Materion Corporation

Greetings. Welcome to Materion's fourth quarter and full year 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, Kyle Callagher, Manager of Investor Relations. You may begin.

Good morning, and thank you for joining us on our fourth quarter 2023 earnings conference call. This is Kyle Kelleher, Manager, Investor Relations. 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 and full year, as well as an update on key strategic initiatives. Following Jugal, Shelley will review the detailed financial results for the quarter and full year, in addition to discussing our expectations for 2024. 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 number shown in attachments four through eight 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, Kyle, and welcome, everyone. It's great to be with you today to talk about our fourth quarter performance and our record results for full year 2023. I'm proud of our team's focus and resilience, leading our company to another year of record sales and earnings. We overcame significant headwinds in some of our largest markets to deliver strong results, demonstrating the power of our balanced portfolio and the extraordinary potential of our unique customer partnerships. Our sharp focus on operational excellence led to continued meaningful margin expansion, structurally improving our profitability and preparing us to maximize performance as markets recover. And while we managed our costs closely, adjusting to uncertain economic conditions, we continued to invest for the future, seeding a pipeline for long-term organic outgrowth. In the fourth quarter, the diversity of our portfolio continued to be a highlight. while several of our markets remained challenged. When excluding semiconductor, our largest market, which is experiencing significant market weakness, our sales were up slightly. Our aerospace and defense sales moved nearly 70% year over year, representing the 11th consecutive quarter of growth for this market. In addition to the benefits from significant organic wins in space and defense, we also saw the impact of continued increase in our content for planes. On the other hand, our semiconductor and industrial end markets continue to show significant weakness in Q4. In Semi, we saw our third consecutive quarter of meaningful year-on-year declines, but the order patterns are starting to show signs of stabilization. We are also seeing some positive indicators in the broader market and expect that the related increase in demand will positively impact us starting in the second half. Our performance in the industrial space is impacted by its largest application related to non-residential and warehouse construction builds. With the impacts of COVID on office space utilization, combined with higher interest rates, the demand for our beryllium nickel sprinkler material is seeing a significant inventory correction that will carry through the year. While our end market outlook remains mixed, we continue to make significant advancements on strategic initiatives that position us for long-term growth. Our organic growth projects, aligned with compelling global megatrends, have allowed us to win exciting new business and ensure that we continue our strong track record of outgrowing our underlying end markets. The emerging space market continues to be a source of new opportunities for us. As illustrated by a recent fourth order to supply critical materials for space propulsion These four important orders, along with several other organic wins in this market, contributed approximately $90 million in new business orders during the year. We have positioned our company as a trusted partner supplying critical materials into this exciting high-growth market. Our technical expertise continues to lead to new R&D partnerships that will drive innovation and new opportunities in several of our key end markets. In November last year, we announced that we were awarded a $5 million contract with the United States Air Force for a project to develop additive manufacturing capabilities for brilliant materials. Today, we are pleased to announce a new $4 million award from another government agency to fund additive manufacturing for other advanced materials across the aerospace, defense, and energy markets. These projects will enable us to better serve both new and existing customers who will require more complex components for next generation applications. We are preparing for the recovery in the semi-market by expanding our capabilities. The proliferation of artificial intelligence or AI applications, specifically generative AI tools, will result in increased demand for hardware to power it. That will mean greater worldwide need for chips, which we directly support with our highly engineered semiconductor materials. Chips used to drive built-in AI capabilities in devices such as smartphones, tablets, and PCs will be in highest demand. By providing materials for both physical vapor deposition and atomic layer deposition, two important methods for the manufacture of these high-powered semiconductor chips, Materion is a vital part of the supply chain, enabling on-device AI functionality. We are pleased to announce that we recently launched two new atomic layer deposition materials for advanced memory, meeting the needs of our customers, who are rapidly innovating to power these future applications. In addition, our tantalum materials are used to fabricate logic chips that power AI, as well as high bandwidth memory chips employed in AI processing centers. We expect the market for those chips to significantly grow over the next five years and are making investments to ensure we are ready to support that demand. Our semiconductor capabilities will also be critical to the continued evolution of the automotive industry as the shift toward electric and autonomous vehicles continues to advance. As a reminder, these vehicles require two to ten times more chips per vehicle. The transition and advanced mobility is supporting growth for our precision optics business, which is seeing an increase in demand for optical components. We are pleased to share that we've secured another customer contract to supply optical components for LIDAR technologies for autonomous vehicles. Our materials are in LIDAR modules at six vehicle OEMs currently, and we are actively providing prototypes to expand further. We have positioned ourselves as a critical technical partner in these exciting next generation products and are looking forward to additional opportunities to serve this emerging market. We're building a strong pipeline of opportunities to support the clean energy transition with the successful development of two clean energy opportunities last year. We have also continued our work with Kairos Power and will be supplying additional material in support of their molten salt nuclear reactor program. In addition, we successfully completed the facility upgrades required to support a customer-funded $15 million investment to provide critical materials for power generation. Our shipments to the customer remain ahead of schedule. Our precision clad strip facility is now fully ramped and contributing meaningfully to our performance. We remain on track with our capacity expansion, which we expect to start production at the end of this year. We have also secured a record $60 million in new defense orders in 23 as we continue to strengthen relationships with our key partners. Our materials are critical to the performance of leading-edge defense applications. The advancements I've outlined underscore the significance of our outgrowth initiatives that continue to create momentum and give us confidence as we move forward. As we shared during the year, we have been focused on making targeted adjustments to improve our cost structure in order to improve the efficiency and performance of our business. This approach has been a key enabler as we expanded margins by 170 basis points last year, reaching 19.3% of sales, nearing our midterm target of 20%. We'll continue to focus on operational excellence as we head into 2024 to manage through market softness, and maximize our performance as markets gradually recover in the second half of the year. Our performance in 23 strengthened the confidence we have in our strategy as we delivered another record year despite volatile market conditions. I'm very proud of our team's hard work and relentless focus on delivering results and creating value for all of our stakeholders. The advances we made in 23 are paving the way for another year of record results this year. Now, let me turn the call over to Shelley to cover more details on the financials.