Q4 2019 Earnings Call
Good day, everyone and welcome to <unk> score.
Earnings release call.
Today's call is being recorded.
Time, <unk> opening remarks in introduction I would like to turn the call.
Do you built see me Vice President Investor Relations. Please go ahead Sir.
Good morning, everyone earlier today, we announced financial results.
Quarter 2019.
Oh, we begin I'd like to remind listeners that our comments today will include some forward looking statements.
These statements involve a number of risks and uncertainties and actual results could differ materially from those projected to the forward looking statements additional information regarding these risks and uncertainties are contained in our most recent annual report and subsequent quarterly reports that we have filed with the FTC.
Please refer to the information on the disclaimer slide in the presentation.
All this call. We will also work virtually non-GAAP financial measures as defined by the FTC gotten regulation G. You will find a reconciliation table in today's press release as well as all the Investor Relations page of our website.
Entegris Dot com.
On the call today are probably our CEO and great raise our CFO.
Before I turn the call or whatever trod in case, you Didnt see it.
Recently set out to save the date for 2020, Investor and Analyst day, which will take place on May 11th in New York will be sending out the that detailed in registration information in the near future.
Oh and to go over to patrol.
Thank you Bill.
I wouldn't make some comments on our fourth quarter and <unk> performance and provide our view on how we see things going into 2020.
Greg would follow with mortgage <unk> financial results in our guidance for the first quarter.
Well then open the line for questions.
Hi, I'm really pleased with how strong performance in the fourth quarter, which resulted in record sales.
Yes.
Reported played out largely as we expected.
It's grew 8% sequentially and 6% year on year.
All right C N division grew 15% sequentially.
What's driven by specialty materials and tight sands deposition materials for advanced technology nodes predominantly in logic applications.
Oh I see division sales grew 9% sequentially watchful benefiting from stands into new notes.
[laughter] growth and effective expense control translated into improved profitability and our gross margin EBITDA margins and he P.S. were all up significantly in the quarter.
Looking at the food you 29 team, we achieved record sands up 3%.
Sales were down 3% on an organic basis in 2019, and we estimate the broader market was down 7%, which means we outperformed the market by 400 basis points on an organic basis for the year.
The significant organic outperformance was driven in large part I continued traction our leading edge traditions in areas of increasing importance to our customers, including a strong position and wins in liquid filtration and advanced deposition materials.
Particularly pleased that despite a challenging industry environment, we maintained our R&D investments during 2019, while delivering strong profit results.
Another highlight during 2019, what the organizational realignment, we put in place in the summer.
Since we opened the nation has been fully implemented now.
And we didn't make us leaner more jive and more responsive to our customers.
And finally as a demonstration of decide you we provide our customers. We're very proud that a 2019 integrity is one that's to prior to walk at Samsung.
Our performance in 2019, especially in the face of a very challenging end markets.
Okay, the strength of our team's execution and our highly resilient differentiated unit driven it's the smarter.
As we're seeing now in this transition to new nodes.
Great and materials intensity and greater than the two years purity went into primary defining factors what the next generation of semiconductor performance.
As you know integrity operates clearly crossroads materials intensity and the two years purity in other words, we believe we have never been better positioned well more relevant to our customers to help them achieve the targeted leverage chip performance years.
And reliability.
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Probably not yet, but it's yet to become a significant attribute in mainstream applications.
Which brings us troops suite of solutions to help our customers eliminate late then defects and positively impact the long term reliability of their products.
Fast growing automotive applications will give us an opportunity to expand outside and market share in a number of mainstream fabs.
During the year or capital allocation decisions led to additional value creation for all shareholders.
During 2019, we allocated more than $630 million of capital.
Which included intended investments over 110 millions of Capex and investments in R&D of 220 million.
Sure. We returned approximately 120 millions to shareholders and invested $218 million in acquisitions.
Acquisitions as you know had historically being the largest area of capital allocation for us.
That being a key component to our growth.
In 2019 alone acquisitions completed in the last two years.
Contributed approximately $100 million two sets and 10 cents to non-GAAP bps on an incremental basis versus our reported 2018 numbers.
Acquisitions, I've also been a way to broaden our solutions that particularly into targeted areas as materials and penetration.
To that end, we did for tuck in acquisitions in the last 12 months.
The first two what do you see an MTD, which serve different parts of the fast growing advanced materials market.
The third what he now the situation company located in China.
No Wonder January we acquired Synmat, which make CMP slurries for silicon carbide and gallium nitride. Some states shutting some of the fastest growing end markets globally, including electric they cures and Fiveg communications infrastructure.
Synmat brings is significant technical expertise and importantly, the addition of specialty CMP Slurries 12 broad portfolio process three shifts.
The acquisition, we made at about two years are perfect. Examples of the types of technology and applications, we want to add to Entegris got fall.
Hi quality value accretive brought a unit driven differentiated businesses serving in high growth markets.
Going forward, we will continue to cultivate a pipeline of acquisition targets.
Looking ahead to 2020, I would like to provide some perspective on the industry environment and how we see it impacting our business.
At a high level the market looks very healthy.
In logic and foundry utilization rates are expected to be faced started throughout the year.
And into memory market.
Why not completely back to dollar we believe the trends are increasingly positive.
In addition, we also expect to see continued positive impact of technology node transitions in both logic and memory.
In 2020, which would have a very positive impact on integrity.
Looking at our own business.
We expect 2020 to be another record year.
Pickup there is growth in 2022 ranged from 8% to 10%.
Now, we'd like to just unpack the math adapt 8% to 10% I do a growth rate for you.
To start we expect the total market based on our mix of units and Capex driven sands to grow approximately 4%.
On top of this we're targeting to outperform the market.
Specifically two to 300 basis points.
And this outperformance is expected to be driven by an increase in our sand and our market share.
As we capitalized on greater than two years intensity and security requirements throughout the industry ecosystem.
In addition, we expect that the acquisitions, we have already made will add approximately two to 300 basis points to our growth in 2020.
So to sum it all up this translates to our 8% to 10% growth guidance for 2020.
In terms of Pts we continue to expect to achieve the non-GAAP bps exit run rate of greater than two daughters, and 50 cents 2020.
And this translates into full year 2020, non-GAAP EPS in excess of two daughters and 30 cents.
In conclusion, I am very pleased with the resilience of our unit driven business motor and now record results in 2019, and I'm very optimistic about all prospects in 2020.
Before turning over to Greg.
Hi, thank all customers or the trust and confidence they place in integrity.
I also want to thank be Tigris teams around the world for their dedication and their relentless efforts.
Entegris successes as Patrick reside.
The exception there quite tee up to service they provide our customers every day I.
Hi, I'm very proud of what we have accomplished and it's an honor and privilege to lead such a great team.
I will now turn to quote to Greg for the financial results right.
Thank you for tried the fourth quarter was an excellent quarter for integrity Q4 sales of 427 million were in line with our guidance.
Sales were up 6% year over year end up 8% sequentially.
For GAAP diluted EPS was 42 cents per share down 26% year over year and up 40% sequentially.
On a non-GAAP basis extra 55 cents was up 17% year over year end up 10% sequentially.
Moving on to gross margins.
GAAP and non-GAAP gross margins were 46.3% in Q4.
And with our expectations GAAP gross margin improved 300 basis points sequentially and non-GAAP gross margin was up 170 basis points sequentially, primarily driven by higher volumes and improved mix.
We expect gross margin to be approximately 46% both on a GAAP and non-GAAP basis.
One.
GAAP operating expenses were approximately 114 million in Q4 and included a total of approximately 20 million from amortization of intangible assets integration costs and deal costs.
Non-GAAP operating expenses in Q4 were 93 million slightly above the high end of our guidance. We expect GAAP operating expenses will be 111 to 113 million and non-GAAP operating expenses to be 96 to 98 million in the first quarter.
Q4, GAAP operating income was 84 million or 19.7% of revenue and non-GAAP operating income was a record at 105 million or 24.5% of revenue.
Our GAAP tax rate was approximately 20% for the full year and our non-GAAP tax rate was 18% for 2020, we expect both our GAAP and non-GAAP tax rate to be 19% to 20%, it's worth noting for modeling purposes. The first quarter typically has the lowest tax rate of.
Here.
Adjusted EBITDA was also a record in the quarter at approximately 125 million or 29% of revenue, which was approximately 200 basis points, both sequentially and year over year.
Turning to our performance by Division Q4 sales of 147 million for FCM were very strong the 10% year over year increase was primarily driven by advanced deposition materials as we continue to benefit from sales into the new nodes and from the positive.
Impact of the Dfc, an MTD acquisition.
On our third quarter call. We said, we expect to the substantial rebound in FC EMS business in the fourth quarter and FCM grew 15% sequentially.
This was driven primarily by a significant improvement in the specialty materials and specialty gas businesses.
Addition to growth in advanced deposition materials.
Adjusted operating margin for FCM was 22.2% and as expected was up almost 400 basis points sequentially.
The increase in operating margin was driven primarily by higher volume and improved mix.
Q4 sales of 170 million for M.C. were up 7% from last year and up 9% sequentially.
The year over year and sequential sales increase in the quarter was driven primarily by strong growth in liquid filtration. In addition, we saw continued improvement in gas filtration Q4, which has a capex driven business was under pressure for much of 2019.
There was in the fourth quarter were also positively impacted by the end now acquisition, which closed in December.
Adjusted operating margin for AMC was 34.2% the significant year over year and sequential margin improvement was driven primarily by improved mix.
Q4 sales for am age of 117 million rose, 2% from last year and flat sequentially.
The year over year sales increase was primarily driven by sales of foams and other wafer handling products.
This increase more than offset a decline in fluid handling products.
We continue to see improving trends and am age, which is our most capex driven division was most impacted by the industry downturn last year.
Adjusted operating margin for MH was 17.3% up modestly year over year, driven primarily by effective expense control. We expect am age operating margins to improve through twentytwenty on higher volumes and new product introduction.
Cash flow from operations for the year was 382 million free cash flows 270 million.
As a reminder, 2019 cash flow included diversified transaction termination fee, which after transaction cost and taxes contributed approximately 80 million.
As expected cash flow improved significantly in Q4 from Q3, driven primarily by timing of receivable collections and lower inventory levels.
Uses of cash during the quarter included Capex of 26 million for the full year, we invested $112 million in Capex.
We expect to spend approximately 120 million in Capex in 2020 related to ongoing investments to support our new product introductions as well as capacity expansion.
Consistent with our capital allocation strategy. During Q4, we used approximately 11 million for our quarterly dividend and we repurchased over 300000 shares for $15 million for all of 2019, we repurchased 2.1 million shares at an average price of 35.
Our share.
Turning to our outlook for Q1, we expect sales to range from 415 to 430 million.
We expect GAAP EPS to be 41 to 46 cents per share.
Non-GAAP bps to be 50 to 55 cents per share in summary, 2019 was an excellent year for entegris, especially in the context of a challenging market.
And our performance really demonstrated the resilience of our model.
Going into 2020, we see the industry environment is more constructive and once again, we are well positioned to outgrow the market driven by increases in both Sam and our market share.
All of this gives us confidence in our prospects for 2020.
Operator, we'll now take questions.
Thank you, ladies and gentlemen, if you would like to asked a question on today's call. Please signal pricing.
One on your telephone keypad, if you while using a speakerphone. Please make sure you mute function is turned off to allow you signaled to reach our equipment again right.
One last question, we'll now take all sues question from Patrick Ho Stifel. Please go ahead.
Thank you very much and congrats on a really nice year, Berkshire first off maybe you in terms of your outlook for 2020.
And I get some of the moving pieces. There in 2019, you talked about strengthening advanced deposition, particularly in Q4, driven by some of the transitions were seeing both side be logic and memory I can you give a little bit of color on the SCS at CES business, and where you see not only opportunity.
In 2020, maybe some new products, all or I guess.
New areas, where you can capital clock capitalize upon the growth in the industry in 2020.
Testimony Patrick Thank you both for the question.
So we have indeed needs a lot of progress over the last two three years in our customer engagements.
In advance foundries in advanced memory.
And.
We because of the value proposition that we have to offer that incentives as you know on.
New enabling mattel units as well as contamination control solutions.
We've been instead, we are really uniquely positioned to benefit from all of the future no. It's not just in 2020, but for many years after that so that really means that I would expect significant outperformance.
For our deposition materials, so we'd expect significant outperformance.
For our new at seeing solutions.
We have also video aggressive objectives for a number of new.
Specialty coatings solutions that we've been developing and introducing into market to the last 18 months.
And of course, we continue to have.
I am very aggressive objectives for our liquid filtration platforms both.
Okay.
And for point of use applications in wet etch and clean and photo resist applications. So I think that.
Instead of.
Singling out.
Any particular product platform in our portfolio I think that what makes integrys truly unique.
Is the breadth of solutions that we can offer to the industry a roadmap and frankly.
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The fact that we have many product lines that we expect we'd be outperforming the industry significantly.
Right that's helpful and maybe Greg as my follow up question.
Good.
You guys have been on routing was not being able to manage.
The supply chain, both on the up cycles and the down cycles.
But even that you have.
Tax some small acquisitions recently, how do you I guess manage working capital.
I guess working capital management.
In this environment, particularly as it starts to strengthen and built through the year. How do you integrate these acquisitions and make sure that get the same size that you've been able to do in the past.
Okay.
Okay. So really I'll take that I'll talk about two big components for US first of all.
Accounts receivable was for us.
At year end every year runs about 50 days I mean, I think we've done a very good job. There we continue to do a good job even with the companies that we've acquired in some cases for instance sales had a greater biased Asian customers. The dsos there tend to be a little bit longer ceded see when we acquire them or dsos.
As jump by a couple of days on the inventory side I mean this year. The inventory management is going to be a real balancing act and we've got a major initiative around RMR piece systems, where we're focused on.
On the one hand, reducing inventory, but at the same time, giving Rx given our expectations that we expect to see improvement in the industry combined with the uncertainty around the globe, particularly in China, I would say, we're going to be cautious.
In our long term goal is to reduce inventory. We're just not sure. This as the year to be aggressive about and given what we could potentially have.
Some supply chain constrains through the year for too aggressive.
Great. Thank you very much.
Thank you ladies and gentlemen, if you find that your question has me Nancy.
Remove yourself from the Q at any time, Mike pricing.
Two.
Reminder, it is saw one last question. We'll go next question from Us.
Yeah hiring of Goldman Sachs. Please go ahead.
Hi, guys good morning, and congrats on on a very strong year.
Burcon you talked about.
Total market potentially growing 4% in 2020 and sorry, if I missed this but can you talk.
About how you're thinking about the.
The capex side of the market as opposed to the wafer wafer start side of the market and then within Capex. If you can differentiate between.
The fee.
Equipment Oems are likely to see versus.
Kind of bricks and motor and infrastructure side that will be helpful. Thank you.
Yes.
Thank you to share so.
Let me start with.
Mm size since its Ted as the primary driver for our business, So and as you know 70% seven zero.
Percentof our revenue.
It's really driven by this type of activity so anosike assumption for 2020.
Is about.
4%.
And Thats.
Something that we believe is.
Normal annual growth rate for four for him aside.
When it comes to.
Capex, so 30% of FFO revenue.
It's tied to to Capex, but most of that as you know is really tied to new fab construction and that is about 20% of fall total revenue tied to fab construction.
Which really means that our exposure to debit DFI is only approximately 10% a photo for revenue.
So so please keep in mind when we have our.
And your assumption for Capex for the total industry Capex at about 5%.
And we recognize that WSP would indeed grow.
Likely faster than 5%, but at same time, we do not expect.
Five projects.
To be growing very much year over year.
Got it.
That sounds good.
Yes. Thank you retire then as a quick follow up on the also mentioned in your prepared remarks that acquisitions that you've made over the past couple of years.
Hi contributed towards 100 million in sales and roughly 10%.
And earnings.
Obviously without.
Talking specifics on your on the pipeline do you feel like you can replicate that a repeat that over the next two years do you think.
M&A pipeline is robust enough to kind of deliver summer results over the next few deals.
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So let me maybe just tell you probably would you said it begins so hundred million dollars approximately of incremental revenue in 2019 versus the reported 2018 results.
The.
Accretion is 10 cents not not 10% 10 cents in 2019 as compared to the reported 2018 results.
But then to answer your broader question.
Yes, I mean, we we believe that.
We are effective acquirer very good integrator.
Of the platforms that.
We have acquired.
And we have demonstrated time and time again that we can create significant long term value for both our customers and our shareholders.
I would say that we have we have a healthy pipeline of.
Potential acquisition targets.
That gives us reason, but hope that we can find.
More opportunities like.
I see NPD eight now and seen math, which is a company. We're just recently acquired.
And that would give us an opportunity to expand offset market. So yes, I think that.
The growth.
What do you additional growth of two to three.
Points I was pointing to relate to use that we have.
Already executed.
And I would hope that we'd be able to find other small to midsize acquisitions to compete in 2020.
Thank you so much.
Thank you we'll now take our next question from Sidney Ho of Deutsche Bank. Please go ahead.
Thank you very much for taking my questions. My first question.
On the.
2020.
Revenue guidance and TQL details behind that guidance I think in 10%.
How do you think it from fresh in the years into look like football end market itself and sold tankers.
See in spike in certain quarters like what we saw in 2019 and generally forget what are you assuming ended guidance.
Both in Q1 in fall 2020 in terms of the impact on the corn as Irene.
Okay. So let me start with the core Barry's question I would say that obviously did impact.
If I recently industry is nearly impossible to quantify.
Precisely, but based on what we know today.
We do not believe that impact to our supply chain to our operations or 12 customers, we'd be material on full year basis, and we'll obviously continue to money to that.
As a closely but I will admit that we.
Did relax a little bit the bottom Anda filers Q1.
Cadence just.
If you take into account potential risk.
Longer shutdown, so so thats something that we tubing into consideration for Q1 guidance, but we decided not.
To try to quantify.
That risk on a full year basis, because we don't we don't think it would happen that materially impacted full year performance.
Hi, Chris.
Then going back to you or.
First part of the question.
We expect steady improvement.
Outperformance.
Every every quarter and that's going to be a function of two things first bodies that we expect a number of industry segments.
To strengthen over the years and I.
Thinking more specifically about DRAM and midstream Fabs in particular.
And then the back end of the year, we'll also see a number of significant no transitions.
In advanced foundry, but also in advanced memory and Thats. The reason why we'd expect the second half of the year to be stronger than first half a year for us.
That's great things.
Maybe going back.
Q4.
Yeah, Yeah revenue by geography, Taiwan, almost all of that makes a lot of sense. So yes.
So that's surprising to see down quite a bit and.
China is very strong can get within China, He talked about maybe.
The dynamics between the multinationals and demand in China, and you see any any acquisitions, Nick Nick Dot com.
Thanks.
Yes.
So you're quite right some performance in China, China today for US is 15% bucket for important bucket. That's one of the reasons, we continue to make significant investments.
We announced the opening of the text Vincent in Shanghai.
Earlier in 2019.
But that just on performance really was across all divisions.
And in Q4, if anything we posted record revenues for both Microcontamination MH.
And I'm pleased to set up a lot of that growth comes from.
New business opportunities with domestic Chinese semiconductor manufacturers, so very very strong performance, obviously the reason why sequentially.
Formants was so significant really comes from the number of new fab projects that we benefited in Q4 and that obviously helps off that from helped create happening product lines and our gas purification systems. So so thats the reason why.
You can see that press, 27% to sequential growth in China, but on a full year basis to remain sexy by strong plus 5% in China.
The story behind the.
Sequential decline in Korea.
In fact that we.
We enjoyed in the first three quarters of the year, we enjoyed some very strong demand for gasification systems and fluid handling solutions.
As a number of Korean about coating customers equipped.
Separately.
New Mega Fabs, but those projects came to an end in Q3. So so that's really what what's behind that contraction sequential contraction in.
In Q4.
Having said that I would point to the fact that SCM, which is really more for unit driven business in Korea did perform really well.
That's a reflection of the success of the new money Houston, we introduced.
And or are even being evaluated to hire new account architectures.
In in Korea for advanced memory.
Thats, Great Tonight, and I can squeeze in one more.
The acquisition.
And.
Help us understand signed in that market.
And she will also many women health and believe that gateways and then again.
Looking at a bigger picture in that business that you can never student dramas and wafer CMP market. Thanks.
So today.
Hey, Matt is the dropping specialty slurries for Entre Hoffman to use next week on carbide than gallium nitride.
And if you I mean, and that's really going to be our focus.
In the next few years, we believed that this particular market segment.
We'd grow very significantly today that market is probably less than $50 million. So we'd expect that market to double or more over the next four to five years. So a lot of growth ahead of us. So when you think about.
Our objectives when it comes to the integration of that platform, we read intent to render platform Fannie independent from the rest of Entegris. There isn't we can do that is that we are fortunate enough data one of the founders stuck to seeing as chosen to stay on board and.
And what do we really want to do is really help him and his team be very successfully danone, new U.S., but also.
In Asia so.
The goal is we need to enable deck that growth by giving synmat access to outgrow the distribution network.
But also by continuing to invest in the acquaintances Simpson.
Manufacturing processes to just continue to enhance the value proposition.
So we're very excited the thing it's a great technology great team.
And we believe that that business will be growing 20% process.
Annuity for the next few years.
Thank you.
Thank you, we'll now take our next question from Paretosh Misra, a better and the please go ahead.
Hi, good morning, Thank you.
Demand side.
Oh, no changes that you're seeing in 2020 different from 29 game.
Any contracts you can provide perhaps in terms of how big they are versus last year and maybe also one of these applications for you.
In terms of mix et cetera.
Yeah.
So there isn't we are.
To be very excited.
With which we expect to see had memory is that for store.
Many more semiconductor manufacturers, we'd be transitioning to more demanding notes and those nodes are.
Again, relying on more layer counts, which really makes the aspect ratio more challenging and that we need to do introduction of new.
At seeing solutions.
And you adoption of new deposition materials that can be deposited.
In thinner since.
And can actually bring better electric or.
Property to two D. architecture, so again, a number of new opportunities that we've been working on now for a number of use and when we believe that many of those opportunities for our SCM Division, we come to fruition.
In 2020.
Interesting.
And then a follow up on it on your cost structure any major changes that you're seeing any any any cost that are going up this year versus last year that we should be aware off.
No not in particular, I mean, I think we delivered strong gross margins in Q4 arm our models for.
You are approved for 2020 assumes that you know the there's the margin progression through the air and margin gross margins continue to improve.
Our Opex, which we said will be up a few million dollars in Q1.
We'd expect that to you sort of the new paradigm potentially creep up a little bit more as we move into Q2 in Q3, So thats all but that's all consistent with the guidance at Bertrand set of an EPS above.
230, which also happens to be consistent with our target model.
Got it thanks guys.
Thank you, we'll now take our next question from Chris Tops of capital. Please go ahead.
Hi, good morning.
Appreciate the comments on the do yes, the prospects associated with the.
Memory market coming back I'm, just curious like as.
There's a couple of things that could benefit your demand profile. One is just the I guess there.
Utilization rate improving into as you point out that you know the transition feedback.
Sure, It's which one is are you more excited about as you looked at 2020.
And it also if there's any type of frame up your the content per.
Per die or per wafer has the memory market transitions to some of the advance nodes with the with the more complex and.
More layers of security architecture.
Yes, good do the quantification per wafer is always.
Tricky to do.
We do that a customer levered, but that's not something we can we can comment on.
Publicly.
But I would tell you that this is actually pretty significant for some of our customers and Thats why I would answer the first part of the question.
By saying dad, what I'm, most excited about really ought to know transitions simply because we know that.
You know more wafers onto a de we'd be produced at those new architectures. So that over time the wins that we have scored on some of those architectures with compound themselves and help us sustain that excess growth rates for for number of years.
Okay Fair enough and then in the fourth quarter. It was that in fact node transition, but I think that helped contribute.
To the strong quarter.
But on the margin level was pretty impressive both sequential and year over year Im curious it is that.
A function.
I have no transitions and since you called out in 2020, the expectation that the second half you'd have more benefit from advanced node transitions and both.
Logic foundry as well as memory.
How do you see those transitions influencing your.
Your margins, maybe progress as we progress through sequentially between 20.
Yes, so first of all on Q4, I mean, the improvement in the gross margin was really.
Twofold first of all I mean, we obviously had quite a bit better volume and particularly in particular, we had better volume in areas, where we had previously talked about having capacity that was being under utilized within our FCM business and then we had frankly, we had we had better product mix and so those were the.
Two big contributors to the margin improvement in Q4, as we work through the year I mean, a combination of as you point out some of the products with regard to new nodes within.
Deposition and etch liquid filtration.
We will obviously have.
Good margin structures, but also we expect the volumes to improve throughout the year as well.
Okay. Thanks for the comp.
Thank you we'll now take our next question from David Silva of C.L. King. Please go ahead.
Okay. Thank you. So a couple of questions for returned and then I kind of question Greg.
Students first question has been answered I think in part, but I was just trying to.
Integrate some thoughts, but when I look at your fourth quarter results and there was a nice sequential pickup in the nice sequential pickup.
In the Microcontamination, the kind of flattish resulted in the more capital intensive.
Hey, M. agent units.
Would painting with a fairly broad brush here, but what I'd be correct to say that the fourth quarter reflected.
The ramp up of production of kind of the the leading edge news at your customers, let's say as opposed to start up with new Fabs are price increases or.
Or something like that so in other words.
Intel and Taiwan semi and talked about rising.
Utilization.
For their newest kit is that is that fair reflection of.
What we're seeing in your results and maybe for the near term they might trend you know the utilization that at some of your major customers. Thank you.
Yes, David So thank you you are.
Correct I mean, you should think about HMH. The reason why you'd what's the country flat is really as I mentioned.
In a different context study on the quarter, we saw fewer new fab projects in the quarter and that had the dampening effect on how fluid handling business and Thats. One of the primary reasons why HMH is flat sequentially. When it comes to SCM and Microcontamination both had.
Exceptional Q fours.
Both had record quarters in Q4, SCM up 15% Microcontamination up 9% and that's really a function of mall wafers being put to use.
Those more advanced nodes boats in logic foundry, but also in memory.
And frankly, I think that some momentum that we expect.
Two.
To continue in 2020 and into future years.
Okay. Thank you for that.
I did want to ask a question I guess about easy.
So maybe compared to a year or two ago, when you you'd be with anticipated, but not quite ready.
Thank you kind of been.
Firmly establish some extra leading edge fad now pretty much throughout the industry could you maybe just talk about your strategy well first of all how you think the early signs of the puts and takes or the positives versus potential changes required.
<unk> transition in your business take that how're, you positioned to take advantage of that and what's what's your forecast for the growth in your you'd be related to product service.
Thanks.
So.
Brody stated I would say you visa one for technology for the semiconductor industry I mean, it Lois as an industry too.
Continue to have really board.
Dreams about.
I think and about complex architectures.
And that's what is going to be a neighboring five nanometer this year and.
We will.
Short order them she'll go to two suite and beyond.
And that's wonderful because those new architectures.
We'll be.
Requiring numit two euros, but more precise action chemistries and more importantly would be.
Increasingly.
Further voted to two contaminations.
And you should think about the value proposition. If you take rates, we would it be ideally position to deferred up distributions required for the industry to continue to advance on the road map. So yes, we have and we have mentioned to you know acute specific products like you volatile.
Houses so we have some direct opportunities around mask management.
Or even around discount or but really what we are most excited about.
Oh in direct opportunities up and down to supply chain.
And what I mean, but as that acuity requirements will become much more stringent for a broad array of chemistries inventory yours.
And and those requirements, which drives the need and the usage for mortgage then situation cure of packaging solutions across ecosystem.
So as a leader in contamination control as a leader in ultra pure packaging solutions I think we are ideally positioned to capitalize on on oral dosing opportunities that would come with the reduction of Uva.
Okay, that's great and then for Craig I had more of the.
Structural question I guess.
Maybe the.
Timing or is related to kind of the current favorable structure of long term interest rates, but.
You know when I look at your cash flow.
And then for 2019, it was a record year across a number of cash generating a measures that it was also a year, where you kind of that and.
The cash flow you generated internally.
Per Trond has talked about can you know being a consolidator of the industry that was in that deal in January.
It is now a time to kind of look at maybe a broader.
Yes.
Maybe make a move to add financial flexibility or capability as you continue to execute on your strategy that that in my opinion might.
You might outspend your internal cash generation for the next year were too as you did in in 2019.
They're paying for it.
Hey, David How're you.
So we.
Our constantly looking at our options and I think what we're committed to is maintaining that strong double b rating, which implies a leverage level ups, you know somewhere Max leverage level on an ongoing basis somewhere around two and a half times.
Well, what I would say up as well as like so we're constantly looking at our options the market for the debt market is extremely strong right now and that thing to do that will do anything in particular, but like I said, we're constantly assessing our options.
Okay. Thanks very much.
Thank you, we'll now take our next question from Amanda Scarnati from Citi. Please go ahead.
Hi, Thanks for taking my question.
After you mentioned a couple of specific product line that had quantifiable revenue that didn't confidence in your CLO is there anything on the horizon in 2020 that you can you quantify.
That we can look to throughout the year to see if these metrics are not intend to new product introduction or existing order flow customers.
Yeah amended its true that several years ago we.
Chose to give a little bit more color around certain prototypes, but.
But we quickly realize that we don't really have any product line that would amount to more than.
$30 million to $40 million a year, so given the fact that.
We have new product on at a really very very much to your two to a topline.
Performance in the recent past, we have elected not to singled out any any product platform. That's something that we may choose to do differently and that's certainly a question. We are asking ourselves as we start thinking about how to.
Structure on any stay in May so stay tuned we may we may have a little bit more.
Danced around certain product lines doing Guineans day, but again, that's not something that we intend to do today.
And then just in terms.
The acquisition pipeline, you mentioned healthy pipeline of activity.
Are you looking more towards smaller acquisitions that would sort of thought the product portfolio may be piecing together different opportunities loss for so why are you looking for something that could be major in any form of that.
That work to be the case, what would be sort of net leverage that you would be comfortable going to for a larger deal.
But so we have we have a.
Business development team of two to three percents and they are really focused on small to midsize transactions I mean, those ought to transactions that.
Our expertise in most actionable.
And this is also guided we'd be nurturing now for many many years. So so that that remains to different refocus of that team.
And that Amanda as it relates to leverage I think we've been pretty consistent.
We'd be willing for a transformational transaction to push leverage into the 375 area up from kind of the current number around two and a half.
And we're comfortable that we can maintain or current ratings structure.
Temporary increase which we view it.
Great. Thank you.
Thank you Bill I'll take a last question from Krish Sankar of Cowen and company. Please go ahead.
Yes, hi, Thanks for taking my question boats on sites to the color on China, and you guys had pretty good growth of five person than last year. Just a question on that mainly coming from the Capex side. If you business or are you seeing strong unit driven see it's a club plus.
Let's see it was this year from China, given that at least one of the domestic memory customer hasn't had good for them.
Yeah no. Thank you for asking that timeframe question, obviously it was not.
Fair enough in my first answer but.
What it was really describing was just sequential growth Q3 over Coke Q4 over Q3 sort of when you look at our growth overall or for the past four years in China, we have a compounded annual growth rate of 22%.
And that is mostly unit driven.
So again, great performance across across or divisions and across all product platforms.
And in particular, the really great performance Microcontamination should mostly from tuition.
And unit driven products as well as in a number of new.
You know chemistries and until you have seen SCM.
Got it doesn't really helpful. And then a final question as well because comp, but it just was matched.
So synmat as a number of competitors they would be some of them.
Tradition or supply is raising battalions.
Got it thank you very much book on.
Thank you.
Ladies and gentlemen, this concludes today's call. Thank you for your participation you may now disconnect.
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