erent (COHR) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements Unaudited condensed consolidated financial statements for Q1 FY2025 and Q1 FY2024 are presented, covering balance sheets, earnings, cash flows, and equity Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | September 30, 2024 ($ thousands) | June 30, 2024 ($ thousands) | | :--- | :--- | :--- | | Total Current Assets | 3,630,287 | 3,660,099 | | Total Assets | 14,699,300 | 14,488,634 | | Total Current Liabilities | 1,357,990 | 1,343,767 | | Total Liabilities | 6,430,701 | 6,542,355 | | Total Equity | 5,871,994 | 5,581,507 | | Total Liabilities, Mezzanine Equity and Equity | 14,699,300 | 14,488,634 | Condensed Consolidated Statement of Earnings (Loss) Highlights (Unaudited) | Account | Three Months Ended Sep 30, 2024 ($ thousands) | Three Months Ended Sep 30, 2023 ($ thousands) | | :--- | :--- | :--- | | Revenues | 1,348,135 | 1,053,083 | | Earnings (Loss) Before Income Taxes | 19,303 | (88,297) | | Net Earnings (Loss) | 24,861 | (67,534) | | Net Loss Available to the Common Shareholders | (5,946) | (97,707) | | Diluted Loss Per Share | (0.04) | (0.65) | Condensed Consolidated Statement of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Three Months Ended Sep 30, 2024 ($ thousands) | Three Months Ended Sep 30, 2023 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 152,980 | 198,803 | | Net cash used in investing activities | (65,734) | (64,175) | | Net cash used in financing activities | (125,663) | (17,880) | | Net increase (decrease) in cash | (7,228) | 107,290 | Note 3. Revenue from Contracts with Customers Revenue is disaggregated by end market and segment, with Communications being the largest contributor, driven by the Networking segment Disaggregated Revenue by Market (Three Months Ended Sep 30, 2024, $ thousands) | Market | Networking | Materials | Lasers | Total | | :--- | :--- | :--- | :--- | :--- | | Industrial | 14,380 | 119,646 | 272,914 | 406,940 | | Communications | 739,156 | 35,135 | — | 774,291 | | Electronics | 2,171 | 74,057 | — | 76,228 | | Instrumentation | 7,165 | 8,589 | 74,922 | 90,676 | | Total Revenues | 762,872 | 237,427 | 347,836 | 1,348,135 | Note 7. Debt Total debt was approximately $4.0 billion as of September 30, 2024, primarily from Term A, Term B, and Senior Notes, with all covenants met Components of Debt ($ thousands) | Debt Component | September 30, 2024 | June 30, 2024 | | :--- | :--- | :--- | | Term A Facility | 765,000 | 775,625 | | Term B Facility | 2,274,803 | 2,384,536 | | 5.000% Senior Notes | 990,000 | 990,000 | | Total debt | 3,988,769 | 4,100,218 | - As of September 30, 2024, the company had an aggregate availability of $320 million under its Revolving Credit Facility[39] Note 13. Segment Reporting The company operates in Networking, Materials, and Lasers segments, with 'segment profit' now the key performance metric, showing strong growth in Networking - Effective Q1 fiscal 2025, the Chief Operating Decision-Maker (CODM) changed the performance measure from operating income to 'segment profit' to assess performance and allocate resources[55] Segment Revenue and Profit (Three Months Ended Sep 30, $ thousands) | Segment | Revenue 2024 | Revenue 2023 | Segment Profit 2024 | Segment Profit 2023 | | :--- | :--- | :--- | :--- | :--- | | Networking | 762,872 | 472,849 | 140,276 | 67,193 | | Materials | 237,427 | 244,640 | 96,647 | 57,815 | | Lasers | 347,836 | 335,594 | 68,785 | 52,900 | | Total | 1,348,135 | 1,053,083 | 305,708 | 177,908 | Note 17. Restructuring Plan The May 2023 Restructuring Plan, involving site consolidations, incurred $24 million in charges for Q1 FY2025, mainly from impairment losses on the Newton Aycliffe business sale - For the three months ended September 30, 2024, restructuring activities resulted in $24 million of charges, mainly from impairment losses on the sale of the Newton Aycliffe business, accelerated depreciation, and site move costs[70] Restructuring Accrual Activity (Three Months Ended Sep 30, 2024, $ thousands) | Description | Severance | Asset Write-Offs | Other | Total Accrual | | :--- | :--- | :--- | :--- | :--- | | Balance - June 30, 2024 | 51,061 | — | — | 51,061 | | Restructuring charges (recoveries) | (455) | 15,970 | 8,850 | 24,365 | | Payments | (6,796) | — | — | (6,796) | | Balance - September 30, 2024 | 43,810 | — | — | 43,810 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 FY2025 financial results, highlighting a 28% revenue increase driven by AI datacenter demand, improved gross margin, segment performance, and liquidity Results of Operations Consolidated revenue grew 28% to $1.35 billion, driven by AI datacenter demand, with gross margin expanding to 34% and net earnings reaching $25 million Consolidated Results of Operations Summary ($ in millions) | Metric | Q1 FY2025 | Q1 FY2024 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $1,348 | $1,053 | +28% | | Gross margin | $460 (34%) | $307 (29%) | +500 bps | | R&D | $132 (10%) | $113 (11%) | -100 bps | | SG&A | $229 (17%) | $212 (20%) | -300 bps | | Net earnings (loss) | $25 | ($67) | N/A | - The primary driver for the 28% revenue growth was a $315 million (68%) increase in the communications market, fueled by AI datacenter demand and new telecom products[82] Segment Reporting (MD&A) Networking revenue grew 61% driven by AI datacenter demand, while Materials revenue declined 3% due to market weakness, and Lasers revenue increased 4% - The Networking segment's revenue increased by 61% year-over-year, driven by AI datacenter demand in the communications market[84] - The Materials segment's revenue decreased by 3% due to weak automotive and industrial end market demand, partially offset by higher volumes in the datacom vertical[87] - The Lasers segment's revenue increased by 4%, primarily due to higher shipments to the industrial market for semiconductor and display capital equipment[88] Liquidity and Capital Resources Net cash from operations decreased to $153 million due to higher receivables and inventories, while cash and equivalents reached $1.02 billion and total debt reduced to $4.0 billion - Net cash provided by operating activities decreased to $153 million from $199 million year-over-year, primarily due to increases in accounts receivables and inventories resulting from higher revenues[92] Liquidity Position ($ in millions) | Item | September 30, 2024 | June 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | 1,020 | 926 | | Restricted cash (current & non-current) | 762 | 864 | | Available borrowing capacity | 320 | 346 | | Total debt obligations | 3,989 | 4,100 | - The company's subsidiary, Silicon Carbide LLC, received a $1.0 billion cash investment in exchange for 25% equity, which will fund future capital expansion and increase Coherent's overall financial flexibility[95] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency and interest rates using derivatives, with a 100 basis point interest rate change impacting interest expense by $8 million - The company manages interest rate risk on its variable rate debt using instruments like interest rate swaps and caps; an interest rate cap with a notional amount increased to $1.5 billion is in effect[97] - A hypothetical 100 basis point increase in interest rates on unhedged variable rate debt would have resulted in an additional $8 million in interest expense for the three months ended September 30, 2024[97] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[99] - No changes in internal control over financial reporting occurred during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control[100] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal claims, which management believes will not materially affect its financial condition, liquidity, or results of operations - Management believes, after consulting with legal counsel, that the ultimate liabilities from ongoing legal proceedings will not materially affect the Company's financial condition, liquidity or results of operations[102] Item 1A. Risk Factors This section refers readers to the detailed risk factors outlined in the Annual Report on Form 10-K for the fiscal year ended June 30, 2024 - The report directs investors to consider the risk factors discussed in Part I, 'Item 1A. Risk Factors' in the Annual Report on Form 10-K for the year ended June 30, 2024[103] Item 5. Other Information No director or officer adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading agreements during the quarter ended September 30, 2024 - No director or officer adopted, modified, or terminated a 'Rule 10b5-1 trading agreement' or 'non-Rule 10b5-1 trading agreement' during the three months ended September 30, 2024[104] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including employment agreements, CEO and CFO certifications, and Inline XBRL documents - The exhibits filed with the report include certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Rules 13a-14(a) and 13a-14(b) of the Securities Exchange Act of 1934[106]