Lumentum (LITE) Q2 FY2026 Earnings Call — February 3, 2026

Date: February 3, 2026 | Source: Motley Fool (fool.com) Lumentum Q2 2026 Earnings Call Transcript + Lumentum IR

Participants:Michael Hurlston (President & CEO), Wajid Ali (EVP & CFO), Wupen Yuen (President, Global Business Units), Kathy Ta (VP, IR).

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Operator: Good day, everyone, and welcome to the Lumentum Holdings Second Quarter Fiscal Year 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. At this time, I would like to turn the conference call over to Kathy Ta, Vice President of Investor Relations.

Kathy Ta, VP IR: Thank you, Kevin, and welcome to Lumentum's 2026 earnings call. Joining me today are Michael Hurlston, President and Chief Executive Officer; Wajid Ali, Executive Vice President and Chief Financial Officer; and Wupen Yuen, President, Global Business Units. Unless otherwise stated, all financial results and projections discussed in this call are non-GAAP.

Michael Hurlston, President & CEO: Thank you, Kathy. Good afternoon, everyone. Lumentum delivered a standout second quarter with over 65% year-over-year revenue growth and non-GAAP operating margin increasing by greater than 1,700 basis points. At $665.5 million, we set a company record for quarterly revenue for the second reporting period in a row. We are now recognized as a foundational engine of the AI revolution. Virtually every AI network is powered by Lumentum technology.

Our March revenue guidance, with an $805 million midpoint, represents an impressive 85% plus year-over-year increase. We previously identified three primary catalysts for Lumentum's future growth: cloud transceivers, optical circuit switches (OCS), and co-packaged optics (CPO). The headline for this quarter is that the vast majority of this growth is still ahead of us.

Our OCS business is exceeding internal expectations. While we originally targeted our first $10 million quarter for fiscal Q3, we cleared that bar three months ahead of schedule. Our order backlog has surged well past $400 million, the majority of which is slated for shipment in the second half of this calendar year.

Our execution in cloud transceivers is a definitive turning point. In Q2, transceiver revenue grew significantly and we are now in the lead pack of transceiver suppliers as customers transition their networks to 1.6T speeds. We are also improving the profitability of our transceiver business, with better yields and lower scrap rates.

Turning to CPO, we have secured an additional multi-$100 million purchase order for ultra-high-power lasers that support optical scale-out applications, with shipments expected in 2027. Now, a fourth growth driver is taking shape, one poised to be a generational game-changer: optical scale-up. Data center scale-up connectivity has long been dominated by copper, but copper is hitting a physical wall. We are already deeply embedded in design-in cycles for this, leveraging our ultra-high-power lasers and external light source modules.

Components revenue for the quarter reached $444 million, representing a 17% sequential increase and 68% year-over-year growth. In systems, revenue reached $222 million, a 43% sequential and 60% year-over-year increase. Cloud transceivers accounted for the lion's share of this growth.

Our indium phosphide wafer fab capacity remains at a premium, fully allocated to meet surging customer demand. We have front-loaded our 40% expansion target, delivering on over half of that this past quarter.

Wajid Ali, EVP & CFO: Second quarter revenue of $665.5 million was at the high end of our guidance, and non-GAAP EPS of $1.67 was well above our prior expectations. Second quarter gross margin was 42.5%, up 310 basis points sequentially and up 820 basis points year-on-year, driven by better manufacturing utilization, increased pricing on select products, and favorable product mix. Second quarter non-GAAP operating margin was 25.2%, up 650 basis points sequentially and up 1,730 basis points year-on-year.

Second quarter non-GAAP net income was $143.9 million, and non-GAAP net income per share was $1.67. During the quarter, our cash and short-term investments increased by $33 million to $1.16 billion. In Q2, we spent $84 million in CapEx, primarily focused on manufacturing capacity to support cloud and AI customers.

Components revenue was $443.7 million, up 17% sequentially and 68% year-on-year. Systems revenue of $221.8 million increased 43% sequentially and 60% year-on-year.

Turning to our guidance for Q3 2026, we anticipate net revenue in the range of $780 million to $830 million. The $805 million midpoint would represent another new all-time quarterly revenue record for Lumentum. We project Q3 non-GAAP operating margin in the range of 30% to 31% and diluted net income per share in the range of $2.15 to $2.35. These projections assume a non-GAAP annual effective tax rate of 16.5% and approximately 92 million non-GAAP diluted shares.

Questions & Answers

Simon Leopold (Raymond James): Can you double click on the OCS market — how you're seeing the market, the exit rate, and customer diversification? And can you help us quantify the price increase impact?

Michael Hurlston: The OCS market is developing a lot better than we believed, and it's accelerated from a time standpoint. Our backlog has increased to well in excess of $400 million, most of which will be shipped in 2027. We're exiting the calendar year on quite an increased velocity — calendar Q4 looks like it will be quite a bit higher than the $100 million we discussed. It's broad-based — multiple customers make up that backlog, and their demands are increasing significantly. On pricing, increases are starting to flow through and have an impact on both top line and gross margin, relatively modest overall, and for the first time we're moving up into the forties on gross margin.

Samik Chatterjee (JPMorgan): On the indium phosphide capacity ramp, you front-loaded some of the increase. Does that change the end state? And are you assessing new fabs?

Michael Hurlston: We've gotten somewhere a little bit north of 20% of the 40% impact in December alone, so we'll do a little bit better than 40%. We now have line of sight to more capacity through the next four quarters via Sagamihara improvements and contributions from Caswell (UK) and Takao (Japan). On new fabs, yes, that's an active investigation — whether creatively in current fabs or bringing on new fab capacity by acquisition.

Ryan Koontz (Needham): In the transition to 1.6T, is that driven by EMLs today, and how ready is silicon photonics?

Michael Hurlston: Most of the initial transceivers going to 1.6T are based on EMLs — our 200-gig lane speeds are doing better than expected, a quarter earlier than expected. But we'd still expect silicon photonics to be the majority of transceiver shipments at the 1.6T node. The absolute number of EMLs will go up rather appreciably given the numbers are so large. We're introducing 200-gig differential EMLs now to give us another leg up.

Vijay Rakesh (Mizuho): Can you size what the CPO quarterly run rate would be with the new multi-$100 million order?

Michael Hurlston: For scale-out, we've said we'd expect somewhere around $50 million in the fourth calendar quarter. The multi-$100 million order really clicks in the first half of 2027. The ramp is hitting us faster than we forecast even last quarter — we're very much sold out in our powered laser fab.

George Notter (Wolfe Research): With the demand, is it possible you would outsource more manufacturing?

Michael Hurlston: We have pivoted from a manufacturing strategy to really look at more contract manufacturing. We've stepped on the gas at Nava (Thailand), cleared out factory footprint in China, and hired a new leader for back-end operations from Jabil. We're facing so many ramp challenges that not relying on partnerships would be unwise.