Q3 2026 Fabrinet Earnings Call

May 4, 2026

Operator 1: Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the Q3 of fiscal year 2026. At this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session, and instructions on how to participate will be provided at that time. As a reminder, today's call is being recorded. I would now like to turn the call over to Garo Toomajanian, Vice President of Investor Relations. You may begin.

Operator: Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the Q3 of Fiscal year 2026. At this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session, and instructions on how to participate will be provided at that time. As a reminder, today's call is being recorded. I would now like to turn the call over to Garo Toomajanian, Vice President of Investor Relations. You may begin.

Speaker #1: Later, we will conduct a question-and-answer session, and instructions on how to participate will be provided at that time. As a reminder: today's call is being recorded.

Speaker #1: I would now like to turn the call over to Garo Toomajanian, Vice President of Investor Relations. You may begin.

Speaker #2: Thank you, Operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the third quarter of fiscal year 2026, which ended March 27, 2026.

Garo Toomajanian: Thank you, operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for Q3 of fiscal year 2026, which ended 27 March 2026. With me on the call today are Seamus Grady, Chairman and Chief Executive Officer, and Csaba Sverha, Chief Financial Officer. This call is being webcast, and a replay will be available on the investor section of our website located at investor.fabrinet.com. During this call, we will present both GAAP and non-GAAP financial measures. Please refer to the investor section of our website for important information, including our earnings press release and investor presentation, which include our GAAP to non-GAAP reconciliation, as well as additional details of our revenue breakdown. In addition, today's discussion will contain forward-looking statements about the future financial performance of the company.

Speaker #2: With me on the call today are Seamus Grady, Chairman and Chief Executive Officer, and Csaba Sverha, Chief Financial Officer. This call is being webcast, and a replay will be available on the Investor section of our website, located at investor.fabrinet.com.

Speaker #2: During this call, we will present both GAAP and non-GAAP financial measures. Please refer to the Investor Section of our website for important information, including our earnings press release and investor presentation, which include our GAAP to non-GAAP reconciliation as well as additional details of our revenue breakdown.

Speaker #2: In addition, today's discussion will contain forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations.

Garo Toomajanian: Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events, except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular the section captioned Risk Factors in our Form 10-Q filed on 3 February 2026. We will begin the call with remarks from Seamus and Csaba, followed by time for questions. I would now like to turn the call over to Fabrinet's Chairman and Chief Executive Officer, Seamus Grady. Seamus.

Speaker #2: These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events, except as required by law.

Speaker #2: For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular the Section captioned Risk Factors in our Form 10Q filed on February 3, 2026.

Speaker #2: We will begin the call with remarks from Seamus and Csaba. Followed by time for questions. I would now like to turn the call over to Fabrinet's Chairman and CEO, Seamus Grady.

Speaker #2: Seamus?

Speaker #3: Thank you, Garo. Good afternoon, everyone, and thanks for joining our call today. We delivered an outstanding financial performance in the third quarter. Along with several notable achievements that we believe can extend our strong growth trends into the fourth quarter and fiscal year 2027.

Seamus Grady: Thank you, Garo. Good afternoon, everyone, and thanks for joining our call today. We delivered an outstanding financial performance in Q3, along with several notable achievements that we believe can extend our strong growth trends into Q4 and fiscal year 2027. Revenue is above our guidance range at a record $1.214 billion, with year-over-year growth accelerating to an impressive 39%. Record non-GAAP EPS of $3.72 also exceeded our guidance range, reflecting continued excellent execution. Looking at our quarter by product area, optical communications revenue growth increased to 35% from a year ago. This was driven by 55% year-over-year growth in telecom revenue, which was fueled by strong growth in a wide range of products.

Speaker #3: Revenue is above our guidance range at a record $1.214 billion, with year-over-year growth accelerating to an impressive 39%. Record non-GAAP EPS of $3.72 also exceeded our guidance range.

Speaker #3: Reflecting continued excellent execution. Looking at our quarter-by-product area, optical communications revenue growth increased to 35% from a year ago. This was driven by 55% year-over-year growth in telecom revenue which was fueled by strong growth in a wide range of products within telecom: data center interconnect revenue grew a robust 90% from a year ago and 38% from Q2.

Seamus Grady: Within Telecom, data center interconnect revenue grew a robust 90% from a year ago and 38% from Q2, and we believe strong, longer-term DCI growth trends remain firmly intact. This remarkable Telecom performance more than offset softer than expected Datacom revenue, which grew 4% year-over-year, but declined 6% from Q2. Underlying Datacom demand remains exceptionally strong. In fact, demand during the quarter far exceeded what we were able to ship, meaning our reported revenue does not fully reflect the true momentum of the business. Right now, demand is outpacing the broader supply of certain components, and we are actively working to narrow that gap. While we expect the supply-demand imbalance to persist into Q4, we remain optimistic that supply conditions will improve over time. The strong demand we are seeing today positions us well as that improvement unfolds.

Speaker #3: And we believe strong, longer-term DCI growth trends remain firmly intact. This remarkable telecom performance more than offset softer-than-expected data com revenue, which grew 4% year-over-year but declined 6% from Q2.

Speaker #3: Underlying data com demand remains exceptionally strong. In fact, demand during the quarter far exceeded what we were able to ship, meaning our reported revenue does not fully reflect the true momentum of the business.

Speaker #3: Right now, demand is outpacing the broader supply of certain components, and we are actively working to narrow that gap. While we expect this supply-demand imbalance to persist into the fourth quarter, we remain optimistic that supply conditions will improve over time.

Speaker #3: The strong demand we are seeing today positions us well as that improvement unfolds. As we have outlined, our data com strategy is to continue supporting the strong demand trends we are seeing with our largest customer, while actively expanding into new high-growth channels such as direct engagement with hyperscalers and partnerships with merchant vendors.

Seamus Grady: As we have outlined, our Datacom strategy is to continue supporting the strong demand trends we are seeing with our largest customer while actively expanding into new high-growth channels, such as direct engagement with hyperscalers and partnerships with merchant vendors. With that in mind, we are happy to report that we have made meaningful, tangible progress on both fronts. First, we are excited to share that we have successfully completed qualification and have already begun shipping 2 Datacom transceiver programs directly to a hyperscale customer with initial ramp starting in Q4. We expect volumes to ramp steadily throughout fiscal 2027, with these programs becoming a meaningful contributor to our Datacom revenue over time. Second, building on the groundwork laid over the last several quarters, we are on track to qualify and ramp multiple merchant transceiver programs, including several for data center scale-out applications with existing and new customers.

Speaker #3: With that in mind, we are happy to report that we have made meaningful, tangible progress on both fronts. First, we are excited to share that we have successfully completed qualification and have already begun shipping two data com transceiver programs directly to a hyperscale customer, with initial ramp starting in the fourth quarter.

Speaker #3: We expect volumes to ramp steadily throughout fiscal 2027, with these programs becoming a meaningful contributor to our data com revenue over time. Second, building on the groundwork laid over the last several quarters, we are on track to qualify and ramp multiple merchant transceiver programs including several for data center scale-out applications.

Speaker #3: With existing and new customers. We expect production to begin in the second half of the calendar year aligning with the early part of fiscal 2027, with additional ramps progressing into the second half of the fiscal year.

Seamus Grady: We expect production to begin in the H2 of the calendar year, aligning with the early part of fiscal 2027, with additional ramps progressing into the H2 of the fiscal year. We expect this combination of hyperscale and merchant program wins to further diversify our Datacom revenue and provide multiple new growth vectors in the new year and beyond. In Non-Optical Communications, revenue jumped 52% year-over-year and 8% sequentially from Q2. This growth was driven primarily by high-performance compute revenue, which continues to ramp as we support our customers' transition to their latest product generation. At the same time, we are seeing encouraging traction beyond the current ramp with new program wins and expanded scope across additional products that we will be manufacturing to support their accelerated computing infrastructure.

Speaker #3: We expect this combination of hyperscale and merchant program wins to further diversify our datacom revenue, and provide multiple new growth vectors in the new year and beyond.

Speaker #3: In non-optical communications, revenue jumped 52% year-over-year and 8% sequentially from Q2. This growth was driven primarily by high-performance compute revenue, which continues to ramp as we support our customers' transition to their latest product generation.

Speaker #3: At the same time, we are seeing encouraging traction beyond the current ramp. With new program wins and expanded scope across additional products, that we will be manufacturing to support their accelerated computing infrastructure.

Speaker #3: We are also increasing capacity to align with the customer's ambitious growth plans, reflecting a deepening and increasingly strategic relationship. Automotive revenue moderated in the third quarter, as anticipated, with revenue decreasing modestly from Q2.

Seamus Grady: We're also increasing capacity to align with the customer's ambitious growth plans, reflecting a deepening and increasingly strategic relationship. Automotive revenue moderated in Q3 as anticipated, with revenue decreasing modestly from Q2. This decline was more than offset by continued growth in Industrial Laser revenue, which was up 9% from a year ago and 7% from Q2. An important area of strategic focus for us over the past several years has been co-packaged optics or CPO. In this space, we are deepening our engagement with customers across the CPO ecosystem, including optical components, external laser source pluggables, as well as other integrated precision optical packaging solutions, building on our long-standing silicon photonics expertise. CPO relies heavily on advanced semiconductor packaging technologies, and we have been actively investing to expand our capabilities in this area with a focus on scalable, high-quality manufacturing processes and broader system-level integration.

Speaker #3: This decline was more than offset by continued growth in industry laser revenue, which was up 9% from a year ago and 7% from Q2.

Speaker #3: An important area of strategic focus for us over the past several years has been co-packaged optics, or CPO. In this space, we are deepening our engagement with customers across the CPO ecosystem including optical components, external laser source plugables, as well as other integrated precision optical packaging solutions, building on our long-standing silicon photonics expertise.

Speaker #3: CPO relies heavily on advanced semiconductor packaging technologies, and we have been actively investing to expand our capabilities in this area, with a focus on scalable, high-quality manufacturing processes and broader system-level integration.

Speaker #3: This includes leveraging and extending our in-house silicon photonics expertise while also partnering with key technology providers to enhance our ability to deliver more integrated end-to-end manufacturing solutions.

Seamus Grady: This includes leveraging and extending our in-house silicon photonics expertise while also partnering with key technology providers to enhance our ability to deliver more integrated end-to-end manufacturing solutions. With that backdrop, we have made a minority investment in Raytek Semiconductor, a Taiwan-based provider of advanced wafer-level packaging technologies as an ecosystem partner. We already serve a number of common customers and expect this collaboration to further strengthen our capabilities and extend our offering. This investment supports our continued evolution from silicon photonics into more advanced packaging and integration solutions, reinforcing our role as a key manufacturing partner within the CPO ecosystem. Looking at our business as a whole, we are very excited by both the number and size of customer engagements for our advanced manufacturing services.

Speaker #3: With that backdrop, we have made a minority investment in Raytek Semiconductor, a Taiwan-based provider of advanced wafer-level packaging technologies, as an ecosystem partner. We already serve a number of common customers and expect this collaboration to further strengthen our capabilities and extend our offering.

Speaker #3: This investment supports our continued evolution from silicon photonics into more advanced packaging and integration solutions, reinforcing our role as a partner within the CPO ecosystem. Looking at our business as a whole, we are very excited by both the number and size of customer engagements for our advanced manufacturing services.

Speaker #3: The breadth and depth of these projects provides us with significant opportunities to demonstrate our differentiation and expertise that we've established as a key enabler for the success of our customers' most advanced products.

Seamus Grady: The breadth and depth of these projects provides us with significant opportunities to demonstrate our differentiation and expertise that we've established as a key enabler for the success of our customers' most advanced products. As you know, we have been expanding our capacity to support our accelerating growth trends. We continue to make progress in the construction of Building Ten, which will add 2 million square feet to our current 3.7 million square feet of space. With plans to be fully completed around the beginning of the new calendar year, we're on track to have a portion of Building Ten ready by next month, consistent with what we described last quarter.

Speaker #3: As you know, we have been expanding our capacity to support our accelerating growth trends. We continue to make progress in the construction of Building 10, which will add 2 million square feet to our current 3.7 million square feet of space.

Speaker #3: With plans to be fully completed around the beginning of the new calendar year, we are on track to have a portion of Building 10 ready by next month, consistent with what we described last quarter.

Speaker #3: In addition to that, with our accelerated construction timeline, we now expect to commission an additional floor in this five-story structure by the end of September.

Seamus Grady: In addition to that, with our accelerated construction timeline, we now expect to commission an additional floor in this 5-story structure by the end of September, with the rest of the building still scheduled to be completed by January. Beyond Building Ten, we have sufficient land available at our campus in Chonburi for two additional buildings of more than 1 million square feet each. While this means we expect to have ample capacity available for the next several years, we continue to think ahead. In that context, we have recently acquired a building and land in the Navanakorn Industrial Estate in Thailand, not far from our Pinehurst campus. We have already begun renovations to make the existing 200,000 square foot building a world-class clean room factory with sufficient space on the 8-acre site for additional expansion at a later time.

Speaker #3: With the rest of the building still scheduled to be completed by January. Beyond Building 10, we have sufficient land available at our campus in Chonburi for two additional buildings of more than 1 million square feet each.

Speaker #3: While this means we expect to have ample capacity available for the next several years, we continue to think ahead. In that context, we have recently acquired a building and land in the Vanacorn Industrial Estate in Thailand.

Speaker #3: Not far from our Pinehurst campus. We have already begun renovations to make the existing 200,000 square foot building a world-class clean room factory with sufficient space on the eight-acre site for additional expansion at a later time.

Speaker #3: In summary, our success in the third quarter extends well beyond our strong financial performance. We are particularly encouraged by the multiple new growth factors we are adding across our data com business, while our diversified telecom portfolio continues to show solid momentum.

Seamus Grady: In summary, our success in Q3 extends well beyond our strong financial performance. We are particularly encouraged by the multiple new growth vectors we are adding across our Datacom business. While our diversified Telecom portfolio continues to show solid momentum, and our Non-Optical Communications segment expands further. This combination of execution and strategic progress reinforces our confidence in sustaining our growth trajectory, extending our leadership position in Q4, and carrying that momentum into fiscal year 2027. Now I'd like to turn the call over to Csaba for more details on our Q3 results and our outlook for Q4. Csaba.

Speaker #3: And our non-optical communications segment expands further. This combination of execution and strategic progress reinforces our confidence in sustaining our growth trajectory. Extending our leadership position in the fourth quarter and carrying that momentum into fiscal year 2027.

Speaker #3: Now I'd like to turn the call over to Csaba for more details on our third quarter results and our outlook for the fourth quarter.

Speaker #3: Csaba.

Speaker #1: Thank you, Seamus, and good afternoon, everyone. We delivered another record-breaking performance in the third quarter of fiscal year 2026. Revenue of $1.214 billion exceeded our guidance range, with revenue growth accelerating to a remarkable 39% from a year ago and 7% from the prior quarter.

Csaba Sverha: Thank you, Seamus, and good afternoon, everyone. We delivered another record-breaking performance in Q3 of fiscal year 2026. Revenue of $1.214 billion exceeded our guidance range, with revenue growth accelerating to a remarkable 39% from a year ago and 7% from Q2. Strong execution and FX tailwinds led to non-GAAP EPS of $3.72. That also exceeded our guidance range. Turning to revenue by market in Q3, Optical Communications revenue was $889 million, with revenue growth accelerating to 35% from a year ago and 7% from Q2. Within Optical Communications, Telecom revenue was a record $628 million, climbing 55% from a year ago and 13% from Q2.

Speaker #1: Strong execution and effects evaluation tailwinds led to non-gap EPS of $3.72, that also exceeded our guidance range. Turning to revenue by market in the third quarter, optical communications revenue was $889 million.

Speaker #1: With revenue growth accelerating to 35% from a year ago, and 7% from Q2. Within optical communications, telecom revenue was a record $628 million, climbing 55% from a year ago and 13% from Q2.

Speaker #1: Within telecom, revenue from data center interconnect modules, or DCI, jumped to $197 million. Growing 90% from a year ago and 38% from the second quarter.

Csaba Sverha: Within telecom, revenue from data center interconnect modules, or DCI, jumped to $197 million, growing 90% from a year ago and 38% from Q2. Datacom revenue of $260 million increased 4% from a year ago, moderated 6% from Q2 due to broadening component and material supply constraints in the quarter. Turning to Non-Optical Communications, revenue reached $326 million, growing 52% year over year and 8% sequentially from Q2. This strong performance was once again driven primarily by continued momentum in our HPC program, which delivered $107 million in revenue, up 25% from Q2. Automotive revenue declined slightly as anticipated to $115 million, while Industrial Laser revenue increased to $44 million.

Speaker #1: Data com revenue of 260 million dollars increased 4% from a year ago but moderated 6% from Q2 due to broadening component and material supply constraints in the quarter.

Speaker #1: Turning to non-optical communications, revenue reached $326 million. Growing 52% year over year and 8% sequentially from Q2. This strong performance was once again driven primarily by continued momentum in our HPC program, which delivered 107 million dollars in revenue up 25% from Q2.

Speaker #1: Automotive revenue declined slightly as anticipated to $115 million, while industrial laser revenue increased to $44 million. As I discuss the details of our P&L, all expense and profitability metrics will be presented on a non-GAAP basis unless otherwise noted.

Csaba Sverha: As I discuss the details of our P&L, all expense and profitability metrics will be presented on a non-GAAP basis, unless otherwise noted. Gross margin in Q3 was 12.1%, a 10 basis point improvement from a year ago, and a 30 basis point decline from Q2 as anticipated, primarily due to foreign exchange headwinds. We continue to demonstrate operating leverage with operating expenses declining to 1.4% of revenue. This resulted in an operating margin of 10.7%, a 50 basis point improvement from a year ago, and 20 basis point decline from Q2. Interest income was $7 million, and we saw a foreign exchange evaluation gain of $7 million in the quarter. Our effective GAAP tax rate for the quarter was 6.7%.

Speaker #1: Gross margin in the third quarter was 12.1%, a 10 basis point improvement from a year ago and a 30 basis point decline from Q2 as anticipated, primarily due to foreign exchange headwinds.

Speaker #1: We continue to demonstrate operating leverage with operating expenses declining to 1.4% of revenue. This resulted in an operating margin of 10.7%, a 50 basis point improvement from a year ago and 20 basis point decline from Q2.

Speaker #1: Interest income was $7 million. And we saw a foreign exchange evaluation gain of $7 million in the quarter. Our effective gap tax rate for the quarter was 6.7%.

Speaker #1: We expect our tax rate to moderate in Q4, resulting in a mid-single digit effective gap tax rate for the year. Net income was a record $135 million.

Csaba Sverha: We expect our tax rate to moderate in Q4, resulting in a mid-single-digit effective GAAP tax rate for the year. Net income was a record $135 million or $3.72 per diluted share. Turning to our balance sheet. We ended the Q3 with cash and short-term investments of $946 million, down $60 million from the end of Q2. Operating cash flow for the quarter was $53 million. Capital expenditure spending of $64 million reflects continued accelerated construction of Building Ten, as well as capacity expansions to support the rapid growth across the business. As a result, free cash flow was an outflow of $11 million in the quarter. Before getting into our guidance, I want to provide some additional color on our recent capital allocation decisions.

Speaker #1: Or $3.72 per diluted share. Turning to our balance sheet, we ended the third quarter with cash and short-term investments of $946 million. Down 16 million dollars from the end of Q2.

Speaker #1: Operating cash flow for the quarter was $53 million. Capital expenditures spending of $64 million reflects continued accelerated construction of Building 10, as well as capacity expansions to support the rapid growth across the business.

Speaker #1: As a result, free cash flow was an outflow of $11 million in the quarter. Before getting into our guidance, I want to provide some additional color on our recent capital allocation decisions.

Speaker #1: As Seamus mentioned, we have made a minority investment in ratex semiconductor to support our efforts in advancing manufacturing solutions for CPO. In April, we completed a private placement of approximately 32 million dollars for 20 million shares of ratex, representing approximately a 14% position.

Csaba Sverha: As Seamus mentioned, we have made a minority investment in Raytek Semiconductor to support our efforts in advancing manufacturing solutions for CPO. In April, we completed a private placement of approximately $32 million for 20 million shares of Raytek, representing approximately a 14% position. This investment deepens our partnership and supports our joint efforts toward bringing CPO technology to market at scale. Early in Q4, we expect to complete the purchase of an 8-acre campus in Navanakorn Industrial Estate, Thailand, located approximately 15 minutes from our Pinehurst campus. The Navanakorn facility currently consists of a 200,000 square foot building with additional space on the site for future expansion. We have already initiated minor renovations to support world-class clean room manufacturing capabilities, and we expect to begin utilizing the space early next quarter.

Speaker #1: This investment deepens our partnership and supports our joint efforts toward bringing CPO technology to market at scale. Early in the fourth quarter, we expect to complete the purchase of an eight-acre campus in Navanacord Industrial Estate, Thailand.

Speaker #1: Located approximately 15 minutes from our Pinehurst campus. The NAVA facility currently consists of a 200,000 square foot building with additional space on the site for future expansion.

Speaker #1: We have already initiated minor renovations to support world-class green room manufacturing capabilities. And we expect to begin utilizing the space early next quarter. The total purchase price of $11 million will be reflected in our fourth quarter financials.

Csaba Sverha: The total purchase price of $11 million will be reflected in our Q4 financials. With our very strong balance sheet, we are well-positioned to deploy capital efficiently, support our growth initiatives, and continue to generate superior returns while remaining committed to returning surplus cash to shareholders through our share repurchase program. In the Q3, we did not repurchase a meaningful number of shares. However, our share repurchase program remains active, and we ended the quarter with approximately $169 million available under our current authorization. Now turning to the details of our guidance. We expect revenue in all major product categories to increase in the Q4, despite a broader supply constrained environment, with Datacom growth expected to be more measured as we continue to navigate component availability that is not keeping pace with strong demand.

Speaker #1: With our very strong balance sheet, we are well positioned to deploy capital efficiently. Support our growth initiatives and continue to generate superior returns while remaining committed to returning surplus cash to shareholders through our share repurchase program.

Speaker #1: In the third quarter, we did not repurchase a meaningful number of shares. However, our share repurchase program remains active, and we ended the quarter with approximately $169 million available under our current authorization.

Speaker #1: Now, turning to the details of our guidance. We expect revenue in all major product categories to increase in the fourth quarter. Despite a broader supply constraint environment, with datacom growth expected to be more measured as we continue to navigate component availability that is not keeping pace with strong demand.

Speaker #1: At the same time, we are excited by the number of new customer programs coming online, which we expect will contribute more meaningfully to our performance in fiscal year 2027 than in the fourth quarter.

Csaba Sverha: At the same time, we are excited by the number of new customer programs coming online, which we expect will contribute more meaningfully to our performance in fiscal year 2027 than in Q4. With that backdrop, we expect total revenue to be in the range of $1.25 to 1.29 billion, representing year-over-year growth of approximately 40% at the midpoint. We expect gross margin dynamics to be similar to Q3, with continued operating leverage as top line growth continues. As a result, we expect non-GAAP EPS to be in the range of $3.72 to $3.87. In summary, our Q3 results were exceptional, with record revenue and earnings that exceeded our guidance as growth continued to accelerate.

Speaker #1: With that backdrop, we expect total revenue to be in the range of $1.25 to $1.29 billion. Representing year over year growth of approximately 40% at the midpoint.

Speaker #1: We expect gross margin dynamics to be similar to Q3, with continued operating leverage as top-line growth continues. As a result, we expect non-GAAP EPS to be in the range of $3.72 to $3.87.

Speaker #1: In summary, our third quarter results were exceptional, with record revenue and earnings that exceeded our guidance as growth continued to accelerate. We also made strong progress against our longer-term strategic priorities, establishing additional vectors of sustainable growth that we expect to begin contributing as early as the fourth quarter, positioning us to extend our strong track record into fiscal 2027 and beyond.

Csaba Sverha: We also made strong progress against our longer term strategic priorities, establishing additional vectors of sustainable growth that we expect to begin contributing as early as Q4, positioning us to extend our strong track record into fiscal 2027 and beyond. Operator, we are now ready to open the call for questions.

Speaker #1: Operator, we are now ready to open the call for questions.

Speaker #2: Thank you. Ladies and gentlemen, to ask the question, please first start one-one on your telephone. Then wait for your name to be announced. To withdraw your question, please first start one-one again.

Operator 1: Thank you. Ladies and gentlemen, to ask the question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster.

Operator: Thank you. Ladies and gentlemen, to ask the question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Thank you. Our first question comes from George Notter from Wolfe Research. Your line is open.

Speaker #2: Please stand by while we compile the Q&A roster.

Speaker #3: Thank you. And our first question comes from George Nodder from Wolfe Research. Your line is open.

Operator 2: Thank you. Our first question comes from George Notter from Wolfe Research. Your line is open.

Speaker #4: Hi, guys. Thanks very much. I just wanted to double-click on the data com business. I know that last quarter you talked about having some new supply of 200-gig per lane, VMLs, coming online.

George Notter: Hi, guys. Thanks very much. I just wanted to double-click on the Datacom business. I know that last quarter you talked about having some new supply of 200 gig per lane VCSELs coming online that would help support growth in the Datacom business. Sounds like that, you know, didn't happen. I'm just wondering kinda what's going on in terms of EML supply. Is that the gating item you're referencing, or are there other components that are problematic now? Anything more you can tell us there would be great.

Speaker #4: That would help support growth in the data com business. It sounds like that didn't happen I'm just wondering kind of what's going on in terms of EML supply.

Speaker #4: Is that the gating item you're referencing or are there other components that are problematic now? Anything more you can tell us, sir, would be great.

Speaker #5: Yeah, hi, this is Seamus. Yeah, there's a number of, I guess, commodities you could say that are causing us constraints. First of all, we're very excited at the breadth and depth of the opportunities we see in front of us, not just with our main customer, but across a number of new products and new markets for us.

Seamus Grady: Hi, this is James. Yeah, there's a number of, I guess, commodities you could say that are causing us constraints. You know, first of all, we're, you know, very excited at the breadth and depth of the opportunities we see in front of us, not just with our main customer, but across a number of new products, new markets for us. Since we started to see the revenue accelerate from this AI-driven demand, you know, our strategy has been to support the existing demand while pursuing additional hyperscale direct and also merchant relationships. We're excited with the progress we're making there, and what we're managing right now. It's not demand risk, it's, you know, supply constraints.

Speaker #5: Since we started to see the revenue accelerate from this AI-driven demand, our strategy has been to support the existing demand and also pursue while pursuing additional hyperscale direct and also merchant relationships.

Speaker #5: So we're excited with the progress we're making there. And what we're managing right now, it's not demand risk—it's supply constraints. With respect to data com supply, we saw a broadening of supply shortages for components and materials for data com products.

Seamus Grady: With respect to Datacom supply, we saw a broadening of supply shortages for components and materials for Datacom products. As a result, shipments and revenue were, you know, well below demand levels. We, you know, we could have shipped a lot more if we had those components. You know, without these supply constraints, Datacom revenue would have been a new record by a wide margin. While we expect the constraints to get resolved over time, we do have to deal with them right now. In the near term, we anticipate that supply volatility will continue. You know, it's in a number of areas. It's not any one component.

Speaker #5: And as a result, shipments and revenue were well below demand levels. We could have shipped a lot more if we had those components. Without these supply constraints, data com revenue would have been a new record by a wide margin.

Speaker #5: While we expect the constraints to get resolved over time, we do have to deal with them right now in the near term. We anticipate that supply volatility will continue.

Speaker #5: And it's in a number of areas. It's not any one component. It's a number of areas, mainly lasers, memory, which I think is it's no secret that there's a global shortage of memory.

Seamus Grady: It's a number of areas, mainly lasers, memory, which I think is, it's no secret that there's a global shortage of memory, and also certain ASICs. It's across a number of commodities.

Speaker #5: And also certain ASICs. So it's across a number of commodities.

George Notter: Got it. Great. I just want to ask one also on CPO. I just want to be clear on, you know, where you guys see your opportunity in CPO. I guess I assume that ELSFPs that go into CPO switches are, you know, kind of a real natural for you guys. Are you also gonna manufacture other elements of CPO switches? I mean, historically, you guys have not really been involved in manufacturing the switches themselves, but obviously, this is a unique architecture. There's a giant amount of sort of fiber attach that goes into here and fiber attach units into that CPO package. I just want to be clear on what you guys see yourselves kind of doing in terms of that manufacturing exercise. Thanks a lot, guys.

Speaker #4: Got it. Great. And then I just wanted to ask one also on CPO. I just want to be clear on where you guys see your opportunity in CPO.

Speaker #4: I guess I assume that ELSFPs that go into CPO switches are kind of a real natural for you guys. Are you also going to manufacture other elements of CPO switches? I mean, historically, you guys have not really been involved in manufacturing the switches themselves, but obviously, this is a unique architecture.

Speaker #4: There's a giant amount of sort of fiber attached that goes in here, and fiber-attached units into that CPO package. I just want to be clear on what you guys see yourselves kind of doing in terms of that manufacturing exercise.

Speaker #4: Thanks a lot, guys.

Speaker #5: Yeah, so for us, CPO is really an evolution from silicon photonics and precision photonics packaging capabilities that we've had for many years.

Seamus Grady: Yeah. For us, you know, CPO for us, it's really an evolution from Silicon Photonics and Precision Photonics packaging capabilities that we've had for many years. It continues to be an area of investment for us to align our capabilities with our customers' roadmaps. For many years, you know, CPO has been just on the horizon, it's a lot more real now than it's ever been. We're in an excellent position to benefit. We feel we're well ahead of our competitors in making this technology a reality, and we're already seeing some CPO revenue, though the amounts are relatively small at this point. We're working on a number of CPO programs with 3 different customers.

Speaker #5: And it continues to be an area of investment for us, to align our capabilities with our customers' roadmaps. For many years, CPO has been just on the horizon, but it's a lot more real now.

Speaker #5: And than it's ever been. And we're in an excellent position to benefit. We feel we're well ahead of our competitors in making this technology a reality.

Speaker #5: And we're already seeing some CPO revenue, though the amounts are relatively small at this point. We're working on a number of CPO programs with three different customers.

Speaker #5: The specific timing on each of them, we don't really want to speak on their behalf, but we're working on three separate programs. And as with our customer programs, we expect to see the impact in line with or slightly ahead of our customers' production schedules.

Seamus Grady: The specific timing, you know, on each of them, we don't really want to speak on their behalf, but, you know, we're working on 3 separate programs. As with our customer programs, we expect to see the impact in line with or slightly ahead of our customers' production schedules. The, you know, the growth in CPO is in front of us. As you rightly point out, there are several opportunities for us in CPO, and we feel we can participate at a, maybe a higher level up the food chain than we have historically. We're excited about CPO.

Speaker #5: So the growth in CPO is in front of us. And as you rightly point out, there are several opportunities for us in CPO, and we feel we can participate at a maybe a higher level up the food chain than we have historically.

Speaker #5: So we're excited about CPO.

Speaker #4: Great. Thank you.

George Notter: Great. Thank you.

Speaker #5: You're welcome.

Seamus Grady: You're welcome.

Speaker #3: Thank you. Our next question will come from Carl Ackerman from BNP Paribas. Your line is open.

Operator 2: Thank you. Our next question will come from Karl Ackerman from BNP Paribas. Your line is open.

Operator: Thank you. Our next question will come from Karl Ackerman from BNP Paribas. Your line is open.

Karl Ackerman: Yes, thank you. I have two, if I may. Seamus, do you believe you will be at the full run rate of the current HPC program in June? I think the previous expectation was March and June timeframe. I guess, how much visibility do you have with that follow-on program? I have a follow-up, please.

Speaker #6: Yes. Thank you. I have two, if I may. Seamus, do you believe you will be at the full run rate of the current HPC program in June?

Speaker #6: I think the previous expectation was March and June timeframe. And I guess how much visibility do you have with that follow-on program kind of a follow-up, please?

Speaker #5: Yeah. So our current HPC program is ramping according to our customers' expectations. It's not ramping in a perfect straight line—these things never do.

Seamus Grady: Yeah. Our current HPC program is ramping according to our customers' expectations. It's not ramping in a perfect straight line. These things never do. We've been working closely with the customer to transition production to their latest generation product, and that transition is making good progress. We've also been awarded some follow-on business for additional programs separate from the main, if you like, the main programs. We've been awarded some additional programs with that customer, so we're really helping to support their accelerated computing infrastructure in a broader way than we have been in the past. We're installing additional capacity right now to support both the technology transition and also the additional products that we'll be manufacturing.

Speaker #5: But we've been working closely with the customer to transition production to their latest generation product. And that transition is making good progress. We've also been awarded some follow-on business for additional programs, separate from the main if you like, the main programs we've been awarded some additional programs with that customer.

Speaker #5: So we're really helping to support their accelerated computing infrastructure in a broader way than we have been in the past. We're installing additional capacity right now to support both the technology transition and also the additional products that we'll be manufacturing.

Seamus Grady: Because of this technology transition, we now believe that $150 million mark will be pushed out by maybe 1 quarter. You know, as a result, we expect our high-performance compute revenue to continue growing even after we reach the first $150 million in quarterly revenue milestone. You know, short term this quarter, let's say we don't think we get to the $150 million, but we think it's probably 1 quarter away. Longer term, you know, because we're now making more than just, if you like, 1 family of products, we think the opportunity is more than that. Like I say, while the timing has shifted slightly, the overall trajectory is stronger actually, and we expect continued growth beyond that $150 million level.

Speaker #5: Because of this technology transition, we now believe that the $150 million mark will be pushed out by maybe one quarter. But as a result, we expect our high-performance compute revenue to continue growing even after we reach the first $150 million in quarterly revenue milestone.

Speaker #5: So short-term, this quarter, let's say we don't think we get to the 150 million, but we think it's probably a quarter away. But longer term, because we're now making more than just, if you like, one family of products, we think the opportunity is more than that.

Speaker #5: So like I say, well, the timing has shifted slightly. The overall trajectory is stronger, actually. And we expect continued growth beyond that 150 million level.

Speaker #5: And we remain very optimistic about the long-term outlook for our high-performance compute business overall.

Seamus Grady: We remain very optimistic about the long-term outlook for our high-performance compute business overall.

Karl Ackerman: Very helpful, thank you. Then maybe for Csaba Sverha. You know, building 10, that was 2 million square feet. We're adding a 5th floor. Is the 2 million square feet still the case, or is it's presumably maybe 2.5 or so? Then with respect to the 2 additional buildings of a million square feet, given the high ROIC and relatively low upfront cost of building this new manufacturing fab, how quickly can you accelerate these manufacturing facility investments so you're not capacity constrained for these very large opportunities? Thank you.

Speaker #6: Very helpful. Thank you. And then maybe for Salva—building 10—that was 2 million square feet. We're adding a fifth floor, so is the 2 million square feet still the case, or is it presumably maybe 2 and a half or so?

Speaker #6: And then with respect to the two additional buildings of a million square feet, given the high ROIC and relatively low upfront cost of building this new manufacturing fab, how quickly can you accelerate these manufacturing facility investments so you're not capacity constrained for these very large opportunities?

Speaker #6: Thank you.

Speaker #5: So Carl, maybe I'll just comment first on the capacity. Right now, our current capacity, we have capacity for about 4.8 billion dollars. And our current footprint.

Seamus Grady: Karl Ackerman, I'll just comment first on the capacity. Right now, our current capacity, we have capacity for about $4.8 billion in our current footprint. You know, as we mentioned on the last call, we're converting about 120,000 square feet at our Pinehurst campus into manufacturing space that will add an additional $200 million of capacity. That would take our capacity up to $5 million before Building 10. Building 10 would add about $3 billion of capacity. The new factory that we've just purchased in Navanakorn down the road from us, you know, initially that will have capacity for about $250 million in the current factory that's on that land.

Speaker #5: As we mentioned on the last call, we're converting about 200,000—sorry, about 120,000 square feet at our Pinehurst campus into manufacturing space that will add an additional $200 million of capacity.

Speaker #5: So that would take our capacity up to $5 million before Building 10. Building 10 would add about $3 billion of capacity. And then the new factory that we've just purchased in Navanacorn, down the road from us — initially, that will have capacity for about $250 million in the current factory that's on that land.

Speaker #5: But then there's room to build another factory. So overall, that purchase will give us capacity for about another half a billion dollars. So $4.8 billion in our current footprint, plus the Pinehurst addition, plus the Nava factory, plus Building 10—that would take us to capacity of about $8.5 billion if you add all that up.

Seamus Grady: There's room to build another factory. Overall, that purchase will give us capacity for about another half a billion dollars. $4.8 billion in our current footprint plus the Pinehurst addition, plus the Navanakorn factory, plus building 10, that would take us to capacity of about $8.5 billion if you add all that up. The timing on building 10, as we talked about, the first floor of that will be coming on stream in June. We plan to have another floor ready, which will be mostly clean room space, by September, October. The building will be finished by the end of the year. We'll probably have the opening ceremony in January, towards the end of January.

Speaker #5: And then building and the timing on building 10, as we talked about, the first floor of that will be coming on stream in June.

Speaker #5: And we plan to have another floor ready, which will be mostly clean room space, by September or October. And then the building will be finished by the end of the year.

Speaker #5: We'll probably have the opening ceremony in January, towards the end of January. Building 11, which we haven't broken ground on yet, but Building 11 would give us capacity for about another $1.5 billion of revenue.

Seamus Grady: Building 11, which we haven't broken ground on that yet, but Building 11 would give us capacity for about another $1.5 billion of revenue, and Building 12 the same. If we were to build out everything we have on the current land and spaces we have, that would give us capacity for $11.5, there or thereabouts. Probably a little bit more because while our growth is accelerating, our revenue per square foot is also going in the right direction. It's increasing as time goes along. $11.5, fairly conservatively, probably a little bit more. The timing of that, it's too early really to talk about that, Karl, at this stage. You know, we're focused on meeting our customers' needs, making sure we have capacity in place.

Speaker #5: And Building 12 is the same. So if we were to build out everything we have on the current land and space that we have, that would give us capacity for 11.5 there, thereabouts.

Speaker #5: Probably a little bit more because while our growth is accelerating, our revenue per square foot is also going in the right direction. It's increasing as time goes along.

Speaker #5: So $11.5, fairly conservatively, probably a little bit more. The timing of that—it's too early, really, to talk about that, Carl, at this stage.

Speaker #5: We're focused on meeting our customers' needs, making sure we have capacity in place so we have ample capacity for the next few years. But we are seriously considering what the timing might be for Building 11 and Building 12.

Seamus Grady: We have ample capacity for the next few years. You know, we are seriously considering, you know, what the timing might be for building 11 and building 12. We are also looking for additional land in and around both the Pinehurst campus and also Chonburi. High-quality problems.

Speaker #5: We're also looking for additional land. In and around both the Pinehurst campus and also Chelmberry. So a high-quality problems. Thank you.

Karl Ackerman: Very clear. Thank you.

Seamus Grady: Thank you.

Speaker #3: Thank you. Our next question comes from Summit Chatterjee from JPMorgan. Your line is open.

Operator 2: Thank you. Our next question comes from Samik Chatterjee from JP Morgan. Your line is open.

Operator: Thank you. Our next question comes from Samik Chatterjee from JP Morgan. Your line is open.

Speaker #7: Hi. Thanks for taking my questions. Seamus, maybe if I can start with the new data comm customer opportunities that you outlined. With both the hyperscaler and some of the merchant opportunities, can you help us sort of size that up in terms of what these customers are communicating to you in terms of what their demand will look like at full run rate?

Samik Chatterjee: Hi. Thanks for taking my questions. Seamus, maybe if I can start with the new Datacom customer opportunities that you outlined with both the hyperscaler and some of the merchant opportunities. Can you help us sort of size that up in terms of what these customers are communicating to you in terms of what their demand will look like at full run rate? Just trying to compare it to your primary customer with whom you're doing about sort of $250 million a quarter or so. How do these new opportunities sort of size up relative to that? Is the supply chain different, where we should not expect some of the supply constraints you have with your primary customer to impact the ramp with the new customers that you have? I have a follow-up after that. Thank you.

Speaker #7: Just trying to compare it to your primary customer, with whom you're doing about $250 million a quarter or so. How do these new opportunities sort of size up relative to that?

Speaker #7: And is the supply chain different where we should not expect some of the supply constraints you have with your primary customer to impact the ramp with the new customers that you have?

Speaker #7: And I have a follow-up after that. Thank you.

Speaker #5: Yeah, I think the supply chain is broadly similar across most of these primarily scale-out applications. It's a very similar supply chain. Taking both of those in turn that you just mentioned—so, the hyperscale relationship—yeah, we're excited about the new data comm opportunities we announced today.

Seamus Grady: I think the supply chain is broadly similar across most of these, you know, primarily scale-out applications. It's very similar supply chain. Taking both of those in turn that you just mentioned, the hyperscale relationship, we're excited about the new Datacom opportunities we announced today. They're 2 separate products, we've already begun shipping, albeit in small qualification type quantities. We've begun shipping those, we expect that growth is all really in front of us, and we believe it will be significant. It's a significant piece of business for us.

Speaker #5: They're two separate products. And we've already begun—we've already begun shipping, albeit in small, qualification-type quantities. But we've begun shipping those, and we expect that growth is all really in front of us.

Speaker #5: And we believe it will be significant. It's a significant piece of business for us. The demand that we're seeing from the customer is very significant.

Seamus Grady: The demand that we're seeing from the customer is very significant, and we're very focused on making sure we have the right capacity and capability and everything else in place to support the customer. In terms of merchant programs, again, for several quarters we've been working towards expanding our Datacom business to encompass, again, the direct hyperscale as we talked about, but also deepening and broadening the merchant relationships. We have made, you know, sizable progress there. We have a couple of programs there as well that we're working on. Both very significant, both hyperscale direct and the merchant, both very significant, and have the potential to be, you know, very meaningful revenue contributors for us.

Speaker #5: And we're very focused on making sure we have the right capacity and capability and everything else in place to support the customer. In terms of merchant programs, again, for several quarters, we've been working towards expanding our data comm business to encompass, again, the direct hyperscale, as we talked about, but also deepening and broadening the merchant relationships.

Speaker #5: And we have made sizable progress there. We have a couple of programs there as well that we're working on. So both very significant, both the hyperscale direct and the merchant, both very significant.

Speaker #5: And have the potential to be very meaningful revenue contributors for us. But like I say, both of those, all of those opportunities are essentially have a very similar supply chain kind of ecosystem.

Seamus Grady: Like as I say, both of those, all of those opportunities are essentially a very similar supply chain kind of ecosystem, if that makes sense?

Speaker #5: If that makes sense.

Samik Chatterjee: Yeah. Okay. Seamus, maybe I'll just ask you a clarification question on that and have a question for Csaba. Are you expecting that these programs standalone are like 10% of your revenue? Is it that sizable, relative to sort of the opportunity? Csaba, just the gross margin outlook here, like, sounds like you'll be at this sort of low 12% for the next quarter as well. How should we think about the recovery, on the gross margin profile, particularly as ramp costs continue to sort of feed through the P&L? Thank you.

Speaker #6: Yeah. Okay. Seamus, maybe I'll just ask you a clarification question on that and have a question for Csaba. Are you expecting that these programs stand alone are like 10% of your revenue?

Speaker #6: Is it that sizable relative to the opportunity? And then Csaba, just the gross margin outlook here, sounds like you'll be at this sort of low 12% for the next quarter as well.

Speaker #6: How should we think about the recovery on the gross margin profile, particularly as ramp costs continue to sort of feed through the P&L? Thank you.

Speaker #5: Yeah. On the contribution from these customers, we never predict which customer may or may not become a 10% customer. We always talk about that.

Seamus Grady: Yeah, on the contribution from these customers, we never predict which customer may or may not become a 10% customer. We always talk about that at the end of the year when we have to disclose which customers are 10% customers. We only talk about that looking back. We never talk about it looking forward. They're, you know, they're significant opportunities. That's all I'd say about that. On the gross margin, I'll let Csaba provide a little bit more color on the gross margin.

Speaker #5: At the end of the year, when we have to disclose which customers are 10% customers. So we only talk about that looking back. We never talk about it looking forward.

Speaker #5: But they're significant opportunities. That's all I'll say about that. And then on the gross margin, I'll let Csaba provide a little bit more color on the gross margin.

Csaba Sverha: Hi, Samik. Basically what we are seeing on gross margin is a combination of external and internal factors. On the external side, we have been communicating exchange rates, which have been headwind for a while, and that dynamics continues into this quarter. The margins from exchange rate perspective will be similar in our Q4 as it was in Q3. Obviously, we have some visibility with our hedging program in place, Q3 panned out as much as in terms of headwinds as we had anticipated. Q4, we anticipate to be at that same level. Obviously, at the same time, we are ramping a large number of new programs across multiple growth vectors, which is sometimes creates short-term inefficiencies. Obviously, this is a function of strong demand and the pace we are scaling the business.

Speaker #7: Hi, Summit. So basically, what we are seeing on gross margin is a combination of external and internal factors. On the external side, we have been communicating exchange rates, which have been for a while.

Speaker #7: And that dynamics continues into this quarter. So the margins from an exchange rate perspective will be similar in our Q4 as it was in Q3.

Speaker #7: Obviously, we have some visibility with our hedging program in place. So Q3 panned out as much as in terms of headwinds as we had anticipated.

Speaker #7: So, Q4, we anticipate to be at that same level. Obviously, at the same time, we are ramping a large number of new programs across multiple growth vectors, which sometimes creates short-term inefficiencies.

Speaker #7: So, obviously, this is a function of strong demand and the pace we are scaling the business. So, as these programs mature, we do expect those efficiencies to improve and get back to our higher margin ranges.

Csaba Sverha: As these programs mature, we do expect those efficiencies to improve and get back to our higher margin ranges. Obviously, the good news is that we are very disciplined on the operating expenses. As you saw last quarter, we continued to generate operating leverage and OpEx is trending down overall as a percentage of the revenue. Last quarter, we are at 1.4%. While there are some near-term pressures on gross margin, some of it we cannot control from exchange rate perspective, but the overall model continues to deliver a very strong and solid and improving profitability as we scale. We feel very good about the underlying model and our ability to drive long-term profitability growth.

Speaker #7: Obviously, the good news is that we are very disciplined on the operating expenses. As you saw last quarter, we continued to generate operating leverage and OPEX is trending down overall as a percentage of the revenue last quarter.

Speaker #7: We are at 1.4%. So, while there are some near-term pressures on gross margin, some of it we cannot control from an exchange rate perspective. But the overall model continues to deliver very strong, solid, and improving profitability as we scale.

Speaker #7: So we feel very good about the underlying model and our ability to drive long-term profitability with growth. And obviously, our ultimate focus is to remain driving strong return on capital and delivering consistent value to shareholders as we scale these programs.

Csaba Sverha: Obviously, our ultimate focus is to remain driving strong return on capital and delivering consistent value to shareholders as we scale these programs.

Samik Chatterjee: Okay. Thank you. Thanks for taking my question.

Speaker #6: Okay, thank you. Thanks for taking my question.

Speaker #7: Thank you.

Csaba Sverha: Thank you.

Speaker #3: Thank you. Our next question comes from Christopher Roland from Susquehanna. Your line is open.

Operator 2: Thank you. Our next question comes from Christopher Rolland from Susquehanna. Your line is open.

Operator: Thank you. Our next question comes from Christopher Rolland from Susquehanna. Your line is open.

Dylan Olivier: Hi, this is Dylan Olivier on for Christopher Rolland. Thanks for taking my question. For my first question, I wanted to ask, you spent some time talking about CPO and your role here. You mentioned that you're working with three customers or three programs, and that you've begun getting revenue now. Are all these programs getting revenue today? Any color you could provide on if these are all scale-out or if any of these engagements are related to scale-up?

Speaker #8: Hi. This is Dylan Olivier on for Chris Roland. Thanks for taking my question. So for my first question, I wanted to ask, you spent some time talking about CPO and your role here.

Speaker #8: So you mentioned that you're working with three customers or three programs, and that you've begun getting revenue now. So, are all these programs getting revenue today?

Speaker #8: And then, any color you could provide on if these are all scale-out, or if any of these engagements are related to scale-up?

Seamus Grady: We are shipping to all three customers. I can hear an echo. Sorry. They're both scale up and scale out. We, you know, we're really putting the capacity in place and making sure we have the right technology in place. You'll see with our investment in Raytek, it's really to help us make sure we have the right capability. We're, you know, we are excited about CPO, but the revenue is largely in front of us at this point.

Speaker #7: Mute.

Speaker #5: We are shipping to all three customers. They're both scale-up and scale-out, I would say. I can hear an echo. Sorry. They're both scale-up and scale-out.

Speaker #5: And we're really putting the capacity in place and making sure we have the right technology in place. You'll see with our investment in Raytech, it's really to help us make sure we have the right capability.

Speaker #5: So, we are excited about CPO, but largely, the revenue is still in front of us at this point.

Speaker #6: Great. Thank you for this. And then for my second question, I wanted to ask maybe about another opportunity that you didn't discuss on this call, but OCS.

Dylan Olivier: Great. Thank you for this. For my second question, I wanted to ask maybe about another opportunity that you didn't discuss on this call, but OCS is kind of seeing its a nice little explosion right now. Are you any sort of color that you can provide on how your engagements are going? When you think this can materialize, and if you can get a dominant share of the externally contracted OCS market?

Speaker #6: It's kind of seeing—it's a nice little explosion right now. Are you—any sort of color that you can provide on how your engagements are going?

Speaker #6: When you think this can materialize? And if you can get a dominant share of the externally contracted OCS market.

Speaker #5: Yeah. So OCS remains. We think it's a great opportunity for us. As we look ahead, the technology is very similar to products that we already make for our customers.

Seamus Grady: OCS remains. We think it's a great opportunity for us, you know, as we look ahead. The technology is very similar to products that we already make for our customers, so it gives us a real head start versus our competition. There's no change in our optimism about OCS. To be clear, you know, the new merchant opportunities which we talked about earlier, they're not OCS related. They're separate. OCS opportunities are incremental to that, and again, similar to CPO, are largely in front of us. We, you know, we're focused on one or two. It's too early to talk about them yet until we have something to talk about.

Speaker #5: So it gives us a real head start versus our competition. There's no change in our optimism about OCS. But to be clear, the new merchant opportunities we talked about earlier, they are not OCS-related.

Speaker #5: They're separate. But yeah, OCS opportunities are incremental to that. And again, similar to CPO, are largely in front of us. But we're focused on one or two, so it's really too early to talk about them yet—until we have something to talk about.

Seamus Grady: We're pretty excited about OCS as a segment.

Speaker #5: But we're pretty excited about OCS as a segment. Thank you.

Dylan Olivier: All right. Thank you.

Seamus Grady: Thank you.

Speaker #3: Thank you. Our next question will come from Ryan Kontz from Needham & Co. Your line is open.

Operator 2: Thank you. Our next question will come from Ryan Koontz from Needham & Company. Your line is open.

Operator: Thank you. Our next question will come from Ryan Koontz from Needham & Company. Your line is open.

Speaker #9: Great, thanks for the question. I wanted to ask a little more generically. Regarding your transceiver WINs, can you just expand for us kind of where you would be in your milestone process before you'd announce to us that you have a WIN?

Ryan Koontz: Great. Thanks for the question. Going to ask a little more generically regarding your transceiver wins. Can you just expand for us kind of where you would be in your milestone process before you'd announce to us that you have a win? Is it you have a contract, you have qualification, you have sampling? I'm not asking specifics about a single customer, generically, at what point do you typically disclose and might we consider these different programs in the process between, you know, ramping material revenue and, you know, maybe an MOU that's not contractually bound? Thank you.

Speaker #9: Is it, you have a contract? You have qualification? You have sampling? I'm not asking specifics about a single customer, but, generically, at what point do you typically disclose, and might we consider these different programs in the process between ramping material revenue and maybe an MOU that's not contractually bound?

Speaker #9: Thank you.

Speaker #5: Yeah. Just a good question, actually. Generally, we don't really talk about WINS until we have actually won the program. So that would mean we have been awarded the business.

Seamus Grady: Yeah, it's a good question, actually. Generally, we don't really talk about wins until we have actually won the program. That would mean we have been awarded the business, we have contracts in place, we have purchase orders. You know, we've been qualified and approved. You know, we're really at that milestone phase where we're getting ready to ramp at this point, right? You know, we don't really signal specifics on new programs until we have them won. That's generally how we've tended to do things historically because, you know, not all products that you think you've won early on turn into real products or real demand. In this case, I'm happy to report here we have a number of programs that we've won.

Speaker #5: We have a contract in place. We have purchase orders. We've been qualified and approved. So we're really at that milestone phase where we're getting ready to ramp at this point, right?

Speaker #5: That's really our we don't really signal specifics on new programs until we have them won. That's generally how we've tended to do things historically.

Speaker #5: Because not all products that you think you've won early on turn into real products, or real demand. So, in this case, I'm happy to report, yeah, we have a number of programs that we've won.

Speaker #5: Like I say, contracts in place. Product being shipped. Contracts signed with customers. So we've actually won those.

Seamus Grady: Like I say, contracts in place, product being shipped, contracts signed with customers. We've actually won those.

Ryan Koontz: That's helpful, Seamus. Thank you. Maybe as a follow-up, just on your strength in telecom, obviously DCI is a big star there. How would you know, characterize your customer mix within telecom is changing? Can you share anything about kind of the product mix there of, you know, 400ZR to 800ZR? I mean, I know you guys pretty much touch everything going on there, but are you seeing some industry shifts that are working in your favor within the telecom mix? Thank you.

Speaker #6: That's helpful, Seamus. Thank you. And then give us a follow-up just on your strength in telecom. Obviously, DCI and it's a big star there.

Speaker #6: How would you characterize your customer mix within telecom? Is changing? Can you share anything about kind of the product mix there? 400 to 800 ZR.

Speaker #6: I mean, I know you guys pretty much touch everything going on there, but are you seeing some industry shifts that are working in your favor within the telecom mix?

Speaker #6: Thank you.

Speaker #5: Yeah, I think there are. Really, our position supplying the DCI market is very strong. We have, really, all of the major players there as customers of ours.

Seamus Grady: Yeah, I think there are. You know, we're really. Our position supplying the DCI market is very strong. You know, we have really all of the major players there as customers of ours. You know, as we talked about in the prepared remarks, our growth in DCI has been pretty staggering. You know, our datacom. I'm sorry, our telecom portfolio continues to go from strength to strength. We don't just provide components, we provide the DCI, the 400ZR, 800ZR modules, as well as, you know, telecom systems.

Speaker #5: And as we talked about in the preferred marks, our growth in DCI has been pretty staggering. And our datacom I'm sorry, our telecom portfolio continues to go from strength to strength.

Speaker #5: We don't just provide components. We provide the DCI, the 400 ZR, 800 ZR modules, as well as telecom systems. So we've really I suppose we've really evolved our business from being a niche optical component supplier, which we were several years ago, into a diversified strategic ecosystem partner for the leading OEMs.

Seamus Grady: You know, I suppose we've really evolved our business from being a niche optical component supplier, which we were several years ago, into a diversified strategic ecosystem partner for the leading OEMs for both optical components but also systems across all dimensions of AI-driven growth in both datacom and telecom. Like I say, the best example of that is probably our strength in DCI, data center interconnect. The demand looks to be very strong. We continue to win business in that space and continue to execute very well for our customers. There's a number of new programs that we're working on as well, as well as ramping the existing programs.

Speaker #5: For both optical components, but also systems across all dimensions of AI-driven growth in both datacom and telecom. And like I say, the best example of that is probably our strength in DCI, data center interconnect.

Speaker #5: So, the demand looks to be very strong. We continue to win business in that space and continue to execute very well for our customers.

Speaker #5: And there's a number of new programs that we're working on as well. As well as ramping the existing programs as new products in the works as well that we're not shipping in volume yet, but we're gearing up to ship.

Seamus Grady: There's new products in the works as well that we're not shipping in volume yet, but we're gearing up to ship. We feel very good about our momentum in DCI with the leading customers there.

Speaker #5: So we feel very good about our momentum in DCI with the leading customers there.

Ryan Koontz: Helpful. Do you consider multi-rail an opportunity for you in your wheelhouse there to go within Telecom sector?

Speaker #6: Helpful. And do you consider multi-rail an opportunity for you, in your wheelhouse there, to go within the telecom sector?

Speaker #5: I think it's anything in that telecom space where we can have a good, high level of content is a good fit for us. So yeah, certainly, those type of products would be a good fit for us.

Seamus Grady: I think if, you know, anything in that Telecom space where we can have a good high level of content, you know, is a good fit for us. Yeah, certainly those type of products would be a good fit for us. Right.

Speaker #6: Thank you. Appreciate your.

Ryan Koontz: Thank you. Appreciate your insight. Thank you.

Speaker #5: Thank you.

Speaker #3: Thank you. Our next question comes from Steven Fox from Fox Advisors, LLC. Your line is open.

Seamus Grady: Thank you.

Operator 2: Thank you. Our next question comes from Steven Fox from Fox Advisors, LLC. Your line is open.

Operator: Thank you. Our next question comes from Steven Fox from Fox Advisors, LLC. Your line is open.

Steven Fox: Hi, good afternoon, everyone.

Steven Fox: Hi, good afternoon, everyone. Seamus, I guess I was curious on the supply constraints. You know, it sounds like they got worse during the quarter, and at the same time, it sounds like even if we think about just end market demand, end markets are getting stronger. Can you paint a picture for how, you know, how constraints don't get worse going forward and how you manage through this and start catching up with demand? Is there any line of sight to improvements? I had a follow-up.

Speaker #10: Hi. Good afternoon, everyone. Seamus, I guess I was curious about the supply constraints. It sounds like they got worse during the quarter. And at the same time, it sounds like even if we think about just end-market demand, end markets are getting stronger.

Seamus Grady: Thank you.

Steven Fox: Seamus, I guess I was curious on the supply constraints. You know, it sounds like they got worse during the quarter, and at the same time, it sounds like even if we think about just end market demand, end markets are getting stronger. Can you paint a picture for how, you know, how constraints don't get worse going forward and how you manage through this and start catching up with demand? Is there any line of sight to improvements? I had a follow-up.

Speaker #10: So can you paint a picture for how constraints don't get worse going forward and how you manage through this? And start catching up with demand?

Speaker #10: Is there any line of sight to improvements? And then I had a follow-up.

Speaker #5: Yeah. I think we're not on duly concerned long-term. But we do feel obliged to point it out in the short term because we guide one quarter at a time.

Seamus Grady: Yeah, I think we're not unduly concerned long term. You know, we do feel obliged to point it out in the short term because we, you know, we guide 1 quarter at a time. It did impact our ability to ship last quarter. We could have shipped a lot more if we had those components and the same this quarter. You know, overall, it's really a function of the growth that we're seeing in the industries that we serve and in our business overall. That growth, you know, we're very proud of our track record of, you know, excellent execution built on dedication to customer service. That's really the secret sauce here. That track record is what has allowed us to deliver this outsized growth we've seen over the last while.

Speaker #5: It did impact our ability to ship last quarter. We could have shipped a lot more if we had those components. And the same this quarter.

Speaker #5: But overall, it's really a function of the growth that we're seeing in the industries that we serve and in our business overall. That growth—we're very proud of our track record of excellent execution, built on dedication to customer service.

Speaker #5: That's really the secret sauce here. That track record is what has allowed us to deliver this outsized growth we've seen over the last five.

Seamus Grady: You know, if you look over a 10-year period, Steven Fox, up to FY 2025, we compounded the revenue growth 16% annually. We compounded the earnings 22%. Then in FY 2025, we grew 19% versus FY 2024. If you look at FY 2026, since we're now in Q4, if you take the midpoint of our Q4 guidance, that will put us up 34% versus FY 2025. FY 2025 grew 19% versus FY 2024. FY 2026, at the midpoint of our Q4 guidance, we'd be up 34% versus FY 2025. Growth is accelerating. With that acceleration growth, you know, it does expose certain supply constraints. You know, the component supply ecosystem is, you know, doing everything they can to catch up with the demand.

Speaker #5: If you look over a 10-year period, Steven, up to FY2025, we compounded the revenue growth 16% annually. We compounded the earnings 22%. And then in FY2025, we grew 19% versus FY24.

Speaker #5: And if you look at FY26, since we're now in Q4, if you take the midpoint of our Q4 guidance, that will put us up 34% versus FY25.

Speaker #5: So, FY25 grew 19% versus FY24. FY26, at the midpoint of our Q4 guidance, would be up 34% versus FY25. So growth is accelerating. And with that acceleration in growth, it does expose certain supply constraints.

Speaker #5: The component supply ecosystem is doing everything they can to catch up with the demand, but there is a lag right now between the demand we're seeing and the supply base catching up with that demand.

Seamus Grady: There is a lag right now between the demand we're seeing and the supply base catching up with that demand. Really, you know, our focus is on execution and ensuring we capitalize on this really strong demand environment that we're seeing by having more than enough capacity in place to support the needs of our customers while we work on these challenges in the supply chain. It's nothing unusual. We think it's really a function of just this explosive growth we're seeing.

Speaker #5: And really, our focus is on execution and ensuring we capitalize on this really strong demand environment that we're seeing by having more than enough capacity in place to support the needs of our customers, while we work on these challenges in the supply chain.

Speaker #5: But it's nothing unusual. We think it's really a function of just this explosive growth we're seeing.

Steven Fox: That's fair. Then just one other question on the flip side of that, you're accelerating your own capacity additions. I guess if we started today as another starting point, like your ability to accelerate further, like what else would you have to see? Would it be more new programs or, you know, loosening up of the supply chain that you know, the supplies you need, and how long would that take? Thanks very much.

Speaker #6: That's fair. And then just one other question on the flip side of that. You're accelerating your own capacity additions. I guess if we started today as another starting point, your ability to accelerate further—what else would you have to see?

Speaker #6: Would it be more new programs? Or loosening up of the supply chain that the supplies you need? And how long would that take? Thanks very much.

Seamus Grady: You know, I think, for us, even though, you know, it sounds like we're adding a lot of capacity, they're quite straightforward, if you like, capital allocation decisions for us because of the huge upside potential we get. You know, we build a, you know, a 2 million square foot factory that will give us capacity for an additional $3 billion of revenue. The CapEx is just depends on the exchange rate on the day you look at it, whether it's $130 million, $132 million, something like that. You know, the upside opportunity for us at full run rate in that factory, 6 months worth of operating profit would pay for the entire 2 million square feet of manufacturing space.

Speaker #5: I think, for us, it sounds like we're having a lot of capacity there. They're quite straightforward, if you like—capital allocation decisions for us—because of the huge upside potential we get.

Speaker #5: We build a 2 million square foot factory that will give us capacity for an additional $3 billion of revenue. The capex is just depends on the exchange rate on the day you look at it.

Speaker #5: But it's 130 million, 132 million, something like that. The upside opportunity for us at full run rate in that factory six months' worth of operating profit would pay for the entire 2 million square feet of manufacturing space.

Speaker #5: On the downside, if there is a downturn and we end up with no new business going into that factory—which we don't anticipate, but just if we did—if that were to happen, the gross margin headwind would be about 50 basis points.

Seamus Grady: On the downside, if there is a downturn and we end up with no new business going into that factory, which we don't anticipate, but just if we did, if that were to happen, the gross margin headwind would be about 50 basis points, something like that. A negligible headwind and a significant upside opportunity. That makes these decisions for us relatively straightforward. The capacity is fungible, you know, whether it's the 2 million square feet in Chonburi or the, you know, couple of 100,000 square feet that we just acquired in Navanakorn or the 150,000 square feet that we're converting in Pinehurst.

Speaker #5: Something like that. So, a negligible headwind and a significant upside opportunity. So that makes these decisions for us relatively straightforward. The capacity is fungible.

Speaker #5: Whether it's the 2 million square feet in Chonburi, or the couple of hundred thousand square feet that we just acquired in Nevada Corn, or the 150,000 square feet that we're converting in Pinehurst.

Seamus Grady: The capacity is very fungible, and most of the customers are very comfortable having us build their products in either location. You know, and like I said earlier, we have room to add 2 additional factories in Chonburi, and we can add another 200,000 square foot factory on the land we just purchased in Navanakorn as well. We have ample land and capacity to tease out for the next several years. We continue to look for more land. Certainly as we're seeing these strong demand signals, Steven, from our customers, making those capital investments is a relatively straightforward decision for us because it's, you know, we're not, you know, we're not taking any big risks.

Speaker #5: The capacity is very fungible, and the customers are very comfortable. Most of the customers are very comfortable having us build their products in either location.

Speaker #5: So, and like I said earlier, we have room to add two additional factories in Chonburi. And we can add another 200,000-square-foot factory on the land we just purchased in Nevada Corn as well.

Speaker #5: So we have ample land and capacity to seize out for the next several years. And then we continue to look for more land. So certainly, as we're seeing these strong demand signals, Steven, from our customers, making those capital investments is a relatively straightforward decision for us, because we're not taking any big risks.

Speaker #5: We're just really making sure we have capacity in place to support the needs of our customers, and that's really our focus.

Seamus Grady: We're just really making sure we have capacity in place to support the needs of our customers, and that's really our focus.

Speaker #6: Got it. That's very helpful. Thank you.

Steven Fox: Got it. That's very helpful. Thank you.

Speaker #5: Thank you, Steve.

Seamus Grady: Thanks, Steven.

Speaker #1: Thank you. Our next question comes from Mike Genovese from Rosenblass Securities. Your line is open.

Operator 2: Thank you. Our next question comes from Mike Genovese from Rosenblatt Securities. Your line is open.

Operator: Thank you. Our next question comes from Mike Genovese from Rosenblatt Securities. Your line is open.

Mike Genovese: Thank you. Seamus, in talking about the direct hyperscale datacom business, I think you mentioned that there's 2 products. Can I ask, does that imply an 800G and a 1.6 or are they 2 800G products? Can you comment on that?

Speaker #7: Thank you. Seamus, in talking about the direct hyperscale data comm business, I think you mentioned that there's two products. Can I ask, does that imply an 800G and a 1.6?

Speaker #7: Or are they 200 to 800G products? Can you comment on that?

Seamus Grady: They're both 800 gig, but they're different applications.

Speaker #5: They're both 800G, but they're different applications. They're both 800G scale across. They're both scale across. Sorry, sorry. They're both scale out. Not scale out.

Seamus Grady: They're both 800 gig, but they're different applications.

Mike Genovese: Okay, great.

Seamus Grady: They're both 800 gig scale across. They're both scale across. sorry, they're both scale out, not.

Mike Genovese: Scale out, right.

Speaker #7: Scale out. Right.

Seamus Grady: Scale out.

Mike Genovese: Right. Got it. Perfect. Okay. Then on the, I mean, just very good DCI growth this quarter, and I think you were asked, but it's a little bit more kind of a vaguer question. I just wanna ask a little bit more pointedly if 800ZR in particular drove an outsized portion of the growth this quarter, or if it was more broadly spread. Then I also noticed that you had some telecom growth above and beyond DCI. If you could just call out those products that were not DCI that also grew in telecom, that would be helpful. Thank you.

Seamus Grady: Scale out.

Speaker #5: Both scale out.

Speaker #7: Right. Got it. Perfect. Okay. And then on the I mean, just very good DCI growth this quarter. And I think you were asked, but it was a little bit more kind of a vaguer question.

Speaker #7: I would just want to ask a little bit more pointedly if 800ZR in particular drove an outsized portion of the growth this quarter or if it was more broadly spread?

Speaker #7: And then I also noticed that you had some telecom growth above and beyond DCI. So if you could just call out those products that were not DCI that also grew in telecom that would be helpful.

Speaker #7: Thank you.

Speaker #5: Yeah, so on the mix between, let's say, 800ZR and 400ZR, it's probably more appropriate for our customers to talk about that. But really, 800ZR is ramping, I would say.

Seamus Grady: Yeah. On the mix between, let's say, 800ZR and 400ZR, it's probably more appropriate for our customers to talk about that. Really, you know, 800ZR is ramping, I would say it's getting going. We do have, you know, very big hopes for that. It looks to be a very strong product. But again, the growth, like a lot of these programs that we've won, despite the fact that we've demonstrated really excellent growth, we think this past while, a lot of those new programs are really in front of us and are just beginning to ramp, and I would put 800ZR in that category. And your second question?

Speaker #5: It's getting going. And we do have very big hopes for that. It looks to be a very strong product. But again, the growth—like a lot of these programs that we've won—despite the fact that we've demonstrated really excellent growth, we think this past while, a lot of those new programs are really in front of us and are just beginning to ramp.

Speaker #5: And I would put 800ZR in that category. And your second question?

Mike Genovese: Just the telecom growth, that was above and beyond. I mean, DCI didn't drive 100% of the telecom growth. There was more telecom growth than DCI. If you could just call out some of the strong products outside of DCI and telecom, that would be helpful.

Speaker #7: Just the telecom growth. There was above and beyond. I mean, DCI didn't drive 100% of the telecom growth. There was more telecom growth in DCI.

Speaker #7: So if you could just call out some of the strong products outside of DCI and telecom, that would be helpful.

Speaker #5: Well, yeah, we continue to win. We continue to win business with our customers, both DCI, but also outside of DCI, both at the component level and also at the system level with a number of our customers.

Seamus Grady: Well, we continue to win business with our customers, both DCI but also outside of DCI, both at the component level and also at the system level with a number of our customers. We continue to win business, mostly, you know, share gain maybe from some of our competitors. That continues at a pace with our customers. You know, we're very fortunate we believe some of the, you know, really the best companies in the industry, and the demand for their products is very strong. You know, because of the, we believe the very good job we do taking care of them and executing, they reward us by giving us more business.

Speaker #5: We continue to win business, mostly share gain, maybe from some of our competitors. So that continues at a pace with our customers. We're very fortunate.

Speaker #5: We believe we have some of the really best companies in the industry. And the demand for their products is very strong. And because of that, we believe they're doing a very good job, and we do a good job taking care of them and executing.

Speaker #5: They reward us by giving us more business, so it's a kind of a self-rewarding loop. The better we do—the better job we do executing for the customers—the more business they seem to give us.

Seamus Grady: It's a kind of a self-rewarding loop. The better we do, the better job we do executing for the customers, the more business they seem to give us. It's a combination, like I say, of both the growth in. It's the growth in DCI. It's also, you know, ramps of programs we've been awarded previously and thirdly, new business that our customers continue to award us.

Speaker #5: So, it's a combination, like I say, of both the growth in—it's a growth in DCI. It's also ramps of programs we've been awarded previously.

Speaker #5: And thirdly, new business that our customers continue to award us.

Mike Genovese: Thanks very much.

Speaker #7: Thanks very much.

Speaker #5: Thank you.

Seamus Grady: Thank you.

Speaker #1: Thank you. As a reminder, to ask a question, please press *11. And our next question will come from Tim Savinov from Northland Capital Markets.

Operator 2: Thank you. As a reminder, to ask a question, please press star one one. Our next question will come from Tim Savageaux from Northland Capital Markets. Your line is open.

Operator: Thank you. As a reminder, to ask a question, please press star one one. Our next question will come from Tim Savageaux from Northland Capital Markets. Your line is open.

Speaker #1: Your line is open.

Speaker #8: Hey, good afternoon.

Tim Savageaux: Hey, good afternoon.

Speaker #5: Hi, Tim.

Seamus Grady: Hi, Tim.

Tim Savageaux: Seamus, I'm gonna take you back to OFC. I think you commented that you wished you guided farther out sometimes. I'm gonna try and afford you that opportunity here with the following context.

Speaker #8: And Seamus, I'm going to take you back to OFC. And I think you commented that you wished you guided farther out sometimes. And I'm going to try and afford you that opportunity here.

Speaker #8: I know. My pleasure. And the context is some comments you've made earlier in the call about maintaining momentum into '27.

Seamus Grady: I appreciate that, Tim.

Tim Savageaux: I know. It's my pleasure. The context is some comments you've made earlier in the call about maintaining momentum into 2027, you mentioned 2027, and sustaining this growth trajectory. Now, as I look at these datacom wins maybe by themselves, and I have a follow-up question on that. I mean, it seems to me quite plausible that you could sustain, if not accelerate, this 34% growth rate that you're putting up in fiscal 2026. Any comments on that?

Speaker #8: You mentioned 27, and sustaining this growth trajectory. Now, as I look at these data comm wins—maybe by themselves—but, and I have a follow-up question on that.

Speaker #8: But, I mean, it seems to me quite plausible that you could sustain, if not accelerate, this 34% growth rate that you're putting up in fiscal '26.

Speaker #8: Any comments on that?

Speaker #5: Well, I think, again, as you point out, yeah, FY25 grew 19%. FY26 will grow at 34% versus FY25 at the midpoint of our guidance.

Seamus Grady: Well, I think, again, you know, as you point out, yeah, FY 2025 grew 19%. FY 2026 will grow at 34% versus FY 2025 at the midpoint of our guidance. You know, the thing that we're particularly, I suppose, proud of is we've managed to do that. You know, if you look at, again, FY 2026 at the midpoint of the guidance, you know, if you take this quarter, for example, compared to the same quarter a year ago, we grew the revenue from $872 million to $1.214 billion, so 39% year-over-year growth in Q3. Our operating expenses grew by 6.2%. We went from $16 million to $16.99 million.

Speaker #5: And the thing that we're particularly, I suppose, proud of is we've managed to do that. If you look at, again, FY26 at the midpoint of the guidance—if you take this quarter, for example, compared to the same quarter a year ago—we grew the revenue from $872 million to $1.214 billion.

Speaker #5: So 39% year over year growth in Q3. Our operating expenses grew by 6.2%. We went from 16 million to 16.99 million. So we grew the OPEX by a mere 6.2%.

Seamus Grady: We grew the OpEx by a mere 6.2%. Therefore, on revenue growth of 39%, our operating income grew 46% and our net income grew 48%. You know, growth without profit is not much fun for anyone. We're very focused on making sure as we grow that we're very cautious with the use of the company's resources and the company's assets, but that we also execute in a way that allows us to get that operating leverage that we've been delivering for quite some time. You know, the growth is accelerating. There's no doubt about that. Certainly the demand signals we see from our customers.

Speaker #5: So, therefore, on revenue growth of 39%, our operating income grew 46%, and our net income grew 48%. Growth without profit is not much fun for anyone.

Speaker #5: So we're very focused on making sure, as we grow, that we're very cautious with the use of the company's resources and the company's assets, but that we also execute in a way that allows us to get that operating leverage that we've been delivering for quite some time.

Speaker #5: The growth is accelerating. There’s no doubt about that. And certainly, the demand signals we see from our customers—not as always things going on in the world that we don’t control.

Seamus Grady: There's always things going on in the world that we don't control, so we don't worry too much about those things, because we can't do anything about them other than respond to them. Certainly, you know, if you look at the key fundamentals that drive our business and that allow us to make these capital allocation decisions and, if you like, investments and expansion decisions, it looks to be very promising for some time to come, it looks to be very, very promising. We'll continue to guide one quarter at a time, Tim. At the same time, that doesn't stop us from being optimistic about the future. Probably, you know, more optimistic than we've been in quite some time.

Speaker #5: So, we don't worry too much about those things, because we can't do anything about them other than respond to them. But certainly, if you look at the key fundamentals that drive our business and that allow us to make these capital allocation decisions and, if you like, investments and expansion decisions, it looks to be very promising—and for some time to come, it looks to be very, very promising.

Speaker #5: Again, we'll continue to guide one quarter at a time, Tim. But at the same time, that doesn't stop us from being optimistic about the future.

Speaker #5: And certainly, probably more optimistic than we've been in quite some time. It's a very, very strong demand pipeline that we're seeing across the board, both telecom and data comm.

Seamus Grady: It's a very, very strong demand pipeline that we're seeing across the board, both telecom and datacom. You know, our industry laser business, we're seeing some growth there and we're making some traction there with some new business wins. It's really across our business.

Speaker #5: And also, our industry laser business—we're seeing some growth there, and we're making some traction there with some new business wins. So it's really across our business.

Speaker #8: Okay, thanks for that. And along those lines, would you expect your two data comm direct wins to be in full ramp, I guess, by the end of fiscal '27, or maybe even earlier than that?

Tim Savageaux: Okay, thanks for that. Along those lines, you know, would you expect your two datacom direct wins to be in full ramp, I guess, by the end of fiscal 2027 or maybe even earlier than that?

Speaker #5: I think probably earlier than I think earlier sorry, Tim. I didn't mean to cut across you. I think earlier than the end of fiscal 27, probably middle kind of middle of fiscal 27.

Seamus Grady: I think probably earlier than.

Tim Savageaux: Is that fair to assume?

Seamus Grady: I think.

Tim Savageaux: Okay.

Seamus Grady: Sorry, Tim. I didn't, I didn't mean to cut across you. I think earlier than the end of fiscal 2027, probably middle, kind of middle of fiscal 2027.

Speaker #8: Great. And then, last one for me is on the merchant wins. And maybe I'll—because who knows, these could be related—I want to combine that with a question about outsourcing opportunities from some of your historical, let's say, one-time 10% customers.

Tim Savageaux: Great. Last one for me is on the merchant wins, and maybe who knows, these could be related. I want to combine that with a question about outsourcing opportunities from some of your historical, let's say one time 10% customers. I guess how should we look at those merchant opportunities? I mean, look on these direct things, it doesn't seem to be any reason that any one of those two guys could be as big as your current big Datacom customer, you know, at least. From a merchant standpoint, how should we be thinking about that in terms of those opportunities and how they ramp and indeed, does that kind of cross over into the boundary of outsourcing?

Speaker #8: But how do you—I guess, how should we look at those merchant opportunities? I mean, look, on these direct things, it doesn't seem to be any reason that any one of those two guys couldn't be as big as your current big data comm customer.

Speaker #8: At least. But from a merchant standpoint, how should we be thinking about that in terms of those opportunities and how they ramp? And indeed, does that kind of cross over into the boundary of outsourcing?

Speaker #5: Yeah, I think, yeah, certainly both of the opportunities, both the hyperscale direct, which will probably ramp throughout FY27. With any new program, it's hard to say exactly how quickly it will ramp.

Seamus Grady: Yeah, I think, certainly both of the opportunities, both the hyperscale direct, which will probably ramp throughout FY 2027. You know, with any new program, it's hard to say exactly how quickly it will ramp, but it'll probably ramp throughout FY 2027. On the merchant opportunities, again, some of these opportunities are very significant. The demand is very strong. You know, for us, we don't really mind who we're making, for example, transceivers. We don't mind who we're making transceivers for. As long as we're making somebody else's design, because we're pretty adamant about that, Tim. You know, we're a service company. We will never have our own products. We never compete with our customers. That's very, very important for us, and it's very important for our customers.

Speaker #5: But it'll probably ramp throughout FY27. On the merchant opportunities, again, some of these opportunities are very significant. The demand is very strong. And for us, we don't really mind who we're making, for example, transceivers.

Speaker #5: We don't mind who we're making transceivers for. As long as we're making somebody else's design, because we're pretty adamant about that, Tim. We're a service company.

Speaker #5: We will never have our own products. We'll never compete with our customers. That's very, very important for us, and it's very important for our customers.

Speaker #5: So we have to make sure we thread that needle carefully and never end up in a situation where we have a product design. So we don't have that.

Seamus Grady: We have to make sure we thread that needle carefully and, you know, never end up in a situation where we have a product design. We don't have that. We're facilitating our customers with somebody else's design, and we just happen to be manufacturing it. Certainly the demand is very strong. You know, even if you were to take a relatively modest percentage of the, you know, of any hyperscalers demand, and if we were to be able to supply a relatively modest percentage with the product that we can ship direct, and it's still very significant. We're very focused on it. It does represent a big opportunity. You're exactly right. And, you know, any one of these could be a significant opportunity noteworthy and worth talking about.

Speaker #5: We're facilitating our customers. It's somebody else's design, and we just happen to be manufacturing it. But certainly, the demand is very strong. Even if you were to take a relatively modest percentage of any hyperscaler's demand, and if we were to be able to supply a relatively modest percentage with the product that we can ship direct to them, it's still very significant.

Speaker #5: So we're very focused on it. It does represent a big opportunity. You're exactly right. And any one of these could be a significant opportunity, noteworthy and worth talking about.

Seamus Grady: The exciting part is we have several of these. We have, like I say, two separate programs shipping to a hyperscaler, and we have merchant business, and we have our main customer as well. You know, we haven't even really talked that much on this call about our Telecom business, which again, goes from strength to strength. Lots of, lots of growth vectors.

Speaker #5: And the exciting part is we have several of these. We have like I say, two separate programs shipping to hyperscaler. And we have merchant business.

Speaker #5: And we have our main customer as well. And we haven't even really talked that much on this call about our telecom business, which again, goes from strength to strength.

Speaker #5: So lots of growth vectors.

Speaker #8: Great. Thanks very much.

Tim Savageaux: Great. Thanks very much.

Speaker #5: Thanks, Tim.

Seamus Grady: Thanks, Tim.

Speaker #1: Thank you. And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Seamus Grady for any closing remarks.

Operator 2: Thank you. I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Seamus Grady for any closing remarks.

Operator: Thank you. I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Seamus Grady for any closing remarks.

Seamus Grady: Thank you for joining our call today. We are excited to have delivered another impressive quarter that exceeded our guidance. Moreover, we're very enthusiastic about the several key new business opportunities that will further support our strong growth starting in Q4, and that also positions us to extend our remarkable performance record into fiscal year 2027. We look forward to speaking with you in the future and to seeing those of you who will be attending the upcoming Needham and JP Morgan conferences. Thanks again and goodbye.

Speaker #5: Thank you for joining our call today. We are excited to have delivered another impressive quarter that exceeded our guidance. Moreover, we're very enthusiastic about the several key new business opportunities that will further support our strong growth starting in the fourth quarter and that also positions us to extend our remarkable performance record into fiscal year 2027.

Speaker #5: We look forward to speaking with you in the future and to seeing those of you who will be attending the upcoming Needham and JPMorgan conferences.

Speaker #5: Thanks again, and goodbye.

Operator 2: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.