Q3 2024 Materion Corp Earnings Call
[music].
Greetings and welcome to the materials third quarter 2024 earnings conference call.
At this time all participants are on a listen only mode and a question and answer session will follow the formal presentation.
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Please note this conference is being recorded.
Speaker Change: I'll now turn the conference over to your host Mr. Kyle Kelleher Director Investor Relations and corporate S. P. N a sir the floor is yours.
Kyle Kelleher: Good morning, and thank you for joining us on our third quarter 2024 earnings Conference call. This is final Kelleher director Investor Relations and corporate SG&A before.
Kyle Kelleher: Before we begin our remarks this morning, I would like to point out that we've 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 to materials through the download feature on the earnings call webcast link.
Kyle Kelleher: With me today is jugal, <unk>, President and Chief Executive Officer, and Shelly Chadwick, Vice President and Chief Financial Officer.
Kyle Kelleher: Our format for todays conference call is as follows jugal will provide opening comments on the quarter. Following jugal Shelly will review the detailed financial results for the quarter. In addition to discussing expectations for the remainder of 2024, we will then open up the call for questions.
Kyle Kelleher: Let me remind investors that any forward looking statements made in the 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.
Kyle Kelleher: Comments regarding earnings before interest taxes, depreciation depletion and amortization net income and earnings per share reflect the adjusted GAAP numbers shown that <unk> four through eight in this morning's press release.
Kyle Kelleher: Adjustments are made in the prior year periods 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.
Jugal: Thanks, Kyle and welcome everyone.
It's nice to be with you today to discuss our third quarter results and provide an update on our outlook for the remainder of the year.
Jugal: Sales for the quarter were down slightly.
I said inventory corrections and cloud spread.
Jugal: As well as general market softness across several of our end markets.
Jugal: While we continue to see strength in space and defense.
Jugal: Despite these market headwinds our team has been laser focused on delivering strong performance.
Jugal: For the quarter, we achieved record EBITDA margins of 21, 5%.
Jugal: In fact for four of the last six quarters. Our team has delivered north of 20% EBITDA margins, which has been our overall margin targets.
Jugal: While the markets have been soft over the last several quarters, we are focused on aligning our portfolio to global Mega trends Optum.
Jugal: Optimizing our footprint and improving the cost structure of the company.
Jugal: Let me highlight some details from each of these areas.
Jugal: Although the semiconductor recovery is materializing slower than we anticipated.
Jugal: This was the second quarter in a row that we saw year over year growth in overall semi sale.
Jugal: With higher demand for logic and memory applications driving this volume increase we have been able to capitalize unrelated opportunities with our broad portfolio of semiconductor products and solutions.
Jugal: We're pleased to announce a material entered into an agreement to serve as a technology partner for a major global supplier of semiconductor processing equipment.
Jugal: We will support this customer and its development of a new deposition material that will pave the way for a wide range of next generation consumer and automotive electronic devices.
Jugal: Strength in the emerging space market and steady year over year growth in defence is more than offsetting the impact of continued softness in airplane builds.
Jugal: Leading to the 14th consecutive quarter of growth in overall demand for the aerospace and defense market.
Jugal: We continued our momentum this quarter with new business wins and defense, including the selection of our Supreme Max lightweight composite material for use on the prototype for the U S Army's future those broader long range aircraft.
Jugal: This one is just another example of how <unk> products are uniquely suited for next generation applications.
Jugal: And space one of our newest high performance products. The Opex alloy was selected for a new telescope mirror that will be tested by NASA and its pyrogenic test facility.
Jugal: This opportunity allows us to continue to build on our legacy of innovation, leading to advances in space discovery, while demonstrating the potential of some of our most advanced materials.
Speaker Change: Yes, but you are adding to our portfolio and support our Mega plants, we are taking steps to eliminate underperforming noncore businesses.
Speaker Change: Today, we're announcing the sale of a facility in Albuquerque, New Mexico that produces coatings for architectural glass mainly used in commercial construction.
Speaker Change: We've taken a number of additional steps to optimize our footprint over the last year with a focus on driving scale and efficiency.
Speaker Change: We closed the facility in Suzhou, China consolidated production into other facilities in both Asia and North America.
Speaker Change: We are also in the midst of right sizing two additional facilities in Asia, which should be completed by early next year.
Speaker Change: And we will be closing a facility in Albuquerque, New Mexico in conjunction with the business sale I mentioned earlier.
Speaker Change: Many of these actions are focused on improving the performance of our electronic materials business.
Speaker Change: As a result this business is now delivering approximately 20% EBITDA margins, representing close to 400 basis points improvement so far this year on lower volume.
Regarding our cost structure, we have been taking a series of decisive actions to streamline our organization to position us for greater efficiency.
Speaker Change: Over the last year, we have reduced 150 positions through targeted reductions in optimizing back office operations, while controlling discretionary spending.
Speaker Change: At the same time, we remain focused on investing for the future.
Speaker Change: Our R&D spend this year is at an all time high as we focus on partnering with our customers to deliver next generation products and solutions.
Speaker Change: Even through periods of market softness we remain focused on investing for the future.
Speaker Change: Further aligning the business to high growth opportunities supported by global Megatrends.
Speaker Change: Across our plants, we are improving yields and profitability to the process and technical innovations and continuous improvement initiatives.
Speaker Change: Turning to precision optics, where in the <unk>.
Speaker Change: Early stages of driving a meaningful transformation of that business and have appointed a new president adjacent more to lead the efforts.
Speaker Change: While this business has experienced some speed bumps over the past couple of years, we believe the long term fundamentals remain strong.
As a reminder, we provide the world's most extensive offering of precision optical components thin film coatings and assemblies, enabling a number of different technologies and applications and many of the markets we serve.
Speaker Change: Jason is quickly working with his team to review the overall cost structure and footprint to ensure we are maximizing the value of this important business and prioritizing the many growth opportunities the businesses development.
Speaker Change: The number of careful and deliberate actions, we are executing have allowed us to deliver record performance and are setting the stage even stronger performance in the future.
Speaker Change: I am proud of our team's unwavering focus on delivering for our customers. While also taking the necessary steps to manage costs and improve performance.
Speaker Change: As we look ahead to the rest of the year, we expect to deliver sequential improvement in sales and profitability. Despite the soft end market conditions we.
Speaker Change: We will continue our disciplined focus and deliver a solid 2024.
Speaker Change: Further cementing the strong foundation, we've built to accelerate results as markets recover.
Speaker Change: Now, let me turn the call over to Shelly to cover more details on the financials.
Shelly Chadwick: Thanks, Joel and good morning, everyone. During my comments I will reference the slides posted on our website. This morning, starting on slide 10.
In the third quarter value added sales, which exclude the impact of pass through precious metal costs were $263 8 million down 2% from prior year.
Shelly Chadwick: This decrease was driven by general market softness combined with lower precision Kladstrup's down.
Shelly Chadwick: Continued strength in space and defense and some improvement in semiconductor partially offset the decrease.
Shelly Chadwick: When looking at earnings per share, we delivered third quarter adjusted earnings of $1 41 down 7% from prior year.
Shelly Chadwick: Moving to slide 11, adjusted EBITDA in the quarter was $56 7 million or 21, 5% of value added sales up 2% with 100 basis points of margin expansion from the prior year.
Shelly Chadwick: We remain pleased with the margin performance delivering margins above our mid term target of 20% for yet another quarter.
Shelly Chadwick: This year over year increase was driven by continued cost management and operational performance offsetting lower volume and some weaker price mix.
Shelly Chadwick: Moving to Slide 12, let me now review third quarter performance by business segment.
Shelly Chadwick: Starting with performance materials value added sales were $163 6 million down 3% as compared to prior year.
Shelly Chadwick: This year over year decrease was driven by industrial and automotive market softness combined with lower precision clad strip sales, partially offset by strength in space and defense.
Shelly Chadwick: EBITDA, excluding special items was $46 5 million or 28, 4% of value added sales.
Shelly Chadwick: That compared to the prior year with 90 basis points of year over year margin expansion.
Shelly Chadwick: Strong operational performance and cost management helped offset the volume decline and unfavorable price mix.
Shelly Chadwick: EBITDA margin also improved 350 basis points on a sequential basis.
Shelly Chadwick: Moving to the Q4 outlook, we expect incremental sales improvement driven by some seasonality combined with continued strength in space and defense and a step up in beryllium nickel demand as the commercial construction inventory correction starts to subside.
Shelly Chadwick: Next turning to electronic materials on slide 13.
Shelly Chadwick: You added sales were $77 8, million% to 3% increase year on year, driven by improving semiconductor Sam.
Shelly Chadwick: EBITDA, excluding special items was $15 6 million or 21% of value added sales in the quarter up 290 basis points versus the prior year and the second quarter in a row with EBITDA margins north of 20%.
Shelly Chadwick: This increase was driven by higher volume and strong operational performance and cost management.
Shelly Chadwick: As we look to the fourth quarter, we expect semiconductor sales to be roughly flat sequentially as customer inventory levels have been slow to come down.
Shelly Chadwick: Turning to precision optics segment on slide 14.
Shelly Chadwick: You added sales were $22 4 million down 14% compared to the prior year.
Shelly Chadwick: This decrease was driven largely by defense order timing and general market weakness across automotive and industrial.
Shelly Chadwick: EBITDA, excluding special items was <unk> 5 million or two 2% of value added sales.
Shelly Chadwick: The decrease year over year was driven by lower volume and unfavorable price mix, partially offset by cost management.
Shelly Chadwick: Looking out to the fourth quarter, we expect the top line to be comparable to Q3 as markets remained challenged despite comparable sales, we expect a slight margin pick up to continued cost management efforts.
Shelly Chadwick: Moving now to cash debt and liquidity on slide 15.
Shelly Chadwick: We ended the quarter with a net debt position of approximately $477 million and approximately $127 million of available capacity on the company's existing credit facility.
Shelly Chadwick: Our leverage at two two times remains just below the midpoint of our target range.
Shelly Chadwick: Cash flow remains an important focus and we expect to generate strong cash flow in the fourth quarter with leverage at approximately two times by year end.
Shelly Chadwick: Lastly, let me transition to slide 16, and address the full year outlook for the company.
Shelly Chadwick: While end market conditions remain soft.
Shelly Chadwick: Back to deliver a stronger top and bottom line in the fourth quarter with higher volumes and the continued benefit of our cost portfolio and footprint actions.
Shelly Chadwick: As a result, we expect to deliver full year 2024 adjusted earnings in the range of $5 20 to $5 40 per share.
Shelly Chadwick: This concludes our prepared remarks, we will now open the line for questions.
Thank you at this time, we'll be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.
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Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing Mr. Keith.
Speaker Change: One moment, please where we pull for questions.
Speaker Change: Thank you.
Speaker Change: Our first question is coming from Mike Harrison with Seaport Research partners. Your line is life.
Hi, good morning.
Speaker Change: Hey, good morning, Mike Good morning.
Was hoping that we could start off maybe talking about some of the portfolio optimization.
Speaker Change: <unk> said that you referenced in your remarks, there or can you talk a little bit about the timing and maybe the potential savings that would be associated with the actions that you referenced in Albuquerque, and three sites in Asia.
Speaker Change: Yeah, Let me just talk a little bit about the portfolio and then.
Speaker Change: And then have Shelly talk about the savings and the timing so Mike This business as we indicated it's a large area of targets that we make for the architectural glass tokens commercial construction, primarily that's the business that we've had we've had it for a while.
Speaker Change: And the Albuquerque facility as we've looked at the.
Speaker Change: Our priorities going forward and look at alignment to our company. We decided that this is not something that makes sense for us on a go forward basis, obviously it does for somebody else.
Speaker Change: And and so we decided to take action we did the closing here last week.
Speaker Change: The business has been transitioned.
It's one facility that goes with the business and then there's a second facility nearby that isn't related facility that we've decided to.
Speaker Change: We've decided to close it just allows our electronic materials business to be much more focused on true electronic materials that are used in the semiconductor space and other spaces that they participate in such as automotive and some other some other areas. So that's what the portfolio action and it's it's about $10 million.
Speaker Change: Sales for us on an annual basis and it is a business that was not a profitable business.
Speaker Change: For us so with that chosen me.
Speaker Change: I meant on the.
Speaker Change: Timing of the savings yeah, as we think about the savings you know going forward really if you think about $10 million of sales at little to no negative profitability that will go away. So youll see a slight lift in the electronic materials margins from that.
Speaker Change: Yeah, that's really how I would think about modeling it.
And the other actions that you mentioned.
Speaker Change: Asia.
The facility closure and consolidations.
Speaker Change: Yes. So if you look at the if you look at the facilities you know in Asia. The Suzhou facility that we mentioned was something that we've actually done over the last 12 months. So this is something that's been completed it has been.
Speaker Change: These are actions that we are in general by the way that we've talked about you know that we've done over the last year or so as we have had this market softness.
Speaker Change: We've really focused on making sure that we make the company and overall a stronger.
Speaker Change: Stronger company and so that has been completed whereas the other two actions are underway. So partially completed but then some will be done here. Some actions will be finished here in Q4, and then remaining I would say in Q1 timeframe. So that's roughly the actions for for those.
Speaker Change: Optimizing the two additional facilities.
Speaker Change: Alright, Thats very helpful. Though I think we've been trying to figure out how much of the cost actions that you've been taking are more structural structural or permanent in nature versus how much of it is temporary so that's that's very helpful.
Mike.
Mike: If you want me to give a little more color on that I can because I know that's a question on everybody's mind Israeli okay, you're talking a lot about cost reduction we're seeing these great margins with lower volumes what are what should we expect as things pick up if we look at kind of the cost take out I would say, it's in the $15 million to $20 million range of what's already.
Mike: <unk> been done I would say more than half of that is permanent.
Mike: And then we're getting a little extra lift from incentive comp that you know we would look for that to come back. So really it's you know, it's the $15 million to $20 million plus call. It five or six incentive comp is what youre seeing in the in the P&L today, a little better than half will stick.
Speaker Change: Alright very helpful. A couple of other questions that I had one is we've seen some recent headlines <unk> seen that the U S. Military is facing a shortage of missiles. I know you guys don't like to talk specifically about where your advanced materials solutions are used particularly.
Speaker Change: In defense applications, but I'm, just curious could higher missile production be a positive for your defense business.
Speaker Change: As we start to get into next year.
Speaker Change: Well defense as a market for us as you know Mike has been a stronger market than in other years. We indicated for example on our last call that our bookings for defense for the first half of the year, we're roughly at the same level as the entire year last year.
Speaker Change: In General Defense business has been picking up.
Speaker Change: Result of the number of things that are going on in the world right now all the all the geopolitical issues that we're all well aware of we also are having I would say more a push for defense business.
Speaker Change: Outside the U S.
Speaker Change: The countries that we are permitted to working so.
Speaker Change: There is opportunities.
Speaker Change: And then we're capturing some of those opportunities as well so in general I would say that our defense business.
Speaker Change: Is at a much higher pace this year.
Speaker Change: Now when it comes to I think quarterly as you know Q4 tends to be a a higher quarter in general in defense, but if you take the seasonality out I would say defense has been a has been a growing.
Speaker Change: Business for us and some of the things that you just mentioned.
Could be contributing factors for that.
Alright, and then last question for me I was just curious on the precision strip customer and their rollout plans are your expectations that theres still going to be destocking in Q4, and we should still expect some.
Speaker Change: Kind of year over year weakness within the precision strip business.
Speaker Change: Or have the rollout plans change just just any any precision you can provide.
Speaker Change: The timing of.
Speaker Change: The improvement in that business would be helpful.
Speaker Change: Right. So you know what.
Speaker Change: We had indicated that we would have a slowdown of that business here in the back half of this year, which.
Speaker Change: We are having it's in line with what we have discussed we continue to have discussions with them about next year.
Speaker Change: I would say that the inventory correction that they have shared with us I would expect that to.
Speaker Change: Continue and rollover into the new year.
Speaker Change: But at.
Speaker Change: At the same time, we'd say that we continue to have discussions with them on how long that rollover, maybe and how much more time, it'll take them to continue to work through that.
Speaker Change: But.
But we will still have good sales I mean, we had good sales in Q3, good sales I would expect in Q4, just not to the same levels that we had had over the past several quarters.
Speaker Change: Alright, thanks very much.
Speaker Change: Thanks, Mike.
Speaker Change: Thank you.
Speaker Change: Our next question is coming from Daniel Moore with CJS Securities. Your line is live.
Daniel Moore: Thank you good morning, Googled morning, Shelley I appreciate the color on gain on them.
Speaker Change: Maybe I know crystal ball, obviously and.
Daniel Moore: But just what are you hearing from your customers in semi regarding outlook as we think about 25 kind of first half versus second half.
Daniel Moore: And when it.
Daniel Moore: It sounds like flattish for Q4, but you start it's been starting to grow a little wind might be when are.
Daniel Moore: Or are they thinking about a potential turn or positive inflection to maybe more meaningful growth.
Daniel Moore: Back half of 'twenty five more like 26, just what's what are your discussions telling you.
Daniel Moore: Yeah.
Then.
Forecasting semiconductor market has been extremely challenging for not only us, but I think for the general market probably over the last four to six quarters.
Daniel Moore: Initial thoughts were that the recovery would have already happened and we would be nearly approaching some of the peak levels that we had back in the 'twenty two timeframe, but that's not what has transpired at all.
Daniel Moore: The high computing segment has improved.
Daniel Moore: Improved but the rest of the segments of just not not improved at all it seems like wafer shipments are one of the one of the main large customers in the chip industry indicators of the wafer shipments were still down 16% from peak levels, which is a key component of what.
Daniel Moore: It impacts our sales and so it's just been a very very difficult market and very difficult to.
Daniel Moore: Forecast frankly.
Daniel Moore: As it just continues to push out.
Daniel Moore: Have seen.
Daniel Moore: Little bit of a life led by the logic side the high.
Daniel Moore: The memory side, which is which is all part of high performance computing.
Daniel Moore: Here in the last couple of quarters, we would expect that to continue to I.
Daniel Moore: I think have incremental growth over the next few quarters, but but the rest of the.
Daniel Moore: Chip segment, I think will continue to be.
Daniel Moore: We will continue to see I think flattish to slight improvement here in the next couple of quarters and then perhaps in the back half of 'twenty five we're starting to see more of an increase.
Daniel Moore: But at the same time I would tell you I mean this is of course. This is a market now that we really are monitoring almost week by week month by month.
Daniel Moore: By quarter, just because the last four to six quarters have not materialized.
Daniel Moore: To what the markets have indicated and experts are indicators of the customers have indicated.
It's just almost kind of monthly monthly monitoring is what I think we are we are doing on this market.
Speaker Change: Completely understood that's helpful.
Speaker Change: And then following up on the prior question cloud strip just.
Speaker Change: And as you know are there any milestones coming up that.
Speaker Change: It might give you a little bit more visibility into when the phase two beyond the current inventory.
Speaker Change: Management once we get through the next few quarters.
Speaker Change: When might phase two start to ramp in terms of incremental production and revenue and from what are we waiting for.
Speaker Change: You know, what's the customer sort of waiting for.
Speaker Change: That might.
Speaker Change: Give me give us a little bit more visibility as we look out 12 to 24 months.
Speaker Change: Yeah as you know the customer is continuing to roll this product out globally.
Speaker Change: We're having good success.
Speaker Change: And all of the countries that they had been launching and so I think I'm sure you're able to read on that in terms of the rollout of that they have done one large market that they would like to enter as the U S. They have.
Speaker Change: Applied and they are working through the FDA it could be that they are getting an approval towards the end of the 25 it could be that it goes into 26, I mean for us to know exactly when that approval is but.
Speaker Change: I would imagine that when that happens that would open up another very large market for them, which should then.
Speaker Change: Have additional demand for this for this product so the combination of the continued global growth that they have.
Combined with I think the approval and rollout of this on the U S side.
Speaker Change: It should lead to.
Speaker Change: Growth over the next two to three years.
Speaker Change: Helpful. And then yeah I appreciate the color on the architectural glass and obviously you know we continue to improve.
Speaker Change: The margin structure as well as the growth outlook of the overall portfolio over time are there any other businesses that might consider non core or explore strategic alternatives are you now.
Speaker Change: At least where we sit today.
Speaker Change: Yeah, and we can turn to look at our portfolio and in General you know we've indicated that we are very happy with our portfolio. We like the markets that we're participating in we like the mega trends that our portfolio is aligned to.
Speaker Change: Theres always opportunity of here and there that we have some we have some and we.
Speaker Change: We took we took the opportunity here on this large area targets business.
Certainly we will continue to study our portfolio and if there are any other miner.
Speaker Change: Changes will will continue to execute on.
Speaker Change: Alright, I'll jump back with any follow ups. Thank you.
Thanks, Dan.
Speaker Change: Thank you.
Speaker Change: Our next question is coming from Phil Gibbs with Keybanc capital markets. Your line is life.
Phil Gibbs: Hey, good morning.
Phil Gibbs: Good morning, Joe.
Phil Gibbs: So I'm just trying to think about some of the things that you announced today.
Phil Gibbs: In terms of rationalization or consolidation you have.
Phil Gibbs: Number of things Youre doing within the portfolio in North America, and in Asia, and you said yourself too.
Phil Gibbs: Target longer term improvement in electronic materials. So you know at a high level, what's the what's the what's the trade off in terms of.
Phil Gibbs: Topline you you may lose or margin or <unk>.
Phil Gibbs: <unk> improvement, what's the what's the calculus behind.
Phil Gibbs: Some of these moves in terms of you know what you gain and what you.
Phil Gibbs: You may lose leaving so move these.
Phil Gibbs: Geographies or products.
Yeah, So great question.
Phil Gibbs: I can tell you that on the topline side, it's very very simple.
Phil Gibbs: Really the only impact is the larger your targets business that we are divesting and that's the roughly $10 million.
<unk> indicated.
Phil Gibbs: Our goal is to continue to support our customers really at the same level, but in fact, even though even grow with the improved footprint on a more cost optimized footprint as we drive efficiencies.
Phil Gibbs: As we drive as we drive new business. So I think in general I want to leave you with the message that you know.
Phil Gibbs: These changes we are making on the footprint side and the portfolio side are not really leading to.
Phil Gibbs: Top line reductions other than other than as I said the divestiture part.
Phil Gibbs: That that we've indicated we've made sure that as we make these consolidations and as we make these changes that we're working with our customers very closely we're making sure that our products are getting qualified from the new facility that we are that we are supplying them too. So these are actions that we're doing to drive.
Phil Gibbs: Improvements across the company and make our company a stronger company and the markets.
Phil Gibbs: As the markets recover not a.
Phil Gibbs: Not a topline concern.
Speaker Change: And then as it relates to the divestiture that you mentioned in I believe it was new Mexico.
Speaker Change: Are you expecting to get any proceeds from that sale.
Speaker Change: Yeah. It's so will we see you know an immaterial amount I would say, it's not a price that we've disclosed but they are paying for some of the assets and working capital and we'll work through that calculation here over the next quarter and report on out on that in our acquisition footnote for the K.
Speaker Change: But it's you know, it's it's enough to give us a little bit of cash flow and really unload a business that unfortunately was not profitable.
Thank you and then.
Speaker Change: Believe in your slide deck, you had made the comment the.
Speaker Change: Oil and gas are starting to pick up in the third quarter, it's been kind of a slow slide down there for probably the last year and a half as rig counts have adjusted.
Speaker Change: Do you think we've passed the point of bottom and we can get some some easier comparisons as we head into 2025 for that business.
Speaker Change: Yeah, you know when I look at the rig counts.
Speaker Change: A couple of years ago, it seemed like the rig counts for all.
Speaker Change: The year, you know more in the nine hundreds range last year. It seemed like that they tend to be you know the eight hundreds mid eight hundreds even even towards higher eight hundreds.
This year, there seemed to be a lot more sevens you know when you look at the when you look at the rig count I mean, the latest number is below 800 are right around 800, I mean for rig count. So I would I would like to thank Phil that that we are perhaps at a point where the rig counts are are towards the low point.
Speaker Change: It's hard it's hard to gauge kind of how things may play out in 'twenty, five, but I would like to thank the work.
Speaker Change: Approaching the bottom and would have you know that.
Speaker Change: Comps going into going into 'twenty five.
Speaker Change: Thank you and then lastly for me you mentioned beryllium nickel starting to pick up as the commercial construction destocking.
Speaker Change: Subsides.
Speaker Change: That was a pretty material impact for you all through the first.
Speaker Change: Several months of the year, you clearly have enough visibility at this point to say that it's going to improve in the fourth quarter relative to the third.
Speaker Change: Is your is your backlog or customer indications telling.
Speaker Change: You the that that is going to.
Speaker Change: Persistent.
Speaker Change: 2025, and in one of those high level conversations and things that you're tracking thanks.
Speaker Change: Yes, that's been a really tough business comp for us this year as you know not only is that business.
He has been a good business over the last few years. It's also a positive mix of business for us.
Speaker Change: And the first half of this year.
Speaker Change: Practically it at zero or very close to zero I think in terms of our sales in that area with a little bit of a lift here in Q3, and then yes. There is.
Speaker Change: A higher lift that's forecasted now for Q4 I would say our initial indications are that the inventory issue is getting better and therefore, there should be improved sales going into 'twenty five.
Speaker Change: But I'd like to see the Q4 play out and I think I'd like to have a little bit more data.
Speaker Change: To be able to call on that and so I think we'll be better prepared to comment on that at the beginning of the year, but I think the initial indications are favorable.
Speaker Change: Thanks, everyone.
Speaker Change: Thank you Bill.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: It is coming from David Silver with T L King and Associates. Your line is live.
Kevin holder: Good morning. This is Kevin holder on for David This morning.
I want to first focus on the current expansion projects that you have underway and your electronic materials business.
Kevin holder: Given the how demand has varied across our end markets. This year has there been a change in your thinking on timing of completion for the new <unk> and Milwaukee facility expenses.
Kevin holder: <unk>. Thank you.
Speaker Change: Yeah. So we have a number of different we have a number of different projects that we're working on for the electronic materials to ensure that.
Speaker Change: We've got the right level of capacity that we're putting in for the next three to five year growth that we see in this market as well as I think we continue to work on the projects that will drive more efficiency and more cost competitive.
Speaker Change: <unk> customers. So the Milwaukee project, which is I think proceeding very well.
Speaker Change: A big contributor to our growth in the <unk> atomic layer deposition space, we expect that business to continue to do well over the next three to five years, we have a large project that we're doing in our Newton facility, where we have where we have a second.
Speaker Change: E beam furnaces that were putting in place that is on track and proceeding and then we have a number of smaller projects that we're involved in as well at our at our sites.
Speaker Change: And all of those we are staying with those projects were not slowing down because we want to make sure that we have the right capacity in the right efficiencies in place as the markets recover and we can support the growth that is projected for the next three to five years.
Great. Thank you that's very helpful. I guess I wanted to next touch on your underlying margin targets and given that you have achieved your 20% adjusted EBITDA margin goal on an accelerated timetable how should we be thinking about what an updated 2025 adjusted EBITDA margin target.
Speaker Change: Might be heading into next year.
Speaker Change: Yeah, I mean, we're pleased with I think the progress that we've made on delivering our margin profile, but we've said all along that we want to make sure that we can do that on a consistent basis.
Speaker Change: In our remarks, we indicated that it's the last four out of six quarters that we have done that on I wish that I would have said six out of six and then I think we would have perhaps been having a different discussion so I'm.
Speaker Change: Well, we're going to continue to we're going to continue to manage the business and continue to deliver and continue to look for consistent delivery of that north of 20% EBITDA margin and then I think that'll allow us to have perhaps other discussions in the future.
Speaker Change: Great. Thank you.
Speaker Change: And then maybe one last one you continue to grow your space business.
Speaker Change: You may be discuss though your success to date and broadening your customer base.
Speaker Change: In your private versus your government customers and then what does material need to do to maintain or strengthen its market share in the space business.
Speaker Change: Yes, a space that's been a very.
Speaker Change: Important and growth market for us in the last 12 months to 24 months.
Speaker Change: <unk> traditionally been more on the government side, we have been I would say really be.
Speaker Change: Provider of key critical materials led.
Speaker Change: Led by our beryllium portfolio into the into the government space activities commercial spaces as emerged as a really really good growth area for us for a number of our different products, whether it's our talking about products or other products that we supply to them and.
Speaker Change: And has added onto the to the government. We are also working outside the.
Speaker Change: The U S and Europe and Asia on various space related activities on both government sponsored programs as well as commercial space. So we're going to continue to do that I think we've got a good.
Our pipeline of new programs that we're working on as well as of course, the existing portfolio that we have.
Speaker Change: And as we as we look at this area as being one of the megatrend tie.
Speaker Change: Type of areas. So we will continue to focus on this.
Speaker Change: Okay.
Speaker Change: Thank you for the color very helpful. I'll hop back in the queue.
Speaker Change: Thank you.
Speaker Change: Thank Keith.
Speaker Change: Our next question is coming from Dave storms with Stonegate. Your line is live.
Dave Storms: Good morning, and thank you for taking my questions I, just want to circle back to date.
Speaker Change: Good morning.
Just wanted to circle back on some of the cost reduction conversations that you had earlier in the call Australia. I know you mentioned that there's been about $15 million to $20 million.
Speaker Change: With your cost structure is already done.
Speaker Change: I'm just curious if theres any internal targets that youre willing to share with us or maybe how we should think about the runway. That's left here for more sizable cost take outs.
Speaker Change: Yeah. Thanks for the question. So I think that the way we look at that is that all the actions. We've taken have been very thoughtful and deliberate so it really hasnt been lets go in and do a big program take a big bite. It's more one step at a time kind of evaluating different pieces of our business different parts of our cost structure and taking those.
Speaker Change: <unk> kind of digesting that before we move on so to say that there is or isn't more left it's it's it's not an easy answer.
Speaker Change: Like how we're running today, we like the results that that's putting up and we're going to continue to look at our cost structure for opportunities and also at the same time, obviously the investing for growth. So it is a thoughtful balance and something that we think we're taking a pragmatic approach to it.
Speaker Change: Understood. Thank you and then just turning.
Speaker Change: To end markets and your consumer electronics, I know you've talked a lot about precision cloud.
Speaker Change: Kind of some of the Destocking stop there.
Speaker Change: Are you seeing anything outside of precision cloud that gives you optimism that consumer electronics might have a bit of a turnaround.
Speaker Change: Yeah, I would say at this time I think just a number of things that are going on whether it's the.
Speaker Change: Typical handheld devices or even household appliances and other consumer applications I think it just continues to be a bit of a choppy market for us.
Speaker Change: And so nothing.
Speaker Change: Nothing meaningful that I would indicate outside of the cloud.
Speaker Change: Understood. Thank you and then just one more here I know, you're not giving guidance for 2025.
Speaker Change: As we're looking into 2025 as analysts is there anything.
Speaker Change: From a seasonal standpoint that you.
Speaker Change: I can think of off the top of your head that would make 2025 look unusual.
Well I mean, you know I think Q4, as we know typically tends to be a strong quarter for defense.
Speaker Change: And therefore, the overall quarter tends to be tends to be stronger, but and then Q1.
Speaker Change: It tends to be a little bit weaker one from a defense side, but then also.
Semi semi and consumer electronic side, because there is typically buildup that happened in Q3, Q4 timeframe and then a bit of a slowdown in Q1. So I think I would say general seasonality that our business experiences every year is is what I would indicate nothing abnormal to our general seasonality.
Speaker Change: That's perfect. Thank you for taking my questions and good luck in Q4.
Okay. Thanks.
Speaker Change: Thank you.
Speaker Change: We have no further questions in the queue at this time I would like to hand, it back over to Mr. Callahan for any closing remarks.
Speaker Change: Thank you. This concludes our third quarter 2024 earnings call recorded playback of this call will be available on the company's website materially on dot com I'd like to thank you for participating on this call and your interest in material will be available for any follow up questions. My number is 216334 931. Thank you again.
Speaker Change: Thank you ladies and gentlemen, this does conclude today's conference and you may disconnect. Your lines at this time and we thank you for your participation.