Qnity Electronics (NYSE:Q) reported first-quarter financial results on Tuesday. The transcript from the company's first-quarter earnings call has been provided below.

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Summary

Qnity Electronics Inc reported an 18% year-over-year increase in net sales for Q1 2026, with strong performance in both semiconductor technologies and interconnect solutions.

The company highlighted its strategic initiatives, including collaborations with Nvidia and Apple's American Manufacturing program, and expansion of manufacturing facilities in Delaware and Taiwan.

Future outlook is positive with raised full-year guidance, anticipating net sales of $5.225 billion to $5.375 billion and adjusted EBITDA of $1.535 billion to $1.625 billion, driven by AI-related demand and advanced technology development.

Full Transcript

OPERATOR

Good morning and welcome to the Qnity Electronics Inc first quarter 2026 conference and webcast call. Currently, all callers have been placed in a listen only mode and following management's prepared remarks, the call will be open for your questions. I will now turn the call over to Meg Miller, Vice President of Global Communications. You may begin. Thank you and welcome to our first quarter 2026 earnings call. I'm joined by John Kemp, Qnity Electronics Inc's Chief Executive Officer, and Mike Goss, Qnity Electronics Inc's Interim Chief Financial Officer. Earlier today we issued our earnings release along with the supplemental slide presentation which can be found on our Investor Relations website. Before we begin, I'd like to remind you that today's discussion will include some forward looking statements. These statements represent our best view of predictions and expectations for the future, but numerous risks and uncertainties may cause actual results to differ. Please refer to our earnings release and SEC filings for a discussion of these risks. We'll also be discussing certain non GAAP financial measures and I encourage you to read our earnings materials for information regarding our non GAAP financial measures and reconciliations to the most directly comparable GAAP measure. And now it's my pleasure to turn it over to John Kemp.

John Kemp (Chief Executive Officer)

Thank you for joining this morning. Our strong performance this quarter demonstrates how Qnity Electronics Inc creates value first, through a powerful integrated portfolio, second, a differentiated ability to innovate alongside our customers roadmap and third, leadership in advanced materials that are foundational to the exponential growth in AI and emerging technologies. For decades, Moore's Law has been the driving force behind technological advancements in the semiconductor industry. Innovation meant shrink smaller transistors and higher density to improve performance and power. Now those gains are increasingly constrained by physical limits. Shrink built the last era stack will define the next. That means even while shrink remains important, we're moving from 2D design to 3D architectures, stacking chips to unlock the next frontier of computing. That shift from flat to vertical elevates the importance of materials integration and reliability and ultimately redefines where value and leadership are created. This inflection plays directly to Cunity's strength and how our business segments work together to power the stack. In semiconductor technologies, customers rely on our materials to smooth shape and precisely engineer surfaces at the wafer and device level. This is the foundation of performance yield and reliability. As AI investments accelerate, stacking creates increasingly complex advanced packages and systems with a multiplier in both process steps and material intensity for every additional layer. And the challenge shifts from individual steps at the chip level to managing integration at scale. That's where Our Interconnect Solutions business Segment builds on SEMI's work addressing system level constraints like power efficiency, heat management, signal integrity and long term reliability, all while capturing more content as stacks grow taller. Together, Qnity Electronics Inc brings these strengths into one differentiated platform, helping customers build, scale and operate next generation computing platforms. With these unique capabilities, supported by our local for local model that keeps us closely connected to customers around the world, Cunity is well positioned as the partner of choice for many of the industry's leading fabricators and OEMs pioneering next generation technologies. This advantaged position reinforces our confidence in delivering sustainable long term value for our shareholders. That long term confidence is reflected in our near term execution. Let's turn to our first quarter results where we delivered our eighth consecutive quarter of strong profitable organic growth. Organic sales increased by 17% versus 2025 with double digit growth across both segments. Adjusted operating EBinformation technologyDA increased by 22% and adjusted earnings per share grew by 33%. These results clearly reflect the ongoing momentum from AI exposed end markets and next generation technologies along with our ability to drive strong operating leverage. In Semi, we grew organic sales 12% year over year driven mostly by advanced nodes led by advanced logic and high bandwidth memory. We also benefited from ongoing improvements in mature nodes and NAND across the board. fab utilization rates continue to improve in line with our expectations as wafer mix continues to shift toward the leading edge. With more advanced nodes we're well positioned for continued growth driven primarily by increasing content per wafer. Higher node complexity brings more CMP process steps, incremental demand for our most advanced clean and requires increasingly intricate lithography Patterning. Volumes at 3 nanometer continue to scale and we're starting to see meaningful activity at 2 nanometer. Beyond this, we're increasingly excited about Angstrom era nodes like 16, 14 and 10, which is the primary focus of our R&D engagement with customers and keeps us tightly aligned to their roadmaps. In ICS, we had an exceptional quarter with organic sales growing 22% year over year driven by content and share gains in advanced packaging and interconnects and thermal management. Advanced packaging is expected to be a core growth driver for years to come as the move from shrink to stack accelerates. As I mentioned earlier, more sophisticated architectures means larger package sizes, higher layer counts and more community content in every device. In advanced interconnects, we're winning new business with AI, PCB, fab for the leading hyperscalers and premium smartphone OEMs where signal integrity and reliability requirements continue to rise as data center Demand Accelerates Managing heat is a critical objective Our industry leading thermal management portfolio is designed to remove heat across the entire system, supporting increasing content and higher device performance. Our growth momentum is a testament to the depth of our customer relationships and the strength of our innovation engine. We're in a strong process of record or POR position across both segments due to the investments we're making in R&D and innovation, giving us visibility into our growth potential over the next few years. Built on decades of partnership, we've earned our customers trust and with it comes a clear mandate to innovate and to move fast because in this industry that's what it takes to win. During the quarter, we underscored that trust through several key announcements, including a new collaboration with Nvidia focused on advancing materials research and development for next gen AI, high performance computing and advanced packaging. By combining our materials expertise with Nvidia's modeling and simulation capabilities, we're working to accelerate development and improve manufacturing capabilities. That same commitment to collaboration and execution is reflected in our inclusion in Apple's American Manufacturing program. Recognizing our role as a long term trusted partner to support customer roadmaps and supply ramps for the most advanced chip, we continue to execute our capital allocation strategy to further bolster manufacturing capacity and strengthen our local for local operating model. In the US we expanded our footprint with the March opening of a 385,000 square foot facility in Delaware. And in Taiwan we announced a new state of the art site with advanced production, clean rooms, warehousing and and R&D labs scheduled to be fully operational in early 2027. These investments significantly expand our manufacturing capacity for critical CMP materials, strengthen our operational agility, ensure global and regional capacity, and advance collaborative innovation with customers. Before I hand things over to Mike, I want to touch on end market demand and the broader macro environment. Customers remain highly focused on supply chain resilience at a time when wafer capacity remains tight. As customers allocate capacity to the highest value applications, our portfolio mix is increasingly moving beyond consumer electronics to attractive high value applications like data centers, autonomous driving and aerospace and defense. And while there's been a considerable attention on the impact of memory pricing on demand for devices like smartphones and PCs, our results this quarter demonstrate we aren't seeing a material impact for two important reasons. First, our exposure is primarily to premium devices which tend to be more resilient. And second, AI LED infrastructure growth is more than offsetting any softness in consumer electronics. Whether chips are going to data centers, satellites or smartphones, we're well positioned to pick up that demand given the depth and breadth of our portfolio. With that, I'll turn it over to our interim cfo Mike Goss to discuss our financial results and provide an update on our full year guidance.

Mike Goss (Interim Chief Financial Officer)

Thanks John and good morning everyone. We had an excellent start to the year with first quarter net sales of 1.3 billion up 18% year over year and 11% sequentially. Sequentially on an organic basis sales improved 17% versus the same period last year. Adjusted operating EBITDA was $411 million up 22% year over year. Adjusted operating EBITDA margin expanded more than 125 basis points versus the same period last year to 31.3%. Adjusted EPS for the quarter increased 33% $1.08 this was a record quarter for Qnity Electronics Inc driven by continued momentum in our AI linked businesses and strong execution by our team. We're very pleased with the performance which reflects a combination of strong volumes, operating leverage and favorable mix. Let me provide a bit more detail on how each business segment performed during the quarter. Semiconductor Technologies performed in line with our expectations with net sales of $722 million with year over year organic sales growth of 12% led by demand for Advanced Logic and HPM chips. We saw fraud based strength across several product lines with particularly strong gains in CMP consumables. First quarter was strengthened by $20 million of inventory restocking, particularly in mature nodes following customers catching inventory management in the fourth quarter. This pattern was similar to what we observed in the first quarter of 2025. Our adjusted operating EBITDA margin in this segment was 36.4%, up 130 basis points sequentially from the fourth quarter driven by improved manufacturing efficiencies and favorable product mix in Interconnect solutions. Impressive execution delivered net sales of $593 million with organic growth of 22%, led again by advanced packaging and interconnects and thermal management. Sales in these core areas grew more than 50% year over year as we capitalized on demand tailwinds from data centers and benefited from ramps on shorter cycle por wins from last year. Adjusted operating EBITDA margin for ICS was 28.5%, an improvement of 280 basis points sequentially. This was driven by strong operating leverage on higher volumes and favorable mix. In line with our expectations for the quarter, we generated adjusted free cash flow of $28 million. This reflects strong operating cash flow partially offset by annual variable compensation. Capital expenditures were reflective of our capacity expansion efforts which included about one third of our $61.5 million investment in the new Taiwan facility. Our overall balance sheet remains strong and we're committed to maintaining a returns focused capital allocation framework. As a reminder, our first priority is to reinvest organically in the business to sustain above market growth. We continue to anticipate elevated CapEx investments for the full year at approximately 9% of sales driven by investments to strengthen our local for local footprint in key geographies and support our transformation initiatives. Over the longer term, we expect CapEx to be in the 6% of net sales range. We also remain committed to returning capital to our shareholders through our quarterly dividend and during the quarter we repurchased $25 million worth of shares to offset normal equity dilution. We're well positioned from a liquidity perspective with approximately $850 million in cash and short term investments at the end of the first quarter. Total debt outstanding is $4 billion with a net debt leverage of 2.2 times. We maintain balance sheet flexibility to focus on the areas that add value in the long term. Our transformation plan announced last quarter is underway and tracking the plan, we have work streams dedicated to three focus areas driving productivity and quality improvements, strengthening commercial and innovation excellence and advancing our local to local operating model. We continue to expect these actions to deliver approximately $100 million of EBITDA run rate benefit by the end of 2028. Separately, our transformation is further supported by continued progress on IT separation. This parallel effort is well underway as we continue to make steady progress on TSA exits across our digital infrastructure. Turning to guidance Building on our strong first quarter results, we expect a normal seasonal increase in the second quarter to sequential net sales growth in the mid single digits supported by strong demand trends including continued momentum for AI driven applications, high performance computing and advanced connectivity. More specifically, in semiconductor technologies, we expect sequential net sales to be roughly flat with a margin profile in the mid-30s. For ICS, we expect sequential net sales growth in the high single digits range with margins in the mid to high 20s. From a mix perspective across both segments, we continue to see end market strength similar to the first quarter combined with the normal seasonal increase in consumer electronics. In addition, we're also making incremental investments to support strong customer ramps we're seeing. Additionally, considering the ongoing conflict in the Middle east, we're taking a prudent approach to planning while continuing to strengthen our portfolio position to meet customers needs. We're seeing modest upward pressure in certain raw materials, energy and logistics costs. To mitigate these impacts, we're leveraging our local to local operating model, working closely with a diversified supplier base across regions and adjusting inventory levels for critical materials. Based on what we see today, we don't expect any near term operational disruption where we are seeing incremental increases in input or logistics costs. We're taking targeted pricing actions to pass those through in a disciplined manner. The external environment remains dynamic and we are continuing to monitor how things evolve today. Overall demand signals remain strong and customer conversations are constructive. With this in mind, we're raising our full year guidance to reflect the strength we realized in the first quarter and our forecast for the remainder of 2026. Our guide incorporates our expectations of MSI wafer start growth to be single digits to high single digits, increasing from our previous expectations of mid single digits. This underscores our confidence in the underlying demand signals we're seeing. Net sales is now expected to be 5.225 billion to $5.375 billion, a 5% increase at the midpoint. We assume geopolitical inflation headwinds for some raw materials and logistics costs of approximately $20 million for the remainder of 2026 based on current conditions, but expect to largely offset these through pricing actions with some timing variability. Adjusted operating EBITDA is now expected to be 1.535 billion to 1.625 billion, a 4% increase at the midpoint. Adjusted earnings per share is now expected to be $3.80 to $4.14, a 6% increase at the midpoint. Finally, adjusted free cash flow is now expected to be $500 million to $600 million, a 10% increase at the midpoint. Overall, we expect double digit net sales and EBITDA growth year over year as we move through the year. We're maintaining a disciplined and measured approach in the second half, balancing execution with visibility, customer alignment and flexibility to support long term value creation. John, back to you.

John Kemp (Chief Executive Officer)

Thanks Mike. Before we open the call for Q and A, I want to underscore a few things as we mark six months as an independent company. First, we're pleased with our progress executing our growth strategy, delivering meaningful innovation to solve our customers toughest challenges, scaling our platforms in step with their growth and allocating capital to the highest return opportunities. We're excited by the traction we're seeing as our strategy translates into differentiated offerings, increasing demand and solid performance. Strategy points the way forward, but culture is what drives results. Cunity's team is aligned on the goal, focused on getting things done and committed to the outcomes. We're looking forward to executing against this path with discipline and focus driving durable growth and long term value for our investors. That wraps up my remarks. Operator, let's open the call for Q and A.

OPERATOR

Thank you. If you would like to ask a question, Please press star 1 on your telephone keypad. If you need to remove yourself from the queue, press star two at any time. If you should need operator assistance, press star zero. Please be advised that today's call is being recorded. In the interest of time, please limit to one question and one follow up. We'll take our first question from Chris Parkinson with Wolff Research. Please go ahead. Your line is open.

Chris Parkinson (Equity Analyst at Wolff Research)

Great. Thank you so much. When we think about the trajectory for the balance of the year, obviously there have been a lot of moving parts even within the last few weeks. Could you speak to your assumptions in terms of what appears to be an accelerating mainstream recovery and how that should affect your second half numbers as well as the trajectory in 2017? And then also John, I think most of us are where you've been investing in a lot of new products and those seem to be ramping on a preliminary basis we could just get the framework for those as well. Thank you so much.

John Kemp (Chief Executive Officer)

Thanks Chris. I appreciate the questions. Maybe starting with the first question on mainstream, mainstream demand, you know, we're, we're excited by the progress that we're seeing from some of our mainstream customers. Obviously it's been kind of a slow recovery in that part of the market, but we're seeing very constructive signs and signals. I think the commentary in the most recent earnings seasons have been positive and we see utilization rates continue to increase on the mainstream logic side, really kind of from the mid 70s last year into the high 70s, maybe even into a little bit into the low 80s kind of in the first quarter. And we expect to see continued sequential improvement as we move through the remainder of the year. Obviously there is a bit of an impact from memory market demand in some of these areas. But what we're really excited about is the increasing positive demand that we're seeing from AI applications starting to extend in the mainstream realm. We've heard lots of customers talking about edge computing and physical AI over the last few weeks and the growth that they're anticipating from that. We think that that's going to power kind of the next wave of AI led infrastructure demand. And we're excited to see that progress on the recovery on the mainstream side. Maybe moving to your second question around new product introductions. We're really excited by the continued progress that our innovation and R and D and commercial teams are having on securing new process of record or Process of Record (POR) wins. 2025 was a record year for us and we saw POR wind in every line of business. That momentum has continued into the early part of this year where we continue to see wins across the most advanced technologies in both segments. To give you a couple that I'm really excited about, you know, we obviously we launched some new CMP materials materials across both pads and advanced cleans, targeting, you know, the Most advanced semi nodes 2 nanometer and even starting to get into some of the Angstrom era nodes of 16, 14 and forward. We've seen some nice wins in our lithography space in both ArF as well as some EUV (Extreme Ultraviolet) sub layers to help facilitate the continued growth of the most advanced lithography. And then on the interconnect side, we continue to see new wins in AIP PCB boards with fine lines and interconnect copper solder and interconnect products as well as continue to see progress advancing our thermal management portfolio across thermal pads, liquid gap fillers and phase change materials. So a lot more to come on innovation, but it's really powering the strong momentum that we're seeing in both segments.

Chris Parkinson (Equity Analyst at Wolff Research)

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

John Kemp (Chief Executive Officer)

You know, obviously the ICS business continues to outperform significantly and really driven by the strong alignment that it has to AI-led demand. And that's really fueled by the access or the exposure that we have to kind of the three highest growth areas in the interconnect segment, Advanced packaging, thermal management and AI PCB. And in the first quarter we saw those three areas collectively grew by more than 50% in the quarter year over year, benefiting from those tend to be a little bit shorter cycle wins. And so as we win new business, they tend to scale up a little bit faster. And so what you're seeing is, is the results of some of the wins that we had last year starting to scale and really contribute to growth. We expect advanced packaging and thermal in this part of the market to remain the fastest growing parts of our portfolio. We're investing in line with our customers to meet their capacity as they put more capacity in the ground, especially for things like advanced packaging, and they continue to build out more advanced printed circle board architectures to be able to meet the rising demand. And we're investing in line with that to be able to meet that demand. I don't think we're at the point where I want to update guidance on the ICS segment, but we're excited by the continued momentum that we're seeing and we think it'll be a strong contributor to our growth going forward.

Chris Parkinson (Equity Analyst at Wolff Research)

Much appreciated.

OPERATOR

Thank you. We will move next with Melissa Weathers with Deutsche Bank. Please go ahead. Hi.

Melissa Weathers (Equity Analyst at Deutsche Bank)

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

John Kemp (Chief Executive Officer)

Sure, Melissa, and thank you. I think the progress that we're seeing on the AI PCB is maybe an underappreciated part of the growth story. Right. So what we're seeing is as the OEMs are looking to drive performance reliability in their system level design, they need the capability to get all of that computing power effectively distributed throughout the data center. And what that requires is an increase in the number of layers so that you can get all of that data rapidly transmitted into the system. And so the increase in the layer counts as well as trying to. It's very similar to what we've seen on the semiconductor side in terms of increasing density. They're trying to do the same things on the circuit board. And the way to increase density on the circuit board is a combination of both shrink and stack so you're putting smaller lines and holes finer lines and spaces on the circuit board, while you're also adding more layers to the architecture in both dimensions. Both of those trends require more advanced technology to allow the overall board to meet the performance requirements of the application, and in both situations, both finer lines as well as in higher layer counts. That plays into the strengths of the cunity portfolio and really where our metallization business has been positioning itself for several years.

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