- Revenue: $1,314 million, increased by 8.7% sequentially and 9.1% year over year.
- Non-GAAP Gross Margin: 37.2%, improved by 145 basis points sequentially and 132 basis points year over year.
- GAAP Gross Margin: 32.9%, improved by 255 basis points sequentially and 437 basis points year over year.
- Non-GAAP EPS: $0.61, increased from $0.53 in the preceding quarter and $0.41 in the year-ago quarter.
- GAAP EPS: Negative $0.52 loss, compared to a $0.29 loss in the prior quarter and a $1.54 loss in the year-ago quarter.
- Cash from Operations: $162 million, compared to $117 million in the prior quarter and $182 million in the year-ago quarter.
- Capital Expenditures: $100 million, compared to $93 million in the preceding quarter and $93 million in the year-ago quarter.
- Free Cash Flow: $111 million net of capital funded by Silicon Carbide LLC minority interest investments.
- Total Debt: $4.17 billion at the end of FY24.
- Unrestricted Cash: $926 million, increased from $899 million in the prior quarter.
- Networking Revenue: Increased 10% sequentially and 16% year over year.
- Materials Segment Revenue: Increased 17% sequentially, but decreased 3% year over year.
- Laser Segment Revenue: Increased 1% sequentially and 7% year over year.
- Non-GAAP Operating Margin: 17%, increased by 191 basis points sequentially and 162 basis points year over year.
- GAAP Operating Margin: 4.8%, increased by 296 basis points sequentially and 1,769 basis points year over year.
- Interest Expense: $68 million, compared to $73 million in the preceding quarter and $79 million in the year-ago quarter.
- Non-GAAP Tax Rate: 20.7% for FY24, compared to 18.2% in the previous year.
- Guidance for Q1 FY25 Revenue: Expected to be between $1.27 billion and $1.35 billion.
- Guidance for Q1 FY25 Non-GAAP Gross Margin: Expected to be between 36% and 38%.
- Guidance for Q1 FY25 Non-GAAP EPS: Expected to be between $0.53 and $0.69.
Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue in Q4 increased by approximately 9% both sequentially and year over year, driven primarily by strong growth in datacom transceivers for AI data center deployments.
- Non-GAAP gross margin expanded by 145 basis points sequentially due to recovery from transitory issues that impacted Q3.
- Non-GAAP EPS grew by 16% sequentially and by almost 50% year over year as a result of top-line growth and margin expansion.
- Strong growth in the communications end market, with Q4 revenue increasing by 10% sequentially and by 19% year over year.
- The company has initiated changes to simplify organizational structure, empower leaders, streamline decision-making, and accelerate execution.
Negative Points
- Telecom revenue declined by 6% sequentially and 38% year over year due to end-market weakness.
- Gross margin is currently too low, with a target to operate at a consistent sustainable gross margin level above 40%.
- Operating expenses increased sequentially, including year-end bonus and benefit adjustments and Term Loan B refinancing fees.
- The industrial end market is expected to remain soft in the near term despite some sequential growth.
- The company is still in the process of filling the CFO role, which may impact financial strategy and execution in the short term.
Q & A Highlights
Highlights of Coherent Corp (COHR, Financial) Q4 2024 Earnings Call
Q: Can you provide more details on the strategic assessment of the portfolio?
A: James Anderson, CEO: The portfolio assessment aims to concentrate assets on areas of greatest growth and profitability. The company is categorizing its product lines into growth engines, profit engines, long-term bets, and non-strategic or under-performing businesses. Actions will be taken to divest or shut down non-strategic areas and focus investments on high-potential segments.
Q: What is the biggest gap between current gross margins and the target of above 40%?
A: James Anderson, CEO: The gap is due to a combination of under-performing businesses, pricing, and cost structure. Initiatives are being implemented to improve pricing discipline and cost efficiencies, including better product yields, asset utilization, and make-versus-buy decisions.
Q: Can you discuss the timeline for achieving the target gross margin of above 40%?
A: James Anderson, CEO: The timeline for gross margin improvement will be detailed at the upcoming Investor Day. While improvements take time, a disciplined roadmap is being developed to achieve steady progress.
Q: What are your expectations for the optical transceiver business, particularly with the 800G and 1.6T ramps?
A: James Anderson, CEO: The optical transceiver business is stronger than initially expected, with significant growth opportunities in AI data centers. The 800G ramp is progressing well, and the company has delivered initial samples of 1.6T transceivers, with a ramp expected next year.
Q: What is your outlook on the telecom market and new product introductions?
A: James Anderson, CEO: The telecom market is expected to remain soft in the near term due to lingering inventory issues. However, new products like the 100 gig and 400 gig ZR/ZR+ transceivers are ramping and will contribute to growth, particularly in the second half of the fiscal year.
Q: How is the materials business performing, particularly in Silicon Carbide?
A: James Anderson, CEO: The materials business saw sequential improvement, partly due to resolving production issues in Silicon Carbide from Q3. The company caught up on demand in Q4, contributing to the segment's growth.
Q: Are you seeing any changes in demand for sub-400 gig transceivers?
A: James Anderson, CEO: Demand for sub-400 gig transceivers is expected to remain relatively stable, with no significant growth or decline anticipated.
Q: Can you discuss the breadth of hyperscale engagements and order visibility in the datacom business?
A: James Anderson, CEO: The breadth of customers in the 800 gig segment continues to grow, and order visibility has improved, extending through the first half of the next calendar year. The company is focused on meeting increasing demand.
Q: Are you seeing any impact from changes in NVIDIA's product schedule on your order book?
A: James Anderson, CEO: While specific customer details can't be disclosed, the overall order book for datacom continues to strengthen, indicating robust demand.
Q: What are your CapEx priorities now that Silicon Carbide investments are complete?
A: James Anderson, CEO: The primary CapEx focus is on expanding capacity for 800 gig and 1.6T transceivers to meet growing demand in the datacom business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
