Materion Corporation

Greetings and welcome to the Materion fourth quarter and full year 2024 earnings conference call. At this time all participants are on a listen only mode and 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 Mr. Kyle Kelleher, Director, Investor Relations and Corporate FP&A. Sir, you may begin.

Good morning, and thank you for joining us on our fourth 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 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. Following Jugal, Shelley will review detailed financial results for the quarter and full year in addition to discussing expectations for 2025. 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 period 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, Kyle, and welcome, everyone. It's nice to be with you today to discuss our fourth quarter and 2024 results and provide our initial outlook for 2025. Let's start with the fourth quarter. Sales developed about as we expected in the fourth quarter, with strong shipments in aerospace and defense and improved contributions from semiconductor and precision clad strip, muted by the continued softness across other end markets like automotive and industrial. We delivered a record EBITDA with 240 basis points of margin expansion thanks to the diligent work our teams have been driving to improve our operations and streamline our back office functions. These actions will continue to pay dividends as we move through 2025 and beyond. Now for the full year. 2024 was a challenging year with notable achievements. Sluggish markets and inventory corrections may have dampened our organic growth. but this allowed us to demonstrate the strength of our company, the commitment of our team, and the result of their hard work. For the year, we delivered our fourth consecutive year of record EBITDA and EBITDA margins. After years of diligent efforts to improve performance and drive profitable growth while streamlining our organization, we delivered on our midterm EBITDA margin target of 20% for the first time for the full year of 2024. We have been taking swift and consistent actions to optimize our footprint and address our cost structure, while continuing to invest for growth and strengthen our customer partnerships. Achieving this level of performance in a sluggish environment gives us confidence to look ahead and set new goals for the company. As our end markets strengthen and we deliver on our organic initiatives, we will continue to drive further operational improvements and generate even stronger levels of profitability. With this in mind, we're establishing a new midterm EBITDA margin target of 23%, expecting that our business can deliver an additional 300 basis points of improvement over the next several years. While our underlying markets struggle to find momentum in 2024, we advanced several strategic initiatives during the year. In aerospace and defense, our customers are developing new products and applications that require the highest level of performance reliability in harsh conditions. Earlier this year, a leading aerospace and defense customer agreed to invest approximately $10 million in new capacity and capabilities at one of our existing sites in support of their growing demand. This project is well underway, and we expect to bring our new capabilities online mid next year. 2024 also saw key new business wins in defense, including the selection of our Supremex lightweight composite material for use on the prototype for the U.S. Army's future tilt-rotor long-range aircraft, as Materion's products are uniquely suited for next-generation applications. The growth of commercial space has driven new opportunities for us as well, as Materion is well-positioned to serve the needs of this expanding market. In the second quarter, we secured a $150 million multi-year agreement to supply critical materials for space propulsion systems after proving ourselves to be a key critical supplier of these products. In addition, INTEX alloy, one of our newest high-performance products, was selected for a new telescope mirror that will be tested by NASA in its chirogenic test facility. In semiconductor, The expansion of our portfolio to include ALD or atomic layer deposition products is allowing us to support the production of the most sophisticated semiconductor chips. We were pleased to receive an overall excellent supplier award after our team collaborated with a leading ALD customer to innovate multiple new materials, which will see expansion with the rapid growth of AI and the increasing demand for the most complex chips. We also entered into an agreement to serve as a technology partner for a major global supplier of semiconductor processing equipment. We are supporting this customer in their development of a new deposition material that will pave the way for a wide range of next-generation consumer and automotive electronic devices. Aside from commercial advancements, we took steps to eliminate underperforming non-core businesses and optimize our footprint. In the fourth quarter, we completed the sale of an electronic materials facility in Albuquerque, New Mexico that produces coatings for architectural glass mainly used in commercial construction. We are also closing a related nearby facility. We're in the process of rightsizing two facilities in Asia, which will be completed in the first half of this year. As a result of some of the changes already made, our electronic materials business delivered roughly 20% EBITDA margins for the year. representing a 390 basis points improvement year over year. Regarding our cost structure, we took a series of decisive actions to streamline our organization and position us for greater efficiency. Over the last year, we reduced over 150 positions through targeted reductions and optimizing back office operations while controlling discretionary spending. At the same time, we remain focused on investing for the future, Our R&D spend in 2024 was at an all-time high, as we focus on partnering with our customers to deliver next-generation products and solutions. Even through periods of market softness, we have remained focused on investing for the future, further aligning the business to high-growth opportunities supported by global megatrends. Across our plants, we're improving yields and profitability through process and technical innovations and continuous improvement initiatives. In precision optics, we took meaningful steps to drive the early stages of transformation, starting with appointing a new president, Jason Moore. Despite the challenges the business has faced, we believe the long-term fundamentals remain strong. Jason is quickly working with his team to adjust the cost structure and optimize the footprint to ensure we're maximizing the value of that critical business and prioritizing the growth opportunities the business is developing. The number of careful and deliberate actions we've undertaken allowed us to deliver record performance in 2024 and have set the stage for even stronger performance in the future. As we look ahead to 2025, we're cautiously optimistic about a stronger macro environment as we move through the year. We expect to continue to see solid growth in aerospace and defense, where healthy end market demand will be compounded by outgrowth from our organic wins. We're seeing some gradual recovery in semiconductor, and while our customers are providing mixed outlooks for 2025, we expect to see mid-single-digit growth year-on-year. Industrial, where our largest application is the beryllium nickel spring for commercial construction, should see growth in 2025 as the inventory correction is nearly complete and we are seeing orders returning to near-normal levels. We're planning for other end markets to show low single-digit growth, with the exception of automotive, which is poised to remain weak. With regard to precision clad strip, we're expecting meaningful headwinds in 2025. Our customers indicated that the inventory correction that started in the back half of 24 will carry through in 25, resulting in lower volumes year on year. After working diligently to ramp volumes and fill their supply chain over the past couple of years, PMI finds themselves in a position to lean out their inventory levels despite the continued success of their ICOS products rollout. Our Phase 2 capacity is complete and online, ready to serve their increased demand, which is expected in 2026. As we head into 2025, I'm confident that we will continue to deliver the strong performance you have come to expect from Aturion. I would like to thank our global team for the unwavering commitment to innovating for our customers while managing costs and delivering record performance. Now, let me turn the call over to Shelley to cover more details on the financials.