Q3 2020 Cabot Microelectronics Corp Earnings Call
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I would now like Dan the conference over to one of your speakers for todays call lead Mumford, Vice president of communication and marketing.
Please go ahead Mr. Robert.
Great. Thanks Carol.
Good morning.
With me today, our David Lee, President and CEO, and Scott Beamer, Vice President CFO.
Last night, we reported results for our third quarter fiscal 2020, which ended June Thirtyth 2020.
What are your joining us online or over the phone. We encourage you to review the Investor Slide presentation. We've made available under the quarterly real results section of the Investor Relations Center on the website cabin CMP dotcom.
A webcast of today's conference call in the script and this morning's prepared comments well also be available on our website. Shortly after the slide conference call.
You may require any of the information by calling our Investor Relations officer at 630 for 99 to six Ginger.
Please remember that our discussions today may include forward looking statements that involve a number of risks uncertainties and other factors that could cause actual results to differ materially from these forward looking statement.
These risk factors are disgusted <unk> SEC filings, including our form 10-K for the fiscal year ended September Thirtyth 2019, and our form 10-Q for the quarter ended June Thirtyth 2020, TV file by all these 10 2020.
We assume no obligation to update any of these forward looking information.
Also our remarks this morning referred to certain non-GAAP financial measures our earnings release and slide presentation include a reconciliation of each non-GAAP financial measure to the nears comparable GAAP financial measure I.
Additionally, theater reflects rounded value throughout this discussion and the accompanying slide presentation.
I'll now turn the call over to date.
Thanks, Colleen good morning, everyone last night, we announced a strong results for our third quarter fiscal 2020.
We're pleased with our performance, which we believe demonstrates the strength.
And resiliency of our high value specialty materials business.
And our ongoing strong execution.
Especially in light of the continuing unquestionably global business environments.
To date, we have not observed a meaningful impact from Covidien I'd seen on our ability to manufacture and deliver products to our customers.
And our most important focus remains continuing to keep our employees safe.
We've also been encouraged by continued strong demand.
For our semiconductor products, which represents approximately 80%.
Our revenue.
Technology continues to play a critical role in the transition to remote working and learning environments that is occurring globally.
We're also encouraged by their recovery in demand, we've started to see from our oil and gas pipeline customers and remain confident in the long term growth potential.
Our pipeline performance business.
I also want to take this opportunity to comment on the reset social justice protests, we have witnessed across multiple cities around the world fueled by concerns about racial and a quality.
At CMC, we value diversity and inclusion is a core value that the leadership team and I firmly believe that.
And our absolutely committed to.
I believe that there is no place for racism inequality or discrimination in this world.
And we will continue to focus on providing a welcoming environment for all in a place where everyone is value.
Turning to our third quarter results, our revenue increased 1%.
And our adjusted EBITDA increased 7% compared to the same period last year.
The increase in revenue was driven by strong growth.
In CMP Slurries.
And pads.
Well, it's higher revenue in our wood treatment business as we successfully enacted price increases that we previously discussed.
The increase in EBITDA was driven by operating leverage in our electronic materials segments.
Lower operating expenses overall.
And higher prices in the wood treatment business.
We believe these results demonstrate the strength of our business model as well as our continued operating discipline and execution.
Now, let me provide some additional thoughts on industry conditions and outlook.
Starting with electronic materials semiconductor industry conditions remain solid this quarter.
Overall demand for our materials improved driven by strength in foundry and logic, primarily at the leading edge.
As well as continued signs of recovery in memory.
Our customer saw continued strong demand from cloud servers, and Pcs, which was mainly attributed to the increasing need for additional devices and bandwidth to support work from home and E learning environments.
We're also encouraged by our customers continued drive and progress towards ramping up new and advanced technologies in both logic and memory, which should in turn drive growth in demand for our products.
Given our strong participation.
Cross leading edge nodes.
Looking ahead at present, we expect continued stable demand for electronic materials segment.
In the fourth fiscal quarter.
With expectations for revenue to be flat to up low single digits.
Compared to this quarter's results.
While there are still uncertainty in demand based on macro factors, we are growing increasingly optimistic that the strength and stability, we've seen from our semiconductor customers will be sustainable.
Especially given the important role of technology in this environment.
Turning to performance materials. This quarter, we saw a decline in pipeline performance revenue due to soft industry conditions as a result, as a pandemics impact on global oil demand and transport.
However industry conditions appear to be improving with a pickup in demand and inventory reductions for oil and gas refined products in recent months, which should translate into stronger activities for our customers and higher DRA consumption in the fourth fiscal.
Quarter.
We've already begun to see recovery and in our in this business and our July sales were up significantly month over month for the first time since March.
We expect demand for deliveries will continue to improve assuming major economies, especially the U.S.
Continue to move beyond locked down conditions related to cope with 19.
We also benefited from strong demand and significant price increases in our wood treatment business, which partially offset some of the decline in pipeline performance products. This quarter and we expect the wood treatment business to continue to perform well do our planned exit around.
The end of calendar 2021.
Looking ahead, we currently expect performance materials revenue.
Increase low to mid single digits sequentially in the fourth fiscal quarter due to anticipated revenue improvement for our pipeline performance business and continued strength in wood treatment.
Given these expectations for a stable to improving operating environment in both our electronic materials and performance materials segments and dependent on macroeconomic factors. We currently expect total company revenue to increase by low single.
Digits in the fourth fiscal quarter.
In summary, we are pleased with our results and believe they demonstrate the resilience and strength of our portfolio. We're also proud of our strong execution in this uncertain environment.
Moving forward, we're excited about our future given the favorable trends in the semiconductor industry as well the expected normalizing demand from our pipeline customers.
We believe we are well positioned to end our fiscal 2020 with another year of strong results.
Which reflects our technology leadership and operational and quality excellence.
As well as our continued commitment to delivering long term shareholder value.
With that I'll turn the call over to Scott to provide more details on our financial results.
Thanks, Dave and Hello, everyone well the operating environment remains uncertain, we are focused on growing earnings by improving our mix and controlling expenses.
We believe our results show our ability to not only drive earnings but also to convert those earnings into free cash flow and we are allocating our cash according to our stated capital deployment priorities.
Consistent with this we will continue to strategically invest in R&D and Capex in order to maintain our leadership positions in the industries we serve.
[noise] fundamentally we believe that our businesses have not been disrupted over the long term and our strong balance sheet and liquidity should enable us to whether any further short term challenges any merged well positioned to deliver future growth and margin expansion.
Now let me speak about our quarterly result, and my comments will generally follow the slide presentation, we posted on our website last night, along with our press release.
Slide three provides a high level summary of our financial performance highlighting the strong results this quarter.
Specifically, our revenue adjusted EBITDA and adjusted EPS were higher than the prior year, even in this challenging environment. While revenue grew 1% adjusted EBITDA grew 7%, indicating some operating leverage overall cost controls and the favorable impact of actions taken to.
Improve the profitability of the wood treatment business.
Specifically operating expenses were lower from reduced travel and over overall lower discretionary spending.
Slide four provide some quarterly PML comparisons for both reported and adjusted results.
Adjusted gross margin improved versus the prior year, primarily due to higher selling prices and what treatment and improved product mix.
Adjusted EBITDA was $92 million up 7%.
Adjusted EBITDA margin was 33.5% 200 basis points higher than the same quarter last year, and 150 basis points higher than the first half of the year.
EBITDA margin improved compared to the first half of the year due to lower operating expenses, primarily from lower incentive based compensation from a true up in the third quarter.
And overall, lower overall, lower discretionary spending including lower travel.
While adjusted EBITDA margin was particularly strong metric this quarter, we believe that between 31 and 32% is an appropriate assumption for the company for the short to medium term, including the period of time that we continue to own the wood treatment business.
Our reported net income was $35 million adjusted net income was 53 million up 13% compared with the same quarter last year.
Overall, our adjusted net income benefited from higher revenue.
Improved margins lower operating expenses and lower interest expense in the quarter.
Diluted EPS was a $1.17.
Adjusted diluted EPS was $1.80, which is 13% higher than the same quarter last year.
Now, let's discuss revenue results by segment and business, which are shown on slide six.
Electronic materials, which was 80% of our quarterly revenue reported a 4% increase compared to last year.
CMP Slurries revenue increased 8%, primarily driven by higher demand from foundry and logic customers.
We saw strong growth in our tungsten and dielectric slurries in the quarter, which continue to represent growth areas for our company.
Electronic chemicals revenue was down 2% compared with the same period last year due to lower demand from legacy logic applications, primarily in Europe as some customers were negatively impacted by softness in automotive and industrial sectors.
This was partially offset by stronger demand in advanced logic applications, mostly in the U.S.
CMP pads revenue was up 3% due to stabilize customer demand and moderate moderate inventory builds by certain customers.
Sequentially electronic materials revenue was up 1%.
Moving to performance materials revenue declined 9% over the prior year and 17% sequentially from a record level in the prior quarter, primarily driven by soft oil and gas industry conditions, resulting in lower demand for DRA is.
DRA sales declined 36% in the quarter, which was partially offset by higher revenue and wood treatment.
Slide six shows revenue and adjusted EBITDA by segment.
Electronic materials delivered around $77 million of adjusted EBITDA, which was 35% of segment revenue an increase from the prior year.
Performance materials, adjusted EBITDA was approximately $27 million, which was 50% of segment revenue also an increase from the prior year.
Now please refer to slide seven which provide some balance sheet and cash flow highlights.
We ended the quarter with $355 million of cash on hand, and 1.076 billion of total gross debt.
Both include the 150 million dollar draw down from our revolving credit facility that we executed in mid March.
The entire 150 million currently remains on our balance sheet.
As we mentioned last quarter, we drew down these funds out of an abundance of caution.
And we continue to hold these funds in cash at a minimum cost to us given the favorable interest rate environment.
We will continue to assess our business and the macro conditions to determine if and when to repay these funds.
Year to date, we generated cash flow from operations of 204 million and our Capex was 107 million as a result, our free cash flow was $97 million.
Continuing with our stated capital deployment priorities year to date, we have paid 38 million in dividends.
We paid 18 million on our outstanding debt.
And repurchased $38 million worth of stock, including 18 million in the third quarter and an average cost basements basis of approximately $116 per share.
Our net debt is currently at two times, our trailing 12 months adjusted EBITDA, which is slightly ahead of the timing target. We established when we completed the KMG acquisition.
Finally on slide eight we provide some forward looking expectations.
We would caution that our guidance is based on current estimates and the ongoing volatile nature of cobot 19, and its impact on the economy in the industries, we serve could impact our results.
For the fourth quarter of fiscal 2020, we currently expect total company revenue to be up low single digits compared to where third quarter.
Within the electronic materials segment revenue is expected to be approximately flat to up low single digits versus our third quarter fiscal.
As we forecast a slight a stable to slightly increasing demand environment for our fourth quarter.
We expect revenue in the performance materials segment to be up low to mid single digits sequentially in the fourth quarter, specifically, we expect to your raise to improve at least 10% sequentially.
What is expected to be stable and Q, we de is likely down slightly after a strong third quarter.
As Dave mentioned, we started to see improved DRA sales in July and expect continued modest improvement in August and September as economic activity hopefully continues to rebound.
Given the uncertainty with respect to covert 19, we withdrew our full year fiscal 2020, adjusted EBITDA guidance last quarter, but believe with one quarter remaining in our fiscal year. We can once again provide our outlook.
We currently expect adjusted EBITDA to be between 357 and $362 million in fiscal 2020.
When considering this combined with our nine month result, and the fourth quarter revenue guidance. This would imply a fourth quarter adjusted EBITDA margin of between 30 and 32%.
Let's continue with some expectations for full year PML, we continue to expect our full year interest expense to be between 43, and $44 million, which implies 10 to 11 million in the fourth quarter.
Our tax rate is expected to be between 21 and 23% for the full year.
[noise] through nine months, we spent $107 million on Capex. Our previously mentioned cap capacity expansion project at our DRA facility is near completion with some costs to be incurred in the fourth quarter.
Overall, we expect our total capex to be around $130 million for the full year.
In closing, we continue to be optimistic about our businesses and confident in the long term health of the industries in which we operate.
While the cobot 19 pandemic has been disruptive in the short term. It has accelerated a number of trends that should continue to benefit our business.
These include greater Interconnectivity and reliance upon the most the most advanced powerful chips the process data quickly and store incremental amounts of information.
From our company's perspective, we are managing what we can control such as improving mix and reducing expenses, while still investing for the future our cash and liquidity position is particularly strong and we continue to safely and reliably deliver a critical enabling technologies to our customers.
Now I'll turn the call back to the operator as we prepare to take your questions.
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Our first question. This morning comes from Mike Harrison from Seaport Global Securities. Please go ahead.
Good morning.
Hi, Good morning, everyone hope, everyone, we're doing well.
I want to ask.
The performance materials business can you talk about the margin strength you saw there I know you mentioned wood treatment pricing being higher and presumably some discretionary expense reductions, but just help us understand maybe how sustainable that.
Impressive margin performance could be.
Yes, we think about the margin performance on our profitability might the first the first thing.
I think from our perspective as these are best in class type of performance metrics, and where whether we're talking about past current or future guidance. We're very pleased with that and we're managing what we're continuing to manage what we can control. We mentioned that Q3 was a bit higher than the typical run rate both for.
The company and the performance materials segment, and we mentioned that that's mostly opex driven and in particular, a true up on our short term incentive based compensation because in the June quarter, as we had more visibility on the pandemic and someone we we trued up and made some adjustments relate.
It through our expenses to reflect that so that was beneficial in the in Q3 again from a true up nine month that won't recur in Q4. So we feel like we've been that's in addition to the discretionary spending travel is very minimal at this point and we expect that to continue into the fourth quarter.
Sure. So as we think about the fourth quarter. That's why we were pretty front footed again about the expectation and indicating that our expectation for Q4 would be between 30 and 32, so were mentioning as a company continued.
Hi, best in class type of metrics Q3, a little bit higher than then would be typical Q4 still in that in that range, but that 30% to 32% and then as we think about performance materials in particular as you've been following it you notice the improvement in profitability from.
The mid Fortys up to 50% even this quarter on we've mentioned the pricing optimization that we've done within our wood business I would be thinking of that metric as closer to 48 again for the fourth quarter and that would be specific because that that true up that we mentioned on short term compensation.
<unk> was a more favorable impact to performance materials. This quarter. So adjusting for that I'd be thinking about 48, or so in Q4 as a typical kind of metric.
Alright, Thanks for that and then maybe kind of a bigger question bigger picture question.
Tronic materials business. It seems like three months ago, we were looking out to the second half of calendar 20, and wondering if maybe some consumer slowing.
Could lead to some reduction in fab utilization rates.
At this point you guys have a little bit more visibility on what the second half of the calendar year holds.
Any any lingering concerns that we could see some slowing and utilization.
Over the next six to nine months.
Yeah, Hi, Mike and hope, you're well as well so.
I think we are encouraged by the strength in demand that we've seen from our customers. This quarter. We saw particular strength in the foundry and logic side and memory continues to recover and I think you hit on a key point, which is the role that technologies playing in this environment.
Is becoming increasingly critical whether its connectivity or productivity, we're seeing increasingly.
More confident and more momentum going into that second half whether its and if you look at the end markets, whether its pcs tablets or data centers or emerging technologies like fiveg all those seem like they're gaining some positive momentum that we think is.
We're getting more confident about the sustainability of that so we're really excited about the the outlook and as you can see from not only our results, but our guide I think thats reflective of how we feel about the the current trajectory of the industry.
Yeah, I think it also is reflective of our company's execution and the strength of our business model. So so we're feeling encouraged by the outlook for sure.
Alright, and then last question on the electronic chemicals business, you mentioned that there were some slowing on the legacy side.
Obviously in this past quarter, the automotive OEM business was very slow, but it is improving do you expect that legacy business to improve or should we think of that is being under pressure into calendar 2001.
Yeah. It's a good question I think if there is one area our segment of the industry from an end market perspective that hasnt.
Recovered as quickly as others. It is that automotive and perhaps had also put industrial in there as well.
[music].
And I think clearly that's going to take a little longer to recover that would naturally fall into that sort of legacy logic type of segments. So I think the long term growth thesis is still very much intact, but it's going to take a little longer for automotive to get back to where it was in say 2018.
All right thanks very much.
Thanks, Mike Thanks, Mike.
Our next question comes from Chris Kapsch from Loop capital. Please go ahead.
Hi.
Yes, good morning so.
My first question with the follow up on the margins around the electronic chemicals business than.
Just curious.
In addition to some maybe some discretionary spend tightening obviously and may be accrual reversals.
Surmise, there's a positive mix benefit.
As opposed to like some absorption variance benefit. So can you just talk about.
You can confirm that you're getting a mix benefit in that segment and elaborate it did.
Assuming your your your highest margin products like tungsten and the advance stock price.
Showing better growth in the balance of the portfolio is that fair.
Yeah exactly criticized within Slurries, we saw stronger tungsten and die electric revenue, which is which is helping to improve the mix. There. In addition, we've had some operational efficiencies on the pad side, which has helped improve the margins for that.
Men as well so we think we've had a history of improving margins in that segment, which used to be the historical company. We've had a history of doing that in the past and.
Through margin mix and operational efficiencies, we expect to continue to do that.
Okay got it and then the formal commentary there was discussion about.
We're benefiting from.
The healthy.
Demand to your foundry logic customer.
And.
The memory sector.
It's still recovering I'm just curious about.
If you could comment.
And elaborate on your your your process of record wins in there for content per wafer.
More than.
Threed NAND chip like.
Mission from duty Threed NAND architectures weather really good thing for Cabot Microelectronics, we're seeing.
In addition of that Threed NAND production the deeper architect so more layers. So you still is there anyway.
Your framed it's up a little bit some of your.
The presentation Mr. real quick can you.
Any way to more quantitative parameters around.
As we feel like for example, like that.
Loosely speaking the memory chip industries gone from something like.
20% of production at 92 player below now that's like 50 this year so.
I would assume you're seeing benefits from that but anyway anyway, you could frame up quantitatively your your.
Content per wafer for the ban memory chip architecture thing.
Yes, Thanks, Chris and I would just say first on the.
Outlook for memory it continues to be a positive trajectory, but I'd say.
It's not yet even fully recovered after.
Pretty historic filled in 2018, and if you think if you listen to what key customers like Samsung are saying, although they have strong demand. They don't expect full recovery until 2021. So if you think about that as a future.
Tailwind for us once the memory makers go back to full utilization that should produce additional tailwind for us, especially as you mentioned Threed NAND.
As it pertains to the transitions, obviously, we're working closely with those major memory makers on.
120, and beyond layers and I'd say that there is incrementally more CMP steps, it's not like the kind of doubling of steps that we saw from two to three d., but I think of it more as incremental growth there are more layers that need to be polished, but on the other hand, we're working with.
With customers as well to make those processes more efficient right. So they could be.
Center layers or there could be less polishing time, that's needed. So we look at a move like for example to 90 to 120 definitely as a growth opportunity, but it's not going to be as significant as a two to three d., but it's a really important porton part of our growth strategy, we continue to secure strong.
Long positions in memory as well as logic foundry.
We mentioned strong die electrics.
This quarter and that included some early design wins that we recorded with both the major foundry and a major memory manufacturer. So as the technology continues to advance that really plays into our strength. We continue to work closely with all those customers to make sure we're working with them on the.
Jim technologies.
That's helpful. Thanks, David and then just one quick follow up on the.
The comment about Greg Lang foundry logic.
Quarter when it's not.
Board benefiting your slurry pad and the high process chemicals or with the most pronounced in there and the electronic chemicals business. Thank you.
Yeah, I say it was pretty broad based we saw increases across the different parts of the portfolio and I think that really speaks to our unique.
Capability to bring a full suite of consumables.
Those for up to those important customer. So you obviously, we saw foundry very strong logic as well and that I think that just to an outcome of having a full suite of solutions that we can offer to them and obviously securing those advanced position. So we're really encouraged.
Thank you.
Thank you Chris.
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Our next question comes from David suffer from C.L. King. Please go ahead.
Good morning, David How're you.
Good.
Well there thank you.
So I have a couple of maybe a couple of small board questions and then maybe a bigger picture one, but I wanted to kind of maybe touch on the comment about customer inventory build on the CMP.
Pat side, and you know I didn't notice similar comment either now or in the past couple of quarters related to either well pads or slurry or.
He PC electronic or each PPC.
Just just broadly speaking what is it about your pet business what is about maybe the phase of development of maybe some of the the customer projects that led them to decide that they needed to carry a.
Hi, you're kind of safety stock or buffer stock or in other words or are they suffering from supply disruptions or.
Is it calm and maybe when a node transition is underway to build up you know some extra.
Buffer stocks in those areas, but just some color on customer behaviour related to your pet business. Thank you Yeah sure David and first I would say that there really isn't a change to the underlying customer behavior for our pads business or any of the businesses within electronic materials. This was in.
Of an item that we mentioned it but I, it's not significant overall as a company. So thats why how we use the term moderate if you think about the pads business. It's off a relatively small base and you know from the materials that pads were up <unk> million dollars versus the prior year. So so thats about.
3% change and as we were explaining that we saw an item that really was limited to one customer again large enough dimension, but not significant overall to the company where is already seeing a return to more normalized levels at that particular customer, but it's really not an industry wide.
Situation and nothing structural.
Yes, no no. Thank you for that and I mean, just to comment I agree with you a 100% the year over year change not not so dramatic but.
Well actually I mean that had been a lot of product line that maybe was had been a little sluggish.
Well actually so so this period kind of stood out just a little bit you know on that basis, but it.
It was it was part of that but again, we continue to be optimistic about our pads business and the opportunities that we have commercially and we're working both commercially and operationally to continue to improve that business.
Okay, one more kind of small bore question and you know I'm kind of.
Asking this with the Grand I, but I can give us your answer but you did mention a pretty sharp.
Well, let me actually going to change it so I'm going to just ask on the DRA business.
You did you say that there was a 36% I believe sequential decline in.
Business on the DRA side in the quarter can you remind me was that shipments was that dollars is that similar and then I didn't want just want to ask you could comment on the tone of product pricing you know I'm on the DRA business as you start to emerge from.
From the recent downturn has has pricing been something door.
Competitiveness increases along with the decline in market demand. Thank you.
Sure and.
Yes, let's talk about the arrays for a minute. It's this quarter. It was 10% of the company revenue were slightly less but an important area a growth area highly profitable area for our company. So I think it's worth taking a couple of minutes to comment that is the business that has been that has been in.
Acted through demand of transport and demand of oil as we've mentioned from the pandemic and if you think about our first quarter so back to the December quarter.
We know that was the pre cove at quarter end, we mentioned that DRA is we're about two thirds of the segment at that point, which puts that revenue and the quarterly neighborhood of $40 million worked.
We have declined as you mentioned in Q2 was pretty flat to Q1, and then we were down 36% and that's a dollar change quarter over quarter sequentially. We mentioned that each the June was the lowest month of or the lowest month within that quarter and July was.
Certainly better from June so we expect that we hope that things will continue to recover and we've seen so far that June was the low point in this cycle. So we have expected. We've said that we expect the arrays to be up about 10% sequentially than going into the fourth quarter and I think that you know those decline.
Lines have been more than offset have have been partially offset by those optimization efforts that we've taken in our wood treatment business. So we're actively proactively managing that business as stewards of the of the company and all of our businesses and we've been able to optimize the profitability of that business while also.
We're working with our customers on the transition plans. So we feel like US a complete story within the segment of managing again, what we can control, even helping to offset a market that has declined for us in terms of pricing. It it's a relatively well structured but yet competitive environment.
So I think we're going to it we generally speaking we don't compete on price we compete on delivery technology being close to the customers and have that high degree of customer interface. So.
It's always going to be competitive we always will respect the competitors that we have and be competing across all fronts, but generally speaking we're competing on different levels, rather than just price in the marketplace.
Fair enough, Okay, and then my I do have kind of a big picture question. Then it would have to do maybe if Dave.
Could comment on.
I guess, the broad topic would be the technology roadmap.
That are out there so.
In in reading about the industry I mean, I, it's my opinion that the broader industry chip makers designers et cetera are all kind of adopting kind of a more aggressive.
For more confident tone in regards to the longer term.
Technology Roadmaps that they all have so looking beyond the next node transition or even the next the duration for their leading products.
And you know since since your R&D efforts, you know need to be closely aligned with your key customers I'm. Just wondering if maybe from three months ago six months ago that you know it's your impression that.
Hey that that your customers are moving forward more aggressively than may be looking beyond seven nanometers defy than three et cetera on the logic side.
And whether that has changed the tone change the direction.
Of your R&D efforts and whether you are collaborating on advance the next generation or just one generation beyond that.
Sooner and at a more highly collaborative level. So you know industry roadmap and whether it's reality or just perception that the industry has has gained maybe so the broader industry has gained some increasing confidence.
And more.
But more diligent pursuit of.
No knocking down the obstacles to getting to that.
To that next node transition and even the step beyond that thank you.
Yes, David Great question, and I think there is definitely reasons to be encouraged.
In the current environments, I think I've versus especially for example, six months ago, when when Cnineteen was really.
Ramping up all around the world.
I think everyone had a cautious outlook, but I think it's increasingly clear that technology.
We're going to rely on technology to continue playing a critical role and I think we've seen our customers the more confident in terms of.
Not necessarily accelerating but just progressing in their roadmap and so we are working closely with logic and foundry customers on.
Advanced technologies, you mentioned seven we're also working inside and three and if you can believe it even one and sub one Adam here and I think this is really where a company like ours is unique in that where we can bring a total suite of of consumables, especially if you look at just the CMP module.
So we can work and customized a pad solution and a slurry solution that enables the customer to do different things than they could without that degree of freedom on their roadmap and so I think we play an important role in terms of helping.
Further that technology roadmap from our company's perspective, we havent slowed down R&D, even through the Cnineteen period, we've always been strong believers in our technology leadership and so we're continuing to innovate new solutions across the portfolio.
And so we're encouraged by what we see in logic and foundry.
I think foundry, obviously sort of taken bleed a bit from the technology roadmap side on the memory side. Similarly on the NAND piece I think we talked about that a few questions ago.
Moving onto 100, plus layers, that's really critical to have.
The purity levels, whether it's an electronic chemicals or again, the slurry and pad combinations that we're able to bring to bear for those customers DRAM is facing it kind of an interesting challenge because they can't go vertical, but we're working with customers closely on on the one why one the and beyond technology.
So we are seeing a lot of.
Optimism I.
I think there's challenges and I think those challenges play into our strengths. So so we like that.
That confidence from customers and of course, we're working closely with them.
Thank you very much appreciate it great color.
Hi, Thanks.
Our final question comes from that Chris Shankar from Cowen and company. Please go ahead.
Hi, Thanks.
Im good thanks for that.
Two questions would David.
One is on the Catholics with WSE mix shift.
More towards memory next to it and away from foundry logic.
Does that impact your product mix and margins, we do see more tungsten CMP lift copper CMP kind of curious how the product mix would shift the change in Wi Fi and then at Apollo.
Hi, Chris Yes, so obviously, we have really important physicians and memory and to the extent that they are continuing to invest in new capacity.
Whether it's in Korea, or North America, or China for example.
It's very positive for us because as you mentioned there are very significant tungsten and dielectrics steps, we have strong positions with those advanced technologies and so increasing WFP for memory, you would think too if you know as they start up that capacity would be a pie.
Causative for our business, but then again I'd say also.
More capacity utilization on foundry and logic is also a growth driver for us as well because we sell to all those segments, but I'd say for memory in particular there.
Critical tungsten steps there is critical die electric steps and so I think we you know that would be even more favorable for us. If there is a shift towards the more capacity added on the memory side.
Got it turns on that and then the final question is.
Can you give an update on the competition, especially in China, but.
On June micro, making quite a bit of function.
Right. So you know obviously theres a lot going on in China. These days were following the situation very carefully we have a strong business in China.
And we have heard for many years and so one is I think monitoring the macro situation carefully.
It is essential and we don't see any.
Material impact from any of the.
Regulations in place today as far as local competition, we respect all of our competitors, but I'd say, we've a very strong business in China, and we haven't seen a significant increase in the competitive environment.
In China, whether it's from locals or multinationals.
Thanks, Dave.
Thanks crash.
Just a reminder, once more star wind in order to ask a question.
And this does conclude our Q and a portion of the call I would now like to turn it back to calling Mumford for final comments.
Thank you now that is on the question do we have for this morning. Thank you for your time and your interest and Kevin.
Great.
Ladies and gentlemen, this does conclude today's conference call. Thank you again for participating you may now disconnect.
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