Cabot Microelectronics : Loop Capital Transportation, Logistics and Materials Conference Presentation

February 11, 2020 at 07:54 pm EST

Loop Capital Conference

PRESENTATION

FEBRUARY, 13 2020

SAFE HARBOR STATEMENT

The information contained in and discussed during this presentation may include "forward-looking statements" within the meaning of federal securities regulations. These forward-looking statements involve a number of risks, uncertainties, and other factors, including those described in Cabot Microelectronics' filings with the Securities and Exchange Commission (SEC), that could cause actual results to differ materially from those described by these forward-looking statements. Cabot Microelectronics Corporation assumes no obligation to update this forward-looking information.

CABOT MICROELECTRONICS

BUILDING STRATEGIC VALUE

$1.1B PRO FORMA REVENUE IN FY19

31% ADJUSTED PRO FORMA EBITDA

			❯		❯	Demonstrated	❯ Superior financial
		❯	Strong	performance, strong
❯		Quality and	track record
Consumables based		participation in	free cash flow
	innovation leader		of growth above
	business focused on		high-growth		generation and focus
		serving virtually all		industry and
	electronic materials		markets		on creating
		semiconductor		expanding
	with industry				shareholder value
		manufacturers in			profitability
	leading positions
		the world

PORTFOLIO

OVERVIEW

80%

ELECTRONIC

MATERIALS

CMP Slurries

CMP Pads

Electronic Chemicals

Provides essential products that constitute a small portion of our customers'

end product cost

20%

PERFORMANCE

MATERIALS

GLOBAL FOOTPRINT

AND PRODUCT DIVERSITY

ELECTRONIC MATERIALS

ELECTRONIC MATERIALS OVERVIEW

FY19 PRO FORMA

SEGMENT REVENUE

$873M

REVENUE BY BUSINESS UNIT

REVENUE BY REGION

CMP		China	South
Pads
	East Asia

Electronic	Europe

Chemicals			Taiwan
CMP Slurries	North		Japan
	America

			Korea

CMP CONSUMABLES COMPETITIVE ADVANTAGE

Areas of highest growth and largest customer needs where we can differentiate through innovation, quality and operational excellence
Our experience, breadth of products, and global resources provide smaller customers with worry free solutions
CMC's product portfolio provides the greatest breadth and depth of CMP Consumables Products
Our scale allows us to utilize a wide range of R&D talents to address customer challenges

CMC's unrivaled breadth of solutions allows us to participate in essentially all CMP applications

GROWTH DRIVERS

ELECTRONIC MATERIALS (EM)

	FY20-FY24
WAFER STARTS	Wafer Starts Growth: 4%-6% CAGR

VOLUME

Estimated CMC EM Revenue Growth:

1% to 2% above industry*

CMC HISTORICAL

REVENUE

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

Source: IC Insights and company information

❯ Revenue is highly	❯ Broad exposure across
correlated to wafer starts	all types of devices,
	particularly memory

Increasing complexity
of semiconductor devices requiring new solutions with more usage intensity

Emerging applications such as 5G, AI, IoT, HPC and VR

SEMICONDUCTOR FABRICATION

PROCESS OVERVIEW

	❯	Acids		❯	Custom blends
				Deposition
	❯	Solvents	Etch / Clean / Dry	❯	Performance products
	❯	Bases		❯	Oxidizers
	Our solutions help enable


Implant
		the manufacture of
			semiconductor devices	Chemical		❯ Base


					Mechanical	chemistry
					Planarization	materials

Adhesion promoters

Photolithography	❯	Developers
	❯	Edge bead removers
	Slurries
		Pads
	❯	Photoresist solvents

	❯	Photoresist strippers

BEFORE CMP

AFTER CMP

POSITIONED FOR CONTINUED GROWTH IN MEMORY

Strategically positioned our business to address rapid growth and increased complexity of memory devices
Partnered with leading customers to develop materials that enable advanced memory device manufacturing
Increased device complexity drives additional demand for our materials

CMC is #1 in tungsten slurries

MEMORY PROCESS STEPS

50nm	15-20nm	48/64L	1xxL	2xxL
	2D NAND			3D NAND
			Tungsten		Non-Tungsten

Source: Company information

POSITIONED FOR GROWTH IN LOGIC

Increasing device complexity requires additional manufacturing steps and drives higher demand for our materials
As application nodes advance, increased purity and contamination controls are essential to avoid customer defects
The requirements for high purity, contaminant and particle free chemicals demand quality and analytical innovation

CMC has the talent and scale to meet these challenges

LOGIC PROCESS STEPS

1500

1200

900					CLEANING STEPS:
				25~30% of total

600					semiconductor
				process steps

300

0

28nm	10nm	5nm

		Cleaning Steps	Other Steps

Source: Company information

ALLOWABLE 20 NM PARTICLES/ML CHEMICALS

2015

2016

2017

2018

2019

2020

2021

2022

Source: Semiconductor Engineering

GROWTH DRIVERS OF IC DEMAND

END USE DRIVERS FOR THE IC INDUSTRY

The emerging applications of the Data Centric Environment require a wide range, and large quantity of chips to deliver the myriad functions and applications being designed

	MOBILE
PC & INTERNET
2000	2010
ONE PC PER	ONE MOBILE DEVICE
HOUSEHOLD	PER PERSON

DATA CENTRIC AND

ARTIFICIAL INTELLIGENCE

Big Data

Virtual / Augmented Reality

Internet of Things

Artificial Intelligence

Autonomous Vehicles

20162020

100's OF CHIPS PER HOUSEHOLD?

1000's OF CHIPS PER FACTORY?

HOW MANY CHIPS PER CITY?

KEY TAKEAWAYS

Industry growth with increasing need for logic and memory chips

Long term outlook for materials is positive as demand continues to strengthen

Innovation leader, developing solutions for our customers' most advanced challenges

World class quality systems and supply chain excellence for CMP Consumables and Electronic Chemicals

FY20-FY24

Estimated Average Annual

Revenue Growth Rate

5% to 7%*

*Based on current estimated semiconductor industry growth outlook

PERFORMANCE MATERIALS

PERFORMANCE MATERIALS OVERVIEW

FY19 PRO FORMA

SEGMENT REVENUE

$227M

REVENUE BY BUSINESS UNIT

REVENUE BY REGION

Other

Pipeline Performance	North America

PERFORMANCE MATERIALS

BUSINESS ATTRIBUTES

Consumables based products with high customer retention

Recognized leader in participating industries

Provide critical materials to the industries we serve

Close partnership with customers to deliver differentiated solutions

Attractive financial metrics and strong free cash flow generation

PIPELINE MATERIALS, VALVE PRODUCTS & SERVICES

Leading provider of performance products to midstream oil and gas

LEADING POSITION

A leading supplier of drag reducing agents (DRAs), valve lubricants, cleaners and sealants

VALUE-ADDED PRODUCTS AND SERVICES

Specialty products that optimize pipeline efficiency, lower operating costs and enhance safety; also provide valve maintenance and safety training services

SMALL PORTION OF CUSTOMERS' COST

Products are critical to performance and safety, but represent a minimal portion of overall operating costs; consumption has not been correlated to oil prices

DRAs OPTIMIZE PIPELINE FLOW

DRAs are injected at

DRAs reduce drag

DRA polymers have no effect

Drag in pipelines is caused by

multiple points along a

pipeline

throughout the

on the composition of crude

turbulent liquid flow

turbulent fluid core

oil and refined products

Increased turbulence can lead to energy	The additives align turbulent fluid molecules to linearize
the flow patterns
loss and reduced throughout of a pipeline

Fluid molecules	Turbulent Flow	Orderly flow with DRAs

GROWTH DRIVERS

PERFORMANCE MATERIALS (PM)

⌃	⌃	⌃	⌃	⌃
Oil production in the	Increased Drag	Aging pipeline	Steadily rising	International
U.S. has increased	Reducing Agents	infrastructure and new	industrial energy	expansion
in the last 9 out of	(DRAs) adoption	pipeline construction	costs	opportunities
10 years		(65% of U.S. crude oil
		pipelines are at least 30
		years old)

U.S. SHALE UPSTREAM PRODUCTION

14 Total U.S.

12 (BBL/DAY)

Millions	10	6.5	12.1
8	9.4

	6
	4	5.1

	2
	0

2007 2012 2017 2019*

5 Permian Region

	4		(BBL/DAY)
		4.4

Millions	3
2		2.9
	1		1.3
	0.9
	0

2007 2012 2017 2019*

*As of September 2019

U.S. OIL PRODUCTION BY REGION

PIPELINE MILEAGE INCREASING GLOBALLY

BY KEY REGIONS

thousands)	432


in			461



		405

(Miles	361

	382



	2017A	2019E	2021E	2023E	2025E

Source: U.S. Energy Information Administration	Source: Company information

U.S. Crude production forecasted to reach 14MM+ b/d (2019 EIA annual energy outlook)

Increases in domestic crude production expected to continue to be primarily driven by the Permian basin where takeaway capacity is extremely tight

U.S. projected as net exporter of crude oil by 2020 according to 2019 EIA annual energy outlook

KEY TAKEAWAYS

Consumables based products with high customer retention

Recognized leader in participating industries

Provide critical materials to the industries we serve

Close partnership with customers to deliver differentiated solutions

Attractive financial metrics and strong free cash flow generation

FY20-FY24

Estimated Average Annual

Revenue Growth Rate

8% to 10%

FINANCIAL OVERVIEW

KEY FINANCIAL TAKEAWAYS

STRONG FINANCIAL PERFORMANCE

INVESTING IN

GROWTH

RETURNING CASH TO SHAREHOLDERS

FOCUS ON

DELEVERAGING

Revenue growth well above industry in FY17 and FY18
Expanded gross margins while controlling costs, resulting in operating leverage and strong free cash flow
Continue to expect to grow faster than industry and improve profitability
Ongoing investment in key growth areas in Electronic Materials and Performance Materials segments
Increasing capital expenditures in FY20 and FY21 to support organic growth opportunities
More than doubled quarterly dividend in FY18 to current rate of $49M annually (currently $1.68/share)
Spent $44M on share repurchases in FY18
Planning to pay ongoing and increasing dividends and repurchase shares opportunistically
Targeting 2x Net Debt/EBITDA by the end of FY20

FY20-FY24

LONG TERM ESTIMATES

6% to 8%

Average Annual Revenue Growth*

35%

EBITDA Margin by FY24

>$1.5B

Cumulative Free Cash Flow Generation by FY24

*Based on current estimated semiconductor industry growth outlook

STRONG FREE

CASH FLOW*

GENERATION

$ in millions

Our strong free cash flow has enabled us to invest internally and return cash to shareholders

$225

$200

$175 $150 $125

$100

$75

$50 $25 $0

$212

Million

$64M

Generated strong

free cash flow

during recession

$148M

2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
					Cabot Microelectronics			KMG

* Free cash flow is operating cash flow less capital expenditures

CAPITAL DEPLOYMENT

M&A	PRIORITY

28%
	ORDER OF

FUTURE CASH DEPLOYMENT	CASH DEPLOYED IN
	PRIORITIES	FY2019
	INTERNAL INVESTMENTS	$58M

Invest in growth and cost improvement opportunities, resulting in increased spending in FY20-FY21

DIVIDENDS	$46M
Pay ongoing and increasing dividends
M&A	$1,182M

Utilize the balance sheet to execute
opportunistic M&A that meets
strategic objectives
SHARE REPURCHASES	$15M
Repurchase shares, balanced with
deleveraging goals and other priorities

CAPITAL EXPENDITURES

FY19$58M

GUIDANCE

FY20$100M-$130M

FY20 - FY21	ESTIMATED
~$200M OVER 2YR

FUTURE	~$50M/YR
EXPECTATIONS	AFTER FY21

INVESTING IN FUTURE GROWTH

FY20 - FY21

Performance

Materials

Electronic Materials

M&A

PRINCIPLES

Financially compatible with our current business model

Provides adjacent technologies that add additional value to existing customers

STRENGTHENING

OUR CORE MATERIALS

BUSINESSES

STRONG

PREFERENCE

FOR ELECTRONIC

MATERIALS

Leverages existing channels to market and extends customer base

Applies core capabilities to new markets outside of semiconductor industry

FIVE-YEAR

ILLUSTRATIVE MODEL

FY18 PRO FORMA

FY20-FY24

Electronic Materials Revenue	$866M	5%-7% CAGR*
Performance Materials Revenue	$198M	8%-10% CAGR
Total Revenue	$1,064M	6%-8% CAGR*
Adjusted Pro Forma EBITDA	$311M	~35% of Revenue

*Based on current estimated semiconductor industry growth outlook

FY24

Total Revenue ~$1.4B-$1.5B

EBITDA ~$480M-$520M

INVESTMENT HIGHLIGHTS

Leading Electronic Materials Supplier

Consumables-Based Business Model

Growing Opportunities

Sustained Strong Financial Performance

Commitment to Return Value to Shareholders

World's largest supplier of chemical mechanical planarization (CMP) polishing slurries
Leading global supplier of high purity process chemicals (HPPC)
Second largest CMP pads supplier to the semiconductor industry
Supply to virtually all semiconductor manufacturers in the world
Robust product portfolio, serving all applications and technology nodes
Approximately 97% of revenue derived from consumable materials
Broad exposure across all types of semiconductor devices
Historically less cyclical than semiconductor equipment suppliers
Robust growth in memory and logic applications
Increasing complexity of semiconductor devices
Rising semiconductor content to support Virtual Reality (VR), Internet of Things (IoT), High Performance Computing (HPC), Cloud, Automotive
Increasing oil production, aging infrastructure and new pipeline construction
High profitability
Low capital intensity
Strong free cash flow generation
Ongoing balanced return of excess capital to shareholders with investment for growth
Maintain stable and increasing dividends over time
Maintain a prudent balance sheet and de-lever appropriately post-M&A

investor_relations@cabotcmp.com 630.499.2600

Attachments

Original document
Permalink

Disclaimer

Cabot Microelectronics Corporation published this content on 13 February 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 February 2020 00:53:02 UTC

FUJIFILM Holdings America Corporation completed the acquisition of KMG Chemicals, Inc. from CMC Materials, Inc.	23-10-01	CI
FUJIFILM Holdings America Corporation entered into a definitive agreement to acquire KMG Chemicals, Inc. from CMC Materials, Inc. for $700 million.	23-05-09	CI
Quad-C Management, Inc. completed the acquisition of QED Technologies International, Inc. from CMC Materials, Inc.	23-02-28	CI
Quad-C Management, Inc. entered into a definitive agreement to acquire QED Technologies International, Inc. from CMC Materials, Inc.	23-01-19	CI
CMC Materials, Inc.(NasdaqGS:CCMP) dropped from S&P Composite 1500	22-07-07	CI
CMC Materials, Inc.(NasdaqGS:CCMP) dropped from S&P TMI Index	22-07-07	CI
CMC Materials, Inc.(NasdaqGS:CCMP) dropped from S&P 1000	22-07-07	CI
CMC Materials, Inc.(NasdaqGS:CCMP) dropped from S&P Global BMI Index	22-07-07	CI
CMC Materials, Inc.(NasdaqGS:CCMP) dropped from S&P 400	22-07-07	CI
CMC Materials, Inc.(NasdaqGS:CCMP) dropped from S&P 400 Information Technology	22-07-07	CI
CMC Materials, Inc. Announces Board Changes	22-07-06	CI
Entegris Completes CMC Materials Acquisition	22-07-06	MT
CMC Materials, Inc.(NasdaqGS:CCMP) dropped from NASDAQ Composite Index	22-07-06	CI
Entegris, Inc. completed the acquisition of CMC Materials, Inc. from The Vanguard Group, Inc., EARNEST Partners, LLC, Neuberger Berman Group LLC, BlackRock, Inc. and others.	22-07-05	CI
Entegris-CMC Materials Merger Gets China Antitrust Clearance	22-06-24	MT
Entegris Prices Private Offering of $895 Million Senior Notes	22-06-17	MT
Entegris Unit Plans Senior Notes Offering due 2030	22-06-16	MT
Insider Sell: CMC Materials	22-05-10	MT
Tranche Update on CMC Materials, Inc.'s Equity Buyback Plan announced on November 30, 2010.	22-05-05	CI
CMC Materials Posts Higher Fiscal Q2 Adjusted Earnings, Revenue; Issues Fiscal Q3 Revenue Outlook	22-05-05	MT
Earnings Flash (CCMP) CMC MATERIALS Posts Q2 Revenue $324.1M, vs. Street Est of $314.9M	22-05-05	MT
CMC Materials, Inc. Provides Earnings Guidance for the Fiscal Year of 2022	22-05-04	CI
CMC Materials, Inc. Reports Earnings Results for the Second Quarter and Six Months Ended March 31, 2022	22-05-04	CI
Entegris COO Todd Edlund to Retire	22-04-08	MT
CL King Downgrades CMC Materials to Neutral From Buy	22-04-07	MT

	1st Jan change	Capi.
NVIDIA CORPORATION	+64.40%	1,961B
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED	+29.17%	622B
BROADCOM INC.	+15.03%	582B
AMD (ADVANCED MICRO DEVICES)	+3.17%	245B
QUALCOMM, INC.	+12.05%	183B
TEXAS INSTRUMENTS INCORPORATED	+1.91%	159B
INTEL CORPORATION	-30.93%	147B
MICRON TECHNOLOGY, INC.	+29.76%	124B
ARM HOLDINGS PLC	+30.13%	103B

CMC Materials, Inc.

Equities

CCMP

US12571T1007

Semiconductors

Cabot Microelectronics : Loop Capital Transportation, Logistics and Materials Conference Presentation

Latest news about CMC Materials, Inc.

Chart CMC Materials, Inc.

Company Profile

Sector Other Semiconductors