Coherent Corp (COHR) 2020 Q3 法說會逐字稿

Good afternoon. And welcome to Coherent's Third Quarter Fiscal Year 2020 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Bret DiMarco, Executive Vice President and General Counsel. Please go ahead.

Thank you, Danielle, and good afternoon, everyone. Welcome to today's conference call to discuss Coherent's results from its third fiscal quarter ended July 4, 2020. All of us here at Coherent hope that you and your family are staying healthy and safe during these challenging times. On the call with me are Andy Mattes, our President and Chief Executive Officer; and Kevin Palatnik, our Executive Vice President and Chief Financial Officer.

I would like to remind everyone that some information provided during this call may include forward-looking statements, including, without limitation, statements about Coherent's future events, anticipated financial results, business trends, global economic trends and the expected timing and benefits, if any, of such trends. These forward-looking statements may contain such words as project, outlook, future, expects, will, anticipates, believes, intends or referred to as guidance. These forward-looking statements reflect beliefs, estimates and predictions as of today, and Coherent expressly assumes no obligation to update any such forward-looking statements. These forward-looking statements are only predictions and are subject to substantial risks. Factors that could cause or contribute to such differences include, but are not limited to, risks associated with the recovery of global and regional economies from the negative effects COVID-19 and related private and public sector measures; global demand; acceptance and adoption of our products, including, but not limited to, adoption of OLED displays; the demand for and use of our products in commercial applications; continued timely availability of products and materials from our suppliers; our ability to timely ship our products and our customers' ability to accept such shipments; worldwide government economic policies, including trade relations between the United States and China; and other risks identified in the company's SEC filings. For a detailed description of risks and uncertainties which could impact these forward-looking statements, you should review Coherent's periodic SEC filings, including its most recent Form 10-K, Form 10-Q and Forms 8-K, including the risks identified in today's financial press release.

I will now turn the call over to Andy Mattes, our President and Chief Executive Officer.

Thank you, Bret. And thank you to everyone for joining our earnings call today. This was my first full quarter at Coherent and, as you can imagine, I am still on a steep learning curve about our company, our customers, our product portfolio and our people.

I had never imagined how much one can actually get done in a solely virtual world. And I must say I'm extremely excited to see how all our employees are actively embracing the new normal of either getting business done remotely or working in our labs and manufacturing sites by adhering to our strict stay safe and healthy rules. I am pleased to report that both the number of active COVID cases as well as necessary quarantines in our workforce were de minimis. Under the leadership of our COVID Steering Committee, we have been able to safely ramp up our manufacturing readiness from some 80% back in April to over 90% today.

Looking at our top line. We were able to improve our revenues sequentially from last quarter, although our book-to-bill ratio dropped below 1 as we saw the effects of COVID slowing demand in several markets.

To add a little color, Q3 was the first quarter that was fully overshadowed by COVID with substantial headwinds as most of Europe and the U.S. were under shelter-in-place orders. This impact was seen much more on the booking side than on the revenue side. On average, our proposal activity level in Q3 was more than 10% below the previous quarter. The month of April marked the low point with proposal activity more than 40% below Q2 average. We are encouraged to see that both June and now July proposal activity rebounded to levels north of the Q2 average. To be clear, when I say proposal, I'm referring to quotes, RFQs, RFPs and similar activities. If we do not experience another shelter-in-place environment in the months to come, this should be an early sign of recovery that could manifest itself in our Q1 bookings.

Now let's take a closer look at our market segment. Starting with microelectronics. As you know, this market is made up of 3 submarkets: flat panel display, semiconductors and API. All 3 markets have been impacted by COVID-19, but there are bright spots. In quarter, flat panel display revenue was aided by increased Linebeam shipments destined for Chinese customers. Fab utilization by our customers was still down in Q3, and our corresponding service revenue was off for a second quarter in a row by more than 20% from our pre-COVID run rate. However, we experienced strong service bookings which, together with consistent reporting of higher fab utilization in July, bodes well for increased service revenues in the future.

Reports of many new 5G and flexible OLED-enabled smartphone launches in the next quarters gives us confidence that the recovery should be sustainable as these products are expected to drive an upgrade cycle.

If you look at the microelectronics market more broadly, we continue to capture mind and market share in the laser lift-off technology for flexible OLED with our UV Blade 750, which continues to outperform our solid-state laser competitor. And we have won significant repeat ultrafast business in Korea related to flexible OLED cutting and ultrathin glass for foldable phone.

Semiconductor inspection remains a bright spot with strong demand across all nodes driven by strength in cloud computing and data centers. Our fiscal Q3 saw a historic high demand.

In advanced packaging and interconnect, we see 5G driving increased demand in smaller geometry and next-generation PCBs, which is driving strength in our CO2 laser via drilling business. We are well positioned with China's leading equipment supplier who appears to be taking share from the historical industry leader.

With consumer spending and habits worldwide being impacted by COVID, we would expect to see a somewhat quicker recovery for mobile electronics compared to big-ticket items such as, for example, cars. We, therefore, expect a faster recovery across microelectronics than we would for materials processing.

Looking at materials processing. Machine tool demand remains depressed, especially across Europe and, to a lesser extent, the U.S. Bookings are down more than 25% from pre-COVID levels. This trend already started in the German automotive sector before the pandemic but has been exacerbated by the impact of COVID.

With our recently announced exit from the commodity kilowatt fiber laser business, we chose to have a more limited participation in the China materials processing market. However, we continue to see strength in nonmetal applications such as converting, medical device manufacturing and specialty semiconductor marking. We expect a slow recovery in the overall European and U.S. marking, welding and cutting markets given the big-ticket nature of the sector, but we are using the opportunity to retune and invest in our industrial systems and component sales organization ahead of some key new product launches, which we believe will position us for share gains, even in a relatively flat market in our upcoming fiscal year.

Our OEM components and instrumentation business is made up of 3 important submarkets: life science instrumentation, medical diagnostics and therapeutics and defense. Life science is down more than 15% from pre-COVID run rates as many non-COVID-related research labs have been closed. This was partially offset with reasonably robust demand for clinical applications. In the last few weeks, we've seen some upturn in sales activity, which feels like the beginning of a recovery, but we need another month or 2 to verify if this is truly the case.

In medical therapeutics, we definitely experienced an upturn in sales activity as pent-up demand for mainly elective procedures starts to rise. Similarly, we see many research sciences now returning to their labs, and the proposal pipeline for sales in ultrafast laser research and ground-based astronomy looks robust after a very weak Q3 when few labs were opened.

As part of the OEM components and instrumentation end market, defense is emerging as an attractive submarket for us where we are very well positioned in amplifiers for directed energy, countermeasures as well as specialty optics for aerospace and continue to see strong bookings. We see this as a multiyear growth opportunity and will expand further on our plans in this market in future calls.

Early in the pandemic, we recognized the need to enhance our go-to-market approach as the world around us is changing at an unprecedented pace. As announced yesterday, it is, therefore, that for the first time in our history, we added the position of a Chief Marketing Officer to the executive staff. With David Gee, I'm excited to welcome a digital marketing expert to Coherent.

Upskilling our leadership skills on multiple levels as one part of our good-to-great initiative that we launched in Q3. Operational excellence, increased efficiencies and best practice sharing across all parts of our global organization is another important pillar of our good-to-great transformation. It is, therefore, that I ask Mark Sobey, our Chief Operating Officer, to oversee both our ILS and OLS business unit.

One area that clearly underlines the fact that operational excellence is a team sport and requires ongoing and continuous improvement on all levels of an organization is cash generation. I'm, therefore, very excited to report that as a company, our focus on cash is starting to manifest itself in a noticeable improvement of our cash position from Q2 to Q3.

And with that, I'll turn the call over to Kevin.

Thanks, Andy. Today, I'll first summarize fiscal third quarter 2020 financial results, then move to the outlook for fiscal Q4. I'll discuss primarily non-GAAP financial results and ask that you refer to today's press release for a detailed description of our GAAP results as well as a reconciliation between GAAP and non-GAAP financial results. The non-GAAP adjustments relate to stock-based compensation expense, amortization of intangible assets, restructuring costs, related tax adjustments and tax adjustments for stock-based compensation. The full text of today's prepared remarks and trended GAAP and non-GAAP supplemental financial information will be posted on the Coherent Investor Relations website. A replay of this webcast will also be made available for approximately 90 days following the call.

Fiscal third quarter 2020 financial results for the company's key operating metrics were total revenue of $298.3 million, non-GAAP gross margin of 33.1%, non-GAAP operating margin of 5.9%, adjusted EBITDA of 9.6% and non-GAAP EPS of $0.52.

Total revenue for the fiscal third quarter was $298.3 million and came in at the high end of our previously guided range. Although we were high in the range, sales were negatively affected by COVID-19. We estimate the impact to revenues was approximately $9 million to $10 million during the quarter.

Our revenue mix by market for Q3 was microelectronics, 48%; materials processing, 27%; OEM components and instrumentation, 18%; and scientific and government, 7%. Geographically, Asia accounted for 54% of revenues in the fiscal third quarter; the U.S., 22%; Europe, 19%; and rest of world, 5%. Asia includes 2 territories with revenues greater than 10% of sales. We had one customer in South Korea related to large flat panel display manufacturing that contributed more than 10% of our fiscal third quarter revenues.

Revenue from other products and service for the fiscal third quarter was $97 million or approximately 33% of sales. Other product revenue consists of spare parts, related accessories and other consumable products and was approximately 28% of sales. Revenue from services and service agreements was approximately 5% of sales. Total service revenues were virtually flat sequentially with a bit of a rebound in display, offset by decreases in materials processing.

Fiscal third quarter non-GAAP gross profit, excluding stock-based compensation costs, intangibles amortization and restructuring, was approximately $99 million. Non-GAAP gross margin was 33.1% for Q3 and came in above the midpoint of our previously guided range due primarily to a stronger mix of our ELA tools, partially offset by higher manufacturing costs related to lower volumes. Non-GAAP operating expenses decreased by approximately $1 million. This resulted in a non-GAAP operating margin of 5.9% for the fiscal third quarter and came in above our previously guided range. Adjusted EBITDA was 9.6% in fiscal Q3.

Turning to the balance sheet. Nonrestricted cash, cash equivalents and short-term investments were approximately $421 million at the end of fiscal Q3, an increase of approximately $52 million compared to the end of last quarter. Given our focus on cash preservation during this continued period of relative uncertainty in the global economy, we did not repurchase any shares in Q3 pursuant to our current buyback authorization. We also did not make any voluntary payments against our term loan. At the end of fiscal Q3, the outstanding amount of the term loan in USD was approximately $406 million. Accounts receivable DSO was 60 days compared to 62 days in the prior quarter. The net inventory balance at the end of fiscal third quarter was approximately $449 million, a decrease of $8 million, resulting from our continued focus on optimizing our inventory balances and increasing our turns.

Now I'll turn to our outlook for our fourth fiscal quarter of 2020. Revenue for fiscal Q4 is expected to be in the range of $290 million to $320 million. You'll note that we tightened the guided range as a result of our improved visibility in certain end markets. We expect fiscal Q4 non-GAAP gross margin to be in the range of 34.5% to 38.5%. Non-GAAP gross margin excludes intangible amortization of approximately $2.3 million and stock compensation cost estimated at $1.2 million. Non-GAAP operating margin for fiscal Q4 is expected to be in the range of 6.5% to 10.5%. This excludes intangibles ambition estimated at a total of $2.9 million and stock compensation expense of a total of approximately $15.2 million.

Other income and expense is estimated to be an expense in the range of $4 million to $5 million. We do not include transaction gains and losses related to future changes in foreign exchange rates in our OI&E outlook. We expect our fiscal Q4 non-GAAP tax rate to be in the range of 20% to 21%. And finally, we're assuming weighted average outstanding shares of approximately 24.3 million for the fiscal fourth quarter.

I'll now turn the call back to the operator, Danielle, for a Q&A session.

(Operator Instructions) The first question comes from Jim Ricchiuti of Needham & Company.

If I heard you correctly, I think you said the book-to-bill was below 1 for the quarter and some of which, clearly, I guess, is a result of COVID. But I'm wondering if you can talk a little bit about how the book-to-bill might have varied from different sectors. For instance, is there any color you can give us on the activity in the display market where there's clearly some build-out but there's also some puts and takes about things being pushed to the right?

Jim, it's Kevin. So listen, we did say that book-to-bill was less than 1. It was pretty much across the board against all of our end markets: microelectronics, materials processing, et cetera. We haven't called out display specifically in a couple of years in terms of bookings or book-to-bill or even backlog. We do that once a year after the K. So let me just say that across the board, we were less than 1. There were some bright spots, as you heard in Andy's prepared remarks, defense was strong, some biomedical stuff was strong, materials processing generally was weak, very weak. And let me leave it there.

No, that's helpful. Kevin, I appreciate that. And just with respect to the display business, the service business -- the question I have is -- you called out utilization and, clearly, that's a factor. But if we look at the overall service business, is there anything else going on within that display-related service business that potentially suggests that maybe customers are finding a way to utilize the lasers more efficiently where we're not seeing this kind of recurring revenue that maybe we would have thought otherwise?

Jim, it's a very, very, very small factor. There are always improvements in process that they yield a little bit more, what we call, flashes for the tubes. But frankly, it correlates much, much stronger to utilization. And if we look back in time to the April-May time frame, frankly, utilization was down. We have seen it pick up in the last month or so as companies start to gear up for the fall set of phones and the early spring set of phones by 2 of the major handset manufacturers. So as we look forward, we do expect a bit of a rebound in display. As I mentioned it, we saw a little bit in the current quarter. It was more than offset by materials processing. But as we look ahead, services should be on the rebound path.

Got it. And last question from me and I'll jump back in the queue. Andy, when you joined, you talked about -- and it was early days when you first joined, but you talked about, in broad terms, focusing on markets where you think you have the potential to be either #1, #2. And I wonder if you could talk a little bit about -- if you can add a little bit more to that narrative, that discussion, about how you see the portfolio possibly evolving.

Right. If you'll also recall, we said we would give more color on that at the -- after the close of the fiscal. But just kind of where we are and what -- where the wind is blowing right now, I mean, it's -- clearly, for some of the key markets, it's definitely displays. That's OLED and whatever other next-generation displays there are on the horizon, the whole laser lift-off market. Semi is a very strong place for us. On the -- scientific is a strong market for us to go. On the materials processing, we're going to be -- and the devices, we're going to be very focused. We like medical and life science. So we will pick markets where we have a very strong standing. We like marking, especially specialty marking. And then we like a lot of the nonmetal cutting and handling businesses. And then as we said earlier on the call, in our prepared remarks, defense is starting to show up on our radar screen as a truly attractive opportunity for many years to come. But you got to give me a few more weeks to work through that before we can talk a little bit more about that.

Next question comes from Tom O'Malley of Barclays.

I just wanted to look at the September quarter. Obviously, you thought there was about a $30 million headwind from COVID coming into June, and it only impacted you -- I think you said $9 million. And looking at September, you're seeing some sequential growth at the midpoint. But can you talk about the different levers that are getting you to that growth? Clearly, if you take the lower base, you need some high sequentials to get there. But with the better numbers, what came in a little bit weaker into September? Or what's improving to get you to that midpoint of $305 million?

Tom, it's Kevin. Yes. So you're right. At the midpoint, call it $305 million, up $7 million or so. And for $7 million, it's a myriad of things within the business. Suffice to say, we're still a bit cautious as we look forward. There's been a lot of talk in California about potential shutdowns with the resurgence and such and that may spread across the U.S. So we believe the guide reflects some of that uncertainty. But for the $7 million increase to the midpoint, it's a myriad of small things.

And are you quantifying any COVID impact for the September quarter? Or are you just building that into the guidance?

We built a little in the guidance, but we'll talk about it after the fact when we have a better view looking backwards.

Okay. And then my follow-up is just in the materials processing business, you walked away from some commodity business and you described some moving parts in the preamble, particularly the strength in nonmetal applications. But that segment really isn't down as much as I would expect. Can you talk about what's doing better there? And if you're walking away from a couple of million dollars, you clearly needed to see something more than offset. Is it just the nonmetal applications? Are you seeing any last-time buys from customers that are walking away? Or is that all out of the run rate now?

So the majority of it is out of the run rate for sure. If I look at the materials processing bucket from a revenue standpoint, we were down about 6% -- 5%, 6%. Frankly, there wasn't, I'd say, any strength in that sector at all. We talked about last quarter, during the call, that I expected materials processing to be in the low 80s, and we came in at 81 and change. I think we're nearing a trough. At least that's my perspective at this point. So frankly, there was not a lot of strength in materials processing from a bookings standpoint. So I hope you get that.

The next question comes from Mehdi Hosseini of SIG.

I want to go back to your commentary regarding book-to-bill and how business fundamentals actually showed improvement into the month of June and July. And I want to use the microlectronics to ask a question. It was up double digit. Perhaps the supply chain disruption were behind you so you are able to show double-digit growth on a sequential basis. Perhaps lack of face-to-face interaction may have pushed out some additional booking from June into September. Is that the way we should think about the dynamics? Or is there something else that you can elaborate on? And I have a follow-up.

Yes, I think that's a pretty fair way to think about it. I mean if you look at the quarter, April was basically a throw away month from a sales point of view. And we're just now back at a rate where we used to be before the pandemic and even that is predominantly through remote channels. So I think you're thinking about it in the proper way.

Okay. And then the follow-up is for both you and Kevin. You are making changes to the executive team, you're also streamlining your product portfolio and you have hired a Chief Marketing Officer. Should I expect some elevated OpEx for the next couple of quarters as you pursue new initiatives? Or changing the leadership, especially the executive team, is separate from how you are managing the OpEx?

Yes, Mehdi, it's Kevin. So from an OpEx standpoint, as we look into the September quarter, you'll see, based on my guidance, that OpEx does increase a bit, again, from a myriad of items, not the least of which is new executive management, if you will. So if you work the numbers, you'll see a mid-80s OpEx on a non-GAAP basis and I think that's a pretty good number going forward.

Okay. And Kevin, your net cash per share showed a positive trend for the first time in many quarters. Is that going to be sustainable?

We do believe it will be sustainable, Mehdi. And in fact, given the strength in the euro right now, actually, converting the euro loan into USD, the strength of the euro hurt us. We would have been that much more net positive. But regardless to -- specific to your question, yes, we should be able to maintain and grow that.

The next question comes from Larry Solow of CJS Securities.

Just a couple of follow-ups. Kevin, you mentioned sort of the sequential improvement on revenue at the midpoint. No mention of all the equipment in the flat panel side, do you expect it -- I know you mentioned you shipped some Linebeams in this quarter. Was that a little bit ahead of schedule? Or is that related to recent orders, I assume? And sort of what's the -- I thought we're going to get a little bit of a bump-up just from that alone. And I realize there are big-ticket items, so 2, 3 machines could obviously make a big difference. Any color on that?

Yes. Yes, Larry, I've got to be careful here. I mean we've never really called out display and calibrated it specifically. You did see double-digit growth in absolute dollars this quarter. As we look forward, suffice to say, I think Andy said it in his prepared remarks, we will ship Linebeams in the September quarter, but I'm not going to calibrate that for you. Suffice to say that we are showing -- to the midpoint, we are showing increase in revenue in total.

Yes. Fair enough. Absolutely. Fair enough. And then on the -- just on the sort of the cadence of -- it sounds like you certainly saw some improvement in proposals through the quarter. And I guess that translates -- I guess you sort of build in the standard sort of 1 quarter delay. So is that why you're looking towards maybe an improvement in bookings, I think, Andy highlighted in Q1 of next year? And I guess that's just sort of directly correlated with the rise in proposals. I don't know how that shakes out in Q4 but, I guess, that's sort of just that vacuum proposals related to bookings 1 quarter later, I guess, right?

Yes. Look, we've got a broad portfolio. Some of our deals -- I mean if you take a look at the big excimer deals, they have a super long lead time when we do -- when we work on design wins, they can have, gosh, lead times north of a year. But I think for the majority of our portfolio, you're looking at a 4- to 6-month from quote to contract type of cycle. We see that many companies are trying to preserve their cash and are super prudent on their CapEx spending. So right now, they will probably air to be on the side of the longer sales cycles. Then again, if demand flips, these things can also flip relatively fast. But I do think you're thinking about it, from a modeling point of view, the right way.

Larry, if I could add. I mean you get -- everyone gets that the only difference between revenue and booking is timing. And given COVID in April, partly May and so forth, I mean that just delayed everything. And so from a bookings to revenue standpoint, as Andy explained, right, that difference between when you book, when you take an order and even the sales activity prior to that, it just seems like it's taking a little bit longer and such that, that will roll into Q1 as opposed to the September quarter. We've got backlog for the September quarter and such, and we are showing an increase in revenue, right, sequentially. But all the newer sales activity that we're starting to see and starting to grow, we'll benefit from that in the Q1 or the December quarter.

Right. Okay. And then just in response to the prior question about potential increase in operating expenses for, obviously, building out the management team a little bit. I'm thinking maybe, in the midterm, you spoke last quarter about -- without getting into quantifying the specifics, but you spoke, Andy, about -- I think it was my question about how do you grow the materials processing business on sort of an economy that's unlikely to grow over the next couple of years related to COVID, and we obviously were strained and materials processing was already coming in on the downbeat before COVID. So -- and you spoke to improving profitability and whatnot and exiting some businesses where you're margins are probably lower, maybe money-losing businesses even. So I'm actually thinking perhaps over the next, again, few quarters, your operating expenses will potentially, at least in those businesses, go down. I don't know if you can add any color to that.

Yes. From an OpEx standpoint, what you really think about, Larry, is the COGS side, the cost of sales side. All of the facility, the equipment, the labor to produce product, right, that all goes into COGS. So to the extent that we streamline our manufacturing operations, that will benefit COGS from an OpEx standpoint, sales, marketing, finance, all the corporate overheads and such. As we add David for marketing and potentially others, we'll see that will impact OpEx proper.

The next question comes from Mark Miller of The Benchmark Company.

Your departure from the fiber laser business was -- were there any charges or material charges in this quarter's report?

Nothing material, Mark. This is Kevin. You'll see in the GAAP to non-GAAP reconciliation, there's a little bit of a restructuring that you'll see. Some of that is related to getting out of the kilowatt fiber business.

Your stock-based compensation took a jump. Is this the new trend? Or was there some one-timers in stock-based compensation that drove it higher than previous quarters recent?

Yes. I appreciate that question, Mark. It did grow, rough numbers, $5 million quarter-over-quarter. And that has to do with Andy coming onboard and John transitioning to the special adviser role. When that happens, any commitments we've made as a company to John get accelerated to the current quarter and then layer on top of that Andy's equity and such, and that drives the significant piece of that stock comp increase.

So does that go back to around the $8 million level in the upcoming quarters?

I don't think it goes all the way down. We gave a number of $13 million and change, so close.

The next question comes from Nik Todorov of Longbow Research.

Congrats on good results and execution. Kevin, can we dive a little bit into the services portion? Because if we look at third-party data for utilization, the first half of '20, utilization was actually up versus the first half of '19, at least the data that I'm looking at. And I know you guys have been talking that your supply chain partners have been lowering their inventory on hand. And I thought that, that had reached a trough. So how should we think about why -- first, why are you not seeing an increase here in the June quarter? Is there anything preventing you from maybe reaching out to customers and doing changes in the services? Or how should we think about the ramp of that going forward as we think utilization will be scaling up pretty substantially?

Yes, Nik, thanks for the question. We did see things improve a little bit on utilization throughout the quarter. Early in the quarter, it was still pretty down. This isn't numbers that I'd share. But behind the $97 million I talked for services, display was up sequentially. And that was completely offset by the other areas, primarily in materials processing. As we look forward, and as I mentioned earlier, as some of our customers in the panel business ramp up to supply the fall set of phones and the spring set of phones of '21, utilization should grow, and therefore, our services should rebound a bit as well.

Okay. And just related to that, what is the level of inventory, at least to your visibility, of your customers and the end users? Is it still above normal, below normal? How would you characterize it?

It's still below normal, Nik. I think everybody -- given the macro environment of the pandemic, I think everybody is really focused on cash and managing inventories. We've seen that really streamline and even come down further than we thought just a couple of quarters ago. So they are sparingly using their inventory and maintaining lower and lower thresholds.

Okay. Switching to gross margin, the September quarter guide is pretty good relative to the incremental revenue growth that you're guiding to. Are you guys -- obviously, the ELAs are helping. But are you guys willing to provide any framework to how should investors think about the gross margin trajectory relative to a certain level of revenue as we start to think about the ELA scaling up into next year?

Yes. The best I can do there, Nik, is if we go back to the peak periods of '17 and '18 when ELA was pretty dominant in the overall portfolio, I'm thinking we can get back to those levels once the true OLED ramp hits. It won't be linear. It may be a little lumpy. But we can get back to nearly those levels going forward.

Okay. That's very helpful. And last question for me. I think we spoke previously about 5G being a tailwind for many businesses. But including the AIP business related to PCB interconnect, I think, Andy, you mentioned that you're starting to see some increasing activity. How should we think about the ramp-up of those orders and sales as we expect 5G smartphones eventually become about 40% of mix by some third parties in next year?

Look, the good news about 5G phones is that they need more real estate for the antenna, and they need more power. And both, you can get to with our technology. If you optimize it, you optimize on the OLED. And then we also help them on the via drilling on the chip side. So net-net, the more 5G, the more tailwind for the usage of our technology. Now these are not things that people order off-the-shelf and put in tomorrow. But as you see 5G ramping and as 5G readiness goes from the high end of the smartphones into the mid-range, that will be good news for us, and that should continue all through the next year.

The next question comes from Brian Lee of Goldman Sachs.

Apologize if you covered some of this. I had to hop on a little bit late. But Andy, Kevin, were there any orders in the quarter for the OLED business? It seems like maybe this is the first time in several quarters where you didn't have a new order, but I just wanted to confirm that. Maybe I'll start there.

Yes. Brian, yes, the answer is we did not take any orders for our high-end ELA equipment. We did take orders in display surrounding that, but none of our high-end systems. And again, we attribute that to COVID, our inability to sit side-by-side with the customer. All of that's done virtually. And it's often difficult with 2 different languages to really communicate. But we do see, as we look forward, we do see orders in the upcoming quarters based on the ramp.

Okay. So this is more of just a timing/COVID-related issue. This isn't something where you would consider it to be a pause in the cycle. And you have seen no cancellations, is that correct?

That is correct. And yes, we would see -- we would view this as temporary timing-oriented related to COVID primarily.

Okay. That's helpful. And then I guess related to that, just on the guidance. It seems a bit more -- and this is with respect to the revenue outlook. But it seems a bit more flattish than I suppose we would have anticipated given the ELA orders and also LLO orders over the past several quarters and your stated 6-month lead times. Are you seeing lead times extend? Or have you seen customers kind of push out installation timing? Just maybe could you provide some context for how to think about the order strength of the past 3 to 4 on the OLED side of the business and how that's going to translate to the P&L? I just -- I thought maybe we would have seen a bigger inflection here into the fourth quarter.

Yes. Brian, Kevin again. So yes, things are taking generally just longer. The lead times per se for our equipment haven't changed. But the front end of that, the negotiation, the contract work, the sales activity, that is taking longer. And in fact, in part, it was shut down for part of March, bleeding into the fiscal third quarter, our June quarter, in early April. So that really pushed things to the right by a quarter or more.

And next question comes from Andrew DeGasperi of Berenberg.

I know most have been answered. But I was wondering if maybe, Andy, could you discuss a little bit the significance of hiring David as Chief Marketing Officer? My understanding is this is the first time you had one person in such a role. And how important that is for the future of Coherent?

Yes, happy to, Andrew. If you look at it, Coherent is a fantastic company with a great amount of technology talent. And I cannot begin to tell you how impressed I am with all the bright people that I'm meeting. But in a world where the traditional ways of selling have been deeply changed overnight, and we took a very honest look at ourselves, we wouldn't consider ourselves the benchmark in e-business or digital marketing, contrary to where we do consider ourselves the benchmark on technology, we said that we have a high dealing on that side and, hence, we brought someone onboard who actually have software background, who has digital marketing experience background.

Just to give you an example, trade shows in our industry were a very important way on how to generate leads and how to talk with your customers. And I don't think any trade shows in the Western world are going to be done probably for another year or so. So we just needed to get fully into the digital space. And with David onboard, we're working very hard on this, and it's going to change our look and feel. And it's also going to help to increase the effectiveness of our sales force.

That's helpful. Maybe could you discuss what you've alluded to in your prepared remarks regarding new products potentially rolling out on the industrial laser space? Could you maybe give us a flavor of what those could be?

You know what, they're really cool, but let's talk about them when we're ready to announce the product. Especially with Europe being an important market for us, you really don't want to launch a product in the midst of when everybody is taking vacation. So you'll hear more from us as we go into the new fiscal year.

There is a follow-up question from Mark Miller with Benchmark Company.

Could you provide cash from operations, please?

Sure, Mark, it's Kevin again. It's $54 million.

Okay. And I'm just wondering sequentially, in terms of specific OpEx, R&D and SG&A., how does that flow from the prior quarter into this quarter? Are they similar?

Yes. For the September quarter, you'll note from guidance that we are guiding up a little bit in OpEx. That has to do with new executives onboard, some new initiatives and so forth. So we should typically be, in the round numbers, middle 80s for OpEx going forward.

Okay. And just one final question in terms of China. One of the -- another laser firm just reported a very strong rebound in China but then said that, that was going to moderate in the current quarter. What's your outlook for your business in China?

So we kind of reduced our China exposure. So if you look at the -- on the display side, that business is going very strong. And China is a big opportunity, and we don't see any impact there. But we got out of the kilowatt fiber business, so the headwinds that we saw there, the race to the bottom on the pricing side, that was one of the main reason why we took the decision that we took a few months ago to exit that business. And you see it both ways. We didn't quite get the uplift of China coming out of the COVID situation earlier than Europe or the U.S. And by the same token, we're not seeing as much of the pricing headwind, we don't have as much exposure, especially in the material processing side of the house in China.

There's a follow-up question from Nik Todorov of Longbow Research.

Just related to EV investments. Your peers and others in the automotive industry are seeing initial investments related to EV. So I was wondering if -- what are your perspective? And what are you seeing specifically in China, India, where I think those are much ahead of what's happening in the U.S.?

Look, EV is an exciting market. We see a continuous increase of interest in our ARM laser technology, which is very unique in the way that we can bundle the laser light in the ring and in the inside of the laser. And it bodes extremely well, if you need to work with complicated metals like aluminum or copper, which both are very important when you talk about EV and you talk about bringing electricity to the powertrain and all that good stuff. So we think it's an attractive market. But if you run it through your model, we also want to be realistic. It's still an emerging market. Once you see the big auto companies shifting more of their production into electric vehicles. You'll see that market ramping. But you're talking years here. This is not something that's going to swing the pendulum overnight. But we're at the forefront of it and we're starting to become constructive about this segment.

This concludes our question-and-answer session. I would like to turn the conference back over to Andy Mattes for closing remarks.

Well let me just say thank you for all of your interest today, and we will keep you posted of our progress, and we'll be looking forward to talking to you at the end of the next quarter. Thank you very much, and bye-bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.