Coherent Corp.

375 Saxonburg Blvd.

Saxonburg, PA 16056-9499

USA

$ Millions, except per share and percentage amounts (unaudited)

Revenues

GAAP Gross Profit

Non-GAAP Gross Profit₍₁₎

GAAP Operating Income (Loss)₍₂₎

Non-GAAP Operating Income₍₁₎

GAAP Net Loss

Non-GAAP Net Earnings₍₁₎

GAAP Diluted 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 8 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 $1.075 – 1.175 billion.

Non-GAAP gross margin of approximately 35 - 37%.

Non-GAAP operating expense of approximately $238 - 252 million.

Non-GAAP operating margin of approximately 13 – 15%

Non-GAAP Adjusted EBITDA of approximately 19 - 21%.

Interest expense of approximately $73 – 77 million

Non-GAAP tax rate of approximately 20 - 23%.

Series B Preferred P.I.K. Dividend of approximately $30 million.

Non-GAAP earnings per share of approximately $0.14 - 0.32.¹

Share count for the entire guidance range is 153 million.

Capital Expenditures of approximately $95 - 125 million.

Stock compensation of approximately $35 – 43 million.

Amortization of approximately $72 million.

Restructuring, synergies, and consolidation expenses of approximately $45 – 55 million.

Revenue of approximately $4.5 – 4.7 billion, unchanged from our previous guidance.

Non-GAAP gross margin of approximately 36 - 38%.

Non-GAAP operating expense of approximately $995 million - 1.025 billion.

Non-GAAP operating margin of approximately 14 – 16%.

Non-GAAP Adjusted EBITDA of approximately 20 - 22%.

Interest expense of approximately $284 – 294 million.

Non-GAAP tax rate of approximately 18 - 20%.

Series B Preferred P.I.K. Dividend of approximately $123 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.

Non-GAAP earnings per share of approximately $1.00 - 1.50, unchanged from our previous guidance.²

Share count for the entire guidance range is 153 million.

Capital Expenditures of approximately $350 - 400 million.

Stock compensation of approximately $140 – 158 million.

Amortization of approximately $290 million.

Restructuring, synergies, and consolidation expenses of approximately $165 – 185 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.

Gross Margin:

continuous rationalization and refreshing of the portfolio;

continuous rationalization of the supply base for cost and resiliency;

implementation of a streamlined Asia Pacific manufacturing center of excellence;

moving up the value chain;

operating cost reductions based on a rationalized manufacturing footprint;

increased capacity utilization;

favorable product mix, driven by increasingly efficient new product introductions;

productivity improvements through improvements in yields and quality;

implementation of a digital transformation and the adoption of AI technology;

leveraging our service organization into new markets offering new services.

Operating Margin: in addition to the above drivers of gross margin improvement, we expect to drive future operating margin improvement from operating leverage by both increasing revenue and ongoing operating expense reduction, with the latter driven by the execution of:

our Synergy and Site Consolidation Plan;

our Restructuring Plan;

additional cost and expense actions underway.

China and Rest of Asia Site Consolidation. Consolidation of sites in China and the rest of Asia, including the closure of certain manufacturing facilities and sales offices and the establishment of new regional design centers closer to our customers in the Global South. The intent of these actions is to optimize our footprint in Asia. In addition, through these actions, we will replicate the state-of-the-art manufacturing lines we have in China to other parts of Asia to increase resiliency to our internal and external supply chain by taking advantage of the best practices of operational excellence, new product introductions, a smarter and shorter supply chain, and redundancy for sustainability.

Compound Semiconductor Site Consolidation. Consolidation of compound semiconductor wafer fab and device manufacturing facilities, including the closure of half of these facilities is a multi-year and cross-cutting initiative. We will consolidate into our most modern facilities with a stable baseline of operational excellence and will drive better utilization of our assets while reducing our costs and improving our new product introduction (NPI) cycle times.

Savings. We expect total savings for fiscal 2023 - 2025 to be $200 - 300 million, with annual savings of $110 - 140 million by fiscal 2025. We forecast savings associated with the Plan to be approximately $90 - 100 million for full fiscal year 2024.

Costs to Achieve. We expect total costs to achieve these savings over the fiscal 2023 - 2025 period to be $175 - 200 million, including severance, retention, facility moves, short-term duplicate costs, lease termination costs, and IT consolidation costs. In the first quarter of fiscal 2024, we recorded restructuring charges of $3 million, consisting primarily of employment termination costs.

Restructuring Charges. We expect restructuring charges to be in the $35 - 45 million range for full fiscal year 2024 mainly comprised of employment termination, facility move costs and accelerated depreciation. We expect restructuring charges to be in the $25 - 35 million range for full fiscal year 2025, consisting primarily of employment termination, facility move costs and accelerated depreciation, and savings associated with the Plan to be $110 - 140 million for full fiscal year 2025, as noted above. In fiscal 2023, restructuring charges were $119 million, primarily for workforce reduction and the write-off of property and equipment, net of $65 million from reimbursement arrangements.

Backlog. We ended the quarter with almost $2.9 billion of backlog, approximately a $150 million or 5% sequential increase but a greater than (5%) year-over-year decline.

Orders. Orders decreased year-over-year by over (10%) and sequentially by over (5%). Relative to our internal expectations, ongoing significant order strength in Networking driven by AI-related Datacom transceivers more than offset ongoing weak order trends in our Materials and Lasers segments, whose combined backlogs decreased by $39 million sequentially. The sequential decline was due to the over 30% sequential order growth in the preceding quarter, which was driven by the extraordinary surge in AI-related Datacom transceiver orders received at the end of June, earlier than expected.

Outstanding Partners. DENSO and Mitsubishi Electric represent two outstanding partners. DENSO is a leading Tier-1 supplier to the automotive market and Mitsubishi Electric is a leading supplier of industrial and automotive power systems.

Expanded Capacity and R&D. The aggregate $1B investment will help to accelerate 150 mm and 200 mm silicon carbide substrates and epitaxial wafer capacity expansion and our R&D plans for the silicon carbide business.

Growth Outlook and Visibility. The transactions further enhance the SiC revenue growth outlook and visibility by virtue of the long-term supply agreements to support DENSO and Mitsubishi Electric’s demand for 150 mm and 200 mm silicon carbide substrates and epitaxial wafers.

Operating and Financial Flexibility. The investments provide Coherent with greater operating and financial flexibility. While dedicated to the silicon substrate business, the investments will allow us to free up future cash that otherwise would have been used for capital and operating expenditures for the silicon carbide business for other purposes including debt reduction. As a reminder, Coherent had previously announced in August 2021 that it planned to invest $1 billion over the next 10 years in its silicon carbide business.

Significant Retained Ownership Interest and Operating Control. Coherent maintains 75% ownership and strategic and operating control of the silicon carbide business.

Valuation. The transactions placed a $3 billion value on the silicon carbide business prior to the investments—approximately 10x our projected fiscal 2024 revenue for the silicon carbide business.

Materials. Revenue of $245 million for our Materials segment decreased by 15% sequentially and 31% year-over-year, primarily due to the previously disclosed expected reduction in our Consumer Electronics market revenue partially offset by an increase in the Automotive vertical revenue.

Networking. Revenue of $473 million for our Networking segment decreased by 19% sequentially and 21% year-over-year primarily due to the expected decrease in revenue, which in turn was primarily due to inventory digestion, from a Webscale customer that accounted for 10% of our fiscal 2023 revenue along with ongoing inventory digestion by other Webscale and CSP customers along with project delays specific to some CSPs.

Lasers. Revenue of $336 million for our Lasers segment was in-line with our internal forecast, increased slightly from the preceding quarter but decreased by 14% year-over-year primarily driven by ongoing macroeconomic uncertainty. Within the Lasers segment, we are seeing largely flat demand across virtually all of our Industrial and Instrumentation markets. Encouragingly, we are starting to see improvement in our Laser services revenue, primarily driven by increasing fab utilization and depleted inventory in our Display Capital Equipment market segment.

Target: Our long-term leverage target is 2.5x synergized gross leverage.

$ Millions, except per share and percentage amounts (unaudited)

Inventory

Cash

Gross Debt

Net Debt

Calculated - Gross/Net leverage

Credit Facility - Gross/Net Leverage

Debt Payments

Operating Cash Flow

Capital expenditures

Depreciation

Amortization

Fully diluted shares for NG EPS

Semiconductor Capital Equipment Vertical: We see favorable long-term demand trends for our SemiCap business augmented by government policy-driven fab investments (i.e., government subsidies for expanding production capacity) and, most importantly, our increasing serviceable addressable market (SAM) because of portfolio expansion over the longer-term. We enjoy a strong NRE-funded design win pipeline from existing and new customers across both front-end wafer inspection and new applications.

Front-End. We enjoy a particularly strong competitive position in front-end SemiCap, which accounts for most of our SemiCap vertical revenue. We have a number of new programs and design wins on track to drive future incremental revenue.

Semiconductor Wafer Inspection. We have a strong pipeline of design wins and NRE and record shipments in the first quarter of lasers for Semiconductor Wafer Inspection.

Additional Growth Opportunities. We are excited by significant growth opportunities in the SemiCap vertical for our ceramic, diamond and silicon carbide materials. The trend to increase wafer throughput is driving the need for more advanced materials that are stiffer and lighter and that have higher resonance frequency and better thermal properties. We expect our ceramics revenue to ramp throughout fiscal 2024. We also expect eventual incremental revenue contribution from new product introduction wins in the SemiCap market such as next-generation ceramics parts and assembly for next generation lithography machines.

AI. Our 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 Vertical: We continue to expect an eventual rebound in the Display Capital Equipment (Display) segment of the Industrial market, where we are a leading supplier to virtually all of the leading companies in the Display vertical and where we enjoy a broad technology platform to address virtually all Display companies’ future roadmaps. We are especially strong in the Excimer laser annealing market, which accounts for the largest portion of our Display SAM.

OLED. The long-term outlook for our Display Excimer laser annealing business remains robust. We are excited by investments in new Gen 8 OLED fabs for capacity expansion for larger substrates for tablet and notebook computers and by OLED adoption in the automotive market. The move to larger OLED formats and new OLED display types will require new Excimer laser annealing systems along with new lasers for cutting. We are well positioned for both cutting and larger format annealing. We have also started receiving sizable purchase orders in connection with new fab investments in China. We expect the IT display market to increase from approximately $6B in calendar 2023 to almost $14 billion in calendar 2026 with OLED displays growing by well over 100% from approximately $3 billion to approximately $8 billion. Our Display business also should benefit from increasing adoption of OLEDs in smartphones and an eventual rebound in smartphone sales.

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

MicroLED. Long-term Display Capital Equipment demand is also augmented by the emergence of the MicroLED market and the adoption of laser lift-off and mass transfer processes. We have seen increasing MicroLED interest and customer engagement based on recent announcements from tier one smartphone manufacturers on their future MicroLED display roadmaps. As we previously disclosed, in the preceding fourth quarter, we received multiple orders from customers in China, Taiwan, and Korea for such systems.

Service. Encouragingly, we are starting to see improvement in our Display services revenue. While smartphone sales are near the lowest level in a decade, several OLED fabs in Korea are seeing increased fab utilization, which combined with depleted inventory of service spare parts, has driven a meaningful sequential increase in our service business. We expect both increasing fab utilization and new Excimer system laser installations to drive longer-term recovery in our Laser service revenue. While still below the year ago level, our Display service revenue increased by over 20% sequentially in the first quarter of fiscal 2024.

Precision Manufacturing Vertical: While revenue from our Precision Manufacturing market segment suffered a significant sequential and year-over-year decrease, a second straight quarter of order growth suggests some stabilization. We continue to see a strong long-term outlook for this market driven by new product offerings that enhance our SAM and competitive position. An eventual macroeconomic rebound will especially affect Precision Manufacturing demand, our most macro-impacted vertical in the Industrial market. Encouragingly, some customers that have been pushing out shipments over the last 18 months have now requested shipments on short notice.

Electric Vehicles, EV Battery Assembly, and Medical Devices: Our key target markets of Electric Vehicles (EV) and Medical Device Manufacturing continue to provide healthy long-term market growth outlooks of > 15% and > 5%, respectively. We are especially excited by our positive order trend and strengthening market trend in Europe and the Americas for EV battery welding—and the revenue growth potential attending the pace of our cost reductions and performance improvements in our new ARM Laser and Beam Delivery Systems. The process monitoring and control technology that we pioneered, which is a significant differentiator in this system, is gaining increasing traction in the marketplace. We expect to ship this system in volume into the EV battery manufacturing market for precision copper welding.

65 W Diode Pump Chip: We are especially excited regarding the revenue growth prospect for our 65W diode pump chip, which we believe is the highest power single emitter pump laser in the market, with ongoing strong customer interest in the first quarter. 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.

Datacom Vertical. Starting in the second-half of fiscal 2024, we expect a return to year-over-year Datacom revenue growth based on our order book together with strong customer engagements for AI-related data center buildouts and a return to revenue growth for our lower speed Datacom transceivers for non-AI deployments driven by inventory normalization. High speed (> 200G) transceivers now account for over 70% of our Datacom transceiver revenue.

AI/ML. Strong follow-on orders in the first quarter for our Datacom transceivers for AI-based data center buildouts in the wake of the surge in demand in the preceding quarter reinforced our excitement as to the impact on our Datacom business from the rapid growth of AI/ML, especially generative AI. We also are excited by the strong interest we are seeing from key customers for 1.6T transceivers and components. Retooling of datacenter architectures and integration of AI clusters by Webscale and other Cloud ICP 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.

Expanded Engagements with Existing and New Customers. As previously noted, adding to our longer-term visibility, during the quarter we continued to expand AI-related product engagements with existing customers and entered into engagements with a number of new AI-related customers including some of the largest Webscale and networking equipment manufacturer companies.

Market Inflection; Long Duration. The strength of follow-on orders and customer engagements in the first quarter reinforced our confidence as to an inflection point in the Datacom transceiver market with significant AI/ML-related revenue growth in our Datacom transceiver business and thereby our overall revenue growth and profitability for many years to come.

More Than Just Datacom Transceivers. We see the longer-term benefit of AI/ML extending well beyond Datacom transceivers to impact other product markets that we address and to enable significant operating efficiencies across our organization.

Webscale. These orders also reflect our strong technology platforms and competitive position relative to Webscale and Cloud ICP AI/ML-driven datacenter deployments. For the quarter, Webscale customers and customers that incorporate our transceivers in solutions sold to Webscale customers accounted for virtually all of our AI-driven 800G and the bulk of our overall Datacom transceiver revenue. Webscale customers directly and indirectly accounted for approximately 60% of our total Datacom transceiver revenue for the quarter.

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, with multiple leading-edge laser platforms including DFB-MZs, EMLs, and VCSELs. We are making great progress on our 1.6T program and we expect to be first to market with the platform, the building blocks of which we demonstrated at ECOC, including our DFB-MZ laser, which also won the 2023 ECOC Exhibition Industry Award for Most Innovative Product in the category of Innovative Photonics Components.

Silicon Photonics. This year, to address AI-driven Datacom transceiver demand, we launched our Silicon Photonics-based 800G-DR8 Datacom transceiver. This transceiver is ideal for use in machine learning and training networks that need a link reach longer than 100 meters or where our customers prefer a single-mode over a multi-mode fiber cabling infrastructure in shorter reaches. At the ECOC tradeshow in October, we were pleased to demonstrate a linear pluggable optics (LPO) version of this product.

CPO. To meet the needs of the future CPO (co-packaged optics) market, we are uniquely well-positioned to cover both single-mode and multi-mode infrastructure options for our customers. Our Silicon Photonics program, combined with our InP CW (continuous wave) high-power lasers, will enable single-mode CPO applications or designs. In addition, given the successful track record of multi-mode pluggable transceivers in addressing short-reach applications such as AI/ML/HPC connectivity, we are also investigating a multi-mode CPO option, powered by our VCSELs. We presented our thought leadership on this subject at the OpenCompute Global Summit recently.

Market Growth. We estimate the AI-market for 800G, and eventually 1.6T and 3.2T Datacom transceivers, will grow at a greater than 40% CAGR over the next five years to over $4.2 billion in calendar 2028 from what we estimate was $0.6 billion in calendar 2023;we expect this growth for 800G and future 1.6T and 3.6T transceivers to drive a 20% CAGR for the entire Datacom transceiver market. We expect this growth to result in AI-related 800G and 1.6T Datacom transceiver shipments accounting for almost 60% of all Datacom transceiver shipments by 2028 and possibly sooner.

Supply Chain. As noted above, previously disclosed supply chain constraints impacted our first quarter shipments and revenue as expected; at the same time, we are seeing meaningful improvement in these constraints and our ability to ramp production as reflected in an approximately 200% sequential increase in our 800G revenue in the first quarter. The shortages of certain components from external suppliers are still affecting us. We expect increased revenue from further significant supply chain improvement throughout fiscal 2024. 800G supply constraints are expected to ease and our qualification and NPI ramp to proceed with full resolution of supply chain constraints by the end of fiscal 2024 based on our current view of future 800G demand.

Components. Our Datacom components enjoyed very strong revenue growth in the first quarter, 30% sequentially and 27% year-over-year, largely driven by strength in VCSELs and passives for AI applications.

Telecom Vertical. While the near-term outlook for the Telecom market remains challenged by inventory digestion and project delays by CSPs, the first quarter reinforced our excitement regarding our longer-term Telecom growth outlook. Near-term, we believe the first quarter will mark the bottom for our Telecom business. Longer-term, we are excited by the growth prospects offered by a number of new products that strengthen our competitive position in existing Telecom market segments across multiple levels of integration. These new products will enable us to expand our SAM by providing entree into new segments of the Telecom market.

First Quarter of Fiscal 2024. Telecom revenue and orders in the first quarter remained weak, consistent with our expectations, due to ongoing inventory digestion together with project delays related to cautious capital expenditures by certain CSPs. We saw delivery pushouts late in the quarter from multiple customers.

Balance of Fiscal 2024. We expect sequential growth in Telecom revenue in the second quarter and accelerating sequential growth throughout the remainder of fiscal 2024 with a return to year-over-year growth recommencing in fiscal 2025 driven by customers’ inventory normalization, new orders placed by some customers at the end of the first quarter, especially for our critical Telecom products, and revenue ramp of new product launches.

Robust Design and Qualification Activity. We have enjoyed robust design activity in response to multiple planned new projects, which points to a very strong long-term recovery.

A Market Leader. In Telecom, we are a vertically integrated market leader in several core businesses including our pump lasers, telemetry, ROADMs, amplifiers and WSS products along with our coherent transceivers and disaggregated solutions. We believe we are gaining share at many of our key customers on our current product set and our newer product platforms are seeing strong uptake in the industry.

Exposure to Fast Growth Segments. We are excited by our Telecom revenue growth outlook for fiscal 2025 and beyond as we are well positioned in key market segments and expect to benefit from the industry trend towards disaggregation, which benefits pluggable coherent transceivers and disaggregated systems, which are the fastest-growing segments of our Telecom market.

Coherent Optical Modules. We are especially excited about the number and quality of customer design wins for our new 100G ZR and 400G ZR/ZR+ pluggable transceivers. The former is based on our own internally developed Steelerton DSP. We currently are qualified and beginning to ramp shipments of our 400G ZR/ZR+ transceivers and expect to commence ramping production and commercial shipments of our new 100G ZR transceivers in calendar 2024.

Disaggregated Solutions. We are seeing increasing opportunities for disaggregated solutions at both traditional CSPs and Webscale companies with an increasing number of new design-ins.

Wide-Bandgap (WBG)/Silicon Carbide (SiC). For our WBG business, demand for our SiC substrates continue to exceed 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.

As discussed at greater length above, our recently announced transactions with DENSO and Mitsubishi Electric enhances our confidence in our long-term revenue growth outlook for our silicon carbide business.

Consumer Electronics Vertical. 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 are currently driving the need for the data provided by advanced sensors that serve as the eyes and ears of AI/ML systems. In addition, AI’s emerging, powerful capabilities are underpinning new use cases to more effectively employ sensing in a variety of markets and applications. This new market dynamic has triggered substantial activity to develop and deploy a variety of sensing solutions. These include health monitoring and biosensing, metaverse AR/VR hardware and wearables, automotive LiDAR and in-cabin sensing, and other emerging applications. We 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 850 nm to 2400 nm and three semiconductor material platforms is a key competitive differentiator for this market. Notwithstanding a new market entrant, we are maintaining our overall market share leadership position in Consumer Electronics 3D sensing and rapidly expanding the offerings of our platform, customer partnerships and growth trajectory.

AR/VR. During the first quarter, we continued to strengthen our strategic engagements, particularly in the AR/VR and wearables market segments. We initiated volume shipments of a new product designed for a sensing application in AR/VR. We are excited about recent new product announcements in the AR/VR space. As this technology gradually evolves, is more widely adopted and integrates more advanced sensing features, we are well-positioned to serve the market with differentiated solutions based on our opto-semiconductor and optics material platforms.

Life Sciences Vertical. 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. 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 semiconductor lasers for dermatology applications to 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.

Scientific Instrumentation Vertical. We have seen a near-term slowdown in the market in part due to flat National Institute of Health funding. 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.

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.

$ Millions, except per share and percentage amounts (unaudited)

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

Loss Before Income Taxes

Income Taxes

Net Loss

Less: Dividends on Preferred Stock

Net Loss Available to the Common Shareholders

Basic Loss Per Share

Diluted Loss Per Share

Average Shares Outstanding – Basic

Average Shares Outstanding – Diluted

$ Millions, except per share and percentage amounts (unaudited)

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

$ Millions, except per share and percentage amounts (unaudited)

Cash Flows from Operating Activities

Net cash provided by operating activities

Cash Flows from Investing Activities

Additions to property, plant & equipment

Purchases of businesses, net of cash acquired

Other investing activities

Net cash used in investing activities

Cash Flows from Financing Activities

Proceeds from borrowings of Term A Facility

Proceeds from borrowings of Term B Facility

Proceeds from borrowings of Revolving Credit Facility

Proceeds from issuance of Series B preferred shares

Equity issuance costs

Payments on existing debt

Payments on borrowings under Revolving Credit Facility

Debt issuance costs

Equity issuance costs

Proceeds from exercises of stock options

Payment on convertible notes

Payments in satisfaction of employees’ minimum tax obligations

Other financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

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

Cash, Cash Equivalents, and Restricted Cash at End of Period⁽¹⁾

Restricted cash, non-current is included in the condensed consolidated balance sheets under ‘Other Assets’.

$ Millions, except percentage amounts (unaudited)

Revenues:

Networking

Materials

Lasers

Consolidated

GAAP Operating Income (Loss):

Networking

Materials

Lasers

Consolidated

Non-GAAP Operating Income:

Networking

Materials

Lasers

Consolidated

GAAP Operating Margin (Loss):

Networking

Materials

Lasers

Consolidated

Non-GAAP Operating Margin:

Networking

Materials

Lasers

Consolidated

Amounts may not recalculate due to rounding.

$ Millions (unaudited)

Networking GAAP Operating Income (Loss)

Share-based compensation

Amortization of acquired intangibles₍₁₎

Restructuring charges₍₂₎

Integration, site consolidation and other₍₃₎

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₎

Start-up costs₍₅₎

Non-GAAP Materials Operating Income

Lasers GAAP Operating Loss

Share-based compensation

Amortization of acquired intangibles₍₁₎

Restructuring charges₍₂₎

Integration, site consolidation and other₍₃₎

Transaction fees and financing₍₄₎

Fair value adjustment on acquired inventory

Non-GAAP Lasers Operating Income

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.

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.

Transaction fees and financing includes debt extinguishment costs and various fees related to closing the Coherent transaction.

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

$ Millions, except per share amounts (unaudited)

Gross profit on GAAP basis

Share-based compensation

Amortization of acquired intangibles₍₁₎

Fair value adjustment on acquired inventory

Integration, site consolidation and other₍₃₎

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₍₃₎

Start-up costs₍₅₎

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₍₃₎

Transaction fees and financing ₍₄₎

Selling, general and administrative on non-GAAP basis

Restructuring charges on GAAP basis

Restructuring charges₍₂₎

Restructuring charges on non-GAAP basis

Operating income (loss) on GAAP basis

Share-based compensation

Amortization of acquired intangibles₍₁₎

Fair value adjustment on acquired inventory

Restructuring charges₍₂₎

Integration, site consolidation and other₍₃₎

Transaction fees and financing₍₄₎

Start-up costs₍₅₎

Operating income on non-GAAP basis

$ Millions, except per share amounts (unaudited)

Interest and other (income) expense, net on GAAP basis

Foreign currency exchange gains (losses), net

Transaction fees and financing₍₄₎

Interest and other (income) expense, net on non-GAAP basis

Income taxes on GAAP basis

Tax impact of non-GAAP measures

Income taxes on non-GAAP basis

Net earnings (loss) on GAAP basis

Share-based compensation

Amortization of acquired intangibles₍₁₎

Fair value adjustment on acquired inventory

Foreign currency exchange (gains) losses

Restructuring charges₍₂₎

Integration, site consolidation and other₍₃₎

Transaction fees and financing₍₄₎

Start-up costs₍₅₎

Tax impact of non-GAAP measures

Net earnings on non-GAAP basis

Per share data:

Net loss on GAAP basis

Basic Loss Per Share

Diluted Loss Per Share

Net earnings on non-GAAP basis

Basic Earnings Per Share

Diluted Earnings Per Share

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.

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.

Transaction fees and financing includes debt extinguishment costs and various fees related to closing the Coherent transaction.

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

$ Millions, except percentage amounts (unaudited)

Net earnings (loss) on GAAP basis

Income taxes

Depreciation and amortization

Interest expense

Interest income

EBITDA ₍₁₎

EBITDA margin

Fair value adjustment on acquired inventory

Share-based compensation

Foreign currency exchange (gains) losses

Start-up costs₍₆₎

Restructuring charges₍₃₎

Integration, site consolidation and other₍₄₎

Transaction fees and financing₍₅₎

Adjusted EBITDA ₍₂₎

Adjusted EBITDA margin

Amounts may not recalculate due to rounding.

EBITDA is defined as earnings before interest expense, interest income, income taxes, depreciation and amortization.

Adjusted EBITDA excludes non-GAAP adjustments for share-based compensation, certain one-time restructuring, integration, and transaction expenses, debt extinguishment charges, start-up costs, and the impact of foreign currency exchange gains and losses.

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.

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.

Transaction fees and financing includes debt extinguishment costs and various fees related to closing the Coherent transaction.

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

$ Millions, except per share amounts (unaudited)

Numerator

Net loss

Deduct Series A preferred stock dividends

Deduct Series B redeemable preferred dividends

Basic loss available to common shareholders

Diluted loss available to common shareholders

Denominator

Weighted average shares

Effect of dilutive securities:

Common stock equivalents

Diluted weighted average common shares

Basic loss per common share

Diluted loss per common share

Amounts may not recalculate due to rounding.

$ Millions, except per share amounts (unaudited)

Net earnings on non-GAAP basis

Deduct Series A preferred stock dividends

Deduct Series B redeemable preferred dividends

Basic earnings available to common shareholders

Effect of dilutive securities

Add back interest on convertible notes

Add back Series A preferred stock dividends

Diluted earnings available to common shareholders

Denominator

Weighted average shares

Effect of dilutive securities:

Common stock equivalents

Convertible notes

Series A Mandatory Convertible Preferred Stock

Diluted weighted average common shares

Basic earnings per common share on non-GAAP basis

Diluted earnings per common share on non-GAAP basis

Amounts may not recalculate due to rounding