COHR

Coherent, Inc. (COHR)

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Coherent, Inc. (COHR)

F2Q10 (Qtr End 04/03/10) Earnings Call Transcript

April 29, 2009 4:30 pm ET

Executives

Helene Simonet – EVP and CFO

John Ambroseo – President and CEO

Analysts

Sanjay [ph] – Thomas Weisel Partners

Jiwon Lee – Sidoti & Co.

Mark Douglass – Longbow Research

Larry Solow – CJS Securities

Mark Miller – Noble Financial

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Coherent second quarter 2010 earnings conference call hosted by Coherent, Inc. (Operator Instructions). As a reminder, this call is being recorded.

I would now like to introduce Ms. Helene Simonet, Executive Vice President and Chief Financial Officer. You may begin your conference.

Helene Simonet

Thank you, Adam. Good afternoon. And welcome to Coherent's second quarter conference call. On today's call, I will provide financial information and John Ambroseo, our President and CEO will provide a business overview.

As a reminder, any guidance and any statements in today's conference call pertaining to future guidance, plans, events, or performance are forward-looking statements that involve risks and uncertainties and actual results may differ significantly. We encourage you to refer to the risk disclosures described in the company's reports on Forms 10-k, 10-q and 8-k, as applicable and as filed from time to time by the company.

The full test of today's prepared remarks, which will include references to historical bookings and sales by market will be on the webcast available for approximately 90 days following the call.

Let me first highlight the key accomplishments of the second quarter. As you may already have seen from the press release, we delivered remarkable results this quarter including record bookings and backlog.

Our revenues grew 21.4% sequentially and exceeded our guidance and expectations.

Earnings more than doubled sequentially on both a GAAP and a pro forma basis. We achieved pro forma income of $0.45 per diluted share compared to a pro forma income of $0.21 per diluted share in the previous quarter and breakeven in the second quarter of last year.

Our cash and cash equivalents balance at the end of the quarter was slightly over $265 million and we generated almost $29 million cash from operations, in part due to improving working capital metrics. We achieved record accounts receivable DSO of 51 days, an improvement of almost 5 days from last quarter and our inventory turns improved from 2.9 turns last quarter to 3.4 turns this quarter.

Our pro forma EBITDA for the quarter was 16.6% on $149.2 million revenue. This performance demonstrates the positive impact of our leaner operating model following the various restructuring activities we implemented last year. As you may recall, we finished fiscal 2008 with $600 million revenue and a pro forma EBITDA of 13.5%. At similar annualized revenues, we're now delivering an incremental 310 basis points to the results.

Net sales for the second quarter grew 21.4% sequentially with increases in all four markets. Microelectronics, Materials Processing and OEM Components and Instrumentation in particular, showed strong, double-digit, sequential growth with Microelectronics leading at 35%.

Within Microelectronics, we experienced the highest growth in solar and flat panel display applications. Materials processing was strong in marking and engraving applications and OEM Components and Instrumentation saw strength in multiple applications including medical, bioinstrumentation and graphic arts and display.

Geographically, Asia represented 40% of the second quarter revenues, resulting from strong growth in the solar, flat panel and advanced packaging markets for which the customer base is strong in Asia. Clearly, we're seeing the results of our market development efforts and investments in this important region.

The company's sales by significant market application for the second quarter of fiscal 2010 is as follows. Scientific and Government, $37.8 million; Microelectronics, $52.7 million; Materials Processing, $19.8 million and OEM Components and Instrumentation, $38.9 million for a total of $149.2 million.

The second quarter gross profit was $65.6 million or 44 % of sales. On a pro forma basis, excluding $1 million restructuring and stock compensation charges, pro forma gross profit was 44.6% compared to 42% last quarter. The sequential improvement was primarily due to the positive leverage from a substantial increase in sales volume combined with the favorable impact of the footprint restructuring programs.

Pro forma period expenses of $50 million, excluding $2.6 million for restructuring and stock compensation charges, increased $5.3 million from the previous quarter. This sequential increase is primarily due to increased investments in R&D, higher headcount related spending due to the elimination of last year's temporary measures and other volume related spending.

The step up in R&D spending is directly linked to recent design wins, the acceleration of demand from our customers and some incremental spending in support of the acquisition integration.

Our cash and cash equivalents balance for the quarter was $265.1 million, representing a sequential increase of $24.5 million. As mentioned before, we're in particular, pleased with our working capital management results. Inventory balances increased only slightly from the first quarter of fiscal 2010, even though projected sales volumes increased significantly.

The increase in cash also reflects a tax refund of approximately $5 million, including interest income of $1.2 million. This interest income is recorded in the other income and expense line, which explains the step up in income when comparing this to the previous quarter.

Let me give you the guidance for the third quarter. We expect revenues in the third quarter to be in the range of $158 to $162 million. We project pro forma gross profit to be similar to the second quarter, at approximately 44.5%.

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