Market Overview

II-VI Incorporated Reports Fiscal 2018 Fourth Quarter and Full Year Results

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  • Record Fourth Quarter and FY 2018 Revenue - Surpasses $1.0 Billion
  • Increased Cash Flow From Operations 36% From Prior Year
  • Accelerated Strategic Investments

PITTSBURGH, Aug. 07, 2018 (GLOBE NEWSWIRE) -- II-VI Incorporated (NASDAQ:IIVI) ("II-VI" or the "Company") today reported results for its fiscal fourth quarter and its full year ended June 30, 2018.

"We ended fiscal year 2018 on a high note with 19% revenue growth for the year. We delivered record revenues for the quarter, a strong increase in cash flow from operations, and a solid backlog. We experienced momentum across our end markets as we started FY19," said Dr. Vincent D. Mattera, Jr., President and Chief Executive Officer. Dr. Mattera added, "For FY18, revenues from the Industrial market grew 19%, Military was up 15%, and Communications increased 6%. Our growth markets of automotive, consumer and semiconductor capital equipment collectively more than doubled, contributing about half of the full year growth.  Our strategic investments in technology and manufacturing scale, including those aimed at keeping our product portfolio differentiated, continued during the early adoption phase of several new emerging markets. The Company delivered positive free cash flow for the year and repatriated $43M related to the new Tax Cut and Jobs Act. As we begin FY19, we look forward to the CoAdna team joining us in about a month when the transaction is expected to close, and combining their wavelength selective switches with our market-leading portfolio of optical communications products."

Table 1
$ in Millions, except per share amounts, basis points and %
(Unaudited)
    Three Months Ended     Year Ended
                                       
    June 30,     March 31,     June 30,     June 30,     June 30,
    2018     2018     2017     2018     2017
                                       
Revenues   $ 321.1     $ 294.7     $ 273.7     $ 1,158.8     $ 972.0
Operating income   $ 38.2     $ 34.8     $ 35.7     $ 135.3     $ 115.5
                                       
Net earnings   $ 27.2     $ 30.1     $ 32.6     $ 88.0     $ 95.3
Adjusted net earnings (1)   $ 33.7     $ 30.7     $ 31.2     $ 132.0     $ 115.9
                                       
Diluted earnings per share   $ 0.42     $ 0.45     $ 0.50     $ 1.35     $ 1.48
Adjusted diluted earnings per share (1)   $ 0.52     $ 0.46     $ 0.48     $ 2.03     $ 1.80

The Company's adjusted net earnings in Q4FY18 and full year 2018 excludes the following items: share-based compensation of $4.4 million and $19.7 million, amortization expense of $3.6 million and $14.6 million, certain one-time transaction expense of $ - and $2.0 million, respectively, and the effects of the Tax Act and related actions of $(1.3) million and $8.0 million, respectively. Details by financial statement caption are found on Tables 8 and 9.

Other Selected Financial Metrics                                      
Book to Bill (2)     1.03       1.13       1.00       1.04       1.10
Gross margin     39.7%       40.2%       39.7%       39.8%       40.0%
Operating margin     11.9%       11.8%       13.0%       11.7%       11.9%
Return on sales     8.5%       10.2%       11.9%       7.6%       9.8%
Adjusted return on sales (1)     10.5%       10.4%       11.4%       11.4%       11.9%

(1) Excludes certain non-GAAP adjustments for share-based compensation, amortization expense, certain one-time transaction expense and the impact of the Tax Act. 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 first fiscal quarter ending September 30, 2018 is revenues of $305 million to $315 million and earnings per diluted share of $0.36 to $0.42, including $0.04 for one-time costs of CoAdna. On an adjusted basis, earnings per diluted share is estimated at $0.54 to $0.60 which includes adding back $0.04 for one-time costs for the acquisition of CoAdna, $0.06 of amortization expense, and $0.08 for share-based compensation expense but excluding any refinements to the transition tax as the Company monitors any further guidance on the implementation of the Tax Reform Act.  This is all at prevailing exchange rates. 

Comparable results for the quarter ended September 30, 2017 were revenues of $262 million and diluted earnings per share of $0.32. The $0.32 diluted earnings per share for the quarter ended September 30, 2017 included $0.02 of expenses relating to the acquisition of Integrated Photonics Inc. and one-time expenses. 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     Year Ended
                                       
    June 30,     March 31,     June 30,     June 30,     June 30,
    2018     2018     2017     2018     2017
                                       
Book to Bill:                                      
II-VI Laser Solutions     0.95         1.09         1.00         1.06         1.08  
II-VI Photonics     1.18         1.08         0.92         1.01         1.08  
II-VI Performance Products     0.90         1.28         1.13         1.09         1.18  
Total Book to Bill     1.03         1.13         1.00         1.04         1.10  
                                       
Revenues:                                      
II-VI Laser Solutions   $ 115.1       $ 109.8       $ 94.9       $ 428.0       $ 339.3  
II-VI Photonics     126.5         116.8         112.7         464.4         418.5  
II-VI Performance Products     79.5         68.1         66.1         266.4         214.2  
Total Revenues   $ 321.1       $ 294.7       $ 273.7       $ 1,158.8       $ 972.0  
                                       
Operating Income:                                      
II-VI Laser Solutions   $ 14.1       $ 9.9       $ 8.3       $ 36.8       $ 30.9  
II-VI Photonics     14.6         16.7         17.3         67.7         63.0  
II-VI Performance Products     9.5         8.2         10.1         30.8         21.6  
Total Operating Income   $ 38.2       $ 34.8       $ 35.7       $ 135.3       $ 115.5  
                                       
Operating Margin:                                      
II-VI Laser Solutions     12.3%         9.0%         8.7%         8.6%         9.1%  
II-VI Photonics     11.5%         14.3%         15.4%         14.6%         15.1%  
II-VI Performance Products     11.9%         12.0%         15.3%         11.6%         10.1%  
Total Operating Margin     11.9%         11.8%         13.0%         11.7%         11.9%  
                                                 

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

Table 3
$ Millions
(Unaudited)   Three Months Ended      Year Ended
                                       
    June 30,     March 31,     June 30,     June 30,     June 30,
    2018     2018     2017     2018     2017
                                       
Operating income   $ 38.2       $ 34.8       $ 35.7       $ 135.3       $ 115.5  
Interest expense     5.1         5.0         2.3         18.4         6.8  
Other expense (income), net     (1.1 )       (1.5 )       (0.4 )       (5.3 )       (10.1 )
Income tax expense     7.0         1.2         1.2         34.2         23.5  
Net Earnings   $ 27.2       $ 30.1       $ 32.6       $ 88.0       $ 95.3  
                                                 

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

Table 4
$ Millions
(Unaudited)   Three Months Ended     Year Ended
                                       
    June 30,     March 31,     June 30,     June 30,     June 30,
    2018     2018     2017     2018     2017
                                       
Operating income   $ 38.2     $ 34.8     $ 35.7     $ 135.3     $ 115.5
Depreciation and amortization     22.7       19.8       18.9       80.8       63.6
Other income (expense), net     1.1       1.5       0.4       5.3       10.1
EBITDA (3)   $ 62.0     $ 56.1     $ 55.0     $ 221.4     $ 189.2
                                       

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

Table 5
$ Millions
(Unaudited)   Three Months Ended
    Year Ended
                                       
    June 30,     March 31,     June 30,     June 30,     June 30,
    2018     2018     2017     2018     2017
                                       
EBITDA   $ 62.0       $ 56.1       $ 55.0       $ 221.4       $ 189.2  
EBITDA margin (4)     19.3%         19.0%         20.1%         19.1%         19.5%  
Interest expense   $ 5.1       $ 5.0       $ 2.3       $ 18.4       $ 6.8  
Depreciation and amortization     22.7         19.8         18.9         80.8         63.6  
Income tax expense     7.0         1.2         1.2         34.2         23.5  
Net Earnings   $ 27.2       $ 30.1       $ 32.6       $ 88.0       $ 95.3  

(3) EBITDA is defined as earnings before interest, income taxes, depreciation and amortization.
(4) EBITDA margin is defined as earnings before interest, incomes 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
    Year Ended
                                       
    June 30,     March 31,     June 30,     June 30,     June 30,
    2018     2018     2017     2018     2017
                                       
Share-based compensation expense, pre-tax   $ 4.4     $ 3.6     $ 3.5     $ 19.7     $ 16.0
Cash paid for shares repurchased   $ -     $ -     $ -     $ 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
$ Millions, except share information and per share amounts
(Unaudited)   Three Months Ended     Year Ended
                                       
    June 30,     March 31,     June 30,     June 30,     June 30,
    2018     2018     2017     2018     2017
                                       
Net Earnings   $ 27.2     $ 30.1       $ 32.6     $ 88.0     $ 95.3
Interest Expense, on 0.25% Convertible Senior Notes     -       3.2         -       -       -
Income Taxes     -       (0.7 )       -       -       -
Numerator for diluted income per share   $ 27.2     $ 32.6       $ 32.6     $ 88.0     $ 95.3
                                       
Denominator for basic income per share - weighted average shares     62.5       62.4         63.1       62.5       62.6
Dilutive effect of common stock equivalents     2.6       2.6         1.9       2.6       1.9
0.25% Convertible Senior Notes due 2022     -       7.3         -       -       -
Denominator for diluted income per share     65.1       72.3         65.0       65.1       64.5
Diluted earnings per common share   $ 0.42     $ 0.45       $ 0.50     $ 1.35     $ 1.48
Basic earnings per common share   $ 0.44     $ 0.48       $ 0.52     $ 1.41     $ 1.52
                                         

Webcast Information

The Company will host a conference call at 9:00 a.m. Eastern Time on Tuesday, August 7, 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/y9pu47sc. 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 and excluding certain non-cash items. 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 and in the Company's subsequent filings with the Securities and Exchange Commission; (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
    June 30,   March 31,   June 30,
    2018   2018   2017
Revenues   $ 321,075     $ 294,746     $ 273,717  
                         
Costs, Expenses & Other Expense (Income)                        
Cost of goods sold     193,580       176,361       164,939  
Internal research and development     33,346       30,560       25,966  
Selling, general and administrative     55,924       53,087       47,137  
Interest expense     5,049       5,014       2,262  
Other expense (income), net     (1,031 )     (1,496 )     (445 )
Total Costs, Expenses, & Other Expense (Income)     286,868       263,526       239,859  
                         
Earnings Before Income Taxes     34,207       31,220       33,858  
                         
Income Taxes     7,040       1,122       1,211  
                         
Net Earnings   $ 27,167     $ 30,098     $ 32,647  
                         
                         
Diluted Earnings Per Share   $ 0.42     $ 0.45     $ 0.50  
                         
Basic Earnings Per Share   $ 0.44     $ 0.48     $ 0.52  
                         


II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
($000 except per share data)
 
    Year Ended
    June 30,   June 30,
    2018   2017
Revenues   $ 1,158,794     $ 972,046  
             
Costs, Expenses & Other Expense (Income)            
Cost of goods sold     697,506       583,693  
Internal research and development     117,244       96,810  
Selling, general and administrative     208,757       176,002  
Interest expense     18,352       6,809  
Other expense (income), net     (5,259 )     (10,056 )
Total Costs, Expenses, & Other Expense (Income)     1,036,600       853,258  
             
Earnings Before Income Taxes     122,194       118,788  
             
Income Taxes     34,192       23,514  
             
Net Earnings   $ 88,002     $ 95,274  
             
             
Diluted Earnings Per Share   $ 1.35     $ 1.48  
             
Basic Earnings Per Share   $ 1.41     $ 1.52  
                 


II-VI Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
($000)
 
    June 30,   June 30,
    2018   2017
Assets              
Current Assets              
Cash and cash equivalents   $ 247,038     $ 271,888  
Accounts receivable     215,032       193,379  
Inventories     248,268       203,695  
Prepaid and refundable income taxes     7,845       6,732  
Prepaid and other current assets     43,654       26,602  
Total Current Assets     761,837       702,296  
Property, plant & equipment, net     524,890       367,728  
Goodwill     270,678       250,342  
Other intangible assets, net     125,069       133,957  
Investments     69,215       11,727  
Deferred income taxes     2,046       3,023  
Other assets     7,926       8,224  
Total Assets   $ 1,761,661     $ 1,477,297  
               
Liabilities and Shareholders' Equity              
Current Liabilities              
Current portion of long-term debt   $ 20,000     $ 20,000  
Accounts payable     89,774       65,540  
Accruals and other current liabilities     126,693       99,412  
Total Current Liabilities     236,467       184,952  
Long-term debt     419,013       322,022  
Capital lease obligation     22,283       23,415  
Deferred income taxes     27,241       15,345  
Other liabilities     32,346       31,000  
Total Liabilities     737,350       576,734  
Total Shareholders' Equity     1,024,311       900,563  
Total Liabilities and Shareholders' Equity   $ 1,761,661     $ 1,477,297  
                 


II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
($000)
 
    Year Ended
    June 30,
    2018   2017
Cash Flows from Operating Activities              
Net cash provided by operating activities   $ 161,014     $ 118,616  
               
Cash Flows from Investing Activities              
Additions to property, plant & equipment     (153,438 )     (138,517 )
Purchases of businesses     (80,503 )     (40,015 )
Purchases of equity investments     (52,056 )     -  
Other investing activities     1,047       1,291  
Net cash used in investing activities     (284,950 )     (177,241 )
               
Cash Flows from Financing Activities              
Proceeds from borrowings     445,000       129,000  
Payments on borrowings     (292,000 )     (25,000 )
Payment on earnout consideration     -       (2,000 )
Proceeds from exercises of stock options     10,469       15,092  
Payments in satisfaction of employees' minimum tax obligations     (6,564 )     (4,136 )
Debt issuance costs     (10,061 )     (1,384 )
Purchases of treasury stock     (49,875 )     -  
Net cash provided by financing activities     96,969       111,572  
               
Effect of exchange rate changes on cash and cash equivalents     2,117       496  
               
Net (decrease) increase in cash and cash equivalents     (24,850 )     53,443  
               
Cash and Cash Equivalents at Beginning of Period     271,888       218,445  
Cash and Cash Equivalents at End of Period   $ 247,038     $ 271,888  
                 


Table 8
II-VI Incorporated and Subsidiaries
Reconciliation of Selected Non-GAAP Financial Measurements
($ Millions, except per share amounts)
 
Reconciliation of Reported Earnings to Non-GAAP Earnings
(Unaudited)
 
    Three Months  Ended
                       
    June 30,     March 31,     June 30,
    2018     2018     2017
                       
Reported Earnings   $ 27.2       $ 30.1       $ 32.6  
                       
Add back (deduct) one-time items:                      
Share-based compensation expense in COGS     0.6         0.4         0.5  
Share-based compensation expense in SG&A     3.8         3.2         3.0  
Amortization expense     3.6         3.6         3.2  
Merger and acquisition expenses     -         -         0.3  
Tax adjustment     (0.2 )       (0.1 )       (8.4 )
Impact of the "Tax Cuts and Jobs Act"     (1.3 )       (6.5 )       -  
                       
Adjusted Net Earnings   $ 33.7       $ 30.7       $ 31.2  
                       
Per share data:                      
Reported Earnings:                      
Earnings - Diluted Earnings Per Share   $ 0.42       $ 0.45       $ 0.50  
Earnings - Basic Earnings Per Share   $ 0.44       $ 0.48       $ 0.52  
                       
Per share, After-Tax Impact of Adjustments on:                      
Adjustments - Diluted Earnings Per Share   $ 0.10       $ 0.01       $ (0.02 )
Adjustments - Basic Earnings Per Share   $ 0.10       $ 0.01       $ (0.02 )
                       
Adjusted Earnings:                      
Adjusted Earnings - Diluted Earnings Per Share   $ 0.52       $ 0.46       $ 0.48  
Adjusted Earnings - Basic Earnings Per Share   $ 0.54       $ 0.49       $ 0.50  
                             


Table 9
II-VI Incorporated and Subsidiaries
Reconciliation of Selected Non-GAAP Financial Measurements
($ Millions, except per share amounts)
 
Reconciliation of Reported Earnings to Non-GAAP Earnings
(Unaudited)
 
    Year Ended
               
    June 30,     June 30,
    2018     2017
               
Reported Earnings   $ 88.0       $ 95.3  
               
Add back (deduct) one-time items:              
Share-based compensation expense in COGS     2.9         2.5  
Share-based compensation expense in SG&A     16.8         13.5  
Amortization expense     14.6         12.7  
Merger and acquisition expenses     2.0         0.3  
Tax adjustment     (0.3 )       (8.4 )
Impact of the "Tax Cuts and Jobs Act"     8.0         -  
               
Adjusted Net Earnings   $ 132.0       $ 115.9  
               
Per share data:              
Reported Earnings:              
Earnings - Diluted Earnings Per Share   $ 1.35       $ 1.48  
Earnings - Basic Earnings Per Share   $ 1.41       $ 1.52  
               
Per share, After-Tax Impact of Adjustments on:              
Adjustments - Diluted Earnings Per Share   $ 0.68       $ 0.32  
Adjustments - Basic Earnings Per Share   $ 0.70       $ 0.33  
               
Adjusted Earnings:              
Adjusted Earnings - Diluted Earnings Per Share   $ 2.03       $ 1.80  
Adjusted Earnings - Basic Earnings Per Share   $ 2.11       $ 1.85  
                   

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

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