01—Abstract
Summary
Summary of the 10-Q filed February 10, 2020. Cited figures are marked; the original filing is the authoritative source.
COHERENT CORP. (COHR) reported a significant shift in its financial performance for the three and six months ended December 31, 2019, compared to the same periods in the prior year.
The company experienced a substantial net loss in the current periods, primarily driven by expenses associated with the acquisition of Finisar Corporation. Revenues, however, saw a dramatic increase, largely due to the inclusion of Finisar's operations, alongside growth in specific product lines like the ROADM product and VCSELs. Despite the revenue surge, the gross margin percentage declined significantly, impacted by fair value adjustments of acquired inventory and a less favorable product mix.
Operating expenses, particularly R&D and SG&A, also increased substantially, reflecting ongoing investments and acquisition-related costs. The company's balance sheet shows a substantial increase in assets, liabilities, and equity, largely attributable to the Finisar acquisition, which also led to a significant increase in long-term debt.
02—Key points
Key Highlights
- Net loss of $98.2 million for Q3 2019 and $124.2 million for the first half of fiscal year 2020, a sharp contrast to profits in the prior year periods.
- Revenues surged by 94% year-over-year for the quarter and 53% for the six-month period, primarily due to the acquisition of Finisar.
- Gross margin percentage dropped to 22.3% (Q3) and 27.0% (H1) from 38.4% (Q3) and 38.9% (H1) in the prior year, impacted by inventory fair value adjustments and product mix.
- Significant increases in R&D (from 9.9% to 16.2% of revenue in Q3) and SG&A (from 16.9% to 17.9% of revenue in Q3) expenses, driven by acquisition costs and ongoing investments.
- Long-term debt increased significantly from $443.2 million to $2,228.2 million due to new credit facilities to fund the Finisar acquisition.
- Total assets more than doubled from $1,953.8 million to $5,208.2 million, largely due to the Finisar acquisition, with substantial increases in goodwill and intangible assets.
- The company adopted new lease accounting standards (ASC 842) effective July 1, 2019, leading to the recognition of operating lease assets and liabilities.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q2 FY2020, Coherent Corp. lost $0.15.
- Revenue$666.3M100.0%
- Cost of revenue−$518.0M77.7%
- Gross profit$148.3M22.3%
- Operating costs−$226.9M34.1%
- Operating income−$78.6M11.8%
- Interest, other & tax−$19.6M2.9%
- Net income−$98.2M14.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2020filed February 10, 2020Financial Statements
Q2 FY2020 against Q2 FY2019
| Line item | Q2 FY2020Q2 FY2019 | Change |
|---|---|---|
| Revenue | $666.33M$342.84M | +94.4% |
| Cost of Revenue | $517.99M$211.33M | +145.1% |
| Gross Profit | $148.34M$131.51M | +12.8% |
| R&D Expenses | $107.70M$33.76M | +219.0% |
| SG&A Expenses | $119.22M$58.14M | +105.1% |
| Operating Expenses | $773.79M$308.11M | +151.1% |
| Operating Income | -$78.58M$39.61M | −298.4% |
| Interest Expense | $28.39M$5.58M | +408.8% |
| Net Income | -$98.21M$28.70M | −442.2% |
| EPS (Basic) | $-1.08$0.45 | −340.0% |
| EPS (Diluted) | $-1.08$0.44 | −345.5% |
| Shares Outstanding (Basic) | 90.89M63.59M | +42.9% |
| Shares Outstanding (Diluted) | 90.89M65.67M | +38.4% |
05—Questions
Frequently Asked Questions
What was the primary driver behind the significant increase in revenues?
The primary driver for the substantial increase in revenues was the acquisition of Finisar Corporation, which was completed on September 24, 2019. Finisar's operations contributed significantly to the reported revenue figures for the three and six months ended December 31, 2019. Beyond the acquisition, increased demand for the ROADM product line in the optical communications market and for VCSEL products in the 3D Sensing market also contributed.
Why did the company report a net loss despite the significant revenue growth?
The net loss reported for the periods ending December 31, 2019, was largely due to substantial expenses incurred in relation to the acquisition of Finisar. These included transaction costs (legal, professional fees), fair value adjustments for acquired inventory and intangible assets, and increased interest expenses from newly acquired debt. For the three months ended December 31, 2019, these expenses amounted to $119.9 million.
How has the Finisar acquisition impacted the company's balance sheet?
The Finisar acquisition has significantly impacted the balance sheet. Total assets more than doubled, from $1.95 billion to $5.21 billion, with substantial increases in goodwill ($1.1 billion from $320 million) and intangible assets ($930 million from $139 million). Liabilities also increased significantly, particularly long-term debt, which rose from $443 million to $2.23 billion due to new credit facilities. Consequently, shareholders' equity also increased considerably.
What is the impact of the new lease accounting standard (ASC 842) on the company's financial statements?
The company adopted ASC 842, Leases, on July 1, 2019. This adoption resulted in the recognition of operating lease assets and liabilities on the balance sheet. As of December 31, 2019, operating lease assets and liabilities were approximately $80.1 million, with an additional ~$45 million acquired through the Finisar transaction. This accounting change impacts how lease obligations are presented but does not fundamentally change the cash outflows associated with leases.
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