Qnity Electronics Inc.

05/12/2026 | Press release | Distributed by Public on 05/12/2026 10:19

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of the financial condition and results of operations of Qnity Electronics, Inc. ("Qnity," the "Company," "we," "our" and "us"). Management's discussion and analysis of financial condition and results of operations is provided as a supplement to, and should be read in conjunction with, the unaudited interim Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q (the "Quarterly Report") and the audited Financial Statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 26, 2026 (the "Annual Report") to enhance the understanding of the Company's operations and present business environment. Certain amounts may not foot due to rounding. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those discussed in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as in "Risk Factors" in the Annual Report. Carefully read the information under "Cautionary Note Regarding Forward-Looking Statements" in this Quarterly Report. Qnity assumes no obligation to update any of these forward-looking statements except as required by law. Actual results may differ materially from those contained in any forward-looking statements.
OVERVIEW
We are a global leader in materials and solutions for semiconductor and electronics industries. We empower our customers' technology roadmaps to enable advancements in megatrends such as artificial intelligence ("AI"), advanced computing and advanced connectivity. We partner with leading semiconductor and advanced device manufacturers to address complex challenges and develop solutions that facilitate next-generation technological innovations. With over 50 years of experience in systems engineering and material science, a global manufacturing footprint, and major application labs across the world, we are well-positioned to capitalize on emerging opportunities across various sectors including transportation, data centers, consumer and personal electronics and aerospace and defense.
We are organized into two operating segments:
•Semiconductor Technologies: Our Semiconductor Technologies segment provides a portfolio of innovative materials and solutions utilized across multiple stages of the semiconductor manufacturing process. These advanced materials are qualified into customers' roadmaps, designed to improve chip performance, enhance yield, and enable leading-edge node technology.
•Interconnect Solutions: Our Interconnect Solutions segment offers a comprehensive range of best-in-class material solutions that address the evolving complexities of signal integrity, thermal and power management and advanced packaging. These solutions are integral for advanced electronics hardware, including complex printed circuit boards and advanced semiconductor packaging.
Our broad portfolio of solutions and materials across both Semiconductor Technologies and Interconnect Solutions segments positions us as a comprehensive solutions provider for our customers. We are often the partner of choice due to our strong innovation capabilities and extensive materials and engineering expertise. In a fast-paced electronics industry, our customers' needs are highly performance-driven and our long-standing relationships and strong renewal rates demonstrate our commitment to delivering excellence in a demanding market.
Macroeconomic Environment
Recent and ongoing developments in U.S. and foreign policy, including the conflict in the Middle East and uncertainty regarding tariffs on product imports, have heightened global trade tensions and increased macroeconomic and geopolitical uncertainty. The global nature of our business exposes us and our customers to risks arising from these conditions, including disruptions in the availability and pricing of raw materials, shipping logistics challenges, disruptions in global energy markets, fuel price increases, potential retaliatory actions by other countries, and broader impacts on economic conditions, which could affect our financial condition, liquidity, or results of operations. These factors may reduce demand for our products, impair our competitiveness-particularly relative to locally or domestically sourced alternatives-harm customer relationships, reduce demand for out products, and/or decrease profitability, any of which could adversely affect our business, financial condition, and results of operations. While we have meaningful exposure to global trade dynamics, our local-for-local sourcing of raw materials helps limit our exposure to tariff-related risks and shipping logistics. However, these actions may not fully mitigate the impact of prolonged or escalating geopolitical or trade disruptions.
Recent Developments
Share Repurchase Authorization
On February 20, 2026, our Board of Directors approved a share repurchase authorization of up to $500 million of common stock (the "$500M Authorization"). Under the $500M Authorization, repurchases of common stock may be effected from time to time, either on the open market (including pre-set trading plans) or other transactions in accordance with applicable securities laws. The $500M Authorization has no expiration date and will terminate once the authorized amount of shares have been repurchased and retired or when terminated by our Board of Directors. The timing and amount of repurchases under the program will depend on a variety of factors. During the three months ended March 31, 2026, we repurchased 219,581 shares under the $500M Authorization for $25 million at an average share price of $113.78 per share. As of March 31, 2026, the aggregate amount of common stock remaining for repurchase under the $500M Authorization was $475 million.
Transformation Plan
In February 2026, we launched a multi-year transformation plan, designed to strengthen operational productivity, enhance commercial and innovation excellence and optimize our presence in key markets. Costs incurred under this plan primarily comprise external consulting and separation services, severance, asset-related charges, and program-related operating costs. The transformation plan does not represent a company-wide restructuring event; rather, it consists of a series of discrete initiatives, including separation-related activities, integration efforts, and productivity programs.
RESULTS OF OPERATIONS
Summary of Sales Results Three Months Ended
March 31,
In millions 2026 2025
Net sales $ 1,315 $ 1,118
The following table summarizes sales variances by segment and geographic region from the prior year:
Sales Variances by Segment and Geographic Region
Percentage change from prior year Three Months Ended March 31, 2026
Local Price
& Product Mix 		Currency Volume Portfolio & Other Total
Semiconductor Technologies - % - % 12 % - % 12 %
Interconnect Solutions (1) 3 23 - 25
Total - % 1 % 17 % - % 18 %
Americas (1) % - % 20 % - % 19 %
EMEA 1
(2) 6 7 - 11
Asia Pacific - 1 17 - 18
Total - % 1 % 17 % - % 18 %
1.Europe, Middle East and Africa ("EMEA").
We reported net sales for the three months ended March 31, 2026 of $1.3 billion, up 18% from $1.1 billion for the three months ended March 31, 2025, due to a 17% increase in volume and a 1% favorable currency impact. The volume increase was attributable to both Interconnect Solutions up 23% and Semiconductor Technologies up 12%. The favorable currency impact was primarily attributable to EMEA up 6%.
Cost of Sales
Cost of sales were $697 million for the three months ended March 31, 2026, up 19% from $587 million for the three months ended March 31, 2025 primarily attributable to a 14% increase in volume in addition to 3% and 2% increases attributable to material costs and currency, respectively.
Cost of sales as a percentage of net sales was flat at 53% for both the three months ended March 31, 2026 and 2025.
Research and Development ("R&D") Expenses
R&D expense was $94 million for the three months ended March 31, 2026, up from $84 million for the three months ended March 31, 2025. R&D expense as a percentage of net sales decreased period over period from 8% for the three months ended March 31, 2025 to 7% for the three months ended March 31, 2026.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses were $173 million in the first quarter of 2026, up from $140 million in the first quarter of 2025. SG&A expenses as a percentage of net sales remained flat at 13% for both the three months ended March 31, 2026 and 2025.
Amortization of Intangibles
Amortization of intangibles was $52 million in the first quarter of 2026, down from $55 million in the first quarter of 2025. The decrease for the three months ended March 31, 2026 as compared with the same period of the prior year was primarily due to assets becoming fully amortized.
Transformation, Integration and Other Charges
Beginning in fiscal 2026, we present costs incurred in connection with the multi-year transformation plan described under "―Overview―Recent Developments―Transformation Plan," designed to strengthen operational productivity, enhance commercial and innovation excellence and optimize our presence in key markets, within a single operating expense line titled "Transformation, integration and other charges" in the Consolidated Statements of Operations.
Consistent with the update above, we combined our historical "Restructuring and other asset related charges" and "Acquisition, integration and separation costs" into the expense caption, "Transformation, integration and other charges" to simplify our presentation and better reflect how management evaluates these activities. Prior period amounts presented in this Quarterly Report on Form 10-Q have been recast to conform to the current period presentation. This change in presentation did not affect total operating expenses, operating income, net income, earnings per share, or cash flows for any period presented.
Transformation, integration and other charges were $28 million in the first quarter of 2026, up from $17 million of charges in the first quarter of 2025. The activity for the three months ended March 31, 2026 primarily consisted of costs incurred to support our information technology independence initiatives of approximately $24 million, costs related to transformation initiatives of approximately $2 million, and other integration-related costs of approximately $3 million. The activity for the three months ended March 31, 2025 consisted of charges for severance and related benefits. The entirety of these charges related to DuPont-approved restructuring programs that were initiated prior to our separation from DuPont into an independent publicly traded company.
See Note 4 to the unaudited interim Consolidated Financial Statements for additional information.
Equity in Earnings of Nonconsolidated Affiliates
Our share of the earnings of nonconsolidated affiliates was $13 million in the first quarter of 2026, up from $9 million in the first quarter of 2025. The increase for the first quarter of 2026 as compared to the same period of the prior year is due to higher earnings in the underlying nonconsolidated affiliates. See Note 10 to the unaudited interim Consolidated Financial Statements for additional information.
Interest Expense
Interest expense was $61 million for the three months ended March 31, 2026. There was no interest expense for the three months ended March 31, 2025. Interest expense in 2026 was driven by interest associated with the Secured and Unsecured Notes and the Senior Secured Term Loan Facility (each as defined in Note 14 to the Consolidated Financial Statements in the Annual Report). See Note 12 to the unaudited interim Consolidated Financial Statements in this Quarterly Report for additional information.
Other Income (Expense) - Net
Other income (expense) - net includes a variety of income and expense items such as interest income, indirect legacy (costs) and benefits and foreign exchange gains or losses. Other income (expense) - net was $5 million of expense in the three months ended March 31, 2026, as compared to $2 million of income for the three months ended March 31, 2025. See Note 6 to the unaudited interim Consolidated Financial Statements in this Quarterly Report for additional information.
Provision for Income Taxes
Our effective tax rate fluctuates based, among other factors, on where income is earned and the level of income relative to tax attributes. For the three months ended March 31, 2026, the effective tax rate was 25.7%, compared with 19.1% for the three months ended March 31, 2025. The increase in effective tax rate in 2026 relates to a limitation on the deductibility of interest expense and higher tax costs on the remittance of foreign earnings, partially offset by a reduction in foreign tax costs.
SEGMENT RESULTS
Our measure of profit/loss for segment reporting purposes is Adjusted Operating EBITDA as this is the manner in which our CODM assesses performance and allocates resources. We define Adjusted Operating EBITDA as earnings (i.e., "Income (loss) before income taxes") before interest, depreciation, amortization, non-operating pension / other post-employment benefits ("OPEB") / charges, and foreign exchange gains / losses, indirect legacy costs, and adjusted for significant items.
SEMICONDUCTOR TECHNOLOGIES
Semiconductor Technologies Three Months Ended
In millions March 31, 2026 March 31, 2025
Net sales $ 722 $ 644
Adjusted Operating EBITDA $ 263 $ 247
Equity in earnings of nonconsolidated affiliates $ 13 $ 11
Semiconductor Technologies Three Months Ended
Percentage change from prior year March 31, 2026
Change in Net Sales from Prior Period due to:
Local price & product mix
- %
Currency
-
Volume
12
Portfolio & other
-
Total
12 %
Semiconductor Technologies net sales were $722 million for the three months ended March 31, 2026, up 12% as compared to $644 million for the three months ended March 31, 2025. Net sales increased due to a 12% increase in volume. The increase in sales volume was due to ongoing end-market demand strength related to improved customer utilization rates and growth in AI driven applications, particularly in advanced nodes, including advanced packaging and high bandwidth memory.
Adjusted Operating EBITDA was $263 million for the three months ended March 31, 2026, up 6% as compared to $247 million for the three months ended March 31, 2025, primarily due to volume growth partially offset by select growth investments primarily within R&D.
INTERCONNECT SOLUTIONS
Interconnect Solutions Three Months Ended
In millions March 31, 2026 March 31, 2025
Net sales $ 593 $ 474
Adjusted Operating EBITDA $ 169 $ 114
Equity in earnings (losses) of nonconsolidated affiliates $ - $ (2)
Interconnect Solutions Three Months Ended
Percentage change from prior year March 31, 2026
Change in Net Sales from Prior Period due to:
Local price & product mix
(1) %
Currency
3
Volume
23
Portfolio & other
-
Total
25 %
Interconnect Solutions net sales were $593 million for the three months ended March 31, 2026, up 25% from $474 million for the three months ended March 31, 2025. Net sales increased primarily due to a 23% increase in volume and a 3% favorable currency impact slightly offset by a 1% decrease in local price and product mix. The increase in sales volume was due to continued demand strength from AI driven technology ramps and new business gains in advanced packaging, AI PCB and thermal management. The favorable currency impact was primarily driven by the euro.
Adjusted Operating EBITDA was $169 million for the three months ended March 31, 2026, up 48% as compared to $114 million for the three months ended March 31, 2025, primarily due to an increase in sales volume, favorable mix and productivity gains.
CHANGES IN FINANCIAL CONDITION
Liquidity & Capital Resources
Information related to the Company's liquidity and capital resources can be found in the Annual Report, Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." Discussion below provides updates to this information for the three months ended March 31, 2026.
We continually review our sources of liquidity and debt portfolio and may make adjustments to one or both to ensure adequate liquidity and increase our optionality and financing efficiency as it relates to financing cost and balancing terms/maturities. Our primary source of incremental liquidity is cash flows from operating activities. Management expects the generation of cash from operations and the ability to access the debt capital markets and other sources of liquidity will continue to provide sufficient liquidity and financial flexibility to meet the Company's and our subsidiaries' obligations as they come due. However, we are unable to predict the extent of macroeconomic related impacts which depend on uncertain and unpredictable future developments. In light of this uncertainty, we have taken steps to further ensure liquidity and capital resources, as discussed below.
Our cash and cash equivalents at March 31, 2026 and December 31, 2025 were $857 million and $915 million, respectively. Cash and cash equivalents held by subsidiaries in foreign countries were $703 million and $640 million as of March 31, 2026 and December 31, 2025, respectively. For each of its foreign subsidiaries, we make an assertion regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated to the United States. We held no investments in marketable securities at March 31, 2026 and December 31, 2025. Refer to subsequent paragraphs for drivers of the change in cash and cash equivalents.
Cash flows from operating, investing and financing activities are provided in the tables that follow. Individual amounts in the unaudited interim Consolidated Statements of Cash Flows exclude the effect of exchange rate impacts on cash and cash equivalents, which are presented separately in the cash flows. Thus, the amounts presented in the following operating, investing and financing activities tables reflect changes in balances from period to period adjusted for these effects.
Summary of Cash Flows
Our cash flows from operating, investing and financing activities, as reflected in the unaudited interim Consolidated Statements of Cash Flows, are summarized in the following table.
Cash Flow Summary
Three Months Ended
In millions
March 31, 2026 March 31, 2025
Cash provided by (used for):
Operating activities $ 135 $ 207
Investing activities $ (123) $ (104)
Financing activities $ (59) $ (109)
Effect of exchange rate changes on cash and cash equivalents $ (11) $ 2
Cash Flows from Operating Activities
In the first three months of 2026, cash provided by operating activities was $135 million, compared with $207 million in the same period last year. The decrease in cash provided by operating activities is primarily related to payments of interest on our long-term debt, which was not outstanding as of March 31, 2025.
Cash Flows from Investing Activities
In the first three months of 2026, cash used for investing activities was $123 million, compared with $104 million in the first three months of 2025. The increase in cash used for investing activities is attributable to higher capital expenditures.
Cash Flows from Financing Activities
In the first three months of 2026, cash used for financing activities was $59 million compared with $109 million in the same period last year. Cash used for financing activities decreased primarily attributable to the absence of net transfers to Parent compared to the prior period, partially offset by current period purchases of common stock and payment of dividends.
Material Cash Requirements
In the normal course of business, we enter into contracts and commitments that oblige us to make payments in the future. Information regarding our obligations under lease, debt, commitments and pensions and is provided in Note 6, Note 12, Note 13 and Note 15, respectively, in the interim unaudited Consolidated Financial Statements for the three months ended March 31, 2026 and 2025 of this Quarterly Report. We expect the generation of cash from operations and the ability to access the debt capital markets and other sources of liquidity will continue to provide sufficient liquidity and financial flexibility to meet our obligations, and those of our subsidiaries, as they come due.
Debt
Total debt at March 31, 2026 and December 31, 2025 was $4,023 million and $4,027 million, respectively. As of March 31, 2026, we were in compliance with all applicable covenants included in the terms of our debt arrangements.
As of March 31, 2026, we are contractually obligated to make future cash payments of $4.1 billion and $1.6 billion associated with principal and interest, respectively, on debt obligations. Related to the principal, $23 million will be due in the next twelve months and the remainder will be due subsequent to March 2027. We may address the principal payment with cash on hand, utilizing existing credit facilities, accessing the debt capital markets or a combination of any of them. Related to interest, $241 million will be due in the next twelve months and the remainder will be due subsequent to March 2027.
We rely on cash from our own operating activities, borrowings available under our Senior Secured Revolving Facility, and access to the capital markets to fund our operations. The servicing of this debt will be supported, in part, by cash flows from our existing operations. The cost and availability of debt financing is influenced by our credit ratings and market conditions.
Dividends
On December 9, 2025 the Board of Directors declared a quarterly dividend of $0.08 per share for each share of issued and outstanding common stock of the Company. The dividend was paid on March 16, 2026 to stockholders of record on February 27, 2026.
On April 15, 2026, the Company announced that its Board of Directors declared a quarterly dividend of $0.08 per share payable on June 15, 2026, to stockholders of record on May 29, 2026.
Recently Issued Accounting Pronouncements
For a discussion of recently issued accounting pronouncements, see Note 2 to the unaudited interim Consolidated Financial Statements in this Quarterly Report.
Critical Accounting Estimates
There have been no material changes in our critical accounting estimates from those disclosed under the heading "Critical Accounting Estimates" within Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report.
Qnity Electronics Inc. published this content on May 12, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 12, 2026 at 16:19 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]