COHERENT CORP. files 10-Q: quarterly report (10-Q)

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of Coherent’s financial statements with a narrative from the perspective of management. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes included under Item 1 of this Quarterly Report on Form 10-Q. Coherent’s MD&A is presented in the following sections:

Investors should also be aware that, while the Company does communicate with securities analysts from time to time, such communications are conducted in accordance with applicable securities laws. Investors should not assume that the Company agrees with any statement, conclusion of any analysis, or report issued by any analyst irrespective of the content of the statement or report.

Overview

Coherent Corp. (“Coherent”, the “Company,” “we,” “us” or “our”) is a vertically integrated manufacturing company that develops, manufactures and markets lasers, transceivers, and other optical and optoelectronic devices, modules, and systems, as well as engineered materials, for use in datacenter & communications, as well as industrial applications, including precision manufacturing, energy, semiconductor & display capital equipment, and instrumentation. We generate nearly all of our revenues, earnings, and cash flows from developing, manufacturing, and marketing a wide range of products and services for our end markets. Coherent has broad technical expertise and a deep technology stack in areas of importance to our products, including materials growth and fabrication of specialty materials, lasers including semiconductor and high power lasers, passive optics including isolators, transceivers, transport equipment, high power lasers for semiconductor capital equipment, display manufacturing, precision manufacturing, consumer electronics, life sciences applications and scientific research. Many of our products include custom integrated software that we develop internally, leveraging our deep domain expertise. Headquartered in Saxonburg, Pennsylvania, Coherent has research and development, manufacturing, sales, service, and distribution facilities worldwide.

Trends and Other Matters Affecting Our Business

Industry Conditions

Coherent is a global leader in photonic technology. Our broad photonic technology platform is foundational to the performance and scalability of AI datacenters. AI runs on compute, but it scales on optical connectivity. Coherent is at the center of an extraordinary expansion in optical networking infrastructure, driven by the rapid growth of AI, the transition from copper to optical connectivity, and the increasing need for bandwidth and energy efficiency across increasingly large and complex datacenter architectures. Demand in the datacenter and communications markets remain strong, driven by continued investment in artificial intelligence infrastructure and increasing demand for higher-speed, higher-capacity optical connectivity.

Within datacenters, the transition to next-generation optical transceivers and the increasing use of optical connectivity across scale-out, scale-up and emerging chip-to-chip architectures are supporting continued market growth, as optical technologies increasingly address bandwidth and connectivity requirements historically served by copper. In communications markets, demand is benefiting from the expansion of high-capacity connections between geographically distributed AI datacenters, driving increased adoption of optical components, modules and systems designed to improve utilization of existing fiber infrastructure and support higher-capacity networks. Customer commitments and longer-term agreements continue to provide visibility into sustained demand across these markets.

We are investing in manufacturing capacity for the Datacenter and Communications markets, including expanding our indium phosphide capacity in Sherman, Texas, and Sweden to address our increased customer demand and industry-wide shortage. In our Industrial markets, we are experiencing strong demand in semiconductor capital equipment.

Restructuring Plans 2023 Plan

On May 23, 2023, the Board of Directors approved the 2023 Plan which includes site consolidations, facilities moves and closures, as well as the relocation and requalification of certain manufacturing facilities. These restructuring actions were intended to realign our cost structure as part of a transformation to a simpler, more streamlined, resilient and sustainable business model.

For the three months ended September 30, 2026, these activities resulted in net charges of $4 million, primarily for asset write-offs, site closure costs and adjustments to employee termination costs. In fiscal 2026, these activities resulted in net charges of $1 million, primarily for site closure costs partially offset by adjustments to employee termination costs. In fiscal 2025, these activities resulted in charges of $53 million, primarily for impairment losses associated with the sale of our Newton Aycliffe business, impairment of right-of-use (“ROU”) assets, employee termination costs, site closure costs and accelerated depreciation. In fiscal 2024, these activities resulted in $27 million of charges primarily for acceleration of depreciation, write-off of property and equipment, and site closure costs. See Note 10. Restructuring Plans for further information.

2025 Plan Commencing in the quarter ended March 31, 2025, and as part of the Company’s ongoing strategic review of its business, management approved the 2025 Plan to take a number of restructuring actions, including site consolidations, facilities moves and closures, workforce reductions, contract terminations, and certain other associated cost reductions. The 2023 Plan and the 2025 Plan are collectively referred to as the “ Restructuring Plans.”

Impairment of Assets Held-for-Sale and Sale of Business

In fiscal 2026, we recorded additional non-cash impairment charges of $64 million related to three entities within the Industrial segment. Two of these entities had already been classified as held-for-sale as of June 30, 2025 and remained classified as held-for-sale during the first and second quarters of fiscal 2026, while the third entity was classified as held-for-sale during the fourth quarter of fiscal 2026 and remains classified as held-for-sale at September 30, 2026.

On September 2, 2025, we completed the sale of our aerospace and defense business, which was part of our Industrial segment, for approximately $400 million and recorded a gain of $115 million to Gain on sale of business in our Condensed Consolidated Statements of Earnings (Loss) in the first quarter of fiscal 2026.

See Note 7. Assets Held-for-Sale and Sale of Businesses for further information.