CMC Materials, Inc.

Good day, ladies and gentlemen, and welcome to the CMC Materials' fourth quarter fiscal 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Colleen Mumford, Vice President, Communications and Marketing. Thank you. Please go ahead.

Thank you, Blue. 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 fourth quarter fiscal year 2021, which ended September 30th, 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 630-499-2600. Please remember that our discussions today may include forward-looking statements that involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from these forward-looking statements. These risk factors are discussed in our SEC filings, including our Form 10-Q for the quarter ended June 30, 2021, and Form 10-K for the fiscal year ended September 30, 2021, which we expect to file by November 12, 2021. We assume no obligation to update any of this forward-looking information. Also, our remarks this morning reference certain non-GAAP financial measures. Our earnings release and slide presentation include a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure. Additionally, data reflects rounded values throughout this discussion and in the accompanying slides and remarks document. 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 reported results for fiscal year 2021 representing our fifth consecutive year of record revenue. Top line growth of 7% was driven by broad-based strength across our electronic materials segments. Driving performance in our electronic materials segment was C&P slurries, which grew 14% year over year, which we believe continues our track record of growth above the sector as we continue to gain positions in advanced technologies. We are also guiding for sequential growth in our electronic materials segment as we see continued strong demand for our solutions. In our performance materials segments, our pipeline and industrial materials business increased year over year, but continues to be negatively impacted by the ongoing COVID-19 pandemic. The macroeconomic backdrop remains challenging and difficult to forecast, but we remain focused on executing on our strategic initiatives. which include winning new customer positions and product innovation through our R&D efforts. From a profitability perspective, while our first half adjusted EBITDA margins trended in line with our performance at the end of fiscal year 2020, our second half profitability was negatively impacted as we absorbed higher costs, primarily from raw materials, freight, and logistics. In yesterday's earnings release, we announced two key initiatives to mitigate cost challenges and enhance our financial performance. First, to counter the impact of rapidly rising raw materials, freight and logistics costs, we implemented global price increases, which took effect during the first quarter of fiscal year 2022. We believe these price increases will offset the cost headwinds that we have experienced to date and are prepared to implement further pricing actions if needed. We are working closely with our customers and have been encouraged by the adoption of our new pricing to date. In addition, we initiated an enterprise-wide strategic cost optimization program named Future Forward, The program is designed to implement structural changes to enhance operational efficiencies while maintaining our strong focus on technology innovation and customer partnerships. We are confident these actions will help optimize our overall cost structure while maintaining our commitment to innovation and operations and quality across our businesses to drive organic earnings growth. The outlook for our electronic materials segment remains strong, driven by a healthy semiconductor industry as customers continue to invest in their infrastructure and operate at near maximum utilization. We believe our electronic materials segment will continue to benefit from IC technology advances and increased customer capacity. We are well positioned to capitalize on these trends given our many competitive differentiators, including a highly formulated and broad product portfolio, commitment to technological innovation, close customer partnerships, global infrastructure, and ability to manage complex requirements across global supply chains. Turning to our guidance for the fiscal year, we currently anticipate full year adjusted EBITDA in the range of $355 to $385 million. This guidance reflects our confidence to offset and grow beyond the loss of earnings from the exit of the wood treatment business, primarily through a combination of organic growth and the favorable impact of the Future Forward program, while pricing actions are expected to offset the additional impact of inflation. We begin our new fiscal year with optimism. The initiatives announced today, along with our strong differentiated product portfolio and advantage positions, will further contribute to our long track record of profitable growth going forward. With that, I'll turn the call over to the operator as we prepare to take your questions.

Thank you. At this time, to ask a question, you will need to press star one on your telephone. Once we draw your question, just press the parent key. Please limit yourself to two questions. Please stand by while we compile your Q&A roster. Your first question comes to the line of Mike Harrison from Seaport Research Partners. Your line is now open. Hi, good morning. Hi.

I was wondering if you can provide a little bit more detail on the timing for the actions that are part of the Future Forward program. How much of those actions are being implemented earlier in the year or should we maybe think of those savings as being weighted more toward the back half of fiscal 22? And then also maybe give some detail on whether these show up mostly in the corporate segment or if we'll see some impacts in electronic materials or performance materials.

Yeah, sure, Mike. I would be expecting from a phasing by quarter perspective less of an impact to Q1, meaningful change for Q2, and then Q3 and Q4 runs beyond that. I think as you're thinking about the two different slices of that, that approximately 15 million or so, that would be mostly for OPEX to impact FY22. And the benefits that are going to come beyond FY22, they're going to have a greater impact on cost of sales. That's likely to be something closer to footprint rationalization where those projects have a little bit of a longer timing. And then as you think about the segments or corporate Of the 15 for this year, I'd be thinking again about that as primarily in corporate, and then those future benefits would be primarily to the electronic materials segment.

Yeah, Mike, just to give some background on the program, you know, first, we wanted to be thoughtful and strategic. You know, perhaps the pandemic was a catalyst, but I think it's just what good companies should do and what we didn't want to do was impact any of our innovation or customer-facing efforts. We feel really good about where we are there, but we wanted to take the opportunity to streamline the organization a bit. We know we're in a very dynamic environment, so we're excited about the announcement today and the work that's going to go on to support it.

All right, and then in terms of the electronic chemicals business, you again delivered a record quarter, at least in terms of revenue there. Can you comment a little bit on the progress that you're making as you're working to improve capabilities and looking to grow in some of those higher value process chemicals within EC?

Yeah, thanks, Mike. We're obviously excited about the, you know, the second record quarter for us in a row for EC. The growth was driven by just strong demand in general. As we've talked about, this is more of a regional business, so we primarily participate in North America, Europe, and Southeast Asia. We're a leader in all of those regions in which we participate. So I think that strength reflects both the underlying strong demand and high utilization by our customers, but also some new business wins as we continue to kind of optimize that portfolio. We're really pleased with the progress we've seen in EC.

All right, thanks. I'll turn it back.

Thanks, Mike.

Your next question comes from the line of Kieran Debrun from Mizuho. Your line's not open.

Hi, good morning. Good morning. Good morning. I was just wondering if you can just discuss a little bit more in terms of where you saw, like what key raw material headwinds you're experiencing in the quarter and how you view those moving through into the first half next year. And then in terms of pricing, it seems like you're able to push it through pretty quickly to offset some of these increases if they continue to remain, let's say. But how do you think about maintaining some of that price as some of these headwinds subside?

Yeah. Karen, thanks for the question. I'll give some context and Scott can follow up with some additional detail. You know, I think as we talked about last quarter, perhaps we were a bit earlier in seeing the effects of inflation and perhaps that's given us some more time to react and respond. And obviously it's been a very, very pervasive topic in, you know, throughout the sector. How we feel about it is, and we gave a few examples in the prepared remarks of just some of the headwinds that we're seeing. We're not going to be able to give a lot of specifics around pricing just because of the competitive dynamic. But what I would say is that we're very confident that we've offset the inflation that we've seen so far and are prepared to continue taking further pricing actions as needed as we see more inflationary pressures, perhaps in the future.

Yeah. And the other point, Kieran, that you made about kind of trending that out, I think, again, as Dave said, we're going to be reluctant to be too specific about any particular raw material or the impact of the company and conversely, the pricing aspects of that. But we can say that, you know, look, we expect to offset the inflation that's coming for this year. So as you're thinking about the margin pressures going forward or margin expectations going forward, our expectation is to be offsetting that incremental inflation going forward. So, you know, your most immediate question may be also related to Q1. And I'd be thinking of Q1 as trending pretty specifically or consistently with Q4 because The future forward program will have less of an effect to our Q1. We have some pricing in place now, as we said, that we implemented earlier in the quarter. So we feel good about maintaining that. We have a piece of the wood treatment business that's coming out. So there's a few puts and takes. But I'd be thinking about the profitability of the company for Q1 as run rate pretty similar to what we experienced in Q4 of this year, and then likely getting better beyond that.

T. Great and and then maybe just a quick follow up and this maybe is a little bit longer term question, but. T. We see a pretty substantial step up in terms of semiconductor industry capex which probably going to continue to grow into next year. T. Now, when we think about all that incremental demand coming online and what that means for your CMP slurry and pads and your electronics business as a whole. How do we think about your current capacity in terms of being able to satisfy that future demand and how you think about future organic investment? It seems like there's a bit of a step up in CapEx this year, but overall, just any color you can give on how you're thinking about that going forward would be helpful.

Yeah, we're really excited about that. So as we think about the announced capacity additions by our customers, first of all, we think we're very well positioned. So there's been announcements, obviously, of big additions in the U.S., also in Europe and even in Japan. We have facilities in all those regions. And I think as we think about our business, it's really probably as you would expect. For CMP slurries, we know that's a foundational, really important business for us. We will always have sufficient capacity for current and future demand. That's not gonna be an issue. For EC and areas that are perhaps more CapEx intensive, we're really picking our shots. Where can we be providing differentiated solutions to support our customers? I'd say pads, we've invested ahead of that growth as well. So in terms of capacity, I think for slurry and pads, we're excited to support that future growth. For EC, we're going to be disciplined about looking at the portfolio. Where can we add differentiated solutions and make investments to support that growth going forward? But I do think from a global infrastructure perspective, we're really well positioned to support the future customer expansions. I just add on one other point is in our prepared remarks, we provided some background on CMP slurry growth rates. So we put that around 6%. We've obviously outgrown that significantly over the past five years. We think that is an indication of us gaining participation. So we think future growth is going to come from additional capacity coming online and increasing participation that we've seen from C&P slurries.

Great. Thank you very much.

Thanks, Karen.

Your next question comes to the line of Chris Kapsch from Loop Capital Markets. Your line is now open.

Hey, good morning, Chris. Hi, good morning. So just on the initial guidance range for 2022, I was wondering if you could talk about If you hit the midpoint of that range exactly, could you talk about what contribution would come from the electronic materials segment? I just think it would be helpful for investors to have a sense of what the underlying growth of that core segment might look like against this favorable backdrop and maybe even especially coming through fiscal 21 when there's been some quarter-to-quarter choppiness for some idiosyncratic reasons in that business.

Yeah, sure, Chris. I'd be thinking of that organic growth as primarily from electronic materials. And I think that, you know, we've also, we recognize the complexity with the wood treatment business coming out. So we were pretty transparent, I think, in our materials about how you can think about the wood business and the phasing out that is happening for that. Now, undoubtedly, when you unpack that, which you probably already have, you'll notice that the Q4 margin for PM was down. The PM margin will continue to be pressured with the exit of wood treatment. And there's inflationary pressures in the PIM business. So I'd be thinking about the organic growth as mostly electronic materials. And again, I mentioned a Q1 versus Q4 expectation. I'd be thinking of a similar run rate and then the rest of the year getting better as we have the benefits of future forward kicking in.

Yeah, and Chris, just to add on to Scott's comments, you know, we have that bridge in the prepared materials. And I think as our guidance reflects its optimism of continued strength of electronic materials in particular, that's where the organic growth is going to come from. We're just putting pricing and inflation as an offset, the benefits of the future forward program. And then obviously, as Scott mentioned, that exit of Woodtree, which is a pretty significant profitability contributor. I think we've done a nice job driving value in that business, but we're exiting over the course of the next several quarters. So that's kind of the bridge that we provide in the prepared remarks and gives you a feel for what we're thinking about the year.

Right. That's helpful. And just the follow-up would be as you look at that guidance and developing it and have some scenario analysis around the high end and low end of that range. Just what are the product lines where you see greater risk of variability that might lead to either hitting the lower end of that range or the higher end of that range? And what are some scenarios where you'd come in on either end and what would you attribute those factors to? Thank you.

Yeah, thanks, Chris. Good question. I feel like the spectrum of the range really is, you know, first, we feel really good about our position. So we mentioned in some of the prepared remarks a few really breakthrough wins we've had in advanced applications, one in Cobalt, one in 3D NAND. So we feel really good about our participation and advancing that participation rate in slurries as well as pads. As EC, as I mentioned, we're kind of picking our shots So I look at sort of that range of high-end and low-end of guidance really as, one, we're assuming the industry stays very strong. So backdrop of continued strong industry demand, I think that's what everyone's calling for, but I think that's one big assumption. The other one is obviously when we think about profitability issues, it continues to be a very dynamic environment, right? So responding to rising costs, again, we gave some examples in the prepared remarks about logistics, raw materials. So our ability to continue responding and offsetting that with price, I think, is sort of the second factor. But in terms of our positions, we feel like we've continued to win advanced positions and are seeing those ramp up. We're seeing that ramp up of new capacity coming online from customers. So I'd say those are sort of the two kind of areas to think about in terms of the range of our guidance.

Fair enough. Thank you.

Thanks, Chris.

Your next question comes to the line of Amanda Scarnati from Citi. Your line is now open.

Good morning, Amanda.

Good morning. I have a question on the step up in CapEx that we're seeing into fiscal 22. Can you just talk about what's driving that step up in capacity? Are you seeing any sort of, you know, unconstrained demand or difficulty in meeting customer demand that's driving CapEx? Or is this a little bit more of a longer term strategic addition?

Yeah, sure, Amanda. I would characterize it as the second longer-term and strategic investments now for the longer term and the strategic over time. You know, we have not had any particular issues or problems meeting all the demands of our customers. We've made the comment before, and we can continue to make it, that we've delivered every single shipment to our customers, even during all of the issues that we've had during the pandemic era. And I would just say that, you know, as you know, we constrained CapEx this year, given the particularly uneven environment that we had. And so there's some investment that from this year kind of phases into next, but I would be thinking of it as mostly again, strategic and investments now for the strategic and the longer term in the future, essentially in electronic materials. to benefit and to participate in the increasing capacity that our customers are putting in.

Thanks. Shifting gears to the oil and gas business, oil consumption is still sort of below production, especially here in the U.S. Do we need this consumption to return in order to recover the DRA business, and then is there Any additional concerns about CB demand increasing in the U.S. and how that's going to impact the DRA business longer term?

Yeah, as we've mentioned before, Amanda, it's obviously a pretty challenging environment on the PM side. And despite the rise in oil price, demand for DRAs is really correlated to oil transports. and we have very strong positions in the U.S., so pretty specific to the U.S., ramping up oil transport, and we just haven't seen that yet. And so as we've tried to look at our forecast and working with our customers closely, I think it's a business that we recognize is operating in a challenged environment. I think it's fair to say that we're looking at all options for that business, And we're also seeing some interesting innovation in that area that we're introducing in terms of new products. But I think it's just a continued challenging environment. And obviously, it's not a big focus for us at the moment.

Perfect. Thank you.

Thanks, Amanda.

Your next question comes to the line of Paritosh Mizra from Barenburg. The line's now open.

Thanks. Good morning, Paritosh.

Hey, good morning, everyone. Thanks for taking my questions. So you had a very good performance in electronic chemicals in the second half of this fiscal year. Was there anything unusual that helps us, such as customer restocking or something along those lines? Or is this a good base rate and you expect that business to grow with the second half as a base going forward?

Yeah, we didn't call out any sort of – You know, atypical inventory buildup. I think it's really just reflective of high utilization and demand from our customers. We did talk about a few new wins in the electronic chemicals segment several quarters ago. So some of that demand is seeing that business ramp up. I think this business, if we think about the growth profile, it's going to be a solid business. It's probably not going to grow as fast as our C&P slurries or pads business. But it's one in which, one, we're picking our shots and where we can differentiate ourselves. And I think we're seeing that come out in terms of the business that we have in the portfolio continues to be, you know, very differentiated products that we support our customers with. And so, you know, just to answer your question, I think it's really driven by more of the strong demand from customers that we see in the regions that we participate in.

Got it. Good to hear that. And then how are you tracking in terms of meeting your 2024 EBITDA target? I believe it's for $60 to $510 million. Are you ahead or maybe this cost inflation is a bit of a drag on that? How would you get a track of that?

Yeah, I think we'll update that more formally, Paritosh, in the coming timeframe here. But I think you're thinking about things the right way. Look, the semi-industry continues to be very strong. We're excited about where we participate in our ability to serve our customers and drive value through that segment. So that continues. The inflationary pressures were new, and we're articulating today our objective and our expectation that we'll be able to offset those in the future. Now we have to factor in the wood treatment exit as well. So I'm probably going to be reluctant to give too many details about FY24 right now until we formally sort of re-update that, which I think would be coming up in the shorter time frame.

That's fair enough.

Thanks.

Thanks, Sir Tash.

At this time, As a reminder, to ask a question, you will need to press star 1 on your telephone. That is star 1 on your telephone keypad. Your next question comes from the line of Mike Harrison from Seaport Research Partners. Your line is now open.

Thanks. I'm wondering if you could give a little bit more detail on the order patterns you saw from your Chinese distributor customer. Have those order patterns normalized as of September or October? And I guess maybe more broadly on China, you noted the 40% growth rate in fiscal 21. Maybe talk a little bit about how you see growth in China going forward.

Yeah, I'll give some context and then Scott can provide some additional detail. You know, first, China is not a new region for us to operate in. We've grown very strongly in China, almost 20% year over year for the last five years. And then we've seen significant growth in the last couple of years. And I think that's one. I think one is our continuing to work closely with our customers in China. Although we don't sell direct, we have a local team there that work very closely with those customers. And we continue to gain participation in China. And we all know that China is also investing a lot in their semiconductor industry. So we see from a mid-term, long-term perspective, really, really strong growth coming from China. It's an important region for us and we think we're well positioned. I'll let Scott comment on sort of the near-term order patterns.

Yeah, I think the, as we expected, Mike, the near-term order patterns have normalized during this quarter. We expect to get back to growth beginning in Q1, which is what we articulated was an expectation last quarter. So we're still on track and expecting that. I think you mentioned the significant growth in FY21 versus FY20. And you get to the point where China is one of our largest countries now. So you get a little bit of law of large numbers. And so that percentage growth is likely down from what you've mentioned in FY21. But I'd still be thinking about double digits for China for next year.

All right. Appreciate that. And then a question on the PIM business. That's one of the areas where you identified pretty significant raw material inflation, but you've got this issue around kind of weaker demand and some competitive dynamics that are not super favorable and maybe impacting your ability to get pricing. Have you seen competitors moving on pricing in this inflationary environment and that is enabling you to increase your own prices? Maybe talk about how you're balancing and the need for pricing with your desire to maintain market share or see some recovery in volumes?

Yeah, I think you know the space well, Mike, and it continues to be an increasing area of competitiveness. So we're clear-eyed about that. I don't want to speak about what competitors are planning from a price perspective, but we look at things from a company-wide perspective. So no doubt PIM is being impacted within our PM segment. The PIM business is being impacted by raw materials, and we showed an indicative chart in our materials. So the margin pressures will occur within that segment. I think from an overall company perspective, we have the expectation of offsetting price. That's not necessarily true for each of the segments. but we want to make sure that we're clear as a company overall. But we also mentioned that I think there's some interesting things that we have been working on to further improve profitability of this business, including product innovations and new products with potentially alternative raw materials. So, you know, we're focused on improving the business, optimizing the business, but we're also clear-eyed about the competitive environment and also the demand environment.

All right, thanks very much.

Thanks, Mike.

Your next question comes from the line of David Silver from CL King. Your line is now open.

Hey, good morning, Dave.

Yeah, hey, good morning. Thank you. I had a question, I guess, on the Future Forward program. And in particular, I guess I was thinking about how you're designing this program or the goals of this program with regards to your global footprint. So my recollection is for the past several years, I mean, expanding or broadening your global reach has been, you know, a priority use of discretionary CapEx pretty much every year. And I can't recall the exact wording. it seems like there are parts of your global footprint where maybe you're going to be pruning back a bit. So when I think about the goals, maybe customer responsiveness and maybe to have some redundancy in terms of supply capability, an issue that's probably a little more prominent in the current environment. I was just hoping you could just discuss the balance that you're envisioning between maintaining the type of global footprint you need to serve your customers with the goals of maybe extracting some greater efficiencies or economizing here and there? Thank you.

Yeah, thanks, David. I think for us, as we think about it, again, we've been very thoughtful about our approach, and we don't think that reducing cost is opposed to supporting growth. And so as we think about our global footprint and where our customers are adding capacity and needing more support, that's obviously not going to be a focus of this program. And we kind of mentioned that we're not impacting any innovation or customer-facing efforts This is really more focused around corporate. There could be, as Scott mentioned, a look at our facilities. We're not prepared to talk more about that today, but it would not be in an area that we'd see sacrificing growth or customer support. Overall, I think it's just as we look back, we're several years removed from KMG. We took on a lot of infrastructure and, of course, a lot of great people. And as we look back a few years removed, I think it's just a good opportunity for us. I think the pandemic serves as a catalyst, but I think this is a good opportunity for us to do some strategic cost optimization around the company.

Yeah, I think that's a good summary. I would only add the context in terms of the financials, David, as we have highlighted 15 million expected of an incremental benefit directly to this year and then 20 to 25 That will take a little bit more time. That's the you know that the 20 to 25 is the total. So there's an incremental call it 5 to 10 in the future. I think I would be thinking about that as more of the footprint rationalization because of everything that Dave described. Those are longer term projects. We're going to have to do a lot of work, not only if we're going to impact the site, but working with our customers, re registering, getting the approvals and so on from them. I would just tie Dave's comments in with this little bit of a tale on some of the benefits of the activities that we envision as part of Future Forward.

Okay, great. My next question, I hope I can get this out in an understandable manner, but I'm just hoping you could maybe integrate the long-term qualification process that you know, your CMP businesses typically undergo for a position win or process a record award. And then the marry it or integrate it with the very aggressive wafer fat equipment spending that's going on in the industry. So in other words, there's a timeline, there's a gap between maybe when you're qualified and maybe when a physical facility or production line is actually complete and turns on and then ramps up over time. And I'm just wondering, when you look in the context of your guidance for 22 and thinking about where you've been the last few quarters, is it fair to say that you're expecting a notable pickup in the cadence at which I think maybe the relevant production facilities where you have positions, will they be turning on at a notably quicker cadence, let's say, over the next 12 months compared to the last 12 months? Any comment on the opportunities to initiate these new position wins into actual production and ramp up? Thank you.

Yeah, Dave, I think you have the right key dynamics to focus on. Again, we kind of focus, go back to expectation of C&P growth rates, probably 6%. As we see more capacity coming online, you might see that number go up a bit. That capacity, we're already seeing some of it come online, for example, from some of our memory customers. But equally important is winning those new opportunities. So We talked about some of the new opportunities that we won and are excited about. We also talked about consumable set win in the pads area. It's really important for us to continue increasing our participation in those advanced nodes as we have been doing so that when those new capacities start up, we're well positioned to either just kind of port over if the customer is using the similar technology and process, or if they're ramping up a new technology, we're able to introduce new products and grow with them. You know, right now I'd say of the significant announced capacities, for example, TSMC in Arizona or Intel has talked about a few new fabs. Those are pretty early stage, right? I think they're not close to being startups. So those are kind of in the kind of one plus year range. range out, but I do think we're seeing some of the customers that have invested in incremental capacity additions, starting those up. And those occur obviously a lot faster and we see that volume come through. We are expecting and confident to get both, right? We want to be there to support that additional capacity when it comes online. And we also want to grow our participation by winning new technologies as they ramp up in logic, foundry, and memory. So it's all of the above, but I would say grounded in that sort of 6% growth rate of CMP, we've obviously performed much more strongly than that, and we'd expect to continue to do so. But that's sort of some of the background and context.

Okay, great. I hope Colleen doesn't shoot me later, but I'm just going to sneak in a question. I don't believe anyone's asked about the share repurchase activity this quarter. And I'm just wondering, you know, how you look at that pretty aggressive spend in the context of, I guess, your overall, you know, value creation strategies. So should we expect an elevated level going forward, or was that kind of a one-off opportunistic kind of event? Thank you.

Yeah, you understand it well. There was an accelerated level of purchases this quarter, and I would say it's from a confluence of factors. We continue to be very excited about the long-term prospects for our industry and our ability to operate within the industry. We constrained CapEx in FY21. And we've also been maximizing the cash returns for the wood business. So we saw an opportunity to deploy those funds. I would just say in addition, David, that there's no change to our capital deployment priorities. They continue to be organic in the organic growth. Number one, paying dividends to shareholders on an ongoing and increasing basis, reducing debt or leveraging up, uh, potentially for M and a, but right now we're in the reducing. Debt phase is number three, and then repurchasing shares. So I don't see a structural change to our priorities there. And I think the one thing that I would just, you know, recognize is that we continue to meet all of our capital deployment priorities. We haven't, it wasn't a matter of us buying shares and having to change expectations about any of the other priorities because of the high value of what it is that We provide to our customers the capital light model, the earnings leverage that we're able to achieve. We're able to generate a lot of cash. We're going to continue to be thoughtful deployers of that. But because of these, again, kind of confluence of factors, we saw the opportunity this quarter.

Thank you very much.

Thanks, James.

Your next question comes from the line of Paritarsh Misra from Barenburg. Your line is now open.

Welcome back, Prakash.

Thanks for taking the follow-up. So just looking back at this year, you had inflation impact that impacted your EBITDA and also some variability from buying patterns in China. Is there a way to quantify the impact from these items? I know you shared some numbers on the last call, but just wondering if we could revisit those.

I think this will help you, Paretash. And when you think about our past, and I'm going to just run forward to the total company metric EBITDA as a percent of revenue. In FY20, we were about 32%. We're going to end FY21. We have ended FY21 about 30%. So there were pressures on our business this year, and we were pretty, again, I think, thoughtful and clear about clearly stating those last quarter and this quarter. So our profitability in Q4 has trended in line with what we had expected, but we'll end the year about 30%. And I had mentioned that for FY22, I think if you're thinking about a similar sort of expectation because of those different puts and takes that we mentioned, that's a reasonable way to be thinking about 22. Inflationary environment in FY21, pricing actions in place to offset additional inflation in FY22. And we mentioned in our materials, we're always looking at that. And, you know, as things continue to evolve, we may change our plans as well and even, you know, have the opportunity to increase price going forward. But that's how I'd be thinking about the profitability of the company in a general way, and I mentioned earlier how to think about Q1 versus Q4, and I would be thinking about EM as improving slightly, and I'd be thinking about PM as coming down with some extra raw material pressures in PIM and then the exit of the wood treatment business. That's how I would kind of verbally describe some of the work that you're undoubtedly doing on the financials.

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

Thanks, Parahash.

Again, to ask a question, please press star 1. Again, that is star 1 to ask a question. Your next question comes from the line of Chris Kapsch from Loop Capital Markets. Your line is now open.

Hey, Chris.

Yeah, hi. Thanks for taking the follow-up. So really, it's a question on the IP litigation. And so my interpretation of everything that's transpired there is that you've been successful in this patent infringement case The patent's valid, there was infringement. What I'm curious is if there's the timing of any potential benefit. Have you factored any benefit from that resolution into this guidance range that you've given? And then secondly, is it fair for us to conclude maybe that the outcome of that litigation, which is focused on the U.S. jurisdiction standpoint, might be a benchmark for similar infringement cases in other jurisdictions?

Yeah, thanks, Chris. Obviously, we feel really good about where we are with that, but we're still in active litigation. We do expect a final determination in sort of early December-ish, and we have not factored in any sort of conversions, although we're working with many customers and we're seeing a lot of pull. So that would just be upside to our guidance. To your question of kind of the scope and span, we highlight also that we brought in enforcement action in Taiwan. So we think that this is a, we feel confident obviously in the merits and what we've heard back from the ITC so far. We feel confident that we're going to prevail on our innovation and technology and we're working with, I would just say, several significant customers on conversion And it is a global effort.

Excellent. Good to hear. Thank you. Thanks, Craig.

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

Great. Thanks. That is all the questions that we have for this morning. Thank you all for your time and your interest in CMC material.

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