Q2 2024 Materion Corp Earnings Call

Greetings. Welcome to the Materion Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Operator: 2024 earnings conference call. At this time, all participants are in a listening mode. A question and answer session will follow the former presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Operator: Earnings Conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator 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 of Investor Relations and Corporate FP&A. Kyle, you may begin.

Operator: Please note, this conference is being recorded.

Kyle Kelleher: I will now turn the conference over to your host, Kyle Kelleher, Director of Investor Relations and Corporate FP&A.

Please note, this conference is being recorded. I will now turn the conference over to your host, Kyle Kelleher, Director of Investor Relations and Corporate FP&A. Kyle, you may begin.

Kyle Kelleher: Kyle, you may join us on our second quarter 2024 Earnings Conference Call. This is Kyle Kelleher, Director of 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 will 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.

Kyle Kelleher: Good morning, and thank you for joining us on our second quarter 2024 earnings conference call. This is Kyle Kelleher, Director of Investor Relations and Corporate FB&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 will reference as part of today's review of the quarterly results. You can also access the materials through the download feature on an earnings call webcast link. With me today is Jugal Vijayvargiya, President and Chief Executive Officer, and Shelly Chadwick, Vice President and Chief Financial Officer.

Good morning, and thank you for joining us on our second quarter 2024 earnings conference call. This is Kyle Kelleher, Director, Investor Relations and Corporate FB&A.

Speaker Change: 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 will 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.

Kyle Kelleher: With me today is Jugal BJ Varghia, President and Chief Executive Officer, and Shelley Chadwick, Vice President and Chief Financial Officer. Our format for today's call is as follows. Jugal will provide opening comments on the quarter. Following Jugal, Shelley will review the detailed financial results for the quarter in addition to discussing our expectations for the second half of 2024. We will then open up the call for questions.

Speaker Change: With me today is Jugal Vijayvargiya, President and Chief Executive Officer, and Shelly Chadwick, Vice President and Chief Financial Officer.

Kyle Kelleher: Our format for today's call is as follows. Jugal will provide opening comments on the quarter. Following Jugal, Shelly will review the detailed financial results for the quarter in addition to discussing our expectations for the second half of 2024. We will then open up the call to questions.

Speaker Change: Our format for today's call is as follows.

Speaker Change: Jugal will provide opening comments on the quarter. Following Jugal, Shelly will review the detailed financial results for the quarter in addition to discussing our expectations for the second half of 2024. We will then open up the call for questions.

Kyle Kelleher: 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 yesterday afternoon. Additionally, comments regarding earnings before interest, taxes, depreciation, depletion, and amortization, net income, and earnings per share reflect the adjusted gap numbers shown in attachments 4 through 8 in yesterday'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.

Kyle Kelleher: Let me remind investors that any overlooking 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 yesterday afternoon. Additionally, comments regarding earnings before interest, taxes, depreciation, depletion, and amortization, net income, and earnings per share reflect the adjusted GAAP numbers shown in attachments for the rate and yesterday'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.

Speaker Change: 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.

Speaker Change: 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 yesterday afternoon.

Speaker Change: Additionally, comments regarding earnings before interest, taxes, depreciation, depletion, and amortization, net income, and earnings per share reflect the adjusted gap numbers shown in attachments 4 through 8 in yesterday's press release.

Speaker Change: 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.

Jugal Vijayvargiya: And now I'll turn the call over to Jugal for his comments. Thanks, Kyle, and welcome everyone. It's nice to be with you today to discuss a record, second quarter performance as well as our outlook for the second half of the year. After a challenging start of the year, I'm pleased to share the material is back on track, delivering record results again in the second quarter. Top line improvements coming mainly from organic initiatives combined with our focus on strong operational performance and cost management led to the highest quarterly EBITDA in the history of our company. I'm especially proud of our team for achieving these strong results while continuing to secure several new business wins and customer partnerships that will seed the pipeline for long-term sustainable growth.

Kyle Kelleher: And now, I'll turn the call over to Jugal for his comments.

Speaker Change: And now, I'll turn the call over to Jugal for his comments.

Jugal Vijayvargiya: Thanks, Kyle, and welcome, everyone. It's nice to be with you today to discuss our record second quarter performance, as well as our outlook for the second half of the year. After a challenging start to the year, I'm pleased to share that Materion is back on track, delivering record results again in the second quarter. Top-line improvements coming mainly from organic initiatives, combined with our focus on strong operational performance and cost management, led to the highest quarterly EBITDA in the history of our company.

Jugal: Thanks, Kyle, and welcome, everyone.

Jugal Vijayvargiya: It's nice to be with you today to discuss our record second quarter performance as well as our outlook for the second half of the year.

Jugal: After a challenging start to the year, I'm pleased to share that Materion is back on track, delivering record results again in the second quarter.

Speaker Change: Top line improvements coming mainly from organic initiatives combined with our focus on strong operational performance and cost management led to the highest quarterly EBITDA in the history of our company.

Jugal Vijayvargiya: I'm especially proud of our team for achieving these strong results while continuing to secure several new business wins and customer partnerships that will seed the pipeline for long-term sustainable growth. Value Added Sales were a second quarter record, a 4% year-over-year largely driven by strength in aerospace and defense and consumer electronics, in addition to a gradual semiconductor rebound now starting to fall through to our orders. The operational challenges we faced in the first quarter have largely been mitigated, and we're seeing the impact of the targeted cost improvement initiatives enhancing our bottom line as we outperform our midterm margin target of 20% for the third time in the last five quarters.

Jugal: I'm especially proud of our team for achieving these strong results while continuing to secure several new business wins and customer partnerships that will seed the pipeline for long-term sustainable growth.

Jugal Vijayvargiya: Value added sales were a second quarter record, a 4% year year, largely driven by strength in aerospace defense and consumer electronics, in addition to a gradual semiconductor rebound now starting to fall through to our order box. The operational challenges we faced in the first quarter have largely been mitigated, and we're seeing the impact of the targeted cost improvement initiatives enhancing our bottom line as we outperform our midterm margin target of 20% for a third time.

Speaker Change: Value-added sales were a second-quarter record, up 4% year-over-year, largely driven by strength in aerospace and defense and consumer electronics, in addition to a gradual semiconductor rebound now starting to flow through to our order books.

Speaker Change: The operational challenges we faced in the first quarter have largely been mitigated, and we are seeing the impact of the targeted cost improvement initiatives enhancing our bottom line, as we outperform our midterm margin target of 20% for a third time in the last five quarters.

Jugal Vijayvargiya: The last five Forders. While we're seeing software demand across select markets, including industrial and automotive, the momentum we're building across other large markets like aerospace and defense, combined with our operational initiatives and targeted cost management, continues to drive strong performance. With new partnerships and business wins in space and defense, we are demonstrating once again the ability of our products and technologies to drive solutions for some of customers' most demanding technical challenges. In aerospace and defense, our customers are developing new products and applications that require the highest level of performance reliability in the harshest conditions. The criticality of our materials to these applications is a firm through rising demand for our products as well as customer investments to secure the supply of these key materials.

Jugal Vijayvargiya: While we're seeing software demand across select markets, including industrial and automotive, the momentum we're building across other large markets, like aerospace and defense, combined with our operational initiatives and targeted cost management, continues to drive strong performance. With new partnerships and business wins in space and defense, we are demonstrating once again the ability of our products and technologies to drive solutions for some of our customers' most demanding technical challenges. In aerospace and defense, our customers are developing new products and applications that require the highest level of performance reliability in the harshest conditions.

Speaker Change: While we're seeing software demand across select markets, including industrial and automotive, the momentum we're building across other large markets, like aerospace and defense, combined with our operational initiatives and targeted cost management, continues to drive strong performance.

Speaker Change: With new partnerships and business wins in space and defense, we are demonstrating once again the ability of our products and technologies to drive solutions for some of our customers' most demanding technical challenges.

Speaker Change: In aerospace and defense, our customers are developing new products and applications that require the highest level of performance reliability in the harshest conditions.

Jugal Vijayvargiya: The criticality of our materials to these applications is affirmed through rising demand for our products, as well as customer investments to secure the supply of these key materials. I am pleased to announce that a leading aerospace and defense customer has agreed to invest approximately $10 million in new capacity and capabilities at one of our existing sites in support of their growing demand. The growth of commercial space is driving new opportunities for us as Materion remains uniquely suited to serve the needs of this expanding market.

Speaker Change: The criticality of our materials to these applications is affirmed through rising demand for our products, as well as customer investments to secure the supply of these key materials.

Jugal Vijayvargiya: I am pleased to announce that a leading aerospace and defense customer has agreed to invest approximately $10 million in new capacity and capabilities at one of our existing sites in support of their growing demand. The growth of commercial space is driving new opportunities for us as Materion remains uniquely suited to serve the needs of this expanding market. Our reputation as an innovative and reliable supplier for highly visible space projects like the James Webb Space Telescope has paved the way for opportunities to support the next generation of applications. In the second quarter, we secured a $150 million multi-year agreement to supply critical materials for space propulsion systems. This announcement follows four previously announced orders over the past 18 months, further solidifying our position as a long-term key partner to this important customer.

Speaker Change: I am pleased to announce that a leading aerospace and defense customer has agreed to invest approximately $10 million in new capacity and capabilities at one of our existing sites in support of their growing demand.

Speaker Change: The growth of commercial space is driving new opportunities for us, as Materion remains uniquely suited to serve the needs of this expanding market.

Jugal Vijayvargiya: Our reputation as an innovative and reliable supplier for highly visible space projects like the James Webb Space Telescope has paved the way for opportunities to support the next generation of applications. In the second quarter, we secured a $150 million multi-year agreement to supply critical materials for space propulsion systems.

Speaker Change: Our reputation as an innovative and reliable supplier for highly visible space projects, like the James Webb Space Telescope, have paved the way for opportunities to support the next generation of applications.

Speaker Change: In the second quarter, we secured a $150 million multi-year agreement to supply critical materials for space propulsion systems.

Jugal Vijayvargiya: This announcement follows four previously announced orders over the past 18 months, further solidifying our position as a long-term key partner to this important customer. Defense continues to be a growing market for us as advances in technology drive new government initiatives and modernization programs around the world. So far this year, we've received approximately $60 million in new orders in this market, with potential for significant upside in future years as these programs gain traction.

Speaker Change: This announcement follows four previously announced orders over the past 18 months, further solidifying our position as a long-term key partner to this important customer.

Jugal Vijayvargiya: Defense continues to be a growing market for us as advances in technology drive new government initiatives and modernization programs around the world. So far this year we received approximately $60 million of new orders in this market, with potential for significant upside in future years as these programs gain traction. The pace of incoming orders for defense is that roughly twice the pace we saw last year. In the second quarter, semiconductor recovery drove single-digit increases in both sequential and year-on-year comparisons for VA sales, mostly driven by growth in logic and memory applications. Although the pace of recovery for semi is looking to be slower than anticipated, we expect to see growth in the second half as we're seeing a pickup in order rates for the remainder of the year.

Speaker Change: Defense continues to be a growing market for us as advances in technology drive new government initiatives and modernization programs around the world.

Speaker Change: So far this year, we've received approximately $60 million of new orders in this market, with potential for significant upside in future years as these programs gain traction.

Jugal Vijayvargiya: The pace of incoming orders for defense is at roughly twice the pace we saw last year. In the second quarter, semiconductor recovery drove single-digit increases in both sequential and year-over-year comparisons for VA sales, mostly driven by growth in logic and memory applications. However, the pace of recovery for SEMI is looking to be slower than anticipated.

Speaker Change: The pace of incoming orders for defense is at roughly twice the pace we saw last year.

Speaker Change: In the second quarter, semiconductor recovery drove single-digit increases in both sequential and year-over-year comparisons for VA sales, mostly driven by growth in logic and memory applications.

Speaker Change: Although the pace of recovery for SEMI is looking to be slower than anticipated.

Jugal Vijayvargiya: We expect to see growth in the second half, as we're seeing a pickup in order rates for the remainder of the year. As the rebound occurs, we're expanding our capabilities to serve customers who are rapidly innovating to power advancements in support of rapid digitization and the shift toward artificial intelligence. The expansion of our portfolio to include ALD, or Atomic Layer Deposition, products is allowing us to support the production of the most sophisticated semiconductor products.

Speaker Change: We expect to see growth in the second half, as we're seeing a pickup in order rates for the remainder of the year.

Jugal Vijayvargiya: As the rebound occurs, we're expanding our capabilities to serve customers who are rapidly innovating to power advancements in support of rapid digitization and the shift toward artificial intelligence. The expansion of our portfolio to include ALD or atomic layer deposition products is allowing us to support the production of the most sophisticated semiconductor products. This quarter, we are pleased to receive an overall excellent supplier award for new leading ALD customer. Our team has collaborated with this customer to innovate multiple ALD materials, which we'll see expansion, the rapid growth of AI, and the increasing demand for the most complex chips.

Speaker Change: As the rebound occurs, we're expanding our capabilities to serve customers who are rapidly innovating to power advancements in support of rapid digitization and the shift toward artificial intelligence.

Speaker Change: The expansion of our portfolio to include ALD, or Atomic Layer Deposition products, is allowing us to support the production of the most sophisticated semiconductor products.

Jugal Vijayvargiya: This quarter, we were pleased to receive an Overall Excellence Supplier Award from a leading ALD customer. Our team has collaborated with this customer to innovate multiple ALD materials which will see expansion, the rapid growth of AI, and the increasing demand for the most complex chips. Another source of meaningful growth for Materion has been the important precision clad strip project that we started in 2020. Together, with funding from the customer, we built a new state-of-the-art facility to produce higher volumes of product in support of the global rollout of their next generation product.

Speaker Change: This quarter, we were pleased to receive an Overall Excellence Supplier Award from a leading ALD customer.

Speaker Change: Our team has collaborated with this customer to innovate multiple ALD materials, which will see expansion, the rapid growth of AI, and the increasing demand for the most complex chips.

Jugal Vijayvargiya: Another source of meaningful growth from the Turingon has been the important precision clad strip project that we started in 2020. Together, with funding from the customer, we built a new state-of-the-art facility to produce higher volumes of product and support for the global roll-out of their next generation product. Today, we are pleased to be able to share the customer who invested with us is Philip Morris in a national. Our precision clad strip is used in PMI's heat-not-burned consumables for the Icos-Aluma, a smoke-free product that heats tobacco instead of burning it. It is an alternative for adult smokers who would otherwise continue to smoke that is gaining popularity in Europe and Japan.

Speaker Change: Another source of meaningful growth for Materion has been the important precision clad strip project that we started in 2020.

Speaker Change: Together, with funding from the customer, we built a new state-of-the-art facility to produce higher volumes of product in support of the global rollout of their next-generation product.

Jugal Vijayvargiya: Today, we are pleased to be able to share that the customer who invested in us is Philip Morris International. Our precision-clad strip is used in PMI's heat-not-burn consumables for the Iqos Illuma, a smoke-free product that heats tobacco instead of burning it. It is an alternative for adult smokers who would otherwise continue to smoke that is gaining popularity in Europe and Japan.

Speaker Change: Today, we are pleased to be able to share that the customer who invested with us is Philip Morris International.

Speaker Change: Our precision-clad strip is used in PMI's heat-not-burn consumables for the Icos-Aluma, a smoke-free product that heats tobacco instead of burning it.

Speaker Change: It is an alternative for adult smokers who would otherwise continue to smoke that is gaining popularity in Europe and Japan.

Jugal Vijayvargiya: This business win has created a unique avenue to further diversify our portfolio, enabling us to continue to deliver strong performance even as some large markets have experienced softness in recent months. We are proud of our team's ability to work with a customer in support of this application and successfully ramp up a new production facility to meet the customer's needs. These many examples demonstrate the power of the Materian strategy, which is grounded in our team's ability to harness our advanced material expertise to create solutions that enable our customers' breakthrough solutions. Our focus on our customers' needs across our diverse portfolio is helping us to navigate short-term headwinds across some end markets while also building our pipeline to ensure long-term organic outlook.

Jugal Vijayvargiya: This business win has created a unique avenue to further diversify our portfolio, enabling us to continue to deliver strong performance even as some large markets have experienced softness in recent months. We are proud of our team's ability to work with the customer in support of this application and successfully ramp up a new production facility to meet the customer's needs. These many examples demonstrate the power of the Materion strategy, which is grounded in our team's ability to harness our advanced materials expertise to create solutions that enable our customers to achieve breakthrough solutions.

Speaker Change: This business win has created a unique avenue to further diversify our portfolio, enabling us to continue to deliver strong performance even as some large markets have experienced softness in recent months.

Speaker Change: We are proud of our team's ability to work with the customer in support of this application and successfully ramp up a new production facility to meet the customer's needs.

Speaker Change: These many examples demonstrate the power of the Materion strategy, which is grounded in our team's ability to harness our advanced materials expertise to create solutions that enable our customers breakthrough solutions.

Jugal Vijayvargiya: Our focus on our customers' needs across our diverse portfolio is helping us to navigate short-term headwinds across some end markets, while also building our pipeline to ensure long-term organic output. With a laser focus on operational excellence and maintaining the benefits of the structural cost improvements we've put in place, we are positioning ourselves for strong earnings growth throughout the balance of the year. While we're taking down the top end of our guidance range to reflect a softer in-market environment, we are well-positioned to deliver another record year for Materion. Now, I'll turn the call over to Shelly to cover more details on the financials.

Speaker Change: Our focus on our customers' needs across our diverse portfolio is helping us to navigate short-term headwinds across some end markets, while also building a pipeline to ensure long-term organic outgrowth.

Jugal Vijayvargiya: With a laser focus on operational excellence and maintaining the benefits of the structural cost improvements we've put in place, we are positioning ourselves for strong earnings growth throughout the balance of the year. While we're taking down the top end of our guidance range with like the softer end market environment, we are well-positioned to deliver another record year from Materia.

Speaker Change: With a laser focus on operational excellence and maintaining the benefits of the structural cost improvements we've put in place, we are positioning ourselves for strong earnings growth throughout the balance of the year.

Speaker Change: While we're taking down the top end of our guidance range to reflect a softer in-market environment, we are well positioned to deliver another record year for Materion.

Shelly Chadwick: Now let me turn the call over to Shelley to cover more details on the financials. Thanks, Jewel, and good morning, everyone. During my comments, I will reference the slides posted on our website yesterday afternoon, starting on slide 10. In the second quarter, value-added sales, which exclude the impact of pass-through precious metal costs, were a second quarter record at 279.8 million, up 4% from prior year. This increase was driven by continued strength in aerospace and defense, where agile improvement in semiconductor and growth in precision-clad strip, which we have now reclassified from other to consumer electronics, given today's announcement.

Speaker Change: Now, let me turn the call over to Shelly to cover more details on the financials.

Shelly Chadwick: Thanks, Jugal. And good morning, everyone.

Shelly Chadwick: During my comments, I will reference the slides posted on our website yesterday afternoon, starting on slide 10. In the second quarter, value-added sales, which exclude the impact of pass-through precious metal costs, were a second-quarter record at $279.8 million, up 4% from the prior year. This increase was driven by continued strength in aerospace and defense, gradual improvement in semiconductors, and growth in precision clad strip, which we have now reclassified from other to consumer electronics, given today's announcement.

Shelly Chadwick: Thanks Jugal and good morning everyone. During my comments I will reference the slides posted on our website yesterday afternoon starting on slide 10.

Shelly Chadwick: In the second quarter, value-added sales, which exclude the impact of pass-through precious metal costs, were a second-quarter record at $279.8 million, up 4% from prior year.

Speaker Change: This increase was driven by continued strength in aerospace and defense, gradual improvement in semiconductor, and growth in precision-clad strips, which we have now reclassified from other to consumer electronics, given today's announcement.

Shelly Chadwick: This year, a year increase was slightly offset by weakness in the industrial, automotive, and energy end markets. When looking at earnings per share, we delivered record Q2 adjusted earnings of $1.42, up 3% from prior year. Moving to slide 11, adjusted EBITDA on the quarter was 57.8 million, or 20.7% of value-added sales, up 4% from the prior year, and a record for any quarter. As Jewel commented, we're very pleased to have once again delivered margins above our midterm target of 20%. This year, a year increase was driven by higher volume, improving operational performance, and continued cost management.

Shelly Chadwick: This year-over-year increase was slightly offset by weakness in the industrial, automotive, and energy end markets. When looking at earnings per share, we delivered record Q2 adjusted earnings of $1.42, up 3% from the prior year. Moving to slide 11, adjusted EBITDA for the quarter was $57.8 million, or 20.7% of value-added sales, up 4% from the prior year and a record for any quarter. As Jugal commented, we're very pleased to have once again delivered margins above our midterm target of 20%.

Speaker Change: This year-over-year increase was slightly offset by weakness in the industrial, automotive, and energy end markets.

Speaker Change: When looking at earnings per share, we delivered record Q2 adjusted earnings of $1.42, up 3% from prior year.

Speaker Change: Moving to slide 11, adjusted EBITDA on the quarter was $57.8 million or 20.7% of value-added sales, up 4% from the prior year and a record for any quarter.

Speaker Change: As Jugal commented, we're very pleased to have once again delivered margins above our midterm target of 20%.

Shelly Chadwick: This year-over-year increase was driven by higher volume, improving operational performance, and continued cost management. These drivers helped offset some weaker price mix. Moving to slide 12, let me now review second quarter performance by business segment. Starting with performance materials, value added sales were $173.1 million, up 4% compared to the prior year. This year-over-year increase was driven largely by strength in aerospace and defense and consumer electronics, partially offset by weakness in the industrial, automotive, and energy end markets. EBITDA excluding special items was $43.1 million, or 24.9% of value-added sales, down 6% compared to the prior year period.

Jugal Vijayvargiya: This year-over-year increase was driven by higher volume, improving operational performance, and continued cost management. These drivers helped offset some weaker price mix.

Shelly Chadwick: These drivers helped offset some weaker price mix.

Shelly Chadwick: Moving to slide 12, let me now review second quarter performance by business segment. Starting with performance materials, value-added sales were 173.1 million, up 4% compared to prior year. This year-over-year increase was driven largely by strength in aerospace and defense and consumer electronics, partially offset by weakness in the industrial, automotive, and energy markets. Ibiza, excluding special items, was 43.1 million or 24.9% of value added sales, down 6% compared to the prior year period. This decrease was driven largely by unfavorable price mix, the carry forward impact of the Q1 operational challenges, and a lower recorded benefit from the manufacturer's production credit.

Speaker Change: Moving to slide 12, let me now review second quarter performance by business segment.

Speaker Change: Starting with performance materials, value-added sales were $173.1 million, up 4% compared to prior year.

Speaker Change: This year-over-year increase was driven largely by strength in aerospace and defense and consumer electronics, partially offset by weakness in the industrial, automotive, and energy end markets.

Speaker Change: Ibiza excluding special items was $43.1 million, or 24.9% of value-added sales, down 6% compared to the prior year period.

Shelly Chadwick: This decrease was driven largely by an unfavorable price mix, the carry forward impact of Q1 operational challenges, and a lower recorded benefit from the manufacturer's production credit. Continued strong cost management partially offset the decrease. Moving to the outlook, we expect space and defense to remain strong throughout the balance of 2024, with a slightly weaker outlook across the industrial and automotive end markets and the impact of the previously discussed second half inventory correction for precision clad strips.

Speaker Change: This decrease was driven largely by unfavorable price mix, the carry-forward impact of the Q1 operational challenges, and a lower recorded benefit from the manufacturer's production credit. Continued strong cost management partially offset the decrease.

Shelly Chadwick: Continued strong cost management partially offset the decrease. Moving to the outlook, we affect space and defense to remain strong throughout the balance in 2024, with a slightly weaker outlook across the industrial and automotive end markets. And the impact of the previously discussed second half inventory correction for Precision Cloud Strip. We also expect strong operational performance as we move past the impact of the Q1 operational challenges.

Speaker Change: Moving to the outlook, we expect states and defense to remain strong throughout the balance of 2024 with a slightly weaker outlook across the industrial and automotive end markets and the impact of the previously discussed second half inventory correction for precision clad strips.

Shelly Chadwick: We also expect strong operational performance as we move past the impact of the Q1 operational challenges. Next, turning to electronic materials on slide 13, value-added sales were $81.1 million, up 5% year-on-year and sequentially, driven by the gradual semiconductor market recovery. However, the energy market remains suppressed, with smart glass sales down due to softness in the non-residential construction market.

Speaker Change: We also expect strong operational performance as we move past the impact of the Q1 operational challenges.

Shelly Chadwick: Next, turning to electronic materials on slide 13, value added sales were 81.1 million, a 5% year on year, and sequentially driven by the gradual semiconductor market recovery. The energy market remains suppressed, with smart glass sales down due to softness in the non-residential construction market. Ibiza, excluding special items, was 17.1 million or 21.1% of value added sales in the quarter, delivering the highest margin profile since the second quarter of 2022. This increase was driven by higher volume and the impact of the cost improvement initiatives, both of which are strong contributors to the 230 basis points of margin expansion year on year and 240 basis points sequentially.

Speaker Change: Next, turning to electronic materials on slide 13, value-added sales were $81.1 million, up 5% year-on-year and sequentially, driven by the gradual semiconductor market recovery.

Speaker Change: The energy market remains suppressed with smart glass sales down due to softness in the non-residential construction market.

Shelly Chadwick: EBITDA, excluding special items, was $17.1 million, or 21.1% of value-added sales in the quarter, delivering the highest margin profile since the second quarter of 2022. This increase was driven by higher volume and the impact of the cost improvement initiatives, both of which are strong contributors to the 230 basis points of margin expansion year-on-year and 240 basis points sequentially. As we look out to the rest of the year, we expect the semiconductor market recovery to continue, but at a slower pace than previously expected.

Speaker Change: Ibiza, excluding special items, was $17.1 million, or 21.1% of value-added sales in the quarter, delivering the highest margin profile since the second quarter of 2022.

Speaker Change: This increase was driven by higher volume and the impact of the cost improvement initiatives, both of which are strong contributors to the 230 basis points of margin expansion year-on-year and 240 basis points sequentially.

Shelly Chadwick: As we look out for the rest of the year, we expect the semiconductor market recovery to continue, but at a slower pace than previously expected. Turning to the precision optics segment on slide 14, value added sales were 25.6 million, up 2% compared to the prior year. This increase was driven by market strength and aerospace, life sciences, and consumer electronics, slightly offset by some decent order timing. Ibiza excluding special items was 2.1 million or 8.2% of value added sales. The decrease year over year was largely driven by operational challenges combined with an unfavorable mix. Despite the year-over-year decline, this business saw sequential improvement driven by higher volume and strong cost management.

Speaker Change: As we look out to the rest of the year, we expect the semiconductor market recovery to continue, but at a slower pace than previously expected.

Shelly Chadwick: Turning to the Precision Optics segment on slide 14, value-added sales were $25.6 million, up 2% compared to the prior year. This increase was driven by market strength in aerospace, life sciences, and consumer electronics, slightly offset by some defense order timing. Evita excludes special items with 2.1 million, or 8.2% of value added sales.

Speaker Change: Turning to the Precision Optics segment on slide 14, value-added sales were $25.6 million, up 2% compared to the prior year.

Speaker Change: This increase was driven by market strength in aerospace, life sciences, and consumer electronics, slightly offset by some defense order timing.

Speaker Change: EBITDA excluding special items was 2.1 million or 8.2% of value-added sales. The decrease year-over-year was largely driven by operational challenges combined with an unfavorable mix.

Shelly Chadwick: The decrease year over year was largely driven by operational challenges combined with an unfavorable mix. However, despite the year-over-year decline, this business saw sequential improvement driven by higher volume and strong cost management. Looking out to the second half of 2024, we expect a step-up in margin performance as we improve operational performance and continue to drive targeted cost improvement initiatives across the business. Moving now to cash debt and liquidity on slide 15, we ended the quarter with a net debt position of approximately $468 million and approximately $106 million of available capacity on the company's existing credit facility.

Speaker Change: Despite the year-over-year decline, this business saw sequential improvement driven by higher volume and strong cost management.

Shelly Chadwick: Looking out to the second half of 2024, we expect a step up in margin performance as we improve operational performance and continue to drive targeted cost improvement initiatives across the business.

Speaker Change: Looking out to the second half of 2024, we expect a step up in margin performance as we improve operational performance and continue to drive targeted cost improvement initiatives across the business.

Shelly Chadwick: Moving now to cash debt and liquidity on slide 15, we ended the quarter with a net debt position of approximately 468 million and approximately 106 million of available capacity on the company's existing credit facility. Our leverage at 2.2 times remains just slightly below the midpoint of our target range. We expect to generate strong cash flow in the back half of the year, bringing our leverage below two times by year end.

Speaker Change: Moving now to cash debt and liquidity on slide 15. We ended the quarter with a net debt position of approximately $468 million and approximately $106 million of available capacity on the company's existing credit facility.

Shelly Chadwick: Our leverage, at 2.2 times, remains just slightly below the midpoint of our target range. We expect to generate strong cash flow in the back half of the year, bringing our leverage below two times by year end. Lastly, let me transition to slide 16 and address the full year outlook. Since the first quarter earnings call, the outlook for semiconductor, automotive, and industrial markets has softened. Despite the lower end market demand, we remain confident in our ability to execute and deliver another year of record results by delivering on our organic initiatives and continuing to drive operational and cost improvements throughout the company.

Speaker Change: Our leverage at 2.2 times remains just slightly below the midpoint of our target range.

Speaker Change: We expect to generate strong cash flow in the back half of the year, bringing our leverage below two times by year end.

Shelly Chadwick: Lastly, let me transition to slide 16 and address the full-year outlook. Since the first quarter earnings call, the outlook for semiconductor, automotive, and industrial markets has softened. Despite the lower end market demand, we remain confident in our ability to execute and deliver another year of record results by delivering on our organic initiatives and continuing to drive operational and cost improvements throughout the company. With the softer end market demand in mind, we are lowering the top end of our guide, revising our range from $5.60 to $5.90 for the full year adjusted earnings per share, an increase of 2% from prior year at the midpoint.

Speaker Change: Lastly, let me transition to slide 16 and address the full year outlook.

Speaker Change: Since the first quarter earnings call, the outlook for semiconductor, automotive, and industrial end markets has softened.

Speaker Change: Despite the lower end market demand, we remain confident in our ability to execute and deliver another year of record results by delivering on our organic initiatives and continuing to drive operational and cost improvements throughout the company.

Shelly Chadwick: With the softer end-market demand in mind, we are lowering the top end of our guide, revising our range from $5.60 to $5.90 for the full-year adjusted earnings per share, an increase of 2% from the prior year at the midpoint. This concludes our prepared remarks. We will now open the line for questions.

Speaker Change: With the softer end market demand in mind, we are lowering the top end of our guide, revising our range from $5.60 to $5.90 for the full year adjusted earnings per share, an increase of 2% from prior year at the midpoint.

Kyle Kelleher: This concludes our prepared remarks. We will now open the line for questions. Thank you.

Speaker Change: This concludes our prepared remarks. We will now open the line for questions.

Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 start key.

Operator: At this time, we will be conducting a question-and-answer session. If you would 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 would like to remove your question from the queue. For participants using speaker equipment that may be necessary to pick up your handset before pressing the star keys. Once again, please press star one on your phone if you wish to ask a question. One moment, please, while we pull for questions.

Speaker Change: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

Speaker Change: You may press star 2 if you would 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.

Operator: Once again, please press star 1 on your phone if you wish to ask a question. One moment, please, while we poll for questions. The first question today is coming from Daniel Moore from CJS Securities. Daniel, your line is live.

Speaker Change: Once again, please press star 1 on your phone if you wish to ask a question. One moment please while we pull for questions.

Daniel Moore: The first question today is coming from Daniel Moore from CJS Securities. Daniel, your line is live. Thank you. Good morning to you. Good morning, Shelley. I appreciate the color. Good morning, Dan. Good morning.

Speaker Change: and all the other people who have been knocked out of the race. All the other people who have been knocked out of the race. All the other people who have

Speaker Change: And the first question today is coming from Daniel Moore from CJS Securities. Daniel, your line is live.

Daniel Moore: Thank you. Good morning, Jugal. Good morning, Shelly. I appreciate the color. Good morning, Dan.

Jugal Vijayvargiya: Maybe I could give you the opportunity to kind of elaborate on what you're seeing in the marketplace. You know, looking at the balance of the year, just talk about any more color on the recovery and how it's semi-slightly slower than expected. Not a surprise, given what we've seen there, but, you know, any meaningful change in the outlook for kind of memory versus logic and where you're seeing that. Recovery, maybe push out to the right a bit.

Daniel Moore: Thank you. Good morning, Jugal. Good morning, Shelly. I appreciate the color.

Daniel Moore: Maybe just give you the opportunity to kind of elaborate on what you're seeing in the marketplace, you know, looking at the balance of the year. Just talk about, you know, any more color on the recovery and semi slightly slower than expected, not a surprise, given what we've seen there. But, you know, any meaningful change in the outlook for kind of memory versus logic and where you're seeing that recovery may be pushed out to the right a bit. Yeah. Then, you know, the markets have certainly been choppy. As you know, you know, we talked about the semi-business in our last call.

Jugal Vijayvargiya: Good morning, Dan. Maybe just give you the opportunity to kind of elaborate on what you're seeing in the marketplace. You know, looking at the balance of the year, just talk about, you know, any more color on the recovery and SEMI.

Speaker Change: Slightly slower than expected, not a surprise, given what we've seen there. But, you know, any meaningful change in the outlook for kind of memory versus logic and where you're seeing that recovery maybe push out to the right a bit.

Jugal Vijayvargiya: Dan, you know, the markets are certainly choppy, as you know. And, you know, we talked about the semi business in our last call, and we indicated that, you know, we expected Q1 to be the low point with some recovery into Q2, and then a little bit more incremental in Q3, and then a little bit more of a step up in Q4. I would say the general trend is still there, and that's what we are seeing with our order rates. Clearly, it's led by logic and memory devices, and we're hearing about it, you know, from all the semi-customers as well as, I think, just in the marketplace.

Speaker Change: Yeah, Dan, you know, the markets have certainly been choppy, as you know, and, you know, we talked about the semi-business in our last call, and we indicated that, you know, we expected Q1 to be the low point with some recovery into Q2, and then a little bit more incremental in Q3, and then a little bit more of a step up in Q4.

Jugal Vijayvargiya: We indicated that, you know, we expected Q1 to be the low point, with some recovery into Q2 and then a little bit more incremental in Q3 and then a little bit more of a step up in Q4. I would say the general trend is still there. And that's what we are seeing with our order rate. Clearly, it's led by the logic and memory devices, and we're hearing about it, you know, from all the semi customers as well as I can just in the marketplace. But I would say the pace of recovery is probably a bit muted, you know, from the time that we spoke, you know, one quarter.

Speaker Change: I would say the general trend is still there, and that's what we are seeing with our order rates. Clearly, it's led by the logic and memory devices, and we're hearing about it, you know, from all the semi-customers, as well as, I think, just in the marketplace.

Jugal Vijayvargiya: But I would say the pace of recovery is probably a bit muted, you know, from the time that we spoke one quarter ago. So we still expect the recovery to be just a bit less, I think, and going into, you know, Q3 and Q4. And that's how we've sort of revised our thinking and, you know, the guide change from the top end that we made. When you look at the other markets, you know, industrial continues to be challenged. Housing starts and non-res construction continue to be challenged.

Speaker Change: I would say the pace of recovery is probably a bit muted, you know, from the time that we spoke, you know, one quarter.

Jugal Vijayvargiya: So, we still expect the recovery just a bit less, I think, and going into, you know, Q3 and Q4. And that's how we've sort of revised our thinking and, you know, the guide change from the top end that we made.

Speaker Change: We still expect the recovery just a bit less, I think, and going into Q3 and Q4. And that's how we've sort of revised our thinking and the guide change from the top end that we made.

Jugal Vijayvargiya: When you look at the other markets, you know, industrial continues to be challenged. Housing starts, non-res constructions continue to be challenged. So the recovery on industrial, I would say, is a bit slower than what we had anticipated. Automotive production has been revised. In fact, if you look at the latest IHS data, it indicates about a 2% down from the beginning of the year. Europe is expected to be, and we have a lot of business with European automakers, you know, expected to be down to 6% now, year over year versus the 2% that I think it was at the beginning of the year.

Daniel Moore: When you look at the other markets, industrial continues to be challenged.

Jugal Vijayvargiya: So the recovery in industrial production, I would say, is a bit slower than what we had anticipated. However, automotive production has been revised. In fact, if you look at the latest IHS data, it indicates about 2% down from the beginning of the year. Europe is expected to be, and we have a lot of business with European automakers, you know, expected to be down 6% now year over year versus the 2% that I think it was at the beginning of the year. You know, the rig count continues to be challenged. In fact, you know, less than 800 is the number for the rig count.

Daniel Moore: Housing starts, non-res constructions continue to be challenged, so the recovery on industrial, I would say, is a bit slower than what we had anticipated.

Daniel Moore: Automotive production has been revised. In fact, if you look at the latest IHS data, it indicates about a 2% down from the beginning of the year. Europe is expected to be, and we have a lot of business with European automakers, you know, expected to be down 6% now year-over-year versus the 2% that I think it was at the beginning of the year.

Jugal Vijayvargiya: You know, the rig count continues to be challenged. In fact, you know, less than 800 is the number for the rig count. It continues to be challenged there.

Speaker Change: The rig count continues to be challenged, in fact less than 800 is the number for the rig count, it continues to be challenged there. What's exciting for us is I think the number of new initiatives our team has been able to drive.

Jugal Vijayvargiya: It continues to be challenged there. What's exciting, you know, for us is I think the number of new initiatives our team has been able to drive to help offset many of these choppy conditions and, I would say, really, you know, tough conditions in some of the markets. When you look at the work our team has done in space, the number of initiatives that they've been able to do, we announced today, as you know, a large order for that.

Jugal Vijayvargiya: What's exciting, you know, for us is I think the number of new initiatives our team has been able to drive to help offset many of these choppy conditions. And I would say really, you know, tough conditions, some of the markets. When you look at the work our team has done on space, the number of initiatives that they've been able to do. We announced it today, you know, a large order for that. The number of initiatives on the defense side with the opportunities and organic opportunities there. And then, even in the other markets, the number of organic initiatives that I think are teams that continue to drive to help offset.

Daniel Moore: to help offset many of these choppy conditions and I would say really, you know, tough conditions in some of the markets.

Daniel Moore: When you look at the work our team has done on space, the number of initiatives that they've been able to do, we announced today, as you know, a large order for that.

Jugal Vijayvargiya: The number of initiatives on the defense side with the opportunities and organic opportunities there. And then even in the other markets, the number of organic initiatives that I think our teams continue to drive to help offset. I mean, delivering 4% year over year growth here in Q2, and then I would expect that we would continue to have growth going into Q3 and Q4, you know, on a combined company basis. So, certainly a choppy situation right now, I think in the markets, but very pleased with the level of effort and results our team is doing on a number of fronts organically to help offset it.

Daniel Moore: The number of initiatives on the defense side with the opportunities and organic opportunities there, and then even in the other markets, the number of organic initiatives that I think our teams continue to drive to help offset, I mean, delivering a 4% year-over-year growth here in Q2.

Jugal Vijayvargiya: I mean, delivering a 4% year-over-year growth here in Q2. And then I would expect that we would continue to have growth going into Q3 and Q4, you know, on a combined company basis. So certainly a choppy, you know, situation right now. I think in the markets, but very pleased with the level of effort and results our team is doing on a number of fronts organically to help offset.

Daniel Moore: And then I would expect that we would continue to have growth going into Q3 and Q4 on a combined company basis. So certainly a choppy situation right now, I think, in the markets, but very pleased with the level of effort and results our team is doing on a number of fronts.

Daniel Moore: organically to help offset.

Daniel Moore: Helpful.

Jugal Vijayvargiya: helpful. I missed the first couple of minutes of prepared remarks, I apologize, but I wonder if you could give a little bit more detail on the, you know, the new precision clad strip project. That, you know, could lead to more additional customer opportunities besides the scale of the sort of the opportunity set and what, if any, CapEx might be needed to set up a facility. It sounds like you'd be setting up a dedicated facility, if I'm not mistaken. So any color on that opportunity would be really interesting.

Daniel Moore: I missed the first couple of minutes' prepared remarks; I apologize, but I wonder if you could give a little bit more detail on the new Precision Clad Strip project. Could that lead to additional customer opportunities besides the scale of sort of the opportunity set, and what if any CapEx might be needed to set up a facility? Sounds like you'd be setting up a dedicated facility if I'm not mistaken. So any color on that opportunity would be really interesting and helpful. Yeah, so on Precision Clad, I mean, we have spoken over many quarters now. We've been in the Precision Clad business for a number of years.

Speaker Change: helpful I missed the the first couple of minutes prepared remarks I apologize but wonder if you give a little bit more detail on the you know the new precision clad strip project

Speaker Change: Could that lead to more additional customer opportunities besides the scale of the opportunity set?

Speaker Change: What if any CapEx might be needed to set up a facility. It sounds like you'd be setting up a dedicated facility if I'm not mistaken. So any color on that opportunity would be really interesting and helpful.

Jugal Vijayvargiya: Yeah, so you know, on precision clad. I mean, as we have spoken about for many quarters now, you know, we've been in the precision clad business for a number of years, and we support various markets. I go back to the 2020 timeframe, when we announced that we had a customer that wanted to work with us to buy a lot more of the precision clad than what we were capacitized to do.

Jugal Vijayvargiya: We've supported various markets. I go back to the 2020 timeframe when we announced that we had a customer that wanted to work with us to buy a lot more of the Precision Clad than what we were capacity to do. We worked with a customer to put a facility in place, and that facility, you know, today we're mentioning is in Redding, Pennsylvania area, at least Fort, Pennsylvania. We put that facility in place in combination with the customer as they invested roughly about $120 million to help fund that facility. We're very pleased to work with them, and I think it's been a fantastic relationship.

Jugal Vijayvargiya: We worked with a customer to put a facility in place, and that facility, today we're mentioning is in the Redding, Pennsylvania area, Leesport, Pennsylvania. We put that facility in place in combination with the customer as they invested roughly $120 million to help fund that facility. We're very pleased to work with them, and I think it's been a fantastic relationship.

Jugal Vijayvargiya: And, you know, today we announced that that customer is Philip Morris International, who is using our product and their IQS, Illuma product. So, you know, I would ask you and, of course, others to look at that information. It's a product that's gaining popularity in Europe and Japan, and they continue to do a global rollout. Now, with that said, you know, we are always working on this particular product segment and trying to gain more customers in the automotive segment and consumer electronics and, you know, clean energy and others. So, we have a number of new initiatives that we continue to work on on Precision Clad.

Jugal Vijayvargiya: And you know, today we announced that that customer is Philip Morris International, who is using our product and their IQS Illuma product. So you know, I would ask you and, of course, others to look at that information. It's a product that's gaining popularity in Europe and Japan, and they continue to do a global rollout. Now, with that said, you know, we are always working on this particular product segment and trying to gain more customers in the automotive segment and consumer electronics and, you know, clean energy and others.

Jugal Vijayvargiya: So we have a number of new initiatives that we continue to work on precision clad. I mean, we're one of very few, I would say, really capable precision clad strip suppliers in the world. So we continue to do that, and we will continue to pursue other customers. And, you know, if additional capacity is needed, we'll put additional capacity in either the Leesport facility, which is the new facility, or our existing facility, where we have been doing precision cladding for many years prior to this new project that's come on board.

Jugal Vijayvargiya: I mean, we're one of very few. I would say a really capable, you know, precision clad strip suppliers in the world. So, we continue to do that, and we will continue to pursue other customers. And, you know, if additional capacity is needed, we'll put additional capacity in either in the Leesport facility, which is the new facility, or our existing facility where we were, where we have been doing Precision Clad for many years, you know, prior to this new project that's come on board.

Daniel Moore: Excellent. Look forward to hearing more.

Daniel Moore: Excellent. Look forward to hearing more. And lastly, maybe just Shelly with two quarters remaining. I appreciate the update and guide.

Shelly Chadwick: And lastly, maybe just Shelley with two quarters remaining. I appreciate the update and guide. Any sense of the cadence that revised profitability guidance, you know, Q4 historically is your strongest quarter? Is that how you see this year shaping up as well? Yeah, that is how we see it. You know, we expect a Q3 from a profitability perspective is probably going to look a lot like Q3 of last year. You know, we do expect some of the markets where we've seen some inventory correction to start to come back. You know, Jubal mentioned the non-read construction. You know, we think that the sprinkler business will start to see some orders there in Q3, you know, automotive.

Shelly Chadwick: Any sense of the cadence of the revised profitability guidance? You know, Q4 historically is your strongest quarter. Is that how you see this year shaping up as well?

Shelly Chadwick: Yeah, that is how we see it. You know, we expect that Q3, from a profitability perspective, is probably going to look a lot like Q3 of last year. You know, we do expect some of the markets where we've seen some inventory correction to start to come back. Jugal mentioned non-res construction.

Shelly Chadwick: You know, we think that the sprinkler business will start to see some orders there in Q3. And you know, the automotive business, we've seen maybe an overcorrection there. We expect that business to start to come back in the back half. So, you know, we'll move past the impact of the operational challenges we saw in Q1, starting in Q3. And, you know, we do expect the volumes to be up even higher in Q4. So, you will see the strongest quarter of the year being Q4, and really by a meaningful step, with the combination of kind of higher volume, the better operational performance, and then that normal sort of seasonality we sometimes see with markets like the Fed.

Shelly Chadwick: We've seen maybe an over correction there. We expect that there's a start to come back in the back half. So, you know, we'll move past the impact of the operational challenges we saw in Q1, starting in Q3. And, you know, we do expect the volumes to be up even higher in Q4. So, you know, you will see the strongest quarter of year being Q4 and really by a meaningful step with the combination of kind of the higher volume, the better operational performance, and then that normal sort of reasonality we sometimes see with market flip to Fed.

Daniel Moore: Really helpful. I'll jump back with any follow-ups. Thank you. Thanks, Peter.

Shelly Chadwick: Thank you.

Speaker Change: Really helpful. I'll jump back with any follow-ups. Thank you. Thanks, Sam.

Operator: Thank you. The next question is coming from Mike Harrison from Seaport Research Partners. Mike, your line is live.

Mike Harrison: The next question is coming from Mike Harrison from Seaport Research Partners. Mike, your line is live. Hi, good morning.

Speaker Change: Thank you. The next question is coming from Mike Harrison from Seaport Research Partners. Mike, your line is live.

Michael Harrison: I was hoping that we could talk a little bit more about the operational issues that impacted Q1, and it sounds like maybe there was still some lingering impact in both performance materials and precision optics in the second quarter. Any help you can provide on quantifying the impact of those two segments in Q2 would be appreciated. And then I guess I just want to understand, do you guys feel like those operational issues are completely resolved in both segments at this point, or could there be some further headwinds as we look into the second half?

Mike Harrison: I was hoping that we could talk a little bit more about the operational issues that impacted Q1, and it sounds like maybe there was still some lingering impact in both performance materials and precision optics in the second quarter. Any help you can provide on quantifying the impact of those two segments in Q2 would be appreciated, and then I guess I just want to understand you guys feel like those operational issues are completely resolved in both segments at this point, or could there be some further headwinds as we look into the second half? Yeah, I'll start with that one, Mike.

Speaker Change: Performance Materials and Precision Optics in the second quarter. Any help you can provide on quantifying the impact of those two segments in Q2 would be appreciated and then I guess I just want to

Speaker Change: Understand, do you guys feel like those operational issues are completely resolved in both segments at this point, or could there be some further headwinds as we look into the second half?

Shelly Chadwick: Yeah, I'll start with that one, Mike. So, in the performance materials, that's where we saw the main, you know, operational issues. And as you know, a big part of that business is vertically integrated, and so to see operational challenges work through that system takes a little bit of time. We are seeing marked improvement there, so I don't think we have concerns over the operations and performance materials. Where you see some of that impact still coming through in Q2 is really, you know, the normal amortization of variances.

Jugal Vijayvargiya: So in performance materials is where we saw the main operational issues, and as you know, you know, a big part of that business is vertically integrated, and so to see operational challenges work through that system takes a little bit of time. We are seeing marked improvement there. So I don't think we have concerns over the operations and performance materials where you see some of that impact still coming through in Q2. It's really, you know, normal amortization of variances.

Speaker Change: Yeah, I'll start with that one, Mike. So in performance materials is where we saw the main operational issues. And as you know, a big part of that business is vertically integrated. And so to see operational challenges work through that system takes a little bit of time. We are seeing marked improvement there. So I don't think we have concerns over the operations and performance materials. Where you see some of that impact still coming through in Q2 is really normal amortization of variances.

Shelly Chadwick: On the optics side, you know, we did see some continued operational challenges in Q2, but the team thinks they've really got that figured out and expects better performance in Q3 and for the back half of the year.

Jugal Vijayvargiya: On the optics side, you know, we did see some continued operational challenge in Q2, but the team thinks they've really got that figured out and expect better performance in Q3 and for, you know, the back half of the year.

Speaker Change: On the optics side, you know, we did see some continued operational challenge in Q2, but the team thinks they've really got that figured out and expect better performance in Q3 and for, you know, the back half of the year.

Mike Harrison: All right, and then just in terms of the Philip Morris application, any further update on their rollout plans and how their inventory management is going to impact volumes and also the fees to start up in the second half. Just trying to get a better sense of how we should think about the volume and the earnings headwind from KMI in performance materials segment as we're comparing the second half to what you guys did last year. Yeah. So Mike, you know, as we indicated, I think in the last call that second half of the year, we expected inventory correction, you know, based on the management, inventory management, things that the customer is going through.

Jugal Vijayvargiya: All right, and then... Just in terms of the Philip Morris application, any further update on their rollout plans and how their inventory management is going to impact volumes and also the phase two startup in the second half? Just trying to get a better sense of how we should think about the volume and the earnings headwind from PMI in the performance materials segment as we compare the second half to what you guys did last year. Yeah,

Speaker Change: All right, and then...

Speaker Change: Just in terms of the Philip Morris application,

Speaker Change: Any further update on their rollout plans and how their inventory management is going to impact

Speaker Change: volumes and and also the phase two startup in the second half.

Speaker Change: Just trying to get a better sense of how we should think about the volume and the earnings headwind from PMI in the performance materials segment as we're comparing the second half to what you guys did last year.

Jugal Vijayvargiya: Yeah. So, Mike, as we indicated, I think, in the last call, that in the second half of the year, we expected inventory correction, you know, based on the management, inventory management things that the customer is going through. And I would say it's in line with what we reviewed last time. So, really, no change from our assumptions on inventory correction and management in the back half of the year. Yeah, same as our commentary, I think, you know, from a quarter ago.

Speaker Change: Yeah.

Speaker Change: So, Mike, you know, as we indicated, I think, in the last call, that second half of the year we expected inventory correction, you know, based on the management, inventory management things that the customer is going through. And I would say it's in line with what we reviewed last time, so really no change from our assumptions on that inventory correction and management in the back half of the year.

Jugal Vijayvargiya: And I would say it's in line with what we reviewed last time. So really no change from our assumptions on that inventory correction and management in the back half of the year. Yeah, same as our commentary. I think, you know, from a quarter ago. As we look at our phase two, you know, of course, we've been working on phase two, and our team has done a tremendous job of continuing to make progress on getting the equipment qualified. We've indicated that that equipment would be ready, you know, really at the beginning of the year. And we would expect to start using it and start to ramp that into the 25 time frame.

Speaker Change: Yeah, same as our commentary, I think, you know, from a quarter ago. As we look at our Phase 2, you know, of course, we've been working on Phase 2, and our team has done a tremendous job of getting, continuing to make progress on getting the equipment qualified. We've indicated that that.

Jugal Vijayvargiya: As we look at phase two, you know, of course, we've been working on phase two, and our team has done a tremendous job of continuing to make progress on getting the equipment qualified. We've indicated that that equipment would be ready, you know, really, at the beginning of the year, and we would expect to start using it and start to ramp that up into the 25 timeframe. Of course, we will work with the customer on the level of volumes that they expect.

Jugal Vijayvargiya: Of course, we will work with the customer on the level of volumes that they expect. So we, you know, it's one thing to, of course, have the capacity, you know, for phase one and phase two. And it's important that we can do that. And then, you know, in terms of the actual orders and delivery, you know, those we will just continue to work with the customer on what level of inventory correction do they want to continue to work through or new orders that they want to place, what level of new orders that they want to place.

Jugal Vijayvargiya: So, we, you know, it's one thing to, of course, have the capacity for phase one and phase two, and it's important that we can do that. And then, you know, in terms of the actual orders and deliveries, you know, those, we will just continue to work with the customer on what level of inventory correction they want to continue to work through or new orders that they want to place, what level of new orders that they want to place, and I would expect that, you know, to continue to get ramped up, you know, over time.

Jugal Vijayvargiya: And I would expect that, you know, to continue to then get ramped, you know, over time. So I think we're very well positioned to be able to support the customer as they continue to move forward on their global rollout. And we'll just, just like we have, I mean, we'll follow the lead on their order patterns and requirements that they have, you know, as we get closer to the end of this year and have a better understanding of for next year.

Jugal Vijayvargiya: So, I think we're very well positioned to be able to support the customer as they continue to move forward on their global rollout. And we'll just, like we have, I mean, we'll follow the lead on the order patterns and requirements that they have, you know, as we get closer to the end of this year and have a better understanding of the requirements.

Michael Harrison: All right. Thank you for that.

Mike Harrison: All right. Thank you for that.

Shelly Chadwick: And then on electronic materials, that gross margin number has moved around a little bit in the past several quarters, kind of anywhere from the mid-20s to the mid-30s. Q2 was 33.5%, and as you noted, kind of a higher watermark for overall EBITDA margin for that segment. Do you see that 33% or 34% gross margin level as a sustainable level that maybe you can build on as volumes recover? Or should we think about maybe some mixed factors or any other factors that could maybe lead gross margin to be a little bit softer in electronic materials over time? Yeah, no, a great question.

Mike Harrison: And then on electronic materials, that gross margin number has moved around a little bit in the past several quarters, kind of anywhere from the mid 20s to the mid 30s. You know Q2 was 33 and a half percent. And, as you noted, kind of a higher water mark for overall e to DOM margin for that segment. Do you see that 33 or 34 percent gross margin level at the sustainable level that maybe you can build on as volumes recover, or should we think about maybe some mixed factors or any other factors that could maybe lead gross margin to be a little bit softer in electronic materials over time?

Speaker Change: All right, thank you for that. And then on electronic materials, that gross margin number...

Speaker Change: has moved around a little bit in the past several quarters, kind of anywhere from the mid-20s to the mid-30s. You know, Q2 was 33 and a half percent, and as you noted, kind of a higher watermark for overall EBITDA margin for that segment.

Speaker Change: Do you see that 33 or 34% gross margin level at the sustainable level that maybe you can build on as volumes recover, or should we think about maybe some mixed factors or any other factors?

Speaker Change: that could maybe lead gross margin to be a little bit softer in electronic materials over time.

Shelly Chadwick: Yeah, no great question. And you know, we're really proud of the work that the team has done in electronic materials to kind of right-size their cost structure while they've had some softer volumes. It's given them a chance to really focus on operations and make sure that we've got the right organizational setup there. That really has helped prop up gross margins as we've kind of moved through the downturn, and now we're starting to see things picked back up slightly. There is, you know, a mixed impact within EM based on their product mix or whatnot. But we do think that the progress we've seen should be sustainable as the volumes start to come back, and that that'll be great for bottom line margins going forward.

Shelly Chadwick: Yeah, no, great question. And, you know, we're really proud of the work that the team has done in electronic materials to kind of right-size their cost structure. While they've had some softer volumes, it's given them a chance to really focus on operations and make sure that we've got the right organizational setup there. And that really has helped prop up growth margins as we've, you know, kind of moved through the downturn

Speaker Change: Yeah, no, great question. And, you know, we're really proud of the work that the team has done in electronic materials to kind of right-size their cost structure. While they've had some softer volumes, it's given them a chance to really focus on operations and make sure that we've got the right organizational setup there. That really has helped prop up growth margins as we've, you know, kind of moved through the downturn and now we're starting to see things pick back up slightly.

Shelly Chadwick: And now we're starting to see things pick back up slightly. There is, you know, a mixed impact within EM based on their product mix or whatnot. But we do think that the progress we've seen should be sustainable as volumes start to come back, and that that'll be great for bottom-line margins going forward.

Speaker Change: There is a mixed impact within EM based on their product mix or whatnot, but we do think that the progress we've seen should be sustainable as the volumes start to come back and that that'll be great for bottom line margins going forward.

Mike Harrison: All right, very helpful. Thanks very much. Thanks, Mike. Thank you.

Michael Harrison: Alright, very helpful. Thanks very much.

Speaker Change: Alright, very helpful. Thanks very much. Thanks Mike.

Operator: Thank you. And once again, it is star one if you wish to ask a question on today's call. That's star one if you wish to ask a question today. The next question is coming from David Silver from CL King. David, your line is live.

Operator: And once again, it is star one if you wish to ask a question on today's call. That's star one if you wish to ask a question today.

Speaker Change: Thank you and once again it is star 1 if you wish to ask a question on today's call. That's star 1 if you wish to ask a question today. The next question is coming from David Silver from CL King. David, your line is live.

David Silver: The next question is coming from David Silver from CL King. David, your line is live. Yeah, hi. Good morning. Thank you. Good morning, David. Good morning. Happy, happy Tuesday.

David Silver: Yeah, hi, good morning. Thank you.

Kyle Kelleher: Good morning, David. Good morning.

Speaker Change: Yeah, hi, good morning. Thank you. Good morning, David. Morning.

David Silver: Good morning. Happy Tuesday. I'm going to preface my remarks by stipulating I've been jumping around between three calls, so my apologies if I'm making you repeat yourself. The first place I'd like to start would be with the new $150 million contract for critical materials for Space Propulsion. You know, I've been following your company for a few years, and I really don't recall a new piece of business of that scale. So, correct me if I'm wrong or whatnot, but how long has it been since... There was an order, you know, of that size that you've disclosed.

Speaker Change: Good morning. Happy Tuesday.

David Silver: I'm going to preface my remarks by stipulating I've been jumping around amongst three calls. So my apologies if I'm making you repeat yourself.

David Silver: I'm going to preface my remarks by stipulating I've been jumping around amongst three calls, so my apologies if I'm making you repeat yourself.

Jugal Vijayvargiya: The first place I'd like to start would be with the new $150 million contract for critical materials, first space propulsion. You know, I've been following your company for a few years, and I really don't recall a new piece of business of that scale. So correct me if I'm wrong or whatnot, but how long has it been since there was an order of that size that you've disclosed? Yeah, I think David, you know, first of all, I'm very pleased with the work that the team has done. You know, this is our, this is our fifth order actually for this customer.

Speaker Change: The first place I'd like to start would be with the new $150 million contract for critical materials.

Speaker Change: for Space Propulsion.

Speaker Change: You know, I've been following your company for a few years, and I really don't recall a new piece of business of that scale. So, correct me if I'm wrong or whatnot, but how long has it been since...

Speaker Change: There was an order, you know, of that size that you've disclosed.

Jugal Vijayvargiya: Yeah, I think, David, you know, first of all, I'm very pleased with the work that the team has done. This is our fifth order, actually, with this customer. We've announced four orders with this customer, more of, I would say, smaller chunks of orders. This order here is a multi-year contract.

Speaker Change: Yeah, I think, David, you know, first of all, I'm very pleased with the work that the team has done. You know, this is our, this is our fifth order, actually, with this customer. You know, we've announced four orders with this customer, more of, I would say, smaller chunks of orders. This order here is a multi-year contract now. What we had been now announcing is almost, in a way, you could say, almost kind of like spot orders, you know, where we get an order for one or two quarters and we can supply, you know. This gives us, I think, a multi-year, you know, long-term sustainable revenue stream with the customer, and we're very, very pleased with that. When you put

Jugal Vijayvargiya: You know, we've announced four orders for this customer, more of I would say smaller chunks of orders. This order here is a multi-year contract now. What we had been announcing is almost, in a way, you could say, almost kind of spot orders, you know, where we get an order for one or two quarters and we could supply. You know, this gives us, I think, a multi-year, you know, long-term sustainable revenue stream with the customer, and we're very, very pleased with that. When you put, when you put the other four orders that we have announced along with this one, it's in the neighborhood of around $220 million of business between the last 18 months and then, of course, the go forward, you know, 150 million contract that we announced today.

Jugal Vijayvargiya: Now, what we had been announcing is, in a way, you could say almost kind of like spot orders, you know, where we get an order for one or two quarters, and we can supply. This gives us, I think, a multi-year, you know, long-term sustainable revenue stream with the customer. And we're very, very pleased with that. When you put the other four orders that we have announced, along with this one, it's in the neighborhood of around $220 million of business over the last 18 months.

Speaker Change: When you put the other four orders that we have announced along with this one, it's in the neighborhood of around $220 million of business.

David Silver: between the last 18 months and then, of course, the go-forward, you know, $150 million contract that we announced today. Very pleased with that, with, I think, the work our team has done.

Jugal Vijayvargiya: Very pleased with that. I think the work our team has done.

Jugal Vijayvargiya: You know, with regard to the size of the orders, obviously, you know about the Precision Cloud Program, which today we announced as the PMI International Program. And that, of course, has been a very large, meaningful business for us, and we're very, very pleased with how that has turned out. But in addition to that, you know, certainly the space contract is one that is a very meaningful program for us. So, you know, these types of businesses, you know, we're doing everything we can to make sure that we're getting, you know, larger, more sustainable type of contracts.

David Silver: With regard to the size of the orders, obviously you know about the Precision Cloud program which today we announced as the PMI International Program, and that of course has been a very large

Jugal Vijayvargiya: And then, of course, the go forward, you know, $150 million contract that we announced today. Very pleased with that, with I think the work our team has done, you know, with regard to the size of the orders, obviously, you know, about the precision clad program, which today we announced as the PMI international program, and that, of course, has been a very large, meaningful business for us. And, and, and We were very, very pleased with how that turned out.

David Silver: Meaningful business for us and and and we were very very pleased with how that turned out

David Silver: But in addition to that, you know, certainly the space contract is one that is a very meaningful program for us. So, you know, these types of businesses, you know, for us, I think, you know, we're doing everything we can to make sure that we're getting, you know, larger, more sustainable type of contracts. So we can be have a little more surety in our, in our revenue stream. And I hope that we can continue to do that.

Jugal Vijayvargiya: So, we can be have a little more surety in our, in our revenue stream, and I hope that we can continue to do it. that.

David Silver: Okay. And then, you know, maybe just a quick follow-up on that. But should I assume that, you know, this large order compared to, I think you said the four other smaller ones, is it essentially the same. In other words, you know, they're asking for maybe more material, or they're willing to commit for a longer period. But, you know, your role or the company.

Speaker Change: Okay, and then you know maybe just a quick follow-up on that, but should I assume that you know this large order compared to I think you said the four other smaller ones, is it...

Speaker Change: essentially the same. In other words, you know, they're asking for maybe more material or they're willing to commit for a longer period, but

Jugal Vijayvargiya: The role hasn't really changed much, or is this, does this represent maybe, I don't know, an evolution where the current contract encompasses some additional, I don't know, either cross selling or bundling or, you know, technology included. So first order to the fifth order is, is there kind of a development or an evolution in your role there, or is it, you should, I think of it as just a larger. version of the, the previous four orders, yeah. Well, first of all, I mean, we've been a great, I think, you know, partner. I hope with this customer and the customer, I think, has confidence in us.

David Silver: You know, your role or the company's role hasn't really changed much, or is this, does this represent maybe, I don't know, an evolution where the current contract encompasses some additional, I don't know, either cross-selling or bundling or?

Speaker Change: you know, technology included. So first order to the fifth order, is there kind of a

Speaker Change: development or an evolution in your your role there or is it you should I think of it as just a larger version of the the previous four orders.

Jugal Vijayvargiya: But in addition to that, you know, certainly the space contract is one that is a very meaningful program for us. So, you know, these types of businesses, you know, for us, I think, you know, we're doing everything we can to make sure that we're getting, you know, larger, more sustainable types of contracts. So we can have a little more certainty in our revenue stream, and I hope that we can continue to do that.

David Silver: Okay, and then, you know, maybe just a quick follow up on that. But should I assume that this is a large order compared to, I think you said, the four other smaller ones? Essentially, the same. In other words, they're asking for maybe more material, or they're willing to commit for a longer period, but, you know, your role or the company's role hasn't really changed much. Or does this represent maybe, I don't know, an evolution where the current contract encompasses some additional, I don't know, either cross selling, or bundling, or you know, technology included?

Speaker Change: Yeah.

Jugal Vijayvargiya: And that's why they're reaching out and, you know, wanting to work with us now in a multi-year program. It is essentially, like you said, you know, the same product that we've been supplying in the prior four orders. It's a matter of just really, you know, cementing our relationship with them on a more longer-term basis, so that we're not looking at a more, you know, spot order, you know, order by order type of a situation. It allows us to do, of course, much better planning, make sure we have the right capacity, capability, workforce, and then continue to drive improvements, operational improvements, efficiency improvements, so that we're able to provide them with a, you know, better, better product and better value, frankly, you know, over, over time.

David Silver: So, from the first order to the fifth order, is there kind of a development or an evolution in your role there, or should I think of it as just a larger version of the previous four orders? Yeah.

Speaker Change: It is essentially, like you said, the same product that we've been supplying in the prior four orders. It's a matter of just really cementing a relationship with them on a more longer-term basis so that we're not looking at on a more spot order, order-by-order type of situation. It allows us to do, of course, much better planning, make sure we have the right capacity, capability, workforce, and then continue to drive improvements, operational improvements, efficiency improvements, so that we're able to provide them with a better product and better value, frankly, over time. So I think this is just, again, a great testament to the relationship that our teams have developed with the customers.

Jugal Vijayvargiya: Yeah, well, first of all, I mean, we've been a great, I think, you know, partner, I hope, with this customer. And the customer, I think, has confidence in us. And that's why they're reaching out and, you know, wanting to work with us, and now on a multi-year program. It is, essentially, like you said, the same product that we've been supplying on the prior four orders. It's a matter of just really, you know, cementing our relationship with them on a more longer-term basis so that we're not looking at on a more, you know, spot order, you know, order by order type of situation.

Jugal Vijayvargiya: It allows us to do, of course, much better planning, make sure we have the right capacity, capability, workforce, and then continue to drive improvements, operational improvements, efficiency improvements, so that we're able to provide them with a better product and better value, frankly, you know, over time. So I think, I think, you know, this is just, again, a great testament to the relationship that our teams have developed with the customer.

Jugal Vijayvargiya: So, I think, I think, you know, this is just again, a great testament to the relationship that our teams, you know, have developed with the customer.

David Silver: Got it. Thank you for that.

David Silver: Got it. Thank you for that.

David Silver: I'd like to switch over to electronic materials for one or two, but, you know, I was happy to see that despite the, you know, as you put it, a slower than anticipated pace of recovery in that area. You know, the revenue revenues grew both year over year and sequentially, as did the operating income, and there's been a lot of margin improvement over that time as well. I'm thinking about, you know, your expansion projects that are underway at Newton and Milwaukee.

Speaker Change: Got it. Thank you for that. I'd like to switch over to electronic materials for one or two.

David Silver: I'd like to switch over to electronic materials for one or two. But, you know, I was happy to see that despite the, you know, as you put it, a slower than anticipated pace of recovery in that area, revenue revenues grew both year over year and sequentially, as did operating income. And there's been a lot of margin improvement over that time as well. I'm thinking about, you know, your expansion projects that are underway at Newton and Milwaukee.

Speaker Change: But, you know, I was happy to see that despite the, you know, as you put it, a slower than anticipated pace of recovery in that area.

Speaker Change: You know, the revenues grew both year over year and sequentially, as did the operating income.

Speaker Change: and there's been a lot of margin improvement over that time as well. I'm thinking about, you know, your expansion projects that are underway at Newton and Milwaukee.

Jugal Vijayvargiya: We, has, has the timing of when those projects would be completed and, you know, and our startup has, has the timing of that changed with, you know, the change in your thinking about, you know, the pace of recovery and market recovery in that area or, you know, is it the case where, you know, the customers that you had envisioned to be, you know, the major. Off-takers for that, for that new capacity are, are they lined up or should we, you know, should we push back maybe the startup or the contribution and digital contribution from, from those investments a little bit further in, you know, to the right, I guess, is someone else said.

David Silver: Has the timing of when those projects would be completed and enter startup, has the timing of that changed with, you know, the change in your thinking about, you know, the pace of recovery and market recovery in that area, or, you know, is it the case where, you know, the customers that you had envisioned to be, you know, the major, offtakers for that new capacity. Are they lined up or should we push back maybe the startup or the initial contribution from those investments a little bit further to the right, I guess, as someone else said. Yeah.

Speaker Change: Has the timing of when those projects would be completed and enter start-up?

Speaker Change: Has the timing of that changed with, you know, the change in your thinking about, you know, the pace of recovery and market recovery in that area?

Speaker Change: Or, you know, is it the case where, you know, the customers that you had envisioned to be, you know, the major

Speaker Change: offtakers for that new capacity? Are they lined up or should we, you know, should we push back maybe the startup or the initial contribution from those investments a little bit further to the right, I guess, as someone else said?

Jugal Vijayvargiya: Yeah, no, I think in general, you know, as we've talked about in earlier quarters, I mean, you know, those projects where I think are on track and, in fact, as we had indicated in earlier discussions, you know, the bit of a slowdown in the semiconductor market actually gave us an opportunity to put those projects in place in a more efficient and more meaningful way. As you know, you know, when the market was at its peak, I mean, we hardly had time to get other things done. And so I think it's allowed us to put those projects in place.

Jugal Vijayvargiya: Yeah. No, I think in general, you know, as we've talked about in earlier quarters, I mean, you know, those projects are, I think, on track. And in fact, as we had indicated in earlier discussions, the bit of a slowdown in the semiconductor market actually gave us an opportunity to put those projects in place in a more efficient and more meaningful way. As you know, when the market was at its peak, we hardly had time to get other things done.

Speaker Change: Yeah.

Speaker Change: No, I think in general, you know, as we've talked about in earlier quarters, I mean, you know, those projects are, I think, are on track and in fact, as we had indicated in earlier discussions, you know, the bit of a slowdown in the semiconductor market actually gave us an opportunity to put those projects in place in a more efficient and more meaningful way.

Speaker Change: As you know, when the market was at its peak, I mean, we hardly had time to get other things done. And so I think it's allowed us to put those projects in place.

Jugal Vijayvargiya: I would say, by and large, I mean, the projects are on track. I think, as the market recovers, which we've kind of indicated, you know, perhaps a little bit more of a recovery in Q4 and then into 25, I think we'll be well positioned to take advantage of those projects.

Jugal Vijayvargiya: And so I think it's allowed us to put those projects in place. I would say, by and large, the projects are on track. I think, as the market recovers, which we've kind of indicated, you know, perhaps a little bit more of a recovery in Q4 and then into 25, I think we'll be well positioned to take advantage of those projects. In Milwaukee, as you highlighted, I mean, our, you know, we mentioned in the call earlier today, but I'm very pleased with the supplier award, the recognition from a leading ALD customer, which is exactly the type of capacity that that new facility will have.

Speaker Change: I would say by and large, I mean, the projects are on track, I think, as the market recovers, which we've kind of indicated, you know, perhaps a little bit more of a recovery in Q4 and then into 25, I think we'll be well positioned to take advantage of those projects.

Jugal Vijayvargiya: And Milwaukee, as you highlighted, I mean, or, you know, we mentioned in the call earlier today, but I'm very pleased with the, you know, supplier award recognition from a leading ALD customer, which is exactly the type of capacity that that new facility is having. So I think as ALD continues to grow, you know, we are well positioned to be able to do that. And the fact that our team has developed this great relationship to receive this award, I think, is, again, a testament of the work. And when you look at our new facility and the additional projects that we have going on there, that really serves the logic and memory market, you know, it's the main market that that area serves, you know, for the semiconductor side.

Speaker Change: In Milwaukee, as you highlighted, we mentioned it in the call earlier today, but I'm very pleased with the supplier award, the recognition from a leading ALD customer, which is exactly the type of capacity that that new facility is having. So I think as ALD continues to grow, we are well-positioned to be able to do that, and the fact that our team has developed this great relationship to receive this award, I think is, again, a testament of the work. And when you look at our Newton facility and the additional projects that we have going on there, that really serves the logic and memory market, you know, it's the main market that that area serves, you know, for the semiconductor side. And that area is the one that, you know, has started the recovery. So we would agree with that.

Jugal Vijayvargiya: So I think as ALD continues to grow, you know, we are well positioned to do that. And the fact that our team has developed this great relationship to receive this award is, again, a testament to the work. And when you look at our Newton facility and the additional projects that we have going on there, that really serves the logic and memory market, which is the main market that that area serves, you know, for the semiconductor side.

Jugal Vijayvargiya: And that area is the one that, you know, has started the recovery. So we would expect that, you know, the recovery to continue and then into 25. And the projects we have would be adding, you know, value to that ramp.

David Silver: And that area is the one that, you know, has started the recovery. So we would expect that, you know, the recovery to continue and then into 25 so that the projects we have would be, would be adding, you know, value to that, to that ramp. Okay, great.

Speaker Change: expect that you know the recovery to continue and then into 25 so so that the projects we have would be would be adding you know value to that to that ramp-up

David Silver: Okay, great. Maybe just a question for Shelly, I guess, on capital expenditures. But, you know, when I looked at the relevant slide in the deck here, and I'm sorry, I'm fiddling with it here, um, I think it might be 16. Sorry.

Shelly Chadwick: Maybe just a question for Shelly, I guess, on capital expenditures. But, you know, when I looked at the relevant slide in the deck here, and I'm sorry, I've fiddling with it here. I think it might be 16.

Speaker Change: Okay, great. Maybe just a question for Shelly, I guess, on capital expenditures. But, you know, when I looked at the relevant slide in the deck here, and I'm sorry, I'm fiddling with it here.

David Silver: But I was just wondering, yeah, has the total CAPEX spend, you know, moved down a little bit in the last, you know, 90 days or so? And if so, or if there's been shifts in the emphasis there, what has changed, I guess, in your CAPEX projections for the current year? And I guess that feeds in a little bit to what I was asking Jugal about the timing of the electronic materials program. Yeah.

Shelly Chadwick: Sorry, but I was just wondering, yeah, has the total CapEx spend, you know, moved down a little bit in the last, you know, 90 days or so? And if so, or if there's been shifts in the emphasis there, I mean, what has changed, I guess, in your CapEx projections for the current year. And I guess that feeds in a little bit to what I was asking Jugal about, maybe the timing of the electronic materials programs. Yeah, good question. So it is down a little bit, but I would say it's, you know, probably two different factors.

Speaker Change: I think it might be 16. Sorry, but I was just wondering, yeah, has the total CapEx spend, you know, moved down a little bit in the last, you know, 90 days or so? And if so, or if there's been shifts in the emphasis there, I mean,

Speaker Change: What has changed, I guess, in your CAPEX projections for the current year? And I guess that feeds in a little bit to what I was asking Jugal about, maybe the timing of the electronic materials programs.

Shelly Chadwick: Yeah, good question. So it is down a little bit, but I would say it's, you know, probably two different factors.

Speaker Change: Yeah, good question. So it is down a little bit, but I would say it's, you know, probably two different factors. I mean, one, of course, it's a CFO , I'm very focused on cash generation and making sure that we're being prudent with our, our debt pay down while we're investing for growth. So we have not delayed any growth related projects.

Shelly Chadwick: I mean, one, of course, as a CFO, I'm very focused on cash generation and making sure that we're being prudent with our debt paydown while we're investing for growth. So we have not delayed any growth-related projects. The other side of that is a specific piece that we're working on in performance materials, which you used to see on this page, the extrusion press. That's just been pushed out a quarter or two while we're doing more engineering to get ready for that. So that's another piece of kind of the tick down.

Shelly Chadwick: I mean, one, of course, it's a CFO. I'm very focused on cash generation and making sure that we're being proven with our debt paydown while we're investing for growth. So we have not delayed any growth-related projects. The other side of that is a specific piece that we're working on in performance materials, which you used to see on this page extrusion press. That's just been pushed out a quarter to while we're doing more engineering to get ready for that. So that's another piece of kind of the tick down.

Speaker Change: The other side of that is a specific piece that we're working on in performance materials, which you used to see on this page, extrusion press, that's just been pushed out a quarter or two while we're doing more engineering to get ready for that. So that's another piece of kind of the tick down.

Shelly Chadwick: Okay. Very good. No, thank you for that.

David Silver: Okay, um... Very good. No, thank you for that.

Speaker Change: Okay.

David Silver: And I guess the last question would be one about, I guess the Q1 to Q2 margin progression. I mean, to me, you know, that was one of the more eye-catching, you know, developments, I guess, in your quarterly release. And I'm just wondering if, you know, in addressing the issues that led to the inefficiencies in the first quarter, you know, first of all, congratulations for kind of addressing that so quickly. But I'm just wondering, I mean, to have your thoughts about the target level, you know, 20%, I guess, was your intermediate level. You've exceeded that a few times now.

David Silver: And I guess the last question would be one about, I guess, the Q1 to Q2 margin progression. I mean, to me, you know, that was one of the more eye-catching developments in your quarterly release. And I'm just wondering if, you know, in addressing the issues that led to the inefficiencies in the first quarter, first of all, congratulations for kind of addressing that so quickly. But I'm just wondering, I mean, what are your thoughts on that?

Speaker Change: And I guess the the last question would be one about I guess the Q1 to Q2 margin progression. I mean I to me you know that was one of the more eye-catching you know developments I guess in your quarterly release.

Speaker Change: And I'm just wondering if, you know, in addressing the issues that led to the inefficiencies in the first quarter.

David Silver: The target level, 20%, I guess, was your intermediate level. You've exceeded that a few times now. I mean, should we be thinking that there's going to be some upside to that midterm target that you seem to have reached ahead of schedule?

Speaker Change: The target level, you know, 20 percent, I guess, was your intermediate level.

Shelly Chadwick: I mean, should we be thinking that there's, you know, going to be some upside to that midterm target that, you know, you seem to have reached ahead of schedule? Well, first of all, thanks for recognizing that. And we'll definitely pass that onto the team for, I think, a great work that they did in the first quarter to kind of help recover and then get us back on track here in the second quarter with record results. You know, the highest EBITDA level of any quarter that we've had. So we'll definitely pass that on. You know, this is the third quarter in the last five where we have been north of 20% EBITDA margins.

Jugal Vijayvargiya: Well, first of all, thanks for recognizing that. And we'll definitely pass that on to the team for, I think, the great work that they did in the first quarter to kind of help recover and then get us back on track here in the second quarter with record results. You know, the highest EBITDA level of any quarter that we've had. So we'll definitely pass that on.

Speaker Change: Well, first of all, thanks for recognizing that, and we'll definitely pass that on to the team for, I think, the great work that they did in the first quarter to kind of help recover and then get us back on track here in the second quarter with record results. You know, the highest EBITDA level of any quarter that we've had.

Jugal Vijayvargiya: You know, this is the third quarter in the last five where we have been north of 20 percent EBITDA margins. We've also highlighted in our remarks that we expect the back half of this year to be north of 20 percent EBITDA margins. And yeah, then I think, you know, where we go, David, in 25, we'll obviously be talking about that later this year and early next year.

Speaker Change: So we'll definitely pass that on.

Shelly Chadwick: We've also highlighted in our, in our remarks that we expect the back half of this year to be north of 20% EBITDA margins. And yeah, then I think, you know, where we go, David, in 25, you know, we'll obviously be talking about that later this year and early in the next year, but our goal is the same. You know, we want to make sure that we can on a sustainable basis deliver, you know, north of 20% EBITDA margins. And if certainly we can do more, then we'll definitely be talking about.

Jugal Vijayvargiya: But our goal is the same. You know, we want to make sure that we can, on a sustainable basis, deliver north of 20 percent EBITDA margins. And if, certainly, we can do more, then we will.

Shelly Chadwick: that.

David Silver: Okay, great. And I forgot to add, you know, that you're accomplishing this in a less than, you know, robust demand environment, as you've articulated.

David Silver: Okay, great. And I forgot to add that you're accomplishing this in a less than, you know, robust demand environment, as you've articulated. And that's it for me. I apologize for the scattershot nature of the questions. I'm just happy I asked the right question to the right company jumping around on too many calls this morning. Thanks very much. I appreciate it.

Speaker Change: Okay, great. And I forgot to add, you know, that you're accomplishing this in a less than, you know, robust demand environment, as you've articulated.

David Silver: And that's it for me.

David Silver: I apologize for the scattershot nature of the questions. I'm just happy I have the right question to the right company, jumping around on too many calls this morning. Thanks very much.

David Silver: I appreciate it. Thank you.

Operator: Thank you. The next question will be from Phil Gibbs from KeyBank Capital Markets. Phil, your line is live.

Operator: The next question will be from Phil Gibbs from KeyBank Capital Markets. Phil, your line of life. Hey, good morning. Good morning. Now, the notice in your slide deck, you had some nice incremental business wins within propulsion and then also just generally defense. Are those orders expected to ship over the next six to eighteen months? How should we think about that? I wouldn't think you'd be able to cater to all those in the back half. Yeah, no, they're clearly not, you know, all in the back half, right? So let me start with the roughly $60 million of orders that we have had on defense.

Philip Gibbs: I noticed in your slide deck you had some nice incremental business wins within propulsion and then also just generally defense. Are those orders expected to ship over the next... 6-18 months? How should we think about that? I wouldn't think you'd be able to cater to all those in the back half.

Speaker Change: I noticed in your slide deck you had some nice incremental business wins within propulsion and then also just generally defense. Are those orders expected to ship over the next?

Jugal Vijayvargiya: Yeah, no, they're clearly not, you know, all in the back half, right? So let me start with the roughly 60 million dollars of orders that we have had on defense. First of all, by the way, I just want to highlight what a wonderful job our team has done in terms of securing these orders. You know, a couple of things that I think are important.

Phil Gibbs: First of all, by the way, I just want to highlight what a wonderful job our team has done in terms of securing these orders. You know, a couple of things that I think that are important. One is we're starting to have more and more of our defense orders from outside the US of global. I think that's been a very important part of what the work that our team has been doing. So a sizable portion of that $60 million is actually outside. The second is that this is $60 million for the first two quarters of the year.

Jugal Vijayvargiya: One is that we're starting to have more and more of our defense orders from outside the U.S., so it's global. I think that's been a very important part of the work that our team has been doing. So a sizable portion of that $60 million is actually outside. The second point is that this is $60 million for the first two quarters of the year. All of last year, we had $60 million in new defense orders. So we're roughly on pace to be about two times the value of defense orders this year than what we secured last year. So the team has certainly done a very nice job with that.

Jugal Vijayvargiya: All the last year, we had $60 million of new defense orders. So we're roughly on pace to be about two times the value of defense orders this year than what we secured last year. So the team has done certainly a very nice job of that. We would expect those to ship a bit of it here in the back half of this year, but then really into 25 and, you know, typically, as you know, a failure of defense orders do tend to be in the one to two year time frame. So we would expect that to happen.

Speaker Change: All of last year, we had $60 million of new defense orders, so we're roughly on pace to be about two times the value of defense orders this year than what we secured last year. So the team has done certainly a very nice job of that. We would expect those to ship, a bit of it here in the back half of this year, but then really into 2025.

Jugal Vijayvargiya: We would expect them to ship a bit of it here in the back half of this year but then really into 2025. And typically, as you know, Phil, defense orders do tend to be in the one- to two-year timeframe. So we would expect that to happen.

Speaker Change: You know, typically, as you know, Phil, you know, defense orders do tend to be, you know, in the one to two year time frame. So we would expect that to happen.

Jugal Vijayvargiya: With regard to the space and propulsion orders, we also indicated that this is our fifth order from this customer. So the first four were spot orders, but now this is a multi-year contract that we have. So this is a two-, three-, four-year type of a multi-year type of contract. And so we would expect right now, let me back up. Right now, I'm going to say that we are still finishing up delivering the orders that we have already.

Jugal Vijayvargiya: You know, with regard to the space and the propulsion orders that we also indicated that this is our fifth order from this customer. So the first four were these spot orders, but now this is a multi-year contract that we have. So, you know, this is a two, three, four-year type of a multi-year type of a contract. And so we would expect right now. Let me back up. Right now, we're, I'm going to say, still finishing up delivering to the orders that we had already. We're finishing those up. And this new award will go into fact once we finish delivering the last, the fourth contract that we had. Once we finish delivering that, this will go into fact.

Speaker Change: with regard to the space and the propulsion orders, we also indicated that this is our fifth order from this customer. So the first four were the spot orders, but now this is a multi-year contract that we have. So, you know, this is a two, three, four year type of a multi-year type of a contract. And so we would expect right now, let me back up. Right now, we're, I'm gonna say still finishing up delivering to the orders that we had already.

Jugal Vijayvargiya: We're finishing those up, and this new award will go into effect once we finish delivering the last – the four contracts that we had. Once we finish delivering that, this will go into effect, and then it will last on a multi-year basis.

Speaker Change: We're finishing those up, and this new award will go into effect once we finish delivering the four contracts that we had. Once we finish delivering that, this will go into effect, and then it will last on a multi-year basis.

Jugal Vijayvargiya: And then the last, you know, on a multi-year basis. Thank you.

Philip Gibbs: Thank you, and then generically on your backlog. Can you give us an idea about how your overall backlog looks right now relative to the end of the quarter or end of the first quarter, just so we've got an idea of, you know, the visibility that you may have? Yeah.

Jugal Vijayvargiya: And then generically on your backlog, can you give us an idea about how your overall backlog looks right now, relative to the end of 23 or end of first quarter, just so we've got an idea of the visibility that you may have. Yeah. So look, I mean, the backlog is kind of a mixed bag, as you can imagine, right? I mean, there are certain markets where the backlog is improving. I mean, we indicated, for example, on semi, you know, our backlog is improving because we are starting to see a bit more of an order pattern, you know, on semi.

Speaker Change: Thank you, and then generically on your backlog.

Jugal Vijayvargiya: Yeah, so look, I mean, the backlog is, it's kind of a mixed bag, as you can imagine, right? I mean, there are certain markets where the backlog is improving. I mean, we indicated, for example, on SEMI, you know, our backlog is improving because we are starting to see a bit more of an order pattern, you know, on SEMI. As you can imagine, on space and defense, our backlog is improving. But there are certain areas, you know, like automotive and industrial and a couple of very challenging areas; our backlog is certainly a bit more challenging.

Speaker Change: Yeah, so look, I mean, the backlog is, it's kind of a mixed bag, as you can imagine, right? I mean, there's certain markets where the backlog is improving. I mean, we indicated, for example, on SEMI, you know, our backlog is improving, because we are starting to see a bit more of an order pattern, you know, on SEMI. As you can imagine, on space and defense, our backlog is improving. But there are certain areas, you know, like automotive and industrial and a couple of the very challenged areas, you know, our backlog is certainly a bit more challenged. So it's a mixed bag of where we've got some areas where the backlog is improving quite a bit, and then fortunately, other areas where it's not. I would say on an overall basis, the backlog at a Materion level is moving in the right direction. So incremental

Jugal Vijayvargiya: As you can imagine, on space and defense, our backlog is improving, but there are certain areas, you know, like automotive and industrial and a couple of very challenged areas, you know, our backlog is certainly a bit more challenged. So it's a mixed bag of where we've got some areas where the backlog is improving quite a bit, and then, fortunately, other areas where it's now. I would say, on an overall basis, the backlog at a maternity on level is moving in the right direction. So incremental, incremental moves from quarter to quarter, and I hope we can continue that, you know, into Q3 and then more of a larger step move, you know, in Q4 as that is particularly in the in the semi market and then brilliant nickel for industrial market, et cetera, that, you know, we would expect we would expect a much more of a pickup on the backlog in the fourth quarter.

Jugal Vijayvargiya: So it's a mixed bag where we've got some areas where the backlog is improving quite a bit, and then, fortunately, other areas where it's not. I would say, on an overall basis, the backlog at Materion is moving in the right direction. So incremental, incremental moves from quarter to quarter, and I hope we can continue that, you know, into Q3, and then more of a larger step move, you know, in Q4, as that is particularly the case in the SEMI market, and then Beryllium Nickel for the industrial market, et cetera, that, you know, we would expect, we would expect a much more of a pickup on the backlog in the fourth quarter.

Speaker Change: Incremental moves from quarter to quarter and and I hope we can continue that you know into Q3 and then more of a more of a larger step move you know in Q4 as that is a particularly in the in the semi market and and then brilliant nickel for industrial market etc that you know we would expect

Phil Gibbs: Thank you.

Philip Gibbs: And then, lastly for me, I think the slide deck also talked about a focus on cash generation in the back half of the year. The first half carried a bit more cash than we thought, you know, three, six months ago, let's just say for networking capital. I know you've got a focus to let some inventory bleed down or normalize a bit as you ship on some of these projects. Is that still the case as of right now?

Shelly Chadwick: And lastly, for me, I think this live deck also talked about a focus on cattle generation in the back half of the year. The first half carried a bit more cash than we thought, you know, three, six months ago. Let's just say, for networking capital, and I know you've got a focus to let some inventory bleed down or normalize a bit as you ship on some of these projects. Is that still the case as of right now? And how should we be thinking about cash generation and networking capital in the back half, and what kind of, whatever you're going to say next, what gets you there.

Speaker Change: Thank you. And then lastly for me, I think the slide deck also talked about a focus on

Speaker Change: cash generation in the back half of the year. The first half carried a bit more cash than we thought, you know, three, six months ago, let's just say for networking capital. I know you've got to focus to let

Speaker Change: some inventory.

Speaker Change: bleed down or normalize a bit as you ship on some of these projects. Is that still the case as of right now?

Speaker Change: And how should we be thinking about cash generation and networking capital in the back half and what kind of, whatever you're going to say next, what gets you there. Thank you.

Shelly Chadwick: And how should we be thinking about cash generation and networking capital in the back half? And what kind of, whatever you're going to say next, gets you there? Thank you.

Shelly Chadwick: Thank you. Sure. So, you know, we didn't end Q2 with the cash generation that we were looking for. And a lot of it was timing. We do have some, you know, plans to reduce inventory that are well underway. But they're being a little bit offset by some build that we have both for the space business and also cloud. So we're managing that from a timing perspective. Same with accounts fable, if you think about, you know, controlling costs and bringing costs in and trying to manage inventory that way, it's bringing down our AP a little bit as well, which is, you know, a good guy.

Shelly Chadwick: Sure. But, you know, we didn't end Q2 with the cash generation that we were looking for. And a lot of that was timing. We do have some, you know, plans to reduce inventory that are well underway, but they're being a little bit offset by some bills that we have, both for the space business and also clad. So we're managing that from a timing perspective. Same with accounts payable. If you think about controlling costs and bringing costs in and trying to manage inventory that way, it's bringing down our AP a little bit as well, which is, you know, is a good guy.

Shelly Chadwick: So, you know, as we look out at the back half of the year, you know, stronger earnings are certainly a help, but we expect those working capital numbers to get in line as well. So, you know, to be able to bring down the debt to under two times where we think it should be at.

Shelly Chadwick: So, you know, as we look out at the back half of the year, you know, stronger earnings is certainly a help. But we expect those working capital numbers to get in line as well. So, you know, to be able to bring down the debt to under two times where, you know, where we think it should be at this point. Thank you. Thanks. Thank you.

Speaker Change: at this point.

Philip Gibbs: Thank you. The next question will be from Dave Storms from Stonegate. Dave, your line is live.

Dave Storms: The next question will be from Dave Storms from Stonegate. Dave, your line is live.

Speaker Change: Thank you. Thanks. Thank you. The next question will be from Dave Storms from Stonegate. Dave, your line is live.

Dave Storms: Good morning. Morning, Dave. You just on the call and in the slides, you mentioned or highlighted how cost management has been a driver of the margin growth. Just curious as to how much more headroom you see here, how many more levers you have to continue having cost management be beneficial to a margin expansion. Yeah, I'll start, and if Google has anything to add, you can pipe in. But, you know, I think that if we think about where we've been, you know, we started out with some very targeted cost actions, you know, sort of waiting to see, you know, what the markets would do.

David Storms: You just, on the call, and in the slides, you mentioned or highlighted how cost management has been a driver of margin growth. Just curious as to how much more headroom you see here, how many more levers you have to continue having cost management be beneficial to margin expansion.

Dave Storms: Good morning.

Dave Storms: You just on the call and in the slides you mentioned or highlighted how cost management has been a driver of the margin growth. Just curious as to how much more headroom you see here, how many more levers you have to continue having cost management be beneficial to margin expansion.

Shelly Chadwick: Yeah, I'll start, and if Jugal has anything to add, you can type it in, but you know, I think that if we think about where we've been, you know, we started out with some very targeted cost actions, you know, sort of waiting to see what the markets would do in semiconductors, you know, in EM, electronic materials specifically. I think we got a little bit more holistic in saying, you know, really, And so I would say those were, you know, a bit more fulsome actions. And now I would say we're kind of back to that targeted level. There's work going on in the field of optics.

Speaker Change: Yeah, I'll start and if Jugal has anything to add you can type in. But, you know, I think that if we think about where we've been, you know, we started out with some very targeted cost actions, you know, sort of waiting to see, you know, what the markets would do. In semiconductors, you know, in EM, electronic materials specifically, I think we got a little bit more holistic saying, you know, really where do we have opportunities to improve the cost structure in this business? And so I would say those were, you know, a bit more fulsome actions. And and now I would say we're kind of back to that targeted level. There's work going on in optics. I think we mentioned that as well. But, you know, they certainly will become more selective, you know, as we don't, you know, we're focused on growing the business, right? That takes investment. So I would say we've done

Shelly Chadwick: In semiconductors, you know, in EM, electronic material, specifically, I think we got a little bit more holistic saying, you know, really where do we have opportunities to improve the cost structure in this business? And so I would say those were, you know, a bit more fulsome actions. And now I would say we're kind of back to that targeted level. There's work going on in optics; I think we mentioned that as well. But, you know, they certainly will become more selective, you know, as we don't, you know, we're focused on growing the business, right? That takes investment.

Shelly Chadwick: I think we mentioned that as well, but you know, they certainly will become more selective, as we don't, you know, we're focused on growing the business, right? That takes investment. So I would say we've done the lion's share of what there is to do. It would be selective from here, but there'll also be investments as we look towards, you know, what's coming in the future.

Shelly Chadwick: So I would say we've done the, you know, the line share of what there is to do. It would be selective from here, but the also the investments as we look towards, you know, what's coming in the future.

Dave Storms: you know, the lion's share of what there is to do. It would be selective from here, but there'll also be investments as we look towards, you know, what's coming in the future.

Dave Storms: Very helpful. Thank you.

David Storms: Very helpful, thank you. And, apologies if I missed this, but has there been any more clarification on the production tax credit?

Shelly Chadwick: And apologies by Mrs. Has there been any more clarity on the production tax credit? Yeah, no, great question. Not really. You know, we expect that there will be final guidance still this year. And there are, you know, whispers here and there what might or might not be included. As we've said before, we think we've taken a very middle-of-the-road approach in what we are accruing for a benefit. It's a little bit less than what we're accruing the first half of last last year. But I would say there's equal amounts, you know, upside downside based on where that final guide land.

Speaker Change: Very helpful. Thank you. And apologies if I missed this. Has there been any more clarity on the production tax credit?

Shelly Chadwick: Yeah, no, a great question. Not really.

Speaker Change: Yeah, no, great question. Um, not, not really. Um, you know, we expect that there will be final guidance still this year and there are, you know, whispers here and there of what might or might not be included. As we've said before, we think we've taken a very middle of the road approach in what we are accruing for a benefit.

Shelly Chadwick: We expect that there will be final guidance still this year, and there are whispers here and there of what might or might not be included. As we've said before, we think we've taken a very middle-of-the-road approach to what we are accruing as a benefit. It's a little bit less than what we were accruing in the first half of last year, but I would say there's equal amounts of upside and downside based on where that final guide lands. So we look forward to hearing that sometime in the back half.

Dave Storms: It's a little bit less than what we were accruing the first half of last year, but I would say there's equal amounts, you know, upside, downside, based on where that final guide lands. So we look forward to hearing that sometime in the back half.

David Storms: Also, very helpful. Thank you. And then just one more for me.

Shelly Chadwick: So we look forward to hearing that sometime in the back up.

Shelly Chadwick: Thank you, and then just one more for me. I know you mentioned debt pay down as part of one of your uses for the expected increase in cash flows. I'm just curious as you see in anything in the M&A market that peaks your interest. You know, where do you think values are, you know, just put them flow of cash expected, just anything along that line. Yeah, clearly, you know, as we've indicated before, I mean, we're always looking at opportunities, right? I mean, our doors sort of always open, but we're very, very critical in the way we look at things.

David Storms: I know you mentioned debt paydown as part of one of your uses for the expected increase in cash flows. I'm just curious, are you seeing anything in the M&A market that piques your interest? You know, where do you think values are, you know, just below what cash is expected? It's just anything along that line.

Jugal Vijayvargiya: Yeah. Yeah, clearly, as we've indicated before, we're always looking at opportunities, right? Our doors are sort of always open. But we're very, very critical in the way we look at things. We want to make sure that it's the right fit. We don't want to do M&A just for the sake of doing M&A. We want to make sure that it's got the right culture fit.

Shelly Chadwick: We want to make sure that it's the right fit. You know, we don't want to do M&A just for the sake of doing M&A. We want to make sure that it's got the right culture fit. It aligns with our mega trends, you know, our portfolio that we have and that we can really drive our significant value, you know, as we were doing that. So we're continuously looking at that and evaluating opportunities, and certainly if there is an opportunity for us to move forward, then we would, you know, we have even at even at today's levels and we have the capacity to be able to do it.

Jugal Vijayvargiya: It aligns with our megatrends, you know, our portfolio that we have, and we can really drive significant value by doing that. So, we are continuously looking at that and evaluating opportunities. And certainly, if there's an opportunity for us to move forward, then we will. You know, we have, even at today's levels, I mean, we have the capacity to be able to do it. But certainly, we're going to continue to improve our cash position, not only for M&A, but, you know, as we've highlighted, we want to continue to make sure that we're driving organic investments. So, we'll keep doing that.

Dave Storms: So we are continuously looking at that and evaluating opportunities and certainly if there is an opportunity for us to move forward then

Dave Storms: [inaudible]

Shelly Chadwick: But certainly we're going to continue to improve our cash position, not only from an A, but you know, if we've highlighted we want to continue to make sure that we're driving organic investments. So we'll keep doing that.

Dave Storms: Very helpful. Thank you very much, and good luck. Thank you.

David Storms: Very helpful. Thank you very much and good luck in 3Q.

Kyle Kelleher: Thank you. There were no other questions at this time. I would now like to hand the call back to Kyle Kelleher for closing remarks.

Operator: There were no other questions at this time.

Speaker Change: Thank you. Thank you.

Kyle Kelleher: I would now like to hand the call back to Kyle Keller for closing remarks. Thank you.

Dave Storms: Thank you. There were no other questions at this time. I would now like to hand the call back to Kyle Kelleher for closing remarks.

Kyle Kelleher: Thank you. This concludes our second quarter 2024 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 in this call and your interest in Materion. I'll be available for any follow-up questions. My number is 216-383-4931. Thank you again.

Kyle Kelleher: This concludes our second quarter 2024 earnings call. Recorded playback of this call will be available on the company's website, materiam.com. I'd like to thank you for participating on this call and your interested material. I will be available for any follow-up questions. My number is 216-383-4931. Thank you again. Thank you.

Kyle Kelleher: Thank you. This concludes our second quarter 2024 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, and you may disconnect your lines at this time. Thank you for your participation.

Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Kyle Kelleher: Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.