Materion Corporation (MTRN) Earnings

Management highlights

### Overall Quarterly Performance - The company delivered the highest quarterly sales and earnings in its history, with all three segments achieving double-digit sales and adjusted EBITDA growth - Adjusted EPS hit a record $1.90, up nearly 40% year-over-year; adjusted EBITDA margin exceeded 23% for the first time, a company milestone - Total company value-added sales (excluding pass-through precious metal costs) were a record $308.2 million, up 15% year-over-year and 18% sequentially - The company generated $59 million in free cash flow with ~150% cash conversion, ended the quarter with net debt of $421 million, leverage of 1.8x (below the midpoint of the target range), and $233 million in available credit capacity ### End Market Growth - Semiconductor market sales up 23% year-over-year, driven by AI-driven growth in leading-edge logic, memory, power, and communication applications - Aerospace and defense delivered its highest quarterly sales ever, fueled by strong demand, new space and defense business, and a commercial aerospace recovery - Industrial markets posted strong results, led by Performance Materials, with growing demand for beryllium nickel spring materials driven by data center buildouts and non-residential construction - Energy shipments up more than 20% driven by new business wins and next-generation energy applications - Telecom and data center sales grew almost 50% propelled by AI infrastructure buildout and global wireless network expansion outside the U.S. ### Order Book and Backlog - Exited Q2 2026 with a record backlog, up ~30% year-over-year and 20% since the start of the year - First half 2026 incoming orders reached a new all-time high, up nearly 30% year-over-year: defense secured $90 million in year-to-date incoming orders with over $500 million in open RFQs; space orders doubled year-over-year; semiconductor orders up 20% with strong uptake in high-performance memory ### Space Market Expansion - Space has emerged as a major growth engine for the company, with business growing 6x over the past 3-4 years, now accounting for roughly 25% of the aerospace and defense segment revenue - Materion is embedded across the full space value chain (launch systems, satellites, in-space systems, ground-to-space infrastructure, exploration vehicles, and emerging in-space power systems), supplying critical mission materials including beryllium mirrors, optical filters, thermal management materials, semiconductor materials, and engine components - Secured a new $15 million multi-quarter program to deliver advanced materials for a major commercial space customer's engine performance, the latest of a pipeline of large and small contract wins in the space market

Guidance

- Management increased full-year 2026 guidance for the second consecutive quarter, now expecting mid-teens year-over-year sales growth, up from prior lower growth guidance - Full-year adjusted EPS guidance was raised to a range of $6.80 to $7.20, from the prior range of $6.00 to $6.50. At the midpoint, this represents a ~30% year-over-year increase and a 12% increase from the midpoint of prior guidance - Full-year 2026 free cash flow conversion is targeted at roughly 75% - Management expects continued top-line momentum across all segments in the second half of 2026, led by accelerating order activity in space, defense, and semiconductor markets - No 2027 guidance has been finalized, with formal 2027 forecasts expected to be released in early 2027 (January timeframe)

Segment performance

1. Performance Materials: Value-added sales were $190 million, up 13% year-over-year and 36% sequentially. It contributed 61.6% of total company value-added sales. Adjusted EBITDA was $48.3 million (25.4% margin), up 16% year-over-year with 80 basis points of margin expansion, and up 70% sequentially with 500 basis points of margin expansion. 2. Electronic Materials: Value-added sales were $87.4 million, up 15% year-over-year. It contributed 28.4% of total company value-added sales. Adjusted EBITDA was a record $28 million (32% margin), up 57% year-over-year with nearly 900 basis points of margin expansion, marking the fifth consecutive quarter of margin expansion. 3. Precision Optics: Value-added sales were $30.8 million, up 26% year-over-year. It contributed 10.0% of total company value-added sales. This was the segment's strongest quarter since 2021 and fifth consecutive quarter of top-line growth. Adjusted EBITDA was $6.6 million (21.4% margin), up 206% year-over-year with significant margin expansion. This was the first quarter with over 20% adjusted EBITDA margin since 2021 and sixth consecutive quarter of bottom-line improvement.

Risks & headwinds

Forward-looking statements are noted to carry inherent uncertainty, as actual results may differ materially from expectations due to a range of external factors, which are detailed in the company's earnings press release. No additional specific operational failures or material risks were discussed during the call.

Analyst Q&A

• Q: Defense orders are up 50% year-to-date amid rising global defense spending. What is your long-term (2027+) growth outlook for defense relative to your expectations at the start of 2026? /

  A: Incoming defense orders and open RFQs have grown sequentially quarter-over-quarter, with $500 million in open RFQs as of Q2 2026, up from $300 million last quarter. Given planned U.S. and allied defense spending increases, management expects defense to remain a strong long-term growth driver, as Materion's material portfolio is well-positioned to meet growing market demand.

• Q: What is driving Precision Optics' year-to-date top-line growth, and what are its future growth opportunities? /

  A: Top-line growth has been driven by new business wins across multiple end markets, including semiconductor, defense, space, life sciences, and industrial. Operational improvements including leadership changes, manufacturing productivity gains, improved yields, and right-sizing have driven margin expansion to over 20% for the first time in five years. Management expects the segment to continue improving and contribute to the company's 23% overall long-term margin target over the next 3-5 years.

• Q: What is driving the fastest growth in your expanding space business, and what are the largest long-term opportunities? /

  A: Launch systems and satellites are currently the two largest market segments for Materion's space business. In-space propulsion and surface power are the fastest growing areas, with significant long-term opportunity, while ground-to-space infrastructure is an emerging growth market. The business has grown 6x over the past 3-4 years and is no longer a niche market, representing roughly 25% of the company's aerospace and defense revenue today.

• Q: Electronic Materials' EBITDA margin hit 32% in Q2, far above its historical mid-to-high teen range. How sustainable is this new margin level, and where will margins go from here? /

  A: While Q2 had a favorable mix that is unlikely to be sustained for the full year, the margin improvement is structurally permanent, not just temporary. Years of cost optimization and product mix upgrades have driven a permanent step-up in margins, which will remain well above pre-2026 levels. Management expects to continue driving margin expansion going forward, and will not return to the historical low-mid teen margin range the business posted in prior years.

• Q: Backlog is growing much faster than revenue. How confident are you that this growth reflects actual end demand rather than customer inventory overbuilding like the post-pandemic period? /

  A: The backlog growth is broad-based across all major end markets, not concentrated in a small number of segments. All orders reflect near-term consumption (6-9 months out) rather than long-term buffer inventory building. Each major end market (defense, space, commercial aerospace, new energy, semiconductor/AI data centers) has clear underlying demand drivers supporting order growth, so management does not expect a future shakeout from overordering.