecom, we are a vertically integrated market leader with our coherent transceivers and disaggregated solutions.

Speaker 3: Once the growth resumes, we expect all of these products to continue to grow at double-digit percentages annually.

Once the growth resumes, we expect all of these products to continue to grow at double digit percentages annually.

Speaker 3: We continue to invest in a broad product portfolio to address evolving requirements of our customers, who are focusing their resources on developing new platforms, and we are engaged in intense design and activity in response to multiple new opportunities ahead.

We continue to invest in a broad product portfolio to address the evolving requirements of our customers who are focusing their resources on developing new platforms and we are engaged in intense design in activity in response to multiple new opportunities ahead.

Speaker 3: These opportunities in telecom stem from this aggregation and are being increasingly led by hyperscalers who, through their continued buildout of metro, regional and submarine networks, are also driving paradigm shifts in the transport network architecture.

These opportunities in telecom stemmed from disaggregation and are being increasingly led by Hyperscale is who through their continued buildout of Metro regional and submarine networks are also driving paradigm shifts in the transport network architecture.

Speaker 3: With our existing telecom transiver portfolio and our differentiated dssp technology roadmap, we plan to launch the first 100 G coherent solution for network edge applications.

With our existing telecom transceiver portfolio and our differentiated DSP technology roadmap, we plan to launch the first 100 G coherent solution for network edge applications.

Speaker 3: We expect that the planned $65 billion investment and broadband access from the infrastructure investment in jobs Act will be a major catalyst for our optical communications business.

We expect that the planned $65 billion investment in broadband access from the infrastructure investment and jobs Act will be a major catalyst for our optical communications business.

Finally, as space is the new frontier.

Speaker 3: Finally as space is the new frontier, we are seeing a strong increase in demand for our differentiated products for satellite communications.

We are seeing a strong increase in demand for our differentiated products for satellite communications.

Speaker 3: In industrial, our revenues in the quarter were 438 million, down 3% sequentially. However, we saw a sustained strength in semiconductor CA equipment front-end sales, which grew 15% year-over-year and 8% sequentially, and includes our EU V lithography products, whose sales grew 30% sequentially.

In industrial our revenues in the quarter were $438 million down 3% sequentially.

However, we saw a sustained strength in semiconductor cap equipment front end sales, which grew 15% year over year and 8% sequentially and includes our <unk> lithography products, whose sales grew 30% sequentially.

Speaker 3: Lasers for both semiconductor W for inspection and spike and kneeling, set quarterly records and have a strong outlook at least through the rest of the calendar year.

Lasers for both semiconductor wafer inspection and Spike kneeling set quarterly records and have a strong outlook at least through the rest of the calendar year.

Speaker 3: Our leading display customers lowwered their demand outlook by greater than 35% due to a decrease in factory utilization based on lower demand, the lower than four years.

Our leading display customers lowered their demand outlook by greater than 35% due to a decrease in factory utilization based on lower demand the lowest in four years.

Speaker 3: This led to a decrease in our forecasted service business in Korea.

This led to a decrease in our forecasted service business in Korea.

Speaker 4: In the quarter. A big highlight was that our sales of display spar parts into China surpassed those of Korea for the first time, giving a clear sign of market growth in China, even though we see some sluggish demand for mobile devices.

In the quarter, a big highlight was was that our sales of display spare parts into China surpassed those of Korea for the first time, giving a clear sign of market growth in China, even though we see some sluggish demand for mobile devices.

Speaker 3: We expect these short-term consumer demand and inventory-related headwinds will resolve, as we move towards the calendar Q3 release of the next-gen smartphones from industry leaders.

We expect these short term consumer demand and inventory related headwinds will resolve as we move towards the calendar Q3 release of the Nextgen smartphones from industry leaders.

Speaker 4: Such a trend also aligns with the widely announced new Gen eight point five fab investments in China that we believe will drive a strong recovery in our OLED business into calendar year twenty-four.

Such a trend also aligns with the widely announced new Gen. Eight five fab investments in China that we believe will drive a strong recovery in our OLED business into calendar year 'twenty four.

Speaker 4: In the month of March we set in all-time record for sales into the laser aftermarket in North America. We continue to experience strong welding design wins for our kilowatt ARM fiber lasers and our high-yag beam delivery solutions as a result of the acceleration of eving and battery factories around the world.

In the month of March we set an all time record for sales into the laser aftermarket in North America. We continued to experience strong welding design wins for our kilowatt arm fiber lasers, and our high beam delivery solutions as a result of the acceleration of EV and battery fact.

<unk> around the world.

Speaker 4: Instrumentation was up 4% sequentially to 100 to 25 million, as we continue to set records in this market through strength across the Board led by applications in immunology and laser-assisted procedures.

Instrumentation was up 4% sequentially to $125 million as we continue to set records in this market through strength across the board led by applications in immunology and laser assisted procedures.

Speaker 3: Sales of our ultrafasast laser-based advanced imaging systems for neuroscience increased as well, and we had our strongest quarter in scientific since pre-COVID times.

Sales of our ultrafast laser based advanced imaging systems for neuroscience increased as well and we had our strongest quarter in scientific since pre Covid times.

Speaker 4: We shipped our one thousand oust mini laser and we added several new design wins for our light engine solutions, where we combine the lasers and optics that form the engine of our customers' products.

We shipped our 100 thousands over many laser and we added several new design wins for our light engine solutions, where we combine the lasers and optics that form the engine of our customers' products.

Speaker 3: It is our strategy to enable customers to source the entire laser-light illumination side of their systems from coherent, accelerating their time to market, time to quality and time to cost.

It is our strategy to enable customers to source the entire laser light illumination side of their systems from coherent accelerating their time to market time to quality and time to cost.

Speaker 3: We believe that we can grow our revenue in the years to come well ahead of the market by expanding this addressable market.

We believe that we can grow our revenue in the years to come well ahead of the market by expanding this addressable market.

Speaker 3: At the other end of the optical spectrum. We shipped our fiftieth meter class optic for the 30 meter telescope, with more than 150 units to go before completion over the next several years.

At the other end of the optical spectrum, we shipped our 50 meter class optics for the 30 meter telescope with more than 150 units to go before completion over the next several years.

Speaker 4: Meanwhile, the James web telescope continues to send back mindine bending images and we are proud of coherence contributions as the prime supplier of the world's most advanced space and terrestrial imaging systems.

Meanwhile, the James Webb telescope continues to send back mind bending images and we are proud of coherent contributions as the prime supplier of the world's most advanced space and terrestrial imaging systems.

Speaker 3: In electronics, our revenues were 139 million, up 121% year-over-year, led by consumer electronics for sensing.

In electronics, our revenues were $139 million up 121% year over year led by consumer electronics for sensing.

Speaker 4: Our customer intimacy in this market gives us confidence that the long-term opportunity in consumer electronics is much broad of thanadjusted fiixels for three D sensing.

Our customer intimacy in this market gives us confidence that the long term opportunity in consumer electronics is much broader than just fixed for three D sensing.

Speaker 3: However we expect lower revenue from just under 10% to 3% or less of our annual revenues for the next 18% to 24 months, as some design changes take effect.

However, we expect lower revenue from just under 10% to 3% or less of our annual revenues for the next 18 to 24 months as some design changes take effect.

Speaker 4: We believe that sensing will ultimately become ubiquitous in metavverse hardware and wearables, as well as in liidor and other emerging applications.

We believe that sensing will ultimately become ubiquitous and med <unk> hardware and wearables as well as in Lidar and other emerging applications.

Speaker 4: Our strategic engagements are growing across them all.

Our strategic engagements are growing across them all.

Speaker 3: Regarding our outlook that we will discuss today. It reflects a degree of caution around customer buying patterns in the near term.

Regarding our outlook that we will discuss today.

It reflects a degree of caution around customer buying patterns in the near term.

Speaker 4: While June was traditionally legacy two six's strongest quarter, the macro factors we are experiencing, along with seasonality, will result in lower revenues sequentially.

While June was true.

Traditionally legacy <unk> is strongest quarter the.

The macro factors, we are experiencing along with seasonality will result in lower revenues sequentially.

Speaker 4: We will continue to stay focused on cost controls, synergy realization and cash generation, while we align our cost to market realities.

We will continue to stay focused on cost controls synergy realization and cash generation, while we align our cost to market realities.

Speaker 3: We will work to restructure and transform the company and position our product portfolios for sustainability to enable timely resumption of our growth as the market turns up.

We will work to restructure and transform the company and position our product portfolios for sustainability to enable timely resumption of our growth as the market turns up.

Speaker 4: Our synergy and restructuring plans will further enhance our competitive position by driving greater scale and focus at existing sites and affording increased flexibility and efficiency, product roadmap alignment and access to lower cost structures.

Our synergy and restructuring plans will further enhance our competitive position by driving greater scale and focus at existing sites and affording increased flexibility and efficiency.

Product roadmap alignment and access to lower cost structures.

Speaker 4: We have completed a rigorous analysis of these plans, a careful assessment of the effects on our people, and believe that these moves will position us to achieve both short and long-term commitments.

We have completed a rigorous analysis of these plans a careful assessment of the effects on our people and believe that these moves will position us to achieve both short and long term commitments.

Speaker 3: With respect to our silicon caryide business. It grew more than 40% year-over-year.

With respect to our silicon carbide business.

Grew more than 40% year over year.

Speaker 4: This business continues to be one of our top priorities.

This business continues to be one of our top priorities.

Speaker 3: Therefore our equipment investments in the silicon carabbide platform expansion were again about half of our total capital investment.

Therefore, our equipment investments in our silicon carbide platform expansion, we're again about half of our total capital investment.

Speaker 3: The market is showing signs of a prolonged period of severe capacity constraints forming.

The market is showing signs of a prolonged period of severe capacity constraints forming.

Speaker 4: We are extremely well positioned, as we have steadily gained share, and then what we believe will be an underserved market for many years to come.

We are extremely well positioned as we have steadily gained share and then what we believe will be an underserved market for many years to come.

Speaker 4: We are increasingly asked by our customers to support a continuously increasing demand.

We are increasingly asked by our customers to support our continuously increasing demand.

Speaker 3: And we have also often been asked by investors what our game end game is for this business.

And we have also often been asked by investors what our game and game is for this business.

Speaker 4: Even with the $1 billion investment over 10 years that we announced in August of 2021 and.

Even with the $1 billion investment over 10 years that we announced in August of 2021 the.

Speaker 4: The gap between projected supply and demand is accelerating, and so we now believe that the market leader who emerges will be the incumbent who is able to timely close the gap and serve the market needs.

The gap between projected supply and demand is accelerating and so we now believe.

But the market leader, who emerges we'll be the incumbent who was able to timely close the gap and serve the market needs.

Speaker 4: This will require a relentless focus on operational excellence and the results orientation that is a natural part of our company culture, and it will also require an even greater commitment to investment.

This will require relentless focus on operational excellence and the results orientation that is a natural part of our company culture and it will also require an even greater commitment to investment.

Speaker 3: We see a unique opportunity to further accelerate our growth through either accelerated investment and or deeper strategic partnerships.

We see a unique opportunity to further accelerate our growth through either accelerated investment and or deeper strategic partnerships.

Speaker 4: To that end, we have commenced the review of the strategic alternatives for our silicon carbyide business.

To that end, we have commenced the review of the strategic alternatives for our Silicon carbide business.

Speaker 3: This review is focused on effectively serving the market at the same time, while maximizing long-term shareholder value for our coherent shareholders by considering a range of potential alternatives.

This review is focused on effectively serving the market at the same time, while maximizing long term shareholder value for our coherent shareholders by considering a range of potential alternatives.

Speaker 4: These include a sale.

These include a sale.

Speaker 4: Joint venture minority investment were simply staying the course with the continued execution of our business plan.

Joint venture minority investment, we're simply staying the course with the continued execution of our business plan.

Speaker 4: We remain firmly committed to our customers, employees and our shareholders.

We remain firmly committed to our customers employees and our shareholders.

Speaker 4: And will continue to invest in capital, capacity and technology innovations, including expanding our portfolio So as to become a full-line supplier of silicon carrobide power devices and modules.

And we will continue to invest in capital capacity and technology innovations, including expanding our portfolio. So as to become a full line supplier of silicon carbide power devices and modules.

Speaker 4: We can give no assurances as to the outcome of this process and, following our QA session today, we do not intend to make any further public comment regarding this matter until we have a material development to disclose. With that, I'll turn it over to Mary JE, Mary Jane.

We can give no assurances as to the outcome of this process and following our Q&A session. Today, we do not intend to make any further public comments.

Regarding this matter until we have a material development to disclose.

With that I'll turn it over to Mary Jane Mary Jane.

Speaker 2: Thank you, Chuck our backlog of two point six billion landed as we expected it would.

Thank you Chuck our backlog of $2 6 billion landed as we expected it would.

Speaker 2: Our Q3 non-GAAP gross margin was thirty-seven point 3% and the non-GAAP operating margin was 18%. Supply chain costs were minimal in Q3.

Our Q3 non-GAAP gross margin was 37, 3% and the non-GAAP operating margin was 17, 5% <unk>.

Supply chain costs were minimal in Q3.

Speaker 2: At segment level the non-GAAP operating margins were 14% for networking 28% for materials and 15% for.

At the segment level. The non-GAAP operating margins were 13, 6% for networking 27, 5% for materials and 14, 6% for lasers.

Speaker 5: Lasers.

Speaker 5: During the quarter. With the sudden downturn in revenue, we carried approximately $15 million of underabsorbbed capacity and the gross margin was also affected by $8 million in FX and $7 million due to mix.

During the quarter with a sudden downturn in revenue, we carried approximately $15 million of under absorbed capacity and the gross margin was also affected by $8 million in FX and $7 million due to mix.

Speaker 2: Our operating expenses- SGNA plus R and day, were 20% of sales on a non-GAAP basis. The non-GAAP items were 62 million in amortization, 29 million in stock com and 16 million of transaction and integration costs. Total stock com is expected to be 26 to three million in Q4.

Our operating expenses SG&A, plus R&D were 19, 8% of sales on a non-GAAP basis the non.

non-GAAP items, or <unk>, 62 million and amortization $29 million in stock comp and $16 million of transaction and integration costs.

Total stock comp is expected to be $26 million to $30 million in Q4.

Speaker 2: Synergies have now reached $66 million on an annualized basis, and we are making good progress in all categories.

Synergies have now reached $66 million on an annualized basis, and we are making good progress in all categories.

Speaker 2: With respect to further details on our cost savings actions.

With respect to further details on our cost savings actions, our $100 million to $125 million of targeted cost reductions are in addition to our $250 million of cost synergies.

Speaker 2: Our 100 to 100 and twenty-five million of targeted cost reductions are in addition to our 25 million of cost synergies.

Speaker 2: These cost reductions are expected to be at least 130 by fiscal year twenty-seven and.

These cost reductions are expected to be at least 130 <unk> fiscal year 2007.

Speaker 2: The FY 23 through 25, cumulative savings are expected to be between $20.3 billion and the cost to achieve them are approximately 150 to two million, including severance retention, new net labor costs in the lower cost locations, facility moves, short term duplicate costs and lease termination cost along with it consolidation.

FY2023 through 25 cumulative savings are expected to be between 200 $300 million.

And the cost to achieve them are approximately 150 to 200 million, including severance.

Retention.

New net labor costs, and the lower cost locations.

<unk> move short term duplicate costs and lease termination costs along with consolidation.

Speaker 2: Quarterly non-GAAP EPS was 58 cents against a diluted share count of 141 million shares.

Quarterly non-GAAP EPS was <unk> 58.

Against a diluted share count of 141 million shares.

Speaker 2: Gaap and non-GAAP EPS calculations are on tables six and seven of our press release.

GAAP and non-GAAP EPS calculations are on table, six and seven of our press release intra.

Speaker 2: Interest expense in the quarter with $75 million and for the nine months ended March. thirty-first interest expense was two hundred eight million.

Interest expense in the quarter was $75 million and for the nine months ended March 31 interest expense was $2 8 million.

Speaker 2: Our total interest cost for fiscal year 23 is expected to be 25.281 billion to two hundred and eighty-four million.

Our total interest cost for fiscal year 'twenty three is expected to be 250.

$281 million to $284 million.

Speaker 6: The March.

The March 31 cash balance was $901 million, just $12 million below the 12 31 balance after.

Speaker 2: 30 first cash balance with $901 million, just 12 million below the 12 30 one balance. After paying down 78 million of debt in Q3, our total debt position on March 30 first was $4.5 billion.

After paying down $78 million of debt in Q3, our total debt position on March 31 was $4 $5 billion.

Speaker 2: Using the trailing 12 months of adjusted EBITDA on a pro forma basis for the combined company. At March 31, the gross leverage was three and a half X and the net leverage was two point eight X, with the synergy credit including the cost savings and the synergy credit of three hundred and 12 million dollars.

Using the trailing 12 months of adjusted EBITDA on a pro forma basis for the combined company at March 31.

The gross leverage was three five times and the net leverage was two eight times with the synergy credit.

Including the cost savings and the synergy credit of $312 million.

Speaker 2: That is allowed by our credit facility definition, the gross leverage.

That is allowed by our credit facility definition.

Gross leverage.

Speaker 2: Is two point nine times.

Is two nine times.

Speaker 2: And the net leverage is two point three times.

And the net leverage is two three times.

Speaker 2: Note that the 38 million of synergies are already in the results.

Note that the $38 million of synergies are already in the result.

Speaker 7: Hi.

Speaker 2: The total of 312 and 38 million equal 3: 50 the additional one month. one hundred million of savings is worth two tenths of a turn on leverage. Let me just restate the the leverage without the synergy credit as of March 30. first the growth leverage was three and a half times and the net leverage was two point eight times without the synergy credit.

The total of 312 and $38 million equal $3 50, the additional $100 million of savings is worth two tenths of a turn on leverage.

Let me just restate that.

The leverage without the synergy credit as of March 31, the gross leverage was three five times and the net leverage was two eight times without the synergy credit with the synergy credit. It's two nine times gross and the net leverage is two three times.

Speaker 2: With the synergy credit it's two point nine times gross and the net leverage is two point three times first, two point three times now.

Two three times net.

Speaker 2: Our effective tax rate in the quarter was 154% and the non-GAAP tax rate for the quarter was 19% the.

Our effective tax rate in the quarter with 154% and the non-GAAP tax rate for the quarter was 19%.

Speaker 2: We expect the tax rate for fiscal year 23 to be between thirty and.

We expect the tax rate for fiscal year 'twenty three to be between 30.

Speaker 2: To 32%, assuming the current mix of earnings and no adoption of new or additional tax release.

To 32%, assuming the current mix of earnings and now adoption of new or additional tax relief.

Speaker 2: Turning to the outlook for Q4, FY twenty-three.

Turning to the outlook for Q4, FY2023.

Speaker 2: Our outlook for revenue for the fourth fiscal quarter ending June thirtieth 2023 is expected to be one point one two five billion to one point one seven five billion, and earnings per share on a non-GAAP basis to be thirty three.

Our outlook for revenue for the fourth fiscal quarter ending June 32023 is expected to be 112, 5 billion to $1 175 billion and earnings per share on a non-GAAP basis to be 33, <unk> 43 per share.

Speaker 2: 43 cents per share.

Speaker 2: On a full year basis, our revenue outlook is five point zero eight to five point one five billion.

On a full year basis, our revenue outlook is 5.08 to $5 one 5 billion.

Speaker 2: Our non-GAAP .

Our non-GAAP.

Speaker 2: Eps estimate assumes that the preliminary effects of purchase accounting are added back to the GAAP EPS other than the depreciation. That is $5 million per quarter.

The estimate assumes that the preliminary effects of purchase accounting.

<unk> added back to the GAAP EPS other than the depreciation that is $5 million per quarter.

Speaker 5: The share count is 142 million shares for the entire non-GAAP EPS guidance range and both Series a and B are antidilutive. This means Series a AMB dividends should be deducted from net income and the share should not be included in the share count.

The share count is 142 million shares for the entire non-GAAP EPS guidance range and both series a and B are anti dilutive. This means serious A&P dividend should be deducted from net income and the share should not be included in the share count.

Speaker 2: The EPS calculation, including the dividend even, is detailed on table eight of the press release for the guidance range. This table also shows the earnings at which the Series B preferred stock is dilutive.

The EPS calculation, including the dividend treatment as detailed on table eight of the press release that the guidance range. This table also shows the earnings at which the series B preferred stock is dilutive.

Speaker 5: All of the foregoing is at today's exchange rates.

All of the foregoing is at today's exchange rates.

Speaker 2: For the non-GAAP earnings per share, we add back to the GAAP earnings pretax amounts of 190 to 2: 10, including 95 million in amortization, 27 million in sto comp and 70 to eight million for integration. On M restructuring, the actual dollar amount of non-GAAP items, the tax rate, the exchange rates, the purchase price accounting and the share count are all subject to change.

The non-GAAP earnings per share, we add back to the GAAP earnings pre tax amount of 190 to 210.

Including 95 million and amortization $27 million in stock comp and $70 million to $80 million for integration and restructuring.

The actual dollar amount of non-GAAP items, the tax rate exchange rates, the purchase price accounting and the share count are all subject to change.

Speaker 5: As a reminder, our answers today may contain forecasts from which our actual results may differ materially due to a variety of factors. These include changes in mix, customer requirements, supply chain availability, competition and economic conditions, to name a few.

As a reminder, our answers today may contain forecasts from which our actual results may differ materially due to a variety of factors.

These include changes in mix customer requirements supply chain availability competition and economic conditions to name a few.

Speaker 2: With that Kevin, you may open the line.

With that Kevin you May open the line.

Speaker 2: For questions. Actually, let me let me amend one last thing. In our guidance range, the add back are 95 million in amortization, 20 fiveseven million in stock com and 70 to 85 million for integration on restructuring. All right then Kevin, you can open the line for questions.

For questions actually let me, let me and then one last night in our guidance range the add back.

Our $95 million and amortization of $27 million in stock comp and 70% to $85 million for integration and restructuring.

Alright, then Kevin you can open the line for questions.

Speaker 1: Ladies and gentlemen, if you have a question or comment at this timeue, please press star 1- one on your telephone. If your question is but answered, you wish with yourself from the queue, please press star 1- one again. We'll papass for a moment while becomecomppolll Q a roster.

Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your 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.

Speaker 1: The first question comes from manda brhow would capital your line is open.

Our first question comes from Ananda Baruah with loop capital Your line is open.

Speaker 8: Hi good Morion guys really appreciate TA taking the questions here. I guess, just to start, this could be for both Chuck and Mary Jay.

Hi, good morning, guys.

Relative appreciate taking the taking the questions here.

Just this slide this can be for both Chuck and Mary Jane.

Speaker 8: How how are you thinking? Well, I guess, how would you?

Are you thinking I guess how are you.

Speaker 8: Describe sort of visibility as you think about it, and then also you sort of regards the backlog. How are you are, are you relating to the backlog now? Do you think of it, and you differently that you did 90 days ago? And then I have a quick follow-up.

Describe sort of visibility.

As you think about that and then also.

And you said that with regards to backlog.

How are you how you're relating to the backlog that you would think of it any differently than you did 90 days ago, and then I have a quick follow up thanks.

Speaker 4: The backlog is still strong.

That backlog is still strong.

Speaker 9: The customers are definitely changing their ordering patterns given the short to lead times and their work off onund inventory. That's not all of them, but that's a general theme.

Yes.

<unk>.

The customers, who are definitely changing their ordering patterns given the shorter lead times and.

Yes.

Their work off on inventory thats, not all of them, but that's a general theme.

Speaker 3: And I'm still feeling pretty good about it, at least for the next couple of quarters.

And I'm still feeling pretty good about at least for the next couple of quarters.

Speaker 10: Got it and I shall'll make this one my follow-up Chuck. I guess that is to say you guys have describe the backlog for a while now is a high-quality backlog and so it sounds like that's still your opinion and, while orders may be getting moved around, sounds like I guess is it fair to say you're not seeing significant cancellation, that it's more like push out in, reorder the timing of the backlog orders.

Got it and actually I'll make this one of my follow up shop.

That is to say you guys have described the backlog for a while now as a high quality backlog.

So it sounds like that's still your opinion and while orders may be getting moved around.

Sounds like I guess is it fair to say youre not seeing significant cancellations, it's more like push outs in reordering of timing of that.

Backlog orders thanks.

Speaker 5: That's right. We are not seeing any significant cancellations and, in fact, the main thing that is moving in the backlog is, as we mentioned, is that customers are returning to more typical order patterns. So when some markets that may be 13 weeks visibility or 26 weeks visibility, whereas during the period of intensive supply chain shortages, some customers had visibility for us out as long as a year in order that we could share that with the suppliers.

That's right we are not seeing any significant cancellations and in fact, the main thing that is moving in the backlog is as we mentioned is the customers are returning to more typical order pattern patterns. So in some markets that may be.

13 weeks visibility, our 26 weeks visibility, whereas during a period of intensive supply chain shortages, some customers had visibility for us out as long as a year in order that we could share that with the suppliers.

Speaker 10: I got it. thankfulso I got a cheaper- helpful for.

Got it thanks, a lot guys see perhaps onshore.

Speaker 1: Our next question comes from Simon Leopold. With all REN James, your line is open.

Our next question comes from Simon Leopold with Raymond James Your line is open.

Speaker 11: Thanks for taking a question. The first one I want to ask is's more of kind of a a philosophical 1: is you don't today you didn-'t, to preannounce the corner that was below your guidance? Just wondering sort of how you think about that from a policy perspective? And then, in terms of my follow up, I'll last both nownounce, because first one's pretty easy is when, when we think about the, the tren, you think that June as sort of setting a bottom in based on everything you see today, I understand it could change.

Thanks for taking the question first of all I wanted to ask it's more kind of a philosophical one is.

Yes.

Results today.

You didn't.

Good quarter.

It was below your guidance.

Just wondering sort of how you think about that from a policy perspective, and then in terms of.

My follow up I'll ask both now because the first one is pretty easy is when we think about that.

The trend.

You think of June as sort of getting a bottom and based on everything we see today I understand it could change.

Speaker 12: If think is the bottoming, how long do you think it to last? Thank you.

It is a bottoming how long do you think it could last thank you.

Speaker 2: So with respect to the pre andnounced, we determined that our best message was delivered in connection with a full earnings call in the Qi, as well as the discussions that we have with many of you. So So we did think about that very carefully and that was the conclusion we came to. So I'm sorry, it was a second part of your question. You were asking how long do we expect the bottom to last?

So with respect to the pre announce.

We determined that our best.

Message was delivered in connection with our full earnings call in the Q&A as well as the discussions that we have with many of you. So we just think about that very carefully and that was the conclusion, we came to Simon I'm sorry. It was the second part of your question you are asking how long do we expect the bottom to last was that it.

Speaker 13: Was that it?

Speaker 11: More or less. Yes, I guess it's two part in. That is sort of June setting a bottom, and then how long do we expect this phase last?

More or less yes, I get it.

Two parts in that is sort of June setting a bottom and and then how long do we expect the phase last.

Speaker 3: Well Simon, as I said, I expect it to last into FY' twenty-four.

Simon.

As I said.

I expect it to last into FY 'twenty four.

Speaker 4: I'm not prepared to say in which quarter. In FY 24, do I think an inflection point takes place?

I'm not prepared to say and which quarter in FY 'twenty forward, though I think an inflection point takes place.

Speaker 4: We're preparing to have at least this level of demand and probably a little bit of upside that we're working to get.

Preparing to have at least this level of demand and probably a little bit of upside that we're working to get <unk>.

Speaker 3: For at least another one or two quarters at least.

At least another one or two quarters at least.

Speaker 14: Thank you.

Thank you.

Speaker 1: The next question comes from Jed dors arperor. William Bla, your line is open.

Our next question comes from Jed <unk> with William Blair. Your line is open.

Speaker 15: Thanks and thanks for taking my question. I guess. First 1- maybe Chuck, is a follow up to that previous. You know it looks. Is this: everything that's kind of tied to consumer, whether directly or directly, is kind of you know where you're seeing the biggest or the the quickest slowdown. I eat display Ed and and I guess is. Is you think about the credit market that have largely seized in?

Okay. Thanks, and thanks for taking my question I guess first one maybe Chuck.

As a follow up to that previous.

It looks as depth everything that kind of tied to consumer.

Whether directly or indirectly.

Where youre seeing the biggest or the quickest slowdown I E display OLED and.

And I guess is is you think about the credit market that have largely seized in.

Speaker 16: You know unlikely to open and which is probably the visibility I guess what would? Is you think about shifting priorities within your business? Is that how you're thinking about that comment in terms of you know, bouncing off of what may be a bottom, or are you anticipating sort of a, a return in that display side of the business, maybe by my microalities?

Unlikely to kind of open.

It's probably the visibility.

What would you think about shifting priorities within your business.

Is that how youre thinking about that comment in terms of.

Bouncing off.

What may be a bottom.

Or are you anticipating sort of a return in that display side of the business maybe by micro Leds.

Speaker 17: And I have a phoneem.

Speaker 4: Not okay Mark, do you want to take that?

I have a follow up.

Okay, Mark do you want to take that.

Okay.

Speaker 18: Your chart. Can you hear me, okayyes?

Sure.

Can you hear me okay, yes.

Speaker 18: Yes So we definitely saw a softening, as Chuck mentioned, in the, specifically the this our service business of Korea. We do clearly see. You know, if you, everything we read from other people's quarterly reports is clearly we're seeing, you know, some flowing and willbyile demand from display inventory adjustment was at the end users as well as at our customers.

Yes, so we definitely saw a softening as Chuck mentioned in the specifically the.

Our service business.

Korea.

You clearly see.

Everything we read from other People's quarterly reports, it's clearly we're seeing some slowing in mobile demand.

Display inventory adjustment for the end users as well as at our customers.

Speaker 18: So we definitely see that today. We would expect, you know seasonally, with most of the the leading smart when manufacturer launch new products in our firstth quarter in the in the July to September time frame. So we would expect to see that come back and we usually get pretty kind of quality build towards the end of the year. So I think, certainly on the- speaking specifically to the display I we definitely would expect that to become what come recover somewhat the second half of the year.

So we definitely see that today, we would expect.

Seasonally.

Most of the leading smartphone manufacturers launch new products, and our fourth quarter and the <unk>.

The September timeframe.

We expect to see that come back and we usually get quality build for the end of the year. So.

I think certainly on the speaking specifically to the display side.

We definitely expect that to come out.

To recover somewhat in the second half of the year, but your observation that it is.

Speaker 18: But your observation that it's, you know, tied broader to consumer, I think it's pretty accurate.

Broader to consumer I think is pretty accurate.

Speaker 2: What I would say J had though, is that, for the third quarter, the actual largest drop- that was at least not as we expected- was in communications. We had expected consumer, at least on the consumer electronics side, the smaller electronics, let's call it. We had expected a seasonal decline in that, but it was actually communications that.

What I would say Jud, though is that for the third quarter the actual largest drop.

That was at least not as we expected within communications, we had expected consumer at least on the.

Consumer electronics side, the smaller electronics, let's call. It we had expected a seasonal decline in that but it was actually communications that felt very very quickly in the quarter.

Speaker 2: Very very quickly in the court.

Speaker 19: Got it. That's helpful. Thank you for the color. As my follow-up question, just as it relates to the strategic, your strategic review of the sililicon car by business. I'm curious: have you secured strategic- how should I say this, I guess- materials like graphite, for example? You have a pretty aggressive buildout plan of the billion dollars over the next 10 years and I'm just wondering if, from a supply chain, you if kind of removed any potential barriers.

Got it that's helpful. Thank you for the color as my follow up question just as it relates to the strategic your strategic review of the Silicon carbide.

Business I'm curious.

Have you.

Secured.

Yes.

It's strategic.

How should I say that.

I guess materials like graphite for example, you have a pretty aggressive build out plan of the $1 billion over the next 10 years and I'm just wondering if.

From a supply chain you.

Kind of removed any potential barriers that as you think about that strategic review might might be helpful. Thanks.

Speaker 16: That, as you think about that strategic review might, might be helpfulthank.

Speaker 4: No and thank you, Jen you, you got it. We pay a lot of attention to the supply chain, and it involves both the equipment that we need for the expansion of the crystal growth operation as well as the critical and strategic raw materials. We have a full court press on that as a matter of course. We've had that for years and we'll maintain that all the way up, all the way up the curve.

Thank you Jed.

You got it we pay a lot of attention to the supply chain and it involves both the equipment.

That we need for the expansion of our crystal growth operation as well as the critical strategic raw materials, we have a full court press on that as a as a matter of course, we've had that for years and we'll maintain that all the way up all the way up the curve.

Speaker 20: Thank you, our next question. Our next question comes from Jim mershy. With need aaccompany, your line is open.

Thank you.

Yes.

Our next question. Our next question comes from Jim Ricchiuti with Needham <unk> Company. Your line is open.

Hi, Thank you.

Speaker 21: Thank you. Just a question on the industrial and particularly on the semiccap side. It looks like you're still seeing fairly strong trends in that business, which is a little bit counter to what some other folks are're seeing. What's your line of sight as you think about that? The semic portion truuck over the next couple of quarters.

Just a question on the.

Industrial and particularly on the semi cap side, it looks like Youre still seeing fairly strong trends in that business, which is a little bit.

Counter to what some other folks are seeing what's your line of sight as you think about that the semi portion Chuck over the next couple of quarters.

Speaker 4: I think Jim, we definitely we had a real strong quarter in Q3. We thought that even even the forecast that we had by a little bit, I think the the back end of the line will continue to be move a a little, a little backward and maybe a little bit forward. I think that's the place where we're going to see things slide to the right a little little longer.

Yes.

Thank you Jim we definitely.

We had a real strong quarter in Q3.

We ask that even even if the forecast that we have by a little bit.

I think the.

The back end of the line, we will we will continue to be.

I mean, you don't move a little a little a little backward and maybe a little bit forward I think thats the place, where we're going to see things slide to the right a little longer.

Speaker 4: But the front end of the line, in our ability to serve, it seems to have just a steady, steady demand. I don't see that driving any change to our, our underlying business for a semiccap equipment. So in summary, front end, full speed ahead. The back end of the line for inspect laser away for inspection. That's the place where I think we could see some softness in the next one or two quarters.

But the front end of the line.

Our ability to serve it seems to have just the steady steady demand I don't see that draw.

Driving any change to our.

Our underlying business for our semi cap equipment. So in summary front end.

All speed ahead, the backend on line for inspect laser wafer inspection.

That's the place where I think we could see some softness in the next one or two quarters.

Speaker 15: Got it and maybe just a clarification on a previous question and just showing make sure I'm understanding this correctly the improvement that you.

Got it and maybe just a clarification on.

Previous question I, just want make sure.

I understand this correctly the improvement that you.

Speaker 15: I think are suggesting in the display business, with utilization in the second half of the calendar year. Yes, you have somewhat unique line of sight because you have some line of sight with your consumer electronics customers and you're having conversations, obviously on the OLED side, with your customers in Korea and China. Is this consistent with what you're hearing from both customers, if you will, in terms of some increase in utilization and some improvement in the second half of the calendar year and that part of the business?

I think our suggesting in the display business with utilization.

The.

Second half of the calendar year, Yes, you have.

Somewhat unique line of sight, because you have some line of sight with your consumer electronics customers and Youre, having conversations obviously.

<unk> side with your.

Customers in Korea, and China is this.

Consistent with what Youre hearing from both customers.

You will in terms of some increase in utilization and some improvement in the second half of the calendar year at that part of the business.

Speaker 4: Yes that's mark- to add some color to it- about what we're expecting in the fork.

Alright, Thats mark to add some color to it.

What we're expecting in the fourth.

Speaker 18: Yes I think the statement was. I think the way the statement was phrased as accurate. We're certainly dadding indications from our customers that would indicate to us that it would be a certainly in the utilization and service demand in the second half of the calendar year or the first half of our FY twenty -four.

Yes, I think the statement was I think the way.

We're certainly getting indications from our customers.

Okay.

So when we provide those services.

Half of calendar year.

The first half.

Oklahoma plentiful.

Speaker 20: Yes Thank you.

Got it thank you.

Speaker 1: Our next question comes from Christopher rollland with. tusquehaniorline is open.

Yes.

Our next question comes from Christopher Roland with Susquehanna. Your line is open.

Speaker 22: Hey guys, thanks for the question. I know you CAn't talk too much about strategic plans for sick, but I did want to know a little bit more about it. Just broad strokes and what. Why you guys want to partner versus going in alone. Is it the sheer amount of capital that's involved or is it kind of sharing the load of potential risk involved? Or is it really more looking for like a large captive customer to use the material?

Hey, guys. Thanks for the question.

I know you can't talk too much about strategic plans for <unk>.

But I did want to know a little bit more about it just broad strokes.

Why are you guys want to partner versus going it alone.

Is it the sheer amount of capital that's involved or is it kind of sharing the load of potential risk involved or is it really more looking for like a large captive customer to use the material just broad strokes wondering why the partnership and the change there.

Speaker 22: Just broad strokes, wondering why the partnership and the change there.

Speaker 3: Okay ask Bob to address it, but I would say we have large captive customers already and more trying to get more of our mindine share and our capacity. Bob Bob, would you address the rest of the question? Please get short. Thank you, Chris. Well, first of all, we are bullish on this, our bide market in general, and what we're seeing is that the market demand is not only growing but it's accelerating, So the growth is accelerating.

Okay, I'll ask Bob to address it but I would say, we have large captive customers already and more trying to get more of our mind share and our capacity.

Would you address the rest of the question. Please yes sure. Thank you Chris well first of all we are bullish on the silicon carbide market in general.

And what we're seeing is that the market demand is not only growing but it's accelerating so the growth is accelerating.

Speaker 22: We are at an inflection point.

We are at an inflection point.

Speaker 22: And the industry, we believe, is supply constraining today and will remain So. So, given the increased pace of the market, we think that now is the right time really to look atall of our strategic options. And I say a lot of the things that you you mentioned, our for sure things that are on our mind, both the amount of capital investment, the opportunity of bring strategic partners to the table to help both with that financial responsibility and with strategic alternatives as we think through where the businesses is going to go.

And the industry. We believe is supply constrained today and will remain so so given the increased pace of the market. We think that now is the right time really to look at all of our strategic options and I would say a lot of the things that you mentioned are for sure things that are on our mind, both the amount of capital investment the opportunity to.

Our strategic partners to the table to help.

With that financial responsibility and with strategic.

Strategic alternatives as we think through where the business is going to go. So all of those are on our minds.

Speaker 22: So all of those are are on our mindsthe thing that we are doing now, and we think is the right thing to do, is to start a formal process and really think good hard, look at all of our options and then read and react against those opt options and do the right thing to serve the market and to address our shareholder value.

The thing that we are doing now and we think is the right thing to do is to.

Start a formal process and really take a good hard look at all of our options.

And then read and react against those options.

And do the right thing to serve the market and two.

The address our shareholder value.

Speaker 23: Yeah I think that's that's really interesting. I' looking forward to seeing what comes of it.

Yes, I think that's really interesting.

Looking forward to seeing what comes of it.

Speaker 16: Your inventory is a little elevated, around 160 plus days. I was wondering about kind of utilizations or under utilizations. And then you kind of talked about some footprint consolidation as well. How should we think about that and how should we think about that affecting overall company utilizations when you're Tal?

Your inventory is a little elevated.

Around 160 plus days.

I was wondering about utilizations.

Utilizations or under Utilizations.

And then you kind of talked about some footprint consolidation as well how should we think about that and how should we think about that affecting overall company utilizations when youre talking.

Speaker 2: So with respect to the inventory being somewhat elevated we have a plan that is very strict and actually led by Chuck to actually get that inventory down So we ourselves think the inventory is elevated and it is very very important to continue to drive to bring that down with respect to the footprint consolidation which as you're correct does have CAn't have an effect on the inventory level there is no question that the consolidation of certain sites will help the utilization of our manufacturing floor space to a very very good extent that's in a very.

So with respect to the inventory being somewhat.

Elevated we have a plan that is <unk>.

A very strict and actually led by Chuck to actually get that inventory down.

We ourselves.

The inventory is elevated and it is very very important to continue to drive to bring that down with respect to.

The footprint.

Consolidation.

Which youre correct does have a can have an effect on the inventory level.

There is no question that the consolidation of certain sites will help the utilization of our manufacturing floor space to a very very good extent, that's a very important goal here.

Speaker 2: Important goal here.

Speaker 23: Great thanks for much I. I don't know if you could put any numbers to that or not, but but Thankyou.

Great. Thanks, so much I don't know if you could put any numbers to that or not but.

Yes. Thank you.

Speaker 5: I'm not in a position to put numbers to actual utilization just at this point in time. I mean, obviously with the lower demand for this quarter we have a lower utilization, So we would be coming off an artificially low base. But that is a good question. I'll think about that and see if we can answer that subsequently.

Not in a position to put numbers to actual utilization just at this point in time.

Obviously with the lower demand for this quarter, we have a lower utilization. So we would be coming off an artificially low base, but.

That is a good question I'll think about that and see if we can answer that subsequently.

Speaker 24: Thanks guys.

Thanks, guys.

Speaker 1: Our next question comes from semic strategy with JP. More can chase, your line is open.

Our next question comes from Sam <unk> with Jpmorgan Chase Your line is open.

Speaker 20: Thanks for taking questions. Just on the first 1, most of the demand challenges you are highlighting today on the networking side where, wellleable of the inventory situation on in the other segments, there is a bit of consumer demand, So a lot of them sound cyclical or other industry players have called them out as more cyclical, and i'am just trying to match that up with your restructuring plans, which will obviously be multi or sort of restructuring efforts and which is more suggestive for structurally lower demand that you see for some of the segments.

Hi, Thanks for taking.

<unk>.

The first one.

Most of the demand Kevin Disney'll, highlighting today on the networking side of it available it will be inventory situation.

In the other segments, there is a bit of consumer demand. So a lot of them sound cyclical or other industrial players have called them out as more cyclical and I'm just trying to match that up with your restructuring plans, which will obviously be more deals sort of restructuring effort, which is mostly just to have a full structurally lower demand that you see puts all of the segments or should I read.

Speaker 20: Or should I really be interpreting this as this is a sort of a cost improvement that you needed to enact any ways and what contemplated, and maybe macro, is just sort of driving or triggering to take those actions sooner? Then you would have ideally taking them and I have followed. Thank you.

Integrating this.

As a setup of cost improvement that you needed to enact any ways and whats going to complete it in maybe the macro is just sort of driving a triggering to take those actions sooner than you would have ideally taking them and I have a follow up thank you.

Speaker 2: Yes something that your latter point, that we were contemplating these all along and in some cases were contemplated by the laser segment even before the acquisition, and we've just chosen to accelerate them.

Yes.

Your latter point that we were contemplating these all along and in some cases were contemplated.

By the laser segment, even before the acquisition and we've just chosen to accelerate them.

Speaker 5: So that is 100% correct and I'll do your follow-up.

So that is 100% correct.

And I will take a follow up yes.

Speaker 20: And the second was quick- is essentially, when I think about your synernogy plans and then sort of the additional restructuring plans, is it fair to assume that the additional restructuring base savings would be more in the networking and the material segments and less impactful on our sort of incremental basis to lasers? Is that the right? We are thinking about it.

The second was quick.

Certainly when I think about your.

Synergy plans and then sort of the additional restructuring plans is it fair to assume that the additional restructuring.

Things would be more in the Nic looking in the materials segment and less impactful on a sort of incremental basis can lasers is that the right way of thinking about it.

Speaker 2: I would say that it's actually across all three segments, But given that we already have 250 in the synergies between the laser segment and the rest of the company than the larger portion of the new restructuring savings yes, probably does fall on the other 2, but the restructuring does affect all three segments.

I would say that it's actually across all three segments, but given that we already have two.

250, and the synergies between the laser segment in the rest of the company than the larger portion of the new restructuring savings, yes, probably does fall on the other two but the restructuring does affect all three segments.

Speaker 20: Thank you. Thanks for eight M ort.

Thank you thanks for taking my chart.

Speaker 1: My next question comes from Sydney hoall. Like your bank, your line is open.

Our next question comes from Sidney Ho with Deutsche Bank. Your line is open.

Speaker 8: Okay Thank you. In the past you guys talked about backlog normalizing to this two point five, two point $6 billion level and it looks like the normalization process is happening faster than at least we previously expected. Does that in your guidance, you're assuming no more additional work? downlog this excess backlog? Then how about, if you just look at the 12: one backlog, because I know some of the orders are more than 12 months?

Great. Thank you.

In the past you guys talked about backlog normalizing to this 252 $6 billion level and it looks like the normalization process is happening faster than we previously expected does that mean in your guidance, you're assuming no more additional work download this access backlog and how about if you just look at the 12 month backlog because I know some of the order.

More than 12 months.

Speaker 5: So on the first part of your question actually, I think what I said is that we expected the backlog to land in the 2, four to 2, five range. So it may well be that it is a little bit faster, but I don't think that we've reached the level that we think could be the running backlog at two point four to two point five And I'm sorry said, I did not quite understand your second part.

So on the first part of your question actually I think what I said is that we expected the backlog to land in the two four to two five range.

It may well be that it is a little bit faster, but I don't think that we have reached the level that we think could be the running backlog at two 4% to five and I'm, sorry, I did not quite understand your second part.

Speaker 8: The the second part is: I understand this.

Yes, the second part is I understand that you.

Speaker 8: You have A. you have orders in the backlog that are longer than 12 months. So if I just look at the 12 win backlog, is that already normalized?

You have orders in the backlog that are longer than 12 months. So I would just look at the 12 month backlog is that already normalized.

Speaker 5: Well for sure, the 12 month backlog is already normalizing yes, but we do have in several.

Well for sure the 12 month backlog is.

Already normalizing, yes, but we do have in several markets.

Speaker 25: Markets.

Speaker 5: Several of our end markets, orders that go beyond 12 months and in fact I would say in the laser segment, 15 has been more of their norm. So it is actually normalizing already, that is true, but I think the resting place, at least in my present estimate, is 2, four to 2, five.

Several of our end markets orders that go beyond 12 months and.

And in fact, I would say in the laser segment <unk> has been more of their norm.

So it is actually normalizing already that is true, but I think the resting place at least in my part of the estimate is two four to two five.

Speaker 8: Ok that's helpful thing. My follow up question is on the fing carbide business. I understand you're going through the strict jud review but one of the, a large filling carbike customer, has recently announced a supply agreement with the Chinese selling carbike supplier on hundred testing mil meither waivers and also for future two million meterw. Can you talk about your view on any changes in the competitive?

Okay. That's helpful and my follow up question is on the Silicon carbide business I understand youre going through district change with you, but one of the large floating carmike customer has recently announced a supply agreement with the Chinese silicon carbide supplier on 150 millimeter wafers will also feature 200 millimeter can you talk about.

Youll be on any changes in the competitive landscape and maybe does that have anything to deal with the timing of the strategic review. Thank you.

Speaker 8: Landscape and maybe does that have anything.

Speaker 8: A deal with the timing of the Street G review. Thank you.

Speaker 26: Yes I'd be happy to think that question our our view of the market is really underpinned across the entire market. It's growing faster, the growth is accelerating, the supply is constrained and I think, in the context of what you're talking about, it's just an example of those things being true. And so, as a result, if you believe that the market is constrained and it will remain like that for an extended period of time and it will grow at an accelerating pace than investing at a greater rate is the right thing to do- and we believe it's both the right thing to do and we think we have the right- the right products technology quality, all the things that we need to serve the market.

Yes, I'd be happy to take that question.

Our our view of the market is really underpinned across the entire market.

It's growing faster the growth is accelerating the supply is constrained and I think in the context of where you are talking about <unk> as an example of those things being true.

And so as a result, if you believe that the market is constrained and it will remain like that for an extended period of time and it will grow at an accelerating pace than investing at a greater rate.

Is the right thing to do and we believe it is both the right thing to do and we think we have the right.

Right.

<unk> technology quality.

Other things that we need to serve the market. So.

Speaker 22: So we're we're bullish on the market and we remain committed to it.

We're bullish on the market and we remain committed to it.

Speaker 27: Ok Thank you.

Okay. Thank you.

Speaker 1: Our next question comes from Meta Marshall with Morgan family or line is open.

Okay.

Our next question comes from meta Marshall with Morgan Stanley. Your line is open.

Speaker 28: Yes sorry. one question on just whether you're seeing any changes to pricing in data comp and this environment. I know your expectations were that price.

Yes, sorry.

One question.

Just whether you're seeing any changes in pricing and datacom in this environment.

Your expectations, where that pricing was going to stay relatively stable, particularly at the high speed, but just.

Speaker 28: 'was going to stay relatively stable particularly at the high speed but just as demand has softened you know are your expectations still for that and then maybe just kind of secondarily on that you know I know when you guys bought the finnis business the idea was you kind of keep some of that vertical integration that the business that had does this softening in the market kind of change how you think about that business going forward or just alternative to production on that business Thank.

Demand has softened.

Are your expectations for that and then maybe just.

And secondarily on that.

I know when you guys bought the finished our business. The idea was hey, you would kind of keep some of that vertical integration that that business that had the softening in the market kind of change how you think about that business going forward or just alternative to production on that.

Thanks.

Speaker 4: Join take may sokeep in mind that the data data comside the. We are ramping fast and mostly weighted on the 2, on the G and above data rates, and so in that case the price pressure is more on the dollar a bit that obviously we need to deliver. They actually the individual ASP of the product, right? So in other words the, the focus is on lowering the cost of the, the traffic, not necessarily by lower the price of the of of the product, but the by lowering the price of the dollar a bit the, the lowering the dollar a bit, that is deliver with the solution.

Joanne if you want to take it Nathan so.

Keep in mind that the.

Jacob Datacomm side.

Ramping fast and mostly.

Weighted on the.

200 and above data rates.

So in that case.

Rice pressure is more on the dollar per bit.

Obviously, we need to deliver and then actually the individual is.

<unk> of the product line so in other words the.

The focus is on lowering the cost of the <unk>.

Not necessarily by lowering the price of the.

Product by the by lowering the price of the dollar per bit.

Lowering the dollar per bit that is the lever with the solution. So that has been going on for quite some time and Fortunately we are seeing.

Speaker 29: So that just been going on for quite some time and fortunately we are seeing strong demand for the high data rate transceivers and so we don't really see anything out of the ordiginary right now because we have maybe a couple of quarters or softness, that's. That's thatfinly changing the pricing parttern that we have seen in the past, So no much different there.

Strong demand for the.

Hi, This is <unk> transceivers and so.

So we don't really see anything out of the ordinary.

Right now because we have maybe a couple of quarters of softness.

Thats definitely changing the pies and partner.

We have seen in the past so not much difference there.

Yes.

Speaker 5: And then, with respect to the question that you are asking on, do we have we changed our view on the vertical integration for transceivers?

And then with respect to the question that you are asking on do we have we changed our view on the vertical integration for Transceivers.

Speaker 4: Let me take that the short answer is no. We're deriving substantial benefits and advantage by having the model, and what we're going to stay focused on is is working through any any under utilization of the capacity and getting our footprint into the lowest lowest cost structure we possibly can, and introducing new components, new lasers, new optics, new electronics.

Let me take that.

The short answer is no.

We are deriving substantial benefits and advantage by having a model.

What we're going to stay focused on is working through any any under utilization of the capacity.

And getting our footprint into the lowest lowest cost structure, we possibly can and introducing new components, new lasers, new optics, new electronics those those in combination with the model that we have.

Speaker 3: Those, those in combination with the model that we have for the assembly and testing, will sustain our advantage.

For the assembly and testing will sustain our advantage.

Speaker 30: Great thinyou.

Great. Thank you.

Speaker 1: Our next question comes from Mark Miller, with the benchmark company. Here, lot is open.

Our next question comes from Mark Miller with the Benchmark Company. Your line is open.

Speaker 31: But what do you thinking about in terms of taxes for the current quarter in fiscal' 24 will be a benefit, and in what percent?

But what are you thinking about in terms of taxes for the current quarter and fiscal 'twenty four it will be a benefit and then what.

<unk>.

Speaker 2: So my expectation is that the tax rate is probably in the neighborhood of about 25% and, as you know, for this year the tax rates a little bit all over the place with respect to purchase accounting, what's deductible and what's not. So that's, but I think overall for the total year it should be around thirty.

So my expectation is that the tax rate is probably in the neighborhood of about 25%.

And as you know for this year the tax rate's, a little bit all over the place with respect to purchase accounting.

What's deductible and what's not.

So.

But I think overall for the total year it should be around 30.

Speaker 31: Okay it'll be a tax benefit for the current quarter.

Okay, it'll be a tax benefit for the current quarter.

Speaker 5: Against on the losses: yes.

Against the losses, yes.

Speaker 32: Thank you.

Thank you.

Okay.

Speaker 1: Our next question comes from reben Roy. With stee, your line is open.

Our next question comes from Ruben Roy with Stifel. Your line is open.

Speaker 1: Your line is open.

Your line is open.

Okay.

Speaker 16: orry- sorry, everybody else on me- a follow up for Chuck chcker Bob on the silicon carbide discussion about as you start the formal review process. Chuck, has anything changed with the way you're thin about investing? You've been spending 50% of path's on silicon carbide, the ausethat accelerated, given you know what you see in the market just under love stand're thinking about you know kind of the near term spend for for sick full, full speed ahead on the business point.

Sorry, sorry, everybody I was on mute.

A follow up for Chuck Chuck or Bob on the Silicon carbide discussion as you start the formal review process Chuck as anything changed with the way Youre thinking about investing you have been spending 50% of Capex on Silicon carbide do you pause that you accelerated given what you're seeing in the market just I'd love to understand how youre thinking about kind of the near term.

Spend for perfect.

So full speed ahead on the business plan.

Speaker 15: Okay and that was easy enough. And then a follow up on. I think you mentioned that data, com telecom were equally impacted with the near term de Min environment. You just wondering if you could walk us through. I know the lack of visibility as you think about the next cou of quarters, but you did say that data you should be short term. You've got markets that are inflecting like a?

Okay that was easy enough and then a follow up on I think you mentioned, the Datacom and telecom were equally impacted with the near term.

Demand environment.

Just wondering if you could walk us through I know you know there's a lack of visibility as you think about the next couple of quarters, but you did say that datacom.

It should be short term you've got some.

Markets that are in flight and like AI is that something that you have a little bit of visibility into into when you might see datacom come back is it.

Speaker 33: I. is that something that you have a little bit ofvisibility into into? You know when you might see datac come come back? Is it next quarter quarter after? Any other detail would be great. Thank you. I alluded to intense designed in activity that we have. We this a? I opportunity, but not only the a? I opportunity: 800 deployments. They are heating up in terms of planning.

The next quarter or quarter after any other detail would be great. Thank you.

I alluded too intense design in activity that we have.

We.

This AI opportunity, but not only the AI opportunity the 800 gig.

Deployments.

Of our heating up in terms of planning.

Speaker 9: And that's going to be a focal point in FY twenty four.

Yes.

That's going to be a focal point in FY 'twenty four.

Speaker 3: And I do believe that we have. We may have, because we're working hard to position ourselves, to have maybe a little bit greater opportunity than what we're currently at fact and into our plants, but it's too ear to call that.

And I do believe that we have.

We may have because we're working hard to position ourselves to have.

Maybe a little bit greater opportunity than what we currently have factored into our plans, but it's too early.

To call that.

Speaker 9: And I think, the next couple of quarters. We're just going to have to watch it carefully- where we're working intensely in terms of capacity, getting new, new products in position to ramp. I think we're uniquely positioned to be able to go from zero to 100 miles an hour when it comes to deployments of new systems, and our customers know that and I believe that re conting on us to be able to do that.

And I think the next couple of quarters, we're just going to have to watch it carefully.

We're working intensely in terms of capacity getting new products and positioned to ramp.

We are uniquely positioned to be able to go from zero to 100 miles an hour.

When it comes to the deployment of new systems, and our customers know that and I believe they are counting on us to be able to do that.

Speaker 3: We just need a clear signence, that is, to the rate of acceleration, and that's what we're working on.

We just need a clear signs for us.

Two.

The rate of acceleration and that's what we're working on.

Speaker 16: Appreciate a thank RAP.

I appreciate it thanks guys.

Speaker 15: And I'm not showing any further questions this time'd'like to turn the call. Call over to Mary Jane.

And I'm not showing any further questions at this time I'd like to turn the call back over to Mary Jane.

Speaker 5: Thank you very much to everyone for joining us today. We appreciate your participation and we'll talk to you soon. Bye, bye.

Thank you very much to everyone for joining us today, we appreciate your participation and we'll talk to you soon.

Speaker 1: All Ladies and gentlemen, does conclude today's copference. You may now disconnect and have a wonderful day.

Hi.

Hello, Ladies and gentlemen, this does conclude today's conference you may now disconnect and have a wonderful day.

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