Q1 2020 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Cabot Microelectronics first quarter fiscal 2020 earnings conference call. At this time all participants are in listen only mode. After the speaker presentation, there will be a question and.
Answer session to ask a question. During this session you want me to press Star one on your telephone if you require any further assistance. Please press star zero I would not only to hand the conference over to your Speaker Ms. Colleen Mumford Vice President of Communications and marketing. Please go ahead man.
Good morning.
With me today, or even the president and CEO and Scott Beamer, Vice President CFO.
Last night, we reported results for first quarter fiscal 2020, which ended December 31st 2019.
No you're joining us on line or over the phone we encourage you tribute investors.
On T. shirts that we've made available under the quarterly results section Investor Relations Center on our website Cabot CMP dotcom.
A webcast of today's conference call and stricter this morning's prepared comments well also be available on our website. Shortly after this conference call.
You may require any information for calling aren't.
That's relations officer, Sixthree 0499 to six year on year.
Please remember that our discussion today may include forward looking statements that involve a number of risks uncertainties and other factors that could cause actual results to differ materially from these forward looking statements.
These risks.
Factors are discussed in our SEC filings, including our form 10-K fiscal year ended September Thirtyth 2019.
We assume no obligation to update any of this forward looking information.
Also I remarks, this morning reference certain non-GAAP financial measures, including adjusted and adjusted pro forma results.
Our earnings release and slide presentation include a reconciliation of each non-GAAP financial measure to than years comparable GAAP financial measure.
We also provided supplemental pro forma information in this quarter and they really which compares current results as its Cabot microelectronics on KMG chemicals during the comparable period.
Last year.
Additionally, theater reflects round of values throughout this discussion and any accompanying slide presentation.
I'll now turn the call over to Dave who is joining us from Asia.
Thanks, calling last night, we announced results for our first quarter fiscal 2020.
He set another record for quarterly revenue achieving $283 million.
Which is 28% higher.
Compared to the same period last year.
[laughter].
First quarter revenue, which increased by 2% sequentially.
<unk>.
Ceded our previously provided guidance.
Was driven by a strong increase in sales Oh CMP slurries.
And drag reducing agents or do you all right.
We believe our results reflect continued recovery in the semiconductor industry.
Right.
As we saw stabilization in demand.
The memory sector.
And ongoing improved demand from our foundry and logic customers.
And our pipeline performance products higher DRA sales were broad based.
Thank.
Came from both U.S. and international customers.
We also continued our track record of delivering best in class profitability.
Well the strong free cash flow.
Which we believe is a reflection of the strength of our business model.
As well.
Our continued operational discipline and execution.
Now, let me provide some additional thoughts on industry conditions and outlook.
Starting with electronic materials.
As stated we have seen continued stabilization in demand from our.
Memory customers.
Growing demand for memory has resulted in lower chip inventories and should lead to increased utilization, which in turn should drive higher demand for products.
In addition, recent indications of in.
True DRAM and NAND memory chip pricing.
Has given us additional optimism.
Continued recovery.
We also saw strengthened demand from foundry and logic customers this quarter.
And we would expect this trend to continue through fiscal 2000.
As many as these customers ramp up their production of advanced technology nodes to support new consumer devices as well as emerging trends such as Fiveg technology.
Lastly, we're also seeing encouraging forecasts from legacy logic customers and.
U.S. in Europe.
Driven by higher demand expectations from infrastructure.
I don't see and automotive markets.
Looking ahead, while our fiscal second quarter is historically seasonally soft.
Based on what we.
Our first quarter and the positive signals, we had been saying prior to the lunar new year.
From a number of our customers and industry analysts, we expect electronic materials revenue for the second quarter.
To be approximately flat to up low single digits.
Compared with our strong first fiscal quarter results.
In the performance materials segment, we're seeing continued oil production increases in the U.S.
Primarily in the Permian region.
And expect for this trend to continue through 2021 and beyond.
Our north American customers are building additional pipeline infrastructure to approve take away capacity.
And we see increasing adoption of DRA internationally.
Which should translate into additional demand for our products.
Our targeted investments adds significant.
Asked me to our DRA business is already underway.
And we'll see an important addition to support future growth.
For this exciting business.
Looking forward, we expect revenue from our performance materials segment to be up low single digit sequentially in the second.
Quarter.
Driven by continued strength in DRA demand.
Lastly, I would note that we are closely following the situation related to the novel Corona virus.
And are working closely with our teams and customers around the world to ensure we are in the best position just.
Fourth them, given this uncertain and challenging environments.
We are proud of our record results this quarter, which we believe were driven by continued strong execution.
Participation in the most challenging and leading edge technologies.
And an improving semiconductor demand environment.
Looking forward, we expect to build upon our strong results quarter. It continue driving best in class performance and profitability from our businesses in 2020.
With that I'll turn the call over to Scott.
To provide more details on our financial results.
Thanks, Dave and Hello, everyone.
My comments will generally follow the slide presentation, we posted on our website last night, along with our press release.
Start on slide four which provide some higher level quarterly PNNT comparisons for both.
Reported and adjusted results.
First quarter revenue was $283 million was a record for our company and increased 28% compared with the same quarter last year.
When we include the six weeks of the KMG business that we did not own in the prior years.
Revenue was essentially flat as growth in the performance materials segment offset declines in the electronic materials segment.
Adjusted gross margin was up slightly versus the prior year due to a favorable impact of certain manufacturing cost, which was mostly offset by unfavorable.
Oh product mix as Slurries volume was lower.
These manufacturing cost are likely to reverse out throughout the remaining quarters and have will have a net zero impact for the full fiscal year.
Even with the flat revenue adjusted EBITDA improved by approximately.
Some at least $6 million, mostly from lower SGN, a expenses, primarily incremental synergies delivered to the piano.
Overall, our adjusted operating expenses declined approximately $4 million year over year.
Synergies reduced operating expenses by approximately.
Only 5 million.
And were partially offset by higher professional fees.
Adjusted EBITDA was $95 million were 33.6% of revenue however, excluding the impact of the timing of certain manufacturing costs adjusted EBITDA margin would have been.
Closer to the full year fiscal 2019, EBITDA margin of 31.4%.
I would like to remind everyone that we believe that our fiscal 2019 EBITDA margin continues to be an appropriate short term expectation.
While our long term estimate continues to be 30.
5%.
Also our second fiscal quarter is typically lower in terms of our EBITDA margin compared to our first quarter due to additional costs such as merit increases.
Our reported net income was 30 $139 million or a dollar.
Our 30 per diluted share in the quarter.
Adjusted net income was $57 million.
Flat compared with the adjusted pro forma net income in the first quarter last year.
Overall net income benefited from the lower S. DNA expenses.
Timing of certain.
Factoring pause.
And lower interest expense.
These items were offset by unfavorable product mix and our tax rate returning to a normalized level after being abnormally low in the prior year.
The prior year tax rate benefited from a higher level of acquisition related.
<unk> expenses and an increased quantity of stock options exercised during that period.
Diluted EPS was $1.30 per share adjusted diluted EPS was $1.90 to 1.5% lower than adjusted pro forma S and the same quarter last.
Last year prior primarily due to a higher number of shares outstanding.
Now, let's discuss revenue results by segment and business, which are shown on slide five.
Electronic materials, which contributed 78% of our quarterly revenue reported eight.
10 million dollar or approximately 4% decline in revenue compared to the pro forma revenue last year.
CMP Slurries revenue declined 3%, primarily driven by difficult year over year comparisons.
And a softer demand from memory customers.
Electronic chemicals revenue also declined 3% versus pro forma revenue in the same period last year.
As a result of lower demand from legacy logic applications in the U.S. in Europe.
After several years of robust growth CMP pads reported a revenue.
Crease of approximately 15% from last year.
Due to lower demand from certain memory customers.
Well as the phasing out of legacy pads at certain foundry customers.
Looking ahead, we believe that we have a strong pipeline of opportunities to continue to gain business with.
The more adoption of our Nexplanar product line in both legacy and emerging applications.
Moving to performance materials revenue increased approximately $9 million were 18% over the pro forma revenue in the prior year to a record level in the quarter.
The increase was driven primarily by growing demand for DRA is both domestically and internationally, but was partially offset by difficult comparisons in our Q we de business.
Slide six shows revenue and adjusted EBITDA by segment as a reminder.
We updated our methodology for assigning corporate allocations by adding some more of the corporate costs directly into the segments to better reflect the true cost within the businesses.
As a result, corporate unallocated costs declined while corporate cost allocated to the segments increased.
During the quarter.
Electronic materials delivered around $81 million of adjusted EBITDA and was 37% of segment revenue declined versus 39% reported last year.
That is due to the change in the allocations the additional six.
So the electronic chemicals revenue and lower CMP Slurries revenue.
Performance materials, adjusted EBITDA was approximately $27 million, which was 44% of segment revenue an increase from 42% in the prior year due to the additional six.
Weeks of pipeline performance revenue, partially offset by the change in allocations.
Now please refer to slide seven which provide some balance sheet and cash flow highlights.
We ended the quarter with $194 million of cash on hand and $97 million.
Total debt.
We generated cash flow from operations of $48 million and our capital expenditures were 26 million in the quarter.
As a result, our free cash flow was $22 million.
Finally on slide eight we provide some forward looking expectations.
For the second quarter fiscal 2020, we currently expect total company revenue to be approximately flat to low single digits compared to our first fiscal quarter.
We expect revenue went electronic materials to be approximately flat to up low single digits and revenue in performance materials to be.
Up low single digits.
Within the electronic materials segment, the expectation is approximately flat to up low single digits, even though our second quarter is typically softer on total revenue as there are fewer shipping days, then our first quarter because of the lunar new year in February.
Where he being a shorter month.
This guidance does not include any potential impact on our demand for products due to their corona virus.
For the full year fiscal 2020, we continue to expect EBITDA to be in the range of $350 million to $380 million.
Colors.
We expect our fiscal 2020, EBITDA margin to remain at or slightly better than the 31.4% EBITDA margin, we delivered in fiscal 2019.
After successfully refinancing our debt at the end of last quarter, we now expect our full year interests.
Expense, but to be between 45 and $46 million, reducing the top end of our range by $2 million.
To support future growth opportunities in our businesses, particularly in our pipeline products business, we plan to invest between 130 <unk> between 100.
Million and 130 and capital expenditures this year.
We believe that the spending is likely to be at the upper end of that range and we remain committed to meeting all of the stated objectives in our capital deployment program.
We continue to expect to meet our de leveraging target of two times net debt.
EBITDA by the end of our fiscal 2020.
In closing we believe our performance this quarter shows the strength of both our legacy CMC businesses and the acquired KMG businesses.
We delivered strong earnings in an uneven demand environment and consist.
With our track record continued to convert those earnings into positive free cash flow.
We then deployed the cash according to our stated priorities and believe we are making the appropriate investments to support the future growth and sustainability of our businesses.
Now I'll turn the call back.
So the operator as we prepare to take your questions.
Thank you as a reminder to ask a question you want me to press Star one on your telephone to withdraw your question. Please press the pound.
Please standby, while we compile the culinary roster.
Our first question comes from Toshiya Hari with Goldman Sachs.
Yeah, Hi, guys. Congrats on the strong results and thanks for taking the question I guess my first one is on your full year EBITDA Guide I. Appreciate you just reported your first fiscal quarter on.
The uncertainty around krona virus and all that but.
Dave I was trying to reconcile some of the positive comments you made on.
No the demand signals from your customers both on the memory side as well as the logic and foundry side, you know what the fact that you're maintaining the for your guys. If you can speak to that that will be helpful. On that I have a quick follow up.
I think two Sheila this is Scott.
From the you know where we're optimistic as Dave said and I think that you know as we think about our guide for the second quarter, which is the revenue piece that we provide we feel like that that's a front footed optimistic but yet realistic expectation of the flat to low single digit as as a company. We're just.
Reminding everyone that that second quarter is seasonally.
Lower in terms of EBITDA margin to the first quarter and as we think about that first quarter performance. You. We you I think it's helpful to just frame in for everybody we've reported.
Did that adjusted EBITDA of 95 million, that's a higher metric in a way that that's that's how that's an artificially higher so to speak because of these other manufacturing costs that I can provide more details on later, but the.
90 million, if we go back to the metric that we were running.
Running at previously this first quarter delivered that and we're saying the second quarter is going to be slightly lower than that metric of the 31 and a half and then we expect a stronger second half a year. So we feel optimistic I think the revenue in Q2 is you know I think that's a that's a.
The guidance, you're right, we're providing a pretty wide range on full year EBITDA right now and I think that you know that the.
We've decided to maintain that right now we think that's really consistent with some optimism.
Yeah. So she I'll just add onto what Scott mentioned, you know what we've done.
On traditionally as we put a range out there for you design.
As we get through the year will narrow that a bit obviously with the recorded results. The first quarter was very strong there was some sort of onetime manufacturing related items that we think will unwind itself, but from the industry perspective, you're right we're feeling.
Let me confident and optimistic from what we're seeing from our customers and that was reflected in our with again flat to up.
Sequentially.
[laughter] got it and as a quick follow up on on my first question the manufacturing cost a tailwind.
And in the first quarter and Scott I'm, sorry, if I missed the but did you guys quantify that and.
The headwind that we should assume in Q2 or the or the remainder of the or would that be mostly in the second quarter without being kind of spread across the remaining three quarters.
Yeah, but the way.
We we quantified it to a degree in a in the prepared comments. So she and I was just a provide the number here. It's about it's about $5 million of a pick up to this first quarter and that's really for background, it's an accounting nuance and.
And its related to.
Yes, I would say continuing to evolve our costing trend and and transparency around cost.
All of the cost are within margin.
So there's no geography issue across the P. and now they're all within margin, but the what we as we as we provide.
More transparency around our cost there's a group of the costs that are more related to the units produced as opposed to the passing of time or period costs. So when they're related to units produced it actually impacts your inventory. So again on accounting nuance that has a with an income picked up this quarter.
But it will be sold and I would say its phase.
Its face a little more its face more towards Q2 in Q3 and less in Q4 as it rolls off throughout the rest of the year. So no impact to that geography on the full European now no impact in total for.
For the full year, but yes. This.
You know this phasing so to speak between Q1 positive then a headwind in Q2, and three and less of a headwind in Q4.
And then Q2 for us to she had just to remind I think Scott mentioned in his prepared remarks.
Two is historically, a little lower because that's when merit increases kick in so it's.
It just happens to be based on the.
The times a year.
Okay. That's helpful. And then quickly my second question.
On your electronic chemicals.
So it was relatively flat in the quarter.
Maybe down a little bit on a pro forma basis, you guys are disproportionately exposed to a large north American.
Manufacturer in this business and I think that customers talked about potentially growing wafer capacity by 25% this year.
To support high single digit growth for there for their client business.
Should we expect a significant acceleration in this business for you in calendar 2020 or are there kind of offsets to that thank you.
Yes. Thanks, we we're really excited about electronic chemicals, as you mentioned, where we're strong in north.
Erika Ross was strong in Europe, and we also have a strong position in southeast Asia as well. So it's not just North America. Obviously, we're also seeing those kind of bullish comments and forecast from that particular, North American customer I think we're also optimistic about.
Europe as well because we see some things that are picking up there from more of the legacy applications.
But overall I'd say you know, though the long term growth trajectory. This business, we're really positive about it might not be a really really strong.
You know a growth quarter to quarter, but.
But longer term, we're we're really optimistic and confident about the growth of the business.
Great. Thank you guys.
Thanks Shannon.
Thank you. Our next question comes from Amanda Scarnati with Citi.
Good morning, and.
Good morning.
I am personally have is on that.
The pad business Scott I believe you mentioned not part of the weakness in the current quarter was due to a lots of legacy product hi boundaries can you just talk about those products are going to be replaced by new Cabot products and we should expect to see said for revenue left and the next couple of quarters off of that or if this was a complete loss.
Oh, that's business to be incremental space.
Yes, Thanks, Amanda So what Scott mentioned I was you know we have a.
Relation with some foundry customers were were phasing out legacy pads, we expect to replace though is with our nexplanar products, but we also saw a.
Hey, kind of a unique phenomenon this quarter, which was lower demand from a memory customer well. We also saw lower demand for slurry. This quarter. So and we think that was a combination of productivity improvements as well as just lower overall demand they haven't fully recovered and they're not running.
At full utilization so that effect would have been not just us, but the entire slurry and pad supply chain and that was the primary reason why pads was down.
This quarter as Scott also mentioned, we continue to be optimistic about the future growth trajectory of pads. You know we've had a number of of wins.
This quarter and we see a strong pipeline of opportunities going forward. So this is going to continue to be a growth engine for our company.
And then I'm very excited that there's no yeah, we've been hearing that oil prices are declining in part due today according to virus effect.
That impact the DRA businesses that doesn't do well or better when they're increasing oil prices, where did voluntarily volatility generally help that dairy business.
Yes, so what we've seen as again, we are strong and very.
We're participating very strongly in the growth in the U.S. primarily.
Thats, the Permian and what we've seen through a variety of different oil pricing.
Environments is that DRA demand continues to grow so we'd say, it's agnostic as sort of the oil pricing environment and I think it's much more of a function of the build out of the infrastructure that's going on.
On the U.S. as well as internationally, so we think again.
There is some uncertainty with <unk> with the virus in overall oil output, but in terms of Transportational oil, we see that theres going to continue to be strong growth. In DRA is we're also winning business from existing customers.
So we're really excited about our direct business and see continued growth in the future.
Great. Thank you.
Thanks Amanda.
Thank you. Our next question comes from Chris caps with loop capital market.
Hi, guys.
Yeah good morning.
The question about the commentary about less favorable product mix I'm on a year over year basis in the December quarter on an adjusted basis. So you know the.
If you look at your <unk> the the quarter you had the.
The dairy business the growth rate was.
As.
You know very strong and higher than electronic materials and given the EBITDA margins the that segment I'm, assuming that the gross margins or or or above corporate average maybe that's not about maybe that is not a good assumption, but and then you're the pad business, which is I think carries below.
Average margins were down sharply so I'm just trying to reconcile what what's going on there with mix, maybe it's just that the H.P.P.C. business was the growth there was pronounced perhaps in North America.
Any details around that would be helpful. Appreciate it.
Yes.
Yeah.
Chris I think that Youre. Your your first you're right in your assessment that Dart performance materials segment.
Grow as <unk> growing faster and is more profitable I think that within within electronic materials, we have the dynamic of versus prior year.
Slurries was down and we didn't we show that on our in our materials in the slide versus prior Slurries was down which has a pretty significant impact to our total company on a mix perspective sequentially Slurries was up that's part of our optimism in terms of stabilization and.
Memory for example, but as we're comparing to the prior year the impact of Slurries revenue being down which we reflect then in the slides. It was down from you know it was down about 3% that has a negative impact on the total company.
Earnings return, Okay. So the the.
Then just extrapolating from that comment it sounds like the <unk>. The the downs flurry is probably most pronounced in a in products addressing the memory market. Correct. Then that's all right and yeah and then.
The other question I had was in your guidance given the.
Negative year over year growth and pads, what what's your assumption for the pad business for the full year, you expect that with the down 15% in the first quarter you expect it to.
Achieve flat year over year revenues for the full year.
Yeah. Thanks, Chris you know we haven't provided.
Guidance for pad, specifically, it's obviously an important product line for us and we see a strong growth potential from it as we we've grown that business for the last several years and this is the first time, we've seen a decline there what we I think pads is also.
Subject to some of the same dynamics, where we haven't seen a full recovery, especially in the memory area, yet and so when that happens we'd expect demand to also pick up. It also takes some time for those new wins to ramp up as well and pads. So although we haven't provided annual guidance for.
Pads I think it's one of those product lines that were focused on to drive growth for our company in the future.
Okay appreciate the comments.
Thanks, Brad.
Thank you. Our next question comes from Mike Harrison with Seaport Global Securities.
Good morning, Mike.
Hi, good morning.
I had mentioned last call that you expected some of your growth investments to be elevated during fiscal 20 I was wondering if you can give us an update on maybe the cadence or timing of some of those growth.
Investments I did we see any of that higher spending his PML in Q1 or is it maybe a time such such as it'll it'll hit later in the year.
[noise] no impact to the PM now Mike.
We we provided that we spent 26 million in corridor and we mentioned.
That were trending and expect to be at the high end of that range that we gave which would be close to 130 million. So we're really excited about the businesses that we have our number one priority for deploying our cash as in our existing businesses to grow organically and we're pleased with the progress.
First of all of our projects and were very.
Very optimistic and you know Big project does as you know as the expansion of capacity and the pipeline performance business and were excited and where we're on track with that project things are progressing well and we're you know we're excited about participating.
And what we believe is going to continue to be a growing and very profitable market for us.
Alright, and then.
You can talk about the competitive dynamics that you're seeing particularly within tungsten Slurries you had.
Actually some new entrants are people talking about entering that market.
Any changes you've seen in tungsten Slurries recently.
Yeah, Mike It's Dave Thanks for the question Yeah, nothing has really changed in the competitive environment I think others, that's not surprising that others have talked about trying to get into the.
Segment, given our success, but we continue to innovate and we feel like Theres really no changes to the competitive environment, we feel really good about our positions, especially in the memory area. So we feel really good about our our physicians and tungsten.
And then last question for me is if you can comment so any thoughts on the potential sale of the Dupont electronics in imaging business.
Maybe talk a little bit about how you view them as a competitor and is it a concern that they could end up in the hands of new owners or maybe combined with another.
Another player out there. Thank you.
So sorry, yeah, obviously were falling that closely and we know that business well, it's not the first time that that business has changed hands right. So the pad business started out in rodale went to rohm and Haas, and then Dow and Dupont.
And I think they've they've obviously got their focus on that business throughout those transitions. That's what I would expect going forward. If it changes, but I think we feel really strongly I think we've demonstrated our ability to grow our pad business through the last several several years so.
It's something we're watching closely.
I think it's just that continued I'm sort of the a consolidation and acquisitions have been going on in the space, but again, we don't really see that changing that competitive dynamic, especially since that specific business within Dupont that has businesses has changed in several times.
Alright, thanks very much.
Thanks, Mike.
Your next question comes from David Silver with CL King.
I mean at good morning.
Yeah good morning.
So I am a few questions. The first one I admit up front is gonna be a.
It'll odd but.
In comparing my model a modeling of urea my income statement to the actual you know there were a couple of disparities and Scott talked about one on the.
Cost of goods sold line, but just more broadly I'm kind of scratching my head I know in the fourth quarter.
You took a big asset impairment charge for the wood treatment business.
And I guess that business still operating and I'm. Just wondering you know from from my perspective, I mean I'm. Just wondering if there are some changes or what was the effect of the fourth quarter 29.
I mean, right write down of the wood treatment business on your first quarter fiscal 20 results in other words, where there's some fixed costs that were in there in the past couple of quarters, but have been removed or that's you know or some other things out how you know is there any way for you to.
You qualitatively maybe discuss the.
Yeah sure sure David.
First yes, the charge that we took last quarter was a write down of intangible assets not tangible not fixed assets. So there's a certain valuation that was.
Initially put on the books when we expected the run the business indefinitely, once we announced our plans to.
Take a strategic action on the business and we would exit that business as a as one of the potential scenarios by the end of fiscal or by the end of calendar 21 that.
Juices the value that's on our that's on our books at the time, so that was a onetime noncash charge last quarter not related to any fixed assets. So there's no structural change to that business in the first quarter or anything in the financials going forward after that.
Okay. So you're just saying I can't I'm no. Good at modeling you're hearing no no no.
Right now I.
I mean, if I'm, adding anything further to the comment I'd just say you have right. The what business today, we have said in previous and we've given some dimension.
Runs about that business previously it's within the performance materials business. It's a slower growth area, then something like DRA is the profitability is consistent with the rest of this segment and you know it continue we continue to run it we're going to optimize the business are.
Priority is is working with our customers to ensure supply and to make sure that we.
Continue to work with our customers to get to the best outcome possible.
In the meantime, we're running the business the businesses in our is within our ongoing operations and it's contributing and it's contributing earnings and.
Cash flow to the company.
Okay. Thank thank you for that just you know just just wondering about at last night in this morning.
Second question would be about the pads.
Business and does in many good questions about it but.
I'm picking up on David.
Oh man.
Now I have on two things one is the the end of some legacy pad business that you highlighted but then David's comments.
About some new wins and I'm just wondering if there are some takeaways from our person perspective about the competitive nature of that business.
So in other words.
Our the wins indicative of a shift in industry preference for pad set right.
And then I would also be interested if.
You know the win that you've had.
Would in any way be indicative.
You do have a shift in the industry.
Towards you know the polishing of new where materials different deposition materials or whatnot or different different metals. So.
Qualitatively how would you characterize.
Paring the loss of some legacy business with some.
And then the addition of some new business.
What might be the one or two key trends.
At this point in the development of your Peds business, we might take away. Thank you.
Yeah, Thanks, David so for pads in the wins.
Without going to each one in detail we saw.
Really broad base, we saw wins in memory logic, and foundry and legacy knows and advanced nodes. So really a broad base than I think it just validates our value proposition of pads and that customers are finding.
Benefits from our solutions you also asked about the kind of slurry and pad together we are.
Getting more advanced and have more introductions, where we're bringing that consumable set to customers and are proving out that there is unique performance with both if you use the slurry and pad.
Together, because they've been developed together.
But I still think thats in the early stages, but yeah. The wins, we've seen our really across the board both at both advanced technology and more legacy knows.
Okay. Thanks for that and then just maybe the last the maybe.
Just a last com question would be asked for commentary or color.
On.
Your expectations for you know the a new business five T that you talked about.
Automobiles I. I O T I think.
For the slurry business, though so once again are somewhat analogous but.
Would the new business that you're anticipating in terms of metals and electric versus the.
Other other materials I mean would you say it again your your book of business.
Mix or.
It is representative of your current book or would you say that again there might be until.
Towards newer materials or within your mix you know.
Other areas other than your traditional strengthened tungsten are starting to emerge. Thank you.
Yes.
I think just starting with Fiveg Theres, obviously, a lot of excitement and act activity with the Fiveg filled out I think most of that is base stations today and that that's not.
Requiring necessarily the most advanced chips, where we have very strong positions in legacy.
He's obviously with that technology technologies like Fiveg enable our new types of devices, new consumer devices, I think sooner or later everyone's going to have a new handsets as fiveg enabled and that's going to take more advanced memory advanced logic and.
I think we're very.
Confident and excited about our positions in those advanced technologies and in fact, that's what drove some of the growth. This quarter was growth in advanced technologies in logic and foundry logic and foundry was strong last quarter was strong this quarter as well and really driven by you know that that.
Bush into advanced technology. So as you would expect as the technology leader, we like it when the technology continues to advance and we feel really good about our position there so equal contribution from sort of legacy and advanced technology in Fiveg actually covers the spectrum of those though right.
Yeah. Thank you for that I had my question. The wording of my question was in precise and <unk> and effect. There was this can get to connect a couple of thoughts for me, but thank you for that I appreciate it.
Hey, David Thanks, Steven.
Thank you. Our next question comes from Rosemarie Morbelli with GE research.
Thank you.
Good morning, everyone. Oh I was just wondering if you could talk a little bit of so I'm a little bit more of the.
About the performance material and Doug you have mentioned, yeah raised and they came to you to close in the new pipelines.
Gross also Oh pipelines.
Beginning to use your age, but you didn't mention anything about the specialty lubricants. So could you talk really debate about that segment.
Yes, sure Rosemary So obviously, we consider that also critical to the solutions that we're providing to the pipeline operators, it's actually its a.
Much smaller piece of the business that versus the DRA portion and the DRA portion is really what sort of.
In growing the strongest but yes, we are providing critical sealants and services around those styles that business tends to be a little bit more.
Sure.
Theres a portion of it that's that's more stable and there's a portion of it that sort of more episodic where we get called out into the field. When there's an issue where there needs to be an upgrade. So that's not you know we think we have very strong positions. There we feel really good about our solutions, but we don't feel like that necessarily.
We're going to drive the growth like DRA are going to drive as they have been.
And following up on that Oh are you also selling those two weekends, oh, making progress in selling it for industrial applications and are there any if you could touch on the M&A.
Potential regarding that particular segment or any other segment of the company.
Yeah. That's it that's an interesting question, we're always looking at opportunities to strengthen the portfolio, obviously, where you were into this pipeline solutions area, but we do think.
There are opportunities to strengthen through.
Acquisition, so we've been pleased that.
Being able to widen the aperture and we're looking at those opportunities as as you would with any others I think it just in terms of the company. What we think about in terms of the opportunity pipeline is.
There's a number of opportunities that were there.
We're always assessing and there they range from from kind of small bolt ons to to larger ones and we're going to be focused on the ones that can strengthen our position strengthened our technology and of course provide the best value to our to our stakeholders. So we're always assessing M&A opportunities and the pipeline.
It looks pretty good at this point.
And when you mentioned that looking at large ones as well would jobs ones being mostly in the electronic materials category.
Yeah, what we said is our preference because obviously, 80% of our businesses and electronic materials. That's all.
Really spent a lot of time and energy building up resources and the channel that would be our preference is she can find something in that space. We know it very well and I think our customers are always asking us for more and different products that we can supports and that would be the natural if it's.
Outside of that space than it has to be something that's very complimentary to our core competencies and probably growing and even faster rate to compensate for the the additional risk.
Electronic materials would be our primary focus.
Thank you and.
Going back to.
Pent up can you update us as to where you stand intends to eat that walking out of the business selling it. If my memory serves me right. It has a very strong lodging profile and also generates large quantities of cash flow, which.
Really to you on your balance sheet once youre on once you do something with it can you address that.
Yeah, Rosemary I know you know that business very well following that for many years you know that is a business that is profitable as Scott mentioned it doesn't have the growth.
Dynamics that we're looking for its more of a kind of a slow grower and in terms of just the.
The transition that's needed to sustain the business what we talked about last quarter is just our decision to not build the the plant that would be required to sustain it beyond.
The end of 2021, so we wanted to get that communication out there. So that we could have give our customers plenty of time to work with us on the transition.
As Scott mentioned that business continues to operate.
Normally right now and we're still working through that transition.
And of course will update everyone, if theres any sort of material change to the business.
As we continue to two winding down.
Unless Keith Thanks, Judy.
Hi.
Yeah, we have we actually have to more on questions I like any fine.
Oh, so I'm would it be.
Okay. If we put you back in queue in realtime absolutely.
Okay, great. Thank you.
And then I'll remind you ladies and gentlemen, if you would like to ask a question. Please press Star then one our next question comes from Krish Shankar with Cowen.
Oh hi.
Thanks.
Good morning, Thanks for taking my question I, just had a quick ones would do that in a wonderful memory customers than the move to once when you live in that you're going to go from floating gate to replace Glen Gate and looks like the oxide nitrate multi stack might be replaced with tungsten some kind of curious David from your vantage.
Would that be incremental a neutral opportunity on would be a debt to men for Cabot.
Yes, I think that's an exciting technology, there's a variety of different ways. Our customers are planning to get above the kind of 100 ex layer technology, and we're working closely with them I.
Say it in just about every integration scheme that I've seen that incremental CMP or integration scheme is beneficial to us because were very strong of course in tungsten. We also very strong position electrics and in some cases, we're working really really closely with those.
Customers to make sure that they're able to achieve the tolerances that they're trying to get done it within C and d. So we see that is definitely a positive in play into our strength.
Thanks, David Thank you.
Thank you. Thank you and we do have I follow up from Rosemarie Morbelli.
Belly with GE V. change.
Thank you well first I apologize for holding to fund for long.
Oh. This is this is just a quick question regarding the Corona virus, if I had probably you know taking into consideration <unk> impact.
So my end to send.
Thing is that usually they shut down doings lunar new year is about four to five days a theme here is there was an extra week and potentially and makes that two weeks.
What is in your NIM steel hubs that takes a week and you are waiting to see what.
I will stabilize.
Yeah, Thanks, Rosemary and obviously I think it's something that's on everyone's mind and China, certainly an important region for us and it's going to continue to be a growth region for us in the future.
In terms of virus it to developing situation.
And as you might imagine you know first and foremost were.
Focused on the home.
And safety of our teams around the world, but especially in China, where we have a really.
Great dedicated customer service in sales team, we don't manufacturer in China. So so fortunately, we're not affected in that way, but we're trying to do everything we can to support our.
Interestingly as we monitor the situation and it's obviously still developing what we've heard is that customers in China are continuing to produce.
Even as they come out of the lunar new year. So you know again I don't I don't want to go out there and make any.
Predictions, it's a dynamic situation, but it seems like that can the customers continue to operate even under this sort of challenging environment.
Alright, thank you.
Thanks Rosemarie.
Speakers I'm showing no further questions in the queue at this time I would now.
I'd like to turn the call back over to management for any closing remarks.
Great. Thank you.
I did not have questions. After this morning. Thank you for your time and your interest in Canada, China and have a great.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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