Good day, ladies and gentlemen, and welcome to the II-VI Incorporated Fiscal Year 2014 Fourth Quarter and Year-End Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session with instructions following at that time. (Operator Instructions) As a reminder, this conference call is being recorded. And now, I will turn the conference over to your host CFO of II-VI, Mary Jane Raymond, please begin.

Thank you, Tyrone, and good morning. I am Mary Jane Raymond. I am the Chief Financial Officer of II-VI Incorporated. Welcome to our fourth quarter earnings call for the fiscal year 2014. With me on our call today is Fran Kramer, our Chief Executive Officer; and Dr. Chuck Mattera, our Chief Operating Officer. As a reminder, this call is recorded today here on Tuesday, August, 5, 2014. Any forward-looking statements we may make today during this teleconference are given in the context of today only, and we do not undertake any obligation to update these statements to reflect events subsequent to today. With that, I'll hand it over to Fran Kramer.

Well thank you, Mary Jane and thank you everyone for joining us. In our just completed quarter II-VI bookings reached a record $193 million. This strength in bookings helped us meet our fourth quarter guidance with actual revenue of $188 million on a guided range of $175 million to $190 million, and actual EPS of $0.20 on a guided range of $0.15 to $0.27 per share. The quarter and the year overall reflect the important strategic and operational steps we took during fiscal year ’14. We have advanced our broad portfolio of products serving the high-power laser market including CO2 lasers and 1 micron lasers. We have successfully transitioned our HIGHYAG team into II-VI and we see resumption of strong customer demand. We exited the volatile tellurium market and transitioned our business to a profitable reclamation operation. We added an advanced integration of active optical products into our portfolio for which we are seeing increases in demand and we made the decision to move to three segments in fiscal year ’15 and have begun to work to leverage this simpler structure. As we enter into fiscal year ’15, we believe the progress made and actions underway will allow us to achieve our minimum 200 BPS increase in the fourth quarter of fiscal year ’15 and gross margin, EBITDA margin and operating margin. Now, I’ll turn it over Chuck to provide our segment level commentary.

Thank you, Fran. In our IR segment which includes IR optics and HIGHYAG. Q4 bookings were 63.9 million, which is an all-time record and exceeded Q4 FY13 by more than 10%. For the IR optics business in the Americas on a sequential basis, orders from OEMs were up 9% and OEM shipments increased 14%. In the North American aftermarket, orders increased 4% and remained flat year-over-year indicating similar lazy utilization overall. European bookings for Q4 were up 20% sequentially driven by a renewed demand for diamond windows and other related products for EUV photolithography systems. European aftermarket bookings were up 11%, compared to Q4 FY13 reflecting the successful results of a more focused approach to the market. Total Asian bookings increased sequentially with Japan bookings up 13%, and in China where bookings were down 11% sequentially primarily due to the timing of a blanket order with a contract manufacturer that was already booked in Q3. We believe that the lower demand in China for higher-power CO2 laser optics is a result of slowing economic growth overall, as well as increased 1 micron high-power laser production and decreased demand for some specific applications. We believe that the production of low-power CO2 laser systems in China remains soft due to increased competition from system builders outside of China. We will continue executing our plan to expand market presence in China where aftermarket bookings increased 26% year-over-year. At HIGHYAG bookings for Q4 were an all-time record, more than double Q3 FY14 and up 63% compared to the same quarter last year. Significant bookings came from Japan during the quarter. Shipments for Q4 were also a record and more than 12% higher than the previous record set in Q1 FY13. We continue to see long-term growth opportunities in 1 micron cutting, beam delivery and…

Thanks Chuck and Fran. The overall summary for II-VI for the fiscal year of 2014 is $683 million of revenue, a 103.3 million of EBITDA, 46.5 million operating income or segment income as it’s called on Page 3 of the press release and elsewhere, and $0.60 EPS. This equates to a 24% revenue growth on a 33.2% composite gross margin, 6.8% operating margin, 15.1% in the EBITDA margin and 5.6% return on sales. Within the segments, IR exited the fourth quarter on a strong note with 11% increase in bookings compared to last fourth quarter and 8% increase in revenue with about 1 million down on earnings as you can see from the segment table on Page 3 in the press release. That’s a nice improvement for Infrared from Q3 of this year and reflects HIGHYAG back at full strength as well as new product sales. The income being below prior year for the quarter and for the year is due to some higher selenium costs, price pressures particularly in China and of course the year HIGHYAG moved from one building to another in Berlin in the third quarter. We expect the Infrared segment to be more stable into next year. At near-IR Chuck has reviewed with you all of the major factors particularly the soft demand for our legacy products, Q4 was a fairly strong revenue quarter last year though we were already seeing some of the pricing pressure coming through even then. It takes some time to refocus the product efforts, but we do feel as Chuck has already described that the work done through this year plus the addition of pumps and amps should help stabilize conditions there as well into next year. Military and Materials orders revenue and earnings were affected by the softening military demand…

Thank you. (Operator Instructions) First question is from Avinash Kant of D.A. Davidson & Company. Your line is open. Avinash Kant - D.A. Davidson & Company Good morning Fran, May Jane and Chuck. So, the first question I think you mentioned pretty much just now that in the guidance you do have some impact from these disruptions. Could you give us a little bit more detail on when do you think these disruptions started happening and how long could that be? And what percentage of the quarter could be impacted in the guidance?

With respect to the Typhoon? Avinash Kant - D.A. Davidson & Company Yes.

Okay. Well, I think it’s not so continuous I mean it happened about two weeks ago. And as I say, we didn’t have significant damage to the facility obviously a lot of water affecting a couple of reactions and some few days maybe two or three days lost production. So while on the one hand it wasn’t weeks and weeks as I say we’re really still assessing the damage and it’s probably going to take a little bit of time to figure that out. I think as you know water damage is kind of notoriously difficult to estimate quickly.

So these reactors Mary Jane refers to are a really coating chambers and they’re about a $1 million each all three that are down will have to repaired by the vendor we don’t have the total bill on that and what product gets interrupted is that repair takes place is being sorted out because we’re trying to do them in other areas. So Avinash I think Mary Jane's explanation was pretty straight forward we’re assessing it. We do not believe it’s significant at this moment but the insurance will have to play out. Avinash Kant - D.A. Davidson & Company And in terms of tax rate, of course, it seems to be fluctuating quite a bit here. What should we think of for the coming fiscal year as the appropriate tax rate?

Sure. As I said, I think probably in the low 20s call it 21, 22 something like that. Avinash Kant - D.A. Davidson & Company And since you paid down some of the debt, should we expect the interest expense to come down from the 1.4 million that you had in this quarter?

Well, I think first of all yes I don’t know that that would be necessarily material the interest rate depends on two things one the level of income as well as the amount outstanding. So, but having said that we’re well aware of the drag of the interest on the P&L and are looking to see that come down as we retire but I have to give you a number right this second probably couldn’t quite estimate that for you. Avinash Kant - D.A. Davidson & Company Okay. And one question for you. Did you give out the depreciation and amortization for the quarter, Mary Jane?

I can, so the depreciation for the quarter the depreciation total is 15.5 and the amortization is sorry, restart. The depreciation is 10.6 and the amortization is 3.1 for the full year the depreciation is 41.8 and the amortization is 11.3. Avinash Kant - D.A. Davidson & Company Now, coming back to the infrared optics business. It looks like most of the regions are doing well on a year-over-year basis except for China. Now, you gave out some reasons for the weakness in China. How is the competition? Have you seen competition from other laser types coming into China?

This is Fran. The two different pieces I think Chuck commented on would be the CO2 laser high-power builds in China is not strong, it’s quite weak. The lower-power business goes on well, the aftermarket very big growth. I think we had 26% quarter-over-quarter. So we’re doing well but it could be better, if those more coming down the assembling line, but we probably don’t expect that to happen. China has made a quick jump off from CO2 to fiber laser and they will continue to be strong in the fiber business. And we’ve captured some good piece of that or a nice piece of that or a nice piece of it through our HIGHYAG by some system that we’re building for there. So it will be -- I think China is the quickest to switch. They were never big in CO2, a lot of the CO2 business came to China from Europe and the U.S. and machines were shift into there. So they didn’t have the infrastructure built around CO2. But they’re certainly many deployed in China in that aftermarket as what we’re working hard to get more of. Avinash Kant - D.A. Davidson & Company And could you give us some color on the defense side of the business? You said that there was one order that would not show up next fiscal year. But could you give us what percentage of the business in the quarter or for the year was defense?

Well, I am not sure. You got it Mary Jane because we don’t quite roll it that way always, but it usually running 25 to 30 overall total company defense, about 20% maybe 22 I guess overall. Avinash Kant - D.A. Davidson & Company For the fiscal year you mean?

For the year, yes, and our comment there is -- we’ve usually been holding pretty close on defense business. Now we’re seeing the softening and Chuck really laid in there coupled of the reasons that were starting to get pullbacks on programs or at least the word that that’s not going to renew and that’s not going to renew. So we see it later in ’15 not such good shape, so we’ve kind of baked that into our guidance. Avinash Kant - D.A. Davidson & Company Perfect. Thank you so much. Thanks for the analysis.

Our next question is from Jim Ricchiuti of Needham & Company. Your line is open. Jim Ricchiuti - Needham & Company Thank you. I wonder if you could talk a little bit about the seasonality you expect in the infrared optics business in the current quarter.

Yes, it’s Fran again. And we usually book about 25% of our year for IR in the first quarter and probably in the neighborhood of 22% in the second, so that add them to about 45%-47% from the first half. So our second half is just like it happened this year, up strong in third and fourth quarter and they’re both equal and about the same size. So, I’d expect it to run that way this year where we’re starting off good here so far in the first quarter and so it makes that our second quarter is the weaker quarter usually. Jim Ricchiuti - Needham & Company Thank you. And just with respect to the overall tone, Fran. You highlighted some of the market conditions in Europe and North America for that part of the business. Just in general, your overall view of the near-term outlook for the infrared optics business in both Europe and the U.S., if you would.

I think we’re quite pleased certainly that business goes so well when the economy goes well. When the consumer spending is strong and when the auto industry is going well and steel is reasonable around the world and so it’s so integrated now you that you have to take a worldwide, we understand the four different continents that we play in, but right now we’re getting good business in all areas. So economy is good. Consumer spending is good. So CO2 laser utilization is good which drives more means for our parts and it is at a good state right now. I wouldn’t make any comments. So, Chuck would you add to it?

Yes, I would just say that we have a great marketing and sales team. They have a full-court press expanding their market share in Europe and in Asia, and I am looking forward to the results. Jim Ricchiuti - Needham & Company Okay. And just switching gears for just a second just to the Military & Materials segment. Clearly, a lot of headwinds that you've already alluded to, highlighted. How challenging is it going to be in terms of maintaining profitability levels that -- clearly this was a fairly nice quarter, and I'm just wondering how you see that going forward?

In that Military and Material segment, we have the two different pieces certainly the military piece nicely profitable doing well and now that we’ve changed our model down in the Philippines. We had a very good quarter also for the, what we call the reclamation business where we’re recovering selenium out of our zinc selenide and out of those types of materials for our own use within the IR optics business. So the selenium reclamation and other material the rare-earth that we’re doing I think those will hang in there well, very well in FY15. Military business, you think it’s okay, we caution everybody on some softness that we’re seeing on the couple of programs and we can’t go far enough ahead and tell you the exact answer because we don’t know we’re just getting from the primes that are customers the rumblings of what they are expecting that do to downsize things. So we’re getting a little bit more timid on military in the second half of the year.

I’ll just answer also a couple of questions on that for you. First of all, military sales inside the military I guess for the whole company are about 12% of the total year’s revenue in the quarter and also for the year, so that’s the first thing. And second thing is just to caution you a little bit on the military and materials earnings pickup the way the math actually works on that though everything Fran said is perfectly right. We discussed tellurium if you may remember but we did not discussed selenium because we still use it ourselves. So some of the pickup is the one time change from the index pricing we had last year. So I don’t know that we’re going to see basically $10 million pickup year-over-year but I do think and going back to what Fran said first of all the materials side of the business now as a reclamation that this is a very steady and should be a good little business for us and then as Fran said we continue to be very cautious about military. Jim Ricchiuti - Needham & Company Okay, thanks very much.

Thank you. (Operator Instructions) I’ve a question from Mark Douglass of Longbow Research. Mark Douglass - Longbow Research I missed a good part of the call, but did you discuss an AOP, when you think you might turn to profitability and what kind of actions are you taking right now to right the ship there?

I think first of all with respect to the timing on the profitability, I think what we said was that we expected that to improve through this year and exit the year at a point where we are not making significant losses. So, improvement through the year not necessarily profitable right from the first quarter but improving as the year goes on. And then with respect to the action plan for AOP Chuck went over that if you’d like to just recap it.

Mark we’re taking a number of actions in the both in the operations to improve our yields, reduce our cost, rationalize the portfolio and overall improve our operations including having taking our reliance from Oclaro down. And I articulated a number of actions I won’t repeat them here today. I won’t repeat them at this point. Mark Douglass - Longbow Research Okay. How are you seeing your high-powered diode pump business? Is that improving quarter over quarter? Are you seeing more opportunity than you did when you first bought the business of potential high-power fiber laser OEMs coming to market? Can you discuss that a little bit?

Yes I would say that the business is stabilizing in that regard Mark we described last quarter and I repeated it here today that for some of the products that had lower than our target profit margins we started to take action on those early on. In addition to rationalizing those products we have also experienced an increase in demand and opportunity including in China for our products. And for the direct diode application specifically we’ve seen our share come back to the levels that we believe it was before the acquisition. We are investing in a family of higher power laser products for the direct diode market and we believe that we are well positioned there to continue to grow. Mark Douglass - Longbow Research Okay. So right now you're fighting a little bit of a headwind because you exited some low-margin products, at least on the sales side.

Yes. Mark Douglass - Longbow Research Okay, thank you.

The next question is from Dave Kang of B. Riley. Your line is open. Dave Kang - B. Riley & Company Good morning. First question is regarding your revenue guide for first quarter. Just wondering if you can just go over some of the assumptions especially on AOP.

I think Mary Jane maybe I will do that, but we are very similar in the quarter coming up to the one we just exited and that’s really the guidance we’ve given and it is just the composite of all our businesses and as usual we don’t break it down into any more than that. Dave Kang - B. Riley & Company Well, I'm just curious if you look at the midpoint, it's about 5% decline. So what's really driving that 5% decline, I guess?

$0.14 to $0.20 is about the same as what we had in the guidance this time $0.15 to $0.20 and… Dave Kang - B. Riley & Company I am talking about the revenue top-line decline.

Yes, okay. Maybe you have the comment there…

So, first of all, I think what’s making the revenue guidance a little bit wide let’s say a little bit soft; one, I think we’re being very cautious on the military we are just trying to understand that aspect and I think the second thing is that the quarter with respect to falling in the summer particularly with respect to Europe can cause the first quarter to be a little bit lightish, sometimes it’s on par with Q4 but sometimes it’s a little light, so we tried to capture those two parts of the volatility. I think also Dave with respect to your question about AOP and I’ll actually give a little comment on this in totality in a second but keep in mind that that the AOP segment as it stands right now is going to be subsumed into the new three segments so Laser Enterprise will be in Laser Solutions and pumps and the amps will be in photonics, so while we will lose the visibility on that the fact remains that we are still seeing the revenue exactly as Fran says very much on par with Q4 and continuing to be let’s just say very good products for us in the revenue mix. The last small topic just to mention is we are still probably a little cautious in the guidance over Matmo the hurricane, sorry the Typhoon that’s affecting photonics and we hope it’s not much. The team’s very committed to delivering their quarter but it’s a little bit tough to say. Dave Kang - B. Riley & Company Got it, got it, and then sticking with AOP so you talked about legacy I guess there’s pricing pressure and all that, first of all can you give us more color or quantify the pricing pressure and how much is legacy in terms of overall AOP sales?

I think actually, Chuck will help a lot here I’m sure, I think really where we’re seeing the pricing pressure on legacy is in near-IR. So that’s the first thing, which also happens to be the same crew that’s in the path of the Typhoon and I think if you look at the combination of demand and pricing that’s fairly well reflected in how we save the earnings coming in for this quarter. Dave Kang - B. Riley & Company Got it. And then on China, I guess moving to fiber lasers. So that's not really -- can you quantify that situation about the Chinese market? And if you can just talk about other regions as far as the trend to moving to fiber lasers from CO2.

Okay, Dave, I’ll take that. I’ll focus my comments on China, Fran mentioned that China seems to be adopting the fiber laser technology very quickly and there are a number of let us call it early adopters or fast followers rather, there’s a handful of people in this space, they’re very aggressive, they’re moving very quickly. Our judgment is that that from a unit volume point of view that’s increasing at a very significant rate and we are well positioned across the company as a critical component supplier at the near-infrared group as well as in the AOP business and our high-power laser business and also in HIGHYAG. So I think that we are really a full line supplier and a primary choice for fiber laser builders in China as a partner. Dave Kang - B. Riley & Company So if you can just help us understand the dynamics like your maybe like a dollar content per CO2 versus fiber lasers? What's the drop-off on a net basis?

We do not have a statistic like that because our business runs more as a merchant supplier to each one of those industries but not that we can tell you by model, by company how much content we have in the fiber laser versus a CO2. I understand what you’d like us to be able to tell you but we cannot tell you that, but in China certainly there is six to ten major fast moving companies that are going to be fiber laser competition the likes of which, one or two fiber laser companies in the world have not seen. So our position is to be merchant suppliers to them or whether it’s a single emitter or whether it’s a bar, some way for them to energize their fiber and that’s what these accounts look to be very-very good prospects for ourselves. Dave Kang - B. Riley & Company Got it, alright, thank you.

Thank you. There are no further questions at this time. I’d like to turn the call over to management for any closing remarks.

Well this is Mary Jane I’ll just give you a little bit of an update on the progress to the three segments so you will remember that the Company announced in the last quarter that we will move to simplify the reporting structure of the Company to three segments, Laser solutions, Photonics and Performance Products. We will -- the Company will produce towards the end of the summer a set of numbers that will give all of you the numbers recast backwards so that you can use those going forward so one just to knowledge we know that will be very helpful to you. We certainly do intend to do that, and because we will file the 10-K on this year’s existing five segments, we’ll finish that, do the numbers and then produce those for you, so just to let you know that’s coming. And we that we have Fran give the closing remarks.

Well just thank you everybody for joining us and we look forward to next quarter’s report. Thank you.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Have a wonderful day.