Materion Corporation Q4 FY2025 earnings call

• Quality Event: In Q4, a quality issue with the Precision Clad Strip customer led to idling of facilities. Corrective actions taken, including process modifications and enhanced quality control, with facilities ramping production.
• Business Growth: Electronic Materials had strongest sales quarter in nearly three years with 20% VA increase. Precision Optics had 26% sales increase for third consecutive quarter of top line improvement. Electronic Materials had 23% EBITDA margins, Precision Optics 16% EBITDA margin.
• Acquisition: Completed acquisition of Conasol’s semiconductor manufacturing footprint in Korea.
• Investments: $65,000,000 investment from a major U.S. defense prime to expand beryllium capacity

Performance Materials: In the fourth quarter, value-added sales were $132,400,000, down 32% year-on-year. Adjusted EBITDA was $35,800,000, down 33% compared to the prior year. For the full year, value-added sales were approximately $1,050,000,000, down 4% organically, and adjusted EBITDA was $217,000,000, down 2% year-on-year.

Electronic Materials: Q4 value-added sales were $94,100,000, up 20% from the prior year. Adjusted EBITDA was $22,000,000, with nearly 500 basis points improvement year-on-year. For the full year, organic growth was 8% with sales increasing sequentially each quarter.

Precision Optics: Q4 value-added sales were $27,400,000, up 26% compared to the prior year. EBITDA excluding special items was $4,300,000, or 15.7% of value-added sales. For the full year, organic growth was 7%, reaching nearly 10% EBITDA margins

• Expect approximately 15% earnings growth in 2026 on strong top line sales growth.
• Mid-term EBITDA margin target of 23% supported by top line growth, operational improvements, and portfolio transformation.
• Free cash flow expected to strengthen as working capital is optimized.
• Precision Optics transformation to continue, Electronic Materials to benefit from AI and data center demand, Performance Materials expect operational improvements and top line growth

• Quality event impacted Performance Materials sales.
• Geopolitical and tariff uncertainties affecting China business.
• Dependence on key customers and potential issues with approvals

Q: Any additional detail on the Precision Clad Strip quality issues and actions taken?

A: Control failure in production process led to nonconformity reaching customer. Thorough investigation, root cause determined, fixes implemented, and robust quality system revised. Facilities ramping production with customer visits and additional resources.

Q: On Electronic Materials business, why no better leverage on sequential top line growth?

A: Mix issues and onetime items in prior quarters. EM has strong portfolio, cost actions, and operational efficiency, expecting continued progress in 2026 Q: On beryllium capacity and strategic reserves?

A: $65M investment for beryllium capacity expansion. Not able to detail government strategic reserve plans, but business growth drives mining CapEx. Qualification of Korea facility expected back half of 2026 Q: First quarter earnings expectation and China semi sales?

A: First quarter expected to start slow with seasonality and ramp costs, roughly 10% higher than last year. China semi sales not anticipated to decrease further, focusing on global growth Q: Industrial green shoots and energy/space momentum?

A: Beryllium nickel spring business seeing recovery. Energy business doubled sales year-on-year with partnerships, space business expecting continued improvement with new customers and programs Q: Potential bottlenecks for 2026 growth and working capital?

A: Well positioned with investments and operational improvements. Korea facility qualification back half of 2026. Working capital initiatives to manage inventory, AR, and AP for cash generation Q: Metals pricing and contract contingencies?

A: No contracts contingent on metals prices. Customers can consider substitution, but requalification is unlikely Q: Defense contract burn rate and energy contract timeline?

A: $65M defense investment over 24 months. Energy contract with Commonwealth Fusion Systems has initial shipment, with ongoing support based on customer needs