Materion Corporation Q1 2026 Earnings Call - Record Backlog and AI-Driven Margin Expansion Signal Accelerating Growth

Operator: Greetings. Welcome to the Materion First Quarter 2026 Earnings Conference Call. At this time our participants are in listen only mode a question and answer section will follow the formal presentation, if anyone should require the operator’s assistance during the conference, please press star zero on your telephone keypad, 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, Director, Investor Relations and Corporate FP&A, Materion Corporation: Good morning. Thank you for joining us on our first quarter 2026 earnings conference call. This is Kyle Kelleher, 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’ll reference as part of today’s review of the quarterly results. You can also 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 in addition to discussing expectations for the remainder of 2026. 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. Comments regarding Earnings Before Interest, Taxes, Depreciation, and Amortization, net income, and EPS reflect the adjusted GAAP numbers shown on attachments 4 through 8 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. Now I’ll turn over the call to Jugal for his comments.

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Thanks, Kyle, good morning, everyone. I’m pleased to be with you today to discuss our first quarter performance and share what we’re seeing for the remainder of the year. VA sales were up 10% year-over-year, excluding precision clad strip, reflecting strong demand across most of our end markets. Electronic Materials sales increased 18% versus last year, driven by AI-led demand for high-performance memory and data storage applications, along with strengthening demand in power applications and communication devices. Precision Optics delivered 43% year-over-year top line increase, with new business coming online across multiple end markets and applications. While Performance Materials sales were roughly flat, excluding precision clad, this was primarily due to shipment timing. The order book continues to build, driven by strong demand in aerospace and defense, energy, and telecom and data center.

We expect a meaningful step-up in sales in Q2 and throughout the rest of the year. As for precision clad strip, the production ramp-up is progressing well and remains on schedule. We are now producing at the same rate as before the quality issue. We also delivered strong earnings in Q1, with EBITDA margins exceeding 20%, a record for our first quarter given our typical seasonality. Electronic Materials continues to be an outstanding performer, achieving record profitability on very strong sales. Precision Optics continued to exceed expectations, delivering its fifth consecutive quarter of profitability improvement through strong execution on its expanding top line. Turning to our end markets, it’s encouraging to see most markets in the high single-digit to low double-digit growth range. Even more importantly, our order book continues to strengthen. We exited the first quarter with the highest backlog in our company’s history.

Order backlog is up more than 20% year-over-year and 15% since the start of the year. Defense orders remain strong, with $60 million received in the first quarter, and we have more than $300 million in open RFQs. Over the last 12 months, aerospace and defense order rates are up 50%, energy is up 20%, and semiconductor is up 10%. We are seeing clear acceleration across many of our end markets, and our teams are prepared to meet these higher levels of demand. Going a layer deeper, I want to step back and frame a broader trend that is having a significant impact on Materion, the rapid proliferation of AI. When people think about our role in AI, they often focus on our semiconductor deposition materials, and with good reason.

We are a leading supplier of advanced Electronic Materials that enable advanced node chips and data storage devices. We’re in the midst of an AI-driven semiconductor growth cycle, and that strength is evident in our Electronic Materials performance. Our impact on AI extends far beyond the chip itself. Materion has become a critical enabler of the AI ecosystem, not at the edges, but at the core. AI acceleration depends on advances in semiconductor performance, high-speed connectivity, next-generation optics, and high reliability energy and space systems. Each of our three businesses provides foundational materials for these applications. Our Performance Materials business plays a strategic role across the infrastructure powering AI.

From advanced data centers to global connectivity networks and next-generation energy systems, our engineered alloys and beryllium-based materials enable performance, reliability, and safety at scale. We supply beryllium nickel materials for fire protection systems in data center build-outs and specialty alloys for connector technologies and high-speed semiconductor fab equipment. Our materials support the wireless backbone that carries AI-driven data, including towers, undersea cables, and base stations. In energy, our beryllium alloys enable breakthrough nuclear reactor technologies needed to deliver the continuous power AI will require and are widely used in oil and gas drilling and processing equipment. In space, our materials are integral to propulsion systems, spacecraft structures, and launch components supporting global connectivity and observation networks. Our Precision Optics business provides advanced optical coatings and engineered components essential for data center expansion, immersive AR/VR technologies, and advanced semiconductor manufacturing.

Our solutions support connectivity and semiconductor equipment applications, and we supply optical filters and systems for satellite technologies that enhance communication and earth observation capabilities. As semiconductor devices become smaller and more complex, advanced optics have become increasingly important for lithography, inspection, and metrology, improving accuracy, boosting yield, and enabling scaling for next-generation chips. Our Electronic Materials business sits at the center of semiconductor innovation, supplying the advanced deposition materials and engineered targets required to manufacture chips at the most sophisticated nodes. These materials power both high-performance computing and data storage devices used in data centers, as well as the semiconductor components that enable global connectivity. Beyond deposition, we provide a range of high-value niche materials supporting AI, including alloys for next-generation nuclear reactor technologies, specialty metals for base space station applications, and chemicals used in satellite heat shield tiles.

While smaller in scale, these applications highlight the depth of our capabilities and our ability to solve complex materials challenges in high-reliability environments. As AI workloads scale, demand for the engineered materials we produce is rising rapidly, and we are already seeing that momentum reflected in customer demand, order rates, and new business wins. Looking ahead to the remainder of 2026, we are energized by the growth our businesses are experiencing and the opportunities emerging across our markets. We’re seeing momentum build across the company in our end markets, our incoming order rates, and the new business opportunities our teams are securing. Our results reflect their hard work and commitment. We now see a path to delivering low double-digit top-line growth for the year while continuing to seed opportunities for the future.

This gives us even greater confidence in delivering results toward the high end of our earnings guidance provided in February. I want to express my gratitude to our global teams for their dedication and unwavering commitment to excellence. Their work, driving innovation, ensuring quality, and supporting our customers is the foundation of Materion’s success. Finally, I’d like to thank our customers and shareholders for their continued trust and partnership. With that, I’ll turn the call over to Shelly to review the financial details.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: Thanks, Jugal, and good morning, everyone. During my comments, I will reference the slides posted on our website this morning, starting on slide 11. In the first quarter, value-added sales, which exclude the impact of pass-through precious metal costs, were $261.8 million, up 10% from the prior year when excluding precision clad strip. All in, value-added sales were up 1%, reflecting broad-based demand across our portfolio. Growth was led by semiconductor and aerospace and defense, consistent with the momentum Jugal outlined. Electronic Materials delivered another very strong quarter with 18% growth, supported by continued strength in semiconductor applications and new business wins. Precision Optics grew 43%, driven by new programs across multiple end markets and marking its highest quarterly sales since 2021. Adjusted earnings per share were $1.27, up 12% from the prior year.

Turning to slide 12, adjusted EBITDA was $52.9 million or 20.2% of value-added sales, a record first quarter margin for Materion and an increase of 9% year-over-year. We delivered 140 basis points of margin expansion driven by higher volume, favorable price mix, and strong operational performance, particularly within Electronic Materials and Precision Optics. Moving to slide 13, let me review first quarter performance by business segment. Starting with Performance Materials, value-added sales were $139.5 million in the quarter, down 13% year-over-year, but up 5% sequentially. This year-over-year decline was driven by lower precision clad strip sales as production levels ramped through the quarter. Outside of clad, we saw strength in aerospace and defense and telecom and data center, partially offset by timing in energy orders.

Adjusted EBITDA was $28 million or 20.1% of value-added sales, down 32% compared to the prior year period. This decrease was driven by the lower Clad Strip volumes and the impact of operational challenges in the back half of 2025 that amortized into this year. Looking ahead, we expect meaningful sequential improvement in the top and bottom line, driven by stronger aerospace and defense sales and higher PMI shipments, with momentum building into the second half. As Jugal highlighted, the order backlog continues to expand. We are well-positioned to support higher demand levels throughout 2026. Turning to slide 14, Electronic Materials delivered another exceptional quarter. Value-added sales were $91.6 million, up 18% year-over-year, driven by semiconductor strength as our materials continue to enable advanced node technologies and AI-related applications.

Adjusted EBITDA reached a record $25.9 million, up 95% year-over-year, with more than 1,000 basis points of margin expansion and a record adjusted EBITDA margin of 28.3%. The meaningful improvement reflects higher volume, favorable price mix, and strong execution across the segment. For the remainder of 2026, we expect to see continued growth supported by semiconductor market outgrowth and contributions from new business wins. On slide 15, Precision Optics value-added sales were $30.7 million, up 43% year-over-year, driven by new business wins and growth across every end market. This marks the segment’s strongest quarter since 2021 and its fourth consecutive quarter of top-line growth. Adjusted EBITDA was $5.5 million or 17.9% of VA sales, with significant year-over-year margin expansion.

This reflects higher volume, favorable mix, and continued execution on the business transformation. The segment has now delivered five consecutive quarters of bottom-line improvement. We expect both top and bottom line growth to continue in 2026 as new business ramps in key high-growth markets and the transformation progresses. Moving to cash, debt, and liquidity on slide 16. We ended the quarter with a net debt position of approximately $474 million and $192 million of available capacity on our existing credit facility, with leverage slightly below the midpoint of our targeted range at 2.1x. We strategically built inventory in Q1 to support expected sales growth in Q2 and into the second half, which temporarily constrained free cash flow generation. We continue to expect strong free cash flow for the full year as volume increases and working capital normalizes.

Finally, turning to slide 17, our record backlog and strong order rate momentum exiting Q1 give us increased confidence in our full year outlook. We now expect low double-digit top-line growth for 2026 and are affirming our adjusted EPS guidance of $6.00-$6.50, with growing confidence in delivering toward the upper end of that range. With the strong start to the year, we also remain committed to making progress toward our midterm EBITDA margin target of 23% while generating strong cash flow over the balance of 2026. This concludes our prepared remarks. We will now open the line for questions.

Operator: Certainly. At this time, we’ll be conducting a question and answer session. If you’d like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question’s coming from Daniel Moore from CJS Securities. Your line is live.

Daniel Moore, Analyst, CJS Securities: Thank you. Good morning, Jugal. Good morning, Shelly. Thanks for the color.

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Good morning, Dan.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: Morning, Dan.

Daniel Moore, Analyst, CJS Securities: Obviously gave a lot of color, Jugal, but, you know, always good to talk, you know, start with semi. Maybe just talk about the sort of the cadence of order rates exiting Q1 and into Q2. And obviously, you talked about many of the different applications. Just a sense of how your customers see, you know, the outlook for kinda 2027 and beyond, maybe relative to what those expectations would have looked like six or nine months ago.

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: As you know, Dan, I mean, semis was a really good quarter for us here in Q1, up 16% on a year-over-year basis. Up, I would say about 40% if you exclude some of the China business, which we know had been going through some changes, and we’ve talked about that over the last 12 to 18 months. A very strong Q1 for us. We expect semis to continue to be a very strong Q2 and the rest of the year. Our order rate for semis have been improving sequentially. I would say that our exit out of Q1 was stronger than, you know, the exit out of Q4, we expect, you know, that type of trend to continue.

I mean, the great thing with semi for us is, you know, we really do play in all the areas of semi. Whether it’s power semiconductor or communications, data storage, logic devices, memory devices. I think we’re seeing the growth rate across really all of those areas. It’s not concentrated in one or two areas. We expect it to really be a more broad-based growth in the remaining quarters as well. When you look at, for example, our high-performance memory and our data storage, which is really much more aligned towards the AI applications, our sales were up 47% on a year-over-year basis in Q1, and we expect that to continue as well.

We, you know, and then, of course, from the profitability side, and I know you didn’t ask that question, but I’ll add it to it. You know, the business has performed with EM, which semi really mainly resides in, has performed very well on our profitability, and this business is improving substantially on a year-over-year basis as well. We expect, you know, this to continue. You know, we’ll see what 2027, 2028, of course, you know, has to bring to your point about maybe what our customers are saying. For the rest of the year, we expect strong order intake and a very good growth curve on a year-over-year basis.

Daniel Moore, Analyst, CJS Securities: Really helpful. Switching to aerospace and defense, orders up 50% year-over-year. The CapEx funded projects for the large prime last quarter. Just how has the war in Iran changed your outlook and growth expectations? Just maybe a little bit of kind of under the hood dialogues with customers, not necessarily for, you know, the rest of this year, but, you know, looking out into 2027 and beyond as well.

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Yeah. Well, I, you know, defense in general was getting a lot of attention, you know, even prior to the conflict that started, right? There was discussion about higher budget for this year, next year. I think the war, you know, has just, you know, strengthened that talk in Washington. What I would say we’re seeing is, and we’ve been talking about over the last two, three quarters, is the open RFQs, right? We started out saying a couple of quarters ago that we were at $100 million in open RFQs. We kind of increased that to, you know, $150 million-$200 million in open RFQs. You know, at this stage, we sit at $300 million plus open RFQs.

These are inquiries that have come in from various primes from different countries on the defense side of our business. The $60 million that we booked in Q1 is a record for us. You know, we haven’t had a $60 million Q1 ever. You know, the momentum, I would say, has certainly shifted even more. It was there before the conflict, but certainly that, you know, has aided the order rate as well as the open RFQs that are on the defense side. We expect this trend to continue here the rest of the year and probably the next three-five-year window as well.

That certainly plays into our overall aerospace and defense market. As you know, some of our space activities are certainly related to a defense area as well, and we see the same type of trends that I’m highlighting here, you know, in that area as well. In general, you know, defense is a strong market, and I think will continue to be a very strong market and probably even become a stronger market, you know, as we get into the next one to two years.

Daniel Moore, Analyst, CJS Securities: I’ll sneak 1 more in and jump back in queue. And I know you don’t guide quarterly, but just looking at, you know, the low double-digit growth, top line growth for the full year, obviously a meaningful inflection from what we saw in Q1. You know, just how do we think about the cadence of that growth? You know, are you thinking about kind of double-digit growth starting in Q2, or do you see it maybe a little bit more back-end loaded? Thank you again.

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Well, I think, you know, considering the fact that overall our business was about 1% in Q1, certainly up 10%, you know, year-over-year, excluding the precision clad. We’re already seeing the 10% or the, let’s call it the double-digit growth even in Q1, you know, when you exclude the precision clad. We expect double-digit growth really for, you know, each of our quarters. Certainly it’ll be more of a growth in the back half of the year, no question, but we expect strong growth throughout the year.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: Maybe just to pipe in, Jugal, on that. You know, we think how that translates through to bottom line. You know, I think we’ll see probably a 15%-20% step up, you know, from an EPS perspective next quarter. Even, you know, much more meaningful step-ups in the back half as that flows through. You know, looking at really great outlook for the rest of the year.

Daniel Moore, Analyst, CJS Securities: Super helpful. Thank you.

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Mm-hmm.

Operator: Thank you. Your next question’s coming from Mike Harrison from Seaport Research Partners. Your line is live.

Mike Harrison, Analyst, Seaport Research Partners: Hi, good morning.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: Good morning.

Mike Harrison, Analyst, Seaport Research Partners: ... was hoping you could address a couple of questions on the Performance Materials segment. I guess just in terms of the precision clad strip quality issue, it sounds like there was kind of some amortization of that impact dragging on Q4, and it also impacted Q1. I’m just curious, you know, how should we think about Performance Materials earnings in the second quarter compared to what is obviously some unusual weakness in Q1? Can you also give some additional color on, you know, is this quality issue fully resolved? What changes had to be made?

I know you said you’re ramped back to where you were before the issue came up, but, you know, I guess how much additional capacity or capability do you have beyond what you had before this issue came up? Thanks. Sorry for like six questions in one there.

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: No problem. We’ll tag team it. Yeah. Let me start with the quality issue and kind of where things stand, then Shelly will jump in, I think, on the financials and what we expect in Q2. I would say that our team has made significant progress and really, very good progress in working with the customer and resolving the quality issue. We had indicated in the last time that we spoke that we were back up and running. It was really just a matter of ramping here in Q1, which I think the team has done a really nice job of ramping. Like I indicated, you know, we are back to running at the rates that we were running prior to the quality issue.

You know, we’re producing now at those rates and starting to ship, you know, at those rates to the customer. The team is very excited about the rest of the year in Q2 and Q3, Q4. We expect good growth, I would say, in each of the quarters as we go forward. There are certainly changes that we made to our manufacturing processes and changes that not only did we make to that manufacturing process, but there are great learnings that, you know, that you take across the entire company. We’re doing that.

We’re in the midst of actually doing that across our entire company so that we can continue to improve and be a better company overall. We, as I said, you know, have back to the earlier production schedules, and we still have capacity. If the customer wanted, you know, higher volumes, the capacity is there and we certainly can do that, and we’re working with the customer on what type of volumes they’d like for the rest of the year. We expect the rest of the year, like I said, you know, to be at or better than the production levels that we had prior to the quality issue.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: Maybe just to hit the profitability side, right? It’s great to see the production levels, you know, back to kind of normal rates, that obviously ramped during the quarter, right? Big impact on the quarter from an underutilization of the plant perspective. As you know, we’re going a little bit slower, you know, taking a few more steps that are impacting the profitability right now. We’ll see a really strong step up on the top line in Q2, and then very normalized, I would say, both top and bottom line in the back half for the clad specifically. When I look at PM overall, which I think was also in your question, you know, we’re going to see a meaningful top-line step up next quarter. You know, more than 200 basis points step up from a profitability perspective.

Again, working past some of the operational issues, working past the clad item. In the back half we’ll see, you know, even better profitability.

Mike Harrison, Analyst, Seaport Research Partners: All right. Thank you. Very helpful there. I had a broader question on Performance Materials. I just was wondering if you can help us understand how we might think about pricing going forward because you’ve got a portion of the business that’s more beryllium-based, and arguably there aren’t substitutes for some of those products, and there aren’t many alternative sources either. You know, maybe help us understand what portion of your sales are more toward the beryllium and harder to substitute side of the spectrum versus products that are alloys and maybe could be subject to competition from other metals or could be substituted for other alloys. Does that question make sense?

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Yeah, no, it absolutely does, and let me address that a bit because that’s probably six questions in one also, like you indicated on the earlier one, but let me address, I think, the some of the points that you’ve brought up here. You know, I’d say roughly about half of our sales are somehow beryllium or beryllium-based type of materials that we supply, and the other are non-beryllium type. Certainly beryllium type of business is a very good rich mixed business for us. We tend to look at the business in terms of much more of a longer cycle and more, you know, harder to change.

Sticky type businesses, I think, tend to be, you know, better from a profitability standpoint, obviously from a sales security standpoint, and I think beryllium provides that, you know, right? I mean, so whether it’s the defense side or whether some of the aerospace side or even some of the energy side, I mean, that’s what beryllium gives us, is it gives us a longer runway in terms of sales as well as I think it gives us some, you know, better mix, some better profitability, like you indicated, you know, on that. We do have to keep in mind, of course, that there’s always, you know, substitution risk, but it does take a longer period of time, and beryllium’s performance, the material performance, you know, far exceeds, of course, other materials.

I think, you know, pricing is certainly an important enabler for us in this business. It has been, as you know, Mike, I mean, if you look at the last five to seven to ten years and kind of where the profitability was and where the profitability of the business is today, pricing was an important enabler to that. We continue to focus on that. We continue to look at what, you know, opportunities we have, you know, in pricing. Yeah. In general, I would say, you know, we like, I think, the direction that the business is headed. We like the mix, the general mix of the business, in terms of some of the markets that, you know, beryllium is being used in.

It has certainly broadened, I think, the, you know, the use overall. I think overall in PM as Shelly indicated, you know, we see a little bit of a downturn here in Q1, and then we kind of explained kind of what those are, but we expect it to be right back to, you know, the type of levels that you are used to on PM in a very short order.

Mike Harrison, Analyst, Seaport Research Partners: All right. Thanks for that. In terms of the defense RFQs and this $300 million number, are you the incumbent in most of those applications, or a lot of them new technologies? I guess, these quotes, is this business that could come to you in the next, you know, 12-24 months, or could it be spread out over a much longer period?

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Yeah. I would say in many cases, of course, we are the incumbent because, you know, in many cases, the primes and the government’s looking to produce more of things that we already do. I would say there is a number of things that we’re involved in that are new, both in our Precision Optics business and in our Performance Materials business. You know, there are new activities that we’re involved in, both on the state side as well as in some cases outside the U.S. It’s a mix. Of course, when we win a business, typically, as you know, it’s a 12-24 month type of a window. In some cases, it’s maybe even a longer window.

If we get a multiyear order, you know, three to five year type of order, that certainly could be the play as well. In most cases, it is, you know, in the next 12-24 month window is how we look at these businesses. You know, we’re, we’ve been increasing this number. You know, like I indicated, I think when Dan asked the question, I mean, just within the last two to three quarters, you know, this number has grown to $300 million. It was starting out around $100 million. We’ve been increasing the dollar amounts that we’ve been actually booking.

You know, this feeds right into our record backlog, you know, that we talked about, you know, the highest backlog that our company’s ever had as we exited Q1. You know, that’s how we see the business kind of playing out over the next, you know, 12 to 24 months.

Mike Harrison, Analyst, Seaport Research Partners: All right. This is my last one, I promise. Just on Electronic Materials and the gross margin strength that you’re seeing there. Q1 was, you know, almost 1,000 basis points higher than the gross margin rate you had in 2022 or 2023. I’m curious, how much of that strength would you attribute to mix that maybe is gonna fluctuate or normalize over time? How much of that improvement is more sustainable in nature? Just trying to understand if something north of 40% gross margin is what we should be modeling going forward. Thank you.

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Yeah, Shelly, I think can comment on the numbers, but let me just tell you a little bit about, I think the last couple of years and what we’ve done to the business, Mike. You know, we’ve talked about it. As you know, the semiconductor market and the Electronic Materials market, in general, you know, had a little bit of a downturn over the last couple of years. We took the opportunity to make significant operational improvements and cost improvements in that business, and that’s benefited us. As the volumes are now coming in, and, you know, the volume for Electronic Materials was $90 million plus, right, for Q1. I mean, the flow-through has been really, really fantastic because of the significant improvements the business has driven over the last couple of years.

You know, I think that’s been a key contributor to our margin expansion.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: Yeah, maybe just to add to that, Jugal. You know, I think if you go back a few years, we felt the margins in Electronic Materials were not what they should be, right? There was certainly a lot of upward potential when we think about where EM margins could go. The work that has been done was really impactful. Now that we see the volume coming in on top of that, we’re seeing margins that are much closer to typical, what I would call Electronic Materials margins. Now, was this quarter particularly strong? Yes. We’ve talked about the fact that this does bounce around a little bit with mix. The mix absolutely is positive right now.

It will move around a little bit, but I think we expect this trend to continue in terms of delivering stronger margins in EM.

Mike Harrison, Analyst, Seaport Research Partners: All right, thanks. I’ll turn it back.

Operator: Thank you. Your next question is coming from Samuel McKinney from KeyBanc Capital Markets. Your line is live.

Samuel McKinney, Analyst, KeyBanc Capital Markets: Hey, good morning.

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Morning, Sam.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: Morning.

Samuel McKinney, Analyst, KeyBanc Capital Markets: 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.

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Yeah. You know, Sam, as we’ve highlighted, I think, in our remarks, and we’ve talked about it the last couple of quarters, you know, the team has made really, really great progress in transforming that business in a very short order. You know, when you look at kinda how things finished out in Q1, 43% year-over-year growth on the top line, highest since 2021. You know, almost 18% of EBITDA margin. You may recall that even when you go back several years and you kinda look at the peak of that business, it was about a 20% EBITDA margin, right?

You know, the team has done a nice job of driving the turnaround of that business, and we feel very good with where we’re positioned for Q2 and the rest of the year. Top line has been an important enabler of that turnaround. You know, that’s a combination of general market improvement, I would say, but also a significant new business activities that our folks have been involved in markets such as semiconductor, you know, automotive, defense, you know, some of the key markets that business participates in. There’s a lot of new business initiatives that they’ve been involved in.

The most importantly, is we’ve been able to close on those new business initiatives and get sales, in fact, you know, in Q1 and then for the rest of the year. The top line has been recovering as a result of both market and that, and certainly the transformational activities on the operational side, cost side have been important enablers.

Samuel McKinney, Analyst, KeyBanc Capital Markets: Okay, thanks. With the Chinese portion lagging the overall semiconductor business, can you give us an update on the progress made and when you expect to start deriving benefits from the Konasol acquisition?

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Yeah, that’s a, that’s an important activity for us, as you can imagine, for the rest of this year. Because it’s an item that we’re looking for key contributions in the 2027, 2028 timeframe for our sales. We expect that we should have some level of small scale activity, you know, perhaps at the end of this year. Really, I would say 2027, 2028 is when we start to have a meaningful impact, you know, into the semiconductor business, into the EM business for that. You know, the Chinese component, as we have spoken, certainly is a, you know, year-over-year headwind, the rest of our markets are performing very, very well in that area.

Like I highlighted earlier, you know, the business was up 16% in Q1, 40%, 41% actually, you know, for excluding the, you know, the Chinese activity and strong order intake. Very, very strong order intake, that’s happening in that business across all of our areas of semi. We expect very solid growth the rest of this year, which is I think one of the reasons why we feel that our business can be, you know, low double digits, type of growth rate, for this year.

Samuel McKinney, Analyst, KeyBanc Capital Markets: All right. Thank you.

Operator: Thank you. Your next question is coming from David Silver from Freedom Capital Markets. Your line is live.

David Silver, Analyst, Freedom Capital Markets: Yeah. Hi, good morning, and thank you.

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Hi, David.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: Morning, David.

David Silver, Analyst, Freedom Capital Markets: Yeah. Hi. Thank you. I had a couple questions, I think mostly on Electronic Materials. You know, I think you sort of touched on some of these before. Let me preface my remarks. I did have to step away for like 2 minutes, so I apologize in advance if I’m making you repeat yourself. 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. You know, one thing would be whether the bulk of the improvement was tilted maybe towards Milwaukee versus Newton, or was it you know, very broad-based.

Maybe just to comment, would I be correct in assuming the, you know, the top-line growth is mostly due to volume and not so much to price? I’ll just stop there. Price versus volume component, you know, is tantalum participating as much as, you know, the sputtering targets and the deposition products?

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Yeah. Well, first of all, very impressive growth, like you indicated. You know, our top line has done very well in that business. When we look at our semiconductor business, we really look at it more from an angle of, you know, the type of semiconductor that we end up serving, right? We end up serving, you know, power semiconductor, which is a very strong part of our business. Memory, both I’ll call it legacy memory, also high-performance memory, is an important part of our business. It cuts across communication devices, you know, data storage, logic devices. It kind of goes across really all of those.

Our factories, you mentioned Milwaukee, we have Newton, you know, with the tantalum business, but we also have facilities in Brewster, in Buffalo, in Elmore, and, you know, Singapore, Taiwan, et cetera, that support, you know, these businesses globally. We are seeing growth rate across all of these businesses, and we’re seeing order intake be really good across all of these businesses. It’s not a single area that we are seeing the growth rate in. The market, you know, I think, is coming through on all of these areas. I wanna talk about new business.

One of the areas that one of the reasons that we’re seeing the growth is, you know, new business initiatives that our teams have driven over the last couple of years that now that the market is recovering, we’re starting to see the benefit of that, right? As you know, in Electronic Materials or in semiconductor type of market, it takes about 24 months, 18-24 months to qualify new products at customers. Well, we did that. In many cases, we did that over the last, you know, 18-24 months when the markets were a little bit challenged. Now that the markets are recovering, we are seeing the benefits of those new business initiatives come through in our sales. It’s market recovery is certainly an important part of it.

New business wins and new business initiatives that we’ve been able to get is certainly an important part of it. Certainly, price is an important part, but it is not the main part, right? There’s a little bit of price in here, I would say, but not really a significant part of the, you know, the growth story that we have for Electronic Materials or, let’s say, the semiconductor business.

David Silver, Analyst, Freedom Capital Markets: Okay, great. Thank you for that. If I was to just ask a question on the Performance Materials side, again, apologies if I’m making you repeat yourself. In your current guidance, the upper end of a range of $6.00-$6.50, you have discussed the resumption of normal operations on the one precision clad strip line. I believe there was also a timing or a belief that there might be another line of precision clad strips starting up at some point this year.

Again, apologies if I missed it, but, you know, what is the assumption for that, or do we have any clarity on when that large customer might be back, you know, and utilizing that most recent clad strip line?

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Yeah. You know, in our facility, we have a level of capacity that we are using for that customer, and we do have more capacity if that customer comes back with, let’s say, higher levels of demand. You know, we are, as I indicated earlier, David, is that we are back to pre-quality issue type of production levels, we are producing that, we are supplying that to the customer. If there is a demand need, you know, in during this year to go higher, we are prepared and we can go higher. I mean, it really depends on what the customer, you know, what type of orders the customer gives us.

As you know, and we’ve talked about it, they’re also looking at, you know, their U.S. application and kind of the approval on the U.S. side. If that happens, that may trigger higher levels of demand. If it does, we’ll utilize that capacity to do that. I think in general, I wanna stress, though, on the PM side, that in Q1, I know our margins and our sales level were a little bit depressed from our historical levels. We expect a step up in Q2 and then, you know, further step-ups in the back half of the year. These are not, you know, solely based on a precision clad strip type of a recovery.

These are broad-based type of recoveries that are happening across defense, across aerospace, across industrial, across, you know, energy. All of those areas are contributing, in fact, to that business. Our order rate that we’ve been getting, you know, indicates exactly that. I believe we’re really well-positioned, you know, to have a meaningful step up in that business in Q2 as well as the rest of the year.

David Silver, Analyst, Freedom Capital Markets: Okay. Thanks for that. I meant to start off with this comment, I really did appreciate that extra slide you put in, I believe it was slide eight, where you highlighted kind of some of the key end uses for your products. It’s great that it’s all kind of laid out, you know, laid out in one place like that. I appreciate it. Kyle probably did some work on this and, you know, he’s gonna buy himself some more work as I go through it with him. Anyway. All right. Great.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: [Glad it’s not me.]

David Silver, Analyst, Freedom Capital Markets: One other question on your budgeting or your guidance page. In particular, I wanted to hone in on the CapEx budget, $75 million, and then there’s another $25 million, I guess, for mine development. In that $75 million, I, you know, there’s certainly there’s a sustaining-

Operator: [Crosstalk].

David Silver, Analyst, Freedom Capital Markets: A sustaining component of it. If you could kind of hone in on the growth-oriented or discretionary part of that $75 million in CapEx that you expect to spend this year. Just where are those incremental resources targeted for? Thank you.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: As you know, we’ve had, you know, pretty strong capital spending over the last several years because of the organic opportunities that we’ve had laid out, and you see that coming through in our results, which we’re happy about. I would say, you know, we’ve got projects in each of our businesses that are focused on expanding, you know, capacity and capabilities, as well as sort of recapitalizing and making sure that our plants are up to snuff and ready to produce at the levels we need them to produce at. I wouldn’t say it is, you know, it’s all Performance Materials or it’s all EM. We’ve got big, meaningful projects in each business, even some in Optics as that business is performing really well.

I wouldn’t call it discretionary so much as continuing the support of organic growth and the, you know, the what we expect going forward.

David Silver, Analyst, Freedom Capital Markets: Okay. Not one major project to call out, more broad-based.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: No.

David Silver, Analyst, Freedom Capital Markets: Okay.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: We’ll see the-

David Silver, Analyst, Freedom Capital Markets: Thank you very-

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: Oh, sorry. I just wanna mention, we, you know, we talked about the $65 million investment that we’re getting from a customer to expand capacity in the beryllium side of the business, and that will be somewhat additive, not all spent in one year, but you’ll see that come through as sort of customer, you know, funding and additional CapEx, and that’s obviously all on the PM side.

David Silver, Analyst, Freedom Capital Markets: Very good. Okay, thank you very much. I appreciate all the color.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: No problem.

Operator: Thank you. Your next question is coming from Dave Storms from Stonegate. Your line is live.

Dave Storms, Analyst, Stonegate: Morning, thank you for taking my questions.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: Morning, Dave.

Dave Storms, Analyst, Stonegate: Morning. Just wanted to maybe circle back to some of the EM new business wins. I know it was mentioned in prepared remarks. It sounds like a lot of that, you know, 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 maybe what that sales cycle looks like now and maybe how the top of the funnel has changed. I gotta imagine you’re probably seeing more inbounds than you were this time a year, you know, 18 months ago.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: Yeah. You know, are we getting more requests, you know, and opportunities from a new business perspective, particularly with EM, right, Dave?

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Yeah. Okay, I got it. As I indicated in the earlier comments, you know, we’ve been working with the customers over the last couple of years, you know, on a number of different initiatives, and those initiatives have been coming through, and that’s been contributing to some of the sales increases that we’re seeing right now. That’s not slowing down, right? That’s not slowing down. That’s not stopping. We are working with our customers on other new business initiatives across the whole semiconductor space, across the entire EM space. We’ll continue to do that. You know, typical validation or let’s say a verification qualification cycle lasts maybe somewhere in the 12 to 24 months is probably more reasonable.

You know, some where you have, you know, just a small modification or something like that could be 12 months, but longer when you have a new product, it’s maybe more of a 24-month type of a cycle. We continue to have that. Our funnel is strong and I think it will continue to contribute, you know, towards the growth that we are expecting over the next year.

Dave Storms, Analyst, Stonegate: Understood. Appreciate that. Just maybe a follow-up on that. With those new customers, I mean, are you seeing them be more trial customers, where they’re maybe only tasking you with a smaller portion of their projects, and there’s room to expand, or do you see them being full scale out the gate?

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Both. We’re seeing, in some cases, we’re seeing a scenario where maybe we’re entering in as perhaps like, let’s say, a second supplier or a third supplier with a smaller share. In other cases, you know, they’re brand-new projects. They’re brand-new projects, in which case we are, you know, working with them on the majority of the volume or perhaps even all of the volume. It cuts across, I think, with the number of different opportunities that we have.

Dave Storms, Analyst, Stonegate: Understood. Thank you for taking my questions.

Shelly Chadwick, Vice President and Chief Financial Officer, Materion Corporation: Thank you.

Jugal Vijayvargiya, President and Chief Executive Officer, Materion Corporation: Okay. Thank you.

Operator: Thank you. We’ve reached the end of the question and answer session. I’ll now turn the call over to Kyle Kelleher for closing remarks.

Kyle Kelleher, Director, Investor Relations and Corporate FP&A, Materion Corporation: Thank you. This concludes our first quarter 2026 earnings call. 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 216-383-4931. Thank you again.

Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.