Coherent, Inc. Reports Fourth Fiscal Quarter and Year-End Results
SANTA CLARA, Calif., Nov. 6, 2018 /PRNewswire/ -- Coherent, Inc. (NASDAQ, COHR), one of the world's leading providers of lasers, laser-based technologies and laser-based system solutions in a broad range of scientific, commercial and industrial applications, today announced financial results for its fourth fiscal quarter and fiscal year ended September 29, 2018.
FINANCIAL HIGHLIGHTS
Three Months Ended
Year Ended
Sep. 29, 2018 June 30, 2018 Sep. 30, 2017 Sep. 29, 2018 Sep. 30, 2017
---
GAAP Results
(in millions except per share data)
Net
sales $
461.5 $
482.3 $
490.3 $
1,902.6 $
1,723.3
Net
income $
73.2 $
67.0 $
73.8 $
247.4 $
207.1
Diluted
EPS $
2.99 $
2.69 $
2.96 $
9.95 $
8.36
Non-GAAP Results
(in millions except per share data)
Net
income $
78.8 $
87.3 $
92.5 $
338.9 $
311.4
Diluted
EPS $
3.22 $
3.51 $
3.72 $
13.64 $
12.57
FOURTH FISCAL QUARTER AND FISCAL YEAR DETAILS
For the fourth fiscal quarter ended September 29, 2018, Coherent announced net sales of $461.5 million and net income, on a U.S. generally accepted accounting principles (GAAP) basis, of $73.2 million, or $2.99 per diluted share. These results include $16.2 million, or $0.66 per diluted share, of primarily a one-time additional income tax net benefit due to adjustments calculated under the provisions of the U.S. Tax Cuts and Jobs Act (the "Tax Act") as well as a $3.4 million, or $0.14 per diluted share, tax charge due to an increase in valuation allowances against deferred tax assets. The Securities and Exchange Commission has issued rules that allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. Accordingly, Coherent has recorded additional adjustments in our fourth fiscal quarter ended September 29, 2018.
These results compare to net sales of $490.3 million and net income of $73.8 million, or $2.96 per diluted share, for the fourth quarter of fiscal 2017, and net sales of $482.3 million and net income of $67.0 million, or $2.69 per diluted share, for the third quarter of fiscal 2018.
Non-GAAP net income for the fourth quarter of fiscal 2018 was $78.8 million, or $3.22 per diluted share. Non-GAAP net income for the fourth quarter of fiscal 2017 was $92.5 million, or $3.72 per diluted share. Non-GAAP net income for the third quarter of fiscal 2018 was $87.3 million, or $3.51 per diluted share. Reconciliations of GAAP to non-GAAP financial measures for the three months ended September 29, 2018, June 30, 2018 and September 30, 2017, and for the fiscal years ended September 29, 2018 and September 30, 2017 appear in the financial statements portion of this release under the heading "Reconciliation of GAAP to Non-GAAP net income".
For the fiscal year ended September 29, 2018, Coherent posted net sales of $1,902.6 million and net income of $247.4 million, or $9.95 per diluted share, on a GAAP basis compared to the prior year net sales of $1,723.3 million and net income on a GAAP basis of $207.1 million, or $8.36 per diluted share. For the fiscal year ended September 29, 2018, Coherent posted net income on a non-GAAP basis of $338.9 million, or $13.64 per diluted share, compared to the prior year net income on a non-GAAP basis of $311.4 million, or $12.57 per diluted share.
Results for the fiscal year ended September 29, 2018 include additional income tax expense of $25.5 million, or $1.03 per diluted share, due to the provisions under the Tax Act and a $3.4 million, or $0.14 per diluted share, tax charge due to an increase in valuation allowances against deferred tax assets as well as a benefit of $12.8 million, or $0.51 per diluted share, from the adoption of new rules for accounting for excess tax benefits and deficiencies for employee stock-based compensation.
As previously announced, on November 7, 2016, Coherent completed its acquisition of Rofin-Sinar Technologies, Inc. ("Rofin"), one of the world's leading developers and manufacturers of high-performance industrial laser sources and laser-based solutions and components. As a result, Rofin's operating results were consolidated for the period from November 7, 2016 through September 30, 2017 in Coherent's fiscal 2017 results. Subsequent to the first quarter of fiscal 2017, Rofin's operating results are consolidated in Coherent's results for the full quarter and fiscal year periods.
"Our fourth fiscal quarter was affected by two significant events that evolved in the second half of the quarter: execution issues at one of our German sites and a demand slowdown in China. The combined top line impact was approximately $11 million and resulted in us missing the low-end of our prior revenue guidance. We have taken a number of steps to rectify these execution problems and believe they will be behind us by the end of the current quarter. The demand challenges in China are largely due to U.S. tariffs on Chinese manufactured goods. Chinese tariffs on U.S. goods are also affecting demand but to a lesser degree. This is mostly confined to the materials processing market. Given the foregoing we are updating our fiscal 2019 outlook. We expect year-on-year sales to decline between 8-12% with the second half of fiscal 2019 being stronger than the first half. Expense reductions of $10-15 million will partially offset the gross profit impact of lower sales," stated John Ambroseo, Coherent's President and CEO. "Though this past quarter had its challenges, 2018 was a record year for sales, gross profit and EPS for the Company. I want to take this opportunity to thank and congratulate my colleagues for all their efforts on behalf of our global customer base," he added.
The Company is also announcing that the Board of Directors has authorized a stock repurchase program in the amount of $250 million through December 31, 2019, with a limit of no more than $75 million deployed in a given quarter.
CONFERENCE CALL REMINDER
The Company will host a conference call today to discuss its financial results at 1:30 P.M. Pacific (4:30 P.M. Eastern). A listen-only broadcast of the conference call and a transcript of management's prepared remarks can be accessed on the Company's website at http://www.coherent.com/Investors/. For those who are not able to listen to the live broadcast, the call will be archived for approximately three months on the Company's website.
Summarized statement of operations information is as follows (unaudited, in thousands, except per share data):
Three Months Ended
Year Ended
Sep. 29, June 30, Sep. 30, Sep. 29, Sep. 30,
2018 2018 2017 2018 2017
Net sales $
461,548 $
482,342 $
490,298 $
1,902,573 $
1,723,311
Cost of
sales(A)(B)(E)(G)(H) 271,646 274,006 268,244 1,071,882 973,042
Gross profit 189,902 208,336 222,054 830,691 750,269
Operating expenses:
Research &
development(A)(B)(H) 32,108 34,303 31,063 132,586 119,166
Selling, general &
administrative(A)(B)(F)(G)(H) 72,758 70,291 73,482 293,632 292,084
Gain on business
combination (C) (5,416)
Other impairment
charges(D) 611 2,916 766 2,916
Amortization of
intangible assets(E) 2,527 2,607 2,964 10,690 16,024
Total operating
expenses 107,393 107,812 110,425 437,674 424,774
Income from
operations 82,509 100,524 111,629 393,017 325,495
Other income
(expense), net(B)(I) (5,827) (7,625) (10,415) (31,462) (23,440)
Income from
continuing
operations, before
income taxes 76,682 92,899 101,214 361,555 302,055
Provision for income
taxes (J) 3,497 25,929 28,327 114,195 93,411
Net income from
continuing
operations 73,185 66,970 72,887 247,360 208,644
Income (loss) from
discontinued
operations, net of
income taxes 865 (2) (1,522)
Net income $
73,185 $
66,970 $
73,752 $
247,358 $
207,122
Net income (loss) per
share:
Basic from continuing
operations 3.02 2.72 2.97 10.07 8.52
Basic from
discontinued
operations 0.03 (0.06)
Basic earnings per
share $
3.02 $
2.72 $
3.00 $
10.07 $
8.46
Diluted from
continuing
operations 2.99 2.69 2.93 9.95 8.42
Diluted from
discontinued
operations 0.03 (0.06)
Diluted earnings per
share $
2.99 $
2.69 $
2.96 $
9.95 $
8.36
Shares used in
computations:
Basic 24,236 24,658 24,568 24,572 24,487
Diluted 24,490 24,877 24,883 24,851 24,777
(A) Stock-based compensation expense
included in operating results is
summarized below (all footnote
amounts are unaudited, in
thousands, except per share data):
Stock-based
compensation expense
Three Months Ended
Year Ended
Sep. 29, June 30, Sep. 30, Sep. 29, Sep. 30,
2018 2018 2017 2018 2017
Cost of sales $
1,229 $
1,168 $
923 $
4,403 $
3,541
Research & development 869 838 684 3,247 2,973
Selling, general &
administrative 6,571 6,577 5,588 25,088 23,911
Impact on income from
operations $
8,669 $
8,583 $
7,195 $
32,738 $
30,425
For the quarters ended Sep. 29,
2018, June 30, 2018 and Sep. 30,
2017, the impact on net income,
net of tax was $7,414 ($0.30 per
diluted share), $7,549 ($0.30 per
diluted share) and $5,277 ($0.21
per diluted share), respectively.
For the years ended Sep. 29, 2018
and Sep. 30, 2017, the impact on
net income, net of tax was $27,665
($1.11 per diluted share) and
$23,352 ($0.94 per diluted share),
respectively.
(B) Changes in deferred compensation
plan liabilities are included in
cost of sales and operating
expenses while gains and losses on
deferred compensation plan assets
are included in other income
(expense), net. Deferred
compensation expense (benefit)
included in operating results is
summarized below:
Deferred compensation
expense (benefit)
Three Months Ended
Year Ended
Sep. 29, June 30, Sep. 30, Sep. 29, Sep. 30,
2018 2018 2017 2018 2017
Cost of sales $
34 $
11 $
43 $
151 $
166
Research & development 303 46 133 836 629
Selling, general &
administrative 1,579 414 692 4,222 3,074
Impact on income from
operations $
1,916 $
471 $
868 $
5,209 $
3,869
For the quarters ended Sep. 29, 2018,
June 30, 2018 and Sep. 30, 2017, the
impact on other income net from gains
or losses on deferred compensation plan
assets was income of $1,957, $416 and
$883, respectively. For the years ended
Sep. 29, 2018 and Sep. 30, 2017, the
impact on other income net from gain or
losses on deferred compensation plan
assets was income of $5,047 and $3,909,
respectively. The net gain on deferred
compensation assets excludes a death
benefit of $1,301 in the quarter and
year ended Sep. 30, 2017.
(C) For the year ended Sep. 30, 2017, the
gain on business combination was $5,416
($3,426 net of tax ($0.14 per diluted
share)).
(D) For the quarters ended June 30, 2018 and
Sep. 30, 2017, other impairment charges
were $611 ($611 net of tax ($0.02 per
diluted share)) and $2,916 ($1,885 net
of tax ($0.08 per diluted share)),
respectively. For the years ended Sep.
29, 2018 and Sep. 30, 2017, other
impairment charges were $766 ($766 net
of tax ($0.03 per diluted share)) and
$2,916 ($1,885 net of tax ($0.08 per
diluted share)), respectively.
(E) For the quarters ended Sep. 29, 2018,
June 30, 2018 and Sep. 30, 2017, the
impact of amortization of intangible
expense was $14,401 ($10,220 net of tax
($0.42 per diluted share)), $15,209
($10,859 net of tax ($0.44 per diluted
share)) and $16,253 ($11,546 net of tax
($0.46 per diluted share)),
respectively. For the years ended Sep.
29, 2018 and Sep. 30, 2017, the impact
of amortization of intangible expense
was $60,039 ($42,783 net of tax ($1.72
per diluted share)) and $60,556
($42,715 net of tax ($1.72 per diluted
share)), respectively.
(F) For the quarter ended Sep. 29, 2018 and
June 30, 2018, the impact of costs
related to acquisitions included $206
($206 net of tax ($0.01 per diluted
share)) and $129 ($129 net of tax
($0.01 per diluted share)),
respectively. The years ended Sep. 29,
2018 and Sep. 30, 2017 included $735
($735 net of tax ($0.03 per diluted
share)) and $17,587 ($17,425 net of tax
($0.70 per diluted share)),
respectively, of costs related to
acquisitions.
(G) For the quarter ended June 30, 2018, the
impact of inventory and favorable lease
step-up costs related to acquisitions
was $392 ($281 net of tax ($0.01 per
diluted share)). For the years ended
Sep. 29, 2018 and Sep. 30, 2017, the
impact of inventory and favorable lease
step-up costs related to acquisitions
was $803 ($574 net of tax ($0.02 per
diluted share)) and $26,768 ($19,042
net of tax ($0.77 per diluted share)),
respectively.
(H) For the quarters ended Sep. 29, 2018,
June 30, 2018 and Sep. 30, 2017, the
impact of restructuring charges was
$871 ($632 net of tax ($0.02 per
diluted share)), $1,192 ($870 net of
tax ($0.04 per diluted share)) and
$3,201 ($2,273 net of tax ($0.09 per
diluted share)), respectively. For the
years ended Sep. 29, 2018 and Sep. 30,
2017, the impact of restructuring
charges was $3,949 ($2,907 net of tax
($0.12 per diluted share)) and $12,320
($8,382 net of tax ($0.34 per diluted
share)), respectively.
(I) For the year ended Sep. 30, 2017, the
gain on our hedge of the debt
commitment and issuance of debt was
$11,298 ($7,147 net of tax ($0.29 per
diluted share)) and interest expense on
the debt commitment was $2,665 ($1,844
net of tax ($0.07 per diluted share)).
(J) The quarter ended Sep. 29, 2018 included
a $16,203 ($0.66 per diluted share)
non-recurring tax net benefit due to
adjustments calculated under the Tax
Act transition tax and deferred tax
remeasurement and a $3,367 ($0.14 per
diluted share) tax charge due to an
increase in valuation allowances
against deferred tax assets. The year
ended Sep. 29, 2018 included a $25,542
($1.03 per diluted share) non-
recurring tax expense due to the Tax
Act transition tax and deferred tax
remeasurement, a $3,367 ($0.14 per
diluted share) tax charge due to an
increase in valuation allowances
against deferred tax assets and a
$12,754 ($0.51 per diluted share) tax
benefit from the adoption of new rules
for accounting for excess tax benefits
and tax deficiencies for employee
stock-based compensation. The quarter
and year ended Sep. 30, 2017 included a
$1,358 ($0.05 per diluted share) non-
recurring tax benefit from the closure
of audits.
Summarized balance sheet information is as follows (unaudited, in thousands):
Sep. 29, Sep. 30,
2018 2017
ASSETS
---
Current assets:
Cash, cash equivalents, restricted cash and short-term investments $
311,473 $
476,673
Accounts receivable, net 355,208 305,668
Inventories 486,741 414,807
Assets held-for-sale 44,248
Prepaid expenses and other assets 85,080 70,268
Total current assets 1,238,502 1,311,664
Property and equipment, net 311,793 278,850
Other assets 709,674 747,286
Total assets $
2,259,969 $
2,337,800
LIABILITIES AND STOCKHOLDERS' EQUITY
---
Current liabilities:
Short-term borrowings $
5,072 $
5,078
Accounts payable 70,292 75,860
Other current liabilities 297,474 338,207
Total current liabilities 372,838 419,145
Other long-term liabilities 572,667 755,391
Total stockholders' equity 1,314,464 1,163,264
Total liabilities and stockholders' equity $
2,259,969 $
2,337,800
Reconciliation of GAAP to Non-GAAP net income (unaudited, in thousands, (other than per share data), net of tax):
Three Months Ended
Year Ended
Sep. 29, June 30, Sep. 30, Sep. 29, Sep. 30,
2018 2018 2017 2018 2017
GAAP net income from
continuing
operations $
73,185 $
66,970 $
72,887 $
247,360 $
208,644
Stock-based
compensation
expense 7,414 7,549 5,277 27,665 23,352
Amortization of
intangible assets 10,220 10,859 11,546 42,783 42,715
Restructuring
charges 632 870 2,273 2,907 8,382
Non-recurring tax
expense (benefit) (12,836) (1,358) 28,909 (1,358)
Tax benefit from
stock-based
compensation
expense (4) (12,754)
Other impairment
charges 611 1,885 766 1,885
Acquisition-related
costs 206 129 735 17,425
Interest expense on
debt commitment 1,844
Gain on hedge of
debt and debt
commitment (7,147)
Gain on business
combination (3,426)
Purchase accounting
step-up 281 574 19,042
Non-GAAP net income $
78,821 $
87,265 $
92,510 $
338,945 $
311,358
Non-GAAP net income
per diluted share $
3.22 $
3.51 $
3.72 $
13.64 $
12.57
RISKS AND UNCERTAINTIES
This press release contains forward-looking statements, as defined under the Federal securities laws. These forward-looking statements include the statements in this press release that relate to the Company's belief in its rectification of execution problems; the Company's expectations of a weak environment in China during fiscal 2019, in particular in the materials processing market; and the Company's fiscal 2019 outlook, including its expectations for a year-on-year sales decline between 8-12%, the second half of fiscal 2019 being stronger than the first half, and expense reductions of $10-15 million partially offsetting gross profit impacts on lower sales. These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement. The Company and its business, including the aforementioned forward-looking statements, are subject to risks and uncertainties, including, but not limited to, risks associated with growth in demand for our products, customer acceptance and adoption of our products, the worldwide demand for flat panel displays and adoption of OLED for mobile displays, the pricing and availability of OLED displays, the demand for and use of our products in commercial applications, our ability to generate sufficient cash to fund capital spending or debt repayment, our successful implementation of our customer design wins, our ability to successfully rectify execution issues on a going forward basis, our and our customers' exposure to risks associated with worldwide economic conditions, our customers' ability to cancel long-term purchase orders, the ability of our customers to forecast their own end markets, our ability to accurately forecast future periods, continued timely availability of products and materials from our suppliers, our ability to timely ship our products and our customers' ability to accept such shipments, our ability to have our customers qualify our product offerings, worldwide government economic policies, including U.S. tariffs on Chinese manufactured goods, our ability to integrate the business of Rofin and other acquisitions successfully, manage our expanded operations and achieve anticipated synergies, and other risks identified in the Company's SEC filings. Readers are encouraged to refer to the risk disclosures and critical accounting policies described in the Company's reports on Forms 10-K, 10-Q and 8-K, including the risks identified in today's financial press release, as applicable and as filed from time-to-time by the Company.
Founded in 1966, Coherent, Inc. is one of the world's leading providers of lasers, laser-based technologies and laser-based system solutions in a broad range of scientific, commercial and industrial customers. Our common stock is listed on the Nasdaq Global Select Market and is part of the Russell 1000 and Standard & Poor's MidCap 400 Index. For more information about Coherent, visit the company's website at www.coherent.com/ for product and financial updates.
5100 Patrick Henry Dr. . P. O. Box 54980, Santa Clara, California 95056-0980 . Telephone (408) 764-4000
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