Lumentum Holdings Inc.

Good day everyone and welcome to the Lumentum Holdings first quarter fiscal year 2026 earnings call. All participants will be in a listen-only mode. Please also note today's event is being recorded for replay purposes. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press star 9 to raise your hand, star 6 to unmute. At this time, I would like to turn the conference call over to Kathy Ta, Vice President of Investor Relations. Ms. Ta, please go ahead.

Thank you, and welcome to Lumentum's first quarter of fiscal year 2026 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, Global Business Units. Today's call will include forward-looking statements, including, without limitation, statements regarding our future operating results, strategies, trends, and expectations for our products and technologies that are being made under the safe harbor of the Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations, particularly the risks set forth in our SEC filings under risk factors and elsewhere. We encourage you to review our most recent filings with the SEC, particularly the risk factors described in our 10-K for the fiscal year ended June 28, 2025, and in our most recent 10Q to be filed by Lumentum with the SEC. 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 or revise 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-GAF. Non-GAAP financials have inherent limitations and are not to be considered in isolation from or as a substitute for or superior to financials prepared in accordance with GAAP. You can find a reconciliation between non-GAAP and GAAP measures and information about our use of non-GAAP measures and factors that could impact our financial results in our press release and our filings with the SEC. Lumentum's press release with the fiscal first quarter results and accompanying supplemental slides are available on our website at www.lumentum.com under the investors section. We encourage you to review these materials carefully. With that, I'll turn the call over to Michael.

Thank you, Kathy, and good afternoon, everyone. In Q1, revenue surged more than 58% year-over-year, while operating margins expanded by over 1,500 basis points. $533 million represents the highest revenue achieved in a single quarter in the company's 10-year history by a significant margin. Our growth is powered by AI demand spanning our laser chips and optical transceivers inside the dataset. as well as the interconnected long haul networks that link them. In fact, we estimate that over 60% of our total company revenue now comes from cloud and AI infrastructure driven both directly by hyperscale customers and indirectly through network equipment and optical transceiver manufacturers that embed momentum components in their solutions. There is a growing convergence between telecom infrastructure and AI data center driven networking as our customers align traditional network with the needs and intensive inferencing workloads. Having built the company on telecommunication subsystems, Lumentum has evolved into a leading provider of optics for scaling AI compute. On our last earnings call, we projected crossing 600 million in quarterly revenue by the June, 2026 quarter or earlier. Today, our Q2 outlook shows that we expect to surpass this milestone well ahead of schedule, with the guidance calling for a revenue midpoint of approximately $650 million, two quarters earlier than we previously targeted. As a reminder, we've identified three major drivers of future growth, cloud transceivers, optical circuit switches, and co-packaged optics. Of these, within our Q2 outlook, we are not yet expecting meaningful contributions from optical circuit switches and co-packaged optics. In cloud transceivers, we are set to resume sustained growth in physical Q2, and this upward trajectory should accelerate over the next four to five quarters. Before discussing our first quarter results in more detail, I want to address an important change in how we report our financial results. We will now discuss our financials as a single reportable segment, aligning with our current organizational structure. After several months with the company, I decided to reorganize in order to react more quickly to market and technology changes and move resources to the highest value opportunities. In that context, Wu-Pen Yuan, who many of you know, is now the head of global business units, owning all product roadmap decisions. While this shift simplifies our reporting framework, it also gives investors more insight into our numbers by breaking the cloud and networking business down a bit. In that vein, we will provide revenue breakouts in our quarterly reports and commentary for two product types, components and systems. We define components as the individual building blocks that enable larger solutions, such as laser chips, laser subassemblies, line subsystems, and wavelength management subsystems. Systems, in contrast, are complete standalone products that deliver full functionality to the end customer, including optical transceivers, optical circuit switches, and industrial lasers. We provided historical views of those two product types in our earnings deck that can be found on our investor relations website. Using this breakout, components revenue in the quarter was $379 million, which was up over 18% sequentially and up 64% from the same quarter last year. Our components products delivered strong broad-based growth across our laser chip, laser assembly, and line subsystem product lines driven by robust demand inside the data center and from data center interconnect and long haul applications. We achieved another record in EML laser shipments driven primarily by 100 gig lane speeds and supported by increasing 200 gig shipments. We also initiated CW laser deliveries for 800 gig trend siever manufacturers, marking an important milestone in our product roadmap. As we've shared before, our indium phosphide wafer fab has been fully allocated due to robust customer demand. However, I am pleased to report that we have made better than expected progress on yields and throughput and now see line of sight to add approximately 40% more unit capacity over the next few quarters, setting the stage for calendar 2026 to be another breakout year for laser chip shipments and solidifying our leadership in indium phosphide-based light sources for the data center. Although still small in absolute terms, we saw sequential growth in our ultra high power laser shipments. As we continue the initial phase of our production ramp, we still expect a significant increase in shipment volumes in the second half of calendar 2026, as adoption continues to accelerate and we are seeing opportunities to expand our customer base. You're seeing strong, sustained momentum in our data center interconnect or DCI components. which support not only optical links within campuses, but also connections spanning up to 100 kilometers in scale across architectures. Shipments of our narrow line with laser assemblies for DCI transmission grew for the seventh consecutive quarter, rising over 70% year over year, demonstrating both robust market demand and our continued success in scaling manufacturing capacity. Shipments of our line subsystems for data transport also delivered strong sequential and year-over-year growth, benefiting from the same macro trend. We also saw sequential and year-over-year growth in coherent components for long-haul data transmission and achieved a record quarter for pump lasers supporting subsea and terrestrial networks. Finally, we saw a sequential rise in 3D sensing products, consistent with the seasonality of a new smartphone launch. Even in our Q1, historically peak shipment quarter, these products contribute less than 5% of total company revenue, underscoring that the broad strength of our components portfolio is driven almost entirely by the accelerating global build-out of cloud infrastructure and highlighting Lumentum's essential role in powering that expansion. In systems, Revenue was $155 million, down 4% sequentially, but up 47% year over year. Cloud transceiver revenue was roughly flat to the prior quarter, as we used the quarter to increase manufacturing capability in Thailand to meet increasing customer demand. From this point forward, we expect to see the end of the fits and starts in production capability we've experienced in this product area, and we now forecast a period of sustained revenue growth. Our guidance into Key2 provides our first proof point, but as new 800 gig and 1.6T products ramp in future quarters, we expect to see the revenue layering benefits that our larger transceiver competitors have experienced. Our initial ramp of optical circuit switches from Thailand is progressing well. and we remain on track for rapid acceleration and manufacturing expansion over the coming quarters. As expected, we saw a sequential decline in industrial laser shipments, reflecting the continued softness in the broader industrial market. Looking ahead to this fiscal second quarter, we expect approximately half our sequential revenue growth in absolute dollars to come from our components products, driven by broad-based strength across product lines serving cloud applications. The other half is expected from our systems products serving cloud customers, primarily reflecting the ramp of high-speed optical transceivers for data center applications, and to a lesser extent, the early phase of our optical circuit switch ramp. As I highlighted at the start of my remarks, we are only at the beginning of our growth journey in cloud and AI infrastructure. Lumentum's story has many chapters ahead, and we are entering a period of sustained expansion fueled by the accelerating adoption of AI and the optical technologies that enable it. Our components products will remain the cornerstone of both revenue growth and profitability, while our systems products are scaling rapidly with cloud transceivers, optical circuit switches, and other high-performance solutions. With expanded manufacturing capacity and the ramp of new products, we are confident in our ability to drive continued top-line growth, margin expansion, and long-term shareholder value. Now, I'll hand the call over to Wajid.