Q1 2024 Element Solutions Inc Earnings Call

Operator: Good day, everyone. My name is Ellie, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Element Solutions 2024 first quarter financial results call. All lines have been placed on mute to prevent any background noise.

Good day, everyone. My name is Shelley and I will be your conference operator for today at this time I would like to welcome everyone to the element solutions 'twenty 'twenty four quite you're feeding it first fourth quarter financial results call.

Shelley: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on this.

Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star and the number one button again. Thank you. I'd now like to hand over the call to Varun Gokarn, Senior Director of Strategy and Finance. You may now begin.

Shelley: Elephant G pad.

Shelley: If you'd like to withdraw your question. Please press star and number one but then again. Thank you I'd now like to hand over the call to both legal Quinn senior director of strategy and Finance you May now begin please.

Varun Gokarn: Good morning, and thank you for participating in our first quarter 2024 earnings conference call. Joining me today are President and CEO Ben Gliklich and CFO Carey Dorman. In accordance with Regulation FD, we are webcasting this conference call, and a replay will be made available in the investor section of the company's website.

Leah Quinn: Good morning, and thank you for participating in our first quarter 2024 earnings Conference call. Joining me today are president and CEO, Ben <unk> and CFO Cary Garlock.

Quinn: In accordance with regulation FD, we are webcasting. This conference call a replay will be made available in the investors section of the Companys website. During today's call. We will make certain forward looking statements that reflect our current views about the company's future performance and financial results. These statements are based on assumptions and expectations of future events, which are subject to risks and uncertainties. Please refer to our earnings release.

Varun Gokarn: During today's call, we will make certain forward-looking statements that reflect our current views about the company's future performance and financial results. These statements are based on assumptions and expectations of future events, which are subject to risks and uncertainty. Please refer to our earnings release supplemental slides and most recent SEC filings for a discussion of material risk factors that could cause actual results to differ from our expectations and predictions. These materials can be found on the company's website in the investor section under news and events.

Quinn: Supplemental slides and most recent SEC filings for a discussion of the material risk factors that could cause actual results to differ from our expectations or predictions. These materials can be found on the company's website in the investors section under news and events.

Varun Gokarn: Today's materials also include financial information that has not been prepared in accordance with U.S. GAAP. Please refer to the earnings release and supplemental slides for definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures. It is now my pleasure to introduce our CEO, Ben Gliklich.

Quinn: Today's materials also include financial information that has not been prepared in accordance with U S. GAAP.

Speaker Change: Please refer to the earnings release and supplemental slides for definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures. It is now my pleasure to introduce our CEO Technical College.

Benjamin Gliklich: Thank you, Varun. Good morning, everyone.

Speaker Change: Thank you, Brian and good morning, everyone and thank you for joining us.

Benjamin Gliklich: Thank you for joining us. Element Solutions' strong results in the first quarter reflect solid execution in recovering electronics markets. It was a mixed overall macro environment in which our strength and increasing capabilities in fast-growing advanced packaging and data center markets offset a mediocre market for smartphones and softness in Western automotive and general industrial supply chains. Our improving value propositions of investments in leading-edge semiconductor technologies and the impact of legacy pricing actions amidst deflation in certain commodities drove substantial profit growth. Constant Currency Adjusted EBITDA was 17% year-on-year, on the back of over 250 basis points of margin.

Technical College: <unk> strong results in the first quarter reflects solid execution and recovery and electronics markets.

Technical College: It was a mixed overall macro environment in which our strength and increasing capabilities in fast growing advanced packaging and data center markets offset a mediocre market for smartphone and softness in western automotive and general industrial supply chains are.

Technical College: Our improving value proposition to investments in leading edge semiconductor technologies and the impact of legacy pricing action amidst deflation in certain commodities drove substantial profit growth.

Technical College: Constant currency adjusted EBITDA grew 17% year on year on the back of over 250 basis points of margin expansion.

Benjamin Gliklich: Our growth this quarter reflects the benefit of portfolio diversification and suggests the potential for further improvement as the electronics market recovery broadens. Our focus on deep, growing profit pools should continue to generate market outperformance and strong incremental margin. The electronics business is recovering with a surge in semiconductor solutions, including advanced and wafer-level packaging applications. Our volumes in that vertical grew in the high teens year over year, outpacing the market, and our circuitry solutions business is a more industrially oriented circuit board assembly business to Kleinfleck. The industrial and specialty segment saw a combination of softer automotive demand in the US and Europe and lower revenue for metal price surcharges as certain commodities deflated.

Technical College: Our growth this quarter reflects the benefit of portfolio diversification and suggest the potential for further improvement as the electronics market recovery products.

Technical College: Focus on deep growing profit pools should continue to generate market outperformance and strong incremental margins.

Technical College: The electronics business is recovering with the surge in semiconductor solutions, including advanced wafer level packaging applications.

Technical College: Our volumes in that vertical grew in the high teens year over year outpacing the market and our circuitry solutions business.

Technical College: Our more industrially oriented circuit Board Assembly business declined slightly.

The industrial and specialty segment, so a combination of softer automotive demand in the U S and Europe and lower revenue from metal price surcharges at certain commodities have deflated.

Benjamin Gliklich: Profitability in the segment increased significantly on lower raw material costs, ongoing strength in our offshore business, and an improvement in our graphics. Our markets are roughly off to the start we expected, and margins are driving our outperformance. Gross margins returned solidly north of 40% this quarter, an internal benchmark for us, and should be stable at these levels barring metal prices. However, while many of our supply chains are normalizing after a period of heightened volatility and shortages, logistics prices remain elevated relative to 2019 levels.

Technical College: Profitability in the segment increased significantly on lower raw material costs ongoing strength in our offshore business and an improvement in our graphics business.

Technical College: Our markets are roughly after the start we expected and margins are driving our outperformance.

Gross margins returned solidly north of 40% this quarter and internal benchmark for us it should be stable at these levels barring metal price index.

While many of our supply chains are normalizing after a period of heightened volatility and shortages logistics prices remained elevated relative to 2019 levels.

Benjamin Gliklich: Notably, our margins in the first quarter have been achieved at volumes well below where they have been in the past few years. Additionally, while our costs of goods are mostly variable, margins have improved despite volume deleveraging. This further underscores the success of our investment in higher value, higher margin applications and our ability to offset costs. The benefit of cost actions taken last year contributed to bottom-line profitability as well. This has not come at the cost of growth capital.

Technical College: Notably our margins in the first quarter and achieved at volumes well below where they had been in the past few years.

Technical College: While our cost of goods are mostly variable margins have improved despite volume deleveraging.

Technical College: This further underscores the success of our investments in higher value higher margin applications, and our ability to offset cost increases.

The benefit of cost actions taken last year contributed to bottom line profitability as well.

Technical College: This has not come at the cost of growth capital.

Benjamin Gliklich: We continue to invest in strategic capabilities, semiconductor assembly, or advanced packaging technologies, a research center in fast-growing India, and high-volume manufacturing capacity for our new Coupram. Throughout what has been a prolonged downturn in our electronics end markets, we've maintained, and in certain instances grown, sales and technical resources needed to support customers as the market evolves and new technologies take root. Our commercial and innovation teams remain focused on delivering high-value solutions to solve customer pain points and high growth applications.

We continue to invest in strategic capabilities semiconductor assembly or advanced packaging technologies, a research center in fast growing India and high volume manufacturing capacity for our new co brand products.

Technical College: The Atwood has been a prolonged downturn in our electronics end markets, we've maintained and in certain instances grown sales and technical resources needed to support customers as the market evolves and new technologies take root.

Technical College: Our commercial and innovation teams remain focused on delivering high value solutions to solve customer pain points and high growth applications.

Benjamin Gliklich: Our late-stage electronic sales pipeline in wafer-level packaging and circuitry solutions grew meaningfully in the first quarter. This is in part due to the improved customer intimacy afforded by our highly successful VIAform transaction and the investment we've made in improving our circuitry technical capabilities. We paid our first product milestone earn out payment for KUKU Amnesty, and Active Copper Opportunities is progressing rapidly. We're pleased with the outlook for our 2023 investments, but work remains on the operational steps necessary to maximize their long-term value.

Technical College: Our late stage electronic sales pipeline and wafer level packaging and circuitry solutions grew meaningfully in the first quarter.

Technical College: This is in part due to the improved customer intimacy afforded by our highly successful via farm transaction and investment we've made in improving our circuitry and technical capabilities.

Technical College: We paid our first product milestone earn out payment for Cooper on this quarter and active copper opportunities are progressing rapidly.

Technical College: We're pleased with the outlook from our 2023 investments.

Technical College: It remains on the operational steps necessary to maximize their long term value.

Benjamin Gliklich: At the same time, our balance sheet is improving to the point where we can consider additional capital deployment aligned with our strategy. The year is off to a solid start and the outlook is positive. Carey will now take you through our first quarter business results in more detail. Thank you, Ben. Good morning, everyone.

Technical College: At the same time, our balance sheet is improving to the point, where we can consider additional capital deployment aligned with our strategy.

Technical College: The year is off to a solid start and the outlook is positive.

Technical College: We will now take you through our first quarter business results in more detail Gary.

Gary: Thanks, Pat good morning, everyone.

Carey J. Dorman: Continuing on slide three, where Ben just talked about some of the highlights, you can see a summary of our first quarter financial results. Organic sales grew 1% year over year, and constant currency adjusted EBITDA grew 17%. These strong incremental margins reflect a substantial mixed benefit from the recovery in higher-margin semiconductor and circuitry business in Asia, as well as lower raw material costs in industrial surface treatment and favorable mix in the overall INS segment.

Gary: Continuing on slide three where Ben just talked with some of the highlights you can see a summary of our first quarter financial results.

Gary: Organic sales grew 1% year over year in constant currency adjusted EBITDA grew 17%.

Gary: These strong incremental margins reflect a substantial mixed benefit from recovery and higher margin semiconductor circuitry and Asia as well as lower raw material costs and industrial surface treatment and.

Gary: Favorable mix and the overall IMS segment in Q1 2023, the high end smartphone supply chain in the memory markets experienced significantly reduced demand with inventory destocking that continued through much of that year.

Carey J. Dorman: In Q1 2023, the high-end smartphone supply chain and the memory disk markets experienced significantly reduced demand, with inventory destocking that continued through much of that year. During this period, we have seen memory disk recovery and growth in smartphone units supporting circuitry solutions.

Gary: As we lap this period, we have seen memory recovery and growth in smartphone unit supporting circuitry solutions.

Carey J. Dorman: Net sales in our industrial and specialty segment declined organically by 3%, as high levels of offshore energy activity and improving North American printer demand and graphics were offset by declines in our industrial surface treatment business. This quarter, total company net sales and adjusted EBITDA were both negatively impacted by a strengthening U.S. dollar by roughly 2% and 4%, respectively. Justin, you've got a margin that improved almost 300 basis points year over year in constant currency.

Gary: Net sales in our industrial and specialty segment declined organically, 3%.

Gary: With high levels of offshore energy activity and improving North America printer demand graphics were offset by declines in our industrial surface treatment.

Gary: This quarter total company net sales and adjusted EBITDA were both negatively impacted by a strengthening U S dollar by roughly 2% and 4% respectively.

Adjusted EBITDA margin improved almost 300 basis points year over year in constant currency terms.

Carey J. Dorman: The margin trend accelerated this quarter, improving sequentially by 120 basis points for Q4 2023. Excluding the impact of the $79 million of pass-through metal sales and assembly solutions, our adjusted EBITDA margin would have been 26% in the first quarter. On slide four, we share additional detail on the drivers of organic net sales growth in our two segments. In electronics, categories that saw significant de-stocking last year grew in the first quarter of 20

The margin trend accelerated this quarter, improving sequentially 120 basis points from Q4 2023.

Gary: Excluding the impact of up to $79 million of pass through metal sales and Assembly solutions, our adjusted EBITDA margin would have been 26% in the first quarter.

Gary: On slide four we share additional detail on the drivers of organic net sales growth in our two segments.

Gary: And electronics categories that saw significant Destocking last year grew in the first quarter of 2020 for.

Carey J. Dorman: A positive sign for more broad-based recovery as the year progresses. We saw consistent softness in our industrial-oriented businesses, particularly in the Americas and Europe, that impacted growth in both industrial solutions and our assemblies business in electronics. In assembly, soft industrial demand in Western markets drove a 2% decline in organic net sales.

Gary: A positive sign for more broad based recovery as the year progresses.

Gary: We saw consistent softness in our industrial oriented businesses, particularly in the Americas and Europe had impacted growth in both industrial solutions and our assembly business in our trials.

Gary: In assembly soft industrial demand in western markets drove a 2% decline in organic net sales.

The Circuit Board Assembly business had more exposure to industrial applications with certain capabilities focused on high reliability alloys required for demanding automotive electronics use cases.

Carey J. Dorman: The circuit board assembly business has more exposure to industrial applications, with certain capabilities focused on high reliability alloys required for demanding automotive electronics use cases. While year-over-year volumes in China and Asia more broadly were positive in the quarter, volumes declined in America. Circuitry Solutions sales improved 8% organically, with growth primarily coming from a recovery in our memory disk business. Inventories of our customers' finished products declined in 2023, and this market picked up again in 2024 on the back of resumed investment in data storage for cloud computing and enterprise servers.

Gary: While year over year volumes in China, and Asia more broadly were positive in the quarter volumes decline in the Americas and Europe.

Gary: Circuitry solution sales improved 8% organically with growth primarily coming from a recovery in our memory business.

Gary: Inventories of our customers finished products declined in 2023 and this market has picked up again in 2024 on the back of resumed investment in data storage for cloud computing enterprise servers.

Our disk drive still represent the most affordable mechanism for data storage per bed in the near term growth outlook is favorable.

Gary: The first quarter. So the other signs of market stabilization with overall smartphone unit is estimated to have grown at 8%.

Gary: However, not all handset OEM supply chain experienced growth in the first quarter of 2024.

Gary: With the bulk of the improvement occurring in China based manufacturers.

Gary: While we do skew towards the non Chinese device makers, we are content across most smartphone models.

Carey J. Dorman: Our disk drives still represent the most affordable mechanism for data storage per bit, and the near-term growth outlook is favorable. The first quarter showed other signs of market stabilization, with overall smart funds in this estimate to have grown at 8%. However, not all handset OEMs apply change.

Gary: Our customer base is broad and our growth generally correlate overall industry units rather than any particular manufacturer overtime.

Customers globally are expecting an improved second half.

Gary: Semiconductor solutions led growth for the segment with organic net sales up 11%.

Gary: We saw significant increase in wafer level packaging sales in Asia from a semi fabs and Osaka.

Carey J. Dorman: Experience growth in the first quarter of 2024, with the bulk of the improvement occurring in China-based manufacturing. While we do skew towards the non-Chinese device makers, we have content across most smartphone models. Our customer base is broad, and our growth generally should correlate to overall industry units, rather than any particular manufacturer. Over time, customers globally are expecting an improved, Semiconductor solutions-like growth for the segment with organic net sales up 11.

Gary: We expect the continuation of the demand growth related to advanced packaging that supports memory server and AI chip markets.

Gary: Power Electronics products also continued to grow in the first quarter.

Gary: We successfully expand our album acts Kindred silver technology to a broader customer base of electric vehicle manufacturers.

Gary: Moving to industrial and specialty organic net sales declined 3% year over year.

Gary: Roughly half of the 6% decline in the industrial solutions vertical was driven by reductions in surcharges for commodity metals like palladium.

Gary: While the price swings impact headline sales buyer mix of value add high margin recurring chemistry revenue benefits margins.

Carey J. Dorman: We saw significant increases in wafer-level packaging sales in Asia, for both STEMI fabs and O2. We expect a continuation of this demand growth related to advanced packaging that supports memory, server, and AI chip marking. Power electronics products often need to grow in the first quarter, as we successfully expanded our Algramax-centered silver technology to a broader customer base of electric vehicle manufacturers. Moving to industrial and specialty, organic net sales declined 3% year over year.

Gary: Demand from automotive customers was sluggish in line with global auto production in the first quarter.

Gary: European construction and industrial end markets remained soft.

Gary: Customers continuing to operate at reduced volumes.

Gary: As we move through 2024, we expect a negative impact of commodity surcharge pricing to ease and new customer wins to benefit sales volume.

Gary: In the second half of the year.

Gary: Graphic solutions sales increased organically by 5%, reflecting improved demand primarily with flexible packaging customers in North America.

Carey J. Dorman: Roughly half of the 6% decline in the industrial solutions vertical was driven by reductions in surcharges for commodity metals like palladium. While these price swings impact headline sales, the buyer makes a value add, high-margin, recurring chemistry, revenue, benefits, and margin. Demand from automotive customers was sluggish, in line with global auto production in the first quarter.

Gary: Encouragingly adjusted EBITDA margins in this business also showed a meaningful expansion of almost 300 basis points year on year.

Gary: Energy solutions remains a bright spot in the <unk> portfolio with sales growth of 14% organically in the quarter as production and drilling activity remains strong.

Gary: We expect this growth for energy business to continue this year.

Carey J. Dorman: European construction and industrial end markets remain solid, with customers continuing to operate at reduced volume. As we move through 2024, we expect the negative impact of commodity surcharge pricing to ease and new customer wins to benefit sales volume, particularly in the second half of the year. Graphics solution sales increased organically by 5%, reflecting improved demand primarily from flexible packaging customers in North America.

Gary: Slide five addresses cash flow and the balance sheet.

Gary: We generated $39 million of free cash flow in Q1, the first quarter of the year at atypical uses of cash relative to annualized targets, including annual incentive payments and a semiannual bond gain.

Gary: We invested $28 million into working capital, which primarily reflects a seasonal inventory build.

Gary: Capex in the quarter was $19 million, which is above the $50 to $60 million annual run rate, we expect for the year and reflects delayed timing of certain growth projects and integration initiatives that were originally planned for the end of 2023.

Carey J. Dorman: Encouragingly, adjusted EBITDA margins in this business also showed meaningful expansion of almost 300 basis points a year on. Energy Solutions remains a bright spot in the INS portfolio, with sales growth of 14% organically in the quarter, as production and drilling activity remains strong. We expect this growth for the energy business to continue this year. Slide 5 addresses cash flow and the balance. We generated $39 million of free cash flow in Q1. The first quarter of the year has atypical uses of cash relative to annualized targets, including annual incentive payments and a semi-annual bond.

Gary: Now turning to the balance sheet, our net leverage ratio at the end of the quarter was three three times inside of our long range target of three five once again.

Gary: Demonstrating our ability to quickly delever with cash flow generation and earnings growth.

Gary: Our capital structure remains fully fixed rate for the remainder of the year.

Gary: Have no debt maturities until 2028.

Gary: Through cross currency swaps the effective interest rate on our term loan is fixed at three 2% as of March 31, and our liquidity position remained strong.

Speaker Change: With that I will turn the call back again.

Thank you Gary.

Gary: We've had a strong start to 2024 and are optimistic about the trajectory from here.

Carey J. Dorman: We invested $28 million in working capital, which primarily reflects a seasonal inventory bill. CapEx in the quarter was $19 million, which is above the $50 to $60 million annual run rate we expect for the year and reflects the late timing of certain growth projects and integration initiatives that were originally planned for the end of 2020. Now turning to the balance sheet, our net leverage ratio at the end of the quarter was 3.3 times.

Gary: Our investment in leading edge in emerging technology is driving high incremental margins.

While our market do not unit, formerly improving our conversations with customers and suppliers support our constructive view on more broad based electronic demand improvement in the second half.

Gary: There are reasons, however for a level of conservatism. This early in the year, given geopolitical risk sluggishness in western industrial markets and modestly lower full year expectations from certain supply chain participants.

Gary: For the second quarter of 2024, we expect adjusted EBITDA to be approximately $125 million or approximately flat ex currency on a sequential basis.

Carey J. Dorman: Inside of our long-range target ceiling of three and a half, once again demonstrating our ability to quickly de-lever with cash flow generation and earnings growth. Our capital structure remains fully fixed rate for the remainder of the year. We have no debt maturity until 2028. Through cross-currency swaps, the effective interest rate on our term loan is fixed at 3.2% as of March 31st, and our liquidity position remains strong. With that, I will turn the call back to Ben. Thank you, Carey.

Gary: We're also updating our full year adjusted EBITDA guidance range to $515 million to $530 million, which reflects 10% to 14% constant currency growth as the year over year FX headwind is now expected to be greater than $15 million.

Gary: Were it not for the recent strengthening of the U S. Dollar we would have increased the high end of the range as well.

Overall, we're pleased with our execution to start 2024.

Gary: Partially we are building a high quality high probability pipeline of large leading edge electronics opportunities and margin enhancing industrial projects.

Gary: Operationally, we're increasing volume manufacturing capacity for future growth areas, such as nano copper in power electronics streamlining our legacy manufacturing footprint and building research and applications development and high leverage geographies, we continue to.

Benjamin Gliklich: We've had a strong start to 2024 and are optimistic about the trajectory from here. Our investment in leading-edge and emerging technology is driving a high incremental margin set. While our markets are not uniformly improving, our conversations with customers and suppliers support a constructive view on more broad-based electronic demand improvement in the second half. There are reasons, however, for a level of conservatism this early in the year, given geopolitical risk, sluggishness in Western industrial markets, and modestly lower full-year expectations from certain supply chain participants.

Gary: Make systems improvements and better leverage our data to increase the proportion of time, our employees can spend on value added technical service and product development.

Gary: Taken together this positions us towards delivering on our commitments for the year and the current demand environment and generating above market growth to exceed them as the environment improves from here.

Speaker Change: To wrap up I'd like to thank all of our stakeholders for their continued support of element solutions in particular, our talented and dedicated people around the world working productively and collaboratively to support our customers and objectives.

Benjamin Gliklich: For the second quarter of 2024, we expect adjusted EBITDA to be approximately $125 million, or approximately flat X currency on a sequential basis. We're also updating our full-year adjusted EBITDA guidance range to $515 to $530 million, which reflects 10 to 14 percent constant currency growth, as the year-over-year FX headwind is now expected to be greater than $15 million. Were it not for the recent strengthening of the U.S. dollar, we would have increased the high end of the range as well.

Speaker Change: Operator, please open the line for questions.

Speaker Change: Opening the floor for question and answer session, if you'd like to ask a question. Please press star and number one on your telephone keypad.

Speaker Change: Our first question comes from Josh Spector from UBS. Your line is now open.

Joshua David Spector: Yeah, Hi, guys good morning.

Joshua David Spector: Good morning, guys first if you can comment.

Joshua David Spector: If you could comment on your expectations here of what Youre seeing on demand versus earlier, because you talk about things kind of in line, but your first quarter came in better.

Benjamin Gliklich: Overall, we're pleased with our execution to start 2024. Commercially, we're building a high-quality, high-probability pipeline of large, leading-edge electronics opportunities and margin-enhancing industries. Operationally, we're increasing volume manufacturing capacity for future growth areas, such as nanocopper and power, streamlining our legacy manufacturing footprint, and building research and applications development in high-level geography. We continue to make systems improvements and better leverage our data to increase the proportion of time our employees can spend on value-added technical services and products.

Joshua David Spector: Obviously, there's been some moving parts, so where things stand today do you have a more positive view on second half.

Joshua David Spector: Unchanged worse kind of goes through where things are set.

Joshua David Spector: Sure.

Joshua David Spector: So as we get closer to the second half we have more conviction that a recovery coming and we're hearing that more from customers in the electronic side of the business on balance I think that the ramp in the back half is modestly slower than it was expected entering the year at the semiconductor market.

Industry participants, who were talking about greater than 10% growth now talking about about 10% growth, but net net the electronics recovery is roughly what we would expect it to be entering the year on the industrial side of the business.

Benjamin Gliklich: Taken together, this positions us towards delivering on our commitments for the year in the current demand environment and generating above market growth to exceed them as the environment improves from here. To wrap up, I'd like to thank all of our stakeholders for their continued support of Element Solutions, and in particular, our talented and dedicated people around the world working productively and collaboratively to support our customers and objectives. Would that operator please open the line?

Joshua David Spector: There's pockets of strength in air pocket as we said in our prepared remarks, our markets are roughly playing out as we thought they would this year.

Outlook is unchanged from a demand perspective.

Speaker Change: Thanks, that's helpful and I just wanted to kind of check on here, where you recently talked about high single digit percent growth in electronics over the next five years, you delivered 4% growth in the first quarter, obviously, you expect things to improve a bit.

Operator: We are now opening the floor to questions and answers. If you'd like to ask a question, please press star and number one on your telephone keypad. Our first question comes from Josh Spector from UBS. Your line is now open.

Speaker Change: Do you think you get to that run rate and I don't know if theres a way to unpack how the next year year and a half look from a cyclical improvement perspective versus how that framework impacts more of your secular growth view two to three years from now.

Joshua David Spector: Yeah, hi guys. Good morning.

Benjamin Gliklich: First, if you can comment, if you could comment on your, you know, expectations here of what you're seeing on demand versus earlier, because you talk about things kind of in line, but your first quarter came in better. Obviously, there's been some moving parts. So where things stand today, you know, do you have a more positive view on the second half? Unchanged, Worst, kind of go through where things are set

Speaker Change: Sure so.

Speaker Change: So in the first quarter right, we had double digit growth in semiconductor high single digit growth in circuitry and the assembly business lagged because its more industrially oriented in the western industrial economy was stopped by the end of this year, we should be on a year on year basis getting up towards high single digit growth call it mid to high.

Benjamin Gliklich: So, as we get closer to the second half, we have more conviction that a recovery is coming, and we're hearing that more from customers on the electronics side of the business. On balance, I think the ramp in the back half will be modestly slower than was expected entering the year. Right, the semiconductor market; you hear industry participants who were talking about greater than 10% growth now talking about about 10% growth. But net-net, the electronics recovery is roughly what we would expect it to be entering the year.

Speaker Change: And of course, EBITDA growth and we talked about getting to double digit EBITDA growth in electronics, we will be at that level in 2024.

Speaker Change: 2025, if we see a continuation of the electronics recovery, which is a reasonable expectation based on industry outlook should once again be double digit EBITDA growth and you would expect that the electronics business should be in and around the same level of top line that we've been talking about so.

That's a medium term outlook I would say.

Speaker Change: But I think it's reasonable to expect that we're about there for the next couple of years.

Benjamin Gliklich: On the industrial side of the business, there are pockets of strength and air pockets. As we said in our prepared remarks, our markets are roughly playing out as we thought they would this year, and our outlook is unchanged from a demand standpoint.

Speaker Change: Okay. Thanks, Ben.

Ben: Thank you Josh.

Ben: Our next question comes from John Roberts from Mizuho. Your line is now open.

Benjamin Gliklich: Thanks, that's helpful. And I just wanted to kind of check here where you recently talked about high single-digit percent growth in electronics over the next five years. You delivered 4% growth in the first quarter. Obviously, you expect things to improve a bit, but when do you think you'll get to that run rate? And I don't know if there's a way to unpack how the next year, year and a half look from a cyclical improvement perspective versus, you know, how that framework impacts more of your secular growth view, two to three years from now. Sure. So in the first quarter, right, we had

John Ezekiel E. Roberts: Thanks, and I'll just ask one here, but congrats on the progress on <unk>.

John Ezekiel E. Roberts: When do you think we will see first sales and could you scope that potential additional payments for us.

John Ezekiel E. Roberts: Sure. Thanks, John Thanks for the question. So we paid our first milestone payment for Cooper and in this quarter.

John Ezekiel E. Roberts: Okay.

John Ezekiel E. Roberts: The background. There is co brand was a technology, we acquired last year with an upfront payment and a large performance based earn out structure. The first payment was based on product performance. So that was an internal performance milestone and we were able to get the product to perform at a certain level, which.

John Ezekiel E. Roberts: <unk> generated this payment the subsequent payments will be based on customer success first customer product qualification and subsequently customer base revenue.

Benjamin Gliklich: So, in the first quarter, right, we had double-digit growth in semiconductors, high single-digit growth in circuitry, and the assembly business lagged because it's more industrially oriented and the Western industrial economy was soft. By the end of this year, we should be, you know, on a year-on-year basis, getting up towards high single-digit growth, call it mid to high. And, of course, EBITDA growth, and we talked about getting to double-digit EBITDA growth in electronics; we will be at that level in 2024.

John Ezekiel E. Roberts: We're.

John Ezekiel E. Roberts: Working very closely with several customers and I would expect us to have quality product qualification payments this year and revenue to begin in 2024 and really ramp in 2025.

John Ezekiel E. Roberts: The maximum we will pay for <unk>, if we get all of these targets would be about $275 million.

Benjamin Gliklich: 2025, if we see a continuation of the electronics recovery, which is a reasonable expectation based on the industry outlook, should once again be double-digit EBITDA growth, and you'd expect that the electronics business should be in and around the same level of top line that we've been talking about. So, that's a medium-term outlook, I would say, but I think it's reasonable to expect that we're about there for Okay. Thanks, Ben.

John Ezekiel E. Roberts: That would be linked to about $115 million of revenue, which would be a low single digit multiple of EBITDA based on the margins. We are expecting from this business. We have six years to get to that ramp of revenue, but our internal expectation that we'll be able to do so.

John Ezekiel E. Roberts: Well within that timeframe.

John Ezekiel E. Roberts: The customer reaction and pull from the market for this capability is stronger than we could have expected and our progress against qualification is faster than we expected.

John Ezekiel E. Roberts: Okay.

Speaker Change: Thank you.

Operator: Our next question comes from John Roberts from New Zealand. Your line is now open. Thanks, and I'll just ask one here, but

Speaker Change: Our next question comes from Ashwin <unk> from BMO capital markets. Your line is now open.

Benjamin Gliklich: Sure thing, John, thanks for the question. So we paid our first milestone payment for Kupra this quarter. The background there is Kuberon was a technology we acquired last year with an upfront payment and a large performance-based earn out structure. The first payment was based on product performance, so that was an internal performance milestone.

Ashwin: Hi, good morning, Ben.

Ashwin: Good morning.

Ashwin: Good.

Good morning, if I look to FY guide it seems your outlook for the year is roughly unchanged slightly better.

Ashwin: As expected second quarter to be up sequentially, just on some demand recovery, but also given some of the drivers do highlighted that impacted the first quarter EBITDA.

Benjamin Gliklich: And we were able to get the product to perform at a certain level, which generated this payment. Subsequent payments will be based on customer success. First, customer product qualification, and subsequently customer-based revenue, working very closely with several customers, and I would expect us to have product qualification payments this year and revenue to begin in 2024 and really ramp up in 2025. The maximum we will pay for Kubrion if we hit all of these targets would be about $275 million.

Speaker Change: Youre building inventory as well so maybe you could comment on what Youre seeing in your order books in the near term trying to get a sense of.

Speaker Change: The full year guide versus the second quarter guide.

Speaker Change: Sure.

Speaker Change: Our expectations for the second quarter as you heard was for sequentially flat EBITDA constant currency and Theres about a 2 million $3 million FX headwind.

Benjamin Gliklich: That would be linked to about $115 million of revenue, which would be a low single-digit multiple of EBITDA based on the margins we're expecting from this business. We have six years to get to that level of revenue, but our internal expectation is we'll be able to do so well within that. The customer reaction and pull from the market for this capability is stronger than we could have expected, and our progress against qualifications is faster than expected.

Speaker Change: Which gets you to approximately $125 million of EBITDA.

Speaker Change: There is a modest demand ramp that is offset by some opex ramp that we see in the second quarter and Thats, how you get to that flat sequential EBITDA.

It is consistent.

Speaker Change: Consistent demand environment.

Speaker Change: The industry expects the electronics market ramp to come in the second half typical seasonality supports and electronics ramp in the second half.

Operator: Our next question comes from Bhavesh Lodaya from BMO Capital Markets.

Speaker Change: When you look at half on half performance sequentially.

Bhavesh Mahesh Lodaya: If I look at your F5, morning.

Bhavesh Mahesh Lodaya: If I look at your FY guide, it seems your outlook for the year is roughly unchanged, slightly better. I would have expected the second quarter to be up sequentially, just on some demand recovery, but also given some of the drivers you highlighted that impacted the first quarter EBITDA, you are building inventory as well. So maybe you could comment on what you are seeing in your order books in the near term, trying to get a sense of the full year guide versus the second quarter guide? Sure.

Speaker Change: It's a slightly greater than normal seasonal uptick in terms of the percentage of earnings in the back half versus the first half. So we feel like it's a reasonable place for the second quarter April is off to a good start but were not going to extrapolate from that.

Speaker Change: That's how we think about the phasing.

Speaker Change: And it's generally.

Speaker Change: In line with what we thought entering the year as well.

Speaker Change: Got it and then the the autos and market is clearly an important one for you as it relates to your exposure it appears.

Benjamin Gliklich: Our expectation for the second quarter, as you heard, was for sequentially flat EBITDA constant currency. And there's about a $2 million, $3 million FX headwind, which gets you to approximately $125 million.

Speaker Change: <unk> forecast for Western auto was gradually rising although at the same time there are some concerns around softening EV adoption rates can you share your view on what Youre seeing for your business.

Benjamin Gliklich: There is a modest demand ramp that is offset by some OPEX ramps that we see in the second quarter. And that's how you get to that flat sequential EBITDA. It is a consistent demand environment.

Speaker Change: Sure.

Yes.

As an important end market for us.

Speaker Change: Our outlook for auto markets as roughly sideways from where they are today. It is not just unit that's impacting our industrial business. Its type of units. So some of the higher end vehicles.

Benjamin Gliklich: You know, the industry expects the electronics market ramp to come in the second half. Typically, seasonality supports an electronics ramp in the second half. I think when you look at half-on-half performance sequentially, it's a slightly greater than normal seasonal uptick in terms of the percentage of earnings in the back half versus the first half. And so we feel like it's a reasonable place for the second quarter. April is off to a good start, but we're not going to extrapolate from that. That's how we think about the phasing. And it's generally in line with what we thought entering the year as well.

Are struggling more than entry level vehicles, and we have more content on the higher end vehicles. The electric vehicle story is actually generally positive for us despite a softer electric vehicle market, but we've seen our <unk>.

Speaker Change: Really unique capabilities in.

Speaker Change: Power inversion.

Getting much broader adoption in new OEM supply chains. So we've had some pretty compelling customer wins that will contribute modestly this year, but significantly over the next several years, so by and large we're excited about our capabilities in order and our outlook.

Benjamin Gliklich: And then the auto end market is clearly an important one for you. As it relates to your exposure, it appears consultant forecasts for Western autos are gradually rising. However, at the same time, there are some concerns around softening EV adoption rates. Can you share your view on what you are seeing for your business?

Speaker Change: For the businesses, we have exposed to auto, albeit it's a weaker macro this year than than ideal.

Benjamin Gliklich: So yes, the auto is an important end market for us. Our outlook for the auto markets is roughly sideways from where they are today. It's not just units that's impacting our industrial business; it's the type of units.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Christopher Parkinson from Wolfe Rich.

Christopher Parkinson: Your line is now open.

Benjamin Gliklich: So some of the higher-end vehicles are struggling more than entry-level vehicles, and we have more content on the higher-end vehicles. The electric vehicle story is actually generally positive for us, despite a softer electric vehicle market. We've seen our really unique capabilities in power inversion getting much broader adoption in new OEM supply chains. So we've had some pretty compelling customer wins that will contribute modestly this year but significantly over the next several years. So by and large, we're excited about our capabilities in the auto industry and our outlook for the businesses we have exposed to the auto industry, albeit it's a weaker macro this year than ideal.

Christopher Parkinson: Great. Thanks, Harris Fein on for Chris.

Harris Fein: I guess from a high level.

Harris Fein: Top line was flat and pass through metals were a neutral in the quarter, but margins were up a good amount year on year. So.

Harris Fein: Could you just maybe size the drivers of that it just between mix lower raw materials, the offset of the surcharge roll off and I know you guided to some variable cost rebuild this year that you might have already mentioned how much of that hit the P&L in the first quarter.

Operator: Our next question comes from Christopher Parkinson from Wolf Search. Your line is now open.

Speaker Change: Sure thing.

Speaker Change: There's a lot of moving parts here. The simple answer is that the higher end electronics businesses. We have that are really performing well are higher margin and the businesses that are seeing macro weakness.

unknown: Great, thanks. This is Harris Phinon for CRIS.

unknown: I guess from a high level, you know, top line was flat, and pass-through medals were in neutral in the quarter, but margins were up a good amount year-on-year, so... Could you just maybe size the drivers of that, just between mix, lower raw materials, the offset of the surcharge roll-offs? And I know you guided to some variable cost rebuild this year, as you might have already mentioned. How much of that hit the P&L in the first quarter?

Speaker Change: We are benefiting from lapping lower raw material prices higher raw material prices and favorable mix from those surcharges that have rolled off and so between the two of those things right. We saw substantial margin uplift and there was a modest impact I would say from.

Benjamin Gliklich: [inaudible] There's a lot of moving parts here, but the simple answer is that the higher-end electronics businesses we have that are really performing well are higher-margin. And the businesses that are seeing macro weakness are benefiting from lapping lower raw material prices, higher raw material prices, and favorable mix from those surcharges that have rolled off. And so between the two of those things, we saw substantial margin uplift. And there was a modest impact, I would say, from the cost actions we took last year, offsetting some of that variable cost rebuild.

Speaker Change: The cost actions, we took last year.

Speaker Change: Offsetting some of that variable cost rebuilt.

Speaker Change: So those are the two moving pieces raw material deflation.

Speaker Change: Year over year was a low single digit million dollar impact just to help you quantify what those pieces are.

Speaker Change: And.

Speaker Change: What we said in our prepared remarks is.

Speaker Change: Margins are stable in north of 40% on the gross profit line and we see.

The room for improvement in margin over time, driven by divergent growth rates and the higher value proposition were bringing to support high end electronics customers.

Benjamin Gliklich: So those are the two moving pieces; raw material deflation, year over year, was a low single-digit million dollar impact, just to help you quantify what those pieces are. And, you know, what we said in our prepared remarks is that margins are stably north of 40% of the gross profit line. And, you know, we see room for improvement in margin over time driven by divergent growth rates and the higher value proposition we're bringing to support high-end electronics customers. So we're far from our margin ceiling and should see progress.

Speaker Change: We're far from our margin ceiling.

Speaker Change: And should see progress from here.

Speaker Change: Okay.

Speaker Change: Got it that's helpful.

Speaker Change: And then just as a follow up in circuitry.

Speaker Change: A lot of the debate with investors around smart phone, but that doesn't seem to be the primary driver of results right now so just.

Speaker Change: With demand recovering I know you called out memory does can server.

Benjamin Gliklich: Got it, that's helpful. And then just as a follow up in circuitry. You know, a lot of the debates with investors are about the smartphone, but that doesn't seem to be the primary driver of results right now. So just, with demand recovering, I know you called out memory disk and server, just, You know, how are you thinking about normalized intermediate-term growth rates and what that looks like in that business? Yeah. So within our circuitry business, they're really important.

Speaker Change: Just.

Speaker Change: How are you thinking about normalized intermediate term growth rates, what that looks like in that business.

Speaker Change: Yes.

Speaker Change: So within our circuitry business there are really three moving pieces this quarter.

Speaker Change: Smartphone markets grew.

Speaker Change: Western.

Speaker Change: Industrial markets softened and so our circuitry business in Europe, and the Americas with soft those too.

Speaker Change: Didn't quite offset the Asian business is bigger and so the smartphone uplift.

Benjamin Gliklich: So within our circuitry business, there were really three moving pieces this quarter. Smartphone markets grew. Western industrial markets softened, and so our circuitry business in Europe and the Americas was soft. Those two didn't quite offset, right?

Speaker Change: More than offset the softness in the West and then our memory business grew very nicely. It returned to growth that memory disk businesses for hard disk drives as Carey said, there is still the lowest cost per bit storage alternatives and all of this activity in AI is driving incremental.

Benjamin Gliklich: The Asian business is bigger. And so the smartphone uplift more than offset the softness in the West, and then our memory disk business grew very nicely and returned to growth. That memory disk business is for hard disk drives. As Carey said, they're still the lowest cost per bit storage alternative. And all of this activity in AI is driving incremental hard disk drive demand. So those are the three moving pieces.

Speaker Change: Hard disk drive demand. So those are the three moving pieces.

Speaker Change: The smartphone market. While it grew is still very dislocated from trend and so we believe there is still incremental recovery there at high margin and the memory disk market should continue to improve as well so.

Benjamin Gliklich: The smartphone market, while it grew, is still very dislocated from trend. And so we believe there's still an incremental recovery there at a high margin, and the memory disk market should continue to improve as well. So, you know, the circuitry business should be a mid to high single-digit grower from here for the foreseeable future.

Speaker Change: Our circuitry business should be a mid to high single digit grower.

Speaker Change: From here for the foreseeable future.

Speaker Change: Okay.

Speaker Change: Our next question comes from Steve Zhang from Bank of America. Your line is now open.

Operator: Our next question comes from Steve Ryan from Bank of America. Your line is now open.

unknown: Hi, I'm Rock Kopsch, and I'm with Stephen Byrne. Just given the OPEX ramp in 2Q that you just mentioned, how do you think the near-term EBITDA margin might play out for the rest of the year compared to what we saw in 1Q, and how much of a lever will mix benefit you for the rest of the year?

Speaker Change: Hi, Raul Kaufman on for Steve Byrne.

Raul Kaufman: Just given the Opex ramp in Q2 that you just mentioned.

Raul Kaufman: Now you may see near term EBITDA margins.

Raul Kaufman: Might play out for the rest of the year compared to what we saw in <unk> and how much of a lever walk mixed benefits for the rest of the year.

Benjamin Gliklich: Thanks for the question. So EBITDA margin should be stable around where they are right now in the second quarter, maybe modestly softer because of that OPEX ramp. But in the back half, they should continue to improve. Again, as we said, you know, we are several points away from past peak EBITDA margin X metal. I don't think we're going to get back there this year, but we've got room to drive that margin higher.

Speaker Change: Thanks for the question, so EBITDA margin should be stable around where they are right now in the second quarter may be modestly softer because of that opex ramp.

Speaker Change: But in the back half they should continue to improve.

Speaker Change: Again, as we said.

Speaker Change: We are several points away from past peak EBITDA margin ex metal I don't think were going to get back there. This year, but we've got room to drive that margin higher.

Benjamin Gliklich: And multiple levers, right, we made comments about volume being down. And so we're still facing volume deleveraging in the business. And so we've got multiple levers for margin expansion from here and are confident we can drive that in the medium term.

Speaker Change: And multiple levers right, we made comments about volume.

Speaker Change: Being down and so we're still facing.

Speaker Change: Volume deleveraging.

Speaker Change: In the business and so we've got multiple levers for margin expansion from here and are confident we can drive that.

Benjamin Gliklich: That's helpful. And just in semiconductors, specifically, was the strength in the business this quarter. I guess how much of that was the kind of result of customer operating rates versus the mixed gains that you guys saw.

Speaker Change: Medium term.

Speaker Change: That's helpful.

Speaker Change: And just in semiconductors, specifically with some strength in the business this quarter.

Speaker Change: I guess, how much of the outlets.

Speaker Change: Result of <unk>.

Speaker Change: Customer operating rates vary the mix gains that you guys saw.

Benjamin Gliklich: So our semiconductor business ran because of customer operating rates because of customer wins. And, you know, that was organic volume growth, by and large, with a margin contribution from our VIAform transaction.

Speaker Change: So our semiconductor business ramp because of customer operating rates because of customer wins.

Speaker Change: <unk>.

Speaker Change: And that.

Speaker Change: That was organic volume growth by and large.

Speaker Change: With our margin contribution from our <unk> transaction last year.

Speaker Change: Helpful. Thank you.

Operator: Our next question comes from Chris Kapsch from Loop Capital Markets. Your line is now open.

Speaker Change: Our next question comes from Chris <unk> from Loop capital markets. Your line is now open.

Christopher John Kapsch: Yeah, good morning. So my question also focused on EBITDA margins and more about the incremental margins, not about less about absolute margin levels. If you know the strong EBITDA growth you had relative to much more modest organic top-line growth, the implication, as you referenced, is really robust incremental margins. So the question is, as the balance of this year plays out, whether you have, you know, continued growth and recovery in electronics and, and potentially, Positive Mix that comes with that and then hopefully some, you know, seasonal improvement across the broader portfolio.

Chris: Yes. Good morning. So my question also on focused on EBITDA margins and more about the incremental margins not about less about absolute margin levels.

Chris: Yes.

Chris: The strong EBITDA growth you had relative to much more modest organic top line growth and your implication as you referenced like really robust incremental margins. So the question is is the balance of this year plays out like if you have continued growth in recovery in electronics.

Chris: And potentially.

Chris: The mix that comes with that and then hopefully some seasonal improvement across the broader portfolio.

Christopher John Kapsch: Is there a reason to think, other than the, you know, the build back in OPEX, that there'd be some reversion on incrementals? Or is there a case that incrementals are just simply structurally higher than you previously thought because of, you know, both the overall mix of your portfolio and maybe some of the pricing entitlement that you've implemented?

Chris: Is there a reason to think other than that.

Chris: The build build back in Opex that there'd be some reversion on incrementals or is there a case that incrementals are simply structurally higher than you previously thought because of.

Chris: Both the overall mix of your portfolio and maybe some of the pricing entitlement that you've implemented thank you.

Benjamin Gliklich: Thank you. Thanks for that question, Chris. You know, I think

Speaker Change: Okay. Thanks for that question Chris.

Speaker Change: I think our view on incrementals or that conservatively, 30% to 40%.

Benjamin Gliklich: And thanks for that question, Chris. You know, I think our view on incrementals is that, you know, conservatively, 30 to 40% through the cycle. Obviously, this quarter was a bit idiosyncratic, given a flattish organic performance and substantial organic EBITDA growth. We could see quarters like that in the future, depending on mix and underlying demand. But I don't think we're going to say that structurally, or incremental margins. You know, our change from here, there is some conservatism in that 30 to 40% because some of our new technologies carry a much, much higher margin than, you know, the core of the business. And as those ramp up, they will improve. But, you know, I'm not sure we would draw a line in the sand and say that our view on incrementals has permanently changed after one quarter.

Speaker Change: Through the cycle, obviously this quarter was a bit idiosyncratic.

Speaker Change: Given.

Speaker Change: Flattish organic performance and substantial organic EBITDA growth.

Speaker Change: We could see quarters like that in the future depending on mix and underlying demand, but I don't think were going to say that structurally incremental margins.

Speaker Change: Our changed from here there is some conservatism in that 30% to 40% because some of our new technologies carry much much higher margin.

Speaker Change: Then the core of the business.

Speaker Change: And as those ramp they will improve.

Speaker Change: But I'm.

Speaker Change: Im not sure we would.

Speaker Change: Draw a line in the sand and say that our view on Incrementals have permanently changed after one quarter.

Speaker Change: Okay.

Speaker Change: I appreciate the color.

Operator: Our next question comes from David Silver from CL King. The line is now open.

Speaker Change: Our next question comes from David Silver from CL King Your line is now open.

David Cyrus Silver: Yeah, hi, good morning. I just have a couple of questions. I'll ask them both together, I guess. But as far as the VIAform performance goes, I think this is the second consecutive quarter that was kind of called out for, you know, its strength. Just wondering, is there any way to think about, you know, how much improvement your thinking might be in 2024 over 2023?

David Cyrus Silver: Yes, hi, good morning.

David Cyrus Silver: I just have a couple of questions I'll ask them both.

David Cyrus Silver: Together I guess, but.

David Cyrus Silver: As far as the VA reform performance goes I think this is the second consecutive quarter was kind of called out for.

David Cyrus Silver: Its strength.

Speaker Change: And.

Speaker Change: Just wondering is there any way to think about how much improvement you're thinking.

Speaker Change: Might be in 2024 over 2023, I know that the implication was when the deal was struck.

Benjamin Gliklich: I know that the implication was when the deal was struck to repurchase the distribution rights that it was being purchased kind of at a below normal or below trend level of profitability. And then, just along with that, is there anything or how would you say the business is being run with ESI, with your company in full control as opposed to, you know, the previous arrangement where another company was in charge of marketing and distribution? Thank you.

Speaker Change: Two <unk>.

Speaker Change: Our repurchase the distribution rates that it was being purchased.

Speaker Change: Below normal or below trend.

Speaker Change: Our level of profitability.

Speaker Change: Profitability.

Speaker Change: And then just along with that is there anything or how would you say the business is being run.

Speaker Change: With ESI with your company and full control as opposed to.

Speaker Change: The previous arrangement, where another company was in charge of marketing and distribution.

Benjamin Gliklich: Thanks for that question. So, you know. We felt good about our timing for the VIAform transaction. And we have benefited from the ramp-up in operating rates at customers over the past couple of quarters. Most of the growth we've seen has been driven by that. But the opportunity pipeline associated with it has grown, and the application window has grown as there are, you know, it is used in applications like hybrid bonding. So there's an opportunity for us with VIAform to expand, or it's an expanding addressable market, and by being in full control from soup to nuts of this product, we believe we're generating more commercial opportunities than we would otherwise see.

Speaker Change: Thanks for that question so.

Speaker Change: No.

Speaker Change: We felt good about our timing for the <unk> transaction.

Speaker Change: And we have benefited from the ramp in operating rates.

Speaker Change: At customers over the past couple of quarters and most of the growth. We've seen has been driven by that.

Speaker Change: But the opportunity pipeline associated with it has grown.

Speaker Change: And the application window as growth as.

Speaker Change: There is.

Speaker Change: It is used in applications like hybrid bonding so.

Speaker Change: There is.

Speaker Change: An opportunity for us with via form to expand or it's an expanding addressable market.

Speaker Change: And by being in full control from soup to nuts of this product.

Speaker Change: We believe we are generating more commercial opportunities than we would have otherwise seen and so this year the business will grow double digits in line slightly better than MSI.

Benjamin Gliklich: And so this year, the business will grow double digits in line slightly better than MSI, and the long-term outlook is for significant outperformance relative to MSI because of this growth in pipeline, share opportunities, and growth in addressable markets. It's a very compelling opportunity set for us. We're thrilled by that transaction.

Speaker Change: Sure.

Speaker Change: And the long term outlook is for significant outperformance relative to MSI because of this growth in pipeline share opportunities and growth in addressable market.

Speaker Change: Very compelling opportunity set for us we're thrilled by that transaction.

David Cyrus Silver: OK, great. And then just one on the.

Speaker Change: Okay.

Speaker Change: Okay, Great and then just.

Speaker Change: One on the.

Benjamin Gliklich: R&D spend. So the first quarter, you know, the numbers are much higher year over year, but I do believe Carey mentioned last night that that includes the progress payment related to Couprion there. But, you know, my sense is your business is becoming structurally, you know, more R&D intensive. So, you know, is there kind of a target percentage of revenues or absolute total we should think about for, you know, adjusted or clean, you know, R&D spend maybe for the balance of the year or going forward? Thank you.

Speaker Change: R&D spend so the first quarter the numbers much higher year over year, but I do believe Cary mentioned last night that that includes the progress payment related to Kupriyanov there, but my sense is your businesses, becoming structurally more R&D intensive.

Speaker Change: Is there kind of a target percentage of revenues or absolute total we should think about for.

Speaker Change: Adjusted her clean R&D spend.

Speaker Change: Maybe for the balance of the year, where we're going forward. Thank you.

Benjamin Gliklich: Thanks, David. You're right to point out that the milestone payment for Cuprion was captured in R&D this quarter, which explains the large increase year over year. Our business invests R&D dollars not just captured on the R&D line in the P&L but also in technical service and applications development, which is captured under selling and technical service in the P&L. We do have, and we have increased investment in technology, particularly at the leading-edge electronics nodes.

Speaker Change: Thanks, David you are right to point out that the milestone payment for <unk> was captured in R&D.

Speaker Change: This quarter, which explains the large increase year over year.

Speaker Change: Our business invest R&D dollars not just captured on the R&D line in the P&L, but also in technical service and applications development, which is captured under selling and technical service in the P&L.

Speaker Change: We do have and we have increased investment in technology, particularly at the leading edge electronics nodes.

Benjamin Gliklich: But the breadth of our portfolio doesn't really make it apples to apples to compare our R&D spend, as captured on the R&D line in the P&L, to other electronics materials. I think that our target is to continue to invest aggressively where we have opportunities in support of our customers, and so R&D will grow, you know, roughly in line with sales, which should be growing nicely, maybe a little bit faster, but our business hasn't structurally changed in terms of its R&D needs going forward.

Speaker Change: But the breadth of our portfolio it doesn't really make it apples to apples to compare our R&D spend is captured on the R&D line in the P&L the other electronics materials companies.

Speaker Change: I think our target is to continue to invest.

Speaker Change: <unk>, where we have opportunities in support of our customers.

Speaker Change: So R&D will grow.

Speaker Change: Roughly in line with sales, which should be growing nicely, maybe a little bit faster, but our business has structurally changed in terms of its R&D needs going forward.

Benjamin Gliklich: And David, I would just add that some of the ramp we've seen in CapEx over the last couple of years has been to support lab expansion, both application labs and our core R&D labs, as well as equipment to support that. So that's also R&D spend that we're investing, obviously just showing up in the cash flow statement.

Speaker Change: David I would just add that some of the ramp we have seen in capex over the last couple of years has been to support. These unfortunate that has been to support lab expansion both applications lab in our core R&D labs as well as equipment to support that so that's also R&D spend that we're investing obviously just showing up on the cash flow statement.

David Cyrus Silver: Okay, no, that's, I appreciate the perspective there. Thank you very much.

Speaker Change: Okay no.

Speaker Change: I appreciate the perspective, there. Thank you very much.

Operator: The question comes from Jon Tanwanteng from CJS Securities. Your line is now open.

Speaker Change: Thanks, David.

Speaker Change: Question comes from John Tang and Wang Cheng from CJS Securities. Your line is now open.

Jonathan E. Tanwanteng: Hi, good morning. Thank you for taking my questions in such a nice quarter. I wanted to ask you about your semi-business. AI has obviously been making, you know, headlines as well as, you know, the Chips Act and on-shoring initiatives in all the countries. Could you update us on how those things will flow through your semi-business over the next one to three years and how big they could become as a percentage of revenue? I know you gave some details on the form, but if you could talk about the whole business, that would be great, and as a percent of profit.

Speaker Change: Hi, Good morning, Thank you for taking my questions and nice quarter.

Speaker Change: Just wanted to ask you about <unk>.

Speaker Change: Semi business AI is obviously you've been making.

Speaker Change: Headlines as long as the chips Act and onshoring initiatives in other countries could.

Speaker Change: Could you update us on how those things will flow through to your semi business over the next one to three years and.

Speaker Change: And how big it could become as a percentage of revenue I know you gave some details on via form, but if you could talk about the whole business.

Speaker Change: That would be great and as a percent of profits as well.

Benjamin Gliklich: Thanks for that question, John. So our SEMI business has accelerated this year. It has a lot of runway to continue to grow. And we expect it to outgrow, you know, the rest of our verticals and the rest of the electronics business. And so it will grow as a percentage of sales. You're right to point out the CHIPS Act.

Speaker Change: Sure. Thanks for the question John So our semi business has accelerated this year.

Speaker Change: It has a lot of runway to continue to grow and we expected to outgrow the rest of our verticals and the rest of the electronics business and so it will grow as a percentage of sales.

Speaker Change: Right to point out the chips Act the chips Act is bringing significant investment into fab capacity.

Benjamin Gliklich: The CHIPS Act is bringing significant investment into fab capacity in North America. We're seeing incremental fab capacity in Europe. And, you know, with Viaform, which we just pointed out, and other investments we've been making, we feel like we're in a prime position to get more than our existing share where we play in these new fabs, which will grow, which will drive, you know, above market growth here. Also, with regard to the CHIPS Act, we have an opportunity that we're pursuing to receive some funding from the CHIPS Act for R&D, which is very exciting and should, you know, stimulate incremental growth in the business and opportunities.

Speaker Change: In North America, we're seeing incremental fab capacity in Europe.

Speaker Change: And.

Speaker Change: With via form, which we just pointed out and other.

Speaker Change: Investment, we've been making we feel like we're in a prime position to get more than our existing share where we play in these new fabs, which will grow which will drive above market growth here.

Speaker Change: Also with regard to the chips Act, we have an opportunity.

Speaker Change: And that we're pursuing.

Speaker Change: Received some funding from the chipset for R&D, which is very exciting and should stimulate ingram.

Speaker Change: Incremental growth in the business and opportunities in the business.

Benjamin Gliklich: You know, the semiconductor business is about 10ish percent of our overall revenue, but given its divergent growth rate, it will increase as a percentage of the overall book of business, you know, and could conceivably be, you know, 20% of the business in the medium term. And, you know, we're investing aggressively behind that, but only in places where, you know, it fits our operating model, where the profit pools are deep, and where we've got a right to win. So we are being circumspect about where we invest and where we choose to play. But you know, we've got great capabilities and a lot of customer pull for them, which is compelling and exciting.

Speaker Change: The semiconductor business is.

Speaker Change: 10 ish percent.

Speaker Change: Percent of our overall revenue, but given its divergent growth rates.

Speaker Change: Will increase as a percentage of the overall book of business.

Speaker Change: Yeah.

Speaker Change: And could conceivably be 20% of the business in the medium term and.

Speaker Change: We are investing aggressively behind that but only in places where it fits our operating model, where the profit pools are deep and where we've got a right to win.

Speaker Change: So we are being circumspect about where we invest.

Speaker Change: And where we choose to play.

Speaker Change: But we've got.

Speaker Change: Great capabilities, and a lot of customer pull for them.

Speaker Change: Which is compelling and exciting for us.

Jonathan E. Tanwanteng: Great. Thank you.

Speaker Change: Great. Thank you and then just in terms of the guidance and the underlying assumptions whats the change in your expectations for China versus non China handsets and also ice versus EV automotive.

Benjamin Gliklich: And then just in terms of the guidance and the underlying assumptions, what's the change in your expectations for China versus non-China handsets and also ICE versus EV automotive? How does that mix impact you as the year progresses? Just help us understand your thoughts in those two areas.

Speaker Change: Does that mix impact you as the year progresses.

Speaker Change: Just help us understand your thoughts in those two areas.

Benjamin Gliklich: So, our business in smartphones skews towards non-Chinese OEMs. Right, so we've got more value and share in non-Chinese device makers than local Chinese device makers, but we still have plenty of value in local Chinese smartphones. And so in a quarter like this past quarter, where units were up maybe 8%, despite non-Chinese OEMs or Apple devices being down, we still grew our smartphone business. And so that's, you know, our baseline for the balance of the year.

Speaker Change: So our.

Speaker Change: Our business in smartphones skews towards non Chinese Oems.

Speaker Change: Right. So we've got more value than share in non Chinese device makers than local Chinese device makers, but we still have plenty of value in local Chinese.

Speaker Change: Smartphones and so in a quarter like this past quarter, where units were up maybe 8% despite non Chinese Oems Apple.

Speaker Change: Devices being down.

Speaker Change: We still grew our smartphone business and so that's our baseline for the balance of the year. It doesn't have any big assumption associated with the Oems providing smartphones, it's just the smartphone growth.

Benjamin Gliklich: It doesn't have any big assumptions associated with the OEMs providing the smartphones. It's just a driver of smartphone growth. And with regard to ICE and EVs, that's a difficult thing for us to parse out, because there are plenty of supply chains that we sell into that are EV or ICE powertrain agnostic. And so I can't answer that question. Specifically, I would say that the general weakness relative to expectations in EV is something of a headwind, but it hasn't changed our outlook for the full year.

Speaker Change: Driver.

Speaker Change: With regard to ice and Evs, that's a difficult thing for us to parse out because there are plenty of supply chain that we sell into.

Speaker Change: That are.

Speaker Change: Easier ice powertrain agnostic, so cant answer that question.

Speaker Change: Specifically I would say that the general weakness relative to expectations and EV is something of a headwind.

Speaker Change: But it hasnt changed our outlook for the full year.

Jonathan E. Tanwanteng: Got it. Thanks, Ben.

Speaker Change: Got it thanks, Matt.

Speaker Change: Thank you John.

Operator: We don't have any raised hands at the moment. I'd now like to hand the microphone back over to Ben for his closing remarks.

Speaker Change: We don't have any themes.

Speaker Change: Jim Amit I'd now like to hand back over to Ben for closing remarks.

Benjamin Gliklich: Great, thank you very much. Thanks to everybody for joining us, and we look forward to seeing many of you soon. Have a good day.

Ben: Great. Thank you very much thanks to everybody for joining and we look forward to seeing many of you soon have a good day.

Operator: We would like to thank everyone for attending today's conference call. We hope that you have a wonderful day. Stay safe, and you may now disconnect from this session.

Speaker Change: We would like to thank everyone for attending today's conference call.

Speaker Change: Have a wonderful day. Thank you Keith you may now disconnect.