erent (COHR) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q2 fiscal 2026 was a record $1.69 billion, up 7% sequentially and 17% year-over-year, driven by AI data center and communications demand [24] - On a pro forma basis, excluding revenue from the divested aerospace and defense business, Q2 revenue increased 9% sequentially and 22% year-over-year [24] - Non-GAAP gross margin was 39%, a 24 basis point improvement sequentially and a 77 basis point improvement year-over-year [24] - Non-GAAP EPS was $1.29, compared to $1.16 in the prior quarter and $0.95 in the year-ago quarter, reflecting an 11% sequential and 35% year-over-year growth [27] Business Segment Data and Key Metrics Changes - In the data center and communication segment, which accounts for over 70% of revenue, Q2 revenue grew by 11% sequentially and 34% year-over-year [10] - Data center revenue grew 14% sequentially and 36% year-over-year, driven by strong demand for 800G and 1.6T transceivers [10][11] - The communications market saw Q2 revenue grow 9% sequentially and 44% year-over-year, driven by data center interconnect and traditional telecom applications [18] - The industrial segment revenue grew 4% sequentially but was flat year-over-year on a pro forma basis, with expectations for improving demand [20] Market Data and Key Metrics Changes - The book-to-bill ratio for data center bookings exceeded 4x, indicating strong demand and visibility for future revenue [11][34] - Demand for 1.6T transceivers is expected to ramp significantly, with initial production driven by EML and silicon photonics-based transceivers [12][48] - The optical circuit switch (OCS) platform backlog grew sequentially, with over 10 customer engagements, indicating strong future revenue potential [17][18] Company Strategy and Development Direction - The company is focused on expanding production capacity, particularly in indium phosphide, with plans to double capacity by the end of the calendar year [13][39] - Strategic initiatives include portfolio optimization, with the recent sale of a product division expected to be accretive to gross margin and EPS [22][28] - The company aims to drive meaningful operating leverage, expecting EPS growth to outpace revenue growth [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustained strong revenue growth due to exceptional demand visibility and ongoing production capacity expansion [7][8] - The company anticipates fiscal 2027 revenue growth to exceed fiscal 2026 growth rates, driven by strong demand in both data center and industrial segments [8][20] - Management highlighted the importance of long-term supply agreements with customers, enhancing visibility and demand certainty [35] Other Important Information - The company is investing in expanding production capacity in multiple locations, including Malaysia and Vietnam, to meet growing demand [16] - The transition to six-inch wafer production is expected to significantly enhance cost efficiency and production output [13][80] Q&A Session Summary Question: Demand visibility and capacity ramp for Indium Phosphide - Management characterized demand visibility as extraordinary, with bookings extending into calendar 2027 and long-term forecasts from customers going out to 2028 [34] - The company is at 80% of its target capacity for indium phosphide, with a strong ramp in wafer starts [39] Question: OCS backlog and revenue impact - Management indicated strong demand for OCS, with expectations for revenue growth throughout the calendar year and contributions to revenue next year [41][42] Question: 1.6T transceiver growth and competitive landscape - Management expects continued growth for both 800G and 1.6T transceivers, with 1.6T ramping significantly in the second half of the year [48] Question: CPO opportunities and market engagement - Management noted active engagements for CPO solutions, with significant growth expected in the Scale-Up market [51][52] Question: Indium Phosphide capacity and industry supply-demand balance - Management does not foresee supply-demand balance in the indium phosphide market this calendar year or next, indicating a sustained period of imbalance [68]