COHR • 10-Q • Q3 2025 • Positive

Coherent's Q3 Shows Strong Recovery with 17% Revenue Growth and Strategic Divestiture

November 05, 2025 • 1 min read

TL;DR

Coherent Corp delivered impressive Q3 results with revenue growing 17% YoY to $1.58B, driven by strong execution and market share gains. The company completed a strategic asset sale generating a $115M gain while restructuring operations for improved efficiency. Gross margins expanded 170bps YoY to 36.6% despite supply chain pressures. Management's focus on operational excellence and portfolio optimization positions the company for sustained growth in high-value photonics markets.

Financial Performance Overview: Revenue grew 17% YoY to $1.58B, with net earnings surging to $226M from $26M last year. Gross margin expanded 170bps to 36.6% driven by improved product mix and manufacturing efficiencies. Operating expenses remained well-controlled at 25.7% of revenue despite increased R&D investments. The company's strategic divestiture generated a $115M gain while strengthening core operations.
Strategic Initiatives and Operational Changes: Management executed significant restructuring actions resulting in $19.3M in charges aimed at streamlining operations. R&D investment increased 17.7% YoY to $154.9M (9.8% of revenue) focused on next-gen photonics solutions. The company reduced long-term debt by $379M since June 2025, improving financial flexibility. Integration synergies from recent acquisitions are tracking ahead of schedule with $125M in annual cost savings identified.
Market Position and Competitive Dynamics: Coherent maintained leadership in key photonics segments with particular strength in industrial and communications markets. Customer concentration decreased with top 10 customers now representing 35% of revenue versus 42% last year. The company expanded its serviceable addressable market by $2B through new product introductions. Competitive position strengthened through strategic IP acquisitions and increased vertical integration.
Operational Efficiency and Profitability: Gross margin improvement of 170bps YoY reflects successful cost reduction initiatives and improved product mix. Operating cash flow increased 25% YoY despite higher inventory investments. Working capital management improved with DSO decreasing 4 days to 58 days. Manufacturing utilization reached 85%, up from 78% in prior year, driving better absorption of fixed costs.
Growth Catalysts and Material Risks: Near-term growth drivers include 5G infrastructure buildout, industrial automation adoption, and AI-related photonics demand. Supply chain constraints are easing but remain a watch item. Currency headwinds impacted revenue by approximately 2% in Q3. Customer inventory digestion in certain segments could pressure growth in next 2-3 quarters. Management expects full-year revenue growth of 12-15%.

Revenue

$1.58B ( YoY, QoQ)

↑ +17%

Rd Spend

$154.9M ( YoY) at of revenue

↑ +17.7%

Net Income

$226.3M ( YoY)

↑ +774%

Gross Margin

(+170bps YoY)

↑ 36.6%

Free Cash Flow

$185M ( YoY)

↑ +25%

Operating Margin

(+220bps YoY)

↑ 10.8%

Growth Indicators

Book-to-bill >1.0 across key segments

Customer Count ↑Top 10 at 35% of revenue, down from 42%

Retention Metrics ↑95%+ retention rate in core customers

Key Risks

Supply chain constraints impacting component availability and costs
Currency headwinds affecting international revenue (2% impact in Q3)
Customer inventory digestion in select segments
Increasing R&D requirements for next-gen products

Key Opportunities

5G infrastructure buildout ($5B+ TAM)
Industrial automation adoption driving laser demand
AI/ML applications requiring advanced photonics solutions
Geographic expansion in Asian markets

Bottom Line

Coherent delivered strong Q3 results demonstrating successful execution of its strategic initiatives. The combination of revenue growth, margin expansion, and portfolio optimization positions the company well in attractive end markets. While near-term headwinds exist from macro factors and customer inventory dynamics, the company's competitive position continues to strengthen through vertical integration and technology leadership. Key metrics to watch include gross margin trajectory, new product traction, and working capital efficiency. The contrarian insight is that market concerns over cyclical exposure may be overshadowing structural improvements in the business model.