Image source: II-VI, Inc.
II-VI, Inc. (IIVI 0.11%) released stronger-than-expected fiscal fourth-quarter 2016 results Monday after the market close. And though investors initially drove shares of the optics fabrication and electronics component manufacturer up more than 10% on Tuesday, II-VI stock has all but given up those gains since then as the market digested the report. Now that the dust has settled, let's take a closer look at how II-VI closed its latest fiscal year.
II-VI results: The raw numbers
| Metric |
Fiscal Q4 2016 Actuals |
Fiscal Q4 2015 Actuals |
Growth (YOY) |
|---|---|---|---|
|
Revenue |
$241.5 million |
$196.7 million |
22.8% |
|
GAAP net income |
$14.3 million |
$17.1 million | (16.4%) |
|
GAAP net income per diluted share |
$0.23 |
$0.28 |
(17.9%) |
YOY = year over year. Data source: II-VI, Inc.
What happened with II-VI this quarter?
- On an adjusted (non-GAAP) basis -- which excludes one-time items like acquisition expenses -- II-VI's earnings rose 47.4% year over year to $25.2 million. Similarly, adjusted earnings per diluted share grew 48.1% to $0.40.
- Non-GAAP revenue -- which excludes contributions from acquisitions -- increased 17.8% year over year to $231.7 million.
- Quarterly adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 49.7% year over year to $55.7 million.
- For perspective, II-VI's guidance provided three months ago called for lower quarterly non-GAAP revenue of $200 million to $210 million and lower adjusted earnings per share of $0.25 to $0.29.
- Consolidated bookings grew 24% year over year to $244.9 million in Q4, a new company record.
- In June, II-VI completed the $50 million (plus $5 million in potential earn outs) sale of certain commercial and product line assets related to the RF products of ANADIGICS, the acquisition of which II-VI completed in March.
- Amended II-VI's existing credit agreement, which would have expired in Sept. 2018, to increase its unsecured revolving credit facility by $100 million to $325 million, as well as $100 million unsecured term loan. The new agreement was completed on similar or better terms and expires on July 28, 2021.
- Announced plans to increase investments in R&D and capital equipment 20% to 25% over the annualized fiscal Q4 2016 run rate -- equating to an increase of $40 million to $50 million from fiscal 2016 levels -- starting in fiscal 2017. This will help II-VI capitalize on the growing market for 3D sensing applications, as well as expanding its other product lines.
- Announced Dr. Vincent D. Mattera Jr. will be CEO of II-VI effective Sept. 1, 2016, following the retirement of current CEO Francis Kramer. Dr. Mattera was a member of II-VI's board from 2000 to 2002, joined the company in 2004 as a vice president, and was reelected to the board two years ago.
What management had to say
Mr. Kramer said:
FY16 was a solid and exciting year for II-VI. All segments showed progress in the market, contributed to improvements in the Company's overall margins, and will enter fiscal year 2017 with favorable momentum. Much of this success is due to the strategic moves we've made during Chuck Mattera's tenure with II-VI. I'm very happy to congratulate Chuck on this well-deserved appointment. He will make a great CEO for II-VI, the third in our 45 year history, with his extensive market and technology development experience, his knowledge of our worldwide operations and customers, and his dedication to II-VI. He has a very good and extensive team throughout the Company to support him and we all look forward to his success.
Kramer also elaborated that II-VI's impending R&D and capital planning investments will help position the company to take share in early stage end markets with expected growth in the billions of dollars. II-VI also anticipates these investments will be accretive within the next two years.
Looking forward
Meanwhile, for the current (fiscal 2017 first) quarter, II-VI expects revenue of $210 million to $225 million (up from $189.2 million in the same year-ago period) and earnings per share of $0.22 to $0.27 (compared to $0.27 per share in last year's fiscal Q1). The incremental R&D investment in fiscal Q1 is expected to be roughly $0.10 per share.
All things considered, this was an impressive report from II-VI. And though the company is certainly taking some risk bolstering investments to capitalize on young, relatively undeveloped markets, I also think it's smart to do so in these early stages, as II-VI operates from a position of relative strength. For patient investors willing to endure some potential bumps in the road as these growth stories play out, II-VI could make a compelling buy today.
