Qnity Electronics Stock

Okay. Great. Okay. Let's get started. Good morning, everybody. Welcome to the Goldman Sachs Communacopia and Technology Conference. My name is Jim Schneider. I'm the semiconductor analyst here at Goldman Sachs. It's my pleasure to welcome Qnity CEO, Jon Kemp to the stage today. Welcome, Jon. Thanks for being here.

Thanks, Jim. Happy to be here.

Jon, you operate a diverse business, which has got high performance materials at its core. You spun out of DuPont last November. I think a number of investors are still getting up to speed on your story. For those people who are a little bit maybe less familiar with the story, give us a brief overview of your business across semiconductor wafers on one hand and interconnect on the other.

Yes. Thanks, Jim. We're coming up on the 1-year anniversary of the spin and the launch of the company. It's been what a great year to have launched. Couldn't have picked better timing. But Qnity is really the largest pure-play material solution provider for the semiconductor ecosystem. We provide a full suite of solutions from the front end to the back end of the stack, including front-end semi-fab materials, kind of middle of the line advanced packaging materials that have been some of the fastest-growing parts of the business. And then on the back end, we do AI PCBs and high-value assembly, things like thermal and EMI shielding, which are also growing very nicely.

We're well positioned with all of the leading customers in the AI ecosystem and in particular, on the most advanced technologies. And so whether it's high-performance computing or advanced connectivity, the trends around AI and those types of advanced technologies have really been fueling our growth as we continue to enable the success of our customers' technology road maps. And then we support those customers with really a local-for-local operating model, which for us means we co-locate manufacturing and R&D activities close to where our major customers are located. So you'll see us with significant footprint and presence from a manufacturing and innovation point of view in the U.S., but also I just got back recently from Taiwan, Korea, Japan and China. So we're off to a good start. We're thrilled with the progress that we're making, and we're looking forward to the future ahead.

Okay. Excellent. Now from an operational perspective, what are the 1 or 2 key objectives you're driving the company toward the next 12 to 18 months? And if you look at investor expectations for your business in 2027, if you were to outperform, what will be the key areas of upside for the business?

Yes, it's a good question. So for us, the priority #1, especially as a new public company, has just been establishing that track record of steady, consistent execution, right? We talk about -- our business is 90% unit-driven consumables. So we're highly levered to unit volumes across the industry and the best metric for that typically has always been MSI. And we outperform MSI based on the content opportunities and growth from the most advanced technologies. And so our outperformance this year, we're thrilled with the performance that we've seen in the first half of the year. We're almost 2x MSI, a bit higher than our normal outperformance that we would see largely because most of the growth that we're seeing is coming from our customers' most advanced technologies.

So in the semi world, the success that we're seeing with 3-nanometer and 2-nanometer technologies, the dramatic rise of advanced packaging and thermal management are all fueling kind of our growth. And maybe just to characterize a little bit across the 2 segments, about 40% of our semi -- we operate with 2 business segments: one focused on semiconductor and the other focused on kind of middle of the line and back-end interconnect solutions. And within the semi segment, about 40% of those sales are really to advanced nodes. So we think of advanced nodes as anything below 7-nanometer. And that business has been growing really nicely for us this year, about 20% here in the first half.

And then, on the Interconnect side, similar trends around the most advanced technologies, where advanced packaging, thermal management and AI PCBs comprise about 30% of that segment. and that's been growing by more than 50% year-over-year. What I'm most excited about is the investments that the industry and all of our customers are making in expanding capacity primarily at the leading edge. So new fabs coming online to support the most advanced technology, whether that's in Taiwan, Korea, Japan or Arizona, Texas. All of that bodes really well for the future, dramatic increases in advanced packaging capacity and a lot of our PCB customers upgrading their capabilities to do more sophisticated higher-end printed circuit boards that all require more sophisticated and more specialized materials, which is really what's fueling our content growth kind of at the leading edge of technology. And we expect that momentum to continue the outperformance through the rest of this year with a really favorable backdrop going into 2027.

So for 2027, more excited about interconnect than semis?

Well, Interconnect, historically, semi has always grown a little bit faster. With the rapid rise of thermal management and advanced packaging, the Interconnect segment has been outpacing. That trend probably continues for the next year or so because of how explosive that growth has been, and we're really well positioned with leading technology positions across a number of key product categories in that space. So I do expect ICS will continue to outpace semi, but we'll have really nice growth from both segments.

Got it. Okay. So last high-level question. If we get here on stage again in 5 years' time, what do you think is one thing that investors will be surprised at looking 5 years back?

Yes. Maybe that's a good question for the guy next door here in a few minutes as well. But if I think about for or our portfolio, I think there's kind of 2 things that I think we're really excited about over the next handful of years. Number one is the continuation of the AI-led transformation across the modern economy. So far, what we've seen is all of the rapid growth primarily in data centers. And the data center growth has been terrific. We've certainly benefited from that alongside our customers, but it's really just the first leg of the AI-led transformation. I'm excited by the emergence -- and data center is kind of all about cloud computing. It's where AI learned to speak and learned to think.

But what's next, and I think what I'm excited about is the transition from the cloud to the edge, from data centers to physical AI, where we get into -- where AI moves into applications across devices, vehicles and machines. And those physical AI applications while not as concentrated in terms of GPU and CPU clusters, you'll combine GPUs and CPUs with analog and discrete and you'll have far more of those individual devices across the modern economy. And that sets the backdrop for just several years now of strong sustainable growth as AI applications extend broadly across the economy. The corollary to that from a technology side is really around where innovation happens. So for the last 10 years or for the time I've been in this industry, the most important unit of innovation has always been the chip and the chip itself. And that will continue to be important, and it's always going to be important -- but in the AI era, the chip alone is not enough.

The unit of innovation is expanding from just the chip to the entire system. And the implications of that are a couple of unique challenges where materials move from kind of the back end of the process to the front of the process because at the system level, challenges like signal and power and heat become more important. And those are fundamentally the challenges that advanced materials can solve. And so what we're seeing is this trend around innovation, the opportunity for innovation beyond the chip to the entire system, extending from the foundry and the fab to the OEM, whether that's the smartphone, the automotive or the hyperscaler, those opportunities to drive innovation more broadly through the ecosystem, I think, creates a real opportunity that we're excited about.

Okay. Great. Now let's get into the details of the business for a second. We've been in kind of an interesting few year period in the industry where, on one hand, AI and leading-edge logic has sort of been driving the ship. But at the same time, against that in the same industry, you've had trailing edge and so on that's kind of like really lagged and been holding down because of the excess inventory in automotive, industrial and some of those supply chains. So maybe it seems like that situation has now corrected itself, and we're kind of back to growth for the majority of the industry. You recently raised your industry wafer start forecast to mid- to high single digits for 2026 from mid-single digits previously. So given the demand outlook from customers you're seeing, do you see that potential for that wafer growth rate to actually accelerate as we head into the end of the year?

Yes. So it's something that we constantly talk to our customers about. I think about -- we did raise our MSI forecast to high single digits. And that's really based on the rising utilization rates that we're seeing broadly across the industry. Obviously, the strongest utilization rates continue to be in advanced logic and DRAM with HBM, where we're seeing mid- to high 80s in advanced logic and high 80s, maybe even low 90s on the HBM DRAM side. But we're seeing nice progress on mainstream logic as well. And mainstream logic accounts for the bulk of the wafer volumes across the industry. And it's been a few years in the making. So really pleased to see some of the progress. And I think they're finding ways to participate in not just data center growth, but in other growth across automotive and premium consumer devices because we're seeing on both sides of our segment, the strongest growth is coming from the most advanced technologies, but we're seeing very solid growth even from both mainstream logic as well as kind of what I would call mainstream PCBs also.

Yes. Okay. And then maybe as we look at the exit rate for growth at the end of this year, talk about sort of your exposure to leading edge versus mainstream and sort of what growth rates you see for the rest -- for the overall segment of the business, especially given what you said about kind of the supply additions heading into the end of this year and next.

Yes. When we think about the rest of the year, so the portfolio composition, our portfolio on the semiconductor side is 80% logic, 20% memory. So the strong growth in advanced logic is really one of the things that's fueling our strong outperformance. And as we -- through the first half of the year, it comprised about 40% of our semiconductor segment. We had said even as little as maybe 9 months ago prior to the launch that we thought that we would get to advanced nodes comprising 45% to 50% of the portfolio kind of by 2030, and we're on track to get there way earlier than that, right, with the growth that we're seeing. So really nice progress there. We expect that trend to continue.

And then on the Interconnect side, look, I don't think any of us were expecting the magnitude of the increase in advanced packaging and thermal management needs. And that's, I think, surprised the entire industry. We're rapidly trying to adjust supply chains to bring capacity to that part of our customers' architecture, and we're really pleased by the growth that we're seeing. We're about -- between advanced packaging, AI PCBs and thermal management, it's about 30% of our Interconnect portfolio. We expect that momentum to continue. When we start to think about next year, I think the real lever for growth is really around how successful our customers are in bringing the announced capacity online. I think the end market demand remains strong. You hear that from our customers and our customers' customers.

And I think it's been a major theme here in the conference here this week on kind of the demand environment for '27, likely even for '28 remains pretty strong. It's a matter of how fast can our customers bring the capacity online and scale it up to be able to support that and the demand that's coming from the broader ecosystem and the broader customer environment. We're really well positioned with the investments. We typically invest in our capacity alongside those customers. So we're in a good position to be able to support that growth as it scales into '27 and '28.

Okay. Excellent. Jon, your chemical mechanical polishing or CMP segment is arguably one of your most differentiated product lines. You participate in both pads and slurries tied to polishing those layers. So what are some of the underlying technology trends across leading-edge logic and memory that are driving differentiation for you? And what's your confidence level in being able to outperform that market segment into next year and beyond?

Yes, Jim. So our chemical mechanical planarization or polishing or CMP business is just over 50% of our total semi segment. We provide a full suite of products there from pads, slurries as well as cleans. We're the market leader for both polishing pads as well as for the post-CMP cleans that are formulated chemistries, and we've got a strong slurry offering as well. It's been the fastest-growing part of our semiconductor business for the last 3 years, really driven by strong content gains in that part of the industry as well as some nice share gains also. When I think about the opportunities ahead, with each node migration, CMP process complexity, we add more layers and we add more CMP process intensity. Maybe just to give it a little bit of color. If I go back a few years to, say, 14-nanometer FinFET technology, it used, call it, x number of layers. When you accelerate that to today's technology with 2-nanometer gate-all-around technology, it's 2x the number of layers in that advanced logic device.

And within there, there's more CMP process intensity in several of those layers. So it's almost a double materials multiplier for that part of our business. When I think about the next evolution of technology, there's maybe 2 that I would call out. And by the way, what I described in advanced logic, the same dynamic has played out in DRAM as well and especially with HBM because we're seeing the doubling in the number of layers, but HBM and anything that involves packaging also pulls through CMP from the front end of the line into the advanced packaging step as well. But a couple of the technologies that we're really excited about for that side of our portfolio is as we start to introduce backside power delivery into the architecture, Intel is doing a bit of that today, but some of the other leading players will start to introduce backside power here in the Angstrom Era nodes coming up. And that's another significant step-up in CMP process intensity that we're really excited about.

You've got -- when you go to -- similarly on the memory side, when you get to more than 400-layer count NAND, and you start to do the string stacking of the NAND modules, those modules have to be perfectly flat and polished so that you're getting seamless connections between the different layers of the NAND architecture. So getting to that, whether you call it from V9 to V10 or above that 400-layer count and you start to do the stacking of the NAND modules, that's another key inflection point that we're pretty excited about for our CMP business.

Okay. Great. And now from the time of the spinout, I think people, including me, have been surprised at how robust the Interconnect growth has been. You talked about some of the drivers for that already. But maybe unpack the segment in terms of more detail. How much of that is being driven by advanced packaging tied to AI infrastructure? And how much is that advanced packaging area growing sort of this year and the next?

Yes. So advanced packaging is -- look, every customer conversation I've had for the last 2 years has focused on how can Qnity help with advanced packaging because we're pretty unique from -- especially with our semi customers because we've long been a trusted partner with the front-end materials. With the rise of advanced packaging, they're all becoming very familiar with the Interconnect side of our portfolio as well, and they've asked for our help on how can we accelerate and improve the architecture and the performance of advanced packaging. It's been the fastest-growing part of our business for the last 2 years. And I expect that will continue because it's much easier to add new capacity for advanced packaging than it is to add a new fab, a new front-end fab. So you can -- that capacity comes on a little bit faster and then it scales.

So the -- maybe the couple of the fundamental trends that we're seeing in advanced packaging is really kind of 2 key things. Number one is the expansion of larger format sizes. So you're trying to get -- I equate it to you're putting enough compute that you're on a 10-lane freeway, but without advanced packaging, you've only got a 3-lane exit. And so you get all that compute starts to bottleneck in the device. What advanced packaging does is it creates a 10-lane freeway with a 10-lane exit. So you get a really seamless transition for all of that compute capacity to be able to extend to the package. And then similarly, that's why you do an AI PCB is because you want that 10-lane exit to go to a 10-lane country road as well so that, that compute flows reliably without any loss or latency anywhere in the system. And that's really kind of what our materials are providing. And so the larger format packaging sizes help to ensure the signal reliability and the power efficiency.

But fundamentally, it creates more opportunities for content -- and then the other trend that they're doing is they're very similar to chip architecture, you're trying to use the real estate in the package as efficiently as possible by shrinking the geometries. And so often I call this -- we're moving from a world where the most important technology driver was the power of shrink and shrinking the geometries, whether that's on a transistor or on a circuit board. And now we're adding to that shrinking and stacking. And this combination of shrink and stack is what unlocks the next frontier of computing and what will continue to allow customers to scale to meet the demand of AI, both in the cloud as well as all the emerging applications in physical AI. And all of that leading-edge compute will all require advanced packaging technologies in order to deliver the functionality to the end markets and the applications for which it's being built. So we're really excited by that trend.

Excellent. I would give almost anything for a 3-lane exit ramp myself. But anyway, just maybe lastly on advanced on the Interconnect business, maybe what are the other areas, whether that be thermals or PCB, as you said, that are sort of outperforming your expectations?

Yes. The thermal business. So if you think about the fundamental system level challenges that I talked about, signal reliability is really important, getting those perfect chip-to-chip communications and chip-to-board communications. That's where a lot of our metallization content is going into. Power delivery is another key challenge that we work closely with our customers on. But as you solve those challenges for signal and power, it all generates increasing amounts of heat. And you get localized hotspots at every step of the process at the chip level, at the package level and at the device level. And we bought a company in 2021 called Laird Technologies, and Laird had a market-leading portfolio of thermal solutions that span that entire range. So we're helping our customers solve those heat issues kind of at the chip level, at the package level and at the device level.

And it's really accelerated because all of this compute is generating enormous amounts of heat and heat is the -- heat maybe the #1 failure mode in any device is overheating. So managing that heat effectively is proving to be really important. And so that business is really driving significant outperformance for us.

The other key technology coming back to that signal reliability topic that I mentioned before that the Laird acquisition brought into our portfolio was a leading position around EMI shielding. And electromagnetic interference is one of the top causes for signal failures. And so we're seeing a very robust growth in EMI shielding. The most common application that most people are familiar with is automotive radar, ADAS systems or ADAS modules in vehicles. But very quickly, that same technology is extending into personal devices. It's extending into the data center because as you put more antennas and more wireless connectivity in all of these devices, you have to protect the -- how the signal is being transferred over and over again. And like I said, you don't want any loss or latency to happen and that shielding technology becomes critical.

What that's allowed us to do is even in markets where unit volumes have been a little bit more challenged this year, whether that's consumer electronics or automotive, in our portfolio, the content gains coming from increased electronic content, we've seen high single digits to even double-digit growth in both consumer electronics and automotive despite a sluggish unit volume backdrop.

Yes. Maybe some more financially oriented questions for you. I think one of the hallmarks of the supply chain in semis recently has been this idea of constraint. And obviously, that's driven sort of what used to be a deflationary industry into an inflationary industry instead where a lot of people are raising prices across the supply chain. So what's happened to your input prices right now in terms of raw feedstocks and chemicals? And sort of what's the tolerance among your customers to absorb higher prices from Qnity? And do you think you're going to be able to pass those along?

Yes. Good question, Jim, and it's something that we watch closely. We've been fortunate in that from a raw material and an input cost point of view, we haven't hit any significant supply pinch points that are material. And so we haven't seen as much inflation as other parts of the ecosystem have seen. I would say we watch kind of the situation in the Middle East. I'd say the one place where we have seen a little bit of inflation is in some of the logistics and shipping costs. And we sized that for the year at about $20 million of inflationary headwinds. Over the last couple of years, any time we have some of these unique and maybe kind of one-off events that result, whether it's tariff -- during the COVID environment, we saw some of this during the tariffs a year or so ago in the current environment, we've always been able to pass through those things like freight or logistic cost increases.

We're able to successfully pass that through to our customers, and we haven't had any problem doing that. There's always a little bit of a timing adjustment there, but we're in good shape from the rest of this year. As I think about it more broadly, we're constantly -- this industry historically, it seems like the last few years have supply reliability is also one of those key topics that every customer conversation includes. And so we're working closely with our customers. I think the industry has shown an incredible amount of agility to be able to adapt and respond to supply chain issues, whether that's memory or clean room or different component materials within the supply chain in order to meet the broader market demand. And I expect that, that agility and resiliency will continue.

We're in a pretty good place. And when we think about pricing for us, it mostly comes down to pricing for value on new products. So we're constantly introducing new products kind of at the leading edge of technology, and we're pricing for value on those new product launches in both of our business. In the legacy technology or the older technology, there's always a bit of a price fade in the older technology, but we're really pricing for value for new technology. And what we're seeing is those -- the value that we're creating with the launch of the most advanced products is really kind of outpacing some of that historical. You see it with the wafer prices and you see it kind of every step along the value chain where the value is increasing with innovation, and we see that value of innovation driving significant benefits, and it's part of our outperformance this year and what we would expect going forward.

Okay. Great. And then on gross margins, how do you handicap your ability to expand gross margins over time? And what level do you think is realistic over both the shorter and longer-term relative to the current level around 47%, could you hit 50%?

Yes. So we're pleased by the progress that we've made. Gross margins for us, as you said, at the company level, we're sitting kind of in the high 40s, 47%. In our Semiconductor segment, we're sort of right at that 50% line already. In our Interconnect segment, we've seen some nice margin expansion in that business because the fastest-growing parts of that business, the advanced packaging, the AI PCBs and the thermal management also happen to be the highest value parts of that portfolio. So you see some natural mix enrichment as those parts of the business continue to accelerate the growth. And so I think we'll see -- obviously, there's kind of 3 main drivers to margin expansion.

First, as we continue to grow, we get nice operating leverage by putting more volume through our plants. The second one is the mix enrichment that happens as we get the faster growth from the most valuable parts of the portfolio, which are the leading-edge technology. And then the third driver for margin improvement over time is in the first quarter, we announced the transformation program. We sized it at about $100 million over the -- of EBITDA run rate over the next couple of years, focused on about 50% of that is plant-based productivity, things like automation, improvements in commercial and innovation excellence and optimizing our local-for-local model. We're making good progress on that. And so we expect that, that will, over the course of the next few years. If you put all 3 of those things together, I think that it's -- we have a real opportunity to get the entire company up to that -- up to and maybe even slightly above that 50% mark over time.

Okay. Excellent. Maybe I'll just, kind of, like close with one last question on capital allocation. We've seen some M&A activity in your sector. Solstice announced a $14.5 billion acquisition of Element Solutions. On a go-forward basis, to what extent is M&A on the table for Qnity? And do you see any kind of particular valuable assets that you would look to expand your portfolio or potentially diversify the business?

Yes, it's a good question. On capital allocation, our first priority is always organic reinvestment in the business. We see tremendous opportunities to continue to drive organic growth. But this portfolio has been built by really smart acquisitions over many years, right? And so we're always going to be looking for complementary technologies that will be additive to our portfolio, to our ability to serve customers and that have an attractive financial profile. I think the areas -- I think right now, I don't think that we're necessarily looking for something that would be transformational. I think much more likely to be kind of a tuck-in or bolt-on opportunity. We've got an attractive pipeline and a disciplined process, and we'll continue to work that.

The areas that we've talked about that are of interest to us are some of the faster-growing parts of the portfolio, advanced packaging and thermal management, both are still relatively fragmented spaces where we think there's some opportunities for some M&A. Equipment consumables or services is another interesting area for us where we think that's maybe a less talked about part of the ecosystem that there may be some opportunities for a company like ours to take advantage of some opportunities. It's also a pretty fragmented landscape. So we expect to be active in M&A over time. Like I said, our primary focus is consistent, steady execution, but we're ready for the right opportunity. And especially for our first deal, we wanted to make sure it's the right one. But we're excited by the opportunity to continue to build out the portfolio over time.

Excellent. Well, we're almost out of time. But Jon, thanks so much for being here. We really appreciate it.

Jim, thank you so much.

Hello, everybody. Welcome back to the Deutsche Bank Technology Conference. We will kick off our final afternoon session today with Jon Kemp, CEO of Qnity. I'm Melissa Weathers, I'm one of the lead semis analysts here at the bank. Jon, thank you so much for being here. This is your first time at our Deutsche Bank Technology Conference.

It is. Thank you.

We're happy to have you here. Wow, some applause. I think this is a technology conference. Obviously, Qnity has had a very interesting last 9 to 12 months. You've been very busy. I think, with the tech investors in the room, it would be helpful to start out with, talk about what Qnity is, talk about the reasons for the spin from DuPont, and just kind of level set us on what a tech investor can look forward to in owning shares of Qnity.

Yes, that's a lot. Thanks, Melissa. Look, I'm really excited to be here. It's great to see all of you. We've had a great day talking to a number of investors all day today. Look, we're about 9 months old as a company now, and we've had a terrific 9-month start. We sort of picked a perfect launch timing. If I had to pick any time in the last 30 years to have launched a semiconductor company, it would've been the timing that we just had. We've had an exciting 9 months. When I think about Qnity, what makes us unique is really, we're the largest pure-play end-to-end solutions provider across the semiconductor ecosystem, with materials that run the full gamut of the semiconductor stack, from front-end semi-fab materials, to the middle of the line in the advanced packaging materials, to back-end, high-value assembly and AI PCB materials.

That affords us the opportunity to capture and benefit from leading-edge technology, working with some of the world's largest and most respected technology companies, where over decades, we've earned a seat at the design table, working with them to enable their technology roadmaps. We're really well-positioned to capitalize on the AI-led transformation that we're seeing, whether that's in investments in the data center or increasingly investments in other parts of the AI-led transformation, across both high-performance computing and advanced connectivities. What I like to say is AI is changing the unit of innovation and how things get built, and materials innovation is really the hidden hero of the AI era in the sense that it's enabling kind of how those designs and how compute can be delivered in new and innovative ways to customers around the world.

We support those customers with a local for local operating model that has allowed us to co-locate our innovation and manufacturing capabilities in the major centers of geography for this industry, whether that's the U.S., Taiwan, Korea, Japan, or China. Within DuPont, this business thrived and did really well for a number of years, but it was sort of hidden in the corner of a company that was going through a lot of portfolio changes over the last decade. So it was relatively undiscovered, and I'd say it's still relatively undiscovered. When I think about the things that are fundamentally different, certainly the advantage of the strategic focus of being a pure-play company is first and foremost. But really when I think about what this industry requires, it's really a different sense of the pace of play.

When we were part of a larger, somewhat more bureaucratic organization, both the risk appetite and the pace of play were challenging. Our ability to operate, to kind of step change the clock speed with how the company operates in lockstep with our customers, has been refreshing to us and to them in terms of what we've been able to do already in terms of affecting a culture change within the organization. The different portfolio moves that were happening inside of DuPont also became a too internally focused, where we wanted to reorient the customer with a much more customer-centric mindset. As we came out, customer and innovation and speed became 3 of our core values.

We've really taken that to heart and really tried to drive that, and I think that culture is underpinning some of the success that we've seen over the last 9 months as we've been able to capitalize on the growth momentum in the industry.

That's great. I think that's a great setup. I guess if as we think about governance and capital allocation, now that you're out of. I feel bad, I sit right next to our chemicals team, and I think there's a different tone between the semi side and the chem team. But, talk about from a dollars perspective, being an independent publicly traded company, what kind of decisions, I know we've talked about CapEx in the past, R&D investment, those kinds of decisions, what kind of value can you guys unlock as a standalone company, just from a governance side?

Yes, it's a great question. Maybe I'll use a couple of examples. Certainly, it gives us more strategic flexibility to act quickly. One example that I'll use, we announced in the first quarter of this year 2 fairly significant capacity investments, one in Delaware and another one of a new building that we acquired in Taiwan. One of the biggest constraints in the industry has been clean room capacity. This facility in Taiwan, it was less than 100 yards from our existing Taiwan manufacturing facility, and it was a 5-story building with 3 floors of already built-out clean room capacity. Now, it was a $60 million price tag. That's what we ended up paying for it. We didn't know what the price tag was going to be, so we needed some flexibility to negotiate that.

I think previously, that would've been a 6-month process in order to get authorization all the way to the board level to go through that. We did it in 10 days. We had the purchase contract signed in 10 days. So much more flexibility to time the strategic investments and operate with the speed that this industry requires, because there was a building that had come up before that, and literally it was gone in a week. Because that's how fast this industry moves, particularly in Asia. The other thing I would say is, we were fortunate enough to do a couple of acquisitions even while we were part of DuPont, but doing acquisitions was always a little bit of a challenge because there was so much other portfolio activity that there was a pull on the resources.

The same resources that would do the acquisition were doing some of the other portfolio moves, and so there was this constant tension of, is now the right time? Not to mention, when you're trading at an industrial multiple or a chemistry industry multiple and trying to do acquisitions in the semiconductor industry, the multiple divergence makes the economics a bit more challenging. So now that we're a pure play, we've seen some revaluation that has already happened. I think there's more opportunity to go further. But certainly that unlocks a little bit more strategic flexibility for the economics that would make sense in our industry. Our portfolio has been built through a series of really smart acquisitions over time, and we continue to be interested in leading technology positions that would expand the breadth and depth of our portfolio, especially in fast-growing areas like advanced packaging and thermal management.

One more kind of high-level question, just on some news flow that happened last week and a couple of weeks ago. You have a new partner, you have just announced a new CFO, and then also a new head of the, I think, the semis business.

Correct.

Any public comments about your excitement on those hires?

Yes. Really thrilled. Kate Dei Cas is the new President of our semiconductor segment, and Ken Rizvi was announced as the new Chief Financial Officer. Both of them bring more than 2 decades of semiconductor ecosystem experience. Kate, kind of when it came up in the Air Products, Versum, Merck environment, or EMD Electronics, as sometimes they are known in the U.S., came up from the shop floor as a process engineer, is very familiar with all of our customers, their process technology, and the way the semiconductor ecosystem works. She is an operator at heart. What is common about both of them is they are a great culture fit for our organization. Like when you do acquisitions, most acquisitions fail, not because they got the economics or the systems right, but the cultures do not fit. I would say that is the same thing with executive hires as well.

It can be great on paper, but if the culture does not fit and there is not strong alignment in how we operate and how we want the company to run, it is not going to fit. What I love about both Kate and Ken is it is a great cultural fit on top of having all the-- Ken has more than 25 years of semiconductor industry experience from large companies like Micron. He has been up and down the semiconductor ecosystem, worked for an OSAT company in Asia and Singapore. He worked for a back-end company in printed circuit board materials. He has worked in both 10 years as a public company CFO, a lot of transformation experience during his private equity days, a lot of acquisition experience and portfolio management in some of his other stops. He is currently the CFO at Synaptics. Obviously, they are in the middle of a transaction with onsemi.

They should close in the middle of next year. Kate has already joined and has been with us for about 3 weeks now, and Ken will join us officially on October 1.

Very exciting.

Hopefully, you will all get a chance to meet Ken soon.

Yes. He should have joined earlier, so you could have joined.

It would have been great. What I would say is we had 2 interim leaders, Sam Ponzo and Michael Goss, who are stepping into their prior role. Sam was our Chief Commercial and Strategy Officer. Mike was our Controller and Chief Accounting Officer. Both executives are staying with us. This is definitely addition to the bench strength of our executive team because both of those executives will continue to play a prominent part and role in the company going forward. They did a terrific role during the interim period.

Onto the fundamentals of the business. One of the framings that I like that you guys have is the shrink to stack transition. Can you walk us through what you mean when you say the world is moving from shrink to stack?

It's my favorite topic. Thanks, Melissa. Look, I've been around this industry a long time, right? We all know that the pace of progression in this industry has been powered by a single idea, and that's more performance in less space and usually at lower cost as well, right? With every node migration of Moore's Law, we got more performance from smaller space. I call that the power of shrink, right? The power of shrink still matters, and it will continue to matter for a long time. But the economics of shrink and the complexity of shrink have increased to the point that on its own, it can't keep up with the pace that AI demands, with the computing demands of AI.

That's why I think we've come to this alternative architecture, and it's really not an alternative because it's both at once. This idea of not just shrink, but shrink and stack. What do I mean by the and stack? And stack happens within the process of node progression and node complexity as you get more layers, whether that's a NAND architecture or a logic architecture or even an HBM or a DRAM architecture. You get a layer multiplying effect and vertical scaling happens. But more important than that, stack really refers to the ability to combine chips, GPUs, and CPUs with memory.

In the future, it may be with other components as well, analog and discrete components, to be able to drive the next era of computing and the next frontier of computing, so through this really smart and powerful combination of both shrink and stack. That is where the power of the Qnity portfolio becomes really important because we are really unique and the only materials company that does the complete end of front to back-end materials, and advanced packaging is where both of those roadmaps converge. We are bringing front-end materials like CMP materials in to do advanced packaging, while also supporting it through metallization chemistries, dielectrics, IC substrates, and thermal materials.

Advanced packaging has been the fastest growing part of our business for the last 2 years, and I expect that growth momentum to continue as customers continue to invest more and more CapEx to include it in their roadmap architectures, as well as build out the capacity to support that growth.

I want to ask on some drama that has been circulating today.

I am always good for some drama.

On some of these next-gen AI processors, I think the back-end complexity is certainly going up. The extent that back-end complexity does go up, I think is kind of in question. There are some worries about HBM maybe not coming in as high capacity as what people were thinking before. I guess, can you talk about the evolving landscape? Like how fast are these designs moving? What's your visibility into where these architectures are going and......

You're talking particularly on the back end?

On the back end.

Yes. Look, on the front end of the technology roadmap, there's been a lot of convergence on what the node migrations look like. It's back to the Wild West in terms of advanced packaging and some of the back-end processes, and that's a lot of fun. It creates a lot of opportunity. But sometimes the choice is, how do you know which one of those opportunities are really commercially viable and will end up Because you could invest in an enormous array of opportunities that don't end up being commercialized. The way we think about it when we prioritize it, we make sure that both, as we're putting skin in the game, that our customers are also putting skin in the game as well to make sure that we're investing in the right pathways. What we see, though, are a couple of fundamental trends.

Fundamentally, everybody is trying to get as much capacity as possible from advanced packaging. As you do that, there is a bias to get towards larger package sizes, larger package format size, whether that's a CoWoS or a panel level packaging or even CoWoS-L versus CoWoS-R. All of that fundamentally is to get larger format sizes. That's great for a materials company because that ends up creating a lot more content opportunities for every unit. I guess the other trend that we're seeing on the back end is the convergence of the roadmap. You're trying to get finer lines and spaces because there are sort of 2 ways to get, and this is taking it beyond advanced packaging to where does that package intersect at the board level, and that's where we see this combination of high layer count circuit boards as well as high density interconnects.

If you're just using more layer counts, then that's a simple scaling effect, and you'll get some benefit from doing that. But if you want to really drive compute to the next level, in addition to doing more layers, you'll also move to a high density interconnect, which is going to be smaller geometries, tighter lines and spaces, so that you can put more circuit layers on every level. Right? Fundamentally, when you do that, you have to upgrade the materials content to be able to do that. Ironically enough, it requires techniques that we would've considered to be really, really old technologies on the semi roadmap, are now being reapplied to the next generation circuit board environments.

That's another way where our portfolio has been benefited because we're taking our old semiconductor technology and repurposing it for cutting-edge circuit board technology and adapting it to fit the processing techniques that they're using. For example, something that might be in a very old lithography, we convert to a dry film, and it's now cutting-edge circuit board technology.

I want to stick on the back-end theme, and I'll kind of poke some fun. At your investor day a year ago, you said that your, I think it was advanced packaging would grow at a high single digit CAGR. Last quarter, your interconnect solutions business in total grew 28% organically.

I think I just left off a 0.

As we think about these changing architectures, clearly the back end is becoming a lot more important to these systems. What is the right CAGR that we should be thinking about over the next couple of years?

Yes. Clearly, as much as 6 or 9 months ago, the world has evolved much more quickly than we anticipated. We thought that there were lots of exciting opportunities, and we were very excited about advanced packaging. We didn't anticipate the explosive growth, the pace with which the downstream customers and the OEMs would adopt the technology in everything that they're doing. And obviously, most prominently, that's happened in data centers, but we're seeing it more broadly than just data centers into premium consumer electronics, into some automotive applications, and people looking to take it into other industrial applications as well. I think that the pace with which the industry scaled up the advanced packaging capacity and adoption of that technology was faster than anything we've ever seen and faster than what we expected.

Fortunately, we were prepared with plenty of capacity and supply to be able to support that leap. As that technology continues to evolve, I don't think now we're at the point where the bottleneck isn't how fast can it evolve, it's the bottleneck is how fast can we add incrementally more capacity. That's now what we're working with customers on, is how fast can they add capacity. They're now extending beyond just their own boundaries to work with the OSATs and partner with them. We've had great relationships with the OSATs for decades, so we're thrilled to bring the OSATs into the loop to help them to figure out advanced packaging as well. They've been great customers of ours for a long time.

In many cases, that same technology specification that are working at the foundries, whether that's HBM or CoWoS, will extend to the OSATs as well as they scale up capacity there. I don't know that I'm quite ready to put a new CAGR out there. Clearly, my last CAGR didn't go so well. We expect it to continue to be. What I would say is, we think there's an opportunity for that business to double over the next few years.

Great. The other business that within your interconnect solutions business, which is half your business, so it's a big segment. I want to talk about the thermal segment. This is a piece that some of these investors aren't quite as familiar with the trends in this business, but it is one of the fastest-growing parts of your business. So can you talk about the trends that you're seeing and what kind of growth should we expect out of the thermal side?

Yes. So thermal, the only thing that's really outpacing advanced packaging right now is thermal management and the growth that we're seeing in the thermal management. Thermal management is a great example of a really smart acquisition that we did in 2021. When I started running this business a little more than 10 years ago, the #1 thing that I want to -- the #1 capability I felt like we didn't have in our portfolio was thermal management. At the time, I looked for who were the leading companies that had thermal management portfolios, and a British company called Laird Technologies had the leading thermal portfolio in the industry. They were struggling a little bit. They had an antenna business and some other businesses that weren't going very well. We approached them, we tried to buy that thermal business. They wanted somebody to buy the whole company. We waited for a little bit.

They got sold to a private equity company. The private equity company broke them up. We ended up getting the thermal business in 2021, and it's been just a terrific acquisition for us with an industry-leading portfolio of thermal solutions at the chip level, at the package level, and at the device level. What we've seen there is that fundamentally as OEMs are trying to get as much compute as possible into smaller format sizes, they're putting all of this compute into tighter spaces. They're trying to manage power density. All of these systems fundamentally have 3 system-level challenges that are bottlenecks to performance. The first one is signal reliability and signal integrity. How do you get that effective chip to chip or chip to board communication? The second one is power density and power distribution, and how do you have steady, consistent power flowing?

But if you get the signal flow right and you get the power flow right, both of those generate heat. You've got to have something that's going to take that heat away at volumes we've never even seen before. What our team has done is we have rapidly launched probably more than a dozen new products over the last 2 years at different levels of thermal efficiency, so that no matter what design our OEM customers are doing it, and this part of the business is the one that's got the most direct OEM interface. It's really, at this point, to the extent that it's the hyperscalers and the data center operators that are specifying the thermal materials. Because if something goes wrong in the rack or in the server set, they're the ones that are on the line for that performance failure.

We're working closely with them on how do you optimize the thermal performance at the chip level, at the package level, and at the ultimate design level. We're doing system-level testing for them to identify the isolated hotspots, and then recommending solutions for how to mitigate that all the way through the architecture from the front end. Then we'll work with their manufacturing partner. Sometimes it may be all the way back to the foundry level. More often than not, though, it's at the OSAT or the packaging house, and then certainly as they do the final device assembly. Whether it's a liquid, a phase change material, a gel, a putty, a grease, or a pad, no matter what format they want that thermal material to be in, we've got the ability to customize it and develop it for them.

Maybe to round out your interconnect solutions business, then we can get to the semi side of things. On the PCB side, it seems like there's 2 kind of diverging trends in that business. You've got high-end AI PCBs going to servers, whether it's CPU, GPU. But then you've also got some non-AI PCB business, maybe some smartphones and PCs. Those businesses aren't doing fantastic. Can you summarize how you're thinking about the PCB market, and what trends you're seeing there?

Yes. If I started and I kind of combine the last 2 questions. When we think about it, we talk about kind of our big 3 leading-edge technology positions in the interconnect space. Thermal management is the largest of the 3, then advanced packaging, and then the AI PCBs would be #3.

Together, those 3 comprise about 30% of our interconnect portfolio. In the first half of this year, those 3 combined were all growing more than 50% year-over-year. So really strong growth from all 3. Specifically, what we're seeing on the circuit board side is back to some of the dynamics that I talked about around the high layer count boards and the high density interconnects, where you're trying to get smaller and smaller geometries so that you can maximize the circuit space on every board. When you do that, fundamentally, that upgrades the material set that you have to use in order to get the electrical performance and the reliability that you need at the smaller geometry size. So we've seen some nice share gain opportunities there on top of the content gains as our customers more broadly adopt those technologies in there.

But we've also seen what I would call a little bit of, I call it a data center halo effect, in that as customers put in the equipment to do these higher, more capable circuit-level boards, they're not just limiting the sale of those boards to their data center customers. They're making them available to their consumer device customers. They're making them available to their automotive customers. What we're seeing is that several of those customers, knowing that eventually they'd like to see AI move from the cloud and the data center to the physical AI world of vehicles, devices, and machines. In preparation of that, they're adopting some of those architectures even early so they can get a sense of how that's going to fit in within their overall system dynamics.

We're seeing them already adopt some of those architectures and some of those higher, more sophisticated boards into their application. So we're getting that effect, the growth, not just in data center, but we're seeing really solid content growth and opportunities in automotive, in premium consumer electronics, in some of the broader industrial applications, even in environments where unit volumes may be a little bit flattish.

Let's switch over to the semi side. I think a good starting point would be as we think about the big segments of semiconductors, so you've got foundry logic, leading edge, you've got mainstream nodes, and then you've got memory. Can you summarize what you're seeing from a fab utilization perspective and where volumes are in each of those big buckets?

Yes. Certainly the largest, most significant growth is coming from advanced logic and HBM, DRAM. We see utilization in advanced logic. Kind of the end of the second quarter, we talked about it kind of being in the mid-80s, kind of probably going into the high 80s, maybe even into the low 90s as we moved into the second half of the year. DRAM and HBM is already there. They're already operating in the high 80s, maybe low 90s. I'm not sure how much more we can squeeze out of there. That's pretty much as sold out as you can get. Although if there's a way to squeeze more out, they'll figure out how to do it. On mainstream logic or legacy logic, both mainstream logic and NAND are kind of both sitting in the low 80s right now.

I think we're having very constructive conversations with the mainstream logic side of the house.

It's a little bit uneven. Those who maybe have more consumer exposure, they're struggling a bit more, but many of them have figured out how to find really exciting off-growth opportunities, whether that's in data center or some of these other industrial applications. And net, we think that's positive for overall utilization. We expect kind of continued cadence of slow and steady improvement in legacy logic, and NAND continues to inflect upward as well, a little bit more gradual. I know there's a lot of work going on to NAND to say, "Can you utilize anything in NAND technology to relieve some of the bottlenecks in DRAM or HBM?" We're excited by those opportunities.

We're working with customers on some of those, but ultimately, we're also trying to help them advance to the next node of scaling within NAND as well, whether that's getting from 300 layer counts up to 400 layer count NAND architectures.

Then on the mainstream side, higher memory pricing, are you seeing a slowdown from higher memory pricing from impacting that mainstream business?

Yes. It's something that we're watching across our mainstream customers. I think the ones that have more consumer exposure, I think it'd be naive to. The customers have been pretty transparent in terms of they've made public comments around, it's restraining their growth a little bit. What I've been encouraged about is how nimble and adaptive and agile many of them have been to be resilient, even in a downturn with some of their consumer electronics, to find other ways to find meaningful growth opportunities. You see that in some of the power and sensing modules that they're commercializing within data centers. But many of them are doing quite well in automotive, and really in the premium consumer electronics.

When I look at our business, even in a year where volumes are a little bit restrained in consumer electronics and in automotive, we're seeing high single digits to double-digit growth in both of those segments because of the content uplift that we're seeing, and some of that is coming through mainstream logic, others is coming from kind of the more back-end technologies.

On the leading-edge side of things, we're at a very exciting point. We're starting to move into 2-nanometer and sub-2-nanometer nodes coming into really high-volume manufacturing. Can you remind us how does your content per wafer scale as you move from a FinFET node to gate-all-around, and maybe as you go from 2-nanometer to the sub-2 nodes?

Yes, it's a great question. I think this is the, I get really excited about these technology migrations and the opportunities that they create. I think when we think about going from FinFET to gate-all-around architecture, fundamentally, there's a layer scaling effect that benefits the material intensity. If you go from, say, a 14-nanometer construction to a 2-nanometer construction, you'll roughly double the number of layers that you're doing. There's a nice, particularly, and where that benefits us the most, where we have the most exposure to these content uplifts, is really in the chemical mechanical planarization or polishing part of the semiconductor process. That's a little bit more than 50% of our semiconductor segment. Anything that increases the CMP process intensity is going to have a disproportionate benefit. We're the market leader for both polishing pads as well as cleans.

We've got a strong slurry offering as well that's been growing very nicely for us. What I'm really excited about is not only do you see a doubling of the layer count that you're using on the number of layers within those architectures, but several of those layers, especially on the advanced logic side, the process intensity is such that you're doing multiple polishing steps in several of those layers. It's almost a double multiplier effect. If I take back, we don't disclose the specifics by customer because it gets into some proprietary information, but there's some pretty good third-party research out there that talks about the material intensity increasing for each node migration of, say, somewhere between 20% to 30%. For us, if you think about a migration that is a little bit more CMP intensive, you'd be on the upper end of that range.

Something that's maybe a little less CMP intensive, it's a little bit on the lower end. As we move forward and we look forward to the Angstrom era nodes, what I'm most excited about is the growth and the adoption of backside power. We're starting to see some of the early adoption of that, and even with some of the 18A technology, but getting to backside power, in some of the 16 and 14 architectures, because that's a real step change in CMP process intensity. Our teams have been actively working on 16, 14, and even 10 technology for more than a year now, and the number of wins that we've seen, a significant number of wins in both the 16 and the 14 node migrations, particularly as they adopt backside power architectures.

What is more important in CMP, pad, slurry, or clean?

Look, there's probably others that have different opinions. I think my answer would always be pad, right? I think that's where the engineering and the architecture of the process of the CMP process really starts with the pad. The pad controls the interface with the wafer. The pad also controls the interface and the mechanics of the flow for the slurry. The efficiency of that process combined ultimately determines how much of the cleaning solution is actually necessary. Because if you had a perfectly efficient polishing process, cleans wouldn't even be necessary. Now, fortunately for us, that's never the case. You always need a cleaning solution. But ultimately, we think that, and for us, the pads business is our largest business within CMP, and we have a sizable cleans and slurry business as well.

As we get to more and more advanced Angstrom era nodes, the degrees of flexibility in terms of how the technology profile in the window operates, becomes smaller and smaller and more challenging, so there's more and more opportunities to leverage technology across those domains to help optimize yield and performance for the customer. Because ultimately, it's about yield in the fab, right? All the customers care about is if you can help them with even a 1% a point in an advanced node fab, it's worth $200 million. If you can get even a 0.1 point of yield through something that we're doing on the CMP step, it's worth more than the price of anything that we have, because the bill of material on everything in that CMP process step is very small relative to the value of 0.1 point of yield.

What is your capacity situation in CMP? Because it is growing very strongly. Are you capacity constrained anywhere?

We've been steadily adding capacity in CMP, really since the peak in 2022. In 2022, our cleans and slurry business, for example, we're only manufacturing in the U.S., and consistent with our local for local model, we knew we needed to add capacity primarily in Asia. Since that time, we've added cleans and slurry capacity in Taiwan, Korea, and China. As a result, we've seen that business continue to grow significantly over the last several years. In addition to that, we've added capacity in the U.S. and in Taiwan and in Korea for pads. We announced 2 large projects, capital expansions in the first quarter, one in Delaware in the U.S., the other in Taiwan. The first line, both of those are oriented, or the first thing in both of those facilities will be expansions to our pad capacity. The first line is up and running in Delaware.

We're doing customer qualifications now, and we should have commercial sales maybe by the end of the year, knock on wood, but certainly will be commercial volumes next year. The next phase of investment is already going into that facility. We're doing investments in the Taiwan facility. We'll have the equipment installs done by the end of the year, and we'll be in qualification process early next year, and depending on how that goes with customer qualifications, we'll have volumes out of that facility sometime next year.

Great. I want to talk about pricing. You guys are firing on a lot of cylinders. The cycle's turning up pretty strongly. Can you talk about how you guys are approaching pricing from a materials side? Is it you're passing through cost increases? Are you getting opportunistic? How are you guys approaching the pricing side?

Yes, it's a little bit of both. I would say, going back for several years now, whenever we see market dislocations on raw material costs, sometimes that could have been tariff induced, sometimes we saw some of that during COVID. We certainly have seen it with some of the Middle East disruptions. We pass those costs directly onto the customer. There might be a quarter-to-quarter, even maybe a one-quarter lag on the timing of that. But we talked about earlier this year, in the first quarter, we talked about just what's going on in the Middle East, having about a $20 million impact, really not on our raw material buy, it's mostly on freight and logistics. We've already taken actions to pass those costs through to customers so that it's neutral from a margin perspective for us for the year.

By far, the more impactful way that we think about pricing, though, is on new product launches. Every year we're launching a steady stream of new products. I think there may have been even some announcements in the news flow today on some new products that were launched in our interconnect business. But typically, the way we think about pricing is to price for value on the launch of the new products. Just mechanically, the way that shows up in the numbers is because there's no prior reference point, there's no reference point in the prior year for those new products, it shows up as part of the volume number, right?

One of the reasons why the volume outperformance has been so strong for this year is, yes, we're getting content gains, but we're also getting pricing power from the new products that we're launching. Then on the legacy products, there's always a little bit of a technology price fade on legacy products. That's kind of flattish this year. Historically, it's averaged minus 1% a year. That's a little bit less of an issue this year, but where we're seeing significant benefit is on the launch of new products.

Interesting. Maybe in the last couple of minutes that we have, I want to talk on the margin line. Can you talk about, with all this revenue growth, how do we balance this against your EBITDA expansion? You've got some nice EBITDA expansion. Some of your revenues do carry lower relative EBITDA margins, if I'm not mistaken. Can you talk about how you're viewing EBITDA margin expansion from here?

Yes. I think we are really happy with kind of an industry-leading margin performance, kind of where we sit today. We are excited with opportunities to continue to see margin expansion and margin growth, I would say fundamentally driven by kind of 3 core drivers that will contribute to opportunities for margin expansion over the next few years. The first one, and maybe the most obvious one, is just the volume growth that we are seeing, and the natural operating leverage that you get from volume growth through our existing facilities. That creates a nice tailwind. The second win is really all the fastest-growing products that we have talked about, whether that is the advanced nodes within the semiconductor realm or the advanced packaging and interconnect and the thermal management on the interconnect side. All of those are the fastest-growing parts of our portfolio, are also the highest value parts of our portfolio.

So you are getting a nice mix effect while we get the volume growth. The mix effect is also adding to that. Then the third component is really, we announced earlier this year a transformation program that was really consistent with the spin. When we spun, the way I would say it is we got pieces of a lot of things, whether we wanted it or not. So there was an opportunity to clean up a little bit through a transformation program so that we were optimized for a semiconductor pure-play company, and we sized that at roughly $100 million of EBITDA benefit over the next couple of years. We are making great progress with that. Just to bring that to life a little bit, about 50% of that benefit is going to come through productivity efforts within our existing facilities.

A lot of that may be things like putting in automation. We see lots of opportunities to do more with AI and automation and machine learning in our existing facilities. That will improve quality, it will also improve capacity, and it will be at lower cost. So the combination of more capacity with better quality at lower cost is a very high return initiative, so we have kind of doubled down on that as part of this transformation initiative. The other 50% is really through a combination of commercial and innovation excellence, where the goal is how do we accelerate the product, the innovation engine, so that we can go after more opportunities. We are seeing a significant increase in the number of opportunities to engage with customers and OEMs. We want to increase our ability to respond more effectively without having to add incrementally a lot more cost.

How do we make the scientists and engineers that we have as efficient and effective as possible? Some of that may be through molecular modeling, simulation, and machine learning technology applied in the R&D construct. Some of that may be engaging earlier with customers in the design process, so that the earlier we engage with them, the more efficient the R&D development can be. Then the last area is really on the local-for-local model and optimizing that. The example that we used is when we spun, we have a very low percentage of our business that is in Europe, but as part of the separation, we got way too many distribution points in Europe than we know what to do with.

Part of that is maybe simply consolidating some of that footprint within the distribution network to something that's more fit for purpose, more intentional. Again, customer service will go up, costs will go down, and it'll be just a much more efficient operating model. When you take that and you work that through the entirety of the system, we expect we'll see some of that benefit even in the back half of this year. It's baked into our guidance for 2026 that we talked about at the last earnings call. But the bulk of that will really start to come in the back half of 2027 as we get those investments up and qualified, and they start to flow through.

Is Ken on board with all those projects?

Absolutely. He's excited. He's actively led these kind of large-scale transformation initiatives, and I'm pleased that Mike, who's been kind of in the interim seat, is also heading up our transformation office as well. It'll be a natural flow and transition for him to be able to continue leading those to make sure that we don't lose any momentum with that transformation opportunity. So those 3 combined, the transformation, the mix benefit, and the volume benefit all combine to give us kind of a pathway towards nice margin expansion. At the gross margin level, I would say, puts us into, we're kind of sitting in the high 40s today.

It gives us an opportunity to maybe get at the company level, kind of up to or above into the low 50s, 50% or into the low 50s, and nice margin progression over time on the EBITDA line as well.

Great. Last topic I want to touch on is capital allocation. Specifically, I want to talk about, sorry to put you on the spot, the inorganic side of things. You've got a really nice portfolio, a lot of really great assets within it. You've talked about being open to doing maybe some bolt-on or tuck-in M&A. I guess, where's your head, where's Ken's head at in inorganic opportunities that you guys are looking at?

Yes, I'm excited to allow Ken the opportunity to talk about this. I know he's passionate on this subject. He and I have had the opportunity to have many conversations about this over the last couple of months. Really the way we think about M&A, our first capital allocation priority is really around organic reinvestment in CapEx, in capacity, and in R&D, to continue to drive the growth and the success of the company. But after that, this portfolio has taken shape over time through a combination of really smart acquisitions. Most of them have been the bolt-on, tuck-in variety versus the transformational. We want to continue to be very open towards building out, and we've got a nice pipeline and a disciplined process around kind of smaller bolt-ins or tuck-ins to continue to expand our portfolio of market-leading technologies.

The areas we've talked about of being of most interest are the ones that are also the fastest-growing, advanced packaging, thermal management. We've got a nice kind of semi-consumable business. It's more of an equipment consumable. We think there's lots of other areas within the equipment landscape that are kind of pseudo-consumables that we think would be an interesting addition to the portfolio. Ultimately, those things will help us to kind of fill out the portfolio and continue to build and accelerate the growth trajectory and the momentum that we've already seen over the last 6 to 9 months.

Great. Maybe last quick one on buybacks and dividends. How are you thinking about cash returns?

We've got an active buyback program in place, a $500 million authorization. It's fairly open-ended. The way that we're thinking about that right now is primarily to offset normal annual dilution. And obviously, we're really happy with the cash flow potential of this business. It generates a lot of cash, kind of normally would be in that mid-teens percent of sales kind of cash flow potential. The balance sheet has plenty of flexibility. We finished the second quarter at kind of 2x net leverage, so some balance sheet flexibility of firepower to do deals that we wanted. We have a modest dividend in place.

We've got kind of the share buyback program. So shareholder remuneration is out there. We've got flexibility there. But I think our priority and our focus is going to be how do we continue to accelerate growth.

Perfect. Well, we're excited to watch that continue to accelerate. Thank you so much, Jon, for joining us.

Excellent. Thank you, Melissa, and thank you all for being here today. I know it's been a full day for everybody.

All right, thanks everybody.

Good morning, and welcome to the Qnity Second Quarter 2026 Conference and Webcast Call. [Operator Instructions] I will now turn the call over to Meg Miller, Vice President of Global Communications. You may begin.

Thank you, and welcome to our second quarter 2026 earnings call. I'm joined by Jon Kemp, Qnity's Chief Executive Officer; and Mike Goss, Qnity's Interim Chief Financial Officer. Earlier today, we issued our earnings release along with a supplemental slide presentation, which can be found on our Investor Relations website.

Before we begin, I'd like to remind you that today's discussion will include some forward-looking statements. These statements represent our best view of predictions and expectations for the future, but numerous risks and uncertainties may cause actual results to differ. Please refer to our earnings release and SEC filings for a discussion of these risks.

We'll also be discussing certain non-GAAP financial measures, and I refer you to our earnings materials for information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measure.

And now it's my pleasure to turn it over to Jon.

Thank you for joining our call this morning. Last quarter, we talked about how the fundamental shift from shrink to stack is becoming the driving force behind technological advancements in the semiconductor industry. Innovation is spanning well beyond transistor shrink to focus on connecting chips in new and innovative ways that will unlock the next frontier of computing. As the stack is taller and layers multiply the journey every chip must take lengthens and materials innovation become the hidden hero, quietly powering performance, yield and reliability.

Qnity sits at the center of this trend with one of the broadest portfolios of end-to-end solutions across the stack. On the front end, our suite of CMP pads, claims and slurries and lithography materials are essential for patterning and polishing leading-edge chips. In the middle, we provide comprehensive advanced packaging solutions from both business segments to enable next-generation architectures and support chip-to-chip connections. Finally, on the back end, our dermal materials move heat across demanding full system workloads like data centers and other AI applications.

When you combine the breadth of our portfolio across the semiconductor stack with decades of innovation alongside our customers and a local promote model for manufacturing and technical support, it's clear why Qnity is uniquely positioned for the opportunities ahead. were aligned with the industry's most groundbreaking technology roadmaps, embedded in our customers' next-generation platform and able to deliver the materials and solutions they need at scale. As AI, high-performance computing and advanced connectivity continued to reshape the industry. These advantages position us to create significant long-term value.

The best proof of this differentiated position is our performance. Looking at our second quarter results, we delivered our ninth consecutive quarter of strong profitable organic growth. Organic sales increased 22% year-over-year with another quarter of double-digit growth across both segments. Adjusted operating EBITDA increased 24% and adjusted EPS grew by 53% as we continue to demonstrate our ability to drive strong operating leverage in the business.

In Semiconductor Technologies, we grew organic sales 17% year-over-year, led by AI-driven solutions as our advanced nodes portfolio grew more than 20% during the second quarter. We've seen broad-based improvement in fab utilization across the industry. Advanced logic is now tracking to the mid-80% range, while mainstream logic is in the low 80s. In memory, we continue to see healthy utilization levels with DRAM in the high 80s and NAND in the low 80s.

As customers move to increasingly advanced nodes, every wafer requires more layers more processing complexity and more packaging steps. All of this translates to more volume and to more Qnity content. We're seeing that with continued growth at 3-nanometer, the emerging activity at 2-nanometer and increasing engagement around future Angstrom Era technology platforms. And that combination of improving utilization and rising content intensity continues to support our confidence in the long-term growth outlook for our semi business.

In Interconnect Solutions, our team continues to deliver exceptional results, with 28% organic growth year-over-year, again led by content and share gains across our key growth platforms of advanced packaging and interconnect, AI PCBs and thermal management. Collectively, these platforms again grew more than 50% year-over-year during the second quarter. One of the biggest engineering challenges in next-generation AI system isn't simply building smaller and faster chips. It's enabling those chips to reliably communicate with one another.

As architectures become more complex, challenges around signal integrity, power delivery and heat dissipation become increasingly difficult to solve as we partner with customers to overcome these increasingly complex system-level challenges. We're seeing demand broaden across our portfolio and additional opportunities to increase content throughout the AI ecosystem moving forward. This combination of strong platform growth, expanding content opportunities and deepening customer engagement reinforces our confidence in the durable long-term growth outlook for our ICS business.

As the technology for both shrink and stack accelerates, we advanced our own innovation progress during the quarter, extending our leading technology position from front to back through both new products and broader industry engagements. At the front end, we announced an expansion of our CMP offerings with the launch of Optivision Max polishing pads. Our newest commercial soft polishing pad delivered superior performance in critical CMP steps to enhance surface quality, process stability and reliability for advanced architectures and nodes. We're already seeing adoption across both leading-edge nodes and advanced packaging applications, including emerging AI and HBM driven architectures.

At the same time, we continue to gain traction in next-generation logic securing multiple POR wins at 16 and 14 during the first half of the year as we advance towards angstrom-level nodes. Beyond semi fab materials in AI PCBs, we are winning new business in pulse plating, a key metalization technology for the most advanced high layer count printed circuit boards used in AI applications. For customers post-plating helps deliver the precise reliable interconnects required to support higher density designs stronger signal integrity and more dependable power delivery in next-generation AI systems.

Shifting to back-end assembly materials thermal management is becoming a critical performance enabler as AI systems push higher power densities across chips, packages, boards and data center infrastructure. We further strengthened our broad thermal portfolio in the first half of the year, which now spans liquid thermal interface materials, base change materials, thermal pads, gas fillers and other advanced solutions that help customers move heat more efficiently, improve reliability and accelerate deployment of next-generation AI systems. These latest materials offerings demonstrate how we're innovating against the industry's most complex technical challenges.

Just as importantly, we're backing that innovation with the targeted capital investments required to scale alongside our customers. Over the past several years, we've executed a disciplined, sustained investment in capacity deployed in step with our customers' technology road maps. Since 2022, we've deployed approximately $600 million in growth investments across the business. with a focus on expanding capacity and enabling the next generation of technologies aligned to our local for local operating model.

Combined with our innovation efforts, these investments position Qnity to support the accelerating demand we continue to see from our customers. It also strengthens our ability to capture long-term growth opportunities across our end markets. Pulling this all together, our innovation isn't happening in isolation. We're pairing technology leadership with disciplined capital investment to expand the capabilities, capacity and customer proximity required to support the industry's most important road maps. That combination is translating into stronger customer engagement today and positioning community to capture the long-term growth we see ahead.

Before I turn it over to Mike, I want to touch on the end market trends that we're seeing. As customers allocate capacity to the highest value applications, our portfolio mix continues to evolve. Over the past 6 months, we've seen end market composition shift driven by the rapid growth in data centers steady growth in automotive and other industrial markets and slower growth in consumer electronics. With that said, our consumer Electonics portfolio continues to prove resilient with positive growth given our outsized exposure to premium devices and continued content gains.

Increasingly, we see AI moving from the cloud into the physical world of devices, vehicles and machines. If the cloud is where AI learned to think, the physical world is where AI will learn to do. This presents another exciting long-term growth opportunity for Qnity, where we are well positioned across the industry through our existing relationships with both OEMs and the broader fab and foundry landscape. While these chips are often less complex than data center class processors, the market needs dramatically higher quantities of them produced efficiently and reliably.

The physical world demands chips that deliver targeted AI inside strict thermal power and size envelopes. This means a fundamental re-architecture of how AI gets built, deployed and scaled and progress will depend in large part on materials innovation to make it happen, and that plays directly to Qnity's advantages.

Let me now hand it over to Mike to step through our financial results and guidance in more detail.

Thanks, Jon, and good morning, everyone. We sustained our strong momentum in the second quarter, performing better than our expectations across both segments. We delivered net sales of $1.4 billion, up 22% year-over-year and 9% sequentially. On an organic basis, sales were up 22% versus the same period last year. Adjusted operating EBITDA for the quarter was $431 million, up 24% year-over-year. Adjusted operating EBITDA margin was 30.2%, reflecting our resiliency while continuing to invest for growth. Adjusted EPS for the quarter increased 53% to $1.19.

Taking a closer look at each of our business segments, Semiconductor Technologies net sales were $744 million up approximately 3% sequentially. Organic sales grew 17% year-over-year, driven by continued demand strength, especially for advanced logic and HBM chips. Semi gross margins were steady at approximately 49% and adjusted operating EBITDA margin was approximately 34%, both down a bit year-over-year and sequentially, in line with our expectations driven by product mix in the quarter and continued investments to support advanced node growth.

ICS delivered another exceptional quarter with net sales of $685 million, up more than 30% year-over-year and 16% sequentially. Organic sales grew 28%, led by our AI and data center platforms, advanced packaging, AI PCBs and thermal management. ICS gross margins were approximately 44% and adjusted operating EBITDA margin was approximately 29%, an improvement of 290 basis points year-over-year and roughly flat sequentially. This was driven by sustained operating leverage on higher volumes and favorable mix.

We generated adjusted free cash flow of $259 million, reflecting strong operational performance and continued execution against our cash priorities. This performance reinforces the confidence reflected in the higher guidance that we are providing today. Capital expenditures totaled $90 million in the quarter and remain on pace with our planned investments to support capacity expansion transformation initiatives and future growth. We continue to anticipate elevated CapEx investment for the full year driven by these initiatives. Over the longer term, we expect CapEx to return to the 6% of net sales range.

We also continue to deliver strong capital returns for shareholders through our quarterly dividend. And during the quarter, we repurchased $25 million worth of shares to partially offset normal equity dilution. We're well positioned from a liquidity perspective with approximately $960 million in cash and short-term investments at the end of the second quarter. Total debt outstanding is $4 billion with net debt leverage of approximately 2x. Immediately after quarter end, we successfully repriced our senior secured term loan facility to further enhance our free cash flow profile, resulting in an annualized benefit of approximately $6 million.

Looking forward, we are a few months into our multiyear transformation plan and are beginning to see tangible benefits from our efforts with productivity and throughput improvements, creating additional operating flexibility and supporting growth. Let me share just a couple of examples of our program in action.

In our [indiscernible] business, which has seen strong growth in the first half of the year due to accelerated demand for wafer fab equipment. We're executing targeted productivity, capacity release and automation initiatives. These actions position the business to better convert strong demand into growth. Additionally, to advance our local-for-local model, we continue to optimize our distribution footprint through targeted warehouse consolidations that simplify our network, improve service levels and reduce operating complexity. These actions are expected to deliver approximately 10% logistics cost savings while improving warehouse efficiency and operating leverage over time.

We also continue to make meaningful progress towards IT independence. We're on track to migrate about 2/3 of our sites to our own systems by the end of this year. Each site migration reduces our reliance on transition services and gives us more direct control to run our business. Overall, we're pleased with the steady progress on the transformation plan and are confident it will unlock operating flexibility and build a stronger, more agile operating model required to support Qnity's next phase of growth.

Before I hand it back to Jon for closing comments, let me walk through our updated guidance. For the third quarter, we expect sequential net sales growth in the low single digits range. The strength is broad based across the same secular drivers we highlighted earlier in the year, namely AI-drivative applications, high-performance computing and advanced connectivity, along with the muted seasonal peak in consumer electronics that typically characterizes our third quarter.

As a reminder, the third quarter of 2025 included approximately $40 million of net sales that have accelerated into the third quarter ahead of our pre-spin IT systems go-lives, roughly $25 million in semiconductor technologies and $15 million in ICS. This created an elevated prior year comparison base that does not recur in 2026, modestly tempering the year-over-year growth in the third quarter for both segments, even as underlying demand continues to remain strong.

In Semiconductor Technologies, we expect sequential net sales growth in the low single digits range with an adjusted EBITDA margin profile in the mid-30s. For ICS, we expect sequential net sales growth in the mid-single digits range, with adjusted EBITDA margins in the high 20s. Overall, we're watching industry supply chain dynamics closely including memory and other materials and are working with customers to meet their needs.

The modest upward pressure we flagged earlier in the year of approximately $20 million is largely playing out as we expected, and the mitigation playbook we put in place coupled with our local-for-local model is doing its job, where isolated input or logistics costs have moved higher, our targeted pricing actions are in place and we see no near-term risk to supply or output.

With our strong first half momentum and improved visibility into the second half, we're raising our full year outlook. Net sales is now expected to be $5.55 billion to $5.65 billion. Adjusted operating EBITDA is now expected to be $1.675 billion to $1.725 billion. Adjusted EPS is now expected to be $4.40 to $4.60. And finally, adjusted free cash flow is now expected to be $600 million to $700 million.

At the midpoint of our updated guidance, we now expect to deliver 18% net sales growth, over 20% adjusted EBITDA growth and adjusted EPS growth of 35% for the full year. Lastly, we'll continue investing with the strong customer ramps we're seeing, while maintaining the cost discipline that supports our results.

Jon, back to you.

Thanks, Mike. Before we open the call to Q&A, I want to provide updates on 2 critical leadership roles. First, I want to officially welcome Kate Dei Cas who started yesterday as President of our Semiconductor Technologies business segment. Kate brings more than 25 years of experience in the semiconductor industry, and a proven record of driving growth, managing global supply chains and delivering operational excellence. We're thrilled to welcome her to community.

I also want to recognize Sam Ponzo for his leadership through this transition as he returns to his role as Kenody's Chief Commercial and Strategy Officer. Second, on our search for a new Chief Financial Officer. We've been really pleased with the strong candidates we've seen and are in the final stages of our search. I look forward to sharing an update soon.

To close out our remarks, I want to briefly recap the highlights from our call. Qnity delivered another strong quarter with broad-based growth across both segments and continued momentum across the secular drivers reshaping our industry. We are benefiting from the powerful combination of both shrink and stack, where more process complexity and more layers are increasing materials intensity across the semiconductor value chain.

Our portfolio breadth, customer intimacy and disciplined investment strategy position us well to capture these opportunities and deliver durable long-term growth. As we look ahead, we remain focused on disciplined execution, enhancing value for customers and delivering long-term growth for our shareholders.

With that, operator, we can now open the call to Q&A.

[Operator Instructions] We will take our first question from Jim Schneider with Goldman Sachs.

I was wondering if you could maybe comment on how you're seeing sequentials play out, especially into Q4? It seems like at the -- even towards the upper end of your guidance, the Q4 sequential will be very muted and potentially even down a little bit sequentially. Just wanted to make sure that I understand is driving that? And is there any pull-in that you're seeing in Q3? Or do you expect that you could actually see a little bit of headwind in any of the areas maybe just talk about sort of the Q4 implied sequential relative to normal seasonality?

Yes. Thanks for the question. Yes, from our updated guidance perspective, we're really putting in a combination of the first half momentum that we saw better second half visibility and including customer ramp timing and industry supply dynamics. At the midpoint of that guidance that we put out today has us at 18% sales growth for the year. and over 20% EBITDA growth for the year as well.

As far as pacing through the back half of the year, from a third quarter perspective, that does include a seasonal peak around consumer electronics that we typically see. And we expect that to be consistent in the third quarter as well. With that, now we do expect semi to be in the low single digits range with EBITDA margins still in the mid-30s. And then ICS in the mid-single digits range with EBITDA margins in the high 20s. And as a reminder, as I mentioned in the prepared remarks, we did have a prior year $40 million move between third quarter and fourth quarter that was tied to our pre-system IT go live, but that's just from a year-over-year perspective.

At a headline level, order books do remain healthy. Our customer engagement remains really strong, and we're seeing inventory move across the value chain as we'd expect. As from an overall perspective though, a couple of variables we are watching in the back half of the year, ongoing developments in the Middle East as well as timing on customer ramps and trends and utilization rates that we mentioned in the prepared remarks, to the extent that those items resolve or improve, we would expect we'd have an opportunity to do better.

Yes, Jim, maybe to offer a little bit of historical context. Typically, we'd see a small seasonal peak in the third quarter that's generally tied to consumer electronics. We're still consumer electronics has been fairly resilient for us this year because of our exposure to premium devices. Nonetheless, we typically would expect a little bit of a sequential deceleration third quarter to fourth quarter consumer electronics standpoint. And then usual, typically, we see customers do a little bit of inventory control in the fourth quarter as well.

That's helpful. And then maybe as a follow-up, you cited some of the headwinds to gross and EBITDA margins in the quarter, and I think they came in a little bit below where we were modeling. I'm just sort of curious, I think you called out specifically mix and investments. Can you maybe unpack those a little bit I know ICS has lower margins, but I'm curious whether there's any like-to-like mix that was dragging on margins in the quarter? And maybe could you talk a little bit about the prospects for gross margin improvement over the next, say, 2 to 3 quarters in light of some of the pricing actions you mentioned to offset the input cost pressures. Any other color on that would be helpful.

Yes. Thanks. So from a margin perspective in the quarter, as a reminder, we did have some nice product mix take place in the first quarter. And so coming off of that into the second quarter it included a combination of that as well as the growth investments that we mentioned. From an example perspective, the timing in any given quarter can have some variability in it from R&D efforts as well as product qualifications and that can weigh in on any given quarter.

But from a -- stepping back from a perspective of the half -- first half of the year, semi had margins right around 35% for the first half -- and I'd expect that to continue into the back half of the year. I think from a headwinds perspective, we mentioned the $20 million of costs are really logistics and energy type costs. we've seen half of that already come through in the first half and expect the remainder to come through in the back half.

But like I said in my prepared remarks, our playbook is working, and I expect we'll be able to offset that throughout the year. There's going to always be a little bit of variability from quarter-to-quarter. But I think the margin profile is constructive, and I expect that to continue into the back half of the year.

Maybe going the other thing I would add there, thanks, Mike. As we start to see the benefits of some of the transformation program, and I think Mike gave a couple of nice examples from plant productivity as well as kind of a footprint optimization point of view. We're starting to see some of those opportunities kick in. Most of that will be weighted towards the back half of next year. But as we start to see both the increases in volume that help with factory loading as well as some of those transformation programs. There is an opportunity for nice incrementals to increase with both gross and EBITDA margin expansion.

We'll move next to Melissa Weathers with Deutsche Bank.

I think I want to touch on the Interconnect Solutions business. You guys had another really nice quarter of sequential growth in that business. And it seems like it's growing a lot faster than maybe, I don't know, even from your Analyst Day last September, it seems like you've seen a nice acceleration in that business. So any updated thoughts on like how you guys are thinking about the long-term growth profile of that business given AI and given the shift from shrink to stack?

Yes. Thanks, Melissa. It's a great question. Obviously, we're really pleased by the continued strong performance of the ICS segment, 28% organic growth. That growth in the first half of the year that we've seen has really been powered by our 3 key growth platforms. of advanced packaging and interconnect, AI PCBs and thermal management. And I think what's fundamentally different from maybe what we talked about at our Investor Day, is the pace with which advanced packaging and thermal has really accelerated due to the adoption of AI-based applications. And so that's really created this nice trajectory for the ICS business because of how well positioned we are on the shrink and stack inflection that is necessary as we go forward.

What I would say is the business is still fundamentally a consumable-based business that's tied to volume. And so when you think about PCB area volumes or advanced packaging volumes, thermal volumes, I think the broader market is still trying to get the handle around third-party data, and we're working with some of those third parties to try and figure out how to model that a little bit more accurately. I think everybody would like a little bit of help in that area, that's included. But we're really thrilled with the continued outperformance of both content gains and new application wins that we're seeing broadly across the interconnect segment.

And maybe what I would -- just pointing to the future a little bit, we're excited by the customer expansions that are taking place as particularly in advanced packaging that are adding that capacity to the highest-value areas, which give us confidence in the long-term durability of the growth profile of the interconnect business.

Alright. And then maybe for my second question, on the capacity side of things, I know you guys have been working over the last couple of years to add capacity. Clearly, things are off to a strong on a strong ramp, it seems like the semi technologies business that's starting to ramp to industrial semis are getting stronger and that spending cycle is getting stronger. So are you capacity constrained anywhere? And like how are you thinking about your ability to supply with both of these businesses growing pretty nicely.

Yes. Thanks, Melissa. So look, as we said in our prepared remarks, capacity -- our strategy has always been anchored in building out that strong local-for-local model aligns to our customer footprint and we've been steadily adding capacity since the 2022 peak. We took a look at our capacity footprint and where we were constrained in 2022, the last time the semi market peaked and we've been steadily adding incremental capacity in each one of our semi businesses since that point in time. And that's really -- most of that was kind of highlighted in that $600 million of investment that we pointed to.

Given our well-distributed footprint, what I would tell you is that most of the -- we have existing facilities kind of located in all of the major geographic centers. So most of our investments are high-return, quick modular capacity expansions that are done in step with our customer technology road maps. And so today, we're -- the growth is a bit faster than what we were expecting, but we're able to kind of quickly adjust and bring capacity online to support the ramps that we're seeing. And we're really well prepared going into what we expect to be long-term growth in '27 and '28 from a capacity point of view.

We'll take our next question from Chris Parkinson with Wolfe Research.

Jon, your media relationship has been quite busy throughout the first and second quarter, and you've been launching products or collaborations across EUV, HBM, CMP, NVIDIA [indiscernible] in Taiwan. I mean there's so many things that you track on a weekly basis. May as just when do you think we'll see the vast majority of these benefits? What are you most excited about? And where the vast majority of these announcements that hit our inbox almost on a weekly basis, more or less, were all those basically considered at the time of the spin or are many of those new.

Yes. Thanks, Chris. It's a great question. So really what we're trying to do, I would say is what you're seeing is the benefit of being a pure-play company and able to construct and tell a story that is specific to our customers and our investor base. I think that the track record of continual innovation progress and partnerships with the technology leaders in the industry has long been part of our strategy over the last several years. It's now just more in the spotlight since the separation in the spin as a pure-play company.

What I would say just on the -- most of them are really on the innovation point. So maybe just to underscore that a little bit. Our R&D team has done a phenomenal job of really earnings that seat at the design team in the industry. We've had POR wins across every single line of business. really targeting at the most advanced technologies kind of from front end to the stack all the way to the back end of the stack.

What I'm most excited about is all of those are they are the fastest-growing parts of the market. It's also the highest value parts of the market. that sets up a really favorable growth trajectory for Qnity going forward as we see that steady drumbeat of innovation wins and POR wins and customer partnerships for the fastest growing, most advanced technologies in the industry.

Got it. And just as a corollary of that question, when you look out 2 to 3 years, do you see Qnity portfolio primarily based just from a distribution perspective across logic, mainstream advanced versus memory, basically the same way that you were assessing that 6, 12, 18 months ago. Is there any difference in how you're evaluating that? What you're hearing from your new shareholder base? I'd love to hear your perspectives on that as well.

Yes, it's a good question. What we're looking at is our customers are allocating capacity to their highest value applications. And so our mix also continues to evolve. In terms of device types, what I could tell you is that advanced logic continues -- advanced logic and logic in general, continues to be the most significant part of our portfolio at roughly 80%, memory is about 20% with HBM and DRAM growing a little bit faster. That's maybe ticked up a couple of percentage points, but it's still kind of roughly in that 80-20, 75-25 mix.

From an end market point of view, obviously, the rapid growth in data centers has ticked up a little bit. We've seen nice steady growth from several of our industrial markets in automotive, aerospace and defense and telecom infrastructure. And then consumer electronics is positive growth, but it's growing at a slower pace than some of those other areas. So from an end market point of view, data center is up a little bit, most of the industrial markets are steady and maybe consumer electronics down a little bit.

I would come back and take away on this mix from a device mix as well as from an end market mix is our highest growth is aligned to the highest value parts of the market in advanced nodes, advanced packaging interconnects and thermal materials.

Next to John Roberts with Mizuho.

This is Saurabh Dhir on John Roberts. Congratulations on the great results today. I have first question on the advanced packaging. There are multiple road map on like the architectures there in the advanced packaging. And I would assume like each one has different material requirements. How are you positioned to serve like these different architectures? And is your content opportunity consistent across these road maps?

Yes, it's a great question. And you're right, there's a wide variety of new advanced packaging architectures that are being worked on by our customer base across the industry. If I take a step back at a thematic level, all of those new architectures fundamentally do 2 things. they're generally larger format sizes to make whether it's panel-level packaging or going to increase the size of the overall package and it's tighter geometry. So tighter -- smaller lines and spaces on a high layer count circle board or an IC substrate, for example.

And the good news about both of those trends, whether you're talking about smaller and tighter geometries or larger panel sizes, you're getting into more material complexity and more material intensity. And so the more material complexity means there's probably fewer players in the market that can provide the solutions necessary to support those technology road maps. And then obviously, the larger format package sizes result in more content for those packaging than what we see today.

In terms of the people who are driving that are the same people that we've been working with for the last several years to successfully commercialize the existing advanced packaging format. So we have a strong position of incumbency with a proven and trusted relationship on those technologies that give us confidence that as we migrate to additional advanced packaging architectures, we're in a position to capitalize on the benefits of process complexity, more layers and more materials intensity.

And I just have one more question. So you talked about mainstream doing well in the low 80s utilization. So in terms of end market, what is driving that mainstream improvement from your last quarter? And what do you expect in the next quarter?

Yes. On mainstream logic, we're seeing kind of steady improvement so far this year, consistent with our expectations and what we talked about in -- at the end of the first quarter. I would think from an end market, we're seeing what I would say the data center and the industrial demand is doing better. And that's what's driving the utilization increase, and that's what we're hearing from our customers. And so it's really being driven by data center, automotive and some of those industrial end markets. We expect that to see kind of sequential steady improvement there.

Obviously, we are watching the impacts of the memory market. And I think it may be a little bit of -- we won't -- we may not see quite as much utilization improvement in mainstream logic as we would otherwise given some of the supply chain dynamics. Nonetheless, I think that we see continued steady progress there. What I'm most excited about from mainstream logic is the broader participation in physical where we see demand moving from cloud to the edge and going to devices, vehicles and machines. I think a lot of that physical AI creates a lot more opportunities for broader participation from both the OEMs as well as the different fab and foundry partners and Qnity is well positioned in the broader industry landscape, no matter where the chips are coming from.

We'll move next to Frank Mitsch with Fermium Research.

Jon, you indicated that advanced nodes grew over 20% in the second quarter. I recall at the Investor Day, your expectation was a growth of -- a steady growth of around 7% for advanced nodes. I'm just curious as to how should we think about the near term? What's your visibility there? And can we expect this 20% growth in advanced notes to continue? What's your outlook there?

Yes. Good question, Frank. I think broadly, we're really pleased, obviously, by the performance in our semi segment. We're really well positioned in advanced nodes across both logic and memory. I think what we're seeing this year that's a little bit new and different is very -- is a lot of broad-based participation from all of the market technology leaders. It's been a long time since we saw the most advanced nodes successfully commercialized across all of the logic leaders and across all of the memory leaders. And so typically, when we're working on R&D programs, 2 or 3 years out for the most advanced technology platforms.

We're hopeful that they will all commercialize win plan, but you don't actually know that until they actually scale it up. And what we're seeing this year is a successful scale up, particularly around whether it's HBM3, HBM4 on the memory side. Obviously, 3-nanometer has gone really well, and we're seeing really strong pull for 2-nanometer and 18A, we're really excited by that. Some of the increased support that we have to customers as they scale up those next-generation platforms. we alluded to that on the call.

And so look, I don't think we're in a position to maybe provide color on what the advanced node growth rate is going to be every quarter. What I can tell you is that we talked about at our Investor Day, migrating towards getting to be there, 50% of -- 45% to 50% of our portfolio would be driven by advanced nodes. And at the track record and the pace that we're on, we'll probably get there early. I think we're kind of exiting here the first half of the year kind of right at 40%.

Excellent. And I'm just curious if you could provide your latest take on what you'd expect MSI growth to be for the broader industry here in '26?

Yes. Thanks. Good question. Our latest view and continue -- we continue to watch it closely is that our MSI is expected to be in the high single digits for 2026. And then additionally, PCB growth, which is not a pet metric we watched, it's kind of in the mid- to high single digits for the year.

We'll move next to Bhavesh Lodaya with BMO Capital Markets.

Congrats on the solid results. Maybe the first one -- just a follow-up to the previous question and discussions. So if I look at semi stack looking at the volume growth of 18%, it continues to be significantly ahead of traditional metrics like MSI also meaningfully higher versus the last quarter. Is it just more CMP steps? Are you seeing more share gains, business wins? Maybe if you could break out the outperformance? And then broadly, do you consider MSI as an accurate metric to track our performance going ahead?

Yes, Bhavesh, good question. So look, I mean we're a consumables business. So we're always going to be somewhat correlated to wafer volumes or to some volume metric across the stack. And at this point, as we've continued to say, MSI continues to be the best indicator of overall wafer volume I think what we're seeing right now is the -- is with the success that we're seeing from our customers in advanced nodes. Building on the answer to the last question, it's pushing our content outperformance even higher because we're seeing more customers successfully commercialize their most advanced technology. And obviously, that's where we're seeing the most content gains is in the most advanced technology.

So in an environment where all of our customers are successful their most advanced technology, that's what's pushing our content outperformance considerably above that MSI benchmark. I would say in addition to that, we are seeing some nice incremental share gains the fastest part of growth in our semi portfolio is really our CMP portfolio of pads, cleans and slurries. And that's where we're seeing the most content gains, and that's also where we're seeing some incremental share gains, particularly on the Queens and slurry side. And then the lithography business continues to do really well, right?

So we're doing really well in some of the -- we talk a lot about EUV and our portfolio, EUV is important, but not so much in the photo with this layer, but there's a lot of ancillary layers around the photoresist that are really important. And our R&D team and business team have done a great job partnering with customers on how do they get the most out of their EUV investment by working on the layers around the photoresist to make that as efficient and as effective as possible.

And then you have seen some M&A activity in your subsector recently. Now clearly, you have a lot going on around internal organic growth, investments and initiatives. I would love to give updated thoughts on capital allocation around M&A, especially in light of the balance sheet coming in much better now versus value set rating.

Yes. Thanks for the question. We continue to execute against our capital allocation framework. And as you just mentioned, our first priority is always going to be organic reinvestment in the business because that is certainly the highest and best return for our dollars. And that's not always been focused on not only just CapEx, but R&D and making sure the R&D team is fully focused and funded where we need to go.

Beyond that, from an inorganic perspective, we certainly are continuing to watch the market. As we've said before, our priority is going to be from a kind of bolt-on and tuck-in perspective. And that's going to be focused in not only areas that are adjacent to where we play now, but really focused in areas like high growth like advanced packaging and thermal management. So we're focused on now. We have an active pipeline and a very disciplined process that we're following. And obviously, it's a dynamic market, but it's something that we continue to watch consistently.

[Operator Instructions] We'll move next to Edward Yang with Oppenheimer.

Congrats on the quarter and continued great execution since the spin. First question, just on your -- and thank you for the end market commentary. Could you just remind us on your margin profile across your data center business versus auto and electronics.

Yes. From an end market perspective and our margin profile, obviously, total company, we focus and have a blended margin around 30% that we continue to focus on from a mix of semi versus semis consistently in the mid-30s, and they did that again in the second quarter here. From an ICS perspective, we used to think about ICS kind of in the mid-20s, and we've seen them continually to drive towards the high and we believe they're structurally in the high 20% range from an EBITDA margin profile.

And so I think that's where we stand halfway through the year that I expect that profile to be consistent and continue through the back half of the year. And we do expect to see kind of a mix where ICS's growth and our margin profile both continue to outpace the semi business for the back part of the year.

Just qualitatively, obviously, we don't provide specifics on margin profile by end markets, but you can think the proxy for that would be where is the most advanced technology going and what does that architecture look like by end market. So Obviously, data center used to be more broadly in line with the rest of the industrial economy. I would say the AI-led transformation has improved the most advanced content. So AI data centers would have a very strong margin profile really driven by the amount of advanced technology content that's in those.

A lot of the other industrial markets across aerospace and defense and automotive were going to have kind of a more balanced mix. And then premium consumer devices is also a somewhat more balanced mix as well with maybe the lowest margin profile consumer electronics and relative to some of the other key end markets. So what we like about that is the fact that some of the industrial markets are the fastest-growing parts of the portfolio. another positive trajectory on driving value going forward.

Great. And can you give us an early view into 2027 growth your long-term model was for 7% growth, but you grew 10% last year, guiding for 18% growth this year. WFE companies are looking for growth rates to be stable at very high levels for next year. What do you see?

Yes, it's a good question. And I think it's probably a little too early to speculate on 2027, but the important thing that we think about and the takeaway for me is we continue to see this broad-based demand that Jon mentioned earlier, an investment across the same secular drivers that we're seeing this year, and that's across the AI-driven applications, high-performance computing and advanced connectivity.

The thing I'm excited to see is the continued evolution of the customer road maps that we've been covering even on today's call. Customers have put a lot of steel on the ground. And we expect that, that will drive the capacity coming online as we move forward and kind of all things trending forward in that direction. So we're well positioned to capitalize on that expected growth from a broad portfolio perspective but also kind of the front end of the back end of our collective business. So all of those things together, I think 2027 is stacking up nicely.

[Operator Instructions] And it does appear that there are no further questions at this time. This does conclude the call and webcast. You may disconnect your line at this time, and have a wonderful day.

Awesome. First up, I'm very pleased to introduce Qnity Electronics, ticker Q. Today, we have Jon Kemp, who's the CEO. I've had the pleasure of getting to know Jon over the past few years, and I must say his enthusiasm for his company's future is unparalleled. He's passionate even more than me. And he knows his products as well as the R&D team, which I always love about a CEO. And he's been straight up delivering or shall I say, stacking quarterly results and outperforming his end markets since the spin-out of DuPont. We're going to respect them as well. They are upstairs.

But honestly, there's no better way to kick off with Jon this morning. And once again, thank you for coming in. Full meeting schedule, the most requested meetings. So I think we can go ahead and get started.

Thanks, Chris. Happy to be here.

Awesome. So I'll start you off with an easy one. I don't think it's going to be a surprise to many in this room that your end markets are looking pretty good for the next several years. When it comes to advanced architectures stacking, layering, all the lingo that we hear in the media, purity, can you just give, especially for the generalists in the room, just an overall overview on how those facilitate Qnity's growth algo?

Yes. So thanks, Chris. And maybe I'll take a step back because not every -- but we're still kind of getting our name out there and getting people familiar with who we are and what we do.

So for those who maybe don't know Qnity, we're one of the largest pure-play material solutions leaders in the semiconductor value chain from chip fabrication to advanced packaging and interconnects to thermal management and AI PCBs. And we're kind of really well positioned to be able to benefit from the significant market tailwinds associated with AI, high-performance computing and advanced connectivity. And in this era of AI-led transformation, materials innovation is more important than ever. And we're pleased to be working alongside some of the largest and most well-known technology leaders throughout the industry.

What our materials do is kind of a few things, to keep it simple, right? We pattern and polish, protect and connect both chips and circuits from the front end all the way to the back end. And we support our customers with a local-for-local operating model that allows us to be very responsive and agile to them in the markets wherever they happen to be located.

So when I think about the changes in technology for the last decade or for the last couple of decades in the semi industry, technological change has really been driven by Moore's Law, getting nodes smaller and smaller and trying to make transistors smaller and chips more dense to unlock performance and power. But as we reach the limits of Moore's Law, that will continue to be important. But increasingly, we're going from shrinking, making things smaller to stacking, putting chips together in combinations to chips together in new and innovative ways that will unlock the next frontier of computing. And Qnity is really well positioned at the center of that because of the breadth and the depth of our portfolio.

So I imagine this is probably the toughest question I'm going to have to ask you this entire fireside chat. But what are you the most enthusiastic about over the next year or 2? You're primarily consumables. You've got a great breadth of products. You've launched probably 3 or 4 new either innovative collaborations, a few new products, EUV comes to mind. It seems like your customers are asking you to do more and more. But what are you the most passionate about? I understand that's probably pretty difficult, but go ahead.

Yes. There's a lot of good things to be excited about in this part of the space, right? And it's in this era where materials innovation matters more than ever because almost all of the -- so much of the growth in the semi industry is really coming from the most advanced technologies, right? And that's really the key to -- Chris asked a little bit about our growth algo a few minutes ago. And the key to our market outperformance is really content and share gains in the most advanced technologies.

And for me, what I'm most excited about is the investments that our customers continue to make to progress their technology road maps, and we help enable those technology road maps. So the fastest-growing parts of our portfolio are also the most -- the parts that are critical to the most advanced technologies. So I'll work that kind of from the front end all the way to the back end, so you can see how that fits with our portfolio.

On the front end, in particular, it's about chemical mechanical planarization, where we have a combination of pads, cleans and slurries that help to advance the -- especially leading-edge logic in the industry, kind of going -- excited about 2-nanometer scale up this year. If you go to the packaging side, we've got a full suite of solutions, including CMP from the front end, but a lot of back-end materials, things like metallization, dielectric, substrates and thermal materials to really help enable and unlock advanced packaging. And then when you get to the back end, it's things like thermal materials and metallization that are necessary for the most advanced circuit boards that are going into data centers and other AI applications.

So you've described Qnity as primarily the only company that is basically end-to-end in terms of chip fabrication all the way through the PCBs. You do have some fairly formidable competition in the U.S., Northeast Asia, China. What do you believe is the most, let's say, the largest differentiator in terms of Qnity's R&D, product development and customer relationships that you'd like to convey here today?

Yes. Look, there's a couple of really good competitors in the space, and we're happy by that because they force us to be better every day. When I think about it, what differentiates Qnity is really kind of the breadth and the depth of the portfolio. And what we're seeing, particularly as the market starts to become -- the process technology starts to become more complicated, increasingly, OEMs are starting to get more and more involved in material selection and overall design decisions.

And as the OEMs, whether that's the hyperscalers, the premium smartphone providers, automotive companies, they don't want to have to work with 15 or 20 companies throughout the value chain in order to bring an advanced system solution. And so when they start to work on the problems that matter most to them, problems like signal integrity, device reliability and performance or thermal management, they'd rather work with companies that have an end-to-end view that can solve that problem along every step of the way and who intimately know the process technology of their entire manufacturing network.

And that's proven to be a significant advantage for Qnity because we have those partnerships already and the number of OEM engagements continues to increase dramatically for us. When you combine that with the decades-long partnerships that we've got with the industry leaders and our local-for-local operating model that allows us to move fast and be agile in any type of supply environment, that's really kind of what differentiates us.

Yes. I think when a lot of investors familiarize themselves with the space, there's so much going on, especially those newer to the thesis. When you go across lithographic materials and etch and clean and deposition and pads and slurries and CMP materials, where do you find Qnity is the strongest in your portfolio? And perhaps would you be willing to comment on perhaps 1 or 2 substrates for which you'd like to strengthen your position?

Yes, it's a good question. So when I think about kind of the process technology in the industry, where Qnity is best positioned is that it also is the spaces that are growing the fastest for us, right? It makes sense. So in the areas -- and I've talked about some of them before, it's really in the CMP space with the combination of pads, cleans and slurries has been the fastest-growing part of our chip fabrication business.

Within advanced packaging, it's really kind of been the -- within advanced packaging and interconnects, it's been the metallization and IC substrates. And then thermal, just to give you one data point, advanced packaging and thermal in the first quarter that we talked about a few months ago, both of those areas grew 50% year-over-year. Over the history of this business, it's been brought together as a combination of really smart acquisitions over time that really have kind of 2 things in common, right? Innovation and technology leadership and strong customer centricity and partnerships.

And really, when we think about continuing to add on attractive technologies that would be complementary to our portfolio, as long as they have those kind of characteristics, we would be interested in continuing to build out the portfolio. We think the semiconductor and advanced electronics industry continues to be relatively fragmented. We'd be excited to add complementary technologies in semi consumables in advanced packaging or in thermal management into our portfolio, and those are the areas that we're focused on.

It seems as though in both of your businesses across Semi Tech and ICS, there are these gravitational forces that are essentially forcing a mix shift into certain substrates. I'll let you kind of comment on what that is. But if you looked at both of your segments independently, what do you think the mix is going to look like 2, 3 years down the road versus what it was prior to even the spin announcement a few years ago?

Yes. I think when you think about kind of where we sit today, the fastest-growing end market from a mix point of view in our portfolio has really been data centers, right? And that's no surprise to everybody with the boom in the infrastructure investment that's taking place in the space and cloud computing. And that has increased to about 20% of our portfolio.

What I'm most excited about is I still think we're still in the relatively early days of the AI-led transformation. And most of the early wins have come in data center and in the cloud. But as we move from the cloud to physical AI and the edge, I think there's plenty of opportunity to see an extension of AI applications in the rest of the industrial economy, whether that's in applications like factory automation, autonomous driving, communication infrastructure or even premium smartphones. I think what we'll see is a shift increasingly to more industrial parts of the economy, data center, factory automation, even automotive and probably kind of less orientation towards traditionally what's been the largest part of our portfolio in consumer electronics.

So that's good from an end-market diversification. The important point here is whether chips are going to data centers, smartphones or satellites, we're somewhat end market agnostic, we're going to win in all of those end market applications.

Switching to one of those many topics, and I would stress one of the many is there's been a lot of debate in terms of the sustainability of the AI data center build-out. There have been some concerns about pull forward in selling activity. From Qnity's perspective, you do touch everything. Can you just talk about the sustainability of the growth algo over the next few years in terms of how you view it?

Yes. Look, as I said before, I think that we're in the early days of the -- AI has been the most transformative trend that I've seen in my career in the electronics space. And I think we're still in the early days of that adoption. Most of what we've seen so far has been in data center and cloud computing. I think cloud computing represents where AI learned to think and to learn. And now as we go from cloud computing to edge computing and physical AI, it's about AI learning to do, right? And that's why industrial IoT, automation, autonomous driving, I think there's a lot more of growth opportunities out there that will start to scale up over the next handful of years. And you see a lot of folks in the industry talking about that.

The interesting thing about that is that well, up to now, data centers and thinking and learning has consumed a lot of CPUs and GPUs. It hasn't as much touched the other portions and HBM. It hasn't extended to the other parts of the semiconductor ecosystem. When you move from the cloud to the edge, you start to -- you have to lower the cost of inference down to be more cost competitive and more reasonable so that the economics work.

As you do that, you'll see a lot more custom chiplets and custom design of applications where you're combining different types of chips together. You may have a CPU and a GPU, but you're going to pair that with a lot of discrete and analog chips around it in order to perform a specific function. That's going to be a tremendous growth accelerator for Qnity because whether -- we have more -- the most content in the most advanced technologies, but we're also really well positioned in all of the mature nodes as well. So as you get broader growth from AI across the industrial economy, we'll see that surge in demand benefit our portfolio.

You've recently increased your own guidance and your MSI outlook in terms of -- and obviously, we've been hearing this consistently from your customers. How should investors interpret kind of the cadence of the growth algo throughout the year, what you're seeing? And what, as a new CEO, are you willing to actually embed in guidance versus what you're kind of a little bit more strained to get too optimistic on?

Yes, it's a good question. Look, our priority coming out of the gate as a new company and a new leadership team was to really establish a track record of credibility and strong execution. And I think we've now got 2 solid quarters under our belt.

As we thought about guidance for the year, the framework that we used was really built on a couple of things. So first of all, we had a great start to the year and really proud of the execution that our teams were able to deliver, and really driven kind of by the surge in AI-led demand. And we expect that to continue.

When we looked at the full year guidance, there was a lot of uncertainty when we were -- back when we issued guidance as to what would happen. You had potential industry supply chain dynamics that we talked about a little bit earlier. You also had the geopolitical situation and the -- and what was happening in the Middle East. And so we wanted to be prudent in our guidance with the understanding that if the conditions improved and our customers were able to scale up a lot of the technologies that they were excited about.

And by the way, those customer conversations continue to go very well in terms of 2-nanometer technologies, HBM4 technologies, those conversations continue to be very positive. If the market -- the general market environment is relatively stable and the market does better, we raised our guidance when we came out -- at the first of the year, our initial guidance was for 6% for the full year. We raised that guidance to be at the midpoint a bit over 11%, 11.5%. So a fairly hefty raise to our guidance. That was really predicated on the strong start to the year as well as an upgrade in the MSI outlook for the year from mid-single digits to mid- to high single digits. If the broader industry does better, I think we're really well positioned to continue our strong outperformance.

Just a little corollary question on top of that, and you hit on a few things on the advanced side of it. What are you seeing in mainstream markets right now in terms of operating rates and everything that's going on? It seems like there's a hesitancy to fully embrace the inflection, yet it seems like it's the first time in years there is some sustainability to the growth algo.

Yes. And it's a good question, and I think it's understandable. There's been sort of lots of false starts over the last couple of years in mainstream, right? But the tone of the conversation does seem to have shift. I would say broadly in the first quarter -- when we announced in the first quarter, that was -- there were 2 places that did better than we expected. The first was kind of in the ICS space driven by advanced packaging and thermal.

But the second space that did better than what we were expecting was mainstream, right? And mainstream logic, in particular, did better than expected in the first quarter, and we saw fab utilization rates that maybe finished in 2025 averaging in kind of the mid-70s. We're kind of in the upper 70s and with some customers maybe even being in the low 80s. And we expect -- in the customer conversations that we're having, we expect steady improvement in mainstream logic, a lot of conversation from our customers there around orienting some of their future growth opportunities to take advantage of some of the physical AI end markets that I've talked about before, and that will structurally take utilization probably from the high 70s into the low 80s as we move throughout the remainder of the year.

In ICS, ICS is, I would argue, at least from my seat, has been gaining in popularity and enthusiasm across the investment community. And as you know, I like to make my corny jokes about the term stacking, and I know how corny they are, to be clear. But can you just talk about the importance in terms of that trend within the industry and how your product portfolio specifically adheres to those trends and how you enable your customers to ultimately reach their goals?

Yes. I think this shrink-to-stack trend is really important because it really is as the economics of shrink start to become more challenging, the economics and -- the only pathway to unlock the next frontier in computing from a performance and a reliability point of view is stacking and putting chips together in innovative and creative ways.

But as you do that, that comes with fairly significant challenges. So each of those layers has to be perfectly flat and those connections have to be perfect in order to preserve the signal integrity and the reliability of the devices. And that kind of plays at the sweet spot of where Qnity's portfolio is positioned to make sure as we're polishing the surface of each layer and you're going -- and I'll give you an example. When you go from say, if you think about the number of CMP steps when you make a chip, right, as you go down that architecture road map, say, from 14 nanometers to 3 nanometers, you're doubling the number of CMP layers, but you're also increasing the process complexity along the way.

So it's almost a doubling of materials intensity. And that means that products like what are in Qnity's portfolio are more important than ever. And we see that trend continuing as you get more and more capacity into advanced packaging. And that's one of the things that I think is maybe not quite as appreciated is when we think about adding semiconductor capacity, the frame of reference there is these giant fabs, right, that take 2 to 3 years to build and qualify. Advanced packaging can scale up much faster than that. And our technology scale up even faster. So when people are bringing on new capacity to advanced packaging, they can typically do it much faster than they can in bringing up a traditional fab.

So you brought it down to 3 nanometers. I'm going to go for 2 and then angstrom level. Two-part question. Just how much of your R&D is now focusing on, let's say, 2-nanometer down to the angstrom level in terms of gravitating your portfolio that way? And then could you just remind those that once again are newer to the story of what your relative balance is in logic in terms of advanced versus mainstream and where you think it could be in a few years?

Yes. So maybe starting with the way we think about the R&D approach. Typically, for us, we're working kind of always 2 to 3 years out on our technology road map. So the 2-nanometer technologies that are scaling up this year, we actually won all of that business 2 years ago. So the stuff that we're working on today is 16, 14 and even 10 angstrom-era nodes that we're really excited about.

About 80% of our portfolio is oriented to logic and 20% is oriented to memory. Within memory, it's a little bit more kind of DRAM, HBM intensive versus NAND. And the reason for those -- some of those splits really comes down to kind of where you see kind of CMP used more broadly in the process technology. It's much more extensively used in advanced logic and logic in general than in memory.

But we're excited by node migrations and the most advanced technologies in both logic and memory. Angstrom-era nodes in advanced logic is really exciting. HBM4 is what we're working on. That was what we -- from an R&D perspective, we were working on that 2 years ago. Today, we're working on HBM5 and 6. And in NAND, we're working on stuff that would be kind of 400-layer count and beyond, kind of what they would call V10-plus.

Every time I see a press release from Qnity, I realize I have to read it pretty much immediately because I have to think to myself, this is where Jon is going to take the company. And I could list 7 or 8 of them. But one of the ones that sticks out, and yes, I have to use the buzz term, but you did sign one in terms of material development for NVIDIA back in March, if I'm not mistaken. Can you just add a little detail -- and it's across a few different products, if I'm not mistaken. Can you just talk in detail on just how we should be thinking about that relationship? Is that kind of going to be the benchmark going forward? Or how should we be interpreting that?

Yes. So we made a couple of OEM announcements, an innovation partnership with NVIDIA really focused on accelerating R&D capabilities and another one announcing that we had joined kind of Apple's advanced manufacturing program.

If I take both of those together, what I think they're doing is they're pointing to kind of the trend that I mentioned earlier around the perspective that OEMs are getting more actively involved throughout this entire value chain and ecosystem. And they're looking for the critical few partnerships that can help them to accelerate their product road maps and enable the most advanced manufacturing technology that will give them confidence that they can continue the cycle of rapid product launches as quickly as possible. And so that's where we're focused at, those OEM partnerships as well as with the partnerships with their manufacturing partners throughout the ecosystem.

So do you believe that's -- and you mentioned this in a few cases, but in terms of customers saying, Jon or Qnity, we need more from you or we'd love it if you had something in this substrate. That seems like it's relatively new, but are customers consistently coming to you and saying, you need to expedite R&D, we need this, this and this from you. Is that basically now table stakes when you're dealing with the larger customers?

Speed is how we win in this market and in this industry. And so anything that we can do to go faster. It used to be that we were working on 18- to 24-month life cycles. Now it's 12 to 18, and some of the leaders are out there saying they want it to be even 9 months, right? And that's an extraordinary challenge to think about because each leap forward is unlocking the next frontier of computing. And so to do that with that type of pace, that's where that local-for-local operating model and those deep trusted partnerships become so important because it's impossible to achieve that level of speed and performance without having deeply being embedded early.

And what I would say is the trend that we're seeing is getting engaged even earlier in the design process from the OEMs as well as from the fabs and the foundry customers, the time point at which we're being inserted into that conversation is earlier than ever, and it's faster than ever, right? And as long as we continue to deliver, we've got a pretty good track record of delivering on those POR wins. Last year was a record year for us in terms of POR wins, really across every part of our business that's only strengthening those customer partnerships more and reinforcing their trust in us to bring us to that design table.

So out of the spin process, I know Lori and Antonella, due to a fantastic relationship, they're very complementary of you, you're very complementary of them. But at the same time as the independence, especially given how rapidly the industry is evolving, has enabled you to do a lot of things that perhaps could be done quicker than under mother DuPont and as a Philadelphian, I wholeheartedly respect that. But can you just talk about some of those initiatives? It seems like you were able to get clean room space, grow, kind of your maneuverability is improving a little bit. Are there 1 or 2 things you'd like to highlight to the investment community today?

Yes. I think that certainly, working closely with DuPont, we were set up for success coming out of the gate, and I think you've seen that in our recent performance. A couple -- we're working through kind of the -- really the only remaining entanglement that we have of any importance is really kind of the IT system and some of the data and IT, and we're working quickly to work that through.

But one of the things that we have built into the culture of Qnity around our core values is this principle of speed and being able to move quickly. And you saw it in the first quarter in some of the announcements that we made, whether it's with the OEM partnerships that were announced because those customers move fast. And look, they don't want to negotiate that for months and months and months, right? When they're ready to go, they want to go.

And similarly, the opportunity, clean rooms in this industry were so important, and we had an opportunity to move -- in Taiwan to move very quickly with some facility investments to be able to serve some of the rapid growth of some of our largest customers and that we were able to come together. And even on something that required Board approval, it literally happened in a matter of weeks, not months, that we were able to move and secure advanced manufacturing capacity for R&D facilities, manufacturing facilities, warehouses, and it happens to be across the street from one of our largest customers. And it was just a few weeks and something that it's really become kind of a flash point for our entire organization as really a symbol of we mean it when we say we're going to move fast.

So this is my favorite one, and you can answer as quickly or as lengthy as you'd prefer. But you've been now a public CEO for roughly 9 months or 8 months. You've -- I think you have one of the full schedules here. Thank you for that, by the way. I know you've been on the road a lot, meeting with investors, just nonstop. Whether it's the sell-side or the buy-side community, what do you think are -- is there like one theme where you'd say, wow, I really wish the Street appreciated that a little bit more? Why isn't the sell side embracing this thematic a little bit more? Why are they overlooking it? Is there anything that comes to mind?

Yes. First of all, we're really happy with the reception that we've had from the investor community. I think there's been a lot of interest. It certainly has kept me very busy, and I'm excited by that and the company continues to perform. And really what we're focused on is that execution credibility and kind of capitalizing on the market momentum. I think that I would come back to a little bit of where we started today, kind of the really understanding the importance of the end-to-end value of that -- of the breadth and depth of the portfolio and bringing end-to-end solutions from the front end all the way to the back end.

And I think where that manifests itself the most directly is for a long time, interconnects were perceived as a relatively unattractive part of the industry, right? And with good measure because for decades, it probably was. But as I think about where the industry is today and going forward, this interconnect space, this advanced packaging and thermal space is one of the most critical parts that will unlock the next frontier of computing and be a catalyst for growth in many AI-led applications in the coming years. And so I think about it as a structural upgrade of the interconnect side of the portfolio.

I think the semi side of the portfolio is relatively more and better understood but understanding the value and the contribution and the structural upgrade to the interconnect portfolio is, I think, something where we've spent the most time having the most conversations with investors. And they understand the value of the innovation partnerships, that deep partnership with customers and the local-for-local operating model, whether it's been the pandemic environment, a tariff environment or the Middle East environment, that model has served us really well and allowed us to perform well in any economic environment. So I think that's kind of the things that we're focused on as we take this strategy in the company and really drive it forward.

Jon, I'd like to sincerely thank you for your time here today. Thank you very much.

Thank you so much.

Good morning, and welcome to the Qnity First Quarter 2026 Conference and Webcast Call. [Operator Instructions] I will now turn the call over to Meg Miller, Vice President of Global Communications. You may begin.

Thank you, and welcome to our first quarter 2026 earnings call. I'm joined by Jon Kemp, Qnity's Chief Executive Officer; and Mike Goss, Qnity's Interim Chief Financial Officer. Earlier today, we issued our earnings release, along with a supplemental slide presentation, which can be found on our Investor Relations website.

Before we begin, I'd like to remind you that today's discussion will include some forward-looking statements. These statements represent our best view of predictions and expectations for the future, but numerous risks and uncertainties may cause actual results to differ. Please refer to our earnings release and SEC filings for a discussion of these risks. We'll also be discussing certain non-GAAP financial measures, and I encourage you to read our earnings materials for information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measure. And now it's my pleasure to turn it over to Jon.

Thank you for joining this morning. Our strong performance this quarter demonstrates how Qnity creates value. First, through a powerful integrated portfolio. Second, a differentiated ability to innovate alongside our customers' road maps. And third, leadership in advanced materials that are foundational to the exponential growth in AI and emerging technologies. For decades, Moore's Law has been the driving force behind technological advancement in the semiconductor industry. Innovation meant shrink: smaller transistors and higher density to improve performance and power.

Now those gains are increasingly constrained by physical limits. Shrink built the last era. Stack will define the next. That means even while shrink remains important, we're moving from 2D designs to 3D architectures, stacking chips to unlock the next frontier of computing. That shift, from flat to vertical, elevates the importance of materials, integration, and reliability, and ultimately, redefines where value and leadership are created. This inflection plays directly to Qnity's strengths and how our business segments work together to power the stack.

In Semiconductor Technologies, customers rely on our materials to smooth, shape, and precisely engineer surfaces at the wafer and device level. This is the foundation of performance, yield and reliability. As AI investments accelerate, stacking creates increasingly complex advanced packages and systems, with a multiplier in both process steps and material intensity for every additional layer. And the challenge shifts from individual steps at the chip level to managing integration at scale. That's where our Interconnect Solutions business segment builds on Semi's work, addressing system-level constraints like power efficiency, heat management, signal integrity, and long-term reliability, all while capturing more content as stacks grow taller.

Together, Qnity brings these strengths into one differentiated platform, helping customers build, scale and operate next-generation computing platforms. With these unique capabilities, supported by our local-for-local model that keeps us closely connected to customers around the world, Qnity is well positioned as the partner of choice for many of the industry's leading fabricators and OEMs pioneering next-generation technologies. This advantaged position reinforces our confidence in delivering sustainable, long-term value for our shareholders.

That long-term confidence is reflected in our near-term execution. Let's turn to our first quarter results, where we delivered our eighth consecutive quarter of strong, profitable organic growth. Organic sales increased by 17% versus 2025 with double-digit growth across both segments. Adjusted operating EBITDA increased by 22%, and adjusted earnings per share grew by 33%. These results clearly reflect the ongoing momentum from AI-exposed end markets and next-generation technologies along with our ability to drive strong operating leverage.

In Semi, we grew organic sales 12% year-over-year driven mostly by advanced nodes, led by advanced logic and high-bandwidth memory. We also benefited from ongoing improvements in mature nodes and NAND. Across the board, fab utilization rates continue to improve in line with our expectations. As wafer mix continues to shift toward the leading edge with more advanced nodes, we're well positioned for continued growth driven primarily by increasing content per wafer. Higher node complexity brings more CMP process steps, incremental demand for our most advanced cleans and requires increasingly intricate lithography patterning.

Volumes at 3-nanometer continue to scale and we're starting to see meaningful activity at 2-nanometer. Beyond this, we're increasingly excited about angstrom-era nodes like 16, 14 and 10, which is the primary focus of our R&D engagement with customers and keeps us tightly aligned to their road maps.

In ICS, we had an exceptional quarter with organic sales growing 22% year-over-year driven by content and share gains in advanced packaging and interconnects and thermal management. Advanced packaging is expected to be a core growth driver for years to come as the move from shrink to stack accelerates. As I mentioned earlier, more sophisticated architectures means larger package sizes, higher layer counts and more Qnity content in every device.

In advanced interconnects, we're winning new business with AI PCB fabs for the leading hyperscalers and premium smartphone OEMs where signal integrity and reliability requirements continue to rise. As data center demand accelerates, managing heat is a critical objective. Our industry-leading thermal management portfolio is designed to remove heat across the entire system, supporting increasing content and higher device performance.

Our growth momentum is a testament to the depth of our customer relationships and the strength of our innovation engine. We're in a strong Process of Record, or POR, position across both segments due to the investments we're making in R&D and innovation, giving us visibility into our growth potential over the next few years. Built on decades of partnership, we've earned our customers' trust, and with it comes a clear mandate to innovate and to move fast because in this industry, that's what it takes to win.

During the quarter, we underscored that trust through several key announcements, including a new collaboration with NVIDIA focused on advancing materials research and development for next-gen AI, high-performance computing and advanced packaging. By combining our materials expertise with NVIDIA's modeling and simulation capabilities, we're working to accelerate development and improve manufacturing capabilities. That same commitment to collaboration and execution is reflected in our inclusion in Apple's American Manufacturing Program, recognizing our role as a long-term, trusted partner.

To support customer road maps and supply ramps for the most advanced chips, we continued to execute our capital allocation strategy to further bolster manufacturing capacity and strengthen our local-for-local operating model. In the U.S., we expanded our footprint with the March opening of a 385,000-square-foot facility in Delaware, and in Taiwan, we announced a new, state-of-the-art site with advanced production, clean rooms, warehousing, and R&D labs scheduled to be fully operational in early 2027. These investments significantly expand our manufacturing capacity for critical CMP materials, strengthen our operational agility, ensure global and regional capacity, and advance collaborative innovation with customers.

Before I hand things over to Mike, I want to touch on end-market demand and the broader macro environment. Customers remain highly focused on supply chain resilience at a time when wafer capacity remains tight. As customers allocate capacity to the highest-value applications, our portfolio mix is increasingly moving beyond consumer electronics to attractive, high-value applications like data centers, autonomous driving and aerospace and defense.

And while there's been considerable attention on the impact of memory pricing on demand for devices like smartphones and PCs, our results this quarter demonstrate we aren't seeing a material impact for 2 important reasons. First, our exposure is primarily to premium devices, which tend to be more resilient. And second, AI-led infrastructure growth is more than offsetting any softness in consumer electronics. Whether chips are going to data centers, satellites or smartphones, we're well positioned to pick up that demand given the depth and breadth of our portfolio. With that, I'll turn it over to our Interim CFO, Mike Goss, to discuss our financial results and provide an update on our full year guidance.

Thanks, Jon, and good morning, everyone. We had an excellent start to the year with first quarter net sales of $1.3 billion, up 18% year-over-year and 11% sequentially. On an organic basis, sales improved 17% versus the same period last year. Adjusted operating EBITDA was $411 million, up 22% year-over-year. Adjusted operating EBITDA margin expanded more than 125 basis points versus the same period last year to 31.3%. Adjusted EPS for the quarter increased 33% to $1.08. This was a record quarter for Qnity, driven by continued momentum in our AI-linked businesses and strong execution by our team. We're very pleased with the performance which reflects a combination of strong volumes, operating leverage and favorable mix.

Let me provide a bit more detail on how each business segment performed during the quarter. Semiconductor Technologies performed in line with our expectations with net sales of $722 million with year-over-year organic sales growth of 12% led by demand for advanced logic and HBM chips. We saw broad-based strength across several product lines, with particularly strong gains in CMP consumables. First quarter was strengthened by $20 million of inventory restocking, particularly in mature nodes, following customers' careful inventory management in the fourth quarter. This pattern was similar to what we observed in the first quarter of 2025. Our adjusted operating EBITDA margin in the segment was 36.4%, up 130 basis points sequentially from the fourth quarter driven by improved manufacturing efficiencies and favorable product mix.

In Interconnect Solutions, impressive execution delivered net sales of $593 million with organic growth of 22%, led again by advanced packaging and interconnects and thermal management. Sales in these core areas grew more than 50% year-over-year as we capitalized on demand tailwinds from data centers and benefited from ramps on shorter-cycle POR wins from last year.

Adjusted operating EBITDA margin for ICS was 28.5%, an improvement of 280 basis points sequentially. This was driven by strong operating leverage on higher volumes and favorable mix. In line with our expectations for the quarter, we generated adjusted free cash flow of $28 million. This reflects strong operating cash flow partially offset by annual variable compensation. Capital expenditures were reflective of our capacity expansion efforts, which included about 1/3 of our $61.5 million investment in the new Taiwan facility.

Our overall balance sheet remains strong and we're committed to maintaining a returns-focused capital allocation framework. As a reminder, our first priority is to reinvest organically in the business to sustain above-market growth. We continue to anticipate elevated CapEx investment for the full year at approximately 9% of sales, driven by investments that strengthen our local-for-local footprint in key geographies and support our transformation initiatives. Over the longer term, we expect CapEx to be in the 6% of net sales range.

We also remain committed to returning capital to our shareholders through our quarterly dividend, and during the quarter we repurchased $25 million worth of shares to offset normal equity dilution. We're well positioned from a liquidity perspective with approximately $850 million in cash and short-term investments at the end of the first quarter. Total debt outstanding is $4 billion with a net debt leverage of 2.2x. We maintain balance sheet flexibility to focus on the areas that add value in the long term.

Our transformation plan announced last quarter is underway and tracking to plan. We have workstreams dedicated to 3 focus areas: driving productivity and quality improvements, strengthening commercial and innovation excellence and advancing our local-for-local operating model. We continue to expect these actions to deliver approximately $100 million in EBITDA run rate benefit by the end of 2028. Separately, our transformation is further supported by continued progress on IT separation. This parallel effort is well underway as we continue to make steady progress on TSA exits across our digital infrastructure.

Turning to guidance. Building on our strong first quarter results, we expect a normal seasonal increase in the second quarter with sequential net sales growth in the mid-single digits, supported by strong demand trends, including continued momentum for AI-driven applications, high-performance computing and advanced connectivity. More specifically, in Semiconductor Technologies, we expect sequential net sales to be roughly flat with a margin profile in the mid-30s. For ICS, we expect sequential net sales growth in the high-single-digits range with margins in the mid- to high-20s. From a mix perspective, across both segments, we continue to see end-market strength similar to the first quarter combined with the normal seasonal increase in consumer electronics. In addition, we're also making incremental investments to support strong customer ramps we're seeing.

Additionally, considering the ongoing conflict in the Middle East, we're taking a prudent approach to planning while continuing to strengthen our portfolio position to meet customers' needs. We're seeing modest upward pressure in certain raw materials, energy and logistics costs. To mitigate these impacts, we're leveraging our local-for-local operating model, working closely with a diversified supplier base across regions and adjusting inventory levels for critical materials. Based on what we see today, we don't expect any near-term operational disruption. Where we are seeing incremental increases in input or logistics costs, we're taking targeted pricing actions to pass those through in a disciplined manner.

The external environment remains dynamic and we are continuing to monitor how things evolve. Today, overall demand signals remain strong and customer conversations are constructive. With this in mind, we're raising our full year guidance to reflect the strength we realized in the first quarter and our forecast for the remainder of 2026. Our guide incorporates our expectations of MSI wafer start growth to be mid-single digits to high-single digits, increasing from our previous expectation of mid-single digits. This underscores our confidence in the underlying demand signals we're seeing.

Net sales is now expected to be $5.225 billion to $5.375 billion, a 5% increase at the midpoint. We assumed geopolitical inflation headwinds for some raw materials and logistics costs of approximately $20 million for the remainder of 2026 based on current conditions, but expect to largely offset these through pricing actions with some timing variability. Adjusted operating EBITDA is now expected to be $1.535 billion to $1.625 billion, a 4% increase at the midpoint. Adjusted earnings per share is now expected to be $3.80 to $4.14, a 6% increase at the midpoint. And finally, adjusted free cash flow is now expected to be $500 million to $600 million, a 10% increase at the midpoint.

Overall, we expect double-digit net sales and EBITDA growth year-over-year. As we move through the year, we're maintaining a disciplined and measured approach in the second half, balancing execution with visibility, customer alignment and flexibility to support long-term value creation. Jon, back to you.

Thanks, Mike. Before we open the call for Q&A, I want to underscore a few things as we mark 6 months as an independent company. First, we're pleased with our progress executing our growth strategy, delivering meaningful innovation to solve our customers' toughest challenges, scaling our platforms in step with their growth and allocating capital to the highest-return opportunities.

We're excited by the traction we're seeing as our strategy translates into differentiated offerings, increasing demand and solid performance. Strategy points the way forward, but culture is what drives results. Qnity's team is aligned on the goal, focused on getting things done and committed to the outcomes. We're looking forward to executing against this path with discipline and focus, driving durable growth and long-term value for our investors. That wraps up my remarks. Operator, let's open the call for Q&A.

[Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] We'll take our first question from Chris Parkinson with Wolfe Research.

When we think about the trajectory for the balance of the year, obviously there have been a lot of moving parts even within the last few weeks. Could you speak to your assumptions in terms of what appears to be an accelerating mainstream recovery and how that should affect your second half numbers as well as the trajectory into '27? And then also, Jon, I think most of us are aware you've been investing in a lot of new products and those seem to be ramping on a preliminary basis. If we could just get the framework for those as well.

Thanks, Chris. I appreciate the questions. Maybe starting with the first question on mainstream demand. We're excited by the progress that we're seeing from some of our mainstream customers. Obviously, it's been kind of a slow recovery in that part of the market, but we're seeing very constructive signs and signals. I think the commentary in the most recent earnings seasons has been positive, and we see utilization rates continue to increase on the mainstream logic side, really kind of from the mid-70s last year into the high 70s, maybe even into a little bit into the low 80s kind of in the first quarter. And we expect to see continued sequential improvement as we move through the remainder of the year.

Obviously, there is a bit of an impact from memory market on demand in some of these areas. But what we're really excited about is the increasing positive demand that we're seeing from AI applications starting to extend in the mainstream realm. We've heard lots of customers talking about edge computing and physical AI over the last few weeks and the growth that they're anticipating from that. We think that, that's going to power kind of the next wave of AI-led infrastructure demand, and we're excited to see that progress on the recovery on the mainstream side.

Maybe moving to your second question around new product introductions. We're really excited by the continued progress that our innovation and R&D and commercial teams are having on securing new process of record or POR wins. 2025 was a record year for us, and we saw POR wins in every line of business. That momentum has continued into the early part of this year where we continue to see wins across the most advanced technologies in both segments.

To give you a couple that I'm really excited about, obviously, we've launched some new CMP materials across both pads and advanced cleans targeting the most advanced semi nodes, 2-nanometer, and even starting to get into some of the angstrom-era nodes of 16, 14, and forward. We've seen some nice wins in our lithography space in both ArF as well as some EUV sublayers to help facilitate the continued growth of the most advanced lithography. And then on the Interconnect side, we continue to see new wins in AI PCB boards with fine lines and interconnect -- copper solder and interconnect products as well as continue to see progress advancing our thermal management portfolio across thermal pads, liquid gap fillers and phase change materials. So a lot more to come on innovation, but it's really powering the strong momentum that we're seeing in both segments.

Great. And just as a quick follow-up, just switching over to the ICS side of it. I mean I think it's a lot of what we hear out of the data centers, hyperscalers and GPUs seems to be pretty much heading in the right direction. Could you just speak to -- it seems like the kind of the content which you can -- in terms of your tangible addressable market, seems to be further evolving even since what you put out at the CMD last year. Can you speak to further kind of that broader opportunity, how you see kind of the run rate of growth over the next few years and whether that actually differs and it's higher than it was even 6 to 9 months ago?

Yes. Thanks. Obviously, the ICS business continues to outperform significantly and really driven by the strong alignment that it has to AI-led demand. And that's really fueled by the exposure that we have to kind of the 3 highest growth areas in the Interconnect segment: advanced packaging, thermal management and AI PCBs. And in the first quarter, we saw those 3 areas collectively grew by more than 50% in the quarter year-over-year benefiting from -- and those tend to be a little bit shorter-cycle wins. And so as we win new business, they tend to scale up a little bit faster. And so what you're seeing is the results of some of the wins that we had last year starting to scale and really contribute to growth.

We expect advanced packaging and thermal in this part of the market to remain the fastest-growing parts of our portfolio. We're investing in line with our customers to meet their capacity as they put more capacity in the ground, especially for things like advanced packaging. And they continue to build out more advanced printed circuit board architectures to be able to meet the rising demand. And we're investing in line with that to be able to meet that demand. I don't think we're at the point where I want to update guidance on the ICS segment, but we're excited by the continued momentum that we're seeing, and we think it'll be a strong contributor to our growth going forward.

We will move next with Melissa Weathers with Deutsche Bank.

Congrats on the really nice start to the year. And I really like this narrative of shrink versus stack. I think that's an interesting way to frame it. I guess to that point and kind of following up on the last question, the AI PCB design wins that you talked about, it seems like those PCBs need to be upgraded significantly as we look at like the architectures of some of these new processors coming out. So is there any other color you can give on like what the direction of travel is in that market? What kind of visibility do you have? How deep are your customer engagements on that PCB side? And then I noticed you, it kind of seems like maybe it's the third fastest grower behind advanced packaging and thermals. Is that the right way to think about it? Or I guess any other color on the AI PCBs, I think, would be helpful.

Sure, Melissa, and thank you. I think the progress that we're seeing on the AI PCBs is maybe an underappreciated part of the growth story, right? So what we're seeing is as the OEMs are looking to drive performance, reliability in their system-level design, they need the capability to get all of that computing power effectively distributed throughout the data center.

And what that requires is an increase in the number of layers so that you can get all of that data rapidly transmitted into the system. And so the increase in the layer count as well as trying to -- it's very similar to what we've seen on the semiconductor side in terms of increasing density. They're trying to do the same things on the circuit board. And the way to increase density on the circuit board is a combination of both shrink and stack. So you're putting smaller lines and -- called finer lines and spaces on the circuit board, while you're also adding more layers to the architecture.

In both dimensions, both of those trends require more advanced technology to allow the overall board to meet the performance requirements of the application. And in both situations, both finer lines as well as in higher layer counts, that plays into the strength of the Qnity portfolio and really where our metallization business has been positioning itself for several years. We put a concerted effort on this part of the market going all the way back to the downturn in 2023 where we shifted our R&D portfolio significantly to focus on this part of the market. And it's paying dividends today, and we're continuing to be excited by the road maps that we have with our leading PCB customers as we help them to scale kind of the next-generation formats for printed circuit boards as well as the next-generation formats for advanced packaging.

Perfect. And then as we look at your growth over this year and maybe next year, you talked about some of your capacity plans in your prepared remarks, but at a high level, how do we think about your ability to supply at this point? Are there any areas where you may be constrained or accelerating capacity buildouts? And I guess, is there any like kind of revenue framework that we should be thinking about for how much you can supply and where your limits are?

Yes. Thanks, Melissa. So when we think about our supply and demand planning, we do that in lockstep with our conversations with customers on what their demand ramps are expected to be over the next few years. And typically, we can invest inside of the investments of our customers, so that gives us good -- and usually after we've already have POR wins. So these tend to be very high-return projects that we have confidence because we've already won a lot of the business that will then be used in these facilities. Our local-for-local operating model has been a strategic advantage for us where we continue to invest to build out capacity and capabilities in all of the key geographies that are important to our customers.

If you look at the last few years, we've added capacity in every single one of our semiconductor product lines to make sure that we had capacity not only to meet demand as it returns to the record 2022 levels, but even beyond. And that's kind of underscored by the announcements that we made in the first quarter with the new capacity in the U.S. and Taiwan. Both of those are bringing kind of state-of-the-art production capabilities, especially for the fastest-growing part of our Semi segment, which is CMP consumables. It gives us access to clean room space, to production capacity, to R&D labs. And we're excited. What I would say about the scale-up is in Delaware, where we've got our first line already operational and in customer qualification. Obviously, in Taiwan, we'll complete the equipment installation and the fit-out this year and expect that site to be fully operational in early 2027.

On the Interconnect side of the house, we typically -- the capacity investments there are typically relatively small and quick to scale up. So we can do those in fairly modular incremental investments that are kind of well inside the capital allocation framework that Mike talked about in the prepared remarks.

We will move next with Bhavesh Lodaya with BMO Capital Markets.

Question on your agreement signed with NVIDIA and Apple recently. If you could talk a bit more about -- around the scope and longevity of these agreements, and I'm curious how this plays in your relationship with TSMC? And if it -- does it make it easier to win qualification for the next-gen nodes? Is it part to potentially getting more market share over time? Happy to hear your thoughts on that.

Yes. Thanks, Bhavesh. Good question. When I think about these agreements, to me what I think it underscores is really the attention that materials providers are starting to see from across the technology and the semiconductor ecosystem. Whereas in the past, a lot of the conversations would be just directly with our manufacturing partners and the folks who are buying the transactional customers. What you're seeing is that when you get to things like signal reliability, power efficiency, thermal management, that the technology and the process complexity are so great that the materials innovation angle is starting to kind of emerge as one of the important drivers of system-level performance.

And so you're starting to see -- we're starting to see OEMs get involved in material selection and design, and they're looking for capable materials innovation partners to help them advance what they're great at, which is the application engineering. So Qnity brings that materials innovation expertise that can complement the fantastic application engineering capabilities of many of our OEM partners. And that partnership allows us to speed up the pace of innovation and to make sure that we're keeping pace with the technology road maps in the industry. It reinforces the partnership that we have with customers, but it's more an extension of those partnerships because we're now involving kind of the rest of the value chain in those holistic system-level design decisions, which creates great opportunities for us because our portfolio is fairly uniquely positioned to be able to solve the problem at a system-level design.

Got it. And maybe as a follow-up, a separate question. There are reports of multiple Chinese players trying to scale up their memory production to benefit from the ongoing shortage in the industry. Just given your presence there, could you talk about if you are seeing that impact, and if you are -- are you exposed to this dynamic in the second half?

Yes. Good question, Bhavesh. So on the memory market, look, I think lots of folks are trying to allocate capacity to the highest return opportunities. We're certainly seeing that on the utilization trends for both DRAM as well as NAND. Just to give you a couple of data points there. On DRAM, we kind of finished 2025 in the mid-80s and have been kind of trending up into the high 80s, and we continue to expect to be in the high 80s, maybe even reaching above 90% as we get into the second half of the year.

And nice progression in NAND as well from kind of the mid- to high 70s last year, kind of in the high 70s and progressing quickly maybe even into the low 80s as we get into the second half of the year and start to see continued recovery in that part of the market. As it relates to the memory market in China, most of our China semiconductor exposure is really on the mature logic side because memory usually converts more quickly to the most advanced technologies. And in China, we're not selling into the most advanced technologies in China, so we don't have a lot of in-depth conversations with the memory part of the market in China.

We will move next with John Roberts with Mizuho.

This is Saurabh from Mizuho on for John. Nice sequential uptick in EBITDA margins. As we think about Q2, I know there are moving parts on raw material inflation, but how are you thinking about margins in Q2? And then I have a follow-up as well.

Sure. Thanks for the question. We had a little bit of feedback on your line, but I think I heard you ask about EBITDA margin heading into second quarter. So at a headline level, we're really excited about the first quarter performance. EBITDA margins were above 31%, driven really by continued momentum as we said in our prepared remarks across those segments. And we see that -- you can see that trend continuing as we head into second quarter.

Specifically around second quarter, there's a couple of pieces that I would highlight. We do expect the volume benefits to continue with a little bit of slight headwind from product mix, especially on the ICS piece of the business as that transitions into the consumer electronics time of the year, and that's a normal seasonal shift that we see. Additionally, coming out of the spin, we did have a lot of planned hiring post spin that took a little longer than we originally expected, but it did ramp up nicely. And we got good traction in that hiring in the back part of first quarter. And obviously, that'll carry forward into second quarter.

Additionally, with all the growth that we are seeing, we're continuing to make additional hiring investments to support that growth. And so if I click up a notch overall, I do expect Semi to continue to be in the mid-30s from a margin perspective. And ICS continues to perform nicely in the kind of mid- to high-20s on an EBITDA margin basis, and all of this continuing to support that continued growth that we're seeing.

And can you provide any update on the hiring of the Head of Semiconductor and permanent CFO?

Sure. I'll go ahead and take that one. What I would say is, we're making great progress for both of those roles. We've got a really strong pipeline of qualified candidates that we're actively engaging and evaluating. We're obviously working with as much speed and urgency as we can, and we're fortunate to have a couple of really qualified executives who are doing a terrific job helping to run the business as we work through this process. And I look forward to sharing more about those appointments as we get here into the future.

We will move next with Edward Yang with Oppenheimer.

Jon, Mike, congrats on a nice quarter. First question is on Interconnect Solutions. EBITDA margin there was a record by a wide margin. It sounds like that's sustainable, but just wondering where that ceiling can go. And on the flip side, why was Semiconductor EBITDA margin down year-over-year?

So maybe I'll go ahead and start and then ask Mike to chime in. On the Interconnect margins, I think what we're seeing there is a continued benefit of really strong volumes and nice operating leverage, fixed cost absorption, combined with a really favorable product mix. I think as we've talked about in the past, the fastest-growing parts of that segment, advanced packaging, the AI PCBs and thermal management, also happen to be the highest-value parts of the business. So as that growth continues to scale and comprise a larger percentage of the overall total, you're seeing some natural mix benefits, and that's kind of flowing through. And we talked about before, ICS continuing to have the most opportunity for kind of ongoing margin increase. You're seeing it in the first quarter as we go from kind of our prior construct of in the mid-20s to start to get to the mid- to high-20s, and we expect that trend to continue going forward. Mike, maybe I'll turn it over to you.

Yes. Thanks, Jon. On the Semi margins, as we said in our prepared remarks, the Semi business performed nicely and in line with our expectations in the quarter. From a margin perspective, we saw a little bit of mature node restocking in the first quarter, and that product mix can always impact margins in the Semi space. But from a broader -- maybe to give you a little bit of color more broadly. From a geographic perspective, we continue to see nice performance across broader part of Asia with a couple highlights from Taiwan, up 25% year-over-year on a top line basis, and Korea up 17% year-over-year. Americas performed nicely as well. So looking ahead to next quarter, I continue to expect to see nice performance out of Semi from a growth perspective. And as we talked about before, their margins should continue to be in the mid-30s.

And then maybe I would just add there, as we think about that, the mid-30s is a really healthy place to be for the Semi margin given the increased level of investment that the most advanced technology requires, so both from the innovation side as well as to scale up the level of quality and performance necessary to support the high-volume manufacturing of our customers.

Okay. That's very helpful color. And follow-up question is just, obviously, the memory market is working out very well for you right now, but there is some labor unrest at one of your Korean memory and foundry customers. And just wondering if you -- what you're hearing from that partner. And do you have any contingency plans in place if there are any walkouts or disruptions there?

Yes, good question. I think we're all watching the news over in Asia closely on that front. And I don't know that I have anything new or different to share than what's already kind of out there in the public sphere. I would say our conversations with kind of all of our customers, particularly those in Asia, are happening on a daily or sometimes even multiple times a day where we're working with them on kind of what they're seeing and what the needs are.

We're always -- one of the things that we have as part of our normal ongoing process is a constant practice of doing kind of rigorous scenario planning so that we can be agile and resilient in any type of environment. And certainly, if the last couple of years have taught us anything, it's to be prepared for unexpected shocks that can happen at a moment's notice. And I think our teams have done a really nice job of adapting and responding to kind of whatever the markets and the external environment has thrown at them, and we'll continue to use that discipline around scenario planning and rapid response and agility in the environment here as we go forward.

[Operator Instructions] We will move next with Frank Mitsch with Fermium Research.

A nice start to the year. You guys had your conference call on Feb 26. Obviously, the world changed on Feb 28, but I'm not sure that, that would be a huge impact for your business. You offered us kind of a soft guide on 1Q and obviously came in materially better than that. What may have surprised you in March, if that is indeed true? And if so, does that continue in April and beyond?

So I think as we think about the first quarter and the guide for the second quarter, I think at a high level, Frank, I would say that Semi largely performed in line with our expectations with -- the one part of the Semi market that did a bit better than we were expecting was really kind of in the mature logic space where we saw some restocking and some other more constructive comments than maybe that we were expecting before. And then really most of the outperformance in the first quarter was really driven by the strong growth from the Interconnect Solutions segment and the continued strength in advanced packaging, thermal management, and AI PCBs. But even the broader Interconnect space was relatively healthy.

So the magnitude of the strength there compared to what I would call kind of historic seasonal patterns was remarkable. And we see that momentum continuing in the second quarter. And Mike gave a little bit of color there on what we expect in each of the segments going into the second quarter with kind of roughly flat revenue for the Semiconductor segment and another high single-digit sequential increase from the Interconnect segment with the start of some of the build in some of the consumer electronics applications in our portfolio. Mike, anything else you'd add there?

Yes. I think the thing that I would add to that, Jon, is a couple of points. Sitting here in second quarter, what we do see is continued strong order books, which is always great to be able to say, continued positive demand signals from our customers and the continuation of the node transitions that Jon mentioned earlier, along with continued POR wins. From a perspective of the second half, in my prepared remarks, we talked about the guidance that we issued today having, taking a very prudent view on that from an inflation perspective. And so as we monitor that closely and proceed through the second half, if conditions, I'll say, improve, we have a chance to do even better.

Got you. Understood. And listen, I appreciate the increase in the free cash flow guide for the year. Obviously, your EBITDA guide also went up and so it was kind of in lockstep with that. How do you think about working capital use throughout the year? Obviously, a little bit of a use. How do you think about that playing through the year?

Yes. Thanks for the question. Yes, free cash flow in the quarter was right in line with our expectations. As you know, we always prioritize high-return capital investments to make sure we're continuing to have the leading-edge capacity to match the strong demand that we continue to see from our customers. And you saw that in our recent announcements that Jon mentioned earlier in Taiwan and here in Delaware. First quarter has about 1/3 of that Taiwan expansion in the first quarter CapEx, which is just based on timing of when that or next book close.

From a discussion around working capital specifically, it's an area that we're obviously focused on every day, every week. Inventory remains healthy. IDF sits at a little over 100 days, and DSO and DPO are nicely in line with where we'd expect them to be. And then more broadly, inventory turns are sitting right around 6x, which is right where we like it. So from a pacing through the year, sales grow, obviously, I would expect AR to go with that a little bit, but it's something that we're watching and I think we're in good shape from a working capital perspective.

We will move next with Arun Viswanathan with RBC Capital Markets.

Congrats on the very strong results here to start the year. So my first question is really, in the past I think you've indicated that MSI would be a good metric to track to kind of gauge your performance and you'll perform above market growth. Clearly, you're well above that, especially in ICS. Do you still figure that to be the best kind of metric to use? And along those lines, are you still thinking about stronger than mid-single-digit growth in MSI this year? And if that is the case, how does that kind of change your mix with AI, HPC and data center maybe be more like 20% of your business mix, up from 15% maybe just even a year ago? How should we think about that?

Yes. Thanks, Arun. Good question. So look, I think that MSI continues to be a really good metric for Qnity, particularly as it relates to the Semiconductor segment. We have increased our expectations for MSI for the year, as Mike alluded to in the prepared remarks, going from our prior expectations of mid-single digit to now in that mid-single digit to high-single digit. And I think there's room to do even better than that as we move through the second half of the year and watch how things evolve. But as we mentioned, the order books remain strong and our customer conversations remain constructive.

When you think about other metrics, obviously, Interconnect has been growing much, much faster over the last several quarters. We've tried to look for different kind of external benchmarks and metrics to be able to correlate that to. Historically, we've looked at kind of the one that's probably the best has been the PCB area metric, that kind of sits in -- last year, it was kind of in the low double-digit range. This year, it's kind of in that mid-single digit to high single digit in a very similar spot to where MSI is. So not a lot of spread between kind of the published PCB metrics versus the MSI metrics.

Outperformance in ICS continues to be led by those 3 growth areas that I talked about before. And I think that will increasingly shift our end market mix in a favorable direction. What we're seeing is, obviously, the strong growth in data centers. As you correctly presumed in your question, I think we're approaching to where that's probably 20% of the portfolio here. We typically will rack and stack that at the end of the year. But I think we're certainly approaching that. And we're seeing kind of an increase from other parts of the industrial economy, whether that's automotive with nice strong increases in autonomous driving trends, with communication infrastructure, aerospace and defense, as we see nice diversification throughout the industrial economy.

And we expect that to accelerate as AI demand starts to penetrate into those other end markets. And obviously, the offset there is probably a little bit of slower growth, more broadly in the consumer electronics space, although we continue to do pretty well for us because our exposure is really connected to the premium side of that market, which has been much more resilient.

And then you mentioned the growth and the move towards 2-, 3-nanometer as well as 12, 14 and 16 angstrom technologies. Maybe you can just give us some brief details there. Are you well positioned? Would you have to make more investments on that side? And what is the timing on some of those developments kind of starting to contribute to profitability at Qnity?

Yes. Thanks, Arun. Look, we're really excited by the technology road maps in both of our segments, the Semi road map, we're really excited. Obviously, we're seeing a lot of benefit from the 3-nanometer volumes that continue to scale. We're hearing great things and excited by the start of 2-nanometer technologies as we get to the second half of the year. Similarly, on the memory side with HBM4, a lot of very positive commentary in the first quarter and in the months that have followed around the progress that our customers are making with HBM4.

And we're excited to see those continue to progress in coming years. I'll leave the exact commercialization timing to kind of the announcements of what some of our customers have said. The investments that we've made over the last couple of years, the investments that we're making this year give us a tremendous amount of confidence that we'll have sufficient capacity to scale up those next-generation technologies with our customer. In particular, I think it's a real benefit for both the polishing and patterning parts of our business. So whether it's CMP or lithography, we're well positioned from a capacity point of view. We continue to see nice wins on POR positions for those angstrom-era nodes. And as those commercialize over the next few years, we'll have sufficient capacity to meet the growth of our customers.

[Operator Instructions] And we show no further questions in queue at this time. This concludes our Q&A session, the call and webcast. You may disconnect your line at this time and have a wonderful day.

Good morning, and welcome to the Qnity Fourth Quarter and Full Year 2025 Conference and Webcast Call. [Operator Instructions] Please be advised that today's call is being recorded. I will now turn the call over to Nahla Azmy, Vice President of Investor Relations. You may begin.

Thank you, and good morning, everyone, and welcome to Qnity's Fourth Quarter and Full Year 2025 Earnings Call. I'm joined by Jon Kemp, Qnity's Chief Executive Officer; and Mike Goss, Qnity's Interim Chief Financial Officer.

Earlier today, we issued our earnings release along with a supplemental slide presentation, which can be found on ir.qnityelectronics.com.

Before we begin, I would like to remind you that today's discussion will include some forward-looking statements. These statements represent our best view of predictions and expectations for the future, but numerous risks and uncertainties may cause actual results to differ. Please refer to our earnings release and SEC filings for a discussion of these risks.

We will also be discussing certain non-GAAP financial measures. And I refer you to our earnings materials for information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measure. With that, it's now my pleasure to turn it over to Jon.

Thank you for joining us this morning for our first earnings call as a stand-alone public company. When we launched Qnity late last year, we detailed our focus on establishing ourselves as the premier technology solutions provider across the semiconductor value chain. That means being the partner of choice to customers at every stage from chip fabrication to advanced packaging and interconnect to thermal management. And it means understanding where the market is going so that we can stay one step ahead, delivering more innovative and integrated solutions to address our customers' most complex challenges.

As the industry continues to rapidly evolve, we're proving that the next leap in AI and other advanced technologies will be powered by materials innovation, and that's where Qnity leads, with chip designs becoming more complex, materials that smooth, shape, connect and protect are paramount. As the leading pure-play provider of integrated solutions for the semiconductor value chain, this dynamic creates powerful near and long-term growth drivers for Qnity.

We're leveraging three core structural advantages to capitalize on these demand tailwinds. First, the unparalleled breadth and depth of our portfolio enable us to offer end-to-end solutions to our customers. Second, our innovation capabilities have earned us a seat at the design table with global technology companies. And third, our local-for-local approach with manufacturing facilities and R&D centers located close to customers wherever they operate.

Turning our attention to last year's financial results, our fourth quarter and full year 2025 performance is a testament to the strength of our portfolio, the trust our customers place in us and our ability to execute on our value creation strategy. We delivered our seventh consecutive quarter of strong organic growth, and we outperformed the market exceeding our full year 2025 financial objectives. We grew organic sales by 10%, including strong growth in both operating segments.

Reflecting a full year of stand-alone public company costs, pro forma adjusted operating EBITDA was up 11% year-over-year with strong margins. In our Semiconductor Technologies segment, we grew organic sales 8% in 2025, driven mostly by strong demand for semi fab consumables. AI and high-performance computing led demand drove double-digit sales growth in advanced nodes and advanced packaging, and we benefited from ongoing improvement in mature nodes and NAND.

Our Interconnect Solutions segment had an exceptional year, growing organic sales 12%, led by continued AI and data center tailwinds. Our core drivers in this segment continue to be advanced packaging, advanced interconnects and thermal management.

Across the portfolio, our innovation engine remains at the heart of our growth strategy. In chip fabrication, our customers require improved performance, quality and yield. That's because even small gains in quality or yield can create huge value. We're continuing to execute our strategy to increasingly shift our portfolio to leading-edge technology.

In 2025, our advanced logic and high-bandwidth memory business grew mid-teens. And we made further progress towards reaching the 45% to 50% advanced node exposure target we highlighted at our Investor Day. Our CMP portfolio is evidence of that strategy at work. It's a structurally growing opportunity that's directly linked to advancing the AI semiconductor road map. In October, we introduced our Emblem CMP pad platform, a breakthrough innovation that set a new standard for pad design, defect control and performance. These new pads address the aggressive planarization requirements of the most advanced chips including N3 and N2 Logic and HBM3 and 4 memory. The feedback from customers has been outstanding. And the platform's external recognition underscores the differentiated value we're bringing to the market.

Similarly, we're continuing to see strong growth from our CMP advanced cleans and slurries products across leading-edge logic and memory devices. By targeting specialized formulations, we're building on our leadership in CMP and extending our position in this critical manufacturing process securing new wins across both front-end chip fabrication and advanced packaging.

As you can see, our innovation approach is driven by listening to our customers. building on decades of experience as a partner of choice to leading fabs and OEMs, pushing the boundaries of what's possible and investing in the kind of collaborative innovation that moves the industry forward.

As we continue to roll out new solutions, our process of record, or POR, wins are building meaningful long-term momentum. These wins are tied to high-growth opportunities aligned directly with our customers' technology road map. And in 2025, we secured POR wins across every single line of business. These wins represent early design selections that typically scale into commercial production over the next 2 to 3 years, positioning our technology to be embedded in future generations of semiconductors and other advanced electronics. This only deepens our level of partnership and expands our content with leading players in the semiconductor value chain and gives us greater visibility into future sales growth and conviction that our strategy is working.

Our top priority is creating additional high-value opportunities to progress alongside customer road maps. And we're committed to making the R&D and manufacturing capacity investments necessary to support the strong advanced node ramp activity we expect in 2026 and beyond. Given this surge in activity, I'd like to share some more details on what we're currently seeing in each of our segments and how we expect our end markets to evolve in 2026.

In semi, customers continue to invest in their most advanced technologies. In advanced logic, this includes the continued scaling of 3-nanometer and early production of 2-nanometer. In memory, we're seeing next-generation DRAM and HBM as well as transitions to higher layer count NAND architectures. We remain ideally positioned to capitalize on this shift through both the increased use of more complex 3D structures and the adoption of more chip layers, giving us a stable, repeatable revenue stream as production volumes increase.

In ICS, advanced packaging continues to be a core theme of every recent customer conversation because of the central role it plays in unlocking next-generation technologies, including increasing chip density and performance while also reducing power consumption, facilitating development of smaller, more efficient devices.

One of the reasons Qnity is so well positioned to capture meaningful growth in advanced packaging is because it integrates solutions from both semi and ICS. In 2025, advanced packaging solutions represented approximately 10% of Qnity net sales. From an end market perspective, our portfolio continues to evolve based on more durable structural demand shifts. Data centers are where we're seeing the most benefit from these dynamics.

However, we're also seeing continued signs of increasing content and demand recovery in other industrial markets like automotive, communication infrastructure and aerospace and defense. As these end markets start to incorporate more advanced AI-driven technology into applications, we expect meaningful opportunities to continue increasing Qnity's content.

On the consumer side, next-generation devices are increasingly shifting towards edge computing, meaning on-device generative AI, which is also requiring greater content opportunities for us. The significant demand for AI and high-performance computing workloads is creating additional pressure on the global memory market. We continue to watch for signs of potential downstream impacts into end market demand. The key here is that our exposure is primarily to premium devices, which we expect to be a more resilient part of the market.

I also want to mention some of the trends we're seeing on the ground floor, namely the ongoing improvement in fab utilization rates. In advanced logic, we expect utilization to increase from the high 70s at year-end 2025 to low to mid-80s in 2026, while mature logic will continue improving towards the mid- to high 70s. In memory, we expect DRAM fab utilization to increase from mid-80s in 2025 to high 80s while NAND utilization is expected to reach the upper 70s or low 80s in 2026.

With strong utilization rates and accelerating capacity expansion, more than ever customers are prioritizing supply security. We've spent the past several years making strategic investments in capacity and capabilities across our network to support growth in advanced logic and memory as well as advanced packaging and thermal materials.

Our local-for-local model and recent expansion throughout Asia and the United States position Qnity to capture additional content and share while ensuring long-term strategic relevance.

Before turning the call over to Mike, I'd like to touch on the multiyear transformation plan we're also announcing today, which is expected to deliver approximately $100 million EBITDA run rate benefit by the end of 2028. This plan, which Mike will step through in more detail, reflects our commitment to continuous improvement and ensuring Qnity remains well positioned to lead in the markets we serve across the semiconductor value chain. It's all about driving future growth and profitability by simplifying our operating structure, increasing quality and efficiency, unlocking innovation capacity and concentrating our efforts on high-potential markets and customers.

With that, I'll turn it over to our Interim CFO, Mike Goss, to discuss our financial results and 2026 guidance. Mike brings deep experience and knowledge of the business, having served as Qnity's Chief Accounting Officer and FP&A leader. I've known Mike for many years, and we've been fortunate that he was able to jump right in. Mike?

Thanks, Jon, and good morning, everyone. We had a strong finish to the year with fourth quarter net sales of $1.2 billion, up 8% year-over-year as we continue to capitalize on key growth drivers, namely advanced nodes, advanced packaging and interconnects as well as thermal management solutions.

We delivered this strong performance even as $40 million of sales shifted from the fourth quarter to the third due to our spin-related transition as discussed on our last call. Adjusted pro forma operating EBITDA was $349 million and adjusted pro forma EPS for the fourth quarter was $0.82.

For the full year, we grew net sales by 10% to $4.75 billion and achieved adjusted pro forma operating EBITDA of $1.4 billion, resulting in adjusted pro forma operating EBITDA margin of 29.5%. Margins reflect segment mix dynamics as the strong growth in ICS influenced our overall margin profile.

Adjusted pro forma EPS for the full year was $3.35, equating to a 12% year-over-year increase, including adjustments for amortization expense and other non-recurring items.

Let me provide a little more detail on how each business segment performed this year.

In semi, we delivered net sales of $2.65 billion with organic growth of 8%, led by double-digit growth from semi-fab consumables, including CMP pads, cleans and slurries, and lithography as we benefited from stronger fab utilization and increased content. Our adjusted pro forma operating EBITDA margin was just above 35%, as strong growth was partially offset by product mix and strategic growth investments.

In Interconnect Solutions, we delivered net sales of $2.1 billion with organic growth of 12%, led by advanced packaging, advanced interconnects and thermal management, all of which increased more than 20% for the year as we scaled up several exciting wins at leading fabs and OEMs.

As a reminder, these are the fastest-growing solutions in our ICS portfolio, which led to significant operating leverage for the year.

Segment adjusted pro forma operating EBITDA margin was just over 25% as strong growth more than offset strategic investments driving margin expansion of over 175 basis points year-over-year.

For the full year, we generated $706 million of adjusted pro forma free cash flow, equating to 15% of net sales, reflecting strong operating performance, disciplined execution and favorable working capital following the spin. At year-end, our total cash balance was over $900 million. This healthy cash position enhances our overall financial flexibility enabling us to fund strategic investments and maintain a balanced return-focused capital allocation framework.

At our Investor Day last fall, we outlined a clear and comprehensive set of capital allocation priorities. Our first priority will always be organic reinvestment into the business to sustain above-market growth. We anticipate elevating CapEx investment in 2026 to 9% of sales, driven by investments to strengthen our local-for-local footprint in key geographies and our transformation initiatives.

Consistent with our midterm financial objectives, we expect CapEx to return to our normal run rate of roughly 6% of net sales in future years.

As Jon highlighted, the industry is continuing to see advanced node ramp activity in 2026, supported by substantial global investment. Over the last 3 years, we've added new capacity in all of our semi businesses, and we'll continue to invest in growth to keep pace with the industry.

Importantly, as these near-term investments moderate and CapEx returns to our normalized run rate, we expect free cash flow margins to be in the mid-teens as a percentage of net sales. With our strong financial position, we have the optionality to explore selective accretive M&A. The industry is growing rapidly, and we view acquisitions as a compelling use of capital to bolster our trajectory. We're actively pursuing a robust pipeline that would further enhance our portfolio and will remain disciplined in evaluating any potential transactions.

We're also committed to capital returns. In December, we declared our first quarter dividend. In addition, today, we announced that our Board of Directors approved a $500 million share repurchase authorization. This program is designed to provide flexibility for opportunistic purchases depending on market conditions.

Finally, we have the option to voluntarily pay down debt to continue strengthening our balance sheet. We ended the year with net leverage of approximately 2.2x, well below our long-term target of less than 3x.

I'd now like to share some additional details on our transformation plan, which we expect to further improve our growth potential and financial strength. Our actions will focus on 3 key areas: first, commercial and innovation excellence to enhance speed and sales effectiveness, deepen our foothold with customers on the cutting edge of technology and continue spurring innovation within our powerful R&D engine.

Second, driving productivity and quality improvements across the company through operational automation and tailored AI applications. This work will be further enabled by our ongoing IT systems independence effort.

Finally, strengthening our local-for-local operating model by streamlining our supply chain, simplifying our legal entity structure and optimizing our footprint to more effectively leverage our scale.

We expect these combined actions to deliver approximately $100 million in EBITDA run rate benefit by the end of 2028 with approximately $140 million in cost to achieve over the next 2 to 3 years. We will pursue long-term structural investments executing against 3 key areas during these early phases of the program, resulting in a majority of these onetime costs occurring in 2026 and 2027.

Now I'd like to talk about our financial guidance for 2026. Overall, our strong financial performance in 2025 positions us to enter the year with solid momentum. Looking ahead, our competitive advantages and consistent execution give us confidence in our ability to continue driving growth as we capitalize on the demand trends we're seeing across end markets, fueled by AI, high-performance computing and advanced connectivity. MSI wafer start data remains a good indicator for Qnity's overall demand, and we continue to expect MSI to grow approximately mid-single digits this year. For full year 2026, we expect net sales to be in the range of $4.97 billion to $5.17 billion. Adjusted operating EBITDA to be in the range of $1.465 billion to $1.575 billion, adjusted EPS to be in the range of $3.55 to $3.95 and adjusted free cash flow to be in the range of $450 million to $550 million.

Looking ahead at the first quarter, momentum from AI-led demand continues across high-performance computing and advanced connectivity with notable strength in the ICS segment. Overall, we expect sequential net sales growth high single digits with a similar margin profile to the fourth quarter. Our team continues to be focused on keeping pace with customer demand and delivering solutions for the most advanced technologies.

With that, let me turn it back over to Jon for his final thoughts before we begin the Q&A.

Thanks, Mike. I'd like to briefly recap a few key takeaways from today's discussion.

First, we sustained our strong organic growth momentum in 2025 and delivered on each of our financial objectives for the year. Our newly introduced full year 2026 guidance reflects our conviction that we can continue building on this momentum.

Second, we've established ourselves as a partner of choice to customers in the semiconductor value chain, and we are relentlessly focused on investing in cutting-edge innovation and capacity to create high-value growth opportunities alongside our customers.

Finally, as we look ahead, we're taking decisive steps to create even more value for shareholders, including our transformation plan and share repurchase authorization, providing avenues to increase returns.

In short, our team is focused on delivering on our strategic priorities. We have strong confidence in the strength of our platform and our ability to capitalize on the opportunities ahead. Thank you again for joining. Operator, we can now open the line for Q&A.

[Operator Instructions] And we'll go first to Bhavesh Lodaya with BMO Capital Markets.

Semiconductor trends are pretty strong here. I appreciate some of the color you provided on your prepared remarks. As we look at your EBITDA guide, can you provide some thoughts on what you're building into that, maybe perhaps on MSI, PCBs or any of the key metrics that you would like to touch on?

Yes. Thanks, Bhavesh. I appreciate that. And when we think about it, we're expecting MSI -- as Mike indicated in his prepared remarks, we're expecting MSI to be mid-single digits, not terribly different from what we saw in 2025. And I would say on the printed circuit board side -- we believe MSI is the best overall indicator. But if you look at the indicators around PCB, they're kind of in that same ballpark kind of that mid-single-digit range. So there's not a lot of spread between some of the broader macro indicators, which is really kind of why we've anchored our guidance to kind of where the -- right down the fairway towards where the market estimates are plus our outperformance content advantage, which is kind of how we got to the midpoint of the guidance range that we gave today.

Got it. And in terms of -- if I caught the tail end of your remarks, correct, for the first quarter, you're expecting high single-digit top line growth sequentially and similar margins to fourth quarter. Could you touch on how you see -- just because it's your first year, could you touch on how your quarterly cadence is for the year?

Yes. Thanks for the question. At a high level, ever since we came out of the 2023 downturn, we've seen less seasonality in our business. And so as we move into 2026, the guide we have for the first quarter, like we said, is high single digits. And we will expect to see consistent steady performance through the year. We do tend to see a peak -- a little bit of a peak in the third quarter. But overall, we do see that steady performance through the year, and that's what reflected in our -- at least in our first quarter guide that we talked about.

And I would say that's not terribly different from what we saw in 2025. But keep in mind, as Mike alluded to in his prepared remarks, we had a little bit of a timing swing of some sales in the third quarter, which created a little bit of an elevated peak in the third quarter of 2025 because of the IT system cutover. But if you strip that out, we expect a very similar seasonal pattern in 2025, 2026.

Thank you. And we'll go next to John Roberts with Mizuho.

The base tax rate in 2026 is low 20%. That's a nice improvement from the initial pro forma rate, but it's still above many of our other companies. Do you have a long-term rate target? And how much further reduction in tax rate do you think you can do?

Yes. Thanks, John. It's a good question. At a high level, we've seen nice improvement, obviously, from '25 versus what we're forecasting for '26.

Over the medium term, I expect we'll continue to work through that and eventually get into a place consistent with our peers in that high-teens percentage.

Great. And then is CMP used in advanced packaging as well? Is there a planarization step before the devices are directly connected to each other?

Yes, John, great question. So at a high level, yes, CMP processes, including pads, slurries, cleans are used in advanced packaging. It's one of the fastest growth areas within our advanced packaging portfolio, and that continues to increase over time as you get into taller, more complex structures, the planarization to ensure that really efficient copper-to-copper bonding, whether that's in traditional formats or even going to hybrid bonding format, that planarization step is critical for advanced packaging.

And we'll move next to Christopher Parkinson with Wolfe Research.

So I'll keep it simple. Now that you're a fully independent company and you've gone through the CMD and kind of all the outlooks and we have a pretty good sense of your algo relative to your end market expectations. How should we be thinking about op leverage throughout the year in both semi and ICS, where you've been in the last couple of quarters and where you expect to be and kind of what the Street should be monitoring to assess that aspect of your business?

Yes. John (sic) [ Chris ], I think that overall, I think our -- if you take a look at how we performed in 2025, I think we're pleased with that performance. Given the relative segment mix, that 29.5% overall margin performance, 40 bps of margin expansion year-over-year is a nice outcome, obviously, really strong operating leverage within the ICS segment.

Within the semi segment, margins came in kind of in the mid-30s, kind of right in line with our expectations in that business with all of the intense activity around the scaling of advanced nodes, we've made some incremental investments in our R&D and engineering organizations to support the scale-up of those advanced nodes. And so -- and within there -- from any quarter-to-quarter, there's always a little bit of fluctuation in product mix, and that's what's really driving that in that segment.

When you look at the ICS business, you look at where the growth drivers of that business continue to be between advanced packaging, advanced interconnects and thermal management, all of those grew more than 20% in 2025. Those are also the highest value parts of that business. And so we got the benefit of really great volumes in that business combined with some favorable product mix, that led to the 175 basis points of margin expansion.

I would expect kind of similar dynamics next year and we've talked about even going back to our Capital Markets Day that we believe that the Interconnect segment had opportunity to kind of grow margins at a faster pace than semi. But over time, I think there's opportunity to do better in both segments.

Great. And a quick follow-up. Can you just -- once again, a lot of moving parts out of the spin on the balance sheet, free cash flow and people are going to be pleasantly surprised with the $500 million share repo.

But in terms of just the free cash flow in terms of the outlook conversion, where you currently are and where you expect to be, can you give us a little walk throughout the year and how you think -- how you believe things are ultimately going to play out?

Yes. Thanks. Great question. Yes, we've ended the year with obviously a real strong cash position and strong cash flow generation in the $700 million range. And as you said, in the guide for '26, we are guiding to about $500 million of free cash flow on an adjusted basis.

And that's really driven by -- the main update is our accelerated or elevated, rather, CapEx to around 9% of sales, and that's driven by the continued ramps that we're seeing in node transitions. And so we're accelerating or elevating that CapEx to support our local-for-local investments.

We also have the IT independence work that we're continuing through as well as the transformation program that we've announced today. And so that really drives an elevated CapEx in '26. And that's the main driver versus what we talked about back at Investor Day and puts us in that $500 million range of free cash flow for the year.

What I would add, Chris, there is the way that we think about it is this business really kind of generates cash flow on an annual basis in that mid-teens percentage of sales, right? And so that's really kind of as you think about us over time. Mike said, we've got some of these onetime items that will influence kind of the cash flow in 2026. But over time, we should be generating cash in that mid-teens percent of sales.

We'll go next to Jim Schneider with Goldman Sachs.

I was wondering if you could maybe address specifically how you expect the Interconnect growth to play out over the course of 2026, whether that's sort of higher or lower than the overall corporate average you outlined? And the reason I ask is because as you talked about the memory pricing seems to be generating some demand destruction in the consumer electronic supply chain particularly in China.

So maybe can you talk about whether you baked in any kind of material headwind in ICS for this year? And then related to that, can you specifically talk about your China sales in the quarter and what you're expecting for China over the course of this year?

Jim, you'll have to help me. I think that was like 3 or 4 questions in one. So I'll try and cover some of these pieces. Maybe I'll start with -- just to road map this a little bit, I'll start with some of the dynamics that we're seeing in the memory market. I'll give it to Mike and have him comment on kind of the ICS segment, how we think about kind of the segment differences between the segments and the year, and then I'll come back to your China question to finish.

So when we think about -- from a growth perspective, we're excited about the progress that the memory market continues to make, especially in next-generation DRAM and HBM as well as the ongoing transition to higher layer count NAND architectures. We're capturing nice growth from rising content in those advanced technologies, and we're still seeing utilization rates. Obviously, there's some capacity concerns there that I think everybody is aware of. It's been a hot topic over the last few weeks.

I just want to level set, our exposure to the memory market is about 20% of our semi portfolio. About 80% is on the logic side. And within memory, our exposure is largely driven to unit-driven consumables. So kind of take pricing kind of out of the equation. It's really driven by the volumes on that side. It is important to note that our exposure is primarily on what I would call premium devices. And in any type of constrained environment, we would expect premium devices to be the more resilient side of the overall market, which kind of limits our relative exposure.

Obviously, we're closely monitoring the situation in constant conversations with our customers. And then if you take a step back for a minute and you think about where these chips are going, whether they're going to data centers or whether they're going to consumer devices, we're really well positioned to pick up that demand no matter which end market it ultimately goes to. And that's kind of why we feel really good about kind of our growth prospects for the year. Mike, I'll hand it off to you.

Yes. Thanks, Jon. And just to reground obviously, we've guided for our first quarter at high single digits for the total company. And for full year, we've got a midpoint -- the implied midpoint in our guidance put sales at that a little over 6.5% growth year-over-year. And obviously, that's a mix of the two segments.

We exited the year nicely with ICS continuing to see a lot of strength where they outperformed the semi growth a bit. And so we're really expecting to see that same momentum and that same mix profile continue through the year where ICS will be probably a little bit stronger than semi.

And maybe just to finish up, Jim, on your -- on the China question to come back to that. China remains a critical market for us given its central role in the semiconductor value chain and its position as just a large domestic market as well.

In 2025, China grew high single digits for us. Frankly, that was better than what we were expecting. And China accounted for just over 30% of our total sales, also kind of in line with our expectations. In terms of what we're seeing on the ground floor in China, I would say that particularly in the second half of the year, we sort of normalize to what I would say, the same type of buying behavior we see in other geographies, namely that customers are buying based on a combination of performance, quality and supply reliability. And that's where our local-for-local operating model really serves us well in places like China because we have that really well built out local infrastructure to be able to serve the market.

If you think about it from a growth perspective, I mentioned the high single-digit growth rate in China. We are seeing faster growth kind of every -- in all of our other geographies. The rest of Asia as well as the Americas both grew double digit for us over the course of the year, and we're expecting similar dynamics going into 2026.

And we'll go next to Arun Viswanathan with RBC Capital Markets.

I guess I just wanted to ask a question about the guidance, first of all. So at the low end, I think you're up about 4.5%. What would be some of the things that would maybe push you towards that end? And similarly, at the high end, it's pretty significant growth. So maybe you can just kind of help us frame that -- those 2 ranges as well?

Yes, Arun, thanks for the question. When you think about the guidance range and some of the puts and takes, obviously, I characterized it before with Bhavesh's question on kind of what got us to the midpoint of the guide.

When you think about kind of the low end of the range, what would have to happen for that to happen, it would be kind of more constraints really coming from the memory market and if that started to see kind of significant demand destruction that's outside the parameters of how we think the year is going to unfold.

If you go to the high end, a lot of the growth expectations that we have this year, given the strong utilization rates and the most advanced technologies across our portfolio, it's really tied to capacity expansions at our customers and their ability to scale new node transitions and bring that capacity online.

Obviously, there's a significant amount of global investment in those most advanced technologies, and we're working closely with our customers to help them scale up that production as effectively as possible. If we can get some of that incremental capacity online, we've got a lot of really nice content growth connected to those node transitions and that capacity.

So as it comes online, we'll benefit not just from the volume growth, but from the increased content coming off of those advanced nodes.

Okay. And on the transformation plan, is there a kind of a framework on how we should think that should play out over the next 3 years? Do you expect that -- those gains ratably? And maybe you can just detail some of the initiatives that you're undertaking there? Is it mainly kind of footprint optimization, SG&A reduction? Or what else would you describe as part of the plan?

Yes. Thanks for the question. The transformation initiatives are in a couple of big buckets, as I said in my prepared remarks, really around productivity efforts, commercial and innovation and our local-for-local model.

And I'd say roughly -- of that $100 million benefit for EBITDA, we'll expect to see that come roughly half in the productivity space. And then the other half is split equally across commercial innovation as well as that look for local-for-local model.

As far as what's in our guide for '26, I do expect we'll have a small amount of that benefit and that's reflected in our guide. And then ultimately, the remainder of that benefit comes in the 2027, 2028 time frame.

Maybe just to give you a little bit of specifics on some of the things we're excited about or as part of that within the productivity space, we're excited to really go aggressively after deploying some of the automation and tailored AI applications that we believe will help unlock incremental capacity, strengthen our quality and ultimately improve our supply resiliency for our customers. That's a nice lever there.

Some of the procure -- I think there are some procurement benefits and there's also some simplifications in our supply chain around optimizing our warehouse presence and how we're positioned around the globe to better serve our customers.

I mean if you think in some of the other categories, particularly on the commercial and innovation excellence, it's really about how we're driving the right level of attention to each of our customer segments. Obviously, historically, we've had a really strong focus kind of on our top 10, and we've talked about that in the past. But there's a lot of folks in the middle and maybe at the lower end that we can still do better with. And so taking advantage of digital tools to make sure that we can serve the customers more effectively and accelerate and on the innovation side, deploying some of those tools to increase the clock speed and the pace of our product development, which ultimately will give us an opportunity to work on more engaging with our customers.

Over the past few years, we've seen a steady increase in the number of engagements that we have with customers and OEMs, and we want to unlock the innovation capacity to support as many of those as possible. So those are some of the bigger items inside this transformation program.

We'll go next to Melissa Weathers with Deutsche Bank.

I wanted to, I guess, first, talk a little more high level on the ICS business. It seems like there's a lot of innovation happening over the next 2 years on the packaging side, on the thermal side. The thermal side is the piece that I understand the least. I think a lot of semiconductor investors don't really get that part of the story. So can you talk about as we think about the next 2 years, like which parts of this ICS business should we be excited for, what kind of content increases should we be expecting maybe on a per device basis?

Yes. So when you think about kind of the ICS business, the 3 core drivers in that business are really advanced packaging, advanced interconnect and thermal management. Within the advanced packaging space, we've got new technologies on solder and copper interconnect chemistry, which really brings great surface uniformity and purity to help make sure that those advanced packaging, you're maintaining the right level of signal integrity and reliability.

And it's being broadly adopted from kind of our key fab as well as the OSAT customers that are really driving the growth in advanced packaging. We're also doing some -- in the advanced interconnect space, it's really getting to upgrading the circuit board technology from traditional circuit boards to high layer count and HDI circuit board where you're getting finer lines and tighter spaces in order to help drive the signal reliability in places like data centers.

And as you do that, you're starting to get into -- that's again where there's nice technology leverage between kind of what maybe we were using 10, 15 years ago in the semi side is now relevant on the ICS side because of the tighter lines and spaces that those circuit boards are doing. So really nice technology leverage as you get into high-density interconnect and high layer count circuit board.

And then on the thermal side, this is -- all 3 of these spaces grew by 20% year-over-year in 2025, and they will really continue to be the source of growth going forward.

On the thermal side, we've launched some new novel technologies in both thermal pads as well as gap filler -- liquid gap fillers, some phase change materials, and we're excited by other innovations and working closely with some of our OEM partners. Obviously, it's a critical need, especially in the data center segment.

And we've seen a rapid adoption by a lot of the cloud service providing companies and OEMs in that space, and we're excited by the opportunity to continue to partner with them to bring these next-generation thermal solutions into the market.

All of this is connected to what I said in my prepared remarks really around kind of the increasing number of POR wins across every business.

If I could squeeze one more in. Just on the mainstream side, the mainstream nodes in foundry logic. I get -- it seems like you're expecting utilization to maybe gradually improve throughout the year. I think we've heard some pretty mixed takes from like, say, the analog or the power semi guys on the demand trends they're seeing. So can you just give a little more color on what you're seeing in mainstream nodes, maybe across, I don't know, end markets? Just any other color there would be helpful.

Yes, happy to do that. So at a high level, I would say that we're encouraged by the ongoing recovery in mature logic. We believe that inventories are relatively healthy. Customers are already seeing small sequential improvements in utilization rates. I think we've seen that from a lot of those players kind of through this earnings season. We expect the recovery will likely, from a pacing standpoint, continue to be relatively modest given the connection to the global memory market.

From a utilization point of view, we expect utilization rates, which kind of steadily improved through 2025 from the low 70s into the mid-70s. I would say our expectations are for a similar pace -- a similar recovery in 2026 as to what we saw in 2025, maybe going from the mid-70 year-end to the mid, maybe even start to get into the high 70s range depending on the availability and kind of how the broader industrial economy goes.

Obviously, the biggest drivers there, the data center markets have done really well. And I think there's plenty of room in the broader industrial economy across communication infrastructure and automotive just to name a few for us to have some additional wins. And as we see that, that's really what will allow kind of the semi segment to get back to kind of the normal -- the more normalized growth rate that we would expect.

And we'll come next to Aleksey Yefremov with KeyBanc Capital Markets.

I wanted to come back to your first quarter comments. I think you talked about high single-digit sequential growth. It does seem quite a bit above your normal seasonality, if I look at the history. Is there anything unusual in Q1? And as a result, are there any consequences for how we should think about second quarter? Is kind of second quarter being flat versus Q1, the best guess for us at this point?

So I'll maybe start there, Aleksey, and then ask Mike to comment further. So when we think about the first quarter, we are seeing some different types of behaviors. Usually, there would be a little bit of a seasonal decline kind of third quarter to fourth quarter and then fourth quarter into first quarter.

I think -- I'll go back to what I mentioned in my prepared remarks around some of the structural demand shift that we're seeing in some of our end markets, that as we get into -- really a lot of the strength in the current market environment is really driven by data center, the high-performance computing. And that -- and the benefits that we're seeing there is sort of overshadowing and the benefits there are greater than the normal seasonal weakness that we would see from consumer electronics.

And I think it's a testament to the strength of our portfolio that we're really well diversified and positioned across different end markets to be able to pick up those benefits. And so the same type of trends that we saw in the fourth quarter results is continuing into the first quarter with that strength. And all things being equal, that's kind of the state of play in the different end markets right now.

As we get through the year, going back to the previous question, to the extent that we start to see opportunities in some of the other parts of the industrial markets, whether it's automotive, communication infrastructure, aerospace and defense, all of those represent nice content as you start to get AI capabilities moving from, say, cloud computing and data centers to edge computing kind of at point of interface, whether that's in the car, at the factory or with the consumer. As we start to see more of that AI capability diversified into different end markets, we expect that will continue to drive fairly robust growth rates. Mike, anything else to add there?

Yes. Thanks, Jon. I think the thing I would add to that is, as I said before in one of the earlier questions, we do expect to see a steady demand through the year with a little bit of a peak in the third quarter. I'd say the other color I'd give is on the back half of the year, we do expect some scale-up on node transitions as well as the ongoing evolution in the memory market dynamics. And so as you'd expect, we'll continue to provide additional perspective and information on what we're seeing as the year progresses.

And I think you said that you had 20% growth and 20% plus growth in both advanced packaging and thermal management, EMI shielding. Kind of a 2-part question. Should we think about those types of growth rates as sort of achievable in your thoughts for '26? And also, it seems to me that thermal management kind of stepped up because I recall you've been talking about kind of growth there in the teens now. It's in the 20s. So is it the case that thermal management growth accelerated?

Yes. Great question, Aleksey. It's obviously a dynamic that we're watching closely, and we're in constant conversations with our customers. If I take a step back and I think about kind of what happened in 2025 and how that plays forward into 2026. In 2025, the ICS business broadly, kind of the custodian of those key technologies, benefited from a lot of available capacity that was able to rapidly scale up in 2025.

And what we're seeing as we go into 2026, obviously, a lot of our customers and folks throughout the industry are making significant investments to expand the capacity for both advanced packaging as well as kind of the place in the manufacturing process where the thermal materials would get added as a lot of the pacing and the growth rates that we expect in 2026 are largely driven by the incremental capacity that our customers are able to bring online.

So demand is strong in those areas. So it's not a matter of demand. It's really a matter of how fast can we get that incremental capacity online. And then we'll work with our customers as we make those -- we're pretty consistently getting increasing content wins with the customers in both of those areas. So as that incremental capacity comes online, we're confident in our ability to sustain that growth.

And our last question comes from Edward Yang with Oppenheimer.

Jon, nice quarter. I just wanted to come back to the level of conservatism that's embedded in the 2026 revenue guide around 6.5% or so. And again, if we step back, you did 10% growth in 2025. It looks like according to the first quarter guidance, up high single digits sequentially, that would mean you'd be growing more like mid-teens year-over-year growth in the first quarter.

So is it just conservatism? And Mike talked about, again, steady growth throughout the year and even possibly second half, I guess, inflection, which would be consistent with what we're hearing from the rest of the semi food chain. So just some additional color to tie everything together, I suppose.

Sure, Ed. I think what I would what I would maybe start with is just go back to kind of where we started the Q&A part of today in terms of how did we get to the midpoint of the guide. The midpoint of the guide was really anchored around the expectations for MSI and the PCB market as the 2 best market indicators, both of those kind of being in that mid-single-digit range.

And then adding on that, our expectations that we can outperform that. Obviously, we had nice outperformance in 2026 (sic) [ 2025 ]. I'd like to think that we can be able to -- we're in a good position to be able to sustain that outperformance.

To some extent, it is contingent on getting some of the incremental capacity for those most advanced technologies. And then obviously, the memory market dynamics that we talked about is what's kind of keeping us a little bit on the -- we want to take a little bit more of a wait-and-see approach to see how that continues to evolve as we get into the year. And kind of given where we're at in the first quarter, obviously, we're highly confident in where we're at for the first quarter.

And then we'll provide additional color as to how these dynamics are unfolding as we get to the second half of the year. Mike, anything else you'd add there?

Yes. I think the other thing I would add is just anchoring back to our overall midterm framework with sales growth in that 6% to 7% range, and that's part of what drove the midpoint of the guide that we have this year, obviously, we're continuing to see, as Jon said, the mix dynamics between the 2 segments, and we'll obviously continue to strive for opportunities to drive margin expansion from volume and product mix enhancement as we continue to serve and see growth in the most advanced technology.

So over time, I would also expect the transformation program that we're launching to help drive that enhanced performance as we move through the year.

Okay. And for my follow-up, I just want to come back to this, I guess, your leverage to the memory cycle and the various puts and takes. And obviously, we understand what the upside is from your exposure to the memory cycle.

And Jon, you touched on, again, maybe there could be some potential offsets. But I think during the call, you also mentioned you do expect ICS to grow stronger than semi in 2026. So I guess the base scenario, is it fair to say that you're not really seeing any offsets necessarily from higher memory cycle. But again, just to be conservative, you are baking in some potential impacts that may or may not occur.

Yes. I think, Ed, the way that we think about it is, as I said, when I was talking a little bit about the specifics in the memory market is that wherever those memory chips are going, we're going to pick up the benefit of that demand. So it's not so much as a -- some of the reasons why we're confident in that ICS growth is if we're getting growth in the consumer -- from consumer electronics devices, that's great. We've got great content, a lot of that, especially on the premium side of the market, which we expect to be more resilient.

If instead, those chips are being allocated more to serve the needs of data centers. That's -- I might argue that's slightly even more favorable because we're going to pick up probably higher content in data centers and margin than even we will in the consumer electronics side. So we're really well positioned from the diversification of our portfolio to be in a position that no matter where that growth comes from, we're going to be able to pick it up with kind of premium content.

Thank you. At this time, we have reached our allotted time for questions. This does conclude today's question-and-answer session as well as Qnity's Fourth Quarter and Full Year 2025 Call and Webcast. You may now disconnect your line at this time, and have a wonderful day.

Good afternoon, and welcome to the Qnity Business Update Conference and Webcast Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] I will now turn the call over to Nahla Azmy, Vice President of Investor Relations. You may begin.

Thank you. Good afternoon, and thank you for joining Qnity's business update call and a review of our estimated third quarter 2025 results.

This morning, DuPont reported its third quarter performance, including the Electronics co-segment results, which do not include our full allocation of corporate costs or pro forma adjustments. Qnity's earnings are not yet final, and our remarks today are based on estimated pro forma results and carved financials.

We anticipate releasing our full earnings results mid-November when we file our Form 10-Q, including posting additional supplemental information to the IR section of the Qnity Electronics website.

I would like to bring your attention to Slide 2 in our presentation, which notes that we will be discussing forward-looking statements. These statements represent our best view of predictions and expectations for the future, but numerous risks and uncertainties may cause actual results to differ from those provided.

Additionally, we will be discussing certain non-GAAP financial measures. The reconciliation of these non-GAAP financial measures to the closest GAAP measure can be found in the appendix of the presentation.

As for the agenda, we will start with formal remarks by Qnity's Chief Executive Officer, Jon Kemp; and Chief Financial Officer, Matt Harbaugh. We will then follow with a Q&A session.

Now it's my pleasure to turn this over to Jon Kemp. Jon?

Thanks, Nahla. Good afternoon, everyone. Thanks for joining us. It's an honor to speak with you today for the first time as CEO of Qnity following our spin on November 1. This moment marks more than the launch of a new company, it's the beginning of a bold chapter.

I want to take a moment to thank DuPont, our Board of Directors and the Qnity team, whose dedication, vision and hard work made the spin and successful launch of our new company possible.

Over the past few weeks, Matt and I met with many of you. Thank you for the opportunity to share Qnity's compelling story and for your insights and support, as we crossed the finish line for the spin.

While the company is new, it's built on more than 50 years of technology and innovation leadership and our deep and lasting customer relationships continue to be one of our greatest strengths.

Over the past few months, I've had countless conversations with customers around the globe from chip fabricators to leading OEMs. And what's clear is that Qnity is seen as a trusted partner with the scale and technical depth and breadth to enable their next-generation technologies. We've worked hard to earn their trust and their confidence, and it's a testament to the impact our teams are making. It reflects the depth of our commitment to delivering the latest technology innovations at an exceptional level of quality, coupled with both speed and reliability.

Let's turn to Slide 4. As you can see, we've had a big week. As planned on November 1, we completed the spin and launched Qnity as an independent pure-play electronics company focused on solutions for the semiconductor value chain. On November 3, we started regular way trading on the New York Stock Exchange under the stock ticker Q, and we joined the ranks of the S&P 500.

When we spoke to you at Investor Day in September, we told you about our strategic path and operating model to achieve above-market growth and strong profitability. The third quarter results we're sharing today are solid evidence of our ability to stay focused and continue to execute during transformational change while also delivering for our customers and driving consistent financial performance for shareholders.

We've delivered 6 consecutive quarters of sustained strong organic growth. We're continuing to build momentum and invest in the fastest-growing, highest margin areas with a robust innovation pipeline, a true competitive advantage. And we're making meaningful progress shaping a culture that keeps us focused on what truly matters: our customers, innovation, speed and our people, empowering us to deliver with purpose and agility at a pace our customers require.

With that foundation, let's dive into our third quarter performance, where the results speak to the power of our execution and the value we are creating. We had solid third quarter results driven by AI-related customer demand from advanced nodes, advanced packaging and thermal management.

On a year-over-year basis, net sales were up 11% at about $1.3 billion, with organic growth up 10%. Our results include spin-related timing adjustments on orders contributing to a 3% lift in the quarter. Our estimated adjusted pro forma operating EBITDA was up 6% in the quarter year-over-year, which equates to an estimated 29% margin.

These preliminary results reflect the strength of our portfolio and the continuing wins in leading-edge innovation we're delivering to customers, making us their partner of choice with a broad range of offerings and deep application engineering expertise that enable true end-to-end solutions.

Based on the strength of our third quarter results, we're raising our 2025 full year net sales guidance to $4.7 billion. We're also reaffirming our estimated adjusted pro forma operating EBITDA of approximately $1.4 billion and margin of roughly 30%.

Before I turn things over to Matt, let me cover a few macro trends we're seeing broadly across the industry. The semiconductor market recovery continues to be fueled by the adoption of leading-edge technologies for AI applications, including advanced logic, high-bandwidth memory, advanced packaging and thermal solutions.

We believe customer utilization rates have improved slightly since last quarter, averaging in the high 70% range, led by advanced logic in the high 70s and DRAM in the mid-80s. More recent customer feedback suggests slow improvement in mature logic, although still in the mid-70s. And while NAND commentary has improved, overall utilization has remained steady, also in the mid-70s.

MSI wafer start data remains a good indicator for Qnity's demand, given that about 90% of our portfolio is made up of consumable products that are used with every unit produced. We expect MSI to grow mid-single digits this year. We continue to outperform wafer starts driven by our leadership position in next-generation technologies, such as CMP pads, cleans and slurries; advanced packaging with metallization and substrates; and thermal applications at the chip, package and device level.

With strong company performance and improving semiconductor demand signals, let me turn the call over to Matt to share a more detailed look at our third quarter preliminary results.

Thanks, Jon. Today's preliminary results reflect anticipated recurring stand-alone public company costs, carve-related items and management adjustments similar to prior quarters disclosed in our Form 10 and the accompanying supplemental information. These reconciliations and bridges will provide a clear view of our underlying performance and the impact of our ongoing transition to a stand-alone public company.

In the third quarter, we delivered net sales of $1.3 billion, up 11% year-over-year with 10% organic growth and 1% benefit from currency. The major drivers fueling this growth were advanced nodes, advanced packaging and thermal management, including AI-driven applications. In addition, order timing contributed approximately $40 million in net sales from the fourth quarter into the third quarter in advance of our IT systems transition prior to the spin.

Sales in the Americas and Asia were very strong for the quarter in both segments. China net sales in the third quarter were 31% and flat versus third quarter 2024, in line with normalizing trends. Preliminary adjusted pro forma operating EBITDA for the quarter is estimated to be approximately $370 million, up approximately 6% year-over-year, including a 2% currency headwind.

EBITDA margin was approximately 29%. While volume growth was strong, margin expansion was tempered by net sales mix where interconnect solutions grew faster than semiconductor technologies, but at lower average margins in the mid-20s as a percentage of net sales. Additionally, we made selective growth investments to improve both R&D and supply chain capabilities.

Let's shift to our business segments on Slide 6. The Semiconductor Technologies segment posted $692 million in net sales with volume growth of 9% and estimated adjusted pro forma EBITDA margin in the mid-30s. This was led by end market demand strength, as we benefited from content gains in advanced nodes, share gains and improved customer utilization rates, as Jon mentioned earlier.

Our Interconnect Solutions segment delivered higher-than-expected net sales of $583 million with volume growth of 15% and estimated adjusted pro forma EBITDA margin in the mid-20s. This growth was led by strength from AI-driven technology ramps, including advanced packaging, high layer count PCBs and thermal solutions for data centers in addition to growth from other industrial end markets such as aerospace, defense and automotive.

While the broader semiconductor market is still recovering, we saw accelerated growth across several parts of our Interconnect segment, highlighting the strength of our portfolio diversification across the entirety of the semi and advanced electronics value chain.

As we look ahead, our fundamentals remain strong. 2/3 of our portfolio is directly tied to semiconductors, including chip fabrication, advanced packaging and thermal management. About half of our net sales are driven by chip fabrication, where we are already a key player, especially in areas like CMP pads, cleans and slurries as well as lithography materials. These areas are critical enablers of AI, high-performance computing and advanced connectivity, and they will continue to fuel our growth.

To ensure our results are transparent and comparable, we will provide detailed reconciliations between our results from the third quarter as a business segment within DuPont, bridging to our pro forma adjusted operating EBITDA for Qnity at the time of our 10-Q filing in a few weeks.

Now let's turn to the fourth quarter and our full year guidance. While our third quarter net sales were exceptionally strong, it's important to remember that approximately $40 million of the third quarter strength was accelerated due to IT-related order timing ahead of the spin. Considering this a timing effect, our organic growth rate for the third quarter was closer to 7%.

Moving forward to Slide 7. On a full year 2025 basis, we are guiding to approximately 9% net sales growth. This outlook reflects our confidence in continued electronics market recovery and our strong execution, but also incorporates a prudent normalization, as the temporary third quarter timing shift will not repeat.

As Jon highlighted earlier, today, we are updating our full year guidance to $4.7 billion in net sales and reaffirming the estimated $1.4 billion in adjusted pro forma operating EBITDA, representing 9% top line growth, consistent with above-market growth and an estimated 10% EBITDA growth year-over-year.

Adjusted EBITDA margin as a percentage of net sales outlook remains at approximately 30% with continued momentum expected from strong top line growth, mix improvements and productivity initiatives.

As I wrap up, I'll leave you with this: As an independent company, Qnity is well positioned for growth. We have a resilient business model, a strong balance sheet and a clear strategy for value creation.

With that, let me turn it back over to Jon for his final thoughts before we begin the Q&A.

Thank you, Matt. We're proud of the strong third quarter results we've delivered, thanks to the dedication of our teams and the clarity of our strategy. Over the past few months, I've had many energizing conversations, and I want to take a moment to share why I'm so confident in Qnity's future.

With our leading-edge technology, deep customer relationships and our global network that provides local-for-local flexibility, we're well positioned to build on this momentum to support our customers' ongoing growth. Leveraging decades of innovation and leadership, you can see on Slide 8, we sit at the heart of the semiconductor value chain.

Our portfolio allows us to play a critical role across nearly every stage, including chip fabrication, advanced packaging, PCB builds and assembly and display solutions. We've built trusted relationships with leading global companies that represent nearly 80% of the market. Our top 10 customers have partnered with us for an average of 35 years and 7 of the 10 rely on solutions from both segments, underscoring our reputation as a partner of choice.

Turning to Slide 9. Another key strategic advantage underlying our performance is our local-for-local approach. Our manufacturing and R&D facilities are located close to customers, enhancing customer intimacy, strengthening supply chain resiliency and increasing agility to ensure consistent, stable supply. With this footprint and local engagement model, we offer the best of both worlds, close customer collaboration backed by capabilities at scale.

As I wrap up on Slide 10, let me highlight our key priorities moving forward. We'll execute Qnity's strategy to drive continued growth by investing in innovation and partnering with customers. We also plan to further optimize our footprint for both cost and complexity, and we will deploy capital to high-value opportunities.

With a foundation built on decades of experience, Qnity's strategic vision and performance will continue to build value for our shareholders, customers and our team. We look forward to updating you on our progress and engaging with you in the weeks ahead.

Operator, we're ready to take questions.

[Operator Instructions] And we'll take our first question from Jim Schneider with Goldman Sachs.

I was wondering if you could maybe comment on the sort of high-performance compute and AI segment of your business. Maybe quantify what that was in the quarter? And then if you were to take that in isolation, how fast do you expect that segment to grow or that business to grow over, say, the next 3 years structurally?

Yes, Jim, thanks. Obviously, a lot of the growth that we're seeing is coming from the AI high-performance segment. As you think about it, it's one of the several segments in our portfolio. It's worth -- as we talked about at our Investor Day, it's about 15% of the total portfolio. It's obviously growing nicely this year, really through a combination of offerings across both segments within our portfolio, including advanced nodes across both logic and memory as well as advanced packaging capabilities and high layer count printed circuit board.

So really nice diversity of applications going there. I think, as I said before, it's 15% of the portfolio today. It is growing nicely. We talked -- the data centers and advanced packaging, we talked about at Investor Day that growing at the high single digits. I think we're a little bit above that this year, but we expect that to continue to be a strong growth driver through the remainder of this year and into next year going forward.

And then maybe if you could help us in terms of framing the business and the seasonality you typically see into a normal Q1. You've given us enough data points in Q4, but I'm just kind of curious how you think about the seasonality specifically in Q1? Normally, what you expect this year? And then maybe any additional help on seasonality as we model out 2026.

Yes. Thanks, Jim. If you go back and you look at kind of the history of the business, there's not a ton of seasonality to it. There's a little bit of seasonality where you start kind of from a low point in the year in Q1 and then you increase sequentially into Q2 and then you have kind of a modest peak in Q3 and then you kind of drop sequentially a bit in fourth quarter and then into the first quarter and it starts again. But these are not huge fluctuations. It's really driven a little bit more by the Interconnect segment because there's not much seasonality at all in the semiconductor segment.

And I just want to echo -- this is Matt. I want to echo what I said in my prepared remarks. As you're thinking about the quarterly flow, I want you to think about the $40 million that came into the third quarter that would have come into the fourth quarter on a natural basis.

And we'll take our next question from Arun Viswanathan with RBC Capital Markets.

Congrats on a strong quarter as a public company. I guess, first of all, it sounds like your growth was about 7% year-on-year in Q3 ex the onetime event, but your EBITDA growth was in the 6% range year-on-year. Maybe you can just kind of highlight how that EBITDA growth should ultimately get to maybe a higher level than sales growth. I think you were guiding maybe 6% to 7% sales growth longer term and 7% to 9% EBITDA growth. So should we see a little bit more operating leverage come into the model in future periods?

Well, thanks for your comments around a strong quarter. The way we think about it is we did have higher sales in Interconnect Solutions. Therefore, the margins there are in the mid-20 range, EBITDA that is. And semiconductor was a bit under that. So we had a mix shift that was going on.

You'll see in the release the last page, we outlined what the currency effect was on the quarter from a top line perspective. I encourage you to keep that in mind as well. And then we did make some strategic investments in the business during the quarter to set ourselves up well for future quarters and years.

The only thing I would add there, thanks Matt, is -- the only thing I would add there is, we remain confident that as we drive additional volume growth, we'll continue to see the operating leverage that we talked about at the Investor Day. I would also just mention third quarter last year was an exceptionally strong quarter. It was actually our best margin quarter going all the way back to mid-2021.

No, I was just going to make a final comment. I know you didn't really ask about the full year. But I just want to highlight, if you look at our financial estimates that we reaffirmed, we still see good strong underlying profitability in that roughly 30% range EBITDA.

Perfect. And just one follow-up would be on the investment side, you mentioned some organic investments and very strong growth in that 15% AI and advanced HPC area. Do you kind of feel like the capacity there you have is sufficient? Or how do you plan to address kind of future capacity needs if that area continues to grow above expectations?

Yes. Thanks for that. We've been continuously investing in our portfolio, both from an R&D point of view as well from a capital point of view. Over the last -- most of our capital investments, just to size it for you, R&D is kind of the 7% of net sales and CapEx is kind of 6% of net sales. So in aggregate, kind of that 13% of net sales reinvestment in the business.

Over the last 3 or 4 years, we've added capacity to every single one of our semiconductor businesses, planning for kind of the electronics market recovery and coming out of some of the challenges that the whole industry faced during the pandemic. So from a capacity point of view, we're in really good position to be able to support the continued electronics market recovery, and that's contemplated kind of within our guidance range on reinvestment.

And then we're really focused on partnering with our customers on exciting node migrations and node transitions over the next couple of years. We typically are working on node transitions that are 2 to 3 years out from now, while we're scaling up the node transitions that we want from investments that were taking place in 2023 and early 2024.

And we will take our next question from Melissa Weathers of Deutsche Bank.

Congrats on the official spin-out. I'm sure it's a ton of work. So I guess, I wanted to touch on the cyclical side of things. I really appreciate the utilization numbers that you gave across the different semis end markets. So given those utilization levels, can you give us a preliminary, I don't know, sneak peek? Or I guess, what are your assumptions going into 2026 in terms of revenue growth, wafer starts? Do you think that those utilizations will increase? Just any like sneak peek on 2026 would be helpful.

Yes. Thanks, Melissa. I appreciate that. As I mentioned in my prepared remarks, we're seeing wafer starts in the mid-single digits for this year, although we've kind of characterized it as being in the early stages of the recovery with most of the strength really coming from advanced logic and DRAM. I think there's still a bit of uncertainty around forecast for next year and the pace of the recovery around both mature logic as well as NAND.

As I talked about, we were encouraged by some of the improving utilization rates, particularly in improved -- in mature logic. And we're optimistic that we'll see kind of a return to higher growth rates there, as we move into next year. But I think it's a little bit too soon to call exactly what that's going to look like in terms of quantifying it.

What I would say is that as the market recovers, we're -- 35% of our portfolio is exposed to advanced nodes. And that's really what's driving the growth. As we get stronger recovery into the other parts of the market, we'll continue to support the market outperformance above the wafer starts.

Got it. And then for my follow-up, I wanted to ask on the advanced nodes side of things. I think in your deck, you called out node transitions at these advanced nodes. And so in the context of like 2-nanometer gate-all-around nodes that are ramping late this year and then all throughout next year, can you help us size the content opportunity that you guys are seeing? I think you also got maybe some share gains on that side of the business. So any way to help us think about like gate-all-around that transistor shift in the foundry logic space as we move into 2026?

Yes. So obviously, we're really excited by the investments and the pace of the logic transitions -- logic and memory transitions. We're well positioned kind of across both logic and memory for future migrations, whether that's in the logic space with 2A or -- with 2-nanometer or 18A transitions or things that are happening on the DRAM side as well. We're excited by that.

We've been continuously making investments with our customers, particularly in kind of on the front end of the fab in places like our CMP portfolio with pads, cleans and slurries as well as in the advanced packaging part of the portfolio with the metallization substrates and thermal materials.

And we're excited as we've already -- we've seen the benefit of some of those ramps this year that's really allowed us to perform at the levels that we reported. And then as we continue to see more wafer starts start to come into those advanced nodes, that will create even more opportunities for us, especially in CMP. When you go to gate-all-around, the process complexity continues to drive an increased sensitivity to the smoothness of the surface of the wafers as you're trying to manage the architecture of the device that results in more CMP steps and more opportunities for kind of our leading portfolio of CMP solutions.

On the memory side, similar opportunities for CMP, but then also the high-bandwidth memory transitions that creates opportunities for advanced packaging, where we're going to see continued opportunities and growth for metallization substrates and thermal, which is kind of where we've seen the most benefit from the share gains this year.

And we'll take our next question from Bhavesh Lodaya with BMO.

Congrats to the full team here. So as a stand-alone company, I presume it's now easier for you to review your business mix and operations here, makes nimble changes. You mentioned footprint optimization. Could you share early thoughts on what that could look like? Does it also include potentially divesting some platforms, reinvesting in something else, like changing your mix? Any color there?

Yes. So I'll maybe start in reverse order. I'll talk a little bit about how we think about the portfolio and then let Matt talk a little bit about things on the cost side of the house.

When we look at our -- when we think about our portfolio, we're really happy with our portfolio. It's continuing to perform very nicely. I think we've talked about before, we continue to be very interested in pursuing opportunities for inorganic growth and some targeted areas like thermal management, advanced packaging, areas where there would be attractive strategic adjacencies with adding in additional technologies to our portfolio.

We've got a nice set of strategic and financial criteria that we use to evaluate that. And we're really focused on establishing a steady, consistent cadence of performance. And then as we get into next year, we'll look at what opportunities might be available and how we continue to build out the complementary strength into the portfolio.

As you think about how we've been managing the portfolio over time, we always evaluate our portfolio based on from an ROIC point of view and based on the potential returns. And you've seen us do a handful of product line trimming over time, and we'll continue to use that same logic to evaluate the portfolio and make adjustments as necessary. Matt?

Yes. Thank you, Jon. I think the easiest way for me to answer your question is kind of to do a walk down the P&L. Obviously, you know our viewpoint on net sales. We've talked about that a lot of late. So let's talk about our cost of goods sold.

Our team has done an excellent job in taking cost out over time, and we expect that to continue. So we'll see some improvement there. And we'll continue to operate the company and focus on operational excellence and flexibility. Where our opportunities are probably greater would be in the SG&A category, and we're going to look at our footprint and see how it aligns with where the business is going to unfold in the coming years.

We have a big effort to reduce our complexity in IT systems, and we're also looking at legal entities and warehouses as well. So a number of opportunities there. As Jon said earlier on the call, we're going to look to optimize our R&D spend, but keep it at that 7% level. So that should give you some color around how we think about it. We haven't quantified the cost takeout, but we certainly know that that's a real important area to focus on in the coming weeks, months and years.

Appreciate that. And then as a follow-up, Interconnect Solutions continues to grow at double digits here. Can you touch on how advanced packaging and thermal solutions is growing within that? And if possible, any early look into 2026 growth rates?

Yes. So obviously, the strength of the Interconnect segment is being driven by advanced packaging and thermal. I would say we saw growth accelerate off of the first half of the year in both of those areas nicely, as we saw additional opportunities to scale up some of the wins and some incremental capacity become available.

We saw some of those growth rates accelerate into the third quarter. As we get additional capacity available for these different technologies, we would expect to be well positioned to continue to participate in the growth as we see more wafer starts and more volumes come to these technologies.

And we will take our next question from John Roberts with Mizuho Securities.

Your trend line growth targets are for semiconductors to grow faster than the Interconnect segment. How do we think about that being flipped here in the recent results?

Yes, it's a great question. So typically, I would -- the Interconnect segment has had a lot of opportunity to grow because of the significant increases in advanced packaging and thermal, while the mature node part of the semiconductor business has struggled a bit, and that's created kind of an abnormal flip of growth rates where the Interconnect business has seen accelerated growth, whereas we've still demonstrated strong growth from the semiconductor portfolio.

But as we start to see broader recovery across the semiconductor market, I think it creates opportunities for us to see further growth from the full complement of technologies and customers in the portfolio as opposed to kind of what we're seeing today, which is mostly driven by the advanced nodes.

And then how will we get additional financials like the full balance sheet, full income statement? I'm not sure what your requirements are to file here.

Yes. As Nahla mentioned in the prepared remarks, we will be filing in a couple of weeks, and we'll give you as much color as we can give you. So stay tuned.

And we will take our next question from Chris Parkinson with Wolfe Research.

Jon, even before the actual spin was announced, there were what many would classify as a bunch of false starts in terms of the recovery and kind of different ways to think about lagging edge memory, especially for the HBM, obviously ripping to the upside. I mean, as it appears things are turning fairly convincingly, including a lot of customer commentary last week, what -- is there anything you could point to that feels different in terms of the sustainability of the said recovery and how we should be thinking about building a little bit more confidence for '26 and perhaps even '27? Like what's different now versus 6, 12, 18 months ago? Anything specific that jumps to you?

Yes, Chris, maybe 2 things that I would point to. First of all, I think the industry is comfortable that inventory positions are cleared and that we're in a really healthy place from an inventory point of view. And that's -- I think that digestion took longer than anyone expected, but I think we're in a really good spot right now.

And then the other thing I would say is this is the first that -- we've talked about it for a while, but I think this is the first time I've made comments where mature logic utilization rates have actually started to trend in the positive direction. So we've already started to see those utilization rates kind of trend up a little bit.

Clearly, there's room for a lot more improvement from where we're at today, but it's the first time that we started to see those utilization rates start to tick up across the customer base. So those are kind of the 2 things that I would point to that give me more confidence. And then I would just say that a lot of the rest of it depends on some of the macro factors in the broader economy because a lot of those chips, as you know, are going to automotive and other applications in the broader industrial economy.

Got it. And just as a quick follow-up, you've had a lot -- I'm sure you're exhausted. You've had a lot of conversations with both the buy and the sell side over the last several months. What are the 1 or 2 most consistent areas of feedback that you're receiving? Is it about just, hey, just deliver results? Is it something on capital allocation, M&A, more focus on products and explaining those and getting kind of the idea of content and process steps across to the Street? Just what would be the 1 or 2 things that really stuck out to you basically saying like, "I need to do this as an independent company's CEO?"

Yes. Thanks, Chris. I think -- again, I'd say there's probably 2 things. First of all, the conversations that we've had over the last several weeks have been terrific. I've really enjoyed the opportunity to get to know many of you, many of the folks in the investor community. It's been a real pleasure to be able to tell the Qnity story.

I think the 2 pieces of feedback that we've heard pretty consistently is the importance of just focusing on steady, consistent results kind of set the guidance and then beat the guidance and that's certainly where we're focused as a management team is consistently delivering on the results to drive -- continue to drive the customer partnerships and deliver for our customers, maintain that business continuity.

That's one of the things that I'm most pleased about. Even during all of the extra efforts around the spin process that we continue to deliver all of the customer orders and capitalize on opportunities for technology-driven growth, and we continue to have really nice win rates in the innovation portfolio.

So job #1 is really kind of steady, consistent results and performance. I think the other thing that we've heard is a little bit, as people are starting to become more familiar with the portfolio, is really the way in which the 2 segments really kind of naturally fit together that I think has surprised a lot of people as they've gotten to understand.

I think the semi segment was really well understood. There seems to be a lot of solid understanding around what that segment is all about. I think as people have gotten to understand the Interconnect segment and the benefit of advanced packaging and thermal solutions, the overlap across the customer base and the convergence of the technology road maps, I think the power of that integrated solutions and portfolio has really surprised a lot of people. And we've received a lot of questions around kind of how we're leveraging technologies broadly across the market to continue to drive new growth opportunities.

And we will take our final question from Alex Yefremov with KeyBanc Capital Markets.

Congrats. I wanted to ask you about advanced packaging. We talked about node transitions in semis. Is there a similar dynamic where your customers are adopting new technologies where you could gain content and accelerate growth even more perhaps over the next 12 to 18 months?

Yes. Alex, I think a lot of the growth is -- we're going to see continued investment in growth from the existing technologies that we see today internally. CoWos or CoWos-like packaging on the logic side and then the migrations from whether it's HBM3 to 3E to HBM4, you'll see those migrations continue to proliferate over the next 12 to 18 months as we bring on more capacity into those kind of known architectures.

And then I think there's other incremental opportunities that we're pretty excited about in things like where we're working with customers on opportunities like hybrid bonding or even potentially panel-level packaging. Probably a little premature to call when the timing of that would be, but we're certainly excited to continue to work with customers on their technology road maps with some of these more emerging packaging technologies.

And then I think you gave explanation why sales grew faster than EBITDA this quarter. Is this the type of picture we should expect for the next few quarters or should it revert to sort of more typical EBITDA growth faster than sales over the next quarter or 2?

I think this is a little bit of an aberration. The currency dynamic and some of -- the mix dynamic and currency dynamic, the 3 factors that Matt alluded to earlier, I think, are a fairly unique situation. I wouldn't expect those to be structurally ongoing. So I think we see kind of a reversion to our usual typical cadence of performance that we talked about at Investor Day here going forward.

And we have reached our allotted time for questions. This concludes the call and webcast. You may disconnect your line at this time, and have a wonderful day.