0000820318-25-000019
SEC filingStrong AI-driven Datacenter & Communications demand lifted revenue 17%, with gross margin expanding 252 bps to 37%.
For the three months ended September 30, 2025, total revenue increased 17% YoY to $1.581 billion from $1.348 billion, driven overwhelmingly by the Datacenter & Communications segment. Gross margin expanded 252 basis points to 37.0% of revenue from 34.0% in the prior-year period, fueled by higher revenue volume, product cost reductions, yield improvements, and pricing optimization across both segments. Net earnings attributable to Coherent Corp. surged to $226 million from $26 million, reflecting the benefit of a $115 million gain on the sale of the aerospace and defense business, lower restructuring charges ($19M vs. $24M), and a $14 million decline in interest and other expenses. Diluted EPS swung to positive $1.19 from a loss of $(0.04) per share in the prior year quarter.
The Datacenter & Communications segment posted revenue of $1.090 billion, up 26% YoY, as AI datacenter demand remained exceptionally strong for the company's transceiver products. Both datacenter and communications sub-markets (data center interconnect and traditional telecom) contributed to growth. Segment profit increased 23% to $269 million, with margin compression from higher R&D investments partially offsetting the revenue leverage. The Industrial segment grew revenue 1% to $491 million, with increased volumes in precision manufacturing, semiconductor capital equipment, and automotive markets partially offset by the September 2, 2025 divestiture of the aerospace and defense business. Segment profit jumped 69% to $117 million, driven by lower manufacturing costs, pricing improvements, and a favorable product mix, more than offsetting the modest top-line growth.
No formal quantitative guidance is provided in this MD&A section. Management notes that the 2025 restructuring plan is expected to be substantially completed by the end of fiscal 2026, with $13 million in charges during the quarter. The company highlights exposure to geopolitical risks from tariffs and trade sanctions, noting that such measures did not have a material impact in the first quarter of fiscal 2026, but could create future headwinds. Management expresses confidence that existing cash, cash flow from operations, and available borrowing capacity of $655 million under the revolving credit facility will be sufficient to fund working capital, capex, R&D, and growth objectives for at least the next twelve months. The $700 million of restricted cash (of which $697 million is at Silicon Carbide LLC) is earmarked for capital expansion in the silicon carbide business.
Operating cash flow (CFO) of $45.955 million was significantly lower than net income of $225.196 million, indicating weak cash conversion. The primary driver was a massive working capital outflow of $158.602 million (net of changes in receivables, inventories, payables, contract liabilities, income taxes, accrued compensation, and other operating net assets). Inventories alone consumed $219.120 million, while accounts receivable increased by $66.628 million. These outflows were partially offset by a $105.357 million increase in accounts payable and a $37.221 million increase in income taxes payable.
Capital expenditure (capex) of $103.946 million exceeded CFO, resulting in negative free cash flow of approximately -$57.991 million (CFO minus capex). This underscores a period of heavy investment relative to operating cash generation. The company did not repurchase shares but paid $11.438 million in dividends.
Investing activities provided $296.798 million, largely due to $391.127 million in proceeds from the sale of a business. Financing activities used $421.486 million, primarily from net debt repayments of $1,650.805 million on existing debt, partially offset by $1,250.000 million in proceeds from the Term A Facility and $88.908 million from revolving credit facilities.
Overall, cash flow quality is strained by significant working capital investment, though the sale of a business provided a temporary liquidity boost. The company's ability to generate sustainable free cash flow will depend on working capital normalization and operating margin improvement.