COHERENT CORP

Previous wording

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 and six months ended December 31, 2023, these activities resulted in a net recovery of $2 million and charges of $1 million, respectively, primarily for employee termination costs and accelerated depreciation. 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 18. Restructuring and Synergy and Site Consolidation Plan to the Company’s Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for further information.

Current wording

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 and nine months ended March 31, 2024, these activities resulted in charges of $12 million and $13 million, respectively, primarily for accelerated depreciation, employee termination costs, and the write-off of property and equipment. 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 18. Restructuring and Synergy and Site Consolidation Plan to the Company’s Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for further information.

Previous wording

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 and six months ended December 31, 2023, the acceleration of these activities resulted in $9 million and $16 million, respectively, of charges primarily for employee termination, overlapping labor related to transition of manufacturing operations to other sites, shut down costs and accelerated depreciation. In fiscal 2023, the acceleration of these activities resulted in $9 million of charges primarily for employee termination costs, the write-off of inventory for products that are being exited and shut down costs. See Note 18. Restructuring and Synergy and Site Consolidation Plan to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Current wording

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 and nine months ended March 31, 2024, the acceleration of these activities resulted in $13 million and $29 million, respectively, of charges primarily for overlapping labor related to transition of manufacturing operations to other sites, shut down costs, accelerated depreciation and employee termination costs. In fiscal 2023, the acceleration of these activities resulted in $20 million of charges primarily for employee termination costs, the write-off of inventory for products that are being exited and shut down costs. See Note 18. Restructuring and Synergy and Site Consolidation Plan to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Previous wording

On May 10, 2023, the Company announced that it has commenced a review of strategic alternatives for its Silicon Carbide business. On December 4, 2023, Silicon Carbide LLC (“Silicon Carbide”), one of the Company’s subsidiaries, completed the sale of Class A Common Units to Denso Corporation (“Denso”) and Mitsubishi Electric Corporation (“MELCO”), under which they collectively invested an aggregate of $1 billion in Silicon Carbide LLC (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% of the Class A Common Units of Silicon Carbide LLC. The Equity Investments in Silicon Carbide will enable 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 will be used to fund future capital expansion of Silicon Carbide. See Note 11. Noncontrolling Interests included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the noncontrolling interests in our Silicon Carbide LLC (“Silicon Carbide”) subsidiary.

Current wording

On May 10, 2023, the Company announced that it has commenced a review of strategic alternatives for its Silicon Carbide business. On December 4, 2023, Silicon Carbide LLC (“Silicon Carbide”), one of the Company’s subsidiaries, completed the sale of Class A Common Units to Denso Corporation (“Denso”) and Mitsubishi Electric Corporation (“MELCO”), under which they collectively invested an aggregate of $1 billion in Silicon Carbide LLC (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% of the Class A Common Units of Silicon Carbide LLC. 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 will be used to fund future capital expansion of Silicon Carbide. See Note 11. Noncontrolling Interests included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the noncontrolling interests in our Silicon Carbide LLC (“Silicon Carbide”) subsidiary.

Previous wording

The following tables set forth select items from our Condensed Consolidated Statements of Earnings (Loss) for the three and six months ended December 31, 2023 and 2022 ($ in millions):

Current wording

The following tables set forth select items from our Condensed Consolidated Statements of Earnings (Loss) for the three and nine months ended March 31, 2024 and 2023 ($ in millions)(1):

Previous wording

Revenues for the six months ended December 31, 2023 decreased 20% to $2,185 million, compared to $2,715 million for the same period last fiscal year. Revenues decreased in all four markets, with the largest decline, $206 million (17%), in the communications market, primarily due to decreased demand in the telecom vertical. Electronics market revenues decreased $202 million (53%), primarily in the consumer electronics vertical. In addition, revenues decreased in the industrial market by $84 million, or 9%, due to decreases in precision manufacturing and semiconductor capital equipment verticals and by $39 million, or 17%, in the instrumentation market due to decreases in the life sciences vertical. Materials decreased $240 million year-over-year, primarily due to lower demand for sensing products and other consumer applications in the consumer electronics vertical within the electronics market. Networking revenues decreased $208 million year-over-year, with decreases from the telecom vertical in our communications market. Lasers revenue for the six months ended December 31, 2023 decreased $82 million, due to lower demand in the semiconductor and display capital equipment and precision manufacturing verticals in the industrial end market and the life sciences vertical in the instrumentation market.

Current wording

Revenues for the nine months ended March 31, 2024 decreased 14% to $3,393 million, compared to $3,955 million for the same period last fiscal year. Revenues decreased in all four markets, with the largest decline, $267 million, or 51%, in the electronics market, primarily from lower volumes in the consumer electronics vertical, largely due to a design change implemented by a significant electronics customer. In addition, revenues decreased $128 million, or 7%, in the communications market, primarily due to decreased volumes in the telecom vertical as our communications service provider customers continued to work down their inventory levels with reduced capital spending, partially offset by increased shipments in the datacom vertical driven by increased AI-related datacom shipments. Revenues decreased in the industrial market by $101 million, or 7%, due to decreased shipments in precision manufacturing and semiconductor capital equipment verticals primarily due to macroeconomic conditions and $66 million, or 18%, in the instrumentation market due to decreased volumes in the life sciences vertical due to continued inventory digestion by our customers.

Previous wording

Gross margin. Gross margin for the three months ended December 31, 2023 was $351 million, or 31% of total revenues, compared to $411 million, or 30% of total revenues, for the same period last fiscal year, an increase of 100 basis points. The increase as a percent of revenue for the three months ended December 31, 2023 included the favorable impact of $112 million lower expense related to the fair value adjustment on acquired inventory from the acquisition of Coherent, Inc, (“Merger”) and the unfavorable impact of $16 million higher amortization expense related to technology acquired in the Merger. Gross margins, excluding the lower fair value adjustment on acquired inventory and higher amortization, decreased 570 basis points for the three months ended December 31, 2023 compared to the prior year period primarily due to lower revenues, higher cost product built and capitalized in prior periods being expensed, less favorable sales mix especially in the datacom vertical in the communications market, underutilized operating capacity in several plants, shut down costs related to site consolidations, higher costs related to product lines that are being exited, and the unfavorable foreign exchange rates.

Current wording

Gross margin. Gross margin for the three months ended March 31, 2024 was $366 million, or 30% of total revenues, compared to $420 million, or 34% of total revenues, for the same period last fiscal year, a decrease of 360 basis points. The decrease as a percent of revenue for the three months ended March 31, 2024 was primarily due to lower revenues for the reasons discussed above, lower yields in the datacom vertical within the communications market due to production ramp challenges for new products, underutilized operating capacity in several plants, shut down costs related to site consolidations, higher inventory provisions and higher costs related to product lines that are being exited.

Previous wording

Gross margin for the six months ended December 31, 2023 decreased to $658 million, or 30% of total revenues, compared to $855 million, or 31% of total revenues, for the same period last fiscal year, and decreased as a percent of revenue year-over-year by 140 basis points. The decrease as a percent of revenue for the six months ended December 31, 2023 included the favorable impact of $158 million lower expense related to the fair value adjustment on acquired inventory from the Merger. Gross margins, excluding the lower fair value adjustment on acquired inventory, decreased 719 basis points for the six months ended December 31, 2023 compared to the prior year period primarily due to lower revenues, higher cost product built and capitalized in prior periods being expensed, less favorable sales mix especially in the datacom vertical in the communications market, underutilized operating capacity in several plants, shut down costs related to site consolidations, higher costs related to product lines that are being exited, and the unfavorable foreign exchange rates.

Current wording

Gross margin for the nine months ended March 31, 2024 decreased to $1,024 million, or 30% of total revenues, compared to $1,275 million, or 32% of total revenues, for the same period last fiscal year, a decrease of 200 basis points. During the nine months ended March 31, 2023, the Company recorded $158 million in Cost of goods sold related to the fair value adjustment on acquired inventory from the Company’s acquisition of Coherent, Inc. (the “Merger”). Gross margin, excluding the fair value adjustment on acquired inventory, decreased 604 basis points for the nine months ended March 31, 2024 compared to the prior year period primarily due to lower revenues, less favorable sales mix especially in the datacom vertical in the communications market, underutilized operating capacity in several plants, shut down costs related to site consolidations, lower yields in the datacom vertical, higher costs related to product lines that are being exited, higher inventory provisions and the unfavorable foreign exchange rates.

Previous wording

Internal research and development. Internal research and development (“IR&D”) expenses for the three months ended December 31, 2023 were $111 million, or 10% of revenues, compared to $129 million, or 9% of revenues, for the same period last fiscal year. IR&D for the six months ended December 31, 2023 decreased 10% to $225 million, or 10% of revenues, compared to $250 million, or 9% of revenues, for the same period last fiscal year. The decrease for the three and six months ended December 31, 2023 was in all three segments and was driven by lower costs due to the consolidation of sites and our efforts to control costs. The IR&D expenses are primarily related to our continued investment in new products and manufacturing processes across all of our businesses, including significant investments in indium phosphide semiconductor lasers, silicon carbide materials, devices for both power electronics and wireless devices, and lasers for display processing and semiconductor capital equipment.

Current wording

Internal research and development. Internal research and development (“IR&D”) expenses for the three months ended March 31, 2024 were $127 million, or 11% of revenues, compared to $126 million, or 10% of revenues, for the same period last fiscal year. IR&D for the nine months ended March 31, 2024 decreased 6% to $352 million, or 10% of revenues, compared to $376 million, or 10% of revenues, for the same period last fiscal year. The slight increase for the three months ended March 31, 2024 was driven by higher variable compensation partially offset by lower costs due to the consolidation of sites and our cost containment efforts. The decrease for the nine months ended March 31, 2024 was in all three segments and was driven by lower costs due to the consolidation of sites and our efforts to control costs. The IR&D expenses are primarily related to our continued investment in new products and manufacturing processes across all of our businesses, including significant investments in indium phosphide semiconductor lasers, silicon carbide materials, devices for both power electronics and wireless devices, and lasers for display processing and semiconductor capital equipment.

Previous wording

Selling, general and administrative. Selling, general and administrative (“SG&A”) expenses for the three months ended December 31, 2023 were $209 million, or 18% of revenues, compared to $274 million, or 20% of revenues, for the same period last fiscal year. SG&A expenses for the six months ended December 31, 2023 were $421 million, or 19% of revenues, compared to $554 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 December 31, 2023 compared to the same period last fiscal year was the result of lower amortization expense of $50 million resulting both from the Merger and lower amortization for tradenames impaired in the fourth quarter of fiscal 2023, and $6 million lower share-based compensation as well as lower costs due to the consolidation of sites and our efforts to control costs, partially offset by the impact of lower revenues. The decrease in SG&A as a percentage of revenue for the six months ended December 31, 2023 compared to the same period last fiscal year was the result of lower amortization expense of $43 million resulting from both the Merger and lower amortization for tradenames impaired in the fourth quarter of fiscal 2023, lower charges related to the Merger, including $39 million lower transaction fees and financing, lower one-time expense of $18 million related to share-based compensation resulting from the Merger, and $12 million lower severance and integration consulting costs as well as lower costs due to the consolidation of sites and our efforts to control costs, partially offset by the impact of lower revenues.

Current wording

Selling, general and administrative. Selling, general and administrative (“SG&A”) expenses for the three months ended March 31, 2024 were $205 million, or 17% of revenues, compared to $226 million, or 18% of revenues, for the same period last fiscal year. SG&A expenses for the nine months ended March 31, 2024 were $626 million, or 18% of revenues, compared to $781 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 March 31, 2024 compared to the same period last fiscal year was primarily the result of lower amortization expense of $21 million resulting both from the Merger and lower amortization for tradenames impaired in the fourth quarter of fiscal 2023, and $6 million lower share-based compensation as well as lower costs due to the consolidation of sites and our efforts to control costs, partially offset by the impact of lower revenues and higher variable compensation. The decrease in SG&A as a percentage of revenue for the nine months ended March 31, 2024 compared to the same period last fiscal year was the result of lower amortization expense of $64 million resulting from both the Merger and lower amortization for tradenames impaired in the fourth quarter of fiscal 2023, lower charges related to the Merger, including $39 million lower transaction fees and financing, lower one-time expense of $18 million related to share-based compensation resulting from the Merger and $12 million lower severance and integration consulting costs, as well as lower costs due to the consolidation of sites and our efforts to control costs, partially offset by the impact of lower revenues.

Previous wording

Restructuring charges. Restructuring charges related to our Restructuring Plan for the three and six months ended December 31, 2023 were a net recovery of $2 million and net charges of $1 million, respectively, and consist of severance (including cumulative adjustments resulting in a current period recovery), move costs, equipment write-offs and accelerated depreciation due to the consolidation of certain manufacturing sites. See Note 18. Restructuring and Synergy and Site Consolidation Plan included in Item 1 of this Quarterly Report on Form 10-Q for further information.

Current wording

Restructuring charges. Restructuring charges related to our Restructuring Plan for the three and nine months ended March 31, 2024 were $12 million and $13 million, respectively, and consist of severance, accelerated depreciation, equipment write-offs and move costs due to the consolidation of certain manufacturing sites. See Note 18. Restructuring and Synergy and Site Consolidation Plan included in Item 1 of this Quarterly Report on Form 10-Q for further information.

Previous wording

Interest and other, net. Interest and other, net for the three months ended December 31, 2023 was expense of $69 million, compared to expense of $75 million for the same period last fiscal year, a decrease of $6 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 income on excess cash balances. For the three months ended December 31, 2023, the decrease of $6 million in comparison to the same period last fiscal year was driven by $7 million incremental interest income due to increases in interest rates earned on investments as well as the increase in restricted cash balances, and lower foreign exchange losses partially offset by $4 million incremental interest expense due to higher interest rates on our Term facilities. Interest and other, net for the six months ended December 31, 2023 was expense of $136 million, compared to expense of $168 million for the same period last fiscal year, a decrease of $32 million. The decrease of $32 million in comparison to the same period last fiscal year was driven by $35 million incurred in the prior year related to financing of the Merger and $10 million incremental interest income due to increases in interest rates earned on investments as well as the increase in restricted cash balances. The decreases were partially offset by $15 million incremental interest expense due to higher interest rates on our Term facilities.

Current wording

Interest and other, net. Interest and other, net for the three months ended March 31, 2024 was expense of $54 million, compared to expense of $72 million for the same period last fiscal year, a decrease of $18 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 March 31, 2024, the decrease of $18 million in comparison to the same period last fiscal year was driven by $15 million incremental interest and dividend income due to increases in interest rates earned on investments as well as the increase in restricted cash balances, $3 million higher gains on deferred compensation plan assets and $2 million lower interest expense primarily due to the higher interest expense benefit from our interest rate cap and swap partially offset by $2 million higher foreign exchange losses. Interest and other, net for the nine months ended March 31, 2024 was expense of $190 million, compared to expense of $240 million for the same period last fiscal year, a decrease of $50 million. The decrease of $50 million in comparison to the same period last fiscal year was driven by $35 million incurred in the prior year related to financing of the Merger and $25 million incremental interest income due to increases in interest rates earned on investments as well as the increase in restricted cash balances. The decreases were partially offset by $13 million incremental interest expense due to higher interest rates on our Term facilities, net of higher benefit from our interest rate cap and swap.

Previous wording

Income taxes. The Company’s year-to-date effective income tax rate at December 31, 2023 was 24% compared to an effective tax rate of 29% for the same period in 2022. 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.

Current wording

Income taxes. The Company’s year-to-date effective income tax rate at March 31, 2024 was 29% compared to an effective tax rate of 33% for the same period in 2023. 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.

Previous wording

Net loss attributable to noncontrolling interests. Net loss attributable to noncontrolling interests for the three and six months ended December 31, 2023 was $1 million and represents the noncontrolling interest holders’ shares of losses of Silicon Carbide LLC after the close of the transaction on December 4, 2023. See Note 11. Noncontrolling Interests included in Item 1 of this Quarterly Report on Form 10-Q for further information.

Current wording

Net loss attributable to noncontrolling interests. Net loss attributable to noncontrolling interests for the three and nine months ended March 31, 2024 was $3 million and $4 million, respectively, and represents the noncontrolling interest holders’ shares of losses of Silicon Carbide LLC after the close of the transaction on December 4, 2023. See Note 11. Noncontrolling Interests included in Item 1 of this Quarterly Report on Form 10-Q for further information.

Previous wording

Revenues for the three months ended December 31, 2023 decreased 14% to $524 million, compared to $609 million for the same period last fiscal year. Revenues for the six months ended December 31, 2023 decreased 17% to $997 million, compared to $1,205 million for the same period last fiscal year. The decrease in revenue of $84 million during the three months ended December 31, 2023 was primarily due to decreases in the communications market driven by decreased revenues in the telecom vertical. The decrease in revenues of $208 million during the six months ended December 31, 2023 was primarily due to decreased revenue year-over-year in the telecom vertical within the communications market.

Current wording

Revenues for the three months ended March 31, 2024 increased 12% to $619 million, compared to $551 million for the same period last fiscal year. Revenues for the nine months ended March 31, 2024 decreased 8% to $1,616 million, compared to $1,756 million for the same period last fiscal year. The increase in revenue of $68 million during the three months ended March 31, 2024 was primarily due to increases in the communications market resulting from increased volumes in the datacom vertical driven by increased AI-related datacom transceivers shipments partially offset by decreased shipments in the telecom vertical as our communications service provider customers continue to work down their inventory levels with reduced capital spending. The decrease in revenues of $140 million during the nine months ended March 31, 2024 was primarily due to decreased volumes year-over-year in the telecom vertical as our communications service provider customers continue to work down their inventory levels with reduced capital spending, partially offset by increases in the datacom vertical driven by increased AI-related datacom transceivers shipments, both within the communications market.

Previous wording

Operating income for the three months ended December 31, 2023 decreased 47% to $47 million, compared to operating income of $90 million for the same period last fiscal year. Operating income for the six months ended December 31, 2023 decreased 65% to $64 million, compared to operating income of $181 million for the same period last fiscal year. The decrease in operating income for the three months ended months ended December 31, 2023 was driven by $84 million lower revenues as well as lower margin percentage. The margin percentage was lower than the three months ended months ended December 31, 2022 due to less favorable sales mix in datacom applications, the impact of fixed manufacturing costs as a percentage of revenues on lower revenues and higher costs related to products that are being exited. The decrease in operating income for the six months ended December 31, 2023 was driven by $208 million lower revenues as well as lower margin percentage. The margin percentage was lower than the six months ended months ended December 31, 2022 due to less favorable sales mix in the datacom vertical, the impact of fixed manufacturing costs as a percentage of revenues on lower revenues and higher costs related to products that are being exited.

Current wording

Operating income for the three months ended March 31, 2024 increased 18% to $58 million, compared to operating income of $49 million for the same period last fiscal year. Operating income for the nine months ended March 31, 2024 decreased 47% to $122 million, compared to operating income of $230 million for the same period last fiscal year. The increase in operating income for the three months ended March 31, 2024 was driven by higher revenues, with flat margin as a percentage of sales, partially offset by $8 million higher integration related expenses. The decrease in operating income for the nine months ended March 31, 2024 was driven by $140 million lower revenues as well as lower margin percentage. The margin percentage was lower than the nine months ended March 31, 2023 due to less favorable sales mix in the datacom vertical, the impact of fixed manufacturing costs as a percentage of revenues on lower revenues in the telecom vertical, lower yields in the datacom vertical and higher inventory provisions related to products that are being exited.

Previous wording

Revenues for the three months ended December 31, 2023 decreased 34% to $254 million, compared to revenues of $382 million for the same period last fiscal year. Compared to the three months ended December 31, 2022, Materials decreased $129 million year-over-year, with a decrease of $110 million in the electronics market due to lower demand in our consumer electronics vertical, partially offset by higher demand in our automotive vertical driven by electric vehicles, as well as a decrease of $12 million in the industrial market. Demand in the instrumentation market also decreased, but to a lesser extent. Revenues for the six months ended December 31, 2023 decreased 32% to $498 million, compared to revenues of $738 million for the same period last fiscal year. The decrease in revenues of $240 million during the six months ended December 31, 2023 was primarily related to a decrease of $198 million in the electronics market mostly due to lower demand in our consumer electronics vertical, partially offset by higher demand in our automotive vertical driven by electric vehicles, as well as decreases in demand to a lesser extent in our precision manufacturing vertical in the industrial market.

Current wording

Revenues for the three months ended March 31, 2024 decreased 26% to $239 million, compared to revenues of $324 million for the same period last fiscal year. Compared to the three months ended March 31, 2023, Materials decreased $85 million year-over-year, with a decrease of $64 million in the electronics market due to lower volumes in our consumer electronics vertical largely due to a design change implemented by a significant electronics customer but also in the automotive vertical due to a power failure impacting our production, resulting in lower shipments, as well as a decrease of $22 million in the industrial market derived from macroeconomic conditions. Revenues for the nine months ended March 31, 2024 decreased 31% to $737 million, compared to revenues of $1,062 million for the same period last fiscal year. The decrease in revenues of $325 million during the nine months ended March 31, 2024 was primarily related to a decrease of $262 million in the electronics market mostly due to lower volumes in our consumer electronics vertical largely due to a design change implemented by a significant electronics customer, partially offset by higher shipments in our automotive vertical driven by electric vehicles, as well as decreases in shipments to a lesser extent derived from macroeconomic conditions in our precision manufacturing vertical in the industrial market.

Previous wording

Operating income for the three months ended December 31, 2023 decreased 88% to $10 million, compared to operating income of $81 million for the same period last fiscal year, primarily driven by $129 million lower revenues and lower margin percentage as well as lower IR&D and SG&A costs due to the consolidation of sites and our efforts to control costs. The margin percentage was lower than the three months ended December 31, 2022 due to the unfavorable impact of fixed manufacturing costs with lower revenues, higher cost product built and capitalized in prior periods being expensed, underutilized operating capacity in several plants and shut down costs related to site consolidations. Operating income for the six months ended December 31, 2023 decreased 89% to $17 million, compared to $157 million of operating income for the same period last fiscal year. The decrease in operating income for the six months ended December 31, 2023 was driven by $240 million lower revenues and lower margin percentage. The margin percentage was lower than the six months ended December 31, 2022 due to unfavorable impact of fixed manufacturing costs with lower revenues, higher cost product built and capitalized in prior periods being expensed, underutilized operating capacity in several plants and shut down costs related to site consolidations.

Current wording

Operating income for the three months ended March 31, 2024 decreased 88% to $8 million, compared to operating income of $68 million for the same period last fiscal year, primarily driven by $85 million lower revenues and higher restructuring charges, underutilized operating capacity in several plants and shut down costs related to site consolidations. Operating income for the nine months ended March 31, 2024 decreased 89% to $25 million, compared to $225 million of operating income for the same period last fiscal year. The decrease in operating income for the nine months ended March 31, 2024 was driven by $325 million lower revenues and lower margin percentage. The margin percentage was lower than the nine months ended March 31, 2023 due to unfavorable impact of fixed manufacturing costs with lower revenues, higher cost product built and capitalized in prior periods being expensed, underutilized operating capacity in several plants and shut down costs related to site consolidations.

Previous wording

Revenues for the three months ended December 31, 2023 decreased 7% to $354 million, compared to revenues of $379 million for the same period last fiscal year. The decrease was primarily due to a $13 million drop in the industrial market due to lower demand in our semiconductor and display capital equipment and precision manufacturing verticals, as well as $12 million lower shipments to the instrumentation market. Revenues for the six months ended December 31, 2023 decreased 11% to $689 million, compared to revenues of $772 million for the same period last fiscal year. The decrease was primarily due to a $56 million drop in the industrial market due to lower demand in our semiconductor and display capital equipment and precision manufacturing verticals, as well as $26 million lower shipments to the instrumentation market.

Current wording

Revenues for the three months ended March 31, 2024 decreased 4% to $351 million, compared to revenues of $365 million for the same period last fiscal year. The decrease was primarily due to $21 million lower shipments to the life sciences vertical in the instrumentation market where we see continued inventory digestion by our customers, partially offset by $7 million higher shipments to the industrial market due to higher demand in our semiconductor and display capital equipment vertical. Revenues for the nine months ended March 31, 2024 decreased 9% to $1,040 million, compared to revenues of $1,137 million for the same period last fiscal year. The decrease was primarily due to a $50 million drop in the industrial market due to lower volumes in our semiconductor and display capital equipment and precision manufacturing verticals due to macroeconomic conditions, and $47 million lower shipments to the instrumentation market, primarily in the life sciences vertical where we see continued inventory digestion by our customers.

Previous wording

Operating loss for the three months ended December 31, 2023 decreased 84% to $25 million, compared to an operating loss of $163 million for the same period last fiscal year. The lower operating loss was driven by $141 million lower costs in the current year quarter compared to the prior year quarter related to the Merger, including $112 million lower amortization of the preliminary fair value step-up on acquired inventory and $33 million lower amortization expense related to the fair value of intangible assets acquired partially offset by $4 million lower integration costs. Excluding the lower Merger related costs, operating income for the three months ended December 31, 2023 decreased $3 million primarily due to lower revenues and lower gross margin percentage due to less favorable mix within the industrial market and the unfavorable impact of fixed manufacturing costs with lower revenues. Operating loss for the six months ended December 31, 2023 decreased 76% to $70 million, compared to an operating loss of $287 million for the same period last fiscal year. The lower operating loss was driven by $262 million lower costs in the current year compared to the prior year related to the Merger, including $158 million lower amortization of the preliminary fair value step-up on acquired inventory, $41 million lower amortization expense related to the fair value of intangible assets acquired, $39 million lower transaction fees and financing, $18 million lower nonrecurring share based compensation and $6 million lower integration costs. Excluding the lower Merger related costs, operating income for the six months ended December 31, 2023 decreased $45 million primarily due to lower revenues and lower gross margin percentage due to less favorable mix within the industrial market and the unfavorable impact of fixed manufacturing costs with lower revenues.

Current wording

Operating loss for the three months ended March 31, 2024 decreased 12% to $44 million, compared to an operating loss of $50 million for the same period last fiscal year. The lower operating loss was partially driven by $15 million lower costs in the current year quarter compared to the prior year quarter related to the Merger, including $19 million lower amortization expense related to the fair value of intangible assets acquired, partially offset by $5 million higher integration costs. Excluding the lower Merger related costs, operating income for the three months ended March 31, 2024 decreased $9 million primarily due to lower revenues and lower gross margin percentage due to less favorable mix within the instrumentation market and the unfavorable impact of higher inventory provisions partially offset by lower share based compensation. Operating loss for the nine months ended March 31, 2024 decreased 66% to $114 million, compared to an operating loss of $337 million for the same period last fiscal year. The lower operating loss was driven by $277 million lower costs in the current year compared to the prior year related to the Merger, including $158 million lower amortization of the fair value step-up on acquired inventory, $60 million lower amortization expense related to the fair value of intangible assets acquired, $39 million lower transaction fees and financing, $18 million lower nonrecurring share-based compensation and $2 million lower integration costs. Excluding the lower Merger related costs, operating income for the nine months ended March 31, 2024 decreased $54 million primarily due to lower revenues and lower gross margin percentage, due to less favorable mix within the industrial and instrumentation markets, the unfavorable impact of fixed manufacturing costs with lower revenues and higher inventory provisions.

Previous wording

Net cash provided by operating activities was $266 million for the six months ended December 31, 2023 compared to $300 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 six months ended December 31, 2023 compared to the same period last fiscal year was primarily due to higher losses net of non-cash adjustments and was partially offset by improved management of working capital accounts, in particular accounts payable and accounts receivable.

Current wording

Net cash provided by operating activities was $383 million for the nine months ended March 31, 2024 compared to $452 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 nine months ended March 31, 2024 compared to the same period last fiscal year was primarily due to higher losses net of non-cash adjustments, and was partially offset by improved management of working capital accounts, in particular accounts payable.

Previous wording

Net cash used in investing activities was $156 million for the six months ended December 31, 2023, compared to net cash used of $5.7 billion for the same period last fiscal year. In the three months ended September 30, 2022, $5.5 billion was used to fund the Merger. Cash used to fund capital expenditures decreased by $92 million year-over-year.

Current wording

Net cash used in investing activities was $249 million for the nine months ended March 31, 2024, compared to net cash used of $5.8 billion for the same period last fiscal year. In the three months ended September 30, 2022, $5.5 billion was used to fund the Merger. Cash used to fund capital expenditures decreased by $96 million year-over-year.

Previous wording

Net cash provided by financing activities was $859 million for the six months ended December 31, 2023, compared to net cash provided by financing activities of $3.8 billion for the same period last fiscal year. Financing inflows in the current year period included the $1.0 billion contribution from noncontrolling interests, partially offset by payments on existing debt and equity issuance costs related to the contribution from noncontrolling interests. Cash inflow for the prior year-to-date period was from borrowings under the Term Facilities, defined below, as well the net proceeds from the issuance of Coherent’s Series B-2 Convertible Preferred Stock. Financing outflows for the prior year-to-date period included payments to settle the Company’s existing senior credit facilities.

Current wording

Net cash provided by financing activities was $820 million for the nine months ended March 31, 2024, compared to net cash provided by financing activities of $3.7 billion for the same period last fiscal year. Financing inflows in the current year period included the $1.0 billion contribution from noncontrolling interests and proceeds from employee stock purchases, partially offset by payments on existing debt and equity issuance costs related to the contribution from noncontrolling interests. Cash inflow for the prior year-to-date period was from borrowings under the Term Facilities, defined below, as well the net proceeds from the issuance of Coherent’s Series B-2 Convertible Preferred Stock. Financing outflows for the prior year-to-date period included payments to settle the Company’s existing senior credit facilities.

Previous wording

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 1.75% as of December 31, 2023. As amended, the Term B Facility bears interest at an adjusted SOFR rate (subject to a 0.50% floor) plus 2.75%. In relation to the Term Facilities, the Company incurred expense of $62 million and $122 million, respectively, for the three and six months ended December 31, 2023, 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 $12 million and $23 million, respectively, during the three and six months ended December 31, 2023.

Current wording

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 2.00% as of March 31, 2024. As amended, the Term B Facility bears interest at an adjusted SOFR rate (subject to a 0.50% floor) plus 2.75% as of March 31, 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 April 2, 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 $59 million and $181 million, respectively, for the three and nine months ended March 31, 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 $11 million and $34 million, respectively, during the three and nine months ended March 31, 2024.

Previous wording

During the six months ended December 31, 2023, the Company made payments of $105 million for the Term Facilities, including a voluntary payment of $70 million. We expect aggregate debt repayment of $225 million to $275 million for all of fiscal 2024.

Current wording

During the nine months ended March 31, 2024, the Company made payments of $163 million for the Term Facilities, including voluntary payments of $110 million.

Previous wording

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 will enable 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.

Current wording

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.

Previous wording

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 December 31, 2023, the Company held approxim ately $725 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.

Current wording

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 March 31, 2024, the Company held approxim ately $764 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.

Previous wording

At December 31, 2023, we had $964 million of restricted cash, which includes $959 million at our Silicon Carbide LLC that is restricted for use by only that subsidiary.

Current wording

At March 31, 2024, we had $894 million of restricted cash, which includes $889 million at our Silicon Carbide LLC that is restricted for use by only that subsidiary.