Lumentum Holdings Inc.

Good day, everyone, and welcome to the Lumentum Holdings Third Quarter Fiscal Year 2025 Earnings Call. All participants will be in listen mode only. Please also note today's event is being recorded for replay purposes. At this time, I'll now like to turn the conference over to Kathy Ta, Vice President of Investor Relations. Ms. Ta, please go ahead.

Thank you, and welcome to Lumentum's Fiscal Third Quarter 2025 Earnings Call. This is Kathy Ta, Lumentum's Vice President of Investor Relations. Joining me today are Michael Hurlston, President and Chief Executive Officer, Wajid Ali, Executive Vice President and Chief Financial Officer, and Wu-Pan Nguyen, President, Cloud and Networking. Today's call will include forward-looking statements, including statements regarding our strategies, trends, and expectations for our products and technologies, including demand, our customers, our end markets and market opportunities, our expectations and beliefs regarding recent acquisitions, including Cloudlight, macroeconomic trends, including the impact of tariffs and other trade regulations, and our expected financial and operating performance, including our guidance, as well as statements regarding our future revenues, financial model, and margin targets. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations, particularly the risk factors described in our SEC filings. We encourage you to review our most recent filings with the SEC, particularly the risk factors described in our most recent 10K and in our 10Q that will be filed soon. The forward-looking statements provided during this call are based on Lumentum's reasonable beliefs and expectations as of today. Lumentum undertakes no obligation to update these statements, except as required by applicable law. Please also note that unless otherwise stated, all financial results and projections discussed in this call are non-GAAP. Non-GAAP financials are not to be considered as a substitute for or superior to financials prepared in accordance with GAAP. Lumentum's press release with the fiscal third quarter results and accompanying supplemental slides are available on our website at www.lumentum.com under the Investors section. With that, I'll turn the call over to Michael.

Thank you, Kathy, and good afternoon, everyone. Before diving into our third quarter results, I want to reflect on my first 90 days as CEO of Lumentum. I joined because of the immense cloud and AI opportunity. And the more I've seen, the more confident I am that we're poised for success. Having said that, we have opportunities to accelerate revenue growth, improve margins, and focus spending. As many of you know, Part of my core philosophy is that gross margins reflect the value customers place on our products. As we indicated at OFC, we see a path to take gross margins above 40%. Meanwhile, we can and should be able to improve operating margins by cutting spending in non-core areas. At OFC, we outlined a path to drive revenue to $750 million a quarter, gross margins above 40%, and operating margins greater than 20%. Based on my initial observations and the plan we have in place, these targets are all achievable. Our markets are growing at unprecedented rates, greater than 25% compound annual growth rate over the next five years, driven by an accelerating convergence of optics and electronics. Our strength in optical components is unmatched. We build for virtually every type of network, At OFC, we showcased our 400 gig lane speed lasers alongside our proven 100 gig and 200 gig solutions. We also demonstrated differential drive EMLs that boost signal integrity and power efficiency. We're building momentum in the transceiver market with three cloud transceiver customers already on board and more wins expected in the pipeline. What sets us apart is that our components are embedded across the ecosystem even in competitors' transceivers. That means we often win, regardless of who supplies the module. We're one of the few companies with true end-to-end optical capabilities, from long-haul to metro to inside the data center. Our scale and breadth make us a truly differentiated optical solutions provider. Let's now turn to our third quarter results. In Q3, we exceeded the high end of our guidance for both revenue and EPS, driven by strong demand from cloud customers and a recovering networking market. Despite ongoing macroeconomic volatility, growth in cloud continues to be a key element of our financial performance. Revenue in our cloud and networking segment grew 8% sequentially and 16% year over year fueled by robust demand from hyperscale cloud customers. As mentioned earlier, when we execute well, the opportunity ahead is significant and our components business is performing at an exceptional level. We set another record for EML chip set shipments this quarter and remain on track to more than double this business by the end of calendar 2025 relative to our June 2024 baseline. We continue to ship 200 gig lane speed EMLs to multiple customers. With our set of design wins, we're well positioned in the next generation of 800 gig and 1.6T transceivers supporting AI workloads. Our wafer fab expansion remains on track, supporting higher volumes of EMLs and other indium phosphide lasers and photo detectors. In addition, we are ramping production in CW lasers for silicon photonics transceiver applications in the quarter. As our indium phosphide capacity grows, we expect to ship an increasing mix of CW lasers. In addition to supplying components into the transceiver market, we took an early lead in co-packaged optics, or CPL. We have a highly differentiated ultra-high power laser that was announced as a key component in a CPO solution at GTC last quarter. We have already shipped early production units of that product and expect meaningful revenue in the second half of calendar 2026. At OFC, we introduced the R300, a 300 by 300 port optical circuit switch, or OCS, engineered to significantly improve the scalability, performance, and efficiency of AI clusters in intra data center networks. The device replaces traditional switches, providing customers significant power benefits by keeping signaling in the optical domain. Our OCS solutions build on decades of engineering expertise and the successful deployment of high performance MEMS technology in demanding telecom environments. With over 1 trillion mirror operating hours in the field and a robust patent portfolio, our optical switches are designed for high reliability and energy efficient performance in AI-driven data centers. At present, we have beta samples being qualified by multiple hyperscaler customers and expect to see early production volumes at the end of the calendar year. We're accelerating our optical transceiver production at our Thailand manufacturing campus and remain on track to begin shipments to our second announced hyperscale data center customer in June, as previously communicated. At the same time, we continue to ship to our third announced customer, and we are expanding our product offerings and ramping in shipment volume to our largest cloud hyperscale customer. In Q4, we expect our overall cloud transceiver revenue to grow over 50% sequentially. We're also experiencing growing demand for our DCI and long-haul transmission solutions. We achieved another sequential increase in shipments of narrow line width lasers essential to ZR and ZR Plus module deployments and in transponders for cloud customers. This marks the fifth sequential quarter of shipment growth for narrow line width lasers. Even as we ramp additional capacity in Thailand, our shipments will not be able to satisfy demand for the balance of the calendar year. In addition, pump lasers and line subsystems were up sequentially, driven by cloud infrastructure demand. Looking ahead to Q4, we anticipate strong sequential growth in our cloud and networking segment, driven by new capacity coming online across our global operations, the continued ramp of customer programs, and strengthening demand from network equipment manufacturers. Now let me move to our industrial tech segment. Industrial tech segment revenue decreased 5% sequentially, but was up 14% from the same quarter last year. Industrial laser revenue declined sequentially, but the drop was less than anticipated, while 3D sensing revenue followed expected seasonal trends. In Q3, ultra-fast laser shipments held steady at near record levels, driven primarily by growing demand from a leading tool supplier supporting high-volume solar cell manufacturing. We're also actively collaborating with customers on new ultra-fast laser opportunities as the minimal thermal impact of ultra-short pulse technology continues to gain traction in advanced packaging, display technologies, and next-generation semiconductor processes. Consistent with earlier remarks, we have taken actions to rationalize the industrial tech portfolio, closing two R&D sites and stopping development activities in three exploratory product areas. With these actions and more focus on the core business, we expect to see increasing profit in this segment over the next handful of quarters. Looking ahead to fiscal Q4, we expect a sequential decline in industrial tech revenue. reflecting both the ongoing macroeconomic headwinds impacting industrial laser demand and the typical seasonal decline in 3D sensing revenue. As I reflect on my first 90 days at Lumentum and look ahead, I'm energized by the momentum we're building. Our strong Q3 performance, combined with the strategic positioning we shared at OFC, reinforces that we're on the right path. We're executing on a focused strategy, investing in high-growth, high-impact areas where our differentiated technologies provide a lasting competitive advantage. From delivering record EML chip shipments to partnering with AI hyperscalers on connectivity innovation, we're demonstrating that our products are essential to powering the future of cloud and AI. While macros and certainty Tariff dynamics and export controls present near-term challenges. Lumentum has taken recent actions and delivered steps over the years to build resilience through a globally diversified manufacturing footprint, a flexible supply chain, and active engagement with customers. We remain focused on what we can control, pricing, disciplined spending, and flawless execution. These fundamentals are positioning us to succeed across a variety of market environments. Finally, strong demand for cloud and AI continues to support our confidence in achieving the medium and long-term financial targets we outlined at OFC. We remain on track to exceed a $500 million quarterly run rate as we exit the calendar year. There's still work ahead, but the opportunity in front of us is substantial. Our ability to deliver differentiated optical solutions across our portfolio provides a strong, resilient foundation for sustainable growth. Now, I'll hand the call over to Wajid.