Lumentum Q2 Earnings Call Highlights

Key Points

• Record Q2 results: Lumentum reported revenue of $665.5 million (over 65% YoY), non-GAAP EPS of $1.67, and non-GAAP operating margin of 25.2%—a year‑over‑year expansion of roughly 1,730 basis points.
• AI/cloud demand fueling product momentum: Management raised OCS and transceivers as key drivers—OCS hit a $10M quarter three months early with an order backlog “well past $400 million”—and secured an additional multi‑hundred‑million PO for UHP lasers while ramping CPO/ELS initiatives.
• Aggressive outlook and capacity investment: For fiscal Q3 the company guided revenue to $780–$830M (midpoint $805M) with non‑GAAP operating margin of 30–31% and EPS $2.15–$2.35, while holding $1.16B in cash and spending $84M in capex to expand manufacturing for cloud/AI customers.

Lumentum NASDAQ: LITE reported what executives repeatedly characterized as a record-setting fiscal second quarter of 2026, driven by accelerating demand tied to AI networking and cloud infrastructure. Management highlighted strong growth across both components and systems, expanding margins, and a third-quarter outlook that calls for another all-time revenue high.

Record revenue and sharp margin expansion

CEO Michael Hurlston said Lumentum delivered “over 65% year-over-year revenue growth” and expanded non-GAAP operating margin by more than 1,700 basis points. Quarterly revenue reached $665.5 million, which he noted was a company record for the second consecutive quarter.

CFO Wajid Ali said revenue came in at the high end of guidance and that non-GAAP EPS of $1.67 was “well above” prior expectations, citing business model leverage and improved manufacturing utilization.

• GAAP gross margin: 36.1%
• GAAP operating margin: 9.7%
• GAAP net income: $78.2 million
• GAAP EPS: $0.89
• Non-GAAP gross margin: 42.5% (up 310 bps sequentially, up 1,020 bps year over year)
• Non-GAAP operating margin: 25.2% (up 650 bps sequentially, up 1,730 bps year over year)
• Adjusted EBITDA: $198.3 million

Ali attributed non-GAAP gross margin expansion to better utilization across most product lines, increased pricing on select products, and favorable mix—particularly from the ramp in data center laser chips.

Growth drivers: transceivers, optical circuit switching, and CPO

Hurlston reiterated three key catalysts previously outlined—cloud transceivers, optical circuit switches (OCS), and co-packaged optics (CPO)—but said “the vast majority of this growth is still ahead of us,” particularly for OCS and CPO.

OCS: Management said the OCS business is exceeding internal expectations. Hurlston noted Lumentum originally targeted its first $10 million quarter for fiscal Q3 but achieved that milestone “three months ahead of schedule.” On the call, executives said the order backlog is “well past $400 million”, with the majority slated to ship in the second half of the calendar year. In Q&A, Hurlston added that the backlog was built across multiple customers (the company referenced shipping to three customers), and that demand has been rising “rather significantly.”

Cloud transceivers: Hurlston said transceiver revenue in Q2 “grew significantly,” exceeded the prior “legacy Cloud Light” run rate, and is expected to grow again in Q3. He emphasized improved design-cycle execution and said Lumentum is now in the “lead pack” as customers transition to 1.6T speeds. Management also pointed to better yields and lower scrap rates as contributors to improving transceiver profitability, while acknowledging the business remains a margin headwind.

CPO and external light sources: Hurlston said Lumentum secured an additional multi-hundred million purchase order for ultra-high power (UHP) lasers supporting optical scale-out applications, with shipments for the incremental order expected in the first half of calendar 2027. He also said the company remains on track for a “material shipment inflection” of UHP chips in the second half of the current calendar year. Additionally, he described an opportunity to expand beyond standalone laser chips into pluggable external light source (ELS) modules, which management said would increase the company’s serviceable market and diversify customers seeking more turnkey solutions.

New “fourth driver”: optical scale-up

In prepared remarks, Hurlston introduced optical scale-up as a fourth growth driver, describing an industry shift as copper interconnects face physical scaling limits for ultra-short reach, high-speed connections within racks or clusters. He said Lumentum expects initial scale-up CPO shipments by late calendar 2027 and that the company is already embedded in design work, leveraging UHP lasers and ELS modules.

Hurlston also said the company has begun proactive capacity planning and is negotiating with leading customers to help offset capital requirements in exchange for long-term supply assurances.

Segment performance: components outpaced by cloud demand; systems lifted by transceivers

Lumentum broke out results into two categories: components and systems.

Components revenue was $443.7 million (17% sequential growth; 68% year-over-year growth). Management said results were driven by demand for laser chips, assemblies, and inline subsystems used in inter-data center (DCI) and long-haul applications. Hurlston highlighted a record quarter for EML laser shipments, led by 100G lane speeds and supported by a ramp in 200G devices. He said 200G devices represented about 5% of unit volume but about 10% of data center laser chip revenue, reflecting higher ASPs.

He also said indium phosphide wafer fab capacity remains fully allocated, and that the company has “front-loaded” its planned 40% expansion, delivering over half of that target in the quarter through tool optimization and yield gains. In Q&A, management said it now has line of sight to additional capacity in the second half of 2026 via activities in Sagamihara and better utilization of Caswell (U.K.) and Takao (Japan) fabs, and added that new fab capacity is an active area of investigation.

Systems revenue was $221.8 million (43% sequential growth; 60% year-over-year growth). Hurlston said cloud transceivers drove the “lion’s share” of the increase, rising by about $50 million quarter over quarter as the company leveraged expanded manufacturing capacity in Thailand and moved past earlier production volatility. OCS systems also contributed to growth. By contrast, shipments into the industrial end market were roughly flat sequentially, which management attributed to cyclical softness, though Hurlston said the design-win funnel is growing for the PicoBlade Compact product line.

Guidance: another record quarter expected

For fiscal Q3 2026 (non-GAAP), Ali guided revenue to $780 million to $830 million, with a midpoint of $805 million, which management said would represent another all-time quarterly record and more than 85% year-over-year growth. The company projected non-GAAP operating margin of 30% to 31% and non-GAAP EPS of $2.15 to $2.35, based on an annual effective tax rate of 16.5% and approximately 92 million diluted shares.

Hurlston said roughly two-thirds of the expected sequential revenue increase is anticipated to come from the components portfolio, with the remainder from systems driven by high-speed transceivers and additional OCS contributions.

On the balance sheet, Ali said cash and short-term investments rose $33 million to $1.16 billion, inventory increased $39 million to support expected cloud and AI growth, and capital expenditures were $84 million, primarily aimed at manufacturing capacity for cloud and AI customers.

About Lumentum NASDAQ: LITE

Lumentum Holdings Inc, headquartered in San Jose, California, is a leading provider of photonic technologies that enable high-speed optical communication networks and advanced industrial applications. The company designs and manufactures a broad range of lasers, optical modules and subsystems tailored to the evolving requirements of telecommunications carriers, cloud data centers and enterprise networking.

Its core product portfolio includes tunable and fixed-wavelength laser transmitters, coherent optical engines, transceivers for long-haul, metro and data center interconnects, as well as test and measurement instruments.

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