Materion Corporation (MTRN) Q2 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen, greetings and welcome to Materion Corporation Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Steve Shamrock. Thank you, you may begin.

Good morning. This is Steve Shamrock, Vice President, Corporate Controller and Investor Relations. With me today is Jugal Vijayvargiya, President and Chief Executive Officer and Joe Kelley, Vice President and Chief Financial Officer. Our format for today’s conference call is as follows. Jugal Vijayvargiya will provide opening comments on the quarter and an update on key strategic initiatives. Following Jugal, Joe Kelley will review detailed financial results for the quarter and then we will open up the call for questions. Before we begin, let me remind investors that any forward-looking statements made in this announcement, including those in the outlook section and during the question-and-answer portion are based on current expectations. The company’s actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. Those factors are listed in the earnings press release we issued this morning. Additionally, comments with regard to operating profit, net income and earnings per share reflect the adjusted GAAP numbers shown in attachment number 5 in this morning’s press release. The adjustments are made in both the current year and prior year periods for comparative purposes and removed certain non-recurring legacy, legal and environmental matters, certain income tax adjustments, CEO transition costs, cost reduction actions and merger and acquisition costs. And now, I will turn it over to Jugal for his comments.

Thanks, Steve and welcome everyone. I am pleased to report that for the second quarter, we delivered the highest level of value added sales, operating profit, earnings per share and net cash in the last five plus years. Value added sales came in at a $190 million with operating profit at $15.2 million resulting in an EPS of $0.54. Net cash for the quarter was nearly $40 million. This marks the sixth consecutive quarter of year-over-year top and bottom-line growth. I have been with the company for a little over year now, and I am impressed with the core capabilities and long-term potential. We have a new leadership team energized to deliver today and capture the potential for tomorrow. Leadership responsibilities has been realigned, to better suit our opportunities around the world. We have a clearly defined strategy and action plans are underway globally. Company-wide, the team is driving a performance-based culture focused on results. Joe will review the financials but let me share some perspective on the level of performance, our global team is delivering. Value added sales were up 8% year-over-year and 5% sequentially. This is a third quarter in a row of record value added sales and four times in the past five quarters. PAC segment had value added sales of greater than $100 million for the third straight quarter. Sales into six of the seven end markets have grown double-digit for the first half of the year. New product sales came in at $31 million helping to fuel the overall growth. Operating profit was $15.2 million for the quarter, up 26% year-over-year and 9% sequentially. This represents an 8% operating profit, highest level in past 11 quarters. PAC segment delivered 11.2% operating profit, highest level in past 15 quarters. This is the second consecutive quarter of double-digit profit for the segment which positions us to deliver double-digit profit for the full year, a long-awaited milestone. Net income was $11.1 million or $0.54 per share up 29% from an adjusted $0.42 per share from the second quarter of last year. This is the fourth consecutive quarter with earnings note of $0.50. In addition to achieving sales and profit milestones, we delivered an all-time record in working capital at 24.3% to sales. You may recall that we have set a target of 25%. Net cash for the quarter was nearly $40 million compared to a net debt position of $8 million in second quarter last year. Our multi-color strategy is helping to deliver record results for growth, profit and cash. We'll continue to focus into the second half and are improving our full year guidance to $2 to $2.15. We're leveraging the power of One Materion to drive global growth and achieve greater performance. Our results for the past six quarters give us confidence that the strategy is working. We have a momentum required to carry us into the future quarters and years. I look forward to sharing more about our performance in future calls. Now, I'll turn the call over to Joe to cover the financial details.

Thank you, Jugal and welcome to everyone joining us on the call today. During my comments, I will cover second quarter 2018 financial highlights, review profitability by segment, provide brief comments on the balance sheet, cash flow and modeling assumptions and finally, cover the earnings outlook for 2018. Following my remarks, we will open the line for questions. I am pleased to report strong second quarter 2018 financial results, which represent the sixth consecutive quarter with year-over-year growth in both value-added sales and adjusted operating profit. Second quarter 2018 value-added sales, which excludes the impact of pass-through precious metals was $189.9 million, an all-time record for any quarter and up 8% versus the prior year second quarter and up 5% sequentially. The increase was driven by new product sales, improved product mix and favorable end market demand. New product sales in the second quarter of 2018 were $30.7 million or 16% of value-added sales in the quarter. Our largest end-market consumer electronics increased 6% year-over-year despite an inventory correction and the display portion of this market, which began in the first quarter and continued in the second quarter. We have now delivered year-over-year growth for nine consecutive quarters in this end-market. Defense sales were also robust, reflecting overall demand increases and new program wins. Our focus on commercial performance initiatives related to new product introductions and improved product mix combined with increased end market demand continue to drive above market growth. Gross profit margin was $61.8 million in the second quarter, an increase of 13% from $54.8 million in the prior year second quarter. Expressed as a percent of value added sales, gross margin expanded a 140 basis points to 32.5% driven by performance improvements and leveraging the sales growth. Selling, general and administrative expense totaled $38.5 million, up $600,000 over the prior year second quarter of $37.9 million, due primarily to strategic investments to drive our long-term strategy. As a percentage of value added sales, SG&A expense decreased to 20% in the second quarter of 2018 down from 22% in the prior year period. Operating profit totaled $15.2 million in the second quarter of 2018, up 26% compared to the prior year second quarter adjusted operating profit of $12.1 million. As a percentage of value added sales, operating profit margin in the second quarter of 2018 was 8%, the highest quarterly profit margin percentage since 2015. Performance improvements related to commercial and operational initiatives combined with sales volume growth led to the year-over-year increase. Net income for the second quarter of 2018 totaled $11.1 million or $0.54 per diluted share, up 29% from an adjusted $0.42 per share recorded in the second quarter of 2017. We have now delivered $0.50 a share or more for four consecutive quarters. Looking at income taxes, we recorded $2.9 million of tax expense in the second quarter of 2018, an effective tax rate of 20.9% higher than our full year guidance, due to timing of some items. Our guidance on the full year effective tax rate continues to be in the range of 16% to 18%. Now, let me review 2018 second quarter performance by business segment. Starting with performance alloys and composites. Value added sales were a record $110.1 million, up 19% versus the second quarter of 2017 and up 10% sequentially. Value added sales in this segment have now exceeded $100 million for three consecutive quarters. The increase in value added sales is due to new product introductions, commercial execution and improved end market demand. The defense market was particularly strong with order being released which were previously bottleneck in 2017. Operating profit in the second quarter of 2018 totaled $12.3 million, the highest level ever for this segment. Expressed as a percentage of value added sales operating profit was 11% in the quarter. PACs year-to-date operating profits of $22.2 million exceed the amount of adjusted operating profit generated for all of 2017. The PAC recovery plan launched in 2016 is clearly working. Our performance on the commercial and operational improvement initiatives has delivered profit improvements ahead of schedule. We remain focused on these recovery plan initiatives and others to drive sustain double-digit profitability in this segment. Looking at the advanced materials business segment. Value added sales in the second quarter 2018 were $57.3 million compared to second quarter of 2017 value added sales of $62 million. Value added sales declined 8% due primarily to softer demand in the display portion of the consumer electronics end market, continued phase out of the 4G applications and timing related to the customer requalification process associated with the move of the Heraeus high performance target materials business to a new state of the art target manufacturing facility in Alzenau, Germany. We have completed the move and our ramping up production at the new facility in the third quarter. Operating profit for the second quarter 2018 totaled $5.6 million compared to adjusted operating profit of $9 million in the prior year quarter. The decrease in segment operating profit was due to softer demand unfavorable product mix and relocation and integration expenses related to the Germany facility move. Turning finally now to the Precision Coatings segment, second quarter value-added sales were $23.4 million, up 4% compared to $22.6 million in the second quarter of 2017. Sales of optical products were up 13% year-over-year driven by new program wins in defense and strength in the projector display portion of the consumer electronics end market. The growth in optical products more than offset the decrease and large area coating products sold into the Medical end-market. Operating profit for the Precision Coatings segment totaled $2.2 million in the second quarter of 2018 compared to $2.3 million in the second quarter of 2017. As a percentage of value added sales operating profit margin was approximately 10% in both periods. Moving now to the balance sheet and cash flow. The company ended the second quarter of 2018 with the net cash position of $39.5 million compared to a net debt position of $8.1 million at the end of the second quarter of 2017. Operating cash flow year-to-date improved $29 million in 2018 compared to the prior year due to stronger earnings and improved working capital efficiency. We continue to maintain a very strong balance sheet and have significant available liquidity to support capital allocation priorities mentioned on previous calls, including organic growth opportunities, further inorganic growth opportunity opportunities, further inorganic growth opportunities and consistently return capital to shareholders. In the second quarter of 2018, we announced an increase to our quarterly dividend of approximately 5%, representing the sixth consecutive year of increasing the shareholder dividend. For financially modeling purposes in 2018, capital spending should run approximately $30 million to $35 million, mine development investments should be $5 million to $10 million, annual depreciation and amortization should run approximately $35 million to $40 million. And finally, now earnings outlook for 2018. We have now delivered sixth consecutive quarters of year-over-year top-line and profit growth driven by commercial and operational performance improvements, including new product sales growth, favorable product mix, manufacturing efficiencies and an improved cost structure. Based on our current order activity, performance improvement initiatives and our view of end market demand for the remainder of 2018, we are raising our full year 2018 earnings guidance range to $2 to $2.15 per share. The midpoint of this range represents a 21% improvement over 2017 adjusted earnings. From a quarterly guidance perspective, we expect third quarter 2018 earnings to be comparable to second quarter 2018 earnings. This concludes our prepared remarks, we will now open the line for questions.

Thank you. Ladies and gentlemen, we will now be conducting our Q&A session. [Operator Instructions] Our first question comes from the line of Martin Englert from Jefferies. Your line is now live. `

Hi. Good morning, everyone.

Hey, good morning, Martin.

Congratulations on the strong results.

Yeah. Thanks, Martin.

You seem to be making quite a bit of progress on a number fronts here, so that’s good. A question here on the relocation and integration expenses. How much was that for the quarter and what can we expect in 3Q and possibly 4Q?

Yeah. So, when you look at the quarter for AM and the operating profit there, it’s a combination, the year-over-year decrease is a combination of three things, Martin. One, it is the relocation as we moved out of the Heraeus facility into our newly constructed German plant. And second, it was softness as it’s related to the sales due to that move and inability to sell during that period of the move. And then, when you look at going forward, and also, I would tell you it’s the display market -- sorry, the third factor is the unfavorable mix in the quarter that impacted profits as the display market continued the destocking particularly around the OLED screens. That we anticipate to start improving here in the second half. As it relates to the facility cost, we won’t have the relocation in the second half, but we will have the ramp up and the qualification as we look at that factory. Good news, we did ship our product on July 16 out of the new factory to a large area glass customer, but here during the second half we will continue to have some inefficiency as it relates to ramping up that factory, but fully anticipate by the end of the year and get into our mobile run rate.

So, no specific, I understand there is a number of different factor there that impacted everything from the topline as well as just.

No specific number, but when you look at the decrease in operating profit in year-over-year basis, I would tell you those three factors that I referenced probably all contributed equally to the year-over-year decrease.

Okay, that’s helpful, okay. And moving on to performance alloys and composites, can you discuss your expectations in the back half of the year for the value-added sales and profitability here, based on what somewhat you’re seeing today.

Yeah, Martin as you know, we’ve had now three quarters of strong sales in that business. Now well over $100 million for three quarters in a row and we are determined to continue to push as a trend and so, our focus is to make sure that we continue that, and we would expect based on the order we have in the general market trends that we have that, you know, we continue to do well on sales. From a profit perspective, as Joe indicated in his remarks. We’ve had two good quarters, really good quarters here in the first half. We want to make sure that we continue the double-digit performance that we’ve demonstrated in the first two quarters, into the second quarter. We’ve communicated in the past that we want to exit the year at the double-digit level and that is where we want to be focused on. And then afterwards we'll see how this business continues to progress, into more than advance materials type of a business, but at this stage we hope to continue the double-digit trend for the second half. We have really good second quarter in the defense side as there was some of the bottlenecks in DC opened up. However, I’m not sure, if we can continue at that rate for the second half. But in general, I would say that we expect to have a good positive trend on sales as well as operating profit.

Okay. Got it. That’s very helpful and anything that you are seeing or expecting to see related to holiday demand that we can talk about some.

Yeah, obviously the whole how consumer electronics sector, we'll see how things play out here as we enter the second half. I would say, at this rate, we are not seeing anything negative that would concern us in the second half, but I would say, also say that it’s probably a little bit too early to tell in terms of the pull-through. As we get more into the third quarter, we'll have a better feel for. But in general, things tend to be stable outside in that market, we are not seeing anything negative.

Okay. And one last one there if I could with a lot of activity on the trade policy front and I understand a good portion of this is not directly impactful for you, but can you comment regarding any implications that you are seeing for the company, if you are seeing any impact to your customer base and changes in supply chain and how that’s being managed.

Yeah, so, first of all, you know with the, all the things that are going on in the trade side, as we all know, there is a lot of developments on a daily basis. Of course, another development last night, with the European Union and United States. We are monitoring that very closely. We have a very disciplined process to understand what’s happening to all the procurement that we're doing and if there is any impact on the trade side and then we're also looking to see if some of our end customers, may be impacted and I can tell you that based on our current understanding of the imposed tariffs and perhaps what’s at least at this stage being talked about. We do not have and do not see the material impact. But, I want to caution all of us on the fact that there are developments every day in this arena and so, it could change anytime. But, at this stage, I would say, it's not really a material impact to our company and to the end customers that we are working with.

Okay. Thank you for all the detail and again congratulations on the result.

Thanks, Martin.

Thanks, Martin.

Thank you. Our next question comes from the line of Edward Marshall from Sidoti & Company. Your line is now live.

Good morning, guys. Just wanted to follow-up – I just want to follow-up on Martin’s final question about the tariff situation and more importantly I guess hammering home inflation. I know you do value for the revenue than a lot of pass through on that in that line. Which can’t can you talk about any inflation you just seeing in any of the business lines and maybe what you’re doing to kind of offset that?

Yes, I would say two things, let me first actually start with what are we doing in case if we do have inflation, I mean we have got a very I would say disciplined robust process of understanding if we are seeing inflation and through our commercial excellence process making sure that that we are able to work with our customers on any issues that come up. So, I think we have got a very good process that our teams are employing. With regard to any impact I mean again I don’t experience and we haven’t experience really any meaningful on just general inflation, I can certainly have Joe comment a little bit more on it but nothing immaterial impact.

The only thing I would tell you that’s been little bit material, is the increase in the – lease rates and so we have been actively managing that in terms of our precious metal consignment and the – lease rates and working with our customers to pass that through as aggressively as possible. But when you look at our gross margin percent which we monitor, you can see here that 32.5% gross margin that’s along with the highest levels that we have seen in last five years, so we are effectively I would say managing that on a daily basis.

Got it. And then on performance alloys composites. I thought it was a cost exercise not necessarily a top line exercise which I am sure you say both and that’s fine. But it looks like revenues are outperforming specifically defense and energy and maybe even telecom to some extent. Can you talk about maybe what’s going on in there and then also could you break out what the hydroxide sales were year-over-year?

Yes, anytime that we go through a recovery plan certainly costs is a big factor in the recovery plan. My view on it is that the top line has to be an integral part of any recovery plan, we can only take so much cost out and at some point, there is not much more to take. So, the top line is a critical part of any recovery plan and we have really put some strong disciplined activities in place to attack certain segments focused on some of our key products that we have as an example being tough mat in this business and to drive the top line because as I said I mean that’s has to be an integral part of the recovery plan. Defense as we indicated was a good corner for us, I am not sure that level of performance can be sustained in the second half of the year but needless to say was a really good quarter. Good recovery in the oil and gas I mean the rig count is up, last year the at this time it was around 940, its coming at around 1047, in Q2 so good pick up on the rig count which does help us on the oil and gas. We are gaining share on the telecom side. So, I can definitely tell you that top line growth is a critical part of the recovery plan in this business.

And to answer your question on the hydroxide sell you recall last year when I was signing the contract so there was three quarters of shipments last year, this year it spread out over four quarters. So, in the quarter Q2 hydroxide is actually down about $2 million, in terms of value added sales.

And what was the actual number?

Approximately $3.5 million.

$3.5 million, okay great. And then on AMT, what’s the plan for the balance of the year, I mean you mentioned kind of the shift and softness due to the relocation. When I look consumer electronics actually it was only down 2.5%, look like – it looks like broad base declines across the entire – across most of the business lines that are in that advance materials. So, kind of looking at that, what’s – when you look at your guidance both from an EBIT I guess and new perspective. Can you talk about what you built into your plans for the remainder of the year for that business line.

Yes, so let me just talk a little bit about the performance, you comment about the end markets and kind of where it stands for the second quarter. I mean second quarter for us was an absolute record last year, so we have really tough comps I think just for the second quarter alone, but when you look at on a year-to-date basis, I mean for the first half of this year Ed, you'll see that really all of our end markets in that business are up except telecom which is the continued base out of the 4G business. So, on a year-to-date basis, all the markets are up, certainly on Q2, the decline was across the number of markets. What we see as we go to here in the second half of the year as we continue to see the recovery in the consumer electronics side particularly in the display business. We continue to see the recovery after the destocking that happened here in the first half of the year. We continue to see now the ramp up in the relocation. And so yes, there will be some inefficiencies and some ramp up cost that we deal with, but we continue to see a ramp up in the second half of the year. And so, we would see a continued improvement in that business in Q3 into Q4. Our expectation is that really, we're entering 2019 as of the business was on a steady stay performance that it has done over the last few years. So that's pretty much what we have built in into our guidance and into our plan for the second half of this year.

Got it, thanks very much.

Okay, thanks Ed.

Thank you. Our next question comes from the line of Marco Rodriguez from Stonegate Capital Partners. Your line is now live.

Good morning guys. Thank you for taking my questions. I was wondering if we could talk little bit more about the top-line growth and some of the main drivers you are kind of seeing there. Understand that at least for the first six months you've have some pretty decent end-market demand. Obviously as you go you put forth for the last year some different strategic focuses that have obviously proven out fairly well here. So, I was wondering if maybe you can kind a parse a little bit if possible. When you look at the market demand, there is kind of allowing everybody to kind of raising all ships if you will skew that phrase versus kind of the strategic focuses that you've been putting into play in terms of taking share or increasing wallet share. If you can maybe kind of talk a little bit about those two sort of dynamics and how that's played out for your growth rates?

Yeah. We can certainly do that. I think there is a number of things that we put a lot of focus on for the top-line that of course would be in addition to just the general end-market pool that raises all the shift so to speak. One is continued growth on new product sales. We have a tremendous focus on that. We've actually shifted R&D expense from if you look at the R&D expense that we had year ago versus the R&D expense we have now. We've actually increased our R&D in the company to really accelerate our new product development and new product growth. We have focused on commercial excellence. And commercial excellence is a number of things. I mean one is making sure that we're getting the right return for the value that we're providing to our customers. In many cases that we weren't there, and so we've really focused on that. Another aspect of commercial excellence is making sure the right product mix. So, we could have a lot of impact on the mix of our product rate rather than just simply the market having the impact. And so, we've been focused on that to making sure we're dedicating our sales and marketing resources and our technical sales resources to push in the areas that give us the right return. And so, product mix is a big factor. So, I think there is a number of things that we've been involved in. New product sales getting the right return for the value that we're providing, influencing the product mix. And then frankly, I mean we've actually changed our organization where we've set up regional organizations in Europe and Asia. We appointed Presidents in those two regions. We were setting up an organization underneath them, that can push growing sales in the regions. Our customers have been I think reacting very favorably. We've mentioned it last night, we've received two customer awards, one from Skyworks, and one from -- Instruments, recognizing I think the performance that we're delivering. And so, delighting the customer is a key part of trying to gain sales as well. So, I think there is a number of things that we're pushing on to directly influence what we can do from a sales perspective rather than just simply relying on the general GDP growth or market trends that maybe out there.

Got it. That is very helpful. And Jugal, maybe if you can talk a little bit about. Again, coming back to four pillars or your strategic focus here that you've implemented over the last 12 months or so. What specifically, maybe have you learned over this period of time that perhaps might need to be drilled down a little bit further for maybe the next 12 months? Let's just say.

Yeah, I think really, in all of our pillars, we have a great opportunity. And as they indicated, I think in my remarks, I mean, I continue to learn that we have tremendous amount of core capabilities and core strengths and it's a matter of just unleashing and sort of untapping the potential that is there each of these things. So, whether it's commercial excellence, whether it's operational excellence, whether it's innovation excellence, or M&A that we are focused on, we are looking at each one of those items. We're trying to look at a one Materion focus for customer access one Materion focus for industry access, one Materion focus for functional excellence to driving our company. So, I think that is starting to take a really strong foothold now as we've had the leadership team in place for about three, four months now, the full leadership team that we've put in place. We are modifying our organization, so that there can be that one Materion focus globally across whether its customers, regions, markets, capturing on the industry trends. So, I think those are all things that we have the opportunity to drill deeper on over the next 12 months. I think the enthusiasm that we have from our employee base is really, really energized and motivated employee base. I mean, they see the performance that we delivered over the last six quarters of the top line growth, bottom line growth. It's, as they say some time it can be contagious, and I think we're -- I'm glad we're catching this bug

Got it. Very helpful. And then switching gears here on to the performance alloys - performance here year-to-date. Obviously, it appears as if the goal has been met, if you will, or at least you're tracking a head of the double-digit goal of returning performance alloys to those margins. Just trying to kind of understand going forward, I kind of get the impression that the main focus now is just on maintaining that low-double-digit operating margin on VA sales. Is that fair? Or is there some other potential leverage that you have in there that perhaps can drive that higher?

Well, the first thing I would say that the main focus, I know, you use the word maintaining. Our main focus is not to maintain, really anything. Our main focus on everything is to improve. And so, can we continually improve in Q3 and Q4 this year, I'm not sure yet. But I can tell you that we're absolutely focused on delivering double-digit performance in the in the back half of this year. As we go past 2018 and into 2019, as we've stated before, we are advanced materials company. That business as I've learned it, it is a highly complex, highly value-added business. The number of technical resources that we have, the number of PhDs that we have. The alloy making capability that we have in that business. The solution that we're providing to our customers. That business should be generating much better results, then the type of results that has delivered. And so that's what we're going to be focused on as we move forward into '19 and on is making sure that the customers realize the value in the solutions that will bring it forward, and then we're able to realize the returns associated with them.

Understood. Very helpful. Thanks a lot, guys. Appreciate your time.

Thank you.

Thanks, Marco.

Thank you. [Operator Instructions]. Our next question comes from line of Michael Hasychak from KeyBanc. Your line is now live.

Hey, this is Phil Gibbs. Good morning.

Hi, Phil. Good morning.

Just a question on the defense market, I know you touched upon it a little bit in terms of it being strong this quarter. Just wanted to get an idea about what was in that in terms of some specifics in the defense side and whether you've kind of sense a market change in the last 6 to 12 months or under this administration for some of your products?

Yes. So, first of all, as we indicated, we had a really good strong quarter in defense. I mean, typically our defense quarter our strength, our defense business has been in Q4, but we've been trying to push a more balanced scenario for defense and I think our teams first of all done a good job on that. We have seen an uptick from the administration and I think as the number of jobs that were opened are getting filled and so I think the bottlenecks are being removed. We have a number of new offerings that we’ve put in place. We’ve won programs and new businesses by the way, sniper business, there’s an EOTS business which is a system for the F35, we have an image sensor system code name MS177 I mean these are all examples of new businesses that we have been able to get with the defense side and are capturing on that. So, our share I would say on the defense side is increasing as well as I think the general increase in trend from the administration is certainly helping us well. Our optics business on the defense side is up 30% with some of the pay way activity that we’ve been evolving, optical filters on the pay way side so I think overall defense is an overall market. We see a promising second half certainly as I said not for the level that we saw here in the second quarter but definitely in the continued trend in the second half.

So, Jugal that optics business was that’s in more of the coatings business or is that still in the precision coatings side?

Yeah that’s more…

Okay.

No, that’s in the precision coatings business I mean we do rates for satellites, we do filters for the pay way missile program, coming out of our coatings business yes.

Okay. And Joe I think in last call, you had mentioned your expectations for cash from operations it was somewhere $60 million or north of $60 million and given that you’ve seemingly made a nice meaningful stride in that working capital in the second quarter and your outlook for EBITDA is a little higher. Is that cash from operations outlook been taken up as well?

Yeah, we haven’t updated the forecast there, but you are correct, we are exceeding our previously targeted improvements on working capital efficiency and that is helping on the cash flow side, you can see the very strong Q2 or even a year-to-date cash flow from ops are up year-to-date $30 million over the prior year, so we continue to have success on that front. But have not formally revised our full year operating cash flow guidance.

Okay. I think that takes care of me. I appreciate it. Have a good day.

Thanks Phil. Thanks.

Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I’d like to turn the floor back over to management for closing.

Thank you. This is Steve Shamrock, and this concludes our second quarter 2018 earnings call. A recorded playback of this call will be available on the company’s website materion.com. We would like to thank all of you for participating on the call this morning and your interest in Materion. I will be available to answer any follow-up questions. My direct number is 216-383-4010. Thank you very much.

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for participation and have a wonderful day.