Materion Corporation 2026 Q2 Earnings Call

Thank you for joining us on our second quarter 2026 earnings conference call. This is Kyle Kelleher, Director, Investor Relations and Corporate FP&A. Before we begin our remarks this morning, I would like to point out that we have posted materials on the company's website that we 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. With me today is Jugal Vijayvargiya, President and Chief Executive Officer, and Shelly Chadwick, Vice President and Chief Financial Officer. Our format for today's conference call is as follows: Jugal will provide opening comments on the quarter. Following Jugal, Shelly will review the detailed financial results in addition to discussing expectations for 2026. We will then open up the call for questions.

Let me remind investors that any forward-looking statements made in the presentation, including those in the outlook section and during the question and answer portion, are based on current expectations. The company's actual performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. Those factors are listed in the earnings press release we issued this morning. 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 four through nine in this morning's press release. The adjustments are made in the prior year period for comparative purposes and remove special items, non-cash charges, and certain discrete income tax adjustments. Now I'll turn over the call to Jugal for his comments.

Thanks, Kyle. Good morning, everyone. I'm pleased to be with you today to discuss our second quarter performance and to highlight the momentum we're seeing across our markets as we continue to accelerate into the back half of the year. Q2 was truly a milestone quarter for Materion. Our diverse portfolio of critical materials continues to enable the technologies shaping the future. Our results clearly reflect the role that we play. Strong end market trends, combined with meaningful new business wins, are driving double-digit growth across the company. Amid unprecedented levels of demand, our teams delivered exceptional performance, supplying the advanced materials our customers depend on, doing so with unwavering commitment and precision. We delivered the highest quarterly sales and earnings in our company's history. All three businesses achieved double-digit sales and EBITDA growth.

Performance Materials grew value-added sales by 13%, Electronic Materials increased by 15%, and Precision Optics delivered an impressive 26% sales growth. Profitability was even stronger, reflecting outstanding operational leverage and disciplined execution. For the first time, we exceeded 23% adjusted EBITDA margin, a milestone achievement for the company. Electronic Materials delivered 32% adjusted EBITDA margin, marking its fifth consecutive quarter of expansion and the highest margin on record. Precision Optics surpassed 20% margins, delivering its best profit in more than five years and continuing its strong trajectory of transformational performance. Across all our businesses, higher volumes, strong price mix, and outstanding operational execution came together to produce record earnings of $1.90 per share, up nearly 40% from a year ago. We generated solid free cash flow in the quarter, driven by strong earnings performance, improvements in working capital, and disciplined capital investments.

Let me provide some color on our sales growth from an end market perspective. Sales to the semiconductor market were up 23% year-over-year as AI continues to drive growth across leading-edge logic and memory, and we continue to see outsized growth across power and communication markets. We delivered our highest quarterly sales to the aerospace and defense market, fueled by continued strong demand and new business in space and defense applications, along with market recovery in commercial aerospace. Industrial markets posted strong results across all three segments, led by Performance Materials as data center build-outs are positively impacting non-residential construction and increasing demand for our beryllium nickel spring material. Energy shipments were up more than 20%, driven by our new business wins in next-generation energy applications. Finally, telecom and data center grew almost 50%, propelled by the AI infrastructure build-out and significant wireless network expansion outside the U.S.

As we look to the back half of the year, we're excited about the broad-based strength we're seeing. The demand signals across our key markets remain robust, and our order patterns give us confidence that this momentum will continue to build. What's even more encouraging is that the strength is not isolated. It's accelerating. We entered the quarter with record backlog, up roughly 30% from last year, and 20% since the start of the year. Incoming orders in the first half reached a new high, growing nearly 30% year-over-year. Defense continues to stand out. We secured $90 million of incoming orders in the first half alone, and now have more than $500 million in open RFQs across major programs. Space orders have doubled year-over-year. Commercial aerospace backlog continues to build, and semiconductor orders are up 20% with a meaningful uptick in demand for high-performance memory applications.

These are important data points, and they tell a clear story. Demand for our material solutions continues to strengthen, and the trends driving our markets remain firmly positive. Given the results we've achieved and what we are seeing across our order book, we are increasing our full-year growth outlook for the second consecutive quarter. We now expect mid-teens year-over-year sales growth, reflecting the strengthening demand across our end markets and the applications we serve. As a result, we are raising our full-year adjusted EPS guidance to a range of $6.80-$7.20, a roughly 30% increase versus last year at the midpoint, and 12% from the midpoint of our prior guidance. Before I turn the call over to Shelly, I'd like to take a deeper dive into one of the most exciting and rapidly expanding markets we serve, the space market.

Space has become a major growth engine for Materion, and our materials support an exceptionally wide range of mission-critical applications. What distinguishes Materion is not just the range of applications we serve, but the vital role our materials play in ensuring mission success in the most demanding environments, whether it's satellites, telescopes, launch systems, planetary exploration vehicles, or emerging in-space power systems. Across satellite platforms, our technologies are integral to systems that collect, transmit, and process mission-critical data. We supply filter arrays for Earth observation satellites, optical filters and mirrors for laser communication systems, thermal management materials that support precision optic assemblies, and semiconductor materials that enable high-performance computing and next-generation communications at orbit. In orbital and deep space systems, including telescopes and probes, our beryllium mirrors, optical filters, and beam splitters provide the stability and clarity required for advanced scientific missions.

We also support propulsion and imaging systems with engineered alloys and semiconductor sensor materials designed for efficiency and durability in extreme environments. Our capabilities extend from orbit back to the ground. For ground to space systems, we provide beryllium components, advanced optical coatings, and high-performance filters used in observatories, laser communication ground stations, and next-generation infrastructure that supports the movement of critical data around the world. We also play an essential role in launch systems, supplying materials for engine components, structural assemblies, and advanced heat shielding systems. Our precious metal and chemical materials enhance engine efficiency and support thermal barrier coatings that are critical to mission reliability. And once spacecraft reach their destination, our materials remain central. In rovers and exploration vehicles, our lightweight structural materials and advanced optical coatings help ensure reliable performance in harsh and unpredictable environments.

Looking ahead, our beryllium and alloyed materials are increasingly being designed into advanced microreactor concepts that will power future in-space propulsion and surface power systems. Across all these applications, the message is clear. Materion is embedded across the full space value chain, from launch to orbit, from exploration to communication, from ground systems to emerging in-space power. Our materials are enabling the technologies that are expanding human capability and accelerating scientific discovery. This quarter, we strengthened our position even further. We secured a new $15 million program to deliver advanced materials critical to engine performance for a major commercial space customer. This is a meaningful win and a clear signal of the trust customers place in Materion to support their most demanding missions. Q2 was an exceptional quarter. I'm incredibly proud of what our people have accomplished.

Their commitment and hard work were evident across the board and were instrumental in delivering our outstanding results. I'm excited about the trajectory that we're on and look forward to what's next. With that, I'll turn the call over to Shelly to walk through the financial details.

Thanks, Jugal, and good morning, everyone. During my comments, I will reference the slides posted on our website this morning, starting on slide 11. In the second quarter, value-added sales, which exclude the impact of pass-through precious metal costs, were a record $308.2 million, up 15% from the prior year and up 18% sequentially. This year-over-year increase was driven by our highest quarterly aerospace and defense sales and significant growth seen across semiconductor, industrial, energy, and telecom and data center. Additionally, as Jugal mentioned, all three of our businesses delivered double-digit year-over-year sales growth, highlighting the strong performance seen across the company. Adjusted earnings per share were a record $1.90, up 39% from the prior year and up 50% sequentially. Turning to slide 12, adjusted EBITDA was a record $71.8 million, or 23.3% of value-added sales, an increase of 29% year-over-year with 250 basis points of margin expansion.

This increase was driven by higher volume and favorable price mix and strong operational performance, along with the benefit of some one-time items. Moving to slide 13, let me review second quarter results by business segment. Starting with Performance Materials, value-added sales are $190 million in the quarter, up 13% year-over-year and up 36% sequentially. This year-over-year increase was driven by significant growth across the aerospace and defense, telecom and data center, energy and semiconductor end markets. In addition to market strength, the strong sequential increase was driven by new business initiatives and the return to a normalized level of clad strip sales. Adjusted EBITDA was $48.3 million, or 25.4% of value-added sales, up 16% compared to the prior year period with 80 basis points of margin expansion. This increase was driven by higher volume and strong price mix.