Cuộc họp công bố kết quả kinh doanh Quý 3/2026 của Element Solutions (ESI): Tăng trưởng mảng điện tử thúc đẩy nâng dự báo kinh doanh

Nội dung chính

• Element Solutions (ESI) đã báo cáo doanh thu theo quý, EBITDA điều chỉnh và EPS điều chỉnh đạt mức kỷ lục. Doanh số thuần tự thân tăng 13% so với cùng kỳ năm trước, trong khi EBITDA điều chỉnh tính theo tỷ giá cố định tăng 29%.
• Doanh số tự thân mảng Điện tử tăng 18%, với tất cả các lĩnh vực chuyên môn đều đạt mức tăng trưởng hai chữ số. Mảng Giải pháp Bán dẫn dẫn đầu với mức tăng 24%, trong khi mảng Giải pháp Lắp ráp và Giải pháp Mạch điện tử mỗi mảng đều tăng 16%.
• Biên EBITDA điều chỉnh không bao gồm kim loại chuyển tiếp mở rộng 50 điểm cơ bản lên 28,2%, nhờ sự hỗ trợ từ các sản phẩm Điện tử có giá trị cao hơn và Micromax.
• Ban lãnh đạo đã nâng dự báo EBITDA điều chỉnh cho cả năm tài chính 2026 lên khoảng 720 triệu USD. Triển vọng này hàm ý mức tăng trưởng EPS điều chỉnh đạt hơn 20%, với giả định tỷ giá hối đoái hiện tại và giá kim loại ổn định.
• Dòng tiền tự do điều chỉnh đạt 135 triệu USD. Tỷ lệ đòn bẩy ròng pro forma giảm xuống 2,7 lần, đã thấp hơn mục tiêu cuối năm của công ty là 3 lần.
• ESI đã đồng thuận chấm dứt giao dịch Solstice được đề xuất và tái khẳng định chiến lược độc lập của mình, nhấn mạnh vào đầu tư tự thân, các thương vụ thâu tóm bổ sung và mua lại cổ phiếu khi có cơ hội.

Dữ liệu tài chính quan trọng

Kết quả kinh doanh và hoạt động

Điện tử tiếp tục là động lực tăng trưởng chính. Doanh số tự thân mảng Giải pháp Bán dẫn tăng 24%, phản ánh đơn đặt hàng mạnh mẽ hơn đối với linh kiện điện tử công suất, vật liệu giao diện nhiệt dùng trong GPU và CPU AI, cùng các sản phẩm đóng gói tiên tiến bán cho các nhà cung cấp dịch vụ lắp ráp và kiểm thử bán dẫn thuê ngoài tại châu Á. Giá kim loại quý cao hơn cũng đóng góp vào tăng trưởng doanh thu được báo cáo.

Mảng Giải pháp Lắp ráp tăng trưởng tự thân 16%. Nhu cầu tăng mạnh đối với kem hàn có độ tin cậy cao hơn tại châu Á và các linh kiện định hình kỹ thuật dùng trong ứng dụng trung tâm dữ liệu. ESI đang đẩy nhanh việc mở rộng công suất cho các sản phẩm như thanh chèn True Height, vốn giúp kiểm soát hiện tượng cong vênh do nhiệt trong các cụm chip kích thước lớn hơn.

Mảng Giải pháp Mạch điện tử cũng tăng trưởng tự thân 16%, hưởng lợi từ nhu cầu hạ tầng AI và tính toán hiệu năng cao. Ban lãnh đạo cho biết mảng kinh doanh này đang giành thêm thị phần ở các bo mạch phức tạp, nhiều lớp và đang vượt mức tăng trưởng chung của thị trường hơn 500 điểm cơ bản từ đầu năm đến nay.

Micromax đóng góp gần 140 triệu USD vào doanh thu báo cáo theo quý, khoảng hai phần ba trong số đó liên quan đến kim loại. Ban lãnh đạo cho biết doanh thu và EBITDA điều chỉnh của đơn vị này đang tăng trưởng đáng kể và tiếp tục vượt kế hoạch.

Khí EFC đóng góp 23 triệu USD doanh thu, tăng 45% so với quý trước và 19% so với cùng kỳ năm trước. Nhu cầu tăng mạnh trên các ứng dụng sản xuất bán dẫn, vệ tinh và hạ tầng điện. ESI đã khởi công một cơ sở mới tại Texas trong quý.

Mảng Sản phẩm Chuyên dụng ghi nhận kết quả trái chiều. Doanh số tự thân mảng Giải pháp Công nghiệp tăng 3%, chủ yếu do tăng giá liên quan đến nguyên liệu thô, trong khi sản lượng toàn cầu gần như đi ngang. Nhu cầu ô tô cải thiện nhẹ ở châu Á và châu Âu, nhưng các thị trường công nghiệp khác vẫn còn yếu.

Doanh số tự thân mảng Giải pháp Ngoài khơi giảm 13% do các dự án bị trì hoãn và sự cố thiết bị tại một khách hàng lớn. Cơ sở của khách hàng đã hoạt động trở lại và ban lãnh đạo kỳ vọng doanh số sẽ phục hồi, nhiều khả năng trong quý 4, và phục hồi hoàn toàn vào quý 1/2027. ESI cũng giành được hợp đồng cho hệ thống thu gom carbon ngoài khơi vùng biển sâu đầu tiên trong ngành như công ty mô tả, mặc dù đóng góp hiện tại vẫn còn nhỏ.

Trung Quốc tiếp tục là thị trường mạnh mẽ của ESI, với mức tăng trưởng theo quý đạt 30%. Công ty cũng đang mở rộng công suất sản xuất và phòng thí nghiệm tại Ấn Độ và Đông Nam Á.

Dự báo của ban lãnh đạo

Ban lãnh đạo đã nâng dự báo EBITDA điều chỉnh cho cả năm tài chính 2026 lên khoảng 720 triệu USD. Dựa trên tỷ giá hối đoái hiện tại và giá kim loại ổn định, công ty dự kiến mức tăng trưởng EPS điều chỉnh đạt hơn 20% trong năm.

Triển vọng này hàm ý EBITDA điều chỉnh đạt khoảng 175 triệu USD đến 176 triệu USD trong quý 4. Ban lãnh đạo giải thích mức giảm dự kiến so với quý trước chủ yếu do yếu tố mùa vụ thông thường, số ngày hoạt động ít hơn và một chút thận trọng — chứ không phải do sự thay đổi mang tính cấu trúc về nhu cầu hay giá bán.

Chi phí vốn cả năm dự kiến vào khoảng 110 triệu USD, vẫn ở mức dưới 3% doanh thu dự kiến. Chi tiêu tập trung vào đồng hoạt tính Kuprion, vật liệu giao diện nhiệt, công suất EFC và các dự án hợp nhất nhà máy.

Ban lãnh đạo kỳ vọng các khoản đầu tư vào mảng Điện tử do AI thúc đẩy sẽ tiếp tục kéo dài sang năm 2027. Dự báo của khách hàng và kế hoạch vốn trong ngành vẫn rất khả quan, mặc dù công ty chưa đưa ra triển vọng nhu cầu cố định cho năm 2028.

Rủi ro và các yếu tố cần theo dõi

• Nhu cầu điện tử tiêu dùng vẫn suy yếu, khiến sự tăng trưởng của mảng Điện tử ngày càng phụ thuộc vào các trung tâm dữ liệu, hạ tầng AI và các ứng dụng hiệu năng cao khác.
• Biên lợi nhuận mảng Sản phẩm Chuyên dụng bị ảnh hưởng bởi chênh lệch thời điểm chi phí - giá nguyên liệu thô, sự cố hoạt động của một khách hàng ngoài khơi và trích trước thưởng hiệu suất cao hơn. Tác động từ chi phí thưởng đã vượt quá 100 điểm cơ bản so với cùng kỳ năm trước trên toàn công ty.
• Mô hình đơn hàng của EFC có thể không đồng đều do các đơn hàng lớn có thể gắn liền với các đợt phóng vệ tinh và dự án hạ tầng cụ thể.
• Dòng tiền quý 4 dự kiến tiếp tục duy trì ở mức mạnh mẽ nhưng có thể thấp hơn quý 3 do ESI tăng chi tiêu vốn và tích trữ hàng tồn kho để mở rộng công suất.
• Biến động giá kim loại có thể ảnh hưởng đến doanh thu được báo cáo, đặc biệt là tại Micromax và trong mảng Giải pháp Bán dẫn.
• Kuprion và các ứng dụng lõi thủy tinh mang lại tiềm năng tăng trưởng, nhưng thời điểm phát huy hiệu quả còn phụ thuộc vào việc đánh giá chất lượng của khách hàng, triển khai công suất và mức độ chấp nhận các công nghệ sản xuất mới nổi.

Điểm nổi bật trong phần Q&A với chuyên gia phân tích

Ban lãnh đạo cho biết nhu cầu trung tâm dữ liệu đang thúc đẩy sự tăng trưởng ở các bo mạch tiên tiến bất chấp sự suy yếu của mảng điện tử tiêu dùng. Các ứng dụng kết nối mật độ cao tăng hơn 20%, theo thảo luận của ban lãnh đạo, và ESI kỳ vọng mức tăng trưởng vượt trội trong ngắn hạn vẫn duy trì trên mục tiêu dài hạn là 1 đến 2 điểm phần trăm so với thị trường cuối.

Sau khi điều chỉnh cho chi phí thưởng hiệu suất cao hơn, biên lợi nhuận tăng thêm nằm trong khoảng 45% đối với toàn công ty và khoảng 50% đối với mảng Điện tử. Ban lãnh đạo kỳ vọng kết quả tiệm cận mức cận trên của mục tiêu biên lợi nhuận tăng thêm dài hạn từ 30% đến 40% sẽ tiếp tục kéo dài sang năm 2027.

Kuprion đã đạt được hai cột mốc về đánh giá chất lượng từ khách hàng trong quý 3. Việc sản xuất đang được tiến hành tại Fremont, California, trong khi cơ sở thứ hai đang được phát triển tại Connecticut và kế hoạch cho cơ sở thứ ba đang có tiến triển. Ban lãnh đạo kỳ vọng doanh thu sẽ tăng tốc trong năm 2027, khả năng cung ứng đa cơ sở rộng lớn hơn vào cuối năm 2027 hoặc đầu năm 2028, và đóng góp đáng kể vào EBITDA điều chỉnh trong năm 2028.

ESI cho biết công ty đã sẵn sàng vị thế để cung cấp các giải pháp mạ cho các ứng dụng lõi thủy tinh và lỗ thông qua thủy tinh (TGV) mới nổi. Ban lãnh đạo không kỳ vọng sản lượng đáng kể trong ngắn hạn nhưng nhận thấy cơ hội tiềm năng lớn trong tầm nhìn từ 3 đến 5 năm.

Các ưu tiên phân bổ vốn vẫn không thay đổi. ESI dự định tiếp tục linh hoạt tận dụng cơ hội đối với các thương vụ thâu tóm bổ sung và mua lại cổ phiếu, trong đó hoạt động M&A tập trung chủ yếu vào các tài sản Điện tử chất lượng cao giúp bổ sung năng lực hoặc củng cố các mảng kinh doanh hiện tại.

Toàn văn biên bản cuộc họp báo kết quả kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

Operator

Vice President of Strategy and Integration. Please go ahead.

Varun Gokarn

Good morning, and thank you for participating in our third quarter 2026 earnings conference call. Joining me today are our CEO, Ben Gliklich; and CFO, Carey Dorman. In accordance with Regulation FD, we are webcasting this conference call. A replay will be made available in the Investors section of the company's website.

During today's call, we will make certain forward-looking statements that reflect our current about the company's future performance and financial results. These statements are based on assumptions and expectations of future events, which are subject to risks and uncertainties. We -- please refer to the earnings release, supplemental slides and most recent SEC filings on our website for a discussion of material risk factors that could cause actual results to differ from our expectations and predictions. Today's materials also include financial information that has not been prepared in accordance with U.S. GAAP. Please refer to the earnings release and supplemental slides for definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures.

It is now my pleasure to introduce our CEO, Ben Gliklich.

Benjamin Gliklich

Thank you, Varun, and good morning, everyone. Thanks for joining. Element Solutions delivered yet another record quarter as we continue to benefit from favorable positions in our end markets, strong execution against our commercial and operational initiatives and the results of thoughtful, disciplined capital allocation.

Before discussing the quarter's performance, let me recap our decision to mutually terminate the proposed transaction with Solstice at the end of August. Our North Star Element Solutions has always been serving our customers and shareholder value creation. And following the announcement of this proposed transaction, we had constructive discussions with our investors and gained valuable insights into how they'd like us to pursue that North Star. Feedback is a gift, and we were fortunate to receive it. We work for our shareholders, and we value their input.

While we stand behind the strategic and financial merits of the Solstice transaction, it became clear that our shareholders value the stand-alone trajectory that we articulated in our May Investor Day. They wanted our team to deliver on our plan. They discounted alternatives, which introduced complexity and execution risk. The feedback we received was a vote of confidence from our shareholders, confidence in management, appreciation for the unique culture we've deliberately developed and enthusiasm for the portfolio of businesses we've built. Attributes that together outweigh the benefits of enhanced scale or synergy capture.

So going forward, we're doubling down on the culture of entrepreneurship, operational excellence and prudent capital allocation that has brought us our historical success. We're committed to continue investing behind our businesses, both organically and through bolt-on M&A.

Our Electronics segment this year is on pace to deliver the same amount of adjusted EBITDA that our entire company generated last year. We are increasingly a critical enabler in the electronic ecosystem and becoming even more so as we introduce and acquire new capabilities. To keep up with the rapid pace in our markets, we must evolve and we're working to accelerate our development cycle time, deepen our technical engagements with key customers and capitalize on the many opportunities afforded by the breadth of our portfolio. Our confidence in an independent path forward is reinforced by yet another consecutive record quarter and corresponding significant increase in our full year guidance announced today.

Our third quarter results were outstanding. Organic growth remained robust in Electronics and the Specialties business navigated challenges related to materials inflation and uneven demand dynamics. Our results were again enhanced by strong contributions from recent acquisitions, which position us well in attractive new market adjacencies that are seeing robust growth. Activity accelerated across our supply chain in support of the ongoing AI infrastructure build-out. Technical requirements in data center hardware and other high-performance electronics continue to increase which has driven our offering of critical enabling solutions across thermal management, power density and advanced packaging applications to name a few.

We're seeing volume growth in the highest-value categories across our end markets. from leading-edge semi and high-end circuit board fabs to device assemblers and a strong pull for innovation to enable greater levels of device performance and manufacturing yield. This dynamic has led to four straight quarters of double-digit organic sales growth and meaningful ex-Metals margin expansion in our electronics business. Our profitable growth has allowed us to increase investment in people, technology and plants, which we expect will reinforce ESI's role in critical emerging applications.

Our customers are investing heavily to build capacity ahead of surging demand. We, in turn, have built and continue to build additional manufacturing capacity for several high-growth product lines, including incremental production capability for engineered preform and critical thermal interface products as well as local laboratory footprints for electronics in India and Southeast Asia. Where investment in Southeast Asia was intended to derisk geopolitical concerns two years ago. It's now become much needed additional capacity for our customers. Meanwhile, our business in China remained very strong, growing 30% in the quarter.

We've also made substantial investments in financial commitments to scale manufacturing of our Coperion active copper products focused on solving several emerging customer pain points around thermal management, power delivery and plating copper on challenging substrates. Our development partners are exceptionally enthusiastic about this offering, and they're progressing towards high-volume manufacturing themselves, progress evidenced by the two customer qualification milestones we achieved in the third quarter. These qualifications from two leading technology providers to the data center ecosystem support our strong conviction in the market opportunity for active copper and our ability to establish incumbency with this exciting technology.

Beyond these investments in organic growth, we continue to reap the fruits of our inorganic strategy. The integrations of Micromax and EFC are going well, and both businesses contributed meaningful adjusted EBITDA growth in the quarter. Our formula of operational excellence and prudent capital allocation drove a 22% increase in adjusted EPS this quarter. Beyond M&A, when we see compelling value in our own shares, we can act opportunistically given our substantial existing share repurchase authorization. We did so this quarter, reflecting our confidence in the business from here.

Carey will now take you through our third quarter business results in more detail. Carey?

Carey Dorman

Thanks, Ben, and good morning, everyone. On Slide 3, you can see a summary of our third quarter financial results. We delivered record quarterly revenue, adjusted EBITDA and adjusted EPS. Organic net sales grew 13% and constant currency adjusted EBITDA increased 29% year-over-year. Electronics organic net sales growth of 18% was once again broad based. Each of the segment's verticals grew organically by double digits, led by our semiconductor business, which we 24% in the quarter. Adjusted EBITDA margins, excluding pass-through metals, improved 50 basis points year-over-year to 28.2% this quarter.

The year-on-year improvement was primarily driven by product mix within the Electronics segment, where organic growth in higher-value product lines to solid underlying incremental margins in the upper end of our 30% to 40% target range as well as strong performance from Micromax. Softer margins in the Specialties segment were the result of an equipment failure that shut down a large offshore customer impacting sales in the Energy Solutions business as well as price cost timing in Industrial Solutions. We expect these dynamics to abate through year-end and into 2027. Both segments also saw margins impacted by higher allocations, primarily from above-target incentive compensation accruals.

On Slide 4, we have additional detail on organic net sales growth. In Electronics, demand remained particularly strong across semiconductor packaging, advanced PCB chemistries, engineered assembly materials supporting data centers, and power electronics. Reflecting the strength in our markets, industry forecast for PCB volume growth in 2026 have increased over the course of the year from around 6% in December to over 10% today. This an acceleration from 2025, and we continue to outperform the market.

Semiconductor Solutions organic net sales grew 24% with improved order patterns for power electronics products and growing momentum in thermal interface materials for high power consumption applications such as AI GPUs and CPUs. Demand also continues to be strong for advanced packaging solutions from Asian OSATs participating in the market. Revenue growth in this business was magnified this quarter by the year-over-year increase in precious metals prices.

Our Assembly Solutions business grew 16% organically. Demand was strong for higher liability side pace in Asia, which are benefiting from growth in AI power supply and for preformed products for data center applications. Engineered preform products such as True Height spacers that control thermal warpage on larger chip assemblies continue to gain traction in leading-edge applications, driving acceleration in our capacity expansion plans for next year.

Circuitry Solutions grew 16% organically, benefiting from continued demand for board metallization solutions tied to AI infrastructure and high-performance computing. We've supported customers as they add capacity and are seeing traction with technologies that are critical to increasingly complex, high layer count architectures.

Micromax contributed nearly $140 million to reported sales in the quarter, roughly 2/3 of which is related to metals. The business continues to perform well ahead of plan and is growing revenue and adjusted EBITDA significantly. We remain very pleased with these results as well as the response from customers and the progress of the integration.

Now turning to our Specialties segment. Industrial Solutions grew 3% organically in the quarter due primarily to price increases tied to raw material cost inflation. Global volumes were roughly flat with some modest pickup in automotive in both Asia and Europe, while other industrial end markets remain soft. This business has been restructuring aspects of the go-to-market and supply chain strategy over the last year and we remain focused on strong operational execution and high-quality offerings that meet the evolving needs of customers.

Our Offshore Solutions business declined 13% organically. Primarily impacted by certain project delays and the aforementioned equipment failure at a large customer. We expect this situation will improve in the coming months as that customer site has already come back online. Overall, market conditions and pricing dynamics remain favorable for this business.

Looking forward, we are also excited to announce that we won business on our first and the industry's first deep offshore carbon capture installation. This account is a small contributor today and a truly nascent market, but may have a bright future.

Finally, EFC gases in Advanced Materials contributed $23 million to revenue this quarter, a 45% sequential improvement from last quarter and a 19% increase year-on-year. Demand within EFC's core semi manufacturing, satellite and electrical infrastructure applications is strong, albeit lumpier than many of our other businesses. And the team executed nicely this quarter. with new business wins at healthy margins that are above segment averages. We continue to see EFC growing wallet share with existing semiconductor and space customers and winning new qualifications in both. We broke ground on a new facility for this business in Texas late in Q3, which demonstrates our expectation of future growth.

Slide 5 addresses cash flow and the balance sheet. Adjusted free cash flow for the quarter was $135 million, a material sequential and year-over-year increase. This result reflects disciplined inventory management despite increased volumes and continued metal price volatility. Our cash flow generation is typically more second half weighted, and we expect a similar seasonality this year. Q4 cash flow should also be strong but are unlikely to match Q3 as we ramp certain capital projects and build stock for several capacity expansions and footprint optimization efforts. We invested $30 million into CapEx this quarter, bringing the year-to-date investment to $83 million.

As we've discussed, we are accelerating investment in high-value product areas such as Kuprion and thermal interface materials for hyperscalers, while at the same time moving forward on existing plant consolidation projects in our industrial solutions supply chain. We now expect CapEx for the year of roughly $110 million, which still constitutes less than 3% of expected full year sales. These projects are tied to major customer technology road maps and come with attractive paybacks that should support long-term earnings growth.

Turning to the balance sheet. Our net leverage ratio at the end of the quarter was 2.7x on a pro forma basis. including full contributions for Micromax and EFC. We allocated almost $60 million of capital to shareholder returns in the quarter between our dividend and our opportunistic repurchase of roughly 1.1 million shares. As we entered 2026, we committed to leverage below 3x by year-end, and we are already there despite ramping CapEx and buybacks. We have capacity to continue to deploy capital should attractive opportunities become available.

And with that, I will turn the call back to Ben. Ben?

Benjamin Gliklich

Thank you, Carey. Q3 was a great quarter. Our team didn't lose focus despite the noise around the terminated Solstice transaction. We maintained our high standards for execution and performance throughout. We emerged better positioned strategically and with greater clarity and conviction in our path forward. Each of our businesses has identified opportunities and built strategies to deliver substantial profit growth through investments in people and capabilities over a multiyear time frame. We pride ourselves on customer centricity.

And on this front, we're seeing the benefits of persistent investments in technical service capabilities, technology road map exchanges and a focus on customer pain points, where we can improve product performance, or customer productivity and yields. Underlying demand in the high-end electronics market remains strong and the incumbent positions we've established in the fastest-growing, highest value niches of these markets should continue to serve us well. As a result, we're raising our adjusted EBITDA guidance to approximately $720 million for the full year.

Our implied fourth quarter results assume a continuation of AI-driven electronics investment normal seasonality and continued sequential acceleration in EFC performance. Our guidance translates to 2026 adjusted EPS growth of north of 20% on a full year basis based on current exchange rates, and stable metal prices. We have a wealth of opportunities in front of us, and we want to move faster with increased focus and urgency. To accomplish this, we must keep pushing decision rights deeper into the organization to improve customer responsiveness and direct our investment to the right commercial resources.

In that context, we're evolving our organizational structure in the Electronics segment to further decentralize by forming more autonomous business units aligned with our customers, all of which will still operate under the strong McDermott Alpha brand. This morning, to support this evolution, we're announcing an organizational change. Our electronics business units, in addition to our specialties businesses, we'll now report into Matt Liebowitz, who is assuming the role of Chief Operating Officer of Element Solutions. That's been a key part of the team at Element Solutions for over a decade, and will be a terrific partner to our business unit leaders.

He has deep business knowledge and relationships, having helped build our portfolio in his role as Head of Strategy and Corporate Development over the years, and is the right person to serve in this critical role as a thought partner and coach to our general managers. Rick Frick will become an adviser to ESI and our Electronics businesses going forward. and will continue to benefit from his expertise, experience and network. Carey Dorman has also been my partner here for over a decade, will become President of Element Solutions, in addition to his role as CFO, and with oversight of all of our business functions.

Matt, Carey and I collectively will work with our business unit and functional leaders to ensure that they're working towards the right long-term objectives that they have the resources they need to win and they are held accountable to their goals. Our business units will have even greater autonomy. Our Ethos has always been to empower our people to have a maximum impact, and this is one step further in that direction. This autonomy will make us more nimble, and that's essential to keep up with the accelerating rate of change in our markets.

In Electronics, we'll continue to maintain our strong unified brand and the ability to offer the breadth of our portfolio to our largest strategic accounts. Element's success to date has been driven by repositioning our company and its resources, primarily our people regularly to get ahead of the future needs of our markets and today's organizational change is another example of this. On the topic of people, I'm particularly proud of our team this quarter who navigated a noisy 90 days to deliver our best quarter ever.

So for now, let me conclude once again by thanking all of our stakeholders for their continued support of Element Solutions and especially our team who continue to deliver exceptionally for our customers and shareholders. And with that, operator, please open the line for questions.

Thank you.

Operator

[Operator Instructions] Your first question is from the line of Mike Harrison with Seaport Research Partners. Please go ahead.

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Michael Harrison

Congrats on the nice quarter. So the first question I have is on the Circuitry Solutions business. It really is looking like that business maybe showing some acceleration, was hoping you can give us a little more color on how you see the content opportunity expanding as you get into more multilayer circuit boards compared to kind of your standard PCB applications. And just wondering, are there any factors that you see in the market right now that could slow down some of the growth that you're seeing in that advanced circuit board opportunity?

Benjamin Gliklich

Yes, sure thing. It's a good observation. Our circuitry business is performing exceptionally well. That market overall is substantially outperforming expectations on a volume basis. entering the year, as Carey said in the prepared remarks, expectations for circuit board volumes were about 6% growth in 2026, and the latest forecast has been bumping up against 10%. And so overall, that market is growing, and that's despite the fact or accelerating, and that's despite the fact that the consumer electronics market is quite soft at the moment.

So all that growth and then some is coming from the data center market. And those boards are the highest end boards that are being produced today, multilayer, very complex and we've got great capabilities to serve that market. And so our outperformance in circuitry is substantial, more than 500 basis points relative to the expected market growth on a year-to-date basis, and that's driven by our penetration of that. technology based on really solid work by the team over the past several years. We expect that to continue.

Michael Harrison

All right. And it looks like your incremental margin this quarter was pretty strong. I think if we stripped out maybe some of the higher incentive comp, just wondering if you can help us understand how sustainable the strength in incremental margin could be? And maybe talk about some of the drivers that you see still playing out from a margin standpoint?

Carey Dorman

Yes, Mike, I think it's a great call out. When you take out the incremental incentive comp accruals, which had an impact of more than 100 basis points across the business year-over-year, we saw really healthy incrementals in the mid-40s for the whole business or the 50s for the Electronics business. There are a number of things that are playing into that. And I think most importantly, it's where the growth is coming from. We're continuing to see growth, particularly in Electronics in the higher-end parts of our business as releasing specific customer needs and on fewer of our ecosystem competitors can meet those needs. That is sustainable from our perspective.

On the Specialties side of the business, we are working hard in an environment where volumes are relatively muted to make the business better. And even on that business when you take out these comp accrual and some of the onetime or sort of transitory impacts from raw material inflation, we're seeing underlying margin expansion there, too. So we guided that the Investor Day at 30% to 40% incrementals. We're seeing better than that now. But I think in that high end of that range is something that we expect to see continue into next year.

Operator

Your next question comes from the line of John McNulty with BMO Capital Markets.

John McNulty

Congratulations to Carrie and Matt on what looks like a nice solid step for them. And I guess my first question is to that. I guess what precipitated the change. You had an Investor Day early this year. Obviously, nothing had changed at that point. Is it the pace of the growth is just that much more robust where you feel you need to kind of make these kind of changes? Is it just a follow-up to the Solstice kind of change or a shift. Like I guess help us to think about what's driving that and the timing for it right now.

Benjamin Gliklich

Yes. So the evolution in our Electronics business has been one of standing up best practices, which required a really strong central pillar of the business adding new capabilities. And we brought in a great set of leaders on a functional basis to help us build those capabilities and standard processes. But we're a dynamic organization. Our Electronics business has more than doubled over the past several years. We have those best practices ingrained in the business. And the autonomy that we're driving into these discrete business units will allow for them to move faster, which is what our customers are asking for from us and from the supply chain.

And so this structural change will turn the analogy of the tanker to the speedboat. So I don't think we ever were a tanker. But we're breaking into smaller, faster, more nimble speed boats on a business unit perspective, more customer aligned without sacrificing those best practices without sacrificing the strength of our brand. And so this is a logical step as the business has scaled and in response to customer feedback across the supply chain to partner with them and move faster.

John McNulty

Got it. Okay. No, that's helpful color. And then maybe just Speaking to the cash flow and balance sheet. So really solid 3Q results or numbers. And I understand maybe the cadence that we won't see quite as much in 4Q. But the balance sheet kind of back to even below your kind of year-end target. So when you think about cash uses going forward, I know in the past, you've kind of liked to add on bolt-ons, roughly two per year kind of seems to be the cadence. At the same time, your valuations come in under a reasonable amount of pressure over the last whatever, three to six months.

I guess how do you think about the prioritization of cash use now given the cleaner balance sheet? And should we assume it's kind of business as usual? Or do we maybe shift away a little bit temporarily from the from the M&A side and maybe a little bit more into the buyback, I guess, can you help us to think about that?

Benjamin Gliklich

Look, we've always been opportunistic around capital allocation, whether that's buying our own shares or outbound M&A. We're in a really strong position from a portfolio perspective that there's nothing we need to own, but we've got a great footprint and brand where the things we add is they're quality enhancing. We only add quality-enhancing businesses are better inside of our business than outside. And so our framework for capital allocation is unchanged today. You saw we were on the front foot buying shares in the third quarter. Our balance sheet is healthier than we expected it to be at this point in the year given the earnings trajectory. And so we're on the offensive.

Operator

Your next question comes from the line of Josh Spector with UBS.

Joshua Spector

I wanted to ask on Kuprion. It seems like some of your incremental CapEx is targeted there. Can you talk about what you're accelerating? And just remind us kind of the milestones and time lines of some of your expansions in the next couple of years, please?

Benjamin Gliklich

Yes, absolutely. So Kurion is a great story as evidenced by the two qualification milestones achieved in the third quarter. So those are two customers, really high-tech leading-edge customers who have qualified active copper for their high-volume manufacturing. And so that's the precursor to the revenue ramp that we expect next year. Our first site is producing in Fremont, California. Our second site is underway in Connecticut and the plans for the third site are also underway. And so the supply chain is not quite caught up to where we see demand going, but we will be in a position call it, late '27, early 2028, and we'll have multiple sites supplying multiple customers who are very eager to integrate active copper into their manufacturing processes.

It is on track with what we had committed to, maybe even ahead when you think about the medium-term horizon. This business has tremendous potential and is going to be contributing a material EBITDA when we get into 2028 for sure.

Joshua Spector

If I could just ask quickly, just on EFC. I mean, I think you noted some sequential acceleration and growth was pretty strong there in the quarter. What's driving that?

Benjamin Gliklich

It's a lumpier business than some of our others, just given you get big orders tied to certain data light launches. The core businesses around semiconductor and electrical infrastructure are also growing really nicely. So the cadence of earnings is something we're still wrapping our hands around, but the growth in this business that we expected is delivering and the outlook is probably better, frankly, based on the pipeline we've seen. And we're adding capacity there as well. And so that's a contributor to CapEx in 2026 and into 2027 in response to really strong customer pull.

Operator

Your next question comes from the line of John Roberts with Mizuho.

John Ezekiel Roberts

Congratulations on the promotions, more work, same day. During the quarter, Well, actually, the temperatures of these latest ships are starting to warp some of the plastic circuit boards. During the quarter, Corning was discussing the last quarters potentially replacing some of the plastic. I think one of your competitors announced some product lines for plating circuitry on the last. Could you talk a little bit about that opportunity and how ESI is positioned? .

Benjamin Gliklich

Yes, it's a good call out. again, the pace of innovation in the supply chain is accelerating and folks are working with new materials. And we're at the table providing solutions to enable those new materials. So our circuitry portfolio has very solid solutions for plating on glass through glass dies. And active copper is also one of the leading candidates to solve that problem for the supply chain. It's a big opportunity for us. We're very, very well positioned across the wafer level packaging and circuitry businesses.

John Ezekiel Roberts

Do you have a sense for when first introduction might be?

Benjamin Gliklich

Look, the idea of glass course has been in the ether for several years. and it's been pushed out a few times. It does seem to be gaining traction based on our R&D projects and applications development projects. I'm not counting on it becoming a material volume driver in the near term, but over a medium-term horizon, call it, three to five years out, I think it could be quite substantial.

Operator

Your next question comes from the line of Chris Parkinson with Wolf Research.

Christopher Parkinson

Great. Ben, can you just offer some insights in terms of kind of the year-end '26 and into '27 trajectories for the volume side of Microbax as well as semi. Obviously, it seems like things have generally been trending better than expected throughout the year. But I'd love to get kind of your insights on how you're thinking about the volume side of that versus the price of the product mix, especially like Micromax and just how you're delineating all those details in terms of how you think about growth for the next six to nine months?

Benjamin Gliklich

So thanks for the question. The first comment is really no dimunition or erosion in demand. Clearly, there's some volatility in the capital markets and headlines. But from a commercial market industry perspective, we see no diminution over the past several months and Q4 is off to a solid start. By and large, with the exception of metal price volatility in all of our businesses, the growth has come from volume primarily. And with the exception also of Micromax, where we're seeing an uplift in higher value volume and a little bit of a diminution in, I'll call it, lower volume, lower value volume that skews towards automotive applications.

So it's a volume story and on the electronics side and everything about Micromax. And that's what we would continue to expect through Q4. Really nothing material changing in terms of the demand drivers for these businesses.

Christopher Parkinson

Got it. And just circling back just for a detail on John's question. When you think about the M&A side of it, are you primarily assessing in your comments here, you basically said your teams haven't necessarily missed a beat. When you're looking at that, are you looking at adding kind of another tendential pillar? Or is it something or all the assets that you're ongoingly assessing primarily augmenting something that is something for assembly or circuitry or anything like that? Just I would love to hear your perspective on strategy within that a little bit in further detail.

Benjamin Gliklich

Yes. So the M&A criteria is unchanged. We want to back our businesses point of emphasis in electronics, buying businesses that are better inside of our company than outside, meaning there's some synergy and make our company better. meaning they enhance the overall quality of the portfolio, they enhance our value proposition to our customers that create opportunities for our people and they enhance shareholder value. So we're looking at electronics assets primarily those could be consolidating markets and those could be adding new capabilities that brought in our offering to our customers, only high-quality businesses that really fit within what we do today.

But there aren't an enormous number of such assets. We're a great buyer of them, and we're in a good position to prosecute those transactions, of course, those opportunities don't come around every day.

Operator

Your next question comes from the line of Matt -- do with Bank of America.

Matthew DeYoe

This is Fabian Humanas on for Mac. Level setting on 4Q, the $720 million EBITDA guide includes around $7 million of January Micromax contribution from before the close of the deal. So does your 4Q guide imply roughly $176 million versus the $183 million we're seeing consensus is reflecting. And also, with your customers still adding capacity, is this a step down in Micromax giving back on silver driven pricing or just conservatism?

Carey Dorman

So yes, just to be clear, that $175 million, $176 million is a reasonable number to back into in the slides as well. We typically see sequential softness seasonally from Q3 to Q4. So the last two years was around $10 million to $15 million. This guide sequentially implies that same $15 million. There's nothing that we're seeing in terms of underlying demand it's really just operating days in some of the businesses that tend to shut down as we get to the holiday season and a little bit of conservatism. But I think there's nothing structural from a demand perspective or assumptions around pricing in any of the businesses.

Operator

Your next question comes from the line of Pete Osterland with Truist Securities.

Peter Osterland

So first, I just wanted to ask about your outlook for electronics momentum to continue into 2027. I guess could you just give some more color on the visibility you have into next year? Is it supported by customer commitments or order patterns, new product ramps and Also, just how broad is the strength you're expecting outside of the AI infrastructure market?

Benjamin Gliklich

Thanks for the question, Pete. We like to say that the world doesn't change from December 31 to January 1, right? And so the trends that we see through Q4 should continue through Q1. And as we said earlier, we really see no evidence of an erosion or a diminution in demand over the past several weeks. The business is unit driven and the demand driver for those units is more tangible or longer term today as we've seen this transition to B2B demand from B2C demand than it's been in the past. Our customer order forecasts have only accelerated over the course of the year. Outlook for the industry from market research has only accelerated over the year. And so it is more AI-driven than consumer driven. Some of the weakness in consumer is driven by the strength in AI bear in mind. But as we sit here today, the outlook, the capital plans remain robust into 2027.

Peter Osterland

Okay. Great. And then just as a follow-up, I wanted to ask on the Specialties segment. I just wanted to break down the organic growth you saw in industrial for the quarter. I guess, first, how much would pricing have had to go up to fully offset the cost inflation you saw in the quarter? And then maybe if you could comment on what volume growth was in the quarter and what you're expecting near term for demand in that business?

Benjamin Gliklich

Sure. So First, on the price cost dynamic there. We saw we took pricing that grow about 3% -- or 3% to 4% of revenue growth. volumes across the business were overall flat. I'll talk about the mix of that in a second. That offset almost all of the price inflation we saw maybe $1 million or $2 million of wiggle between cost and price that we should continue to pick up. So you just saw the percent impact on margin there as opposed to really dollar profit dollars. When you think about volumes, is a tale of two business, sort of two end markets and a regional mix.

So automotive generally was slightly positive volumetrically and you see that in the end market as well, where our general industrial construction markets were down more materially. And then again, we saw some strength in the Asian business and some weakness in the European business. Those are trends that are sort of following the broader macros. And we expect that more of the same, frankly, into Q4.

Operator

Your next question is from the line of John Tantan with CJS Securities.

Jonathan Tanwanteng

Congrats on the quarter and outlook, and it's good to be working with you guys a little longer. I was wondering if you could talk a little bit more about how you expect your performance to track against the data center end markets through the year-end and into next year? I think earlier, you mentioned you've been outperforming the volume growth in circuitry by 500 basis points or more. Does that spread remain consistent as we go forward? Or does it expand with new products and share gain? Or does it contract in your opinion for any reason?

Benjamin Gliklich

Our guidance or rather our long-term expectation is for our business to outperform end markets by a point or two. We're outperforming that today. I'd like to think it's sustainable, but for the sake of conservatism and not knowing where the sources of growth will be over the long term, I still think that 2% outperformance is a reasonable baseline for us to shoot for to commit to rather. But insofar as the primary driver of growth in the near term is the data center market, given our position within these really high-end circuit boards. Our outperformance should continue to outpace that target.

Jonathan Tanwanteng

Okay. Great. And then Cary, just if you could disclose how much your energy customer that had the outage in the quarter? How much does that impact the business? And how does it impact the guidance this year? And when do you expect the full recovery? .

Carey Dorman

Yes. So a few million dollar impact in the quarter. As we mentioned, I think in the prepared remarks, that customer is already back online and working through product that they had of ours. So we expect to resume selling to that customer again most likely in Q4. And so you should see the full recovery of that by Q1 of next year.

Jonathan Tanwanteng

Got it. And that $2 million was EBITDA or revenue? .

Carey Dorman

That's a revenue impact.

Operator

Your next question is from the line of Alex Yefremov with Barclays Bank.

Aleksey Yefremov

I apologize for long-winded question. It's a bit more big picture for you, Ben. Your growth has fairly inflective this year, but it seems like there's also a lot of investment on the part of your customers into advanced packaging and another PCB capacity, et cetera. So how should we think about where you are in that growth cycle? Are we still very early in the major inflection is still ahead are we in the middle of it? What do you think?

Benjamin Gliklich

Yes, it's a good question. The pace of innovation is accelerating we're benefiting from a ramp in customer capacity, which we expect to continue. Leading edge technologies are still representing a rather small percentage of overall volume. And that's where the investment is going. And we should participate disproportionately in those leading-edge applications. The law of large numbers also begins to apply and so our growth rate, if it maintains at levels that we've seen this year is adding far more dollars, right, simply put.

So I think if we can sustain -- in order to sustain this level of growth, we'll need to see the capacity investments that we are seeing persist for several years. And the road maps from our customers are supporting that. If anything, they're supporting incremental investment relative to what they invested today. So we're incredibly optimistic. The outlook for this business has only gotten better since our May Investor Day.

Aleksey Yefremov

And if I may a follow-up, I'm not sure if you already talked about your used packaging growth rate. If you could just give us some pointers there. And also how did your HDI sort of board business grow this quarter?

Benjamin Gliklich

Yes. So advanced packaging sales sit in both our circuitry business and our semi business and sales into those applications certainly exceeded the overall growth rate for those businesses. in the quarter. And then the HDI market, that's what I was talking about these really high-end circuit boards that are serving data center applications. And again, if you think about the consumer electronics market being down year-over-year in our circuitry business being up 16%, you can extrapolate that we're seeing north of 20% growth in those applications.

Operator

Your next question is from the line of Laurence Alexander with Jefferies.

Laurence Alexander

I just wanted to flesh out one of the comments you made earlier about the pipeline you're seeing in terms of investments from your customers and visibility. When you look out to 2028, do you see any factors that would make 2028 a more difficult year than 2027. It sounds like you'll actually have a net acceleration as an initial bias based on both your investments and what your customers are giving you interest on their project time lines. But can you just give your initial thoughts on that?

Benjamin Gliklich

Yes, it's a fair observation based on the order patterns or rather the industry forecasts for capital and fab capacity, right? And so is that if that capital is invested, the business should continue to accelerate into 2028. For us, that's enhanced by Kuprion which should be a much, much bigger business by then. On the other hand, we're unit driven. And as we saw this year, order forecast change. This year, they changed for the better. there's reason to believe that can continue. But we've seen that change in the past. So I'm not prepared today to talk to 2028 demand.

I'm comfortable outlining strength exiting 2026 and well into 2027. That outlook is much more firm and very solid.

Operator

This concludes our question-and-answer period. At this time, I will now turn the call back to CEO, Ben Gliklich for closing remarks.

Benjamin Gliklich

Excellent. Thank you, and thanks to everybody for joining.