01—Abstract
Summary
Summary of the 10-Q filed May 11, 2020. Cited figures are marked; the original filing is the authoritative source.
COHERENT CORP. (COHR) reported a significant increase in revenues for the three and nine months ended March 31, 2020, primarily driven by the acquisition of Finisar Corporation and continued growth in the optical communications market.
However, the company incurred a substantial net loss for the nine-month period, largely due to acquisition-related expenses, including fair value adjustments of acquired inventory and amortization of intangible assets. Despite the net loss, operating cash flow remained positive, and the company highlighted its ability to meet liquidity needs with existing cash and borrowing facilities, even amidst the emerging COVID-19 pandemic. The acquisition of Finisar has significantly altered the company's financial profile, leading to a substantial increase in assets, liabilities, goodwill, and intangible assets.
While revenue growth is strong, investors should closely monitor the integration of Finisar, the impact of acquisition-related costs on profitability, and the company's ability to manage its increased debt load. The ongoing COVID-19 pandemic presents an additional layer of uncertainty, potentially impacting supply chains, customer demand, and operations.
02—Key points
Key Highlights
- Revenues increased significantly by 83% year-over-year for the three months ended March 31, 2020, reaching $627.0 million, primarily due to the Finisar acquisition and strong demand in optical communications.
- The nine-month period ended March 31, 2020, resulted in a net loss of $118.3 million, a substantial decline from the prior year's net earnings of $79.5 million, largely attributed to $191.5 million in Finisar acquisition-related expenses.
- Gross margin for the three-month period improved to 39.2% from 37.2%, but the nine-month gross margin decreased to 31.7% from 38.3% due to a $87.7 million fair value adjustment of acquired inventory from Finisar.
- Operating expenses, particularly Internal R&D and Selling, General & Administrative (SG&A), saw significant increases, driven by Finisar acquisition costs and ongoing investment in new technologies.
- Total assets more than doubled from $1,953.8 million to $5,106.8 million, reflecting the substantial impact of the Finisar acquisition, with significant increases in goodwill and intangible assets.
- Total liabilities also more than tripled from $820.6 million to $3,088.9 million, largely due to new long-term debt taken on to finance the acquisition.
- Net cash provided by operating activities remained robust at $120.5 million for the nine months ended March 31, 2020, despite the net loss, while investing activities showed a significant outflow of $1,147.6 million due to the Finisar acquisition.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2020, Coherent Corp. kept $0.01.
- Revenue$627.0M100.0%
- Cost of revenue−$381.1M60.8%
- Gross profit$245.9M39.2%
- Operating costs−$176.9M28.2%
- Operating income$69.0M11.0%
- Interest, other & tax−$63.1M10.1%
- Net income$5.9M0.9%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2020filed May 11, 2020Financial Statements
Q3 FY2020 against Q3 FY2019
| Line item | Q3 FY2020Q3 FY2019 | Change |
|---|---|---|
| Revenue | $627.04M$342.50M | +83.1% |
| Cost of Revenue | $381.11M$215.21M | +77.1% |
| Gross Profit | $245.93M$127.28M | +93.2% |
| R&D Expenses | $94.76M$36.03M | +163.0% |
| SG&A Expenses | $82.13M$60.13M | +36.6% |
| Operating Expenses | $593.70M$315.48M | +88.2% |
| Operating Income | $69.04M$31.13M | +121.8% |
| Interest Expense | $28.53M$5.65M | +405.2% |
| Net Income | $5.92M$24.64M | −76.0% |
| EPS (Basic) | $0.07$0.39 | −82.1% |
| EPS (Diluted) | $0.06$0.38 | −84.2% |
| Shares Outstanding (Basic) | 91.08M64K | +143082.1% |
| Shares Outstanding (Diluted) | 93.44M66K | +142112.4% |
05—Questions
Frequently Asked Questions
What is the primary driver behind the significant increase in revenue and assets?
The primary driver is the acquisition of Finisar Corporation, which was completed on September 24, 2019. This acquisition significantly boosted revenues and led to a substantial increase in the company's asset base, including goodwill and intangible assets.
Why did the company report a net loss for the nine-month period, contrasting with a profit in the prior year?
The net loss for the nine months ended March 31, 2020, was primarily due to significant acquisition-related expenses totaling $191.5 million associated with the Finisar acquisition. These expenses include transaction costs, fair value adjustments for acquired inventory, and amortization of acquired intangible assets. Without these one-time costs, the underlying operational performance might present a different picture.
How has the Finisar acquisition impacted the company's debt and liquidity position?
The acquisition of Finisar was largely financed by new long-term debt, leading to a significant increase in total liabilities. However, the company's liquidity position remains adequate, with $120.5 million in net cash provided by operating activities for the nine-month period and substantial borrowing availability. Management believes its current cash and credit facilities are sufficient to meet its obligations.
What is the company's outlook regarding the COVID-19 pandemic's impact?
The company acknowledges the significant uncertainty and potential adverse impacts of the COVID-19 pandemic on its business, including supply chain disruptions, workforce limitations, and reduced customer demand. While they have implemented safety measures and believe their current liquidity is sufficient, the full extent of the impact is still unknown and dependent on many external factors.
06—Continue