Shelly Chadwick: Yeah, Mike. So I’ll take that one. Yes. As you mentioned, our leverage right now is about 2.2 times, which is half between our one and a half to three 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 pay down, but rather on organic growth. 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, build that out, or something that’s geographically desirable, that would build out 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.
Operator: Your next question is coming from David Silver from CL King. David, your line is live. You may proceed.
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 just giving you a warning, this might be a little scattershot. I do have several issues I want to touch on. First would just be a clarification to some of Jugal’s earlier comments. Has to do with precision clad strip and the transition, I guess, from Phase 1 in the back half of 2024 to Phase 2, maybe beginning early 2025. So, Jugal, I believe you talked about kind of inventory drawdowns at the customer, back half of this year, and then the ramp up of production from the new facility. 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, 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 discussed earlier.
Jugal Vijayvargiya: Yeah. David, going back actually, to about, I’m going to say, 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 introduced the next generation product, then our technology. So our precision clad that we provide is what is used with that customer. So they have been, let’s say, phasing out the older generation and phasing in the newer generation 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, we have supplied to them.
We have supplied to them from the legacy facility, and we’ve supplied to them from our new facility and I’m really proud of our team for that. I think the fantastic work that our team has done on the new facility in particular, but driving yield improvements, driving output improvements, I think, has been a great support to the customers launch and the rollout that they’ve been able to do. I think all of that combined with just how are they managing it, the global roll out, they are really making sure that they’ve got the right levels of inventory now to support their rollout and that’s really kind of where it is, David and so short term, couple quarter type of adjustments, but nothing of concern to us because 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 the upcoming years.
David Silver: Okay, thank you for that. Very, very clear. I appreciate the longer term perspective. Maybe a couple for Shelley here, but I was hoping you could just give us the final kind of determination from Materion’s perspective on the production tax credit, I believe, or manufacturing credit that you’re in line to receive 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 level set us there, though, but are you at a point now where you can kind of confidently talk about the final expectations for that credit and is there kind of a ballpark estimate for what that could add on an annual basis?
Shelly Chadwick: Yeah, thanks for that question, David. 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 high purity beryllium products. 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. As you might recall, there was then 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 until 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 look forward to getting more clarity as the year progresses.
