II-VI Inc (IIVI) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the II-VI Incorporated Fiscal Year 2014 Third Quarter Earnings Conference Call. (Operator Instructions) Please note that today's conference is being recorded. I would like to hand the conference over to Mary Jane Raymond, chief financial officer. Ma'am, please go ahead.

Thank you, Karen, and good morning. I am Mary Jane Raymond. I am the chief financial officer of II-VI Incorporated. Welcome today to the II-VI third quarter earnings call for fiscal year 2014. With me on the call is Francis Kramer, our chief executive officer, and Dr. Chuck Mattera, our chief operating officer. As a reminder, this call is recorded today, Thursday, May 1, 2014.

Any forward-looking statements we may make during this teleconference are given in the context of today only, and we do not undertake any obligation to update these statements to reflect events subsequent to today. With that, I'll hand it over to Fran Kramer.

Thank you, Mary Jane. We are pleased to have you join the II-VI team as our new CFO, and we believe your experiences, education and disciplined growth -oriented style will help strengthen II-VI.

In the just complete quarter, II-VI bookings were a Company record of $187 million. That is a 12% increase over our prior strongest quarter. Revenues increased 21% year-over-year to a record $173.6 million for the quarter, and were assisted by our most recent acquisitions in the Active Optical Products segment, which achieved $37.5 million of revenue in the quarter. In effect, those acquisitions provided the growth during the quarter. However, as we will discuss later, the challenge of establishing a firm business foundation for the acquired technologies in business is requiring greater investment than we expected. As we work to get these acquisition-related investments and operating costs under control, we have looked hard at the best way to get the new acquisitions and technologies into our traditional disciplined business management processes. We are evaluating a more efficient operational model and are moving II-VI Incorporated into simpler and coherent business segments focused on three areas. First, Laser Solutions; second, Photonics Products; and third, Performance Products. We target to align into these three segments at the beginning of fiscal year '15, although we are still fully operating in five segments, as Chuck and Mary Jane will describe.

The new alignment will increase our focus on end markets and customers. It will better align our businesses and technical processes, and it will improve our line of sight on profitability and cash usage. Importantly, it will also simplify our communications.

Our margin expectations going forward are considerably better than we have experienced since we closed the Active Optical Products group-related acquisitions. Year-to-date, our gross margin is 33.2%, our operating margin 6.4%, and our EBITDA margin 14.9%. We expect our exit rate for FY15 for all three of these metrics to be a minimum of 200 basis points better. Chuck, will you describe the steps we are taking to remain on the technology forefront and to digest these acquisitions, as well as some of the actions that are planned or underway to improve our profitability?

Thank you, Fran. II-VI has established a strong brand over the years by becoming the market leader in CO2 high-power laser optics, and has delivered on a sustained track record of profitable growth based on leadership in quality, service and value. We remain committed to a strategic course for growth in businesses that have engineered materials at their foundation and which offer a composite value proposition to our customers that extends customer roadmaps.

A key element to our strategy is to utilize strategic acquisitions to supplement our organic growth. In fact, during the last 15 years, we completed 15 acquisitions and grew revenues over that period by over 20% compound annual growth rate. Through our acquisitions, our addressable markets and technical capabilities have been continuously expanded. Our five most recent acquisitions have resulted from another element of our strategy to capitalize on the benefits of vertical integration. Also, these acquisitions have given us increased market access through our expanded global footprint and have exposed us to sustained high growth sectors, market-leading customers, and new opportunities for leveraging capabilities in other parts of II-VI.

Today our businesses enable our customers to successfully compete in the face of their market realities, including when they confront significant technology inflection points in their own markets. Our current five operating segments address at least six major market segments across nearly 40 countries, and we believe we can streamline our current organization to improve our customer intimacy and our go-to-market strategies. So, as Fran mentioned, we are evaluating moving to a market-based segment structure.

We are currently in the planning phage but expect to ultimately consolidate the Company into three segments that will center on Laser Solutions, Photonics Products and Performance Products. We expect that the more streamlined company will enable us to realize the benefits of synergies, scalability and speed, and to improve the profitable returns on our increased investment and process developments that are core to our operational excellence and sustainable competitive advantages. For now, though, I will discuss the specific dynamics for each of the current five segments and then Mary Jane will discuss the details around the financial performance.

In general, we believe that from a macro level, Global Purchasing Managers' Index data continue to be generally positive. While slowing growth in China remains a lingering concern, industry analysts are reporting a mostly favorable backdrop for increased global capital spending, which we believe is a favorable market condition for many of our commercial businesses, although we are still confronting the headwinds of uncertainty that prevail in the military market. So, beginning with our IR Optics segment, Q3 bookings for IR Optics increased 7% sequentially and 10% year-over-year. Revenues increased 2% sequentially due to increased laser utilization from our aftermarket customers worldwide.

In the North American aftermarket, bookings increased 8% sequentially, while European bookings for Q3 increased 33% sequentially, driven by a renewed demand for diamond optic windows and products for EUV photolithography systems. The aftermarket bookings in Europe were up 10% year-over-year as a result of our market share gains.

Total Asian bookings increased 10% sequentially. Japan bookings increased 10% sequentially, while China bookings increased 22% sequentially due to a blanket order with a contract manufacturer. Our actions to increase our market share in China continue to be successful with the aftermarket bookings increasing over 40% year-over-year.

We solidified our position in the One-Micron Laser Components market in the latter half of 2013 by acquiring full ownership of the HIGHYAG Division. We continue to experience high levels of customer inquiry and demand for current and future uses of these products even though our bookings and revenues are down sequentially due largely to our move to a new state-of-the-art facility for increased capacity to support our future growth.

In our NIR segment, our Near-Infrared segment, where we produce our optical communications products which increase network flexibility and allow customers to optimize bandwidth utilization and enable network monitoring cost effectively and reliably, bookings increased 12% sequentially due to strength in orders for our commercial optics and display optics, in addition to our optical communications components. Year-over-year revenues were down 6% partially due to the reclassification from external to internal sales to one of the division's former customers that is now part of the Active Optical Products group, as well as soft demand for legacy optical communication components.

Our leading edge products for high speed and next generation networks are continuing to see increased demand in our development of 40G and 100G transmission modules is proceeding on plan. These products form the basis of important in-feeds needed by our customers for optical transport and data center networks. Our positioning with leading systems integrators and network equipment vendors should allow us to continue to capitalize on the dynamics of the market demand and help keep many of our product developments closely aligned with those of our customers.

In our Advanced Products group, bookings increased 8% sequentially and decreased 6% year-over-year. Segment revenues increased 4% sequentially and 9% year-over-year. Our Wide Bandgap group was a strong contributor to this growth with a new market-leading 1500 millimeter silicon carbide substrates and a new government R&D contract. We are pleased by our ability to participate in a market inflection point. The silicon carbide-based devices increased their penetration into the 3G, 4G wireless base station electronics market, a shift ultimately driven, we believe, by the proliferation of smart phones and tablet mobile devices, especially in China. China Mobile, for example, was thought to be targeting deployments to over 350 cities in China, or more than half of the cities in China by the end of 2014.

At M Cubed, bookings were down 8% sequentially and up 9% year-over-year, while revenues were down 5% sequentially and up 11% year-over-year. We believe that the demand for semiconductor devices from advanced fabs for smartphones and tablet mobile devices is a main driver of our product demand.

Like the IR Optics segment, M Cubed also has EUV-enabling products in which we continue to invest to support our customers' roadmaps. At Marlow Industries, bookings for Q3 increased 74% sequentially and decreased 26% year-over-year due to a larger blanket order in the same quarter last year for our personal comfort products.

Leading bedding OEMs are incorporating our thermoelectric cooling systems into their new bedding products to provide a cooling function on demand. We are excited to have been selected to be the first to the market with volume production of these types of novel systems. We also continue to invest in our emerging thermoelectric power generation product portfolio. Our EverGen thermal energy harvesting products can power wireless sensors and eliminate the need for battery-powered solutions. Our EverGen PowerStrap technology will allow customers to harvest heat from fluid-filled pipes or exhaust stacks to provide perpetual and remote power for oil and gas wells, which we believe will drive an additional addressable market for our thermoelectric technology.

In the Military and Materials segment for Q3, our bookings increased 4% sequentially and 23% year-over-year. Revenues for Q3 were down 9% sequentially affected by the lower defense spending and a change in our materials operating model to focus on recycling zinc selenide, an operating model which is going well.

Overall, we were pleased to have recorded several bookings for heritage military programs such as Sapphire Windows for the Advanced Targeting Pod program, targeting system windows for the Apache helicopter, and components for the Joint Air-to-Surface Standoff Missile program. However, the military market continues to weaken and concerns related to funding that could affect our future bookings and revenues remain.

In response to the uncertainty, we took several actions aimed at improving our technical synergies and lowering our operating cost in our military business. In particular, we consolidated our military businesses and reduced our resources in that group by $1 million annually to fit a more integrated group. We wrote off $1 million of inventory on hand for programs where future demand is unclear. We are pursuing commercial and military opportunities that are well matched to our advanced opto-mechanical assembly platform capabilities. We believe these actions will allow us to maintain a solid rate of profitability in this segment despite the near term market uncertainties and headwinds from the military budgeting process. In the materials portion of this segment, PRM achieved positive earnings again this quarter and is progressing nicely under its new business model.

Finally, turning our attention to the Active Optical Products group, as a reminder, this new segment is the combination of our II-VI Laser Enterprise business that we acquired from Oclaro on September 12, 2013, and our II-VI Network Solutions Division that we acquired from Oclaro on November 1, 2013. As our financials indicate, we are experiencing a number of challenges during our startup mode of integrating these businesses and understanding their nuances.

In hindsight, our FY14 quarterly forecast was too aggressive, so we acknowledge that we are behind our gain in terms of our revenue and especially our profitability targets. But we have promised technology to be as good as we had assessed. Therefore, improving our operational excellence and customer intimacy are areas of focus throughout every corner of the organization.

We have made progress during the last six months on many integration tasks including winding down some of our reliance on Oclaro for certain transition and manufacturing services including working to complete the complex and critical cutover to our own ERP systems by the end of Q4; negotiating our own and improved supply agreements with three contract manufacturers; finalizing the process of assuming full control of the Shenzhen laser module assembly and test operation from Oclaro by the end of Q4; reducing the Laser Enterprise workforce by 20% including closing the Tucson, Arizona operation; rationalizing parts of the high power industrial laser product portfolio by either increasing the price or by discontinuing the manufacturing of selected low margin and legacy products, though we have offered our customers the opportunity for a last time buy to ensure their continuity of supply; reviewing the cost structure of several products in executing on cost reduction plans to ensure the cost competitiveness of the products throughout their lifecycle; and, finally, working to improve our fab utilization by focusing on large, addressable markets and leading strategic customers.

So, with respect to this quarter's top line results, Q3 bookings increased by 28% sequentially, while Q3 revenues increased by 12% sequential, with the mean driver being the inclusion of II-VI Network Solutions division for the full quarter. During Q3, we saw the high power lasers and the high volume components product line booking stabilize as customers reduced their pre-acquisition inventory levels, and we saw a stronger demand for vertical cavity surface-emitting lasers for optical navigation in data center applications.

We also intensified our design activities around single mode 1064 nanometer Seed Lasers with a number of fiber laser OEMs and are progressing well on our new industry-leading high-powered [bar] products for direct diode applications capable of increasing the power of today's state-of-the-art bar products by 25%.

During Q3, the 980 nanometer pump laser product line experienced strong design inactivity and increased volume demand of its new industry standard 10-pin small form factor mini butterfly pumps along with our industry-leading dual chip pump products. Demand for these products and our submarine pumps reflects increased customer confidence in the actions we are taking, the differentiation of our long-term product roadmap, and the capability of our global team.

Finally, on the network solutions front, we continue to see a strengthening of bookings in line with historical trends of the business as customers work through inventory. We saw particular strength in demand for our micro amplifier, which is attractive to customers based on its very low power consumption derived from our uncooled 980 nanometer pump lasers, and one of many examples of the value we derive from vertical integration.

Finally, we are determined to improve the predictability, stability and profitability of the business which was for II-VI a strategic acquisition into semiconductor lasers to fill a major gap in technology platforms and to drive long-term shareholder value creation by expanding our existing businesses and customer base. Now, I will turn it over to Mary Jane to walk us through a review of our overall financial performance. Mary Jane?

Thanks, Chuck. Thanks, Fran. Thank you for the nice welcome, and I am certainly happy to be here at II-VI. So, turning to the financial highlights, the important quarterly and year-to-date comparisons are on page 3 of our press release, and some of those Fran and Chuck have already talked about at a high level. Our bookings of $187.5 million grew 35% in the quarter and 32% year-to-date, both compared to last year. Bookings grew in all segments except the Advanced Products group, which declined about $2 million on the nonrecurrence of a large order we had last year, as Chuck already mentioned.

Our book-to-bill ratio for the quarter was 1.08, growing our backlog to over $215 million with $50 million in IR, $31 million in NearIR, $42 million in APG, $55 million in Military and Materials, and $27 million in AOP. Revenues of $173.6 [million] grew 21% in the quarter and 25% compared to last year. Most of the revenue came from the AOP segment in the quarter, though its earnings were affected by the cost of stabilizing the operation, for which you have already heard a detailed plan from Chuck.

Our gross margin for the quarter was 31.5% of revenue, down 390 basis points from the third quarter of last year. This decline is primarily from AOP due to restructuring charges and operating factors. The interest expense in the quarter was $1.4 million compared to $450,000 last year in the third quarter, and is $3 million year-to-date, compared to $700,000 for the same period last year. The increased interest accompanies the increased draw on the credit line for the acquisition of our businesses that comprise the AOP segment.

Our tax rate in this quarter was 5.5%. This is due to our usual mix of businesses that generate a normalized tax rate in the range of the mid-20s, and is reduced this quarter for discrete tax items including greater eligibility for the R&D tax credit. For the full year we expect the tax rate to be in the range of 20% to 22%, but our more normalized annual rate is actually somewhere between 22% and 25%.

The net income for the quarter was $8.5 million with EPS of $0.13 a share, or 5% return on sales. This compares to $16 million in the third quarter of last year, or $0.25 a share in EPS and 11% return on sales. We inserted a new schedule on the next-to-the-last page of the press release that is entitled Reconciliation of Reported Earnings to Non-GAAP Earnings. This schedule shows the impact of largely nonrecurring items that have impacted the EPS over the two years. It delineates such things as the restructuring charge, the transition costs from acquisitions, purchasing accounting, fair value adjustments, contractual settlements and inventory write-downs.

While for the third quarter there is still a decline of 7% compared to the reported difference of 12% for this quarter, the nine-month year-to-date effect is a bit more pronounced. Eliminating these primarily one-time items reduces the EPS gap, which is now nearly $0.28, to about $0.05. As Fran and Chuck said, our goal as we work through our action plan and turn into the fiscal year '15 is to start to also turn the corner on the margin declines.

Our cash on hand at the quarter end was $185 million. Our total cash flow from operations for the first three quarters of this year was $68 million. We paid down $20 million of our outstanding debt in the quarter and purchased $11 million of our own stock. We have $55 million available under our credit facility. We have drawn $263 million and an interest rate of approximately 1.8%. Our capital spending year-to-date is $21 million, and we anticipate the full year to approach about $30 million.

This concludes our prepared remarks. Now, as we turn to the Q&A, I'll just remind you again that our answers to your questions might include certain forward-looking statements, which are based on our best knowledge today and for which actual results may vary materially. Operator?

Thank you. (Operator Instructions) Our first question comes from the line of Avinash Kant from Davidson & Co.

I think Fran talked a little bit about the model, especially the margin profile that you are targeting to be, and I believe he said by the end of fiscal year '15; is that what he said?

Yes, exactly, exit of '15, 200 basis points higher.

So, Fran, the way you talked about the operating margin is roughly 6.4% and then gross margin of 32.2%, so you expect to be somewhere around 34%-ish in gross margin and 8.5% or so in operating margin by the end of 2015. Is that the target?

Yes, add 2 to each one of those numbers I said, yes, that's good.

And then what kind of revenue levels would you need and what kind of mix would you need to get to that kind of model?

I think you'd have to -- we haven't put out a guidance that far in order to tell you that. But certainly our revenues would be up from what we are guiding for this year, but I don't really want to step into that bucket. They will be up in the 5%, 6% range, probably, and it should be a mix -- a little heavier than what we have had. IR I think will be a little bit better next year, and so that will be helpful, but the rest of the businesses will be about on the same par as we have been running, and AOP will achieve its annualized rate compared to where we are at this point. So, it's quite the same mix, we would say.

So, basically, on similar mix and similar revenue levels you should be able to achieve these margins, right?

Yes.

Okay. And in the guidance for the next quarter that you are talking about, what kind of margin assumptions do you have in mind?

I think our discussion about how much margin our segment is what we did in our script. I wouldn't be prepared to go deeper than that because it's such a complex story. And that is really somewhat, Avinash, why we are headed to three segments, because the story -- in order for me to explain every one of those segments again and go deep enough to get you the answer you want, we're not prepared to o that.

I was looking more into just on the comfort level.

On the what, please?

On the fully integrated basis, like you had 31.5% of the cut in quarters, so what will be that number for June in the guidance that you've already given?

I think, first of all, if you look at the guidance that we have given on the quarter, which is the balance from our full year of $670 million to $685 million, we obviously -- and the EPS of $0.55 to $0.60, we obviously would look at the fourth quarter being stronger. We also don't anticipate that the fourth quarter would have in it some of the things the third quarter did, for example, adjustments to inventory and the restructuring charge.

So, again, while we're not going to put a precise number out on the return on revenue, I would expect to see that it would rise up around the 5% we had in this quarter to something that might cross in the high fives to low six, something like that. Because just the exception of taking out the restructuring, etc., would help us.

Right. And tax rate and interest expenses, like, interest expenses we can continue to model at $1.4 million kind of run rate?

Yes. And I think from a tax perspective, if you think about having 5.5% in this year, kind of a round 20% for the whole year, the tax rate in the fourth quarter is probably closer to about 22% to 23%.

Okay, perfect. And one other question, Fran. Now talking about the business in general at this point. I know you have access to a lot of information, especially in terms of the utilization rate of gas lasers and the systems out there. What kind of trend do you see at this point, and especially in any particular region that you could point to, maybe China or something (inaudible).

On CO2 lasers, the utilization -- we have a model and we update it every quarter. The number won't mean anything to anybody, but it's -- and if you thought of a rate that is normal, 60%, 65% utilization, that's approximately where we are right now. The numbers on our chart are almost exactly that. And there are at least 72,000 CO2 lasers out there doing work, and the number is coming down. The CO2 high power, I'm talking about. High power assembly line right now will be on an annual rate of about 3,200. And you know the peak of that has been as high as 5,500. You can see the business is down from the assembly line. That's always been a feature that we see happening as the fiber laser is doing quite a bit more. But the aftermarket business for us is a very good business, and that is the barometer of laser utilization, is how well the aftermarket is performing. And in this quarter, the fourth quarter we are in right now, it's very good. So, it's rather like tradition, where we have a high utilization in the April-May-June quarter.

Okay. So, you have seen the trend improve lately, right, especially in the aftermarket?

Yes. I think certainly third quarter was better. Fourth quarter we expect to continue to be better, and then it seems to cycle again.

But the trend in the field to laser utilization is still down or is still flattening, high power CO2?

You said still what?

The trend?

Oh, yes, it will increase, not much, because this is good fill utilization. It's really running well here in the fourth quarter. Now, it all has a lot to do with around the world economy and it usually seems to have a better trend here before the summer happens, and that's why we end up picking up in the aftermarket business in this quarter.

Thank you so much.

Thank you. Our next question comes from the line of Jim Ricchiuti of Needham & Company.

Hi. I joined a little bit late, but it sounds like you are still a little bit more cautious on Military, on that portion of the business, Military and Materials. Would you anticipate Q4 being somewhat flat to down versus Q3?

On the Military side, no, it's going to be about the same, flat maybe trending up a hair, but it -- the orders that we have and the work that we are doing in that area are pretty much programs, and those programs are running okay. If there is something that might be a little down in our Military, it's probably going to be on the order book side, and that leads into how business will be mid next year and late next year. So, we are pretty much ahead on bookings for this year. We will finish the year in Military as we have guided.

Right. And that actually, thanks, that gets to my next question. It is helpful the way you talked about your targets, the margin improvement for exiting '15. And I'm trying to get a sense as to how much of that improvement is going to hinge on the turn, the improvement in the Advanced Products group. Is that the lion's share of the improvement you anticipate?

The lion's share is what we call AOP, our Active Optical Products.

That's what I meant, I'm sorry, I misspoke. So, that is the lion's share of it?

Yes, that's a good portion of it, yes. That has been a portion that has been difficult for us in the last two quarters, as you've probably seen.

And to get that kind of improvement, can you talk a little bit about potentially what kind of revenue levels you might need to see, or is it not as contingent on that? And just in terms of just getting involved in more of the internal steps that you are taking in terms of reducing costs, working with -- potentially negotiating some other contracts? I am trying to get a sense, is this going to be contingent on a much higher level of revenue from AOP?

I think it is contingent on a full year of the revenue that we have guided for, and I made a statement earlier, which I am not real happy of having said it, but I think our revenues would be up 5%, 6%, it might be more or less. We are not giving guidance on FY15, but trend-wise, we get the full year effect of AOP and a few of the other things that we are working on. That is the top line story. And the just what you said is very important. We've got to fix the internal processing of what we are doing at AOP in order to get ourselves 200 basis points better.

This is Mary Jane. I think another way to think about what Fran is saying is that the improvement in the AOP segment is not entirely dependent on revenue. The revenue is an important characteristic as it would be in any of our businesses, but getting our hands around the operating cost, the pricing of products at the right level, contract manufacturing, etc., are all part of the mix as well.

Got it. And again, you may have gone over this, but did you talk at all about any additional charges associated with the business in Q4?

We did not talk about them. It is not our expectation to have additional charges in Q4. The charge that we took in the third quarter is the only charge we expect this year. Though as you could naturally imagine, there is some cash flow that follows for the recorded charge into the fourth quarter, but as for new charges, no.

Okay. And then in terms of the Q4, what you see for potentially the loss in this part of the business, should we anticipate some improvement?

With respect to -- well, first of all, as you know, we don't give guidance by segments. But having said that, if you think about the composite guidance for the quarter, which is $175 million to $190 million on the revenue side, and then $0.15 to $0.20 on the EPS side, it certainly would imply something of a stabilization in the earnings here, but I don't know that they become spectacularly positive in the fourth quarter. But I do think that they begin to stabilize by way of more of the operations as time goes on here being in our hands.

Okay, thank you.

Thank you. And our next question comes from the line of Jiwon Lee from Sidoti.

Thank you and good morning. Fran, you mentioned some pricing pressure on the consumer side of things. Could you elaborate a little bit?

Probably that would have been -- Chuck might have mentioned that, I think, in his script, but certainly in our APG group, where we are working on the personal comfort products, that's more where we really see a pressure to be competitive. And some of our industrial CO2 laser optics, believe it or not, because they are so driven by laser utilization. Right now with many of the economies around the world doing better, people are thinking that the prices of even our CO2 optics should be coming down. And we have faced some pressure on that in the past, but now it is a little more intense, and I think that intensity on price down is driven in China, as China produces more consumer goods running their lasers, and so they are used to pricing everything down. So, we are getting pressure there. I can turn to Chuck, if there is another comment on that?

I don't think so, Fran. I think China, the story of China in general geographically, the communications market generally as a market, where the pricing pressure is always strong and the competition for new products and new features to offset the pricing pressure just rolls on.

Okay, great. And then the HIGHYAG side, where do we stand on the move and the booking trends, please?

We have moved the operation and it has created some operating challenges, so it's not behind us. We are working hard on it and are adding to our staff, and really we are working on management at that operation, because the management that was there was mostly associated with the prior 25% owner. So, we are adding new management. And our orders have been so strong that we have just not been able to keep up. In spite of that, unfortunately, when you are not able to keep up, you are disappointing customers. So, that is where we are right now. We are getting a little bit better, but we are still in that difficult time. And I think it's going to go through the quarter, although I think the fourth quarter, from our numbers that are buried in the IR Optics due to HIGHYAG will be better than the third quarter.

Okay, good. And then the Photop side, what type of sequential revenue assumptions directionally did you put in for the fourth quarter?

With respect to Photop, we see the revenue ticking up on third quarter of about, call it 6%-ish. Which, I think, if we look at the segment in which Photop is, is fairly consistent with their normal Q3 to Q4 movement.

Okay, great. And then for Mary Jane, did you discuss the backlog per segment?

I did discuss the backlog per segment. Do you want me to just give you that again?

Yes, sorry about that. Could you?

No, it's fine, don't worry about it. Sure, so let me just see here. To the backlog in general, so, first of all, as Fran said, it's $215 million, so it goes like this. It is $50 million in IR, $31 million in NearIR, $42 million in APG, $65 million in Military and Materials, and $27 million in AOP.

Great. Well, thanks so much and good luck.

Thank you. (Operator Instructions) And I see no further questions in the queue at this time.

All right. Thank you, Karen. If there are no more questions, I'd like to thank everyone for participating with us today. Our next scheduled earnings release for the quarter ending June 30, 2014 is currently scheduled for Thursday, July 31, before the market opens with a conference call to follow at 9:00. Thank you all for joining us today. Have a good morning.

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.