Materion Corporation

Greetings. Welcome to the Materion Second Quarter 2023 Earnings Conference Call. At this time, all participants are on 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 Zaranek, Chief Accounting Officer. You may begin.

Good morning, and thank you for joining us on our second quarter 2023 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 through 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, as well as 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 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 eight in this morning's press release. The adjustments are made in the prior year for comparative purposes and remove special items, non-cash charges, and certain discrete income tax adjustments. And now, I'll turn the call over to Jugal for his comments.

Thanks, John, and welcome, everyone. It's great to be with you today to discuss details of our record second quarter performance. I'm pleased to share that our team's relentless focus on delivering for our customers and driving operational excellence resulted in the 11th consecutive quarter of year-over-year earnings growth for Materion. The second quarter also marked an important milestone for margin expansion. We outperformed our midterm target of 20% adjusted EBITDA with a margin of 20.7% of value-added sales. This achievement reflects the quality of our portfolio and our team's ability to respond quickly to changing macroeconomic conditions. More and more, customers are turning to Materion to help them solve their most technically demanding challenges, strengthening our portfolio of business even as we navigate mixed market conditions. Our deep customer partnerships across diverse industries have allowed us to capitalize on opportunities aligned with compelling global megatrends, positioning Materion for long-term growth. Clean energy is one such exciting megatrend driving new opportunities for us. In previous quarters, we have discussed our multiple clean energy partnerships, including the $15 million customer-funded investment to provide critical materials for power generation. Facility upgrades for this project are near completion, and we have started to ship product to our customer. Today, we are pleased to announce two new exciting customer projects that are on the cutting edge of clean energy development. First, we have entered into an agreement with the Idaho National Lab to support the U.S. Department of Energy's new Marvel nuclear micro reactor project. We plan to start providing material this year. In addition, we have reached agreement to provide material for another promising next generation clean energy program in Asia. Both of these proof of concept programs could lead to larger opportunities for materials in the future. Materion is becoming a sought-after provider for materials in this exciting space, aligned with our targeted global megatrends. Focusing on our second quarter results, value-added sales were flat year over year, largely due to softness in the semiconductor market. When excluding semi, VA sales grew 14%, driven by growth in aerospace, defense, telecom, and data center, and the precision clad strip project. as we continue our track record of delivering strong organic growth. What I'm most encouraged by is that on roughly flat sales, we delivered 18% higher adjusted EBITDA of $55.5 million, a 320 basis point expansion year over year, and a second quarter record for our company. This record performance included meaningful contribution from our precision cloud strip facility, where our teams are working diligently to meet our customers' needs while working on the Phase II expansion, which is progressing well. As you know, we have increased our content across new aircraft builds by more than 25% since 2019, which coupled with strong build rates has supported our year-over-year growth in this market for nine consecutive quarters. The defense market was also a highlight for us, as the properties of our materials are well-suited for highly technical applications that must perform in the most harsh and demanding conditions. Our expertise and track record serving this important market continue to create new sales opportunities, resulting in multiple new customer partnerships to develop next generation defense applications. On the connectivity front, the substantial global growth of 5G has driven up demand for connectors and undersea cables, which is a segment of the market that has been a core competency for us for years. Growth in these markets has helped offset significant softness in semiconductor, which continued over the course of the quarter, particularly in logic and communication-based devices, where we are seeing meaningful inventory correction. We are encouraged by a number of positive signs we've seen in the broader semi-market and expect that the second quarter was likely the bottom for the chip manufacturers. Given these positive signs and our position in the supply chain, we believe we will start to see gradual improvement in the fourth quarter of this year, As you know, semi-cycles can lead to strong upturns when we're ready to support that volume as it materializes. Key to our continued strong performance is an unwavering focus on operational excellence, ensuring we deliver strong results despite macro environment. We continue to look for ways to run our company more efficiently and to focus our resources on growth areas. In response to the recent macro softness, our teams have executed a number of targeted cost improvement initiatives, These actions have been well planned and aimed to strengthen our company while protecting our ability to deliver the strong output you've come to expect from a Turinga. With accelerating contributions from our organic pipeline, a gradual semiconductor recovery on the horizon, and the benefit of our targeted cost improvement initiatives, we remain confident in our ability to execute and deliver another year of record results. With that, we are affirming our full year guidance for 2023. Now, let me turn the call over to Shelly to cover more details on the financials.