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Manufacturing Technology

Materion Corporation Reports Strong Fourth Quarter And Record Full-Year 2023 Financial Results And Provides 2024 Outlook

By Business Wire

Business Wire
Overall Rating

MAYFIELD HEIGHTS, Ohio--(BUSINESS WIRE)--Materion Corporation (NYSE: MTRN) today reported fourth quarter and record full-year 2023 financial results, provided 2024 earnings guidance and shared an update on key strategic initiatives.

Fourth Quarter 2023 Financial Summary

  • Net sales were $421.0 million; value-added sales1 were $289.7 million
  • Net income was $19.5 million, or $0.93 per share, diluted, and adjusted earnings of $1.41 per share

Full-Year 2023 Highlights

  • Net sales were $1.67 billion; value-added sales were $1.13 billion, a record for the company, up 1% from prior year despite significant semiconductor market weakness
  • Net income of $95.7 million, versus $86.0 million in the prior year
  • Earnings per share of $4.58, diluted, versus $4.14 in the prior year, and record adjusted earnings of $5.64 per share, versus $5.27 in the prior year, an increase of 7%
  • Adjusted EBITDA2 of $217.7 million, or 19.3% of value-added sales, both records for the company, versus $196.0 million, or 17.6% in the prior year, with 170 bps of margin expansion year on year

Newly Announced Customer Partnerships

  • Announced three new advancements as we continue to strengthen our organic pipeline
    • Secured a fourth order valued at $36 million to supply critical materials for space propulsion systems
    • Awarded $4 million from a government agency for the development of additive manufacturing processes for advanced materials to serve the Aerospace, Defense and Energy markets
    • Secured another customer contract to supply optical components for LIDAR technologies within NextGen autonomous vehicle applications in Europe

“I am proud of our global team for delivering another record year, despite the significant headwinds facing our largest end market,” Materion President and CEO Jugal Vijayvargiya said. “Our strong performance reflects the power of our diverse megatrend aligned portfolio, which continues to open new pathways for growth, and the importance of our relentless focus on driving operational excellence.”

“We have made remarkable progress expanding our margins, despite market softness,” Vijayvargiya said. “These efforts, combined with the continued strength of our organic pipeline, leave us well-positioned to take advantage of the market recoveries as they develop.”

FOURTH QUARTER 2023 RESULTS

Net sales for the quarter were $421.0 million, compared to $434.6 million in the prior year period. Value-added sales were $289.7 million for the quarter, down 4% from prior year due to significant semiconductor market weakness, partially offset by strength in aerospace & defense.

Operating profit for the quarter was $27.6 million and net income was $19.5 million, or $0.93 per diluted share, compared to operating profit of $39.2 million and net income of $28.8 million, or $1.38 per share, in the prior year period.

Excluding special items3 primarily related to targeted cost improvement initiatives and precision clad strip start-up costs, adjusted EBITDA was $53.3 million in the quarter, compared to $55.6 million in the prior year period. The strong performance was driven mainly by focused operational execution and improved mix, despite softer volume.

Adjusted net income was $29.6 million excluding acquisition amortization, or $1.41 per diluted share, compared to $1.49 per share in the prior year period.

FULL-YEAR 2023 RESULTS

Net sales for the year were $1.67 billion, compared to $1.76 billion in the prior year. Value-added sales were $1.13 billion for the year, up 1% from prior year due to strength in aerospace & defense and precision clad strip, offset by softness in several key end markets.

Operating profit for the year was $136.4 million and net income was $95.7 million, or $4.58 per diluted share, compared to operating profit of $119.8 million and net income of $86.0 million, or $4.14 per diluted share, in the prior year.

Excluding special items, adjusted EBITDA for the year was $217.7 million, compared to $196.0 million in the prior year. The increase was driven mainly by strong operational performance, including the targeted cost improvement initiatives, and improved mix driven by new business.

Adjusted net income was $118.0 million excluding acquisition amortization, or $5.64 per diluted share, an increase of 7% compared to $5.27 per diluted share in the prior year.

OUTLOOK

While we expect some of our key end markets to remain challenged in the near term due to macroeconomic conditions, we expect another year of record results driven by our organic pipeline and close customer partnerships. We believe these growth drivers, along with continued operational excellence and targeted cost improvement initiatives, will help drive earnings growth. With this, we are guiding to the range of $6.10 to $6.50 for full year 2024 adjusted earnings per share, an increase of 12% from prior year at the midpoint.

ADJUSTED EARNINGS GUIDANCE

It is not possible for the Company to identify the amount or significance of future adjustments associated with potential insurance and litigation claims, legacy environmental costs, acquisition and integration costs, certain income tax items, or other non-routine costs that the Company adjusts in the presentation of adjusted earnings guidance. These items are dependent on future events that are not reasonably estimable at this time. Accordingly, the Company is unable to reconcile without unreasonable effort the forecasted range of adjusted earnings guidance for the full year to a comparable GAAP range. However, items excluded from the Company's adjusted earnings guidance include the historical adjustments noted in Attachments 4 through 8 to this press release.

CONFERENCE CALL

Materion Corporation will host an investor conference call with analysts at 9:00 a.m. Eastern Time, February 15, 2024. The conference call will be available via webcast through the Company’s website at www.materion.com. By phone, please dial (888) 506-0062. Calls outside the U.S. can dial (973) 528-0011; please reference participant access code of 570395. A replay of the call will be available until February 29, 2024 by dialing (877) 481-4010 or (919) 882-2331 if international; please reference replay ID number 49161. The call will also be archived on the Company’s website.

FOOTNOTES

1 Value-added sales deducts the impact of pass-through metals from net sales
2 EBITDA represents earnings before interest, taxes, depreciation, depletion and amortization
3 Details of the special items can be found in Attachments 4 through 8

ABOUT MATERION

Materion Corporation is a global leader in advanced materials solutions for high-performance industries including semiconductor, industrial, aerospace & defense, energy and automotive. With nearly 100 years of expertise in specialty engineered alloy systems, inorganic chemicals and powders, precious and non-precious metals, beryllium and beryllium composites, and precision filters and optical coatings, Materion partners with customers to enable breakthrough solutions that move the world forward. Headquartered in Mayfield Heights, Ohio, the company employs more than 3,500 talented people worldwide, serving customers in more than 60 countries.

FORWARD-LOOKING STATEMENTS

Portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements. Our actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. These factors include, in addition to those mentioned elsewhere herein: the global economy, including inflationary pressures, potential future recessionary conditions and the impact of tariffs and trade agreements; the impact of any U.S. Federal Government shutdowns or sequestrations; the condition of the markets which we serve, whether defined geographically or by segment; changes in product mix and the financial condition of customers; our success in developing and introducing new products and new product ramp-up rates; our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values; our success in identifying acquisition candidates and in acquiring and integrating such businesses; the impact of the results of acquisitions on our ability to fully achieve the strategic and financial objectives related to these acquisitions; our success in implementing our strategic plans and the timely and successful start-up and completion of any capital projects; other financial and economic factors, including the cost and availability of raw materials (both base and precious metals), physical inventory valuations, metal consignment fees, tax rates, exchange rates, interest rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, credit availability, and the impact of the Company’s stock price on the cost of incentive compensation plans; the uncertainties related to the impact of war, terrorist activities, and acts of God; changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and operations; the conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects; the disruptions in operations from, and other effects of, catastrophic and other extraordinary events including outbreaks from infectious diseases and the conflict between Russia and Ukraine and other hostilities; realization of expected financial benefits expected from the Inflation Reduction Act of 2022; and the risk factors set forth in Part 1, Item 1A of the Company's 2022 Annual Report on Form 10-K and in other reports that we file with the SEC.

Attachment 1

Materion Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

Fourth Quarter Ended

Year Ended

(In thousands except per share amounts)

December 31,

2023

December 31,

2022

December 31,

2023

December 31,

2022

Net sales

$

421,043

$

434,578

$

1,665,187

$

1,757,109

Cost of sales

341,328

336,159

1,316,145

1,413,229

Gross margin

79,715

98,419

349,042

343,880

Selling, general, and administrative expense

39,858

46,672

157,911

169,338

Research and development expense

6,442

6,881

27,540

28,977

Restructuring expense (income)

630

13

3,824

1,573

Other — net

5,145

5,662

23,323

24,237

Operating profit

27,640

39,191

136,444

119,755

Other non-operating (income) expense—net

(569

)

(1,738

)

(2,710

)

(5,250

)

Interest expense — net

8,503

7,580

31,323

21,905

Income before income taxes

19,706

33,349

107,831

103,100

Income tax (benefit) expense

238

4,585

12,129

17,110

Net income

$

19,468

$

28,764

$

95,702

$

85,990

Basic earnings per share:

Net income per share of common stock

$

0.94

$

1.40

$

4.64

$

4.19

Diluted earnings per share:

Net income per share of common stock

$

0.93

$

1.38

$

4.58

$

4.14

Weighted-average number of shares of common stock outstanding:

Basic

20,644

20,537

20,619

20,511

Diluted

20,936

20,790

20,911

20,760

Attachment 2

Materion Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(Thousands)

December 31,

2023

December 31,

2022

Assets

Current assets

Cash and cash equivalents

$

13,294

$

13,101

Accounts receivable, net

192,747

215,211

Inventories, net

441,597

423,080

Prepaid and other current assets

61,744

39,056

Total current assets

709,382

690,448

Deferred income taxes

4,908

3,265

Property, plant, and equipment

1,281,622

1,209,205

Less allowances for depreciation, depletion, and amortization

(766,939

)

(760,440

)

Property, plant, and equipment—net

514,683

448,765

Operating lease, right-of-use assets

57,645

64,249

Intangible assets

133,571

143,219

Other assets

21,664

22,535

Goodwill

320,873

319,498

Total Assets

$

1,762,726

$

1,691,979

Liabilities and Shareholders’ Equity

Current liabilities

Short-term debt

$

38,597

$

21,105

Accounts payable

125,663

107,899

Salaries and wages

25,912

35,543

Other liabilities and accrued items

45,773

54,993

Income taxes

5,207

3,928

Unearned revenue

13,843

15,496

Total current liabilities

254,995

238,964

Other long-term liabilities

13,300

12,181

Operating lease liabilities

53,817

59,055

Finance lease liabilities

13,744

13,876

Retirement and post-employment benefits

26,334

20,422

Unearned income

103,983

107,736

Long-term income taxes

3,815

665

Deferred income taxes

20,109

28,214

Long-term debt

387,576

410,876

Shareholders’ equity

885,053

799,990

Total Liabilities and Shareholders’ Equity

$

1,762,726

$

1,691,979

Attachment 3

Materion Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Thousands)

December 31,

2023

December 31,

2022

Cash flows from operating activities:

Net income

$

95,702

$

85,990

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, depletion, and amortization

61,644

53,436

Amortization of deferred financing costs in interest expense

1,712

1,734

Stock-based compensation expense (non-cash)

10,092

8,813

Amortization of pension and post-retirement costs

(1,318

)

(146

)

(Gain) loss on sale of property, plant, and equipment

20

14

Deferred income tax (benefit) expense

(7,005

)

1,733

Net pension curtailments and settlements

142

(551

)

Changes in assets and liabilities, net of acquired assets and liabilities:

Decrease (increase) in accounts receivable

23,359

(4,377

)

Decrease (increase) in inventory

(18,700

)

(63,986

)

Decrease (increase) in prepaid and other current assets

(22,663

)

(1,604

)

Increase (decrease) in accounts payable and accrued expenses

6,631

12,860

Increase (decrease) in unearned revenue

(17,361

)

207

Increase (decrease) in interest and taxes payable

3,771

154

Increase (decrease) in unearned income due to customer prepayments

16,676

21,942

Other — net

(8,288

)

(261

)

Net cash provided by operating activities

144,414

115,958

Cash flows from investing activities:

Payments for acquisition, net of cash acquired

(2,971

)

Payments for purchase of property, plant, and equipment

(110,550

)

(77,608

)

Payments for mine development

(9,326

)

Proceeds from sale of property, plant, and equipment

654

850

Net cash used in investing activities

(119,222

)

(79,729

)

Cash flows from financing activities:

Proceeds from (repayment of) borrowings under credit facilities, net

8,065

230

Repayment of debt

(15,415

)

(19,299

)

Principal payments under finance lease obligations

(1,645

)

(2,736

)

Cash dividends paid

(10,621

)

(10,160

)

Payments of withholding taxes for stock-based compensation awards

(5,234

)

(3,593

)

Net cash provided by (used in) financing activities

(24,850

)

(35,558

)

Effects of exchange rate changes

(149

)

(2,032

)

Net change in cash and cash equivalents

193

(1,361

)

Cash and cash equivalents at beginning of period

13,101

14,462

Cash and cash equivalents at end of period

$

13,294

$

13,101

Attachment 4

Materion Corporation and Subsidiaries

Reconciliation of Non-GAAP Measure - Value-added Sales, Operating Profit, and EBITDA

(Unaudited)

Fourth Quarter Ended

Year Ended

(Millions)

December 31,

2023

December 31,

2022

December 31,

2023

December 31,

2022

Net Sales

Performance Materials

$

201.1

$

197.6

$

755.5

$

671.5

Electronic Materials

193.9

209.3

805.8

971.9

Precision Optics

26.0

27.7

103.9

113.7

Other

Total

$

421.0

$

434.6

$

1,665.2

$

1,757.1

Less: Pass-through Metal Cost

Performance Materials

$

15.1

$

20.0

$

66.9

$

82.0

Electronic Materials

116.2

111.5

471.1

559.1

Precision Optics

0.1

0.1

Other

0.1

1.5

Total

$

131.3

$

131.6

$

538.1

$

642.7

Value-added Sales (non-GAAP)

Performance Materials

$

186.0

$

177.6

$

688.6

$

589.5

Electronic Materials

77.7

97.8

334.7

412.8

Precision Optics

26.0

27.7

103.8

113.6

Other

(0.1

)

(1.5

)

Total

$

289.7

$

303.0

$

1,127.1

$

1,114.4

Gross Margin

Performance Materials(1)

$

50.5

$

57.7

$

216.5

$

175.1

Electronic Materials(1)

21.5

31.5

100.4

131.5

Precision Optics(1)

7.7

9.2

32.1

37.3

Other

Total(1)

$

79.7

$

98.4

$

349.0

$

343.9

(1) See reconciliation of gross margin to adjusted gross margin in Attachment 8

Note: Quarterly information presented within this document and previously disclosed quarterly information may not equal the total computed for the year due to rounding

Fourth Quarter Ended

Year Ended

(Millions)

December 31,

2023

December 31,

2022

December 31,

2023

December 31,

2022

Operating Profit (Loss)

Performance Materials

$

33.0

$

37.6

$

143.9

$

101.4

Electronic Materials

3.8

12.3

28.6

51.3

Precision Optics

(0.4

)

1.1

(2.0

)

1.9

Other

(8.8

)

(11.8

)

(34.1

)

(34.8

)

Total

$

27.6

$

39.2

$

136.4

$

119.8

Non-Operating (Income) Expense

Performance Materials

$

0.2

$

0.1

$

0.6

$

0.5

Electronic Materials

(0.1

)

(0.1

)

Precision Optics

(0.6

)

(0.6

)

(1.3

)

Other

(0.7

)

(1.2

)

(2.7

)

(4.4

)

Total

$

(0.6

)

$

(1.7

)

$

(2.8

)

$

(5.2

)

Depreciation, Depletion, and Amortization

Performance Materials

$

7.6

$

6.8

$

31.2

$

24.3

Electronic Materials

4.3

4.2

17.0

16.5

Precision Optics

2.6

2.7

11.3

10.5

Other

0.6

0.5

2.1

2.1

Total

$

15.1

$

14.2

$

61.6

$

53.4

Segment EBITDA

Performance Materials

$

40.4

$

44.3

$

174.5

$

125.2

Electronic Materials

8.2

16.5

45.7

67.8

Precision Optics

2.2

4.4

9.9

13.7

Other

(7.5

)

(10.1

)

(29.3

)

(28.3

)

Total

$

43.3

$

55.1

$

200.8

$

178.4

Special Items(2)

Performance Materials

$

5.6

$

$

6.7

$

6.8

Electronic Materials

2.8

0.6

7.3

8.2

Precision Optics

1.6

(0.4

)

2.8

0.3

Other

0.3

0.1

2.3

Total

$

10.0

$

0.5

$

16.9

$

17.6

Adjusted EBITDA Excluding Special Items

Performance Materials

$

46.0

$

44.3

$

181.2

$

132.0

Electronic Materials

11.0

17.1

53.0

76.0

Precision Optics

3.8

4.0

12.7

14.0

Other

(7.5

)

(9.8

)

(29.2

)

(26.0

)

Total

$

53.3

$

55.6

$

217.7

$

196.0

The cost of gold, silver, platinum, palladium, copper, ruthenium, iridium, rhodium, rhenium, and osmium is passed through to customers and, therefore, the trends and comparisons of net sales are affected by movements in the market price of these metals. Internally, management also reviews net sales on a value-added basis. Value-added sales is a non-GAAP financial measure that deducts the value of the pass-through metals sold from net sales. Value-added sales allows management to assess the impact of differences in net sales between periods or segments and analyze the resulting margins and profitability without the distortion of the movements in pass-through market metal prices. The dollar amount of gross margin and operating profit is not affected by the value-added sales calculation. The Company sells other metals and materials that are not considered direct pass throughs, and these costs are not deducted from net sales to calculate value-added sales.

The Company’s pricing policy is to pass the cost of these metals on to customers in order to mitigate the impact of price volatility on the Company’s results from operations. Value-added information is being presented since changes in metal prices may not directly impact profitability. It is the Company’s intent to allow users of the financial statements to review sales with and without the impact of the pass-through metals.

(2) See additional details of special items in Attachment 5.

Attachment 5

Materion Corporation and Subsidiaries

Reconciliation of Net Sales to Value-added Sales, Net Income to EBITDA and Adjusted EBITDA

(Unaudited)

Fourth Quarter Ended

Twelve Months Ended

(Millions)

December

31, 2023

% of VA

December

31, 2022

% of VA

December

31, 2023

% of VA

December

31, 2022

% of VA

Net sales

$

421.0

$

434.6

$

1,665.2

$

1,757.1

Pass-through metal cost

131.3

131.6

538.1

642.7

Value-added sales

$

289.7

$

303.0

$

1,127.1

$

1,114.4

Net income

$

19.5

6.7

%

$

28.8

9.5

%

$

95.7

8.5

%

$

86.0

7.7

%

Income tax expense

0.2

0.1

%

4.5

1.5

%

12.2

1.1

%

17.1

1.5

%

Interest expense - net

8.5

2.9

%

7.6

2.5

%

31.3

2.8

%

21.9

2.0

%

Depreciation, depletion and amortization

15.1

5.2

%

14.2

4.7

%

61.6

5.5

%

53.4

4.8

%

Consolidated EBITDA

$

43.3

14.9

%

$

55.1

18.2

%

$

200.8

17.8

%

$

178.4

16.0

%

Special items

Restructuring and cost reduction

$

4.2

1.4

%

$

%

$

11.1

1.0

%

$

1.5

0.1

%

Pension settlement

0.2

0.1

%

(0.5

)

(0.2

)%

0.2

%

(0.5

)

%

Additional start up resources and scrap

5.6

1.9

%

%

5.6

0.5

%

4.1

0.4

%

Merger and acquisition costs

%

1.0

0.3

%

%

12.5

1.1

%

Total special items

10.0

3.5

%

0.5

0.2

%

16.9

1.5

%

17.6

1.6

%

Adjusted EBITDA

$

53.3

18.4

%

$

55.6

18.3

%

$

217.7

19.3

%

$

196.0

17.6

%

In addition to presenting financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), this earnings release contains financial measures, including operating profit, segment operating profit, earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), net income, and earnings per share, on a non-GAAP basis. As detailed in the above reconciliation and Attachment 6, we have adjusted the results for certain special items such as restructuring and cost reductions (which includes costs associated with temporarily idled facilities as a result of decreased demand), additional start up resources and scrap and merger and acquisition costs. Internally, management reviews the results of operations without the impact of these costs in order to assess the profitability from ongoing activities. We are providing this information because we believe it will assist investors in analyzing our financial results and, when viewed in conjunction with the GAAP results, provide a more comprehensive understanding of the factors and trends affecting our operations.

Attachment 6

Materion Corporation and Subsidiaries

Reconciliation of Net Income to Adjusted Net Income

and Diluted Earnings per Share to Adjusted Diluted Earnings per Share (Unaudited)

Fourth Quarter Ended

Twelve Months Ended

(Millions)

December

31, 2023

Diluted

EPS

December

31, 2022

Diluted

EPS

December

31, 2023

Diluted

EPS

December

31, 2022

Diluted

EPS

Net income and EPS

$

19.5

$

0.93

$

28.8

$

1.38

$

95.7

$

4.58

$

86.0

$

4.14

Special items

Restructuring and cost reduction

4.2

11.1

1.5

Additional start up resources and scrap

5.6

5.6

4.1

Merger and acquisition costs

1.0

12.5

Pension settlement

0.2

(0.5

)

0.2

(0.5

)

Provision for income taxes (1)

(2.4

)

(0.8

)

(4.4

)

(3.9

)

Total special items

7.6

0.36

(0.3

)

(0.01

)

12.5

0.60

13.7

0.66

Adjusted net income and adjusted EPS

$

27.1

$

1.29

$

28.5

$

1.37

$

108.2

$

5.17

$

99.7

$

4.80

Acquisition amortization (net of tax)

2.5

0.12

2.4

0.12

9.8

0.47

9.8

0.47

Adjusted net income and adjusted EPS excl. amortization

$

29.6

$

1.41

$

30.9

$

1.49

$

118.0

$

5.64

$

109.5

$

5.27

(1) Provision for income taxes includes the net tax impact on pre-tax adjustments (listed above), the impact of certain discrete tax items recorded during the respective periods as well as other adjustments to reflect the use of one overall effective tax rate on adjusted pre-tax income in interim periods.


Contacts

Investor Contact:
Kyle Kelleher
(216) 383-4931
kyle.kelleher@materion.com

Media Contact:
Jason Saragian
(216) 383-6893
jason.saragian@materion.com

https://materion.com
Mayfield Hts-g


Read full story here

First published on Thu, Feb 15, 2024

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