Q1 2026 Coherent Corp Earnings Call

November 5, 2025

Speaker #1: Greetings and welcome to the Coherent first 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.

Sherri Luther: Greetings and welcome to the Coherent Corp. Q1, Q2 2026 earnings call. It is now my pleasure to introduce your host, Mr. Paul Silverstein, Senior Vice President of Investor Relations for Coherent Corp. Please go ahead.

Operator: Greetings and welcome to the Coherent Corp. Q1, Q2 2026 earnings call. It is now my pleasure to introduce your host, Mr. Paul Silverstein, Senior Vice President of Investor Relations for Coherent Corp. Please go ahead.

Speaker #1: Please go ahead .

Speaker #2: Thank you . Operator . And good afternoon , everyone . With me today are Jim Anderson , coherent CEO , Sheri Luther , coherent CFO .

Speaker #2: Thank you . Operator . And good afternoon , everyone . With me today are Jim Anderson , coherent CEO , and the second quarter of fiscal 2026 .

Paul Silverstein: Thank you, Operator. Good afternoon, everyone. With me today are Jim Anderson, Coherent CEO, and Sherri Luther, Coherent CFO. During today's call, we will provide a financial and business review of Q1 of fiscal 2026 and the business outlook for Q2 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 today, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements or predictions are based on information that is currently available and that actual results may differ materially. We refer you to the documents that the company files with the SEC, including our 10-Ks, 10-Qs, and 8-Ks.

Speaker #2: Our earnings press release can be found in the Investor Relations section of our company website at COHERENT CORP. . I would like to remind everyone that during our conference call today , we may make projections or other forward looking statements regarding future events or the future financial performance of the company .

Speaker #2: We wish to caution you that such statements are predictions based on information that is currently available , and that actual results may differ materially .

Speaker #2: We refer you to the documents that the company filed with the SEC , including our 10-K and 10-q and these documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward looking statements .

Paul Silverstein: These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This call includes and constitutes the company's official guidance for Q2 of fiscal 2026. If, at any time after this call, we communicate any material changes to this guidance, we intend that such updates will be done using a public forum such as a press release or a publicly announced conference call. Additionally, we will refer to both GAAP and non-GAAP financial measures during this call. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends.

Speaker #2: This call includes and constitutes the company's official guidance for the second quarter of fiscal 2026 . If at any time after this call , we communicate any material changes to this guidance , we intend that such updates will be done using a public forum such as a press release or publicly announced conference call .

Speaker #2: Additionally , we will refer to both GAAP and non-GAAP financial measures during this call . By disclosing certain non-GAAP information . Management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends .

Speaker #2: For historical periods . We provided reconciliations 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 CORP.

Paul Silverstein: For historical periods, we've provided reconciliations 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.

Speaker #2: . Let me now turn the call over to our CEO , Jim Anderson .

Speaker #3: Thank you , Paul , and thank you , everyone for joining today's call . Coherent is the world's leading innovator and provider of photonic technology and solutions .

Operator: Thank you, Paul, and thank you, everyone, for joining today's call. Coherent is the world's leading innovator and provider of photonic technology and solutions. Photonics is critical to growing applications in AI data center networks, communications, and a wide range of industrial applications. We're well-positioned for long-term growth across all these applications, and especially in AI data centers, where we're experiencing unprecedented demand for our optical networking products. In particular, we expect continued strong sequential revenue growth throughout this fiscal year, given the record level of orders we are receiving from our customers and the continued expansion of our production capacity. In addition, we continue to streamline our portfolio and ensure that our investments are focused on the areas of greatest long-term growth and profitability for the company in order to drive sustained shareholder value creation.

Jim Anderson: Thank you, Paul, and thank you, everyone, for joining today's call. Coherent is the world's leading innovator and provider of photonic technology and solutions. Photonics is critical to growing applications in AI data center networks, communications, and a wide range of industrial applications. We're well-positioned for long-term growth across all these applications, and especially in AI data centers, where we're experiencing unprecedented demand for our optical networking products. In particular, we expect continued strong sequential revenue growth throughout this fiscal year, given the record level of orders we are receiving from our customers and the continued expansion of our production capacity. In addition, we continue to streamline our portfolio and ensure that our investments are focused on the areas of greatest long-term growth and profitability for the company in order to drive sustained shareholder value creation.

Speaker #3: Photonics is critical to growing applications in AI data center networks , communications , and a wide range of industrial applications . We're well positioned for long term growth across all these applications and especially in AI data centers where we're experiencing unprecedented demand for our optical networking products .

Speaker #3: In particular , we expect continued strong sequential revenue growth throughout this fiscal year , given the record level of orders we are receiving from our customers and the continued expansion of our production capacity .

Speaker #3: In addition , we continue to streamline our portfolio and ensure that our investments are focused on the areas of greatest long term growth and profitability for the company .

Speaker #3: In order to drive sustained shareholder value creation . Turning to our Q1 operating results , revenue increased by 6% sequentially and 19% year over year on a pro forma basis , which excludes revenue from our recent divested aerospace and defense business , a sale that enhanced our portfolio focus and accelerated deleveraging .

Operator: Turning to our Q1 operating results, revenue increased by 6% sequentially and 19% year-over-year on a pro forma basis, which excludes revenue from our recently divested aerospace and defense business, a sale that enhanced our portfolio focus, and accelerated deleveraging. Non-GAAP gross margin expanded by 70 basis points sequentially and 200 basis points year-over-year. The combination of revenue growth and gross margin expansion drove non-GAAP EPS growth of 16% sequentially and 73% year-over-year. I'll now provide some highlights from our two operating segments. We'll begin with our data center and communications segment, which is our largest and fastest-growing business. Q1 revenue grew by 7% sequentially and by 26% year-over-year, driven by growth in both our data center and communications markets. In our data center business, Q1 revenue grew 4% sequentially and 23% year-over-year.

Jim Anderson: Turning to our Q1 operating results, revenue increased by 6% sequentially and 19% year-over-year on a pro forma basis, which excludes revenue from our recently divested aerospace and defense business, a sale that enhanced our portfolio focus, and accelerated deleveraging. Non-GAAP gross margin expanded by 70 basis points sequentially and 200 basis points year-over-year. The combination of revenue growth and gross margin expansion drove non-GAAP EPS growth of 16% sequentially and 73% year-over-year. I'll now provide some highlights from our two operating segments. We'll begin with our data center and communications segment, which is our largest and fastest-growing business. Q1 revenue grew by 7% sequentially and by 26% year-over-year, driven by growth in both our data center and communications markets. In our data center business, Q1 revenue grew 4% sequentially and 23% year-over-year.

Speaker #3: non-GAAP gross margin expanded by 70 basis points sequentially and 200 basis points year over year . The combination of revenue growth and gross margin expansion drove non-GAAP EPs growth of 16% sequentially and 73% year over year .

Speaker #3: I'll now provide some highlights from our two operating segments . We'll begin with our data center and communications segment , which is our largest and fastest growing business .

Speaker #3: Q1 revenue grew by 7% and by 26% year over year , driven by growth in both our data center and communications markets . In our data center business .

Speaker #3: Given very strong demand and improving supply, I'd like to provide some additional color on both the demand and supply picture within our data center business.

Speaker #3: Q1 revenue grew 4% sequentially and 23% year over year . Our data center growth in Q1 was constrained by the supply of indium phosphide lasers .

Operator: Our data center growth in Q1 was constrained by the supply of indium phosphide lasers. However, we expect data center growth to accelerate to approximately 10% sequential growth in the current quarter, followed by strong sequential growth through the balance of this fiscal year, given very strong demand and improving supply. I'd like to provide some additional color on both the demand and supply picture within our data center business. First, we are experiencing an exceptionally strong level of demand. In our fiscal Q1, we received record bookings that represent a step-function increase in already strong customer demand. We are seeing strong demand for both our 800G and 1.6T transceivers, with broad adoption of our 800G transceivers and accelerated adoption of our 1.6T transceivers. A significant portion of the sequential growth we expect in the current quarter is driven by 1.6T adoption.

Jim Anderson: Our data center growth in Q1 was constrained by the supply of indium phosphide lasers. However, we expect data center growth to accelerate to approximately 10% sequential growth in the current quarter, followed by strong sequential growth through the balance of this fiscal year, given very strong demand and improving supply. I'd like to provide some additional color on both the demand and supply picture within our data center business.

Speaker #3: However , we expect data center growth to accelerate to approximately 10% sequential growth in the current quarter , followed by strong sequential growth through the balance of this fiscal year .

Speaker #3: First , we are experiencing an exceptionally strong level of demand in our fiscal Q1 . We received record bookings that represent a step function increase in already strong customer demand .

Jim Anderson: First, we are experiencing an exceptionally strong level of demand. In our fiscal Q1, we received record bookings that represent a step-function increase in already strong customer demand. We are seeing strong demand for both our 800G and 1.6T transceivers, with broad adoption of our 800G transceivers and accelerated adoption of our 1.6T transceivers. A significant portion of the sequential growth we expect in the current quarter is driven by 1.6T adoption.

Speaker #3: We are seeing strong demand for both our 800 gig and 1.60 transceivers with broad adoption of our 800 gig transceivers and accelerated adoption of our 1.6 T transceivers .

Speaker #3: A significant portion of the sequential growth we expect in the current quarter is driven by 1.6 t adoption as a reminder , earlier this year at OFC , we were the only company to demonstrate three different types of 1.6 T transceivers based on three different types of laser sources Silicon photonics , ML and Vixel .

Operator: As a reminder, earlier this year at OFC, we were the only company to demonstrate 3 different types of 1.6T transceivers based on 3 different types of laser sources: silicon photonics, EML, and VCSEL. Our 1.6T transceivers based on silicon photonics and EMLs are ramping first, and we expect our 1.6T transceivers based on our 200G VCSELs to ramp next calendar year. We see strong demand for 1.6T transceivers across multiple customers and expect both 800G and 1.6T to grow significantly in calendar 2026. Our deep portfolio of optical networking technology, combined with our vertical integration and diversified supply chain, are key competitive advantages with our customers and uniquely position Coherent within the industry.

Jim Anderson: As a reminder, earlier this year at OFC, we were the only company to demonstrate 3 different types of 1.6T transceivers based on 3 different types of laser sources: silicon photonics, EML, and VCSEL. Our 1.6T transceivers based on silicon photonics and EMLs are ramping first, and we expect our 1.6T transceivers based on our 200G VCSELs to ramp next calendar year. We see strong demand for 1.6T transceivers across multiple customers and expect both 800G and 1.6T to grow significantly in calendar 2026. Our deep portfolio of optical networking technology, combined with our vertical integration and diversified supply chain, are key competitive advantages with our customers and uniquely position Coherent within the industry.

Speaker #3: Our 1.6 T transceiver is based on silicon photonics and Emls are ramping first , and we expect our 1.6 T transceivers based on our 200 gig vixel to ramp next calendar year .

Speaker #3: We see strong demand for 1.6 T transceivers across multiple customers , and expect both 800 gig and 1.6 t to grow significantly in calendar 2026 .

Speaker #3: Our portfolio of optical networking technology , combined with our vertical integration and diversified supply chain , our key competitive advantages with our customers and uniquely positioned coherent within the industry on the supply side , given the strong demand growth , we are seeing , we are continuing to expand our production capacity for transceiver modules and the key optical components used in those modules .

Operator: On the supply side, given the strong demand growth we are seeing, we are continuing to expand our production capacity for transceiver modules and the key optical components used in those modules. For example, one of the key constraints across the industry is indium phosphide laser capacity. Over the course of Q1, we saw improving EML supply. We expect both internal and external EML supply to improve significantly in the current quarter and throughout the balance of this fiscal year. In particular, we continue to expand our internal indium phosphide production capacity. We are aggressively ramping 6-inch capacity because a 6-inch wafer compared to a 3-inch wafer will produce more than four times as many chips at less than half the cost. This will provide increasing benefit to our gross margin as we continue to ramp production.

Jim Anderson: On the supply side, given the strong demand growth we are seeing, we are continuing to expand our production capacity for transceiver modules and the key optical components used in those modules. For example, one of the key constraints across the industry is indium phosphide laser capacity. Over the course of Q1, we saw improving EML supply. We expect both internal and external EML supply to improve significantly in the current quarter and throughout the balance of this fiscal year. In particular, we continue to expand our internal indium phosphide production capacity. We are aggressively ramping 6-inch capacity because a 6-inch wafer compared to a 3-inch wafer will produce more than four times as many chips at less than half the cost. This will provide increasing benefit to our gross margin as we continue to ramp production.

Speaker #3: For example , one of the key constraints across the industry is indium phosphide laser capacity . Over the course of Q1 , we saw improving ML supply and we expect both internal and external ML supply to improve significantly in the current quarter and throughout the balance of this fiscal year .

Speaker #3: In particular , we continue to expand our internal indium phosphide production capacity . We are aggressively ramping six inch capacity because a six inch wafer compared to a three inch wafer , will produce more than four times as many chips at less than half the cost .

Speaker #3: This will provide increasing benefit to our gross margin as we continue to ramp production . Our six inch indium phosphide line in Sherman , Texas , which is the world's first six inch indium phosphide production line , began production last quarter and continues to ramp well .

Operator: Our 6-inch indium phosphide line in Sherman, Texas, which is the world's first 6-inch indium phosphide production line, began production last quarter and continues to ramp well. I am very pleased to share that our initial 6-inch indium phosphide production yields are actually higher than our current 3-inch indium phosphide yields. This is an outstanding accomplishment by our production team and also a testament to the tremendous experience that we've gained over the past five years producing almost 2 billion VCSEL devices on our 6-inch gallium arsenide technology. Given the healthy yields we are seeing with 6-inch production, we began production of 6-inch indium phosphide at a second site in Järfälla, Sweden. Ramping at two sites in parallel will significantly accelerate our production capacity ramp. Additionally, we are in production on three different types of key transceiver components on 6-inch indium phosphide: EMLs, CW lasers, and photodiodes.

Jim Anderson: Our 6-inch indium phosphide line in Sherman, Texas, which is the world's first 6-inch indium phosphide production line, began production last quarter and continues to ramp well. I am very pleased to share that our initial 6-inch indium phosphide production yields are actually higher than our current 3-inch indium phosphide yields. This is an outstanding accomplishment by our production team and also a testament to the tremendous experience that we've gained over the past five years producing almost 2 billion VCSEL devices on our 6-inch gallium arsenide technology.

Speaker #3: I am very pleased to share that our initial six inch indium phosphide production yields are actually higher than our current three inch indium phosphide yields .

Speaker #3: This is an outstanding accomplishment by our production team and also a testament to the tremendous experience that we've gained over the past five years .

Speaker #3: Producing almost 2 billion vixel devices on our six inch gallium arsenide technology . Given the healthy yields we are seeing with six inch production , we began production of six inch indium phosphide at a second site in Jarfalla , Sweden , ramping at two sites in parallel will significantly accelerate our production capacity ramp .

Jim Anderson: Given the healthy yields we are seeing with 6-inch production, we began production of 6-inch indium phosphide at a second site in Järfälla, Sweden. Ramping at two sites in parallel will significantly accelerate our production capacity ramp. Additionally, we are in production on three different types of key transceiver components on 6-inch indium phosphide: EMLs, CW lasers, and photodiodes.

Speaker #3: Additionally , we are in production on three different types of Qi transceiver components on six inch indium phosphide , Emls , CW lasers , and photodiodes .

Speaker #3: With the ramp of six inch production at two sites in parallel , we expect to roughly double our total internal production capacity of indium phosphide over the next year .

Operator: With the ramp of 6-inch production at 2 sites in parallel, we expect to roughly double our total internal production capacity of indium phosphide over the next year. We also expect to continue to supplement our internal indium phosphide capacity with sourcing from external suppliers. We expect our external supply of EMLs to increase sequentially this quarter and next calendar year through continued partnership with our key external suppliers. In addition to critical laser production capacity, we are also expanding transceiver module assembly capacity. While we continue to expand production at our existing site in Ipoh, Malaysia, we will now be expanding production capacity in parallel at a new transceiver production facility that we recently opened in Penang, Malaysia. In addition, we will be adding transceiver production capacity at our existing site in Vietnam, which already produces transceiver components.

Jim Anderson: With the ramp of 6-inch production at 2 sites in parallel, we expect to roughly double our total internal production capacity of indium phosphide over the next year. We also expect to continue to supplement our internal indium phosphide capacity with sourcing from external suppliers. We expect our external supply of EMLs to increase sequentially this quarter and next calendar year through continued partnership with our key external suppliers. In addition to critical laser production capacity, we are also expanding transceiver module assembly capacity. While we continue to expand production at our existing site in Ipoh, Malaysia, we will now be expanding production capacity in parallel at a new transceiver production facility that we recently opened in Penang, Malaysia. In addition, we will be adding transceiver production capacity at our existing site in Vietnam, which already produces transceiver components.

Speaker #3: We also expect to continue to supplement our internal indium phosphide capacity with sourcing from external suppliers . We expect our external supply of Emls to increase sequentially this quarter and next calendar year through continued partnership with our key external suppliers .

Speaker #3: In addition to critical laser production capacity . We are also expanding transceiver module assembly capacity . While we continue to expand production at our existing site in Ipoh , Malaysia .

Speaker #3: We will now be expanding production capacity in parallel at a new transceiver . Production facility that we recently opened in Penang , Malaysia .

Speaker #3: In addition , we will be adding transceiver production capacity at our existing site in Vietnam , which already produces transceiver components . This additional production capacity allows us to continue to rapidly ramp module capacity to support the demand growth in front of us .

Operator: This additional production capacity allows us to continue to rapidly ramp module capacity to support the demand growth in front of us. I'd like to pivot to some technology developments that we expect to further benefit our data center business over the long term. We continue to make progress on LPO, LRO, CPO, and MPO-related products and technologies with strong engagements across a wide range of customers. For example, we've shipped both LPO and LRO, 800G and 1.6T transceivers, to customers. Also, in September, we announced that we have commenced sampling of our 400 mW CW lasers designed for CPO and silicon photonics applications. We expect to address a broad range of CPO form factors for both scale-out and scale-up data center applications with this new product. We also continue to see significant customer engagement around our 200G VCSEL-based solutions for NPO applications.

Jim Anderson: This additional production capacity allows us to continue to rapidly ramp module capacity to support the demand growth in front of us. I'd like to pivot to some technology developments that we expect to further benefit our data center business over the long term. We continue to make progress on LPO, LRO, CPO, and MPO-related products and technologies with strong engagements across a wide range of customers. For example, we've shipped both LPO and LRO, 800G and 1.6T transceivers, to customers. Also, in September, we announced that we have commenced sampling of our 400 mW CW lasers designed for CPO and silicon photonics applications.

Speaker #3: I'd like to pivot to some technology developments that we expect to further benefit our data center business over the long term . We continue to make progress on LPO , LRO , CPO , and MPO related products and technologies with strong engagements across a wide range of customers .

Speaker #3: For example , we've shipped both LPO and LRO 800 gig and 1.6 T transceivers to customers . Also in September , we announced that we have commenced sampling of our 400 kW lasers designed for CPO and silicon photonics applications .

Jim Anderson: We expect to address a broad range of CPO form factors for both scale-out and scale-up data center applications with this new product. We also continue to see significant customer engagement around our 200G VCSEL-based solutions for NPO applications.

Speaker #3: We expect to address a broad range of CPO form factors for both scale out and scale up data center applications . With this new product .

Speaker #3: We also continue to see significant customer engagement around our 200 gig voxel based solutions for NPO applications . Multiple customer engagements on integrated optics applications reinforce our view that the incremental market opportunity for optical solutions in the scale up portion of the AI data center networks will be very compelling , and we believe coherent is well positioned to address these applications using both CW and voxel based solutions .

Operator: Multiple customer engagements on integrated optics applications reinforce our view that the incremental market opportunity for optical solutions in the scale-up portion of the AI data center networks will be very compelling, and we believe Coherent is well-positioned to address these applications using both CW and VCSEL-based solutions. We continue to expect to see initial CPO deployments in calendar 2026, with growth continuing in the following years while pluggable form factor continues to grow in the scale-out portion of the network. Another area of new growth is our Optical Circuit Switch platform, which continues to progress well with expanding customer engagement. We believe this product line adds over $2 billion of addressable market opportunity over the coming years. Both the breadth of customers and the range of applications are wider than our initial expectations.

Jim Anderson: Multiple customer engagements on integrated optics applications reinforce our view that the incremental market opportunity for optical solutions in the scale-up portion of the AI data center networks will be very compelling, and we believe Coherent is well-positioned to address these applications using both CW and VCSEL-based solutions. We continue to expect to see initial CPO deployments in calendar 2026, with growth continuing in the following years while pluggable form factor continues to grow in the scale-out portion of the network. Another area of new growth is our Optical Circuit Switch platform, which continues to progress well with expanding customer engagement. We believe this product line adds over $2 billion of addressable market opportunity over the coming years. Both the breadth of customers and the range of applications are wider than our initial expectations.

Speaker #3: We continue to expect to see initial CPO deployments in calendar 2026 , with growth continuing in the following years . While pluggable form factor continues to grow in the scale out portion of the network .

Speaker #3: Another area of new growth is our optical circuit switch platform , which continues to progress well with expanding customer engagement . We believe this product line adds over 2 billion addressable market opportunity over the coming years .

Speaker #3: Both the breadth of customers and the range of applications are wider than our initial expectations. The underlying technology in our OCS system is a non-mechanical, proven liquid crystal technology, which has been successfully deployed for many years in demanding telecom applications and has a significant competitive advantage over other solutions.

Operator: The underlying technology in our OCS system is a non-mechanical, field-proven liquid crystal technology, which has been successfully deployed for many years in demanding telecom applications and has a significant competitive advantage over other solutions. To date, we've shipped systems to 7 customers and expect that number to continue to expand this quarter. Shipments have included both 64x64 and 320x320 system sizes. Both revenue and backlog for OCS grew sequentially in our fiscal Q1, and we expect it to grow again in the current quarter. Our current backlog includes both 64x64 and 320x320 systems, with the majority of the backlog weighted toward the larger system size. Given the strong customer demand and backlog, we are aggressively ramping production for both small and large capacity systems, and we expect revenue to ramp throughout calendar 2026.

Jim Anderson: The underlying technology in our OCS system is a non-mechanical, field-proven liquid crystal technology, which has been successfully deployed for many years in demanding telecom applications and has a significant competitive advantage over other solutions. To date, we've shipped systems to 7 customers and expect that number to continue to expand this quarter. Shipments have included both 64x64 and 320x320 system sizes. Both revenue and backlog for OCS grew sequentially in our fiscal Q1, and we expect it to grow again in the current quarter. Our current backlog includes both 64x64 and 320x320 systems, with the majority of the backlog weighted toward the larger system size. Given the strong customer demand and backlog, we are aggressively ramping production for both small and large capacity systems, and we expect revenue to ramp throughout calendar 2026.

Speaker #3: To date , we've shipped systems to seven customers and expect that number to continue to expand this quarter . Shipments have included both 64 by 64 and 320 by 320 .

Speaker #3: System sizes , both revenue and backlog for OCS , grew sequentially in our fiscal Q1 , and we expect it to grow again in the current quarter .

Speaker #3: Our current backlog includes both 64 by 64 and 320 by 320 systems , with the majority of the backlog weighted toward the larger system size .

Speaker #3: Given the strong customer demand and backlog , we are aggressively ramping production for both small and large capacity systems , and we expect revenue to ramp throughout calendar 2026 , given the multiple growth factors across pluggable transceivers , CPO and OCS , we are very excited about the opportunities ahead of our data center business .

Operator: Given the multiple growth vectors across pluggable transceivers, CPO, and OCS, we are very excited about the opportunities ahead of our data center business. Turning to our communications market, in Q1, revenue grew 11% sequentially and 55% year-over-year. Growth was driven by products for data center interconnect, but we also saw strong growth in traditional telecom applications. We expect our communications business to grow sequentially again in the current quarter and throughout the balance of this fiscal year. In hyperscale DCI, we continue to see strong growth in customer demand for our ZR/ZR+ DCI-focused products. Our product lineup, which includes 100G, 400G, and 800G Coherent transceivers, is growing quickly, and we expect these products to continue to ramp throughout the course of this fiscal year. We also continue to see steady recovery in our telecom business.

Jim Anderson: Given the multiple growth vectors across pluggable transceivers, CPO, and OCS, we are very excited about the opportunities ahead of our data center business. Turning to our communications market, in Q1, revenue grew 11% sequentially and 55% year-over-year. Growth was driven by products for data center interconnect, but we also saw strong growth in traditional telecom applications. We expect our communications business to grow sequentially again in the current quarter and throughout the balance of this fiscal year. In hyperscale DCI, we continue to see strong growth in customer demand for our ZR/ZR+ DCI-focused products. Our product lineup, which includes 100G, 400G, and 800G Coherent transceivers, is growing quickly, and we expect these products to continue to ramp throughout the course of this fiscal year. We also continue to see steady recovery in our telecom business.

Speaker #3: Turning to our communications market in Q1 , revenue grew 11% sequentially and 55% year over year . Growth was driven by products for data center interconnect .

Speaker #3: But we also saw strong growth in traditional telecom applications. We expect our communications business to grow sequentially again in the current quarter and throughout the balance of this fiscal year.

Speaker #3: In hyperscale DCI , we continue to see strong growth in customer demand for our DCI focused products . Our product lineup , which includes 100 gig , 400 gig and 800 gig Zer0 plus coherent transceivers , is growing quickly and we expect these products to continue to ramp throughout the course of this fiscal year .

Speaker #3: We also continue to see steady recovery in our telecom business . In addition to market recovery . We've introduced multiple new industry leading telecom platforms for which we are seeing significant customer interest and expect strong future revenue contribution , such as our new award winning Multi-rail technology platform .

Operator: In addition to market recovery, we've introduced multiple new industry-leading telecom platforms for which we are seeing significant customer interest and expect strong future revenue contribution, such as our new award-winning Multi-Rail technology platform. This platform is a breakthrough solution that amplifies multiple fiber pairs while operating within the physical and electrical constraints of existing infrastructure. Customer engagement on this new platform is very strong, and we see this as one of many growth vectors for our communications business in both the near and long term. Turning now to our industrial segment, revenue grew 2% quarter-over-quarter and 4% year-over-year on a pro forma basis, excluding revenue from the recently divested aerospace and defense business.

Jim Anderson: In addition to market recovery, we've introduced multiple new industry-leading telecom platforms for which we are seeing significant customer interest and expect strong future revenue contribution, such as our new award-winning Multi-Rail technology platform. This platform is a breakthrough solution that amplifies multiple fiber pairs while operating within the physical and electrical constraints of existing infrastructure. Customer engagement on this new platform is very strong, and we see this as one of many growth vectors for our communications business in both the near and long term. Turning now to our industrial segment, revenue grew 2% quarter-over-quarter and 4% year-over-year on a pro forma basis, excluding revenue from the recently divested aerospace and defense business.

Speaker #3: This platform is a breakthrough solution that amplifies multiple fiber pairs while operating within the physical and electrical constraints of existing infrastructure . Customer engagement on this new platform is very strong , and we see this as one of many growth vectors for our communications business in both the near and long term .

Speaker #3: Turning now to our industrial segment . Revenue grew 2% quarter over quarter and 4% year over year on a pro forma basis , excluding revenue from the recently divested aerospace and defense business .

Speaker #3: While we maintain a cautious outlook on near-term demand given the macroeconomic backdrop and ongoing tariff and regulatory uncertainty , we were pleased to see growth in our first fiscal quarter , and we expect the industrial business to be stable to slightly up sequentially in our current quarter .

Operator: While we maintain a cautious outlook on near-term demand given the macroeconomic backdrop and ongoing tariff and regulatory uncertainty, we were pleased to see growth in our 1st fiscal quarter. We expect the industrial business to be stable to slightly up sequentially in our current quarter on a pro forma basis. Within our industrial segment, there are several key growth areas. For example, we expect ongoing strong demand in display capital equipment driven by OLED screen adoption expanding to larger format devices like tablets and laptops. We also expect growth over the long term in our semicap equipment market given the industry-wide expansion in semiconductor production. Another promising growth opportunity that I'd like to highlight is our advanced materials for thermal management and cooling. Traditionally, these materials are used in a wide range of applications in our industrial markets.

Jim Anderson: While we maintain a cautious outlook on near-term demand given the macroeconomic backdrop and ongoing tariff and regulatory uncertainty, we were pleased to see growth in our 1st fiscal quarter. We expect the industrial business to be stable to slightly up sequentially in our current quarter on a pro forma basis. Within our industrial segment, there are several key growth areas. For example, we expect ongoing strong demand in display capital equipment driven by OLED screen adoption expanding to larger format devices like tablets and laptops. We also expect growth over the long term in our semicap equipment market given the industry-wide expansion in semiconductor production. Another promising growth opportunity that I'd like to highlight is our advanced materials for thermal management and cooling. Traditionally, these materials are used in a wide range of applications in our industrial markets.

Speaker #3: On a pro forma basis . Within our industrial segment , there are several key growth areas . For example , we expect ongoing strong demand in display capital equipment driven by OLED screen adoption , expanding to larger format devices like tablets and laptops .

Speaker #3: We also expect growth over the long term in our semi cap equipment market , given the industry wide expansion in semiconductor production . Another promising growth opportunity that I'd like to highlight is our advanced materials for Thermal Management and cooling .

Speaker #3: Traditionally, these materials are used in a wide range of applications in our industrial markets. However, the rapid expansion of AI data centers has created a significant growth opportunity.

Operator: However, the rapid expansion of AI data centers has created a significant growth opportunity. We see potential widespread adoption of these materials to address the thermal and power challenges posed by ever larger AI data centers. For example, our proprietary thermodype material moves heat 2 times as effectively as copper, which is a tremendous advantage in data center cooling applications. We're engaged with multiple hyperscaler customers on this new emerging application of our materials technology. Lastly, I'd like to give an update on our portfolio optimization initiative. As a reminder, we are focused on streamlining our portfolio and concentrating our investments in the areas of greatest long-term growth and profitability. We are shifting investment from non-core areas and realigning our footprint to drive better asset composition and utilization efficiency across the organization. We completed the sale of our aerospace and defense business at the beginning of September.

Jim Anderson: However, the rapid expansion of AI data centers has created a significant growth opportunity. We see potential widespread adoption of these materials to address the thermal and power challenges posed by ever larger AI data centers. For example, our proprietary thermodype material moves heat 2 times as effectively as copper, which is a tremendous advantage in data center cooling applications.

Speaker #3: We see potential widespread adoption of these materials to address the thermal and power challenges posed by ever larger AI data centers . For example , our proprietary Thermodyn material moves heat twice as effectively as copper , which is a tremendous advantage in data center cooling applications .

Jim Anderson: We're engaged with multiple hyperscaler customers on this new emerging application of our materials technology. Lastly, I'd like to give an update on our portfolio optimization initiative. As a reminder, we are focused on streamlining our portfolio and concentrating our investments in the areas of greatest long-term growth and profitability. We are shifting investment from non-core areas and realigning our footprint to drive better asset composition and utilization efficiency across the organization. We completed the sale of our aerospace and defense business at the beginning of September.

Speaker #3: We're engaged with multiple hyperscaler customers on this new emerging application of our materials technology. Lastly, I'd like to give an update on our portfolio optimization initiative.

Speaker #3: As a reminder , we are focused on streamlining our portfolio and concentrating our investments in the areas of greatest long term growth and profitability .

Speaker #3: We are shifting investment from non-core areas and realigning our footprint to drive better asset composition and utilization efficiency across the organization . We completed the sale of our aerospace and defense business at the beginning of September .

Speaker #3: The proceeds of the sale were used to pay down debt , and the sale was immediately accretive to both gross margin and EPs .

Operator: The proceeds of the sale were used to pay down debt, and the sale was immediately accretive to both gross margin and EPS. In addition, we recently announced the sale of our product division based in Munich, Germany, that makes tools for materials processing and is part of our industrial segment. We made the decision to sell this product division because it was not aligned to our long-term strategic focus areas, and it did not support our long-term financial goals. This transaction is expected to close in our fiscal Q3. The proceeds of this transaction will be used to reduce debt, and the sale is expected to be immediately accretive to both gross margin and EPS. In addition to streamlining the product portfolio, we are also continuing to streamline our physical footprint.

Jim Anderson: The proceeds of the sale were used to pay down debt, and the sale was immediately accretive to both gross margin and EPS. In addition, we recently announced the sale of our product division based in Munich, Germany, that makes tools for materials processing and is part of our industrial segment. We made the decision to sell this product division because it was not aligned to our long-term strategic focus areas, and it did not support our long-term financial goals. This transaction is expected to close in our fiscal Q3. The proceeds of this transaction will be used to reduce debt, and the sale is expected to be immediately accretive to both gross margin and EPS. In addition to streamlining the product portfolio, we are also continuing to streamline our physical footprint.

Speaker #3: In addition , we recently announced the sale of our product division based in Munich , Germany , that makes tools for materials processing and as part of our industrial segment , we made the decision to sell this product division because it was not aligned to our long term strategic focus areas , and it did not support our long term financial goals .

Speaker #3: This transaction is expected to close in our fiscal Q3 . The proceeds of this transaction will be used to reduce debt , and the sale is expected to be immediately accretive to both gross margin and EPs .

Speaker #3: In addition to streamlining the product portfolio , we are also continuing to streamline our physical footprint since the beginning of our last fiscal year , roughly five quarters ago , we have sold or exited 23 sites , and we plan to continue to streamline our footprint and exit additional underutilized or unnecessary sites over the coming quarters .

Operator: Since the beginning of our last fiscal year, roughly 5 quarters ago, we have sold or exited 23 sites, and we plan to continue to streamline our footprint and exit additional underutilized or unnecessary sites over the coming quarters. While I'm pleased with the progress we've made streamlining our portfolio, we still have more work to do. I view portfolio optimization as an evergreen process, and we will continue to reevaluate our asset portfolio to streamline and focus on the areas of greatest profit growth and ensure we are optimizing our return on invested capital. In summary, we delivered strong revenue and EPS growth in Q1 and are on track for strong sequential growth over the coming quarters, driven by exceptionally strong demand in our data center and communication segment, along with continued expansion in our production capacity.

Jim Anderson: Since the beginning of our last fiscal year, roughly 5 quarters ago, we have sold or exited 23 sites, and we plan to continue to streamline our footprint and exit additional underutilized or unnecessary sites over the coming quarters. While I'm pleased with the progress we've made streamlining our portfolio, we still have more work to do. I view portfolio optimization as an evergreen process, and we will continue to reevaluate our asset portfolio to streamline and focus on the areas of greatest profit growth and ensure we are optimizing our return on invested capital. In summary, we delivered strong revenue and EPS growth in Q1 and are on track for strong sequential growth over the coming quarters, driven by exceptionally strong demand in our data center and communication segment, along with continued expansion in our production capacity.

Speaker #3: While I'm pleased with the progress we've made streamlining our portfolio , we still have more work to do . I view portfolio optimization as an evergreen process , and we will continue to reevaluate our asset portfolio to streamline and focus on the areas of greatest profit growth and ensure we are optimizing our return on invested capital .

Speaker #3: In summary, we delivered strong revenue and EPS growth in Q1 and are on track for strong sequential growth over the coming quarters, driven by exceptionally strong demand in our data center and communications segments.

Speaker #3: Along with continued expansion in our production capacity . I want to thank the coherent team for all their hard work and dedication . I'll now turn the call over to our CFO , Sheri Luther .

Operator: I want to thank the Coherent team for all their hard work and dedication. I'll now turn the call over to our CFO, Sherri Luther.

Jim Anderson: I want to thank the Coherent team for all their hard work and dedication. I'll now turn the call over to our CFO, Sherri Luther.

Speaker #4: Thank you . Jim . We are pleased with our first quarter 2020 results and execution . We continue to drive strong double digit year over year revenue growth , gross margin improvement , and enhanced profitability .

Sherri Luther: Thank you, Jim. We are pleased with our Q1 2026 results and execution. We continue to drive strong double-digit year-over-year revenue growth, gross margin improvement, and enhanced profitability. We significantly paid down our debt, reducing our interest expense and further strengthening our balance sheet. At the end of the quarter, we successfully completed our debt refinancing, lowering our cost of capital and improving our financial flexibility. I will now provide a summary of our Q1 results. Q1 revenue was a record $1.58 billion, up 3% sequentially from the Q4 and up 17% year-over-year, driven by growth in AI data center and communications demand. In our Q4 2025 earnings call, we announced an agreement to sell our aerospace and defense business. As expected, this transaction closed in Q1 2026.

Speaker #4: We significantly paid down our debt , reducing our interest expense and further strengthening our balance sheet . At the end of the quarter , we successfully completed our debt refinancing , lowering our cost of capital and improving our financial flexibility .

Speaker #4: I will now provide a summary of our Q1 results . First quarter revenue was a record $1.58 billion , up 3% sequentially from the fourth quarter and up 17% year over year , driven by growth in AI data center and communications demand .

Speaker #4: In our Q4 2020 earnings call . We announced an agreement to sell our aerospace and defense business as expected , this transaction closed in Q1 26 on a pro forma basis .

Sherri Luther: On a pro forma basis, excluding $33 million of aerospace and defense revenue for Q1, revenue increased 6% sequentially and 19% year-over-year. Our Q1 non-GAAP gross margin was 38.7%, a 70 basis point improvement compared to the prior quarter, and a 200 basis point improvement as compared to the year-ago quarter. I am especially pleased with the progress we have made on gross margin expansion, driven by the cost reduction and pricing optimization initiatives that we continue to focus on as we drive to our target model of greater than 42%. The sequential and year-over-year increases in gross margin were driven by cost reductions in product input costs as well as yield improvements, primarily in our data center and communications segment. Pricing optimization contributed meaningfully in both the industrial segment and the data center and communications segment.

Speaker #4: Excluding $33 million of aerospace and defense revenue for Q1 revenue increased 6% sequentially and 19% year over year . Our Q1 non-GAAP gross margin was 38.7% , a 70 basis point improvement compared to the prior quarter , and a 200 basis point improvement as compared to the year ago quarter .

Speaker #4: I am especially pleased with the progress we have made on gross margin expansion , driven by the cost reduction and pricing optimization initiatives that we continue to focus on as we drive to our target model of greater than 42% , the sequential and year over year increases in gross margin were driven by cost reductions and product input costs , as well as yield improvements , primarily in our data center and communications segment .

Speaker #4: Pricing optimization contributed meaningfully in both the industrial segment and the data center , and communications segment . First quarter . non-GAAP operating expenses were 304 million , compared to 307 million in the prior quarter and 278 million in the year ago quarter .

Sherri Luther: Q1 non-GAAP operating expenses were $304 million compared to $307 million in the prior quarter and $278 million in the year-ago quarter. Operating expenses as a percentage of revenue declined to 19.2% as compared to 20.1% in the prior quarter and 20.6% in the year-ago quarter. The reduction in operating expenses as a percentage of revenue is due to the continued focus on driving efficiencies and greater leverage in SG&A. We have made good progress on these initiatives with the benefits expected to kick in at various points in time. The year-over-year increases in R&D were primarily in the data center and communication segment as we continue to focus on investments with the highest ROI that drive the future growth of the company. The sequential decline in R&D was driven by the timing of these investments, which can fluctuate on a quarterly basis.

Speaker #4: Operating expenses as a percentage of revenue declined to 19.2% as compared to 20.1% in the prior quarter and 20.6% in the year ago quarter .

Speaker #4: The reduction in operating expenses as a percentage of revenue is due to the continued focus on driving efficiencies and greater leverage in SG&A .

Speaker #4: We have made good progress on these initiatives with the benefits expected to kick in at various points in time . The year over year increases in R&D were primarily in the data center and communications segment .

Sherri Luther: The year-over-year increases in R&D were primarily in the data center and communication segment as we continue to focus on investments with the highest ROI that drive the future growth of the company. The sequential decline in R&D was driven by the timing of these investments, which can fluctuate on a quarterly basis.

Speaker #4: As we continue to focus on investments with the highest ROI that drive the future growth of the company . The sequential decline in R&D was driven by the timing of these investments , which can fluctuate on a quarterly basis .

Speaker #4: Our first quarter non-GAAP operating margin was 19.5% , compared to 18% in the prior quarter . And 16.1% in the year ago quarter .

Sherri Luther: Our Q1 non-GAAP operating margin was 19.5% compared to 18% in the prior quarter and 16.1% in the year-ago quarter. Q1 non-GAAP earnings per diluted share was $1.16 compared to $1 in the prior quarter and $0.67 in the year-ago quarter. From a capital allocation perspective, we paid down $400 million in debt, significantly reducing our debt leverage ratio to 1.7 times, down from 2.4 times in the year-ago quarter. As mentioned in our Q4 2025 earnings call, we used the proceeds from the sale of the aerospace and defense business to make this debt payment. We also completed the refinancing of our debt at the end of Q1, reducing our interest rate by 60 basis points and doubling the amount of our revolving credit facility to $700 million. We will use the revolving credit facility to increase liquidity and provide greater flexibility.

Speaker #4: First quarter non-GAAP earnings per diluted share was $1 . $0.16 , compared to $1 in the prior quarter , and $0.67 in the year ago quarter .

Speaker #4: From a capital allocation perspective , we paid down $400 million in debt , significantly reducing our debt leverage ratio to 1.7 times , down from 2.4 times in the year ago quarter .

Sherri Luther: As mentioned in our Q4 2025 earnings call, we used the proceeds from the sale of the aerospace and defense business to make this debt payment. We also completed the refinancing of our debt at the end of Q1, reducing our interest rate by 60 basis points and doubling the amount of our revolving credit facility to $700 million. We will use the revolving credit facility to increase liquidity and provide greater flexibility.

Speaker #4: As mentioned in our Q4 25 earnings call , we used the proceeds from the sale of the aerospace and defense business to make this debt payment .

Speaker #4: We also completed the refinancing of our debt at the end of the first quarter , reducing our interest rate by 60 basis points and doubling the amount of our revolving credit facility to $700 million .

Speaker #4: We will use the revolving credit facility to increase liquidity and provide greater flexibility . As Jim noted , we plan to use the proceeds from the sale of our product division in Munich , Germany , to further reduce our interest expense by paying down additional debt , which will be immediately accretive to our gross margin and EPs for reference , over the past four quarters , this business contributed average quarterly revenue of $25 million , with a gross margin well below COHERENT CORP.

Sherri Luther: As Jim noted, we plan to use the proceeds from the sale of our product division in Munich, Germany, to further reduce our interest expense by paying down additional debt, which will be immediately accretive to our gross margin and EPS. For reference, over the past 4 quarters, this business contributed average quarterly revenue of $25 million, with a gross margin well below Coherent's corporate gross margin. The sale will reduce our employee headcount by approximately 425 employees. I will now turn to our guidance for the Q2 of fiscal 2026. We expect revenue to be between $1.56 billion and 1.7 billion. We expect non-GAAP gross margin to be between 38% and 40%. We expect total operating expenses of between $300 million and 320 million on a non-GAAP basis. We expect the tax rate for the quarter to be between 18% and 20% on a non-GAAP basis.

Speaker #4: Corporate gross margin. The sale will reduce our employee headcount by approximately 425 employees. I will now turn to our guidance for the second quarter of fiscal 2026.

Sherri Luther: The sale will reduce our employee headcount by approximately 425 employees. I will now turn to our guidance for the Q2 of fiscal 2026. We expect revenue to be between $1.56 billion and 1.7 billion. We expect non-GAAP gross margin to be between 38% and 40%. We expect total operating expenses of between $300 million and 320 million on a non-GAAP basis. We expect the tax rate for the quarter to be between 18% and 20% on a non-GAAP basis.

Speaker #4: We expect revenue to be between $1.5 billion and $1.7 billion. We expect non-GAAP gross margin to be between 38% and 40%. We expect total operating expenses of between $300 million and $320 million.

Speaker #4: On a non-GAAP basis . We expect the tax rate for the quarter to be between 18% and 20% on a non-GAAP basis . We expect EPs of between $1.10 and $1.30 on a non-GAAP basis .

Sherri Luther: We expect EPS of between $1.10 and $1.30 on a non-GAAP basis. In summary, I'm very pleased with the solid progress we made in Q1. Looking ahead, we're seeing exceptionally strong demand in our data center and communications segment. To meet this robust momentum, we are ramping capacity and investing strategically in the business. We remain focused on disciplined execution against our long-term financial target model. These dynamics reinforce our confidence in driving long-term growth and durable value creation for our shareholders. That concludes my formal comments. Operator, please open the call for Q&A.

Speaker #4: In summary , I'm very pleased with the solid progress we made in Q1 . Looking ahead , we're seeing exceptionally strong demand in our data center and communications segment .

Speaker #4: To meet this robust momentum , we are ramping capacity and investing strategically in the business . We remain focused on disciplined execution against our long term financial target model .

Speaker #4: These dynamics reinforce our confidence in driving long term growth and durable value creation for our shareholders . That concludes my formal comments . Operator please open the call for Q&A .

Speaker #1: Thank you . Ladies and gentlemen , we will now be conducting a question and answer session . If you would like to ask a question , please press star and one on your telephone keypad .

Operator: Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from SUMMIT Strategy with JPMorgan Chase. Please go ahead.

Speaker #1: A confirmation tone will indicate your line is in the question queue . You may press star and two . If you would like to remove your question from the queue .

Speaker #1: For participants using speaker equipment , it may be necessary to pick up your handset before pressing the star keys . Ladies and gentlemen , we will wait for a moment while we poll for questions .

Speaker #1: Our first question comes from Samik Chatterjee with JP Morgan Chase . Please go ahead

Speaker #5: Hi .

Speaker #5: Thanks for taking my question . Jim , maybe if I can start on the demand side , you do mention the strong demand you're seeing as well as record orders .

Samik Chatterjee: Hi. Thanks for taking my question. Jim, maybe if I can start on the demand side, you do mention the strong demand you're seeing as well as record orders in some cases. Maybe if you can flesh that out a bit more, how broad-based is this demand? What are you seeing in terms of or hearing from customers in terms of demand drivers, and how broad-based across the portfolio is the demand across your communications portfolio? I have a follow-up. Thank you.

Speaker #5: In some cases . Maybe if you can flesh that out a bit more , like how broad based is this demand ? What are you seeing in terms

Speaker #5: terms of demand drivers , and how broad based across the portfolio is the demand across your communications portfolio ? And I have a follow up .

Speaker #5: Thank you .

Speaker #3: Yeah , thanks , Jamie . I would call it very broad based . So very strong demand across both data center and communications .

Jim Anderson: Yeah. Thanks, SUMMIT. Yeah, I would call it very broad-based. Very strong demand across both data center and communications. When I look back at our fiscal Q1, really saw a record level of bookings in that quarter, bookings not just for near-term quarters but bookings further out in time than we normally would see. Bookings leading out, in some cases, over 1 year from now, right? We see that as a very good sign. That's customers placing orders well ahead of time. That gives us great visibility. Really allows us to do really good mix planning of product mix and capacity planning. Also, as I said, broad-based. Definitely saw strong orders for data center, strong orders in particular for 800G and 1.6T transceivers. We're seeing the adoption of 1.6T transceivers accelerate, we're seeing certainly strong orders there.

Speaker #3: When I look back at our fiscal Q1 really saw a .

Speaker #3: record record level of bookings in that quarter . And bookings not just for near-term quarters , but bookings further out in time than we normally would see .

Speaker #3: So bookings leading out in some cases over a year , over a year from now . Right . So we see that as a very good , very good sign .

Speaker #3: That customers placing orders well ahead of time , that gives us great visibility , really allows us to do really good mix planning and product mix and capacity planning .

Speaker #3: But also , as I said , broad based definitely saw strong orders for data center , strong orders in particular for 800 gig and 1.6 T transceivers .

Speaker #3: We're seeing the adoption of 1.6 T transceivers accelerate , and so we're seeing certainly strong orders there , but also on the communications part of our business , very strong orders in DCI , the data center interconnect portion .

Jim Anderson: Also on the communications part of our business, very strong orders in DCI, the data center interconnect portion. This is our ZR/ZR+ product lineup of transceivers. Really pleased to see strong orders in what I'd call kind of traditional telecom as well. In particular, in that communications segment, we've seen now 5 quarters of sequential growth in that segment, really good grower last quarter of 11% sequential and 55% year-over-year. We've seen now 5 sequential quarters of growth in not just DCI but also in traditional telecom. We're expecting that communications segment to grow sequentially this quarter and through the balance of this fiscal year.

Speaker #3: This is our XR plus product lineup of transceivers . And then also really pleased to see strong orders in what I call kind of traditional telecom as well .

Speaker #3: And so in particular in that communications segment we've seen now five quarters of sequential growth in that segment . Really good grower . Last quarter of 11% sequential and 55% year over year .

Speaker #3: But we've seen now five sequential quarters of growth . And not just DCI but also in traditional telecom . And we're expecting expecting that communications segment to grow sequentially this quarter .

Speaker #3: And through the balance of this fiscal year . .

Speaker #5: Got it . Got it . Indium phosphide capacity I mean that's been a quite a talking point this quarter for you guys . You outlined your doubling the capacity over the next 12 months .

Samik Chatterjee: Got it. Got it. Indium phosphide capacity, I mean, that's been quite a talking point this quarter for you guys. You outlined you're doubling the capacity over the next 12 months. Maybe if you can just flesh out for investors, what are the milestones to watch on that front and how to think about the roadmap beyond even a 12-month horizon, and where would that leave you from an EML mix perspective in relation to sort of internal versus external?

Speaker #5: But maybe if you can just flesh out for investors what are the milestones to watch on that front . And how to think about the roadmap beyond even a 12 month horizon ?

Speaker #5: And where would that leave you from a ML mix perspective in relation to sort of internal versus external ?

Speaker #3: Sure . Thanks . Mike . So first of all , I just want to thank the coherent team for the outstanding job they've done getting six inch indium phosphide up and running .

Jim Anderson: Sure. Thanks, SUMMIT. First of all, I just want to thank the Coherent team for the outstanding job they've done in getting 6-inch indium phosphide up and running. This is something when I joined the company that I asked the team to significantly accelerate their timeline. I just want to take the opportunity to thank the team for the outstanding job they've done. We started production of 6-inch indium phosphide in Q3 and started it at our Sherman, Texas, facility. Really pleased with that ramp. As I mentioned in the prepared remarks, one of the big milestones that we achieved is the initial yields of that 6-inch indium phosphide are actually higher than our 3-inch indium phosphide lines. Keep in mind that those 3-inch lines are very mature, full production lines.

Speaker #3: This is something when I when I joined the company that I asked the team to significantly accelerate their timeline and I just want to take the opportunity to thank the team for the outstanding job they've done .

Speaker #3: We started production of six inch indium phosphide in in the September quarter , and started it at our Sherman , Texas facility . And I really pleased with that ramp .

Speaker #3: As I mentioned in the prepared remarks , one of the big milestones that we achieved is the initial yields of that six inch indium phosphide are actually higher than our three inch indium phosphide lines , and keep in mind that those three inch lines are very mature .

Speaker #3: You know, full production lines. So that's a very positive milestone and a positive signal for us on yields of six-inch.

Jim Anderson: That's a very positive milestone and a positive signal for us on yields of six-inch. That's exactly why we decided to double down on the ramp of six-inch and begin six-inch ramp at a second facility, one of our other indium phosphide facilities, which is in Järfälla, Sweden. Now we're ramping at 2 sites in parallel. That's what really allows us to hit that 2x capacity goal about a year from now. I think milestones along the way we'll certainly share our progress along the way. Beyond the next 12 months, we expect to continue to expand capacity even beyond that 12-month goal. The demand that we're seeing from our customers is, I would call it, extremely strong. With some of our big customers, they're showing now their forecasts out through calendar 2028.

Speaker #3: And that's exactly why we decided to double down on the ramp of six inch . And begin six inch ramp at a second facility .

Speaker #3: One of our second , our other Indian phosphide facilities , which is in Sweden . And so now we're ramping at two sites in parallel .

Speaker #3: And so that's what really allows us to hit that two x capacity goal about a year from now . And I think , you milestones along the way will certainly be you know , we'll certainly share our progress along the way .

Speaker #3: But beyond the next 12 months , we expect to continue to expand capacity even beyond that . That 12 month goal , the demand that we're seeing from our customers is , I would call it extremely strong .

Speaker #3: And with some of our big customers , they're they're showing now . Their forecasts out through calendar 2028 . And given that demand signal that we're seeing , not just for next calendar year , but now for 27 and 28 , you know , our plan is to continue to ramp indium phosphide capacity beyond the next 12 months as well .

Jim Anderson: Given that demand signal that we're seeing, not just for next calendar year but now for 2027 and 2028, our plan is to continue to ramp indium phosphide capacity beyond the next 12 months as well. Certainly, we'll share more thoughts on the rate and pace of that ramp over the next 12 months.

Speaker #3: And certainly we'll share more thoughts on the rate and pace of that ramp over the next over the next 12 months .

Speaker #5: Got it . And I'll just squeeze one quick one in your guiding datacom 10% quarter over quarter growth . Just wondering what's the supply demand gap that you see how supply what could that number be if you were sort of more flexible on supply or had more supply available relative to sort of the constraints on that front ?

Samik Chatterjee: Got it. I'll just squeeze one quick one in. You're guiding data comp 10% quarter-over-quarter growth. Just wondering, what's the supply-demand gap that you see? What could that number be if you were sort of more flexible on supply or had more supply available relative to sort of the constraints on that front?

Speaker #3: Yeah , we we were certainly when I look back at the prior quarter , you know , data center grew about 4% sequentially .

Jim Anderson: Yeah. When I look back at the prior quarter, data center grew about 4% sequentially. That was certainly constrained by indium phosphide laser supply. What we saw is the unmet backlog that we had in Q1 rolled into Q2. That backlog is now in Q2, and we're servicing that in Q2. On top of that, we had record bookings on top of that for, as I mentioned, primarily 800 gig and 1.6T transceiver. The demand continues to grow. Now, one of the really good things as we move into the current quarter is we're seeing indium phosphide supply, both internal and external, grow sequentially from prior quarter to current quarter. We're expecting both external and internal supply to grow again from this quarter into our fiscal Q3 as well. We're seeing kind of steady, good improvement in indium phosphide capacity.

Speaker #3: That was certainly constrained by indium phosphide laser supply . And what we saw is the unmet backlog that we had in Q1 rolled into Q2 .

Speaker #3: So that backlog is now in Q2 , and we're servicing that in Q2 . But on top of that , we had record bookings on top of that for as I mentioned , 800 primarily 800 gig at 1.60 transceiver .

Speaker #3: And so the demand continues to grow . Now , one of the really good things as we move into the current quarter is we're seeing indium phosphide supply , both internal and external growth sequentially from prior quarter to current quarter .

Speaker #3: And we're expecting both external and internal supply to grow again from this quarter into the into our fiscal Q3 as well . So we're we're seeing kind of a steady , you know , good improvement in Indian phosphide capacity .

Speaker #3: And again , that's a combination of external but especially internal capacity expansion as well .

Jim Anderson: Again, that's a combination of external but especially internal capacity expansion as well.

Speaker #5: All right . Thank taking my questions .

Samik Chatterjee: Got it. Got it. Thank you. Thanks for taking my questions.

Speaker #5: Thanks for

Speaker #1: Thank you . Our next question comes from Simon Leopold with Raymond James . Please go ahead .

Operator: Thank you. Our next question comes from Simon Leopold with Raymond James. Please go ahead.

Speaker #6: Thanks for taking the question . I wanted to follow up on your discussion around the ox optical circuits switches . There was quite a buzz at the show about this , and you certainly sounded upbeat tonight .

Simon Leopold: Thanks for taking the question. I wanted to follow up on your discussion around the OCS, Optical Circuit Switches. There was quite a buzz at the ECOC show about this, and you certainly sounded upbeat tonight. I guess what I'm looking for a little bit more help is understanding how to think about maybe, let's call it, calendar 2026, where one of your peers also participating in the market has sort of laid out a trajectory to get to $100 million a quarter. How do you think about your trajectory and your place in the OCS market?

Speaker #6: I guess what I'm looking for a little bit more help is understanding how to think about maybe , let's call it calendar 2026 , where one of your peers also participating in the market is sort of laid out a trajectory to get to 100 million a quarter .

Speaker #6: How do you think about your trajectory and

Speaker #6: your you .

Speaker #6: place in the ox market?

Speaker #3: Yeah , thanks , Simon . So first of all , we feel really good about our our place in the market starts with , of course , the technology .

Jim Anderson: Yeah. Thanks, Simon. First of all, we feel really good about our place in the market. Starts with, of course, the technology. We feel really good about the technology differentiation that we have. Our OCS is based on a non-mechanical liquid crystal technology that has really superior reliability, performance, and our customers recognize that. I would say that we continue to see the opportunity around OCS, the total available market, continue to be bigger than what we may have originally thought. Just the number of customers is broader than we thought that are interested in the technology, but also the number of applications that they're considering deploying it in. As I mentioned in the prepared remarks, we've now shipped systems to 7 different customers. If I look at last quarter, both our revenue and our backlog grew last quarter.

Speaker #3: We feel really good about the technology differentiation that we have . We have a Ox is based on a non-mechanical liquid crystal technology that non-mechanical really superior reliability , performance , and our customers recognize that .

Speaker #3: And I would say that , you know , we continue to see the opportunity around Ox . The total available market continue to to be bigger than what we may have originally thought .

Speaker #3: Just the the number of customers is broader than we thought that are interested in in the technology , but also the number of applications that they're considering deploying it in .

Speaker #3: And so , as I mentioned in the prepared remarks , we've now shipped systems to seven different customers . And , you know , we if I look at last quarter , both our revenue and our backlog grew last quarter , we expect revenue and backlog to grow again this quarter .

Jim Anderson: We expect revenue and backlog to grow again this quarter. I think more meaningful revenue contribution will come in next calendar year. Probably, we'll see a steady ramp of revenue throughout calendar year. It'll be certainly more weighted towards the second half of calendar year. We feel really good about the progress, the backlog that we have, and the revenue ramp in front of us. As we get into next calendar year, I think we'll share more details about kind of the rate and pace of revenue that we see ahead of us.

Speaker #3: But I think more meaningful revenue contribution will come in next calendar year . Probably , you know , we'll see a steady ramp of revenue throughout calendar year .

Speaker #3: So to be certainly more weighted towards the second half of calendar year , but we feel really good about about the progress , the backlog that we have and , and the revenue ramp in front of us .

Speaker #3: And we'll , you know , as we get into next calendar year , I think we'll share more details about kind of the rate and pace of revenue that we see ahead of us .

Speaker #6: Thanks . And then you talked a lot about the progress you've shown on the indium phosphide . I've been fielding investor questions that I find a bit puzzling , but maybe you could help us shake this out in that there's been sort of this narrative that the indium phosphide producing photodiodes and hasn't helped you with laser production , but your outlook , your commentary on 800 gig 1.60 certainly suggests that you're producing more lasers .

Simon Leopold: Thanks. Then you talked a lot about the progress you've shown on the indium phosphide. I've been fielding investor questions that I find a bit puzzling, maybe you could help us shake this out in that there's been sort of this narrative that the indium phosphide's producing photodiodes and hasn't helped you with laser production. Your outlook, your commentary on 800 gig, 1.6T, certainly suggests that you're producing more lasers, both CW and EML. Can you explain maybe how people might have been confused or whether I'm confused? Can you give us some clarification on this debate? Thank you.

Speaker #6: Both CW and ML . Can you explain maybe how people might have been confused , or whether I'm confused ? Can you give us some clarification on this debate ?

Speaker #6: Thank you .

Speaker #3: Yeah . Thanks , Simon . I'll try to unconfuse I don't know where the confusion is coming from , but but as I'll just kind of reiterate what I said in the prepared remarks , you know , so as I said , we're we're ramping production now in in two sites .

Jim Anderson: Yeah. Thanks, Simon. I'll try to unconfuse. I don't know where the confusion is coming from. I'll just kind of reiterate what I said in the prepared remarks. As I said, we're ramping production now in two sites, Sherman, Texas, and Järfälla, Sweden. Across those two sites, we're ramping production of three different types of products based on indium phosphide, right? The EML lasers, certainly, CW lasers as well, and then photodiodes. All three of those are very critical, as you know, Simon, very critical components to our transceivers. Really pleased to be ramping production of all three of those devices across those two facilities.

Speaker #3: Sherman , Texas and Jarfalla , Sweden , and across those two sites , we're ramping production of three different types of products based on indium phosphide .

Speaker #3: Right . So the ML lasers certainly CW lasers as well . And then photodiodes and all three of those are very critical . As you know , Simon , very critical components to to our transceivers .

Speaker #3: And so really pleased to be ramping up production of all three of those devices across those two facilities .

Speaker #6: Thank you very much .

Simon Leopold: Thank you very much.

Speaker #3: Thanks .

Jim Anderson: Thanks.

Speaker #1: Thank you . Our next question comes from George Nader with Wolfe Research . Please go ahead .

Operator: Thank you. Our next question comes from George Notter with Wolfe Research. Please go ahead.

Speaker #7: Hi . Thanks very much , guys . I'm just curious on interesting to hear your remarks on sort of the manufacturing moves and then the real estate footprint .

George Notter: Thanks very much, guys. I'm just curious on interesting to hear your remarks on sort of the manufacturing moves and then the real estate footprint. Really, really great to see that. I guess I'm just curious on how much more opportunity is there. I know you're standing up capacity, I think, in Penang, you said. Are there more moves for you to make in manufacturing, perhaps in industrial lasers? Is there more real estate consolidation left? Any more you could say would be great. Thanks.

Speaker #7: Really , really great to see that . I guess I'm just curious on how much more opportunity is there . I know you're standing up capacity .

Speaker #7: I think in Penang you said , are there more moves for you to make in manufacturing , perhaps in industrial lasers ? Is there more real estate consolidation left any more you could say would be great .

Speaker #7: Thanks .

Speaker #3: Yeah . Thanks , George . So I would say definitely a lot of activity that we have going there . And it's kind of interesting because it's on one hand we're increasing capacity and expanding , and on the other hand , what we're trying to do is consolidate and reduce footprint in certain areas .

Jim Anderson: Yeah. Thanks, George. I would say definitely a lot of activity that we have going there. It's kind of interesting because on one hand, we're increasing capacity and expanding, and on the other hand, what we're trying to do is consolidate and reduce footprint in certain areas. In both of those activities, they are happening in parallel. If I start with the consolidation, if we look at over the last roughly 5 quarters since the beginning of our fiscal 2025, we've either sold or exited 23 sites. I think that's great progress. We're really pleased with that. We definitely have more work to do. I think both Sherry and I are focused on making sure we maximize return on invested capital, and we're driving efficiency and productivity across our physical footprint.

Speaker #3: And so we're in both of those activities are happening in parallel . So if I start with , if I start with the consolidation , if we look at over the last roughly five quarters since the beginning of our fiscal 25 , we've either sold or exited 23 sites .

Speaker #3: And I think that's that's great progress . We're really pleased with that . But we definitely have more work to do . I think both Sherry and I are focused on making sure we maximize return on invested capital , and we're driving efficiency and productivity across our physical footprint .

Speaker #3: And so we we both believe there's there's significant opportunity to continue to consolidate . And so we'll continue to to exit and downsize any site that we view as unnecessary or underutilized .

Jim Anderson: We both believe there's significant opportunity to continue to consolidate. We'll continue to exit and downsize any site that we view as unnecessary or underutilized. Definitely more work to do there, and I would say stay tuned on that. On the increase side, certainly, especially for data center and communications, we're certainly increasing capacity. We talked a little bit already about indium phosphide capacity, but if we talk about module capacity, so this is transceiver module capacity, we're expanding capacity at our existing facility, our primary facility in Malaysia, which is in Ipoh, Malaysia. In parallel, we're expanding capacity at a new transceiver facility that we've recently opened, which is already in production on transceivers. We're going to be expanding and accelerating capacity at that Penang facility.

Speaker #3: And so definitely more work to do there . And I would say stay tuned on that . And then on the increase side , certainly especially for data center and communications , we're certainly increasing capacity .

Speaker #3: We talked a little bit already about indium phosphide capacity . But if we talk about module capacity so this is transceiver module capacity .

Speaker #3: We're expanding capacity at our existing facility . Our primary facility in Malaysia which is in Ipoh , Malaysia . But now in parallel we're expanding capacity at a new transceiver facility that we've recently opened , which is already in production on transceivers .

Speaker #3: We're going to be expanding and accelerating capacity at that . Penang facility . And then what we're also doing is adding transceiver module capacity at our Vietnam site .

Jim Anderson: What we're also doing is adding transceiver module capacity at our Vietnam site. The great thing is our Vietnam site already exists, and it's already building components for transceivers. We have capacity and room there to add now transceiver production in addition to component production. We're excited about that too. All of those capacity expansions, we're driving in parallel. That's really to support the strong demand that we see ahead of us for both data center and communications based on the customer, not just ordering that we're seeing but the forecasts that we're getting.

Speaker #3: So the great thing is our Vietnam site already exists and it's already building components for transceivers . And we have capacity in room there to add .

Speaker #3: Now transceiver production . In addition to component production . And we're excited about that too . And so all of those capacity expansions .

Speaker #3: We're driving in parallel . And that's really to support the strong demand that we see ahead of us for both data center and communications that based on the customer , not just ordering , that we're seeing , but the forecasts that we're getting .

Speaker #3: .

Speaker #7: Got it . Any manufacturing moves on the industrial side of the business ? Thanks a lot , guys .

George Notter: Got it. Any manufacturing moves on the industrial side of the business? Thanks a lot, guys.

Speaker #8: Yeah , yeah .

Jim Anderson: Yeah. A number of the consolidations that we've done, the 23 sites of sales exits, some of those have been on data center and communication side, but many of those have been on the industrial side. I think we still see opportunity for consolidation on, I would say, both data center and comms and industrial. There are places within the industrial segment where we are investing and expanding in facilities as well. It's all about trying to make sure that the footprint is optimal in terms of driving the maximum productivity and efficiency of the facility.

Speaker #3: There a number of the consolidations that we've done , the 23 sites of sales exits , those have some of those have been on data center and communication side .

Speaker #3: But many of those have been on the industrial side . And so I think we we still see opportunity for consolidation on , I would say both both data center and comms and industrial .

Speaker #3: But there are places within in the industrial segment where we are investing in expanding and facilities as well . But it's all about trying to make sure that the footprint is optimal in terms of driving the maximum productivity and efficiency of the facility .

Speaker #7: Thank you .

George Notter: Thank you.

Speaker #1: Thank you . Our next question comes from Blayne Curtis with Jefferies . Please go ahead .

Operator: Thank you. Our next question comes from Blayne Curtis with Jefferies. Please go ahead.

Speaker #9: Hey , good afternoon guys . Thanks for taking my question . I wanted to go back to the data center guide plus 10% .

Blayne Curtis: Hey. Good afternoon, guys. Thanks for my question. I wanted to go back to the data center guide plus 10%. Is there a way to think about how much that is still capacity constrained? Is there anything beyond EMLs that is constrained in that?

Speaker #9: Is there a way to think about how much that is still capacity constrained ? And is there anything beyond emls that that is constrained in that ?

Speaker #3: No , I would say the , you know , the primary constraint we've hit , you know , for instance , last quarter is , as I said , it's indium phosphide capacity that specifically Emls that was what was constraining us .

Jim Anderson: No. Blayne, I would say the primary constraint we've hit, for instance, last quarter, is, as I said, it's indium phosphide capacity, specifically EMLs. That was what was constraining us. Significant improvement from prior quarter into current quarter, as I said, in terms of both external and internal supply. I would say we still are constrained to some degree even in the current quarter. We also expect indium phosphide laser supply to increase again from current quarter into next quarter and really to continue to the supply to continue to improve sequentially throughout the next calendar year given external capacity that we've secured but especially the internal capacity ramp that I talked about earlier.

Speaker #3: Significant improvement from prior quarter into current quarter . As I said , in terms of both external and internal supply , I would say , you know , there's there's still we still are constrained to some degree , even in the current quarter .

Speaker #3: But but we also expect indium phosphide laser supply to increase . Again from current quarter into next quarter . And really to continue to supply to continue to improve throughout sequentially throughout the next calendar year , given external capacity that we've secured .

Speaker #3: But but especially the internal capacity ramp that I talked about earlier .

Blayne Curtis: Exactly. Maybe I'll follow up on that. I am curious. You're doubling capacity, but it takes time to get your lasers in and qualified. Is there a way to think about the timing, and is there any difference between EMLs and CWs in terms of the timing of recognizing revenue from those lasers throughout the fiscal year?

Speaker #9: That may be to follow up on that . I am curious , you're doubling capacity , but it takes time to get your lasers in and qualified .

Speaker #9: So is there a way to think about the timing and is there any difference between emls and CW in terms of the timing of recognizing revenue from those lasers and throughout the fiscal .

Speaker #8: Year ?

Jim Anderson: Yeah. Yeah. I would say not a big difference between EML and CW on the timing to get it to production and fully qualified. By the way, you mentioned recognized revenue. Just to clarify, all of our EMLs and CWs are made for internal consumption, right? We don't sell indium phosphide in the open market. The reason for that is all of our capacity is 100% consumed by our own transceiver needs.

Speaker #3: Yeah , I would say not a big difference between ML and CW on on the timing to get into production and fully qualified .

Speaker #3: By the way , you mentioned recognized revenue . Just to clarify , all of our emls and are made for internal consumption , right ?

Speaker #3: So we don't sell indium phosphide in the open market . The reason for that is it's 100 . All of our capacity is 100% consumed by our own transceiver needs .

Speaker #3: But .

Blayne Curtis: Oh, I meant within the transceiver. Sorry.

Speaker #9: Within the transceiver , sorry .

Speaker #3: Okay . All right . I just want to make sure I clarified that . But within transceiver , what I would say is that once a once a laser is qualified within or a photodiode within a , within a facility , you know , expanding capacity on a parallel line or on an existing line is is a pretty normal occurrence , right ?

Jim Anderson: Okay. All right. I just wanted to make sure I clarified that. Yeah. Within transceiver, what I would say is that once a laser is qualified or a photodiode within a facility, expanding capacity on a parallel line or on an existing line is a pretty normal occurrence, right? No special qualification required or at least the qualification is very straightforward, right? I think now that we're in production across multiple products, across multiple facilities, look, that production capacity is going to be as we expand it over the course of the next year, it's going to be incredibly valuable. Certainly, our customers are very motivated to help make sure we get anything qualified into production as quick as possible.

Speaker #3: No special qualification required , or at least the qualification very straightforward . Right . So I think now that , you know , we're in production across , you know , multiple products across multiple facilities , look that that production capacity is going to be as we expand it over the course of the next year is going to be incredibly valuable .

Speaker #3: And certainly our customers are very motivated to help make sure we , you know , we get anything qualified into production as quick as possible .

Speaker #9: Thanks , Jim .

Blayne Curtis: Thanks, Jim.

Speaker #1: Thank you . The next question comes from Tom O'Malley with Barclays . Please go ahead .

Operator: Thank you. The next question comes from Tom O'Malley with Barclays. Please go ahead.

Speaker #10: Hey guys . Thanks for taking my questions . First one is a little more short term . So you gave the sequential into December on Datacom up 10% .

Michael Manny: Hey, guys. Thanks for taking my questions. First one's a little more short-term. You gave the sequential into Q4 on Datacom up 10%. Could you maybe help us understand what was the driver in the Q3? I think you called out Datacom as maybe being a little bit more of a driver, but any color on the telecom side or the relative vectors of both? Into the Q4, what are you seeing from the telecom business?

Tom O'Malley: Hey, guys. Thanks for taking my questions. First one's a little more short-term. You gave the sequential into Q4 on Datacom up 10%. Could you maybe help us understand what was the driver in the Q3? I think you called out Datacom as maybe being a little bit more of a driver, but any color on the telecom side or the relative vectors of both? Into the Q4, what are you seeing from the telecom business?

Speaker #10: Could you maybe help us understand what was the driver in the September quarter ? I think you called out Datacom as maybe being a little bit more of a driver , but any color on the telecom side or the relative vectors of both , then into the December quarter , what are you seeing from the telecom business ?

Speaker #3: Yeah , and maybe I'll just recap the prior quarter . First . So on the prior quarter data center , we saw grow 4% sequentially , 23% year over year communications , which is telecom and DCI .

Jim Anderson: Yeah. Maybe I'll just recap the prior quarter first. In the prior quarter, data center, we saw grow 4% sequentially, 23% year-over-year. Communications, which is telecom and DCI, in the prior quarter, it was 11% sequential growth and 55% year-over-year. Into the current, into the Q4, we expect the data center growth to accelerate from that 4% prior quarter to about 10% sequential growth in the current quarter. Then comms, again, up sequentially. I would expect it to be a little bit less than what it was in the prior quarter. Comms would be up sequentially in the single digits. Then just to round it out and give you the full picture, on the industrial part of our business, we expect that in the current quarter for that to be sequentially stable, maybe slightly up.

Speaker #3: In the prior quarter , it was 11% sequential growth and 55% year over year . And into the current into the December quarter , we expect the data center growth to accelerate from that 4% prior quarter to about 10% sequential growth in the current quarter .

Speaker #3: And then comms . Again up sequentially . I would expect it to be a little bit less than what it was in the prior quarter .

Speaker #3: Comms would be up sequentially in the single digits, and then just to round it out and give you the full picture on the industrial part of our business, we expect that in the current quarter for that to be sequentially stable, maybe slightly up.

Speaker #10: Helpful . And then just a longer term question , just on the six , the reduction a couple of questions on it here .

Michael Manny: Helpful. Just a longer-term question just on the 6-inch production I answered a couple of questions on it here. Is there a way for us to tie production coming out of that 6-inch facility with gross margin improvement over the year? It sounds like things are accelerating pretty materially on capacity expansion side in the first half. I think you had previously kind of talked about first kind of dive moving into modules in late calendar year 2025. As that kind of progresses, you look at what gross margins have done, you would imagine it accelerate a bit. Any way for us to link the percentage of production or the amount of production to how much gross margin expansion you see? Thank you.

Tom O'Malley: Helpful. Just a longer-term question just on the 6-inch production I answered a couple of questions on it here. Is there a way for us to tie production coming out of that 6-inch facility with gross margin improvement over the year? It sounds like things are accelerating pretty materially on capacity expansion side in the first half. I think you had previously kind of talked about first kind of dive moving into modules in late calendar year 2025. As that kind of progresses, you look at what gross margins have done, you would imagine it accelerate a bit. Any way for us to link the percentage of production or the amount of production to how much gross margin expansion you see? Thank you.

Speaker #10: But is there a way for us to tie production coming out of that six inch facility with margin improvement over the year ? It sounds like things are accelerating pretty materially on capacity expansion side in the first half .

Speaker #10: I think you had previously kind of talked about first kind of guy moving into modules in late calendar year 2025 , but as that kind of progresses , you look at what gross margins have done .

Speaker #10: You would imagine that accelerate a bit . Any way for us to link the percentage of production or the amount of production to how much gross margin expansion you see ?

Speaker #8: Thank you . Yeah , maybe all all kick .

Jim Anderson: Yeah. Maybe I'll kick it off and at least talk about it qualitatively, and then if Sherri wants to add anything to it. I think given that we just started production in the prior quarter actually, this quarter will be our first full quarter of production. We started production last quarter, kind of mid-quarter. The actual impact to gross margin in the current quarter is pretty minimal. As we move into next calendar year, that's where we'll start to see the benefits of the six-inch production moving into our gross margin. As you would expect, as we ramp production, the impact to gross margin is more meaningful as we move throughout the calendar year. You should expect it to be more meaningful as we move through each sequential quarter. Sherri, is there anything you'd add to that, or?

Speaker #3: It off and at least talk about a qualitative qualitatively . And then if Sherry wants to add anything to it , I think given that we just started production in the prior quarter , actually this quarter will be our first quarter , our first full quarter of production .

Speaker #3: We started production last quarter kind of mid quarter . You know , the the actual impact to gross margin in the current quarter is pretty minimal .

Speaker #3: But as we move into next calendar year , that's where we'll start to see the benefits of the six inch production . Moving into our gross margin .

Speaker #3: And as you would expect , as we ramp production , the impact to gross margin is is more meaningful as we move throughout the calendar .

Speaker #3: Throughout the calendar year and and so you should expect it to be to be more meaningful as we move through each sequential quarter .

Speaker #3: And Sherry , would you is there anything you'd add to that or .

Speaker #11: Yeah , I'd just add that , you know , when you look at these , you know , the six inch indium phosphide and the fact that it's , you know , less than half the cost of three inch that , you know , that that will be beneficial to gross margin over time .

Sherri Luther: Yeah. I'd just add that when you look at the 6-inch indium phosphide and the fact that it's less than half the cost of 3-inch, that will be beneficial to gross margin over time. It's sort of looking at a cost structure, right? It's improving a cost structure, the 6-inch indium phosphide is. Other examples of that would be with new products, right, like 1.6T. That's going to be beneficial to gross margin as well as when we ramp capacity. Those types of things will help improve the gross margin over time.

Speaker #11: And , you know , it's sort of looking at a cost structure , right ? It's improving a cost structure . The six inch Indian phosphide is and you know , other examples of that would be with new products .

Speaker #11: Right . Like 1.6 t . That's going to be beneficial to gross margin as , as well as you know , when we ramp capacity , you know , those types of things will , you know , help improve the gross margin over time .

Speaker #3: So we're certainly focused on six inches. I guess I'd recap it by saying six inches is one of the gross margin tailwinds, but there's certainly a wide range of other things we're focused on across the company to drive towards.

Jim Anderson: We're certainly focused on 6-inches. I guess I'd recap it by saying 6-inch is one of the gross margin tailwinds. There's certainly a wide range of other things we're focused on across the company to drive towards Sherri's 42% gross margin target that she gave us. There's a number of other I'd just highlight in the industrial business. Although the growth is relatively stable, we're not seeing a tremendous amount of growth in the industrial business at this time. We're certainly focused on driving gross margin expansion within that business. That's another area that we expect gross margin to continue to improve for the company.

Speaker #3: Sherry's 42% gross margin target that she she gave us . There's a number of other I just highlight in the industrial business , although the growth is , you know , is relatively stable .

Speaker #3: We're not seeing a tremendous amount of growth in the industrial business at this time . We're certainly focused on driving gross margin expansion within that business .

Speaker #3: And so that's another area that we expect gross margin to continue to improve for the company .

Speaker #1: Thank you . Our next question comes from Papa Sila with Citigroup . Please go ahead .

Operator: Thank you. Our next question comes from Atif Malik with Citigroup. Please go ahead.

Speaker #12: Thank you . Thank you for taking my question . And congrats on the wavefront results . I was hoping you can . Double double double click a little bit on the uptick you expect in the December quarter .

Atif Malik: Thank you. Thank you for taking my question, and congrats on the way from below. Jim, I was hoping you can double-click a little bit on the uptake you expect in the Q4 coming from 1.6T. I understand you are quite flexible between EML, SiPho, or even VCSEL. In terms of kind of percentage or even qualitatively, where are you seeing perhaps the largest demand between those 3, and do you expect that to change in 2026?

Speaker #12: Coming from 1.6 , I understand you are quite flexible between ML , Fifo or even Zyxel , but in terms of kind of percentage or even qualitatively , where are you seeing perhaps the largest demand between those three ?

Speaker #12: And do you expect that to change in 2026 ?

Speaker #3: Yeah . Thanks for the question . So with the yeah , as I mentioned in the prepared remarks , the sequential growth in data center , a good chunk of that is driven by 1.6 revenue .

Jim Anderson: Yeah. Thanks for the question. Yeah, as I mentioned in the prepared remarks, the sequential growth in data center, a good chunk of that is driven by 1.6T revenue. Then within that early wave or first wave of 1.6T revenue, it's really a combination of we expect a combination of silicon photonics, which uses obviously CW lasers, but also EML-based 1.6T transceivers. The first adoption in that first wave of or the beginning of the ramp of 1.6T, that'll primarily be driven by a mix of silicon photonics and EML. Then later, we'll start to see, we believe, adoption of VCSEL-based 1.6T transceivers. Those use our 200-gig VCSEL technology, which we demonstrated at, I believe, OFC earlier this year.

Speaker #3: And then within that , you know , that early wave or first wave of 1.6 revenue , it's really a combination of we expect a combination of silicon photonics , which uses obviously CW lasers , but also ML based 1.6 transceivers .

Speaker #3: So the first adoption in that first wave of or the beginning of the ramp of 1.6 T , that will primarily be driven by a mix of of silicon photonics and ML , and then later we'll start to see , we believe adoption of Vixel based 1.6 T transceivers .

Speaker #3: So those use our 200 gig vixel technology , which we demonstrated at , I believe OFC earlier this year . We would expect that to begin to go into production in .

Jim Anderson: We would expect that to begin to go into production in, I would say, mid-calendar 2026, so it would start to generate revenue in kind of the second half of calendar 2026. Definitely, the early ramp or the first part of the ramp is driven by a combination of EML and silicon photonics.

Speaker #3: I would I would say mid calendar 2026 . So it would start to generate revenue in kind of the second half of calendar 26 .

Speaker #3: So definitely the early ramp or the first part of the ramp is driven by a combination of ML and silicon photonics .

Speaker #12: Got it . That's very clear . And for my follow up , I'm curious on how you are thinking about allocation of your indium capacity between ML , CW and photodiode .

Atif Malik: Got it. That's very clear. For my follow-up, Jim, I'm curious on how you are thinking about allocation of your indium phosphide capacity between EML, CW, and photodiode. I guess how far ahead do you need to make those decisions? Perhaps what are the factors that go into those decisions? Is the priority mainly kind of feeding where demand is strongest, or is there a profitability angle as well?

Speaker #12: I guess how far ahead do you need to make those decisions ? And perhaps what are the factors that goes into those decisions ?

Speaker #12: Is the priority mainly kind of feeding where demand is strongest or is there a profitability angle as well ?

Speaker #3: Yeah , it's a good question . Let me talk about the trade off between , first of all , ML and and CW .

Jim Anderson: Yeah. It's a good question. Let me talk about the trade-off between, first of all, EML and CW. I would say there's no from our perspective, there's no significant profitability trade-off between those two. Really, what drives the mix of our production mix of EML versus CW is purely the demand from our customers, right? If it's more silicon photonics-based transceivers, then we'll allocate more capacity to CW lasers. If it's more EML, we'll allocate it to EML. I think, in general, we can make those choices certainly six months ahead of time. We can even make those choices even four months ahead of time. I would say somewhere to the kind of four to six months ahead of time, we have to do the capacity planning between EML and CW. The good thing about the indium phosphide capacity is it's fungible.

Speaker #3: I would say there's no from our perspective , there's no significant profitability trade off between those two . Really what drives the the mix of our production mix of ML versus CW is purely the demand from our customers .

Speaker #3: Right . So if if it's more silicon photonics based transceivers than , you know , that will allocate more capacity to CW lasers , if it's more ML , we'll , you know , we'll allocate it to ML .

Speaker #3: And I think , you in general , we can make those choices . You know , certainly six months at a time , you know , even even we can even , you know , make those choices , even four months ahead of time .

Jim Anderson: We can even make those choices even four months ahead of time. I would say somewhere to the kind of four to six months ahead of time, we have to do the capacity planning between EML and CW. The good thing about the indium phosphide capacity is it's fungible.

Speaker #3: So I would say somewhere to the 4 to 6 months ahead of time , we have to do the capacity planning between ML and and CW and the and the good thing about the indium phosphide capacity is it's fungible .

Speaker #3: We can we can move the we can move the capacity to either ML or CW . And then for photodiode , that's just the receiver for the laser .

Jim Anderson: We can move the capacity to either EML or CW. For photodiode, that's just the receiver for the laser, right? We just build the number of photodiodes that are needed to receive the laser signal. That's a pretty straightforward calculation, right? That's kind of how we do the capacity planning. Ultimately, it's really driven by the mix that our customers want in terms of EML versus silicon photonics transceivers. We have both. We're happy to support the customers in whichever version that they need for their application.

Speaker #3: Right . So we just build the number of photodiodes that are needed to receive the laser signal . So that's a that's a pretty straightforward calculation right .

Speaker #3: So that's kind of how we do the capacity planning. Ultimately, it's really driven by the mix that our customers want in terms of ML versus silicon photonics transceivers.

Speaker #3: And we have both. So, you know, we're happy to support the customers in whichever version that they need for their application.

Speaker #12: Got it . Very helpful . Thank you .

Atif Malik: Got it. Very helpful. Thank you.

Speaker #1: Thank you . The next question comes from Michael Mahony with Bank of America . Please go ahead .

Operator: Thank you. The next question comes from Michael Manny with Bank of America. Please go ahead.

Speaker #13: Hi . This is Michael Mani on for Vivek . Thank you so much for taking our questions . As you look out over the next year , what's your confidence level in your ability to expand your share in 1.60 over 800 gig ?

Michael Manny: Hi. This is Michael Manny on for Vivek Arya. Thank you so much for taking our questions. As you look out over the next year, what's your confidence level in your ability to expand your share in 1.6T over 800G? Could you also talk about the 1.6T ramp from a customer breadth perspective? Is this a ramp that's very concentrated with a few customers, or are you seeing more of a balanced ramp into next year? Thank you.

Michael Mani: Hi. This is Michael Manny on for Vivek Arya. Thank you so much for taking our questions. As you look out over the next year, what's your confidence level in your ability to expand your share in 1.6T over 800G? Could you also talk about the 1.6T ramp from a customer breadth perspective? Is this a ramp that's very concentrated with a few customers, or are you seeing more of a balanced ramp into next year? Thank you.

Speaker #13: And could you also talk about the 1.6 ramp from a customer perspective ? Is this a ramp ? That's very concentrated with a few customers , or are you seeing more of a balanced ramp into next year ?

Speaker #13: Thank you .

Speaker #3: Yeah , thanks , Michael . Maybe I'll ask . Answer the second part first and come back to the first part of the question and the second part of the question .

Jim Anderson: Yeah. Thanks, Michael. Maybe I'll answer the second part first and come back to the first part of the question. On the second part of the question, we're seeing 1.6T ramp across multiple customers. We have multiple customers that are engaged in 1.6T, and we expect to ramp with multiple in parallel. I would say that the other color I would add is that a number of customers are accelerating their time and their ramp on 1.6T. We view that all as a good thing, right? We view that as positive. We have really proud of the lineup of 1.6T transceivers that we have. Just as a reminder, at OFC earlier this year, we were the only company that demonstrated 1.6T transceivers using three different technologies: silicon photonics, EML, and VCSEL. I think we have a great product lineup. We have good customer position.

Speaker #3: We're seeing $1.60 across ramp with multiple customers. So we have multiple customers that are engaged in $1.60, and we expect to ramp with multiple in parallel.

Speaker #3: And I would say that the other color I would add is that a number of customers are accelerating their time and ramp on 1.60, and we view that all as a good thing, right?

Jim Anderson: We view that all as a good thing, right? We view that as positive. We have really proud of the lineup of 1.6T transceivers that we have. Just as a reminder, at OFC earlier this year, we were the only company that demonstrated 1.6T transceivers using three different technologies: silicon photonics, EML, and VCSEL. I think we have a great product lineup. We have good customer position.

Speaker #3: We view that as positive . We have really proud of the lineup of 1.60 transceivers that we have at . Just as a reminder , at OFC earlier this year , we were the only company that demonstrated 1.60 transceivers using three different technologies silicon photonics , ML and Vixel .

Speaker #3: So I think we have a great product lineup . We have good customer position seeing acceleration of 1.60 , and we feel like we're we're certainly well positioned for that .

Jim Anderson: I'm seeing acceleration of 1.6T, and we feel we're certainly well-positioned for that. I guess to the first part of your question, yeah, we feel really well-positioned on 1.6T. I think as we enter the calendar 2026, we expect both on a year-over-year basis, we expect 800 gig will still grow on a year-over-year basis. We're seeing very strong demand on 800 gig. On top of that, we expect 1.6T to ramp at a very healthy pace.

Speaker #3: So I guess to the first part of your question , yeah , we feel really well positioned . 1.60 I think as we enter the calendar , 2026 , we expect both on a year over year basis .

Speaker #3: We expect 800 gig will still grow on a year over year basis . We're seeing very strong demand on 800 gig , but on top of that , we expect 1.60 to ramp at a very healthy pace .

Speaker #13: Great . Thank you . And for my follow up , I just wanted to ask about your progress on portfolio optimization and specifically pricing .

Michael Manny: Great. Thank you. For my follow-up, I just wanted to ask about your progress on portfolio optimization and specifically pricing. It seems like there's been a good amount of progress there in the last couple of quarters. How much left is there in terms of these pricing tailwinds you could recognize, whether it's from the core data comm side or industrial? Maybe more specifically as well, just what are you seeing from a pricing perspective for transceivers? Just if you could talk about that environment.

Michael Mani: Great. Thank you. For my follow-up, I just wanted to ask about your progress on portfolio optimization and specifically pricing. It seems like there's been a good amount of progress there in the last couple of quarters. How much left is there in terms of these pricing tailwinds you could recognize, whether it's from the core data comm side or industrial? Maybe more specifically as well, just what are you seeing from a pricing perspective for transceivers? Just if you could talk about that environment.

Speaker #13: So it seems like there's been a good amount of progress there in the last couple of quarters , but how much how much left is there in terms of these pricing tailwinds to recognize whether , you know , whether it's from the core Datacom side or industrial and maybe more specifically as well , just what are you seeing from a pricing perspective for for transceivers ?

Speaker #13: Just if you could talk about that environment .

Speaker #3: Maybe I'll answer the last part of the question on transceivers , but I'll let cherry also comment on pricing as it relates to gross margin .

Jim Anderson: Maybe I'll answer the last part of the question on transceivers, but I'll let Sherri also comment on pricing as it relates to gross margin. I would say on pricing of transceivers, pricing dynamic very much as we would expect. I don't think we're seeing anything unexpected with respect to pricing. Of course, in a more supply-constrained market in general, that's certainly always a positive dynamic for pricing. Kind of in the first part of your question, just sort of pricing optimization in general and how it relates to gross margin, I'll ask Sherri to answer that part.

Speaker #3: I would say that on the pricing of transceivers, the pricing dynamic is very much as we would expect. So, I don't think we're seeing anything unexpected with respect to pricing.

Speaker #3: And then , of course , in , you know , in a more supply constrained market in general , that's certainly always a positive dynamic for pricing .

Speaker #3: And then kind of in the first part of your question , just sort of pricing optimization in general and how it relates to gross margin , I'll ask Shari to answer that part .

Speaker #11: Sure . Thanks , Michael . So from a pricing optimization perspective , I was really pleased to see that during the quarter , we part of the improvement in gross margin , the 70 basis points improvement sequentially in the 200 basis points year over year .

Sherri Luther: Sure. Thanks, Michael. From a pricing optimization perspective, I was really pleased to see that during the quarter, part of the improvement in gross margin, the 70 basis points improvement sequentially and the 200 basis points year-over-year, part of that was due to pricing optimization. Pricing optimization in our where we saw benefits in the industrial side of our business as well as in the data center and communications part of our business. Pricing is an area where we tend to expect that the greater magnitude would come from the industrial part of our business. We do see benefits as well in the data center and communications part of our business. Pricing is really pricing our products for the value they provide.

Speaker #4: Part of that was due to pricing optimization , pricing optimization in our , you know , where we saw benefits in the industrial side of our business as well as in the data center and communications part of our business .

Speaker #4: So, pricing is an area where we tend to expect that the greater magnitude would come from the industrial part of our business. But we do see benefits.

Speaker #4: You know , as well , in the in the data center and communications part of our business . And , you know , pricing is really pricing our products for the value they provide .

Speaker #4: And in the industrial part of our business , that's the part of our business where in many cases , we are the only provider of those products .

Sherri Luther: In the industrial part of our business, that's the part of our business where, in many cases, we are the only provider of those products. Our customers certainly value the products that we provide to them and how we help them differentiate. That's one key part of the improvement that we saw during the quarter. The other part, just to round out the commentary on the gross margin, we also saw improvements from cost reductions. That was an area where we saw benefits in yield, which, if you recall, for the past so many quarters, we've been talking about yield improvements. We continue to focus on that. We saw those benefits in data center and the communications part of our business as well as lower product input costs.

Speaker #4: And so , you know , our customers are , you know , certainly value , value the products that we provide to them and how we help them differentiate .

Speaker #4: So that's one key part of the improvement that we saw during the quarter . But the other part , just to round out the the commentary on the gross margin , we also saw improvements from cost , cost reductions .

Speaker #4: And so that was an area where we saw benefits in yield , which if you recall , you know , for the past so many quarters we've been talking about yield improvements .

Speaker #4: We continue to focus on that . And we saw those benefits in data center and the communications part of our business , as well as lower product input costs .

Speaker #4: So those are two main levers that we're really focused on to drive to our long term target model of over 42% . So I was really pleased to see those results .

Sherri Luther: Those are two main levers that we're really focused on to drive to our long-term target model of over 42%. I was really pleased to see those results.

Speaker #13: Thank you .

Atif Malik: Thank you.

Speaker #1: Thank you . Our next question comes from meta marshall with Morgan Stanley Investment Management . Please go ahead .

Operator: Thank you. Our next question comes from Meta Marshall with Morgan Stanley investment management. Please go ahead.

Speaker #14: Great . Thanks . A couple questions , Sherri last quarter you called out kind of FX headwinds to gross margins . And just given some of those currencies have have remained stronger .

Meta Marshall: Great. Thanks. A couple of questions. Sherri, last quarter, you called out kind of FX headwinds to gross margins. Just given some of those currencies have remained stronger, just wanted to kind of get some context of whether there was additional kind of headwinds this quarter on gross margins. Second, noted that you guys are ramping the ZR kind of capacity, but just how you guys are thinking about kind of intersecting some of the scale across demand that we're seeing, whether that'll kind of the ZR will layer into that or just how you guys are kind of ramping capacity there. Thanks.

Speaker #14: Just wanted to kind of get some context of whether there was additional kind headwinds this quarter on gross margins . And then second , you know , noted that you guys are ramping the XR kind of capacity , but just how you guys are thinking about kind of intersecting some of the scale across demand that we're seeing , you know , whether that'll kind of the XR will layer into that or just how how you guys are kind of ramping capacity .

Speaker #14: There . Thanks .

Speaker #4: Yeah . So the first part of your question regarding FX and the impacts to gross margin , did we have any headwinds during the quarter ?

Sherri Luther: Yes. Meta, on the first part of your question regarding FX and the impacts to gross margin, did we have any headwinds during the quarter? Nothing material. Certainly, no incremental headwinds in terms of a negative impact from the prior quarter, but nothing significant during the quarter to note on FX.

Speaker #4: So nothing material ? Certainly no incremental headwinds in terms of a negative impact from the prior quarter . But but nothing nothing significant during the quarter to note on FX .

Speaker #3: And on the on the second part of the question , on the scale across demand . Yeah , I would characterize this demand as extremely , exceptionally strong .

Jim Anderson: On the second part of the question on the scale across demand, yeah, I would characterize this demand as exceptionally strong. Obviously, that's driven by these are the optical connections between the data centers where we're seeing these AI workloads that are spanning multiple data centers, and that's driving the need for an expansion and high-speed optical networking between these data centers. Our portfolio of products, our ZR/ZR+ portfolio of products, are just a really great match for this application. We're seeing very good demand there. We have 100G, 400G, and 800G ZR/ZR+ transceivers. We're certainly ramping capacity as quickly as we can on those transceivers. The other way we participate in that market, though, is we're a module vendor for ZR/ZR+, but we also sell components into all sorts of DCI equipment and applications.

Speaker #3: And obviously that's , that's that's driven by these are the the optical connections between the data centers where we're seeing these AI workloads that are spanning multiple data centers .

Speaker #3: And that's driving the need for an expansion in high speed optical networking . Between these data centers and our portfolio of products are XR plus portfolio products are just a really great match for this application .

Speaker #3: So we're seeing very good demand there . And we have 100 gig , 400 gig and 800 gig XR plus transceivers . So we're certainly ramping capacity as quickly as we can on those transceivers .

Speaker #3: The other way we participate in that market , though , is we're a module vendor for XR plus , but we also sell components into all sorts of DCI equipment and applications .

Speaker #3: And I would say there again , the , the the demand on the components right now is extremely strong . And we are also ramping capacity for all of the components that go into DCI applications .

Jim Anderson: I would say there, again, the demand on the components right now is extremely strong. We are also ramping capacity for all of the components that go into DCI applications and any related telecom applications. We're seeing, just as one example, the pump lasers that we produce, we're seeing just very strong demand on those pump lasers.

Speaker #3: And any related telecom applications . So we're seeing just as one example , the pump lasers that we produced , we're seeing just , you know , very strong demand on those pump lasers .

Speaker #14: Great . Thank you .

Meta Marshall: Great. Thank you.

Speaker #1: Thank you . Our next question comes from Ruben Roy with Stifel . Please go ahead .

Operator: Thank you. Our next question comes from Ruben Roy with Stifel. Please go ahead.

Speaker #15: Yeah . Hi . Thanks . Jim , maybe a follow up on the ox commentary with the shipments to seven different customers . Great to see the diversification of customers there in terms of applications .

Ruben Roy: Yeah. Hi. Thanks. Jim, maybe a follow-up on the OCS commentary with the shipments to 7 different customers. Great to see the diversification of customers there. In terms of applications, you talked about sort of getting and talking through engagements on a broader number of applications. How would you characterize kind of the wins that you have today? I think the industry has been talking about redundancy, the use of OCS for redundancy, and maybe even packet switch replacement. Should we think about those as being sort of the initial applications, or are you starting to see a broadening today of some of the other applications that you can address? Are there technical advantages of using a non-mechanical in some of these new applications that you guys are talking about? Thank you.

Speaker #15: You talked about , you know , sort of getting your talking through engagements on a broader number of applications . How would you characterize the , you know , kind of the wins that you have today ?

Speaker #15: Are those and I think , you know , the industry has been talking about redundancy , you know , the use of Ox for redundancy and maybe even , packet switch replacement .

Speaker #15: Should we think about those as being sort of the initial applications , or are you starting to see a broadening today of some of the other applications that you can address , and are there technical advantages of using a Non-mechanical .

Speaker #15: And some of these new applications that you guys are talking about ? Thank you .

Speaker #3: Yeah . Thanks , Ruben . A great question . I would say that the initial adoption , in terms of like the backlog and and initial production ramp adoption is very much the way you summarized it in , you know , redundancy applications or , you know , spine switch applications in , in more of what we've seen historically as traditional applications for ox , I think further out , though , what we've been surprised about is , if you look beyond just kind of the near-term demand , as we've engaged with a broader set of customers , is , you know , there's there's applications beyond that that customers are talking about and engaging with us on .

Jim Anderson: Yeah. Thanks, Ruben. Great question. I would say that the initial adoption in terms of the backlog and initial production ramp adoption is very much the way you summarized it in redundancy applications or spine switch applications, in more of what we've seen historically as traditional applications for OCS. I think further out, though, what we've been surprised about is if you look beyond just kind of the near-term demand as we've engaged with a broader set of customers, there's applications beyond that that customers are talking about and engaging with us on, all the way from some customers were talking about even using an OCS switch in a scale-up network, right? A scale-up network where the connections are now optical, and there's an OCS switch within that. On the other end of the spectrum, customers talking about using an OCS switch even within DCI networks.

Jim Anderson: I think further out, though, what we've been surprised about is if you look beyond just kind of the near-term demand as we've engaged with a broader set of customers, there's applications beyond that that customers are talking about and engaging with us on, all the way from some customers were talking about even using an OCS switch in a scale-up network, right? A scale-up network where the connections are now optical, and there's an OCS switch within that. On the other end of the spectrum, customers talking about using an OCS switch even within DCI networks.

Speaker #3: You know , all the way from some customers . We're talking about even using an ox switch and a scale up network , right ?

Speaker #3: A scale up network where , you know , the optical , where the connections are now , optical , and there's an ox switch within that .

Speaker #3: And then on the other end of the spectrum, customers are talking about using Ox Switch, even within DCI networks. So we've been surprised as we've engaged with customers by the real broadening of potential applications that they're exploring.

Jim Anderson: We've been surprised as we've engaged with customers by the real broadening of the potential applications that they're exploring. I would say that's a little further out in time, but we view that as a great indicator that the TAM may be significantly larger than what we first thought.

Speaker #3: And I would say that , you know , that's a little further out in time . But we view that as a great , you know , great indicator that the the Tam may be significantly larger than what we first thought .

Speaker #15: Perfect . Thanks , Jim . And a really quick question . I hope for Sherry and apologies if I missed this Sherry , but with the aerospace and defense divestiture and the leverage coming down below two , which is great to see , is there an update on the way you're thinking about debt on the balance sheet or capital allocation ?

Ruben Roy: Perfect. Thanks, Jim. A really quick question, I hope, for Sherri. Apologies if I missed this, Sherri, but with the aerospace and defense divestiture and the leverage coming down below 2, which is great to see, is there an update on the way you're thinking about debt on the balance sheet or capital allocation? Thank you.

Speaker #15: Thank you .

Speaker #4: Yeah . So Reuben really pleased that we were able to reduce our debt leverage down to 1.7 times for the quarter after the $400 million debt .

Sherri Luther: Yeah. Ruben, really pleased that we were able to reduce our debt leverage down to 1.7 times for the quarter after the $400 million debt paydown that you referenced from the sale of the A&D business. I'm really pleased with that. We also mentioned that with the Munich product division that we announced that we would take the proceeds from the sale of that to pay off debt as well. That's expected to close a little bit later. Once we do that, we'll take the proceeds from that as well. Certainly, debt reduction is a priority. I would say the number one priority now continues to be making sure that we're investing for the long term in the business from an R&D perspective, from a CapEx perspective, and making sure that we're really investing for the long-term growth.

Speaker #4: Paydown that you referenced from the sale of the business . So I'm really pleased with that . And then we also mentioned that with the Munich division product division that we announced that we would take the proceeds from the sale of that to pay off debt as well .

Speaker #4: That's expected to close a little bit later. And once we do that, we'll take the proceeds from that as well.

Speaker #4: So , you know , certainly debt reduction is , is is a priority . But I would say the number one priority now is continues to be making sure that we're investing for the long term in the business .

Speaker #4: And you know , from an R&D perspective from a CapEx perspective and making sure that we're really driving investing for the long term growth .

Speaker #4: So that's the number one priority . And then certainly debt reduction will continue to focus on that . But but a close second priority .

Sherri Luther: That's the number one priority. Certainly, debt reduction. We'll continue to focus on that, but a close second priority.

Speaker #2: Operator we'll take one more question .

[Company Representative] (Coherent Corp): Operator, we'll take one more question.

Paul Silverstein: Operator, we'll take one more question.

Speaker #1: Thank you . Our next question comes from Carl Ackerman with BNP Paribas Asset Management . Please go ahead .

Operator: Thank you. Our next question comes from Karl Ackerman with BNP Paribas Asset Management. Please go ahead.

Speaker #16: Yes . Thank you for squeezing me in . Just one for me , Jim , you spoke of record transceiver module bookings and datacom , but what about transceiver components for telecom ?

Karl Ackerman: Yes. Thank you for squeezing me in. Just one for me. Jim, you spoke of record transceiver module bookings in data com, but what about transceiver components for telecom? As you address that, can you quantify the level of order visibility with your customers, maybe in terms of quarters, as you and your peers seek to add both laser and transceiver capacity and fulfill customer demand?

Speaker #16: And as you address that , can you quantify the level of order visibility with your customers ? Maybe in terms of quarters , as you and your peers seek to add both laser and transceiver capacity and fulfill customer demand ?

Speaker #3: Yeah . Thanks . Karl . Yeah , we definitely saw a very strong record bookings on transceivers . But yeah , I'm glad you asked about for components going into , you know , a number of our communications applications .

Jim Anderson: Yeah. Thanks, Carl. Yeah, we definitely saw very strong record bookings on transceivers. Yeah, I'm glad you asked about for components going into a number of our communications applications, DCI and telecom, I would say same story. Record level of bookings there too. I mean, just tremendous bookings across both data center and communications. On the second part of your question around visibility, what we're seeing in those bookings is the normal bookings of booking out in kind of the nearer term, but we're also seeing customers on top of that book further out in time where they're putting orders in place a year-plus in advance. I think that's really about they're seeing such strong increases in their demand and their supply needs that they want to get those bookings in place to get the supply coverage.

Speaker #3: DCI and Telecom I would say same story . You know , record level of bookings there too . I mean just tremendous bookings across both data center and communications .

Speaker #3: And on the second part of your question around visibility , so what we're seeing is in those bookings is the normal bookings of booking out in kind of the near term , but we're also seeing customers on top of that book further out in time , where they're ordering , they're putting orders in place , you know , in a year , a year plus in advance .

Speaker #3: And I think that's really about , you know , they're seeing such strong increases in their demand and their supply needs that they want to get those bookings in place to get the the supply coverage .

Speaker #3: And then the other , the other very good trend from our perspective is , as I mentioned earlier in the call , our a number of our large customers now giving us very good forecast visibility , not just next year or the following year , but out into 2028 .

Jim Anderson: The other very good trend from our perspective is, as I mentioned early in the call, a number of our large customers now giving us very good forecast visibility, not just next year, the following year, but out into 2028. Very large customers providing us with visibility three years out, which is very, very helpful for our business.

Speaker #3: So very large customers providing us with visibility three years out , which is which is very , very helpful for our business .

Speaker #16: Thank you very much .

Karl Ackerman: Thank you very much.

Speaker #1: Thank you , ladies and gentlemen , as we have come to the conclusion of the allotted time for today's call , I will now turn the floor back to COHERENT CORP.

Operator: Thank you. Ladies and gentlemen, as we have come to the conclusion of the allotted time for today's call, I will now turn the floor back to Coherent CEO, Mr. Jim Anderson, for closing comments.

Speaker #1: CEO , Mr. Jim Anderson , for closing comments .

Speaker #3: Yeah . First , thanks , everybody , for being on the call today . I feel like we're off to a very strong start for our fiscal year with with almost 20% pro forma revenue growth and over 70% EPs growth in Q1 on a year over year basis .

Jim Anderson: Yeah. First, thanks, everybody, for being on the call today. I feel like we're off to a very strong start for our fiscal year with almost 20% pro forma revenue growth and over 70% DPS growth in Q1 on a year-over-year basis, off to a really strong start. Again, we expect this fiscal year to be a really strong growth year for the company. Once again, I just want to thank all of my Coherent teammates for all of their great hard work, their dedication. Thank you very much. Thanks, everyone, for your support. Operator, that concludes our call.

Speaker #3: Off to a really strong start . And again , we expect this fiscal year to be a really strong growth year for the company .

Speaker #3: I'd like to once again , I just want to thank all of my coherent teammates for all of their their great hard work , their dedication .

Speaker #3: Thank you very much and thanks everyone for your support . Operator . That concludes our call .

Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Q1 2026 Coherent Corp Earnings Call

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