10-QPeriod: Q3 FY2016

COHERENT CORP. Quarterly Report for Q3 Ended Mar 31, 2016

Filed May 9, 2016For Securities:COHR

Summary

COHERENT CORP. (COHR) reported solid financial performance for the nine months ended March 31, 2016, with net earnings of $51.1 million ($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 million. 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 million, 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 million 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.

Financial Highlights

51 data points
Beta

Revenue

$205.10M

37.9% Gross Margin

Net Income

$14.94M

7.3% Net Margin

EPS (Diluted)

$0.24

Total Assets

$1.22B

Cash & Equivalents

$187.37M

Free Cash Flow

$5.35M

Financial Statements
Beta
Revenue$205.10M
Cost of Revenue$127.44M
Gross Profit$77.67M
R&D Expenses$14.95M
SG&A Expenses$43.33M
Operating Income$19.39M
Interest Expense$769K
Net Income$14.94M
EPS (Basic)$0.24
EPS (Diluted)$0.24
Shares Outstanding (Basic)61.37M
Shares Outstanding (Diluted)63.05M

Key Highlights

  • 1Net 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.
  • 2Total 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.
  • 3The II-VI Photonics segment experienced revenue growth of 20% year-over-year, benefiting from demand in optical communications and data center markets.
  • 4The company completed two significant acquisitions during the quarter: EpiWorks for $49.1 million and ANADIGICS for $75.5 million (net of cash acquired).
  • 5Despite revenue contribution, the recent acquisitions were dilutive to earnings in the current quarter, impacting net earnings by approximately $0.11 per share diluted.
  • 6Goodwill and other intangible assets increased significantly on the balance sheet due to the acquisitions, reflecting the strategic expansion.
  • 7Cash 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.

Frequently Asked Questions

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.

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.

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.

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.