- Bookings and Revenues both increased 19% year over year
- EPS increased over 46% year over year
- Solid order coverage for Q4FY17 across all three segments
PITTSBURGH, May 02, 2017 (GLOBE NEWSWIRE) -- II-VI Incorporated (Nasdaq:IIVI) ("II-VI" or the "Company") today reported results for its third fiscal quarter ended March 31, 2017.
Dr. Vincent D. Mattera, Jr., President and Chief Executive Officer of II-VI said, "Against an industry-wide backdrop of concern about a slow-down in the optical communications market, our third fiscal quarter unfolded largely as expected, and was in line with the high-end range of our guidance. We maintained a great sense of urgency in the service of our customers, and delivered 18% organic sales growth (19% total growth) and 200 basis point improvement in gross margin. Each of our businesses contributed, including those that collectively serve the communications market in which we recorded all-time high revenues and backlog during the quarter. I believe that our diversified product and technology portfolio along with the capital allocation strategy we have employed over the past several years and a world class global team drove our solid performance. I also believe that we can sustain our overall performance during our fourth fiscal quarter given the strong backlog and record order coverage across all three segments, as we continue to work to position the Company to deliver outstanding value to our customers and shareholders."
The Company’s revenue reflects the benefits of its investments in R&D over the last several years. While the Company continues to invest in research and development in all businesses, the single largest concentrated investments in research and development was in the II-VI Laser Solutions segment. This concentrated investment will serve to capture a meaningful market share in end markets with expected growth in the billions of dollars over the next several years. R&D investments in this segment were $8.5M and $25.7M, for the three and nine months ended March 31, 2017, respectively. These investments impacted diluted earnings per share by $0.10 and $0.30, for the three and nine months ended March 31, 2017, respectively.
| Table 1 | |||||||||||||||||||||||||||||||||||||
| $ Millions, except per share amounts, basis points and % | |||||||||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||
| Increase (Decrease) | |||||||||||||||||||||||||||||||||||||
| Mar 31, | Dec 31, | Mar 31, | Mar 31, | Mar 31, | |||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2016 | Sequential | YOY | 2017 | 2016 | Increase | ||||||||||||||||||||||||||||||
| Bookings (1) | $ | 280.8 | $ | 274.3 | $ | 235.5 | 2 | % | 19 | % | $ | 799.4 | $ | 630.4 | 27 | % | |||||||||||||||||||||
| Revenues | $ | 245.0 | $ | 231.8 | $ | 205.1 | 6 | % | 19 | % | $ | 698.3 | $ | 585.8 | 19 | % | |||||||||||||||||||||
| Net earnings | $ | 22.4 | $ | 23.9 | $ | 14.9 | (6 | %) | 50 | % | $ | 62.6 | $ | 51.1 | 23 | % | |||||||||||||||||||||
| Diluted earnings per share | $ | 0.35 | $ | 0.37 | $ | 0.24 | (5 | %) | 46 | % | $ | 0.97 | $ | 0.81 | 20 | % | |||||||||||||||||||||
| Other Selected Financial Metrics | |||||||||||||||||||||||||||||||||||||
| Gross margin | 39.9 | % | 40.7 | % | 37.9 | % | (80 bps) | 200 bps | 40.0 | % | 37.6 | % | 240 bps | ||||||||||||||||||||||||
| Operating margin | 11.8 | % | 11.7 | % | 9.5 | % | 10 bps | 230 bps | 11.4 | % | 10.7 | % | 70 bps | ||||||||||||||||||||||||
| EBITDA margin (2) | 18.8 | % | 20.8 | % | 16.0 | % | (200 bps) | 280 bps | 19.2 | % | 18.0 | % | 120 bps | ||||||||||||||||||||||||
| Return on sales | 9.2 | % | 10.3 | % | 7.3 | % | (110 bps) | 190 bps | 9.0 | % | 8.7 | % | 30 bps | ||||||||||||||||||||||||
| (1) Bookings are orders the Company expects to convert to revenues within the next twelve months. | |||||||||||||||||||||||||||||||||||||
| (2) EBITDA margin is defined as earnings before interest, income taxes, depreciation and amortization divided by total revenues. | |||||||||||||||||||||||||||||||||||||
Outlook
The outlook for the fourth fiscal quarter ending June 30, 2017 is revenue of $245 million to $252 million and diluted earnings per share of $0.33 to $0.37. Our EPS guidance for the fourth quarter includes an increase of about $0.05 diluted earnings per share for additional depreciation expense related to our increase in capital expenditures. These amounts are calculated using prevailing exchange rates. The results for the quarter ended June 30, 2016 were revenues of $241.5 million and diluted earnings per share of $0.23 which included acquisition transaction expenses and other one-time transactions. As discussed in more detail below, actual results may differ from these forecasts due to various factors including, but not limited to, changes in product demand, competition and general economic conditions.
Segment Information
Operating income is defined as earnings before income taxes, interest expense and other expense or income, net.
| Table 2 | ||||||||||||||||||||||||
| Segment Bookings, Revenues, Operating Income and Margins | ||||||||||||||||||||||||
| $ Millions, except % | ||||||||||||||||||||||||
| (Unaudited) | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Mar 31, | Dec 31, | Mar 31, | Mar 31, | Mar 31, | ||||||||||||||||||||
| 2017 | 2016 | 2016 | 2017 | 2016 | ||||||||||||||||||||
| Bookings: | ||||||||||||||||||||||||
| II-VI Laser Solutions | 106.0 | 85.0 | 81.8 | 271.6 | 217.3 | |||||||||||||||||||
| II-VI Photonics | 109.5 | 136.1 | 103.0 | 350.2 | 265.7 | |||||||||||||||||||
| II-VI Performance Products | 65.3 | 53.2 | 50.7 | 177.6 | 147.4 | |||||||||||||||||||
| Total bookings | $ | 280.8 | $ | 274.3 | $ | 235.5 | $ | 799.4 | $ | 630.4 | ||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| II-VI Laser Solutions | $ | 83.6 | $ | 81.5 | $ | 73.8 | $ | 244.4 | $ | 215.6 | ||||||||||||||
| II-VI Photonics | 109.1 | 100.9 | 80.6 | 305.8 | 226.8 | |||||||||||||||||||
| II-VI Performance Products | 52.3 | 49.4 | 50.7 | 148.1 | 143.4 | |||||||||||||||||||
| Total revenues | $ | 245.0 | $ | 231.8 | $ | 205.1 | $ | 698.3 | $ | 585.8 | ||||||||||||||
| Operating Income: | ||||||||||||||||||||||||
| II-VI Laser Solutions | $ | 8.3 | $ | 7.6 | $ | 5.4 | $ | 22.6 | $ | 28.8 | ||||||||||||||
| II-VI Photonics | 15.9 | 15.9 | 9.6 | 45.7 | 23.3 | |||||||||||||||||||
| II-VI Performance Products | 4.8 | 3.6 | 4.4 | 11.5 | 10.8 | |||||||||||||||||||
| Total operating income | $ | 29.0 | $ | 27.1 | $ | 19.4 | $ | 79.8 | $ | 62.9 | ||||||||||||||
| Operating Margin: | ||||||||||||||||||||||||
| II-VI Laser Solutions | 9.9 | % | 9.3 | % | 7.3 | % | 9.2 | % | 13.4 | % | ||||||||||||||
| II-VI Photonics | 14.6 | % | 15.8 | % | 11.9 | % | 14.9 | % | 10.3 | % | ||||||||||||||
| II-VI Performance Products | 9.2 | % | 7.3 | % | 8.7 | % | 7.8 | % | 7.5 | % | ||||||||||||||
| Total operating margin | 11.8 | % | 11.7 | % | 9.5 | % | 11.4 | % | 10.7 | % | ||||||||||||||
Table 3 is a reconciliation of Operating Income reported in this press release to reported Net Earnings.
| Table 3 | |||||||||||||||||||||||
| $ Millions | |||||||||||||||||||||||
| (Unaudited) | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| Mar 31, | Dec 31, | Mar 31, | Mar 31, | Mar 31, | |||||||||||||||||||
| 2017 | 2016 | 2016 | 2017 | 2016 | |||||||||||||||||||
| Operating income | $ | 29.0 | $ | 27.1 | $ | 19.4 | $ | 79.8 | $ | 62.9 | |||||||||||||
| Interest expense | 1.9 | 1.4 | 0.8 | 4.5 | 2.0 | ||||||||||||||||||
| Other expense (income), net | (2.1 | ) | (6.1 | ) | 1.3 | (9.6 | ) | (0.8 | ) | ||||||||||||||
| Income taxes | 6.8 | 7.9 | 2.4 | 22.3 | 10.6 | ||||||||||||||||||
| Net Earnings | $ | 22.4 | $ | 23.9 | $ | 14.9 | $ | 62.6 | $ | 51.1 | |||||||||||||
Table 4 is a reconciliation of Operating Income reported in this press release to reported EBITDA.
| Table 4 | ||||||||||||||||||||
| $ Millions | ||||||||||||||||||||
| (Unaudited) | Three Months Ended | Nine Months Ended | ||||||||||||||||||
| Mar 31, | Dec 31, | Mar 31, | Mar 31, | Mar 31, | ||||||||||||||||
| 2017 | 2016 | 2016 | 2017 | 2016 | ||||||||||||||||
| Operating income | $ | 29.0 | $ | 27.1 | $ | 19.4 | $ | 79.8 | $ | 62.9 | ||||||||||
| Depreciation and amortization | 14.9 | 14.9 | 14.7 | 44.7 | 41.8 | |||||||||||||||
| Other income (expense), net | 2.1 | 6.1 | (1.3 | ) | 9.6 | 0.8 | ||||||||||||||
| EBITDA (3) | $ | 46.0 | $ | 48.1 | $ | 32.8 | $ | 134.1 | $ | 105.5 | ||||||||||
Table 5 is a reconciliation of EBITDA reported in this press release to reported Net Earnings.
| Table 5 | ||||||||||||||||||||||||
| $ Millions | ||||||||||||||||||||||||
| (Unaudited) | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Mar 31, | Dec 31, | Mar 31, | Mar 31, | Mar 31, | ||||||||||||||||||||
| 2017 | 2016 | 2016 | 2017 | 2016 | ||||||||||||||||||||
| EBITDA | $ | 46.0 | 48.1 | 32.8 | 134.1 | 105.5 | ||||||||||||||||||
| EBITDA margin (2) | 18.8 | % | 20.8 | % | 16.0 | % | 19.2 | % | 18.0 | % | ||||||||||||||
| Interest expense | 1.9 | 1.4 | 0.8 | 4.5 | 2.0 | |||||||||||||||||||
| Depreciation and amortization | 14.9 | 14.9 | 14.7 | 44.7 | 41.8 | |||||||||||||||||||
| Income taxes | 6.8 | 7.9 | 2.4 | 22.3 | 10.6 | |||||||||||||||||||
| Net Earnings | $ | 22.4 | $ | 23.9 | $ | 14.9 | $ | 62.6 | $ | 51.1 | ||||||||||||||
| (3) EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. | ||||||||||||||||||||||||
Table 6 is a table of other selected financial information.
| Table 6 | |||||||||||||||||||
| $ Millions, except share information | |||||||||||||||||||
| (Unaudited) | Three Months Ended | Nine Months Ended | |||||||||||||||||
| Mar 31, | Dec 31, | Mar 31, | Mar 31, | Mar 31, | |||||||||||||||
| 2017 | 2016 | 2016 | 2017 | 2016 | |||||||||||||||
| Share-based compensation expense | $ | 4.5 | $ | 3.9 | $ | 2.5 | $ | 12.5 | $ | 10.1 | |||||||||
| Cash paid for shares repurchased through the Company’s share repurchase program | $ | - | $ | - | $ | - | $ | - | $ | 6.3 | |||||||||
| Shares repurchased through the Company’s share repurchase program | - | - | - | - | 380,538 | ||||||||||||||
Webcast Information
The Company will host a conference call at 9:00 a.m. Eastern Time on Tuesday, May 2, 2017 to discuss these results. The conference call will be broadcast live over the internet and can be accessed by all interested parties from the Company's website at www.ii-vi.com as well as at http://tinyurl.com/k77xte2. A replay of the webcast will be available for two weeks following the call.
Use of Non-GAAP Financial Measures
The Company has disclosed financial measurements in this press release that present financial information considered to be non-GAAP financial measures. These measurements are not a substitute for GAAP measurements, although the Company's management uses these measurements as an aid in monitoring the Company's on-going financial performance. EBITDA is an adjusted non-GAAP financial measurement that is considered by management to be useful in measuring the profitability between companies within the industry by reflecting operating results of the Company excluding non-operating factors. There are limitations associated with the use of non-GAAP financial measures, including that such measures may not be entirely comparable to similarly titled measures used by other companies, due to potential differences among calculation methodologies. Thus, there can be no assurance that items excluded from the non-GAAP financial measures will not occur in the future, or that there could be cash costs associated with items excluded from the non-GAAP financial measures. The Company compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by providing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures. Investors should consider adjusted measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with GAAP.
About II-VI Incorporated
II-VI Incorporated, a global leader in engineered materials and optoelectronic components and devices, is a vertically integrated manufacturing company that develops innovative products for diversified applications in the industrial, optical communications, military, life sciences, semiconductor equipment, and consumer markets. Headquartered in Saxonburg, Pennsylvania, with research and development, manufacturing, sales, service, and distribution facilities worldwide, the Company produces a wide variety of application-specific photonic and electronic materials and components, and deploys them in various forms including integrated with advanced software to enable our customers.
Forward-looking Statements
This press release contains forward-looking statements relating to future events and expectations that are based on certain assumptions and contingencies. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and relate to the Company's performance on a going-forward basis. The forward-looking statements in this press release involve risks and uncertainties, which could cause actual results, performance or trends to differ materially from those expressed in the forward-looking statements herein or in previous disclosures. The Company believes that all forward-looking statements made by it in this release have a reasonable basis, but 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 press release include, but are not limited to: (i) the failure of any one or more of the assumptions stated above to prove to be correct; (ii) the risks relating to forward-looking statements and other "Risk Factors" discussed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2016; (iii) the purchasing patterns of customers and end-users; (iv) the timely release of new products, and acceptance of such new products by the market; (v) the introduction of new products by competitors and other competitive responses; (vi) the Company's ability to assimilate recently acquired businesses, and risks, costs and uncertainties associated with such acquisitions; and/or (vii) the Company's ability to devise and execute strategies to respond to market conditions. 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.
| II-VI Incorporated and Subsidiaries | |||||||||||
| Condensed Consolidated Statements of Earnings (Unaudited) | |||||||||||
| ($000 except per share data) | |||||||||||
| Three Months Ended | |||||||||||
| March 31, | December 31, | March 31, | |||||||||
| 2017 | 2016 | 2016 | |||||||||
| Revenues | |||||||||||
| Net sales: | |||||||||||
| Domestic | $ | 80,940 | $ | 74,216 | $ | 74,884 | |||||
| International | 164,047 | 157,606 | 130,221 | ||||||||
| Total Revenues | 244,987 | 231,822 | 205,105 | ||||||||
| Costs, Expenses & Other Expense (Income) | |||||||||||
| Cost of goods sold | 147,277 | 137,559 | 127,436 | ||||||||
| Internal research and development | 25,380 | 23,632 | 14,946 | ||||||||
| Selling, general and administrative | 43,291 | 43,495 | 43,333 | ||||||||
| Interest expense | 1,936 | 1,365 | 769 | ||||||||
| Other expense (income), net | (2,164 | ) | (6,045 | ) | 1,257 | ||||||
| Total Costs, Expenses, & Other Expense (Income) | 215,720 | 200,006 | 187,741 | ||||||||
| Earnings Before Income Taxes | 29,267 | 31,816 | 17,364 | ||||||||
| Income Taxes | 6,837 | 7,913 | 2,426 | ||||||||
| Net Earnings | $ | 22,430 | $ | 23,903 | $ | 14,938 | |||||
| Diluted Earnings Per Share | $ | 0.35 | $ | 0.37 | $ | 0.24 | |||||
| Basic Earnings Per Share | $ | 0.36 | $ | 0.38 | $ | 0.24 | |||||
| Average Shares Outstanding - Diluted | 65,010 | 64,407 | 63,053 | ||||||||
| Average Shares Outstanding - Basic | 62,807 | 62,390 | 61,369 | ||||||||
| II-VI Incorporated and Subsidiaries | ||||||||
| Condensed Consolidated Statements of Earnings (Unaudited) | ||||||||
| ($000 except per share data) | ||||||||
| Nine Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2017 | 2016 | |||||||
| Revenues | ||||||||
| Net sales: | ||||||||
| Domestic | $ | 224,474 | $ | 219,812 | ||||
| International | 473,855 | 365,934 | ||||||
| Total Revenues | 698,329 | 585,746 | ||||||
| Costs, Expenses & Other Expense (Income) | ||||||||
| Cost of goods sold | 418,754 | 365,544 | ||||||
| Internal research and development | 70,844 | 40,252 | ||||||
| Selling, general and administrative | 128,865 | 117,051 | ||||||
| Interest expense | 4,547 | 2,015 | ||||||
| Other expense (income), net | (9,611 | ) | (794 | ) | ||||
| Total Costs, Expenses, & Other Expense (Income) | 613,399 | 524,068 | ||||||
| Earnings Before Income Taxes | 84,930 | 61,678 | ||||||
| Income Taxes | 22,303 | 10,535 | ||||||
| Net Earnings | $ | 62,627 | $ | 51,143 | ||||
| Diluted Earnings Per Share | $ | 0.97 | $ | 0.81 | ||||
| Basic Earnings Per Share | $ | 1.00 | $ | 0.83 | ||||
| Average Shares Outstanding - Diluted | 64,333 | 62,818 | ||||||
| Average Shares Outstanding - Basic | 62,403 | 61,252 | ||||||
| II-VI Incorporated and Subsidiaries | ||||||||
| Condensed Consolidated Balance Sheets (Unaudited) | ||||||||
| ($000) | ||||||||
| March 31, | June 30, | |||||||
| 2017 | 2016 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 247,581 | $ | 218,445 | ||||
| Accounts receivable | 173,564 | 164,817 | ||||||
| Inventories | 191,802 | 175,133 | ||||||
| Prepaid and refundable income taxes | 5,389 | 6,535 | ||||||
| Prepaid and other current assets | 20,485 | 18,033 | ||||||
| Total Current Assets | 638,821 | 582,963 | ||||||
| Property, plant & equipment, net | 335,752 | 242,857 | ||||||
| Goodwill | 232,513 | 233,755 | ||||||
| Other intangible assets, net | 114,840 | 124,590 | ||||||
| Investment | 12,007 | 11,354 | ||||||
| Deferred income taxes | 5,940 | 7,848 | ||||||
| Other assets | 7,775 | 8,614 | ||||||
| Total Assets | $ | 1,347,648 | $ | 1,211,981 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Current portion of long-term debt | $ | 20,000 | $ | 20,000 | ||||
| Accounts payable | 66,909 | 53,796 | ||||||
| Accruals and other current liabilities | 79,133 | 97,446 | ||||||
| Total Current Liabilities | 166,042 | 171,242 | ||||||
| Long-term debt | 258,101 | 215,307 | ||||||
| Capital lease obligation | 23,689 | - | ||||||
| Deferred income taxes | 12,990 | 11,103 | ||||||
| Other liabilities | 33,930 | 31,991 | ||||||
| Total Liabilities | 494,752 | 429,643 | ||||||
| Total Shareholders’ Equity | 852,896 | 782,338 | ||||||
| Total Liabilities and Shareholders’ Equity | $ | 1,347,648 | $ | 1,211,981 | ||||
| II-VI Incorporated and Subsidiaries | |||||||||
| Condensed Consolidated Statements of Cash Flows (Unaudited) | |||||||||
| ($000) | |||||||||
| Nine Months Ended | |||||||||
| March 31, | |||||||||
| 2017 | 2016 | ||||||||
| Cash Flows from Operating Activities | |||||||||
| Net cash provided by operating activities | $ | 78,372 | $ | 81,236 | |||||
| Cash Flows from Investing Activities | |||||||||
| Additions to property, plant & equipment | (99,135 | ) | (32,743 | ) | |||||
| Purchases of businesses | (580 | ) | (118,657 | ) | |||||
| Other investing activities | 1,707 | 92 | |||||||
| Net cash used in investing activities | (98,008 | ) | (151,308 | ) | |||||
| Cash Flows from Financing Activities | |||||||||
| Proceeds from borrowings | 64,000 | 125,200 | |||||||
| Payments on borrowings | (20,000 | ) | (38,500 | ) | |||||
| Proceeds from exercises of stock options | 14,625 | 7,444 | |||||||
| Payments in satisfaction of employees' minimum tax obligations | (3,407 | ) | (1,983 | ) | |||||
| Debt issuance costs | (1,384 | ) | - | ||||||
| Purchases of treasury stock | - | (6,284 | ) | ||||||
| Other financing activities | - | 96 | |||||||
| Net cash provided by financing activities | 53,834 | 85,973 | |||||||
| Effect of exchange rate changes on cash and cash equivalents | (5,062 | ) | (2,162 | ) | |||||
| Net increase in cash and cash equivalents | 29,136 | 13,739 | |||||||
| Cash and Cash Equivalents at Beginning of Period | 218,445 | 173,634 | |||||||
| Cash and Cash Equivalents at End of Period | $ | 247,581 | $ | 187,373 | |||||