Executive Summary

Record Q1 FY26 revenue and EPS both exceeded guidance: revenue $978.1M (+22% YoY, +7.5% QoQ) and non-GAAP EPS $2.92; management cited stronger telecom (record), early HPC contribution ($15M), and a smaller-than-anticipated sequential decline in datacom as drivers .
Guidance implies acceleration: Q2 FY26 revenue $1.05–$1.10B and non-GAAP EPS $3.15–$3.30, citing rapid HPC ramp, continued DCI strength, and resilient datacom demand despite component tightness .
Mix inflecting toward data center infrastructure: telecom revenue hit a record $412M (59% YoY, 15% QoQ), with DCI at $138M (92% YoY, 29% QoQ); datacom declined only 1% QoQ amid one critical component constraint; new HPC category contributed $15M and is expected to scale quickly .
Capacity the key enabler: Building 10 (2M sq ft) on track, with a portion pulled into mid-2026; CapEx elevated ($45M in Q1) to support growth; cash and ST investments rose to $969M, providing ample flexibility .

What Went Well and What Went Wrong

What Went Well
- Record quarter above guidance on both revenue and EPS; “revenue upside flowed directly to the bottom line” (CEO) .
- Telecom strength and DCI surge: telecom $412M (+59% YoY, +15% QoQ); DCI $138M (+92% YoY, +29% QoQ) as AI-related interconnect builds out .
- New HPC category launched and qualified; $15M contribution with management expecting it to “scale considerably over the coming quarters” .
What Went Wrong
- Gross margin modestly compressed: non-GAAP gross margin 12.3% vs 12.5% in Q4, with FX and seasonal merit increases cited as headwinds .
- Datacom still down YoY and constrained by one critical component (–17% YoY; –1% QoQ), though demand remains strong .
- Free cash flow dipped YoY due to higher CapEx for capacity (Q1 FCF $57.3M vs $62.9M YoY) as the company accelerates Building 10 .

Financial Results

Overall P&L and margins (GAAP and Non-GAAP)

Metric	Q3 2025	Q4 2025	Q1 2026
Revenue ($M)	$871.8	$909.7	$978.1
GAAP Diluted EPS	$2.25	$2.42	$2.66
Non-GAAP Diluted EPS	$2.52	$2.65	$2.92
GAAP Gross Margin %	11.7%	12.2%	11.9%
Non-GAAP Gross Margin %	12.0%	12.5%	12.3%
GAAP Operating Margin %	9.0%	9.8%	9.6%
Non-GAAP Operating Margin %	10.2%	10.7%	10.6%

Segment and end-market mix (Q1 FY26)

Segment/End-market	Q1 2026 Revenue ($M)	Notes
Optical Communications (total)	$747	+19% YoY, +8% QoQ
• Telecom (incl. DCI)	$412	Record; +59% YoY, +15% QoQ
• DCI (subset of Telecom)	$138	14% of company revenue; +92% YoY, +29% QoQ
• Datacom	$273	–17% YoY, –1% QoQ; component constraint persists
Non-Optical Communications (total)	$231	+3% YoY, +5% QoQ
• High-Performance Computing (HPC)	$15	New category; qualified and ramping
• Automotive	$122	+19% YoY, –5% QoQ
• Industrial Laser	$40	+12% YoY, flat QoQ

Cash flow and balance highlights

KPI ($M)	Q3 2025	Q4 2025	Q1 2026
Operating Cash Flow	74.2	55.1	102.6
CapEx (PP&E Purchases)	28.5	50.4	45.3
Free Cash Flow	45.7	4.7	57.3
Cash & Short-term Investments	—	—	$969 (company total cited)

Non-GAAP adjustments and impact (Q1 FY26): total EPS add-back ~$0.26 from share-based comp ($0.25), legal ($0.01), and severance (rounding) to reach $2.92 non-GAAP from $2.66 GAAP .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	Q1 FY26	$910–$950M (8/18/25)	Actual: $978.1M	Above prior guidance
GAAP Diluted EPS	Q1 FY26	$2.48–$2.63 (8/18/25)	Actual: $2.66	Above prior guidance
Non-GAAP Diluted EPS	Q1 FY26	$2.75–$2.90 (8/18/25)	Actual: $2.92	Above prior guidance
Revenue	Q2 FY26	N/A (no prior)	$1.05–$1.10B	New
GAAP Diluted EPS	Q2 FY26	N/A (no prior)	$2.91–$3.06	New
Non-GAAP Diluted EPS	Q2 FY26	N/A (no prior)	$3.15–$3.30	New

Note: Q2 non-GAAP EPS excludes SBC and certain non-recurring items; reconciliation provided in the press release .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 FY25, Q4 FY25)	Current Period (Q1 FY26)	Trend
DCI momentum	Q3: Telecom strength offset datacom decline ; Q4: “growing demand across all areas”	DCI $138M, 14% of revenue; +92% YoY, +29% QoQ; major driver	Accelerating
Datacom demand vs supply	Q3: anticipated sequential decline ; Q4: strength into Q1	–17% YoY, –1% QoQ; one critical component constraint; demand strong	Improving sequentially, supply tight
HPC/AI manufacturing	Not broken out previously	New category; $15M in Q1; expected to scale quickly	New growth vector
Gross margin/FX	Not highlighted previously	FX headwinds and seasonal merit increases pressured gross margin modestly	Mild headwind
Capacity expansion	Ongoing investments implied	Building 10 (2M sq ft); portion pulled into mid-2026 to meet demand	Pulled forward
Capital returns	Share repurchase active FY25	Minimal in Q1 due to 10b5-1 triggers; $174M authorization remaining	Opportunistic under plan

Management Commentary

CEO framing the quarter: “We had an outstanding first quarter… record revenue of $978 million… record earnings per share… optimistic that we will see our growth further accelerate in the second quarter” .
On mix and drivers: “Telecom revenue hit a new record… driven primarily by data center interconnect products… an early contribution from new High-Performance Computing revenue… smaller than anticipated sequential decline in datacom” .
On HPC vector: “We qualified and started to ramp our first HPC program… contributed $15 million… will scale considerably over the coming quarters” .
On capacity: “Construction of Building 10… 2 million sq ft… accelerated a portion… completed in mid-2026… to support our rapid growth” .

Q&A Highlights

Datacom outlook and component supply: Management acknowledged one critical component constraint but noted demand remains strong and supply should improve in 1–2 quarters; guidance embeds improvement and strong overall demand .
HPC vs new telecom ramps: HPC starts slower due to complexity and automation, but expected to grow strongly; new telecom program is a new product ramp with market growth; both key growth drivers .
DCI demand drivers: Management focuses on fulfilling strong demand (400ZR/800ZR) rather than parsing drivers; expects continued strength as distributed clusters and AI networking buildouts expand .
Capital allocation: Minimal buybacks in Q1 due to 10b5-1 plan triggers; priority remains investing in capacity (Building 10); ~$174M remains available for repurchases .
Guide composition: Multiple contributors—HPC ramp, new telecom programs, DCI, and other datacom projects—rather than a single driver .

Estimates Context

Q1 FY26 vs S&P Global consensus: Revenue $978.1M vs $935.0M* (beat); non-GAAP EPS $2.92 vs $2.82* (beat) .
Trajectory: FN beat revenue and EPS in Q3 and Q4 FY25 as well, establishing a beat cadence into FY26.
Q2 FY26 setup: Company guide revenue $1.05–$1.10B vs consensus $1.061B*; non-GAAP EPS guide $3.15–$3.30 vs consensus EPS $3.25*—guide brackets consensus on both metrics .

Estimates table (S&P Global consensus)

Metric	Q3 2025	Q4 2025	Q1 2026	Q2 2026 (forward)
Revenue ($M) Estimate	856.9*	882.0*	935.0*	1,061.0*
Revenue ($M) Actual/Guide	871.8	909.7	978.1	1,050–1,100 (guide)
EPS Estimate (Primary)	2.473*	2.629*	2.819*	3.250*
EPS Actual/Guide (non-GAAP for guide)	2.52	2.65	2.92	3.15–3.30 (non-GAAP guide)

Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

Mix tailwinds from DCI and a new HPC vector are accelerating top-line growth, with Q2 guidance pointing to a step-up to >$1.0B revenue; this shifts narrative toward AI infrastructure exposure .
Margin trajectory remains broadly stable despite FX/merit headwinds; operating leverage persists as opex remains ~1.7% of revenue, supporting EPS power through scale .
Supply constraints in a key datacom component are a near-term gating factor but are improving; sequential datacom declines have moderated to ~1% QoQ .
Elevated CapEx tied to Building 10 is a deliberate investment to capture demand; ample liquidity ($969M cash+STI) provides flexibility to fund growth and selective buybacks under a 10b5-1 plan .
Expect estimate revisions upward on revenue/EPS for Q2 given guide above prior trajectory and sustained strength in DCI/telecom, with HPC providing incremental upside optionality .
Watch for capacity timing (mid-2026 partial completion) and component supply normalization as catalysts for sustained revenue ramps .
Multi-vector growth (DCI, telecom new programs, HPC) reduces single-customer risk and underpins visibility into accelerated 1H FY26 growth .

Citations:

Q1 FY26 press release figures and guidance
8-K referencing press release and reconciliations
Q1 FY26 earnings call transcript (prepared remarks and Q&A, segment data, cash/CapEx commentary)
Prior quarter press releases for Q4 FY25 and Q3 FY25 (trend and prior guidance)

S&P Global disclaimer: Asterisked values are consensus estimates or forward estimates retrieved from S&P Global.

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