COHR — Coherent, Inc.

Coherent Q2 2026 Earnings Call Summary

1. Key Financial Results and Metrics

• Revenue: Record $1.69 billion, up 7% sequentially and 17% year-over-year. On a pro forma basis (excluding divested aerospace and defense business), revenue increased 9% sequentially and 22% year-over-year.
• Gross Margin: Non-GAAP gross margin at 39%, improving by 24 basis points sequentially and 77 basis points year-over-year.
• Operating Margin: Non-GAAP operating margin at 19.9%, up from 19.5% in the prior quarter and 18.5% year-over-year.
• Earnings Per Share (EPS): Non-GAAP EPS of $1.29, compared to $1.16 in the prior quarter and $0.95 year-over-year.
• Operating Expenses: Non-GAAP operating expenses were $321 million, up from $304 million in the prior quarter, but as a percentage of revenue, it decreased to 19%.

2. Strategic Updates and Business Highlights

• Data Center and Communications Segment: Now accounts for over 70% of revenue, with Q2 revenue growing 11% sequentially and 34% year-over-year. Strong demand for 800 gig and 1.6 T transceivers is driving growth.
• Indium Phosphide Production: Significant ramp-up in six-inch wafer production, with plans to double capacity by year-end, enhancing cost efficiency.
• Optical Circuit Switch (OCS): Backlog grew with over 10 customer engagements, indicating strong demand.
• Portfolio Optimization: Completed the sale of the Munich product division, expected to be accretive to gross margin and EPS.

3. Forward Guidance and Outlook

• Q3 Revenue Guidance: Expected between $1.7 billion and $1.84 billion, with non-GAAP gross margin projected between 38.5% and 40.5%.
• Long-Term Outlook: Anticipate fiscal 2027 revenue growth to exceed fiscal 2026 growth, driven by strong demand in data center and communications markets.

4. Bad News, Challenges, or Points of Concern

• Capacity Constraints: Despite ramping production, there are concerns about the industry-wide supply-demand imbalance for indium phosphide, which may persist into 2025.
• Operational Challenges: The company is facing rising input costs for externally sourced components, although this is somewhat mitigated by internal production ramp-ups.
• Market Competition: Increased competition in the indium phosphide space from other players like Broadcom could pressure margins.

5. Notable Q&A Insights

• Demand Visibility: CEO James Anderson noted extraordinary visibility into demand, with a book-to-bill ratio exceeding 4x and long-term forecasts extending into 2028 from major customers.
• Indium Phosphide Capacity: The ramp of six-inch production is ahead of schedule, with 80% of the target capacity already achieved.
• CPO and OCS Growth: Strong demand for CPO solutions and OCS is expected to contribute significantly to revenue growth, with initial revenues anticipated by the end of the calendar year.
• R&D and OpEx Management: The company is focused on balancing R&D investments with operational efficiency, targeting SG&A to be 8% of revenue in the long term.

This summary encapsulates the key points from Coherent's Q2 2026 earnings call, highlighting financial performance, strategic initiatives, future outlook, and areas of concern.