Operator: Hello, everyone. Thank you for joining us, and welcome to the Ciena Fiscal Q3 26 Financial Results Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press 1. To raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Gregg Lampf, Vice President, Investor Relations. Gregg, please go ahead.

Gregg Lampf: Thank you, Jennifer. Good morning, and welcome to Ciena's 26 fiscal third quarter conference call. On the call today is Gary Smith, President and CEO and Marc D. Graff, CFO. Scott McFeely, Executive Advisor, is also with us for Q and A. In addition to this call and the press release, we have posted to the Investors section of our website an accompanying investor presentation that reflects this discussion as well as certain highlighted items from the quarter. Our comments today speak to our recent performance, our views on current market dynamics and drivers of our business, as well as a discussion of our financial outlook. Today's discussion includes certain adjusted or non GAAP measures of Ciena's results of operations. A reconciliation of these non GAAP measures to our GAAP results is included in today's release. Before turning the call over to Gary, I will remind you that during this call, we will be making certain forward looking statements. Such statements, including our quarterly and annual guidance, commentary on market dynamics and discussion of our opportunities and strategy, are based on current expectations, forecasts, and assumptions regarding the company and its markets. Which include risks and uncertainties, that could cause actual results to differ materially from the statements discussed today. Assumptions relating to our outlook whether mentioned on this call or included in the investor presentation that we posted earlier today, are an important part of such forward looking statements, and we encourage you to consider them. Our forward looking statements should also be viewed in the context of the risk factors Detailed in our most recent 10 ks and our forthcoming 10 Q. Ciena assumes no obligation to update the information discussed in this call whether as a result of new information, future events or otherwise. As always, we will allow for as much Q&A as possible today, though we ask that you limit yourselves to 1 question and 1 follow-up. I will hand the call over to Gary.

Gary Smith: Gregg, and good morning, everybody. Today, we reported record financial results across the board. That we demonstrated outstanding third quarter performance including revenues of $1.7 billion another quarterly record and up 37% year on year. Adjusted operating margin of 22.5%, exceeding guidance was more than doubling year on year and the highest ever achieved for the company. Our adjusted earnings per share were up 215% year on year to a record $2.11. We delivered results in the context of an extraordinary industry demand environment. That continues to accelerate We continue to see strong momentum in customer demand and order flow. With a Q3 book to bill ratio that was significantly greater than 1 which resulted in a substantial quarterly increase in our backlog. And we also expect backlog to grow at an even greater rate in Q4. In fact, just 1 quarter sorry, 1 month into this quarter, we are approaching a level of orders booked equal to the entirety of Q3. As a result, we are currently projecting to exit fiscal 26 with over $10 billion in backlog. Overall, our outstanding Q3 performance reflects Ciena's essential role in the fundamental re architecting of network infrastructure. And looking at these industry dynamics, I would remind everybody that we remain in the very early stage of a multiyear highly durable, network investment era. This is spring boarding off and caused by the large and growing investments in data center infrastructure. AI is starting to build on the previous eras of communications. Including those driven first by the Internet and then by the cloud. But it is doing so at a massive scale. As a result, AI is currently driving and will continue to drive significant increases in both bandwidth connectivity demand, and network traffic growth. In that context, high speed, low latency optical connectivity has become a critical enabler to not only operationalizing the AI driven investment in the network, and the data center but also monetizing those investments over time. And because of the increasing demands for higher capacity, fast speed, greater density, improved reliability, reduced space, and lower power and cost. Optics, have become the indispensable element for next generation AI architectures. And this is manifesting across all 3 of our primary markets. First, you call it the traditional network or the wide area network, the WAN. Encompasses the network backbone, network edge, and network operations. It includes optical connectivity for long haul, subsea, metro, regional, applications that people are familiar with. And it is also being impacted by AI in a number of ways. From challenges of fiber availability in the backbone to quality of service demands at the edge. To the requirements of automation, to address the increasing complexity of network operations. Second is a market that we are referring to as AI WAN. It includes both data center interconnect or DCI for the WAN backbone, and scale across. Currently used for distributed training, across data centers and subsequently to be used for inferencing. Here, the fundamental challenges are related to power, caused by the increasing GPU compute capacity and energy load required to train large language models at scale. And the high volume, low price demands of deploying modems at much greater scale. The third is, of course, the data centers themselves. Which includes the fabric connectivity domains of scale up and scale out as well as data center operations. And as AI continues to drive up the data rate, and bandwidth requirements inside the data center, new optical technologies and applications are required to provide the needed improvements in capacity and density for short reach low power, connections. Given the acceleration and projected increase in the compounding waves of spend on network infrastructure across these markets. We continue to believe that the total addressable market for our business will effectively double over the next 3 years. Growing from approximately $25 billion to approximately $50 billion by 2029. Moreover, given our growing competitive advantages, we expect our share of that TAM to continue to increase over that timeframe. More specifically, Ciena's long established technology leadership in optical networking, positions us to capture a growing share of wallet, as optical connectivity expands its role throughout the WAN, and inside the data center. Across generations of coherent technology, Ciena's first to market benchmarks have set the bar for the industry, and continue to do so. Ciena was the first to commercialize coherent optics decades ago. And we continue to lead the industry in optical innovation, backed by very focused R&D deep expertise, and proven deployment at scale. Moving forward, performance gains will increasingly depend on precisely these capabilities. Because of our leadership position and value proposition, we have developed a high degree of competitive differentiation across our portfolio. With the clearest proof being the customer adoption that we are seeing across our portfolio in each of the primary market segments. So starting with both the traditional WAN market, as I outlined, and the AI WAN. Today's market dynamics are driving higher adoption rates for our WaveLogic 6 Extreme platform. Which after 18 months is still the only 1.6 terabit high performance modem on the market today. Notably, its ramp has already exceeded that of our prior generation WaveLogic 5 e. Separately, customer adoption and scaling of our intelligent line systems remains exceptionally strong. RLS is basically the industry standard in disaggregated line systems. Where Ciena's first mover advantage has driven a leading installed base where roughly we have 70% market share. In addition to serving cloud providers and service providers in the network backbone, and cloud providers for DCI and the AI WAN, RLS is the industry's first system deployed for scale across applications. And the next generation of RLS, Hyper-Rail, is our second generation of RLS. And represents our 6th generation of photonic line systems leadership. Co created with the hyperscalers, it dramatically increases the density of existing optical amplifier infrastructure and as such, is purpose built to address the needs to distribute AI training workloads in data centers across greater distances. With customer orders ramping, we remain on track for initial customer standardization for RLS Hyper Rail by the end of 26. And scaling to material revenue as we move throughout 2027. Turning to our interconnects portfolio. We are applying our optical leadership to a growing portfolio of connect solutions that address surging bandwidth demands inside and around the data center and the performance limitations, of course, of today's short reach technologies. Starting with our WaveLogic 5 nano pluggable optics, we are seeing strong market adoption as we continue to ramp into production volume. In fact, in Q3, we shipped more than twice the volume of 800 ZR plugs than in the previous quarter. In addition, during the quarter, we made strong progress with the components portion of our interconnects portfolio. We are seeing strong market receptivity to nitro, our linear redriver for active copper cable solutions. And I am pleased to report that we received sample orders from several anchor customers in the ecosystem. Ecosystem for Vesta, our open co packaged optical or CPX solution. This represents another important step towards the commercialization of our open ecosystem approach towards short reach data center optics. And we believe this is gaining meaningful industry momentum. Most importantly, with potential customers. As any new growth sector has, CPX business will continue to strengthen over time, with revenue expected to begin in 2027 and ramping into 2028. And finally, it is worth noting that last quarter, we announced a significant win with a major hyperscaler that integrates our WaveLogic 6 coherent technology into their own platform. This solution goes well beyond the modem, and combines our DSP, drivers, TIAs, and coherent expertise into a complete module. That will be deployed broadly across the customer's global optical network, via their own optical platform. I think this win demonstrates our ability to deliver for our customers across multiple consumption models. With our best in class portfolio, and this represents a significant takeaway from a component competitor. At the highest level, the current and future waves of AI driven demands on bandwidth and network traffic will require industry leading high speed optical connectivity. We remain focused on managing the business with this long term view supported by durable demand a broad set of co creation opportunities and customer design wins, robust orders, and a backlog that extends well into fiscal 28. Looking forward, the strength of our market position and the breadth of our portfolio provide us with growing confidence and visibility into a multiyear runway of growth. Operating leverage, and increasing profitability. As a result, and to add to this level of confidence, we recently secured a significant increase in customer commitments that extend through 2029. At the same time, as Marc will discuss in a few moments, we have also secured incremental supply capacity for critical component optical components to service that multi year demand. So in summary, Ciena's unmatched combination of leading optical technologies incumbency, portfolio breadth and deep expertise across systems, components, software, and services, gives us a powerful and sustainable competitive advantage. And really is the only pure play optical systems and interconnects vendor operating at scale, we are uniquely positioned to convert driven demand into durable top line growth, with increasing operating leverage and earnings power over multiple years, delivering differentiated value for our customers and our shareholders. With that, I will hand the call over to Marc for an update on our financials, and our outlook.

Marc D. Graff: Thank you, Gary, and good morning, everyone. As Gary just discussed, our focus is on delivering strong financial performance while ensuring security of supply and manufacturing capacity necessary to support the significant multiyear demand in front of us. Within that context, continue to make excellent progress against our 3 financial priorities. First, let me discuss our progress on gross margin. We achieved 46.4% adjusted gross this quarter, which was positively impacted by the treatment of tariff refunds by about 70 basis points. Even without the tariff impact, gross margin achieved the top end of guidance, reflecting disciplined cost execution, favorable mix, and pricing discipline. Our midterm goal is to structurally position the company to achieve mid-40s gross margins. With our results over the past several quarters, we are confident that we have reset our margin baseline to this mid-40s goal. But as we have said over the past year, the mid forties goal was a waypoint. Not the final destination. We have the cost structure and leadership portfolio to expand gross margins further over the next few years. Second, as we balance the investments to support the growth of our business, working capital remains a focus. While our cash conversion has taken a step back quarter on quarter, the overall trend is positive relative to the year ago results. We have invested working capital to support slightly higher inventory levels and to increase revenue through the quarter. Even with these investments, we have generated $116 million in free cash flow. Third is capital allocation. We continue to take meaningful steps to improve the operational and financial efficiency of the business. Our June convertible debt issuance achieved 2 specific goals. First, it lowered our cost of capital with a 5-year zero coupon instrument at an economic conversion premium of 114%. From which we retired our 5.5% interest term loan. Second, it provided the capital to help secure supply over the next 3 years. We maintain strategic flexibility as a result and have $2.8 billion in cash and equivalents at the end of Q3. Our capital investments this year have increased capacity sufficient to support RLS plug and WAV server revenue growth all over 60% year to date. Additionally, we continue to return capital to our shareholders in Q3. We repurchased 356 thousand shares for an aggregate price of $172 million reflecting the acceleration associated with the convert deal. Lastly, we expect to be on the high end of our capital expenditure range of $250 to $275 million. Now let's move to the quarterly results in more detail. As Gary noted in his opening remarks, revenue achieved $1.67 billion at the TEP top end of our guidance an increase of 37% year on year and another quarterly record. Our total combined optical networks revenue including interconnects, grew over 45% year on year supported by over 55% growth for both our RLS and WAV server systems. Our interconnects more than doubled year on year while our direct cloud provider revenue grew over 80%. Our in and around the data center percent of revenue has quadrupled year to date, well ahead of our committed 3x growth from the beginning of the year. We had 2 customers that each contributed more than 10% of revenue, And lastly, we exited Q3 with an $800 million increase in backlog, to $8.5 billion Orders continue to accelerate as Gary noted, 1 month into the quarter, we have booked nearly as much demand as all of Q3, and expect to end the year with more than $10 billion in backlog. As I noted earlier, adjusted gross margin was 46.4%, exceeding the top end of our guidance by 90 basis points and up 450 basis points year on year. Q3 adjusted operating expense was $400 million coming in at the low end of our guide and driving a record adjusted operating margin of 22.5%. 250 basis points over our guide and more than doubling the year ago result. Adjusted EPS reached $2.11 more than triple the year ago figure and achieving a new record level for the company. Now let's move to guidance for the last quarter of the year. In Q4 26, we expect to deliver of $1.75 billion plus or minus $50 million, raising the full year midpoint to $6.42 billion, up $120 million from last quarter. With this revenue guide, we expect to increase our market share in the combined optical systems and plug market by about 4 points to approximately 30%. We expect adjusted gross margins of 45% plus or minus 50 basis points, bringing the year to a similar range a raise of 50 basis points from last quarter. Adjusted operating expense will be roughly $415 million plus or minus $10 million, with our annual OpEx at 1.6, slightly down from the June guide. All told, we expect to drive an adjusted operating margin of approximately 20% plus or minus 50 basis points, bringing the full year to between 20-21% and exceeding the 20% annual figure for the first time in the company's history. Now let me address the topic of supply more closely. Gary described an unprecedented durable demand environment with backlog now into 2028. To ensure our ability to service this demand, we have taken decisive steps to strengthen our supply security and to increase our output. In recent weeks, we finalized long term agreements that secure supply of certain key components through 2029, including incremental capacity for those key components that will enable us to support growing customer demand. This extends the investments we have made for this year to drive 35% revenue growth. We continue to invest upstream to drive security of supply to meet and eventually bring into balance the demand backlog. As a result, we expect to see a reduction in cash from cash from operations in Q4 as investments are dispersed to support these agreements. At the same time, we continue to make progress in the value exchange discussions with our customers. In addition to price discussions, these conversations are increasingly focused on the alignment of various demand terms and conditions with the capacity required to support them. With this ongoing momentum and improved visibility into future demand, we believe it is prudent to provide early direction for fiscal 27. As we see it today, we expect to deliver another record year with revenue growing a minimum of 30% year on year yielding at least $8.3 billion to $8.4 billion in revenue. With supply driven upsides, Our investments in capacity and supply allow us to accelerate absolute revenue growth from 2025 to 2026 and now into 2027. At these levels, we expect to again increase our market share in optical systems and plugs, in fiscal 27. We expect gross margins to be at least between 45-46%. And we expect to achieve fiscal 27 adjusted operating margin between 25-27% posting yet another record in profitability and serving as yet another proof point for the earnings potential of Ciena's model. Again, this is our preliminary view of 2027, and we will provide an update when we report our Q4 results in December. In the interim, we look forward to continuing the dialogue in a few weeks time at Ottawa, at our Investor Forum, the content from which will be posted on our Investor website afterwards. Closeout Q3 was a testament to the strength of Ciena's technology leadership, customer engagements, and supply resiliency in the face of unprecedented multiyear demand. The execution of our business model has driven an acceleration of our earnings in Q3 in 2026, and we now believe into 2027 and beyond. With that, operator, we will now take questions from our sell side analysts.

Operator: Thank you. We will now begin the question-and-answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your 1st question comes from the line of George Notter with Wolfe Research. Your line is open. Please go ahead.

George Notter: Hi, guys. Thanks very much for the question. I guess I and congrats on the on the terrific results here. I guess I wanted to start just by you mentioned value exchange on the call. You know, certainly, I think you mentioned prices as well as alignment of demand terms and conditions. Could you just talk a little bit more about what is going on there? Any sense for what price increases might look like? Any sense for what terms and conditions might be looking like in terms of the context of value chain exchange? Thanks.

Marc D. Graff: Yeah. Hey, George. it is Marc. Thanks for the question. You know, I will I will take it kind of in 2 parts. On the pricing piece, we have had conversations with you know, customers across different product lines. And, you know, we have gotten to a space where we would expect, depending on the and the product line, anywhere between call it high single digits types of price increases to something in the range of high teens, low twenties type of price increases. And what is remarkable, and I think you will appreciate this, George, is, you know, some of that will selectively hit backlog. So, I think we have made really good really good progress there. The second pillar in terms of conditions is really a 2-way discussion. You know, the first is we are on the hook to make sure that we deliver what we say we are going to deliver, but, you know, we expect the reciprocity of that from the customer side. As well. And so we have we have we have covered those aspects. You know, we have we have talked a little bit about payment terms. We have talked a little bit about, you know, fill rates and things like that. So we are trying to make it a pretty holistic conversation in terms of that value exchange. And not just have a conversation about price. Because just like we are looking for supply security, our customers are looking for supply security from us as well. And it is something that we feel pretty confident that with these supply agreements, that we can, you know, that we can fulfill.

George Notter: Got it. Super. And then, know, I know that there were some price increases. I think earlier in the year, last year, just around tariffs. Is that something that is flowing into the model now? I know that in the past, you guys were not you know, you were you were not repricing backlog certainly. But is that something that is helping the gross margin now? Is any sense there? Thanks.

Marc D. Graff: Yeah. it is a real again, this is Marc again, George. it is it is relatively neutral. You know, we are we are not putting margin on top of tariffs. Right? If we if we get $10 of tariffs, we kind of pass on that $10 of tariffs. What we saw in Q1 was kind of a--or I am sorry. In Q3, was kind of a 1 time accounting adjustment for those tariff refunds that we do not expect to continue moving forward, and that gave us about 70 points, 70 basis points of uplift. Moving forward, I would say the tariff impact again, under today's current regime, is relatively neutral. We are monitoring pretty closely some of the impacts that are coming out of the new Canadian tariff regime, that could have an impact of, call it, $10-ish million dollars a quarter. Again, we are still trying to work through the mitigation actions that we have got associated with that.

George Notter: Super. I will pass it on. Thanks a lot, guys.

Gary Smith: Yep. Thanks, George.

Operator: Your next question comes from the line of Tal Liani with Bank of America. Your line is open. Please go ahead.

Tal Liani: Hello. Good morning.

Gary Smith: Gary, if I told you 3 years ago that you are going to grow 30%-- you hear me? Yes. I can hear you loud and clear. Yeah. Perfect.

Tal Liani: Perfect. If I told you 3 years ago you are gonna grow 30% with 26% margin, you would have asked to drink the same thing I am drinking. So, the question I have is about backlog. So your backlog is doubling this year. And, it grows even faster than revenues. Your revenues are growing fast, and it grows even faster than revenues. I am trying to understand the early ordering portion of the backlog the maybe customers are buying ahead just because of supply constraints. I am I am not it is not a concern. I am just I just want to understand kind of get understanding of how backlog could behave in 2027. that is the reason for my question.

Gary Smith: Okay. I think it is almost entirely just driven by a function of lead times. You know, the demand is absolutely there. And, you know, just to just sort of illustrate that, you know, Marc gave an early indication of what we think our guidance is for the year as just an early direction indication for next year, it would be greater than that if supply was greater. I mean, that sort of, you know, I think summarizes it. We have got, you know, we think at least a $10 billion backlog as we leave this year, And in the midpoint of what Marc was talking about, you are looking at revenues of 8.3, 8.4 as a sort of a baseline for us for next year. It would be greater than that if we had more supply. And so, you know, the demand is absolutely there. You look at our installation services, they are up you know, 35% for the year. And as soon as we can ship it, it is installed and carrying traffic. Yeah.

Marc D. Graff: Hey, Tal. Maybe I will I will just add, you know, maybe a little bit more context here. You know, if you look back all the way back to 2024, our orders, you know, call that demand, doubled from 2024 to 25. From 2025 to 2026, we are expecting another 50% increase. And as you rightly noted, backlog is doubling across all 3 of those years. From 2024 to 2025 was a double, from 2025 to 2026 is a double. And so what we are really, you know, constrained with is the industry needs to add a significant amount of capacity to keep up with that demand. And so we think it is gonna be a multiyear journey before we see that supply and demand gets back into balance. And yeah. Multiyear, so we do not see that happening you before 2028 at all. So I think you will see a very similar constrained dynamic going into 2027 and likely into 2028.

Tal Liani: Got it. And any if I can just ask a follow-up, any color on customer composition, meaning hyperscalers, I understand. What about smaller hyperscalers? Meaning, new clouds and new like Oracle. So without names of customers, but can you discuss your ability to kind of grow the customer list over time, and where is the demand?

Gary Smith: Yeah. You would be you know, about 50% of our business is now hyperscalers, directly. But increasingly, I think to your point, we are seeing this sort of neo scalars, umbrella of neo scalars, which covers know, multitude of different business models, etcetera. We are very focused on that space. They are leaning very much into networking now. And they are securing networks on MOFN deals, They are beginning to put their own fiber in when they can get it. And we are taking more than our fair share of that market as it grows. So we are very focused on addressing that market both in The US and globally. We are seeing that in certain parts of the world where these neoscalers are, investing in the networking. So I think as we go through 2027 and 2028, that will become an increasingly important part of our business. Got it. Thank you. Thanks, Tal.

Operator: Your next question comes from the line of Meta Marshall with Morgan Stanley. Your line is open. Please go ahead.

Meta Marshall: Great. Thanks. A couple of questions. Maybe just following up on George's question. Just in terms of some of these newer arrangements that you guys are having with or discussions that you are having with customers, if some of those are some of those pricing adjustments dependent on timeline of delivery? Like, in terms of, if you can deliver 6 months earlier, you can capture, you know, high single digits versus a mid single digit price adjustment. Just trying to get a sense of whether there is any kind of escalators in there And then second question, just as you guys look to assure more supply, have you qualified additional suppliers at this point, or is this largely reaching long term agreements with existing suppliers? Thanks.

Marc D. Graff: Yeah. Thanks, Meta. it is Marc. On your 1st question in terms of escalators, we really have not built those in. The price increases that we have talked about are not performance based per se. They will cut in, you know, as more and more backlog from those orders becomes a bigger part of our revenue. So I would I would not say that it is, you know, performance related. Once we agree to those to those price increases, it is it is really around, you know, when we deliver it, they will pay for it. In terms of qualifying new suppliers, yes, that is part of our supply resiliency strategy that we are driving. You know, we have got, you know, our typical, providers that are in the stable that you know of very well, but we are looking at expanding you know, both the types the numbers of suppliers that we have, as well as, you know, we are we are constantly looking at new technologies to satisfy the same type of functionality. So we are taking both, you know, quantity as well as technology perspective to our supply chain.

Meta Marshall: Great. Thanks.

Gary Smith: Thank you.

Operator: Your next question comes from the line of Jeff Cocci with JPMorgan. Your line is open. Please go ahead.

Analyst: Hi. Good morning, and I will share my congrats as well on the results and guidance here. And thanks for the question. Maybe another backlog question and more on the composition of it. As we think about the portfolio offerings that you guys have and maybe the raw irons in the fire that you guys are trying to address, Where are you seeing the strong demand inflection as we are entering the back half of the fiscal year? And then the second part to that, it is great to hear that you are seeing visibility now into 2028. But any color you can provide on the weighting of orders coming in for 2027 versus 2028? You know, essentially, just trying to get a better understanding of how much of 2027 is already covered versus what is building for 2028 now. And then I have a follow-up. Thank you.

Gary Smith: So the first part of that question, Joe, is really we are seeing broad demand across the portfolio. And you would say characterized as being line systems both in terms of the existing RLS and hyper-Rail. We have got a number of new wins Hyper-Rail that we are beginning to-- will begin to ramp up during, 2027. So there is a lot of infrastructure going in for that. I mean, I think scale across not entirely, but predominantly, you know, the deployments for that is driving it. And then on the modem side, you know, we shared some of the statistics that you are seeing for WaveLogic 6. You know, we doubled output. it is already, you know, at this point, exceeding 5e. In terms of its, adoption. And I think that, again, just talks to you know, the need for high speed distance, you know, for these kinds of applications. So we are seeing it on the modem side. And, of course, we are seeing it on the on the infrastructure of line systems. Also seeing that both in terms of MOFN deals, globally as well to support this expansion. Particularly markets like India, and The Middle East. And certain parts of Asia where the hyper calers are leaning into provisioning of extension of their networks. Submarine as well, you know, massive build outs going on across the global submarine market where we have the number 1 market share in the world. So, you know, we are we are seeing that. We are seeing that across it. Joe. And in terms of the profile of the backlog, we have got, as you said, we probably have about 10 billion plus backlog as we go into 2027. We cannot satisfy basically all of the requirements that they would take to deliver all of that in 2027. Joseph, the vast the vast majority of that $10 billion comes with a customer request date that is actually in 2027, meaning that they would take it if we could give it to your question, Backlog covers most of the 2027 guide. Got it. that is that is exactly what I was getting at with that. So thanks for the color there. Thanks, Joe.

Operator: Your next question comes from the line of Ruben Roy with Stifel. Your line is open. Please go ahead.

Ruben Roy: Yes. Thank you. Gary, for the 1st question, I wanted to maybe drill into the Performance Optics discussion and sort of the consumption model that compared to the systems model. Can you is that a bespoke arrangement with 1 customer? Are you productizing this consumption model as you go forward? And I guess, you know, as you think about that longer term, and, you know, how that sits in the interconnect family, if you could talk a little bit about the margin structure as that consumption model starts to build? Thank you.

Scott McFeely: Hey, everyone. it is it is it is Scott. So first of all, ask the question from 2 different angles or else how I heard it anyways. So first of all, the performance modem portfolio, you know, they with the extreme family, if you like, WaveLogic 5 and then WaveLogic 6. Is obviously you know, a very broadly deployed solution within our systems business. So we have a lot of deployments out there on Extreme modems. This specific opportunity you are referring to, though, of taking that and offering it up in a different consumption model. Is bespoke relationships with individual customers. We have 2 examples of that today. 1 that was recent announcement last quarter, it is certainly something that we do not shy away from. You know, we have made the technology available however our customers wanna consume it. But in most examples, those are very unique in terms of how those customers want to deploy them. So they are kind of custom development for them. And, you know, the relationship we have with those customers reflects that.

Ruben Roy: Okay. Thank you, Scott. And then as a quick follow-up for Marc, Sorry if I missed this, Marc. But with the 25% to 27% operating margin, guidance for 2027 or first look at 2027 that implies, I think, roughly flat to maybe up a little bit, operating expenses. If you could just walk us through sort of the mechanics around operating expense as you look out in the fiscal 2027, that would be helpful. Thank you.

Marc D. Graff: Yeah. No problem, Ruben. You know, we have not really closed in yet. We are we are kinda in the middle of our annual planning process. You know, the puts and takes that you should kind of be thinking about is you know, this year, we will spend roughly, call it, you know, 1.6 billion. Keep in mind that billion 6 includes a bunch of onetime variable compensation dollars that yeah. A year ago, we were telling you it was gonna be about 1.5 billion. We are at 1.6 billion mostly because of that variable comp. We are gonna reinvest that 1 time. So that is when you say it is about flat, you know, All the folks sitting around the table here are looking at a $100 million more of investment that they get, you know, regardless of the performance of the company. So we are we are reinvesting those onetime things. And I think you will also see there will be a little bit more, investment in some of the activities, particularly around line systems as we continue to grow that business. And invest in our interconnect portfolio.

Ruben Roy: Great. Thank you, Marc. Yes. You bet, Ruben.

Operator: Your next question comes from the line of Ryan Koontz with Needham and Co. Your line is open. Please go ahead.

Ryan Koontz: Great. Good morning. Thanks for the question. You know, in light of you know, some of the politics around data center construction and the like, which I know weighs on investor minds a lot and whips, you know, a lot of the broader sector around. How do you feel about the pace of catch up of your WAN projects relative to data center construction? Do you feel like you have got visibility independent of pacing of data centers in that light? Maybe you can comment on that, Gary.

Gary Smith: Yeah. No. Listen, it is great topical question. I would say that as we talk to the hyperscalers and we talk about durability of demand and their long term view and the rest of it and getting long term agreements with them and commitments. So part of that, you know, 1 of the that was made to me, was basically that if they stopped building data centers tomorrow, Gary, you probably would not notice for 2 years. Meaning, they have already got these data centers out there, and they need and they are not going to strand, you know, the assets. And secondly, they have got data centers that they must increase the network capacity to. And so, you know, largely, what we have gotten back backlog here and what we have got visibility to going forward is really the data centers that are already there. And particularly, you have got a lot of international, expansion as well. And it is really the refresh of the GPUs in these data centers that are already there that require massive amounts of additional connectivity. And, you know, bear in mind, we have a unique insight into this because we have got number 1 market share in data center connectivity before all of this AI expansion began. So we have got the connection to most of the data centers around the world, a lot of what we are seeing is the expansion and increasing of that capacity and connectivity to enable, you know, the, refresh GPUs, etcetera. And you have also got all of the inference and AI stuff in front of us. So, you know, Ryan, certainly, the next couple of years, we think we are, you know, largely immune from what may or may not happen with the pacing of new data centers. that is great. Thank you for that.

Ryan Koontz: And maybe my as a follow-up, any commentary on the product mix here? You know, as you have seen, like, in the most recent quarter or maybe recent bookings? Terms of shift of line systems versus pluggables and transponders, any commentary there?

Marc D. Graff: Yeah. Maybe I will jump in another can add color, Brian. So, you know, as I as I think through what we have seen, you know, particularly over the last 12 months, I think we have seen our plugs and our line systems particularly RLS, really grow at much higher than corporate average growth rates. Right? I think I mentioned plugs and RLS, you know, together as part of our optical piece growing 45%. So you kinda see how that is becoming a bigger piece of the pie. 1 of the things that, you know, from a margin perspective that we are seeing is as our DCOM solution really starts to increase over the last year, that is really driven, you know, a pretty accretive, dynamic for us moving forward. We expect that to continue. And then, obviously, as we add, Hyper-Rail, that is gonna be another accretive motion for us. And so I think what you are seeing is the optical piece of our, of our portfolio really driving a bunch of the growth for the company. And then, obviously, we have got the DCOM piece, which is shown in route switch. You know, really in the in the early part of its ramp as well.

Scott McFeely: I think, Ryan, I mean, a dynamic that is been going on since 2024. We are just seeing more and more demand for line systems, meaning more fibers are getting lit. And those are getting lit with coherent optics of all flavors whether, you know, whether it be plugs or performance optics consumed in WAV server. Know? And all those, to Marc's point, are up well north of the 35 or 37% that we are reporting as a corporate average. And that is gonna continue, we think, going into going into the foreseeable future. The R-S DCOM piece is a great adder, but it is a bit lumpy because of the concentration the customer. So from quarter to quarter, DCOM will come and go. But it is you know, it is a it is a net new ad for us.

Ryan Koontz: that is great. Thanks so much. Thanks, Ryan.

Operator: Your next question comes from the line of Timothy Long with Barclays. Your line is open. Please go ahead.

Tim Long: Thank you. Appreciate it. 2 for me as well. Maybe first, if we could dig a little deeper into Hyper-Rail, mentioned it a few times here on the you know, value add side and ramp. Just kinda update us on, sounds like a few customers, but where are we in you know, in the demand profile and how quickly could we see the ramp of this product and kind of just remind us on the economics like, the more the RLS, prior generation. And then the follow-up would be on just the pure telco business, maybe ex Molson. If you could just talk a little bit about the durability of that business. In the past, that is been a little bit more cyclical. So just curious of the outlook on just the pure telco piece. Thanks.

Gary Smith: Yeah. I will start on, Hyper-Rail, Timothy, and then others can jump in. You know, we are we are on track for, you know, getting that product to standardization by the end of, you know, this calendar year. And you will see the ramp starting in 2027. And that ramp in 2027 will be to several hundred million dollars. Right? So we are looking at that as a pretty meaningful, ramp for us. The back story on that is it could probably could be faster if we get more components. Right? So obviously, we are working day and night on that. From an economics perspective, relative to RLS, think the team's done a fantastic job of improving the margins over the last you know, 4 to 8 quarters on RLS you know, to get us to a pretty decent margin profile. Hyper-Rail will be a step function. On top of that. And, you know, with the size of the ramp and the opportunity that we think that is coming through with Hyper-Rail, and the economics of that, it is gonna be accretive to the company as a whole once we get into you know, 2027, 2028, 2029. So we are really looking forward to get to get Hyper-Rail out there. And I think our customers are placing, you know, quite a few orders, that is represented in that $10 billion backlog that we expect at the end of the year.

Marc D. Graff: And on service provider growth, it is actually quite difficult to separate it from a lot of the MOFAN activity that is going on.

Gary Smith: And we know the MOFN activity is high. But I would say there is 2 things going on with the service provider piece. 1, it is growing anyway because I think there is been underinvestment in infrastructure in the last 5 years. And, you know, you have got the service providers returning to, you know, drive out infrastructure for optical infrastructure. And you have also got this MOFN piece, you are seeing that phenomenon now certainly in North America. You know, if you go back about 18 months, it was very much an international phenomenon. But now with training and the rest of it, we are seeing that very much so in North America. And that is driving a lot of the particularly the wholesale market in The US and the wholesale carriers that specialize in that. We have seen very strong growth in that space. And we expect that to continue. Markets like India, particularly for MOFN, we are seeing explosive growth in provisioning of MOFN network for multiple hyper railers in places like India, Jason, I would also highlight and then certain parts of certain parts of The Middle East. So, you know, we expect to see good steady service provider growth continue over the next few years. Irrespective of the MOFN? Phenomenon.

Marc D. Graff: You very much.

Tim Long: Thank you.

Operator: Your next question comes from the line of Simon Leopold with Raymond James. Your line is open. Please go ahead.

Jeff Cocci: Hey. Thanks, guys. Jeff Cocci in for Simon. Really wanted to ask on 1st question on the software business. It does not really appear like the web-scale RLS deployments are a driver here. Is that kind of the right Is that because they have their own solutions? Into that? And, you know, like, how do you win the RLS deals if it is not like, you know, your like, a management a management platform type play? Thank you. Have a follow-up.

Scott McFeely: Yeah. Jeff, Scott here. Can you hear us back? We can hear you. Yes. Thanks. Okay. Yeah. I mean, hypothesis that there is there is less off box software components in a, in a web-scale deal in general, not just an AI deal, is valid. that is that is a fair statement. However, having said that, to your second question, do not do not take that comment to mean that the only thing these guys are buying is merchant hardware from us because the value that they get is much broader than that. And whether it is submarine networks, they are they are existing backbone, their DCI networks, or their scale across networks. The statement is true across the pieces they are getting. You know, a yes. A hardware but some very sophisticated on box software capabilities that is embedded into their back office system. That has an awful lot of intelligence in it you know, protection mechanisms, etcetera to allow them to deliver to their SLAs They are getting planning tools and deployment tools. They are getting link engineering tools. They are getting a global across the world service capability to turn these things on pre preposition them, preconfigure them, and turn them on. A set of skills that we have developed with them and their relationships for more than a decade now. So it just because we are not selling, as much off box software components, the service providers do not conclude. Therefore, it is just a commodity hardware sale. it is it is far from that.

Jeff Cocci: Great answer. So maybe just with that in mind, can you maybe give us a little bit of color on how the gross margins are for that business and maybe how they are changing just maybe even just relative to the average.

Marc D. Graff: You are talking about the software? The off box software? Nope. I am really sorry. For the line systems for the line systems. Yeah. So, you know, as I said, previously with Timothy, you know, we have seen really good improvements in the RLS gross margins over the last you know, 2, 3 years. And, you know, I expect that to continue, and those are approaching what I would call the corporate average. You as we move into the next generation Hyper-Rail, rail, the economics get significantly better. Right? And so, those will be above the current corporate average, and I would expect know, with the with the size of opportunity that we have with Hyper-Rail over the next couple of years, that will be you know, accretive. Terrific. Terrific.

Jeff Cocci: And then if I could just do another follow-up. On the interconnect business and really just inside the data center You know, we know that--we hear, like, Google's, you know, looking to deploy 2.4-terabit coherent light solution for CPUs. You know, maybe talk about are you in those deals? Are you being evaluated? Know, what is your take there? And what is your take on optical circuit switching? Is that a product that Ciena would explore? Thank you.

Scott McFeely: Yeah. So a couple things. A couple questions there. The coherent moving inside the data center, we said for a long time now that we think that is a trend that is inevitable, and it is going to happen, and we are and we are committed to that. We absolutely believe in the coherent light market. We think the right intercept for that for the general market is at 3.2 terabits. And we think we will be in a great position to be a leader in that in that market. In terms of OCS, We love OCS just because it is part of the continuation of more optics inside the data center. And it will drive actually adoption of coherent inside that data center faster than, without OCS's in our belief system. So that is all good news. that is a separate answer whether or not we are gonna we are gonna jump into the OCS market ourselves and at the you know, we are not gonna comment on plans make any product announcements or that on the call today.

Operator: We are going to move on to 1 last question. Last question comes from the line of Tim Savageaux with Northland Capital Markets. Your line is open. Please go ahead.

Tim Savageaux: Hey. Good morning. And congrats on the results and especially the guide. that is kind of the focus of my question. Which is, you know, along several lines, the case for accelerating revenue growth in fiscal 27 looks particularly strong. Whether we are talking about anecdotal commentaries, backlog, hyper rail, scale across which will be my focus on my follow-up, And I know you sort of termed this as an initial guide but I would be interested in your commentary on the prospects for delivering accelerating revenue growth in fiscal 27. I know you mentioned supply as a constraint. And maybe what things might look like if that constraint were relaxed a bit.

Marc D. Graff: Hey, Tim. it is Marc. I think you kind of answered your own question. You know, as we look at it and you are right. We are early. Right? And we would not do this. But, you know, as we look at the demand or the dynamics that we are seeing in the market, we thought it was prudent to give, you know, our owners and the investment community at least some initial thoughts on what we think the floor will be going into 2027. But as you rightly pointed out, you know, all of our focus right now is on how do we get more supply to get to, you know, to get more of that demand. And as Gary said, if and Scott said as well, you know, if we could get more demand, we would unwind that $10 billion of backlog faster. Right? And that, you know, that 3 to 4 that we talked about is the floor. You know, would be higher. And so, you know, from an absolute dollar terms, we think we are accelerating the growth from 24 to 25 to 26, and into 27. Excuse me. But it is it is really gonna be dependent on that supply. You know? And yeah, a year ago, when we did this for the first time, we said, you know, we thought 2026 would grow 17%, and here we are at 35%. Now I am not suggesting that my 30% in a year is gonna be 60%. Because we are in obviously a different supply environment. But, you know, we wanna make sure that we give you guys a floor make sure that we can achieve at least that number that we give you while we continue to work on supply.

Tim Savageaux: Great. And as a quick follow-up, on scale across, I mean, to what extent is that you know, maybe even the primary driver of growth in 2027? And I would be interested in your reaction Some pretty extraordinary comments from suppliers and competitors about dynamics and scale across. I think Cisco talking about 14x the port count versus traditional DCI and some, pretty spectacular comments from Momentum as well. You know, maybe we can sharpen the focus on the scale across opportunity, how you see that TAM having maybe increased in recent quarters? And, thanks again.

Gary Smith: Yeah. Timothy, I think it is a, you know, it is a major driver of demand. And we were the first out there with the first scale across piece that came out of the came out of the data center, we have got good visibility to it. I concur with most of the industry comments that is gone on to it. I think it is you know, excuse the pun. It is at a massive scale, and it is just beginning. that is the point I would make is, you know, we are just beginning to roll out the first connectivity between these data centers. It is almost entirely North American, US based. And we are just beginning to link the first few data centers for a couple of hyperscalers to it. And that is all in front of us. So, yeah, it is a massive driver to it. But I also you know, we are also saying, you know, the general increase in connectivity around the data centers as well. The agentic stuff's beginning to flow, particularly on the submarine cables. And, you know, the inference traffic, we also think, you know, is a big step function. It mainly in front of us. So, everywhere you look, basically, Timothy, you know, you are looking at compounding waves of applications and traffic growth. That will just build on top of each other. Because even the scale across which is really predominantly now on training, started off with synchronous training. You are going to get asynchronous training as well. You are also gonna get large amounts of inference cascading into that as well. So, you know, massive amounts of connectivity these data centers in front of us. And we are only just at the early innings of that. And we are incredibly well positioned to it having the leading platform for, HyperRail. You know, RLS was an industry standard. We have about 70% of that market share, and we expect that, you know, to continue. With Hyper-Rail in this next generation and the leading modem technology we can basically move bits faster and longer than anybody else in the world. And that is a super valued, critical element that will enable this. Thanks, Timothy, for the question. Thanks, Gary.

Gregg Lampf: We look forward to seeing everyone over the next several weeks. We have a very busy schedule. Thanks for your time this morning.

Operator: This concludes today's call. You for attending. You may now disconnect.