Coherent Corp.

Greetings and welcome to the Coherent Third Quarter Fiscal Year 2026 Earnings Call. It is now my pleasure to introduce your host, Mr. Paul Silverstein, Senior Vice President of Investor Relations for Coherent. Please go ahead.

Thank you, Operator, and good afternoon, everyone. With me today are Jimmy Anderson, Coherent CEO, and Sherry Luther, Coherent CFO. During today's call, we will provide a financial and business review of the third quarter of fiscal 2026 and a business outlook for the fourth quarter of fiscal 2026. Our earnings press release can be found in the investor relations section of our company website at coherent.com. I would like to remind everyone that during our conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. These are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results in business, please refer to the disclosure in today's earnings release. Our most recent forms 10-K and 10-Q and the reports that we may file in forms 8-K with the Securities and Exchange Commission. All our statements are made as of today, May 6, 2026. based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release and investor presentation that can be found on the investor relations section of our website at coherent.com. Let me now turn the call over to our CEO, Jim Anderson.

Thank you, Paul, and thank you everyone for joining today's call. Coherent is a global leader in photonic technology, which is foundational to the performance and scalability of AI data centers and critical to many important industrial applications. We are at the center of an extraordinary expansion in optical networking infrastructure, driven by the rapid growth of AI and the increasing need for bandwidth and energy efficiency. As a result, we delivered another quarter of strong financial performance with accelerating growth, expanding margins, and improving profitability. Importantly, we are seeing continued strengthening in demand across our business. This quarter, we experienced another step function increase in our order book, driving our backlog to a record level. Customer demand remains exceptionally strong with no signs of attenuation, and our visibility continues to extend further into the future With orders now reaching into calendar 2028 and customer LTAs extending to the end of the decade, this demand is increasingly translating into near-term shipment and revenue opportunities as we continue to expand capacity. Given both the near and long-term demand strength, combined with our continued expansion of production capacity, we expect a period of sustained strong revenue growth over the coming quarters. We expect strong sequential revenue growth in our June quarter and we continue to expect fiscal 27 growth rate to exceed our fiscal 26 growth rate. Turning to our Q3 operating results, revenue increased 9% sequentially and 27% year over year on a pro forma basis, representing an acceleration in our year over year growth rate versus the prior quarter. Non-GAAP gross margin expanded both sequentially and year over year, and the combination of revenue growth, margin expansion, and operating leverage drove non-GAAP BPS growth of 55% year-over-year. We continue to grow profitability significantly faster than revenue. We are pleased with the continued execution, but we also see significant opportunity ahead as we scale the business to meet the demand environment in front of us. Our data center and communications segment continues to be the primary driver of our growth and accounted for 75% of total company revenue in Q3. Growth in this segment accelerated again this quarter, with revenue increasing more than 40% year over year. Segment performance was driven by both accelerating demand and strong execution across our product portfolio. In our data center business, revenue increased 13% sequentially and 37% year over year, representing a second consecutive quarter of double digit sequential growth. We expect data center growth to further accelerate in the current quarter, supported by exceptionally strong demand, improving supply, and continued progress in our capacity ramp. Demand in our data center business remains exceptionally strong and broad-based across multiple customers and product categories. We expect the accelerated growth in the current quarter to be driven by both transceivers and OCS systems. Within transceivers, we expect growth to be driven by both 800 gig and 1.6T. In particular, we expect 800 gig revenue to grow year-over-year in calendar 26, while 1.6T transceivers ramp rapidly through the balance of this calendar year and into next year as a broad range of customers adopt 1.6T. Given the exceptionally strong demand environment and the industry-wide constraint in indium phosphide, capacity expansion remains one of our highest priorities. Importantly, we continue to make excellent progress on our six-inch indium phosphide ramp, which is a key driver of our long-term capacity expansion and a meaningful differentiator for coherent. We are now seeing the benefits of this ramp in both revenue and margin, and we expect those benefits to increase further over the coming quarters. We remain on track to achieve our goal of doubling internal indium phosphide output capacity by the end of this calendar year, and based on current execution, we now expect to reach that milestone one quarter earlier than originally planned. We also expect to more than double our internal indi-phosphide capacity again by the end of calendar 2027. Our six-inch platform is producing EMLs, CW lasers, and photodiodes, and the yields for each of the three device categories continues to exceed those of our three-inch production lines. During the quarter, we shipped our first transceivers containing components produced on our six-inch lines, and those shipments contributed to both sequential revenue growth and gross margin improvement. The initial six inch production contribution came from our Sherman, Texas facility, which is the world's most advanced indium phosphide production site and will play an important role in ramping CW laser production for our CPO solutions, including those supporting our NVIDIA partnership. Given the success of the six inch ramp to date, we have also announced plans to begin six inch indium phosphide production at a third site in Zurich. Overall, we are very pleased with the execution of our production teams. As we continue to ramp 6-inch output, we expect increasing benefits to both revenue and gross margin across our transceiver and CPO product lines over the coming quarters. We expect OCS revenue to grow this quarter as we ramp production capacity to meet demand. We have increased our view of the OCS market opportunity to over $4 billion, reflecting expanding use cases across data center interconnect, scale out and scale up networks, and continued broadening customer engagement. We believe OCS also expands our role into higher value layers of AI networking infrastructure. We recently resolved a bottleneck in our production capacity and are now ramping output rapidly across two production facilities. As a result, we expect strong sequential revenue growth over the coming quarters as production improvements translate into higher shipments and backlog conversion. We also continue to make strong progress in co-packaged optics, which we believe represents one of the most important long-term growth opportunities for Coherent. As we have discussed previously, CPO expands our role in AI data center architectures, particularly in the scale-up portion of the network, where optics is expected to increasingly complement and over time displace copper. We believe CPO represents more than $15 billion of incremental addressable market opportunity. In March, we announced a strategic partnership with NVIDIA focused on multiple CPO-related products and solutions. This partnership includes both NVIDIA's $2 billion equity investment in Coherent and a multi-year supply agreement extending through the end of the decade. The agreement covers multiple CPO-related products, including our high-power CW laser, and provides meaningful long-term visibility into future demand. More broadly, our CPO opportunity is supported by the breadth and depth of Coherence's photonic technology platform. We believe our breadth of photonic technology and our manufacturing scale position us very well to support a broad range of customer requirements across key optical components, subsystems, and higher-level assemblies. We expect initial scale-out CPO revenue to begin ramping in the second half of this calendar year, with scale-up CPO revenue expected to begin ramping in the second half of calendar 2027. In addition to NVIDIA, we are also engaged with multiple other customers across a broad range of CPO and MPO opportunities. Overall, we believe CPO will become a significant contributor to Coherence long-term revenue growth and margin expansion, and will further strengthen our strategic position in AI data center infrastructure. Turning to our communications business, revenue growth accelerated significantly in Q3, with revenue increasing 16% sequentially and 60% year over year, driven by strong demand across data center interconnect, scale across, and traditional telecom applications. We expect strong sequential growth again in the current quarter. Demand remains broad-based across customers, products, and end applications. We are seeing strong momentum across our communications portfolio, which spans components, modules, and systems, reflecting both favorable market conditions and coherent strong competitive position. In particular, we continue to see robust demand for our DCI solutions, including ZR and ZR Plus transceivers, as well as strong demand across our broader transport portfolio. One additional growth driver that we are particularly excited about is multirail. These solutions address the increasing need for greater bandwidth and connectivity between AI data centers as workloads become more distributed across multiple locations. We believe multirail represents a significant expansion of our communications addressable market opportunity, and we expect initial revenue to begin ramping in the first half of calendar 2027. Overall, we believe our communications business is very well positioned for continued strong growth, supported by current demand strength, our expanding portfolio, and the ramp of important new platforms over time. Across our data center and communications segment, the breadth and depth of Coherent's photonic technology portfolio combined with our manufacturing scale continue to resonate strongly with our customers. As a result, we have signed or are in the process of finalizing long-term supply agreements with multiple strategic customers that include both multi-year demand commitments and upfront investment to support capacity expansion. Turning to our industrial segment, revenue declined modestly both sequentially and year-over-year on a pro forma basis, reflecting continued softness in parts of the broader industrial market. However, we are seeing encouraging signs of improvement, particularly in semiconductor capital equipment, where bookings have increased meaningfully. We expect that improving demand to begin contributing to revenue growth in the current quarter and to support further sequential improvement through the balance of the calendar year. Over the longer term, we see important incremental growth opportunities for our industrial technologies in AI data center applications. At OFC, we highlighted our data center XPU cooling solutions and thermoelectric generators which address the growing thermal and power challenges created by larger AI data centers. Our proprietary Thermodyte material can improve thermal performance and help enable higher XPU efficiency, while our advanced materials for thermoelectric generation can improve data center power efficiency through waste heat recovery. We are engaged with multiple strategic customers on these technologies, and we believe they represent a meaningful expansion of our long-term market opportunity. We expect revenue from these products to begin ramping in the second half of calendar 2027. Overall, while industrial remains a smaller contributor to our current growth than data centering communications, we believe it is positioned to become an increasingly important source of incremental revenue and diversification over time. In summary, we delivered another quarter of strong financial performance with accelerating revenue growth, expanding margins, and increasing visibility into future demand. We are operating in a highly favorable demand environment driven by AI data center expansion, and we believe Coherent is uniquely well-positioned to capitalize on this opportunity, given the breadth of our photonic technology portfolio, our manufacturing scale, our continued capacity expansion, and the increasing conversion of demand into backlog and revenue. I want to thank the entire Coherent team for their strong execution and continued innovation. I'll now turn the call over to Sherry.