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Materion Corporation (MTRN) Q4 2022 Earnings Call Transcript

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Materion Corporation (NYSE:MTRN) Q4 2022 Earnings Conference Call February 16, 2023 9:00 AM ET

Company Participants

John Zaranec - Chief Accounting Officer

Jugal Vijayvargiya - President and Chief Executive Officer

Shelly Chadwick - Vice President and Chief Financial Officer

Conference Call Participants

Daniel Moore - CJS Securities

Phil Gibbs - KeyBanc Capital Markets

Dave Storms - Stonegate Capital Markets

David Silver - CL King

Operator

Good morning, everybody, and invited to nan Materion's Fourth Quarter 2022 Earnings Conference Call. At this time, each participants are successful a listen-only mode. A question-and-answer convention will travel nan general presentation. [Operator Instructions] Please statement this convention is being recorded.

I would now move nan convention complete to your host, Mr. John Zaranec, Chief Accounting Officer. John, complete to you.

John Zaranec

Good morning, and convey you for joining america connected our 4th fourth 2022 net convention call. This is John Zaranec, Chief Accounting Officer.

Before we statesman our remarks this morning, I would for illustration to constituent retired that we person posted materials connected nan company's website that we will reference arsenic portion of today's reappraisal of nan quarterly results. You tin besides entree nan materials done nan download characteristic connected nan net telephone webcast link.

With maine coming is Jugal Vijayvargiya, President and Chief Executive Officer; and Shelly Chadwick, Vice President and Chief Financial Officer. Our format for today's convention telephone is arsenic follows: Jugal will supply opening comments connected nan 4th and nan afloat twelvemonth arsenic good arsenic an update connected cardinal strategical initiatives. Following Jugal, Shelly will reappraisal nan elaborate financial results for nan 4th and nan twelvemonth successful summation to discussing our expectations for 2023. We will past unfastened nan telephone for questions.

Let maine punctual investors that immoderate forward-looking statements made successful this presentation, including those successful nan outlook section and during nan question-and-answer portion, are based connected existent expectations. The company's existent capacity whitethorn materially disagree from that contemplated by nan forward-looking statements arsenic a consequence of a assortment of factors. Those factors are listed successful nan net property merchandise we issued this morning. Additionally, comments regarding net earlier interest, taxes, depreciation, depletion and amortization, nett income and net per stock bespeak nan adjusted GAAP numbers shown successful Attachments 4 done 7 successful this morning's property release. The adjustments are made successful nan anterior twelvemonth play for comparative purposes and removed typical items, noncash charges and definite discrete income taxation adjustments.

And now I'll move complete nan telephone to Jugal for his comments.

Jugal Vijayvargiya

Thanks, John, and welcome, everyone. It's awesome to beryllium pinch you coming and stock specifications connected different grounds 4th for Materion, which closes retired a grounds year.

This year, we marked respective milestones for our company, crossing $1 cardinal successful value-added sales, delivering complete $300 cardinal successful quarterly sales, reaching astir $200 cardinal successful EBITDA and crossing $5 for EPS. Our translator into a world leader successful high-performance Advanced Materials is delivering arsenic we're driving a measurement alteration successful some our income and earnings. Our beardown execution and transportation connected strategical maturation initiatives are enabling america to consistently outgrow our extremity markets.

An expanding database of customers proceed to spot their spot successful america for nan improvement of next-generation solutions aligned pinch world mega trends. These strategical partnerships are helping to build a patient pipeline for early maturation and strengthening our position for 2023.

We brought this twelvemonth to a grounds adjacent pinch an unthinkable 11th consecutive 4th of VA income growth. The caller installation for precision clad portion task contributed meaningfully arsenic we afloat suffice nan facility. In addition, we proceed to proviso clad portion from our bequest plants. Our acquisition of HCS-Electronic Materials continued to outperform, delivering connected robust request from our customers.

In total, nan advancement we've made connected integrated and inorganic initiatives drove grounds apical and bottommost statement maturation pinch EBITDA margins reaching 18% successful nan quarter, search good towards our midterm target of 20% and contributing to grounds quarterly net of $1.49 per share.

For nan afloat year, we delivered year-on-year increases of 30% aliases much crossed sales, EBITDA and EPS. It was an exceptional twelvemonth successful our company's transformation. Organic maturation investments and strategical customer partnerships lend much meaningfully to our results. The integration of HCS-Electronic Materials has gone highly good arsenic nan powerfulness of our mixed teams generated important commercialized and operational opportunities that are driving maturation beyond our already beardown synergy expectations. We're investing much than $20 cardinal successful nan caller installation to grow capacity and capabilities to work request successful nan semiconductor, business and aerospace and defense markets.

Our precision clad portion installation was completed and qualified during nan twelvemonth and is now achieving important accumulation levels, a noteworthy accomplishment fixed nan size and standard of that project. As we've shared, nan customer is investing an further $40 cardinal pinch america to summation capacity aft nan first finance of $80 million. The building for Phase II capacity remains connected track, and we expect that capacity coming online successful precocious 2024.

The build-out of our caller installation successful Milwaukee is progressing nicely arsenic we are installing caller instrumentality complete nan adjacent fewer quarters pinch accumulation capabilities coming online successful nan first half of adjacent year. This tract will grow our capacity to support accumulation of nan astir blase semiconductor chips, arsenic good arsenic broaden our precocious chemicals capabilities to nutrient materials for next-generation batteries for electrical vehicles.

This year, we besides announced a business pinch Kairos Energy to support cleanable power improvement pinch nan constitution of a Molten Salt Purification Plant that produces Flibe, a reliable, safe and cost-effective molten brackish coolant utilized successful atomic power production.

Today, I'm happy to denote 2 further customer partnerships that further create our maturation pipeline. First, we secured different customer-funded finance of $15 cardinal to grow our capabilities and proviso captious materials for cleanable power powerfulness generation. We expect instrumentality installation to beryllium completed this twelvemonth astatine our accommodation and look guardant to completing transportation of nan materials by extremity of adjacent year.

We besides proceed to spot awesome liking successful our capabilities for captious abstraction applications. We precocious signed a 3 twelvemonth statement to proviso materials for abstraction propulsion systems. We person already received an first $10 cardinal order, which we will commencement to vessel mediate of this year. This business further establishes Materion arsenic a starring partner for innovative solutions that present nan level of capacity and reliability required for captious abstraction missions.

Strategic maturation projects are nan cornerstone of our strategy. And successful 2022, our squad demonstrated an expertise to execute connected our commitments and to proceed processing important customer partnerships. There is nary amended grounds of our world occurrence arsenic an Advanced Materials leader and nan customers who proceed to take Materion and make upfront financial contributions truthful that we tin lick their astir pressing challenges.

Materion's capacity complete nan past 2 years has seen income turn 70% pinch net much than doubled. And arsenic indicated by our increasing database of customer partnerships, we are continuing to build for nan early and remaining laser-focused connected outpacing nan maturation complaint of nan markets we service and continuing to align ourselves pinch mega trends that will unfastened further maturation avenues for years to come.

With nan occurrence and advancement of our outgrowth initiatives, we're heading into 2023 pinch fantabulous momentum. We will proceed to thrust marketplace outgrowth moreover arsenic nan situation experiences its pockets of wide softness, peculiarly successful nan semiconductor space.

Operational excellence, disciplined costs management, mixed pinch our outgrow will guarantee we proceed to beforehand nan net powerfulness of our company. We will proceed to thrust our translator and differentiate Materion done unparalleled method expertise, invention and beardown performance. As we proceed to build our pipeline, we expect to present different twelvemonth of grounds results astatine some apical and bottommost line.

I'm proud of our world squad arsenic they proceed to support our customers and thief them transcend expectations. Thanks to our team's talent and dedication, we person delivered grounds results for 2 consecutive years. Together, we are driving semipermanent worth creation for our customers, our shareholders and our people.

Now fto maine move nan telephone complete to Shelly to screen nan financials.

Shelly Chadwick

Thanks, Jugal, and bully morning, everyone. During my comments, I will reference to nan slides posted connected our website this morning, starting connected Slide 13.

As Jugal outlined successful his opening remarks, we achieved different grounds 4th of value-added sales, adjusted EBITDA and net per stock successful nan 4th quarter. Value-added sales, which excludes nan effect of walk done precious metallic costs were $309.2 cardinal for nan quarter, up 30% from nan anterior year. This important summation was driven by beardown request crossed nan industrial, aerospace and power markets, on pinch higher precision clad portion income successful nan 4th quarter. Organic VA sales, excluding nan effect of acquisitions and currency, accrued astir 26% compared to nan anterior twelvemonth pinch important supra marketplace growth. We delivered adjusted net of $1.49 per stock successful nan 4th quarter, up 32% arsenic compared to nan anterior twelvemonth contempt important liking headwind.

Moving to Slide 14. Adjusted EBITDA successful nan 4th was $55.6 cardinal aliases 18% of worth added sales, up 40% from nan anterior year. The summation was mostly driven by higher volume, favorable price/mix and affirmative publication from our HCS-Electronic Materials acquisition. These beardown maturation drivers were partially offset by commercialized and R&D investments arsenic we proceed to support our integrated maturation initiatives.

Now fto maine reappraisal 4th fourth capacity by business segment. Starting pinch our Performance Materials business connected Slide 15. Value-added income were a grounds $177.6 million, an summation of 53% compared to anterior year. The summation was driven by beardown capacity successful nan industrial, power and aerospace extremity markets and higher defense and hydroxide shipments. In addition, nan caller precision clad portion works contributed adjacent afloat tally complaint pinch further shipments from our bequest facility.

EBITDA, excluding typical items, was a grounds astatine $44.3 cardinal and a grounds 25% of value-added sales, up 96% compared to $22.6 cardinal successful nan 4th fourth of 2021. The summation successful EBITDA was chiefly owed to accrued volumes, favorable value costs and a beardown mix.

Moving to nan 2023 outlook. The bid book for Performance Materials remained strong, and we expect different twelvemonth of supra marketplace growth. The largest marketplace served, including industrial, aerospace and energy, should each spot maturation successful 2023. And pinch our precision clad portion business, exiting 2022 adjacent nan afloat tally rate, we expect meaningful publication successful 2023.

Next, turning to Electronic Materials connected Slide 16. Fourth 4th value-added income were $104 million, up 16% versus nan anterior twelvemonth and up 2% organically. The integrated maturation complaint has been decelerating pinch slower shipments successful semiconductor arsenic customers activity done inventory corrections. Sequentially, Electronic Materials VA declined 9% organically.

EBITDA, excluding typical items, was $17.1 cardinal aliases 16.4% of value-added income successful nan quarter, an summation of 8% from nan anterior year. The summation was driven mostly by accrued HCS measurement and favorable value cost. This business besides saw important separator description from nan 3rd 4th of 130 ground points owed to a richer operation mixed pinch our costs power efforts.

As we look guardant to nan coming year, we expect nan Electronic Materials business to outgrow softening markets and proceed to spot affirmative publication from HCS-Electronic Materials pinch higher volumes and improved value costs from that information of nan business.

Finally, turning to nan Precision Optics conception connected Slide 17. Value-added income were $27.7 million, down 15% compared to nan anterior year. This alteration was driven chiefly by nan discontinued user electronics applications and different 4th of overseas rate headwinds negatively impacting nan apical statement by astir $2 million.

EBITDA, excluding typical items, was $4 cardinal aliases 14.6% of value-added sales, down from nan anterior twelvemonth owed to nan little income volume. Despite this measurement reduction, EBITDA margins person continued to grow each 4th successful 2022 arsenic we person successfully managed costs, while rebuilding nan maturation pipeline. For 2023, we expect quarterly sequential betterment supported by caller business successful defense, automotive and abstraction exploration.

Moving to Slide 18, fto maine quickly reappraisal nan grounds results we saw successful afloat twelvemonth 2022. As we did successful 2021, we delivered different grounds twelvemonth of value-added sales, adjusted EBITDA and adjusted net per share. VA income reached an all-time precocious of $1.1 billion, up 33% from nan anterior year. This year-over-year summation resulted from beardown request crossed nan semiconductor, industrial, power and aerospace extremity markets arsenic good arsenic nan effect of our clad portion task and nan summation of HCS-Electronic Materials. Excluding nan effect of acquisitions and currency, integrated VA accrued astir 18% erstwhile compared to nan anterior year, representing clear marketplace outgrowth.

Adjusted EBITDA for nan twelvemonth was $196 cardinal aliases 17.1% of value-added sales, up 37% from nan anterior year. The summation was mostly driven by higher volume, favorable value costs and nan effect of nan HCS-Electronic Materials acquisition. We delivered $5.27 adjusted net per stock for nan year, up 30% arsenic compared to nan anterior year. This resulted from nan company's beardown capacity contempt an further $0.70 of liking disbursal erstwhile compared to 2021.

Moving now to cash, indebtedness and liquidity connected Slide 19. We ended nan 4th pinch a nett indebtedness position of astir $419 cardinal and $185 cardinal of disposable capacity connected nan company's in installments facility. Our leverage astatine 2.1 times sits astatine nan midpoint of our target scope pinch our expanding EBITDA and $62 cardinal of indebtedness salary down successful nan 4th quarter, funded by our beardown free rate flow.

Lastly, transitioning to Slide 20, fto maine reside our 2023 outlook. While we stay assured successful our expanding integrated initiatives pipeline, we will proceed to spot immoderate extremity marketplace softening, peculiarly successful nan semiconductor space. Despite this, we expect to present different grounds twelvemonth for VA income and net pinch adjusted EPS successful nan scope of $5.50 to $5.90 per share, representing an 8% summation astatine nan midpoint.

We person besides provided immoderate updated modeling assumptions arsenic we move into 2023. We are anticipating different beardown twelvemonth of maturation finance pinch superior expenditures forecasted astatine astir $95 cardinal for some caller and in-process projects. We are besides forecasting astir $11 cardinal successful excavation improvement costs to hap successful nan backmost half of 2023 relating to a caller pit opening astatine our beryllium mine.

In closing, contempt immoderate marketplace headwinds, 2023 is shaping up to beryllium different breathtaking twelvemonth of beardown marketplace outgrowth and execution from Materion, starring to grounds results and semipermanent sustainable worth creation for our stakeholders.

This concludes our prepared remarks. We will now unfastened nan statement for questions.

Question-and-Answer Session

Operator

Thank you. The level is now unfastened for questions. [Operator Instructions] Your first mobility is coming from Daniel Moore of CJS Securities. Daniel, your statement is live.

Daniel Moore

Good morning, Jugal. Good morning, Shelly. Thanks for taking nan questions.

Shelly Chadwick

Good morning.

Jugal Vijayvargiya

Good morning, Dan.

Daniel Moore

Start pinch nan 2 caller partnerships that you announced this morning, possibly conscionable a small spot much item connected nan circumstantial merchandise applications for each and what nan gross opportunity and ramp could look for illustration complete nan adjacent 1 to 2 years?

Jugal Vijayvargiya

Yeah. So awesome partnerships. The first 1 we announced is simply a funded 1 pinch astir a $15 cardinal finance that we indicated. That finance will beryllium spent this twelvemonth really putting capacity successful place. We expect to person nan income completed, I would say, this twelvemonth and really chiefly adjacent twelvemonth successful this project. Really, arsenic I said, breathtaking partnership. I'm not capable to spell excessively overmuch into detail, Dan, connected what nan merchandise is aliases circumstantial materials that we're going to proviso conscionable based connected nan confidential quality of nan statement that we have. But it is rather breathtaking and it really impacts a mates of our accommodation that will put capacity increases in, and past beryllium capable to supply, arsenic I said, betwixt this twelvemonth and adjacent twelvemonth pinch nan mostly of it, I would say, adjacent year.

With nan 2nd partnership, this is 1 that we really person capacity today. So there's not really immoderate backing required for nan 2nd item, which is nan captious abstraction application. We're going to utilize our existing capacity that we have. It is simply a 3 twelvemonth statement that we person reached pinch nan customer. As you know, abstraction is an important megatrend for us. We've talked astir it astir a twelvemonth agone successful 1 of our calls. And this is conscionable a really breathtaking exertion successful connection systems. So our materials being utilized for that.

We're going to commencement delivering yet, I would say, this year, successful nan 2nd half of this twelvemonth of that first $10 cardinal bid and past into adjacent year. And our anticipation is that we'll proceed to do that complete that 3-year timeframe and then, of course, beyond that arsenic well. Both of these opportunities are portion of our Performance Materials segment. So rather excited astir continued integrated maturation opportunities successful our company.

Daniel Moore

Very helpful. Overall, it sounds for illustration you're looking for benignant of a positive, possibly debased to mid-single-digit maturation twelvemonth for value-added sales, that -- proceeding that correctly, putting each nan pieces together, number one. Number two, what does nan cadence look like? Are we apt to commencement disconnected successful that clip aliases possibly a small slower fixed immoderate of nan adjacent word headwinds successful semi?

Jugal Vijayvargiya

Yeah. I mean let's conscionable commencement pinch semi, because that is, arsenic you know, benignant of a mobility mark, I think, that galore companies person correct now, including us. I would opportunity that, successful general, it's astir apt a slower first half arsenic inventory correction useful and past amended 2nd half arsenic nan pickup is expected. Semi is astir a 3rd of our business, truthful that surely has an effect connected our wide company. And so, I would expect nan first half to beryllium a small spot slower than nan 2nd half successful position of sales. And I conjecture you could benignant of extrapolate that to nan net portion of nan institution arsenic well.

We deliberation erstwhile you look astatine our markets chart, which we person included successful our deck, I deliberation it's Slide 10. Majority of nan markets that we participate successful are -- we judge are going to beryllium positive. So a small northbound of zero to 3 aliases a small spot much than 3 for a mates of them, which is aerospace and energy. Semi is nan large 1 arsenic we indicated, which is going to beryllium possibly a small spot much negative.

So I deliberation your appraisal is astir apt reasonable successful position of nan type of growth, possibly nan institution whitethorn acquisition overall. But I surely would opportunity that it is going to beryllium a first half commencement a spot connected nan package side, but past really present overmuch much successful nan 2nd half. But overall, we're excited. I mean, because you're looking astatine an 8% maturation connected nan EPS side. I mean nan operational performance, we think, of nan institution is going to beryllium location successful nan 14-15 possibly type of a range. We person a small spot much interest, of course, that we person to woody with, truthful nan EPS is astir eight. But I think, overall, it's going to beryllium a bully twelvemonth for us.

Shelly Chadwick

And Dan, possibly since you talked astir timing, I would conscionable talk astir nan sequential Q4 to Q1. We had a really beardown Q4. As Jugal talked about, we'll spot nan semi softening successful Q1. So we surely expect to beryllium up year-on-year, possibly 10% net from Q4 to Q1, but beryllium a small spot perchance softer than Q4.

Daniel Moore

Very helpful, Shelly. Last for me, and I'll jump out. Cash travel picked up nicely successful nan quarter, obviously. And you gave nan outlook for CapEx. Just talk astir benignant of what your expectations are for moving superior and rate procreation successful fiscal 2023 and pinch nan equilibrium expanse now leverage down to that benignant of midpoint of nan scope and declining immoderate shifts successful bid of privilege for superior allocation. Thanks.

Shelly Chadwick

Yeah. No, awesome question. And we were pleased pinch our rate travel procreation successful Q4. Certainly, we're keeping indebtedness successful position to make judge that our leverage is successful nan debased to mid portion of that range. I deliberation is what we're targeting astatine this constituent fixed wherever we are benignant of successful nan rhythm of things. Our CapEx was a spot little arsenic we had immoderate CapEx successful accounts payable astatine year-end. So that intends successful Q1, we're going to person a bigger costs for CapEx than possibly normal. So I don't deliberation we're going to spot a existent beardown free rate travel number retired of Q1, but expect a bully number for nan full year. And we'll bring that indebtedness down a spot more. I don't deliberation we're going to put that arsenic number 1 priority. As you saw, nan CapEx number is still healthy. We've sewage a batch of maturation opportunities. But you'll spot that indebtedness number travel down. Right now, we're astatine 2.1. We'll surely beryllium successful nan high-one’s adjacent clip this twelvemonth -- this clip adjacent year, sorry.

Daniel Moore

Perfect. Jump backmost pinch immoderate follow-ups. Thank you.

Operator

Thank you very much. Your adjacent mobility is coming from Phil Gibbs. Phil, your statement is live. Phil, are you connected mute?

Shelly Chadwick

Maybe we'll spell to nan adjacent and travel backmost to Phil.

Operator

Yes. Okay. Just 1 second. Just carnivore pinch me. I deliberation location mightiness beryllium a method rumor pinch nan panel, bent connected a second. I'm really sorry.

John Zaranec

Jenny, this is -- I'm helping out. Phil Gibbs will beryllium our adjacent question. Phil, your statement is live. Please spell ahead.

Philip Gibbs

Can you perceive maine now?

Jugal Vijayvargiya

Yes, Phil. I tin perceive you.

Philip Gibbs

All right. Perfect. Good morning.

Philip Gibbs

Always something, right?

Shelly Chadwick

Yeah.

Philip Gibbs

First mobility is conscionable connected nan defense and hydroxide portion that you mentioned. I cognize it's typically a bully kicker to your mix, and we saw a batch of our different companies successful nan specialty metals arena person bully quarters and defense partially possibly because of nan warfare and world demand. So what was nan pickup quarter-on-quarter for PAC, meaning really outsized was it? And past what should we expect to persist to immoderate of these geopolitical and macro things persist?

Jugal Vijayvargiya

Yeah. So Phil, we had mentioned, erstwhile you look astatine defense, I deliberation erstwhile we -- successful our Q3 call, we had mentioned that location whitethorn beryllium immoderate defense orders connected timing that we person been waiting connected and we've been trying to get them successful that whitethorn use successful Q4. And that's precisely what happened. And they benefited present successful Q4.

We expect defense to beryllium a bully market, conscionable successful position of going into 2023. We've noted successful our Slide 10 that it's astir apt location successful nan zero to 3 type of a range, truthful from a mid-growth type of a marketplace for us. But that surely was a affirmative for america successful Q4.

And past hydroxide, I mean, arsenic you know, that 1 we typically person 1 aliases 2 shipments per quarter, depending connected nan needs nan customer whitethorn have. And we hap to person a shipment -- other shipment successful Q4 that benefited us. We would expect nan shipment timing for 2023 to beryllium comparatively successful statement with, let's say, nan humanities complaint that we've had. So I wouldn't expect thing unusually affirmative aliases antagonistic from nan hydroxide shipments.

Shelly Chadwick

And possibly conscionable to adhd immoderate colour connected Q4. As you know, Phil, nan defense shipments tin beryllium benignant of lumpy. They travel successful chunks versus nan accordant passim nan year. So year-on-year successful Q4, you saw a beautiful important maturation successful nan 20s, if you would, percent wise, which surely helped pinch our mix.

Philip Gibbs

Okay. That's helpful. And past arsenic a 2nd question, I cognize nan tantalum misalignment impacted Q3, I think, to nan tune of $4 cardinal aliases $5 million, not really judge what it was successful nan 4th quarter. But I retrieve you expected immoderate of those things to gradually get better. I don't deliberation nan first 4th was inclusive of that, but immoderate amended contracts and immoderate things timing up a small spot amended by nan 2nd quarter. Can you springiness immoderate colour successful position of wherever those things stand?

Shelly Chadwick

Yeah. Maybe I'll commencement connected that one. So we talked astir nan $4 cardinal successful Q4. That looked amended successful Q3, person to $3 million. We will spot that still activity retired successful Q1 arsenic we're moving done immoderate higher costs inventory.

The negotiations pinch nan customers are mostly down us. So we're seeing immoderate of that pricing commencement to feather successful arsenic we participate nan year, but immoderate contracts renegotiate successful nan twelvemonth arsenic well. So that's why we'll still spot a small spot of a hangover arsenic we commencement retired 2023.

Philip Gibbs

Is that still reasonable to fishy that, that's done by nan 2nd 4th for nan astir part?

Jugal Vijayvargiya

Yeah. I deliberation what we had indicated is for nan astir part, it would commencement to shape retired successful nan 2nd quarter. And past nan 2nd half, we expected it to beryllium a small spot connected nan cleanable side. So that's nan expectation.

Philip Gibbs

Thanks truthful much.

Operator

Thank you. Your adjacent mobility is coming from Dave Storms from Stonegate Capital Markets. Dave, your statement is live. Please proceed.

David Storms

Good morning. And acknowledgment for taking my questions. Very beardown year-over-year EBIT separator description successful Performance Metals connected a worth adhd level. Can we expect immoderate of that to beryllium stickier? Or is that much conscionable a merchandise of possibly ostentation moderating aliases much macro trends?

Jugal Vijayvargiya

Well, our Performance Materials business surely did really good successful Q4. I mean, there's a number of factors. The business is continuing to thrust integrated maturation arsenic we move forward. Some of nan operational challenges that we had successful Q3, we sewage those challenges down us. We conscionable mentioned, for example, nan affirmative operation pinch nan defense and hydroxide. Both of those benignant of thin to spell a small spot much successful nan Performance Materials business.

We besides had nan precision clad business ramp overmuch much successful Q4. So that surely was a favorable item. So I would expect that arsenic we move forward, immoderate of these things are going to proceed to use and past some, certainly, nan onetime type of things for illustration nan defense and hydroxide are going to taper off. So we expect Performance Materials to proceed to do good into 2023, but I'm not judge nan tally complaint -- nan complaint that was delivered successful Q4 is thing that we tin replicate 4 times this year.

Shelly Chadwick

Yeah. This -- it's not nan caller floor, right? So EBIT was astatine astir 20% -- aliases 18%, sorry, for nan year. And 20% to 21% successful nan quarter, I deliberation we'll do amended than nan year, but 21% is surely not nan floor.

David Storms

That's perfect. And conscionable rubbing connected nan precision clad existent quick. Shelly, I cognize you mentioned successful your comments that, that was adjacent afloat tally rate. Just curious, is location immoderate colour arsenic to what afloat tally complaint would look like?

Shelly Chadwick

So yeah, I would opportunity we exited nan twelvemonth adjacent afloat tally rate, truthful astir apt not from nan caller installation astatine afloat tally complaint for nan full quarter. But we did person nan use of besides shipping from our bequest facilities. So successful total, it was really favorable volume. We do expect to person each nan measurement coming retired of nan caller installation successful 2023, and we're getting very adjacent to afloat ramp successful that facility.

David Storms

That's perfect. Thank you. One more, if I could. Just wondering, Shelly, you besides mentioned bid book looks really good. I was wondering if location was thing circumstantial to China and nan reopening complete there. And if there's immoderate [indiscernible] we tin expect from nan proviso concatenation aliases thing of that nature.

Jugal Vijayvargiya

Yeah. No, our bid book continues to look strong. I mean nan operation of our bid book surely is changing a small spot conscionable based connected nan marketplace conditions. So for example, we've talked astir semiconductor and what that marketplace is doing. So our bid book connected that 1 is simply a small spot stressed, but we person a really affirmative bid book connected immoderate of nan different markets. So I think, overall, our bid book continues to beryllium favorable and 1 that supports our guideline that we've provided for 2023, which is simply a important maturation from 2022 levels.

China opening up, certainly, has a, I want to say, a affirmative impact, but our business successful China is comparatively mini successful comparison to our full company. So it has a mini affirmative impact, but thing of a meaningful impact.

David Storms

That's perfect. Thank you very much.

Operator

Thank you. [Operator Instructions] And our adjacent mobility is coming from David Silver from CL King. David, your statement is live. Please spell ahead.

David Silver

Yeah. Hi. Good morning. Thank you.

Jugal Vijayvargiya

Good morning, David.

Yeah. So a mates of questions. I apologize, there'll astir apt beryllium a small hopscotching astir here. First point I wanted to inquire you astir was nan effect of rate connected your operations this year. And besides what are your assumptions for rate impacting -- well, what was nan rate effect assumed successful nan fiscal twelvemonth 2023 EPS guidance range? And if you could, I mean, is location a gross -- a delta connected nan revenues, delta connected nan adjusted EPS. If you had that, that would beryllium great. Thank you.

Shelly Chadwick

So 1 bully point astir our business, wherever we person rate exposure, we've sewage beautiful bully matching connected cost. So what we spot connected nan gross statement is usually overmuch bigger than what we would spot connected nan EBITDA line. So we're good protected from that perspective. When we spell into a caller year, we're often looking astatine keeping it unchangeable pinch wherever we ended nan year. So we don't make large calls connected what we deliberation is going to hap pinch currency. What we saw this twelvemonth was not overly meaningful, talking possibly $10 cardinal aliases truthful for nan apical line, but thing adjacent that to nan bottommost line.

David Silver

Okay. And past conscionable possibly benignant of much of a theoretical mobility aliases philosophical question. But a number of my business and physics materials companies person talked astir nan important effect of inventory destocking during nan 4th quarter, some nonstop their income but besides indirect whitethorn beryllium affecting their customers downstream. I whitethorn person missed it, I did not perceive excessively overmuch reference to that. And I'm conscionable wondering, was destocking an issue? Do you deliberation it will beryllium an rumor successful nan first half of 2023? Or is it nan lawsuit that possibly nan much Advanced Materials quality of your portfolio doesn't lend itself arsenic readily to nan benignant of buffer banal buildup and drawdown that possibly has been characteristic of immoderate of your extremity markets much broadly? Thank you.

Jugal Vijayvargiya

Yeah. Well, I deliberation nan inventory correction rumor aliases destocking that you mentioned is decidedly an rumor successful nan semiconductor space. Not only are we seeing it, but I deliberation nan full marketplace successful nan semi abstraction is seeing that. We expect that to activity its measurement out, I would say, successful nan first half and past prime backmost up successful nan 2nd half. That's 1 of nan reasons why we've sewage semiconductor arsenic a market, possibly a small spot little than zero from a year-over-year perspective. So I deliberation that is an issue, David, and it is thing that I deliberation we're experiencing. And certainly, I'd say, beautiful overmuch nan full semi manufacture is experiencing.

When I look astatine our different markets, I don't spot destocking arsenic an important element. I deliberation different markets are continuing to move forward. I mean arsenic we've highlighted successful our chart, Chart 10 of benignant of really we spot 2023 coming along, we do see, successful general, I would say, a small spot softer first half versus nan 2nd half, but a batch of that is owed to nan semiconductor broadside conscionable because that business is astir 3rd of our business. So it is an rumor for portion of our business, but I would opportunity not an rumor for immoderate different parts of our business.

David Silver

Okay. Next mates of questions I deliberation are going to beryllium connected nan -- would beryllium connected nan Electronic Materials business. And I'm going to quote conscionable nan condemnation from nan property merchandise this morning. So you said nan successful -- I'm going to paraphrase, but nan successful integration of HCS and nan powerfulness of their mixed teams is quote unquote “generating worth beyond our expectations”. So nan generating worth beyond our expectations is what I was wondering about. In particular, erstwhile I deliberation astir that successful nan discourse of immoderate of nan goals aliases immoderate of nan opportunities pinch combining HCS. I'm reasoning much on nan lines of possibly gross synergies. In different words, costs synergies were astir apt expected and could beryllium identified up of clip to a definite extent, whereas gross synergies, there's imaginable but nan timing is ever -- nan timing and execution are ever highly uncertain. But possibly if you could remark connected what nan -- beyond our expectations constituent of nan HCS acquisition integration operation has -- really that has played out.

Jugal Vijayvargiya

Yeah. Well, first of all, I deliberation nan HCS acquisition, conscionable for illustration our quota indicator, I mean it has delivered really good for us. Our teams mixed pinch nan HCS squad person worked connected truthful galore different fronts to deliver. During nan year, we were capable to adhd complete 20% headcount to nan installation and summation our output from nan facility. We announced complete $20 cardinal worthy of superior investments that we're putting successful spot to beryllium capable to put caller capacity for nan business.

The number of initiatives that our teams person been moving connected wherever they person worked together to spell and connection our complete portfolio of Electronic Materials to nan top-15 semiconductor manufacturers has been very powerful. So I deliberation there's a number of things that person happened. Certainly, each of those things, by nan way, person led to awesome financial results arsenic good for that business, I would say, overmuch amended than what nan synergies levels that we had indicated.

I deliberation nan different point that's been very interesting, and we've talked astir this, is erstwhile you look astatine tantalum, and nan exertion of tantalum continues to summation successful general, right? The smaller nan nodes are getting, nan much exertion for tantalum. And truthful moreover though there's nan short-term softness connected nan representation side, nan logic broadside is continuing very strong, and we would expect nan representation broadside to beryllium recovering. So nan semipermanent inclination of this business is highly bully and highly healthy.

So I deliberation it's a operation of things erstwhile we opportunity beyond expectations, operation of really things person turned retired connected our apical statement pinch nan synergies, operation of nan investments that we've made, nan group that we've really put successful spot arsenic good as, I think, nan early opportunities that we person for our mixed portfolio. So each of that put together, I deliberation conscionable is very, very favorable for us, and we're excited astir this business.

David Silver

Okay. I'd for illustration to benignant of travel up connected nan Electronic Materials outlook? And I apologize successful advance, this mobility will beryllium a small much disjointed than normal. But successful nan United States, there's a number of very ample wafer fabs and related units being put -- coming connected watercourse aliases underdevelopment now, owed to travel connected watercourse between, let's say, early 2024 done 2026. And it's my sentiment that nan wafer fab improvement is moving possibly a small spot faster than what I would telephone nan ecosystem, nan suppliers and support and logistics and whatnot.

And on those lines, 2 things. I was wondering if you could remark connected -- generally, connected really you spot nan opportunities for your products and services processing arsenic those large caller wafer fabs are completed and getting commissioned connected ramp-up. And past secondly, really does nan Chips Act aliases nan caller level of assistance that's disposable for semiconductor shaper successful this country, really does that play into your maturation strategies aliases your expertise to pat into that root of financial support, et cetera? So conscionable nan maturation that had already been announced and now nan financial support astatine nan national level. Thank you.

Jugal Vijayvargiya

Yeah, yeah. Well, first of all, arsenic we've already indicated, I think, connected nan telephone and we proceed to indicate, this is simply a abstraction that we're very excited about. The acquisition that we did, of course, is successful nan semiconductor space. We spot this arsenic semipermanent maturation play for us. It's producing bully short-term results, and we expect it to nutrient bully semipermanent results.

Our footprint, our R&D footprint and our manufacturing footprint is chiefly successful North America. And nan acquisition that we made present astir a twelvemonth agone is besides successful North America. So I deliberation we are very good positioned to proceed to activity pinch each nan semiconductor manufacturers. As we indicated, we person entree to each of nan top-15 semiconductor manufacturers. And past we are capable to person some R&D arsenic good arsenic manufacturing successful region to support them. So we spot that arsenic a very affirmative for america connected a go-forward basis.

When you look astatine past what further things we tin do, I mean we surely are progressive successful nan Chips Act discussions. We're studying it very carefully. We're looking astatine what options location could be. We're looking astatine which of these capabilities and accomplishment sets that we person that we could further strengthen. And so, we're progressive successful a number of discussions connected really we tin return advantage of and support nan spot manufacturers arsenic they turn their capacity. So arsenic we person much connected that to communicate, we surely will. But yes, that is decidedly 1 of nan initiatives that we're engaged in.

David Silver

Okay. And past conscionable past question. And I apologize erstwhile Shelly was going done this portion of her discussion. I was a mini spot distracted, but conscionable to touch guidelines connected nan -- your 3rd segment, nan Optics. I deliberation you were saying that -- you were indicating that possibly nan restructuring, reshaping had benignant of reached a constituent wherever nan portion location has been stabilized and could beryllium positioned for growth. And I judge you mentioned a patient backlog, but would it beryllium adjacent to opportunity that we should look for benignant of an inflection constituent aliases a turnaround to maturation wide successful that segment, afloat twelvemonth 2023 versus afloat twelvemonth 2022? Thank you.

Jugal Vijayvargiya

Yeah. I deliberation that's adjacent to opportunity that. As we look astatine our 2023 and benignant of look astatine nan caller business initiatives that nan business is progressive in, we would expect that those things to footwear successful during nan year, certainly, nan backmost half of nan twelvemonth past would person much of a use than nan beforehand half of nan year. But connected a afloat twelvemonth basis, we would expect that business to person maturation connected a year-over-year ground connected some nan apical and bottommost line.

So we're excited astir that. I mean, it's been a awesome business for us. It's gone immoderate -- gone done immoderate headwinds present complete nan past 12 months aliases so, conscionable based connected customer decisions and immoderate of nan life sciences merchandise discontinuation that happened. But successful general, this is simply a awesome business for us, and we're looking guardant to beryllium capable to stock nan turnaround present during nan year.

David Silver

Very helpful. Thank you very much.

Jugal Vijayvargiya

Thanks, David.

Operator

Thank you. And location are nary further questions successful queue. I would now for illustration to move nan level complete to John Zaranec for immoderate closing remarks.

John Zaranec

Thank you. This concludes our 4th fourth 2022 net call. A recorded playback of this telephone will beryllium disposable connected nan company's website, materion.com. I'd for illustration to convey you for participating connected nan telephone this greeting and your liking successful Materion. I will beryllium disposable for immoderate follow-up questions, my number is (216) 383-4010. Thanks again.

Operator

Thank you. This does reason today's convention call. You whitethorn disconnect your telephone lines astatine this clip and person a awesome day. Thank you for your participation.

Editor: Naga



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