II-VI Incorporated Reports Solid Fiscal 2017 First Quarter Results; Optical Communications Remains Strong and Growing; Company Accelerates New Technology Platform Investment


  • Bookings increased 31% and Revenues increased 17% compared to Q1FY16
  • GAAP EPS in line with Q1FY16, Adjusted EPS increased 30% over Q1FY16

PITTSBURGH, Oct. 25, 2016 (GLOBE NEWSWIRE) -- II-VI Incorporated (Nasdaq:IIVI) ("II-VI" or the "Company") today reported results for its first fiscal quarter ended September 30, 2016.

Vincent D. Mattera, Jr., President and Chief Executive Officer, said “We started our new fiscal year with a very good first quarter, reporting results at the high end of our guidance. Component sales into the optical communications market led the growth in margins, and our industrial laser business remained steady.  Our new acquisitions met our expectations, and we have made good progress in our investment programs to scale our technology platforms to address fast-growing, emerging markets such as 3D sensing, power electronics and data center interconnects. Overall, it was a great start to our fiscal year 2017.”

Table 1               
$ Millions, except per share amounts and %               
(Unaudited)               
                
            % Increase
   Three Months Ended  (Decrease) from
                
   Sept 30,  June 30,  Sept 30,  June 30,  Sept 30,
    2016    2016    2015    2016   2015
                
Bookings (1)  $244.3   $244.9   $187.2    (0%)   31%
                
Revenues  $221.5   $241.4   $189.2    (8%)   17%
                
Net earnings  $16.3   $14.3   $17.2    14%   (5%)
Adjusted net earnings (2)  $22.5   $20.8   $17.2    8%   31%
                
Diluted earnings per share  $0.26   $0.23   $0.27    13%   (4%)
Adjusted diluted earnings per share (2)  $0.35   $0.33   $0.27    6%   30%
                
Other Selected Financial Metrics               
Gross margin   39.5%   38.4%   37.6%  110 bps  190 bps
                
Return on sales   7.4%   5.9%   9.1%  150 bps  (170 bps)
Adjusted return on sales (2)   10.2%   8.6%   9.1%  160 bps  110 bps

(1) Bookings are orders the Company expects to convert to revenues within the next twelve months.

(2) Fiscal year 2017 excludes the Company’s acceleration of its new technology platform to increase its capability to produce new optoelectronic devices. Fiscal year 2016 excludes one-time transaction and restructuring expenses related to acquisitions. See Table 7 for Reconciliation of Reported Earnings to Adjusted Earnings.

As discussed below under “Use of Non-GAAP Financial Measures,” the Company is presenting certain non-GAAP financial measures in this release. Investors should consider non-GAAP adjusted measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with generally accepted accounting principles ("GAAP"). Please refer to the attached schedules for the applicable GAAP to non-GAAP reconciliations.

Outlook

The outlook for the second fiscal quarter ending December 31, 2016 is revenue of $220 million to $230 million and diluted earnings per share of $0.24 to $0.29. The additional R&D investment in the second fiscal quarter is expected to be around $0.10 per share. These amounts are calculated using prevailing exchange rates. Comparable results for the quarter ended December 31, 2015 were revenues of $191.4 million and diluted earnings per share of $0.30. 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  % Increase (Decrease) from
               
  Sept 30,  June 30,  Sept 30,  June 30,  Sept 30,
   2016    2016    2015   2016  2015
               
Bookings:              
II-VI Laser Solutions $80.6   $88.7   $69.1    (9%)   17%
II-VI Photonics  104.6    106.5    65.2    (2%)   60%
II-VI Performance Products  59.1    49.7    52.9    19%   12%
Total Bookings $244.3   $244.9   $187.2    (0%)   31%
               
Revenues:              
II-VI Laser Solutions $79.3   $87.4   $71.6    (9%)   11%
II-VI Photonics  95.8    99.1    71.9    (3%)   33%
II-VI Performance Products  46.4    54.9    45.7    (15%)   2%
Total Revenues $221.5   $241.4   $189.2    (8%)   17%
               
Operating Income:              
Adjusted II-VI Laser Solutions $14.3   $14.1   $12.2    1%   17%
IR&D investment  (7.6)   -    -    -    - 
Acquisition transaction expenses and one-time expenses   -    (6.7)   -    -    - 
Consolidated II-VI Laser Solutions $6.7   $7.4   $12.2    (9%)   (45%)
II-VI Photonics  13.9    14.5    6.3    (4%)   121%
II-VI Performance Products  3.1    7.0    3.3    (56%)   (6%)
Total Operating Income $23.7   $28.9   $21.8    (18%)   9%
               
Adjusted Operating Income $31.3   $35.6   $21.8    (12%)   44%
               
Operating Margin:              
               
Adjusted II-VI Laser Solutions  18.0%   16.1%   17.0%  190 bps  100 bps
II-VI Laser Solutions  8.4%   8.5%   17.0%  (10 bps)  (860 bps)
II-VI Photonics  14.5%   14.6%   8.8%  (10 bps)  570 bps
II-VI Performance Products  6.7%   12.8%   7.2%  (610 bps)  (50 bps)
Total Operating Margin  10.7%   12.0%   11.5%  (130 bps)  (80 bps)
Adjusted Total Operating Margin  14.1%   14.7%   11.5%  (60 bps)  260 bps

Table 3 is a reconciliation of Operating Income reported in this press release to reported Net Earnings.

Table 3        
$ Millions        
(Unaudited) Three Months Ended
         
  Sept 30,  June 30,  Sept 30,
  2016   2016    2015 
         
Adjusted operating income (1) $31.3   $35.6   $21.8 
IR&D investment  (7.6)   -    - 
Acquisition transaction expenses and one-time expenses  -    (6.7)   - 
Operating income $23.7   $28.9   $21.8 
Interest expense  1.2    1.1    0.6 
Other expense (income), net  (1.4)   (0.4)   (1.0)
Income taxes  7.6    13.9    5.0 
Net Earnings $16.3   $14.3   $17.2 

Table 4 is a reconciliation of Operating Income reported in this press release to reported EBITDA.

Table 4        
$ Millions        
(Unaudited) Three Months Ended
         
  Sept 30,  June 30,  Sept 30,
  2016  2016  2015
         
Operating income $23.7   $28.9   $21.8 
Depreciation and amortization  14.9    14.9    13.3 
Other income (expense)  1.4    0.4    1.0 
IR&D investment  7.6    -    - 
Acquisition transaction expenses and one-time expenses  -    6.7    - 
Adjusted EBITDA (1)(2) $47.6   $50.9   $36.1 

Table 5 is a reconciliation of EBITDA reported in this press release to reported Net Earnings.

Table 5        
$ Millions        
(Unaudited) Three Months Ended
         
  Sept 30,  June 30,  Sept 30,
   2016    2016    2015 
         
Adjusted EBITDA $  47.6   $  50.9   $  36.1 
Adjusted EBITDA margin (1)(2)  21.5%   21.1%   19.1%
IR&D investment $  (7.6)  $  -   $  - 
Acquisition transaction expenses and one-time expenses  -    (6.7)   - 
EBITDA $ 40.0   $  44.2   $  36.1 
EBITDA margin (2)  18.1%   18.3%   19.1%
Interest Expense $  1.2   $  1.1   $  0.6 
Depreciation and amortization  14.9    14.9    13.3 
Income taxes  7.6    13.9    5.0 
Net Earnings $  16.3   $  14.3   $  17.2 

(1) Fiscal year 2017 excludes the Company’s acceleration of its new technology platform to increase its capability to produce new optoelectronic devices. Fiscal year 2016 excludes one-time transaction and restructuring expenses related to acquisitions. See Table 7 for Reconciliation of Reported Earnings to Adjusted Earnings.

(2) 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 
               
  Sept 30,   June 30,   Sept 30, 
  2016   2016   2015 
               
Share-based compensation expense $4.1   $0.8   $3.9 
Cash paid for shares repurchased through the Company’s share repurchase program $-   $-   $5.9 
Shares repurchased through the Company’s share repurchase program  -    -    355,338 

Webcast Information

The Company will host a conference call at 9:00 a.m. Eastern Time on Tuesday, October 25, 2016 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/h6d27ug. A replay of the webcast will be available for two weeks following the call.

Use of Non-GAAP Financial Measures

The Company has disclosed adjusted 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. The adjusted non-GAAP net earnings and adjusted non-GAAP earnings per share measure the earnings of the Company, excluding non-recurring or unusual items that are considered by management to be outside of the Company’s standard operations. 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.

Recently Adopted Accounting Pronouncement

The Company adopted ASU 2015-03, Interest – imputation of interest (Subtopic 835-30): simplifying the presentation of debt issuance costs. This ASU requires entities to present debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability, consistent with debt discounts. Upon adoption, the Company reclassified these costs as unamortized debt issuance costs that reduce long-term debt in the liabilities in the Condensed Consolidated Balance Sheets and retrospectively reclassified the $0.6 million of deferred debt issuance costs that were previously presented as deferred financing costs as an asset as of June 30, 2016.

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 
  September 30,  June 30,  September 30, 
  2016  2016  2015 
Revenues            
Net sales:            
Domestic $69,318  $83,740  $70,751 
International  152,202   157,730   118,456 
Total Revenues  221,520   241,470   189,207 
             
             
Costs, Expenses & Other Expense (Income)            
Cost of goods sold  133,918   148,859   118,018 
Internal research and development  21,832   20,102   13,151 
Selling, general and administrative  42,079   43,595   36,310 
Interest expense  1,246   1,066   649 
Other expense (income), net  (1,402)  (429)  (1,057)
Total Costs, Expenses, & Other Expense (Income)  197,673   213,193   167,071 
             
Earnings Before Income Taxes  23,847   28,277   22,136 
             
Income Taxes  7,553   13,934   4,922 
             
Net Earnings $16,294  $14,343  $17,214 
             
             
Diluted Earnings Per Share $0.26  $0.23  $0.27 
             
Basic Earnings Per Share $0.26  $0.23  $0.28 
             
Average Shares Outstanding  - Diluted  63,590   63,297   62,729 
Average Shares Outstanding  - Basic  62,020   61,707   61,223 


II-VI Incorporated and Subsidiaries 
Condensed Consolidated Balance Sheets (Unaudited) 
($000)
 
  
 
 
  September 30,  June 30, 
  2016  2016 
Assets        
Current Assets        
Cash and cash equivalents $220,096  $218,445 
Accounts receivable  155,954   164,817 
Inventories  182,647   175,133 
Prepaid and refundable income taxes  5,807   6,535 
Prepaid and other current assets  20,060   18,033 
Total Current Assets  584,564   582,963 
Property, plant & equipment, net  260,912   242,857 
Goodwill  233,604   233,755 
Other intangible assets, net  121,444   124,590 
Investment  11,684   11,354 
Deferred income taxes  6,568   7,848 
Other assets  9,711   8,614 
Total Assets $1,228,487  $1,211,981 
         
Liabilities and Shareholders Equity        
Current Liabilities        
Current portion of long-term debt $20,000  $20,000 
Accounts payable  62,138   53,796 
Accruals and other current liabilities  72,088   97,446 
Total Current Liabilities  154,226   171,242 
Long-term debt  228,206   215,307 
Deferred income taxes  11,734   11,103 
Other liabilities  33,764   31,991 
Total Liabilities  427,930   429,643 
Total Shareholders’ Equity  800,557   782,338 
Total Liabilities and Shareholders Equity $1,228,487  $1,211,981 


II-VI Incorporated and Subsidiaries 
Condensed Consolidated Statements of Cash Flows (Unaudited)
($000)
 
  
  Three Months Ended 
  September 30, 
  2016  2015 
Cash Flows from Operating Activities        
Net cash provided by operating activities $19,513  $22,179 
         
Cash Flows from Investing Activities        
Additions to property, plant & equipment  (29,994)  (9,424)
Other investing activities  145   25 
Net cash used in investing activities  (29,849)  (9,399)
         
Cash Flows from Financing Activities        
Proceeds from borrowings  24,000   4,000 
Payments on borrowings  (10,000)  (17,500)
Purchases of treasury stock  -   (5,884)
Proceeds from exercises of stock options  1,745   766 
Payments in satisfaction of employees' minimum tax obligations  (2,230)  (1,680)
Debt issuance costs  (1,384)  - 
Other financing activities  139   30 
Net cash provided by (used in) financing activities  12,270   (20,268)
         
Effect of exchange rate changes on cash and cash equivalents  (283)  (2,367)
         
Net increase (decrease) in cash and cash equivalents  1,651   (9,855)
         
Cash and Cash Equivalents at Beginning of Period  218,445   173,634 
Cash and Cash Equivalents at End of Period $220,096  $163,779 


Table 7        
II-VI Incorporated and Subsidiaries
Reconciliation of Selected Non-GAAP Financial Measurements
($ Millions, except per share amounts)
         
Reconciliation of Reported Earnings to Adjusted Earnings
(Unaudited)
         
  Three Months Ended
         
  Sept 30,  June 30,  Sept 30,
  2016  2016  2015
         
Reported Earnings $16.3   $14.3   $17.2 
         
Add back one-time items:        
IR&D investment  7.6    -    - 
Acquisition transaction expenses and one-time expenses   -    6.7    - 
         
Income tax impact on one-time items  (1.4)   (0.2)   - 
         
Adjusted Earnings $22.5   $20.8   $17.2 
         
Per share data:        
Reported Earnings:        
Earnings - Diluted Earnings Per Share $0.26   $0.23   $0.27 
Earnings - Basic Earnings Per Share $0.26   $0.23   $0.28 
         
Per share, After-Tax Impact of Adjustments on:        
Adjustments - Diluted Earnings Per Share $0.10   $0.10   $- 
Adjustments - Basic Earnings Per Share $0.10   $0.11   $- 
         
Adjusted Earnings:        
Adjusted Earnings - Diluted Earnings Per Share $0.35   $0.33   $0.27 
Adjusted Earnings - Basic Earnings Per Share $0.36   $0.34   $0.28 

            

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