Q1 2021 Materion Corp Earnings Call
Ross.
Thursday, Thursday, Thursday, Thursday.
Hong Kong.
Greetings, and welcome to the matter on first-quarter 1221 earnings conference. Call at this time,
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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host. Andrew vento manager, investor relations and corporate development.
You may begin.
Good morning, and thank you everyone for joining us on our first quarter 2021 earnings conference call. This is Andrew vento manager, investor relations and corporate development off from materion Corporation
Before we begin our remarks, this morning, I would like to point out that starting this quarter. We will be utilizing presentation materials alongside our quarterly earnings conference calls month. We have posted those materials on the company's website that we will reference as a part of today's review of the quarterly results.
You can also access the materials through the download feature on the earnings, call webcast Lake.
With me today is jugal BJ bardia president and chief executive officer and Shelly, Chadwick vice president and Chief Financial Officer. Our format for the today's a conference call is as follows.
Google will provide opening comments on the quarter and provide an update on key initiatives. Following jugal Shelly will review detailed Financial results for the quarter. We will open the call for questions.
Let me remind investors that any forward-looking statements made in this presentation, including those in 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.
Additionally comments regarding earnings before, interest in taxes and net income and earnings per share reflect the adjusted Gap. Numbers shown an attachment number five in this month. Press release and adjustments are made in the prior-year period for comparative purposes and remove special items. Non-cash charges in certain income tax adjustments month and now I'll turn the call over to jugal for his comments.
Thanks Andrew and welcome everyone. I hope that all of you are in good help and I've had a good start to the new year.
I'm pleased to report that we delivered a very strong first-quarter achieving record quarterly, value-added sales, and our fourth quarter of sequential top-line growth.
many of our markets continue to expand and we believe we outpaced and market growth in several sectors, including semiconductor, automotive and Industrial
All right.
Toyota business delivered, a quarterly record for value-added sales with strong, market, demand, and new business links.
The supply chain and Staffing shortages that are prevalent all around us, have not had a meaningful impact on our business.
Performance was strong across the company as all 3 segments, reported double-digit margins for the third consecutive quarter.
I'm very impressed with our teams, passion to serve our customers, and their drive to return materion, to prepend demek levels of performance.
We continue to execute well on our key strategic growth initiatives. Let me talk through a few highlights.
A customer funded Precision, clad Engineers for project remains on track.
We completed a second quarter of shipments from our existing facility and the construction of our new leading-edge, manufacturing facility remains on schedule.
Our office, all disintegration is nearly complete.
Our teams continue to work. Collaboratively on combining the businesses and on, identifying customer opportunities in support of our overall growth objectives. We have several synergistic initiatives underway
We continue to build a strong pipeline of organic growth opportunities across all 3 segments.
Our increased investment in R&D and our customer focused, initiatives are driving organic projects will continue to position the company for above market growth.
And finally, we're investing in our facility capabilities to support that growth.
You know, our Capital spending this year is expected to be around a hundred million dollars which is significantly higher than our average run rate.
We have a strong portfolio projects lined up that will deliver new capacity, enhanced capabilities and improve yields to support our growth objectives.
These important strategic initiatives along with many others are positioning us as a high-performing Advanced Materials company, that enables next-generation applications.
For the past few quarters, we have talked a lot about our pipeline of organic growth opportunities.
This quarter, we're highlighting some recent wins and advancements that are helping to enable next-generation capabilities for our customers.
on slide, seven of our materials, you will see four examples that I'm really excited about
first, we have been awarded a contract from Visteon to supply thin-film coder plastic lenses in next-generation automobiles. These lenses are a key component of optical module, enabling a 3D digital cockpit instrument cluster,
Next we continue to support space observation, exploration and Aerospace missions with Advanced Solutions across all three of our businesses.
We recently announced that we outfitted NASA's perseverance Rover with an array of Advanced Technologies from our broad portfolio, including album at a highly doubt, Alloys made of aluminum and beryllium, which provides a superior combination of high stiffness and low density.
Combo 4, Matic, packaging Solutions, used in perseverance, power, communication and sensing systems, and high-performing Optical filters, that enables spectral Imaging. In addition, to dust characterization and daily weather reporting.
On the bottom left, you will see our aluminum Scandium targets. These highly, engineered targets are being used by the semiconductor industry to support increased bandwidth and higher frequencies require Global rollout. A 5G accelerating growth of iot.
Finally, our products continue to enable evolving, smartphone Technologies are materials formspring solutions to support smartphone camera, lens movement and enable faster auto-focus.
Looking ahead. I'm excited about what I'm seeing for the next few quarters.
while economic uncertainty still exist, we see increasing opportunities in organic pipeline, good demand across many of our end markets and well-positioned businesses, ready to respond to what lies ahead
Overall, I'm extremely proud of what the team is delivered. As far. Our first quarter performance, provide significant momentum for the rest of the Europe,
I'd like to thank our employees, for the hard work, dedication and commitment.
Are strong results are thanks to them. Now, let me turn the call over to Shelley to cover the financial details.
Thanks jugal, and welcome to everyone joining us on the call today during my comments. I will reference the slides posted on our website this morning and I'll start on slide, 11 a.m. we delivered very strong first-quarter 2021 results value-added sales which exclude the impact of pass-through precious. Metal costs reached a record one hundred ninety-eight point. Six million up 29% versus the first quarter last year.
The increase was driven by strong demand across. Several end, markets, including semiconductor automotive and Industrial which more than offset weakness in the energy and market, and reduce sales rep to the closure of our business.
In addition sales were aided by a large defense order late in the quarter, which would typically come later in the year. One item, I'd like to point out is that we have updated the calculation of our pack, it'll cost to include additional precious metals, namely residuum, iridium or rhodium, uranium and osmium to be more inclusive. With our Definition of valuable sales, our business related to these materials has increased to more meaningful levels over recent periods.
the costs related to
So these Metals follow the same path through process as the previously included metals of Gold, Silver Platinum Palladium, and copper.
Prior. Pass-through cost and value-added sales amounts have been revised to reflect this change. And those details are included in the appendix of the slide deck issued today.
We delivered an adjusted ebit margin of 10.8% and adjusted earnings per share of 82 cents. Both significant improvement over q1 of last year.
Looking at 5:12, our improved profitability was impacted by several key factors adjusted, even in the quarter was 21.4 Million up from 9.9 Million last year, I just Ade that margin of 10.8% represents a 430. Basis point increase from a year ago, the increase in ebit was largely driven by higher volumes, favorable price, mixes and improved operating performance offset partially by higher sg&a and R&D expenses.
We benefited from favorable operating performance as our manufacturing, team responded, well to the increased customer demand.
And the sg&a and R&D increase in the porter. Represents an increase in variable compensation and continued investment in R&D to drive profitable growth.
Even with the increased investment sg&a expense improved 150 basis points year-on-year as a percentage of the sales.
Now, let me review our first quarter performance by business segment, starting with our performance Alloys and composite business on slide 13.
Value added sales were 100 point, eight million, an increase of 20% compared to last year.
The year-over-year increase was due primarily to strong performance in the industrial and automotive and markets as well as sales to the new Precision, clad engineered strip customer.
In addition sales were aided by the large order in the defense Market that I mentioned earlier.
Even excluding special items with thirteen point, four million or 13.2% of value-added sales compared to six point. Nine million or 8.4% of value-added sales in the prior-year wage. The increase was due mainly to higher sales volumes favorable, mix and strong operating performance p. A c reported double-digit, adjusted ebit margin for the fourth consecutive quarter up basis points from the prior-year.
Now, let's turn to Advanced Materials on slide 14.
Value-added sales in the first quarter of 2021 were quarterly record of 63 million up 16% versus the prior-year.
The increase was driven by higher sales to the semiconductor and market led by commercial performance initiatives and increased market demand.
Growth in the asia-pacific region and strong demand for targets, serving the data storage and mobile phone markets. More significant factors that drove the top line to new highs
Even excluding special items with eight point, nine million in the quarter. Compared to Five Point 1 million in the first quarter last year. Adjusted ebitda margins improved year-over-year by 5000 basis points to a strong 14.3%.
The Improvement and adjusted ebitda margins was due to higher volume, favorable product, mix and strong operating performance. We are excited about the progress made and remain focused on Advanced Materials margin as we go forward.
Turning finally to the Precision Optics segment on slide fifteen first-quarter value-added sales were 35.6 million up 109% compared to the first quarter last year.
The business. Increases in every key, End Market with both our Legacy Optics, business and new Optics, balzers acquisition performing well.
Even excluding special items with 5.1 million or 14.2% of value-added sales, up 720 basis points from prior-year.
Strong demand and product mixture of the margin performance.
Moving now to cash, debt and liquidity on slide sixteen. We ended the first quarter of 2021 with a net debt position of 34 million and approximately 250 million jobs available on the company's credit facility. The year-on-year increase in net debt was primarily related to the Optics. Balzers Acquisitions. However, we remain well below our Target leverage range of 6.5 to 3 times net debt-to-ebitda. We continue to have significant available liquidity and a strong balance sheet.
Regarding Capital allocation, we maintain a disciplined, and balanced approach to Capital deployment, focusing on organic growth opportunities returning Capital to shareholders through our dividend off and looking for strategic inorganic opportunities.
Consistent with our comments and Q4 expect to complete the year with capital spending of around 100 million in 2021. The higher amount is attributed to our strong pipeline wage growth opportunities. Particularly the new engineered strip project as well as promising opportunities. In each of our segments, we also continue to evaluate acquisition candidates off with our strategy and long-term objectives.
Now, let's turn to the guidance summary on. Slide 17.
Well, economic uncertainty remains, we see strength in our organic Pipeline and good, underlying demand and several key and markets including semiconductor automotive and Industrial while. Other thoughts are also seeing steady or improving demand from twenty. Twenty loaves with that. We feel comfortable resuming full year guidance at this time, in an effort to provide some further insights into our expectations.
Looking first at the second quarter, we expect adjusted earnings per share in the range of $0.72 to $0.76 per share, which is up about 68% from last year. At that point, as I previously mentioned, we had a large one time defense order in the first quarter which was expected later in the year. This is driving modest sequential decrease in Q2 month.
For a full year 2021 guidance, we expect adjusted earnings per share in the range of $3 to $3.30 which is an increase of over fifty five percent from last year. At the midpoint of this guidance includes an estimated twenty to twenty-five cents per share impact resulting from start-up costs related to the construction of our new Precision, Cloud engineered strip facility.
On this slide. We have also noted, a few modeling assumptions for you.
Overall, we feel very optimistic about twenty Twenty-One. Our markets are showing strength or organic pipeline is building and we're investing in our business while executing on our key strategic initiatives. We believe that these factors have a 12:00 positioned for 2021 and Beyond. And we're excited about the opportunities. That lie ahead.
This concludes our prepared remarks, we will now open the line for questions.
At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad will indicate that your faith in the question to you. You may press star to if you would like to remove your question from the Q4, participants using speaker equipment and maybe necessary to pick up your handset. Before pressing the star, key one moment, please while we pull for questions.
Our first question is from Marco Rodriguez with Stonegate Capital markets, please proceed with your question.
Good morning everyone. Thank you for taking my questions. Hi, Marco, Marco. Hi. I was wondering if you could spend a little bit more time on the on, the gross margin, a very, a, very good job showing here across the aggregate, as well as, obviously, some of the, the segments in your presentation, seems like it looks like the volume price makes played the biggest role, but I was wondering if you maybe can provide a little more color surrounding that was this just more of a fixed cost absorption due to the volumes or there any other sort of one-time drivers, the kind of wage help accelerate that performance in the quarter.
Yeah, Marco, let me start with this, and then Shelley, can jump in and add more color to it as we noted in our home, you know Q, one very strong. The number of factors that drove that the end markets have really been recovering. And in particular, I would say off, any conductor, an automotive, we're really good, strong markets for us from the defense order that was referenced is one that, you know, helped us as well. Certainly our our performance in our plants. I think as the volumes came in our plans, just stood up. Fantastic job of taking on the additional volumes taking into account. I think all the challenges that we hear about and being able to deliver those products. So I think it's a number of factors that have contributed to the gross margin improved.
The, the points that I think are highlighted.
On the slide speak to that but Shelly, comment in more more detail on that. Yeah, sure. Happy to. So I think you, you know, you've hit the high points and certainly we're very pleased with the margin performance for this quarter. I think, you know, you want. We also saw a good cost management as we're growing and, and continuing to keep our focus on on managing our cost structure. And, you know, particularly in our advancement of business, we had really good operational performance. Good yields getting out of that. So we were, we were able to move a lot of product. Would certainly helps our margins.
Thunderstick. Is there any way you can perhaps that quantify the? The defense orders impact on the quarter from a margin? And then EPS perspective? Well, as you know, we don't talk about specific customer contracts, you know, the size of the customer contracts or, or the margin impact of customer contracts. But I think, in general, we've talked about in the past is that, you know, we we really like a sort of a longer cycle more sticky type of businesses and markets because they, you know, they tend to they tend to contribute perhaps more to a favorable mix. We think we provide a lot of valuable to those to those types of end markets and certainly defense, you know, falls into that category. And so it is a it is a good and market for us and one that we continue to put a lot of focus on, but, you know, life sizable. It's a sizable order we did indicate, I think, on our, on our guide slide, there's a little bit of a sort of an indication of of the of the type of impact that it off.
It had on the more of a less perspective, but but it's it's it's a good market for us and it's, and it's a good order for us.
Understood and it just kind of keep it here with the gross margins. The Precision Optics segment. Obviously there's been a little bit of some movement there. Some noise with the acquisition and divestitures off the 39% gross margin there. Is that more what we should be expecting? Going for given the the folding in here of Optics. Balzers
Well, I think on the Precision Optics business, what we have to keep in mind, is that, that business, we tend to have a lot of, a lot of lumpy orders, a lot of large in and out, Mixed plays, a big factor, you know, just based on that. I mean, if you just go back and look at the last couple of years, you, you'll see, just just even an e bit for a perspective, for example, quarters, where we offer 7%, you know, on the low side and and quarters would be delivered, you know, 17% on the high side. So it tends to it. Tends to move around more so than perhaps of our other businesses. So, I wouldn't, I wouldn't say that. That's a run-rate a number that, that I think that that business can deliver. I think we really have to look at more of an overall, full year off, type of an impact in that. And, and we've taken that into account as we provided the guide, which, you know, is obviously a very, very strong guide that we provided. But but I, I wouldn't necessarily take that as Thursday.
As a run rate.
Just based on some of the factors, right? Yeah. And Google. That those are great points and you, you were mentioning the seven and the 17, which would be the ebit margin. You know. Gross margins in in line were also very strong and you know, with the lumpy order as you expect, that's going to bounce around a little bit. We, we do still see our way to a path of expanded gross margins for that business this year.
Got it. And last one for me here on my Google, maybe this is more for you perhaps, but just kind of regarding long-term goals here of becoming or being a more Advanced Materials company with that low to mid team operating. Uh-huh margins. Um, you know you obviously have made a lot of positive changes that are are helping materion kind of March up that that life if you will maybe if you can update us on where we you kind of stand versus your initial expectations and maybe how you're thinking has perhaps evolved over this time.
Yeah, as you know, I mean, we've made significant progress right in the Seventeen eighteen. And nineteen timeframe towards those objectives that we highlighted as our sort of long-term objective, a mid-teens type of margin a clearly, a very Advanced Materials high-tech company. And, you know, even during tourneys, when we had the early tough, sometimes I think that not only we had but but Robin had due to the pandemic, we were able to perform well and maintain really the Strategic Focus for our for our life. We were able to do an acquisition. We were able to secure a very large organic growth order they're able to continue strengthening our business with closures of a couple of facilities. Exiting one of our businesses to really position the the company for exactly what you started with, you know, which is this long-term objective that we have. So I think we're very well off.
On track of that and and and our goal and objective is to return, you know, as quickly as possible to the pre pendemic levels.