01—Abstract
Summary
Summary of the 10-Q filed February 8, 2018. Cited figures are marked; the original filing is the authoritative source.
II-VI Incorporated (COHR) reported a mixed financial performance for the six months ended December 31, 2017.
While revenue saw a significant increase of 20% to $543.0 milliona compared to the prior year, driven by strong demand across various end markets including consumer electronics, communications, and automotive, net earnings declined. For the three months ended December 31, 2017, net earnings were $9.6 million, a substantial decrease from $23.9 million in the prior year. This decline was largely impacted by a provisional net charge of $15.8 million related to the U.S. Tax Cuts and Jobs Act.
Excluding this one-time tax impact, net earnings would have been more favorable, supported by higher revenues. The company completed two key acquisitions during the period: Integrated Photonics, Inc. (IPI) and II-VI Compound Semiconductor Ltd. While these acquisitions contributed to revenue growth, they also resulted in net losses that impacted overall profitability in the short term.
II-VI Laser Solutions and II-VI Performance Products segments demonstrated strong revenue growth and improved operating income, while II-VI Photonics also saw revenue increases with significant operating income growth driven by higher margin product mix and new introductions. The company's liquidity remains robust, supported by operating cash flows, a strong cash position, and available borrowing capacity, enabling continued investment in technology platforms and strategic growth objectives.
02—Key points
Key Highlights
- Revenue increased by 20% to $543.0 million for the six months ended December 31, 2017, driven by strong demand in key end markets.
- Net earnings for the three months ended December 31, 2017, significantly decreased to $9.6 million from $23.9 million in the prior year, primarily due to a $15.8 million provisional charge related to the Tax Cuts and Jobs Act.
- The company completed two strategic acquisitions: Integrated Photonics, Inc. (IPI) and II-VI Compound Semiconductor Ltd., which contributed to revenue but also incurred net losses impacting short-term profitability.
- II-VI Laser Solutions and II-VI Performance Products segments showed strong revenue and operating income growth.
- II-VI Photonics segment experienced revenue growth and notable operating income expansion driven by higher margin products and new introductions.
- Liquidity remains strong with $254.5 million in cash and cash equivalents and $225.6 million in available borrowing capacity as of December 31, 2017.
- The company is making significant investments in new technology platforms to address anticipated future demands, impacting current cash flow from operations despite revenue growth.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2018, Coherent Corp. kept $0.03.
- Revenue$281.5M100.0%
- Cost of revenue−$172.1M61.1%
- Gross profit$109.4M38.9%
- Operating costs−$76.9M27.3%
- Operating income$32.5M11.5%
- Interest, other & tax−$22.9M8.1%
- Net income$9.6M3.4%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2018filed February 8, 2018Financial Statements
Q2 FY2018 against Q2 FY2017
| Line item | Q2 FY2018Q2 FY2017 | Change |
|---|---|---|
| Revenue | $281.47M$231.82M | +21.4% |
| Cost of Revenue | $172.07M$137.56M | +25.1% |
| Gross Profit | $109.39M$94.26M | +16.1% |
| R&D Expenses | $27.78M$23.63M | +17.5% |
| SG&A Expenses | $49.13M$43.49M | +13.0% |
| Operating Expenses | $251.60M— | — |
| Operating Income | $32.49M$27.14M | +19.7% |
| Interest Expense | $4.64M$1.36M | +240.2% |
| Net Income | $9.60M$23.90M | −59.9% |
| EPS (Basic) | $0.15$0.38 | −60.5% |
| EPS (Diluted) | $0.15$0.37 | −59.5% |
| Shares Outstanding (Basic) | 62.30M62.39M | −0.1% |
| Shares Outstanding (Diluted) | 65.04M64.41M | +1.0% |
05—Questions
Frequently Asked Questions
What led to the significant decrease in net earnings for the three months ended December 31, 2017?
The significant decrease in net earnings for the three months ended December 31, 2017, was primarily due to a provisional net charge of $15.8 million ($0.24 per-share diluted) resulting from the U.S. Tax Cuts and Jobs Act. This charge relates to the one-time repatriation tax on foreign earnings and adjustments to deferred tax assets and liabilities.
How did the recent acquisitions of IPI and II-VI Compound Semiconductor Ltd. affect the company's financial performance?
The acquisitions of Integrated Photonics, Inc. (IPI) and II-VI Compound Semiconductor Ltd. contributed to revenue growth, with IPI adding $10.3 million and II-VI Compound Semiconductor Ltd. adding $1.6 million in revenues for the six months ended December 31, 2017. However, these acquisitions also resulted in net losses, with II-VI Compound Semiconductor Ltd. incurring a $6.2 million loss and IPI a $1.4 million profit over the same period, impacting overall profitability in the short term as the company invests in new technology platforms.
What is the company's outlook on liquidity and its ability to fund operations and growth?
The company maintains a strong liquidity position, with $254.5 million in cash and cash equivalents and $225.6 million in available borrowing capacity as of December 31, 2017. Management believes this, along with cash flow from operations, will be sufficient to fund working capital needs, capital expenditures, debt obligations, R&D, share repurchases, and growth objectives for the next twelve months. Significant investments in new technology platforms are ongoing.
How is the company managing foreign currency exchange rate risks?
The company manages foreign currency exchange risks primarily through the use of foreign currency forward exchange contracts. These contracts are used to hedge transactional exposure, particularly for sales denominated in Japanese Yen, Chinese Renminbi, and Euros. The company enters into these contracts to limit exposure to fluctuations in currency rates and has recorded unrealized gains on some of these contracts for the six months ended December 31, 2017.
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