What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-30 compared with 2024-08-06 · 157 added, 153 removed, 206 unchanged (60% of the section changed)

3 unchanged sentences

RESULTS OF OPERATIONS

Second Quarter

Second Quarter Ended

June 28, June 30, $ %

Third Quarter

Third Quarter Ended

September 27, September 29, $ %

(Thousands, except per share data) 2024 2023 Change Change

16 unchanged sentences

Diluted earnings per share $ 1.07 $ 1.27 $ (0.20) (16) %

Net sales of $425.9 million in the second quarter of 2024 increased $27.3 million from $398.6 million in the second quarter of 2023.

The increase in net sales was primarily attributable to the Electronic Materials and Performance Materials segments.

Volume increases in the semiconductor (12%), consumer electronics (30%) and aerospace and defense (29%) end markets were partially offset by decreases in the energy (27%) and telecom and data center (53%) end markets.

Additionally, there was a $4.5 million year over year increase in the volume of raw material beryllium hydroxide sales compared to the second quarter of 2023.

Net sales of $436.7 million in the third quarter of 2024 increased $33.6 million from $403.1 million in the third quarter of 2023.

An increase in net sales in the Electronic Materials was partially offset by decreased net sales in the Performance Materials and Precision Optics segments.

The increase in the Electronic Materials segment was primarily due to higher precious metal pass through costs, increasing net sales by approximately $30.3 million when compared to the prior year third quarter.

Volume increases in the semiconductor (11%) and aerospace and defense (30%) end markets were partially offset by a decrease in the telecom and data center (49%) end market as well as decreased sales in the consumer electronic end market (17%) primarily driven by our largest customer.

Additionally, there was a $2.9 million year over year decrease in raw material beryllium hydroxide sales compared to the third quarter of 2023.

See Note B to the Consolidated Financial Statements for additional details on the year over year changes in our net sales by segment and market.

The change in precious metal and copper prices favorably impacted net sales during the second quarter of 2024 by $14.5 million compared to the prior year period.

Value-added sales is a non-GAAP financial measure that removes the impact of pass-through precious metal market costs and allows for analysis without the distortion of the movement or volatility in precious metal market prices and changes in mix due to customer-supplied material.

Value-added sales is a non-GAAP financial measure that removes the impact of pass-through metal costs and allows for analysis without the distortion of the movement or volatility in precious metal market prices and changes in mix due to customer-supplied material.

Internally, we manage our business on this basis, and a reconciliation of net sales, the most directly comparable GAAP financial measure, to value-added sales is included herein.

Value-added sales of $279.8 million in the second quarter of 2024 increased $11.6 million, or 4%, compared to the second quarter of 2023.

Volume increases in the consumer electronics (33%), aerospace and defense (32%) and semiconductor (6%) end markets were partially offset by decreases in the industrial (22%), telecom and data center (51%) and energy (27%) end markets.

Additionally, there was a $4.5 million year over year increase in the volume of raw material beryllium hydroxide sales compared to the second quarter of 2023.

Gross margin in the second quarter of 2024 was $80.9 million, a decrease of 9% compared to the second quarter of 2023.

Gross margin expressed as a percentage of value-added sales was 29% in second quarter of 2024, compared to 33% in the second quarter of 2023.

Value-added sales of $263.8 million in the third quarter of 2024 decreased $6.7 million, or 2%, compared to the third quarter of 2023.

A volume decrease in the telecom and data center (47%) end market as well as decreased sales in the consumer electronic end market (16%) primarily driven by our largest customer were partially offset by an increase in the aerospace and defense (35%) and semiconductor (10%) end markets.

Additionally, there was a $2.9 million year over year decrease in raw material beryllium hydroxide sales compared to the third quarter of 2023.

Gross margin in the third quarter of 2024 was $80.9 million, a decrease of 9% compared to the third quarter of 2023.

Gross margin expressed as a percentage of value-added sales decreased to 31% in the third quarter of 2024 from 33% in the third quarter of 2023.

The decrease in gross margin is primarily due to unfavorable price/mix as well as higher costs associated with the production ramp of the precision clad strip facility.

Additionally, gross margin was impacted by unfavorable production variances incurred in the first quarter 2024 and amortized in the second quarter of 2024 as the inventory was sold.

SG&A expense was $33.6 million in the second quarter of 2024, compared to $38.9 million in the second quarter of 2023.

SG&A expense was $35.0 million in the third quarter of 2024, compared to $38.8 million in the third quarter of 2023.

The decrease in SG&A expense was primarily due to various cost savings initiatives implemented throughout 2023 and during the

first half of 2024.

Expressed as a percentage of value-added sales, SG&A expense was 12% and 15% in the second quarter of 2024 and 2023, respectively.

R&D expense consists primarily of direct personnel costs for product innovation including pre-production development, evaluation, and testing of new products, prototypes, and applications to deliver new high performing advanced materials to our customers.

R&D expense accounted for 3% of value-added sales in the second quarter of both 2024 and 2023.

first nine months of 2024.

Expressed as a percentage of value-added sales, SG&A expense was 13% and 14% in the third quarter of 2024 and 2023, respectively.

R&D expense consists primarily of direct personnel and material costs for product innovation including pre-production development, evaluation, and testing of new products, prototypes, and applications to deliver new high performing advanced materials to our customers.

R&D expense as a percent of value-added sales increased slightly from 2% in the third quarter of 2023 to 3% in the third quarter of 2024.

Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure.

In the second quarter of 2024, we recorded a combined total of $3.0 million of restructuring charges in our Performance Materials, Electronic Materials, Precision Optics and Other segments.

Refer to Note E to the Consolidated Financial Statements for details.

Other-net was $4.4 million of expense in the second quarter of 2024, or a decrease of $1.7 million from the second quarter of 2023.

Refer to Note D to the Consolidated Financial Statements for details of the major components within Other-net.

In the third quarter of 2024, we recorded $1.5 million of restructuring charges across all segments.

In the third quarter of 2023, we recorded $1.1 million of restructuring charges primarily in our Electronic Materials segment.

See Note D to the Consolidated Financial Statements for further discussion.

Other-net was $5.3 million of expense in the third quarter of 2024, or a $0.9 million decrease from the third quarter of 2023.

Refer to Note E to the Consolidated Financial Statements for details of the major components within Other-net.

Other non-operating (income)-net includes components of pension and post-retirement expense other than service costs.

Refer to Note J to the Consolidated Financial Statements for details of the components.

Interest expense-net was $8.8 million and $7.6 million in the second quarter of 2024 and 2023, respectively.

The increase in interest expense is primarily due to an increase in interest rates and increased borrowings compared to the prior year period.

Income tax expense for the second quarter of 2024 was $4.9 million, compared to $4.3 million in the second quarter of 2023.

The effective tax rate for the second quarter of 2024 and 2023 was 20.4% and 15.3%, respectively.

The effective tax rate for 2024 is lower than the statutory tax rate primarily due to the impact of percentage depletion and the foreign derived intangible income deduction.

The effective tax rate for 2023 was lower than the statutory tax rate primarily due to the impact of percentage depletion, research and development and production tax credits, and the foreign derived intangible income deduction.

Interest expense-net was $8.8 million and $7.7 million in the third quarter of 2024 and 2023, respectively.

The increase in interest expense is primarily due to an increase in interest rates and borrowings compared to the prior year period.

Income tax expense for the third quarter of 2024 was $0.8 million, compared to $3.0 million in the third quarter of 2023.

The effective tax rate for the third quarter of 2024 and 2023 was 3.3% and 10.0%, respectively.

The effective tax rate for 2024 and 2023 is lower than the statutory tax rate primarily due to the impact of the foreign-derive d intangible income deduction, percentage depletion and research and development tax credits.

See Note F to the Consolidated Financial Statements for additional discussion.

Six Months Ended

June 28, June 30, $ %

Nine Months Ended

September 27, September 29, $ %

(Thousands, except per share data) 2024 2023 Change Change

7 unchanged sentences

R&D expense as a % of value-added sales 3 % 3 %

Restructuring expense 4,668 2,118 2,550 120 %

Restructuring (income) expense 6,161 3,194 2,967 93 %

Other—net 14,112 18,178 (4,066) (22) %

6 unchanged sentences

Diluted earnings per share $ 2.61 $ 3.65 $ (1.04) (28) %

Net sales of $811.2 million in the first six months of 2024 decreased $29.9 million from $841.1 million in the first six months of 2023.

Volume decreases in the energy (31%), industrial (20%), automotive (21%) and telecom and data center (37%) end markets were partially offset by increases in the aerospace and defense (31%) and consumer electronics (14%) end markets.

Additionally, there was a $4.5 million year over year increase in the volume of raw material beryllium hydroxide sales

compared to the first six months of 2023.

Net sales of $1,247.9 million in the first nine months of 2024 increased $3.7 million from $1,244.1 million in the first nine months of 2023.

An increase in net sales in the Electronic Materials segment was partially offset by decreases in the Performance Materials and Precision Optics segments.

The increase in the Electronic Materials segment was primarily due to

higher precious metal pass through costs, increasing net sales by approximately $49.3 million when compared to the prior year first nine months.

Volume decreases in the energy (24%), industrial (14%), telecom and data center (41%) and automotive (18%) end markets were partially offset by an increase in the aerospace and defense (30%) end market.

See Note B to the Consolidated Financial Statements for additional details on the year over year changes in our net sales by segment and market.

The change in precious metal and copper market prices favorably impacted net sales during the first six months of 2024 by $18.2 million compared to the prior year period.

Value-added sales of $537.7 million in the first six months of 2024 decreased $29.1 million, or 5%, compared to the first six months of 2023.

Volume decreases in the semiconductor (12%), energy (31%), industrial (26%), automotive (25%) and telecom and data center (37%) end markets were partially offset by an increase in the aerospace and defense (36%) and consumer electronics (15%) end markets when compared to the first six months of 2023.

Additionally, there was a $4.5 million year over year increase in the volume of raw material beryllium hydroxide sales compared to the first six months of 2023.

Gross margin in the first half of 2024 was $152.1 million, a decrease of 16% compared to the first half of 2023.

Gross margin expressed as a percentage of value-added sales decreased to 28% in the first six months of 2024 from 32% in the first six months of 2023.

Gross margin decreased from the prior year period primarily due to impact of lower volumes and related unabsorbed costs.

Value-added sales of $801.5 million in the first nine months of 2024 decreased $35.8 million, or 4%, compared to the first nine months of 2023.

Volume decreases in the industrial (19%), semiconductor (6%), automotive (20%), energy (24%), and telecom and data center (40%) end markets were partially offset by an increase in the aerospace and defense (36%) end market.

Gross margin in the first nine months of 2024 was $233.0 million, a decrease of 13% compared to the first nine months of 2023.

Gross margin expressed as a percentage of value-added sales decreased to 29% in the first nine months of 2024 from 32% in the first nine months of 2023.

Gross margin decreased from the prior year period primarily due to impact of lower volumes and related unabsorbed costs in the first half of 2024.

Additionally, gross margin was unfavorably impacted by higher costs associated with the production ramp of the precision clad strip facility.

SG&A expense was $69.4 million in the first six months of 2024, compared to $79.2 million in the first six months of 2023.

The decrease in SG&A expense was primarily due to various cost savings initiatives implemented throughout 2023 and during the first half of 2024.

Expressed as a percentage of value-added sales, SG&A expense was 13% and 14% in the first half of 2024 and 2023, respectively.

R&D expense accounted for 3% of value-added sales in the first half of both 2024 and 2023.

Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure.

In the first six months of 2024, we recorded a combined total of $4.7 million of restructuring charges in our Performance Materials, Electronic Materials, Precision Optics and Other segments.

In the first six months of 2023, we recorded a combined total of $2.1 million of restructuring charges in our Performance Materials, Electronic Materials and Precision Optics segments.

Refer to Note E to the Consolidated Financial Statements for details.

Other-net was $8.8 million of expense in the first six months of 2024, or a $3.2 million decrease from the first six months of 2023.

Refer to Note D to the Consolidated Financial Statements for details of the major components within Other-net.

SG&A expense was $104.5 million in the first nine months of 2024, compared to $118.1 million in the first nine months of 2023.

The decrease in SG&A expense was primarily due to various cost savings initiatives implemented throughout 2023 and during the nine months of 2024.

Expressed as a percentage of value-added sales, SG&A expense was 13% and 14% in the first nine months of 2024 and 2023, respectively.

R&D expense accounted for 3% of value-added sales in the first nine months of both 2024 and 2023.

Restructuring (income) expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure.

In the first nine months of 2024, we recorded a combined total of $6.2 million of restructuring charges in our Electronic Materials, Precision Optics, Performance Materials and Other segments.

In the first nine months of 2023, we recorded a combined total of $3.2 million of restructuring charges primarily in our Precision Optics, Electronic Materials and Performance Materials segments.

Refer to Note D to the Consolidated Financial Statements for details.

Other-net was $14.1 million of expense in the first nine months of 2024, or a $4.1 million decrease from the first nine months of 2023.

Refer to Note E to the Consolidated Financial Statements for details of the major components within Other-net.

Other non-operating (income)-net includes components of pension and post-retirement expense other than service costs.

Refer to Note J to the Consolidated Financial Statements for details of the components.

Interest expense-net was $17.1 million and $15.1 million in the first six months of 2024 and 2023, respectively.

Interest expense-net was $25.9 million and $22.8 million in the first nine months of 2024 and 2023, respectively.

The increase in interest expense is primarily due to an increase in interest rates and borrowings compared to the prior year period.

Income tax expense for the first half of 2024 was $6.1 million, compared to $8.9 million in the first half of 2023.

The Company's effective tax rate for the first six months of 2024 and 2023 was 15.8% and 15.2%, respectively.

The effective tax rate for the first six months of 2024 includes a net discrete income tax benefit of $0.2 million primarily consisting of $1.0 million of excess tax benefits from stock-based compensation awards offset by a $1.1 million valuation allowance recorded against deferred tax assets that are not likely to be realized for one of the Company’s foreign subsidiaries.

The effective tax rate for the first six months of 2023 included a net discrete income tax benefit of $1.0 million, primarily related to excess tax benefits from stock-based compensation awards.

Income tax expense for the first nine months of 2024 was $6.8 million, compared to $11.9 million in the nine months of 2023.

The Company's effective tax rate for the first nine months of 2024 and 2023 was 11.1% and 13.5%, respectively.

The effective tax rate for the first nine months of 2024 includes a nominal amount of discrete income tax expense primarily consisting of $1.0 million of excess tax benefits from stock-based compensation awards offset by a $1.1 million valuation allowance recorded against deferred tax assets that are not likely to be realized for one of the Company’s foreign subsidiaries.

The effective tax rate for the first nine months of 2023 included a net discrete income tax benefit of $3.4 million, primarily related to an optimization of our foreign-derived intangible income deduction benefit, excess tax benefits from stock-based compensation awards, and return to provision adjustments.

See Note F to the Consolidated Financial Statements for additional discussion.

Value-Added Sales - Reconciliation of Non-GAAP Financial Measure

A reconciliation of net sales to value-added sales, a non-GAAP financial measure, for each reportable segment and for the total Company for the second quarter and first six months of 2024 and 2023 is as follows:

Second Quarter Ended Six Months Ended

June 28, June 30, June 28, June 30,

A reconciliation of net sales to value-added sales, a non-GAAP financial measure, for each reportable segment and for the total Company for the third quarter and first nine months of 2024 and 2023 is as follows:

Third Quarter Ended Nine Months Ended

September 27, September 29, September 27, September 29,

(Thousands) 2024 2023 2024 2023

36 unchanged sentences

Performance Materials

Second Quarter

Second Quarter Ended

June 28, June 30, $ %

Third Quarter

Third Quarter Ended

September 27, September 29, $ %

(Thousands) 2024 2023 Change Change

2 unchanged sentences

EBITDA 44,802 46,366 (1,564) (3) %

Net sales from the Performance Materials segment of $187.5 million in the second quarter of 2024 increased 3% compared to net sales of $182.8 million in the second quarter of 2023.

The increase in sales was due to higher sales volumes in the aerospace and defense (35%) and consumer electronic (32%) end markets.

These increases were partially offset by decreased volumes in industrial (21%) and telecom and data (53%) end markets.

Additionally, there was a $4.5 million year over year increase in the volume of raw material beryllium hydroxide sales compared to the second quarter of 2023.

Value-added sales of $173.1 million in the second quarter of 2024 were 4% higher than value-added sales of $165.6 million in the second quarter of 2023.

The increase in value-added sales was due to the same factors driving the increase in net sales.

EBITDA for the Performance Materials segment was $40.4 million in the second quarter of 2024 compared to $44.9 million in the second quarter of 2023.

EBITDA was unfavorably impacted by higher costs associated with the production ramp of the precision clad strip facility and unfavorable price/mix.

Six Months Ended

June 28, June 30, $ %

Net sales from the Performance Materials segment of $177.4 million in the third quarter of 2024 decreased 4% compared to net sales of $184.6 million in the third quarter of 2023.

The decrease in sales was due to lower sales volumes in the telecom and data center (49%) end market as well as decreased sales in the consumer electronic (17%) end market primarily driven by our largest customer.

Additionally, there was a $2.9 million year over year decrease in the volume of raw material beryllium hydroxide sales compared to the third quarter of 2023.

These decreases were partially offset by increased volumes in the aerospace and defense (45%) end market.

Value-added sales of $163.6 million in the third quarter of 2024 were 3% lower than value-added sales of $168.9 million in the third quarter of 2023.

The decrease in value-added sales was due to the same factors driving the decrease in net sales.

EBITDA for the Performance Materials segment was $44.8 million in the third quarter of 2024, compared to $46.4 million in the third quarter of 2023.

The impact of unfavorable pricing/mix was offset by the favorable impact manufacturing performance as a result of the various cost control measures implemented throughout 2024.

Nine Months Ended

September 27, September 29, $ %

(Thousands) 2024 2023 Change Change

2 unchanged sentences

EBITDA 115,893 134,061 (18,168) (14) %

Net sales from the Performance Materials segment of $356.2 million in the first six months of 2024 decreased 4% compared to net sales of $369.8 million in the first six months of 2023.

The decrease in sales was primarily due to lower sales volumes in the industrial (27%), telecom and data center (37%) and automotive (24%) end markets, partially offset by increased volumes in the aerospace and defense (36%) and consumer electronics (14%) end markets when compared to the first six months of 2023.

Additionally, there was a $4.5 million year over year increase in the volume of raw material beryllium hydroxide sales compared to the first six months of 2023.

Value-added sales of $328.6 million in the first six months of 2024 were 1% lower than value-added sales of $333.6 million in the first six months of 2023.

Net sales from the Performance Materials segment of $533.5 million in the first nine months of 2024 decreased 4% compared to net sales of $554.4 million in the first nine months of 2023.

The decrease in sales was due to lower sales volumes in the industrial (18%), telecom and data center (41%) and automotive (19%) end markets.

These decreases were partially offset by increased volumes in the aerospace and defense (39%) end market.

Value-added sales of $492.3 million in the first nine months of 2024 were 2% lower than value-added sales of $502.5 million in the first nine months of 2023.

The decrease in value-added sales was due to the same factors driving the decrease in net sales.

EBITDA for the Performance Materials segment was $71.1 million in the first six months of 2024 compared to $87.7 million in the first six months of 2023.

The decrease in EBITDA was primarily driven by the impact of lower volumes and related unabsorbed costs.

EBITDA for the Performance Materials segment was $115.9 million in the first nine months of 2024 compared to $134.1 million in the first nine months of 2023.

The decrease in EBITDA was primarily driven by the impact unfavorable price/mix as well as the impact of lower volumes and related unabsorbed costs in the first half of 2024.

Additionally, EBITDA was unfavorably impacted by higher costs associated with the production ramp of the precision clad strip facility.

Electronic Materials

Second Quarter

Second Quarter Ended

June 28, June 30, $ %

Third Quarter

Third Quarter Ended

September 27, September 29, $ %

(Thousands) 2024 2023 Change Change

2 unchanged sentences

EBITDA 12,309 10,155 2,154 21 %

Net sales from the Electronic Materials segment of $212.7 million in the second quarter of 2024 increased by 12% compared to net sales of $190.7 million in the second quarter of 2023.

The increase in net sales was primarily due to higher sales in the semiconductor (15%) end market due to increased sales volumes and impact of precious metal pricing.

Pass-through metal prices increased net sales by $14.6 million compared to the second quarter of 2023.

Value-added sales of $81.1 million in the second quarter of 2024 increased 5% compared to value-added sales of $77.6 million in the second quarter of 2023.

The increase in value-added sales was due to the same factors driving the increase in net sales.

EBITDA for the Electronic Materials segment was $13.5 million in the second quarter of 2024 compared to $13.4 million in the second quarter of 2023.

The incremental margin from increased sales volumes and SG&A savings from the various cost control initiatives implemented in 2023 and throughout 2024 were offset by the impact of unfavorable product mix and an increase in restructuring costs.

Six Months Ended

June 28, June 30, $ %

Net sales from the Electronic Materials segment of $236.9 million in the third quarter of 2024 were 23% higher than net sales of $192.3 million in the third quarter of 2023.

The increase in net sales was primarily due to higher precious metal pass through costs, which increased net sales by $30.3 million compared to the third quarter of 2023.

Additionally, net sales increased as a result of higher sales volumes in the semiconductor (11%) end market.

Value-added sales of $77.8 million in the third quarter of 2024 increased 3% compared to value-added sales of $75.5 million in the third quarter of 2023.

The increase in value-added sales was due to the sales volume increases noted above which also drove the increase in net sales.

EBITDA for the Electronic Materials segment was $12.3 million in the third quarter of 2024 compared to $10.2 million in the third quarter of 2023.

EBITDA increased due to higher sales volume along with the impact of various targeted cost control initiatives implemented in 2023 and throughout 2024.

Nine Months Ended

September 27, September 29, $ %

(Thousands) 2024 2023 Change Change

2 unchanged sentences

EBITDA 40,118 37,504 2,614 7 %

Net sales from the Electronic Materials segment of $404.7 million in the first six months of 2024 decreased by 4% compared to net sales of $419.5 million in the first six months of 2023.

The decrease in net sales was primarily due to lower sales volumes in the energy (30%) and semiconductor (6%) end markets.

This was partially offset by the impact of pass-through metal prices, which increased net sales by $19.0 million compared to the first six months of 2023.

Value-added sales of $158.8 million in the first half of 2024 decreased 13% compared to value-added sales of $181.5 million in the first half of 2023.

The decrease in value-added sales was due to the same factors driving the decrease in net sales.

EBITDA for the Electronic Materials segment was $27.8 million in the first six months of 2024 compared to $27.3 million in the first six months of 2023.

Despite decreased sales volumes, EBITDA increased slightly as a result of the various targeted cost control initiatives implemented in 2023 and throughout 2024.

Net sales from the Electronic Materials segment of $641.6 million in the first nine months of 2024 were 5% higher than net sales of $611.9 million in the first nine months of 2023.

The increase in net sales was primarily due to higher precious metal pass through costs, which increased net sales by $49.3 million compared to the first nine months of 2023.

This was partially offset by decreased sales volumes in the energy (26%) end market.

Value-added sales of $236.6 million in the first nine months of 2024 decreased 8% compared to value-added sales of $257.0 million in the first nine months of 2023.

The decrease in value-added sales was driven by decreased sales volumes in the energy (28%) and semiconductor (4%) end markets.

EBITDA for the Electronic Materials segment was $40.1 million in the first nine months of 2024 compared to $37.5 million in the first nine months of 2023.

Despite decreased value-added sales, EBITDA increased slightly as a result of the various targeted cost control initiatives implemented in 2023 and throughout 2024.

Precision Optics

Second Quarter

(Thousands) Second Quarter Ended

June 28, June 30, $ %

Third Quarter

(Thousands) Third Quarter Ended

September 27, September 29, $ %

2024 2023 Change Change

2 unchanged sentences

EBITDA (39) 3,261 (3,300) (101) %

Net sales from the Precision Optics segment of $25.7 million in the second quarter of 2024 increased 2% compared to net sales of $25.1 million in the second quarter of 2023.

The increase was primarily due to incremental sales volumes in the consumer electronics end market (16%).

Value-added sales of $25.6 million in the second quarter of 2024 increased 2% compared to value-added sales of $25.0 million in the second quarter of 2023.

The increase in value-added sales was due to the same factors driving the increase in net sales.

EBITDA for the Precision Optics segment was $1.6 million in the second quarter of 2024 compared to $1.7 million in the second quarter of 2023.

The decrease in EBITDA was due to unfavorable mix.

(Thousands) Six Months Ended

June 28, June 30, $ %

Net sales from the Precision Optics segment of $22.4 million in the third quarter of 2024 decreased 14% compared to net sales of $26.1 million in the third quarter of 2023.

The decrease was primarily due to lower sales volumes in the aerospace and defense end market (28%).

Value-added sales of $22.4 million in the third quarter of 2024 decreased 14% compared to value-added sales of $26.1 million in the third quarter of 2023.

The decrease in value-added sales was due to the same factors driving the decrease in net sales.

EBITDA for the Precision Optics segment was a slight loss in the third quarter of 2024 compared to income of $3.3 million in the third quarter of 2023.

The decrease in EBITDA was due to the impact of lower sales volumes and unfavorable mix.

(Thousands) Nine Months Ended

September 27, September 29, $ %

2024 2023 Change Change

2 unchanged sentences

EBITDA 1,297 7,654 (6,357) (83) %

Net sales from the Precision Optics segment of $50.3 million in the first half of 2024 decreased 3% compared to net sales of $51.7 million in the first half of 2023.

The decrease was primarily due to lower sales volumes in the industrial end market (15%), which was partially offset by an increase in sales volumes in the aerospace and defense (11%) end market.

Value-added sales of $50.3 million in the first half of 2024 decreased 3% compared to value-added sales of $51.7 million in the first half of 2023.

Net sales from the Precision Optics segment of $72.8 million in the first nine months of 2024 decreased 7% compared to net sales of $77.9 million in the first nine months of 2023.

The decrease was primarily due to lower sales volumes in the industrial (13%) and automotive (23%) end markets.

Value-added sales of $72.6 million in the first nine months of 2024 decreased 7% compared to value-added sales of $77.8 million in the first nine months of 2023.

The decrease in value-added sales was due to the same factors driving the decrease in net sales.

EBITDA for the Precision Optics segment was $1.3 million in the first six months of 2024 compared to $4.4 million in the first six months of 2023.

The decrease in EBITDA was driven by decreased sales volumes.

Second Quarter

(Thousands) Second Quarter Ended

June 28, June 30, $ %

EBITDA for the Precision Optics segment was $1.3 million in the first nine months of 2024 compared to $7.7 million in the first nine months of 2023.

The decrease in EBITDA was due to the impact of lower sales volumes and unfavorable mix.

Third Quarter

(Thousands) Third Quarter Ended

September 27, September 29, $ %

2024 2023 Change Change

3 unchanged sentences

The Other reportable segment in total includes unallocated corporate costs.

Corporate costs were $6.2 million in the second quarter of 2024 compared to $7.6 million in the second quarter of 2023.

Corporate costs as a percent of Company-wide value-added sales decreased from 3% in the second quarter of 2023, to 2% in the second quarter of 2024 and 2023.

Corporate costs were $6.6 million in the third quarter of 2024 compared to $7.5 million in the third quarter of 2023.

Corporate costs as a percent of Company-wide value-added sales decreased from 3% in the third quarter of 2023, to 2% in the third quarter of 2024.

The decrease in corporate costs is the result of various targeted cost control initiatives implemented in 2024.

(Thousands) Six Months Ended

June 28, June 30, $ %

(Thousands) Nine Months Ended

September 27, September 29, $ %

2024 2023 Change Change

2 unchanged sentences

EBITDA (18,522) (21,750) 3,228 (15) %

Corporate costs were $11.9 million in the first half of 2024 compared to $14.3 million in the first half of 2023.

Corporate costs accounted for 3% and 2% of Company-wide value-added sales in the first half of 2024 and 2023, respectively.

The decrease in corporate costs in the first six months of 2024 compared to the first six months of 2023 is the result of various targeted cost control initiatives implemented during the first half of 2024.

Corporate costs were $18.5 million in the first nine months of 2024 compared to $21.8 million in the first nine months of 2023.

Corporate costs as a percent of Company-wide value-added sales decreased from 3% in the first nine months of 2023, to 2% in the first nine months of 2024.

The decrease in corporate costs is the result of various targeted cost control initiatives implemented in 2024.

FINANCIAL POSITION

A summary of cash flows provided by (used in) operating, investing, and financing activities is as follows:

Six Months Ended

June 28, June 30, $

Nine Months Ended

September 27, September 29, $

(Thousands) 2024 2023 Change

1 unchanged sentence

Net cash used in investing activities (60,545) (94,160) 33,615

Net cash (used in)/provided by financing activities 46,200 (3,835) 50,035

Net cash provided by financing activities 52,926 13,735 39,191

Effects of exchange rate changes 635 (780) 1,415

Net change in cash and cash equivalents $ 4,580 $ 3,300 $ 1,280

Net cash provided by operating activities totaled $6.5 million in the first six months of 2024 versus $70.5 million in the prior-year period.

Net cash provided by operating activities totaled $11.6 million in the first nine months of 2024 versus $84.5 million in the prior-year period.

The decrease in operating cash flow was driven by lower earnings as well as unfavorable working capital usage.

Working capital requirements used cash of $22.8 million in the first six months of 2024 compared to cash provided by working capital during the first six months of 2023 of $4.2 million.

The increase in cash used for working capital was primarily due to timing of cash collections for outstanding receivables in the first six months in 2023 compared to 2024.

Additionally, the Company received $15.1 million of customer prepayments in the first six months of 2023, and none in the first six months of 2024.

Net cash used in investing activities was $48.3 million in the first six months of 2024 compared to $62.7 million in the prior-year period.

The decrease in cash used in investing activities is due to a decrease in capital expenditures and mine development.

Working capital requirements used cash of $48.5 million in the first nine months of 2024 compared to working capital usage of $9.5 million for the first nine months of 2023.

The increase in cash used for working capital was primarily due to timing of cash collections for outstanding receivables in the third quarter of 2024 and a continued increase in inventory throughout 2023 and 2024 to support continued business growth and customer partnerships.

Additionally, the Company received $16.7 million of customer prepayments in the first nine months of 2023 and none in 2024.

Net cash used in investing activities was $60.5 million in the first nine months of 2024 compared to $94.2 million in the prior-year period.

The decrease in cash used in investing activities is due to decreased capital expenditures in line with decreased cash provided by operating activities.

Capital expenditures are made primarily for new product development, replacing and upgrading equipment, infrastructure investments, and implementing information technology initiatives.

For the full year 2024, the Company expects payments for property, plant, and equipment to be approximately $80 million.

Net cash provided by financing activities totaled $46.2 million in the first six months of 2024 and compared to net cash used in financing activities of $3.8 million in the comparable prior-year period.

The net financing cash inflow in 2024 was primarily due to financing used to support business growth, compared to a net outflow in 2023 primarily due to debt repayments.

Net cash provided by financing activities totaled $52.9 million in the first nine months of 2024 and $13.7 million in the comparable prior-year period.

The increase is primarily due to a increase in borrowings under our revolving credit facilities in the first nine months of 2024 of $91.1 million, compared to net borrowings of $39.6 million in the same period in the prior year.

We believe cash flow from operations plus the available borrowing capacity and our current cash balance are adequate to support operating requirements, capital expenditures, projected pension plan contributions, the current dividend program, environmental remediation projects, and strategic acquisitions for at least the next twelve months and for the foreseeable future thereafter.

At June 28, 2024, cash and cash equivalents held by our foreign operations totaled $15.4 million.

At September 27, 2024, cash and cash equivalents held by our foreign operations totaled $14.2 million.

We do not expect restrictions on repatriation of cash held outside of the United States to have a material effect on our overall liquidity, financial condition, or results of operations for the foreseeable future.

Other sources of liquidity include uncommitted short-term lines of credit for certain of the Company's foreign subsidiaries, which currently provide for borrowings of up to $21.7 million.

At June 28, 2024, the Company had borrowings outstanding of $8.4 million, which reduced the aggregate availability under these facilities to $5.8 million.

A summary of key data relative to our liquidity, including outstanding debt, cash, and available borrowing capacity, as of June 28, 2024 and December 31, 2023 is as follows:

June 28, December 31,

At September 27, 2024, the Company had borrowings outstanding of $7.2 million, which reduced the aggregate availability under these facilities to $14.5 million.

A summary of key data relative to our liquidity, including outstanding debt, cash, and available borrowing capacity, as of September 27, 2024 and December 31, 2023 is as follows:

September 27, December 31,

(Thousands) 2024 2023

11 unchanged sentences

Pursuant to the amendment, we transitioned U.S.

dollar denominated borrowings from LIBOR to SOFR for both the revolving credit facility and the term loan and increased the cap on precious metals consignment line from $550 million to $615 million.

dollar denominated borrowings from LIBOR to SOFR for both the revolving credit agreement and the term loan and increased the cap on precious metals consignment line from $600 million to $615 million.

The Company had previously amended and restated the Credit Agreement in connection with the HCS-Electronic Materials acquisition in November 2021.

1 unchanged sentence

The Company financed a portion of the the purchase price for the HCS-Electronic Materials with a $300 million term loan pursuant to the delayed draw term loan facility.

Credit Agreement also provides for an uncommitted incremental facility whereby, under certain conditions, the Company may be able to borrow additional term loans in an aggregate amount not to exceed $150.0 million.

The Credit Agreement also provides for an uncommitted incremental facility whereby, under certain conditions, the Company may be able to borrow additional term loans in an aggregate amount not to exceed $150.0 million.

The Credit Agreement provides the Company and its subsidiaries with additional capacity to enter into facilities for the consignment of precious metals and copper, and provides enhanced flexibility to finance acquisitions and other strategic initiatives.

4 unchanged sentences

In addition, the Credit Agreement includes covenants that limit the Company to a maximum leverage ratio and a minimum interest coverage ratio.

We were in compliance with all of our debt covenants as of June 28, 2024 and December 31, 2023.

We were in compliance with all of our debt covenants as of September 27, 2024 and December 31, 2023.

Cash on hand up to $25.0 million can benefit the covenants and may benefit the borrowing capacity under the Credit Agreement.

3 unchanged sentences

In August 2022, we entered into a precious metals consignment agreement, maturing on August 31, 2025, which replaced the consignment agreements that would have matured on August 27, 2022.

The available and unused capacity under the metal consignment agreements expiring in August 2025 totaled approximately $230.5 million as of June 28, 2024, compared to $263.5 million as of December 31, 2023.

The available and unused capacity under the metal consignment agreements expiring in August 2025 totaled approximately $229.3 million as of September 27, 2024, compared to $263.5 million as of December 31, 2023.

The availability is determined by Board approved levels and actual capacity.

In January 2014, our Board of Directors approved a plan to repurchase up to $50.0 million of our common stock.

The timing of the share repurchases will depend on several factors, including market and business conditions, our cash flow, debt levels,

and other investment opportunities.

The timing of the share repurchases will depend on several factors, including market and business conditions, our cash flow, debt levels, and other investment opportunities.

There is no minimum quantity requirement to repurchase our common stock for a given year, and the repurchases may be discontinued at any time.

We did not repurchase any shares under this program in the second quarter or first six months of 2024.

We did not repurchase any shares under this program in the third quarter or first nine months of 2024.

Since the approval of the repurchase plan, we have purchased 1,254,264 shares at a total cost of $41.7 million.

We paid cash dividends of $2.8 million and $5.5 million on our common stock in the second quarter and first six months of 2024.

We paid cash dividends of $2.8 million and $8.3 million on our common stock in the third quarter and first nine months of 2024, respectively.

We intend to pay a quarterly dividend on an ongoing basis, subject to a determination that the dividend remains in the best interest of our shareholders.

1 unchanged sentence

We maintain the majority of the precious metals and portions of the copper we use in production on a consignment basis in order to reduce our exposure to metal price movements and to reduce our working capital investment.

The notional value of off-balance sheet precious metals and copper was $384.5 million and $351.5 million as of June 28, 2024 and December 31, 2023, respectively.

We were in compliance with all of the covenants contained in the consignment agreements as of June 28, 2024.

The notional value of off-balance sheet precious metals and copper was $385.7 million and $351.5 million as of September 27, 2024 and December 31, 2023, respectively.

We were in compliance with all of the covenants contained in the consignment agreements as of September 27, 2024.

For additional information on our material cash obligations, refer to our 2023 Annual Report on Form 10-K.

2 unchanged sentences

For additional information regarding critical accounting policies, please refer to our 2023 Annual Report on Form 10-K.

As noted in the "Critical Accounting Policies" section in our 2023 Annual Report on Form 10-K, the Company performs a goodwill impairment assessment for each reporting unit in the fourth quarter.

If a quantitative test is performed, the fair value of the reporting unit will be estimated using an income approach (a discounted cash flow model) as well as a market approach.

On September 25, 2024, the Company announced the appointment of a new President of its Precision Optics reporting unit.

As a part of the transition into this role, the new President has begun an extensive review of the business and its short-term and long-term strategic initiatives, concurrent with the Company’s annual strategic planning process, which will conclude later in the fourth quarter of 2024.

As of October 30, 2024, there have been no changes to the long-term strategy for the Precision Optics reporting unit.

The upcoming results of the new President’s review, including any shifts in strategy of the Precision Optics reporting unit as part of the annual strategic planning process, could materially impact the future cash flow assumptions of the Precision Optics reporting unit.

Due to the fact that the carrying value of the Precision Optics reporting unit exceeded fair value by less than 10% in the Company’s 2023 goodwill assessment, any future changes in business conditions or strategic initiatives impacting the future cash flow assumptions could have an unfavorable impact on the fair value of the Precision Optics reporting unit, which could result in future impairment.

Forward-looking Statements:

16 unchanged sentences

the conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects;

the disruptions in operations from, and other effects of, catastrophic and other extraordinary events including outbreaks of infectious diseases and the conflict between Russia and Ukraine;

the disruptions in operations from, and other effects of, catastrophic and other extraordinary events including outbreaks of infectious diseases and the conflict between Russia and Ukraine and other hostilities;

realization of expected financial benefits expected from the Inflation Reduction Act of 2022;

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis