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MC

MATERION Corp (MTRN)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 was solid: net sales grew 1.9% YoY to $444.8M and adjusted EBITDA landed at 21.0% of value-added sales despite a ~$10M shipment impact from temporary equipment downtime in Performance Materials .
  • Electronic Materials posted record margins (27.1% of value-added sales) on improved cost structure, favorable mix, and a small ~$1M one-time precious metal refine pickup; Precision Optics returned to double‑digit margins, while Performance Materials is set to normalize in Q4 .
  • Guidance reaffirmed: full-year adjusted EPS $5.30–$5.70; free cash flow conversion ~70% of adjusted net income; new $50M buyback authorized, Q4 dividend declared at $0.14/share .
  • Consensus comparison: revenue modest beat (+0.5%), EPS in line/slight miss, adjusted EBITDA below consensus as downtime muted shipments; sequential order rates up double-digit with strength in semiconductor, defense, space, and energy – key catalysts into Q4 .

What Went Well and What Went Wrong

What Went Well

  • Record Electronic Materials margins: “all-time high EBITDA margins of 27% in electronic materials,” driven by structural cost improvements and strong price/mix as semi recovers, with AI-led demand underpinning the upturn .
  • Precision Optics transformation: returned to double‑digit EBITDA margins (11.8%) with ~1000 bps YoY expansion on higher volume, favorable mix, and structural cost changes; third straight quarter of sequential improvement .
  • Order momentum and secular markets: “order rates are up more than 10% sequentially,” with strong YTD activity in semiconductor, defense, space, and energy; record defense bookings and ~$150M RFQs; new CFS fusion supply agreement with shipments beginning this year .

What Went Wrong

  • Equipment downtime: Performance Materials faced temporary equipment issues at the largest facility, limiting Q3 sales by roughly $10M; management expects catch-up in Q4 (and some in Q1) as production normalizes .
  • China softness: commercial tone and tariffs pressured China sales; YTD China sales down ~20%, with uncertainty constraining visibility and impacting mix .
  • EBITDA versus consensus: adjusted EBITDA below Street as downtime muted Performance Materials and mix effects persisted; management also cited ~$1M operating one-time item in EM, but underlying margin gains remain durable .

Financial Results

MetricQ3 2024Q2 2025Q3 2025
Net Sales ($USD Millions)$436.7 $431.7 $444.8
Value-Added Sales ($USD Millions)$263.8 $269.0 $263.9
Gross Margin ($USD Millions)$80.9 $82.7 $86.1
Operating Profit ($USD Millions)$31.3 $36.8 $34.9
Adjusted EBITDA ($USD Millions)$56.7 $55.8 $55.5
Adjusted EBITDA Margin % (of VAS)21.5% 20.8% 21.0%
Diluted EPS ($)$1.07 $1.21 $1.22
Adjusted EPS excl. amortization ($)$1.41 $1.37 $1.41

Segment breakdown

Segment MetricQ3 2024Q2 2025Q3 2025
Performance Materials VAS ($USD Millions)$163.6 $168.5 $157.1
Performance Materials Adjusted EBITDA Margin %28.4% 24.6% 24.2%
Electronic Materials VAS ($USD Millions)$77.8 $76.1 $79.7
Electronic Materials Adjusted EBITDA Margin %20.1% 23.4% 27.1%
Precision Optics VAS ($USD Millions)$22.4 $24.4 $27.1
Precision Optics Adjusted EBITDA Margin %2.2% 9.0% 11.8%

KPIs

KPIQ3 2025
Sequential order rates changeMore than 10%
Defense bookings YoYUp ~40%
Open defense RFQs ($USD Millions)~$150
Net Debt ($USD Millions)≈$441
Available credit facility capacity ($USD Millions)≈$214
Leverage (Net Debt/EBITDA)~2.0x
Equipment downtime impact on sales ($USD Millions)~$10
China sales YoY change YTDDown ~20%
EM Adjusted EBITDA Margin % (record)27.1%
FY25 FCF conversion target≈70% of adjusted net income

Results vs Wall Street consensus (S&P Global)

MetricConsensus*ActualSurprise (%)
Revenue ($USD Millions)442.62*444.81 +0.5%
EPS ($)1.412*1.41 -0.1%
Adjusted EBITDA ($USD Millions)58.18*55.50 -4.6%

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPS (excl. amortization)FY 2025$5.30–$5.70 $5.30–$5.70 Maintained
Free Cash Flow conversionFY 2025≥70% of adjusted net income ≈70% of adjusted net income Maintained
Performance MaterialsQ4 2025Strong second half; defense shipment timing Significant top-line improvement with normalized volumes; strong defense/energy sales Improved specificity
Electronic MaterialsQ4 2025Semi upturn in H2 Top-line improvement as semi recovers; favorable AI/global connectivity trends Maintained
Share RepurchaseN/APrior program largely utilized; 100k shares repurchased in Q2 at ~$78 New $50M authorization Raised
DividendQ4 2025Prior quarterly dividend$0.14/share declared for Q4 2025 Maintained/Declared

Earnings Call Themes & Trends

TopicQ1 2025 (prior)Q2 2025 (prior)Q3 2025 (current)Trend
AI/semiconductor cycle & ALD materialsGradual semi improvement led by data storage/logic/memory; power semi sluggish EM record margin (23.4%); non‑China semi up; order rates improving EM record margin (27.1%); strong non‑China semi; ALD molybdenum demand for smaller node chips Strengthening
Energy (nuclear/fusion)Multi‑year agreement with Idaho National Labs New energy sales > full 2024 in H1; strong growth focus New CFS fusion supply agreement; shipments begin this year; energy demand tied to AI/data centers Expanding
Defense & space16th consecutive QoQ YoY growth in aero/space/defense; timing noted Record defense bookings $75M; backlog doubled in space; global growth Record defense bookings up ~40%; ~$150M RFQs; strong space wins Accelerating
Tariffs/ChinaEPS headwind ($0.10–$0.15 in Q2; potential $0.40–$0.50 in H2) Tariff rate reductions reduced Q2 impact; still some H2 risk China sales down ~20%; customers prefer ex‑U.S. sourcing; monitoring potential government shutdown impacts on orders Persistent headwind
Precision Optics transformationSequential margin improvement; plan for turnaround Sequential improvement; approaching double‑digit margins Double‑digit EBITDA margin (11.8%); transformation ahead of expectations Improving

Management Commentary

  • “We achieved… all-time high EBITDA margins of 27% in electronic materials. This reflects the power of our improved cost structure, strong operational performance, and new business initiatives as the semiconductor market continues to recover.” — CEO Jugal Vijayvargiya .
  • “Order rates are up more than 10% sequentially… key markets of semiconductor, defense, space, and energy up 20% year-to-date.” — CEO .
  • “Adjusted EBITDA was $55.5 million… Despite the muted shipments in Performance Materials, we achieved 21% EBITDA margins… good progress towards our new midterm target of 23%.” — CFO Shelly Chadwick .
  • “We are affirming our prior full year guideline… $5.30 to $5.70 per share.” — CFO .
  • “Announced… supply agreement with Commonwealth Fusion Systems to provide beryllium fluoride… Shipments… will begin this year.” — CEO .

Q&A Highlights

  • Guidance range not narrowed due to China uncertainty and potential U.S. government shutdown impacting order timing; management expects midpoint tracking .
  • EM margin bridge: ~$1M operating one-time refine pickup; underlying margin strength from cost structure and mix improvements; sustainability targeted near mid‑20s% .
  • Performance Materials downtime: ~$10M Q3 sales impact; equipment issues resolved; majority catch-up expected in Q4 (some Q1) .
  • Commonwealth Fusion Systems agreement: shipments “a few million” in Q4; annualized run-rate next year; potential larger step-up by ~2030 .
  • China and sourcing: YTD China sales down ~20%; customers favor ex‑U.S. suppliers; company pursuing ex‑U.S. supply (e.g., Conisol acquisition) to mitigate .

Estimates Context

  • Q3 2025 actuals vs consensus: revenue beat (+0.5%), EPS in line/slight miss, adjusted EBITDA below. Street likely revises EM margins higher given structural gains, while PM margins rebound expected in Q4 as volumes normalize .
  • Q4 2025 consensus embeds stronger top line and EBITDA into defense/energy seasonality and semi upturn; management commentary supports higher H2 order rates and improved mix .

Consensus values retrieved from S&P Global.*

Key Takeaways for Investors

  • Mix and margin story intact: EM margins structurally higher; PO turnaround tracking ahead; PM to rebound in Q4 — a constructive margin cadence toward the 23% midterm target .
  • Near-term setup: Double-digit sequential order growth and defense/energy seasonality position Q4 for revenue and margin improvement; watch contract timing amid any government shutdown .
  • China remains the swing factor: ~20% YTD sales decline and customer preference for ex‑U.S. sourcing; mitigation via supply chain adjustments and ex‑U.S. capacity (Conisol) is key .
  • New energy optionality: CFS fusion agreement begins shipping now; complements Kairos fission partnership — a potentially material long‑duration growth vector tied to AI/data center energy demand .
  • Capital allocation: New $50M buyback, dividend maintained; leverage ~2x with strong liquidity and FCF conversion (~70%) — supports flexibility for organic investments and opportunistic repurchases .
  • Trading lens: Expect positive bias on Q4 normalization and EM/PO margins; risk skew from China/government timing may add volatility around prints; watch semi ALD/moly adoption, defense RFQ conversion, and PM catch-up.
Footnotes:
*Consensus data (EPS, revenue, EBITDA, target price, # of estimates) retrieved from S&P Global via GetEstimates.