Cabot Microelectronics (CCMP) Q2 2020 Earnings Call Transcript

Cabot Microelectronics (CCMP)
Q2 2020 Earnings Call
May 07, 2020, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Suzanne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cabot Microelectronics second-quarter fiscal 2020 earnings conference call. [Operator instructions] Ms.

Colleen Mumford, vice president of communications and marketing, you may begin your conference.

Colleen Mumford -- Vice President of Communications and Marketing

Thanks, Suzanne. Good morning. With me today are David Li, president and CEO; and Scott Beamer, vice president and CFO. Last night, we reported results for our second quarter of fiscal 2020, which ended March 31, 2020.

Whether you're joining us online or over the phone, we encourage you to review the investor slide presentation that we've made available under the Quarterly Results section of the Investor Relations center on our website, cabotcmp.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-K for the fiscal year ended September 30, 2019, and our Form 10-Q for the quarter ended March 31, 2020, to be filed by May 11, 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, data reflects rounded values throughout this discussion and in the accompanying slide presentation. I will now turn the call over to Dave.

David Li -- President and Chief Executive Officer

Thanks, Colleen. Good morning, everyone. First, I want to extend positive wishes to our investor community, and I hope that you and your families are staying healthy. Our thoughts are with all families and communities around the world impacted by the COVID-19 pandemic, as well as frontline teams who are critical to responding to the crisis and delivering essential services.

I also want to take this opportunity to thank our global team members for their dedication and tireless efforts to maintain the safety of our employee base and our operations during this challenging time. All of our businesses, whether serving the semiconductor industry and other technology sectors or the energy industry, are deemed essential and, as such, have continued in full operation. We continued to work round-the-clock to ensure uninterrupted supply of critical materials to our customers. To date, we have not seen a meaningful impact from the pandemic on our ability to manufacture and deliver products to our customers, and we continue to review and refine our global business continuity plans to help mitigate any potential impacts on our supply chain in the future.

Within this dynamic environment, the health and well-being of our employees continues to be our highest priority. We have taken proactive steps to develop and implement protocols over the past several months in all of our locations, even in advance of government guidelines and regulations to prevent and contain the spread of COVID-19 and to deploy our robust business continuity plans. As part of this, we are operating under work from home and split-shift schedules and have enhanced social distancing and hygiene practices at all of our facilities such as contact tracing and self-isolation requirements, temperature screenings and use of additional personal protective equipment. Within these protocols now well established, we have turned our focus to planning for a measured and phased return to work implementation, which we expect to roll out across our facilities in the near future.

During these challenging times, we've also made efforts to give back and help the communities in which we operate. Our sites have donated personal protective equipment, including N95 respirators and surgical masks, to local hospitals and first responders. In addition, we have partnered with local businesses by donating isopropyl alcohol to aid in the production of hand sanitizer. We are thankful to have the opportunity to support our employees and our communities, and we'll look for more opportunities like these in the future.

Turning to our second-quarter results. We set another record for quarterly revenue, which increased 7% compared to the same period last year. The increase was driven by strong growth in CMP slurries and drag-reducing agents or DRAs. Second-quarter revenue was up slightly compared to the prior quarter and was generally consistent with our previously provided guidance.

We are proud of our record revenue this quarter, which was driven by continued strong execution despite the challenges that our company, employees, customers and suppliers are facing due to the pandemic. Now let me provide some additional thoughts on industry conditions and outlook. Starting with electronic materials, semiconductor industry conditions remained stable this quarter, driven by the additional devices and bandwidth needed by many to transition into work-from-home environments, as well as the continued overall industry recovery coming off a softer demand environment in calendar 2019. Demand for our solutions was driven by strength in foundry and logic and continued improvement in memory.

We also were encouraged by some recent CMP pad and slurry consumable set wins as our unique capability to provide a total CMP solution continues to be validated by our customers. At present, we see stable demand in the current third fiscal quarter and expect revenue for electronic materials to be approximately flat with this quarter's results although due to the pandemic, potential for economic volatility remains. Visibility beyond our third fiscal quarter is limited as many others in the industry have also reported, but we are optimistic in our ability to navigate this uncertainty as we have done in prior industry and economic cycles and crises. We remain encouraged about the long-term growth opportunities for electronic materials, driven by emerging demand from new technologies such as 5G, IoT, autonomous driving, AR and AI, which will require new and more complex memory and logic technology.

Turning to performance materials. This quarter, we saw continued strong growth driven by solid DRA sales, as well as the benefits of price increases in our wood treatment business. Going forward, we are closely monitoring the oil and gas sector, which is seeing an unprecedented drop in demand due to the pandemic's effect on transportation and travel. We expect this decline in global oil demand to also affect our pipeline performance business and are working closely with our customers in this dynamic environment.

Most forecasts call for major global economies, especially the U.S., to begin gradually opening back up over the next several months. And assuming this is the case, expectations would be for oil demand to also recover and stabilize over time, but how this may translate to production and especially transportation of oil is not yet certain. As we have discussed in the past, demand for DRAs is not correlated with oil price but is correlated with oil demand in transport. So we would expect our business to similarly stabilize and regain its growth trajectory over time although there are a variety of factors that may affect the timing of this recovery, including the growing inventory of oil globally.

As such, we currently expect about a 25% decline in DRAs this quarter, followed by a gradual recovery, assuming oil demand and transport stabilizes as major economies open back up. We also continue to focus on new opportunity capture in our pipeline business, which may partially offset any interim softness for DRAs and should also help build a stronger business foundation to support future growth. In this regard, we are encouraged by some significant recent customer wins that we expect to continue to drive growth in DRAs over time. Since we have acquired the DRA business, it has outperformed, growing over 40%, which gives us conviction about its strong fundamentals and future growth prospects.

In addition, revenue in the performance materials segment should benefit from the price increases we have implemented in our wood treatment business which we expect to last until the end of calendar-year 2021 as we continue to work closely with our customers on the exit of this business that we previously announced. Looking ahead, we expect our performance materials segment to experience a sequential revenue decline of 10% to 15% in the third fiscal quarter as softness in our pipeline performance and QED businesses is expected to be only partially offset by the full-quarter effect of the previously implemented price increases in wood treatment. In summary, we are proud of our results and strong execution in this uncertain environment. Our track record shows that we've built a robust company over many years, which has allowed us to weather diverse and challenging industry and economic environment in the past.

We believe this will enable us to emerge from the current challenging economic environment an even stronger and more resilient company. With that, I'll turn the call over to Scott to provide more details on our financial results.

Scott Beamer -- Vice President and Chief Financial Officer

Thanks, Dave, and hello, everyone. We begin our presentation by providing some information about how our company has been handling the COVID-19 pandemic and Dave mentioned a number of key points previously. Importantly, all of our businesses have been deemed to be essential, so we continue to operate all of our facilities to provide critical enabling products to our customers. While the short-term outlook is less certain, we continue to be optimistic about the long-term prospects for the industries in which we operate.

During this environment, we continue to focus on our financial results by actively managing our costs, driving positive cash flow, executing on our capital deployment priorities and assessing various financial scenarios for the future. Fundamentally, we believe that our businesses have not been disrupted over the long term, and our strong balance sheet and liquidity should enable us to weather short-term challenges and emerge well-positioned to deliver future growth and margin expansion. Now let me speak about our quarterly results, and my comments will continue to generally follow the slide presentation we posted on our website last night along with our press release. Slide 4 provides a higher-level summary of the second-quarter financial performance, highlighting our strong results this quarter.

Specifically, adjusted net income and adjusted EPS were higher than prior year, even in this challenging environment. Slide 5 goes a bit deeper and provides some quarterly P&L comparisons for both reported and adjusted results. Second quarter revenue of $284 million was a record for our company and increased 7% compared with the same quarter last year, driven by growth in both the electronic materials and performance materials segments. Adjusted gross margin declined versus the prior year primarily due to the reversal of the favorable impact of certain manufacturing costs recorded in Q1.

Adjusted EBITDA was essentially flat with the prior year as higher sales were offset by lower gross margin and higher operating expenses, primarily from increased accruals for short-term incentive compensation. Adjusted EBITDA was $86 million or 30.2% of revenue. However, excluding the impact of the timing of certain manufacturing costs, adjusted EBITDA margin would have been approximately 32% for the quarter. Our reported net income was $33 million.

Adjusted net income was $52 million, up 14% compared with adjusted net income in the second quarter last year. Overall, our adjusted net income benefited from lower interest and income tax expenses, partially offset by the timing of certain manufacturing costs and increased operating expenses. Our tax rate benefited from an increased quantity of stock options exercised during this quarter. Diluted EPS was $1.11.

Adjusted EPS was $1.75, which is 13% higher than adjusted diluted EPS in the same quarter last year. Now let's discuss revenue results by segment and business, which are shown on Slide 6. Electronic materials, which contributed 77% of our quarterly revenue, reported a $6 million or approximately 3% increase in revenue compared to last year. CMP slurries revenue increased 9%, primarily driven by demand from foundry and logic customers and stabilized demand from memory customers.

Electronic chemicals revenue was flat compared with the same period last year as a result of lower demand from legacy logic applications, primarily in Europe, which was offset by growth in advanced logic. CMP pads reported a revenue decrease of approximately 14% from last year due to lower demand from certain memory customers, as well as the phasing out of legacy pads at certain foundry customers that we discussed last quarter. CMP pads revenue was flat sequentially, and Dave already mentioned some recent business wins that we expect will support a return to revenue growth in the future. Sequentially, electronic materials revenue was down 1%.

Moving to performance materials, revenue increased approximately $13 million or 24% over the prior year to a record level in the quarter. The increase was driven primarily by strong demand for DRAs and higher selling prices in wood treatment but was partially offset by lower revenue in our QED business. Sequentially, performance materials revenue was up 5%. Slide 7 shows revenue and adjusted EBITDA by segment.

Electronic materials delivered around $70 million of adjusted EBITDA, which was 32% of segment revenue, a decline versus 35% reported last year primarily due to changes in the allocation of corporate costs and the unfavorable impact of the timing of certain manufacturing costs. Both items were discussed last quarter. Performance materials adjusted EBITDA was approximately $30 million, which was 46% of segment revenue, an increase from the prior year. Now please refer to Slide 8, which provides some balance sheet and cash flow highlights.

We ended the quarter with $341 million of cash on hand and $1.075 billion of total gross debt. Both include the $150 million drawdown from our $200 million revolving credit facility that we executed in mid-March. The entire $150 million currently remains on our balance sheet. We drew down these funds out of an abundance of caution although we have no present or expected intention or need to do so.

To the extent necessary, we would use the funds for general corporate purposes. Our liquidity remains solid and we continue to generate strong cash flow. Year to date, we generated cash flow from operations of $112 million and our capital expenditures were $59 million. As a result, our free cash flow was $53 million.

Overall, we continue to deploy cash consistent with our stated capital deployment priorities and currently still expect to meet our objectives for the fiscal year. Year to date, in addition to the $59 million investment in capex, we paid $25 million in dividends. We also prepaid $18 million on our outstanding debt and repurchased $20 million worth of stock at an average cost basis of approximately $104 per share. For context, we generated positive free cash flow during the prior severe market downturns and expect to do so again in fiscal 2020.

Specifically, in our March quarter, we generated $32 million in free cash flow. As a reminder, we increased our quarterly dividend in March by approximately 5% to $0.44 per share or $1.76 on an annualized basis. Our net debt is currently at 2.1 times EBITDA, which is essentially at the target set for the end of our fiscal year. Our leverage metrics remain well within the allowed levels for our covenants under our credit facility, and our term loan does not mature until 2025.

Additionally, we did not and do not intend to take any loans or grants pursuant to the CARES Act or any other U.S. pandemic-related legislation. Finally, on Slide 9, we provide some forward-looking expectations. For the third quarter of fiscal 2020, we expect total company revenue to be approximately flat to down low single digits compared with the second fiscal quarter.

While our third-quarter guidance has considered the potential impact from COVID-19, at least to the degree that we can estimate it today, we would caution that our guidance is based on current estimations and the ongoing volatile nature of COVID-19 and its impact on the economy and industries we serve. In particular, the uncertainty in the oil and gas sector could cause different outcomes. Within the electronic materials segment, the expectation is approximately flat versus our second fiscal quarter as we forecast a stable demand, as Dave mentioned in his prepared remarks, versus a typical seasonal improvement in the third quarter. We expect revenue in the performance materials segment to decline 10% to 15% sequentially in the third quarter, which is driven by lower demand expectations for DRAs and lower revenue in the QED business.

The decline in DRAs is consistent with expected lower demand for oil, especially in the U.S. As already stated, the segment's revenue should benefit from a full quarter of price increases that were previously implemented in the wood treatment business. Given the ongoing uncertainty with respect to the COVID-19 pandemic, we are withdrawing our full-year fiscal 2020 adjusted EBITDA guidance. Let's continue, though, with some other expectations for our full-year P&L.

We now expect our full-year interest expense to be between $43 million and $44 million. As a reminder, we refinanced our term loan in the December quarter and drew down $150 million on our revolver during the March quarter. Naturally, the cost associated with maintaining these funds on our balance sheet are included in our interest expense guidance. Although we are likely facing declining demand for our DRAs, which may continue through the rest of the fiscal year, we are managing this business for the long term and remain excited about growth and long-term opportunities in pipeline performance.

Related to this, we are continuing our investment plans and still expect to spend between $100 million and $130 million in capital expenditures this year, intentionally keeping a wider range of certain activities could be postponed or delayed. In closing, while we face an unprecedented operating and macroeconomic environment, we continue to operate effectively as we deliver critical enabling products to our customers. We are controlling what we can manage while assessing various scenarios for the future. We believe that our underlying businesses should remain stable to growing over the long term, and our strong balance sheet and access to liquidity should enable us to emerge stronger and even better positioned to thrive in the future.

Now, I will turn the call back to the operator as we prepare to take your questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] And your first question comes from the line of Toshiya Hari of Goldman Sachs.

Toshiya Hari -- Goldman Sachs -- Analyst

Good morning.

David Li -- President and Chief Executive Officer

Hey, good morning.

Toshiya Hari -- Goldman Sachs -- Analyst

Can you hear me OK?

David Li -- President and Chief Executive Officer

We can hear you.

Toshiya Hari -- Goldman Sachs -- Analyst

Great. Good morning. Good evening. Thanks for taking the question.

Dave, you talked about significant customer wins in both your slurry business, as well as your pads business. Can you kind of speak to the significance of the wins and how fast we should expect the wins to materialize in your P&L? Is this a fairly gradual dynamic? Or could this show up in a meaningful way over the next couple of quarters? And then I've got a follow-up.

David Li -- President and Chief Executive Officer

Yes. Thanks, Toshiya, and hope you're staying safe and healthy. I think what we mentioned in the prepared comments and what we're really encouraged by is we recorded several wins in this quarter and even coming into this quarter of consumable sets, meaning pads wins of customers that were either existing or new users of our slurry. And we're really encouraged by that because we've been working on it for some time.

We think that we're unique in our ability to customize these types of solutions and really provide something different from a performance standpoint because we can kind of toggle different degrees of freedom on the slurry and on the pad side, and we saw some success. In fact, I think all of our wins this quarter in pads were with our slurry. So it validates that sort of unique capability we have. These wins, we expect to ramp up over time, so they're not going to be sort of an immediate change in trajectory.

But it's really encouraging to see that validation in the market and sometimes coming out of the softer 2019 environment allowed us to work mostly with customers that may have had a little bit of downtime. People are pretty much running at full capacity now, so pleased with the progress. It will take several quarters to ramp up.

Toshiya Hari -- Goldman Sachs -- Analyst

Got it. Very helpful. And then as a quick follow-up, I had a question on the DRA business. You spoke to a potential 25% sequential decline in the June quarter.

Just curious, what kind of trends you're seeing in the domestic U.S. market versus your international markets? And I guess more importantly, how much visibility do you have over the next one or two quarters? I think you talked about a potential decline throughout the fiscal year as well. But how close is the communication with your customers? How confident are you in that 25% number for June? And I guess, what are your thoughts into September? Thanks so much.

David Li -- President and Chief Executive Officer

Yes. Thanks. And obviously, we're watching that sector very closely. It's pretty extraordinary times what's happening both with the production side and the pricing side.

I think that -- if I back up just a little bit, I think the DRA business and why we're so excited about it is a bit misunderstood. It's a critical material and it's really correlated with production and transportation and not oil price, right? So we really don't see a scenario where oil is not going to be moving around and transported somewhere around the world and our DRAs aren't needed. And so while we will see an effect, and we talked about that, we try to quantify it for the current quarter, I think long term, the business has performed really well since we've owned it. It's actually outperformed all of our, sort of, internal estimates and models, so we feel really excited about it.

What I could comment to is through the quarter and, obviously, we're only a month or so in the quarter. What we've seen from a production and order standpoint is consistent with that forecast. Beyond the quarter, I think we're really watching the macro trends, right? So the expectation is that most major economies are going to open back up. And especially places like the U.S.

where people are going to start opening up and begin driving again, that's going to bring back demand, and that should bring back oil transport and production. So we're watching all those trends carefully. I think we feel relatively confident for this current quarter, and we're going to continue watching the macro trends for the kind of outer quarters. That's one of the reasons why actually we decided to withdraw the EBITDA guidance because of this kind of just unprecedented macro environment.

But again, long term, we're really excited about the future growth of the business. Scott mentioned about our investment back into DRAs. We're investing in both capacity and efficiency, and so we're definitely very positive on the business long term. We also talked about some significant wins that we've been capturing throughout the last several quarters.

Those are pretty significant. They are for new pipelines, both in the U.S. and internationally, and give us a lot of confidence that the business is going to stabilize and regain its growth trajectory in the future.

Operator

And your next question comes from the line of Mike Harrison of Seaport Global Securities.

David Li -- President and Chief Executive Officer

Good morning, Mike.

Mike Harrison -- Seaport Global Securities -- Analyst

Hi. Good morning. I hope you're all well. I was wondering if you could talk broadly, David, about the semiconductor market and what you're seeing in terms of customers looking to move forward with new product launches with more advanced nodes.

Have you seen any delays or heard customers talking about delaying their road maps at all?

David Li -- President and Chief Executive Officer

Yes. Thanks, Mike. Actually, we have not. The outlook is stable through this quarter, and I think our guidance reflects that.

Obviously, for everyone in the world, visibility in the second half of the calendar year is pretty uncertain. I would just say anecdotally, customers that we've talked to, pretty significant customers, are committed to running at full capacity and continuing to invest in and ramp up new technologies. So we haven't seen a real different dynamic in that sense. But again, I think beyond this quarter and one of the reasons why we chose to withdraw the guidance is just the macro environment.

And if there is this sort of prolonged stay at home and the prospect of a global recession that may have an impact on some key end markets, right? So things like consumer spending. So that's what our customers are watching, and we're working closely with them. This quarter, we saw strength across pretty much all the segments, particularly in foundry and continued recovery in memory. I think the thing -- and I know you know this about our business is that it's very resilient.

And so even through a lot of different types of cycles and crises, the use of consumables is probably one of the most predictable things that you can count on during these different and uncertain times. So it gives us a lot of confidence about our business. So we haven't seen a real slowdown in new technology ramp up.

Mike Harrison -- Seaport Global Securities -- Analyst

All right. Great. And then I was also wondering if you can talk a little bit about any pre-buying that you may have seen during the March quarter, whether that's happening -- obviously, you have several businesses. But curious what you're seeing in electronic materials from a pre-buying standpoint, customers looking to make sure they have security of supply.

Did that happen at all in DRAs? And is that happening at all in the penta business with that product being discontinued in the coming quarters?

David Li -- President and Chief Executive Officer

Yes. And this is even in these uncertain times, I think the way the supply chain is working is similar to what we've seen in the past. And so if anything, I think we may have seen some pre-buying at the quarter that was ending the calendar year kind of going into the Lunar New Year, which China was down this quarter. Obviously, there's a lot of factors that go into that.

But I think there's usually a little bit of pre-buying. But really for electronic materials, customers are ordering with -- there's not really a strong ability to pre-buy these materials. And we usually have a pretty good view on the inventory. I don't think we've seen anything unusual there.

And same for DRAs. And also, thanks for asking about wood treat. So obviously, we are continuing with our plans to exit the business. We intend to operate it until the end of 2021.

And we were pleased to receive commitments for the remainder of that inventory. So that inventory is really spoken for, practically all of it through the end of our operating period. So really not an inventory concern with that business as well.

Mike Harrison -- Seaport Global Securities -- Analyst

All right. And then on the DRA business, I was wondering if you could talk about the margin impact of a 25% decline. Just help us think about -- typically, I would consider that to have a pretty low fixed cost structure. But any thoughts on kind of the decremental margin in that performance materials business?

Scott Beamer -- Vice President and Chief Financial Officer

Yes. This is Scott. I think if you're thinking of that in terms of the total EBITDA for the segment, that would be a reasonable expectation for that, and in that 50% type of time frame or type of range. And I think it's helpful and we can unpack the guidance a bit.

As we've said, historically, DRAs are about two-thirds of the revenue in the segment. We know the segment was $65 million this quarter. So you're in the neighborhood of DRAs being about $40 million of revenue in the recent quarter, and Dave mentioned a decline of about 25%. So order of magnitude, it's DRA going from a $40 million to about $30 million of revenue in our guidance for next quarter.

That's $10 million that you take your -- rough EBITDA percent of that for an earnings dropdown and that you could have an impact there.

Mike Harrison -- Seaport Global Securities -- Analyst

All right. That's very helpful. Thank you.

David Li -- President and Chief Executive Officer

Thanks, Mike.

Operator

And our next question comes from the line of Amanda Scarnati of Citi. Your line is open.

David Li -- President and Chief Executive Officer

Good morning, Amanda.

Amanda Scarnati -- Citi -- Analyst

Good morning. Just a question on the...

Colleen Mumford -- Vice President of Communications and Marketing

I'm sorry, Amanda. I think we lost you.

Amanda Scarnati -- Citi -- Analyst

Hello. Can you hear me now?

Colleen Mumford -- Vice President of Communications and Marketing

We can hear you now, yes.

Amanda Scarnati -- Citi -- Analyst

OK. I just have a question on the new licensing requirements for China that was put into place by the Commerce Department last week. Do you think that there's going to be any impact potentially to your business? Or do you think from your interpretation of it now that you're sort of outside the purview of what those regulations are?

David Li -- President and Chief Executive Officer

Thanks, Amanda. We're obviously monitoring the situation very carefully, and it's a bit fluid. There's new regulations and restrictions being discussed all the time. At present, we don't see a material impact to our business.

It really, right now, seems to be more focused on the supply of equipment, so those with semi-cap equipment or equipment exposure may be a bit more affected. For us, we don't manufacture in China, obviously, although we have strong positions there. And it's a strong business for us. We don't think we're affected at this time.

Amanda Scarnati -- Citi -- Analyst

OK. And then on the semiconductor business, can you just talk a little bit about what you saw in terms of demand between -- demand split between leading edge and lagging edge in the March quarter and what your expectations are kind of moving forward into the June quarter and throughout the year?

David Li -- President and Chief Executive Officer

Yes, thanks. We're really excited. I mean, we have key positions in advanced logic, foundry and new memory technologies. So we're really looking forward to seeing those ramp up.

Some of the strength we saw this quarter was with particular foundry customers, helping them ramp up new technologies. So we are seeing more contribution from advanced technologies, both on the logic/foundry side and then on the memory side. The memory side is obviously still in the state of recovery coming out of the last calendar year. But we're seeing -- now it's been a few quarters of solid growth, and our customers, we're working closely with them to ramp up those new memory technologies as well.

So as you'd expect, that plays into our strength. We expect to win those new positions, especially in CMP and throughout our electronic materials portfolio. And when those ramp up, that's a source of additional growth for us. So we started to see that this quarter.

I'd assume that continues through the year.

Amanda Scarnati -- Citi -- Analyst

And then the pad and the consumable set business that you've been gaining, is that more new technology nodes coming through or is this sort of replacement of older technology production processes?

David Li -- President and Chief Executive Officer

They're both. They're actually both. And so what we've seen in the pipeline is promising. And again, all the pad wins that we recorded for this past quarter were our slurry as well.

And across the board from -- in terms of new technologies, as well as legacy.

Amanda Scarnati -- Citi -- Analyst

Thank you.

David Li -- President and Chief Executive Officer

Thanks, Amanda.

Operator

And our next question comes from the line of Krish Sankar of Cowen.

David Li -- President and Chief Executive Officer

God morning, Krish.

Krish Sankar -- Cowen and Company -- Analyst

Good morning, everyone. Thanks for taking my question. I have two of them. David, when you look into the June quarter, can you just tell us how the different utilization rate trends are between logic, foundry, NAND and DRAM?

David Li -- President and Chief Executive Officer

Hi, Krish, yes. So the June quarter is kind of -- what most customers are saying across the board is that they fully expect to run pretty much at full utilization as they continue to recover out of a softer environment in 2019. And that's from several different customer conversations and different segments, whether it's memory, logic or foundry. I think what everyone is watching -- I think they'll say that and then the next sort of comment will be a caveat, which is they're closely watching those end markets and the effects of how long does the stay-at-home effect will trigger a global recession and will that start to provide some volatility in end-use demand in key markets like consumer.

I think early on in this quarter and even this current quarter, we've seen strong demand for things that are needed to work from home or learning from home, things like PCs and data centers. I think that drove a lot of additional demand over this time. I'd say beyond June -- in the June quarter, that's where I think there's still uncertainty out there. And again, I think that's another reason why we chose to withdraw the guidance.

I think the fundamentals are solid. And again, even from our -- I commented on our DRA business, in the semiconductor business. Similarly, our orders so far in April are very consistent with our guidance, so it gives us confidence of the fundamentals. But I think beyond the next quarter, visibility is -- no one's going to go out there with a firm forecast right now, which is probably what you're hearing as well from different customers and suppliers in the ecosystem.

Krish Sankar -- Cowen and Company -- Analyst

Got it. That's very helpful, David. And given the fact that you've been in this industry for a while, how do you think like the reaction typically is if end demand slows down? Do you foresee the capex cuts happen? Or do you foresee utilization rates drop and demand for slurries moderate before the capex cuts? Or is there no real simple formula to that?

David Li -- President and Chief Executive Officer

Yeah. So we certainly have been around a number of different cycles and crises, and this one is a bit different. But I would say, in general, the rule of thumb is that capex gets cut quicker. Those are large expenditures and so customers may delay capex expansions.

We've seen that in the past. And that's why we feel we are really unique because almost 100% of our business is consumable-based, so very robust. And even during the -- when there was a lot of pressure in terms of the industry, customers are reluctant to cut utilization. And so really, it starts with capex and then goes to utilization, second.

That's why we feel so confident about our business fundamentals, and we feel we are somewhat unique in the space.

Krish Sankar -- Cowen and Company -- Analyst

Perfect. That's great, David.

David Li -- President and Chief Executive Officer

Thank you, Krish.

Operator

And our next question comes from the line of Chris Kapsch of Loop Capital Markets.

David Li -- President and Chief Executive Officer

Good morning, Chris.

Chris Kapsch -- Loop Capital Markets -- Analyst

Hey, good morning. So apologies if you addressed this, David, in your formal remarks. I had difficulty getting on the call. But I was hoping you could provide some color or elaborate on your comments about the sequential look.

I think you said below seasonality, flat. That's less strong, I guess, than a couple of your publicly traded peers in the space have talked about in terms of the sequential look. And so you mentioned -- and then just reconciling that comment with the one you just mentioned in answering another question about the strength in the fab utilization rates looking forward. So it doesn't sound like it was a pre-buy or no buffer or safety stock being built in the March quarter.

So is it something customer-specific or IC device-specific that you're seeing the below seasonal expectation? Thanks.

David Li -- President and Chief Executive Officer

Chris, sorry you had a difficult time getting on the call. I think, again, if you look over the long term, we feel confident we've delivered stronger growth than probably any of our peers out there. That being said, I think in the current quarter and the next quarter, it's really sort of a different environment. If you think about seasonality, typically, this quarter that we just reported on would be a seasonally soft quarter.

It was a record quarter for us, right? Partially, that was driven by strength in performance, but also continued solid demand in electronic materials. So we really didn't see the same sort of falloff we've seen from a seasonality perspective in previous years, and we see that strength going into this next quarter. So I'd say it's an atypical year from a seasonality standpoint. I can't comment on what others are -- what's happening in their business, but we see a lot of positive signs in our business, but that means that customers are running full utilization, and they're using our consumables.

And so we see steady demand going into the next quarter, and that's kind of how we guide it.

Chris Kapsch -- Loop Capital Markets -- Analyst

Got it. And so it wasn't any sort of device maker specificity? But do you have a sense for one area that's obviously going to be weak near term, the automotive end market? Do you have a sense for what your exposure there is and what the sort of lag effect might be in terms of timing? And so when might that show up in softness in that particular market for you guys?

David Li -- President and Chief Executive Officer

Yeah. And I think if there was one segment of the industry that is showing some softness, it is sort of that legacy logic. As you might expect, that goes into automotive, and that's part of the -- that's really an end market kind of question. I would say, for us though, we also have a pretty strong participation in memory.

And so when those new memory technologies, like the 100-layer 3D NAND or the new DRAM devices ramp up, that's also where we'll get an extra tailwind of growth from those new devices ramping up. That's expected sort of in the second half of calendar year, but obviously, there's some uncertainty right now with that. Scott, I don't know if you want to provide any more granularity on the customer segment.

Scott Beamer -- Vice President and Chief Financial Officer

No, I think that covers it pretty well.

David Li -- President and Chief Executive Officer

OK.

Chris Kapsch -- Loop Capital Markets -- Analyst

OK. I had a follow-up on the DRA business also, the weakness that you're calling out in the June quarter. And I don't -- there's a subtle difference on that. But do you have a sense for -- you mentioned weak demand.

Is the weakness you're seeing more a function of just weak consumption in refined products ultimately? Or is it more a function of that weakness causing a shutdown in production and, therefore, less oil being pumped? I know there's a subtle difference, but I'm just curious if the -- I'm just wondering if there's any sense that pipeline operators, because of the weak demand, are using less DRA because there just isn't as much urgency to get their flow rates to that weaker demand. Or are you seeing the weakness because some of your -- some of the areas where you are supplying and enabling solutions are just being knocked out by low oil prices?

David Li -- President and Chief Executive Officer

Yeah. I think it's probably a bit of both, Chris. And again, it's pretty extraordinary times. And again, just to go back to some of the prepared comments you may have caught or may have missed, this business has performed really strongly through a number of different environments.

It's grown 40% since we've owned it, so it's really outperformed. But it's really extraordinary times. It's both on the demand side, especially in the U.S. We have a very strong presence in the U.S.

But I think, again, as I mentioned, I think it's hard for us to see a scenario where there's not going to be transport of oil somewhere around the world. And we have a growing international presence as well, so it's really the macro factor that's affecting the business. And it's taken this sort of unprecedented drop in demand and transport to affect the growth trajectory of our business. We think it's temporary, and it's going to stabilize and recover.

But obviously, it's pretty unprecedented right now in the oil environment.

Chris Kapsch -- Loop Capital Markets -- Analyst

Thanks for the color.

David Li -- President and Chief Executive Officer

Thanks, Chris.

Operator

And your next question comes from the line of David Silver of CL King.

David Li -- President and Chief Executive Officer

Good morning.

David Silver -- C.L. King and Associates -- Analyst

Hi. Good morning. So I have a couple of questions, maybe a little off the beaten track. But first thing would be kind of advanced technologies and your positioning in them.

So if I could just focus on advanced memory for a second, I mean, industry discussion and -- that I ran across a few months ago kind of talked about there being kind of a limitation on advancing memory's development beyond 128 layers and that the current materials and designs would be sufficient to get to, let's say, 128. But then to move beyond that, there would have to be an introduction of new materials to kind of break through that next barrier. And I'm wondering if that is what you're seeing. And if you're seeing that, could you maybe point to what that next generation of materials might be and then how you think your slurry and pad offerings are positioned now or might have to evolve to keep up with that industry development? Thank you.

David Li -- President and Chief Executive Officer

Yes. Thanks. And so we are working closely with the industry leaders like Samsung, hynix and Micron on those new memory technologies. When you talk about 128, obviously, it's the NAND side of the business.

And there's a few different integration schemes that customers are working on a few different approaches. I would say from our side, that plays into our strengths because they're going to need more and new sophisticated slurries, pads and electronic chemicals. And I think we're unique and able to bring that sort of concert of materials to bear and help them because it is sort of very difficult to get those structures beyond sort of the 128. And there's a few different integration structures.

And it's early. I don't think there's a predominant way to get it done, but we are working closely with those customers. Some of those integration schemes require different CMP types of solutions. Some of them are very similar to what's being used on the 100-layer NAND devices today, but just require more CMP and so we think we're going to be a beneficiary of that in the future.

But again, it plays into our strength in terms of securing those advanced positions and requiring more complex solutions. And again, this is also an area where we see being able to bring a CMP pad and slurry together, for example, being a really big differentiator and able to help them unlock that performance. But I don't think there's a mainstream way to get there yet.

David Silver -- C.L. King and Associates -- Analyst

OK. Thank you very much for that color. So the wins that you were pointing out earlier do not relate to those kind of breakthroughs just yet. OK.

My next question -- Scott has been pretty quiet. So Scott, I did want to ask maybe kind of to get your broader perspective on this, but I wanted to focus on the decision to draw down $150 million from your revolver here. So I wouldn't say I'm surprised about the draw down. I mean, that's not unusual in this environment at all.

But the absolute number is a big one, in my opinion, especially related to your quarterly cash requirements. And I just did a quick look in my model. And other than when you acquire businesses, I don't think there's been a single quarter for many years where the company hasn't been free cash flow positive. So with that as kind of perspective, I guess I'm just wondering what might have been the thinking, not so much to do the drawdown but the absolute level of the drawdown.

And I'm just going to throw out a couple of things. But your company is not suffering any operating disruptions, but is there a sense where maybe some key raw materials or strategic elements and supply chains might see some disruptions, so you want to have the ability to stockpile strategic raw materials? Or could there be an opportunity to use that additional funding maybe to facilitate a prepayment or a refinancing of some of your current debt to take advantage of the current low level of rates? So just some additional color if there -- if you can on the decision to draw down $150 million this quarter.

Scott Beamer -- Vice President and Chief Financial Officer

Yes. Sure, David. And as I think we mentioned, we did this in middle of March, so we were actually fairly early. We were early in terms of the discussions that we were having with some of our banking partners, and we had a fair bit of debate about whether to do it -- the drawdown or not.

We decided, again, as with those terms we've used out of an abundance of caution, not because of any reasons of particular supply chain disruptions or anything like that. That money is on our balance sheet, as you know, at the end of the quarter. It continues to be as we sit here today as well. So as we said, we don't have an intention to use the funds.

But if we would, it'd be for general corporate purposes. In terms of the absolute value, you're right. And we showed that in one of our charts where as a new company with KMG, we feel like we need between $100 million and $200 million to run our company because of the different jurisdictions where we operate and the working capital requirements there. So you're right to ask the question if between $100 and $200 million is the right kind of normal level, why would you need to draw down $150 million to basically be at $340 million at the end of this quarter.

And I would say the order of magnitude, we just decided to do most of the revolver. There wasn't a magic calculation as to taking a particular amount. But we felt like drawing down most of the revolver was the most prudent thing to do at the time. And we decided to just keep the cash and to take that little bit of uncertainty, even though we were always -- there was some degree of confidence we could always get that money.

But as we all probably remember in that early mid-March time frame, the world seemed to be changing more and more on a daily basis. So with that particular uncertainty at the time, we decided to take this piece off in terms of the uncertainty that we were facing, and $150 million out of the $200 million was a meaningful amount for us. And so we felt comfortable with that decision.

David Silver -- C.L. King and Associates -- Analyst

Thank you very much. Appreciate it.

Operator

Our next question comes from Rosemarie Morbelli of G.research.

Rosemarie Morbelli -- G.research -- Analyst

Good morning, everyone.

David Li -- President and Chief Executive Officer

Good morning.

Rosemarie Morbelli -- G.research -- Analyst

Most of my questions have been answered, but I thought I would go for a little more clarification or details. Could you talk about the strength of the recovery in China in all of your operations wherever it applies?

David Li -- President and Chief Executive Officer

Yes. Thanks, Rosemarie. So we don't manufacture in China, but obviously, we're supplying CMP solutions, both pads and slurries, to customers there. Actually, China, we saw a pretty stable demand environment, somewhat surprisingly, I guess, throughout this whole pandemic.

There was some pretty typical seasonal pre-buying ahead of Lunar New Year. And then this quarter -- and customers continue to run pretty strongly, even kind of during the most intense times of COVID in China. Obviously, they're kind of hoping that that's behind them now. And so semiconductor customers continue to operate at pretty full capacity.

And so we saw continued solid demand from them, and we continue to see that. So I'd say from an overall standpoint -- also, China is an important end market for our customers. They're continuing to go ahead with new technologies like 5G. And so that could drive additional semiconductor content demand, and so that's a positive thing for demand.

But overall, for our semiconductor customers, we saw some softness this quarter versus last, but we think that's pretty normal base coming off of the Lunar New Year, perhaps, a bit more accentuated because of the COVID situation.

Rosemarie Morbelli -- G.research -- Analyst

So now as economies are reopening -- but many consumers are obviously out of the job. Does the continuing demand depend on how much we are going to be buying in the months or quarters coming? And therefore, is there a substantial inventory being built currently, and then we could see a substantial decline toward the back half of the year?

David Li -- President and Chief Executive Officer

Yes. It's a really excellent question. We obviously try to monitor the inventory levels of our customers, so kind of the chip inventories. Just as a reminder, we are coming into this calendar year a bit leaner from a chip inventory standpoint because 2019 was a softer demand environment and inventories were worked down.

So that is a positive kind of signal going into this year. We haven't seen significant levels of chip inventories being built up over the last several months. Inventories seem to be at a healthy pace. But the question you asked, Rosemarie, is an excellent one, and it's really a bit unknown because if there is a global recession and consumers really rein in spending that is going to, over time, have an impact to semiconductors.

Again, we feel like within the semiconductor supply chain that we are a bit more insulated because we're 100% or nearly 100% consumables and customers -- our customers really would much prefer to continue running their factories at near full utilization rather than to go forward with capex. So we feel like we're a bit more insulated if that were to happen. But again, one of the reasons why we chose to withdraw the full-year EBITDA guidance is because the uncertainty of the second half of the calendar year, some of those dynamics, just as you mentioned, they're out of scope for us. They're really a more macro uncertainty.

Rosemarie Morbelli -- G.research -- Analyst

All right. Thank you. And if I could ask a question regarding DRAs. So if I understand it properly, refinery cracks oil, and then that oil is being transported into the pipelines, so there is going to be maybe less cracking going on.

But you have all of that inventory sitting on -- I mean in -- I don't know, containers on ships, etc. Even if there is less cracking, isn't that oil going to eventually make it to one particular location where it is going to need to be transported to the end users?

David Li -- President and Chief Executive Officer

Yes. I mean, there is absolutely a transport that's happening of oil. It's really regardless of the environment, which gives us confidence of the underlying fundamentals of the business. So again, yes, the timing of ultimate recovery of when the major demand drivers for DRA will come back is, as we mentioned, really relying on those macro factors getting healthier, U.S.

opening back up, people starting to drive. It's not correlated to oil price. But you're right that there is going to be transport of oil in the U.S. and around the world, and they're going to need DRAs.

Operator

And that concludes today's question-and-answer session. I will now turn the call back to Colleen Mumford. Please go ahead.

Colleen Mumford -- Vice President of Communications and Marketing

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

Have a great day.

Operator

[Operator signoff]

Duration: 65 minutes

Call participants:

Colleen Mumford -- Vice President of Communications and Marketing

David Li -- President and Chief Executive Officer

Scott Beamer -- Vice President and Chief Financial Officer

Toshiya Hari -- Goldman Sachs -- Analyst

Mike Harrison -- Seaport Global Securities -- Analyst

Amanda Scarnati -- Citi -- Analyst

Krish Sankar -- Cowen and Company -- Analyst

Chris Kapsch -- Loop Capital Markets -- Analyst

David Silver -- C.L. King and Associates -- Analyst

Rosemarie Morbelli -- G.research -- Analyst

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