Ladies and gentlemen, thank you for standing by. And welcome to the CMC Materials First Quarter Fiscal 2021 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 your first speaker today, Colleen Mumford, Vice President of Communications and Marketing. Please go ahead, Ms. Mumford.

Thank you, Carol. 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 first quarter of fiscal year 2021, which ended December 31st, 2020. We encourage you to review the slides and remarks document, which is made available under our Quarterly Results section of the Investor Relations section on our website, cmcmaterials.com. A webcast of today's conference call and a script of this morning's remarks and question-and-answer session will also be available on our website shortly after the slide 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-K for the fiscal year ended September 30, 2020, and our Form 10-Q for the quarter ended December 31st, 2020, and which we expect to file by February 9, 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 the discussion and in the accompanying slide presentation. As you can see, we are using a new format to convey our earnings results to allow for more questions and conversation. We hope that everyone finds this useful, and we look forward to receiving your feedback. I will now turn the call over to Dave.

Thanks, Colleen. Good morning, everyone. As Colleen mentioned, this is a new approach to convey our results this quarter. So my remarks will be brief, and then we look forward to taking the questions. As announced last night, we achieved record revenue for our first quarter of fiscal year 2021, driven primarily by strength in our Electronic Materials business. We are proud of our performance, which we believe demonstrates the strength of our innovation, execution, and close customer partnerships. To date, we have not seen a meaningful impact from the COVID-19 pandemic on our supply chain. And I’d like to take this opportunity to again express my gratitude and appreciation to our teams globally for their efforts to keep our employees safe and to manufacture and deliver solutions to our global customers without interruption. In terms of outlook, as announced, we are really encouraged by the continued strength in demand we are seeing for our solutions, particularly CMP slurries, given our technology leadership and advantaged positions in the logic, memory and foundry segments. Looking ahead, we see continued growth above this record quarter, driven again by strength in our Electronic Materials segment. We are also encouraged by the continued signs of stabilization we are seeing for our Performance Materials solutions, particularly for our pipeline and industrial materials products. I'd also like to highlight that we have also raised our guidance for full fiscal year 2021 adjusted EBITDA to be between $367 million and $387 million, demonstrating our confidence in our growth prospects and strong profitability. Our robust results demonstrate the quality of our portfolio and leadership positions of our respective businesses. They also reflect our ability to execute against an uncertain macroeconomic backdrop. We are optimistic about the trends we are seeing in the semiconductor industry and are confident in our ability to capitalize on these trends given our advantaged positioning across logic, foundry and memory. With that, I'll turn the call over to the operator as we prepare to take your questions.

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

Good morning, Toshiya.

Hi. Good morning, Colleen and Dave and the team. Thank you so much for taking the question and congrats on the very strong results. Dave, just to follow-up on your CMP slurry business. As you noted in your prepared remarks, obviously, very strong growth in the quarter. If you can provide maybe a little bit more context in terms of what drove the 12% sequential growth in the slurry business, that will be super helpful. And if you can provide sort of an outlook for March and, perhaps, June for the slurry business as well, that will be great. And then I've got a quick follow-up. Thank you.

Yes. Thanks, Toshiya. We're really encouraged. And obviously, it starts with the industry conditions. For our slurry business, we saw growth in both the advanced and legacy nodes and across all segments. I think, most encouraging, and something we've been talking about for a few quarters, is the expected kind of recovery in memory. And we started to see that this quarter, DRAM, as you probably know, is running at almost full utilization. And NAND had increased utilization throughout the quarter, as well as some announcements of capacity expansions. Given the - really, what we believe our advantaged positions, especially in slurry for those advanced memory nodes, those advanced logic nodes and those advanced foundry nodes, when those start really picking up, we get the benefits of that growth. So we're continuing to build on our leadership positions for slurry, and we saw that strength this quarter. We also talked about, in our prepared remarks, that China was very strong. You would expect Korea to be strong with stronger memory backdrop. We also talked about growth in China, which is mostly logic, foundry and what we consider legacy. We have very strong positions in China, and we see continued growth ahead in the next several quarters. And, of course, China is a very important geography for the semiconductor industry, including us.

Got it. Super helpful. Thank you. And then as a quick follow-up, on the Electronic Chemicals business, I was a little surprised by how muted growth was in the segment. Your biggest customer in North America, they've got great momentum across, I guess, primarily the PC business and potentially in servers going forward. You've spoken to weakness in lagging edge on prior calls as a headwind. And if anything, the lagging edge seems to be recovering pretty nicely across the automotive and industrial end markets. So curious what the puts and takes were in the Electronic Chemicals business in December. And I guess, more importantly, what's the outlook into March and June? Thank you.

Yeah. Thanks, Toshiya. I think you've got a good handle on that business. Obviously, the dynamics are a bit different than slurries and pads, where we sell to a number of different customers. This is a solid profitable business, but it's very regional. And our participation, the customer concentration and where we participate is much more concentrated. So it's U.S., Europe, Southeast Asia. So the quarter - on a quarterly basis, there will be more puts and takes just by the order patterns of specific customers. Also, just by where we participate, we're not going to get as much lift from a memory sort of strength or increase in utilization. I think longer term, we continue to make improvements in the business that we think are going to differentiate ourselves - further differentiate ourselves from our competitors from a quality and supply chain perspective. And we do expect, although we don't give specific guidance for the next quarter, we would expect it to grow year-over-year. So it's got some different dynamics quarter-by-quarter. It's going to have some puts and takes, but it's really much more concentrated, much more regional. But we think it's going to grow year-over-year.

Thanks, Dave. Congrats, again.

Thanks.

Thanks, Toshiya.

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

Good morning, Mike.

Hi. Good morning, everyone. I was wondering if you can give some additional details on the new business wins that you referred to in the CMP Pads business. Is this more of an expansion of positions with existing customers? Or are you winning new customers? Maybe just give us some thoughts there?

Yeah. Thanks, Mike. And again, this is kind of a continuation of the narrative we've been talking about for a while, which is we're really excited about this business and we continue to see wins. We talked about in the prepared remarks, customer wins in leading foundry and leading memory applications. And so what we saw this quarter and what we see going forward is the ramp-up of those wins. Sometimes, they take time, especially if they're at the leading edge. But when we think about and we look at the pipeline of opportunities, it's really exciting because we're seeing strength and really, really compelling interest from customers across different segments. So I think the recent wins are with customers that are both in foundry and memory, therefore, leading edge nodes, and we're really excited about those. And we continue to believe we have a really compelling offering in the pad area, and it's going to be a strong growth business for us going forward.

All right. And then over on the DRA business, maybe just an updated outlook on the pace of recovery that's happening maybe more quickly than you expected. And can you maybe also talk about - we've got a new administration in the United States that may be a little bit less friendly toward new pipeline constructions. So how does that affect your view on future growth?

Yeah. Thanks, Mike. And I'm glad you asked the question. Obviously, it's something we're watching carefully. And the new administration definitely seems to have prioritized climate change and sustainability, which obviously we think is positive. And our goal is to support all of our customers' efforts to be more sustainable. Kind of in an ironic way, having fewer new pipelines puts even more capacity constraint on existing pipelines, which, as you know, in the U.S., are pretty - infrastructure's pretty aged. So DRAs become an essential way for pipeline operators to transport oil, while reducing energy and operating costs. Also, there's a safety element. And so DRAs could become even more compelling in this kind of environment with the new administration. So - and as you know, from our company's background and we just put out our first CSR report, which we're really proud of, it's really part of our company's culture. So we look forward to supporting our customers in a way that helps them be more sustainable. You've asked kind of a more near-term outlook. I think we're watching the dynamics carefully. I think in Scott's remarks, he talked about the outlook that we think about for DRAs. We were encouraged to see December, for example, being a very strong month. But really, I think it's going to be dependent on opening up of economic activity. There's more optimism around vaccinations and things that might allow people to resume moving around. And so we're watching those dynamics. I think what we're trying to do is control what we can in the business. So whether it's obviously new business wins, and we've had some significant new business wins that we think are going to ramp up or just cost control, the cost structure of the business is highly variable. It's still a very profitable business. So even in this lower demand environment, we're making improvements to the business so that we're positioned once things really start to ramp up.

All right. Thanks very much for all the color there.

Thank you.

Thanks, Mike.

Our next question comes from Chris Kapsch from Loop Capital. Please go ahead.

Hey. Good morning, Chris.

Hi. Good morning. I'm just curious if you can get a little more granular just on the sequential trends during the quarter. Just wondering if - obviously, you've made the formal comment about the - being encouraged by the memory and market recovery. Did that pick up as the quarter ensued? Any color on just the sequential demand trends in the Electronic Chemicals business would be helpful.

Yeah. Chris, just to make sure I understand your question. Just you're trying to ask for the kind of momentum within the quarter. I think what we're starting to see is there's obviously a lot of pull. If you look at the end demand market, so you're seeing auto start picking up, industrial as well. And then as well as those sort of more traditional drivers that have been so important during the pandemic, things like PCs, bandwidth. And then you're seeing also this growth of 5G. And so there's just a lot of things pulling on the industry. And now there's also some kind of geopolitical things like China really emphasizing semiconductor utilization in region. So there's a lot of positive momentum that's driving chip manufacturing these days in the industry. And the industry environment, overall, appears to be really healthy. I'd say, inter-quarter, what we've talked about in the last couple of quarters that we see some of the elements of the recovering memory sector, and we started to see that come to fruition in this quarter. So I don't know if I have the granularity of inter-quarter, but obviously, we've been talking about the kind of memory dynamics for a few quarters, and we started to see that more so in this quarter.

That's helpful. I appreciate that. And the follow-up would be about the margin profile. Given the sequential strength in your Electronic Chemicals, that might say that the sequential margin improvement could have been better. And what I've seen over the years that I think it's based on your cost accounting that some of the flow-through and you have a soft quarter, it kind of affects the margin in the subsequent quarter. So that might portend further improvement in your margins into the March and June quarters based on your preliminary outlook into calendar 2021. So any - is that a fair characterization? Any comments you can make about sort of the margin profile as we proceed here over the next couple of quarters, would be helpful. Thanks.

Yeah. Chris, first off, we have this item of comparability versus the prior year of the $5 million that was an income pickup last year that didn't reoccur this year. I would, more or less, set that aside in terms of our understanding of cost structure. That was an item that I think we explained at the time was an accounting nuance with some costs that moved from one category to another. But as we sold those units in the second and the third quarters, or the third and the fourth quarters, then that normalized throughout the full year. So as we think about the margins, and I think we provide a fair bit of information on Page 11 of our materials, where we think about Q1 and the 32% EBITDA that we had adjusted EBITDA as a percent of revenue, very pleased with that metric. And a couple of the data points that we gave is as you're thinking about Q2, we want to remind people, so the March quarter, we want to remind people that that's a period - that's a quarter where the inflationary items for us generally hit. Our merits go into effect on January 1, the benefits generally get reset. In addition, we have some corporate activities related to like intellectual property, for example, which is normal. Not a structural change, but can be a little bit lumpier quarter-to-quarter. So we provided some information on that Page 10 that said, hey, here's how we'd like you to be thinking about Q2. But then Q2, going beyond that then into Q3, four and so on, we always like to remind about the 31% to 32% being a reasonable expectation for the short to medium term. And we see with, first off, those costs in Q2, they normalize a bit into Q3. And then we expect the slurry business to continue to perform well and to continue, as that's one of our best earnings type of businesses, that will enhance the margin. And then in the second half of the year, we expect some level of recovery. While stable now on DRAs, we expect some level of recovery for those future years. So that's how we're thinking about the margin profile quarter-over-quarter. So hopefully, that helps everyone, and I think we're giving a fair bit of transparency around that.

Chris, are you still there?

Yeah. I'm sorry. Thanks for that. And just as a quick follow-up to that, the - just if I think about some of your higher-margin product lines and key product lines, you're talking about a pickup in memory and that - which should benefit your tungsten slurry. You pointed to a recovery in DRA, pretty high-margin business. So I guess there's the incremental costs that come in on January 1, but it looks like, at a minimum, there should be mix benefit on a sequential basis going into the March quarter. Is that fair? Thank you.

Yeah. Yeah. Yeah, you're thinking about it right, Chris. I mean those - the businesses that you mentioned are among our highest returning. And as they improve, there's overall corporate mix benefit that we would have, yes.

Thank you.

Thanks, Chris.

Our next question comes from Amanda Scarnati from Citi. Please go ahead.

Good morning, Amanda.

Good morning. A question on the slurry side of the business. There's been a lot of talk lately about molybdenum replacing some tungsten layers in 3D NAND going forward. Can you talk a little bit about how you're positioned if that transition were to happen and if you have products to work in that piece of the market?

Yeah. Thanks, Amanda. We feel like we have - we continue to build on our advantaged positions in advanced memory, whether it's NAND or DRAM. And so any new material that comes in, that's actually potentially an advantage for us because the number of companies that have the focus, the knowledge and experience and the applications that we do surrounding these customers to support them is really limited. And I think whether it's a new material for 3D, which we have several research programs working on, and we've actually recorded some early wins or just kind of picking up existing volume as utilization picks up, we feel really good about our positioning, especially within the memory space. And so new materials are actually welcoming for us. Obviously, we have a strong position in tungsten, but we continue to innovate in all areas, especially related to CMP slurries and pads.

Great. And then on the pad side of the business, I know we've talked in the past about you're seeing some share loss in Korea. This quarter, you talked about some share gains. Was any of that sort of a return in that business in Korea? Or is it a little bit more broad based?

Yeah. I think what we'd say is, we obviously talked about some headwinds to the business in previous quarters. We've grown above and beyond those. We - there's only so many customers in the semiconductor universe that can really move the needle. And so it's not - you wouldn't - obviously, it wouldn't be surprising to see that us winning back business or engaging with those same customers. Obviously, we're working with - and partnering with the largest semiconductor customers, and there's a lot of customer concentration to begin with. So for wins to ramp and move the needle for our pad business, they have to do with significant customers. So that's - I guess, I'll leave it there.

Okay. Thank you.

Thanks, Amanda.

[Operator Instructions] Our next question comes from David Silver from CL King. Please go ahead.

Good morning, Dave.

Hey, good morning. And let me start out by quoting Siskel and Ebert, so two big thumbs up for the new reporting format and also the conference call format. I had a feeling - no, I had a feeling - go right ahead, sorry.

I'm glad you mentioned that because, first off, we're pleased with our performance. We're proud of what we're doing here. The team has worked really hard on the materials. And if there's a way we can continue to evolve all the above to help convey the story, we're happy to do that. So we actually really do appreciate your feedback there. So thank you.

And I'll also just chime in and say, I used a Chicago area reference to complement you there. So I hope that gives me half of a brownie point on top. Anyway, I actually had several questions, let me just see. So first of all, I guess, there's been a lot of talk up and down the electronics chain about both rising raw material costs and also costs and reliability of the logistics chain. So, I guess, the first part would be maybe to characterize the direct effects that you're feeling in those areas. But then I was hoping maybe you could talk maybe indirectly, further down the chain, is there signs of disruption or shortages that might feedback and kind of impact the reliability of your kind of near or medium term forecast. In other words, would problems further down the chain, how do you gauge that they might be affecting your demand or your operations over the next quarter or two? Thank you.

Yeah. Sure, David. First, our teams have worked really hard. We like to make the statement. We've made every shipment to every customer during these past 12 months. So whatever the global pandemic has presented in terms of challenges, our teams have risen up and have met those challenges. So we're very pleased and feel very fortunate to have that as a fundamental. That also means working throughout our supply chain and working closely with our suppliers. They're important partners to us, with the technology that they bring and the delivery that they bring to us. So we're working across the entire supply chain, and we've built our company based on having these critical-enabling materials that help solve our customers' most important problems. And if you build a business based on that, then you need to make sure that you're delivering the products on time, in full. So we spend a lot of time kind of managing all of the above. We probably won't go into too many details about that, but we spend a lot of time managing all of the above to make sure that we can provide those advanced solutions to our customers.

Yeah. Just to add on to Scott's comments, too, is we don't see any - the pandemic was a stress test for everyone's supply chain. As Scott mentioned, we didn't miss a shipment. I think we don't see any significant pricing changes or certainly any supply challenges with our critical suppliers. So that's something we've really worked hard to strengthen and shore up and make sure we are really, really secure from a supply chain standpoint. And I also think within our company, having a global operations network like we do, with manufacturing in Korea, Taiwan, Japan, U.S., Singapore and for EC in Europe and other locations, that really also gives us some flexibility in case there are any sort of business continuity concerns. And as Scott mentioned, we haven't missed a shipment so far. So we think this is something that is a strength of ours and so we don't see any sort of concerns in this area.

Okay. Thank you for that. Next question would be kind of more general question on China. So you rightly noted earlier on about changes in government policy towards - in China towards the semiconductor industry there. And I wanted to kind of focus on one thing, but my sense is, and I've read about how China - Chinese chip production, which used to be concentrated or congregated around the 45-nanometer line with design, is moving down the curve, maybe one step to 28 or maybe more than one step. And to me, I hope this is not too convoluted, but that's characterized as a node transition, which generally favors companies like yourself. But I'd also say that it's not leading-edge nodes that they're moving to. So, I guess, I'm just wondering if that changes the competitive balance there in China. In other words, your POR wins and just the tone of business, I mean, do you anticipate sustaining your current market share in CMP products in China, moving forward? Or have you had greater success, greater POR wins that might translate to share gains? Or are there some risks to the current book of business there? Thank you.

Yeah, thanks. I think it's an interesting question. And so first, we have a lot of experience in China. It's a really important geography for us, and we have a very strong position. I think the first thing to think about is there is really two segments of customers. The multinationals that operate within China. So, for example, Samsung has a large facility in Xian, Hynix in Wuxi, TSMC. I think everyone that's a major semiconductor player has a facility -- a manufacturing facility in China. And they're generally operating at maybe two generations behind the most leading edge. In the case of memory, they're operating quite close to leading edge. We obviously have very strong relationships with the multinationals, just by way of our relationship with the entire customer, whether it's based in Korea or U.S. or other places. So that is basically - those PORs are basically transported into China, and so we're able to build upon our position and get the volumes as those sites ramp up. If you're talking about the domestics, I think you have a good handle on it there. I think generally speaking, for logic, the most prevalent node that's being produced right now is around 45. There's a lot of demand for 45-nanometer devices within China. And so whether it's 5G or sensors, and so there's a lot of demand being pulled from the local customers. We have really strong relationships there, too, for a few reasons. One is we have a really fantastic local applications support team there that work really closely with the customers. But I think secondly, the customers, the local customers, like the SMICs, Huahangs [ph] they really like to work with us because they're trying to catch up to the leading edge. And one way they can do that is working with a technology leader, like us, that have worked with all the leading customers in the world to solve their challenges so that we can help them with solutions that are proven. We have the application support that they need. And so we see a strong future of growth in China, and we're starting to see that really pick up in the last couple of years. And I think, obviously, as you mentioned, the new administration may have a different positioning towards China. It's too early to say. But no matter what, I think we'll continue with the strong presence there, and we think we're excited about China.

Okay. Thank you for that.

Dave, we have some other callers in the queue. So maybe one more question, and then we'll have you get back into the queue.

I was just about to say, Colleen, as to use your hooks [ph] here. But I'm going to get back into queue.

Thank you.

Our next question comes from Paretosh Misra from Berenberg. Please go ahead.

Good morning, Paretosh.

Good morning, Colleen, David and Scott. Thanks for taking my question. I was just hoping to understand the key growth drivers of your slurries business a little bit better. Like how much of that is related to pricing? Does price increase versus - is more number of wafers being produced? And I guess your content per wafer results are arising. So how big a role is that playing? So any color you could provide on these drivers would be great.

Yeah. Thanks. I would generally say that the - what we try to do is maintain pricing and profitability of our slurries business, either by innovating and introducing new products or winning new applications. And so, generally speaking, you would think that significant growth within slurries is coming from either higher utilization. So our strong positions ramping up within customers or new positions. We haven't talked too much at the granular level of different customers and different applications. I would just say, we think we have some really advantaged positions, not just in tungsten, but in advanced dielectrics. Dielectrics, actually, is the largest CMP application space. And we continue to innovate and introduce new solutions there, win new positions. And so that's an exciting growth area for us. We've also talked about the growth and recovery in memory. We obviously have a strong participation in that space. So that's going to help us grow in slurry as well. But generally speaking - and then you also mentioned another aspect, which is increased content. So you see that with more layers of 3D NAND, there's going to be incrementally more CMP needed for slurries and pads. So that's giving us that opportunity to grow even above the market. So in general, what we'd say is we're participating at just about every node, every customer for slurry and pretty much the same at pads. And so we're well positioned once new technologies ramp up and if there is an increase in utilization overall in the industry. And we're seeing sort of both of those dynamics play out right now. So that's why you sense the optimism. We see the sequential guide above this current quarter, which was a record quarter for us. Second quarter, by the way, historically has been seasonally softer for us just because there is fewer shipment days, you have the Lunar New Year. So us raising our top line guide for - versus this quarter just shows our confidence in, not only our - the industry strength, but our own positioning and ability to win new positions.

Thank you for all the detail color. And my follow-up is on your DRA business. So I guess two related questions. First, I believe you made some investment in the DRA business in the recent past to increase your capacity. Any sense you could give us as to how big that expansion was, like 10%, 20% or maybe was it bigger? And then as far as your customers are concerned, the DRA customers, any sense as to what their utilization rate was in the last quarter and how they evolved in January? Thank you.

Yeah, sure, Paretosh. A couple of data points that we provided, and I think would be helpful a bit here is we said a significant piece of our CapEx last year in our FY '20 was related to the plant expansion. And I would say that in terms of the capacity, let's call it, a significant increase to our capacity there. And as we think about that business, we talked about - sorry, June being the low point and that's -- and we said that at the time of our June quarter earnings, and that has continued to be the case throughout the rest of this year. And then recently, we've mentioned December was our highest month that we had since April of this year. So we see this as being a period of stabilization for the DRA business. Now you've noticed - no doubt, again, in Page 11 of the guidance that we have in the materials, you've noticed that we're expecting the Performance Materials segment to be up high single digits, and we expect that - and part of that is the DRA recovery. Additionally, our products help with process optimization at the customer lines. I'm going to be reluctant to say too much about the customer capacity utilization. But oil consumption is down. Let's face it. It's been down. I think our business trends pretty heavily to that. But we - our materials will continue to be key enablers for one of the reasons is because it addresses the energy spending at the customer level. So improving throughput is important, but improving the customer cost structure is also important. And that's something that they're looking at now as much as they ever have because they're being constrained a bit economically. In addition then, we continue to invest in some R&D in this business and making sure that we're using the plant that's up and running to be able to secure some new business, get some approvals and continue to manage, as Dave said, manage what we can control to make sure that we're well positioned in all commercial opportunities going forward.

Great. Thanks so much.

Our next question comes from Chris Kapsch from Loop Capital. Please go ahead.

Welcome back. Hi, Chris.

Yes. The question was, and I know you maybe want to shy away from customer-specific commentary. But in your 10-K, it's clear that Intel is the single largest customer, and their yield issues at the 10-nanometer node are then well publicized. So - but my question is that, in their most recent quarter, in their public commentary, they talked about ramping their Ice Lake 10-nanometer-based CPU units. And they talked about that volume - higher-volume production ramping in the March quarter. So I'm just wondering if that influenced your business either - while they were having the yield issues and or during the quarter as it looks like they may have resolved those issues temporarily? And then, is there any color you can share on in terms of their decision ultimately, maybe not so much 7- but 5-nanometer? Are you indifferent, ultimately, if they decide to outsource that manufacturing? Or would that be incremental? Where do you stand on that, if you can comment on it? Thank you.

Chris, it's a good question. And obviously, as you can see from our filings, and you follow us for years, Intel is a very important customer to us. And we continue to work closely with them on existing and new technologies that they're ramping up. They're obviously playing catch-up these days with TSMC, seeming to make some progress on 10 nanometers. Just kind of the dynamics that would be at play. In terms of EC, obviously, we're participating mostly in North America. So you think that as they advance technology, that could be good for us from an intensity of use standpoint. For CMP slurries and pads, we're a little bit more on the agnostic side there. We just want the technology to continue to advance and ramp and, therefore, for there to be strong end market demand drivers for those leading edge chips. So Intel deciding to outsource manufacturing, that would most likely go to foundry partners of ours. And so we've got great positions at leading edge at the foundry space as well. So from the CMP standpoint, that would be a bit more indifferent there.

That's helpful. And then just maybe a little more granularly on the quarter - in the December quarter, did - did their - they're resolving their issues at this production node. Was it noticeable in your business trends? Did it help contribute in the quarter? Do you expect it will in the March quarter as they've talked about higher volume production there? Thanks.

Yeah. I think, again, they're an important customer of ours, Chris. If they're doing well, we're going to be happy, and we're going to be doing well as well. I don't think the correlation can be direct as well because sometimes, when they talk about dynamics in their business, they could be offset from where the CMP process is or whether - or where Electronic Chemicals are being used. There might be a bit of an offset from what they discuss in terms of their results and their performance versus what consumables are being sold into the different processes. And I'm sure that you're fully - you've been following the company for so long, you know the kind of process steps in there.

Fair enough. Can I do one follow-up on the CMP pad business, because it was encouraging to see that the growth in this quarter year-over-year after some quarters of negative growth. And one of the drags on that business had been, my understanding is, some efficiencies that a key customer had made with their process where they maybe can change out the pad just recently, and that resulted in perhaps an inventory drawdown. I'm just wondering, has that worked its way through in your demand profile for the pad business, setting aside your - the process of record wins that you've mentioned and that are going to contribute to future growth? Thanks.

Yeah. I think what you're talking about is just increased efficiency in using consumables, which is something that we know a lot about. And in many cases, we're helping customers use consumables more efficiently so that they can reduce costs and just be more efficient with how they use materials. In the pads business, I think we talked about some headwinds in the past. Obviously, we've grown past those. And again, I think what we think about for this business is there's so much opportunity for us to gain just because the difference between our position is, we believe we're the number two supplier and the number one is so great that there is a tremendous opportunity for us to grow our participation, especially given our ability to offer both slurries and pads at the same time in a consumable set that we've talked about as well. So we're really excited about the business. We saw new wins ramp up. And this is something of a continuation of the narrative that we've talked about for a few quarters, which is again, a few headwinds growing beyond those, and we think of this as a strong growth business for us going forward.

Thank you.

Thanks, Chris.

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

Welcome back, Dave. And I think we'll have time for maybe one more question. We're near at the top of the hour.

Okay. Okay, that's great. I have one more. Okay. And this one would be for Scott. And just to give you a heads up, I'm kind of trying to work out the cash flow in the first quarter and, in particular, the working capital. So per the slide, so you don't include a full cash flow statement with your release. So I'm trying to kind of manufacture it or recreate it from what's available. $54 million was the OCF. And if I take net income, DD&A and the $7 million intangible write-down, I'm left with kind of the working capital usage that's much lower than what I've seen in your typical December quarters for the past few years at around $17 million, and last year was minus $31 million, the year before, minus $25 million or so. And given the bright outlook for industry demand, as mentioned or as presented by the chip makers, that - I was kind of scratching my head, and I'm just wondering, I would have expected a bigger-than-normal working capital buildup for inventory and whatnot. Could you just maybe kind of talk about that and whether you are kind of ramping up in accordance with the demand levels that you see? Or is there something - I'm sure there's something I'm missing. But I'm just wondering why there wasn't, at least from a top-down view, a bigger working capital usage in the first quarter?

Yeah. Thank you, Dave. And there is a few points we'll probably take offline as they're pretty detailed here. But as you think about our Q1, I think when you compare our Q1 cash flow to last year's Q1 cash flow kind of as a percent of the total year last year and some expectation for this year, I think you find a pretty similar metric. And our December quarter, our Q1, there is a little more activity on the accrual side that you're mentioning. One particular item is the payout of our short-term bonus. So those are items that are accrued during the year, a buildup of working capital, so that's an inflow of cash when that happens. But in the December quarter, they're paid out. So that's an outflow of cash. And in addition, with the growing business that we have, we have some increase in both receivables and in payables, which I think would be reasonable with the expectations that you would have. So I would just think about the cash flow as being no significant structural change, over time. Q1 is typically different than the other quarters, and you see less cash flow from operations in Q1 than you see in other quarters. But I would think of it as no significant change. We appreciate the capital-light model that we have. We talk about the capital spending priorities or the capital deployment priorities that we have. And so we pay attention to that, and managing cash flow is an important thing. But it's not - we'll take some of those details offline with you to make sure that we're clear on all those. But that would be the summary of my message right now.

Okay. Thanks very much. Yes, maybe we'll follow-up offline. Appreciate it.

Okay.

Thank you, Dave.

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

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

Ladies and gentlemen, this does conclude today's conference call. Thank you once more for participating. You may now disconnect.