Greetings and welcome to the Materion First Quarter 2012 Earnings Call. At this time, all participants are in a listen-only mode. A brief Question and Answer session will follow the formal presentation. [Operator instructions] As a reminder, this call is being recorded. It is now my pleasure to introduce your host Mr. Michael Hasychak, Vice President, Treasurer and Secretary for Materion. Thank you Mr. Hasychak, you may begin.

Good morning. This is Mike Hasychak. With me today is Dick Hipple, President, Chairman and CEO; John Grampa, Senior Vice President Finance and Chief Financial Officer, and Jim Marrotte, Vice President and Corporate Controller. Our format for today's conference call is as follows: John Grampa will comment on the first quarter 2012 results and the outlook. Dick Hipple will give a market update. Thereafter, we will open up the teleconference call for your questions. A recorded playback of this call will be available until May 11th by dialing area code (877) 660-6853, account number 286, and conference I.D. number 388589. The call will also be archived on the Company's website materion.com. To access the replay, click on Events and Presentations on the Investor Relations page. Any forward-looking statements made in this announcement including those in the Outlook section and during the Question and Answer portion are based on current expectations. The Company's actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. Those factors are listed in the Earnings Press Release issued this morning. Now, I'll turn it over to John Grampa for comments.

Thank you, Mike. Good morning, everyone. Welcome to the call and thanks for taking the time to join us this morning. Today's agenda is identical to that of our past calls. I will review the results for the quarter and then comment on the outlook for the second quarter and the balance of the year. Then following my comments, Dick Hipple will review the current state and the outlook of our current markets. He'll also review the status of the start-up of the new beryllium plant and the announced decision to relocate the production capabilities of our Newburyport Massachusetts facility to our facility in Singapore. And then following Dick, we will open the call for your questions. For those of you who have not yet had a chance to review the press release in any detail, I will begin with a brief summary of the key points that are in that release. Then, as I normally do, I'll cover the factors affecting the reported sales level, isolating real or organic changes from the effect of pass-through metal price changes which as most of you are aware can in our Company cloud organic business level changes, particularly in an environment where metal pass-through prices are moving up or down. I will comment on sales and margins by market, comparing sequentially to the fourth quarter of the prior year and highlighting the key changes, especially changes in trends. I will also disclose the cost associated with the start-up of the new beryllium plant and the integration of the EIS Optics acquisition. I'll review the balance sheet, cash flow and cash flow projections, and I'll discuss the outlook for the balance of 2012 as we see it unfolding at this time. With that as an introduction, let's begin with a brief summary of…

Thank you, John. As expected, we saw a nice lift in business sequentially from the fourth quarter of 2011 into the first quarter of 2012. However, overall business levels are still lower than the first quarter of 2011, except for a few markets like the oil and gas, commercial aerospace and medical sectors that continue to outperform last year. Our consumer electronics business has followed the overall market, which has resulted in a softer start in 2012, as compared to 2011. For example, a recent industry report indicated overall, semiconductor sales were down 8% year-to-year in the first quarter. In fact, many recent earnings calls in this base, including our customers, indicate a similar year-to-year decline and a quarterly sequential decline from the fourth quarter. I am pleased that we saw a good sequential improvement from the fourth quarter, and expect to see this improvement to continue. So looking forward, we see our consumer electronics business gaining strength from the first quarter into the second, but not as strong as we originally expected. There are many industry and customer forecasts that indicate we should see a strong second half. So exact timing for a strong push upward is difficult to predict. The point I am trying to make is that we are seeing ongoing sequential strengths in the electronics sector, but at a slower ramp-up than originally expected. The telecom infrastructure side of the business has shown some ongoing weakness. Most of this is driven by our all-time high record sales in 2011 and an inventory adjustment being made in our supply chain. There are current customers that have announced cutbacks and adjustments to their workforce. Meanwhile, the longer order cycle business for undersea optics remains robust. So, overall, the growth in the telecom infrastructure market may be weaker than…

[Operator instructions] Our first question is from Martin Englert with Jefferies.

I had a few questions about the guidance and some of the underlying assumptions there. I guess, within the guidance that you have now, do you have any assumption of re-stock occurring within consumer electronics or any other end-markets? And then, where would you expect demand levels to, I guess, reach, relative to where they were in the peak of the prior year?

Well, again, part of that last year was a rebuild of inventories. We don't have assumptions in our forecast for rebuilding inventories. So we're just looking at what we believe the organic growth to be going forward.

Would do you assume the, I guess, value-add of revenue growth will be in 2012?

I don't have that number in front of me. The overall year-over-year growth is I think what you are asking, versus sequential, which I did provide. It is really going to be highly dependent upon, obviously, the second half of the year. In that particular market, I think our assumption at this point, is rather than double-digit, single-digit growth.

Okay. That's helpful.

Overall. Overall for the year.

And within performance allies, what margins were worse than the prior year? They were aided by a price increase, I guess. Can you provide any more detail there on the average base-price increase for those products for 2012 relative to last year? And then if any of your other segments, if you are increasing base prices, if you have already or are planning to in the coming quarters?

The movement in price is not inconsequential and obviously we have not disclosed other than announced price increases that you can see in schedules that are in the market. Mix has a dramatic affect on average pricing in this business. I think it would be fair to say, that if we were to look at 2011 and let's wait and see what happens in 2012, that we probably had close to $750,000 to $1 million a quarter better pricing than in prior years. That is still intact and growing a bit as this year progresses but not nearly as dramatically.

Would you say that on average it was low single-digits, mid-single digits or . . .

You mean this year?

Yes, for 2012.

Low single-digits.

Low single-digits.

You've got to remember that we're comparing to last year as these price increases were rolling in, so that would be over last year. There isn't going to be as a high percent.

Correct.

Are you able to provide any more detail, I guess, on the mix shift, which seemed to have a pretty significant impact on many of your segments? And you noted in your guidance that you expect some of this to normalize and anticipate some improved mix as you progress through the year. What was driving the mix shift? Is it a shift away from less consumer electronics relative to the rest of the sales or . . .

That's right.

That is?

That's exactly right, less consumer electronics.

Okay. So that's a pretty big impact as far as the value-added work that you're doing there. And as that ramps back up, that should help improve the margin profile for a number of your segments, correct?

That's correct.

Our next question is from the line of Hendi Susanto with Gabelli.

You indicated free cash flow guidance of about $40 million for 2012 and CapEx of $30 million to $35 million. I think that would imply cash flow from operation of $70 million to $75 million, which is higher than the past three years. Considering that order visibility is limited and Q2 may be still challenging, what are your assumptions in your free cash flow guidance and what gives you confidence?

Well, obviously the free cash flow guidance is highly dependent on the growth assumption that we have in there for the balance of the year. So assuming we hit those inventory levels, our CapEx -- capital spending appetite has not increased and our depreciation will not change. So earnings will flow into cash as the growth continues.

So you're also expecting a strong second half of 2012?

That's what our guidance suggests. That's correct.

Okay. And then the reduction in CapEx, what does it correspond to?

Our CapEx range is similar to prior ranges. It's probably a little bit lower than what we had anticipated at the beginning of the year, but not much.

Okay. So it's just like revisions?

Just fine tuning.

Yes.

Okay. And then would you share the startup costs of the beryllium plant in Q1 and what's your expectation of the startup cost in Q2? Furthermore, could you also share what were the issues in Q1 and what will be in Q2?

Well, I'll let Dick talk about the issues, if we can call them issues at this point. But as I had indicated, in Q1 the impact of the beryllium plant startup was about $0.04 a share. The second quarter will be slightly less than that...

Within in that range, though.

Within that range of that number, plus or minus. And then we'll let Dick comment on the…

So the question was on the first quarter, what happened in the first quarter? Okay. In the first quarter, we had a problem with a couple of our heat exchangers in the system with some corrosion. And we were handling a hydrogen fluoride solution in that plant which is highly corrosive. And so, we had to solve that issue, which we have. And so the plant's up and running but that was the issue that had affected us in the first quarter.

And will there be any issue in Q2 that…

Let me explain something. Yes, I think your question is fair. But I think it is important that everybody understand that when we talk about cost, we’ve got a facility with costs there and inventory isn’t being built, material is not being produced. As we ramp-up and as inventory begins to be built, the output of that facility delivering quality inventory, we are going to absorb costs onto the balance sheet into the inventory value. So what you have happening right now is largely unabsorbed overhead or unabsorbed costs from an accounting perspective. So as the volume ramps, we'll cross-through and begin to absorb those into the normal inventory levels. This is not too a large extent, cash costs that are gong disappear.

So quarter-to-date, there is no longer like an operational issue, it's just a purely, ramping up issue?

Yes. As I mentioned in my comments, we are fighting no major equipment issues at this time.

Okay. And then, could you share some idea of factories utilizations, Q2 and Q3?

Factory utilizations, oh man. We have, like, 27 operations around, it's going...

I meant for the beryllium plant.

Oh, for the beryllium plant. That's an interesting question, because the Pebbles Plant is independent at this point in time from the rest of the operations. Because we are still running the beryllium operation off of other raw material that we are getting from the strategic stockpile, so it’s not affecting -- this Pebbles Plant doesn't affect our product that we are shipping to customers right now. So they are kind of different subjects. But if you kind of think about our defense business in the high beryllium, we are probably running a 65%-type level.

Our next question comes from the line of Rob Young with Wm Smith.

I was just curious, could you go over some of the priorities that you have for your capital deployment. With that $40 million, is there any priority that you have with that?

Yes. We are doing some expansion work in our Alloy division particularly focused on our bulk business which gets to the commercial aerospace and oil and gas, in particular. So we’ve got a few bottlenecks there that we will be relieving through some capital. So that's one major area. We have a -- capitals being spent as we expand our operations in Singapore. That's focused on our Precious Alloys and Microelectronics business. As I mentioned earlier in the call, we have some spending there. Those are probably the two major areas in spending, then, we have a lot of what I call, just non-discretionary-type spending to keep good maintenance across the plants.

Right. Is there anything with M&A or dividends or share buyback that might be an opportunity?

We just consummated two acquisitions in the last several months. So my philosophy there is we need to get those things well-integrated, focused, up and running, getting the appropriate earnings out of these in accretion. So we'll focus on those and then as we always are, constantly on the look-out in the market for additional acquisitions but again, you typically won't see us do multiple ones all together. I mean, we're going to be a conservative approach as we move forward.

Okay. And switching gears, is there a possible, I guess, can you quantify a little bit of the inventory levels at some of your end-markets? I know that there is a broad breadth of them. But is there any way to quantify what the inventory levels are now, relative to what they were, say, last year, relative to sales?

It's always a difficult thing, Rob, for us to quantify with any precision. We can get indication from time-to-time from order patterns, what inventory levels might look like in specific channels. Lead times, sometimes they get pushed in, they get pulled out, sometimes order levels are high or low and sometimes demand from week-to-week is higher or lower rather than smooth. I would say that it is our belief that the inventory level that the over-inventory that was sitting in the consumer electronics channel the second half of last year is probably not there today.

Okay. Then, what about -- is there an over-inventory that's developing in your tough med [ph], aerospace, or is that just...

Oh, definitely not. Definitely not.

It's just growing with demand?

Yes.

Okay. Then, lastly, I just wanted to make sure I caught this. John, did you say $0.15 to $0.20 in kind of unusual expenses that you're foreseeing for the full year of 2012?

That's right.

Okay. That's included in your GAAP estimate. Correct?

Yes.

Our next question is from the line of John Kerr [ph], a private investor.

Yes. I was reading recently about Liquidmetal Technology with the Apple iPhone. Could you give us any update as to your relationship with Liquidmetal technologies?

Yes. There was an announcement out several months ago, and really what that was, is through one of our wholly owned subsidiaries, which is Materion Brush, which is our beryllium and composites group, we entered into a partnership with Liquidmetals Technologies to produce liquid metal alloy and materials and this was announced by Liquidmetals in November of last year.

Our next question is from the line of Brad Evans from Heartland Funds.

Sorry to be a little slow here this morning, but I'm a little confused because I know on the first quarter call you did call out $0.07 to $0.10 of unusual items for the first half of the year associated with the beryllium plant ramp-up. So, we're now at $0.15 to $0.20 and you've outlined, I think as you said $0.04 of additional in the second quarter. So we're kind of looking at $0.03 to $0.04 of start-up costs for every quarter of the year? Is that the way we should think about it.

Yeah. Brad, I think we could have been a little clearer. I think the costs were a little higher in the first quarter for the beryllium plant, and for the integration and the acquisition than what we said they’d thought they would be. So there might be a $0.01 or so in that estimate change, for that. We do have costs beyond the second quarter. We're not assuming that we're going to get ramped through that point, where we absorb that overhead all to the balance sheet in one given instant. So, yes, there always was third and fourth quarter numbers there, declining as the year progresses. And now we also have the costs associated with the Newburyport facility in that number, so all in its $0.15 to $0.20.

You said $0.04 on the first quarter. Correct?

$0.07 in the first quarter, $0.04 of which was beryllium.

Okay. Excuse me. That's what I was confused by. A lot of numbers being poured around, but that's very helpful. I guess, when you look at the revised guidance you have a slightly higher tax rate, and the higher cost associated with the restructuring the beryllium plant. It actually looks like absent those items, your guidance is actually still relatively close to what you originally thought.

I think a combination of those two factors, that's right.

Okay. Just on the prior question, are you working with Liquid Metals on the Apple iPhone 5?

Well, we really can't comment on any future development efforts involving Apple, regardless of whether we are involved or not involved.

Diplomatic answer. Your EBITA estimates for the 102 to 108, you did not include stock based compensation in that number, so the additional 6 million of the stock based comp could be additive to that number. Is that correct?

We do not add that stock compensation to that. That is just traditional, old-fashioned EBITA calculations, right.

And then my last question, thanks for the patience here, did you give a book-to-bill ratio in the quarter?

No we didn't. Obviously, the book is higher than the bill in the quarter. What really is difficult though Brad, is in the fourth quarter of last year the book was below the bill. In the first quarter of this year, it's slightly above and we did ship the occasional twice a year NGK shipment in the first quarter. Book-to-bill was using the math in the gap numbers, about 101:1, if you adjust for the NGK shipment which was booked earlier. Other than that, it's 103:1.

Okay. Would you mind just giving us -- how is April looking at this point? Have you seen a favorable trend as you come -- well, let me ask two questions? Did the bookings accelerate through the quarter, and how does April feel to you at this point?

Well, that's a fair comment. Let me walk you through that because I think that's relevant for everyone to understand and I'm glad you asked. The ramp that we saw in the first quarter was rapid through about the middle of February, and then kind of flattened and bounced around for the last four to five weeks in the first quarter. That's when I referenced earlier, up weeks, down weeks. It's sort of erratic behavior in markets, which give us some concern. It did not continue to grow through the March period into the second quarter, although, it did not decline. If anything, there's a slight lift now from what existed in the middle of March.

It sounds like there was an inventory build in front of the lunar new year, and then they probably worked down those inventories, and now they're back at it.

It could be. Markets are so unpredictable right now, regardless of what you read. We're seeing that level of unpredictability in that order pattern. We see some extraordinary weeks and we see some weak weeks. It's really difficult for us to judge from that, other than we don't think there's any inventory overhang. Based on what we're hearing our customers say and what we're seeing the market say and their own quarterly releases, we think the second half of the year is going to be pretty robust.

Okay. I'm sorry, let me sneak one more in, because if you hit your -- the free cash flow dynamics and the debt reduction are great, and I know that you all have these aspirations to grow organically, selectively to build out the portfolio, which has been successful. So that's all good, but if you hit your numbers for the year the company is trading a little less than six times forward EBITDA. And I'm just curious whether the Board or management might have an appetite to buy back stock in light of the market seems to be fairly negative on your outlook, and you might be inclined to have a more favorable outlook.

Well, that's correct, and obviously besides the normal stuff that we're doing with regards to organic growth and acquisitions, certainly both buy back and dividend-type actions would certainly be under consideration.

[Operator Instructions] Our next question is from the line of Phil Gibbs with KeyBanc.

John, did you say that the organic growth this year is still going to be in the 2% to 3% range like low low single digits?

I implied that. I was commenting specifically on consumer electronics.

Okay. But is that fair for the business in entirety?

Yes.

Okay. If we look at the EIS integration costs, the closure of the micro packaging business, the beryllium startup, is it fair on an absolute dollar basis that those three items are around $3 million to $5 million for this year? Is that the right way to look at it? I know you gave it on a per share basis, but as far as the hit to EBITDA, about $3 million to $5 million?

Yes.

Okay. And your earnings guidance reduction, how much of that should we think about being related to some of these one off items versus the demand?

Yes, let's clarify that. The majority of it is the dial down of demand. We had anticipated, although we had not announced it, that we would be relocating the Newburyport production to Asia, so that's not a new one for us in our guidance. And the change in the estimate for the startup is only a couple of pennies a share. So the majority of the change in guidance is demand -- slower start to second quarter.

It's the slower start, it’s still growing but a slower start than we expected it in the early part of the year, that's all.

Okay. I'm trying to parcel this out from the comments you've already made, but by-and-large that's consumer electronics, automotive electronics, and telecom infrastructure for the most part?

That’s correct.

Largely consumer and telecom infrastructure and a little bit automotive.

I'm sorry, I heard auto, consumer . . .

Automotive would be third in the list of three; Consumer electronics, telecom infrastructure, and a bit in automotive.

Our next question is from the line of Avinash Kant with D.A. Davidson.

I may have missed one or two numbers actually. You talked about excluding the impact of metal pass-through in the quarter. How much was it, revenues were up sequentially in year-over-year?

Well, you're saying the quarter or the…

The Q1 compared to the last year's Q1.

I did cover that. The reported decline was 10% net of metal pass-through.

10%. Okay. And I think you also gave the gross, the value-added gross margins and operating margins, and you said operating margins were below double digit this time, high single-digit?

Yes, what I had commented on was that the change due to the volumes and mix had taken those numbers to the high single digits from the 14% to 15% range that it typically is, operating profit percent of value-added sales.

Right. So as you're expecting higher volumes most likely in Q2, how should we think of margins trending and maybe more important in the second half of the year?

Well, I commented that by the second half of the year, with business levels back to the levels that existed historically, our margins should be back to those levels, as well. Where we get to in the second quarter would be maybe a spread between where we are and there, assuming that the growth is linear to that point. So clearly an improvement clearly coming closer to the historical rates, but I wouldn't commit to a historical rate for the second quarter.

And trying to see the confidence level in the recovery in the second half, are there any business segments where you see more visibility versus the others?

Well, certainly. You certainly know the finicky nature of the electronics side, but, yes, I would say that we're quite confident on the oil and the gas and the commercial aerospace and the medical side of the business, that's quite solid.

But would you talk about if you have new opportunities, if you have new customers happening or new products, what kind of growth do you anticipate this year from those initiatives versus just the overall growth in the market?

Well, again, Avinash, that's a key part of our equation. I think that growth from those kind of new products are going to be adding in a range of probably 3% to 4% growth for us in the year from the new products. Just exclusively from those.

Perfect. Any particular trends in pricing of metal or even beryllium?

Well the pricing, as you know, has been a big focus of the company and what we've done is we've started on our performance alloy business, really setting up the whole structure of our approach. Now that's moved over to our AMTS business, so that's a big focus this year, of getting pricing better into that business. So that's going -- and that’s ongoing as we speak. I expect to get some nice results from that as the year unfolds.

Our next question is from the line of Andrew Murthel [ph], a private investor.

I'm very interested in new products. You mentioned, in general, that you have a new section within Beryllium and Composite division which is amorphous metals. How much percentage of the division do you think that new amorphous metals technology might become of the total section or division Beryllium and Composite?

That's a whole new platform. The Liquid Metals has been around for a long time, and it really hasn't grown much. We do see that there's some unfolding opportunities and refocus in this whole area. We're excited about the opportunities. Forecasting exactly where we're going to go is difficult because what's happening right now is there's a lot of experimentation in the market for the use of these kinds of metals. So that when you're on the early edge of things it all depends on what the experimentation brings to the end customer and what he eventually thinks he can do with the product, and how it's going to compete. But it’s a very interesting metal because it has a couple interesting attributes. One is it gives you extremely good surface quality. And the other attribute of it is you can cast it in almost well in finished form, so that you can get a very stiff flexible product, and it can basically eliminate machining. Very unique metal, obviously it's not cheap. So that's the balance, where you might be looking for -- I think, and the way I look at it is saving a lot of machining costs against other expensive metals. I think liquid metal has a nice play, and we are certainly supporting the technology and developing the technology ourselves to be able to support growth in this area.

Thank you. A follow up, do you expect that your role is mainly in the supply of ingots, or since your company is very vertically integrated that you would take your own ingots that you produce of the alloy and perhaps utilize it for production of value-added products in your new acquisition in England, for example, in aerospace or other areas. How do you see your role as, for amorphous metals?

Well I think right now our focus is in where our key expertise is, which is in the development of the feedstock that goes in the guys that are casting this stuff.

Our next question is from the line of Phil Gibbs with KeyBanc.

John, was there any revenue that you could point out from acquisition in the first quarter? Parcel that out from organic, a little bit from EIS.

Well there was a little bit there, Phil, but we don't disclose the level of business in the subsidiary companies or subsets of pieces of our business, but you're right. There's a little bit there versus prior year. Not a whole lot different than the fourth quarter though because we owned them in the middle of October.

Our next question is from the line of Brad Evans with Heartlands Funds.

Yes, sorry I was remiss. I should have offered an opinion. I do think a small dividend would be a good move actually in terms of returning capital to shareholders, versus the buyback, because of the lower share account that you have. Although, both make sense in my opinion. I wanted to ask you, John I'm sorry, with respect to the Beryllium plant, the headwind that you’re facing this year, knowing what you know right now what's the magnitude of profitability swing we could see in 2013 based upon the loss this year to profit next year. What's the range of potential outcomes there?

$0.10 to $0.15 a share, for that factor.

We have no further questions. At this time, I would like to turn the floor back over to management for closing remarks.

Yes, this is Mike Hasychak. We'd like to thank all of you for participating on a call. I will be around for the remainder of the day to answer any questions. My direct dial number is 216-383-6823. Thank you very much.

Thank you. Ladies and gentlemen this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.