Good day, and thank you for standing by. Welcome to the Coherent Corp. Fiscal Year 2024 Second Quarter Earnings Conference. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to the Vice President of Investor Relations for Coherent Corp., Paul Silverstein.

Thank you, Carmen, and good morning, everyone. Thank you for joining our second quarter fiscal 2024 earnings call. The call will be available for webcast replay on the Investor Relations section of our website. On the call, we have Coherent's Chair and CEO, Dr. Chuck Mattera, and a number of Coherent senior leaders, who Chuck will introduce shortly. This morning, we will devote the majority of our time to answer questions from analysts and the investment community. Yesterday, after market close, we issued a press release, posted a shareholder letter and updated investor presentation to the Investor Relations section of our website and filed these documents in a Form 8-K. This morning, we filed our 10-Q. The shareholder letter contains the financial statements historically included in our earnings press releases and detailed information regarding our operating performance, key trends and outlook. Before we begin, a short statement about forward-looking statements. We may make and/or refer to forward-looking statements, including statements about future performance and market outlook. Actual results may differ from those in the forward-looking statements. The shareholder letter and our SEC reports set forth risk factors that could cause actual results to differ materially. We assume no obligation to update forward-looking statements, which speak only as of their respective dates. During this call, we may discuss both GAAP and non-GAAP financial measures. If we do, a reconciliation of GAAP to non-GAAP measures is included in the shareholder letter. If we present historical non-GAAP financial measures, we will limit our discussion to those that are reconciled in the shareholder letter. Before I turn the call over to Chuck for his opening remarks, please note that on March 26 at the Optical Fiber Conference, or OFC, in San Diego, we plan to host a meeting with the investment industry, which will be webcast, during which we will provide an update regarding our communications market. In April of this year, we plan to host our third market overview webinar. It will be focused on our instrumentation market. The first two market webinars focused on our communications and industrial markets are available on the Investor Relations section of our website. With that, it is my pleasure to turn the call over to Coherent's Chair and CEO, Dr. Chuck Mattera.

Thank you, Paul. It's a great day here in Silicon Valley, close to most of our largest customers. As I've said before, leadership development is among the CEO's most important responsibilities. Given the shareholder letter's extensive disclosures, I have asked the following senior leaders to participate in the Q&A fireside on today's call: Rich Martucci, Interim Chief Financial Officer; Bob Bashaw, President; Dr. Giovanni Barbarossa, Chief Strategy Officer and President of the Materials segment; Sohail Khan, Executive Vice President of Silicon Carbide LLC, our newly created subsidiary for our silicon carbide business; Dr. Chris Dorman, Executive Vice President, Lasers, who came to us through the Coherent acquisition; Magnus Bengtsson, Chief Commercial Officer, who leads our global sales and service organization and who also came to us through the Coherent acquisition; Dr. Sanjai Parthasarathi, Chief Marketing Officer; and Dr. Julie Eng, Chief Technology Officer. As being among the industry's best, they will provide investors a rich source of information about the depth and breadth of our markets, technologies, operations, and overall business. We emerged from the second quarter with greater confidence and excitement regarding a return to stronger growth and meaningfully enhanced profitability. For the quarter, we delivered solid sequential improvement in revenue and margins. The highlights of our second quarter include: healthy sequential increases in both gross and operating margin, ongoing AI-driven strength in the datacom vertical of our communications market, signs of improving demand in all four verticals within our industrial market, and the telecom vertical of our communications market with the confirmation of the previously announced transactions with Mitsubishi Electric and DENSO Corporation, in which they invested an aggregate of $1 billion in our silicon carbide business and entered into long-term supply agreements supporting demand for silicon carbide substrates and epitaxial wafers; and five, an increase in our planned debt repayment in fiscal 2024, resulting from Silicon Carbide LLC being able to fund its own operating and capital expenditures. While we expect that the higher revenue and the mix in our forecast will contribute to a rebound in margin structure, we are not waiting for improved end-market demand to carry us. We've already implemented actions across virtually all of our businesses to drive for enhanced operating efficiency. These actions, along with rigorous cost and expense control across the company, helped drive our sequential improvement in gross and operating margin in the second quarter. We are on a roll, but we're far from done. As we continue to transform the company to improve operating performance, we will optimize our production footprint and enhance operating resiliency while completing the integration of legacy Coherent. We are also exploring other strategic opportunities, excluding material acquisitions, to unlock shareholder value. Now for some numbers. While the macroeconomic environment continues to present challenges, we are pleased with our operating results for the quarter. We posted revenue of $1.131 billion, which was above the midpoint of our guidance, and non-GAAP EPS of $0.36, which was above the high end of our guidance. Operating cash flow was $67 million. We invested $91 million in capital equipment and we retired $89 million of debt. In addition to continuing to invest in our core assets, we are taking substantive actions to ensure we improve our resiliency and operating performance, especially to drive improvement in our margin structure, including through global integration and transformation and the realization of our synergy plan from the legacy Coherent acquisition, as well as our previously announced restructuring and consolidation plan. Our guidance for the third quarter of fiscal 2024 is as follows: revenue of approximately $1.12 billion to $1.20 billion, non-GAAP earnings per share of approximately $0.32 to $0.52. And our updated guidance for fiscal 2024 is revenue of $4.55 billion to $4.70 billion, which represents a $50 million increase at the low end of our previous guidance. Non-GAAP earnings per share of $1.30 to $1.70, which is up from $1 to $1.50 previously. Before we take your questions, I would like to express my gratitude and pride in the senior leaders on this call and all of our other employees who are dedicated to setting the stage for what's now, next and beyond. Coherent is well-positioned with differentiated technology, exceptional talent, and high-quality efficient manufacturing platforms capable of delivering products to markets that are rapidly growing. And I believe we are better positioned than others to take full advantage of our existing market positions and to penetrate deeper into these markets, largely because of the intimacy, trust, and partnerships we have cultivated with market leaders and our increased scale, creating stability in our core business and creating a flywheel effect of other growth opportunities that many of our competitors simply don't have. In the upcoming years, we have tremendous upside potential and platform cost optimization attributable to the ongoing legacy Coherent integration, special restructuring, and transformation projects that we've announced. We expect success given our proven track record and have a strong plan and roadmap in place, which will allow us to capitalize on the recovery and growth in our markets and the broader market opportunities. We are endowed with a team of world-class technologists, industry pioneers, and executives with a demonstrated capability for identifying and capitalizing on market mega trends. With that, I'll turn it over to Paul.

Thank you, Chuck. We will now open the call for analyst questions. Please limit yourself to one question. This call is scheduled for an hour. With that, Carmen?

Thank you. One moment for our first question. Our first question comes from Samik Chatterjee with JPMorgan. Please proceed.

Hi. Good morning, and thanks for taking my question. Congrats to the entire team there on the strong execution. Maybe just because it's one question, if I keep to datacom. In the shareholder letter, you referred to a number of new significant AI-related customers that you have engagements with. If you can give us a bit more insight about the nature of those customers, the magnitude potentially of those engagements can turn into if you were to win those awards relative to the existing orders that you have. And then just a quick clarification. You did have 100% sequential growth in datacom, 800 gig revenue on capacity ramp; is that roughly where we should expect sort of capacity to linearly expand from here on? Thank you.

Yeah. Good morning, Samik. Thanks for your question. Sanjai?

Sure. Thanks for your question, Samik. So with any large scale deployment of new technology, there are a few hyperscalers driving it, and now we are seeing that extend more broadly. We're also engaged with new MEMs as well as up and down the entire ecosystem. So we have a very broad group of customers that's continuing to grow in terms of engagements. Did that answer your question?

Yeah. Anything on the capacity ramp, Sanjai?

So in the capacity ramp, we did say in the shareholder letter that we grew 100%. That's basically our 800G shipments, 100% quarter-over-quarter. In our ramp-up plans, we crossed the quarterly run rate of $100 million. And we also said that in fiscal '24, over 50% of our datacom transceiver revenues will be from AI-related applications. So we are really excited about the ramp and the growth of the market.

And I'm expecting the third quarter will be greater than the second quarter and the fourth greater than the third, Samik. If that gives you any indication.

Yeah. Sure. Thank you. Thanks for taking the question.

Thank you.

Thank you. One moment for our next question, please. Comes from the line of Ruben Roy with Stifel. Please proceed.

Thanks very much, and I'll echo my congrats to the team. A follow-up for my one question on networking as well. Chuck, just trying to understand the commentary around the supply constraints. It sounds like they improved, lead times are shortening. Would you say the majority of the supply chain constraints are behind now, and it's a question of shipping to demand or are there still some components that are out there that are in short supply? Is that kind of a limiting factor to the rest of the year on your AI transceiver shipments?

Okay. Thanks a lot, Ruben. Ruben, as you know, anytime you go through such a steep ramp, what's lying in front of you regarding constraints is what you're trying to get out in front of. So if you look in the rearview mirror, the constraints have surely eased and moderated. But when you see the size of the ramp that we're going up, we have to manage a number of constraints. The first constraint, then the second and third, we have to anticipate them. We have to get our agreements with suppliers in place. And we’re looking beyond FY ‘24. This is a super exciting and super-hot market. So we’re in the process of looking out well into FY ‘25 to be sure that our supply chain can keep up with us. I hope that answers your question, Ruben.

It does. Thank you for that detail chart.

Thank you. One moment for our next question, please. And it comes from the line of Meta Marshall with Morgan Stanley. Please proceed.

Great. Thanks. A couple of questions. Just one, just what are you seeing on inventory of under kind of this 800 gig or AI transceivers, just kind of when you expect some of the demand for that business to come back? And then just kind of on top of that, a couple of quarters ago, you had noted that you had a couple of hundred million of orders that if you ramp capacity, you expected to be able to fulfill during this fiscal year. Obviously, you guys are kind of ramping a little bit faster than expected just in terms of that kind of couple of hundred million that you outlined earlier in the year. Just how do you feel like you're going to be able to meet or exceed kind of those excess demands?

Thanks, Meta. Thanks for your interest. Sanjai?

Yeah. Thanks for your question, Meta. So we just said in our shareholder letter that we shipped over $100 million in 800G transceivers last quarter. It was much smaller the previous quarter, it grew almost 100% quarter-over-quarter. And then we also said, Meta, that in fiscal '24, 50% of our datacom transceiver revenues will be from AI-related applications. So we are projecting a very strong growth in our 800G shipments. We are on a ramp-up, as Chuck referred to earlier. Hopefully, that answered your question.

What are you observing regarding inventory clearance for sub-800 gig products? I understand the situation with the 800-gig products, but can you provide insights on demand for the rest of the business?

We have not anticipated any significant rebound in the non-AI segment of datacom. Most of the growth is concentrated in 800G. In fact, nearly all of the growth is in 800G. This is why we indicated that over 50% of our fiscal '24 revenues will come from AI and related 800G products.

Thank you.

Thank you.

Thank you. One moment for our next question, please. It comes from the line of Simon Leopold with Raymond James. Please proceed.

Thanks for taking the question. I wanted to also talk about what's happening in 800-gig data center transceivers. And I'm looking for your thoughts on how you can compete in this market. And I'm struggling candidly because it seems like demand is great, which should be margin favorable, but some of your competitors probably are willing to take lower margins and so that might pressure profitability. Could you help us understand how you're thinking about that? Thank you.

Thanks, Simon. Giovanni, would you like to give....

Simon, good morning. Thanks for the question. Well, as a reminder, we are the most vertically integrated player in the space. So we heard, for example, people talking about a shortage of pixels. Well, guess what, we have the largest bit supply in the world by far, so including our competitors. So we have a very good kind of control of the supply line for the components other than ICs. And we have our own manufacturing. We have pretty much the most complete offering in the space, both 100 and 200G as we announced in the past. So we think that will be very, very powerful, not only to remain competitive standpoint and a roadmap standpoint, which are very strategic to our hyperscale customers and the like, but also from a cost structure standpoint. We think that we will have always the best margin profile versus those that have to pretty much buy everything on the merchant market. So we are very active in many of these technologies that will be an advantage from a profitability standpoint.

I would like to add that we have a complete range of products designed for today and those in development for the future. The products we are developing will be even more exciting than our current offerings. Our priority, as Giovanni mentioned, is maintaining control while focusing on the speed of market entry, volume, and profitability. This is where we need to concentrate our efforts. We have a proven track record in a competitive market, and we intend to remain competitive.

Thank you.

Thank you. One moment for our next question, please. Comes from the line of Jed Dorsheimer with William Blair. Please proceed.

Hi. Thanks. Most questions seem to be on datacom, so I’ll take a different approach with a two-part question. First, can you provide an update on the products related to MicroLED that Coherent is offering, which I believe you highlighted for the first time? Secondly, regarding silicon carbide, there have been various data points emerging in the market. Could you share what you’re observing from the customer base there? Thanks.

All right. Good morning, Jed. Thanks for your two questions. Chris will go first and then Sohail. Chris?

Yeah. Thanks, Chuck. So we spoke about the MicroLED developments that we have in previous quarters and about the multiple orders we received from China, Taiwan, and Korea for the tools for a process called laser-induced forward transfer, which is where you take the currently 10 micron moving towards 5 micron MicroLEDs from the wafer to the display. So we're seeing increasing customer engagement and are very excited about the impact of MicroLEDs on the television market. This is a very high level of engagement now and a market that will be growing over the next three to five years.

Thank you, Chris. Sohail?

Hello. Can you hear me?

Yeah.

Thanks for your question. We are quite bullish about the silicon carbide market and the growth prospects over the next five to 10 years. Based on that, we are sticking with our plan, which is driven from the customer engagement as well as long-term supply agreements that we have in place. The announcement with Mitsubishi and DENSO has strengthened our position, and we are seeing more engagements and especially a lot of interest from both existing and new customers for 200 millimeter. So we are going to stick to our plan of the investment and expansion, and we will continue to see the growth of our business quarter-over-quarter and year-over-year.

Thank you.

Thank you, Sohail. Thanks, Jed.

One moment for our next question, please. It comes from the line of Richard Shannon with Craig-Hallum Capital Group.

Hi, guys. Thanks for taking my question. Maybe I'll ask a financial one here. It seems like after a couple of quarters of OpEx being flat to down, or I guess, a little bit more down on a pro forma basis, it seems like you're implying it growing here at a fairly steady rate here, which seems to be antithetical to the synergy and restructuring plan, I think, you announced one or two quarters ago. Can you help us understand why that is; why it might seem to be growing at a decent rate after bottoming out here?

Thanks a lot. Good morning, Richard. Rich will take it.

So yeah, as you pointed out, our synergy plans and cost reduction have kept our expenses down in the OpEx. The big thing that you see in the ramp-up as we go forward in the guidance really is around R&D around our AI product, as well as other initiatives that we have in place. So that's really the increase is coming from the R&D. We've done a really good job in our SG&A expenses.

Look, those R&D investments in the second half of the year, Richard, are aimed for FY '25 and beyond on the basis of new information that we've received in the last one or two quarters from our customers with great clarity.

Chuck, any way you'd want to characterize where those investments might sit, like by your segments or end markets or anything like that?

In those markets that are growing extremely quickly, starting with AI, Richard. Everything starts with that.

Okay. Great. Thanks. Thanks for the detail.

Thank you, Richard. Yeah.

Thank you. One moment for our next question. It comes from Karl Ackerman with BNP Paribas. Please proceed.

Yes. Thank you. Good morning. As you indicated earlier on this call, VCSEL supply is critical right now on the ramp of both 800-gig and 1.6T transceivers. How has your internal capacity supported or helped your design wins for 1.6T, which you indicated will be ramping later on this year? And I guess, if you could address that, perhaps could also discuss the ramp of 1.6T over the next couple of quarters. Thank you.

Karl, thanks for your question. Giovanni will take it. And if there's anything to add, that Julie would like to add to clarify, she will. Please, Giovanni.

Thanks for the question. I mean, as we said earlier, we have our own facility. Actually, we have two facilities, two or three fabs that are capable of producing datacom. But at this point in time, we're relying on only one fab and it's ramping like needed by our internal customers and external customers too, which are our competitors. So as we said earlier, we have the advantage of being basically integrated to have a very good understanding of the needs of the supply required by our internal and external customers. So we have a full control of that. We have had similar ramps in the past; this is a challenging ramp in terms of the data rate. But nevertheless, I think we are doing a great job in keeping up with the demand for both internal and external supplies. So at least we're shipping based on demand. We are not behind even if we still need to go as requested by the forecast. So we are following up with the demand as we see it right now. So we don't see that being a challenge at least for our VCSEL supply.

Julie, would you like to add regarding Karl's question on 1.6T?

Right. Just to add to what Giovanni said is we also were one of the few in the industry actually that can make these very high speed. It's a unique capability.

Thanks. Thank you for your question, Karl.

Thank you. One moment for our next question, please. And it's from Vivek Arya with Bank of America Securities. Please proceed.

Hi. This is Blake Friedman on for Vivek. Thanks for taking my question. On gross margin, you provided a useful outline on actions to return to 40%. But can you maybe quantify all the different actions ranging from improving utilization, operational efficiencies, and new products? And this goes back to a previous question, but on mix, just given the momentum in AI transceivers, are these products at or above the corporate average gross margin today?

Okay. Good morning, Blake. Thanks. Rich?

Yeah. So a two-part question. The first question is the AI. And I think in the last earnings call, we did mention that it is at the average of the corporate average in terms of margin. In terms of our ability to drive margin in the future, obviously, the first thing is volume; that's one. The second is utilization within our fabs, which really two of our six fabs have really improved in terms of the utilization. And also the reliance on our synergy plan, the reliance on our restructuring plan is really going to be of utmost importance in terms of increasing our gross margin going forward.

Thank you.

Thank you.

Thanks. One moment for our next question, please. It comes from the line of Christopher Rolland with Susquehanna. Please proceed.

Thanks for the question. Yeah. Can you hear me?

Yes. Good morning, Chris.

Hi. Great. Thanks for the question and congrats on the results. I just have one clarification and one question. First, the clarification: the primary gating issue on AI is 800 gig VCSELs. I just want to make sure whether I got that right or not. And then secondly, I wanted to talk about telco. So we're seeing more and more weak data points coming out for telco, but it kind of feels like maybe you're going to tell us that could be in the rearview mirror for you guys. So is December the clear bottom there? Are you expecting to kind of grow through the year here? And where can we kind of normalize out on a quarterly run rate for telecom looking forward? Thanks.

Okay, Chris. So Giovanni will clarify your question regarding VCSELs. Magnus will take the telecom question. Giovanni?

Yes. Let me clarify. No, we do not face a supply challenge regarding VCSELs. When increasing production of transceiver modules, several other factors need to be addressed, including testing, automation of assembly lines, and the introduction of new processes. Additionally, external supply chain issues, especially regarding integrated circuits, will affect our ramp-up capabilities. Everything is coming together, and demand is certainly stronger than our current supply. We are limited by capacity, but not from the device perspective—it’s more about our overall ability to meet the volumes set forth by our customers’ latest forecasts in comparison to previous ones. We have realigned with our roadmaps and know what our customers are seeking in next-generation products. We will adjust our internal supply chain to meet this demand. Currently, we are not facing challenges in VCSEL production. Additionally, we have superior capacity through both internal and external suppliers, allowing us to effectively support our transceiver business as a priority.

Thanks, Giovanni. Magnus, would you take the telecom question?

Sure. Good morning, Chris. So in telecom, we saw growth in the December quarter over the October quarter by about 20%. If we look out for the balance of the fiscal year, we expect double-digit growth in the second half over the first half. Beyond that, in '25, as the market improves, we expect additional growth, both from the market coming back but also from a lot of the engagement we have with customers on design wins for new products.

Great. Thanks, Magnus. Thanks for your question, Chris.

Thank you. One moment for our next question, please. It comes from the line of Mark Miller with The Benchmark Company. Please proceed.

Thank you for the question and congrats on your progress. Just was wondering in terms of new applications for VCSELs in terms of automotive and other applications. What are you looking at over the next 12 months or so?

Great. Good morning, Mark. Julie, will you take that one?

Sure. Yes. So VCSELs in addition to the datacom market can be used in the sensing market. Obviously, we’re in the sensing world and mobile phone applications. In addition, you can use VCSELs for all kinds of other sensing, including in a vehicle, potentially in health applications; so many potential future applications of VCSELs in sensing.

Thank you.

Thanks, Julie. Thank you, Mark.

Thank you. One moment for our next question, please. Comes from the line of Tim Savageaux with Northland Capital Markets. Please proceed.

Hi. Good morning. Again, sorry if I might have missed this earlier. But you talked about 800 gig transceiver shipments at about $100 million in the quarter kind of doubling sequentially. Do you have an outlook for where you expect that number to go either in fiscal Q3 or by year-end? And I'll follow up from there. Thanks.

Yeah. Okay, Tim. Thanks for your question. Tim, what we said that you missed is that I expect our shipments in Q3 to be greater than Q2 and in Q4 greater than Q3. We're on a ramp. It's going up and to the right.

Okay, if I may follow up on that. You're discussing modest sequential growth for Q3 and growth in telecom. Are you looking for confirmation? Even when reviewing your Q2 results, it seems that the lower speed segments have declined significantly, suggesting some offsets. Is that the overall trend for datacom revenue, or are there different factors at play, and is that growth slowing down a bit?

It really is an insightful question. Meta Marshall had the same question and Sanjai tried to address it. Let's let him take another pass at it.

In terms of the market, the fastest growing segment is 800G and above, primarily driven by AI. We just updated our forecast, projecting a growth rate of 65% CAGR over the next five years. It’s a rapidly expanding market, and we aim to outpace that growth. The traditional networking market isn’t experiencing similar growth, and we’re not anticipating a significant recovery in our non-AI market or revenue growth. Therefore, most of our revenue growth is from AI-related applications. I hope that clarifies our position.

Thank you, Sanjai.

Thanks, appreciate it.

Yeah. Thanks, Tim.

One moment for our next question, please. And it's from Ananda Baruah, Ananda Baruah with Loop Capital. Please proceed.

Good morning, everyone. Thank you for the question and congratulations on the strong execution. Just a follow-up, Sanjai. Can you clarify what the 65% growth over the next five years specifically refers to?

Hi, Ananda. Good morning. It is the growth of 800G and above transceivers, datacom transceivers from calendar '23 to calendar '28. It's at a 65% CAGR.

I got it. Super helpful. And I guess my question is, any way to think about the transceiver opportunity for genAI outside of the hyperscale complex? And so specifically, I'm thinking at telcos and on-premise, say, like Fortune 1000 sites. And that's it for me.

Okay. Good morning, Ananda. Julie will take the next one.

Good morning, Ananda. The largest deployments are obviously at the web scale. Over time, this will extend to smaller entities that may host services or opt for on-premise solutions to cater to a varied customer base, much like what we've seen in the Ethernet market. I'm sorry, I forgot the second part of your question.

With regard to whether it will spill over to telecom.

Thank you. Yes, eventually, it all spills over to telecom because all that data that's getting generated inside has to go somewhere. So we do believe that will positively impact our telecom revenue over time. It should also positively impact non-AI datacom revenue eventually. Finally, something that might not be so direct of a comparison, but these genAI chips require the most advanced process nodes, and that's beneficial to our industrial segment for our semi-cap inspection lasers.

Thanks, Julie. Ananda, I would add that besides datacom and telecom verticals, we have a semi-cap equipment business, and it’s also underpinning the growth in AI by providing new tools, including laser-based tools and engineered material tools to OEMs that have to build the equipment to make the devices. I mean, we have it surrounded.

Yeah. That's anomaly. Great. Job.

Thanks, Ananda.

Thank you. One moment for our next question, please. And it's from Dave Kang with B. Riley. Please proceed.

Thank you. Good morning. A question is on ARM lasers. Chuck, I think you talked about it in the past that ARM lasers have an 8-figure opportunity and could reach 9 figures if you successfully penetrate the Chinese market. Just wondering if you can give us an update there.

Thanks, Dave. Thanks for asking about one of our other super exciting opportunities. Giovanni?

Yeah, Dave. Thanks for the question. Yeah. We're making progress. Actually, just recently, we learned that a major battery maker in China displaced our competitor's laser to replace it with ours on the production line. So we think it's going to be a huge opportunity for us, since it's one of the largest battery makers in the world. So we think in addition to the existing customers, they keep ramping production, and you see the major advantage of the spot-free, no-porosity kind of well quality provided by our ARM laser people; we believe that to grow in the market space. And it's not going to be limited just to batteries for EVs. I think we're seeing application beyond that, not only in the automotive market but also for example, in the semi-cap equipment market, where we have been engaged recently on working on some advanced lithography tools to provide laser welding for some special alloys parts needed by those tools.

Dave, we’re aiming to drive a paradigm shift when it comes to laser building.

Thank you. One moment for our last question, please. And it comes from Jim Ricchiuti with Needham & Company. Please proceed.

Good morning, Chuck. I wonder if you could elaborate on the comment early on in the shareholder letter that you would consider other strategic opportunities to unlock shareholder value. I'm wondering what that means. Are you suggesting that you might pursue some smaller M&A to maybe expand in some areas that you may not necessarily have the presence you want to have?

Jim, that's a great question. We're from time to time asked about it. We are prudent stewards of our capital. And let me ask Bob Bashaw, our President, if he'd like to remark.

Yeah. Sure. Yeah, I'm happy to, Chuck. Yes, as you know, we have been open to all kinds of transactions in the history of the company. And we are with great partners. As Chuck said, shareholder value is always our driver. So we are actively, like we have been for 51 years, considering lots of alternatives to grow shareholder value. As we indicated in the shareholder letter, these are probably going to be smaller transactions, not material, but that is our focus across all ranges of potential transactions.

Is it a case of expanding in some areas that you're underserved? Is that the focus?

There are many technologies and opportunities available to us, and we are exploring various avenues for growth. Additionally, there are significant opportunities for partnerships. We are considering all of these options and actively engaging in those areas.

Thank you.

Thank you, Bob.

Thank you. And this concludes the Q&A session. I will turn it back to Paul Silverstein for any final comments.

Thank you, Carmen. I want to thank all the analysts on the call for their thoughtful questions. And I want to thank all of you on the line for having joined us this morning. We look forward to talking to you in the future. Thank you.

Thank you, ladies and gentlemen, for joining us today. You may now disconnect.