Greetings, and welcome to the Coherent second quarter fiscal year 2026 earnings call. It is now my pleasure to introduce your host, Mr. Paul Silverstein, Senior Vice President of Investor Relations for Coherent. Please go ahead. Thank you, operator, and good afternoon, everyone. With me today are Jim Anderson, Coherent CEO, and Sherri Luther, Coherent CFO. During today's call, we will provide a financial and business review of the second quarter fiscal 2026 and the business outlook for the third quarter of fiscal 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, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish and caution you that such statements are predictions 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 the projections or forward-looking statements. This call includes and constitutes the company's official guidance for the third quarter of fiscal 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'll 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 provide a reconciliation 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, Jim Anderson. Thank you, Paul, and thank you everyone for attending today's call. As the world's leading innovator and provider of photonic technology and solutions, Coherent is at the center of an extraordinary expansion of optical networking infrastructure that's enabling tremendous growth in data traffic in the scale-across, scale-out, and scale-up networks of AI data centers. As a result of the AI build-out, we saw strong revenue and profit growth in our December quarter. We also experienced another step function increase in our bookings, which we expect to increase again in our current quarter. Given the extraordinary strength and visibility of demand from our customers, combined with our continued rapid expansion and production capacity, we expect a period of sustained strong revenue growth over the coming quarters. In particular, we expect continued strong sequential revenue growth in both our March and June quarters, and we expect our fiscal 2027 revenue growth rate to exceed our fiscal 2026 growth rate. The key growth drivers that we see over the coming quarters are growth in both 800G and 1.6T transceivers, growth from the ramps of new products such as OCS and CPO solutions, and ongoing exceptionally strong demand in our products for DCI and scale-across. In addition, we are now seeing demand signals that indicate a pickup in the growth of our industrial business over the course of this calendar year, led by strong orders from our Semicap equipment customers. Overall, we're excited about the growth outlook over the coming quarters. We're also focused on driving meaningful operating leverage and expect to continue to deliver EPS growth that is significantly faster than our expected revenue growth rate. With that overview, let me provide some additional details on our recent quarter and what we expect moving forward. Turning to our Q2 operating results, revenue increased by 9% sequentially and 22% year- over- year on a pro forma basis, which excludes revenue from our recently divested aerospace and defense business. Non-GAAP gross margin expanded by 24 basis points sequentially and 77 basis points year-over-year. The combination of revenue growth and gross margin expansion drove non-GAAP EPS growth of 11% sequentially and 35% year-over-year. I'll now provide some highlights from our two operating segments. In our data center and communication segment, which now accounts for over 70% of our revenue, we saw an acceleration of our sequential growth rate, with Q2 revenue growing by 11% sequentially and by 34% year-over-year, driven by strong growth in both the data center and communications markets. In our data center business, we drove a substantial acceleration in our sequential growth rate, with Q2 revenue growing 14% sequentially and 36% year-over-year. The acceleration of sequential growth in Q2 was driven by very strong execution from our production teams. Given the exceptional demand and our rapidly expanding capacity, we expect double-digit sequential growth in data center again in both our March and June quarters. Given that this is our largest and fastest growing business, I'd like to provide some additional details on both the demand and supply picture within our data center business. Q2 data center revenue growth was driven by growth in both 800G and 1.6T transceivers. In Q2, we experienced another step function increase in our data center bookings, with a book-to-bill ratio that exceeded 4x, as customer demand continues to increase and customers place orders further out in time, which provides us with strong visibility for the coming quarters. The strength of our product portfolio, combined with our vertical integration and our expanding U.S. manufacturing footprint, provide a clear competitive advantage with our customers. We expect revenue growth in the current quarter to be driven by a combination of growth in both 1.6T and 800G transceivers, as well as growth in our OCS systems. We see strong demand for our 1.6T transceivers across multiple customers and continue to expect both 800G and 1.6T to grow significantly in calendar 2026. We expect 1.6T to ramp significantly over the coming quarters, with the early phase of the ramp driven by our EML and silicon photonics-based transceivers, followed by our 200G VCSEL-based 1.6T transceivers ramping in the second half of this calendar year. On the supply side, to address the extraordinary growth in demand, we are investing in the rapid expansion of our production capacity. For example, we significantly increased our indium phosphide production capacity in Q2, and we are executing on track to our plan to double our internal indium phosphide production capacity by the fourth quarter of this calendar year. As a reminder, our indium phosphide capacity expansion is driven by our ramp of six-inch wafer production. A six-inch wafer, compared to a three-inch wafer, will produce more than 4x as many chips at less than half the cost. Our production team is doing an outstanding job ramping our six-inch indium phosphide production, and I'd like to take the opportunity to thank our team for executing ahead of our plan in Q2. We are ramping production in parallel at two sites, Sherman, Texas, and Järfälla, Sweden. We are in production with three different types of key transceiver components on six-inch indium phosphide, EMLs, CW lasers, and photodiodes. Our six-inch yields continue to exceed the yields of our three-inch production lines. In addition, we have multiple six-inch indium phosphide substrate suppliers, and we have secured committed substrate supply that supports our expected doubling of capacity by our December quarter. In short, we are very pleased with our ramp of the world's first six-inch indium phosphide production lines and expect this production ramp to support significant revenue growth and margin expansion of our transceiver products over the coming quarters. We also expect to continue to supplement our internal indium phosphide capacity with continued sourcing from external suppliers. For example, EML supply from our external suppliers increased sequentially in Q2, and we expect it to increase again in the current quarter and during this calendar year through continued long-term partnership with our key external suppliers. We also continue to invest in the expansion of our transceiver module assembly capacity. We are expanding our production capacity in Malaysia, Vietnam, and other locations. Overall, I'm very pleased with the continued expansion of our production capacity to meet the rapid growth in our demand. I'm equally excited regarding our progress on other key data center products and technologies. Specifically, I want to provide updates on our CPO and OCS products, which we expect to be significant contributors to our long-term growth and profitability. Transceiver technology platforms continued to evolve, and we are well positioned as we continue to make progress on LPO, LRO, CPO, and MPO-related products and technologies, with a growing number of engagements across a wide range of customers. In particular, we recently secured an exceptionally large purchase order from a market-leading AI data center customer for a CPO solution that includes our new high-power CW laser that began sampling last year. Beyond the outstanding performance of this solution, a key factor in the customer's decision to partner with Coherent was the fact that our high-power CW laser is produced on our six-inch indium phosphide line in our Sherman, Texas, facility. We expect this significant design win to generate initial revenue toward the end of this calendar year, with a more significant revenue contribution next calendar year and beyond. We also have engagements across multiple other customers for both indium phosphide and 200 gig VCSEL-based solutions for CPO and MPO applications. In Q2, we also saw strong progress for our optical circuit switch platform based on our differentiated non-mechanical liquid crystal technology. OCS backlog grew sequentially in Q2, and we now have over 10 customer engagements. Shipments and backlog include both 64 by 64 and 320 by 320 system sizes, with most of the backlog weighted toward the larger system size. We expect OCS revenue to grow sequentially in the current quarter and the coming quarters as we ramp production capacity as fast as possible to meet the rapidly growing demand and the over $2 billion of expected addressable market opportunity for this platform over the coming years. In our communications market, Q2 revenue grew 9% sequentially and 44% year-over-year. Growth continues to be driven by our products for data center interconnect and scale-across, as well as strong growth in traditional telecom applications. We expect our communications business to grow sequentially in the current quarter as well as our June quarter. The strength we are seeing in communications is broad-based in terms of both products and customers. We continue to see extremely strong demand for our products addressing the data center interconnect market opportunity. These include our ZR and ZR+ coherent transceiver products, as well as lasers and other components that we sell to system OEMs. For example, we recently secured a significant multiyear design win with a leading DCI OEM, which utilizes Coherent's industry-first, uncooled three-pin micro-pump solution. We're also seeing strong demand in our traditional telecom business, driven by ongoing market recovery and new product introductions, such as our new award-winning multi-rail technology platform. We are also experiencing very strong demand across our broader communications product portfolio, including pumps, amplifiers, line cards, and systems. Turning to our industrial segment, revenue grew 4% sequentially and was flat year-over-year on a pro forma basis, excluding revenue from the recently divested aerospace and defense business.... Sequential growth in Q2 was driven by our industrial lasers and engineered materials product lines. We expect the industrial segment to be roughly flat sequentially in the current quarter on a pro forma basis. However, looking ahead, we expect improving demand. For example, we saw a significant increase in orders in Q2 from our Semicap customers, which we expect to translate into sequential growth for our industrial business in our June quarter and the remainder of this calendar year. At the recent Photonics West Conference, we highlighted a number of compelling long-term growth areas for our industrial product lines, including data center XPU cooling solutions based on our 300 mm silicon carbide and thermoelectric technology, thermoelectric generators for improving data center energy efficiency through waste heat recovery, excimer laser annealing systems for Gen 8 OLED fabs, high-power lasers for direct fusion energy generation, and excimer lasers for processing superconducting tape used in magnetic fusion applications. This wide range of differentiated solutions positions our industrial business for significant long-term growth. Finally, I'd like to provide an update on our portfolio optimization initiative. Last week, we completed the sale of our product division based in Munich, Germany, that makes tools for materials processing. The sale of this product division is expected to be immediately accretive to both gross margin and EPS. As a result of this sale and other operational streamlining initiatives, we exited 10 sites over the past quarter, which brings the total number of sites that we've either sold or exited to 33 over the past roughly six quarters since we began this initiative. We plan to continue to streamline our footprint and exit additional underutilized and unnecessary sites over the coming quarters. In summary, we delivered strong revenue and EPS growth in Q2 and expect both fiscal 2026 and fiscal 2027 to be strong growth years for Coherent, given our exceptional demand from our customers and the rapid expansion of our production capacity. I'd like to thank my Coherent teammates for their strong execution and the incredible innovation that they are driving every day for our customers. I'll now turn the call over to our CFO, Sherri Luther. Thank you, Jim. In our second quarter, we continued to drive strong double-digit year-over-year revenue growth, gross margin expansion, and strong profitability. Capital allocation continues to be an area of focus where we maintained our debt leverage ratio below 2x. I will now provide a summary of our Q2 results. Second quarter revenue was a record $1.69 billion, up 7% sequentially from the first quarter and up 17% year-over-year, driven by growth in AI data center and communications demand. On a pro forma basis, excluding revenue from our aerospace and defense business, which we sold in Q1, Q2 revenue increased 9% sequentially and 22% year-over-year. Our Q2 non-GAAP gross margin was 39%, a 24 basis point improvement compared to the prior quarter, and a 77 basis point improvement as compared to the year-ago quarter. We continue to execute on our gross margin expansion strategy, where we generated sequential and year-over-year increases in gross margin, primarily in the data center and communications segment. These improvements were driven by reductions in product input costs, efficiency gains from improved cycle times in the manufacturing process, as well as yield improvements. Pricing optimization also continued to contribute meaningfully to our gross margin expansion. Second quarter non-GAAP operating expenses were $321 million, compared to $304 million in the prior quarter, and $283 million in the year-ago quarter. Operating expenses as a percentage of revenue declined to 19%, as compared to 19.2% in the prior quarter and 19.7% in the year-ago quarter. SG&A expense as a percentage of revenue declined to 9.6% in Q2, as compared to 9.8% in the prior quarter and 10.2% in the year-ago quarter, due to our continued progress on driving efficiencies and greater leverage in SG&A. We have made significant progress on our ERP consolidation project, where we expect most of the company to be on a single ERP platform by the end of this fiscal year. In addition, we are executing on our low-cost region initiatives within our G&A functions that will continue to show benefits throughout this fiscal year and more meaningfully into our fiscal year 2027. The sequential and year-over-year increases in R&D were primarily in the data center and communication segment, as we continue to focus on investments with the highest ROI that drive the future growth of the company. Our second quarter non-GAAP operating margin was 19.9%, compared to 19.5% in the prior quarter and 18.5% in the year-ago quarter. Second quarter non-GAAP earnings per diluted share was $1.29, compared to $1.16 in the prior quarter and $0.95 in the year-ago quarter. From a capital allocation perspective, we maintained our debt leverage ratio at 1.7x, down from 2.3x in the year-ago quarter. Our capital expenditures in the second quarter were $154 million, as compared to $104 million in the prior quarter and $106 million in the year-ago quarter. We are focused on supporting the exceptional customer demand in data center and communications. As a result, we are rapidly expanding our capacity and expect our capital expenditures to increase sequentially over the remainder of this fiscal year. We have made good progress in strengthening our balance sheet, including significantly reducing our debt leverage, refinancing our debt, and improving our working capital. With a strong balance sheet and focus on improving profitability, the company is well-positioned to support the exceptional customer demand with investments to rapidly expand our production capacity. As Jim noted, at the end of last month, we closed the sale of our product division based in Munich, Germany, that makes tools for materials processing. 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 425 employees. We expect to use the proceeds from the sale to reduce our interest expense by paying down debt, which will be immediately accretive to our gross margin and EPS. I will now turn to our guidance for the third quarter of fiscal 2026. Our Q3 outlook includes $5 million of revenue from the period prior to the close of the sale of the Munich product division at the end of January. We expect revenue to be between $1.7 billion and $1.84 billion. We expect non-GAAP gross margin to be between 38.5% and 40.5%. We expect total operating expenses of between $320 million and $340 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 $1.28 and $1.48 on a non-GAAP basis. In summary, I'm very pleased with the strong results in our second quarter. We remain focused on expanding profitability with disciplined execution against our long-term financial target model. We are excited about the significant growth trajectory ahead. This momentum reinforces 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. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask analysts to limit themselves to one question and a follow-up so that others have an opportunity to do so as well. One moment, please, while we poll for questions. Our first question comes from Samik Chatterjee with JP Morgan Chase & Co. Please proceed with your question. Yep. Hi, thank you. Thanks for taking my questions. And Jim, hope your leg is healing now. Hopefully, things are better on that front. Maybe for the first question, really just on demand, how would you characterize, I mean, you gave some of the book-to-bill numbers that you're seeing, but how would you characterize the visibility there in terms of maybe duration? Like, how long is the visibility in terms of demand that the customers are providing? And vis-a-vis, how should we think about the capacity ramp for indium phosphide in particular, how are you planning that out, particularly how to think about contribution of six-inch to that capacity ramp? And I have a follow-up. Thank you. Yeah. Thanks, Samik. And yes, the leg is doing much better. Thank you for that. I appreciate that. On the demand question, yeah, I would say, you know, I'd call the demand that we're seeing and the visibility extraordinary. If I just look at, you know, a couple highlights from last quarter, you know, if we look at our data center business, you know, I was really pleased with the acceleration of our sequential growth rate, 14% sequential growth. And then we also saw, as I mentioned in the prepared remarks, over 4x book-to-bill ratio. So just seeing incredibly strong demand, and we're seeing bookings go further out in time than we would have in the past, which is great for us for visibility. So number one, you know, bookings being booked out, you know, through the rest of this calendar year, and most of the bookings we're getting now are into calendar 2027. So most of our calendar 2026 is, is booked out, and calendar 2027 is filling very, very quickly. That's important to us because it gives us just great visibility. And then, we're also getting really good detailed long-term forecasts from our big customers. You know, a lot of times those forecasts go out, you know, two, three years. So we're getting forecasts that go out into calendar 2028, which again, is great for, for visibility. Then the third thing I would mention with respect to visibility is, number of long-term supply agreements that we've either signed with customers or in the process of signing, where, you know, the LTA will provide, a guarantee to our customers for a certain amount of, supply, and in exchange, they give us a guarantee on a certain amount of demand. There's often, some sort of financial commitment from our customers, like investment for CapEx, et cetera. I would say all those things combined, the visibility of the business is, the best it's ever been, which gives us just kind of great confidence in terms of the go-forward growth that we're seeing. On the second part of your question on indium phosphide capacity ramp, again, here, really pleased with the team's execution here on the six-inch indium phosphide ramp. You know, one of the key metrics that I look at in terms of how we're making progress is wafer starts. And remember, our goal that we mentioned last quarter was that we wanted to double indium phosphide capacity by the end of this calendar year. And if you look at the number of wafer starts that we're starting this quarter, we're basically at 80% of that target capacity already. So we're starting wafers at 80% of the goal of doubling capacity, which is really strong and frankly ahead of schedule. In fact, last quarter, we more than quadrupled the number of wafer starts from our September quarter to our December quarter. So I think that for me, that's a really good, important leading indicator on how we're progressing on the indium phosphide ramp, is that, you know, being at 80% of target in terms of initial wafer starts. Now, that's the beginning of the production line, right? It does take a number of quarters before those wafer starts, or a number of months before those wafer starts, transition into products and ship to customers. And, typical time from a wafer start to a, you know, like a transceiver shipment is about six months. But that's a great leading indicator on our indium phosphide ramp. And we're already seeing the benefits, this quarter, from the initial production that started in, our September quarter of last year. So I'm really pleased with that, that ramp. And again, you know, the reason we're so focused on that is because six-inch, a six-inch wafer versus a three-inch wafer is more than 4x as many chips at less than half the cost. And, and so we're really pleased with that ramp. And then, Samik, it sounded like you had a follow-up? Yeah, yeah, just quick. OCS, I mean, clearly demand is strong, but any way to quantify for us what the magnitude of the backlog from the 10 customers is, or maybe in terms of, like, material impact to revenues, how should we be thinking about when does it get to maybe more than, like, $100 million revenue number in terms of timing? Should it be this fiscal year or next year? How to think about that? Thank you. Yeah. Thanks, Samik. Yeah, in terms of OCS, this is gonna sound like a common theme, but here again, demand very strong. We are very focused on the production ramp now. So backlog is good. It grew in the December quarter versus the September quarter. We expect revenue to ramp to grow this quarter, and really, the revenue to ramp throughout this calendar year and into next year. We are just 100% focused on ramping capacity and production as fast as possible. The demand is very strong. We're engaged with over 10 customers. The size of the market has only grown since we assessed it about a year ago, and so tremendous opportunity, and we're ramping production as fast as possible. We'll probably give some more, you know, specific milestones in terms of revenue as we progress through the year, but it will certainly, you know, contribute to our revenue growth throughout this calendar year and certainly a contributor next year as well. Got it. Great. Great. Thank you. Thanks for taking my questions. Thank you. Our next question comes from Simon Leopold with Raymond James. Please proceed with your question. Thanks very much for taking the question. The first thing I wanted to ask about was you had highlighted some progress traction on the 1.6 T, which is, I guess, I'd call it an emerging cycle. So maybe if you could put some milestones around this to help us understand when does that cross 100 million per quarter? And how does the competitive landscape stack up for that product? And then I've got a longer-term question I'll follow up with. Yeah. Thanks, Simon. So first of all, both 800G and 1.6T, we expect to continue to grow for this calendar year. We saw growth in both 800G and 1.6T last quarter. We expect both to grow again this quarter. You know, 800G is the biggest portion of revenue still. We expect that to grow on a year-over-year basis this year. 1.6T is growing much faster, but it's growing off a smaller base than 800G. I would say the 1.6T ramp has accelerated. The demand from the customers has accelerated. We're ramping with multiple customers. I see that as a really key main growth driver for us throughout this year. We don't typically break out revenue by, by data rates, but those two, 800G and 1.6T, will absolutely be key, key growth drivers for the company, this year, this calendar year. And 1.6T will continue to ramp into the following calendar year as well. In fact, a lot of the orders that we're seeing right now are certainly for 800G, but tremendous amount of orders on 1.6T, and so that's great. That provides a great visibility in terms of the demand moving forward. And then maybe just mention what I did on the, on the prepared remarks, which is our initial ramp is driven by both EML-based transceivers for 1.6T, as well as silicon photonics. But we expect VCSEL-based 1.6 transceivers to start to ramp in the second half of this year. So really pleased with the progress and the rate and pace and the growth we see ahead for 1.6T. That's good. And then, I heard also you've, you've gotten a qualification on the co-packaged optics. And I'm gonna ask about what happens next, which is thinking about scale-up opportunities, are we in a timeframe yet where you're engaging customers for scale-up architectures? Maybe if you could give us some sense of how to think about that market opportunity, which I imagine may be years away, but I have to guess you're, you're engaged in the engineering aspects already. Thank you. Yeah, certainly. So that CPO purchase order that we received, and it was a massive purchase order, and that's for a solution based on our high-power CW laser. We're really pleased with that. That is initially that will be deployed in scale-out, but we expect that to lead to scale-up deployments over time. And I would say that, you know, there is very active engagement and design win progress on scale up, on CPO, all sorts of CPO-related solutions for scale up across multiple customers. I would say call that very active deep engagements. On the size of the scale-up opportunity, I would say it's actually difficult to size. It is tremendous. Some of the forecasts that we've seen from our customers are very, very large, right? If you think about, you know, within the scale-up opportunity, you know, all of that network today, the networks within the racks are electrical. And as those networks convert to optical over the coming years, the amount of optical content that that we gain in the scale-up part of the network is just tremendous, and we're very well positioned. You know, there's a couple different ways that we expect to supply customers in that space. You know, we can certainly supply them at the component level by providing high-power CW lasers, detectors, fiber optical cable. But we're also planning to supply those customers at a higher level as well. So for instance, external laser sources, the pluggable laser sources that would plug into the front panel, also CPO module assemblies, et cetera. So there's a variety of ways that we'll support that market, but we see that as a tremendous growth opportunity as in scale-up. And I wouldn't call it years out. I think it's sooner than that, based on the plans that we're seeing from our customers. Great. Thank you very much. Our next question comes from Ruben Roy with Stifel. Please proceed with your question. Thank you. Jim, I'd like to keep the discussion going on CPO. It's great to hear about the large order and the timeline end of the year into next year. High level, how are you thinking about content in CPO relative to the strength you're seeing currently with 800G and the nascent 1.6T module strength? Do you think that, you know, these will... I think the consensus is that these technologies will coexist, but I'd love to get your thoughts on, you know, the content opportunity and the growth opportunities as you look out into 2027 as CPO ramps. Thank you. Yeah, thanks, Ruben. Yeah, we really view it as it's additive. The way we think about it is, you know, pluggable transceivers will remain the dominant form factor in, certainly in scale-across and in the scale-out networks, through at least the rest of this decade, right? So we see very strong growth in those pluggable formats, in scale-across and scale-out over the coming years. And what we see in CPO is CPO is starting to get deployed initially in scale-out, and we're seeing that. That was the purchase order that we procured, et cetera. But we believe that that CPO, the big growth in CPO is actually driven by scale-up, and that is a very tangible opportunity based on the customer engagements that we have. And that will... We believe the scale up CPO opportunity will dwarf the opportunity in scale scale out. It will be orders of magnitude larger. And so we view that as all incremental TAM for the optical industry in general, and certainly for us as well. Since that network is 100% electrical today, all of that optical content and scale up is incremental TAM. That's helpful. Thanks, Jim. And a quick follow-up, as you talked about 800G versus 1.6T mix. And just wondering, I assume you're starting to see some demand for 200G differential EMLs and that type of thing. You know, as you think about later this year into next year and sort of the mix, what are the margin implications as you approach 40% gross margins here, on the modules themselves? Yeah. One, the 1.6T gross margins, we expect to be higher. You know, generally what we see as an industry is with each new data rate, the ASPs of each new data rate go up, over the prior data rate. So we expect 1.6T. We're seeing 1.6T ASPs that are higher than 800G. And then generally, especially at the beginning of the life cycle of a data rate, the gross margins are higher, so we expect 1.6T gross margins to be higher. And so it's we view 1.6T ramp as margin accretive for us. And then certainly, you know, also- I'm sorry. Yeah, just one other point. Also, a factor in that is, as you know, as we ramp six-inch indium phosphide capacity, which supports both 800G and 1.6T transceivers, that six-inch capacity is a gross margin driver for us as well in our transceiver business. Great. Thanks for the details, Jim. Our next question comes from Thomas O'Malley with Barclays. Please proceed with your question. Thanks for taking my question. Jim, in the preamble, you talked about a book-to-bill ratio that exceeded 4x as customer demand continues to increase, and customers are placing orders further out in time. Obviously, a lot of really good opportunities in the data center segment, but maybe you could spend some time talking about the components of that backlog. Where is the greatest area of strength? Obviously, you have the OCS side, on the module side, on the laser side. Maybe spend a little time measuring out those vectors to give us a little bit of a feel for what's contributing to most of that strength, given we're hearing from others in the industry a lot on specific numbers. I know you don't do that, but anything that you can to help us on that? Yeah. Thanks, Thomas. In terms of that book-to-bill last quarter, I would say the majority of that, vast majority, was driven by 800G and 1.6T transceiver bookings. It's a combination of, you know, growth that we expected from 800G, continued growth, even maybe stronger, a little bit stronger than we had expected, and then an acceleration in 1.6T. So both, both 800G and 1.6T bookings were incredibly strong. We expect that to continue into this quarter as well. In addition to that, you know, bookings for OCS contributed last quarter. And if I look at the current quarter and what we're expecting in bookings, we expect it to be another incredibly strong quarter in terms of bookings. It's really a combination of those four things I mentioned, primarily 800G and 1.6T transceiver bookings. Over time, it starts to be more and more 1.6T bookings, and then, you know, I would say CPO and OCS as well. So those are really the main drivers within the data center bucket of bookings. The other place where we are seeing very strong bookings is in the communications business. So I would say the growth that we're seeing in DCI, Data Center Interconnect products, is very, very strong. That's growing faster than our overall growth rate in communications. But we continue to see strong demand beyond DCI in the kind of traditional telecom space as well. So that would be the other place where we're seeing strong bookings. Thanks, Jim. And then just as a follow-up, you talked about indium phosphide capacity doubling by year-end. Your competitor talked about 40% increases, which they're kind of blowing through in a short period of time. It seems like the industry is bringing a lot of supply online. Broadcom's talking about some additional capacity as well. Maybe talk about when you see the industry getting the product that it needs. Are we still in a position where the industry is short? And just given the incremental capacity additions, when do you think you'll be at equilibrium in that business? Thanks. Yeah, it's a great question. It seems like every quarter we think we're gonna catch up, and then the demand keeps increasing. So, I don't foresee the supply-demand getting back in balance this calendar year. I don't think it happens next calendar year. And if the forecast that we're seeing from customers for indium phosphide laser supply that they need for scale up, I think we could be in a very sustained, long period of supply-demand imbalance on indium phosphide, and which is exactly why we're super focused on ramping our six-inch capacity as quickly as possible. That near-term goal is to double our capacity by the end of this year, but we're driving goals beyond that that are very aggressive in terms of our continued ramp of indium phosphide capacity. The demand that we're seeing from the customers absorbs all of that capacity and then some. Operator, if we could go on to the next question. Our next question comes from Blaine Curtis with Jefferies. Please proceed with your question. Hi, Ezra Weener on for Blaine. Thanks for taking my questions. Just the first one, obviously, component pricing is coming up for your externally sourced components, but at the same time, you guys are signing LTAs. Can you talk a little bit about pricing and how you think about gross margins within that context? Yeah, in terms of input cost, I think you're talking about input cost to our pricing. Yeah, we view it as we are seeing some higher pricing input costs with respect to externally sourced things like EMLs, but that is really offset by our internal indium phosphide ramp, right? So I would say the net is, you know, we're in a much better position over the coming quarters as we continue to rapidly expand our indium phosphide production capacity, and that's a gross margin benefit for us. So the net is positive for us. So we feel pretty good in terms of our position with respect to indium phosphide cost. Another way to look at it is, any time the kind of market price of indium phosphide goes up, it makes our internally sourced indium phosphide that much more valuable, right, in terms of a differential. And then, you know, I would say in terms of our own pricing, you know, we continue to see, you know, the ability to continue to optimize pricing. I think Sherri mentioned in her prepared remarks that, some of our gross margin improvement last quarter was based on pricing optimization. We continue to see opportunity to optimize pricing, especially in a environment where, where we're, where demand is very strong. And so, you know, we believe we're in a good pricing environment across, all of our businesses. Maybe, Sherri, do you want to comment any more on the effects of gross margin, or did that cover it? Yeah, sure. Just a couple of things I can add. You know, when you look at the improvement that we saw, both quarter-over-quarter and sequentially in gross margin, or quarter-over-quarter and year-over-year, you know, key elements of that were certainly cost reductions, where we saw lower product input costs in the data center and communications fiber business, which was actually an area where we saw more of the magnitude of that benefit. We had lower product input costs for key elements, you know, larger components of our BOM, so that was really good to see. We also had improvements in the manufacturing process that enabled greater throughput and efficiency and yield improvements. And again, that was in the data center, a part of our business, so that was really good to see as well. And then on the pricing optimization side, we actually sequentially saw an even, greater, improvement in pricing optimization in a number of areas in our business. So, these are key elements of our gross margin expansion strategy that we've rolled out as part of our strategy at our Investor Day last year. And, you know, we're continuing to focus on that. Really pleased with the progress that we've made, to date on that. In fact, the other thing I'll add is that if you look at our 39% gross margin for this most recent quarter that we achieved, and you compare that to where we, our FY 2024 gross margin, we've actually improved our gross margin by about 470 basis points, through, you know, the elements of the strategy that I've described here. So I'm, you know, really pleased with the progress. We're still, as I would consider, to be in our early stages as we continue to drive toward that greater than 42% target. Got it. Thank you. Then, for the follow-up, just wanted to ask about the six-inch ramp and kind of the timing of that, and also what the long term looks like. So how should we expect that to layer in? And longer term, do you expect the heavy majority of your capacity to be six-inch? And can you talk a little bit about the advantage of that relative to peers? Yeah. On the second part of the question, over the long term, yeah, essentially all of the capacity that we're adding now is six-inch. We're adding a little bit of three-inch, but beyond that, the vast majority is six-inch capacity, and that'll continue. So over time, six-inch capacity will just become more and more a bigger percentage. And if you think about us doubling capacity year-over-year and all, almost all of that coming from six-inch, the other way to think about it is, by the end of this calendar year, about half of our capacity will be six-inch, and it'll grow from there in the following years. In terms of the ramp progress, as I shared, in terms of wafer starts, we're already at 80% of that goal to double our capacity this year. We have plans to significantly expand it beyond just doubling capacity in the following years. It's a little too early to talk about that, but as we get moved throughout this year, I'll give some guideposts on future years and the expected continued ramp of indium phosphide. And then I think you asked about cost structure advantage. Yeah, so the basic cost structure advantage is a six-inch wafer compared to a three-inch wafer. You get, you know, over four times as many product out of that wafer at less than half the cost, so it's a tremendous cost savings. And that's been a key factor in, I think, why, you know, our customers have been selecting us as well. So for instance, that very large, high-power CW purchase order that we just received, big reason for that was because that high-power CW laser will be manufactured on six-inch indium phosphide and it will be made in Sherman, Texas, U.S.-based manufacturing. So that's definitely something that's factoring into our customers' decisions on why to select Coherent, is that advantage in six-inch capacity and the location of it. Got it. Thank you very much. Our next question comes from Atif Malik with Citigroup. Please proceed with your question. Thank you for taking my question, and congrats on the results. So, Jim, I guess my first question is on indium phosphide capacity ramp as well. So any way you can update us at this point on the mix of your internally kind of developed indium phosphide transceivers? I believe previously you reached 50% or so. Any color on where we are at this point? And perhaps tied to that as well, do you have any target in mind on longer term, what kind of mix you are looking at? Yeah, thanks, Atif. What we've said in the past, what we've shared is that, you know, in the past, our amount of indium phosphide internal versus external supply is the majority of our indium phosphide, for instance, lasers, are supplied from internal sources. And now, if I look forward, I would expect, just given the rapid pace of our six-inch production over the coming, you know, this year and following years, I think the percentage that's internally sourced will grow over time. Now, that said, you know, we expect to continue to utilize external suppliers as well. We think there's, you know, there's good reasons for that with customers and with supply chain resiliency, and so we expect to continue to utilize external sources. But over time, you know, the internal sources will become a bigger proportion of the supply. Got it. That's, that's helpful. And for my follow-up, it's kind of on OCS. It's very good to hear that your engagement is growing. I think it was seven now, kind of. It went up to 10 now. So it would be helpful if you can remind us, kind of the prior seven, what kind of workload would those seven engagements or projects relate to? Or and also for the additional three as well. Any color on, are those AI-focused or what kind of workload they are kind of related to? Yeah. Thanks, Atif. Hey, yeah, I'll talk in terms of applications that we're seeing in OCS. You know, I think initially we were seeing OCS adoption where OCS has historically been used, for instance, in a spine part of the network or in a redundancy type of application. But you know, as we've engaged with more customers and as we've engaged more deeply with existing customers, there's been an you know, sort of a broadening of the applications that we're seeing for OCS. So whereas, you know, maybe initially, the most of the applications were in the scale-out portion of the network, we're certainly seeing now applications of OCS even in the DCI portion of the network. As we're deeply engaged with customers on their scale-up plan, so optical within scale-up, we're now seeing customers, you know, talking about using OCS within scale-up networks as well. And so it's really been a broadening of not just customers, but applications. And that's why, you know, when we assessed the size of this market a year ago, we assessed it at about, I think it was about $2 billion by the end of this decade. That, we likely undersized it, and if we reassessed it now, it would be well above $2 billion. So we've seen customers and applications just continue to grow. Thank you. That's great, too. Our next question comes from George Notter with Wolfe Research. Please proceed with your question. Hi, guys. Thanks very much. I just wanted to come back and ask about your ability to manufacture all this stuff. Obviously, the demand is quite impressive right now. I think we hit the kind of indium phosphide discussion pretty well, but I'm just curious, like, you know, transceiver supply in Malaysia, Vietnam. Obviously, you've got, you've got a big telecom business as well. I'd be curious on, like, what things look like in terms of utilization rates. Do you have enough capacity? Do you need to expand capacity? And then any sense if you'd look to use outsourcing as well. Thanks a lot. Yeah, thanks, George. Yeah, so we, we've been more focused on updating you on indium phosphide capacity because that's kind of been the constraint across the industry, and we've been constrained by that. But in parallel, we have certainly been building out capacity of, for instance, transceiver assembly and test. So I shared last quarter that within Malaysia, we opened a new facility within Malaysia, second facility in Penang, Malaysia. We also are now planning to build transceivers at our Vietnam's facility. So Vietnam already makes a number of the components that go into our transceivers. We're now starting to build transceivers within Vietnam, so that's an expansion. So we've been expanding assembly and test capacity. We're also expanding, you mentioned, about telecom. For our DCI and telecom products, we're also rapidly expanding capacity for that as well. So yeah, I would say, really across the board, we're ramping capacity as quickly as possible. I feel like that's kind of my main job right now, is ramping capacity. And so, yeah, given the strong demand that we're seeing, that's definitely a focus across the organization and across many different product lines. And then I think you asked about outsourcing as well. Yeah, we are very open to outsourcing, and we do use a number of different partners for outsourcing. And the way we always approach it is, if manufacturing something provides us a technical, like a technology benefit that our customers care about, or if it provides a cost structure benefit, then we'll do it in-house. But if it doesn't provide either one of those two benefits, then yes, we will look to outsource. There's a number of places where we've historically outsourced and things that we're looking at moving forward. What we keep insourced is things that are technically beneficial to our products and cost structure advantage. You know, obvious example of that is six-inch indium phosphide, where we're the world's only producer of six-inch indium phosphide. So yeah, we're certainly open to outsourcing, and we'll continue to look for opportunities to leverage outsourcing. Super. Thanks very much. I appreciate it. Thanks, George. Our next question comes from Karl Ackerman with BNP Paribas Asset Management. Please proceed with your question. Yeah, thank you. Jim, thanks for more detail on the growth magnitude into 2027. But could you speak to the investments you're making today to drive growth and whether OpEx growth could grow at perhaps half of sales growth? I ask because in March, I would have thought you'd see maybe less growth, more stability in OpEx from the sales material and processing business. So if you could tie that together, too, that'd be helpful. And I have a follow-up, please. Yeah, maybe I'll let Sherri talk about the OpEx growth, but maybe just a little bit of a preamble is from an OpEx standpoint. Maybe from an R&D standpoint, you know, our approach is, you know, we have a large number of businesses that have tremendous growth ahead of them, and we want to make sure we're maximizing that opportunity. And so if those businesses require R&D, we're certainly going to scale the R&D to maximize the opportunity. I think, you know, and we'll certainly scale, you know, at revenue, maybe a little bit less than revenue. But I think the big opportunity to drive operational leverage is in SG&A. And so maybe with that, I'll hand it off to Sherri to maybe provide some additional comments on that. Sure, absolutely. Thanks for the question, Karl. So, from an OpEx perspective, on the R&D front, as Jim said, I mean, we're focused on making those investments that drive the long-term growth of the company. And when you look at our year-over-year R&D growth, you see that it increased 16%. So we're, you know, we're definitely investing in R&D, and those areas are, you know, very heavily in data center and communications part of our business, because that's where we're seeing the long-term growth. And so that's very important. But on the flip side of it, from an SG&A perspective, the target that we put out at our investor day for SG&A was 8% of revenue. And that is, you know, we've got a little ways to go. We've certainly made improvement. I'm really pleased with the progress that we've made on that. We're- ... sequentially and year-over-year, we are, you know, have come down in terms of, of the percentage of revenue, and are driving toward that target. And then, you know, on the R&D side of it, just to complete the picture, the target that we'd given at our Investor Day was 10% of revenue. And so, you know, we're focused on making those investments. I think it's just a matter of, you know, how fast you can spend, because, you know, certainly the commitment is there, and we want to make sure that we make those investments. And so I'm pleased with the investments we've made to date, and that's the way that we're going to continue looking at this, right? Investing in R&D, but at the same time, trying to get more efficiency, and leverage out of SG&A. And so that's how you can kind of think about it going forward. Very helpful. For my follow-up, you know, at SPIE, you presented several new products across your industrial portfolio, and you spoke about improving orders today in Semicap. Are you seeing a marked recovery across your broader industrial business, excluding Semicap, or is it too early to call out definitively yet? Thank you. Yeah, good question. I would say across broader industrial, it's probably too early to call out a broad-based industrial recovery, but we're certainly seeing a very strong pickup in Semicap. So we saw strong orders in the prior quarter, in our December quarter. And we expect those orders to start to generate sequential revenue growth for us in our June quarter and through the second half of this calendar year as well. Semicap is a big segment for us, and so a pickup in growth in orders there is meaningful for us. Thank you. Thanks. Our next question comes from Ryan Koontz with Needham & Company. Please proceed with your question. Super. Thank you. I wanted to ask about the comms business. You highlighted Multi-Rail, which I assume is kind of would be driven by some of these scale-across densifications. Jim, how are you thinking about kind of the timing and your content there for these Multi-Rail density upgrades on long-haul fiber? Yeah, thanks for asking, Ryan. So first of all, we love this new Multi-Rail product. It provides a really great ability to upgrade for, you know, service providers, network operators, to upgrade kind of within their existing footprint and get essentially a lot more traffic through an existing optical infrastructure. So really pleased with this product. We think it's very distinctive in the marketplace, and we would expect the ramp to start in the end of the second half of this year. We're seeing really good design wins and orders in on this product, and revenue contribution would start in the second half of this year. And then I would say, just more generally, you know, that kind of DCI portion of our business, and even just the traditional telecom, we've seen really good growth there. You know, last quarter, we saw a 9% sequential growth, but it was 44% year-over-year growth. We expect that, that segment of communications to be sequentially up in the March quarter and the June quarter, just based on the strong demand that, that we're seeing. And here, again, is another place where we've seen growing backlog. And we sell at, multiple different kind of levels within that part of the market. We sell at the system level, as we were just talking about. We also sell at the module level with ZR, ZR+, coherent transceivers, and then we'll sell, components as well. So things like, pump lasers and other products like that. And we've seen strong demand across all those product categories. Great. Just to follow, if I could maybe touch in on the 3D sensing market, Jim, and transition to multi-junction. How are you thinking about that transition relative to that part of the business? Yeah, the 3D sensing, again, I would just reiterate what we've said before, you know, that we won, you know, a significant new agreement with Apple that they announced as part of their American manufacturing program, this past summer. And that revenue from that new partnership with Apple starts to kick in in the second half of this calendar year. It's a great multi-year partnership. We're really happy with that. You know, it's another example of a major customer leveraging our US manufacturing footprint in Sherman, Texas. In the case of that business, that's six-inch gallium arsenide that's been running in Sherman, Texas, for quite a while, and so that's six-inch gallium arsenide pixel technology. And yeah, big new partnership. We're really happy about that. You know, revenue should kick in here in the second half of this calendar year. Appreciate that very much. Thanks. Operator, I think we have time for maybe one more question, operator? Sure. Vivek Arya with Bank of America Securities, please proceed with yours. Hi, this is Michael Mani. I'm for Vivek Arya. Thanks so much for taking our questions. To start, I just want to understand how much gross margin leverage is your six-inch indium phosphide ramp driving for you right now? And as you look out over the next couple of quarters, like, what is the expected gross margin improvement as you are able to double supply year-over-year? And just bigger picture, as you think about the 42% longer term target for gross margins, where do you stand today? Like, what are the biggest contributors to getting there? Thank you. Yeah, maybe I'll start with the first part of the question on indium phosphide, and Sherri can answer the second part, sort of on broader gross margin drivers. But I would say, you know, this quarter we're starting to see the benefits of the six-inch production this quarter, because remember, we started six-inch production in the September quarter. And it usually takes roughly six months from, you know, the start of wafer production to when the products get put into a transceiver and actually shipped to customers. So we'll see a little bit of benefit this quarter, but that benefit will start to build over the coming quarters. And if you fast-forward for instance, for the end of this year, where half of our internal capacity is running on six-inch, you can kind of think about it as that half of our internal six-inch capacity is roughly half the cost of the other half, right? Because six-inch is where the cost is roughly or the product is the product cost is roughly half of three-inch. So that's kind of a rough way to think about the cost benefit. And Sherri, do you wanna talk about some more general gross margin drivers? Yeah. Sure, sure. Michael, so when you look ahead to our gross margin, you know, whether it's the 39.5%, which is the midpoint of our guide for Q3, and certainly to our long-term target model of over 42%, the biggest contributors there are going to be, you know, certainly cost reductions, and that is a large bucket, which includes product and input costs, some of which I talked about earlier. And we certainly saw benefits during the quarter from product and input cost reductions in our data center and communications business. But that also includes yield improvements that we continue to drive and that we, you know, every quarter we're seeing benefits from yield improvements, and I'm really excited, you know, to continue to see that. There's always gonna be opportunity for that, and so we're gonna keep driving that, as well as the lower product input costs. And the other part is gonna be pricing optimization, as we continue to get the value for our products. And so we've continued to see sequential improvements in the magnitude of pricing optimization, so that's really good as well. Now, the timing of these programs, it's gonna, you know, it's gonna differ. Some is gonna be near term, some are gonna be longer term, just depending on the various initiatives. So the magnitude of the benefit in any particular quarter is, you know, will likely fluctuate just because of the nature of the projects. But the other benefit certainly will also be volume. You know, as we ship higher volume, that, that will benefit us as well. And then, mix, you know, there can always be headwinds from mix on a quarterly basis, so that's kind of the puts and takes within the gross margin, Michael. Great. Thank you. Very helpful. And just one quick follow-up. As the 1.6 ramp gets underway, understood that, you know, it's mainly EML and CW lasers leading the way right now, but between the two, do you see a significant shift between silicon photonics and EML in terms of what that mix looks like for 1.6T? Especially and as you look out over the next year, with CPO seemingly getting bigger as an opportunity, does that make you rethink how much CW laser capacity you would need, understanding, you know, there's plenty of flexibility to do both, but just curious on that shift. Thank you. Yeah, on the first part on EML versus silicon photonics, since we have both products and we're ramping both products, it's really up to the customer on what mix they want, and it just kind of depends on the application. And so we just build whichever version is needed for the customer application. And there's not a big financial difference for us on either one of those. And we believe we, you know, we're just, we're very well-positioned competitively on both an EML-based 1.6T transceiver and silicon photonics. And then the second part of the question is, you know, we're certainly ramping the indium phosphide capacity for the transceiver demand that we're seeing, but we're also, on top of that, ramping capacity to support the high-power CW laser demand that we've got ahead of us as well. Great. Thank you. Thanks, operator. We have reached the end of our question and answer session. I would now like to turn the floor back over to Jim Anderson for closing comments. All right. Thanks, everyone, for joining today's call, and we're certainly on track for another outstanding year of revenue and profit growth for our fiscal 2026, and very well positioned for an even stronger fiscal 2027, given the exceptional demand we're seeing and our rapidly expanding production capacity. Once again, I wanna thank all of my Coherent teammates for all their hard work and dedication. Operator, that concludes today's call. You may disconnect your lines at this time. Thank you for your participation.