Materion Corporation

Greetings. Welcome to the Materion first quarter 2024 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 Kelleher, Director, Investor Relations, and Corporate FP&A. You may begin.

Good morning, and thank you for joining us on our first quarter 2024 earnings conference call. This is Kyle Kelleher, Director, Investor Relations, and Corporate FP&A. 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 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. Following Jugal, Shelley will review the detailed financial results for the quarter in addition to discussing our expectations for the remainder of 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 yesterday. 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 of the 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 nice to be with you today to discuss our first quarter performance as well as our current outlook for 2024. Our results for the first quarter fell far short of our expectations. While we were expecting to be roughly in line with Q1 of 23, some operational challenges, mainly in our performance materials business, and some pockets of slowing and market demand led to lower sales and earnings. I'm proud of our team's quick actions to mitigate these short term headwinds, delivering roughly flat EBITDA margins year over year, despite a nearly $40 million sales decline. We have taken a number of targeted cost actions that are benefiting not only our short term results, but are providing longer term structural improvements that will enhance profitability as key markets recover. Looking more closely at the sales performance, Continued semiconductor weakness represented roughly half of the year-over-year decline. In addition, the expected inventory destocking of our beryllium nickel product used in non-residential construction had a meaningful impact. Our results were further limited by delayed shipments due to the operational challenges mainly in performance materials. While we had anticipated the softness in some of our end markets, Demand in commercial aerospace and automotive was softer than we expected due to reduced aircraft build rates and slowing growth for electric vehicles. Airplane deliveries were down significantly year over year in the first quarter and are expected to be depressed for the year. Upsetting these declines, we saw strong growth across space and defense where we are providing critical materials for space propulsion systems and on a growing number of defense platforms. Short-term operational challenges further impacted sales on a temporary basis in the quarter. Addressing some yield and equipment issues, our operations team responded quickly to address the issues and return our assets to normal output levels. Operational excellence initiatives have been core to our performance as we deal with market headwinds and other short-term challenges. We have taken multiple targeted actions to adjust our cost structure while continuing to invest in the areas that drive organic growth for our business. These important moves have helped to deliver strong margin performance in a softer end market environment. Despite the decline in sales, our overall EBITDA margin for Q1 was roughly flat on a year-over-year basis, representing a strong 20% decremental margin. Our laser focus on driving margin improvement in electronic materials delivered EBITDA expansion of approximately 500 basis points in the quarter, even with a 25% VA sales decline. This strong performance leaves us extremely well positioned to drive even higher levels of performance as markets recover. Our focus on managing the business through some short-term headwinds is complemented by our relentless efforts to invest for the future, as we continue to seed the pipeline for long-term organic growth. We remain confident in our strategy and believe that our robust organic pipeline and portfolio of cost improvement initiatives will help drive earnings growth for the balance of the year. We expect to see continued strength in the space and defense markets as we move through the year. Many of our advanced materials are engineered to perform in the harshest environments, making them an ideal fit for these demanding applications. New defense business wins in addition to the previously announced R&D partnerships for various government-funded projects further solidify our position as a key supplier for advanced materials across aerospace, defense, and new energy markets. In the semi-market, near-term growth in memory and logic chips used in high-performance computing is expected to drive the rebound in our sales this year, with demand for power and industrial chips coming back later in the cycle. We believe Q1 was the bottom of the downturn for us, as we see order rates picking up coming into the second quarter, giving us confidence that our top line will continue to improve as we move through the year. The industry is continuing to prepare for the global shift toward broader AI adoption, and Materion is a vital part of that supply chain. We continue to advance our broad portfolio of semiconductor products, and are investing to increase capacity in key production areas to ensure we are ready to support that increased demand. The precision clad strip project continues to be a significant driver of organic growth for us, and our partnership with our customer is strong. The expansion of our new facility remains on track to start up late this year. As the customer's global rollout progresses and our teams have driven higher levels of output and performance at our new facility, we will now begin to ramp down production at our legacy facility. Our customers indicated an adjustment to their inventory levels for the second half of the year, which will impact our shipments. This adjustment does not correlate to weaker end product sales, as the customer's global rollout remains on track and their projections support a robust long-term outlook for our business. Our team has done an exceptional job of steering the company through some short-term challenges while maintaining a longer-term focus that will further position Materion for sustainable growth and value creation. With the start of the recovery in SEMI and improved operational performance, we expect to deliver a much stronger Q2, with additional step-ups in the third and fourth quarter, resulting in another record year for Materion in 2024. Now, let me turn the call over to Shelley to cover more details on the financials.