01—Abstract
Summary
Summary of the 10-Q filed November 12, 2019. Cited figures are marked; the original filing is the authoritative source.
II-VI Incorporated (COHR) reported a net loss of $26.0 milliona, or $(0.39) per diluted share, for the three months ended September 30, 2019.
This contrasts with a net profit of $26.1 millionb, or $0.40 per diluted share, in the same period last year. The significant shift is largely attributed to the completion of the Finisar Corporation acquisition on September 24, 2019. The company incurred substantial transaction-related expenses, totaling $65.5 million, which negatively impacted earnings.
Additionally, lower product demand for Silicon Carbide and 3D Sensing product lines led to under-absorption of manufacturing costs. Despite the quarterly loss, total revenues saw an increase of 8% to $340.4 millionc, driven by contributions from Finisar and growth in the Photonic Solutions segment, particularly from ROADM components supporting broadband expansion and U.S. metro communication upgrades. The company also significantly increased its debt levels to finance the Finisar acquisition, now standing at approximately $2.5 billion, which presents a key area of focus for investors regarding financial flexibility and risk management.
02—Key points
Key Highlights
- Net Loss Reported: The company reported a net loss of $26.0 million for the quarter, a significant decline from the net profit of $26.1 million in the prior year's comparable period.
- Finisar Acquisition Completed: The acquisition of Finisar Corporation was completed on September 24, 2019, contributing $22.1 million in revenue but also incurring substantial transaction costs ($65.5 million).
- Increased Debt Load: Total debt increased significantly to approximately $2.5 billion as of September 30, 2019, primarily to fund the Finisar acquisition, raising concerns about financial leverage.
- Revenue Growth Despite Loss: Consolidated revenues increased by 8% year-over-year to $340.4 million, supported by Finisar's contribution and strong performance in the Photonic Solutions segment.
- Gross Margin Decline: Gross margin decreased to 36.2% from 39.5% year-over-year, negatively impacted by fair value adjustments on acquired inventory and under-absorption of manufacturing costs due to lower demand and production challenges.
- Increased SG&A Expenses: Selling, General, and Administrative (SG&A) expenses more than doubled to $105.5 million, largely due to one-time acquisition-related costs.
- Segment Performance Varied: While Compound Semiconductors saw a slight revenue decrease but improved operating income, Photonic Solutions experienced revenue growth but a decline in operating income due to product mix and pricing pressures.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q1 FY2020, Coherent Corp. lost $0.08.
- Revenue$340.4M100.0%
- Cost of revenue−$217.3M63.8%
- Gross profit$123.1M36.2%
- Operating costs−$141.6M41.6%
- Operating income−$18.5M5.4%
- Interest, other & tax−$7.5M2.2%
- Net income−$26.0M7.6%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2020filed November 12, 2019Financial Statements
Q1 FY2020 against Q1 FY2019
| Line item | Q1 FY2020Q1 FY2019 | Change |
|---|---|---|
| Revenue | $340.41M$314.43M | +8.3% |
| Cost of Revenue | $217.27M$190.53M | +14.0% |
| Gross Profit | $123.14M$123.91M | −0.6% |
| R&D Expenses | $36.12M$33.17M | +8.9% |
| SG&A Expenses | $105.50M$53.52M | +97.1% |
| Operating Expenses | $370.93M$282.09M | +31.5% |
| Operating Income | -$18.48M$37.21M | −149.6% |
| Interest Expense | $6.97M$5.58M | +24.8% |
| Net Income | -$26.00M$26.15M | −199.4% |
| EPS (Basic) | $-0.39$0.41 | −195.1% |
| EPS (Diluted) | $-0.39$0.40 | −197.5% |
| Shares Outstanding (Basic) | 65.97M63.42M | +4.0% |
| Shares Outstanding (Diluted) | 65.97M66.16M | −0.3% |
05—Questions
Frequently Asked Questions
What was the primary driver for the significant increase in debt?
The primary driver for the substantial increase in debt was the financing of the acquisition of Finisar Corporation, which was completed on September 24, 2019. The company entered into new senior secured credit facilities totaling $2.425 billion to fund this transaction.
Why did the company report a net loss in this quarter, despite revenue growth?
The net loss was primarily due to significant one-time transaction costs associated with the Finisar acquisition, totaling $65.5 million. Additionally, lower product demand in certain segments led to under-absorption of manufacturing costs, impacting gross margins. Increased Selling, General, and Administrative (SG&A) expenses also contributed.
How has the Finisar acquisition impacted the company's financial statements?
The Finisar acquisition has significantly impacted the financial statements by increasing total assets (goodwill and intangible assets), liabilities (debt), and revenues. It also led to substantial transaction costs recognized in the current quarter's expenses, contributing to the net loss. Finisar's results have been included in the consolidated statements since the acquisition date.
What is the company's outlook regarding its increased debt levels?
The company has taken on substantial debt following the Finisar acquisition, with approximately $2.5 billion outstanding as of September 30, 2019. The company is subject to financial covenants under its new credit agreement, including a consolidated interest coverage ratio and a consolidated total net leverage ratio, which it was compliant with as of the reporting date. Investors should monitor the company's ability to manage this debt, particularly in relation to its cash flow generation and future refinancing needs.
06—Continue