II-VI Inc (IIVI) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the II-VI Incorporated fourth quarter fiscal year 2015 earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will follow at that time. (Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Ms. Mary Jane Raymond, Chief Financial Officer. Ma'am, you may begin.

Thank you, Kaylee, and good morning. I'm Mary Jane Raymond, the Chief Financial Officer here at II-VI Incorporated. Welcome to our fourth quarter and year-end earnings call for fiscal year 2015.

With me today on the call is Francis Kramer, our Chairman and Chief Executive Officer, and Dr. Chuck Mattera, our President and Chief Operating Officer. As a reminder, this call is recorded on Tuesday, August 4, 2015.

Any forward-looking statements we may make during this teleconference are given in the context of today only. We do not undertake any obligation to update these statements to reflect events subsequent to today.

With that, I'll turn it over Fran Kramer, our Chairman and CEO.

Thank you, Mary Jane, and thank you, everyone, for joining us.

We had a record quarter that capped a record year. Bookings for fiscal year 2015 of $762 million grew 10% over fiscal year of 2014 including the full-year impact of our latest acquisitions. Revenues for FY15 of $742 million grew 9% over FY14 from $683 million.

Ignoring the estimated negative impact of foreign currency of $12 million, our growth rate would've been 11%. Our adjusted EPS was $0.94 per share excluding the acquisition settlement in our favor in the second quarter of $0.11 compared to the reported $0.60 per share for fiscal year 2014.

Revenues in the laser solutions segment were $288 million in fiscal year 2015, a 13% increase over fiscal year 2014. This segment was the most affected by the currency, over $9 million or 3 percentage points of growth. The operating margin grew to 19% compared to 10% in fiscal year 2014 with contributions from every division in this segment.

The photonics segment revenues of $261 million grew 20% compared to fiscal year 2014. The operating margin was 3% compared to break even in fiscal year 2014 and includes the completion of a restructuring in our optical communications group that is already showing a positive effect on margins.

Performance products segment revenues were $193 million and declined 9% compared to fiscal year 2014. This is primarily due to continued lower demand for our products serving the military and semiconductor capital equipment markets. As a result, the operating margin of 8% was lower than the 10% we achieved in this segment in fiscal year 2014.

Reflecting on this year, we made significant progress. Our acquisitions of last year are showing solid improvements in market share and earnings, and we are optimistic about future growth prospects. Our legacy and core businesses including our CO2 laser optics division also continue to penetrate the market and serve as a platform for our go-to-market strategy and our ongoing collaboration with our customers.

Importantly, they also provide excellent channels for both our new products to existing customers and existing products to new customers. As we look to fiscal year 2016, we have begun the new year with energy and enthusiasm. We look forward to continued growth as we focus on investing in new technologies and strategic acquisitions, leveraging our vertical integration, expanding our manufacturing capabilities, globalizing our quality processes, and continuing to improve our margins.

Let me now turn it over to Chuck Mattera to comment on our worldwide businesses.

Thanks, Fran. In our laser solutions segment, Q4 revenues of $74.1 million were up 1% sequentially following a record Q3, which grew at a very strong 8% driven largely by seasonal plant re-tooling demands.

Our largest growth in this segment was in Asia at 12%, which continues to be a robust market for us. We continue to see lots of opportunity and interest across the whole spectrum of high power laser platforms for industrial materials processing. Laser solutions not only had strong growth from their own products, but it also pulled through complementary products from our other two segments.

Our CO2 laser optics business continued to grow modestly in the quarter (inaudible) increased market share in low power optics. These gains added to our high power market share and expanded our penetration into the addressable market, especially in China.

The EUV market for our high performance optical and electro-optical components was softer as it was for the structural components from performance products, but we believe this will be a good and long-term growth market for us once the semiconductor industry roadmap experiences the inflection point to the 7 nanometer node.

The adoption of our products in the direct diode and fiber laser component space has been very good for both laser solutions and photonics. One micron component sales have recently climbed to 15% to 20% of our total business, and it is still growing.

From a regional perspective, the largest growth in one micron products came from Asia in part as a result of our large Asian presence. The combination of our broader portfolio due to recent acquisitions and product development investments, major investments in the establishment of new sales and customer service centers, increased applications engineering staff, and our substantial presence in China have all helped to fuel these increases.

Laser diode revenue increased 14% sequentially and 19% compared to FY14. Our focus on productivity, yields, and operating costs is paying dividends as margins have increased for both assemblies and components.

We continue to develop several next-generation platforms that target growth opportunities, and we are embarking on an aggressive plan to add capacity, increase automation, and bring critical processes in-house to control even better the quality and cost structure.

Last month we showcased an array of new products for the fiber laser and direct diode market at the Laser World of Photonics trade show in Munich. All of our new products target world class performance, efficiency, and ease of use and receive significant interest from leading OEM laser manufacturers and integrators.

We made great strides this year with our investments in differentiated technologies to enable the next generation fiber laser and direct diode laser applications. We believe they provide an excellent foundation for this year and beyond.

In our photonics segment, sequential revenue growth was 12% and our book to bill ratio was a strong 1.09. During the quarter, we experienced increased demand across a variety of our products such as optical components and modules driven largely by the broadband China initiative and ongoing investments by global cable TV operators to upgrade the capacity of their video and data networks around the world.

While in general the optical communications market demand has not been strong, we are seeing recent strength in China's deployment of fiber to the home and 4G wireless as well as continued development of next generation wireless and dissociated fiber optic back haul investments. This drives demand across our products in optical communications. This includes switching products, passive components, and high reliability pump lasers for our under seas systems customers as well as amplifier demand from customers in Asia.

Worldwide amplifier demand has been steady but softer than we had forecasted due to both delays in new network deployments, especially in North America, and inventory rebalancing at some of our remaining customers.

Our photonics products shown in Munich also experienced a significant increase in interest and multiple new fiber laser product offerings. Our innovations have proven to deliver consistent quality solutions to the high power laser market. We will continue to invest and develop high power optics and assemblies for the emerging opportunities in the direct diode and fiber laser markets.

We completed our planned streamlining of resources and operations in our optical communications group within this segment with a charge of $1.5 million this quarter. We are now geared to better serve our key customers, increase our market share, and improve profitability. We continue to invest in key products to support the ever growing bandwidth trends in the data center and cloud applications, including the development of 40G and 100G transceivers.

Turning now to our performance products segment, this is our segment that cultivates products based on specialized and innovative materials, some of which are new platforms that tend to have long lead times to adoption, for example, the deployment of our thermal electric devices into such applications as [cooled beds].

This segment experienced a sequential revenue increase of 12%, largely from program schedules at some of our major military customers though overall for the year our military business declined 23% leading the year-over-year revenue decline of 9% for the segment.

This is why we undertook a $1.9 million restructuring program to consolidate operations and reduce our cost structure. We expect to complete the restructuring during Q1 FY16 and return to steady operations over the remainder of the fiscal year.

Our shipments of silicon carbide ceramics also improved with initial advancements under way for the semiconductor capital equipment market. Shipments from our silicon carbide substrate business remain strong especially for our market-leading 150 millimeter diameter substrates. Silicon carbide substrates are integral to the growth in both [base] stations in the wireless infrastructure markets as well as for the future power electronics market.

We are proud of our product innovations in this segment. In particular, our recently announced world class 200 millimeter silicon carbide substrate has attracted significant attention from potential new customers. Large diameter substrates will be a key driver of low-cost and growth in the silicon carbide commercial markets. Therefore, we are adding capacity including for crystal growth and look forward to continued market share gains.

As I reflect back on the last few years, we set out to change the way we are organized and work with a strong focus on teamwork, increased efficiency, and speed across the globe. During that time, we embarked on a very ambitious plan that involved a combination of new acquisitions, investments in new technology and products, and attention to quality and operational excellence that has defined II-VI over the years.

These are now among our strategic areas of focus and are all a part of our continuing work to build a scalable and sustainable growth company. We have acknowledged our earlier setbacks but with determination and dispatch we continue to work to establish new capabilities in the Company, including a world class semiconductor laser platform.

I would like to thank all of our 8,500 II-VI employees worldwide who contributed to a successful Q4 and FY15 despite a challenging environment. Looking forward to the remainder of FY16, all of these initiatives will continue to be priorities as we work with a renewed energy and enthusiasm while striving to deliver increased value for our shareholders.

I will now turn it over to Mary Jane to walk us through a review of our overall financial performance. Mary Jane?

Thank you, Chuck and Fran.

For FY15, our revenue growth of 9% was 2% organic. Laser solutions' 13% growth was 9% organic, bearing in mind it was this segment's growth that was almost the most affected by currency. Photonics' 20% growth was 6% organic, and there were no acquisition effects this year in performance products.

As a second point on the revenue, our Q4 revenue of $197 million was over the top end of our guidance of $185 million to $193 million due to some of our customers requiring shipments in the fourth quarter that we expected to be in Q1 FY16.

We did very well on our margin targets this year, even though we were a little shy on the adjusted EBITDA margin due to currency effects and an intangible asset write-off of $2 million. Gross margin of 36.6% compared to 33.2% for FY14. The operating margin of 10.4% compared to 6.8% last year, and the adjusted EBITDA margin without the settlement benefit was 17.3% compared to 15.1% in FY14. The operating and adjusted EBITDA margins are all inclusive of currency and restructuring effects. They exclude the indemnification settlement in our favor of $7.6 million from the FY14 acquisitions.

Our fourth quarter book to bill ratio of 1.0 caps a good year of improved bookings. Full year the book-to-bill ratio was 1.03. Our backlog of $242 million consists of $73 million in laser solutions, $68 million in photonics, and $101 million in performance products.

The currency effect on our revenue was $12 million or about a 2% reduction in our annual growth rate. The euro and yen falling over 20% from June of 2014 coupled with the growth in our businesses at HIGHYAG in Berlin and Laser Enterprise in Zurich with their more euro-based revenues really changed the currency profile of our Company, but at the end of the day this is less than 0.5% effect on the operating margin.

The restructuring costs recorded in this quarter are $2.6 million, including the severing of a lease in Australia. This is $1.5 million for photonics and $1.1 million for performance products. Full year, the pre-tax charge was $6.4 million, $4.5 million in photonics and $1.9 million in performance products.

The adjusted EBITDA of $0.94 a share for this year, reported EPS of $1.05 per share compares to a reported $0.60 per share last year. We worked hard for this improvement and believe the improvements that we have made will serve us very well going into the FY16 year.

Turning to our cash and capital expenditures, our cash flow from operations was $129 million compared to $95 million for fiscal year 2014. We paid down $66 million of our debt this year bringing our debt level to $176 million. With $174 million cash on hand, we should be in a net cash position by the end of the first quarter of this year.

We did not repurchase any stock this quarter, but we have repurchased $13 million in fiscal year 2015. We reduced our share count by 1.1 million shares. Our total share count is 62,586,000 compared to 63,686,000 for fiscal year 2014.

We invested $52 million in capital this year including $13 million for the purchase of the HIGHYAG building in Germany during the first quarter. We expect the FY16 capital investments to be similar to this year or between $50 million and $55 million.

Our equity based compensation for the year was $11.4 million, and for fiscal year 2016, we expect equity-based compensation to range from $12 million to $14 million.

Our year-to-date tax effect was 17%, very close to our range of 14% to 16%. This rate compares to last year's rate of 16%, which also benefitted from the R&D tax credit. For fiscal year 2016, we expect the tax rate to range from 21% to 23% on the theory that the R&D tax credit is not renewed.

Turning to our outlook for first quarter of FY16. For the first fiscal quarter ended September 30, 2015, which is our seasonally low quarter, the Company currently forecasts revenues to range from $180 million to $190 million and earnings per share to range from $0.20 to $0.25 per share diluted.

We expect the second half of the year to follow our usual pattern of being stronger than the first half. Comparable results for the quarter ended September 30, 2014 were revenues of $185.8 million and earnings per share of $0.20 per share diluted. This is all at prevailing exchange rates.

Before we turn over to questions, our first quarter earnings release date is slated for Tuesday, October 27, 2015.

This concludes our prepared remarks. As we turn to Q&A, I'll remind you that our answers to your questions may contain forward-looking statements, which are based on our knowledge today and for which actual results may differ materially.

Kaylee, you may open the line for questions.

(Operator Instructions) Jim Ricchiuti, Needham & Company.

Thank you. Good morning. Hi, question on gross margins. Mary Jane, maybe you can address this. As we look through the year, you showed nice improvement sequentially in gross margins, particularly in Q4, and it looks like for the year you came nicely above what you had set out as a target, and I'm wondering how we might think about gross margins in fiscal 2016 just given some of the things you're doing, the benefits of the restructuring, and potentially mix.

Right. So, we have out there a margin range for fiscal year 2016 which at present is ranging 36% to 40%. I would say at this point, again given that the first quarter is our smallest quarter, we are not changing that range right now. We would not expect to come in at the bottom of the range, and we do expect to make improvement on this year.

But I would say, again given that the first quarter is the smallest quarter, we're not going to change it right now but do expect progress.

No -- thank you, that's helpful, and I wonder if you could talk about what areas in Q4 where you did see some pull-ins that may have come from Q1.

Largely in performance products. A little bit in the photonics segment. Again, largely driven by either program-related or customer timing on how they wanted to be ready as they approach this quarter that ends on September 30.

Okay, and the last question for me, thank you, is just on operating margins in the photonics business. Some nice improvement sequentially and how might we think about that just given the initiatives you have just in general to improve yields and what not?

Right. Well, first of all, we are very proud of the photonics segment in the quarter. Their results in the fourth quarter cap what was a very long and oftentimes hard year for them under which they took a significant amount of actions.

I would say, again, keeping in mind we don't give margin guidance by segment, we would expect to continue to progress on the overall year's number. I don't know that we're expecting the fourth quarter number to repeat every single quarter next year. That's important to point out, but photonics has done a lot of work, not only on their product portfolio but as a right of their restructuring, so therefore I would expect to see them if you think about the year overall to continue to make progress into next year.

Certainly, the -- this is Fran -- the volume that we had in the quarter at photonics was very important for that margin lift, and we see the whole photonics business and optical communications group in particular having a few strong quarters as we look out. We can see a little further than usual, at least for a few quarters.

Okay. Thanks very much.

I think maybe to just add to Fran's -- generally speaking, I mean, we've said this before in other calls for all of our businesses and photonics perhaps the most, the market cooperating helps us a lot.

Got it.

Also just to add, we usually tell you not too much of what we think for the future quarters of photonics. We have very short line of sight, maybe a quarter. Right now I think we're thinking maybe there's two or three quarters.

Okay. Thanks again.

(Operator Instructions) Ted Moreau, Barrington Research.

Good morning. Thank you very much. Congrats on a great quarter. How much revenue do you think you benefitted in the quarter from the pull-ins in the performance products segment that you were indicating?

I don't think it was material on the quarter. I mean, it was certainly a few; let's say in the low single digits.

Okay. Very helpful. Thanks. Okay, and then visibility sounds -- you're indicating a little bit better on the photonics segment. What are the factors driving that? I mean, we look out and see metro optical upgrades and data center expansion plans from Web 2.0 guys, but just kind of curious as to what you're seeing. What factors would be driving that for you guys?

Ted, this is Chuck. I would say overall the data center interconnect market, the upgrade in the cable TV markets, and then just across the board it just seems that most of our customers are experiencing at least some near-term uptick in demand.

Chuck had in his script and said about the China buildout. I think that was an early one and that's another feature.

Right. Okay. Thanks for reminding me on that. And I think in the script you had mentioned wireless and 4G wireless in China, which seems to be a little bit different than some of the other guys in the supply chain, particularly on the semiconductor side. So just kind of curious maybe what you're seeing there versus what some of the other guys -- some other suppliers might be seeing and is there a difference in time frames as far as when demand gets pulled? Is that why there might be a different -- little difference in when you're seeing things versus when some semiconductors' guys are seeing things? If you could comment on that.

Yes, I wouldn't be able to comment on what the semiconductor people are seeing or saying. In our case, Ted, across the Company we have products that are in the photonics segment which are addressing the 4G upgrade -- wireless upgrade in China as well is part of the overall China broadband initiative as well as in performance products our silicon carbide substrates underpin gallium nitride electronics, which are also ultimately, we believe, aiming through our customers at this China broadband expansion. I believe we talked about that last quarter.

So, if you read the most recent press, even in the last couple of months or so, from China, it's apparent that they continue to press on with their efforts to boost information consumption, expand broadband coverage across China with the aim ultimately of offering 4 megabits per second to those in rural areas and then 20 megabits per second in the urban areas by 2020. And we think from those announcements in the China press that they're expecting to build out over 600,000 new 4G network base stations that will ultimately end up delivering that kind of a service to over a couple of hundred million new mobile phone users.

So we have a visibility or a view of certain parts of that network buildout where we are participating either directly or through our customers. Does that help?

It does. Yes. Okay. Great. Thank you so much. I'll hop back in queue and let some other guys take a chance. Thank you. Good luck.

Mark Miller, The Benchmark Company.

Thank you. Congratulations on your record sales, and the margins are encouraging. I was on a call yesterday where a firm was citing some credit issues with their customers or crediting tightening or availability in China. Has there been any impact with any of your customers there?

We have not seen a particular shift in that direction. Credit terms in China generally speaking are quite a bit different from the U.S. as you may know. Long lead times unbelievably compared to even Europe, but we are -- over time have gotten very good at trying to figure out how to manage that and -- or at least we're trying to be good at it, in trying to manage that, and I wouldn't say that we've seen materially big differences.

I would say in general though we watch for lengthening of terms by all our customers on an ongoing basis and do try and be sure that we catch them before they get too far and then see what we can do about them. The cash flow in this Company funds a lot of growth and a lot of investment, and it's important to us.

Your fiber laser components have been a good area for you, especially on a modem. How did that do in this quarter?

Well, Chuck did make some comments already that we're -- 15%, 16% to 20% of our overall sales are into that space. Truthfully, it might even be a little more. We gave you a good estimate over a couple of quarters, but in the most recent quarter it might be toward that higher end of that 20%. So, that's coming along nicely, and we expect it to keep growing. Chuck, anything?

Yes, I would say a reference point might be our Q3. Last quarter I reported that those sales into the fiber laser market had grown year-over-year meaning compared to Q3 of FY14 by 55%. And that was our Q3 2015 compared to Q3 of 2014. Fran is right. We continue to see that market grow for us, and we are expecting that it will continue to grow in the 10% to 20% per year range although in this last quarter, meaning Q4, it did appear to slow down somewhat.

From 55%, yes.

Right.

I'm just wondering, you gave the year-over-year cash from operations. Could you break that out for the fourth quarter?

For the fourth quarter? So it was about $40 million in the fourth quarter of this year. For last year, it probably was a -- last quarter was -- last year's fourth quarter was probably a pretty decent quarter. I'd say maybe it was about $10 million up maybe compared to $30 million.

Thank you very much.

Sure.

(Operator Instructions) Zachary Rodenbough, Sidoti Capital.

Hi, everyone. Good morning. I was just wondering if you guys could talk about your use of cash in the near and long term. I know debt is coming down to more manageable levels, and are you expecting to continue to pay down debt more aggressively or do you have plans to kind of resume your buyback or is your focus more on paying off that debt and accumulating cash? And also kind of as a second question, I was wondering if you guys could comment or maybe make an update to your acquisition outlook. I know you were kind of taking a step back for a while there, but it sounds like you might be coming out of that kind of moratorium.

So, Zach, this is Fran, and we're sure interested to get back into the M&A business. I think we took a good year and a half to get ourselves aligned with what we've acquired, so we are starting to look. That doesn't mean we've got something ready to launch, but we'll put more efforts into that way to grow the business and we've spent this year quite a bit working on new product development. We'll continue to do that also.

So then relative to the cash questions, maybe, Mary Jane Raymond, you take that?

So having heard Fran's answer there, I would say the following. I think we've been pretty clear that we have two goals with the share repurchase. One is as a first matter to offset dilution that we might have and secondly to be pretty opportunistic when we see the stock price moving. So, I think those still remain the watch words for our share buyback. Different things could cause us to -- different circumstances could cause us to do different things, but given Fran's comment, I think we would then remain with still a focus on the pay down of the debt, but keeping in mind that notwithstanding we didn't buy stock in the fourth quarter. We would expect to buy stock through next year.

Okay. Okay. That's helpful. And just coming back to the HIGHYAG segment, I know that returning customers have been a large driver for growth over maybe the past year and before that. Can you talk about what portion of growth returning customers you are still accounting for and if that's something that you're expecting to kind of continue to drive growth and then how that affects the growth trajectory for that business as that plays out.

Zach, this is Chuck Mattera. I'll take a shot at it. Maybe Fran -- if Fran or Mary Jane would like to add to it. I would say that first of all they delivered on a very, very solid year in FY15, and they are not only retaining the customers that they have, but they're attracting new customers along the way. As I've mentioned before, the team there as well as the global team around the Company really has done a fine job. They are having a very good start here to FY16. Their bookings for the first month of the year have been very strong, stronger than what we expected and all of the businesses coming from the same customers along with new customers that they're attracting in North America and in Asia, as well.

Fran, would you like to add something?

No, just maybe a few to add to, too, it in terms of customer acquisition and working relative to our photonics group, and I think we can say we've done a very good job. [The] businesses that we bought has carved out had customer challenges when we inherited the business or bought the business, and now we've brought some of those customers back into the fold and at the same time we've raised prices in some areas in that optical communications group. And that's sent some business away from us, but we're working to make it a more profitable business and to serve those customers better. I feel like we're on the tip of doing that. We've done some of it.

Chuck, anything?

Yes, I would say, Fran, that both in photonics as well as in other parts of the Company increasing numbers of customers have reported to us that they are realizing our differentiation, the superior value of the experience in doing business us, and that we are positioning ourselves to serve them even better in the future.

Great. That's very helpful. I'm going to jump back in the queue. Thanks, guys.

This is Mary Jane. I'll just give you a little bit more color on Mark's question with respect to the fourth quarter cash flow. So, last year -- so the answer is it's still about $10 million, so it's a $13 million difference from last year's fourth quarter. Last year's fourth quarter from the year-to-date third quarter grew $27 million. In this quarter it grew $40 million. Keep in mind our quarters can be a little bit lumpy. We had what we think is a very good cash flow year this year, and it was still lumpy in the first half. So, just to let you know that.

I would say generally speaking Q4 for us is very similar to every other company's Q4, which is you really look hard to be sure all your ducks are in a row, your DSO and DPO are where you want them, and consequently causes Q4 to be a little bit higher.

Dave Kang, B. Riley.

Thank you. Good morning. Couple of questions. First, regarding your fiscal first quarter outlook, I was wondering if you can just go over some of the assumptions, which segment -- will all three go down or just more color on that?

I would say that we are not expecting a dramatically different pattern than we normally see in each segment's first quarter performance. There is a certain seasonality in laser solutions, for example, because it misses the summer quarter. With respect to photonics, they also experience some of the same seasonality if for no other reason there's an awful lot of companies that have a June 30 year end in this industry.

And the same for performance products. There are a number of U.S.-based businesses, and we tend to have the same sort of summer effect. So, I don't want to say much but it's every segment going down per se as it is I would say that's kind of a normal pattern for the Company.

Got it. And then regarding gross margin, you gave 36% to 40%. So this quarter's fiscal first quarter, we should expect sort of a low end and then expect steady improvement throughout the year? Is that sort of how we should think about it?

I would say that we would strive to be above the low end for all the quarters, but again, given that it is the smallest quarter revenue-wise, chances are it will have the lightest margin just because again the -- we have a huge amount of crystal growth and material growth capacity in this Company. The market helps. So, I would say probably it is fair to say that we might have the lightest margin quarter in the first quarter.

Got it. And lastly, Chuck, I think that you talked about some regarding photonics division. There was some inventory correction and yet visibility seems to have improved. Just wondering if you can just kind of clarify that a little bit. So inventory correction debt took place in the fourth quarter or is happening right now?

That was a fourth quarter comment.

Oh, I see. I see.

That was a fourth quarter comment. I think -- I would say that across the Board interest "activity" has been running very strong. Our position with the major customers as I mentioned earlier is improving. The demand for pump lasers, including for undersea and for amplifier build out has been strong.

Our amplifier business in the fourth quarter was softer than what we had expected, but overall we're feeling pretty good about the start of the first quarter. And as Fran indicated, we feel like at the moment, David, we can see at least one or two quarters beyond that in a way that would give us more than the usual confidence about our ability to deliver.

And what kind of exposure --

You know, Dave -- this is Fran. I would say in some cases in this optical communication group we're a little further back in the food chain than some of the others that report. So we might be either lagging a bit or ahead of others in the amplifier business. Chuck just said how it's affected us, but we've had a really good effect on the pump side of things. So, timing for us isn't exactly what the other system people will report.

Sure. Sure. Just lastly, what kind of -- or I guess what do you see in the data com market or data center market because one major Web 2.0 CFO said recently that she plans to be more disciplined with spending going forward, so just wondering if you -- what kind of visibility do you have in the data center market?

We have a lot of connections, Dave, a lot of touch points into the data center interconnect market.

Okay.

And I could imagine such a comment coming from a CFO, but I can tell you that our touch points are extremely active and there's a lot of crosstalk at the interfaces and lots of discussion about current opportunities and our future roadmaps.

Got it. Thank you.

Ted Moreau, Barrington Research.

Thank you for taking my follow-ups and thanks for the update on the fiber laser business, which sounds like is doing well. Another fiber laser company recently had great numbers -- reported great numbers last week and great guidance, and they were indicating that it seems the fiber laser business is accelerating the move away from CO2 lasers, so can you give us an update on that and like how you see that playing out maybe over the next year?

So, I'll give a little update and then you can take it from there. So, in the past we always talked about 5,000 new CO2s coming down the assembly line and maybe 500 to 1,000 fiber lasers or not quite 1,000, but right now I would say in this past year we annualized what happened. It was about 6,000 total machines put out there of which maybe 2,800, 2,900 were CO2; 3,100, 3,200 are fiber laser. So, the continuation of fiber to grow is true. CO2 assembly line has reduced. It hasn't come to a point where it's affected the installed base and CO2 is still very good and our run rate on CO2 optics is still very, very strong, and a good part of that is worldwide economy doing well.

Okay. Thanks for that, and the cash flow on the CO2 lasers is quite strong. Right? I mean, that's very healthy for you guys?

It's good.

Like -- I mean, is it -- I would imagine it's above corporate average. Is that a way to think about it or not really?

Yes, that's true, for sure. And it's been that way quite a while as you see our numbers. It's been a real nice cash-generating segment for us.

Okay. And kind of a techy question on the photonics segment. Do you -- are you impacted at all by the move to [Pan 4] modulation and would you -- I mean, would there be a catalyst out there for you guys when merchant suppliers of Pan 4 chips come to market?

We see that -- it's emerging, Ted, and not to get into all the detail, but we see that as an opportunity for us.

Okay, and that's -- is that an opportunity for fiscal 2016 or is it further out than that?

It's an opportunity for us to tighten up on relationships in FY16 and to define our path. We think it'll be a longer-term opportunity for us given our technology platforms and our competencies.

Okay. Great. Thank you so much.

Yep.

Mark Miller, The Benchmark Company.

I just wanted to clarify. I believe you said the year-over-year organic growth was 2%. Is that correct, but it was 6% in photonics?

Yes.

And just was wondering geographically, you said China was strong; how was Europe?

Well, Europe was probably sort of a not tremendously exciting market for us in the quarter.

Certainly, we had the currency effects in the second half of the year that were heavier out of the Euro. That hurt us.

I would just add despite the currency effects, we -- I would say that we had -- we were strong and despite the currency effects, we held our position and without the currency effects, we would've actually grown --

Right.

-- our business at least one or two points, I believe, in Europe.

Thank you very much again.

Okay.

Thank you, and I am showing no further questions at this time. I'd like to turn the call back to Mary Jane Raymond for closing remarks.

All right. If there are no further questions, we want to thank you again for joining us, and we want to remind you again that our call for the first quarter of fiscal year 2016 is Tuesday, October 27, 2015. Fran?

Well, thank you very much, Mary Jane. I think we're ready to close here.

All right. Thank you so much, and everyone have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a wonderful day.