II-VI Incorporated Reports Fiscal Year 2018 Third Quarter Earnings

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  • Record Revenues of $295M Increased 20% Compared to Q3FY17
  • Record Bookings and Backlog Signal Strengthening Core Markets

PITTSBURGH, May 01, 2018 (GLOBE NEWSWIRE) -- II-VI Incorporated IIVI ("II-VI" or the "Company") today reported results for its third fiscal quarter ended March 31, 2018.

"Our third quarter was marked by strong bookings, revenue and earnings from our core markets of industrial, communications and military with solid contributions from our newer growth markets," said Dr. Vincent D. (Chuck) Mattera, Jr., President and Chief Executive Officer.  "Our CO2 laser optics and EUV (extreme ultraviolet) lithography components businesses had another record quarter, and our optical communications business had 36% sequential growth in bookings.  Silicon carbide substrates shipments grew 60% over the same quarter last year, 24% sequentially. For 3D sensing, we are excited about our positioning and we continue to see our market opportunities growing.  Overall, with our consolidated book to bill ratio at 1.13 and our record backlog of $442 million, we expect our fourth quarter to be a good finish to the year."

"Our year to date cash flow from operations increased 45% from the same period last year," said Mary Jane Raymond, Chief Financial Officer.  "Our reported EPS of $0.45 per share includes $0.09 per share or $6.5 million of tax benefits for the revisions of provisional amounts recognized in Q2 FY18 for the impact of tax reform.  The adjusted EPS of $0.36 per share, when compared on the same basis to our guidance, was negatively affected by $0.02 per share due to the weaker U.S. dollar and $0.03 due to a higher tax rate as a result of changes in the mix of FY18 income worldwide."

Table 1 
$ Millions, except per share amounts, % and Book to Bill            
(Unaudited)                   
                    
                
  Three Months Ended  Nine Months Ended
                    
  Mar 31,  Dec 31,  Mar 31,  Mar 31,  Mar 31,
  2018
  2017
  2017
  2018
  2017
                    
Revenues $294.7   $281.5   $245.0   $837.7   $698.3 
                    
Operating income $34.8   $32.5   $29.0   $97.1   $79.8 
                    
Net earnings $30.1   $9.6   $22.4   $60.8   $62.6 
Adjusted net earnings (1) $23.6   $25.4   $22.4   $70.1   $62.6 
                    
Diluted earnings per share $0.45   $0.15   $0.35   $0.93   $0.97 
Adjusted diluted earnings per share (1) $0.36   $0.39   $0.35   $1.08   $0.97 
                    
Other Selected Financial Metrics                   
Book to Bill (2)  1.13    1.05    1.15    1.05    1.14 
Gross margin  40.2%   38.9%   39.9%   39.8%   40.0%
                    
Operating margin  11.8%   11.5%   11.8%   11.6%   11.4%
                    
Return on sales  10.2%   3.4%   9.2%   7.3%   9.0%
Adjusted return on sales (1)  8.0%   9.0%   9.2%   8.4%   9.0%
  
  
(1)  Excludes the impact of the Tax Cuts and Jobs Act in fiscal year 2018. See Tables 8 and 9 for Reconciliation of Reported Earnings to Adjusted Net Earnings.
(2)  Book to Bill is calculated by dividing orders the company expects to convert to revenue within the next twelve months by revenues recognized during the period.

Outlook

The outlook for the fourth fiscal quarter ending June 30, 2018 is revenues of $295 million to $305 million and earnings per diluted share of $0.37 to $0.43.  This is all at prevailing exchange rates.  Comparable results for the quarter ended June 30, 2017 were revenues of $274 million and diluted earnings per share of $0.50. The $0.50 diluted earnings per share for the quarter ended June 30, 2017 included $0.04 of one-time favorable items relating to the acquisition of IPI and other year-end adjustments. 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 Book to Bill, Revenues, Operating Income and Margins   
$ Millions, except % and Book to Bill        
(Unaudited)                   
  Three Months Ended  Nine Months Ended
                    
  Mar 31,  Dec 31,  Mar 31,  Mar 31,  Mar 31,
  2018
  2017
  2017
  2018
  2017
Book to Bill:                   
II-VI Laser Solutions  1.09    1.11    1.27    1.09    1.11 
II-VI Photonics  1.08    0.96    1.00    0.94    1.15 
II-VI Performance Products  1.28    1.09    1.25    1.17    1.20 
Total Book to Bill  1.13    1.05    1.15    1.05    1.14 
                    
Revenues:                   
II-VI Laser Solutions $109.8   $109.8   $83.6   $312.9   $244.4 
II-VI Photonics  116.8    110.5    109.1    337.9    305.8 
II-VI Performance Products  68.1    61.2    52.3    186.9    148.1 
Total Revenues $294.7   $281.5   $245.0   $837.7   $698.3 
                    
Operating Income:                   
II-VI Laser Solutions $9.9   $9.5   $8.3   $22.7   $22.6 
II-VI Photonics  16.7    16.9    15.9    53.1    45.7 
II-VI Performance Products  8.2    6.1    4.8    21.3    11.5 
Total Operating Income $34.8   $32.5   $29.0   $97.1   $79.8 
                    
Operating Margin:                   
II-VI Laser Solutions  9.0%   8.7%   9.9%   7.3%   9.2%
II-VI Photonics  14.3%   15.3%   14.6%   15.7%   14.9%
II-VI Performance Products  12.0%   10.0%   9.2%   11.4%   7.8%
Total Operating Margin  11.8%   11.5%   11.8%   11.6%   11.4%
                         

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

Table 3                   
Reconciliation of Operating Income to Net Earnings        
$ Millions                   
(Unaudited) Three Months Ended  Nine Months Ended
                    
  Mar 31,  Dec 31,  Mar 31,  Mar 31,  Mar 31,
  2018
  2017
  2017
  2018
  2017
                    
Operating income $34.8   $32.5   $29.0   $97.1   $79.8 
Interest expense  5.0    4.7    1.9    13.3    4.5 
Other expense (income), net  (1.5)   (2.0)   (2.1)   (4.2)   (9.6)
Income taxes  1.2    20.2    6.8    27.2    22.3 
Net Earnings $30.1   $9.6   $22.4   $60.8   $62.6 
                         

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

Table 4                   
Reconciliation of Operating Income to EBITDA    
$ Millions                   
(Unaudited) Three Months Ended  Nine Months Ended
                    
  Mar 31,  Dec 31,  Mar 31,  Mar 31,  Mar 31,
  2018  2017  2017  2018  2017
                    
Operating income $34.8  $32.5  $29.0  $97.1  $79.8
Depreciation and amortization  19.8   19.4   14.9   58.1   44.7
Other income (expense)  1.5   2.0   2.1   4.2   9.6
EBITDA (3) $56.1  $53.9  $46.0  $159.4  $134.1
                    

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

Table 5                   
Reconciliation of EBITDA to Net Earnings    
$ Millions                   
(Unaudited) Three Months Ended  Nine Months Ended
                    
  Mar 31,  Dec 31,  Mar 31,  Mar 31,  Mar 31,
  2018
  2017
  2017
  2018
  2017
                    
EBITDA $56.1   $53.9   $46.0   $159.4   $134.1 
EBITDA margin (4)  19.0%   19.1%   18.8%   19.0%   19.2%
Interest expense $5.0   $4.7   $1.9   $13.3   $4.5 
Depreciation and amortization  19.8    19.4    14.9    58.1    44.7 
Income taxes  1.2    20.2    6.8    27.2    22.3 
Net Earnings $30.1   $9.6   $22.4   $60.8   $62.6 
  


(3)  EBITDA is defined as earnings before interest, income taxes, depreciation and amortization.
(4)  EBITDA margin is defined as earnings before interest, income taxes, depreciation and amortization divided by revenues.

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,
  2018  2017  2017  2018  2017
                    
Share-based compensation expense, pre-tax $3.6  $5.4  $4.5  $15.3  $12.5
Cash paid for shares repurchased through the Company's share repurchase program $-  $-  $-  $49.9  $-
Shares repurchased through the Company's share repurchase program  -   -   -   1,414,900   -
                    

Table 7 is a reconciliation of Earnings Per Share under the If Converted Method to account for the Company's convertible debt.

Table 7                   
Earnings Per Share Reconciliation    
($000 except per share data)                   
(Unaudited) Three Months Ended  Nine Months Ended
                    
  Mar 31,  Dec 31,  Mar 31,  Mar 31,  Mar 31,
  2018  2017  2017  2018  2017
                    
Net Earnings $30,098  $9,596  $22,430  $60,835  $62,627
Interest Expense, net of taxes, on 0.25% Convertible Senior Notes due 2022  2,520   -   -   -   -
Numerator for diluted income per share $32,618  $9,596  $22,430  $60,835  $62,627
                    
Denominator for basic income per share - weighted average shares  62,427   62,302   62,807   62,491   62,403
Dilutive effect of common stock equivalents  2,624   2,736   2,203   2,633   1,930
0.25% Convertible Senior Notes due 2022  7,331   -   -   -   -
Denominator for diluted income per share  72,382   65,038   65,010   65,124   64,333
Diluted earnings per common share $0.45  $0.15  $0.35  $0.93  $0.97
Basic earnings per common share $0.48  $0.15  $0.36  $0.97  $1.00
                    

 

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Webcast Information

The Company will host a conference call at 9:00 a.m. Eastern Time on Tuesday, May 1, 2018 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/ybympbaj. 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. The adjusted non-GAAP net earnings and the adjusted non-GAAP earnings per share measure the earnings of the Company, excluding non-recurring or unusual items that are considered by the management to be outside the Company's standard operation. 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, 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, the Company has 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. For more information, please visit us at www.ii-vi.com.

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, 2017; (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; (vii) our ability to achieve the anticipated benefits of capital investments that we make; (viii) the Company's ability to devise and execute strategies to respond to market conditions; and/or (ix) risks related to the recent U.S. tax legislation and the Company's continuing analysis of its impact on the Company. 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,
  2018  2017  2017 
               
Revenues $ 294,746  $ 281,470  $ 244,987 
               
Costs, Expenses & Other Expense (Income)              
Cost of goods sold   176,361    172,037    147,277 
Internal research and development   30,560    27,764    25,380 
Selling, general and administrative   53,087    49,122    43,291 
Interest expense   5,014    4,644    1,936 
Other expense (income), net   (1,496)   (1,965)   (2,164)
Total Costs, Expenses, & Other Expense (Income)   263,526    251,602    215,720 
               
Earnings Before Income Taxes   31,220    29,868    29,267 
               
Income Taxes   1,122    20,272    6,837 
               
Net Earnings $ 30,098  $ 9,596  $ 22,430 
               
Diluted Earnings Per Share $ 0.45  $ 0.15  $ 0.35 
               
Basic Earnings Per Share $ 0.48  $ 0.15  $ 0.36 

 

II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
($000 except per share data)
       
  Nine Months Ended
  March 31, March 31,
  2018
 2017
       
Revenues $837,719  $698,329 
       
Costs, Expenses & Other Expense (Income)      
Cost of goods sold  503,926   418,754 
Internal research and development  83,898   70,844 
Selling, general and administrative  152,833   128,865 
Interest expense  13,303   4,547 
Other expense (income), net  (4,228)  (9,611)
Total Costs, Expenses, & Other Expense (Income)  749,732   613,399 
       
Earnings Before Income Taxes  87,987   84,930 
       
Income Taxes  27,152   22,303 
       
Net Earnings $60,835  $62,627 
       
Diluted Earnings Per Share $0.93  $0.97 
       
Basic Earnings Per Share $0.97  $1.00 

 

II-VI Incorporated and Subsidiaries 
Condensed Consolidated Balance Sheets (Unaudited) 
($000)
 
         
  March 31,  June 30, 
  2018  2017 
Assets        
Current Assets        
Cash and cash equivalents $263,244  $271,888 
Accounts receivable  192,766   193,379 
Inventories  249,548   203,695 
Prepaid and refundable income taxes  7,116   6,732 
Prepaid and other current assets  33,471   26,602 
Total Current Assets  746,145   702,296 
Property, plant & equipment, net  507,690   367,728 
Goodwill  274,516   250,342 
Other intangible assets, net  129,142   133,957 
Investments  68,222   11,727 
Deferred income taxes  2,618   3,023 
Other assets  8,901   8,224 
Total Assets $1,737,234  $1,477,297 
         
Liabilities and Shareholders' Equity        
Current Liabilities        
Current portion of long-term debt $20,000  $20,000 
Accounts payable  77,270   65,540 
Accruals and other current liabilities  105,316   99,412 
Total Current Liabilities  202,586   184,952 
Long-term debt  430,992   322,022 
Capital lease obligation  22,574   23,415 
Deferred income taxes  27,046   15,345 
Other liabilities  38,864   31,000 
Total Liabilities  722,062   576,734 
Total Shareholders' Equity  1,015,172   900,563 
Total Liabilities and Shareholders' Equity $1,737,234  $1,477,297 
          

 

II-VI Incorporated and Subsidiaries 
Condensed Consolidated Statements of Cash Flows (Unaudited) 
($000)
 
         
  Nine Months Ended 
  March 31, 
  2018  2017 
Cash Flows from Operating Activities        
Net cash provided by operating activities $113,945  $78,372 
         
Cash Flows from Investing Activities        
Additions to property, plant & equipment  (116,477)  (99,135)
Purchases of businesses  (80,503)  (580)
Purchase of equity investment  (51,655)  - 
Other investing activities  429   1,707 
Net cash used in investing activities  (248,206)  (98,008)
         
Cash Flows from Financing Activities        
Proceeds from issuance        
Proceeds from issuance of 0.25% convertible senior notes due 2022  345,000   - 
Proceeds from borrowings under Credit Facility  100,000   64,000 
Payments on borrowings under Credit Facility  (277,000)  (20,000)
Purchases of treasury stock  (49,875)  - 
Proceeds from exercises of stock options  8,836   14,625 
Payments in satisfaction of employees' minimum tax obligations  (4,040)  (3,407)
Debt issuance costs  (10,061)  (1,384)
Net cash provided by financing activities  112,860   53,834 
         
Effect of exchange rate changes on cash and cash equivalents  12,757   (5,062)
         
Net (decrease) increase in cash and cash equivalents  (8,644)  29,136 
         
Cash and Cash Equivalents at Beginning of Period  271,888   218,445 
Cash and Cash Equivalents at End of Period $263,244  $247,581 
          

 

Table 8           
Reconciliation of Selected Non-GAAP Financial Measurements    
($ Millions, except per share amounts)    
(Unaudited)           
            
  Three Months Ended
            
  Mar 31,  Dec 31,  Mar 31,
  2018
  2017  2017
            
Reported Net Earnings $30.1   $9.6  $22.4
            
Add back one-time items:           
            
Impact of the "Tax Cuts and Jobs Act"  (6.5)   15.8   -
            
Adjusted Net Earnings $23.6   $25.4  $22.4
            
Per share data:           
Reported Earnings:           
Earnings - Diluted Earnings Per Share $0.45   $0.15  $0.35
Earnings - Basic Earnings Per Share $0.48   $0.15  $0.36
            
Per share, After-Tax Impact of Adjustments on:           
Adjustments - Diluted Earnings Per Share $(0.09)  $0.24  $-
Adjustments - Basic Earnings Per Share $(0.10)  $0.25  $-
            
Adjusted Earnings:           
Adjusted Earnings - Diluted Earnings Per Share $0.36   $0.39  $0.35
Adjusted Earnings - Basic Earnings Per Share $0.38   $0.41  $0.36

 

Table 9       
Reconciliation of Selected Non-GAAP Financial Measurements
($ Millions, except per share amounts)
(Unaudited)       
        
  Nine Months Ended
        
  Mar 31,  Mar 31,
  2018  2017
        
Reported Earnings $60.8  $62.6
        
Add back one-time items:       
        
Impact of the "Tax Cuts and Jobs Act"  9.3   -
        
Adjusted Net Earnings $70.1  $62.6
        
Per share data:       
Reported Earnings:       
Earnings - Diluted Earnings Per Share $0.93  $0.97
Earnings - Basic Earnings Per Share $0.97  $1.00
        
Per share, After-Tax Impact of Adjustments on:       
Adjustments - Diluted Earnings Per Share $0.14  $-
Adjustments - Basic Earnings Per Share $0.15  $-
        
Adjusted Earnings:       
Adjusted Earnings - Diluted Earnings Per Share $1.08  $0.97
Adjusted Earnings - Basic Earnings Per Share $1.12  $1.00

CONTACT:           

Mark Lourie
Director, Corporate Communications
Mark.lourie@ii-vi.com
www.ii-vi.com

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