MATERION Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW We are an integrated producer of high-performance advanced engineered materials used in a variety of electronic, thermal, and structural applications. Our products are sold into numerous end markets, including semiconductor, industrial, aerospace and defense, automotive, consumer electronics, energy, and telecom and data center. 26 RESULTS OF OPERATIONS Second Quarter Second Quarter Ended June 27, June 28, $ % (Thousands, except per share data) 2025 2024 Change Change Net sales $ 431,658 $ 425,866 $ 5,792 1 % Value-added sales 268,970 279,833 (10,863) (4) % Gross margin 82,658 80,859 1,799 2 % Gross margin as a % of net sales 19 % 19 % Gross margin as a % of value-added sales 31 % 29 % Selling, general, and administrative (SG&A) expense 35,039 33,601 1,438 4 % SG&A expense as a % of net sales 8 % 8 % SG&A expense as a % of value-added sales 13 % 12 % Research and development (R&D) expense 6,413 7,702 (1,289) (17) % R&D expense as a % of net sales 1 % 2 % R&D expense as a % of value-added sales 2 % 3 % Restructuring expense 479 3,048 (2,569) n.m. Other—net 3,908 4,446 (538) (12) % Operating profit 36,819 32,062 4,757 15 % Other non-operating (income)—net (567) (640) 73 (11) % Interest expense—net 8,230 8,802 (572) (6) % Income before income taxes 29,156 23,900 5,256 22 % Income tax expense 4,016 4,864 (848) (17) % Net income $ 25,140 $ 19,036 $ 6,104 32 % Diluted earnings per share $ 1.21 $ 0.91 $ 0.30 33 % Net sales of $431.7 million in the second quarter of 2025 increased $5.8 million from $425.9 million in the second quarter of 2024. The increase in net sales was primarily attributable to the Electronic Materials segment. The increase in net sales in the Electronic Materials segment was primarily due to higher precious metal pass through costs, increasing net sales by approximately $38.0 million when compared to the prior year period. At the Company level, volume decreases in the consumer electronics (11%) and semiconductor (4%) end markets were partially offset by volume increases in the aerospace and defense (6%) and energy (4%) end markets. Additionally, there was a $3.8 million year over year decrease in the volume of raw material beryllium hydroxide sales compared to the second quarter of 2024. 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. 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. 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 $269.0 million in the second quarter of 2025 decreased $10.9 million, or 4%, compared to the second quarter of 2024. Volume decreases in the consumer electronics (12%) and semiconductor (4%) end markets were partially offset by increases in the aerospace and defense (5%) and energy (9%) end markets. Additionally, there was a $3.8 million year over year decrease in the volume of raw material beryllium hydroxide sales compared to the second quarter of 2024. Gross margin in the second quarter of 2025 was $82.7 million, an increase of 2% compared to the second quarter of 2024. Gross margin expressed as a percentage of net sales was 19% in both the second quarter of 2025 and 2024. Gross margin expressed as a percentage of value-added sales was 31% in second quarter of 2025, compared to 29% in the second quarter of 2024. The increase in gross margins is primarily due to improved manufacturing performance in 2025. Additionally in the second quarter of the prior year, the Company incurred significant pre-production costs and manufacturing inefficiencies associated with the ramp of the wide area clad facility, resulting in lower margins. 27 SG&A expense was $35.0 million in the second quarter of 2025, compared to $33.6 million in the second quarter of 2024. The increase in SG&A expense was primarily due to timing of the incentive compensation accruals due to year to date performance. Expressed as a percentage of net sales, SG&A expense was 8% of net sales in both the second quarter of 2025 and 2024. Expressed as a percentage of value-added sales, SG&A expense was 13% and 12% in the second quarter of 2025 and 2024, 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 1% of net sales in the second quarter of 2025 and 2% of net sales in the second quarter of 2024. R&D expense accounted for 2% of value-added sales in the second quarter of 2025 and 3% of value-added sales in the second quarter of 2024. The decrease was driven by project timing. Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. In the second quarter of 2025, we recorded a combined total of $0.5 million of restructuring charges in our Performance Materials, Electronic Materials and Precision Optics segments. In the second quarter of 2024, we incurred restructuring costs across all segments due to the Company's efforts to realign its cost structure. Refer to Note E to the Consolidated Financial Statements for details. Other-net was $3.9 million of expense in the second quarter of 2025, or a decrease of $0.5 million from the second quarter of 2024. Refer to Note D 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 $8.2 million and $8.8 million in the second quarter of 2025 and 2024, respectively. The decrease in interest expense was primarily due to a decrease in interest rates and decreased borrowings compared to the prior year period. Income tax expense for the second quarter of 2025 was $4.0 million, compared to $4.9 million in the second quarter of 2024. The Company's effective tax rate for the second quarter of 2025 and 2024 was 13.8% and 20.4%, respectively. The effective tax rate for the second quarter of 2025 is lower than the statutory tax rate primarily due to the impact of percentage depletion and the advanced manufacturing production credit. The effective tax rate for the second quarter of 2024 was lower than the statutory tax rate primarily due to the impact of percentage depletion and the foreign derived intangible income deduction. See Note F to the Consolidated Financial Statements for additional discussion. 28 Six Months Six Months Ended June 27, June 28, $ % (Thousands, except per share data) 2025 2024 Change Change Net sales $ 851,988 $ 811,153 $ 40,835 5 % Value-added sales 528,316 537,681 (9,365) (2) % Gross margin 158,837 152,071 6,766 4 % Gross margin as a % of net sales 19 % 19 % Gross margin as a % of value-added sales 30 % 28 % SG&A expense 70,484 69,445 1,039 1 % SG&A expense as a % of net sales 8 % 9 % SG&A expense as a % of value-added sales 13 % 13 % R&D expense 12,918 14,844 (1,926) (13) % R&D expense as a % of net sales 2 % 2 % R&D expense as a % of value-added sales 2 % 3 % Restructuring expense 2,517 4,668 (2,151) (46) % Other—net 8,904 8,803 101 1 % Operating profit 64,014 54,311 9,703 18 % Other non-operating (income)—net (1,233) (1,283) 50 (4) % Interest expense—net 15,147 17,081 (1,934) (11) % Income before income taxes 50,100 38,513 11,587 30 % Income tax expense 7,262 6,068 1,194 20 % Net income $ 42,838 $ 32,445 $ 10,393 32 % Diluted earnings per share $ 2.05 $ 1.55 $ 0.50 32 % Net sales of $852.0 million in the first six months of 2025 increased $40.8 million from $811.2 million in the first six months of 2024. The increase in net sales was primarily attributable to the Electronic Materials segment. The increase in the Electronic Materials segment was primarily due to higher precious metal pass through costs, increasing net sales by approximately $78.5 million when compared to the prior year period. At the Company level, a volume decrease in the consumer electronics (13%) end market was partially offset by a volume increase in the energy (25%) end market. Additionally, there was a $2.5 million year over year increase in the volume of raw material beryllium hydroxide sales compared to the same period in the prior year. 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. Value-added sales of $528.3 million in the first six months of 2025 decreased $9.4 million, or 2%, compared to the first six months of 2024. A volume decrease in the consumer electronics (14%) end market was partially offset by a volume increase in the energy (28%) end market. Additionally, there was a $2.5 million year over year increase in the volume of raw material beryllium hydroxide sales compared to the same period in the prior year. Gross margin in the first six months of 2025 was $158.8 million, an increase of 4% compared to the first six months of 2024. Gross margin expressed as a percentage of net sales was 19% in the first six months of 2025 and 2024. Gross margin expressed as a percentage of value-added sales increased to 30% in the first six months of 2025 from 28% in the first six months of 2024. Despite the impact of lower sales volumes in the first six months of 2025, the Company experiences improved manufacturing performance, resulting in favorable margins in 2025. The lower gross margin in the first six months of 2024 was impacted by the significant pre-production costs and manufacturing inefficiencies associated with the ramp of the wide area clad facility. SG&A expense was $70.5 million in the first six months of 2025, compared to $69.4 million in the first six months of 2024. The increase in SG&A expense was primarily due to timing of incentive compensation accruals due to year to date performance. Expressed as a percentage of net sales, SG&A expense was 8% and 9% in the first six months of 2025 and 2024, respectively. Expressed as a percentage of value-added sales, SG&A expense was 13% in the first six months of 2025 and 2024. 29 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 2% of net sales in the first six months of 2025 and 2024. R&D expense accounted for 2% of value-added sales in the first six months of 2025 and 3% of value-added sales in the first six months of 2024. The decrease was driven by project timing. Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. In the first six months of 2025, we recorded a combined total of $2.5 million of restructuring charges in our Performance Materials, Electronic Materials and Precision Optics segments. 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. Refer to Note E to the Consolidated Financial Statements for details. Other-net was $8.9 million of expense in the first six months of 2025, or a $0.1 million increase from the first six months of 2024. Refer to Note D 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 $15.1 million and $17.1 million in the first six months of 2025 and 2024, respectively. The decrease in interest expense is primarily due to an decrease in interest rates and borrowings compared to the prior year period. Income tax expense for the first half of 2025 was $7.3 million, compared to $6.1 million in the first half of 2024. The Company's effective tax rate for the first six months of 2025 and 2024 was 14.5% and 15.8%, respectively. The effective tax rate for the first six months of 2025 is lower than the statutory tax rate primarily due to the impact of percentage depletion and the advanced manufacturing production credit. The effective tax rate for the first six months of 2024 was 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 the first six months of 2025 includes net discrete income tax expense of $0.6 million, primarily consisting of $0.2 million expense for stock-based compensation awards and $0.4 million expense for unrecognized tax benefits recorded. The effective tax rate for the first six months of 2024 included a net discrete income tax benefit of $0.2 million, which primarily consisted 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 were not likely to be realized for one of the Company’s foreign subsidiaries. See Note F to the Consolidated Financial Statements for additional discussion. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law in the U.S. The OBBBA includes a broad range of tax provisions affecting businesses including extending permanently, with modification, certain business and international tax provisions enacted as part of the Tax Cuts and Jobs Act of 2017 and expanding certain Inflation Reduction Act tax incentives while accelerating the phase-out of others. Key provisions of the OBBBA relevant to our operations include the phase-out of the advanced manufacturing production credit beginning in 2031, the immediate expensing of certain capital expenditures and domestic research and development expenses beginning in 2025, adjustments to interest expense limitations, and changes to various U.S international tax provisions. The Company is still evaluating the impact of the OBBBA on our consolidated financial statements. We expect to reflect the effects of the OBBBA in our financial statements for the quarter ending September 26, 2025, in accordance with the ASC 740. Value-Added Sales - Reconciliation of Non-GAAP Financial Measure 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 second quarter and first six months of 2025 and 2024 is as follows: Second Quarter Ended Six Months Ended June 27, June 28, June 27, June 28, (Thousands) 2025 2024 2025 2024 Net sales Performance Materials $ 182,778 $ 187,513 $ 356,765 $ 356,158 Electronic Materials 224,427 212,687 449,222 404,658 Precision Optics 24,453 25,666 46,001 50,337 Other — — — — Total $ 431,658 $ 425,866 $ 851,988 $ 811,153 Less: pass-through metal costs Performance Materials $ 14,268 $ 14,444 $ 28,208 $ 27,515 Electronic Materials 148,378 131,545 295,360 245,886 Precision Optics 42 44 104 71 Other — — — — Total $ 162,688 $ 146,033 $ 323,672 $ 273,472 Value-added sales Performance Materials $ 168,510 $ 173,069 $ 328,557 $ 328,643 Electronic Materials 76,049 81,142 153,862 158,772 Precision Optics 24,411 25,622 45,897 50,266 Other — — — — Total $ 268,970 $ 279,833 $ 528,316 $ 537,681 Internally, management reviews net sales on a value-added basis. Value-added sales is a non-GAAP financial measure that deducts the value of the pass-through precious metal market costs from net sales. Value-added sales allow management to assess the impact of differences in net sales between periods, segments, or markets, and analyze the resulting margins and profitability without the distortion of movements in pass-through market metal costs. The dollar amount of gross margin and operating profit is not affected by the value-added sales calculation. We sell other metals and materials that are not considered direct pass-throughs, and these costs are not deducted from net sales when calculating value-added sales. Non-GAAP financial measures, such as value-added sales, have inherent limitations and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. The cost of gold, silver, platinum, palladium, copper, ruthenium, iridium, rhodium, rhenium, and osmium can be quite volatile. Our pricing policy is to directly pass the market cost of these metals on to the customer in order to mitigate the impact of metal price volatility on our results from operations. Trends and comparisons of net sales are affected by movements in the market prices of these metals, but changes in net sales due to metal price movements may not have a proportionate impact on our profitability. Our net sales are also affected by changes in the use of customer-supplied metal. When we manufacture a precious metal product, the customer may purchase metal from us or may elect to provide its own metal, in which case we process the metal on a toll basis and the metal value does not flow through net sales or cost of sales. In either case, we generally earn our margin based upon our fabrication efforts. The relationship of this margin to net sales can change depending upon whether or not the product was made from our metal or the customer’s metal. The use of value-added sales removes the potential distortion in the comparison of net sales caused by changes in the level of customer-supplied metal. By presenting information on net sales and value-added sales, it is our intention to allow users of our financial statements to review our net sales with and without the impact of the pass-through metals. Segment Results 31 The Company consists of four reportable segments: Performance Materials, Electronic Materials, Precision Optics, and Other. The Other reportable segment includes unallocated corporate costs. Performance Materials Second Quarter Second Quarter Ended June 27, June 28, $ % (Thousands) 2025 2024 Change Change Net sales $ 182,778 $ 187,513 $ (4,735) (3) % Value-added sales 168,510 173,069 (4,559) (3) % EBITDA 41,094 40,415 679 2 % Net sales from the Performance Materials segment of $182.8 million in the second quarter of 2025 decreased 3% compared to net sales of $187.5 million in the second quarter of 2024. The decrease in net sales was due to lower sales volumes in the consumer electronics (11%) end market and a $3.8 million year over year decrease in the volume of raw material beryllium hydroxide sales compared to the second quarter of 2024, partially offset by increased volumes in the energy (38%) and aerospace and defense (3%) end markets. Value-added sales of $168.5 million in the second quarter of 2025 were 3% lower than value-added sales of $173.1 million in the second quarter of 2024. 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 $41.1 million in the second quarter of 2025 compared to $40.4 million in the second quarter of 2024. Despite lower sales volumes, EBITDA was favorably impacted by production efficiencies in the second quarter of 2025. Additionally, there were higher costs associated with the production ramp of the precision clad strip facility in the second quarter of 2024 that did not recur in 2025. Six Months Six Months Ended June 27, June 28, $ % (Thousands) 2025 2024 Change Change Net sales $ 356,765 $ 356,158 $ 607 — % Value-added sales 328,557 328,643 (86) — % EBITDA 81,767 71,091 10,676 15 % Net sales from the Performance Materials segment of $356.8 million in the first six months of 2025 were relatively flat year over year. The decrease in sales volumes in the consumer electronics (14%) end market was partially offset by increased volumes in the energy (67%) end market when compared to the first six months of 2024. Additionally, there was a $2.5 million year over year increase in the volume of raw material beryllium hydroxide sales compared to the first six months of 2024. Value-added sales of $328.6 million in the first six months of 2025 were were relatively flat year over year. The change in value-added sales was due to the same factors driving the change in net sales. EBITDA for the Performance Materials segment was $81.8 million in the first six months of 2025 compared to $71.1 million in the first six months of 2024. EBITDA was favorably impacted by production efficiencies in the first six months of 2025. Additionally, there were higher costs associated with the production ramp of the precision clad strip facility in the first six months of 2024 that did not recur in 2025. 32 Electronic Materials Second Quarter Second Quarter Ended June 27, June 28, $ % (Thousands) 2025 2024 Change Change Net sales $ 224,427 $ 212,687 $ 11,740 6 % Value-added sales 76,049 81,142 (5,093) (6) % EBITDA 17,601 13,456 4,145 31 % Net sales from the Electronic Materials segment of $224.4 million in the second quarter of 2025 increased by 6% compared to net sales of $212.7 million in the second quarter of 2024. The increase in net sales was due to higher pass-through metal pricing, accounting for an increase of $38.0 million compared to the second quarter of 2024. This increase was partially offset by lower volume of precious metal sales and a decrease in sales volumes in the energy (16%) and semiconductor (5%) end markets. Value-added sales of $76.0 million in the second quarter of 2025 decreased 6% compared to value-added sales of $81.1 million in the second quarter of 2024. The decrease in value-added sales was due a decrease in sales volumes in the energy (32%) and semiconductor (5%) end markets. EBITDA for the Electronic Materials segment was $17.6 million in the second quarter of 2025 compared to $13.5 million in the second quarter of 2024. Despite lower sales, EBITDA was favorably impacted by production efficiencies in the second quarter of 2025 and a $0.9 million reduction in restructuring expense when compared to the second quarter of 2024. Six Months Six Months Ended June 27, June 28, $ % (Thousands) 2025 2024 Change Change Net sales $ 449,222 $ 404,658 $ 44,564 11 % Value-added sales 153,862 158,772 (4,910) (3) % EBITDA 28,679 27,809 870 3 % Net sales from the Electronic Materials segment of $449.2 million in the first six months of 2025 increased by 11% compared to net sales of $404.7 million in the first six months of 2024. The increase in net sales was due to higher pass-through metal pricing, accounting for an increase of $78.5 million compared to the first six months of 2024, partially offset by a lower volume of precious metal sales. Value-added sales of $153.9 million in the first half of 2025 decreased 3% compared to value-added sales of $158.8 million in the first half of 2024. The decrease in value-added sales was due a decrease in sales volumes in the energy (27%) end market. EBITDA for the Electronic Materials segment was $28.7 million in the first six months of 2025 compared to $27.8 million in the first six months of 2024. Despite decreased sales volumes, EBITDA increased slightly as a result of production efficiencies in the first six months of 2025, partially offset by $1.6 million of incremental costs related to the wind-down of the refinery at the Company's Albuquerque, New Mexico facility. 33 Precision Optics Second Quarter (Thousands) Second Quarter Ended June 27, June 28, $ % 2025 2024 Change Change Net sales $ 24,453 $ 25,666 $ (1,213) (5) % Value-added sales 24,411 25,622 (1,211) (5) % EBITDA 2,099 1,589 510 32 % Net sales from the Precision Optics segment of $24.5 million in the second quarter of 2025 decreased 5% compared to net sales of $25.7 million in the second quarter of 2024. The decrease was primarily due to lower sales volumes in the life sciences end market (22%). Value-added sales of $24.4 million in the second quarter of 2025 decreased 5% compared to value-added sales of $25.6 million in the second quarter of 2024. 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 $2.1 million in the second quarter of 2025 compared to $1.6 million in the second quarter of 2024. Despite lower sales volumes, various cost control initiatives implemented in 2024 and throughout 2025 drove the increase in EBITDA when comparing the second quarter of 2025 to the second quarter of 2024. Six Months (Thousands) Six Months Ended June 27, June 28, $ % 2025 2024 Change Change Net sales $ 46,001 $ 50,337 $ (4,336) (9) % Value-added sales 45,897 50,266 (4,369) (9) % EBITDA 617 1,336 (719) (54) % Net sales from the Precision Optics segment of $46.0 million in the first half of 2025 decreased 9% compared to net sales of $50.3 million in the first half of 2024. The decrease was primarily due to lower sales volumes in the life sciences end market (31%). Value-added sales of $45.9 million in the first half of 2025 decreased 9% compared to value-added sales of $50.3 million in the first half of 2024. 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 $0.6 million in the first six months of 2025 compared to $1.3 million in the first six months of 2024. The decrease in EBITDA was primarily driven by a $0.7 million increase in restructuring expense in the first six months of 2025 compared to the first six months of 2024. Other Second Quarter (Thousands) Second Quarter Ended June 27, June 28, $ % 2025 2024 Change Change Net sales $ — $ — $ — — % Value-added sales — — — — % EBITDA (5,899) (6,245) 346 (6) % The Other reportable segment in total includes unallocated corporate costs. Corporate costs were $5.9 million in the second quarter of 2025 compared to $6.2 million in the second quarter of 2024. Corporate costs were 1% of Company-wide net sales in the second quarter of 2025 and 2024. Corporate costs were 2% of Company-wide value-added sales in the second quarter of 2025 and 2024. Corporate costs remained relatively consistent with the prior year period due to continued cost control initiatives implemented throughout 2024 and into 2025. 34 Six Months (Thousands) Six Months Ended June 27, June 28, $ % 2025 2024 Change Change Net sales $ — $ — $ — — % Value-added sales — — — — % EBITDA (11,769) (11,944) 175 (1) % Corporate costs were $11.8 million in the first half of 2025 compared to $11.9 million in the first half of 2024. Corporate costs were 1% of Company-wide net sales in the first six months of 2025 and 2024. Corporate costs were 2% of Company-wide value-added sales in the first six months of 2025 and 2024. Corporate costs remained relatively consistent with the prior year period due to continued cost control initiatives implemented throughout 2024 and into 2025. 35 FINANCIAL POSITION Cash Flow A summary of cash flows provided by (used in) operating, investing, and financing activities is as follows: Six Months Ended June 27, June 28, $ (Thousands) 2025 2024 Change Net cash provided by operating activities $ 65,442 $ 6,477 $ 58,965 Net cash (used in) investing activities (34,912) (48,260) 13,348 Net cash (used in)/provided by financing activities (36,377) 46,200 (82,577) Effects of exchange rate changes 1,725 (613) 2,338 Net change in cash and cash equivalents $ (4,122) $ 3,804 $ (7,926) Net cash provided by operating activities totaled $65.4 million in the first six months of 2025 versus $6.5 million in the prior-year period. In addition to the $9.7 million increase in operating income, the increase in cash provided by operating activities was favorably impacted by the Company’s continued working capital initiatives, specifically efforts focused around inventory management. In the prior year the Company saw inventory levels rise through the first half of 2024 to support organic growth. Throughout 2025, the Company has focused on maintaining reduced inventory levels consistent with the levels achieved at December 31, 2024. This resulted in incremental cash flow of approximately $24.4 million. Additionally, there was a net cash inflow of $4.2 million in the first six months of 2025 compared to a usage of $20.9 million in the first six months of 2024 for payables and accruals due to continued focus on working capital and timing of quarter-end payments. Lastly, there was a decrease in prepaid assets in the first six months of 2025 compared to an increase in the first six months of 2024, resulting in an increase in operating cash flow of $12.7 million, when comparing the first six months of 2025 to the first six months of 2024. The change is primarily due to timing of of payments on annual renewals. Net cash used in investing activities was $34.9 million in the first six months of 2025 compared to $48.3 million in the prior-year period. The decrease in cash used in investing activities is due to a decrease in capital expenditures. Capital expenditures are made primarily for new product development, replacing and upgrading equipment, infrastructure investments, and implementing information technology initiatives. For the full year 2025, the Company expects payments for property, plant, and equipment to be approximately $70 million. Net cash used in financing activities totaled $36.4 million in the first six months of 2025 and compared to net cash provided by financing activities of $46.2 million in the comparable prior-year period. The net financing cash outflow in the first six months of 2025 was primarily driven by debt repayments, made possible by increased cash levels resulting from the Company's ongoing working capital initiatives and lower capital spend, compared to an inflow in the prior year used to support business growth. Liquidity 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 27, 2025, cash and cash equivalents held by our foreign operations totaled $11.6 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 $22.8 million. At June 27, 2025, the Company had borrowings outstanding of $2.0 million, which reduced the aggregate availability under these facilities to $20.8 million. 36 A summary of key data relative to our liquidity, including outstanding debt, cash, and available borrowing capacity, as of June 27, 2025 and December 31, 2024 is as follows: June 27, December 31, (Thousands) 2025 2024 Cash and cash equivalents $ 12,591 $ 16,713 Total outstanding debt 425,577 442,008 Net debt $ (412,986) $ (425,295) Available borrowing capacity $ 256,704 $ 168,997 Net debt is a non-GAAP financial measure. We are providing this information because we believe it is more indicative of our overall financial position. It is also a measure our management uses to assess financing and other decisions. We believe that based on our typical cash flow generated from operations, we can support a higher leverage ratio in future periods. The available borrowing capacity in the table above represents the additional amounts that could be borrowed under our revolving credit facility and other secured lines existing as of the end of each period depicted. The applicable debt covenants have been taken into account when determining the available borrowing capacity, including the covenant that restricts the borrowing capacity to a multiple of the twelve-month trailing earnings before interest, income taxes, depreciation, depletion and amortization, and other adjustments. In June 2025, the Company entered into a Fifth Amended and Restated Credit Agreement (Credit Agreement). The Credit Agreement refinances the revolving credit facility and term loan facility provided under Materion's previous Fourth Amended and Restated Credit Agreement, dated October 27, 2021 (as amended). Among other things, the Credit Agreement provides for a $450 million senior secured revolving credit facility (the "Revolving Credit Facility") and a $225 million senior secured term loan facility (the "Term Loan Facility" and, together with the Revolving Credit Facility, the "Credit Facilities"). The Term Loan Facility was fully drawn on June 26, 2025. The Credit Facilities mature on June 26, 2030. The Credit Agreement also provides for an uncommitted incremental facility whereby, subject to the satisfaction of certain conditions, the Company may be able to borrow additional term loans in an aggregate amount not to exceed $250.0 million. The Credit Agreement provides the Company and its subsidiaries with additional capacity to enter into facilities for the consignment of precious metals, copper, nickel and tantalum, and provides enhanced flexibility to finance acquisitions and other strategic initiatives. Borrowings under the Credit Agreement are secured by substantially all of the assets of the Company and its direct subsidiaries, with the exception of non-mining real property, precious metal and certain other assets. The Credit Agreement allows the Company to borrow money at a premium over SOFR, or prime rate and at varying maturities. The Credit Agreement includes restrictive covenants relating to restrictions on additional indebtedness, acquisitions, dividends, and stock repurchases. 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 27, 2025 and December 31, 2024. Cash on hand up to $35 million can benefit the covenants and may benefit the borrowing capacity under the Credit Agreement. Portions of our business utilize off-balance sheet consignment arrangements allowing us to use metal owned by precious metal consignors as we manufacture product for our customers. Metal is purchased from the precious metal consignor and sold to our customer at the time of product shipment. Expansion of business volumes and/or higher metal prices can put pressure on the consignment line limitations from time to time. 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 $235.7 million as of June 27, 2025, compared to $233.4 million as of December 31, 2024. 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. 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 repurchased 100,000 shares under this program in the second 37 quarter of 2025, for a total cost of $7.8 million. Since the approval of the repurchase plan, we have purchased 1,354,264 shares at a total cost of $49.5 million. We paid cash dividends of $2.9 million and $5.7 million on our common stock in the second quarter and first six months of 2025, 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. OFF-BALANCE SHEET ARRANGEMENTS AND CASH OBLIGATIONS 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 $379.3 million and $381.6 million as of June 27, 2025 and December 31, 2024, respectively. We were in compliance with all of the covenants contained in the consignment agreements as of June 27, 2025. For additional information on our material cash obligations, refer to our 2024 Annual Report on Form 10-K. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the inherent use of estimates and management’s judgment in establishing those estimates. For additional information regarding critical accounting policies, please refer to our 2024 Annual Report on Form 10-K. Forward-looking Statements: Portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements. Our actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. These factors include, in addition to those mentioned elsewhere herein: the global economy, including inflationary pressures, potential future recessionary conditions and the impact of tariffs and trade agreements; the impact of any U.S. Federal Government shutdowns or sequestrations; the condition of the markets which we serve, whether defined geographically or by segment; changes in product mix and the financial condition of customers; our success in developing and introducing new products and new product ramp-up rates; our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values; our success in identifying acquisition candidates and in acquiring and integrating such businesses; the impact of the results of acquisitions on our ability to fully achieve the strategic and financial objectives related to these acquisitions; our success in implementing our strategic plans and the timely and successful start-up and completion of any capital projects; other financial and economic factors, including the cost and availability of raw materials (both base and precious metals), physical inventory valuations, metal consignment fees, tax rates, exchange rates, interest rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, credit availability, and the impact of the Company’s stock price on the cost of incentive compensation plans; the uncertainties related to the impact of war, terrorist activities, and acts of God; changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and operations, including changes in tax regulations or guidance promulgated pursuant to the new legislation implemented in the One Big Beautiful Bill Act; 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; realization of expected financial benefits expected from the Inflation Reduction Act of 2022; and the risk factors set forth in Part 1, Item 1A of the Company's 2024 Annual Report on Form 10-K. Item 3. Quantitative and Qualitative Disclosures about Market Risk For information regarding market risks, refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2024 Annual Report on Form 10-K. There have been no material changes in our market risks since the inclusion of this discussion in our 2024 Annual Report on Form 10-K. 38