CMC Materials, Inc. (CCMP) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2010 Cabot Microelectronics earnings conference call. My name is Amesia andI will be your operator for today. At this time, all participants are in listen only mode. Later, we will conduct a question-and-answer session. (Operator Instructions).

I will now like to turn the conference over to your host for today, Amy Ford, Director of Investor Relations. Please proceed.

Good morning.

With me today are Bill Noglows, Chairman and CEO, and Bill Johnson, Chief Financial Officer. This morning, we reported results for third quarter of fiscal year 2010, which ended June 30. A copy of our press release is available in the investor relation section of our website, www.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. This script of this morning's formal comments will be also be available there. In addition, I would 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.

Thanks, Amy. Good morning, everyone. Thanks for joining us.

This morning we are reported our third consecutive quarter of 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 increased in operating expenses was primarily driven by higher cost related to our patent enforcement litigation with DuPont Air Product Nanomaterials or DA NanoMaterials in which the validity of our patents was upheld.

As we consider the current semiconductor industry outlook, we were 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 device inventories are at low to normal levels, and we were entering a seasonally strong period of the year. In our view, the current bottleneck on near term industry growth is our customers' ability to add capacity to meet current and future demand. We believe our customers' 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 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 and other CMP polishing applications. This is important because we believe the rigorous testing of these patents through the US 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 that DA NanoMaterials products at issue in the case infringe on our patents and we are considering an appeal of the jury's verdict on this point. Notwithstanding this patent enforcement litigation, we expect our tungsten business to remain strong, and we believe our customers fully 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 CMP 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 have 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 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 to providing innovative high quality products to our customers, we believe supplier awards like this, help us win business with others when they see our consistent proven 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 capables in cultivating collaboration to become more of a solutions provider to our customers. For example, we have strategically located clean room facilities in the US, Japan, and Taiwan, which we are utilizing to team with our customers and assist them 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 this represents an important competitive advantage within an environment in which our customers' tool 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 1.5 times longer than our previous D100 pad, which already provided a longer pad life than the competitive offerings. We continue to have confidence in our growing pad business and believe we have 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 benefiting from a stronger demand environment, but we were also realizing results in 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 valued partner to our global customers. Ultimately, we were well-positioned to take advantage of what appears to be a robust outlook for the semiconductor industry.

And with that, I will turn the call to 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 is 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 higher fixed costs. The decrease in gross profit percentage versus the previous quarter was primarily due to a lower valued product mix. We'd 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 will turn to operating expenses, which include research, development and technical, selling and marking, and general and administrative costs. 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 costs to enforce our intellectual property, other staffing related costs, 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 costs 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 costs 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 report in the previous quarter. Note that litigation costs reduced our third quarter diluted earnings per share by $0.10.

Turning now to the 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 re-purchased $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 will conclude my remarks with a few comments on recent sales and order patterns. Examining revenue patterns within the three months of our third fiscal quarter, we saw demand in June increase significantly from the first two months of the quarter. This is similar to our monthly demand pattern within the March quarter. 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 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 a 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 Instructions).

The first question comes from the line of Steve O'Rourke with Deutsche Bank. Please proceed.

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

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 of the quarter and then spike of increased revenue in the third month of the quarter. We saw that in the March quarter, where we saw 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 will keep an eye on this, but no change in business circumstances that would cause that, but it is something new we have seen in the last couple of quarters.

And you seem to track revenue -- your revenue seems to track TSM wafer starts most closely, at least historically. TSM is guided 40%, I think, and 300 mm wafer starts growth this year. How do you see that trending when you look out over the next few quarters?

And then 200 mm utilization seems like it's as high as it can go with additional use tools being added. When you thing about 200 mm and tungsten, how do you see that trending up going through Q3 as well?

Let me try to tackle the first question. 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 darn close, if you look at it over the long term. This quarter was no different. Our sales reflected the growth numbers that we saw from both of those companies' sequential numbers for the quarter.

We're clearly paying attention to -- people are buying used tools for 200 mm wafers and, as we said in our comments, we think, certainly, the remainder of this year and into 2011 look pretty robust for us, Steve, with all of this new capacity coming on-line. I think, as you know, we were strong at leading edge, the 300 mm wafer technology and so any new capacity at 300 mm is good for Cabot Microelectronics as is the legacy technologies at 200 mm. All the indications and all the drivers of wafer starts are pointing in the right direction.

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

Well, we have some -- we've talked a lot about some new product introductions that we brought to the market that we are excited about, Steve. As we said before, the copper application tends to be the most competitive. I can't 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 and soft landing and we are aggressive in that space and that application space.

Thank you.

Thanks, Steve. We will take our next caller, please.

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

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 costs. Is that from the new grooming facilities and other small plants that you have added in Asia? Or was that just a reflection of the Epoch acquisition (inaudible) anniversary.

Actually, the biggest increase was staffing related costs. A lot of that is 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 accruals on that is much stronger both in operating expense as well as in cost of goods sold.

So the fixed costs there are not really fixed? (Inaudible) variable.

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

Right, I understand. Okay.

And you also talked about sequentially declining margins there and you talked about mix. So I was wondering if you can give us more detail on what grew faster or what didn't grow as fast that impacted the mix, as well as what your average selling price is on sequentially and versus last year's third quarter.

Sure. If you remember, from the material we presented in the investor day, we characterized gross margin by the different business areas and we characterized dielectrics as lower than average gross margin, copper at about average, tungsten above average. If you look at the sequential revenue changes of those three business areas, tungsten grew but modestly; dielectrics and copper moved more than tungsten and so that gave rise to a bit of a weaker product mix.

In terms of average selling price, average selling price was down about a couple percent, but was driven by mainly foreign exchange factors rather than real pricing changes.

Are you talking about sequentially?

Yes, sequentially.

And then since you mentioned the facts, do you -- have you looked at the sensitivity of your earnings to changes in foreign exchange? We haven't talked about that much in the past, but with both the European currency weakening and the Chinese currency strengthening, I thought I would ask.

Sure. That's a good question. We do have some exposure from a revenue standpoint. I think around 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 a natural hedge, since we have significant expenses denominated in those local currencies. From a bottom line standpoint, very little impact on foreign exchange.

So we are just basically talking about translation impact, which shouldn't change the margin?

Yes. At an operating income level, since we have cost to goods sold, local manpower staffing, that sort of thing, in the local currency and then from an operating expense standpoint some local costs, so it has a different impact on gross margin versus operating income, but when you get down to operating income, very little net effect of foreign exchange changes.

Got you. 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 and good growth sequentially.

Can you talk about any new wins you had, kind of what the profitability of this business is versus last quarter versus a year ago? Was the growth in the pad business a contributor to the gross margin than you talked about? Or was it part of the negative mix effect?

You asked a lot of questions there. I will try to get as many as I can and ask bill to pick up the ones I didn't.

The pad business continues to do really well, we are tracking for a $30 million annual rate. Remember, we finished last year at $18 million so that's a 70% growth year-on-year. We are excited about that. I'm trying to think of the next question. You asked the question about profitability. In my prepared comments, I mentioned that our gross margins were strong as the result of one of the factors or one of the four factors I mentioned was our growing pad business. And we might point you to the 8K we filed in conjunction with our analyst meeting in New York or investor meeting in New York last month where we put out 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 said before that we expect ultimately to end up at a gross margin level at the levels we enjoy for our CMP slurry business. And we are -- we remain optimistic and excited about both current growth and the future prospects of our pad business. In the quarter, we believe we won two new 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 pad. We feel really good about where we are with our pad business and where we are headed.

I understand what you said then, if you averaged about 40% or so gross margin for the first half of the year and as you said 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 at, and dielectric below, where does the pad business fit? Somewhere between copper or dielectric or below dielectric?

I don't think we can give you more characterization than that. The expectation is revenue continues to grow we expect gross margin on the pad business to continue to increase. And the third fiscal quarter I don't think we saw material change in the gross margin of the pad business relative to the first half. So +/- 40% is where we are now and will need further revenue growth to drive that higher.

Thank you. I'll get back in queue.

(Operator Instructions).

And the next question comes from the line of Avinash Kant with D.A. Davidson & Company. Please proceed.

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 systemic or could be explained somehow?

We see some seasonality in the hard disk drive business, but it's actually some with a different from the semiconductor industry. Whereas in the semiconductor industry, we see the strongest quarter being 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 in industry reports. I think it was mainly seasonality. We had strong growth in our data storage business up to the last couple of quarters, so we don't think there is anything systemic going on there. It's more of a seasonality at work.

Given seasonality will you expect the data storage business to be coming up in the current quarter?

I think the normal seasonality would show, yes, stronger growth in the second half of the calendar year because you get the back to school season kicking in and some additional corporate spending.

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

I think it's the same thing we talked about in sort of the past quarters through the recession. Both our QED business and surface finishes business have a compound in our percentage of their business that served semiconductor industry in that all of the semiconductor industry or capital equipment photo semiconductor industry has begun picking up stream that rest of the markets that they serve that are outside the semiconductor industry have yet to recover.

As we described before, QED, I hate to use the word, but it's a lumpy business because of the that nature of equipment sales and it was lumpy this quarter. But I don't think you could or I don't think we read any more into it other than we are waiting for the other market served by those two businesses outside of the semiconductor industry to recover.

And the ruling right now with the DA Nanomaterials, if you were to appeal that process especially for the infringement of your patent, what kind of costs should we expect out of that?

If we choose to appeal, Avinash, we would expect significantly lower costs through that process. Both what's called a judgment as a matter of law and the appeals process. We wouldn't expect costs to be anywhere near the cost that we incurred to prepare for and try a jury trial. And as soon as we get more clarity on what our strategy will be and what our costs will be, we will communicate as best we can.

And one final question.

Of course, you talk qualitatively about wafer starts and foundries and everything else. If you talk about near term in July that you said you have seen slightly weaker revenues from June thus far, it is already planned or was it a change of plan from your customers?

I don't think we can draw hard conclusions. What we track are industry orders from our customers week by week. And we try to give some color to what we are seeing in the month. But I think it's difficult to draw conclusions from three weeks of data and in the past we seen there are times where the first three weeks of orders is a good indicator of monthly results and sometimes it's not. So we want to given the latest color that we have available, but it's really hard to draw conclusions until we see more of the quarter unfold.

But what I'm trying to understand, Bill, from the data you get from them on a weekly basis, have you seen any change one way or the other? Or it's been as planned?

I would describe what I can see as planned, Avinash, based on what we were told by our customers that they see a very robust demand environment and are trying to do all they can to meet that environment with existing capacity. You seen fairly aggressive capital plans by at least some the leaders where they are trying to install capacity as quickly as they can to meet ongoing demand.

I don't think we have seen any change in plan. I think the Bill's answer on what we see on a week-to-week basis is the right way to think about it. It's often right and it's often wrong. And it's really what happens over the two or three months of the quarter that is important.

And also, during the investor day we talked about some caution that we are entering a seasonally strong period of year, but our customers were running at high utilization rates, and we expressed a concern that our revenue and their revenue couldn't grow a lot until new capacity came online.

What was interesting, in this quarter, both TMC and UMC, as a example, reported strong sequential growth even in the face of pretty high capacity utilization. Bill talked about our customers squeezing more and more production out of existing capacity and that prompted the growth in this quarter and presumably that could continue next quarter as well.

Just making sure that nobody came out and actually changed the buying pattern they have had and pushed out or canceled something?

No we haven't seen that, Avinash.

Thank you so much.

Thanks, Avinash. We will take our next caller please.

The next question comes from the line of Chris Kapsch with BDR Research Group. Please proceed.

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 a little relatively weaker. Is it fair to assume the trends are stronger for the month of July than they were for both April and May?

I didn't characterize it as weaker. I said that orders to date in July were somewhat lower than June's level.

Which was extremely strong as you characterize it as a spike relative to April and May, right?

That's right. What we are seeing as of the third week is around a level that we saw of April and May. Maybe a little stronger than that -- at an average level of the entire quarter. Maybe that's a better way of expressing it.

Okay. That helps.

And then wanted to follow up on the discussion about your customers and their aggressive capital plans. Wonder if you can -- based on the feedback that you have on a fab by fab or tool by tool basis, do you have -- can you characterize the expectation in terms of those ads? Is it skewed more toward 300 mm tools versus 200 mm or vice versa or skewed more toward logic devices versus memory or vice versa?

Think it's skewed more to 300 mm than 200 mm. And the way I would describe it is we believe that TSMC and Intel are leading the way, which will point you to logic, Chris.

I think someone earlier on the call commented that TSMC is adding 40% on their existing 300 mm capacity, which we believe to be true. I think for all of us it's a question of timing and the availability of some of the what's called key pieces of equipment in the marketplace. All that being said, to answer your comment, 300 mm is clearly where I think the capital is going. The bulk of the capital, leading edge technology, and we believe that the bulk of that capital is going into logic.

Got you. That definitely -- because there was another comment that the utilization on the 200 mm tools is bringing out used tools to be deployed for capacity additions. But that's still overshadowed by the capacity adds in the 300 mm area?

I would think so.

Got you. And then --

Go ahead.

It used to be when at an advanced node and or certainly a new tool, it would take awhile for customers to get their processes running steady state and efficient. Is that still the case? Or when they launch a new tool or at a new node, are they able to get their intended yields right off the bat?

That's a great question. I think it's our experience of what we seen is it's getting harder and harder as technology has become more complex to get to yield or meaningful yield. Let's put it that way. And I think that trend will continue as we drive down through these smaller and smaller nodes.

But, then again, you think of the complexity and the difficulty, they are still getting to yield what I would describe as very quickly when you consider how difficult the technology is. The answer is yes and no and it's customer by customer, but it gets harder and harder as technology is more complex.

Okay.

And then just following up on the comments about your clean rooms and tools. The development efforts that are going on there, maybe you could characterize what that has really targeted? Is it more advanced nodes or qualifying your pads or slurries for displacing maybe some more mature applications?

I would describe it as all of the above. We do advance node work. What's -- let me back up. What's important to us is to be close to our customers in collaborating with them. There is nothing better for us to be working with a customer with their wafers, either in our demonstration laboratories or in their fab. That's the ultimate and that's the way we tried to position ourselves and our resources around the world.

To answer your specific question, we do everything you asked us about. We do new product development, new process development with advanced node technology and new products that we offer to meet the yield requirements and defect requirements that those advanced nodes. We also do what we describe as legacy work on new and improved products that we have been focusing on reducing the cost of ownership for our customers on many of the legacy applications and so we do more work there.

Of course, our pad business and our penetration of the pad market has been both legacy and new node technologies. We do a little of everything. And to have the ability and capability to do it and do it the way we do it I think is a competitive advantage for Cabot Microelectronics.

To follow up on the come on the qualifications for your pads, for the customer, is it all about cost of ownership? Or do you -- are they just looking for an alternative supplier or both?

I think it's three things. You are on it and an alternative supplier. If not all of our customers to have two sources from supply for most if not all material's. Our pad has clearly demonstrated in practice and at high volume manufacturing longer pad life, which equates to lower cost of ownership for our customers; and finally, we have more and more evidence that our pads in some application result in lower defects, which leads to higher yields, which is important to our customers.

We see three drivers of Cabot Microelectronics pad technology. Most importantly, the lower cost of ownership that we think we can provide, as well as what we describe as higher end process quality as a result of our manufacturing technology.

Great, thank you.

Thanks, Chris. At this time we will take one last caller.

The final question comes from the line of Dmitry Silversteyn with Longbow research. Please proceed.

Good morning, again. I just wanted to follow up on your share repurchase program.

You said you re-purchased 10 million shares during the quarter. Can you update on how much you have left outstanding? What your outlook is -- or not sure outlook -- but philosophically where you are with respect to the share re-purchase program and price of shares currently? And kind of the -- sorry for the last question of the day, but can you give us an update on your cash usage beyond share re-purchases? Where you are in terms of your M&A pipeline, and whether you have given consideration to using cash for any other purposes?

Our first priority is to look for opportunities to invest the cash in ways where we can grow, meaningfully grow, Cabot Microelectronics in a profitable way. That's been our priority and will be our priority. I think as you know we had a what we think is a great opposition last year of Epoch in Taiwan. We continue -- we have a great balance sheet. Equally strong cash flow. We continue to look and evaluate and see if we can't execute on more opportunities to grow through M&A.

That being said, there is a point when we start to pile up more cash than we might need and so we return $10 million of it this quarter. I will let Bill respond to the specific details of the current buy-back program we have in place. I think that helps you understand how we think about the cash and our cash balance and I hope I answered your question about our focus on M&A, Dmitry.

So, specifically, we have a $40 million remaining under the existing share re-purchase program.

And there is no timetable? Not like you will use it through the end of next year or anything like that?

That's right. It's a $75 million program. Really open ended and we've done -- executed that on open market purchases from time to time.

Have you -- since your number one use of cash, obviously, besides investment is external investment and acquisitions. Can you update us on what you are seeing in the M&A market with respect to number of candidates that you are looking at, the valuations that people are -- the prices that people are willing to accept? Are you looking strictly in the CMP area or are you still looking in the engineered surface finishes or perhaps, even a third leg? Can you give us an idea of how your M&A program is going?

Great question, Dmitry. Our -- let's start the top. Our strategy is to focus on electronic materials opportunities. Broadly said. That goes passed semiconductor materials and more broadly into electronic materials. Our focus is -- we backed away from M&A investments and what we have characterized as ESF that would put us down a totally different path. We think it's important we stay close to what we know. We think we have a great infrastructure on ground that we can leverage and we think we have really great people around the world that we can really help us with an acquisition of considerable size to integrate it and get it running. That's the first point.

You asked me about the environment. I think we were a little tiny player in the world of M&A. Through the recession, it's -- everything essentially dried up. I think people hunkered down through the recession and valuations went wild and it wasn't really a good environment for either buyers or sellers. I think as we come out of the recession and things stabilize, whatever stabilize means, and people will start to come to grips with the valuations or the post recession valuations that we are all looking at and seeing. I think some deals and transactions might occur in the next couple of quarters, maybe not for Cabot Microelectronics, but there is an opportunity and need for consolidation in the supply of the semiconductor industry. We think it has to happen and we like to be part of it if we could.

But the recession I think pushed us all back at least a year, in terms of people really understanding valuations and multiples and pricing. We will see. We -- in our process you asked about our process, we keep a list of targets that we always had that opportunities come on and opportunity go off. And we do all we can to understand what's happening and what opportunities look best to us and seeing if we can make them actionable and that's the process we use and how we go forward.

Okay, Bill. Thank you very much.

Okay.

Thanks, Dmitry. And thank you for your time this morning and your interest in Cabot Microelectronics.

As I mentioned earlier our investor day presentation and archived web cast are available in the investor relations section of our website. I encourage you to take a look at this recent 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.

Thanks.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participating. You may now disconnect. Have a great day.