Q4 2021 Entegris Inc Earnings Call

Thank you for holding ladies and gentlemen, your online for this integra fourth quarter 2021 earnings release conference call. At this time, we are still gathering additional participants we will get started momentarily. We thank you for your patience and I ask that you. Please continue to hold.

[music].

Please standby we're about to begin.

Good day and welcome to the Integra fourth quarter 2021 earnings release Conference call. Today's call is being recorded at this time I would like to turn the call over to Mr. Bill Seymour VP of Investor Relations. Please go ahead Sir.

Good morning, everyone earlier today, we announced the financial results for our fourth quarter and full year 2021.

Before we begin I would like to remind listeners that our comments today will include some forward looking statements. These statements involve a number of risks and uncertainties and actual results.

Differ materially from those projected in the forward looking statements.

Additional information regarding these risks and uncertainties is contained in our most recent annual report and subsequent quarterly reports that we have filed with the SEC.

Please refer to the information on the disclaimer slide in the presentation.

On this call. We will also refer to non-GAAP financial measures as defined by the SEC regulation G.

You can find reconciliation tables of today's news release as well as on the IR page of our website at <unk> com.

On the call today are Bertrand of law, our CEO and Greg Graves our CFO .

I'll hand, the call over to per truck.

Thank you Bill and good morning to all of them.

Start by saying that I am extremely pleased with our fourth quarter results, which capped off another record year for Integra is I am very proud of what our team achieved in 2021, especially in light of the challenging operating environment, we faced throughout the year.

During the fourth quarter sales of $635 million grew 23% year on year and 10% sequentially all.

While growth was strong across all three divisions as we benefited from a robust industry growth and record demand for our products and solutions.

EBITDA margin increased significantly to over 31% of sales and non-GAAP EPS of <unk> 96 was up 35% year over year.

<unk> fourth quarter results exceeded expectations and were driven in large part by our teams successfully fighting through many of the supply chain hurdles that impacted us last year.

Looking at the full year 2021.

We achieved record sales of $2 $3 billion.

Up 24% all three of our divisions experienced strong topline growth and delivered significant margin expansion in 2021.

Our outperformance for the year in semiconductor applications was driven in large part by our strong position in wins with leading edge solutions like liquid filtration and advanced deposition materials selective edge and other areas of increasing importance to our customers across the semiconductor.

<unk> system.

In addition to our semiconductor focused solutions during 2020 one.

Sales of the RMS high purity bags used for COVID-19, vaccines exceeded $50 million and looking further ahead, we are generating strong interest for these solutions for use with non covered biologics.

Wrapping up the financial results for 2021.

Gross margins increased albeit modestly due to the COVID-19 related cost pressures, but we once again showcased the leverage in our model with EBITDA up 29% and non-GAAP EPS up 35% year on year.

During 2021, we allocated $489 million of capital.

Which included Reinvestments in our business of $211 million in Capex, and a $168 million in R&D, and we returned $111 million to shareholders in dividends and buybacks.

On top of that we repaid $150 million of net debt.

Yeah.

Our 2021 corporate social responsibility program was another highlight for the year.

Some of our accomplishments include publisher.

Publishing our first CSR annual report can.

<unk>, an additional $3 million to the integrity Foundation, which is focused on providing stem scholarships to women and individuals from underrepresented communities today.

To date integrity has contributed $5 million through the phone with the goal of investing more than $30 million in stem scholarships and internships by 2030.

During the year the percentage of diverse members of our board of directors increased to almost 40% well on our way to our 2030 goal of 50%.

And from an ESG ratings point of view, we increased our eco vedis waiting to silver and our MSCI score to an a rating.

On the M&A front, we completed the acquisition of <unk> precision micro chemicals business, which we have already migrated to our ACP platform.

We are currently running 100% of our global operations on one single instance of ACP.

Which of those greater end to end process optimization and visibility.

These advantages have served us very well in the past two years as we have effectively managed complex supply chain risks very effectively across our global platform.

With all of our recent tuck in acquisitions integrated into ACP. This provides obviously a great foundation for the future integration of CMC materials.

Which then leads me to our pending acquisition of CMC materials.

As I said, when we announced this transaction we have long had tremendous respect for CMC materials technology.

<unk> and its reputation for operational excellence.

We are very excited about the potential of this transaction to meaningfully expand our served markets enhance our customer relationships and create new value for our customers.

As a reminder, the combined company will have a resilient business model with approximately 80% of unit driven revenue and.

And we expect the transaction to be significantly accretive to non-GAAP earnings in the first year following close.

We continue to expect the transaction will close in the second half of 2022.

Once we satisfy all of the customary closing conditions, including approval by CMC materials shareholders and approvals on the United States.

Certain foreign antitrust and competitive laws.

On that point last week, the mandatory waiting period on the U S antitrust laws expired without any objection to the acquisition.

And the date for the CMC shareholder vote to approve the transaction was set for March 3rd.

In addition, we have started to focus on integration planning. So we can hit the ground running immediately after the close.

During the period between sign and close we will be spending a great deal of time analyzing the various parts of cmc's portfolio of businesses.

To assess their respective long term strategic fit to the combined platform.

Actively identify areas of revenue synergies and potential candidates for sale.

No final determination has been made as of today on this final point and of course as you know until closing integrity and CMC will continue to operate as two completely separate businesses.

Wrapping up 2021.

Our excellent operating performance showcase the strength of our team's execution and our highly differentiated unit driven business model.

As I said throughout last year, given the persistent supply chain issues I cannot say enough how.

Proud and grateful I am of the dedication resilience and perseverance of our team.

Looking ahead to 2022 semi market demand is expected to remain very strong.

Driven by robust ship demand and high industry Capex all of this bolstered by accelerated digitalization smartphones Iot and high performance computing to name just a few.

The semiconductor industry ecosystem was tested in 2021 and responded well given the circumstances.

We expect 2022 will likely be another year, where the industry will struggle to meet the strong demand.

And while the supply chain issues are expected to ease we expect they will persist to some degree for most of 2022 as a result of the lingering covered induced supply chain inefficiencies.

Looking at our business, we expect our sales growth in 2022 to range from 15% to 17%.

Let me unpack that for you.

To stop for the full year 2022, we expect the market based on our unit Capex mix.

Will it be up approximately 10%.

And given our strong position in wins in the new logic and memory nodes, we expect to outperform the market by approximately three to five points consistent with what we laid out during our recent analyst day in.

In addition, we expect a little bit more than two points of growth from the impact of the ASF precision micro chemicals business acquisition and continued growth in our life Sciences high purity back business.

We also expect EBITDA flow through to continue to be in line with our target model and we expect to achieve a full year of 2022, non-GAAP EPS in excess of $4 10.

To be clear the guidance I just provided does not include the impact from the pending CMC acquisition.

So in summary, this is an exciting time for integrity.

We have increased conviction in the secular growth of the semiconductor market demand for our products and solutions continues to be at record levels and our relevance in the value chain has never been higher.

In addition to pace of node transitions for both logic and memory continues to be strong and device architectures are becoming much more complex.

This is great news as you know for Integra is because the unique set of capabilities. We have built around process materials and materials purity will be key enablers of these new chip architectures.

And as we have laid out this will translate into a steadily expanding integrity content per wafer.

Finally, I want to take.

<unk> to thank our customers for the trust and confidence they place an integrity and.

And once again, thank the integrity teams around the world for their incredible work and grit and such dynamic times.

Now, let me turn the call to Greg Greg.

Thank you Bertrand and good morning, everyone, our fourth quarter capped off another record year for Integra is our sales in Q4 were $635 million up 23% year over year and up 10% sequentially GAAP and non-GAAP gross margins were both 46, 5%.

Above our guidance and up 90 basis points sequentially for the full year gross margins were just over 46% up versus 2020, driven by volume leverage which more than offset the well documented headwinds from COVID-19 and the related supply chain inefficiencies.

We expect gross margin to be approximately 46, 5% both on a GAAP and non-GAAP basis. In Q1. We also expect gross margins will improve throughout the year and be approximately 47% for all of 2022.

GAAP operating expenses were $136 million in Q4 and included $17 million of non-GAAP items from amortization of intangible assets transaction and other costs.

non-GAAP operating expenses in Q4 were $119 million.

We expect GAAP operating expenses will be 150 to 152 million and non-GAAP operating expenses will be $126 million to $128 million in Q1.

Q4, GAAP operating income was $160 million.

non-GAAP operating income was $177 million or 28% of revenue up 39% year on year and up 16% sequentially.

Q4, adjusted EBITDA was approximately $200 million and over 31% of revenue.

EBITDA margin for the year was over 30% up over 100 basis points compared to 2020.

Moving to below the operating line.

Our GAAP and non-GAAP tax rate was 20% for the quarter higher than our guidance of 18, 5% in part driven by less favorable geographic income mix.

For the full year 2022, we expect both our GAAP and non-GAAP tax rate to be approximately 17%.

Worth noting for modeling purposes that the first quarter typically has the lowest tax rate of the year.

To be clear, we have not assumed any impact from potential tax reform in the 17% tax rate guidance.

Q4, GAAP diluted EPS was <unk> 87 per share.

non-GAAP EPS of <unk> 96 per share was up 35% year over year and 4% sequentially.

Turning to our performance by Division.

Q4 sales of $188 million for SCE.

We're up 11% year over year and 7% sequentially.

Growth was primarily driven by advanced deposition materials formulated cleans and selective etch chemistries.

As we referenced last quarter SCM was the most impacted by supply chain constraints during the year.

Adjusted operating margin for <unk> was 25% for the quarter.

The sequential increase in margin was driven primarily by the higher volumes.

The significant year over year margin increase was driven by the volume improvement and the impact of a discrete inventory valuation adjustment taken in Q4 of 2020 that did not recur in Q4 2021.

Q4 sales of $259 million for MMC were up 26% from last year and up 15% sequentially.

Growth was strong across all product lines and FMC in 2021, especially in liquid filtration driven by strong traction in advanced logic and memory nodes and in gas filtration and purification, which benefited from strong activity in new fab construction and strong demand.

And from our OEM customers.

Adjusted operating margin for <unk> was 36% for the quarter up year over year and sequentially also driven primarily by higher volumes.

Q4 sales of $198 million for <unk> were up 30% versus last year and up 6% sequentially.

Year on year growth was strongest in wafer handling in fluid handling in.

In addition sales of <unk> products significantly contributed to the growth in <unk> during 2021.

Adjusted operating margin for <unk> was 23% up slightly year over year and up over 100 basis points sequentially.

The <unk> margin improvement was driven primarily by higher volumes.

Fourth quarter cash flow from operations was $116 million and was $400 million for the full year.

Free cash flow was $39 million in Q4 and $190 million for the full year.

Our 2021 free cash flow reflects our choice to invest in new capacity to support future growth and in working capital to support customer demand and protect our supply chain.

Capex for the quarter was 77 million and for the full year was $211 million.

Consistent with what we outlined in the analyst day.

In 2022, we expect to spend approximately $500 million in total capex with $225 million for our new facility in Taiwan.

2022 is expected to be our peak year for overall capex spending.

During Q4, we distributed approximately $11 million for our quarterly dividend and we repurchased $17 million of our shares.

As we said when we announced the acquisition of CMC materials, we are suspending our share buyback program, but we are maintaining our quarterly dividend, which we have recently increased 25% to 10 per share.

Now for our Q1 outlook.

We expect sales to range from $630 to $650 million we.

We expect GAAP EPS to be 81 to 86 per share.

And non-GAAP EPS to be 96.

To a $1 one per share.

In summary, I would like to express express my gratitude to the entire integrity team for a great year in 2021 and look forward to another record year in 2022.

I would also like to take this opportunity to say, we look forward to closing the CMC acquisition and welcoming our new colleagues to the integrity team.

Operator, we'll now open up for questions.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Again press Star one to ask a question.

We'll take our first question from Sascha Hari with Goldman Sachs. Your line is open. Please go ahead.

Good morning. Thank you so much for taking my question and congratulations on a very strong year.

Bertrand is my first question I wanted to ask about your 2022 outlook you mentioned that your expectation for the market is for the market to be up 10%.

Can you differentiate between MSI wafer starts and.

The capex side of your business and perhaps more importantly, you noted that.

You expect your outperformance to be somewhere in the 3% to 5% range on an organic basis I was hoping you could unpack that for us a little bit which segments, which product areas do you expect.

To be the biggest drivers and then I have a quick follow up.

Yes, good morning Sheila.

So 10% indeed, it's the demand for the industry going into 2022.

We are expecting MSI to be in.

Mid to high single digits.

And right now we are thinking about capex to be in the mid.

Mid teens for 2022.

So the outperformance as you know will be driven mostly by many more transition should we expect.

And then in memory.

The timing of those node transitions.

Something that.

Now needs to be confirmed by some of our customers and Thats why you have this range of about two.

Two five points of outperformance. So that's really more of a function of the timing of those solutions.

Products that would be driving that outperformance or products that.

We've been discussing.

Most recently with new doing.

Each day and early.

Early December .

So the surprise here it will be our advanced liquid centers it would be.

The deposition materials and authentic edge.

For the most part I mean, we expect all products to do well, but those three platforms.

Peter ones.

The outperformance in.

Semiconductor applications and as we mentioned outside of semi we expect our.

Actually keep bag offering to continue to grow strongly in 2022 and to contribute about a point of cool.

Sure.

And you said you had a second question.

Yes, I do thank you for that response and then my second question is on gross margin, perhaps one for one for Greg.

Sorry, if I missed this but what were some of the key drivers in the Q4 beat revenue obviously came in significantly above so I'm guessing volume, but to the extent there was anything else. If you could speak about that that would be helpful. And then expectations for Q1, and how to think about the balance of 'twenty two from a gross margin perspective.

I'm sure there's a lot going on in terms of cost inflation.

On the negative side.

Higher volume mix and perhaps some pricing on the positive side, but if you can discuss the puts and takes that would be super helpful. Thank you.

Yes, yes, so so for the quarter I mean, youre right I mean the.

Additional volume certainly helped us on the gross margin I mean that was the primary driver that was offset by we didn't.

Our mix was not.

As good as we initially expected.

And then we continued to experience a number of sort of supply chain inefficiencies as well as you mentioned.

Higher material inputs, but given the volumes we had we were able to offset all of those things as we go into 2020.

Two our margin expectation for Q1.

Is 46, and a half our margin expectation for the full year is 47%.

The primary.

Drivers there we expect.

Improving mix and be the higher volumes will certainly play into it.

There is no hiding the fact that we are facing headwinds in a number of categories on the raw material input side.

We expect that we'll be able to overcome them and then we do continue to experience inefficiencies around supply chain related things related to Covid things like labor specifically absenteeism.

Is creating a little bit.

Our headwind for us as well.

<unk>.

And then.

<unk>.

Pricing, we have implemented selective pricing increases in per ton might want to comment a little bit more on that.

<unk>.

Yes, I think we mentioned that.

The previous call that we were in the process of speaking close loop.

Some of the input cost increases and trying to parse between what was <unk>, which was.

More permanent in nature and to take appropriate measures to offset that.

Okay.

This increases we don't expect to see the benefits of those increase in this program.

In 2022.

Consistent with the true that Greg was drawing from you would change that.

Steady improvement.

<unk>.

Yes.

In 2022.

I would just summarize by saying overall when I look at 2021 I was pretty pleased with the margin I mean, the stability of the margin through the year I mean, we were plus or minus about 40 basis points or 46%.

Every quarter of the year, we didn't experience in <unk>.

We had our fair share of headwinds for sure and so I don't view that 46 is kind of a.

Steady state type margin at all but I mean, our team really performed well we avoided any.

Sort of major catastrophic things that would negatively impact the margin in a quarter. So like I said overall felt quite good about it and feel good about our operational capabilities as we move into 'twenty two.

And sorry, the potential increase in depreciation on the back of the investments that youre, making in Taiwan is that more of a 'twenty three 'twenty four dynamic or should we expect depreciation to creep higher throughout the year.

It'll it'll creep higher this year for sure.

And as well that's why we'll see more improvement in the EBITDA margin and we will in the operating margin because of those higher depreciation levels. This year as a result of the significant investment in 2020 in 2021, especially 2021.

Any any headwinds from depreciation related to the Taiwan facility won't come into play until 2023.

Yes 2023.

Very helpful. Thank you so much.

We'll take our next question from Sidney Ho with Deutsche Bank. Your line is open. Please go ahead.

Thanks, and I'll add on that.

Add my congratulations to the team.

First question I have is on the revenue outlook just to follow up on that previous question. Thanks for all the details.

Every company in the supply chain and you kind of kept supply can you just talk about very strong demand last quarter. You mentioned you expect exiting the year youll have unmet demand of roughly $15 million can you give us an update there.

What <unk> seen bd's revenues just get pushed out.

Customers able to satisfy that demand from a different supplier.

So Sidney I think obviously with the strong finish that we add in Q4, we reduced significantly the difference between the actual demand for our products.

Between.

Demand for <unk>.

The unconstrained demand profile product so.

There's still a number of lingering.

Hi chain issues, and we are going to be obviously very focused in 2022 with.

With the goal to permanent book.

The supply chain limitations behind us, but we expect to see some lingering impact of those supply chain issues in the first half of 2022, and we've obviously taken that into account in our Q1 guidance.

Full year guidance.

Great maybe just a follow up the time that so based on the comments you. Just mentioned does that mean that revenue profile. This year will be more backend loaded than a normal year, which I think typically it's what 48 52 kind of split in the past five six years.

Yes, that's correct. So maybe you should expect a fairly steady increase throughout the year, we don't expect any meaningful seasonality at this point in the year.

We expect to see steady steady growth.

Throughout the year.

Okay great.

Follow up question is related to CMC materials deal understanding I understand it's probably too early for you to talk about any financial projection post close.

Just on the disclosure into perspective, it looks like it came together pretty quickly can you talk about what gives you confidence about the deal and the premium that you paid and how should we think about the timing of all these regulatory approval process for.

For countries that lifted Greg you talked about U S. Obviously, but also particularly around the anti trust concerns given the combined portfolio addressing the entire team CMP process.

Sidney I think as we've said in the prepared remarks, we are.

Obviously very focused as a team on moving the process along.

We are very pleased with all progress so far.

I talked about the S. Four filing becoming effective last week. The date CMC shareholders vote is now set for March 3rd which is frankly very fast and thats.

Evidence of the quality of the work by both teams.

Last week, we also received.

HSR clearance in the U S, which.

Actually confronts our views that the two platforms are very complementary with virtually no competitive overlap something that we described to you when we announced the transaction mid December last year.

And as we've said integration planning is it swings so.

All of that tells you that John .

Joint teams are very busy and very effective.

That's the reason why we.

We continue to expect to be in a position to close the transaction in the second half of 2022 and I'm not going to go into.

A lot of updates.

Country on the regulatory front, because I would be speculating and I just don't want to be.

Okay. Thank you very much.

Our next question will come from Kieran de Brun Mizuho. Your line is open. Please go ahead.

Hi, good morning.

<unk>.

I think you mentioned during the fourth quarter your tax rate was a little bit higher than expected due to regional sales mix can you just parse out.

Which regions saw stronger demand during the quarter and what your outlook is as we progressed throughout 'twenty two by region. Thank you.

Yes.

Yes.

Probably an overstatement to say that I mean, it ties directly to the revenue it really ties to the profitability of the region and the profitability frankly is impacted.

I believe by intercompany pricing.

So.

I wasn't trying to make an insinuation that one region or the other was.

Stronger from a revenue perspective.

Perfect I mean, obviously there.

There are obviously differences.

Through the year I mean, if you look at it.

In the current quarter, Taiwan was up 12 Korea was up seven.

On a sequential basis.

America was up six.

Tax rate really isn't driven directly by the revenue.

Great.

And then I think SCM seems to be a little bit more impacted by some of these supply and raw headwinds.

If you can just help us parse out and SCM, specifically, how we should be thinking about the potential margin uplift that these ease throughout the year.

<unk> 22 in general Thank you.

Yes, I can talk about this.

Ed.

High level, and then Greg if you want to add.

To weight on the margin front, but then it is the truth is that if you go back.

And look at 'twenty 'twenty.

Only one I mean, the supply issues impacted all three divisions different degrees different times during the year all divisions were impacted as we exit 2021, and as we enter 2022 and as I mentioned, we're still dealing with a few lingering supply chain issues I think the most.

Significantly as probably Eden.

Our SCM division and we've talked about.

Now specifically.

And the beauty of substrates for coding solutions.

It has been is to be a constraint for us through 2021, and I think will likely remain a pinpoint.

First half of the year, but the other two divisions are still facing some level of supply chain.

You choose as well I mean for micro contamination, it's mostly around component availability for liquid filters.

That remains a concern.

And then for <unk>.

H D attention will be on between you and some favorability in price capacity so again.

It's been a hard fought year.

I think the team has done extremely well.

Thanks.

While the work done by our ops teams and our supply chain partners, but we're not.

Entirely out of the woods and that's why as I said I think our focus in 2020 to be too.

And your systemic improvements to permanent can you put those supply chain limitations behind us and the margin and the efficiencies that goes with it but Greg I don't know if theres anything you want to add on the margin front specifically.

Okay.

You may be on mute Greg.

So we expect to see continued improvements in mix within that business and that business probably more than any has any of the three years.

Mix plays it plays a role we also have a number of smaller businesses.

Within that division.

Where I expect to see operational improvements through.

2022, all of which will benefit the gross margin, which in turn will benefit the operating margin.

Great. Thank you very much.

We'll move next to Patrick Ho with Stifel. Your line is open. Please go ahead.

Thank you very much Bertrand maybe first of all for you in terms of a lot of these moving pieces with the supply chain.

Higher input costs et cetera.

Going on right now.

How do you find the balance.

In terms of passing on these costs to your customers while at the same time continuing to face.

The supply chain challenges, where I'm sure freight and logistic costs are still high things of that nature or how do you find the balance on that.

Well, it's yes, it's something that we've been monitoring obviously very closely.

'twenty and 2021 .

I think there wasn't you early in 2021 that a lot of the input.

This increases that we saw.

We're mostly <unk> and Eze.

We progress.

Deeper into the year end 2021, it became apparent.

Parents that some of those increases were here to stay.

And that led us to take some action on the pricing.

Sean.

We.

I have never been opportunistic when it comes to pricing.

We have always been very strategic and deliberate in what we're doing.

And Thats, what we did in 2021 trying to find an offset for some permanent increases in certain types of commodities that we're buying.

And again as we said given the lead times for some of our products, we won't expect to see the benefits of those price increases until probably later in 2022.

Great that's helpful and maybe just as a follow up question.

We're looking at your <unk> guidance on Opex, it's still below the percentages that you highlighted at your analyst day should we expect opex to kind of steadily rise as we progressed through 2022 to kind of get to the.

So the target model that you've talked about at your analyst day.

I mean opex.

Q1 will be lower than the other second third and fourth quarter.

We continue to really focus on making the investments in R&D and.

So we would expect to see continued increases in R&D and we continue to work hard to do what we can to keep the SG&A line.

Relatively.

It's not going to be flat, but certainly growing at considerably less than revenue that would be our goal as we move through the year, but late but your point is it does move up as we move through the year.

Great. Thank you again and congrats.

Thank you.

We'll go next.

With Keybanc. Your line is open. Please go ahead.

Thank you good morning, everyone I wanted to ask you about the pace of <unk>.

Node transitions in 'twenty two 'twenty three is there any sign that these supply chain issues are resulting in slower node transitions or is everything on track.

Yes, it's a good question and Thats something that we will obviously paying close attention to as of right now we don't see any.

Significant risk, but that certainly is.

Something too.

Watch for.

And Thats why again, we were putting that outperformance range at about two.

Two five points of outperformance would be if some of those node transitions get delayed a bit.

And five points.

Are you expecting is the node transitions announced by a number for logic and memory customers take place on time.

Thank you Bertrand.

As a follow up your mid single digit wafer starts assumption for this year.

Say it could be conservative I don't know if you agree or are you thinking about some level of inventory correction, perhaps in the back half of this year.

I think I said mid to high so its little bit higher than mid <unk>.

But look I mean this is.

Typically continue to update you on our views.

About the industry, both in terms of Capex growth and we can start growth.

You shouldn't do that in 2022 as well as we have greater visibility I think it's fair to say that as we mentioned during the analyst day, we have a high degree of conviction.

The secular growth potential of the semiconductor industry.

Most of our customers' fab customers.

Their capacity essentially fully committed for the year. So we expect a high degree of fab utilization, which is obviously very good for us and should to your point too.

<unk> healthy levels of wafer starts so for now our projection is mid to high single digit for wafer starts.

And if it's better than that then we win.

Update our guidance accordingly.

Thank you.

We'll go next.

<unk> with Citi. Your line is open. Please go ahead.

Good morning can you quantify that.

Growth.

Can you quantify the growth by leading edge versus the support you've been getting.

Greater utilization and the lagging of Hudson and how that ties into sort of what your expectations are going forward.

Yes, so good morning, I'm on that first.

It's not something that we track.

In that fashion, so I don't want to try to make up numbers on the fly but.

I just wanted to confirm what is embedded in your question, which is we have seen strength.

Cros.

Wafer sizes so.

200 millimeter business had.

In 2021, we expect.

Similar.

Type of performance in 2022.

And as we've said throughout the year, we expect again strength across all segments be it memory and logic.

So we expect to see growth.

Everywhere, but in terms of.

The outperformance the outperformance will be driven by the leading edge and will be driven by the greater integrity content per wafer that we expect to enjoy.

As more customers in <unk> NAND for instance transition to high unit count architectures.

Sure.

Logic and foundry win more wafers are produced.

At.

Smaller nine with so.

So again I think.

Set up for the year for 2022 is actually pretty positive for us.

Across across segments.

And then can you talk about sort of the deposition chemical that you highlighted in the past as being a big driver.

And can you talk about the traction that you've been gaining on that part of the strategic rationale for the lithium CBL.

Conversations changed at all.

Dr.

Look I mean I think it's.

It's early for us to talk about.

What the combination.

Between the two companies.

Could mean in terms of growth and opportunity per wafer.

I would just say that conversations with customers have been.

Positive, but remember that until we close with still.

Two independent companies.

We won't really be able to work on the potential of.

The combined platform as we've said, we expect to provide a little bit more color around.

Synergies and that includes revenue synergies.

We close the transaction, which we expect to be in the second half of 2022.

<unk> you for a little bit of patience with that question Amanda.

Okay I appreciate that thank you.

Our next question comes from <unk> Misra of bearing Burke. Your line is open. Please go ahead.

Thank you and good morning, everyone.

You guys, probably had $3 million to $400 million sales to China last year.

Can you talk about the competitive landscape and how it's evolving and are you still mostly competing against the restaurant companies are.

Youre seeing more local Chinese competitors.

Okay.

Yes, So China was.

About a 15% country for us.

So.

Stable at that level now for a number of years.

The competitive landscape has not really meaningfully evolved over the last three years.

And we compete mostly with <unk>.

Foreign competitors.

Thanks.

And then typically you have seen about.

It's about 100 basis points deflation and legacy products can.

Can you talk about what you saw last year, because I think the year before that it was much slower than typical.

Typically 100 basis points.

Okay.

Yes, I think we have become more disciplined and most strategic in our pricing practices.

Applies to setting the price right for the new products that we introduced when we have an opportunity to capture some of the value that we create for our customers, but that discipline extends also to managing pricing over the lifecycle of the products and at that price erosion.

In many cases.

Managed more effectively able to announce to us as well so the net portfolio guidance.

2021, we didn't see the price erosion.

<unk>.

We did see in the box.

Got it and last one for me and your SCM business could you discuss what you saw in some of the other product categories like.

Great fight and specialty gases.

Yes, so first of all the performance in <unk> was.

Was really driven in 2021 by very very strong.

Performance in <unk>.

In between which grew 26.

Percent year on year.

The other areas of growth.

Tds is spec.

Specialty coating in spite of the supply chain issues that we mentioned language grew in the mid to high teens.

Gratified did recover.

Glass side grew in the high teens.

21 <unk>.

<unk>, it's not back to pre COVID-19 levels quite yet but is in the <unk>.

Some situations.

Go back two years ago.

Grass side business was both the headwind from the top line growth standpoint, and a headwind from a margin standpoint, that's no longer the case grew again in the high teens and the margin are favorable so I think we've done a lot of them.

Lot of good foundation of what took place in SCM during 2021.

Thanks for the color good luck with everything.

Thank you.

We will go next to Mike Harrison at Seaport Research Partners. Your line is open. Please go ahead.

Hi, good morning.

I was wondering if I was wondering if you could talk a little bit about the you've been in the process of adding shifts and trying to expand manufacturing capacity.

It seems to be progressing fairly well based on your performance, but maybe just give an update on <unk>.

Your ability to find labor and are the returns on some of the investments you've made in additional capacity.

In line with expectations better worse.

Yes, yes, it's true.

So much has happened in 2021.

We almost forgot how we got to that strong finish and Youre right that we made very significant and steady progress.

The year in terms of adding manufacturing capacity.

For context in 2021, we added about 1500 manufacturing jobs and segments.

And to your point, we're running most manufacturing standards.

2047, right now.

We also success.

Successfully added a number of new pieces of equipment in the second half of the year that came online reading smoothly.

Once again kudos to our ops teams.

And that was particularly helpful to our liquid filtration product lines.

We see the results of that output maximization focus in the Q4 results. So as I said I think we are in a very good place as we start 2022 and sensus.

Internal capacity.

We have a few projects for 2022 that would be required for us to.

To be able to fulfill the demand for the strong demand we expect for 2022, but of course. The focus is also around the large investment we're making in Taiwan.

And that is very important.

Add capacity required for demand, we expect the strong demand we expect full product.

Sweet and beyond as we presented to examine these days so a lot of good work.

Upstream in 2021 by 2022 and 2020.

<unk> four four hour ops teams as well.

Well my other question is actually about that Taiwan investments that you announced that you were expanding that investment pretty meaningfully from $200 million to $500 million.

Can you talk about what drove that decision to expand.

Maybe what additional capabilities, you're going to be adding and I don't know if this is a dumb question.

But it sounds like the size of the facility is doubling but the cost is more than doubling so maybe help us understand why.

Why that is.

Yes, I mean, I think it's a survey.

So first of all remember that we need it and we need to add capacity because we expect.

Strong growth across a number of product line. So.

We have already today.

Manufacturing capacity in the U S.

The second largest country for us in Taiwan. So it wasn't a natural choice for us to decide to expand manufacturing presence in Taiwan, which was not sufficient.

To be clear so that is really the basis for.

That decision.

And then we expect a lot of growth in a lot of new opportunities.

On the island.

Hum.

So.

Finally, two question about the correlation between the size and the Capex level. Let me just has to do with the desired to medium term.

The state of the art.

Manufacturing capabilities, we want.

To bring new level of inflammation.

Manufacturing processes.

The goal is to shorten our lead times and to be.

Obviously.

Battery manufacturers and our competitors.

And we also have very ambitious environmental goals.

Investments just for example.

<unk> to be used in recycling 85%.

Some of the water that you consume on the sides. So all of that obviously requires some level of upfront investment.

But I have no doubt that you can pay off.

The dividends over time.

Alright, thanks very much.

Okay.

We will take our final question from Josh Silverstein at Wolfe Research. Your line is open. Please go ahead.

Hey, Thanks, Good morning, guys I was just going to stick with the Taiwan facility.

Capex of about $500 million this year with about half of that coming from from that facility alone would.

Would you expect the kind of Standalone Integra is capex to stay at that level.

In 2023 before potentially falling off in <unk>.

<unk> 24.

And then along the same lines, you mentioned potentially a $500 million plus revenue number.

When fully ramped up how long will it take that facility to ramp up to that level.

Greg do you want to take the first part of that question.

And the revenue path.

You may be on mute, Greg, Yes, I'm on.

On mute.

Can you just I caught the revenue part, but what was the I'm sorry, the first point.

Okay.

Just on the spending level. This year is about $500 million roughly kind of half of that from the Taiwan facility would you expect capex to remain at that level in 2023.

Another facility slated for initial output next okay, sorry, if I got it I got it yeah, I'm, sorry, I didn't fully understand now so our expectation is that 2022 will be our peak spending year for overall capex. It will also be the peak year for what we spend.

In Taiwan.

When we look forward.

Would expect by 2024.

Our free cash flow levels will be back to the levels that we saw.

In.

2020.

Cause cap and when it comes.

Capex as a percentage of revenue comes down.

And when it comes to the revenue.

Picture.

We expect the bulk of the customer qualifications to be closed in the first half of 2023.

We expect to start ramping up high volume production.

The second half of 'twenty three.

Expect.

This fab meeting.

Continue to ramp into 2024 and 2025.

Got it and then last one for me.

You were a little bit quiet around potential asset divestitures around the transaction, but would you still consider any sort of small bolt on deals like the.

Kind of 70 $500 million acquisitions, while youre going through the process.

I think it's fair to say right now that the focus.

For us would be number one.

<unk>.

I know the CMC integration to be a distraction.

And to exit Q1 strong organic growth plan and I think that statement probably applies to our friends at <unk> as well.

Next priority would be to work on integration planning.

You ready day, one after close to hit the ground running.

And I think it's going to leave us with very little time.

To really think about additional small M&A at least for the foreseeable future.

Yeah.

Alright, okay.

And that will conclude today's question and answer session as well as todays fourth quarter 2021 earnings release Conference call. We thank you for your participation you may disconnect at this time and have a great day.

[music].

Yes.

[music].

[music].

[music].

Good day and welcome to the Integra fourth quarter 2021 earnings release conference call today's call is being recorded.

At this time I would like to turn the call over to Mr. Bill Seymour VP of Investor Relations. Please go ahead Sir.

Good morning, everyone earlier today, we announced the financial results for our fourth quarter and full year 2021.

Before we begin I would like to remind listeners that our comments today will include some forward looking statements. These statements involve a number of risks and uncertainties and actual results could differ materially from those projected in the forward looking statements additional information.

Formation regarding these risks and uncertainties is contained in our most recent annual report and subsequent quarterly reports that we have filed with the SEC. Please refer to the information on the disclaimer slide in the presentation.

On this call. We will also refer to non-GAAP financial measures as defined by the SEC regulation G.

You can find reconciliation tables in today's news release as well as on the IR page of our website at <unk> Dot com.

On the call today are Bertrand Loy, our CEO and Greg Graves our CFO .

With that I'll hand, the call over to <unk>.

Thank you Bill and good morning to all I will start by saying that I am extremely pleased with our fourth quarter results, which capped off another record year for integra.

I'm very proud of what our team achieved in 2021.

Especially in light of the challenging operating environment, we faced throughout the year.

During the fourth quarter sales of $635 million grew 23% year on year and 10% sequentially.

Growth was strong across all three divisions as we benefited from a robust industry growth and record demand for our products and solutions.

EBITDA margin increased significantly to over 31% of sales and non-GAAP EPS of <unk> 96.

It was up 35% year over year.

These four fourth quarter results exceeded expectations and were driven in large part by our team successfully fighting through many of the supply chain hurdles that impacted us last year.

Looking at the full year 2021, we achieved record sales of $2 3 billion.

Up 24% all three of our divisions experienced strong topline growth and delivered significant margin expansion in 2021.

Our outperformance for the year in semiconductor applications was driven in large part by our strong position in wins with leading edge solutions like liquid filtration and advanced deposition materials selective edge and other areas of increasing importance to our customers across the semiconductor eco.

System.

In addition to our semiconductor focused solutions during 2021.

Sales of the RMS high purity bags used for COVID-19, vaccines exceeded $50 million and looking further ahead, we are generating strong interest for these solutions for use with non covered biologics.

Wrapping up the financial results for 2021 gross margins increased albeit modestly due to the COVID-19 related cost pressures, but we once again showcased the leverage in our model with EBITDA up 29% and non-GAAP EPS up 35%.

Year on year.

During 2021, we allocated $489 million of capital.

Which included Reinvestments in our business of $211 million in Capex, and a $168 million in R&D, and we returned $111 million to shareholders in dividends and buybacks.

On top of that we repaid $150 million of net debt.

Our 2021 corporate social responsibility program was another highlight for the year.

Some of our accomplishments include publisher.

Publishing our first CSR annual report contributing an additional $3 million to the integrity Foundation, which is focused on providing stem scholarships to women and individuals from underrepresented communities to.

To date integrity has contributed $5 million to the phone with the goal of investing more than $30 million in stem scholarships and internships by 2030.

During the year the percentage of diverse members of our board of directors increased to almost 40% well on our way to our 2030 goal of 50%.

And from an ESG ratings point of view, we increased our eco vedis waiting to silver and our MSCI score to an a rating.

On the M&A front, we completed the acquisition of <unk> precision micro chemicals business, which we have already migrated to our ACP platform.

We are currently running 100% of our global operations on one single instance of ACP.

Which of those greater end to end process optimization and visibility.

These advantages have served us very well in the past two years as we have effectively managed complex supply chain risks very effectively across our global platform.

With all of our recent tuck in acquisitions integrated into this.

This provides obviously a great foundation for the future integration of CMC materials.

Which then leads me to our pending acquisition of CMC materials.

As I said, when we announced this transaction we have long had tremendous respect for CMC materials technology.

<unk> and its reputation for operational excellence we.

We are very excited about the potential of this transaction to meaningfully expand our served markets enhance our customer relationships and create new value for our customers.

As a reminder, the combined company will have a resilient business model with approximately 80% of unit driven revenue.

And we expect the transaction to be significantly accretive to non-GAAP earnings in the first year following close.

We continue to expect the transaction will close in the second half of 2022.

Once we satisfy all of the customary closing conditions, including approval by CMC materials shareholders and approvals on the United States.

Certain foreign antitrust and competitive laws.

On that point last week, the mandatory waiting period on the U S antitrust laws expired without any objection to the acquisition.

And to date for the CMC shareholder vote to approve the transaction was set for March 3rd.

In addition, we have started to focus on integration planning. So we can hit the ground running immediately after the close.

During the period between sign and close we will be spending a great deal of time analyzing the various parts of cmc's portfolio of businesses to.

To assess their respective long term strategic fit to the combined platform.

Actively identify areas of revenue synergies and potential candidates for sale.

No final determination has been made as of today on this final point and of course as you know until closing integrity and CMC will continue to operate as two completely separate businesses.

Wrapping up 2021.

Our excellent operating performance showcase the strength of our team's execution and our highly differentiated unit driven business model.

As I said throughout last year, given the persistent supply chain issues I cannot say enough, how proud and grateful I am of the dedication resilience and perseverance of our team.

Looking ahead to 2022 semi market demand is expected to remain very strong.

Given by robust chip demand and high industry Capex all of this bolstered by accelerated digitalization smartphones Iot and high performance computing to name just a few.

The semiconductor industry ecosystem was tested in 2021 and responded well given the circumstances.

We expect 2022 will likely be another year, where the industry will struggle to meet the strong demand.

And while the supply chain issues are expected to ease we expect they will persist to some degree for most of 2022 as a result of the lingering COVID-19 induced supply chain inefficiencies.

Looking at our business, we expect our sales growth in 2022 to range from 15% to 17%.

Let me unpack that for you.

To stop for the full year 2022, we expect the market based on our unit Capex mix will be up approximately 10%.

And given our strong position in wins in the new logic and memory nodes, we expect to outperform the market by approximately three to five points consistent with what we laid out during our recent analyst day in.

In addition, we expect a little bit more than two points of growth from the impact of the ASF precision micro chemicals business acquisition and continued growth in our life Sciences high purity back business.

We also expect EBITDA flow through to continue to be in line with our target model and we expect to achieve a full year 2022, non-GAAP EPS in excess of $4 10.

To be clear the guidance I just provided does not include the impact from the pending CMC acquisition.

So in summary, this is an exciting time for integrity.

We have increased conviction in the secular growth of the semiconductor market demand for our products and solutions continues to be at record levels and our relevance in the value chain has never been higher.

In addition to pace of node transitions for both logic and memory continues to be strong and device architectures are becoming much more complex.

This is great news as you know for Integra is because the unique set of capabilities. We have built around process materials and materials purity will be key enablers of these new chip architectures.

And as we have laid out this will translate into a steadily expanding integrity content per wafer.

Finally, I want to take.

<unk> to thank our customers for the trust and confidence they place an integrity and.

And once again, thank the integrity teams around the world for their incredible work and grit and such dynamic times.

Now, let me turn the call to Greg Greg.

Thank you Bertrand and good morning, everyone, our fourth quarter capped off another record year for Integra, our sales in Q4 were $635 million up 23% year over year and up 10% sequentially GAAP and non-GAAP gross margins for both 46, 5%.

Above our guidance and up 90 basis points sequentially for the full year gross margins were just over 46% up versus 2020, driven by volume leverage which more than offset the well documented headwinds from COVID-19 and the related supply chain inefficiencies.

We expect gross margin to be approximately 46, 5% both on a GAAP and non-GAAP basis. In Q1. We also expect gross margins will improve throughout the year and be approximately 47% for all of 2022.

GAAP operating expenses were $136 million in Q4 and included $17 million of non-GAAP items from amortization of intangible assets transaction and other costs.

non-GAAP operating expenses in Q4 were $119 million.

We expect GAAP operating expenses will be 150 to 152 million and non-GAAP operating expenses will be $126 million to $128 million in Q1.

Q4, GAAP operating income was $160 million.

non-GAAP operating income was $177 million or 28% of revenue up 39% year on year and up 16% sequentially.

Q4, adjusted EBITDA was approximately $200 million and over 31% of revenue.

EBITDA margin for the year was over 30% up over 100 basis points compared to 2020.

Moving to below the operating line.

Our GAAP and non-GAAP tax rate was 20% for the quarter higher than our guidance of 18, 5% in part driven by less favorable geographic income mix.

For the full year 2022, we expect both our GAAP and non-GAAP tax rate to be approximately 17%.

It's worth noting for modeling purposes.

The first quarter typically has the lowest tax rate of the year.

To be clear, we have not assumed any impact from potential tax reform in the 17% tax rate guidance.

Q4, GAAP diluted EPS was <unk> 87 per share.

non-GAAP EPS of <unk> 96 per share was up 35% year over year and 4% sequentially.

Turning to our performance by Division.

Q4 sales of $188 million for FTE were up 11% year over year and 7% sequentially.

Growth was primarily driven by advanced deposition materials formulated cleans and selective etch chemistries.

As we referenced last quarter SCM was the most impacted by supply chain constraints during the year.

Adjusted operating margin for <unk> was 25% for the quarter.

The sequential increase in margin was driven primarily by the higher volumes.

The significant year over year margin increase was driven by the volume improvement and the impact of a discrete inventory valuation adjustment taken in Q4 of 2020 that did not recur in Q4 2021.

Q4 sales of $259 million for AMC were up 26% from last year and up 15% sequentially.

Growth was strong across all product lines and FMC in 2021, especially in liquid filtration driven by strong traction in advanced logic and memory nodes and in gas filtration and purification, which benefited from strong activity in new fab construction and strong demand.

And from our OEM customers.

Adjusted operating margin for <unk> was 36% for the quarter up year over year and sequentially also driven primarily by higher volumes.

Q4 sales of $198 million for <unk> were up 30% versus last year and up 6% sequentially.

Year on year growth was strongest in wafer handling in fluid handling.

In addition sales of <unk> products significantly contributed to the growth in <unk> during 2021.

Adjusted operating margin for <unk> was 23% up slightly year over year and up over 100 basis points sequentially.

The <unk> margin improvement was driven primarily by higher volumes.

Fourth quarter cash flow from operations was $116 million and was $400 million for the full year.

Free cash flow was $39 million in Q4 and $190 million for the full year.

Our 2021 free cash flow reflects our choice to invest in new capacity to support future growth and in working capital to support customer demand and protect our supply chain.

Capex for the quarter was 77 million and for the full year was $211 million.

Consistent with what we outlined in the analyst day.

In 2022, we expect to spend approximately $500 million in total capex with $225 million for our new facility in Taiwan.

2022 is expected to be our peak year for overall capex spending.

During Q4, we distributed approximately $11 million for our quarterly dividend and we repurchased $17 million of our shares.

As we said when we announced the acquisition of CMC materials, we are suspending our share buyback program, but we are maintaining our quarterly dividend, which we have recently increased 25% to 10 per share.

Now for our Q1 outlook.

We expect sales to range from $630 to $650 million.

We expect GAAP EPS to be 81 to 86 per share.

And non-GAAP EPS to be 96.

To a $1 one per share.

In summary, I would like to express express my gratitude to the entire integrity team for a great year in 2021 and look forward to another record year in 2022.

I would also like to take this opportunity to just say, we look forward to closing the CMC acquisition and welcoming our new colleagues to the integrity team.

Operator, we'll now open up for questions.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Again press Star one to ask a question.

We will take our first question from Sascha Hari with Goldman Sachs. Your line is open. Please go ahead.

Good morning. Thank you so much for taking my question and congratulations on a very strong year.

We're trying to as my first question I wanted to ask about your 2022 outlook you mentioned that your expectation for the market is for the market to be up 10%.

Can you differentiate between MSI wafer starts and.

On the Capex side of your business and perhaps more importantly, you noted that.

You expect your outperformance to be somewhere in the 3% to 5% range on an organic basis I was hoping you could unpack that for us a little bit which segments, which product areas do you expect.

To be the biggest drivers and then I have a quick follow up.

Yes, good morning Sheila.

So 10% indeed as the demand for the industry Goldman to 2022.

We are expecting MSI to be A&D.

Mid to high single digits.

And right now we are thinking about capex to be at mid.

Mid teens for 2022.

So the outperformance as you know will be driven mostly by maybe more transition should we expect.

Morning.

The timing of those node transitions.

Something that.

Needs to be confirmed by some of our customers and Thats why you have this range of about two.

Two five points of outperformance. So that's really more of a function of the timing of those notes solutions.

Products that would be driving that outperformance or products that.

We've been discussing.

Most recently with new doing each day in early December .

So most of the price here it will be our advanced liquid centers it would be.

New deposition materials and authentic edge.

In exchange for the most part I mean, we expect all products to do well, but those three platforms.

Peter one.

The outperformance.

Semiconductor applications and as we mentioned outside of semi we expect.

Sure.

Actually tea bag offering to continue to grow strongly in 2022 and to contribute above about one point of growth.

Yes.

And you said you had a second question.

Yes, I do thank you for that response and then my second question is on gross margin, perhaps one for one for Greg.

Sorry, if I missed this but what were some of the key drivers in the Q4 beat revenue obviously came in significantly above so I'm guessing volume, but to the extent there was anything else. If you could speak about that that would be helpful. And then expectations for Q1, and how to think about the balance of 'twenty two from a gross margin perspective.

I'm sure there is a lot going on in terms of cost inflation on the negative side.

Higher volume mix, and perhaps pricing on the positive side, but if you can discuss the puts and takes that would be super helpful. Thank you.

Yes, yes, so so for the quarter I mean, youre right I mean the.

Additional volume certainly helped us on the gross margin and that was the primary driver that was offset by we didn't our mix was not.

As good as we initially expected.

And then we continued to experience a number of sort of supply chain inefficiencies as well as you mentioned.

Higher material inputs, but given the volumes we had we were able to offset all of those things as we go into 2022, our margin expectation for Q1.

Is 46, and a half our margin expectation for the full year is 47%.

The primary.

Drivers there we expect.

Improving mix and be the higher volumes will certainly play into it.

There is no hiding the fact that we are facing headwinds in a number of categories on the raw material input side.

We expect that we'll be able to overcome them and then we do continue to experience inefficiencies around supply chain related things related to Covid things like labor specifically absenteeism.

Is creating a little bit of headwind for us as well.

And then.

And then on up.

Ill.

No.

Pricing, we have implemented selective pricing increases in per trend might want to comment a little bit more on that.

<unk>.

Yes, I think we mentioned that in there.

The previous call that we were in the process of taking a close look at.

Some of the input cost increases and trying to parse between what was <unk> what it was.

More permanent in nature and to take appropriate measures to offset that.

Okay great.

This increases we don't expect to see the benefits of those increases <unk> made in 2022 and that.

Consistent with true that Greg was drawing from you would change that.

The improvement.

<unk>.

<unk>.

In 2022.

I would just summarize by saying overall when I look at 2021 I was pretty pleased with the margin I mean, the stability of the margin through the year I mean, we were plus or minus about 40 basis points or 46%.

Every quarter of the year, we didn't experience in <unk>.

We had our fair share of headwinds for sure and so I don't view that 46 is kind of a.

Steady state type margin at all but I mean, our team really performed well we avoided any.

Sort of major catastrophic things that would negatively impact the margin in a quarter. So like I said overall felt quite good about it and feel good about our operational capabilities as we move into 'twenty two.

And sorry, the potential increase in depreciation on the back of the investments that youre, making in Taiwan is that more of a 'twenty three 'twenty four dynamic or should we expect depreciation to creep higher throughout the year.

It'll it'll creep higher this year for sure.

And as well that's why we'll see more improvement in the EBITDA margin than we will in the operating margin because of those higher depreciation levels. This year as a result of the significant investment in 2020 in 2021, especially 2021.

Any any headwinds from depreciation related to the Taiwan facility won't come into play until 2023.

Yes 2023.

Very helpful. Thank you so much.

We'll take our next question from Sidney Ho with Deutsche Bank. Your line is open. Please go ahead.

Thanks, and I'll add I'll add.

Add my congratulations.

<unk>.

First question I have is on the revenue outlook just to follow up on that previous question. Thanks for all the details.

Every company in the supply chain and the semi kept supply chain is talk about very strong demand last quarter. You mentioned you expect exiting the year youll have unmet demand of roughly $50 million can you give us an update there from what <unk> seen bd's revenues just get pushed out.

Customers able to satisfy that demand from a different supplier.

So Sidney I think obviously with the strong finish that we add in Q4, we reduced significantly the difference between the actual demand for our products.

Between.

Demand for <unk>.

The unconstrained demand for fall product so.

Yes.

A number of lingering.

Supply chain issues, and we are going to be obviously very focused in 2022.

With the goal to permanently.

The supply chain limitations.

Behind us, but we expect to see some lingering impact on the supply chain.

Hughes in the first half of 2022, and we have obviously taken that into account in our Q1 guidance.

Full year guidance.

Great maybe just a follow up the trial based on the comments you just mentioned does that mean that revenue profile. This year will be more backend loaded than a normal year, which I think typically it's what 48 52 kind of split in the past five six years.

Yes, that's correct. So if maybe we should expect a fairly steady increase throughout the year, we don't expect any meaningful seasonality at this point in the year.

So expect to see steady steady growth throughout the year.

Okay great.

Follow up question is related to CMC materials deal understanding I understand it's probably too early for you to talk about any financial projection post close.

Based on the disclosure into perspective, it looks like it came together pretty quickly can you talk about what gives you confidence about the deal and the premium that you paid and how shall we think about the timing of all of these have regulatory approval process.

For countries that Lisa <unk> can talk about U S. Obviously, but also particularly around the anti trust concerns given the combined portfolio addressing the entire scheme CMP process. Thanks.

Look certainly I think as we've said in the prepared remarks, we are.

Obviously very focused team on moving the process along.

And.

We are very pleased with all progress so far.

I talked about.

Full funding, becoming effective last week the date.

<unk> shareholders vote is now set for March 3rd.

Strength.

Fast and Thats.

Evidence of the quality of the work by both teams last week, we also received.

HSR clearance in the U S, which.

Actually confronts our views that the two platforms very complementary with virtually no competitive overlap something that we described to you when we announced the transaction in December last year.

And as we've said integration planning as it would swing so.

All of that tells you that.

Joint teams are very busy anti infective.

The reason why we.

We continue to expect to be in a position to close the transaction in the second half of 2022 and I'm not going to go into.

A lot of updates.

Country on the regulatory front, because I would be speculating and I just don't want to speculate.

Okay. Thank you very much.

Yeah.

Our next question will come from Kieran de Brun Mizuho. Your line is open. Please go ahead.

Hi, good morning.

Sure.

I think you mentioned during the fourth quarter your tax rate was a little bit higher than expected due to regional sales mix can you just parse out.

Which regions saw stronger demand during the quarter and what your outlook is as we progressed throughout 'twenty two by region. Thank you.

Yes.

It's probably an overstatement to say that I mean, it ties directly to the revenue it really ties to the profitability of the region and the profitability frankly has impacted heavily by intercompany pricing.

No.

I wasn't trying to make an insinuation that one region or the other was.

Stronger from a revenue perspective.

Perfect I mean, obviously.

I mean, there are obviously were differences.

Through the year I mean, if you look at it.

Alright.

In the current quarter, Taiwan was up 12 Korea was up seven.

On a sequential basis.

North America was up six.

The tax rate really isn't driven.

Correct.

Revenue.

Great.

And then I think.

<unk> seems to be a little bit more impacted by some of these supply and raw headwinds. If you can just help us parse out and SCM, specifically, how we should be thinking about the potential margin uplift that these ease throughout the year.

And in 'twenty two in general Thank you.

Yes, I can talk about that.

<unk>.

At high level, and then Greg if you want to add.

To weight on the margin front, but the truth is that if you go back.

And look at 2021, I mean, the supply issues impacted all three divisions different degrees at different times during the year. All divisions were impacted as we exit 2021, and as we enter 2022 and as I mentioned, we're still dealing with.

<unk> lingering supply chain issues I think the most significant news probably Eden.

<unk> Division and we've talked about.

Specifically the availability of substrates for coding solutions.

<unk> has been has to be a constraint for us through 2021, and I think will likely remain a pinpoint.

The first half of the year, but the other two divisions are still facing some level of supply chain.

You choose as well I mean for micro contamination, it's mostly around component availability for liquid filters that.

That remains a concern.

And then for Anh, the attention will be on between sustainability and price capacity. So again.

It's been a hard fought.

<unk>.

I see.

<unk> has done extremely well and a big.

Thanks, Sean.

For the work done by the ops teams and our supply chain partners, but we're not.

Entirely out of the woods and that's why as I said I think our focus in 2020 to be too.

And you won't systemic improvements to permanent and put those supply chain limitations behind us and the margin and the efficiencies that goes with it but Greg I don't know if theres anything you want to add on the margin front specifically.

Okay.

You may be on mute Greg.

So we expect to see continued improvements in mix within that business and that business probably more than any has any of the three is.

Mix plays it plays a role we also have a number of smaller businesses within that division.

Where I expect to see operational improvements through.

2022, all of which will benefit the gross margin, which in turn will benefit the operating margin.

Great. Thank you very much.

We'll move next to Patrick Ho with Stifel. Your line is open. Please go ahead.

Thank you very much Bertrand maybe first of all for you in terms of a lot of these moving pieces with the supply chain.

Higher input costs et cetera.

Going on right now.

How do you find the balance.

In terms of passing on these costs to your customers while at the same time continuing to face.

The supply chain challenges, where I'm sure freight and logistic costs are still high things of that nature or how do you find the balance on that.

Well, it's yes.

It's something that we've been monitoring obviously very closely.

'twenty and 2021 .

I think there wasn't the early in 2021 that a lot of the <unk>.

Input price increases that we saw were mostly <unk> and eze.

The programs.

Deeper into the year end 2021, it became apparent.

Parents that some of those increases.

At this time.

And that led us to take some action on the pricing.

Sean.

We.

I have never been opportunistic when it comes to pricing.

We have always been.

Very strategic and deliberate in what we're doing.

And that's what we did in 2021 trying to find an offset for some permanent increases in certain types of commodities that we're buying.

And again as we said given the lead times for some of our products.

Don't expect to see the benefits of those price increases until probably later in 2022.

Great that's helpful and maybe Greg just as a follow up question.

Looking at your <unk> guidance on Opex, it's still below the percentages that you highlighted at your analyst day should we expect opex to kind of steadily rise as we progressed through 2022 to kind of get to be.

So the target model that you've talked about at your analyst day.

I mean opex.

Q1 will be lower than the other second third and fourth quarter.

We continue to really focus on making the investments in R&D and.

So we would expect to see continued increases in R&D and we continue to work hard to do what we can to keep the SG&A line.

Relatively.

It's not going to be flat, but certainly growing at considerably less than revenue that would be our goal as we move through the year, but late but your point is it does move up as we move through the year.

Great. Thank you again and congrats.

Thank you.

We will go next.

<unk> with Keybanc. Your line is open. Please go ahead.

Thank you and good morning, everyone.

I ask you about the pace of <unk>.

Transactions in 'twenty two 'twenty three.

There any sign that.

These supply chain issues are resulting in slower node transitions or is everything on track.

Yes, it's a good question and Thats something that we will obviously paying close attention to as of right now we don't see any significant risk, but that certainly is.

Something too.

Watch for.

And Thats why again, we were putting that outperformance range at about.

Two five points of outperformance would be if some of those node transitions get delayed a bit.

And five points would be what you should be expecting is the node transitions, we announced by a number of our logic and memory customers take place on time.

Thank you Bertrand.

As a follow up your mid single digit wafer starts assumption for this year. Some may say it could be conservative.

If you agree or are you thinking about some level of inventory correction, perhaps in the back half of this year.

I think I said mid to high so its little bit higher than mid <unk>.

But look I mean this is.

Typically continue to update you on our views.

About the industry, both in terms of Capex growth and we can start growth.

You do that in 2022 as well as we have greater visibility I think it's fair to say that as we mentioned during the analyst day, we have a high degree of conviction.

The secular growth potential of the semiconductor industry.

Most of our customers' fab customers.

Their capacity essentially fully committed for the year. So we expect a high degree of fab utilization, which is.

Good for us and should to your point a need to.

<unk> healthy levels of wafer starts so for now our projection is mid to high single digit for wafer starts.

And if it's better than that then we win.

Update our guidance accordingly.

Thank you.

We'll go next to <unk> with Citi. Your line is open. Please go ahead.

Good morning can you quantify that.

Growth.

Can you quantify the growth by leading edge versus the support you've been getting.

Greater utilization and the lagging of Hudson and how that ties into sort of what your expectations are going forward.

Yes, I mean, it fits so good morning, I'm on that first step.

It's not something that we track.

In that fashion on longhorn, so I don't want to try to make up numbers on the fly but.

I just wanted to confirm what is embedded in your question, which is we have seen strength.

Cros.

Wafer sizes so.

200 millimeter business had.

During 2021, we expect.

Similar.

Type of performance in 2022.

And as we've said throughout the year, we expect again strength across all segments be it memory and logic.

We expect to see growth.

Everywhere, but in terms of.

The outperformance the outperformance will be driven by the leading edge and will be driven by the greater integrity content per wafer that we expect to enjoy as more customers in <unk> NAND for instance transition to high unit count architectures or in logic and foundry.

Win more wafers all produced at.

Smaller nine with <unk>.

So again I think the.

The setup for the year for 2022 is actually pretty positive for us.

Across across segments.

Thanks.

Please talk about sort of the deposition chemical that you highlighted in the past as being a big driver on three D. NAND can you talk about the traction that you've been gaining on that part of the strategic rationale for the lithium CBL.

Conversations changed at all.

That deal.

Look I mean, I think it's early for us to talk about.

What the combination.

Between the two companies could mean in terms of growth and opportunity per wafer.

I would just say that conversations with customers have been.

Positive, but remember that until we close with <unk>.

Two independent companies.

We won't really be able to work on the potential of the combined.

<unk> platform.

We've said, we expect to provide a little bit more color around.

Synergies and that includes revenue synergies.

We close the transaction, which we expect to be in the second half of 2022.

<unk> you for a little bit of patience with that question Amanda.

Okay I appreciate that thank you.

Our next question comes from <unk> Misra bearing Burke. Your line is open. Please go ahead.

Thank you and good morning, everyone. So you guys, probably had $3 million to $400 million sales to China last year can you talk about the competitive landscape and how it's evolving and are you still mostly competing against the western companies are.

Youre seeing more local Chinese competitors.

Yes, So China was.

About 15% country for us.

So.

Stable at that level now for a number of years.

The competitive landscape has not really meaningfully evolved over the last three years.

And we compete mostly with.

Foreign competitors.

Yes.

Thanks and.

And then typically you have seen about a.

I guess about 100 basis points deflation then and.

Legacy products.

Can you talk about what you saw last year, because I think that you had before that it was much lower than typical.

Typically 100 basis points.

Okay.

Yes, I think we have become more disciplined and more strategic pricing practices.

Slides two setting the price right for the new products that we introduced when we have an opportunity to capture some of the value that we create for our customers, but that discipline extends also to managing pricing over the lifecycle of the products and at that price erosion.

In many cases.

Managed more effectively able to announce Q U S as well so the net of all of that and start.

And on 2021, we didn't see the price erosion.

You can see.

We did see in the box.

Got it and last one for me and your SCM business could you discuss what you saw in some of the other product categories like.

Great fight and specialty gases.

Yes, so first of all the performance and it was really driven in 2021 by the very strong performance in deposition materials, which grew 26.

Percent year on year.

The other areas of growth.

Specialty gases.

Specialty coating in spite of the supply chain issues that momentum.

You mentioned language grew in the mid to high teens.

Glass side did recover.

Glass side grew in the high teens.

One <unk>.

<unk>, it's not back to pre COVID-19 levels quite yet but is in a healthy situations.

Go back two years ago.

<unk> business was both the headwind from the top line growth standpoint, and a headwind from a margin standpoint, that's no longer the case grew again in the <unk>.

High teens and the margin saw favorable so I think we've done a lot of the law.

<unk>.

Good Foundation of what took place in SCM and during 2021.

Thanks for the color Bertrand good luck with everything.

Thank you.

We will go next to Mike Harrison at Seaport Research Partners. Your line is open. Please go ahead.

Hi, good morning.

I was wondering I was wondering if you could talk a little bit about the you've been in the process of adding shifts and trying to expand manufacturing capacity.

It seems to be progressing fairly well based on your performance, but maybe just give an update on <unk>.

Your ability to find labor and are the returns on some of the investments you've made in additional capacity.

In line with expectations better or worse.

Yes, yes, it's true.

So much has happened in 2021.

Sure.

I almost forgot.

We got to that strong finish and Youre right that we made very significant and steady progress.

Without the year intense with adding manufacturing capacity.

For context in 2021, we added about 1500 manufacturing jobs and segments.

And to your point, we're running most manufacturing.

2000, <unk> right now.

We also.

Successfully added a number of new pieces of equipment in the second half of the year that came online really smoothly.

Again kudos to our ops teams.

And that was particularly helpful to our liquid filtration product lines.

You can see the results of that output maximization focus in the Q4 results. So as I said the thing we are in a very good place as we start 2022 and sensitive.

Donald capacity.

We have a few projects for 2022 that would be required for us to.

To be able to fulfill the demand for the strong demand we expect for 2022, but of course. The focus is also around the large investments, we're making in Taiwan.

That's very important.

Add capacity required for demand, we expect the strong demand we expect for our products in 'twenty, two and beyond as we presented to India. These days. So a lot of good work by the upstream in 2021 by 2022 and 2023 would be.

<unk> four four op students as well.

Well my other question is actually about that Taiwan investment that you announced that you were expanding that investment pretty meaningfully from $200 million to $500 million.

Can you talk about what drove that decision to expand.

Maybe what additional capabilities you are going to be adding and I don't know if this is a dumb question.

But it sounds like the size of the facility is doubling but the cost is more than doubling so maybe help us understand why.

Why that is.

Yes, I mean, I think it's safe to say.

So first of all remember that we need it and we need to add capacity because we expect.

Strong growth across a number of product line. So.

We have already today.

Manufacturing capacity in the U S.

The second largest country for us in Taiwan. So it wasn't a natural choice for us to decide to expand manufacturing presence in Taiwan, which was not sufficient.

To be clear so that is we need to.

For that decision.

And then we expect a lot of growth in the amount of new opportunities.

On the island.

So.

Finally, two question about the correlation between the size and the Capex level, but let me just has to do with the desired to medium term.

The state of the art.

Factoring capabilities, we want to.

To bring new level of inflammation clinical manufacturing processes.

The goal is to shorten our lead times and to be.

Obviously.

As battery manufacturers and our competitors.

And we also have very ambitious environmental goals.

Investment just for example.

<unk> to be using in recycling.

5% of the water that you consume on the side. So all of that obviously requires some level of upfront investment.

But I have no doubt that you can pay off.

The dividend over time.

Alright, thanks very much.

Yeah.

We will take our final question from Josh Silverstein at Wolfe Research. Your line is open. Please go ahead.

Hey, Thanks. Good morning, guys I was just going to stick with the Taiwan facility, you mentioned capex of about $500 million this year with about half of that coming from that facility alone.

Would you expect the kind of Standalone at Integra capex to stay at that level.

In 2023 before potentially falling off in 'twenty four.

And then along the same lines, you mentioned potentially a $500 million plus revenue number.

When fully ramped up how long will it take that facility to ramp up to that level.

Greg do you want to take the first part of that question.

And the revenue path.

You may be on mute, Craig, yes, I'm on mute.

I caught the revenue part, but what was the I'm sorry, the first point.

Okay.

Just on the spending level. This year is about $500 million roughly kind of half of that from the Taiwan facility would you expect capex to remain at that level in 2023.

Another facility slated for initial output next okay, sorry, I got it I got it yeah, I'm, sorry, I didn't fully understand now so our expectation is that 2022 will be our peak spending year for overall capex. It will also be the peak year for what we spend.

Taiwan so.

When we look forward.

Would expect by 2024.

Our free cash flow levels will be back to the levels that we saw.

In <unk>.

2020.

Cause cap and when it comes.

Capex as a percentage of revenue comes down.

And when it comes to the revenue.

Picture.

We expect the bulk of the customer qualifications to be closed in the first half of 2023.

We expect to start ramping up high volume production in the second half of 'twenty three.

Expect.

This fab two leading.

Continue to ramp into 2024 and 2025.

Got it and then last one for me I know.

You were a little bit quiet around potential asset divestitures around the transaction, but would you still consider any sort of small bolt on deals like the kind of 70 $500 million.

Acquisitions, while youre going through the process.

I think it's fair to say right now that the focus.

For us would be number one.

Two.

I know the CMC integration to be a distraction.

And to exit Q1 to strong organic growth plan and I think that statement probably applies to go up.

<unk> as well.

Next priority will be to work on integration planning.

You ready day, one after close to hit the ground running.

And I think it is going to leave us with very little time.

To really think about additional or small M&A at least for the foreseeable future.

Yeah.

Alright, okay.

And that will conclude today's question and answer session as well as todays fourth quarter 2021 earnings release Conference call. We thank you for your participation you may disconnect at this time and have a great day.