Materion Corporation

Greetings and welcome to the Maturion first quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Steve Shamrock, Vice President, Corporate Controller and Investor Relations. Thank you, sir. You may begin.

Good morning. This is Steve Shamrock, Vice President, Corporate Controller and Investor Relations. With me today is Jugal Vijayvargiya, President and Chief Executive Officer, and Joe Kelly, Vice President of Finance and Chief Financial Officer. Our format for today's conference call is as follows. Jugal Vijayvargiya will provide opening comments on COVID-19 and an update on key strategic initiatives. Following Jugal, Joe Kelly will review detailed financial results for the quarter, and then we will open up the call for questions. Before we begin, let me remind investors that any forward-looking statements made in this announcement, including those in the Outlook section and during the question and answer portion, are based on current expectations. The company's actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. Those factors are listed in the earnings press release we issued this morning. Additionally, comments with regard to earnings before interest and taxes are Net income and earnings per share reflect the adjusted gap numbers shown in attachment number five in this morning's press release. The adjustments are made in the prior year period for comparative purposes and remove special items, non-cash charges, and certain income tax adjustments. And now I'll turn it over to Jugal for his comments.

Thanks Steve and welcome everyone. I hope all of you and your loved ones are safe as we progress through these unprecedented times. Today, I will first share the impacts of COVID-19 to our company and then update you on some key strategic initiatives. Health and safety of our people has been and remains our overriding priority. Over the last three years, we have reduced our recordable injuries by 77% with a keen focus on prevention. 16 of our global facilities have had zero injuries in the past year. As COVID-19 started to emerge, we employed the same level of focus to protect our people. We have listened to all available resources and have enacted changes globally. Three people have been confirmed positive in our global Materion family, and they're doing well at this time. We have majority of our office employees working from home. All of our factories are operating in support of the essential products and services We provide to critical industries such as healthcare, telecommunications, defense, and energy. In particular, we're proud to support the fight against this virus by supplying products for healthcare equipment used by medical staff around the world. For example, our precision coatings business is supplying optical filters which are used in medical systems to test for COVID-19 as well as for critical CO2 gas detection in capnography and ventilator applications. Our PAC business is supplying copper beryllium script product which is used for ventilators. We have seen increased demand for these products and are determined to maintain supply to help the fight against COVID-19. While we see increased demand in these products, we're experiencing significantly lower demand in automotive Oil and Gas, Aerospace, and Industrial End Markets. Semiconductor and defense end market demand is continuing to hold at this time. In total, we expect second quarter demand to be comparable or slightly better than first quarter demand. Despite the challenges presented by COVID-19, our teams have been focused on moving the company forward. Let me share with you some exciting progress towards our One Materion Multi-Pillar Profitable Growth Strategy. As you know, investing for organic growth has been our top priority. We have ramped up R&D spending and made significant commercial investments to align with future growth opportunities. In our last earnings call, I highlighted the growth in aluminum scandium premium targets. Today, I'm excited to share another major growth opportunity. this time in our engineered clad strip product line. We have unmatched capability to custom design clad material solutions and solve the most pressing challenges our customers face in thermal management, extreme vibration, and high voltage. Our engineered clad strip is used in electronic applications which serve a variety of end markets, including consumer electronics, automotive, energy, and industrial. I'm very pleased to report that we have entered into a business arrangement with a new customer to expand our manufacturing capacity for a highly engineered cloud strip. This material will be used in a next generation model of an existing product. Therefore, the overall end market demand exists today. We expect to fulfill this market demand and support increased demand and the customers and product continues to gain acceptance globally. The customer has also provided a $12 million prepayment towards establishing a new leading-edge manufacturing facility for future product supply. We anticipate finalizing the long-term supply agreement for this exciting new opportunity later this year. At the same time that we're driving profitable growth in our go-forward portfolio, We are also taking the tough decisions to exit non-strategic businesses. Today, I'm announcing our intent to sell the large area coatings business. This action will allow our teams to focus their efforts on growing the remaining precision coatings business where we have exciting opportunities with our differentiated optical coatings expertise. We anticipate the sale and closing to occur later this year. In parallel to driving significant organic growth and aligning the portfolio, we are continuing to improve our cost structure. Today, I'm announcing the closure of two facilities and consolidating the work in one of our existing facilities. This will be a significant structural cost reduction to the PAC business where we are the only fully vertically integrated beryllium producer in the world. We are closing a service center in Detroit, Michigan and we'll be closing a manufacturing facility in Premont, California later this year. We expect this action to improve our cost structure by four to $5 million annually. I would like to thank our global team who has risen to the challenges posed by this global pandemic. With their dedication, we are supplying key components used for critical medical equipment in the fight against COVID-19. In addition, Our teams are more broadly focused on continuing to transform Materion into an advanced materials business. Now, I will turn the call over to Joe to cover the financials.