Materion corporation reports record third quarter results and updates full year 2022 outlook
Mayfield heights, ohio--(business wire)--materion corporation (nyse: mtrn), a world leader in high performance advanced materials, today reported record third quarter financial results, updated 2022 earnings guidance and shared an update on key strategic initiatives. third quarter 2022 highlights net sales were $428.2 million; value-added sales increased 35% year over year to a record $290.4 million operating profit was $29.1 million; adjusted earnings before interest, taxes, depreciation, depletion, and amortization (ebitda) was a record $48.8 million net income of $0.96 per diluted share; adjusted earnings per share (eps) of $1.31, an all-time record for the company accelerating organic outgrowth with key investments investment of $20m towards additional capacity and capabilities on track at newton facility precision clad strip project achieved ‘qualified status’; ramp up proceeding construction has started on new facility for development of next-generation battery solutions molten salt purification plant to produce flibe for use in clean energy is progressing well “i am extremely proud of our global team for making substantial progress on our many organic growth initiatives and for leading materion to another record quarter of sales and earnings,” jugal vijayvargiya, materion president and ceo said. “although our bottom-line results fell short of our expectations due to some short-term headwinds and operational challenges, we are headed into the fourth quarter with good momentum. i remain confident that the benefit of our organic outgrowth efforts coupled with continued solid end market demand, will deliver even stronger results in the fourth quarter and position us well for 2023.” third quarter 2022 results net sales for the third quarter of 2022 were $428.2 million, compared to $388.0 million in the prior year period. value-added sales of $290.4 million were a quarterly record, up 35% from the prior year. in addition to the benefit of the hcs-electronic materials acquisition, value-added sales were up 15% organically, excluding the impact of currency, driven by strong performance across several major end markets including semiconductor, industrial, aerospace and energy. operating profit for the third quarter was $29.1 million and net income was $20.0 million, or $0.96 per diluted share, compared to operating profit of $21.2 million and net income of $18.2 million, or $0.88 per diluted share in the prior year period. excluding special items, detailed in the attached tables, adjusted ebitda was $48.8 million in the third quarter, another quarterly record for the company, compared to $41.2 million in the prior year. the increase was driven by higher volume and favorable pricing, partially offset by short term unmitigated tantalum costs, a weaker mix within semiconductor, and lower yields from a large performance materials facility. adjusted net income was $27.3 million excluding acquisition amortization, or $1.31 per diluted share, an increase of 14% compared to $1.15 per share in the prior year period. outlook while we continue to expect strong end market demand and growth from our strategic initiatives, we are updating the 2022 adjusted earnings per share guidance to the range of $5.15 to $5.25 to adjust for the impact of the aforementioned headwinds. this updated range represents a ~30% increase from the prior year at the midpoint. adjusted earnings guidance it is not possible for the company to identify the amount or significance of future adjustments associated with potential insurance and litigation claims, legacy environmental costs, acquisition and integration costs, certain income tax items, or other non-routine costs that the company adjusts in the presentation of adjusted earnings guidance. these items are dependent on future events that are not reasonably estimable at this time. accordingly, the company is unable to reconcile without unreasonable effort the forecasted range of adjusted earnings guidance for the full year to a comparable gaap range. however, items excluded from the company's adjusted earnings guidance include the historical adjustments noted in attachments 4 through 7 to this press release. conference call materion corporation will host an investor conference call with analysts at 9:00 a.m. eastern time, november 2, 2022. the conference call will be available via webcast through the company’s website at www.materion.com. by phone, please dial (888) 506-0062. calls outside the u.s. can dial (973) 528-0011; please reference participant access code of 508461. a replay of the call will be available until november 16, 2022 by dialing (877) 481-4010 or (919) 882-2331 if international; please reference replay id number 44235. the call will also be archived on the company’s website. forward-looking statements portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements. our actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. these factors include, in addition to those mentioned elsewhere herein: our ability to achieve the strategic and other objectives related to the acquisition of hcs-electronic materials, including any expected synergies; our ability to successfully integrate the hcs-electronic materials business and other such acquisitions and achieve the expected results of the acquisition, the ultimate impact of the covid-19 pandemic on our business, results of operations, financial condition, and liquidity; the global economy, including inflationary pressures, potential future recessionary conditions, and the impact of tariffs and trade agreements; the condition of the markets which we serve, whether defined geographically or by segment; changes in product mix and the financial condition of customers; our success in developing and introducing new products and new product ramp-up rates; our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values; our success implementing our strategic plans and the timely and successful completion and start-up of any capital projects; other financial and economic factors, including the cost and availability of raw materials (both base and precious metals), physical inventory valuations, metal consignment fees, tax rates, exchange rates, interest rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, credit availability, and the impact of the materion’s stock price on the cost of incentive compensation plans; the uncertainties related to the impact of war, terrorist activities, and acts of god; changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and operations; the conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects; the disruptions on operations from, and other effects of, catastrophic and other extraordinary events; and the risk factors set forth in part 1, item 1a of our 2021 annual report on form 10-k. materion corporation is headquartered in mayfield heights, ohio. the company, through its wholly owned subsidiaries, supplies highly engineered advanced enabling materials to global markets. products include precious and non-precious specialty metals, inorganic chemicals and powders, specialty coatings, specialty engineered beryllium alloys, beryllium and beryllium composites, and engineered clad and plated metal systems. attachment 1 materion corporation and subsidiaries consolidated statements of income (unaudited) third quarter ended nine months ended (in thousands except per share amounts) september 30, 2022 october 1, 2021 september 30, 2022 october 1, 2021 net sales $ 428,191 $ 388,028 $ 1,322,531 $ 1,113,413 cost of sales 345,448 313,715 1,077,070 902,723 gross margin 82,743 74,313 245,461 210,690 selling, general, and administrative expense 38,958 43,195 122,666 118,031 research and development expense 7,430 6,354 22,096 19,164 restructuring expense (income) 484 — 1,560 (378 ) other — net 6,774 3,604 18,575 12,272 operating profit 29,097 21,160 80,564 61,601 other non-operating income—net (1,175 ) (1,279 ) (3,512 ) (3,832 ) interest expense — net 5,888 861 14,325 2,480 income before income taxes 24,384 21,578 69,751 62,953 income tax expense 4,432 3,422 12,525 10,162 net income $ 19,952 $ 18,156 $ 57,226 $ 52,791 basic earnings per share: net income per share of common stock $ 0.97 $ 0.89 $ 2.79 $ 2.59 diluted earnings per share: net income per share of common stock $ 0.96 $ 0.88 $ 2.76 $ 2.56 weighted-average number of shares of common stock outstanding: basic 20,526 20,439 20,502 20,414 diluted 20,780 20,657 20,756 20,659 attachment 2 materion corporation and subsidiaries consolidated balance sheets (unaudited) (thousands) september 30, 2022 december 31, 2021 assets current assets cash and cash equivalents $ 20,682 $ 14,462 accounts receivable, net 238,975 223,553 inventories, net 420,299 361,115 prepaid and other current assets 29,708 28,122 total current assets 709,664 627,252 deferred income taxes 4,701 5,431 property, plant, and equipment 1,173,073 1,132,223 less allowances for depreciation, depletion, and amortization (746,966 ) (723,248 ) property, plant, and equipment—net 426,107 408,975 operating lease, right-of-use assets 65,716 63,096 intangible assets, net 145,089 156,736 other assets 32,475 27,369 goodwill 318,571 318,620 total assets $ 1,702,323 $ 1,607,479 liabilities and shareholders’ equity current liabilities short-term debt $ 19,747 $ 15,359 accounts payable 96,482 86,243 salaries and wages 29,974 37,544 other liabilities and accrued items 47,949 53,388 income taxes 1,542 4,205 unearned revenue 6,596 7,770 total current liabilities 202,290 204,509 other long-term liabilities 13,991 14,954 operating lease liabilities 60,248 57,099 finance lease liabilities 13,009 16,327 retirement and post-employment benefits 29,421 33,394 unearned income 110,723 97,962 long-term income taxes 1,257 1,190 deferred income taxes 30,427 27,216 long-term debt 474,280 434,388 shareholders’ equity 766,677 720,440 total liabilities and shareholders’ equity $ 1,702,323 $ 1,607,479 attachment 3 materion corporation and subsidiaries consolidated statements of cash flows (unaudited) nine months ended (thousands) september 30, 2022 october 1, 2021 cash flows from operating activities: net income $ 57,226 $ 52,791 adjustments to reconcile net income to net cash provided by operating activities: depreciation, depletion, and amortization 39,223 32,478 amortization of deferred financing costs in interest expense 1,310 546 stock-based compensation expense (non-cash) 5,997 4,924 deferred income tax expense (benefit) 1,825 (263 ) changes in assets and liabilities: accounts receivable (20,964 ) (26,041 ) inventory (64,832 ) (62,353 ) prepaid and other current assets (3,019 ) (7,020 ) accounts payable and accrued expenses (1,785 ) 35,314 unearned revenue (2,191 ) 650 interest and taxes payable (1,741 ) (1,504 ) unearned income due to customer prepayments 17,501 9,022 other-net 5,654 1,974 net cash provided by operating activities 34,204 40,518 cash flows from investing activities: payments for purchase of property, plant, and equipment (54,236 ) (77,640 ) proceeds from sale of property, plant, and equipment 827 686 payments for acquisition (2,971 ) — net cash used in investing activities (56,380 ) (76,954 ) cash flows from financing activities: proceeds from borrowings under revolving credit agreement, net 49,092 43,010 proceeds from issuance of debt 6,643 — repayment of long-term debt (11,761 ) (1,803 ) principal payments under finance lease obligations (1,985 ) (2,152 ) cash dividends paid (7,584 ) (7,243 ) payments of withholding taxes for stock-based compensation awards (3,056 ) (3,033 ) net cash provided by financing activities 31,349 28,779 effects of exchange rate changes (2,953 ) (212 ) net change in cash and cash equivalents 6,220 (7,869 ) cash and cash equivalents at beginning of period 14,462 25,878 cash and cash equivalents at end of period $ 20,682 $ 18,009 attachment 4 materion corporation and subsidiaries reconciliation of non-gaap measure - value-added sales, operating profit, and ebitda (unaudited) third quarter ended nine months ended (millions) september 30, 2022 october 1, 2021 september 30, 2022 october 1, 2021 net sales performance materials(1) $ 169.4 $ 136.1 $ 473.9 $ 375.5 electronic materials(1) 230.8 220.7 762.6 638.5 precision optics 28.0 31.2 86.0 99.4 other — — — — total $ 428.2 $ 388.0 $ 1,322.5 $ 1,113.4 less: pass-through metal cost performance materials(1) $ 20.6 $ 20.9 $ 62.0 $ 50.9 electronic materials(1) 116.9 151.0 424.7 439.0 precision optics — — 0.1 — other 0.3 0.3 1.3 1.2 total $ 137.8 $ 172.2 $ 488.1 $ 491.1 value-added sales (non-gaap) performance materials(1) $ 148.8 $ 115.2 $ 411.9 $ 324.6 electronic materials(1) 113.9 69.7 337.9 199.5 precision optics 28.0 31.2 85.9 99.4 other (0.3 ) (0.3 ) (1.3 ) (1.2 ) total $ 290.4 $ 215.8 $ 834.4 $ 622.3 gross margin performance materials(1)(2) $ 41.1 $ 36.8 $ 117.4 $ 99.4 electronic materials(1)(2) 31.9 24.7 100.0 73.5 precision optics 9.8 12.7 28.1 38.5 other — 0.1 — (0.7 ) total(2) $ 82.8 $ 74.3 $ 245.5 $ 210.7 (1)the company changed two segment names during the first quarter of 2022: performance alloys and composites became performance materials, and advanced materials became electronic materials. see further discussion in the form 10-q for the period ended april 1, 2022. (2)adjusted gross margin without special items impacting cogs for performance materials for the three months and nine months ended september 30, 2022 was $45.2 million and $124.1 million, respectively. adjusted gross margin without special items impacting cogs for electronic materials for the nine months ended september 30, 2022 was $105.0 million. consolidated adjusted gross margin without special items impacting cogs for the three months and nine months ended september 30, 2022 was $86.9 million and $257.2 million, respectively. note: quarterly information presented within this document and previously disclosed quarterly information may not equal the total computed for the year due to rounding third quarter ended nine months ended (millions) september 30, 2022 october 1, 2021 september 30, 2022 october 1, 2021 operating profit performance materials $ 22.9 $ 20.9 $ 63.8 $ 51.7 electronic materials 12.8 9.3 39.0 26.6 precision optics 0.8 3.3 0.8 10.5 other (7.4 ) (12.3 ) (23.0 ) (27.2 ) total $ 29.1 $ 21.2 $ 80.6 $ 61.6 non-operating (income)/expense performance materials $ 0.1 $ 0.2 $ 0.4 $ 0.4 electronic materials — 0.1 — 0.1 precision optics (0.2 ) (0.3 ) (0.6 ) (0.6 ) other (1.1 ) (1.2 ) (3.3 ) (3.7 ) total $ (1.2 ) $ (1.2 ) $ (3.5 ) $ (3.8 ) depreciation, depletion, and amortization performance materials $ 6.1 $ 8.1 $ 17.5 $ 16.7 electronic materials 4.0 2.1 12.3 6.2 precision optics 2.6 2.7 7.9 8.2 other 0.4 0.5 1.5 1.4 total $ 13.1 $ 13.4 $ 39.2 $ 32.5 segment ebitda performance materials $ 28.9 $ 28.8 $ 80.9 $ 68.0 electronic materials 16.8 11.3 51.3 32.7 precision optics 3.6 6.3 9.3 19.3 other (5.9 ) (10.6 ) (18.2 ) (22.1 ) total $ 43.4 $ 35.8 $ 123.3 $ 97.9 special items performance materials $ 4.1 $ — $ 6.8 $ — electronic materials 0.4 — 7.6 — precision optics 0.4 0.1 0.7 0.5 other 0.5 5.3 2.0 5.4 total $ 5.4 $ 5.4 $ 17.1 $ 5.9 adjusted ebitda excluding special items performance materials $ 33.0 $ 28.8 $ 87.7 $ 68.0 electronic materials 17.2 11.3 58.9 32.7 precision optics 4.0 6.4 10.0 19.8 other (5.4 ) (5.3 ) (16.2 ) (16.7 ) total $ 48.8 $ 41.2 $ 140.4 $ 103.8 the cost of gold, silver, platinum, palladium, copper, ruthenium, iridium, rhodium, rhenium, and osmium is passed through to customers and, therefore, the trends and comparisons of net sales are affected by movements in the market price of these metals. internally, management also reviews net sales on a value-added basis. value-added sales is a non-gaap financial measure that deducts the value of the pass-through metals sold from net sales. value-added sales allows management to assess the impact of differences in net sales between periods or segments and analyze the resulting margins and profitability without the distortion of the movements in pass-through market metal prices. the dollar amount of gross margin and operating profit is not affected by the value-added sales calculation. the company sells other metals and materials that are not considered direct pass throughs, and these costs are not deducted from net sales to calculate value-added sales. the company’s pricing policy is to pass the cost of these metals on to customers in order to mitigate the impact of price volatility on the company’s results from operations. value-added information is being presented since changes in metal prices may not directly impact profitability. it is the company’s intent to allow users of the financial statements to review sales with and without the impact of the pass-through metals. attachment 5 materion corporation and subsidiaries reconciliation of net sales to value-added sales, net income to ebitda and adjusted ebitda (unaudited) third quarter ended nine months ended (millions) september 30, 2022 % of va october 1, 2021 % of va september 30, 2022 % of va october 1, 2021 % of va net sales $ 428.2 $ 388.0 $ 1,322.5 $ 1,113.4 pass-through metal cost 137.8 172.2 488.1 491.1 value-added sales $ 290.4 $ 215.8 $ 834.4 $ 622.3 net income $ 20.0 6.9 % 18.1 8.4 % $ 57.2 6.9 % $ 52.8 8.5 % income tax expense 4.4 1.5 % 3.4 1.6 % 12.6 1.5 % 10.1 1.6 % interest expense - net 5.9 2.0 % 0.9 0.4 % 14.3 1.7 % 2.5 0.4 % depreciation, depletion and amortization 13.1 4.5 % 13.4 6.2 % 39.2 4.7 % 32.5 5.2 % consolidated ebitda $ 43.4 14.9 % $ 35.8 16.6 % $ 123.3 14.8 % $ 97.9 15.7 % special items restructuring and cost reduction $ 0.4 0.1 % $ — — % $ 1.5 0.2 % $ 0.4 0.1 % additional start up resources and scrap 4.1 1.4 % — — % 4.1 0.5 % — — % merger and acquisition costs 0.9 0.3 % 5.4 2.5 % 11.5 1.4 % 5.5 0.9 % total special items 5.4 1.9 % 5.4 2.5 % 17.1 2.0 % 5.9 0.9 % adjusted ebitda $ 48.8 16.8 % $ 41.2 19.1 % $ 140.4 16.8 % $ 103.8 16.7 % in addition to presenting financial statements prepared in accordance with u.s. generally accepted accounting principles (gaap), this earnings release contains financial measures, including operating profit, segment operating profit, earnings before interest, taxes, depreciation, depletion and amortization (ebitda), net income, and earnings per share, on a non-gaap basis. as detailed in the above reconciliation and attachment 6, we have adjusted the results for certain special items such as restructuring and cost reductions, additional start up resources and scrap and merger and acquisition costs. internally, management reviews the results of operations without the impact of these costs in order to assess the profitability from ongoing activities. we are providing this information because we believe it will assist investors in analyzing our financial results and, when viewed in conjunction with the gaap results, provide a more comprehensive understanding of the factors and trends affecting our operations. attachment 6 materion corporation and subsidiaries reconciliation of net income to adjusted net income and diluted earnings per share to adjusted diluted earnings per share (unaudited) third quarter ended nine months ended (millions) september 30, 2022 diluted eps october 1, 2021 diluted eps september 30, 2022 diluted eps october 1, 2021 diluted eps net income and eps $ 20.0 $ 0.96 $ 18.2 $ 0.88 $ 57.2 $ 2.76 $ 52.8 $ 2.56 special items restructuring and cost reduction 0.4 — 1.5 0.4 additional start up resources and scrap 4.1 — 4.1 — merger and acquisition costs 0.9 5.4 11.5 5.5 provision for income taxes(1) (0.5 ) (0.9 ) (3.1 ) (1.3 ) total special items 4.9 0.23 4.5 0.22 14.0 0.67 4.6 0.22 adjusted net income and adjusted eps $ 24.9 $ 1.19 $ 22.7 $ 1.10 $ 71.2 $ 3.43 $ 57.4 $ 2.78 acquisition amortization (net of tax) 2.4 0.12 1.0 0.05 7.3 0.35 3.1 0.15 adjusted net income and adjusted eps excl. amortization $ 27.3 $ 1.31 $ 23.7 $ 1.15 $ 78.5 $ 3.78 $ 60.5 $ 2.93 (1) provision for income taxes includes the net tax impact on pre-tax adjustments (listed above), the impact of certain discrete tax items recorded during the respective periods as well as other adjustments to reflect the use of one overall effective tax rate on adjusted pre-tax income in interim periods. attachment 7 reconciliation of segment net sales to segment value-added sales and segment ebitda to adjusted segment ebitda (unaudited) performance materials third quarter ended nine months ended (millions) september 30, 2022 % of va october 1, 2021 % of va september 30, 2022 % of va october 1, 2021 % of va net sales $ 169.4 $ 136.1 $ 473.9 $ 375.5 pass-through metal cost 20.6 20.9 62.0 50.9 value-added sales $ 148.8 $ 115.2 $ 411.9 $ 324.6 ebitda $ 28.9 19.4 % $ 28.8 25.0 % $ 80.9 19.6 % $ 68.0 20.9 % additional start up resources and scrap 4.1 2.8 % — — % 4.1 1.0 % — — % merger and acquisition costs — — % — — % 2.7 0.7 % — — % adjusted ebitda $ 33.0 22.2 % $ 28.8 25.0 % $ 87.7 21.3 % $ 68.0 20.9 % electronic materials third quarter ended nine months ended (millions) september 30, 2022 % of va october 1, 2021 % of va september 30, 2022 % of va october 1, 2021 % of va net sales $ 230.8 $ 220.7 $ 762.6 $ 638.5 pass-through metal cost 116.9 151.0 424.7 439.0 value-added sales $ 113.9 $ 69.7 $ 337.9 $ 199.5 ebitda $ 16.8 14.7 % $ 11.3 16.2 % $ 51.3 15.2 % $ 32.7 16.4 % restructuring and cost reduction — — % — — % 0.8 0.2 % — — % merger and acquisition costs 0.4 0.4 % — — % 6.8 2.0 % — — % adjusted ebitda $ 17.2 15.1 % $ 11.3 16.2 % $ 58.9 17.4 % $ 32.7 16.4 % precision optics third quarter ended nine months ended (millions) september 30, 2022 % of va october 1, 2021 % of va september 30, 2022 % of va october 1, 2021 % of va net sales $ 28.0 $ 31.2 $ 86.0 $ 99.4 pass-through metal cost — — 0.1 — value-added sales $ 28.0 $ 31.2 $ 85.9 $ 99.4 ebitda $ 3.6 12.9 % $ 6.3 20.1 % $ 9.3 10.8 % $ 19.3 19.4 % restructuring and cost reduction 0.4 1.6 % — — % 0.6 0.7 % 0.4 0.4 % merger and acquisition costs — — % 0.1 0.3 % 0.1 0.1 % 0.1 0.1 % adjusted ebitda $ 4.0 14.5 % $ 6.4 20.4 % $ 10.0 11.6 % $ 19.8 19.9 % other third quarter ended nine months ended (millions) september 30, 2022 % of va october 1, 2021 % of va september 30, 2022 % of va october 1, 2021 % of va ebitda $ (5.9 ) $ (10.6 ) $ (18.2 ) $ (22.1 ) restructuring and cost reduction — — 0.1 — merger and acquisition costs 0.5 5.3 1.9 5.4 adjusted ebitda $ (5.4 ) $ (5.3 ) $ (16.2 ) $ (16.7 )
