Entegris, Inc. (ENTG) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the CMC Materials' Fourth Quarter Fiscal 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that Today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to one of your speakers for today, Colleen Mumford, Vice President of Communication and Marketing. Please go ahead, Ms. Mumford.

Great. Thanks Carol and good morning everyone. With me today are David Li, President and CEO; and Scott Beamer, Vice President and CFO. Last night, we reported results for our fourth quarter and full fiscal year 2020, which ended September 30, 2020. Whether you're joining us online or over the phone, we encourage you to review the investor slide presentation we've made available under 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 prepared comments 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, 2020 and Form 10-K for the fiscal year ended September 30, 2020, which we expect to file by November 27, 2020. 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, these reflect rounded values throughout this discussion and in the accompanying slide presentation. I will now turn the call over to Dave.

Thanks Colleen. Good morning, everyone. Last night, we announced results for our fourth quarter and full fiscal year 2020. Before discussing our record results, I'd like to again express my gratitude and appreciation to our teams globally for their efforts to keep our employees safe during this challenging environment, and highlight that our ability to innovate, manufacturer and deliver solutions, as well as support our customers has not been meaningfully impacted by COVID-19 to date. I'm also excited to report results for the first time as CMC materials following our company name change and rebranding on October 1. As we celebrate our 20th year of being a public company. Our new corporate brand identity unifies our heritage, Cabot Microelectronics and KMG businesses and reinforces our commitment to technology leadership, and supplying high quality, high value specialty materials that help enable our customers most advanced technologies and resolve operating challenges. Our new name pays homage to our proud heritage, including our focus on electronic materials to support the semiconductor industry, which remains unchanged. Turning to our fourth quarter and full year results, we are pleased with our performance and strong growth in CMP slurries and electronic chemicals this quarter. Our total company revenue for the quarter was down slightly compared to the prior year, primarily due to lower demand in our pipeline performance products, which continued to experience softer industry conditions due to the impact of the pandemic. Moving on to full year results, we delivered record revenue, record net income and record adjusted EBITDA for our company. This is our fifth consecutive year of revenue growth, with revenue increasing 8% compared to the prior year, again demonstrating our strong execution and the resiliency of our businesses within this challenging environments. I believe one of the hallmarks of our business continues to be its robustness, resilience, and best-in-class profitability across various environments, and industry cycles. Revenue was up 2% versus pro forma results last year, which assumes we owned the KMG businesses for the full fiscal year of 2019. This increase was driven by strong demand in CMP slurries and higher prices in our wood treatment business, which more than offset lower CMP pads and pipeline performance revenue. CMP slurries revenue benefited from continued strong customer demand for advanced solutions and foundry and advanced logic and stabilized demand in memory, supported by the transition to work from home and e-learning environments, as well as technology migration by our most advanced customers. We won new advanced node positions for our tungsten and advanced dielectric slurries and also made progress in expanding our positions and legacy applications. Electronic chemicals revenue also benefited from customer no transition. But the growth was offset by some weakness and legacy applications primarily due to reduced demand from customers with higher exposure to automotive and industrial sectors. Our pads business experienced headwinds this year, but these were partially offset by new customer wins, including pad and slurry consumable sets that we expect to ramp up over the next several years. We continue to be excited about the growth prospects for this product area in the future given our recent wins and active pipeline of new opportunities. Our Performance Materials segment was negatively impacted by an unprecedented drop in oil demand and transport which significantly affected demand for drag reducing agents, or DRAs, in the second half of the fiscal year, but was offset by higher revenue in our wood treatment business, primarily due to higher selling prices. Full year adjusted EBITDA of $358 million was up 7% from the prior year, and adjusted EBITDA margin also improved by 32%, primarily due to operating efficiencies and synergies from the KMG acquisition. We are proud of this continued strong level of achievement, which again demonstrates our best in class profitability amongst our specialty materials peers. Now let me provide some additional thoughts on industry conditions and outlook. Looking into fiscal year 2021, we expect demand from foundry and logic customers to remain strong, and demand from memory customers to continue to recover as a result of technology transitions and growth in emerging applications such as 5G and high-performance computing, as well as improvement in demand for automotive and industrial sectors. As a result, for the first quarter of fiscal 2021, we expect revenue for our Electronic Materials segment to be approximately flat to up low single digits compared to this quarter's results. Beyond this quarter, we believe we are extremely well positioned to grow with the industry given our positions in advanced logic, foundry, and memory. Turning to Performance Materials, revenue in DRAs dropped in the second half of fiscal 2020 as a result of lower demand for crude oil and gasoline due to the pandemic, which, in turn, negatively impacted the volume of our products needed by our pipeline customers. During the quarter, we saw an improvement in demand for DRAs in July, but did not see further increases in August and September as had been expected when we provided details on fourth quarter outlook during the last earnings call. We believe that industry demand will stabilize and gradually recover as global economies open following lockdowns. The situation remains uncertain and we are closely monitoring the demand environment for any changes related to the pandemic. While there is still some uncertainty and risks for the oil and gas sector, current analyst expectations point to a gradual recovery in crude oil demand through calendar 2021 and global oil demand returning to pre-pandemic levels in calendar 2022, which should translate into higher DRA consumption. In addition, our team is focused on winning new business opportunities with both existing and new customers. Finally, we expect continued strong and stable performance from our wood treatment business this year, as we work closely with our customers on our planned transition and exit around the end of calendar 2021. Based on this outlook, we currently expect Performance Materials revenue to be approximately flat sequentially in the first quarter. Given these expectations for a stable to improving operating environment in both our Electronic Materials and Performance Materials segments, and dependent on macroeconomic factors, we currently expect total company revenue to be approximately flat to up low single digits in the first quarter of fiscal 2021. In summary, we are proud of our results this year given the unprecedented macroeconomic environment and believe they represent the continued resilience and strength of our overall portfolio. Looking ahead, we are excited about long-term growth opportunities for our company given the favorable trends in the semiconductor industry driven by new technologies. In addition, we expect continued adoption of DRAs in both the US and internationally to drive stabilized growth for our Performance Materials segment. We believe we are well positioned for growth in fiscal 2021 and beyond driven by our innovative and broad product portfolio, technology leadership, and operational and quality excellence. With that, I will turn the call over to Scott to provide more details on our financial results.

Thanks, Dave and hello everyone. As Dave mentioned, we generated record revenue, record net income, record EPS and record adjusted EBITDA in fiscal 2020 while facing challenging conditions, particularly in our DRA business. We also reported record cash flow from operations and record free cash flow this year while still investing strategically in CapEx to support expected future growth in our businesses. Once again, we met all of our capital deployment priorities including investing $126 million in CapEx, paying $50 million in dividends and repurchasing $35 million worth of our common stock. We also de-levered our balance sheet consistent with our stated target and achieved net debt to adjusted EBITDA of less than two times. The fundamentals of our businesses remain strong and we continue to manage what we can control. This has resulted in ongoing cash flow generation, best-in-class profitability, and a strong balance sheet. We are confident in the financial strength of our company and our ability to generate future growth and to continue to drive shareholder value. Now, let me speak about our quarterly results, and my comments will generally follow the slide presentation we posted on our website last night, along with our press release. Slide 3 provides a high-level summary of our financial performance for the quarter. Overall, we saw growth in CMP slurries and electronic chemicals and benefited from higher revenue in wood treatment. Conversely, our DRA revenue declined about 40% year-over-year, resulting in a net decline of consolidated revenue of about 2%. DRAs continued to be impacted by softer demand for oil, particularly with fewer miles being driven in North America, related to the global pandemic. Slide 4 shows full year results. So that we may discuss comparable information, we report adjusted pro forma 2019 information, which assumes we owned KMG for the full year of 2019. Using this, our revenue increased 2%, adjusted EBITDA grew 4% and adjusted diluted EPS increased 11%. These metrics are all indicative of our ability to grow revenue even in a challenging environment, our strong operating leverage, and overall cost control, including delivering synergies. Slide 5 provides some quarterly P&L comparisons for both reported and adjusted results. Gross margin increased over the prior year. Adjusted gross margin was comparable to the prior year as higher selling prices in wood treatment and improved mix in slurries were offset by the impact of lower volume in pipeline performance. Our reported net income was $37 million. Adjusted net income was $58 million, up 16% compared with the same quarter last year. Overall, our adjusted net income benefited from lower operating expenses, lower interest expense and lower tax expense in the quarter. Diluted EPS was $1.25. Adjusted diluted EPS was $1.96, which is 16% higher than the same quarter last year. Adjusted EBITDA was $84 million, down 2%, primarily due to lower revenue. Adjusted EBITDA margin was 30.6%, essentially flat. One adjustment this quarter is a non-cash pre-tax impairment charge of approximately $2 million related to the wood treatment business driven by our previously announced plan to exit that business around the end of calendar 2021. The remaining carrying value of the business is approximately $39 million, and we expect future impairments related to the business in each quarter as we approach the closure date. For reference, this business contributed approximately $63 million in revenue this year with adjusted EBITDA margins above the average level for the Performance Materials segment. Now let's discuss revenue results by segment and business, which are shown on Slide 6. Electronic Materials, which was 81% of our quarterly revenue, increased 3% compared to last year. CMP slurries revenue increased 5%, primarily driven by stabilized demand in memory and higher revenue for our tungsten slurries, which continue to represent a growth area for our company. CMP pads revenue was down 10% year-over-year, primarily due to timing of orders, and we expect this business to return to growth in the December quarter. Electronic chemicals revenue was up 2% compared with the same period last year due to stronger demand from advanced logic applications. Sequentially, revenue for the Electronic Materials segment was up 1%. Moving to Performance Materials, revenue declined 16% over the prior year and 5% sequentially, primarily driven by softer demand for pipeline performance products. DRA sales declined 43% compared to the prior year, which was partially offset by higher revenue in wood treatment. As mentioned last quarter, June was the low point for DRA revenue so far. Slide 7 shows revenue and adjusted EBITDA by segment. Electronic Materials delivered $71 million of adjusted EBITDA, which was 32% of segment revenue. Performance Materials delivered $22 million of adjusted EBITDA, which was 44% of segment revenue. Now please refer to Slide 8, which provides some balance sheet and cash flow highlights. We ended the quarter with $257 million of cash on hand and $921 million of total gross debt. During the quarter, we repaid the $150 million draw down from our revolving credit facility. We drew down these funds in March out of an abundance of caution and simply held the funds on our balance sheet without using them. For this fiscal year we generated cash flow from operations of $287 million, and our CapEx was 126 million. As a result, our free cash flow was $161 million. Our net debt is currently below two times our adjusted EBITDA, which was slightly ahead of the timing target we established when we completed the KMG acquisition in 2018. Finally, on Slide 9, we provide some forward-looking expectations. We would caution that our guidance is based on our current estimates, and these could be impacted by the ongoing volatile nature of the pandemic and its impact on the industries we serve. For the first quarter of fiscal 2021, we currently expect total company revenue to be approximately flat to up low single digits compared to the fourth quarter. For the Electronic Materials segment, revenue is expected to be approximately flat to up low single digits versus our fourth quarter as we forecast a stable to slightly increasing demand environment. We expect revenue in the Performance Materials segment to be approximately flat in the first quarter. For fiscal 2021, we currently expect adjusted EBITDA to be between $358 and $385 million. We continue to believe that an adjusted EBITDA margin between 31% and 32% is an appropriate assumption for the short to medium term. Let's continue with some expectations for our full year P&L. We expect our full-year interest expense to be between $38 million and $40 million. Our tax rate is expected to be between 20% and 23% for the full year, and we expect our CapEx to be between $80 million and $100 million for the full year. Additionally, we have provided an updated, long-term illustrative model in our investor presentation, which is posted on our website. Overall, it is generally consistent with the previous model but has been updated to include the actual results for fiscal 2020 and various other factors that have impacted our future expectations, including the decision to exit wood treatment business. Specifically, we now expect Performance Materials' revenue to grow between 5% and 7% on average for fiscal 2020 through fiscal 2024, and total company revenue growth to be in the same range. This compares to the previously communicated aspiration for the total company of between 6% and 8%. The primary driver of this change is a lower trajectory in DRAs, and while we remain optimistic about the long-term growth expectations, we recognize the short-term challenges for this business. We continue to expect adjusted EBITDA to grow faster than revenue over the long term and further improve upon our already best-in-class EBITDA margins, adjusted EBITDA margins. Overall, we believe that this is a very compelling financial model and reflects the strength of our businesses and our ability to deliver results despite an uneven demand environment. Reflecting back upon fiscal 2020, we delivered record revenue, record net income and record EPS. With our best-in-class profitability and strong free cash flow generation, we met all of our stated capital deployment priorities, including investing in our company to support future growth. Lastly, we would like to thank our global team members for their continued hard work, focus, and tireless energy to allow us to continue to safely and reliably deliver our critical, enabling materials to our customers. Now I'll turn the call back to the operator, as we prepare to take your questions.

Thank you [Operator Instructions]. Our first question today comes from Toshiya Hari from Goldman Sachs. Please go ahead.

Hi, Toshiya.

Hi, guys. Good morning Colleen. Thanks for taking the question. I had two. First, in terms of your dare business, Dave, I was hoping you could speak to your expectations for the December quarter, again for DRA? And you also mentioned that you're focused on winning business with both current customers as well as new customers. If you can remind us your market share in the DRA business both domestically and internationally and where you see the upside going forward from a shared perspective that would be helpful. Thank you.

Yeah, thanks Toshiya and hope you're well. Just regarding DRAs, as Scott and I indicated in our prepared comments, we guided for our PM business to be approximately flat versus this quarter. DRAs make up the predominant amount of that business. So you can kind of interpret that that is a fair, directional guide for DRAs. And as Scott mentioned in his prepared comments, essentially what we saw in terms of the macro side of things is, we thought there would be a more significant recovery this quarter, but instead, what we've seen is stabilization. So things have definitely picked up. And I think the bottom is past us. But we didn't see that strong recovery that we started to see in July. Instead, it just sort of stabilized out. And that's kind of what - where we see things going. Obviously, from a macro environment that's really controlling a lot in terms of oil transport these days. You mentioned - in terms of things that we can control, we are encouraged by the gains we've been able to make, both domestically and internationally. We haven't talked about a share position for either, but what we'd expect to see is regardless of the environment, whether it's a slow environment, or things pick back up, that we expect to grow, because I think we are differentiated in our product offering, we continue to secure, pretty significant business. And the other thing that was encouraging, during this soft period of time, we took the opportunity to continue to innovate and improve our product offering. So as we've talked about, we brought up a new piece of capacity. That's not a similar or just copy of the current. In fact, we've upgraded it. So it's - there's product productivity benefits. We've also improved the product performance as well. So we're taking this sort of softer period as an opportunity to improve our offering. And we're seeing really encouraging results from our customers, both domestically and internationally. And, and this continues to be a strong growth business from our expectation in the mid to longer term.

Got it and I wanted to follow up with a question on your CMP pads business. Scott, I think you spoke to a return to growth in the business in the December quarter. Just wanted to clarify, was that a sequential growth statement or your growth statement or both? I guess more importantly, you guys used to have a medium-term revenue target of $100 million for this business. I'm curious if that's still sort of intact? And if so what's sort of the timing on that? And then in terms of how you're thinking about the business long-term, you talked about a slightly lower revenue growth trajectory for your DRA business. But how are you thinking about CMP pads relative to what you presented at your Analyst Day? Thank you.

Yeah, why don't I start in on pads Toshiya and then I'll let Scott chime in as well. On pads, I think what we saw this quarter was really predominantly inventory. So we had - we did have a few customers build up some inventory last quarter and we saw that this quarter. And as you know, pad sales can be a little bit more lumpy and so that was the effect this quarter. But the bottom line is we also expect this to be a high growth business for us. It has been a high growth business. But it has had some headwinds. I think there's some moving parts in the business that we've talked about and I'll just remind. In terms of the, the headwinds we've faced, we have had a kind of gradual decline of some legacy pads at a foundry customer that we're working through. We also talked several quarters ago about a piece of lost business at a Korean customer, where they were trying out - they're trying out a local pad solution that, frankly, is not well proven. I think both of those are - we previously discussed, and I think those are behind us. What we're really encouraged about is the wins we've been able to secure more recently most of those have been consumable set. So I think that's a great validation of our unique capability to provide both slurry and pad together that have been optimized. Just this past quarter, we secured wins with a major advanced logic producer as well as a major memory producer. Both of those were consumable sets. So again, I think there's some moving parts in the pads business, some headwinds that we're overcoming with more wins, but long-term, we still - we continue to think of this as a strong growth business. But obviously this year was not the result that we wanted. But we fully expect to regain that trajectory going forward.

Thank you for the details.

Thanks Toshiya.

Our next question comes from Mike Harrison from Seaport Global Securities. Please go ahead.

Good morning Mike.

Hi, good morning. I was wondering if you could talk a little bit about what you're seeing in both the legacy as well as the advanced side of the business, in terms of customers, inventory levels and production rates. Are you seeing any signs that maybe amid sluggish, global, macro environment, that some of your customers are going to need to pull back on production rates or maybe work down some of their inventory levels?

Yeah. Mike thanks. And hope you're well. I think we continue to be, from an industry and macro standpoint on the semiconductor side, really encouraged by the strength in demand that we've seen from our customers. And what we talked about in the prepared comments is that advanced logic and foundry are really leading the way. Memory is stable, but not yet fully recovered to sort of the historic build in 2018. So it's stable, but not back to full utilization in memory. But I think if you look at the underlying demand drivers, they continue to be quite healthy. So obviously, the role that technology is playing in this pandemic for connectivity, really important, so driving a lot of demand for PCs and tablets. We've talked about that. But then I think there's also a number of newer devices, smartphones, gaming systems that have been launched recently, as well as new 5G devices that are also driving demand. So we see that demand dynamic from our customers is quite healthy. We don't see any channel inventories or chip inventories that appear to be problematic. So it looks like things are pretty healthy right now. If you listen to comments on the memory side from Samsung, they are talking about perhaps a little bit of a softer calendar Q4 for them. We haven't seen that on our side, and then kind of a recovery even stronger into 2021. That was their comments. And if you think about what we've been able to achieve in this past fiscal year, we're able to grow despite memory not fully recovered, as well as having some headwinds in our pads business. So I think it just speaks to the resilience and strength of our overall portfolio, but especially in slurries, and electronic chemicals that was particularly strong for us this year, alongside a pretty strong industry environment.

All right and then I also wanted to ask about Intel, I believe your electronic chemicals business has relatively high exposure to Intel, some of the dynamics going on there in terms of the sale of their memory business, the commentary around data center weakness. Do you have any concerns going forward on some of those dynamics?

Yeah, so Intel obviously, is an important customer to us. To a certain extent I would say we're a bit agnostic as to who's manufacturing the chips, given our participation with the advanced producers. Specific to Intel, what we've seen is, and I think it's been fairly well publicized. They're struggling right now on the leading edge, the most leading edge, so the 753 nanometer. We are working with those - with them on those programs, but they're behind the leader there. And so what we see them doing is really running quite hard on their high-volume manufacturing high yield processes right now, and the continued outlook is pretty strong. So I think, while they're having challenges with the newest leading-edge technologies, we haven't seen that affect the demand. And in fact, they're running pretty hard right now.

All right, thanks very much.

Thanks Mike.

Thanks Mike.

Our next question comes from David Silver from CL King. Please go ahead.

Hey, good morning David.

Hey good morning. I didn't punch in so fast. So you're catching me a little off here. Just I had a couple of questions. Let me just find here. So first of all, just a couple for maybe Scott, but first off on the wood treatment business and I'm relating it to your full year '21 guidance. Should we assume - that guidance of the adjusted EBITDA, does that assume wood treatment is in effect and operating normally for all 12 months of fiscal year '21? And then the second thing would just be that fourth quarter adjusted tax rate was the lower than expected kind of level of that due to a discrete tax item or just an end of year true up of a bunch of things like just whether we should be straight lining a lower tax rate for your company full year '21 going forward. Thank you.

Yeah. Sure, David. We unpacked wood a little bit in the prepared comments. And we mentioned that there were 63 million of revenue in fiscal 2020, for that business, and we mentioned that the returns are above the average for the segment. So I'd be thinking of both the revenue and the return for that business being pretty consistent for all of FY '21. And you understand the business well there. And I think that that's a good projection. But the EBITDA as you said, has the full amount for the wood treatment business in there. Our plans are to continue to run that business. Now we mentioned the $2 million write down. So it's probably worth a comment here. And we mentioned that the business has $39 million, approximately of value left. We will be writing that down, it'll be an adjusted item. It's a non-cash item, basically one time. And we'll be writing that down over the upcoming quarters, as we run that business and as we earn revenue and earnings out of that business. So we're in this different situation, typically when you are exiting a business, because it's so profit rich, we have the volume secured for the business throughout the period of time with our customers. So there's a value on the balance sheet, but we have to kind of align that as time passes in that business. But all of that is part of the EBITDA for FY '21 and that's our - our plan is to continue to run the business, as we've mentioned in the past. Then you've also mentioned, David in terms of the tax rate, and you're right. The fourth quarter was a bit noisy in terms of the tax rate. And you're right, there were a couple of year-end true ups. We're a much different company today after the acquisition of KMG, with the complexity of legal entities, and so on, that has provided us some opportunities for optimization. So we were able to record some benefits of that in our fourth quarter that were discrete onetime items. But if you think about the full year of that FY '20, the GAAP rate was about 18%, non-GAAP rate about 19% and we're providing guidance of next year for 20 to 23. And I would be using that 20 to 23 as your guide for next year as well because the FY '20 rate non-GAAP of 19 that benefited from some additional extra stock option activity that gives us a tax benefit, as we had a nice run up in our share price, particularly in the second half of fiscal 2020. And so we don't assume that type of level into FY '21. So that's why there's a little bit of an increase in the tax rate. But we're going to look to continue to find ways to optimize that are more comfortable at that 20% to 23% expectation for FY '21.

Okay, thank you for that. You did make those earlier comments very clearly about the wood business, so I was just wondering about how it flowed into '21. So thank you for the clarification. Okay, R&D spend, so in the fourth quarter your R&D spend was up sequentially up year-over-year, and it was kind of the highest quarterly spend in about three, four years. So I was just wondering if you could comment on that both in terms of maybe what in particular led to the increase in the fourth quarter and more importantly what should we think about on that line for fiscal year '21? Thank you.

Yeah, I think first off, David, as you think about R&D for our businesses, particularly on the CMP side, we have historically invested about 10% of our revenue back into R&D in those businesses. And I think that's the right kind of rate, I'd been looking at the full year, right. We've worked on - the structure of our R&D organization is mostly unchanged. There have been a little bit quarter-to-quarter variance in terms of some of the underlying spending on supplies and so on in that area. So I would be thinking of the full year sort of R&D level as an appropriate approximation for next year relative to your assumptions for revenue. So maybe a little bit of noise quarter-over-quarter, just from that discretionary spending piece, but be thinking about the same sort of ratio to revenue going forward.

Okay and if you don't mind, just one more, but I did want to ask about maybe bigger picture question. Maybe Dave could comment on the impact that EUV has had on your business to date? And it seems like we're accelerating the pace at which the logic chips are shrinking the line width. And there's talk about shifting materials, the cobalt and some other things on the lower light levels. And there's even some indication that EUV may be applicable to certain parts of the memory chip manufacturing process, DRAM side I think. But I'm just wondering how you kind of are thinking about the evolution of the EUV into more and more layers of the chip making process, more and more aspects of it and how you're positioning the company for that development. Thank you.

Yeah. Thanks David. And I would say, for both cobalt and UV, we look at them as allowing the industry. The industry always finds a way to continue getting smaller and better and more powerful chips. And so UV, for example, I don't think you could produce a five-nanometer chip without on a logic side without using UV. So from a technology leadership standpoint, and we certainly consider ourselves technology leaders, we're excited when something like an EUV can enable our customers to continue on that cadence of getting to smaller and smaller feature sizes. The CMP related challenges for five nanometer chip are also extremely demanding. And so we feel like that plays into our sweet spot. Without something like EUV, you might really have a challenging time to continue that miniaturization. Cobalt is a bit different, but it is - because it's a material challenge. And we do have obviously, solutions that work on cobalt and working closely with customers that are using cobalt, but EUV I think is definitely the path if you want to make a sub five nanometer logic chip. You mentioned on the memory side, it's really pretty limited right now. Again, I think they're going to use that only if they cannot get the smaller and more powerful chips and the other way. So we think of it - and I guess more importantly, from a CMP standpoint, we don't see it significantly impacting the way CMP has done or the TAM of CMP, especially because it's focused on those very niche notes. So for us, we like to see the technology move forward. It plays to our strength. But it's a question that we get a fair amount. So thanks.

Thank you very much.

Thanks Dave.

[Operator Instructions] And the next question comes from Chris Kapsch from Loop Capital Markets. Please go ahead.

Good morning Chris.

Yeah. Good morning. Thanks. So my question is generally about your - the outlook that you provided for 2021. I'm just wondering if you take that EBITDA range, and then the comments about EBITDA margin, you kind of back into a top line expectation. Just wondering though, you get there - if you get there from some general expectation about the industry wafer starts. And if you do need to talk about what those expectations are maybe by different bucket, logic, boundary and memory. And then along those lines, is there any particular node transitions that you're excited about in this calendar year or in this fiscal year in terms of your participation based on PORs?

Yes. Hi, Chris. Hope you're well. In terms of the guidance we did provide for the fiscal year, you're right we can kind of back out into a range of top line as well. What I'd say is on the semiconductor side, what we've assumed is sort of middle of the fairway, the estimates that many have talked about, which is for wafer starts kind of low to mid single digit growth. That doesn't factor in a strong memory recovery, sort of stable memory recovery in there, so memory recovery would be a positive to that. And then on the PM side it's just - it's so dependent on the macro environment. We've sort of made some conservative assumptions there. But obviously, there should - there could be upside, if the macro environment for oil demand improves. You also asked a question about technology nodes we were excited. We talked a little bit about in our prepared comments about positions we've secured with our advanced dielectrics and tungsten slurries, more advanced nodes in both logic and memory. So as you see the memory makers go on the NAND side to 100x layers, and then on the advanced logic foundry side get to five, three nanometers. Those are positions that we're excited about, because we've secured key positions within both those segments. So again, as I mentioned in the previous question, we're excited whenever the technology moves forward, that plays to our strengths. And so as we think about 2021, we would assume you'd see continued progression of memory and on the logic side.

Okay. I had also a follow up on your comments Dave, about - in response to another question on Intel, your biggest customer. And that was - you had indicated that they're really pushing their - from their high-volume manufacturing processes. And then obviously, it's well known the challenges that they've expressed on the leading-edge node. And I'm just curious, though, so if yields are challenged on the advanced node, and they're running hard on the high-volume processes where they have big yields. It seems to me that would have translated into more demand for your more grocery or HTCC, where you have sort of disproportionate share. So could you just maybe reconcile those comments or observations?

Yeah, again, and we didn't call out specific customers and HPVC. But what we did talk about is we did see some growth in EC. But it was somewhat muted by some of softness in Europe. So if you think about where we're - we're strong in North America and Europe. In Europe, those customers tend to be more focused on industrial and automotive. And so that is a sector that hasn't really recovered. For Intel, they have been running hard, and they continue running hard. So it's not sort of something that's changed over the last quarter. So that dynamic may be helpful in trying to make that break [ph].

Got it, can there tend to be inventories of the HPVC depending on the run rates of some of those maybe more - some of those fabs that sort of more mature at technology nodes.

There could be, but I think it's - the way to think about probably more similar to slurry, there's not a significant inventory build. But it's something that when they're - it's more - if they turn down utilization, we're going to see that in the consumable side.

Got it and then I guess one last follow up on the discussion around Pads and you mentioned the sales were down, and I think you tied it to - there's some maybe a little bit more competition or the loss of some business at a foundry customer. So you mentioned legacy. I think you said legacy pads not legacy node. So I'm just wondering if that - referencing the D100 suite of product versus products under the next planar offering. And I'm just wondering if that was a vulnerable piece of business, why wouldn't you've been able to displace that with one of your neck cleaner offerings and just trying to understand the dynamics a little bit better with what's going on there?

Of course, and I think it's a fair question. It did refer to the legacy pad family that we've had out there for a while and obviously we would prefer to replace it with ourselves. It's always competitive. And I could say at that foundry customer, we have won some business using the next finer technology. It just hasn't been replacement in kind. And so that's sometimes how the dynamics play out. We think those wins that we've talked about at both in advanced logic and memory player will ramp up, but it'll obviously take some time to do it. And there is some phasing out of legacy technology.

Right, is it also fair to say David that if the process of record wins are at the advanced technology nodes sort of the future of the industry and this loss by definition presumably, is what you've been through as a product offer ring that you weren't really - you haven't been pushing for advanced POR, so is those presumably at a more mature node?

Yeah, that's correct. I think that'd be a good assumption. And we're focused on winning at the advanced technologies. We have had some displacements of legacy as well. But in that particular situation, we're winning more on the advanced side.

All right, thank you for the additional color. I appreciate it.

Thanks Chris

This concludes the Q&A portion of our call. I would like to turn it back to Colleen Mumford for final comments.

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

Ladies and gentlemen, this concludes today's conference call. Thank you once again for participating and you may now disconnect.