Good day, ladies and gentlemen and welcome to the II-VI Incorporated Fiscal 2016 Fourth Quarter Conference Call. [Operator Instructions] I would now like to hand the floor over to Mary Jane Raymond, Chief Financial Officer. Please go ahead.

Thank you, Karen and good morning. I'm Mary Jane Raymond, the Chief Financial Officer here at II-VI Incorporated. Welcome to our fourth quarter earnings call for fiscal year 2016. With me today on our call is Francis Kramer, our Chairman and Chief Executive Officer, Dr. Chuck Mattera, our President and Gary Kapusta, our COO of six months, whom we warmly welcome and our finance leaders. As a reminder, this call is recorded on Tuesday, August 2, 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 Fran Kramer. Fran?

Thank you, Mary Jane and thank you everyone for joining us. 2016 was a big year for II-VI Incorporated. We had record bookings and shipments as well as margin improvement contributed by all segments. Photonics specifically had another record quarter in bookings and revenues. Their progress validates the value of the strategic acquisitions and R&D investments we have made in the last few years. As we discussed, we acquired two companies this year for $127 million. In June, we sold some of the commercial assets, including the legacy product lines in one of those companies for $50 million and we entered into an agreement to supply the buyer with fabricated wafers. This sale alone allowed us to significantly improve the cost structure of the former ANADIGICS. These two acquisitions significantly expanded our semiconductor laser capacity and laid the foundation for a broad optoelectronic product offering that expands the II-VI addressable market. We believe this expanded capability positioned us well to supply components for the growing number of 3D consumer sensing applications. Our fourth quarter revenues of $241 million and non-GAAP EPS of $0.40 per share were above the high-end of our range issued on April 26. Our GAAP EPS of $0.23 per share includes $0.17 of operating losses and one-time charges associated with our acquisitions, the sale of the commercial assets and the resultant restructuring at the former ANADIGICS. I’m excited about the long-term growth prospects for II-VI. So in fiscal year ‘17, we’ll increase our R&D and capital investments. Our corporate light R&D spending is expected to grow to $23 million to $25 million per quarter and our capital expenditures are expected to grow to also about 25 million to 30 million per quarter. We believe these investments will position us to be a competitive market player in several…

Thank you, Fran. Our fourth quarter concluded an exciting year. Organic revenues grew 10% and organic operating margin grew 46% as we leveraged the benefits of substantially increased volumes, timely capacity expansions, new product introductions, our vertical integration, supply chain optimization and quality and productivity improvements. For fiscal year 2016, the composition of our revenue associated with our top three end markets was 36% into industrial, 36% in to communications and 13% into military. On a regional basis, the distribution of our revenues was 46% from North America, 22% from Europe, 17% from China and 15% from the rest of the world. In our Photonics segment, bookings where a third consecutive record at 106.5 million. Revenues were up 23% sequentially and 38% over Q4 of last year. This was led by key trends that strengthened throughout the year. The North American build out of the metro cable TV and data center infrastructure builds, the China broadband initiative and the continued expansion of undersea network deployments. With the current bookings for Q1, we are confident that these demand trends will continue. Our products addressing these growing market segments include our industry-leading terrestrial and undersea 980 pumps, high-performance optical amplifiers, embedded network monitoring modules, advanced cost of interconnect solutions and differentiated custom micro-optics and filters. Again, this quarter, we booked unusually long customer commitments for as long as two or three quarters out. Moreover, we continue to expand customer engagements and design wins on how we integrated solutions, including [indiscernible] and amplifier line cords, multifunction sub systems and ultra-compact low-noise amplifiers for CFP 2 and future CFP 4 high speed transition modules. Looking forward to FY17, the increased bookings backlog and customer pool for our differentiated product offerings give us increasing confidence in our ability to sustain good performance in revenues and…

Thank you, Fran and Chuck. As you can see from our press release and what you’ve just heard from Fran and Chuck, we will have news today. The results really speak for themselves. So I'll just hit the highlights for you. In fiscal year 2016, we had organic bookings growth of $100 million. Our gross margin expanded 120 basis points to 37.8% for the year and our full-year organic or non-GAAP return on sales exceeded 10%. The major difference in our results between GAAP and non-GAAP is the effect of the acquisitions and divestitures. This includes the operating losses and the one-time costs to acquire and restructure two new companies. Together, the acquisitions were dilutive by $0.29 for the year, $0.17 in Q4 and $0.12 in Q3. The sale of the RF commercial assets reduces the ongoing operating losses considerably. Apart from the $0.29 just mentioned, we had several entries to close year-end in both our GAAP and non-GAAP results. These collectively, not including the $0.29, don't have a material effect on the EPS in the quarter. They include a $0.14 per share, non-cash tax valuation reserve arising from the combination of the new acquisitions, the purchase accounting and the divestitures, all being incorporated into our total company consolidated results. This is why you will see an unusual tax rate in the quarter of 49% and for the year, a rate of 27%. For next year, FY17, we expect the tax rate in the mid-20s. Other reserve changes in the fourth quarter to offset this include a reduction in our inventory reserve based on the inventory usage in the fourth quarter to meet the demand, that's worth about $0.04. A reduction in expense for that portion of our equity-based compensation, that is evaluated, based on the June 30 ending stock…

Thanks, Mary Jane. Fran, I’m very grateful to you and the other members of the board for your vote of confidence in my ability to next lead II-VI into the future. As only the third CEO of this great company, with its rich 45-year history as a leading innovator of engineered materials and optoelectronic components that help make the world safer, healthier, closer and more efficient, I am excited to have this opportunity to lead and to serve. Thanks in large measure to your vision and drive, II-VI has a strong base from which to continue to profitably grow. While overseeing the globalization of our business for the last 33 years, including as the President and COO -- from 2007 the President and CEO, and since 2014 as the Chairman and CEO, Fran has had a long and extremely distinguished career that has served well the employees and communities in which we operate. He has also worked tirelessly to assure that the founding values of II-VI are central to the philosophy and fabric of the company, including the drive for excellence in everything we do and assuring a results oriented culture that delivers sustainable shareholder value. Fran, your unrelenting determination to grow revenues and profits faster than the market enabled the company to grow its revenues from $5 million in FY 1983 by a compounded annual growth rate of over 16% to reach the $827 million in the just completed record FY 2016. I deeply appreciate your partnership during the last 13 years, your support during this leadership transition and for overseeing the tremendous transformation in the company. So on behalf of our board, the global leadership team and over 9000 employees around the world, we thank you for all you have done for all of us and we look forward to your continuing leadership and mentorship as the Chairman of our board. This concludes our prepared remarks. As we turn to Q&A, I’ll remind you that our answers to your questions may contain certain forward-looking statements, which are based on our best knowledge today and for which actual results may differ materially. Karen, you may open the lines for questions.

[Operator Instructions] Our first question comes from the line of Jim Ricchiuti from Needham & Company.

Hi, thank you. Good morning. Fran, I wish you the best of luck. Congratulations. Question about the R&D step up. Chuck, can you give us a better sense as to where this R&D is going to be, these resources are going to be deployed and how we might think about the benefits of this and when we might see some of the returns on this investment?

Okay, Jim. Thanks very much, Jim. As I mentioned, and we addressed in the press release, we are investing, stepping up the R&D investment in a few different areas, but in particular, we are investing to establish a scalable, high volume manufacturing platform for optoelectronic materials and devices that will expand our addressable markets. The markets that we’re aiming at are large and growing. We are initially focused on the development of the manufacturing technology platform for VCSELs, that is vertical cavity surface emitting lasers, initially for 3D sensing applications. In addition, we are also expanding our wideband gap electronic materials platform as well as making targeted investments, both in laser enterprise and our optical communications group product portfolio for what we see as the follow-on adoption of new products following this optical cycle that we’re in. But the largest single investment is to expand our capability for making VCSEL devices and optoelectronic devices. The investment will carry on for the next 4 to 6 quarters, Jim, at least and I won’t have much to say about the market today, other than we believe the market is large, growing and is anxiously awaiting this kind of a capability to be put in place in the industry and we’re expecting to lead in it. We’ll have more to say, I guess, as the quarters tick by.

Okay. With respect to the VCSEL opportunity, if my memory serves me right, it sounded like you’re anticipating revenues to begin scaling in that area in the second half of ‘17, is that something you’re still working toward

In the second half of calendar ‘17.

Okay. And is there anything you can say with respect to design wins or is that something you anticipate over the next couple of quarters?

Yes, I wouldn't have any comment to make about it today, other than we are working very diligently in that direction.

Okay, thank you.

Jim, this is Fran. I just wanted to add to what Chuck said, our investment for this platform that we’re working on is certainly not just capital, but R&D, and I don't want anybody to be misunderstanding. It's going to take both, R&D money and capital, and that's quite a double-edge sword. We’re well-positioned to do it and so that’s our focus, which is more than what we would usually take on.

Got it, thank you, Fran.

Thank you. And our next question comes from the line of Christopher Longiaru from Sidoti & Company.

Hey, guys. I will add my congratulations. It seems like your visibility continues to get better, can you give us an idea of just what's going on with visibility, what your terms numbers is to hit the midpoint of your guide and just some more clarity there?

Well, I think, first of all, yes, as Chuck said, we are seeing customers continuing to book out longer and at least for the last couple of quarters that we've seen that and obviously passed the control log, but we have seen deliveries against the forecast that we’ve had. As is true in materials -- engineered materials companies and ours is certainly probably the best example, volume helps, so a lot of the margin that we saw here in the fourth quarter was due to the volume that we delivered out of the quarter. So I would say, we're hoping to see the optical cycle still continue. We’re not trying, we’re trying hard not to get ahead of our headlights on that, steady progress continuing in laser solutions, particularly in the materials processing, cutting and processing markets and a steadiness to recovery in the performance product area. So, across-the-board, I would say we are actually expecting and do have visibility to see that, it's just, life can change in a heartbeat. So we're really not saying tons about the second half of the year until we have a little bit more even from where we are today.

That's fair. And then just in terms of, I mean, I imagine that that visibility and that demand is part of the impetus for expanding the R&D effort and the facilities in general. Can you give us an idea of how flexible that plan is in terms of the way you can adjust to any changes in how that demand plays out, maybe three, four quarters out?

Sure. Let's start with the capital. The capital is probably the first one. I think while some capital that we will invest, is that probably a decent part of it, is an anticipation of growth markets, the capital that we will invest, for example, to expand in the optical communications area, we've actually expanded our capacity through the 16-year without a lot of hoopla. We’re very -- as the team, which is very, very good at this in that particular segment, builds out a new line, there is a lot of work that goes into increasing the productivity of the line as well. So obviously, we have worked hard to be sure as well that we have demand going into several customers at several layers of various parts of the network. So I think at the end of the day, I think we would have at least some visibility to not invest too far ahead on that. I think with respect to the buildup of the VCSELs, both for the capital and the R&D, there is a little bit of an investing for the future here, whether or not it's on exactly the timeline we see, we can see that there are quite a lot of applications where the packaging side, the power of a VCSEL is very, very valuable and as Chuck and Fran both said, we see the world looking for this kind of capability, but let me have Chuck add to that.

Yes, sure. Thanks, Mary Jane. Chris, I would simply add that for the booking R&D, and the capital investment, we’re putting a platform in place. It takes time to put it in place and qualify and it needs to be put in place, qualified ahead of the ramp in products. Most of that effort, at least as it relates to optoelectronic devices and high-volume VCSELs, will take place in our fiscal year 17. So that is number one. We’re also investing in Zurich and expanding our laser fabrication capability there, in order to keep up with the growing demand in the optical communication market for 980 pump lasers, where we make the devices itself and also for a large increase in forecasted demand for 25G VCSEL chips for the datacom and the data center markets, which we are a market leader in. So that investment is not a platform investment, but is targeted for in-year revenue expansion, whereas the platform investment that we're talking about is for -- after FY17 revenue expansion. Okay?

That's very helpful. Thank you guys. That's all I have.

Thank you. And our next question comes from the line of Ted Moreau from Terrace Research.

Thank you very much. Great quarter, guys. And I’d like to offer my congratulations to both Fran and Chuck for that matter. So good work. A couple of quick questions. So obviously the visibility is really good, just kind of curious, what percentage of your business was quick turns in the quarter and how does that compare with kind of recent history?

Well, I would say that as a general matter, we have business that is quick turns in the corner, probably more across laser solutions and photonics than we necessarily might in performance products. And I think given how -- above the guidance we were -- obviously, there was perhaps more in this fourth quarter than we've historically seen, but the fourth quarter, I mean it is the last quarter of the year, it is historically, largest quarter. So if I compare fourth quarter over fourth quarter, I don't know that we had a massively material difference on quick turns in the quarter. But certainly, we did have them. And as for a specific percentage of the revenue, I’m not sure we would really be able to give you that.

Okay, got it.

I would add, Mary Jane, that for sure in a couple of the divisions including in laser solutions, we saw, toward the end of the fourth quarter, a very significant increase in quick turns business, especially around our 1 micron products and especially around demand from Asia. So there are hotspots that come across in the market, Ted, and many of our divisions are accustomed to that quick turns business, but a big part of our story, at least as it related in the fourth quarter, was more about extended purchase orders and longer term visibility in our photonics segment.

Got it, great. And on the photonics segment, just kind of curious, some suppliers out there have been talking about inventory buildup in the broadband PON market in China, but it doesn't sound like you’re seeing that, so just kind of curious as to what you're seeing and why there might be a disconnect from some of the other players that are targeting that market?

Okay Ted, I can take that. We’ve been on a - we are a key supplier for filters for the PON market in China. We’re the leading supplier, so it’s one that we have a good pulse on, it’s been quite strong leading up until the fourth quarter, it’s been quite strong for the prior, I will call it four to six quarter before that at least. And we did experience a noticeable drop in demand in the fourth quarter and I think that it will carry on here into the first quarter. However having said that, I think the demand is coming off of a peak and will be stable may be on a slightly lower demand than we experienced in the first three quarter of last year, I think it will stabilize beginning this quarter and I think we’ll see that demand stay constant for the rest of the fiscal year if not at least the next two quarters.

So sequentially, guiding revenue down maybe about 20 million from the June quarter, so is that much of that is seasonal given Q1 tends to be a little bit softer for you guys versus maybe photonics coming down, I don't know if photonics is going to come down because of the China broadband sluggish kind of inventory correction going on there or how do you think about that?

Well, we had the revenue drop from fourth quarter of ‘15 to the first quarter of ’16 almost $8 million last year and we were I think by all accounts just at the beginning of the optical cycle. So, I think we are - we had as Chuck just described I think some very quick trends particularly in the one-micron business but generally speaking I would say that it’s seasonal, I mean we’ve had this conversation before kind of can fall between Q1 and Q2 which are the – which one is the weaker quarter of the year and right now that's the visibility that we have and of course whatever the demand and customer requirements are for the quarter will deliver them, we've done that before.

I would add that after four weeks here that it seems to be that seasonality seems to be right on par with we would expect.

Given continued strong bookings on photonics, are you still capacity constrained there or then the investment is going to other areas, newer opportunities or do you still have to add capacity because of the constraints?

I'm happy to take that on, I’d like to give you a brought context for that. 2016 compared to 2015 for this business, we increased our capacity by 100% ‘16 to ’15. And we did that on the heels of the acquisitions positioning our product portfolio and getting us in line of sight with not with just long-term demand but with absolute intimacy for short-term requirements of customers. So when we put the capacity in place and ramped up the labor to balance it, we were very confident at the time that it would be a really good deal for us. As I looked in ‘17 compared to ’16, we still need to add some additional capacity and we plan to do that. However it's not as much as the step up from ‘15 to ‘16 and we have a couple of once that are running at 95% plus or minus 5% in terms of capacity relative to the demand but our operating team, our global operating team has really done a fantastic job and despite the fact that lead times have pushed out a little bit, they have a clear path, they have the autonomy and they have the drive to be able to match especially as they can, customer requirements so that they can expand the capacity smartly and I can assure you that we will add capacity this quarter and next quarter for what we as future opportunity for us.

And final question, on SG&A side, so should we expect SG&A to remain at similar levels or does that any put and takes on SG&A in the coming quarters?

If you are in the press release and you're looking at the full-year number, the full year number for SG&A as reported will obviously consider - continue with quite a bit of these one-time expenses, so I think you should expect to see that that SG&A trends down more toward what it was for the full ‘15 year.

Full ‘15 got it. Final question, how much revenue did you - was contributed from the ANADIGICS business that was divested in the quarter? Was there any revenue from that?

We did sell the commercial assets, so we sold the revenue lines, we did not disclose that.

Thank you. And our next question comes from the line of Dave Kang from B. Riley.

So, going back to the photonics segment, how much was the filters in terms of overall photonics revenue is it fairly material?

We don't disclose it Dave but I'm not sure what else - what we can say about it, it’s definitely in minority of the sales

So going back to the decline - sequential decline from fiscal fourth quarter to first quarter, I assume a lot of that is coming from the laser solution segment. And on photonics if you exclude the filters, I assume that’s going to be down sequentially, will the rest of the photonics will be what flat, up, just wanted to go over some of the assumptions regarding the outlook?

So, first of all the laser solutions market tends to have a softer first-quarter because of the summer, so they have part of the amount is down. The second one is that in performance products, we have pretty good shipment as scheduled as forecasted in the fourth quarter in the thermal electric products and that is not expected to repeat based on the way the forecast is going, in other words that delivery is very lumpy across quarters. From a photonics point of view, generally speaking, I think this is how you need to think about it, the photonics forecast may not be exactly perfectly flat with the fourth quarter but it is still up in the rather a bit on the first quarter of last year.

Up year-over-year, but could be flat sequentially?

I said it might probably wouldn't be flat sequentially that's part of what we're forecasting again just trying to balance when we’ll see the softness. Sometimes we have photonics in the first quarter because of the summer based on where end customers are, sometimes we have it [indiscernible], so I'm not saying it's flat sequentially but I'm saying for sure it is up over where it was not only in the first quarter but even in the third.

When you’re say photonics, your including that the filter segment as well, correct just wanted to be clear?

The filters are in the photonics segment, Dave.

And Chuck, can you just talk about maybe what do you see in the photonics visibility as far as geography especially [indiscernible] last week about North America, can you just talk about what's going on North America, China and Europe that will be very helpful?

I can say for sure David that all three regions, all three regions are in strong demand as far as for our products go.

Even Europe with Brexit and all that?

Even Europe, absolutely yes. Including Europe either directly or for our customers, we’re serving into the European market and our demand is strong in all three regions.

So I just maybe somebody asked already but are you experiencing some supply constraints or capacity shortages at this point, some of your competitors are saying they are still impacted by supply constraints and all that, I mean did you leave any revenues on the table last quarter?

Dave, let me take your a question head-on that we’re sure in a complex supply chain for a company that sells product at the levels of integration we do from time to time including this time there are challenges with the supply chain for certain components that we buy in the outside. Our teams are doing an extraordinary job, a lot of that supply chain as you may know is actually based in China and our global photonics team which is headquartered in China does an extraordinary job of managing the supply chain from within China. They do a robust with that. Another aspect of our supply chain in any optical communications group, we are largely a vertically integrated company and therefore the supply chain constraints that we have are actually the internal constraints that we need to manage. That's a great challenge for us to have and we embrace it across both the laser solution segment and the photonic segment, where the teams in both of those businesses are cooperating with a great sense of urgency and anticipation and cooperation, we are sure that the outages that we might ordinarily experience are absolutely minimized.

And the last question is going back to the filter situation, my understanding is that that the reason that PON - Chinese PON is a little bit soft is because it's going from 2.5 gig to 10 gig transition, so I just wanted to know how you’re positioned in the 10 gig side of the equation.

I think we are extremely well positioned Dave.

Can you walk over the transition from 2.5 to 10 gig, is 10 gig starting to ramp or is just 2.5 declining while 10 gig is maybe later this year is that why you're experiencing some softness in demand at this point?

Dave, I would say this, I don't want to make any other comments that would suggest some details or some information regarding our customer's plans. I can tell you that well positioned in our portfolio to accommodate a step up in demand for ten and I do believe that this decrease that I mentioned I think will be temporary will stabilize and I think the demand will begin to increase sometime in the next 2 to 4 quarters.

Thank you. And our next question comes from a line of Mark Miller from Benchmark.

You mentioned China was strong so I'm assuming both telcom and fiber laser components were strong in china is that correct?

That's correct.

Does it personally get the year-ending backlog in 2015, do you have that on hand?

We will check Mark, Mary Jane will check, while she is checking do you have another question we can take?

Well, this might be one for her also, what was cash from operations just for the quarter – for the June quarter?

Could you repeat that Mark?

What was cash from operations just for the June quarter not for the year, you have the year report?

We’re checking that for you too.

It’s the neighborhood of $38 million. And the fiscal ‘15 year ending backlog was 242. And let me just make a quick correction to what I said on the script, I had said our backlog for this year was 290, it’s 298.

I had 298 actually. Okay, thank you.

Thank you. Our next question is a follow-up from the line of Jim Ricchiuti from Needham.

As you stepped into role as CEO, the company has been exquisite for the last couple of years, I'm wondering as you look at the strategy going forward is the near-term going to be characterized by more of the integration of what you required recently and trying to execute on some of these growth broad areas or are there some areas that you could see pursuing from an acquisition standpoint in the near term?

Okay Jim, thanks a lot for your question. I would say that for the core of our strategy going forward I would take it just as a straight line for where we come from. It’s difficult for us as we did with the Oclaro acquisitions to go ahead and spend the time, we did a real nice job planning it, getting it in-house, getting it organized getting it stabilized, putting the opportunity through both the market and the product portfolio and the operations and then alone it seems to grow. And I would say that’s pretty much where we are with the most recent acquisitions that we’ve done, we’re stepping up our organic investments on the belief that the long-term prospects for devices that can be made on that platform is very, very strong for II-VI in the long-term. We need to stick to the knitting and make sure that we get them done on time, get things in place. However, we will continue to grow both by organic investments and by acquisition that's my belief. And so, we won’t take our eye of the ball for strategic planning for the long-range but we will be as determined as we ever where [indiscernible] was the CEO to make sure that we do things right we do the right things and that we get the absolute best deal we can for the II-VI shareholder in the short term and then we can make real good on it in the long term.

I would say certainly what Chuck said is just right, we think we’re well positioned, we do want to integrate what we've bought and work on the organic opportunity in virtual platform right now at the same time there are other things we could acquiring we are right now to do any but there are a couple of mirror. So [indiscernible] two thirds of integration in fix and one third to look at other acquisitions, we’re just we have to do that it’s a type of business we’re where we’re material suppliers merchant suppliers have to keep our eyes open and we’ll continue to do that.

That's helpful. Mary Jane, I just want to make sure to clarify something, you gave some breakout of end markets earlier in the call in your presentation was that for the fiscal year for the fiscal fourth quarter, the industrial, communications, military pieces that you highlighted?

For the year.

For the year, okay. Maybe, just looking in gross margin fairly wide range that you're talking about, is there, can you give us some help as to how we might think about some margins beyond fiscal ‘17 gross margins and you may not be willing to do it just yet but just given the investments you’re making and given the way the profile of the business could change looking out into the latter part of calendar ’17, any help on how we might think about gross margins?

Let me just first say this, in this company we are very, very committed to a lot of things that are kind of when the company by the basics and that starts with if a money isn't made at the gross margin level it's basically not made, so continued focus on the management improvement of the gross margin is really important to us. So I would say that we take even small changes in the gross margin pretty seriously and while I am actually not going to range for the back half of ‘17 or ’18, I would tell you that the company is very cognizant of the sorts of gross margin we've had in the past, we focus on new products to improve or certainly not dilute the gross margin. But volume does matter, the single biggest thing that will affect the gross margin is aside from just natural yield is what you sell off the yield. So those things do make a difference and I think as Chuck said as we expand our capacity, our team manages the manufacturing engineering in this company throughout all the segments are very, very good at that and they look to be sure that capacity addition is being done as Chuck said with full view of how it's going to be used for productivity improvement et cetera. So while we do have a pretty wide range for a few different reasons not the least of which is just trying to be cautious on exactly how the communication for the whole year or four quarters. We certainly would drive not be living at the bottom of it I would say.

If I think about the looking at the end markets, communication pieces is that the piece that’s there is more variability just because of the activity you’ve seen over the past year and some of the reasons developments. I'm wondering how you're viewing the industrial piece of the business just given the puts and takes in that market?

First of all we continue to view the industrial market very favorably that is an important market we are very good at that but we are also very good at the rest of the market. I would say what makes optimal communications more variable with respect to the gross margin is in times such as we may be set to be seeing today there were capacities being constrained, orders are going out further, they may not be as much pressure on price decrease over time as we would typically see in a more down part of the cycle where the quarterly reduction in price is not only much more aggressive, it may not be limited to once a quarter. So, that again at the end of the day it’s really about demand, but I would say where we see the cycle right at the present moment at the very least people are not having as much time or really just as much supply chain capacity to be able to be pushing prices down as they have in the past, Chuck would like to add to that?

I would say that we continue with a very, very strong dedication and focus on industrial market Jim, as I mentioned in my comments we had another record quarter for our one-micron components for the industry material processing market. China seems to be in the last quarter and maybe half of the third quarter and our full fourth quarter very, very strong the demand a strong, the demand for our current products was strong in the fourth quarter and the demand for existing products at new customers including very sophisticated beam delivery systems and cutting tools has increased in the last two or three months beyond any interest that we've seen before that. So, we reorganized the salesforce we've increased our team both in China and Korea and in Japan as well as the supporting the team dynamics in Europe and in the US. It will continue to be a very important market for us to invest and manage and growing.

[Operator Instructions] Our next question is a follow-up from the line of Mark Miller from Benchmark,

Just wanted to see if I missed anything especially about 2017 outlook, you give a guidance range for gross margin of 35% 39%, R&D 23 to 25 million per quarter, whether there any other details given on the outlook for 2017 I might've missed?

No particularly, obviously we did talk about some capital increasing which to the extent that we have just [indiscernible] but those are probably the main ones that really the margin growth next year other than just changes from the top line.

Did you say SG&A would be trimming down to 2015 levels as a percentage of sales, did I have that right?

Yes, you have that right, I mean that is $12.5 million at the very least and they are just not my time expenses.

Thank you and that concludes our question and answer session for today, I would like to turn the conference back over to II-VI for any closing comments.

We want to thank you all for joining us today, thank you for your support throughout this year and we will see you on October 25, thank you joining us.

Thank you, ladies and gentlemen thank you for your participation in today's conference this does conclude the program and you may now disconnect, everyone have a good day.