Q4 2020 CMC Materials Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the CMC materials fourth quarter fiscal 2020, <unk> earnings Conference call.
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I would now like to hand, the conference over to one of your speakers for today Colleen Mumford Vice President of Communications and marketing. Please go ahead.
Great. Thanks, Carol and good morning, everyone with.
With me today are David Li President and CEO, and Scott Beamer Vice President.
Last night, we reported results for our fourth quarter and full fiscal year 2020, which ended September Thirtyth 2020.
Whether you're joining us online or.
Over the phone we encourage you to review the Investor Slide presentation. We've made available under the quarterly results section of the Investor Relations Center on our website CMC materials dotcom.
A webcast of today's conference call and the script of this mornings prepared comments will also be available on our website. Shortly after this live conference call.
You may request any of the information by calling our Investor Relations office at 630 were nine nine to 600.
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.
These forward looking statements.
These risk factors are discussed in our SEC filings, including our form 10-Q for the quarter ended June Thirtyth 2020, and form 10-K for the fiscal year ended September Thirtyth 2020, which we expect to file by November 27 2020.
Assuming no obligation to update any of this forward looking information.
Also our remarks this morning reference certain non-GAAP financial measures are.
Our earnings release and slide presentation include a reconciliation of each GAAP financial measure to the nearest comparable GAAP financial measure.
Additional.
Meaning data reflects rounded values throughout this discussion and in the accompanying slide presentation.
I will now turn the call over to Dave.
Thanks, Kelly and good morning, everyone.
Last night, we announced results for our fourth quarter and full fiscal year 2020.
Before discussing our record results.
I'd like to again express my gratitude and appreciation.
To our teams globally for their efforts to keep our employees safe during this challenging environment.
And highlight that our ability to innovate manufacturer.
Sure and deliver solutions.
As well as support our customers has not been meaningfully impacted by COVID-19 to date.
I am also excited to report results for the first time as CMC materials following our company name change.
Okay and rebranding on October Onest.
As we celebrate our twentyth year of being a public company.
Our new corporate brand identity, unifies, our heritage Cabot, Microelectronics, and KMG businesses and reinforces our commitment.
Meant to technology leadership.
And supplying high quality high value specialty materials that help enable our customers most advanced technologies and resolve operating challenges.
Our new name pays homage to our proud heritage, including.
Our focus on electronic materials to support the semiconductor industry.
Which remains unchanged.
Turning to our fourth quarter and full year results. We are pleased with our performance and strong growth in CMP Slurries and electronic.
Chemicals this quarter.
Our total company revenue for the quarter was down slightly compared to the prior year, primarily due to lower demand in our pipeline performance products, which continued to experience softer industry conditions due to the impact of the pandemic.
Moving on to full year results, we delivered record revenue record net income and record adjusted EBITDA for our company.
This is our fifth consecutive year of revenue growth.
With revenue increasing 8% coming.
Compared to the prior year.
Again, demonstrating our strong execution and the resiliency of our businesses within this challenging environments.
I believe one of the hallmarks of our business continues to be its robustness resilience and best in class profitability across various and.
Arguments and industry cycles.
Revenue was up 2% versus pro forma results last year, which assume we own the cam GE businesses for the full fiscal year of 2019.
This increase was driven by strong demand in season.
Slurries and higher prices in our wood treatment business, which more than offset lower CMP pads and pipeline performance revenue.
CMP Slurries revenue benefited from continued strong customer demand for our advanced solutions in foundry.
And advanced logic and stabilized demand in memory support.
Supported by the transition to work from home and E learning environments.
As well as technology migration by our most advanced customers.
We won new advanced node positions for our tungsten and advanced.
Dielectrics Slurries and also made progress in expanding our positions and legacy applications.
Electronic chemicals revenue also benefited from customer no transition, but the growth was offset by some weakness in legacy applications, primarily due to read.
Use demand from customers with higher exposure to automotive and industrial sectors.
Our pads business experienced headwinds this year, but these were partially offset by new customer wins, including pad and slurry consumable sets that we expect to ramp up.
Over the next several years.
We continue to be excited about the growth prospects for this product area in the future given our recent wins and active pipeline of new opportunities.
Our performance materials segment was negatively impacted by an unprecedented drop in oil them.
Demand and transport, which significantly affected demand for drag reducing agents or DRA phase in the second half of the fiscal year, but was offset by higher revenue in our wood treatment business, primarily due to higher selling prices.
Full year.
Our adjusted EBITDA of $358 million was up 7% from the prior year and adjusted EBITDA margin also improved by 32%, primarily due to operating efficiencies and synergies from the KMG acquisition.
We are proud of this continued strong.
All of achievement, which again demonstrates our best in class profitability amongst our specialty materials peers.
Now, let me provide some additional thoughts on industry conditions and outlook.
Looking into fiscal year 2021, we expect demand for.
Allow injury and logic customers to remain strong.
And demand from memory memory customers to continue to recover as a result of technology transitions and growth in emerging applications, such as Fiveg and high performance computing.
As well as improvement in demand for auto.
Motive and industrial sectors.
As a result for the first quarter of fiscal 2021, we expect revenue for our electronic materials segment to be approximately flat to up low single digits compared to this quarter's results.
Beyond this quarter, we battle.
Automotive, we are extremely well positioned to grow with the industry given our positions in advance logic foundry and memory.
Turning to performance materials revenue in DRA dropped in the second half of fiscal 2020.
As far as.
At least of lower demand for crude oil and gasoline due to the pandemic, which in turn negatively impacted the volume of our products needed by our pipeline customers.
During the quarter, we saw an improvement in demand for Drs in July but did not see further increases in August.
In September.
As had been expected when we provided details on fourth quarter outlook during the last earnings call.
We believe that industry demand will stabilize and gradually recover.
As global economies open following lockdowns.
The situation.
Well remains uncertain and we are closely monitoring the demand environment for any changes related to the pandemic.
While there is still some uncertainty and risks for the oil and gas sector current analysts' expectations point to a gradual recovery in crude oil demand through calendar 2020.
In one and global oil demand returning to pre pandemic levels in calendar 2022, which should translate into higher DRA consumption.
In addition, our team is focused on winning new business opportunities with both existing and new customers.
Finally, we expect.
Continued strong and stable performance from our wood treatment business. This year as we work closely with our customers on our planned transition and exit around the end of calendar 2021.
Based on this outlook, we currently expect performance materials revenue to be approximately flat.
Sequentially in the first quarter.
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.
<unk> revenue to be approximately flat to up low single digits in the first quarter of fiscal 2021.
In summary, we are proud of our results this year, given the unprecedented macroeconomic environments and believe they represent that continued resilience.
Thank you and strength of our overall portfolio.
Looking ahead, we are excited about long term growth opportunities for our company given the favorable trends in the semiconductor industry driven by new technologies.
In addition, we expect continued adoption of deer raise.
In both the us and internationally to drive stabilize growth for our performance materials segment.
We believe we are well positioned for growth in fiscal 2021, and beyond driven by our innovative and broad product portfolio technology leadership and.
Operational and quality excellence with that I'll turn the call over to Scott to provide more details on our financial results.
Thanks, Dave and Hello, everyone as Dave mentioned, we generated record revenue record net income record EPS and record adjusted EBITDA in fiscal.
On 2020, while facing challenging conditions, particularly in our DRA business.
We also reported record cash flow from operations and record free cash flow this year, while still investing strategically in capex to support expected future growth in our businesses.
Once again.
When we met all of our capital deployment priorities, including investing $126 million in Capex investing 50 million paying 50 million in dividends and repurchasing 35 million worth of our common stock.
We also de Levered, our balance sheet consistent with our stated.
Our gut and achieved net debt to adjusted EBITDA of less than two times.
The fundamentals of our businesses remain strong and we continue to manage what we can control. This.
This has resulted in ongoing cash flow generation best in class profitability and a strong balance sheet.
We are confident in the financial strength of our company and our ability to generate future growth and to continue to drive shareholder value.
Now, let me speak about our quarterly results 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 for the quarter.
Overall, we saw growth in CMP, slurries, and electronic chemicals and benefited from higher revenue and wood treatment.
Conversely, our DRA revenue declined about 40% year over year, resulting in a.
Decline of consolidated revenue of about 2%.
D.R.A.S continued to be impacted by softer demand for oil, particularly with fewer miles being driven in North America related to the global pandemic.
Slide four shows full year results so.
And then may discuss comparable information, we reported adjusted pro forma 2019 information.
Which assumes we owned KMG for the full year of 2019.
Using this our revenue increased 2% adjusted EBITDA grew 4% and adjusted diluted.
EPS increased 11%.
These metrics are all indicative of our ability to grow revenue even in a challenging environment, our strong operating leverage and overall cost control, including delivering synergies.
Slide five provide some quarterly PNM compare us.
It wins for both reported and adjusted results.
Gross margin increased over the prior year adjusted gross margin was comparable to the prior year as higher selling prices in wood treatment and improved mix and slurries were offset.
By the impact of lower volume in.
Hi blind performance.
Our reported net income was $37 million. Adjusted net income was 30 was $58 million up 16% compared with the same quarter last year.
Overall, our adjusted net income benefited from lower operating expenses.
Lower interest expense and lower tax expense in the quarter.
Diluted EPS was $1.25 adjusted diluted EPS was $1.96, which is 16% higher than the same quarter last year.
Adjusted EBITDA was $84 million.
Dollars down 2%, primarily due to lower revenue adjusted EBITDA margin was 30.6% essentially flat.
One adjustment this quarter is a noncash pretax impairment charge of approximately $2 million related to the wood treatment business drew.
Given by our previously announced plan to exit that business around the end of calendar 2021.
The remaining carrying value of the business is approximately $39 million and we expect future impairments related to the business in each quarter as we approach the closure day.
Date.
For reference this business contributed approximately $63 million in revenue this year with adjusted EBITDA margins above the average level for the performance materials segment.
Now, let's discuss revenue results by segment and business, which are shown on slide six.
During electronic materials, which was 81% of our quarterly revenue increased 3% compared to last year.
CMP Slurries revenue increased 5%, primarily driven by stabilized demand in memory and higher revenue for our tungsten slurries, which continue to represent a growth area for.
Company.
CMP pads revenue was down 10% year over year, primarily due to timing of orders and we expect this business to return to growth in the December quarter.
Electronic chemicals revenue was up 2% compared to the same period last year due to strong.
Our higher demand from advanced logic applications.
Sequentially revenue for the electronic materials segment was up 1%.
Moving to performance materials revenue declined 16% over the prior year and 5% sequentially.
Primarily driven by softer.
Long and for pipeline performance products.
DRA sales declined 43% compared to the prior year, which was partially offset by higher revenue in wood treatment.
As mentioned last quarter June was the low point for DRA revenue so far.
Slide seven shows.
As revenue and adjusted EBITDA by segment I'd.
Electronic materials delivered $71 million of adjusted EBITDA, which was 32% of segment revenue.
Performance materials delivered $22 million of adjusted EBITDA, which was 44% of segment revenue.
Now please refer to slide eight which provide some balance sheet and cash flow highlights.
We ended the quarter with $257 million of cash on hand, and $921 million of total gross debt.
During the quarter, we repaid the $150 million drawdown from our revolver.
Our debt facility we.
We drew down these funds in March out of an abundance of caution and simply held the funds on our balance sheet without using them.
For this fiscal year, we generated cash flow from operations of $287 million and our Capex was 126.
In closing and.
As a result, our free cash flow was $161 million.
Our net debt is currently below two times, our adjusted EBITDA, which was slightly ahead of the timing target. We established when we completed the KMG acquisition in 2018.
Finally on slide nine we provide some forward looking expectations, we would caution that our guidance is based on current estimates and these could be impacted by the ongoing volatile nature of the pandemic.
And its impact on the industries, we serve.
For the first quarter of fiscal 2021, we currently.
Total company revenue to be approximately flat to up low single digits compared to the fourth quarter.
For the electronic materials segment revenue is expected to be approximately flat to up low single digits versus our fourth quarter as we forecast a stable to slightly increasing.
Demand environment.
We expect revenue in the performance materials segment to be approximately flat in the first quarter.
For fiscal 2021, we currently expect adjusted EBITDA to be between 358 and $385 million.
We can.
Continue to believe that an adjusted EBITDA margin between 31% and 32% is an appropriate assumption for the short to medium term.
Let's continue with some expectations for our full year PNM now.
We expect our full year interest expense to be between 38 and.
$40 million, our tax rate is expected to be between 20 and 23% for the full year and we expect our capex to be between 80 and $100 million for the full year.
Additionally, we have provided an updated long term illustrate of model in our investor.
Her presentation, which is posted on our website overall.
Overall it is generally consistent with the previous model, but has been updated to include the actual results for fiscal 2020 and various other factors that have impacted our future expectations, including the decision to exit.
What treatment business.
Specifically, we now expect performance materials revenue to grow between five and 7% on average for fiscal 2020 through fiscal 2024, and total company revenue growth to be in the same range.
This compares to the previously communicated aspiration for the total company of between six and 8%.
The primary driver of this change is a lower trajectory NDR A's and while we remain optimistic about the long term growth expectations, we recognize the short term challenges.
As for this business.
We continue to expect adjusted EBITDA to grow faster than revenue over the long term and further improve upon our already best in class EBITDA margins adjusted EBITDA margins.
Overall, we believe that this is a very compelling financial model and reflects.
The strength of our businesses and our ability to deliver results despite an uneven demand environment.
Reflecting back upon fiscal 2020, we delivered record revenue record net income and record EPS.
With our best in class profitability and strong free cash.
Cash flow generation, we met all of our stated capital deployment priorities, including investing in our company to support future growth.
Lastly, we would like to thank our global team members for their continued hard work focus and tireless energy to allow us to continue to safely.
And reliably deliver our critical enabling materials to our customers.
Now I'll turn the call back to the operator as we prepare to take your questions.
Thank you.
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Please press the pound.
Our first question today comes from.
She'll Hari from Goldman Sachs. Please go ahead.
Good morning.
Hi, guys good morning, calling.
Thanks for taking the question.
I had two.
First into.
In terms of your DRTV business.
Dave I was hoping you could.
Speak to your expectations for the December quarter.
Again for DRA and you also mentioned that.
You are focused on winning business with both.
Current customers as well as new customers. If you can remain.
Yes, your market share in the dairy business, both domestically and internationally.
And where are you.
See the upside going forward from a share perspective that will be helpful. Thank you.
Yes, thanks to Shia in hope, you're well just regarding DRA is ASCO.
Scott and I indicated in our prepared.
And the comments, we guided for RPM business to be approximately flat versus this quarter DRA is make up the predominant amount of that business. So you can kind of interpret that that is a fair.
Directional guide for DRA is and as Scott mentioned in.
His prepared comments.
Essentially what we saw in terms of the macro side of things is we thought there would be a more significant recovery this quarter, but instead, what we've seen is stabilization. So things have definitely picked up and I think the bottom is is past us, but we didnt see that.
That strong recovery that we started to see in July instead. It was it just sort of stabilized out and thats kind of where we see things going obviously from a from a macro environment. That's really controlling a lot in terms of oil transport These days.
You mentioned in terms of the things that week.
We can control we are encouraged by the gains we have been able to make both domestically and internationally, we havent talked about a share position for either but what we'd expect to see is regardless of the environment, whether it's a slow environment or things pick back up that we.
Expect to grow because I think we are differentiated in our product offerings, we continue to secure pretty significant business.
And the other thing that was encouraging during this soft period of time, we took the opportunity to continue to innovate and improve our product offerings. So as we've talked about we brought up a new piece.
Capacity.
That's not a a similar or just copy of the the current in fact, we've upgraded it. So it's there's predict productivity benefits. We've also improved the product portfolio performance as well. So we're taking this sort of softer period as an opportunity to improve.
Our offering and we're seeing really encouraging results from our customers, both domestically and internationally and and this continues to be a.
A a strong growth business from our expectation in the in the mid to longer term.
Got it.
I wanted to follow up.
With a question on your CMP pads business.
Scott I think you you spoke to a return to growth in the business in the December quarter.
Just wanted to clarify was that a sequential.
Growth statement or year over year growth statement or both.
I guess more importantly, you guys used to have.
Our medium term revenue target of $100 million for this business.
I'm curious, if that's still sort of intact and if so what sort of the timing on that.
And then in terms of how you're thinking about the business long term.
You talked about.
Slightly lower revenue growth trajectory for your DRA business.
Business, but how are you thinking about CMP pads ready.
Relative to what you presented at your at your Analyst day. Thank you.
Yeah, why don't why don't I start in on pads to she and then I'll, let Scott chime in as well on pads I think what we saw this quarter was really predict.
Dominantly inventory. So we had we did have a few customers build up some inventory last quarter and we saw that this quarter and as you know had sales can be a little bit more lumpy.
And so that was the effect this quarter, but the bottom line is we also expect this to be a high growth business for us It has been.
A high growth business.
It has had some headwinds I think there's some moving parts in the business that we've talked about and I'll just remind.
In terms of the.
The headwinds we faced we have had a kind of gradual decline of some legacy pads at a foundry customer that we're working.
Through we also talked several quarters ago about a piece of lost business at a Korean customer where there were trying out there trying out a local pad solution that frankly is not well proven I think both of those are that we previously discussed and I think those are behind us what we're really encouraged about is.
As the wins, we've been able to secure more.
More recently most of those have been consumable set so I think thats a great validation of our unique capability to provide both a slurry and pad together that have been optimized just this past quarter, we secured wins with a.
A major advance logic.
Producer as well as a major memory producers both of those were consumable sets. So again I think there are some moving parts in that pads business. Some some headwinds that we're overcoming with with more wins, but long term. We still we continue to think of this as a strong growth business, but obviously this year was not.
The result that we wanted but we fully expect to regain that trajectory going forward.
Thank you for the detail.
Yes, yes.
Our next question comes from Mike Harrison from Seaport Global Securities. Please go ahead.
Good morning, Brian.
Morning.
I was wondering if you could talk a little bit about what you're seeing in both the legacy as well as the advance side of the business in terms of customer inventory levels and production rates are you seeing any signs that maybe.
Amid.
You know sluggish global macro environment.
That some of your customers are going to need to pull back on production rates or maybe worked on some of their inventory levels.
Yeah, Mike, Thanks, and hope you're well I think we continue to be.
From an industry and macro standpoint on the semiconductor side.
I'm really encouraged by the strength in demand that we've seen from our customers and what we talked about in the prepared comments is that advanced logic and foundry are really leading the way.
Memory is is stable, but not yet fully recovered just.
Just sort of the.
Historic build in 2018, so it's stable, but not back to full utilization in memory, but I think if you look at the underlying.
Demand drivers they continue to be quite healthy. So obviously the role that technology is playing in this pandemic for chronic.
On activity really important so driving a lot of demand for.
Pcs and tablets, we've talked about that but then I think there's also.
A number of newer devices smartphones gaming systems that are been launched recently as well as new Fiveg devices that are also driving demand. So we see.
See that demand dynamic from our customers is quite healthy we.
We don't see any channel inventories a chip inventories that appear to be problematic. So it looks like things are pretty healthy right now if you listen to comments on the memory side from Samsung They are talking about perhaps.
Little bit of a softer calendar Q4 for them.
We havent seen that on our side and then kind of a recovery even stronger into 2021 that was their comments and if you think about what we've been able to achieve.
Achieving this past fiscal year, we were able to go.
So despite memory not full.
Fully recovered as well as having some headwinds in our pads business. So I think it just speaks to the resilience and strength of our overall portfolio, but especially in slurries and electronic chemicals that was particularly strong for us this year alone.
Alongside a pretty strong.
Roastery environment.
All right and then I also wanted to ask about Intel.
Leave your electronic chemicals business.
Has relatively high exposure to Intel on some of the dynamics going on there in terms of the sale of the memory business.
And just on the commentary around data center weakness.
Do you have any concerns going forward on on some of those dynamics.
Yes, so Intel obviously is an important customer to us to a certain extent.
Say, we're a bit agnostic as to who is manufacturing the chips given our part.
Constipation with the advanced producers.
Specific to Intel what we've seen is and I think it's been fairly well publicized they are struggling right now on the leading edge. The most leading edge of the 753 nanometer we are working with those with them on those programs, but they are behind.
To the leader there and.
And so what we see them doing is really running quite hard on there.
Hi, volume manufacturing high yield processes.
Right now and the continued outlook is pretty strong so.
I think while they are having challenges.
With the newest leading edge technologies, we havent seen that affect the demand and in fact, they are running pretty hard right now.
Alright, thanks very much.
Okay. Thanks, Mike.
Our next question comes from David Farber from CL.
King. Please go ahead.
Hi, David.
Hey, good morning.
I Didnt punch in so fair to your pitch to me a little off here.
Just I had a couple of questions let.
Let me just link here.
So first of all just a couple.
For maybe Scott, but first off on the wood treatment business.
And the Nm are leading it to your full year 21 guidance should we assume that.
That guidance the adjusted EBITDA does that assume.
Wood treatment.
It is.
In effect and operating normally for for all 12 months of fiscal year 2001, and then the second thing would just be that fourth quarter adjusted tax rate.
Was the lower than expected kind of level of that due to a discrete tax item or just say end of year true up of a bunch.
Pull to things like so just just so whether we should be straight lining a lower tax rate.
For your company full year 21 going forward. Thank you.
Yes, sure David we.
Unpacked would a little bit in the prepared comments and we mentioned that there are six there was $63 million.
Revenue in fiscal 2020 for that business and we mentioned that the returns are.
Above the average for the segment, so I'd be thinking of both the revenue and the return for that business being pretty consistent.
For all of that why 21 and.
You Wonder you understand the business well, there and I think that.
Thats a good projection, but the EBITDA as you said has the full amount for the water treatment business in there. Our plans are to continue to run that business now we mentioned the $2 million write down so it's probably worth a calm.
And here and we mentioned that the business has 30 $39 million approximately of value left we will be writing that down it will be an adjusted item. It's a noncash item one basically one time and we'll be writing that down over the upcoming quarters as we run.
That business and as we earn revenue and earnings out of that business. So we're in this.
Different situation typically when you are exiting a business because it's so profit ridge, we have the volume secured for the business throughout the period of time with our customers. So there is a value on the back.
And when she but we have to kind of a line that as time passes in that business, but all of that is part of the EBITDA for F Y 21, and that's our plan is to continue to run the business as we've mentioned in the past then you've also mentioned David in terms of the tax rate and you're right. The fourth quarter was a bit noisy in turn.
In terms of the tax rate and you're right. There were a couple of year end true ups, where a much different company today. After the acquisition of KMG with the complexity of legal entities and so on that has provided us some opportunities for optimization. So we were able to report some benefits of that in our fourth quarter that.
That were discrete one time items, but if you think about the full year of that wide 20, the GAAP rate was about 18% non-GAAP rate about 19% and we're providing guidance of next year for 20 to 23 and I would be using that 20 to 23.
As your guide for next year as well because the F Y 20 rate non-GAAP of 19 that benefited from some additional extra stock option activity that gives us a tax benefit as we had a nice run up in our share price, particularly in the second half of fiscal 2020.
And so we don't assume that Rex that type of level into F. Y 21, So thats why there is a little bit of an increase in the tax rate, but we're going to look to continue to find ways to optimize that and more comfortable at that 20% to 23% expectation for acquired 21.
Okay.
Thanks. Thank you for that you did make those earlier comments very clearly about the wood business. There's just just wondering about how it flowed into 21. So thank you for the clarification, Okay R&D spend so in the fourth quarter. Your R&D spend was up sequentially up your.
Year over year, and it's kind of whats kind of the highest quarterly spend in about three four years.
So I was just wondering if you could comment on that.
Both in terms of maybe.
Maybe what in particular led to the increase in the fourth quarter and import and more importantly, what should we think about.
On that line for fiscal year 21, Thank you.
Yes, I think first off David as you think about R&D for our businesses, particularly on the CMP side, we have historically invested about 10% of our revenue back into back into R&D in those businesses and I think that's the.
Kind of rate I'd be looking at the full year rate. We've we've worked on the structure of our R&D organization is ms., mostly unchanged there had been a little bit quarter to quarter, a variance in terms of some of the underlying spending on supplies and so on and that in.
That area, so I would be thinking of the full year sort of R&D level as an appropriate approximation for next year relative to your assumptions for revenue, so maybe a little bit of noise quarter over quarter, just from that discretionary spending piece, but be thinking about the sales.
Right and sort of ratio to revenue going forward.
Okay, and if you don't mind, just one more but.
I did want to ask about maybe bigger picture question, maybe Dave could comment on the impact that easy.
It has had on on your business today and it's.
It seems like.
We're accelerating the pace at which the logic chips are shrinking.
The line width, and there's talk about shifting materials, the cobalt and some other things on the lower loan levels and there's even some indication that you'd be may be.
Applicable to certain parts of the memory chip manufacturing process DRAM side, I think but I'm just wondering how you kind of.
Our thinking about the evolution of the UBI into more more.
More and more layers of the chip, making process more and more.
Aspects of it and how how.
Your positioning the company for that development. Thank you.
Yes, Thanks, David and I would say for both cobalt and view the we look at them as allowing the industry. The industry always finds a way to continue getting small.
Our and better and more powerful chips and so you be for example, I don't think you could produce say five nanometer chip without on the logic side without using U.V.. So from a technology leadership standpoint, and we certainly consider ourselves technology leaders, we're excited when something like.
Will you be can enable our customers to continue on that cadence of getting to smaller and smaller feature sizes. The CMP related challenges for five nanometer chip are also extremely demanding and so we feel like that plays into our sweet spot without something like you the.
Mike.
Really have a challenging time to continue that miniaturization cobalt is a bit different.
Different but it is because it's a material challenge and we do have obviously solutions.
Solutions that that work on cobalt and working closely with customers that are using cobalt, but easy I think is definitely the path.
Path, if you want to make a sub five nanometer logic chip you mentioned in the memory side, it's really pretty limited right now.
Again, I think they're going to use that only if they cannot get.
To the smaller and more powerful chips any other way. So we think of it and I guess more important importantly.
From a CMP standpoint, we don't see it significantly impacting the way CMP is done or the Tam of CMP, especially because its focus on those very niche.
Nodes so for us we like to see the technology move forward it plays to our strength.
But it's a question that we get a fair amount.
So thanks.
Thank you very much.
Thanks, Dave.
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Our next question comes from Chris Kapsch from <unk> capital markets. Please go ahead.
Good morning, Pat.
Yes. Good morning. Thanks. So question generally about your the outlook that you provided for.
21.
Im just wondering if you take that EBITDA range and then the comments about.
EBITDA margin kind of back into a top.
Client expectation just wondering though.
You get there if you get there from some general expectation about the industry wafer starts and if you do can you talk about what those expectations are maybe by.
Different bucket logic foundry and memory and then along those lines is there any particular.
Node transitions that you're excited about in this calendar year or this fiscal year in terms of your participation based on PEO ours.
Yes, Hi, Chris Hope, you're well I'm.
In terms of the guidance that we did provide for the fiscal year, you're right you can kind of back out into.
Third range of topline as well what I'd say is on the semiconductor side, what we've assumed is sort of middle.
Middle of the fairway the estimates that many have talked about which is for wafer starts kind of low to mid single digit growth.
That doesn't factor in a strong memory recovery.
Sort of stable memory recovery in there so memory recovery would be a positive to that.
And then on the PM side, it's just from a it's so dependent on the macro environment, we've sort of made some conservative assumptions there, but obviously there should there could be upside.
If the macro environment for oil demand improves you also asked a question about technology nodes were excited we talked a little bit about in our prepared comments about positions, we've secured with our advanced dielectrics and tungsten slurries.
Or advance nodes in both logic and memory so.
So as you see the memory makers go on the NAND side too.
100, X. layers and then on the advanced logic foundry side get to five three nanometers. Those are physicians that were excited about because we secured key positions with that within both those segments. So.
Again as I mentioned in the previous question, where we're excited whenever the technology moves forward that plays to our strength.
So as we think about 2021.
It's we would assume you'd see continued progression of memory and on the logic side.
Okay. I have also a follow up on your comments, Dave about response to another question on Intel your biggest customer and that was you had indicated that you know they are really pushing their some of their high volume manufacturing process season, and then obviously, it's well known the that the challenge.
Just that they expressed on on the leading edge nodes and I'm just curious, though so if their their yields are challenged on the advanced node and they're running hard on the high volume for us to see where they have good yield.
It seems to me that would have translated into more demand.
Man for your more growth for your HPC see where you have sort of disproportionate share.
So could you just maybe reconcile those comments or observations.
Yeah, again, and we didn't call out specific customers and HPV c., but what we did talk about is we did see some.
Growth in E C, but it was somewhat.
Muted by some of the softness in Europe. So if you think about where we're strong in North America, and Europe, and Europe, those customers tend to be much more focused on industrial and automotive and so that sector.
That hasn't really recovered for Intel they have been running hard and they continue running hard so it's not sort of something that's changed over the last quarter.
So that dynamic may be helpful. In trying to Sumit, yes, Richard got it Ken Ken there tend to be inventory.
Inventory of the age.
See depending on the run rates of some of those maybe more some of those fabs that sort of more mature technology nodes.
There could be but I think it's the way to think about it's probably more similar to slurry theres not a significant inventory build.
But it's something that when there it's more if they turned down utilization, we're going to see that in the consumable side.
Got it and then.
I guess, one last follow up on the discussion around Pat.
Give me Pat you mentioned the.
The sales were down in it.
Thank you tied it to a.
You know there's some maybe.
Little bit more competition or.
The loss of some business that a foundry customer. So you mentioned legacy I think you said legacy pad not legacy node. So I'm just wondering if that one it right.
Referencing say the D 100.
Suite of product versus versus product under the nexplanar offering and I'm just wondering if if if that was a vulnerable piece of business.
Why wouldn't have been able to displace that with one of your nexplanar offering just trying to understand.
The dynamic a little bit better what's going on there.
Of course, and I think it's a fair question.
It did refer to.
The legacy pad.
Family that we've had out there for a while and obviously, we would prefer to replace it with our.
Ourselves, it's always competitive and what I can say at that foundry customer. We have won some business using the nexplanar technology. It just hasn't been replacement and kind and so that's sometimes how the dynamics play out we think those wins that we've talked about.
At both an advanced logic and memory.
They are will ramp up but we'll obviously take some time to do it.
And there is some phasing out of legacy technology.
Right is it also fair to say David that the process of record Windsor at the advanced technology nodes, so sort of the future of the industry and this loss by definition, presumably as well since it was there.
Product offer bring that you weren't really havent been pushing for advanced you know PEO ours, so presumably at a more mature node.
Yeah. That's that's correct I think that would be a good assumption.
And we're focused on winning at the advanced technologies. There we have had some displacements that legacy.
Well, but.
In that particular situation, we are winning more in the advanced side.
All right. Thank you for the additional color I appreciate it.
Thanks, guys.
This concludes the Q and a portion of our call I would like to turn it back to Colleen Mumford for final comments.
Hey, Ben.
The questions. We have for this morning. Thank you for your time and your interest in future.
Ladies and gentlemen, this concludes today's conference call. Thank you once again for participating and you may now disconnect.
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