Greetings and welcome to the Materion Corporation’s Fourth 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’d now like to turn the conference over to Michael Hasychak. Thank you. Mr Hasychak. You may begin.

Good afternoon. This is Mike Hasychak. With me today is Dick Hipple, Chairman, President 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 fourth quarter, year end and the outlook. Following Joe, Dick Hipple will provide comments. Following Dick, we will open up the call for your questions. A recorded playback of this call will be available until March 4 by dialing area code 877, the number is 660-6853 or area code 201 and the number is 612-7415. The conference ID number is 13628049. The call will 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 afternoon. And now, I’ll turn the call over to Joe Kelley.

Thank you, Mike. And good afternoon everyone for joining us on the call today. During my comments, I will cover our fourth quarter 2015 financial highlights, review profitability by segments including fourth quarter and full year 2016 results, make some brief comments on the balance sheet, cash flow and modelling assumption, and finally cover the earnings outlook for 2016. Following my remarks Dick Hipple, Chairman, President, and CEO, will provide comments on the Company’s key strategic initiatives. Before I begin, let me remind investors to follow my comments with regards to operating profit, net income, and earnings per share reflect the adjusted numbers shown in attachment four and five in today’s press release. The adjustments are made in both current year and prior-year periods for comparative purposes and remove non-recurring restructuring cost and the net benefits recorded from insurance and legal settlement gains and certain income tax adjustments. Let me now review our fourth quarter and full-year 2015 financial performance. Fourth quarter 2015 financial results were in line with our forecasted earnings and guidance provided to the Street. However, both sales and earnings in the fourth quarter of 2015 trailed our strong performance in the same period last year when economic and end market conditions were much stronger. Fourth quarter 2015 value-added sales which excludes the impact of pass-through metal costs fell 14% from the prior-year fourth quarter value-added sales and down 4% sequentially from the third quarter of 2015 to $143.4 million. The decline in value-added sales can be attributed to two primary factors: first, we continue to see weakness in our oil and gas business, here we saw value-added sales decrease $9.7 million or 80% from the same period last year. As a reminder, during the fourth quarter of 2014 we saw record shipments into the oil and…

Thank you, Bill and good afternoon everyone. Beginning with our investor call last July, we remarked on the building uncertainty and volatility of our end-use markets and the sluggishness of the global economic environment. These signs deteriorated into real headwinds in the second half of 2105, and we were especially – and they were especially menacing in the fourth quarter. Like many other globally positioned manufacturing companies, Materion is severely challenged and tested. But compared with other downturns, we are weathering this adversity with an underlying strength and resilience that allowed to us to turn into performance that is orders of magnitude stronger then prior time periods, when we sold similar low levels of products from our high fixed cost copper beryllium alloy products operation. Profitability levels achieved in the second half of 2015, despite the double-digit volume decline is evidence of the improvement in our business model and product differentiation. Joe has already reported on how we aggressively moved on cost and margins, as well as our progress in improving capital utilization. We’ve also counteracted the effect of [indiscernible], problems in Asia and our strength in U.S. dollar with a rich innovative pipeline of new products and applications that is diversifying a revenue base and increasing our opportunity funnel. We are positioned to see strong upper probability leverage with market turnarounds. To dig deeper in consumer electronics, which is our largest end-market, several of our business groups introduced new products and delivered new by developing additional applications within existing product lines. Performance Alloys and Composites increased sales of its foil gauge ToughMet alloys by more than 60% in 2015. And our next generation ToughMet tempers are satisfying rapidly growing demand for stronger and more corrosion resistance materials required for high-end smartphones and other devices. A terrific example of this…

At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Edward Marshall of Sidoti & Co. Please proceed with your questions.

Good evening guys how are you?

Good.

Good.

Good. So I typically look at your business as one with short visibility but I guess you’re saying is some of the long-term products and projects that you work on are coming through. I’m just curious if you can kind of talk about may be the split in your business between what are the long-term visible projects and then the short-term visibility?

Well great question. And in my closing comments there was a lot of short-term that we’ve kind of worked over the last couple of years coming to fruition as we speak and that’s why my confidence level is pretty high, we’ve got just great progress in this dove tail I’ve mentioned about the semiconductor platform that we’ve built and seen results now. The F-35, which is really result of our investment casting development that we have, haven’t talked much about it but the OLED inorganic materials we developed, they’ve ramped a very nice last year and into this year. So and actually ToughMet developments we’ve had, as I mentioned on the strip side, but also we developed a new product on the oil and gas side, which doesn’t sound too good right now, but part of that is in the actual pumping side. So part of what I call near term launch is going on that will continue to build through 2016. And then on the longer-term basis, we still have plenty in our quiver there that we’ll begin to build 2017 and 2018. And these are things like, our – we’re making a lot of progress right now over in Europe with the new automotive standards that they have there with their own CAFE type standards and their carbon emissions standards where the engines have to be totally redesigned which they’re much smaller, higher performance, higher temperatures. And we actually think that we’re going to be finding our home in the engine components, and on road vehicles obviously that’s a very large market that we’re targeting. And we have some pretty high confidence there. We’ve talked also about our bulk metallic glass product in the past. It’s another emerging product that we have. I don’t think we will see a lot of that in 2016, but there actually are developments in that today, that I see that on longer-term 2018, 2019 basis to just give you a few examples.

And let me just add to that, those are the new – lot of the new product initiatives with one aspect of our business which you will be familiar with that has a longer lead time is the beryllium, High Purity Beryllium business and lot of that goes into the defense and market. And so those are some of the order rates, orders that we have visibility to which are large and have a longer lead time. And that’s in the Performance Alloy and Composites segment

Got it, is that roughly about 10% of sales?

Here the Performance Alloy and

Not the Performance Alloy it’s with the beryllium it’s the component that goes to defense

Yes, that’s roughly probably 8% to – that goes to High Purity Beryllium businesses roughly about 8% of our value-added sales.

Value-added sales, okay. And then you mentioned currency in the impact on the sequential basis with the hedges. Is it fair to assume that there’s a $0.20 headwind year-over-year because that’s the benefit you receive I don’t think that’s the correct way to look at it. What is baked into your guidance from the currency impact as it related to the hedges for 2016 as a whole?

Sure. So based on the hedges given the fact the exchange rates have been relatively flat throughout 2015 as we laid in our hedges for 2016 we are currently hedged a $1.11 on the euro. And so basically our hedges, if the exchange rates stays where it is at, our hedges will unwind for a zero gain or a zero benefit whereas our hedges last year when we entered 2015 we were locked in at 130. And so the exchange rate movement to 111 negatively impacted sales and margins by about $10 million. However, we were able to offset the majority of that with a $6 million gain in our hedges. And so those given the fact that the exchange rate now has been relatively flat for over 12 months euro though we will have no gains in 2016. So basically the movement and exchange rate deteriorate our profits about $10 million if you go from 2014 to 2015. And we only experienced about $4 million of that in 2015. And going into 2016 we will experience the full impact of that. So it is correct to think about the $1.60 we delivered in 2015 has a $0.20 headwind going into 2016.

Got it. And then finally I just wanted to ask on you gave the Chinese – China in energy comps on a year-over-year basis. Can you talk about and do you have them, I don’t’ know I if you have them in front of you, but the sequential impact for those two business lines, are those two regions, that region is business line on a sequential basis third quarter [indiscernible].

I do have those in front of me and so sequentially if you talk about our oil and gas business it was down 14% and if you talk sequentially about our Asia business it was down roughly another 4%.

4% sequentially in the third quarter. Okay. Thanks very much.

Our next question comes from the line of Martin Engler of Jefferies. Please proceed with your question.

Hey, good afternoon everyone.

Hey.

Good morning.

To the full-year guide, what are your expectations that you have there [ph] for the Value-added sales?

We don’t give specific guidance on the Value-added sales. But I can tell you that, we expect, so as Dick mentioned in his comments sequential growth as we head into Q2 and into Q3

When I think about the sequential move from 4Q to 1Q should I be expecting incremental contraction there both on Value-added sales as well as Value-added operating margins across the segments here?

Yes. I would tell you, our current guidances is Q1 is going to look exactly like Q4 with one exception, we’re missing about $1.1 million of hedge gains that shows up in other income. So that’s what that would tell you and then the tax rates would be different. So the only difference between Q1 and Q4 is a lack of $1.1 million hedge gain and the tax rate.

Okay that’s helpful. And you noted a number of headwinds here everything from within Performance Alloy and Composites segment, advance materials, everything from FX the volume is kind of trailing off and I guess fixed cost absorption there as well as mix. And anything happening with pricing there and I guess also if you had to single out with the biggest headwind has been among those different factors, what would that be?

So the two biggest headwinds, and to not to beat a dead horse, but our oil and gas, I mean dropped off on a year-over-year basis $23.2 million of Value-added sales. And that’s a high-margin product for us, it’s 100% of it’s buried into the Performance Alloy and Composites segment. The other thing is, if you look 2014 to 2015, we had a $4 million headwind that was realized due to FX, that’s the strengthening of the U.S. dollar against the Euro and the Yen. And as you look at that going into 2015 to 2016, I don’t believe the oil and gas will be nearly as big of a headwind, because it was off in the second half 2015, significantly. But the exchange rate issue is – with out a doubt the biggest headwind, we have going from 2015 to 2016.

And if I could one last one there, working capital expectations, when you think about 2016?

Yes so if you think about 2016, we look your improve our working capital efficiency. So as a percentage sales from a cash flow standpoint, as we added in the back half of the year is going to be stronger than front half of the year, we’ll probably investing in the back half of the year in working capitals for the growth. But we do hope to improve the efficiency which we internally define as a percentage of sales, we’re targeting about a 100 basis points of improvement there.

Okay, and I know that it’s going to pretty quick, I guess drawdown in activity with oil and gas trailing off but if this activity would persist like this and you wouldn’t see a pickup in activity I guess are there leverage you can pull here for cost reductions.

Yes, there are, however I would tell you our current forecasting guidance does not have a [Audio Dip] from oil and gas in the back half of the year. We are not as optimistic as some others that that will, for the products we serve and where we are and the supply chain that that will have a – see a big recovery in the back half of the year. As it relates to a cost reduction we were quite aggressive in 2015 if you recall when we saw some of the slowdown in Asia we aggressively in July took out heads and reduced our manufacturing footprint there in Shanghai related specifically to some of the optical coatings and the projector display. And as it relates to the oil and gas and drop off there we were active throughout 2015 and taking out in a more systematic way than a large one-time restructuring adjusting the workforce there. And we continue to monitor that based on order entry levels.

In fact I like to add is that, we have actually, I think a little bit over reacted and the cost reductions right now we are hiring because we’re actually falling a little behind us. We’ve got a pretty nice order rate coming in right now and the strip products for the electronic side. And so we’re actually building the workforce back-up. So that’s a good sign. We were seeing some things starting to pick up.

Net-net do you know what the percentage change was on your headcount from start to end of the year?

I think we are down about 8% in 2015.

Okay. All right. Thank you.

Our next question comes from the line of Marco Rodriguez of Stonegate Capital Markets. Please proceed with your question.

Good afternoon, guys. Thank you for taking my questions. Just wanted to kind of clarify some answers just to the question on FX and my apologies to comeback around on this. But $6 million headwind those of the FX hedge gains that you’re going – that you saw in fiscal 2015 will not repeat in fiscal 2016. So that is basically if I understand where that component goes in your P&L we’re going to see an increase in basically operating expenses, is that correct?

Yes, so that the hedge gains or losses flow through the other income section

So below the operating line?

Above the operating line.

Okay and that other net category that’s in your P&L?

Correct.

Got you, okay. And then also just kind of listening to you guys commentary in terms of expectations going to 2016, obviously the EPS number, lower year-over-year versus 2015. With the volume impact it kind of sounds like you’re going to see some contraction on the margin side on the VA [ph] side. Is that correct way to think through that?

I think when you look at our Performance Alloys and Composites segment from a year-over-year standpoint, we did see some contraction there and I think as we head into Q1, given the lack of some of those hedge gains from an operating profit as a percentage of value-added sales, we may see some further contraction in the beginning part of 2016, which would then improve, as we go throughout the year. Their operating profit, as a percentage of Value-added sales, if you exclude the hedge gains in 2015 was about 5.2%.

Okay, and so you expect some contraction in the first half and maybe some return to being closer to normalcy if you will in the second half.

Yes, I think that you would…

You would see Q1 will be the lowest profitability percentage for the PAC and then it will improve as we go throughout the year.

Got you, okay. And then in terms of, obvious your stock price is off, probably related with the overall broad market here, but I don't think I'm looking at your cash flow statement assigning any stock purchased or repurchased, rather. Any kind of commentary you can provide there, in terms how you guys are looking at that?

Yes, we target to offset dilution on an annual basis, in terms of our stock repurchase program and then depending on the pipeline of acquisition targets. And we review on a regular basis our capital allocation strategy. And right now we are focused on as Dick touched on a robust pipeline of M&A targets. And we are actively working on a couple of those, as we speak. So that is our desired capital application as we move throughout 2015 – we – or sorry 2016. We do have a dividend which we’ve been committed to maintaining and actually growing. And so we will continue that practice, we will continue to opportunistically buyback shares to offset dilution. And then depending on the availability of financially attractive M&A targets we will continue to review our capital allocation strategy and debate the share buyback alternatives.

Gotcha. And last question I’ll come back in the queue. In terms of your acquisition strategy and just given all the turmoil in the market and some of the negativity from the macroeconomic environment, are you seeing any acceleration from potential targets coming to the table quicker or easy in operating terms of their prices any kind of color commentary you can you provide there?

I would first say that multiples are softening so yes, there is certainly a change in the market from that perspective. And we are seeing more opportunities today than we have in the last year or so. So I think this – current economic environment favors those that have a balance sheet that can look at more attractive opportunities at this point in time. So we’re very careful, cautious, but we do see some very good opportunities ahead of us.

Gotcha, thanks a lot. I appreciate it.

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

Hey, good afternoon Dick.

Good afternoon.

Good afternoon.

Mike.

Good afternoon, Phil.

Hey, guys. Question on the pension, how was that looking in terms of the non-cash expense this year versus last year and what does a cash contribution look like?

Yes, so from a P&L expense standpoint, Phil that should be down year-over-year $2 million to $3 million. And then from a cash contribution standpoint, it will probably be in the range of $12 million to $15 million.

Okay, that’s helpful. And I know you spoke a bit about the defense market and it did look like it picked up very solidly. Help us again pass-through where you are seeing that in terms of maybe some of the appropriations and where it’s going in terms of either the optics or the missile defense, in the satellites and help us understand why that’s picked up so much?

I would say, probably the – it’s like I talk about these things but where we see probably the biggest surprise to us is in the missile defense side which there’s no question that there’s a lot more missiles being built right now. And we are on pretty much all of these missiles that have targeting systems on them in our optics divisions. So we’re seeing a backlog of orders there, that’s quite nice. And then we have the F-35 is starting to gain some traction. And then also we actually picked up some new platforms in our copper beryllium business with ToughMet into Bradley Fighting Vehicle and lot of their rehabilitations then in the new models that they’re building. So those are the biggest platforms that we have right now there are some other things going on and at these times sometimes we get these surprise black box type orders which means that they are very classified systems and we don’t – we’re not even told that they want them until we need it right away and there’s no lead times, it’s basically get it now and very highly secretive type program. So I would expect it wouldn’t be a bit surprising, we don’t have those in our production planning or in our forecast, but these are the kinds of times that we see those kind of orders come into. So it’s very active right now.

Okay well it seems like as you said, it seems like there’s lot going on. And then just here on the consumer electronics broadly, you had a lot of successive quarters of the sales tapering off. I’m just wondering how much of that is a destocking, how much of that is related to just the Asian situation, particularly in China being problematic here short-term, given the global trend.

Well, yes we didn’t see this slowdown in the consumer electronic side, as we think about 2015 that was a tailor two halves we had a great first half and then the world fell apart a big part of that was not like oil and gas, but China just slowdown like crazy. And that’s where we saw the consumer electronics slowdown across the board in several of our operating divisions. And I think we’re – certainly that has bottomed out and we’re starting to see the order book in China pick back up again and that into two areas, it’s not only in the consumer electronics area but it’s also in the telecom infrastructure area. So we saw both of those get extraordinarily weak in the second half and both of those are starting to come back up at this point in time. And I think we’re all reading the same thing as it appears to China is doing some additional stimulus programs right now. And I'm sure we’re seeing part of that as we go forward.

Okay. Thanks so much.

Our next question is from Edward Marshall, please proceed with your question.

Just a few follow-ups from me if I could. I know that, well first I guess we’re having relief from gold, I mean, I know it’s short but it’s had a pretty good run here. And I know it’s a passthrough, but I know clients also our customers tend to want to get in front of that. Increase is there any positive signs on the gold side especially maybe you can all get clean [ph], could you talk to?

Well, that’s a good question. We do – basically our business is pass-through but there’s a piece of the business that we do pickup some additional margin depending on which way the gold goes and that’s in our service cleaning business. So yes, with the increased price of gold we’ll see a little bit of margin improvement in that sector of the business.

And I also notice that the debt came down but I thought the majority of the debt was consignment – gold consignment. Can you kind of walk – is it just a reporting situation or did you really kind of unload some gold there?

Yes Ed this is Joe. We have no the gold denominated debt on the balance sheet. Our gold consignment is off balance sheet arrangement. So the debt reduction was actually a pay down on our revolver. We ended the year with zero borrowed on our revolver and that’s the revolver we renewed it has $375 million of capacity.

All right, I appreciate it. Thanks again.

Thank you.

[Operator Instructions] Mr. Michael Hasychak there are no further questions at this time, would you like to make any closing remarks?

Sure. This is Mike Hasychak, we’d like to thank all of you participating this afternoon. I’ll be around a little bit more here this evening. And also if you would like to set up a call for questions tomorrow, you can either E-mail me at mike.hasychak@materion.com or give me a call at 216-383-6823 and we can set something up for tomorrow as well. Thank you very much.

This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.