Thank you, Grant and good afternoon everyone. Welcome to today's conference call to discuss Coherent's results for the second fiscal quarter ended April 4, 2020.

All of us here at Coherent hope that you and your family are staying healthy and safe.

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 benefit, if any, of such trends.

These forward-looking statements may contain such words as project, outlook, future, expects, will, anticipate, believes, intends, or referred to as guidance. These forward-looking statements reflect beliefs, estimates, and predictions as of today, May 27, 2020, 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, uncertainties and assumptions that are difficult to predict and may cause actual results, performance or achievement to materially differ from those expressed or implied by these forward-looking statements.

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 of COVID-19 and related private and public sector measures. The impact of COVID-19 on our business, global demand, acceptance, and adoption of our products, the worldwide demand for flat panel displays and adoption of OLED for mobile displays; the pricing, and availability of OLED displays; the demand for and use of our products in commercial application; our ability to generate sufficient cash to fund the capital spending or debt repayment; our successful implementation of our customer design wins; our and our customers' exposure to risks associated with worldwide economic condition; our customers' ability to cancel long-term purchase orders; the ability of our customers to forecast their own end markets; our ability to accurately forecast future periods; continued timely availability of products and materials from our suppliers; our ability to timely ship our products and our customers' ability to accept such shipment; our ability to have our customers qualify our products; worldwide government economic policies including trade relations between the United States and China; our ability to integrate our acquisitions successfully; manage our expanded operations and achieve anticipated synergies; our ability to successfully manage our planned site consolidation projects and other cost reduction program and to achieve the related anticipated savings and improved operational efficiencies 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.

Andy Mattes - President & Chief Executive Officer

Thank you, Brett, and thank you to everyone for welcoming me to Coherent. I'm still measuring my time here in weeks and this marks my eighth week. Joining a company as a CEO, during a time when the world is fighting a pandemic and most of us are understate and place orders is a truly unique experience and unchartered territory. Getting my arms around our Company in a virtual world has made for a long day, but it is amazingly productive and effective. I've spoken with most of our top 20 customers, visited many of our sites through virtual tours, connected with Coherent's top 100 managers and I have held multiple virtual coffee talks with employees of all levels around the globe.

I am very energized by the customer feedback I've received about the quality of our service, the performance of our products, and the high degree of collaboration that our customers value when they design process solutions with Coherent. I must admit, I am extremely impressed with the talent, the dedication, and most of all, the level of engagement that our colleagues around the world display in the new normal of working remotely.

As a leadership team we focused our energy during the last week around the health of our employees, the financial health of our Company, and the health of our partnership with our customers and suppliers. We established a central nerve center, a COVID Steering Committee or CSC under the leadership of our newly appointed COO, Mark Sobey. All executives of the Company video meet multiple times a week to stay on top of the ever-changing situation and safety protocols around the globe to synchronize our actions and responsive, to enable a stable supply chain and logistics, discuss inventories of critical parts, and to meet desired customer delivery date. For most of April and May, we have maintained manufacturing at approximately 85% to 90% of capacity while adhering to all social distancing rules.

The CSC is now shifting its focus towards bringing our employees back to work safely, to incorporate remote working into the new normal of our Company, and how to accelerate best practice sharing around collaboration, flexibility, inclusion, and accountability. Before I talk more about the road ahead of us, let me hand the mic over to Kevin to discuss our Q2 results and guidance.

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Thanks, Andy. Today I'll first summarize fiscal second-quarter 2020 financial results. Then move to the outlook for fiscal Q3. I'll discuss primarily non-GAAP financial results and ask that you refer to today's press release for a deep 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, goodwill, and other long-lived asset impairments, restructuring costs, the 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 second quarter 2020 financial results for the Company's key operating metrics were: total revenue of $293.1 million, non-GAAP gross margin of 36.2%, non-GAAP operating margin of 8%, adjusted EBITDA of 11.9%, and non-GAAP EPS of $0.61. Total revenue for the fiscal second quarter was $293.1 million and came in at the low end of our previously guided range.

Sales were negatively affected by the COVID-19 pandemic primarily in Asia during Q2 and began impacting Europe and North America later in the quarter. We estimate the impact to revenues was approximately between $30 million and $35 million during the quarter.

Our revenue mix by market for Q2 was microelectronics 42%; materials processing 29%; OEM components and instrumentation 22%; and scientific with 7%. Geographically, Asia accounted for 48% of revenues in the fiscal second quarter, the U.S. 25%, Europe 22%, and the Rest of the World 5%. Asia includes two territories and Europe includes one territory 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 second quarter revenues.

Revenue from other product and service for the fiscal second quarter was $99 million or approximately 34% of sales. Other product revenue consists of spare parts, related accessories, and other consumable products and was approximately 29% of sales. Revenue from services and service agreements was approximately 5% of sales. Total services revenue decreased sequentially by approximately $18 million primarily resulting from the inability to service our installed base due to shutdowns and travel restrictions in coronavirus impacted areas.

Fiscal second quarter non-GAAP gross profit, excluding stock-based compensation costs, intangibles, amortization, and restructuring was approximately $106 million. Non-GAAP gross margin was 36.2% in Q2 and came in slightly below the midpoint of our previously guided range due primarily to higher manufacturing costs related to lower volumes.

Non-GAAP operating expenses decreased sequentially by approximately $9 million from a myriad of items. The significant items were decreases in variable spending, travel-related spending, and a benefit to expense related to our deferred compensation plan. This resulted in a non-GAAP operating margin of 8% for the fiscal second quarter and came in at the high end of our previously guided range. Adjusted EBITDA was 11.9% in fiscal Q2.

Turning to the balance sheet non-restricted cash, cash equivalents and short-term investments were approximately $369 million at the end of fiscal Q2, an increase of approximately $19 million compared to the end of last quarter. Given our focus on cash preservation during this period of relative uncertainty of the global economy, we did not repurchase any shares in Q2 pursuant to our current buyback authorization. We also did not make any voluntary payments against our term loan and at the end of fiscal Q2, the outstanding amount of the term loan in USD was approximately $390 million.

Accounts receivable DSO was 62 days compared to 68 days in the prior quarter. The net inventory balance at the end of fiscal second quarter was approximately $457 million, an increase of $7 million, primarily due to an increase in finished goods as a result of closures in the shipping and receiving departments of some of our customers due to COVID-19.

Now I'll turn to our outlook for our third fiscal quarter of 2020. Let me say at the outset, that there is no clarity with what will happen with global demand in the coming weeks and months. This uncertainty makes forecasting our business challenging in the near-term. However, our strong balance sheet and cash position provides a significant flexibility in responding to continued coronavirus related disruptions going forward.

Having said that revenue for fiscal Q3 is expected to be in the range of $265 million to $305 million. We expect fiscal Q3 non-GAAP gross margin to be in the range of 30% to 34%. Non-GAAP gross margin excludes intangibles, amortization of approximately $2.2 million and stock compensation cost estimated at $1.7 million. Non-GAAP operating margin for fiscal Q3 is expected to be in the range of 1% to 5%. This excludes intangibles, amortization estimated at a total of $2.9 million and stock competition expense of a total of approximately $16.1 million.

Other income and expense is estimated to be an expense in the range of $5 million to $6 million. We do not include transaction gains and losses related to future changes in foreign exchange rates in our outlook. We expect our fiscal Q3 non-GAAP tax rate to be in the range of 17% to 18% and finally, we're assuming weighted average outstanding shares of approximately $24.2 million for the fiscal third quarter.

I'll now turn the call back to Andy.

Andy Mattes - President & Chief Executive Officer

Thank you, Kevin. In addition to the financial data, let me give you a little color on the main market we serve.

Starting with microelectronics there are two distinct dynamics at play here. On the one hand, there's a weakness in smartphones driven by slowing of consumer spending, which is providing headwinds in display, impacting our near-term service revenues as fab utilization slows and on the other hand there is strength in the semiconductor business to the telecom, cloud, and data center investments, think about our Zoom [Phonetic] economy and the shift in business towards laptops.

Specific to display we are encouraged by recent announcements from multiple laptop manufacturers that they are now including OLED displays as options for their high-end models. We believe this is a trend that is likely to continue especially as the yields of our Chinese customers improve and they have the ability to move pricing more in line with LCD over time. We also remain optimistic around depending upgrade cycle to 5G enabled mobile devices as the linkage between thin, flexible OLED screens and 5G capabilities seems high driven by the need for larger batteries, to occupy more of the device volume as a requirement for powering the shorter range, higher frequency antenna.

Moving on to materials processing. Even prior to the recent COVID pandemic, there was a widely reported slowdown in the German automotive and machine tool industry and overall, the market is being further weakened related to the COVID impact on consumer demand. There have been mixed reports about an early recovery in China, we remain cautious to see how that plays out. In general Coherent has less material processing exposure to China than the U.S. and European market and our core strength is in more specialized segments of the industry in the non-metal cutting and welding applications where our strength in CO2 and diode lasers remains a differentiator.

Overall, our Instrumentation business remains robust as we are diversified over a range of applications across life science research, clinical diagnostics, and therapeutic procedures both elective and insurance. We've been excited by the use of many of our lifetime customers' high-end instruments in the development of vaccines and in numerological advances in the fight against COVID as well as a clinical application. We've seen demand at that end of the spectrum for certain customers to a two-fold increase. Conversely, the same customers for the same instrument to research labs across the world for non-COVID related studies and many of those labs and universities have been closed and for those customers, new system demand has slowed.

We are seeing a nice rebound from our therapeutic medical customers now that the COVID related restrictions to non-urgent medical procedures are being eased across the world. The scientific market segments basically took a time out as universities and labs have been largely closed. We expect this segment to recover as the scientific institutions reopen and pent-up demand from unspent research grants begin to flow.

Defense has been an unaffected area and remains an area of investment herein. We are well-positioned across multiple opportunities from laser amplifiers for directed energy applications to specialty lightweight aerospace optics. We have secured key design wins with well-known prime contractors that supply to the armed forces and we see this as an area of strength going forward for the Company.

Our Q2 book to bill ratio was significantly above one and our backlog exiting the quarter is up from previous quarters. Nobody knows how long COVID-19 will impact the global economy, but between our backlog and our balance sheet, we see Coherent to be in a stable position for quarters to come.

Having said that we are concentrating on near-term actions on cash generation. While we have not made any final decisions, we are currently analyzing a variety of key steps and going forward we will initiate our good-to-great transformation, which will encompass some actions that are already in place as well as incorporate new ones including applying a strategy to our business that we will only participate in a market segment if we have a line of sight to achieve a number one or number two position, otherwise we will refocus our energy.

Consistent with this strategy we will not be participating in the kilowatt fiber market price rate to the bottom game and therefore, we will complete our move out of the commodity fiber laser market. Instead, we will focus on areas where our technological advantage will get rewarded by the market. For example, microelectronics, bioinstrumentation, and medical device manufacturing. Also, we will double down on the OLED market and use our pole position to enable the advancement of technologies like microLED displays knowing that these are still in the future, but will be based on mainly laser processing.

And finally, we will be simplifying our Company from an organizational setup to the number of locations to the way we run and report our financials. As you can see we have quite some more homework ahead of us. We will have more to share around our good-to-great transformation on our next call in a few months and especially when we announce our Q4 results and move into the new fiscal year in October.

And with that, I'll turn the call back to the operator for our Q&A session.

Question & Answers

Questions and Answers:

[

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Jim Ricchiuti with Needham & Company. Please go ahead.

James Ricchiuti - Needham & Company - Analyst

Hi, good afternoon. The question I had is just on the reference to the book to bill being significantly above one, I'm wondering if you can tell us if the bookings were up sequentially or if you're just referring to generally strong bookings, strong book-to-bill versus obviously the lower level of revenues that you reported that was expected.

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Yeah, hi. Jim, it's Kevin. So you know we stopped talking at any type of detail on bookings a few years back. So when we talk about book to bill it is within the quarter. Current view Q2 billings to bookings in the quarter.

James Ricchiuti - Needham & Company - Analyst

Got it. Fair enough. And Andy, by the way, welcome, wanted to - you are welcome to Coherent. Can you talk at all about whether you saw bookings activity in the OLED space in China? There's been a lot of speculation, as you know about new capacity being added there, but I wonder if you could talk to the tone of business in the OLED market in China.

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Jim, Kevin again. So again, I won't provide a lot of detail here because we just got isolated to FTD or microelectronics from a booking standpoint, but we did take orders in the quarter for ELA tools as we did last quarter and the prior two quarters.

James Ricchiuti - Needham & Company - Analyst

That's helpful. And then Kevin, if I may, if I heard you correctly, it sounded like you saw a bigger impact from COVID in the quarter, if I got the numbers correctly, I think you're talking going in about $20 million to $25 million. Did you say it was around $30 million to $35 million?

Kevin Palatnik - Executive Vice President & Chief Financial Officer

That's correct, yes.

James Ricchiuti - Needham & Company - Analyst

Was that - was that a bigger impact that you saw in China or was that just the early impact elsewhere, Europe and the Americas that contributed to the bigger hit there?

Andy Mattes - President & Chief Executive Officer

It was larger than we expected. Jim and I'd say we failed to recognize was towards that in some of our scientific and OEM instrumentation areas. Universities and research labs really completely closed down, the proximity of people working in the labs and/or at universities, shipping and receiving weren't available as the lab people themselves couldn't receive product because they just weren't there. So I think we did underestimate that a bit.

James Ricchiuti - Needham & Company - Analyst

Got it. And if I may, last question, I'll jump back in the queue. As you begin to de-emphasize some product areas including the kilowatt fiber laser segment, can you give us a feel, I know that business has not necessarily been that meaningful, but can you give us a sense as to what the revenue impact would that - of that would be.

Andy Mattes - President & Chief Executive Officer

You know, Jim, I don't want to get into that level of detail on the call here. We're still analyzing different pieces of the business to figure out where we want to invest going forward. I think once we have that data, then we can be a little bit more forthcoming. But as we've discussed in the past, the commodity fiber for our business was very small, in terms of its contribution.

James Ricchiuti - Needham & Company - Analyst

Okay, thanks very much. I'll jump back in the queue.

Andy Mattes - President & Chief Executive Officer

Thank you.

Operator

Our next question will come from Brian Lee with Goldman Sachs. Please go ahead.

Brian Lee - Goldman Sachs - Analyst

Hey guys, thanks for taking the questions and welcome, Andy, looking forward to working together.

Andy Mattes - President & Chief Executive Officer

Thanks, Brian.

Brian Lee - Goldman Sachs - Analyst

I guess the first question I had was just around the trajectory of revenue recognition, I appreciate the comment, Kevin, that you had another ELA order in the quarter. So that makes three in a row where you are having some ELA orders and you've been saying for a while that the lead times are about six months. So I guess two questions here, one have lead times changed at all from that six-month range you provided in the past. And then two, assuming that they haven't, it would seem ELA tools from the orders, you saw a couple of quarters ago when the cycle kind of started, we'd start to see revenue in Q3, and definitely by Q4. But then the margin guidance seems to be a bit light for having some ELA high margin tools in there. So I'm just wondering has anything changed on the sort of lead time, shipment trajectory, and Rev Rec timing that we should be aware of here.

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Yeah. Thanks, Brian, Kevin again. So we have taken orders over the last four quarters, actually and we did say that from a lead time perspective, it's a minimum of six months. So as we look into the second half of the year, we have given guidance for next quarter or June quarter and it is flat to slightly down, but with COVID and such, just think of COVID is delaying things for a quarter or so. But we should be right back on that trajectory going forward.

Brian Lee - Goldman Sachs - Analyst

Okay, that's helpful. And would you say it's fairly customer-centric with respect to those delays or it is across the board, because the reason I ask being, you obviously have some customers in your China mix which are directly situated in Wuhan where this COVID crisis first materialized and then you had customers in other parts of China where maybe the impact was a little more peripheral or indirect? So, are you seeing the level of delays being pretty broad across the board or is it more concentrated in the handful of manufacturers that have the direct impact?

Andy Mattes - President & Chief Executive Officer

Yeah. Thanks, Brian. You're right, one of our major customers or one of our key customers, CSOT, China Star is in Wuhan and as you know Wuhan shut down for two months to three months, so I'd say it's primarily geography-based. In Wuhan, there are a couple of customers, CSOT being the larger of a couple of customers, but you'd expect the delay given the shut down by about a quarter.

Brian Lee - Goldman Sachs - Analyst

Okay, that's great. And then maybe last one and I'll pass it on. Can you kind of comment on utilization rates you're seeing across your customer base, obviously we had a downtick through different parts of calendar Q1 in China because of the COVID crisis and then you've mentioned in other parts of the world you're starting to see the impact coming on the back of China, but where are you kind of seeing utilization rates? How quickly are they recovering, particularly in China? And then how should we think about that translating to service revenues here in Q3, and moving through the year, it seems like we haven't seen a sub $100 million service revenue quarter in a while, so is that kind of the low point and just wondering how quick that metric could recover as you move through the rest of the year?

Andy Mattes - President & Chief Executive Officer

Yeah. So, Brian, I can't get into specific customers and their yields. I mean that's proprietary information to them. But we don't want to talk about on the call. Suffice to say that, just anecdotally it seems like yields are improving as one of the large Chinese OLED manufacturers has come out and said that they expect to ship 70 million displays this year compared to what was probably 5 million to 10 million last year, I believe that's on the back of improving yields.

In terms of service revenue, as I mentioned in our prepared remarks it has some service engineers that just couldn't go into China and service equipment and that impacted us by $18million, $19 million, or thereabouts. And given that China has reopened, for the most part, reopened, I would expect some rebound in Q3. As we look into Korea, Korea was impacted as well. So we probably won't see a full snapback, but we will see improvement in Q3.

Brian Lee - Goldman Sachs - Analyst

Okay, thanks guys. I'll pass it on. Appreciate it.

Andy Mattes - President & Chief Executive Officer

Thank you.

Operator

Our next question will come from Tom O'Malley with Barclays. Please go ahead.

Thomas O'Malley - Barclays - Analyst

Hey guys, thanks for taking my question and welcome Andy. Good to have you here. My first question is related to the impairment charge you guys took in the quarter, you said it was related to the industrial lasers and systems business. Could you be a little more specific, it was obviously a larger charge, I think $400 million-plus to where that was related to in that business?

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Sure, Tom, this is Kevin again. With regards to impairment, there is a multi-step process to go through this, I won't drag you through that, but suffice to say that when the carrying value of a certain business on your books, comparing with it, the fair value of that business, when fair value is lower you have to write down or take the impairment. Specific to the businesses, it impacted the ILS segment and the ILS segment is primarily the industrial side of lasers, so, it includes our tools business, fiber business, diode, and fiber components, it's across the board. But again, the key there is as we evaluated the business fair value was less than book value, and that's why you take the impairment.

Thomas O'Malley - Barclays - Analyst

Fair and then I guess kind of on a follow-up to that question and a question related to Andy is just you focus really on key areas for cash generation and you made that point in the prepared remarks, and you made the comment that you would only really participate in the market segment if you could achieve a one or two position, you commented that the fiber laser business, you're going to walk away from is the non-strategic portion of that business, but can you just talk about the general laser business. And do you think that you can have a one or two position in that longer-term, and if not, what do you think alternatives, maybe if that's on an area where you think you can compete?

Andy Mattes - President & Chief Executive Officer

Let me just start out. Kevin has more real-life examples here. But we think we have some very unique positions and when I talk to customers. Let me just - let me just take the medical instrumentation side, for example, phenomenal market share, we're clearly the market leader. A lot of opportunity, great reputation. This is - this is a perfect example of the type of market that we want to go after and there are plenty of those opportunities out there and the task at hand for us is to make sure we focus on the areas where our technological advantage, our capabilities, our ability to customize into very special manufacturing or testing processes for our customers comes to full play and where we can grow at a very nice margin profile.

Thomas O'Malley - Barclays - Analyst

Thanks. And then just one more and I'll pass it along. If you look at the, I will quote you guys just guided to revenue isn't moving that much quarter-over-quarter it's only down slightly, but to hit on the gross margins, again, you're seeing a step-down. You guys mentioned that manufacturing is going to be about 85% to 90% of capacity in the quarter. Is the gross margin step-down just a function of mix or is there moving part within one of the businesses, that's dragging that overall number down? Thanks.

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Hey Tom, Kevin, again. There's a couple of contributing factors. Certainly, with revenue coming down ever so slightly, volumes take a hit and therefore manufacturing costs go up. In terms of just COVID and call it the business continuity plans that we have to put in place, the distancing, the PPE, etc, etc, that costs money and that's where 50 bps to 60 bps. Beyond that, again as volumes come down, we have inventory on hand and we may have to take some provisions against that inventory because of lower volumes. So all of those contribute to the margin impact sequentially.

Brian Lee - Goldman Sachs - Analyst

Thanks a lot guys.

Andy Mattes - President & Chief Executive Officer

Thank you.

Operator

Our next question will come from Mehdi Hosseini with SIG. Please go ahead.

Unidentified Participant - - Analyst

Hi, this is Lori, I'm filling in for Mehdi, and welcome Andy on board. So the first question is what do you think about the opportunities in China and how does that impact blend gross margin.

Andy Mattes - President & Chief Executive Officer

Well, if you take it - if you take China and you go by our segment, needless to say, OLED and everything around it is very, very well positioned. If you take the other end of the spectrum, our materials processing business in China is relatively small, I was highlighting that in my prepared remarks, they were stronger in Europe or in the US when it comes to these type of businesses. Scientific market also strong in China, but the Chinese universities were closed just as the Western universities were. So that market didn't - literally didn't happen for the last month and you'll see that bleed into this quarter as universities are just starting to reopen. So most of our China opportunity sits in the microelectronics market and the semiconductor market.

Unidentified Participant - - Analyst

Great. And what do you see the impact on the margin?

Andy Mattes - President & Chief Executive Officer

Those are - that goes back to what we said earlier, we'd like to play in markets where our position gets rewarded and in those segments where we have a strong representation, we also enjoy the market - the margin profile.

Unidentified Participant - - Analyst

Great. And then on the OLED opportunity that you mentioned you guys are doubling down on OLED and what do you see the future for - in China versus Korea and can you also comment on the microLED?

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Yeah, hi, Lori, it's Kevin. Rather than geography, let's talk about the application. In Andy's prepared remarks, he did talk about microLED, you may be familiar, that's a very process-intensive application because you have to pick and place the LEDs to a display substrate, but you use lasers in doing so. We've already sold some development equipment in that space. And as we enjoy our position with ELA tools and OLED, we'd like to enjoy the same position in tools provided to microLED.

Unidentified Participant - - Analyst

Got you. And the last one from me is the margin. Where do you seeing see the margin going forward in the second half?

Kevin Palatnik - Executive Vice President & Chief Financial Officer

The best way I can answer that. Lori, is if you go back to years 2016, 2017, and 2018 with Phase 1 of the OLED ramp you saw the positive of upward pressure primarily based on that OLED ramp. We've always said that the only tools, microelectronics, in general, is accretive to overall corporate margins. So as we ship more of those machines that will put a positive upward pressure on margins.

Unidentified Participant - - Analyst

Got it. Great, thank you.

Andy Mattes - President & Chief Executive Officer

Thank you.

Operator

Our next question will come from Larry Solow with CJS Securities. Please go ahead.

Lawrence Solow - CJS Securities - Analyst

Great, thank you. Good afternoon. Welcome, Andy as well. Most of my questions have been answered. Maybe just a couple of high-level ones to you maybe, Andy. Just, I know I think when you joined Coherent just looking at your path, I think one of your focus has been sort of transforming or sort of repositioning the Company for growth. Do you view Coherent as that type of a project or is it more of just fine-tuning of focus?

Andy Mattes - President & Chief Executive Officer

Well, look, if you take a look at our transformation work at what I was trying to express when I called it a good-to-great transformation. Coherent is a really good company. Now having said that like any company there are areas in our business where we can do better, where we can double down on operational excellence and execution, and while COVID has put a question mark here and there on the top line and how quickly consumers react, everything that's on the cost side is completely under our control and is something we can address right here and right now and we'll be doing that also in the summer months and we'll update you as soon as we can squawk about it.

Secondly mid-term we're doing everything to position the Company on to a profitable growth trajectory. I wholeheartedly believe that there is no such thing as a great shrinking company. So we're going to make sure that we will be back towards profitable growth as we get out of this pandemic environment.

Lawrence Solow - CJS Securities - Analyst

Okay. Great. I would just like to ask a couple of also longer-term questions. I'm not too sure, we have great visibility or any change but, I mean the COVID impacting, but just in terms of the planned trajectory of OLED openings over the next few years. Do you see any change, whether it be and whether maybe more material, is there a lot of this has been on the supply side, but if there is a less demand if we go into a slower or even a recessionary environment and there is less demand for these new phones - OLED phones, could that potentially ship out and the build-out on the supply side.

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Hey, Larry, it's Kevin. When it comes to OLED there is no change in the story there. We continue to see the OLED ramp in front of us. In fact, recently we've got data that says 18 different laptops at the high end, albeit that have OLED screens. So we're seeing OLED progress from mobile into laptops. We expect tablets will be next. So in terms of our wave theory, wave one being mobile computing in handsets, wave two and wave three, if you will, tablets, laptops, automotive. We see that that past no change to it at all and we're very encouraged by as many laptop manufacturers that have OLED currently.

Lawrence Solow - CJS Securities - Analyst

Right, okay. And then just another bigger picture question on how can materials processing a bigger - second biggest piece of your business by itself, although I realize there are many submarkets there but. And Mike, you mentioned in your prepared remarks the market hasn't really been greater at several quarters with the global economy $14 million, obviously post-COVID-19, I assume industrial production will be at a lower level from where we were. And if any guess on where that goes and how well that goes, and how much of rebound, but could you guys still improve performance even in a lackluster to down industrial production environment in 12 months to 18 months.

Andy Mattes - President & Chief Executive Officer

This goes back to our good-to-great transformation.

Lawrence Solow - CJS Securities - Analyst

Right.

Andy Mattes - President & Chief Executive Officer

We do see room for improvement, especially on the ILS side of the house when it comes to our margin when it comes to our factory loading, and the more we apply and invent one and reuse often type of philosophy for our systems and our tools in the way that we approach the market and our customers' that will automatically have a positive impact on the margin profile that we will be generating.

Lawrence Solow - CJS Securities - Analyst

Okay. Fair enough. Okay. All right, good. I realize you will give us more some more color as you take time. I appreciate the thoughts and again welcome Andy here and thanks, again.

Andy Mattes - President & Chief Executive Officer

Thanks, Larry.

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Thanks, Larry.

Operator

Our next question will come from Mark Miller with The Benchmark Company. Please go ahead.

Mark Miller - The Benchmark Company - Analyst

Now let me extend my welcome also. Just had a question about supply chain, where you impacted by any supply chain issues because of the virus.

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Hey Mark, it's Kevin. From a supply chain, very, very minimal impact. We work with all of our top 10 suppliers around the world, make sure that either we bought ahead or they had enough supply on hand to certainly supply us through Q2, Q3, and beyond. So we are in good shape there.

Mark Miller - The Benchmark Company - Analyst

You mentioned 5G is becoming an opportunity for you. I assume that's because of the higher density saw climb or require smaller like ROFIN has and then possible transition to a new type of lasers, that's starting to pick up steam or is that 5G plan in another way.

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Yeah, no Mark. Sorry, Mark, Kevin, again, not only in the microLED, right to put more content on the board. It also has to do with the antenna itself. The antenna is a little bit more bulky and requires more power and so the systems need more battery if you will. And because OLED is so much more thinner than LCD you can pack more battery and because of its in this. So there is a couple of things contributing to 5G in terms of benefits to the Company. In terms of what we're seeing, we are seeing a little bit of a pickup, but it's still more in front of us than behind us.

Mark Miller - The Benchmark Company - Analyst

Okay. I might have missed this, did you say the cash flow from operations was $19 million or that was just increasing in cash, I was just wondering what the cash from operations was.

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Yeah, cash. The increase in cash was $19 million, cash from ops was $47 million.

Mark Miller - The Benchmark Company - Analyst

$47 million for cash ops. Okay, thank you.

Andy Mattes - President & Chief Executive Officer

Thank you, Mark.

Operator

[Operator Instructions] Our next question will come from Nick Todorov with Longbow Research. Please go ahead.

Nikolay Todorov - Longbow Research - Analyst

Hey guys, good afternoon. Thanks for letting me ask questions. Regarding the guide, Kevin, can you bridge the guide sequentially, how much of COVID impact are you baking in your assumptions? And is it fair to assume that the biggest hit sequentially, potentially will come from the scientific and government problems due to university closures and materials processing?

Andy Mattes - President & Chief Executive Officer

Yeah. Nick. So from a revenue standpoint, again a small decrease quarter-on-quarter. And yes, there is some expectation that labs will open up, universities will open up, the question there is the timing right. So it will happen in the June quarter. Some are reluctant to open up to date. So that impacts revenue.

On the gross margin side, certainly with lesser volumes that drives unit costs up, but in terms of COVID and its impact, I had mentioned earlier that when you look at safe distancing, physical distancing of people, split shifts, multiple shifts, all the things necessary to protect our employees that's costing us between 50 bps and 60 bps in margin.

Nikolay Todorov - Longbow Research - Analyst

Okay. And from a topline perspective is the COVID impact similar in size relative to the March quarter, roughly about $30 million, which would be less affected.

Andy Mattes - President & Chief Executive Officer

It's probably in the $35 million range or slightly less.

Nikolay Todorov - Longbow Research - Analyst

Okay, got it. Switching gears to SPD. So in the last cycle, you had one large player. And if you look at the trajectory of shipments it was a really small and then your pickup in orders and shipments. So now that this cycle is reflecting multiple players potentially up to eight players or nine players, can you share your view now that you have several orders and a decent backlog under your belt? How should we think about the linearity of nine deliveries over the next, call it 12 months to 14 months - 24 months. Should investors expect a similar trajectory as the last cycle or it could be a little bit more lumpy?

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Yeah, Nick, Kevin, again. In terms of the number one customer back in the '16, '17,-'18 timeframe, not only did they place really large orders on us, but they were multi-year orders. So we should work with that customer and really plan out the shipments over time. As you mentioned, there's many more customers in the Phase II obviously China-related. We do our best to help them plan to receive equipment, but I don't expect the same ramp that we saw in '16, '17, '18, I can't go into too much further detail than that. We've never shared that before, but suffice to say, I don't think it will be as dramatic as it was in years past.

Nikolay Todorov - Longbow Research - Analyst

Okay, got it. And then on the materials processing side, you said there are different reports coming up regarding China recovery. I think March and April were relatively strong, but are you saying that you're seeing potentially May orders are kind of stabilizing on the recovery, some momentum slowing down. What is the - what are the signs that give a pause about the recovery in China in materials processing?

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Yeah, Kevin, again, frankly, we're a bit more cautious then some of our peers when it comes to China. There were some indicators here and there that things have stabilized a bit. But then as you may have seen there were some flare-ups in various provinces related to COVID. So we are much more cautious than some of our peers related to China.

Nikolay Todorov - Longbow Research - Analyst

Okay. And last question for me, I think a couple of quarters ago, you announced a new Tier 1 automotive win - design win and I think it was related to EV battery welding, can you give us any update if you've seen orders potentially start increasing from that customers and can you comment overall on the environment for EV in both Germany and China and how you see that outlook over the next six months to 12 months?

Andy Mattes - President & Chief Executive Officer

When you - when you, it's Andy. When you look at the welding of special materials that's were our technology, especially our ARM laser has a very unique advantage in the market. We can do that with little to no better which moves us to stay around the whole electro vehicle market is a very important element. So we're seeing a lot of interest and we're seeing many proof of concepts out there with customers as we speak and we would expect that to continue to grow as time progresses.

Nikolay Todorov - Longbow Research - Analyst

Okay, got it. That's helpful. Thanks guys. Good luck.

Andy Mattes - President & Chief Executive Officer

Thanks, Nick.

Operator

Our next question will come from Joe Wittine with Edgewater Research. Please go ahead.

Joseph Wittine - Edgewater Research - Analyst

Hi, thank you. Andy, you can partially answer this question here, but I wanted to ask on the exit from kilowatt fiber, does that strictly include the highlight for cutting, does it also include any welding applications. It sounds like, it doesn't include the highlight arm and then also within that does the exit of that market include any components that you - upstream components that you sell into other parts of the kilowatt supply chain such as the diodes and the new for one, etc.

Andy Mattes - President & Chief Executive Officer

Now let's start to take your question from the back. So, no diode and [Indecipherable] and all of that good stuff is definitely a key element of our portfolio and we'll continue to do so. And we also, we've got to be looking at ways to enhance that business. When it comes to welding, as I just said if you think about welding of material other than metal that's where our unique advantage lies, whether it's in aluminum, special aluminum, copper you name it and we'll be looking for those type of applications. And that also fit into our strategy that we want to play where our technological advantage is going to get rewarded and were, if you exclude the specialty market like for instance or so we're basically not participating in the run of the mill cutting metal market, that's truly just raised to the bottom.

Joseph Wittine - Edgewater Research - Analyst

Okay. And then maybe on goodwill. Kevin, so was it more than ROFIN that was written off, could you give us any more details on what are the pieces parts of them, I know you did a couple of smaller deals to throw open. I think there was a 3D printing deal and maybe something else.

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Yeah, Joe, we may want to take this offline because it's pretty detailed, but there is the goodwill impairment and then there is the intangibles and some other assets, real property, machinery equipment leases, right of use assets, etc. From a goodwill standpoint, the majority of that was related to legacy ROFIN, but then beyond that, some of the assets were broader than that across the full ILS segment.

Joseph Wittine - Edgewater Research - Analyst

Okay, great. And then finally, apologies if I missed this, but any help in modeling SG&A given the moving pieces in the first and second quarters will be great especially also as far out as you're willing to go, Kevin.

Kevin Palatnik - Executive Vice President & Chief Financial Officer

Yeah, I think you'll see a relatively flat from Q2 numbers going forward.

Joseph Wittine - Edgewater Research - Analyst

So no resumption in travel or other variable spend or some resumption there and then offset by other cuts.

Andy Mattes - President & Chief Executive Officer

I think that's a good way to look at it, yes.

Joseph Wittine - Edgewater Research - Analyst

Okay, great, thanks guys.

Andy Mattes - President & Chief Executive Officer

Thank you, Joe.

Operator

Our last question today will come from Jim Ricchiuti with Needham & Company. Please go ahead. Jim, maybe you are on mute.

James Ricchiuti - Needham & Company - Analyst

Yes, thank you. Just a follow-up on the medical business. You indicated, you're seeing - you're still seeing strength if I heard you correctly, but we are also hearing and I'm sure you guys are as well. Just with COVID, there's been a lot of delays and push out of things like elective surgery. And I'm just wondering as you hear about that even in dental applications. Are you seeing that reflected at all yet in any of your medical-related bookings?

Andy Mattes - President & Chief Executive Officer

So first of all, it's amazing what was all considered elected. The one thing that absolutely floored me is that kidney stone treatments were considered elective if you'd ever had to go to one of those you would expect to deliver differ on replacements. But, so what we've seen is really a tale of 250 here. Anything on the research side, anything in the flow cytometry phase, even remotely affiliated with the search for COVID and vaccines and anything you can do, huge demand and we have some customers that kind of calls that they literally told us every day counts and make sure you can get systems to us, etc, etc.

The flip side, like you, said, for example, dental while we talked with the customers and everybody sees a bright future on that one. Needless to say, nobody was putting in orders in the last week as a sort of emergency procedures and all the dental offices in the country were closed. So we see this cloud to be soon in the rearview mirror as the country is starting to open up again, but it clearly impacted orders and revenue for Q2, and it did so for the first eight weeks of this quarter.

James Ricchiuti - Needham & Company - Analyst

Got it. Thank you. That's helpful. That's it from me.

Operator

This will conclude our question-and-answer session. I'd like to turn the conference back over to Andy Mattes for any closing remarks.

Andy Mattes - President & Chief Executive Officer

Well, thank you all for being with us today. We appreciate your questions and your interest in our Company and we're looking forward to talking to you at the end of the next quarter. Thanks again and stay safe.

Operator

AI Assistant

COHERENT CORP

Q2 2020

Earnings Transcript

Find Answers

Ask about any part of the document to get insights, explanations, or key details.