Hello, everyone, and thank you for joining. This is Marc Graff, Ciena's Chief Financial Officer. Today, I will update you on the journey we have been on for the past few years, the amazing results we have achieved, and our plans and financial objectives through 2029. It was a little more than a year ago when Ciena laid out its near-term financial goals, namely structurally improving gross margins, driving towards world-class working capital, and having a focused capital allocation strategy. I am happy to report we have made excellent progress against all three of these objectives, as they have been the core on delivering the fundamentals for Ciena's business model. You have seen gross margins improve by over 200 basis points year-on-year through an aggressive cost reduction program, pricing actions, and accretive product mix. These dynamics are sustainable and have reset our gross margin base to solidly mid-40s.
Our working capital management has been a focus not only for financial hygiene, but also to power the growth of the company. We have the resources to fund our growth over the long term and to ensure that our capital is deployed to meet growing customer needs while reinforcing efficiencies such as cash conversion cycles. Lastly, we have a disciplined capital allocation framework that focuses on investing in our current leadership portfolio as its top priority and maintaining an eye to inorganic opportunities as our second priority. Being the only pure-play Optical Systems and interconnect solution provider and a leader in the industry is the result of decades of deliberate investment decisions, trade-offs, and execution to meet this extraordinary market opportunity.
Lastly, when capital is generated beyond these needs, we are committed to returning it to our owners, which over the last five years has averaged over 100% of free cash flow. The results speak for themselves. Since 2024, revenue has grown an average of 27% to our current $6.4 billion 2026 guides. Operating margins have expanded by 1,100 basis points over the same time frame, and earnings per share have more than tripled. It is this earnings potential that we are unleashing. We have tripled our earnings per share with only the 27% revenue CAGR. We are able to deliver these results because we are the only pure-play Optical Systems and interconnect provider on the planet, and that allows us massive leverage for both R&D and go-to-market activities. These impressive results have been gated only by industry supply.
As we have talked previously, we are seeing an acceleration in the demand for Optical Systems and interconnects as customers realize the network is the unlock to monetizing AI investments. Over the past two years, we have seen orders, a proxy for unconstrained demand, double from 2024 to 2025 and increase at least another 50% into 2026. Yet revenue, a proxy for supply in a constrained environment, has increased only 27% on average over the past two years. As a result, over the same period, backlog has more than doubled from 2024 to 2025 and again from 2025 to 2026 to an expected $10 billion exiting 2026. Clearly, there is not a demand issue. What is clear is the need for the industry to accelerate its capacity requirements for a number of years to catch up to demand.
While it is typically seen as a negative indicator, industry lead times need to compress in order to establish a healthier balance between supply and demand, effectively providing a cash unlock to a growing backlog. Based on our latest outlooks, we do not see a balanced supply-demand environment returning before 2028. As it applies to our directional outlook for 2027, we see a very similar dynamic occurring, namely demand outstripping supply. We continue to believe that we will exit the fiscal year with at least a 50% growth in orders to yield a minimum $10 billion in backlog, which covers our 2027 revenue outlook and starts to build the 2028 revenue base. As importantly, we have secured the supply to enable at least a 30% revenue growth going into 2027.
Our supply chain team has pulled all the levers to ensure that we can deliver this floor and position Ciena for upside as additional supply may become available. In fact, we believe that we have secured supply to meet demand to extend the 30% trend through 2029, yielding a 2029 revenue target of approximately $14 billion. With customer commitments and long-term supply agreements, our revenue will exceed what we believe the top four hyperscalers' CapEx growth rate to be. Additionally, the competitiveness of our portfolio will enable continued share gains and exceed the TAM growth rate, driven primarily by our Optical Systems such as RLS Hyper-Rail and WaveLogic 6 Extreme, and accelerated by the massive growth in our interconnects portfolio of plugs, DCoM, modules, and the beginning of the CPO/NPO product ramps. We have requested supply commits for 2028 and 2029 to exceed these growth rates.
The next three years will be an inflection point for the company as it cements its leadership position in the traditional and AI WAN and establishes its footprint inside the data center. While our ambitions are great inside the data center, we have taken a relatively modest approach to 2029 revenue from newer product lines like CPO, NPO, and Coherent-Lite. As Brodie and Dino reinforced, the move to optical within the data center is accelerating, and Ciena leads the industry in optical connectivity expertise. These products could provide significant upside to our baseline assumptions as the markets and applications develop for them. Together, there is $11 billion of 2029 TAM for these new markets in which we can participate. We are not relying only on growing revenue to drive profitability. We believe that we can achieve 50% gross margins by 2029, underwritten by our industry leadership.
First, as I have talked about previously, we have made excellent progress on pricing and term discussions with our customers that extend over the next three years. We will see these actions start to impact 2027 and annualize for the remainder of the three-year period. Second, we will see improved unit costs as new products like WaveLogic 6 Nano, our 800G pluggable, continue to ramp to mature volumes. Our engineering efforts to reduce product costs through both design and technology improvements continue to be an active investment. Last, and perhaps most exciting, is our evolving product portfolio delivering increased value, allowing structural improvements to our margins. Products like RLS Hyper-Rail and DCoM that deliver meaningful TCO advantages, and modules and components that have improved margin profiles underwrite structural improvements to our margins.
With our ability to deliver more value to the market, we are also seeing the benefits of our business model take hold. On top of gross margin improvements that I've just discussed, we are able to get significant leverage from our R&D investments in optical technology across multiple product lines. This reusable engineering model proliferates leadership discoveries that can be productized for multiple use cases. This creates an enormous amount of operating leverage for the company. On top of that, we see expanding leverage from our go-to-market efforts as well. As our largest customers are multi-segment, multi-use case customers, we are able to deepen the co-creation and co-development efforts while growing revenue, creating additional leverage. Taken together, gross margin improvements and increased operating leverage, we see a path to an operating margin of 32%-35% by 2029.
Our earnings strength is directly translating to improving what is an already strong balance sheet. With the completion of the 2026 convertible debt issuance, we have the strategic financial capability to continue to invest in the business while taking advantage of inorganic opportunities. With the scale that we are seeing in the business, we will continue to generate significant amounts of cash from operations with an expectation of approximately quintupling, or 5X-ing, cash generated from operations. In addition, with the growth of earnings, I expect that we will take our already low net leverage ratio down to zero or even below. Which begs the question, what are we doing with all this capital? Ciena has a history of being a thoughtful and deliberate steward of our owners' capital, and that trend will continue.
As I noted before, our first priority is to invest in the organic opportunities of the business, such as next generation of WaveLogic technologies, new material systems, and products that compete inside the data center. In fact, we are currently estimating that we will invest somewhere between $2.5 billion and $3 billion in R&D over the next three years. Second, we are constantly looking across the ecosystem for technologies and talent that will accelerate our market leadership. You've seen us take decisive action with our Nubis acquisition, which has positioned us well for expanding inside the data center. With our recently announced $200 million Ciena Ventures Fund, we will take an even more active stand to seek out those opportunities. In total, our balance sheet has given us the flexibility of a BB+ rating and roughly $20 billion of M&A capacity to deploy.
Lastly, once our organic and inorganic opportunities have been captured, we will return excess capital to our owners. Over the past five years, we've returned a cumulative 108% of our free cash flow to our owners. Moving forward, we are committed to returning a minimum average of 70% of free cash flow back to our shareholders, barring any major M&A activity. Overall, we are excited about the opportunities to generate leading returns for our owners. It's against this backdrop that we are realigning our reporting segments. It has been seven years since we adjusted our reporting structure, and the business has dramatically changed over that timeframe. First, we've seen the rise of the hyperscalers and AI as a major demand driver. Second, our product portfolio has become even more optically focused. Third, our opportunity inside the data center represents a new growth frontier with our interconnects portfolio.
Last, but certainly not least, this new structure simplifies our ability to communicate with the investment community while increasing the transparency of our different segments. Specifically, we will report four segments that align to our $52 billion 2029 TAM. Optical Systems, with an estimated $21 billion TAM growing at roughly an 18% CAGR through 2029, will include our line systems WaveLogic and Waveserver systems, as well as the Navigator Network Control Suite. Our interconnects portfolio will include the coherent plugs, DCoM or Digital Coherent Module, our Nitro and Vesta products from the Nubis acquisition, as well as optical and electrical components. This segment is expected to grow at an average annual rate of 95% through 2029 to a TAM of $17 billion. Our global services segment will now include the platform software services revenue and is expected to grow 15% with a 2029 TAM of $2 billion.
Finally, we have combined our non-DCoM routing and switching business with Blue Planet into routing and other, with a 2029 TAM of $12 million and a CAGR of 2%. We are excited about this new structure that will take effect with fiscal 2027 and be first reported with the Q1 2027 results. Pulling it all together, we are committed to a step function improvement in our financial model. Our three-year revenue target will be a 30% CAGR through 2029, achieving a $14 billion revenue level at roughly 50% gross margins. After 15%-18% operating investments, our business model's leverage will accelerate our operating margins to the mid-30s, with a free cash flow margin expected to be approximately 20%. Finally, we expect our adjusted tax rate to remain in the 20% range. As you can see, we are translating revenue growth into massive earnings power.
To sum it all up, Ciena is in an excellent position to continue and in fact to increase our earnings power, leading to sustained returns for our owners' investments. We are committed to building on and extending our market share in these growing optical markets. We believe the inevitability of the data center opticalization plays to our strengths as both an optical systems expert and a trusted partner to global hyperscalers, neoscalers, and service provider customers. The foundation of our pure-play optical systems and interconnects business model will drive significant earnings expansion as the world moves from copper and electrons to fiber and photons. We are absolutely committed to being good stewards of our owners' capital by investing first in the business and returning excess capital to our owners. Put simply, Ciena and its owners are positioned to enjoy increasing profits and returns. Thank you.