Q1 2025 Element Solutions Inc Earnings Call

Kath: Thank you for standing by, my name is Cass, and I will be your conference operator today. At this time, I would like to welcome everyone to the Element Solutions Inc 2025 First Quarther Financial Results call.

Kath: All lines have been placed in need to prevent any background noise.

Kath: After the speaker remarks, there will be questions and answer session. If you would like to ask a question during this time, simply press TAR, follow by the number one on your telephone keypad. If you would like to withdraw your question, press TAR one again.

Speaker Change: I would now like to turn the call over to Varun Gokarn, Vice President of Strategy and Integration. Please go ahead.

Varun Gokarn: Good morning and thank you for participating in our first quarter 2025 earnings conference call Joining me today are Executive Chairman Sir Martin Franklin, President and CEO Ben Gliklich and CFO Carey Dorman In accordance with regulation FD we are webcasting this conference call a replay will be made available in the investor section of the company's website [inaudible]

Varun Gokarn: During today's call, we will make certain forward-looking statements that reflect our current views about the company's future performance and financial results.

Varun Gokarn: These statements are based on assumptions and expectations of future events, which are subject to risks and uncertainties.

Varun Gokarn: Please refer to the earnings release supplemental slides and most recent SEC filings on our website for discussion of material risk factors that could cause actual results to differ from our expectations and predictions.

Varun Gokarn: Today's materials also include financial information that has not been prepared in accordance with U.S. Gap. [inaudible]

Varun Gokarn: Please refer to the earnings release and supplemental slides for definitions and reconcilations of these non-GAAP measures to comparable GAAP financial measures.

Varun Gokarn: It is now my pleasure to introduce our CEO , Ben Gliklich. Thank you very much.

Thank you, Varun. Good morning, everybody. Thank you for joining

Element Solutions start in 2025 strong.

Varun Gokarn: The group profits and contingency contributions from progress executing on our breakthrough growth strategies.

Varun Gokarn: The trends that drove our performance in 2024 continue to propel us forward.

Varun Gokarn: There's been no pause in demand from fast-growing AI, advanced packaging and data center markets and we also benefited from an improvement in consumer electronics markets in Asia.

Varun Gokarn: The grew mid-single digits organically, despite ongoing softness and Western automotive and general industrial supply chains, and a mediocre market backdrop for Western smartphones.

Varun Gokarn: Our overall electronics business grew 10% organically on the back of our ongoing strong execution and consistent investment to improve our value proposition in leading edge semiconductor and power electronics technologies.

Varun Gokarn: Tales from our wafer-level packaging products grew more than 20% as programs on leading edge nodes continue to ramp, including a significant pickup from high bandwidth memory applications.

Order patterns from these customers remain strong. [inaudible]

Varun Gokarn: Similarly, despite well-documented weakness from a major domestic electric vehicle OEM, our power electronics business grew nicely in the quarter for new wins that have broadened our customer base.

Varun Gokarn: Several years ago, we had a collection of electronics businesses with good capabilities in select niches.

Varun Gokarn: Today, we have a single unified electronics business that is leading in important emerging categories collaborating across its different product areas to provide system level solutions to OEMs and building a pipeline of breakthrough innovation that should support future growth.

Varun Gokarn: This has been a deliberate transformation, and we're only just beginning to see the results.

Varun Gokarn: Electronic is also supporting our business at a time of cyclical weakness in our industrial and specialty segment.

Varun Gokarn: In addition to a week overall backdrop in industrial markets, the segments suffered from timing-related delays in certain offshore projects.

Varun Gokarn: The offshore market remains healthy, and we expect to recover those volumes in the second half of 2025.

Varun Gokarn: Despite these dynamics, profitability in the INS segment was relatively steady year-on-year due to modest raw material deflation and the proven price and cost discipline we've demonstrated for the past several quarters.

Varun Gokarn: On the other hand, we have a demonstrated ability to be nimble in periods of uncertainty and a clear track record of navigating through these periods by focusing on our customers while also managing cost as necessary to preserve profits.

Varun Gokarn: We remain steadfast in pursuing thoughtful long-term investment to develop strategic capabilities that support the technologies that we expect to drive our markets.

Varun Gokarn: The recent periods of electronic contraction and recovery we've maintained and selectively grown sales and technical resources needed to support those markets.

Varun Gokarn: You should not expect that investment posture to change with renewed market volatility.

Varun Gokarn: With our graphic sale completed in Q1, we're fortunate to have the strongest balance sheet in our history as ESI. We have substantial capacity to deploy capital to drive long-term shareholder value and expect the current market to create attractive opportunities.

Varun Gokarn: Carey will now take you through a first quarter business results in more detail, Carey.

Thanks Ben, good morning everyone.

Varun Gokarn: On slide three, you can see a summary of our first quarter financial results.

Varun Gokarn: Organic sales and content currency at Justin Yvodot both grew 5% year-over-year [inaudible]

Varun Gokarn: Adjusted even to have $128 million with above our guidance target for the Corps

Varun Gokarn: Electronics Organic Growth of 10% was broad-based across the historically higher-margin, higher-valued category than circuitry and semiconductor, as well as relatively low-remargin assembly materials for consumer electronics.

Varun Gokarn: This translates into the constant currency of Jeopardy, but outgrowth of 9% in electronics.

Varun Gokarn: The size adjusted even on margin decline roughly 30 basis points year over year in constant currency terms.

Varun Gokarn: These margins were negatively impacted by higher passenger metal prices, which drove a 70 basis point headwind while in such a two to the same quarter last year.

Varun Gokarn: Excluding the impact of roughly $100 million a pass through metal sales in assembly solutions, our adjusted EBITDA margin would have been 26 percent corresponding to a 50 basis point improvement versus last year.

Varun Gokarn: While Essex rates have improved for us recently, currency negatively impacted total company net sales in the first quarter by roughly 3% and with a roughly 5 million dollar year-over-year headwind to Adjusted EBITDA.

Varun Gokarn: We expect this to reverse in Q2 to become a talent based on current exchange rates.

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

Varun Gokarn: In Electronics, we saw double digit growth with strong performance across all three business units.

Varun Gokarn: In assembly, stronger consumer electronics of Indonesia and the Americas, more than offset continued industrial weakness, primarily in Western Europe .

Varun Gokarn: Advanced Specialty Thought or Pace volumes for various computing applications grew meaningfully.

Varun Gokarn: And we saw strong growth of technically challenging, engineered assembly solutions used in server and data center applications.

Varun Gokarn: Circuitry Solutions sales improved 8% organically with growth continuing to come from data center applications, memory disk markets, and specialty finishes for circuit boards in the Asian EV markets.

Varun Gokarn: Our business mix continues to shift towards B2B end markets, as applications for servers, data centers, and high performance computing grow rapidly.

Varun Gokarn: This transition should dampen both quarterly seedinality and general cyclicality over time.

Varun Gokarn: Semi-conductor Solutions, Organic Net Sales Group, 17% from continued robust demand and way-for-level packaging for Semi-Fab and OSAT customers in Asia

Varun Gokarn: Our Vietnam Copper Damaging Product Line, Luke North of the 20% Discorner [inaudible]

Varun Gokarn: The customer proximity we gained in 2023 by terminating our distribution agreement and going direct to our customers continues to yield great results.

Varun Gokarn: We expect to commercialize two new leading-edge products that further support advanced packaging applications later this year.

Varun Gokarn: Our power electronics products also could grow well in the first quarter. [inaudible]

Varun Gokarn: We've made substantial progress broadly in the ARMAX-centered silver technology customer base to electric vehicle manufacturers in Asia and in Europe .

Varun Gokarn: These new customer wins signal growing commercial traction and validates our leading technology position in a rapidly growing end market.

Industrial and Specialty Organic Med Sales Akine, 2% year-over-year

Varun Gokarn: The 1% decline in the core industrial business was largely volume driven and concentrated in Europe .

Varun Gokarn: Boy, if not yet seeing a pickup, recent policy changes in Europe towards infrastructure and defense investment may drive an increase in industrial activity that should benefit our business.

Varun Gokarn: Offshore to your over-year sales decline in the quarter was a result of timing for a few larger orders that fell into the latter part of the year.

Varun Gokarn: We continue to expect healthy growth for that business this year on the back of pricing and new wins.

Flight 5, the Draft of Cashflow, and the Ballot Sheet

Varun Gokarn: We generated 30 million of a juft of free cash low on Q1. [inaudible]

Varun Gokarn: The adjustment takes into consideration the sale of our graphics business and certain non-recurring expenses and tax items.

Varun Gokarn: The first quarter is always our slowest from a cash flow standpoint, given that semi-annual interest payment on our bonds and annual incentive payments.

Varun Gokarn: We invested $12 million in the working capital, which primarily reflects a seasonal inventory belt and higher accounts receivable due to increased theft.

Varun Gokarn: Kapsing the quarter was $11 million, somewhat below our guided run rate.

Varun Gokarn: We still plan to invest roughly 65 million over the course of the year to support strategic growth initiatives.

Now, Turning to the Balance Chief [inaudible]

Varun Gokarn: Our net leverage ratio at the end of the quarter was 2.1 times, which is the lowest level in our history as ESI.

Varun Gokarn: Our capital structure remains fully fixed at an effective rate of 4%, and we have no debt of maturities until 2020-28. And with that, I will turn the call back to Ben. Ben.

Thank you, Gary.

Speaker Change: Our business carried well through the first quarter despite the specter of trade actions impacting business and consumer sentiment.

Speaker Change: But we're a short cycle business, and any economic assumption for the balance of the year comes with macro uncertainties.

Speaker Change: Given our global footprint, the recently announced trade actions have added complexity to our business ecosystem.

Speaker Change: In this uncertain moment, there are immutable aspects of our business, that merit reiterates.

Speaker Change: We operate locally in most of our markets with sourcing, manufacturing, and technical support resources close to our customers.

Speaker Change: Her diversified and regionalized manufacturing footprint allows us to be nimble to accommodate dynamic trade flows.

Speaker Change: A product represented tiny fraction of the cost of high-value goods, but are integral to their performance.

Speaker Change: Thanks to those attributes, we believe we can mitigate most of the direct impact from ongoing and potential future tariffs on our cost structure.

Speaker Change: Additionally, we're in the midst of initiatives to further localize sourcing and remain in regular communication with suppliers and customers around ways to mitigate cost issues that arise as a result of the ongoing tariff situation.

Speaker Change: There may also prove to the opportunities where competition may not have the same luxuries of flexibility and geographic breadth that we enjoy.

Speaker Change: In the absence of additional clarity around tariff implementation and its impact on demand,

Speaker Change: Without any emergent signs of a slowdown in our core markets, and with some pushing provided by the weaker US dollar and outperformance in Q1,

Speaker Change: We're maintaining our initial full-year guidance of Adjustity Gupta between $520 and $540 million as our current best estimate of earnings potential this year.

Speaker Change: For the second quarter of 2025, we expect a similar demand picture to Q1, and therefore expect adjusted EBITDA in the range of $120 to $125 million, which is roughly flat sequentially when removing the $4 million contribution from our graphics business in Q1.

Speaker Change: This assumes that tariffs do not have a sequential demand impact.

which is the best assumption that we can make today.

especially based on April trading.

Speaker Change: which has been solid thus far. As we've demonstrated repeatedly in recent periods of uncertainty, whether during prior tariff escalations in 2019, COVID in 2020 or the inflationary impacts that followed.

Speaker Change: We're prepared to react quickly to shift in demand and cost.

Speaker Change: We have a highly variable op-ex structure and local teams that can rapidly respond to customer needs.

Speaker Change: We are prepared to navigate the dynamic environment that has emerged.

Speaker Change: It was a good start to 2025. Commercially, we've built a high-quality, high-probability pipeline of large leading angel electronics opportunities and margin-enhancing industrial projects.

Speaker Change: We think these are unlikely to be derailed by current circumstances.

Speaker Change: Operationally, we're increasing manufacturing capacity for future growth areas such as nanocopper and power electronics, streamlining our legacy manufacturing footprint, and we're building research and applications development and high leverage geographies.

Speaker Change: We continue to execute other functional process improvement programs to add efficiency across the organization.

Speaker Change: Our company is executing well with long-term growth prospects as good if not better than in the past.

Speaker Change: That is a tribute to our teams who are responsible for another good quarter of both results and progress.

Speaker Change: So let me close by thanking all of our stakeholders for their continued support of Element Solutions, and in particular, our talented and dedicated people around the world, working productively and collaboratively, and quite creatively, I would add, to support our customers and drive long-term value for our shareholders.

With that, operator, please open the line for questions.

Speaker Change: Thank you. At this time I would like to remind everyone in order to ask a question, press star, then November 1 on your telephone keypad. We ask to press limit to one question and one follow-up. We will pause for just a moment to compile the QA roster.

Speaker Change: And our first question comes from the line of Josh Spector with UBS. Your line is open.

Speaker Change: Hey guys, this is James Cannon for Josh, congrats on a solid quarter . . .

I just wanted to poke on [inaudible]

Speaker Change: I just wanted to poke on the guidance range, and particularly since you're not including any significant impact from tariffs, as we think about the low end of the range, can you just remind us what some of the macro indicators that are underlying that assumption are?

Speaker Change: Sure. Maybe just the big picture thoughts on the guidance range as just articulated in our prepared remarks.

We finished you on a head of plan. We see a modest...

Speaker Change: Impact from tariffs, from a cost perspective, were largely able to mitigate most of the impact from tariffs to cost.

We've got an FX tailwind.

Speaker Change: And our April trading, right, demand remains strong. So we haven't seen any signal of demand destruction year-to-date.

from Tariffs.

Speaker Change: And so it's on that basis that we're maintaining our full-year guide.

Speaker Change: There's nothing that's indicated demand destruction, and so the demand assumptions we had entering the year are the best we have. There's a bit of, I'd call it more uncertainty around that range, but we haven't seen anything of anything April's ahead of plan. [inaudible]

Speaker Change: So how do you get to the high end in the low end? It's really electronic strength and industrial weakness. Those are the two key variables

Speaker Change: You know, the electronic business is outperforming on baseline expectations entering the year the industrial market is modestly weaker. I would say and if that persists.

Speaker Change: Depends which one sort of overtakes the other to get to the the the various bookends of that range and obviously doesn't include any demand destruction from tariffs given the uncertainty around what tariffs will be implemented and when and what that will do to the consumer.

Speaker Change: Got it. Thanks. And just on a separate note, I just wanted to poke on you called out data center strength in both assembly and circuitry. I was wondering if you could frame

Yes, so...

Speaker Change: You know, as we think about our data center exposure in the circuitry business, we're selling circuit board process chemistries that go into the large server boards. And that's a business that wasn't that big for us just a couple years ago, but it's been growing really rapidly, double digits. [inaudible]

Speaker Change: You're on your now for several years. And on the assembly business, we talked about...

Speaker Change: High performance specialty alloys, solder paste, and then engineered products that are used in server board.

Speaker Change: Assembly as well. Altogether this is, you know, north of $100 million in both of those businesses. If you add in our memory business and circuitry, you're bumping up against $200 million of exposure in that market.

Thank you.

Vavesh Bodhaya: Your next question comes from the line of the Vesh Lodaya with BML Capital Markets. Your line is open.

Vavesh Bodhaya: Hi, good morning, Ben. Ben on one more follow-up on the guidance, assuming we do see a slower and market demand in the second half and given how important the third quarter is for ESI, can you talk about some of the potential actions that you envision you can take to defend your annual guide here?

Transcription by ESO. Translation by —

Vavesh Bodhaya: Yeah, so, you know, Element has the benefit of a highly variable cost structure. It's something we've highlighted in the past and been able to demonstrate in the past.

We can...

Vavesh Bodhaya: Almost automatically take dramatic cost out of the business from incentive compensation.

Vavesh Bodhaya: Without damaging the long-term growth trajectory of the business, and we flexed that down if you go back to Q2 of 2020 where, you know, we took SG&A down...

15-20% in a quarter. And so if we need to do that, we know how to do that, we can do that without difficulty.

Vavesh Bodhaya: That's not contemplated in our guide right now. We're running with, I'd call it, full op-ex out of Q1 and into Q2 and so those levers remain at our disposal.

Vavesh Bodhaya: Got it, and some of our follow-up media questions for Samaritan.

Speaker Change: Martin, you have been a large shareholder and obviously a big part of Element Solutions, growth stories so far. As we look ahead from here, where do you see yourself as part of the Element Solutions story, and in terms of ownership and involvement in study directions going ahead from here?

Speaker Change: I didn't hear the question clearly. Where do you see your involvement and put that in the context of recent?

All right. Thank you. Thank you.

Speaker Change: So I think you're probably asking me why for the first time in 12 years I sold some shares and that's simply for liquidity reasons and as a matter of principle I wouldn't want to sell shares at a time when the business was

Speaker Change: Obviously not inhibited in any way from my transacting or in a very healthy state, and of course as you can see the businesses in a very healthy state. It really doesn't change anything to do with...

Speaker Change: My long-term vision for the company, my long-term involvement with the company, that was simply for liquidity purposes.

Speaker Change: It's a long journey for me, as you know, from founding platform to today, and I feel that, you know, if you like persevering and working to put this business in the right position, has been a journey that...

Speaker Change: being rewarded in the equity markets, not obviously with all this current disruption but overall.

Speaker Change: So I don't think anything's changing and take it a long time to really understand this business and by the time I get into the point where you really understand it, no point in stopping now. So there we go.

Richard the Parks, thank you.

Mike Harrison: And our next question comes from the line of Mike Harrison with C-Port Research Partners for line is open.

Thank you very much.

Hi, good morning.

Speaker Change: Noted within the semiconductor business, strong growth in wafer level packaging and you mentioned high bandwidth memory as a driver there. Can you give us a little more color on the key applications that you're serving in high bandwidth memory and maybe comment on how you see the opportunity unfolding there?

Speaker Change: Yeah, with the level of packaging business continues to grow really nicely. The primary product in there is damaging copper, and you'll recall in 2023, we terminated a long-term distribution agreement there, gave us more customer proximity.

Better Access to Technology Roadmaps.

Speaker Change: We talked about having a couple new product launches coming in the back part of this year associated with...

Speaker Change: Again, this is data center and high performance computing driven, and we see a lot of growth opportunity there, and our product has incombency or is established, I would say, incombency in that market going forward.

Speaker Change: All right, then also was just wondering that within the electronics business you've been targeting 2% to 4% outperformance.

Speaker Change: of the underlying market over time, you know, in the current environment where there is some additional uncertainty or we might expect some potential slowing of the underlying market, how confident are you that you can still deliver on that outperformance of 2 to 4%.

Mike Harrison: I appreciate that question, Mike. It's not as though we're coming off a period of really robust growth in the broader electronic supply chain. You go back to 2024, you had soft MSI.

You did have a strong PCB market which we...

You know, nicely outperformed. [inaudible]

Mike Harrison: And if you look at this quarter, you know, our semi-business growing in the teens is, I would say, vastly outperforming the underlying semi-market, you know, and our assembly and circuitry businesses both growing in double digits organically, you know, I think is also healthy out performance relative to those markets.

Um...

Mike Harrison: The reason for that is our penetration of fast growing emerging growth vectors. We refer to them also at these V2B sales about data centers and low worth of orbit satellites that are dislocated from the consumer electronic cycles that used to be primary drivers of our electronics business. [inaudible]

Mike Harrison: We see those B2B markets as continuing to grow and have seen no slowdown and demand of anything in acceleration in demand there and so we are confident in our ability to continue to outperform.

All right, thanks very much.

Speaker Change: And our next question comes from the line of Steve Burnett with Bank of America. Their line is open.

Speaker Change: Hi, this is a rock off in the line for Steve Byrne. It's given the recent focus on re-jiggering manufacturing locations besides the tariffs, as well as preparing for the potential of a consumer or industrial demand pullback.

Speaker Change: Is there any risk to the timelines of rollouts for blockbuster products such as Argo Max, Coupe Rion and Shadow Plus, as well as any other medium-term projects getting pushed out further?

Steve Byrne: Yeah, it's a fair question, Rock. So there are two dynamics here. The first is...

Steve Byrne: A Discrete Tactical Activity, we'd like to believe that we have fungibility across our sites from a production perspective and so, you know, that's something that's ongoing by our local teams.

Speaker Change: On the other side, as you mentioned, we do have some big products.

Coming down the pipeline that require...

Speaker Change: Discrete Manufacturing, and the people working on those are different people, right? So we are nearly finished with doubling our Argo-Mex capacity at our site that produces that and we've made real strides forward on active copper manufacturing and trying to scale that up and we were expecting to have...

Speaker Change: A new plant ready, mid-scale plant ready to produce that in the second half of this year. So there's a lot of activity in the supply chain, but we're adequately staffed and resourced to support it.

Speaker Change: Understood. And just as a follow-up, could you go a bit more into how the industrial businesses perform in geographically and key market drivers that enabled only 1% organic sales drop this quarter?

Speaker Change: Yeah, it's a good observation. The industrial surface treatment business, which sits within our industrial and specialty segment, had revenue and volume down about 1%.

That was Wheatness in Europe . [inaudible]

Speaker Change: A relatively stable, slightly down market in the Americas, and some strong growth coming at Asia.

Speaker Change: and so our Asian industrial business is weeding share, is participating in the growth in the automotive sector in China and benefiting from that.

Thank you.

Speaker Change: Your next question comes from the line of Chris Parkinson with Wolf Research. Your line is open.

Thank you so much for taking my question.

Speaker Change: Ben, it's very clear that the criminalization of the portfolios, obviously it's already been paying off and perhaps paying off even more, despite some uncertainty. Can you just get on some of the things, you know, getting away from Carey's for just a second, but just what makes you...

Speaker Change: The most enthusiastic across both assembly and circuitry and how you see your product offering, you know, kind of evolving through round 25, 26, what you're hearing from the marketplace and perhaps if you could sneak in a comment on some green in there as well, it'd be great and appreciated.

Speaker Change: High Value B2B Sales in both of those businesses is very exciting and will change some of the sick locality.

Speaker Change: So, you know, our technologies for these very high performing server boards.

Speaker Change: for different than the GPUs themselves, but the boards that the GPUs sit on inside of those data centers are very thick, very difficult to metalize, and we've got the flagship products and technoprocess technology for that application.

Benjamin Gliklich

Benjamin Gliklich: has long term very high performance or has very high growth opportunities associated with it. You know, we've won real business with...

Benjamin Gliklich: Final step metalization, or what's called solder preparation for electric vehicles where there's an immersion tin product that's been growing really nicely in the Asian electric vehicle market.

Benjamin Gliklich: So all across the circuitry business we're seeing new demand vectors where our technologies are preferred processes.

Benjamin Gliklich: In the assembly business, we've been skewing that business towards higher tech applications through innovation and alloys, some engineered products that have really interesting applications in data centers, and then active copper isn't contributing yet.

Benjamin Gliklich: And that's Kubrian. The number of applications and the pull from the customer base is incredibly robust. The engagement with OEMs, OSATs, specifiers, and applicators remains really, really high. And so our conviction in the earnings...

Benjamin Gliklich: Potential of that technology is rock solid and just an added level layer of growth from here forward.

Speaker Change: It's great color, and just as a quick follow up, you know, I think the balance sheet is in a pretty good spot, especially after the graphic sale. Can you hit on, you can give us some insights on how you're thinking about, you know, some of the tucking M&A you've discussed before, buybacks and just your comfort level, you know, going forward for the balance of 25. Thank you so much.

Yeah, absolutely. Thanks for the question, Chris. So...

Speaker Change: You know, the leverage is as low as it's ever been in our history. Six-year history is element solutions, balance sheet is in really good shape. We pay down some debt and still have $500 million of cash to deploy.

Speaker Change: And there's a lot of volatility right now, and the volatility should create interesting opportunities to deploy that capital, and we're very well positioned to take advantage of them.

Speaker Change: with regard to M&A versus buybacks. I think the simple observation I'd make is that the hurdle for M&A is higher with our equity where it is. And that doesn't mean that there can't be any very compelling M&A created by this opportunity, but the buyback option looks pretty interesting too.

Thank you so much.

Speaker Change: And your next question comes from the line of Pete Osterland with Truist Securities, your line is open.

Pete Osterland: Hey, good morning. Thanks for taking the questions. I wanted to start by following up on the impact that tariff uncertainty might be having on customer conversations and order patterns. I guess specifically have you seen any signs of tariff related pre-buying across your core end markets either in 1st quarter or in April ?

Pete Osterland: That's a good question, Pete, and that's something we've been looking for evidence of, you know, we...

Pete Osterland: See the headlines of folks buying new phones in anticipation of tariffs, but from where we sit in our supply chain, we're not seeing that as a direct pull.

Pete Osterland: on consumption of our canvassaries, and so we really don't see any clear evidence.

Pete Osterland: of this being a pre-bill that's not to say that some of the demand isn't. [inaudible]

Pete Osterland: But, you know, again, if you think about where the growth is coming from, these are B2B sales.

Pete Osterland: and you can see the capex that's driving it, whether that's in data centers or in the electric vehicle market or in the lower or but satellite markets. And so we don't think that this is driven by

Pete Osterland: Pre-Build or Pre-Bying, but some of it could be Infernis.

Speaker Change: That's a very helpful color. As a follow-up I just wanted to ask about the margin performance within INS. He had a nice expansion there in the first quarter despite organic growth being down. So I guess just looking to the rest of the year, you know, as the energy business comes back, would you expect to drive segment margins higher from here or were there any benefits to call out from mix or costs that were limited to the first quarter?

Speaker Change: Yeah, it's a good observation, right? That offshore business is a high margin business for us and it was down year over year. We talked about that in the prepared remarks with the drivers of that R and we do expect it to get better in the second half, which will drive margin expansion.

Speaker Change: All else equal. The reason that margins improved is, you know, the standard cost-price discipline we've exercised and we've seen some ongoing raw material deflation which we've suspected entering the year.

Speaker Change: And so there is a reason to see that industrial and specialty segment margin improve.

Speaker Change: Going forward. I think the other point to make is that volumes in the core industrial vests are still.

Speaker Change: Down meaningfully from their peak, and while we are highly bearable cost model, getting more volumes at those plants, does have some operating leverage, so we're not anticipating a lot of that in 2025, but that's still upside to margin if you think about the long term opportunity to.

All right, very helpful. Thank you

Speaker Change: Your next question comes from the line of John Roberts with Mizuhu. Your line is open.

John Roberts: Thank you, a nice quarter in guidance. I assume your March quarter results in your June quarter guidance has a bonus accrual consistent with your full year, previous earnings targets, or if not, could you tell us what you're assuming there?

John Roberts: Yeah, look, as we answered a question earlier, we're running with full-up acts right now. So we haven't been reducing bonus accruals on the basis of demand destruction that we haven't seen any of yet.

So we have that full lever at our disposal.

John Roberts: Any any any seasonal differences you're expecting here in the next you know second third and fourth quarter versus what you had in 2024?

John Roberts: Yeah, that's a great question, John , and it speaks to the Q2 guide.

John Roberts: It's hard to say what a normal year is, but if you go back several years...

John Roberts: Typically, the second half was 52-53% of you but done, the first half was the balance. The past several years have had a lot of different lumps associated with...

Dipli-Jane Disruption, and all the things we blitzed through.

Last year, interestingly enough, the second quarter.

Thank you for watching. Bye.

John Roberts: The pre-builds of smartphones that typically fall into Q3 and other consumer electronic device launches.

John Roberts: So we had a stronger Q2 than typical and we didn't have the same level of Q3 up list that we normally would have.

John Roberts: So when we look at Q2 this year, we're assuming a more, I'll call it normal, seasonal pattern on the basis of consistent demand from Q1 and Q2.

Thank you.

Speaker Change: And your next question comes from the line of John Tanwanteng with CGS Curities. Your line is open.

John Tanuantang: Hi, thanks for taking my questions and a nice quarter. The first one is just expanding a little bit more on the stronger demand in April or I guess the stable demand. Are you seeing any pockets of weakness or strength in there or is it a straight line continuation of what you saw on Q1 by end market number one? And I'll follow on after that.

John Tanuantang: Yeah, and it's really consistent with Q1 in some areas of modest acceleration around semi, that's

Speaker Change: Okay, great. And then for the year, I just wanted to be clear, are you assuming zero demand destruction from the current tariff environment, say, at base level of 10%, and with the potential for more depending on the countries and where the negotiations go? Is that what I'm hearing?

John Tanuantang: in terms of what the underlying function is at this point.

John Tanuantang: Yeah, we're assuming we're the same on in aggregate the same demand environment that we, you know, expect to enter in the air.

John Tanuantang: Okay, great. And that's, you know, if you see, for example, the continuation of 145% for China through the rest of the year.

That's not going to mean for impact.

What your expectations are for the match.

and Benjamin Gliklich.

Speaker Change: It's hard to say to put parameters around that because you're going to take for example the latest tariffs in the tariff argument exempting a whole series of products that we are in part of the manufacturing process.

The devil is going to be in the details.

Speaker Change: I think trying to micro-pick at that doesn't really work as you're dealing with an environment that's so volatile. So this is on the assumption that the world is continuing as normal. And importantly, it's taking into consideration the cost impacts of that.

Speaker Change: Right? And so what we're saying with this is, you know, we can mitigate the impact of tariffs on our cost structure and maintain our guidance range on that basis.

Speaker Change: We can go through those levers of, you know, what we're doing to offset cost in the different buckets if that's a follow-up that folks want to go into.

Great, no, that makes sense. Thank you guys.

Speaker Change: Your next question comes from the line of Aleksey Yefremov with Keybank Capital Markets, your line is open.

Speaker Change: Thanks, and good morning. This is Ryan on for Aleksey. Ben, I guess I'll take the low-hanging fruit here and just ask you, you know, what exactly are you guys doing to kind of mitigate the costs that are coming in the supply train from tariffs at this point?

Speaker Change: And I set myself up from that for that one. So there are there there are really three buckets of cost increases that were seen from client Harris the first.

Speaker Change: is raw materials that are imported from China into the United States. And we don't do much of that ourselves. We do have suppliers that are sourcing from China. And so we've spent a bunch of time trying to find alternative sources and understanding what those cost impacts would be to us. And so we've spent a bunch of time trying to find alternative sources and understanding what those cost impacts would be to us.

Speaker Change: And that's a pricing lever that we've had to throw and we've been very clear and we've done this in the past when we've seen inflation of specific commodities where we pass that onto customers directly.

You know, the second bucket are finished goods. [inaudible]

Speaker Change: We're rather other things that we're importing into the U.S. from places other than China, and so one example is Mexico. We've got quite a bit of cross border trade with Mexico. Unfortunately, we qualify for the U.S. NCA exemptions there, and so figuring out what products are going back and forth and making sure that they do qualify for those exemptions has been a...

Speaker Change: A big piece of work, and we've got confidence that 10% tariffs on imports in the United States isn't going to be meaningful for us.

Speaker Change: The third bucket are things that we're shipping from the United States to China.

Speaker Change: and we do have some finished goods and raws that we're shipping into China and what we've done to mitigate that impact is localization.

Speaker Change: Right, and so moving our sourcing and moving our manufacturing from the United States.

Speaker Change: You know, jurisdictions in Asia, maybe not directly into China and shipping through and shipping to China from there.

Speaker Change: and that should be able to offset most of that impact, and NetNet, we don't view it as a headwind to our events.

Speaker Change: Understood. That's helpful. I guess you're sticking on this topic. I mean, you talked about kind of China to the US and US to China. Can you maybe just size on a dollar basis or percentage basis of goods, just kind of like what your actual exposure there is? Thanks.

U.S. to China is…

Speaker Change: China to US direct is negligible. Again, that's through our suppliers. And then the finished goods into the US from other countries is sizable, but again, we've been able to offset that through exemptions and also some level of localization. [inaudible]

Great. Thank you.

Speaker Change: And your next question comes from the line of David Silver with CL King, your line is open.

and Benjamin Gliklich. Thank you.

Okay, thank you.

Speaker Change: I had a question, I guess, about maybe some of your, the behavior of some of your major customers and I'd like to maybe focus on your R&D activities and your product development activities in particular where you're

Speaker Change: Collaborating closely with customers, but has the current, you know, uncertain environment that everyone's asking about, has that?

Had a notable impact on the company in terms of…

Speaker Change: The pace or the resourcing, you know, behavior of your customers. In other words, for...

Speaker Change: Longer term projects where you're collaborating. What has been the behavior, has there been any change from your major customers, you know, given the current uncertain environment?

The short answer, David, is no no.

Speaker Change: You know, working on long-term projects with breakthrough, associated with breakthrough technologies and, you know, the industry, the market, the consumer is pulling those technologies and so we continue to see very active level of engagement.

Speaker Change: You know, between our R&D functions, our direct customers, specifiers, OEMs

The business is very local.

Speaker Change: And so, our innovation is not just, you know, on the breakthroughs, but it's on new applications, technologies, it's on sustainable applications, and we've seen no pause in momentum whatsoever.

Speaker Change: You heard us talk about two new product introductions we're expecting, you know, in our most advanced front end, you know, area at the end of this year and those are continuing

at Peace.

Speaker Change: Okay, thank you. And then just one last one. But if I caught your comments correctly, I think regarding consumer electronics.

Speaker Change: You've indicated maybe a slow down or softness in the Western, I think smartphone market, but then you also talked about a pickup.

in that category, in Asia. [inaudible]

Speaker Change: And I'm just wondering if you could maybe just flesh that out a little bit. Is that company specific? Is there a big shift going on that you see? And you know, why wouldn't the softness in the Western, why wouldn't the Western consumer electronics? [inaudible]

Speaker Change: Market, start to look a little bit more like the growth of your performance in Asia going forward.

You call out an interesting note which is...

Speaker Change: We talked about strength and consumer electronics in the Americas, but softness and smartphones in the West. That consumer electronics strength in the Americas is PCs and other consumer electronics, you know, X smartphones.

Speaker Change: There was strength in the local Chinese smartphone market in the quarter, right? We've seen some, you know, government subsidy to drive consumer activity in China, and so we did see it strength in that local market. That's not a knock for export.

Speaker Change: and also strength in non smartphone consumer electronics in the Americas. That's the distinction that you've picked up and that we saw in the first quarter.

OK, great, thank you very much. Thank you very much.

Speaker Change: There are no more questions from the queue, I will now turn the call back over to Ben Gliklich for closing remarks.

Ben Gliklich: Thank you, Cass. Thank you everybody for joining. We look forward to seeing many of you in the weeks and months to come. Have a great day. Take care.

Ben Gliklich: Thank you, ladies and gentlemen, that concludes today's call. Thank you all for joining, you may now disconnect.

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