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Item 2. Management’s Discussion and Analysis

2026-07-29 compared with 2026-04-29 · 94 added, 63 removed, 133 unchanged (54% of the section changed)

57 unchanged sentences

The following synopsis and factors should be considered when reviewing our results of operations, financial position and liquidity:

• In the first quarter of 2026 as compared to the first quarter of 2025, our net sales increased approximately 5.2% to $200.5 million, our gross margin increased approximately 230 basis points to 32.2% from 29.9%, and we had an operating margin of 5.3% compared to an operating loss of 0.2%.

• We recognized restructuring charges of $5.7 million in the first quarter of 2026 due to our manufacturing footprint consolidation in our Eschenbach, Germany facility, our executive leadership transition and additional reduction in force actions.

• In the second quarter of 2026 as compared to the second quarter of 2025, our net sales increased approximately 6.9% to $216.8 million, our gross margin increased approximately 90 basis points to 32.5% from 31.6%, and we had an operating margin of 9.2% compared to an operating loss of 33.3%.

• We repurchased 22.6 thousand shares of our capital stock for $3.0 million in the second quarter of 2026.

Results of Operations

The following table sets forth, for the periods indicated, selected operations data expressed as a percentage of net sales:

Three Months Ended

March 31, 2026 March 31, 2025

Three Months Ended Six Months Ended

June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

8 unchanged sentences

Income (loss) before income taxes 9.9 % (34.2) % 7.8 % (18.0) %

Income tax (benefit) expense 3.4 % (0.1) %

Income tax expense 3.6 % 2.1 % 3.5 % 1.1 %

Net income (loss) 6.3 % (36.3) % 4.3 % (19.1) %

Net Sales and Gross Margin

Three Months Ended

(Dollars in millions) March 31, 2026 March 31, 2025

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025

Net sales $ 216.8 $ 202.8 $ 417.3 $ 393.3

1 unchanged sentence

Percentage of net sales 32.5 % 31.6 % 32.4 % 30.8 %

Net sales increased by 5.2%, or $10.0 million, inclusive of a $7.9 million benefit from the appreciation of the euro and Chinese yuan relative to the U.S.

By end market, sales increased in the industrial and electronics and communications markets, partially offset by lower net sales in the automotive market, in the first quarter of 2026 compared to the first quarter of 2025.

Gross margin as a percentage of net sales increased approximately 230 basis points to 32.2% in the first quarter of 2026 compared to 29.9% in the first quarter of 2025.

Gross margin in the first quarter of 2026 increased due to higher net sales, favorable mix, and cost savings following our manufacturing footprint consolidation in Belgium.

Net sales increased in the second quarter by 6.9%, or $14.0 million, of which $8.7 million was driven by higher demand and $5.3 million of currency benefit.

By end market, sales increased in the electronics and communications, industrial, and automotive markets, partially offset by lower net sales in the aerospace and defense market, in the second quarter of 2026 compared to the second quarter of 2025.

Net sales increased in the first six months by 6.1%, or $24.0 million, of which $10.9 million was driven by higher demand and $13.1 million of currency benefit.

By end market, sales increased in the electronics and communications and industrial markets, partially offset by lower net sales in the automotive market, in the six months ended June 30, 2026 compared to the six months ended June 30, 2025.

Gross margin as a percentage of net sales increased approximately 90 basis points to 32.5% in the second quarter of 2026 compared to 31.6% in the second quarter of 2025.

Gross margin in the second quarter of 2026 increased due to higher sales volume, favorable mix, and operational efficiencies, partially offset by increased raw material costs.

Gross margin as a percentage of net sales increased approximately 160 basis points to 32.4% in the six months ended June 30, 2026 compared to 30.8% in the six months ended June 30, 2025.

Gross margin in the six months ended June 30, 2026 increased due to higher sales volume, favorable mix, and productivity improvements from cost savings following our manufacturing footprint consolidation in Belgium and Germany, partially offset by increased raw material costs.

Selling, General and Administrative Expenses

Three Months Ended

(Dollars in millions) March 31, 2026 March 31, 2025

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025

Selling, general and administrative expenses $ 42.2 $ 48.5 $ 83.4 $ 93.0

Percentage of net sales 19.5 % 23.9 % 20.0 % 23.7 %

SG&A expenses decreased 7.4% in the first quarter of 2026 from the first quarter of 2025, primarily due to a $2.3 million reduction in professional services costs, and a $0.9 million reduction in software costs.

SG&A expenses decreased 13.0% in the second quarter of 2026 from the second quarter of 2025, primarily due to a $2.1 million reduction in professional services costs, a $2.2 million reduction in total compensation and benefit expense, and a $0.5 million reduction in software costs.

SG&A expenses decreased 10.3% in the six months ended June 30, 2026 from the six months ended June 30, 2025, primarily due to a $2.2 million reduction in total compensation and benefit expense, a $4.6 million reduction in professional services costs, and a $1.4 million reduction in software costs.

Research and Development Expenses

Three Months Ended

(Dollars in millions) March 31, 2026 March 31, 2025

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025

Research and development expenses $ 7.3 $ 7.0 $ 14.0 $ 14.1

Percentage of net sales 3.4 % 3.5 % 3.4 % 3.6 %

R&D expenses decreased 5.6% in the first quarter of 2026 from the first quarter of 2025, primarily due to a reduction in employee compensation and benefits.

R&D expenses increased 4.3% in the second quarter of 2026 from the second quarter of 2025, primarily due to a $0.5 million increase in R&D trials for product development, partially offset by a $0.4 million decrease in compensation and benefits expense.

R&D expenses decreased 0.7% in the six months ended June 30, 2026 from the six months ended June 30, 2025, primarily due to a $1.1 million decrease in compensation and benefits expense, partially offset by a $0.2 million increase in professional services and a $0.5 million increase in R&D trials for product development.

Restructuring and Impairment Charges

Three Months Ended

(Dollars in millions) March 31, 2026 March 31, 2025

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025

Restructuring and impairment charges $ 0.7 $ 76.1 $ 6.6 $ 82.0

We incurred restructuring and impairment charges of $5.9 million in the three months ended March 31, 2026, due to our footprint consolidation actions in our Eschenbach, Germany facility, the executive leadership transition an additional reduction in force, and the impairment of our Mexico facility lease.

We incurred restructuring and impairment charges of $0.7 million and $6.6 million in the three and six months ended June 30, 2026, due to our footprint consolidation actions in our Eschenbach, Germany facility, the executive leadership transition, additional reduction in forces, and the impairment of our Mexico facility lease.

For additional information, refer to “Note 13 – Supplemental Financial Information” to the condensed consolidated financial statements in Part I, Item 1, of this Form 10-Q.

Other Income (Expense), Net

Three Months Ended

(Dollars in millions) March 31, 2026 March 31, 2025

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025

Other income (expense), net $ 1.1 $ (2.2) $ 1.4 $ (3.8)

Other income (expense), net was income of $0.3 million in the first quarter of 2026 compared to expense of $1.6 million in the first quarter of 2025.

The increase was primarily due to $2.6 million of favorable year-over-year changes in impacts from foreign currency transactions, partially offset by $1.0 million in unfavorable performance on foreign exchange and copper derivative contracts.

Other income (expense), net was income of $1.1 million in the second quarter of 2026 compared to expense of $2.2 million in the second quarter of 2025.

The increase was primarily due to $3.8 million of favorable year-over-year changes in impacts from foreign currency transactions combined with $0.6 million for our copper derivative, partially offset by $1.0 million in unfavorable performance on foreign exchange derivative contracts.

Other income (expense), net was income of $1.4 million in the six months ended June 30, 2026 compared to expense of $3.8 million in the six months ended June 30, 2025.

The increase was primarily due to $6.4 million of favorable year-over-year changes in impacts from foreign currency transactions, partially offset by $1.8 million in unfavorable performance on foreign exchange derivative contracts.

Interest Income, Net

Three Months Ended

(Dollars in millions) March 31, 2026 March 31, 2025

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025

Interest income, net $ 0.3 $ 0.4 $ 0.6 $ 0.7

Interest income, net, was flat year-over-year.

Three Months Ended

(Dollars in millions) March 31, 2026 March 31, 2025

Income tax (benefit) expense $ 6.8 $ (0.2)

Interest income, net, was flat for the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025.

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025

Income tax expense $ 7.8 $ 4.3 $ 14.6 $ 4.1

Effective tax rate 36.4 % (6.2) % 44.6 % (5.8) %

Compared to the 21% U.S.

statutory federal income tax rate, we had a tax rate of 60.2% in the first quarter of 2026.

During the quarter, our effective tax rate was unfavorably impacted by an increase in the valuation allowance attributable to loss jurisdictions in which no tax benefit is anticipated to be realized.

We had a tax rate of 12.5% in the first quarter of 2025 when we incurred a loss before income taxes of $1.6 million, which, when taxed at the 21% U.S.

statutory federal income tax rate, resulted in an immaterial income tax benefit, partially offset by insignificant tax adjustments that caused the effective tax rate to differ from the statutory rate.

statutory federal income tax rate, we had a tax rate of 36.4% in the second quarter of 2026.

During the quarter, our effective tax rate was unfavorably impacted by an increase in the valuation allowance attributable to loss

jurisdictions in which no tax benefit is anticipated to be realized.

We had a negative tax rate of 6.2% in the second quarter of 2025 due to tax expense on a pre-tax book loss.

Our income tax expense for the second quarter of 2025 of $4.3 million was comprised primarily of an increase in the valuation allowance attributable to loss jurisdictions in which no tax benefit is anticipated to be realized.

Our effective tax rate was also unfavorably impacted by the $67.3 million goodwill impairment in curamik ® for which no tax benefit is available.

We had a tax rate of 44.6% in the six months ended June 30, 2026.

The effective rate for the first six months of 2026 was unfavorably impacted by an increase in the valuation allowance attributable to loss jurisdictions in which no tax benefit is anticipated to be realized.

We had a negative tax rate of 5.8% for the six months ended June 30, 2025 due to tax expense on a pre-tax book loss.

Our income tax expense for the six months ended June 30, 2025 of $4.1 million was comprised primarily of an increase in the valuation allowance attributable to loss jurisdictions in which no tax benefit is anticipated to be realized.

Our effective tax rate was also unfavorably impacted by the $67.3 million goodwill impairment in curamik ® for which no tax benefit is available.

Operating Segment Net Sales and Gross Margin

Advanced Electronics Solutions

Three Months Ended

(Dollars in millions) March 31, 2026 March 31, 2025

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025

Net sales $ 117.5 $ 109.0 $ 225.2 $ 213.2

1 unchanged sentence

Percentage of net sales 28.5 % 28.3 % 28.8 % 28.1 %

AES net sales increased by 3.4%, or $3.5 million, inclusive of a $5.3 million benefit from the appreciation of the euro and Chinese yuan relative to the U.S.

Inclusive of the foreign currency benefits, net sales by end market increased for electronics and communications, and industrial, while net sales in the aerospace and defense market were lower, in the first quarter of 2026 compared to the first quarter of 2025.

Our AES operating and reportable segment gross margin as a percentage of net sales in the first quarter of 2026 was 29.2% as compared to 27.9% in the first quarter of 2025.

Gross margin improved primarily due to cost savings following our manufacturing footprint consolidation in Belgium, partially offset by lower utilization from a new production line.

AES net sales increased in the second quarter by 7.8%, or $8.5 million, of which $5.2 million was driven by higher demand and $3.3 million of currency benefit.

By end market, sales increased for electronics and communications, and automotive, while sales in the aerospace and defense market were lower, in the second quarter of 2026 compared to the second quarter of 2025.

AES net sales increased in the first six months by 5.6%, or $12.0 million, of which $3.5 million was driven by higher demand and $8.5 million of currency benefit.

By end market, sales increased for electronics and communications, automotive, and industrial, while sales in the aerospace and defense market were lower, in the six months ended June 30, 2026 compared to the six months ended June 30, 2025.

Our AES operating and reportable segment gross margin as a percentage of net sales in the second quarter of 2026 was 28.5% as compared to 28.3% in the second quarter of 2025.

Gross margin improved primarily due to higher sales volume and favorable mix, partially offset by increased raw material costs.

Our AES operating and reportable segment gross margin as a percentage of net sales in the six months ended June 30, 2026 was 28.8% as compared to 28.1% in the six months ended June 30, 2025.

Gross margin improved primarily due to higher sales volume, favorable mix, and productivity improvements from cost savings following our manufacturing footprint consolidation in Belgium and Germany, partially offset by lower utilization from a new production line and increased raw material costs.

Elastomeric Material Solutions

Three Months Ended

(Dollars in millions) March 31, 2026 March 31, 2025

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025

Net sales $ 94.8 $ 89.4 $ 183.2 $ 172.0

1 unchanged sentence

Percentage of net sales 36.9 % 35.2 % 36.2 % 33.8 %

EMS net sales increased by 7.0%, or $5.8 million, including $2.5 million of favorable impact from the appreciation of the euro and Chinese yuan relative to the U.S.

By end market, sales increased in the industrial, electronics and communications, and aerospace and defense markets, partially offset by lower sales in the automotive market, in the first quarter of 2026 compared to the first quarter of 2025.

Our EMS operating and reportable segment gross margin as a percentage of net sales in the first quarter of 2026 was 35.4% as compared to 32.3% in the first quarter of 2025.

Gross margin improved primarily due to increased sales volume and related utilization benefits and favorable mix.

Three Months Ended

(Dollars in millions) March 31, 2026 March 31, 2025

EMS net sales increased in the second quarter by 6.0%, or $5.4 million, of which $3.6 million was driven by higher demand and $1.8 million of currency benefit.

By end market, sales increased in the industrial, electronics and communications, and aerospace and defense markets, partially offset by lower sales in the automotive market, in the second quarter of 2026 compared to the second quarter of 2025.

EMS net sales increased in the first six months by 6.5%, or $11.2 million, of which $6.9 million was driven by higher demand and $4.3 million of currency benefit.

By end market, sales increased in the industrial, electronics and communications, and aerospace and defense markets, partially offset by lower sales in the automotive market, in the six months ended June 30, 2026 compared to the six months ended June 30, 2025.

Our EMS operating and reportable segment gross margin as a percentage of net sales in the second quarter of 2026 was 36.9% as compared to 35.2% in the second quarter of 2025.

Gross margin improved primarily due to increased sales volume and related utilization benefits and operational efficiencies.

Our EMS operating and reportable segment gross margin as a percentage of net sales in the six months ended June 30, 2026 was 36.2% as compared to 33.8% in the six months ended June 30, 2025.

Gross margin improved primarily due to increased sales volume and related utilization benefits and productivity improvements.

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025

Net sales $ 4.5 $ 4.4 $ 8.9 $ 8.1

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The following table illustrates the location of our cash and cash equivalents by our three major geographic areas:

(Dollars in millions) March 31, 2026 December 31, 2025

(Dollars in millions) June 30, 2026 December 31, 2025

$ 74.3 $ 100.1

3 unchanged sentences

Approximately $107.1 million of our cash and cash equivalents were held by non-U.S.

subsidiaries as of March 31, 2026.

We did not make any changes in the three months ended March 31, 2026 to our position on the permanent reinvestment of our earnings from foreign operations.

subsidiaries as of June 30, 2026.

We did not make any changes in the six months ended June 30, 2026 to our position on the permanent reinvestment of our earnings from foreign operations.

With the exception of certain of our Chinese subsidiaries, where a substantial portion of our cash and cash equivalents located in Asia are held, we continue to assert that historical foreign earnings are indefinitely reinvested.

(Dollars in millions) March 31, 2026 December 31, 2025

(Dollars in millions) June 30, 2026 December 31, 2025

Key Financial Position Accounts:

Cash and cash equivalents $ 181.4 $ 197.0

Short-term investments $ 30.0 $ —

Accounts receivable, net $ 149.2 $ 130.6

Inventories, net $ 130.0 $ 125.0

Changes in key financial position accounts and other significant changes in our statements of financial position from December 31, 2025 to March 31, 2026 were as follows:

Changes in key financial position accounts and other significant changes in our condensed consolidated statements of financial position from December 31, 2025 to June 30, 2026 were as follows:

• Cash and cash equivalents were $181.4 million as compared to $197.0 million as of December 31, 2025, a decrease of $15.6 million, or 7.9%.

This decrease was primarily due to cash used in investing and financing activities, partially offset by cash provided by operations and favorable impacts of exchange rates on cash.

• Accounts receivable, net increased 8.8% to $142.1 million as of March 31, 2026 from $130.6 million as of December 31, 2025.

The increase was primarily due to higher net sales in the last month of the first quarter of 2026 compared to the last month of the fourth quarter of 2025.

• Inventories were $127.5 million as of March 31, 2026, compared to $125.0 million as of December 31, 2025.

The change was due to higher levels of raw materials and work-in-process inventory, offset by lower levels of finished goods.

Three Months Ended

(Dollars in millions) March 31, 2026 March 31, 2025

• Short-term investments were $30.0 million as compared to nil as of December 31, 2025.

The addition of short-term investments was due to the purchase of time deposits with original maturities of more than three months and less than twelve months at the date of purchase, as of June 30, 2026.

• Accounts receivable, net increased 14.2% to $149.2 million as of June 30, 2026 from $130.6 million as of December 31, 2025.

The increase was primarily due to higher net sales in the last month of the second quarter of 2026 compared to the last month of the fourth quarter of 2025.

• Inventories were $130.0 million as of June 30, 2026, compared to $125.0 million as of December 31, 2025.

The change was due to higher levels of raw materials inventory, offset by lower levels of work-in-process and finished goods inventory.

Six Months Ended

(Dollars in millions) June 30, 2026 June 30, 2025

Key Cash Flow Measures:

Net cash provided by operating activities $ 30.2 $ 25.4

Net cash provided by (used in) investing activities $ (4.5) $ 3.9

Net cash used in investing activities $ (40.3) $ (3.4)

Net cash used in financing activities $ (4.6) $ (29.6)

Changes in key cash flow measures and other significant changes in our condensed consolidated statements of cash flows from June 30, 2025 to June 30, 2026 were as follows:

• Net cash used in investing activities was $40.3 million as compared to $3.4 million as of June 30, 2025, an increase in net cash used of $36.9 million.

This increase in net cash used was primarily due to purchases of short-term investments, which consists of time deposits with original maturities of more than three months and less than twelve months at the date of purchase.

• Net cash used in financing activities was $4.6 million as compared to $29.6 million as of June 30, 2025, a decrease in net cash used of $25.0 million.

This decrease in net cash used was primarily due to a lower level of share repurchase activity.

In 2026, we expect capital spending to be in the range of approximately $30.0 million to $35.0 million.

3 unchanged sentences

If our total net leverage ratio exceeds 2.75 to 1.00, we may nonetheless make up to $20.0 million in restricted payments, including cash dividends, during the fiscal year, provided that no default or event of default has occurred and is continuing or would result from the payments.

Our total net leverage ratio did not exceed 2.75 to 1.00 as of March 31, 2026.

Our total net leverage ratio did not exceed 2.75 to 1.00 as of June 30, 2026.

Contingencies

During the first quarter of 2026, we did not become aware of any material developments related to environmental matters disclosed in our Annual Report, our asbestos litigation or other material contingencies previously disclosed or incur any material costs or capital expenditures related to such matters.

During the second quarter of 2026, we did not become aware of any material developments related to environmental matters disclosed in our Annual Report, our asbestos litigation or other material contingencies previously disclosed or incur any material costs or capital expenditures related to such matters.

Refer to “Note 9 – Commitments and Contingencies” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further discussion of these contingencies.

2 unchanged sentences

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our exposure to market risk during the first quarter of 2026.

There have been no material changes in our exposure to market risk during the second quarter of 2026.

For discussion of our exposure to market risk, refer to “Item 7A.

1 unchanged sentence

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