0000820318-26-000006
SEC filingRevenue grew 17% YoY to $1.686B, driven by AI datacenter demand, with gross margin expanding 140 bps to 37%.
For the three months ended December 31, 2025, Coherent reported total revenues of $1.686 billion, a 17% increase compared to $1.435 billion in the same period last fiscal year. Gross margin improved to 37% from 36%, a 140 basis point expansion, driven by higher revenue volume, cost reductions in product input costs, efficiency gains from improved cycle times, yield improvements in the Datacenter & Communications segment, and pricing optimization. Net earnings attributable to Coherent Corp. rose to $147 million ($0.76 diluted EPS) from $103 million ($0.44 diluted EPS) in the prior year quarter, reflecting strong operational leverage and a $115 million gain on the sale of the aerospace and defense business, partially offset by $11 million in impairment charges on assets held-for-sale and $4 million in restructuring charges.
The Datacenter & Communications segment continued to be the primary growth engine, with revenues increasing 34% to $1.208 billion. This growth was fueled by sustained strong AI datacenter demand and increased demand for data center interconnect and traditional telecom applications. Segment profit rose 44% to $306 million, driven by higher revenues, partially offset by increased R&D investments. The Industrial segment experienced a 10% revenue decline to $478 million, primarily due to the divestiture of the aerospace and defense business on September 2, 2025. Segment profit decreased 4% to $112 million, impacted by the divestiture and higher R&D, but partially offset by lower manufacturing costs.
Management highlighted continued strong demand in Datacenter and Communications markets, with increasing investments by hyperscale and other cloud providers in AI datacenter infrastructures. The company expects restructuring actions under the 2025 Plan to be substantially completed by the end of fiscal 2026. While tariffs and export controls did not have a material impact in Q2 FY26, management noted potential future headwinds from sustained disruptions in global trade conditions. The company believes existing cash, cash flow from operations, and available borrowing capacity will be sufficient to fund needs for at least the next twelve months.
Total debt decreased to $3.35B at December 31, 2025 from $3.69B at June 30, 2025, driven by repayments and refinancing activities. The company had $863.7M in cash and cash equivalents, with an additional $665.1M in restricted cash (mostly restricted to Silicon Carbide LLC). Inventories rose to $1.85B, a 28.5% increase from June 2025, primarily in raw materials and work-in-progress. The net deferred revenue (contract liabilities) stood at $65M.
No purchase commitments were disclosed in the Notes to the Financial Statements. The notes do not include any material contractual obligations beyond debt maturities and lease obligations. The restructuring plans (2023 and 2025) involve estimated cash outflows through fiscal 2028, but no aggregated commitment amounts were provided.
No common stock buyback program was disclosed. Preferred stock dividends for the six months ended December 31, 2025 totaled $31.8M in cash and $3.4M in deemed dividends. The company completed a refinancing of its credit facilities, including a $1.25B incremental term A loan and a $700M revolving credit facility. Debt extinguishment costs of $3M were recognized. Capital expenditures were not explicitly detailed in the notes but were $257.5M in the first six months of fiscal 2026 per the cash flow statement (outside notes).
The company operates two reportable segments: Datacenter & Communications and Industrial. For the three months ended December 31, 2025, Datacenter & Communications generated $1,207,950 in revenue (71.6% of total) and segment profit of $306,366 (73.3% of total segment profit). Industrial contributed $477,679 (28.4% of revenue) and $111,768 segment profit. Revenue by geography for the three months: North America $1,076,078 (63.9%), Europe $192,596 (11.4%), China $187,985 (11.2%), Japan $102,007 (6.1%), Rest of World $126,963 (7.5%). The notes also disclose that the company's chief operating decision-maker uses segment profit as a key metric.
Operating cash flow (CFO) of $103.9M was significantly lower than net earnings of $369.0M, driven by large working capital outflows. Inventory increased by $421.4M and accounts receivable by $91.4M, partially offset by a $205.6M increase in accounts payable. Excluding working capital, CFO would have been stronger, but these swings highlight operational strain.
Capital expenditures (capex) of $257.5M exceeded CFO, resulting in negative free cash flow (defined as CFO minus capex) of -$153.7M. The company used proceeds from asset sales ($385.8M from sale of business, $31.5M from equity investment) and new debt ($1.57B in borrowings) to fund capex and repay $1.66B in existing debt.
Capital returns include $11.4M in dividends, a new initiative. No share repurchases were made. The overall cash position decreased by $104.1M, including a positive FX effect of $12.2M.
Key anomalies: The $421.4M inventory build and $115.2M gain on sale of business (non-cash in operating) require further investigation. Also, cash paid for taxes surged to $100.5M from $66.4M in the prior period, impacting CFO.