Q2 2023 Element Solutions Inc Earnings Call
Good morning, and welcome to the element solutions Q2, 20 twenty-three financial results conference call.
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After the speaker's remarks, there'll be a question and answer session.
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I would now like to turn the call over to Verona, Gokarn Senior director of strategy and Finance. Please go ahead.
Good morning, and thank you for participating in our second quarter of 2023 earnings Conference calls.
Alright, Executive Chairman, Sir Martin Franklin C E O.
Then click glitch in CFO carry doormen.
In accordance with regulation F D. A fair disclosure we are webcasting This conference call.
Distribution retransmission or rebroadcast of this call in any form without the express written consent of elements solutions is strictly prohibited.
Today's call, we will make certain forward looking statements that reflect our current use about the company's future performance and financial results.
Minutes are based on assumptions and expectations of future events that are subject to risks and uncertainties. Please refer to our earnings release supplemental slides and most recent SEC filings for discussion of material those factors that could cause actual results to differ from our expectations and predictions.
These materials can be found on the company's website at Www Dot element solutions, Inc. Dot com and the investors section under news and events.
Today's materials also include financial information that has not been prepared in accordance with U S. Gaps. Please refer to the earnings release and supplemental slides for definitions and reconciliation of these non-GAAP measures to comparable GAAP financial measures.
It is now my pleasure to introduce elements solution CEO been good glitch.
Thank you have a really good morning, everyone. Thank you for joining.
Tuitions recorded sequential adjusted EBITDA growth and what we believe is the trough the most severe dislocation the electronics market in recent history.
Drivers and inputs to the electronics market such as smartphones shipments 70 production declined more than 10% year over year and this impacted our results.
We believe we outperformed our markets and are pleased to see indicators of a recovery in order book and the electronics supply chain generally as we entered the third quarter.
We also took advantage of this period of dislocation to significantly improve our position in the highest value fastest growing subsectors.
Chronic ecosystem and did so at what we consider attractive values with significant potential upside.
Challenging economic conditions were not limited to electronics with the broader Chinese economy soft and certain countries in Europe on the brink of recession.
Nonetheless are non electronics portfolio is growing earnings they're solid execution margin expansion from cost inflation and synergy realisation.
Overall gross margins improved over 200 basis points year over year, despite lower volumes.
So it was deeper than expected we believe we can call the second quarter to the trough and electronics are semiconductor customers are ramping activity in their fat.
We see this in our July orders.
Historically this has been a leading indicator for an improvement in mobile phone production, but also drives demand for our circuit Board Chemistries and assembly materials.
Smartphones Ellen has been lower than sell through for the last two quarters, suggesting channel inventories continue to be digested.
These dynamics are reflected in our second half outlook.
It was also a productive quarter.
We completed two exciting strategic transactions that materially improve our semiconductor capabilities ahead of unexpected market recovery.
In June we agreed to pay $200 million or roughly 185 million estimated cash tax benefits to buying a long standing distribution agreement for our via form electrochemical deposition products from Integrous.
Element solutions is historically manufacturer to the semiconductor materials and now we have complete ownership from innovation in manufacturing through to sales and support.
Early feedback from customers has been consistently positive.
Excited to grow this high value product line in the future.
Based on its run right at the closing we expect to realize annual incremental revenue of $18 million and adjusted EBITDA $15 million currently demand levels, which should reflect a low point in the cycle.
This transaction should be gross margin and cri accretive and increase the contribution of our electronics segment to the company's annual adjusted EBITDA to over 70 per cent.
The purchase price implies that attractive multiples.
It's a comparable front end of line semiconductor assets.
And off of trough earnings.
We believe this is a high quality profit stream upside potential from commercial optimization and minimal execution risk given our deep knowledge of the technology and existing manufacturing.
We also purchase <unk> a developer of next generation nano copper technology for the semiconductor Circuit Board in Electronics Assembly markets.
Position brings a highly differentiated capability to our portfolio together with the world class R&D an application team developed.
They are active copper technology addresses emerging complex challenges associated with thermal management and adhesion leading edge electronics.
This should be industry, changing technology with broad applications across our portfolio, including power electronics for electric vehicles infrastructure to support high frequency five G networks advanced semiconductor packaging and icy substrate mineralization.
Hello, inclusions as well positioned to commercialized coop around solutions and technical capability, given our presence across each of these markets.
We bring applications know how in deep relationships to support the adoption of this technology in our customer base.
And customer engagement and the pace of development and qualification work has already exceeded our expectations.
Taken together these transactions solidify esi's position as an integral partner and solutions provider to the leading electronics companies in the world to increase our participation and compelling longterm growth market propelled by the proliferation of high performance computing supporting AI industrial automation and other emerging applications.
Our perception and importance to the companies innovating in electronics hardware have improved dramatically.
As we said last quarter periods of low demand and market uncertainty often generate unique opportunities.
At least 20 twenty-three assertion environment and expect to exit this year better position than when we entered it.
Our core electronics markets are returning to growth.
And we are positioned to benefit from that growth and more profitably.
Our portfolio weight towards higher growth higher profit market is increasing in our commercial pipeline in these markets is growing disproportionately.
These are very promising leading indicators.
Kerry will now take you through a second quarter business results in more detail Carrie.
Thanks, Ben Good morning, everyone on.
On slide four you can see a summary of our second quarter financial results.
Ganic sales declined 6% year over year in constant currency adjusted EBITDA declined 40 per cent.
We thought the console improvement in both revenue and adjusted EBITDA relative to the first quarter.
Our expectations entering the quarter are impacted by the softer demand environment in China and deterioration in the broader consumer electronics market.
Despite a 9% year on year decline organic sale, we believe the electronics statements continue to outperform P. P C b and smartphone and markets.
Our industrial and specialty business declined two per cent organically as thoughts industrial demand in Asia off the double digit growth and offshore energy.
Our second quarter, adjusted EBITDA of 160 million three per cent higher sequentially.
In constant currency terms, adjusted EBITDA margin decline 60 basis points year over year.
Electronic segment, adjusted EBITDA margin with negatively impacted by volume declines and higher margin circuitry and semiconductor applications, partially offset by reduced pass through metal prices.
Industrial seven margin approved 100 basis points in constant.
Currency due to positive make some energy solutions as well as an ongoing cinergy realization pricing benefit and modest input deflation.
Justin EBITDA margins improve sequentially 30 basis points from the first quarter.
Lower prices on pass through metal, such as <unk> or a talent margins relative to Q2 2022.
Excluding the impact of $89 million, a passenger metal sales in our assembly solution fitness.
<unk> EBITDA margin might've been 23 per cent in the second quarter.
On slide five we share additional detail on organic net sales and our two segments.
For our electronics segment mobile phone and consumer electronics demand at the most material impact in the court.
Our automotive electronic business remained resilient, particularly for power electronics applications in electric vehicles.
Assembly solutions through three per cent organically driven by new business growth in traction with new high reliability alloys for use an automotive and market.
The assembly business is less driven by the smartphone market.
Semiconductor solutions declined 16% organically, reflecting reduced utilization levels at semiconductor fast.
Circuitry solutions declined 23 per cent organically as persistent smartphone weakness continue from the end of last year.
Customers across the mobile supply chain, a meaningful lower production volumes and the overall PCB market was as weak as we have seen in many years.
Our second quarter performance is better than data we received several of the largest suppliers printed circuit boards are reporting greater X, 30% decline. Thank you too.
Additionally, we are comparing against it period, a particularly strong performance and cloud computing and data storage the benefit of our memory just products in the first 2022.
We expect demand from both smartphones suppliers memory disk customers to improve in the second half of 2024.
For the second quarter organic next failed and industrial and specialty declined 2% year over year.
Industrial solutions declined three per cent organically at demand and global construction and industrial market slowed from strong prior year levels.
Our automotive business in the Americas, and Europe is relatively stable sequentially.
Participation in local Chinese Oems supply chain flags that in other regions. So we have not seen the full benefit of automotive recovery in China.
A specific strategy associated with that supply chain and opportunities and their EV market.
A large and largely untapped market opportunity and we intend to pursue actively.
Energy solutions remained the bright spots, but sales growing 11% organically in the quarter production and drilling activity has rebounded.
<unk> continued to take effect.
That continued growth for this business throughout the year, but at a lower rate that experienced in the first half giving tougher cops.
Alright like sick the drafted castle on the balance sheet.
We generated $67 million of free cash flow in the second quarter, we invested $16 million into working capital, which reflect a modest inventory primarily related to a large new business when in Mexico.
And expectations for stronger demand in Q3.
Net capex in the first half was $22 million, which is below the annual run rate we expect for this year.
That number is expected to increase at certain gross projects and integration initiatives progressed, but we now expect to spend less than the $70 million previously forecast.
Turning to the balance sheet or net leverage ratio at the end of the quarter was 3.7 times when including the estimated fill your benefit at the Villa foreign pipeline.
The sequential increase was driven by that via phone transaction, because we primarily funded through the issuance of $150 million and <unk>.
A new term loan is floating right itself or plus 175, However, you swap it into a 4.6 per cent euro fixed through its January 2026, Missouri.
Net leverage ratio is temporarily elevated above our target feeling of 3.5 times.
You expect to be back below this level by year end.
We believe this modest uptick it appropriate for a short period of time, given the unique capital allocation opportunities in the second quarter, and then continued strong cash flow generation, we have seen and should continue city.
As a reminder to swap maturity than our term long B R. Evenly split over the next three years and our capital structure is 100 per cent fixed until 2024 and more than 80 per cent fixed until 2025, we have no debt maturities until 2026, and our liquidity position remains strong and with that I will turn it back to Beth.
Thank you Kerry.
First half does not reflect the longterm earnings power of our business with.
We've seen the trash and are beginning to recover from it.
The self help steps, we are taking around cost an ongoing investment in technology should drive incremental earnings acceleration through the recovery.
The pace of that recovery is uncertain as we sit here today, but we have conviction it is underway.
Our circuitry business is on track for 10 per cent month over months growth in July and our semiconductor orders appeared to reflect the utilization increases we're hearing about it fast.
For the third quarter of 2023, we expect adjusted EBITDA of approximately $125 million.
The sequential improvement assumes a pick up in our semiconductor business modest sequential gross margin improvement from raw material deflation and continued commercial execution.
You should also begin to see impact from ongoing cost actions.
We expect our electronics business to grow about 10% sequentially second half over first half of this year.
Only modestly lower than our expectation entering the year, however will be growing up a lower baseline.
This translates to update it full year 2023, adjusted EBITDA guidance range of $490 million to $500 million.
Given to favor ability on capex in cash taxes that partially offset the lower level of adjusted EBITDA, we expect to generate roughly $265 million a free cash flow for the full year.
2023, even with the expected second half recovery in electronics.
Dr production and units in high end electronics will be far below their long term averages let alone more recent peaks.
With emerging applications for computing power expanding vehicle electrification programs are continued commercial execution with large wins converting to revenue is new fads come online and the full your benefit from our cost program. We're confident that element solution disposition for strong growth in 2024 and beyond.
In that context and in closing.
Despite a challenging quarter and first half who remain enthusiastic about the future and have evidence at the grocery have come to expect from our businesses is returning.
The potential for our business resides in the people in our business and I'm grateful for their energy and effort this quarter and going forward.
With that operator, please open the lines for questions.
At this time I would like to remind everyone in order to ask a question press star and the number one on your telephone keypad.
Pause for just a moment to compile to Q&A roster.
Your first question comes from <unk>.
<unk> Spector with UBS you can go ahead.
Yeah, Hey, guys. Thanks for taking my question.
The cadence hegemonic uhm, so looking at the cadence into three Q and four Q I mean, you talked about order books for circuitry up 10% smartphone looking about up 10 per cent.
Gross margin benefits via form layers on I guess with what you laid out there you know less than 10% sequential growth what are some of the offsets in your mind that we should be considering or is it just the fact that the recovery has been more slow and there's some conservatives are then pushed that further back.
Yeah.
Thanks for the question facing in the second half of.
The year is difficult to call in most years and so you know the guidance assumes a continuing ramp in the second half both in the semiconductor market.
And in the circuitry market smartphone units will still be down in the third quarter.
Year over year and it also has incremental cost actions that will contribute more in the fourth quarter than the third quarter, we have additional cost levers at our disposal should we need them, they're not fully contemplated in the guidance and which we could potentially use them. Both quarter. So you know as we think about the back half of the split could be more equal or it could.
Be more fourth quarter waited and and we took a more conservative position on Q3, given that we're still early in the recovery.
When you compare the third quarter of twenty-three guide to the third quarter of 22, it's important to note and we called this out at the time, we took a 12 million dollar bonus accrual reduction in Q3 of 2022, and if you adjust for that and look at currency, we're actually showing underlying growth and adjusted EBITDA year over year.
Okay, and thanks for that Uhm that's helpful.
And just with via for them that that acquisition just can you.
Quantify what's your layer and then this year first what flows into next year and just continue to talk about that as a way to deepen customer relationship. So just.
How is that going so far and how do you think about what <unk> to the rest of the D S eyes, senese or broader electronic portfolio.
Yeah. So so there are two questions in there. The first is the current your impacted via form given timing and an inventory bills were expecting a call at 4 million dollar impact in 2023, and unfortunately, a lot of that's been eroded by FX headwinds incremental FX headwinds over the.
Over the second quarter, so it's about net.
To the 2023 year.
With regard to the longer term opportunities here the customer reception to this development has been very very positive and we've gone from a more modest player and some of the front end of line customers to a very important one in our engagement with those customers is rapidly accelerated uhm the road.
[noise] map exchanges, we've had have increased and the seniority of the people at the customer level involved in those Roadmaps has increased combined that with Coopery on an order engagement at the leading edge has really accelerated in the perception of our company has radically improved and you know as we sat on the call is a leading.
Later for longer term growth and wallet sure.
Okay. Thanks Bye.
Okay.
Your next question comes from the line of Kieran <unk> with Mizuho Securities. Your line is opened.
Yeah good morning.
I'm just wondering if you can dial in a little bit more into the industrial segment, Yeah, I I know that China's particularly been weak under construction site, but automotive seems to have been trending.
I've taken ahead of expectations during the first half of the year. So any color that you can give us.
What you're seeing globally from the automotive perspective, and from like an industrial constructed perspective, and now you're thinking about that in the back half of the year would be helpful.
Yeah. Thanks for the question.
So you know the industrial business the largest exposure is automotive followed by construction. The construction market has softened in Europe and remains quite sauce in China.
And the automotive recovery hasn't been equal on a regional basis. The Chinese market has seen more of an increase and that increases coming from local Chinese Oems, where we're underpenetrated right. We've always been more heavily weighted towards western Oems, both in China and in the west and so taken together we.
You know a modest organic decline in I S. In.
In the second quarter, that's been offset by pricing actions synergy realisation. So from a profit perspective that business is actually had modest growth in the second quarter and we're not we're not anticipating a dramatic change in those dynamics in the second half we expect the second half to be comparable to the first task with some incremental margin improvement.
Raw material deflation logistics stipulation and so forth.
Great. Thank you and then maybe just a quick follow up you mentioned additional potential cost lovers that are currently in the guidance that you could pull them back after the year can you just.
Dialing a little bit more into what those might be and we should think about that impact. If you were to have to pull those lovers. Thank you.
Sure so.
As one of the hallmarks of the.
The businesses are there variable operating expense models and you know the the buckets are things like T. Any in marketing and then incentive compensation and and when the company is not growing all of those levers are at play.
And so you know we have plans around cost containment some of which are temporary around travel and so forth and then there's a modest cost program, which will be permanent cost savings that will accelerate earnings growth into into 2024.
Think about the order of magnitude combining those two things is around $20 million in the back half.
Alright, thank you.
Okay.
Our next question comes from the line of John Roberts of Credit Suisse. Your line is opened.
Yeah, I just have one.
Are your backlogs improving equally across assembly circuitry in semiconductor normally we think of semiconductors being upstream of the other businesses I don't know whether the backlog there is increasing first or talk about any unevenness, you might be saying between the different parts of the supply chain.
Yeah.
So our semi business, we talked about it being down 16% organically year over year in the second quarter. If you if you take out the precious metal impact there was down about 9%, which.
Which is outperformance relative to the circuitry business <unk>.
Which was down below the impact of smartphone units driven by some of the inventory bill, particularly in local shiny smartphones. So the room for recovery you could say is greater than the circuitry business.
Semi business is recovering earlier as one would expect but the circuitry business. As we said you know in July that business looks to be up 10% over June so there isn't a huge lag.
A bright spot across the whole portfolio is the assembly business, which has been really resilient.
From a high end electronics perspective, given its penetration in vehicle electrification some of the innovation we've had around high reliability alloys.
Which are gaining share from more legacy technologies, particularly automotive.
Applications, that's a business that's been stable and and we expect it to grow nicely in the back half.
Alright, thank you.
Okay.
Your next question comes from the line of Barbash dire with BMO capital markets. Your line is opened.
Hi, good morning, Thanks for taking my question.
Maybe one property acquisition of you noted you were walking towards getting qualifications in place around the nine okay not nano technology.
Nearly in early innings today can you comment on the timeline it would pay for earnings to show up in this platform.
Is this terrible management a decent technology is something that you can use your existing office in the <unk>.
Yeah.
Great question were really really excited about <unk>. It is industry changing technology and the reception we've had from existing customers and even new customers has been outstanding the number of projects. We're working on qualifications around is huge north of 30.
Opportunities have been created just in the first couple of months here, they're all at the leading edge.
So it's it's long qualification timelines, but they're big revenue opportunities uhm the earn out attached to this business.
He is capped at $100 million of revenue right. So we pay a multiple of revenue translates if we if we hit it in the margins, we expect to about four times EBITDA.
And we've got at this point about five and a half years to get to $100 million revenue, we fully expect to pay all of that are now.
You would make this an outstanding transaction because it would contribute.
Tens of millions of dollars of EBITDA Uhm, all incremental growth. The other thing that's great about this is the applications for this material span all of our existing electronics vertical and into new verticals. So it's got applications and icy substrate <unk> good applications and diet attach got applications.
In package attach and it and and we're working with customers in each of those areas existing customers and new ones as I said, it's it's got the outlook is very bright.
Got it and then a question in a balance sheet.
<unk> been tired following via phone transaction.
Getting reaching three and a half by you and.
Leaving via the what comes next.
Do you believe you have invested what you're born during this drop beside me or is the is the philosophy to continue investing as long as the right to come along just wanted to get a sense of your <unk>.
Yeah, a priority at the moment is to to get inside of that leverage ceiling, and that's where we're going to be that's what you should expect in the back half of the year and then we will remain opportunistic going forward from there.
Bye now thank you.
Thank you.
Your next question comes from the lines of Chris <unk> with <unk> Oop capital markets Carolinas opened.
Good morning.
So one one question was a follow up to some of the conversation around the copper acquisitions. So it sounds like the engagement with the you know the ecosystem is is uhm vitalize I'm curious it with that engagement is.
Is it more focused on solely next generation technology knows are resolved through a play here for for your materials, you know with a with a more focused indirect approach commercially to display some alternate suppliers and legacy knows we're interconnects word definitively copper.
Or is it really across the board in terms of technology notes.
Okay.
Are you referring to Villa former <unk> Chris.
Well I guess I was thinking more via form, but I guess it yeah.
More nexium.
Those relevant for both you know <unk> could display some of the current technologies used for lower and power electronics.
Where you know some of the.
Lower N b users are using legacy assembly products.
Given that it's less expensive than in Oregon, Max and has better thermal management.
Capabilities and adhesion capabilities.
<unk>.
Legacy solder products.
Via form.
Is an interesting situation, where you know we do believe we have the opportunity to win existing business and displays existing vendors that's upside to the plan. So they're they're really three avenues for growth versus increasing utilization with existing customer second is.
<unk>, new nodes that are coming online and third is displacing uhm competitive material and we've got a good shot we believe it all three of those which translates to significant incremental earnings contribution from this acquisition.
Yeah. That's that's helpful. And then just to follow up on you called out sort of semiconductor fab utilization rates recovering exiting second quarter.
Can you just confirm it my understanding is your deposition materials into chipmakers is more relevant with logic boundary problems and if that's the case Sir this.
Could this be looked at as a harbinger for you know pronounced.
Improvement and P. C b activity at some point just any color on on that.
That plan out thanks.
Sure.
So, yes, our semiconductor materials skewed towards logic applications.
And as folks in our supply chain like to say chips don't flip the the more chips that are being made them more P. C DS needs to be made to you know.
For the electronics hardware, they're going into and so yes, we do believe.
It's a leading indicator for the circuit board industry, and that's contemplated in our guidance.
And evident in our July numbers.
Right. Okay, and then finally, what is there is there any visibility in and around any sort of you know inventory builder destocking activity for your materials speedy into this ecosystem or is that not really I don't know if you have visibility, but I'm just curious if the overall.
Demand weaknesses could be tied to that at all thank you.
Sure and so our materials are not stocked at the customer level.
Finished goods from our customers have been stocked at the customer level and.
We've been digesting that we saw that in the third quarter last year in our industrial business.
And you know over the past two quarters sell in has been less and sell through of smartphones and so finished goods right.
Smartphone inventories were elevated and they're starting to be digested and that's why.
If you look at the large P. C. B Fabs for example in Asia, They were reporting numbers down 30%, 40% in the second quarter because of that inventory dynamic. We believe that inventory dynamic is largely is very much improved as we entered the third quarter.
Thank you.
Your next question comes from the line of John <unk> with C. J F Securities. Your line is opened.
Hi, Good morning, Thank you for taking my questions.
I was wondering if I could take a little bit more into your confidence on the sequential improvement you expect in queue for and I guess, you know you do have some.
Cost cutting in your in your pocket and then maybe some more information from the via phone business, but I was looking for the demand side is that based more on the bleeding indicated that using the semi business, maybe firm orders and handle or direct forecast from your customers. You know I'm just trying to get a better sense of demand as you head into Q4, and it's a 24 as well.
Yeah. So.
Thanks for the question Janice, it's a short cycle business right. So our visibility to queue for right now is.
Limited, but you know where we're comfortable with our second half.
And in all years, it's hard to.
The concrete on what's gonna fall in the third quarter and what's gonna fall in the fourth quarter and we basically taken a more conservative approach to the third quarter with you know knowledge that the semi ramp isn't gonna be an elevator, it's gonna be a slope and that the cost actions were gonna be taking will impact the fourth quarter more than the third quarter and that's that's basically the the framework.
Work for the second half died.
Okay, great. Thank you and then.
Just more specifically on the via phone business, how quickly do you expect that to grow.
Coming years, you've maybe some internal targets you can share I know that there is probably a lot of opportunity out there with with a new foundries that are going up but maybe just to help me understand what what's integrity, maybe it wasn't doing that you can do to help you ensuring that business and maybe some of the the product development and another marks and stuff that you can do.
And in Texas was a great partner for for US for many years and really grew this business nicely over a 20 year period, you know the the the most immediate <unk> <unk>.
Growth will come from increased Fabulous nation, the incremental opportunities are from new fast coming on line what should happen in 2024 into 2025, and then our ability to displace any competitive material, which you know.
Is nine to 12 months a cycle and so you know and then there's incremental innovation, where we have been innovating around this product and should have new technology to bring to bear to the market. So in 2024, we should see the benefit of the increased fab utilization driving earning contribution.
Both and and some of the new Fads coming online and then you know beyond that it should be from competitive wins and technology.
Gotcha.
Okay, Great and then then we we talked about this before but you know I was wondering at a high level could you just give us an update on the longterm EPS calls that you put out there what needs to happen for you to hit that just give them the environment wearing today and kind of what you're seeing within a couple of years or so.
Yeah.
So you know obviously the earnings power in 2023 is is behind the straight line trajectory from when we introduced that go back in early 2022.
But what we've seen from this business.
That he can recover very rapidly and from a capital allocation perspective, very interesting things can become available. So we're going to have opportunities to deploy substantial cash flow over the next three years and participate in recovery from a cyclical trough that.
Should contribute at attractive incremental margins and drive the bottom line.
If we look back to 2020, we thought there was very little chance, we were going to hit our goal.
Sitting in the middle of the year and we did so 18 months later, so we have not lost hope for confidence in our ability to deliver even though the slope is a little steeper from where we stand today.
Yeah.
Great Thanks for that.
Your next question comes from the line of Steve Byrne with Bank of America Your Windows opened.
Hi, This is <unk> I want to go back to your assembly business in this see if I get a little more detail on your penetration and vehicle electrification.
Sure.
So.
We provide materials used in power electronics.
Both for diet Tasha I'm package attach for very high performance electric vehicles and we.
We've got a world class material.
For that application that improves reliability and performance.
Speaking to arrange for those vehicles.
Our penetration in that market actually still modest because legacy technologies are still being used when you look at some of the emerging electric vehicle providers in China, they're not using this material.
We just opened and applications development lab in Shanghai to much fanfare.
And have really strong engagement with most of the leading electric vehicle companies in China and around the world and this acquisition of <unk> brings to bear another lower cost slightly lower performance, but still much improved.
Performance relative to legacy technology product to meet that growing need.
Vehicle electrification will be significant tailwind and we are in the pole position to benefit disproportionately from that as units grow and I'm just talking about the assembly business I'm not even talking about our other businesses, but as units grow and as our technology is.
Is better understood and therefore, therefore deployed.
Thanks.
And then in regards to your progress on internal initiative to accelerate growth and cut costs or any period, providing updates fur.
Yeah. So you know.
This is.
The appropriate activity at all times to manage cost the variable cost nature of the business is something that has been unchanged and then there are some other ongoing actions to reduce.
Reduce opex and accelerate growth going into the the 2024.
Our view is.
If one of our business is it of herd, we will reduced significant cost, but our view is that none of the businesses are impaired and therefore, you know our cost actions are around the margins opportunistically.
We feel strongly that we have to retain our very talented people all over the world to benefit from the recovery that's inevitable and so the cost actions are targeted.
Do you know the.
Permanent cost actions are targeted in the the temporary ones are formulate frankly, the cost us falls out of the business when we're not growing.
Got it thank you.
Once again, if you would like to ask a question press star the number one on your telephone keypad and please reminder to limit to only one question and one follow up.
Your next question comes from David Silverberg, which C. L. K your windows opened.
Yeah, Hi, good morning, Thank you.
So there's been a lot of discussion about the Villa form acquisition and you know to me it looks like a very attractive strategic condition.
All the questions, but firstly I'm just wondering how replicable this might be across your portfolio. In other words are there other distribution agreements or other relationships, where maybe you could bring you know high value maybe front end of the line.
<unk> products.
In into your full control.
You did was via a form.
And then may be brought more broadly you know these last couple of transactions here kind of point too I guess the convergence between the chip the wafer and the circuit Board, maybe with advanced packaging is the intersection.
But how do you think your balances right now in that regard.
Versus where you'd like to be I don't know.
Three to five years from now.
Mhm.
Thanks for those questions.
So the the arrangement around via phone was was a unique legacy situation, where we had split responsibility. If you will and a predecessor company to elements old the distribution rights.
To that product line in 2003, so I I don't see more opportunities like this because typically we go direct for applications like this that having been said there haven't been opportunities where we've identified great technology that we believe we can leverage our leading commercial technical team.
Teams and supply chain to help commercialize and so there may be more opportunities to engage with emerging technology companies and and provide the value that our footprint in capabilities.
Bring to them.
To create win wins.
That's something that we we have been looking at.
With regard to.
This next generation electronics.
Convergence, it's a very powerful very powerful trend in our end markets and one that we're benefiting from it and we sit really nicely.
Between.
In in that Bullseye, right, where we have capabilities and circuit board capabilities in semiconductor both front end of line and packaging and capabilities and assembly and so when we brings a breath of our product portfolio to bear.
The largest <unk> <unk>, an oem's electronics Oems there there stunned by our capabilities and we're seeing it in the P&L already if you look at the numbers in our in our semiconductor business. We've sent for a long time that it will outgrow our other businesses and it has been and it's just emerging it's a U.
<unk> instead of.
Capabilities that we have an element solutions that are increasingly appreciated by the supply chain.
And you know the future is very bright in that regard.
Okay.
Okay. Thank you for that I appreciate it just one more on the coup prion purchase requisition.
But not your last analyst day, but I think two analysts days ago, you talked a little bit about how.
Your company with its global footprint and leveraging your strong customer relationships, you know you'd be you'd be an attractive partner.
For you know attractive, but emerging technologies that could use your company's assets is kind of a gateway.
Took commercialization and you know <unk>.
Greater success together than apart.
Is is the coup briand transaction you know an example of that in other words have you been working with them for awhile and kind of complementary.
Complementary skills at work here and then.
It got to the point, where it made sense to.
Bring this technology in house or.
Is this something where maybe they were shopping around to a number of buyers.
Yeah Cool Brown as a case study in that and it's.
<unk> chose to work with us they had alternatives and they chose to work with us because we were the only company. We are the only company that has the capability in you know the.
<unk> of their applications right. So we've got capability and circuit board, where their material can be used for icy substrate <unk>, we've got capability and diet attach an assembly materials power electronics.
The things that their potential customers were looking at were all things that their potential customers for the most part we're buying from US already and this was just a new capability for emerging needs and so you know we were a perfect match and it's a case study for.
<unk> that type of investment.
Investment.
Okay.
There are no further questions at this time I'd like to turn the call back over to <unk> for closing remarks.
Thank you very much. Thank you to everybody for joining we look forward to seeing many of you soon and I Hope you have a great day.
This concludes today's conference call you may now disconnect.
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