Materion Corporation · NYSE:MTRN
Materion — Q3 2018 Earnings Presentation
30 slides from Materion's earnings presentation, Nov 5, 2018
Slide 1: Investor Presentation November 2018
INVESTOR PRESENTATION November 2018
Slide 2: Forward-looking Statements
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 fa
Slide 3: Q3 2018 Highlights
Q3 2018 Highlights ► Seven consecutive quarters of sales and profit growth ► Record adjusted operating profit ► All three businesses reported double-digit operating profit margins for the first time ► PAC generated a record operating profit of $16.7 million ► Working capital as a % of net sales < 25
Slide 4: Key Financial Trends
Key Financial Trends TTM Value-added1 (VA) Sales TTM Operating Profit1 (OP) 734 $750 724 $70 10% 710 62.0 $700 678 $60 56.7 9% 53.4 642 47.5 $650 627 $50 8% 600 605 39.4 40.6 ($ millions) ($ 1 1 $600 $40 35.5 7% ofVA % Sales 35.0 1 ($ millions) ($ $550 $30 6% TTM OP TTM TTMOP $500 $20 5% Q4 Q1 Q2 Q3
Slide 5: Materion Company Profile
Materion Company Profile Company Overview Value-added Sales 1 1 • Materion is an integrated producer of high- 2017 VA Sales by Segment 2017 VA Sales by End Market performance advanced engineered materials Precision Performance Alloys Medical Coatings & Composites Energy - Leading market position for
Slide 6: Key Facts
Key Facts Share Statistics as of 09/28/2018 Q3 2018 TTM Financial Information Trading Symbol MTRN Revenues Stock Price $60.50 $1,218M Shares O/S, Diluted 20.6M 52 wk Range $42.33 - $64.34 Value-added sales1 $734M 3 Mo Avg Vol 102,416 Market Cap $1,246M Adjusted EPS1 $2.24 Enterprise Value $1,196M $7
Slide 7: Performance Alloys and Composites (PAC)
Performance Alloys and Composites (PAC) Value-added Sales Growth Drivers $450 15% New product development 416.3 • New proprietary non-Be alloys with improved durability & $400 12% weight-to-strength ratio 358.5 363.5 • New heat dissipating clad material • Improving customer yields with “near net sha
Slide 8: PAC Recovery Plan/Opportunity
PAC Recovery Plan/Opportunity How did we get here? Recovery Plan 1 PAC Operating Profit 1. Improve product portfolio mix and profitability $35 33.3 through pricing and manufacturing process changes $30 2. Reduce cost footprint and move to a more variable cost structure $25 23.6 3. Leverage beryllium
Slide 9: Advanced Materials
Advanced Materials Value-added Sales Growth Drivers $250 228.0 229.2 25% Semiconductor • $400B market with strong growth outlook driven by macro consumer electronics and IoT trends $200 181.0 182.8 176.3 20% • Continue to expand organically in core PVD and packaging applications $150 15% • Expand in
Slide 10: Precision Coatings
Precision Coatings Value-added Sales Growth Drivers $120 24% New product development • Novel electrode alloys $110 20% • Wafer level thermal imaging coatings 102.4 101.8 • Enhanced phosphor wheels $100 97.7 16% 92.9 New market development 90.7 • New applications for medical sensing films $90 12% • G
Slide 11: Consistently Deliver Profitable Growth
Consistently Deliver Profitable Growth PROFITABLE GLOBAL GROWTH COMMERCIAL OPERATIONAL INNOVATION ACQUISITIONS DIGITAL EXCELLENCE EXCELLENCE PERFORMANCE-BASED CULTURE AND RESULTS Deliver sustained double-digit EPS growth 11
Slide 12: Well-positioned with Leading Global Product Offering
Well-positioned with Leading Global Product Offering 2017 Expected Annual % of Product External Segment Growth Value-added Next 3-5 Years Sales1 Leading supplier of beryllium-containing Performance Alloys products & Composites ~39% Leading supplier of high-purity precious metal Advanced for physical
Slide 13: Global Megatrends Play to Our Strengths
Global Megatrends Play to Our Strengths Key Trends Characteristics of our Materials • Miniaturization of electronics/IoT Conductivity • Additional electronic instruments for Corrosion resistance autos, aircraft Weight savings (lighter) • Expanding high performance optical device opportunities Purity
Slide 14: Well-diversified Market Penetration
Well-diversified Market Penetration 2017 % of Key Market Value-added Sales1 Drivers • Smart device growth Consumer • Sensing devices Electronics 30% • Internet of Things (IoT) • Heavy equipment builds Industrial • Plastic tooling Components 15% • Fire protection (R and C construction) • Blood analys
Slide 15: Innovation Leading to Organic Growth
Innovation Leading to Organic Growth New Product Value-added Sales1 as % of Total Noteworthy New Products Offerings Phosphor Wheel • Provides high brightness, longer life 16.0% 16.2% • Offers low noise characteristics, individual precision balancing, and 14.1% stable colors Aluminum/Scandium Targets
Slide 16: Cash Flow and Working Capital Efficiency Focus
Cash Flow and Working Capital Efficiency Focus Dividends per share Cash Flow from Operations ($ in millions) $0.50 $120 $0.40 $0.30 $100 $91.0 $0.20 $81.5 $0.10 $80 $68.2 $67.8 $0.00 2012 2013 2014 2015 2016 2017 20183 $60.3 $60 Improve Working Capital4 Efficiency $40 Working capital % of net sales5
Slide 17: Disciplined Capital Deployment Going Forward
Disciplined Capital Deployment Going Forward Return Cash to Shareholders • Share repurchase - $50M authorization ($16M remaining) • Dividends – increased 5% in 2018 35% Debt & Organic Growth Shareholder 65% • Invest in facilities and productivity Growth projects • Invest in new products Inorganic Gr
Slide 18: Materion Investment Thesis
Materion Investment Thesis ► Clearly defined strategy and execution led by new management team ► Differentiated product portfolio aligned with global megatrends to accelerate future growth ► Driving significant improvement in profitability and cash flow growth ► Consistently delivering profitable gr
Slide 19: 2018 Forecasted Financial Guidance
2018 Forecasted Financial Guidance ► Full-year guidance ► Adjusted EPS of $2.20 - $2.30 ► Capex ~ $30M ► Mine development capital expenditures of ~ $6M ► Depreciation and amortization expense of ~ $35M ► Effective tax rate excluding special items 18% – 20% 19
Slide 20: Appendix
Appendix
Slide 21: Materion: Making Advanced Materials That Improve the World
Materion: Making Advanced Materials That Improve the World Industrial Components Medical 15% 9% Defense 9% Automotive Electronics Consumer Electronics 8% 30% Performance Alloys and Composites Advanced Materials 54% 33% Energy 7% Precision Coatings 13% Telecom Infrastructure 5% 0 1 % of Value-added S
Slide 22: 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 source
Slide 23: World's Only Vertically Integrated Beryllium Producer
World’s Only Vertically Integrated Beryllium Producer Ore Competitor Chemical Plant A Hydroxide Whiting Arc Pebble Plant Furnace Competitor B VCB1 / CuBe Master Be Powder Strip/Bulk Be Manufacturing Manufacturing High-Purity Be CuBe Alloy Products Products A-4 1 Vacuum Cast Billet
Slide 24: Financial Information
Financial Information
Slide 25: Reconciliation for Value-added Sales
Reconciliation for Value-added Sales $ in millions Q3 2018 Q2 2018 Q1 2018 Q3 2018 TTM 2017 2016 2015 2014 Net Sales Performance Alloys and Composites $ 124.1 $ 129.7 $ 118.3 $ 491.1 $ 429.5 $ 387.5 $ 394.8 $ 433.3 Advanced Materials 144.1 150.4 153.5 609.2 590.8 437.2 482.3 547.3 Precision Coatings
Slide 26: Reconciliation for Adjusted EPS
Reconciliation for Adjusted EPS In millions, except per share amounts Q3 2018 Q2 2018 Q1 2018 Q3 2018 TTM 2017 2016 2015 2014 GAAP As Reported Operating Profit $ 18.7 $ 15.2 $ 13.3 $ 61.4 $ 40.1 $ 27.1 $ 45.3 $ 57.6 Net Income 20.0 11.1 10.6 33.4 11.5 25.7 32.2 42.1 Weighted average diluted shares o
Slide 27: Other Non-GAAP Items
Other Non-GAAP Items $ in millions Q3 2018 TTM 2017 2016 2015 2014 Operating Profit $ 61.4 $ 40.1 $ 27.1 $ 45.3 $ 57.6 Special Items 0.5 7.4 7.9 0.5 (8.5) Adjusted Operating Profit $ 61.9 $ 47.5 $ 35.0 $ 45.8 $ 49.1 Depreciation, depletion, and amortization 35.8 42.8 45.7 37.8 42.7 Mine Amortization
Slide 28: Other Non-GAAP Items
Other Non-GAAP Items $ in millions Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016 TTM Adjusted Operating Profit $ 62.0 $ 56.7 $ 53.4 $ 47.5 $ 40.6 $ 39.4 $ 35.5 $ 35.0 Total Shareholders' Equity $ 536.7 $ 515.7 $ 504.3 $ 495.0 $ 512.0 $ 503.0 $ 497.1 $ 494.1 Total Debt 3.3 3.4 3.6 3
Slide 29: Historical Financials
Historical Financials ($ in millions, except per share data) 2015 2016 2017 2 2018 Q1 Q2 Q3 Q4 2015 Q1 Q2 Q3 Q4 2016 Q1 Q2 Q3 Q4 2017 Q1 Q2 Q3 Sales PAC $ 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 $ 119.0 $ 429.5 $ 118.3 $ 129.7 $ 124.1 AM 149.9
Slide 30: Materion
MATERION