Materion Corporation

Welcome to the Materion first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A 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. Please note this conference is being recorded. I will now turn the conference over to your host, John Zoranek, Chief Accounting Officer. You may begin.

Good morning, and thank you for joining us on our first quarter 2023 earnings conference call. This is John Zoranek, 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 through the download feature on the earnings call webcast link. With me today is Jugal Vijay Varghia, President and Chief Executive Officer, and Shelly 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 as well as an update on key strategic initiatives. Following Jugal, Shelly will review the detailed financial results for the quarter. in addition to discussing our expectations for the remainder of 2023. We will then open up the call for questions. Let me remind investors that any forward-looking statements made in the 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. It's great to be with you today to share details on our strong first quarter performance. Coming off an outstanding 2022, I'm pleased to report that we have continued that momentum into this year, delivering a record first quarter for value added sales, EBITDA, and EPS. We continue to see the power of our transformation into a global leader in high performance advanced materials, as strong execution on our strategic initiatives is enabling us to consistently outgrow our end markets. We continue to build out our healthy pipeline of growth projects as our customers partner with us to develop next-generation solutions aligned with global megatrends. These strategic partnerships continue to position us for future growth and enable us to deliver today, even in the face of softness in some markets. In the first quarter, we once again saw double-digit organic sales earnings growth with meaningful margin expansion. For a combination of strong volume, operational execution, and diligent cost control, we achieved value-added sales growth of 15%, EBITDA growth of 20%, and EPS growth of 12%. These results reflect the 10th straight quarter of year-over-year improvement across all three metrics, more than doubling our quarterly sales, EBITDA, and EPS over that time period. Led by our new precision clad strip project, our many outgrowth initiatives contributed to our record performance. We also continue to benefit from our diversified market strategy with strong end market demand across aerospace, automotive, and energy. Our advanced capabilities have enabled us to increase our content across multiple applications in these markets, where we have driven a more than 70% content increase for auto, more than 25% for aerospace, and more than 20% for oil and gas since 2019. These advances helped us deliver continued organic growth that outpaced the expected slowing of semiconductor and consumer electronics. In total, our outgrowth initiatives drove top and bottom line growth with strong margin expansion. reaching nearly 18% EBITDA in the quarter, tracking well towards our midterm target of 20%. Our new precision clad strip facility is contributing meaningfully. The construction of our expansion of this facility is progressing as planned, and we are on track to begin production late next year. The build out of our new facility in Milwaukee is also on track, and production capabilities are scheduled to come online in the first half of next year. This site will expand our capacity to support production of the most sophisticated semiconductor chips, as well as broaden our advanced chemicals capabilities to produce materials for next generation batteries for electric vehicles. On our last call, we noted that we had been awarded a $10 million order to supply critical materials for space propulsion systems. I am pleased to report that the customer has awarded us a second order worth $12 million. for a total of $22 million to date. We recently began shipping product and expect to fulfill the first order this year. Our products, which are designed to withstand the harsh and demanding conditions of space travel, are crucial for carrying out critical missions. We continue to work closely with our increasing portfolio of space customers to align our products and meet the evolving requirements of the industry today and well into the future. The clean energy megatron continues to create opportunities for us as well, as the properties of many of our products are ideal for leading-edge solutions. To that end, we achieved a major milestone in our partnership with Kairos Power last month as we completed the first delivery of FLY. FLY is a reliable, safe, and cost-effective molten salt coolant used in nuclear energy production. This customer-funded molten salt purification plant is off to a fantastic start. Our customer-funded growth initiatives and winning opportunities with new and existing customers are perhaps the most compelling examples of how we are building customer confidence through our deep expertise to help them continuously enable what's next. With the success and progress on our outgrowth initiatives, we remain confident that we're on pace to deliver a strong 2023, even as the environment grows more challenging, particularly in the semiconductor and consumer electronics markets. With that in mind, our global team remains laser focused on driving operational excellence and targeted cost management actions to ensure we continue to deliver consistent results in an uneven environment. At the same time, we'll continue to advance and invest in our output initiatives, positioning Materion for long-term growth and success. I'm very proud of our team's performance. as we remain on track to deliver record results on both the top and bottom for the third consecutive year. Despite increasing headwinds in certain areas with the strength of our portfolio and diversified end market exposure, coupled with our targeted operational excellence initiatives, I am pleased to share that we are raising our full year guidance for 2023. Now, let me turn the call over to Shelly to cover more details on the financials.

Thanks, Jubal, and good morning, everyone. During my comments, I'll reference the slides posted on our website this morning, starting on slide nine. As Jubal outlined in his opening remarks, we delivered a record first quarter for value-added sales, adjusted EBITDA, EBITDA margin, and earnings per share. Value-added sales, which exclude the impact of pass-through precious metal costs, were $298.6 million for the quarter, up 15% from the prior year. This increase was driven mainly by strong demand across the aerospace, automotive, and energy end markets, where we saw significant above-market growth, as well as meaningful contribution from Precision Cloud Strip. We delivered adjusted earnings of $1.34 per share in the first quarter, up 12% as compared to the prior year, despite roughly 15 cents of interest expense headwinds. Moving to slide 10, Adjusted EBITDA in the quarter was 53.4 million, or 17.9% of value-added sales, up 20% from the prior year, with margin expansion of 70 basis points. This increase was driven by higher volume and strong operational performance in performance materials, offset by unfavorable mix and some cost inefficiencies within electronic materials due to the declining semiconductor demand. Moving to slide 11, let me review first quarter performance by business segment. Starting with our performance materials business, value-added sales were a first quarter record of $168 million, up 30% compared to the prior year. Aerospace, automotive, and energy demand drove the increase, as well as higher precision-clad strip volume. eFIDA excluding special items was a first quarter record at $42.8 million, with an all-time high EBITDA margin of 25.5%, up 56% compared to $27.5 million in the first quarter of 2022, delivering 420 basis points of margin expansion. The growth was primarily due to increased volume from our outgrowth initiatives and strong operational performance. The first quarter also included an estimated benefit from the Inflation Reduction Act's Advanced Manufacturing Production Credit, We studied the potential impact of this credit during the first quarter and determined the benefits should be larger than we anticipated coming into the year. Moving to the outlook, we expect another year of outgrowth led by aerospace, energy and automotive, as well as growth in precision clad strips. Next, turning to electronic materials on slide 12. Value added sales were a first quarter record of 103.9 million, up 2% compared to the prior year, mainly due to higher shipments of tantalum-based products. EVITA excluding special items was 14.4 million, or 13.9% of value-added sales in the quarter, a decrease of 24% from the prior year. The decrease was driven by a few items, including the expected tantalum cost headwinds, an unfavorable mixed impact from softening precious metal sales. In addition, sales decelerated through the quarter, resulting in some manufacturing cost inefficiencies, which are currently being addressed through targeted cost reduction activities. As we look forward to the remainder of the year, we expect a stronger second half with semiconductor orders increasing in the third and fourth order. Finally, turning to the precision optics segment on slide 13, value-added sales were 26.7 million, down 7% compared to the prior year. This decrease was driven mainly by the discontinued consumer electronics application and general market softening. EBITDA excluding special items was 2.9 million, or 10.8% of value-added sales, up 240 basis points from the prior year. This is largely attributed to cost reduction actions and spend control, while the top line is being rebuilt. Looking out towards the next few quarters, we expect sequential improvement to the top and bottom line, supported by improved order rates in defense and space, coupled with the continuation of targeted cost reduction activities. Moving now to cash, debt, and liquidity on slide 14, we ended the quarter with a net debt position of approximately $418 million and $187 million of available capacity on the company's existing credit facility. Our leverage at two times sits slightly below the midpoint of our target range and down from year-end, with free cash flow improving by $40 million compared to the first quarter of 2022, despite higher capex spend. Lastly, let me transition to slide 15 to address our full-year outlook. The first quarter was a great start to the year. While we see some pockets of market softness going forward, we also see areas of healthy growth and meaningful opportunity from our outgrowth initiatives. With this, we are raising our full-year adjusted EPS to $5.60 to $6 per share, representing a 10% increase from 2022 at the midpoint. Our modeling assumptions have been noted, and you'll see that we continue to expect roughly $95 million in capital expenditures in 2023 to fund exciting growth opportunities throughout our company. In closing, 2023 is shaping up to be another year of meaningful outgrowth and strong execution for Materion, leading to continued record results and long-term sustainable value creation for all of our stakeholders. This concludes our prepared remarks.

We will now open the line for questions.

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And the first question this morning is coming from Phil Gibbs from KeyBank Capital Markets. Phil, please go ahead.

Hey, thanks. Good morning.

Morning, Phil.

You mentioned you had some benefits from the Inflation Reduction Act in performance materials, and it sounds like some of that was baked into your prior guidance, given you said benefits were larger than you anticipated. Any color on that? what the credit may have been in the quarter and how long we should think those credits persist.

Yeah, sure. So, you know, we're certainly pleased with this element of the Inflation Reduction Act. And, you know, coming into the year, we were still studying it and didn't really fully appreciate what the benefit would be for Materion, but we did know it would be a positive. So we kind of built that into our thinking on performance materials margin expansion and Now that we've had more time to look at it, we're looking at roughly an $8 million benefit for the year. So that's recorded with production. So you can assume that's somewhat ratable as you go through the year. And yeah, so we expect to get that, yeah, pretty even through the year. When you asked about when it goes away, the way it's written is it does not phase out for critical materials. And at least for our high purity beryllium, that would be a critical material. And so we don't expect a phase out there.

Yeah. Phil, just to add to that, as Shelly mentioned, it is for the critical materials that are deemed by the U.S. government. Beryllium is definitely on that list, so we participate in this. There may be some other materials, so we continue to study it and see if there's other things to look at, but that's what we're looking at right now is the beryllium, and that's what Shelly's noted.

So mechanically, how does that work? You're producing some material and above a certain threshold, you get a credit or it's based on revenue. I mean, how did it come about?

Yeah. So, you know, it's really to encourage production of these critical minerals in the U.S., and to sell them by a U.S. taxpayer. So, you know, certainly that benefits us. The way we understand it, it only applies to our high purity beryllium, so 99% and above. And the credit is based on a percent of production cost. So roughly 10% of our cost to produce that material would come to us as a credit.

Okay. That makes sense. Thank you. And then on electronic materials, year on year, I think the – operating margins were down about 370 basis points. Any color in terms of splicing that up between the tantalum misalignment mix and some of the weaker absorption you talked about?

Yeah, so you've got those drivers right, Phil. You know, we've talked about the tantalum issue kind of starting late last year and bleeding into this year. We also had the mix with lower precious metal target sales And then we do have some cost inefficiencies as volumes are stepping down. We saw a pretty meaningful step down in March. So it really was decelerating through the quarter. I would say those items are kind of a third, a third, a third. They're really equally impactful the way we look at it.

Yeah, and again, just to add to that a little bit, Phil, when you look at our precious metal targets, those are used quite a bit on consumer electronics type devices. They're used in a bit of the memory devices as well. Both of those in the semiconductor space have been impacted, and as a result, that impacts our precious metal target sales, which are favorable from a mix standpoint. We expect this deceleration that Shelley mentioned that happened in March, we expect that to continue here in Q2. And the recovery that has been noted by all the chip manufacturers in Q3 and Q4, we would expect to participate in that recovery. But I think one of the things that we've got is we're a very diversified company when it comes to the markets that we play in. And so we have other markets that are very favorable. to be able to help us move forward in Q2 and then, you know, for the rest of the year.

Thank you. Thank you. Thank you.

The next question this morning is coming from Daniel Moore from CJS Securities. Please proceed with your question.

Thank you. Good morning, Jugal. Good morning, Shelley. Good morning, Dan. Particularly around the content growth and the drivers of share gains, It does sound like maybe perhaps incrementally more cautious, as you just mentioned, Jugal, around semi and consumer electronics. Is that the right takeaway or just sort of pointing out the ongoing choppiness in those end markets? That's one. And two, just talk about your visibility to continuing to outpace that market growth in H2 and into fiscal 24. Yeah. Yeah.

Yeah, I would say I think there is a little bit of more cautiousness in that market than perhaps what we had a few months back. We've been continuing to monitor what's going on in the chip industry. I'm sure you've been listening to the various calls and reports from those companies. They all tend to indicate that Q2 perhaps will be a low point with a recovery in Q3, Q4, maybe a little bit to the right, shifting to the right a bit. And so You know, we certainly have a bit of a cautious take on that compared to, as I said, a couple months back. Our content, I will stress though, you know, we participate in a very diversified part of the whole semiconductor chain. And so, you know, our content has not dropped anywhere near the level that some of the chip manufacturers have talked about. In fact, if anything, if you saw in Q1, you know, our business was actually flat to a little bit up. We would expect, of course, a softer Q2 in that space, but then the recovery in Q3 and Q4, and we would continue to expect to outperform the overall semiconductor market with the, I think, with the diversified portfolio that we have within Semi. And then, as I indicated, I think the diversified portfolio that we have for the entire company, aerospace, oil and gas, auto, telecoms, You know, many parts of the industrial, you know, those are very, very strong markets for us. And the content increase that we've had in each of those markets, you know, if you just look at the last two, three years, I think positions us well to continue to be able to deliver. And frankly, that's exactly, you know, some of the drivers, you know, for being able to raise our guide.

Very helpful. Maybe shifting quickly to precision optics gets a little less attention. I think you mentioned sequential quarterly improvement. Given some of the new business wins, do you expect a return to growth in H2 or by fiscal 24? And just talk about the sort of maybe trajectory towards getting back to a more normalized low to mid-teens margins in that business.

Right. Well, you saw margin expansion on this business here in Q1 with some of the targeted actions that we have taken. And I would expect that we'll continue to build on that as we move forward the rest of the year. As for the top line, we are having good success, particularly in the defense and space and some of the auto areas for that business. And so maybe a bit of it in the second half of this year, but really 24 would be, I think, better said for good top-line growth turnaround, but I would start to see maybe in the second half of this year. But on the bottom-line side, I think our actions are taking place, are taking hold, as evidenced by the Q1 improvement, and I would expect to see improvement throughout the year.

Got it. I'll jump back with any follow-ups. Thank you.

Thanks. Thank you. Your next question is coming from David Silver from CL King. Please proceed with your question.

Yeah, hi. Good morning. Thank you.

Good morning, David.

Good morning. First question is going to be a clarification one, and I apologize for its naive sounding nature of it. But it's about the organic growth. You did talk about double-digit organic growth. When I look through the press release, when I'm looking through the slide deck, I don't really see any detail on that, like what the absolute number is or how it breaks down by segment. Am I missing something, or is that just not being presented?

So let me take that one. I think you see in our materials posted on the website that we do list our performance by end market, which I think is an indicator, but also important to remember that all of our acquisitions have anniversaries, so right now everything is organic growth.

Okay. Very good. All right. I had a question. I'm following up on your comments and your prepared remarks about The timeline for, let's say, your discretionary CapEx projects in Massachusetts and in Milwaukee, 1Q or first half 2024 startup. A couple of questions. Do you have similar timelines for some of the performance materials you know, customer-focused projects. You know, I do recall second half of last year, there was a noticeable step up when, you know, the certain phase of the clad strip project was completed and turned on. So do you have any kind of, you know, timelines or targets that we can focus on for, you know, the space propulsion and any remaining, you know, key projects? contracts that are under development, customer-funded or whatever. I'll let you take it away. Thank you.

Yeah, no, great question. You know, I can talk about two, three key projects, and then certainly we can do any other discussions you'd like as a follow-up as well. When you look at, for example, the space propulsion, we announced a contract, phase one of the contract we announced in the last earnings call, which was worth $10 million. We now have announced a second phase, which is $12 million. You know our expectation is that the phase one will be able to complete This year you know earlier. We had thought that maybe it would be You know maybe it would be Somewhat this year and then and then the remaining next year But I our teams have continued to make great progress on that and we think we'll be able to finish Phase one of it this year and then phase two we would expect into next year We also announced a clean energy project in our last call, and we indicated that that clean energy project would start to ship perhaps a little bit at the end of this year and then finish out by the end of next year. This was the one you may recall where the customer is funding 100% of the investment, approximately $15 million of investment that they're funding. We're in the process of putting that capacity in place in a couple of our facilities, and we'll get that done. Of course, the other one that we have talked about for the last couple of years is the precision clad strip. That one we had going from our legacy facility. We now have our new facility up and running. We're producing from both facilities. And as the demand is there and at some point, we'll decide with our customer on how that production needs to continue. But we're continuing that. We do have a phase two implementation of that. And the phase two implementation is in process. We expect that to start production towards the end of next year. And then really, I would look for sales then in the 25 timeframe, meaningful sales in the 25 timeframe. So hopefully that helps with, I think, some of the key projects that we've talked about on the PM side of the business.

And maybe just to take the capital side of that, you know, you likely noted that our capital spending in Q1 was strong, especially for our first quarter. You know, we had a lot of activity coming out of the year last year on several of these projects. So, you know, a lot of that came into Q1 and made our first quarter a bit higher. You know, we've held our guide for CapEx at that sort of $95 million range. So, you know, you take 30 off that and expect it should be, you know, roughly equivalent. It's really hard to peg because the timing of how those how that work gets done and the invoices come in. But, you know, you know what we have rest of year.

That's great color. Thank you on that. Maybe I'll just stick with Shelly on this one. But, you know, I was looking at your cash flow statement and I did notice that even though, you know, CapEx was up, as you pointed out, you know, free cash flow was meaningfully better and You know, the difference or the big part of the difference is working capital. You know, the last few couple years have been, you know, years where working capital was kind of a use consistently. And, you know, I do expect it to reverse or diminish somewhat this year. But what kind of release of working capital that's been built up? maybe over the past couple years, do you think is likely, you know, as 2023 progresses, or is it just too contingent on various, you know, developments?

Yeah, no, great question. You know, as you can imagine, the last couple of years where we have been in a high growth mode, there's been pretty significant working capital added. Some of that for new projects where you've got to fill the pipeline, you know, precision clad strip would be a great example of that, where You know, you go from kind of no inventory to needing to fill a pipeline for raw materials and then hold a certain amount of finished goods. You know, that's pretty structural for us going forward. But when we think about getting into a more steady state situation with semiconductor, we do expect working capital to be more manageable this year. We have several initiatives going on to kind of focus on making sure we've got the right inventory, the right working capital, and that we're improving that where we can to increase cash flow. So I do expect that we're going to see a positive out of working capital this year. You know, we haven't really put a number on that, but it's definitely going to be, you know, not the burn, it's been the last couple.

Okay, thank you. I have one more and then I'll get back in queue. But this has to do with the, I just wanted to clarify on the electronic materials expansions in Milwaukee and at the HCS unit. Can you just remind me, but I'm assuming that those units, sorry, those expansions in both locations are essentially like base loaded already. In other words, you know, once they are complete, completed and commissioned, you know, there are orders in hand, you know, to, you know, take up a fair amount of the new capacity added. You know, is that the case or would you say it's, you know, built in anticipation of orders but no real firm orders in hand at this point?

Yeah. So let me start with our HCS, as you indicated, which is our Newton facility. You know, we're making investments in that facility because we're confident that the tantalum content will continue to increase on the semiconductor side. We see that happening in all the designs that are taking place, the smaller and smaller node chips that are being introduced. We also see good growth on our aerospace and defense side of that business, the industrial side of that business. And so, you know, David, we are confident that the capacity that we're going to put in place is going to have good, meaningful demand. Part of that is based on discussions and orders that we have with customers, and part of that is just continued development of new initiatives and new projects that we're involved in. So we're feeling good about the capacity that we're putting in place and what we think it can do for us in 24, 25, 26 timeframes. When it comes to the Milwaukee facility, as we indicated, I think when we first announced it, we've got a building that gives us the opportunity to expand. But what we're doing in terms of putting the capacity in is we're putting very targeted capacity that is based on customers' discussions, customer contracts, new business opportunities. So we are really making sure that we're doing investments on a very targeted basis based on growth in the semiconductor space, again, on smaller node ALD type of programs, as well as, you know, we announced that we are working on next generation battery materials with a number of different customers. And one of the customers actually made an investment with us. And so that investment, you know, we're doing a joint activity with them. And so that, you know, that I think is one that we're feeling very good about as well. And so, in general, I would say we're very excited about the capacity we're putting in place in both locations, and we expect those to have good, meaningful impact over the next three to five years.

That's great. I am going to get back in queue, but thank you very much for all the detail. Much appreciated.

Thank you.

Thank you. Your next question is coming from Dave Storms from Stonegate Capital Markets. Please proceed with your question.

Thank you, and good morning. Good morning, Dave.

Good morning.

Just hoping you could start by speaking a little bit about the targeted cost reduction actions that you've mentioned, you know, just trying to get through some of the short-term softness you're seeing in a couple markets.

Yeah, Dave, good question. As you know, we have had a very good track record of operational excellence. I think within our company, we've driven that over the last several years, and that's just something that we do as a normal part of our business. Whenever we feel that there's... needed actions, we look at them. We did that during the pandemic time as it was needed, and we've looked at that over the last several years. So as we see some softening in some of the areas, we make sure that we take appropriate action. I think one of the things that we're very focused on and have been very focused on is making sure that we don't take action where we lose capacity. We want to make sure that we can support our customers in a meaningful way. And so there's a lot of discussion about the ramp ups that will happen in the second half for the semiconductor side. And we want to make sure we're well positioned to capitalize on those ramp ups. So any type of reductions that we do put in place, we're making sure that they're very well thought out and don't impact our capacity and don't impact our ramp up. That may be required at some point. It's just, I would say, a normal course of action just based on market conditions, and it's something that we'll just continue to look at as we move forward.

That's great, Collin. Thank you. One more from me. You mentioned that all your acquisitions are anniversaries. We're just wondering if you could shed a little light on what you're seeing in the M&A market, the potential for rate hikes and rate hike pause in the second half of the year is giving the markets a little more certainty and clarity, or if multiples are still pre-elevated, just anything you could give us there.

Yeah, I think the M&A side, you know, what I would say is that the expectations, I think, are still there from the seller side to be able to get a good price for the properties they have. And so we just have to be very diligent in our In our evaluations, we continue to look at M&A, and we just have to be very diligent in understanding what the offering is, and does it make sense for us? Does it fill a certain portfolio gap for us? Does it give us some adjacency like we've done over the last couple of acquisitions? And if it's the right type of thing for us, then we'll evaluate it based on the returns. But in general, I would say that the M&A pricing side is probably still a bit – elevated and probably has not seen the drop that maybe some of the other areas have seen.

That's very helpful. Thank you. Thank you.

We have a follow-up question from Phil Gibbs of KeyBank Capital Markets. Phil, your line is live. Please go ahead.

Hey, thanks very much. The mine development costs this year, the $11 million, have those been spent? And then secondarily, a similar line question with the customer pre-funded credits that you'd expect for CLAD Phase 2, what's the size in 23, and have those been realized yet? Thanks.

Yeah, so on the mine development side, we talked about another pit opening with an $11 million roughly spend this year. And as you know, we put that on the balance sheet and amortized that really over production to capture that as kind of cost of goods sold. Not a lot of that has been spent yet. So, you know, you would see that really still most of it will come in the next few quarters. In terms of the prepayments, you know, we received some of that last year. We expect a little bit more to come this year, but we did receive a good portion of that in 2022.

So how much is left on that, Shelley?

Yeah, you know, roughly four or five million.

Thank you. Thank you.

And we have a follow-up coming from David Silver from CL King. David, your line is live. Please go ahead.

Okay, thank you. So, Jugal, I guess this is kind of a big-picture question, but... You know, you've talked or Shelley talked earlier, made some comments about the Inflation Reduction Act and their benefits to you. And you've talked about a number of customer-focused projects. I'm just going to try and, you know, maybe integrate them. But, you know, one reason I think, you know, your prospects might be bright longer term, not the only reason, but I do think you know, the, um, restrictions on technology trade, you know, with China and some other issues in Asia, you know, are spurring some incremental, I guess, on shoring or reshoring, um, opportunities, you know, on top of the ones that you'd developed outside of that. But, um, I'm wondering, you know, when you look at the environment for, you know, uh, aligning yourself with new customers or getting involved in newer projects as time goes on, in part due to a shift from Asia to the U.S. or North America for various technology products. Is there any impediment? In other words, is the fact that the United States doesn't have quite the same ecosystem, supplies, maybe skilled labor, research capabilities. Does any of that factor in that maybe, you know, you're not going to be able to avail yourself of as much of the opportunity as possible? Or, you know, maybe you could just comment on how you think maybe the trade restrictions that were issued late last year, the IRA and other things kind of feed into, let's say, your three to five year outlook and Is there enough of an ecosystem or is there any bottlenecks currently in the U.S. that might get in the way of you hitting your long-term growth objectives?

Yeah. Well, a couple of things, you know, one, I want to continue to stress that, you know, we have been focused on making sure that we grow our business globally. So certainly the, the activity that's been going on in the U S you know, is a factor and I'll talk about that, but, you know, just to give you a data point you know, we had approximately I'm going to say 46% or a little bit North of 46% of our sales in the U S and then that's been coming down and actually now we're around a 43%. So we've, we've actually increased our outside of the U.S. share by three points just on a year-over-year basis. And so that, I think, speaks to the great work our teams are doing to make sure that we're capturing share in Asia, in Europe, and we're going to continue to work on that. We're going to continue to make sure that we're absolutely focused on growing our business globally. Now, with regard to your question, I think, on the U.S. side, one of the things that I really am pleased with is that we have – for this area is, you know, we have great R&D capability and manufacturing capability, you know, in the US. You know, a lot of our R&D centers and really the main R&D centers for electronic materials, for performance materials, for precision optics, you know, are located here in the US. Our manufacturing, I mean, our legacy manufacturing with all of our performance materials is located here in the US. As you know, David, when we acquired The HCS business, the Newton facility, that's in the U.S. And then the investment that we just talked about in Milwaukee that we're putting in place, that's in the U.S. So I think between the R&D side and the manufacturing side and then our sales support and our other back office support, I believe we're really well positioned and we have what is necessary now. to be able to capture the work that's going on on the U.S. front. And at the same time, we're making the necessary investments outside the U.S. so that we can continue to grow our business in Asia and in Europe. So over the next three or five years, I expect us to be able to do both. I expect us to be able to take advantage of the initiatives that the U.S. government is working on or just the onshoring activity that's involved here in the U.S., but I also expect us to be able to grow our business in Asia and Europe and continue to be a good, global, well-diversified company.

Very complete.

That's a very thorough answer. I appreciate it. Thanks very much. Thank you.

We have reached the end of the question and answer session, and I will now turn the call over to John Zerenik for closing remarks.

Thank you. This concludes our first quarter of 2023 earnings call. A recorded playback of this call will be available on the company's website, materion.com. I'd like to thank you for participating on the call this morning and your interest in Materion. I will be available for any follow-up questions.

My number is 216-383-4010. Thanks again.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.