Release Date: November 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Coherent Corp (COHR, Financial) reported a 28% year-over-year revenue increase, driven by strong AI-related datacom transceiver growth.
- The company achieved a 22% sequential increase in non-GAAP EPS, marking a significant improvement over the previous year.
- Coherent Corp (COHR) successfully paid down $118 million of debt, reducing its net debt leverage ratio to 2.4 times.
- The company is making strategic investments in high-growth areas such as next-generation transceivers and optical circuit switches.
- Coherent Corp (COHR) is focusing on gross margin expansion through pricing optimization and product cost reduction, aiming for a sustainable gross margin above 40%.
Negative Points
- The industrial-related markets experienced a 10% sequential and 3% year-over-year revenue decline, indicating ongoing challenges.
- The materials segment saw a 15% sequential and 3% year-over-year revenue decrease, primarily due to weak automotive demand.
- Despite improvements, the telecom market recovery remains cautious, with the company taking a conservative outlook.
- Operating expenses increased both sequentially and year-over-year, driven by higher R&D investments and variable compensation.
- The company faces challenges in optimizing its nonstrategic businesses, which are dilutive to margins and divert focus from core operations.
Q & A Highlights
Q: Jim, what feedback have you received from key customers regarding areas of focus and improvement for Coherent?
A: Jim Anderson, CEO: We've received positive feedback on our strong existing relationships with strategic customers. The opportunity lies in building more strategic, long-term engagements, focusing on multi-generational innovation. Customers appreciate our technology portfolio and supply chain resiliency, which are crucial for fast ramp situations, especially with AI data center customers.
Q: How should we think about the gross margin trajectory for the rest of the year?
A: Sherri Luther, CFO: In Q1, we saw a 50 basis point sequential improvement in gross margin due to higher revenue volume, favorable product mix, and yield improvements. For Q2, we expect gross margins between 36% and 38%. Our long-term goal is to achieve a gross margin above 40%, focusing on pricing optimization and product cost reduction.
Q: What are your priorities for capital allocation, and how do you view the strength of the datacom business?
A: Sherri Luther, CFO: Our top priority is investing in organic growth with high ROI, followed closely by reducing debt to strengthen the balance sheet. In Q1, we paid down $118 million in debt. Jim Anderson, CEO: The datacom business saw a 16% sequential and 89% year-over-year growth, with strength in both 400 gig and 800 gig transceivers. We expect continued growth in 800 gig over the coming quarters.
Q: Are there additional nonstrategic assets identified for sale beyond the battery business?
A: Jim Anderson, CEO: Yes, we are working on other nonstrategic areas following our portfolio assessment. While the nonstrategic category is a small part of our revenue, it dilutes margins and diverts focus. We are shifting investments to high-growth areas like AI datacom transceivers and optical circuit switching.
Q: How do you view the long-term growth outlook for the telecom market given the challenges in monetizing 5G?
A: Jim Anderson, CEO: We are cautiously optimistic about telecom recovery, with strong demand signals in data center interconnect (DCI) and some improvement in traditional telecom transport. While we take a cautious near-term view, we believe telecom will be a long-term growth driver, supported by new product ramps.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
