Materion Corporation

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 Zaranek, Chief Accounting Officer at Materion Corporation. Sir, the floor is yours.

Good morning, and thank you for joining us on our third 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 year 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 record quarter for Materion and to cover some significant advancements we've made on our strategic initiatives. We remain on track to deliver another record year as we have continued to reset the bar each quarter for the last two years. In Q3, we achieved our highest ever top line results with value added sales of 35% compared to the prior year. Our organic outgrowth initiatives, combined with continued strength across most of our end markets, led by semiconductor, industrial, aerospace, and energy, delivered a robust 15% organic growth in the quarter. The new precision clad strip facility contributed largely as expected, with a plant now fully qualified by our customer. And HCS electronic materials continues to perform well. with strong sequential growth meeting continued robust customer demand. We also achieved record EBITDA and EPS for the quarter, primarily due to higher sales and improved pricing. EBITDA margins were approximately 17%, performing close to our midterm target of 20%. During the quarter, we did face some short-term headwinds that caused our profitability to fall short of our expectations. While our semiconductor-related sales were up organically, our mix within semiconductor was weaker than expected due to lower precious metal target sales into a softer consumer device market. The balance of our expanding portfolio is focused on the growing segments of semiconductors, such as logic, communications, and other advanced chip applications, leading to increased demand for our non-precious metal products. We also felt the impact of higher tantrum raw material costs in the quarter. As noted earlier, the demand of our HCS electronic materials products remains very strong. However, with inherited customer contracts that are still being renegotiated, we were not able to pass along the unusual raw material price increases experienced recently. The market for tantalum has typically been quite stable, but it did see a run-up over the past few months due to labor shortages at the mines. That pricing has started to come back closer to normal level. And lastly, one of our large performance materials facilities had some challenges with staffing and reduced yields. That team is working diligently to improve the yields in the near term by delivering for our customers. We expect that each of these short-term headwinds will be mitigated moving into next year as we continue to drive our organic initiatives and deliver on operational excellence. Despite challenges incurred in the quarter, our teams performed well and continued to execute on our strategic initiatives while building a pipeline of outgrowth opportunities for the future. Organic outgrowth initiatives have become a cornerstone of Maturion's strategy. They have accelerated our top and bottom line, leading to consistent outperformance versus our end markets. When we think about the economic uncertainty that is prevalent across most industries today, We feel confident about our ability to continue to outperform because of the robust pipeline of projects and customer partnerships we have established. Let me give a short update on some of the major projects we currently have underway. We are pleased to share that our precision cloud strip facility was fully qualified by our customer. We are continuing the ramp into Q4 and plan to be operating at expected levels by year end. In addition, the second phase of the precision clad strip project continues with asset procurement and project management on pace with the expected timeline. We anticipate startup in second half of 2024. Our HCS electronic materials business continues to accelerate growth as we have meaningfully increased headcount and output from the Newton facility. The recently announced $20 million capital investment to expand capacity and capabilities is on track and will support our growth objectives for that business. Construction has begun and equipment is on order for the next generation electric vehicle battery material opportunity at our new facility in Milwaukee. And as it relates to our molten salt purification project, production applied has started and we expect to ship material to the customer later this year. These announced initiatives and several others that are in the development stage will drive continued outgrowth as we move into 23 and beyond. Moving ahead to expectations for the fourth quarter. I expect that our performance will be stronger to finish out a fantastic record year. We like what we have seen for October sales leads. Taking into account mainly the impact of the short-term headwinds, we are adjusting our guide to $5.20 at the midpoint. This represents a roughly 30% increase in EPS versus last year. While we're not ready to guide for 23, I'm confident that our organic growth portfolio and operational excellence initiatives will deliver another year of strong outgrowth. In closing, as I reflect on our strong customer partnerships, strategic acquisitions, and the many exciting organic opportunities in our pipelines, I'm really proud of the progress we've made and the dedication and commitment of our 3,600 team members around the world. It is their commitment that is driving long-term value creation for our customers, our shareholders, and for our people. Now, let me turn the call over to Shelly to cover the financials.