10-QPeriod: Q2 FY2010

COHERENT CORP. Quarterly Report for Q2 Ended Dec 31, 2009

Filed February 8, 2010For Securities:COHR

Summary

This 10-Q filing for II-VI Incorporated (now Coherent Corp.) for the quarter ended December 31, 2009, reveals a challenging period marked by a year-over-year decline in revenues and net earnings, largely attributed to the lingering effects of the global economic slowdown. Despite the revenue dip, the company saw a significant increase in bookings, signaling potential future recovery, particularly driven by military and emerging commercial applications. The acquisition of Photop Technologies, Inc. shortly after the reporting period is a key strategic move, aiming to bolster the Near-Infrared Optics segment. Financially, the company maintained a solid cash position and adequate borrowing capacity to manage its operations and upcoming obligations. While profitability was impacted by reduced sales volume and increased share-based compensation expenses, the company is actively managing its operational costs and optimizing working capital. Investors should note the mixed performance across different segments, with Infrared Optics facing headwinds while Military & Materials and parts of the Compound Semiconductor Group showed booking strength. The company's focus on strategic acquisitions and its ability to navigate the challenging economic environment while investing in growth areas will be crucial for future performance.

Financial Highlights

24 data points
Beta

Revenue

$68.78M

40.0% Gross Margin

Net Income

$5.98M

8.7% Net Margin

EPS (Diluted)

$0.10

Cash & Equivalents

$116.46M

Free Cash Flow

$11.45M

Financial Statements
Beta
Revenue$68.78M
Cost of Revenue$41.25M
Gross Profit$27.53M
R&D Expenses$2.29M
SG&A Expenses$16.92M
Operating Expenses$61.40M
Interest Expense$19K
Net Income$5.98M
EPS (Basic)$0.10
EPS (Diluted)$0.10

Key Highlights

  • 1Total revenues decreased by 7% to $68.8 million for the three months ended December 31, 2009, compared to $74.3 million in the prior year period.
  • 2Net earnings attributable to II-VI Incorporated decreased by 28% to $6.0 million ($0.20 per diluted share) compared to $8.4 million ($0.28 per diluted share) in the prior year period.
  • 3Bookings saw a significant increase of 16% to $78.3 million for the three months ended December 31, 2009, indicating a potential turnaround and strong future demand, especially from military and emerging commercial sectors.
  • 4The company completed the acquisition of Photop Technologies, Inc. on January 4, 2010, for $45.6 million in cash and company stock, plus potential earn-outs, aimed at strengthening the Near-Infrared Optics segment.
  • 5Operating cash flow from continuing operations improved substantially, increasing to $31.3 million for the six months ended December 31, 2009, from $12.9 million in the prior year period, driven by effective working capital management.
  • 6The Infrared Optics segment experienced a significant decline in segment earnings (down 47% year-over-year) due to lower shipment volumes from industrial customers.
  • 7The Military & Materials segment showed strong growth, with bookings up 44% and revenues up 12% year-over-year, driven by military applications and demand for specialty metals.

Frequently Asked Questions

The decline in revenues and earnings was primarily due to lower volume of shipments across several business units, particularly Infrared Optics and Marlow, resulting from reduced demand from industrial customers amid a challenging economic environment. Additionally, the company incurred approximately $1.3 million (after-tax) in transaction expenses related to the acquisition of Photop Technologies, Inc., and experienced increased share-based compensation expenses.

The substantial increase in bookings (16% for the quarter) is a positive indicator of future revenue growth. It suggests that customer demand is picking up, particularly in strategic areas like military applications (e.g., for the Joint Strike Fighter program and high-energy laser weapons) and commercial sectors benefiting from economic recovery (e.g., silicon carbide wafers for RF and power switching). This growth in orders signals potential for a turnaround in financial performance in upcoming quarters.

The acquisition of Photop Technologies, Inc., completed on January 4, 2010, is a strategic move designed to enhance the company's Near-Infrared Optics segment. This acquisition, involving cash and stock consideration, aims to leverage Photop's capabilities to drive growth in this segment, although its financial results were not yet included in the period reported here. The integration of Photop is expected to contribute to the company's future revenue and market position.

The company's liquidity and capital resources appear adequate. Cash and cash equivalents increased to $116.5 million as of December 31, 2009. Operating activities generated strong cash flow, and the company has a $60 million unsecured line of credit with substantial availability. Management believes these resources, combined with operating cash flow, are sufficient to fund working capital needs, capital expenditures, debt payments, and internal growth for fiscal year 2010.