Q1 2021 CMC Materials Inc Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the CMC materials first quarter fiscal 2021 earnings conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your first speaker today, Colleen Mumford, Vice President of communications and marketing.

Please go ahead no from a grade.

Thank you Carol good morning, everyone with me today are David Li President and CEO, and Scott Beamer, Vice President and CFO.

Last night, we reported results for our first quarter of fiscal year 2021, which ended December 31 2020.

We encourage you to review the slides and remarks document.

And well under our quarterly results section of the Investor Relations Center on our website CMC materials.

A webcast of today's conference call and the script and this morning's remarks and question and answer session will also be available on our website. Shortly after this live conference call.

They request and use the information by calling on our Investor Relations office.

630, 49926 year on year.

Please remember that our discussions today may include forward looking 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 statements.

These risk factors are discussed in our SEC filings, including our form 10-K for the fiscal year ended September 32020, and our form 10-Q for the quarter ended December 31, 2020, and which we expect to file by February 19 2021.

We assume no obligation to update any of this forward looking information.

Also our remarks this morning reference certain non-GAAP financial measures our earnings release and slide presentation include a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure addressed.

Additionally, data reflects rounded values throughout the discussion and and the accompanying slide presentation.

As you can see we are using and new format to convey our earnings results to allow for more questions and conversation and hope that everyone finds it useful and we look forward to receiving feedback and.

I'll now turn the call over to Dave.

Thanks, Colin good morning, everyone.

As Colin mentioned this is a new approach to convey our results this quarter.

So my remarks will be brief and then we look forward to taking your questions.

As announced last night, we achieved record revenue for our first quarter of fiscal year, 2021, driven primarily by strength and our electronic materials business.

We are proud of our performance, which we believe demonstrates the strength of our innovation.

Execution and close customer partnerships.

To date, we have not seen a meaningful impact from the COVID-19 pandemic on our supply chain.

And I would like to take this opportunity opportunity to again express my gratitude and appreciation to our teams globally for their efforts to keep our employees safe.

And to manufacture and deliver solutions to our global customers.

Interruption.

In terms of outlook as announced we are really encouraged by the continued strength and demand we're seeing for our solutions, particularly CMP slurry and given our technology leadership and advantaged positions in the logic memory and foundry.

<unk>.

Looking ahead, we see continued growth above this record quarter, driven again by strength in our electronic materials segment.

We are also encouraged by the continued signs of stabilization, we are seeing for our performance material solutions, particularly for our pipeline and industrial materials products.

I'd also like to highlight that we have also raised our guidance for full fiscal year 2021, adjusted EBITDA to be between $367 million and $387 million, demonstrating our confidence and our growth prospects and.

Strong profitability.

Our robust results demonstrate the quality of our portfolio and leadership positions of our respective businesses.

They also reflect our ability to execute against an uncertain macroeconomic backdrop.

We are optimistic about the trends, we are seeing and the semiconductor industry and are confident and our ability to capitalize on these trends given our advantaged positioning across logic foundry and memory.

With that I'll turn the call over to the operator as we prepare to take your questions.

Thank you and just a reminder to ask a question you will need to press star one on your telephone.

Mr. On your question, please press the pound or hash key.

We also ask that you limit yourself to one question and one follow up and re queue for any additional questions.

Our first question. This morning comes from <unk> Hari from Goldman Sachs. Please go ahead.

Good morning, Chris.

Hi, good morning, choline and David and the team. Thank you so much for taking the question and.

Congrats on the very strong results.

David just so just to follow up on your CMP slurry business. As you noted in your prepared remarks, obviously very strong growth and the quarter.

If you can provide maybe a little bit more context in terms of what drove the 12% sequential growth and the slurry business that would be super helpful. And if you can provide sort of and outlook for March and.

Perhaps june for the slurry business as well that'd be great and then I've got a quick follow up thank you.

Yes, thanks to share, we're really encourage and obviously it starts with the industry conditions.

And for our slurry business, we saw growth in both the advanced and legacy nodes and across all segments I think most encouraging and something we've been talking about for a few quarters as the expected kind of recovery and memory and we started to see that this quarter DRAM as you probably know is running at.

Most full utilization and NAND had increase utilization throughout the quarter as well as some announcements of capacity expansions given the really what we believe our advantaged positions, especially and slurry for those advanced memory nodes.

Woods, those advanced logic nodes and those advanced foundry nodes when those start really picking up where you get the benefits of that growth. So we're continuing to build on our leadership positions for slurry and and you saw that strength. This quarter. We also talked about and our prepared remarks that China was very strong you would expect Korea to be strong with.

Stronger memory backdrop, we also talked about growth in China, which is mostly logic foundry and what we would consider legacy we have very strong positions in China and we see continued growth ahead and the next several quarters and of course, China is a very important geography for the semiconductor industry, including.

Us.

Got it Super helpful. Thank you and then as a quick follow up on the electronic chemicals business.

I was a little surprised by.

Muted growth was and the segment you.

Your biggest customer and North America.

They've got great momentum.

Cross I guess, primarily the PC business and potentially and servers going forward.

You've spoken to weakness and lagging edge on prior calls as a headwind and if anything the lagging guide seems to be recovering pretty nicely across the automotive and industrial end markets. So curious what the puts and takes were and the electronic chemicals business in December and I guess more importantly, what's the outlook into into March and June. Thank you, yes. Thanks.

Yeah, I think I think <unk> got a good handle on that business. Obviously, the dynamics are a bit different than slurry and pads, where we sell to a number of different customers. This is a solid profitable business, but it is very regional and.

And our participation and the customer concentration and where we participate.

And is much more concentrated so it's U S Europe southeast Asia, So the quarter on a quarterly basis, there will be more puts and takes just by the order patterns of specific customers also just by where we participate we're not going to get as much lift from a memory sort of strength.

Or increase in utilization I think.

Longer term, we continue to make improvements and the business that we think are going to differentiate ourselves further differentiate ourselves from our competitors from a quality and supply chain perspective, and we do expect although we don't give specific guidance for the next quarter, we would expect it to grow year over year. So it's got some different dynamic.

And quarter by quarter, its going to have some puts and takes but it's really much more concentrated much more regional but we think it's going to grow year over year.

Thanks, Dave Congrats again.

Thanks, David.

Our next question comes from Mike Harrison from Seaport Global Securities. Please go ahead.

Good morning.

Hi, good morning, everyone.

Was wondering if you can give us some additional details on the new business wins that you referred to in the CMP pads business is this more of an expansion of positions with existing customers or are you winning new customers.

And just give us some some thoughts there.

Yes, Thanks, Mike and again this is kind of a continuation of the narrative, we've been talking about for a while and which is.

We're really excited about this business and we continue to see wins, we talked about and the prepared remarks customer wins, and leading foundry and leading memory applications.

And so what we saw this quarter and what we see going forward is the ramp up of those wins, sometimes they take time, especially if they are at the leading edge, but when we think about and we look at the pipeline of opportunities, it's really exciting because we are seeing.

Strength and.

Really really compelling interest from customers across different segments. So I think the recent wins are with.

Customers that are both in foundry and memory, therefore, leading edge nodes and we're really excited about those and we continue to believe we have a really compelling offering and the pad area and its going to be a strong growth business for us going forward.

Alright, and then over on the DRA business.

Maybe just an updated outlook on on the pace of recovery is.

<unk>.

To be more quickly than you expected and can you maybe also talk about that.

We've got a new administration and the United States that maybe a little bit less friendly toward new pipeline construction. So how does that affect you.

View.

<unk> future growth.

Yeah, Thanks, Mike and I'm glad you asked the question, obviously, it's something we're watching carefully and the new administration definitely seems to have prioritized climate change and sustainability, which obviously, we think is positive and our goal is to support.

All of our customers efforts to be more sustainable kind of and it ironic way, having fewer new pipelines puts even more capacity constraint on existing pipelines, which as you know and the U S are pretty.

And infrastructure is pretty age so DRA has become an essential way for pipeline operators too.

Transport oil, while reducing energy and operating costs also its theres, a safety elements and so dra's you could could become even more compelling and this kind of it environments with the new administration, so and as you know from our company's background and we just put out our.

First our CSR report, which we're really proud of it's really part of our company's culture. So we look forward to supporting our customers and a way that helps them be more sustainable even ask kind of a more near term outlook.

I think we're watching the dynamics carefully I think and Scotts remarks, he talked about the outlook that we that we think about for Dr. A's.

And we were encouraged to see December.

December for example, being a very strong month.

But really I think it's going to be dependent on opening up of economic activity. There is more optimism around vaccinations and things that might allow people to resume moving around and so we're watching those dynamics I think what we what we're trying to do is control what we can and the business so whether it's.

New business wins, and we've had some significant new business wins that we think are going to ramp up or just cost control. The cost structure of the business is highly variable, it's still very profitable business. So even in this lower demand environment, we're making improvements to the business. So that we're positioned once things really start to.

To ramp up.

Alright, thanks, very much for all the color there.

Thanks, David.

Our next question comes from Chris cash from Loop capital. Please go ahead David.

Good morning, Chris.

Yes, hi, good morning.

Just curious if you can get a little more granular just on the <unk>.

And so a trend during the quarter.

Just wondering if.

Obviously, you made the formal comment about the a b and.

And encouraged by the memory and market recovering and did that pick up as the quarter and.

Food.

Any color on just the sequential demand trends and the electronic chemicals and still be helpful.

Yes, Chris just to make sure I understand your question just you try and ask for kind of momentum within the quarter I think what we're starting to see is theres. Obviously a lot of poll. If you look at the end demand market, So you're seeing auto start picking up.

Industrial as well and then as well as those sort of more traditional drivers that have been so important during the pandemic things like Pcs bandwidth and then Youre seeing also this growth of five G and so there's just a lot of things pulling on the industry. Now. There's also some kind of geopolitical things like China really.

Really emphasizing semiconductor utilization and in region. So there's a lot of positive momentum that's driving chips.

Manufacturing these days and the industry and the industry environment overall appears to be really healthy I'd say inter quarter, what we've talked about and the last couple of quarters that we see some of the elements of recovery and memory sector and we started to see that come to fruition in this.

Quarter. So I don't know if I have the granularity of inter quarter, but obviously, we've been talking about the kind of memory dynamics for a few quarters and we started to see that.

And more so and this quarter.

That's helpful. I appreciate that and the follow up would be about the margin profile.

Given the sequential strength and your electronic chemicals, and some might say debt.

The sequential margin improvement could have been better and but I've seen over the years debt.

I think it's based on your cost per counting that some of the flow through.

When you have a soft quarter and kind of effects the margin and the subsequent quarter, so that might ports and further improvement and your margin.

And to the March and June quarters based on your preliminary outlook.

Into calendar 'twenty 'twenty, one and so any is that a fair characterization and any comments you can make about sort of the that margin profile as we.

We proceed here over the next couple of quarters would be helpful. Thanks.

Yes, Chris FERC first off we have this item.

Compare ability versus the prior year of the $5 million that was and income pick up last year that didn't reoccur. This year I would more or less set that aside in terms of our understanding of cost structure that was an item that I think we explained at the time was on accounting nuance with.

Some costs debt moved from one category to another but as we sold those units and the second and third quarters are the third and the fourth quarters then that debt.

On that.

And that normalized throughout the full year. So as we think about the margins and I think we provide a fair bit of information on page 11 of our materials where.

We think about Q1 and 32% EBITDA that we had adjusted EBITDA as a percentage of revenue very pleased with that metric and a couple other data points that we gave is as you're thinking about Q2, we want to remind people. So the march quarter, we want to remind people that that is.

Period, Thats, a quarter, where the inflationary items for us generally hit our merits go into effect on January one the benefits generally get reset. In addition, we have some corporate activities related to intellectual property for example, which is normal non a structural change, but can be a little bit.

Lumpier quarter to quarter. So we provided some information on that page 10, and that said, hey, here's how we'd like you'd be thinking about Q2, but then Q2 going beyond that then into Q3, four and so on and we always like to remind about the 31% to 32% being a reasonable.

<unk> expectation for the short to medium term and we see.

First off those costs in Q2, they normalize a bit into Q3, and then we expect the slurry business to continue to perform well and to continue as that's one of our best.

Net earnings types of businesses that will enhance the margin and then and the second half of the year.

Spect some level of recovery, while stable now on DRA as we expect some level of recovery for those future years. So that's how we're thinking about the margin profile quarter over quarter, So hopefully that.

And that helps everyone I think we're giving a fair bit of transparency around that.

Chris are you still there.

Yes, I'm, sorry, I had to yes, thanks for that Scott and just just as a quick follow up to that.

If I think about some of your higher margin product lines and key product lines that you're talking about a pickup and memory and that which should benefit your tungsten slurry youre pointed to recovery and Dr. A pretty high margin business, So I get there.

The incremental costs that come in on January one, but it looks like at a minimum there could be mix benefit on a sequential basis going into the March quarter is that is that fair and thank you, yes, yes, yes.

We're thinking about it right Chris I mean, those businesses that you mentioned are among our highest returning and as they improve their.

Overall corporate mix benefit that we would have yes.

Thank you.

Thanks, Craig.

Our next question comes from Amanda <unk> from Citi. Please go ahead and.

Good morning Amanda.

Good morning.

Question on the slurry side of the business, there's been a lot of talk lately about multi band and then replacing some time from layers in <unk> NAND going forward can you talk a little bit about how you're positioned if that transition were to happen.

And if you have products.

Two to work on that piece of the market.

Yes, Thanks, Amanda we feel like we have we continue to build on our advantaged positions in advanced memory, whether it's NAND or DRAM and so any new material that comes in and that's actually.

Potentially an advantage for us because the number of companies that have the focus and the knowledge and experience and the applications that we do.

Surrounding these customers to support them is really limited and I think.

Whether it's a.

A new material for <unk>, which we have several research programs working on and we've actually.

Recorded some early wins or just kind of picking up.

Existing volume as utilization picks up we feel really good about our positioning, especially within the memory space and so new materials are actually.

Welcoming for US obviously, we have a strong position in tungsten, but we continue to innovate and all areas, especially related to CMP slurry and pads.

Great and then on the pet side and the business I know, we've talked in the past about and.

<unk> seen from share loss and Korea. This quarter, you talked about and share gain.

And with any of that sort of a return and that business from Korea.

It a little bit more broad based.

Yes, I think what we'd say is.

We obviously talked about some headwinds to the business and previous quarters, we've grown.

Above and beyond those.

And there's only so many customers and the semiconductor universe that can really move the needle and so it's not.

You and obviously it wouldn't be surprising to see that us winning back business or engaging with those those same customers.

Obviously, we're working with and.

And partnering with the largest semiconductor customers and Theres a lot of customer concentration and begin with so for.

For wins too.

Ram and move the needle for our pad business they have to be with significant customers.

I guess I'll leave it there.

Perfect. Thank you.

And Fernando.

As a reminder, its star one on your telephone and ask the question.

Next question comes from David Silver from CL King. Please go ahead.

Good morning, David.

Yeah, Hey, good morning, and let me.

To start out by quoting.

Fiscal and Ebert so two big thumbs up for the new reporting format and also the conference call format.

I had a feeling yes, yes.

Yeah, No I had a feeling.

And I'll go right ahead, sorry.

Glad you mentioned that because first off we're pleased with our performance were proud of what we're doing here. The team has worked really hard on the materials and.

And if there's a way we can continue to evolve all the above to help convey the story, we're happy to do that so we actually really do appreciate your feedback there. So thank you.

And I'll also just chime in and say I use the Chicago area referenced two to.

Complementing there so I hope that gives me half half of a brownie point, though on top.

Anyway.

And I actually had several questions.

Let me just see.

So first of all.

And I guess theres been a lot of talk up and down the electronics chain.

About both rising raw material costs and also costs and <unk>.

Reliability of the logistics chain.

And so.

I guess, the first part would be maybe to characterize the direct effects that you are feeling in those areas. But then I was hoping maybe you could talk maybe indirectly further down the chain is there.

Signs of disruption or shortages that might feedback and.

And kind of impact.

The reliability of your kind of near or medium term forecasts and other words would problems further down the chain.

How do you gauge that they might be affecting your.

And your demand or your operations over the next quarter or two thank you.

Yes, sure David first our teams have worked really hard we like to make the statement. We've made every shipment to every customer during these past 12 months. So whatever the global pandemic has presented in terms of challenges our teams have.

Risen up and have met those challenges. So we're very pleased and feel very fortunate to have that as a as a fundamental that also means working throughout our supply chain and working closely with our suppliers, they're important partners to us with the technology that they bring and the delivery that they bring to us so well.

Working across the entire supply chain and we've built our company based on having these critical enabling materials that help solve our customers' most important problems and if you build a business based on that then you need to make sure that youre delivering the products on time and full so we spend a lot of time.

I'm kind of managing all of the above we probably won't go into too many details about that but we spend a lot of time managing all day, all the above to make sure that we can provide those advanced solutions to our customers.

Yeah, just just to add on to Scott's comments to us we don't see any.

The pandemic was a was a stress test for everyone's supply chain as Scott mentioned, we didnt Miss a shipment.

I think we don't see any significant pricing changes or certainly any supply challenges with our critical suppliers. So that's something we've really worked hard to strengthen and shore up and make sure we are.

Really really secure from a supply chain standpoint, and I also think within our company.

Yes.

And having a global operations network like we do with manufacturing and Korea, Taiwan, and Japan U S. Singapore.

And for EC and Europe, and other locations that really also.

Gives us some flexibility in case there are.

Any sort of business continuity concerns and as Scott mentioned, we haven't missed a shipment. So far. So we think this is something that is a strength of ours and so we don't see any sort of.

Concerns and this area.

Okay. Thank you for that.

Next question would be kind of more of a general question on China.

And you.

Rightly noted earlier on about changes in government and policy towards and China towards the semi.

Semiconductor industry there.

And I wanted to kind of focus on one thing, but my sense is and I have read about how China with Chinese chip production, which used to be concentrated or congregated around the 45 nanometer line width.

Design.

And is moving down the curve, maybe one step to 'twenty gate or maybe more than once debt.

And to me I hope this is not to come and dilutive.

Characterized as a node transition, which generally favors.

Companies like yourself, but I'd also say that it's not leading edge nodes that theyre moving to so.

And so I'm just wondering if that changes the competitive.

Balance there in China and in other words <unk>.

Our wins and just the tone of business I mean do you anticipate.

Spending your current market share and CMP products and in China and moving forward.

Or have you had greater success, greater PR and that might translate to share gains or are there some risks.

Our current book of business. Thank you.

Yes. Thanks.

Thanks.

It's an interesting question and so first we have a lot of experience in China, It's a really important geography for us and we have a very strong position I think the first thing to think about is there is really two segments of customers. The multinationals that operate within China. So for example.

And I'm sung has a large facility and Xi'an hynix in Wuxi TSMC I think everyone. That's a major semiconductor player has a facility manufacturing facility in China, and they're generally operating at.

Maybe two generations behind the most leading edge.

And the case of memories.

And leading edge, we obviously have very strong relationships with the multinationals just by way of our relationship with the entire customer.

Whether it's faced and Korea or U S or other places. So that is basically those are basically transported into China, and so we're able to build upon our position and get the volumes as those sites ramp up if you're talking about the domestics I think you have a good handle on it there I think Jed.

And really speaking for logic, the most prevalent node that's being produced right now is around 45.

There's a lot of demand for 45 nanometer devices within China, and so whether it's <unk> or sensors, and so theres a lot of demand being pulled from the local customers.

Customers, we have really strong relationships there too for a few reasons. One is we have a really fantastic.

Local applications support team there that worked really closely with the customers, but I think secondly, the customers the local customers liked to smic's hung and they really like to work with us because they are trying to catch up to the leading edge one way. They can do that is working with a technology leader like on.

US that have works with <unk>.

All the leading customers and the world to solve their challenges. So that we can help them with solutions that are proven and we have the application support that they need and so we see a strong future growth and China and we're starting to see that really pick up and the last couple of years and I think obviously.

<unk> as you mentioned.

And the New administration may have a different positioning towards China, it's too early to say, but no matter. What I think we'll have we'll continue with a strong presence there and we.

We think we're excited about China.

Okay.

Okay. Thank you for that.

Hey, David can we have another caller and thank you. So maybe one more question and that will help you get back into the queue.

I was just about to say Kelly has to use sort of book here, but I'm going to give guidance.

Thank you.

Our next question comes from the percentage Hoffman from there and bank. Please go ahead.

All right.

Hi, Good morning call and David and Scott. Thanks for taking my question I was just hoping to understand the key growth drivers of your slurry business, a little bit better and how much shift that is related to pricing just price increase versus.

And just more number of wafers being produced and I guess your content per wafer is also rising as to how big a role is that playing so any color you could provide on these drivers would be great.

Yes, Thanks, I would generally say that the.

And the benefit we try to do is.

On maintaining pricing and profitability of our slurry business either by.

And innovating and introducing new products.

Or winning new applications and so generally speaking you would you would think that.

Significant growth within slurry is coming from either higher utilization, so our strong positions ramping up within customers or new positions, we haven't talked too much added.

The granular levels of different customers and different applications I would just say we think we have some really advantaged positions not just in tungsten and advanced dielectrics dielectrics actually is the largest CMP application space and we continue to innovate and introduce new solutions, there when new positions and.

So that's an exciting growth area for US we've also talked about the growth and.

And recovery and memory, we obviously have a strong participation in that space. So so that's going to help us grow in slurry as well, but generally speaking and then you also mentioned another aspect, which is increased content. So you see that with more layers of <unk> NAND theres going to be incrementally more CMP.

And you did force slurry and pads and so that's.

Giving us that opportunity to grow even above the market. So in general what we'd say is we're participating at just about every node every customer.

For slurry and pretty much the same at pads and so we're well positioned once new technologies ramp up and if there is a increase in utilization overall in the industry and we're seeing sort of both of those dynamics play out right now so that's why you sense the optimism.

You see the sequential guide above this current quarter, which was a record quarter for us second quarter by the way historically has been seasonally softer for us just because there's fewer shipment days you have the lunar new year, so us raising our.

Our topline guide for <unk> versus this quarter just shows our confidence in not only are the industry strength and our own positioning and ability to win new positions.

Thank you from all the detailed color on my follow up is on your DRA business. So I guess two related questions.

I believe you made some investment and the DRA business and our recent past to increase our capacity and <unk>.

And then you could give us as to how big that expansion was 10 and 20% of our maybe was it bigger and then apps.

Your customers are concerned the DRA customers any sense as to what their utilization rate was and the last quarter and how it evolved in January and thank you.

Yes sure per touch a couple of data points that we provided and and I think would be helpful.

A bit here as we said a significant piece of our Capex last year and our FY 'twenty was related to the plant expansion and I would say that in terms of the.

Capacity, let's call it a significant increase to our capacity there and as we think about that business, we talked about eight I'm, sorry June being the low point and that.

And we said that at the time of our June quarter earnings and that has continued to be the case throughout the rest of this year and then recently we mentioned just Sember was our highest month that we had since April of this year. So we see this as being a period of stabilization for the DRA.

Business now you've noticed no doubt again and page 11 of the guidance that we have and the materials you've noticed that.

We're expecting the performance materials segment to be up high single digits, and we expect debt.

And part part of that is the DRA recovery. Additionally, our products help with process optimization at the customer lines I'm going to be reluctant to say too much about the customer capacity utilization, but oil consumption is down and let's face. It it's been down I think our business.

And as trends pretty heavily to that but.

<unk> materials will continue to be key enablers for one of the reasons is because it addresses the energy spending at the customer level. So throop, improving throughput is important but and improving the customer cost structure is also important and that's something that they're looking at now as.

Much as they ever have because they are being constrained a bit economically and in addition, and then we continue to invest and some R&D and this business and making sure that we're using the plant that's up and running to be able to secure some new business get some approvals and.

And continue to manage as Dave said manage what we can control to make sure that we're well positioned and on all commercial opportunities going forward.

Great. Thanks, so much.

Our next question comes from Chris <unk> from Loop capital. Please go ahead.

And welcome back yes.

Yeah.

The question was and I know you maybe want to shy away from customer specific commentary, but in your 10-K, it's clear that Intel and the single largest customer and their.

And their yield issues at the 10 nanometer node has been well publicized so but my question is is that and their most recent quarter and their com and public commentary they talked about.

<unk> there are ice Lake 10 nanometer CPU unit.

And they talked about that volume.

Higher volume production ramping and the March quarter. So I'm, just wondering if that influenced your business either.

While they were having a yield issue.

<unk> during the quarter as it looks like they may have resolved those issues temporarily and then is there any any color you can share on in terms of their decision and ultimately maybe not so much seven but five nanometer.

Are you indifferent ultimately if they decided to outsource that manufacturing or would that be incremental.

Where do you stand on that if you can comment on it. Thank you.

Yes, Chris that's a good question and obviously as you can see from our filings and you've followed us for years Intel is a very important customer to us and we continue to work closely with them on on existing and new technologies that they're ramping up their obviously playing catch up these days with TSMC.

Seeming to make some progress on 10 nanometers.

Just kind of.

The dynamics that would be at play.

In terms of.

E C. Obviously, we participate mostly in North America, so you'd think that as they advanced technology that could be good for us from a intensity of use standpoint for CMP slurry and pads.

We're a little bit more on the agnostic side. There. We just want the technology to continue to advance and ramp and and therefore, there to be strong and market demand drivers for those leading edge chips. So intel deciding to outsource manufacturing that would most likely go to foundry partners of ours and.

So.

And we've got great positions at leading edge at the foundry space as well so from the CMP standpoint that would be.

Do you have a bit more and different there.

That's helpful. And then just maybe a little more granularly on the on the core.

And the December quarter did did there.

They are resolving their issues that this production node.

Was it noticeable and your business trends does it help contributed in the quarter you expect it will and the March quarter as they've talked about higher volume production there.

Yes, I think.

And there are an important customer of ours Curtis if theyre doing well and we're gonna be happy and we're going to be doing well as well I don't think the correlation can be directly.

As well because sometimes when they talk about dynamics and their business they could be offset from where the CMP processes or where the where electronic chemicals are being used so there could there might there might be a bit of and offset from what they discuss in terms of their results and their performance versus what consumables.

And are being sold into.

They are different processes and I'm sure that you are fully.

You've been following the company for so long.

The kind of process steps and.

Yeah.

Fair enough could I do one follow up on the on net.

CMP pad business because debt.

It was <unk>.

<unk> to see that.

And the growth and this quarter year over year after some quarters of negative growth.

And one of the drags on that business had been and my understanding is.

From efficiencies.

Key customer had made with their process, where they maybe didn't change out the pad as frequently and that resulted in perhaps and inventory drawdown and I'm. Just wondering if it has has that.

That worked its way through and you are.

And your demand profile for the pad business setting aside your.

Process of record wins that you mentioned and that are going to contribute to future growth.

Yes, I think what you're talking about is just.

Increased efficiency and using consumables, which is something that we know a lot about and in many cases, we're helping customers use consumables more efficiently. So that they can reduce cost and just be more efficient with with how they use materials in the pads business I think we talked about some <unk>.

<unk> and the past obviously, we've grown past those and again I think what we think about for this business is there is so much opportunity for us to gain just because the difference between our position is we believe we're the number two supplier and the number one is so great that there is.

A tremendous opportunity for us to grow our participation, especially given our ability to offer both slurry and pads at the same time and a consumable set.

And we've talked about as well so what we're really excited about the business, we saw new new wins ramp up and this is something of a continuation of the narrative that we've talked about for a few quarters, which is.

Again, a few headwinds growing beyond those and we think of this as a strong growth business for us going forward.

Fair enough. Thank you thanks Pat.

Our next question comes from David Silver from CL King. Please go ahead and welcome.

And welcome back David and I think we will have time for maybe one more question, we're hearing and half an hour.

Okay.

Okay, that's great I have one more okay.

And this one would be for Scott and <unk>.

Just to give you a heads up and kind of trying to work and work out the cash flow and the first quarter and in particular the working capital.

So per the slide.

So you don't include a full cash flow statement with your release, so I'm trying to kind of manufactured or recreated from what's available 54 million was the OS V F.

And if you take net income DD&A and $7 million and <unk>.

Tangible write down on.

I'm left with kind of the.

Working capital usage, it's much lower.

And then what I've seen and your typical December quarters for the past few years.

At around $17 million and last year was minus 31, the year before minus <unk> 25 or so.

And given the bright outlook for industry demand as mentioned are as presented by the chipmakers.

I was kind of scratching my head and I'm, just wondering I would've expected a bigger than normal working capital buildup for inventory and whatnot.

Could you just maybe kind of talk about that and whether.

You are kind of ramping up in accordance with the demand levels that you see or.

Is there something I'm sure, there's something I'm missing, but I'm just wondering why there wasn't at least from a.

Top down view a bigger.

Working capital usage and the first quarter.

Yes, Thank you David and there's a few points will probably take offline as they are pretty detailed here, but as you think about our Q1.

I think when you compare our Q1 cash flow to last year's Q1 cash flow and <unk>.

And as a percent of the total year last year and some expectation for this year I think you find a pretty similar metric and our December quarter, our Q1.

There is a little more activity on the accrual side that you were mentioning one particular item is the payout of our short term bonus. So those are items that are accrued during the year a buildup of working capital. So that's.

And.

And in flow of cash when that happens, but in the December quarter Theyre paid out so thats an outflow of cash and then in addition, with a growing business that we have we have some increase and both receivables and payables, which I think would be reasonable with the expectations that you would have so.

I would just think about the cash flow as being no significant structural change over time Q1 is typically different than the other quarters and you see less cash flow from operations, and Q1, and you see and and other quarters, but I would think of it as no.

Significant change.

Appreciate the capital light model that we have we talk about debt.

Capital spending priorities or the capital deployment priorities that we have and so we.

Pay attention to that and managing cash flow is an important thing, but it's not.

We'll take some of those details offline with you to make sure that we're clear on all of those but that would be.

And that would be the summary of my message right now.

Okay. Thanks, very much so yes.

We will follow up offline I appreciate it okay, great. Thank you David.

This concludes the Q&A portion of our call and I would like to turn it back to Colleen Mumford for final comments.

That is all the questions we have and good morning. Thank you for your time and your interest and CMC material.

Ladies and gentlemen, this does conclude today's conference call. Thank you once more for participating you may now disconnect.

Okay.

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