OREANDA-NEWS. II-VI Incorporated today reported results for its fourth fiscal quarter and full year ended June 30, 2016. It also announced its expected investments in R&D platforms, including VCSEL as well as optoelectronic materials and device technologies to address the growing 3D sensing market.

The Company’s Board of Directors has appointed Dr. Vincent D. Mattera, Jr. as President and Chief Executive Officer effective September 1, 2016 following the retirement of current CEO Francis J. Kramer. Dr. Mattera has served as the President since 2014.

Dr. Mattera was a member of the II-VI Board of Directors from 2000 to 2002 before joining the Company in 2004 as a Vice President. Prior to that, he held several leading positions over 20 years at AT&T Bell Laboratories, Lucent Technologies Microelectronics Division, and Agere Systems. Dr. Mattera was re-elected to the Board in 2014.

Francis J. Kramer has served as the CEO since 2007 and will continue as the Chairman of the Board of Directors. Mr. Kramer joined the Company in 1983. In his 33 year tenure, Mr. Kramer led the Company’s growth to become the international market leader it is today. He successfully completed 20 acquisitions in 20 years, drove the Company’s manufacturing and sales footprint, diversified the Company’s product portfolio and established the culture that focuses on the consistent delivery of strategic, profitable growth worldwide.  

Francis J. Kramer, Chairman and Chief Executive Officer, 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.”

“Regarding our investments, the additional R&D and capital platform investments we are planning to make over the next four to five quarters are intended to position us to capture a meaningful market share in end markets with expected growth in the billions of dollars over the next several years. Many of these markets are still in the early stages of growth. While there are risks with respect to timing and speed of adoption, the platforms we are targeting build on many technologies in which II-VI has a strong competitive advantage. We expect the returns on our investment to be accretive within the next two years.”

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.

Sale of Certain Non-Strategic RF Business Assets of the former ANADIGICS

In June 2016, the Company completed the sale of certain commercial and product line assets associated with the RF products of the former ANADIGICS, Inc. for $50 million including a potential $5 million earn out. This transaction includes an asset purchase agreement, a supply agreement and other agreements to cooperate in various areas.  The Company further completed a restructuring of the remaining business for $7.5 million in severance and lease termination costs to simplify the operations.  We achieved a significant reduction of losses in the acquired business, and positioned the organization to support our expanding customers for VCSEL as well as optoelectronic materials and devices. 

Expansion in R&D and Capital Expenditures for Platform Investments

The Company previously announced its intention to increase its capability to serve the growing 3D sensing applications initially for the consumer market where it believes it has a compelling competitive advantage. The Company also sees the opportunity to expand its other product lines.   Therefore, during fiscal year 2017, the Company plans to increase the investments in R&D and capital equipment to deliver revenues in several areas expected to materialize in the next 12-18 months. The Company’s R&D spending in total is expected to increase 20-25 percent over the annualized fourth quarter FY16 run rate.  Its total capital expenditures are expected to increase $40-50 million from FY16 levels.

Expansion of Credit Facility

The Company announced that it has amended and restated its existing credit agreement.  This Agreement amends the previous credit facility that would have expired in September of 2018. The Agreement provides up to a $325 million (increased from $225 million) unsecured revolving credit facility and a $100 million unsecured term loan. The Company has the option to request an increase to the size of the Amended Credit Facility in an aggregate additional amount not to exceed $100 million. The Agreement was concluded on similar or better terms than the prior credit agreement and has an expiration date of July 28, 2021.

Outlook

The outlook for the first fiscal quarter ending September 30, 2016 is revenue of $210 million to $225 million and earnings per share of $0.22 to $0.27. The additional R&D investment in the first fiscal quarter is expected to be around $0.10 per share. This is all at prevailing exchange rates and all earnings per share comments refer to diluted shares. Comparable results for the quarter ended September 30, 2015 were revenues of $189.2 million and diluted earnings per share of $0.27. 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.