Coherent, Inc. (COHR) Earnings

Management highlights

### Overall Company Performance - Full year pro forma fiscal 26 revenue increased 28% to a record $7 billion, with GAAP revenue of $7.12 billion (up 23% from FY25). Non-GAAP EPS grew 59% year over year, outpacing revenue growth. - Q4 FY26 GAAP revenue hit a record $2.05 billion, up 13% sequentially and 34% year over year; pro forma revenue increased 14% sequentially and 42% year over year. Non-GAAP EPS was $1.74, up 23% sequentially and 74% year over year. - Gross and operating margins expanded year over year: full year non-GAAP gross margin increased 152 basis points to 39.4%, and non-GAAP operating margin increased 270 basis points to 20.5%. Debt leverage was reduced from 2.0x at end-FY25 to 0.7x at end-FY26. ### AI-Driven Market Position - Coherent's photonic technology platform is foundational to AI data center scalability, positioned to benefit from rapid AI growth, the copper-to-optical transition, and growing demand for bandwidth/energy efficiency. The company has deep, long-term customer partnerships and a differentiated US-based production footprint. - Record bookings in Q4 FY26 extend customer order visibility through calendar 2027, with orders now extending into calendar 2028 and long-term agreements (LTAs) running through the end of the decade, with no signs of demand slowing. ### Capacity Expansion Progress - The 6-inch Indium Phosphide capacity ramp is on track to double internal output year over year by the end of Q1 FY27, one quarter ahead of the original plan. A further doubling of capacity is planned by the end of calendar 2027, with additional expansion beyond 2027 already planned. Yields on 6-inch lines consistently exceed 3-inch line yields. A third 6-inch production location in Zurich is on track to launch in H1 calendar 2027. ### New Product Roadmap - 800G transceivers will continue growing year over year in 2026, while 1.6T transceivers are ramping faster than previously expected through 2026 and into 2027. - Optical Circuit Switching (OCS) revenue grew sequentially in Q4 FY26, with a $4 billion total addressable market (TAM) and significant growth expected through FY27 as production expands. - Co-packaged optics (CPO) will begin contributing revenue in Q2 FY27 (December quarter 2026), with ultra-high power CW lasers for CPO already ramping in Texas. Near-term CPO revenue will go to scale-out applications, with scale-up adoption expected in H2 calendar 2027. - Multi-rail systems for inter-data center AI networking have been sampled to customers, with revenue ramping expected in H1 calendar 2027 and a $2 billion TAM by 2030. - The new PhotonLink integrated optics platform, supporting both CPO and near-packaged optics (NPO), will launch in September 2026, with initial revenue starting in Q2 FY27. Integrated optics (CPO/NPO) represents a $15 billion incremental TAM, with comparable Coherent content per device for both CPO and NPO. - Advanced thermodynamic cooling materials for data center XPUs have been sampled to customers, with revenue ramping expected in H2 calendar 2027. Longer-term growth opportunities exist in fusion energy, quantum technologies, and micro LED display capital equipment.

Guidance

- For the first quarter of fiscal 27, management guides revenue between $2.2 billion and $2.4 billion, non-GAAP gross margin between 39.5% and 41.5%, non-GAAP total operating expenses between $400 million and $420 million, and non-GAAP diluted EPS between $1.85 and $2.05. - Management expects revenue growth to accelerate significantly in fiscal 27, targeting the first quarter with over $3 billion in revenue by the end of fiscal 27, with EPS growth expected to continue outpacing revenue growth. - Gross margin is expected to continue improving through fiscal 27, with management maintaining its prior target of exceeding 42% gross margin, with further upside expected after reaching this target. Most of the 6-inch Indium Phosphide margin benefit and new product ramp margin gains are still ahead.

Segment performance

1. **Data Center and Communications Segment**: This was the primary growth driver, accounting for 79% of total company revenue in Q4 FY26. Full year fiscal 26 segment revenue increased 40% year over year. In Q4 FY26, revenue increased 19% sequentially and 59% year over year. Within the segment: - **Data Center sub-segment**: Full year fiscal 26 revenue increased 41% year over year. In Q4 FY26, revenue increased 24% sequentially and 66% year over year, marking the third consecutive quarter of double-digit sequential growth. - **Communications sub-segment**: Full year fiscal 26 revenue increased approximately 54% year over year. In Q4 FY26, revenue increased 11% sequentially and 56% year over year. 2. **Industrial Segment**: Revenue was roughly flat on a pro forma basis for both full year fiscal 26 and Q4 FY26. Sequential and year over year growth in semiconductor capital equipment and display capital equipment offset continued weakness across broader industrial markets.

Risks & headwinds

No specific material new risks or operational failures were explicitly discussed during the call. All forward-looking statements are noted to be subject to inherent uncertainties that could cause actual results to differ materially from projections, as detailed in the company's prior SEC filings.

Analyst Q&A

• Q: How does the 6-inch Indium Phosphide capacity ramp translate to revenue and gross margins, and what is the status of CPO demand amid market concerns about delays? /

  A: The ramp is one quarter ahead of plan, with 80% year over year growth in Indium Phosphide laser production in Q4 FY26, which will support over 80% year over year data center revenue growth in Q1 FY27. 6-inch yields are already higher than 3-inch yields, driving better cost structure and margins. Coherent has seen no CPO demand delays; instead, demand has pulled in, and customer engagement for both CPO and NPO has increased sharply over the past 3-6 months. CPO and NPO have comparable content for Coherent, and the new PhotonLink platform supports both form factors to meet customer preference.

• Q: How would potential US import restrictions on optical transceivers impact Coherent, and what is the trajectory for gross margins toward the prior 42%+ target? /

  A: As the largest US-based supplier of transceivers with over 20 existing US production facilities and a broad vertically integrated manufacturing footprint, Coherent would benefit from import restrictions, and can easily expand US manufacturing further if needed. Management has delivered gross margin expansion in 8 of the past 9 quarters, and remains confident in reaching the 42%+ target. Most of the cost benefit from the 6-inch Indium Phosphide ramp and new high-margin product ramps are still ahead, with clear plans for additional cost reduction and pricing optimization.

• Q: What is the primary capacity constraint for growth over the next 12 months, and what is the current status of insourcing Indium Phosphide lasers vs. external sales? /

  A: Indium Phosphide production is the only meaningful current constraint; transceiver assembly and test capacity is already available to support higher volume as laser output ramps. All current internal Indium Phosphide laser output is absorbed by Coherent's own transceiver demand, so no external sales are planned in the near term. Over time, a higher share of Coherent's transceivers will be supported by internal laser production, though some external sourcing will remain for strategic reasons.

• Q: How broad is OCS demand, and what is the level of NPO customer engagement and content size relative to CPO? /

  A: OCS demand is expanding beyond original scale-out applications into scale-up use cases, pushing the addressable market to over $4 billion by 2030, with demand stronger than expected 6-12 months ago. Coherent is currently ramping production to meet growing demand. Almost all large strategic customers have active CPO, NPO, or both projects underway, with engagement intensity rising sharply over the past 3-6 months. Coherent sees comparable levels of content per device for both CPO and NPO, as the company provides full end-to-end solutions for both form factors.