Coherent Corp.

375 Saxonburg Blvd.

Saxonburg, PA 16056-9499

Coherent Corp.

375 Saxonburg Blvd.

Saxonburg, PA 16056-9499

USA

Revenues

GAAP Gross Profit

Non-GAAP Gross Profit(1)

GAAP Operating Income(2)

Non-GAAP Operating Income(1)

GAAP Net Earnings (Loss)

Non-GAAP Net Earnings(1)

GAAP Diluted Earnings (Loss) Per Share

Non-GAAP Diluted Earnings Per Share(1)

Other Selected Financial Metrics

GAAP Gross margin

Non-GAAP gross margin(1)

GAAP Operating margin

Non-GAAP operating margin(1)

GAAP return on sales

Non-GAAP return on sales(1)

The Company has disclosed financial measurements in this letter to shareholders that present financial information considered to be non-GAAP financial measures. These measurements are not a substitute for GAAP measurements, although the Company’s management uses these measurements as an aid in monitoring the Company’s on-going financial performance. The non-GAAP net earnings, the non-GAAP earnings per share, the non-GAAP operating income, the non-GAAP gross profit, the non-GAAP internal research and development, the non-GAAP selling, general and administration, the non-GAAP interest and other (income) expense, and the non-GAAP income tax (benefit), measure earnings and operating income (loss), respectively, excluding non-recurring or unusual items that are considered by management to be outside the Company’s standard operation and excluding certain non-cash items. EBITDA is an adjusted non-GAAP financial measurement that is considered by management to be useful in measuring the profitability between companies within the industry by reflecting operating results of the Company excluding non-operating factors. There are limitations associated with the use of non-GAAP financial measures, including that such measures may not be entirely comparable to similarly titled measures used by other companies, due to potential differences among calculation methodologies. Thus, there can be no assurance whether (i) items excluded from the non-GAAP financial measures will occur in the future or (ii) there will be cash costs associated with items excluded from the non-GAAP financial measures. The Company compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by providing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures. Investors should consider adjusted measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with GAAP. All non-GAAP amounts exclude certain adjustments for share-based compensation, acquired intangible amortization expense, restructuring charges, integration and site consolidation expenses, integration transaction expenses, start-up costs related to the start-up of new devices for new customer applications, and various one-time adjustments. See Table 4 for the Reconciliation of GAAP measures to non-GAAP measures.

GAAP Operating income is defined as earnings before income taxes, interest expense, and other expense or income, net.

Revenue of approximately $1.0-1.1 billion.

Non-GAAP earnings per share of approximately $0.05-$0.20.1

Share count for the entire guidance range is 153 million.

The Company does not provide reconciliations of forward-looking Non-GAAP EPS. The Company is unable, without unreasonable efforts, to forecast certain items required to develop a meaningful GAAP financial measure that is comparable to this forward-looking figure.

Revenue of approximately $4.5-4.7 billion.

Non-GAAP earnings per share of approximately $1.00-$1.50.2

Share count for the entire guidance range is 153 million.

Not included in our full year fiscal 2024 revenue guidance is several hundred million dollars of additional revenue related to the recent surge in demand for Datacom transceivers for AI-driven data center buildouts as the supply chain ramps incremental capacity to address industry demand.

Our guidance assumes no meaningful improvement in the macoeconomic environment including no meaning improvement in China.

Unparalleled experience in materials, photonics, and lasers;

A vertically integrated, geographically diverse organization with scalable manufacturing platforms;

A history of insightful targeting and successful integration of strategic acquisitions;

A sustained and committed track record of targeted research and development and capital expenditures to prepare for the opportunities that lie ahead; and

Worldwide talented and experienced teams of engineers and technologists, including over 2,000 people employed in R&D, as well as expert manufacturing teams, and experienced business leaders.

The Company does not provide reconciliations of forward-looking Non-GAAP EPS. The Company is unable, without unreasonable efforts, to forecast certain items required to develop a meaningful GAAP financial measure that is comparable to this forward-looking figure.

All references herein to “pro forma basis” or similar references are based on the pro forma financial information included in Exhibit 99.1 to the Current Report on Form 8-K filed by Coherent Corp. on September 9, 2022, which can be found at

https://www.sec.gov/ix?doc=/Archives/edgar/data/0000820318/000119312522241521/d402890d8k.htm.

Backlog. We ended the quarter with approximately $2.7 billion of backlog, an approximate $100 million or 5% sequential increase from $2.6 billion at the end of the preceding quarter.

Orders. A greater than 30% sequential increase in our overall order book was the primary driver of the sequential increase in backlog. Contributing to the sequential strength, orders sequentially declined in each of the preceding three quarters. Our order book significantly exceeded our outlook driven entirely by our Networking segment. As previously noted, the significant increase in AI/ML-related Datacom Transceiver orders during the quarter should help offset an expected decline in fiscal 2024 revenue from our two largest customers (one just above and one just below 10% revenue) in fiscal 2023.

Competitive and Strategic Positioning. We have a robust pipeline of leading-edge technologies and products that we expect to enhance our already strong competitive position in key markets and help us significantly improve our competitive position relative to highly attractive market opportunities where we previously had limited presence. We also are evaluating various strategic actions, including our previously announced review of our SiC business, with the goal of optimizing our long-term positioning in all our markets and driving attending value creation.

Networking Segment. Our Datacom order strength more than offset ongoing weakness in our Telecom business to drive sequential increases of almost 80% in total orders and over 10% in total backlog in our Networking segment. The surge in Datacom orders drove almost 100% upside to our outlook largely from AI/ML-related 800G transceivers for planned AI/ML datacenter buildouts by webscale and other cloud operators. Other Datacom orders for lower data rate transceivers remained slow.

Lasers Segment. For the fourth quarter, orders in our Lasers segment sequentially increased by over 5%, but the increase was more tepid than we expected. Within the Lasers segment, we are seeing slowing business activity in a number of our Industrial businesses including Display, Precision Manufacturing, and Aerospace & Defense.

Materials Segment. For the fourth quarter, orders in our Materials segment continue to reflect our near-term macro expectations for declines over the next several quarters. Our orders decreased sequentially by approximately 5%. The weakness was broad-based, with shortfalls relative to our forecast for most of our businesses within the segment.

Silicon Carbide Business. Demand continues to outstrip our ability to supply our SiC substrate and epitaxial materials, with our SiC revenue growth currently only constrained by our ability to add capacity and ramp production. We continue to direct significant capital expenditures toward ramping our SiC substrate and epitaxial wafer production.

Validation of Diversification Strategy. Reflecting our long-term market, technology, and business diversification strategy, the surge in demand for our Datacom transceivers, along with ongoing strength in our SiC and our Semicap Equipment businesses, help attenuate the macroeconomic impact on the rest of our business. This strategy provides relative stability, improved visibility, and an enhanced outlook.

Semiconductor Capital Equipment: ongoing favorable trends in the front-end – and especially the high-end of the front-end – of the Semicap Equipment market.

Front-End. We enjoy a particularly strong competitive position in front-end Semicap, which accounts for most of our Semicap Industrial revenue.

AI. This positioning should be favorably impacted by AI, in particular for our engineered materials and lasers, which enable equipment for fabricating next-gen nodes.

Display Capital Equipment: an eventual rebound in the Display Capital Equipment segment of the Industrial market.

OLED. The long-term outlook for our Display annealing business remains robust. We are excited by investments in new Gen 8.5 OLED fabs for tablet and notebook computers, which bode well for our OLED laser annealing systems, which scale with display size. We have also started receiving sizable purchase orders in connection with new fab investments in China.

New DPSS Laser. We expect our new DPSS laser and the associated line-beam system to enhance our leading position in the OLED annealing market for larger IT displays. Customer testing has commenced after our successful first system installation at a systems integrator.

Micro-LED. Demand is also augmented by the emergence of the microLED market and the adoption of laser lift-off and mass transfer processes. In the fourth quarter, we received multiple orders from customers in China, Taiwan, and Korea for such systems.

Precision Manufacturing: strong broad-based sequential order growth in the quarter.

Electric Vehicles (EVs), EV Battery, and Medical Devices: Ongoing strong long-term growth potential for our target markets of EVs, EV battery processing, and medical device manufacturing, which enjoyed strong growth in both the quarter and the year.

Macro: An eventual macroeconomic rebound will affect Precision Manufacturing demand, our most macro-impacted Industrial application market.

65 W Diode Pump Chip: We are especially excited regarding the revenue growth prospect for our 65 W diode pump chip. We expect this chip to enable growth for fiber laser pumping in China, driven by continued expansion in China of the handheld laser welding market. We launched the first commercially available such product in the fourth quarter of fiscal 2023 and have provided samples of the product to all major fiber laser customers. The customer reception for this groundbreaking product has been exceptional.

Laser Systems and Subsystems: Reflecting ongoing progress in penetrating the value chain in systems and subsystems these products posted high-single-digit year-over-year growth in the quarter, led by medical device manufacturing and marking.

Datacom AI/ML. We are excited about the impact on our Datacom business from the rapid growth of AI/ML, especially generative AI. Retooling of datacenter architectures and integration of AI clusters by webscale and other cloud companies represent an immediate and direct growth opportunity for our Datacom business – both our transceivers and our enabling active and passive components, especially leading-edge high-speed lasers.

Long Duration. We expect AI/ML datacenter buildouts by webscale and other cloud companies to drive significant revenue growth in our Datacom transceiver business and contribute to our overall revenue growth and profitability for many years to come.

More Than Just Datacom Transceivers. AI/ML represents a tailwind for our Datacom transceiver business. However, we see the longer-term benefit extending well beyond Datacom transceivers to impact other product markets that we address and enable significant operating efficiencies across our organization.

Datacom Orders. We received sizable AI/ML-related orders for our 800G Datacom transceivers in the fourth quarter from webscale, cloud, and other companies in the webscale and cloud ecosystem, driving our Datacom backlog and more than offsetting a decline in legacy lower data rate transceivers.

Market Inflection. Our order book and interactions with webscale customers and with leading suppliers of their AI hardware appears to validate our assessment that we are at an inflection point in a decade-long megatrend related to AI and ML deployments.

Hyperscale. These orders also reflect our strong technology platforms and competitive position relative to hyperscale and cloud AI/ML-driven datacenter deployments. For the quarter, hyperscale customers accounted for 65% of our Datacom transceiver revenue.

Competitive Positioning. Our investments in high-speed lasers over multiple decades have placed us in a unique position to meaningfully participate in the AI connectivity market, including for the upcoming 200G per optical lane era, required for 1.6T and eventually 3.2T Datacom transceivers, and with multiple leading-edge laser platforms including DFB-MZs, EMLs, and VCSELs. We see the opportunity for incremental growth from the AI/ML market via strong share gains.

Wallet Share Opportunity. Recent design wins collectively represent a significant revenue opportunity, and we see the opportunity to significantly increase our wallet share with most of the customers that have made such awards. To this end, we are working on cutting-edge products and technology that we believe will offer meaningfully differentiated solutions with industry-leading performance. For example, demonstrated at the OFC trade show in March, our new industry-first DFB-MZ laser, enabling 200G PAM4 transceivers with up to 10 km reach, we believe will be crucial to next-generation, high-performance, long-reach 1.6T and 3.2T transceivers.

Market Growth. We estimate the market for 800G and eventually 1.6T and 3.2T Datacom transceivers to grow at a greater than 40% CAGR over the next five years to over $4.2 billion in calendar 2028 from what we estimate is $0.6 billion in calendar 2023. We expect this growth to result in AI-related 800G and 1.6T Datacom transceiver shipments accounting for almost 40% of all Datacom transceiver shipments by 2028 and possibly sooner.

Telecom Longer-Term. While the near-term outlook for the Telecom market remains challenged by inventory digestion and some project delays, we are excited about our long-term Telecom growth outlook. Underlying our longer-term outlook:

Robust Design Activity. We have enjoyed robust design activity in response to multiple planned new projects, which points to a very strong eventual recovery with growth recommencing in the second half of this fiscal year or in fiscal 2025.

A Market Leader. In Telecom, we are a vertically integrated market leader with our coherent transceivers and disaggregated solutions.

Exposure to Fast Growth Segments. Coherent transceivers and disaggregated systems are the fastest-growing segments of our Telecom market. We have been building momentum with our award-winning high-power 400G ZR+ QSFP-DD-DCO transceivers and are in lab and field trials with a diverse customer base that includes carriers and datacenter operators. We have also been delivering our first 100G coherent

modules based on our internal coherent DSP chip to customers for evaluation. One of our carrier customers has already successfully completed initial trials of both our 100G ZR coherent modules and our award-winning compact pluggable optical line system (POLS) over an 800 km network. Overall, we are excited about the long-term demand for pluggable coherent modules due to their simplicity and the cost savings offered by IP-over-DWDM.

Wide-Bandgap/Silicon Carbide. For our WBG business, demand for our SiC substrates continues to outstrip supply. We are rapidly expanding capacity as planned. Since we commenced investing in SiC over two decades ago, our product revenue has enjoyed a 35% CAGR. We estimate the market for SiC power electronics for EVs will grow at roughly a 40% CAGR over the next five years.

Consumer Electronics. Our longer-term outlook for Consumer Electronics is driven by growth in breadth and depth of sensing adoption well beyond 3D sensing for smartphones. AI applications drive the need for advanced sensors, including 3D sensing of the world around us and biosensors for sensing the world within the human body. Sensors are the eyes and ears of AI/ML systems. We believe that sensing will ultimately become ubiquitous in metaverse AR/VR hardware and wearables as well as in automotive LiDAR and in-cabin sensing, biosensing, and other emerging applications. We also are excited by our strategic engagements across all of these applications, with the breadth and pace of our sensing design-in activities at record levels. Our broad semiconductor laser platform that spans from 940 nm to 2400 nm and three materials is a key competitive differentiator for this market. Notwithstanding a new market entrant, it appears that we are maintaining our overall market share in Consumer Electronics 3D sensing.

Scientific Instrumentation. We enjoyed record revenue in our Scientific Instrumentation business in both the quarter and the full fiscal year driven by increased policy-based funding for research worldwide. Since the Coherent, Inc. acquisition, we have been showcasing our combined bioinstrumentation portfolio and integrated subsystem capabilities to some of the largest customers in this market. These customers have been excited about the integration of our broad portfolio of lasers with our optics, filters, and thermoelectric products to provide higher-level integrated solutions.

Life Sciences. Research in Life Sciences (neuroscience, cell biology, and disease studies) as well as exotic spectroscopy of materials and complex organic molecules drive most of the research expenditures in lasers. The envelope of laser applications in therapeutics continues to expand, and regulatory agencies worldwide continue to expand approvals. We have a variety of laser products to address therapeutic applications, ranging from GaAs lasers for acne treatment to femtosecond and excimer lasers for LASIK procedures. In ophthalmology, we are working with some of the largest companies in the industry to establish long-term supply agreements.

Revenues

GAAP Gross Profit

Non-GAAP Gross Profit(1)

GAAP Operating Income(2)

Non-GAAP Operating Income(1)

GAAP Net Earnings (Loss)

Non-GAAP Net Earnings(1)

GAAP Diluted Earnings (Loss) Per Share

Non-GAAP Diluted Earnings Per Share(1)

Other Selected Financial Metrics

GAAP Gross margin

Non-GAAP gross margin(1)

GAAP Operating margin

Non-GAAP operating margin(1)

GAAP return on sales

Non-GAAP return on sales(1)

All non-GAAP amounts exclude certain adjustments for share-based compensation, acquired intangible amortization expense, restructuring charges, integration and site consolidation expenses, integration transaction expenses, start-up costs related to the start-up of new devices for new customer applications, and various one-time adjustments. See Table 4 for the Reconciliation of GAAP measures to non-GAAP measures.

GAAP Operating income is defined as earnings before income taxes, interest expense, and other expense or income, net.

$ Millions

Inventory

Cash

Gross Debt

Net Debt

Calc Leverage gross/net leverage

Cred/Fac gross/net leverage

Debt Payments

Operating Cash Flow

Capital expenditures

Depreciation

Amortization

Fully diluted shares for NG EPS

Revenues

Costs, Expenses & Other Expense (Income)

Cost of goods sold

Internal research and development

Selling, general and administrative

Restructuring charges

Interest expense

Other expense (income), net

Total Costs, Expenses, & Other Expense

Earnings (Loss) Before Income Taxes

Income Taxes

Net Earnings (Loss)

Less: Dividends on Preferred Stock

Net Earnings (Loss) Available to the Common Shareholders

Basic Earnings (Loss) Per Share

Diluted Earnings (Loss) Per Share

Average Shares Outstanding - Basic

Average Shares Outstanding - Diluted

Revenues

Costs, Expenses & Other Expense (Income)

Cost of goods sold

Internal research and development

Selling, general and administrative

Restructuring charges

Interest expense

Other expense (income), net

Total Costs, Expenses, & Other Expense

Earnings (Loss) Before Income Taxes

Income Taxes

Net Earnings (Loss)

Less: Dividends on Preferred Stock

Net Earnings (Loss) Available to the Common Shareholders

Basic Earnings (Loss) Per Share

Diluted Earnings (Loss) Per Share

Average Shares Outstanding - Basic

Average Shares Outstanding - Diluted

Assets

Current Assets

Cash, cash equivalents, and restricted cash

Accounts receivable

Inventories

Prepaid and refundable income taxes

Prepaid and other current assets

Total Current Assets

Property, plant & equipment, net

Goodwill

Other intangible assets, net

Deferred income taxes

Other assets

Total Assets

Liabilities, Mezzanine Equity and Shareholders’ Equity

Current Liabilities

Current portion of long-term debt

Accounts payable

Operating lease current liabilities

Accruals and other current liabilities

Total Current Liabilities

Long-term debt

Deferred income taxes

Operating lease liabilities

Other liabilities

Total Liabilities

Total Mezzanine Equity

Total Shareholders’ Equity

Total Liabilities, Mezzanine Equity and Shareholders’ Equity

Net cash provided by operating activities

Additions to property, plant & equipment

Purchases of businesses, net of cash acquired

Other investing activities

Net cash used in investing activities

Proceeds from issuance of Senior Notes

Proceeds from issuance of common shares

Proceeds from issuance of Series A preferred shares

Proceeds from issuance of Series B preferred shares

Proceeds from borrowings of Term A Facility

Proceeds from borrowings of Term B Facility

Proceeds from borrowings of Revolving Credit Facility

Payments on convertible notes

Payment on Finisar Notes

Payments on existing debt

Payments on borrowings under Revolving Credit Facility

Debt issuance costs

Equity issuance costs

Proceeds from exercises of stock options and purchases of stock under employee stock purchase plan

Payments in satisfaction of employees’ minimum tax obligations

Payments of dividends

Other financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period

Cash, Cash Equivalents, and Restricted Cash at End of Period

Revenues

GAAP Gross Profit

Non-GAAP Gross Profit(1)

GAAP Operating Income(2)

Non-GAAP Operating Income(1)

GAAP Net Earnings (Loss)

Non-GAAP Net Earnings(1)

GAAP Diluted Earnings (Loss) Per Share

Non-GAAP Diluted Earnings Per Share(1)

Other Selected Financial Metrics

GAAP Gross margin

Non-GAAP gross margin(1)

GAAP Operating margin

Non-GAAP operating margin(1)

GAAP return on sales

Non-GAAP return on sales(1)

All non-GAAP amounts exclude certain adjustments for share-based compensation, acquired intangible amortization expense, restructuring charges, integration and site consolidation expenses, integration transaction expenses, start-up costs related to the start-up of new devices for new customer applications, and various one-time adjustments. See Table 4 for the Reconciliation of GAAP measures to non-GAAP measures.

GAAP Operating income is defined as earnings before income taxes, interest expense and other expense or income, net.

Revenues:(1)

Networking

Materials

Lasers

Consolidated

GAAP Operating Income (Loss):(1)

Networking

Materials

Lasers

Unallocated and Other

Consolidated

Non-GAAP Operating Income:(1)

Networking

Materials

Lasers

Consolidated

GAAP Operating Margin (Loss):(1)

Networking

Materials

Lasers

Unallocated and Other

Consolidated

Non-GAAP Operating Margin:(1)

Networking

Materials

Lasers

Consolidated

Amounts may not recalculate due to rounding.

Segment results for prior periods have been updated to include the movement of two businesses between Materials and Networking. “Unallocated and Other” primarily includes transaction costs related to the Coherent transaction.

Networking GAAP Operating Income (Loss)

Share-based compensation

Amortization of acquired intangibles(1)

Restructuring charges(2)

Integration, site consolidation and other(3)

Transaction fees and financing(4)

Non-GAAP Networking Operating Income

Materials GAAP Operating Income (Loss)

Share-based compensation

Amortization of acquired intangibles(1)

Restructuring charges(2)

Integration, site consolidation and other(3)

Transaction fees and financing(4)

Start-up costs(4)

Non-GAAP Materials Operating Income

Lasers GAAP Operating Income (Loss)

Share-based compensation

Amortization of acquired intangibles(1)

Restructuring charges(2)

Integration, site consolidation and other(3)

Transaction fees and financing(4)

Preliminary fair value adjustment on acquired inventory

Non-GAAP Lasers Operating Income

Unallocated and Other GAAP Operating Income (Loss)

Transaction fees and financing(4)

Non-GAAP Unallocated and Other GAAP Operating Income (Loss)

Total GAAP Operating Income (Loss)

Non-GAAP Operating Income

Amounts may not recalculate due to rounding.

Amortization of acquired intangibles includes the write-off of certain impaired intangible assets in the fourth quarter of fiscal 2023.

Restructuring charges include severance, non-cash impairment charges for production assets and improvements on leased facilities and other costs related to the 2023 Restructuring Plan.

During fiscal year 2023, Integration, site consolidation and other includes one-time retention and severance payments, expenses not included in restructuring charges related to site closures as well as other integration costs related to the Coherent transaction. During fiscal year 2022, Integration and other includes integration and restructuring charges from the Finisar acquisition.

Transaction fees and financing in fiscal year 2023 includes debt extinguishment costs and various fees related to closing the Coherent transaction. Transaction fees and financing in fiscal year 2022 includes incremental interest expense related to the financing for the Coherent transaction which were included as an adjustment in arriving at non-GAAP earnings through the closing of the Coherent transaction, as the associated funding was contingent on transaction close.

Start-up costs in operating expenses were related to the start-up of new devices for new customer applications.

Gross profit on GAAP basis

Share-based compensation

Amortization of acquired intangibles(1)

Preliminary fair value adjustment on acquired inventory

Integration, site consolidation and other(3)

Start-up costs(5)

Gross profit on non-GAAP basis

Internal research and development on GAAP basis

Share-based compensation

Amortization of acquired intangibles(1)

Integration, site consolidation and other(2)

Start-up costs(4)

Internal research and development on non-GAAP basis

Selling, general and administrative on GAAP basis

Share-based compensation

Amortization of acquired intangibles(1)

Integration, site consolidation and other(2)