Coherent 10-Q 2024-12-31

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended December 31, 2024

for the transition period from to .

Commission File Number: 001-39375

COHERENT CORP.

(Exact name of registrant as specified in its charter)

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:

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.

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 February 3, 2025, 154,967,323 shares of Common Stock, no par value, of the registrant were outstanding.

COHERENT CORP.

INDEX

Table of Contents

PART I - FINANCIAL INFORMATION

Coherent Corp. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

($000)

See Notes to Condensed Consolidated Financial Statements*.*

Coherent Corp. and Subsidiaries

Condensed Consolidated Statements of Earnings (Loss) (Unaudited)

($000, except per share data)

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

Coherent Corp. and Subsidiaries

Condensed Consolidated Statements of Earnings (Loss) (Unaudited)

($000, except per share data)

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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 this Quarterly Report on Form 10-Q 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.

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 and six months ended December 31, 2024, these activities resulted in charges of $8 million and $32 million, respectively. The current quarter costs are primarily for site move costs, employee termination costs and accelerated depreciation and the current year-to-date costs are primarily for impairment losses associated with the sale of our Newton Aycliffe business, accelerated depreciation, employee termination costs 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. 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 had 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 resulted 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, 2024, the acceleration of these activities resulted in $7 million and $11 million, respectively, of charges primarily for employee termination costs, overlapping labor related to transition of manufacturing operations to other sites and shut down costs. 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 $9 million and $16 million, respectively, of those charges in the three and six months ended December 31, 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.

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 and six months ended December 31, 2024 and 2023 ($ in millions) (1):

(1) Some amounts may not add due to rounding.

(1) Some amounts may not add due to rounding.

Consolidated

Revenues. Revenues for the three months ended December 31, 2024 increased 27% to $1,435 million, compared to $1,131 million for the same period last fiscal year. Revenues increased $303 million (58%) in the communications market, with increases in datacom driven primarily by ongoing strong AI datacenter demand and the continued recovery in telecom. In our remaining markets, which are primarily industrial-related applications, revenue was flat. Within these markets, strong revenue

growth in display capital equipment and semiconductor capital equipment volumes was offset by weakness in automotive end market demand. From a segment perspective, Networking revenues increased 56% year-over-year due to ongoing strong AI datacenter demand and the continued recovery in telecom, both in our communications market. Lasers revenue increased 6% year-over-year reflecting strong demand with higher volumes of annealing lasers in our display capital equipment market as well as strong demand in semiconductor capital equipment. Materials revenues decreased 4% year-over-year, primarily due to weak automotive end market demand.

Revenues for the six months ended December 31, 2024 increased 27% to $2,783 million, compared to $2,185 million for the same period last fiscal year. Revenues increased $618 million (63%) in the communications market, with increases in datacom driven primarily by ongoing strong AI datacenter demand and the continued recovery in telecom. In our remaining markets, which are primarily industrial-related applications, revenue decreased $19 million (2%). Within these markets, strong revenue growth in display capital equipment volumes was more than offset by weakness in precision manufacturing and other markets outside of datacom and telecom. From a segment perspective, Networking revenues increased 58% year-over-year due to strong AI datacenter demand in our communications market and the continued recovery in telecom. Lasers revenue increased 5% year-over-year reflecting on-going strength in display capital equipment volumes. Materials revenues decreased 3% year-over-year, primarily due to weak automotive end market demand.

Gross margin. Gross margin for the three months ended December 31, 2024 was $509 million, or 36% of total revenues, compared to $350 million, or 31% of total revenues, for the same period last fiscal year, an increase of 452 basis points. The increase as a percent of revenue for the three months ended December 31, 2024 was primarily due to higher revenue volume as well as cost reductions and improvements in manufacturing yields, partially offset by unfavorable product mix. Gross margin for the six months ended December 31, 2024 was $970 million, or 35% of total revenues, compared to $658 million, or 30% of total revenues, for the same period last fiscal year, an increase of 474 basis points. The increase as a percent of revenue for the six months ended December 31, 2024 was primarily due to higher revenue volume, cost reductions and improvements in manufacturing yields.

Research and development. Research and development (“R&D”) expenses for the three months ended December 31, 2024 were $144 million, or 10% of revenues, compared to $111 million, or 10% of revenues, for the same period last fiscal year. Although flat as a percentage of revenue for the three months ended December 31, 2024, higher R&D expenses were primarily related to continued investment in our product portfolios, particularly in datacom. R&D expenses for the six months ended December 31, 2024 were $275 million, or 10% of revenues, compared to $225 million, or 10% of revenues, for the same period last fiscal year. The higher R&D expenses were 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 December 31, 2024 were $221 million, or 15% of revenues, compared to $209 million, or 18% 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, 2024 compared to the same period last fiscal year was primarily the result of higher sales volumes and lower integration consulting costs, partially offset by the impact of higher variable and share-based compensation. SG&A expenses for the six months ended December 31, 2024 were $450 million, or 16% of revenues, compared to $421 million, or 19% of revenues, for the same period last fiscal year. The decrease in SG&A as a percentage of revenue for the six months ended December 31, 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 and share-based compensation.

Restructuring charges. Restructuring charges related to our Restructuring Plan for the three and six months ended December 31, 2024 were $8 million and $32 million, respectively, and consist of impairment losses associated with the sale of our Newton Aycliffe business as well as move costs, accelerated depreciation, and employee termination costs due to the consolidation of certain manufacturing sites. 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 consisted of severance (including cumulative adjustments resulting in a recovery in the three months ended December 31, 2023), 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 December 31, 2024 was expense of $8 million, compared to expense of $69 million for the same period last fiscal year, a decrease of $61 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 cash balances. For the three months ended December 31, 2024, the decrease of $61 million in comparison to the same period last fiscal year was driven by $41 million higher foreign exchange net gains, $10 million lower interest expense and $6 million incremental interest and dividend income due to increases in interest rates earned on investments as well as the increase in restricted cash balances. The $41 million higher foreign exchange gains were primarily due to higher volatility of exchange rates, particularly the Korean Won, Euro and Chinese Renminbi, during the three months ended December 31, 2024 in addition to the cessation of our balance sheet hedging program at the end of September 2024. The $10 million lower interest expense was primarily due to lower interest expense on our New Term B Loans resulting from lower balances and lower interest rates partially offset by lower interest expense benefit from our interest rate cap and swap. Interest and other, net for the six months ended December 31, 2024 was expense of $64 million, compared to expense of $136 million for the same period last fiscal year, a decrease of $72 million. For the six months ended December 31, 2024, the decrease of $72 million in comparison to the same period last fiscal year was driven by $31 million higher foreign exchange net gains, $18 million incremental interest and dividend income due to increases in interest rates earned on investments as well as the increase in restricted cash balances and $17 million lower interest expense. The $31 million higher foreign exchange gains were primarily due to higher volatility of exchange rates, particularly the Korean Won, Euro and Chinese Renminbi, during the six months ended December 31, 2024 in addition to the cessation of our balance sheet hedging program at the end of September 2024. The $17 million lower interest expense was primarily due to lower interest expense on our New Term B Loans resulting from lower balances and lower interest rates.

Income taxes. The Company’s year-to-date effective income tax rate at December 31, 2024 was 14% compared to an effective tax rate of 24% 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. The current year-to-date rate was impacted by the recording of a $15 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 and six months ended December 31, 2024 was $2 million and $3 million, respectively, and represents the noncontrolling interest holders’ shares of losses of Silicon Carbide LLC. Net loss attributable to noncontrolling interests for both the three and six months ended December 31, 2023 was $1 million. 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)

Revenues for the three months ended December 31, 2024 increased 56% to $816 million, compared to $524 million for the same period last fiscal year. Revenues for the six months ended December 31, 2024 increased 58% to $1,579 million, compared to $997 million for the same period last fiscal year. The increase in revenue of $292 million during the three months ended December 31, 2024 was due to ongoing strong AI datacenter demand resulting from increased volumes in the datacom vertical as well as the continued recovery in telecom, both in our communications market. The increase in revenues of $582 million during the six months ended December 31, 2024 was primarily due to AI datacenter demand in our communications market resulting from increased volumes in the datacom vertical and the continued recovery in telecom.

Segment profit for the three months ended December 31, 2024 increased 61% to $153 million, compared to segment profit of $95 million for the same period last fiscal year. The increase in segment profit for the three months ended December 31, 2024 was primarily driven by higher revenues, partially offset by $22 million higher R&D investments in our product portfolio. Segment profit for the six months ended December 31, 2024 increased 85% to $289 million, compared to segment profit of $156 million for the same period last fiscal year. The increase in segment profit for the six months ended December 31, 2024 was primarily driven by higher revenues, partially offset by $35 million higher R&D investments in our product portfolio.

Materials ($ in millions)

Revenues for the three months ended December 31, 2024 decreased 4% to $243 million, compared to revenues of $254 million for the same period last fiscal year. Revenues for the six months ended December 31, 2024 decreased 3% to $481 million, compared to $498 million for the same period last fiscal year. Compared to the three months ended December 31, 2023, Materials decreased $10 million year-over-year, with a decrease of $11 million in the electronics market primarily due to weak automotive end market demand as well as a decrease of $11 million in the industrial market due to macroeconomic conditions. The decreases were partially offset by $9 million higher volumes in the datacom vertical within the communications market. The decrease in revenues of $17 million during the six months ended December 31, 2024 was primarily related to decreases of $25 million in the electronics market primarily due to weak automotive end market demand and $24 million in the industrial market due to macroeconomic conditions, partially offset by $31 million higher volumes in the datacom vertical within the communications market.

Segment profit for the three months ended December 31, 2024 increased 32% to $74 million, compared to segment profit of $56 million for the same period last fiscal year, primarily driven by favorable product mix and lower costs, partially offset by higher R&D investments in our product portfolio. Segment profit for the six months ended December 31, 2024 increased 55% to $165 million compared to the segment profit of $106 million for the same period last fiscal year. The increase in segment profit for the six months ended December 31, 2024 was primarily driven by favorable product mix and lower costs, partially offset by higher R&D investments in our product portfolio and higher SG&A expenses.

Lasers ($ in millions)

Revenues for the three months ended December 31, 2024 increased 6% to $375 million, compared to revenues of $354 million for the same period last fiscal year. Revenues for the six months ended December 31, 2024 increased 5% to $723 million, compared to $689 million for the same period last fiscal year. The increase during the three months ended December 31, 2024 was primarily due to $26 million higher shipments to the industrial market due to increased demand in our semiconductor and display capital equipment vertical. The increase in revenues of $34 million for the six months ended December 31, 2024 was primarily related to $43 million higher shipments to the industrial market due to increased demand in our semiconductor and display capital equipment vertical.

Segment profit for the three months ended December 31, 2024 increased 40% to $88 million, compared to segment profit of $63 million for the same period last fiscal year. The increase in segment profit was primarily driven by higher revenue volumes, favorable product mix, and favorable foreign exchange rates, partially offset by higher R&D investments in our product portfolio. Segment profit for the six months ended December 31, 2024 increased by 40% to $151 million compared to $108 million for the same period last fiscal year. The increase in segment profit for the six months ended December 31, 2024 was primarily driven by higher revenues.

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:

Sources (uses) of cash (millions):

Operating activities:

Net cash provided by operating activities was $340 million for the six months ended December 31, 2024 compared to $266 million for the same period last fiscal year. The increase in cash flows provided by operating activities during the six months ended December 31, 2024 compared to the same period last fiscal year was primarily due to higher earnings partially offset by increases in accounts receivables and inventories as a result of higher revenues.

Investing activities:

Net cash used in investing activities was $172 million for the six months ended December 31, 2024, compared to $156 million for the same period last fiscal year. Lower cash used to fund capital expenditures of $44 million year-over-year was partially offset by $27 million cash received from the sale of a business.

Financing activities:

Net cash used in financing activities was $266 million for the six months ended December 31, 2024, compared to net cash provided by financing activities of $859 million for the same period last fiscal year. Cash outflows for the current fiscal year were primarily payments on existing debt. Financing inflows in the prior 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.

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 December 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 bear interest at an adjusted SOFR rate (subject to a 0.50% floor) plus 2.50% as of December 31, 2024. On January 2, 2025, Coherent entered into Amendment No. 3 to the Credit Agreement, under which the principal amount of the New Term B Loans were replaced with an equal amount of new term loans (the “New Term B-2 Loans”) having substantially similar terms as the New Term B Loans, except with respect to the interest rate applicable to the New Term B-2 Loans and certain other provisions. As further amended, the New Term B-2 Loans will bear interest at a SOFR rate (subject to a 0.50% floor) plus 2.00% as of January 2, 2025. The maturity of the New Term B-2 Loans and revolving credit facility remains unchanged. In relation to the Term Facilities, the Company incurred expense of $52 million and $106 million, respectively, for the three and six months ended December 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 (through September 30, 2024), reduced interest expense by $7 million and $21 million, respectively, during the three and six months ended December 31, 2024.

During the six months ended December 31, 2024, the Company made payments of $248 million for the Term Facilities, including voluntary payments of $215 million.

As of December 31, 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):

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 have and will continue to be used primarily to fund future capital expansion in our silicon carbide business and will enable us to increase our available free cash flow to provide greater financial and operational flexibility to execute our capital allocation priorities. 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 December 31, 2024, the Company held approximately $783 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 December 31, 2024, we had $751 million of restricted cash, which includes $748 million at our Silicon Carbide LLC that is restricted for use by only that subsidiary.

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 have the option to use a variety of techniques and derivative financial instruments as part of our overall risk management strategy, which is primarily focused on our exposure in relation to the Chinese Renminbi, Euro, Swiss Franc, Japanese Yen, Singapore Dollar and Korean Won. As of September 30, 2024, after weighing the costs and benefits of hedging foreign exchange risks on our global balance sheets, we paused our balance sheet hedging program indefinitely. We continue to analyze these risks and the costs and benefits inherent in a hedging program.

Interest Rate Risks

As of December 31, 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 and $16 million, respectively, for the three and six months ended December 31, 2024.

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.

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.

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.

On November 21, 2024, Stephen Skaggs, a Company director, adopted a written plan intended to satisfy the affirmative defense of Rule 10b5-1(c) with a duration through December 31, 2025 with respect to the sale of up to 8,000 Company shares.

On December 1, 2024, Julie Eng, the Company’s Chief Technology Officer, adopted a written plan intended to satisfy the affirmative defense of Rule 10b5-1(c) with a duration through July 31, 2026 with respect to the sale of up to 9,278 Company shares.

On December 6, 2024, Giovanni Barbarossa, the Company’s Chief Strategy Officer and President, Materials Segment, adopted a written plan intended to satisfy the affirmative defense of Rule 10b5-1(c) with a duration through December 31, 2026 with respect to the sale of up to 120,186 Company shares.

On December 9, 2024, Christopher Koeppen, the Company’s Chief Innovation Officer and SVP, Aerospace & Defense, adopted a written plan intended to satisfy the affirmative defense of Rule 10b5-1(c) with a duration through December 31, 2025 with respect to the sale of up to 31,741 Company shares.

• Filed herewith

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.