COHR Coherent Corp. 10-Q 2026-09-30 section summaries

Coherent Corp. — Q1 FY2027

Consolidated results

Revenue increased 49.9%, driven by strong Datacenter & Communications growth, while Industrial revenue declined. The prior-year quarter included a $115.211 million gain on sale of a business and $9.1 million of held-for-sale impairment; Q1 FY2027 had no comparable sale gain. Preferred dividends were zero versus $33.5 million in the prior-year quarter. Diluted weighted-average shares were 202.026 million, compared with 190.684 million.

Segment performance

Datacenter & Communications revenue rose 79.1% and segment profit rose 88.9%. Industrial revenue fell 14.8%, although its segment profit increased 4.4%. Effective July 1, 2026, certain business units were moved between segments; prior periods were not recast because management considered the impact immaterial.

Segment-profit reconciliation

Share-based compensation rose substantially, including performance-share and cash-based performance-award expense of $43.011 million, versus $17.215 million.

Cash flow and investment

Despite higher earnings, operating cash flow was negative, principally reflecting working-capital investment: inventory used $737.1 million and receivables $255.3 million, partly offset by increases in accounts payable of $429.8 million and contract liabilities of $269.3 million. Of current-quarter PP&E additions, $527.7 million was included in accounts payable. Net PP&E increased to $3.8698 billion from $2.9993 billion, with construction in progress rising to $1.2591 billion from $776.5 million.

Balance sheet and shares

Intangibles excluding goodwill comprised technology $876.0 million, trade names $430.0 million, customer lists $1,509.8 million, and backlog and other $0. Based on Coherent shareholders’ equity less goodwill and these intangibles, tangible equity was approximately $4.0658 billion. Goodwill increased partly from currency translation and a $141 million reallocation from Industrial to Datacenter & Communications; impairment testing related to the transfer found no impairment. Inventory increased 29.5% to $3.3414 billion, including $2.0114 billion of work in progress. Quarter-end cash, cash equivalents and restricted cash totaled $2.1363 billion, including $583 million of restricted cash, largely for Silicon Carbide LLC.

Debt, funding and other developments

Debt increased, including $802.8 million outstanding under other credit facilities versus $28.0 million at June 30. The $990 million principal amount of 5.000% Senior Notes matures in December 2029; Term B-3 loans mature July 2029. The September 2025 credit-facility amendment added $350 million of revolving commitments, bringing total revolver capacity to $700 million, and added $1.250 billion of Term A loans. The revolver and new Term A loans mature in September 2030, subject to springing-maturity conditions. Revolver availability was $669 million, and Coherent reported compliance with its credit-facility covenants. Term A and Term B rates were SOFR plus 1.25% and 1.75%, respectively. Two unsecured foreign-subsidiary facilities had $205 million outstanding against $475 million of capacity; a separate unsecured facility had approximately $598 million outstanding against approximately $950 million of commitments.

In March 2026, Coherent issued NVIDIA 7,788,161 common shares at $256.80 per share for $2 billion gross proceeds to support R&D, capacity expansion and operations. Price protection expired without being triggered. Series B preferred stock had been fully converted by June 2026; the conversion reclassified $2.5 billion from mezzanine equity to common stock. Denso and Mitsubishi Electric each invested $500 million in Silicon Carbide LLC; Coherent retains approximately 75% ownership, while each partner holds approximately 12.5%.

Coherent sold its aerospace and defense business in September 2025 for approximately $400 million, recording a $115 million gain. It sold its Munich materials-processing tools division in January 2026; that transaction resulted in a $96 million loss, including $105 million of impairment charges across fiscal 2025 and fiscal 2026. A further Industrial disposal is planned within one year.

Coherent received a U.S. Bureau of Industry and Security inquiry in January 2025 concerning past product sales to Huawei, stopped shipments to Huawei, and is cooperating with the agency. No determination had been received, and potential penalties or remediation costs could be significant; the company could not estimate a loss range.

Coherent — Q1 FY2027 (three months ended September 30, 2026)

Consolidated results

Revenue increased 50%, led by AI-related datacenter demand. Gross margin improved by 254 basis points, mainly from lower product input costs, manufacturing efficiencies and improved yields in Datacenter & Communications (D&C), as well as pricing optimization and lower amortization expense across both segments. Industrial margins also benefited from business divestitures. R&D remained 10% of revenue, reflecting investment in transceivers, PhotonLink, optical circuit switches and Multi-rail solutions. SG&A declined to 13% of revenue from 16%; higher share-based compensation and facility, integration, divestiture and IT costs were partly offset by operating leverage.

Net earnings attributable to Coherent exceeded consolidated net earnings because of losses attributable to noncontrolling interests ($3 million, versus $1 million). The effective tax benefit rate was 6%, compared with 4%; management cited geographic tax-rate differences and discrete benefits, including stock-compensation tax benefits and a change in the China permanent-reinvestment assertion. Lower Term Loan balances and rates contributed to reduced interest expense, partly offset by a smaller benefit from the interest-rate cap. Higher foreign-exchange net gains also reduced interest and other, net expense. The prior-year quarter included a $115 million gain on the aerospace and defense sale and $9 million of held-for-sale impairment.

Segment results

D&C revenue grew 79% and segment profit 89%, driven by AI datacenter demand and higher Communications volumes, including data-center interconnect, scale-across and traditional telecom applications. Higher revenue supported profit growth, partly offset by increased R&D investment. Management sees demand from higher-speed optical connectivity and the shift from copper to optics across scale-out, scale-up and emerging chip-to-chip architectures; customer commitments and longer-term agreements provide visibility. Coherent is expanding indium phosphide capacity in Sherman, Texas, and Sweden amid strong demand and industry-wide supply constraints. Industrial revenue fell 15%, primarily following the aerospace and defense and Munich divestitures, while profit rose 4% on divestitures, pricing optimization and lower manufacturing costs. Semiconductor capital equipment demand was strong.

Cash flow and investment

Higher inventory to support growth drove operating cash use, partly offset by increased accounts payable and net earnings. Investing cash flow reflected $672 million of higher capital-expenditure cash use, partly offset by $625 million of proceeds from short-term investment sales or maturities. Financing cash flow primarily reflected $773 million of proceeds from other credit facilities. Long-term borrowing and revolver proceeds were $785 million, compared with $1.342 billion; employee minimum-tax payments were $129 million, versus $37 million, and payments on existing debt were $1 million, versus $1.651 billion.

Liquidity and debt

No borrowings were outstanding under the Revolving Credit Facility at September 30. The weighted-average interest rate on total borrowings was 5% in the current quarter, compared with 6% in the prior-year quarter. September 2025 amendments established $700 million of revolving commitments and added Term A loans; both facilities mature September 26, 2030, subject to a springing-maturity provision, and bore SOFR-based interest plus 1.25%. Term B-3 loans mature July 1, 2029 and bore SOFR-based interest plus 1.75%, with a 0.50% floor. Term-facility interest expense was $30 million, reduced by $1 million from an interest-rate cap. Foreign subsidiaries had $475 million of local-currency credit lines, of which $205 million was outstanding, and a separate facility with approximately $950 million of commitments, of which $598 million was outstanding; these facilities are unsecured and are not guaranteed by Coherent or its other subsidiaries.

Management expects cash, operating cash flow and borrowing capacity to cover needs for at least twelve months. Approximately $944 million of cash, cash equivalents and restricted cash was held outside the U.S.; restricted cash was reported as $583 million, including $581 million at Silicon Carbide LLC, restricted to that subsidiary.

Portfolio, funding and risks

Coherent sold its aerospace and defense business on September 2, 2025, for approximately $400 million, recording a $115 million gain in Q1 FY2026. It sold the Munich product division on January 30, 2026; the associated loss was $96 million, with impairment charges across FY2025 and FY2026 partly offset by a $115 million gain in Q3 FY2026. FY2026 also included $64 million of additional noncash impairment charges for three Industrial entities classified as held for sale. Q1 FY2027 net charges were $4 million under each of the 2023 and 2025 restructuring plans, which cover closures and consolidations, manufacturing moves and workforce reductions.

NVIDIA invested $2 billion in Coherent on March 2, 2026, to support R&D, capacity and operations. A related multi-year capacity agreement through 2030 may require substantial equipment, labor and working-capital investment as production ramps, and could affect customer concentration, gross margin and capital expenditures. No material liability was recorded at quarter-end solely from the agreement. Silicon Carbide LLC separately received $1 billion in 2023 for a 25% equity interest, primarily to fund SiC expansion.

Tariffs, export restrictions and retaliatory trade measures could raise costs, disrupt operations or delay production. Following the February 20, 2026 U.S. Supreme Court IEEPA tariff ruling and related court orders, Coherent recorded refunds received and an estimated receivable for further recoveries; amounts were not material, and recovery timing and amounts remain subject to review and validation. Coherent cites its diversified manufacturing footprint and internal production of critical components as sources of flexibility.

Market Risk

Coherent’s market risk includes foreign-exchange exposure to the Chinese renminbi, euro, Swiss franc, Japanese yen, Singapore dollar, and Korean won, as well as exposure to variable interest rates on borrowings.

As of September 30, 2024, the company had paused its global balance-sheet foreign-exchange hedging program indefinitely after weighing hedging costs against potential benefits. It continued to assess its currency risks and may use forward contracts to hedge selected foreign-currency transactions against the U.S. dollar.

Coherent’s interest-rate cap, effective July 1, 2023, had its notional amount increased from $500 million to $1.5 billion on September 1, 2024. The filing states that, for the three months ended September 30, 2026, a 100-basis-point increase in rates on variable-rate borrowings would have increased interest expense by $7 million absent effective hedging. The interest-rate disclosure uses a September 30, 2026 date, while the foreign-exchange disclosure refers to September 30, 2024.

Disclosure Controls and Internal Control

Management, including the CEO, CFO, and Treasurer, concluded that disclosure controls and procedures were effective as of the end of the quarter covered by the Form 10-Q. No changes during the most recently completed fiscal quarter materially affected, or were reasonably likely to materially affect, internal control over financial reporting. This section reports no financial results or business developments.

This 10-Q identifies no new specific risk factors, metrics, or business developments in this section. It refers readers to the risk factors in Coherent’s FY2026 Form 10-K and cautions that additional risks may be identified in future filings. Risks that are currently unknown, or that the company presently considers immaterial, could also materially harm its business, financial condition, or operating results.

During the quarter ended September 30, 2026, no director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement, except CFO Sherri Luther. On September 15, 2026, Luther adopted a Rule 10b5-1 plan to sell 8,956 shares and potentially some net shares from performance-share and restricted-share awards vesting during 2027. Sales are scheduled to begin January 14, 2027, and the plan is scheduled to terminate December 31, 2027. This section reports no financial results or other material business developments.