Q2 2021 CMC Materials Inc Earnings Call
Yeah.
Good day, and thank you for standing by welcome to the C. M C materials second quarter fiscal 2021 earnings conference call at.
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Now I'd like to hand, the conference so much of your speaker of today, Colleen Mumford Vice President Communications and marketing. Please go ahead.
Yeah. Good morning with me today are David.
President and CEO, and Scott Beamer, Vice President and CFO.
Lastly, we reported results for our second quarter of fiscal year, 2021, which ended March 31 2021.
We encourage you to review the slides remarks document made available in the quarterly results section of the Investor Relations Center on our website CMC materials.
A webcast of today's conference call in the script of this morning's remarks and question and answer session will also be available on our website. Shortly after the <unk> conference call.
You may request any of the information by calling our Investor Relations office at 63049926 year on year.
Please remember that our discussions today may include forward looking statements that involve a number of risks uncertainties and other factors that could cause actual results to differ materially from these forward looking statements.
These risk factors are discussed in our SEC filings, including our form 10-K for the fiscal year ended September 30 of 2020, and our form 10-Q for the quarter ended March 31, 2021, which we expect to file by May 10 2021.
We assume no obligation to update any of the 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 of <unk>.
Yes, Sherri data reflects rounded values throughout this discussion and in the accompanying slides and remarks documents.
I will now turn the call over to Dave for opening comments, followed by a question and answer session.
Yeah.
Thanks, Colin Good morning, everyone as announced last night, we achieved another quarter of record revenue.
We believe our performance reflects our leadership positions.
Continued innovation and.
And strong business execution, particularly in the electronic materials segment.
We continue to operate our global manufacturing location without interruption.
And are proud of our global employees for their sustained focus on health and safety.
As well as their ongoing efforts to produce and deliver best in class solutions to our customers around the world.
In terms of outlook as announced we are very encouraged by the strength in demand we are seeing for electronic materials solutions.
Particularly CMP slurry.
And CMP pads.
Given our technology leadership.
And advantaged positions across all segments and geographies, we see significant gross momentum for our products across all sectors and geographies.
With the strongest performance in foundry in China.
Looking ahead, we see continued growth for our company above this record quarter, driven again by strength in our electronic materials segment.
I would also like the highlight that we are improving our full year adjusted EBITDA range to between $370 million and $390 million Derma.
Demonstrating performance in the first half.
And our confidence in our gross prospects and strong profitability for the next two quarters.
Our second quarter results demonstrate the quality of our portfolio and leadership positions, particularly in electronic materials.
We are excited about the expected growth in our core businesses and are confident in our ability to capitalize on the favorable semiconductor operating environments.
Looking ahead to our third fiscal quarter, we expect to again deliver sequential growth.
Above this record quarter across both segments.
With that I'll turn the call over to the operator as we prepare to take your questions.
Yeah.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please limit yourselves to one question and one follow up if you have any if any additional you may refer to the queue. Thank you.
The standby, while we compile the Q&A roster.
Yes.
Your first question is from Toshi O'hara with Goldman Sachs.
Hi, guys good morning.
Hey, good morning.
Hey, good morning, Thanks for taking the question I've got a multi part question on your <unk> business and then a follow up on the <unk> side as well.
So Dave on the <unk> side, you showed nice acceleration in gross in the slurry business I was curious what were some of the key drivers there.
And then in CMP pads I think on prior calls you had talked about.
Some market share dynamics in Asia.
Also of customer to transitioning from your classic.
The Cabot platform to the next planar platform and how that was causing a little bit of a delay if you will if you can.
Could give an update on those two dynamics as it relates to the pads that would be helpful. And then in electronic.
Chemicals I think the business grew in the low single digits year over year.
Obviously, you've got a very large customer here, who seems to have pretty good momentum and then the mainstream nodes from an industry backdrop perspective seem really good too given the strength of industrial and automotive so why not I guess the faster growth rate. There. If you can touch on that that'd be great.
Thank you.
Yes, Thanks Toshi.
A mouthful that's a lot of questions around yeah, let me see if I can cover those so in terms of the environment. We're obviously encouraged by the overall strength of demand.
We see across just about every sector.
Particularly strong in foundry in China.
We've seen strong growth in both of those areas and as a proxy for that you see our positions in across the whole segment of the yen, but particularly in slurry and pads growing at a faster rate.
On the slurry side I would say, it's not just the environment, but we are continuing to win new opportunities that are ramping up and I would say that also per pad. So in the prepared remarks, we talked about.
Continued strength in tungsten, obviously, that's building onto a very strong leadership position, we secured some advanced tungsten positions in memory. We also secured and advanced dielectric position with the major logic producer and then a bunch of pad opportunities that we're able to be secured as well including <unk>.
On the consumable sets. So what we're seeing is not only of strong overall growth environment, but we're also winning new opportunities that obviously, they ramp up of or different trajectories over time, but I think the end.
The state will be increased participation for us as we've talked about.
And so we're really pleased with the CMP one thing I'd note is that I think theres a lot of.
Industry gross numbers that are being talked about.
Probably in the kind of mid to high single digit range for the industry as everything is running pretty full.
I'd say when we when you think about CMP.
The different parts of that semiconductor.
Market are going to grow at different rates, we think CMP is probably growing at mid single digits. So that gives you a proxy about how well we're doing in that area I think we've outpaced CMP for a while now and we continue to have plans to do so so that gives you a little bit of background on.
Slurry and pads on the EC side, yes, it's a different business for US obviously, it's a lot more regional we participate in North America, Europe, and a bit in southeast Asia.
These markets are doing okay, but I think of <unk> as more of a solid the growth business its not going to be as dynamic. It is a little bit more transient at least at the time.
Since we've had it under our portfolio I would say that we're making some investments to improve our quality to improve the technology of our offering in the supply chain and I think that's going to further differentiate us from the other participants in that market. The other thing I would note is that.
A lot of the recent capacity expansions.
Or in the U S, particularly like TSMC, and Intel and so that should offer us additional growth opportunities for <unk> with the growth trajectories are different for those different parts of our business.
Got it Thats the Super helpful. Thanks, Thanks, David and then as a quick follow up on the PM side.
You guys, you guys booked of $208 million.
Goodwill impairment charge and I think in the.
Prepared script, you talked about a lower than anticipated recovery post the pandemic and an increase in raw material costs. If you can kind of elaborate on those two points what's changed over the past three months and perhaps more importantly post post this write down Dave how would you characterize the importance of the DRA business within the.
Context of your overall portfolio. Thank you.
Yes, so Sheila I'll start.
Yes, you've listed the two items that we mentioned in our materials and I think as the.
The raw material cost in the near to mid term.
That's the supply demand issue in the marketplace, we won't be too specific about any particular material, but of course, you can expect us to work to manage that so it doesn't have a significant impact in that.
Over or the rest of the year for our business and any impact of that is included in the guidance that we increased both the top end of the bottom end of the end of that range as we think about the lower than initially expected recovery I think the accounting nuance aspect of this is important and you.
Think about the strategic objectives of our business, which we are where the team is working on.
The may include things like continuing to develop our R&D portfolio dressing some market adjacencies another win capture in the marketplace.
We expect to get this business to a better level in the future. However, those sort of strategic objectives, you're really not able to count much of those or perhaps any of those in the accounting model test. So we know that this is a business that's been impacted by the pandemic that is the big drag.
River as we look forward in our future expectations of the business that base business is challenged that's going to be of lower type of recovery, but we expect that we're going to deliver on strategic strategic objectives to get this business to a different place, but essentially you're not able to count very much of those in the accounting test piece. So it had an.
Pact on our balance sheet I would like the I think people understand but it's entirely of goodwill impact we have other intangibles, where value was assigned to that business such as customer relationships the value of technology et cetera of this is not an impact of those items those items and the values of such.
They remain intact. So it's because of the pandemic of essentially that were here talking about this in.
The team worked hard throughout the process and we got the result that certainly had an impact on our balance sheet, but we feel well positioned moving forward.
And then I think as we think about the portfolio day, maybe Dave.
Post post this type of items will let Dave comment.
Yes, I think Scott captured it well kind of the impairment from the accounting perspective, we obviously have plans to grow the business.
We're investing in R&D and we have new products that were.
For almost ready to introduce in the market from a portfolio of perspective, obviously, the environment's changed we're always going to be looking at the portfolio and under <unk> trying to understand what's the value we can drive as.
Owners of the business versus any other alternatives out there.
I'd say, if we if we continue to own the business, we're going to drive performance and I think as Scott mentioned, if it wasn't for the pandemic, we wouldn't be talking about the impairment right now.
So we do expect recovery as well as our own growth initiatives, but we always do have a line to the portfolio and what makes the most sense for the long term benefit for our shareholders.
Thanks, so much and good luck.
Thanks Sophia.
Your next question is from Mike Harrison with Seaport Global Securities.
Good morning, Mike.
Hi, good morning, everyone.
<unk>.
Wanted to ask about the the <unk>.
Customer capacity expansions the node transitions.
It seems like Youre getting a little bit of help from that in Q2.
But really.
Hearing that you guys sound a lot more confident in that.
The outlook is a lot more promising for the rest of the year and into 2022.
David can you maybe talk about what visibility looks like relative to normal.
And talk about how confident you are in that forecast for the second half and maybe continued momentum into 2022.
Yes, Thanks, Mike Good question I think what.
I may have touched on a few points worth repeating from so she is question one.
We see really strong demand I would say first most of the capacity the kind of headline news of capacity expansions from an Intel or TSMC. They are probably a few years away, but that does sort of set the framework of future growth once that capacity comes online obviously consumable.
Those will be needed those are important customers for us.
So we're going to be.
Playing a big big part of that that new capacity. Once it comes online I would say what is driving growth and you can see sort of the what we had talked about in the previous question is we think the CMP. For example is growing at probably mid single digits, we're definitely growing above that.
And Thats part.
Part of our positioning but also part of the new opportunities that we're winning and you can kind of see that confidence that we have in our ability to deliver performance over this next couple of quarters. One is the guidance that we gave for.
The company high single digits mid single digits.
And high single digits for PM and then we also raised our EBITDA guide for the entire year. So what we're seeing is really broad based strength in demand, particularly from EAM. We're also really pleased with the opportunity capture we've seen in pads and salaries and that is kind of informing our guide.
And you can see that guidance is pretty.
Pretty confident I'd say longer term beyond this fiscal year.
The expansions that are kind of getting more of the headline news that will start becoming a factor and once those come on line as I mentioned that should be of really.
Promising foundation for more growth for us on the consumables side.
Alright, and then over on the DRA side of the business I think part of the rationale for your recent capacity addition was that you were going to need to be able to support more international volume in international growth have you seen.
The pickup in interest in Drs from international customers.
Customers as oil prices are coming back or instead of the activity is still relatively low and yet to recover from the pandemic.
Yes, I'd say growing that international side of DRA as continues to be a very important initiative for us and we're making good progress. We're also making good progress on winning new business as well as introducing new technology I think the the thing of the obvious thing is that the business has been so impacted by the <unk>.
Pandemic, it's hard to see some of those growth initiatives, taking taking hold and getting traction but.
I'm talking about an impairment and its certainly a growth business. So we're making progress that's still an important initiative for us and we're pleased with our progress so far.
Alright, thanks very much.
Thanks, Mike.
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Your next question is from Amanda <unk> with Citi.
Good morning Amanda.
Good morning.
First of all you may have on the supply constraints on the clarify your cash.
Comment Scott, where you said the it's included in the guide on both the upper end of the lower end are you at this point under shipping any demand and are there any conversations with either you asked all of our local government to either increase capacity.
Part of little bit more pressure on the supply chain as part of guidance push to secure that the pie chain.
Yes.
The supply demand dynamics, Amanda were specific to our raw material debt that's important to us in the end.
Of the DRA business, but the.
The structurally we're able to get the product it may be.
The cost impact to us, but again, we have ways to work to offset that and to me and my reference to the full year guide is there any impact of that if it were to be negative is included in our guidance, which I'm sure as you've modeled out shows improved profitability in Q3 and Q4.
To get back to this full year metric of between 31 and 32%.
I think structurally yes, there is.
Things are changing in terms of perhaps the global political environment. They because they continue to evolve, but some of the structural factors that Dave mentioned about the industry.
Oil is going to continue to be an important part of economies and how we go about society and so we continue to be very we continue to be optimistic in the medium to long term for this business and again, we've kind of outlined the reasons for taking the write down but.
Long term the team has a lot of work to do and we're looking forward to executing against those plans.
Yes, so just to build on the Scotts comments Amanda no no.
<unk>, obviously everyone's working really hard on both sides of the business and we're seeing strong demand on the <unk> side, but no shipments have been affected.
And we are supplying customers and we always keep spare capacity on the slurry and pad side as far as your comments about the bite in administration and their push for domestic semiconductors. Obviously, we're very aware of it were monitoring it closely nothing.
Nothing on the materials side has really been announced but we're very active in organizations like semi.
Obviously, our materials play a critical role in production of semiconductors. So, yes, I think for US it really plays to our strength because obviously, we're a U S based company a lot of manufacturing base in the U S. But we also have of global manufacturing footprint as well. So I think it really plays to our strength.
Great.
The next question I have is on the wood business I just wanted to clarify is there still revenue generation in the wood business and should we potentially see sort of the step down in the PM business before we see sort of the re acceleration at the oil market begins to recover a little bit more.
Yes, so the wood business and we've disclosed in our in our filings the wood business on an annual basis will be about $70 million of revenue and we said that the profitability is above the segment average, which is about 45% so very healthy profitability with that business.
And just to remind everybody. We will we will run our plant we have of plant in Mexico that produces an intermediate and then of plant in the U S debt processes that intermediate the plant in Mexico will cease operations at the end of this year there will be some revenue therefore in the disc.
Remember a quarter and then also likely in the March quarter of next year. So I expect that in the next quarter or two will be a bit more specific about some of those parameters, but thats the way to think about the dimensions of that business and the timing. So we're going to have some revenue in our Q1 of next fiscal and then less revenue, but some.
Revenue in our Q2 next year, which would be the March quarter as we as we finalize selling out some products and we have said over time that.
Our our production our revenue is secured through long term contracts and we've been able to optimize the profitability of that business as well we won't be specific right now about offsets to that again I think thats in a quarter of two to come will be a bit more specific about how to think about the total company.
Going forward with the wood in prop.
Profitability effect coming out, but one key piece will be the.
The <unk> business, which is mostly the DRA business and the way to think about that for now it's continuing and it continues to be stable. We know that the June quarter last year was dramatically down from the March quarter. So this quarter for us in March was still a difficult comparable to last year and then we said at the.
Time that June was the low point and we expected June to be the low point for our revenue that has continued to be the case, but the business has not has not improved on a revenue perspective. Since then so continues to be stable, we talked about in our Q3. There is a revenue guidance for the for the <unk>.
M segment, which includes Pam.
But most of that growth is actually some of this pickup of the timing of orders that we talked about with wood and QED in our materials will pick those up because those of our shipments that actually were delivered and booked in the April month. So.
I would continue to think of Perm as stable in the short term, we're expecting to get back to a better place like we mentioned, particularly through some demand recovery, but particularly through our strategic initiatives that we mentioned earlier.
Great. Thank you.
Thanks Amanda.
Your next question is from David Silver with CL King.
Hey, good morning day.
Yeah, Hey, good morning.
Thanks.
So I think by my questions are going to kind of be focused on the electronic materials segment and in particular I think the margin progression.
So.
When I look at your when I track your quarterly results sequentially.
Do you see is.
The bulk of the incremental growth that you're experiencing 2021 versus fiscal year 'twenty I mean, it is concentrated heavily on the CMP slurry product line.
And my.
<unk> kind of assumption is that that would be amongst the highest margin business within that segment and yet the margin progression, particularly when you compare it to full year 'twenty or full year fiscal year 2019, even if it doesn't really seem to be.
Responding in other words, the incremental margins don't seem to be that high. So I'm guessing that there is some incremental development costs and things like that but could you maybe just talk about how.
That incremental dollar of CMP slurry and pad revenue is falling to the bottom line and I think Alternatively, how are you managing the incremental as you cited in the prepared remarks, I think the technology and development work that Youre doing.
So kind of just relating the growth on the top line to what we're seeing on the operating margin line would be Greg or sorry, EBITDA margin line would be cash.
Yes, David sure I'll make a couple of maybe summary comments about about sort of reason and I think it is instructive to talk about the quarterly progression of the profitability because it's an important part of our message here today.
Slurry is above our corporate average and so youre right about that that is the business of ours, where there was some significant leverage once once volume returns, which it has been doing and you would naturally expect there to be a pretty significant contribution from every slurry the extra.
The slurry dollar that's sold to the bottom line now what has happened in the second quarter and I think we were actually very transparent about our expectations for Q2, when we met at this time last quarter Q1 from an EBIT of <unk>.
The company perspective was about 31, 5% and we were pretty again specific and transparent that we knew about 200 basis points or so of pressure from certain cost type of items and we mentioned that.
That was our March quarter is one where we have some particular inflationary items. We also mentioned some third party spending related to.
Primarily related to intellectual property, which is of course, an important part of how we conduct our business. We said no structural change so that type of costs, but that can be a little lumpier quarter to quarter, depending on the activities that are going on.
<unk>.
And throughout.
Throughout that process. So from Q1 down to Q2 again, I think we signaled pretty transparently about about the profitability now how do you think about the rest of the year, we said that for the for.
For the full year I think its in our prepared remarks for the full year, we expect to be between 31 and 32% for the full year. So were not there in the first half were about 35% in the first half so that indicates that we're at the higher we expect to be at the higher end of that range 31 and 30.
1% to 32% in each of the upcoming quarters to get that full year end of the range of $31 32. So there's a lot of there's a lot of numbers in there. We can we can clarify if needed, but I think youll find that the.
I think youll find that the math makes sense, but in particular those.
The cost type of items that we discussed heading into Q2, and we've mentioned in our materials for Q2 of those normalized through the rest of the year we did.
We mentioned some timing of sales that did not happen in the March quarter for wood in our QED businesses, which are also theyre smaller, but also among the more profitable businesses that we have we catch those up in our June quarter, and the rest of the year as stable to improving and then the overall.
The health of the semiconductor industry continues to be something that's positive for us and part of that improved profitability metric in the second half is related to your very first point about the slurry contribution and the leverage that we earn on additional revenue dollars from slowly.
Yes, I would just add a few additional points I think Scott captured it well we've talked about this second quarter historically being a bit.
Softer from an EBITDA perspective, just mostly because of the timing of.
Of kind of things in the in the calendar and we expect even historically if you look back Q3 and Q4.
It had been at a different level I think another obviously as Scott mentioned too we.
We increased our EBITDA guidance for the rest of the year.
Which reflects our confidence in the profitability of the business as well as the strength of demand.
Okay and no. Thank you for that and I did Scott, you're 100% correct I mean, I do recall the comments about.
The last quarter with the margin.
The margin effects, you had called out a quarter ago, but I was even thinking maybe even for the next quarter or two I mean, you've projected.
Mid single digit or maybe hopefully better top line growth.
<unk> versus <unk> and when I again, when I look at it year over year, the bulk of that incremental growth is kind of fall on the salary line. So you are saying kind of the similar effects, even as we progressed through the back half of the.
Fiscal year 'twenty, one is that the correct yes.
Yes, I think my summary of some of those cost effects of normalize throughout the rest of the year and then particularly with the healthy semiconductor industry. Then we get some leverage on that volume that we expect to improve consistent with our third quarter guidance and what we've outlined about full year expectations.
As well so yes, I think thats a good way to look at it.
Okay, and then just maybe some comments I guess about internal capabilities in preparation looking forward, but.
Whether it's the wafer fab equipment spending trends or the fab utilization rates at all time highs.
This would kind of be the environment, where the call on your resources, whether it's the production whether it's collaborative R&D, whether it's your global footprint.
The the call on that and the need to kind of be there for your customers needs would seem to be about as high as I can recall of being.
As you look forward I mean, what are the one or two areas, where you think you might need to strengthen.
Your internal capabilities or expand your global footprint in other words, what do you have what do you feel you have to do to grow along with the the very robust outlook and development activities underway across the broader industry. Thank you.
Yes, Thanks, David I think from my perspective.
Regardless of the industry environment, It really starts with our ability to innovate.
New and better solutions for our customers.
I think we've been able to do that I think really it starts with technology and that's why.
The customers come to us with their most challenging material issues, obviously, particularly in CMP and so during this time of of strong demand I think we're also continue to be focused on introducing new products consumable sets.
And even improving our offering in electronic chemicals, and we're really starting to see.
The results of that and I think our guidance even for this next quarter reflects not just the industry environment, but also our ability to win new opportunities with new solutions and so that's a big part of it I think on the operations and quality.
Side and of course of the customer facing side I'm really proud of the team.
We're obviously working through the pandemic and also meeting all of our customer demands we've talked about for the last several quarters, we havent missed the shipments and I think although it's really been a.
Exercise of our supply chain I think we've come through really well for our customers and that's kind of what they expect because all of the solutions that we provide whether it's an electronic chemical or slurry pad are really critical for the fab operations as you know and so we really take on that commitment.
With a lot of focus.
<unk>.
And we've been able to deliver through this pandemic through the stronger demand period, obviously, we've been through many cycles before and so we're used to the strong uptake.
I think our operations are able to flex and accommodate.
Even during this challenging environment with the pandemic I think the one other thing I mentioned in the.
And one of the other questions around electronic chemicals, I do see us investing there to improve our quality improve our technology and improving the supply chain.
To just be kind of at that same level that customers expect from the CMC materials brand. So theres a lot of exciting work happening in the company.
Obviously, a lot of that focus is around the electronic materials side, but I think were more than up to the challenge of the strong demand environment.
Yeah.
Okay. That's great. Thank you very much.
Thanks, David.
Yes.
Sure.
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Your next question is a follow up question from Mike Harrison with Seaport Global Securities.
Welcome back.
Thanks, well when you put all of the.
<unk> remarks in the slides it gives us more time to ask more questions. So I appreciate that definitely line.
Was hoping that maybe you could give a little bit of color on the Ips acquisition and how it fits within the business in.
And maybe talk about whether there are additional bolt on opportunities in the corporate development pipeline right now.
Yes, Thanks, Mike we're excited about Ips.
It's a smaller acquisition for us.
We are we have always been very disciplined about acquisitions throughout the Companys history and of course, we intend to do so.
<unk> fits a lot of the characteristics that we look for first of all we have a strong commitment to growing our electronic materials business and obviously there of technology leader in the consumables used to.
In the packaging and test area in particular, they make these functional polymers that remove the debris <unk>.
Improve yield and so theres a lot of value to the consumables that they are able to produce and so theres a lot of similarities to our business. There is also.
The significant technology.
And so we're excited about adding there.
<unk> and their business to our portfolio. It does also increase our participation in the backend part of the semiconductor fabrication process, which is expected to grow even faster than the areas like CMP and so so.
Just on its face we're excited to add essence of the portfolio and I think the acquisition has gone well I think in terms of your question does it open up more opportunities I think we would look for similar opportunities.
To us whether they are small or medium or large they are definitely going to be focused on the.
Syed.
That's what our focus is going to be on and so.
And then as I mentioned it does open up the testing and packaging area. So perhaps the aperture a bit wider on the electronic materials side.
Given this acquisition of Etfs.
Alright, and then within the slurry business used to break out.
Tungsten dielectric and some other sub segments realm.
Relative to the 17% number that you saw for overall growth.
In slurry is can you give us a sense of what product lines were showing the fastest growth and are you starting to see growth in lorries for new metals of materials areas like silicon carbide and gallium nitride. Thanks.
Yes, I'll answer the.
The <unk>.
Last part of your question first.
We have.
Though it is a big part of our development efforts, we have dedicated teams working on applications like Silicon carbide, it's not a significant driver of volume for anybody these days, yet, although obviously growth potential in the future from the slurry side Youre right. We don't break it out as we have in the past.
I'd, just say, we're seeing broad strength obviously.
We have strong leadership positions in tungsten we continue to build onto those dielectrics is also another area that we have really brought a lot of innovation to the portfolio not only replacing ourselves, but others. We recorded a few wins in that area with the major logic producer.
We also had a consumable set when using our dielectric products. So I would say from just the general sizing perspective.
It's probably tungsten dielectrics are the largest two of the slurry portfolio and then kind of metals in general like copper aluminum. We also have very strong products. There. The other thing I'd point out is.
China has that really been growing very strongly for us.
Debt, we have very strong relationships with both of the domestic customers in China as well as the international when you when you talk about the domestic customers in China. They are really trying to catch up in terms of the technology and so our experience and.
And proven solutions really strike a chord with that customer base. There. So we're really pleased with the growth we've seen in China, and that's primarily in the sort of area as well.
Yes.
Okay.
Thank you.
Thanks, Mike.
Your next question is a follow up question from Tokyo Hover the Goldman Sachs.
Welcome back with the high.
Again, thanks for taking my follow up two very quick housekeeping questions.
Scott the full year Capex guide is now $65 million at the midpoint as opposed to $90 million.
I guess was this was this the delay or a push into <unk>.
Fiscal the fiscal 'twenty, two or is the sort of a fundamental change in how you think about the.
Capital intensity of the business and I think on prior calls.
You had guided fiscal 'twenty, two and even the fiscal 'twenty three capex to about $50 million.
That changed at all over the past.
Three months and then my second one is on Opex.
I guess going forward.
Given some of the comments by Dave about improving quality and EC and continued R&D and your slurry and pads business, how should we think about opex to sales.
Over the next 12 to 18 months. Thank you.
Yes, sure sure to share.
About about Capex, yes, we're going to continue to have a very disciplined approach and be careful about how we prioritize projects and how we.
Assess the timing of those projects I would say youre.
Your question is a very good one I think it's a little premature for us right now to communicate.
Too much specificity around our future expectations. So we understand.
Of the desire for that information and we'll be.
And we'll be providing that.
More information about that in the coming quarters. So.
But I think just broadly speaking some level of push out would be I think the right way to think about this we're going to come in quite a bit lower.
For the some of the reasons that we talked about come in quite a bit lower this quarter, we know about the capacity expansion of certain customers, particularly in the U S and so some level of push out I think would be of reasonable way to think about that but again we will.
Come back with more information in a future quarter about the.
Exactly what you are what you should expect in terms of expectations, but I can give some directional information here.
And to continue to grow our business organically is going to be number one of continuous to be our number one priority and we.
Feel fortunate that we're able to meet all of our capital deployment of priorities, including Capex. So we have all of those matter I know, we put in the prepared remarks, some parameters around how we continue to deliver on each of those areas.
And then as you think about Opex and Opex has been running.
Around $50 million or so on an adjusted basis and we put those tables in our materials. This quarter. It was about 53, and we indicated that the primary piece of that increase versus the prior level is related to that professional spending professional services spending.
<unk> related to the intellectual property that should normalize so as I think as you're thinking about the company getting back into that range of $50 million or so and we gave our revenue guidance for the year I think that will.
For the quarter that will put you I think in those kind of.
The kind of metrics that we talked about again, improving profitability in Q3, and Q4 to get us to that full year metric of between 31% and 32.
Got it very helpful. Thank you.
Thanks, the CN.
Yeah.
Yes.
Your next question is a follow up question from David Silver with CL King.
Welcome back.
Yes, and thanks for getting rid of all of those other people who used to be on the call I appreciate your interest.
Sure.
Yeah true she is getting my of lot of my questions ahead of me here, but I have one left.
It is kind of a modeling question and I am thinking about your guidance in particular electronic materials.
<unk> guided to mid single digits.
And just given the timing of the <unk> acquisition I just wanted to clarify is the mid single digits inclusive of the.
Yes.
In other words it's.
Less than mid single digits, I guess on an organic basis.
And then I.
Did just the.
Sure.
And then I just did want to check the assuming that the mid single digits includes the first quarterly contribution from Ips.
Would that still indicate the slurry revenues <unk> versus <unk>, we're going to be up I have it.
A guess, but I have it at about 21% up year over year is that a reasonable thing or am I am I missing something in other words. The second derivative is positive you're going from plus 17 to maybe plus of 'twenty or 'twenty. One as we go from <unk> to <unk>. Thank you.
Yes, I think the way youre thinking about it correctly, David the E P.
Pick up we closed on April one.
And so essentially have a quarter of those revenue and the earnings from that acquisition into our numbers and yes that is included in our guidance of the mid single digits for electronic materials for Q3, So youre thinking about that the right way and again, we've provided some information I think even on this call and previously.
Lee about how to think of the financial dimensions of that acquisition.
Thanks.
I am going to be reluctant to get into too. Many details about the individual business units, but we are coming off of a quarter, where we grew 17, 11% for electronic materials versus the prior year. So we expect to continue to grow youre going to do the math, which I believe youre doing.
<unk>.
On what are what our sequential guidance is for Q3, and I think <unk> would be at the higher and so the math you're doing.
<unk> three guidance that we're giving now which is sequential but youre comparing it to prior year I agree with the logic and the numbers and I would say that the slurry business will be at the higher end a higher contributor in all likelihood then pads in EC within that dynamic.
I'm going to be reluctant to dimensionalize that much further but slurry is at the high end in terms of that contribution that you are referring to and that would imply another strong.
Quarter of revenue growth versus prior for the electronic materials segment.
Thank you for that I apologize I was a little sloppy with my math there.
That's fine I'll follow up later on but thank you very much for the I appreciate it.
Thanks, Nick.
Yes.
That concludes the Q&A portion for today's call I would like to turn the call back over to Kelly.
Final comments.
Thank you and another question that we have of this morning. Thank you for your time and your continuous interest in the CMC materials have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.