erent (COHR) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q2 was a record $1.69 billion, up 7% sequentially and 17% year-over-year, driven by growth in 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 growth 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 execution and 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 in the future [20] Market Data and Key Metrics Changes - The book-to-bill ratio exceeded 4x in Q2, indicating strong demand and visibility for future orders [11][35] - Demand for 1.6T transceivers is expected to ramp significantly, with initial phases driven by EML and silicon photonics-based transceivers [12] - The optical circuit switch (OCS) platform backlog grew sequentially, with over 10 customer engagements, indicating strong future revenue potential [17] 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][28] - The strategy includes optimizing pricing and reducing product input costs to enhance gross margins [25][76] - The company aims to streamline operations by exiting underutilized sites, having exited 10 sites in the last quarter [23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustained strong revenue growth due to exceptional demand from customers and rapid expansion of production capacity [7][8] - The company expects fiscal 2027 revenue growth rate to exceed that of fiscal 2026, driven by strong demand in both data center and industrial segments [8] - Management highlighted the extraordinary visibility of demand, with long-term forecasts extending into 2028 from major customers [35] Other Important Information - The company completed the sale of its Munich-based product division, which is expected to be accretive to gross margin and EPS [22][28] - Capital expenditures in Q2 were $154 million, with expectations for increased spending to support customer demand [27] Q&A Session Summary Question: Demand visibility and capacity ramp for indium phosphide - Management characterized demand visibility as extraordinary, with bookings extending into 2027 and long-term forecasts going out to 2028 [35] - The company is at 80% of its target capacity for indium phosphide ramp, with strong progress in wafer starts [38] 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 [49] Question: CPO market opportunities - Management noted active engagements in scale-up opportunities for CPO, with significant growth potential as networks transition from electrical to optical [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 [69]