Greetings and welcome to Materion Corporation’s Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mike Hasychak, thank you. You may begin.

Good morning. This is Mike Hasychak. With me today is Dick Hipple, President, Chairman and CEO; and Joe Kelley, Vice President of Finance and Chief Financial Officer Our format for today's conference call is as follows. Joe Kelley will review the financial results for the quarter and the outlook. Following Joe, Dick Hipple will provide his comments. Following Dick, we will open up the call for your questions. A recorded playback of this call will be available until August 14 by dialing area code 877, the number is 660-6853 or area code 201, the number is 612-7415. The conference ID number is 13612965. The call also be archived on the company's website, materion.com. To access the replay, click on Events & 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. And now, I’ll turn it over to Joe for comments.

Thank you, Mike, and good morning to everyone joining us on the call today. During my comments, I will cover our second quarter 2015 financial highlights, review second quarter profitability by segment, make some brief comments on the cash flow and finally cover the earnings outlook for the remainder of 2015. Following my comments, Dick Hipple, Chairman and CEO, will provide comments on the company’s key strategic initiatives and market conditions. Let me start with the second quarter of financial highlights. I am pleased to report solid financial performance in the second quarter of 2015. Once again our team delivered strong topline value-added sales growth because across most of our key end markets, as well as profit margin expansion resulting in a 19% earnings growth over the prior year second quarter. This marks the fifth consecutive quarter of meaningful year-over-year value-added sales growth and double-digit earnings growth. Second quarter 2015 value-added sales which excludes the impact of pass-through metal costs grew 2% over the prior year to $162 million. On a constant dollar basis excluding the impact of foreign exchange rates value-added sales grew 4% over the prior year second quarter. Value-added sales from new products defined as those introduced in the last three years grew approximately $5 million over the prior year and represented 11% of our total value-added sales in the second quarter of 2015. The strategy is working as topline growth driven by new products is delivering above GDP growth rates, in spite of headwinds from foreign exchange weakness in key end markets like oil and gas and softening in China. Gross margin dollars expanded 3% to $51.3 million from $49.8 million in the prior year second quarter. Expressed as a percent of value-added sales gross margins expanded to 31.6% of 40 basis point improvement over the…

Thank you, Joe. I'm very pleased with both our second quarter and first half results. Year-on-year value added sales and earnings per share were up nicely. And earnings per share is up 19% in the quarter and 31% year-to-date. Our strategy is to grow the company and grow earnings are clearly working. We remain on track to deliver our growth strategies not withstanding the current international uncertainty and short-term difficulties in certain end-use markets. Importantly each of the - of our three main business groups the performance alloys and composites advanced materials and precision coatings achieve top line value added sales growth, which continues the momentum of the past year and affirms the realization of unified one Materion. Joe covered the financial highlights, so let me now focus on a few of our operational and market highlights as well as updates on some strategic initiatives. As I mentioned during our last quarterly call in our performance alloy business, we are seeing some changes in the competitive landscape for voice coil motors. We have more than doubled our capacity to make tough met alloys used in this consumer electronics application. This reflects our strong position in the market and expectations for increasing demand and also positions us to more completely fill the gap created after a Japanese based competitor announced it was exiting the copper strip alloy market late last year. Our foil gauge, Copper Nickel Tin, ToughMet alloys are widely used in consumer electronics devices like smart phones and tablets to provide higher strength materials for miniaturization of voice coil motor and optical image stabilization components. Broadening our capabilities on our facilities in Elmore and Lorain, Ohio and Reding. Pennsylvania have allowed us to significantly reduce our global lead times and ensure supply of one of our top selling materials…

Thank you. At this time we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Marco Rodriguez with Stonegate Capital. Please proceed with your question.

Good morning, guys. Thank you for taking my questions. I was wondering if you could talk a little bit more about the revised guidance, you provided some good color on the call here and your point on three particular items that are negatively impacting your forward view, maybe if you can kind of, if you can rank them and how they impact that $0.15 reduction in your fiscal year guidance?

You bet. This is Joe. I would rank those as follow. I think the FX, the impacts that FX is having on our foreign sales, both those denominated in foreign currencies plus the U.S. dollar denominated sales impact from foreign competitors. I will tell you that and probably the slowdown in China primarily the 4G build-out, that the pullback that we’re seeing there those two are probably are have going to have an equal impact on reducing our guidance. The other thing that is impacting our guidance is the great than. But not the same degree I guess if you ask me to rank them, is the greater than forecasted pullback in oil and gas. We saw that, we have forecasted but just not to that degree. So that’s not a significant of an impact in the reduction of our guidance as FX impacts in China. And on the flipside you know I think defense has been stronger than we had forecasted and is offsetting that. So that’s an improvement, I would tell you, so big picture FX and the 4G China slowdown combined are probably about equal, follow them by oil and gas offsetting by stronger defense. If I had characterize that.

Got it, that’s very helpful. And kind of talking about the FX impact on the foreign sales or rather the increasing competition that you're seeing out there, can you talk a little bit about the dynamics that are out there, are these people that you would normally see in the markets that are obviously just getting a pricing advantage or do you have new people coming in because of the volatility on FX?

I would tell you, is normal competitor that we see, but when you look at our foreign sales, a portion of remark denominated in USD and a portion were denominated local currency. We actively hedge as you are aware those that are denominated in a foreign currency. And so we’re seeing competitors, local competitors basically impact of the profit margins of those that are denominated in U.S. dollars more than historically preciously forecasted.

Okay, but they are not coming out with lower pricing per se. So let’s just take an advantage of the volatility and FX

Correct.

Got it. And then moving, shifting here I guess a bit to the oil and gas market. Are you seeing any changing sentiment from your end clients or is it pretty much kind of a status - from Q1?

Hi, this is Dick Hipple. I don't know they were saying changing viewpoint it’s simply that if you consider what's going around the world is the Saudi Arabia is pumping more oil than what was expected you've got to the U.S. production up versus last year, we've got probably Iran sanctions coming up. So I would say that the forward viewpoint is probably softening in the oil and gas market. I think it wasn't too long ago everybody was thinking this thing was going to start to pop back up and pricing in the fourth quarter this year, I saw many reports to that effect. But I think as the dollars gotten stronger and these other items are coming to bear again with even China slowing up. I think the overall forecasting in the oil and gas market is softer then it was beginning this year. So I think the tenor is down in the oil and gas market.

Got it. And shifting here to couple of kind I guess housekeeping items on the other net expense line item, you mentioned on the call that you had a $1.7 million gain I believe it was from FX hedging. But there was also a positive legal settlement. Can you quantify what that dollar amount was.

Yes, that was approximately $1 million but let me talk about the FX gain, when you look at that line the prior year, we had an FX gain at 1.7 the prior year we had an FX loss of approximately a $100,000 on that line. Again that's where we record the gains and losses on our FX hedges that we enter into to offset or to protect ourselves against the FX movements, on the foreign currency denominated exposures.

Gotcha. In that FX hedge gain here that seems a little out of the norm for your normal hedging, is that a fair statement?

Yes, that is a direct reflection of the fact that the currency has moved greater than 20% so we actively hedges going out approximately 18 months so that by the time we enter in any fiscal year were about 80% hedged of our forecasted foreign currency exposure. And so that 1.7 benefit is reflective of the fact that we entered into hedges approximately 12 months ago about a book 30 they were unwinding compared to the book 10.

Gotcha. And then lastly I was just hoping you might be able to talk a little bit more about your expectations on cash flows and free cash flow for the remainder of the fiscal year and if you could also talk a little bit about your capital allocations throughout that period? Thank you.

Okay, the cash flow as we anticipated cash flow from operations was positive for the first half about $21 million. As we look to that the back half of the year I would anticipate us to generate free cash flow from operating activities in excess of $50 million given the continued liquidation we are going to see on some of the inventory and working capital. From a capital allocation standpoint, we continue to share buybacks we spent in the first half of the year $2.7 million repurchasing company stock that this dramatic program to offset the dilution impact and then we also maintained actually as last quarter increased our dividend and so that should remain about the same as well on a full-year basis about $7 million. And so beyond that that come from a capital allocation strategy. We have come out publicly and so that we are going to focus on acquisitions. Do you want to add something?

That’s it. We have a – we spent probably the last six to nine months in developing that pipeline and again we’re aggressively pursuing that to see if something make strategic sense to us and obviously we also have a share buyback in place opportunistic that we also have the ability to reach out for that. So our first priority is to grow this company and we've got some great opportunities both organically and hopefully on the inorganic side that we’ll be looking at.

Gotcha. Thanks a lot guys. Appreciate it.

Thank you.

Our next question comes from Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question.

Good morning. So the question on the value-added sales, do you have a growth target in minus your new target embedded in that guidance and if you do want could that number be impacted by in terms of currency?

Well, Phil I guess when I’d say the forecasted currency to stay about where it is today, the impact from FX year-to-date is at about a 2% reduction in our value-added sales. So the currency is going to stay when it is let’s be approximately 2% year-over-year in the second half as well. So excluding FX we have been very successful I think in growing the business in the first half of the year. When you go to the second half as you recall, our second half was strong last year so the benchmark is higher, but so that will challenge the year-over-year growth, but I do anticipate for the full-year still delivering value-added sales growth.

And then in terms of the guidance that you had provided on – I thought it was free cash, but I just want to clarify if it was free cash flow or operating cash flow because I know that there is going to be a reduction in the networking capital in the second half. So just want some clarity on that?

The operating cash flow greater than $15 million on a free cash flow, when you look at our cash from investing activities which we will continue to invest in the opening of the new pit or the mine associated with forecasted hydroxide and beryllium demand so that's consistent with our prior guidance.

Okay, any major cash pension payments in the second half?

In the second half we will have approximately $12 million of pension - funding of our pension plan,

Okay. Terrific, and then just lastly on the defense side. Maybe Dick if you could elaborate a little bit more on the F-35 as far as the moment there in your participation. And then what you are seeing in your core defense businesses, relative to what we see in the last year and half? Thanks

So, what's interesting is that the F-35, you know we’re very excited about the development of the new product and those shipments are begin to happen, how should we've been planning on that. So that's really another surprise and it's actually not an uplift for what's going on, we’re seeing an uplift in any particularly in the other areas of our business, which is in the optic side. And that's getting into higher devices for missile defense systems and UAV systems have really picked up much higher than our forecast for what it was this year. So we’re I would say the F-35 is on plan and growing, so that you know obviously the shipments will be growing in that. But the upside surprise for us gets back to the missile defense systems and it's what's interesting about it is we’re participating it, it’s beyond the U.S. So these are expanding international sales for defense for us.

Thank you.

Our next question comes from Edward Marshall with Sidoti & Company. Please proceed with your question.

Good morning, Dick, Joe and Mike. How are you guys this morning?

Good morning, well.

So, the rig count, bounced I guess a bit in July, not by March. But some companies starting stabilization. It doesn’t seem like, you have been [indiscernible] the bottom yet. And I wanted to get maybe your perspective. I think a lot of the material you sell into the market is ToughMet. And I'm wondering if that’s used in maybe deeper holes and hard-to-reach areas. And even they were offshore and that's particularly why you're not seeing rebound?

Well, actually first you have to realize where we are in the supply chain. So just because we are taken certain actions, somewhere we may see it for to five months after that because of the inventories and distributors and things like that. So you have to be a little careful about where we are in a supply chain and how fast things react. But our biggest area is in the - would be affected by drilling and we were in the directional drilling area. So, certainly all the shale developments throughout the domestic United States or overseas and then also our materials are used in the deep drilling a very deep completion activities in deep water. So that's where you generally find us. And obviously those are the key drilling activities have been slowed up the capital and also the rigs here in the United States. As you point out it did stabilize, here very, very recently. So we have some optimism, if it does stabilize, that you will start to have the inventories adjust and you can start to pick up the oil and gas market again. And that would probably something would – you could start to see an impact on that in the - maybe in the fourth quarter, because they also do the drilling activities up north, during the wintertime when the ground is firm. So we do expected to have this the market stabilize for us and start to pick back up. But at the extent that it went down was farther than we had forecast. So I think you know probably coming into the year we had forecasted may being down by 30% or so, which was up I have the assumption and it turns out to be greater than 50% and the…

Gotcha. You brought us a good point you produce consumables to the consumable market when it comes to energy and I’m curious generally those inventories gets soaked in the channel and [indiscernible] you haven’t sense where the inventories are today and how long that might take to at the current demand level were kind of work off?

I would say that when you have a severe moves in the marketplace. What I've seen in the past it’s probably about a six-month flush out and it takes about six months to get the inventories out. So this is a really an interesting point for us. We had record shipments in the oil and gas market in the fourth quarter of 2014. Now that was at the time the market was coming down. Yes, we had record shipments so obviously the record shipments that we shipped in the fourth quarter is sitting in warehouses for a while, okay. So that's why for us you have to be a little careful that inventory is got to wash itself out. It'll take six months, but there's been six months of the year recurred and things flattened out so by the end of the year hopefully we’ll see it turn. I will say that we have although we didn't talk about this on the call it's an interesting point that in Joe's comments he mentioned that our ToughMet sales I think were flat year-to-year and we've always talked about those growing at a very high rate year-to-year. Now the ToughMet sales being flat from year-to-year is really driven by the downturn in the oil and gas market which is a big consumer of our ToughMet. However, for Froghead Wings and you took the oil and gas sector out of the ToughMet or actually ToughMet sales ex- oil and gas were up 23% year-to-year so that still shows you to drive and increasing participation of our ToughMet across other markets. So we’re still very, very excited about the growth within ToughMet although at a high level it does look like its growing.

All right. If I look at the performance alloys business which I believe is where the ToughMet is sold, it looks like the quarter, the margins looks like held up on a sequential basis and I’m just curious if I get your sense. You doubled your capacity for ToughMet as it relates to I guess Mitsubishi and I'm just kind of curious in context, where are you from a capacity utilization perspective as it related to ToughMet and is there any drag that you measure on a marginal perspective within the Performance Alloys that may affect is that capacity comes on mind?

I’m not sure because we are talking about two different things. We had the foresight it was about – but loosing the track of the exact timing, but we doubled our capacity for ToughMet at our plant and anticipation of ongoing growth about – we brought around probably about a year and a half ago. So we are well positioned for the growth that we have in the doubling of capacity that we recently have done is really not on a primary end or the melting end, its doubling a capacity on the finishing or making strip product for electronics. So it's a downstream finishing capacity the bottleneck that we had and we've increased that.

Gotcha. So at the front end the ToughMet is not…

We have the capacity in the front-end, we are in good shape.

Yes, okay. And on what utilization rate are you running at right now with ToughMet roughly?

Well, it depends where you are obviously we’re at a 100% on the finishing for the strip product probably in the primary end now with the downturn in the oil and gas is probably about 60% in the melting facility.

Okay, what kind of drive on the margin, should I expect?

I think you see that in Q2 margins and your point about the improvement in the margins. As I said I think in my comments but it was mix. And so I guess to give you a little more granular information. We had nice growth at our technical materials product line within that segment And so that is the higher margin product there and so that helps improve the mix also we had a significant growth in hydroxide shipments - about doubled. So that also improves the margin. So that helped the mix as well as voice coil motors growth that’s a high margin product as well.

Got it. So if you look at FX I guess switching over, switching gears a second. So point out the foreign currency and I'm curious when you, when you look at your business from what you sell internationally, how much do you produce domestically and sell internationally and have you been able to gauge decline in demand from the lower price competition and kind of exit out from just the translation impact?

The translation impact we do as what we carve out in our comments. So that is simply the foreign currency denominated transactions translated at prior year rates, what express does not express itself in that number and we do not carve out, and it’s so much. I guess combination of volume and some pricing is the impact that the foreign competition has on our U.S. dollar denominated sales in the international markets. So when you look at our sales in Japan and in Europe primarily or in Asia a lot of those are U.S. dollar denominated.

Right. So as we look at Q2 I mean you are bringing that up at the end of Q2 here and it doesn’t look like it impacts the quarter much. Is it something that as it time for the competition to kind of step in to cut size to kind of offset maybe to master a lower cost or is that something that has been kind of ongoing and we have been dealing with it sometime.

Well, I think the exchange rate itself is a very current movement. I mean we’ve seen a change in currency just within the last six months both in the euro and in the Yen by a factor, it’s probably roughly about 25% move.

But we’re seeing it worse, I mean it didn’t creep into the conversation, when you talked about guidance in 2Q after 1Q going into 2Q. I am wondering why its coming out now despite the fact that currency was down 17% and I guess 19% in the last two quarters. I mean you didn’t seen the impact 2Q either so I just curious that, is this a new development which was pricing?

Yes, let me answer that question. I mean customer aren’t going to switch sourcing between in a week and so it wasn't as significant and if you view depending on your view of where the currencies are going and how volatile they are going to be. You don't switch it in a quarter either were for six months. So I would tell you I think it's an increase the reason it’s coming up in our revised guidance is because it’s increasing in pressure. And to your point it wasn't as reflected in our Q2 results as much as it was in the future and I think that’s because we now have been sitting at 110 to on the euro to the dollar rate for about six months?

Okay, and so how does that effect any contract business that you might have I mean is there any loss of contract or ships in the contract basis or is this more of the spot market business that you sell on a commodity type levels?

This one will track the kind of spot market basis

Okay. And what’s important is that current today implied in your guidance on a go forward basis so its 110 and I guess 124 on the…

Yes.

Okay. And then just last question I guess when you look at the 2017 goals I mean your revised guidance today, is there any shift in that thought process I guess its 750 VAR and 265 and then EPS organically, is there any shift in that number based on kind of the timing, based on what we are seeing in the back half of 2015?

What we see in the back of 2015 is largely depressed oil and gas, we also see a temporary pullback here in the 4G buildout, we are seeing in our results and whether it’s the main driver in our guidance, long-term guidance is new product growth. And so in the first half of the year our new product sales grew 36%, we have a lot of new products that Dick talked about that are still in the early stages of launch and on top of that you have the forecast and changing demand dynamics in the beryllium business. And so those all remain intact and we view a lot of this as temporary pullback particularly when you are looking at China in oil and gas.

Okay. Great, thanks guys. Appreciate it.

Our next question is from Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question.

Thanks. I just had a follow-up here on Precious Metals in general, gold and silver have come down. How does that impact customer purchasing behavior and/or your margins with the Precious Metals of incumbent?

Yes, Phil as you recall most of the vast majority of our Precious Metal are pass through and so the drop in price will impact our top line sales, but will have no impact on our VA. There is a small portion of our business in the refining where part of the price is based on retention, retention of Precious Metal and so for that small portion the drop in the gold price will have an impact on our pricing if we do not do anything to offset that which is still that would have an impact on pricing. But that’s a small portion of the Advanced Material segment.

And the Q4 expected pick-up in the defense orders where is that going through play out or is that in the Performance Alloys business?

It’s actually in a Precision Coating Group.

Yes, actually it’s both Precision Coatings Group and look the performance of the alloy…

In terms of optics.

Optical Coating is correct and there is some in the beryllium business within Performance Alloys.

Okay, thanks so much. End of Q&A

There are no further questions. At this time I’d like to turn the call back over to management for closing comments.