Q1 2022 Entegris Inc Earnings Call
Hey, everyone and welcome to Integra says Q1 2022 earnings release call. Today's call is being recorded at this time for opening remarks, and introductions I would like to turn the call over to Bill Seymour Vice President of Investor Relations. Please go ahead Sir.
Good morning, everyone earlier today, we announced the financial results for our first quarter of 2022.
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 regarding these risks and uncertainties is contained in our most recent annual report and subsequent quarterly reports that we 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 a reconciliation table in today's news release as well as on our IR page of our website Tegra <unk> Dot com.
On the call today are <unk> <unk>, our CEO and Greg Graves, our CFO with that I'll hand, the call over to per truck.
Thank you Bill and good morning to all.
We are very pleased with our strong performance this quarter, which was driven in large part by our teams great execution in what remains a very dynamic operating environment.
Looking at our first quarter performance.
Sales were up 27% year on year growth was significant across all three divisions, driven by robust industry conditions and more wafers produced at the leading edge, which continues to translate into strong demand for our products and solutions.
Gross margins were up significantly in the quarter EBITDA margins were almost 32% of sales representing a 37% increase year on year.
non-GAAP EPS was up 51% year over year further demonstrating the leverage in our business model.
Let me now provide more color on our first quarter sales performance.
Our growth in the quarter is the result of our expanding position in leading edge logic and memory nodes from.
From a product standpoint, we achieved significant growth in our unit driven solutions.
Our of increasing importance to our customers' technology roadmaps.
Those included liquid filtration and advanced deposition materials and surface preparation solutions, which collectively grew 24% in the quarter.
Growth was also very strong in our Capex, driven solutions, including fluid handling fuchs and gas filtration and purification products, which India aggregate grew more than 50% in the quarter.
As you know these solutions are linked to new investments. In addition to their fab capacity and of course, when this new fab capacity comes online it will ultimately drive sales of our consumable products.
One other interesting theme was highlighting is the ongoing strength in mainstream fabs, which had been driving sales of our 200 millimeter wafer handling products and advanced filtration solutions.
This growth has been driven by higher mainstream fab activity, new capacity additions and new requirements for greater chip reliability.
Sales of our RM is high purity bags used for COVID-19 vaccines were up year over year. However, our expectations for RMS have moderated for the full year as demand for Covid vaccines has started to wane.
Moving on to our pending acquisition of CMC materials. We are pleased with the progress we have made towards the closing of the transaction.
As a reminder, on March 3rd CMC stockholders approved the transaction.
On the regulatory front, we clear.
All waiting period in the U S in January .
And we have since received antitrust approvals in Korea and in Taiwan.
We are now awaiting approvals from the few remaining jurisdictions. So again on track and we continue to believe that the transaction will close in the second half of this year.
We have also made substantial progress putting in place the capital structure to finance the acquisition and Greg will provide you more details on that in a moment.
Finally, I'll join teams continue to work diligently on integration planning we are in the process of developing a detailed integration plan. Following a playbook, we have used in previous transactions, including D. ATM by acquisition.
I would also like to highlight our recent announcements that Todd Adler now C. O O will be retiring from Integra is at closing.
Todd has been a great partner to me and I cannot thank him enough for the impact. He has made in Tegra is during his 30 years of service.
Post close we will have a flatter leadership organization positioned to rapidly complete the integration drive revenue and cost synergies and pay down the debt.
Now transitioning to our outlook for the full year.
We are increasing.
2022 guidance.
And we now expect revenue to grow 18% to 20%, which reflects a combination of stronger market growth and greater market outperformance for integrity.
We also expect EBITDA flow through to be in line with our target model and expect full year 2022, non-GAAP EPS to exceed $4.25 per share.
Embedded in this guidance is the expectation that the industry will continue to face supply chain challenges for the balance of the year.
And to be clear. This guidance does not include any impact from the pending CMC acquisition.
Looking further ahead, we continue to have a high degree of conviction in the positive secular growth of the semiconductor market driven by accelerated digitalization high performance computing and Iot to name just a few.
These emerging applications will require new levels of performance from IC devices.
This is why the semiconductor manufacturers are investing in a very ambitious process technology Roadmaps. These.
Roadmaps are calling for both the introduction of more complex device architectures, otherwise there's further miniaturization of the critical dimensions on the wafer.
This is obviously great news for Integra is because we operate at the crossroads of materials science and materials purity.
And these two factors are two of the most critical enablers to the semiconductor technology Road maps.
And as we have laid out these trends are leading to a rapidly expanding integrity content per wafer.
Wrapping it up we are pleased with our strong start and our prospects for the rest of the year.
We have never been more optimistic about the relevance of our solutions to the technology road maps of our customers and our opportunity to deliver profitable growth for years to come.
Finally, I wanted to take a moment to thank our customers for the trust and the confidence they place an integrity.
And once again, thank the integrity teams around the world for their incredible focus and commitment in this challenging business environment.
And of course, we look forward to completing the combination with CMC materials and to welcoming the team to integra.
Now, let me turn the call to Greg Greg.
Yeah.
Thank you Bertrand and good morning, everyone before I cover our Q1 results I wanted to provide an update on the financing of the CMC acquisition.
That effort to proactively mitigate the risk of the deteriorating or interest rate environment. We have already put in place over 4 billion of the permanent debt financing for the acquisition.
Earlier. This month, we completed an offering of $1 6 billion of seven year investment grade senior secured bonds at a rate of 475% and in March we syndicated a $2.5 billion term loan at a floating rate of sulfur plus 300 basis points to be issued at the close of.
The acquisition I am pleased with what we've been able to achieve and the positive market reception to our offerings.
Onto Q1, our sales in the first quarter was $650 million at the high end of our guidance up 27% year over year and 2% sequentially.
GAAP and non-GAAP gross margin were both 47, 7% gross margins were better than expected driven by strong execution and higher volumes offset in part by higher raw material and logistics costs and modest labor inflation.
We expect gross margin both on a GAAP and non-GAAP basis in Q2 and for the full year to be approximately 47% to 48%.
GAAP operating expenses were $146 million in Q1 and included $19 million of non-GAAP items amortization of intangible assets integration and other costs.
non-GAAP operating expenses in Q1 were 128 million in line with our expectations.
Both GAAP and non-GAAP Q1 operating expenses included a 3 million dollar contribution to the Integra Foundation, which funds stem scholarships for underrepresented groups.
We expect GAAP operating expenses to be approximately $163 million to $165 million in Q2, reflecting higher integration planning and deal related costs.
non-GAAP operating expenses are expected to be approximately 134 to 136 million.
Q1, GAAP operating income was $163 million non-GAAP operating income was $182 million or 28% of revenue up 42% year on year and 3% sequentially.
Adjusted EBITDA was $206 million and almost 32% of revenue.
Moving to below the operating line.
First I wanted to discuss the impact of interest expense related to the financing of the pending acquisition of C. M C.
In the first quarter GAAP operating GAAP interest expense was 13 million in non-GAAP interest expense was 8 million.
GAAP interest expense included $5 million in ticking fees associated with the term loan we syndicated in March the $5 million in ticking fees are excluded from non-GAAP interest expense as they are classified as transaction related costs.
Till the time the acquisition is closed and funded.
This will be true for all other financing done between now and close including the secured bond. We executed earlier. This month after close interest costs related to the financing of the transaction will be included in both GAAP and GAAP interest expense.
Both GAAP and non-GAAP tax rates were approximately 14% in Q1 as a reminder, the first quarter typically has the lowest tax rate of the year.
For Q2, and the balance of the year, we expect both our GAAP and non-GAAP tax rate will be approximately 18%, which will make our full year 'twenty two tax rate approximately 17%.
Q1, GAAP diluted EPS was <unk> 92 per share.
non-GAAP EPS of a dollar and six cents per share was above our guidance and up 51% year over year and 10% sequentially.
Turning to our performance by Division.
Q1 sales of $196 million per FTE were up 18% year over year and up 4% sequentially.
Year on year growth was primarily driven by advanced deposition materials.
Preparation solutions and specialty gases.
<unk> operating margin for F. E M was approximately 25% for the quarter up significantly year over year the.
The year on year margin improvement was primarily driven by the higher volumes.
Q1 sales of 267 million for M. C were up 29% from last year and 3% sequentially growth was strong across all major product lines in M. C in Q1, including gas filtration gas purification and liquid filtration.
Adjusted operating margin for M. C was 37% for the quarter up significantly year on year, driven primarily by strong execution and higher volumes.
Q1 sales of 198 million for am age were up 33% versus last year.
Year on year sales growth was strongest in products that benefited from the high level of fab investments, including wafer handling and fluid handling and measurement solutions.
Adjusted operating margin for MH was 24%.
Both year over year and sequentially. The increase was driven primarily by the higher volumes.
First quarter cash flow from operations was 64 million and free cash flow was a negative 21 million.
As a reminder, the first quarter typically has the lowest cash flow of the year, primarily due to the variable compensation payments made during the quarter.
Cash flow was also impacted by investments we made in inventory to support the continued strong demand from our customers and to protect our inbound supply chain.
Capex for the quarter was $84 million.
We continue to expect to spend approximately $500 million in capex for the full year.
Half of which is for our new facility in Taiwan.
Despite a challenging environment the construction of the Taiwan facility is on schedule.
During Q1, we paid $14 million in quarterly dividends.
As a reminder, and as we said with the announcement of the CMC materials acquisition, we have suspended our share buyback program.
Now for our Q2 outlook, we expect sales to range from 660 to 680 million.
We expect GAAP EPS to be 67 to 72 cents per share, which again includes higher integration planning and deal related costs.
Well as the pre closing interest expense from the recent debt financing.
We expect non-GAAP EPS to be a dollar in Tucson.
Dollar and seven cents per share.
In closing I would like to express my gratitude to the entire team for a great start to 2022, and we look forward to another record year.
And we look forward to combining the two companies.
We're highly focused on the integration planning work and closing the C. M C acquisition.
Operator, we'll now open up for questions.
Thank you and 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.
Press Star one to ask a question.
Pause for just a moment to allow everyone an opportunity to signal for questions.
We will go to our first question from Toshi Hari.
With Goldman Sachs.
Good morning. Thank you so much for taking the question and congrats on the strong execution.
And Greg I had two questions. If I may one on sort of the updated full year guidance and the second on supply chain dynamics.
First on the full year guidance, obviously, you're taking up the revenue outlook from 15% to 17% 18 to 20.
I'm curious what's changed in your view is it mostly market growth of the market assumptions that you're tweaking is it.
Outperformance on on the part of on the part of you guys. I think you also talked about the <unk> outlook being a little bit more modest than than previously expected. So if you can kind of break that down for us that'd be super helpful.
My second question with the supply chain dynamics, we're trying to I think you referred to that a couple of times. What are you seeing from a labor shortage or a component shortage perspective and to what extent are the lockdowns in China impacting your directly or indirectly. Thank you.
Yeah.
Yes. So thank you to show a lot of good questions I mean, let's start with the 2022 guidance I think you already addressed most of the data points here.
So we expect strong chip demand and our outlook for the full year is indeed.
Holding out better industry conditions. Originally we were planning on an industry growth of 10%.
We're increasing that to about 12% and it's a reflection on.
Wafer starts growing at about 8%.
And the overall capex industry capex growing at about around 20%.
We.
We're encouraged by the strong execution of our customers and the fact that many of the node transition. So I expect it to be largely.
Unscheduled and this is obviously a very important consideration for us.
Because you know the greater opportunity for weight food that we have in new device architectures and that's really the primary driver for the.
The strong outperformance that we expect to deliver this year we expect.
Organic outperformance to be about.
You know five to seven points.
And that's going to be offsetting.
You know the decline we expect to see in our M as bag.
As we said all along we were expecting some level of contraction in the Covid related opportunities, we just didn't know.
When that will happen I think we have the answer to that question and it's a 20 is happening a little bit faster than we thought. So we expect the RM is that to be modestly down versus last year. So it's gonna be a little bit of a headwind.
And the last point for the full year guidance is the very strong performance.
From the acquisition that we made last year, the precision micro chemicals, which we expect will deliver about a bit short of one point of growth to the top line. So if you.
No.
Wrap it all up you get to that 18% to 20%.
Growth rate for a for the year.
In terms of the supply.
Question.
We are supply constrained like.
Everybody is in this space I think that the supply constrains impact.
All three divisions in various ways, we have made a lot of progress I mean labor is no longer really.
The challenge I think we've been able to staff all of our ships in order for a major sites very adequately, but we are still facing.
A number of lingering supply challenges our team has done.
So a tremendous job.
<unk> situations and finding solutions and that's actually why we are able to commit to this.
Exciting annual guidance, but those supply chain issues.
Remain and then finally on your question about China.
It is a developing situation we saw.
Little bit of a of an impact.
In Q1, we expect that impact to be a little bit more significant going into Q2, and that's certainly something that we have taped into that taken into account in our.
Q2 guidance.
That's great. Thank you. So much one quick clarification, if I may Bertrand I think on the <unk> bag business three months ago. It was expected to be a tailwind to growth rate accretive to growth and I think you mentioned somewhere around the 100 basis point range. So that's gone from a slight positive to a slight.
Negative in terms of for full year growth I just wanted to clarify.
Yes, that's correct I mean remember that all revenue exceeded $50 million last year, and we expect the 2022 leverage to be below that at this point.
And the reason for that is pretty obvious I mean in the developed world. We've seen a decline in new cases, and frankly, a drop in the severity of these new cases, it's up just a great news.
And I would tell you that that Integra is we are obviously.
I'm very proud of the role we played in the global fight against Covid, but short term.
Clearly this positive.
Positive development from a public health standpoint also means that we.
We expect fewer vaccines and fewer booster shots.
To be to be administered globally. So so that's that's really the latest forecast and it's really driven by.
The latest information we've got from our customers now having said all of that we are very excited by the product line we.
We are seeing a lot of new opportunities filling up the pipeline opportunities that are related to new therapies that are non vaccine non COVID-19 related.
And that bodes actually really well for the long term prospects of the RM is back but short term clearly in 2022, it will be a little bit of a headwind, which we will make up by the strength of it.
The other parts of the portfolio.
Again, I think you know one of the key themes of.
And at each day is not all growth is I mean, our growth expectations are strong.
And there's a lot of optionality and a growth formula and I think this year is demonstrating that once again.
Very clear thank you so much.
Thank you.
We'll take our next question from Kieran de Brun with Mizuho.
Good morning.
I was just wondering you know you mentioned the organic growth above market being between 500 700 basis points I believe this year, which is ahead of the expectations you outlined during the Investor day of three to 500 basis points can you maybe help us parse out what percentage of that is coming from share gains as opposed to just stick.
Quicker adoption of leading edge memory.
Memory and logic chips, and how we should think about that in the context, maybe your longer term growth. Thank you.
Yeah, I don't have a very precise number to give you I mean, we have anecdotal evidence that we are taking share across a number of strategic product lines, but by and large the.
The growth is really coming from Sam expansion, we are seeing growing consumption of advanced filtration in fab applications, but also ups.
Upstream into your ecosystem as bulk chemical manufacturers are required to reach greater levels of purity in the bulk manufacturing processes. So that's driving the adoption of and the usage of more advanced filters in greater frequency of replacement of those filters.
So that's again, that's a sam growing and as I said I think we have.
Evidenced that we are also taking share across those applications in the fab in the bulk chemical environments.
And then for me from an STM standpoint, and materials consumption. We have also made some great progress across a number of product lines in our deposition materials in particular.
Our selective nitride to edge solutions, which all studying to be adopted in <unk> NAND.
Manufacturing processes as higher layer count architectures, all now being.
Manufactured so again those highest spec ratios are requiring those are highly engineered chemistries to etch precisely doors, those very delicate structures and we are starting to see some some they are.
Important wins on.
On that front.
So again, it's it's going to be is going to be mostly Sam expansion and with a little bit of share gains.
Great. Thank you and then just a really quick follow up in terms of the raw material logistics headwinds can you give us.
A quick update on what Youre seeing in the quarter and how you think about those trending throughout the course of the year and then maybe I know historically pricing hasnt been a major component, but in and then I guess, if this dragged on longer than expected or these headwinds are more pronounced how do you think about the ability or potential to push pricing in the future.
Thank you.
Yeah, so the supply chain.
Situation, we will certainly be.
A big focus for the team I think.
Progress managing a number of known suppliers situations.
But needless to say that like many other industry participants we are facing.
New situations regularly and Fortunately, we have a we have a great team that has demonstrated.
A lot of proficiency and in managing those difficult.
Environment and so we expect.
Supply chain.
Situations to be effective throughout the year, we expect to continue to make steady progress throughout.
Throughout the year, but as I said in my previous comment we expect we expect to be supply constrained for for most of the year in in 2022 when it comes to.
Inflationary pressure.
On our input materials. That's also something that we've been watching very carefully we mentioned.
Last year that we are selectively decided to increase.
Prices to offset some of the more permanent price increases that we were seeing in some of the raw materials that.
We are using in our manufacturing processes, we're continuing to manage the situation and you know if there's a reason for us to make additional adjustments in oil prices.
Offset to our inflationary pressures then that's something we will be doing but we have not decided that quite yet.
Great. Thank you very much.
Go to our next question from Sidney Ho with Deutsche Bank.
Thanks, and congrats on the solid Q1 results and the outlook for the year.
I understand you just raised your full year guidance, but the inbound calls that we're getting from investors have been asking more about the financial potential downsides to.
Considering your lead times and delivery schedule can you help us can you talk about that if the macro continues to weaken that may be impacting your customer production activities are there any particular segments or product lines that we will have more risk than others.
Or are you fully booked such that there isn't that much variability in the second half of the year.
So Sidney.
Think that right now we have probably more visibility than we have ever had but as I always say, we don't have perfect visibility nobody has.
But based on the discussions we've been having with our customers across the entire <unk>.
Ecosystem, we believe that.
2022 will be a very solid year for the industry to fabs are fully loaded.
And as far as we can tell from discussions with customers Theyre fully loaded.
The balance of the year. We also continue to expect very healthy levels of Capex and we are seeing.
New fab construction projects being commissioned.
So again all of that gives us a fair amount of conviction.
Around the industry.
You know our hypothesis that we've been using for Fortis guidance.
Great. Thanks.
Follow up question is because they supply constrained some of the equipment suppliers are investing in R&D to qualify new suppliers and redesigning the tools as a way to mitigate their supply headwinds do you see that as a risk to your business. Obviously on the consumables side, if you're a customer starts to qualify other suppliers.
Or are they already are already doing it and on the flip side, how do you manage your own supply chain do you have to put in more resources to work around these shortages meeting qualifying new suppliers.
Bill Thanks.
Yeah.
So look I mean, I think to the best of my knowledge, we are not the cause of.
You know.
Production interruptions at any one of our customers so.
You know I am.
Today, we believe that we are.
Meeting customer expectations for the most part.
And I hope it continues and I hope that Oh.
Don't feel the need to qualify alternative suppliers to integra is because the value too.
Technology and value the service levels that they're getting.
From from integrity and they also valued.
You know proactive way and do you think deep way with which we've been managing this very complex supply chain.
Environment and that leads me to the second part of your question, which is the fact that we invested several years ago into a very.
Talented professionals drill.
Global supply chain management team.
We have introduced a number of tools, we are relying on again common systems on a global level, which gives us.
Good visibility into our supply chains and good capability in assessing supply chain risks and trying to get ahead of them.
I think we saw evidence of that in the recent Russia, and Ukraine crisis, where we were able to pinpoint some potential looming risks and took proactive steps to secure raw material inventories that we were sourcing from this region.
And enough material to give us plenty of time to qualify incentive suppliers based elsewhere in the world. So again, that's just one example, but just again, giving a lot of credit to this team that has done a great job for us not just this past quarter, but frankly in the past two years.
Thank you.
Okay.
Our next question from Patrick Ho with Stifel.
Thank you very much and congrats on the really nice execution in this environment are Bertrand maybe just get a little more color in terms of the upside on the semiconductor market place you talked about the industry update can you just give a little more color between the upside you're seeing both at the leading edge.
Wafer starts as well as the mainstream.
The continued strength of the trailing edge nodes.
Yeah, I mean, we we saw strength.
Across the board and board as I was mentioning in my in my prepared remarks on the mainstream.
Front.
Really particularly helpful.
For our 200 millimeter and below wafer shippers and wafer carriers that we which sell to those mainstream fabs.
So certainly that was a big help for the E image Division.
But the growth is really mostly driven by.
Leading edge and.
As you can understand when the industry is so focused on output maximization. It means that they are very focused on.
Yield optimization and defect management.
And therefore, they are very focused on contamination control.
So it's a great set up obviously for our filtration products and other solutions critical to achieve optimum.
Yields and that's one of the reasons why we expect the outperformance to be.
You know very attractive this year.
Great that's helpful and maybe as a follow up question for Greg you guys execute extremely well delivering really strong gross margins.
On a going forward basis is it volume that's going to be the biggest influence for gross margins offset by some of the continued supply constraints and higher input costs or are there going to be other variables.
Got it.
This impact gross margins for 2022.
Yeah.
Yeah, I think you've kind of answered the question Patrick It really is I mean, it's it's it's volumes strong execution execution, both at the factory level as well as.
On the sales side of the house as Bertrand mentioned earlier, we have had some opportunity for modest pricing increases.
In selected instances and then like I said, you'll have the will.
To see headwinds.
Your input pricing resins being the most significant.
As well as higher logistics cost.
Yeah.
Great. Thank you very much.
Well go to our next question from Josh Silverstein with Wolfe Research.
Yeah. Thanks, guys. Good morning, I was going to touch on the same question on gross margins.
M C. A major are kind of trending above the.
Oh I know you guys had in the December analyst day.
We're just kind of curious if you think that we go back into those ranges going forward and then how do you think those might trend post the close of the transaction next year.
Yeah. So if you think about the three divisions I think youre right I mean M. M. C is performing above the range that.
We had talked about M H.
A little above as well and then let's see.
M is really in the range I mean, as I think about kind of the balance of this year I think you'll see stability in S. E M.
A M H stable to maybe modestly.
Down a point or two.
And then M. C. I think we'll continue to see leverage in that business.
We expect to see improving mix in the back half of the year.
[noise].
Okay got it and then.
You guys have this longer term chart as well just on on a leading edge logic and memory growth as well continuing to kind of increase as a percentage of total fab capacity is there.
Accelerating faster based on your kind of growth from 10% to 12% kind of industry growth.
And just kind of curious because thats sort of where your leverages as well.
So I think you'll clearly the industry is.
Growing really is a function of the level of fab utilization, which is which is very very strong right now most fads.
Are running at full capacity.
And are fully booked and fully loaded for the balance of the year. So again, great great environment to operate in.
The reason for the outperformance continues to be the growing integrity.
Content per wafer opportunity.
<unk> edge and Im sure you understand.
Our customers are really.
Driving very aggressive road map transitions trying to improve.
Performance of their devices in different ways. The two major ways Theyre doing that is adopting more complex device architectures.
And to do that do we need.
Highly engineered materials, new materials, and we are very focused on developing those materials that we need new highly selective.
Patching technologies to etch up and down those high aspect ratio features or we also very focused on those opportunities.
And then the other way they are trying to improve there.
Yeah Chip performance is by continuing to drive miniaturization and for that they would be increasingly concerned with smaller defects.
And that's where our micro contamination platform comes into play.
Our advanced filters is central to remove.
Killer defects and we have become the partner of choice to a neighbor further miniaturization of the surface of the wafer. So again, that's why we like to say that the two comprehensive all of those factors is really playing to our strength and that's really what is driving that.
Device strong performance this year.
Great. Thanks, guys.
Next question from Timothy Arcuri with UBS.
Thanks, a lot.
So I'm just trying to pinpoint the delta and sort of what's changed versus three months ago. It sounds like MSI as there is still <unk>.
Growing 8% I mean, that's about what you thought it would grow maybe you did touch better Capex was up now you know 20% versus mid teens. So it seems like the upside is yeah, it's spread across both but probably a bit more on the capex side. So I just wanted to confirm that that's the case and I wanted you to talk about the Capex side.
Cause you know obviously, we're seeing more wip push from the first half of the year into the into the back half of the year. So I'm wondering if you can sort of characterize.
Any change in customer behavior or are they pushing out.
Procurement of.
Items from you or are they taking stuff all the time.
Tools are just going to ship when they can get other components.
Yeah, So Tim first on your.
Industry.
Assumptions I mean, Youre correct I think the.
The.
Change in assumptions, it's really mostly driven by our view on the industry Capex.
I think the reason why we haven't really changed.
Or I Miss I projections is because we recognize that there is some.
Uh huh.
Capacity limitation with the wafer growers and I don't think that the industry would be able to grow a lot faster and eight 9% and an MSR. This year as a result of that I mean, we're all aware of a number of new.
Investment being made by wafer grows, but I don't expect that new capacity to come online until probably later in 2023, and then of course in 2024. So that's that's the reason the demand is here, but wavering capacity would be the constraint for for MSI in 2022 at least.
And then in terms of you know how is our OEM business performing its performing well.
Demand for our products. The thing we are citing a number of product lines growing at 50%.
So it is telling you that we are performing probably better than most suppliers.
And our OEM customers would take more of our products, if we could actually.
Get access to all of the raw materials that we need to you know to ship those products we expect.
Think about the year expect steady progression in our top line as we continue to increase our internal capacity and as we continue to find solutions to it.
Listing and known supply chain issues and we have you know.
Line of sight on some.
Improving situations with some of those suppliers, we expect steady growth throughout the year and the backend of the year being up versus the first half with it yeah.
Thanks, a lot and then I guess as a segue.
Second question, which is sort of harken back to a prior question that was asked when things do rollover when the cycle. Finally does rollover, it's kind of always easy to look back and say, yes things did change just a little bit in this one market and we didn't think much of it.
At the time.
And if you look at the stock market. It certainly telling you that.
Estimates are going to begin to rollover in the next six to nine months your stock is down 20% during the past month. The industry is down 15%. So I guess the question is.
I know right now you have great visibility, but the question is do you see any even small changes in the behavior of customers in any given end market that maybe like.
Nine months to a year from now you might look back on and say well I didn't think much of it at the time, but you know it.
In fact that was a harbinger of broader change in the demanded environment.
It's a fair question, Tim I mean, it's a question that we're asking ourselves every day every week, we're not seeing any.
Signs of concern with the exception of.
And do you think pratique situation in China and in the Lockdowns.
But putting that aside I think that we see strength.
Across the board I mean, certainly we are taking notice of.
The flattening of demand for cell phones, and Pcs, but I think everybody I think understands that the silicon content in the next generation of phones to <unk> phones and even in P. C is so much higher than previous generations, but even if those particular drivers remained flat demand.
For semiconductors will continue to to surge and we all are obviously very pleased with that.
The fast penetration of EV in.
And more advance calls around you know around the world and all of that is going to drive.
Demand for semiconductors. So I think that we are seeing the proliferation of so many new emerging applications, requiring greater silicon content.
<unk> continued to gives us confidence that we are at the beginning of a multiyear phase of growth for plus.
For semiconductor demand and I think on the Capex side, we certainly have a little bit less visibility.
And you know we are always a little bit concerned about.
A moderation in the Capex cycle, but remember that we have very little exposure to two capex at 30% today and with the completion of the CMC acquisition, it would be less than 20%. So.
It's certainly something to watch, but not not a big concern for us.
Thank you very much for truck.
Sure.
We'll take our next question from Chris Capps with loop capital markets.
Yeah. Thank you for taking my questions. So I hate to do this but just a follow up on something that's been the focus of a handful of questions just on your stronger performance relative to the industry.
You bet.
While the industry strength skews, a little bit more towards W. Have you you mentioned your outperformance is really more about on the consumable side and you flagged node transitions in particular as a driver the greater content per wafer obviously on the advanced node I'm just curious if it's that dynamic in terms of.
Driving the upward.
Bullishness with respect to your guidance is skewed towards you know memory or logic foundry node transitions.
So Chris it's both like two doesn't matter of fact, both.
Memory and logic foundry grew at about the same rate.
In Q1.
And in terms of where the outperformance will come I mean, it's going to come from across.
The product lines right I mean, we talked about very strong growth.
Capex driven products.
But it is true that I'm, particularly pleased to see very strong growth with some of our unit driven.
Product line and some of the strategic product lines that we've been discussing extensively with you over the past few years on deposition materials advanced filtration. If you think about S. E M, which is really a pure unit driven play it's growing at 18 per.
And we expect that performance to actually continue to to remain very steady on a full year basis, and 18% growth for unit driven.
You know product platform, that's actually very very solid.
On the liquid filtration front, we all growing at or in excess of 20%.
And we expect that performance to remain just steady throughout the year. So again very very strong performance for some from some of our strategic product lines.
Got it and then you had mentioned the application solving the challenge around high aspect ratios and to me that that was translating your French no pun intended with would be focused more on memory, but it sounds like it's really across the board.
It's across the board and its across the board simply because the logic segment is being again operating at very very high level of fab utilization deal very focused on yield optimization and as I was mentioning that he's driving high consumption of advanced filtration solutions. So.
No. It's a good problem to have we have.
Most of our growth drivers are all running in high gear right now.
Got it and then.
The one follow up I had was really probably more towards for Greg.
The dollar just recently had pronounced strength against certain currencies, particularly the yen and in the past and falling CMC materials.
That's been actually a tailwind to the extent they've.
Produce product in Japan, but sold to other chip producing countries in dollars. So I'm just wondering if if you see that same dynamic is that a potential tailwind for.
You know for the businesses Youre, probably didn't come into play with with guidance, but just wanted to know what your thoughts are on that.
<unk>.
Yeah. So let me just hit currency broadly, so I mean year over year the.
The impact.
Impact from the.
Weakening yen.
From the movement in the was about a 10 million dollar impact on our revenue to the negative year over year is about $3 million to $4 million sequentially I would say what I've always said and that is from an operating margin perspective, we tend to be it's not a perfect hedge but because we manufacture.
In Japan.
And also sell in Japan.
It tends to be a pretty natural hedge and I'm not entirely familiar with C.
CMC supply chain, so I really can't comment on that but it sounds like from what youre, describing they probably have a similar.
Situation, but as I think about.
Our margins, it's certainly not sort of one of the things in our walk charts not the.
It doesn't relate to the.
Fair enough appreciate it thanks.
Yeah.
And we'll take our next question from Paris.
With Aaron Berg.
Thanks, and good morning, everyone and just a question on your Taiwan facility, How's that coming along and are there any new incremental challenges you're encountering there given all that's been going on in the world.
I am actually very pleased with how this project is going.
Structuring is went underway it's on schedule on budget.
So again the team is doing is doing a great job. There. So we continue to expect.
The first tools to move in.
Towards the end of this year and.
And we expect customer qualifications for certain products to begin in the first half of next year, so largely on schedule.
Great to hear Thanks, and then maybe as a follow up on if you could maybe provide a bit more color on your <unk> segment and jumps up what kind of demand you're seeing for different products are fluid handling wafer handling and another that that would be great.
Yeah.
Yeah, So great great performance, obviously from our A&H up.
Division the demand was at record level across many many different.
Product lines I would probably just.
Highlight a few I mean, no fluid handling.
Products that are used both by equipment makers as well as India.
At this time.
Construction projects indeed.
The chemical delivery loops into subtypes that product line grew in excess of 40% of full platform, which has become really the industry standard for the advanced memory and logic Fabs is doing extremely well. So we're very pleased that would be added capacity a few years back and we're putting that capacity.
Yeah, two good use that product line is growing in excess of 50%. So again those products. So obviously benefiting from the strong industry capex environment and doing a lot better than the overall.
Industry Capex growth, but as I mentioned I was mentioning earlier, we're also very pleased with.
The positive impact of the high level of activity in mainstream Fabs and we saw some really strong performance.
From some legacy products 200 millimeter 150 medium either wafer shippers and wafer carrier products saw strength really across the board in a image.
Thanks Vikram.
Sure.
Well take our last question from Alexei <unk> from off with Keybanc capital markets.
Thanks, Good morning, everyone, but I think you mentioned in the past the auto industry transition to more advanced nodes because of the shortage of legacy <unk>.
<unk> have you seen any developments on this front during the quarter.
I mean, we don't really have perfect visibility to that I mean, we are hearing that from from our fab customers and I think that they are actively trying to you know to create the appropriate conditions.
For you know a number of doors application to tradition to near or neuro or leading edge.
Processes and.
Again, I think for us what really matters is the level of <unk>.
Wafers being produced at leading edge.
Or near leading edge nodes, and we're continuing to see very strong.
Advancement in progress there, which is all very positive for us given the greater content per wafer that we have a D. I do advance node. So we were seeing that certainly we're seeing that.
Oh, Thanks, Bertrand and start off on the same subject.
You mentioned that you're happy with the pace of transitions to leading edge this year.
If I remember correctly next year could be even sort of larger leap in terms of leading edge positions do you did you gain any more visibility or confidence that.
So those positions in 2020 and happen sort of [laughter].
As expected yeah, Yeah, well you know, let's let's focus on this year are first I mean, we still have a lot of ground to cover I think that as I said, we are increasingly bullish for the long term prospects of this industry. We think that we are seeing the emergence of many new demand drivers we are seeing.
Very aggressive technology road maps by.
Beyond the leading memory and logic and foundry manufacturers all of that are great conditions for our for our business but.
It's it's an industry that remains hard to forecast and I think we have some good visibility for this year. The visibility is certainly not good enough for me to really engage into discussion for next year quite yet, but we'll talk about it later this year or early next year.
Thanks Brooks.
Joe.
And that concludes today's question and answer session. Mr. Seymore at this time I'll turn the conference back to you for any additional or closing remarks.
Thank you and everyone have a great day.
This concludes today's call. Thank you for your participation you may now disconnect.
Yeah.
Yeah.
Yeah.
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