10-QPeriod: Q3 FY2017

COHERENT CORP. Quarterly Report for Q3 Ended Mar 31, 2017

Filed May 2, 2017For Securities:COHR

Summary

Coherent Corp. (COHR) demonstrated strong financial performance in the nine months ended March 31, 2017, with net earnings increasing to $62.6 million ($0.97 per diluted share) from $51.1 million ($0.81 per diluted share) in the prior year. This growth was driven by a 19% increase in total revenues to $698.3 million, fueled by robust demand in optical communications, driven by initiatives like the China broadband initiative and data center upgrades, as well as growth in laser applications and SiC substrates for automotive and industrial markets. The company also achieved improved gross margins, reaching 40.0% for the nine-month period, up from 37.6% in the prior year, attributed to higher revenues and a favorable product mix, particularly within the II-VI Photonics segment. However, a significant increase in internal research and development (R&D) expenses, from 6.9% to 10.1% of revenues, reflects ongoing strategic investments in new technologies like Vertical Cavity Surface Emitting Lasers (VCSELs), which is expected to continue impacting near-term profitability but positions the company for future growth.

Financial Highlights

50 data points
Beta

Revenue

$244.99M

39.9% Gross Margin

Net Income

$22.43M

9.2% Net Margin

EPS (Diluted)

$0.35

Total Assets

$1.35B

Cash & Equivalents

$247.58M

Free Cash Flow

-$21.63M

Financial Statements
Beta
Revenue$244.99M
Cost of Revenue$147.28M
Gross Profit$97.71M
R&D Expenses$25.38M
SG&A Expenses$43.29M
Operating Income$29.04M
Interest Expense$1.94M
Net Income$22.43M
EPS (Basic)$0.36
EPS (Diluted)$0.35
Shares Outstanding (Basic)62.81M
Shares Outstanding (Diluted)65.01M

Key Highlights

  • 1Net earnings increased by 22.4% to $62.6 million for the nine months ended March 31, 2017, compared to $51.1 million in the prior year.
  • 2Total revenues grew by 19% to $698.3 million for the nine months ended March 31, 2017, driven by strong performance in optical communications and laser solutions.
  • 3Gross margin improved to 40.0% for the nine months ended March 31, 2017, from 37.6% in the prior year, reflecting higher revenues and a better product mix.
  • 4Internal R&D expenses significantly increased by 75.7% to $70.8 million for the nine months ended March 31, 2017, indicating substantial investment in future technologies like VCSELs.
  • 5Operating cash flow remained strong at $78.4 million for the nine months ended March 31, 2017, although slightly down from $81.2 million in the prior year, primarily due to higher inventory and accounts receivable levels.
  • 6The company's debt obligations increased, with total debt rising to $279.7 million from $235.9 million, reflecting increased borrowings under its credit facilities to support operations and investments.
  • 7II-VI Photonics segment showed exceptional growth, with revenues up 35% and operating income up 96% for the nine months ended March 31, 2017, driven by optical communications demand.

Frequently Asked Questions

Revenues increased by 19% to $698.3 million, primarily driven by strong demand from the optical communications sector, fueled by the China broadband initiative, data center upgrades, and U.S. metro network expansions. The II-VI Laser Solutions segment also contributed with increased demand for CO2 and one-micron laser applications.

Internal research and development expenses saw a substantial increase, nearly doubling for the nine-month period, to support the Company's strategic investment in developing high-volume Vertical Cavity Surface Emitting Lasers (VCSELs) and other new opto-electronic devices and product introductions across its segments. Management anticipates R&D expenses will remain at a similar percentage of revenue as they continue to invest in their growth strategy.

The company maintained positive operating cash flow of $78.4 million for the nine months. While total debt increased to $279.7 million, the company had $247.6 million in cash and cash equivalents and $138.4 million in available borrowing capacity as of March 31, 2017. Management believes these resources are sufficient to fund working capital, capital expenditures, debt repayment, and growth objectives for the next twelve months.

The II-VI Photonics segment was a standout performer, with revenues up 35% and operating income soaring 96% for the nine months, driven by optical communications demand. II-VI Laser Solutions saw a 13% revenue increase but a 22% decrease in operating income due to acquisition-related losses, while II-VI Performance Products showed modest revenue growth of 3% with a 6% increase in operating income, driven by demand for SiC substrates.