Qnity Electronics (Q) — Q1 2026 Earnings Call Transcript

Date: May 12, 2026 | Source: Benzinga via Yahoo Finance / Qnity IR (official transcript)

Participants: Meg Miller (VP, Global Communications), Jon Kemp (CEO), Mike Goss (Interim CFO), Chris Parkinson (Wolfe Research), Melissa Weathers (Deutsche Bank)

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OPERATOR: Good morning and welcome to the Qnity Electronics Inc first quarter 2026 conference and webcast call. I will now turn the call over to Meg Miller, Vice President of Global Communications.

Meg Miller (Vice President, Global Communications): Thank you and welcome to our first quarter 2026 earnings call. 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. 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 Jon Kemp.

Jon 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. Innovation meant shrinking 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 Qnity'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 this 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 brings these strengths into one differentiated platform, helping customers build, scale and operate next-generation computing platforms.

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 EBITDA increased by 22% and adjusted earnings per share grew by 33%. 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. 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.

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. In advanced interconnects, we're winning new business with AI PCB fab for the leading hyperscalers and premium smartphone OEMs. Managing heat is a critical objective; our industry-leading thermal management portfolio is designed to remove heat across the entire system.

During the quarter we underscored our 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. That same commitment is reflected in our inclusion in Apple's American Manufacturing program. We continue to execute our capital allocation strategy to further bolster manufacturing capacity. 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 R&D labs scheduled to be fully operational in early 2027.

Mike Goss (Interim Chief Financial Officer): Thanks Jon, 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. 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 to 31.3%. Adjusted EPS for the quarter increased 33% to $1.08. This was a record quarter for Qnity driven by continued momentum in our AI-linked businesses and strong execution by our team.

Semiconductor Technologies performed in line with our expectations with net sales of $722 million, year-over-year organic sales growth of 12% led by demand for advanced logic and HBM chips. First quarter was strengthened by $20 million of inventory restocking, particularly in mature nodes. Adjusted operating EBITDA margin in this segment was 36.4%, up 130 basis points sequentially. In Interconnect Solutions, net sales were $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. Adjusted operating EBITDA margin for ICS was 28.5%, an improvement of 280 basis points sequentially.

We generated adjusted free cash flow of $28 million, reflecting strong operating cash flow partially offset by annual variable compensation. Capital expenditures reflected our capacity expansion efforts, including about one third of our $61.5 million investment in the new Taiwan facility. Our balance sheet remains strong. We have approximately $850 million in cash and short-term investments and total debt outstanding of $4 billion with a net debt leverage of 2.2 times.

Turning to guidance. We expect a normal seasonal increase in the second quarter with sequential net sales growth in the mid-single digits. 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 with margins in the mid-to-high 20s. We're raising our full-year guidance to reflect the strength we realized in the first quarter. Net sales is now expected to be $5.225 billion to $5.375 billion, a 5% increase at the midpoint. 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. Adjusted free cash flow is now expected to be $500 million to $600 million, a 10% increase at the midpoint. We expect double-digit net sales and EBITDA growth year over year as we move through the year.

OPERATOR: Thank you. We'll take our first question from Chris Parkinson with Wolfe Research.

Chris Parkinson (Equity Analyst, Wolfe 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. And also, Jon, I think most of us know where you've been investing in a lot of new products and those seem to be ramping on a preliminary basis. Could we just get the framework for those as well? Thank you so much.

Jon Kemp (Chief Executive Officer): Thanks Chris. I appreciate the questions. Maybe starting with the first question on mainstream demand. 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 has 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 a little bit into the low 80s 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 into 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 the next wave of AI-led infrastructure demand.

Moving to your second question around new product introductions. We're really excited by the continued progress that our innovation and R&D and commercial teams are having on securing new Process of Record (POR) wins. 2025 was a record year for us and we saw POR wins in every line of business. That momentum has continued into the early part of this year. To give you a couple that I'm really excited about: we launched some new CMP materials across both pads and advanced cleans targeting the most advanced semi nodes at 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 sublayers. And then on the interconnect side, we continue to see new wins in AI 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.

Chris Parkinson (Equity Analyst, Wolfe Research): Great. And just as a quick follow-up, switching over to the ICS side, I think a lot of what we hear out of the data centers, hyperscalers and GPUs seems to be heading in the right direction. Can you speak to how the content per unit and your tangible addressable market seems to be further evolving even since what you put out at the Capital Markets Day last year? Can you speak to the broader opportunity and how you see the run-rate growth over the next few years, and whether that differs or is a bit higher than it was even six to nine months ago?

Jon Kemp (Chief Executive Officer): The ICS business continues to outperform significantly, really driven by the strong alignment it has to AI-led demand. That's fueled by our exposure to the three highest growth areas in the interconnect segment: advanced packaging, thermal management and AI PCB. In the first quarter those three areas collectively grew by more than 50% year over year. They tend to be a little bit shorter-cycle wins, so as we win new business they tend to scale up a little bit faster. We expect advanced packaging and thermal 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 advanced packaging. 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.

OPERATOR: Thank you. We will move next with Melissa Weathers with Deutsche Bank.

Melissa Weathers (Equity Analyst, Deutsche Bank): Thank you so much and congrats on a really nice start to the year. I really like this narrative of shrink versus stack. To that point and 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. Is there any other color you can give on 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 noticed it seems like maybe it's the third fastest grower behind advanced packaging and thermals. Is that the right way to think about it?

Jon 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. As the OEMs are looking to drive performance and 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 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 higher layer counts, that plays into the strengths of the Qnity portfolio and really where our metallization business has been positioning itself for several years.

OPERATOR: Thank you. That concludes our Q&A session and today's call.