01—Abstract
Summary
Summary of the 10-Q filed May 9, 2016. Cited figures are marked; the original filing is the authoritative source.
COHERENT CORP. (COHR) reported solid financial performance for the nine months ended March 31, 2016, with net earnings of $51.1 milliona ($0.81 per diluted share), an increase from $48.9 million ($0.78 per diluted share) in the prior year period.
Total revenues grew 7% to $585.8 millionb. This growth was primarily driven by the II-VI Photonics segment, which saw a significant 20% revenue increase, fueled by demand in optical communications, data centers, and the China broadband build-out. Despite overall revenue growth, the recent acquisitions of EpiWorks and ANADIGICS in February and March 2016, respectively, had a dilutive impact on earnings in the current quarter, contributing $4.2 million in revenues but an overall net loss of $6.9 million (or $0.11 per share diluted) when considering their operating losses and related transaction expenses.
The company's balance sheet shows a healthy increase in total assets to $1,222.4 millionc, driven by acquisitions, with goodwill and intangible assets seeing significant growth. Long-term debt also increased substantially to fund these acquisitions.
Despite the integration of new businesses and associated costs, the company maintains a positive cash flow from operations of $81.2 milliond for the nine-month period, though investing activities saw a significant outflow of $151.3 million primarily due to the acquisitions. Management expresses confidence in its ability to fund its operations and growth objectives.
02—Key points
Key Highlights
- Net earnings for the nine months ended March 31, 2016, increased to $51.1 million ($0.81/share diluted) from $48.9 million ($0.78/share diluted) in the prior year.
- Total revenues for the nine months ended March 31, 2016, grew 7% to $585.8 million, driven by strong performance in the II-VI Photonics segment.
- The II-VI Photonics segment experienced revenue growth of 20% year-over-year, benefiting from demand in optical communications and data center markets.
- The company completed two significant acquisitions during the quarter: EpiWorks for $49.1 million and ANADIGICS for $75.5 million (net of cash acquired).
- Despite revenue contribution, the recent acquisitions were dilutive to earnings in the current quarter, impacting net earnings by approximately $0.11 per share diluted.
- Goodwill and other intangible assets increased significantly on the balance sheet due to the acquisitions, reflecting the strategic expansion.
- Cash flow from operations remained strong at $81.2 million for the nine-month period, although investing activities showed a substantial outflow of $151.3 million due to acquisitions.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2016, Coherent Corp. kept $0.07.
- Revenue$205.1M100.0%
- Cost of revenue−$127.4M62.1%
- Gross profit$77.7M37.9%
- Operating costs−$58.3M28.4%
- Operating income$19.4M9.5%
- Interest, other & tax−$4.5M2.2%
- Net income$14.9M7.3%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2016filed May 9, 2016Financial Statements
Q3 FY2016 against Q3 FY2015
| Line item | Q3 FY2016Q3 FY2015 | Change |
|---|---|---|
| Revenue | $205.10M$182.71M | +12.3% |
| Cost of Revenue | $127.44M$116.98M | +8.9% |
| Gross Profit | $77.67M$65.72M | +18.2% |
| R&D Expenses | $14.95M$12.87M | +16.1% |
| SG&A Expenses | $43.33M$35.19M | +23.1% |
| Operating Income | $19.39M$17.66M | +9.8% |
| Interest Expense | $769K$844K | −8.9% |
| Net Income | $14.94M$14.51M | +3.0% |
| EPS (Basic) | $0.24$0.24 | 0.0% |
| EPS (Diluted) | $0.24$0.23 | +4.3% |
| Shares Outstanding (Basic) | 61.37M61.08M | +0.5% |
| Shares Outstanding (Diluted) | 63.05M62.51M | +0.9% |
05—Questions
Frequently Asked Questions
How did the recent acquisitions of EpiWorks and ANADIGICS impact the company's financial performance in the current quarter?
The acquisitions of EpiWorks and ANADIGICS, completed in February and March 2016, contributed approximately $4.2 million in revenues during the quarter. However, they were dilutive to earnings. The combined impact of their operating losses, transaction expenses, and other one-time costs resulted in a negative impact of $6.9 million, or $0.11 per diluted share, on the company's results of operations for the quarter.
What is driving the strong performance in the II-VI Photonics segment?
The II-VI Photonics segment's revenue increased by 25% year-over-year in the quarter and 20% for the nine-month period. This growth is attributed to broad-based demand across optical communication markets, including data center expansion, increased demand for 100G metro deployments in the United States, and the China broadband build-out program. The segment also benefited from increased demand for its 980nm pumps and amplifiers supporting undersea fiber optic communication markets.
What is the company's overall financial health and liquidity position?
The company maintained positive cash flow from operations of $81.2 million for the nine months ended March 31, 2016. While investing activities showed a significant outflow due to acquisitions, the company had $187.4 million in cash and cash equivalents and $15.4 million in available borrowing capacity as of March 31, 2016. Management believes these resources, along with its credit facility, are sufficient to fund working capital, capital expenditures, debt repayments, R&D, and growth objectives for the next twelve months.
How has the company's debt structure changed?
Total debt increased to $262.9 million as of March 31, 2016, from $176.0 million at June 30, 2015. This increase is largely due to borrowings to fund the acquisitions of EpiWorks and ANADIGICS. The company's credit facility includes a revolving credit facility and a term loan, with covenants related to interest coverage and leverage ratios. The company was in compliance with all financial covenants as of March 31, 2016.
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