CMC Materials, Inc.

Good day, and thank you for standing by. Welcome to the CMC Materials Second Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After this week's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Colleen Munford, Vice President, Communications and Marketing. Please go ahead.

Thank you. Good morning. With me today are David Lee, President and CEO, and Scott Beamer, Vice President and CFO. Last night we reported results for our second quarter fiscal year 2021, which ended March 31st, 2021. We encourage you to review the slides and remarks document we've made available in the quarterly results section of the Investor Relations Center on our website, cmcmaterials.com. A webcast of today's conference call and the script of this morning's remarks and question and answer session will also be available on our website shortly after this live conference call. You may request any of the information by calling our Investor Relations Office at 630-499 Please remember that our discussions today may include forward-looking statements that involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from these forward-looking statements. These risk factors are discussed in our SEC filings, including our Form 10-K for the fiscal year ended September 30, 2020. and our Form 10-Q for the quarter ended March 31st, 2021, which we expect to file by May 10th, 2021. We assume no obligation to update any of this forward-looking information. Also, our remarks this morning reference certain non-GAAP financial measures. Our earnings release and slide presentation include a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure. Additionally, data reflects rounded values throughout this discussion and in the accompanying slides and remarks documents. I will now turn the call over to Dave for opening comments, followed by a question and answer session.

Thanks, Colleen. Good morning, everyone. As announced last night, we achieved another quarter of record revenue. We believe our performance reflects our leadership positions continued innovation, and strong business execution, particularly in the electronic materials segment. We continue to operate our global manufacturing locations without interruption and are proud of our global employees for their sustained focus on health and safety, as well as their ongoing efforts to produce and deliver best-in-class solutions to our customers around the world. In terms of outlook, as announced, we are very encouraged by the strength and demand we are seeing for our electronic materials solutions, particularly CMP slurries and CMP pads, given our technology leadership and advantage positions across all segments and geographies. We see significant growth momentum for our products across all sectors and geographies, with the strongest performance in foundry and China. Looking ahead, we see continued growth for our company above this record quarter, driven again by strength in our electronic materials segment. I would also like to highlight that we are improving our full-year adjusted EBITDA range to between $370 million and $390 million. demonstrating performance in the first half and our confidence in our growth prospects and strong profitability for the next two quarters. Our second quarter results demonstrate the quality of our portfolio and leadership positions, particularly in electronic materials. We are excited about the expected growth in our core businesses and are confident in our ability to capitalize on the favorable semiconductor operating environments. Looking ahead to our third fiscal quarter, we expect to again deliver sequential growth above this record quarter across both segments. With that, I'll turn the call over to the operator as we prepare to take your questions.

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please limit yourself to one question and one follow-up. If you have any additional, you may refer to the queue. Thank you. Please stand by while we compile the Q&A roster. Your first question is from Toshiya Hara with Goldman Sachs.

Hi, guys. Good morning.

Hey, good morning, Sushiya.

Hey, good morning. Thanks for taking the question. I've got a multi-part question on your EM business and then a follow-up on the PM side as well. So, Dave, on the EM side, you showed nice acceleration and growth in the slurries business. I was curious what were some of the key drivers there. And then in CMP pads, I think on prior calls you had talked about you know, some market share dynamics in Asia, also a customer to transitioning from your classic, you know, Cabot platform to the next planer platform and how that was causing a little bit of a delay, if you will. If you can give an update on those two dynamics as it relates to pads, that would be helpful. And then in electronic chemicals, I think the business grew in the low single digits year over year. Obviously, you've got a very large customer here who seems to have pretty good momentum. And then the mainstream nodes, from an industry backdrop perspective, seem really good, too, given the strength of industrial and automotive. So why not, I guess, a faster growth rate there? If you can touch on that, that would be great. Thank you.

Yeah, thanks, Toshia. That's a mouthful. That's a lot of questions around EM. Let me see if I can cover those. So, you know, in terms of the environment, we're obviously encouraged by the overall strength and demand. We see across just about every sector, particularly strong and foundry in China. We've seen strong growth in both those areas. And, you know, as a proxy for that, you see our positions in, you know, across the whole segment of EM, but particularly in slow ease and pads growing at a faster rate. On the slurry side, I would say it's not just the environment, but we are continuing to win new opportunities that are ramping up. And I'd say that also for Pat. So in the prepared remarks, we talked about continued strength in tungsten. Obviously, that's building on to a very strong leadership position. We secured some advanced tungsten positions in memory. We also secured an advanced dielectric position with a major logic producer. and then a bunch of pad opportunities that were able to be secured as well, including some consumable sets. So what we're seeing is not only a strong overall growth environment, but we're also winning new opportunities that, you know, obviously they ramp up over different trajectories over time. But I think the end state will be increased participation for us, as we've talked about. And so we're really pleased with C&P. You know, one thing I would note is that I think there's a lot of – industry growth numbers that are being talked about, probably in the kind of mid to high single-digit range for the industry, as everything's running pretty full. I'd say when you think about CNP, you know, different parts of that semiconductor industry market are going to grow at different rates. We think CNP is probably growing at mid-single digits, so that gives you a proxy about how well we're doing in that area. I think we've outpaced CNP for a while now and we continue to have plans to do so. So that gives you a little bit of background on slurries and pads. On the EC side, yes, it's a different business for us. Obviously, it's a lot more regional. We participate in North America, Europe, and a bit in Southeast Asia. Those markets are doing okay. But I think of EC as more of a solid growth business. It's not going to be as dynamic. It is a little bit more transient, at least at the time, you know, since we've had it under our portfolio. I would say that we're making – some investments to improve our quality, to improve the technology of our offering and the supply chain. And I think that's going to further differentiate us from the other participants in that EC market. The other thing I would note is that a lot of the recent capacity expansions are in the US, particularly like TSMC and Intel. And so that should offer us additional growth opportunities for EC. But the growth trajectories are different for those different parts of our business.

Got it. That's super helpful. Thanks, Dave. And then as a quick follow-up on the PM side, You guys booked a $208 million goodwill impairment charge. And I think in the prepared script, you talk about a lower than anticipated recovery post the pandemic and an increase in raw material costs. If you can kind of elaborate on those two points, what's changed over the past three months, and perhaps more importantly, post this write down, Dave, how would you characterize the importance of the DRA business within the context of your overall portfolio. Thank you.

Yes, Ashia, I'll start. Yes, you listed the two items that we mentioned in our materials, and I think as The raw material cost in the near to mid-term, that's a supply-demand issue in the marketplace. We won't be too specific about any particular material, but of course you can expect us to work to manage that so it doesn't have a significant impact over the rest of the year for our business. And any impact of that is included in the guidance that we increase both the top and the bottom end of that range. As we think about the lower than initially expected recovery, I think the accounting nuance aspect of this is important. And, you know, you think about the strategic objectives of our business, which, you know, we are, the team is working on, you know, may include things like continuing to develop our R&D portfolio, addressing some market adjacencies and other wind capture in the marketplace. We expect to get this business to a better level in the future. However, those sort of strategic objectives, you're really not able to count much of those or perhaps any of those in the accounting model test. So we know this is a business that's been impacted by the pandemic. That is the big driver as we look forward in our future expectations of the business. That base business is challenged. That's going to be a lower type of recovery. But we expect that we're going to deliver on strategic objectives to get this business to a different place. But essentially, you're not able to count very much of those in the accounting test piece. So it had an impact on our balance sheet. I would like to, you know, I think people understand, but, you know, it's entirely a goodwill impact. We have other intangibles where value is assigned to that business, such as customer relationships, the value of technology, et cetera. This is not an impact to those items. Those items and the values of such, they remain intact. So, you know, it's because of the pandemic, essentially, that we're here talking about this. You know, the team worked hard throughout the process, and, you know, we got to a result that certainly had an impact on our balance sheet, but we feel, you know, well-positioned moving forward. Then I think as we think about the portfolio, maybe Dave, you know, post this type of item, we'll let Dave comment.

Yeah, I think Scott captured it well, kind of the impairment from the accounting perspective. We obviously have plans to grow the business. We're investing in R&D, and we have new products that we're We're almost ready to introduce in the market. From a portfolio perspective, obviously the environment's changed. We're always going to be looking at the portfolio and try and understand what's the value we can drive as owners of the business versus any other alternatives out there. I would say if we continue to own the business, we're going to drive performance. And I think, as Scott mentioned, if it wasn't for the pandemic, we wouldn't be talking about an impairment right now. And so we do expect recovery as well as our own growth initiatives. But we always do have a mind to the portfolio and what makes the most sense for the long-term benefit for our shareholders.

Thanks so much. Good luck.

Thanks, Oceana.

Your next question is from Mike Harrison with Seaport Global Securities.

Good morning, Mike.

Hi. Good morning, everyone. Wanted to ask about the customer capacity expansion, the no transitions. It seems like you're getting a little bit of help from that in Q2, but really hearing that you guys sound a lot more confident and that maybe the outlook is a lot more promising for the rest of the year. and into 2022. David, can you maybe talk about what visibility looks like relative to normal and talk about how confident you are in that forecast for the second half and maybe continued momentum into 2022?

Yeah, thanks, Mike. Good question. I think what, you know, I may have touched on a few points worth repeating from Toshia's question. You know, we see really strong demand. I would say first, most of the capacity, you know, the kind of headline use of capacity expansions from an Intel or TSMC, they're probably a few years away. But that does sort of set the framework of future growth. Once that capacity comes online, obviously consumables will be needed. Those are important customers for us, and so we're going to be playing a big part of that new capacity once it comes online. I would say, what is driving growth? And you can see sort of the, you know, what we had talked about in the previous question is we think CMP, for example, is growing at probably mid-single digits. We're definitely growing above that. And that's part of our positioning, but also part of the new opportunities that we're winning. And you can kind of see that confidence that we have in our ability to deliver performance over this next decade. a couple quarters one is the guidance that we gave for the company high single digits mid single digits for em and high single digits for pm and then we also raised our eba guide for the entire year so what we're seeing is really broad-based strength and demand particularly from em we're also really pleased with the opportunity capture we've seen in pads and slurries and that's kind of informing our guidance. And you can see that guidance is pretty confident. I'd say longer term beyond this fiscal year, you know, the expansions that are kind of getting more of the headline news, that will start becoming a factor. And once those come online, as I mentioned, that should be a really promising foundation for more growth for us on the consumable side.

All right. And then over on the DRA side of the business, I think part of the rationale for your recent capacity addition was that you were going to need to be able to support more international volume and international growth. Have you seen a pickup in interest in DRAs from international customers as oil prices are coming back? Or is that activity still relatively low and yet to recover from the pandemic?

Yeah, Mike, I'd say growing that international side of DRAs continues to be a very important initiative for us, and we're making good progress. We're also making good progress on winning new business as well as introducing new technology. I think the obvious thing is that the business has been so impacted by the pandemic, it's hard to see some of those growth initiatives taking hold and getting traction. talking about impairment, and it's certainly a growth business. So we're making progress. That's still an important initiative for us, and we're pleased with our progress so far.

All right. Thanks very much.

Thanks, Mike.

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please limit yourself to one question, one follow-up. If you have any additional questions, please re-enter the queue. Your next question is from Amanda Scarnati with Citi.

Good morning, Amanda.

Good morning. First question I have is on the supply constraints. I want to clarify your comment, Scott, where you said that it's included in the guide on both the upper and the lower end. Are you at this point undershipping any demand? And are there any conversations with either U.S. or local governments to either increase capacity or put a little bit more pressure on the supply chain as part of Biden's push to secure the U.S. supply chain?

Yeah, the supply-demand dynamics, Amanda, were specific to a raw material that's important to us in the DRA business. But, you know, structurally, we're able to get the product. It may be a cost impact to us, but, again, we have ways to work to offset that. And, you know, my reference to the full-year guide is any impact of that, if it were to be negative, is included in our guidance, which – I'm sure as you've modeled out, shows improved profitability in Q3 and Q4 to get back to this full-year metric of between 31% and 32%. I think structurally, yeah, there's – Things are changing in terms of perhaps the global political environment. They continue to evolve. But some of the structural factors that Dave mentioned about the industry, oil is going to continue to be an important part of economies and how we go about society. And so we continue to be very We continue to be optimistic in the medium to long term for this business, and again, we kind of outlined the reasons for taking the right down, but long term, the team has a lot of work to do, and we're looking forward to executing against those plans.

Yeah, so just to build on Scott's comments, Amanda, no challenges. Obviously, everyone's working really hard on both sides of the business, and we're seeing strong demand on the EM side, but no shipments have been affected, and we are supplying customers, and we always keep spare capacity on the slurry and pad side. As far as your comments about the Biden administration and their push for domestic semiconductors. Obviously, we're very aware of it. We're monitoring it closely. Nothing on the material side has really been announced, but we're very active in organizations like SEMI. Obviously, our materials play a critical role in production of semiconductors. I think for us, it really plays to our strength because obviously we're a U.S.-based company, a lot of manufacturing based in the U.S., but we also have a global manufacturing footprint as well. So, I think it really plays to our strength.

Great. And then the next question I have is on the wood business. I just want to clarify, is there still revenue generation in the wood business? And should we potentially see sort of a step down in the PM business before we see sort of a re-acceleration as the oil market begins to recover a little bit more?

Yeah, so the wood business, and we've disclosed in our filings, the wood business on an annual basis will be about $70 million of revenue. And we said that the profitability is above the segment average, which is about 45%. So very healthy profitability with that business. And just to remind everybody, we will run our plant. We have a plant in Mexico that produces an intermediate and then a plant in the U.S. that processes that intermediate. The plant in Mexico will cease operations at the end of this year. there will be some revenue, therefore, in the December quarter, and then also likely in the March quarter of next year. So I expect that in the next quarter or two, we'll be a bit more specific about some of those parameters. But that's the way to think about the dimensions of that business and the timing. So we're going to have some revenue in our Q1 of next fiscal, and then less revenue, but some revenue in our Q2 next year, which would be the March quarter as we as we finalize selling out some products. And we have said over time that, you know, our production, our revenue is secured through long-term contracts, and we've been able to optimize the profitability of that business as well. We won't be specific right now about offsets to that. Again, I think that's in a quarter or two to come. We'll be a bit more specific about how to think about the total company going forward with the wood profitability effect coming out. But one key piece will be the PIM business, which is mostly the DRA business. And the way to think about that for now, it continues to be stable. We know that the June quarter last year was dramatically down from the March quarter. So this quarter for us in March was still a difficult comparable to last year. And then we said at the time that June was the low point, and we expected June to be the low point for our revenue. That has continued to be the case. But the business has not improved on a revenue perspective since then. So it continues to be stable. We've talked about in our Q3, there's a revenue guidance for the for the PM segment, which includes PIM. But, you know, most of that growth is actually some of this pickup of the timing of orders that we talked about with Wood and QED in our materials. We'll pick those up because those were shipments that actually were delivered and booked in the April month. So, you know, I would continue to think of PIM as stable in the short term, We're expecting to get back to a better place, like we mentioned, particularly through some demand recovery, but particularly through our strategic initiatives that we mentioned earlier.

Great. Thank you.

Thanks, Amanda.

Your next question is from David Silver with CL King.

Hey, good morning, Dave.

Yeah, hey, good morning. Thanks. So I think my questions are going to kind of be focused on the electronic materials segment, and in particular, I think the margin progression. So when I look at your – when I track your quarterly results sequentially, what I do see is the bulk of the incremental growth that you're experiencing 2020 21 versus fiscal year 20 i mean it is concentrated heavily on the cmt slurry product line and my you know my kind of um assumption is that that would be amongst you know the highest margin business within that segment And yet the margin progression, particularly when you compare it to full year 20 or full year, fiscal year 2019 even, it doesn't really seem to be responding. In other words, the incremental margins don't seem to be that high. So I'm guessing that there's some incremental development costs and things like that. But could you maybe just talk about how that incremental dollar of CMP, slurry, or pad revenue is falling to the bottom line? And I think, alternatively, how are you managing the incremental, as you cited in the prepared remarks, I think, the technology and development work that you're doing? So kind of just relating the growth on the top line to what we're seeing on the operating margin line would be great. Or, sorry, EBITDA margin line would be great. Yeah.

Yeah, David, sure. I'll make a couple of maybe summary comments about slurries. And I think it is instructive to talk about the quarterly progression of the profitability because it's an important part of our message here today. You know, slurries is... above our corporate average, and so you're right about that. That is a business of ours where there is some significant leverage once volume returns, which it has been doing, and you would naturally expect there to be a pretty significant contribution from every extra slurry dollar that's sold to the bottom line. Now, what has happened in this second quarter, and I think we were actually very transparent about our expectations for Q2 when we met at this time last quarter. Q1 from an EBITDA total company perspective was about 31.5%. And we were pretty, again, specific and transparent that we knew about 200 basis points or so of pressure from certain cost type of items. And we mentioned that, you know, that was our March quarter is one where we have some particular inflationary items. We also mentioned some third-party spending related to, primarily related to intellectual property, which is, of course, an important part of how we conduct our business. We said no structural change to that type of cost, but that can be a little lumpier quarter to quarter, depending on the activities that are going on throughout that process. So from Q1 down to Q2, again, I think we signaled pretty transparently about the profitability. Now, how do you think about the rest of the year? We said that for the full year, I think it's in our prepared remarks, For the full year, we expect to be between 31% and 32% for the full year. So we're not there in the first half. We're about 30.5% in the first half. So that indicates that we're at the higher – we expect to be at the higher end of that range, 31% to 32% in each of the upcoming quarters. to get that full year into the range of 31, 32. So there's a lot of numbers in there. We can clarify if needed, but I think you'll find that the math makes sense. But in particular, those cost type of items that we discussed heading into q2 and we've mentioned in our materials for q2 those normalized through the rest of the year we did uh we we mentioned some timing of sales that did not happen in the march quarter for wood and our qed businesses which are also they're smaller but also among the more profitable businesses that we have We catch those up in our June quarter, and the rest of the year is stable to improving. And then the overall health of the semiconductor industry continues to be something that's positive for us. And part of that improved profitability metric in the second half is related to your very first point about the slurry contribution and the leverage that we earn on additional revenue dollars from slurry.

Yeah, I would just add a few additional points. I think Scott captured it well. We talked about this second quarter historically being a bit softer from an EBITDA perspective, just mostly because of the timing of the kind of things in the calendar. And we expect, even historically, if you look back, Q3 and Q4 have been a different level. I think another, obviously, as Scott mentioned, too, we increased our EBITDA guidance for the rest of the year, which reflects our confidence in the profitability of the business as well as the strength and demand.

Okay. And no, thank you for that. And I did, Scott, you're 100% correct. I mean, I do recall the comments about the last quarter with the margin, the margin effects you had called out a quarter ago. But I was even thinking, you know, maybe even for the next quarter or two, I mean, you've projected mid single digit or maybe hopefully better top line growth, you know, 3Q versus 2Q. And Again, when I look at it year over year, the bulk of that incremental growth is going to fall on the slurry line. So you're saying kind of the similar effects, even as we progress through the back half of fiscal year 21. Is that the correct?

Yeah, I think my summary is some of those cost effects are normalized throughout the rest of the year. And then particularly with the healthy semiconductor industry, then we get some leverage on that volume that we expect to improve consistent with our third quarter guidance and what we've outlined about full year expectations as well. So yes, I think that's a good way to look at it.

Okay, and then just maybe some comments, I guess, about internal capabilities and preparation, you know, looking forward. But, you know, whether it's wafer fab equipment spending trends or, you know, the fab utilization rates at, you know, all-time highs, I mean, this would kind of be the environment where the call on your resources, whether it's production, whether it's collaborative R&D, whether it's your global footprint, the call on that and the need to kind of be there for your customers' needs would seem to be about as high as I can recall it being. As you look forward, I mean, what are the one or two areas where you think you might need to strengthen, you know, your internal capabilities or expand your global footprint? In other words, what do you feel you have to do to grow along with the, you know, the very robust outlook and development activities underway, you know, across the broader industry? Thank you.

Yeah, thanks, David. I think from my perspective, you know, regardless of the industry environment, it really starts with our ability to innovate new and better solutions for our customers. And I think we've been able to do that. I think really it starts with technology, and that's why, you know, customers – come to us with their most challenging material issues, obviously particularly in CMP. And so during this time of strong demand, I think we're also continued to be focused on introducing new products, consumable sets, and even improving our offering in electronic chemicals. And we're really starting to see the results of that. And I think our guidance even for this next quarter reflects not just the industry environment, but also our ability to win new opportunities with new solutions and so that's a big part of it i think on the operations and quality side and of course the customer facing side i'm really proud of the team for for obviously in this working through the pandemic and also meeting all of our customer demands we've talked about for the last several quarters we haven't missed a shipment And I think although it's really been an exercise of our supply chain, I think we've come through really well for our customers, and that's kind of what they expect. Because all of the solutions that we provide, whether it's an electronic chemical or a slurry or a pad, are really critical for the fab operations, as you know. And so we really take on that commitment with a lot of focus. And we've been able to deliver through this pandemic. Through this stronger demand period, obviously we've been through many cycles before, and so we're used to a strong uptake. I think our operations are able to flex and accommodate, even during this challenging environment with the pandemic. I think the one other thing I mentioned in the – in one of the other questions around electronic chemicals, I do see us investing there to improve our quality, improve our technology, and improving the supply chain to just be kind of at that same level that customers expect from the CMC materials brand. So there's a lot of exciting work happening in the company. Obviously, a lot of that focus is around the electronic materials side, but I think we're more than up to the challenge of the strong demand environment.

Okay, that's great. Thank you very much.

Thanks, Dave.

As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Please limit yourself to one question and one follow-up question. Your next question is a follow-up question from Mike Harrison with Seaport Global Securities.

Welcome back. Hi. Thanks. Well, when you put all the prepared remarks in the slides, it gives us more time to ask more questions. So I appreciate that.

That's great. That's exactly what we want.

I was hoping that maybe you could give a little bit of color on the IPS acquisition and how it fits within the business and maybe talk about whether there are additional bolt-on opportunities in the corporate development pipeline right now.

Yeah, thanks, Mike. We're excited about IPS. It's a smaller acquisition for us. We have always been very disciplined about acquisitions. throughout the company's history, and of course we intend to do so. You know, ITS fits a lot of the characteristics that we look for. First of all, we have a strong commitment to growing our electronic materials business, and obviously they're a technology leader in the consumables used in the packaging and test area. In particular, they make these functional polymers that remove the debris and improve yield. And so there's a lot of value to the consumables that they're able to produce. And so there's a lot of similarities to our business. There's also significant technology there. And so we're excited about adding their their team and their business to our portfolio it does also increase our participation in the back end part of the semiconductor fabrication process which is expected to grow even faster than areas like cnp and so so you know just on on its face we're excited to to add ips into the portfolio And I think the acquisition has gone well. I think in terms of your question, is it open up more opportunities? I think we would look for similar opportunities. to ITS, whether they're small or medium or large, they're definitely going to be focused on the EM side. That's what our focus is going to be on. And then, as I mentioned, it does open up the testing and packaging area, so perhaps the aperture is a bit wider on the electronic material side, given this acquisition of ITS.

All right, and then within this Lurie's business, he used to break out tungsten, dielectric, and some other subsegments. Relative to the 17% number that you saw for overall growth in slurries, can you give us a sense of what product lines were showing the fastest growth? And are you starting to see growth in slurries for new metals or materials, areas like silicon carbide and gallium nitride? Thanks.

Yeah, I'll answer the last part of your question first. um you know we have uh although it's a big part of our development efforts we have dedicated teams working on uh applications like silicon carbide it's not a significant driver of volume for anybody these days yet although obviously growth potential in the future From the slurry side, you're right, we don't break it out as we have in the past. I would just say we're seeing broad strength. Obviously, we have strong leadership positions in tungsten. We continue to build onto those. Dielectrics is also another area that we have. really brought a lot of innovation to the portfolio, not only replacing ourselves, but others. We recorded a few wins in that area with a major logic producer. We also had a consumable set win using our dielectric product. So I would say from just a general sizing perspective, It's probably tungsten, dielectrics are the largest two of the slurry portfolio, and then kind of metals in general, like copper, aluminum. We also have very strong products there. The other thing I'd point out is China has really been growing very strongly for us. We have very strong relationships with both the domestic customers in China as well as the international. When you talk about the domestic customers in China, they're really trying to catch up in terms of the technology. And so our experience and proven solutions really strike a chord with that customer base there. So we're really pleased with the growth we've seen in China, and that's primarily in the solar area as well.

Thank you.

Thanks, Mike. Your next question is a follow-up question from Toshia Harwell with Goldman Sachs. Welcome back, Toshia.

Hi, again. Thanks for taking my follow-up. Two very quick housekeeping questions. Scott, the full-year CapEx guide is now, I guess, $65 million at the midpoint as opposed to $90 million. I guess, was this a delay or a push into fiscal 22, or is this sort of a fundamental change in how you think about the capital intensity of the business? And I think on prior calls, you had guided fiscal 22 and even fiscal 23 CapEx to about $50 million. Has that changed at all over the past three months? And then my second one is on OpEx. I guess, going forward... Given some of the comments by Dave about improving quality and EC and continued R&D and your slurries and pads business, how should we think about OpEx to sales over the next 12 to 18 months? Thank you.

Yeah, sure, Tashia. About CapEx, yeah, we're going to continue to have a very disciplined approach and be careful about how we prioritize projects and how we assess the timing of those projects. I would say your question is a very good one. I think it's a little premature for us right now to communicate too much specificity around our future expectations. So we understand the, you know, the desire for that information and we'll be and we'll be providing that more information about that in the coming quarter. So but I think just broadly speaking, Some level of pushout would be, I think, the right way to think about this. We're going to come in quite a bit lower, you know, for some of the reasons that we talked about. We're going to come in quite a bit lower this quarter. We know about the capacity expansions of certain customers, particularly in the U.S., and so some level of pushout, I think, would be a reasonable way to think about that. But, again, you know, we'll come back with more information in a future quarter about though exactly what you should expect in terms of expectations, but I can give some directional information here. To continue to grow our business, organically is going to be number one. It continues to be our number one priority. And we, you know, feel fortunate that we're able to meet all of our capital deployment priorities, including CapEx. So we have all of those met. And I know we put in the prepared remarks some parameters around how we continue to deliver on each of those areas. Then as you think about OpEx, And, you know, OpEx has been, you know, running, you know, around 50 million or so on an adjusted basis, and we put those tables in our materials. This quarter it was about 53, and we indicated that, you know, the primary piece of that increase versus a prior level is related to that professional spending, professional services spending, particularly related to the intellectual property. That should normalize. So as I think as you're thinking about the company getting back into that range of $50 million or so, and we gave our revenue guidance for the year, I think that will, or for the quarter, that will put you, I think, in those kind of, you know, the kind of metrics that we talked about, again, improving profitability in Q3 and Q4 to get us to that full-year metric of between 31 and 32.

Got it. Very helpful. Thank you.

Thanks, Oshiya.

Your next question is a follow-up question from David Silver with CL King. Welcome back, Dave.

Thanks. Yes, and thanks for getting rid of all those other people who used to be on the call. I appreciate the opportunity. Yeah, so she is getting a lot of my questions ahead of me here, but I have one left. It is kind of a modeling question, and I am thinking about your guidance, in particular electronic materials, 2Q to 3Q. You've guided to mid-single digits. And, you know, just given the timing of the ITS acquisition, I just wanted to clarify that. Is the mid-single digits inclusive of ITS? In other words, it's, you know, less than mid-single digits, I guess, on an organic basis. And then I did just want to check. Assuming that, you know, the mid-single digits includes the first quarterly contribution from ITS, Would that still indicate that slurry revenues of 3Q versus 3Q are going to be up? I have it. It's a guess, but I have it at about 21% up year over year. Is that a reasonable thing, or am I missing something? In other words, the second derivative is positive. You're going from plus 17 to maybe plus 20 or 21 as we go from 2Q to 3Q. Thank you.

Yeah, I think the way you're thinking about it correctly, David, a pickup, we closed ITS on April 1st, and so we'll essentially have a quarter of those revenue and earnings from that acquisition into our numbers. And, yes, that is included in our guidance of the mid-single digits for electronic materials for Q3. So you're thinking about that. the right way. And again, we provided some information, I think, even on this call and previously about how to think of the financial dimensions of that acquisition. I think that I'm going to be reluctant to get into too many details about the individual business units. But, you know, we are coming off of a quarter where we grew 11% for electronic materials versus the prior year. So we expect to, you know, continue to grow. You're going to do the math, which I believe you're doing, on what our sequential guidance is for Q3. And I think slurries would be at the higher end. So the math you're doing – Q3 guidance that we're giving now, which is sequential, but you're comparing it to prior year, I agree with the logic and the numbers, and I would say that the slurry business will be at the higher end, a higher contributor in all likelihood than PADS and EC within that dynamic. So I'm going to be reluctant to dimensionalize that much further, but slurry is at the high end in terms of that contribution that you're referring to, and that would imply another strong quarter of revenue growth versus prior for the electronic materials segment.

Thank you for that. I apologize. I was a little sloppy with my math there, but that's... That's fine. I'll follow up later on. But thank you very much for that. Appreciate it.

Sure. Thanks, Dave.

That concludes the Q&A portion for today's call. I would like to turn the call back over to Colleen Munfer for final comments.

Thank you. That is all the questions that we have for this morning. Thank you for your time and your continued interest in CMC materials. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.