CMC Materials, Inc. (CCMP) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to Cabot Microelectronics third quarter fiscal year 2008 earnings conference call. My name is Maria, and I will be you audio coordinator for today. At this time all participants are in listen-only mode and we will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS)

I would now like the turn the presentation over to your host for today's conference, Mrs. Amy Ford, Director of Investor Relations. Please proceed, ma'am.

Good morning. With me today are Bill Noglows, Chairman and CEO, and Bill Johnson, Chief Financial Officer. This morning we reported results for our third quarter of fiscal year 2008 which ended on June 30th. A copy of our press release is available on the investor relations section of our website cabotcmp.com or by calling our investor relations 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 mornings formal comments will also be available there. In addition, for those of you who may have missed our investor day in June, the presentation and archived webcast are available on the investor relations section of our website as well.

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 2008 ended March 31st and Form 10-K for the fiscal year ended September 30th, 2007. We assume no obligation to update any of this forward-looking information. I will now turn the call over to Bill Noglows.

Thanks, Amy. Good morning, everyone and thanks for joining us. This morning we announced strong financial results for our third quarter of fiscal 2008. We reported a record $97 million in revenue which was driven by continued firm demand for our core CMP slurry products for the semiconductor industry, including slurries for tungsten, dielectric and copper applications. Quarterly revenue also benefited from a 38% growth in our polishing pad business. Additionally we were pleased with our gross profit performance this quarter of 46.8% which represents a significant improvement over last quarter. Recall that last quarter we reported lower than optimal yields in our pad business which dampened our overall gross profit percentage.

We are satisfied with the pace and success of our enhancements we have made to our pad manufacturing processes through our six sigma efforts and we expect to make additional improvements in our pad business over the next several quarters in our drive to increase productivity, reduce variability and increase yields. We continue to invest in the enforcement of our intellectual property, including our litigation against DuPont Air Products NanoMaterials, a slurry competitor that we believe is infringing on our tungsten technology. Enforcing our IP represents a significant expenditure, however we are confident in our position and it is our responsibility to protect our significant investment in R&D. These costs are reflected in our operating expenses, which were generally in line with our second fiscal quarter.

At the beginning of the calendar year a number of industry analysts forecasted a tough first half of 2008 followed by a modest recovery in the second half. We are now midway through the calendar year and many industry analysts have reduced their semiconductor industry revenue forecast for the second and third time. Many of these downward revisions appear to be driven by continued-- by the continued decline of of average selling prices for semiconductor devices, particularly in memory, which were previously forecasted to bottom out this calendar year. Fortunately we are a units-base business, so our business is not directly impacted by changes in the selling prices of our customers products. What is important for us is the number of wafer starts, and to date wafer starts have continued to grow, even in this uncertain global economic environment.

I would also like to remind you that we are typically not impacted by capital cycles in the short-term. I mention this because the current industry outlook is for significantly lower capital investment by semiconductor manufacturers this year. This lower capital spending is highly relevant to the semicap companies but far less relevant to our business which is based on wafer starts. I would also like to mention that we believe that our customers have been placing significant emphasis on capital productivity which has resulted in increasing unit growth at lower capital requirements. And we expect this trend to continue.

Regardless of how the semiconductor industry performs for the rest of calendar 2008 we continue to believe we are well-positioned to operate successfully over a range of future industry and economic environments. We have a proven track record of weathering industry cycles and have historically generated solid cash flow even during market environments of moderating growth.

As many of you know, we held our 2008 investor day in New York last month. It was an exciting day and we were pleased with the attendance and participation. During my comments this morning, I would like to re-emphasize a few of the key messages discussed at our investor day. As we seek to become the world's leader in shaping, enabling and enhancing the performance of surfaces, we are pursuing a two-prong growth strategy to achieve our goals. We are focusing on strengthening and growing our CMP consumables business as well as leveraging our CMP technology into new applications and industries through our engineered surface finishes business, or ECF. We believe we are well-positioned for success in both areas.

As we strengthen and grow our CMP consumables business we continue to execute on our three key initiatives of technology leadership, operations excellence and connecting with customers. I would now like to update you on progress in these three areas. Starting with technology leadership, we believe that our new product pipeline continues to strengthen and grow containing high value products that provide our customers with enabling solutions in all CMP application areas. One way that we measure new product success is through a metric we call new product vitality. New product vitality is essentially the proportion of our revenue that is derived from new product sales. We think is an important internal metric because we are not just measuring the number of new products we introduce to the market, but instead we are measuring the commercial success of these new products through the revenue they have generated. We are pleased to report that over the past three years our new product vitality metric has more than doubled and we expect it to continue increasing over time.

Traditionally when we consider the new CMP products that we have developed with or and for our customers we have typically thought in terms of your core CMP slurry products for tungsten, dielectric and copper applications. The difference between the Company that we are today versus the Company we were a few years ago, is that we have identified and commercialized products for several highly complimentary and more specialized CMP applications in areas which we were not a significant participant historically. Within our core CMP slurry business for the semiconductor industry we have commercialized CMP slurries for [inaudible] and advanced dielectric applications and we have expanded into the polishing pads market. These three application areas represent significant growth opportunities within our core CMP consumables business. We believe we can develop and support these areas with relatively low incremental costs given our substantial CMP infrastructure. To illustrate this growth, these three applications areas have contributed revenue in excess of $20 million year-to-date compared to approximately $6 million during the same period in fiscal 2007.

We are also expecting demand for our more traditional CMP applications to continue to grow. One of the most common misperceptions we hear is that the market for tungsten CMP slurries will decrease as copper wiring is adopted into memory. As we have discussed at length during our investor day we think the market for tungsten CMP slurries is stronger than ever. Even as copper is incorporated into memory devices, the number of tungsten CMP tests is growing. We think this is due to the increasing complexity and miniaturization in memory chips that has heightened clarity requirements in a number of areas resulting in new applications for tungsten polishing.

Next I would like to discuss how achievements through our operations excellence initiative have contributed to our strong performance this quarter. As you may recall in our second fiscal quarter we experienced lower than optimal yields in our growing polishing pads business which resulted in a significant drag on our overall gross profit percentage. During the third fiscal quarter we made progress in improving our pad manufacturing yields and we still have more improvements planned for the coming quarters. As we said last quarter, optimizing our pad manufacturing process is something that we expect will take several quarters to accomplish. Further our pad operations are not yet running at steady state conditions and we could see quarterly fluctuations in yields as we continue to optimize the process.

Also related to our operations excellence initiative, during the third quarter we completed the closure of our smallest manufacturing facility which was located in [Barry Wells]. We first discussed this planned closure in our fourth quarter of fiscal '07 and have spent the last nine months transitioning the plants production to other larger manufacturing facilities. Closing a plant is always a difficult choice but we believe this action will improve our operational efficiency and competitiveness in this cost sensitive environment.

We also continue to make progress on our third key initiative, connecting with customers. During the quarter we continue to pursue additional wins in our pad business. Not only are we generating business with new customers but we're also gaining additional pad business with existing pad customers. We believe our pads demonstrate a clear value proposition by providing lower pad to pad variation, longer pad life and higher customer yields. Last quarter, our number of pad customers grew from 12 to 13 and the number of total customer applications for which we are selling pads grew from 16 to 19. In addition, we have over 30 other pad opportunities in various stages of testing, evaluation and qualification.

Our pads are being qualified at both new no transitions and replacements in existing processes. As an example one customer that qualified and brought our pads into production at the 65 nanometer node for copper CMP has back integrated our pad into's the older 90 and 130 nanometer processes. In other examples, our pad when combined with our next generation slurry products is being evaluated in advanced node transitions and customers are very interested in and dedicated to capturing the value we offer in enhanced performance and low cost of ownership. Further, some of our slurry competitors are now buying our pads for use in their slurry development. We think this activity represents another validation of the adoption and credibility that our new pad products are gaining in the CMP arena.

We believe the pads business represents a significant opportunity in a large closely adjacent market. We have the capacity in place to serve a significant portion of this market and we are currently expanding capacity in the finishing area of our production process.

Now I'd like to turn to the second prong of our two-prong growth strategy, engineered surface finishes or ESF. As I have discussed before, QED Technologies, which specializes in unique patented polishing metrology systems for high precision optics is a technology-driven business. Demonstrating this commitment to technology I am pleased to report that for the second consecutive year, QED has been awarded a prestigious R&D 100 Award for 2008. This year the award was granted for QED's Subaperture Stitching Interferometer for Aspheres, which is a precision metrology system uniquely capable of measuring complex optical surfaces including those that are nonspherical.

In addition to making inroads with ESF and optics, we are pursuing opportunities to leverage our technology if a variety of other market segments, such as electronic substrates, metals and ceramics. We're excited about the opportunities we are targeting and look forward to continued growth of our ESF business.

In summary, we believe the continued execution of our growth strategy has resulted in another quarter of record revenue and strong financial performance despite the uncertain economic environment. We continue to expect strength in our core CMP slurry business and we are excited about the growth opportunities that we are pursuing in slurries for barrier and advanced dielectronics applications, pads and ESF. Finally we intend to continue to capitalize on our two-prong strategy to drive additional growth and profitability in the future. And with that I'll turn the call over to Bill Johnson. Bill.

Thank, Bill and good morning, everyone. Our revenue for the third quarter of fiscal 2008 was a record $97 million, which was up by 9% from $89 million in the year ago quarter and up 2.7% from $94.5 million in the prior quarter. The revenue increases versus both periods primarily reflects solid demand for our core CMP slurry products, tungsten, dielectrics and copper as well as strong growth in our polishing pads business. These increases were partially offset as revenue from our ESF business and slurry or data storage applications decreased from both the year ago quarter and last quarter.

Drilling down into the quarterly revenue number, tungsten slurries contributed 40.3% of total quarterly revenue, with revenue up 13.6% from the same quarter a year ago and up 1.5% sequentially. As discussed at our 2008 investor day last month, we expect the market for tungsten slurries to continue to grow in both the short and long-term, even as memory device manufacturers begin incorporating more copper wiring into chip designs at the leading edge.

Sales of copper slurries represented 14.9% of our total revenue and decreased 1.1% from the same quarter last year and increased 8.9% sequentially. The sequential increase was primarily due to stronger demand from our foundry and advanced logic customers. Dielectric slurries provided 31.9% of revenue this quarter with sales up 9.8% from the same quarter a year ago and up 3.6% sequentially. Included in this business is our rapidly growing advanced dielectronics product line, revenue from which was up more than 170% from the same quarter last year and up 5.2% sequentially.

Data storage products represented 3% of our quarterly revenue. This revenue was down 34.7% from the same quarter last year and down 23.6% sequentially. During the quarter one of our customers shut down it's plant for a week which adversely impacted our revenues for data storage products. Sales of polishing pads represented 4.7% of our total revenue for the quarter and increased 38.1% sequentially. Given the continued momentum we've experienced in pads-- in the pads business, we expect to see additional growth in our fourth fiscal quarter.

Finally, revenue from our ESF business, which includes QED, generated 5.2% of our total sales and our ESF revenue was down 29.7% from a record level of revenue the same quarter last year, and down 10.5% sequentially. Remember that our QED business is mainly capital equipment oriented, so quarter-to-quarter revenue volatility is common. As a percentage of revenue, gross profit was 46.8% this quarter, which was down from 47.7% in the same quarter last year and up from 44.7% last quarter. Compared to the same quarter a year ago our gross profit percentage decreased due to higher fixed costs mainly associated with our pad operations, lower slurry and pad manufacturing yields and the effective foreign exchange rate changes. These items were partially offset by a higher valued product mix.

Compared to last quarter, gross profit percentage benefited primarily from a higher valued product mix and higher pad manufacturing yields, which were partially offset by lower utilization of our manufacturing capacity. Year-to-date gross profit as a percentage of revenue-- 46.5% which is consistent with our guidance range of 46% to 48% of revenue for the full fiscal year.

Now I'll turn to operating expenses which include research, develop and technical, selling and marketing, and general and administrative. Operating expenses of $32.5 million this quarter were consistent with our most recent guidance. Operating expense this quarter was higher than the $27.9 million reported in the year ago quarter, primarily due to increased staffing related costs and higher professional fees including legal fees related to intellectual property enforcement. Operating expenses were $0.4 million higher than in the prior quarter mostly due to increased staffing related costs and travel expenses partially offset by lower professional fees.

Net income of $10 million for the quarter was essentially even with the same quarter a year ago and increased 25.7% from $7.9 million last quarter. The comparison to the year ago quarter reflects higher revenue this quarter and the absence of a $2.1 million pretax investment write-off recorded last year, which were approximately offset by increased operating expenses. Diluted earnings per share were $0.43 this quarter up from both the $0.42 in the year ago quarter and $0.34 last quarter.

Turning now to cash and balance sheet-related items. Capital additions for the quarter were $3.8 million, depreciation and amortization expense was $6.6 million, and share-based compensation expense was $3.9 million. In addition, we repurchased $10 million of our stock during the quarter.

I'll conclude my remarks with a few comments on recent sales and order patterns. Examining our revenue in each of the three months of the third fiscal quarter, sales activity remains relatively constant throughout the quarter and generally consistent with our sales levels from May 2007 through March 2008. As we observe orders for our CMP consumables products received to date in July, that we expect to ship by the end of the month, we see July results trending generally in line with our third quarter of fiscal 2008. However, I'd caution as I always do, that several weak CMP-related orders out of a quarter represent only a limited window on full quarter results. Now I'll turn the call back to Maria as we prepare to take your questions

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Suresh Balaraman with ThinkEquity Partners. Please proceed.

Thank you, then. When I look at your history of Q4, fiscal Q4 except for maybe September '02 you never had a down quarter in September. Is any reason to be-- for this to be different this year?

Suresh, you are correct. I think the-- our fourth fiscal quarter has historically been our strongest quarter in the fiscal year. As we look out into the world, it is an uncertain world that we live in today particularly if you're sitting in the United States of America with the amount of negative news that we see and hear everyday. When you travel outside this country you don't-- you're not exposed to that same kind of negativity and you see the excitement and growth in places like Singapore and China and some of the places that we travel too, Taiwan. It's, it's very difficult to us to predict what the fourth quarter will be. We follow all of the same statistics you follow.

I think the most recent data we have is-- came out of Semi last week, at Semicon West where they predicted the semiconductor equipment market would be down more than 20%. However they also predicted the materials market would be up by 8%. So I guess our view is that as long as consume-- worldwide consumer demand for electronics and electronic systems continues at the current pace we, we feel pretty good about where we are. As Bill said in his comments about the first three weeks of July it looks a lot like the quarter we just finished but he cautioned, as he always does, that it's only a small window and we can't see any further than that, so.

And also among the dozen plus customers who are, I mean who are using your pad processes, I'm curious how many of them are-- would be using it for full [fiber] almost a full pad something like more than 20,000 [inaudible] starts a month? And I'm also wondering if the rate this business is growing could it be like a 10% of your mix next year?

If you look at the 13 customers that we're selling pads to, this represents 19 different applications. So, in direct to answer your question, are any of your customers using our-- just our pads through an entire fab, typically not. They would be using us for a particular application, particular technology nodes. We have sort of partial penetration at 13 customers so far. And we're hoping that those will ramp to higher volume and additional applications over time.

We have had strong pad revenue growth over, throughout the first three quarters of fiscal 2008 and our hope would be that we would continue to grow our pad revenue. The progress on that is going to depend upon additional customer applications and the kind of applications that we get into. How big are they, how fast do customers ramp? We've been happy with our progress this year. We'd hope for more growth into fiscal 2009 but it's hard to tell until we kind of watch the adoptions that we actually win.

Has there been a response by [inaudible] in terms of pricing because of the rapid growth that you're experiencing in the pad business?

Well our pad-- we're positioned our pad and we're selling our pad based on the value it brings our customers. And that value is in the form of longer pad life, lower pad to pad variability and in some cases higher yields out of our customers. And we'd entered a market, we priced the pad competitively. And we would expect our competitors in the pad market to compete and we're seeing some competition from our competitors in the pad space. Again we positioned the business and our plans are to be a strong second supplier to the market. We think we're in a good position to obtain that spot. We have our infrastructure on the ground ready to go and we're making progress that we're delighted with. But that, that comes with some competitive pressure and we're seeing a little bit of that, Suresh.

Okay. Great, thanks, guys.

Your next question comes from the line of Stephen O'Rourke with Deutsche bank. Please proceed.

Thank you. Good morning. Are you hearing anything different from the foundries in discussions, that is has sentiment shifted or changed at all looking into Q3 in the back half of the year?

I'm sorry, Steve, could you ask that question again? I'm not sure I caught the front end of the question. Steve, are you still there?

I think his question was with respect the foundries, are we hearing anything different from them about expectations for the September quarter and beyond?

No, we haven't heard anything different from the foundries September quarter and beyond other than that most of them have pulled back on their capital expenditures. They clearly have a drive and they've stated it publicly to make their first priority profitability and not necessarily growth. So we're seeing a pull back in capital spending as that industry, the foundry industry tries to improve their profitability.

But you don't see concerns about maybe lowering wafer starts based upon prior expectations?

We haven't seen it yet, Steve.

Okay. One other question you talked a little bit about the pad yield issues. Are those essentially resolved or are they just sort of on their way to being resolved?

They're on their way to being resolved. I think we have, we have a ways to go to get to where we think we need to be in terms of yield and performance of our pad manufacturing operation. We have established and maintained very high standards for our pad business. We have yet to receive a customer complaint from any of our pads that we ship to the customers. And the result is that we again, we have very high expectations of how we're going, how we're going to run our pad line and the quality and viability of our supply chain. So I think we have several more quarters of work to do on yield optimization and process enhancement.

Okay. And one last question, can you comment at all on trends, if any that you're seeing in slurry ASPs this past quarter and looking into this quarter?

Our slurry ASPs were actually up again around 1.7% sequentially and 3.6% year-over-year. And that's a combination of pricing moves, mix effects and foreign exchange effects. So, over the past, I don't know what has it been 18 months or so now we've seen pretty steady progress in increasing ASPs. Again a combination of product mix, foreign exchange and factors and pricing effects, but continued stability.

Thank you.

Your next question comes from the line of Dmitry Silversteyn with Longbow Research. Please proceed.

Good morning. I have actually-- I had a couple of questions. Number one Bill you talked about the new product vitality index and how it has doubled over the past year I think. Where does it stand now as a percentage of revenue? How much are you deriving from products, I'm assuming in the last five years that you introduced?

Dmitry we haven't disclosed that. That's an internal metric that we use to measure the quality and efficiency of our research and development and new product development process. But it's an internal metric that we don't intend to share publicly.

We have, we've doubled it over the past three years so we're happy with the progress were made. But just like ASPs we don't talk about ASP levels. We've talked typically about changes and movements in that. I think that's the approach we would take on new product vitality as well.

Right, I mean most companies typically try to aim or target 20%, 25% of revenues from products in the last five years. I was just wondering where you were with respect to that metric. But that's okay. The next question comes on the copper slurry business. Once again I think this is the fifth quarter in a row you saw year-over-year declines in copper sales. Is that a volume issue? Is that a pricing issue? Is it-- I would have thought that with the transition of memory to copper and with reasonably good volumes in the semiconductor business overall that-- and especially given that you're going up against an easy comp year-over-year in the third quarter of last year that we would have seen a reversal of the last four quarters of declining copper sales.

Well our copper was up this quarter. And we think it's a direct result of the foundries.

It was up sequentially but down year-over-year I believe.

Yes, I know. You remember last quarter we mentioned the loss of a customer that we reported last quarter, I think we're seeing the impact of that this quarter. The copper market continues to tend to be the most fragmented of the CMP application areas with I would say no clear or second place winner in copper today. And then that's created a significant amount of pricing pressure which we've talked about before and that continues in the copper space. In the same-- at the same time we're introducing a new family of copper products that we believe offers our customers lower cost of ownership and in many cases if not most cases higher performance. But it continues to be perhaps the most competitive application segment within the CMP slurry consumables market. And I think it will continue that way for some time, Dmitry.

Okay. So if my understanding is correct, most of the negative comparisons year-over-year in terms of revenue is price driven rather than volume driven, with the exception of the customer that you lost last quarter?

That's-- I think that's a fair conclusion.

Okay. Very good. Also in your comments when you talked about gross margin and some of the offsetting pluses or minuses you mentioned the low yields in pads on a year-over-year basis, which is understanabl4e. But you also talked about low yields in slurries. Can you expand on that a little bit?

Yes, year-over-year we had lower yields in the slurry area, and what we do is we look at quarterly basis kind of first quality product versus product that goes through our process. We saw a bit of an increase year-over-year in our slurry business. Sequentially it was down, it was better. But it wasn't a big factor. The bigger factor I think was the improvement in the pads yields. And in fact in our pads business we actually flipped to a positive gross margin for the quarter. You remember that we had pretty significant negative gross margin and pads last quarter and that flipped to a positive gross margin. It was still a drag on the overall gross margin since it was well below kind of the overall average, but that's probably quite, the bigger story then a change in yields on the slurry side.

I agree. Bill and you actually led on to my last question and that was looking at the gross margin improvement how much would had to do with pad profitability improvement. Obviously from your comments quite a bit. So my follow-up question then would be, and this is something to Bill Noglows said earlier. If you continue to glow sequential volumes in pads at double-digit rate, whatever that rate is pick a number. Should we see your gross margin continue to improve from these levels or was there something special in this quarter that pushed the gross margin into the positive territory and then you may see it slide back into negative territory over the next several of quarters?

Well I think we've said in several different times we said that we would expect the gross margins from our pad business to be like the gross margins we enjoy in our slurry business when we get to commercial rates.

Sure.

We are not yet at what we would describe as steady state manufacturing rates. And when that time comes, I think our expectation is still to be up around the kind of inside our guidance range of 46% to 48% gross margins for the pad business.

Okay.

Which will be complimentary at the slurry business.

We're also-- we are really very pleased with the improvements we made quarter-to-quarter. I think we would say you can't draw a straight line between those two day data points and expect that sort of improvement every quarter going forward. Like Bill said, since we're not at steady state this could move in fits and starts and we could go backwards for a quarter. It wouldn't be surprising but we're making long-term progress that we're happy with.

Okay. All right. Thank you, gentlemen.

Thank you.

Dmitry. Maria, we will take one last question.

Okay. Your next question comes from the line of Christopher Blansett with JPMorgan. Please proceed.

Hi, guys. I'm kind of-- going-- focusing back on the pads products and so on. When you look at your say expectations for the next quarter or two do you expect most of your pads volume or revenue growth to come from existing wins or do you think you have to count on some new wins to actually continue to driving revenue growth?

I think it's both, Chris. Within the existing wins we still have several customers that haven't hit the full ramp year. We have seral customers that are moving from across applications as Bill spoke to earlier. And we anticipate more growth from the existing base of customers we have today. In addition to the other, we mentioned this morning we have some 30 other opportunities that are either in testing, evaluation and qualification. So we-- we're hopeful and-- that we will pull some of those over the goal line and we'll add those to our revenue stream for next quarter. But that's-- this qualification takes a long time as we've said before, and it's out of our hands. It's in our customer hands and their customers hands. But the value that we're bringing we believe is providing the driving force to get those customers to move quickly to qualify our pads. So we're exciting about the opportunity and continue to be optimistic about the ability to penetrate meaningful share in this particular market.

And then along the lines kind of the margin improvement, how do you characterize the-- what you saw during the reported quarter? You've talked about how the leverage is primarily in the volumes but it does sound like you either had a lot lower waste or yield issues than before. And so which one actually was a bigger influence or how would we look at these?

I think this time the bigger influence was the yield pad factor. Last quarter I think we said that pads was about 3.6% drag on overall gross margin. The drag this time was less than half of that. And then during that time, revenue increased by about 38%. So I think we saw, we saw some nice revenue growth but I think the bigger factor on gross margin this sequential period was on yields.

Okay. And then I guess in general what do you think of when you kind of indicated that it can move around, is that just based on the fact you're still under full volume, is it based on the product mix? How should we kind of think of that?

No I think it's more based on the volume and kind of the on/off nature of the process right now and some of the work we're doing to improve the performance of the process. So it's just, I think it's-- to answer your question, Chris, it's more related to volume than anything else.

All right. And then, a couple of housekeeping here. Did you give a headcount during the quarter?

We didn't. Still approximately 800 employees. Pretty flat I think with last quarter.

And then in general, on litigation-related expenses were down quarter-over-quarter?

It was, yes, it was down slightly. We've talked about the progress we're making in that area. We-- the IP litigation is-- has relatively long life. So we expect this to be kind of an ongoing part of our business and that is as we've talked about in the past why we tripped over the high-end of our prior operating expense guidance.

And then I guess just for the current quarter that we're in you expect that to remain relatively constant again?

I think the prior guidance would prevail that we'll expect to be at that over the top end of our prior guidance. I mean we've had two quarters in a row of around $32 million and the IP litigation continues pretty aggressively.

All right. I had actually-- I did some channel checks on your barrier slurries, and I received some positive feedback on how well that's being accepted into the market. Could you give some kind of color on that since you've publicly said you were late to the market? How do you think this is progressing and what kind of expectation do you have over the next 12 months?

Well I appreciate the comment, Chris. Thanks. It's nice to get a channel checkout side of my own sales force and R&D team. Listen we're-- again we're delighted with our progress in barrier as well as advanced dielectric and pads and some other what we would describe as smaller niche opportunities. When-- it's just-- it's a little like the pad business, the barrier business. It's so close to what we do and it's such a strongly adjacent market that we're able to employ some technology and knowledge that we've gained over many years and quickly entered the barrier space and-- with some exciting new products and hopefully capture some business. So it's a little like many of the other applications where we have this, we have this technological base of strength and a group of scientists and engineers here now that have been in the business for ten years and you throw a new application at them and they quickly find a way to solve the problems and create opportunities for our customers. So that's how we feel about it.

We continue to look for those niche opportunities. Many of which are emerging with some of the-- at 22 nanometers is a whole raft of new materials coming in to the space and we think we're well-positioned to capitalize on any CMP opportunities for those new materials. So I think it's-- as I said in my script, this isn't something that we did before as a Company. We tend to focus on the very large CMP markets and now we're looking into the smaller more niche markets but where we think we can add value and hopefully get compensated for that value.

All right. Thanks guys, I appreciate it.

Thanks, Chris. And thank you for your time this morning and your interest in Cabot Microelectronics. As I mentioned earlier for those of you who may have missed our investor day in June, the presentation and archived webcast are available on the investor relation section of our website. I encourage you to take a look at this investor day material since it 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. Good-bye.

Thank you for your participation in today's conference, ladies and gentlemen. You may now all disconnect. Enjoy your day.