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DATE

Wednesday, Nov. 5, 2025, at 5 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — James Anderson
  • Chief Financial Officer — Sherri Luther
  • Senior Vice President, Investor Relations — Paul Silverstein

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TAKEAWAYS

  • Revenue -- $1.58 billion, representing 3% sequential growth and 17% year-over-year growth in fiscal Q1 2026 (period ended Sept. 30, 2025), driven by demand from AI data centers and communications.
  • Pro Forma Revenue -- Excluding $33 million from the divested aerospace and defense business, pro forma revenue increased 6% sequentially and 19% year over year.
  • Non-GAAP Gross Margin -- 38.7% non-GAAP gross margin in fiscal Q1, expanding 70 basis points sequentially and 200 basis points year over year, supported by cost reductions, pricing optimization, and yield improvements, particularly in data center and communications.
  • Non-GAAP Operating Margin -- Non-GAAP operating margin reached 19.5% in fiscal Q1, up from 18% in the prior quarter and 16.1% year over year, reflecting increased operational leverage.
  • Non-GAAP Earnings per Diluted Share (EPS) -- $1.66 non-GAAP earnings per diluted share in fiscal Q1, up from $1 in the prior quarter and $0.67 year over year, representing a 16% sequential and 73% year-over-year increase.
  • Data Center Segment Revenue -- Grew 4% sequentially and 23% year over year in fiscal Q1, though growth was constrained by indium phosphide laser supply; Guidance for the data center segment anticipates approximately 10% sequential growth in the current quarter.
  • Communications Segment Revenue -- Increased by 11% sequentially and 55% year over year in fiscal Q1, with customer bookings extending over a year and five consecutive quarters of sequential growth.
  • Industrial Segment Revenue -- Grew 2% sequentially and 4% year over year on a pro forma basis, with guidance for stability or a slight sequential increase in the current quarter.
  • Indium Phosphide Capacity Expansion -- Production of six-inch wafers began in Sherman, Texas, and Yarfalla, Sweden, in September, with initial six-inch yields higher than those of mature three-inch lines; capacity expected to double internally over the next year.
  • OCS Shipments -- Optical circuit switch (OCS) systems shipped to seven customers in both 64x64 and 320x320 sizes; Both revenue and backlog increased sequentially in fiscal Q1 and are projected to ramp further throughout calendar 2026.
  • Debt Reduction -- $400 million in debt paid down, reducing the leverage ratio to 1.7 times; Debt refinancing at the end of fiscal Q1 reduced the interest rate by 60 basis points and doubled the revolving credit facility to $700 million.
  • Divestitures -- Sale of the aerospace and defense business closed in fiscal Q1, immediately accretive to gross margin and EPS; Announced sale of a Munich-based product division with $25 million average quarterly revenue over the past four quarters and below-average margin, also expected to be immediately accretive upon closing.
  • Operating Expense Management -- Non-GAAP operating expenses declined to $304 million from $307 million sequentially, representing 19.2% of revenue in fiscal Q1, reflecting increased efficiency in SG&A and targeted R&D investment in the highest ROI areas.
  • Upcoming Guidance -- Revenue for the upcoming quarter is expected to be between $1.56 billion and $1.7 billion, with non-GAAP gross margin of 38%-40%, non-GAAP operating expenses of $300 million-$320 million, a non-GAAP tax rate of 18%-20%, and non-GAAP EPS of $1.10-$1.30.
  • Portfolio Optimization -- Twenty-three sites were sold or exited over the past five quarters (beginning of the last fiscal year through fiscal Q1), with further asset streamlining planned to focus on the highest profit growth and asset efficiency.
  • Record Bookings and Visibility -- Achieved record bookings in both data center and communications, including long-term customer orders and multi-year demand forecasts extending to 2028.
  • Product Adoption Trends -- The 1.6T transceiver ramp is driven initially by silicon photonics and EML technologies, with VCSEL-based products expected to ramp in mid-CY2026; demand for both 800G and 1.6T projected to accelerate in calendar 2026.
  • Capacity Expansion Geography -- Increased module and component capacity in Malaysia (Ipoh and Penang) and Vietnam to support strong demand and support ongoing ramp of production lines.

SUMMARY

Coherent (COHR +18.32%) management directly linked sequential and year-over-year improvements in revenue, gross margin, and non-GAAP EPS in fiscal Q1 to robust demand and cost optimization initiatives, while capital deployment prioritized immediate debt reduction and selective investment. The company emphasized that capacity expansions, particularly in indium phosphide production and OCS systems, are being made in response to greater customer demand visibility and long-term forecasts extending to 2028. Execution of divestitures and site consolidations enabled faster deleveraging, improved operational focus, and generated immediate bottom-line benefits.

  • Chief Executive Officer Anderson described fiscal Q1 customer bookings as "record level" and extended farther out than usual, which "gives us great visibility" into capacity and mix planning.
  • CFO Luther said, "Pricing optimization contributed meaningfully" to gross margin expansion in both data center and communications, in addition to cost reductions and yield improvement.
  • Six-inch indium phosphide wafer yields were "higher than our current three-inch indium phosphide yields," according to James Anderson, which management emphasized as a technical and operational milestone.
  • Production of EML, CW laser, and photodiode components is "ramping production of all three of those devices across" two six-inch facilities in parallel, per management's remarks.
  • A new product (OCS) platform adds an estimated $2 billion in addressable market opportunity, with active shipments "to seven customers" and further customer growth in backlog expected.
  • Portfolio optimization is "an evergreen process," according to James Anderson, with further real estate rationalization planned to continue improving asset efficiency and return on invested capital.
  • Guidance indicated expected sequential acceleration in data center revenue and continued, but moderating, communications growth, while the industrial segment remains stable, based on the company's official guidance for fiscal 2026.
  • Management noted increasing demand for advanced cooling materials, citing new applications emerging from rapid AI data center expansion.

INDUSTRY GLOSSARY

  • EML: Electro-absorption Modulated Laser, used for high-speed optical transceivers in data center and communications applications.
  • OCS: Optical Circuit Switch, non-mechanical, liquid-crystal-based switching technology for data center network interconnection and redundancy.
  • CPO: Co-Packaged Optics, integrating optics and electronics in a single package for improved bandwidth and efficiency in networking hardware.
  • NPO: Near-Package Optics, optical interconnection technology positioned near, but not directly on, the processor package for improved data center bandwidth.
  • VCSEL: Vertical-Cavity Surface-Emitting Laser, used for high-speed, short-reach optical communications.
  • ZRx/ZR Plus: Families of coherent pluggable optical transceivers for data center interconnect (DCI) and telecom applications.
  • Indium Phosphide (InP): Semiconductor material used to manufacture high-performance lasers and photodiodes vital for advanced optical communications.

Full Conference Call Transcript

Paul Silverstein: Thank you, operator. Good afternoon, everyone. With me today are James Anderson, Coherent's CEO, and Sherri Luther, Coherent's CFO. During today's call, we will provide a financial and business review of 2026 and the business outlook for 2026. Our earnings press release can be found in the Investor Relations section of our company website at coherent.com. I would like to remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements or predictions are based on information that is currently available and that actual results may differ materially.

We refer you to the documents that the company files with the SEC, including our 10-Ks, 10-Qs, and 8-Ks. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections and forward-looking statements. This call includes and constitutes the company's official guidance for 2026. If at any time after this call, we communicate any material changes to this guidance, we intend that such updates will be done using a public forum such as a press release or publicly announced conference call. Additionally, we will refer to both GAAP and non-GAAP financial measures during this call.

By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends. For historical periods, we have provided reconciliations of these non-GAAP financial measures to GAAP financial measures in our earnings release and investor presentation that can be found on the Investor Relations section of our website at coherent.com. Let me now turn the call over to our CEO, James Anderson.

James Anderson: Thank you, Paul, and thank you, everyone, for joining today's call. Coherent is the world's leading innovator and provider of photonic technology and solutions. Photonics is critical to growing applications in AI, data center networks, communications, and a wide range of industrial applications. The company is focused on driving sustained shareholder value creation. Turning to our Q1 operating results, revenue increased by 6% sequentially and 19% year over year on a pro forma basis, which excludes revenue from our recently divested aerospace and defense business, a sale that enhanced our portfolio focus and accelerated deleveraging. Non-GAAP gross margin expanded by 70 basis points sequentially and 200 basis points year over year.

The combination of revenue growth and gross margin expansion drove non-GAAP EPS growth of 16% sequentially and 73% year over year. Now, I will provide some highlights from our two operating segments. We will begin with our data center and communications segment, which is our largest and fastest-growing business. Q1 revenue grew by 7% sequentially and by 26% year over year, driven by growth in both our data center and communications markets. In our data center business, Q1 revenue grew 4% sequentially and 23% year over year. Our data center growth in Q1 was constrained by the supply of indium phosphide lasers.

However, we expect data center growth to accelerate to approximately 10% sequential growth in the current quarter, followed by strong sequential growth through the balance of this fiscal year, given very strong demand and improving supply. I would like to provide some additional color on both the demand and supply picture within our data center business. First, we are experiencing an exceptionally strong level of demand. In our fiscal Q1, we received record bookings that represent a step function increase in already strong customer demand. We are seeing strong demand for both our 800 gig and 1.6T transceivers, with broad adoption of our 800 gig transceivers and accelerated adoption of our 1.6 transceivers.

A significant portion of the sequential growth we expect in the current quarter is driven by 1.6T adoption. As a reminder, earlier this year at OFC, we were the only company to demonstrate three different types of 1.6T transceivers based on three different types of laser sources: silicon photonics, EML, and VCSEL. Our 1.6T transceivers based on silicon photonics and EMLs are ramping first, and we expect our 1.6T transceivers based on our 200 gig VCSELs to ramp next calendar year. We see strong demand for 1.6T transceivers across multiple customers and expect both 800 gig and 1.6T to grow significantly in calendar 2026.

Our deep portfolio of optical networking, combined with our vertical integration and diversified supply chain, are key competitive advantages with our customers and uniquely position Coherent within the industry. On the supply side, given the strong demand growth we are seeing, we are continuing to expand our production capacity for transceiver modules and the key optical components used in those modules. For example, one of the key constraints across the industry is indium phosphide laser capacity. Over the course of Q1, we saw improving EML supply, and we expect both internal and external EML supply to improve significantly in the current quarter and throughout the balance of this fiscal year.

In particular, we continue to expand our internal indium phosphide production capacity. We are aggressively ramping six-inch capacity because a six-inch wafer compared to a three-inch wafer will produce more than four times as many chips at less than half the cost. This will provide increasing benefit to our gross margin as we continue to ramp production. Our six-inch indium phosphide line in Sherman, Texas, which is the world's first six-inch indium phosphide production line, began production last quarter and continues to ramp well. I am very pleased to share that our initial six-inch indium production yields are actually higher than our current three-inch indium phosphide yields.

This is an outstanding accomplishment by our production team and also a testament to the tremendous experience that we have gained over the past five years producing almost 2 billion VCSEL devices on our six-inch gallium arsenide technology. Given the healthy yields we are seeing with six-inch production, we began production of six-inch indium phosphide at a second site in Yarfalla, Sweden. Ramping at two sites in parallel will significantly accelerate production capacity ramp. Additionally, we are in production on three different types of key transceiver components on six-inch indium phosphide: EMLs, CW lasers, and photodiodes.

With a ramp of six-inch production at two sites in parallel, we expect to roughly double our total internal production capacity of indium phosphide over the next year. We also expect to continue to supplement our internal indium phosphide capacity with sourcing from external suppliers. We expect our external supply of EMLs to increase sequentially this quarter and next calendar year through continued partnership with our key external suppliers. In addition to critical laser production capacity, we are also expanding transceiver module assembly capacity. While we continue to expand production at our existing site in Ipoh, Malaysia, we will now be expanding production capacity in parallel at a new transceiver production facility that we recently opened in Penang, Malaysia.

In addition, we will be adding transceiver production capacity at our existing site in Vietnam, which already produces transceiver components. This additional production capacity allows us to continue to rapidly ramp module capacity to support the demand growth in front of us. I would like to pivot to some technology developments that we expect to further benefit our data center business over the long term. We continue to make progress on LPO, LR CPO, and NPO-related products and technologies, with strong engagements across a wide range of customers. For example, we have shipped both LPO and LRO 800 gig and 1.6T transceivers to customers.

Also, in September, we announced that we have commenced sampling of our 400-milliwatt CW lasers designed for CPO and silicon photonic applications. We expect to address a broad range of CPO form factors for both scale-out and scale-up data center applications with this new product. We also continue to see significant customer engagement around our 200 gig VCSEL-based solutions for NPO applications. Multiple customer engagements on integrated optics applications reinforce our view that the incremental market opportunity for optical solutions in the scale-up portion of the AI data center networks will be very compelling, and we believe Coherent is well-positioned to address these applications using both CW and VCSEL-based solutions.

We continue to expect to see initial CPO deployments in calendar 2026, with growth continuing in the following years, while pluggable form factors continue to grow in the scale-out portion of the network. Another area of new growth is our optical circuit platform, which continues to progress well with expanding customer engagement. We believe this product line adds over $2 billion of addressable market opportunity over the coming years. Both the breadth of customers and the range of applications are wider than our initial expectations. The underlying technology in our OCS system is a non-mechanical, field-proven liquid crystal technology, which has been successfully deployed for many years in demanding telecom applications and has a significant competitive advantage over other solutions.

To date, we have shipped systems to seven customers and expect that number to continue to expand this quarter. Shipments have included both 64x64 and 320x320 system sizes. Both revenue and backlog for OCS grew sequentially in our fiscal Q1, and we expect it to grow again in the current quarter. Our current backlog includes both 64x64 and 320x320 systems, with the majority of the backlog weighted toward the larger system size. Given the strong customer demand and backlog, we are aggressively ramping production for both small and large capacity systems, and we expect revenue to ramp throughout calendar 2026.

Given the multiple growth factors across pluggable transceivers, CPO, and OCS, we are very excited about the opportunities ahead of our data center business. Turning to our communications market, in Q1, revenue grew 11% sequentially and 55% year over year. Growth was driven by products for data center interconnect, but we also saw strong growth in traditional telecom applications. We expect our communications business to grow sequentially again in the current quarter and throughout the balance of this fiscal year. In hyperscale DCI, we continue to see strong growth in customer demand for our ZR, ZR plus DCI-focused products.

Our product lineup, which includes 100 gig, 400 gig, and 800 gig ZRZR plus coherent transceivers, is growing quickly, and we expect these products to continue to ramp throughout the course of this fiscal year. We also continue to see steady recovery in our telecom business. In addition to market recovery, we have introduced multiple new industry-leading telecom platforms for which we are seeing significant customer interest and expect strong future revenue contribution, such as our new award-winning multi-rail technology platform. This platform is a breakthrough solution that amplifies multiple fiber pairs while operating within the physical and electrical constraints of existing infrastructure.

Customer engagement on this new platform is very strong, and we see this as one of many growth factors for our communications business in both the near and long term. Turning now to our Industrial segment. Revenue grew 2% quarter over quarter and 4% year over year on a pro forma basis, excluding revenue from the recently divested aerospace and defense business. While we maintain a cautious outlook on near-term demand, given the macroeconomic backdrop and ongoing tariff and regulatory uncertainty, we were pleased to see growth in our first fiscal quarter, and we expect the Industrial business to be stable to slightly up sequentially in our current quarter on a pro forma basis.

Within our Industrial segment, there are several key growth areas. For example, we expect ongoing strong demand in display capital equipment driven by OLED screen adoption expanding to larger format devices like tablets and laptops. We also expect growth over the long term in our semi equipment market, given the industry-wide expansion in semiconductor production. Another promising growth opportunity that I would like to highlight is our advanced materials for thermal management and cooling. Traditionally, these materials are used in a wide range of applications in our industrial markets. However, the rapid expansion of AI data centers has created a significant growth opportunity.

We see potential widespread adoption of these materials to address the thermal and power challenges posed by ever-larger AI data centers. For example, our proprietary thermodyte material moves heat twice as effectively as copper, which is a tremendous advantage in data center cooling applications. We are engaged with multiple hyperscaler customers on this new emerging application of our materials technology. Lastly, I would like to give an update on our portfolio optimization initiative. As a reminder, we are focused on streamlining our portfolio and concentrating our investments in the areas of greatest long-term growth and profitability. We are shifting investment from non-core areas and realigning our footprint to drive better asset composition and utilization efficiency across the organization.

We completed the sale of our aerospace and defense business in September. The proceeds of the sale were used to pay down debt, and the sale was immediately accretive to both gross margin and EPS. In addition, we recently announced the sale of a product division based in Munich, Germany, that makes tools for materials processing as part of our industrial segment. We made the decision to sell this product division because it was not aligned with our long-term strategic focus areas and it did not support our long-term financial goals. This transaction is expected to close in our fiscal Q3.

The proceeds of this transaction will be used to reduce debt, and the sale is expected to be immediately accretive to both gross margin and EPS. In addition to streamlining the product portfolio, we are also continuing to streamline our physical footprint. Since the beginning of our last fiscal year, roughly five quarters ago, we have sold or exited 23 sites, and we plan to continue to streamline our footprint and exit additional underutilized or unnecessary sites over the coming quarters. While I am pleased with the progress we have made in our portfolio, we still have more work to do.

I view portfolio optimization as an evergreen process, and we will continue to reevaluate our asset portfolio to streamline and focus on the areas of greatest profit growth and ensure we are optimizing our return on invested capital. In summary, we delivered strong revenue and EPS growth in Q1 and are on track for strong sequential growth over the coming quarters, driven by exceptionally strong demand in our Data Center and Communications segment, along with continued expansion in our production capacity. I want to thank the Coherent team for all their hard work and dedication. I will now turn the call over to our CFO, Sherri Luther.

Sherri Luther: Thank you, Jim. We are pleased with our first quarter 2026 results and execution. We continue to drive strong double-digit year-over-year revenue growth, gross margin improvement, and enhanced profitability. We significantly paid down our debt, reducing our interest expense, and further strengthening our balance sheet. At the end of the quarter, we successfully completed our debt refinancing, lowering our cost of capital and improving our financial flexibility. I will now provide a summary of our Q1 results. First-quarter revenue was a record $1.58 billion, up 3% sequentially from the fourth quarter and up 17% year over year, driven by growth in AI data center and communications demand.

In our Q4 2025 earnings call, we announced an agreement to sell our aerospace and defense business. As expected, this transaction closed in Q1 2026. On a pro forma basis, excluding $33 million of aerospace and defense revenue for Q1, revenue increased 6% sequentially and 19% year over year. Our Q1 non-GAAP gross margin was 38.7%, a 70 basis point improvement compared to the prior quarter and a 200 basis point improvement as compared to the year-ago quarter. I am especially pleased with the progress we have made on gross margin expansion, driven by the cost reduction and pricing optimization initiatives that we continue to focus on as we drive to our target model of greater than 42%.

The sequential and year-over-year increases in gross margin were driven by cost reductions and product input costs, as well as yield improvements primarily in our data center and communications segment. Pricing optimization contributed meaningfully in both the industrial segment and the data center and communications segment. First-quarter non-GAAP operating expenses were $304 million compared to $307 million in the prior quarter and $278 million in the year-ago quarter. Operating expenses as a percentage of revenue declined to 19.2% as compared to 20.1% in the prior quarter and 20.6% in the year-ago quarter. The reduction in operating expenses as a percentage of revenue is due to the continued focus on driving efficiencies and greater leverage in SG&A.

We have made good progress on these initiatives, with the benefits expected to kick in at various points in time. The year-over-year increases in R&D were primarily in the data center and communications segment, as we continue to focus on investments with the highest ROI that drive the future growth of the company. The sequential decline in R&D was driven by the timing of these investments, which can fluctuate on a quarterly basis. Our first-quarter non-GAAP operating margin was 19.5% compared to 18% in the prior quarter and 16.1% in the year-ago quarter. First-quarter non-GAAP earnings per diluted share was $1.66 compared to $1 in the prior quarter and $0.67 in the year-ago quarter.

From a capital allocation perspective, we paid down $400 million in debt, significantly reducing our debt leverage ratio to 1.7 times, down from 2.4 times in the year-ago quarter. As mentioned in our Q4 2025 earnings call, we used the proceeds from the sale of the Aerospace and Defense business to make this debt payment. We also completed the refinancing of our debt at the end of the first quarter, reducing our interest rate by 60 basis points and doubling the amount of our revolving credit facility to $700 million. We will use the revolving credit facility to increase liquidity and provide greater flexibility.

As Jim noted, we plan to use the proceeds from the sale of our product division in Munich, Germany, to further reduce our interest expense by paying down additional debt, which will be immediately accretive to our gross margin and EPS. For reference, over the past four quarters, this business contributed average quarterly revenue of $25 million with a gross margin well below Coherent's corporate gross margin. The sale will reduce our employee headcount by approximately 420 employees. I will now turn to our guidance for 2026. We expect revenue to be between $1.56 billion and $1.7 billion. We expect non-GAAP gross margin to be between 38% and 40%.

We expect total operating expenses of between $300 million and $320 million on a non-GAAP basis. We expect the tax rate for the quarter to be between 18% and 20% on a non-GAAP basis. We expect EPS of between $1.10 and $1.30 on a non-GAAP basis. In summary, I am very pleased with the solid progress we made in Q1. Looking ahead, we are seeing exceptionally strong demand in our data center and communications segment. To meet this robust momentum, we are ramping capacity and investing strategically in the business. We remain focused on disciplined execution against our long-term financial target model. These dynamics reinforce our confidence in driving long-term growth and durable value creation for our shareholders.

That concludes my formal comments. Operator, please open the call for Q&A. Thank you.

Operator: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star. You may press star and 2 if you would like to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from Samik Chatterjee, JPMorgan Chase. Please go ahead.

Samik Chatterjee: Hi. Thanks for taking my question. Jim, maybe if I can start on the demand side. You do mention the strong demand you are seeing as well as record orders in some cases. Maybe if you can flesh that out a bit more, like, how broad-based is this demand? What are you seeing in terms of or hearing from customers in terms of demand drivers? And how broad-based across the portfolio is the demand across your communication portfolio? And I have a follow-up. Thank you.

James Anderson: Yeah. Thanks, Samik. Yeah. I would not call it very broad-based. So very strong demand across both data center and communication. We really saw a record level of bookings in that quarter. And bookings not just for near-term quarters, but bookings further out in time than we normally would see. So bookings leading out in some cases over a year from now. Right? So we see that as a very good sign. That is customers placing orders well ahead of time. That gives us great visibility. It really allows us to do really good mix planning and product mix and capacity planning.

But, also, as I said, broad-based definitely saw strong orders for data center, strong orders in particular for 800 gig and 1.6T transceivers. We are seeing the adoption of 1.6T transceivers accelerate, and so we are seeing certainly strong orders there. But also on the communications part of our business, very strong orders in DCI, the data center interconnect portion. This is our ZR plus product lineup of transceivers. And then also really pleased to see strong orders in what I call kind of traditional telecom as well. And so in particular, in that communication segment, we have seen now five quarters of sequential growth in that segment.

Really good growth last quarter of 11% sequential and 55% year over year. But we have seen now five sequential quarters of growth and not just DCI but also in traditional telecom. And we are expecting that communication segment to grow sequentially this quarter and through the balance of this fiscal year.

Samik Chatterjee: Got it. Got it. Indium capacity, I mean, that has been quite a talking point this quarter for you guys. You outlined you are doubling the capacity over the next twelve months. But maybe if you can just flesh out for investors what are the milestones to watch on that front. And to think about the roadmap beyond even a twelve-month horizon, and where would that leave you from an EML mix perspective? Relation to sort of internal versus external?

James Anderson: Sure. Thanks, Samik. So first of all, I just want to thank the Coherent team for the outstanding job they have done in getting six-inch indium phosphide up and running. This is something when I joined the company that I asked the team to significantly accelerate their timeline. And I just want to take the opportunity to thank the team for the outstanding job they have done. We started production of six-inch indium phosphide in September. And started it at our Sherman, Texas facility.

And really pleased with that ramp, as I mentioned in the prepared remarks, one of the big milestones that we achieved is the initial yields of that six-inch indium phosphide are actually higher than our three-inch indium phosphide lines. And keep in mind that those three-inch lines are very mature, full production lines. So that is a very positive milestone and a positive signal for us on yields of six-inch. And that is exactly why we decided to double down on the ramp of six-inch and begin six-inch ramp at a second facility, one of our other indium phosphide facilities, which is in Yarfalla, Sweden. And so now we are ramping at two sites in parallel.

And so that is what really allows us to hit that 2x capacity goal about a year from now. And I think, you know, milestones along the way will certainly be, you know, we will certainly share our progress along the way. But beyond the next twelve months, we expect to continue to expand capacity even beyond that twelve-month goal. The demand that we are seeing from our customers is, I would call it, extremely strong. And with some of our big customers, they are showing now their forecast out through calendar 2028.

And given that demand signal that we are seeing, not just for next calendar year, but now for '27 and '28, you know, our plan is to continue to ramp indium phosphide capacity beyond the next twelve months as well. And, certainly, we will share more, you know, thoughts on the rate and pace of that ramp over the next twelve months.

Samik Chatterjee: Got it. And I will just squeeze one quick one in. You are guiding Datacom 10% quarter over quarter growth. Just wondering what is the supply-demand gap that you see? How supply what could that number be if you were sort of more flexible on supply or had more supply available relative to sort of the constraints on that front?

James Anderson: Yeah. We were certainly when I look back at the prior quarter, you know, data center grew about 4% sequentially. That was certainly constrained by indium phosphide laser supply. And what we saw is the unmet backlog that we had in Q1 rolled into Q2. So that backlog is now Q2, and we are servicing that in Q2. But on top of that, we had record bookings on top of that for, as I mentioned, primarily 800 gig and 1.6T transceivers. And so the demand continues to grow.

Now one of the really good things as we move into the current quarter is we are seeing indium phosphide supply both internal and external grow sequentially from prior quarter to current quarter, and we are expecting both external and internal supply to grow again from this quarter into our fiscal Q3 as well. So we are seeing kind of steady, you know, good improvement in indium phosphide capacity. And, again, that is a combination of external, but especially internal capacity expansion as well.

Samik Chatterjee: Right. Correct. Thank you for taking my questions.

Operator: Our next question comes from Simon Leopold with Raymond James. Please go ahead.

Simon Leopold: Thanks for taking the question. I wanted to follow-up on your discussion around the OCS optical circuit switches. There was quite a buzz at the ECOC show about this, and you certainly sounded upbeat tonight. I guess what I am looking for a little bit more help is understanding how to think about maybe, let us call it calendar 2026. Where one of your peers also participating in the market has sort of laid out a trajectory to get to $100 million a quarter. How do you think about your trajectory in your place in the OCS market?

James Anderson: Yeah. Thanks, Simon. So first of all, we feel really good about our place in the market. It starts with, of course, the technology. We feel really good about the technology differentiation that we have. We have a non-mechanical OCS based on a liquid crystal technology that has really superior reliability and performance, and our customers recognize that. And I would say that, you know, we continue to see the opportunity around OCS, the total available market continue to be bigger than what we may have originally thought. Just the number of customers is broader than we thought that are interested in the technology, but also the number of applications that they are considering deploying it in.

And so as I mentioned in the prepared remarks, we have now shipped systems to seven different customers. And, you know, if I look at last quarter, both our revenue and our backlog grew last quarter. We expect revenue and backlog to grow again this quarter. But I think more meaningful revenue contribution will come in calendar year. Probably, you know, we will see a steady ramp of revenue throughout the calendar year. So it would be certainly more weighted towards the second half of the calendar year. But we feel really good about the progress, the backlog that we have, and the revenue ramp in front of us.

And we will, you know, as we get into next calendar year, I think we will share more details of what kind of the rate and pace of revenue that we see ahead of us.

Simon Leopold: Thanks. And then you talked a lot about the progress you have shown on the indium phosphide. I have been fielding investor questions that I find a bit puzzling, but maybe you could help us shake this out in that there has been sort of this narrative that the indium phosphides producing photodiodes and has not helped you with laser production. But your outlook, your commentary on 800 gig, 1.6T, certainly suggests that you are producing more lasers, both CW and EML. What can you explain maybe how people might have been confused or whether I am confused? Can you give us some clarification on this debate? Thank you.

James Anderson: Yeah. Thanks, Simon. I will try to un-confuse. I do not know where the confusion is coming from, but I will just kind of reiterate what I said in the prepared remarks. You know, so as I said, we are ramping production now in two sites, Sherman, Texas, and Yarfalla, Sweden. And across those two sites, we are ramping production of three different types of products based on indium phosphide. Right? So the EML lasers, certainly CW lasers as well, and then photodiodes. And all three of those are very critical, as you know, Simon, very critical components to our transceivers. And so really pleased to be ramping production of all three of those devices across those two facilities.

Simon Leopold: Thank you very much.

Operator: Thank you. Our next question comes from George Notter with Wolfe Research. Please go ahead.

George Notter: Thanks very much, guys. I am just curious on interesting to hear your remarks on sort of the manufacturing moves and then the real estate footprint. Really, great to see that. I guess I am just curious on, you know, how much more opportunity is there. You know, I know you are standing up capacity. I think in Penang, you said are there more moves for you to make in manufacturing, perhaps in industrial lasers? Is there more real estate consolidation left? Any more you could say would be great. Thanks.

James Anderson: Yeah. Thanks, George. So I would say definitely. A lot of activity that we have going there. And it is kind of interesting because it is on one hand, we are increasing capacity and expanding. And on the other hand, what we are trying to do is consolidate and reduce footprint in certain areas. And so both of those activities are happening in parallel. So if I start with the consolidation, if we look at over the last roughly five quarters since the beginning of our fiscal year, we have either sold or exited 23 sites. And I think that is great progress. We are really pleased with that, but we definitely have more work to do.

I think both Sherri and I are focused on making sure we maximize return on investment capital, and we are driving efficiency and productivity across our physical footprint. And so we both believe there is significant opportunity to continue to consolidate. And so we will continue to exit and downsize any site that we view as unnecessary or underutilized. And so definitely more work to do there, and I say stay tuned on that. And then on the increase side, certainly, especially for data center and communications, we are certainly increasing capacity.

We talked a little bit already about indium phosphide capacity, but if we talk about module capacity, so this is transceiver module capacity, we are expanding capacity at our existing facility, our primary facility in Malaysia, which is in Ipoh, Malaysia. But now in parallel, we are expanding capacity at a new transceiver facility that we have recently opened, which is already in production on transceivers. We are going to be expanding and accelerating capacity at that Penang facility. And then what we are also doing is adding transceiver module capacity at our Vietnam site. So the great thing is our Vietnam site already exists, and it is already building components for transceivers.

And we have capacity and room there to add now transceiver production in addition to component production. And we are excited about that too. And so all of those capacity expansions we are driving in parallel. And that is really to support the strong demand that we see ahead of us for both data center and communications based on the customer not just ordering that we are seeing, but the forecast that we are getting.

George Notter: Got it. Any manufacturing moves on the industrial side of the business? Thanks a lot, guys.

James Anderson: Yes. There are a number of the consolidations that we have done, the 23 sites of sales exits, some of those have been on the data center communication side, but many of those have been on the industrial side. And so I think we still see opportunity for consolidation on, I would say, both data center and comms and industrial. But there are places within the industrial segment where we are investing and expanding in facilities as well. But it is all about trying to make sure that the footprint is optimal in terms of driving the maximum productivity and efficiency of the facility.

George Notter: Thank you.

Operator: Thank you. Our next question comes from Blayne Curtis with Jefferies. Please go ahead.

Blayne Curtis: Hey, good afternoon, guys. Thanks for taking my question. I wanted to go back to the data center guide plus 10%. Is there a way to think about how much that is still capacity constrained and is there anything beyond the EMLs that is constrained in that?

James Anderson: No. Blayne, I would say the, you know, the primary constraint we have hit, you know, for instance, last quarter is, as I said, it is indium phosphide capacity that specifically EMLs. That was what was constraining us. A significant improvement from prior quarter into current quarter. As I said, in terms of both external and internal supply. I would say, you know, there is still we still are constrained to some degree even in the current quarter. But we also expect indium phosphide laser supply to increase again from current quarter into next quarter. And really to continue to the supply to continue to improve sequentially throughout the next calendar year.

Given external capacity that we secured, but especially the internal capacity ramps that I talked about earlier.

Blayne Curtis: Exactly. That maybe I will follow-up on that. I am curious. You know, you are doubling capacity, but it takes time to get your lasers in and qualified. So is there a way to think about the timing, and is there any difference EMLs and CWs in terms of the timing of recognizing revenue from those lasers and throughout the fiscal year?

James Anderson: Yeah. I would say not a big difference between EML and CW on the time and to get it to production and fully qualified. By the way, you mentioned recognized revenue. Just to clarify, all of our EMLs and CWs are made for internal consumption. Right? So we do not sell indium phosphide in the open market. The reason for that is it is 100% all of our capacity is 100% consumed by our own transceiver needs. But Pardon me? Within the transceiver. Sorry. Okay. Alright. I just want to make sure. Clarified that. Yeah.

But within transceiver what I would say is that once a laser is qualified within or a photodiode within a facility, you know, expanding capacity on a parallel line on an existing line is a pretty normal occurrence. Right? No special qualification required or at least the, you know, qualification very straightforward. Right? So I think now that, you know, we are in production across, you know, multiple products, across multiple facilities, look, that production capacity is going to be as we expand it over the course of next year, it is going to be incredibly valuable.

And certainly, our customers are very motivated to help make sure we, you know, we get anything qualified and then into production as quickly as possible.

Blayne Curtis: Thanks, Jim.

Operator: The next question comes from Thomas O'Malley, Barclays.

Thomas O'Malley: First one is a little more short term. So you gave the sequential into December on Datacom up 10%. Could you maybe help us understand what was the driver in the September quarter? I think you called out datacom as maybe being a little bit more of a driver, but any color on the telecom side or the relative vectors of both? And into the December quarter, what are you seeing from the telecom business?

James Anderson: Yes. Ian, maybe I will just recap the prior quarter first. On the prior quarter, data center, we saw a grow 4% sequentially, 23% year over year. Communications, which is telecom and DCI, in the prior quarter, it was 11%. So sequential growth and 55% year over year. And into the current, into the December, we expect the data center growth to accelerate from that 4% prior quarter to about 10% sequential growth in the current quarter. And then comms, again, up sequentially. I would expect it to be a little bit less than what it was in the prior quarter. Comms would be up sequentially in the single digits.

And then just to round it out and give you the full picture, on the industrial part of our business, we expect that in the current quarter for that to be sequentially stable, maybe slightly up.

Thomas O'Malley: Helpful. And then just a longer-term question just on the six-inch production. I sort of couple questions on it here. But is there any way for us to tie production coming out of that six-inch facility with margin improvement over the year? It sounds like things are accelerating pretty materially on past the extension side in the first half. I think you had previously kind of talked about first kind of dive moving into modules and late calendar year 2025. But as the kind of progress, like, you look at what gross margins have done, you would imagine that accelerate a bit.

Anyway, for us to link the percent of production or amount of production to how much gross margin expansion you can see? Thank you.

James Anderson: Yeah. Maybe I will kick it off and at least talk about a qualitative and then if Sherri wants to add anything to it. I think given that we just started production in the prior quarter, this quarter will be our first quarter, our first full quarter of production. We started production last quarter kind of mid-quarter. You know, the actual impact to gross margin in the current quarter is pretty minimal. But as we move into next calendar year, that is where we will start to see the benefits of the six-inch production moving into our gross margin.

And as you would expect, as we ramp production, the impact to gross margin is more meaningful as we move throughout the calendar year. And so you should expect it to be more meaningful as we move through each sequential quarter. And, Sherri, would you is there anything you would add to that? Or

Sherri Luther: Yeah. I would just add that, you know, when you look at these, you know, the six-inch indium phosphide and the fact that it is, you know, less than half the cost of three-inch, that, you know, that will be beneficial to gross margin over time. And, you know, it is sort of looking at a cost structure. Right? It is improving a cost structure, the six-inch indium phosphide is. And, you know, other examples of that would be with new products. Right? Like, 1.6T. That is going to be beneficial to gross margin as well as, you know, when we ramp capacity. You know, those types of things will, you know, help improve the gross margin over time.

James Anderson: So we are certainly focused on six inches, I guess, I would recap it by saying six inches, one of the gross margin tailwinds. But there are certainly a wide range of other things we are focused on across the company. To drive towards Sherri's 42% gross margin target that she gave us. There are a number of other I just highlight in the industrial business, although the growth is, you know, it is relatively stable, we are not seeing a tremendous amount of growth in the industrial business at this time. We are certainly focused on driving gross margin expansion within that business.

And so that is another area that we expect gross margin to continue to improve for the company.

Thomas O'Malley: Thank you.

Operator: Our next question comes from Papa Sylla with Citigroup. Please go ahead.

Papa Sylla: Thank you. Thank you for taking my question and congrats on the very strong results. Jim, I was hoping you can double-click a little bit on the uptake you are expecting this quarter coming from 1.6T. I understand you are quite flexed between EML, silicon photonics, and even VCSEL. But in terms of kind of percentage or even qualitatively, where are you seeing perhaps the largest demand between those three in 2026?

James Anderson: Yeah. Thanks for the question. So we the yeah. As I mentioned in the prepared remarks, the sequential growth in data center a good chunk of that is driven by 1.6T revenue. And then within that, you know, that early wave or first wave of 1.6T revenue, it is really a combination of we expect a combination of silicon photonics, which uses obviously CW lasers, but also EML-based 1.6T transceivers. So the first adoption in that first wave of or the beginning of the ramp of 1.6T, that will primarily be driven by a mix of silicon photonics and EML. And then later, we will start to see, we believe, adoption of VCSEL-based 1.6T transceivers.

So those use our 200 gig VCSEL technology, which we demonstrated at, I believe, OFC earlier this year. We would expect that to begin to go into production in, I would say, mid-calendar 2026. So it would start to generate revenue in kind of the '20. So, definitely, the early ramp or the first part of the ramp is driven by a combination of EML and silicon photonics.

Papa Sylla: Got it. That is very clear. And for my follow-up, Jim, I am curious on how you are thinking about the allocation of your indium capacity between EML, CW, and photodiodes. I guess, how far ahead do you need to make those decisions? And perhaps, what are the factors that go into the decision? Is the priority mainly kind of feeding where demand is strongest, or is there a profitability angle as well?

James Anderson: Yeah. Good. It is a good question. Let me talk about the trade-off between, first of all, EML and CW. I would say there is no from our perspective, there is no significant profitability trade-off between those two. Really, what drives the mix of our production mix of EML versus CW is purely the demand from our customers. Right? So if it is more silicon photonics-based transceivers, then we, you know, then we allocate more capacity to CW lasers. If it is more EML, we will, you know, we will allocate it to EML. And I think, you know, in general, we can make those choices, you know, certainly six months ahead of time.

You know, we can even, you know, make those choices even four months ahead of time. So I would say somewhere to the kind of four to six months ahead of time we have to do the capacity planning between EML and CW. And the good thing about the indium phosphide capacity is it is fungible. We can move the capacity to either EML or CW. And then for photodiode, that is just the receiver for the laser. Right? So we just build the number of photodiodes that are needed to receive the laser signal. So that is a pretty straightforward calculation. Right? So that is kind of how we do the capacity planning.

Ultimately, it is really driven by the mix that our customers want in terms of EML versus silicon photonics transceivers, and we have both. So, you know, we are happy to support the customers in whichever version that they need for their application.

Papa Sylla: Got it. Very helpful. Thank you.

Operator: Thank you. The next question comes from Michael Mani with Bank of America. Please go ahead.

Michael Mani: Hi. This is Michael Mani on for Vivek Arya. Thank you so much for taking our questions. As you look out over the next year, what is your confidence level in your ability to expand your share in more 1.6T over 800 gig? And could you also talk about the 1.6T ramp from a customer breadth perspective? Is this a ramp that is very concentrated with a few customers, or are you seeing more of a balanced ramp into next year? Thank you.

James Anderson: Yes. Thanks, Michael. Maybe I will answer the second part first and come back to the first part of the question. On the second part of the question, we are seeing 1.6T ramp across multiple customers. So we have multiple customers that are engaged in 1.6T and expect to ramp with multiple in parallel. And I would say that the other color I would add is that a number of customers are accelerating their time and their ramp on 1.6T. And we view that all as a good thing. Right? We view that as positive. We are really proud of the lineup of 1.6T transceivers that we have.

Just as a reminder, at OFC earlier this year, we were the only company that demonstrated 1.6T transceivers using three different technologies: silicon photonics, EML, and VCSEL. So I think we have a great product lineup. We have good customer position. We have seen acceleration of 1.6T, and we feel like we are certainly well-positioned for that. So I guess, to the first part of your question, yeah, we feel really well-positioned on 1.6T. I think as we enter calendar 2026, we expect both on a year-over-year basis, we expect 800 gig will still grow on a year-over-year basis. We are seeing very strong demand on 800 gig.

But on top of that, we expect 1.6T to ramp at a very healthy pace.

Michael Mani: Great. Thank you. And, for my follow-up, I just wanted to ask about your progress on portfolio optimization and specifically pricing. So it seems like there has been a good amount of progress there in the last couple of quarters, but how much left is there in terms of these pricing tailwinds to recognize whether, you know, whether it is from the core Datacom side or industrial? And maybe more specifically as well, just what are you seeing from a pricing perspective for transceivers? Just if you could talk about that environment.

James Anderson: Maybe I will answer the last part of the question on transceivers, but I will let Sherri also comment on pricing as it relates to gross margin. I would say on pricing of transceivers, pricing dynamic very much as we would expect. So I do not think we are seeing anything unexpected with respect to pricing. And then, of course, in a, you know, in a more supply-constrained market in general, that is certainly always a positive dynamic for pricing. And then kind of in the first part of your question, sort of pricing optimization in general and how it relates to gross margin, I will ask Sherri to answer that part.

Sherri Luther: Sure. Thanks, Michael. So from a pricing optimization perspective, I was really pleased to see that during the quarter, we of the improvement in gross margin, the 70 basis points improvement sequentially and a 200 basis points year over year. Part of that was due to pricing optimization. Pricing optimization in our, you know, where we saw benefits in the industrial side of our business as well as in the data center and communications part of our business. So pricing is an area where we tend to expect that the greater magnitude would come from the industrial part of our business. But we do see benefits, you know, as well in the data center and communications part of our business.

And, you know, pricing is really, you know, pricing our products for the value they provide. And in the industrial part of our business, that is the part of our business where in many cases, we are the only provider of those products. And so, you know, our customers are, you know, certainly value the products that we provide to them and how we help them differentiate. So that is one key part of the improvement that we saw during the quarter. But the other part, just to round out the commentary on the gross margin, we also saw improvements from cost reductions.

And so that was an area where we saw benefits in yield, which if you recall, you know, for so many quarters, we have been talking about yield improvements. We continue to focus on that, and we saw those benefits in data center and the communications part of our business as well as lower product input costs. So those are two main levers that we are really focused on to drive to our long-term target model of over 42%. So I was really pleased to see those results.

Michael Mani: Thank you.

Operator: Our next question comes from Meta Marshall with Morgan Stanley Investment Management. Please go ahead.

Meta Marshall: Great. Thanks. A couple of questions. Sherri, last quarter, you called out kind of FX headwinds to gross margins. And just given some of those currencies have remained stronger, just wanted to kind of get some context of whether there was additional kind of this quarter on gross margins? And then second, noted that you guys are ramping the ZR kind of capacity, but just how you guys are thinking about kind of intersecting some of the scale across demand that we are seeing, you know, whether that will kind of the ZR will layer into that or just how you guys are kind of ramping capacity there? Thanks.

Sherri Luther: Yes. So, Meta, on the first part of your question regarding FX, and the impacts to gross margin, did we have any headwinds during the quarter? So nothing material. Certainly, no incremental headwinds in terms of a negative impact from the prior quarter, but nothing significant during the quarter to note on FX.

James Anderson: And on the second part of the question, on the scale across demand, yeah, I would characterize this demand as extremely strong. And, obviously, that is driven by these are the optical connections between the data centers where we are seeing these AI workloads that are spanning multiple data centers, and that is the need for an expansion in high-speed optical networking between these data centers. And our portfolio of products, our ZR, ZR plus portfolio of products are just a really great match for this application. So we are seeing very good demand there. And we have 100 gig, 400 gig, and 800 gig ZR plus transceivers.

So we are certainly ramping capacity as quickly as we can on those transceivers. The other way we participate in that market, though, is we are a module vendor for ZR Plus, but we also sell components into all sorts of DCI equipment and applications. And I would say there again, the demand on the components right now is extremely strong. And we are also ramping capacity for all of the components that go into DCI applications and any related telecom applications. So we are seeing just this one example, the pump lasers that we produce there, we are seeing just, you know, very strong demand on those pump lasers.

Meta Marshall: Great. Thank you.

Operator: Our next question comes from Ruben Roy with Stifel. Please go ahead.

Ruben Roy: Yes. Thanks. Jim, maybe a follow-up on the OCS commentary. With the shipments to seven different customers, great to see the diversification of customers there. In terms of applications, you talked about, you know, sort of getting, you are talking in crew engagements on a broader number of applications. How would you characterize the, you know, kind of the wins that you have today? Are those and I think, you know, the industry has been talking about redundancy, you know, use of the OCS for redundancy and maybe even, you know, packet switch replacement. Should we think about those as being sort of the initial applications, or are you starting to see a broadening today?

Of some of the other applications that you can address? And are there, you know, technical advantages of using a non-mechanical in some of these new applications that you guys are talking about? Thank you.

James Anderson: Yeah. Thanks, Ruben. Great question. No. I would say that the initial adoption in terms of the like the backlog and initial production ramp adoption is very much the way you summarized it in, you know, redundancy applications or, you know, spine switch applications in more of what we have seen historically as traditional applications for OCS. I think further out, though, what we have been surprised about is if you look beyond just kind of the near-term demand, as we have engaged with a broader set of customers is, you know, there are applications beyond that customers are talking about.

And engaging with us on, you know, all the way from, you know, some customers were talking about even using an OCS switch in a scale-up network. Right? A scale-up network where, you know, the optical where the connections are now optical, and there is an OCS switch within that. And then on the other end of the spectrum, customers talking about using OCS switch even within DCI networks. So we have been surprised as we have engaged with customers by the real broadening of potential applications that they are exploring.

And I would say that, you know, that is a little further out in time, but we view that as a great, you know, great indicator that the TAM may be, you know, significantly larger than what we first thought.

Ruben Roy: Perfect. Thanks, Jim. And a really quick question, hope, for Sherri. And apologies if I missed this, Sherri, but with the aerospace and defense divestiture, and the leverage coming down below two, which is great to see, is there an update on the way you are thinking about debt on the balance sheet or capital allocation? Thank you.

Sherri Luther: Yeah. So, Ruben, really pleased that we were able to reduce our debt leverage down to 1.7 times for the quarter after the $400 million debt pay down that you referenced from the sale of the aerospace and defense business. So I am really pleased with that. And then we also mentioned that with the Munich division, product division that we announced that we would take the proceeds from the sale of that to pay off debt as well. That is expected to close a little bit later. And so once we do that, we will take the proceeds from that as well.

So, you know, certainly, debt reduction is a priority, but I would say the number one priority now is continues to be making sure that we are investing for the long term in the business and, you know, an R&D perspective, from a CapEx perspective, and making sure that we are really driving investing for the long-term growth. So that is the number one priority. And then, you know, certainly, debt reduction, we will continue to focus on that, but a close second priority.

James Anderson: Operator, we will take one more question.

Operator: Thank you. Our next question comes from Karl Ackerman with BNP Paribas Asset Management. Please go ahead.

Karl Ackerman: Yes. Thank you for squeezing me in. Just one for me. Jim, you spoke of record transceiver module bookings in Datacom. But what about transceiver components for telecom? And as you address that, can you quantify the level of order visibility with your customer maybe in terms of quarters, as you and your peers seek to add both laser and transceiver capacity and fulfill customer demand?

James Anderson: Yeah. Thanks, Carl. We definitely saw very strong record bookings on transceivers. But, yeah, I am glad you asked about for components going into, you know, a number of our communications applications, DCI and telecom, I would say same story. You know, record level of bookings there too. I mean, just tremendous bookings across both data center and communications.

And on the second part of your question around visibility, so what we are seeing is in those bookings is the normal bookings of booking out in kind of the near term, but we are also seeing customers on top of that book further out in time where they are ordering they are putting orders in place, you know, when a year a year plus in advance. And I think that is really about, you know, they are seeing such strong increases in their demand and their supply needs that they want to get those bookings in place to get the supply coverage.

And then the other very good trend from our perspective is, as I mentioned early in the call, a number of our large customers now giving us very good forecast visibility not just next year or the following year, but out into 2028. So very large customers providing us with visibility three years out, which is very, very helpful for our business.

Karl Ackerman: Thank you very much.

Operator: Thank you. Ladies and gentlemen, as we have come to the conclusion of the allotted time for today's call, I will now turn the floor back to Coherent's CEO, Mr. James Anderson, for closing comments.

James Anderson: Yeah. First, thanks, everybody, for being on the call today. I feel like we are off to a very strong start for our fiscal year with almost 20% pro forma revenue growth and over 70% EPS growth in Q1. On a year-over-year basis, off to a really strong start. And, again, we expect this fiscal year to be a really strong growth year for the company. I would like to once again, I just want to thank all of my Coherent teammates for all of their great hard work, their dedication. Thank you very much, and thanks, everyone, for your support. Operator, that concludes our call.

Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.