Q4 2021 Materion Corp Earnings Call

[music].

Greetings and welcome to the materials fourth quarter 2021 earnings conference call there.

Speaker 1: Greetings and welcome to the Maturion fourth quarter 2021 earnings conference call. There will be a Q&A session for today's conference following the presentation. Please press star one on your phone if you wish to enter the Q&A queue at any time. As a reminder, this conference will begin shortly.

There will be a Q&A session for today's conference. Following the presentation. Please press star one on your phone if you wish to enter the Q&A queue at any time.

A reminder, this conference is being recorded.

Speaker 1: I would now like to turn the conference over to your host, John Saranac, Vice President, Corporate Controller and Investor Relations. Please go ahead, sir.

I would now like to turn the conference over to your host John <unk>, Vice President corporate controller and Investor Relations. Please go ahead Sir.

Speaker 2: Good morning and thank you everyone for joining us on our fourth quarter 2021 earnings conference call. This is John Zranick, Vice President, Corporate Controller and Investor Relations for Materion Corporation.

Good morning, and thank you everyone for joining us on our fourth quarter 2021 earnings Conference call. This is John <unk>, Vice President corporate controller, and Investor Relations for materials Corporation.

Speaker 2: 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'll reference as part of today's review of the quarterly results.

Before we begin our remarks. This morning, I would like to point out that we have posted materials on the company's website that will reference as part of today's review of the quarterly results.

Speaker 2: You can also access the materials throughout the download feature on the earnings call webcast link.

You can also access the materials throughout the download feature on the earnings call webcast link.

Speaker 2: With me today is Jugul Vijay Vargia, President and Chief Executive Officer, and Shelly Chadwick, Vice President and Chief Financial Officer. Our format for today's...

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.

Speaker 2: JUGLE will provide opening comments on the quarter, a recap of the year, and an update on key strategic initiatives.

Jugal will provide opening comments on the quarter, a recap of the year and an update on key strategic initiatives.

Speaker 2: Following Juul, Shelly will review the detailed financial results for the quarter and the year, in addition to discussing our expectations for 2022. Then we will

Following jugal Shelly will review the detailed financial results for the quarter and the year. In addition to discussing our expectations for 2022.

Then we will open up the call for questions.

Speaker 2: 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.

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.

Speaker 2: 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.

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.

Speaker 2: Those factors are listed in the earnings press release we issued this morning.

Speaker 2: Additionally, comments regarding earnings before interest and taxes, net income, and earnings per share reflect the adjusted gap numbers shown in attachments four and five in this morning's press release.

Additionally comments regarding earnings before interest and taxes net income and earnings per share reflect the adjusted GAAP numbers shown in attachment four and five in this morning's press release.

Speaker 2: The adjustments are made in the prior year period for comparative purposes and removes special items, non-cast charges, and certain discrete income tax adjustments. And now I'll turn over the call to Jewel for his comments.

The adjustments are made in the prior year period for comparative purposes, and removed special items noncash charges and certain discrete income tax adjustments.

And now I'll turn it over the call to jugal for his comments.

Thanks, John and welcome everyone.

I am pleased to share details of our record performance in both the fourth quarter and for the full year as.

Speaker 3: I'm pleased to share details of our record performance in both the fourth quarter and for the full year as we look forward to an exciting year ahead in 2020.

As we look forward to an exciting year ahead in 'twenty two.

The stage is set for another year of advancing our transformation strategy.

Speaker 3: The stage is set for another year of advancing our transformation strategy, resulting in above-market growth aligned with megatrends, increased earnings, and margin expansion. We delivered a record

Resulting in above market growth aligns with Mega trends increased earnings and margin expansion.

We delivered record sales and earnings in the fourth quarter.

Finishing out a tremendous year for our company.

Speaker 3: Sales grew 27% year-over-year, while EBIT was up 50%.

Sales grew 27% year over year, while EBIT was up 50%.

Not only did demand in our markets showed continued strength.

Speaker 3: but our organic initiatives help to drive double-digit growth.

But our organic initiatives helped to drive double digit growth.

We are showing the power of our outgrowth initiatives as we continue to build our pipeline of exciting opportunities and place a sharp focus on commercialization and execution.

Speaker 3: We are showing the power of our outgrowth initiatives as we continue to build our pipeline of exciting opportunities and place a sharp focus on commercialization and execution. I'm very proud of our team for delivering for our customers.

I am very proud of our team for delivering for our customers. Despite the challenges the omicron spike brought about.

Like most companies, we saw record Covid cases and related absences during the second half of December that persisted into January .

Speaker 3: Like most companies, we saw record COVID cases and related absences during the second half of December that persisted into January , temporarily slowing our shipping rates, but we expect

Temporarily slowing our shipping rates, but.

But we expect will make up those sales by the second quarter.

Despite the impact of these challenges, we still delivered record results and expanded EBIT margins in Q4.

Speaker 3: Despite the impact of these challenges, we still delivered record results and expanded EBIT margins in QV.

Speaker 3: while our vertical integration and pass-through pricing mechanisms keep us fairly insulated from major raw material pressure.

While our vertical integration and pass through pricing mechanisms keep us fairly insulated from major raw material pressures, we are closely managing the impact of other cost and labor inflation and implementing selective price adjustments.

Speaker 3: we are closely managing the impact of other costs and labor inflation and implementing selective price adjustment.

The fourth quarter also marked the closure of the largest and most exciting acquisition in our company's history.

Speaker 3: The fourth quarter also marked the closure of the largest and most exciting acquisition in our company's history, HCS.

Acs electronic materials.

So far the integration has been seamless and our teams are coming together quickly and collaboratively with a sharp focus on delivering for our customers while managing strong growth.

Speaker 3: So far, the integration has been seamless, and our teams are coming together quickly and collaboratively with a sharp focus on delivering for our customers while managing strong growth. Thus far, this business is.

Thus far this business is everything we expected it to be.

Speaker 3: with great people, high quality products, and countless opportunities to create value.

Great people high quality products and countless opportunities to create value.

Financially the acquisition contributed in line with expectations in the fourth quarter, and we expect a strong 2022.

Speaker 3: Financially, the acquisition contributed in line with expectations in the fourth quarter, and we expect a strong 2022.

2021 has been a remarkable year for maturing out as we delivered record levels of sales and earnings while making significant advancements in our strategy.

Speaker 3: as we delivered record levels of sales and earnings while making significant advancements in our strategy.

We grew value added sales almost 30%, while increasing EBIT, an impressive 79% year over year.

Speaker 3: We grew value-added sales almost 30% while increasing EBIT an impressive 79% year-over-year.

Speaker 3: We are truly transforming our company into an advanced materials leader and becoming our customers partner.

We are truly transforming our company into an advanced materials leader and becoming our customers' partner of choice.

Speaker 3: I'm excited about the many advancements we've made with our customer-focused projects this year as we work together to deliver products and solutions for their next-generation applications.

Im excited about the many advancements we've made with our customer focused projects. This year as we work together to deliver products and solutions for their next generation applications.

Speaker 3: Construction of our precision clad strip plant is complete and we're moving on to the qualification

Construction of our precision cloud strip plant is complete and we're moving on to the qualification phase we are receiving excellent feedback from our customers, giving us confidence that the qualification will continue to progress smoothly.

Speaker 3: We are receiving excellent feedback from our customer, giving us confidence that the qualification will continue to progress smoothly.

Speaker 3: This opportunity is set to contribute more meaningfully this year as we start to ramp production.

This opportunity is set to contribute more meaningfully this year as we start to ramp production in Q2. This year, we significantly increased our penetration in automotive, particularly in high growth applications with strong upside potential.

Speaker 3: This year, we significantly increased our penetration in automotive, particularly in high-growth EV applications with strong upside.

Speaker 3: We also delivered tremendous above market growth across several of our other end.

We also delivered tremendous above market growth across several of our other end markets.

Speaker 3: Our R&D investments are contributing to this above market growth as we're able to develop new products for our customers' latest applications.

Our R&D investments are contributing to this above market growth as we are able to develop new products for our customers latest applications.

Speaker 3: 2021 marked the first year our R&D spend crossed 3%

2021 marked the first year R&D spend crossed 3% of sales and we expect to continue to drive increased levels of investment spending to fuel the opportunity pipeline.

Speaker 3: And we expect to continue to drive increased levels of investment spending to fuel the opportunity pipeline.

On the operational excellence front, our plants supported unprecedented levels of demand in the face of continued COVID-19 uncertainty and labor challenges.

Speaker 3: Our plans support an unprecedented level of demand in the face of continued COVID uncertainty and labor challenges.

Speaker 3: In order to continue our efficiency progress, we implemented a pilot manufacturing AI.

In order to continue our efficiency progress we implemented a pilot manufacturing AI initiatives aimed at improving first time quality and improving yields.

Speaker 3: aimed at improving first-time quality and improving yields. Early results of this...

Early results of this effort look quite promising.

We continued our progress on the inorganic front with the transformative acquisition of HCS electronic materials, increasing our portfolio alignment with hydro Mega trends.

Speaker 3: We continued our progress on the inorganic front with the transformative acquisition of HCS electronic materials, increasing our portfolio alignment.

Speaker 3: As I mentioned, the acquisition is proving to be a very strong strategic.

As I mentioned the acquisition is proving to be a very strong strategic fit as we combine our portfolios to further advance our presence in the semiconductor market with all of the top customers.

Speaker 3: as we combine our portfolios to further advance our presence in the semiconductor market with all of the top.

With the acquisition of optics, Baldur's, we delivered $2 million of cost synergies in 2021 ahead of our plan to pace, while building a robust pipeline of opportunities that will drive future above market growth.

Speaker 3: With the acquisition of Optics Bowsers, we delivered $2 million of cost synergies in 2021, ahead of our planned pace, while building a robust pipeline of opportunities that will drive future above.

As we look forward to 2022.

Speaker 3: I'm really excited about what our team is set to do.

Really excited about what our team is set to deliver.

We expect to exceed $1 billion in VA sales for the first time as we grow our business and continue to outpace the end markets.

Speaker 3: We expect to exceed $1 billion in VA sales for the first time as we grow our business and continue to outpace the end markets, which are poised for.

Which are poised for another year of solid growth.

Speaker 3: We are entering the year with the strongest order book we've seen in our company.

We are entering the year with the strongest order book, we have seen in our company's history.

To support our growth expectations, we are planning another year of robust capital spending.

Speaker 3: To support our goals and expectations, we are planning another year of robust capital investment.

Speaker 3: as we invest to build new capabilities for our customers and respond to increasing levels of.

We invest to build new capabilities for our customers and respond to increasing levels of demand.

Speaker 3: And we have the most talented and motivated team that is well-aligned around our goals.

And we have the most talented and motivated team.

Well aligned around our growth objectives.

Speaker 3: While challenges persist in today's environment, we expect we will successfully navigate and offset the impacts of labor constraints, inflationary pressures, and supply chain issues, as we have.

While challenges persist in today's environment, we expect we will successfully navigate and offset the impact of labor constraints inflationary pressures and supply chain issues as we have in 2021.

With all of that.

Speaker 3: With all of that, I'm highly confident we can achieve another year of record value-added sales, earnings, and EPS, along with expanded margins.

Really confident we can achieve another year of record value added sales earnings and EPS, along with expanded margins.

Speaker 3: In closing, let me reiterate how proud I am of what our team has accomplished in 2021, delivering record performance while building a strong pipeline of opportunity.

In closing, let me reiterate how proud I am of what our team has accomplished in 2021 delivering record performance, while building a strong pipeline of opportunities for the future.

We are very optimistic about 2022 and look forward to another exciting year.

Speaker 3: We are very optimistic about 2022 and look forward to another exciting year.

Now, let me turn the call over to Shelly to cover the financials.

Speaker 3: Now, let me turn the call over to Shelly to cover the

Thanks, Joe and good morning, everyone. During my comments I will reference the slides posted on our website. This morning, starting on slide 15.

Speaker 4: Thanks, Dougal, and good morning, everyone. During my comments, I will reference the slides posted on our website this morning, starting on slide 15.

Speaker 4: As Jubal outlined, we achieved record quarterly value-added sales and adjusted EBIT in the fourth quarter.

As Joe outlined we achieved record quarterly value added sales and adjusted EBIT in the fourth quarter.

Speaker 4: Value-added sales, which exclude the impact of pass-through precious metal costs, were $237.4 million for the quarter, up 27 percent

Value added sales, which exclude the impact of pass through precious metal costs for $237 4 million for the quarter up 27% from the prior year.

Speaker 4: The increase was driven by strong end market demand across most of our markets, including semiconductor, industrial, aerospace and defense, and automotive, as well as meaningful impact from our organic outcrops.

The increase was driven by strong end market demand across most of our markets, including semiconductor industrial aerospace and defense and automotive as well as meaningful impact from our organic outgrowth initiatives.

Speaker 4: We also had two months of HCS electronic materials results this quarter, which were in line with our expectations.

About two months of HCS electronic materials results this quarter, which were in line with our expectations.

We delivered an adjusted EBIT margin of 11, 8% and adjusted earnings per share of $1, three up 47% as compared to the prior year.

Speaker 4: We delivered an adjusted EBIT margin of 11.8% and adjusted earnings per share of $1.03, up 47% as compared to the prior year.

Speaker 4: Looking at slide 16, adjusted EBIT in the quarter was $28.1 million, up from $18.7 million last year.

Looking at Slide 16, adjusted EBIT in the quarter was $28 1 million up from $18 7 million last year.

Speaker 4: Our adjusted EBIT margin of 11.8% represents a 180 basis point improvement from a year ago.

Adjusted EBIT margin of 11, 8% represents a 180 basis point improvement from a year ago.

Speaker 4: The increase in EBIT was largely driven by higher volume, improved pricing, stronger operating performance, and less unfavorable currency impact.

The increase in EBIT was largely driven by higher volume improved pricing stronger operating performance and less unfavorable currency impact.

Speaker 4: as well as two months of contribution from HCS Electronic Materials.

As well as two months of contribution from HTS electronic materials.

These drivers were partially offset by investments in R&D and sales and marketing as well as higher incentive comp and new facility start up costs related to our new precision cloud strip plant.

Speaker 4: These drivers were partially offset by investments in R&D and sales and marketing, as well as higher incentive comp and new facility startup costs related to our new precision-clad strip.

Although we did see some slowdown in shipping rates in the back half of December due to the omicron Spike we delivered impressive fourth quarter results above the midpoint of our guide.

Speaker 4: Although we did see some slowdown in shipping rates in the back half of December due to the Omicron spike, we delivered impressive fourth quarter results above the midpoint of our guide.

Speaker 4: Moving to slide 17, 2021 was a remarkable year for Materion as we delivered records for value added sales, adjusted EBIT, and adjusted earnings per share.

Moving to slide 17, 2021 was a remarkable year for material as we delivered records for value added sales adjusted EBIT and adjusted earnings per share.

VA sales reached an all time high of $859 7 million up 29% from the prior year.

Speaker 4: VA sales reached an all-time high of $859.7 million, up 29% from the prior year.

Speaker 4: The increase was driven by robust end market demand plus the impact of our outgrowth initiatives resulting in double-digit organic growth across major end markets.

The increase was driven by robust end market demand plus the impact of our outgrowth initiatives, resulting in double digit organic growth across major end markets.

Speaker 4: The late year edition of HCS Electronic Materials also contributed nicely and is poised to be even more impactful in 2020.

The late year addition of HCS electronic materials also contributed nicely and is poised to be even more impactful in 2022.

Adjusted EBIT for the year was $99 4 million up 79% from $55 4 million last year.

Speaker 4: Adjusted EBIT for the year was 99.4 million, up 79 percent from 55.4 million last year.

Speaker 4: Our adjusted EBIT margin of 11.6% represents a 330 basis point increase from a year ago.

Our adjusted EBIT margin of 11, 6% represents a 330 basis point increase from a year ago.

The increase was largely driven by higher volume positive mix improved pricing and strong operating performance.

Speaker 4: The increase was largely driven by higher volume, positive mix, improved pricing, and strong operating performance.

Speaker 4: This outstanding company performance resulted in a yearly record for adjusted EPS of $3.81, an increase of 88% versus the prior year.

This outstanding company performance resulted in a yearly record for adjusted EPS of $3 81 and.

An increase of 88% versus the prior year.

Now, let me review fourth quarter performance by business segment, starting with our performance alloys and composites business on slide 18.

Speaker 4: Now let me review fourth quarter performance by business segment, starting with our performance alloys and composites business on slide 18.

Speaker 4: Value added sales are 115.8 million, an increase of 29% compared to the prior year.

Value added sales were $115 8 million, an increase of 29% compared to the prior year.

Speaker 4: The year-over-year increase is driven by strong performance in the automotive, industrial, energy and aerospace industries.

The year over year increase was driven by strong performance in the automotive industrial energy and aerospace end markets.

EBIT, excluding special items was $17 6 million or 15, 2% of value added sales compared to $11 7 million or 13% of value added sales in the fourth quarter of 2020.

Speaker 4: EBIT excluding special items was $17.6 million, or 15.2% of value-added sales, compared to $11.7 million, or 13% of value-added sales in the fourth quarter of 2020.

The increase was primarily due to higher volumes positive pricing and favorable operating performance, resulting in 220 basis points of margin expansion year on year.

Speaker 4: The increase was primarily due to higher volumes, positive pricing, and favorable operating performance, resulting in 220 basis points of margin expansion year on year.

As it relates to the 2022 outlook. We currently have a strong order book heading into the year.

Speaker 4: As it relates to the 2022 outlook, we currently have a strong order book heading into the year.

Speaker 4: We also expect the precision clad strip project to contribute more meaningfully in the second half of the year.

We also expect the precision cloud strip project to contribute more meaningfully in the second half of the year.

In the meantime, we will see the impact of plant startup costs persist through the first half as we work through customer qualifications and complete the training and startup protocols for the plant.

Speaker 4: In the meantime, we will see the impact of plant startup costs persist through the first half as we work through customer qualifications and complete the training and startup protocols for the plant.

Next let's turn to advanced materials on slide 19.

Speaker 4: Value-added sales were a quarterly record of 89.5 million, up 52 percent versus the prior year, and exceeding the previous record set in 2003.

Value added sales were a quarterly record of $89 5 million up 52% versus the prior year and exceeding the previous record set in Q3.

Speaker 4: The increase was driven by accelerating organic initiatives and strong end-market demand, as well as two months of sales from HCS Electronic Materials.

The increase was driven by accelerating organic initiatives and strong end market demand as well as two months of sales from HCS electronic materials.

Speaker 4: EBIT excluding special items was $12.5 million in the quarter compared to $7.2 million in the fourth quarter last year.

EBIT, excluding special items was $12 5 million in the quarter compared to $7 2 million in the fourth quarter last year.

Adjusted EBIT margins improved year over year by 180 basis points to 14%.

Speaker 4: Adjusted EBIT margins improved year over year by 180 basis points to 14 percent.

The improvement in adjusted EBIT was due to increased demand positive pricing and strong mix.

Speaker 4: The improvement in adjusted EBIT was due to increased demand, positive pricing, and strong measures.

Speaker 4: As we look forward to 2022, we expect the advanced materials business to deliver another year of strong outgrowth, especially in the semiconductor.

As we look forward to 2022, we expect the advanced materials business to deliver another year of strong outgrowth, especially in the semiconductor space.

Speaker 4: Additionally, a full year of HCS electronic materials will deliver a meaningful step up in both value-added sales and earnings.

Additionally, a full year of HCS electronic materials will deliver a meaningful step up in both value added sales and earnings.

Finally, turning to the precision optics segment on slide 20.

Speaker 4: Fourth quarter value added sales were $32.4 million, down 16% compared to the prior year, but up 5% when excluding the LAC business and PCR filter sales from Q4 2020.

Fourth quarter value added sales were $32 4 million down 16% compared to the prior year, but up 5% when excluding the <unk> business and PCR filter sales from Q4 2020.

The fourth quarter of 2020 saw the last quarter of shipments from the legacy business that was closed at the end of that year. So we saw a significant amount of pre buying in the final days.

Speaker 4: The fourth quarter of 2020 saw the last quarter of shipments from the LAC business that was closed at the end of that year, so we saw a significant amount of pre-buying in the final days.

Speaker 4: In addition, sales related to PCR COVID testing filters peaked in the fourth quarter last year.

In addition sales related to PCR Covid testing filters peaked in the fourth quarter last year.

Speaker 4: When excluding these two items, value-added sales increased due to growth in the consumer electronics and industrial environment.

When excluding these two items value added sales increased due to growth in the consumer electronics and industrial end markets.

Speaker 4: EBIT excluding special items was $3.9 million or 12% of value added sales. A year-over-year improvement of 90.

EBIT, excluding special items was $3 9 million or 12% of value added sales a year over year improvement of 90 basis points.

Speaker 4: Year-to-date adjusted EBIT margins are up about 60 basis points from prior year.

Year to date adjusted EBIT margins are up about 60 basis points from prior year.

The margin improvement resulted from cost management initiatives as we drove $2 million of cost synergies from the optics <unk> acquisition for the full year of 2021.

Speaker 4: The margin improvement resulted from cost management initiatives as we drove $2 million of cost synergies from the Optics Bowser's acquisition for the full year of 2021.

Speaker 4: EBITDA margins for this business are 20% year to date, up 240 basis points versus the prior year, which is more indicative of the operational performance without the impact of higher acquisition related amortization.

EBITDA margins for this business are 20% year to date up 240 basis points versus the prior year, which is more indicative of the operational performance without the impact of higher acquisition related amortization.

As we look out into 2022, we expect to return to year on year growth with new business opportunities coming online in the second half.

Speaker 4: As we look out into 2022, we expect to return to year-on-year growth with new business opportunities coming online in the second half of the year.

Speaker 4: The first half results will be tempered by some near-term headwinds with the decline in COVID PCR testing filter demand and the discontinuation of a consumer electronics product application.

The first half results will be tempered by some near term headwinds with the decline in Covid PCR testing filter demand and the discontinuation of a consumer electronics product application.

Speaker 4: This is a temporary impact as the opportunity pipeline for this business is robust and growing.

This is a temporary impact as the opportunity pipeline for this business is robust and growing.

Now moving to cash debt and liquidity on slide 21.

We ended the year with a net debt position of $435 3 million and approximately $176 million available capacity on the company's credit facility.

Speaker 4: We ended the year with a net debt position of $435.3 million and approximately $176 million of available capacity on the company's credit facility.

Speaker 4: pro-forma leverage at 2.6 times remains well within our desired

Our pro forma leverage at two six times remains well within our desired range.

Speaker 4: Strong operating performance allowed us to pay down $35 million of our recently assumed debt in the fourth quarter.

Strong operating performance allowed us to pay down $35 million of our recently assumed debt in the fourth quarter.

Speaker 4: As it relates to 2022, we are anticipating strong free cash flow, which will support continued investments in our business, as well as additional debt.

As it relates to 2022, we are anticipating strong free cash flow, which will support continued investments in our business as well as additional debt paydown.

Transitioning to slide 22, I want to take a moment to review some additional earnings metrics, we will be reporting going forward.

Speaker 4: Transitioning to slide 22, I want to take a moment to review some additional earnings metrics we will be reporting going forward.

As our company continues to evolve we want to focus on providing more visibility into our operational performance.

Speaker 4: As our company continues to evolve, we want to focus on providing more visibility into our operational performance.

Speaker 4: As a result, starting in 2022, we're adding EBITDA for total company and the business segments and EPS excluding acquisition amortization as key profitability metrics.

As a result, starting in 2022 were adding EBITDA for total company and the business segments and EPS, excluding acquisition amortization as key profitability metrics.

These changes will align our results more closely with those of our peers and allow us to better reflect operational performance without the impact of noncash charges.

Speaker 4: These changes will align our results more closely with those of our peers and allow us to better reflect operational performance without the impact of non-cash charges.

We plan to provide EBITDA information by segment for historical periods before we issue our Q1 2022 earnings.

Speaker 4: We plan to provide EBITDA information by segment for historical periods before we issue our Q1 2022 earnings.

Lastly, turning to the guidance summary on slide 23.

Speaker 4: We expect to deliver another year of record results in 2022 with continued strong end market performance, our customer-focused outgrowth initiatives, and contributions from our recent acquisitions.

We expect to deliver another year of record results in 2022 with continued strong end market performance, our customer focused outgrowth initiatives and contributions from our recent acquisitions.

We expect adjusted EPS, excluding acquisition amortization in the range of $5 30.

Speaker 4: We expect adjusted EPS, excluding acquisition amortization.

Speaker 4: in the range of $5.30 to $5.70 for the full year, an increase of 35% from 2021 at the mid-season.

To $5 70 for the full year, an increase of 35% from 2021 at the midpoint.

While we are moving to this metric without amortization for 2022.

Speaker 4: While we are moving to this metric without amortization for 2022, as this is the first quarter providing guidance in this method, we are also providing the comparable guidance for adjusted EPS in the range of $4.80 to $5.20, an increase of 31% from the prior year at the midterm.

This is the first quarter providing guidance in this method. We are also providing the comparable guidance for adjusted EPS in the range of $4 80.

To $5 20 and.

An increase of 31% from the prior year at the midpoint.

Looking at the way the quarter is starting out we expect results in the first quarter to be in line with those from Q4.

Speaker 4: Looking at the way the quarter is starting out, we expect results in the first quarter to be in line with those from Q4.

Speaker 4: This takes into account the Omicron impact continuing in January and new plant startup.

This takes into account the omicron impact continuing in January and new plant start up costs.

We have also noted a few modeling assumptions for you on this slide including some more detail on our expectations for capital investments.

Speaker 4: We have also noted a few modeling assumptions for you on this slide, including some more detail on our expectations for capital investment.

Speaker 4: Our assumptions on capital expenditures include a few previously established investments, including $10 million related to the second phase of our mine tailings pond project.

Our assumptions on capital expenditures include a few previously established investments, including $10 million related to the second phase of our mine tailings Pond project and planned investments for additional capacity at our HCS electronic materials business to meet the extremely strong semiconductor demand.

Speaker 4: planned investments for additional capacity at our HCS Electronic Materials business to meet the extremely strong semiconductor demand.

In closing 2022 is shaping up to be another exciting year of strong growth and execution for <unk>, resulting in record results and long term sustainable value creation for our stakeholders.

Speaker 4: In closing, 2022 is shaping up to be another exciting year of strong growth and execution for Materion, resulting in record results and long-term sustainable value creation for our state.

This concludes our prepared remarks, we will now open the line for questions.

Speaker 4: This concludes our prepared remarks, we will now open the line for questions.

Speaker 1: Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions.

Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question you. Please pick up your handset if listing on speaker phone to provide optimum sand quality.

Please hold while we poll for questions.

Yeah.

Your first question is coming from Marco Rodriguez from Stonegate capital markets. Mark. Your line is <unk> you May proceed.

Speaker 1: The first question is coming from Marco Rodriguez from Stonegate Capital Markets. Marco, your line is live. You may proceed.

Good morning, everyone and thank you for taking my questions. Good morning, Mark.

Speaker 5: I was wondering if maybe you could talk a little bit more detail about gross margins in the corner, they came in a little bit weaker, at least than what we expected.

Hey, guys I was wondering if maybe you could talk a little bit more detail about gross margins in the quarter came in a little bit weaker at least than what we expected.

Speaker 5: And it kind of looks like all three segments were off a little bit versus prior cadence. So, maybe if you can discuss also, you know, what kind of dynamics you saw in the quarter. I know you mentioned you saw some shipping issues with Omicron, but just kind of unpack some of those details there, and then if you could maybe discuss how you guys are kind of thinking about gross margin and the cadence as we enter fiscal 2020.

And then kind of it looks like all three segments were off a little bit versus prior cadence. So maybe if you can discuss also what kind of dynamics you saw in the quarter. I know you mentioned you saw some shipping issues with omnicom, but.

But just kind of unpack some of those details there and then maybe if you could maybe discuss how you guys are kind of thinking about gross margin.

And the cadence as we enter fiscal 'twenty two.

Speaker 4: Yeah, let me start on that one, Marco. So if I think about gross margins in Q4 versus maybe Q3, there certainly was some mixed impact. You know, Q3, we talked about

Yes, let me start on that one market. So if I think about gross margins in Q4 versus maybe Q3. There certainly was some mixed impact Q3, we talked about stronger shipments to defense customer and of our beryllium customer which tend to be mixed positive. So we did not see that in Q4. In addition, when the AMA.

Speaker 4: stronger shipments to defense customer and of our beryllium customer, which tend to be mixed positive. So we did not see that in Q4. In addition, you know, when the omicron spike happened later part of December , it has it has a bit of an absorption impact because we weren't getting quite as much product at the door. So I would say those were the those were the drivers.

Spice happened later part of December It has it has a bit of an absorption impact because we weren't getting quite as much product out the door. So I would say those were the those were the drivers.

Speaker 4: HCS electronic materials also that comes in is slightly lower on the gross margin line, although it's an expander at the EBITDA level. So, those are some of the items that

Electronic materials also that comes in at slightly lower on the gross margin line, although expander at the EBITDA level. So those are some of the some of the items that I would point to.

Speaker 4: As we think about next year, you know, I think that growth margins are going to be strong. We're looking for expansion in the growth margin line outside of the HCS impact. And, you know, while we may start out slightly slow in Q1, again, because of the Omicron and the build and the plant startup cost, I think you're going to see expansion for growth margins for the year.

As we think about next year I think that gross margins are going to be strong we're looking for.

Spansion and the gross margin line outside of the HCS impact and while we may start out slightly slow in Q1 again because of the omicron and the build and the plant startup cost I think youre going to see expansion for gross margin full year.

Very helpful in terms of that mix impact and beyond the chrome impact.

Speaker 5: Very helpful. In terms of that mixed impact of the defense and the Omicron impact, is there a way to sort of rank it? Like, was there more of a two thirds impact from the lack of the defense orders versus the absorption impact?

Is there a way to Florida.

Rankin like was there more of a two thirds impact from the lack of a potential orders versus the absorption impact.

Yes, I, probably would order is the mix and plant startup costs more so than the absorption.

Speaker 4: Yeah, I probably would order it the mixed and plant startup cost more so than the absorption.

Got it very helpful.

Speaker 5: very helpful. And then in terms of the acquisitions that you guys have just made recently here, Optic Fultres and HGS, I know that obviously the acquisition synergies there were more about driving sales versus necessarily cost synergies.

And then in terms of the.

The acquisitions that you guys have just made recently here.

Walters and Etfs.

I know that obviously the acquisition synergies there were more about driving sales versus necessarily cost synergies.

Can you kind of update us on the process of getting those revenue synergies that <unk> and then <unk>.

Speaker 5: Can you kind of update us on the process of getting those revenue synergies at OpticBolzers and then you will maybe, if you can provide kind of a sketch of your expectations for HCS.

Maybe if you can provide kind of sketch out your expectations for Acs.

Speaker 3: Yeah. First of all, Marco, both of these acquisitions have been just fantastic additions to our portfolio, you know, as we've indicated. Optics Ballsers has allowed us to create a global optics portfolio, and then HDS has just been a fantastic add, and not only for the semiconductor market, which is, as you know, is a really, really strong market right now, but also great additions to our aerospace and defense and industrial markets.

Yes.

First of all Michael most of these acquisitions have been just fantastic conditions to our portfolio as we've indicated opex falls versus allowed us to create a global office portfolio and then HCS. It's just been a fantastic at and not only for the semiconductor market, which is as you know is a really really strong market right now, but also great additions to our aerospace and defense and industrial markets.

So we're really excited about the two acquisitions that we've done like you said.

Speaker 3: So, we're really excited about the two acquisitions, you know, that we've done. Like you said, you know, our synergy level has been more focused on the top line and less focused on the bottom line. However, we're making good progress on the bottom line as well. We've had some early wins already, in fact, on the HCS side as we've looked at some combined procurement activities. Our team's been really excited about putting the leverage of the combined entity into the supply base.

Synergy level has been more focused on the top line and less focused on the on the bottom line. However, we're making good progress on the bottom line as well we've had some early wins already in fact on the HCI side as we've looked at.

Bind procurement activity our team has been really excited about bringing the leverage of the combined entity into into the supply base.

Speaker 3: We've had, as we indicated already in our remarks, around $2 million of cost synergies.

We've had as we indicated already in our remarks around $2 million of cost synergies.

On the op exposure side, and then on the top line and the commercial side, it's really going well.

I can tell you that our teams.

Opex side have been working very well together have identified.

Im going to guess in the neighborhood of $2 million to $4 million of synergies top line synergies that we hope will start to kick in in the second half of this year and then into really into 'twenty three 'twenty four so we're quite excited about that and we think there's more certainly can be done there.

A lot of work going on even though we've only had the company for three months with HCS electronic materials Theres a lot of work going on on the synergy side. There as you know this gave us a great inroads into the top 15 semiconductor players in the world and so we're able to leverage our portfolio of bolstering our side and their side into the into the top 15 semiconductor players. So.

Speaker 3: going on, even though we've only had the company for three months with HCS electronic materials. There's a lot of work going on on the synergy side there. As you know, this gave us a great inroads into the top 15 semiconductor players in the world, and so we're able to leverage our portfolio both from our side and their side into the into the top 15 semiconductor players. So it's quite exciting for us, you know, with these two acquisitions, and we hope to be able to talk more about the top-line synergies as we realize them over the next, you know, during the year. Very helpful, and then another kind of just larger picture question, you know, as you guys kind of look into Fiscal 22, you obviously have provided guidance, and it's helpful as always, but can you maybe discuss what you see as the biggest opportunities you see to be driving growth by segment perhaps, and then in that same vein, if you can maybe discuss what are the challenges you see to achieving those goals?

It's quite exciting for us these two acquisitions and we hope to able to talk more about the top line synergies as we as we realize them over the net.

The year.

Speaker 5: Very, very helpful. And then another kind of just.

That's very helpful and then kind of just.

Larger picture question.

Speaker 5: The larger picture question, you know, as you guys kind of look into fiscal 22, you obviously have provided guidance and it's helpful as always. But can you maybe discuss what you see as the biggest opportunities you see to be driving growth by segment perhaps? And then in that same vein, if you can maybe discuss what are the challenges you see to achieving the.

As you guys kind of look into fiscal 'twenty. Two you obviously had provided guidance Paul.

As always but can you maybe discuss.

What you see as the biggest opportunities you see to be driving growth by segment, perhaps and then.

In that same vein, if you could maybe discuss what are the challenges you see to achieving those goals.

Yes, I mean, clearly we've got clearly we've got the.

Speaker 3: Yeah, I mean, clearly, you know, we've got, clearly, we've got the acquisition of HCS, of course, that's going to drive growth for us. We've got the acquisition of optical quality, you know, those two things that we've talked about already. We've got the cloud strip project that's going to help drive, you know, a meaningful step-up growth for us in 2022. But really, at the end of the day, I think what we've really been focused on, and we've been talking to you about it for a number of quarters, and in fact, past several years, as we have ramped up our R&D spending, is our organic growth. The markets certainly have been strong, and the markets were strong in 2021, and we expect the markets to continue to be favorable going into 2022, as we've noted in our deck. But I think our organic outgrowth is what we're really excited about. You know, our capital spending for 2021 and our planned capital spending for 2022 support that. So we're excited, really, across the board, whether you look at our PHE segment with the number of opportunities we have using, you know, our ToughMed product, our Supremex product, our copper-nickel-tin-type alloys, whether you look at our ALD chemicals or aluminum-scandium targets on the AM side, or you look at the automotive side with LIDAR. For precision optics, you look at the automotive side, you know, with LIDAR opportunities and general filter growth opportunities, I think, across a number of different markets.

The acquisition of Acs of course, that's going to drive that growth for US. We've got the acquisition of optical Paul you know those two things that we've talked about already we've got the cloud script project Thats going to help drive.

A meaningful step up growth for us in 'twenty, two but really at the end of the day I think what we've really been focused on as we've been talking to about it for a number of quarters and in fact past several years as we have ramped up our R&D spending is.

As our organic growth the markets certainly have been strong and the markets were strong in 'twenty, one and we expect the markets to continue to be.

Favorable going into 'twenty two as we've noted in our deck, but I think our organic outgrowth is what we're really excited about.

Our capital spending for 'twenty, one and our planned capital spending for 2000 and to support that so we're excited really across the board whether you look at our P&C segment with a number of opportunities we have using our <unk> product our Supreme.

Product, our copper nickel tin type alloys, whether you look at our <unk> chemicals or aluminum scandium targets on the AAM side. When you look at the automotive side with Lidar.

Our precision optics, you look at the automotive side, you know with Lidar opportunities and general filter growth opportunities I think across a number of different markets.

Speaker 3: You know, the organic outgrowth is what's quite exciting for us, and we think the markets will help support that, but more importantly, I think our organic initiative that we have and the pipeline that we have, we're feeling good about.

The organic outgrowth is what what's quite exciting for us and we think the markets will help support that but more importantly, I think our organic initiatives. We have in the pipeline that we have we're feeling good about.

Got it very helpful. Thank you guys appreciate the time.

Speaker 5: All right, very helpful. Thank you guys. I appreciate your time.

Okay. Thanks, Michael.

Thank you and once again, ladies and gentlemen, you can enter the queue by pressing star one on your phone at any time, but Thats star one if you wish to ask a question on the <unk>.

Speaker 1: Thank you. And once again, ladies and gentlemen, you can enter the queue by pressing star one on your phone at any time. That's star one if you wish to ask a question. And the next question is coming from Phil Gibbs from KeyBank. Phil, your line is live. You may proceed.

Next question is coming from so Gibbs from Keybanc your.

Your line of sight you May proceed.

Speaker 5: Hey, thanks very much. So was I to read from your comments that you expect pricing net of inflation to be positive for your results in 22, meaning you're more than offsetting?

Thanks, very much so was that a read from your comments that you expect.

Pricing net of inflation to be to be positive for your results in 22 meeting youre more than offsetting.

Cost headwinds.

Speaker 3: Yeah, Phil, you know, we talk about this all the time that, you know, we do not want to be the sponge, right? We do not want to be the company in the middle that they're having to deal with, whether it's inflationary pressures, you know, labor cost challenges, you know, other things, we want to make sure that we're providing value to our customers, and we're getting paid for that value.

Yes, Bill we talk all the time, but we do not want to be the sponge right. We do not want to be the company in the middle of that having to deal with.

There it is inflationary pressures.

<unk> cost challenges other things, we want to make sure that we're providing value to our customers and we're getting paid for that value. So we've got a very robust process in our system.

Speaker 3: So we've got a very robust process in our system where we look at everything that's going on in the business and then we determine our pricing based on that. So it's our expectation that the headwinds that we're all seeing right now on the labor markets, on the inflationary markets, that we're taking those into account as we work with our customers and provide the right value to them.

We look at we look at everything Thats going on in the business and then we determine our pricing based on that so it's our expectation.

That.

That the headwinds that we're all seeing right now on the labor markets an inflationary markets.

We're taking those into account as we work with our customers and provide the right value to them.

Okay.

Speaker 5: And Shelly, on the clad piece, I think year on year in your bridge you had over a $3 million impact.

And.

Shelley on the cloud cloud piece I think year on year on your bridge, you had over $3 million impact.

Speaker 5: from the qualification process or ramp up process. I think that was probably.

From from the qualification process of ramp up ramp up process I think that was probably.

Speaker 5: stronger headwind relative to what we were expecting? Was that stronger relative to what you all were expecting, too?

Stronger a stronger headwind relative to what we were expecting was that stronger relative to what you all were expecting too well.

Well I think we had talked about 20 to 25 for the year and it was certainly lighter than Q3, but if I look at Q3 Q4, we stacked up close to where I thought we would be coming into 'twenty. Two there is still.

Speaker 4: Well, I think we had talked about 20 to 25 cents for the year, and it was certainly lighter in Q3, but if I look at Q3, Q4, you know, we stacked up close to where I thought we would be.

Speaker 4: You know, coming into 22, there's still, you know, a lot to do in terms of making sure that the plant is ready to go. And it's not only qualifying the product, but also, you know, safety and training protocols is expense, you know, going through there before we've got real revenue coming in. So it's going to be really positive for the year. But, you know, a headwind up through the first half.

What to do in terms of making sure that the plant is ready to go and it's not only qualifying the product, but also safety and training protocols as expense going through there before we got real revenue coming in so it's going to be really positive for the year, but a headwind up through the first half.

That makes sense and on the qualification piece.

I think your decks that you were about 40% of the way through.

Speaker 5: I think your deck said you were about 40% of the way through. What have you done so far? What else do you need to do? Because I think, at least my perception was, you've already been making some of this product.

Just what have you done what have you done so far what else do you need to do because I think.

At least my perception was.

<unk> already been making some of this product.

Speaker 5: already so you know the process and you know the business and you've seen the product before so it's not completely new to you all and it's probably not completely new to your customer. So is that something that assists that process and then just where are you in terms of what else you need to do?

Already so.

The process and you know the business and you've seen the product before so it is not completely new to you all in it's probably not completely new to your customer so is that something that assist that process.

And then just just where where are you in terms of what.

What else do you need to do.

Speaker 3: Yeah, Phil, making the product in our current facility at a smaller scale certainly helps right and gives us the the runway into the new facility.

Yes, Phil making the product in our current facility at a smaller scale certainly helps right and gives us the runway into the new facility keep in mind. It is a completely new facility right with a with a completely new set of equipment and therefore, new production that we're going to do.

Speaker 3: Keep in mind, it is a completely new facility, right? With a completely new set of equipment and therefore, you know, new production that we're going to do. I think our teams have done a great job of making sure that all the equipment that we have has been qualified. So we've gone through what we call process qualification, and that, you know, we finished in the fourth quarter and just early parts of Q1. What we are really engaged in now is we are making the product in the new facility. We've actually shared that product and we'll continue to share that product as we're making it with the customer. They're going through a number of different tests on their side because what we want to make sure is that the process side and what we're doing from the new plant is going to be a good product for the customer.

I think our teams have done a great job of making sure that all the equipment that we have has been has been enough qualified so we've gone through what we call process qualification in that we finished in the fourth quarter and just early parts of the.

Two parts of Q1, what we are really engaged and now we are making the product in the new facility.

Actually shared that product and we will continue to show that product as we are making it with the customer they are going through a number of different tests on their side, because what we want to make sure is that the process side and what we're doing from the new plant is going to be a good product for the customer so even though the existing material. It is the same materials, but it is from a different plan.

Speaker 3: So even though the existing material, it is the same material, but it is from a different plant. So the customer is going through and putting it through their qualification process. We expect we're roughly around 40% complete with that. Our expectation is that we'll complete that here over the next few months, and then start to ramp up here in the second quarter. So we think it's going really well right now.

So the customer is going through and putting it through their qualification process. We expect to we're roughly around 40% complete with that our expectation is that we'll complete that here over the next next few months and then start to ramp up here in the in the second quarter. So we think it's going really well right now.

Thanks, and then last one for me is just on the aerospace and defense and then.

Speaker 5: Thanks. And then last one for me is just on aerospace and defense and then energy. What are what are you seeing there? What are your customers telling you in terms of all your expectations? I mean, I know from your texture in your in your slides that you're expecting high single digit growth, but just anything more, more qualitatively that you can.

Energy.

What are you seeing there what are your customers telling you in terms of full year expectations, I mean, I know from your texture and you're in your.

Slides that youre expecting high single digit growth, but.

Just anything more more.

Qualitatively that you can speak to thanks very much.

Speaker 3: Well, I think, I think, first of all, from a market standpoint, we've had our third straight quarter of growth on the on the aerospace side, fourth straight quarter of growth on the oil and gas side. And we expect that to continue. Of course, it's clearly nowhere near the pre pandemic levels as we have talked as we've talked before. There is a there is good increases in the oil rate count that has happened. There is good increases that have happened in the bill rates for the airplane. But again, they're not they're not anywhere near pre pandemic levels.

Well I think I think first of all from a market standpoint, we've had our third straight quarter of growth.

On the aerospace side or straight quarter of growth on the oil and gas side and we expect that to continue of course, it's clearly nowhere near the pre pandemic levels as we have talked as.

As we've talked before.

There is there's good increases in the oil rig count that has happened. There is good increases that have happened in the bill rates for the airplanes, but again theyre not theyre not anywhere near pre pandemic levels.

Speaker 3: We expect, and what we're hearing from our customers, is we expect continued growth into 22, and we've kind of factored that in, as we've noted in our deck as well, into our guide that we've given for 22. What's really exciting for us, though, Phil, on both of these markets is our content is increasing.

We expect and what we're hearing from our customers as we expect continued growth into 'twenty, two and we've kind of factored that in as we've noted in our deck as well into our guide that we've given for FY 'twenty to what's really exciting for us they'll fill on both of these markets as our content is increasing so our content per plane. So the newer planes tend to have more.

Content in fact than than the earlier players. So I think we're really excited about one is the market growth of the build rates that are going on in the oil rig counts are going up et cetera, but what we're really even more excited about is the actual content increase per per unit.

Speaker 3: actual content increase per unit that we're going to be able to supply into 2022. So we're positively thinking about both of those markets into 2022. Thank you. And the next question is coming from Marisa Hernandez from Cedildi. Marisa, your line is live and you may proceed. Thank you and good morning, everybody. Hi, Marisa. Hi, everyone.

That is that.

We're going to be able to supply into <unk> into 'twenty, two so where.

We're up positively.

Positively.

About both of those markets into into 'twenty two.

Speaker 1: Thank you. And the next question is coming from Marisa Hernandez from Cedility. Marisa, your line is live and you may proceed.

Thank you and the next question is coming from Marissa Hernandez from Sidoti.

<unk>. Your line is live and you May proceed.

Thank you and good morning, everybody.

Speaker 6: Thank you, and good morning, everybody. Good morning, Marissa.

Many of Orissa.

So a couple of follow up questions here first of all.

Speaker 7: So, a couple of questions here. First of all, on the growth, on the sales growth for the year, the next sales growth for the year of 29%, how much of that is coming from pricing? What's the pricing impact on that?

On the growth on the sales growth for the year. The next thankful for the year, 29%.

How much will come.

<unk> com pricing the pricing impact on that.

You're talking for 'twenty two.

No for 'twenty, one alright, or 'twenty, one she's asking whats the overall, yes year on year growth due to due to yes. So we focus really on the price cost element of that Marissa and as <unk> talked about earlier really making sure that we're not absorbing any of the cost increases that we see as you know we've got the protection from our pass through.

Speaker 3: No, for 21. Sorry. For 21. She's asking what's the overall year on year growth.

Speaker 4: Yeah, so we focus really on the price cost element of that, Marissa. And as Jubal talked about earlier, really making sure that we're not absorbing any of the cost increases that we see. As you know, we've got good protections from our pass-through metal and our vertical integration. So while we are implementing price, and in some cases, it's mid-single, high-single-digit pricing, you wouldn't see that in the total line for our sales. So we don't really talk about the percent of sales, price impact, or the dollar impact, other than to tell you it's positive on the price cost line.

Metal and our and our vertical integration. So while we are implementing price and in some cases, it's mid single high single digit pricing you wouldn't see that in the total line for our sales. So we don't really talk about the percent of sales price impact of the dollar impact other than to tell you it's positive on the.

Price cost line.

Okay.

Speaker 7: Okay so perhaps if you focus on the differential, can you share what the differential was between price increases and cost pressures?

<unk>.

You focus on the differential.

Can you share what the differential was between our price increases.

Cost pressures.

Speaker 4: Yeah, I would call it in the, you know, 25 basis points kind of impact in terms of the impact to growth margins. That's helpful. Thank you.

I would call it in the <unk>.

25 basis points kind of.

Impact in terms of the impact to gross margin.

That's helpful. Thank you.

Speaker 7: So another question I have is on the topics.

So.

Another question I have is on the Capex.

Speaker 7: obviously you're investing a little bit more than normal, I would say. But I noticed that you have 20 million dedicated to the new HCS business. So what would be that used for?

Obviously, you're investing a little bit more then.

Normal I would say, but I noticed that you have planning and dedicated to the new <unk> business.

Exactly.

Yeah, well first of all immersive as we've indicated I think last year and again for 'twenty. Two we're really excited about the organic growth opportunities and then the associated Capex that we can do.

Speaker 3: Yeah, well, first of all, Marissa, we, as we've indicated, I think last year and again, I mean, for 22, we're really excited about the organic growth opportunities and then the associated CapEx, you know, that we can do.

Speaker 3: use to deliver that organic growth, along with operational excellence, because a lot of our CapEx, you know, we're really driving to improve our yields and improve our throughput into the

Used to deliver that organic growth along with operational excellence because a lot of our capex, we're really driving to improve our yields and improve our throughput.

Into the into the plan when we look at the $20 million that is related to the new acquisition.

Speaker 3: When we look at the $20 million that is related to the new acquisition, it's a number of different things.

It's a number of different things.

Speaker 3: One of the things is to substantially continue to improve the cost structure and expand the margins of that business. So, you know, there's a number of things that that business does where they leverage outside partners, and we think we have an opportunity to do some things more in-house than what we have done in the past or what that business has done in the past. So we have some nice make-buy type of things, so those will be great synergy opportunities for us. So there's CapEx associated with that. And then, let's face it, I mean, 80% of the business is semiconductor.

One of the things is to substantially continue to improve the cost structure and expand the margins of that business. So there's a number of things that that business does where they leverage outside Parker said, we think we have an opportunity to do some things more in house than what we have done in the past or what that business is done in the past. So we have some nice.

Make buy type of thing so those will be great synergy opportunities for us. So there is capex associated with that and then let's face it I mean, 80% of the businesses semiconductor and and we know that the semiconductor market has done and what is expected to do and we want to make sure we're properly sized to take full advantage of that semiconductor.

Speaker 3: And we know what the semiconductor market has done and what it's expected to do. And we wanna make sure we're properly sized to take full advantage of that semiconductor market growth along with our synergy growth opportunity. So we're making sure we're investing sort of ahead of time on that to be able to leverage the growth. So both growth, cost structure, margin expansion, to make buy type of decisions that we're making, all of that is contributing to that $20 million.

Market growth, along with our synergy growth opportunity. So we're making sure we're investing sort of.

Ahead of time on that.

To leverage the growth so both growth cost structure margin expansion.

By types of decisions that we're making all of that is all of that is contributing to that $20 million.

But is there any specific type of <unk>.

Speaker 7: started. Is there any specific type of facility investment for volume?

Facility investment.

For volume.

Speaker 4: She said, is there a facility? So it's not a facility, it's more equipment. Yeah. Yeah. We're not building a new facility, new plant. We're leveraging the floor space that we have. We have a good amount of floor space. And so it's really just equipment upgrades, as well as new equipment that we're putting in. And it's something that we've been planning and we've had in our thinking, really, since we acquired. And so we're quite excited about it.

She said is there a facility so its not a facility its more equipment, yes, yes, yes, we're not we're not building a.

New facility New plant, it's we're leveraging the floor space that we have we have good amount of floor space and so it really just equipment upgrades as well as new equipment that we're putting in.

And it's something that we've been planning and we've had in our.

And our thinking really since since we acquired and so we're quite excited about it.

Okay.

Speaker 7: Thank you.

Sure.

So another area I wanted to ask if you can elaborate a little bit precision optics segment.

Speaker 7: So another area I wanted to ask if you can elaborate a little bit is your precision optics segment. Obviously, there's been a little bit of movement in terms of some product lines that you no longer have. So what should one be expecting about, you know, an annual run rate of sales and profitability structure for this business?

Obviously, there's been a I don't know.

Movement.

In terms of some.

The clients that you no longer have.

So two.

One is expecting about them.

Meanwhile, our rate of sales and profitability.

Facts are for this business.

Speaker 3: Yeah, well, I think our position for all three of our businesses is the same, which is we want to make sure we're driving above market growth and the markets that those businesses are participating in. And we want to make sure we get to mid-teens.

Yes.

<unk> are positioned for all three of our businesses is the same which is we want to make sure we're driving above market growth.

And the markets that those businesses are participating in and we want to make sure we get to mid teens.

Our margins. So that's the that's the roadmap that we have for all three of our businesses. It's a roadmap and we want to make sure we're executing on.

Speaker 3: So that's the roadmap that we have for all three of our businesses. It's a roadmap that we wanna make sure we're executing on. We've made great progress, really, in all three businesses. We have some of these near-term headwinds that we spoke of already on the Optics side, but we're confident that over the longer run with the synergies that are gonna happen between the two businesses, the continued operational excellence and efficiency improvements that we'll drive, this business is gonna contribute to the overall company goals of grow above market and deliver mid-teens type of market.

<unk> made great progress really in all three businesses. We have some of these near term headwinds that we spoke of already on the optics side, but we're confident that.

Over the longer run with the synergies that are going to happen between the two businesses the continued operational.

Operational excellence and efficiency improvements that will drive this business.

Is going to contribute to that to the overall company goals.

Grow above market and deliver mid teens type of margins.

Got it okay.

Speaker 7: Got it, okay.

And yes go ahead Paul.

Speaker 3: No, no, I'm just going to say, as you know, I mean, this business was up, you know, full year. We talked about that, right? I mean, it's up, I think, over two hundred and forty basis points of EBITDA. And we expected to do the same for for twenty two.

I'm just going to say as you know this business was up full year, we talked about that right. I mean, it's up I think over 240 basis basis points of EBITDA and we expect it to do the same for FY 'twenty two.

Speaker 7: Yeah, I just think the sales have been, you know, a little bit light. Yeah.

Yeah, I think the sales have been.

I know it's like.

Yes.

Speaker 3: And I think, you know, as we talked, I mean, there's, you know, there's a couple of key things that are contributing that. And one is, of course, the, the closure of the LAC business. Second is that we did have a significant pickup in this business on the PCR testing and PCR testing filters. So that was a significant pickup in our, in our 2020 for this business that, you know, has been has been declining. And in fact, we'll at some point, we'll be a very small part of the sales. And then, you know, third is there is a contract that we had with a consumer application that has discontinued. So combination of those two, three things is what's leading to, I think, near term, near term headwinds. But we expect, we expect these headwinds to move away during the year and start to deliver growth.

And I think as we talked I mean, there is theres a couple of key things that are that are contributing that and one is of course the.

The closure of the <unk> business.

Is that we did have a significant pick up in this business on the PCR testing and PCR testing filters. So that was a significant pickup in our in our 2020 for this business.

Has been has been declining and in fact, we will at some point will be a very small part of.

The sales and then third is there is a contract that we had with a consumer application.

Discontinued so combination of those two or three things is what.

Our leading to I think the near term near term headwinds, but we expect we expect these headwinds to move way during the year and start to deliver growth.

Great. Thank you for that.

Speaker 7: Great. Thank you for that, Giselle. And last but not least, if I can ask a little bit about the CLABSI project.

Last but not least if I can.

I'm, asking a little bit about that.

The clavis to protect.

Are you shipping for revenue or not yet.

Speaker 3: Well, we've been shipping fuller revenues since Q4 of 2020, you know, from our existing... I mean the new facility, that's what I'm asking.

Well, we've been we've been shipping for revenue since Q4 of 'twenty.

From our from our existing.

The new facility, that's what I'm asking no no the new facility, where right now in the qualification phase. So our expectation is that we will get qualified and then starting in the second quarter. We will start to ramp. So we expect that we expect that would be the we expect that to be the case, we think that.

Speaker 3: So, you know, our expectation is that we will get qualified and then, you know, starting in the second quarter, we'll start to ramp. So we expect that we expect that would be the.

Speaker 3: we expect that to be the case. We think that, you know, from our existing facility to the new facility, we expect sales to, I would say approximately double from 21 to 22. And we think that's gonna have a meaningful contribution, you know, into particularly, you know, into the second half of this year.

From our existing facility to the new facility, we expect sales to.

I would say approximately doubled from from 'twenty, one to 'twenty two.

And.

And we think thats going to have a meaningful contribution into particularly into the second half of this year.

Speaker 7: So we should start seeing some revenue from this new facility in the second quarter.

So we should start seeing some revenue from this new facility in the second quarter.

Speaker 3: I would say so. I think the second quarter, you know, right now, it's still a little bit, let's say, to be determined in terms of how much, because it depends on the qualification timing and kind of how quickly in the second quarter we can start to ramp up. But certainly in the third and fourth quarter, because that's kind of what we have modeled. But yes, I would say initial inklings in the second quarter.

I would say so I think the second quarter right now, it's still a little bit, let's say to be determined in terms of how much because it depends on the qualification of timing.

And kind of how quickly in the second quarter, we can start to ramp up but certainly in the third and fourth quarter, because thats kind of what we have modeled but yes, I would say initial inkling as in the second quarter.

Speaker 7: Okay, so let me ask you the following. I, I, I, I'm under the impression that the project is, you know, ramping maybe one quarter more slowly than I had thought. Is it the case from your point of view as well? And if so, is there an issue of volume of demands on the customer or just the qualification process takes a lot longer? What any color there would be great.

Okay. So.

Let me ask you the following.

I'm under the impression that.

The protein.

Ramping.

Maybe one quarter.

Louis than I had thought.

Is it the case from your point of view as well and if so is there any sort of volume of demand from the customer or just a qualification process takes a little longer.

Any color there would be great.

Speaker 3: Yeah, I would say no. The project is the project is ramping up exactly as we have planned, which is that, you know, we had planned on really finishing the facility by the end of last year and then go through a qualification phase and then start to ramp. So, from our standpoint, I think it.

I would say no.

<unk> is the project is ramping I think exactly as we have a plan, which is that we had planned on really finishing the facility by the end of last year and then go through a qualification phase and then start to ramp so from our standpoint, I think it's exactly in line with what we had planned and which by the way is quite impressive from our site considering all the COVID-19 activity that.

Speaker 3: exactly in line with what we had planned, and which by the way, is quite impressive from our side, considering all the COVID activity that the facility build and the facility startup had to go through. So I'm very, very impressed with what the team has delivered. I think from a customer standpoint, as we've indicated before, the customer is very interested in the product and would take

The facility build in the facility startup had to have to go through so im very very impressed with what the team has delivered.

<unk> delivered I think from a customer standpoint, as we've indicated before the customer is very interested in the product and would take really any product that we can we can produce.

Speaker 3: really any product that we can we can produce. We're limited in our capacity in the current facility otherwise the customer would even take more product you know from our from our current facility. So I there's no issue from a demand standpoint from the customer side. I think it's just making sure we get the we get the ramp sorry the qualification done and then the ramp going so that we can really launch this business on a very flawless basis.

Limited in our capacity in the current facility otherwise the customer would even take more product from our current facility. So there is no issue from a.

Demand standpoint from the customer side I think it's just making sure we get the.

We get the ramp sorry, the qualification done and then the ramp going so that we can really launch this business on a very flawless basis.

Thank you so much.

Thanks Marissa.

Thank you.

Speaker 1: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back over to John Zanarik for closing remarks.

Ladies and gentlemen, we have reached the end of the question and answer session I would like to turn the call back over to John <unk> for closing remarks.

Thank you. This concludes our fourth quarter 2021 earnings call a recorded playback of this call will be available on the company's website jewelry on dot com.

Speaker 2: Thank you. This concludes our fourth quarter 2021 earnings call. A recorded playback of this call will be available on the company's website, materion.com. We would like to thank all of you for participating on this call this morning and your interest in Materion. I will be available to answer any follow-up questions. My direct number is 216-383-4010. Thank you.

I'd like to thank all of you for participating on this call this morning, Andrew or interest in material.

I'll be available to answer any follow up questions. My direct number is 206 3834010. Thank.

Thank you.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

Speaker 1: This concludes today's conference, you may disconnect your lines at this time. Thank you for your participation.