Coherent Corp - 6% PRF CONVERT 01/07/2023 USD 200 - Ser A

Strong Q1 momentum (growth + profitability) - Revenue: $2.37B, up 16% sequentially and 50% YoY (pro forma: +56% YoY; excluding divested aerospace/defense and Munich product division impacts). - Non-GAAP EPS: $2.09, up 20% sequentially and 80% YoY (EPS growth outpacing revenue). - Non-GAAP gross margin: 40.6%, up +37 bps QoQ and +184 bps YoY, attributed to pricing optimization, lower input costs, and improved manufacturing yields plus benefits from moving to 6-inch InP.

Upsized margin target (major positive / “surprising” highlight) - Company says it must raise its gross margin target: now expects gross margin >45% before end of calendar 2028. - Management claims this new target is ~300 bps higher than the long-term target given only ~18 months ago, suggesting acceleration in structural drivers (6-inch InP leverage + operational improvements). - Challenge implied: sustaining margin expansion at a higher bar as new platforms (e.g., PhotonLink, OCS) scale.

Capex acceleration to support demand (opportunity, but a risk to watch) - Capex: $776M in Q1 (vs $556M in Q4; $104M YoY in prior year quarter). - Strategy: invest ahead of demand because customer visibility/backlog is strong; expect capex to increase again in Q2. - Balance sheet: cash $2.34B (down from $2.59B end of prior quarter); debt leverage ~1.1x—management emphasizes continued balance sheet flexibility. - Investor risk to monitor: heavy spending could pressure cash if demand/mix shifts, yields slip, or supply constraints re-emerge.