Q1 2022 Materion Corp Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the material on first quarter 2022 earnings Conference call. At this time, all participants have been placed on listen only mode.
We opened for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host John ceramic Vice President and corporate controller and Investor Relations.
Material Corporation, Sir the floor is yours.
Good morning, and thank you everyone for joining us on our first quarter 2022 earnings Conference call. This is John <unk>, Vice President corporate controller, and Investor Relations for materials Corporation.
Before we begin our remarks this morning, I would like to point out there'll be a posted materials on the company's website that we will reference as part of today's review of the quarterly results. You can also access the materials throughout the download feature on the earnings call webcast link with me today is jugal, <unk>, President and Chief Executive Officer, and Shelly Chadwick.
Vice President and Chief Financial Officer.
Format for todays conference call is as follows.
Hugo will provide opening comments on the quarter and an update on our key strategic initiatives.
Boeing Jewel Shelly, who will review the detailed financial results for the quarter. In addition to discussing our expectations for the remainder of 2022.
And then we will open up 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 Companys actual performance may materially differ from that contemplated by the forward looking statements as a result of a variety of factors.
Those factors are listed in the earnings press release, we issued this morning.
Additionally comments regarding earnings before interest taxes, depreciation depletion and amortization net income and earnings per share reflect the adjusted GAAP numbers shown in attachment four through seven in this morning's press release. 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 over the call to jugal for his comments.
Thanks, John and welcome everyone.
I am pleased to share details of our record performance in Q1 and cover some significant advancements on our strategic initiatives.
We have started the year out strong and our momentum is building as we are on track to deliver another year of record performance.
In Q1, we achieved record sales and earnings with value added sales up 34% and EBITDA up almost 50% when compared to an already strong Q1 last year.
Our record results were possible thanks to our team's tireless efforts to serve our customers despite challenging supply chain and macroeconomic conditions, along with the impact of the Shanghai locked out.
Our transformation strategy continues to position us for significant sales call.
Robust end market demand, coupled with our organic initiatives helped to drive double digit organic growth with VA up 13% versus last year.
We saw strong outgrowth across many of our end markets such as semiconductor industrial aerospace and energy as we continue to partner with our customers to develop innovative products and solutions and increased content on our fast growing applications.
Q1 also marked the first full quarter results from the largest acquisition in our company's history.
Electronic materials, which has significantly strengthened our position as a critical supplier to the fast growing semiconductor market.
So far the integration has been seamless.
Even better than we expected as our teams have joined together quickly and collaboratively with a shared focus on driving higher levels of performance.
We are already investing in this new facility to add capacity broadened our capabilities and increase yields to support our customers.
The acquisition is contributing to our results ahead of expectations and we are excited about what the future holds.
Our organic and inorganic initiatives are delivering and helping to reshape our company.
As we progress along our transformation journey, we are updating the names of two of our operating segments. The new names of electronic materials and performance materials better reflect the strength of our portfolios and the progress we've made in both businesses.
In addition to our strong organic growth and the success of our recent acquisition our precision strip project is advancing through the qualification phase with the project remaining on track to contribute meaningfully in the second half of this year.
We continue to receive positive feedback from our customer and strengthen the trust and confidence they have in our company.
As a result of the successful relationship we have been awarded a second increment of business that will allow us to expand our capacity by two thirds and service even higher levels of expected demand.
The total investment for this expansion project is about $60 million with approximately $40 million being contributor upfront by the customer.
We have already received $4 $4 million towards a new project and expect to receive another $2 $8 million next week.
Engineering work has already been started and orders have been placed for long lead time equipment.
We expect to have the new capacity available in 2024.
This additional commitment is a meaningful win for our company deepening our relationship with an important customer and ensuring even higher levels of growth for years to come.
The confidence placed in metairie on further demonstrates our position as a critical partner for our customers and the development of innovative solutions for their most important technical challenges.
For this year, we remain on track to exceed $1 billion in VA sales for the first time in our history as we grew our business and continued to outpace our end markets.
Our already strong order book grew again in the first quarter, giving us confidence optimism for the rest of the year, even with the uncertainty that exists in the broader environment.
With that in mind, we are increasing our earnings guidance for the full year.
I remain highly confident that we can achieve record value added sales of earnings as we take another step forward on our transformation journey.
In closing, let me reiterate how proud I am of what our team has accomplished to start the year delivering record performance and setting us on the path for outstanding 2022 now.
Now, let me turn the call over to Shelly to cover the financials.
Thanks, Jim and good morning, everyone. During my comments I will reference the slides posted on our website. This morning, starting on slide 11.
We achieved record quarterly value added sales adjusted EBITDA and earnings per share in the first quarter.
You added sales, which excludes the impact of pass through precious metal cost.
$266 8 million for the quarter up 34% from the prior year.
Organically sales increased 13% driven by strong demand across most of our end markets, including semiconductor industrial aerospace energy and telecom and data center.
Q1 also marked our first full quarter of HCS electronic materials results, which exceeded our expectations.
We delivered adjusted earnings of $1 20 per share up 38% as compared to the prior year.
Looking at Slide 12, adjusted EBITDA in the quarter was $44 6 million up 49% from last year.
Our adjusted EBITDA margin of 16, 7% represents a 160 basis point improvement from the same period a year ago.
The increase in EBITDA was largely driven by strong volume improved pricing and favorable mix as well as a full quarter of the accretive HCS electronic materials acquisition.
These drivers were partially offset by investments in R&D and sales and marketing and the facility startup costs related to our new precision <unk> plant.
We were also negatively impacted by the Covid related absences in January and the Shanghai, Lockdown, which began in March.
Now, let me review first quarter performance by business segment, starting with our performance materials business on slide 13.
Value added sales were $129 1 million, an increase of 28% compared to the prior year.
The year over year increase was driven by strong performance in the industrial energy and aerospace end markets higher shipments of beryllium hydroxide as well as the impact of the HCS acquisition.
EBITDA, excluding special items was $27 5 million or 21, 3% of value added sales compared to $16 8 million or 16, 7% of value added sales in the first quarter of 2021.
The increase was primarily due to higher volumes positive pricing and mix operational performance and the impact of the HCS electronic materials acquisition, partially offset by some cost inflation and the impact of the new facility startup costs.
The full year outlook is strong with a growing order book and our precision Kladstrup project remains on track to contribute meaningfully in the second half of the year.
Startup costs seen in Q1 will repeat in Q2, as we expected, but will fall off in the second half of the year as the project comes fully online.
Startup costs for the new increment of capacity has not yet been contemplated.
Next turning to electronic materials on slide 14 value added sales were $109 9 million up 74% versus the prior year and up 16, 4% organically.
VA sales were a record for any quarter, even before the impact of HCS electronic materials.
The increase was driven primarily by our accelerating growth initiatives, coupled with strong end market demand in semiconductor and energy.
As mentioned HCS performance was also very strong with results exceeding our initial expectations.
EBITDA, excluding special items was $18 9 million or 17, 2% of value added sales in the quarter compared to $10 9 million in the first quarter last year, an increase of 73%.
The increase was driven primarily by favorable volume price and the impact of the acquisition.
As we look forward to 2022, we expect the electronic materials business to deliver another year of strong outlook, especially in the semiconductor and energy space.
Additionally, a full year of HCS will deliver a meaningful step up both value added sales and earnings.
Finally, turning to precision optics segment on slide 15 first quarter value added sales were $28 5 million down 20% compared to the prior year period, but up 3% when excluding the discontinued consumer electronics application and PCR Covid testing declines mentioned last quarter.
As well as the unexpected temporary Shanghai shutdown.
We expect Q1 to be the low point for the year for precision optics as their pipeline of organic opportunities are expected to begin contributing meaningfully as we move forward.
EBITDA, excluding special items was $2 4 million or eight 3% of value added sales.
The decrease in EBITDA was driven by lower volume.
As we mentioned in our year end earnings call. We anticipated these near term headwinds and have growing visibility into the segments returned to growth with new business opportunities coming online.
We expect to take a step forward in Q2 with higher sales and a return to double digit EBITDA margins and improved further in the back half.
Moving now to cash debt and liquidity on slide 16.
We ended the quarter with a net debt position of $475 million and $127 million of available capacity on the company's credit facility.
Our full year cash flow expectations contemplated the first quarter usage due to the timing of incentive compensation and payroll tax payments after a record 2021.
Our pro forma leverage at two seven times remains within our target range.
With strong free cash flow and higher EBITDA expected for the remainder of the year. We expect this leverage ratio will come down towards the middle of our range by year end.
Transitioning now to slide 17, let me cover our outlook.
With the excellent start in Q1 combined with our strong order book progress on our organic initiatives and the performance of ACF electronic materials, we are increasing our full year outlook.
We now expect adjusted EPS, excluding acquisition amortization in the range of $5 50 to $5 90 for the full year, an increase of 40% from 2021 at the midpoint.
We have provided some detailed modeling assumptions for you specifically, calling out higher interest expense given the current fed outlook and a higher tax rate with our geographic mix of earnings and a change in the timing of R&D tax credits with evolving tax laws.
You'll also see an expected increase in capital spending driven primarily by the new expansion for the precision kladstrup opportunity of the expected $27 million spend $22 million will be pre funded by the customer.
Our organic pipeline continues to provide many value creating investment opportunities funded by our strong free cash flow and select joint investments with our customers.
In closing Q1 was a fantastic start to the year. We are extremely proud of our global teams contributions to date and we're excited to build upon our momentum and deliver another record year in 2022.
This concludes our prepared remarks, we will now open the line for questions.
Thank you 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 asked about posing your question you. Please pickup your handset that finishing on speaker phone to provide optimum sound quality. Please.
Please hold while we poll for questions.
And the first question is coming from.
So gibbs from Keybanc capital markets.
Your line is live.
Good morning.
Hey, good morning Bill.
Can we talk a bit here just about.
Thank you.
Elephant in the room for everybody in the investment community is just in some of these markets.
South Texas instruments.
Some impacts from these Chinese lockdown.
I know you guys are typically the last to see what they're what they're pointing to some some of at least near term weakness I don't think it's demand related but it appears more supply related.
How does that Jive with the.
The increases you're making to your to your full year guidance.
I'm betting for for some nice momentum.
Yes.
Our semi market is impacted by one the acquisition that we made which has been a great add for us and its adding.
Tremendous growth for us on the semi side, but really on the other side of semi we've got great set of products, that's impacting our semi business, but at the same time.
The fact that there has been.
Shortage of shortage of supply for the automotive side I think is a big upside for us as we go forward for semi which we hope will continue to pick up.
We're not seeing at this stage any type of a let's say a downturn on the semi side.
We expect with our with our new products.
It would be I think the mix of.
Products that we have we expect semi to continue and continue well I think 12 month a year.
If there is if there is some short term supply issues, that's come up I mean, certainly we'll react to those but at this stage I would say our semi market demand continues to move well.
And then on the pickup in the order book that you mentioned in the prepared remarks is that is that broad based or is that is that targeted at a couple of specific end markets.
No. It really is across across really all three of our businesses and across all of our.
All of our end markets. When you look at I think the recovery that's going on for example in aerospace the recovery that's going on in oil and gas I mean, those are clearly contributing.
Let me comment that we just made we expect automotive to continue to be.
Strong market for us.
<unk> has been and I think continues to be a strong market for us with especially with our beryllium nickel products.
Defense.
We we expect defense to continue to do well.
The year, especially with everything that's going on in the World right now we expect defense to continue.
To increase so I think we're seeing we're seeing a good increase across the board.
Yes.
I appreciate that and then the last one here.
Just on the cloud strip facility it sounds like.
It sounds like I mean, there is there is a phase III investment taking place is this the same as this the same customer in the same types of materials that you would be doing on the phase one or is this a new customer.
No. This is this is the same customer in the same same product.
They just see a significantly higher demand as they kind of project out what's going to happen over the next the next few years and they want to make sure. They are prepared and so they are working with us to put that increased capacity in place as we indicated I think in our prepared remarks I mean this is a great win for US we have talked about the fact that we've got.
Additional space in our facility that we had gotten and we're prepared to be able to add incremental capacity. So I think this is going to be a really really good step up for us roughly about $60 million to $65 million worth of investment in total.
With approximately two thirds from the customer same type of a model is what we have done that with the customer before.
So this is a great add for us.
Thank you and then just lastly.
You did provide an update on our full year earnings guidance.
But did you did you give any color in terms of what what the second quarter expectations are relative to the to the first quarter to give us some some ideas of combo here, yes, well I mean as you.
Our big step up really happens in the second half of the year I mean as we have.
Cloud strip project come on board.
Speed.
So to speak as we ramp up into the into the second half.
Our second quarter will continue to kind of move from the first quarter, we would expect it to be similar with some incremental improvement from Q1 to Q2, but really a big step up as is then in the Q3 Q4 timeframe so that the back half of the year.
Thank you.
Thank you.
Next question is coming from Marco Rodriguez from Stonegate capital markets. Your line is live.
Good morning, everybody. Thank you for taking my questions.
No.
Hey, I was wondering if maybe we can start a little bit on gross margins.
It seemed a little light kind of given your revenue performance on what we were expecting and then also in relation to kind of the commentary you had about a lot of benefits from a price mix aspect can you kind of walk us through some of the puts and takes there and the drivers there.
Yes, sure tubular is just talking about.
The the cloud strip project really taken off in the second half and so if you think about.
What we have been taking on in the first half has been all that startup costs really with no associated margin with that so that's been a bit of a drain on gross margin. We've also taken some pricing actions, which really feather in over the year as we're working through orders that were already on hand, So we will see price take a bigger step forward as we move into.
Q2, and the rest of the year, Yes, I think the other thing that the gross margin side as we've talked is as we've got this acquisition.
But we've done the acquisition comes in with Great EBITDA.
<unk> for us, but but lower lower gross margins. So we've got a we've got a mix thats happening.
With the with the acquisition, which by the way.
The results in Q1 were just fantastic.
Really really excited about what this what this has done for us but that certainly has a.
The negative mix on the gross margin side, but then positive mix on the earnings side.
And just the last thing to mention if you're just looking at the face of the P&L.
Got the inventory step up impact for the acquisition, which is adjusted out so you almost need to adjust the gross margin to see really what we look like.
Versus last year and last quarter.
Got it very helpful.
Then real quick I didn't want US you had about $9 $6 million in M&A.
M&A costs that were excluded here from an adjusted standpoint.
Or was that cost on the P&L or is that all in SG&A or spread.
So the inventory step up I, just mentioned is the biggest part of that and that would be in Cogs. Okay.
And the rest of the SG&A.
Okay.
And then in relation to that though also the SG&A seemed a bit lower than recent quarterly kind of run rates and obviously given the higher.
The higher revenue I, just think variable cost will be a bit higher there were there any sort of onetime items that will be beneficial in the quarter or any type of timing issues that cause SG&A to be lower or is that kind of a good run rate for you guys.
Yes, there is a little bit of timing on incentive comp was a different year on year. So that's one item and then I think we're just seeing some some spending ramping as we move into the year and kind of return to investments as we get back out on the road traveling and seeing our customers et cetera.
We would continue we would expect that I think SG&A to continue to ramp through the year.
Yes, exactly for the reasons that Chile has mentioned we want to make sure we're getting out to our customers.
And.
Frankly grown our business with them.
With the growth plans that we've got and I think what we've demonstrated so far.
Customer engagement is key and employee engagement is key and so thats going to be an important element of what we do for the rest of the year.
Got it.
I'll ask a question for me just on.
On the Ats integration, if maybe you can talk a little bit more about.
The roadmap that you took.
At <unk>, where you have full integration there and if you can maybe spend a little bit of timing update us on the sales and marketing integration on the revenue synergy efforts as well I know you sort of touched on it in your prepared remarks.
You can kind of give us a little bit better sense as far as where you are on that timeline would be helpful.
Yeah, well I mean, there is still there is always kind of two elements of the integration as we look at it one is sort of the process side of the integration, which is I think has gone really well.
<unk> been making sure that all the things that we were involved in on the TSA side of transition services agreements.
We're starting to move off of those and getting those in house.
Our process related things within our basic things such as health and safety finance other things like that I mean, we've been making good progress on those from the business side and to your point on the sales and marketing side, that's gone really really well, we fully integrated the organization into our <unk>.
Our two business units the performance materials and electronic materials business units and.
And it's going well, we are making I would say joint customer calls looking at.
What we can do from a product development and innovation perspective, and drive topline growth, which is I think what we've really.
Based on the.
The acquisition on <unk>.
So we're excited about that.
Got it very helpful. Thank you guys for your time I really appreciate it.
Thanks Marco.
Thank you and the next question is coming from Daniel Moore from CJS Securities Your line of lives.
Thank you and good morning, <unk> morning, Shelley Thanks for taking the questions. Good morning, Good morning, Dan.
I'll start with kind of piggybacking on Marco's question any initial examples of.
He then HCS, creating more opportunity for you with your semi customers, maybe just talk about some of those dialogues and where you see kind of longer term opportunity to gain share might be opening.
A number of opportunities Dan.
You can imagine.
Can't get into specific customer names, but I can tell you that we've had a number of meetings with our existing customers I mean, let me back up a little bit and what we have mentioned that between the customer base of HCI Acs added in our customer base, but we had we were going to be.
Providing to the top 15 semiconductor manufacturers in the world and so we've had actually a number of meetings with.
Their customers than let's say our customers talking about the portfolio.
Very very good interest from from both sides of the from the both sides of the house I'm going to say so to speak from the customer side and I expect that over the next year or two or three because as you know these are sort of longer cycle developments that were going to have we're going to have really good topline topline occur.
<unk>.
So that's going very well from the cost side, we're actually making significant investments we talked about investments I mean, thats part of our capital plan.
In the business to make sure that we can drive.
Continued capability continued capacity as well as frankly be able to reduce the cost and increase our increase our margins.
And we want to make sure. We can we can do that and so it's going it's going really well and.
Our first quarter, our first quarter results I think speak to the speak to the progress I think our team is the team is making.
Very helpful.
Shifting gears, a little bit maybe just can you quantify at all the impact.
Shanghai Lockdowns.
For the last couple of weeks in Q1 as well as what your expectations are for Q2 at this stage.
Yes, the Shanghai locked out for us is impacting our precision optics business whaler facility in Shanghai that actually.
It makes our product for the display market and we did have an impact in the in the last part of the Q1 I would say it was not a meaningful impact of the entire company certainly a meaningful impact for our precision optics business. So roughly roughly about I am going to say between $5 million to 1 million type of an impact.
And then we would expect of course to continue until until the situation gets better here.
In the in the second quarter, So that's kind of how I see it but it is.
Certainly a meaningful impact to the optics business and and and one that we hope we can quickly get through.
Great and one more.
Modeling purposes, the incremental capacity expansion for the cloud strip facility more likely to incur those costs in 2003, Shelly versus the second half of this year.
Just how should we think about that sort.
So the startup costs versus the capital.
Correct, Yeah. So there could be some costs this year and we're kind of working through that planning right now, but yes, its more likely to see the traditional startup costs that we're incurring now late next year and into 'twenty four.
The guidance excludes.
Any of those incremental cost correct.
Yes, Okay perfect alright, thank you.
You bet.
Thank you.
Next question is coming from David Silver from CL K, David Your line is live.
Okay. Thank you so I'm going to preface my remarks by saying I joined.
Paul a little bit late so I will apologize in advance.
No problem, if I make you repeat yourself.
So when I looked at the financials.
Kind of a little curious why the R&D spend was a little bit higher.
And I'm looking at your slide deck slide 18, and the second comment there.
Is that youre going to build out build robust pipeline with investments in R&D.
As you.
Play out your your overall broader strategies.
I'm just just wondering if you could maybe highlight maybe from a full year basis, where.
Where you think the R&D spend needs to go and over what period of time.
Mike you hit that targeted.
Rate of R&D spend and secondarily. If you wanted to if you could highlight any areas of incremental emphasis I think that would be helpful. Thank you.
David.
Good good question and its one item that as you know we've been extremely focused on over the last five years since I joined the company. We've made substantial investments into the R&D. When you look at our R&D spend for Q1, it's approximately.
7% to 8%.
Improved spend compared to the average quarterly spend from 'twenty. One so we've actually spent more on more on R&D, let's.
Let's say, 7% to 8% more than the quarterly average for 'twenty. One. That's first 0.2nd is R&D tends to be in our case lumpy because there are times when we have certain projects that that we are investing more on in terms of prototype builds or things like that so there will be some variation, but I can tell you that our focus continues to be on R&D.
And targeting that R&D on the right type of projects, we would expect our R&D spend for 'twenty two to be higher than 'twenty one.
And then we would expect R&D to continue to increase I mean, we've mentioned in the past that.
We've gone from about a 1.8% R&D spend to roughly approximately a 3% R&D spend and then I would expect that to continue and probably reach maybe a 4%.
And the next in the next few years, so I think we.
Think we're making the right investments for R&D and I'm really excited about the pipeline.
We talked to.
That our that our pipeline and our backlog is stronger than it's ever been it's increased in Q1 compared to what it was at at year end and so we're excited about kind of where we're headed.
Okay. Thanks for that my next question I, just would like to maybe hone in on the HCS business for a moment.
And in particular, I think one of the more most attractive markets or product lines that that.
Brings to you as the ADM the advanced deposition thin films advanced deposition materials.
And.
With the electronic materials companies I follow I mean.
They discuss kind of the value proposition not just not just in terms of the.
Physical material itself, but.
Our global footprint technical service et cetera.
A full.
And collaborative R&D by the way so.
From.
Jugal, you've talked about the transformation journey, you're companies on but I'm, just wondering regarding kind of exploiting or building out the making the optimizing the invest very significant investment you made in HCS.
What incremental capabilities do you think you might need to bring in house.
Develop organically or Inorganically too.
To really optimize what.
<unk> brings to you in terms of the ability to participate in.
The most strategic some of the most strategic elements and chip making.
Yes.
That's a great question and one that I think we've been looking at actually as we have transitioned from an advanced materials business unit to this electronic materials business unit and acquiring.
<unk> was a was a great step for us, giving us a capability and a new material tantalum.
Which is something that is needed in the chip, making process, there's really limited number of players in this market.
I think getting that facility here in north Americas is actually a really a plus when you think about some of the onshoring discussions that are going on and the investments that are taking place here in North America. So I think I think it's been it's been a really really good at and to your point about the deposition technology.
I think we're really.
Creating a much broader portfolio of that deposition technology with this acquisition and then of course, along with that as you know we've been investing a lot on <unk> as well, which has been which is just another add to our overall deposition depth.
Deposition.
Offering.
When we look at going forward I mean, there is a number of things I think that we need to continue to do one of them I mentioned earlier, we're making significant investments in this business to be able to have more capability more capacity.
A significant amount of our Capex spend when you look at our slide 17 is related to Acs and so there is there is there is.
Definitely capability that we need to be able to put in place.
We're also looking at how we can make sure that we can have the right.
Type of capability that can support not only the growth that's going on here in North America, and sort of the onshoring activity, that's going on North America, but how can we put capability and capacity in place, particularly in Asia and when you look at the semiconductor value chain as you know that's a big part of the market and we want to make sure we can.
Local to those to those companies and so we are looking at how we can take a more.
Greater role in the Asia Asia market and be local to our.
Local to our customers so locked a lot going on in this business.
It's it's quite exciting to see kind of all the transformation our team has been making on it and we'll certainly be talking more more about it as we.
As we make some of those commitments and investments.
That's great. Thank you very much.
Thanks, David.
Thank you once again, ladies and gentlemen, if you wish to enter the queue to ask a question you can do so by pressing star one on your phone.
The next question is coming from Justin Bergner from Gabelli funds Justin Your line is live.
Good morning, Julien Good morning, Shelley and good morning, gentlemen.
A lot's been covered but just a couple of additional questions. Within your end market exposure are there any end markets, you would highlight as being a bit weaker or weakening as the quarter progressed, just given some of the.
Is that the external world.
Has offered over the last couple of months.
Yes, I would say really the only market I, probably would comment on just in as maybe the automotive build in automotive sales.
Tended to take a little bit of a cautious approach here in the March timeframe I think the I think the sales rate in January February was relatively good and then.
In March it took a little bit of a question Mark part of that had to do with the Covid situation in China part of that had to do with the European conflict, that's underway, but we really see that as a bit above or of a temporary.
Situation I mean, I think automotive is going to continue to do well I mean, thats kind of what we're hearing.
You hear some of the earnings announcements from from the various automotive Oems I believe for the rest of the year they feel that they're going to continue to do well, particularly on the EV side.
They really see that progressing so that's the one market that there is maybe perhaps a little bit of a <unk>.
Mark here in Q1, but I don't really see that as a question Mark for the full year and then from our side with the content increases I think that were making whether it's the content increases on airplanes. I mean, our content is up significantly when you look at the single aisle type of planes.
And Thats, where the build is going on when you look at the oil and gas.
Rigs I mean, our content is up significantly as they look at.
Automated are much more automated directional drilling for example, when you look at the content increase that we are making on semiconductor.
<unk> I think our our objective is to continue to grow well above market.
Right now I would say that we see all the markets moving in the right direction.
Got it. Thank you and then on that note your slide highlights some of the headwinds mainly below the operating line.
To the revised earnings outlook within that net plus 20 number is the primary beneficial driver increase volume or better margins.
Or a bit of both.
It's I think it's all of the above look I mean, we want to make sure. We're really a company that's driving improvement across the board right. So whether it's our dynamic pricing model, that's taking into account what's happening in the world.
Whether it's the the HCS acquisition, which performed really well in Q1 and is expected to perform well as we go the rest of the year.
The cloud, making sure that we hit the right things on the cloud strip.
Project.
The general demand and new product pipeline I think it's a combination of all.
That debt.
We're wanting to make sure we do well on.
Got it and then lastly, this phase two or the expansion of the cloud strip investments. So just to compare this to the first.
Fees are.
Initial phase this is $60 to $65 million and it gives you two thirds additional.
Capacity, how does that compare to the total cost.
The initial phase as it stands now.
Initial phase was approximately and I think we said like $100 million.
Roughly about.
70 ish million.
From the from the customer.
And I mean, I'm rounding here, okay, and it's kind of like a similar situation here for this second phase as well.
Okay. Thank you and best of luck.
Hey, thanks.
Thank you there were no other questions in queue at this time I would like to hand, the sore back to John <unk> for any closing remarks.
Thank you. This concludes our first quarter of 2022 earnings call. A recorded playback of this call will be available on the company's website materially on dot com.
I'd like to thank you all for participating on the call. This morning, and your interest in materials.
I'll be available to answer any follow up questions. My direct number is 206 3834010. Thank you again.
Thank you ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.