Business Wire | Jul 23, 2020 07:50AM EDT

Materion Corporation Reports Second Quarter 2020 Financial Results

Jul. 23, 2020

MAYFIELD HEIGHTS, Ohio--(BUSINESS WIRE)--Jul. 23, 2020--Materion Corporation (NYSE: MTRN) today reported second quarter 2020 financial results and provided an update on key strategic initiatives.

* Net sales were $271.5 million; value-added sales increased 2% sequentially to $161.6 million * Net income was $0.32 per share, diluted; adjusted earnings were $0.49 per share, up 14% vs. the first quarter * Closed Optics Balzers acquisition to create a global industry leader in optical thin film coating solutions * Significant new customer opportunity for precision clad engineered strip product on schedule

"I am very pleased with our team's performance in the second quarter amid the COVID-19 pandemic, as we delivered sequential growth in both value-added sales and earnings," stated Jugal Vijayvargiya, President and Chief Executive Officer. "The health and safety of our people remains our utmost priority. We are continuing to follow all recommended guidelines as all our facilities continue to operate in support of essential industries."

Mr. Vijayvargiya continued, "Our key strategic initiatives remain on schedule. We completed the Optics Balzers acquisition just 6 weeks after signing, and I would like to welcome their talented team to the Materion family. The customer project on precision clad engineered strip product which we announced during our last earnings call continues to progress. To date, we have received $31 million of funding from the customer, and we remain on the schedule previously communicated."

SECOND QUARTER 2020 RESULTS

Net sales for the second quarter of 2020 were $271.5 million, compared to $297.8 million in the prior year. Second quarter value-added sales of $161.6 million were up 2% from the first quarter of 2020, despite challenging market conditions, and down 17% versus the prior year. Consumer electronics, industrial, energy, aerospace, and automotive end markets were heavily impacted by the COVID-19 pandemic.

Operating profit for the second quarter was $8.7 million, and net income was $6.7 million, or $0.32 per diluted share, compared to a net loss of $3.1 million, or $0.15 per share, in the first quarter. Excluding special items for COVID-19 direct expenses ($2.7 million), restructuring ($2.4 million), merger and acquisition costs ($1.4 million), and a foreign currency hedge gain ($2.2 million) related to the acquisition of Optics Balzers, earnings before interest and tax expense were $13.9 million. Adjusted net income was $10.0 million, or $0.49 per diluted share, an increase of 14% compared to the first quarter.

OUTLOOK

We continue to experience significant levels of uncertainty regarding future demand in our end markets due to the COVID-19 pandemic. Based on current demand levels and assuming our factories remain operational, we expect adjusted earnings in the third quarter to be comparable to slightly better than the second quarter.

The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore we cannot predict the extent to which our business, results of operations, financial condition, or cash flows will ultimately be impacted. Therefore, we are not providing full-year earnings guidance. We anticipate resuming our practice of providing full-year earnings guidance once the degree of economic uncertainty driven by the COVID-19 pandemic subsides.

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 and 5 to this press release.

CONFERENCE CALL

Materion Corporation will host an investor conference call with analysts at 9:00 a.m. Eastern Time, July 23, 2020. The conference call will be available via webcast through the Company's website at www.materion.com or through www.InvestorCalendar.com. By phone, please dial (877) 407-0778. Callers outside the U.S. can dial (201) 689-8565. A replay of the call will be available until August 6, 2020 by dialing (877) 481-4010 or (919) 882-2331; please reference replay ID number 57377. 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, in particular, the outlook provided above. 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 Optics Balzers, including any expected synergies; * Our ability to successfully integrate the Optics Balzers business and achieve the expected results of the acquisition, including, without limitation, the acquisition being accretive in the expected timeframe or at all; * Actual net sales, operating rates, and margins for 2020; * The global economy, including the impact of tariffs and trade agreements; * The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition, and liquidity; * The impact of any U.S. Federal Government shutdowns and sequestrations; * The condition of the markets which we serve, whether defined geographically or by segment, with the major market segments being: semiconductor, industrial, aerospace and defense, automotive, energy, consumer electronics, and telecom and data center; * 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 in identifying other acquisition candidates and in acquiring and integrating such businesses; * The impact of the results of other acquisitions on our ability to fully achieve the strategic and financial objectives related to these acquisitions; * Our success in 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 financing 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 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; * Our ability to successfully complete the disposition of our LAC business; * The disruptions on operations from, and other effects of, catastrophic and other extraordinary events including the COVID-19 pandemic; and * The risk factors as set forth in Item 1A of our 2019 Annual Report on Form 10-K and in our Quarterly Report on Form 10-Q for the quarterly period ended March 27, 2020.

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)

Second Quarter Ended Six Months Ended

(In thousands except per June 26, June 28, June 26, June 28,share amounts) 2020 2019 2020 2019

Net sales $ 271,468 $ 297,843 $ 549,414 $ 599,284

Cost of sales 223,378 228,249 455,749 460,378

Gross margin 48,090 69,594 93,665 138,906

Selling, general, and 32,852 39,891 63,596 79,955 administrative expense

Research and development 4,502 4,062 8,687 7,802 expense

Goodwill impairment - - 9,053 - charges

Held for sale impairment - - 1,713 - charges

Restructuring expense 2,387 - 4,551 -

Other - net (357) 2,891 1,922 7,012

Operating profit 8,706 22,750 4,143 44,137

Other non-operating (851) 3,112 (1,795) 3,357 (income) expense-net

Interest expense - net 1,259 500 1,505 966

Income before income 8,298 19,138 4,433 39,814 taxes

Income tax expense 1,620 3,598 858 7,368

Net income $ 6,678 $ 15,540 $ 3,575 $ 32,446

Basic earnings per share:

Net income per share of $ 0.33 $ 0.76 $ 0.18 $ 1.60 common stock

Diluted earnings per share:

Net income per share of $ 0.32 $ 0.75 $ 0.17 $ 1.57 common stock

Weighted-average numberof shares of common stock outstanding:

Basic 20,317 20,383 20,350 20,326

Diluted 20,554 20,666 20,587 20,635

Attachment 2

Materion Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(Thousands) June 26, 2020 December 31, 2019

Assets

Current assets

Cash and cash equivalents $ 265,068 $ 125,007

Accounts receivable, net 146,527 154,751

Inventories, net 209,847 190,390

Prepaid and other current assets 29,191 21,839

Assets held for sale 5,811 -

Total current assets 656,444 491,987

Deferred income taxes 1,669 1,666

Property, plant, and equipment 924,620 916,965

Less allowances for depreciation, depletion, (685,355) (684,689) and amortization

Property, plant, and equipment-net 239,265 232,276

Operating lease, right-of-use assets 48,942 23,413

Intangible assets 5,732 6,380

Other assets 19,169 17,937

Goodwill 70,001 79,011

Total Assets $ 1,041,222 $ 852,670

Liabilities and Shareholders' Equity

Current liabilities

Short-term debt $ 151,731 $ 868

Accounts payable 52,093 43,206

Salaries and wages 24,367 41,167

Other liabilities and accrued items 33,429 32,477

Income taxes 1,779 1,342

Unearned revenue 3,003 3,380

Liabilities held for sale 2,126 -

Total current liabilities 268,528 122,440

Other long-term liabilities 10,117 11,560

Operating lease liabilities 44,830 18,091

Finance lease liabilities 16,939 17,424

Retirement and post-employment benefits 32,389 32,466

Unearned income 57,799 32,891

Long-term income taxes 3,508 3,451

Deferred income taxes 2,172 2,410

Long-term debt - 1,260

Shareholders' equity 604,940 610,677

Total Liabilities and Shareholders' Equity $ 1,041,222 $ 852,670

Attachment 3

Materion Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended

(Thousands) June 26, June 28, 2020 2019

Cash flows from operating activities:

Net income $ 3,575 $ 32,446

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation, depletion, and amortization 23,522 22,607

Amortization of deferred financing costs in interest 364 472 expense

Stock-based compensation expense (non-cash) 3,966 3,541

Deferred income tax (benefit) expense (234) 4,578

Net pension curtailments and settlements 94 3,296

Held for sale impairment charges 10,766 -

Changes in assets and liabilities:

Decrease (increase) in accounts receivable 5,331 (11,778)

Decrease (increase) in inventory (20,585) 1,306

Decrease (increase) in prepaid and other current (7,264) (588) assets

Increase (decrease) in accounts payable and accrued (7,634) (18,813) expenses

Increase (decrease) in unearned revenue (257) (88)

Increase (decrease) in interest and taxes payable 1,058 (1,130)

Increase (decrease) in unearned income due to 26,713 - customer prepayments

Domestic pension plan contributions - (3,000)

Other-net (2,982) (2,803)

Net cash provided by operating activities 36,433 30,046

Cash flows from investing activities:

Payments for purchase of property, plant, and (32,034) (13,833) equipment

Payments for mine development - (1,591)

Proceeds from sale of property, plant, and equipment 33 15

Net cash used in investing activities (32,001) (15,409)

Cash flows from financing activities:

Short-term debt under revolving credit agreement 150,000 -

Repayment of long-term debt (428) (397)

Principal payments under finance lease obligations (626) (599)

Cash dividends paid (4,582) (4,368)

Repurchase of common stock (6,766) (199)

Payments of withholding taxes for stock-based (2,025) (4,763) compensation awards

Net cash provided by (used in) financing activities 135,573 (10,326)

Effects of exchange rate changes 56 (100)

Net change in cash and cash equivalents 140,061 4,211

Cash and cash equivalents at beginning of period 125,007 70,645

Cash and cash equivalents at end of period $ 265,068 $ 74,856

Attachment 4

Materion Corporation and Subsidiaries

Reconciliation of Non-GAAP Measure - Value-added Sales, Operating Profit, andEBIT

(Unaudited)

Second Quarter Ended Six Months Ended

(Millions) June 26, 2020 June 28, 2019 June 26, 2020 June 28, 2019

Net Sales

PerformanceAlloys and $ 101.6 $ 135.2 $ 200.7 $ 262.3 Composites

Advanced 150.1 133.2 310.3 277.3 Materials

Precision 19.8 29.4 38.4 59.7 Coatings

Other - - - -

Total $ 271.5 $ 297.8 $ 549.4 $ 599.3



Less:Pass-through Metal Cost

PerformanceAlloys and $ 11.8 $ 19.9 $ 27.2 $ 37.4 Composites

Advanced 95.4 74.9 196.4 161.5 Materials

Precision 2.0 6.3 3.7 14.1 Coatings

Other 0.7 1.8 1.9 3.7

Total $ 109.9 $ 102.9 $ 229.2 $ 216.7



Value-addedSales (non-GAAP)

PerformanceAlloys and $ 89.8 $ 115.3 $ 173.5 $ 224.9 Composites

Advanced 54.7 58.3 113.9 115.8 Materials

Precision 17.8 23.1 34.7 45.6 Coatings

Other (0.7) (1.8) (1.9) (3.7)

Total $ 161.6 $ 194.9 $ 320.2 $ 382.6



% % % of %Gross Margin of of VA of VA VA VA

PerformanceAlloys and $ 25.4 28% $ 41.6 36% $ 47.5 27% $ 80.8 36%Composites

Advanced 16.1 29% 20.2 35% 33.7 30% 42.2 36%Materials

Precision 7.1 40% 10.3 45% 13.1 38% 19.7 43%Coatings

Other (0.5) - (2.5) - (0.6) - (3.8) -

Total $ 48.1 30% $ 69.6 36% $ 93.7 29% $ 138.9 36%



Operating % % % of %Profit (Loss) of of VA of VA VA VA

PerformanceAlloys and $ 8.2 9% $ 19.3 17% $ 13.0 7% $ 38.3 17%Composites

Advanced 4.4 8% 6.1 10% 9.2 8% 13.2 11%Materials

Precision 2.1 12% 3.9 17% (7.5) (22) 6.0 13%Coatings %

Other (6.0) - (6.5) - (10.6) - (13.4) -

Total $ 8.7 5% $ 22.8 12% $ 4.1 1% $ 44.1 12%

Second Quarter Ended Six Months Ended

(Millions) June 26, 2020 June 28, 2019 June 26, 2020 June 28, 2019

Special Items

PerformanceAlloys and $ 4.2 $ - $ 7.8 $ - Composites

Advanced 0.6 - 0.7 - Materials

Precision 0.3 - 11.1 - Coatings

Other (0.8) - (0.7) -

Total $ 4.3 $ - $ 18.9 $ -



Operating % % %Profit (Loss) of of % of ofExcluding VA VA VA VASpecial Items

PerformanceAlloys and $ 12.4 14% $ 19.3 17% $ 20.8 12% $ 38.3 17%Composites

Advanced 5.0 9% 6.1 10% 9.9 9% 13.2 11%Materials

Precision 2.4 13% 3.9 17% 3.6 10% 6.0 13%Coatings

Other (6.8) - (6.5) - (11.3) - (13.4) -

Total $ 13.0 8% $ 22.8 12% $ 23.0 7% $ 44.1 12%



Non-Operating % % % of %(Income) of of VA ofExpense VA VA VA

PerformanceAlloys and $ 0.1 -% $ 0.2 -% $ 0.3 -% $ 0.4 -%Composites

Advanced - -% - -% - -% - -%Materials

Precision - -% - -% - -% - -%Coatings

Other (1.0) - 2.9 - (2.1) - 3.0 -

Total $ (0.9) -% $ 3.1 -% $ (1.8) -% $ 3.4 -%



Non-Operating (Income) Expense Special Items

Other $ - $ 3.3 $ - $ 3.3

Total $ - $ 3.3 $ - $ 3.3



EBIT Excluding % % % ofSpecial Items of of VA VA VA

PerformanceAlloys and $ 12.3 14% $ 19.1 17% $ 20.5 12% $ 37.9 17%Composites

Advanced 5.0 9% 6.1 10% 9.9 9% 13.2 11%Materials

Precision 2.4 13% 3.9 17% 3.6 10% 6.0 13%Coatings

Other (5.8) - (6.1) - (9.2) - (13.1) -

Total $ 13.9 9% $ 23.0 12% $ 24.8 8% $ 44.0 12%

The cost of gold, silver, platinum, palladium, and copper 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 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 Non-GAAP Measures - Profitability

(Unaudited)

Second Quarter Ended Six Months Ended

(Millions except per share June 26, June 28, June 26, June 28,amounts) 2020 2019 2020 2019

GAAP as Reported

Net sales $ 271.5 $ 297.8 $ 549.4 $ 599.3

Operating profit 8.7 22.8 4.1 44.1

Non-operating (income) expense (0.9) 3.1 (1.8) 3.4

Net income 6.7 15.5 3.6 32.4

Shares outstanding - Diluted 20,554 20,666 20,587 20,635

EPS - Diluted $ 0.32 $ 0.75 $ 0.17 $ 1.57



Operating Profit Special Items

Impairment charges $ - $ - $ 10.8 $ -

Non-cash inventory adjustment - - 1.3 -

Cost reduction initiatives 2.4 - 4.6 -

COVID-19 related costs 2.7 - 2.9 -

Acquisition & divestiture costs 1.4 - 1.5 -

Foreign currency hedge gain (2.2) - (2.2) -

Total Operating Profit Special $ 4.3 $ - $ 18.9 $ - Items

Operating Profit Special Items - $ 3.3 $ - $ 14.5 $ - net of tax

Non-Operating Expense Special $ - $ 3.3 $ - $ 3.3 Items

Non-Operating Expense Special $ - $ 2.6 $ - $ 2.6 Items - net of tax

Tax Special Items $ - $ - $ 0.7 $ -

Special items per diluted share $ 0.17 $ 0.13 $ 0.75 $ 0.13



Non-GAAP Measures - Adjusted Profitability

Value-added (VA) sales $ 161.6 $ 194.9 $ 320.2 $ 382.6

Operating profit 13.0 22.8 23.0 44.1

Operating profit % of VA 8.0 % 11.7 % 7.2 % 11.5 %

EBIT 13.9 23.0 24.8 44.0

EBIT % of VA 8.6 % 11.8 % 7.7 % 11.5 %

Net income 10.0 18.1 18.8 35.0

EPS - Diluted $ 0.49 $ 0.88 $ 0.92 $ 1.70

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 and taxes (EBIT), net income, and earnings per share, on a non-GAAP basis. As detailed in the above reconciliation and Attachment 4, we have adjusted the results for certain special items such as non-cash impairment charges, non-cash inventory adjustments, cost reduction initiatives (i.e., severance), COVID-19 related costs, acquisition and divestiture costs, foreign currency hedge gains, and certain discrete income tax items from the applicable GAAP financial measure. 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

Value-added sales by Market

(Unaudited)

Second Quarter Ended Six Months Ended

(Millions) June 26, June 28, % Change June 26, June 28, % Change 2020 2019 2020 2019

Materion Corporation

Semiconductor $ 38.0 $ 36.3 4.7 % $ 77.3 $ 74.2 4.2 %

Industrial 29.6 36.4 (18.7) % 59.8 70.0 (14.6) %

Aerospace and 22.1 29.6 (25.3) % 41.3 60.1 (31.3) %Defense

Automotive 13.1 14.8 (11.5) % 27.8 31.8 (12.6) %

Energy 12.3 19.1 (35.6) % 25.0 37.5 (33.3) %

Consumer 11.3 19.2 (41.1) % 24.0 33.4 (28.1) %electronics

Telecom and Data 10.8 16.1 (32.9) % 19.7 31.2 (36.9) %Center

Other 24.4 23.4 4.3 % 45.3 44.4 2.0 %

Total $ 161.6 $ 194.9 (17.1) % $ 320.2 $ 382.6 (16.3) %

PerformanceAlloys and Composites

Semiconductor $ 1.4 $ 1.3 7.7 % $ 2.2 $ 3.2 (31.3) %

Industrial 22.2 26.0 (14.6) % 43.9 50.0 (12.2) %

Aerospace and 17.1 24.4 (29.9) % 30.4 49.3 (38.3) %Defense

Automotive 11.9 12.7 (6.3) % 25.0 28.2 (11.3) %

Energy 5.0 10.0 (50.0) % 9.7 19.9 (51.3) %

Consumer 7.9 14.7 (46.3) % 17.0 25.3 (32.8) %electronics

Telecom and Data 10.7 16.0 (33.1) % 19.3 31.0 (37.7) %Center

Other 13.6 10.2 33.3 % 26.0 18.0 44.4 %

Total $ 89.8 $ 115.3 (22.1) % $ 173.5 $ 224.9 (22.9) %

Advanced Materials

Semiconductor $ 36.4 $ 35.0 4.0 % $ 74.8 $ 70.8 5.6 %

Industrial 4.9 6.6 (25.8) % 10.3 12.1 (14.9) %

Aerospace and 0.9 0.5 80.0 % 1.6 1.2 33.3 %Defense

Automotive 1.2 1.7 (29.4) % 2.9 3.0 (3.3) %

Energy 7.1 9.1 (22.0) % 15.1 17.6 (14.2) %

Consumer - 0.1 (100.0) % 0.1 0.2 (50.0) %electronics

Telecom and Data 0.2 0.1 100.0 % 0.4 0.4 - %Center

Other 4.0 5.2 (23.1) % 8.7 10.5 (17.1) %

Total $ 54.7 $ 58.3 (6.2) % $ 113.9 $ 115.8 (1.6) %

Precision Coatings

Semiconductor $ 0.2 $ 0.1 100.0 % $ 0.2 $ 0.2 - %

Industrial 2.6 3.8 (31.6) % 5.7 8.0 (28.8) %

Aerospace and 4.1 4.8 (14.6) % 9.2 9.6 (4.2) %Defense

Automotive - 0.4 (100.0) % - 0.6 (100.0) %

Energy - - - % - - - %

Consumer 3.4 4.4 (22.7) % 6.9 7.9 (12.7) %electronics

Telecom and Data - - - % - - - %Center

Other 7.5 9.6 (21.9) % 12.7 19.3 (34.2) %

Total $ 17.8 $ 23.1 (22.9) % $ 34.7 $ 45.6 (23.9) %



Eliminations $ (0.7) $ (1.8) $ (1.9) $ (3.7)

View source version on businesswire.com: https://www.businesswire.com/news/home/20200723005465/en/

CONTACT: Investor Contact: Stephen F. Shamrock (216) 383-4010 stephen.shamrock@materion.com

CONTACT: Media Contact: John G. McCloskey (216) 383-6835 john.mccloskey@materion.com

CONTACT: https://materion.com Mayfield Hts-g