01—Abstract
Summary
Summary of the 10-Q filed February 8, 2019. Cited figures are marked; the original filing is the authoritative source.
II-VI Incorporated (now Coherent Corp.) reported strong revenue growth in the three and six months ended December 31, 2018, driven by increased demand in optical communications, RF electronics, and military applications.
The company saw a significant jump in net earnings, partly due to favorable tax law changes and increased sales volume. However, gross margins experienced slight pressure due to pricing in China and a shift in product mix. The company also incurred merger-related expenses for the proposed acquisition of Finisar, which is expected to close mid-2019.
Financially, II-VI's balance sheet shows growth in assets, including property, plant, and equipment, and intangible assets, reflecting investments in capacity and recent acquisitions. Debt levels increased to support these investments.
The company's operating cash flow improved year-over-year. Key strategic initiatives include the pending Finisar merger and continued investment in R&D to maintain technological leadership.
02—Key points
Key Highlights
- Revenue increased by 22% to $342.9 million for the three months ended December 31, 2018, and by 21% to $657.3 million for the six months ended December 31, 2018.
- Net earnings significantly improved to $28.7 million ($0.44 diluted EPS) for the three months and $54.9 million ($0.83 diluted EPS) for the six months ended December 31, 2018, compared to $9.6 million ($0.15 diluted EPS) and $30.7 million ($0.47 diluted EPS) respectively in the prior year.
- Gross margin percentage slightly decreased from 38.9% to 38.4% for the three-month period and from 39.7% to 38.9% for the six-month period, attributed to pricing pressure and product mix.
- The company incurred $7.1 million in merger-related expenses for the pending acquisition of Finisar Corporation, expected to close mid-2019.
- Operating cash flow increased to $88.2 million for the six months ended December 31, 2018, up from $59.7 million in the prior year.
- Total assets grew to $1.88 billion as of December 31, 2018, from $1.76 billion as of June 30, 2018, with increases in goodwill and intangible assets.
- Long-term debt increased to $460.5 million as of December 31, 2018, compared to $419.0 million as of June 30, 2018, supporting acquisitions and operations.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2019, Coherent Corp. kept $0.08.
- Revenue$342.8M100.0%
- Cost of revenue−$211.3M61.6%
- Gross profit$131.5M38.4%
- Operating costs−$91.9M26.8%
- Operating income$39.6M11.6%
- Interest, other & tax−$10.9M3.2%
- Net income$28.7M8.4%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2019filed February 8, 2019Financial Statements
Q2 FY2019 against Q2 FY2018
| Line item | Q2 FY2019Q2 FY2018 | Change |
|---|---|---|
| Revenue | $342.84M$281.47M | +21.8% |
| Cost of Revenue | $211.33M$172.07M | +22.8% |
| Gross Profit | $131.51M$109.39M | +20.2% |
| R&D Expenses | $33.76M$27.78M | +21.5% |
| SG&A Expenses | $58.14M$49.13M | +18.3% |
| Operating Expenses | $308.11M$251.60M | +22.5% |
| Operating Income | $39.61M$32.49M | +21.9% |
| Interest Expense | $5.58M$4.64M | +20.2% |
| Net Income | $28.70M$9.60M | +199.1% |
| EPS (Basic) | $0.45$0.15 | +200.0% |
| EPS (Diluted) | $0.44$0.15 | +193.3% |
| Shares Outstanding (Basic) | 63.59M62.30M | +2.1% |
| Shares Outstanding (Diluted) | 65.67M65.04M | +1.0% |
05—Questions
Frequently Asked Questions
What is the company's outlook regarding the Finisar merger?
II-VI Incorporated announced a pending merger with Finisar Corporation on November 8, 2018. The merger is expected to be completed around mid-2019, subject to customary closing conditions. The company has filed a registration statement on Form S-4 for the merger, which became effective on February 7, 2019. The merger consideration for Finisar stockholders will consist of a mix of cash and II-VI common stock, with approximately 60% cash and 40% stock in aggregate.
How did the recent acquisitions impact the company's financial results?
During the period, II-VI acquired CoAdna Holdings, Inc. for approximately $85.0 million and certain assets of a product line for approximately $10.0 million. The operating results of these acquisitions have been included in the II-VI Photonics segment. CoAdna contributed $7.1 million in revenue for the three months and $10.1 million for the six months ended December 31, 2018. The company is still finalizing the purchase price allocation for CoAdna. Goodwill of $24.8 million was recorded for CoAdna, attributed to expected synergies and workforce.
What is the company's current liquidity position and its ability to fund operations?
As of December 31, 2018, II-VI had $230.3 million in cash and cash equivalents and $201.4 million in available borrowing capacity under its credit facilities. The company believes that cash flow from operations, existing cash reserves, and available borrowing capacity will be sufficient to fund its working capital needs, capital expenditures, debt obligations, R&D investments, the Finisar merger, share repurchases, and growth objectives for the next twelve months.
How did the Tax Cuts and Jobs Act affect the company's financial performance?
The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, impacted the company's tax provision. While there was a provisional net charge of $15.8 million in the prior year related to the one-time repatriation tax and U.S. corporate tax rate reduction, these provisional amounts were finalized in the current period. The finalization resulted in no material financial statement impact, as the additional tax expense was offset by the release of valuation allowances on U.S. deferred tax assets.
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