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Coherent Inc (NASDAQ:COHR)
Q3 2020 Earnings Call
Aug 4, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to Coherent's Third Quarter Fiscal Year 2020 Financial Results Conference call. [Operator Instructions]

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

Bret DiMarco -- Executive Vice President and General Counsel

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 of 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.

Andy Mattes -- President & Chief Executive Officer

Thank you, Brad. 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'm 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 mark 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 am referring to quotes, RFQs, RSPs 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 booking.

Now let's take a closer look at our Market segment.

Starting with microelectronics, as you know this market is made up of three sub-markets, flat panel display, semiconductors and API. All three markets have been impacted by COVID-19, but there are bright spot.

In quarter, flat panel display revenue was aided by increased line beam shipments destined for Chinese customers. Fab utilization by our customers was still down in Q3 and our corresponding service revenue was off for 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 and upgrade cycle. If you look at the microelectronics market more broadly, we continue to capture mind end market share in the Laser Lift-Off technology for flexible OLED with our UVblade 750, which continues to outperform our solid-state laser competitor.

And we have one significant repeat ultrafast business in Korea, related to flexible OLED cutting and ultra-thin glass for foldable phone. Semiconductor inspection remains a bright spots with the 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 the 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 as fast or 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 non-metal 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 three important sub-markets, life science instrumentation, mediacal 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 two 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 scientists now returning to their labs and the proposal pipeline for sales and ultrafast lasers research and ground based astronomy looks robust after a very weak Q3, when few labs we're open.

As part of the OEM components and instrumentation end market, defense is emerging as an attractive sub-market for us, where we are very well positioned in amplifiers for directed energy, counter measures as well as specialty optics for aerospace and continue to see strong bookings. We see this as a multi-year growth opportunity and we'll 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 was 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.

Up-scaling our leaderships builds on multiple level is 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 am therefore, very excited to report that as a company, our focus on cash is starting to manifest itself in a noticable improvement of our cash position from Q2 to Q3.

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

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

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 on intangible assets, 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 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 two territories with revenues greater than 10% sales. We had one customer in South Korea related to large flat panel display manufacturing, they contributed more than 10% of our fiscal third quarter revenues.

Revenue from other product and service for the fiscal third quarter was $97 million or approximately 33% of sales. Other product revenue consist 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 through 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. Non-restricted 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 quarters. 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 first -- fourth fiscal quarter of 2020.

Revenue for fiscal Q4 is expected to be in the range of $290 million to $320 million. You will 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, amortization, estimated at a total of $2.9 million and stock compensation expense of a total of approximately $13.2 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 aligning 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.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instruction]

Your first question comes from Jim Ricchiuti of Needham & Company. Please go ahead.

James Ricchiuti -- Needham & Company -- Analyst

Hi, thank you. Good afternoon. I -- if I heard you correctly, I think you said the book-to-bill was below 1 for the quarter and then some of which clearly, I guess, is the 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 is clearly some build out, but there is also some puts and takes about things being pushed to the right.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Hey, Jim, it's Kevin.

James Ricchiuti -- Needham & Company -- Analyst

Hi.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

I can do -- in. 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, etc. 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, the trends was strong, some biomedical stuff was strong, materials processing generally was weak, very weak and let me leave it there.

James Ricchiuti -- Needham & Company -- Analyst

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?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

It's, Jim, it's a very, very, very small factor. There are always improvements in process that the -- 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 two of the major handset manufacturers. So as we look forward, we do expect a bit of a rebound in display. As I mentioned that 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.

James Ricchiuti -- Needham & Company -- Analyst

Got it. And last question from me, 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 talk to that in broad terms. Focusing on markets where do you think you have the potential to be either number 1, number 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?

Andy Mattes -- President & Chief Executive Officer

All right. If you 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 we're -- where the wind is blowing right now. I mean, it's clearly for us, some of the key markets it's definitely displays, that's OLED and whatever other next generation displays there are on the horizon, that's the whole lays a 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 license -- we like medical and life science, so we have pick markets where we have a very strong standing, we like marking, especially specialty marking and then we like a lot of the non-metal 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 see squat a little bit more about that.

Fair enough. Thank you. I'll jump back in the queue.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Thanks, Jim.

Operator

The next question comes from Tom O'Malley of Barclays. Please go ahead.

Thomas O'Malley -- Barclays -- Analyst

Hey, guys. Thanks for taking my question. 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 sequentially 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?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Tom, it's Kevin. Yeah. 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 $7 million increase of the midpoint, it's a myriad of small things.

Thomas O'Malley -- Barclays -- Analyst

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

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

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

Thomas O'Malley -- Barclays -- Analyst

Okay and then. 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 non-metal 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 need to see something more than offset, is it just the non-metal applications, are you seeing any last time buyers from customers that are walking away or is that a lot of the -- of the run rate now?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

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 are 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 booking standpoint. So I hope -- I hope you get that.

Thomas O'Malley -- Barclays -- Analyst

Great, thanks, guys.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Thanks, Tom.

Operator

The next question comes from Mehdi Hosseini of SIG. Please go ahead.

Mehdi Hosseini -- Susquehanna International Group -- Analyst

Yes, sir. Thank you for taking my question. I want to go back to your commentary regarding book-to-bill and how business fundamental actually showed into the month of June and July? And I want to use the microelectronics to ask a question. It was double-digit, perhaps the supply chain disruption were behind you, so you are able to show double-digit growth in the sequential basis. But 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 it something else that you can elaborate on? And I have a follow-up.

Andy Mattes -- President & Chief Executive Officer

Yeah, 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.

Mehdi Hosseini -- Susquehanna International Group -- Analyst

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

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah. 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.

Mehdi Hosseini -- Susquehanna International Group -- Analyst

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

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

We do believe it will be sustainable Mehdi and in fact, given the strength in the euro right now actually the -- 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, yeah, we should be able to maintain and grow that.

Mehdi Hosseini -- Susquehanna International Group -- Analyst

All right, thank you.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Thank you.

Operator

Our next question comes from Larry Solow of CJS Securities. Please go ahead.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Hi, good afternoon. Just a couple of follow-ups. Kevin, you mentioned sort of the sequential improvement on revenue at the midpoint. No mention of OLED equipment and flat panels, do you expect -- I know you've mentioned you shipped some line beams 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 thought we're going to get a little bit of a bump up just from that alone and I realize they are big ticket items. So two, three machines kind of also make a big difference. Any color on that?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah, Larry, I'm going to be careful here, I mean we've never really called out display and calibrated specifically.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Right.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

You did a double-digit growth in absolute dollars this quarter. As you look forward, suffice to say, I think Andy said in his prepared remarks, we will ship line beams in the September quarter. But I'm not going to calibrate that for you. Just like to say that we are showing to the midpoint, we are showing an increase in revenue in total.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Yeah, fair enough. Absolutely. Fair enough. And then on, just on the sort of the cadence of -- it sounds like -- you certainly show some improvement proposals through the quarter and I guess that translates, I guess you sort of build in the standard sort of one quarter delay. So is that why you're looking toward 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 for Q4, but I guess that sort of just that vacuum proposals related to bookings one quarter later, I guess right?

Andy Mattes -- President & Chief Executive Officer

Yeah -- 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 time north of a year, but I think for the majority of our portfolio. You're looking at a 4 to 6 months 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.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Okay.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Larry, if I could add.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Please, yes.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah, I mean you get -- everyone gets that. The only difference between revenue and bookings is timing.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Absolutely.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

And given COVID in April, partly May and so forth. I mean that's just delayed everything. And so from a bookings to revenue standpoint, as Andy explained by -- 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 taken 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, will benefit from that in the Q1 or the December quarter.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Right, OK. 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 mid-term you spoke last quarter about not getting into quantifying specifics, but you spoke Andy about, I think it was my question about -- how do you grow the materials processing business in on sort of economy that is unlikely to grow, in the next couple of years and related to COVID and we obviously were strained and materials processing was already coming in on the down before COIVD.

So and you spoke to improving profitability and whatnot exiting some businesses where your margins are probably lower maybe money losing businesses even so, I'm actually thinking perhaps over the next, again, the 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. Thanks.

Andy Mattes -- President & Chief Executive Officer

Yeah, from an opex standpoint. What you really think about Larry is the comp side, the cost of sales side.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Okay.

Andy Mattes -- President & Chief Executive Officer

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.

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Fair enough. Okay, great. I appreciate that all clarification. And thanks, again. Thanks, Larry.

Operator

Your next question comes from Mark Miller of The Benchmark Company. Please go ahead.

Mark Miller -- The Benchmark Company -- Analyst

Thank you for taking my question. Your departure from the Fiber Laser business was -- were there any charges, material charges in this quarter's report?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

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

Mark Miller -- The Benchmark Company -- Analyst

Your stock based compensation took a jump, is this a new trend or was there some one timers in stock-based compensation that drove it higher than previous quarters recent?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

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

Mark Miller -- The Benchmark Company -- Analyst

So to cycle back to around the $8 million level in the upcoming quarters?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

I don't think it goes all the way down, we gave a number of 13 and change. So close.

Mark Miller -- The Benchmark Company -- Analyst

Thank you.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Thank you, Mark.

Operator

The next question comes from Nick Vittorio of Longbow Research. Please go ahead.

Nikolay Todorov -- Longbow Research LLC -- Analyst

Yeah, thanks. Hey, guys. 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 up of that going forward as we think utilization will be scaling up pretty substantially?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah. Hi, Nick, 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 the numbers that I shared, but behind the $97 million, I talked about for those other 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.

Nikolay Todorov -- Longbow Research LLC -- Analyst

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

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

It's still below normal, Nick. I think everybody, given the macro environment of the pandemic, I think, everybody is really focused on cash, in 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 very sparingly using their inventory and maintaining lower and lower threshold.

Nikolay Todorov -- Longbow Research LLC -- Analyst

Okay. So we think to the gross margin, the September quarter guide is pretty good, relative to the incremental revenue growth that you're guiding to. Are you guys really obviously, that ELAs are helping, but are you guys willing to provide any framework to how we should -- an 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?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah. The best I can do there, Nick, 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.

Nikolay Todorov -- Longbow Research LLC -- Analyst

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

Andy Mattes -- President & Chief Executive Officer

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 or the usage of our technology. Now, these are not things that people order off the shelves 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 goodness for us and that should continue all through the next year.

Nikolay Todorov -- Longbow Research LLC -- Analyst

Got it. Thanks, guys. Good luck.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Thank you, Nick.

Operator

The next question comes from Brian Lee of Goldman Sachs. Please go ahead.

Brian Lee -- Goldman Sachs -- Analyst

Hey, guys. Thanks for taking the questions. And I apologize if you've 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 the OLED business, it seems like maybe, this is the first time in several quarters where you didn't have the new order, but I just wanted to confirm that maybe, I'll start there?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah, 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, we have two different languages to communicate, but we do see -- as we look forward, we do see orders in the upcoming quarters based on the ramp.

Brian Lee -- Goldman Sachs -- Analyst

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. That's correct?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

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

Brian Lee -- Goldman Sachs -- Analyst

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 LLL orders over the past several quarters. And your stated six month lead times. Are you seeing lead times extend or have you seen customers kind of push out installation timing? Just maybe, can you provide a -- some context for how to think about the order strength for the past three to four 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.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah, Brian, Kevin again. So, yeah. 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 with sales activity, that is taking longer. And in fact, in part, it was shut down for part of March leading into the -- this fiscal third quarter, our June quarter, in early April. So that really push things to the right by a quarter or more.

Brian Lee -- Goldman Sachs -- Analyst

Okay. That's helpful. Thanks, guys. I'll pass it on.

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Thank you, Brian.

Operator

Our next question comes from Andrew DeGasperi of Berenberg. Please go ahead.

Andrew DeGasperi -- Berenberg Capital Markets LLC -- Analyst

Hi, thanks for taking my question. 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, this is the first time we have one person in such a role. And how important that is for the future at Coherent?

Andy Mattes -- President & Chief Executive Officer

Happy to Andrew. But 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 has 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 feeling on that side and hence we brought someone on board, who actually has 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 do we 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 on board, we're working very hard on this. And that's going to change our look and feel and it's also going to help to increase the effectiveness of our sales force.

Andrew DeGasperi -- Berenberg Capital Markets LLC -- Analyst

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

Andy Mattes -- President & Chief Executive Officer

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.

Andrew DeGasperi -- Berenberg Capital Markets LLC -- Analyst

Sounds good. Thank you.

Operator

There is a follow-up question from Mark Miller with The Benchmark Company. Please go ahead.

Mark Miller -- The Benchmark Company -- Analyst

Should provide cash from operations, please?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

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

Mark Miller -- The Benchmark Company -- Analyst

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, they are the similar?

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

Yeah. 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 on board, some new initiatives and so forth. So we should typically be in the round numbers, middle '80s for opex going forward.

Mark Miller -- The Benchmark Company -- Analyst

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

Andy Mattes -- President & Chief Executive Officer

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 and 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, because we don't have as much exposure, especially in the material processing side of the house in China.

Mark Miller -- The Benchmark Company -- Analyst

Thank you.

Operator

There is a follow-up question from Nik Todorov of Longbow Research. Please go ahead.

Nikolay Todorov -- Longbow Research LLC -- Analyst

Yeah, hi again. Thanks. Just related to EV investment, your peers are -- and I know 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, EMEA, where I think those are much ahead of what's happening in the U.S.?

Andy Mattes -- President & Chief Executive Officer

EV is an exciting market. We see a continuous increase in interest in arm laser technology, which is very unique in the way that we can bundle the laser light in the ring and 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 that -- 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.

Nikolay Todorov -- Longbow Research LLC -- Analyst

Got it. Thanks, guys.

Operator

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

Andy Mattes -- President & Chief Executive Officer

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.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Bret DiMarco -- Executive Vice President and General Counsel

Andy Mattes -- President & Chief Executive Officer

Kevin Palatnik -- Executive Vice President & Chief Financial Officer

James Ricchiuti -- Needham & Company -- Analyst

Thomas O'Malley -- Barclays -- Analyst

Mehdi Hosseini -- Susquehanna International Group -- Analyst

Lawrence Solow -- CJS Securities, Inc. -- Analyst

Mark Miller -- The Benchmark Company -- Analyst

Nikolay Todorov -- Longbow Research LLC -- Analyst

Brian Lee -- Goldman Sachs -- Analyst

Andrew DeGasperi -- Berenberg Capital Markets LLC -- Analyst

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