Materion Corporation (MTRN) Q3 2018 Earnings Report, Transcript and Summary

Greetings and welcome to the Materion Corporation Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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, Vice President, Corporate Controller and Investor Relations. Thank you, sir, 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 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’ll turn it over to Jugal for his comments.

Thanks, Steve and welcome everyone. I’m pleased to report that for the seventh consecutive quarter we have delivered both top and bottom line growth. Let me share some highlights from the quarter. Value added sales were up 6% year-over-year. Adjusted operating profit was $18.7 million, or 10% of value-added sales, up 40% year-over-year and 23% sequentially. This is the highest level of adjusted operating profit that company has ever delivered, and it is the first time the company has achieved double digit profit margin. PAC segment delivered 16% operating profit margin. This is the third consecutive quarter of double-digit profit. This business is poised to deliver double-digit profit for the full-year, which has never been accomplished before. All three business segments delivered double-digit profit margin, a first for the company. Adjusted net income was $14 million or $0.68 per share, up 36% year-over-year. Through the first three quarters, the company has delivered more income than all of last year. The business continues to set records each quarter. Based on the performance year-to-date and our outlook for the fourth quarter, we are raising the full-year guidance to $2.20 to $2.30. This is the second time this year we have raised the guidance. Our multi-pillar strategy at One Materion purpose is working. Our new leadership team is in place and is focused on consistently delivering profitable growth. Our differentiator portfolio along with disciplined execution gives us confidence as we look to finish the year strong and enter 2019. Let me shift gears and talk about some of the initiatives underway to support organic growth. In our PAC business, we’re making multi-million-dollar investments in process and equipment upgrades that will increase capacity to manufacture specialty alloy products at our Elmore, Lorain, and Reading facilities. When completed later this year, these upgrades will substantially increase production capacity for a strip, rod, wire, tube, plate, and [barbed box], and reduce lead times for customers globally. Across all three businesses, we are spending more on R&D to fuel development of new products. Year-to-date, we have increased spending 16% from prior year targeted at highest returning opportunities. Outside the U.S., we are strengthening our capabilities of the regional organizations. Recently, I visited our European operations with our executive time and saw first-hand the available opportunities. We will be visiting our Asia operations in December. These are just some of the initiatives underway as we build a solid foundation to deliver organic growth and more importantly service our customers needs. I couldn’t be more excited about the potential of Materion based on our clearly defined strategy, differentiated products, and dedicated team passionate about delivering results. I look forward to provide your updates on 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 third 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 third quarter 2018 financial results, which represents the seventh consecutive quarter with a year-over-year growth in both value-added sales and adjusted operating profit. Third quarter 2018 value-added sales, which exclude the impact of pass-through metal cost were $181.9 million, up 6% versus the prior year third quarter. The increase was driven by strengthening commercial execution and greater end market demand. New product sales in the quarter totaled $26.7 million or 15% of value-added sales. This quarter, we saw a sales growth in six of our top seven markets, particularly in energy and defense. Growth was due to a combination of new business wins and stronger overall demand, which more than offset a 9% decline in our largest end market of consumer electronics. We experienced lower sales volumes as key portions of this market rebalanced inventory levels. Gross profit was $64.9 million in the third quarter, an increase of 17% from $55.4 million in the prior year third quarter. Expressed as a percentage of value-added sales, gross margin improved to 36% led by performance improvements, favorable product mix, and leveraging the overall sales volume growth. This is the highest reported gross margin percentage since the company began reporting value-added sales over five years ago. Selling, general, and administrative expense totaled $38.9 million or 21% of value-added sales, comparable with the prior-year ratio. We continue to make strategic investments in commercial resources to drive the long-term strategy and deliver sustainable profitable growth. Operating profit totaled $18.7 million in the third quarter of 2018, up 40% compared to the prior year third quarter adjusted operating profit of $13.4 million. As a percentage of value-added sales, operating profit margin in the third quarter of 2018 was 10%. Again, the highest ever reported quarterly operating profit margin percentage of value-added sales. Commercial and operational initiatives combined with sales volume growth have delivered consistent quarterly improvement and profitability over the past seven quarters and double-digit operating profit margins for all three business segments for the first time ever. Shifting to income taxes. We recorded a tax benefit of $2.7 million in the third quarter of 2018, due to discrete tax benefits related to planning strategies and the new tax reform legislation. Excluding these discrete items, our effective tax rate was 19% for the quarter, slightly higher than our guidance based on the mix of earnings. Adjusted net income for the third quarter of 2018 totaled $14 million or $0.68 per diluted share, up 36% from an adjusted $0.50 per share recorded in the third quarter of 2017. Our differentiated product portfolio, strengthening end market conditions, and focused execution on commercial and operational initiatives continue to fuel record level financial performance. Now, let me review 2018 third quarter performance by business segments. Starting first with performance alloys and composites. Value-added sales were $104.9 million, up 16% versus the third quarter of 2017. This represents the fourth consecutive quarter with at least 15% year-over-year value-added sales growth. The increase in value-added sales is due to a combination of commercial execution and improved demand, particularly in the defense and energy markets. New business wins in drilling applications for both ToughMet and copper beryllium products, plus high purity beryllium sales into defense applications led the growth. Operating profit in the third quarter of 2018 totaled $16.7 million or approximately 16% of value-added sales. Both all-time records for this segment. After delivering on our PAC recovery plan, ahead of schedule, we continue to drive commercial and operational improvements to position us to deliver sustained double-digit profitability in this segment. Looking at the advanced materials business segment, value-added sales in the third quarter 2018 were $55.3 million, compared to third quarter 2017 value-added sales of $60.4 million. Software demand in the consumer electronics end market 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 contributed to the year-over-year decline. Operating profit for third quarter 2018 totaled $6.9 million or 12.5% of value-added sales, compared to adjusted operating profit of $9.8 million in the prior year quarter. Sequentially, this business segments operating profit improved 23% and return to double-digit profit margins. As referenced during the second quarter conference call, we continue to ramp up the new factory in Alzenau, Germany and work through customer qualifications. Long-term, we remain committed to achieving the historical 15% profit margins for this segment. Turning finally now to the precision coating segment. Third quarter value-added sales were $23 million, up 5%, compared to 21.9 million in the third quarter of 2017, due primarily to an increase in large area coatings products sold into the medical end market. Operating profit for the precision coatings segment totaled $3.5 million in the third quarter of 2018, compared to 2 million in the third quarter of 2017. Favorable product mix and sales growth were the primary factors driving the improvement. As a percentage of value-added sales, operating profit margin was 15% for the quarter, the highest level in 2.5 years. As we have previously stated, our objective was to deliver double-digit profitability for this segment during the full-year 2018. With year-to-date profitability of 13%, we are well-positioned to accomplish our objectives. Moving now to the balance sheet and cash flow. Operating cash flow year-to-date improved of $15 million in 2018, compared to the prior year, due to stronger earnings and improved working capital efficiency. Based on our liquidity position and tax reform legislation, we made an incremental $21 million pension contribution to fund our domestic defined benefit plan. This incremental contribution will further strengthen the funded status of the plan, which was approximately 80% funded at the end of last year. Even with this additional pension contribution, we ended the third quarter of 2018 with a net cash position of $50 million, almost 30% higher than our net cash position at the end of the second quarter. We continue to maintain a very strong balance sheet and have significant available liquidity to support capital allocation priorities mentioned in earlier calls, including organic growth opportunities, further inorganic growth opportunities, and consistently return capital to shareholders. For financial modelling purposes in 2018, capital spending should run approximately 30 million. Mine development investments should be approximately 6 million. Annual depreciation and amortization should run approximately 35 million, due to below average mine amortization as we optimize the integrated beryllium inventory supply chain. The tax rate on adjusted for discrete items should range from 18% to 20%. And finally, now to earnings outlook for 2018. We have now delivered seven consecutive quarters of year-over-year topline 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 on end market demand for the remainder of 2018, we are raising our full-year 2018 earnings guidance for the second time this year to $2.20 to $2.30 per share. The midpoint of this range represents a 31% improvement over 2017 adjusted earnings. And would have the fourth quarter earnings be the eighth consecutive quarter of delivering year-over-year profit growth. This concludes our prepared remarks. We will now open the line for questions.

Thank you. [Operator Instructions] Thank you. Our first question is coming from the line of Edward Marshall with Sidoti & Company. Please proceed with your question.

Hi guys. Good morning. How are you?

Good morning, Ed.

So, it looks like you guys are executing to plan, you know the margins on all three business segments were up, most notably I guess the tax segment, the performance alloys and composites. I’m curious, as I kind of look through the business and maybe we can do a business by business how much room do you think is left in each of the three business segments so we can kind of think about in longer term? I mean, what’s your plan, where do you expect to go from where you are today? Thanks.

Yes. Let me start with the Materion level. The Materion level, we delivered for the first-time double-digit profit, right, 10% and that is the first time that the company has ever achieved that. And we have said that, we would like to be an advanced materials company and so – and deliver advanced materials type of margins and returns. For that to happen, we’ve got to be at a significantly higher margin profile. So, I would say more than a 15% [ph] range on a long-term basis. So, we’ve got a long way to go. You know, we’ve got a long way to go to get there, and we got to make sure that we’ve got plans defined in each of our businesses to try to make that happen. Now, we make good progress sort of segment by segment on PAC, a double-digit profit for now three quarters in a row, and we are committed to maintaining that double-digit profit and then of course further improving it. We’ve been able to achieve now 12.5% in this quarter in the AM business back towards that trajectory to get to the 15% from the historical margins that we’ve had, and then we’ve done double-digit margins on PC, which is what we have – which is what we said, we committed for the year that we wanted to be able to do that and that business has delivered year-to-date around 13% margin. So, I think the businesses are making good progress, but clearly, we’ve got a long way to go as we continue to push towards an advanced materials company with advanced materials types of margins.

Got it. And do you think that, I know that you have a lot of initiatives in place and a lot of its streamlining et cetera, but I kind of look at the three buckets if I could, maybe some price mix or new product introduction, what are those, which of those have the most impact per segment or per Materion overall?

Yes. So, you know, we have done a, I think a really good job of making sure that we have getting the right value for the products that we are supplying, which obviously has a direct impact on price. We still think we have some further opportunity there, but certainly not to the level that we’ve had over the last year or so, because I think we’ve made good progress in that area, but we clearly have opportunity. Mix is a very important element for us because we are focused on making sure that we're getting rid of or improving significantly our bad businesses and replacing it with good businesses. So, if we can prove it certainly we're doing that, but in cases where we don't think that we can improve it then we just need to replace that business with other businesses. And the new product sales is a very important metric for us, as we’ve talked about it in prior quarters as well. As I highlighted, we’ve improved our R&D spending by 16% year-over-year and the reason we’ve done that is to be able to generate more new product sales at better margins, significantly better margins than the margins that we delivered. So, I think that is a very important factor and will be a very important factor to continue to improve our margin. So, I think all three will play an important role going forward, but I would say that price is probably a bit less, compared to what we have been able to accomplish so far, but again we’re focused on all three.

Got it. And I'm curious what you're seeing, I know you had a pretty good quarter on energy, but I’ve listened to some energy and service companies talk about budget constraints or budget exhaustion as they call and takeaway capacity or midstream capacity needs in North America, specifically. I know it’s short-term and it seems like 2019 might improve, but as you kind of look at your order book for energy, are you seeing any kind of disruption kind of coming into the fourth quarter, maybe even to the first quarter of next year as this phenomenon, I guess short-term phenomenon kind of takes place? Just curious.

No, on the contrary, I think the value that we’re bringing in the energy market I think is being appreciated by our customers and we’re seeing good growth in the energy market so far this year and in fact it’s been one of our best performing markets. We continue to see good order intake for the fourth quarter, and our preliminary indications I would say going into 2019 seem to continue to be positive. So, I think at the end of the day, even the market has some stress on investment, I’m sure they are still going to look to make investments where they think that they can get the right return for those investments, and that’s where our materials are focused on. Our materials are focused on making sure that those markets and those customers are truly benefiting from the investment that they make with us, and I think that’s what our ToughMet products or for that matter any of our other products in the energy segment deliver and so, we’re confident as we move forward on the energy market.

Got it. And the final question I had, maybe Joe, you can weigh in here if you like, you’ve raised guidance twice this year using – looking at kind of, I’m assuming you're progressing our above plan. So, as we think of modelling for the fourth quarter, how do we think about SG&A, like incentive compensation catchup or anything along those lines that might be relevant for the fourth quarter?

Yes. Ed, I would think that the SG&A should track similar to how it has been as a percentage of value-added sales at around 21% going into the fourth quarter. As it relates to, it just adds a little color commentary on the mix and the price and Jugal said that the mix as you think about going into fourth quarter, the mix here in Q3 was favorable as you see in the margins of PAC and PC as we mentioned on the call. So, that’s, as we think about the fourth quarter, I think SG&A should be consistent.

Got it. Thanks very much.

Okay, thanks Ed.

Thank you. Our next question is coming from the line of Marco Rodriguez with Stonegate Capital Markets. Please proceed with your question.

Good morning guys. Thank you for taking my questions. Wanted to talk a little bit more about the margin improvements. I know Jugal you’ve put forth a lot of different initiatives to kind of bring that margin back up and you mentioned the 15% long-term target, I was just wondering if maybe you could talk first off on the advanced materials side. The new plant, obviously you’re ramping that up. I would not have expected such a large sequential increase in operating margins or even just the gross margins there. So, maybe can you talk a little bit about what were some of the drivers that caused that very large sequential increase in the margins?

Yes. So, you know, a couple of things. One is, as you know in Q2 we had the move cost associated with that business as well as starting to do a lot of the requalification expenses. And now Q3 really, those costs are behind us and what now we’re really focused on is requalifying and starting to do the ramp up. So, that’s been a good uptick for us sequentially on that business, but in addition to that. We are driving in general, I would say cost improvement and performance improvement across the entire company, and so the AM business certainly benefits from that as well. So, combination of those things, I think was a big contributor to the sequential margin improvement for that business.

Got you. Okay. And so gross margins were running around 37%, and historically that’s been closer to 40, is it fair to assume that that Delta is the negative impact from the new plant and just ramping that?

Yes. I think it’s bad. I think, it’s general efficiency issues that we have. Certainly, the sales impact that we have is an important element as we talk about what’s happening with the consumer electronics market, the destocking that we referenced to. There is a little bit of a mix impact, as a result of that by the way, you know result of all of that, but again we are committed and confident that, you know as we continue to make the progress here over the next quarter that, what this business is going to be delivering more than historical margins.

Got you. And then shifting gears to PAC, kind of the same question here, you have actually down sequentially VA sales, so volumes are really not a huge issue there, but you had dramatical increases sequentially in gross margins and then even more so on the operating margins, can you just talk a little more about that? What kind of – if you can maybe rank what helped such dramatic increases sequentially?

Yes, I mean, there is a number of things on the PAC business that we’re driving. To your point about those sales, obviously Q2 was a very large quarter for us. We mentioned in our call before it was unusually high quarter and therefore that’s why the decline is sequentially on sales, but as you said, our margin is not really a sales-driven impact, right? It is a number of things that we're working on. One, we’ve had a favorable mix in our product. Number two, we continue to work the value-based pricing and making sure that we’re getting the right value for the products that we’re supplying. We continue to drive operational improvements across the entire business segments. The largest portion of those operational improvements are in PAC, and therefore that business is benefiting. So, I think a combination of pricing mix, a combination of I think the overall operational improvements that we’re driving in that business contributed to that, and it’s our objective to make sure that that business remains as a double-digit profit margin for us considering that’s really half of our business.

The other thing I would add is, when you think about that segment in the fixed cost component of manufacturing and the fact that we’ve been running at north of $100 million in value-added sales for quarters in a row there, you're starting to see some of the benefits from the volume leverage.

Got you. Okay. And so, with the initiative that you have on the commercial excellence side putting forth the right products with the right returns for you guys for customers and mix, it kind of sounds like we should probably be expecting continued increases in margins as we look into fiscal 2019 across all three segments?

Well, as you know, we will do our 2019 guidance in the January, February timeframe when we report our earnings at that time. So, we will certainly do that, but as we’ve indicated there is two things. One, we’re focused on the long-term and making sure the long-term will become an advanced materials type of a company. The journey from today, which is around 10% business is what we’ve reported to where we need to get to is obviously going to be a multi-quarter, multi-year journey, and 2019 there will be a step in that direction.

I would also point out, I mean the mix itself, if you look at segments like a Precision Coatings segment, you know the mix can have a significant impact on any given quarter in terms of the profitability profile. So, long-term we are working [indiscernible] reference, but on any given quarter you can have very favorable or perhaps unfavorable mix.

Sure. Got it. Okay. Last quick question then, just wondering if you could talk a little bit more about the consumer electronics end market for you guys, there’s been a lot of, I guess [indiscernible] better work on some disruption and some weaker guidance from the semiconductor guys up there, just wondering how you might be thinking about that and its potential impact on the consumer electronics side?

Right. So, on of consumer electronics. First of all, year-to-date we’re up 3%, you know 3.5% on consumer electronics. Now, there’s been some ups and downs. There’s certainly been this destocking, you know that has gone on and there is some, to your point some of these guys that have announced some cautionary items. Those, we certainly are taking into account but I just want to highlight that we’re up 3% year-to-date on consumer electronics. The second point is that, we’re really focused on making sure that our other markets are offsetting any type of headwind that we may have on consumer electronics. So, for example in the third quarter, our consumer electronics market was down 9%, but our overall business was up 6%. So, we’re focused very much on energy on automotive, on oil and gas, you name it. I mean, right, the telecom infrastructure, all these markets to make sure that we are delivering overall growth for the company, and we have now delivered nine consecutive quarters of year-over-year topline growth and it is our hope that we will be delivering a tenth quarter. I’m sure of your growth, despite the headwinds that we may face and we’re being cautious about it that we may face on the consumer electronics side.

Got it. Thanks a lot, guys. Appreciate your time.

Thank you.

Thank you. [Operator Instructions] Our next question is coming from the line of Michael Hasychak with KeyBanc Capital Markets. Please proceed with your question.

Hi guys good morning.

Good morning.

So, first question it just sounds like you’re ratcheting up growth spend in PAC, what are your CapEx expectations there in 2018 and 2019, should we expect CapEx to be higher next year?

No. I think we should be able to maintain the run rate. So, as we’ve mentioned, our guidance for the full-year is approximately $30 million on CapEx. The mine development will be approximately $6 million. As we go forward, I think, we should be able to support the organic growth initiatives that includes some growth initiatives and to support the volume increase we’ve referenced. So, I would anticipate being able to maintain that type of cash flow investment level.

Okay, great. And then, has the outlook at all changed for inorganic chemicals and OLED sales momentum, just kind of given some of the supply chain volatility that we’ve seen here?

Well, certainly we’ve experienced the destocking that has happened throughout the year and I would say a slower than expected ramp for the typical holiday season ramp that happens about this time of the year. So, we’ve definitely experienced that this year, and despite all that, I think, you know our consumer electronics sales are up 3% year to date. We remain cautious as we move forward and are really focused on making sure that our other markets are offsetting any type of headwind that we may continue to face.

And I would also add that several of our new product initiatives are targeted towards the consumer electronics space, which would help any drop off in the market or softening in that end market. Quite excited about several new products.

Okay, great. That’s it from me. Thanks.

Thank you. We do have an additional question coming from the line of Edward Marshall with Sidoti & Company. Please proceed with your question.

Hi guys. I just wanted to get a point of clarification. I’m looking at the guide for the fourth quarter, doing the math suggest a range of $0.47 to $0.57, pretty wide range we’re already a month through. I’m just kind of curious, what you are trying to capture maybe that with the wide range what could be the significant variability there? Thanks.

Yes. So, Ed, I think the – some of the business that we have as you know is longer lead time and therefore we have a good understanding of where things are, but some other ones have a shorter lead time, and therefore we just have to be cautious from that perspective. But I just wanted to draw attention I think to the mid-point. The mid-point is the $0.52 that we have and that would be the ninth consecutive quarter of year-over-year profit growth. So, I think with a month into this thing, we are focused absolutely on making sure that we are delivering growth, year-over-year growth on both the top line and the bottom line, but I think we’ve got a fairly good handle, you know we’re starting to get a fairly good handle on the order intake that’s coming in for the quarter.

Got it. If you could just talk about some of the short lead time items that – which one specifically you would be referencing? Thanks.

Well, I mean when you look at in general our AM business, our AM business because it is more heavily weighted towards the consumer electronics segment. You know, we do get – our order intake is on a shorter lead so to speak and PAC on the other hand has a longer one. And there is some consumer electronics business in the precision coatings area as well that has a shorter lead time also. So, we just have to balance all of that for the full-quarter, but as I said, I think, as we’re looking at the next quarter our objective and our goal remains that we continue to deliver another quarter and keep our consecutive streak sort of speak going on both top and bottom-line growth.

Got it. So, I guess, if I hear you correctly, what you’re saying is, I’m just – you are just preparing for what could be a higher or lower holiday build season around consumer electronics?

Yes. I just been on the cautionary side, but as we’ve done so far this year we are offsetting any headwind through our other markets and so we will be focused on [ph].

Got it. Thanks very much. I appreciate your time. Thanks.

Okay. Thanks, Ed.

Thank you. We do have an additional question coming from the line of Marco Rodriguez with Stonegate Capital Markets. Please proceed with your question.

Hi, guys. Sorry. I forgot, I have a couple of quick questions here. Jugal you mentioned in your prepared remarks that you guys were going to be investing the PAC, adding new equipment to increase capacity, can you talk about that ramp, how much revenue we're talking about?

Well, we don't go into, I would say specific dollar amounts on what that revenue would be, but what it is, is that we have a tremendous amount of backlog with our customer base and we want to make sure that we have the capacity to take care of the backlog and we want to make sure that we’ve got the capacity as we go into the New Year and continue to take our products regionally in Europe and in Asia, as those are important markets for us. And so, we just want to be able to add capacity to deliver and satisfy the customers and not have to give them substantially long lead times.

Okay. So, it’s not a huge ramp-in once you get that new equipment into the facilities, it should be pretty quick to ramp?

Yes, it’s taking equipment that we have today and basically let’s say, duplicating that type of equipment. So, we’re not, this type of investment is not a new plant and a whole new set of development and a whole new set of re-qualification that has to happen, right. This is more taking what we have and investing more into that. So, the ramp up timing should be relatively quick.

I would think about it as, we’re trying to more efficiently support the growth that we’ve been delivering and be able to sustain this growth going forward as opposed to a step function change.

Got you. Okay. And last question. I don't know if I missed this on the call, but did you guys provide the new product sales for the quarter?

New product sales were 26.7 million.

Got it. Thanks a lot, guys. Appreciate it.

Thanks Marco.

Thank you. It appears we have no additional questions at this time. So, I’d like to pass the floor back over to management for any additional concluding comments.

Thank you. This is Steve Shamrock and this concludes our third 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.

Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.