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COHERENT CORP. (COHR)·Q2 2025 Earnings Summary

Executive Summary

  • Record revenue of $1.43B (+26.8% y/y, +6.4% q/q) and non-GAAP EPS of $0.95, with non-GAAP gross margin expanding to 38.2% (+363 bps y/y, +146 bps q/q), driven by AI-related datacom transceivers and a second consecutive quarter of telecom recovery .
  • Networking revenue surged to $816M (+56% y/y; +7% q/q), lasers grew to $375M (+6% y/y; +8% q/q), while materials was $244M (-4% y/y; +3% q/q), with automotive demand cited as a headwind .
  • Q3 FY25 guidance: revenue $1.39–$1.48B, non-GAAP GM 37–39%, OpEx $285–305M, tax rate 17–19%, EPS $0.75–$0.95; notably tighter tax and higher EPS range vs prior quarter’s guidance for Q2 .
  • Strategic catalysts: first customer order for Optical Circuit Switch (OCS) with revenue expected to begin in CY25, and CHIPS Act funding to expand indium phosphide (InP) capacity; the company paid down $132M in debt in Q2, bolstering deleveraging .

What Went Well and What Went Wrong

What Went Well

  • Record datacom revenue, up 79% y/y, with broader adoption of 800G transceivers and progress toward 1.6T; CEO: “We delivered strong growth… driven by another quarter of strong AI-related Data Center demand” .
  • Gross margin expansion from cost reductions, yield improvements, and pricing optimization; CFO highlighted “ongoing yield improvements in datacom” driving margin gains .
  • Strategic progress: first OCS order (non-mechanical digital liquid crystal tech) and CHIPS Act support for InP capacity at Sherman, TX, enabling EML/CW lasers for silicon photonics .

What Went Wrong

  • Materials segment down 4% y/y, primarily due to weak automotive demand; management maintains a cautious near-term view on industrial end markets .
  • Product mix headwind modestly offset margin gains; CFO noted unfavorable mix impacted non-GAAP gross margin, despite overall improvement .
  • Tariff uncertainty persists; management expects no significant near-term impact in Q3 but continues to evaluate and rely on geographic manufacturing diversity and vertical integration for mitigation .

Financial Results

MetricQ2 FY24Q1 FY25Q2 FY25
Revenue ($USD Billions)$1.131 $1.348 $1.435
GAAP Diluted EPS ($USD)$(0.38) $(0.04) $0.44
Non-GAAP Diluted EPS ($USD)$0.27 $0.67 $0.95
GAAP Gross Margin %31.0% 34.1% 35.5%
Non-GAAP Gross Margin %34.6% 36.7% 38.2%
GAAP Operating Margin %2.8% 5.6% 9.5%
Non-GAAP Operating Margin %13.5% 16.1% 18.5%
Segment Revenues ($USD Millions)Q2 FY24Q1 FY25Q2 FY25
Networking524.2 762.9 815.9
Materials253.7 237.4 243.5
Lasers353.5 347.8 375.3
Consolidated1,131.4 1,348.1 1,434.7
KPIsQ2 FY24Q1 FY25Q2 FY25
Operating Cash Flow (Six Months, $USD Millions)$266.0 —$340.4
Long-term Debt ($USD Millions)$4,026.4 —$3,832.7
Current Portion Long-term Debt ($USD Millions)$73.8 $69.9 $27.2
Cash & Equivalents ($USD Millions)$926.0 $1,019.6 $917.8
Debt Repayment (Quarter, $USD Millions)—$118.0 $132.0
Datacom Revenue Growth YoY (%)——79%
Telecom Revenue Growth (Seq/YoY)——+16% seq / +11% y/y

Notes: Non-GAAP methodology was refined in Q2 FY25; prior periods shown are recast to conform .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ2 FY25 vs Q3 FY25$1.33–$1.41B (Q2 guide from Q1 PR) $1.39–$1.48B (Q3 guide) Raised
Non-GAAP Gross Margin %Q2 vs Q336–38% 37–39% Raised
Non-GAAP OpEx ($USD Millions)Q2 vs Q3$275–$295 $285–$305 Raised (R&D-led)
Non-GAAP Tax Rate %Q2 vs Q319–22% 17–19% Lowered
Non-GAAP EPS ($USD)Q2 vs Q3$0.61–$0.77 $0.75–$0.95 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY24, Q1 FY25)Current Period (Q2 FY25)Trend
AI/datacenter transceiversQ4: Communications +10% seq on 800G AI transceivers ; Q1: growth “driven primarily by AI-related Datacom” Record datacom; +79% y/y; 1.6T samples moving toward ramp in CY25; 3.2T in development Strengthening
Telecom recoveryLimited in Q4/Q1 PRs +16% seq, +11% y/y; cautiously optimistic, expecting Q3 seq growth Improving
Supply chain/tariffsQ4: datacom supply chain resilience milestone (Ipoh) No significant Q3 impact expected; mitigation via geographic diversity and vertical integration Manageable
OCS (Optical Circuit Switch)Q1: OCS won Data Center Innovation/Best Product at ECOC’24 First customer order; initial CY25 revenue; advantages vs MEMS (digital liquid crystal); broader TAM Emerging growth driver
Indium phosphide capacityNot highlighted in Q4/Q1 PRs CHIPS Act funding for Sherman, TX InP; output tripled y/y; supports EML/CW lasers Capacity expansion
Industrial/displayQ4: first Gen 8 OLED linebeam orders Display cap equipment up seq and y/y on excimer lasers; broader industrial cautious Mixed: display strong, broader industrial cautious

Management Commentary

  • CEO: “Record revenue, driven by another quarter of strong AI-related Data Center demand as well as growth in our Telecom business… significant improvement in gross margin and operating margin” .
  • CFO: “Strong profitability… paying down $132 million in debt; non-GAAP EPS grew over 40% sequentially and tripled y/y” .
  • CEO on margins: “Approaching gross margin >40% target via pricing optimization and product cost improvements” .
  • CEO on OCS: “Non-mechanical digital liquid crystal technology provides tremendous advantages… first customer order in Q2; initial CY25 revenue” .
  • CEO on capacity: “Indium phosphide production output tripled y/y; CHIPS Act funding supports expansion” .

Q&A Highlights

  • Telecom outlook: Moved from cautious to cautiously optimistic; expecting sequential improvement in Q3, driven by data center interconnect and ramp of 100G/400G/800G ZR/ZR+ .
  • OCS opportunity: Differentiated, high-reliability platform; customer order secured; revenue starts CY25 with greater contribution in CY26–27; TAM quantification expected at Investor Day .
  • CPO (co-packaged optics): Coherent expects robust optical networking TAM growth and is positioned across pluggables (1.6T ramp, 3.2T in development) and enabling ingredient technologies for future form factors .
  • Tariffs: No significant Q3 impact expected; mitigation through geographic manufacturing diversity and vertical integration; no pull-forward of demand observed .
  • Gross margin drivers: Ongoing yield improvements in datacom, input cost workstreams, and pricing optimization; more detail to come at Investor Day .
  • Q3 segment trajectory: Datacom/telecom up sequentially; industrial-related segments down sequentially; net to flat midpoint .

Estimates Context

  • Wall Street consensus estimates via S&P Global were unavailable at time of retrieval due to request limits; as a result, beat/miss vs consensus cannot be quantified here [GetEstimates error].
  • Notably, actual Q2 non-GAAP EPS of $0.95 exceeded the company’s prior guidance range of $0.61–$0.77, and revenue of $1.435B was above the prior revenue guidance mid-point for Q2 ($1.33–$1.41B) .
  • Q3 guidance implies sustained high revenue and margin levels, with a lower tax rate range (17–19%) vs prior 19–22% guidance framework .

Key Takeaways for Investors

  • Coherent’s datacom exposure to AI buildouts is translating into record revenue and significant margin expansion; yield improvements and pricing initiatives are compounding the effect .
  • Telecom has likely passed the trough, with sequential recovery and product ramps (ZR/ZR+) expected to continue; watch Q3 sequential uptick as a confirmation .
  • OCS represents a new, potentially material adjacency with differentiated technology; initial CY25 revenue signals the start of a multi-year ramp and TAM expansion .
  • Display capital equipment (excimer lasers) is a bright spot amid mixed industrial markets; OLED adoption in larger devices supports sustained demand .
  • Balance sheet strengthening continues: $132M debt reduction in Q2 and robust operating cash flow; deleveraging remains a focus .
  • Near-term watch items: tariff developments (company expects limited impact), product mix effects on margins, and progression of InP capacity expansion including CHIPS Act support .
  • Trading lens: With EPS and margin trends improving and Q3 guide supportive, positive estimate revisions are likely once consensus data is incorporated; monitor Investor Day (May 28) for long-term model clarity .