Element Solutions Inc.

Dear Director of Strategy and Finance, please go ahead.

Good morning, and thank you for participating in our fourth quarter and full year 2023 earnings conference call. Joining me are our Executive Chairman, Sir Martin Franklin, our CEO, Ben Glicklich, and our CFO, Kerry Dorman. In accordance with Regulation FD, we are webcasting this conference call. A replay will be made available in the investor section of the company's website. 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 that are subject to risks and uncertainties. Please refer to our earnings release, supplemental slides, and most recent SEC filings for a discussion of material risk factors that could cause actual results to differ from our expectations. These materials can be found on the company's website in the investor section under news and events. 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 Glicklich.

Thank you, Varun. Good morning, everyone. Thank you for joining. Element Solutions had a productive 2023. We improved our businesses across multiple vectors while demonstrating our hallmark stability in a challenging backdrop for several key end markets and geographies. Positive price and mix impacts from emerging high-value offerings together with disciplined cost management preserved profitability. Adjusted EBITDA margin was flat despite a high single-digit decline in volumes and an even greater decline in our higher margin verticals. 2023 was arguably the biggest electronics market dislocation in a generation. and ESI emerged improved. Gross margins are climbing back towards their historical levels. We took out costs both permanently and temporarily while improving the long-term growth profile of our businesses. While organic net sales in our electronics segment declined last year, we exited 2023 with the circuitry and semiconductor businesses returning to organic growth in Q4. One of the hallmarks of our business has been steady cash flow across a variety of operating environments. This year, Element Solutions generated record annual free cash flow of $282 million. Our consistent cash flow generation affords us significant flexibility to deploy capital, whether that is through M&A, debt reduction, or returning cash to shareholders, all of which we did opportunistically in 2023. The results from our M&A in 2023 continue to look promising. Two transactions last year. Viaform and Couprion strengthen our high-end electronics value proposition just as those markets are poised for a recovery and improve our ability to participate disproportionately in significant long-term growth tailwinds. The Viaform distribution rights we reacquired are driving deeper commercial engagement and unlocking sizable pipeline opportunities with the largest semiconductor manufacturers in the world. We completed the integration of customer service, quality support, and inventory management in the fourth quarter, And our front end-of-line offering is now well-positioned for growth beyond our initial expectations, with traction on both leading and legacy nodes. In January, Viaform sales increased significantly from the monthly run rate seen in the fourth quarter of 2023. And some of our back-end-of-line wafer-level packaging products generated their highest sales month in over two years, as the semi-supply chain continues to ramp utilization up. Together, these products enable the increasing complexity in chip design, which should drive the next leg of computing performance improvement for data center, AI, IoT devices, and industrial automation. The customer response to Couprion and its active copper technology continues to be very enthusiastic. We have many active applications and qualifications projects underway with large electronic component and semiconductor manufacturers. This technology is truly differentiated and solves major customer pain points with ever-shrinking feature sizes and growing thermal management requirements. We expect significant progress in 2024 on commercialization, product qualification, and building internal manufacturing capacity. In addition to value-enhancing M&A activity, we made significant progress this past year on improving our gross margins and streamlining costs. Positive product mix, sustained pricing action, and some raw material and logistics cost deflation within our supply chains resulted in over 200 basis points of gross margin expansion year over year, despite unit volume across our business declining in the high single digits. We also maintained adjusted EBITDA margins of approximately 21%, similar to the prior year. As we enter 2024, our markets are going the right direction, our technology position has improved, our team is focused, and as you'll hear from Carrie, our balance sheet is strong. Like volumes and margins, the company-wide trend and outlook are positive. Kari will take you through the financials in more detail. Kari? Thanks, Ben. On slide four, you can see a summary of our fourth quarter results. Adjusted EBITDA grew 11% year-on-year, and margins expanded 210 basis points. We benefited from return to growth in our high-end electronics verticals, and easing raw material and logistics costs for most of our business line. For ESI overall, Net sales declined 3% organically, primarily driven by a softer volume environment across most of Asia and in our industrial markets globally. Demand across the electronics ecosystem continued to improve, with organic growth declining 1% compared to high single-digit year-over-year declines earlier in the year. Our circuitry business grew 2% organically in the fourth quarter, and our semiconductor vertical grew 7%. This trend tracks shipment growth for global handsets in Q4, though we think some of that benefit accrues to us in Q3, given the production timeline. Nonetheless, this inflection is a positive development as we enter 2024. Our assembly business experienced volume weakness in circuit board assembly products that primarily serve industrial and automotive customers. This softness was regionally concentrated in Europe and China at the end of the year. Despite the muted volume backdrop, improving mix and cost management drove 16% higher constant currency-adjusted EBITDA for the electronic segment as a whole, and margins improved by 230 basis points. Our INS segment declined 7% organically in the fourth quarter, as industrial surface treatment volumes softened in Europe industrial and Chinese automotive markets. Net sales in industrial solutions declined 9% organically in the quarter, with volume declines in the mid-single digits. a reduction in commodity-based surcharges driven by lower input prices contributed to the rest of the organic sales to come. These commodity-based price fluctuations did not meaningfully impact profit dollars as the surcharges in this business are at low margins. Energy Solutions grew 11% organically on the back of continued increase in offshore drilling activity and pricing action, while the Graphic Solutions business declined 7% organically, driven by the closure of a key customer in our small newsprint business, an ongoing slowdown in new designs in the consumer packaging market. Across the business, material and logistics costs improved, and that trend should carry into 2024. Constant currency adjusted EBITDA in the INS segment grew 3%, with a roughly 190 basis point improvement in margin versus the fourth quarter of 2022.

Adjusted earnings per share grew 10% year-on-year.

On slide 5, we summarize our full-year financial results. Our top line declined 5% organically, driven by broad-based weak demand in Asia and electronics markets generally, which, while improved toward the end of the year, remained quite slow. On a constant currency basis, adjusted EBITDA declined 6% year-on-year, but margins improved by 20 basis points, despite the challenging mixed headwinds from declining high-end electronics in the first half. This improvement was largely driven by positive end-market mix in the second half and progressively easing raw material and logistics pressures. Reported results reflect foreign exchange fluctuations with drove a nearly 15 million year-on-year headwind to adjusted EBITDA. Excluding the impact of $351 million of pass-through metal sales on our assembly solutions business, our adjusted EBITDA margin would have been 24% for the year. Next, on slide 6, we share additional details on full-year organic results for each of our businesses. Our assembly solutions business, which has more significant exposure to industrial and automotive end markets than our electronics verticals, relatively outperformed on the backup strength and high reliability alloys for automotive customers. This strength persisted most of the year, but we did experience volume softness in these same markets toward the end of the year. This business declined 2% organically for the full year. Smartphone unit volume started the year down 15% in the first quarter, driving declines in our circuitry and semiconductor businesses. Combined with slowing data center investment and an overbuilt downstream memory disk channel, sales in our circuitry solutions vertical declined 14% organically in 2023. While the inventory correction in the PCB and memory disk end markets were impactful across our portfolio this past year, our volumes performed meaningfully better than the decline seen by much of the PCB supplier base. Semiconductor solution sales performance reflected the reduction in FAB utilization and chip production activity given by excess channel inventories in 2023. Organic SNAP sales declined 11% for the year, with the bulk of the decline occurring in the first half. FAB utilization levels improved in the last three months of the year, and our wafer-level packaging business saw sequentially improving run rates in our major product categories. Large customer ordering in Asia, and particularly Taiwan, accelerated in the fourth quarter. We also continued to see strong growth in our power electronics products that serve the electric vehicle market. Organic net sales in the industrial and specialty segment fell 2% year over year. Industrial solutions, which constitutes almost 80% of segment revenue, declined 4% organically, driven by declines in commodity price-based surcharges and soft European construction and industrial end markets. Graphic solutions sales were down 1% organically in 2023. New business from a large customer win contributed to sales growth, but was offset by a reduction in sales from lower margin packaging customers, and the new spring customer closure. We have ongoing initiatives and new leadership focused on returning this business to growth in 2024. Energy Solutions' top line grew 14% organically, as both drilling and production-related revenues increased from elevated sector activity and the impact of pricing actions taken earlier in the year.

We expect this higher-margin business to continue to grow in 2024. Moving to slide seven.

We generated a record $282 million of free cash flow in the year, of which $95 million was in Q4, reflecting a release of approximately $15 million in working capital. This was driven by a sequential sales decline, modest raw material deflation, and ongoing efforts to reduce inventory. Our other uses of cash in the quarter, including cash taxes, capex, and interest, came in better than our expectations. At mid-year, we had expected CapEx in 2023 of $60 million, predicated on several key investment projects in power electronics and Asia R&D labs. Several of these projects were delayed due to equipment availability, which showed lower CapEx deployment than our original forecast. Some of this spend will roll over into 2024, so we are forecasting between $50 million and $60 million in spend this year. We consider less than half of this amount to be maintenance capex, while the remainder is targeted towards power electronics growth, research centers to better support customers in fast-growing semiconductor assembly applications and emerging geographies, and other growth investments in facilities, systems, and customer equipment. In 2024, we expect cash interest of approximately $65 million and cash taxes of roughly $85 million. Net leverage ended the year below our long-term target ceiling of 3.5 times, in line with our prior expectations, and we believe that ratio is on trend to decline below three times by the end of the year, barring further capital deployment. We took steps to further de-risk our balance sheet in late November. We reduced our gross debt by over $100 million, retired our term loan aid that was used to finance the via form transaction, and extended the maturity on the remaining term loans out to 2030. We have no significant maturities until 2028. Our new swaps ensure that 80% of our capital structure remains fixed rate until 2028 and eliminates all floating rate risk in 2024. As a result, the new effective interest rate on our outstanding term loans was 3.3% at year end. Our balance sheet remains strong and affords us flexibility for value-enhancing capital allocation.

And with that, I will turn the call back to Ben to discuss our outlook. Thank you, Kerry. We enter 2024 with solid grounding for optimism.

As we anticipated, the inventory correction that has taken place in the semiconductor and PCBN markets over the past year now appears behind us, and activity levels and orders are improving sequentially. After two consecutive years of declines, industry experts expect smartphone units to grow in 2024, with some third parties estimating mid-single-digit percentage improvements. Our volumes in 2023 reflected destocking downstream in our supply chain, which in other words meant a weaker demand environment than what was captured in the already quite weak unit sales of smartphones. Volume growth from that market, therefore, could be greater than unit growth. At the same time, growing demand for advanced packaging and other enabling material solutions driven by generative AI, both in the cloud and on device, is a multi-year opportunity for many of our enabling technologies across advanced circuitry, semiconductor, and assembly solutions. Overall, trends are positive. That said, in 2024, despite solid growth, industry volumes across our electronics market drivers, such as smartphone, PCB square meters, and MSI, are expected to remain below prior peaks. Similarly, on the industrial side, the outlook for global industrial production is for modest improvement. Global auto production is forecasted to grow in the low single-digit range in 2024, but global unit production will remain meaningfully below its 2017 peak. Electric vehicles, ADAS, and automotive semiconductor applications should grow faster than the overall market. These are technology areas where we have built meaningful exposure. Our strategy deployment efforts have positioned us nicely in our core businesses to benefit from these trends. Looking internally, in 2024, we plan to rebuild approximately $15 million in variable costs and incur some additional OPEX expansion in an environment of higher demand and customer activity. Most of these are expenses for which we retain flexibility and which should be considered market context dependent. Pullman Solutions is a short cycle business with exciting long-term growth prospects. The first quarter of the year can often be difficult to forecast given the lumpy customer ordering patterns around Lunar New Year. In the context of industrial activity exiting 2023, we expect a slower start in the industrial and specialty segment with organic growth flat to slightly negative. This should improve as we move through the year, believed by new business ramping and industrial surface treatment. In electronics, we expect mid-single-digit organic growth as customer activity improves sequentially and we lap a very slow first quarter of 2023. Consequently, we expect Q1 adjusted EBITDA of between $120 and $125 million, representing 14% constant currency growth year-over-year. For the full year, we're guiding to constant currency adjusted EBITDA growth of 8% to 12%. or approximately $510 to $530 million, a level that would represent an FX-adjusted peak for element solutions, despite markets being below their prior peaks. Excluding FX and variable comp rebuild, this guidance range represents 12% to 16% growth on a like-for-like basis. Where we land within our full-year guidance range will depend primarily on the magnitude of the back-half improvement in electronics markets. There are multiple positive indicators, but it is too early to tell the slope of the recovery in the second half. We expect 2024 free cash flow in the range of $280 to $300 million and adjusted EPS of between $1.32 and $1.40. We're emerging from one of the deepest demand troughs in our industry's history, and we do so having seized the opportunities that dislocation offers. The next few years bring exciting opportunities to grow with our customers by fully leveraging our existing leading technologies and our new offerings across a host of advanced electronics applications. We have the team technology and playbook to win in deep, fast-growing profit pools such as IC substrates, power electronics, sustainable chemistries for industrial surface treatment, circuit board metallization, and advanced packaging. Our investment in new capabilities and applications and more streamlined and efficient organization should deliver above-market growth and operating leverage. At the same time, we have a business that is capable of generating significant cash flow year after year that can be flexibly deployed to compound shareholder value. Our performance this past year is simply a product of the effort of our people, and this will be the case in every year to come. I'm intensely grateful to our talented and dedicated people around the world responsible for another solid year and eagerly looking forward to a better one in 2024.

Operator, please open the line for questions.

Thank you. If you have a question, please press star 1. If you have queued up and want to withdraw your question, simply press star 1 again. Your first question comes from the line of Josh Spector with UPS. Your line is open.

Yeah, hi. Good morning, guys. Good morning, guys. Good morning. You talked about this a little bit from a market perspective, but I was wondering if you could give a little bit more color kind of as you look at 2024. What are your assumptions from here through the year? So relative to what you talked about in first quarter, to hit your guidance, you need markets to improve how much, and what do you see ESI performing relative to those markets in terms of outperforming this year? Thanks.

Sure.

So the first half of 2024 assumes slight sequential improvement from Q1 to Q2. And then at the low end of our guidance range, it's sort of normal seasonality, an uptick in Q3 and a slight downtick in Q4. At the high end of the guidance range, it's sort of a more significant ramp in the electronics business in the back half. Our industrial and specialty business From an end market perspective, it's only up modestly with more growth coming from customer wins and margin expansion, which we see carrying over from the back half of the year. there's a case to be made where the electronics industry really ramps significantly. In that case, there's upside to our guide. What we've seen in the first quarter to date has been quite positive from an electronics perspective. That market has accelerated to some extent sequentially, but it's too early to call the back half, hence our guide.

Yeah, thanks. Can you maybe talk a little bit more then about what you've seen quarter to date within electronics i don't know if you have any further visibility than what you have normally and you alluded to maybe units growing more than or your volumes growing more than units on inventory rebuild are you seeing any of that play out today or is it still too uncertain yeah that's an opportunity that's not really factored into our guidance which is

thinking about unit levels last year being better than demand for things like circuitry materials because of the inventory clearance. And so there is an opportunity insofar as we're lapping that for, you know, incremental volume growth over the unit growth. it's really early to have judgment on that, right? We're sitting here in the middle of February. We have the Lunar New Year impact in Asia, which really does swing things a bit in the beginning of the year. It's fully falling in February, and so sometimes you see a build in advance of Lunar New Year. What I would say is that January was a very strong month, and we'll have a better sense for the first quarter. Once we're out of February, we feel confident in the guide for the first quarter, and you know, there might be some room for outperformance based on how February falls.

Got it. Okay. Thanks, Ben.

Your next question comes from the line of Bhavesh Lidoya with BMO Capital Markets. Your line is open.

Hi. Good morning, Ben and Ken.

Is 2024 a Is 2024 a growth year for your industrial and specialty segment? I mean, do you expect organic sales and or EBITDA to be higher year over year? And I guess, what does your guide assume for that segment?

Yeah, so the INS business should grow the top line and EBITDA in 2024 more modestly than the electronics business, but we do expect it to grow. The end markets are not going to be as strong as the electronics business, but we do have some customer wins ramping and margins should continue to, should be stronger, I would say, particularly in the first half as we lap a period of higher input costs and higher logistics.

Correct.

And then moving to free cash flow, that was ahead of expectations, leverage going under three, you mentioned, by the end of this year. Historically, that's where you have reinvested in the business. So I guess, how do you think about the M&A markets currently, and how do you think about buybacks restarting this year?

Yeah, so...

You know, cash flow was quite strong in 2023, and there's room for that to grow in 2024. Based on our guide, without incremental capital allocation, we'll be inside of three by the end of the year. And historically, we've been opportunistic, and that should continue to be the case. We will have capacity for reasonable capital allocation over the course of 2024, and we'll see what the market serves up to us. We feel like we also have the bandwidth for integration. Now that we've integrated Coventia, we've integrated the Viaform transaction, and, you know, Coupriana is off and running, we'll see what opportunities avail themselves.

Thank you.

Your next question comes from the line of Duffy Fisher with Goldman Sachs.

Your line is open.

Yeah, good morning, guys. Can we dig a little deeper into the variable cost? You know, what exactly is that? What are we going to receive, you know, from pushing that in? And then is that permanent in that if we achieve what we want this year, does that continue? Or is that something that is, you know, kind of a one-year bump and then we'll get a harvest that going forward?

Sure. So one of the hallmarks of the business is its variable operating cost nature. When, you know, demand isn't strong, when end markets are soft, we're able to manage costs in such a way that preserves profit, but doesn't damage the long-term growth trajectory of the business. And that is, you know, incentive compensation by and large, but also things like travel and marketing. So in 2023, you know, incentive compensation was below target and to the tune of about $15 million that allowed for us to preserve margins year over year, despite, you know, volumes being down in the high single digits. As we begin 2024, our expectation is for a full 100% of our target, and therefore we're rebuilding incentive compensation. That is a one-time rebuild. Of course, if demand doesn't turn up, that cost will stay out of the business. It's not something that you should count on every single year, because in most years we should be close to our target level. I'd note that excluding that rebuild, as we model 2024, the incremental margins in the business are north of 40%, including that rebuild there in the 30s.

Fair enough. And then when you look at your guide for this year, at the midpoint, what's the assumption for raw material benefit to the margins?

somewhere around a point of gross profit margin expansion from input costs and mix. Terrific. Thank you, guys.

Your next question comes from the line of John Roberts with Mizuho. Your line is open.

Thank you. I wanted to take advantage of having Sir Martin on the call. What do you think about the portfolio today? Are the non-electronic businesses generating enough cash for them to add value to the portfolio? And how do you think about additional acquisition opportunities in electronics?

Well, thanks for the question. I think at the end of the day, we like to keep the portfolio as it is. And then we're not really traders, we're builders. I think our mantra inside the business is always there is another asset that couldn't be better. But I think in different years, different parts of the business perform better than other years. So I think we have a very strong portfolio and we tend to invest and try to grow each part. In terms of M&A, we've been opportunistic. I mean, the acquisitions that we've made have been longer-term in nature in terms of their potential, and I think that they've set the foundation for stronger organic growth for the company in future years. It's in the long-due acquisition, and I think the M&A environment has become, it's like the window's open again. But as you heard from Ben and Kay's comments, the cash flows in business are strong and will have the capability to do things if the right opportunities avail themselves.

Thank you. And then, Ben, is the benefit of new electronics in autos still small enough that it gets offset when there's a slowdown in overall ICE vehicle production? Or how do we think about the balance between the exposure to the secular growth areas of autos versus the cyclical exposure?

Yeah, so if you look at our assembly business in 2023, it significantly outperformed our circuitry and semiconductor businesses. And that was largely driven by strength in automotive. So not only are we seeing uplifting content, but we're seeing innovation that our business is bringing to bear to that market and high reliability alloys that's driving share and outperformance even in the auto market. Again, it depends on the magnitude of automotive production decline to answer that question accurately. But we are seeing a low single-digit uplift in content per unit each year. That's even greater as electric vehicle penetration increases. And our performance in power electronics has been outstanding. that's a segment of the market and technology that has been growing really, really nicely and will continue to for several years to come.

Thank you.

Your next question comes from the line of Steve Byrne with Bank of America. Your line is open.

Yes, thanks. Ben, your guide sounds like it's primarily driven by macro factors. I'm just curious whether that 510 to 530 million EBITDA incorporates any expectations for in-market restocking? Not just your customer, but your customers' customers. Any potential for share gains, cross-selling, or pricing power? Are any of those in your outlook? And if not, what's the potential for it?

Sure. Thanks, Steve. You know, over the past several years, the going-in assumptions for market performance have been way off relative to the back half performance that was realized. And so, you know, we have to draw a line based on industry forecasts, and that's how we've formulated our guide. You know, there is room for outperformance from an end market perspective as we think about upsides and downsides. You know, our performance, again, organic, on a like-for-like basis in the mid-teens from an EBITDA growth perspective is quite a ways higher than market forecasts. And so there is a benefit from margin improvement that we've seen carrying over outperformance relative to end markets on the top line and mix where new technologies that we're introducing into the business are gaining share. We've also held price And the benefit of that execution is accruing to shareholders in the guide.

And with respect to this $15 million increase in comp, do you have any productivity initiatives that might potentially offset it?

Yeah.

have been investing in site consolidation and systems modernization. We have streamlined the organization from a leadership perspective over the past year. And so there are savings built into the plan that offset some of that, but not all. And the incremental margins, again, are in the 30s inclusive of that comp rebuild and in the 40s, which is above what we target in a normal year exclusive of it. So we feel as though

there is good efficiency being driven through the business and operating language. Okay, thank you.

Your next question comes from the line of Jonathan Tan-Wenting with CJS Securities. Your line is open.

Hi, good morning. Thanks for taking my question. I was wondering if you could dive a little bit more into your power electronics investments in the EV realm, and is that Is that oriented more towards any particular technology, like silicon carbide? Or is it targeted more towards pure EV? Can it be applied to hybrids? Or do you have any exposure to any particular player or partner? Just any more detail there would be helpful. Thank you.

Sure. So our power electronics business provides really differentiated material used in the assembly of power semiconductors and then power inverters. very, very strong market position within certain OEMs that are pure EVs. The opportunity there is for growth in those OEMs and also penetration of, let's call them OEMs that have longer cycle times to develop new platforms. And so, you know, we are not on every OEM's electric vehicle platforms, and there's no reason that this material shouldn't be on all of the high-performing electric vehicles in the market. We've been investing in applications labs, not just in the West, but we opened one in Shanghai last year, and we've had great traction with the Chinese electric vehicle OEMs. There's a lot of market opportunity for this, both as EV units grow and as our penetration of EV OEMs expands.

It's an exciting technology for us. Got it. Thank you. And then just a question for Kerry. Where does the SG&A start the year as you, you know, layer the bonus accrual back in?

So, you take that $15 million

Over the full year, you know, you're talking $3 or $4 million a quarter. There's not a lot of other things that happen in Q1 that should make a big difference from the Q4 run rate. We did have a small relief in bonus and in some long-term incentives associated with where we landed the year. So, you know, call it a $5 million sequential pickup from Q4 is probably the right way to think about it. Then when we get to the second quarter, we do start to see the other piece of you know, the inflation on cost, which relates to cost of living adjustments and merit increases. So maybe it's a slight incremental step up Q1 to Q2. But I think that's the right ballpark.

Got it. Thank you. And finally, you had a large tax item in Q4, and I was just wondering what that means for you going forward on an effective and a reported tax basis and cash taxes.

Sure. Yeah. So we did some really effective tax planning in 2023 um that um we've been working on for a couple of years um and you to what you know to john is correct we took a pretty uh nice um credit in quarter we basically um added around 50 million of deferred tax assets to our balance sheet that will benefit us over the next five years or so as we estimate um we think that will keep our cash tax rate in the, you know, in and around 20, maybe picking up slightly from that over the next couple of years. But what that asset will do is will effectively allow us to keep not paying meaningful U.S. tax for the next five years, where prior to that planning, we expect to be paying U.S.

tax in the next one to two years. Understood. Thank you. Thanks, John.

Your next

Your next question comes from the line of Chris Kapsch with Loop Capital Markets. Your line is open.

Yeah, good morning. So in your formal remarks, you mentioned that I think it was in your assembly business that volumes outpaced the PCB markets growth. I assume this is some indication of having gained share. Just wanted to get some more color. Is that accurate? Is the outperformance, is it a function of your over-indexing to higher growth applications, or is it actual share gains in sort of the existing or core business, or a little bit of both?

Sure. The assembly business had a much stronger 2023 than the circuit board and semiconductor businesses, driven by a greater concentration in the automotive market, which was healthier than the smartphone market and higher-end consumer electronics markets. It's driven by innovation, which has been driving share, both in terms of next generation pace with higher performance attributes. We've introduced some new alloys that are higher reliability than what had previously been in the market, which have really interesting applications, not just in automotive, but also in infrastructure markets. And then, you know, our power electronics business sits, a portion of it sits within the assembly business, and that's been very strong. So, there's, you know, innovation, market share gain, and market dynamics that are supporting that outperformance in the assembly business.

That's helpful. Appreciate that. And then, one on Kuprion, I know you've expressed a lot of excitement for the technology, and And you had some comments about the progress in commercializing with some leading chip makers. And just wondering if, as you have more visibility to that product's future success, if you think the applicability of the technology is solely for the more advanced and complex architectures, or is there benefits to the device also such that you could displace alternative copper solutions and legacy devices, just trying to get a sense for when you might, you know, want to take a stab at the ham there and when this starts to move the needle in your perceptions. Thanks.

Thank you, Chris. So, Couprion's really exciting. You know, our commercial traction is greater than we expected it would be, and our progress towards commercialization is faster than we expected it would be. You know, we expect there to be some revenue contribution in the back half of this year and a little bit of contribution in 2025, probably a bit earlier than we thought it would be when we sort of embarked on this journey. The applications for Couprion span our electronics business. Originally, we thought it would be primarily a die-attached material, which is in semiconductor assembly and advanced packaging. We're finding that it can also be a circuit board material used to metallize next-generation IC substrates. In fact, that's where more of our traction has been because the qualification cycles are shorter there than in the semiconductor market. So, the breadth of applications is wider. The customer engagement is better. you know, it's on track to be a pretty significant contributor in the medium term here.

Appreciate the color. Thanks. Thank you.

Once again, ladies and gentlemen, if you have a question, it is star one. Your next question comes from the line of David Silver with CL King. Your line is open.

Yeah. Hi. Good morning. I'd like to ask maybe if you could comment on your outlook for your overall business in China, maybe from a couple, two, three-year outlook. But over the last year or two, there's definitely been some shifts in terms of trade restrictions and I guess the positioning of some of your major customers, reshoring, onshoring, et cetera. But, you know, I think it's still your largest country business in terms of revenues outside of the U.S. If you could maybe just discuss your thoughts on your opportunity set in that market and if there are some shifts in either your resourcing for that region or how you expect your business in that country to evolve. Thank you. Thanks, David.

So the business in China had a tough year in 2023. It was down in the double digits from a percentage perspective. You know, that was driven partially by the electronics market where there is quite a bit of business in the circuit board market in particular and also in the industrial market where the industrial economy was soft. As we look to next year with the electronics market ramping, we see growth in China in 2024. The industrial business We expect to be, you know, I call it modestly better, not a great deal better. The circuit board market is very strong in China and will remain so. There aren't trade restrictions on the circuit board market, and we remain a significant participant in that market. And we do see growth, as we said. We see growth from the Chinese OEMs in electric vehicles. As I mentioned earlier, we opened an applications lab for power electronics there. We see a lot of opportunity associated with that. And even in our industrial surface treatment business, we've been investing in that market. Our share there is lower than it is outside of China. And we see a big opportunity for share gain and are getting traction supporting customers with equipment packages and other innovations, particularly with an environmental lens on them. because of the scrutiny on environmental discharges in that market. So we do see it as a growth market for us coming off of a pretty soft year. There's a compelling case for several years of growth from here, even in a reasonably tepid industrial economy in China, should that play out.

Okay, I'm going to stop there.

Thank you very much. Thank you, David.

There are no further questions at this time. I'll turn the call to Ben for closing remarks.

Thank you, Sarah, and thank you, everybody, for joining. We look forward to seeing many of you in the days and weeks to come. Have a great day.

This concludes today's conference call. We thank you for joining. You may now disconnect your lines.