Q1 2024 Materion Corp Earnings Call

Participants

Kyle Kelleher; Director, IR, Corporate FP&A; Materion Corp

Jugal Vijayvargiya; President, Chief Executive Officer, Director; Materion Corp

Shelly Chadwick; Chief Financial Officer, Vice President - Finance; Materion Corp

Phil Gibbs; Analyst; KeyBanc Capital Markets Inc

Daniel Moore; Analyst; CJS Securities Inc

Mike Harrison; Analyst; Seaport Research Partners LLC

David Silver; Analyst; CL King & Associates Inc

Dave Storms; Analyst; Stonegate Capital Markets Inc

Presentation

Operator

Greetings.
Welcome to the Materion First Quarter 2024 earnings conference call. (Operator Instructions). Please note this conference is being recorded. I will now turn the conference over to your host, Kyle Kelleher, Director, Investor Relations and Corporate FP&A. You may begin.

Kyle Kelleher

Good morning, and thank you for joining us on our first quarter 2024 earnings conference call. This is Kyle Gallagher, Director, Investor Relations and Corporate FP&A. Before we begin our remarks this morning, I would like to point out that we have posted materials on the company's website that we will reference as part of today's review of the quarterly results.
You can access the materials through the download feature on the earnings call webcast link. With me today is Jugal Vijayvargiya, President and Chief Executive Officer, and Shelly Chadwick, Vice President and Chief Financial Officer.
Our format for today's conference call is as follows. Jugal will provide opening comments on the quarter. Following Jugal, Shelly will review the detailed financial results for the quarter. In addition to discussing our expectations for the remainder of 2024 we will then open up the call for questions.
Let me remind investors that any forward-looking statements made in the presentation, including those in the outlook section and during the question-and-answer portion are based on current expectations. Company's actual 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 yesterday for additionally comments regarding earnings before interest, taxes, depreciation, depletion and amortization. Net income and earnings per share reflect the adjusted GAAP numbers shown in attachment four through eight of the press release.
The adjustments are made in the prior year period for comparative purposes and remove special items, noncash charges and certain discrete income tax adjustments. And now I'll turn over the call to Jugal for his comments.

Jugal Vijayvargiya

Thanks, Kyle, and welcome, everyone. It's nice to be with you today to discuss our first quarter performance as well as our current outlook for 2024. Our results for the first quarter fell far short of our expectations. While we were expecting to be roughly in line with Q1 of 23. Some operational challenges, mainly in our Performance Materials business and some pockets of slowing end market demand led to lower sales and earnings.
I'm proud of our team's quick actions to mitigate the short-term headwinds, delivering roughly flat EBITDA margins year over year despite a nearly $40 million sales. We have taken a number of targeted cost actions that are benefiting not only our short-term results, but are providing longer-term structural improvements that will enhance profitability as key markets recover.
Looking more closely at the sales performance, continued semiconductor weakness represented roughly half of the year-over-year decline. In addition, the expected inventory destocking of our growing nickel product used in nonresidential construction had a meaningful impact. Our results were further limited by delayed shipments due to the operational challenges, mainly in performance materials.
While we had anticipated the softness in some of our end markets, demand in commercial aerospace and automotive was softer than we expected due to reduced aircraft build rates and slowing growth for electric vehicles. Airplane deliveries were down significantly year over year in the first quarter and are expected to be depressed for the year.
Offsetting these declines. We saw strong growth across Space and Defense, where we are providing critical materials for space propulsion systems and on a growing number of defense platforms.
Short-term operational challenges further impacted sales on a temporary basis in the quarter addressing some yield and equipment issues. Our operations team responded quickly to address the issues and return our assets to normal output levels. Operational Excellence initiatives have been core to our performance as we deal with market headwinds and other short-term challenge, we have taken multiple targeted actions to adjust our cost structure while continuing to invest in the areas that drive organic growth for our business.
These important moves have helped to deliver strong margin performance in a softer end market environment. Despite the decline in sales our overall EBITDA margin for Q1 was roughly flat on a year-over-year basis, representing a strong 20% decremental margin. Our laser focus on driving margin improvement in electronic materials delivered EBITDA expansion of approximately 500 basis points in the quarter, even with a 25% VA sales decline.
This strong performance leaves us extremely well positioned to drive even higher levels of performance as markets recover. Our focus on managing the business through some short-term headwinds is complemented by our relentless efforts to invest for the future as we continue to seed the pipeline for long-term organic growth.
We remain confident in our strategy and believe that our robust organic pipeline and portfolio of cost improvement initiatives will help drive earnings growth for the balance of the year, we expect to see continued strength in the space and defense markets as we move through the year. Many of our advanced materials are engineered to perform in the harshest environments, making them an ideal fit for these demanding applications.
New defense business wins in addition to the previously announced R&D partnerships for various government-funded projects, further solidify our position as a key supplier for advanced materials across aerospace, defense and new energy market in the semi market. New Term growth in memory and logic chips used in high-performance computing is expected to drive the rebound in our sales this year with the demand for power and industrial chips coming back later in the cycle.
We believe Q1 was the bottom of the downturn for us as we see order rates picking up coming into the second quarter, giving us confidence that our top line will continue to improve as we move through the year. The industry is continuing to prepare for the global shift toward broader AI adoption. And Materion is a vital part of that. We continue to advance our broad portfolio of semiconductor products and are investing to increase capacity in key production areas to ensure we are ready to support that increased demand.
The precision clad strip project continues to be a significant driver of organic growth for us and our partnership with our customer is strong. The expansion of our new facility remains on track to start up late this year as the customers' global rollout progresses and our teams have driven higher levels of output and performance at our new facility.
We will now begin to ramp down production at our legacy facilities. Our customers indicated an adjustment to their inventory levels for the second half of the year, which will impact our ship. This adjustment does not correlate to weaker end product sales and the customer global rollout remains on track and their projections support a robust long-term outlook for our business.
Our team has done an exceptional job of steering the company through some short-term challenges while maintaining a longer-term focus that will further position Materion for sustainable growth and value creation. With the start of the recovery in semi and improved operational performance, we expect to deliver a much stronger Q2 with additional step-ups in the third and fourth quarter, resulting in another record year for Materion in 2024.
Now, let me turn the call over to Shelly to cover more details on the financials.

Shelly Chadwick

Thank you, Jugal, and good morning, everyone. During my comments, I will reference the slides posted on our website last night, starting on slide 9. In the first quarter value-added sales, which exclude the impact of pass-through precious metal costs for $257.8 million, down 14% from prior year, despite strength in aerospace and defense and consumer electronics.
Our sales were negatively impacted by declines in semiconductor and automotive, plus the expected inventory correction for our nonresidential construction materials. Additionally, as Stuart commented, some temporary operational challenges limited our shipments, particularly in Performance Materials. Our teams have made meaningful progress in mitigating these challenges and expect more normal levels of output in the second quarter.
When looking at earnings per share. We delivered adjusted earnings of $0.96 in the first quarter, down 28% from prior year.
Moving to slide 10, adjusted EBITDA in the quarter was $45.2 million or 17.5% of value-added sales, down 15% from the prior year with roughly flat margins despite the significant sales decline. The strong margin performance was driven by positive price and the benefit of our cost improvement initiatives, partially offsetting the volume decline.
Moving to slide 11, let me now review first quarter performance by business segment, starting with Performance Materials. Value-added sales were $155.6 million, down 7% from prior year. This year-over-year sales drop was driven by lower demand in automotive, commercial aerospace and the nonresidential construction application within industrial space and defense remains a bright spot with significant contributions from the emerging space market and strong defense demand.
More than offsetting declines in commercial air EBITDA, excluding special items, was $35.7 million or 22.9% of value-added sales, down 17% from the prior year period. This decrease was driven by the lower volume, partially offset by targeted cost improvement initiatives.
Moving to the outlook. We expect Space and Defense to remain strong throughout the balance of 2024 and again, expect the operational challenges to improve as we move into the second quarter.
Next, turning to Electronic Materials on slide 12. Value-added sales were $77.6 million, down 25% compared to the prior year as a result of continued weakness in the semiconductor market. Ebitda, excluding special items, was $14.5 million or 18.7% of value-added sales in the quarter despite significantly lower volumes. Operational performance and cost improvement initiatives helped mitigate the semiconductor slowdown, which drove approximately 500 basis points of margin expansion year on year.
As we look out for the rest of the year, we expect a gradual semiconductor recovery from Q1 with sequential improvement as we move through the balance of the year.
Finally, turning to Precision Optics Segment on Slide 13. Value-added sales were $24.6 million, down 8% compared to the prior year. This year-on-year decrease was mainly driven by reduced demand in industrial and automotive, partially offset by strength in space and defense.
Precision Optics also saw some operational challenges, which delayed some shipments out of Q1 EBITDA, excluding special items, was $0.4 million or 1.8% of value-added sales. The decrease in volume was a significant driver of this year-over-year decline in addition to unfavorable product mix.
Looking out over the next few quarters, we expect a meaningful step up in margin performance in Q2 with stronger demand and continued focused on cost improvements initiatives.
Moving now to cash debt and liquidity on slide 14. We ended the quarter with a net debt position of approximately $462 million and approximately $130 million of available capacity on the Company's existing credit facility. Our leverage at 2.2 times remains just slightly below the midpoint of our target range.
Lastly, let me transition to slide 15 and address the full year outlook. Despite the slow start to the year, we expect to deliver another year of record results with our organic and operational initiatives more than offsetting some market softness since our initial guide for 2020 for the outlook for commercial aerospace and electric vehicles has softened.
And as Yuval mentioned, we are expecting some inventory correction from our precision clad strip customer in the back half of the year. We also expect slightly higher interest expense based on the current rate outlook. While we will work to mitigate much of these headwinds, we are adjusting our full year guide to a wider range of $5.60 to $6.20 adjusted earnings per share a 5% increase from the midpoint versus the prior year.
Despite the mixed market environment, Materion remains poised to deliver another year of strong execution and record results in 2024. This concludes our prepared remarks. We will now open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Phil Gibbs, KeyBanc.

Phil Gibbs

Thank you. Good morning. Marcel unclarity tease out the message here a little bit. I I hear you talking about inventory reductions at the customer and ramping down of the legacy facility, but you're also saying nothing changed on long-term demand and you still plan on Phase two being a meaningful contributor in the future. So Kenny, can you just help maybe lay it lay out the land a little bit better here for us, it seems to have some things moving in different directions.

Jugal Vijayvargiya

Yes. Well, Phil, as you know, this program has been really a great success for us over the last couple of years. And our team has just done a fantastic job of driving yield improvement, operational improvements in our new facility while we continue to deliver from our legacy facility, I think what we're talking about is really a short-term issue where the customer has continued to look at as they've gone through the launch phase, how do they make sure that they've got the right levels of inventory to support their global rollout. So that's one part of it.
I think the second part of it is just the great improvements that, frankly, our team has made on our on our new facility that has allowed us to deliver at a rate that that I think is very, very satisfactory to the customer. So a combination of that. I mean, they're just looking at the back half of the year and looking at making some adjustments to make sure that they're properly positioned. And then we would expect that in the new year from 2025 because their demand will continue to be robust, and we will continue to support them in a meaningful way.
So I think all of these things actually tied together. And that's why we say the Phase two is on track. It's going to contribute into the 2025. We've been saying that I think all along that it would be late 24. Really nothing of substance for meaningful deliveries here at the end of the year, but really contributing in 2025. And at the same time, making sure that we can continue to support from the Phase I.
And then we've talked, of course, over the last year, year-and-a-half, because I think the questions have been there about Okay. When are you going to start producing from the from the legacy facility? And I think considering the some of the adjustments with the customer looking out for the back half of the year is about the right time to be able to start doing that.
And in support, of course, of the yield and performance improvements at our new facility. So I think it's just a natural sort of evolution of what the program is that with some corrections here for a couple of quarters, but continued down continued success on a long-term basis.

Phil Gibbs

Thank you, Jugal. And then on the commercial aerospace side, you talked about saw some slowing and builds down. I mean, I think the only meaningful place where we've seen builds down, at least to our knowledge has been on the MAX program.
But I know you also have a lot of maintenance exposure to the commercial side as well and maintenance has been strong. You have this does this or should this suggest to us that you just have more exposure to Boeing at this point? Are you seeing other program adjustments?

Jugal Vijayvargiya

And Phil, as we look at commercial aerospace, I mean, there we see really a build a challenge across both of the major customers, both Airbus and Boeing. I mean, if you look at some of the data, for example, that we track for build, so build rates, if you go back to Q1 of last year, the build rate combined was around 250, 260 planes.
This Q1, it was around 225. If you look at Q4, Q4 build rate on a combined basis was over 350. So the number is probably around 370, I think, for build rate. So substantial decrease here in Q1 across actually both there's a number of supply chain issues that frankly, Airbus has talked about very openly that they are facing as more of a supply chain issue on the Airbus side.
And of course, we know the challenges the Boeing is facing not only on the 737 MAX, but I think in general, I would say that they have really, really looked at their production processes to ensure that quality is at the forefront and really taking steps, I think, to adjust their build schedule as necessary.
So it's significant down in Q1 for commercial aerospace, which I would say is more than what we had anticipated. And then as we think about the recovery for the rest of the year, I would expect that the build rates are going to improve, but certainly those build rates are not going to get to that. At least we don't think that they're going to get to the levels that they were over the last year or so.
So I do expect commercial aerospace in general to be a challenge. This is absolutely not a share issue at all as you know, we have been gaining content across both multiple materials and products that we have on both single-aisle and wide body planes. So our content growth is there. Our share there. We just need these two mega companies to increase their build rate as we go forward. So we'll just we'll monitor the situation, but we do see this as a caution for the full year.

Phil Gibbs

And then lastly for me, the operational challenges that you cited several weeks ago and then talked a little bit about today. Can you maybe pinpoint some major issues there when they started to occur, what gives you confidence that they're behind you?

Shelly Chadwick

So I'll take that one. So you know, as we mentioned it, the majority of that issue was in performance materials. And really what we saw there was some yield challenges coming out of an early production process that impacts many of our downstream product lines in performance materials that started and you know, really early-ish in the quarter, if you would, and we've started to see that we weren't going to be able to service all the demand, all of the orders that we had on the books.
Which is when we reevaluated and then came out with a bit of the early caution that is getting better the issues have are being addressed. I think the team got together quickly to make sure that we could get those yields back up to be able to service the full order book. There were a couple of other items.
We had some delays at an outside tolling partner that were an impact and then some small yield challenges in precision optics. So we just had a few things that kind of fell under the bucket of operational challenges that we think we've got addressed, but they were big enough to talk about.

Jugal Vijayvargiya

Yes. And Phil I would add that as we look at our Q2 and as we've indicated, we expect Q2 to be a step up a significant step up from up from Q1, getting those operational challenges behind us is core to that end and based on how we have been running here in the in the month of April and how we expect to run the rest of the quarter, I would expect that we're we've made a marked improvement and those operational challenges.

Phil Gibbs

Yes.

Jugal Vijayvargiya

Thanks, Phil.

Operator

Daniel Moore, CJS Securities.

Daniel Moore

Thank you, Jugal, Shelly. Good morning and joining in the prepared remarks, you mentioned the start of the recovery in semi. Maybe just elaborate on conversations dialogues with customers, you're confident that demand should continue to improve sequentially beyond Q2 for the next few quarters?

Jugal Vijayvargiya

Yes. Well, as you know, this this market has been a very challenging market, not only for us, but for the entire industry. Right. And there have been some starts and stops and thinking when is the last one is the bottom. We do believe based on orders and based on conversations with our customers that Q1 was the low point for us. We see we see improvements going into Q2.
We see improvements here in the first few weeks of first few weeks of the quarter as well as I think what we see for the next couple of months as well, our discussions with the customers as well as I think what we hear externally continues to indicate that logic and memory in particular is starting to lead the recovery. And I think it will continue to lead the recovery in Q3 and Q4.
There are some challenges on the power side. Those challenges being frankly, the EV, the slowing growth of the EV I think that's going to have a I think that's going to take a little bit more time for the power side. But logic and memory, I think, are making are starting to make more of a recovery.
When I look at our order backlog, our order backlog has continued to improve over the last couple of months. We see probably from about three months ago to where we are today, approximately, I'm going to say double digit order backlog improvement and for the for the semi business, which gives us confidence not only for Q2 but I think it gives us confidence for the back half of the year.
So I would say, if I look at the last few quarters, it's the it's the first time that I can I can sense a little bit more data that gives us confidence or for the recovery to start to happen here in Q2 with Q1 being a low point and then and then continuing in Q3 and Q4.

Daniel Moore

Very helpful. And just a point on that string. As we think about 25 and beyond and a NAM, I guess it's probably more into 26, but the build rates are expected for a lot of the fabs that are expected to come online. And just talk about your confidence to when do you expect to have more meaningful inflection in that sort of core end market as far as and we might see that pick uptick to longer term high single digit type growth.

Jugal Vijayvargiya

So I think when you look at the build rates in terms of the bads and some of the investments that are being made, we certainly saw some of the investment slowdown commentary over the last 12, 18 months as the overall market started to become more channel. However, what we are seeing now I think, is starting to have some more positive discussions around the investments.
We're seeing some of the investments in the US, for example, some of the government investments coming into play some recent announcements at that larger at large companies with the governments providing, I think we're starting to see kind of almost starting back up of the investment activity in Asia as well.
So I wish we could if the investments are happening, but perhaps, you know, a slight delay, right from what they were talking about maybe two years ago, so probably a one to two year delay. But the investments are clearly getting back getting back on track. When I look at the from the levels that we had in the '22 time frame, I mean that was really a peak out of the semi side.
The thought was that those levels will start to come into play probably in the back half of '25 and perhaps now they perhaps are those peaks would be maybe the front half of '26. So a slight delay of a couple of quarter delay from some of the overall recovery that's happened.
But I do continue to see over the next 24 to 36 months, I think a steady improvement and recovery in the semi market, again led by logic and memory, but then followed by the other areas as well.

Daniel Moore

Perfect. And then last for me and I'll jump back. The incremental capacity that you would have from shifting production from the legacy facility to the new clad strip facility. Is that something that you can think about actively selling to alternative potential customers? Or is it more likely to be shuttered? Thanks

Jugal Vijayvargiya

Yes, so as we indicated, we would be looking at starting to slow down, certainly not stopping production. So the incremental capacity is absolutely something that I think is very usable because it's capacity that we were using prior to starting this this program.
And so we will simply shift that capacity to other activities in the commercial sector or consumer sector or the or the automotive sector. So we will make sure that that capacity is being utilized appropriately. If for some reason, we have issues with that, we'll take appropriate action to adjust the just the cost structure.

Daniel Moore

Yes. Okay.

Jugal Vijayvargiya

Thank you.

Operator

Mike Harrison, Seaport Research Partners.

Mike Harrison

Good morning. I was wondering, I appreciate all the detail you provided on the semi outlook, but just I was hoping maybe we could focus on the performance in the first quarter particularly on the margin side. I know you called out that the nice year-on-year improvement, but I think what was more interesting was the improvement sequentially on essentially the same level of value added sales on. Can you talk about what led the margin to be so much better in Q1 than it was in Q4, even though that value added sales level was pretty similar?

Jugal Vijayvargiya

Yes, let me let me start with that and then certainly I'm sure we can add to that. As you know, EM has been a focus area for us for margin improvement, right? We've talked about how we need all of our businesses to contribute so that the overall company is able to get to 20% EBITDA margins or better on the left as the as the semi decline started to happen, I'm going to go back to probably Q1 of last year, right?
Q1 was almost kind of a peak quarter for us in sales. Our margins started to frankly, get impacted and we started to make significant cost improvement initiatives starting in the second quarter. But more importantly, I would say in the back half of the year. And as you know, sometimes you know, as you're making those a plant improvements and operational improvements, they take a little bit of time to get into play. And so we're starting to see the benefits of that.
And I'm really, really proud of, I think what the team has been able to do and to drive that improvement I would expect that some of these improvements are going to continue, and I can assure you we're not going to back off on that. Some of these improvements are going to continue, and we're going to hopefully be able to drive margin enhancement as the as the market recovery happens.
So that's a big part of it. And certainly, there's always, you know, sometimes there's a little bit of one-time issues or sometimes a little bit of mix issues. Those things go back and forth every quarter. But I think fundamentally, it's really the core improvements and the operational improvements that our teams have been driving over the last 6, 9 months that are starting to bear fruit and starting to deliver here in Q1 and I would expect that we continue to keep a focus on that.
We need our EM business to deliver and contribute towards the 20% objective of EBITDA margins that we have.

Mike Harrison

All right. Thank you for that. And then I was also wondering if you can lay out where we are in this inventory correction, what's going on in the industrial business, these beryllium nickel springs, I believe, for commercial sprinkler systems. Can you just kind of help us understand?
I mean, we've seen destocking in a lot of different pockets of the economy, but this seems to be one that kind of cropped up later. And just curious if you feel like things are improving or if it's going to be something that's weak for the remainder of the year?

Jugal Vijayvargiya

Yes, this is one. That is a kind of a kind of a fairly unique product right in the in the industrial sector. And it's hard to correlate it to a PMI index or some other type of an index, right? Because that's a kind of a unique product and used for this nonresidential construction. We are obviously the provider of these before the market, there was a significant growth that happened coming out of COVID.
And I think the channel, frankly, that the low flushed with the with the inventory. And as the interest rates and some of the inflation activities and some of that just a general downturn, I think that we all know that that's happening in the overall commercial construction and occupancy as a result of that, or we are just going through that inventory correction.
It started to happen in every deal late last year. So maybe let's say in Q4. But I would expect that the first half of this year is going to be a meaningful inventory correction that's going to happen in this business, and we would expect it started picking back up in the in the back half of the year. But I would expect the pickup to be, let's say, a slight, but then more meaningful pickup in '25 as that inventory is worked through.
So again, I want to emphasize, I think that this is not a it's not a share loss issue. This is simply just a inventory correction on a more specific element of what we consider in the industrial sector. And we would expect a small turnaround in the back half, but then a meaningful, a turnaround in '25.

Mike Harrison

All right. Very helpful. And then last question for me is just with your balance sheet, you mentioned just below the midpoint of your target leverage range. Curious if you can give us an update on your acquisition pipeline, what you're seeing in the M&A marketplace and maybe talk about the potential for some acquisition activity and later in the year?

Shelly Chadwick

Yes, Mike, so I'll take that one. Yes, as you mentioned, you know, our leverage right now is at about 2.2 times, which is going to half between our 1.5 to 3 times targeted range. So we feel comfortable where we are. As you know, we're doing a lot of organic investing, which is really what's kind of keeping that propped up after the acquisition we did of HCS electronic materials.
We've not focused on debt paydown, but rather on organic growth. And given that we've got capacity, certainly we still can do an acquisition. And we're always looking kind of evaluating options and seeing where there might be targets that would add either to our product portfolio to build that out or something that's geographically desirable that would build on our footprint.
But it's not I wouldn't say today, it's a must-do. So I wouldn't say that we're out there saying we've got to get an acquisition done this year, but we certainly want to be opportunistic there and could do that if the right thing comes along.

Mike Harrison

All right. Thanks very much.

Jugal Vijayvargiya

Thanks, Mike.

Operator

David Silver, CL King.

David Silver

Yes, hi. Good morning.

Jugal Vijayvargiya

Morning David.

David Silver

So it's a true statement that all of my top questions have been asked. However, that's never stopped me before, but it does giving you a warning. This might be a little scattershot. I mean, I do have several issues I wanted to touch on. First would just be a clarification to some of Google's earlier comments has to do with precision clad strip and the transition. I guess from Phase one in the back half of 2024 to Phase two, maybe beginning early 2025.
So Jugal, I believe you talked about kind of inventory drawdowns at the customer, you know, back half of this year and then then the ramp up of production from the new facility. Can you can you just clarify, is there a qualitatively or structurally different product that you're supplying from the new precision clad strip unit? In other words, why would if the products were relatively similar, why would the customer need to adjust the legacy, I guess, inventory levels later in this year?
Just maybe I'm missing something, but if you could just maybe discuss that transition as you as you discussed earlier? Thank you.

Jugal Vijayvargiya

Yes, David, going back actually to, but I'm going to save almost three years ago, probably when we started talking about this program, what we've indicated is that the customer has had at that time a product that they had in the marketplace. It used a technology that was not ours. We were not involved in that. The customer introduced a next generation product when they introduce the next generation product than our technologies.
Our precision clad that we provide is what is used with that customer. So they have been they have been that let's say, phasing out the older generation and phasing in the newer generation, right and rolling that out around the world. And so as that ramp up has happened and as they have continued to build inventory and continue to put a product in the marketplace.
And we have we have supplied to that. We have supplied to them from the legacy facility and we supply to them from our new facility. And I think you know the and I'm really proud of our team for that. I mean, I think the fantastic work that our team has done on the new facility, in particular with driving yield improvements, driving output improvements I think has been up has been a great support to the customers want and the rollout that they have been that they've been able to do.
I think all of that combined with just how are they managing it, the global rollout, they are really they are really making sure that they've got the right levels of inventory now to support their the rollout and them. And that's really kind of where it is a David and So short term, a couple of quarter type of type of adjustments, but nothing of concern to us because this is a this is a program that as far as we know from the customer and we meet with the customer on a very frequent basis.
They see this as a very successful program and one that will continue to be successful for them. For the upcoming upcoming years.

David Silver

Okay. Thank you for that, very, very clear. I appreciate the longer-term perspective and maybe a couple for Shelly here. But Tom, I was hoping you could just give us the final kind of determination from materials perspective on the production tax credit, I believe, are manufacturing credit that you're in line to receive some.
Yes, as part of your participation, I guess, with critical materials, but you did kind of make a judgment earlier in 2023 that you reduced later in the year. Upon further clarification, I believe from Treasury on the particular details of how the credit would be calculated. So just to level set us there, though, but are you at a point now where you can kind of confidently talk about, you know, the final, I guess, expectations for that credit and is there kind of a ballpark estimate for what that that could add on a annual basis?

Shelly Chadwick

Yeah. Thanks for that question, David. That's a it's good to kind of give an update there. As you know, we're really excited about that credit as it gives us a reduction in our overall cost to produce, you know, high-purity beryllium products when the when the act was first announced, the definition of production costs was a bit more broad and maybe less defined but did include material raw material costs.
The update that came from the Treasury Department late last year used a different definition of production costs that would take raw materials out and as you might recall, there was that a comment period and hearings and a number of other items that were being discussed before. Final guidance is given we have not gotten any updates since then.
We did kind of look at what was said at these hearings and the different papers that were written on it. But we don't expect final guidance till later this year. So we have adjusted our approach really for that material item and are accruing at a more conservative rate. In fact, if you think about Q1 last year, we would have recorded about $1 million more of a credit than what we recorded this year, just based on a more conservative methodology.
But we still believe we've taken a pretty middle of the road approach, and I look forward to getting more clarity as the year progresses.

David Silver

Okay. Thank you with that. And then maybe one more on the beryllium side. But you know, I'm looking at the full year 2024 guidance, sorry, slide 15. And in particular on the right-hand column, the mine development dash new pit opening $13 million.
There's always been a small or moderate amount in that column. But I was wondering the new pit opening Is that designed to expand, you know, your capacity for the mineral for Burton you know that you require for your beryllium production or is this really a replacement?
In other words, is that are you investing to prepare for anticipated growth or just this may maybe just the normal transition from a played out portion of the mine to a new part of the mine?

Shelly Chadwick

Yes, thanks for that. I'll start on that one. So you know, as you know, we've got a mine out in Utah and that we have various pits at really to obtain our raw materials. So you've heard Jim will explain this process before is basically we have an open pit. We dig dirt and processes to get the beryllium products out of the ground. And when we do that, we have to capitalize that really from an accounting treatment.
So I like to think of mine development as really raw material costs that are amortized over the period in which we use the raw material. So I wouldn't think of it as this is Dan, a different capital investment, but really it is the size and the amount of the day and the cost of that, which may be amortized over a different period or certainly more a higher quantity.
And we do see an uptick in our beryllium processing and our beryllium related sales and opportunities. So we're making sure that we're digging enough to have the products to support that demand. But really what you see there is just something that goes on the balance sheet and amortizes off with production.

David Silver

Okay. Very good. And last one for me, and I'll apologize in advance if I misquote Jugal on this. But the topic would be your expansions on the Electronic Materials side at Newton and Milwaukee, but one or two quarters ago, I believe Jugal you talked about I asked you about the timing of completion. Has it changed or whatnot and I know again, I'm paraphrasing, but I believe you said, well, the slowdown, electronic materials demand that was happening, then you thought it would jive very nicely with your planned expansions.
In other words, you wouldn't have to accelerate or anything you could complete the expansions and upgrades, you know, at a desired pace. And based on your comments today about may be a more drawn out on recovery or rebound in the core electronic materials portfolio. How are you thinking about that to completing that expansion? The timing of the startup was with customer demand any shift in that thinking?

Jugal Vijayvargiya

No, I would say in all, there is no shift in our thinking on that. We're continuing to progress on on those expansions, and we want to make sure that we're properly positioned from a capacity standpoint as the market recovery happens. And I think we'll just continue to work that David and make sure that all of our equipment is is being installed as being qualified with our various customers, and we're fully prepared to support them as the recovery happens in the various types of the segments of the SME market. So we I would say we are on track and continuing down that path.

David Silver

Okay, great. That's it for me. I appreciate all the color. Thank you.

Shelly Chadwick

Thanks.

Jugal Vijayvargiya

And thanks, David.

Operator

Dave Storms, Stonegate Capital Markets.

Dave Storms

You may proceed more in and running live. Just hoping to get a feel for pacing last call it was estimated that added sales would be split roughly $45 million, $55 million between first half and second half is the anticipated step up in Q2 to maintain that ratio or should we adjust those expectations?

Shelly Chadwick

Yes, that's a good question. We spent a lot of time thinking about that and really look more at I think the cadence of our earnings. And we did talk last time about that being kind of a $45 million, $55 million split as we move through the year with our soft Q1, of course, we had to kind of take another look at what that might look like.
And we do see the significant step up in Q2, but it will affect the balance of earnings where it will probably be a little better than 40% in the first half. When we think about Q2, we'll probably do a little bit better than Q2 of last year, but we're going to really see the meaningful step up in Q3 and Q4 to kind of hit the midpoint of our guide.
So if you think you know, $40 million, $60 million, maybe a $41 million, $59 million, something like that. We're kind of in that ZIP Code right now, at least how we're thinking about it.

Dave Storms

Helpful. Thank you. And Joe, you mentioned with shares coming down excuse me, with volumes coming down, you're not really seeing share losses on that. That's because you've had to compete on price. Is there any upside to compete on price to maybe get some share gains, basically just how to how you think about your pricing environment given the softer volumes?

Jugal Vijayvargiya

Yes. Well, when I talk about the share situation. There's a number of different programs we spoke about. Bloom nickel was one of them, for example, and making sure that everybody understands that this is not a share issue is just simply an inventory destocking issue, right? And I think that's the case for a number of different mix. Some of the some of the declines that we have in Q1 and sales, it was simply due to operational launches.
It wasn't due to order rates or was that we just weren't able to get the product in and out the door. So I think it's a combination of things between between those various items and when you look at pricing in general, and certainly there's always pricing pressure. I mean, there's no doubt, right now the customers are always looking for ways that we can do things more efficiently and then pass on those benefits to them. So we continue to work that we continue to drive operational excellence initiatives on our side.
So that any type of price downs that we have to give to our customers where we're offsetting those with the with cost down and but in general, what I will tell you is if you look at our business over the last several years, we tend to be price positive. So what and what I mean by that is up is we tend to be more, I would say, on the price of the price downs across the board potential.
And so we'll continue to keep a focus on that in our sales teams know very well as they work with our product teams on what the cost structure is that we have in our various businesses and how to properly price the product and making sure that we're looking at appropriate value-based pricing.
So pricing has been a key important enabler for us. I expect it to continue to be a key important enabler for us. And we're always, as I said, you know, managing between what the pricing is and what the share is and how can we make sure that we're properly balancing both of those items.

Dave Storms

That's very helpful. Thank you for taking my questions and good luck in Q2, and we have great.

Jugal Vijayvargiya

Thanks.

Operator

Thank you. We have reached the end of the question-and-answer session. And I will now turn the call over to Kyle Kelleher for closing remarks.

Kyle Kelleher

Thank you. This concludes our first quarter 2024 earnings call. A recorded playback of this call will be available on the company's website, materion.com. I'd like to thank you for participating on this call and your interest in Materion. I will be available for any follow-up questions. My number is 2163834931. Thank you again.

Operator

Thank you. This concludes today's conference today's conference, and you may disconnect your lines at this time. Thank you for your participation.