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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2023-11-01 · 106 added, 213 removed, 146 unchanged (69% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are an integrated producer of high-performance advanced engineered materials used in a variety of electronic, thermal, and structural applications.

We are an integrated producer of high-performance advanced engineered materials used in a variety of electrical, electronic, thermal, and structural applications.

Our products are sold into numerous end markets, including semiconductor, industrial, aerospace and defense, automotive, consumer electronics, energy, and telecom and data center.

RESULTS OF OPERATIONS

Third Quarter

Third Quarter Ended

September 29, September 30, $ %

First Quarter

First Quarter Ended

March 29, March 31, $ %

(Thousands, except per share data) 2024 2023 Change Change

7 unchanged sentences

R&D expense as a % of value-added sales 3 % 3 %

Restructuring expense 1,077 484 593 123 %

Other—net 6,211 6,774 (563) (8) %

Operating profit 36,520 29,097 7,423 26 %

Other non-operating (income)—net (685) (1,175) 490 (42) %

Interest expense—net 7,678 5,888 1,790 30 %

Income before income taxes 29,527 24,384 5,143 21 %

Income tax expense 2,963 4,432 (1,469) (33) %

Net income $ 26,564 $ 19,952 $ 6,612 33 %

Diluted earnings per share $ 1.27 $ 0.96 $ 0.31 32 %

Net sales of $403.1 million in the third quarter of 2023 decreased $25.1 million from $428.2 million in the third quarter of 2022.

A decrease in net sales in the Electronic Materials and Precision Optics segments were partially offset by increased net sales in the Performance Materials segment.

Volume decreases in the semiconductor (18%), industrial (19%), automotive (18%) and medical (37%) end markets were partially offset by an increase the aerospace and defense (19%) end market, as well as incremental sales from the clad strip project of $28.2 million.

See Note B to the Consolidated Financial Statements for additional details on the year over year changes in our net sales by segment and market.

The change in precious metal and copper prices favorably impacted net sales by $3.1 million during the third quarter of 2023 compared to prior year quarter.

Value-added sales is a non-GAAP financial measure that removes the impact of pass-through metal costs and allows for analysis without the distortion of the movement or volatility in precious metal market prices and changes in mix due to customer-supplied material.

Internally, we manage our business on this basis, and a reconciliation of net sales, the most directly comparable GAAP financial measure, to value-added sales is included herein.

Value-added sales of $270.5 million in the third quarter of 2023 decreased $13.0 million, or 5%, compared to the third quarter of 2022.

Volume decreases in the semiconductor (33%) and industrial (19%) end markets were partially offset by an increase in the aerospace and defense end market (27%) and incremental sales from the clad strip project of $28.2 million.

Gross margin in the third quarter of 2023 was $88.9 million, which was up 7% compared to the third quarter of 2022.

Gross margin expressed as a percentage of value-added sales increased to 33% in the third quarter of 2023 from 29% in the third quarter of 2022.

The production tax credit recorded in the third quarter of 2023 favorably impacted gross margin.

See Note F to the Consolidated Financial Statements for further discussion.

SG&A expense was $38.8 million in the third quarter of 2023, compared to $39.0 million in the third quarter of 2022.

SG&A expense remained relatively flat and expressed as a percentage of value-added sales was 14% for both the third quarter of 2023 and 2022.

R&D expense consists primarily of direct personnel costs for product innovation including pre-production development, evaluation, and testing of new products, prototypes, and applications to deliver new high performing advanced materials to our

R&D expense as a percent of value-added sales decreased slightly from 3% in the third quarter of 2022 to 2% in the third quarter of 2023.

Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure.

In the third quarter of 2023, we recorded $1.1 million of restructuring charges primarily in our Electronic Materials segment.

In the third quarter of 2022, we recorded $0.5 million of restructuring charges primarily in our Precision Optics segment.

See Note D to the Consolidated Financial Statements for further discussion.

Other-net was $6.2 million of expense in the third quarter of 2023, or a $0.6 million decrease from the third quarter of 2022.

Refer to Note E to the Consolidated Financial Statements for details of the major components within Other-net.

Other non-operating (income)-net includes components of pension and post-retirement expense other than service costs.

Refer to Note J to the Consolidated Financial Statements for details of the components.

Interest expense-net was $7.7 million and $5.9 million in the third quarter of 2023 and 2022, respectively.

The increase in interest expense is primarily due to an increase in interest rates compared to the prior year period.

Income tax expense for the third quarter of 2023 was $3.0 million, compared to $4.4 million in the third quarter of 2022.

The effective tax rate for the third quarter of 2023 and 2022 was 10.0% and 18.2%, respectively.

The effective tax rate for 2023 was lower than the statutory tax rate primarily due to the impact of the foreign derived intangible income deduction, percentage depletion, research and development and production credits.

The effective tax rate for 2022 was lower than the statutory tax rate primarily due to the impact of percentage depletion, research and development credits and the foreign-derived intangible income deduction.

See Note F to the Consolidated Financial Statements for additional discussion.

Nine Months Ended

September 29, September 30, $ %

(Thousands, except per share data) 2023 2022 Change Change

Net sales $ 1,244,144 $ 1,322,531 $ (78,387) (6) %

Value-added sales 837,351 811,417 25,934 3 %

Gross margin 269,327 245,461 23,866 10 %

Gross margin as a % of value-added sales 32 % 30 %

SG&A expense 118,053 122,666 (4,613) (4) %

SG&A expense as a % of value-added sales 14 % 15 %

R&D expense 21,098 22,096 (998) (5) %

R&D expense as a % of value-added sales 3 % 3 %

Restructuring (income) expense 1,620 664 956 144 %

4 unchanged sentences

Income before income taxes 14,613 30,168 (15,555) (52) %

Income tax expense 11,891 12,525 (634) (5) %

Income tax expense (benefit) 1,204 4,580 (3,376) (74) %

Net income $ 13,409 $ 25,588 $ (12,179) (48) %

Diluted earnings per share $ 0.64 $ 1.23 $ (0.59) (48) %

Net sales of $1,244.1 million in the first nine months of 2023 decreased $78.4 million from $1,322.5 million in the first nine months of 2022.

Decreases in net sales in the Electronic Materials and Precision Optics segments were partially offset by increased net sales in the Performance Materials segment.

Volume decreases in the semiconductor (20%), industrial (13%) and consumer electronics (27%) end markets were partially offset by an increase in the aerospace and defense end market (19%) and incremental sales from the clad strip project of $91.4 million when compared to the first nine months of 2022.

Additionally, there was a $2.4 million year over year decrease in raw material beryllium hydroxide sales compared to the first nine months of 2022.

NM = Not Meaningful

Net sales of $385.3 million in the first quarter of 2024 decreased $57.2 million from $442.5 million in the first quarter of 2023.

Volume decreases in the semiconductor (13%), industrial (28%), energy (34%) and automotive (28%) end markets were partially offset by volume increases in the aerospace and defense end market (32%).

See Note B to the Consolidated Financial Statements for additional details on the year over year changes in our net sales by segment and market.

The change in precious metal and copper market prices unfavorably impacted net sales by $2.9 million during the first nine months of 2023 compared to the same period in the prior year.

Value-added sales of $837.4 million in the first nine months of 2023 increased $25.9 million, or 3%, compared to the first nine months of 2022.

Despite the decrease in net sales, value-added sales increased due to a shift in mix to higher non-precious metal sales versus precious metal sales commensurate with an increase in value-added sales into the aerospace and defense (23%) end market as well as $91.4 million of incremental sales from the clad strip project.

These increases were slightly offset by a $2.4 million decrease in the volume of raw material beryllium hydroxide sales in the first nine months of 2023 when compared to the first nine months of 2022 as well as lower value-added sales into the semiconductor (20%), industrial (7%) and consumer electronics (27%) end markets.

Gross margin in the first nine months of 2023 was $269.3 million, an increase of 10% compared to the first nine months of 2022.

Gross margin expressed as a percentage of value-added sales increased to 32% in the first nine months of 2023 from 30% in the first nine months of 2022.

Gross margin increased from the prior year period primarily due to $7.5 million of inventory step up amortization from the HCS-Electronic Material acquisition that was recorded during the first quarter of 2022 that did not recur in 2023.

In addition, the production tax credit recorded in the first nine months of 2023 favorably impacted gross margin.

See Note F to the Consolidated Financial Statements for further discussion.

SG&A expense was $118.1 million in the first nine months of 2023, compared to $122.7 million in the first nine months of 2022.

The decrease in SG&A expense for the first nine months of 2023 was primarily driven by $4 million of merger and acquisition costs related to the acquisition of HCS-Electronic Materials incurred in the first nine months of 2022 that did not recur in 2023 as well as lower selling related expenses associated with the decrease in value-added sales.

Expressed as a percentage of value-added sales, SG&A expense was 14% and 15% in the first nine months of 2023 and 2022, respectively.

R&D expense accounted for 3% of value-added sales in the first nine months of both 2023 and 2022.

The change in precious metal and copper prices favorably impacted net sales during the first quarter of 2024 by $3.7 million.

Value-added sales is a non-GAAP financial measure that removes the impact of pass-through metal costs and allows for analysis without the distortion of the movement or volatility in metal prices and changes in mix due to customer-supplied material.

Internally, we manage our business on this basis, and a reconciliation of net sales, the most directly comparable GAAP financial measure, to value-added sales is included herein.

Value-added sales of $257.8 million in the first quarter of 2024 decreased $40.7 million, or 14%, compared to the first quarter of 2023.

The decrease was driven by volume decrease in the semiconductor (25%), industrial (29%), energy (36%) and automotive (32%) end markets partially off set by a volume increase in the aerospace and defense (41%) end market.

Gross margin in the first quarter of 2024 was $71.2 million, a decrease of 22% compared to the first quarter of 2023.

Gross margin expressed as a percentage of value-added sales decreased to 28% in the first quarter of 2024 from 31% in the first quarter of 2023.

Gross margin decreased from the prior year primarily due to impact of lower volumes and related unabsorbed costs.

Additionally, gross margin was unfavorably impacted by higher pre-production costs associated with the expansion of the new wide area clad facility.

SG&A expense was $35.8 million in the first quarter of 2024, compared to $40.3 million in the first quarter of 2023.

The decrease in SG&A expense was primarily due to various cost savings initiatives implemented throughout 2023 and during the first quarter of 2024.

Expressed as a percentage of value-added sales, SG&A expense was 14% in both the first quarter of 2024 and 2023.

R&D expense consists primarily of direct personnel costs for pre-production evaluation and testing of new products, prototypes, and applications.

R&D spend was 3% of value-added sales in both the first quarter of 2024 and 2023.

Restructuring (income) expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure.

In the first nine months of 2023, we recorded a combined total of $3.2 million of restructuring charges in our Electronic Materials, Precision Optics, Performance Materials and Other segments.

In the first nine months of 2022, we recorded a combined total of $1.6 million of restructuring charges in our Precision Optics, Electronic Materials and Other segments.

Refer to Note D to the Consolidated Financial Statements for details.

Other-net was $18.2 million of expense in the first nine months of 2023, or a $0.4 million decrease from the first nine months of 2022.

In the first quarter of 2024, we recorded a combined total of $1.6 million of restructuring charges across all segments, compared to $0.7 million of restructuring charges in the first quarter of 2023 recorded in our Electronic Materials and Precision Optics segments.

Other-net was $4.4 million of expense in the first quarter of 2024, or a $1.4 million decrease from the first quarter of 2023, primarily driven by a $0.9 million decrease in metal consignment fees.

Refer to Note E to the Consolidated Financial Statements for details of the major components within Other-net.

Other non-operating (income)-net includes components of pension and post-retirement expense other than service costs.

Other non-operating (income) expense-net includes components of pension and post-retirement expense other than service costs.

Refer to Note J to the Consolidated Financial Statements for details of the components.

Interest expense-net was $22.8 million and $14.3 million in the first nine months of 2023 and 2022, respectively.

Interest expense-net was $8.3 million and $7.5 million in the first quarter of 2024 and 2023, respectively.

The increase in interest expense is primarily due to an increase in interest rates compared to the prior year period.

Income tax expense for the first nine months of 2023 was $11.9 million, compared to $12.5 million in the nine months of 2022.

The Company's effective tax rate for the first nine months of 2023 and 2022 was 13.5% and 18.0%, respectively.

The effective tax rate for 2023 was lower than the statutory tax rate primarily due to the impact of percentage depletion, research and development and production credits and the foreign derived intangible income deduction.

The effective tax rate for the first nine months of 2023 included a net discrete income tax benefit of $3.4 million, primarily related to excess tax benefits from stock-based compensation awards, return to provision adjustments and an optimization of our foreign-derived intangible income deduction benefit.

The effective tax rate for the first nine months of 2022 included a net discrete income tax benefit of $0.9 million, primarily related to excess tax benefits from stock-based compensation awards and return to provision adjustments.

Income tax expense for the first quarter of 2024 was expense of $1.2 million, compared to $4.6 million in the first quarter of 2023.

The effective tax rate for the first quarter of 2024 and 2023 was 8.2% and 15.2%, respectively.

The effective tax rate for the first quarter of 2024 was lower than the statutory tax rate primarily due to the impact of percentage depletion, the foreign derived intangible income deduction, and excess tax benefits from stock-based compensation awards.

See Note F to the Consolidated Financial Statements for additional discussion.

Value-Added Sales - Reconciliation of Non-GAAP Financial Measure

A reconciliation of net sales to value-added sales, a non-GAAP financial measure, for each reportable segment and for the total Company for the third quarter and first nine months of 2023 and 2022 is as follows:

Third Quarter Ended Nine Months Ended

September 29, September 30, September 29, September 30,

A reconciliation of net sales to value-added sales, a non-GAAP financial measure, for each reportable segment and for the total Company for the first quarter of 2024 and 2023 is as follows:

First Quarter Ended

March 29, March 31,

(Thousands) 2024 2023

2 unchanged sentences

Precision Optics 24,670 26,692

Other — — — —

Total $ 385,287 $ 442,526

3 unchanged sentences

Precision Optics 26 22

Other — 248 — 1,353

Total $ 127,439 $ 143,968

3 unchanged sentences

Precision Optics 24,644 26,670

Other — (248) — (1,353)

Total $ 257,848 $ 298,558

Internally, management 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 precious metal market costs from net sales.

Value-added sales allow management to assess the impact of differences in net sales between periods, segments, or markets, and analyze the resulting margins and profitability without the distortion of movements in pass-through market metal costs.

Value-added sales is a non-GAAP financial measure that deducts the value of the pass-through metal costs from net sales.

The dollar amount of gross margin and operating profit is not affected by the value-added sales calculation.

We sell other metals and materials that are not considered direct pass-throughs, and these costs are not deducted from net sales when calculating value-added sales.

We sell other metals and materials that are not considered direct pass-throughs, and these

costs are not deducted from net sales when calculating value-added sales.

Non-GAAP financial measures, such as value-added sales, have inherent limitations and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.

The cost of gold, silver, platinum, palladium, copper, ruthenium, iridium, rhodium, rhenium, and osmium can be quite volatile.

Our pricing policy is to directly pass the market cost of these metals on to the customer in order to mitigate the impact of metal price volatility on our results from operations.

Our pricing policy is to directly pass the cost of these metals on to the customer in order to mitigate the impact of metal price volatility on our results from operations.

Trends and comparisons of net sales are affected by movements in the market prices of these metals, but changes in net sales due to metal price movements may not have a proportionate impact on our profitability.

2 unchanged sentences

In either case, we generally earn our margin based upon our fabrication efforts.

The relationship of this margin to net sales can change depending upon whether or not the

product was made from our metal or the customer’s metal.

The relationship of this margin to net sales can change depending upon whether or not the product was made from our metal or the customer’s metal.

The use of value-added sales removes the potential distortion in the comparison of net sales caused by changes in the level of customer-supplied metal.

4 unchanged sentences

The Other reportable segment includes unallocated corporate costs.

The primary measurement used by management to measure the financial performance of each segment is EBITDA.

Refer to Note B to the Consolidated Financial Statements for the reconciliation of EBITDA by segment to consolidated net income.

Performance Materials

Third Quarter

Third Quarter Ended

September 29, September 30, $ %

(Thousands) 2023 2022 Change Change

Net sales $ 184,642 $ 169,357 $ 15,285 9 %

Value-added sales 168,894 148,832 20,062 13 %

EBITDA 46,366 28,866 17,500 61 %

Net sales from the Performance Materials segment of $184.6 million in the third quarter of 2023 increased 9% compared to net sales of $169.4 million in the third quarter of 2022.

The increase in sales was due to incremental sales from the clad strip project of $28.2 million and increased volumes in the aerospace and defense end market (9%).

This increase was partially offset by decreased volumes in the automotive (22%) and industrial (28%) end markets.

Value-added sales of $168.9 million in the third quarter of 2023 were 13% higher than value-added sales of $148.8 million in the third quarter of 2022.

The increase in value-added sales was due to the same factors driving the increase in net sales.

EBITDA for the Performance Materials segment was $46.4 million in the third quarter of 2023, compared to $28.9 million in the third quarter of 2022.

The increase in EBITDA in the third quarter of 2023 was primarily due to the same factors driving increases in net sales, manufacturing efficiencies and the $1.6 million of startup costs and $4.1 million of additional resource cost and scrap for the new wide area precision strip clad facility incurred in the third quarter of the prior year that did not recur in the third quarter of 2023.

In addition, we recorded a portion of the expected $10 million annual benefit from the production credit in the third quarter of 2023, which favorably impacted EBITDA.

See Note F to the Consolidated Financial Statements for further discussion.

Nine Months Ended

September 29, September 30, $ %

(Thousands) 2023 2022 Change Change

Net sales $ 554,427 $ 473,876 $ 80,551 17 %

Value-added sales 502,521 411,917 90,604 22 %

EBITDA 134,061 80,886 53,175 66 %

Net sales from the Performance Materials segment of $554.4 million in the first nine months of 2023 increased 17% compared to net sales of $473.9 million in the first nine months of 2022.

The increase in sales was primarily due to incremental sales from the clad strip project of $91.4 million as well an increase in the aerospace and defense (17%) end market, partially offset by decreases in the industrial (8%) and consumer electronics (22%) end markets when compared to the first nine months of 2022.

Additionally, there was a $2.4 million year over year decrease in raw material beryllium hydroxide sales compared to the first nine months of 2022.

Value-added sales of $502.5 million in the first nine months of 2023 were 22% higher than value-added sales of $411.9 million in the first nine months of 2022.

The increase in value-added sales was due to the same factors driving the increase in net sales.

EBITDA for the Performance Materials segment was $134.1 million in the first nine months of 2023 compared to $80.9 million in the first nine months of 2022.

The increase in EBITDA was primarily due to the same factors driving increases in net sales, manufacturing efficiencies and due to the $9.8 million of startup costs and $4.1 million of additional resource cost

and scrap for the new wide area precision strip clad facility incurred in the prior year period and $2.7 million of merger and acquisition costs incurred in the prior year period that did not recur in 2023.

In addition, we recorded a portion of the expected $10 million annual benefit from the production credit in the first nine months of 2023, which favorably impacted EBITDA.

See Note F to the Consolidated Financial Statements for further discussion.

Electronic Materials

Third Quarter

Third Quarter Ended

September 29, September 30, $ %

First Quarter

First Quarter Ended

March 29, March 31, $ %

(Thousands) 2024 2023 Change Change

2 unchanged sentences

EBITDA 30,676 42,770 (12,094) (28) %

Net sales from the Electronic Materials segment of $192.3 million in the third quarter of 2023 were 17% lower than net sales of $230.8 million in the third quarter of 2022.

The decrease in net sales was primarily due to lower sales volumes in the semiconductor (18%) end market.

Value-added sales of $75.5 million in the third quarter of 2023 decreased 29% compared to value-added sales of $106.9 million in the third quarter of 2022.

Net sales from the Performance Materials segment of $168.6 million in the first quarter of 2024 decreased 10% compared to net sales of $187.0 million in the first quarter of 2023.

The decrease in sales was due to lower volume in the industrial (30%) and automotive (30%) end markets, partially offset by a volume increase in the aerospace and defense end market (37%).

Value-added sales of $155.6 million in the first quarter of 2024 were 7% lower than value-added sales of $168.0 million in the first quarter of 2023.

The decrease in value-added sales was due to the same factors driving the decrease in net sales.

EBITDA for the Electronic Materials segment was $10.2 million in the third quarter of 2023 compared to $16.9 million in the third quarter of 2022.

Nine Months Ended

September 29, September 30, $ %

EBITDA for the Performance Materials segment was $30.7 million in the first quarter of 2024 compared to $42.8 million in the first quarter of 2023.

The decrease in EBITDA was primarily driven by the impact of lower volumes and related unabsorbed costs.

Additionally, EBITDA was unfavorably impacted by higher pre-production costs associated with the production ramp of the new wide area clad facility.

Electronic Materials

First Quarter

First Quarter Ended

March 29, March 31, $ %

(Thousands) 2024 2023 Change Change

2 unchanged sentences

EBITDA 14,352 13,955 397 3 %

Net sales from the Electronic Materials segment of $611.9 million in the first nine months of 2023 were 20% lower than net sales of $762.6 million in the first nine months of 2022.

The decrease in net sales was primarily due to lower sales volumes in the semiconductor (21%) end market.

Additionally, pass-through metal price fluctuations reduced net sales by $3.5 million compared to the first nine months of 2022.

Value-added sales of $257.0 million in the first nine months of 2023 decreased 18% compared to value-added sales of $314.9 million in the first nine months of 2022.

Net sales from the Electronic Materials segment of $192.0 million in the first quarter of 2024 decreased 16% from net sales of $228.8 million in the first quarter of 2023.

The decrease in net sales was primarily due to lower sales volumes in the semiconductor (13%) and energy (32%) end markets.

Additionally, pass-through metal pricing increased net sales by $4.3 million compared to the first quarter of 2023.

Value-added sales of $77.6 million in the first quarter of 2024 were 25% lower than value-added sales of $103.9 million in the first quarter of 2023.

The decrease in value-added sales was due to the same factors driving the decrease in net sales.

EBITDA for the Electronic Materials segment was $37.5 million in the first nine months of 2023 compared to $51.3 million in the first nine months of 2022.

The decrease in EBITDA was due to decreased sales volumes, partially offset by decreases in manufacturing and SG&A expenses as a result of various targeted cost control initiatives implemented in 2023 as well as lower merger and acquisition costs of $6.8 million incurred in the prior year period that did not recur in 2023.

EBITDA for the Electronic Materials segment was $14.4 million in the first quarter of 2024 compared to $14.0 million in the first quarter of 2023.

Despite the impact of decreased sales volumes, EBITDA increased slightly as a result of favorable product mix and various targeted cost control initiatives implemented throughout 2023 and during the first quarter of 2024.

Precision Optics

Third Quarter

(Thousands) Third Quarter Ended

September 29, September 30, $ %

2023 2022 Change Change

Net sales $ 26,120 $ 27,993 $ (1,873) (7) %

Value-added sales 26,105 27,977 (1,872) (7) %

EBITDA 3,261 3,546 (285) (8) %

Net sales from the Precision Optics segment of $26.1 million in the third quarter of 2023 decreased 7% compared to net sales of $28.0 million in the third quarter of 2022.

The decrease was primarily due to lower sales volumes as a result of a reduction in sales related to COVID-19 PCR testing programs as well as decreased sales in the consumer electronics end market (37%), which was primarily due to the discontinuation of a consumer electronic application.

These decreases were partially offset by an increase in sales volumes in the aerospace and defense (102%) end market.

Value-added sales of $26.1 million in the third quarter of 2023 decreased 7% compared to value-added sales of $28.0 million in the third quarter of 2022.

The decrease in value-added sales was due to the same factors driving the decrease in net sales.

EBITDA for the Precision Optics segment was $3.3 million in the third quarter of 2023 compared to $3.5 million in the third quarter of 2022.

The decrease in EBITDA was driven by decreased volumes, partially offset by targeted cost control initiatives implemented in 2023.

(Thousands) Nine Months Ended

September 29, September 30, $ %

First Quarter

(Thousands) First Quarter Ended

March 29, March 31, $ %

2024 2023 Change Change

2 unchanged sentences

EBITDA (252) 2,692 (2,944) (109) %

Net sales from the Precision Optics segment of $77.9 million in the first nine months of 2023 decreased 9% compared to net sales of $86.0 million in the first nine months of 2022.

The decrease was primarily due to lower sales volumes as a result of a reduction in sales related to COVID-19 PCR testing programs as well as decreased sales in the consumer electronics end market (38%), which was primarily due to the discontinuation of a consumer electronic application.

These decreases were partially offset by an increase in sales volumes in the aerospace and defense (44%) end market.

Value-added sales of $77.8 million in the first nine months of 2023 decreased 9% compared to value-added sales of $85.9 million in the first nine months of 2022.

Net sales from the Precision Optics segment of $24.7 million in the first quarter of 2024 decreased 8% compared to net sales of $26.7 million in the first quarter of 2023.

The decrease was primarily due to lower sales volumes in the industrial end market (22%).

Value-added sales of $24.6 million in the first quarter of 2024 decreased 8% compared to value-added sales of $26.7 million in the first quarter of 2023.

The decrease in value-added sales was due to the same factors driving the decrease in net sales.

EBITDA for the Precision Optics segment was $7.7 million in the first nine months of 2023 compared to $9.3 million in the first nine months of 2022.

The decrease in EBITDA was driven by decreased volumes partially offset by targeted cost control initiatives implemented in 2023.

Third Quarter

(Thousands) Third Quarter Ended

September 29, September 30, $ %

EBITDA for the Precision Optics segment was a loss of $0.3 million in the first quarter of 2024, compared to EBITDA of $2.7 million in the first quarter of 2023.

The decrease in EBITDA was primarily driven by the impact of lower sales volumes and unfavorable mix.

First Quarter

(Thousands) First Quarter Ended

March 29, March 31, $ %

2024 2023 Change Change

3 unchanged sentences

The Other reportable segment in total includes unallocated corporate costs.

Corporate costs were $7.5 million in the third quarter of 2023 compared to $5.8 million in the third quarter of 2022.

Corporate costs increased from 2% of Company-wide value-added sales in the third quarter of 2022 to 3% in the third quarter of 2023.

The increase in corporate costs in the third quarter of 2023 compared to the third quarter of 2022 is primarily driven by changes in variable-based compensation and incentives.

(Thousands) Nine Months Ended

September 29, September 30, $ %

2023 2022 Change Change

Net sales $ — $ — $ — — %

Value-added sales — (1,353) 1,353 (100) %

EBITDA (21,750) (18,206) (3,544) 19 %

Corporate costs were $21.8 million in the first nine months of 2023 compared to $18.2 million in the first nine months of 2022.

Corporate costs increased from 2% of Company-wide value-added sales in the first nine months of 2022 to 3% in the first nine months of 2023.

The increase in corporate costs in the first nine months of 2023 compared to the first nine months of 2022 is primarily driven by changes in variable-based compensation and incentives.

Corporate costs were $5.7 million in the first quarter of 2024 compared to $6.7 million in the first quarter of 2023.

Corporate costs were 2% of Company-wide value-added sales in the first quarter of 2024 and 2023.

The decrease in corporate costs in the

first quarter of 2024 compared to the first quarter of 2023 is the result of various targeted cost control initiatives implemented throughout 2023 and during the first quarter of 2024

FINANCIAL POSITION

A summary of cash flows provided by (used in) operating, investing, and financing activities is as follows:

Nine Months Ended

September 29, September 30, $

Three Months Ended

March 29, March 31, $

(Thousands) 2024 2023 Change

Net cash provided by operating activities $ 84,505 $ 34,204 $ 50,301

Net cash (used in) provided by operating activities $ (13,805) $ 38,105 $ (51,910)

Net cash used in investing activities (26,299) (29,802) 3,503

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Net change in cash and cash equivalents $ (190) $ 2,142 $ (2,332)

Net cash provided by operating activities totaled $84.5 million in the first nine months of 2023 versus $34.2 million in the prior-year period.

The period over period increase in cash provided by operating activities from the prior year period was primarily due to increased net earnings as well as favorable changes in working capital, primarily inventory and accounts receivable, primarily due to working capital initiatives during 2023.

Net cash used in investing activities was $94.2 million in the first nine months of 2023 compared to $56.4 million in the prior-year period.

The increase in cash used in investing activities is due to increased capital expenditures and mine development, as expected, to support continued business growth.

Net cash used in operating activities totaled $13.8 million in the first three months of 2024 compared to net cash provided by operating activities of $38.1 million in the prior-year period.

The decrease in operating cash flow was driven by lower earnings as well as unfavorable working capital usage.

Working capital requirements used cash of $29.0 million in the first quarter of 2024 compared to $6.4 million in the first quarter of 2023 compared.

The increase in cash used for working capital was primarily due to increased inventory levels as a result of the ramp for aerospace and defense projects as well as the second phase of the clad strip project.

Additionally, the Company received $7.7 million of customer prepayments in the first quarter of 2023, and none in the first quarter of 2024.

Net cash used in investing activities was $26.3 million in the first quarter of 2024 compared to $29.8 million in the prior-year period.

The decrease in cash used in investing activities is due to timing of capital expenditures, partially offset by outflow for mine development in the first quarter of 2024.

Capital expenditures are made primarily for new product development, replacing and upgrading equipment, infrastructure investments, and implementing information technology initiatives.

For the full year 2024, the Company expects payments for property, plant, and equipment to be approximately $90 million.

Net cash provided by financing activities totaled $13.7 million in the first nine months of 2023 and $31.3 million in the comparable prior-year period.

The decrease is primarily due to a decrease in borrowings under our revolving credit facilities in the first nine months of 2023 of $39.6 million, compared to net borrowings of $55.7 million in the same period in the prior year.

Net cash provided by financing activities totaled $40.3 million in the first three months of 2024 compared to net cash used in financing activities of $6.3 million in the prior-year period.

The net financing cash inflow in 2024 was primarily due financing used to support ongoing business growth.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the inherent use of estimates and management’s judgment in establishing those estimates.

For additional information regarding critical accounting policies, please refer to our 2023 Annual Report on Form 10-K.

We believe cash flow from operations plus the available borrowing capacity and our current cash balance are adequate to support operating requirements, capital expenditures, projected pension plan contributions, the current dividend program, environmental remediation projects, and strategic acquisitions for at least the next twelve months and for the foreseeable future thereafter.

At September 29, 2023, cash and cash equivalents held by our foreign operations totaled $15.8 million.

At March 29, 2024, cash and cash equivalents held by our foreign operations totaled $12.5 million.

We do not expect restrictions on repatriation of cash held outside of the United States to have a material effect on our overall liquidity, financial condition, or results of operations for the foreseeable future.

A summary of key data relative to our liquidity, including outstanding debt, cash, and available borrowing capacity, as of September 29, 2023 and December 31, 2022 is as follows:

September 29, December 31,

A summary of key data relative to our liquidity, including outstanding debt, cash, and available borrowing capacity, as of March 29, 2024 and December 31, 2023 is as follows:

March 29, December 31,

(Thousands) 2024 2023

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The available borrowing capacity in the table above represents the additional amounts that could be borrowed under our revolving credit facility and other secured lines existing as of the end of each period depicted.

The applicable debt covenants have been taken into account when determining the available borrowing capacity, including the covenant that restricts the borrowing capacity to a multiple of the twelve-month trailing earnings before interest, income taxes, depreciation, depletion and amortization, and other adjustments.

In January 2023, we amended the agreement governing our $375.0 million revolving credit facility and term loan facility (Credit Agreement).

The applicable debt covenants have been taken into account when determining the available borrowing capacity, including the covenant that restricts borrowing capacity to a multiple of the twelve-month trailing earnings before interest, income taxes, depreciation and amortization, and other adjustments.

In January 2023, we amended the agreement governing our $375.0 million revolving credit facility and term loan (Credit Agreement).

Pursuant to the amendment, we transitioned U.S.

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In addition, the Credit Agreement includes covenants that limit the Company to a maximum leverage ratio and a minimum interest coverage ratio.

We were in compliance with all of our debt covenants as of September 29, 2023 and December 31, 2022.

We were in compliance with all of our debt covenants as of March 29, 2024 and December 31, 2023.

Cash on hand up to $25 million can benefit the covenants and may benefit the borrowing capacity under the Credit Agreement.

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In August 2022, we entered into a precious metals consignment agreement, maturing on August 31, 2025, which replaced the consignment agreements that would have matured on August 27, 2022.

The available and unused capacity under the metal consignment agreements expiring in August 2025 totaled approximately $270.2 million as of September 29, 2023, compared to $241.9 million as of December 31, 2022.

The available and unused capacity under the metal consignment agreements expiring in August 2025 totaled approximately $282.7 million as of March 29, 2024, compared to $263.5 million as of December 31, 2023.

The availability is determined by Board approved levels and actual capacity.

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There is no minimum quantity requirement to repurchase our common stock for a given year, and the repurchases may be discontinued at any time.

We did not repurchase any shares under this program in the third quarter or first nine months of 2023.

Since the approval of the repurchase plan, we have purchased 1,254,264 shares at a total cost of $41.7 million.

We paid cash dividends of $2.7 million and $7.9 million on our common stock in the third quarter and first nine months of 2023, respectively.

We did not repurchase any shares under this program in the first quarter of 2024.

Since the approval of the repurchase plan, we have purchased 1,254,264 shares at a total cost of $41.7 million, or an average of $33.23 per share.

We paid cash dividends of $2.7 million on our common stock in the first quarter of 2024.

We intend to pay a quarterly dividend on an ongoing basis, subject to a determination that the dividend remains in the best interest of our shareholders.

OFF-BALANCE SHEET ARRANGEMENTS AND CASH OBLIGATIONS

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

We maintain the majority of the precious metals and portions of the copper we use in production on a consignment basis in order to reduce our exposure to metal price movements and to reduce our working capital investment.

The notional value of off-balance sheet precious metals and copper was $344.8 million and $373.1 million as of September 29, 2023 and December 31, 2022, respectively.

We were in compliance with all of the covenants contained in the consignment agreements as of September 29, 2023.

For additional information on our material cash obligations, refer to our 2022 Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES

For additional information regarding critical accounting policies, please refer to our 2022 Annual Report on Form 10-K.

The notional value of off-balance sheet precious metals and copper was $332.1 million and $351.5 million as of March 29, 2024 and December 31, 2023, respectively.

We were in compliance with all of the covenants contained in the consignment agreements as of March 29, 2024.

For additional information on our contractual and other obligations, refer to our 2023 Annual Report on Form 10-K.

Forward-looking Statements:

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the conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects;

the disruptions in operations from, and other effects of, catastrophic and other extraordinary events including outbreaks of infectious diseases and the conflict between Russia and Ukraine and other hostilities;

realization of expected financial benefits expected from the Inflation Reduction Act of 2022;

the disruptions in operations from, and other effects of, catastrophic and other extraordinary events including the conflict between Russia and Ukraine;

realization of financial benefits expected from the Inflation Reduction Act of 2022;

and the risk factors set forth in Part 1, Item 1A of the Company's 2023 Annual Report on Form 10-K.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis