Yahoo Finance Coherent Corp (COHR) Q3 2024 Earnings Call Transcript Highlights: Surpassing Expectations with ...
Revenue: Q3 revenue was $1.209 billion, above the high end of guidance.
Non-GAAP EPS: Q3 non-GAAP EPS was $0.53, also above the high end of guidance.
Operating Cash Flow: Q3 operating cash flow reached $117 million.
Capital Expenditures: Invested $93 million in capital equipment during Q3.
Debt Repayment: Repaid $58 million of outstanding debt in Q3.
Non-GAAP Gross Margin: Below guidance due to resolved or soon-to-be-resolved issues.
Non-GAAP Operating Margin: In line with guidance, supported by strict operating expense discipline.
Q4 Revenue Guidance: Expected to be between $1.123 billion and $1.32 billion.
Q4 Non-GAAP EPS Guidance: Anticipated to be between $0.52 and $0.68.
Annual Revenue Guidance: Revised to $4.62 billion to $4.7 billion, a $70 million increase at the low end.
Annual Non-GAAP EPS Guidance: Updated to $1.56 to $1.73, from previous $1.30 to $1.70.
Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Coherent Corp (NYSE:COHR) reported a solid sequential improvement in revenue and EPS, both exceeding the high end of their guidance.
The company experienced strong AI-related Datacom demand for their 800G Datacom transceivers, projecting continued strength into the fourth quarter and fiscal year 2025.
Coherent Corp (NYSE:COHR) successfully repaid $58 million of outstanding debt and completed a repricing of their $2.4 billion secured term loan B, reducing interest rate margins by 25 basis points, resulting in an annual savings of approximately $9 million.
The company's credit rating was upgraded to BA2 by Moody's, reflecting their leadership position in the AI market and expectations for continued financial performance improvement.
Coherent Corp (NYSE:COHR) has a diversified portfolio across product, technology, and regional markets, which has helped them navigate the macroeconomic environment effectively.
Negative Points
The non-GAAP gross margin for Coherent Corp (NYSE:COHR) was below guidance due to unexpected issues, although these were resolved or are expected to be resolved soon.
There was a slower-than-expected recovery in the telecom markets, which could impact future revenue streams if the trend continues.
Despite resolving major issues, there is a ramp-up period required to reach optimal production levels, indicating potential short-term challenges in meeting targets.
The company noted a decrease in orders for sub-800G products, suggesting a possible shift in market demand or customer preferences that could impact segments of their business.
Lead times for orders have decreased, leading to a normalization of customer ordering patterns, which could impact backlog and future revenue recognition timing.
Q & A Highlights
Q: What kind of visibility are customers giving you in relation to demand for fiscal '25? What are the key growth drivers for the 800 gig or Datacom business in total in FY '25? A: (Lee Xu - EVP of Datacom Transceivers) Our outlook has not changed from a quarter ago. We still see strong growth in overall 800G and AI-related demand. Our 800G ramp-up has been significant, and we project further growth in FY '25. The lead times for 800G transceivers are coming down, which is why we are being more prudent in our forecasts, but the demand trend from our key customers remains unchanged.
Q: Are there supply constraints on components like VCSELs affecting your plans for growth in fiscal '25? A: (Lee Xu - EVP of Datacom Transceivers) We have largely resolved all material constraints, both internal and external. We are confident in our capabilities to meet the demand.
Q: Could you unpack the reasons behind the softer gross margin in Q3 and your expectations for margin improvement? A: (Richard J. Martucci - Interim CFO & Treasurer) The softer margin in Q3 was due to transitory items. We target a 40% gross margin by the first half of FY '26, driven by incremental volume, mix, strength in supply chain, and buying power. We are also implementing a new ERP system and AI tools to support this goal.
Q: What is your vision for the AI opportunity beyond this fiscal year, particularly for the 800 gig and above business? A: (Sanjai Parthasarathi - CMO) The market for 800G and beyond is expected to grow at a 60% CAGR over the next five years. We are projecting very healthy growth for this market segment, which is a fundamental driver for our growth.
Q: How are you managing the challenges and opportunities within the telecom sector as it progresses toward recovery? A: (Beck Mason - EVP of Telecommunications) We see mixed areas of strength and weakness in telecom. Strengths include new network build-outs in China and emerging opportunities in digital Coherent optical pluggable markets. We have differentiated products that position us well for growth as the market recovers.
Q: Can you provide an update on your 200-millimeter silicon carbide development activities? A: (Sohail A. Khan - EVP of Silicon Carbide LLC) Our 200-millimeter development is progressing well, with preproduction quantities being supplied to multiple customers. The feedback has been positive, and we are adding capacity to support further growth expected in the next fiscal year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
