COHR — Coherent, Inc.

Coherent (COHR) Q2 2026 Earnings Call Summary

1. Key Financial Results and Metrics

• Revenue: $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 improved to 39%, a 24 basis point increase sequentially and a 77 basis point increase year-over-year.
• Earnings Per Share (EPS): Non-GAAP EPS of $1.29, up 11% sequentially and 35% year-over-year.
• Operating Expenses: Non-GAAP operating expenses were $321 million, with a decline in operating expenses as a percentage of revenue to 19%.
• Debt Leverage Ratio: Maintained below 2 times, currently at 1.7 times.

2. Strategic Updates and Business Highlights

• Growth Drivers: Strong demand in the data center and communications segments, particularly for 800 gig and 1.6 terabit transceivers, and ongoing demand for optical circuit switch (OCS) products.
• Production Capacity Expansion: Significant investments in ramping up indium phosphide production, with plans to double capacity by year-end. The transition to six-inch wafers is expected to enhance cost efficiency and output.
• Portfolio Optimization: Completed the sale of a Munich-based product division, expected to be accretive to gross margin and EPS. The company has exited 10 sites, totaling 33 over the past six quarters to streamline operations.
• New Product Engagements: Secured a large purchase order from an AI data center customer for a CPO solution and expanded engagements for OCS products.

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%.
• EPS Guidance: Anticipated non-GAAP EPS between $1.28 and $1.48.
• Long-Term Growth: Anticipation of sustained strong revenue growth in fiscal 2027, exceeding fiscal 2026 growth rates, driven by robust customer demand and production capacity expansion.

4. Bad News, Challenges, or Points of Concern

• Market Competition: The industry is experiencing a supply-demand imbalance for indium phosphide, with competitors ramping up capacity. The company does not foresee equilibrium in supply and demand in the near term.
• Operational Risks: While the company is expanding capacity, there are inherent risks in ramping production to meet extraordinary demand, particularly with the transition to six-inch wafers.
• Economic Sensitivity: The industrial segment remains flat year-over-year, with uncertainty about broader recovery outside of semi-cap equipment.

5. Notable Q&A Insights

• Demand Visibility: CEO James Anderson highlighted extraordinary visibility into demand, with a book-to-bill ratio exceeding 4x and long-term forecasts extending into 2028.
• Indium Phosphide Capacity: The company is at 80% of its target to double indium phosphide capacity, with strong wafer start metrics indicating progress ahead of schedule.
• OCS Market Potential: The OCS backlog is growing, with expectations for revenue ramp-up throughout the year, indicating a larger market opportunity than previously assessed.
• CPO and Multi-Rail Products: The company sees CPO as an additive opportunity to existing transceiver products, with significant growth expected in scale-up applications.

Overall, Coherent reported strong financial performance in Q2 2026, driven by robust demand in key segments and strategic capacity expansions, while also navigating competitive pressures and operational challenges.