- Earnings call transcript Q3 2022

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Operator

Good day, ladies and gentlemen, and welcome to the Materion Third Quarter 2022 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, John Zaranec, Chief Accounting Officer at Materion Corporation. Sir, the floor is yours.

John Zaranec

Good morning, and thank you for joining us on our third quarter 2022 earnings conference call. Chief Zaranec, John is Accounting Officer. This

part begin to point we the website reference our quarterly of posted remarks like would company’s as will we I morning, that today’s out results. on review the this materials Before of that have we

call Vijayvargiya, Chadwick, also earnings President Financial Executive and the Shelly and President on access me and Officer. With can throughout the Chief link. You feature today Vice Chief download materials the webcast is Jugal Officer;

call conference comments today’s for as and follows. update opening format Our strategic provide will is on an Jugal quarter the initiatives. on key

Following Jugal of and our for the Shelly to for in expectations detailed XXXX. financial the discussing will addition results review remainder the quarter

then open call will the questions. We for

this the those and we listed contemplated statements company's from me earnings result outlook issued section by portion the question-and-answer actual are presentation, differ forward-looking the including factors. Those current Let that performance made investors remind expectations. morning. release during in that press factors the in based any of of are on forward-looking materially The this a variety a may in as statements

to reflect comments in adjusted The Additionally, before depreciation, share taxes, and certain call GAAP net morning's the earnings income adjustments income seven the per earnings tax numbers interest, amortization, shown in period through made attachments remove and now, for for release. and turn four year depletion this regarding non-cash the press prior over charges discrete are special adjustments. in comparative his purposes items, and I'll comments. And Jugal

Jugal Vijayvargiya

with the as year, results, In two morning remain years. on highest sales for our to have record the we last significant to everyone. we reset strategic up to record advancements year. on I'm quarter pleased prior we details ever quarter Thanks, compared another achieved have top-line initiatives. our value-added cover XX% be another And to you welcome, We to John, this bar QX, some with on-track and for to each the made Materion. continued share deliver

fully across most organic Class expected customer. organic the energy by perform Our X delivered Precision industrial, semiconductor, continued growth sequential outgrowth aerospace XX% Materials robust growth, initiatives led our plant new HCS-Electronic And well now The facility largely end-markets our with quarter. robust to of strength by continued customer continues and with with in qualified combined a as strong contributed meeting demand. a

and XX%. We also EBITDA achieved EPS close improved EBITDA due for record were XX% to margins quarter, sales to of the target mid-term and primarily performing approximately higher pricing. our

short-term profitability quarter, did of headwinds some our During short that to the caused face we fall expectations. our

While related semiconductor metal focused market. applications, non-precious The leading sales to was metal segments our on and such growing mix our a precious Communications target products. balance expanding other demand advanced our organically, into lower portfolio increased weaker-than-expected software semiconductor consumer sales were semiconductors, the as due of our to for Logic, is device within of up chip

higher also chem raw the costs quarter. of impact the in We felt material from

demand products very our remains the Materials earlier, noted As strong. of HCS-Electronic

able near-term in facilities staffing with one back the to started the months Materials levels. closer had not a see contracts I along The material mines. challenges up increases some recently. still but working pass yields price were the run quite has been is experienced our customers. and for past over to tantalum However, to being did for renegotiated, with unusual customer team come to delivering improve lastly, inherited the are pricing typically the we Performance labor of our few stable, that diligently has raw to yields. That reduced large by market at shortages due normal That And

strategy. excellence. a Despite bottom-line, partnerships organic our while strategic of to outgrowth of of each end these our to a teams leading ability building the uncertainty initiatives today, we pipeline because accelerated have and Materion outperformance moving customer in become about projects continue execute on continue we our of continued quarter, the incurred into established. top initiatives mitigated be confident next versus that prevalent robust that we consistent year, and initiatives, challenges across to They as to Organic operational our the on markets. pipeline about drive and future. short-term feel expect opportunities think cornerstone we most to We is industries performed outgrowth the will and our headwinds well outperform have have economic of deliver When for our

some on short currently update we have projects give underway. me Let of the major a

to facility strip We by share qualified fully customer. cloud are pleased is that our our Precision

operating We QX be at levels and expected into are ramp end. year continuing to by plan to

the Precision continues of second expected project second start asset and of with with project the up procurement on addition, cloud In management timeline. anticipate in XXXX. phase strip the We pace half

These and headcount on that the growth facility. salt to Our purification will facility the stage others on growth has begun million Milwaukee. expand initiatives that continues of to have generation Newton order material and Construction expect we we this has the our accelerate $XX as vehicle equipment business. are we beyond. production announced recently relates and material customer started ship into new year. output HCS-Electronic our electric as capacity several up capabilities move 'XX later next and our Materials in is And and announced and to project, for The as in objectives the track meaningfully continued drive to support from and to it for and [indiscernible] development increased will opportunity growth battery molten is

our stronger the have finish record We like be expect to that year. will I fourth for seen what ahead out quarter. to sales performance October we fantastic a roughly our expectations midpoint. for Moving the in headwinds, mainly a at guide rates. represents Taking account versus adjusting into increase to the year. impact $X.XX of the last we This XX% are EPS short-term

we confident year strong deliver In outcomes. our I'm for I to as our partnerships, strategic we closing, organic customer the many strong 'XX, opportunities exciting growth reflect and excellence will operational organic guide and that While of are another on I'm team acquisitions, of proud portfolio ready initiatives commitment value customers, not have and around the commitment driving and our progress dedication and really pipeline, our that creation the their for members is our shareholders is our in It for the long-term X,XXX globe. of people. made our

financials. Now, the Shelly call turn me let over the to cover to

Shelly Chadwick

Thanks, Jugal, and good morning, everyone.

morning. website my During on slides will this reference comments, on XX. I Slide posted the our Starting

Value This opening metal market the prior VA the from demand another foreign remarks, outgrowth aerospace and strong approximately Jugal impact up impact As the for of earnings quarter, million semiconductor, driven sales several which by value-added adjusted in and the the of share our quarter. were his sales, EBITDA XXX.X was significant per currency XX% achieved record quarter third sales we in added exclude industrial, year. the increased precious costs pass-through and to Organic of end particularly energy. excluding acquisitions of compared across prior year. markets, XX% both outlined

Prior add sold amounts Materials delivered operational between with Electronic mine and could of outlined, impact. timing add continues despite material HCS- to well headwinds tantalum cost cost top-line be better of compared XX% of surpass amortization add and amortization raw to a Slide performed Starting to the to market mine to but lumpy not methodology the QX raw Despite in EBITDA back aligned share our is was unmitigated adjusted a reflected acquisition with the with tied we a up we 'XX, up mining back an even timing. back the it Jugal using expectations, time. $X.XX align we add back. adjusted the XX% add impact per in look increase of began back material QX the its amortization cost figures XX-month the mine earnings quarters and short-term to our the based This the quarter experienced Our and in in as change period, quarter. XX, roughly an expense. EBITDA up last $X.XX at our to cost million, with goods the materials year, XX% immaterial production last prior reflecting year, in of activities. quaternization comparable the XX.X same, any item performance year actual Within the increases, was on using EBITDA interest Taking from

from 'XX acquisition. which largely drove performance, the our provided quarter add the last growth the increase amortization under year-over-year method. Materials XX% and comparable driven the price was We with previous positive adjusted Given volume, business mine increase illustrate a strong HCS-Electronic EBITDA EBITDA was QX back contribution This of meaningful in mix to better year-over-year. by

increased year-over-year, our As Jugal and initiatives to as growth semiconductor materials recovery unfavorable mix expected, timing partially we support in call, well Commercial as drivers performance precision yield a our the were segment. shared earlier at facility, delayed offset in these investments large near and R&D by and the optics challenges the growth continue as as in mid-term. organic

quarter our the million, aerospace increase segments. by energy increase business on were record performance business performance is a Slide of added XXX.X Now, sales Value Starting industrial, compared year. let by driven The me XX% review the and an with performance third prior to strong XX. in materials markets. and

of by In volume addition was in impact. the excluding XX.X to XX.X mine the value-added or compared XX.X% comparable quarter. strip EBITDA sales in million opportunity, special to the the was precision million with partially to offset EBITDA previously approximately XX quarter and amortization items the of yield price mentioned. challenges in contributing increased million 'XX, cloud sales, cost of positive increase XX third The impact million of due primarily the

of facility quarter teams sequential ramping Moving strong our to improve expect remains quarter together cloud well. growth. another as and market to improvement precision the expect fourth we our yields, and With order our strip EBITDA book outlook, working we above

Next, on XX. turning Electronic Slide to Materials

XX% sales versus organically. million, prior quarter were and XXX.X Third XX% added up up year value the

VA organic million organic quarter, from costs primarily and demand an offset stronger semiconductor HCS-Electronic Materials by was of positive the value XX% Aside despite XX.X% the by year. headwinds. the increase added The increase precious end material and HCS in mix contribution EBITDA driven items special industrial contributed or from semiconductor. increase meaningfully in excluding was tantalum the acquisition, sales raw largely XX.X the by strong of driven higher volume within the prior was short-term metal unfavorable price from markets.

organic diversified we to continued expect initiatives to as the to the fourth materials another growth above portfolio, of deliver as on year-on-year deliver look we quarter quarter, market our pace business electronic strong well attributed to semiconductor growth. As

the on Value compared down We X year. business. million XX Finally, top added precision sales segment headwinds of currency foreign XX% prior optics experienced the line Slide XX. the million this were turning for to to on

added items currency of by electronics the which were projects, application offset excluding medical were the down and value due is increased basis performance prior year we defense of slightly XX.X% prior volume. sales to discontinued timing sequential XX% improvement. a decline lower of impact, the excluding with market. to sales down to Sequentially and million in in EBITDA supported quarter EBITDA the X% The special outlook, when the margin from Pertaining So X to year. was improvement consumer compared defense certain by the stronger growth due XXX expect fourth space. point

XX. liquidity the a debt million XXX capacity of cash, and net to on now Moving available with Slide position and XXX debt on We facility. the approximately ended million quarter credit company's

times With our flow at remains in strong free X.X expected leverage Our quarter. cash the range. target fourth within

We leverage Xs lower end. be ratio approaching this by expect to year

our headwinds. the strong and pipeline, impact Lastly, market let operational address confident to initiatives Well, transitioning in outlook. our the recent XX, and organic remain of short-term we considering me with book order Slide

the share, the Among other push are our materials, timing roughly year to of per high-end orders increase certain of range. that year-over-year. XX% $X.XX defense the We we results to outlook performance a items, updating to of full representing in range $X.XX

assumptions of to also modeling quarters, two we are another we proud record have results. previous In delivered in for quarter As updated closing, you. have

high We momentum year with remarks. to expecting fourth our prepared into improvement the are a the concludes note. This finish quarter headed sequential good on

We for questions. open line will now the

Operator

[Operator Instructions].

your Your first question. Please question and Dan affiliation from for coming then is Moore. today your announce post

Unidentified Analyst

plans, expansion you to for in semi Dan. Can just capacity scope telling Any on it This about the are or is additions? in Chris for our either Thanks what questions. potential change taking Stefanos your as you update Act? relates Inflation timing Reduction of the customers their calling

Jugal Vijayvargiya

not customers investments some back-off Well, in timeframe. the I have I the conditions. the based But wholesale think in some will on CapEx everybody 'XX, decreases, on say perhaps that been announcements, they that made have couple of maybe general, I has them mean, their New into announcement would on a of Year, 'XX indicated from the economic there as

to seeing major. we So good with see our are are there there announcements, but don't what customers, is we some I continuing think is growth. minor anything From

very Our et that the challenged is memory know semi has the power in we serve only data business is quite near-term, do I we area but diversified. communication, cetera. here the which been serve devices, devices, Not an storage, market, logic well

for a So that very business are we diversified have. we us semi base the

from not minor, announced. I semi so, But seeing substantial, minor say of some maybe we longer-term type of our of the investments, of some And of some the that folks from think in would side, have players. terms overall, announcements are nothing I things the

Unidentified Analyst

the And just a those simply of you passing just do matter expect tantalum follow-up just Was normalized when to a those a to on cost. return of timing level? a lag it through? And in

Jugal Vijayvargiya

up think. It to XX result, mines. been And up Labor which short a then run previous happened to material, there a the come been fairly has the started something time. a business stable is That was located owners, that labor thought in of about, of And happened the to nearby we diverted really I fairly has down. Tantalum result that period never price. was a that had there fact Yes. one a price as run had mines, our be in and was shortages. much tantalum a on

just process we quarter first probably start look kind the that inventory our the the year, just would at I for see price, of new say tantalum. we we would how down turns coming and the As of to effects that's positive in of things,

about note related sponge, many on you I our base. inflation I think comes that's talked calls. I do we've is know, second it contracts. want to the the from important We when as be it thing think not absolutely the to to mean, supply pricing

have inherited were customers way. that buyer, legacy which our that pricing. in contracts We contracts, we not to the worked very aligned way are our we a with that can are that in hard sure These make from recover structured contracts

allow expect very we New a will on in that. so And hard Year, with the have know, as the in contracts be And would are many good to will we which would restructure progress allow incur line contracts be costs those us that contracts, us type those that will customers. of I you them more of pass to working to we've that made in, we in the with our that way be,

turnaround so here the And we would so see that headed is New we're really exactly Year. and where in a

short-term, expect, one be as we to a from as Year. we I a So item, the really see recovered New said, this in very short-term that

Operator

pose Your Please Phil next question your is coming from question. Gibbs. announce your affiliation then

Phil Gibbs

Phil Gibbs, It's KeyBanc.

relative be Just quarter? think, [indiscernible]? did impact sticking much pretty X to do me once, Was contracts it misalignment? that much Was to your seem these where X that some It how million? where new and went it How million? in you could sizable the costs

Jugal Vijayvargiya

and up was just Phil, an sizable went impact it tantalum is to pricing up, a The one you in about give idea. this XX%. approximately

roughly the of goods for the about of for products related of it's tantalum, is tantalum So sizable actual look XX% when tantalum. cost sold sold a at fairly cost our increase, you goods cost

look that neighborhood at $X in of that mean, it's impact, the faced. million, about the we So type you I when impact of in

price very from sizable has expectation really items contractual we related, our we have, impact recover So inflation on able situation noted, in issue job through if were having would type have a on surcharges, have based customers, win, and crying, that. of there's can that recover, the situation. customers. a in with so win want various that. tantalum And, cost up for earlier arrangements related future. of, of come a being we our a care mean, execute case, to comments, that adjustments, run not we, discussions, that. to you my is think to will as that a back make a able the this assure team were our of the and I down able we be to taken our just we starting incur ever and I just this lack I we we as was to fantastic indicated, done I in that to I cost to we But It sure not fixed wasn't of to In of

cost customers So cost customers benefit that. the up, obviously, But comes that. then the to if will the goes in the feel down, will if participate of and the have

Phil Gibbs

in incrementally at and QX, to Well, misalignment to misalignment is continue the is this easing or expected row that QX? magnitude, the

Jugal Vijayvargiya

raw continue, the the is and the we talk raw that, about think lag from I then our Look, the we're or the buying that processing going we're over buying turns and magnitude to to all first time customers. of the our the getting is based material, through to going continue misalignment misalignment on just time material, and a that actually there's fact getting can inventory

I it that so and into continue So time, takes QX. will think

the magnitude say expect. Year, in Probably, perhaps would still I probably it the a neighborhood will it's the certainly New magnitude year similar think I I improving but the into would and the towards in then of be end that is QX. sizeable what

Phil Gibbs

Is that or QX it just sort in think glide? a that you of that going? away goes Do is

Jugal Vijayvargiya

It's then by would a glide, and in really, a think I QX really QX. improvement see I

addressed, how not quarters. types this we're really other deal is but that the to couple daily in Our future. make through these issue basis expectation of next know that something to to over indicated, all to sure properly, and it we But with a managed materials to here that on of is manage of on we our things, the forward. manage We going them to going I going as continue work got we're this is to this have fully have

Shelly Chadwick

new and will new of right, working as on price through coming I touch It's think, pricing the well channel. think of inventory both being them. implemented, that higher the the the we there's in, to as or So contract two easing, I elements

And switch you of just one. so that's why kind over don't a see

Phil Gibbs

Appreciate all the detail on that.

order of what's order point, markets? texture at its this you telling what you're business seeing just just And books what through entirety. the to it goes As in relates your the are it the book, overall across

Jugal Vijayvargiya

I Look, challenged. organic that are saw strong. certainly quarter, bit business continue, little our you XX% for there order very or really Yes. to substantial. expect continues and a I delivered do areas we organic is well. growth our as which to some XX%, more the year-over-year to growth be we And mean, continue are perhaps books And think

of that as portfolio probably into more are were for are go little side like On the perhaps a diversified semiconductor. in semiconductor very and semiconductor, that year. the indicated, a QX But comments, parts I we my earlier challenging we new into

we been regarding be of to I inventory a Automotive, availability that that there issues availability, to has So think going to we're the lot of slow. buy chip continue in market. was chips, some happened believe outperform seems there correction, semiconductor anticipation

usage And so on. there's think inventory I of been going some that's the

than our last of the year. really in are the the books to driving. continued are business from business, do of in end and a the of of end But at of right has challenge our where continue we testament would book, our a at that when to I our now, is type teams our continues business aerospace driving from energy business year growth I well. XX% just teams the little the it's just order I we beginning do more semiconductor good general, we're think have probably a projects kind and order of rest and you growth, to semiconductor year automotive we're to a bit our well, of Telecom our industrial, last expected from, of and do that mean, bit think to look have now So about says for at well we organic up us, to

good to the organic So, we see progress continue side. on

order of QX the I So at, our fact, I it's you been book, stable say good progress look been it's would our QX when in mean, is continued even in and timeframe. much pretty overall a growth,

Operator

Zaranec There for the are would like queue. to I over any no to closing further remarks. John in floor questions turn

John Zaranec

earnings will on be This company's materion.com. available Recorded call. website you. concludes this call of quarter Thank playback our XXXX third the

Now, for you I'd follow in and like be to up the available XXX-XXX-XXXX. Materion. Thanks participating number call will thank morning on any my for again. I your interest is this and questions,

Operator

and conclude Ladies this conference call. you. gentlemen, Thank does today's

phone Thank wonderful your day. disconnect you may and at for a You lines time participation. this have

Materion (MTRN) 2 Nov 222022 Q3 Earnings call transcript