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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________________
FORM 10-Q
________________________________________________________________
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the quarterly period ended September 30, 2024
| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
for the transition period from to .
Commission File Number: 001-39375
________________________________________________________________
(Exact name of registrant as specified in its charter)
________________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Zip Code) | |||||||||||
| (Address of principal executive offices) | |||||||||||
Registrant’s telephone number, including area code: 724 -352-4455
N/A
(Former name, former address and former fiscal year, if changed since last report)
________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
At November 4, 2024, 154,663,982 shares of Common Stock, no par value, of the registrant were outstanding.
COHERENT CORP.
INDEX
| Page No. | |||||||||||
Condensed Consolidated Balance Sheets – September 30, 2024 and June 30, 2024 (Unaudited) | |||||||||||
Condensed Consolidated Statements of Earnings (Loss) – Three Months Ended September 30, 2024 and 2023 (Unaudited) | |||||||||||
Condensed Consolidated Statements of Comprehensive Income (Loss) – Three Months Ended September 30, 2024 and 2023 (Unaudited) | |||||||||||
Condensed Consolidated Statements of Cash Flows – Three Months Ended September 30, 2024 and 2023 (Unaudited) | |||||||||||
Condensed Consolidated Statements of Equity and Mezzanine Equity – Three Months Ended September 30, 2024 and 2023 (Unaudited) | |||||||||||
2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Coherent Corp. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
($000)
| September 30, 2024 | June 30, 2024 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash, current | |||||||||||
Accounts receivable - less allowance for doubtful accounts of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid and refundable income taxes | |||||||||||
| Prepaid and other current assets | |||||||||||
| Total Current Assets | |||||||||||
| Property, plant & equipment, net | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Deferred income taxes | |||||||||||
| Restricted cash, non-current | |||||||||||
| Other assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| Liabilities, Mezzanine Equity and Equity | |||||||||||
| Current Liabilities | |||||||||||
| Current portion of long-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued compensation and benefits | |||||||||||
| Operating lease current liabilities | |||||||||||
| Accrued income taxes payable | |||||||||||
| Other accrued liabilities | |||||||||||
| Total Current Liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred income taxes | |||||||||||
| Operating lease liabilities | |||||||||||
| Other liabilities | |||||||||||
| Total Liabilities | |||||||||||
| Mezzanine Equity | |||||||||||
Series B redeemable convertible preferred stock, | |||||||||||
| Shareholders' Equity | |||||||||||
Common stock, | |||||||||||
Accumulated other comprehensive income (AOCI) | |||||||||||
| Retained earnings | |||||||||||
Treasury stock, at cost; | ( | ( | |||||||||
| Total Coherent Corp. Shareholders’ Equity | |||||||||||
| Noncontrolling interests (NCI) | |||||||||||
| Total Equity | |||||||||||
| Total Liabilities, Mezzanine Equity and Equity | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements.
3
Coherent Corp. and Subsidiaries
Condensed Consolidated Statements of Earnings (Loss) (Unaudited)
($000, except per share data)
| Three Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Revenues | $ | $ | |||||||||
| Costs, Expenses, and Other Expense (Income) | |||||||||||
| Cost of goods sold | |||||||||||
| Research and development | |||||||||||
| Selling, general and administrative | |||||||||||
| Restructuring charges | |||||||||||
| Interest expense | |||||||||||
Other income, net | ( | ( | |||||||||
Total Costs, Expenses, & Other Expense | |||||||||||
Earnings (Loss) Before Income Taxes | ( | ||||||||||
Income Tax Benefit | ( | ( | |||||||||
Net Earnings (Loss) | ( | ||||||||||
| Net Loss Attributable to Noncontrolling Interests | ( | ||||||||||
| Net Earnings (Loss) Attributable to Coherent Corp. | ( | ||||||||||
| Less: Dividends on Preferred Stock | |||||||||||
Net Loss Available to the Common Shareholders | $ | ( | $ | ( | |||||||
Basic Loss Per Share | $ | ( | $ | ( | |||||||
Diluted Loss Per Share | $ | ( | $ | ( | |||||||
4
Coherent Corp. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
($000)
| Three Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
Net Earnings (Loss) | $ | $ | ( | ||||||||
| Other Comprehensive Income (Loss): | |||||||||||
| Foreign currency translation adjustments | ( | ||||||||||
Change in fair value of interest rate swap, net of taxes of $ | ( | ||||||||||
Change in fair value of interest rate cap, net of taxes of $( | ( | ||||||||||
Pension adjustment, net of taxes of $ | ( | ||||||||||
Comprehensive Income (Loss) | ( | ||||||||||
| Comprehensive Loss Attributable to Noncontrolling Interests | ( | ||||||||||
| Foreign Currency Translation Adjustments Attributable to Noncontrolling Interests | |||||||||||
| Comprehensive Income (Loss) Attributable to Coherent Corp. | $ | $ | ( | ||||||||
See Notes to Condensed Consolidated Financial Statements.
5
Coherent Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
($000)
| Three Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash Flows from Operating Activities | |||||||||||
Net earnings (loss) | $ | $ | ( | ||||||||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Share-based compensation expense | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Non-cash restructuring charges | |||||||||||
| Loss on disposal of property, plant and equipment | ( | ( | |||||||||
Unrealized losses (gains) on foreign currency remeasurements and transactions | ( | ||||||||||
| Loss (earnings) from equity investments | ( | ||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Increase (decrease) in cash from changes in (net of effect of acquisitions): | |||||||||||
| Accounts receivable | |||||||||||
| Inventories | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Contract liabilities | ( | ( | |||||||||
| Income taxes | ( | ( | |||||||||
| Accrued compensation and benefits | ( | ||||||||||
| Other operating net assets (liabilities) | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash Flows from Investing Activities | |||||||||||
| Additions to property, plant & equipment | ( | ( | |||||||||
| Proceeds from the sale of business | |||||||||||
| Other investing activities | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows from Financing Activities | |||||||||||
| Payments on existing debt | ( | ( | |||||||||
| Proceeds from exercises of stock options and purchases of stock under employee stock purchase plan | |||||||||||
| Payments in satisfaction of employees' minimum tax obligations | ( | ( | |||||||||
| Other financing activities | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | ( | ||||||||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | ( | ||||||||||
| Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | |||||||||||
| Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | $ | |||||||||
| Supplemental Information | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Additions to property, plant & equipment included in accounts payable | $ | $ | |||||||||
| Non-Cash Investing and Financing Activities | |||||||||||
| Conversion of Series A preferred stock to common stock | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements.
6
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same amounts shown in the Condensed Consolidated Statements of Cash Flows.
| September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash, current | |||||||||||
| Restricted cash, non-current | |||||||||||
| Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | $ | $ | |||||||||
7
Coherent Corp and Subsidiaries
Condensed Consolidated Statements of Equity and Mezzanine Equity (Unaudited)
($000, including share amounts)
| Common Stock | Preferred Stock | AOCI | Retained Earnings | Treasury Stock | NCI | Total | Mezzanine Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Pref Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based and deferred compensation | — | — | — | ( | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | — | — | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate swap, net of taxes of $ | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate cap, net of taxes of $( | — | — | — | — | ( | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension adjustment, net of taxes of $ | — | — | — | — | ( | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | — | ( | — | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | AOCI | Retained Earnings | Treasury Stock | Total | Mezzanine Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | NCI | Pref Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based and deferred compensation | — | — | — | — | ( | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series A preferred stock | ( | ( | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | ( | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate swap, net of taxes of $( | — | — | — | — | ( | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate cap, net of taxes of $ | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension adjustment, net of taxes of $ | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | — | ( | — | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
8
Coherent Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements of Coherent Corp. (“Coherent”, the “Company”, “we”, “us” or “our”) for the three months ended September 30, 2024 and 2023 are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation for the periods presented have been included. All adjustments are of a normal recurring nature unless disclosed otherwise. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K dated August 16, 2024. The condensed consolidated results of operations for the three months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full fiscal year. The Condensed Consolidated Balance Sheet information as of June 30, 2024 was derived from the Company’s audited consolidated financial statements.
Note 2. Recently Issued Financial Accounting Standards
In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is evaluating the impact this will have on the Company’s consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, on either a prospective or retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements and related disclosures.
In March 2024, the Securities and Exchange Commission (the “SEC”) issued the final rule under SEC Release No. 33-11275 and 34-99678, “The Enhancement and Standardization of Climate-Related Disclosures for Investors,” requiring public companies to provide certain climate-related information in their registration statements and annual reports. The final rules will require information about a company’s climate-related risks that have materially impacted or are reasonably likely to have a material impact on its business strategy, results of operations, or financial condition, and the actual and potential material impacts of any identified climate-related risks on the company’s strategy, business model and outlook, as well as relating to assessment, management, oversight and mitigation of such material risks, material climate-related targets and goals, and material greenhouse gas emissions. Additionally, certain disclosures related to severe weather events and other natural conditions will be required in the audited financial statements. The first phase of the final rule is effective for fiscal years beginning in 2025. Disclosure for prior periods is only required if it was previously disclosed in an SEC filing. On April 4, 2024, the SEC voluntarily stayed implementation of the final rule to facilitate the orderly judicial resolution of pending legal challenges to the rule. We are currently evaluating the impact on our disclosures of adopting this new pronouncement.
Note 3. Revenue from Contracts with Customers
We believe that disaggregating revenue by end market provides the most relevant information regarding the nature, amount, timing, and uncertainty of revenues and cash flows.
9
The following tables summarize disaggregated revenue by market ($000):
| Three Months Ended September 30, 2024 | |||||||||||||||||||||||
| Networking | Materials | Lasers | Total | ||||||||||||||||||||
| Industrial | $ | $ | $ | $ | |||||||||||||||||||
| Communications | |||||||||||||||||||||||
| Electronics | |||||||||||||||||||||||
| Instrumentation | |||||||||||||||||||||||
| Total Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended September 30, 2023 | |||||||||||||||||||||||
| Networking | Materials | Lasers | Total | ||||||||||||||||||||
| Industrial | $ | $ | $ | $ | |||||||||||||||||||
| Communications | |||||||||||||||||||||||
| Electronics | |||||||||||||||||||||||
| Instrumentation | |||||||||||||||||||||||
| Total Revenues | $ | $ | $ | $ | |||||||||||||||||||
Contract Liabilities
Note 4. Inventories
The components of inventories were as follows ($000):
| September 30, 2024 | June 30, 2024 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work in progress | |||||||||||
| Finished goods | |||||||||||
| Total inventories | $ | $ | |||||||||
Note 5. Property, Plant and Equipment
Property, plant and equipment consists of the following ($000):
| September 30, 2024 | June 30, 2024 | ||||||||||
| Land and improvements | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Construction in progress | |||||||||||
| Finance lease right-of-use asset | |||||||||||
| Less accumulated depreciation and amortization | ( | ( | |||||||||
| Property, plant, and equipment, net | $ | $ | |||||||||
10
Note 6. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill were as follows ($000):
| Three Months Ended September 30, 2024 | |||||||||||||||||||||||
| Networking | Materials | Lasers | Total | ||||||||||||||||||||
| Balance-beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency translation | |||||||||||||||||||||||
| Balance-end of period | $ | $ | $ | $ | |||||||||||||||||||
We test goodwill for impairment annually during the fourth quarter, or more frequently when events or changes in circumstances indicate that fair value is below carrying value.
The gross carrying amount and accumulated amortization of our intangible assets other than goodwill were as follows ($000):
| September 30, 2024 | June 30, 2024 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Book Value | Gross Carrying Amount | Accumulated Amortization | Net Book Value | ||||||||||||||||||||||||||||||
| Technology | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Trade Names | ( | ( | |||||||||||||||||||||||||||||||||
| Customer Lists | ( | ( | |||||||||||||||||||||||||||||||||
| Backlog and Other | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Note 7. Debt
The components of debt as of the dates indicated were as follows ($000):
| September 30, 2024 | June 30, 2024 | ||||||||||
Term A Facility, interest at adjusted SOFR, as defined, plus | $ | $ | |||||||||
| Debt issuance costs, Term A Facility and Revolving Credit Facility | ( | ( | |||||||||
Term B Facility, interest at adjusted SOFR, as defined, plus | |||||||||||
| Debt issuance costs, Term B Facility | ( | ( | |||||||||
| Facility construction loan in Germany | |||||||||||
| Debt issuance costs and discount, Senior Notes | ( | ( | |||||||||
| Total debt | |||||||||||
| Current portion of long-term debt | ( | ( | |||||||||
| Long-term debt, less current portion | $ | $ | |||||||||
Senior Credit Facilities
On July 1, 2022 (the “Closing Date”), Coherent entered into a Credit Agreement by and among the Company, as borrower (in such capacity, the “Borrower”), the lenders, and other parties thereto, and JP Morgan Chase Bank, N.A., as administrative agent and collateral agent, which provides for senior secured financing of $4.0 billion, consisting of a term loan A credit facility (the “Term A Facility”), with an aggregate principal amount of $850 million, a term loan B credit facility (the “Term B Facility” and, together with the Term A Facility, the “Term Facilities”), with an aggregate principal amount of $2,800 million, and a revolving credit facility (the “Revolving Credit Facility”), in an aggregate available amount of $350 million, including a letter of credit sub-facility of up to $50 million. On March 31, 2023, Coherent entered into Amendment No. 1 to the Credit Agreement, which replaced the adjusted LIBOR-based rate of interest therein with an adjusted SOFR-based rate of interest. As amended, the Term A Facility and the Revolving Credit Facility each bear interest at an adjusted SOFR rate subject to a 0.10 1.75 2.50 1.85
11
the Credit Agreement (the “Existing Term B Loans”) were replaced with an equal amount of new term loans (the “New Term B Loans”) having substantially similar terms as the Existing Term B Loans, except with respect to the interest rate applicable to the New Term B Loans and certain other provisions. As further amended, the New Term B Loans bear interest at a SOFR rate (subject to a 0.50 % floor) plus 2.50 % as of September 30, 2024. The maturity of the New Term Loans and revolving credit facility remains unchanged. Debt extinguishment costs related to the replacement of the Existing Term B Loans of $2 million were expensed in Other income, net in the Condensed Consolidated Statement of Earnings (Loss) during the quarter ended June 30, 2024.
In relation to the Term Facilities, the Company incurred interest expense, including amortization of debt issuance costs and the benefit of the interest rate cap and swap, of $53 million and $57 million in the three months ended September 30, 2024 and September 30, 2023, respectively, which is included in Interest expense in the Condensed Consolidated Statements of Earnings (Loss). On July 1, 2023, our interest rate cap became effective, which together with our interest rate swap, reduced interest expense by $13 million and $11 million during the three months ended September 30, 2024 and September 30, 2023, respectively. The amortization of debt issuance costs included in interest expense was $5 million and $3 million in the three months ended September 30, 2024 and September 30, 2023, respectively. Debt issuance costs are presented as a reduction to debt within the Long-term debt caption in the Condensed Consolidated Balance Sheets.
On the Closing Date, the Borrower and certain of its direct and indirect subsidiaries provided a guaranty of all obligations of the Borrower and the other loan parties under the Credit Agreement and the other loan documents, secured cash management agreements and secured hedge agreements with the lenders and/or their affiliates (subject to certain exceptions). The Borrower and the other guarantors have also granted a security interest in substantially all of their assets to secure such obligations.
As of September 30, 2024, the Company was in compliance with all covenants under the Term Facilities.
Debt Assumed through Acquisition
We assumed the remaining balances of three term loans with the closing of the acquisition of Coherent, Inc. The aggregate principal amount outstanding is $19 million as of September 30, 2024. The term loans assumed consisted of the following: (i) 1.3 % Term Loan (repaid prior to September 30, 2024), (ii) 1.0 % State of Connecticut Term Loan due 2023 (repaid in fiscal 2023), and (iii) Facility construction loan in Germany. For the Facility construction loan, on December 21, 2020, Coherent LaserSystems GmbH & Co. KG entered into a loan agreement with Commerzbank for borrowings of up to 24 million Euros, which were drawn down by October 29, 2021, to finance a portion of the construction of a new facility in Germany. The term of the loan is 10 years, and borrowings bear interest at 1.55 % per annum. Payments are made quarterly.
On December 10, 2021, the Company issued $990 million aggregate principal amount of Senior Notes pursuant to the indenture, dated as of December 10, 2021 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee. The Senior Notes are guaranteed by each of the Company’s domestic subsidiaries that guarantee its obligations under the Senior Credit Facilities. Interest on the Senior Notes is payable on December 15 and June 15 of each year, commencing on June 15, 2022, at a rate of 5.000 % per annum. The Senior Notes will mature on December 15, 2029.
On or after December 15, 2024, the Company may redeem the Senior Notes, in whole at any time or in part from time to time, at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, at any time prior to December 15, 2024, the Company may redeem the Senior Notes, at its option, in whole at any time or in part from time to time, at a redemption price equal to 100 % of the principal amount of the Senior Notes redeemed, plus a “make-whole” premium set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Notwithstanding the foregoing, at any time and from time to time prior to December 15, 2024, the Company may redeem up to 40 % of the aggregate principal amount of the Senior Notes using the proceeds of certain equity offerings as set forth in the Indenture, at a redemption price equal to 105.000 % of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.
In relation to the Senior Notes, the Company incurred interest expense of $13
The Indenture contains customary covenants and events of default, including default relating to, among other things, payment default, failure to comply with covenants or agreements contained in the Indenture or the Senior Notes and certain provisions related to bankruptcy events. As of September 30, 2024, the Company was in compliance with all covenants under the Indenture.
Aggregate Availability
The Company had aggregate availability of $320 million under its Revolving Credit Facility as of September 30, 2024.
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Note 8. Income Taxes
The Company’s year-to-date effective income tax rate was (29 )% at September 30, 2024 compared to 24 % for the period ending September 30, 2023. The difference between the Company’s effective tax rate and the U.S. statutory rate of 21 % is primarily due to a discrete benefit relating to share-based compensation and tax rate differentials between U.S. and foreign jurisdictions.
U.S. GAAP prescribes the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements which includes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of September 30, 2024 and June 30, 2024, the Company’s gross unrecognized tax benefit, excluding interest and penalties, was $115 million and $117 million, respectively. The Company has classified the uncertain tax positions as non-current income tax liabilities, as the amounts are not expected to be paid within one year. Due to the U.S. valuation allowance, a large portion of the gross unrecognized tax benefit will not impact the tax rate if recognized. As of September 30, 2024, $19 million of the gross unrecognized tax benefit would impact the effective tax rate if recognized. The Company recognizes interest and penalties related to uncertain tax positions in the income tax provision in the Condensed Consolidated Statements of Earnings (Loss). The amount of accrued interest and penalties included in the gross unrecognized income tax benefit was $8 million and $7 million at September 30, 2024 and June 30, 2024, respectively.
Fiscal years 2018 and 2020 to 2023 remain open to examination by the Internal Revenue Service, fiscal years 2019 to 2023 remain open to examination by certain state jurisdictions, and fiscal years 2012 to 2023 remain open to examination by certain foreign taxing jurisdictions. The Company is currently under examination for certain subsidiary companies in Vietnam for the years ended June 30, 2017 through September 30, 2021; Singapore for the year ended September 30, 2020; Korea for the year ended September 30, 2021; Spain for the years ended September 30, 2020 through September 30, 2022; and Germany for the years ended June 30, 2012 through September 30, 2020. The Company believes its income tax reserves for these tax matters are adequate.
Note 9. Leases
We determine if an arrangement is a lease at inception for arrangements with an initial term of more than 12 months, and classify it as either finance or operating.
Finance leases are generally those that allow us to substantially utilize or pay for the entire asset over its estimated useful life. Finance lease assets are recorded in Property, plant and equipment, net, and finance lease liabilities within and on our Condensed Consolidated Balance Sheets. Finance lease assets are amortized in operating expenses on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term, with the interest component for lease liabilities included in interest expense and recognized using the effective interest method over the lease term.
Operating leases are recorded in Other assets and Operating lease liabilities, current and non-current on our Condensed Consolidated Balance Sheets. Operating lease assets are amortized on a straight-line basis in operating expenses over the lease term.
Our lease liabilities are recognized based on the present value of the remaining fixed lease payments, over the lease term, using a discount rate of similarly secured borrowings available to the Company. For the purpose of lease liability measurement, we consider only payments that are fixed and determinable at the time of commencement. Any variable payments that depend on an index or rate are expensed as incurred. We account for non-lease components, such as common area maintenance, as a component of the lease, and includes it in the initial measurement of our leased assets and corresponding liabilities. Our lease terms and conditions may include options to extend or terminate. An option is recognized when it is reasonably certain that we will exercise that option.
Our lease assets also include any lease payments made, and exclude any lease incentives received prior to commencement. Our lease assets are tested for impairment in the same manner as long-lived assets used in operations.
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The following table presents lease costs, which include leases for arrangements with an initial term of more than 12 months, lease term, and discount rates ($000):
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | ||||||||||
| Finance lease cost | |||||||||||
| Amortization of right-of-use assets | $ | $ | |||||||||
| Interest on lease liabilities | |||||||||||
| Total finance lease cost | |||||||||||
| Operating lease cost | |||||||||||
| Total lease cost | $ | $ | |||||||||
| Cash Paid for Amounts Included in the Measurement of Lease Liabilities | |||||||||||
| Operating cash flows from finance leases | $ | $ | |||||||||
| Operating cash flows from operating leases | |||||||||||
| Financing cash flows from finance leases | |||||||||||
| Weighted-Average Remaining Lease Term (in Years) | |||||||||||
| Finance leases | |||||||||||
| Operating leases | |||||||||||
| Weighted-Average Discount Rate | |||||||||||
| Finance leases | % | % | |||||||||
| Operating leases | % | % | |||||||||
Note 10. Equity and Redeemable Preferred Stock
As of September 30, 2024, the Company’s amended and restated articles of incorporation authorize our board of directors, without the approval of our shareholders, to issue 5 million shares of our preferred stock. As of September 30, 2024, 2.3 million shares of mandatory preferred convertible shares have been authorized, none are outstanding; 75,000 140,000
Mandatory Convertible Preferred Stock
In July 2020, the Company issued 2.3 million shares of Mandatory Convertible Preferred Stock.
All outstanding shares of Mandatory Convertible Preferred Stock were converted to 10,240,290 shares of Company Common Stock on July 3, 2023, at a conversion ratio of 4.4523 , and no
Series B Convertible Preferred Stock
In March 2021, the Company issued 75,000 shares of Series B-1 Convertible Preferred Stock, no par value per share (“Series B-1 Preferred Stock”), for $10,000 per share, resulting in an aggregate purchase price of $750 million. On July 1, 2022, the Company issued 140,000 shares of Series B-2 Convertible Preferred Stock, no par value per share (“Series B-2 Preferred Stock” and, together with the Series B-1 Preferred Stock, the “Series B Preferred Stock”), for $10,000 per share and an aggregate purchase price of $1.4 billion.
The shares of Series B Preferred Stock are convertible into shares of Coherent Common Stock as follows:
•at the election of the holder, at an initial conversion price of $85 per share (as it may be adjusted from time to time, the “Conversion Price”) upon the delivery by Coherent to the holders of the Series B Preferred Stock of an offer to repurchase the Series B-1 Preferred Stock upon the occurrence of a Fundamental Change (as defined in the Statement with Respect to Shares establishing the Series B Preferred Stock as defined below); and
•at the election of the Company, any time following March 31, 2024 and July 1, 2025 for the Series B-1 and B-2 Preferred Stock, respectively, at the then-applicable Conversion Price if the volume-weighted average price of Coherent Common Stock exceeds 150 % of the then-applicable Conversion Price for 20 trading days out of any 30 consecutive trading days.
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The issued shares of Series B Preferred Stock currently have voting rights, voting as one class with the Coherent Common Stock, on an as-converted basis, subject to limited exceptions.
On or at any time after March 31, 2031 and July 1, 2032 for the Series B-1 and B-2 Preferred Stock, respectively:
•each holder has the right to require the Company to redeem all of their Coherent Series B Preferred Stock, for cash, at a redemption price per share equal to the sum of the Stated Value (as defined in the Statement with Respect to Shares establishing the Series B Preferred Stock) for such shares plus an amount equal to all accrued or declared and unpaid dividends on such shares that had not previously been added to the Stated Value (such price the “Redemption Price,” and such right the “Put Right”); and
•the Company has the right to redeem, in whole or in part, on a pro rata basis from all holders based on the aggregate number of shares of Series B Preferred Stock outstanding, for cash, at the Redemption Price.
In connection with any Fundamental Change (as defined in the Statement with Respect to Shares establishing the Series B Preferred Stock), and subject to the procedures set forth in the Statement with Respect to Shares establishing the Series B Preferred Stock, the Company must, or will cause the survivor of a Fundamental Change to, make an offer to repurchase, at the option and election of the holder thereof, each share of Series B Preferred Stock then-outstanding at a purchase price per share in cash equal to (i) the Stated Value for such shares plus an amount equal to all accrued or declared and unpaid dividends on such shares that had not previously been added to the Stated Value as of the date of repurchase plus (ii) if prior to March 31, 2026 and July 1, 2027, for the Series B-1 and B-2 Preferred Stock, respectively, the aggregate amount of all dividends that would have been paid (subject to certain exceptions), from the date of repurchase through March 31, 2026 and July 1, 2027, for the Series B-1 and B-2 Preferred Stock, respectively.
If the Company defaults on a payment obligation with respect to the Series B Preferred Stock and such default is not cured within 30 days, the dividend rate will increase to 8 % per annum and will be increased by an additional 2 % per annum each quarter the Company remains in default, not to exceed 14 % per annum.
The Series B Preferred Stock is redeemable for cash outside of the control of the Company upon the exercise of the Put Right, and upon a Fundamental Change, and is therefore classified as mezzanine equity.
The Series B Preferred Stock is initially measured at fair value less issuance costs, accreted to its redemption value over a 10-year period (using the effective interest method) with such accretion accounted for as deemed dividends and reductions to Net Earnings (Loss) Available to Common Shareholders.
Preferred stock dividends are presented as a reduction to Retained earnings on the Condensed Consolidated Balance Sheets.
The following table presents dividends per share and dividends recognized:
| Three Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Dividends per share | $ | $ | |||||||||
| Dividends ($000) | |||||||||||
| Deemed dividends ($000) | |||||||||||
Note 11. Noncontrolling Interests
On December 4, 2023, Silicon Carbide LLC (“Silicon Carbide”), one of the Company’s subsidiaries, completed (i) the sale of 16,666,667 Class A Common Units to Denso Corporation (“Denso”) for $500,000,000 pursuant to an Investment Agreement, dated as of October 10, 2023, by and between Silicon Carbide and Denso and (ii) the sale of 16,666,667 Class A Common units
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to Mitsubishi Electric Corporation (“MELCO”) for $500,000,000 pursuant to an Investment Agreement, dated as of October 10, 2023, by and between Silicon Carbide and MELCO (collectively, the “Equity Investments”).
As a consequence of the Equity Investments, the Company’s ownership interest in the Class A Common Units of Silicon Carbide LLC was reduced to approximately 75 %. Denso and MELCO each, individually, own approximately 12.5
The Equity Investments in Silicon Carbide enables Coherent to increase its available free cash flow to provide greater financial and operational flexibility to execute its capital allocation priorities, as the aggregate $1 billion investment, net of transaction costs, will be used to fund future capital expansion of Silicon Carbide.
The following table presents the activity in noncontrolling interests in Silicon Carbide ($000s):
| Three Months Ended September 30, 2024 | |||||
| Balance-beginning of period | $ | ||||
| Share of foreign currency translation adjustments | |||||
| Net loss | ( | ||||
| Balance-end of period | $ | ||||
Note 12. Earnings (Loss) Per Share
Basic earnings (loss) per common share is computed by dividing net earnings (loss) available to the common shareholders by the weighted-average number of shares of common stock outstanding during the period.
Diluted earnings (loss) per common share is computed by dividing the diluted earnings (loss) available to the common shareholders by the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. For the three months ended September 30, 2024 and September 30, 2023, as the Company was in a net loss position, there were no dilutive shares.
Potentially dilutive shares whose effect would have been anti-dilutive are excluded from the computation of diluted earnings (loss) per common share. For the three months ended September 30, 2024 and September 30, 2023, diluted earnings (loss) per share excluded the potentially dilutive effect of the performance and restricted shares, calculated based on the average stock price for each fiscal period, using the treasury stock method, as well as the shares of Coherent Common Stock issuable upon conversion of the Series B Convertible Preferred Stock (under the If-Converted method), as their effects were anti-dilutive.
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations (000, except per share data):
| Three Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Numerator | |||||||||||
| Net earnings (loss) attributable to Coherent Corp. | $ | $ | ( | ||||||||
| Deduct Series B dividends and deemed dividends | ( | ( | |||||||||
| Basic loss available to common shareholders | $ | ( | $ | ( | |||||||
| Diluted loss available to common shareholders | $ | ( | $ | ( | |||||||
| Diluted weighted average common shares | |||||||||||
| Basic loss per common share | $ | ( | $ | ( | |||||||
| Diluted loss per common share | $ | ( | $ | ( | |||||||
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The following table presents potential shares of common stock excluded from the calculation of diluted net loss per share, as their effect would have been anti-dilutive (000):
| Three Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Common stock equivalents | |||||||||||
| Series B Convertible Preferred Stock | |||||||||||
| Total anti-dilutive shares | |||||||||||
Note 13. Segment Reporting
The Company reports its business segments using the “management approach” model for segment reporting. This means that we determine our reportable business segments based on the way the chief operating decision-maker (“CODM”) analyzes business segments within the Company for making operating decisions and assessing financial performance.
We report our financial results in the following three segments: (i) Networking, (ii) Materials, and (iii) Lasers. Our CODM receives and reviews financial information based on these three segments. During the first quarter of fiscal 2025 as a result of a new CEO joining the Company in the fourth quarter of fiscal 2024, our CODM implemented changes in the measure he uses to allocate resources and assess performance. Our CODM now evaluates each segment’s performance and allocates resources based on segment revenue and segment profit, instead of operating income, as our CODM believes segment profit is a more comprehensive profitability measure for each operating segment. Segment profit includes operating expenses directly managed by operating segments, including research and development, direct sales, marketing and administrative expenses. Segment profit does not include share-based compensation, acquisition or integration related costs, amortization and impairment of acquisition-related intangible assets, restructuring charges, and certain other charges. Additionally, effective the first quarter of fiscal 2025, we no longer allocate Corporate strategic research and development, strategic marketing and sales expenses and shared general and administrative expenses, as these expenses are not directly attributable to our operating segments. The segments are managed separately due to the market, production requirements and facilities unique to each segment. The accounting policies are consistent across each segment. Effective the first quarter of fiscal 2025, we no longer allocate corporate assets to the segments.
Comparative prior period segment information has been recast to conform to the new segment profitability measure. The change in our operating segment measure had no impact on our previously reported consolidated results of operations, financial condition, or cash flows.
The following tables summarize selected financial information of our operations by segment and reconciles segment profit to consolidated earnings (loss) before income taxes for the periods presented ($000):
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| Three Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Segment revenue | |||||||||||
| Networking | $ | $ | |||||||||
| Materials | |||||||||||
| Lasers | |||||||||||
| Total segment revenue | |||||||||||
| Intersegment revenue | |||||||||||
| Networking | |||||||||||
| Materials | |||||||||||
| Lasers | |||||||||||
| Unallocated | ( | ( | |||||||||
| Total intersegment revenue | |||||||||||
| Segment profit | |||||||||||
| Networking | |||||||||||
| Materials | |||||||||||
| Lasers | |||||||||||
| Total segment profit | |||||||||||
| Unallocated Corporate items: | |||||||||||
Corporate and centralized function costs (1) | ( | ( | |||||||||
| Share-based compensation | ( | ( | |||||||||
Restructuring costs (2) | ( | ( | |||||||||
Integration, site consolidated and other costs (3) | ( | ( | |||||||||
| Amortization of intangibles | ( | ( | |||||||||
| Start-up costs | ( | ||||||||||
| Interest expense | ( | ( | |||||||||
| Other (income) expense, net | |||||||||||
| Earnings (loss) before income taxes | $ | $ | ( | ||||||||
| Expenditures for property, plant, and equipment | |||||||||||
| Networking | $ | $ | |||||||||
| Materials | |||||||||||
| Lasers | |||||||||||
| Total expenditures for property, plant, and equipment | $ | $ | |||||||||
| Segment assets and reconciliation to total assets | |||||||||||
| Networking | $ | $ | |||||||||
| Materials | |||||||||||
| Lasers | |||||||||||
| Corporate and shared services | |||||||||||
| Total assets | $ | $ | |||||||||
(1)We do not allocate corporate and centralized function costs that are not directly attributable to our operating segments.
(2)See Note 17. Restructuring Plan for further information.
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(3)Integration and site consolidation costs in the three months ended September 30, 2024 include $12 million consulting costs related to projects to integrate recent acquisitions into common technology systems and simplify legal entity structure, $9 million of manufacturing inefficiencies, employee severance and retention costs and duplicative labor related to sites being shut down as part of our 2023 Restructuring Plan or Synergy and Site Consolidation Plan, $4 million charges for products that are end-of-life and $1 million of severance related to the retirement of executives. Integration and site consolidation costs in the three months ended September 30, 2023 include $17 million of manufacturing inefficiencies, employee severance and retention costs and duplicative labor related to sites being shut down as part of our 2023 Restructuring Plan or Synergy and Site Consolidation Plan, $7 million consulting costs related to projects to integrate recent acquisitions into common technology systems and simplify legal entity structure, $7 million charges for products that are end-of-life, including inventory, production equipment to produce those products and $2 million of severance related to the retirement of executives.
Note 14. Share-Based Compensation
Stock Award Plans
The Company’s Board of Directors amended the Coherent Corp. 2018 Omnibus Incentive Plan, which originally was approved by the Company's shareholders at the Annual Meeting in November 2018, as the Coherent Corp. Omnibus Incentive Plan (as amended and restated, the “Plan”). The Plan was approved at the Annual Meeting in November 2023. The Plan provides for the grant of stock options, stock appreciation rights, restricted shares, restricted share units, deferred shares, performance shares and performance share units to employees, officers and directors of the Company. The maximum number of shares of Coherent Common Stock authorized for issuance under the Plan is limited to 13,450,000 shares of Coherent Common Stock, not including any remaining shares forfeited under the predecessor plans that may be rolled into the Plan. Certain awards under the Plan have certain vesting provisions predicated upon the death, retirement or disability of the grantee.
On the Closing Date, the Company assumed the Coherent, Inc. Equity Incentive Plan (“Coherent, Inc. Plan”) and the Coherent, Inc. unvested restricted stock units (“Converted RSUs”) that are generally subject to the same terms and conditions that applied to the Converted RSUs immediately prior to the Closing Date. After the Closing Date, the Company granted restricted stock units under the Coherent, Inc. Plan through August 28, 2023. The Coherent, Inc. Plan was terminated upon adoption of the Plan in November 2023. No additional awards will be granted under the Coherent, Inc. Plan.
On June 3, 2024, the Board of Directors granted 147,214 restricted stock units vesting over three years from date of grant and 694,007 performance stock units vesting over the approximate three-year period ending June 30, 2027, to the new CEO. The grants were non-Plan “employment inducement awards” as contemplated by the New York Stock Exchange Listing Rule 303A.08 and therefore were not made pursuant to the Plan.
On October 11, 2024, the Board of Directors granted 15,902 and 63,154 restricted stock units vesting over three years and two years , respectively, from date of grant and 118,853 performance stock units vesting over the approximate three-year period ending June 30, 2027, to the new CFO. The grants were non-Plan “employment inducement awards” as contemplated by the New York Stock Exchange Listing Rule 303A.08 and therefore were not made pursuant to the Plan.
The Company has an Employee Stock Purchase Plan whereby eligible employees may authorize payroll deductions of up to 10 %, or such other percentage up to 15 % that the Company determines, of their regular base salary to purchase shares at the lower of 85 % of the fair market value of the common stock on the date of commencement of the offering or on the last day of the six-month offering period.
Share-based compensation expense for the periods indicated was as follows ($000):
| Three Months Ended September 30, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Stock Options and Cash-Based Stock Appreciation Rights | $ | $ | ( | |||||||||||
| Restricted Share Awards and Cash-Based Restricted Share Unit Awards | ||||||||||||||
| Performance Share Awards and Cash-Based Performance Share Unit Awards | ||||||||||||||
| Employee Stock Purchase Plan | ||||||||||||||
| $ | $ | |||||||||||||
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Note 15. Fair Value of Financial Instruments
The FASB defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous markets for the asset and liability in an orderly transaction between market participants at the measurement date. We estimate fair value of our financial instruments utilizing an established three-level hierarchy in accordance with U.S. GAAP. The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as follows:
•Level 1 – Valuation is based upon unadjusted quoted prices for identical assets or liabilities in active markets.
•Level 2 – Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments.
•Level 3 – Valuation is based upon other unobservable inputs that are significant to the fair value measurements.
The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.
We entered into an interest rate swap with a notional amount of $1,075 million to limit the exposure to our variable interest rate debt by effectively converting it to a fixed interest rate. Through February 28, 2023, we received payments based on the one-month LIBOR and made payments based on a fixed rate of 1.52 %. We received payments with a floor of 0.00 %. The interest rate swap agreement had an effective date of November 24, 2019, with an expiration date of September 24, 2024. The initial notional amount of the interest rate swap decreased to $825 million in June 2022, and remained at that amount through its expiration on September 24, 2024. On March 20, 2023, we amended our $825 million interest rate swap (“Amended Swap”), effective as of February 28, 2023, to replace the current reference rate (LIBOR) with SOFR, to be consistent with Amendment No. 1 to the Credit Agreement. See Note 7. Debt for further information. Under the Amended Swap, we received payments based on the one-month SOFR and made payments based on a fixed rate of 1.42 %. We received payments with a floor of 0.10 %. We designated this instrument as a cash flow hedge, and deemed the hedge relationship effective at inception of the contract and the amended contract.
The interest rate swap expired on September 30, 2024. The fair value of the interest rate swap of $8 million is recognized in the Condensed Consolidated Balance Sheet within as of June 30, 2024. Changes in fair value were recorded within AOCI on the Condensed Consolidated Balance Sheets and reclassified into the Condensed Consolidated Statements of Earnings (Loss) as interest expense in the period in which the underlying transaction affected earnings. Cash flows from hedging activities were reported in the Condensed Consolidated Statements of Cash Flows in the same classification as the hedged item, generally as a component of cash flows from operations. The fair value of the interest rate swap was determined using widely accepted valuation techniques and reflected the contractual terms of the interest rate swap including the period to maturity, and while there were no quoted prices in active markets, it used observable market-based inputs, including interest rate curves. The fair value analysis also considered a credit valuation adjustment to reflect nonperformance risk of both the Company and the single counterparty. The interest rate swap was classified as a Level 2 item within the fair value hierarchy.
On February 23, 2022, we entered into an interest rate cap (the “Cap”) with an effective date of July 1, 2023. On March 20, 2023, we amended the Cap to replace the current reference rate (LIBOR) with SOFR, to be consistent with Amendment No. 1 to the Credit Agreement. See Note 7. Debt for further information. The Cap manages our exposure to interest rate movements on a portion of our floating rate debt. The Cap provides us with the right to receive payment if one-month SOFR exceeds 1.92 %. Beginning in July 2023, we began to pay a fixed monthly premium based on an annual rate of 0.853 % for the Cap. The Cap will carry a notional amount ranging from $500 million to $1,500 million. On September 1, 2024, we increased the notional amount from $500 million to $1,500 million. The fair value of the interest rate cap of $22 million and $50 million is recognized in the Condensed Consolidated Balance Sheet within and as of September 30, 2024 and June 30, 2024, respectively.
The Cap, as amended, is designed to mirror the terms of the Credit Agreement as amended on March 31, 2023. We designated the Cap as a cash flow hedge of the variability of the SOFR based interest payments on the Term Facilities. Every period over the life of the hedging relationship, the entire change in fair value related to the hedging instrument will first be recorded within Accumulated other comprehensive income (loss). Amounts accumulated in accumulated other comprehensive income (loss) are reclassified into interest expense in the same period or periods in which interest expense is recognized on the Credit Agreement, or its direct replacement. The fair value of the Cap is determined using widely accepted valuation techniques and reflects the contractual terms of the Cap including the period to maturity, and while there are no quoted prices in active markets, it uses observable market-based inputs, including interest rate curves. The fair value analysis also considers a credit valuation adjustment to reflect nonperformance risk of both the Company and the single counterparty. The Cap is classified as a Level 2 item within the fair value hierarchy.
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We estimated the fair value of the Senior Notes, Term A Facility and Term B Facility (“Debt Facilities”) based on quoted market prices as of the last trading day prior to September 30, 2024; however, the Debt Facilities have only a limited trading volume and as such this fair value estimate is not necessarily the value at which the Debt Facilities could be retired or transferred. We concluded that this fair value measurement should be categorized within Level 2. The carrying values of the Debt Facilities are net of unamortized discount and issuance costs. See Note 7. Debt for details on the Company’s debt facilities.
The fair value and carrying value of the Debt Facilities were as follows ($000):
| September 30, 2024 | June 30, 2024 | ||||||||||||||||||||||
| Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||||||||||
| Senior Notes | $ | $ | $ | $ | |||||||||||||||||||
| Term A Facility | |||||||||||||||||||||||
| Term B Facility | |||||||||||||||||||||||
Our borrowings, including our lease obligations and the Debt Facilities, are considered Level 2 among the fair value hierarchy.
Cash and cash equivalents are considered Level 1 among the fair value hierarchy and approximate fair value because of the short-term maturity of those investments.
At September 30, 2024, total restricted cash of $763 million includes $757 million of cash in Silicon Carbide LLC that is restricted for use only by that subsidiary and $5 million of cash restricted for other purposes in other entities. At June 30, 2024, total restricted cash of $864 million includes $858 million of cash in Silicon Carbide LLC that is restricted for use only by that subsidiary and $5 million of cash restricted for other purposes in other entities. The restricted cash is invested in money market accounts and time deposits, with maturities of one year or less, that are held-to-maturity, are considered Level 1 among the fair value hierarchy and approximate fair value. Restricted cash that is expected to be spent and released from restriction after 12 months is classified as non-current on the Condensed Consolidated Balance Sheets.
We, from time to time, purchase foreign currency forward exchange contracts that permit us to sell specified amounts of these foreign currencies for pre-established U.S. dollar amounts at specified dates that represent assets or liabilities on the balance sheets of certain subsidiaries. These contracts are entered into for the purpose of limiting translational exposure to changes in currency exchange rates and which otherwise would expose our earnings, on the revaluation of our aggregate net assets or liabilities in respective currencies, to foreign currency risk. At September 30, 2024, we had foreign currency forward contracts recorded at fair value. The fair values of these instruments were measured using valuations based upon quoted prices for similar assets and liabilities in active markets (Level 2) and are valued by reference to similar financial instruments, adjusted for credit risk and restrictions and other terms specific to the contracts. Realized gains related to these contracts for the three months ended September 30, 2024 were $16 million and realized losses related to these contracts for the three months ended September 30, 2023 were $11 million and were included in Other income, net in the Condensed Consolidated Statements of Earnings (Loss).
Note 16. Accumulated Other Comprehensive Income (Loss)
The changes in AOCI by component, net of tax, for the three months ended September 30, 2024 were as follows ($000):
| Foreign Currency Translation Adjustment | Interest Rate Swap | Interest Rate Cap | Defined Benefit Pension Plan | Total Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||||
AOCI - June 30, 2024 | $ | ( | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | |||||||||||||||||||||||||||
| Amounts reclassified from AOCI | ( | ( | ( | ||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||
| AOCI - September 30, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
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Note 17. Restructuring Plan
Restructuring Plan
On May 23, 2023, the Board of Directors approved the Company’s May 2023 Restructuring Plan which includes site consolidations, facilities moves and closures, as well as the relocation and requalification of certain manufacturing facilities. These restructuring actions are expected to be accompanied by other cost reductions, and are intended to realign our cost structure as part of a transformation to a simpler, more streamlined, resilient and sustainable business model. We evaluate restructuring charges in accordance with ASC 420, Exit or Disposal Cost Obligations (ASC 420), and ASC 712, Compensation-Nonretirement Post-Employment Benefits (ASC 712).
In the three months ended September 30, 2024, these activities resulted in $24 million of charges primarily for impairment losses associated with the sale of our Newton Aycliffe business, accelerated depreciation, and site move costs. In the three months ended September 30, 2023, these activities resulted in $3 million of charges primarily for employee termination costs as well as site move costs, write-off of property and equipment and acceleration of depreciation. We expect the restructuring actions to be substantially completed by the end of fiscal 2025. However, the actual timing and costs associated with these restructuring actions may differ from our current expectations and estimates and such differences may be material.
Activity and accrual balances for the Restructuring Plan were as follows for the three months ended September 30, 2024 and September 30, 2023 ($000):
Severance | Asset Write-Offs | Other | Total Accrual | ||||||||||||||||||||
| Balance - June 30, 2024 | $ | $ | $ | $ | |||||||||||||||||||
| Restructuring charges (recoveries) | ( | ||||||||||||||||||||||
| Payments | ( | ( | |||||||||||||||||||||
| Asset write-offs and other | ( | ( | ( | ||||||||||||||||||||
| Balance - September 30, 2024 | $ | $ | $ | $ | |||||||||||||||||||
Severance | Asset Write-Offs | Other | Total Accrual | ||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | |||||||||||||||||||
| Restructuring charges | |||||||||||||||||||||||
| Payments | ( | ( | |||||||||||||||||||||
| Asset write-offs and other | ( | ( | ( | ||||||||||||||||||||
| Balance - September 30, 2023 | $ | $ | $ | $ | |||||||||||||||||||
At September 30, 2024, $14 million and $30 million of accrued severance related costs were included in other accrued liabilities and other liabilities, respectively, and are expected to result in cash expenditures through fiscal 2028. The current year severance related recoveries are primarily comprised of adjustments to accruals for severance pay for employees being terminated due to the consolidation of certain manufacturing sites, with severance recorded in accordance with ASC 712. The prior year severance related costs are primarily comprised of severance pay for employees being terminated due to the consolidation of certain manufacturing sites, with severance recorded in accordance with ASC 712.
By segment, for the three months ended September 30, 2024, $24 million of restructuring costs were incurred in the Materials segment, and an immaterial amount of restructuring costs were incurred in the Lasers and Networking segments. By segment, for the three months ended September 30, 2023, $5 million of restructuring costs were incurred in the Materials segment, partially offset by $2 million of restructuring recoveries in the Networking segment. Restructuring charges and recoveries are recorded in Restructuring Charges in our Condensed Consolidated Statements of Earnings (Loss).
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of Coherent’s financial statements with a narrative from the perspective of management. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes included under Item 1 of this quarterly report. Coherent’s MD&A is presented in the following sections:
•Forward-Looking Statements
•Overview
•Restructuring and Site Consolidation
•Critical Accounting Estimates
•Results of Operations
•Liquidity and Capital Resources
Forward-looking statements in Item 2 may involve risks and uncertainties that could cause results to differ materially from those projected (refer to Part II Item 1A for discussion of these risks and uncertainties).
Forward-Looking Statements
Certain statements contained in the MD&A are forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding projected growth rates, markets, product development, financial position, capital expenditures and foreign currency exposure. Forward-looking statements are also identified by words such as “expects,” “anticipates,” “intends,” “believes,” “plans,” “projects” or similar expressions.
Although our management considers the expectations and assumptions on which the forward-looking statements in this Quarterly Report on Form 10-Q are based to have a reasonable basis, there can be no assurance that management’s expectations, beliefs or projections as expressed in the forward-looking statements will actually occur or prove to be correct. In addition to general industry and global economic conditions, factors that could cause actual results to differ materially from those discussed in the forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to: (i) the failure of any one or more of the expectations or assumptions on which such forward-looking statements are based to prove to be correct; and (ii) the risks relating to forward-looking statements and other “Risk Factors” discussed in Item 1A in this Quarterly Report on Form 10-Q, the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024 and in the Company's other reports filed with the Securities and Exchange Commission. The Company disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events or developments, or otherwise.
In addition, we operate in a highly competitive and rapidly changing environment; new risk factors can arise, and it is not possible for management to anticipate all such risk factors, or to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of risk factors, may cause results to differ materially from those contained in any forward-looking statement. The forward-looking statements included in this Quarterly Report on Form 10-Q are based only on information currently available to us and speak only as of the date of this Report. We do not assume any obligation, and do not intend, to update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by the securities laws. Investors should, however, consult any further disclosures of a forward-looking nature that the Company may make in its subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, or other disclosures filed with or furnished to the SEC.
Investors should also be aware that, while the Company does communicate with securities analysts from time to time, such communications are conducted in accordance with applicable securities laws. Investors should not assume that the Company agrees with any statement, conclusion of any analysis, or report issued by any analyst irrespective of the content of the statement or report.
Overview
Coherent Corp. (“Coherent”, the “Company,” “we,” “us” or “our”), a global leader in materials, networking, and lasers, is a vertically integrated manufacturing company that develops, manufactures and markets engineered materials, optoelectronic components and devices, and lasers for use in the industrial, communications, electronics, and instrumentation markets. Headquartered in Saxonburg, Pennsylvania, Coherent has research and development, manufacturing, sales, service, and distribution facilities worldwide. Coherent produces a wide variety of lasers, along with application-specific photonic and electronic materials and components, and deploys them in various forms, including integrated with advanced software to enable its customers.
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We generate almost all of our revenues, earnings and cash flows from developing, manufacturing and marketing a broad portfolio of products and services for our end markets. We also generate revenue, earnings and cash flows from externally-funded research and development contracts relating to the development and manufacture of new technologies, materials and products.
Our customer base includes original equipment manufacturers; laser end-users; system integrators of high-power lasers; manufacturers of equipment and devices for our end markets.
As we grow, we are focused on scaling our Company and deriving the continued benefits of vertical integration as we strive to be a best-in-class player in all of our highly competitive markets. We may elect to change the way in which we operate or are organized in the future to enable the most efficient implementation of our strategy.
Restructuring and Site Consolidation
Restructuring Plan
On May 23, 2023, the Board of Directors approved the Company’s May 2023 Restructuring Plan which includes site consolidations, facilities moves and closures, as well as the relocation and requalification of certain manufacturing facilities. These restructuring actions are expected to be accompanied by other cost reductions and are intended to realign our cost structure as part of a transformation to a simpler, more streamlined, resilient and sustainable business model.
In the three months ended September 30, 2024, these activities resulted in charges of $24 million, primarily for impairment losses associated with the sale of our Newton Aycliffe business, accelerated depreciation, and site move costs. In fiscal 2024, these activities resulted in charges of $27 million, primarily for accelerated depreciation, the write-off of property and equipment, and site move costs, with $3 million of those charges in the three months ended September 30, 2023. In fiscal 2023, these activities resulted in $119 million of charges primarily for employee termination costs, and the write-off of property and equipment, net of $65 million from reimbursement arrangements. We expect the restructuring actions to be substantially completed by the end of fiscal 2025. However, the actual timing and costs associated with these restructuring actions may differ from our current expectations and estimates and such differences may be material. See Note 17. Restructuring Plan to the Company’s Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for further information.
Synergy and Site Consolidation Plan
On May 20, 2023, the Company announced that it has accelerated some of the actions planned as part of its multi-year synergy and site consolidation efforts following the acquisition of Coherent, Inc., including site consolidations and relocations to lower cost sites. These relocations and other actions are expected to result in the Company achieving its previously announced $250 million synergy plan, which includes savings from supply chain management, internal supply of enabling materials and components, operational efficiencies in all functions due to scale, global functional model efficiencies and consolidation of corporate costs. In the three months ended September 30, 2024, the acceleration of these activities resulted in $4 million of charges primarily for overlapping labor related to transition of manufacturing operations to other sites and shut down costs, partially offset by a benefit from the reversal of employee termination costs previously accrued. In fiscal 2024, the acceleration of these activities resulted in $40 million of charges primarily for overlapping labor related to transition of manufacturing operations to other sites, shut down costs for sites being exited, accelerated depreciation and employee termination costs, with $8 million of those charges in the three months ended September 30, 2023. In fiscal 2023, the acceleration of these activities resulted in $20 million in charges primarily for employee termination costs, the write-off of inventory for products that are being exited and shut down costs.
Critical Accounting Estimates
The preparation of financial statements and related disclosures are in conformity with accounting principles generally accepted in the United States of America and the Company’s discussion and analysis of its financial condition and results of operations require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its Condensed Consolidated Financial Statements and accompanying notes.
Note 1 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K dated August 16, 2024 describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.
New Accounting Standards
See Note 2. Recently Issued Financial Accounting Standards to our unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.
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Results of Operations ($ in millions, except per share data)
The following tables set forth select items from our Condensed Consolidated Statements of Earnings (Loss) for the three months ended September 30, 2024 and 2023 ($ in millions) (1):
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | ||||||||||||||||||||||
| % of Revenues | % of Revenues | ||||||||||||||||||||||
| Total revenues | $ | 1,348 | 100 | % | $ | 1,053 | 100 | % | |||||||||||||||
| Cost of goods sold | 888 | 66 | 746 | 71 | |||||||||||||||||||
| Gross margin | 460 | 34 | 307 | 29 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 132 | 10 | 113 | 11 | |||||||||||||||||||
| Selling, general and administrative | 229 | 17 | 212 | 20 | |||||||||||||||||||
| Restructuring charges | 24 | 2 | 3 | — | |||||||||||||||||||
| Interest and other, net | 56 | 4 | 67 | 6 | |||||||||||||||||||
| Earnings (loss) before income taxes | 19 | 1 | (88) | (8) | |||||||||||||||||||
| Income taxes | (6) | — | (21) | (2) | |||||||||||||||||||
| Net earnings (loss) | 25 | 2 | (67) | (6) | |||||||||||||||||||
| Net loss attributable to noncontrolling interests | (1) | — | — | — | |||||||||||||||||||
| Net earnings (loss) attributable to Coherent Corp. | $ | 26 | 2 | % | $ | (67) | (6) | % | |||||||||||||||
| Diluted loss per share | $ | (0.04) | $ | (0.65) | |||||||||||||||||||
(1) Some amounts may not add due to rounding.
Consolidated
Revenues. Revenues for the three months ended September 30, 2024 increased 28% to $1,348 million, compared to $1,053 million for the same period last fiscal year. Revenues increased $315 million (68%) in the communications market in both our datacom and telecom revenue. The increases in datacom were driven primarily by AI datacenter demand. Increases in telecom were due to a combination of end-market improvement as well as our new products. In our remaining markets, which are primarily Industrial-related applications, revenue decreased 3%. Within these markets, on-going strength in display capital equipment volumes was more than offset by weakness in precision manufacturing and other subsegments.
From a segment perspective, Networking revenues increased 61% year-over-year related to AI datacenter demand in our communications market. Lasers revenue increased 4% year-over-year reflecting relatively stable end market demand. Materials revenues decreased 3% year-over-year, primarily due to weak automotive end market demand.
Gross margin. Gross margin for the three months ended September 30, 2024 was $460 million, or 34% of total revenues, compared to $307 million, or 29% of total revenues, for the same period last fiscal year, an increase of 500 basis points. The increase as a percent of revenue for the three months ended September 30, 2024 was primarily due to higher revenue volume and favorable mix as well as yield improvements.
Research and development. Research and development (“R&D”) expenses for the three months ended September 30, 2024 were $132 million, or 10% of revenues, compared to $113 million, or 11% of revenues, for the same period last fiscal year. The decrease as a percentage of revenue for the three months ended September 30, 2024 was driven by higher revenues partially offset by an increase in investment spending. The R&D expenses are primarily related to continued investment in our product portfolios.
Selling, general and administrative. Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2024 were $229 million, or 17% of revenues, compared to $212 million, or 20% of revenues, for the same period last fiscal year. The decrease in SG&A as a percentage of revenue for the three months ended September 30, 2024 compared to the same period last fiscal year was primarily the result of higher sales volumes partially offset by the impact of higher variable compensation.
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Restructuring charges. Restructuring charges related to our Restructuring Plan for the three months ended September 30, 2024 were $24 million and consist of impairment losses associated with the sale of our Newton Aycliffe business, accelerated depreciation, and move costs due to the consolidation of certain manufacturing sites. Restructuring charges related to our Restructuring Plan for the three months ended September 30, 2023 were $3 million and consisted of severance, move costs, equipment write-offs and accelerated depreciation due to the consolidation of certain manufacturing sites. See Note 17. Restructuring Plan included in Item 1 of this Quarterly Report on Form 10-Q for further information.
Interest and other, net. Interest and other, net for the three months ended September 30, 2024 was expense of $56 million, compared to expense of $67 million for the same period last fiscal year, a decrease of $11 million. Included in Interest and other, net, were interest expense on borrowings, foreign currency gains and losses, amortization of debt issuance costs, equity gains and losses from unconsolidated investments, and interest and dividend income on excess cash balances. For the three months ended September 30, 2024, the decrease of $11 million in comparison to the same period last fiscal year was driven by $13 million incremental interest and dividend income due to increases in interest rates earned on investments as well as the increase in restricted cash balances. In addition, $7 million lower interest expense primarily due to lower interest expense on our New Term B Loans resulting from lower balances and lower interest rates. Additionally, we recorded higher interest expense benefit from our interest rate cap and swap partially offset by $11 million higher foreign exchange losses primarily due to higher volatility of exchange rates during the three months ended September 30, 2024.
Income taxes. The Company’s year-to-date effective income tax rate at September 30, 2024 was (29)% compared to an effective tax rate of 24% for the same period in 2024. The variations between the Company’s effective tax rate and the U.S. statutory rate of 21% were due to tax rate differentials between U.S. and foreign jurisdictions. The current quarter rate was impacted by the recording of a $11 million windfall on stock awards due to the increase in stock price.
Net loss attributable to noncontrolling interests. Net loss attributable to noncontrolling interests for the three months ended September 30, 2024 was $1 million, and represents the noncontrolling interest holders’ shares of losses of Silicon Carbide LLC. See Note 11. Noncontrolling Interests included in Item 1 of this Quarterly Report on Form 10-Q for further information.
Segment Reporting
Revenues and segment profit for the Company’s reportable segments are discussed below. During the first quarter of fiscal 2025 as a result of a new CEO joining the Company in the fourth quarter of fiscal 2024, our Chief Operating Decision Maker (“CODM”) implemented changes in the measure he uses to allocate resources and assess performance. Our CODM now evaluates each segment’s performance and allocates resources based on segment revenue and segment profit, instead of operating income, as our CODM believes segment profit is a more comprehensive profitability measure for each operating segment. Segment profit includes operating expenses directly managed by operating segments, including research and development, direct sales, marketing and administrative expenses. Segment profit does not include share-based compensation, acquisition or integration related costs, amortization and impairment of acquisition-related intangible assets, restructuring charges, and certain other charges. Additionally, effective the first quarter of fiscal 2025, we no longer allocate Corporate strategic research and development, strategic marketing and sales expenses and shared general and administrative expenses, as these expenses are not directly attributable to our operating segments. Management believes segment profit to be a useful measure for investors, as it reflects the results of segment performance over which management has direct control and is used by management in its evaluation of segment performance. See Note 13. Segment Reporting, to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the Company’s reportable segments and for the reconciliation of the Company’s segment profit to earnings (loss) before income taxes, which is incorporated herein by reference. We report our financial results in the following three designated segments: (i) Networking, (ii) Materials, and (iii) Lasers.
Comparative prior period segment information has been recast to conform to the new segment profitability measure. The change in our operating segment measure had no impact on our previously reported consolidated results of operations, financial condition, or cash flows.
Networking ($ in millions)
| Three Months Ended September 30, | % Increase | ||||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Revenues | $ | 763 | $ | 473 | 61% | ||||||||||||
| Segment profit | $ | 140 | $ | 67 | 109% | ||||||||||||
Revenues for the three months ended September 30, 2024 increased 61% to $763 million, compared to $473 million for the same period last fiscal year. The increase in revenue of $290 million during the three months ended September 30, 2024 was related to AI datacenter demand in our communications market resulting from increased volumes in the datacom vertical.
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Segment profit for the three months ended September 30, 2024 increased 109% to $140 million, compared to segment profit of $67 million for the same period last fiscal year. The increase in segment profit for the three months ended September 30, 2024 was primarily driven by higher revenues as well as a higher margin as a percentage of sales, partially offset by $14 million higher R&D expenses. The margin percentage was higher than the three months ended September 30, 2023 due to the favorable impact of volume, yield and mix.
Materials ($ in millions)
| Three Months Ended September 30, | % Increase (Decrease) | ||||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Revenues | $ | 237 | $ | 245 | (3)% | ||||||||||||
| Segment profit | $ | 97 | $ | 58 | 67% | ||||||||||||
Revenues for the three months ended September 30, 2024 decreased 3% to $237 million, compared to revenues of $245 million for the same period last fiscal year. Compared to the three months ended September 30, 2023, Materials decreased $7 million year-over-year, with a decrease of $14 million in the electronics market primarily due to weak automotive end market demand as well as a decrease of $14 million in the industrial market due to macroeconomic conditions. The decreases were partially offset by $22 million higher volumes in the datacom vertical within the communications market.
Segment profit for the three months ended September 30, 2024 increased 67% to $97 million, compared to segment profit of $58 million for the same period last fiscal year, primarily driven by higher margin percentage, partially offset by higher R&D spending on new projects and higher SG&A expenses. The margin percentage was higher than the three months ended September 30, 2023 due to favorable product mix.
Lasers ($ in millions)
| Three Months Ended September 30, | % Increase | ||||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Revenues | $ | 348 | $ | 336 | 4% | ||||||||||||
| Segment profit | $ | 69 | $ | 53 | 30% | ||||||||||||
Revenues for the three months ended September 30, 2024 increased 4% to $348 million, compared to revenues of $336 million for the same period last fiscal year. The increase was primarily due to $18 million higher shipments to the industrial market due to higher demand in our semiconductor and display capital equipment vertical, partially offset by lower volumes from the precision manufacturing vertical as well as lower shipments to the life sciences vertical in the instrumentation market.
Segment profit for the three months ended September 30, 2024 increased 30% to $69 million, compared to segment profit of $53 million for the same period last fiscal year. The higher segment profit was primarily driven by the re-allocation of resources to corporate as well as lower R&D project spending.
Liquidity and Capital Resources
Historically, our primary sources of cash have been from operations, long-term borrowings, and advance funding from customers. Other sources of cash include proceeds from the issuance of equity, proceeds received from the exercises of stock options, and sale of equity investments and businesses. Our historic uses of cash have been for business acquisitions, capital expenditures, investment in research and development, payments of principal and interest on outstanding debt obligations, payments of debt and equity issuance costs to obtain financing and payments in satisfaction of employees’ minimum tax obligations. Supplemental information pertaining to our sources and uses of cash for the periods indicated is presented as follows:
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Sources (uses) of cash (millions):
| Three Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net cash provided by operating activities | $ | 153 | $ | 199 | |||||||
| Proceeds from exercises of stock options and purchases of stock under employee stock purchase plan | 24 | 15 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents and other items | 31 | (10) | |||||||||
| Proceeds from the sale of business | 27 | — | |||||||||
| Other items | (1) | (2) | |||||||||
| Payments in satisfaction of employees’ minimum tax obligations | (32) | (14) | |||||||||
| Payments on existing debt | (118) | (19) | |||||||||
| Additions to property, plant & equipment | (92) | (62) | |||||||||
Operating activities:
Net cash provided by operating activities was $153 million for the three months ended September 30, 2024 compared to $199 million of net cash provided by operating activities for the same period last fiscal year. The decrease in cash flows provided by operating activities during the three months ended September 30, 2024 compared to the same period last fiscal year was primarily due to increases in accounts receivables and inventories as a result of higher revenues partially offset by higher earnings.
Investing activities:
Net cash used in investing activities was $66 million for the three months ended September 30, 2024, compared to net cash used of $64 million for the same period last fiscal year. Lower cash used to fund capital expenditures of $30 million year-over-year was offset by cash received from the sale of a business of $27 million.
Financing activities:
Net cash used in financing activities was $126 million for the three months ended September 30, 2024, compared to $18 million for the same period last fiscal year. Cash outflows for both periods were primarily payments on existing debt.
New Senior Credit Facilities
On July 1, 2022, Coherent entered into a Credit Agreement by and among the Company, the lenders, and other parties thereto, and JP Morgan Chase Bank, N.A., as administrative agent and collateral agent, which provides for senior secured financing of $4.0 billion, consisting of a term loan A credit facility (the “Term A Facility”), with an aggregate principal amount of $850 million, a term loan B credit facility (the “Term B Facility” and, together with the Term A Facility, the “Term Facilities”), with an aggregate principal amount of $2,800 million, and a revolving credit facility (the “Revolving Credit Facility” and, together with the Term Facilities, the “Senior Credit Facilities”), in an aggregate available amount of $350 million, including a letter of credit sub-facility of up to $50 million. On March 31, 2023, Coherent entered into Amendment No. 1 to the Credit Agreement, which replaced the adjusted LIBOR-based rate of interest therein with an adjusted Secured Overnight Financing Rate (“SOFR”) based rate of interest. As amended, the Term A Facility and the Revolving Credit Facility each bear interest at an adjusted SOFR rate subject to a 0.10% floor plus a range of 1.75% to 2.50%, based on the Company’s total net leverage ratio. The Term A Facility and the Revolving Credit Facility borrowings bear interest at adjusted SOFR plus 1.85% as of September 30, 2024. On April 2, 2024, Coherent entered into Amendment No. 2 to the Credit Agreement, under which the principal amount of term B loans outstanding under the Credit Agreement (the “Existing Term B Loans”) were replaced with an equal amount of new term loans (the “New Term B Loans”) having substantially similar terms as the Existing Term B Loans, except with respect to the interest rate applicable to the New Term B Loans and certain other provisions. As further amended, the New Term B Loans will bear interest at an adjusted SOFR rate (subject to a 0.50% floor) plus 2.50% as of September 30, 2024. The maturity of the New Term Loans and revolving credit facility remains unchanged. In relation to the Term Facilities, the Company incurred expense of $53 million for the three months ended September 30, 2024, which is included in Interest expense in the Condensed Consolidated Statements of Earnings (Loss). On July 1, 2023, our interest rate cap became effective, which together with our interest rate swap, reduced interest expense by $13 million during the three months ended September 30, 2024.
During the three months ended September 30, 2024, the Company made payments of $117 million for the Term Facilities, including voluntary payments of $100 million.
As of September 30, 2024, the Company had no borrowings outstanding under the Revolving Credit Facility.
Our cash position, borrowing capacity and debt obligations are as follows (in millions):
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| September 30, 2024 | June 30, 2024 | |||||||||||||
| Cash and cash equivalents | $ | 1,020 | $ | 926 | ||||||||||
| Restricted cash, current | 51 | 174 | ||||||||||||
| Restricted cash, non-current | 711 | 690 | ||||||||||||
| Available borrowing capacity under Revolving Credit Facility | 320 | 346 | ||||||||||||
| Total debt obligations | 3,989 | 4,100 | ||||||||||||
Other Liquidity
On December 4, 2023, the Company consummated two investment agreements under which Silicon Carbide LLC, a Company subsidiary received $1.0 billion cash in exchange for 25% of the equity of that entity. Such funds will be used primarily to fund future capital expansion, including the previously-announced capital that Coherent intended to invest in its silicon carbide business. As a result, the transaction is enabling Coherent to allocate the capital it had intended to invest in this business unit to other corporate purposes, thus increasing its available free cash flow which will provide greater financial and operational flexibility. See Note 11. Noncontrolling Interests included in Item 1 of this Quarterly Report on Form 10-Q for further information.
The Company believes existing cash, cash flow from operations, and available borrowing capacity from its Senior Credit Facilities will be sufficient to fund its needs for working capital, capital expenditures, repayment of scheduled long-term borrowings and lease obligations, investments in R&D, and internal and external growth objectives at least through the next twelve months.
Our cash and cash equivalent balances are generated and held in numerous locations throughout the world, including amounts held outside the United States. As of September 30, 2024, the Company held approximately $877 million of cash, cash equivalents and restricted cash outside of the United States. Generally, cash balances held outside the United States could be repatriated to the United States.
At September 30, 2024, we had $763 million of restricted cash, which includes $757 million at our Silicon Carbide LLC that is restricted for use by only that subsidiary.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISKS
We are exposed to market risks arising from adverse changes in foreign currency exchange rates and interest rates. In the normal course of business, we use a variety of techniques and derivative financial instruments as part of our overall risk management strategy, which is primarily focused on its exposure in relation to the Chinese Renminbi, Euro, Swiss Franc, Japanese Yen, Singapore Dollar and Korean Won. No significant changes have occurred in the techniques and instruments used.
Interest Rate Risks
As of September 30, 2024, our total borrowings include variable rate borrowings, which expose us to changes in interest rates. In November 2019, we entered into an interest rate swap contract, amended on March 20, 2023, to limit the exposure of our variable interest rate debt by effectively converting a portion of interest payments to fixed interest rate debt. The interest rate swap expired on September 24, 2024. On February 23, 2022, we entered into an interest rate cap (the “Cap”), amended on March 20, 2023, with an effective date of July 1, 2023. On September 1, 2024, we increased the notional amount from $500 million to $1,500 million. If we had not effectively hedged our variable rate debt, a change in the interest rate of 100 basis points on these variable rate borrowings would have resulted in additional interest expense of $8 million for the three months ended September 30, 2024.
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Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer and Treasurer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. The Company’s disclosure controls were designed to provide reasonable assurance that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, the controls have been designed to provide reasonable assurance of achieving the controls’ stated goals. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer and Treasurer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control over Financial Reporting
No changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) were implemented during the Company’s most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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Part II – Other Information
Item 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved from time to time in various claims, lawsuits, and regulatory proceedings incidental to its business. The resolution of each of these matters is subject to various uncertainties, and it is possible that these matters may be resolved unfavorably to the Company. Management believes, after consulting with legal counsel, that the ultimate liabilities, if any, resulting from these legal and regulatory proceedings will not materially affect the Company’s financial condition, liquidity or results of operations.
Item 1A. RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2024 and additional risk factors that may be identified from time to time in filings of the Company, any of which could materially affect our business, financial condition or future results. Those risk factors are not the only risks facing the Company. Additional risks and uncertainties not currently known or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 5. OTHER INFORMATION
During the three months ended September 30, 2024, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company adopted terminated
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Item 6. EXHIBITS
| Incorporated herein by reference | ||||||||||||||||||||||||||||||||
| Exhibit No. | Form | Exhibit No. | Filing Date | File No. | ||||||||||||||||||||||||||||
| 10.01 | 8-K | 10.1 | October 11, 2024 | 001-39375 | ||||||||||||||||||||||||||||
| 10.02 | 8-K | 10.1 | October 16, 2024 | 001-39375 | ||||||||||||||||||||||||||||
| 10.03 | 8-K | 10.2 | October 16, 2024 | 001-39375 | ||||||||||||||||||||||||||||
| 31.01* | ||||||||||||||||||||||||||||||||
| 31.02* | ||||||||||||||||||||||||||||||||
| 32.01* | ||||||||||||||||||||||||||||||||
| 32.02* | ||||||||||||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the interactive data file because XBRL tags are embedded within the inline XBRL document | |||||||||||||||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||||||||||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||||||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||||||||||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||||||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||||||||||||||||||||||||||
* Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Coherent Corp. | ||||||||
| (Registrant) | ||||||||
| Date: November 6, 2024 | By: | /s/ James R. Anderson | ||||||
| James R. Anderson Chief Executive Officer | ||||||||
| Date: November 6, 2024 | By: | /s/ Sherri Luther | ||||||
| Sherri Luther Chief Financial Officer and Treasurer | ||||||||
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