Good morning, ladies and gentlemen, and welcome to the Element Solutions Q2 2026 Financial Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now turn the call over to Varun Gokarn, Vice President of Strategy and Integration. Please go ahead.

Good morning, and thank you for participating in our second quarter 2026 earnings conference call. Joining me today are our CEO, Ben Glicklich, and CFO, Kerry Dorman. In accordance with Regulation FD, we are webcasting this conference call. A replay will be made available in the Investors section of the company's website. Before we begin, I want to remind everyone that our announced merger with Solstice Advanced Materials remains subject to shareholder and regulatory approvals and customary closing conditions. As such, we will be limiting our comments on the proposed transaction to what has already been made available in public filings and will not be taking questions about the transaction. During today's call, we will make certain forward-looking statements that reflect our current views about the company's future performance and financial results. These statements are based on assumptions and expectations of future events which are subject to risks and uncertainties. Please refer to the earnings release, supplemental slides, and and most recent SEC filings on our website for a discussion of material risk factors that could cause actual results to differ from our expectations and predictions. Today's materials also include financial information that has not been prepared in accordance with U.S. GAAP. Please refer to the earnings release and supplemental slides for definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures. It is now my pleasure to introduce our CEO, Ben Glicklage.

Thank you, Varun, and good morning, everybody. thank you for joining. Before we review this record quarter, I'd like to reiterate our rationale for the announced agreement to merge with Celsius Advanced Materials. This proposed transaction unites our complementary competencies to better meet customer demands for scaled, broad strategic supply partners, while also increasing avenues to prudently invest our cash flows for growth and unlocking compelling synergies. Together, we stand to build an even stronger electronics portfolio across chip and PCB fabrication, packaging, and assembly, while accelerating investment in the commercialization of new advanced materials and other growth priorities. We will have a broader, highly differentiated value proposition in thermal management and front-end copper interconnect formation. The combined company will be a market leader in profit growth and cash flow generation with multiple high-growth businesses. Finally, the over $180 million in cost synergy potential is real and actionable, with clear additional upside over time. Integration planning has begun and we're assembling a joint team of leaders from both of our businesses to ensure the organizations are integrated thoughtfully and we fully capture the strategic and financial promise of the combination. Cary will lead the effort on our side, equipped with deep knowledge of our businesses and processes, as well as experience successfully leading many similar exercises over his tenure at Element. Our North Star at Element Solutions has always been shareholder value creation, and we've had a robust dialogue with our investors since this announcement, and will continue to listen intently to their feedback. We work for our shareholders and value their input on important decisions such as this. As today's results show, our organic path has tremendous momentum, and combining our business with solstice should provide an incremental lever to deliver greater value than we otherwise would have the stock's reaction to the announcement has been disappointing and both esi and solstice recognize the need to show from a cultural as well as operational perspective that we can execute against the significant opportunity the first test of that execution will be integration. And together with other leaders from ESI and our board, I'll be very focused on working to ensure this integration is planned and executed to our standards for excellence and delivery. Now, turning to our second quarter results, Element Solutions posted a record quarter as organic growth accelerated in our electronics portfolio and the specialties business continued to deliver bottom line growth despite a mixed backdrop. Our results were enhanced by strong contributions from our recent acquisitions, which are performing very well. Overall, these results demonstrate the ongoing success of our strategy to penetrate the highest value, fastest growing subsegments in our addressable markets, and are a testament to years of work by our teams, collaborating across labs, manufacturing sites, applications facilities, and alongside our customers at their locations. We're growing with our customers, increasingly as a partner, working together to address the most pressing technical challenges. There are significant opportunities for our teams to improve value and use manufacturing processes, particularly as pockets of the electronic supply chain have become constrained relative to accelerating demand. In the second quarter, we delivered double-digit organic sales growth for the third quarter in a row, and margin expansion when excluding the impact of pass-through metals. Importantly, our profitable growth is happening alongside increasing investment in people, technology, and plants to support the future. Sales in our electronics segment grew 20% organically as activity accelerated across our supply chain in support of the ongoing AI infrastructure build-out. Technical requirements in data center hardware and other high-performance electronics continue to increase and our business provides critical enabling solutions across thermal management power density and advanced packaging applications to name a few we're seeing volume growth in the highest value categories across our edge markets from leading edge semi and high-end circuit board fabs to device assemblers and a strong pull for innovation to enable greater levels of device performance and manufacturing yield or throughput this dynamic drove double-digit organic net sales growth in each of our electronics verticals as we discussed at our may investor day we're making investments to meet the increasing demands of our customers adding additional manufacturing capacity for several high growth product lines and increasing our laboratory footprint and innovation resources to remain on the leading edge one of our largest focus areas has been cuprion where we're working to commercialize a differentiated new technology to solve several emerging customer pain points around thermal management, power delivery, and plating copper on challenging substrates. Our development partners working with this material are incredibly enthusiastic, which is evident in a growing commercial pipeline. We're actively sampling products from our first plant to qualify it through our customers, and we have high conviction in the opportunity in this market and urgency to establish incumbency with this technology. Over the past quarter, we've made plans to increase throughput at our initial plant and increase the scope of our second site, which will be located nearby in California. Taken together, our capacity outlook for year-end 2027 is higher than it was entering the quarter. Beyond investments in organic growth, we continue to demonstrate the returns of prudent capital allocation into attractive adjacencies that bring value to our customers. The integrations of Micromax and EFC are going well. Both businesses are performing ahead of our plans for this year and contributed meaningful adjusted EBITDA growth in the quarter. It was both operational excellence and prudent capital allocation that led to the 27% increase in adjusted EPS we delivered in the second quarter. Carrie will now take you through our second quarter business results in more detail. Carrie, please.

Thanks, Ben. Good morning, everyone. On slide three, you can see a summary of our second quarter financial results. We delivered record quarterly revenue, adjusted EBITDA, and adjusted EPS. Organic net sales grew 15%, and constant currency adjusted EBITDA increased 33% year over year. Electronics organic net sales growth of 20% was broad-based. Each of the segment's verticals grew organically by double digits led by our semiconductor business between 31 percent in the quarter. Adjusted EBITDA margins excluding pass-through metals improved 120 basis points year over year to 27.8 percent this quarter which was in line with the first quarter despite significant sequential non-metal raw material inflation. The year-on-year improvement was primarily driven by product mix with organic growth in higher value product lines and partially offset by inflation in our specialty segment, as well as continued OPEX investment to support growth initiatives and fund above-target incentive compensation. Building on that last point, if we exclude the above-target component of incentive compensation accruals in the quarter, driven by our outperformance relative to plan, OPEX in the second quarter would have been more than $10 million lower, and adjusted EBITDA margins would have been nearly 30%, which has been a long-term target for us. On slide four, we share additional detail on the drivers of organic net sales growth in our two segments. In electronics, 20% organic growth was driven by sustained investment in AI infrastructure and other high-performance computing applications. Demand remained particularly strong across semiconductor packaging, advanced PCB chemistries, and engineered assembly materials supporting data centers and power electronics. The backdrop remained softer in consumer and automotive markets. but this was more than offset by strength in AI related applications and continued customer investment in next generation technologies. Semiconductor solutions organic net sales grew 31% with improved order patterns for power electronics products and growing momentum and thermal interface materials for high power consumption applications such as AI GPUs and CPUs. We also saw strong and growing demand for advanced packaging solutions from OSAPs in Asia. Revenue growth for the products within this business was magnified in the quarter by the substantial year-over-year increase in precious metal prices that are inputs to many of these solutions. The assembly solutions business grew 18% organically, supported by broad demand for high reliability solder paste in Asia, and further enhanced by growth in engineered preform materials using data center applications. The Indian market continues to show robust growth for assembly as electronic manufacturing supply chain diversification continues. Circuitry solutions net sales improve 15% organically, benefiting from continued demand for metallization solutions tied to AI infrastructure and high-performance compute. We are supporting customers as they add capacity and are seeing traction with technologies that are critical to increasingly complex PCB architectures. Finally, this business is also benefiting from continued growth in Southeast Asia where you have a strong and expanding presence. Micromax is not included in our organic net sales growth calculation but contributed approximately 130 million to reported sales in the quarter, roughly two-thirds of which is related to metals. The business continues to perform well ahead of plan and it's growing revenue and adjusted EBITDA significantly on an ex-metals basis. We are very pleased with these results and the progress of the integration. Turning to our specialty segment, industrial solutions grew 3% organically in the quarter due to a modest return to growth in European industrial markets early in the quarter and from global surcharges and price increases tied to rising raw material inflation. This business has been restructuring its go-to-market and supply chain strategy over the last year. We are happy to see the strong execution beginning to play out. Our offshore energy solutions business grew one percent organically slower than q1 driven by timing impacts and some disruption from the war in iran finally efc gases and advanced materials contributed 16 million of revenue in the second quarter demand for electronics satellites and electrical infrastructure applications remains strong so this business is more lumpy than our others commercial activity is very healthy and we expect EFC to have a substantially larger second half sequentially and we have good visibility into that. The EFC team is executing at a high level, growing wallet share with existing semiconductor and space customers and winning new qualifications in both. Slide five addresses cash flow and the balance sheet. Adjusted free cash flow for the quarter was $74 million, a strong increase sequentially and year-over-year. With metal prices relatively stable, we have seen the benefit of the higher earnings growth we are experiencing this year. We did continue to invest in working capital, albeit more modestly, as we continue to see increased volume demand across the business. The cadence of our cash generation is typically more second-half weighted, and we expect this year to follow a similar pattern, assuming metal prices stay at current levels. On the capital expenditure side, we invested $28 million this quarter, bringing year-to-date investment to over $50 million. As we have discussed, we are accelerating investment in certain high-valued product areas, such as Cuprion and thermal interface materials for hyperscale customers, while at the same time moving aggressively on existing plant consolidation projects and our industrial solutions supply chain. We now expect CAPEX for the year to be roughly $100 million, which is on the higher end of the guidance range we provided last quarter, though it's still less than 3% of sales. These are high-returning projects with attractive paybacks that support long-term growth. Turning to the balance sheet, our net leverage ratio at the end of the quarter was 2.9 times on a pro forma basis, including MicroMax and EFC. Given earnings strength and expected cash flow, we anticipate reducing leverage to roughly 2.5 times by the end of the year. And with that, I will turn the call back to Ben.

Thank you, Kerry. Our company is strong and well-positioned in attractive growth markets. In each of our businesses, we've identified opportunities and built strategies to deliver substantial profit growth through investment in people and capabilities over a multi-year timeframe. We pride ourselves on customer centricity. And on this front, we're seeing the fruits of persistent investments in technical service capabilities, technology roadmap exchanges, and a focus on customer pain points where we can improve product performance or customer productivity. Organic acceleration in the first half, and in particular the sources of that growth, give us confidence in a strong year and momentum into 2027. Underlying demand in the high-end electronics market remains, and the positions we've established in the fastest-growing, highest-value niches of these markets should serve us well. As a result, we are raising our adjusted EBITDA guidance to a range of $690 to $710 million for the full year. This range reflects the trends we saw in the first half, combined with ongoing execution of our strategic roadmaps in each of our businesses, while taking into account the one-time benefits of metal hedge gains realized in the first half of 2026, having recorded the associated costs in the second half of 2025. We expect third quarter adjusted EBITDA to be approximately $180 million with demand conditions sequentially similar to the first half, and taking into consideration some risk from raw material and logistics inflation that we may not recapture immediately through improved pricing and sourcing actions. We now expect 2026 adjusted EPS growth of approximately 20% on a full-year basis. Element Solutions is executing very well, and the proposed solstice transaction is recognition of what we've done, what we're doing today, and what we're capable of doing in the future. From a foundation of remarkable predecessor companies like McDermott, Anthone, Alpha, Micromax, EFC, Coventia, Kester, HK Wentworth, OM Group, Polytechnic, and Kuprion, we built something bigger and greater than any of them could be individually. We don't forget the histories of those businesses, which are far longer than our own, and also that those businesses were built on the shoulders of others that came before them. We're immensely proud of this chapter but it is not the first nor clearly will it be the last for our businesses so for now let me conclude once again by thanking all of our stakeholders for their continued support of element solutions and in particular our people who are entirely responsible for all of our success in the past and our potential in the future with that operator please open the line for questions and as a reminder, we will not be taking questions on the recently announced proposed merger with Solstice. Thank you.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Josh Spector with UBS. Your line is open. Please go ahead.

Yeah. Hey, good morning, guys, and congrats on a solid quarter here. I wanted to just ask around really kind of your expectations here for the second half and kind of the phasing that's baked into your guidance. You know, you don't have the typical 3Q uplift, but, you know, that's more smartphone driven. So, you know, what's your assumption there? And then just within the rest of it, that's obviously having a big uplift around the data center side. You know, do you think there's further acceleration that pulls more into it or are you assuming that you're kind of stable from here. Thanks.

Sure thing, Josh. Thanks for the question and feedback. The way to explain sequential performance here is threefold. Continuation of the strong demand that we've seen through the second quarter across the electronics complex. We are not expecting the typical seasonal ramp in the smartphone market, just given what's been a very weak consumer electronics backdrop. We've outperformed that year-to-date, but we're not counting on a substantial ramp. We're factoring a headwind from raw material and logistics inflation driven by the conflict in Iran, and we're factoring in a modest softening in Micromax, which has been the biggest source about performance on a year-to-date basis, and that gets you to a roughly flat sequential performance. And then for Q4, we're basically just thinking that normal seasonality and fewer operating days given the holidays, so things drop off a little bit from Q3 to Q4, and that's how we get to our full-year guide.

Okay, thanks. That's helpful. I just wanted to ask at a high level generally, just, I mean, you're continuing to execute well on a standalone basis. You're investing more in Coupri-on. I guess outside of the cost savings that you see from the combination with Solstice, what does ESI as a standalone shareholder not get in ESI standalone that you see them getting in the combined basis are there big sales opportunities you think you miss out on is there something kind of that's that's missing in terms of the cuprion kind of build out just you know any help kind of expanding on that a little bit please yeah look we really don't want to take questions relating to the merger announcement with seltzis and we've made plenty of public disclosure and also comments in the prepared remarks i'll limit my comments to what we just said in the prepared remarks which is that this broader electronic portfolio advantages, you know, our collective shareholders in terms of the breadth of what we

can offer to our customers and our customers' customers at an increasingly pivotal time for innovation in the supply chain.

Okay. Thanks, Ben.

Your next question comes from the line of Babish Lodaya from BMO Capital Markets. Your line is open.

Please go ahead. hi good morning ben uh a separate question just on on esi uh in the past we have discussed that splitting your company into electronics and non-electronics was was possible but there was too much effort too much brain damage there are too many shared assets is that the same view today and and would you have like an updated number for what the disc energies could look like if were to split the company today um so uh look as we've always been been been clear uh that we've got a great portfolio at element of high quality businesses that market leading businesses with

durable moats um you know customer intimacy and tremendous cash flows um we've also been clear that we're not emotional about any of our businesses. And, you know, if someone is willing to offer value, you know, in excess of what we believe fair value for a business, plus the, we'll call it brain damage and separation costs associated with carving out businesses would be that we're open-minded about those types of transactions. You know, we think our portfolio is very well positioned for long-term growth across all of its end markets and vectors and aren't currently contemplating any such transaction. It's sort of a moot point as we sit here today.

Got it. And then as we think about the electronics earnings from here, obviously metals pricing has created a bit of volatility in the sales side of things. How would you say a deflation of the metals pricing environment plays out for the next one year?

Yeah, so obviously we've seen the impact of higher metal prices on the top line. We try to adjust for that as best we can with our X metals, both margins and organic growth numbers. There is a bit of metal in assorted parts of the portfolio, whether that's nickel in our industrial business or some precious metals in our wafer-level packaging businesses. And for the most part, we don't realize margins on metals. When metal prices go up, that gives us a little bit of an opportunity to take price in some of our businesses, Micromax being one of them. But deflationary metals pricing should not have a material impact on profit dollars.

Good. Thank you.

Your next question comes from the line of Mike Harrison with Seaport Research Partners. Your line is open. Please go ahead.

Hi, good morning. I was hoping that you could give a little bit more detail on the Micromax business. It seems like the second quarter was, again, ahead of expectations, and you're kind of indicating that maybe you don't expect that strength to continue. Is that just some lumpiness inherent in the business? Maybe just give a little bit more detail on how you're thinking about the outlook there.

Yeah, sure thing, Mike. So MicroMax has been performing exceptionally well out of the gates. That's volume-driven and, to some extent, pricing-driven. We have been opportunistic around pricing given the metals volatility, and that's contributed to substantial earnings outperformance. We also started the year with a somewhat conservative assumption for what the business could be this year. The numbers you see in our disclosure around MicroMax aren't burdened by some of the, we'll call it stand-alone costs or integration-related costs that we've had to add at the element level to support that business. So maybe it's modestly, it's represented as modestly greater than its underlying contribution. But given it's a relatively new business for us and we're still, you know, getting more familiar with its earnings cadence, we thought it prudent to be somewhat conservative relative to the current run rate as we look to the back half.

All right. Thanks for that. And then my second question is on the power electronics business. Just trying to understand how much of the strength that you're seeing there is related to some improvement in underlying markets. And how much might be more related to you guys finding new applications, new customers, and those customers maybe starting to ramp some of those new applications?

Yeah, Mike, this is Kerry. So, I think the answer is both. You know, in Q2 in particular, Power Electronics, the EV business has performed quite well, both with our legacy customers and the expanding customers, particularly in Asia. you know, that has been somewhat of a volatile set of end markets. We expect that some of that volatility to continue, but really good strength there. And then we have been seeing expanding applications in data center power modules and other, let's say, emerging applications tied to AI and high performance compute. And we expect those customer wins and those trends to continue. So a nice mix of both. Yeah. There's a lot of runway for the power electronics portfolio.

Thank you very much.

Your next question comes from the line of Chris Parkinson with Wolf Research. Your line is open. Please go ahead.

Great. Ben, I know it's difficult to ascertain at times, but just in terms of advanced packaging trends, where you specifically fit in, which crosses both assembly and some circuitry, can you just do your best to parse out kind of what's driving those businesses, where you think you're performing relative to the market, and where you should, you know, where roughly you think you should be on a, you know, run rate basis. Thank you so much.

Yeah, sure thing, Chris. So our advanced packaging portfolio is performing quite well. We've seen substantial growth. You know, as we've always said, advanced packaging is somewhat of a generic term. So to say this specific product is an advanced packaging product, you know, we sell one product that goes across multiple different substrates into different types of boards, so it's hard to be very precise in that regard. But I would say really strong traction, I would say share gain in the IC substrate, the package substrate portion of our circuitry business. Our high-end paced business and assembly is performing very well. Our wafer-level packaging business is performing very well. But what's most exciting around advanced packaging is that we're really right now on the crucible of establishing processes of record for the transition from COOPOS to COOPOS and other emerging technologies that we expect to ramp, call it 18 months from now, and become very big markets for us. And, you know, we feel confident that we're going to win those pieces of business, and the advanced packaging business will accelerate as we move into 27 and 2028. Got it.

And just switching over to Semi, could you just give us what you're willing to give on just breaking down the organic growth in Semi between precious metals, volume price? It seems like you're doing very well in the wafer plating chemistries, likely gaining shares, my guess. Could you see your best to kind of break that down for us and how we should once again interpret that for the second half and into 27? Thank you.

Yeah, Chris, this is Kerry. I'll speak about the current performance and I think expectations for this year. So both the power electronics and the way for plating businesses saw volume growth in the high teams. And then both businesses benefited from additional pricing tied to precious metals, silver and gold primarily, respectively. So if think about the the total 30 plus percent organic growth we showed in the quarter call it yeah 60 to you know two-thirds of it um would have been volume and the rest would have been price mix i think we expect that volume trend to continue throughout the rest of the year i made the comment a few minutes ago around the power electronics business specifically and again a growing part of that business is tied to data center applications but there's still The majority of that business is still tied to power electronics for electric vehicles, which, again, does have some volatility. And we're taking a little bit of a conservative view on that through the rest of the year. You know, I think it's too early to comment on 2027. Got it. Thank you very much.

Your next question comes from the line of Pete Osterlin with Truist. Your line is open. Please go ahead.

Hey, good morning. Thanks for taking the questions. I just wanted to start with an update on Couprion. Could you size approximately the revenue you expect to see in 2027 from Couprion? And just more broadly, as you ramp, will it all be truly incremental? Do you expect any cannibalization of existing sales?

Thanks for the question, Pete. So Couprion is a good story. Over the course of the quarter, we identified ways to get more product, more capacity out of our initial plant in Fremont, which is now sampling and qualifying material with customers. And we were able to expand our plan for our second Fremont site and made progress towards construction of the third site, which will be in Connecticut. So the sort of takeaway from all of that is our expectations for Coupriane or active copper capacity by year end 2027 increased pretty materially over the course of the second quarter. From a commercialization perspective, we're making really good progress, and we have customers pulling the product very aggressively, which should translate into material revenue in 2027 and profit contribution. It's dangerous to size these things because that second site in California you know, may come online in the middle of the year or the latter part of the year, and that will have a pretty big impact on what revenue we can expect. But, you know, the outlook for 2028, for instance, is very robust from a revenue and profit perspective, given our capacity plans.

Very helpful. Thanks. And then also appreciate the color on Micromax. Wanted to follow up by asking about your other recent acquisition, particularly with EFC sales falling sequentially in the second quarter, how is the business performing? What drove the decline? And what do you expect in the second half?

Yeah, so the EFC business is a lumpier business than our other businesses. And it's not a business that was operated on a quarter to quarter basis, not that ours is, but with quarterly forecasts in its prior iteration. I would say that our confidence in the full year is, or rather our conviction and their ability to hit that $30 million for the full year of 2026 is higher today than it was a quarter ago, given the really strong commercial pull and customer engagement. Given it is a bit lumpier, it also has pretty good visibility into large new wins, and they are winning big pieces of business. So the business is healthy. I wouldn't read anything into the seasonality, if you will, or the phasing. we're going to have a very big back half for EFC.

The only thing I'd add to that is just given that seasonality and a little bit more lumpiness, the incrementals when the revenue does pick up are much higher than we would see for the rest of our business. So we expect that to manifest in the second half as well. Great. Thanks a lot.

Your next question comes from the line of John Roberts with Mitsuo. Your line is open. Please go ahead.

Thank you. I appreciate it's hard to define advanced, but would you give us kind of a wide range of what you would characterize as advanced for your core sales in electronics?

So, you know, we've had a lot of questions in the past, John, around advanced packaging, right? And we've quantified advanced packaging as, you know, several hundred million dollars of revenue. Advanced is an even more generic term than advanced packaging. And what I would say is that, by and large, what we're selling is skewing towards higher-end applications. You see that in our growth relative to industry growth, whether that's printed circuit board volumes or semiconductor MSI, which would be the underlying market indicators for our end markets. And we've been, you know, very substantially outpacing those markets for the past several years. So, you know, we can't say that every product we have goes into leading-edge applications, but the business skews disproportionately towards advanced technologies. You know, I would say a very negligible percentage of our revenue that is going to, you know, really legacy analog-type applications.

Okay. I was going to corollary here. Would you characterize consumer and mainstream electronics, organic, as down modestly?

Yes. For the market or for our business, John? John, for the market or for our business? Because the market is down.

For your business is what I was asking.

Oh, no, no. If you look at Q1, I don't have the data for Q2, but in Q1, smartphone units were down overall, but our business was up mid-single digits, and I would expect something similar to that because there's been a divergence, particularly in the smartphone market, between local Chinese OEMs and Western non-Chinese OEMs. then our business skews towards those non-Chinese OEMs where the market's been a bit more healthy.

And then for overall for the company, could I ask, what are your largest raw materials that are non-metals? And actually, how much are they up as you talk about kind of inflation from the Middle East, et cetera?

Yeah, so, John, there's a broad swath of raw materials that are ex-metals. If you think about the ones that have driven the pressure, it has been things that are derivatives of oil. also ethylene and propylene-based products, the biggest hit in the second quarter where in the industrial business and the offshore business is where those products are more prevalent. But there's not any one, but it's sort of things in that oil value chain.

You know, X-metals, we have no major concentrations within any specific raw materials or molecules.

Your next question comes from the line of John Tanwantang with CJS Securities. Your line is open. Please go ahead.

Hey, good morning. Thank you for taking my questions and a really nice quarter outlook.

I was wondering if you could talk a little bit more about the semiconductor business in general, just the impact of the growth on mix and margins, and do you expect that to continue significantly outpacing the circuitry and assembly business growth as we move into the future quarters? yeah it's a good question this is carrie so the um you know the the given the metal components in the semiconductor businesses um the actual contribution margins there are not too different from the average for the electronics business so what we you know from a growth perspective certainly semi has been outperforming volume wise and we would expect that to continue

to be our highest volume growth business through the rest of this cycle um but in terms of a margin and margin mix i don't think we're seeing a meaningful difference in that and the rest of the electronics business you'd add into that got it that's helpful and then just from a raw materials and market share standpoint are you able have you been seeing excessive share gain i guess over what you would normally see um just given the impact on your competitors um or or is that something that's been more normal course? And if you are seeing share again, do you expect that to be sticky?

Yeah, it's a great question. So in general, the broader electronics industry is short certain inputs, right? And capacity constrained as well. Those inputs tend not to be things in our value chain, right? So we are not capacity constrained. I would say that by and large, our competition isn't capacity constrained, though there are a few areas. We talk about for example, what we're doing in STIMS and other engineered materials where, you know, I would say we are capacity constrained and we're adding capacity as fast as we can to meet the surge in demand. So, you know, I wouldn't say that there is a shortage of what we make as a general term. We are taking share in certain technologies where we've been first to market established positions of incumbency or innovated ways to increase our customers' throughput because they're capacity constrained, right? And so if we can allow for them to increase their production, there's a lot of value they can capture, and that justifies some switching, which is very uncommon in our industry. And so we have been taking share in several areas across our businesses on the basis of our technology. And that has led to some level of outperformance. And we would envision that to be sticky. The switching costs are really high. The other area where we've seen some share opportunities has been given the spike in metal prices, some of our local competitors haven't had the, haven't been capitalized to float metal and, you know, handle the payment terms in the industry. And so we've seen customers turning to us in, because competitors aren't able to continue to operate. In those situations, we're making sure the business isn't transactional because, you know, we're not interested in that transactional type business. We're interested in longer-term sticky business and making sure that the fact that we are a viable long-term supplier is recognized in the way we do business with our customers and by our customers. And so we have seen some share gains from that as well.

Great. Thank you for that, Colin.

Your next question comes from the line of Frank Mitch with Firmium Research. Your line is open. Please go ahead.

Thank you so much and good morning and Nice second quarter results. You commented that the organic outlook improved through the second quarter. I was wondering if you might be able to provide any metrics around that in terms of the underlying industry or what you're seeing specifically to make that comment that the organic outlook improved throughout the second quarter. And then, of course, the durability of that, you know, back in mid-May when you had your invested day, you offered us a midterm 7% organic growth outlook, you know, have things materially changed in that regard? Any color there would be very helpful.

Yeah, absolutely. So thanks for the question, Frank. But the organic outlook improved, meaning our outlook for the year and organic growth this year improved relative to the jumping off point at the end of the first quarter. And, you know, the reasons for that is we continue to see capacity expansions in the supply chain and pull from our customers, right? Their levels of activity continue to increase. We said something similar about a year ago where we said, you know, there was concern with their pull forward and we said, this doesn't feel like inventory in the channel. Our customers are adding capacity to meet what they expect to be demand and that capacity addition continues across the supply chain. And so in that context, our customers are making long-term investment decisions, and we're partnering with them to supply them with critical materials for their production processes. And so we don't see that abating in the near term. You know, the medium-term targets that we – or medium-term growth rates we articulated at our investor day, you know, are exactly that. They're medium-term, and, you know, I wouldn't say they change over a 90-day period. I would say that underlying industry health is very strong right now, and the outlook is as well.

Terrific. Very helpful. And, Kerry, you called out higher incentive comp in the second quarter, a $10 million headwind. How do you think about incentive comp trending for the balance of the year?

Yeah, so it's a good question. Thank you. so the incentive comp accruals are based on our expectations for our full year plan and you know we update those on a quarterly basis and true of the accruals so uh as of now our what we're seeing in q2 is the is sort of the level of expense we would expect to see in q3 and q4 unless our plan changes and as we've indicated here in our guide that we update provided is kind consistent with where those accruals are. So I would expect a similar level throughout the rest of the year.

Terrific. Very helpful. Thank you.

Your next question comes from the line of Aaron Viswanathan with RBC Capital Markets. Your line is open. Please go ahead.

Good morning. I was on mute. Thanks for taking my question. Congrats on a very strong quarter here. So I guess I just wanted to understand the strength in the semiconductor technology side. Maybe you can just elaborate a little bit on what drove that and how you see that kind of evolving as you potentially go through the next few quarters. Do you think you need to make any capacity additions there to meet growing demand? Thanks again. Sure thing.

So the semi-business was very strong in the second quarter. As we said earlier, about two-thirds of that is volume, and a third of that is metal price inflation. We adjust for most of our metals that we pass through, but in the semi-business and also in the industrial business, for instance, we don't make those adjustments. So the volumetric strength is something we expect to continue and the metal prices we can't predict. We are not capacity constrained by and large in the SAME business. And so we wouldn't have to make substantial investment to support ongoing growth there.

Thanks for that. And if I could just ask a follow-up, do you comment on your outlook as far as utilization rates at some of your customers? Do you see those continuing to ramp up? And where are we kind of in that cycle from your perspective, if you have any views there?

Yeah, it's a good question, right? We've got a very broad set of customers from semi-fabs to printed circuit board fabs to assemblers. And then, of course, on the specialty side of the business, it's a whole different set of customers. What I would say is that across all of our electronics customers, we're seeing capacity additions, right? We're seeing, you know, the device assemblers and assembly shops building out more capacity. We're seeing printed circuit boards building out capacity both in China and outside of China. We're seeing huge investments in capacity in Taiwan and Korea in those markets. And then, of course, ME fabs are expanding capacity at the leading edge. Capacity utilization varies by customer type and by what they're building, right? So leading edge ME versus legacy nodes. Similarly, with printed circuit board fabs, there are a lot of different types of printed circuit board technologies, and those lines aren't fungible per se. Certainly at the more advanced end, we're seeing very high utilization rates, which is supporting substantial capacity additions at all of our major customers in the leading edge, circuit board fabs, ME foundries, and device assemblies, device assemblers, EMS ships.

There are no further questions at this time. I will now turn the call back to CEO Ben Glicklich for closing remarks.

Great. Thank you, Lynn, and thanks to everybody for joining. We'll see you guys soon. Have a good day.

This concludes today's call. Thank you for attending. You may now disconnect.