10-QPeriod: Q2 FY2015

COHERENT CORP. Quarterly Report for Q2 Ended Dec 31, 2014

Filed February 6, 2015For Securities:COHR

Summary

Coherent Corp. (COHR) reported a strong second quarter for fiscal year 2015, with significant year-over-year improvements in both revenue and net earnings. For the three months ended December 31, 2014, revenue grew to $176.8 million, a 3.0% increase from the prior year, while net earnings surged to $22.1 million, or $0.35 per diluted share, from $7.6 million, or $0.12 per diluted share, in the comparable period of fiscal 2014. This impressive performance was driven by a combination of factors including the positive impact of prior year acquisitions, increased demand for laser components, and improved gross margins due to the absence of prior year acquisition-related inventory adjustments. The six-month period also showed robust growth, with revenues reaching $362.6 million, up 12.7% from the prior year, and net earnings more than doubling to $34.4 million, or $0.55 per diluted share, compared to $17.3 million, or $0.27 per diluted share, in the prior year. The company highlighted increased R&D investment to support product development and a lower effective tax rate due to a favorable mix of foreign income and R&D credits. The company's strategic realignment into three reporting segments (Laser Solutions, Photonics, and Performance Products) appears to be providing greater clarity and driving performance, with Laser Solutions and Photonics showing particularly strong growth in bookings and revenues.

Financial Highlights

50 data points
Beta

Revenue

$176.74M

35.7% Gross Margin

Net Income

$22.10M

12.5% Net Margin

EPS (Diluted)

$0.35

Total Assets

$1.05B

Cash & Equivalents

$154.95M

Free Cash Flow

$38.51M

Financial Statements
Beta
Revenue$176.74M
Cost of Revenue$113.72M
Gross Profit$63.02M
R&D Expenses$12.85M
SG&A Expenses$33.64M
Operating Income$16.53M
Interest Expense$1.04M
Net Income$22.10M
EPS (Basic)$0.36
EPS (Diluted)$0.35
Shares Outstanding (Basic)61.13M
Shares Outstanding (Diluted)62.28M

Key Highlights

  • 1Revenue for the three months ended December 31, 2014 increased by 3.0% to $176.8 million compared to $171.7 million in the prior year.
  • 2Net earnings for the three months ended December 31, 2014 significantly increased to $22.1 million ($0.35/share diluted) from $7.6 million ($0.12/share diluted) in the prior year.
  • 3Six-month revenue rose 12.7% to $362.6 million, and net earnings more than doubled to $34.4 million ($0.55/share diluted) from $17.3 million ($0.27/share diluted) in the prior year.
  • 4Gross margin improved to 35.7% for the quarter and 36.1% for the six months, benefiting from the absence of prior year acquisition-related inventory charges.
  • 5The company invested more in R&D, with expenses increasing to 7.2% of revenue for the quarter and 7.1% for the six months, driven by prior year acquisitions.
  • 6The effective income tax rate decreased to 16.4% for the year-to-date period, primarily due to a shift in income mix towards lower-tax foreign jurisdictions and R&D credits.
  • 7The company ended the period with $154.9 million in cash and cash equivalents and maintained compliance with its debt covenants, while also continuing a share repurchase program.

Frequently Asked Questions

The significant increase in net earnings was driven by several factors, including the positive impact of acquisitions completed in the prior fiscal year, a general increase in revenues, operational synergies, cost-saving initiatives, and a favorable shift in the company's tax rate due to a better mix of foreign income and R&D credits. The absence of certain non-recurring acquisition-related costs and inventory adjustments that impacted the prior year also contributed to the improved year-over-year results.

Total debt decreased from $242.0 million at June 30, 2014, to $212.5 million at December 31, 2014, primarily due to scheduled principal payments on long-term debt. Cash and cash equivalents decreased from $174.7 million to $154.9 million, mainly due to investing activities and share repurchases. The company had $90.1 million in available borrowing capacity and reported compliance with all financial covenants under its credit facilities, indicating a stable liquidity position.

Coherent Corp. realigned into three reporting segments: II-VI Laser Solutions, II-VI Photonics, and II-VI Performance Products, effective July 1, 2014. This move was intended to increase focus on end markets, improve operational oversight, and enhance transparency. The II-VI Laser Solutions segment saw strong growth in bookings and revenues, driven by prior year acquisitions and increased industrial demand. The II-VI Photonics segment also experienced significant booking and revenue increases, largely attributed to acquisitions in laser pump and optical amplifier businesses. The II-VI Performance Products segment saw a slight decrease in bookings and revenues, influenced by reduced demand in military and semiconductor equipment markets, but maintained profitability.

The company is increasing its investment in R&D to support ongoing product development, particularly in fiber and direct diode laser components, and fiber optical amplifiers. Capital expenditures were noted, with a significant portion in the current period related to the purchase of a manufacturing facility in Germany. Additionally, the company has an active share repurchase program in place, having spent $11.3 million on treasury stock purchases as of December 31, 2014, under a $50 million authorization.