Materion Corporation Reports Full-year and Fourth Quarter 2019 Financial Results and Provides 2020 Earnings Guidance

Materion Corporation MTRN today reported full-year and fourth quarter 2019 financial results, provided 2020 earnings guidance, and announced the date of the Annual Meeting.

Full-Year 2019 Results

• Operating profit was $67.0 million; adjusted operating profit improved 25% from prior year to a record $82.4 million
• Operating cash flow was a record $99.2 million
• Net income was $2.45 per share, diluted; adjusted earnings per share were $3.19, an all-time record and the third consecutive year with earnings growth greater than 30%

Fourth Quarter 2019 Results

• Net sales were $280.2 million compared to $298.1 million in 2018; value-added sales were $162.5 million versus $185.8 million in 2018
• Operating profit was $16.6 million; adjusted operating profit was $17.1 million compared to $18.1 million in 2018
• Net income was $0.71 per share, diluted; adjusted earnings per share were $0.68, the twelfth consecutive quarter of year-over-year earnings growth

Earnings Guidance

• The Company is providing full-year 2020 adjusted earnings guidance of $3.15 to $3.30 per share, diluted

"I am very pleased to report another year of exceptional results, delivering the third consecutive year of greater than 30% adjusted earnings growth," stated Jugal Vijayvargiya, President and Chief Executive Officer. "Our multi-pillar One Materion strategy continues to gain traction. We will continue to execute this strategy to deliver long-term profitable growth, even as we navigate through market cycles and macroeconomic uncertainty."

FULL-YEAR 2019 RESULTS

Net sales were $1.2 billion, consistent with 2018. Value-added sales of $733.7 million were relatively flat compared to $739.0 million for the prior year. End market strength and commercial performance in aerospace and defense partially offset weakness in the automotive and semiconductor end markets.

Operating profit for the full year was $67.0 million versus $61.5 million in the prior year. Adjusted operating profit was a record $82.4 million, up 25% compared to $66.0 million in 2018. Adjusted operating profit excluded non-cash charges for goodwill and asset impairments of $14.1 million related to the Large Area Coatings (LAC) business included in the Precision Coatings segment, and $1.3 million for restructuring charges and other non-recurring expenses. As a percentage of value-added sales, adjusted operating profit was a record 11%.

Net income for 2019 was $50.7 million, or $2.45 per share, diluted, compared to $20.8 million, or $1.01 per share, diluted, in the prior year. Excluding non-recurring special items, adjusted net income for 2019 was a record of $65.9 million, or $3.19 per share, diluted, an increase of 34% versus the prior year adjusted net income of $2.38 per share.

FOURTH QUARTER 2019 RESULTS

Net sales for the fourth quarter were $280.2 million, versus $298.1 million for the prior year. Value-added sales in the fourth quarter were $162.5 million, compared to $185.8 million in 2018. Commercial performance initiatives and strong demand in the aerospace and defense end market was more than offset by weaker demand in the automotive and telecom and data center end markets, as well as lower sales of blood glucose test strip products. In addition, there were no beryllium hydroxide shipments in the fourth quarter of 2019.

Operating profit for the fourth quarter was $16.6 million, compared to $14.4 million for the prior year. Adjusted operating profit for the quarter was $17.1 million, versus $18.1 million in 2018. Adjustments for special, non-recurring items in the quarter included due diligence expenses for potential acquisitions and legacy environmental costs. As a percentage of value-added sales, adjusted operating profit for the quarter was 11%, the sixth consecutive quarter of double-digit operating profit margins.

Fourth quarter 2019 net income was $14.8 million versus a net loss of $20.8 million in 2018. The prior-year quarter included a non-cash, non-operating pension settlement charge of $41.4 million for annuitizing a portion of U.S. pension obligations. On an adjusted basis, net income was $14.1 million, or $0.68 per share, diluted, an increase of 5% versus the prior-year fourth quarter and the twelfth consecutive quarter of year-over-year earnings growth.

OUTLOOK

We continue to face challenging conditions impacting several of the geographies and end markets we serve, including automotive, industrial, energy, and telecom and data center. We remain focused on executing our multi-pillar strategy and making the necessary investments to deliver long-term growth.

Based on the current order entry and outlook, we are providing full-year 2020 adjusted earnings guidance of $3.15 to $3.30 per share, diluted.

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.

ANNUAL MEETING ANNOUNCEMENT

The Company today announced March 16, 2020 as the record date for shareholders voting at its Annual Meeting to be held on May 13, 2020.

CONFERENCE CALL

Materion Corporation will host an investor conference call with analysts at 9:00 a.m. Eastern Time, February 13, 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 February 27, 2020 by dialing (877) 481-4010 or (919) 882-2331; please reference replay ID number 57375. 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:

• Actual net sales, operating rates, and margins for 2020;
• The global economy, including the impact of tariffs and trade agreements;
• 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 acquisition candidates and in acquiring and integrating such businesses;
• The impact of the results of 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 the Company'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; and
• The risk factors as set forth in Item 1A of our 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.

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.

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, 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, cost reduction initiatives (i.e., severance), certain LIFO inventory adjustments, merger and acquisition costs, legacy legal and environmental costs, non-cash pension charges, 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.

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