Good morning, ladies and gentlemen, and welcome to the Element Solutions Q2 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I will now turn the conference over to Varun Gokarn, Vice President of Strategy & Integration. Please go ahead.

Good morning, and thank you for participating in our second quarter 2025 earnings conference call. Joining me today are our President and CEO, Ben Gliklich; and CFO, Carey Dorman. In accordance with Regulation FD, we are webcasting this conference call. A replay will be made available in the Investors section of the company's website. During today's call, we will make certain forward-looking statements that reflect our current views about the company's future performance and financial results. These statements are based on assumptions and expectations of future events, which are subject to risks and uncertainties. Please refer to the earnings release, supplemental slides and most recent SEC filings on our website for a discussion of material risk factors that could cause actual results to differ from our expectations and predictions. Today's materials also include financial information that has not been prepared in accordance with U.S. GAAP. Please refer to the earnings release and supplemental slides for definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures. It is now my pleasure to introduce our CEO, Ben Gliklich.

Thanks, Varun. Good morning, everybody. Thank you for joining. Element Solutions had an outstanding second quarter. We continue to execute on our strategy of penetrating the fastest-growing areas within our addressable markets, while driving productivity through our continuous improvement culture. Our electronics business delivered a fifth consecutive quarter of high single-digit organic growth, consistent with the targets for the segment that we set early last year. Ongoing hyperscaler investment in data centers and their associated infrastructure continues to drive demand for a wide range of material solutions that our portfolio is uniquely positioned to provide, for metallization chemistries for high layer count printed circuit boards, to specialize thermal management materials used in assembly, to advanced packaging chip-scale chemistries. Sales from our wafer-level packaging products grew more than 20% in the second quarter as programs on leading-edge nodes continue to ramp. Order patterns from these customers remained strong throughout the first half of the year. Our power electronics business also grew at a double-digit rate in the quarter, with demand strength from legacy EV customers and new wins that have broadened our customer base over the last 12 months. We've demonstrated our value proposition in leading-edge semiconductor and power electronics technologies and are continuing to establish our business as a leading innovation partner to the largest companies in electronics manufacturing. Over the past 5 years, we've driven a deliberate transformation from a high-quality, but disparate portfolio of businesses in select niches into a unified organization that is leading in important emerging categories. Our commercial technical service and R&D teams are collaborating across a breadth of product areas to provide system-level solutions to OEMs, while building a pipeline of breakthrough innovation that should support further growth. Included in that pipeline are applications that improve thermal management on the top side of advanced…

Thanks, Ben. Good morning, everyone. On Slide 3, you can see a summary of our second quarter financial results. Organic sales grew 6% and adjusted EBITDA would have increased 7%, when adjusting the graphics business out of both the 2024 and 2025 periods to account for our recent divestiture. Adjusted EBITDA of $136 million, exceeded our initial guidance for the quarter of $120 million to $125 million. Electronics organic growth of 9% was broad-based across all 3 verticals. ESI's adjusted EBITDA margin declined roughly 40 basis points year-over-year in constant currency terms, largely impacted by higher pass-through metal prices relative to the same quarter of last year. Excluding the impact of roughly $113 million pass-through metal sales and Assembly Solutions, our adjusted EBITDA margin would have been just under 27%, a 30 basis point improvement year-over-year. We have seen significant FX volatility in the past few months, but currency only had a modest impact to results this quarter. However, based on end of June rates, the impact in the second half should be more meaningful. We expect a year-over-year tailwind of over $5 million in the back half. On Slide 4, we share additional detail on the drivers organic net sales growth. Starting with Electronics. In assembly, the second quarter was driven by B2B customers serving the high-performance computing and telecommunications end markets. Advanced solder-based volumes for various computing applications grew meaningfully we saw strong customer pull on technically challenging engineered Assembly Solutions used in server and data center applications. Circuitry Solutions sales grew 5% organically driven by data center applications and specialty finishes for circuit boards in the Asian EV market. You will recall in 2024, we had a very strong second quarter, driven by consumer electronic seasonality. This year, we did not see the same increase in Q2,…

Thank you, Carey. It was a great first half. With leading-edge electronics growth and solid execution across our supply chain and yet another period of volatility, we're ahead of our original plan for the year. With the expected added benefit of favorable foreign exchange rates, we're comfortable increasing our adjusted EBITDA outlook for the full year to a new range of between $530 million to $550 million. For the third quarter of 2025, we expect adjusted EBITDA to be in the range of $140 million to $145 million, which represents a 5% sequential improvement over the second quarter. We expect leading-edge electronics driven by high-performance computing and data center to remain robust and industrial demand to remain similar to the first half. Consumer electronics and electric vehicle volumes have been harder to forecast and account for the risk and upside to the outlook. Our full year adjusted EBITDA guidance range remains wider than typical at this point in the year, allowing for a prudent degree of potential demand variability in the second half. We're still uncertain about how tariffs may impact economic activity in our end markets. We've not seen any signal of demand weakness to date, but remain cautious. We're well capitalized to seize on opportunities that may materialize in such periods of volatility and beyond the daily drive to maintain solid execution and operational excellence across the company, capital allocation remains front of mind. While our balance sheet capacity continues to grow, the principles that govern our capital allocation strategy remain unchanged. We deploy capital to accelerate shareholder value by investing behind our markets and businesses into high-quality businesses that enhance our customer value proposition. In the second quarter, the best opportunity that met this criterion was our own shares, and we have capacity to continue to repurchase while also pursuing attractive acquisitions should they appear. Let me close by thanking all of our stakeholders for their continued support of Element Solutions, and in particular, our talented team around the world for their steadfast customer orientation and commitment to delivering for our company. Our combination of strong positioning, thoughtful strategy and exceptional people continues to work. With that, operator, please open the line for questions.

[Operator Instructions] Your first question is from the line of Mike Harrison with Seaport Research Partners.

Congrats on a nice quarter.

Thanks, Mike. Good morning.

Ben, I was hoping you could talk a little bit about what you're hearing from customers. And in particular, are you getting any sense that some of the Q2 strength might have been related to pull forward of demand? And if so, is there any way to be able to quantify that?

Yes. Sure. Good question, Mike. So the short answer is that we don't see any pull forward in the second quarter. The pace of investment in data center capacity remains robust. Last year in the second quarter, we did see some pull forward in the smartphone market and in certain other consumer electronics. That activity did not recur in the second quarter of 2025, and we've got reasonably good visibility to that. So we don't see any pull forward in the second quarter from the smartphone cycle. We expect to see some ramp in smartphone production here in Q3, which accounts for some of the sequential improvement. We -- I would say, we're starting to see that here in July, but it's still early. And the other vectors of demand strength in the second quarter don't have the same seasonal impact and have long durable secular trends propelling them.

All right. And then my other question is about power electronics. It sounds like that was, again, a bright spot this quarter. But I think you may have indicated that despite kind of broadening your customer base for Argomax, you're seeing maybe some headwinds in the EV ecosystem. Can you just elaborate on what your expectations are for power electronics in the second half?

Sure thing. So power electronics had a very strong second quarter on a year-over-year basis. We were lapping a period where one of our major customers there in the second quarter of 2024, was doing some product changeover, so demand was weaker. And so that accounted for some of that growth. As we look out to the back half, we see some customers with production volume declines expected, offset by new customers ramping. So it should continue to be a growth vector for the business, but the rate of growth may slow a bit because of some customer-specific issues. Our penetration of that supply chain more broadly continues at pace. The pipeline is great. And so the longer-term outlook for that product and that capability remains very strong.

Your next question is from the line of Bhavesh Lodaya with BMO Capital Markets.

Your Electronics sales back to prior peak levels seen in early 2022, can you look back and compare in contrast to where business stands versus then? Are your volumes back to those earlier levels? And if there are any notable differences across the subsegments?

Yes, it's a good question, Bhavesh. Thank you. So Electronics revenue is at a new peak in the quarter. Volumes are not at prior peak. As we look across the business, the semiconductor business is at peak levels. The circuitry and assembly businesses are not. That is, to some extent, driven by where we are from a smartphone cycle perspective with the circuitry business historically being more concentrated in the smartphone market. And we've talked at length about how that business is transitioning more towards B2B sales, and a recovery in the smartphone market would drive significant outperformance that we're not seeing that imminently. The assembly business is more industrially oriented. And of course, we're seeing some, I'd call it, malaise in industrial markets. And so it's not a surprise that, that business isn't back to peak. There is a metal price impact in there as well. All of that is to say that there's significant opportunity for this business to continue to grow. The things that are delivering record value will continue to grow in terms of B2B markets and what we're seeing from high-performance computing. And then the more cyclical aspects that are soft, it's reasonable to expect will recover, though we're not counting on that in our back half, that's upside for years to come.

Got it. And then as we look at your power electronics platform or even your advanced packaging ViaForm, have you seen any increased competition or perhaps new entrants coming in? There were some talks about investments in China -- Chinese domestic players. Any color or any visibility there?

Yes. So 2 different markets and capabilities and 2 different sets of dynamics. For what we're doing with our wafer-level packaging products, our ViaForm products, and copper damascene, that's a well-established market with well-established competition. And we have been winning at the leading edge there and growing our share. We've not seen new entrants at all. In power electronics, where we're dealing with new materials, that's a fast-growing market, and we're starting to see competitors come to market. We've got an outstanding capability that's highly differentiated in terms of performance. We have IP around how that product is made and how that product is used and a position of incumbency with the leading participants in the market. And so we are growing faster than the EV market there, which I think demonstrates the quality of our offering and our customer value proposition. Furthermore, we're continuing to innovate in that product area where it's not just about materials, but we're innovating around applications, and that's widening the moat as we solve specific customer applications problems, which has been attributable for some of that outgrowth that we've seen recently.

Your next question is from the line of Aleksey Yefremov with KeyBanc Capital Markets.

You've got Ryan on for Aleksey. First question I just wanted to ask is going around Argomax. So I just think some recent policy changes in China, talking about the end of the price cutting wars. Was wondering if that might be an even greater opportunity for you guys, maybe as kind of the shift to quality is greater here.

Yes, it's a good observation. This capability skews towards high-performance vehicles. And so not all electric vehicles are created equally, and this is a capability that is really designed for and intended for the best of the best electric vehicles. And insofar as there is a shift towards higher quality, higher reliability, higher performance vehicles in the electric vehicle sector, that should help us. All that having been said, this isn't such an expensive portion of the cost of an EV. It's a tiny, tiny fraction. And so we don't see price pressure, for instance, when there are price cuts in that market. And I wouldn't view this as an opportunity for us to raise our prices should the value of EVs increase.

Understood. Okay. That's helpful. And then, Carey, just for you in Electronics, it looks like EBITDA margins excluding kind of the pass-through of metal costs, it looks like they were down about 200 basis points year-on-year. So just can you help us get a better understanding of what kind of drove that and maybe what the expectation for that would be kind of in the back half?

Sure. Yes, it's a good observation. I think the first point to make there is really that when we look at the product lines and the verticals inside the Electronics business, we're seeing pretty healthy, stable to growing margins particularly when you exclude the impact of both the pass-through metals on the assembly business and some of the precious metals that we sell in the semiconductor business. So I think that's the key -- the first key point. When you actually bridge the sort of decrementals that you're seeing, the biggest driver other than the pass-through metals, which we talked about in the prepared remarks, is an impact of OpEx. So there's 2 things going on there. One is a shift in the corporate allocation between the 2 segments now that we've sold the graphics business and the way that's allocated disproportionately now hits electronics versus the prior split. And then some incremental OpEx that we're spending partly to fund Kuprion Research and development and then just some other growth and expansion we're doing. When you take out those 2 impacts, you kind of get back to a normal margin story. I think when we go to the back half of the year, that should normalize sequentially. The corporate dynamic will continue to play out on a year-over-year basis.

Your next question is from Chris Parkinson with Wolfe Research.

Ben, you clearly have the portfolio pretty well positioned for an eventual upturn and you're already doing pretty solid, but in terms of the core growth drivers that you're the most excited about '26 onwards, I'm thinking Kuprion and everything else, what's kind of the next leg of the stool in terms of how we should be thinking about your growth trajectory in the context of your electronics end markets?

Yes, it's a good question, Chris. So we're outperforming the broader electronics market as we see it today. We've talked about this bifurcation between the leading edge, which is growing really fast and lagging applications, legacy applications, which are not growing as quickly. We don't expect that to persist into perpetuity, and we'll get some benefit when some of those legacy applications get some wind in their sales. So that's a cyclical dynamic. The leading edge isn't going to slow in that situation. The things that are driving this business have very long legs, and there's a cyclical upturn from those lagging applications. At the same time, we're continuing to innovate, bring new capabilities to market, right? And this isn't a company that is really driven by blockbuster products. But we do talk about active copper, and Kuprion is a very compelling opportunity. We called it out in our prepared remarks. We're investing and should be opening our first mid-scale production site for that by the end of this year. And so that should be contributing to profit next year. And there are some new applications that we're developing for some of our technologies that have really good value propositions for hyperscalers and data centers that we also expect to pick up into 2026. So there's a cyclical tailwind when -- as and when that market recovers, there's some new product introductions that we're very excited about at high margins and their secular growth, propelling the leading edge where we've been disproportionately participating and benefiting.

Got it. And then in your prepared remarks, you mentioned your willingness to do buybacks, the term opportunistic was used and you said also you're thinking about M&A, just given where the balance sheet leverage is. When you think about tuck-in bolt-on M&A opportunities, Ben, are there something -- are there pieces of the portfolio you feel the need to fill in, in terms of your -- the total well- rounded portfolio? Or would it be more ancillary opportunistic things that you've been assessing over the last several years?

Yes. Thanks for the question, Chris. We've said in the past and stand by the fact that there's nothing we need to own to fill a gap in our portfolio. What we have holds together very well in terms of our ability to sell a system-level solution to OEMs and specifiers in our supply chain, and there's nothing we're missing. There are capabilities that could improve our customer value proposition. And there are businesses that we believe could be better inside of our portfolio by leveraging collaborative research and material compatibility. And those are the types of things we're looking for. We're looking for things that are better inside of our business and make our business better, and we deeply understand that are available at attractive returns to our shareholders. And so that's where we're spending our time around M&A. And as we said in the past quarter, the best opportunity was our own shares, and we acted on that.

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

Industrial EBITDA organic growth was 10 percentage points higher than organic sales this quarter. Last quarter, it was 8% higher. How long can you maintain that EBITDA growth much higher than the organic sales? Is there a regional mix issue that's helping here or application mix is something that might reverse in the future?

Sure thing. So Carey was talking about the corporate allocation shift on a year-over-year basis, and that attributes -- you can attribute some of that outperformance to that. And then the offshore business, which grew 15% year-over-year in the quarter and is a high- margin business. So there's a mix effect there as well. And you could expect that to continue as the offshore business has been outgrowing the industrial business and we expect that to continue in the second half. So we should be able to outpace the top line on the bottom line in Industrial for the balance of the year.

Okay. And then how are you thinking about leverage? Qnity just announced that -- I think they're going to be at 3.7x net debt-to- EBITDA. Entegris is still running up, I think, just above 4. I think you used to target 3 as kind of your target, which you're well below?

Yes. So we've articulated in the past that our target ceiling is 3.5x, right? We didn't want to exceed 3.5x. The business can support more than that. But from a cost of capital perspective, it was prudent to stay at or below that level. We did exceed it by about 1/10 of a turn in the middle of 2023 when we had the opportunity to buy Kuprion and terminate the distribution agreement we had with Entegris. That was just really great timing and great opportunities, and we have confidence that we were at the bottom of the cycle there. So 3.5% is the ceiling. We like running the business with capacity. Our framework around capital allocation does not change, depending on our leverage ratio. And so that's how we think about it. And it's nice for a change to be the lowest 1 on the page that you just went through, John.

Your next question is from the line of Matthew DeYoe with Bank of America.

[indiscernible] for Matt DeYoe. I have a quick 2 questions. The first one being, you mentioned there's some room for deteriorated macro in your guidance range. So can you clarify the assumptions for the top and low end range and the primary risk to achieving your upper half of new guidance?

Yes, sure thing. It's a bit of an echo on that. So our guidance range is -- gives us a bit of a wider birth than we normally would have at this juncture in the year that's driven by uncertainty around tariff impacts. That's not to say we've seen any impact. July remains strong. We see no signal of demand destruction, but we see volatility as a risk. The way we get to the high end is stronger EV, stronger smartphone activity and continued benign macro environment. And the way we get to the middle or low end is with macro deterioration, a weaker-than-expected smartphone environment, weaker-than-expected FX tailwind. Those are the types of things I'll be looking at that would determine where we land.

And then do you guys have any updates regarding production-related bottlenecks for Kuprion? I know you mentioned plans for it to come on later this year. So just any updates regarding that.

Yes, it's a good question. So in the past, we've talked about the focus of our energy being around our own supply chain and our customer supply chains for active copper, which is scaling up our own manufacturing and helping our customers develop applications, technology for how they'll use it in their high-volume manufacturing, and that remains our focus area. We are in the process of commissioning our first production line, which we expect to be operating at the end of the year, which should relieve that first bottleneck. Based on the demand forecast we see, we will need another site within the next 18 months subsequent to that. And so we're working on that plan as well.

Your next question is from the line of Josh Spector with UBS.

I'd just be curious if you could talk a little bit about kind of the texture of your electronics portfolio today. I mean you continue to talk about growth in B2B and high-end compute in that, reducing some of the cyclicality that you expect going forward. So if you look at the 9-ish percent organic you delivered in 2Q and what you've been delivering year-to-date, how would you describe the growth from the various parts of the businesses? Is roughly half the business growing 20% and kind of some of the more legacy exposure, industrial, auto, smartphones flat? Or would you describe it pretty differently. And just thinking about how we can apply that on a go forward if we do help from maybe the more cyclical-ish parts of the portfolio versus more of the secular growth areas.

Thanks for the question, Josh. It's not so simple to point to a specific end market for a specific product line. If you think about leading- edge foundries, those chips are going into multiple different end markets, but it's the highest value chips in those end markets. If you look at our circuitry business, for example, which historically was concentrated in the smartphone market, the growth there is coming from high-performance computing going into data centers, the growth there is coming from the Chinese EV market, where there are certain final finishes that lend themselves to those types of power applications. Our semi-assembly growth is also coming from the EV market. Some of our circuitry growth is coming from the low earth orbit satellite market. So there are these emerging demand vectors that are responsible for the outgrowth. And when we say outgrowth, we're talking about high teens, 20%, 30% growth in some areas, off of low basis. The sort of -- the base of the business is growing more modestly in the smartphone markets in those more industrial markets. And so what you end up with is an increasing concentration in fast-growing B2B markets, like the ones I articulated. And the growth rates for those markets should continue to be higher which blends the overall business growth rate higher. Similarly, the advanced foundries are an increasing percentage of overall MSI, and our share in those markets is strong and the capacity additions are coming in those markets. So as we sort of -- to answer your question, as we look forward, what should the growth rate be from here for our electronics business, there'll certainly be some volatility, but it's accelerating over the next several years as we articulated it would last year.

That's helpful. If I could just follow up on the margin questions earlier. So understanding some of the moving parts in this quarter and this year, I guess as we look forward, do you have any different view on how we think about incremental margins, I guess, mainly thinking about if you need to make more incremental investments in Kuprion or other areas as you see more emerging signs of growth there?

Yes. So referring to Carey's answer, there's the gross margin point where there's some precious metal pass-throughs and mix was a bit of a headwind to margin. And then there's the OpEx point where the corporate allocation aspects, it's really a 1-year effect. And the Kuprion investment is into a product line that's not generating substantial revenue today. And so that's also a 1-year effect. So we view the incremental or decrementals -- rather the incremental this quarter as transient and our historical expectation around incrementals for this business being 30% to 40%, frankly, as conservative as we roll this forward with the expected growth rates that we've just articulated.

Your next question is from the line of Pete Osterland with Truist.

I just wanted to ask another one on margins. So in Industrial & Specialty, you called out price discipline and productivity helping margins there. I was just wondering if you could elaborate on the pricing dynamics you're seeing in Industrial, particularly given the low growth environment. And going forward, as macro conditions recover and you start to see some more positive organic growth there, is there meaningful margin upside in this business?

Yes. So in the Industrial Solutions business, we've been driving productivity and maintaining price. It's been a tough market. We have -- we took quite a bit of price over the past several years. So the observation here is we're not giving price in a more benign raw material environment. And we're making our business more efficient across our site footprint, particularly in Europe. And so we're driving earnings growth in that business in a flattish volume environment -- the flattish to slightly down. The second part of your question is around where could the market in this business go. And over the past 3 years, we've seen volumes down in the high teens across our Industrial Solutions footprint. And this is not a business with significant fixed assets. And so as a percentage of our cost of goods, fixed costs are not high, but absorption has been a headwind over the past several years in our sites. And so with any volume tailwind, the incremental should be above average in Industrial Solutions.

Very helpful. And then I just also wanted to follow up on the comments on the offshore business. Even with the strong growth in the second quarter, it looks like on a year-to-date basis, sales are still down year-over-year. So I was just wondering, are there still any project delays that you're expecting to catch up on during the second half? And could you see a similar growth rate year-over-year for sales in the second half as you saw in the second quarter?

Yes. So what we called out in the first quarter was project delays, and we are still seeing things shift to the right. I wouldn't expect the second half growth rate in this business to be in the high teens. This is a business that should be growing in the mid-single digits on the back of price and some volume over the course of the year. So we do have some more catching up to do, but it won't be to the order of magnitude that we saw in the second quarter.

Your next question is from the line of Jon Tanwanteng with CJS Securities.

This is Will on for Jon. Can you talk about how the TAM for Kuprion has grown since you acquired over the past year?

Yes. So we've been working on, call it, commercializing, qualifying active copper projects now for 2 years. And we have had to limit the number of customer engagements we have by virtue of our ability to make the product, right? We're making it on lab scale batches and there's only so many samples and trials qualifications we can do. The demand pull, the customer pull for this product and the number of applications that customers would like to try this for has been growing very, very rapidly. So it's hard to quantify a TAM here because there's so much exploration. We're bringing a new material to market. But put simply the earn-out we have here is tied to achieving $100-some million of revenue by 2030. And we certainly see that as a very likely path -- a very likely path to achieve that goal in front of us, if not do better.

And then just a follow-up. Can you talk about how much capacity the Kuprion facility conserved from a revenue perspective and the margins in that business relative to the electronics segment in general?

Sure thing. So it's early to talk about capacity and revenue attached to this. I would say that it's an above average margin product because we're bringing new material to market that's solving substantial significant customer pain points. And as I said, we're going to need to bring more capacity online to support this in the next 2 years. So this one site isn't going to get us to our target. That's for sure.

This concludes the Q&A session of today's call. I will now hand the call back over to Ben Gliklich for closing remarks.

Wonderful. Thank you, Tamika. Thank you, everybody, for joining. We're looking forward to speaking with many of you in the days and weeks to come. Have a good day.

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