Q4 2023 Materion Corp Earnings Call
Participants
Kyle Kelleher; Manager, IR; Materion Corp
Jugal Vijayvargiya; President & CEO; Materion Corp
Shelly Chadwick; Chief Financial Officer, Vice President - Finance; Materion Corp
Daniel Moore; Analyst; CJS Securities, Inc.
Mike Harrison; Analyst; Seaport Research Partners LLC
David Silver; Analyst; C.L. King & Associates, Inc.
Philip Gibbs; Analyst; KeyBanc Capital Markets Inc.
Dave Storms; Analyst; Stonegate Capital Markets, Inc.
Presentation
Operator
Greetings. Welcome to materials' Fourth Quarter and Full Year 2023 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) Please note this conference is being recorded.
I will now turn the conference over to your host, Carl Gallaher, Manager of Investor Relations. You may begin.
Kyle Kelleher
Good morning, and thank you for joining us on our fourth quarter 2023 earnings conference call. This is Karl Kelliher, Manager, Investor Relations.
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 also access materials through the download feature on the earnings call webcast link. With me today is TrueBlue VGFREA. President and Chief Executive Officer, and Shelly Chadwick, Vice President and Chief Financial Officer.
Our format for today's conference call is as follows Hugo will provide opening comments on the quarter and full year as well as an update on key strategic initiatives. Following Jugal, Shelly will review the detailed financial results for the quarter and full year. In addition to discussing our expectations for 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. The 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 this morning. Additionally, comments regarding earnings before interest, taxes, depreciation, depletion and amortization, net income and earnings per share reflect the adjusted GAAP numbers shown in attachments four through eight in this morning's press release. The adjustments are made in the prior year period for comparative purposes and remove special items, non-cash charges and certain discrete income tax adjustments.
And now I'll turn over the call to Hugo for his comments.
Jugal Vijayvargiya
Thanks, Kyle, and welcome, everyone. It's great to be with you today to talk about our fourth quarter performance and our record results for full year 2023. I'm proud of our team's focus and resilience leading our company to another year of record sales and earnings. We overcame significant headwinds in some of our largest markets to deliver strong results, demonstrating the power of our balanced portfolio and the extraordinary potential of our unique customer partnerships. Our sharp focus on operational excellence led to continued meaningful margin expansion, structurally improving our profitability and preparing us to maximize performance as markets recover.
And while we manage our cost closely adjusting to uncertain economic conditions, we continue to invest for the future seeding the pipeline for long-term organic outgrowth in the fourth quarter the diversity of our portfolio continued to be a highlight while several of our markets remain challenged. When excluding semiconductor, our largest market, which is experiencing significant market weakness, our sales were up slightly.
Our aerospace and defense sales grew nearly 70% year over year, representing the 11th consecutive quarter of growth for this market. In addition to the benefits from significant organic wins in Space and Defense, we also saw the impact of continued increase in our content per play. On the other hand, our semiconductor and industrial end markets continued to show significant weakness in Q4. In semi, we saw our third consecutive quarter of meaningful year-on-year declines, but the order patterns are starting to show signs of stabilization. We are also seeing some positive indicators in the broader market and expect that the related increase in demand will positively impact us starting in the second.
Our performance in the industrial space is impacted by our largest application later in the nonresidential and warehouse construction builds for the impacts of COVID on office space utilization, combined with higher interest rates, the demand for our beryllium nickel sprinkle material is seeing a significant inventory correction that will carry through the year. While our end market outlook remains mixed, we continue to make significant advancements on strategic initiatives that position us for long-term growth.
Our organic growth projects aligned with compelling global megatrends have allowed us to win exciting new business and ensure that we continue our strong track record of outgrowing our underlying end markets. The emerging space market continues to be a source of new opportunities for us as illustrated by a recent Ford order to supply critical materials for space propulsion systems. These four important orders, along with several other organic wins in this market contributed approximately $90 million in new business orders during the year. We have positioned our company as a trusted partner, supplying critical materials into this exciting high-growth market.
Our technical expertise continues to lead to new R&D partnerships that will drive innovation and new opportunities in several of our key end markets. In November last year, we announced that we were awarded a $5 million contract with the United States Air Force spring project to develop additive manufacturing capabilities for burley materials. Today, we are pleased to announce a new $4 million award from another government agency to fund additive manufacturing for other advanced materials across the aerospace, defense and energy market.
These projects will enable us to better serve both new and existing customers for require more complex components for next-generation applications. We are preparing for the recovery in the semi market by expanding our capabilities. The proliferation of artificial intelligence or AI applications. Specifically generative AI tools will result in increased demand for hardware to power. That will mean greater worldwide need for chips, which we directly support with our highly engineered semiconductor materials chips used to drive built-in AI capabilities in devices such as smartphones, tablets and PCs will be in highest demand by providing materials for both physical vapor deposition and atomic layer deposition tool, important methods for the manufacture of these high-power semiconductor chips.
Materion is a vital part of the supply chain, enabling on-device AI functionality. We are pleased to announce. We've recently launched two new atomic layer deposition materials for advanced memory meeting the needs of our customers who are rapidly innovating to power these future applications. In addition, our Tesla materials are used to fabricate logic chips of power AI as well as high bandwidth memory chips employed and AI processing centers. We expect the market for those ships to significantly grow over the next five years and are making investments to ensure we are ready to support that demand.
Our semiconductor capabilities will also be critical to the continued evolution of the automotive industry as the shift toward electric and autonomous vehicles continues to advance. As a reminder, these vehicles require to that 10 times more chips per vehicle transition and advanced mobility supporting growth for our precision optics business, which is seeing an increase in demand for optical components. We are pleased to share that we've secured another customer contract to supply optical components or LiDAR technologies for autonomous vehicles.
Our materials are in LiDAR modules at six vehicle OEMs currently, and we are actively providing prototypes to expand further. We have positioned ourselves to the critical technical partner in these exciting next-generation products and are looking forward to additional opportunities to serve this emerging market. We're building a strong pipeline of opportunities to support the clean energy transition with the successful development of two clean energy opportunities last year. We have also continued our work with Kairos power and will be supplying additional material in support of their molten salt nuclear reactor projects.
In addition, we successfully completed the facility upgrades required to support a customer funded $15 million investment to provide critical materials for power generation. Our shipments to the customer remain ahead of schedule. Our precision platform facility is now fully ramped and contributing meaningfully to our performance. We remain on track with our capacity expansion, which we expect to start production at the end of this year.
We have also secured a record $60 million in new defense orders in '23 as we continued to strengthen relationships with our key partners. Our materials are critical to the performance of leading-edge defense applications. The advancements of outlined underscore the significance of our outgrowth initiatives that continue to create momentum and give us confidence as we move forward.
As we shared during the year, we have been focused on making targeted adjustments to improve our cost structure in order to improve the efficiency and performance of our business. This approach has been a key enabler as we expanded margins by 170 basis points last year, reaching 19.3% of sales nearing our midterm target of 20%.
We'll continue to focus on operational excellence as we head into 2024 to manage through market softness and maximize our performance as markets gradually recover in the second half of the year. Our performance in 23 strengthen the confidence we have in our strategy as we delivered another record year despite volatile market conditions. I'm very proud of our team's hard work and relentless focus on delivering results and creating value for all of our stakeholders. The advances we made in 23 are paving the way for another year of record results this year.
Now let me turn the call over to Shelly to cover more details on the financials.
Shelly Chadwick
Thank you, Bill, and good morning, everyone. During my comments, I will reference the slides posted on our website this morning.
Starting on Slide 13. In the fourth quarter, value-added sales, which exclude the impact of pass-through precious metal costs, were $289.7 million, down slightly from prior year, but up 7% sequentially. Despite strength in aerospace and defense. Semiconductor and industrial remained challenged as Joel outlined. When looking at the earnings per share, we delivered adjusted earnings of $1.41 in the fourth quarter, down slightly from prior year.
Moving to slide 14, adjusted EBITDA in the quarter was $53.3 million or 18.4% of value-added sales, down 4% from the prior year, with margin expansion of 10 basis points This year-over-year decrease is mainly due to the volume decline, but strong price mix and operational performance, including the targeted cost improvement initiatives are contributing to the increase in margins. These results also included a year-to-date adjustment to the expected manufacturer's production credit benefit as we announced earlier this year.
Moving to slide 15, let me now review fourth quarter performance by business segments. Starting with Performance Materials. Value-added sales were $186 million, up 5% compared to prior year and up 10% sequentially. This record quarter and year over year increase was driven by strength across the aerospace and defense end markets, including meaningful contributions from space applications.
EBITDA, excluding special items, was $46 million or 24.7% of value-added sales, up 4% compared to $44.3 million in the fourth quarter of '22. This growth was primarily due to higher volume, favorable price mix and strong operational performance despite the unfavorable year-to-date adjustment to the manufacturer's production credits.
Moving to the outlook, we expect aerospace and defense to remain strong in 2024 and we remain on track with the expansion of our precision clad strip facility, which is expected to ramp in the latter part of 2024. Despite these growth drivers, we expect the industrial and automotive end markets to remain challenged while they see continued inventory corrections.
Next, turning to Electronic Materials on Slide 16. The added sales were $77.7 million, down 21% compared to the prior year as a result of the significant weakness in the semiconductor market. EBITDA, excluding special items, was $11 million or 14.2% of value-added sales in the quarter despite the sizable volume decline, targeted cost improvement initiatives help to mitigate the semiconductor market.
As we look forward to 2024, we expect semiconductor to remain challenged through the first half of the year with a gradual recovery starting in the second half as we saw a delay in the market downturns impact on material and we will experience a similar delay with the overall market upturn.
Based on our position in the inventory chain, the first quarter of 2023 was among the strongest in the Company's history for semi with the decline beginning in Q2 and well, we manage to the end of the downturn, we expect to see continued benefit from our operational excellence initiatives.
Finally, turning to Precision Optics segment on Slide 17. Value-added sales were $26 million, down 6% compared to the prior year. This decrease was mainly driven by reduced PCR filter demand and general softening in the consumer electronics market, partially offset by strength in defense. EBITDA, excluding special items, was $3.8 million or 14.7% of value-added sales. The decrease in volume was a meaningful driver of this year-over-year decline, offset by positive price mix and the benefit of targeted cost improvement initiatives. From a sequential standpoint, we saw another quarter of EBITDA growth along with 170 basis points of margin expansion.
Looking out to 2024, we expect defense space and automotive to drive top line growth and expect a continued benefit from the cost improvement initiatives.
Moving to slide 18, let me comment on the full year. We delivered our third consecutive year of record value-added sales, adjusted EBITDA and adjusted earnings per share. Value-added sales reached an all-time high of $1.1 billion, up about 1% from the prior year. This year-over-year increase was mainly attributed to strength in aerospace and defense and precision clad strip, offset by the significant semiconductor market weakness.
Adjusted EBITDA for the year was $217.7 million or 19.3% of value-added sales, up 11% from the prior year with margin expansion of 170 basis points. Significant margin performance was largely driven by favorable price mix, strong operational performance, including the targeted cost improvement initiatives and the benefit from the manufacturers' production payments. We delivered $5.64 in adjusted earnings per share for the year, up 7% as compared to the prior year despite a $0.40 interest expense headwind. 2023 did provide a favorable tax rate at 13.3% from the impact of the nontaxable production credit and an outsized benefit from foreign earnings.
Moving now to cash debt and liquidity on Slide 19. We ended the quarter with a net debt position of approximately $413 million and approximately $180 million of available capacity on the company's existing credit facility. Our leverage at 1.9 times remained at slightly below the midpoint of our target range.
Lastly, let me transition to Slide 20 and address the full year outlook. While we expect some of our key end markets to remain challenged in the near term due to macro economic conditions. We expect another year of record results driven by our organic pipeline and close customer partnerships. These growth drivers, along with continued operational excellence and the impact of our targeted cost initiatives will help drive earnings growth in 2024.
With this, we are guiding to the range of $6.10 to $6.50 adjusted earnings per share, a 12% increase from the midpoint versus the prior year. We expect Q1 to be comparable to last year, but we'll see sequential improvement each quarter thereafter.
In closing, despite some market headwinds, 2024 is shaping up to be another exciting year of market outgrowth and strong execution from materials leading to yet another year of record results.
This concludes our prepared remarks. We will now open the line for questions.
Question and Answer Session
Operator
Thank you. (Operator Instructions) Daniel Moore, CJS Securities.
Daniel Moore
Thank you. Good morning to have more than Shelly. Thanks for taking the questions. Maybe start with the outlook, and I appreciate all the color. Just give us a sense for what level of value-added sales growth is associated with your guide for '24 and maybe just talk to the cadence a little bit given a much tougher comp in Q1, as you described are embedded within those assumptions?
Jugal Vijayvargiya
Yes. Then you look at our deck that we provided. You know, we did share some of the end market profile works between the various markets that we serve. We see a couple of markets on the positive favorable side, I'd say more than that 3% type of a growth, particularly aerospace, defense and then more of the space segment of aerospace with the new business wins that we've had I would say, low single digits on several of our markets and a couple of markets that we frankly see contracting.
So when we look at our overall growth for year over year, I would say mid-single digits. It's probably reasonable for the full year. However, I would see that skewed to the back half of the year. I think the first half of the year, especially with our Q1 comps. Semi, as Shelly noted, was a very, very strong quarter for us last year in Q1, one of the strongest I think in the Company's history as the semi slowdown had not caught up to us, whereas now, of course, we're in the full semi slowdown mode and it'll it'll start to show the signs of recovery here in the second half of the year. So I would expect, you know, just slight growth in the first half of the year, but a much more robust growth in the back half of the year, led by semi, but then also other markets as well as well as new business activities. And so I could see a roughly a mid-single digit overall for the year.
Shelly Chadwick
And as you heard in my comments, you know, first quarter is going to look a lot like Q1 last year. So when I think about the year from an earnings perspective, I'm expecting maybe a 45%, 55% weighting first half to second half.
Daniel Moore
Very helpful. Makes perfect sense. And then shifting gears a little bit longer term. I appreciate all the commentary on the semi side beyond the market growth, how should we think about the opportunity for content gains driven by higher powered logic chips, some of that, some of those which you described, you will in your prepared remarks, looking out over the next three to five years and that's out there. Has that outlook changed at all?
Jugal Vijayvargiya
Frankly, the outlook has not changed at all for us for a longer-term semis, our largest market, it's one that we're very, very excited about, and we continue to be very excited about where things are headed in the next three to five years. We are continuing to invest in the semi space. For example, we just mentioned that today that we're launching two new ALD materials. These are atomic layer deposition materials that are going to be used for advanced memory and AI applications. We all are hearing what's going on in the AI upfront.
And I think we're really, really well prepared for both advanced memory as well as advanced logic with our tantalum portfolio as well as the number of other raw materials that we have. In addition to that, I think I think when you look at the overall semi investments on the capacity side, we're putting the right investments in the capacity side some feel for the short-term uptake, but also be able to capture the.
Yes, the long term, Bob long-term growth. So I think I think on the on the semi side, we remain excited. I would say we probably even more so than we were earlier because of the uptick that's going to happen here in the near term, but then continued growth in the three to five years, our portfolio is really well positioned.
Last comment, I think on the power side, as you know, power semiconductor is a is an important part of our portfolio. We see the applications for power semiconductor continuing to increase, whether it's our EV applications or other industrial applications. And our from our positioning with the portfolio of the product portfolio that we have. But also I would say just equally as important, the customer portfolio that we have on the power semi is extremely, extremely strong. So we're very -- feeling very confident, I think, in our in our ability to grow both short term and long term for the semi market.
Daniel Moore
Perfect. Last one and I'll jump out is the guide implies closing in on that 20% EBITDA margin goal. Just wondering maybe not necessarily providing an updated goal today, but talk about the operating leverage ability of the business beyond and we know the what you've already generated over the last two to three years.
Jugal Vijayvargiya
Thanks. Yes. So let me just comment a little bit. You know, first of all, on '23, right? Two of the two of the four quarters, we delivered a 20% margins. And I've said this a number of times that we'd like to go to see that on a more consistent basis. And I feel that we're positioning ourselves more and more to be able to deliver that on a consistent basis and I would not be not be surprised if 24 represents a much more consistent basis for that 20% margin delivery.
And then clearly, you know that that's not the end for us. As you know, we continue to challenge ourselves more and more and we will be setting up an objective that I'm sure we'll be talking to you at some point that defines what we think we can be in three to five years from now. And that's up something we're looking forward to and perhaps having that discussion during 2024.
Operator
Mike Harrison, Seaport Research Partners.
Mike Harrison
Hi, good morning. Jugal, I was wondering if you could maybe I'm just I'm looking at slide 7 here that shows your end market performance. It's kind of striking that of your you know, seven key end markets that you call out, five of them are showing dramatic declines, right? The double digit decline. Is this an indication of what's going on in the underlying market? Or is there some destocking going on or timing issues? Maybe just give us a little bit more color. I think we understand what's going on in semiconductor. But if you could talk in a little more detail about industrial energy, automotive by gas size, those three and what's driving those big declines in the fourth quarter?
Jugal Vijayvargiya
Yes, I think, Mike, it's important to note and you highlighted as being the key word, I think is clear, which is the fourth quarter. If you look at, of course of the full year. The numbers are the numbers are much less rate declines on a full year basis, but much higher declines in the fourth quarter. And I can tell you that it is the underlying market slash destocking and going on in these in these markets, you know, we've done extensive reviews with our teams on where are we in terms of share share growth and new business wins. And we we know that we have a good growth and good business wins to be able to have confidence that 24 as the markets turn around we will have the right growth in 24 and 25. So this is clearly this is really clearly a market slash destocking. And I can kind of walk through each market, of course, be able to help them understand that and help talk through that.
As we look at as we look at 24 on, I would say the industrial market. I think we do have one sort of special things going on in the industrial market, and that's related to our beryllium nickel sprinkler systems or the spring that we provide for those in there. I see that as more of a one-time correction. I think that's going to happen probably during the 24 timeframe. But other than that, I really do see this as a market situation and just destocking and would expect. But during 24, these markets are turning around for us.
The one thing that I'll note is, despite these reductions in Q4. You see our performance as the team has done a fantastic job of driving performance across the company, whether it's price, whether it's mix related improvements, operational performance in the plants that, you know, our SG&A costs and total targeted cost actions, all those things that Dan, that we should be doing. The team has done a really a fantastic job of driving those.
So to me, this is a I think this is a temporary situation that we would see a turning around. As we indicated earlier, that we expect about a mid mid-single digit growth, really heavily weighted towards the back half of the year.
Mike Harrison
Alright. Thanks for that. And maybe on a brighter note, the aerospace and defense market has been extremely strong here. You noted the $60 million of additional orders that you've secured. I know that that defense market in particular can have some lumpiness to it. So I'm just curious if some of the strength that you're seeing, just timing related, or are you optimistic that you're seeing a sustained pickup in opportunities and applications within that market?
Jugal Vijayvargiya
Yes. Well, first of all, let's take that market and just peel it a little bit. And then there's three major components. I would say that we should talk about. One is the commercial aerospace market. The other one is the defense market. And then the third is the emerging space market. Let me start with that emerging space market. That's been a fantastic market for us, we indicated about $90 million of new business orders. Today we announced the fourth order of $36 million, supplying for space propulsion systems. This is the fourth order.
If you kind of look at what's happened over the last year or so and look at the first three orders at that office, roughly about $70 million above orders, just in the space market combined that with our ToughMet that business in the space market, our Optical Systems business in this space market, and we're looking at roughly about $90 million. So very good, strong market for us in 23, growing accelerating market for us in 24. And we would hope that that can continue beyond that.
In the aerospace market. The commercial aerospace market, we've gained content, 25% more content on on on average, on planes now versus pre-pandemic just in the last few years, both at the Boeing side as well as the Airbus side. So some good content growth as well as, as you know, the build rates continue to increase temporary situation on the Boeing side as we all are aware of. But but in general, the build rates continue to increase from airplanes. So we would expect our material content to continue to increase.
And on the defense side, the team has done a fantastic job getting our materials more and more ingrained into the defense applications. And I would expect that even though there's lumpiness and I agree with you completely that there's lumpiness on the defense orders, we would expect a good market and good growth for defense overall for the year. So adding all three components of the aerospace and defense market, we feel really good about for 24 and positioning well for 25 and beyond.
Mike Harrison
All right. Very helpful. And then just a couple of quick ones. The Electronic Materials business in the margin or EBITDA commentary, you'd mentioned some one-time unfavorable items hitting that business. Can you give a little more color on what those items were and maybe how we should think about the EBITDA margin progression in 2024 in that EM business?
Shelly Chadwick
Yes, thanks for that question. And they did see some items, but there were onetime items there was nothing that was really big that stood out a couple of accrual adjustments, a couple of expenses that just came in at the end of the year, and we do expect that from a quarter on quarter, we will see a positive a positive move in the margins as we enter into 24. So we think Q4 was a bit impacted just by those two one-time items, and then we'll see things kind of picked up in 24.
Jugal Vijayvargiya
Yes. And Mike, to add to that, if you look at our Q2 and Q3 results. You know, we were around 17%, 18% EBITDA margins in the Q2, Q3 timeframe. Certainly a Q4. We had the impact of the one-time items that Charlie mentioned, but also there was a significant impact based on the mix for memory devices. And, you know, you know what's happened to the memory side that particularly in the last year.
And so that was a that was a mix hit for us. But we would expect and we see this, I think, happening during the year as initially indicated that those one-time items are behind us and we would expect continued progression back towards the Q2, Q3 type margins and then pushing those forward after that.
Mike Harrison
All right. And then last one for me is you called out [$5.6] million worth of startup costs and scrap costs for the second phase of this precision clad strip project or is that all the startup costs or is that just the portion that you guys considered unusual? I guess I'm just looking for a little more clarity on how we should be modeling those start-up costs through late 2024? If you could provide some more detail there.
Shelly Chadwick
Yes, sure thing. Thanks for that. As you probably know, as we when we were working through the initial phases of the ramp of the clad strip facility. We did not special out any of those ramp costs. We took them to the P&L and we discussed and disclosed what they were once we were at kind of full run rate in that facility. And we had some process tweaks and some formulation tweaks that we were working on with the customer. We did incur some additional charges that we would assume are what we would call unusual. And we didn't want that to mask the performance of the business that we called them out and with special those charges in 22.
Similarly, we're doing a little of that again, and we did that in Q4 where we had some process runs and things that were for qualifications that needed to be scrapped. And so a lot of it is there in addition to some resources that we've brought in, just to make sure the ramp goes well. So now that we're really fully running, we don't want to have the business results skewed by up and down on those start-up costs. So if we have unusual costs, we will continue to special them so that you don't have to worry about, hey, is that margin going to come down come up during the year?
Mike Harrison
So I guess as we're thinking about the Performance Materials business on an adjusted basis going forward, we should assume that there's not start-up costs in there that those are going to be special about or are there still going to be some some headwinds like assets as that's ramping?
Shelly Chadwick
Yes. Usually --
Mike Harrison
On an adjusted basis.
Shelly Chadwick
Yes. On an adjusted basis, you should assume that those will be special doubt. And as we've talked about, the ramp of that will start late in 24 of the sales related to that.
Operator
David Silver, C.L. King.
David Silver
Okay. Thank you. Good morning. Wondering Yes, I apologize if some going to make you repeat yourself, but I wanted to maybe just talk about the softness on the Electronic Materials side initially. So And correct me if I'm wrong, but I think maybe last quarter or so from go, I think your commentary was the fourth quarter. We would see an inflection point or reach an inflection point at some point in the fourth quarter on the Electronic Materials side, and I think the tone of it and, you know, I guess the stabilization that you have been maybe indicating that got pushed out to the right a little bit. I know there's a number of issues that have been pressuring that group for many quarters, but was there something in particular that maybe, you know, has led you to delay maybe the the upturn, your expectations of an upturn in that group maybe by two, three quarters?
Jugal Vijayvargiya
Yes, David, if we actually go back a couple of quarters I think you highlighted Q4, I think the world was thinking and we were thinking that this market opportunity market was going to bottom out in Q2 and start to see an uptick in two three. And then as we noticed from all the major semi companies, the recovery got a bit delayed, but delayed but delayed. And now the most recent information is that in our Q1 is expected to be the low point and then and then slight recovery in Q2, but then really more of the recovery happening in the back half of this year.
So that's just a combination of you saved around the world as well as the inventory destocking that was happening at all of the semi companies. So I think that clearly impacts us as we are a key supplier into that value chain. That recovery for us will be slightly later than what the semi companies will recover just because based on the cycle and kind of where we fit in the value chain. But we'll follow that. We'll follow that recovery, you know, as it happens.
So I think really it's a very much David, associated with sort of the market dynamics and what we've been what we were hearing from the various some various SME, our producers, the one item that was more specific, I think to us, which again is a market dependent item is the and the memory mix issue that I that I mentioned where we did have some specific product portfolio which we count on, you know, every quarter and we had a significant and drop just based on inventory correction that our customers are going through. And as a result that created a negative, a heavy negative mix for us for the quarter, but we would expect that to start to recover in Q1 and into Q2 and so on. So I think we're I think we're lined up extremely well to be able to hit the ground running as the as the semi producers start to start to produce more and get the get the recovery going.
David Silver
Okay. Very good. Nate, I'm going to ask you to parse one comment you made in your opening remarks. But Doug, again on electronic materials, I believe you indicated that the order book that you're seeing is kind of indicating maybe early signs of stabilization, I think, was your wording and when I think about an order book in electronic, but your electronic materials business, I kind of think, well, are the orders that you're seeing? Are they reflective of maybe legacy products, in which case, you know, maybe it's indicating the customer inventory liquidation is nearing an end or alternatively, is it, you know, for more leading edge or newer applications, which kind of points to, you know, the rollout or the ramp up of new customer facilities. Is there some way you could maybe parse it out the order books that you're seeing and maybe read the tea leaves there a little bit?
Jugal Vijayvargiya
Yes, I think it's a combination from what you just indicated. So for example, when you talk about the leading edge, we indicated that we launched two new ALD materials for these advanced memory applications and AI applications. We're starting to as we're having discussions with our customers and we're starting to feel that they are going to start to put orders in that then will translate into sales in the in the Q2 Q3 timeframe. So I think that's an example of where there's newer products that we believe are going to contribute to a sales uptick and at the same time, I think on the legacy products and as you know, we have a lot of precious metals business, non-precious metal business.
We're watching the inventory levels very closely with our customers. And then from what we can see, you know, the last few weeks, I mean the orders have had that there has not been a decline. Let's put it that way. It also. So we feel good about I think the fact that Okay maybe were or bottoming out and we would we would expect to see over the next few weeks, a slight uptick in the order rate for those legacy products. So that's kind of really where our commentaries coming from. And that's where we feel that there will be a there will be a slight uptick in Q2, but really a bigger uptick in Q3, Q4. And I think we're hearing that right also from the various other earnings calls or other announcements that the semi producers are making as well.
David Silver
Okay. And then you did mention the two new ALD materials and please don't tell me anything. You know, you shouldn't tell me, but should I assume that the new materials are tantalum related, the new ALD materials? Or is this kind of new new materials, something something you know and beyond kind of use the tantalum the activity -- products and activities development activities that you're you're you have ongoing.
Jugal Vijayvargiya
Yes. So our ALD portfolio that we have is not a tantalum based on ALD portfolio. It is not something that we created. And, you know, as part of the acquisition that we made from H.C. Starck ALD, something that we've been working on for a number of years. It's organic activity that we started to invest in when we started to see that this is a new emerging area. And so over the last four or five years, we've been developing and we're now up to a total of five materials.
And so really advanced chemicals is what the category is that we put it in internal to the Company, but they're so they're not stand-alone related. Are there really that really are much more advanced materials that, as I said, end up in the next generation memory applications, which then it will end up in the in the various AI applications that we would that we would see.
David Silver
Very interesting. So sounds like Milwaukee not to not Newton. So thank you for that. Okay. I just wanted to switchover, maybe we don't really talk too much about your optical segment, but you've done a lot of restructuring work there and done. I'm just wondering if you maybe have an outlook for 2024 for that segment. I mean, is this, you know the time when that that group finally presumes organic growth? And if so, what would you say would be kind of the one or two of the leading sources of that, that turnaround?
Jugal Vijayvargiya
Yes, I think first of all, that business, you don't despite the sales drop that happened, has done a really nice job of managing the performance and the cost to cost management of that business of various cost control activities that we put in, we've now had it three consecutive quarters of a three quarters, I should say, Q2, Q3, Q4 where we've had our EBITDA improvement. It's our expectation that we'll continue to drive improvement in that business and the bottom line throughout 24.
And then on the top line, if you look at the last time that we did, our earnings call, which was the Q3 earnings call. We talked about space and defense related orders in the optics space. And today we're talking about contract in the LiDAR technology for autonomous vehicles. And so I think those are the type of areas that are going to contribute.
So automotive is going to be a it's going to be a contributor in this thing, defense space, the space market is going to be a contributor, I think, to the growth here in 24 and then, of course, longer it term as well in 25 and 26. So our expectation is that this business is going to be a top line contributor in 20 or as well as continued bottom line contributor as it has done over the last couple of quarters.
Okay.
David Silver
And then just last one for me, not the biggest issue, but there was a commentary, a comment or two regarding share your share repurchase authorization and whatnot. And this is just my opinion, but I I don't necessarily think your typical investor is demanding, you know, that kind of activity on your part, but just remind me, I mean, is your authorization there to offset dilution? Is it for handling them, you know, options related issuance, I mean, but how do you anticipate the -- your share repurchase activity fitting into your overall capital structure and cash deployment strategy?
Shelly Chadwick
Yes, I'll take that one face. And we think a lot about capital allocation and where we want to invest our money. We do have the $8 million available on the share repurchase program that was left authorized, but we haven't had any activity on that in a couple of years. And really the reason is because we're more focused on that organic growth. So deploying our capital to our organic growth is more important to us right now than kind of offsetting dilution or bringing that share count down. And we think we're delivering really well that returns are very good. So we've got that lever there should we choose to use it, but right now it's something we're not very active on.
Operator
Samuel McKinney, KeyBanc Capital Markets.
Philip Gibbs
It's Phil Gibbs. Thanks for talking about the aerospace and defense and space market and thinking about those buckets, kind of leads me into the question that I had, how much is space. And right now as a percentage of that of that total bucket, I would think that includes satellites and commercial space?
Jugal Vijayvargiya
Yes. Well, it's becoming a much larger part, right, as as you know, Phil, right, you've been following our company for quite a while and space was relatively small component of our business out of more related to government type activity or just larger projects such as the James Webb or something like that. And now you know, space has become a much larger part of our component defenses continue to grow. The commercial aerospace has continue to grow. But I would say I'd say it's probably we're looking at maybe about a quarter or two to a little less than a third is probably the space component. But I would expect to continue to see growth in that in that business.
Philip Gibbs
Thank you. And then a lot of questions on margins on a lot of electronic materials, but hoping that just simplify it a little bit. Obviously, the mix wasn't wasn't ideal in the quarter, and it sounds like you're down shipping under your production rates, which impacts absorption greatly. When you think about that type of business, if you were shipping in line with your on production rates and if your mix was, let's just call it on average four or something more ideal, where should margins have been?
Jugal Vijayvargiya
But I look, I mean, we've said all along that, that we need this business to be contributing positively to our goal of 20% EBITDA margins for the company. So I expect this business to be able to deliver those types of margins. I mean, you we saw what this business was able to do in Q2 and Q3 when it when it had a decent mix even though we had a little bit of a sales challenge in Q2 and Q3. So I expect this business to be able to deliver, you know, favorably towards our 20% EBITDA targets there.
Philip Gibbs
And then last one for me on the H.C. Starck acquisition from late 21, there was a little sliver in that business that was non tantalum based, I think some of that was going to be directed toward clean energy. Any thoughts or comments that you can make along those lines?
Jugal Vijayvargiya
Yes, you're actually right and your memory is correct. I mean, we did and I can tell you that that business is doing extremely well from both the tantalum side, by the way of non semi application LC as well as non Tantalum business and where we have pursued other markets and have grown in other markets. So I can tell you that that business has done extremely well over the last year-and-a-half or so with our team, and I expect continued growth in that business over the next over the next few years. Thanks. Best of luck.
Operator
Dave Storms, Stonegate.
Dave Storms
Good morning, Moray, appreciate you taking the question.
David Silver
Just I kind of want to start looking at that general market this year, 1st last year, kind of what is the general customer acquisition and contracting environment look like?
Jugal Vijayvargiya
Yes, I think the I think the acquisition and contracting environment has been a good even though the markets the actual sales in 23 were challenged in some of the markets, as we've talked about a new business activity and new product development activity has continued to be strong. And as a result, we're seeing some of those things already convert into new business wins, but we would expect more of that to happen during 24. So I think what's been positive is that customers did not really slowdown new development of new R&D activity, therefore, working with us. And so we would look for those to materialize and contribute to our towards our one to three year sales window.
Dave Storms
That's perfect. Great color. And just kind of sticking with those business wins obviously, as we've discussed, we're very well aligned with some really cutting-edge technologies in the lighter lighter than a clean energy. Are there any of these technologies that you see as having like a particularly strong potential to take a leap and scale up over the next, you know, 18 to 36 months?
Jugal Vijayvargiya
Well, there's a number of things I would say that have contributed, and I expect them to continue. For example, the space activity that we have talked about, I just indicated to fulfill that we used to be just a small player in the space market, mostly government, some of the larger projects. And here we are, you know, talking about $90 million of new business orders, for example, in space, you know, in the '23 calendar year, that's an incredible level of growth that we've been able to drive. That when you look at, for example, the semi market we have a number of things going on, ALD being one of them. And so we do look for ALD and those materials are adopted more and more as more and more advanced chips come out as more and more AI applications happen. We expect that to to grow.
When I look at LiDAR, autonomous vehicles, a lot of other different levels of autonomous vehicles. But as we see more and more autonomous vehicles come out that have LiDAR technology, we'd expect that business to continue to then grow. So I think we are excited about the the the megatrends that are out there. And I think our alignment to those mega trends with our with our portfolio. And as you know, we love talking about that in these clubs and other venues.
Dave Storms
That's perfect. Thank you. And then just one more for me, if I could. Shelly, I know you just mentioned that you're very focused on organic growth curious as to how you see this in relation to any M&A activity that you should think about for your growth?
Shelly Chadwick
Yes, sure. So organic has been our focus, as you know, since we did our last acquisition at the end of '21, which Jugal just referred to. And on the main Tantalum business, we are always open for business, if you will looking at opportunities to expand our portfolio, expand our geographic footprint, but the opportunities that we have that are more near term and certainly have been coming up to be organic. So we love the returns on organic projects. We're continuing to focus there, but we're not closed off to the idea of of M&A should the right thing come along.
Operator
David Silver, CL.
David Silver
Thank you for that. Just one more question and I'll stipulate this might be a little unfair but done. I had a question maybe about your view of the industrial economy. So and it is a meaningful end market and other than electronics related to end markets, it was kind of the weakest in 2023. And then I'll just say like over the last 24 hours, I guess both Japan, which might be a proxy for Asia, Japan, their economy contracted in the fourth quarter and this morning that UK announced a their economy contracted in the fourth quarter as well. So maybe a sign for continued weakness in Europe.
But from your perspective, I mean, what are you hearing from your industrial customers in terms of end market demand and maybe Are things still declining there? Or are there some signs of stabilization? And then more to the point in your fiscal year 2024 full year guidance, what kind of improvement or what kind of change in the industrial end markets you serve is kind of built in there. Thank you.
Jugal Vijayvargiya
Yes, David, that's a great question because that is a it is a large market for us and one that as you can imagine, we're very focused on if you look at just the general industrial market. And one metric that we look at, for example, is PMI. Last time PMI was north of [50%] was September of '22. So long time ago and that and since then, it's below it's below 50, which implies that there's contraction.
When you look at when you look at our slide 10 and kind of what we have indicated for our industrial market. We believe the industrial market will continue to be a challenged market in the 24 time frame. And that's why we sort of indicate that it's less than 0%. Now in our case, as I indicated earlier, we have a specific product that also is impacted and that's related to nonresidential construction with our Berlin nickel product. But setting that aside, which is really a one-time, it's a specific item. We expect industrial market to continue to be challenged throughout 2014.
What's great about I think our company is we're very well diversified. So clearly, industrial, we expect to be a challenged market. But we've got if you look at Chart 10, we've got all of our markets showing positive except automotive and industrial. So and that's why we're able to, I think say that we would have, you know, about a mid single digit and year-over-year growth led by semi led by aerospace, commercial space and defense and some of the other, some of the other things that we have going on as well.
So so I think so I think we're kind of excited about where we're headed despite the fact that we have these headwinds for industrial PMI index being being below 50 for a long time and not sure when that's going to turn and kind of cross 50, again, the organic growth projects that we continue to drive. We highlighted a number of them on our Slide 6, and we'll continue to we'll continue to make sure that we're staying above about market on and all the areas that we're playing in.
Okay.
David Silver
And I'm going to just finish with an observation. So this was a record year for your company. I wanted to say, Kyle, I think set a record this quarter with the most pages in the quarterly earnings slide deck. So there's a lot to go through here, maybe send it out a little earlier. My brain doesn't work that fast in the morning, but annually a lot lot of good information here, but another record, another record set, another record setting element to the quarter. Thanks very much. I appreciate that.
Jugal Vijayvargiya
I think, well, I know it was a comment, but I'll just add to that that this is our 3rd year in a row of record sales, record EBITDA, record margin. So -- and record EPS, '21, '22 and '23. Our team has done just a fantastic job of delivering both on the top line and the bottom line, even during challenging times, which we experienced still in '23. And I think we're extremely well positioned to continue that into '24 and have '24 be another record year for us.
Operator
Thank you. And this does conclude today's question and answer session. I have no, I would now like to hand the call over to Kim Callahan for closing remark.
Kyle Kelleher
Thank you. This concludes our fourth quarter 2023 earnings call and 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 will be available for any follow-up questions. My number is two one six three eight three four nine three one. Thank you again.
Operator
Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
