virtual 2020 bmo chemicals & packaging conference …€¦ · 24/06/2020 · of semiconductor...
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Virtual 2020 BMO Chemicals & Packaging Conference
PRESENTATIONJUNE 24, 2020
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©2020 Cabot Microelectronics Corporation
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.
SAFE HARBOR STATEMENT
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©2020 Cabot Microelectronics Corporation
❯ Consumables based business focused on electronic materials with industry leading positions
❯ Quality and innovation leader serving virtually all semiconductor manufacturers in the world
❯ Strong participation in high-growth markets
❯ Demonstrated track record of growth above industry and expanding profitability
❯ Superior financial performance, strong free cash flow generation and focus on creating shareholder value
CABOT MICROELECTRONICSBUILDING STRATEGIC VALUE
$1.1B PRO FORMA REVENUE IN FY19 31% ADJUSTED PRO FORMA EBITDA
©2020 Cabot Microelectronics Corporation3
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©2020 Cabot Microelectronics Corporation
80%ELECTRONICMATERIALSCMP SlurriesCMP PadsElectronic Chemicals
20%PERFORMANCEMATERIALS
Provides essential products that constitute a small portion of our customers’end product cost
PORTFOLIOOVERVIEW
©2020 Cabot Microelectronics Corporation4
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©2020 Cabot Microelectronics Corporation5
GLOBAL FOOTPRINTAND PRODUCT DIVERSITY
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ELECTRONIC MATERIALS
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FY19 PRO FORMASEGMENT REVENUE
$873M
REVENUE BY BUSINESS UNIT REVENUE BY REGION
ElectronicChemicals
CMPPads
CMP Slurries
Taiwan
China
Europe
Korea
NorthAmerica
South East Asia
Japan
©2020 Cabot Microelectronics Corporation7
ELECTRONIC MATERIALS OVERVIEW
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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
©2020 Cabot Microelectronics Corporation8
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©2020 Cabot Microelectronics Corporation
FY20-FY24Wafer Starts Growth: 4%-6%* CAGR
Estimated CMC EM Revenue Growth: 1% to 2% above industry
ORGANIC REVENUE
❯ Revenue is highly correlated to wafer starts
❯ Broad exposure across 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
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
Source: IC Insights and company information
*Based on 2019 estimated semiconductor industry growth outlook
©2020 Cabot Microelectronics Corporation9
WAFER STARTS VOLUME
GROWTH DRIVERSELECTRONIC MATERIALS (EM)
ACQUISITION REVENUE
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SEMICONDUCTOR FABRICATIONPROCESS OVERVIEW
❯ Base chemistry materials
Our solutions help enable the manufacture of
semiconductor devices
❯ Acids❯ Solvents❯ Bases
Implant
DepositionEtch / Clean / Dry
Photolithography
Chemical Mechanical
Planarization (CMP)
❯ Custom blends❯ Performance products❯ Oxidizers
❯ Adhesion promoters❯ Developers❯ Edge bead removers❯ Photoresist solvents❯ Photoresist strippers
©2020 Cabot Microelectronics Corporation10
❯ Slurries❯ Pads
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50nm 15-20nm 48/64L 1xxL 2xxL
2D NAND 3D NAND
❯ 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
POSITIONED FOR CONTINUED GROWTH IN MEMORY
CMC is #1 in tungsten slurries Tungsten Non-Tungsten
MEMORY PROCESS STEPS
Source: Company information
©2020 Cabot Microelectronics Corporation11
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❯ 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
POSITIONED FOR GROWTH IN LOGIC
0
300
600
900
1200
1500
28nm 10nm 5nm
LOGIC PROCESS STEPS
0
2
4
6
8
2015 2016 2017 2018 2019 2020 2021 2022
ALLOWABLE 20 NM PARTICLES/ML CHEMICALS
CMC has the talent and scale tomeet these challenges
CLEANING STEPS:25~30% of total semiconductor process steps
Cleaning Steps Other Steps
Source: Company information
Source: Semiconductor Engineering
©2020 Cabot Microelectronics Corporation12
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©2020 Cabot Microelectronics Corporation
PC & INTERNET
2016 2020
MOBILE
DATA CENTRIC AND ARTIFICIAL INTELLIGENCE
Big DataVirtual / Augmented Reality
Internet of Things Artificial Intelligence
Autonomous Vehicles
❯ 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
GROWTH DRIVERS OF IC DEMANDEND USE DRIVERS FOR THE IC INDUSTRY
2000
ONE PC PER HOUSEHOLD
ONE MOBILE DEVICE PER PERSON
100’s OF CHIPS PER HOUSEHOLD? 1000’s OF CHIPS PER FACTORY?
HOW MANY CHIPS PER CITY?
2010
©2020 Cabot Microelectronics Corporation13
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Industry growth with increasing need for logic and memory chips
Long term outlook for materials is positiveas 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
KEY TAKEAWAYS
FY20-FY24Estimated Average Annual
Revenue Growth Rate
5% to 7%*
©2020 Cabot Microelectronics Corporation14
*Based on 2019 estimated industry growth outlook; the ongoing volatile nature of COVID-19 and its impact on the economy and industries could cause different outcomes
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PERFORMANCE MATERIALS
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FY19 PRO FORMASEGMENT REVENUE
$227M
REVENUE BY BUSINESS UNIT REVENUE BY REGION
Other
Pipeline Performance
Other
North America
©2020 Cabot Microelectronics Corporation16
PERFORMANCE MATERIALS OVERVIEW
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KEY TAKEAWAYSPERFORMANCE MATERIALSBUSINESS ATTRIBUTES
©2020 Cabot Microelectronics Corporation17
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
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LEADING POSITION A leading supplier of drag reducing agents (DRAs), valve lubricants, cleaners and sealants
VALUE-ADDED PRODUCTS AND SERVICESSpecialty products that optimize pipeline efficiency, lower operating costs and enhance safety; also provide valve maintenance and safety training services
SMALL PORTION OF CUSTOMERS’ COSTProducts are critical to performance and safety, but represent a minimal portion of overall operating costs; consumption has not been correlated to oil prices
Leading provider of performance products to midstream oil and gas
©2020 Cabot Microelectronics Corporation18
PIPELINE MATERIALS, VALVE PRODUCTS & SERVICES
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Fluid molecules Turbulent Flow Orderly flow with DRAs
Drag in pipelines is caused by turbulent liquid flow
Increased turbulence can lead to energy loss and reduced throughout of a pipeline
DRAs reduce drag throughout the
turbulent fluid core
The additives align turbulent fluid molecules to linearize the flow patterns
DRA polymers have no effect on the composition of crude
oil and refined products
DRAs are injected at multiple points along a
pipeline
DRAs OPTIMIZE PIPELINE FLOW
©2020 Cabot Microelectronics Corporation19
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©2020 Cabot Microelectronics Corporation
GROWTH DRIVERSPERFORMANCE MATERIALS (PM)
⌃Oil production in the U.S. has increased in the last 9 out of
10 years
⌃Increased Drag
Reducing Agents (DRAs) adoption
⌃Aging pipeline
infrastructure and new pipeline construction
(65% of U.S. crude oil pipelines are at least 30
years old)
⌃Steadily rising
industrial energy costs
⌃International expansion
opportunities
20
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OIL PRODUCTION AND DEMAND FOR DRAs
21
❯ U.S. crude production increased from 5M barrels per day (b/d) in 2008 to 12M+ b/d in 2019, primarily driven by the Permian basin; approximately 75% of our current business is in North America
❯ Oil consumption and production are expected to stabilize and recover in 2H 2020 as economies open up following shutdowns related to the COVID-19 pandemic
❯ Demand for DRAs is not correlated with oil price and is primarily driven by oil production and transportation; historically, DRA volumes have increased despite oil price volatility
Source: U.S. Energy Information Administration (short-term energy outlook, May 2020)
Source: Company information
©2020 Cabot Microelectronics Corporation21
HISTORICAL FLOWCHEM DRA VOLUMES
Pri
ce p
er b
arre
l
Wor
ld p
rod
uctio
n/co
nsum
ptio
n in
mill
ions
b/d
U.S
. oil prod
uction in millions b
/d
OIL PRODUCTION AND CONSUMPTION
7% CAGR20% CAGR
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KEY TAKEAWAYSKEY 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-FY24Estimated Average Annual
Revenue Growth Rate
8% to 10%*
©2020 Cabot Microelectronics Corporation22
*Based on 2019 estimated industry growth outlook; the ongoing volatile nature of COVID-19 and its impact on the economy and industries, as well as uncertainty in the oil and gas sector, could cause different outcomes
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FINANCIAL OVERVIEW
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FOCUS ON DELEVERAGING
STRONG FINANCIAL PERFORMANCE
INVESTING IN GROWTH
RETURNING CASH TO SHAREHOLDERS
› Revenue growth well above industry in FY17- FY19, while also controlling costs, driving operating leverage and strong free cash flow generation
› 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 and continued to increase dividend in FY19 and FY20 to current rate of $51M annually (currently $1.76/share)
› Spent $15M on share repurchases in FY19 and $20M in 1H FY20› Planning to pay ongoing and increasing dividends and repurchase shares
opportunistically
› Targeting 2x Net Debt/EBITDA by the end of FY20
KEY FINANCIAL TAKEAWAYS
©2020 Cabot Microelectronics Corporation24
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6% to 8%Average Annual Revenue Growth
35%EBITDA Margin by FY24
>$1.5BCumulative Free Cash Flow Generation by FY24
FY20–FY24 LONG TERM ESTIMATES*
©2020 Cabot Microelectronics Corporation25 *Based on 2019 estimated industry growth outlook; the ongoing volatile nature of COVID-19 and its impact on the economy and industries, as well as uncertainty in the oil and gas sector, could cause different outcomes
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©2020 Cabot Microelectronics Corporation
STRONG FREE CASH FLOW*
GENERATION
In m
illio
ns
Generated strong free cash flow
during recession
$64M
* Free cash flow is operating cash flow less capital expenditures
26
Our strong free cash flow has enabled us to invest internally and return cash to shareholders
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CAPITAL DEPLOYMENT
INTERNAL INVESTMENTS Invest in growth and cost improvement opportunities, resulting in increased spending in FY20-FY21
DIVIDENDSPay ongoing and increasing dividends
M&AUtilize the balance sheet to execute opportunistic M&A that meets strategic objectives
SHARE REPURCHASESRepurchase shares, balanced with deleveraging goals and other priorities
OR
DE
R O
F P
RIO
RIT
Y
FUTURE CASH DEPLOYMENT PRIORITIES
M&A
28%
©2020 Cabot Microelectronics Corporation27
CASH DEPLOYED IN FY19
$58M
$46M
$1,182M
$15M
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CAPITAL EXPENDITURES
INVESTING IN FUTURE GROWTH FY20 - FY21
FY19 $58M
FY20GUIDANCE
$100M-$130M
FY20 - FY21ESTIMATED
~$200M OVER 2YR
FUTURE EXPECTATIONS
~$50M/YR
Electronic Materials
IT
PerformanceMaterials
©2020 Cabot Microelectronics Corporation28
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Financially compatible with our current business model
Leverages existing channels to market and extends customer base
Provides adjacent technologies that add
additional value to existing customers
Applies core capabilities to new markets outside of semiconductor industry
M&A PRINCIPLES
STRENGTHENINGOUR CORE MATERIALS
BUSINESSES
STRONG PREFERENCEFOR ELECTRONIC
MATERIALS
©2020 Cabot Microelectronics Corporation29
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FY18 PRO FORMA
FY24
FIVE–YEARILLUSTRATIVE MODEL*
Total Revenue
EBITDA
~$1.4B-$1.5B
~$480M-$520M
Electronic Materials Revenue
Performance Materials Revenue
Total Revenue
Adjusted Pro Forma EBITDA
$866M
$198M
$1,064M
$311M
5%-7% CAGR
8%-10% CAGR
6%-8% CAGR
~35% of Revenue
FY20-FY24
*Based on 2019 estimated industry growth outlook; the ongoing volatile nature of COVID-19 and its impact on the economy and industries, as well as uncertainty in the oil and gas sector, could cause different outcomes
©2020 Cabot Microelectronics Corporation30
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©2020 Cabot Microelectronics Corporation
INVESTMENT HIGHLIGHTS
31
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
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CONTACT [email protected]