Materion Corporation Reports First Quarter 2024 Financial Results

5/1/24 6:23:00 PM ET

Industrial Specialties

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Materion Corporation (NYSE:MTRN) today reported first quarter 2024 financial results and provided an update to 2024 earnings guidance.

Financial Summary

Net sales were $385.3 million; value-added sales¹ were $257.8 million
Net income was $13.4 million, or $0.64 per share, diluted, and adjusted earnings of $0.96 per share
Full year adjusted earnings outlook updated to $5.60-$6.20 per share, a 5% increase year over year at the midpoint

FIRST QUARTER 2024 RESULTS

Net sales for the quarter were $385.3 million, compared to $442.5 million in the prior year period. Value-added sales were $257.8 million for the quarter, down 14% from the prior year primarily due to continued semiconductor and industrial market weakness combined with some temporary operational challenges. This year-over-year decline was partially offset by strength in the space & defense markets.

Operating profit for the quarter was $22.2 million and net income was $13.4 million, or $0.64 per diluted share, compared to operating profit of $36.9 million and net income of $25.6 million, or $1.23 per share, in the prior year period.

Excluding special items², adjusted EBITDA³ was $45.2 million in the quarter or 17.5% of value-added sales, compared to $53.4 million or 17.9% of value-added sales in the prior year period. This decline was driven by lower volume, partially offset by the benefit of cost improvement initiatives, resulting in comparable margins year on year.

Adjusted net income was $20.1 million excluding acquisition amortization, or $0.96 per diluted share, compared to $1.34 per share in the prior year period.

"Temporary operational challenges and softer market demand led to results falling short of our expectations for the first time in several quarters," Materion President & CEO Jugal Vijayvargiya said. "I am proud of our team for mobilizing quickly to mitigate the impact to the quarter and deliver strong margins comparable to last year. The actions taken are also driving structural improvements that will deliver even more value as key markets recover."

"As we manage through the current environment to drive another year of record results, we remain sharply focused on executing our strategy, delivering on our organic outgrowth initiatives and investing in new capacity and capabilities that will drive long term value for our stakeholders."

OUTLOOK

Despite a weaker than anticipated first quarter, we expect to deliver another year of record results as we execute our organic and operational excellence initiatives. Since the beginning of the year, the outlook for the commercial aerospace and electric vehicle end-markets has softened and we expect some inventory correction from our precision clad strip customer in the second half. In addition, we expect higher interest expense with the current rate projections. While we expect to mitigate much of the impact of these items through targeted cost reduction initiatives and performance, we are adjusting our outlook to $5.60 to $6.20 for the full year 2024 adjusted earnings per share, an increase of 5% from prior year at the midpoint.

ADJUSTED EARNINGS GUIDANCE

It is not possible for the Company to identify the amount or significance of future adjustments associated with potential insurance and litigation claims, legacy environmental costs, acquisition and integration costs, certain income tax items, or other non-routine costs that the Company adjusts in the presentation of adjusted earnings guidance. These items are dependent on future events that are not reasonably estimable at this time. Accordingly, the Company is unable to reconcile without unreasonable effort the forecasted range of adjusted earnings guidance for the full year to a comparable GAAP range. However, items excluded from the Company's adjusted earnings guidance include the historical adjustments noted in Attachments 4 through 8 to this press release.

CONFERENCE CALL

Materion Corporation will host an investor conference call with analysts at 9:00 a.m. Eastern Time, May 2, 2024. The conference call will be available via webcast through the Company's website at www.materion.com. By phone, please dial (888) 506-0062. Calls outside the U.S. can dial (973) 528-0011; please reference participant access code of 799148. A replay of the call will be available until May 16, 2024 by dialing (877) 481-4010 or (919) 882-2331 if international; please reference replay ID number 49163. The call will also be archived on the Company's website.

FOOTNOTES

¹ Value-added sales deducts the impact of pass-through metals from net sales

² Details of the special items can be found in Attachments 4 through 8

³ EBITDA represents earnings before interest, taxes, depreciation, depletion and amortization

ABOUT MATERION

Materion Corporation is a global leader in advanced materials solutions for high-performance industries including semiconductor, industrial, aerospace & defense, energy and automotive. With nearly 100 years of 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, Materion partners with customers to enable breakthrough solutions that move the world forward. Headquartered in Mayfield Heights, Ohio, the company employs more than 3,500 talented people worldwide, serving customers in more than 60 countries.

FORWARD-LOOKING STATEMENTS

Portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements. Our actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. These factors include, in addition to those mentioned elsewhere herein: the global economy, including inflationary pressures, potential future recessionary conditions and the impact of tariffs and trade agreements; the impact of any U.S. Federal Government shutdowns or sequestrations; the condition of the markets which we serve, whether defined geographically or by segment; changes in product mix and the financial condition of customers; our success in developing and introducing new products and new product ramp-up rates; our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values; our success in identifying acquisition candidates and in acquiring and integrating such businesses; the impact of the results of acquisitions on our ability to fully achieve the strategic and financial objectives related to these acquisitions; our success in implementing our strategic plans and the timely and successful start-up and completion of any capital projects; other financial and economic factors, including the cost and availability of raw materials (both base and precious metals), physical inventory valuations, metal consignment fees, tax rates, exchange rates, interest rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, credit availability, and the impact of the Company's stock price on the cost of incentive compensation plans; the uncertainties related to the impact of war, terrorist activities, and acts of God; changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and operations; the conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects; the disruptions in operations from, and other effects of, catastrophic and other extraordinary events including outbreaks from infectious diseases and the conflict between Russia and Ukraine and other hostilities; realization of expected financial benefits expected from the Inflation Reduction Act of 2022; and the risk factors set forth in Part 1, Item 1A of the Company's 2023 Annual Report on Form 10-K and in other reports that we file with the SEC.

Attachment 1
Materion Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)

	First Quarter Ended
(Thousands, except per share amounts)	March 29, 2024			March 31, 2023
Net sales	$	385,287		$	442,526
Cost of sales		314,075			351,190
Gross margin		71,212			91,336
Selling, general, and administrative expense		35,844			40,336
Research and development expense		7,142			7,621
Restructuring expense (income)		1,620			664
Other — net		4,357			5,775
Operating profit		22,249			36,940
Other non-operating income—net		(643	)		(730	)
Interest expense — net		8,279			7,502
Income before income taxes		14,613			30,168
Income tax expense		1,204			4,580
Net income	$	13,409		$	25,588
Basic earnings per share:
Net income per share of common stock	$	0.65		$	1.24
Diluted earnings per share:
Net income per share of common stock	$	0.64		$	1.23
Weighted-average number of shares of common stock outstanding:
Basic		20,679			20,566
Diluted		20,973			20,887

Attachment 2
Materion Corporation and Subsidiaries
Consolidated Balance Sheets

	(Unaudited)
(Thousands)	March 29, 2024			December 31, 2023
Assets
Current assets
Cash and cash equivalents	$	13,104		$	13,294
Accounts receivable, net		188,282			192,747
Inventories, net		466,574			441,597
Prepaid and other current assets		71,748			61,744
Total current assets		739,708			709,382
Deferred income taxes		4,751			4,908
Property, plant, and equipment		1,304,336			1,281,622
Less allowances for depreciation, depletion, and amortization		(779,893	)		(766,939	)
Property, plant, and equipment, net		524,443			514,683
Operating lease, right-of-use assets		62,055			57,645
Intangible assets, net		129,053			133,571
Other assets		25,231			21,664
Goodwill		319,943			320,873
Total Assets	$	1,805,184		$	1,762,726
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt	$	46,569		$	38,597
Accounts payable		134,542			125,663
Salaries and wages		16,030			25,912
Other liabilities and accrued items		40,602			45,773
Income taxes		2,079			5,207
Unearned revenue		14,793			13,843
Total current liabilities		254,615			254,995
Other long-term liabilities		13,304			13,300
Operating lease liabilities		59,887			53,817
Finance lease liabilities		13,242			13,744
Retirement and post-employment benefits		25,431			26,334
Unearned income		95,978			103,983
Long-term income taxes		3,686			3,815
Deferred income taxes		20,408			20,109
Long-term debt		428,710			387,576
Shareholders' equity		889,923			885,053
Total Liabilities and Shareholders' Equity	$	1,805,184		$	1,762,726

Attachment 3
Materion Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

	Three Months Ended
(Thousands)	March 29, 2024			March 31, 2023
Cash flows from operating activities:
Net income	$	13,409		$	25,588
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization		16,185			15,092
Amortization of deferred financing costs in interest expense		429			424
Stock-based compensation expense (non-cash)		2,495			2,250
Deferred income tax (benefit) expense		(253	)		(52	)
Changes in assets and liabilities:
Accounts receivable		2,729			7,538
Inventory		(26,539	)		(12,081	)
Prepaid and other current assets		(10,274	)		(2,865	)
Accounts payable and accrued expenses		(5,194	)		(1,904	)
Unearned revenue		(5,860	)		254
Interest and taxes payable		(3,294	)		657
Unearned income due to customer prepayments		—			7,724
Other-net		2,362			(4,520	)
Net cash (used in) provided by operating activities		(13,805	)		38,105
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment		(21,314	)		(30,014	)
Payments for mine development		(5,333	)		—
Proceeds from sale of property, plant, and equipment		348			212
Net cash used in investing activities		(26,299	)		(29,802	)
Cash flows from financing activities:
Proceeds from borrowings under credit facilities, net		56,779			4,600
Repayment of debt		(7,586	)		(3,907	)
Principal payments under finance lease obligations		(191	)		(799	)
Cash dividends paid		(2,692	)		(2,571	)
Payments of withholding taxes for stock-based compensation awards		(6,013	)		(3,614	)
Net cash provided by financing activities		40,297			(6,291	)
Effects of exchange rate changes		(383	)		130
Net change in cash and cash equivalents		(190	)		2,142
Cash and cash equivalents at beginning of period		13,294			13,101
Cash and cash equivalents at end of period	$	13,104		$	15,243

Attachment 4
Materion Corporation and Subsidiaries
Reconciliation of Non-GAAP Measure - Value-added Sales, Operating Profit, and EBITDA
(Unaudited)

	First Quarter Ended
(Millions)	March 29, 2024		March 31, 2023
Net Sales
Performance Materials	$	168.6	$	187.0
Electronic Materials		192.0		228.8
Precision Optics		24.7		26.7
Other		—		—
Total	$	385.3	$	442.5

Less: Pass-through Metal Cost
Performance Materials	$	13.0	$	19.0
Electronic Materials		114.4		124.9
Precision Optics		0.1		—
Other		—	—
Total	$	127.5	$	143.9

Value-added Sales (non-GAAP)
Performance Materials	$	155.6	$	168.0
Electronic Materials		77.6		103.9
Precision Optics		24.6		26.7
Other		—		—
Total	$	257.8	$	298.6

Gross Margin
Performance Materials⁽¹⁾	$	40.1	$	54.2
Electronic Materials⁽¹⁾		25.0		28.6
Precision Optics⁽¹⁾		6.1		8.5
Other		—		—
Total ⁽¹⁾	$	71.2	$	91.3
⁽¹⁾See reconciliation of gross margin to adjusted gross margin in Attachment 8

	First Quarter Ended
(Millions)	March 29, 2024			March 31, 2023
Operating Profit
Performance Materials	$	22.6		$	35.5
Electronic Materials		9.8			9.7
Precision Optics		(3.3	)		(0.4	)
Other		(6.9	)		(7.9	)
Total	$	22.2		$	36.9

Non-Operating (Income) Expense
Performance Materials	$	0.1		$	0.1
Electronic Materials		—			—
Precision Optics		(0.1	)		(0.2	)
Other		(0.7	)		(0.7	)
Total	$	(0.7	)	$	(0.8	)

Depreciation, Depletion, and Amortization
Performance Materials	$	8.2		$	7.4
Electronic Materials		4.6			4.3
Precision Optics		2.9			2.9
Other		0.5			0.5
Total	$	16.2		$	15.1

Segment EBITDA
Performance Materials	$	30.7		$	42.8
Electronic Materials		14.4			14.0
Precision Optics		(0.3	)		2.7
Other		(5.7	)		(6.7	)
Total	$	39.1		$	52.8

Special Items⁽²⁾
Performance Materials	$	5.0		$	—
Electronic Materials		0.1			0.4
Precision Optics		0.7			0.2
Other		0.3			—
Total	$	6.1		$	0.6

Adjusted EBITDA Excluding Special Items
Performance Materials	$	35.7		$	42.8
Electronic Materials		14.5			14.4
Precision Optics		0.4			2.9
Other		(5.4	)		(6.7	)
Total	$	45.2		$	53.4
The cost of gold, silver, platinum, palladium, copper, ruthenium, iridium, rhodium, rhenium, and osmium is passed through to customers and, therefore, the trends and comparisons of net sales are affected by movements in the market price of these metals. Internally, management also reviews net sales on a value-added basis. Value-added sales is a non-GAAP financial measure that deducts the value of the pass-through metals sold from net sales. Value-added sales allows management to assess the impact of differences in net sales between periods or segments and analyze the resulting margins and profitability without the distortion of the movements in pass-through market metal prices. The dollar amount of gross margin and operating profit is not affected by the value-added sales calculation. The Company sells other metals and materials that are not considered direct pass throughs, and these costs are not deducted from net sales to calculate value-added sales.
The Company's pricing policy is to pass the cost of these metals on to customers in order to mitigate the impact of price volatility on the Company's results from operations. Value-added information is being presented since changes in metal prices may not directly impact profitability. It is the Company's intent to allow users of the financial statements to review sales with and without the impact of the pass-through metals.
⁽²⁾ See additional details of special items in Attachment 5.

Attachment 5
Materion Corporation and Subsidiaries
Reconciliation of Net sales to Value-added sales, Net Income to EBITDA and Adjusted EBITDA
(Unaudited)

	Three Months Ended				Three Months Ended
(Millions)	March 29, 2024		% of VA		March 31, 2023		% of VA
Net sales	$	385.3			$	442.5
Pass-through metal cost		127.5				143.9
Value-added sales	$	257.8			$	298.6

Net income	$	13.4	5.2	%	$	25.6	8.6	%
Income tax expense		1.2	0.5	%		4.6	1.5	%
Interest expense - net		8.3	3.2	%		7.5	2.5	%
Depreciation, depletion and amortization		16.2	6.3	%		15.1	5.1	%
Consolidated EBITDA	$	39.1	15.2	%	$	52.8	17.7	%

Special items
Restructuring and cost reduction	$	2.4	0.9	%	$	0.6	0.2	%
Additional start up resources and scrap		3.7	1.4	%		—	—	%
Total special items		6.1	2.4	%		0.6	0.2	%
Adjusted EBITDA	$	45.2	17.5	%	$	53.4	17.9	%
In addition to presenting financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), this earnings release contains financial measures, including operating profit, segment operating profit, earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), net income, and earnings per share, on a non-GAAP basis. As detailed in the above reconciliation and Attachment 6, we have adjusted the results for certain special items such as restructuring and cost reductions (which includes costs associated with temporarily idled facilities as a result of decreased demand) and additional start up resources and scrap. Internally, management reviews the results of operations without the impact of these costs in order to assess the profitability from ongoing activities. We are providing this information because we believe it will assist investors in analyzing our financial results and, when viewed in conjunction with the GAAP results, provide a more comprehensive understanding of the factors and trends affecting our operations.

Attachment 6
Materion Corporation and Subsidiaries
Reconciliation of Net Income to Adjusted Net Income and Diluted Earnings per Share to Adjusted Diluted Earnings per Share
(Unaudited)

	Three Months Ended			Diluted		Three Months Ended			Diluted
(Millions)	March 29, 2024			EPS		March 31, 2023			EPS
Net income and EPS	$	13.4		$	0.64	$	25.6		$	1.23

Special items
Restructuring and cost reduction		2.4					0.6
Additional start up resources and scrap		3.7					—
Provision for income taxes⁽¹⁾		(1.9	)				(0.7	)
Total special items		4.2			0.20		(0.1	)		(0.01	)
Adjusted net income and adjusted EPS	$	17.6		$	0.84	$	25.5		$	1.22
Acquisition amortization (net of tax)		2.5			0.12		2.5			0.12
Adjusted net income and adjusted EPS excl. amortization	$	20.1		$	0.96	$	28.0		$	1.34
⁽¹⁾ Provision for income taxes includes the net tax impact on pre-tax adjustments (listed above), the impact of discrete tax items recorded during the respective periods as well as other adjustments to reflect the use of one overall effective tax rate on adjusted pre-tax income in interim periods.

Attachment 7
Reconciliation of Segment Net sales to Segment Value-added sales and Segment EBITDA to Adjusted Segment EBITDA
(Unaudited)
Performance Materials
	Three Months Ended					Three Months Ended
(Millions)	March 29, 2024			% of VA		March 31, 2023			% of VA
Net sales	$	168.6				$	187.0
Pass-through metal cost		13.0					19.0
Value-added sales	$	155.6				$	168.0

EBITDA	$	30.7		19.7	%	$	42.8		25.5	%
Restructuring and cost reduction		1.3		0.8	%		—		—	%
Additional start up resources and scrap		3.7		2.4	%		—		—	%
Adjusted EBITDA	$	35.7		22.9	%	$	42.8		25.5	%

Electronic Materials
	Three Months Ended					Three Months Ended
(Millions)	March 29, 2024			% of VA		March 31, 2023			% of VA
Net sales	$	192.0				$	228.8
Pass-through metal cost		114.4					124.9
Value-added sales	$	77.6				$	103.9

EBITDA	$	14.4		18.6	%	$	14.0		13.5	%
Restructuring and cost reduction		0.1		0.1	%		0.4		0.4	%
Adjusted EBITDA	$	14.5		18.7	%	$	14.4		13.9	%

Precision Optics
	Three Months Ended					Three Months Ended
(Millions)	March 29, 2024			% of VA		March 31, 2023			% of VA
Net sales	$	24.7				$	26.7
Pass-through metal cost		0.1					—
Value-added sales	$	24.6				$	26.7

EBITDA	$	(0.3	)	(1.0	)%	$	2.7		10.1	%
Restructuring and cost reduction		0.7		2.8	%		0.2		0.7	%
Adjusted EBITDA	$	0.4		1.8	%	$	2.9		10.8	%

Other
	Three Months Ended					Three Months Ended
(Millions)	March 29, 2024					March 31, 2023
EBITDA	$	(5.7	)			$	(6.7	)
Restructuring and cost reduction		0.3					—
Adjusted EBITDA	$	(5.4	)			$	(6.7	)

Attachment 8
Materion Corporation and Subsidiaries
Reconciliation of Non-GAAP Measure - Gross Margin to Adjusted Gross Margin
(Unaudited)

	Three Months Ended
(Millions)	March 29, 2024		March 31, 2023
Gross Margin
Performance Materials	$	40.1	$	54.2
Electronic Materials		25.0		28.6
Precision Optics		6.1		8.5
Other		—		—
Total	$	71.2	$	91.3

Special Items ⁽¹⁾
Performance Materials	$	4.2	$	—
Electronic Materials		—		—
Precision Optics		0.1		—
Other		—		—
Total	$	4.3	$	—

Adjusted Gross Margin
Performance Materials	$	44.3	$	54.2
Electronic Materials		25.0		28.6
Precision Optics		6.2		8.5
Other		—		—
Total	$	75.5	$	91.3
⁽¹⁾ Special items impacting gross margin represent restructuring and cost reduction and additional start up resources and scrap in 2024.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240501578376/en/

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Date	Price Target	Rating	Analyst
7/5/2023	$135.00	Buy	Seaport Research Partners
7/6/2022	$95.00	Buy	CL King
2/22/2022	$100.00 → $106.00	Overweight	Keybanc
11/3/2021	$85.00 → $100.00	Overweight	Keybanc

Materion Corporation Reports First Quarter 2024 Financial Results

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