Element Solutions Inc (ESI) Q4 2024 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. And welcome to the Element Solutions Fourth Quarter and Full Year 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I will now turn the call over to Varun Gokarn, Vice President, Strategy and Integration. Please go ahead.

Good morning. Thank you for participating in our fourth quarter and full year 2024 earnings conference call. 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 views 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. 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 include financial information that has not been prepared in accordance with the US GAAP. Please refer to the earnings release 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.

Thank you, Varun. Good morning, everybody. Thank you for joining. Element Solutions had an outstanding year in 2024. We produced record results, improved our portfolio, and positioned the company for longer-term outperformance. We delivered full-year adjusted EBITDA above the which despite a material incremental FX headwind that had built over the year. The company improved meaningfully across multiple vectors in each of our businesses. We outperformed our markets penetrating the fastest growing emerging niches in the electronics industry. Driving margins, and investing in new capabilities. Adjusted EBITDA was 13% in constant currency to a record $535 million. Free cash flow of $294 million is a record as well. It was our fifth year out of the past six in which we converted more than 50% of adjusted EBITDA to free cash flow. And that is despite having more opportunities to invest in growth and therefore spending more on CapEx than in prior years. These results were not a product of a generally exuberant market backdrop. Only select niches of the electronics industry were strong. While a large portion across consumer goods, and automotive was generally soft, NSI growth came in well below the market's expectation entering the year. Our industrial business fought headwinds from low levels of activity in construction, heavy machinery, and western automotive manufacturing. Notwithstanding that backdrop, we met our financial commitments in 2024, but more importantly, made meaningful progress continuing to position our business for longer-term outperformance. We're a critical supplier of solutions for leading-edge electronics hardware. Our product roadmaps are increasingly informed by and critical to emerging needs high-performance computing markets. And our relationships with the key specifiers and technologists in the markets are strengthening. We worked hard to bring our margins back close to their prior high. With over a hundred basis points of EBITDA margin expansion in 2024, we've just about accomplished that. We've shown price discipline, driven positive mix through our progress in high-value niches and electronics. And we're back at those levels in a period of weak volume in industrial and assembly. So we see a path to set new record margins from greater facility utilization and further mix improvement from here. In 2024, we also took steps to focus and enhance our portfolio. In September, we announced an agreement to sell McDermott Graphics Solutions for $325 million. This is a good business. But it contributed lower growth and margins and with weaker cash flow conversion than the rest of our businesses. We were able to structure the transaction to take advantage of tax assets such that we should net almost all of the proceeds. It's expected to close in the first quarter. Subject to customary closing conditions and adjustments. And so we are left here with a better portfolio across all key relevant metrics that we believe is also better positioned for growth in a balance sheet, that is as good as it has been since we founded ESI. This is all to say that while we're pleased with a record year in 2024, we're even more excited about what we were able to do last year to position the business for longer-term success. Carey will now take you through the fourth quarter and full-year financials, in more detail.

Thanks, Ben. On Slide four, you can see a summary of our fourth quarter results. Net sales increased 6% organically as we grew our high end of electronics verticals in the double digits, and saw sequential improvement in the industrial portfolio. Driven by demand in Asia. Growth was led by semiconductor solutions at 19%, circuitry solutions at 10%. Our circuit board assembly business, which has more industrial and consumer electronics exposure, grew more modestly. We saw the same divergence in electronics throughout 2024. Emerging technologies are requiring more complex materials solutions. We are a key provider of those solutions. Whether they serve the AI data center market, the Chinese electric vehicle market, or the low earth orbit satellite market. These advanced packaging solutions complex multilayered printed circuit board process chemistries and high reliability thermal materials are driving the business in a period of sluggish consumer electronics demand overall. We expect that to continue. But these emerging applications are gaining as a percentage of the overall electronics market. The benefit of our iterative customer-led innovation is that our intimacy with these markets our capabilities to serve them give us a valuable seat at the table. Should drive further outperformance in the years. On the bottom line, constant currency adjusted EBITDA grew 9% year on year with margins roughly flat to the fourth quarter prior period. Adjusted EBITDA within our guidance range despite an incremental $3 million FX headwind in the quarter. While most of our input costs have eased, higher plastic metals in our assembly business, generated a year on year headwind to company margins of roughly 80 basis points. Excluding net sales from these pass-through metals, our adjusted EBITDA margin would have been 25% representing 60 bps of margin expansion. On slide five, we discuss full-year financial results.

Overall organic sales grew 4%,

driven by emerging sources of demand in electronics. Even as in European industrial end markets remain soft. Our electronics business grew 7% organically, while the industrial and specialty segment declined 1%. On a constant currency basis, adjusted EBITDA improved 13% year on year. Constant currency adjusted EBITDA margins improved 120 basis points reflecting favorable product mix from high-end electronics growth, as well as price discipline and easing input cost. Excluding the impact of roughly $400 million of positive metal sales in our assembly solutions business, our adjusted EBITDA margin would have been 26% for the year. This is a very strong result but we see room for further improvement. Foreign exchange translation was a $12 million year on year headwind adjusted EBITDA. Roughly $0.03 headwind to adjusted EPS. Currencies continue to be volatile. And current rates present additional FX headwinds in 2025. And Ben will cover shortly. Next, on slide six, we share additional detail on full-year organic Semiconductor Solutions organic growth of 14% reflected steady improvement in fab utilization, new fab ramps, and broader growth in advanced packaging application, Demand for our VIAFARM products was particularly robust. And we expect this demand to carry into 2025 supporting advanced logic modes and DRAM memory stacking. Which are critical for AI applications.

We also continue to see strong growth in power electronics

for the electric vehicle market. As efforts to win new customers throughout technology, paying off. In 2024, semiconductor solutions marked a milestone. With revenue exceeding $300 million for the first time. This business has grown at a five-year CAGR of 14%. And should continue with a double-digit growth trajectory from here. Surgery solutions grew 12% organically in 2024, benefiting from the large investments made by hyperscalers into AI and data center growth. Additionally, the growth of electric vehicles in China has driven demand for certain of our market-leading final finished products.

Overall,

Surgatree Outpaced estimated global smartphone growth of 6% in 2024. Which is meaningfully lower among Western OEMs. As well as estimated PCB square meter growth of 7%. We expect this business can continue its outperformance and strong growth even as smartphones remain below prior peak. Our assembly solutions business has more significant exposure to industrial and automotive end markets than our other electronic verticals. As we supply high reliability alloys, and attachment technologies for automotive markets, industrial customers, and broader consumer electronics. Global automotive volume was essentially flat in 2024. And saw meaningful declines in Europe. However, our business benefited from demand improvement in consumer, mobile, and computing end markets. Particularly in Asia. This business grew 1% organically for the full year, with low single-digit year on year improvement in the second half. Organic net sales in the industrial and specialty segment fell 1% year over year, Industrial solutions, which is almost three-quarters of the segment, declined 2% organically, driven by lower commodity price-based surcharges, and soft European industrial end markets. It did, however, deliver earnings growth this year from margin expansion on the back of mix, cost of deflation, and facility rationalization. Energy Solutions top line grew 8% organically, Drilling and production activity remained strong, and we have had the opportunity to drive pricing in this business as well. These trends are expected to continue into 2025. Moving to cash flow and the balance sheet on slide seven. Element Solutions generated a record $294 million of free cash flow in the year, of which $116 million was in the fourth quarter. Our working capital investment was fairly modest relative to our adjusted EBITDA growth primarily thanks to improved inventory management. We had highlighted a desire and opportunity to improve working capital management over the course of 2024. We executed against it. We spent $68 million in capex in 2024, as we made significant progress on several key strategic investments in power electronics manufacturing and our broad manufacturing and research footprint. We believe this is money very well spent behind high-value growth opportunities. We expect to spend roughly $65 million of CapEx in 2025. We ended the year with our balance sheet in a strong position. Net leverage was 2.8 times and our capital structure is more than 90% fixed rate 2028. We now have no debt or swap maturities until 2028. And our effective borrowing cost is below 4%. On a pro forma basis, net leverage would have been 2.3 times at year-end. If the graphics transaction had closed as of January 1, 2024. As a result, we have substantial capacity to deploy capital in 2025. And with that, I will turn the call back to Ben to discuss our outlook.

Thank you, Carey. In 2024, we executed well against the backdrop and our relevant opportunity set. We anticipate a continuation of the trends we saw last year into 2025. And you should expect us to execute as well or better. Demand continues to grow in high-performance computing and data storage locations. This should drive our wafer level and advanced packaging related product lines. We continue to extend our penetration of the EV market with our differentiated power electronics solutions we expect market growth and our share gains in high-value semiconductor markets to continue. Altogether, we expect 2025 organic growth in our electronics segment at our high single-digit longer-term target. There's also the potential for a stronger refresh cycle on both smartphones and other computing devices, which could buoy volume growth for the electronics manufacturing industry overall. That would be upside to our plan.

On the INS side, the outlook for global industrial production

is more uncertain. We expect a similar environment to 2024, though there's some risk from the impact of potential tariffs on demand. We continue to win business in this market and expect another year of outperformance relative to industrial activity in 2025. Our offshore business should once again benefit from balanced growth in both volume and prices.

We anticipate two major nonoperational impacts

to adjusted EBITDA year over year. First, the sale of graphics will account for a roughly $30 million impact which includes a modest adjusted EBITDA contribution from the business in January and February. Second, the stronger US dollar will drive translational headwinds. Which would be roughly $15 million year over year based on January ending rates. Overall, when accounting for these dynamics for full year 2025, we are guiding to high single-digit adjusted EBITDA growth at the midpoint of our range. We expect Q1 adjusted EBITDA of approximately $125 million which includes a roughly $5 million FX headwind. Our full-year adjusted EPS guidance approximately $1.40 does not include any benefit from capital allocation. Just as in 2024, we will measure success this year by not only delivering on our financial goals, but also by continuing to improve our long-term positioning, for outsized growth and value creation. To that end, on slide nine, we've reflected our definition of success for the year. We aim to execute at a high level continue to penetrate the fastest growing deepest profit pools available to us. And therefore gain share of and outperform our markets. In order to continue to do that for the long term, It must make progress with customers and the supply chains for our emerging technologies such as Active Copper or Cupion. And other advanced and wafer level packaging and semiconductor assembly products. Finally, we expect opportunities to deploy our balance sheet capacity to accelerate adjusted earnings per share growth, through complementary tuck-in acquisitions, and also as appropriate through share repurchase. We have the team technology, and playbook to deliver on this. And our conviction in the long-term trajectory for our business continues to grow. That conviction relies on the pillars of our business. Which are our people, our technology, and our deep customer and supply chain intimacy. The most important of those pillars is our team. I'm immensely grateful to our dedicated, capable people around the world who are responsible for our excellent 2024. And will be the drivers of our success in 2025 and beyond.

With that, operator,

please open the line for questions.

This time, I would like to remind everyone in order to ask a question, press. Your first question comes from the line of Josh Spector with UBS.

Yeah. Hey. Good morning, guys. So first, I just wanted to ask on your view of your relative performance compared to electronics markets. In your electronics segment. I mean, clearly, you had a strong 2024. Obviously, a weaker comp off 2023. So on that two-year basis, do you think you performed relative to markets? And when you look forward, you're talking about new wins. Obviously, we've been talking about advanced packaging for a while. Does that outperformance accelerate meaningfully that we should be able to see it, or do you view it kind of a similar level of outperformance?

Thanks for the question, Josh. So a few relevant data points. Right? We went through just now in our prepared remarks. PCB square meters were up maybe 6, 7%, smartphones up 6%, MSI, low single digits. And, you know, our business was up in high single digits in an electronics perspective. So we outperformed this year in a call it, modest recovery within the electronics market. Last year, we outperformed units on the way down as well. So, you know, I think you've seen us do better in weaker periods and do better in stronger periods, and that's really a product of our penetrating the fastest growing subsegments of the electronics hardware market. You know, taking a step back, you know, we had record EBITDA in 2024 for Element Solutions, and that's at a period where you know, MSI is way dislocated from its prior peak. Smartphones are way off of their prior peak. PCB square meters are below their prior peak. And so you know, Element as a complex has clearly outperformed the underlying markets over, you know, a multiyear period. Rolling that forward the subsegments that we've know, We've grown in and developed a level of incumbency in are the secular growing highest value subsegments of the electronics consumables market, and those should continue to outpace the overall market. And so I think that we have a high where I know we have a high level of conviction that this level of outperformance should continue.

Your next question, comes from the line of Bhavesh Lodaya with BMO Capital Markets.

Hi. Good morning, Ben.

Morning, Bhavesh.

Your business

your business is

pretty short cycle in nature, so I would guess it's still early for you to see how the year is trending.

Could you add some color around maybe a customer communication or maybe where you are in some of the product development cycles. To what scenarios you're building in as you think about the lower end and the higher end of the EBITDA range?

Yeah. Well, you're right to point out it's a short cycle business. Right? Our customers' customers don't know how many products they're gonna sell over the course of or how many units they're going to sell over the course of 2025. And so, you know, the supply chain has limited visibility in that regard. When we sit here in the beginning of the year and give guidance, really on the basis of expectations for units. Whether that's MSI, PCB square meter, smartphone units, and so forth. You know, the and I think we articulated what we expect from each of those key indicators. What's clear is that at the leading edge, there's not enough capacity. And so capacity is coming online, and there's huge investment and huge demand for advanced chips and we expect that to continue. Where there's more uncertainty is in some of the legacy used to be the leading edge, things like smartphones, obviously, the industrial market and so forth. You know, you get to the high end, should there be an accelerated replacement cycle in some of those devices, better health in the industrial market, Obviously, FX can help us. And the low end is should there be a demand impact from tariffs, or a weakening in the industrial markets? I think we all feel pretty good that spend at the leading edge in our highest value areas is gonna continue to be robust of the year.

Thanks. And as a follow-up, that's clearly been a significant amount of talks about of Paddock's Not just Asia, but also within North America. Are you seeing any impact from that so far in your business?

Not yet. No. We haven't seen a real impact. Obviously, there's a lot of discussion. There's been supply chain realignment going on over the past several years. Where manufacturing capacity is moving to Mexico. We're seeing an investment in fab capacity in North America. In Japan. We're seeing PCB and automotive suppliers moving into Southeast Asia out of China. None of that is new, and we're benefiting from that. But over the past, call it, two months, we haven't seen any dramatic changes.

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

Great. Good morning. Ben, I think we can all appreciate the, you know, the effort of

not embedding any meaningful macro recovery, you know, in 2025 guidance. But from where you sit today, what would be the two data points that investors could potentially look at for upside surprise in terms of what you're seeing right now or what you expect to see, you know, soon enough? And what would be the two factors potentially your risks that you're monitoring in terms of how you're progressing throughout the year. Thank you.

Yeah. Thanks for the question, Chris. Well, the single biggest variable that's been I call it the most volatile over the past several months has been FX. So got about a $15 million headwind year over year using end of January rates. A little bit lower today as the dollar has weakened a bit since the end of January. It was as high as $20 million in the past two months. If you go back to the end of September, it was a $10 million tailwind. You know, we've seen a $30 million swing just from currency over the past several months, and so that is the single biggest variable I'd point to. When you look at organic or units,

You know,

the automotive market is a critical market for us. And while it's not unhealthy per se from an overall unit's perspective, The types of units that are being made are not necessarily beneficial from a mix standpoint. Right? So low value electric vehicles in China as opposed to high value vehicles made in the west. So some health or recovery in Western automotive would be a tailwind. And smartphone units while they're less core, to our growth than they were several years ago, given the emergence of high-performance computing and how much volume we have going into that market today, they're still relevant. And some a replacement cycle and growth in units above what's expected would be a tailwind. The thing I would point to as risk, again, as I was just mentioning to Bhavesh, is industrial production. And if that gets weaker, that would be a risk not contemplated in our guide.

That's very helpful. Just as a quick follow-up, when I think about your exposure

on for EV and smartphone across your portfolio, And I look at basically that, you know, your mix between China and non-China you know, OEs. Know, how should we be thinking about the trends in those markets for 2025 and perhaps even a little bit of a longer-term comment as well? Thank you so much.

Yeah. Sure. So we have more value in western or in ex-Chinese smartphones than in domestic Chinese smartphones. But we still have some value. In smartphones from Chinese OEMs and we saw a benefit from growth in those units in 2024. But the mix is skews a bit more towards ex-Chinese OEMs. With regards to electric vehicles or automotive in general, we've got a better penetration ex-China. And in EVs, also ex-Chinese EV OEMs, we're making really good progress in both the broader Chinese OEM automotive OEM markets and in particular in high-end Chinese electric vehicles. Where our power electronics technology has been adopted, and we're seeing real growth from them. Which is a really nice tailwind and earnings driver in 2025. As, you know, units of high-end Chinese EVs are rolling out using our technology.

Your next question comes from the line of Michael Harrison with Seaport Research Partners.

Hi. Good morning.

Morning. I was hoping that you could give us a little

bit more color on your expectations in the PCB market. And I'm curious if you're seeing kind of a similar bifurcation where the advanced side of things where you guys have a better position are growing faster whereas maybe some trailing edge boards are not growing as quickly. Maybe just a little bit more color on your expectations for that assembly business next year?

Absolutely. So it's a great question, and it's a great observation. It's both our circuitry business and our assembly business, and I'll speak to them in order. Right? The PCB square meters grew mid-single digits last year. Our circuitry business grew ten-ish percent last year. And so what explains that divergence? The legacy lower tech circuit boards that go into consumer electronics and cars had far less growth in units than higher value more complex circuit boards that go into IC substrate so that's an advanced packaging application or server boards for high-performance compute. And that's where we have a disproportionate position, and that's why we outperform that market so substantially in 2024. And we expect that same trend to continue in 2025. Right? So the high-end circuit board market is healthy. The low end is suffering along with weak industrial production. We expect that to continue, and so we expect to outperform that market in 2025 once again.

The

assembly business is a bit different. We're selling assembly materials that go into a broader set of the electronics market than our circuit board business. And so the assembly business didn't grow to the same rate as our circuitry business, and that's really driven by its exposures. But we were still able to drive profit growth, pretty significant profit growth from the assembly business. And that's because the higher value applications in assembly, once again, are in higher technology segments of that market. Again, we need to think about this x metal, because metal prices increased over the course of the year. But our profit percent in that business improved and our profit dollars improved. Because of where the growth came from, in our assembly product portfolio. And, again, we would expect that to continue in 2025.

Alright. Thanks for that. And then you referenced the potential to put some capital to work this year and the balance sheet being in pretty good shape. Can you talk about the M&A market and are you seeing more targets out there and valuations maybe getting a little bit more reasonable? Than they have been in the past couple of years.

Yeah. Absolutely. So our balance sheet is as good as it's been since we founded Element when you take into consideration the proceeds from the graphic sale, which would be coming in pretty soon here. And so we are on the front foot looking for opportunities to deploy that balance sheet to compound earnings, tuck-in M&A is on the table. The types of businesses we're looking for are really high quality, just like our business. There aren't that many businesses that sort of pass that bar out in the market. And so we're out nurturing relationships to try to activate that all the time. And I do expect we should be able to find some attractive tuck-ins over the course of the year. At reasonable values that meet our criteria. But we still have capacity, you know, beyond that for repurchase. A bit of incremental debt pay down, With the balance sheet as it is, you know, I don't think we're limited in terms of what we can do over 2025, always with an eye towards compounding per share value.

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

Thank you. One of your peers, Integris,

has consolidated its segments to two, and I think DuPont's electronic Spanish gonna have two segments

you think about consolidation within your electronics portfolio maybe to

just two segments, like, maybe pulling together the advanced packaging and wafer level packaging stuff all in one place?

Interesting question, John. I hadn't thought about that. You know, we have one electronic segment with three verticals. And as we've done more investor education about our electronics business, we've actually tried to break it out further. You know, to clarify what we have in front end what we have in back end, what we have in circuitry, what we have in assembly. Within circuitry, there's even a bifurcation in that market as we just went through. With the higher end IC substrate market and server board market versus some of the legacy market. So I think if anything, we'll be providing more clarity around what we do within our verticals rather than less. And I don't see any desire to resegment.

Okay. And then secondly, you've been comfortable running with a lot higher leverage

in the past. Do you have a time frame in mind to how long you'll run with relatively low leverage?

You know, we've always been opportunistic with regard to capital allocation. It'll be I would say that we have no our capacity doesn't burn a hole in our pocket. We have no desire to rush to deploy capital. We're gonna be very thoughtful and prudent about with regard to capital deployment from here, and it'll depend on what opportunities are available. And know, while we have a leverage targeted leverage ceiling of three and a half times, that doesn't mean we wanna run the business there. So we're very comfortable with our balance sheet as it is today. The flexibility it provides to us.

Your next question? Comes from the line of Jon Tanwanteng with CJS Securities.

Hi. Just one question for me. Thank you. One of your larger legacy EV customers, if you experiencing significantly weaker sales entering the year. Are you factoring that into your EV expectations, and do you expect growth you know, in those end markets on a net basis considering that one large customer?

Yes. So our power electronics business, Jon, which I think is what you're referring to, has done a very good job of winning new business with both western electric vehicle OEMs and emerging Chinese electric vehicle OEMs. The electric vehicle market continues to grow, and so our power electronics business should continue to grow nicely in 2025.

You know, the units that

could potentially be lost by any one customer are being absorbed by others. As we see it. And so I think our guidance holds in light of the whatever dynamics it is that you're specifically referring to.

Got it. Thank you very much.

Thanks, sir.

Your next question comes from the line of Steve Byrd with Bank of America.

Hi. This is Rock Hoffman on for Steve Byrd. Could you speak about Couprion a bit more and when you expect Couprion's copper paste to become more commercial product?

Yeah. So as you would have seen in our slides and how we're defining success in 2025, you know, continuing to gain traction commercially and improve our supply chain capability for these emerging technologies, Couprion chief amongst them is one of the criteria for success in 2025. The commercialization effort around Active Copper which is a product that Couprion makes, it has been exceptional. And customer demand through the roof and the number of applications, projects we're working on continues to grow. And the product is performing. Our energy over the past couple quarters and for the next several quarters is on supply chain. So that's building our capacity for active copper production. And supporting our customers for developing their applications know-how and process for high volume manufacturing using active copper. And that is moving along reasonably well. I expect to have, you know, reasonable revenue in 2025. And know, EBITDA contribution in 2026, which has always been our indicative timeline for active copper that's unchanged. And our confidence in the viability of active copper as a product and the performance and the market pull, you know, grows every quarter.

Thanks. And as a follow-up, have metallized services within auto parts and household products gain share, or is there a shift to other surface types? Yeah. That's a great question. Right? So

in our industrial solutions business, we sell functional and decorative surface treatment. Right? So functional is anti-corrosion and protective. Materials that improve performance, and decorative is you know, a thin film of nickel on a piece of plastic for an automotive application, whether the grill or hood ornament of a car or also, you know, as you said, sanitary, like sinks and faucets. There's been a trend over the past couple years away from that metal finish towards painted finish in automotive. Right? And so you're seeing more black painted grilles as opposed to chrome looking grills on the road. We're actually seeing that change, though. And so when you look at our results in 2024, for example, our anti-corrosion business did quite well, and our decorative business was a bit softer because of that fashion trend changing. When you talk to our customers, the OEMs are saying that you know, chrome finishes are coming back. And so we've got several customers that are saying they're fully booked, with their plating lines in 2026. After a pretty weak year in 2024. And so we see that trend reversing, and that's a tailwind for us the next couple of years. I'm not sure how material it'll be in 2025, but over the next couple of years, that trend reversing will support the business and growth in the industrial business.

Your next question, comes from the line of Pete Osterline with Trus Securities.

Hey. Good morning. Thanks for taking the questions. So first, I just wanted to ask on your expectations for margin expansion this year. Are you expecting mix to continue to drive growth and is there anything else noteworthy you're seeing at this point, whether on input costs, or any potential for self-help through cost improvements?

Yes. So mix should continue to help. There's been some ongoing raw material deflation that should continue to help, and we're always working on productivity, facility rationalization activities. And so that's another lever that we have. And I wouldn't count on another 120 basis points of margin expansion as X Metal in 2025. We should continue to see margin expansion over the course of the year, and that's also not including any real benefit from facility utilization improvement. Driven by, you know, materially higher volumes in the industrial business.

Got it. Thanks. And then just as a follow-up, you called out that

CapEx was higher than historically average in 2024 and you're guiding for it to be about the same for 2025. So just was wondering if you could give some color on the capital projects you're prioritizing for the upcoming year and how they tie to your longer-term plans for growth?

Yes. So as Carey said, you know, we were pleased to have the ability to invest as much as we did in 2024. There were some big projects, most notably we doubled our capacity for Argo Max, which is our sintered silver material used in power electronics. We're building a large research center in India, which is nearing completion, and we had some IT projects that pushed that number a bit higher in 2024. We look to 2025, you know, the biggest project I'd point out is that Couprion project that we just talked about. But there are several other, you know, we consider them substantial. For us, substantial is, you know, $10 to $15 million of investment. That we're working on to support longer-term growth. In these high-value niches that we've been penetrating. But, you know, the long-term run rate is still around 2% of sales even if we're take higher for a couple years here. And, Pete, I would just add to that. The other thing that's been kicking up and that we're excited about is investing in customer's equipment. And funding that for our customers to win longer-term lock-in contracts. So that trend is moving positively, and we wanna see that keep going. Yeah. It's another way we support our customers' growth is by helping them finance expansion projects in exchange for long-term contracts. High value you know, of high-value products. Those are high returning projects that we can do.

Your next question? Comes from the line of David Silver with CL King.

Yeah. Hi. Good morning.

I had a question, I guess, about your R&D spend. So

year over year, if you exclude, I guess,

the Couprion charge, your R&D spends up more than, I don't know, 20, 25%. I was wondering if maybe you could just highlight you know, some of the areas where you're putting resources to work there. And then should we be penciling in you know, kind of a growth rate to that line that's you know, somewhat above your top line growth. Thank you.

Thanks, David. So just to clarify one point, there is some

Couprion spend in 2024 as well. It's not a significant obviously, that's a 2023 number where we made the initial purchase price, but there is think about $4 million in the 2024 number. When you make those adjustments, think that we are seeing R&D pick up slightly as a percentage of sales. As Ben mentioned and I mentioned in the prepared remarks, we've been making some investments in labs. We're working on a new integrated R&D lab in India.

Those

were people being added to those facilities and we're seeing some increasing cost. That's most of our R&D cost is people, people on leases. As an overall trend, though, I don't expect that to tick up more than inflation sort of sales growth as we go forward. Think it's important to note when we look at our R&D expense that we even though on GAAP, it's reported at these levels. We really think about our development. And our technical service spend, which shows up in S and T as part of our broader R&D spend. And so when you put those two numbers together, see a couple percentage points higher R&D. That's really how we look at the spend, and we think it's sufficient

for the business we have. Yeah. As Carey rightly points out, you know, our technical service

folks and our application centers are also a critical part of product development. We're doing local customization to meet local customer needs. They aren't captured in R&D.

The other

general point I'd make is that with the graphics business leaving the envelope know, we will have a slightly higher R&D percent of sales because the graphics business was less R&D intensive than our other businesses. So that's a modest change. But R&D intensity for our businesses has been you know, more than adequate to support outsized growth the future.

Okay. Great. And then one last one for me, but you have made some scattered comments about your business in China. And you know, when I think about the amount of business you do there, and I'm thinking there's some tariff issues. There's I think there's some currency issues there, and then I don't know, the AI issues. But broadly speaking, could you just maybe speak about how you're thinking about your China business for 2025? So you know, the economic activity there and maybe some currency or other issues that factor into your you know, your planning for, the full year there. Thank you.

Yeah. Absolutely. So, you know, we had a good year in 2024 in China. You know, revenue was up in the low teens. A lot of that was driven by the export market, some of that was driven by the local Chinese smartphone market. And then the Chinese automotive market was healthy. Our business in China, you know, is a local business. We buy products, manufacture, and sell locally, and so tariffs don't impact our P&L directly. Where there's risk is should there be an acceleration in tariffs our customers and our customers' customers might see demand suffer because of inflation associated with tasks. But as we see, you know, our business in China, we see the trends in 2024 continuing, that electric vehicle market you know, is seeing significant growth penetrating it nicely. The high-end EVs are adopting our technology, and all of that is a tailwind for earnings. As we look into 2025. At the same time, supply chains are diversifying outside of China. Both multinational corporations and Chinese companies are building capacity for manufacturing in Indonesia and Thailand and Vietnam and we're seeing a lot of activity in India. And those are our markets where we already have an on-the-ground presence with commercial people, with technical people, and, you know, can welcome our customers into those markets. They're higher margin markets for us, and so we're seeing quite a bit of growth there. And that's a trend that we don't see tailing off, and we view that as a significant market share opportunity. And so, you know, China was a good story for us in 2024. We expect it to be a growth vector in 2025, at the same time, geopolitics are driving share and value our way over the longer term.

Your next question. Comes from the line of Duffy Fischer with Goldman Sachs.

Yeah. Good morning. Just on the graphics,

the $30 million over ten months, that's $3 million a month. Is it that smooth or is there seasonality in that?

And then does that mean there's roughly $6 million hit next year as well?

Yeah. The graphics business is not you know, flat line across the year. I would say, you know, count on somewhere between $3 to $5 million of contribution in the first quarter towards our first quarter guide, and that will fall out next year, presumably. Yes.

Okay. And then how are you guys

thinking about the buyback? Is it opportunistic where if some of the M&A doesn't come to fruition, you know, this is, you know, plan B, or do you wanna do something more systemic and more even with the buyback? So just I mean, in our model, roughly, how should we think about, you know, share count and buybacks?

Yeah. See what the market serves up to us. I you know, we've never been formulaic with our approach to buyback, and, I don't expect that to change. Imminently. We still don't have the proceeds from the graphic sale yet. So it feels early to address that. But know, I think it's reasonable to expect us to be interested in repurchase in 2025.

I will now turn the call back over to Ben Gliklich for closing remarks.

Alright. Thank you very much, Rebecca. Thanks, everybody, for joining. We look forward to seeing many of you in the weeks and months to come on the road. Have a good day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.