Q1 2021 Atotech Ltd Earnings Call
[music].
Good morning, and welcome to Apple the Texas first of all Parker 2000, and time to one earnings conference call to the speakers are Jeff Walton <unk>, Chief Executive Officer, Peter power of that at the tax Chief Financial Officer, and Cyrus pre the head.
Average Investor relations after the Speakers' remarks, there'll be a question and sort of period. The asked the question during that time, you won't need to price car, one and your comfort zone, you kindly ask the to limit yourself to one question with the follow up and.
As a reminder of this conference call is being recorded and your participation and play circumstance of our accordion goods call. If you do not agree with this terms. Please disconnect now thank you and I'd like to turn the call over to MS. Spray is go ahead.
Thank you very much.
Everyone and thank you for joining <unk> first quarter 2021 earnings call. A replay of this webcast will be available on our website for six months. Please note. The Alphatec provides non-GAAP information and reconciliations between GAAP and adjusted measures are included in our presentation materials, which are available.
<unk> on our website.
Like to remind everyone that our comments today contain certain forward looking statements that are inherently subject to uncertainties and risks we caution everyone to be guided in their analysis of op income.
And by referring to our 20-F filings for a list of factors that could cause our results to differ from those anticipated in any forward looking statements.
We undertake no obligation to publicly update or revise any forward looking statements, except as required by law and with that I would like to turn the call over to Jeff.
Thank you Sarah and welcome on Board and good.
Good morning, everybody and welcome to our Q1 2021 of the conference call.
And we're pleased to present, the strong results and our first quarter was of public company.
As you will remember Q1, 'twenty 'twenty was the first quarter of the coronavirus pandemic, which hit China first therefore.
And therefore, as we look at our Q1 results and further into the outlook for the rest of the year. It's worth remembering that we like many other companies are lapping some quite weak quarters from last year.
That said the underlying demand fundamentals for our products are strong and we continued to see not only recovery, but meaningful secular growth and our end markets.
New trends, such as advanced packaging and semiconductors and high density interconnect circuit boards will continue to drive demand for our chemistry and equipment, we will continue to support and benefit from both areas with our industry, leading customer service approach in all key markets.
We are also continuing to invest in and develop our related software applications, which will help to differentiate our advanced equipment offerings going forward.
In Q1, we experienced a strong acceleration and the underlying organic growth from our electronics chemistry. He of the pandemic recovery play the smaller role as the majority of the acceleration is driven by secular trends and which we participate, especially <unk> and millimeter wave and the way we are supplying chemistry.
And the equipment to the component manufacturers of both the infrastructure projects as well as into advanced smartphones.
We expect that going forward and 2021. The these drivers will continue to be very supportive as we see good utilization rates of our customers' strong demand for electronics equipment and Q1 sales were excellent as Peter will review a little later.
We're also seeing all time record order levels for our advanced placing equipment following our substantial investment and new models and upgrades over the past three years of course this is encouraging for our future growth.
Sales, usually come with the prospect of multiple years of associated chemistry sales.
Our general metal, finishing segment also performed very well with organic growth for our Gms the chemistry, increasing 11%.
We were particularly pleased with the strong recovery and our markets and greater China.
And 2021, we expect the Gms business will continue to performed slightly above the unit growth.
And markets as we continue to leverage the many trends associated with the move towards automobile electrification.
Light weighting and advanced coating of plastic materials and the move away from hexavalent Chrome materials, all hold promise for growth as we continue to invest into and promote sales in these areas.
Now this quarter, we've all been painfully aware of the improving pandemic trends have been offset by some well publicized supply chain disruptions.
And I refer here to the semiconductor shortages plastic supply issues winter storms and the U S, particularly the decrease in Texas as well as the unfortunate blockage of the Suez Canal.
While we remain firmly convinced that the impact of these disruptions will be result, as we move through the second half of this year, we do observe impacts of the auto market recovery, which is delaying some production volumes as well as causing higher freight expenses and material costs. We are doing our utmost to mitigate these effects and.
You can be sure that the diagnose pizza will give takes those concerns into account.
We maintained the high level of profitability, increasing our adjusted EBIT by 32% year over year and generating a solid adjusted free cash flow from operations, which was affected by the timing of some payments.
And this quarter, our net leverage and it at three seven times EBITDA. This is the significant reduction from pre IPO levels and as Pizza will return. Shortly we've also successfully refinanced of that position.
Now I'd like to update you on some of the key initiatives that we are working on today.
To start we continue to invest and not only of chemistry, but also the equipment with which we drive chemistry revenues.
Particularly in the electronics equipment with dedicated to creating a platform approach that will be interchangeable across all and use technologies.
We expect that will provide us with the flexibility to leverage trends as they appear develop new lines quickly and also provide our customers with an excellent value proposition.
Further the pandemic has driven significant technology advances worldwide and the path of Tech, we're committed to maintaining our leadership through digitalization of our processes, so that and we've launched several projects.
Internally, we are implementing Iot and industrial internet of things capabilities for our plating applications that we anticipate will help our customers increase the throughput and improve quality.
We've also started and e-commerce project and an effort to become a better partner to our existing customers to access new customer segments and to enable seamless omni channel customer interaction.
We have some quite ambitious multiyear goals in this area, but the starting small and I need to have a pilot launched by the end of this year.
The first initiative of what I hope will be an array of new services to customers.
In March we formally opened up development center and minutes of India and.
And commissioned our newest chemistry production site in Guangzhou, China.
We are also excited to of broken ground on our newest production facility and part of the ROE Mexico.
This new plant will meaningfully increase of production and warehousing capacity in Mexico, which supports production capacity, we need for the expected increase in business and the Americas region overall.
For our employees and the new plants of optimal working conditions and then the attractive location with state of the technical and safety equipment.
Last quarter I receive some questions around ESG and I'd like to close with and updates of our activities.
As a newly public company, we understand that we need to develop useful and transparent reporting practices, and all areas, and especially including ESG and so that and we are increasing our resources. So that we can complement our already existing and deep internal reporting with best practices. When it comes to external reports.
Although this may not be of quick exercise over the course of the next year, we expect to greatly improve our external reporting efforts and this area.
Of course reporting is only one side of the ESG coin and the other more interesting aspect is the opportunity side and what our products and technology can do for our customers and the global efforts to reduce the environmental burden of manufacturing.
As the Tech has a long history in this regard for decades, we've been pioneering the elimination of harmful substances and enabling highly efficient and environmentally sand production and manufacturing for example, 25 years ago. We introduced our first chrome six free solutions for corrosion protection and today, we believe.
Coverage from product is the best in class and cost effective solution for the chromium six feet of decorative coating of plastics.
We continue to tilt R&D towards sustainability, driven markets and applications. For example, we see significant potential to translate the copper plating technologies to replace the use of silver paste and solar photovoltaic panels, which can improve the resiliency of panels, while simultaneously lowered and the.
Sure and costs.
We also supply chemistry for the corrosion protection of fasteners and joints, which are critical to the wind energy business as well as for the electric engine development.
We see sustainability is the clear growth driver for Alphatec and the years ahead.
And with that I'd like to hand, you off to our Chief Financial Officer, Peter from it for a review of our financial results after which we'll be happy to take your questions. Thank you Peter over to you.
Thank you Jeff.
Good morning, everyone I'm very excited to go through our strong Q1 financials with you the fares.
First time as the public company the effect.
And it's a pleasure to percent record results this quarter.
Participate and the global recovery following the challenging quarters at the beginning of 2020.
<unk> to outperform the market.
Let's start on slide four.
For the first quarter, our total revenue was 353 million and increase of 25% over the prior year, including organic revenue growth for chemistry and equipment of 17%.
And if <unk> tailwind of 7% and.
And a 1% benefit from Palladium price pass throughs.
Palladium price continue to rise and <unk>.
Computer at $4 million to our top line.
Weaker U S dollar positively impacted our sales were $19 million.
Broad based secular trends in electronics and the recovery of the <unk>.
Automotive market were the key drivers of organic sales growth.
Our strong presence and the Asian market gave us the opportunity to benefit from the robust recovery of these markets.
All of our positioning at the upper end of the market.
With our market, leading innovation power allowed us to convert the strong market growth rate into sales growth.
I will address our two segments in detail and the latest line.
Looking into our profitability.
<unk> able to grow our adjusted EBITDA of 32% compared to the first quarter in 2020.
Primarily driven by organic volume, partially offset by the effects of the reason the supply chain disruption.
Jeff mentioned the run the global supply chain issues earlier and also.
And with spirit and the impact to our gross margin was less than two percentage of sale.
Key impacts.
Which we recognized two of higher freight expenses in order to maintain our service level.
And various elevated inflationary effect.
Our teams did a fantastic job to maintain our strong service levels and this turbulent time.
We are working on multiple ways to further strengthen our supply chain and increase and efficient flow of product.
We're keeping a very close eye on this as we recognize that these effects also affect us and the second quarter and.
And our guidance, which I will get to later reflects our latest expectations.
Okay.
Adjusted EBITDA margin was 31, 2% and the quarter up 150 basis points. This is notable considering the negative mix effects as well as of the mathematical dilution from the higher palladium price.
Again the per.
Primary driver of this increase.
Leverage of our organic growth and volume, mostly and chemistry.
Our margin continues to be amongst the highest and the specialty chemical industry and illustrates the quality of our business.
Diluted earnings per share was the negative $55 and for the first quarter.
Using the weighted average number of shares for the respective periods.
The adjusted earnings per share improved from $15 cents and the first quarter last year to $35 per share and the first quarter 2021.
The principal adjustments of the effects from the refinancing and IPO.
As well as the reversal of amortization expense.
Represent a detailed explanation of the applied definition.
And next quarterly call.
Now, let's go to slide five for a deeper look into the electronics resort.
Our performance and electronics continue to be very strong and the first quarter with total revenue of $226 million increased 31% year over year.
This result included organic growth of 21% of favor of palladium impact of 2% and 8% benefit from FX translation.
Organic growth and Kemet.
Chemistry revenue from electronics was 15% and the quarter underpinned by the dynamic smartphone markets in Q1, especially in China as well as the strong growth of the high performance PCB and semiconductor related business triggered by higher demand due to work from home higher.
Value and five of Chi smartphones and other ongoing technology trends.
These growth trends don't fully unfolded last year, and we expect them to accelerate and define the demand for the coming years.
Electronic equipment sales in China, and outstanding quarter with organic revenue up 77%.
This demonstrates the success of our integrated business model the.
Innovative strength, which enables us to position ourselves at the best choice for our customers.
As the manufacturers transition to the next generation of complex piece of fees and semiconductor packaging technologies, we lead the way.
And electronics generated $76 million of adjusted EBITDA and the quarter of two.
$21 million of 38% improvement over the prior year period, primarily driven by the significant higher organic revenue and market, leading growth margins and the ability to pass higher cost through to customers.
Margin was 33, 6% and the quarter upon the 80 basis points, primarily reflecting volume leverage on organic growth and chemistry.
And solid pricing, partially offset but the palladium pass through product mix and some of it and.
From supply chain inefficiencies.
Moving to slide six now.
Gms total revenue grew 15% to and a $28 million and the first quarter comprised of organic growth of 9% of 1% positive impact from palladium and the 5% tailwind from FX from.
From a mix perspective.
<unk> revenues grew organically at 11% and the equipment revenue declined slightly in the quarter.
These are the organic growth rates indicate the recovery of the global automotive market, but also shows our leading position strongly growing Chinese market.
As Jeff mentioned, we see sustainability focused solutions is the key.
Key growth driver for us to take.
So our current R&D emphasis aims to provide new and more sustainable solutions for the growing electric vehicle market as well as the solar and wind energy industries.
Turning from revenue to earnings TNF, adjusted EBITDA recovered powerfully to $35 million and the quarter and the adjusted margin was 27, 2% the.
The growth and adjusted EBITDA reflects.
Our leverage on the organic revenue growth offset by the increase as seen and freight expenses and additional inflation associated with the supply chain inefficiencies and counted this quarter.
As mentioned earlier.
We think that was the continued to see some headwinds from the supply chain disruptions at least for the current quarter.
Now, let's move to slide seven.
We generated a solid level of free cash flow, despite the seasonal working capital effect and.
Some extraordinary impacts, including the accrued cash settlement of the transfer pricing audits and China the ramp up of our young show production facility and additional safety stocks.
As a result at quarter, and we had $213 million of cash and the revolving credit facility with the $233 million available so and total liquidity of $445 million, which provides a comfortable position and as scenario.
As we used our IPO proceeds to Delever and we continued to show our ability to generate strong cash flows.
Our net leverage has improved to three seven times, our adjusted EBITDA.
As a reminder, the U.
Use the net proceeds of the IPO to completely pay off the $220 million balance of our Holdco notes and to <unk>.
The $20 million outstanding of the senior notes.
Following our public listing and in March we are also very successfully refinanced.
Outstanding Senior secured credit facility with the new U S. Dollar denominated 135 billion term loan.
The 200 million euro denominated loan and the.
The two and a $50 million multi currency revolving credit facility.
And we're very pleased.
We're able to secure very competitive interest rates for a new term loans, which will mature in 2027 the.
Significantly reducing our capital costs.
Also the strong business performance and lower leverage allowed Moody's and S&P upgraded the ratings for auto tech to <unk> and <unk> plus respectively.
Moving onto slide eight.
Coming to our 2021 full year guidance.
After our first quarter as a publicly listed company and.
Pleased that the outlook for our business allows us to raise our guidance range.
Just two months ago, we expected the growth range of range of 10% to 12% for the total revenue.
And we know right, that's 211% to 13%.
And at some of our Q1 growth rates look stroma. Please remember that the pandemic effect started in China and Q1 2020.
The rest of the World, followed and the second quarter 2020 of China. Our most important sales market recovered quickly and the back half of the year. So although we're lapping easy comparison quarters now.
The comparison base becomes more difficult later in the year.
Moving on.
Let me come to our key performance indicator of organic revenue growth and chemistry.
We move our expectations for electronic chemistry up to the higher end of the range and all of it.
The raise expectations for Gms chemistry per percentage point.
This allows us this allows us forecast of approximately 9% organic growth and chemistry revenues.
We are raising our guidance for the full year for adjusted EBITDA from between 405 to from the $25 million.
To a range of $415 million to $435 million, which increases growth at the midpoint.
Nearly three percentage points to 17%.
This reflects an increased confidence and our top line growth potential as well as the benefits from operational improvements.
Our underlying assumptions for our guidance are as previously.
The 6% global GDP growth forecast from IMF.
And market expectations of agencies, such as the IHS, Markit and IDC and the.
And the continued recovery from the COVID-19, pandemic and March if X rates for our major currencies.
Our capex guidance remains unchanged at approximately four and after 5% of total sales in 2021.
It was about $10 million of this investment divestment triggered by the construction of our new manufacturing facility in Mexico, which will help us to drive growth in the coming years.
As we communicated to you in March of guidance for interest expenses already anticipated the refinancing activities.
Therefore, we confirm that the range for normalized interest expense is anticipated to be between 72.
And $74 million for the year.
This is based on our new capital structure that does not include one time costs related to our refinancing activities.
Please note that the refinancing is triggered roughly 59 million and one time costs connected with the early extinguishment of our Holdco and Opco notes as well as the financing fee amortization all of which were recognized in the first quarter, but is not reflected in our full year interest expense guidance.
And.
Finally, our effective tax rate, which includes income and withholding taxes shook the unchanged and around 30% to 31%.
Looking forward to the second quarter of 2021, and keeping the effects of flapping the worse endemic quarter and mine.
The field.
Confidant and expecting organic total revenue growth for the second quarter to be comfortably above 20% compared to the second quarter 2020.
Given our strong operating leverage and assuming exchange rates.
As of the end of March the.
This should give us and adjusted EBITDA growth for around 50%.
With that I think we can open the floor for questions.
We're actively.
Operator can we please begin the question.
Okay fair enough.
Finder to ask the question you will need to press star one on your telephone and can reverse the question first the parenting placed.
Please standby, while we compile the Q&A queue.
And your first question comes from the line of P. J to the car from Citi. Your line is now open.
Yes, good morning, good afternoon, and good evening everyone.
A lot of people are talking about.
Chip shortages and the chip companies of responding with some massive capex.
And as the build out this new foundries.
What does that mean for your yield chemistry and equipment business I know equipment was up seven 7% do you believe that you need to add capacity along with the foundry.
Foundries as well.
P J and thank you very much for the question, yes, Indeed and.
And we commented that we've already seen the slower revenue growth and Q1 because of this and as you say new foundries of being added.
This is helpful to us because the foundry capacity is generally being added at the leading edge, which drives the leading interconnect and PCB and semiconductor related packaging technologies, which have given us a good tailwind and this quarter and will continue chips of the year the head the.
Equipment growth, you've referred to was predominant some lifts and expansion of capacity, but very often and it was technology additions precisely and until that market to support the packaging at the semiconductors as these expansions go underway. So it's been the good news for us.
Perhaps the fees are going to be added around the world and these areas.
Because as we've discussed with more before with most of the running at the steam and lots of attention is going to the packaging and our leading edge solutions.
<unk> of the smartphone and.
And.
And packaging markets, where we are seeing this as a good growth driver. Thank you for the question.
Great and if I may ask one more question the.
The software company, you bought and what exactly does that software companies do.
Net and enabling tool for customers or is that a revenue generator in and of itself. Thank you.
Thank you the software company reports with about 80 employees, many of whom the win and spell of roofs.
It's closely integrated today with generating the software to make our equipment solutions wrong.
And it was previously doing that and we bought the company that was helping us with this.
And so that will continue however, we're adding head count and resources in order to move into all the solutions like the Iot I mentioned, so that we can put dashboard solutions help customers with predictive maintenance that helps them with dashboards to reduce the cost of ownership on our equipment and drive efficiencies and.
So we will be expanding into those areas, which I think will significantly differentiate our leading edge equipment. So that's the pulp the simplistic maintains what we've already done.
Custom software.
Equipment, but it will expand into other related areas and salts and says well.
Great. Thank you so much.
Thank you P J.
Yeah.
And.
And our next question comes from the line of David Begleiter from Deutsche Bank. Your line is now open.
Thank you good morning, Thanks for taking the question and this is Katherine Griffin on for David and so far.
And if we could just talk about.
Some of the strength in electronics and Q1 and can you talk about what drove the upside there how sustainable that growth is how sustainable are the margins are and kind of how we should think about and.
In terms of expectations for Q2.
Wanted to start with the overall strength of the electronics market on Peter can come in from Q2 after that so what drove it I think is the strong.
Strength sense of recovery and five G. For example, weighted and the soft year of and approximately five year rollout.
Seeing increasing adoption of <unk> smartphones and more of <unk> smartphones of my opinion produced with millimeter wave really still to follow on.
So currently we're on the accounting for about 45% penetration of smartphones in 2021, which is very much in line with all of the of predictions. So we are also supporting the <unk> base stations. We're also seeing very good growth.
And we previously said we would.
Grow at twice the rate and semiconductor since per hour.
The general printed circuit board area and in quarter, one we exceeded the bed and the reason is because of these high density interconnect and chip packages, which require very advanced chemistry and in order to make these packages book. So these are good strong tailwind.
We'll run I think for several years.
Peter would you like to pick and then anything on the maybe just the comment on margin as you mentioned at V C.
A very strong March and you'll see that we had and increase in margin driven by our strong growth rates.
And in fact diluted by a higher equivalent business.
If you pull that out.
And the margin.
And the gross effect would be from the higher and.
For the second quarter, we continued to see.
Growth rates and based on the strong secular growth trends and the market and with a very strong innovative decision.
Great. Thanks, and then just follow up on.
Could you just speak more about your expectation or raw materials, and how you expect to offset that with price.
Full year can you just speak to you of any.
And raw material availability issues and may be having and any kind of again would be helpful. There. Thanks.
Yes.
The first of all just the.
And just wanted to remind that we have a very effective contractual pass through for our precious metals like palladium.
We pass on the automatically the.
The pricing volatility to tell our customers. We see currently with the supply chain disruptions and ensure disease that the price go up and in many areas as well.
The address that and also.
The materials with a minimal time like are able to pass it onto our customers.
And again, we're working very strongly to.
Bringing the supply chain back into into the anomaly order.
We expect some issues still to remain and the current quarter, but the.
Confidence that over time.
We see some easing of the supply chain issues.
That's the answer your question Katherine.
Thank you.
Thank you.
Okay.
And our next question comes from the line of the Josh Spector from UBS. Your line is now open.
Yeah, Hey, guys. Thanks for taking my question.
And I look at your first quarter performance and the way of talking about second quarter.
I think the incremental EBITDA margins, excluding metals, they looked like almost about 50% and I guess your implied second half guide is a pretty big step down from there. So what changes first half second half of that incremental margins changed so much.
Or is there some conservatism kind of and that second half margin guidance.
Well I think on when you look at the second quarter, we continued to see strong growth rates, we continue to see a strong conversion.
Of <unk>.
Sales of particularly of our chemistry business into into margins. Please keep the the mix effect in mind.
<unk> also noticed that we expect the very strong second quarter with the equipment business, which naturally runs with a smaller margin.
And your next question comes from the line of Arun Viswanathan from RBC capital markets and your line is now open.
Great. Thanks for taking my question.
Congrats on the good start here.
I'm curious.
<unk>.
And could you describe all of it more on some of the secular growth and <unk> and cloud computing I know that there was some pick up last year because of COVID-19.
COVID-19 potentially as well.
Is that the Q&A and a little bit of a tough comparison as we move forward or is that growth kind of above your expectations.
Yeah.
Yes, the growth is mostly in line with our expectations, except for the base stations I would say were related business hasn't picked up yet mostly because the major manufacturer and you can guess is changing the designed to influence.
All of consumption and new orders for the infrastructure will be rolled out and H to the other than that I think we are pretty and pleased with the.
Slide <unk> smartphones it matched our expectations, we're seeing more and more smartphones being introduced by the leading smartphone companies in China, and we our plan of record and packaging technologies of the majority of the so we're in good shape I think.
We have seen a bit slower rollout and we might have expected on the millimeter wave just because the infrastructure isn't there, but when you look at the complexity of some of these and 10 million packages the that kind of application.
Extremely well positioned with our chemistry into those so we'll benefit from those as millimeter wave starts to rollout later as well so otherwise pretty much in line with expectations.
Great and just as a quick follow up.
And if I missed this but could you just address palladium I know that it's typically.
Of robust pass through but is there any concerns on and place in there.
So you're right hypothesis of the Palladium zone.
Sorry, Peter you can answer it.
No I think of continued to have a very effectual effective contractual pass throughs. This is still in place and works very well.
So we don't know if anytime GAAP and pass on the higher price into our customers.
And we outlined the effect.
And with the when you look at the presentation.
Secondly, what we see is an uptick on the Rcs.
Thanks.
Thank you and our next question comes from the line of John Pitzer from Credit Suisse. Your line is now open.
Yes. Good morning, guys. Thanks for let me ask the questions and congratulations on the strong result to Jeff Im just kind of curious on the revenue guide youre raising the full year by less than what you beat Q1, and presumably Q1 was impacted by supply constraints that are likely to get better throughout the year. So I'm just kind of curious as to.
The one how much of the hit where some of the supply constraints direct and indirect to your business on the calendar first quarter and and how do you see those.
Sort of progressing throughout the year.
Well I think first of all.
So and I think it's important to notice the.
The over performance.
The related to FG.
<unk> and substantial growth I think we're very rich and very well convert the higher growth into our guidance for the full year.
We see that day.
Some.
Small and negative impact on the overall automotive market for the year, which we see now volumes moving from 21 to 2022.
But you also see on the other handset markets outside the automotive.
The market growing very well growing above our expectations and in addition, as we said we were able to move our expectation for electronics to the upper and what we initially thought as we see higher growth rates and smartphones high growth rates, particularly also fraud for Pcs.
The demand being triggered by the work from home.
And John and I, just add the speeches.
Speeches to apply the managed I think the supply chain issues very well.
There were some shortages and some places we managed to bypass them, where we had multiple contain the standard because of so as we were able to get shipment and sake.
The average increase the cost slightly but the priority is obviously to keep our customers satisfied.
So that will be working through I think by the end of the second quarter.
That's helpful. Jeff and then as my follow up clearly and the electronics business.
If you look at the semiconductor industry that there is a clear drive per regionalization of domestication of semiconductor production of long National security lines and I'm just kind of curious when you think about the supply chain as to which you play into what would be the impact to your business. If we saw supply chain has become a little bit more sovereign and a little bit more redundant.
How do I think about that from from your need to kind of change your geographic footprint or for your customers of change their geographic footprint and what that might mean for your business.
Thank you.
The short answer is we're fairly agnostic to the east we've got a very good global structure.
Got supply change that the built and supplying of 14 factories regionally.
And we have worked very hard over the years to avoid over the last five years to avoid.
And we're quite of few single sources some of which.
Dramatically reduce those now so.
But we have much better qualifications in the local areas, where we do see business moving range for example to China and to Vietnam or into Malaysia, We're able to follow it with our teams both on the supply and demand side and.
So I think it's a matter of fact strength actually that we have remarkable and purchasing and supply and customer support facilities and all major regions of the world, whether it's market, perhaps the one exception was Mexico, where we're not building of new plant.
Yeah.
Thank you helpful.
Yeah.
And our next question comes from the line of Lawrence Alexander from Jefferies. Your line is now open.
Good morning, two questions first when you are selling into.
A new fab when you consider the mix of products, but they are developing.
And to be neutral or positive or negative to margins.
Relative to your current business and secondly, you mentioned sort of some new services that youre excited by share.
We think of this as an example of the AMETEK culture at work and it's the constant renewal and the business.
Or is this something which we should start tracking of the kind of new initiative that represents of departure and an improvement and the business.
Thank you loans on the first one I think it's positive that the.
The new Fabs are being built up the mix helps us because of the qualifications book, we're doing one interconnect and packaging.
So we do better of believing edge or we consciously disconnected from things in general and like Giordano and seeing a few years ago and the concentrated on connecting and packaging and the HDI. So this and so this gives us a much better mix and position and will help our margins and the new fabs going forward.
With regard to the new services, we mentioned I was primarily referring to software services the.
And I think the way to look at it is not just the general cash.
Instant renewal.
More departure and to new ways that we can drive differentiation on our equipment and service and stripped the support of that equipment and improved chemistry utilization. So.
<unk>.
It's not large today, but over the next five years of so I think it is worth tracking.
The significant improvement to our business.
And if you don't mind and I can't help it can you give a sense for how large you would like it to be as part of your business and say five to seven years.
[laughter] myself into that the net.
I don't know Peter do you want to come and we previously said it could be and the range of $50 million. This kind of thing and sales and I think that's the kind of ballpark would give you today.
Thank you.
Okay.
And again, if you would like to ask the question dispersed for one of your telephone keypad.
Question comes from the line of just the Cao sur from Jpmorgan. Your line is now open.
Hey, good morning itself the Jeff how are you.
Okay and.
Can you quantify what the.
And Nick price benefit was as part of the organic growth both in the electronics and in Gms.
And I think it goes back to pretty much difference we have with the.
Chemistry margins versus the equipment margins and.
And as you pointed out earlier.
And we're running some kind of a razor blade model.
We have competitive prices at four of equipment solutions with very strong margins for our chemistry business.
And as the equipment business growing very strongly and the first quarters of coming up very strongly in the second quarter, you see a dilution of the margin the underlying chemistry margins of very strong.
And if you also pull out the palladium price pass through effect and <unk>.
<unk>.
The benefit from <unk>.
High growth rates and from the.
Organic growth.
So all of the organic growth volume of any of the organic growth related to mix up price.
No.
Predominantly coming out of volume.
Kind of assumed pretty much a flat pricing going forward.
And.
And.
And secondly that can see that what nuomi happen and the first quarter and China is that this may be you know maybe the second week or two weeks of production and it's usually slow maintenance shut down because the Chinese new year and Pete the travel.
It didn't happen and sell like.
It is as if you like it seems from many of the company that does it and thank you.
You had like an extra week or two of production and normally wouldn't have if you.
And then you have the same experience and can you quantify like how much of the benefit that was to growth and the first quarter.
And so.
Youre absolutely right, we worked hard through Chinese new year, particularly out of equipment factory was working flat out.
We beat.
Our employees were actually happy to do this because of restrictions meant that they were unable to travel home as much as in previous year. So we got some benefit from that and the.
And as you've seen and our results and commentary.
Chemistry business continued to grow nicely in China. During this period so.
It was all hands on deck.
And if I can ask the last question.
Are you.
Do you typically calibrate your palladium purchases when the price swings like I understand you can pass it all right, but is it the case that as palladium prices rise by all of the left and you sort of makeup of the purchases like later in the year.
And while we don't have any any stipulation and there the.
Purchase would we need for production and pilots executive price, which we incur for production of onto our customers. So again I think.
There is no lack of dozens of medium pass onto our customers.
Okay. Thank you.
Thank you.
And your next question comes from the line of Ben color from Baird. Your line is now open.
Hey, Jeff and Peter Thanks, very much congratulations maybe.
And maybe it's a bigger picture questions from.
And it just doesn't.
And does the new to the public markets helped helps to reframe it.
Okay.
<unk> sales are going to be dilutive to margins.
A couple of funds recall, but could you talk to us about how those.
Of those equipment sales help from visibility.
And.
And the lag time between the equipment sales and then when we see.
Of the opposite the Kerr.
<unk> sales.
It's more of number one question and then.
Number two the report.
Because of all of our G.
Growth driver.
And coming from <unk>.
The area of focus.
What is what it is.
Electrification of vehicles.
<unk>.
The driver.
Frame that as well as well.
Rob.
Energy.
And I would say new energy book through the energy solar and wind.
And your exposure there.
And I'll leave it at that.
And thank you very much on your first question typically.
<unk>.
We are almost fully booked on the equipment at the moment and that's both because of expansion of new technology increases the lead time and the lag on those but we get to the order typically it takes of six months to manufacturer and three months to install and then three months to commission. So the language about 12 months from when we first get the order to when we're <unk>.
And chemistry commissioning the line.
And then depending on the sides of the line net chemistry, and we will.
Will continue over the lifetime of the equipment. So it's roughly a 12 month, leading indicator from when we get the orders to win which arrived and chemistry revenue.
On your second question.
Thank you for those as part of <unk>, obviously, a good driver for the electrification of vehicles, we believe we get to about 30% more vehicles from electric hybrid and electric vehicles.
This is driven by increased contracts increased light weighting.
And the plastic components of variety of sensors, and so on which.
Provide good business and tailwind of course.
Similarly, and the solar and wind area and the wind pilot as I touched on and the presentation. We provide the materials that the good for corrosion protection and saltwater environments for offshore wind generation for example, and this business is growing very nicely for us with some corrosion protection electroplating materials of.
The solar we got several applications, but the big one I touched on the spot today, the connections made with silver paste and.
The trouble the benefits it can be quite Bristol and on the installation of CBD say walks on the chocolate the paneling and Craig. So we've introduced a range of which are starting to increase and nicely and sales and getting a lot of attention.
As for copper electroplating, the put down those lines instead of the more ductile the dumped correct when they have slightly bond and.
And they're also cheap at the manufacturer and they can have longer durability as well. So these are some examples of way way and using drivers and alternative energy as well and I think there'll be good drivers for us and the years ahead.
The answer to your questions.
And if I could sneak one more and I guess.
The bulk of it all down and you guys have.
Significant wrong.
Areas to deploy capital.
<unk>.
Europe. The successful IPO I was just wondering how you guys thinking about the deal.
Your balance sheets.
All of the opportunities you have.
And the capital allocation related to it.
Yes, I think the.
The answer that I think.
Capital.
The patient rules really hasnt changed and the key focus is to support organic growth, we see great potential to grow organically, we might of Bolton acquisitions and the range as we had previously but a key focus for us is really to deliver to the range.
Between two and three times as we have indicated to the market and I think thats the capital allocation priorities, we set and we continue to follow.
Great. Thank you very much.
Thank you.
And your next question comes from the line of the features to the car from Citi. Your line is now open.
And different Peter a couple of questions first and you mentioned that you have.
Higher sales of third higher sales and EPS compared to ice scars.
And what's your market share and evs versus ice.
P. J, it's a fair question I don't know pipelines. So that helps the top of my head of comp give you the relative market share I would just say the twin improving our market share and the lease slightly because of the different applications and because of the work we've done with Oems, but I would hesitate to give you actual numbers.
Sorry, Okay, no that's fair.
And then you talked about the Iot market.
And coatings for those I guess I'm, not very familiar with that market, how big of the Tam there and.
And who do you compete in that space. Thank you.
So we see this as a very significant driver because of all of the sensors.
And because of the connectivity.
And we're getting multiple inquiries for this area.
It ranges from high and day desk type of things two senses pressure sensors.
Materials that are required for generating sensors and the software to integrate with the mainland as well.
And when I referred to Iot and the.
The comments I was mostly referring to the software area, but.
The ubiquitous rise and sensors into this kind of area, we're very well placed with the kind of the electrification of everything and so we see this as a good general driver just remind you and gms suddenly about half of our business and ultimately yield and the rest of it and the wide variety of industrial coatings.
And we have widespread applications, where our PCB and semiconductor packaging beyond slide slide <unk> into multiple applications of this area. So the good general growth drivers of growth.
Great. Thank you.
Thank you.
And there are no further questions at this time for Suntrust and I'll turn the call back over to the.
And thank you very much operator, so everybody and thank you very much like to thank everybody on the call for the questions and your attention and interest and assets. If I may I, just like to summarize the key points from states KOL supportive and markets and the investments, we've made and our technology and products of led to a record quarter.
And as the World recovers from the pandemic, we know it won't be the straight line of the fact that we did not scaled back during the hard times is now serving us well as I believe we're very well positioned to capture future growth and net new technology trends debate.
Our recent refinancing and stable capital structure provides a solid base from which to generate free cash flow and fund future growth assets.
<unk> is of key in April of the information age value chain as we just discussed and we believe that our growth will continue to outpace that of our end markets and if I may I'd like to close with my deepest thanks to the entire Alphatec team of China and the World. Your hard work energy and commitment are inspiring, especially in the face of the continued pandemic and the supply.
Chain issues with the recently seen you what makes us the type of cutting edge come the company. After over 100 years of existence Joel to one 2021 has been our first quarter as the public company and the excellent demonstration of why we believe we will become one of the world's most respected specialty chemicals company with that thank you very much everybody.
And we will end the call.
And ladies and gentlemen, this concludes the.
This conference. Thank you for participating and when we have disconnect presenters. Please stand and the line for the post conference.
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