Q4 2020 Materion Corp Earnings Call
Greetings and welcome to the material.
Year end 2020 earnings conference call at this time, all participants are in 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. As a reminder, this conference is being recorded I would now.
Like to turn the conference over to Steve Shamrock.
VP corporate controller and Investor Relations. Please go ahead Sir.
Good morning. This is Steve Shamrock, Vice President corporate controller, and Investor Relations with me today is jugal, <unk>, President and Chief Executive Officer, and Shelly Chadwick, Vice President and Chief Financial Officer.
Our format for todays conference call is as follows.
Jugal BG have already and will provide opening comments on COVID-19, the company's financial performance and key strategic initiatives.
Following jugal Shelly Chadwick will review detailed financial results for the quarter and full year and then we will open up the call for questions.
Before we begin let me remind investors that any forward looking statements made in this announcement, including those and the outlook section and during the question and answer portion are based on current expectations. The company's actual future 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 and.
Additionally comments regarding earnings before interest and taxes net income and earnings per share reflect the adjusted GAAP numbers shown in attachment number five and this morning's press release.
And the adjustments are made and the prior year periods for comparative purposes, and removed special items noncash charges and certain income tax adjustments.
And now I'll turn it over to jugal for his comments.
Thanks, Steve and welcome everyone I.
I hope all of you and your loved ones are in good health as we navigate through these challenging times.
We remain focused on protecting the health and safety of our people as.
As we continue to follow all recommended and COVID-19 safety guidelines.
The majority of our office employees continue to work productively from home.
And all of our factories are fully operational and.
They have been 12 depend epic.
Despite the challenging environment we.
We delivered a very strong fourth quarter closeout 2020.
Continuing the progress we've made over the last three quarters since the pandemic started.
Let me cover a few highlights.
Sales and earnings grew for the third consecutive quarter.
With sales up 14% from Q3.
Organically up over 10%.
Market demand continues to improve as we saw sequential improvement and every one of our key end markets.
Sales outside the U S reached 50% for the first time.
Led by our recent acquisition of optics, Baldur's and other new business growth.
All three segments reported double digit profit margins for the second consecutive quarter.
We continued our investment and the R&D, despite overall challenging market conditions.
Turning the company for significant organic growth.
We recorded our first full quarter of shipments to the new precision clad engineered strip customer.
We continue to drive cost structure improvements by completing two facility closures.
We repaid $86 million and debt, which will be used to finance the optics folgers acquisition, ending the year with a strong balance sheet.
And we made meaningful progress and the integration of our optics Folgers acquisition.
<unk> the worlds, leading precision thin film optical coatings provider.
I'm extremely proud of what the team delivered and the face unprecedented challenges.
We managed to keep all of our facilities open and.
And directly supporting the fight against COVID-19 by supplying products for health care equipment used by medical staff around the world.
Now, let me talk a little bit more about some of our important strategic initiatives.
Over the last few quarters I have spoken about a large business opportunity for our precision clad engineered strip product.
I'm happy to report the project remains on schedule.
And as I mentioned, we completed our first full quarter of shipments to the customer from one of our existing facilities.
You may recall, we're starting shipments from an existing facility and we will shift production to our new leading edge manufacturing facility early next year.
And regards to that set up a new facility remains on track.
To date, we've received $59 million and prepayments from the project.
And we are diligently working towards launching production.
Also during the quarter, we finalized our long term supply agreement from the project.
We continue to be very excited about the potential of this project.
And are looking forward to a long term business relationship with the customer.
We also continued our transition to becoming a global leader and precision optics.
Back in July we announced the acquisition of optics Baldur's, one of the founding leaders and this field.
Since then we have been busy creating a global precision thin film optics platform.
Our teams continue to work collaboratively and combining the businesses and other identifying customer opportunities and support of our overall growth objectives.
We have a number of synergistic initiatives underway and are looking forward to what the combination will bring.
In parallel to the integration activities.
We finished the closure of our large area coatings business.
The acquisition of optics, bolivars and closure of large area coatings combined with our legacy precision optics business gives us the opportunity to renamed the segment material and precision optics, more clearly representing its focus and strategy.
During the year I have spoken about our relentless focus on cost structure.
Most short term to address the current macro environment and long term to position us for improved offerings to our customers.
With this in mind and why.
And I can report that we've completed two facility closures.
And manufacturing facility in Fremont, California, and a service center in Detroit, Michigan.
These important strategic initiatives along with many others are positioning us to be a high performing advanced materials company.
With a strong pipeline of organic growth opportunities.
And I look forward to Q1, I'm optimistic by what I'm seeing.
Despite the normal seasonality impact, we would expect and the first quarter.
Many of our markets are showing positive signs.
With improving market conditions and the advancements our teams are leading every day.
We expect to deliver more than a 50% year over year improvement and earnings for the first quarter.
In closing, despite an extremely challenging 'twenty and 'twenty.
I'm excited about the direction of the company as we enter 'twenty and 'twenty one.
And I want to sincerely. Thank our people, who have demonstrated tremendous resilience and focus and doing a particularly challenging year and positioned us well to meet our objectives.
Now, let me turn the call over to Shelly to cover the financials.
Thanks, Joe and good morning, everyone. It's great to be joining my first metairie on earnings call and I look forward to meeting those of you I do not yet know sometime in the near future.
Despite the ongoing impact of COVID-19, and I'm pleased to report that we saw sequential improvement again in the fourth quarter Valley.
And now you added sales, which exclude the impact of pass through precious metal costs were 191 million up 14% compared to third quarter sales of $168 million.
The growth compared to the third quarter was driven by the strong performance and the defense end market.
<unk> to the new precision clad engineered strip customer.
Finally sales of blood glucose test strip products from our large area coatings business and a full quarter of sales from optics bottlers.
Before I comment on profitability I wanted to mention that during the fourth quarter of 'twenty and 'twenty, we elected to change our method for valuing inventories and the previously used the last in first out method to the first and first out method.
We made the decision to change our accounting for inventory from LIFO to FIFO for book and tax purposes, because it aligns better with how we manage our business and how the vast majority of our peers account for inventory.
Timing was also attractive from a tax perspective.
Our Q4, our pretax income increased by 1.6 million as a result of this accounting change.
It did not treat this item is special because we intend to report results on a FIFO basis going forward.
We have also restated prior periods to reflect this change and those details were included in the press release, we issued this morning.
Gross margin was $55 8 million and the fourth quarter compared to $45 3 million and the third quarter.
Excluding special items, including mine development costs, and COVID-19 related expenses and the optics balls, there's acquisition charges.
Adjusted gross margin was $62 6 million or 33% of value added sales.
And improvement of 100 basis points compared to the third quarter was 32% due to higher volumes and improved manufacturing efficiencies.
Selling general and administrative expenses totaled $34 7 million down 1 million from the third quarter spend.
As a percentage of value added sales adjusted SG&A expense was 18% and the quarter day on 100 basis points from the third quarter.
We continue to aggressively manage our SG&A costs, given the uncertainty driven by the COVID-19 pandemic.
Research and development expense was approximately 3% of value added sales and the fourth quarter consistent with the third quarter and they continue to make investments to drive long term profitable growth through the development of new products and applications.
And the fourth quarter, we recorded restructuring expense of $4 1 million related primarily to the previously announced closure of our Detroit and Fremont facilities and the closure of our large area coatings business.
We reported fourth quarter earnings before interest and taxes from 7.9 million.
Excluding special items, adjusted EBIT was $18 7 million or 10% of value added sales.
Looking at income taxes, we recorded a tax benefit of $1 2 million and the fourth quarter of 'twenty and 'twenty.
Excluding special items, our adjusted effective tax rate was 18, 6% for the period in line with our previous guidance.
Finally, net income and the fourth quarter totaled $8 1 million.
And an adjusted basis net income was $14 4 million or 70 cents per diluted share compared to <unk> 50 per share and the third quarter.
The fourth quarter includes an increase of six cents per share from the change to FIFO accounting.
Improved sales performance was the primary driver of the balance of the increase and adjusted earnings as compared to the third quarter.
Let me briefly comment on full year, 'twenty and 'twenty consolidated financial performance.
Full year value added sales totaled $679 million down from 734.002 million 19.
Strong performance and the semiconductor and market incremental sales related to the acquisition of optics filters and the new precision clad engineered strip opportunity were more than offset by reduced demand and all of our other key end markets based on the ongoing COVID-19 pandemic.
Particularly hard hit with the aerospace and defense energy and industrial end markets.
Adjusted EBIT was $55 4 million in 'twenty and 'twenty down from the prior year amount of $85 8 million.
Adjusted net income was $41 8 million or $2.03 per diluted share.
As compared to $3.32 per diluted share in 2019.
Now, let me review of fourth quarter performance by business segment.
Looking at our performance alloys, and composites business value added sales were 90 million and increase of 8 million compared to the third quarter.
The sequential increase is due primarily to strong performance and the defense and automotive end markets and sales to the new precision clad engineered strip customer.
EBIT, excluding special items was $11 7 million or 13% of value added sales compared to $9 3 million or 11% of value added sales and the third quarter.
The sequential increase and EBIT is due mainly to higher sales volumes.
Despite the global pandemic P. A C reported double digit EBIT margins for the 12th consecutive quarter and improved EBIT margins by approximately 200 basis points compared to the third quarter.
Yeah.
Moving now to advanced materials value added sales and the fourth quarter of 'twenty and 'twenty were $62 4 million up 8% versus the third quarter, driven by higher sales to the semiconductor and market as commercial.
Performance initiatives and increased end market demand and drove the growth.
EBIT, excluding special items was $7 2 million and the quarter compared to $5 8 million and the third quarter.
EBIT margins also improved sequentially by 150 basis points from the third quarter to 11, 5%.
The improvement in EBIT margins was due to higher volume and improved manufacturing performance.
We remain focused on continuing to improve advanced materials margins as we go forward.
Yeah.
Turning finally to the precision optics segment.
Fourth quarter value added sales were 39 million up 37% compared to the third quarter, two and part to final sales of blood glucose test strip products and our large area coatings business.
A full quarter of optics balls herself and strength and our legacy precision optics business.
EBIT, excluding special items was $4 3 million or 11% of value added sales compared to $3 5 million and the third quarter.
And Chris and EBIT was due primarily to the higher sales volume.
Moving now to the balance sheet and cash flow.
The company ended the fourth quarter of 'twenty and 'twenty with a net debt position of only $12 6 million.
And approximately 246 million available on the company's credit facility.
We continue to have more than adequate liquidity to manage through this challenging environment.
We completed the year with capital spending of 67 million the increase versus the prior year as it related to the customer funded engineered strip growth opportunity.
Okay.
For financial modeling purposes, Let me review, a few expectations for 'twenty and 'twenty one.
Capital spending should come in at approximately $100 million.
This higher amount is attributed to our strong pipeline of organic growth opportunities, particularly the new engineered strip project as well as exciting identified opportunities and each of our segments.
A portion of the spend is also due to the need to construct a new tailings pond to collect waste materials from our mining operations, which accounts for approximately $10 million of the spend.
We do not expect additional mine development costs in 'twenty and 'twenty one.
Annual depreciation and amortization should run approximately $50 million for the year and.
And we expect a 17% to 19% effective tax rate excluding special items.
Moving now to the earnings outlook.
And in fact as COVID-19 continues to create heightened levels of uncertainty, making it difficult to predict full year ask questions.
As a result, we won't be providing guidance for the first quarter only at this time.
Based on our current demand levels, we expect adjusted earnings per diluted share and the first quarter to be in the range of 58 to 62 cents per share and increase of over 50% from the first quarter of 'twenty and 'twenty.
We will continue to execute on our key strategic growth initiatives aggressively manage our cost structure and utilize our strong balance sheet to deliver value for our shareholders and 'twenty 'twenty, one and beyond.
Okay.
And we conclude our prepared remarks, I'd like to say that I'm very encouraged by what I see here and the Cherry on the far as I complete my first quarter with the company.
This is an organization with great people clear strategy and a strong pipeline of opportunities and I look forward to what we will do together and the days and years ahead and.
And with that we will now open the line for questions.
Thank you.
And I will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is and the question queue. You May press star two if you'd like to remove your question from the queue.
And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we pull for questions.
The first question is from Marco Rodriguez Stonegate capital markets. Please go ahead Sir.
Good morning, everybody. Thank you for taking my questions Hey, good morning, Marty and marketing.
Hey, Yeah I was wondering if you could talk a little bit more about ethics, and Opex falls or excuse me and the integration work I know you mentioned that you will have a little bit in your prepared remarks.
And just kind of give us a little bit of a better sense as far as where you are along the timeline and.
Progressing towards those revenue synergies that you guys had sort of outlined from a high level buckets.
And she acquisition itself it would be helpful.
Yes, Michael and I'm happy to do that.
So as you know we acquired upticks falters and the July timeframe and then since then we've really been working together with the team on putting together a global organization, which we now have done and we've got a really a fantastic team in place are made up of folks from the optics bulger side as well as the legacy inventory onside.
Created a new business name.
I've indicated.
Inventory on precision optics, and it's being led by Ian Tribeca Detlef, who.
<unk> ran a opex walser side is the C. All of the business and as I said the leadership team is made up of people from both sides of the organization. So we're really really excited about that and actually put that in place and and the team is off and often running and we also mentioned of course during our acquisition and and multiple times after that but they should.
Really not a cost play for US. This is really a growth play for us and and I can't tell you how excited I am about the growth opportunities I think this presents for us and we think about the opportunities from a regional synergy standpoint technology standpoint market standpoint, I mean every one of those areas I think is a great opportunity for our teams to.
Work together, so the sales and marketing team has been aggressively working to identify opportunities as you can imagine, though that and and and we've said that a number of times that growth opportunities certainly take a little bit longer to materialize, then and then cost opportunities and so we're having I would say really really good success, we've actually done a very extensive.
And of our brand study as well with our customers to leverage both the optics Folgers brand, which is our brand and the and the European and Asian market with some great great recognition and then of course and maturing on brand.
And we're we're we're out marketing to our customers. So.
So I'm I'm really excited and and and and I think you know you will hopefully see over the next the next set of quarters that were talking more about organic growth opportunities and this is one other reasons that.
We have a little bit of a higher number for our capital spending.
Because we want to be able to capitalize on those fantastic growth opportunity. So I think Michael you know I can't be I couldn't be more excited and and more proud of the of what the team is doing and especially in the Covid challenged environment are working virtually.
But but but things are things are progressing very well.
Got it.
And then shifting gears to your your strip client customer and the prepayments for the new facility.
And I know, obviously you mentioned in your prepared remarks as long as and the press release that our revenues have started to kind of ramp up there and can you just kind of help frame that revenue in the quarter was it to a level that you were expecting and then how should we be thinking about that revenue ramp as we move into this fiscal year.
Yeah.
So again very excited about what the team is doing I guess, especially with the Covid challenged environment.
Two aspects of that project and one is our near term project.
With an existing facility that we have been upgrading.
The other one and the longer term projects will deal with the new facility. So the revenue that you're referencing is from our near term facility are we really were able to get what I would say what we expected.
And and two four so.
And we're excited about that I think as we go forward and and we look at now Q1 and beyond we would expect a similar revenue profile from our near term AR facility.
Our our holding a block or for being able to deliver more and just really you know our capacity that we have and the AR and the plant and so the sooner we can get the new facility up and running I think we'll we should be able to then accelerate.
And right now we've got that targeted for our first quarter of next year and you can imagine it's been really difficult are working through all the situations that we have in front of us, but our team has just done a fantastic job of keeping that project on schedule and so we're still looking at a Q1.
Q1 next year.
Accelerated ramp.
Got it and I apologize if you mentioned this from a call, but when what sort of are increasing capacity would you have or or increase in revenue from.
And from the new facility once that goes on line versus where you are right now and then also if maybe I could just kind of throw in there on the Capex guidance of 100 million I did hear the $10 million for a new tailings pond identification and some other opportunities for each segments, and then park capex spend for the new cloud facility.
Maybe I don't know if I missed it the dollar amount that might be going to the new facility.
Yeah. So you know in terms of the in terms of the acceleration and the and the new capacity that will put in with the new plant and as you know we've not talked about the size of the opportunity. This is a confidential project and we're working on and so.
And so what I can tell you is that right now where we're providing at a what I would call a basically a low volume type of a delivery to the customer and we expect to have a higher volume delivery to the customer you know come Q1 of next year or so we would expect a meaningful increase from current levels and to a into what we would expect them to go into 2022.
With regard to the Capex, we do about $100 million as has been mentioned, we would expect that approximately half are would be related to the new project and the new facility set up that we're doing and.
And about $10 million would be for this tailings pond adjustment that we have to make.
To our facility and then the rest is a really really exciting growth opportunities and and of course continued maintenance and safety related projects that we that we normally have on and on a yearly basis. So.
We're we're quite excited about our organic growth our growth pipeline.
Got it and last quick question, just kind of a high level question here I'm, just kind of give you and obviously the pandemics.
Pandemics impact on on the facility footprint that you guys have can you maybe talk about any sort of smart manufacturing techniques that may have been accelerated at your sites. During this period of time, whether that's an increase and automation changes to your supply chain purchasing and anything that might be making you more.
Effective once once things start to normalize a bit.
Yeah, Michael This actually falls right in line with our digital transformation as you know that's one of our key pillars that we have and and and I wouldn't necessarily say that this is something that we've accelerated and the result of a as a result of Covid I mean, we've been dedicated and focused on and for actually the last couple of years on really getting digital transformation into our company all the way from.
Transactional activities to the way, we will handle our financial activities to our HR activities to the manufacturing floor.
That's one of the things that we're really using to drive.
Improvements efficiency improvements across the company so on and on the manufacturing side, we actually have a number of projects underway.
We are working in fact and on one of the projects with a with and.
External company, we were involved and some and AI artificial intelligence a type of a type of work that we could perhaps are utilized.
To drive up our efficiency and and yields and so and we're getting started on that which will certainly drive I think a more of a smart factory approach.
And so I hope that and you know and the next quarter. So we're able to talk more about that.
Got it thanks, a lot guys and really appreciate your time okay.
Okay. Thanks, Michael Thanks.
We have a question from Phil Gibbs Keybanc capital markets. Please go ahead Sir.
Hey, good morning.
Good morning.
Regarding the fourth quarter, specifically the blood.
It gives me the blood glucose piece within coatings, how much of that was it was a it was topline and bottom line impact for you because obviously, it's not it's not going to be recurring looking ahead.
Yeah. So you know in Q4, I mean, we had approximately I'm going to say about $5 million worth of top line.
And then.
It won't necessarily get into the specific bottom line number bill, but I'm sure. You know just started with our normal flow through and those things you can kind of maybe get an estimate yourself on what you think the bottom line impact, maybe but it's around a $5 million impact and in the Q4 timeframe.
Okay, great and and the D. N. A number Shelley you provided 50 million for 'twenty and 'twenty one.
Roughly high single digit million increase year on year is that going to be fully reflected and the first quarter or is there a ramp to that number.
That should ramp as they move through the year, especially as you think about the and big investments, we're making this year. So I think you'll see that flow through the quarters as we move through the year.
Okay.
That's helpful and.
And then b.
And the maneuvers Youre, making N P. A C on the cost side.
Did you get any of that and the fourth quarter or is that $4 million to $5 million benefit annualized are expected to hit in Q1, Yeah. I think it's more of a 'twenty 'twenty. One you know Q1 type of an impact and we're still going through a lot of a.
A lot of juggling back and forth and on getting those facilities.
And those facilities closed and getting the transition is done and our most important objective and that was to make sure that that we did not interrupt the customer and anyway.
Wanted to make sure. It was just a seamless and flawless activity from a customer viewpoint and I think now we can focus more on the.
And the actual bottom line impact of it.
Perfect and then just looking at the business from the puts and and it takes as you look out to the first part of this year.
And you know we're midway through the quarter. So we've got some decent visibility at this point.
And what what's getting.
What are the pluses versus the for the fourth quarter what are the minuses. We as you know we just talked about the P. A C piece on the cost side would be and perhaps coming and more and more favorably.
Yosemite and there's been good auto still recovering you know what what are the puts and takes as you look at the first quarter.
First quarter versus the fourth quarter.
Yeah, I think there's two three things I would say I feel that are probably the larger impact items, you know from them from our markets and business standpoint, I'll tell you that day of course, you know there's blood glucose other business was the larger and coatings business is something that.
And we won't have and Q1, we indicated that that's roughly about a $5 million.
Top line impact from Q4 to Q1.
There is there seasonality and and in particular, the seasonality I'll reference here and the defense market.
Typically the defense market tends to be very very strong and Q4, and then of course very weak and Q1 of them and just to give you a data point when you look at when you look at our defense market back in Q4 of 19 till Q1 of 'twenty just to give you an idea and there was about a 60%.
60% decline from Q4 to Q1, just based on the orders going out and Q4, and then as I said to one being being later.
And you have I would say the other markets are continuing to move and the and the right direction like you said, although the one market that we have to keep an eye on.
And much more closely I would say its semiconductor and semiconductor has been on a tear and general right and with everything that happened in 2020 and Q4 was a Q4 was also a good a good market.
Pick up on the semiconductor side as well so what do we have to keep an eye on is is can it grow further or does it just sort of maintained at the levels that it is so semiconductor as I would say more of a more of a let's see how it continues to progress and.
And then the other markets.
Well I think continue to move I would say in the and the and the right type of direction I think the other thing to note from a Q4 to Q1 and and this is a this is related and the LIFO to FIFO accounting and and and the 70 cents I mean, roughly about six cents of that is more of it.
Restatement, so our operational performance for Q4 would be around 64 cents. So I think there is there are those few factors that I would say that our going from Q4 to going from Q4 to Q1.
So just to be clear and the in the fourth quarter jugal, the the accounting restatement.
<unk>.
70, <unk> provided as a FIFO number and the 64 is a LIFO number does that what where and that's exactly that's exactly what it is John Okay. So there wasn't anything like accrual catch up or anything you were just saying the FIFO versus LIFO number.
Yeah, and yeah, and so prior periods were restated so actually the impact of going off LIFO like a 7% decline for the year. If you look at our restated full year results, but for the year of the <unk> I'm sorry for the quarter was this expense benefit right.
And then last question and I'll.
I'll turn it over.
Is it just a comment you made during your prepared remarks about our continued focus on improving your margins.
Obviously seen sequential progress as the year has moved.
And you know moved on.
And what are the drivers.
You know to that and and want more.
What more can you do in terms of getting those in terms of the lovers. Thanks, so much.
Yeah Phil.
We are committed and we've been saying that all along that we are committed to get that business back to historical type of margins and you know you made a note here about the sequential improvement if I just go back to the Q1 of 'twenty, we were at eight 6% margins for that business and and we exited Q4 at 11 five so you know roughly a 300 basis point improvement.
From Q1 to Q4 and it was up it was every quarter, we improved throughout the year on the margins I mean, the team is committed to do that.
As we look at that business, we got to continue to drive improvements and our manufacturing certainly be COVID-19 related inefficiencies are are a factor.
But I think from Covid related inefficiencies, along with just general manufacturing yield improvement based on our new product launches, we have a lot of new product wins with that business right now with aluminum scandium with PC Rams.
And a larger row table targets and so on and so we've got to continue to continue to improve our manufacturing and that business of core sales growth is certainly a contributing factor as we move forward and then and then introducing even more new products and more platforms.
Through our strong organic growth pipeline that I think we've got so those are those are some other things that are going to play a key role in us continuing to push the.
And the AAM business beyond the 11, 5% and we reported and Q4, but we're quite we're quite happy with the progress that that business has made during 'twenty and now it's on to 'twenty, one and and continuing the progress.
Thank you.
Thanks Bill.
As a reminder, if you wish to ask a question Chris Star one on your telephone keypad Thats Star one.
The next question is from Justin Bergner Gabelli and company. Please go ahead Sir.
Thank you good morning, jugal, and congratulations and joining and CFO Shelly.
Thanks, Jessica good morning, good morning, Justin.
Good morning, I wanted to start by sort of honing in and the Capex number.
Could you remind us or share with us how much was.
And was spent in 2020 on the precision clad.
Engineered strip project and then maybe looking at the 2021 Capex guide if I take out the 50 million remaining precision clad engineered strip investment and 10 million from the tailings dam and go.
And I'm left with 40 million and I'm, not really sure I understand if theres more growth capex and there or is that more of like a new run rate for how I should think about capex levels and the business a country.
In 2021 right.
Right right, Yes, just and we can absolutely talk about that and we don't know when.
And we report our Capex for last year, and and the spend that we.
Share with you, we don't break out and.
Any specific project, including the cloud strip project, but you can imagine that that was a sizable amount.
Because that $67 million and we had for the Capex spend.
Does a much higher than our prior year. So clearly that project contributor to a big part of that a big part of that spend.
As we look at as we look at the $100 million or so as I indicated approximately approximately half of that would be for the new project and then $10 million for this tailings pond, which is a sort of a once once a day.
And our 40 year type of a <unk>.
And then.
And then we have the remaining roughly $40 million as you've done the calculation.
It is it is heavily heavy on organic growth opportunities and and and even our even our maintenance typical maintenance activity is and I would say really supporting our growth because if we can improve our our efficiency of Av and equipment and get our yields up.
And just to produce more that allows us to market our products more and that allows us to reduce our backlog and and and at the end of the day you know sell more so I look at each one of our maintenance activities as a as a growth opportunity as well as I look at new business opportunities clearly our growth opportunities and then there's of course the annual safety.
And the health and safety of our workers and and and just general and maybe improvements to our facilities.
Our safety record if I look at just over the last three years I mean, if I go back to 2017, when I came on board to kind of where we're at I mean, where we're and I would say a night and day difference and in terms of the Osha recordable type of rates that we have I mean, we've improved well over 70% and that timeframe. So we are really happy about I think the the <unk>.
Environment that we're providing to our people and kind of the safe.
Nature of our a much safer nature of our of our businesses. So there is certainly from spending related to that but I would say majority of that is really between maintenance and new business growth all growth oriented and spending.
Okay. That's helpful. Maybe just one follow up question on the topic of Capex has your estimate for the required capex for the precision strip project materially changed from when you embarked on this.
In addition to the portfolio.
Yeah, I would say, we're still and we're still in the middle of this project and we still have a long way to go and in order to go ahead and get the equipment and then and then the construction and then you know the trials and and and and everything and launch and all that goes on with it so I would expect it.
It to continue to fluctuate and there'll be some elements that go up there'll be some elements that go down and then as we have more progress and more definitive.
And understanding of that that's certainly something that we'll talk about Justin.
As we go forward.
Okay and could you expect some carryover capex on this project into 2022 or do you expect it to wrap up our our objective at this stage is really to try to wrap this up this year, because we would really love to be able to launch and and have have a good launch of this program come Q1 of <unk>.
Next year.
Certainly we have to keep in mind that the current environment is quite challenging and.
And if there is some delays and perhaps.
Those are something that we have to deal with and the first part of the new year, but our objective is to get everything done this year.
Okay. So it seems like your Capex guide assumes that you get everything done this year.
That is the that is the plan.
Okay understood is it possible to quantify how much the shift from LIFO to FIFO.
Is estimated to impact your first quarter adjusted EPS guidance.
Yes, and that's that's really tough if you look back at the risk statement over the last couple of years, you can see it kind of bounces up and down and so where it was a good guy and Q4, it was a little bit of a detriment for the full year. It was positive for 2019 and about breakeven for 2018, so it's really not been very meaningful and I wouldn't consider that.
A big driver of profitability going forward, there's not really an estimate I can give you for Q1.
Okay, maybe just remind us sort of which elements of your cost for raw materials base sort of would have led to that six cents of.
You know benefit to fourth quarter earnings as you shifted from LIFO to FIFO.
And so you're talking about which materials are of which business. We would say that the <unk> business was impacted.
And more than the other two segments and and <unk>.
Mining operation would carry decent size inventory and so again, that's and ph D. Yeah, just thinking of your common raw materials or adjusted I mean, you've got a hydroxide and that business, you've got a nickel and copper just your standard raw materials that we're on LIFO. So.
Okay. Okay. That's helpful. And then lastly, just on the free cash flow it seems like.
The elevated capex level for 2021 that will consume the bulk of your free cash flow.
Is there anything else that you expect.
Organically.
Or or inorganically or returned to shareholders to consume large amounts of free.
Free cash flow.
Through the remainder of this year.
Yes.
I think I think let me just comment a little bit I think just in terms of our cash use and then and then certainly Shelly can can talk.
Talk more specifics, but our general our general philosophy I think on our cash use is still the same and which is organic.
As our top priority and making sure we're funding all of our organic initiatives, which this $100 million or so that we've talked about is there. Shortly after that we'll look at inorganic investments and then and then after that.
Figuring out ways that we can further return cash.
Capital to the shareholders, we've had for the eight years in a row, we've increased our dividend.
And we'll.
And we'll see what happens obviously this year, but but we've done that the last eight years. We've we've also done share buyback programs.
And when it's when it's appropriate so we've done those types of moves moves as well, but we're not at all concerned from a cash flow standpoint, I mean, you know our business generates really good cash and and so we would.
And we would expect that and certainly that'll be a.
We will have a lower cash flow than maybe in the prior years, but this is something that were the investment itself, we're actually quite excited about and and and we're not at all concerned about our liquidity or our cash flow company.
Perfect.
Okay. Thank you for taking my questions.
Thanks, Justin.
We have a follow on question from Phil Gibbs with Keybanc capital markets. Please go ahead Sir.
Yeah.
Hi, My question was on the cloud piece, as well and and whether or not you've actually started to break ground on the facility itself.
Yeah. So we we are in the and the process of where we have received.
Phil majority of the equipment actually is.
And on site and we're going to be.
Now over the next yeah, the remainder of the year or really just putting that equipment in place getting a lot of the the construction and the facility up and running.
And starting to do some trials towards the end of the year or so and we're we're we're I would say good way into it.
Okay.
I appreciate that thanks, so much.
Ladies and gentlemen, there are no further questions at this time.
I'll turn the conference back over to Mr. Steve Shamrock for closing remarks. Please go ahead Sir.
Thank you. This is Steve Shamrock and this concludes our fourth quarter 2020 earnings call. A recorded playback of this call will be available on the company's website material and dot com, we'd like to thank all of you from participating on the call. This morning, Andrew interest and materials.
And will be available to answer any follow up questions. My direct number is two one and 6383 401 zero. Thank you very much.
Yes.
This concludes today's conference you may do to net your lines at this time and thank you for your participation.