Materion Corporation

Good day, ladies and gentlemen, and welcome to the Materion Second 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 Zaranek, Chief Accounting Officer. Sir, the floor is yours.

Good morning, and thank you for joining us on our second quarter 2022 earnings conference call. This is John Zaranek, Chief Accounting Officer. Before we begin our remarks this morning, I would like to point out that we have posted materials on the company's website that we will reference as part of today's review of the quarterly results. You can also access the materials throughout the download feature on the earnings call webcast link. With me today is Jugal Vijay Varghia, President and Chief Executive Officer, and Shelley Chadwick, Vice President and Chief Financial Officer. Our format for today's conference call is as follows. Jugal will provide opening comments on the quarter and an update on key strategic initiatives. Following Jugal, Shelley will review the detailed financial results for the quarter in addition to discussing our expectations for the remainder of 2022. We will then open the call for questions. Let me remind investors that any forward-looking statements made in this presentation, including those in the outlook section, and during the question and answer portion are based on current expectations. The company's actual 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 regarding earnings before interest, taxes, depreciation, depletion, and amortization, net income, and earnings per share reflect the adjusted gap numbers shown in attachments four through seven in this morning's press release. The adjustments are made in the prior period for comparative purposes and remove special items, non-cash charges, and certain discrete income tax adjustments. And now, I'll turn over the call to Jugal for his comments.

Thanks, John, and welcome, everyone. I'm pleased to be with you this morning to share details on another quarter of record performance for Materion and to cover some significant investments we've made on our strategic initiatives. We are well on track to deliver another record year as we continue to reset the bar each quarter. In Q2, we achieved our highest ever top and bottom line results, with value added sales up 33% and EBITDA up 44% when compared to an already strong Q2 in the prior year. Our teams are really delivering on all fronts, resulting in strong organic growth that is well above end market demand. fantastic contributions from our HCS electronic materials acquisition, and higher profitability with meaningful margin expansion. As we sit today, we are getting close to our midterm target of 20% EBITDA margins. Our team's efforts are even more impressive when we consider some of the challenges faced, including the impact of the Shanghai lockdown, inflation, currency headwinds, and higher interest rates. Despite these, we delivered record earnings per share of $1.28 and set the stage for even stronger performance in the back half of the year. In addition to our outstanding performance in the quarter, I'm excited to highlight two new organic advancements that will accelerate our growth in strategic markets. First, we have jointly commissioned a molten salt purification plant with our long-term partner, Kairos, at our Elmore, Ohio location. The facility is now entering the startup phase for the commercial production of FLY, a molten salt coolant used in nuclear energy production. Materion is the only domestic supplier of the beryllium fluoride component for FLY, a key component of this energy solution that will help enable the world's transition to clean energy. Second, as we announced earlier this week, Maturion has established a new advanced chemicals facility in Milwaukee to develop and manufacture products for the most advanced semiconductor chips and electric vehicle battery solutions. Within this facility, a leading EV battery customer is funding $6 million to establish a prototype line for the production of advanced chemicals for next generation battery solutions. We are also working with a number of other leading battery customers to help meet their goals of longer battery life, faster charging times, and improved safety. These important relationships are helping to further strengthen our position as a critical supplier to the automotive industry. These recent announcements are just examples of the many advancements we have made that drive significant above-market organic growth and seed the pipeline for the future. Our investments in R&D, commercial excellence, and deep customer partnerships continue to expand our portfolio and help to deliver consistent double-digit organic growth. We have nearly doubled our R&D spend since I joined the company in 2017, and this has allowed us to ensure we are serving not only our customers' current needs, but staying ahead of the curve, offering next-generation solutions for the evolving complexities of the markets we serve. As a result of our investments, we've seen 13% organic growth here to date, and we're up 20% on an annualized basis from our pre-pandemic levels in 2019. With the exception of the four quarters around the 2020 downturn, we have shown year-on-year organic growth in every quarter since we started on our transformation journey in 2017. To continue to provide more visibility into the way we are serving important end markets aligned with fast-growing megatrends, I want to spend some time diving a bit deeper into a market that holds significant potential for continued organic outgrowth, the automotive market. There are significant megatrends in play that align ideally with our company's strengths and capabilities. For years, Materion has been a leading provider of important materials for automotive applications, including connectors, switches, and relays, all of which are used in both internal combustion engine vehicles and electric vehicles. As the industry shifts towards more electric, we see an even greater need for our materials with products like cell-to-cell interconnects and fast DC charger connectors. We are known for our ability to deliver products with superior conductivity and thermal management properties, both of which are crucial to safety and reliability in the electric vehicle. Building upon our strong product offering, we have taken several steps to build out a portfolio of products that enable the pervasive megatrends of emissions reduction, connectivity, and autonomous driving. With the outlook for electric vehicle production expected to more than quadruple by 2030, we have made purposeful investments in R&D focused specifically on the EV space, and we've formed deep relationships with leading automotive companies to accelerate their next-generation solutions. These efforts have resulted in the important partnerships we mentioned with electric vehicle battery companies to support their quest for faster charging times, longer battery life, and enhance safety. As the industry pushes closer to self-driving cars, our contributions become even more meaningful, as these vehicles will require all the materials previously mentioned, plus an expansion of our sensing technologies. We are a key provider of thin-film optical filters for sensing and detecting, and high-performance coatings for components within LIDAR systems, head-up displays, digital instruments, and night vision. All of these capabilities will be critical to supporting the strategic shift in the industry, and our acquisition of optics pulsars only strengthened our position in this market. To address the demand for faster and enhanced connectivity, the semiconductor industry will continue to face significant demand from the automotive industry. Following our recent acquisition of HCS electronic materials, and our recently announced expansion into atomic layer deposition products in Milwaukee. We have strengthened our position as a leading supplier to the global semiconductor industry and are well positioned to benefit from this shift. The average electric vehicle will require twice the number of semiconductor chips versus a traditional vehicle, with autonomous vehicles requiring 8 to 10 times the number of chips to power its many functions. Our strategic efforts to serve this market are already delivering as we have grown our sales for the auto market by 50% since 2019, while the number of vehicle units produced globally has decreased by 12%. All of this resulting in a 77% increase in content per vehicle. I'm confident this growth will only accelerate as the industry evolves and our people and our products become even more critical to enabling the automotive industry of the future. As I reflect on the many organic opportunities in our pipeline, the execution of our organic strategy, and our expanding record backlog, we remain on track to exceed a billion dollars in BA sales in 2022, for the first time in our company's history, as we grow our business and continue to outpace our end markets. With that in mind, we are affirming our earnings guidance for the full year. I remain highly confident that we will drive record value added sales and earnings as we take another step forward on our transformation journey. As I close, let me stress how proud I am of what our team has accomplished throughout this first half of 2022. Delivering record performance, flawlessly integrating the acquisition of HCS electronic materials, progressing on our strategic organic initiatives, and setting the stage for another record year in 2022. Now, let me turn the call over to Shelly to cover the financials.