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SEC filingRevenue growth of 21% driven by AI datacenter demand, with gross margin expanding 243 bps to 38%.
For the three months ended March 31, 2026, Coherent reported revenue of $1,806 million, a 21% increase from $1,498 million in the same period last year. The growth was primarily fueled by a 41% surge in the Datacenter & Communications segment, driven by strong AI datacenter demand and increased demand for data center interconnect and traditional telecom applications. Gross margin expanded 243 basis points to 38%, benefiting from higher revenue volume, cost reductions in product input costs, efficiency gains from improved cycle times and yield improvements, and pricing optimization. Net earnings attributable to Coherent Corp. rose sharply to $191 million ($0.97 diluted EPS) from $16 million ($0.11 loss per share) in the prior year quarter, reflecting the revenue growth, margin expansion, and lower interest and other expenses ($16 million vs. $62 million).
The Datacenter & Communications segment generated $1,362 million in revenue, up 41% year-over-year, with segment profit increasing 49% to $348 million. The Industrial segment saw revenue decline 16% to $444 million, primarily due to the divestitures of the aerospace and defense business (September 2025) and the Munich, Germany business (January 2026). Industrial segment profit decreased 12% to $101 million, impacted by the divestitures and increased R&D investments, partially offset by lower manufacturing and SG&A costs.
Management highlighted continued strong demand in Datacenter and Communications markets, driven by AI infrastructure investments. The company is investing in manufacturing capacity, including expanding indium phosphide capacity in Sherman, Texas. The multi-year strategic agreement with NVIDIA includes a multi-billion-dollar purchase commitment and a $2 billion equity investment to support R&D, capacity, and operations. 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 Q3 FY26, management noted potential future headwinds from sustained global trade disruptions.
As of March 31, 2026, Coherent's balance sheet was significantly strengthened. Cash and cash equivalents stood at $1.59B, with an additional $825M in short-term investments, totaling $2.42B. Total debt decreased by $493M to $3.19B from $3.69B at June 30, 2025, driven by repayments partially offset by new Term A borrowings. The net cash position (cash + short-term investments minus total debt) improved to a positive $1.23B from a negative $2.78B a year earlier (pro forma for preferred conversion). Shareholders' equity surged to $10.68B, primarily due to the $2B NVIDIA equity investment and the $2.5B conversion of Series B preferred stock into common equity. Inventory increased by 48% to $2.13B, reflecting capacity buildup for the Datacenter & Communications segment.
The Notes do not disclose specific purchase commitments beyond normal operating lease obligations. Contract liabilities (deferred revenue) totaled $70M, down $2M from June 30, 2025. The company has no material off-balance-sheet commitments mentioned. The significant capital commitment is the forward-looking capex plan; $547M was spent in the first nine months of FY2026, primarily for capacity expansion in Silicon Carbide and datacenter products.
CapEx was $547M (10.8% of revenue) for the nine months, up 77% YoY, driven by expansion of silicon carbide and optical component manufacturing. Debt management focused on refinancing: Amendment No. 4 added a $1.25B incremental Term A loan and increased the revolving credit facility to $700M, with proceeds used to repay existing term loans. The company also repurchased no shares during the period. Dividends of $11.4M were paid (likely on preferred stock before conversion). The NVIDIA investment provides additional liquidity and strategic alignment.
Effective July 1, 2025, Coherent realigned into two segments: Datacenter & Communications (D&C) and Industrial. For Q3 FY2026, D&C generated $1.36B in revenue (75% of total), up 40.6% YoY, with a segment profit margin of 25.5%. Industrial revenue fell 16.1% to $444M (25% of total), with a margin of 22.7%, impacted by divestitures and end-market softness. Geographically, North America contributed 64% of total revenue, followed by Europe (12%), China (11%), Japan (5%), and Rest of World (8%). The strong North America share reflects datacenter demand.
Operating cash flow (CFO) of $10.1 million was dramatically lower than net income of $550.7 million, a clear sign of weak cash conversion. The primary driver was a massive $699.4 million inventory build and a $225.3 million increase in accounts receivable, which together consumed over $924 million in cash. These working capital outflows overwhelmed the positive contributions from depreciation, amortization, and share-based compensation.
Capital expenditures of $547.2 million represented a 77% increase year-over-year, far exceeding CFO and resulting in a negative free cash flow of -$537.2 million. The company funded this gap and other investing activities ($891.1 million net cash used) primarily through financing: $1.25 billion from Term A Facility borrowings, $2.0 billion from common share issuance, and $628.8 million from revolving credit facilities, partially offset by $1.76 billion in debt repayments.
Dividends paid were modest at $11.4 million, and there were no share repurchases. The company also generated $437.3 million from the sale of a business and $48.8 million from an equity investment sale. The significant reliance on external financing and the negative free cash flow highlight a period of heavy investment and working capital strain, with CFO quality being poor relative to reported earnings.