Materion Corporation

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%. 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% sequentially, and with the key markets of semiconductor, defense, space, and energy up 20% 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 FLI, a molten-solve 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 beryllium fluoride for their breakthrough fusion energy technology to be used in their arc power plants. We'll 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%, and we're currently working a total of about $150 million of RFQs that should result in meaningful new orders. The commercial space sector represents exciting opportunities for Materia, 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 customers, 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 their 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 was 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.

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