Good morning, everybody. Welcome to the Goldman Sachs Communacopia + Technology Conference. My name is Jim Schneider. I'm the Semiconductor Analyst here at Goldman Sachs. It's my pleasure to welcome Qnity and CEO Jon Kemp to the stage today. Welcome, Jon. Thanks for being here. Thanks, Jim. Happy to be here. Jon, you operate a diverse business, which has got high-performance materials at its core. You spun out of DuPont last November. I think a number of investors are still getting up to speed on your story. For those people who are a little bit maybe less familiar with the story, give us a brief overview of your business across semiconductor wafers on one hand and interconnects on the other. Yeah, thanks, Jim. We're coming up on the one-year anniversary of the spin and the launch of the company. What a great year to have launched. Couldn't have picked better timing. Qnity is really the largest pure-play material solution provider for the semiconductor ecosystem. We provide a full suite of solutions from the front end to the back end of the stack, including front-end semi fab materials, kind of middle-of-the-line advanced packaging materials that have been some of the fastest-growing parts of the business. On the back end, we do AI PCBs and high-value assembly, things like thermal and EMI shielding, which are also growing very nicely. We're well-positioned with all of the leading customers in the AI ecosystem, and in particular, on the most advanced technologies. Whether it's high-performance computing or advanced connectivity, the trends around AI and those types of advanced technologies have really been fueling our growth as we continue to enable the success of our customers' technology roadmaps. We support those customers with really a local for local operating model, which for us means we co-locate manufacturing and R&D activities close to where our major customers are located. So you'll see us with significant footprint and presence from a manufacturing and innovation point of view in the U.S., but also I just got back recently from Taiwan, Korea, Japan, and China. So we're off to a good start. We're thrilled with the progress that we're making, and we're looking forward to the future ahead. Okay, excellent. From an operational perspective, what are the one or two key objectives you're driving the company toward the next 12 to 18 months? If you look at investor expectations for your business in 2027, if you were to outperform, what would be the key areas of upside for the business? Yeah, it's a good question. For us, priority number one, especially as a new public company, has just been establishing that track record of steady, consistent execution. We talk about our business is 90% unit-driven consumables, so we're highly levered to unit volumes across the industry, and the best metric for that typically has always been MSI. We outperform MSI based on the content, opportunities, and growth from the most advanced technologies. Our outperformance this year, we're thrilled with the performance that we've seen in the first half of the year. We're almost 2x MSI, a bit higher than our normal outperformance that we would see, largely because most of the growth that we're seeing is coming from our customers' most advanced technology. In the semi world, the success that we're seeing with 3 nanometer and 2 nanometer technologies, the dramatic rise of advanced packaging and thermal management are all fueling our growth. Maybe just to characterize a little bit across the two segments, we operate with two business segments, one focused on semiconductor and the other focused on middle-of-the-line and back-end interconnect solutions. Within the semi segment, about 40% of those sales are really to advanced nodes. We think of advanced nodes as anything below 7 nanometer. That business has been growing really nicely for us this year, about 20% here in the first half. On the interconnect side, similar trends around the most advanced technologies, where advanced packaging, thermal management, and AI PCBs comprise about 30% of that segment, and that's been growing by more than 50% year-over-year. What I'm most excited about is the investments that the industry and all of our customers are making in expanding capacity, primarily at the leading edge. New fabs coming online to support the most advanced technology, whether that's in Taiwan, Korea, Japan, or Arizona, Texas. All of that bodes really well for the future. Dramatic increases in advanced packaging capacity, and a lot of our PCB customers upgrading their capabilities to do more sophisticated, higher-end printed circuit boards that all require more sophisticated and more specialized materials, which is really what's fueling our content growth at the leading edge of technology. We expect that momentum to continue the outperformance through the rest of this year with a really favorable backdrop going into 2027. For 2027, more excited about interconnect than semis? Well, interconnect, historically, semi has always grown a little bit faster. With the rapid rise of thermal management and advanced packaging, the interconnect segment has been outpacing. That trend probably continues for the next year or so because of how explosive that growth has been, and we're really well-positioned with leading technology positions across a number of key product categories in that space. I do expect ICs will continue to outpace semi, but we'll have really nice growth from both segments. Got it. Okay, so last high-level question. If we get here on stage again in five years' time, what do you think is one thing that investors will be surprised at looking five years back? Yeah, maybe that's a good question for the guy next door here in a few minutes as well. But if I think about for our portfolio, I think there's two things that I think we're really excited about over the next handful of years. Number one is the continuation of the AI-led transformation across the modern economy. So far, what we've seen is all of the rapid growth, primarily in data centers. And the data center growth has been terrific. We've certainly benefited from that alongside our customers, but it's really just the first leg of the AI-led transformation. I'm excited by the emergence, and data center is kind of all about cloud computing. It's where AI learned to speak and learn to think. But what's next, and I think what I'm excited about, is the transition from the cloud to the edge, from data centers to physical AI, where we get into where AI moves into applications across devices, vehicles, and machines. And those physical AI applications, while not as concentrated in terms of GPU and CPU clusters, you'll combine GPUs and CPUs with analog and discrete, and you'll have far more of those individual devices across the modern economy. And that sets the backdrop for just several years now of strong, sustainable growth as AI applications extend broadly across the economy. The corollary to that from a technology side is really around where innovation happens. For the last 10 years, or for the time I've been in this industry, the most important unit of innovation has always been the chip and the chip itself. That will continue to be important, and it's always going to be important, but in the AI era, the chip alone is not enough. The unit of innovation is expanding from just the chip to the entire system. The implications of that are a couple of unique challenges where materials move from the back end of the process to the front of the process, because at the system level, challenges like signal and power and heat become more important, and those are fundamentally the challenges that advanced materials can solve. What we're seeing is this trend around innovation, the opportunity for innovation beyond the chip to the entire system, extending from the foundry and the fab to the OEM, whether that's the smartphone, the automotive, or the hyperscaler. Those opportunities to drive innovation more broadly through the ecosystem, I think creates a real opportunity that we're excited about. Okay, great. Now let's get in the details of the business for a second. We've been in kind of an interesting few year period of the industry where on one hand, AI and leading edge logic has sort of been driving the ship. But at the same time, against that, in the same industry, you've had trailing edge and so on, that's kind of really lagged and been holding down because of the excess inventory and automotive, industrial, and some of those supply chains. Maybe, it seems like that situation has now corrected itself and we're kind of back to growth for the majority of the industry. You recently raised your industry wafer start forecast to mid to high single digits for 2026 from mid single digits previously. Given the demand outlook from customers you're seeing, do you see that potential for that wafer growth rate to actually accelerate as we head into the end of the year? Yeah. It's something that we constantly talk to our customers about. I think about, we did raise our MSI forecast to high single digits, and that's really based on the rising utilization rates that we're seeing broadly across the industry. Obviously, the strongest utilization rates continue to be in advanced logic and DRAM with HBM, where we're seeing mid to high 80s in advanced logic and high 80s, maybe even low 90s on the HBM DRAM side. But we're seeing nice progress on mainstream logic as well, and mainstream logic accounts for the bulk of the wafer volumes across the industry, and it's been a few years in the making, so really pleased to see some of the progress. I think they're finding ways to participate in not just data center growth, but in other growth across automotive and premium consumer devices, because we're seeing, on both sides of our segment, the strongest growth is coming from the most advanced technologies, but we're seeing very solid growth even from both mainstream logic as well as what I would call mainstream PCBs also. Yeah. Okay. Then maybe as we look at the exit rate for growth at the end of this year, talk about sort of your exposure to leading edge versus mainstream and sort of what growth rates you see for the overall segments of the business, especially given what you said about the kind of the supply additions heading into the end of this year or next. Yeah, when we think about the rest of the year, so the portfolio composition, our portfolio on the semiconductor side is 80% logic, 20% memory. So this strong growth in advanced logic is really one of the things that's fueling our strong outperformance. Through the first half of the year, it comprised about 40% of our semiconductor segment. We had said even as little as maybe nine months ago prior to the launch, that we thought that we would get to advanced nodes comprising 45%-50% of the portfolio by 2030, and we're on track to get there way earlier than that. With the growth that we're seeing. So really nice progress there. We expect that trend to continue. Then on the interconnect side, look, I don't think any of us were expecting the magnitude of the increase in advanced packaging and thermal management needs. That, I think, surprised the entire industry. We are rapidly trying to adjust supply chains to bring capacity to that part of our customers' architecture, and we are really pleased by the growth that we are seeing. Between advanced packaging, AI PCBs, and thermal management, it is about 30% of our interconnect portfolio. We expect that momentum to continue. When we start to think about next year, I think the real lever for growth is really around how successful our customers are in bringing the announced capacity online. I think the end market demand remains strong. You hear that from our customers and our customers' customers, and I think it has been a major theme here in the conference here this week on the demand environment for 2027, likely even for 2028, remains pretty strong. It is a matter of how fast can our customers bring the capacity online and scale it up to be able to support the demand that is coming from the broader ecosystem and the broader customer environment. We are really well-positioned with the investments. We typically invest in our capacity alongside those customers, so we are in a good position to be able to support that growth as it scales into 2027 and 2028. Okay, excellent. Jon, your chemical mechanical polishing, or CMP segment, is arguably one of your most differentiated product lines. You participate in both pads and slurries tied to the polishing those layers. So what are some of the underlying technology trends across leading edge logic and memory that are driving differentiation for you, and what is your confidence level being able to outperform that market segment in the next year and beyond? Yeah, Jim, so our chemical mechanical planarization or polishing, our CMP business, is just over 50% of our total semi segment. We provide a full suite of products there from pads, slurries, as well as cleans. We are the market leader for both polishing pads as well as for the post CMP cleans that are formulated chemistries, and we have got a strong slurry offering as well. It has been the fastest growing part of our semiconductor business for the last three years, really driven by strong content gains in that part of the industry, as well as some nice share gains also. When I think about the opportunities ahead, with each node migration, CMP process complexity, we add more layers, and we add more CMP process intensity. Maybe just to give it a little bit of color, if I go back a few years to, say, 14 nanometer FinFET technology, it used, call it X number of layers. When you accelerate that to today's technology with 2 nanometer gate all around technology, it's 2x the number of layers in that advanced logic device, and within there's more CMP process intensity in several of those layers. So it's almost a double materials multiplier for that part of our business. When I think about the next evolution of technology, there's maybe two that I would call out, and what I described in advanced logic, the same dynamic has played out in DRAM as well, and especially with HBM, because we're seeing the doubling in the number of layers, but HBM and anything that involves packaging also pulls through CMP from the front end of the line into the advanced packaging step as well. But a couple of the technologies that we're really excited about for that side of our portfolio is as we start to introduce backside power delivery into the architecture. Intel's doing a bit of that today, but some of the other leading players will start to introduce backside power here in the Angstrom era nodes coming up, and that's another significant step up in CMP process intensity that we're really excited about. When you go to, similarly on the memory side, when you get to more than 400 layer count NAND, and you start to do the string stacking of the NAND modules, those modules have to be perfectly flat and polished so that you're getting seamless connections between the different layers of the NAND architecture. So getting to that, whether you call it from V9 to V10 or above that 400 layer count, and you start to do the stacking of the NAND modules, that's another key inflection point that we're pretty excited about for our CMP business. Okay, great. Now, from time it's been out, I think people, including me, have been surprised at how robust the interconnect growth has been. You talked about some of the drivers for that already, but maybe unpack the segment in terms of more detail. How much of that is being driven by advanced packaging tied to AI infrastructure, and how much is that advanced packaging area growing this year into next? Yeah, advanced packaging is. Look, every customer conversation I've had for the last two years has focused on how can Qnity help with advanced packaging? We are pretty unique, especially with our semi customers, because we have long been a trusted partner with the front-end materials. With the rise of advanced packaging, they are all becoming very familiar with the interconnect side of our portfolio as well, and they have asked for our help on how can we accelerate and improve the architecture and the performance of advanced packaging. It has been the fastest growing part of our business for the last two years, and I expect that will continue because it is much easier to add new capacity for advanced packaging than it is to add a new fab, a new front-end fab. That capacity comes on a little bit faster, and then it scales. So maybe the couple of the fundamental trends that we are seeing in advanced packaging is really kind of two key things. Number one is the expansion of larger format sizes. You are trying to get, I equate it to, you are putting enough compute that you are on a 10-lane freeway, but without advanced packaging, you have only got a three-lane exit. You get all that compute starts to bottleneck in the device. What advanced packaging does is it creates a 10-lane freeway with a 10-lane exit. So you get a really seamless transition for all of that compute capacity to be able to extend to the package, and then similarly, that is why you do an AI PCB, is because you want that 10-lane exit to go to a 10-lane country road as well, so that that compute flows reliably without any loss or latency anywhere in the system. That is really kind of what our materials are providing. The larger format packaging sizes help to ensure the signal reliability and the power efficiency. But fundamentally, it creates more opportunities for content. The other trend that they are doing is they are very similar to chip architecture. You are trying to use the real estate in the package as efficiently as possible by shrinking the geometries. Often I call this, we are moving from a world where the most important technology driver was the power of shrink and shrinking the geometries, whether that is on a transistor or on a circuit board. Now we are adding to that shrinking and stacking. This combination of shrink and stack is what unlocks the next frontier of computing and what will continue to allow customers to scale to meet the demand of AI, both in the cloud as well as all the emerging applications in physical AI. All of that leading edge compute will all require advanced packaging technologies in order to deliver the functionality to the end markets and the applications for which it is being built. We are really excited by that trend. Excellent. I'd give almost anything for a three-lane exit ramp myself. Anyway, just maybe lastly on the interconnect business, what are the other areas, whether that be thermals or PCB, as you said, that are outperforming your expectations? Yeah, the thermal business. If you think about the fundamental system-level challenges that I talked about, signal reliability is really important. Getting those perfect chip-to-chip communications and chip-to-board communications, that's where a lot of our metallization content is going into. Power delivery is another key challenge that we work closely with our customers on. As you solve those challenges for signal and power, it all generates increasing amounts of heat, and you get localized hotspots at every step of the process, at the chip level, at the package level, and at the device level. We bought a company in 2021 called Laird Technologies, and Laird had a market-leading portfolio of thermal solutions that span that entire range. So we're helping our customers solve those heat issues, at the chip level, at the package level, and at the device level. It's really accelerated, because all of this compute is generating enormous amounts of heat, and heat's maybe the number one failure mode in any device is overheating. Yeah. Managing that heat effectively is proving to be really important, and so that business is really driving significant outperformance for us. The other key technology, coming back to that signal reliability topic that I mentioned before, that the Laird acquisition brought into our portfolio, was a leading position around EMI shielding. Electromagnetic interference is one of the top causes for signal failures, and so we're seeing very robust growth in EMI shielding. The most common application that most people are familiar with is automotive radar, ADAS systems or ADAS modules in vehicles. Very quickly, that same technology is extending into personal devices. It's extending into the data center, because as you put more antennas and more wireless connectivity in all of these devices, you have to protect how the signal is being transferred over and over again, and like I said, you don't want any loss or latency to happen, and that shielding technology becomes critical. What that's allowed us to do is, even in markets where unit volumes have been a little bit more challenged this year, whether that's consumer electronics or automotive, in our portfolio, the content gains coming from increased electronic content, we've seen high single digits to even double-digit growth in both consumer electronics and automotive, despite a sluggish unit volume backdrop. Yeah. Maybe some more financially oriented questions for you. I think one of the hallmarks of the supply chain in semis recently has been this idea of constraint. Yeah. Obviously that's driven sort of what used to be a deflationary industry into an inflationary industry instead, where a lot of people are raising prices across the supply chain. So what's happened to your input prices right now in terms of raw feedstocks and chemicals, and sort of what's the tolerance among your customers to absorb higher prices from Qnity, and do you think you're going to be able to pass those along? Yeah, good question, Jim, and it's something that we watch closely. We've been fortunate in that from a raw material and an input cost point of view, we haven't hit any significant supply pinch points that are material. We haven't seen as much inflation as other parts of the ecosystem have seen. I would say, we watch kind of the situation in the Middle East. I'd say the one place where we have seen a little bit of inflation is in some of the logistics and shipping costs. We sized that for the year at about $20 million of inflationary headwinds. Over the last couple of years, anytime we have some of these unique and maybe kind of one-off events that result, whether it's tariff, during the COVID environment, we saw some of this, during the tariffs a year or so ago in the current environment. We've always been able to pass through those things like freight or logistic cost increases. We're able to successfully pass that through to our customers, and we haven't had any problem doing that there. There's always a little bit of a timing adjustment there. We're in good shape from the rest of this year. As I think about it more broadly, this industry, historically, it seems like the last few years have, supply reliability is also one of those key topics that every customer conversation includes. We're working closely with our customers. I think the industry has shown an incredible amount of agility to be able to adapt and respond to supply chain issues, whether that's memory or clean room or different component materials within the supply chain in order to meet the broader market demand. I expect that that agility and resiliency will continue. We're in a pretty good place, and when we think about pricing for us, it mostly comes down to pricing for value on new products. We're constantly introducing new products, kind of at the leading edge of technology, and we're pricing for value on those new product launches in both of our business. In the legacy technology or the older technology, there's always a bit of a price fade in the older technology, but we're really pricing for value for new technology. What we're seeing is the value that we're creating with the launch of the most advanced products is really kind of outpacing some of that historical. You see it with wafer prices, and you see it kind of every step along the value chain where the value is increasing with innovation, and we see that value of innovation driving significant benefits, and it's part of our outperformance this year and what we would expect going forward. Okay, great. Then on gross margins, how do you handicap your ability to expand gross margins over time? What level do you think is realistic over both the shorter and longer term, relative to the current level around 47%? Could you hit 50%? Yeah. We're pleased by the progress that we've made. Gross margins for us, as you said, at the company level, we're sitting in the high 40s, 47%. In our semiconductor segment, we're right at that 50% line already. In our interconnect segment, we've seen some nice margin expansion in that business because the fastest-growing parts of that business, the advanced packaging, the AI PCBs, and the thermal management, also happen to be the highest value parts of that portfolio. You see some natural mix enrichment as those parts of the business continue to accelerate the growth. I think we'll see the— Obviously, there's three main drivers to margin expansion. First, as we continue to grow, we get nice operating leverage by putting more volume through our plants. The second one is the mix enrichment that happens as we get the faster growth from the most valuable parts of the portfolio, which are the leading edge technology. The third driver for margin improvement over time is in the first quarter, we announced a transformation program. We sized it at about $100 million of EBITDA run rate over the next couple of years, focused on about 50% of that is plant-based productivity, things like automation, improvements in commercial and innovation excellence, and optimizing our local for local model. We're making good progress on that, and so we expect that that will, over the course of the next few years. If you put all three of those things together, I think that we have a real opportunity to get the entire company up to, and maybe even slightly above that 50% mark over time. Okay, excellent. Maybe I'll just close with one last question on capital allocation. We've seen some M&A activity in your sector. Solstice announced a $14.5 billion acquisition of Element Solutions. On a go-forward basis, to what extent is M&A on the table for Qnity, and do you see any particular valuable assets that you would look to expand your portfolio or potentially diversify the business? Yeah, it's a good question. On capital allocation, our first priority is always organic reinvestment in the business. We see tremendous opportunities to continue to drive organic growth. But this portfolio has been built by really smart acquisitions over many years, right? We're always going to be looking for complementary technologies that will be additive to our portfolio, to our ability to serve customers, and that have an attractive financial profile. I think right now, I don't think that we're necessarily looking for something that would be transformational. I think much more likely to be a tuck-in or bolt-on opportunity. We've got an attractive pipeline and a disciplined process, and we'll continue to work that. The areas that we've talked about that are of interest to us are some of the faster-growing parts of the portfolio, advanced packaging and thermal management. Both are still relatively fragmented spaces where we think there's some opportunities for some M&A. Equipment consumables or services is another interesting area for us, where we think that's maybe a less talked about part of the ecosystem, that there may be some opportunities for a company like ours to take advantage of some opportunities. It's also a pretty fragmented landscape. We expect to be active in M&A over time. Like I said, our primary focus is consistent, steady execution, but we're ready for the right opportunity, and especially for our first deal, we wanted to make sure it's the right one. But we're excited by the opportunity to continue to build out the portfolio over time. Excellent. Well, we're almost out of time, but Jon, thanks so much for being here. We really appreciate it. Jim, thank you so much.