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II-VI's (IIVI) CEO Francis Kramer on Q3 2016 Results - Earnings Call Transcript

Q3 2016 Earnings Conference Call

April 26, 2016 09:00 AM ET

Executives

Mary Jane Raymond - CFO

Francis Kramer - Chairman and CEO

Chuck Mattera - President

Analysts

Jim Ricchiuti - Needham & Company

Christopher Longiaru - Sidoti

Dave Kang - B. Riley

Mark Miller - The Benchmark Company

Operator

Good day ladies and gentlemen and welcome to the II-VI Incorporated Fiscal Year 2016 Third Quarter Conference Call. [Operator Instructions] I would now like to turn the conference over to Mary Jane Raymond, CFO, you may begin.

Mary Jane Raymond

Thank You Nicole and good morning. I'm Mary Jane Raymond, the Chief Financial Officer here at II-VI Incorporated. Welcome to our third quarter earnings call for fiscal year 2016. With me on the call today is Francis Kramer, our Chairman and CEO and Dr. Chuck Mattera, our President. As a reminder, this call is recorded on Tuesday, April 26, 2016. Any forward-looking statements we may make during this teleconference are given in the context of today only. We do not undertake any obligation to update these statements to reflect events subsequent to today.

With that, let me turn it over to Francis Kramer. Fran?

Francis Kramer

Thank you, Mary Jane and thank you everyone for joining us. In our third quarter, we had record bookings and shipments. Revenue and EPS were above the high-end of our revised range issued on March 16. Our optical communications business remains strong for us this quarter both in revenues and bookings. The growth from our divisions that serve the industrial laser materials processing market also showed improvement compared to the last few quarters with a 10% increase in bookings even though revenue growth in the quarter was unchanged from the same period last year. We completed both of the acquisitions announced in January 19th. Our third-quarter results included two months of EpiWorks and 15 days of ANADIGICS. We are looking forward to realizing the growth of these additional platforms will offer us.

Excluding the acquisition effects, our book to bill ratio of 1.16 was the strongest since fiscal year '11. Photonics strength continues at a book to bill ratio of 1.28 and we expect those bookings to contribute to strong revenue and profit into early next fiscal year. Laser Solutions pre-acquisition business had a book-to-bill ratio of 1.14 with particular strength from CO2 laser optics. Performance Products segment book-to-bill ratio was 1.0.

We are optimistic about the continued revenue and earnings growth from the photonics business segment during the next six to nine months. Couple that with the Laser Solutions segment which should experience a solid quarter in its historically strong fourth quarter. And that means we should deliver a revenue upside as we end fiscal year '16 and start investing to build out capacity for a ramp in the VCSEL laser platform which we expect to have significant results in the next 12 to 24 months.

Let me now turn it over to Chuck to comment on the trends in our worldwide businesses and our new acquisitions.

Chuck Mattera

Thanks, Fran. It was an exciting quarter, a clear view of the strength in the existing business and two strategic platform acquisitions that underpin our growth aspirations. These acquisitions complement the leadership position of our Laser Enterprise division and a rapidly growing semiconductor laser market, a key driver of our investments into a market that industry analysts expect to grow by 2020 to over $5 billion, including a $2 billion VCSEL market.

This quarter the composition of our revenue into our top three end markets was 36% into industrial, 35% into communication and 14% into military. On a regional basis, the distribution of our revenues was 42% from North America, 21% from Europe, 21% from China and 16% from the rest of the world. This represented a regional distribution that saw a greater content from China, unusual.