Materion Corporation · NYSE:MTRN
Materion — Investor Presentation (October 2017)
41 slides from Materion's investor presentation, Oct 30, 2017
Slide 1: Investor Presentation November 2017
INVESTOR PRESENTATION November 2017
Slide 2: Forward-looking Statements
These slides contain (and the accompanying oral discussion will contain, where applicable) “forward- looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that could cause the
Slide 3: Materion at a Glance
Materion at a Glance 3 Adjusted EPS1 $1.32 Adjusted EBITDA1 $81M Debt-to-capitalization1 1% Operating cash flow $67M Revenues $969M Value-added sales1 $600M 2016 ~1% Dividend yield 1 Non-GAAP, excludes special items. Refer to the Appendix for additional detail. $1.49 $84M 1% $76M $1,065M $642M Q3 20
Slide 4: Materion: Making Advanced Materials That Improve the World
Consumer Electronics 28% Industrial Components 15% Medical 11% Defense 9% Automotive Electronics 8% Telecom Infrastructure 6% Energy 5% 0 82% Performance Alloys and Composites 55% Advanced Materials 29% Precision Coatings 16% Materion: Making Advanced Materials That Improve the World % of Value-adde
Slide 5: Segment Financial Performance
Segment Financial Performance 5 Materion Corporation Performance Alloys & Composites (PAC) Advanced Materials (AM) Precision Coatings (PC) $637 $617 $600 $642 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% $0 $100 $200 $300 $400 $500 $600 $700 2014 2015 2016 TTM 2017 $359 $335 $332 $346 0% 2% 4% 6% 8% 10% 12% $0
Slide 6: Materion: Investment Thesis
Materion: Investment Thesis 6 Deliver sustained growth of double-digit EPS CAGR Leading position in very attractive markets 2 Future growth opportunities 3 Strong cash flow and balance sheet 5 4 PAC profitability improvement plan underway 1 Renewed focus on consistently delivering profitable growth
Slide 7: Consistently Deliver Profitable Growth
Consistently Deliver Profitable Growth 7 Accelerating implementation of profitable growth model PROFITABLE GLOBAL GROWTH COMMERCIAL EXCELLENCE OPERATIONAL EXCELLENCE INNOVATION ACQUISITIONS PERFORMANCE-BASED CULTURE AND RESULTS
Slide 8: 2017 YTD Highlights
► Year-over-year and sequential value-added (VA) sales and adjusted profit growth for Q1, Q2, and Q3 ► Five consecutive quarters of year-over-year VA sales growth ► Completed Heraeus acquisition, expanding global footprint ► Long-term raw material beryllium hydroxide agreement reached with longstand
Slide 9: Materion: Investment Thesis
Materion: Investment Thesis 9 G O A L : Sustained growth Double-digit EPS CAGR Leading position in very attractive markets 2 Future growth opportunities 3 Strong cash flow and balance sheet 5 4 PAC profitability improvement plan underway 1 Renewed focus on consistently delivering profitable growth D
Slide 10: Well-positioned with Leading Global Product Offering
Well-positioned with Leading Global Product Offering 10 Product External Segment 2016 % of Value-added Sales Expected Annual Growth Next 3-5 Years Leading supplier of beryllium-containing products Performance Alloys & Composites ~43% Leading supplier of high-purity precious metal for physical vapor
Slide 11: Well-diversified Market Penetration
Market 2016 % of Value-added Sales Key Drivers Consumer Electronics 28% • Smart device growth • Sensing devices • Internet of Things (IoT) Industrial Components 15% • Heavy equipment builds • Plastic tooling • Fire protection (R and C construction) Medical 11% • Blood analysis test coating for medic
Slide 12: Materion: Investment Thesis
Materion: Investment Thesis 12 G O A L : Sustained growth Double-digit EPS CAGR Leading position in very attractive markets 2 Future growth opportunities 3 Strong cash flow and balance sheet 5 4 PAC profitability improvement plan underway 1 Renewed focus on consistently delivering profitable growth
Slide 13: Global Megatrends Play to Our Strengths
Global Megatrends Play to Our Strengths 13 Key Trends • Miniaturization of electronics/IoT • Additional electronic instruments for autos, aircraft • Expanding high performance optical device opportunities • Innovation in medical diagnostics and sensors • Extraction of oil and gas from previously ina
Slide 14: Innovation Leading to Organic Growth
9.7% 11.2% 11.6% 14.1% 15.7% 2013 2014 2015 2016 2017 YTD Innovation Leading to Organic Growth 14 New Product Value-added Sales as % of Total Noteworthy New Products Offerings Phosphor Wheel • Provides high brightness, longer life • Offers low noise characteristics, individual precision balancing, a
Slide 15: Materion: Investment Thesis
Materion: Investment Thesis 15 G O A L : Sustained growth Double-digit EPS CAGR Leading position in very attractive markets 2 Future growth opportunities 3 Strong cash flow and balance sheet 5 4 PAC profitability improvement plan underway 1 Renewed focus on consistently delivering profitable growth
Slide 16: Performance Alloys and Composites (PAC) Profitability
Performance Alloys and Composites (PAC) Profitability 16 $33.3 $23.6 $9.2 $0 $5 $10 $15 $20 $25 $30 $35 2014 2015 2016 m ill io n s PAC Operating Profit Excluding Special Items 5-year Trend $33.3 $9.2 $10.8 $9.2 $4.1 $0 $5 $10 $15 $20 $25 $30 $35 2014 Oil & Gas Fx Price/Mix/ Volume/ Mfg Efficiency 2
Slide 17: PAC Improvement Plan
$33.3 $23.6 $9.2 $17.0 $0.7 $6.2 $7.0 $0 $5 $10 $15 $20 $25 $30 $35 2014 2015 2016 Q3 2017 TTM Q1 Q2 Q3 2017 m ill io n s PAC Operating Profit Excluding Special Items1 PAC Improvement Plan 17 1. Reduce cost footprint and move to a more variable cost structure 2. Improve product portfolio mix and pro
Slide 18: Materion: Investment Thesis
Materion: Investment Thesis 18 Leading position in very attractive markets 2 Future growth opportunities 3 Strong cash flow and balance sheet 5 4 PAC profitability improvement plan underway 1 Renewed focus on consistently delivering profitable growth Deliver sustained growth of double-digit EPS CAGR
Slide 19: Cash Flow and Working Capital Efficiency Focus
2016 2018 (F) 25% 28% $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 2013 2014 2015 2016 Cash Flow from Operations ($ in millions) Free Cash Flow Capital Expenditures Cash Flow and Working Capital Efficiency Focus 19 Improve Working Capital3 Efficiency Working capital % of net sales 1 Free Cash Flow ca
Slide 20: Disciplined Capital Deployment Going Forward
Disciplined Capital Deployment Going Forward 20 Return Cash to Shareholders • Share repurchase - $50M authorization ($16M remaining) • Dividends – increased 5% in 2017 Capex Below Depreciation • Invest in facilities • Invest in new products Growth • Organic • Selective bolt-on acquisitions 35% Debt
Slide 21: Materion: Investment Thesis
Materion: Investment Thesis 21 Leading position in very attractive markets 2 Future growth opportunities 3 Strong cash flow and balance sheet 5 4 PAC profitability improvement plan underway 1 Renewed focus on consistently delivering profitable growth Deliver sustained growth of double-digit EPS CAGR
Slide 22: Appendix
Appendix
Slide 23: Performance Alloys and Composites
Performance Alloys and Composites A-1 Clad Strip 12% ToughMet 11% CuBe 52% Be - Alloys 9% Be – High Purity 14% Europe 20% United States 55% Rest of World 1% Asia 24% Telecom Infrastructure 9% Automotive Electronics 14% Defense 11% Industrial Components 19% Medical 2% Other 18% Consumer Electronics 2
Slide 24: Beryllium Market Supply Opportunity
Beryllium Market Supply Opportunity Materion – leading position in beryllium market • Only global integrated producer – Minimum of 75 years of proven reserves in Utah mine – Supplies over 70% of world’s mined beryllium • 40% of company sales include beryllium in some form • Global stockpiled sources
Slide 25: World's Only Vertically Integrated Beryllium Producer
World’s Only Vertically Integrated Beryllium Producer Ore Chemical Plant Hydroxide Whiting Arc Furnace Pebble Plant CuBe Master VCB1 / Be Powder CuBe Alloy Products High-Purity Be Products Strip/Bulk Manufacturing Be Manufacturing Competitor B Competitor A 1 Vacuum Cast Billet A-3
Slide 26: Advanced Materials
0% 5% 10% 15% 20% 25% 30% $100 $125 $150 $175 $200 2012 2013 2014 2015 2016 Advanced Materials Services 15% Packaging 10% Targets 57% Chemicals 18% Europe 6% United States 78% Rest of World 1% Asia 15% Telecom Infrastructure 4% Defense 3% Other 20% Medical 7% Consumer Electronics 46% Industrial Comp
Slide 27: Heraeus – Augmentation through M&A
Heraeus – Augmentation through M&A Acquisition Description ► Acquisition of high-performance target materials business of Heraeus Group ► Provides broader market, technology, and geographic diversification ► Precious and non-precious metal targets for architectural and automotive glass, electronic d
Slide 28: Precision Coatings
New product development • New precious metal coating stacks • Novel electrode alloys • Gesture control sensing • Phosphor wheel and thermal imaging New market development • Expanding into Asia with blood glucose test strips • New applications for medical sensing films • Growing demand for optical fi
Slide 29: Applications
Applications
Slide 30: Consumer Electronics
► Advanced chemicals for OLED applications ► Multiple product offerings for smartphones, including connector material and voice coil motor (auto focus lens stabilizer) ► Phosphor wheel and opto-ceramic coatings for laser projectors ► Wafer level optical coatings for electronic devices ► 3D/gesture c
Slide 31: Medical
► Precious metal blood glucose test strips for diabetes testing ► Be material for x-ray equipment applications ► Narrow-band optical filters for spectroscopy ► Continuous glucose monitoring (CGM) electrodes for type 2 diabetes Medical 31 A-9
Slide 32: Defense
► Infrared sensors for fighter jet, unmanned aerial vehicle optical targeting ► Optical filters for precision-guided munitions ► Structural components for combat vehicles and aircraft ► Optical, structural, and electronic components for satellites Defense 32 A-10
Slide 33: Automotive Electronics
► Connector material for battery and high temperature applications ► High-performance alloys (i.e., CuBe, ToughMet®) for the powertrain ► Metal matrix composites (i.e., SupremEx®) for chassis, suspension, and braking component applications ► Optical filters: night vision, speed control, sensors, cam
Slide 34: Energy
► ToughMet couplings for oil production ► ToughMet components for oil drilling applications ► Connector materials (i.e., Dovetail®) for fuel cell batteries ► Precious metal targets for coatings on construction glass Energy 34 A-12
Slide 35: Financial Information
> Financial Information MATERION
Slide 36: Reconciliation for Value-added Sales
Reconciliation for Value-added Sales A-14 $ in millions Value-added sales is a non-GAAP measure that removes the impact of pass-through metal costs and allows for analysis without the distortion of the movement or volatility in metal prices. Internally, we manage our business on this basis, and a re
Slide 37: Reconciliation for Adjusted EPS
Reconciliation for Adjusted EPS A-15 As detailed in the above reconciliation, we have adjusted the results for certain special items, such as cost reduction initiatives (i.e., asset impairment charges and severance), legacy legal and environmental costs, CEO transition costs, merger and acquisition
Slide 38: Other Non-GAAP Items
Other Non-GAAP Items A-16 Adjusted EBITDA is calculated by adding depreciation, depletion, and amortization and certain special items such as cost reduction initiatives (i.e., asset impairment charges and severance), legacy legal and environmental costs, CEO transition costs, merger and acquisition
Slide 39: Quarterly Sales and Value-added Sales by Segment
($ in millions, except per share data) Q1 Q2 Q3 Q4 2014 Q1 Q2 Q3 Q4 2015 Q1 Q2 Q3 Q4 2016 Q1 Q2 Q3 Sales PAC 97.2$ 109.6$ 114.2$ 112.3$ 433.3$ 103.3$ 107.7$ 93.6$ 90.3$ 394.8$ 90.6$ 97.7$ 103.7$ 95.5$ 387.5$ 92.6$ 108.5$ 109.4$ AM 129.3 145.0 137.6 135.3 547.3 149.9 131.4 113.6 87.4 482.3 108.1 113.
Slide 40: 2017 Forecasted Financial Guidance
►Full-year Guidance ► Adjusted EPS of $1.55 - $1.60 ► Operating cash $55M - $60M ► Capex ~ $25M ► Mine development capital expenditures <$2M ► Depreciation and amortization expense of ~$43M ► Effective tax rate excluding special items 18% - 22% 2017 Forecasted Financial Guidance A-18
Slide 41: Materion
MATERION