CMC Materials, Inc.
Q3 2010 Earnings Call Transcript

Published: 22 Jul 2010

[Operator:]

Good day, ladies and gentlemen, and welcome to the Third Quarter 2010 Cabot Microelectronics' Earnings Conference Call. My name is Alicia and I'll be your operator for today. (Operator Instructions) I would now like to turn the conference over to your host for today, Amy Ford, Director of Investor Relations. Please proceed.

[Amy Ford:]

Good morning. With me today are Bill Noglows, Chairman and CEO; and Bill Johnson, Chief Financial Officer. Earlier, we reported results for our third quarter of fiscal year 2010, which ended June 30th. A copy of our Press Release is available in the Investor Relation section of our website, cabotcmp.com, or by calling our Investor Relation office at 630-499-2600. Today's conference call is being recorded and will be archived for four weeks on our website. The script of this morning's formal comments will also be available there. In addition, I'd like to remind you that we held an Investor Day event in June and the presentation and webcast from that event are also available in the Investor Relation section of our website. These items provide a wealth of updated company and industry information. 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 report filed on Form 10-Q for the second quarter of fiscal 2010 ended March 31, and Form 10-K for the fiscal year ended September 30, 2009. We assume no obligation to update any of this forward-looking information. I will now turn the call over to Bill Noglows.

[Bill Noglows:]

Thanks, Amy. Good morning, everyone, and thanks for joining us. This morning we reported our third consecutive record revenue, totaling $101.7 million which represents the first time our company has exceeded $100 million in quarterly revenue. Additionally, we reported gross profit margin of 49.1% of revenue. Reflecting solid utilization of our manufacturing capacity, successful execution of productivity initiatives, disciplined pricing strategy and continued growth in our CMP pad business. For the quarter, we reported EPS of $0.43, which includes higher operating expenses which we pre-announced last week. The increase in operating expenses was primarily driven by higher cost related to our patent enforcement litigation with DuPont Air Products NanoMaterials or DA NanoMaterials, in which the validity of our patents was upheld. As we consider the current semiconductor industry outlook, we are seeing a number of continued positive signs. Near-term outlooks provided by our global customers remain strong. There is evidence of corporate IT spending increasing, semiconductor inventories are at low to normal levels, and we are entering a seasonally strong period of the year. In our view, the current bottleneck on near-term industry growth is our customer's ability to add capacity to meet current and future demand. We believe that our customer's production capacity is operating at very high utilization levels and they are optimizing current capacity as much as possible. That said, our customers are reacting swiftly and we are seeing new capacity additions come online at certain customers and expect this trend to continue and to accelerate into 2011. Addressing company related matters; we spend approximately $50 million a year on R&D and technical support to maintain our technology leadership. Through these investments, we have created a solid pipeline of innovative new or improved products, and we have built a strong intellectual property portfolio of approximately 750 patents worldwide. Recently we completed a jury trial in connection with our patent enforcement litigation against DA NanoMaterials. We were pleased that the validity of all of our patents at issue was upheld. These are foundational patents in the field of Tungsten CMP other CMP polishing applications. This is important because we believe the rigorous testing of these patents to the U.S. judicial process has increased the strength of our intellectual property and our ability to enforce the IP worldwide. However, we were disappointed that the jury did not find the DA NanoMaterials product at issue in the case infringed on our patents. And we are considering an appeal of the jury's verdict on this point. Non-withstanding this patent enforcement litigation, we expect our Tungsten business to remain strong. And we believe that our customers fully6 understand and appreciate the value we bring to them with our products, which provide consistent reliable performance, day-after-day, year-after-year. Our experience with Tungsten industry is unmatched in the industry and our products are backed with our worldwide technical support, supply chain and quality infrastructure. Turning now to progress on our operations excellence initiative, we continue to achieve strong gross profit margin performance this quarter. Our ongoing efforts to improve productivity and drive out variation throughout our operations had contributed to our strong performance. As discussed at our Investor Day last month, we are on track to achieve a record level of productivity improvement in fiscal 2010. And over the past six years, our product variation has been reduced by more than 90%. In addition, we believe we are achieving differentiation through a robust quality and supply chain management and our customers continue to recognize our strong operational performance by selecting us for their supplier awards. In May, we were one of only 17 companies out of thousands of suppliers to UMC to be honored with its Outstanding Supplier award for 2009. In addition to demonstrating our commitment providing innovative high-quality products to our customers, we believe supplier awards like these help us win business with others when they see our consistent improve in track record with top tier semiconductor manufacturers. Finally, we continue to make progress on our third key initiative, connecting with customers. We are leveraging our worldwide technical capabilities in cultivating collaboration to become more of a solutions provider to our customers. For example, we are strategically located clean-room facilities in the U.S., Japan and Taiwan which we are utilizing to team with our customers on the system with their evaluation of our new CMP solutions. Recently, our clean rooms have become increasingly busy as more and more of our customers are requesting time at our facilities to perform demos of our new CMP products on their wafers. We believe these represents an important competitive advantage within our environment and which our customer's total time availability is limited due to strong demand. We are pleased to partner with our customers in this fashion to facilitate continued progress on new product and process evaluations. We have also made excellent progress building on and extending customer engagements within our CMP polishing pad business. We continue the alpha testing of our new tunable D200 pad platform and we also have customers evaluating new products within our D100 pad product portfolio. For example, we have customers evaluating a new D100 pad, which is designed to meet the demanding needs of Copper polishing processes down to the 28-nanometer node. We have also introduced an extended life D100 pad for Tungsten applications which has been shown to successfully polish wafers up to 1 ½ times longer than our previous D100 pad, which already provided a longer pad life than the competitive offerings. We continue to have confidence in growing pad business and believe we have the products and customer engagements necessary to grow this business over the long term. Closing my remarks this morning, we are very pleased with our recent financial and operational performance. With respect to fiscal 2010, we are tracking toward record revenue and earnings for our company. Clearly, we are benefitting from a stronger demand environment but we are also realizing recent investments we have made globally over the past decade, including the execution of our strategic initiatives and acquisitions. These investments have strengthened our competitive positioning and have made us a stronger, highly-value partner to our global customers. Ultimately, we are well-positioned to take advantage of what appears to be a robust outlook for the semiconductor industry. And with that, I'll turn the call over to Bill Johnson. Bill?

[Bill Johnson:]

Thanks, Bill, and good morning, everyone. Revenue for the third quarter of fiscal 2010 was a record $101.7 million which was up by 17.6% from the third quarter of fiscal 2009 and up 3.1% from the prior quarter. This increase in revenue from the same quarter last year primarily reflects improved economic and industry conditions. Compared to the prior quarters, sales increased on continued strong demand for our products and typical seasonal strength. Drilling down into revenue by business area. Tungsten slurries contributed 35.4% of total quarterly revenue, with revenue up 9.9% from the same quarter a year ago and up 1.6% sequentially. Sales of Copper products represented 19.1% of our total revenue and increased 30.1% from the same quarter last year and 6.8% sequentially. Included in our Copper business is our barrier removal product line, revenue from which increased by 30.8% from the same quarter a year ago and 12.8% sequentially. Dielectric slurries provided 30% of our revenue this quarter, with sales up 15.3% from the same quarter a year ago and up 7.4% sequentially. Sales of polishing pads represented 7.7% of our total revenue for the quarter and increased 48.7% from the same quarter last year and 8.4% sequentially. Data storage products represented 4.7% of our quarterly revenue. This revenue was up 13.1% from the same quarter last year and down 4.9% sequentially. Finally, revenue from our engineered surface finishes, or ESF business, which includes QED generated 3.1% of our total sales and our ESF revenue was up 11.4% from the same quarter last year and down 27.4% sequentially. Our gross profit this quarter represented 49.1% of revenue, compared to 46.6% in the same quarter last year and 50.2% in the previous quarter. Compared to the year ago quarter, gross profit percentage increased primarily due to increased utilization of our manufacturing capacity on higher demand, partially offset by a higher fixed cost. The decrease in gross profit percentage versus the previous quarter was primarily due to a lower valued product mix. We've mentioned in the past that a shift in our product mix can move our gross profit margin by a percentage point or so. Year-to-date gross profit represents 50.3% of revenue, the highest year-to-date level that we have achieved since fiscal 2003 and is slightly above the upper end of our full-year guidance range of 46% to 50% of revenue. For the full fiscal year, we continue to expect to achieve gross profit margin around the upper end of this guidance range. Now I'll turn to operating expenses, which include; research, development and technical; selling and marketing; and, general and administrative cost. Operating expenses this quarter of $34.5 million were $9.5 million higher than the $25.1 million reported in the same quarter a year ago. This increase was primarily driven by; higher accruals for our variable incentive compensation program; professional fees, including cost to enforce our intellectual property; other staffing related cost; and, higher travel expenses. Operating expenses were $2.4 million higher than the $32.1 million reported in the previous quarter, mostly due to higher cost to enforce our intellectual property. In total, we spent approximately $3.7 million in the third fiscal quarter of 2010 to enforce our intellectual property against DA NanoMaterials. Following the jury trial, which was completed on July 8, we expect our litigation cost to decrease significantly in the future. Year-to-date, total operating expenses were $96.8 million. And as we announced in our July 13 press release, we now expect our full-year operating expenses to exceed our previous guidance range of $120 million to $125 million for fiscal 2010. Diluted earnings per share were $0.43 this quarter, up from $0.39 in the third quarter of 2009 and down from $0.47 reported in the previous quarter. Note that litigation cost reduced our third quarter diluted earnings per share by 5$0.10. Turning now to cash and balance sheet related items, capital additions for the quarter were $2.8 million, depreciation and amortization expense was $6.2 million and share-based compensation expense was $2.6 million. In addition, we repurchased $10 million of our stock during the quarter. We ended the quarter with a cash balance of slightly over $250 million and have no debt outstanding. I'll conclude my remarks with a few comments on recent sales and order patterns. Examining the revenue patterns within the three months of our third fiscal quarter, we saw a demand in June increased significantly from the first two months of the quarter. This is similar to our monthly demand pattern within the March quarter. As we observed orders for our CMP consumables products, received , to date and July, then we expect to ship by the end of the month. We see July results turning somewhat below the rate that we saw in the month of June. However, I would caution, as I always do, that several weeks of CMP related orders out of the quarter represent only a limited window on full quarter results. Now I'll turn the call back to the operator as we prepare to take your questions.

[Operator:]

(Operator Instructions) And the first question comes from the line of Steve O'Rourke with Deutsche Bank.

[Steve O'Rourke:]

Thank you. Good morning. First, quick question. What's causing the relative weakness, month-over-month in July and is it meaningful?

[Bill Noglows:]

Nothing clear, Steve. In the past, we've never seen really any discernible pattern, month-to-month, within a quarter. The last two quarters, we've seen softer, lower revenue in the first two months in the quarter and then spiked an increase revenue in the third month of the quarter. We saw that in the March quarter, where we had particularly strong sales in the month of March relative to January and February. We also saw that in the month of June, relative to April and May. We'll keep an eye on this bit no change in business circumstances that would cause that. Although this is something we've seen in the last couple of quarters.

[Steve O'Rourke:]

Okay. And you seem to attract – you're revenue seems to attract TSM wafers starts most closely, at least historically. TSM has guided 40%, I think. And 300-milimeter wafers starts growth this year. How do you kind of see that trending when you look at over the next couple of few quarters. And then 200-millimeter utilization seems like it's sort of as higher that can go with additional kind of used tools being added. So when you think about 200-millimeter in Tungsten, could that add – I mean, how do you see that trending going up for Q3 as well.

[Bill Johnson:]

Let me try tackle the first question for you. We do have a pretty tight historical correlation with the sales and revenues of that boundaries in Taiwan. It's not perfect but it's pretty doing close if you look at it over the long term. This quarter was no difference ourselves reflected the growth numbers that we saw from both of those companies, sequential numbers for the quarter. We're clearly paying attention to people who are buying used tools for 200-millimeter wafers in that – as we said in our comments, we think the – certainly the remainder of this year and into 2011 look pretty robust for us, Steve. There's always new capacity coming on line. I think as you know, we're strong at the leading edge. The 300-millimeter wafer technology. And so I need knew capacity at 300-millimeters is good for Microelectronics as is the legacy technologies at 200-millimeters. So all the indications and all the sort of drivers of wafers starts are pointing in the right direction.

[Steve O'Rourke:]

And last question, can you talk a bit about your Copper slurry market position. Any share shifts there, one way or the other?

[Bill Noglows:]

Well we have some – we've talked a lot about some new products and reductions that we've brought to the market that we're excited about, Steve. As we've said before, the Copper application tends to be the most competitive. I can point to any clear share shifts other than as the technology continues to advance, we see more and more opportunities to introduce our various solutions and our Copper solutions both removal in soft landing. And we're aggressive in that space is not application space.

[Operator:]

The question comes from the line of Dmitry Silversteyn with Longbow Research.

[Dmitry Silversteyn:]

Good morning. Couple of questions if I may, you mentioned in your comments on the year-over-year gross margin performance talking about higher fixed cost. Is that from the new grueling facilities and other small pants that you've added in the Asia or was that just a reflection of the Yaprak acquisition, not full anniversary yet.

[Bill Noglows:]

Actually the biggest increase was staffing related cost. And a lot of those are related to accruals for our variable and incentive compensation. This year we've been performing very well relative to our internal corporate objectives. And so the accrual on that has been much stronger, both in operating expense as well as in cost of goods sold.

[Dmitry Silversteyn:]

So the fixed cost there, they're not really fixed. I mean, if it stops then the (mission) is variable.

[Bill Noglows:]

That's right. They're variable but not with respect to volume necessarily.

[Dmitry Silversteyn:]

I understand that. And then you also talked about a sequentially declining margins there and you talked about mix. So I was wondering if you can give us a little bit more detail on – grew faster or what didn't grow as fast that impacted the mix. As well as what do average selling prices on both sequential and versus last year's third quarter.

[Bill Johnson:]

Sure. If you remember from the material we presented in the Investor Day, we characterized by gross margin by the different business periods. And we characterized dielectrics is lower than average gross margin Copper at about average, Tungsten above average. If you look at the sequential revenue change of those three business areas, Tungsten grew but modestly, dielectrics and Copper move more than Tungsten and so that give rise to a bit of a weaker product mix. In terms of average selling price, average selling price was down about a couple of percent but it was really driven by mainly foreign exchange factors rather than real pricing changes.

[Dmitry Silversteyn:]

These are by sequentially?

[Bill Johnson:]

Yes, sequentially.

[Dmitry Silversteyn:]

Since you mentioned the fact have you looked at the sensitivity of your earnings, changed in foreign exchange or we haven't talked about that much in the past. But with the European currency weakening and the Chinese currency strengthening, I thought I'd ask.

[Bill Johnson:]

We do have some exposure from a revenue standpoint. I think 20% of our revenues are based on foreign currency, mostly the Yen and the new Taiwan dollar. But since we have significant manufacturing operations and sales presence in Taiwan and Japan, we have kind of a natural head since we had significant expenses denominates in those local currencies. So from a bottom line standpoint, very little impact on foreign exchange.

[Dmitry Silversteyn:]

So we're just basically talking about the translation impact which should change the margin?

[Bill Johnson:]

Yes. Well at an operating income level since we have cost of goods sold, local manpower staffing that sort of thing in the local currency, and then from an operating expense stand point, some local cost. So it has kind of different impact on gross margin versus operating income, but when you get all the way down to operating income, very little net effect of foreign exchange changes.

[Dmitry Silversteyn:]

Got you. Can you talk about your pad business? It did well in the quarter, obviously much better growth year-over-year than your other segments. Good growth sequentially. Can you talk about any new whimsy you had in – kind of what the profitability of this business versus last quarter versus a year ago. And what was the growth in the pad business the contributor, to the gross margin that you're talking about or what is part of the negative mix effect.

[Bill Noglows:]

Yes, a lot of questions there, Dmitry. I'll try to get as many of them as I can then I'll ask go to pick up the one's I didn't. So the pad business continues to do really well. We're attracting for a sort of a $30 million annual rate. Remember, we finished last year of about $18 million so that's about 70% growth year-on-year. We're excited about that. Trying to figure the next question, you asked a question about profitability. In my prepared comments, I mentioned that our gross margins were strong as the result of – one of the four factors I mentioned was our growing pad business and we might point you to the 8-K we filed in conjunction with our Analyst meeting in New York or Investor meeting in New York last month where we put our numbers that would have pointed you to a gross margin of around 40% for the first two quarters of our fiscal year. So as that business grows, it becomes more profitable. We've said in it before that we expect ultimately end up at a gross margin level at the levels that we enjoy for our CMP slurries business. And we remain optimistic and excited about the current growth and the future prospects of our pad business. In the quarter we believe we want similar applications with existing customers. And we continue to see a lot of interest and a lot of trials and a lot of development with both our D100 and our Alpha testing of our D200 pads. So like once again, I think, we feel really good about where we are with our pad business and where we're headed.

[Dmitry Silversteyn:]

I do understand what you said and then if you averaged about 40% or so gross margin for the first half of the year and you said that revenues were up, something better than that in the third quarter. With respect, it's still below the corporate average, so with respect to the rankings that you gave of Tungsten being above, Copper being add, dielectric being below. Where does the pad business fit, somewhere between Copper and dielectric or below dielectric?

[Bill Noglows:]

I don't think we'll give you more characterization on that. But yes, the expectation to be as revenue continues to drill, expect gross margin on the pad business to continue to increase. And the third fiscal quarter, I don't think we saw a material change in the gross margin on the pad business relative to the first half. So kind of 40-ish percent is sort of where we are now. And we'll need further revenue growth to drive that higher.

[Dmitry Silversteyn:]

Okay. Thank you. I'll get back in queue.

[Operator:]

(Operator Instructions) And the next question comes from the line of Avinash Kant with D.A. Davidson & Company.

[Avinash Kant:]

Good morning. A few questions. The first one was that your Data Storage business seems to be coming down on a sequential basis for the past two quarters. Is this something estimate or this could be explained somehow?

[Bill Noglows:]

We see some seasonality in the Hard Disk Drive business but it's actually somewhat different from the semiconductor industry. Whereas in the semiconductor industry we see the strongest quarter is the end of the September quarter, weakening into December and then March and then strengthening in June and then strongest in September. It's a bit different in hard disk drive. So the second calendar quarter is a low quarter for the hard disk drive business. And you can see that on some industry reports. So I think it was mainly some seasonality. We've had pretty strong growth in our Data Storage business up to the last couple of quarters. So we don't think there's anything systemic going on there. It's more of some seasonality at work.

[Avinash Kant:]

To give in seasonality, would you expect Data Storage business to be coming up in the coming quarter?

[Bill Noglows:]

I think the normal seasonality would show you how stronger that growth in the second half of calendar year as you get the back-to-school season taking in and some additional corporate spending.

[Avinash Kant:]

And how about – I have the same question for the ESF. Is there something going on there?

[Bill Johnson:]

No, I think it's the same thing we've talked about in the past quarters before the recession. They both are QED business in a finishes business. A compound a percentage of the business that serves the semiconductor industry and all of the semiconductor industry or the capital equipment photo semiconductor industry has begun picking up extreme. The less of the markets that they serve that are outside of the semiconductor industry have yet to sort of recover. As we've described before, QED is (inaudible) it's kind of a lumpy business because of the nature of equipment sales and it was lumpy this quarter. But I don't think you could or why don't we read anymore into it other than we're waiting for that the other markets served by those two businesses outside of the semiconductor will recover.

[Avinash Kant:]

And the ruling right now with DA Nanomaterials, if you were to appeal at that process especially if where the infringement of your patent. What kind of call should we expect out of that?

[Bill Noglows:]

Well if we choose to appeal, Avinash, we would expect significantly lower cost through that process, both was called the judgment as a matter of what on the field process. We won't expect cost to be anywhere near the cost that we incurred to prepare for and during jury trial. And as soon as we get more clarity on what our strategy will be, we will communicate them as best as we can.

[Avinash Kant:]

Okay. And one final question. Of course you know you track qualitatively about wafer to starts and foundry and everything else. If you talk about near term in July that you said you have seen slightly we could have news from June thus far. Is it already planned or was it a change of plan from your customers.

[Bill Noglows:]

I don't think we can any hard conclusions. We have what we'd crack our industry orders from our customers week-by-week. And we try to give some color to what we're seeing in a month. But I think it's really difficult to draw a conclusion from three weeks of data. In the past we've seen there been times where the first three weeks of orders is a good indicator of monthly results, and sometimes it's not. We want the latest color that we have available but it's really hard to draw conclusions until you see some more on the quarter unfold.

[Avinash Kant:]

But I'm trying to understand, Bill, is that from the data you get from them in a weekly basis, have you see any change one way of the other or it's been as planned.

[Bill Noglows:]

I would describe what I can see as planned (inaudible) what we've been told by our customers that they see a very robust environment and they're trying to do all they can and meet that environment with existing capacity. You've seen a progressive capital plans as quickly as they can to meet ongoing demand. I don't think we've seen any sort of change in plan. I think Bill's answer on a week-to-week basis is the right way to think about it. It's often right and it's often wrong. It's really what happens over the two or three months over the quarter less important. During the Investor Day, we talked about some caution that we're entering those seasonally strong period of the year that our customers are running at high capacity utilization rates and we expressed a bit of concern that our revenue and their revenue couldn't grow a lot until some new capacity come online. This quarter, TSMC and UMC as an example, reported strong sequential growth even in the face of pretty high capacity utilization. So Bill will talk about our customers and squeezing more and more production out of existing capacity, so kind of prompted the growth in this quarter and presumably that could continue the next quarter as well.

[Avinash Kant:]

This is just making sure that nobody came out and actually changed their buying patterns that they've had had that kind of pushed out or cancelled something.

[Bill Noglows:]

No, we haven't seen that (a lot).

[Amy Ford:]

Thanks, Avinash. We'll take the next caller please.

[Operator:]

And the next question comes from the line of Chris Kapsch with BDR Research Group.

[Chris Kapsch:]

Yes, hi. I don't want to beat the sort of the sequential monthly trends question to death, but just for additional clarity, you said relative to the spike in June that July looked relatively weaker. But is it fair to assume that the trends are stronger for the month of July than they were for both April and May?

[Bill Noglows:]

Yes, and I didn't characterize it as weak. I said that orders to date and July were somewhat lower than June's level. Yes, which – ?

[Chris Kapsch:]

Yes, which was extremely strong as you characterize I think a spike related to April and May, right?

[Bill Noglows:]

That's right. And so yes, I think what we're as of the third week is around the level that we saw of April and May, maybe a little stronger than that but sort of an average of the entire quarter. Maybe that's a better way of expressing it.

[Chris Kapsch:]

Okay. That helps. And then I wanted to follow-up on the discussion about your customers and their aggressive capital plan. I joist wanted if you based on the feedback that you have on a fab-by-fab or tool-by-tool basis. Do you have a – can you characterize the expectation in terms of those ad? Is it skewed more towards 300-millimeter tools versus 200 or vice versa and it skewed more towards logic devices memory or vice versa?

[Bill Noglows:]

Well I think it skewed more to 300-millimeter than 200-millimeter. The way I would describe it we believe that TMC and Intel are leading the way which would point you right to logic. I think someone earlier on the call commented that TSMCs adding 40%. Adding 40% on an existing 300-millimeter capacity which we believe would be true. I think for all of us and the availability let's call it the key pieces of equipment in the market place. But all of that being said, 300-millimeter is clearly where that I think the capital is going the bulk of the capital. Leading edge technology and we believe that the bulk of those capital is going into logic.

[Chris Kapsch:]

Cause there was another comment that the utilization on the 300-millimeter tool is sort of bringing out used tools to be deployed for capacity edition.

[Bill Noglows:]

I would think so.

[Chris Kapsch:]

When it used to be like when an advance node or certainly a new tool it would take a while for customers to kind of get their processes steady state or just intended yields right off the back?

[Bill Noglows:]

I think it's our experience it's getting harder and harder as the technology becomes complex. And I think that trend will continue. It gets harder and harder as the technology becomes more complex.

[Chris Kapsch:]

And then just following up on your clean rooms and tools. Is it more advance modes or is it qualifying your pads or slurries for more mature application.

[Bill Noglows:]

What's important to ask is to be close to our customers and collaborating with them. There's nothing better for us to be working with the customer with their wafers. That's the ultimate and that's the way we position ourselves and resources around the world. Advance node technology and new products to meet requirements, and of course the pad business and our penetration of the pad market. We do a little of everything.

[Chris Kapsch:]

Great. Thank you.

[Amy Ford:]

At this time will take one last caller.

[Operator:]

And the final question comes from the line of Dmitry Silversteyn with Longbow Research.

[Dmitry Silversteyn:]

Good morning again. I just wanted to follow-up on your share repurchase program. You said you repurchased about 10 million shares during the quarter. Can you update us on how much you have left outstanding, what your outlook is and the price of your share is currently. Can you give us an update on your cash usage beyond share repurchases as where you are on your M&A pipeline and whether you've given consideration to using cash for any other purposes.

[Bill Johnson:]

Our first priority is to look for priorities and ways that we can grow microelectronic in a profitable way. We have a great balance sheet. We have a equally strong cash flow. That being said, there's a point when we start to pile up more cash than we might need. And our cash balance before I answer your question about M&A.

[Dmitry Silversteyn:]

Can you give us an idea how your M&A program is going?

[Bill Noglows:]

Great question, Dimitry. In our process, we keep a list of targets that we always had. The opportunities come on the opportunities go off and we do all we can to understand what's happening and what opportunity looks best to us and if we can make imaginable. That's the process we use and how we go forward.

[Dmitry Silversteyn:]

Thank you very much.

[Amy Ford:]

Thanks, Dimitry, and thank you for your time this morning to (inaudible) Cabot Microelectronics. As I mentioned earlier, our Investor Day presentation and archives webcast are available on the Investor Relations section of our website. I encourage you to take a look of the three print materials that contains information and analysis that will likely add to your understanding of our company. We look forward to the next opportunity to speak with you.

[Operator:]

Ladies and gentlemen, that conclude today's conference. Thank you for your participation. You may now disconnect. Have a great day. Copyright policy