Materion (MTRN) Q2 2025 Earnings Call Transcript

Image source: The Motley Fool. DATETuesday, July 29, 2025 at 8 p.m. ETCALL PARTICIPANTSPresident and Chief Executive Officer — Jugal VijayvargiyaVice President and Chief Financial Officer — Shelly ChadwickDirector, Investor Relations and Corporate FP&A — Kyle KelleherNeed a quote from one of our analysts? Email [email protected]RISKSCEO Vijayvargiya said, "there is a lot of uncertainty that's still out there," referencing ongoing tariff environment risks affecting business predictability.Chadwick indicated, "uncertainty remains around our semiconductor sales to customers in China," due to market and policy volatility.TAKEAWAYSAdjusted EBITDA— $55.8 million, representing a 20.8% margin on value-added sales, a second-quarter record but down 3% year-over-year due to lower volume and unfavorable mix.Value-Added Sales— $269 million, down 2% organically year-over-year, but up 4% sequentially, primarily affected by lower precision clad strip and China semiconductor demand.Adjusted Earnings Per Share— $1.37, down 4% year-over-year, but up 21% sequentially (adjusted, non-GAAP).Free Cash Flow— $36 million, with year-to-date free cash flow conversion over 70% of adjusted net income, reflecting disciplined capital allocation.Electronic Materials Segment EBITDA Margin— 23.4% of value-added sales, an all-time high, with the segment up 6% outside China year-over-year and margin up 230 basis points year-over-year.Performance Materials Segment Value-Added Sales— $168.5 million, down 3% year-over-year and up 5% sequentially; sales excluding precision clad strip rose 3% year-over-year, led by energy and aerospace and defense demand.Precision Optics Segment— Value-added sales of $24.4 million, down 5% year-over-year, up 14% sequentially, with EBITDA of $2.2 million or 9% of value-added sales, reflecting a 950 basis point sequential margin improvement.Defense Market Performance— Record bookings of $75 million, over $100 million in requests for quotation, and a 60% year-over-year increase in non-US defense sales.Energy End Market— Sales up 28% year-over-year for 2025; first-half 2025 new energy sales exceeded full-year 2024 totals.Conasol Tantalum Assets Acquisition— Facility in Korea acquired and integrated, expanding semiconductor footprint in Asia; sample production for customer qualifications has begun.Full-Year EPS Guidance Affirmed— $5.3-$5.7 adjusted earnings per share range for 2025, supported by order growth and backlog diversification.Capital Deployment— $26 million of debt repaid and 100,000 shares repurchased at an average price of $78 per share.SUMMARYMaterion Corporation(MTRN 9.55%) reported a record second-quarter adjusted EBITDA margin and sequential improvements in adjusted earnings per share and free cash flow conversion. Management attributed margin expansion in the Electronic Materials segment to operational performance and cost discipline, while the acquisition of Conasol's tantalum assets broadened the company's semiconductor presence in Asia. Affirmed full-year adjusted EPS guidance reflects confidence in sustained margins, increasing defense and new energy business, and improving semiconductor order rates.CEO Vijayvargiya stated, "Our order backlog has more than doubled in the last year," specifically for space-related projects.Chadwick said Precision Optics achieved a 950 basis point sequential margin improvement (excluding special items), underlining the positive impact of restructuring and cost initiatives.Vijayvargiya emphasized, "Increased level of spending that's happening in Europe," across defense markets, broadening the company’s global reach.Share repurchases and debt reduction indicate continued focus on capital allocation optimization.INDUSTRY GLOSSARYValue-Added Sales: Sales excluding the impact of pass-through precious metal costs, providing clearer insight into operating performance for engineered materials companies.EBITDA Margin: Percentage of earnings before interest, taxes, depreciation, and amortization relative to value-added sales, used to assess segment profitability in materials manufacturing.Precision Clad Strip: A composite engineered metal strip used in electronic, automotive, and specialty applications, produced through layering and bonding distinct metal materials for performance tailoring.Tantalum Solutions: Business focused on manufacturing deposition materials, notably tantalum targets, for semiconductor and adjacent technology markets.Full Conference Call TranscriptKyle Kelleher: Greetings. Welcome to the Materion Second Quarter 2025 Earnings Conference Call. At this time, participants have been placed on a listen-only mode. Please note this conference is being recorded. I will now turn the conference over to your host, Kyle Kelleher, Director of Investor Relations and Corporate FP&A. You may begin. Good morning. Thank you for joining us on our second 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 materials from the download feature on the earnings call webcast link. With me today is Jugal Vijayvargiya, President and Chief Executive Officer, and Shelly Chadwick, Vice President and Chief Financial Officer. Our format for today's conference call is as follows. Jugal will provide opening comments on the quarter. Following Jugal, Shelly will review the detailed financial results 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 those factors listed in the earnings call press release issued this morning. Additionally, comments regarding earnings before interest, taxes, depreciation, depletion, and amortization, net income, and earnings per share reflect the adjusted GAAP numbers shown in Attachments four through nine in this morning's press release. The adjustments are made in the prior year period for comparative purposes and remove special items, non-cash charges, and certain discrete income tax adjustments. And now I'll turn over the call to Jugal for his comments.Jugal Vijayvargiya: Thank you, Kyle, and welcome, everyone. It's a pleasure to be with you today to discuss our second quarter results and provide an update on our outlook for the remainder of 2025. Our business performed very well in the quarter, delivering record second quarter margins and strong free cash flow. Although sales were down 2% organically, we experienced solid growth in aerospace and defense, energy, as well as in semiconductor outside of China. EBITDA was strong, at $56 million, and we continue to deliver margins above 20% despite some pockets of softness still moving through our top line.I am particularly proud of our electronic materials team as they delivered an all-time high EBITDA margin of 23.4%, demonstrating the power of the work that has been done to optimize the cost and improve operational efficiencies in that segment. We have reached a new level of performance with EM, and I expect the business to deliver very good margin expansion for the full year. Precision Optics also showed a significant improvement in the second quarter as the transformation continues. Sales improved 14% sequentially, and EBITDA increased more than $2 million, marking the second consecutive quarter of improvement.Beyond the cost structure improvements that have been implemented, the business is making excellent progress on new business initiatives that should begin contributing by the end of the year. As we have discussed over the last few quarters, cash flow generation remains a key focus for us. As evidenced by our Q2 results, we generated $36 million in free cash flow, the strongest we've seen in any second quarter. Our disciplined approach to managing working capital and pacing capital investments is driving the performance. Earlier this month, we acquired the manufacturing assets for Tantalum Solutions from Conasol, a Korean manufacturer serving the semiconductor and adjacent markets.This acquisition expands our semiconductor footprint in Asia, allowing us to better serve the large tier-one chip manufacturers in that region and insource more of the target manufacturing value chain. This move expands our position as a leading global supplier of deposition materials. The integration is progressing well, and we have begun producing samples for customer qualifications. While the results for the quarter were very strong, there are many positive signs we're seeing in order rates, signaling promising momentum as we move through '25 and into '26. As the broader semiconductor market is showing signs of improvement, with wafer starts up and customer inventories coming in line, our order rates are improving, especially within data storage, power, and communication devices.Sequentially, our order rates improved double-digit excluding China. Defense is an area that is getting a significant amount of attention globally, and this is leading to many new opportunities for Materion. With over $100 million of requests for quotation received in the second quarter alone, we saw record bookings of $75 million. And our initiative to grow our defense business outside the US has resulted in a 60% year-on-year sales increase. I expect the pace of defense-related activity will continue picking up. In space, we continue to win new applications and expand our reach.Our order backlog has more than doubled in the last year, and we recently won a new application for ground station equipment with a leading US-based customer. Leveraging our larger space propulsion systems win in the US, we also secured an order for the same application for the customer in Europe. I also want to highlight our business activity in the energy end market. Our sales are up 28% year-on-year for '25. As we are growing new and existing business to meet the world's increasing energy demands, we have a particular focus on initiatives in new energy, where our first-half sales have exceeded the full-year sales of 2024.As our business is well aligned to this global megatrend, we expect this area to be a growth driver for the company for the foreseeable future. When we released our first-quarter earnings in late April, there was considerable uncertainty surrounding the tariff environment, which we noted as a qualifier to our guidance. While much remains to be finalized, we are more confident affirming our initial full-year earnings guide despite the risk that remains. Thanks to our strong year-to-date performance, new business wins, and the increased order activity we are seeing. I would like to thank our global team for their unwavering commitment to driving our business forward while navigating the current environment.Now let me turn the call over to Shelly to cover more details on the financials.Shelly Chadwick: 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 second quarter, value-added sales, which exclude the impact of pass-through precious metal costs, were $269 million, down 2% organically from the prior year and up 4% sequentially. This year-over-year slight decrease was largely driven by lower precision clad strip shipments and semiconductor demand from China. Excluding the impact of these items, value-added sales would have been up 2% versus the prior year. Strength in aerospace and defense, energy, and semiconductor sales outside of China are driving the year-over-year sales increase.When looking at earnings per share, we delivered quarterly adjusted earnings of $1.37, down 4% from the prior year, but up 21% sequentially. Moving to Slide 11, Adjusted EBITDA was $55.8 million or a second-quarter record of 20.8% of value-added sales, down 3% year-over-year with 10 basis points of margin expansion despite the lower volume. This decrease was driven by lower volume, partially offset by strong operational performance and structural cost improvements, offsetting unfavorable mix from hydroxide shipment timing. Moving to Slide 12, let me review second-quarter performance by business segment. Starting with Performance Materials, value-added sales were $168.5 million, down 3% year-over-year, but up 5% sequentially.The year-over-year decrease was driven primarily by lower precision strip shipments as the expected inventory correction continues. Excluding Precision Clad strip, sales were up 3% driven by strength in energy and aerospace and defense. Adjusted EBITDA was $41.5 million or 24.6% of value-added sales, down 4% compared to the prior year period. This decrease was driven by lower volume and unfavorable mix, partially offset by strong operational performance. Looking out to 2025, we expect to see continued strength across the aerospace and defense, and energy end markets. In addition to higher volume, we expect to see continued strong operational performance and cost management. Now turning to Electronic Materials on Slide 13.Value-added sales were $76.1 million, down 6% from the prior year, driven by lower semiconductor sales to China. Excluding this impact, the remainder of the semiconductor market was up 6% from the prior year, signaling market strength with improving demand across many subsectors. EBITDA, excluding special items, was $17.8 million or a record 23.4% of value-added sales in the quarter, up 4% from the prior year with 230 basis points of margin expansion. This record margin and year-over-year increase was driven by continued operational performance including the impact of our cost improvement initiatives, and strong price mix, despite lower volume.As we look out to the remainder of the year, we expect the semiconductor market to improve in the second half and continue the momentum seen during the quarter. While some uncertainty remains around our semiconductor sales to customers in China, we are confident that our balanced and global semi portfolio will help offset some softness there. And as demonstrated so far this year, we expect to deliver considerable margin expansion as demand increases and the impact of our improved cost structure takes hold. Turning to the Precision Optics segment on Slide 14. Value-added sales were $24.4 million, down 5% compared to the prior year and up 14% sequentially.The year-over-year decrease was driven largely by order timing in the defense market. EBITDA, excluding special items, was $2.2 million or 9% of value-added sales in the quarter. Approaching double-digit margin with 950 basis points of sequential improvement. The increase was driven by improving performance and the impact of the structural cost changes. This quarter brings the second consecutive quarter of improved results. We expect to continue this trend as new business initiatives advance and we continue to improve our business performance. Moving now to cash, debt, and liquidity on Slide 15. We ended the quarter with a net debt position of approximately $413 million and approximately $257 million of available capacity on the company's existing credit facility.Our leverage remains below two times as cash flow generation is an important focus. We delivered approximately $36 million of free cash flow during the quarter, bringing our year-to-date conversion to more than 70% of adjusted net income. While continuing to invest organically, we also repaid $26 million of debt and repurchased 100,000 shares at an average of $78 per share. Further demonstrating our balanced and disciplined approach to capital allocation. As we look out to the remainder of the year, we are well on our way to deliver free cash flow that exceeds 70% of adjusted net income. With strong first-half cash generation, lastly, let me transition to Slide 16 and address the full year 2025.We are pleased with our business performance in the first half of the year, having delivered strong results despite a volatile macro environment. And we are encouraged by improving market dynamics and new business opportunities won as we look to the second half of the year. With that, we expect Q3 will be similar to slightly better than Q2 and we are on track to deliver a strong Q4. With improving demand and the timing of defense shipments. As a result, we are affirming our initial guide of $5.3 to $5.7 adjusted earnings per share for the full year. This concludes our prepared remarks. We will now open the line for questions.Kyle Kelleher: At this time, we will be conducting a question and answer session. You may press 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 pull for questions. First question today is coming from Phil Gibbs from KeyBanc Capital.Phil Gibbs: Hey. Good morning.Jugal Vijayvargiya: Morning, Phil.Shelly Chadwick: Hi, Phil.Phil Gibbs: So really strong performance in Electronic Materials in terms of their margins. Jugal, you mentioned a new level of performance and you expected for the full year. How sustainable do we think the recent quarters, you know, EM margins are? And then I also noticed there was a pretty solid sequential pickup in consumer electronics. I know that at times can have a nice, mix impact for you because I don't I wouldn't think intuitively it would've been a pickup in clad because I know that's in that in that piece. But you know, maybe talk about that holistically.Jugal Vijayvargiya: Yeah. So, Phil, electronic materials, as you know, we've been talking about that for the last year, year and a half. You know, as the market has been down, our team has done a really nice job of driving operational performance, adjusting the cost structure, at the levels that we had. What that has done now, of course, is that as the volumes are starting to pick up, we are starting to see the benefit of that. And, we started with, you know, volumes picking up in the logic and memory section, but now volumes are starting to pick up in power. They're starting to pick up in our, our, data storage.And I think that's giving us a Certainly, you know, 23 and a half percent type margins confidence, and it's leading to these improved margins that, you that we saw here in Q2. are not necessarily the type of margins that we think we can deliver every quarter. But it's very, very encouraging for us to see this. And I think the improvement, is gonna continue. I believe that we're gonna have a good year-over-year performance and margin expansion in this business. Especially as the as the market, you know, continues to improve. So we're very encouraged by where, electronic materials is and very encouraged with, I think, where it can go. The rest of the year.But I think also, importantly, in June as we would expect the market to continue to rebound. I think with consumer electronics, you know, what the one of the reasons that the uptick took place is a little bit more shipments for our PMI business. We have, you know, as we've indicated that our full year is in line with what the customer has communicated to us in the past, there's no real changes on a full-year basis, but there certainly is always timing issues that happen between quarter to quarter. So nothing, nothing abnormal, I would say, there, but, you know, we'll continue to drive performance, of course, across all of our markets.Phil Gibbs: Thank you, Jugal. Appreciate that. And then on energy, you talked a bit about that in your prepared remarks. It looks up a decent bit half on half. Versus last year. And I know that there's a couple, excuse me, of subsegments within your energy business, and maybe talk a little bit about talk a little bit more about what you're what you're seeing there and what has you excited. Thanks.Jugal Vijayvargiya: Yeah. So as you know, we've had traditional energy. You know, we're we're an impactful player in the in the oil and gas market. Our content per rig has continued to improve. We provide, in fact, more content, you know, as the new drilling technologies come on board. And more and more electronics and more and more AI is implemented on the on the on the traditional energy side. So that feel makes us feel good, I think, in terms of that side of it. But last couple years, we've talked a lot about alternate energy, new sources of energy, in particular, clean nuclear energy. We've talked about our partnership with Kairos.But in addition to that, we have a number of initiatives that we're involved in that, you know, we're not able to talk about the customer names, but we are involved in those. Here in the US as well as globally. And we're excited about You know, we're excited about where that can take us over the next three, five, seven years because as we know, the trend and the world's expectations of energy is increasing. The demand is increasing at a at a rapid rate, and the world has to be able to, conform to that demand. And I think we're a key player with our, materials in the energy, sector.So not only are we excited about our content on the on the traditional energy side, I think we're even more excited about the role that we can play on the new sources of energy that I think, I think are coming forward. With the number of different projects that we have.Phil Gibbs: Thank you. And then lastly for me, clearly, clearly outlined the tariff risks or potential tariffs tariff risks associated with China last quarter. Looks like you've essentially believe you've you fully mitigated that in the existing you know, Outlook and just curious from your perspective holistically, what has changed and what has, what has given you confidence in the landscape other than just the no, the pickup the cyclical pickup in the semis business overall? Thank you. Good luck.Jugal Vijayvargiya: Yeah. Well, as you know, at the time that we did our Q1 earnings, you know, there were some substantial tariff rates both for material coming into the US and material going from the US into China. Changes happened, during the quarter, where those rates were reduced, significantly. As a result, we were able to get some product out still in Q2 that, you know, initially, had forecasted that we may not be able to get out. We never really stopped producing. We wanted to make sure that we were prepared in case there were changes to the tariff environment, and certainly there were, and we were able to take advantage of those.Now we still had some level of impact in Q2, not to the level that we had initially expected. And we expect that there will still be some level of impact in the back half of the year as well. However, I think I'm really, really proud of our team for driving operational improvements, commercial improvements to our business. So that we can make sure that whatever impact that we think we may still have in the second half of the year we're gonna be able to offset that impact and deliver our original guide. You know, our incoming order rates are up, 4% from, second quarter to the, the first quarter to the second quarter.Non-China semis up 15% sequentially. We have record defense bookings of $75 million. Our space backlog is double what it was at the same time last year. New energy sales, which I just talked about, you know, are up. We've had more new energy sales in the first half of this year than we had all of last year. So all those types of things, I think, give us encouraging signs of where things are headed in the second half of the year, and I think where we could be positioned, you know, for '26. So certainly, a lot of hard work by our team.We're in no way out of the woods because, you know, there is a lot of uncertainty that's still out there. But certainly encouraging to see the results for the second quarter. And what it may do for us then, you know, in the back half of the year.Phil Gibbs: Thank you.Kyle Kelleher: Thank you. The next question will be from Daniel Moore from CJS Securities. Daniel, your line is live.Daniel Moore: Good morning, Jugal. Good morning, Shelly. Congrats on the strong results. Thanks for taking the questions.Shelly Chadwick: Thanks, Dan. Good morning.Daniel Moore: Maybe just talk a little bit more about Conasol. Us a little bit more about the facility and the capabilities you're acquiring to your deposition capabilities here in the US? And how do we kind of think about, you know, either current revenue EBITDAs or the scope of the opportunity set over time?Jugal Vijayvargiya: Yeah. I think this is a great move that our team has been able to make. As you know, we've been talking, Dan, for the last few years about continuing to gain more capacity and capability outside the US. Particularly in our semiconductor business. You know, the largest semiconductor suppliers, you know, tend to be in Asia. We wanna be make sure we're local, and we're providing the local support to those to those customers. Conasol fits right in for that. It's a facility in Korea. We're able to support not only the Korean, chip manufacturers, but also chip manufacturers in Taiwan, in China, in Japan, etcetera.And, you know, it really gives us a full value stream for our tantalum business. It also gives us a facility that we can build on for our other semiconductor business as well, you know, down the road. So we were able to close on that, here in the in the second quarter. Now we're really, really excited and busy about making samples and qualification products, that we can give to those many customers in the Asia region. As you know, in this in this space, of course, it takes a little time to get the qualifications done. So perhaps, in some cases, it's six months. Other cases, it may be twelve months.We would expect to see some level of sales starting in the twenty-six time frame and the associated EBITDA with that, but it positions us very well for, I think, the general growth that we see that we always talk about for the semispace over the next three to five to, you know, to seven years.Daniel Moore: Very helpful. And just sticking with semi, obviously, you described very well some of the green shoots and improvements you're seeing here. Or at non-China. Maybe talk about what you're seeing or hearing in China specifically and any confidence in a return to growth as we think about '26 and beyond?Jugal Vijayvargiya: Yeah. Well, you know, first of all, to your point about the green shoots, yeah, we, you know, we started to see the green shoots in the and memory side maybe a couple quarters back. But what's really encouraging to us I think, is the is the growth and sort of the green shoots that we're starting to see on our data storage business, on our power semiconductor business, our communications devices business because, you know, that's a that's at the heart of our heart of our business in the electronic materials business. It contributes, you know, good, obviously, on the top line, but also very good on the bottom line.So we're very, very encouraged with where things are starting to develop. I mean, we really think that trend can continue here in the back half of the year. With regard to China, you know, China, as you know, has been developing a their own semi supply chain for a number of years now. They've put a lot of effort into it, and I think they've made great progress, along with, of course, the full manufacturing or final manufacturing for the semi side. They're also doing a great job of putting their own supply chain in place.So, certainly, we wanna be, involved in that China semi main many manufacturing over the long term, but we also recognize that, you know, there will be a competition from the local players, you know, and as they gain, as they gain speed. So I think for us, we're looking at the global market, the investments that are going on in the US, investments that are going on in Europe, and, of course, the investments that are going on in Korea, Taiwan, etcetera. And in general, we believe that semi will continue to be, you know, mid-single digits to high single digits growth market for the foreseeable future.Daniel Moore: Super helpful. Last for me, and I'll I'll jump back. It just kinda it sounds like Philip Morris or PMI, no changes to the kind of full-year outlook. Any update on potential timing around phase two of, you know, precision cloud strip project and what you're hearing, in terms of from the FDA, etcetera? Thanks again.Jugal Vijayvargiya: Yeah. So the full year, I mean, we like we indicated, you know, we year to be in line with what we have communicated before. We're on track with that. Typically, we sit with the with them in Q3, sometimes maybe early Q4 start talking about the following year. So we'll do that, in our meetings with them and start to have an understanding of what their expectations are for the next year. Yeah. They announced last week, I mean, in the earnings call, that they are continuing to work with the FDA to gain approval.Whether they're able to get that this year or next year is obviously, you know, discussion that they're having, you know, with the FDA and what they can do regards to that. But certainly, we are very well prepared so that once they do get the approval, then, you we're able to support them as needed.Daniel Moore: Very good. Appreciate the color. Thanks again.Shelly Chadwick: Thanks, Tim.Kyle Kelleher: Thank you. The next question is coming from Mike Harrison from Seaport Research Partners. Mike, your line is live.Mike Harrison: Hi. Good morning. Congrats on a nice quarter.Shelly Chadwick: Thanks, Mike.Jugal Vijayvargiya: Thanks, Mike.Mike Harrison: I wanted to go back to the margin performance in the Electronic Materials business. It kind of sounds like while you're expecting some improvement, maybe Q2 is kind of a high watermark. And I guess I just wanted to understand you know, what kind of temporary or unusual factors could be playing into the margin performance? And specifically, I was curious is the strength outside of China something that is a positive for mix meaning that, you know, some of your inside China business is actually lower margin business than outside?Shelly Chadwick: Yeah, Mike. Let me start with that one. So you're, you know, you're hitting on some good points there with let's Materials, the performance has definitely been improving. But as you know, it's not really consistent quarter to quarter with a within a very small band as to what those margins are. And there's different factors, but mix certainly is one of the larger ones. You know, as you know, sometimes we talk about our precious metals business versus our non-precious metals business as those carry different margin profiles. But regionally as well, China is does tend to be a lower mix item.So when our strongs are when our sales are stronger on the other items, that would be a positive mix. Positive mix item.Mike Harrison: Alright. That's helpful. And then within the Performance Materials business and that precision clad strip business, I think we just kinda touched on it, but I was hoping to get an update on that new precision clad strip facility and kinda where we are in terms of phase two being fully up and running and kinda what that looks like in terms of capacity and utilization. And then the other piece of that is the old precision clad strip facility. Is that still producing anything for PMI? Or maybe just give us an update on where you are in the process of filling that old facility with maybe some new, clad strip business?Jugal Vijayvargiya: Yeah. So first of let me just talk about the old, facility, the legacy facility. As you know, that facility produces some level of material for PMI. But it also, in fact, majority of the facility is non-PMI. We produce material and products there for automotive customers, consumer electronics customers, various other type of markets, and we've been doing that for years. So we are still producing material there. And it just and the reason for that is there's little different nuances on the type of material, and that facility is better equipped to produce know, one type of material versus another type of material. And so we are still doing that.Then with regard to, I think, the new facility, like I indicated, I mean, our discussions with PMI will take place over the next, three to six months in terms of what they're looking, from us for next year. We will be prepared at whatever level that they want. Certainly, if they are able to enter the US or if they're able to enter other markets and they have an increased set of volume, we will be fully prepared to do that. You know? If they want the same level of product from us for some other reason, we'll be prepared to do that. I think, you know, our position with them is, you know, we have the facility.We have the capacity. We have the people. And, we'll be prepared to support them as they would like. Know, once we have the discussions with them over the next, you know, three to six months.Mike Harrison: But just to clarify, is the equipment associated with the phase two of that new precision class strip facility, is that equipment in place already, or is that are there some pieces of equipment or lines that you would need to add if in fact the orders from PMI were expanding in conjunction with, an FDA approval.Jugal Vijayvargiya: No. The facility is fully ready. We have the equipment. It's qualified, and we would be prepared to produce, you know, as we got orders.Mike Harrison: Perfect. And then last question for me is just on the, Precision Optics business. You have really nice sequential earnings improvement there and kind of some recovery there. Just curious, do you expect that better performance to continue? And can you maybe give us a little bit more color on how you've engineered a turnaround what seems to be relatively quickly.Jugal Vijayvargiya: Yeah. It we're really pleased with, I think, the progress that this business has made. As you know, we've had some challenges in this business. We acknowledge that. And I think we've taken strong action, including leadership change along with, I think, a number of different other you know, structural cost changes, portfolio adjustments, and so on. And we're very, very pleased with the progress that this business has made over the last few quarters. Reaching almost double-digit EBITDA margins here in Q2. We've indicated that we continue to expect sequential improvement. And so that's what we're, you know, gonna strive for here in the back half. And, of course, you know, into next year.I would I just of the year is to drive, continuous improvement in Q3 and then in Q4. wanna remind you, Mike, and I know we've talked about this is that, you know, just a few years back, you know, this business was 20% plus EBITDA margins for us. And our goal has not changed. You know, our goal is to return the business to the that level of EBITDA margins. Certainly, it'll take some time. But we're very, very pleased with the level of turnaround that this business has, has given to us.Mike Harrison: Alright. Thanks very much.Kyle Kelleher: Thank you. The next question is coming from Dave Storms from Stonegate.Dave Storms: Morning. Thank you for taking my questions.Shelly Chadwick: Hi, Dave.Jugal Vijayvargiya: Good morning, Dave.Dave Storms: I just want morning. Just wanted to dig into a couple of that markets here. It's noted that seeing some continued market softness. Just would love to get your thoughts on what your outlook is for that market for the rest of the year. Should we continue to see, maybe sequential growth? Or is this maybe a plateau before the next leg up?Jugal Vijayvargiya: Yeah. Auto, I think, as a market, you know, for us has been quite challenging. The last couple of years. And, certainly, you know, Q1 was encouraging signs here in Q2, sequentially up 15%. We would expect that in the back half of the year, we would be somewhere in the flat to probably slight increases, in the back half of the year. I think this market continues to be a bit choppy. There is still some headwinds, I would say, in the European market and certainly in the US, and changes have happened between EV and hybrid and traditional ICE. And so I think the choppiness in the auto market could continue for us.But at the same time, it's a it's it's become a smaller market, for us. So I think the impact to our company, from the choppiness is much less. You know, we're very encouraged with what we are seeing on defense and on space, on commercial aerospace, the semiconductor market, the energy market. I think we are very, very impressed and pleased with where those markets can go over the next three to five years. And automotive, we'll just monitor and, support, you know, as, as needed.Dave Storms: Oh, that's perfect. And that actually brings me to my next question around the defense backlog. Just hoping you could give us a little more maybe texture, timeline and burn rate around that, maybe what the margins look like compared to current margins. Anything like that would be very helpful.Jugal Vijayvargiya: Well, the defense market, you know, is a very positive mix market for us. So we enjoy, you know, improved performance, I think, on a margin of a level on the from the defense market than perhaps some of the other markets. Like we indicated, we have $75 million of bookings, 30% on a year-over-year basis. For defense. So and then and then we see a tremendous number of new inquiries much more than what we have seen in the time that I have been here, in the company, for defense. There's increased level of activity, from US defense.Increased level of spending that's happening in Europe, and that's resulting in, I think, a higher activity and certainly increased activity from some of the countries in Asia as well. Our non-US portion of the defense business, continues to grow, based on all these, initiatives. So I think the level of activity we expect to continue to increase in the back half of the year, and our expectation is to be able to make sure we're capturing as much of this business as possible. And you know, supporting our supporting our customers.Dave Storms: Understood. Thank you for the commentary.Shelly Chadwick: Thanks, Stacy.Kyle Kelleher: Thank you. And the next question will be a follow-up from Phil Gibbs from KeyBanc Capital. Phil, your line is live.Phil Gibbs: Thank you. Just curious in terms of the big beautiful bill, if you've got any tax saving cash tax savings associated with that, either year or next year?Shelly Chadwick: Yes. Good question. So we've been going through that. As you can imagine, in some detail and taking a look initially at where we think the benefits are and maybe where we won't have as much benefits. You know, we get a lot of questions around the bonus depreciation. On the bonus depreciation itself, it possible that could give us some benefit. But it's intertwined with our FITI deductions, our foreign intangible income deductions. So we've got to model that out and really decide where we may want to take the 100% bonus versus a lower amount, but that could be beneficial, as you said, from a cash tax perspective.But there's other areas around interest, you know, the deductions we can take there that are beneficial. And then, you know, as you know, the production tax credit that we have that we enjoy is currently now scheduled to wind down by 2031. You know, that item could change. Administration. But right now, you know, before it had no end in sight, and now it's showing that it would wind down by 2031.Phil Gibbs: Thank you. And then you've talked a lot about the strength in defense. Obviously, it's a it's a critical imperative for this administration. Has there been any discussion around repletion of the strategic stockpiles of beryllium in the country? By the government. I don't I don't know where those inventory levels stand, but I would imagine given the activity we've seen globally last few years, they probably have not gone up. So just anything you have there in terms of, your commentary or views. Thanks.Jugal Vijayvargiya: Yeah. Bill, as you know, you know, a large part of our defense business does rely on our Beryllium capability and, you know, what we're able to do. And so I can tell you that we are actively involved, in discussions with the defense department, but really all parts of the defense area, in the country, as well as, I think, you know, with the primes and, you know, beryllium's supply, and, and overall stockpiles, and other types of, let's say, things that are related to this without going into a lot of detail that I can't get into, but we're involved in a in really all the discussions that are that are there on defense.Phil Gibbs: Thank you.Kyle Kelleher: Thank you. And we have reached the end of the question and answer session. I will now turn the call over to Kyle Kelleher for closing remarks.Kyle Kelleher: Thank you. This concludes our second 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 will be available for any follow-up questions. My number is (216) 383-4931. Thank you again.Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.