Materion Corporation Q1 FY2026 earnings call

• VA sales were up 10% year-over-year excluding Precision Cloud Strip. Electronic materials sales increased 18% driven by AI-led demand. Precision Optics delivered 43% top-line increase.
• Order book continues to build with highest backlog in history, up over 20% year-over-year and 15% since start of year. Defense orders strong with $60 million received in Q1 and over $300 million in open RFQs.
• AI is a significant trend impacting Materion, with each business providing foundational materials for AI ecosystem in areas like semiconductor, connectivity, optics, energy, space.
• Global teams' dedication and innovation are key to Materion's success.

Performance Materials: Value-added sales were $139.5 million in the quarter, down 13% year-over-year but up 5% sequentially. Adjusted EBITDA was $28 million, or 20.1% of value-added sales, down 32% compared to prior year. Electronic Materials: Value-added sales were $91.6 million, up 18% year-over-year. Adjusted EBITDA reached a record $25.9 million, up 95% year-over-year, with a record adjusted EBITDA margin of 28.3%. Precision Optics: Value-added sales were $30.7 million, up 43% year-over-year. Adjusted EBITDA was $5.5 million, or 17.9% of VA sales, with significant year-over-year margin expansion and five consecutive quarters of bottom line improvement.

Expect low double-digit top-line growth for 2026. Affirming adjusted EPS guidance of $6 to $6.50 with growing confidence in delivering toward the upper end. Committed to making progress toward mid-term EBITDA margin target of 23% while generating strong cash flow.

• Impact of precision clad strip quality issue on Performance Materials, including operational challenges and margin impact.
• Potential market or supply chain fluctuations that could affect business performance.

Q: Start with Semi. Maybe just talk about sort of the cadence of order rates exiting Q1 and into Q2.

A: Semis was a really good quarter for us here in Q1, up 16% on a year-over-year basis. Expect Semi to continue to be a very strong Q2 and then the rest of the year. Order rate for Semis have been improving sequentially.

Q: Switching to aerospace and defense, orders up 50% year-over-year. Obviously, you announced the CapEx-funded projects for the large prime last quarter. How has the war in Iran changed your outlook and growth expectations?

A: Defense in general was getting a lot of attention even prior to the conflict. The war has strengthened talk of higher budgets. We have $300 million plus open RFQs on defense side. Expect this trend to continue the rest of the year and next three to five years.

Q: I was hoping you could address a couple questions on the performance materials segment. I guess just in terms of the precision clad strip quality issue.

A: Our team has made significant progress resolving the quality issue. Back to running at rates prior to the issue. Expect good growth in Q2 and beyond. Changes made to manufacturing processes with learnings applied company-wide.

Q: The business transformation and cost initiatives have obviously been the focus in precision optics recently, but the first quarter value-added sales was the best quarterly figure for that segment in years. If you could just talk about what's driving that top line improvement and the associated operating leverage within that business.

A: The team has made great progress in transforming the business. 43% year-over-year growth on top line, highest since 2021. Combination of general market improvement and significant new business activities in key markets. Operational and cost initiatives are important enablers.

Q: I had a couple questions, I think, mostly on electronic materials. But, you know, the growth on the electronic materials side, you know, top line and at the EBITDA level, you know, very strong. I was wondering if you could maybe characterize it a little bit.

A: Very impressive growth. Growth across all areas of semiconductor served. Market recovery and new business initiatives over last 18-24 months contributing. Price is not the main part of growth story, but market recovery and new business wins are.

Q: Just wanted to maybe circle back to some of the EM new business wins. I know it was mentioned in the fair remarks, and it sounds like a lot of that 12 to 24 months is kind of starting to come to fruition. Maybe if you just go a little deeper into what's working and what that sales cycle looks like now and maybe how the top of the funnel has changed.

A: We've been working with customers on initiatives over last couple of years. Funnel is strong. Sales cycle can be 12-24 months. Scenarios include entering as second/third supplier with smaller share or brand new projects with majority/all volume.