Q3 2020 Entegris Inc Earnings Call
[music].
Good day, everyone and welcome to the integrity third quarter 2020.
Call 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 Vice President of Investor Relations.
Please go ahead Sir.
Earlier today, we announced financial results for third quarter 2020.
We began.
Listeners that our comments today will include forward.
Looking statements. These statements involve a number of risks and uncertainties.
Actual results could differ materially from those projected in looking statements.
Additional information regarding these risks and uncertainties are contained in our most recent annual report and subsequent quarterly reports.
Yes, you see 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.
Bye.
Regulation G. You can find a reconciliation table in today's press release.
Well as on the Investor Relations page of our website at Entegris Dot com.
On the call today are Bertrand block, our CEO, Greg Graves our CFO.
With that I'll hand, the call over to per truck.
Thank you Dan and good morning, everyone. As we have discussed since early in the outbreak.
<unk> primary focus has been keeping our teams seeks to that end, we have continued to strengthen I'll state College and protocols.
I am proud of the safe environments. We have created for are you taking these colleagues.
Oh, so very proud of the tremendous work by all Golden teams to maintain high said its cabbage insupportable cuts to the ranch around the world.
As we begin to find a quarter of the year, our operations and supply chain <unk> operating at normal levels.
Let me now turn to our third quarter performance and I would start by saying that I am very pleased with how we judge and the quality of our execution.
In the third quarter sales grew 22% year on year, and 7% sequentially above our guidance.
Sales were strong across all three divisions as we benefited from several node transitions and strong overall demand for products and solutions.
Gross margins improved year on year and sequentially.
Adjusted EBITDA was up 32% year over year and up 8% sequentially.
Finally.
Got P. D. S jump 67 cents was above our guidance up 34% year on year and up 12% sequentially showcasing the leverage that exists in I'll just get smarter.
Oh record Q3 revenue was driven by a continued outperformance in a few key areas.
First we continued to benefit from the accelerated demand for our leading edge solutions in advanced technology nodes, especially in liquid situation advanced deposition materials and formulate you've changed the SEC.
The second area of strength.
As you know <unk> division and each solutions for new fab projects.
Sales were strong in fluid handling foups and sensing and control products.
Then I'll sensing and control platform.
Ticklish chipsets, which we acquired in 2018 and G.M.T.I., which we just acquired in July of this year had a strong quarter.
As you know these complementary solutions provide critical Baltic culling process control and flooded CMP slurry, Jamie Cook delivery loops or.
Well you know, there's very good quarter, an excellent execution by the team.
Next I would like to quickly address evolving U.S. try not trade situation.
To put things in context year to date, China, We presented 13 Percentof our revenue.
And the local customers in China comprise less than half of that.
We are obviously monitoring closely the latest developments from the U.S. administration in order to remain in full compliance with the regulations.
Unfortunately to date the various trade restrictions have had no material impact on our overall business.
Now I would like to discuss a new program I am very excited about.
[noise] Summer, we officially launched in Texas is.
Corporate social responsibility program.
We have been active in many elements. So she is solid and yes, you in the past, but we had yet to 40 articulate off she loves it she purpose and that's duration.
You might see us sell lets it posted on our website in August we laid out all believe that what we do as a business that's be closely linked to what we stand for as an organization and have a lasting positive impact on our world.
It also laid out the four pillars of phosphates, our approach, which our innovation safety person to dropping to an infusion and sustainability.
Next week, we will be announcing ambitious goals for each of these four pillars and there would be a lot more to come from us in the weeks to come on CSR and you see that integrity.
Looking ahead to the fourth quarter and the balance of the year.
From an end market perspective, the semi market appears to be holding up better than expected.
Driven by the well documented strikes in areas like data centers, Fiveg laptops and gaming.
And the relatively stable conditions in the memory segment.
Lastly, drilled the auto and industrial markets appear to be rebounding, which should translate into strong demand in mainstream fabs.
For the full year 2020, we now expect the market based on our unit Capex mix would be up low to mid single digits compared to our previous expectations of down mid single digits.
In addition demand signals in our own business continued to be strong and.
In particular, our advanced memory and logic customers continued to be very committed to their new traditions and given our new opportunities at these notes, we expect to sustain our strong market outperformance.
More broadly we continue to be very optimistic about the long term fundamentals of the semiconductor market.
Hi, Entegris, we are benefiting from the two intersecting themes of the growing importance of process, but two years and the <unk> and you back they have on semiconductor performance cost and reliability.
We expect that these key trends, which continue to result in increased integrys content, but wafer.
In conclusion I am.
Very pleased with the performance and the resilience of our business.
And I am optimistic that we will have its twond close to the year.
In 2020, we expect to deliver record sales and if yes.
Which I am, especially proud of considering the many challenges we faced during the year.
Before I turn the call over to Greg.
I'd like to remind you of our upcoming virtual Twentytwenty investor and analyst day on November 17th it Steve.
It's been a few years since we have done and I know these days. So we look forward to updating you on the integrity story.
Now, let me turn the quarter Greg.
Greg.
Thank you Bertrand in my comments today, I'm going to cover our third quarter financial performance and our fourth quarter guidance.
Third quarter was an excellent quarter for Entegris with record performance across the board.
Q3 sales were 481 million compared to 475 million at the high end of our guidance.
Sales were up 22% year over year and 7% sequentially. This.
This growth was driven primarily by our own market outperformance as Bertrand discussed.
Q3, GAAP diluted EPS was 58 cents per share up 93% year over year and 16% sequentially.
Non-GAAP EPS of 67 cents was slightly above the top end of our guidance range of 66 cents and up 34% year over year and 12% sequentially.
Moving onto gross margin GAAP and non-GAAP gross margin were both 47% in Q3 versus our guidance of approximately 46%.
Higher than expected gross margin was driven by higher sales volume as well, it's very good execution by our manufacturing teams.
We expect gross margin to be approximately 47% both on a GAAP and non-GAAP basis in Q4.
GAAP operating expenses were approximately 119 million in Q3 and included a total of approximately 15 million of non-GAAP items from amortization of intangible assets integration and other costs.
Non-GAAP operating expenses in Q3 were 105 million, which was higher than our guidance. There are two primary drivers of this first was higher variable compensation driven by the better than expected Q3 performance and the improved annual outlook.
The other factor was a 2 million dollar contribution commitments made to the soon to be established Integra Foundation, which among other things will fund the stem education in underrepresented communities.
We expect both GAAP and non-GAAP operating expenses will be approximately flat in Q4 compared to Q3.
Q3, GAAP operating income was 107 million or 22.2% of revenue and non-GAAP operating income was 122 million or 25.3% of revenue.
Adjusted EBITDA was approximately 142 million or 29.6% of revenue.
Our GAAP tax rate was 17.3% and our non-GAAP tax rate was 18.1% for the quarter below our guidance of approximately 20%.
For the full year 20, Twond, a consistent with our guidance last quarter, we expect both our GAAP and non-GAAP tax rate to be 18% to 19%, which implies a quarterly rate of approximately 21% for Q4.
The higher rate in Q4 as a function of two factors first in Q3, we had a discrete benefit related to option exercises that will likely not recur in Q4 and second in Q4, the benefit from foreign tax credits will be slightly less than initially anticipated.
Turning to our performance by Division Q.
Q3 sales of 150 million Foresi were up 18% year over year and up 3% sequentially degree.
The growth was primarily driven by advanced deposition materials advanced coatings and cleaning chemistries the.
The Synmat acquisition also had a modest positive impact on year over year growth.
Adjusted operating margin for us the above 22% was up over 300 basis points year over year the year over year increase in operating margin was driven primarily by higher volume.
Q3 sales of 194 million for M.C. were up 24% from last year and up 5% sequentially.
On a year over year basis liquid filtration gas filtration and the impact of the now acquisition drove the sales growth.
The sequential sales increase was driven primarily by liquid filtration.
Adjusted operating margin for M.C. was 33.7% up almost 200 basis points year over year and down slightly sequentially.
The year over year margin increase was driven primarily by higher volumes and favorable mix. The sequential margin decline was driven primarily by higher R&D investments and higher variable compensation costs.
Q3 sales of 144 million for M. age were up 23% versus last year and up 14% sequentially. The year over year sales increase was primarily driven by high purity liquid containers fluid handling products sensing and control products.
And a wafer handling products Mr.
The sequential sales increase was primarily driven by sensing and control products and fluid handling products.
As Bertrand highlighted the performance of P.S.S. was particularly strong in the quarter.
The G.M.T. acquisition had a modest impact on both year over year and sequential growth Ajay.
Adjusted operating margin for M. age was 23.3%.
600 basis points year over year, and up 400 basis points sequentially.
The year over year and sequential margin increase was driven by higher sales volume and solid cost management.
Cash flow from operations for the quarter was 101 million.
Free cash flow was 69 million.
Capex for the quarter was 33 million, we continue to expect to spend approximately 120 million in Capex in 2000, and swanee related to ongoing investments in support of our new product introductions as well as capacity expansions.
During Q3, we used approximately 11 million for our quarterly dividend.
We did not do any share repurchases in the third quarter. However, we did to reinstate our 15 million per quarter Programatic buying back at the beginning of Q4.
We remain committed to our dividend and our programmatic buyback program.
Turning to our outlook for Q4, we expect sales to range from 480 to 495 million.
We expect GAAP B P S to be 55 to 60 cents per share.
And non-GAAP EPS to be 62 to 67 cents per share.
In summary, we are extremely pleased with our performance in the third quarter and year to date during.
During the third quarter, our revenue EBITDA and EPS were all at record levels.
Demand for our advanced products in the new logic and memory technology nodes continues to be very strong.
And we have confidence in the strength of our platform our value proposition, our execution and our strong balance sheet.
Operator, we'll now open up for questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad using a speaker phone. Please make sure your mute function.
And it's turned off to allow your signal to reach our equipment.
Again, Please press star one to ask a question well pause for just a moment to allow everyone an opportunity to signal for questions.
Well take our first question from Sidney Ho with Deutsche Bank. Please go ahead.
Hi, great. Thank you and good morning, everyone can think congratulations on strong quarter needs. First question is I. Appreciate your comment that this year's market outlook.
Yeah.
Is there do you have any preliminary thoughts on how next year will look like maybe asked differently I think oh, we we've seen quite a quite change during the year, but assuming that market conditions hold at the same EPS in Q4, how would 2021 be for your market.
Yes, it's like sort of mix and maybe more specifically in the Capex side of things do you expect the SAP construction activities to be as strong as this year. So if I source.
Good morning, Sydney and thank you for your question I would.
Well beyond you said.
We have continued to be optimistic about the general health of the industry and our relative competitive position as we exit two.
20.
Our reasons to be.
Okay Mystic about 2021, but it's too early for us to.
Go past due its general statements. So we will provide more details.
Be more specific about 2021 outlook when we report our Q4 results in February.
Okay, maybe my follow up question. They said they got to go going back to Q3 thinking about that clearly D. The bread and <unk>.
That's a lot of upside to it but if I kind of look at the salt through that you guys have talked about in the past the incremental gross margin of the business side, it's close to 60%, even though most of the upside seems to be coming from and make sure which is obviously the lower margin business.
But the incremental operating margin was lower than you would have expected just trying to understand the dining dynamics on the on both gross margin and the operating margin side.
Yeah, So I I mean, the gross margin side Sidney I would say, we've got two or three things at play there in the.
The tailwinds that we have are obviously.
The higher volumes at the same time, we continue to have modest headwinds related to freight and logistics costs.
Indeed have modest headwinds again or providing bonuses for our manufacturing teams, we have slightly higher variable compensation. So I'm I'm actually really pleased with the margins I mean, each quarter sequentially through 2000 and.
20, they've they've been up a little bit.
What do you think about the operating margin.
If you look at full year first nine months of the year our flow through.
The EBITDA line is 46% revenues up 178 million EBITDA, the BT to millions of very strong flow through year over year the flow through is.
The quarter was up 40%. So I think when you look at it on a quarter by quarter basis. I mean, we had high again had higher variable compensation. We had this the other 2 million dollar contribution.
Related to our corporate social responsibility program, but I.
But I guess, what I'm, saying is that.
I'm pleased with the profitability and I think we continue to demonstrate the leverage in the model.
Okay, great. Thank you.
Well take our next question from Toshiya Hari with Goldman Sachs. Please go ahead.
Hi, Good morning, Thanks for taking my question I had two if I may.
<unk>.
But were taught if we take the midpoint of your Q4 revenue guidance I think you'll be growing the business about 15% and 2020 versus 2019, which is obviously very strong outperformance relative to the updated.
Market forecast that you provided about a low single digits to mid single digits. I was hoping you could break down the 10 percentage points or 10% plus outperformance for the year and or M&A.
M&A and also the organic part of the story.
But the organic part if you could highlight maybe two or three product areas, where you feel like it particularly contributed to the outperformance that would be very helpful.
I have a follow up thanks.
Good morning to shift thank you for the for the question, Yes. So let me try to help you with the 2020 guidance. So as you said they did for your guidance at the midpoint is about 15% up versus last year what is.
What is very nice and this year is that that growth rate is actually fairly consistent across all three divisions. Yeah. We would expect it to grow in the mid teens.
From a market standpoint, we expect.
The market based on mix, if you need some capex to be up into the low to mid six.
Single digits recorded 4% to 5% off.
The acquisitions that we've made a recent de will contribute about three points.
To the growth in 2020 <unk>.
There's another factor that I want to call it out and that's level of customer pool ins, particularly in China in China, we saw that in Q3.
We expect to see more of that in Q4, and that's probably at the end of the year would contribute to but the one point of growth.
But the rest is organic growth and a and that organic growth is wedded excess of the industry.
And.
And if I want to call it out some of the products I would say that.
It says it said it did see across the board. So im age it's been doing very well a lot of strength you know advanced Foups, all food handling solutions at all becoming increasing he standard in D. advanced Fabs, both in memory and logic.
But we have also talked about the growing importance of haul ultrapure packaging solution. So image.
Has done really really well this year on the back of swings in order for those various product platforms Microcontamination to theme is well understood I think by by all of you. It's it sweetie.
You know two big product line striving to growth its door into and then put kigo doors or the liquid filters and you'd be quick pure if I use that are used in aggressive cleaning chemistries by industry.
We expect those two products to achieving new records in Q4, and then overall you know and we expect those products to a great year.
And I see.
Let's see division is expected to go into mid teens as well so maybe if a tale of two cities for as he I'm just here on the one hand.
I'm very very strong growth seen advanced deposition materials cleaning chemistries.
And specialty coatings.
But did they all facing a significant headwind in our <unk> business used in a number of industrial applications I mean that business, that's flowing significantly against last year and has not recovered so with that as a backdrop I.
Seeing that the underperformance in CMS actually read the rating exceptional just yet.
So back to you to she I think you have a second question.
Yeah, Hi, good thanks for the detail response <unk> My second one is on M.H. profitability.
3.3% in margins I'm, obviously very impressive results you talked about higher volume and.
Solid cost management as contributors to that performance I was hoping you could elaborate a little bit on on the cost management side, what exactly drove the improvement in margins, but sequentially and year over year and I guess importantly, going forward should we consider this 23% plus level as a new normal for us.
Right for M H or pet bid margins were lower due to the high teens or 20%.
Thanks, so much.
Yeah, Hey, so she had I'll take that one this is Greg So I would not take the 23% for the bank as sort of the the ongoing profitability of that business. They had a very good quarter from an execution standpoint.
Clearly.
Benefited from the higher volumes and then I do think that the you know the profitability of that business, though.
The longer term starts with it with it too.
From a cost management perspective. This T. I mean this is our most mature business and this team I would just say has done a very good job managing costs across the board is not really anything but.
The effect, but just generally focused on improving the profitability of the business.
Thank you.
Well take our next question from Amanda Scarnati with Citi. Please go ahead.
Hi, Good morning, I, just had a quick follow up.
Jim Bertrand you mentioned that you're expecting to see sort of mid teen growth.
Yeah from all the different segments this year.
You know when I look at.
Ah next quarter that came from private equity chemicals should see some significant growth in the other two division could see a little bit of a pull back is that how you're looking at the end of next quarter, where you're giving your guidance.
Yeah. Good morning, Amanda So funny, we typically don't provide.
Specific guidance by division on a quarterly basis, what the outlook, but I just want to be how poor it I would say that.
I would expect the image to be modestly down sequentially and that's in line with reduced sequence or capex projections for the for the industry into for the other two divisions are expected to be up sequentially M.C. continuation of the trends I was describing so he could.
Fit and filtration really driving the sequential growth in microcontamination.
But the fastest sequential growth is expected to come from as yet and and that really has to do with a really capitalizing on a number of new product introductions in a position for two years and Kenyan chemistries in but they could have and again I'm talking about the sequential growth Q4 over.
Q3.
[noise] and then whats the demand pull forward that you mentioned I assume it's mostly from China I know, there's expectations thinking trade pressured and restrictions, but are you seeing anything I'll sort of at the leading customers.
<unk> in the last in terms of pulling forward and do you expect that to have any kind of significant impact probably need to 21.
No. It kinda dead remains an open question I mean, something that we've been trying to set say very carefully we don't think that the industry the inventory overhang would be.
A lingering issue as we go into 20, <unk> 21, but.
That remains to be seen a thing so to me we've seen that said some of our leading edge customers.
Increasing the leverage to feed venture either they want to carry.
But the feeling that we have is that this is really more of a permanent decision that they are making just to reduce the ongoing supply chain risks. So again I don't think that.
The flipside of side of that which would be a de de stocking risk I don't thing is something that we are overly worried about at this point.
Great. Thank you.
Well take our next question from Patrick Ho with Stifel. Please go ahead.
Thank you very much and congrats on a really nice quarter and outlook or try maybe first off you highlighted eat the strength that you're seeing at the advanced nodes.
As well as the higher labor costs and memory I can you give a little bit of color or any signs of recovery in the more mature technology note them getting data points markets like automotive Cmos image sensors that are starting to pick up.
Can you give a little color on how that's impacting you know some of your legacy businesses.
Hi, Good morning, Patrick Yes, so I think that the strength in the mainstream Fabs is probably what drove all business or the head of fall guidance for Q3.
The recovery in mainstream Fabs, where certainty.
Deeper and more broad based and we will return the fee at the end when we expect that trend to be having to to continue going into into Q4, I mean, obviously like everybody else will very closely watching.
You know the second.
Wave of COVID-19.
It's really again something that it's hard for us to to assess but what would be the impact on the economy and potentially on the on some segments of the semiconductor industry remains still unclear, but I don't think it would be a factor in in full for the fourth quarter.
Right.
Maybe as my follow up question also you brought trucks in terms of the Red market specifically on the memory side that market has actually held up pretty well given some of the main drivers that.
Drivers that you mentioned well, we know a lot of the many growth you've seen in recent years has been on the NAND flash side with materials actions women, aged 12 products, but can you discuss some of the changes going on in the ramp that also will have a positive impact for your businesses.
So you're right that for us the great opportunity in memory is around to Threed NAND architecture is having said that there are some opportunities and.
In DRAM as well I think the primary change really is around.
Deferred the miniaturization of.
The features and that needs to need for greater <unk>. So that's going to impact a suite of products the microcontamination an age.
And we also see actually some interesting opportunities for <unk> for new Mattel yours as well so we will actually.
Share a little bit more doing de I noticed today and gene.
Shimon you know Chief Technology Officer will join US doing D. and then he stated we intend I mean that we planned for November the 17th in doing that.
Event, we will try to go in more details into the technology roadmaps of customers and how different parts of our portfolio intersect with.
The adored map of all customers. So so stay tuned I think you would probably be.
And a lot more in a few weeks.
Great. Thank you very much.
Well take our next question from Mike Harrison with Seaport Global Securities. Please go ahead.
Hi, good morning.
Good morning.
Was wondering if you can talk a little bit about the the operating expense line. It looks like in the quarter you came in a little bit higher than you anticipated I know in a bunker contamination control, you mentioned higher incentive comp and some investments, but maybe help.
Lets think about.
What portion of these higher expenses could be categorized status investments that are maybe shouldn't leverage overtime.
And and what portion or we should think of it as just being I guess related to ongoing higher higher costs. Thanks.
Yes, So hey, Mike its Greg Graves. Good morning, So when you look at the quarter versus Q2 or the quarter versus our expectations coming in you're correct. I mean, we were we were a little higher than we expected to be the vast majority of that increase was higher variable comp.
Season, so about two thirds of it related to higher variable comp. We did have you know higher investment in some of the divisions M.C. in particular.
The R&D line that will obviously benefit longer term and of course, you know the variable comp it's called variable for a reason I mean, if our.
Performance were to these levels were accruing at pretty.
Pretty high levels of variable comp, but the performance were to come back those numbers, obviously flex down as well.
All right and then I think you also mentioned that there was strength in the Uh huh.
Particle sizing systems business P.S. asked that you acquired a couple of years ago can you.
Talk about what's driving that and all the time.
Hitting an inflection point in.
Additional customer acquisition or additional uptake of that technology.
Yes, I'm glad you're asking the question and.
So PSS has been really a bright spot for us not just in the quarter, but so for a few quarters now.
HM.
If you recall, it's a business that we acquired in early 2018, and then that this this today is running at about.
Twice to pre acquisition revenue levels.
And it's really coming from the introduction of new solutions to a new set of customers a it was originally.
Use that to one or two large.
Luxury customers, we've been expanding to specific bucket in logic, but more importantly, we've actually started to introduce these capabilities with success in the memory segment as well. So the business has done really well in a very short amount of time I think that there's still a lot of puts.
So for the business. So in two three years from now we'd expect the revenue for PSS to still be a multiple of where they are today.
And I would say that Gen T. I. A is you know another option that we have to actually grow that particular set of capabilities very nicely across across multiple segments. So its the recipe worked very well with PSS I thing that Jim <unk>.
It's very similar in terms of capabilities and intensive opportunity and I think that those two businesses. We have a very positive impact on M.H., both in terms of growth as well as much in profile.
All right that's great to hear thanks very much.
Well take our next question from Weston Twigg with Keybanc capital markets. Please go ahead.
Hi, Thanks for taking my question first I just wanted to say thanks for the deep well done that the corporate social responsibility programs and I'm looking forward to hear more about that over the coming weeks.
My first question is related to China, you mentioned that there's really no material impact been evaluating the business and I'm wondering if that's just because the the revenue contribution is is quite low or is it because you know you don't have products under this military end users friction that has come up recently.
Yeah, good money and so.
It's it's a good question and first I mean remember that we have a very broad customer base, so no customer really.
Is.
Well I mean with a few exceptions I mean, most of our customers I'll just be presenting a few single digits. So fall to revenue.
Number one and then number two even if they do.
This particular you know.
If it's then I see what should be placed on non <unk> entity.
List.
We believe that we would still be able to supply in many of our products to this.
Customer because they would not be subject to the exports for a rules and that is because many of <unk> products are manufactured outside of the U.S. and.
And do you have a little U.S. content.
And then for the other products, obviously that all subject to these controls we would seek the required export licenses from the U.S. government as everybody else.
So that's where you wouldn't need just to say that we expect the the overall impact to be to be none the till you into our performance.
Okay, that's very helpful.
And then my other question is just you had mentioned the grass valley business. It has been under pressure since last year.
Could you just give us an idea of how how big that business is now.
And then your expectations on any computer recovery next year.
Yeah. So so that business last year was about closed $200 million and.
And again I think the <unk> headwind I mean, we we saw contraction of close to 50% in the U.S. So.
We would expect a steady recovery as we get into 2021, but obviously this has been a a pretty significant headwind put U.S.G.M. division this year.
Okay. That's helpful. Thank you.
Well take our next question from Chris Capesh Loop capital markets. Please go ahead.
Hey, good morning, guys.
So bertrand.
That's really for years now entegris is well positioned competitively.
Particularly at the production of the dads kit becomes more mature.
The purity of the material.
Materials is increasingly important and that is absolutely played out so I just want to say kudos to you and your team and.
The.
Question looking to 2021, and obviously without any Thunder from next months Investor that you referenced. Your question are you committed to their leading edge node transition I was wondering if you could talk about what the transition.
Most profound in terms of moving the needle or in fact impact on integrity. As result next year, obviously that memory you transition to the architectural denser layer is going to be a contributor but I'm wondering how that might compare benefited from no grant foundry logic customers.
No wanting Chris and thank you for that put a nice comment.
So I mean, you Q.
If you look at Technology Road map in memory and logic and it's clear that all of our customers has.
Has very very ambitious objectives.
They will not include a combination of further miniaturization of critical dimensions, you know.
Sort of structures with the highest degree shows.
And down the road the introduction of nano wires. So good gate all around technology.
All of this we play squarely in the value proposition of Integra is because all of those things.
Technology inflections will require superior materials and.
And greater leverage of obscurity.
And idea and dad really for us. It means that also if mccain we've continued to grow faster than the wafer starts so.
Rather than picking one or the other.
These technology inflections I think I would.
I would really encourage you to look at it.
Got it in the aggregates because I really do believe that one of the unique strength.
Nothing Tegra is it's really the breadth of capabilities and the quality of the opportunity pipeline as opposed to any particular product line or in particular.
Technology transition and we've seen a really really good about.
The health of the opportunity pipeline and that's something that we will discuss in more details with you in November so stay tuned I think you would probably learned a lot doing getting anything.
Okay Fair enough and then if I could have just one follow up on and I get you on your comments about China I was hoping you could just got the sales cadence or development by geography, you have that one agent Pie chart with in the quarter.
In the quarterly back that I'm talking about that but any color on sales trends by region would be appreciated. Thank you.
Yes, good so I'm going to try to to make it short I think the the performance was strong across the board. So a lot of all regions have been growing.
Then on the on the on the year to date basis with an excess of 10% so.
The the two things I.
Want to probably flag and you would see that.
When we find I'll show you in a few hours but.
So one come.
Comments, probably indeed, Cory I'm encouraged that you have today the growth is in the single digit and the reason for that is that we had significant sales of gasification systems last year.
In conjunction with a number of new fab build up so if you were to normalize for that you know Korea, we'd be up 25% pretty much in line with the other geographies. What you would also probably a notes when we file the Q is that.
[noise], Taiwan was down sequentially. Its a sequential decline did we fully anticipated and it really has to do with the timing and then ended buying Pat since by all customers.
When they prepare for no transitions and typically the he border of I'm going to take a a foups abouts three to six months ahead of the no traditions and do it so be it.
Been some amount of inventory for filtration and critical comes to use a few months ahead of the ramp which is what we saw in Q1 and Q2 of this just makes you look at it on a year.
Year to date basis, who are growing in Taiwan that 20%, which is.
A very very strong performance and we're going to be on track to deliver our best year on record in India, and so everything else that you would see we'd be pretty much I would say in line with your expectations, but I just wanted to see.
Singled out those two geographies because you may have had some.
Lingering questions [laughter] as you look at the Q.
So when you couple that comes down to how that.
Very helpful. Thank you <unk>.
Well take our next question from.
From her Tosh Misra.
Greenberg Please go.
Please go ahead.
Great. Thanks, and good morning, Elektron, Gregg and Bill.
I know you don't typically talk about pricing in your business, but was just wondering if you could broadly I just discussed pricing trends that you're seeing this year, mostly focused on the especially the materials and specialty chemicals part of your portfolio.
And so just curious what you're seeing there oh, yeah, that's not side and also on the mainstream Fabs. There I I believe you typically see I I deflation in some of those products. So any color on that would be great.
Yeah, Hey, <unk> good morning, its Greg.
Well from a pricing perspective, when we talk about it broadly across the portfolio I mean, historically, we've talked about price erosion.
On an annual basis of 1% to 2% across the portfolio. This year were clearly running below that level, so our pricing.
He has held up very well through the year I think your comments were pretty much spot on I mean that the more advanced nodes, we are able because we're delivering more value we are able to.
You're more on the pricing front, whereas we do tend to have some price erosion with some of the older products that the legacy fabs, but in aggregate when we look across the portfolio. The erosion has been less than 1%. So we feel very good about the value proposition that we're delivering to the customer and.
Our ability to maintain price.
Got it that's very useful and then second just on the memory side, just a kind of big picture and apologies. If you already covered that but what are you seeing got at yearend get guiding it statistically the transformation to 96 plus layer. This year I think a lot last quarter.
You were expecting us to be about 50%. There. This year is that it's still what you're seeing or any color on that would be great.
Yes, probably so something dose dose trends I'll still.
Oh, we made our expectation we expect about 50% of the Threed NAND wafers to be produced at 96, they use though higher and we would expect that number to be you know it.
70% in 2021, so we sit and you can can you to expect further migration to the advanced nodes and that.
Nodes and advanced technology, and this year and for the years to come.
Got it thanks, Thanks, Mike on.
We'll take our next question from David Silver with C.L. King brokers.
Please go ahead.
Yeah, Hi, good morning. Thanks.
So my question would be maybe focused on the R&D line of your income statement. So this was a record quarter in many areas, but I think it's also you know.
Record quarter again.
For your R&D spend and you know your previous Investor Day, I did speak with Jim a little bit and he emphasized that.
But the bulk of the projects that the R&D effort is focused on are things that will come to fruition, maybe in a two to four year.
Timeframe, so I guess I'm a lot of the questions here about you know 20, and 21 understandably, but you know.
You know based on the the jump up in R&D spend I was wondering if you could [noise].
Perfect rise where that incremental effort you know seems to be focused so in other words I'm guessing ATM, our advanced deposition materials and maybe you know improved efforts to prevent killer defects on the Microcontamination side, but maybe if you could just care.
<unk> why you feel now is the time to kind of.
Add another 15 or 20% to your R&D effort and where are the incremental.
Target for it for that effort you know given your ability or your presence in so many different parts of the.
Chip production processes, so just maybe some characterization of.
How the.
R&D spend in the R&D effort is evolving would be very helpful. Thank you.
Sure.
So if I step back and I would say that you take this has changed a lot over the last 10 years or the breadth of our portfolio is increased okay.
Oh capabilities are much better today than than than ever before and as a result of that credibility and trust as a strategic supplier as as increased and what it means is that we.
We are given more opportunities to contribute to the road map of what customers and that's great.
But with dot com, some expectations and what we are expected to do is to put more risk R&D dollars to work.
And we are actually gladly doing that and we're doing that in particular, though to your point in microcontamination and as he.
Because that's where we see.
The biggest challenge is a full for the technology roadmap and therefore, the biggest opportunity for us. So that's why you should expect us to continue to increase our R&D spending in the years to come and then that's something that we will be.
You know describing a little bit more clarity do Indiana's day as well.
[noise] [noise], okay. Thank you.
Just one follow on comment we're trying talked about through a bit about how we're investing in where we're investing.
I want to make a comment that our team has become much better at it.
Picking the better opportunities and that indeed, making the investment called killing the projects that arent working so that not only are we spending more money, but we're spending in my in my judgment, we're spending it.
Yes.
Wiser fast.
And if I could just follow up on that just a little bit but you know is there any way to characterize [noise].
I guess, there's two ways to go with R&D, one would be basic researchers or efforts you conduct internally, but and then of course, there's the the projects you work with in collaboration with you know your key customers.
You know compared to a few years ago, I mean would you say that the R&D effort is more collaborative or about as collaborative in other words, how closely aligned is it to I guess, a what the customers are bringing to you as opposed to maybe you know your own folks looking ahead and trying to.
We anticipate things maybe as a competitive a competitive advantage. Thank you.
Yes. So this is funded as involved a lot of what we do is really a customer driven innovation.
And it's usually a lot of multi party a joint development initiatives with equipment makers and side customers a suite to suite body collaboration if you want.
And as you would expect we are increasingly spending in new platform developments and breakthrough technology as opposed to sustaining engineering and the shift is actually very very drastic if you compare where we are today.
This is where we were 15 years ago, and and I would expect that trend to continue going forward, which is a good thing because it means that we have access to the road map of our customers at an earlier stage and that deal engaging with us on some of their.
Biggest challenges, which in turns the noses to create some very unique value for our customers.
Okay. That's great. Thank you very much.
[noise] [noise] well take our final question from Toshiya Hari with Goldman Sachs. Please go ahead.
Hi, Thank you for taking my follow up.
Several long upper taught you about.
You guys talked about reinstating the $15 million a share repurchase program in the current quarter I'm to the extent, there's an update I'd like to get your thoughts on your capital allocation plans.
But in the near term as well over the long term.
And specifically on M&A, if you can comment on how the robustness of the pipeline today.
That would be super helpful. Thank you.
Sure the capital allocation framework remains pretty unchanged I mean, we had that.
You know permanent programmatic buyback a $15 million that.
Is essentially a fixed commitment that we've made to the investment community we suspended it in shoot to do today.
Prevailing uncertainty in it.
India operating environment, and but today, we feel that it was appropriate for us to to put it back in.
I think.
Having said that again, we are routinely looking at the various levers at our disposal dividend buybacks.
And then M&A and that's something that we are routinely discussing with withheld board of directors and you know.
We will we will continue to tune down depending on.
The level of activity that we expect to see and on the M&A front in particular.
Thank you.
And at this time I'd like to turn the conference back to your speaker for any additional or closing remarks.
Thank you. Thank you very much that concludes our call for today.
Ladies and gentlemen, this does conclude today's conference. We appreciate your participation you may now disconnect.
HM.
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