Q1 2020 Earnings Call

April 23, 2020

Greg Graves: Before I get to the performance by division, I would like to note that the impact of the coronavirus affected all three divisions. However, I will not call that out or quantify that in my commentary. In the aggregate, the impact of the virus was not material to our financial results. Q1 sales of $144 million for SCEM were up 16% year-over-year, primarily driven by advanced deposition materials, cleaning chemistries, and the positive impact of the DSC, MPD, and Sinmat acquisitions. The sequential sales decline was primarily driven by specialty materials. Adjusted operating margin for SCEM of 23% was up sequentially and up almost 300 basis points year-over-year. The year-over-year increase in operating margin was driven primarily by higher volume and good expense control.

Today's call is being recorded.

At this time for opening remarks, hundreds reductions on we'd like to turn the call over to Bill Seymour VP of Investor Relations. Please go.

Good morning, everyone earlier today, we announced the financial results for our first quarter of 2020.

Before we begin I would like to remind listeners that our comments today will include forward looking statements.

Greg Graves: Q1 sales of $159 million for MC were up 1% from last year and down 6% sequentially. On a year-over-year basis, growth in liquid filtration, gas filtration, and the impact of the Anow acquisition more than offset declines in gas purification. The sequential decline in MC sales was driven by gas purification, which was impacted by the temporary supply chain issues at our California facility with Bertrand Refram. Adjusted operating margin for MC was 31.7%. The sequential margin decline was driven primarily by the lower volume and manufacturing inefficiencies. Q1 sales for AMH of $116 million were flat versus last year and down slightly sequentially. The sequential sales decline was primarily driven by wafer reticle handling and sensing products.

These statements involve a number of risks and uncertainties and actual results could differ materially from those projected in the forward looking statements additional information regarding the risks and uncertainties are contained in our most recent annual report subsequent quarterly reports and we have filed with the FCC.

Please refer to the information on the disclaimer slide in the presentation.

This call. We will also refer to non-GAAP financial measures as defined by the FCC and regulation G. You can find a reconciliation table in today's press release as well on the Investor Relations page of our website and Entegris Dot com.

On the call today are for trod lawyer, CEO, Greg raise our CFO.

With that ill hand, the call over LIBOR trial.

Thank you Ben.

I would start today with what we have experience related to correct 19, I will then comment briefly on our first quarter performance and what we expect for our business going forward.

Greg Graves: Adjusted operating margin for AMH was 17.9%, marking the Q3 in a row of sequential margin increase, driven by solid cost management. Cash flow from operations for the Q1 was $11 million. Free cash flow was -$11 million. As a reminder, Q1 typically has the lowest cash flow of the year, primarily due to the variable compensation payment that is made during the Q1. CapEx for the Q1 was $23 million. We continue to expect to spend approximately $120 million in CapEx in 2020 related to ongoing investments in support of our new product introduction, as well as capacity expansion. Given the uncertain environment, we will continue to evaluate this spending level. During Q1, we used approximately $11 million for our quarterly dividend, just to be clear, we remain committed to our dividend.

Greg will then follow with more details on our financial results discuss our liquidity and capital structure and finally will cover our guidance for the second quarter.

We will then open the line for questions.

For the back two month, we have been battling harder again, it's trader panic.

With two priorities in mine, our first priority is to ensure the health and safety of our colleagues and their family. The second priority is to keep the business running.

We can continue to serve our customers and protect the jobs of our employees and partners.

So far I am pleased to report debt, we have been successful on these two front.

Let me expand a little bit on that.

Since the early outbreak in China, we have implemented rigorous safety measures in all sides to make our facilities among the safest basis to be for all our employees that need to be physically present onto manufacturing floor Oriental lab to perform their work.

Greg Graves: We also repurchased approximately 600,000 shares for $30 million in Q1 for an average price of $49 per share. We suspended our share repurchases in March, and we have put those on hold until we get a better sense of the economic environment. Before I cover our guidance for Q2, I'd like to discuss our liquidity and capital structure. We've also put a supporting slide covering this in our earnings slide for your reference. To start with, we have substantial cash reserves, with $335 million total cash at the end of Q1, and $134 million of that in the US. We have approximately $950 million of long-term debt in the form of a term loan and a note.

Everybody else has been instructed to work from home.

We implemented temperature check that the entry facility very early on.

Bandied around with proper social dispensing protocols are still in place in all our site.

In addition, we are extensively and frequently disinfecting common areas and providing math for those who want them.

Our facilities and health and safety team has done a fantastic job, making sure our facilities and our co workers lost faith.

Turning to the impact of the pandemic on our business I.

Greg Graves: The first significant maturity is not till 2025, and none of this debt is the subject of any maintenance covenant. We also have a $300 million revolving credit facility. We have drawn down approximately $140 million of the revolver, with no repayment requirement until November 2023. Like many other companies, we see drawing the revolver as a relatively inexpensive way to ensure access to liquidity in this uncertain time. The revolver does have a 3.25x secured net debt to EBITDA covenant. At quarter end, this ratio is less than 1x, well below the covenant. Bottom line, our liquidity position and capital structure is extremely solid and provides us a significant amount of flexibility to weather a very severe economic downturn scenario.

I would like to focus on two dimensions of supply chain and the overall demand environment.

Despite major supply chain shutdowns across many industries today, our supply chain and manufacturing operations have only been modestly impacted by covered 19 as a direct result, 50 extraordinary efforts of our integrity team and extended supply chain partners around the world.

In particular, our supply chain team has been proactively managing the pandemic.

Too early days of the spread in China.

The team has moved montagne assessing the areas of risk with our suppliers every day and taking appropriate and most importantly, bridgehampton steps to ensure our critical supply lines remain open.

To that end, we began to build traditional safety stocks in February in anticipation of potential constrain elsewhere in the world.

Greg Graves: Turning to our outlook for Q2, we expect sales to range from $410 to $430 million. We expect GAAP EPS to be $0.37 to $0.43 per share, and non-GAAP EPS to be $0.45 to $0.51 per share. In summary, we were pleased with our Q1 results in light of the COVID-19 challenges. More importantly, we feel strongly that the secular growth prospects for the semiconductor industry remain intact. Our competitive position has never been stronger. We have a resilient business model. We have an excellent team, experienced in managing during uncertain times, and our balance sheet and liquidity are strong. Operator? Before we move to questions, I just want to say we appreciate your flexibility around the timing of our earnings announcement.

This obviously served us well as the pandemic continue to spread in Europe entity use.

While our supply chain was largely not impacted that fewer call factories did experience brief interruption why they worked through new government vendor.

The two sites, where we showed the most significant disruptions were incentive for bids for California and also in one of our largest manufacturing facilities in Poland Malaysia.

Both sites are now back up and running.

And while there has been significant reduction in global freight capacity across industries, our logistics team Thats worked on in creatively to identify an alternative routes and to deliver products with very minimal interruption to our customers.

From a demand point of view, we are not experienced any visible deterioration in demand since the start of depending.

Greg Graves: We've been monitoring recent activity in the debt markets with our financial advisors, and if the opportunity arises to refinance some of our existing debt with other non-convertible debt on attractive terms, we would hope to take advantage of it. Getting our earnings out a few days earlier gives us an additional flexibility from a timing perspective. Operator, we'll now take questions.

On the country even today.

Our order book is at a record lever and as Craig will cover this indicates for strong Q2.

Having said that we believe the strength in bookings is likely the result.

Customers, ensuring they have adequate safety stock levels to protect against the risk of future supply chain disruptions and the lag between supply and demand due to the long cycle times typical in semiconductor manufacturing.

Operator: Thank you. If you would like to ask a question at this time, please press star one on your telephone keypad. We will pause for just a moment to allow everyone an opportunity to signal for questions. As a reminder, it is star one to ask a question today. Thank you very much. We can now take our first question. It comes from Toshiya Hari of Goldman Sachs. Your line is open. Please go-

Let me now turn to the first quarter performance.

And I will start by saying that in light of the significant challenges from covered 19, I am pleased with our results.

In the first quarter sales grew 5% year on year, and we're not materially affected by the impact of the current FX.

Leading the growth was our SCM division and its advanced solutions in new nodes in both logic and memory as well as the positive impact of acquisition.

Toshiya Hari: Hello, can you hear me?

Greg Graves: Yes. Yeah, I can hear you.

And despite sales slightly below our expectations because of solid expense management profitability remained trial in the quarter with EBITDA of 29% up year on year and flat sequentially.

Toshiya Hari: Hi. Good morning, guys. Thank you for taking the question, and glad to hear that you're all safe and healthy. Bertrand, you mentioned in your prepared remarks that so far you really hadn't seen any change in customer demand. I was hoping if you could speak to any sort of discrepancy or differences you're seeing between your CapEx business versus your wafer start business. If you could also kind of speak to any discrepancies between logic, foundry memory, and your leading-edge business, that would be helpful as well. I have a quick follow-up. Thanks.

Finally, EPS was at the high end of our guidance range and up significantly year on year.

Moving on.

Through our outlook.

While our order book remain healthy and we remain optimistic about the long term growth of the industry.

With millions of people getting laid off and shelter in place ordinances in various countries.

Bertrand Loy: Sure. Well, thank you for the question, Toshiya. We actually have seen strength on both sides of the business. Our CapEx business remained very strong in Q1, and we expect that to continue to be the case in Q2. That was particularly true for our fluid handling solutions, as well as our fluid product lines. The only area where we saw a contraction in revenue on the CapEx front was in the gas purification systems, but really it had to do with the inability of a couple of customers to perform final inspection on our systems before we were able to ship them out of California. This is an issue that is about to be solved this week, and we expect those systems to be shipped before the end of the month.

We believe economic realities will catch up to semiconductor demand at some point this year.

It's a truly situation and it is hard to predict exactly when this will happen, but with bear in mind forecasting be Hong Q2 is challenging.

Consequently, due to the evolving and certain impact of Colgate 19 will have on semiconductor industry. We are with throwing the 2020 sales NPS annual guidance, we gave in February.

While it's unclear how the market will perform for all of 2020.

The two other positive growth drivers totaling.

400, 600 basis points of growth are still in place for us in 2020.

The first one.

Bertrand Loy: We don't anticipate any similar types of issues as we get into, into Q2. The consumable business behaved pretty much in line with what we had expected going into Q1. Remember that Q1 is a seasonally slow quarter, and we saw that, especially across some of our trailing-edge customers. The level of activity on the leading-edge logic and leading-edge memory was very, very strong. That's something that we would expect to continue to see in Q2 as well. That's, that's the color around, you know, some of the momentum that we saw in the various segments of the business.

As you remember is the key technology node transitions in logic and memory, we expected for 2020.

And these are still on track.

Which means we continue to expect to outperform the market by approximately two to 300 basis points in 2020, driven by an increase in our served market and market shares.

As a result of a number of large customers transitioning to new technology nodes, both in logic and memory.

The second is that we continue to expect currently acquisition. We have already made will add approximately two to 300 basis points to our growth in 2020.

Clearly we are in unprecedented times, then we will be facing a high level of uncertainty for the balance of the year.

Toshiya Hari: That's very helpful. Thank you. Then as a quick follow-up, again, Bertrand, I wanted to ask you on the competitive landscape. Cyclical downturns or recessions in general, are obviously painful for everyone, but I think history would suggest that, you know, the strong companies typically come out of downturns stronger. I realize it's early in the downturn or this correction phase, but have you seen anything on the competitive front that would potentially drive a market share higher for for your business, either in the near term or the long term? Thank you.

But we feel very optimistic about the long term fundamentals of the industry and we feel confident in the things, we can control, including our competitive and financial position.

First we believe that the secular semiconductor demand.

We continue to be very attract.

Our society will continue to need more and better chips.

And in a strange way covet 19 could lead to an acceleration of the digitalization and automation that the economy, which would be favorable for the semiconductor industry.

Bertrand Loy: Look, Ashia, this is a very important point that you're making, and I absolutely share your view. I would say that in the short term, it's too early, and we have not seen any one of our competitors being in a difficult situation. As you mentioned, I think we have an opportunity to, you know, put some distance between us and our nearest competitor if we manage what's ahead of us in an appropriate fashion. This is one of the reasons why we wanna be very, very focused on maintaining timely development of all of the critical solutions that our leading-edge customers expect from us. And we wanna be sure, obviously, that we continue to be extremely focused on maintaining the proper stability in our supply lines.

Second we have confidence in our competitive position.

And to further securities position, we will maintain significant R&D and capital investment levels in 2020, despite the prevailing short term uncertainty.

These investments are essential to a number of critical joint development initiatives with several three customers.

As you know.

Great and materials intensity and greater materials purity will be the primary defining factors of the next generation of semiconductor performance and we want to be in a position to capitalize on the many new opportunities in front of others.

Finally, we feel very confident that our experience.

Bertrand Loy: We know that it's something that is always difficult to do, even under normal circumstances, but certainly it's a whole different challenge in the current environment that we operate. As you all know, we have a fantastic team, a very dedicated team, very ingenious. Not only do we have confidence that we're gonna get out of this, but I really do believe that we're gonna come out of this, pandemic a much stronger company and a much stronger brand.

Disciplined execution and strong balance sheet when the Lois to navigate this period of uncertainty.

While continuing to invest in the future.

King as very effectively manage challenging times in the past.

And we will take the necessary steps to align our business to market conditions as they evolve.

Before turning over to Greg I won't take a minute bank integrity teams and our partners around the world.

While their dedication and their relentless efforts during these challenging period.

Toshiya Hari: Thank you. Good luck.

Bertrand Loy: Thank you.

And I also want to thank our customers for the trust they place in Integra.

Operator: Thank you. We can now move along to our next question, which comes from Amanda Scarnati of Citi. Your line is open. Please-

Now, let me turn the call to Greg Greg.

Thank you Bertrand in my section today, I'm going to cover our first quarter financial performance and our second quarter guidance.

Amanda Scarnati: Hi, good morning. Just a question first on sort of any hoarding that you've been seeing in the space. I know you commented that you started building up stock in February. Have you seen any of that come in from your customers? Any increase in demand that seems somewhat unusual, that would lead you to believe that there's some hoarding happening? Or was this sort of very strong demand on the leading edge, sort of in line with the expectations you were headed into the quarter?

Amanda Schwab: Hi, good morning. Just a question first on sort of any hoarding that you've been seeing in the space. I know you commented that you started building up stock in February. Have you seen any of that come in from your customers? Any increase in demand that seems somewhat unusual, that would lead you to believe that there's some hoarding happening? Or was this sort of very strong demand on the leading edge, sort of in line with the expectations you were headed into the quarter?

I'm also going to discuss our liquidity and balance sheet strength provides a significant flexibility.

As per Tran said in spite of all the challenges brought on by the coated 19 crisis. The first quarter was solid for integrity.

Q1 sales of 412 million was slightly below the low end of our guide and were up 5% year over year and down 3% sequentially.

Bertrand Loy: Yeah, Amanda, this is a fair question. It's, it's a question that is a little bit hard to answer. We know that there was a little bit of buying ahead by, by some of our customers. It's really hard to fully quantify the magnitude of, of, of that. We don't think that it was much of a factor in Q1. We believe it could be a little bit more of a factor in Q2, and we will be very, very focused on that, obviously. I mean, we wanna try to the greatest extent possible, we wanna try to, you know, level load our factory and, and, and, and smooth shipments across Q2 and, and Q3. It will be, you know, a balancing act for, for all of us over the next few months.

As Brian said, the negative impact of the Corona virus through our supply chain was not material.

Q1, GAAP diluted EPS was 45 cents per share.

88% year over year and up 7% potential.

And non-GAAP EPS of 55 than was at the high end of our guidance range up 10% year over year and flat sequentially.

Moving on to gross margin GAAP and non-GAAP gross margin was approximately 45% in Q1.

Gross margin was below our original expectations, driven primarily by the modest manufacturing interruptions related to covert 19 and lower than expected volume.

We expect gross margin to be approximately 44% bolt on a GAAP and non-GAAP basis in Q2.

Amanda Scarnati: Okay. Can you remind us, what your split is, that your exposure is to leading edge versus lagging edge? It could just be general. It doesn't have to be, you know, broken out by memory or logic and boundaries, but if you have a general number that you can share.

Amanda Schwab: Okay. Can you remind us, what your split is, that your exposure is to leading edge versus lagging edge? It could just be general. It doesn't have to be, you know, broken out by memory or logic and boundaries, but if you have a general number that you can share.

We expect greater variability in gross margins in the short term as a result of the prevailing supply chain uncertainty and expected higher freight car.

GAAP operating expenses were approximately a 105 million in Q1 and included a total of approximately 19 million of non-GAAP items.

Bertrand Loy: I know the way we have approached that question in the past was to say that about 30%, roughly, of our top line comes from products that were introduced in the past 5 years. Typically, I think that's a good approximation for the level of exposure we have to leading edge.

The amortization of intangible asset restructuring deal and transaction costs.

Non-GAAP operating expenses in Q1 were 86 million down from 93 million in Q4, and well below our guidance.

Amanda Scarnati: Perfect. Thank you so much.

Amanda Schwab: Perfect. Thank you so much.

The biggest reason for this is lower compensation cost and reductions in other discretionary spending.

Operator: Thank you. We can now move along to our next question. It comes from Patrick Ho of Stifel. Your line is open. Please go ahead.

We expect GAAP operating expenses to be 102 to 104 million and non-GAAP operating expenses to be 88 to 90 million second quarter.

Bill Seymour: Thank you very much. Good to hear that everyone... I know this has been a very improving here...

Q1, GAAP operating income was 81 million or 19.6% of revenue and non-GAAP operating income of 100 million or 24.2% of level.

Adjusted EBITDA was approximately a 120 million in the quarter or 29.2% of Rob.

Our GAAP tax rate was approximately 12% and our non-GAAP tax rate was 15% for the quarter.

As a reminder for first quarter typically has the lowest tax rate of the year.

The 2020, we continue expect both our GAAP and non-GAAP tax rate to be 19% to 20%, which implies a quarterly rate of 20% to 21% for the balance of the year.

Before I get to the performance by Division I would like to note at the impact of the Corona virus affected all three division.

However, I will not call that out or quantify that in my commentary.

In the aggregate the impact of the virus is not material through our financial results.

Q1 sales of 144 million per SCM were up 16% year over year, primarily driven by advanced deposition materials cleaning chemistries and the positive impact that the DST MPD and Synmat acquisition.

The sequential sales decline was primarily driven by specialty materials.

Adjusted operating margin for SCM of 23% was up sequentially and up almost 300 basis points year over year.

The year over year increase in operating margin was driven primarily by higher volume and good expense control.

Q1 sales of 159 million per M. C were up 1% from last year and down 6% sequentially.

On a year over year basis growth in liquid filtration gas filtration and the impact of that in our acquisition more than offset declines in gas purification.

The sequential decline in M.C. sales was driven by gas purification, which was impacted by the temporary supply chain issues at our California facility that withdrawn restaurant.

Adjusted operating margin for M.C. with 31.7%.

The sequential margin decline was driven primarily by the lower volume and manufacturing inefficient.

Q1 sales for M- of 116 million were flat versus last year and down slightly sequentially.

The sequential sales decline was primarily driven by wafer radical handling and sensing product.

Adjusted operating margin for an age was 17.9%.

Marking the third quarter in a row of potential margin increase driven by solid crop manage.

Cash flow from operation through the quarter was 11 million.

Free cash flow was a negative 11 more.

As a reminder, Q1 typically has the lowest cash flow of the year, primarily due to the variable compensation payment that has made during the first quarter.

Capex for the quarter was 23 million.

We continue to expect to spend approximately 120 million capex in 2020 related to ongoing investment in support of our new product introduction as well as capacity expansion.

Given the uncertain environment, we will continue to evaluate the spending level.

During Q1, we used approximately 11 million per our quarterly dividend and just to be clear, we remain committed to our dividends.

We also repurchased approximately 600000 share with 30 million in Q1 for an average price of $49 per share.

We suspended our share repurchases in March we have put those on hold until we get a better sense of the economic environment.

Before I cover our guidance from second quarter, I'd like to discuss our liquidity and capital structure.

We've also photo supporting slide covering this in our earnings slide where you're roughly.

The short well, we have substantial cash reserves, the 335 million total cash at the end of Q1, and a 134 million of that in the U.S.

We have approximately 950 million of long term debt in the form of a term loan and in note.

The first significant maturity is not till 2025 and none of this that is the subject of any maintenance covenant.

We also have a 300 million dollar revolving credit facility.

We have drawn down approximately a 140 million of the revolver with no repayment requirement until November of 2023.

Like many other companies, we see drawing the revolver as a relatively inexpensive way to ensure access to liquidity in this uncertain side.

Robert Dodd now 3.25 time, the cared net debt to EBITDA covenant.

At quarter end of this ratio was less than one time well below the covenant.

Bottom line, our liquidity position and capital structure is extremely solid and provides us a significant amount of flexibility the whether a very severe economic downturns Mary.

Turning to our outlook for Q2, we expect sales to range from 410 to 430 million.

We expect gap as the 37 43 cents per share and non-GAAP EPS before he by 51 cents per se.

In summary, we were pleased with our Q1 result in light of the Coven 19 challenge.

But more importantly, we feel strongly that the secular growth prospects for the semiconductor industry remain intact.

Our competitive position has never been stronger you have a resilient business model, we have an excellent team experienced in managing during uncertain times.

And our balance sheet and liquidity our strong.

Operator.

Before we move to questions I just want to say, we appreciate your flexibility around the timing of our earnings announcement.

We've been monitoring recent activity in the debt markets with our financial advisors and the opportunity arises through refinancing of our existing that with other non convertible debt on attractive terms, we would hope to take advantage of it.

Getting our earnings out a few days earlier gives us additional flexibility from a timing perspective.

Operator, we'll now take questions.

Thank you if he would like to ask the question at this time. Please press star one on your telephone keypad.

We will pause for just a moment to welcome everyone and opportunity to say go some questions. As a reminder, it's a star one to ask a question today. Thank you very much.

We can now take our first question is comes from Touchy Hurry of Goldman Sachs. Your line is open please call.

Hello can you hear me.

Yes, we item here.

Hi, Good morning, guys. Thank you predict a question and a glut secure figure all six unhealthy.

Trial, you mentioned in your prepared remarks that so far you really haven't seen any change in customer demands.

But I was hoping if you could speak to any sort of discrepancy or differences, you're seeing between your capex business versus or wafer start business.

If you could also kind of speak to any.

Any any discrepancies between logic and foundry memory and there are lagging gets business that would be helpful. Spot. You then have a quick follow up.

Thanks.

Sure. Thank you for the question because here.

We actually have seen strength on both sides of the business or Capex business remained.

Very strong in Q1, and we expect that to continue to be the case.

To that was particularly true for our fluid handling.

Solutions.

As as well as our.

Food product lines, the only area, where we saw a contraction in revenue on the Capex for on was the gasification systems.

But really it had to do with the you'd been CEO for couple of customers to perform.

The inspection on our systems.

Before we were able to seek them out of California.

And this is an issue that is.

About to be sold this week and we expect to assistance to be shipped before the end of the month.

And we don't anticipate any similar types of issues as we get into into Q2.

Consumable business behaved pretty much in line with what we had expected going into Q1, you'll remember that Q1 is.

Seasonally slow quarter, and we saw that.

I'm, especially across some of our trailing edge customers.

At the level of activity on the leading edge.

No actually weekend, leading edge memory was.

Yeah very strong.

And that's something that we would expect to continue to see in Q2 as well. So that's that's the color around.

Some of the momentum that we so into those segments of the business.

That's very helpful. Thank you.

As a quick follow up again Bertrand I wanted to ask you on the competitive landscape.

Cyclical downturns are recessions in general obviously painful for everyone, but I think history would suggest that.

Strong companies typically come out of downturn stronger.

I realize it's early in the downturn or this crushing space, but have you seen anything.

On the competitive fronts that would potentially drive.

Markets are higher for their business either in the near term or the long term. Thank you.

With this here this is a.

That's very important only deal, making an absolutely show you view I would say that the short term, we it's too early yet not.

HM.

Any one of our competitors.

Being in a in the difficult situation, but as you mentioned I think.

We have an opportunity to.

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You know put some distance between us and our nearest competitor if we manage.

What's the ahead of us even appropriate fashion and this is one of the reasons why we.

I want to be very very focused on.

Maintaining timely development there for all of the critical solutions that are leading edge customers expect from us.

And you want to be sure obviously that we continued to be extremely focused.

On maintaining persistency enough supply lines, we know that it's something that is always difficult to do even under normal circumstances.

But certainly it's a whole different challenge in the current environment that we upgrade.

But as you all know we have a fantastic team.

Then he didnt get team very generous.

And not only do we have confidence that we getting get out of this but I really do believes that we can come out of this pandemic a much stronger company and a much stronger brand.

Thank you good luck.

Thank you.

Thank you we can move along to our next question is comes from Amanda Scarnati of Citi. Your line is open please.

Hi, good morning.

Just a question first on sort of any quoting that you think being in this space. I know you commented that you cited bumping up back in February who thing I'm going back over their customer increases along that seems somewhat unusual amount will be to move up and supporting happening well. This is sort of very strong demand I'm eating out sort of in mind.

Within expectations are heading into the partner.

Yeah. Amanda this is a this is a fair question. It's a it's a question that he's a little bit.

But to answer we know that there was a little bit of.

Looking ahead by by some of our customers that.

Really hard to fully qualified.

The magnitude of that.

We don't think that it was much effect in Q1.

We believe it could be a little bit more for factor in Q2, and we will be very very focused on that obviously and we want to try to the greatest expense of Super we want to try to.

Level load of factory and smooth.

Systems across Q2, and Q3, so it would be.

I am seeing act or full service over the next few months.

Okay.

Ooh I guess, what you put your exposure at the leading widespread packing house and then it could just in general.

Broken out by memory or logic and foundry if you haven't channel I'm wondering if you can share.

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I know the way we have approach that question in the past.

As to said at about 30% rough feel solid top line.

Comes from products that were introduced in the past five years and typically I think thats a good approximation for.

The next sort of exposure we have to yet.

Okay. Thank you cannot.

Okay.

Thank you we can then move along to our next question.

He is comes from Patrick Ho of Stifel. Your line is open. Please go ahead.

Thank you very much a engineer the everyone.

Well.

Okay.

In addition.

In a very.

There's been here.

Okay.

Called.

Today's call is being recorded.

At this time for opening remarks, and introductions I would like to turn the call over to Bill Seymour VP of Investor Relations. Please go.

Good morning, everyone earlier today, we announced the financial results for our first quarter 2020, before we begin I would like to remind listeners that our comments today includes and overlook.

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These statements involve a number of risks and uncertainties and actual results could differ materially from those projected in the forward looking statements.

Additional information regarding the risks and uncertainties are contained in our most recent annual report on subsequent quarterly reports and we have filed with the Fccs.

Please refer to the information on the disclaimer slide in the presentation.

On this call. We will also refer to non-GAAP financial measures as defined by the FCC and regulation G. You can find a reconciliation table in today's press release as well on the Investor Relations page of our website and Entegris Dot com.

On the call today are for trod lawyer, CEO and Greg raise our CFO.

With that ill hand, the call over LIBOR trial.

Thank you Ben.

I would start today with what we had experience related to correct 19, I will then comment briefly on our first quarter performance and what we expect for our business going forward.

Greg will then follow with more details on our financial results discuss our liquidity and capital structure and finally will cover our guidance for the second quarter.

We will then open the line for questions.

For the past two month, we obtain battling harder again, this trader and panic with two priorities in mine. Our first priority is to ensure the health and safety of our colleagues and their family. The second priority is to keep the business running so we can continue to serve our customers.

Protect the jobs of our employees and partners.

So far I am pleased to report debt, we have been successful on these two front.

Let me expand a little bit on that.

Everybody else has been instructed to work from home.

We implemented temperature check that the entry on facility very early on.

Bandied around with proper social dispensing protocols are still in place in all of that.

In addition, we are extensively and frequently disinfecting common areas and providing math for those who want them.

Our facilities and health and safety team have done a fantastic job, making sure our facilities and our co workers lost faith.

Turning to the impact of the pandemic on our business I.

I would like to focus on two dimensions of supply chain and the overall demand environment.

In particular, our supply chain team has been proactively managing the pandemic BT early days of the spread in China.

The team has moved montagne assessing the areas of risk with our suppliers every day.

And taking appropriate and most importantly, we have two steps to ensure our critical supply lines remain open.

To that end, we began to build traditional safety stocks in February in anticipation of potential constrain elsewhere in the world.

This obviously served us well as the pandemic continue to spread in Europe into the U.S.

While our supply chain was largely not impacted that fewer call factories did experience brief interruption why they worked through new government mandates.

The two sites, where we showed the most significant disruptions were incentive for bespoke, California and also in one of our largest manufacturing facilities in Poland Malaysia.

Both sites are now back up and running.

And while there has been significant reduction in global trade capacity across industries. Our logistics team has worked on in creatively to identify an alternative routes and to deliver products with very minimal interruption to our customers.

From a demand point of view, we have not experienced any visible deterioration in demand since the start of the pandemic on the country. Even today. Our order book is at a record level and as Craig will cover this indicates for strong Q2 rig.

Set that we believe the strength in bookings is likely the result of customers ensuring they have adequate safety stock levels to protect against the risk of future supply chain disruption and the lag between supply and demand due to the long cycle times tipping.

Coal in semiconductor manufacturing.

Let me now turn to the first quarter performance.

And I will start by saying that in light of the significant challenges from covet 19, I am pleased with our results.

In the first quarter sales grew 5% year on year, and we're not materially affected by the impact of the current FX.

Leading the growth was our SCM division and its advanced solutions in new nodes in both logic and memory as well as the positive impact of acquisition.

And despite sales slightly below our expectations because of solid expense management.

Profitability remained trial in the quarter with EBITDA of 29% up year on year and flat sequentially.

Finally, Bts was at the high end of our guidance range and up significantly year on year.

Moving on.

Through our outlook.

While our order book remain healthy and we remain optimistic about the long term growth of the industry with millions of people getting laid off and shelter in place audiences in various countries.

We believe economic realities will catch up to semiconductor demand at some point this year.

It's a truly titration and it is hard to predict exactly when this will happen, but with that in line forecasting be hone Q2 is challenging.

Consequently, due to the evolving and certain impact of Colgate 19 will have until semiconductor industry. We are with growing to 22000 sales NPS annual guidance, we gave in February.

While it's unclear how to market will perform for all of 2020.

The two other positive growth drivers propylene.

400 to 600 basis points of growth are still in place for us in 2020.

The first one.

As you remember is the key technology node transitions in logic and memory, we expected for 2020.

And these are still on track.

Which means we continue to expect to outperform the market by approximately two to 300 basis points in 2020, driven by an increase in our served market and market shares.

As a result of a number of large customers transitioning to new technology nodes, both in logic and memory.

The second is that we continue to expect currently acquisition. We have already made will add approximately two to 300 basis points to our growth in 2020.

Clearly we are in unprecedented times, then we will be facing a high level of uncertainty for the balance of the year.

But we feel very optimistic about the long term fundamentals of the industry and we feel confident in the things, we can control, including our competitive and financial position.

First we believe that the secular semiconductor demand.

We continue to be very attractive.

Our society will continue to need more embedded chip.

And in a strange way covet 19 could lead to an acceleration of the digitalization and automation of the economy, which would be favorable for the semiconductor industry.

Second we have confidence in our competitive position.

And to further securities position, we will maintain significant R&D and capital investment levels in 2020, despite the prevailing short term uncertainty.

These investments are essential to a number of critical joint development initiatives with several key customers.

As you know.

Later materials intensity and greater materials purity will be the primary defining factors of the next generation of semiconductor performance and we want to be in a position to capitalize on the many new opportunities in front of others.

Finally, we feel very confident that our experience.

Disciplined execution and strong balance sheet when the Lois to navigate this period of uncertainty.

While continuing to invest in the future.

Kim as very effectively manage challenging times in the past.

And we will take the necessary steps to align our business to market conditions as they evolve.

Before turning over to Greg I won't take a minute bank integrity teams and our partners around the world.

Of their dedication and their relentless efforts during these challenging period.

And I also want to thank our customers for the trust they place in Integra.

Now, let me turn the call to Greg Greg.

Thank you Bertrand in my section today, I'm going to cover our first quarter financial performance and our second quarter guidance.

I'm also going to discuss how our liquidity and balance sheet strength provides a significant flexibility.

As per Tran said in spite of all the challenges brought on by the coated 19 crisis. The first quarter was solid for integrity.

Q1 sales of 412 million were slightly below the low end of our guidance and were up 5% year over year and down 3% sequentially.

As Brian said, the negative impacted the Corona virus to our supply chain is not material.

Q1, GAAP diluted EPS was 45 cents per share.

88% year over year and up 7% potential.

And non-GAAP EPS of 55 cents, because if the high end of our guidance range up 10% year over year and flat sequentially.

Moving on to gross margin GAAP and non-GAAP gross margin was approximately 45% in Q1.

Gross margin was well below our original expectations, driven primarily by the modest manufacturing interruptions related to covert 19 and lower than expected volume.

We expect gross margin to be approximately 44% both on a GAAP and non-GAAP basis in Q2.

We expect greater variability in gross margins in the short term as a result of the prevailing supply chain uncertainty and expected higher freight car.

GAAP operating expenses were approximately a 105 million in Q1 and included a total of approximately 19 million of non-GAAP items from amortization of intangible asset restructuring deal and transaction costs.

Non-GAAP operating expenses in Q1 were 86 million down from 93 million in Q4, and well below our guidance.

The biggest reason for the lower compensation costs and reductions in other discretionary spending.

We expect GAAP operating expenses to be 102 to 104 million and non-GAAP operating expenses to be 80, 80 to 90 million second quarter.

Q1, GAAP operating income was 81 million or 19.6% of revenue and non-GAAP operating income of 100 million or 24.2% of level.

Adjusted EBITDA was approximately 120 million in the quarter or 29.2% of Rob.

Our GAAP tax rate was approximately 12% and our non-GAAP tax rate was 15% for the quarter.

As a reminder for first quarter typically has the lowest tax rate of the year.

The 2020, we continue expect both our GAAP and non-GAAP tax rate to be 19% to 20%, which implies a quarterly rate of 20% to 21% for the balance of the year.

Before I get to the performance by Division I would like to note at the impact of the Corona virus affected all three division.

However, I will not called that out or quantify that in my commentary.

In the aggregate the impact of the virus not material through our financial results.

Q1 sales of 144 million for SDM were up 16% year over year, primarily driven by advanced deposition materials cleaning chemistries and the positive impact that the DST MPD and Synmat acquisition.

The sequential sales decline was primarily driven by specialty materials.

Adjusted operating margin for SCM of 23% was up sequentially and up almost 300 basis points year over year.

The year over year increase in operating margin was driven primarily by higher volume and good expense control.

Q1 sales of 159 million per M. They were up 1% from last year and down 6% sequentially.

On a year over year basis growth in liquid filtration gas filtration and the impact of that in our acquisition more than offset declines in gas fear creation.

The sequential decline in M.C. sales was driven by gas purification, which was impacted by the temporary supply chain issues at our California facility that withdrawn restaurant.

Adjusted operating margin for M.C. with 31.7%.

The sequential margin decline was driven primarily by the lower volume and manufacturing inefficient.

Q1 sales for M- of 116 million were flat versus last year and down slightly sequentially.

The sequential sales decline was primarily driven by wafer radical handling and sensing product.

Adjusted operating margin for an age was 17.9%.

Marking the third quarter in a row of sequential margin increase driven by solid crop manage.

Cash flow from operation through the quarter was 11 million.

Free cash flow was a negative 11 more.

As a reminder, Q1 typically has the lowest cash flow of the year, primarily due to the variable compensation payment that has made during the first quarter.

Capex for the quarter was 23 million.

We continue to expect to spend approximately 120 million capex in 2020 related to ongoing investment in support of our new product introduction as well as capacity expansion.

Given the uncertain environment, we will continue to evaluate the staffing level.

During Q1, we used approximately 11 million for our quarterly dividend and just to be clear, we remain committed to our dividends.

We also repurchased approximately 600000 share with 30 million in Q1 for an average price of $49 per share.

We suspended our share repurchases in March we have put those on hold until we get a better than the economic environment.

Before I cover our guidance from second quarter, I'd like to discuss our liquidity and capital structure.

We've also photo supporting slide covering this in our earnings slide where you're roughly.

The short well, we have substantial cash reserves, the 335 million total cash at the end of Q1, and a 134 million of that in the U.S.

We have approximately 950 million of long term debt in the form of a term loan and in note.

The first significant maturity is not till 2025 and none of this that is the subject of any maintenance covenant.

We also have a 300 million dollar revolving credit facility.

We have drawn down approximately 140 million of the revolver with no repayment requirement until November of 2023.

Like many other companies, we see drawing the revolver as a relatively inexpensive way to ensure access to liquidity in its uncertain side.

The revolver does have a 3.25 time the cared net debt to EBITDA covenant.

At quarter end of this ratio was less than one time well below the covenant.

Bottom line, our liquidity position and capital structure is extremely solid and provides us a significant amount of flexibility the whether a very severe economic downturns area.

Turning to our outlook for Q2, we expect sales to range from 410 to 430 million.

We expect gap as the 37 43 cents per share and non-GAAP EPS before he by 51 cents per se.

In summary, we were pleased with our Q1 result in light of the Coven 19 challenges.

But more importantly, we feel strongly that the secular growth prospects for the semiconductor industry remain intact.

Our competitive position has never been stronger you have a resilient business model, we have an excellent team experienced in managing during uncertain times.

And our balance sheet and liquidity our strong.

Operator.

Before we move to questions I just want to say, we appreciate your flexibility around the timing of our earnings announcement.

Getting our earnings out a few days earlier gives us an additional flexibility from a timing perspective.

Operator, we'll now take questions.

Thank you if he would like to last question at this time. Please press star one on your telephone keypad.

We will pause for just a moment to welcome everyone and opportunity to signals for questions. As a reminder, it's a star one to ask a question today. Thank you very much.

We can now take our first question is comes from Touchy hiring of Goldman Sachs. Your line is open please call.

Hello can you hear me.

Yes, we item here.

Hi, Good morning, guys. Thank you for take the question and I'm glad to hear figure all six unhealthy.

Trying to you mentioned in your prepared remarks, but so far you really haven't seen.

Any change in customer demands.

But I was hoping if you could speak to any sort of discrepancy or differences you're seeing between your capex business versus or wafer start business. If you could also kind of speak to any.

Any any discrepancies between logic and foundry memory and there are lagging gets business that would be helpful spot, but I have a quick follow.

Thanks.

Sure. Thank you for the question because here.

We actually have seen strength on both sides.

The business or Capex business remained.

Very strong in Q1, and we expect that to continue to be the case.

To that was particularly true for our fluid handling.

Solutions.

As as well as our.

Food product lines, the only area, where we saw a contraction in revenue on the Capex for on was the gas purification systems.

But really it had to do with the inability of for couple of customers to perform.

On an inspection on our systems.

Before we were able to shoot them out of California.

And this is an issue that is.

About to be sold this week and we expect this system.

To be ship before the end of the month.

And we don't anticipate any similar.

Types of issues as we get into into Q2.

You consumable decisions.

Behaved pretty much to nine with what we had expected going into Q1, you'll remember that Q1 is.

Seasonally slow quarter, and we saw that.

Especially across some of our trailing edge customers.

The level of activity on the leading edge.

Largely Canada's leading edge from memory was.

Yeah leveraged loan.

And that's something that we would expect to continue to see in Q2 as well. So that's that's the color around.

Some of the momentum that we so into those segments of the business.

That's very helpful. Thank you and then as a quick follow up again Bertrand I wanted to ask you on the competitive landscape.

Cyclical downturns are recessions in general obviously painful for everyone, but I think history would suggest that.

Strong companies typically come out of downturn stronger.

I realize it's early in the downturn or destruction phase, but have you seen anything.

On that.

For the fronts that will become potentially drive.

Our margins are higher for.

Sure business either in the near term little autumn. Thank you.

But this year this is a.

That's very important phone that youre, making an absolutely.

You view on sort of.

Sure.

It's too early.

Yes.

And if you want to book.

Competitors.

Yes.

Being in a difficult situation, but as you mentioned I think.

We have an opportunity to.

Put some distance between us there.

Serious competitor if we manage.

What's ahead of us in an appropriate fashion and this is one of the reasons why we.

I want to be very very focused on.

Maintaining timely development for all of the critical solutions that are leading edge customers expects from us.

And we want to be sure obviously that we continue to be extremely focused on maintaining profitability in our supply lines.

We know that it's something that is always difficult to do even under normal circumstances.

But certainly it's a whole different challenge in the current environment that we operate.

But as you all know we have a fantastic team.

Very good indicated team very generous.

And not only do we have confidence that we can get out of this but I really do believe that we can come out of this.

Pandemic, a much stronger company.

A much stronger brand.

Thank you good luck.

Thank you.

Thank you we can now move along to our next question is comes from Amanda Scarnati of Citi. Your line is open please.

Hi, good morning.

Two quick question based on sort of any according to being a face any incremental about restarting bubbling up back in February.

I'm going back a little more customers, increasing demand seems somewhat unusual amount will be available supporting happening over this sort of very strong demand on the leading out sort of end market expectations are heading into the quarter.

Yes, I wonder if this is this is a fair question. It's it's a question that is a little bit.

On to answer we know that there was a little bit of.

Looking ahead by some of our customers.

Really hard to fully quantify.

The magnitude of that.

We don't think that it was much of the factor in Q1.

We believe it could be a little bit more for factor in Q2, and we will be very very focused on that obviously and we want to try to the greatest expense possible, we want to try to.

Level load our factory and smooth.

Shifting sokolowski two in Q3, so it will be.

The balancing act for full service over the next few months.

Hi.

Uhhuh remind us.

What you what is your exposure at the leading our expected flagging launch and then it could just in general.

Following up on memory or logic, and foundry and if you haven't John I'll handle that you can share.

And I know the way we have approach that question in the past I was too said at about 30% rough feel solid top line comes from products that were introduced in the past five years and typically I think thats a good approximation for.

The level of exposure, we have two leading edge.

Okay. Thank you congrats.

Okay.

Thank you we can then move along to our next question.

Yes comes from Patrick Ho of Stifel. Your line is open. Please go ahead.

Thank you very much in an engineer the everyone as well.

Berkshire, maybe I know this has been a very.

Disruptive and chaotic period, particularly in the March quarter, obviously things keep changing and they're very fluid at this time.

Given some of the issues is particularly in the supply chain logistics that have occurred.

Our big already things that you've learned that you can apply for entegris on a going forward basis, any kind of what I'm getting at areas of use different ways of I guess building inventory.

Keeping some for yourself.

In potential situations like that because obviously the entire.

Technology ecosystem has gotten to a more real time and just in time type of manner deep deep are you already making changes longer term for the company.

With GSK any future disruptions.

For the way I would answer your question Patrick is.

We have a management team debt.

As manage.

Several downturns.

Already in.

One of the biggest.

Since from that is that you prepare for the next downturn in good times.

And I think that and in fact rates, we have gone to staff over the past 10 years.

We have built a lot of variability in our cost structure, we're constantly look that.

Optimizing the cost structure of integrity.

And we have also made significant investments in our supply chain management teams I think we may have mentioned that about two three years ago. When we essentially created a 15 to 20 persons strong team to just help us.

Smarter about.

And more proactive about managing.

Our supply chains.

Building.

Turning to.

Supply options.

And just again managing the risk in a more dynamic Wade and I'm pleased to tell you that this investment will be paid out.

Over the last past month than we were.

Quick to assess the risk when will that plane coded 19 on the Chinese front, we were quick to make.

Inventory.

Buying decisions as early as February two bills again.

Potential future results for supply interruptions, not just in China, but in Europe in us and.

Now this year, we're seeing nice prepared remarks, all of that served us really really well. So that is not to say that we didn't have.

Something points, because we did.

[music].

But what I would say that you scheme of things I'm extremely pleased with the way we were able to manage the risk and with the way we were able to maintain.

Stability in our supply chain supply lines to our customers.

Great Thats helpful. Maybe as my follow up question for Greg.

You gave a.

Great update on the liquidity and balance sheet situation for the company is it fair to assume that at least over the next couple of quarters.

Focus is building cash, especially since it looks like it'll be cash flow positive.

And lease on the June quarter, given your your revenue outlook is that the way you should be looking at I.

I guess cash management.

Over at least in next few quarters.

And now I think you're right Patrick I mean at this point I mean with them, we're focused on maintaining as much liquidity as we possibly can.

We suspended the buyback as we mentioned was fully committed to the dividend but in general.

The focus on maintaining liquidity.

Great. Thank although we feel very good about the position we're in.

Thank you Kelly move along to the next question.

Yes. Please.

Thank you we can now take our next question. Please come from Sidney Ho of Deutsche Bank. Your line is open. Please go ahead.

Great. Thanks for taking my questions. My first question is can you talk about where youre customers factory utilization teams.

Me on average and maybe what do you think that is hanging over the next few quarters.

By segment, mainly logical that technology remains consistent gains in our day area. Thank you on more concerned.

So Patrick I will limit my comments to what we saw in Q1 and what we expect to see in Q2 as we said in the prepared remarks grades which is too many moving pieces for the back end of the year So would not.

Risk any projections there since we don't really have any unique.

But when it comes to Q1 in Q2 advanced logic was and is expected to remain very strong with utilization rates, most likely between 90 and 100% depending on the customer.

Trailing edge Fabs on on the logic from.

Was that probably 80 to 90, we expect that to subside.

A little bit in Q2.

DRAM was very very strong in Q1, probably close to 200% at most of the leading edge.

Makers, and then putting schoeneweis side for for that particular comment.

We expect that to come down a little bit in Q2, probably in the 90% range.

But again a lot of the DRAM capacity is currently being shifted away from.

And said devices and really very focused on high performance servers, and we believe that.

Man for high performance servers will continue to be strong in Q2 as well so that should be good for DRAM.

And then for NAND.

You know close to 90% and probably going to 80%.

In.

In Q2, so still very healthy levers if utilization in Q2, new bit below Q1, but nonetheless.

C and remember that.

We have introduced a number of me.

Products and technologies that are very critical to all of the new nodes that we expect to see logic and memory in the back end of the year. So.

Everything else being equal level.

Expect the per wafer integrity opportunity to continue to grow through the balance of the year and Thats one of the reasons.

Why we expect to outperform the industry increased significantly in the first half of the year.

And why we expect on balance to be able to do that on on a full year basis as well.

That's great that's very helpful.

My follow up question take capacity to look back in the past experience how have things unfolded in past cycles, particularly as it relates to what we're trying you talked about the like in demand.

When do you think this cycle could look differently. Obviously the circumstances are different but just curious how how you think about the deadline. Thank you talked about.

Well I think for anyone of those who have been in the industry.

And now we know that.

The demand at some point will drop.

And we won't know until it's just right in front of is and so most likely for us it will be sometime during the summer.

So there will be a contraction inside into the issue and that would be a contraction obviously to our business.

The magnitude of the contraction is unknown the duration of that contraction is unknown.

But we know that at some point, it's going to snap back really strongly and you want to be sure that youre ready to reaccelerate.

Out of the.

Larger really effectively.

And if you fast forward.

We continue to be absolutely confident in the long term growth prospects of the semiconductor industry in China.

Great twisted way I think that.

Copies 19 era will be very favorable to the semiconductor industry I would fully expect an acceleration of the BG utilization of the economy digitalization of human interactions further automation of the economies for all of that will drive significant ship demand.

So again I think that we have certainly a few months ahead of us of softness that we're going to deal with that as I said near the team that has done that many times before we knew how to do it we have ample liquidity as Greg was suggesting and we will make sure that we.

Tap the brakes effectively but.

We keep a foot on the accelerated so that we can reaccelerate really really strongly.

When it comes right.

Great. Thank you very much.

Thank you we cannot move along to our next question is comes from Chris Compass of loop capital markets. Your line is open Sir.

Yes, good morning.

Kudos on impressive execution, considering all the challenges.

I had a quick follow up on that.

Question about lagged demand the one end market, where it looks pretty clear that there's going to be softness is automotive and I'm. Just wondering if you could characterize your exposure to that marketing and what what's the what might be the the lag cycle in terms of your materials.

That ultimately find their way into an automobile application.

So Chris the automotive industry.

He is driving about 10% of semiconductor demand globally. So we have.

Guarantee effectively that level of exposure I would say to deal automotive industry, we saw a little bit of weakening in the at the end of Q1, especially in Europe for some this fabs serving utility of industry.

We expect to see a to be more weakening in Q2.

And that is baked into into our guidance for Q2 and as I said.

We will not risk.

And the additional speculations on that kind of media.

Fair enough. Thanks, and then the in the first quarter expense reduction was part of the story in terms of that meets the earnings upside I was wondering if there's a way to elaborate or characterize the benefit on your cost containment efforts.

More specifically our R&D.

Some of the cost reductions are they temporary discretionary nature or more structural in nature. So any examples of how those flows through the accretion.

Yes, Chris This is Greg I would say most of them at this point are.

Around discretionary spending obviously, we have a lot lower TNT, we had lower employee benefits cost in this environment, it's slower to fill open positions. What I would say is as we work through this and we're focused on maintaining our levels of investment in the R&D, obviously, because that's our life.

And that will be important as we come out of this.

But.

All the discretionary things, whether weixin peony consulting costs those kinds of things were watching very very closely.

Okay, and then just finally normally in the in the slide deck.

Slide on.

Sales performance by geography can you provide any color you sort of good bye.

Logic foundry memory, just wondering if you could have any color geographically, how the business trended across the globe. Thanks.

Yes, I'm happy to do that.

So if you look at.

China RBC was sequentially down pretty meaningfully.

Two.

30% reduction as we would expect.

Given the timing of commitment team in in Q1.

[music].

Sequentially in Europe.

Okay.

Good performance.

4%, we saw strength in advanced logic, but as I was mentioning we also started to experience a little bit of slowdown in the.

Automotive related activity.

Japan was down sequentially, 3%, so its normal seasonality in Japan.

But in Japan, I would like to notes that it was up 16%.

Year over year, and that's really more for function of.

Number of very significant PEO wins.

Advanced memory in Japan and.

It's really defense to position the two years and cleaning chemistries that.

Should actually lift our business in Japan owner on a more permanent basis, so really good performance in Japan.

Korea.

We saw increased usage of events filters and new materials in advanced memory applications. So it was that it was them.

Up modestly and then.

North America year on year was up 10%, that's a function of some new wins in advanced.

Logic as well as really the impact of a number of acquisitions that we completed late last year and earlier this year.

And then Taiwan was very strong 6% sequentially, 13% year on year and I think you understand what's what's what is driving that it's really to the high level of activity at the leading edge and all of the preparation work going on in Taiwan for node transitions.

And.

And now.

We expect will be very.

Rich environment for US 4.3 divisions for the balance of the year.

Very helpful. Thank you.

Thank you we cannot move along to our next question comes from potash Misra Hofferber. Your line is open pit.

Great. Thank you good morning.

As for that customer spending declines how do you expect that change back different parts of your business.

<unk> said, it which sponsor business or the first to be factor too, which.

Product sales channel are the most lagging indicator of underlying demand.

So I think you know.

Typically our consumable business tend to be.

Less volatile.

But in the environment we're in.

It's when you would see exactly what type of a contraction we see in.

In the back end of the year, so I'm not sure that they are.

Perfect leading indicators.

For Us I think we're going to continue to be very vigilant.

Across.

For all product lines.

We have some level of flexibility in our cost structure, we try to maintain 20% of.

Of our manufacturing workforce in the form of temporary workers. So we have a way to two spots were down a little bit the level of spending and as Greg was mentioning we will continue to tap the brakes.

If if need be but there are few things that we want to be sure we protect.

R&D is one of those areas.

It's as I was mentioning earlier than you win rate saves.

In the way you managed to turns and.

We're going to try really really hard to carry our speed in the turns for the weekend, we can accelerate as quickly as we can sell.

Yes.

Perfect way for of managing what is ahead of us.

The key is to have enough variability new construction, which we have.

The key is really to have modeled different scenarios and have clear actionable plans detailed plans. So that you are ready to act quickly and decisively and we have tab.

And then you need to have the confidence that you have enough liquidity to afford.

Maintaining adequate levels of spending in what matters and Thats. The case for your R&D and not really speaking as Greg mentioned, we have we have a strong balance sheet.

So we don't know why what is ahead, but we will be ready.

In any event.

Got it and is there any impact.

Or any kind of.

Material impact on you because of the lower oil price and whatever it's going to do that.

I didn't gossip money cantos.

Most of it I would say generally not I mean, typically when cray oil prices rise, we don't see a lot of it and when they decline we don't see lot of and we have a.

A few of our input that are sensitive to is that in general we're using highly engineered polymers many of which are formulated specifically for us and so they don't tend to move.

In a meaningful way with commodity prices.

Got it.

Thank you very much.

Thank you we can now move along to our next question comes from Mike Harrison of Seaport Global Securities. Your line is open. Please go ahead.

Hi, good morning.

Well from was wondering if you can talk a little bit about your your confidence level in the Q2 guidance. There are number of companies out there.

Our just saying hey, we're not going to provide.

You mean for the next quarter.

What.

Doug you Bill visibility look like relative to normal.

And I guess, just you know what kind of updates have you gotten from share producers I think we've seen a couple of publicly.

What are you getting.

So some private or anecdotal evidence that.

That gives you confidence in the outlook.

Yeah, I'd say, it's a good question we.

To tell you the truth, we discussed that extensively as a management team we would have been.

We need to do for the tower lives many companies did.

Then we were.

Looking at.

Our bookings, which are very very strong.

And I'm not here to tell you that we have perfect visibility we don't.

But we had with visibility level that is not very.

It's similar to what we would have in a normal quarter in the order book is very strong.

And as of right now we have not seen any signs of cancellations or push out so.

So given the back log that we have given the older momentum there. We're currently seeing.

We felt that it could be useful to all of you to give you.

For Q2 guidance and we opened up the range a little bit them in typically are.

Adams range is about $15 million. It's 20 in Q2, just because we wanted to.

Creates a little bit more buffer.

And.

So, let's see how that plays out, but but again I think there are a number of reasons for us to be.

Still optimistic.

For Q2 top line.

Alright, and then you you mentioned a little bit some of the sounds like logistical issues that were impacting your facility in California.

Is that resolved at this point then you can you maybe comment on any other supply chain or logistical issues.

They could come up as a result of recorded situation.

In that or in other businesses.

All they have too many lives stories that.

We could we could bring forward, but it two major stories was one was the situation instant vis a vis those where there was shorter the additional translates order in California and.

The inability or for capital customers to come in to compete inspection, but thats behind us as I mentioned, the other big story that we.

Referred to was.

The situation in Malaysia, the Malaysian government.

It was a multi week sag and started with the heart Lockdown.

In late March with new exemption really given.

And that has before to providing essential businesses with the ability to bring on psyched about 30%.

Of the workforce and that number has now increased.

The about 50% of the workforce.

Which in practical terms.

Given the fact that all of the office workers are working from home means that.

He comes to the manufacturing floor, we can bring about 70% of the workers.

And given the degree of automation.

He said we have enough in the plant. We are currently running at 80% to 90% capacity, which is.

Sufficient given.

The projections that we have so long answer to your question, but those were the two major pain points when it comes to supply chain and manufacturing and both of them or essentially behind us.

All right thanks very much.

Thank you.

Last question cost some questions I'll call.

I was hoping.

Hi, Thanks for taking my question and Arbitron contact so those tend to commentary on downstream demand.

Just wondering from your vantage point when the demand slowed on does happen on like in a typical decision to the environment.

Good to be Threed tuition fee, who sees it focuses advanced materials first so you'll see the person.

What does the typical cadence of the slowdown between the two dilution the fields and then I'll follow up.

But I would say that they are by nature Thats a very nature.

Some of the.

Specialty chemical products.

It's very difficult for our customers to carry a lot of inventory write especially true for.

Some of the all seen unforeseen gases in some of the other highly.

Others materials that we sell so I guess, we probably will have.

That could be the best leading indicators for us and we're going to keep an eye on that.

Got it is the telco and then as a follow up I think both plenty kind of give some color into utilization rate trend.

I was kind of curious it said that both DRAM and NAND would the declining utilization rate in Q2 relative to Q1.

From prior experience is typically a precursor to capex cuts by the memory companies or do you need to see a more prolonged period of lower utilization rates.

Yes.

Outreach I don't know I think I will leave that to you I think you have as much experience in this industry is I do and.

I think that.

This downturn is.

Somewhat different from what we've done.

So I wouldn't I will let you, we'll let you run your own analyses and figure out what is good the most likely.

Outcome.

[laughter] Bertrand I know I will definitely be wrong on that front, but and it's just a final question if I can squeeze it in.

Can you give any color into the geographic breakdown in Q2, how do you think it's going to be between these most strongly in China et cetera.

Yes. So we are seeing certainly a nice recovery in China already so we'd expect China to rebound.

I would expect.

You know Korea, and Taiwan towards will be very strong for us in.

In Q2, and I would expect so that's probably doesnt come as a surprise I would expect relative weakness in Europe.

And then some weakness in Japan.

Given the end customers that many of the Fabs in those two geography offsetting.

Thank you very much work on things.

Sure.

Alright, operator that was the last call. Thank you very much everyone.

Okay.

Thank you for your participation ladies and gentlemen.

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