Greetings, and welcome to the Materion 3rd Quarter 2025 Earnings Conference Call. At this time, all participants are on a listen-only mode, and a question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Kyle Kelleher, Director, Investor Relations and Corporate FP&A. Sir, the floor is yours.

Good morning, and thank you for joining us on our third quarter 2025 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 Vijay Varghia, 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 for the quarter in addition to discussing expectations for the remainder of 2025. 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 gap numbers shown in attachments 4 through 8 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. And now, I'll turn over the call to Jugal for his comments.

Thanks, Kyle, and good morning, everyone. I'm pleased to be with you today to discuss our third quarter results and to provide an update on what we are seeing across our businesses and end markets. We achieved a couple of very important milestones in the quarter, including all-time high EBITDA margins of 27% in electronic materials. This reflects the power of our improved cost structure, strong operational performance, and new business initiatives as the semiconductor market continues to recover. In addition, the transformation of precision optics is tracking ahead of our expectations, and we saw a return to double-digit EBITDA margins with a significantly better cost structure and a nice step up in sales. At the company level, our sales were up roughly 1%, with the strong electronic materials and precision optics results partially mutated by some equipment downtime challenges that limited shipments and performance materials. These challenges are being addressed, and we anticipate more normalized production levels as we finish out the year. Despite the shortfall in performance materials, we delivered 21% EBITDA margins for only the second time in our company's history. Our team is making great progress towards our new midterm target margins of 23 percent. In addition to our strong financial performance in the quarter, we are also pleased with the step-up we're seeing in incoming order rates across the company. Overall, our order rates are up more than 10 percent sequentially and with the key markets of semiconductor, defense, space, and energy up 20 percent year-to-date. These markets are seeing strong secular demand growth, and we are developing products and partnerships to supply the materials that are critical to their performance. Semiconductor has long been a leading market for us, where we have made strategic organic and inorganic investments to develop the right footprint and material set. We are starting to see a cyclical recovery taking shape, led by the proliferation of AI. Excluding China, our semi-business is up 7% year-to-date, with sales into high-performance memory applications increasing more than 30%. In our ALD portfolio, we have developed molybdenum-based products that are in high demand given their performance in smaller node chips. We are seeing significant interest in this product set and are working with new and existing customers as our production ramps. energy demands are increasing at a rapid pace, and this trend is closely related to the proliferation of AI. The number of data centers is expected to double in the next five years, with each center's energy usage also doubling. Combined with other drivers of energy usage, it is fair to say that energy is going to continue to be a great market for Materion. We continue to have a strong position in traditional energy, and we have exciting opportunities to grow with new energy that will bring about the higher volumes of energy required to supply tomorrow's demand. In the past year, there has been a step up in the market's interest in nuclear solutions. Small, modular reactors enable regional energy independence and efficient nuclear space propulsion, as well as remote battlefield autonomy for defense applications. We work with a number of customers on these types of applications and expect to see continued growth. We are also partnering with companies who are aggressively developing breakthrough technologies to expand total energy supply. Our partnership with Kairos Power to supply materials to produce fly, a molten salt coolant critical to the performance of safe fission reactors, is progressing well. Additionally, we announced an exciting new supply agreement with Commonwealth Fusion Systems, the leading and largest commercial fusion energy company, to provide brilliant fluoride for their breakthrough fusion energy technology to be used in their ARC power plants. We will begin shipping product this year. Defense is another important area for our company, and our materials play a critical role in national security for the U.S. and its allies. The current U.S. administration has put a pronounced focus on defense spending and has outlined its priorities, including the Golden Dome, space, maritime, and nuclear microreactors for portable energy use. In addition, as geopolitical tensions persist, the U.S. is looking to replenish and expand its stockpiles and as a result, has increased budgetary spending to almost $1 trillion for next year. outside the u.s many ally countries are also increasing their defense budgets and have committed to certain spending in the u.s as part of trade agreements as a result we are seeing record defense bookings this year up roughly 40 percent and we're currently working a total of about 150 million dollars of rfqs that should result in meaningful new orders the commercial space sector represents exciting opportunities for maturing on, as this market is influenced by a number of the macro trends impacting our other markets, including AI, connectivity, and defense technologies. The number of satellite launches has increased exponentially, with more than 260 launches last year. We have secured meaningful wins with space proposal applications and are winning new applications as well. We have a number of products being introduced at our large space customer, and we have relationships with the smaller players looking to grow in this market. Our sales in the space market have increased five-fold in just three years, and we see strong opportunities as we move forward. As we look to the balance of 2025, we expect to finish the year on a positive note, driven by our strong order book and improved operational performance. I would like to thank our global team for the relentless focus on satisfying our customers' needs and driving our company forward. Now, let me turn the call over to Shelley to provide more

details on the financials. Thanks, Jugal, and good morning, everyone. During my comments, I will reference the slides posted on our website this morning, starting on slide 10. In the third quarter, value-added sales, which exclude the impact of pass-through precious metal costs, were $263.9 million, up 1% organically from prior year. Electronic materials experienced 7% organic growth, led by strength in semiconductor, and precision optics was up 21% with new business wins. This growth was partially offset by lower volume and performance materials, where we experienced some temporary equipment downtime at our largest facility. limiting sales by roughly $10 million in the quarter. When looking at earnings per share, we delivered quarterly adjusted earnings of $1.41, flat with prior year, and up 3% sequentially. Moving to slide 11, adjusted EBITDA was $55.5 million, down 2% year over year. This decrease was driven primarily by lower volume related to the equipment downtime within performance materials, partially offset by higher volume and favorable price mix in electronic materials, along with the improved performance in precision optics. Despite the muted shipments in PM, we achieved 21% EBITDA margins for the second time in the company's history, demonstrating good progress towards our new midterm target of 23%. Moving to slide 12, let me review third quarter performance by business segment. Starting with performance materials, value-added sales were $157.1 million in the quarter, down 4% year-over-year. This decrease was driven primarily by equipment downtime and shipment timing in defense and energy, partially offset by higher hydroxide shipments and growth in space. Adjusted EBITDA was $38 million, or 24.2% of value-added sales, down 18% compared to the prior year. This decrease was driven primarily by lower volume and operational performance, partially offset by cost management. Looking out to the fourth quarter, we expect to see significant top-line improvement with more normalized production volumes. We also expect strong sales into defense and energy as a result of both market seasonality and new business initiatives. With the higher volume and improved operational performance, we expect to see significant bottom-line improvement from the third quarter results. Next, turning to electronic materials on slide 13. Value-added sales were $79.7 million, up 2% from the prior year, and up 7% organically. This increase was driven mainly by non-China semiconductor sales, as power and data storage device demand continues to improve. EBITDA, excluding special items, was $21.6 million, or a record 27.1% of value-added sales in the quarter, up 38% from the prior year, with 700 basis points of margin expansion. This record margin and year-over-year increase is driven by higher volume, strong price mix, improved operational performance, and some favorable one-time operating-related items. As we look out to the fourth quarter, we expect top-line improvement driven by the continued upturn in the semiconductor market, as this market continues to recover and benefit from favorable macro trends led by AI and global connectivity. Turning to the precision optics segment on slide 14, value-added sales were $27.1 million, up 21% compared to the prior year, and up 11% sequentially. This year-over-year increase was driven largely by new business wins, primarily in aerospace and defense. EBITDA excluding special items was $3.2 million, or 11.8% of value-added sales in the quarter, with almost 1,000 basis points of year-over-year margin expansion. The increase was driven by higher volume, favorable price mix, and the impact of the structural cost changes. This quarter marks the third consecutive quarter of improved bottom-line results and a return to double-digit EBITDA margins. We expect this trend will continue as new business initiatives advance and the transformation continues to unfold. Moving now to cash debt and liquidity on slide 15. We ended the quarter with a net debt position of approximately $441 million and approximately $214 million of available capacity on the company's existing credit facility, with leverage slightly below the midpoint of our target range at two times. While no share buyback activity occurred during the quarter, I'm pleased to share that the Board of Directors authorized a new $50 million stock repurchase program during the quarter. While organic initiatives remain our top capital allocation priority, it is important we have this tool available to us. As we look out to the remainder of the year, we remain on track to deliver free cash flow of roughly 70% of adjusted net income, with strong cash generation year-to-date and fourth quarter cash initiatives on track. Lastly, let me transition to slide 16 and address the full year 2025. With our strong performance year-to-date, increasing order rates, and new business initiatives on track, we remain confident in our ability to deliver $5.30 to $5.70 per share and are affirming our prior full-year guide. This concludes our prepared remarks. We will now open the line for questions.

Thank you. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. And you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Thank you. Our first question is coming from Phil Gibbs with KeyBank. Your line is live.

Hey, good morning.

Morning, Phil.

Morning, Phil.

So with regard to the full-year outlook, you've maintained the range. But just curious in terms of now having better visibility with a couple months left and you've got 10 months effectively behind you. maybe give us some flavor why you didn't narrow the range. It's pretty wide, you know, for the implied fourth quarter results. So just trying to hone in on that a little bit

better. Yeah, I'll start, Phil. Thanks for the question. So, you know, we're looking forward to a strong Q4. As you know, we always have kind of a nice end to the year with the strong defense orders, and we believe we're on track for that. When we think about, you know, why we didn't narrow the range, there's still some uncertainty for us around China. You know, hopefully we will see that settle down in the coming days and weeks, but right now that's not certain. And with the government shutdown, that could impact the timing of some of the orders that we're waiting on. And so when we thought about that, we said, why don't we leave the range where it is, but we are on

track for the midpoint. Thanks, Shelly. And then in terms of the new arrangement with Commonwealth, any thoughts you could provide us in terms of what that could mean to you all financially and when some of these shipments step up more materially? Yeah. Bill, I mean, we're very,

very excited to have this agreement. As you know, a number of years ago, I think it was in 2020, We had signed an agreement with Cairo's Power as they were working on new energy initiatives. Now we are excited to announce this agreement with Commonwealth Fusion. We've been working with them actually for a number of years, but we were able to get that into an agreement here in the last couple of months. We are going to be supplying material to them starting this quarter in Q4 and then into next year. We expect it to be a few million this year, and then I would say more of an annualized run rate next year. So this is very exciting for us because now we've got Kairos Power on the fusion side, CFS on the fusion side. So we've got sort of both sides covered. And I think, you know, they're clearly the two leading companies in the world on, you know, its new energy initiatives.

Yeah, I think you also hit on, you know, what can we expect to see from that, Phil? And, you know, as Jubal mentioned, we will start shipping on that this year, you know, expect to say maybe a few million to contribute in Q4. And then as we look to next year, you know, you can think about that sort of annualizing. So, you know, good size impact on the next couple of years, you know, as you can read in their release, they're still in development phases. So that could be a very large step up as you get into, you know, kind of 2030 timeframe. But right now it's a nice win for us and we look forward to working with them.

Thank you. And then just one more follow-up, if I could. The one-time items that help margins and EM in the quarter in terms of the timing, maybe just highlight the size of that impact so we can have a better bridge to what maybe more normalized margins there are. Thank you.

Sure, sure, Phil. So we were really pleased with the EM performance in the quarter, and it was a strong mix. The volume was good. The cost structure, you know, is really contributing in terms of being where we wanted it to be. But yes, we did get a little bit of a bump up from some one-time items that are all operating related. So in our precious metals process, you know, we refine some of the leftover material and some of that we send out, some of it we do in-house. When we got that material back, it had a higher concentration of precious metals than we were estimating. And so there was a pickup, you know, call it a million or so around that number that we got to record in Q3 that helped, but, you know, really should be in our year-to-date

results anyway. Yeah. But I think, Phil, just to add, I think, to what Shelly is talking about, I mean, this business has improved significantly throughout the year with all the improvements that it's driven in the cost structure over the last 18, 24 months, as you know, the incentive market was down. So, you know, now for the last two quarters, it's been, you know, 20 plus percent EBITDA margins. I mean, almost 24% in Q2 and now 27% in Q3 from the historical, you know, 20% or less margins that it used to deliver. So really, really nice step up for this business. And Clearly, we have high expectations of this business as we go forward.

Thank you.

Thank you. Our next question is coming from Mike Harrison with Seaport Research Partners. Your line is live.

Hi, good morning. Good morning. I was hoping we could address a handful of questions I had around the equipment downtime that you mentioned in the performance materials segment. Can you give us a little bit of additional detail on the nature of the outage or what kind of product line it was affecting? And is the outage or downtime resolved now, or if not, when do you expect to resolve it?

Yeah, Mike, we had a couple of pieces of equipment in our largest plant where we process both beryllium and non-beryllium materials. The equipment downtime issues that we had are mainly resolved. We're back up and running, and so we expect to be able to catch up a majority of the sales into Q4 and perhaps a little bit into Q1, but for the most part, we're going to be able to do that here in the Q4 timeframe. As you know, we've got a fully vertically integrated value chain you know, all the way from the mine into the finished material. So, you know, any type of a hiccup that we have on one or two pieces of equipment, you know, ends up resulting in a fairly impactful delivery issue. And it was around $10 million in Q3. I mean, at a company level, it's about four points of growth. I mean, you can look at it that way and that I think, you know, got impacted. We are, to your point, you know, we are back up and running on both. as we got that addressed, and like I said, we expect to be able to make up the sales mostly in Q4 and perhaps some in Q1, but it's something that the teams have been able to resolve.

All right, and just to follow up on that, it seems like maybe this disruption was not as impactful as what you guys had happen in the first quarter of 2024, but this is, you know, the second time in a couple of years that you've had a disruption or an unplanned outage in your performance materials segment. So I'm curious, is this just part of doing business and in kind of a mining and conversion type of market that you guys serve? Or are there actions that you think you can take that might help you improve operational reliability? Yeah. No, to your point, it is a

lesser of an impact than the first quarter of 24. Like I mentioned, you know, when we're vertically integrated, smaller equipment issues that we have, you know, end up impacting kind of our overall production schedule. So it is something that because we're fully vertically integrated, I think it tends to impact this business maybe a little bit more than some of the other businesses that we have. At the same time, I can tell you that we are very, very focused on making sure that we're making the type of improvements that we can on the equipment. Some of the equipment is legacy equipment so that we can minimize these or even eliminate them, you know, as we go forward. So it is a focus area for us both on finding the right type of capital improvements that we can drive, you know, into the business along with just general maintenance and general upkeep of the equipment. But it does tend to be a little bit more in this business than clearly our EM business or our optics business.

Very helpful. And then I was hoping to also ask kind of a broader question about 2026 outlook. I know it's a little bit early, but when you talk about the order books that you have and some of the backlog in your key growth markets, presumably we see some improvement in semiconductor. Presumably, we see some improvement from the Precision Clad Strip customer. And obviously, you've taken a lot of cost actions. It seems like there is really good earnings momentum into next year. And I was hoping you could just give us maybe some initial thoughts on how we should think about the top line and bottom line growth in 2026.

Yeah, Mike, maybe I'll start a little bit and then Shirley can jump in and talk. more as well. We are very excited about some of the key markets, the high growth markets that we're engaged in and the portfolio that we have. We've included a slide this time that talks about our activities in semiconductor and energy and defense and space and how order rates for those key growth markets are up approximately 20% on a year-to-day basis. We've got the right type of portfolio across those four areas of portfolio that goes across all three of our businesses. We talked about the Commonwealth Fusion announcement, for example, that goes across energy. We've got over $150 million of open RFQs that we're engaged in on the defense side. You'll recall in the last earnings call, we mentioned it was $100 million. So that's actually increased from $100 million. And by the way, some of that we closed. New RFQs got added in. And now on top of that, we have another $50 million of RFQs that we've added. So we have more than $150 million of open RFQs and defense and so on and so on. So we're very excited about those high growth markets, I think, as we enter into 26 and into 27 and we look at the sort of the midterm outlook in those areas. We certainly have challenges that we need to be addressing. China as a market for us is a challenge. We've highlighted that, I think, in the last couple of calls that we have. You know, our sales into China are down on a year over year basis, just based on all the, you know, the geopolitical issues that are going on. We expect to continue to see pressure on our China business. But what our goal is, is to offset those pressures with these high growth markets that we're focused on in the U.S. and the rest of the rest of the world. So, I think in total, you know, our business is moving forward. We've demonstrated that, I think, throughout this year. Our expectation is to move it forward again, you know, in Q4 and then continue to do that, you know, over the next two, three years with the portfolio set that we've put in place. So in general, I mean, I'm not going to address 26, of course, in particular, just because there'll be a time when we do address 26. But I think when we look at when we look at the overall, you know, midterm time frame, you know, we're very excited about where the business is. You mentioned Philip Morris. We're actively engaged with them on understanding what's going to happen next year as we get a better understanding of that this quarter. We'll be able to model that into our 26 and and go forward. We are, of course, monitoring with them what the FDA approval is so far. They have not announced the FDA approval, so we don't know if they have received it or have not received it yet. We'll obviously have to wait and see what they say about that. But certainly, the later that goes, of course, it would impact the sales into 26 and perhaps push those out into 27. Of course, the sooner they're able to get that, then, you know, that could have a potential sales uptake in 26. So we'll have to see kind of where that, you know, the Philip Morris business settles out at. But I think in total, when you put everything together, we've got a lot of upside opportunities that, you know, can help address some of the challenges that we have, whether it's China or some other, you know, areas that are going on. So I think we've got good momentum in the business this year that we've demonstrated, and I expect that momentum, you know, to continue into 26, 27, and into our midterm outlook of 23% EBITDA margins.

Very helpful. Thank you very much.

Thank you. Our next question is coming from Daniel Moore with CJS Securities. Your line is live.

Thank you. Good morning, Jugal. Good morning, Shelly. Thanks for taking questions.

Good morning, Dan.

Let's start with, similar to Phil's question, but on precision optics, you're back to double-digit adjusted EBITDA margins, you know, a big jump year on year. Can you just give a little more granularity on cost and operating improvements that have been made and, you know, are double-digit margins sustainable as we look to 26 and beyond?

Yeah, we are very pleased, I think, with the progress that that team has made in a very short time. I would say our results are tracking sort of ahead of the expectations and sort of the timeline that we'd established for ourselves. So very pleased with that. We're seeing a good uptick in a number of different markets, the more traditional markets that this business operates in, such as aerospace and defense and industrial life sciences, et cetera. But but also, you know, we've we've entered and are making a bigger progress, I think, in some markets that perhaps we weren't focused on in the past, such as semiconductor. We've we've we've we've made inroads into that market. And so I think from a top line standpoint, we're making good progress. We've made really good progress from the cost structure side with a number of different actions that we've taken over the last 12 months. and I would say still are looking at actions that we can be taking here in Q4 and into next year. We've made sequential progress this year, all three quarters. Our goal is to continue to make sequential progress in this business. So having double-digit EBITDA margin is a good start, and I think it's tracking out of expectations, but that is not where we just need this business to be. We need this business to contribute to our 23% midterm EBITDA margin target. And so we're going to continue to focus on that, Dan, and continue to push forward.

Very helpful. Following up on Mike's question, obviously great detail on the areas, semi, defense, others where you're seeing nice pickup in orders, nice strength, little uncertainty in China. Are there any pockets where, you know, you could see maybe detractors in terms of year-on-year growth being negative in terms of difficult comps or pieces of the business? Just trying to kind of conceptualize, you know, a lot of the arrows pointing north. Anything that, you know, could be a drag on that growth as opposed to, you know, more neutral as we think about next year?

Well, I think the auto market, you know, we've talked about this, I think, in the last call as well, right, continues to be a very challenging market for us. In general, I think it's a challenging market. I mean, the EV rollout has slowed down quite a bit. I think the growth in China OEMs has been substantial. The Western OEMs, you know, have had a very challenging environment in the last one or two years. So, you know, we continue to look at the auto market as perhaps a bit more challenging market for us as we move forward and a bit more opportunistic, I would say, as we put a lot more focus on these key high growth markets. So, you know, our portfolio adjustments are real time and our customer adjustments are real time. And so, you know, we're going to do everything we can to make sure that we're capturing these high growth markets. And in some cases, if we have to go and be a bit more opportunistic in other markets, then, you know, we'll do that accordingly.

Helpful. Appreciate the color on the Commonwealth acquisition. Just going back to Commissol, just talk a little bit about what you're seeing, you know, since it's been a few months since closed that acquisition. and just remind us kind of the timeline in terms of what the incremental contribution could like either 26 or, you know, over the next two to three years. Thanks again for the color.

Yeah, no, that's been a very good pickup for us. Our teams have fully gotten involved, integrated the business into our Materion family. We are working with our customers and being able to talk to them about, you know, the capability that we bring forward. We have a number of different qualifications that we are involved in with the customers. Our expectation is to go through those qualifications here the rest of this year and into 26 with the objective of being able to start to see some sales in 26 and then into 27 and beyond. So we are, I would say, on track and in some cases perhaps even a little bit ahead of track on that acquisition.

and then lastly would be just in terms of capital allocation nice to see the authorization just how do we think about where buybacks potentially could fall in terms of rank ordering priorities you know growth has always been a key priority balance sheets is you know uh down to two times and generating strong cash so you've got flexibility but just you know help us think about how you're kind of rank ordering uh that as we look out to 26 and beyond yeah thanks i'll

I'll take that one. So, you know, I think our priorities remain the same. You know, we've been very focused on growth and organic growth. We continue to be very focused on organic growth. You know, the areas that Google highlighted will continue to need some investment and provide, as you know, very, very good returns. When we think about the share buyback, you know, it is a very opportunistic tool for us. We had not done share buyback in a number of years, but when, you know, we kind of looked at where the stock was in Q2, it was the right time to go ahead and buy a little bit back. And, you know, that proved to be a worthy use of our capital at that time. And we had run the current authorization down to a very small amount. So it was just the right time to re-up with our board of directors. So we have that tool in our tool belt, but it is not one that we are actively pursuing. Understood. Thank you again.

Thank you. Our next question is coming from David Silver with Freedom Capital Markets. Your line is live.

Thank you very much.

Hi, David.

Hey, good morning. So I have a scatter of questions, I'll just warn you. But first I'd like to hone in a little bit on your comment about sequential order, order growth of double digits or better, I believe, in all three of your segments. And I was just kind of wondering, from your perspective, would you characterize this, you know, sequential, kind of across-the-board sequential growth, would this be reflective of maybe some, I don't know, some deferred activity on the part of your customers maybe over the last quarter or two in response to the tariff issues and some other things? Or would you characterize the bulk of it, the bulk of the new orders, as reflective of kind of, you know, pure organic growth? I mean, how do you think about the kind of broad-based trend of significant sequential pickup in your order book? Thank you.

Yeah, I think I would look at this as, you know, primarily, I think, good organic growth that our teams are driving. new business activities that our teams are driving, as well as, I think, the overall market growth and market trends that are there. Certainly, there could be some, David, as you mentioned, of some orders that perhaps have been held back and, you know, that got released. But in general, you know, we see continued uptick and improvement in our order rates in most of our markets, and in particularly, you know, in the high-growth markets that we've indicated.

Okay. Thank you for that. Next question would be kind of your take on tariff impacts on your financial results. So if I recall correctly, I mean, you highlighted maybe a 10 to 15 cents per share negative impact in the second quarter, and then up to, you know, 50 cents or more for the back half of the year. And I know that that initial forecast has been tempered a bit, but, you know, we're kind of six months into it now. You know, how do you kind of assess the overall effect on your financial results or operations, however you kind of look at it, you know, of the, you know, of the tariff issues to date? I mean, how much of that has flown through, you know, what might be remaining, what that might not be offset by price or other actions? And, you know, what should we think about maybe heading into 2026 on a year-over-year basis?

Yeah, David, as you know, you know, what we've been talking about the most has really been the impact to our China business. And so we think about that more commercially and what is that doing, both with customers reserving orders, but also maybe looking for suppliers that are outside the U.S., right? There's a bit of sort of a tone that, hey, we would rather have suppliers that are outside the U.S., given the volatility and the tone of how things are going in negotiations there. So right now, when we look at our China business, it's down about 20 percent year on year, year to date. And, you know, that's meaningful to us. The other side of that, of course, would be raw materials that we are incurring, material being brought in. That's a smaller number. You know, call it $3 million, $2 million, $3 million in that range. Some of that we're able to bill out through price. Others takes a little bit of time to settle in to customers and work through contracts. But, you know, the part that gets most of our attention is China and how that will shake out as, you know, some agreements are reached.

Okay. Thank you for that. I would like to ask a question about the margin progression, in particular, in electronic materials. So 27% is, you know, not only is it, well, whatever, it's the highest I have in my model going back, you know, as many years as it does. And, you know, I know that in general, electronic materials can often be a very high, you know, incremental margin business on, you know, on incremental sales. But I don't know, I'm not thinking that that's the case, at least just yet. So, you know, whether it's product mix or cost savings or whatever, but what, you know, what went into this record margin performance this particular quarter? And, you know, should I assume that it can continue to go higher, you know, maybe as sales growth continues to progress?

Yeah, maybe I can start on this, and then Shelly can jump in as needed. You know, this business, as you know, has gone through a downturn for the whole semiconductor market over the last couple of years. The recovery has now started, particularly, you know, particularly in the data center business, you know, the high-performance computing memory business, high-performance logic business, et cetera. Those have been recovering at a very good rate, and some of the other areas are starting to now catch up. We took the time over the last year, year and a half, two years, to really make the adjustments to our cost structure and to the business so that as the recovery happens, we can make sure that the margins are improving. We've talked about making those adjustments. I think when the volumes were at a peak level, it was hard to get some of those adjustments done. But now, having done those adjustments, I think, has allowed us to deliver the type of margins that we're delivering. In addition to that, of course, our mix is much stronger than the mix that we've had in the past. Certainly, the power segment and the data storage segment gives us a lot more of what we call precious metals mix business, which is a great business for us. You know, the fact that the China business is a little bit lower, I mean, certainly those, you know, margins were not as good as, you know, some of the other businesses that we have. So it makes this certainly a helpful item. But in total, I think, you know, we've really made the right type of changes to this business so that it can be a much stronger business going forward. If you take the 27%, you know, that we have here in the quarter that we delivered, I mean, even if you adjust for the sort of that million dollars or so that, you know, Shelley talked about earlier, I mean, you're looking at about a 25% type of EBITDA margin compared to the 24% EBITDA margins that this business delivered in Q2. So, you know, we think that it's the right type of margin profile. You know, our goal is going to continue to be able to deliver those types of margins, you know, as we move forward and to contribute positively to our midterm target of 23%. I believe we're well positioned, you know, to deliver these good margins.

Okay, thanks. And then maybe just the last one, but you did mention your efforts in molybdenum, you know, very much kind of a leading edge material for thin films and whatnot. You know, I was just kind of thinking, and I don't recall exactly your wording, so I apologize, but is this the type of product where maybe you've developed it in close collaboration, you know with a single customer and and therefore maybe that customer might have an exclusive you know access to you know your technology or is it more something that you know materion has developed um on their own uh you know or proprietary basis and therefore you know it could be ultimately available to a large number of your semiconductor-based customers. Just qualitatively, if you could just discuss the nature of that development and, I guess, by extension, the marketing potential down the road.

So, in some cases, you're right. I mean, we develop, you know, our products with collaboration with a customer and perhaps have some sort of arrangement with a customer. I think in this particular case, you know, ALD in general is a product set that we started working on seven, eight years ago. We started to do organic development of that. We have a number of different materials that we have developed in this area. Molybdenum is one of those materials. We've done that with our investments, of course, in working with a number of different customers. So we are selling this product to our customers. We will be marketing it more so as we continue to go forward. We think this is an exciting, exciting product set as we move forward, as it replaces some of the tungsten use that's in the semiconductor market. So we're well positioned, I think, to take advantage of this across a number of different customers and as we continue to get the pull and as we continue to, of course, push.

Okay, great. Thank you very much. I appreciate all the color.

Thank you. Our next question is coming from Steve Storms with Stonegate. Your line is live.

Morning, and thank you for taking my questions. Morning. I just want to start by maybe getting a little more commentary around the timing impacts on defense. With the court closing on 930, were any of these timing issues related to the government shutdown? and one way or another, how much more maybe impact could we see here from the government shutdown?

Yeah, so in our case for the third quarter, you know, we didn't have any, I would say, government shutdown-related impacts for defense in the third quarter, but we certainly could have impacts of that here in the fourth quarter. We do have a number of contracts that we're working on with the government. you know we have a process where we actually work on projects well in advance of actually receiving the contracts that's a normal process that we have in our defense market and then as we receive the contract we make the shipment or we do some sort of recognition in this case we are waiting on a few of those agreements and we will have to see how those things play out now over the next couple of months. But no impact in Q3 could have impact in Q4. Again, from our operational side, we're fully ready. It's just a matter of being able to get those

contracts and closing them out. Thank you. Turn in maybe to the impact of China. I know this may be hard to estimate, especially without a deal being reached. It was mentioned earlier that you know, China's maybe impacted by 20% or so. Is there any sense of how much of that would be recoverable given some resolution here that removes some of the uncertainty?

Yeah, and like you said, I mean, it's hard to know, right, what the customers are thinking for the out years, 26, 27, you know, midterm timeframe. But I think in general, I mean, what we are hearing and seeing from our customers is that they want to make sure that they're able to purchase from locations where they have more reliability or more stability. And so if there are, you know, some temporary measures that are reached, I mean, we don't know if it's going to be permanent, temporary, you know, some sort of pause. It's hard to know, right? And hard to know what the customers are going to do as a result of that. But I think in general, I would say, you know, our business in China has seen pressure this year. And we are planning as if, you know, the pressures will continue as customers look for ways to purchase outside of the U.S. Now, we are actively involved in a number of ways that we can actually be that supplier, though, outside the U.S. We announced this Connoissell acquisition last quarter, and so we're looking at any and all ways that we can continue to supply these materials, just do it from outside the U.S. if that's what's necessary.

Understood. That's great commentary. One more from you, if I could. I would just love to hear your thoughts around maybe the volume of opportunities in the energy sector, similar to the Commonwealth Agreement. Is this, you know, an opportunistic one-off that we'll continue to see once every couple of years, or do you expect to see more opportunities like this come into the market?

Well, like we'd indicated, you know, we've got the agreement with Kairos Power. We've had that for a while, and, you know, now we announced the agreement with CFS. We are working with a number of different partners in all types of new energy areas. So, you know, certainly if there's additional announcements or additional agreements that we reach, we will certainly talk about that. But we're very excited about, you know, having agreements on both fission and fusion for new energy applications.

That's perfect. Thank you very much. Good luck. Thank you.

Thank you. Thank you. Our next question is coming from Phil Gibbs with KeyBank. Your line is live.

Hey, thanks. You'd mentioned. Yeah, you'd mentioned in your prepared remarks about the government potentially looking to stockpile certain resources. Do you think beryllium will be one of those materials? I'm just trying to think of whether or not you expect any pickup in that dynamic. I know that's something that tends to happen to the company, from my experience, maybe once a decade. But I know it does happen from certain cycle to certain cycle. So I'm curious to hear your thoughts on that.

Well, I think when we look at the overall defense market, with the U.S. defense spending, you know, approaching a trillion dollars for next year, the NATO countries, you know, increasing their spend to 5% of their GDP, you know, by the end of the decade, and then Japan and Korea, you know, increasing on an annual basis, I think that drives, I would say, an increased usage of beryllium. I mean, many of the defense applications are beryllium-based applications, and so we are actively involved in a number of discussions with various groups on making sure that we have the right level of beryllium and we can produce that and be able to provide that to them. Now, whether that's done in some sort of a stockpile form or whether that's done in actual materials that are used in various applications, like we indicated, you know, the different things that I think the Defense Department is involved in, you know, we're prepared and ready to do that. So we do have a lot of active discussions, I would say, underway with different entities about how to support in the right way all the defense needs, which, of course, a big part of that is beryllium-based materials.

Thank you. As we have no further questions on the lines at this time, I'd like to turn the call back over to Mr. Kelleher for any closing remarks.

Thank you. This concludes our third quarter 2025 earnings call. Recorded playback of this call will be available on the company's website, materion.com. I'd like to thank you for participating on this call and your interest in materion. I'll be available for any follow-up questions. My number is 216-383-4931. Thank you again.

Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.