Materion (MTRN) - 2024 Q3 - Quarterly Results

Executive Summary Materion Corporation's executive summary provides an overview of the company's performance and strategic direction Third Quarter 2024 Highlights Materion Corporation reported record adjusted EBITDA margin in Q3 2024, despite weak markets, driven by strategic cost reductions Q3 2024 Key Financial Highlights | Metric | Q3 2024 (Millions) | Q3 2023 (Millions) | Change (%) | | :--------------------- | :----------------- | :----------------- | :--------- | | Net Sales | $436.7 | $403.1 | 8.3% | | Value-Added Sales | $263.8 | $270.5 | -2.5% | | Net Income | $22.3 | $26.6 | -16.2% | | Diluted EPS | $1.07 | $1.27 | -15.8% | | Operating Profit | $31.3 | $36.5 | -14.3% | | Adjusted EBITDA | $56.7 | $55.4 | 2.3% | | Adjusted EBITDA Margin | 21.5% | 20.5% | +1.0 pp | - Delivered record quarterly adjusted EBITDA margin of 21.5%[2] - Implemented strategic actions to reduce cost and deliver strong performance despite a soft environment[2] - Announced the sale of non-core large area targets business for architectural glass in Albuquerque, New Mexico[2] - Appointed a new Precision Optics President to lead business transformation[2] CEO Commentary CEO Jugal Vijayvargiya highlighted strategic strengthening, operational optimization, and a focus on organic growth for long-term success - Strengthening the company by shedding low margin business, optimizing operational footprint, and improving cost structure to position for strong performance as markets recover[2] - Winning new business by developing solutions with customers for challenging technical problems[2] - Laser-focused on delivering organic growth initiatives and driving efficiencies across all business areas[2] - Building a solid foundation for sustainable long-term growth as global megatrends open new opportunities[2] Company Overview This section provides an overview of Materion Corporation, its global leadership in advanced materials solutions, and its diverse industry applications About Materion Materion Corporation is a global leader in advanced materials solutions, serving high-performance industries with nearly a century of expertise - Materion Corporation is a global leader in advanced materials solutions[8] - Serves high-performance industries including semiconductor, industrial, aerospace & defense, energy, and automotive[8] - Expertise in specialty engineered alloy systems, inorganic chemicals and powders, precious and non-precious metals, beryllium and beryllium composites, and precision filters and optical coatings[8][9] - Employs over 3,500 people worldwide, serving customers in more than 60 countries[9] Third Quarter 2024 Detailed Financial Results This section details Materion's consolidated GAAP and non-GAAP financial performance for the third quarter of 2024 Consolidated GAAP Performance Materion's net sales increased year-over-year, primarily driven by Electronic Materials, while operating profit and net income declined Consolidated GAAP Financial Performance | Metric | Q3 2024 (Millions) | Q3 2023 (Millions) | YoY Change | | :---------------- | :----------------- | :----------------- | :--------- | | Net Sales | $436.7 | $403.1 | +8.3% | | Value-Added Sales | $263.8 | $270.5 | -2.5% | | Operating Profit | $31.3 | $36.5 | -14.3% | | Net Income | $22.3 | $26.6 | -16.2% | | Diluted EPS | $1.07 | $1.27 | -15.8% | - Value-added sales decreased 2% from the prior year, primarily due to general market softness and lower precision clad strip sales, partially offset by strength in space and defense and improvement in semiconductor[3] Consolidated Non-GAAP Performance Materion achieved a record 21.5% adjusted EBITDA margin in Q3 2024, driven by strong cost management despite lower volume Consolidated Non-GAAP Financial Performance | Metric | Q3 2024 (Millions) | Q3 2023 (Millions) | YoY Change | | :----------------------- | :----------------- | :----------------- | :--------- | | Adjusted EBITDA | $56.7 | $55.4 | +2.3% | | Adjusted EBITDA Margin | 21.5% | 20.5% | +1.0 pp | | Adjusted Net Income | $29.6 | $31.6 | -6.4% | | Adjusted Diluted EPS | $1.41 | $1.51 | -6.6% | - Record quarterly adjusted EBITDA margin of 21.5% was achieved, driven by strong cost management and operational performance despite lower volume[4] Outlook This section outlines Materion's financial guidance for the full year 2024 and provides disclaimers regarding non-GAAP reconciliations Full Year 2024 Guidance Materion anticipates a solid Q4 with stronger top-line performance and expects full-year 2024 adjusted EPS between $5.20 and $5.40 - Expects a solid fourth quarter with a stronger top line[5] - Anticipates continued benefit from cost and footprint initiatives[5] Full Year 2024 Adjusted EPS Guidance | Metric | Full Year 2024 Guidance | | :---------------------- | :---------------------- | | Adjusted EPS (range) | $5.20 to $5.40 | Adjusted Earnings Guidance Disclaimer Reconciling forecasted adjusted earnings guidance to GAAP is not feasible due to the inability to estimate future non-routine adjustments - Unable to reconcile forecasted adjusted earnings guidance to a comparable GAAP range without unreasonable effort[6] - Future adjustments for items like insurance/litigation claims, environmental costs, acquisition costs, and certain tax items are not reasonably estimable[6] Consolidated Financial Statements This section presents Materion's consolidated financial statements, including statements of income, balance sheets, and cash flows Consolidated Statements of Income Net sales increased year-over-year, but gross margin, operating profit, and net income decreased for both Q3 and YTD 2024 Consolidated Statements of Income (Thousands) | Metric (Thousands) | Q3 2024 | Q3 2023 | 9 Months 2024 | 9 Months 2023 | | :----------------- | :----------- | :----------- | :------------ | :------------ | | Net Sales | $436,715 | $403,067 | $1,247,868 | $1,244,144 | | Cost of Sales | $355,777 | $314,131 | $1,014,859 | $974,817 | | Gross Margin | $80,938 | $88,936 | $233,009 | $269,327 | | Operating Profit | $31,259 | $36,520 | $85,570 | $108,804 | | Net Income | $22,294 | $26,564 | $54,739 | $76,234 | | Diluted EPS | $1.07 | $1.27 | $2.61 | $3.65 | Consolidated Balance Sheets Total assets and liabilities increased as of September 27, 2024, driven by higher current assets, inventories, and long-term debt Consolidated Balance Sheets (Thousands) | Metric (Thousands) | September 27, 2024 | December 31, 2023 | | :----------------- | :----------------- | :---------------- | | Total Assets | $1,857,018 | $1,762,726 | | Total Liabilities | $925,123 | $883,679 | | Shareholders' Equity | $931,895 | $885,053 | | Cash & Equivalents | $17,874 | $13,294 | | Inventories, net | $476,596 | $441,597 | | Long-term Debt | $457,756 | $387,576 | Consolidated Statements of Cash Flows Net cash from operating activities significantly decreased, while net cash from financing activities increased due to higher borrowings Consolidated Statements of Cash Flows (Thousands) | Metric (Thousands) | 9 Months 2024 | 9 Months 2023 | | :---------------------------------- | :------------ | :------------ | | Net Cash from Operating Activities | $11,564 | $84,505 | | Net Cash Used in Investing Activities | $(60,545) | $(94,160) | | Net Cash from Financing Activities | $52,926 | $13,735 | | Net Change in Cash & Equivalents | $4,580 | $3,300 | | Cash & Equivalents (End of Period) | $17,874 | $16,401 | - Significant decrease in net cash provided by operating activities, primarily due to changes in accounts receivable and inventory[14] - Increase in net cash provided by financing activities, mainly from higher borrowings under credit facilities[14] Segment Performance Analysis This section analyzes Materion's financial performance across its Performance Materials, Electronic Materials, and Precision Optics segments Net Sales and Value-Added Sales by Segment Electronic Materials net sales significantly increased, while Performance Materials and Precision Optics saw declines in both sales metrics Net Sales and Value-Added Sales by Segment (Millions) | Segment | Q3 2024 Net Sales (Millions) | Q3 2023 Net Sales (Millions) | Q3 2024 Value-added Sales (Millions) | Q3 2023 Value-added Sales (Millions) | | :-------------------- | :--------------------------- | :--------------------------- | :----------------------------------- | :----------------------------------- | | Performance Materials | $177.4 | $184.6 | $163.6 | $168.9 | | Electronic Materials | $236.9 | $192.3 | $77.8 | $75.5 | | Precision Optics | $22.4 | $26.2 | $22.4 | $26.1 | | Total | $436.7 | $403.1 | $263.8 | $270.5 | - Electronic Materials net sales increased significantly from $192.3 million in Q3 2023 to $236.9 million in Q3 2024[15] - Performance Materials value-added sales decreased from $168.9 million to $163.6 million[15] Gross Margin by Segment Consolidated gross margin decreased, with declines in Performance Materials and Precision Optics, while Electronic Materials remained relatively stable Gross Margin by Segment (Millions) | Segment | Q3 2024 Gross Margin (Millions) | Q3 2023 Gross Margin (Millions) | | :-------------------- | :------------------------------ | :------------------------------ | | Performance Materials | $51.8 | $57.4 | | Electronic Materials | $23.3 | $23.1 | | Precision Optics | $5.8 | $8.4 | | Total | $80.9 | $88.9 | Operating Profit by Segment Consolidated operating profit decreased, with Performance Materials declining and Precision Optics reporting a loss, while Electronic Materials showed an increase Operating Profit by Segment (Millions) | Segment | Q3 2024 Operating Profit (Millions) | Q3 2023 Operating Profit (Millions) | | :-------------------- | :---------------------------------- | :---------------------------------- | | Performance Materials | $34.2 | $38.9 | | Electronic Materials | $7.8 | $6.0 | | Precision Optics | $(3.0) | $0.3 | | Total | $31.3 | $36.5 | - Electronic Materials operating profit increased from $6.0 million to $7.8 million[16] - Precision Optics shifted from an operating profit of $0.3 million to an operating loss of $(3.0) million[16] EBITDA by Segment Consolidated EBITDA slightly decreased, with Performance Materials declining and Precision Optics turning negative, while Electronic Materials reported an increase EBITDA by Segment (Millions) | Segment | Q3 2024 EBITDA (Millions) | Q3 2023 EBITDA (Millions) | | :-------------------- | :------------------------ | :------------------------ | | Performance Materials | $44.8 | $46.4 | | Electronic Materials | $12.3 | $10.1 | | Precision Optics | $0.0 | $3.3 | | Total | $50.5 | $52.3 | - Electronic Materials EBITDA increased from $10.1 million to $12.3 million[16] - Precision Optics EBITDA decreased significantly from $3.3 million to $0.0 million[16] Adjusted EBITDA by Segment Consolidated Adjusted EBITDA modestly increased, with Electronic Materials showing a notable rise, Performance Materials remaining stable, and Precision Optics declining Adjusted EBITDA by Segment (Millions) | Segment | Q3 2024 Adjusted EBITDA (Millions) | Q3 2023 Adjusted EBITDA (Millions) | | :-------------------- | :--------------------------------- | :--------------------------------- | | Performance Materials | $46.5 | $46.5 | | Electronic Materials | $15.6 | $13.0 | | Precision Optics | $0.5 | $3.4 | | Total | $56.7 | $55.4 | - Electronic Materials Adjusted EBITDA increased from $13.0 million to $15.6 million[16] - Precision Optics Adjusted EBITDA decreased from $3.4 million to $0.5 million[16] Non-GAAP Reconciliations This section provides detailed reconciliations of GAAP to non-GAAP financial measures, including adjusted EBITDA, net income, and gross margin Consolidated Adjusted EBITDA Reconciliation The reconciliation details adjustments to net income to arrive at adjusted EBITDA, totaling $6.2 million in special items for Q3 2024 Consolidated Adjusted EBITDA Reconciliation (Millions) | Metric (Millions) | Q3 2024 | Q3 2023 | | :--------------------------------- | :------ | :------ | | Net Income | $22.3 | $26.6 | | Consolidated EBITDA | $50.5 | $52.3 | | Total Special Items | $6.2 | $3.1 | | Adjusted EBITDA | $56.7 | $55.4 | | Adjusted EBITDA % of Value-added Sales | 21.5% | 20.5% | - Special items for Q3 2024 included restructuring and cost reduction ($1.6M), Electronic Materials inventory adjustment ($2.8M), business transformation costs ($0.6M), and additional start-up resources and scrap ($1.2M)[17] Consolidated Adjusted Net Income and EPS Reconciliation Adjusted net income for Q3 2024 was $29.6 million, or $1.41 per diluted share, after accounting for special items and acquisition amortization Consolidated Adjusted Net Income and EPS Reconciliation (Millions) | Metric (Millions) | Q3 2024 | Q3 2023 | | :---------------------------------------------- | :------ | :------ | | Net Income | $22.3 | $26.6 | | Total Special Items (net of tax) | $4.8 | $2.5 | | Adjusted Net Income | $27.1 | $29.1 | | Acquisition Amortization (net of tax) | $2.5 | $2.5 | | Adjusted Net Income excl. Amortization | $29.6 | $31.6 | | Diluted EPS | $1.07 | $1.27 | | Adjusted Diluted EPS excl. Amortization | $1.41 | $1.51 | - Adjusted diluted EPS excluding acquisition amortization decreased from $1.51 in Q3 2023 to $1.41 in Q3 2024[18] Consolidated Adjusted Gross Margin Reconciliation Adjustments for special items resulted in a Q3 2024 adjusted gross margin of $84.8 million, an increase from GAAP gross margin Consolidated Adjusted Gross Margin Reconciliation (Millions) | Metric (Millions) | Q3 2024 | Q3 2023 | | :-------------------- | :------ | :------ | | Gross Margin (GAAP) | $80.9 | $88.9 | | Special Items | $3.9 | $1.9 | | Adjusted Gross Margin | $84.8 | $90.8 | - Special items impacting gross margin in 2024 include restructuring and cost reduction, Electronic Materials inventory adjustment, and additional start-up resources and scrap[24] Segment Adjusted EBITDA Reconciliations This section provides detailed reconciliations of segment EBITDA to adjusted EBITDA, highlighting segment-specific special items Performance Materials Adjusted EBITDA Performance Materials' adjusted EBITDA remained stable at $46.5 million in Q3 2024, with minor adjustments for various costs Performance Materials Adjusted EBITDA Reconciliation (Millions) | Metric (Millions) | Q3 2024 | Q3 2023 | | :---------------- | :------ | :------ | | EBITDA | $44.8 | $46.4 | | Special Items | $1.7 | $0.1 | | Adjusted EBITDA | $46.5 | $46.5 | Electronic Materials Adjusted EBITDA Electronic Materials' adjusted EBITDA increased to $15.6 million in Q3 2024, primarily due to adjustments for restructuring and inventory Electronic Materials Adjusted EBITDA Reconciliation (Millions) | Metric (Millions) | Q3 2024 | Q3 2023 | | :---------------------------- | :------ | :------ | | EBITDA | $12.3 | $10.1 | | Restructuring & Cost Reduction | $0.5 | $2.9 | | Electronic Materials Inventory Adjustment | $2.8 | $0.0 | | Adjusted EBITDA | $15.6 | $13.0 | Precision Optics Adjusted EBITDA Precision Optics' adjusted EBITDA significantly decreased to $0.5 million in Q3 2024, with a minor adjustment for restructuring and cost reduction Precision Optics Adjusted EBITDA Reconciliation (Millions) | Metric (Millions) | Q3 2024 | Q3 2023 | | :---------------------------- | :------ | :------ | | EBITDA | $0.0 | $3.3 | | Restructuring & Cost Reduction | $0.5 | $0.1 | | Adjusted EBITDA | $0.5 | $3.4 | Other Segment Adjusted EBITDA The 'Other' segment reported an adjusted EBITDA loss of $(5.9) million, an improvement from the prior year, after various adjustments Other Segment Adjusted EBITDA Reconciliation (Millions) | Metric (Millions) | Q3 2024 | Q3 2023 | | :---------------- | :------ | :------ | | EBITDA | $(6.6) | $(7.5) | | Special Items | $0.7 | $0.0 | | Adjusted EBITDA | $(5.9) | $(7.5) | Additional Information This section provides details on the conference call, forward-looking statements, investor and media contacts, and footnotes Conference Call Details Materion Corporation hosted an investor conference call on October 30, 2024, with webcast and dial-in options available for replay - Investor conference call held on October 30, 2024, at 10:00 a.m. Eastern Time[7] - Available via webcast on www.materion.com and by phone[7] - Replay available until November 13, 2024[7] Forward-Looking Statements Actual future performance may differ materially from forward-looking statements due to various economic, market, and regulatory factors - Actual future performance may materially differ from forward-looking statements due to various factors[11] - Factors include global economy (inflation, recession, tariffs), market conditions, product mix, new product success, raw material costs, acquisitions, strategic plans, financial factors (tax, interest, energy costs), geopolitical events, and regulatory changes[11] - Risk factors are also detailed in the Company's 2023 Annual Report on Form 10-K[11] Investor and Media Contacts Contact information for investor relations (Kyle Kelleher) and media relations (Jason Saragian) is provided for inquiries - Investor Contact: Kyle Kelleher, (216) 383-4931, kyle.kelleher@materion.com[12] - Media Contact: Jason Saragian, (216) 383-6893, jason.saragian@materion.com[12] Footnotes Key financial terms like 'Value-added sales' and 'EBITDA' are defined, with references to attachments for special items details - Value-added sales deducts the impact of pass-through metals from net sales[8] - EBITDA represents earnings before interest, taxes, depreciation, depletion and amortization[8] - Details of special items can be found in Attachments 4 through 8[8]