Item 2. Management’s Discussion and Analysis
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 electrical, 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.
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RESULTS OF OPERATIONS
First Quarter
First Quarter Ended
April 3, March 28, $ %
(Thousands, except per share data) 2026 2025 Change Change
Net sales $ 549,824 $ 420,330 $ 129,494 31 %
Value-added sales 261,790 259,346 2,444 1 %
Gross margin 81,835 76,179 5,656 7 %
Gross margin as a % of net sales 15 % 18 %
Gross margin as a % of value-added sales 31 % 29 %
Selling, general, and administrative (SG&A) expense 36,200 35,445 755 2 %
SG&A expense as a % of net sales 7 % 8 %
SG&A expense as a % of value-added sales 14 % 14 %
Research and development (R&D) expense 6,157 6,505 (348) (5) %
R&D expense as a % of net sales 1 % 2 %
R&D expense as a % of value-added sales 2 % 3 %
Restructuring expense 2,295 2,038 257 13 %
Other—net 9,008 4,996 4,012 80 %
Operating profit 28,175 27,195 980 4 %
Other non-operating (income)—net (309) (666) 357 (54) %
Interest expense—net 7,578 6,917 661 10 %
Income before income taxes 20,906 20,944 (38) NM
Income tax expense 1,533 3,246 (1,713) (53) %
Net income $ 19,373 $ 17,698 $ 1,675 9 %
Diluted earnings per share $ 0.92 $ 0.85 $ 0.07 8 %
NM = Not Meaningful
Net sales of $549.8 million in the first quarter of 2026 increased $129.5 million from $420.3 million in the first quarter of 2025. An increase in net sales in the Electronic Materials and Precision Optics segments were partially offset by decreased net sales in the Performance Materials segment. The increase in the Electronic Materials segment was primarily due to higher precious metal pass through costs, increasing net sales by approximately $132.6 million when compared to the prior year period. At the Company level, increases in the semiconductor (69%) and energy (27%) end markets were partially offset by a decrease in the consumer electronics (37%) and life sciences (113%) end markets, primarily driven by the increases in precious metal pricing. Additionally, there was a $2.9 million year over year increase in the volume of raw material beryllium hydroxide sales compared to the first quarter of 2025. See Note C 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 metal costs and allows for analysis without the distortion of the movement or volatility in metal 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 $261.8 million in the first quarter of 2026 increased $2.4 million, or 1%, compared to the first quarter of 2025. The increase was driven by volume increase in the aerospace and defense (12%) and semiconductor (7%) end markets partially offset by a sales volume decrease in the consumer electronics (44%) end market. Additionally, there was a $2.9 million year over year increase in the volume of raw material beryllium hydroxide sales compared to the first quarter of 2025.
Gross margin in the first quarter of 2026 was $81.8 million, an increase of 7% compared to the first quarter of 2025. Gross margin expressed as a percentage of net sales was 15% in the first quarter of 2026 and 18% in the first quarter of 2025. Gross margin expressed as a percentage of value-added sales increased to 31% in the first quarter of 2026 from 29% in the first quarter of 2025. Gross margin as a percentage of value-added sales increased due to product mix, manufacturing efficiencies and the increase in hydroxide sales, which favorably impacted margins in the first quarter of 2026 compared to the same period in 2025.
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SG&A expense was $36.2 million in the first quarter of 2026, compared to $35.4 million in the first quarter of 2025. The increase in SG&A expense was primarily due to higher stock compensation expense and the timing of incentive compensation accruals due to year to date performance. Expressed as a percentage of net sales, SG&A expense decreased from 8% in the first quarter of 2025 to 7% in the first quarter of 2026, primarily due to the impact of precious metal pricing on net sales. Expressed as a percentage of value-added sales, SG&A expense was 14% in both the first quarter of 2026 and 2025.
R&D expense consists primarily of direct personnel costs for pre-production evaluation and testing of new products, prototypes, and applications. R&D spend was 1% and 2% of net sales in the first quarter of 2026 and 2025, respectively. R&D spend was 2% and 3% of value-added sales in the first quarter of 2026 and 2025, respectively.
Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. In the first quarter of 2026, we recorded a combined total of $2.3 million of restructuring charges across all segments, compared to $2.0 million of restructuring charges across all segments in the first quarter of 2025.
Other-net was $9.0 million of expense in the first quarter of 2026, or a $4.0 million increase from the first quarter of 2025, impacted by a $3.9 million increase in metal consignment fees due to the increase in precious metal prices. Refer to Note F to the Consolidated Financial Statements for details of the major components within Other-net.
Other non-operating (income) expense-net includes components of pension and post-retirement expense other than service costs. Refer to Note K to the Consolidated Financial Statements for details of the components.
Interest expense-net was $7.6 million and $6.9 million in the first quarter of 2026 and 2025, respectively. The increase in interest expense is primarily due to an increase in borrowings compared to the prior year period.
Income tax expense for the first quarter of 2026 was expense of $1.5 million, compared to $3.2 million in the first quarter of 2025. The effective tax rate for the first quarter of 2026 and 2025 was 7.3% and 15.5%, respectively. The effective tax rate for the first quarter of 2026 is lower than the statutory tax rate primarily due to the impact of the foreign-derived deduction eligible income, excess tax benefits from stock-based compensation awards and percentage depletion. The effective tax rate for the first quarter of 2025 was lower than the statutory tax rate primarily due to the impact of percentage depletion, the foreign-derived intangible income deduction, and the advanced manufacturing production credit. The effective tax rate for the first three months of 2026 included a net discrete income tax benefit of $1.6 million primarily from stock-based compensation awards. The effective tax rate for the first three months of 2025 included a net discrete income tax expense of $0.1 million. See Note G to the Consolidated Financial Statements for additional discussion.
Value-Added Sales - Reconciliation of Non-GAAP Financial Measure
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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 first quarter of 2026 and 2025 is as follows:
First Quarter Ended
April 3, March 28,
(Thousands) 2026 2025
Net sales
Performance Materials $ 155,665 $ 173,987
Electronic Materials 363,364 224,795
Precision Optics 30,795 21,548
Other — —
Total $ 549,824 $ 420,330
Less: pass-through metal costs
Performance Materials $ 16,181 $ 13,940
Electronic Materials 271,796 146,982
Precision Optics 57 62
Other — —
Total $ 288,034 $ 160,984
Value-added sales
Performance Materials $ 139,484 $ 160,047
Electronic Materials 91,568 77,813
Precision Optics 30,738 21,486
Other — —
Total $ 261,790 $ 259,346
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 metal 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 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 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.
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Segment Results
The Company consists of four reportable segments: Performance Materials, Electronic Materials, Precision Optics, and Other. The Other reportable segment includes unallocated corporate costs.
The primary measurement used by management to measure the financial performance of each segment is EBITDA. Refer to Note C to the Consolidated Financial Statements for the reconciliation of EBITDA by segment to consolidated net income.
Performance Materials
First Quarter
First Quarter Ended
April 3, March 28, $ %
(Thousands) 2026 2025 Change Change
Net sales $ 155,665 $ 173,987 $ (18,322) (11) %
Value-added sales 139,484 160,047 (20,563) (13) %
EBITDA 23,801 40,673 (16,872) (41) %
Net sales from the Performance Materials segment of $155.7 million in the first quarter of 2026 decreased 11% compared to net sales of $174.0 million in the first quarter of 2025. The decrease in sales was due to lower sales volumes in the consumer electronics (48%) end market. This decrease was partially offset by a year over year increase in the volume of raw material beryllium hydroxide sales totaling $2.9 million. The decrease in the consumer electronics end market reflects lower volumes due to a controlled ramp of production during the first quarter of 2026 from the quality issue that occurred in the fourth quarter of 2025 with a large precision clad strip customer within the Performance Materials segment. The Company continues to work closely with our customer, ensuring processes and procedures implemented in the fourth quarter of 2025 reduce the risk of future occurrences.
Value-added sales of $139.5 million in the first quarter of 2026 were 13% lower than value-added sales of $160.0 million in the first quarter of 2025. 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 $23.8 million in the first quarter of 2026 compared to $40.7 million in the first quarter of 2025. The decrease was primarily driven by lower sales volumes and an incremental $3.5 million of additional net costs related to the quality issue described above. These costs included capacity-related charges and expenses incurred to reimburse customers for incremental shipping and related tariff costs associated with procuring substitute materials necessary to meet their demand requirements. Partially offsetting these impacts were the reversal of previously reserved material costs, and lower SG&A expenses in the first quarter of 2026 compared to the same period in 2025. In addition, the increase in hydroxide sales favorably impacted margins.
Electronic Materials
First Quarter
First Quarter Ended
April 3, March 28, $ %
(Thousands) 2026 2025 Change Change
Net sales $ 363,364 $ 224,795 $ 138,569 62 %
Value-added sales 91,568 77,813 13,755 18 %
EBITDA 25,529 11,078 14,451 130 %
Net sales from the Electronic Materials segment of $363.4 million in the first quarter of 2026 increased 62% from net sales of $224.8 million in the first quarter of 2025. The increase in net sales was due to higher pass-through metal pricing, accounting for an increase of $132.6 million compared to the first quarter of 2025. These increases were partially offset by a decrease in sales volumes in the life sciences end market (246%) due to the exit of low margin business.
Value-added sales of $91.6 million in the first quarter of 2026 were 18% higher than value-added sales of $77.8 million in the first quarter of 2025. The increase in value-added sales was primarily driven by volume increases in the semiconductor end market noted above.
EBITDA for the Electronic Materials segment was $25.5 million in the first quarter of 2026 compared to $11.1 million in the first quarter of 2025. EBITDA in the first quarter of 2026 was favorably impacted by $9.7 million of incremental margin from higher sales volumes, as well as the favorable impact of operational and manufacturing efficiencies. This was partially offset by $3.1 million of higher consignment fees due to the increases in the price of precious metals.
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Precision Optics
First Quarter
(Thousands) First Quarter Ended
April 3, March 28, $ %
2026 2025 Change Change
Net sales $ 30,795 $ 21,548 $ 9,247 43 %
Value-added sales 30,738 21,486 9,252 43 %
EBITDA 4,674 (1,482) 6,156 NM
Net sales from the Precision Optics segment of $30.8 million in the first quarter of 2026 increased 43% compared to net sales of $21.5 million in the first quarter of 2025. The increase was primarily due to higher sales volumes in the aerospace and defense (61%), life sciences (41%) and industrial (22%) end markets.
Value-added sales of $30.7 million in the first quarter of 2026 increased 43% compared to value-added sales of $21.5 million in the first quarter of 2025. 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 $4.7 million in the first quarter of 2026, compared to a loss of $1.5 million in the first quarter of 2025. The increase in EBITDA was primarily driven by favorable impacts of volume/mix of $5.4 million and manufacturing efficiencies, partially offset by an increase in incentive compensation expense due to year to date performance.
Other
First Quarter
(Thousands) First Quarter Ended
April 3, March 28, $ %
2026 2025 Change Change
Net sales $ — $ — $ — — %
Value-added sales — — — — %
EBITDA (7,094) (5,870) (1,224) 21 %
The Other reportable segment in total includes unallocated corporate costs.
Corporate costs were $7.1 million in the first quarter of 2026 compared to $5.9 million in the first quarter of 2025. Corporate costs were 1% of Company-wide net sales in the first quarter of 2026 and 2025. Corporate costs were 3% and 2% of Company-wide value-added sales in the first quarter of 2026 and 2025, respectively. The increase in corporate costs were due to $0.4 million of higher stock compensation expense and $0.4 million of higher restructuring costs in the first quarter of 2026 compared to the same period in 2025.
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FINANCIAL POSITION
Cash Flow
A summary of cash flows provided by (used in) operating, investing, and financing activities is as follows:
Three Months Ended
April 3, March 28, $
(Thousands) 2026 2025 Change
Net cash (used in) provided by operating activities $ (4,307) $ 15,502 $ (19,809)
Net cash used in investing activities (15,349) (20,738) 5,389
Net cash provided by financing activities 22,381 3,478 18,903
Effects of exchange rate changes (217) 679 (896)
Net change in cash and cash equivalents $ 2,508 $ (1,079) $ 3,587
Net cash (used in) provided by operating activities was a usage of $4.3 million in the first three months of 2026 compared to net cash provided by operating activities of $15.3 million in the prior-year period. The unfavorable change in cash use in operating activities was primarily driven by an increase in accounts receivables and accounts payables due to timing and the increase in the price of precious metal, resulting in a net use of cash of $8.7 million in the first quarter of 2026 compared a net use of cash of $5.7 million in the same period in the prior year. Increases in inventory to support business growth resulted in a use of cash of $28.9 million in the first quarter of 2026 compared to cash provided by the sale of inventory of $0.4 million in the same period in the prior year.
Net cash used in investing activities was $15.3 million in the first quarter of 2026 compared to $20.7 million in the prior-year period. The decrease in cash used in investing activities is due to lower mine development costs offset by higher capital expenditures in the first quarter of 2026 compared to the first quarter of 2025.
Capital expenditures are made primarily for new product development, replacing and upgrading equipment, infrastructure investments, and implementing information technology initiatives. For the full year 2026, the Company expects payments for property, plant, and equipment to be approximately $100 million.
Net cash provided by financing activities totaled $22.4 million in the first three months of 2026 compared to net cash provided by financing activities of $3.5 million in the prior-year period. The increase in borrowings in the first three months of 2026 from the same period in the prior year was a result of an increase in accounts receivables and accounts payables due to a significant increase in the price of precious metals and an increase in inventory to support business growth.
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 2025 Annual Report on Form 10-K.
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 April 3, 2026, cash and cash equivalents held by our foreign operations totaled $15.4 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.
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A summary of key data relative to our liquidity, including outstanding debt, cash, and available borrowing capacity, as of April 3, 2026 and December 31, 2025 is as follows:
April 3, December 31,
(Thousands) 2026 2025
Cash and cash equivalents $ 16,189 $ 13,681
Total outstanding debt 489,921 458,793
Net debt $ (473,732) $ (445,112)
Available borrowing capacity $ 191,675 $ 223,675
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 borrowing capacity to a multiple of the twelve-month trailing earnings before interest, income taxes, depreciation and amortization, and other adjustments.
In June 2025, the Company entered into a Fifth Amended and Restated Credit Agreement (Credit Agreement). Among other things, the Credit Agreement provides for a $450 million senior secured revolving credit facility (Revolving Credit Facility) and a $225 million senior secured term loan facility (Term Loan Facility and, together with the Revolving Credit Facility, 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 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 premium resets quarterly according to the terms and conditions stipulated in the credit agreement. 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 April 3, 2026 and December 31, 2025. Cash on hand up to $35.0 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 2025, we entered into a precious metals consignment agreement, maturing on August 31, 2028, which replaced the consignment agreements that would have matured on August 31, 2025. The available and unused capacity under the metal consignment agreements expiring in August 2028 totaled approximately $270.3 million as of April 3, 2026, compared to $173.8 million as of December 31, 2025.
In January 2014, our Board of Directors approved a plan to repurchase up to $50.0 million of our common stock. We repurchased 100,000 shares under this program in the second 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. In October 2025, we announced that our Board of Directors had approved a new plan to repurchase up to $50.0 million of our common stock, replacing the plan approved in 2014. 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.
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We paid cash dividends of $2.9 million on our common stock in the first quarter of 2026. 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 CONTRACTUAL OBLIGATIONS
We maintain the majority of the precious metals and portions of the copper and nickel 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, copper and nickel was $579.7 million and $526.2 million as of April 3, 2026 and December 31, 2025, respectively. We were in compliance with all of the covenants contained in the consignment agreements as of April 3, 2026. For additional information on our contractual and other obligations, refer to our 2025 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; 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 geopolitical conflicts such as the conflict between Russia and Ukraine and the conflict between the United States and Iran; realization of 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 2025 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 2025 Annual Report on Form 10-K. There have been no material changes in our market risks since the inclusion of this discussion in our 2025 Annual Report on Form 10-K.
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