Q4 2021 CMC Materials Inc Earnings Call

Gentlemen, and welcome to the CMC materials fourth quarter fiscal 2021 earnings conference call.

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

We will conduct a question and answer session and instructions will follow at that time.

If anyone should require assistance during the conference. Please press star zero on your Touchstone telephone.

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference Colleen Mumford, Vice President Communications and marketing. Thank you. Please go ahead.

Thank you Glenn.

Good morning, with me today are David Li President and CEO, and Scott Beamer, Vice President and CFO.

Last night, we reported results for our fourth quarter fiscal year 2021, which ended September 32021.

We encourage you to review this slide my remarks document we've made available in the quarterly results section of the Investor Relations Center on our website CMC materials Dot com.

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

You may request any of the information by calling our Investor Relations office at 630 or 99 Tuesday.

Zero.

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-Q for the quarter ended June 32021, and Form 10-K for the fiscal year ended September 32021, which we expect to file by November 12 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. Additionally, 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.

Thanks, Kelly good morning, everyone.

As announced last night, we reported results for fiscal year 2021.

Representing our fifth consecutive year of record revenue.

Top line growth of 7% was.

It was driven by broad based strength across our electronic materials segment.

Driving performance in our electronic materials segment with CMP slurry.

Which grew 14% year over year.

Which we believe continues our track record of growth above the sector.

As we continue to gain positions in advanced technologies.

We are also guiding for sequential growth in our electronic materials segment as we see continued strong demand for.

<unk> solutions.

In our performance materials segment, our pipeline and industrial materials business increased year over year, but continues to be negatively impacted by the ongoing COVID-19 pandemic.

The macroeconomic backdrop remains challenging and difficult to forecast but.

But we remain focused on executing on our strategic initiatives.

Which include winning new customer positions.

And product innovation.

Through our R&D efforts.

From a profitability perspective, while our first half adjusted EBITDA margins trended in line with our performance at the end of fiscal year 2020, our second half profitability was negatively impacted as we absorbed higher costs, primarily from raw materials freight.

And logistics.

In Yesterdays earnings release, we announced two key initiatives to mitigate cost challenges and enhance our financial performance.

First to counter the impact of rapidly rising raw materials freight and logistics costs.

We implemented global price increases, which took effect during the first quarter of fiscal year 2022.

We believe these price increases will offset the cost headwinds that we've experienced to date.

And are prepared to implement further pricing actions if needed.

We are working closely with our customers and have been encouraged by the adoption of our new pricing to date.

In addition, we initiated an enterprise wide strategic cost optimization program named future forward.

The program is designed to implement structural changes to enhance operational efficiencies, while maintaining our strong focus on technology innovation and customer partnerships.

We are confident these actions will help optimize our overall cost structure, while maintaining our commitment to innovation and operations and quality across our businesses to drive organic earnings growth.

The outlook for our electronic materials segment remained strong driven by a healthy semiconductor industry as customers continue to invest in their infrastructure and operate at near maximum utilization.

We believe our electronic materials segment will continue to benefit from IC technology advances and increased customer capacity.

We are well positioned to capitalize on these trends given our many competitive differentiators.

Including a highly formulated and broad product portfolio.

Our commitment to technology technological innovation.

Close customer partnerships global infrastructure and ability to manage complex requirements across global supply chains.

Turning to our guidance for the fiscal year.

We currently anticipate full year adjusted EBITDA in the range of $355 million to $385 million.

This guidance reflects our confidence to offset and grow beyond the loss of earnings from the exit of the wood treatment business, primarily through a combination of organic growth.

And the favorable impact of the future forward program.

While pricing actions are expected to offset the additional impact of inflation.

We begin our new fiscal year with optimism.

The initiatives announced today, along with our strong differentiated product portfolio and advantaged positions will further contribute to our long track record of profitable growth going forward.

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

Thank you at this time to ask a question you will need to press star one on your telephone.

Draw your question just breast about Keith.

Please limit yourself to two questions. Please standby, while we compile the Q&A roster.

Your first question comes from the line of Mike Harrison from Seaport Research Partners. Your line is now open.

Good morning, Hi, good morning.

Hi.

Yes.

Was wondering if you can provide a little bit more detail on the timing of the actions that are part of the future forward program.

How much of those actions are being implemented earlier in the year or should we maybe think of those savings is being weighted more towards the back half of fiscal 'twenty. Two and then also maybe give some detail on whether these show up mostly in the corporate segment or if we will see some impacts in electronic materials were performing.

Materials.

Yes, yes, sure Mike I would be expecting from a phasing by quarter perspective less of an impact to Q1.

Meaningful change for Q2, and then Q3 and Q4 runs beyond that I think as youre thinking about that.

Two different slices of that approximately $15 million or so that would be mostly for opex to impact FY 'twenty, two and the benefits that are going to come beyond FY 'twenty, two they're going to have a greater impact on cost of sales thats likely to be something closer to foot footprint rash.

<unk>, where those projects have a little bit of a longer timing and then as you think about the segments or corporate of the 15 for this year I'd be thinking again about that is primarily in corporate and then those future benefits would be primarily to the electronic materials segment.

Yes, Mike just to give some background on the program first we wanted to be thoughtful and strategic.

Perhaps the pandemic was a catalyst, but I think it's just what good companies should do and what we didn't want to do was impact any of our innovation our customer facing efforts, we feel really good about where we are there, but we wanted to take the opportunity to streamline the organization a bit.

We know we're in a very dynamic environment, so where.

We're excited about the announcement today and the work that's going to go on to support it.

Alright, and then in terms of the electronic chemicals business.

<unk> again delivered a record quarter at least in terms of revenue. There can you comment a little bit on the progress that you're making as you're working to improve capabilities and looking to grow in some of those higher value process chemicals within easy.

Yeah. Thanks, Mike, We're obviously excited about the.

Second record quarter for us in a row for EC.

The growth was driven by.

Just strong demand in general as we've talked about this as more of a regional business. So we primarily participate in North America, Europe, and Southeast Asia, We're a leader in all of those regions in which we participate so I think that strength reflects both the underlying strong demand and high utilization.

By our customers, but also some new business wins as we continue to kind of optimize that portfolio. We're really pleased with the progress we've seen in E C.

Alright, Thanks, I'll turn it back.

Thanks, Mike.

Yes.

Your next question comes from the line of Kieran de Brun from Mizuho. Your line is now open.

Hi, Good morning, good morning, good morning.

I was just wondering if you can just discuss a little bit more in terms of where you saw him like what key raw material headwinds you're experiencing in the quarter and how you view those kind of flowing through into the first half of next year and then in terms of pricing it seems like youre able to push it through pretty.

Pretty quickly to offset some of these increases that they've continued to remain let's say, but how do you think about maintaining some of that price as some of these headwinds subside.

Yes.

Karen Thanks for the question I'll give some context since Scott can follow up with some additional detail I think as we talked about last quarter.

Perhaps we were a bit earlier and seeing the effects of inflation and perhaps that's given us.

Some more time to react and respond.

And obviously, it's been a very.

Very pervasive topic in throughout the sector.

How we feel about it is and we gave a few examples in the prepared remarks are just some of the headwinds that we're seeing we're not going to be able to give a lot of specifics around pricing just because of the competitive dynamic, but what I would say is that we're very confident that we will.

We've offset the inflation that we've seen so far and are prepared to continue taking further pricing actions as needed as we see more inflationary pressures.

<unk> in the future.

Yeah and the.

Point, Karen that you made about kind of trending that out I think again as Dave said, we're going to be reluctant to be too specific about any particular raw material or the impact of the company and Conversely, the pricing aspects of that but we can say that look we expect to offset the inflation that's coming through.

This year, so as you're thinking about the margin pressures going forward or margin expectations going forward, our expectation is to be offsetting that incremental.

That incremental inflation going forward. So you're most immediate question may be also related to Q1 and I'd be thinking of Q1 is trending pretty specifically are consistently with Q4, because the future forward program, we will have less of an effect to our.

Q1, we have some pricing in place now as we said that we implemented earlier in the quarter. So we feel good about maintaining that we have a piece of the wood treatment business, that's coming out. So there's a few puts and takes but I'd be thinking about the profitability of the company for Q1 as run rate pretty similar to what we experienced.

In Q4 of this year, and then likely getting better beyond that.

Great and then maybe just a quick follow up and then maybe there's a little bit longer term question, but we've seen a pretty substantial step up in terms of semiconductor industry, Capex, which is probably going to continue to grow into next year. When we think about all of that incremental demand coming online and what that means for your CMP slurry and pad.

And your electronics business as a whole how do we think about your current capacity.

Being able to satisfy the future demand and how you think about future organic investment it seems like there's a bit of a step up in capex this year, but overall no.

Any color you can give on how you're thinking about that going forward would be helpful.

Yes, we're really excited about that so as we think about the announced capacity additions by our customers first of all we think we're very well positioned so theres been announcements obviously of big additions in the U S.

So in Europe, and even in Japan, we have we have facilities.

And all of those regions and I think as we think about our business. It's really probably as you would expect for CMP slurry as we know that's a foundational really important business for us we will always have.

Sufficient capacity for current and future demand thats not going to be an issue.

For EC in areas that are perhaps more capex intensive we're really picking our shots where can we be providing.

Providing differentiated solutions to support our customers I'd say pads. We've invested ahead of that growth as well. So in terms of capacity I think for slurry and pads.

We're excited to support that future growth for E. C. We're going to be disciplined about looking at the portfolio, where can we add differentiated solutions and make investments to support that growth going forward, but I do think from a global infrastructure perspective, we're really well positioned to support the future customer expansions I just add on.

One other point is in our prepared remarks, we provided some background on CMP slurry growth rates. So we put that around 6%. We've obviously outgrown that significantly over the past five years, we think that is an indication of us gaining participation. So we think future growth is going to come.

I'm from additional capacity coming online and increasing participation that we've seen from CMP slurry.

Great. Thank you very much.

Thank you.

Your next question comes from the line of Chris Capps from Loop capital markets. Your line is now open.

Hey, good morning, Hi.

Hi, good morning.

So just on the initial guidance range for 2022 I was wondering if you could talk about.

If you hit that the midpoint of that range exactly did you talk about what contribution would come from the electronic materials segment.

I think it would be helpful for investors to have a sense of what the underlying growth of that core segment might look like again.

Favorable backdrop, and maybe even essentially coming through fiscal 'twenty, one when theres been some some quarter to quarter choppiness or some idiosyncratic reasons in that business.

Yes sure Chris.

I'd be thinking of that organic growth is primarily from electronic materials and I think that we've also we recognize the complexity with the wood treatment business coming out. So we were pretty transparent I think in.

In our materials about how you can think about the wood business and the phasing out that is happening for that now undoubtedly when you unpack that what you probably already have youll notice that the Q4 margin four P. M was down.

The PM margin will continue to be pressured with the exit of wood treatment and there's inflationary pressures in the pin business. So I'd be thinking about the organic growth is mostly electronic materials.

And again I've mentioned in Q1 versus Q4 expectation I'd be thinking of a similar run rate and then the rest of the year getting better as we have the benefits of future forward kicking in.

Yes, and Chris just to add on to Scott's comments, we have that bridge in the prepared materials and I think as our guidance reflects its optimism of continued strength of electronic materials in particular, that's where the organic growth is going to come from.

We're just putting pricing and inflation as an offset the benefits of the future forward program and then obviously as Scott mentioned that exit of wood treat which is a pretty significant profitability.

Profitability contributor I think we've done a nice job driving value in that business, but we're exiting over the course of the next several quarters. So that's kind of the bridge that we provided in the prepared remarks and gives you a feel for where we're thinking about the year.

Right that's helpful and just the follow up would be it.

Look at that guidance and developing it.

And have some scenario analysis around the high end and low end of that range. Just what are the product lines, where you see greater risk of variability that might lead to either hitting the lower end of that range or the higher end of that range.

What are some scenarios, where you come in on either end and what would you attribute those those back to Steve. Thank you.

Yeah. Thanks, Chris Good question I feel like the spectrum of the range really is first we feel really good about our position. So we mentioned in some of the prepared remarks, a few really breakthrough wins, we've had in advanced applications. One in cobalt one in three D. NAND, So we feel real.

Good about our participation and in advancing that participation rate in salaries as well as pads as easy as I mentioned, we're kind of picking our shots. So I look at sort of that range of high end and low end of guidance really as.

One well.

We're assuming the industry stays very strong so backdrop of strong continued strong industry demand I think thats, what everyones, calling for but I think that's one.

The assumption the other one is obviously when we think about profitability.

It continues to be a very dynamic environment right. So responding to rising cost again, we gave some examples in the prepared remarks about logistics raw materials, so our ability to continue responding and.

And offsetting that with price I think is sort of the second factor, but in terms of our positions. We feel like we've continued to win advanced positions and are seeing those ramp up we're seeing that ramp up of new capacity coming online from customers. So I'd say those are sort of the two.

Kind of areas too to think about in terms of the range of our guidance.

Fair enough. Thank you.

Thanks Pat.

Your next question comes from Atlanta, Amanda <unk> from Citi. Your line is now open.

Good morning Amanda.

Good morning.

I have a question on the step up in Capex that we're seeing in Q fiscal 'twenty two.

Can you just talk about what's driving that step up in capacity are you seeing any sort of.

Unconstrained demand or difficulty in meeting customer demand thats driving capex.

Or is this a little bit more of a longer term strategic addition.

Yes, sure Amanda I would characterize it as the second longer term and strategic investments now for the longer term and the strategic over time.

We have not had any particular issues or problems.

Meeting all the demands of our customers. We've made the comment before and we can continue to make it that we've delivered every single shipment to our customers even during all of the issues that we've had and during the pandemic Euro and I would just say that as you know we constrained capex this year given the.

You'll early uneven environment that we had and so there is some investment that from this year kind of phases into next but I would be thinking of it as mostly again strategic.

Investments now for the strategic and the longer term in the future essentially an electronic materials to benefit and to participate in the increasing capacity that our customers are putting in.

Thanks.

Shifting gears to the.

The oil and gas, but necessary oil consumption is still sort of below production, especially here.

Yes.

Do we need this consumption to return in order to recover the.

DRA business.

And then is there any additional concerns about CV demand increasing in the U S and how thats going to impact the DRA business longer term.

Yes.

<unk> mentioned before Amanda, it's obviously, a pretty challenging environment on the PM side and despite the rise in oil price demand for DRA is is really correlated to oil transport.

And we have very strong positions in the U S. So pretty specific to the U S.

Ramping up oil transport and just we just haven't seen that yet.

And so as we've tried to look at our forecast and working with our customers closely.

It's a business that we recognize is operating in a challenged environment I think it's fair to say that we're looking at all options for that business and we're also seeing some interesting innovation in that area that we are introducing in terms of new products, but I think it's just a continued challenging environment and obviously it's not.

A big focus for us at the moment.

Perfect. Thank you.

Thank you Amanda.

Your next question comes from the line of Paris, <unk> Misra from Denburg. Your line is now open.

Thanks Jorge.

Hey, good morning, everyone. Thanks for taking my questions. So you had a very good performance in electronic chemicals in the second half of this fiscal year.

Was there anything unusual that helps centers, such as customer restocking or something along those lines or is this a good base rate than you expected that business to grow.

The second half as a base going forward.

Yes, we didn't call out any sort of.

<unk>.

A typical inventory buildup I think it's really just reflective of high utilization and demand from our customers. We did talk about a few new wins in the electronic chemicals segment several quarters ago. So some of that demand is seeing that business ramp up I think this business. If we think about the.

The growth profile, it's going to be a solid business, its probably not going to grow as fast as our CMP slurry or pads business, but its one in which one we're picking our shots and where we can differentiate ourselves and I think we're seeing that come out in terms of the business that we have in the portfolio.

Leo continues to be.

Very differentiated products that we support our customers with and so just just to answer your question I think it's really driven by more of the strong demand from customers.

That we see in the regions that we participate in.

Got it good to hear that and then how are you tracking in terms of meeting your 2024, EBITDA target I believe it's $4 $60 million to $510 million.

You had or maybe.

Cost inflation is a bit of a drag on that would you kind of frame that.

Yes, I think we'll update that more formally <unk> in the coming time frame here, but I think youre thinking about things the right way look the semi industry continues to be very strong.

We're excited about where we participate and our ability to serve our customers and drive value through that through that segment. So that continues the inflationary pressures, we're new and we're articulating today, our objective and our expectation that we'll be able to offset those in the future and we have to factor in the.

The wood treatment exit as well, so I'm, probably going to be reluctant to give too many details about FY 'twenty four right now until we formally.

Pub sort of re update that which I think would be coming up in the shorter timeframe.

That's fair enough. Thanks.

Thanks for your cash.

At this time as a reminder to ask a question you will need to press star one on your telephone that is part one on your telephone keypad.

Your next question comes from the line of Mike Harrison from Seaport Research Partners. Your line is now open.

And I will have additional one.

Thanks.

Wondering if you could give a little bit more detail on the order patterns you saw from your Chinese distributor customer have those order patterns normalized as of September or October.

Maybe more broadly on China, you noted the 40% growth rate in fiscal 'twenty, one maybe talk a little bit about how you see growth in China going forward.

Yep.

I'll give some.

<unk>.

Some context, and then Scott can provide some additional detail.

First China is not a new region for us to operate and we've grown very strongly in China of almost 20%.

Year over year for the last five years and then we've seen significant growth in the last couple of years and I think Thats. One I think one is our continuing to work closely with our customers in China, Although we don't sell direct we have a local team there that worked very closely with those customers and we continue to <unk>.

<unk> participation in China, and we all know that China is also investing a lot in their semiconductor industry. So we see from a midterm long term perspective, really really strong growth coming from China. It's an important region for us and we think we're well positioned I will let Scott.

Comment on sort of the near term order patterns yet.

I think as we expected the.

Near term order patterns have normalized during this quarter and we expect to get back to growth beginning in Q1, which is what we articulated was an expectation last quarter. So we're still on track and expecting that thank you mentioned the significant growth in FY 'twenty, one versus FY 'twenty.

And.

You get to the point, where China is one of our largest countries now so you get a little bit of law of large numbers and so that percentage growth is likely down from what you've mentioned in FY 'twenty, one, but it'd still be thinking about double digits for China for next year.

Alright, I appreciate that and then a question on the pin business. That's one of the areas, where you've identified a pretty significant raw material inflation, but you've got this issue around kind of weaker demand and some competitive dynamics.

They are not super favorable and maybe impacting your ability to get pricing.

Have you seen competitors moving on pricing in this inflationary environment.

And that is enabling you to increase your own prices.

Maybe talk about how you are balancing the need for pricing with your desire to maintain market share or see some recovery in volumes.

Yes, I think you know the space well Mike.

Continues to be an increasing area of competitiveness. So we're clear eyed about that I don't want to speak about you know what.

What the competitors are planning from a price perspective, but we look at things from a company wide perspective, So no doubt Tim is being impacted within our within RPM segment. The pin business is being impacted by raw materials, and we showed an indicative chart in our materials.

So the.

The margin pressures will occur within that segment I think from an overall company perspective, we have the expectation of offsetting price that's not necessarily true for each of the segments, but we want to make sure that we're clear as a company overall, but we also mentioned that I think there are some interesting.

Things that we have been working on to further improve profitability of this business, including product innovation and new products with potentially alternative raw materials. So we're focused on improving the business optimizing the business, but we're also clear eyed about the competitive environment and also the dip.

Manned environment.

Alright, thanks very much.

Thanks, Mike.

Your next.

Comes from the line of David Silver from CL King Your line is now open.

Thank you.

Yeah, Hey, good morning, Thank you.

I had a question I guess on the future forward program and in particular, I guess I was thinking about how you're designing this program are the goals of this program with regards to your global footprint.

So my recollection is simple.

Several years, expanding or broadening your global reach has been.

Our priority use of discretionary capex pretty much every year.

And I can't recall, the exact wording, but.

It seems like there were parts of your global footprint, where maybe youre going to be prudent and back a bit. So when I think about the goals, maybe response customer responsiveness and maybe to have some redundancy.

In terms of supply capability and issues.

A little more.

Prominent in the current environment.

I was just hoping you could just discuss the balance that you're envisioning.

Between maintaining the <unk>.

<unk> global footprint do you need to serve your customers.

The goals, maybe extracting some some greater efficiencies or.

Economizing here and there thank you.

Yes, Thanks, David I think for US as we think about it again, we've been very thoughtful about our approach and we don't think that.

Reducing.

Cost as opposed to supporting growth and so as we think about our global footprint and where our customers are adding capacity and needing more support.

That's obviously not going to be a focus of this program and we kind of mentioned that we're not impacting any innovation or customer facing kind of efforts. This is really more focused around corporate there could be as Scott mentioned.

Look at our facilities, we're not prepared to talk more about that today, but it would not be in an area that we'd see sacrificing growth or customer support overall I think it's just as we as we look back.

We're several years removed from AMG, we took on a lot of infrastructure and of course, a lot of great people and as we look back a few years removed I think it's just a good opportunity for US I think the pandemic serves as a catalyst, but I think this is a good opportunity for us to do some strategic cost optimization around the company.

Yes, I think Thats a good summary, I would only add that context in terms of the financials, David as we have highlighted $15 million expected of an incremental benefit directly to this year and then 20% to 25 that will take a little bit more time that's.

The 20% to 25 is the total so there's an incremental call. It five to 10 in the future I think I would be thinking about that as more of the footprint rationalization because of everything that Dave described those are longer term projects, we're going to have to do a lot of work not only if we are going to impact us.

Site, but working with our customers re registering getting the approvals and so on from them. So I would just tie Dave's comments in with this little bit of a tail on some of the benefits of the activities that we envision as part of future forward.

Okay great.

My next question I Hope I can get this out.

In an understandable manner, but I'm, just hoping you could maybe integrate the long term qualification process.

Youre CMP businesses typically undergo for a position when are process of record award.

And then the Marriott, we're integrated with the very aggressive.

Wafer fab equipment spending that's going on in the industry. So in other words there is a timeline there is a gap between maybe when you are qualified.

And maybe when a physical facility. Your production line is actually complete and turns on and then ramps up over time.

And I'm just wondering when you look in the context of your guidance for 'twenty, two and thinking about where you are in the last few quarters is it fair to say that you're expecting a notable.

Pick up in the cadence at which I think maybe the realm.

Relevant production facilities.

<unk>.

There you are.

<unk> positions.

Will they be turning on and it notably quicker cadence, let's say over the next 12 months.

Compared to the last 12 months.

Any comment on.

On the opportunities to initiate these new.

Yes.

Physician wins into actual production and ramp up thank you.

Yeah, David I think you have the right.

Key dynamics to focus on again, we kind of focus will go back to expectation of CMP growth rates, probably 6% as we see more capacity coming online you might see that number go up a bit.

That capacity, we're already seeing some of it come online for example from some of our memory customers, but equally important is winning those new opportunities. So we talked about some of the new opportunities that we won and are excited about we also talked about consumable set win in the pads area, it's really important for us to continue.

New.

Increasing our participation in those advanced nodes as we have been doing so that when those new capacities startup, we're well positioned to either.

Just kind of port over if the customers using the similar technology in process or if they're ramping up a new technology, we're able to introduce new products and grow with them right now I'd say of the of the significant announced capacities for example, TSMC in Arizona.

Ana or Intel's has talked about a few new fab those are pretty early stage right I think they're not close to being startup. So those are kind of in the kind of one plus year range out, but I do think we're seeing some of the customers that have invested in incremental.

The additions starting those up.

And those occur obviously a lot faster.

We see that volume come through.

We are expecting and confident to get both right we want to be there to support that additional capacity when it comes online and we also want to grow our participation by winning new technologies as they ramp up in logic foundry and memory. So it's all of the above but I would say grounded in that sort of.

6% growth rate of CMP, we've obviously performed much more strongly than that and we'd expect to continue to do so but that's sort of some some of the.

The background and context.

Okay, Great I hope choline doesn't shoot me later, but I'm just going to sneak in a question I don't believe anyone's asked about the share repurchase activity this quarter and I'm just wondering.

How do you look at that pretty aggressive.

And in the context of I guess your overall value creation strategies. So should we expect an elevated level going forward or was that kind of a one off opportunistic.

Kind of event. Thank you.

You understand it well there was an accelerated level of purchases this quarter and I would say is from a confluence of factors. We continue to be very excited about the long term prospects for our industry and our ability to operate within the industry, we constrained capex in FY 'twenty, one and we've also been Matt.

<unk> the cash returns for the wood business. So we saw an opportunity to deploy those funds I would just say in addition, David that there is no change to our capital deployment priorities. They continue to be organic and the organic growth number one paying dividends to shareholders on an ongoing and increasing.

<unk> basis, reducing debt or leveraging up potentially for M&A, but right now we're in the reducing debt phases number three and then repurchasing shares. So I don't see a structural change to our priorities there and I think the one thing that I would just recognize is that we continue to meet all of our cash.

<unk> deployment priorities, we haven't it wasn't a matter of us buying shares and having to change expectations about any of the other priorities because of the high value of what it is that we provide to our customers. The capital light model the earnings leverage that we're able to achieve we're able to generate a lot of cash.

To continue to be thoughtful deploy all of that but because of these again kind of a confluence of factors we saw the opportunity this quarter.

Thank you very much.

Thanks, Dave.

Your next question comes from the line of <unk> Misra from Baird. Your line is now open.

Welcome back at Ash.

Thanks for taking the follow up so just looking back at this year you had inflation impact that impacted your EBITDA and also some variability from buying patterns in China is there a way to quanta.

Quantify the impact from these items I know you shared some numbers from the last call, but just wondering if you could.

Visit those.

Al.

I think this will help you prioritize from when you think about our past and I'm going to just run a run forward to the total company metric EBITDA as a percent of revenue.

In FY 'twenty, we were about 32%, we're going to end FY 'twenty. One we have ended FY 'twenty, one about 30%. So there were pressures.

On our business this year and we were pretty again, I think thoughtful and clear clearly, stating those last quarter and this quarter.

So our profitability in Q4 has trended in line with what we had expected, but we will end the year about 30% and I had I had mentioned that for FY 'twenty two.

We're thinking about a similar sort of expectation because of those different puts and takes that we mentioned that's a reasonable way to be thinking about 'twenty two so inflationary environment in Q4.

By 'twenty, one pricing actions in place to offset additional inflation in FY 'twenty, two and we mentioned in our materials, we're always looking at that and.

As things continue to evolve we may change, our plans as well and even.

I have the opportunity to increase price going forward, but that's how I'd be thinking about the profitability of the company in a general way and I mentioned earlier, how to think about Q1 versus Q4, and I would be thinking about <unk> as improving slightly and I'd be thinking about pm as coming.

Down with some extra raw material pressures in Perm and then the exit of the wood treatment business. That's how I would kind of verbally describe some of the work that you are undoubtedly doing on the on the financials.

This is very useful thanks, guys. That's all I had.

Thank you for your cash.

Again to ask a question please press star one.

Again that is star one to ask a question.

Question comes from the line of Chris Capps from Loop capital markets. Your line is now open.

Okay.

Yes, hi, thanks for taking the follow up so really the question on the IP litigation and so my interpretation of everything that's transpired there.

<unk> been successful in this.

Patent infringement case.

Patents valid there wasn't arrangement.

What I'm curious is there.

Timing of any potential benefit have you factored any benefit from that resolution into this guidance range that you've given and then secondly.

Is it fair for us to conclude maybe that the outcome of that litigation, which is focused on the U S jurisdiction standpoint might be a benchmark for <unk>.

Similar.

<unk> cases in other jurisdictions.

Yeah. Thanks, Chris obviously, we feel really good about where we are with that but we're still in active litigation we do expect.

Final determination in sort of early December ish.

And we have not factored in any sort of conversions, although we're working with many customers and we're seeing a lot of pull so that would just be upside to our guidance.

To your question of kind of the scope and span.

We highlight also that we brought in an enforcement action in Taiwan.

So we think that this is a we feel confident obviously in the merits and what we've heard back from the ITC. So far we feel confident that we're going to prevail on our innovation and technology and we're working with.

I would just say several significant customers on conversion and it is a global effort.

Excellent good to hear thank you.

Thanks Frank.

Speakers I am seeing no further questions in the queue at this time Colleen Mumford I turn the call back over to you.

Great. Thanks that is all the questions that we have for this morning. Thank you all for your time and your interest in <unk>.

This concludes today's conference call. Thank you for participating and have a wonderful day you may all disconnect.

Yes.

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