CMC Materials, Inc. (CCMP) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cabot Microelectronics second quarter 2012 earnings conference call. (Operator Instructions). I would now like to turn the conference over to your host for today, Ms. Tricia Tuntland, Manager 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 our second quarter of fiscal year 2012, which ended March 31. A copy of our earnings release is available in the Investor Relations section of our website, CabotCMP.com, or by calling our Investors Relations office at 630.499.2600. A webcast of today's conference call, and the script of this morning's formal comments will also be available on our website.

Please remember that our discussions today may include forward-looking statements, that involve a number of risks, uncertainties and other factors that can 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-K for the fiscal year ended September 30, 2011. We assume no obligation to update any of this forward-looking information. I will now turn the call over to Bill Noglows.

Thanks, Tricia. Good morning, everyone, and thanks for joining us. This morning we announced financial results for our second fiscal quarter of 2012. Our financial results are consistent with the preliminary financial performance we discussed in our press release on April 16. As reported then, we experienced continued softness in semiconductor industry demand during the quarter, as well as seasonal weakness that we have periodically experienced during our second fiscal quarter of the year.

Over the past several quarters, we have discussed projections by some industry analysts for soft semiconductor industry demand to continue through the first half of our fiscal year. And our financial performance in our second quarter reflected these conditions. For the second fiscal quarter of 2012, we reported revenue of $99.2 million. Gross profit margin of 46.1%, operating expense of $36.7 million, and diluted earnings per share of $0.23. Including the adverse impact of a $3.7 million increase in bad debt expense associated with a customer bankruptcy.

Bill Johnson will provide more detail on our financial results later in the call. As I mentioned during our earnings discussion last quarter, some industry analysts are predicting strengthening in overall semiconductor industry demand during the second half of our fiscal year. Industry analysts consensus for IC unit growth in calendar 2012, is between 4% and 6%. Supported by forecasted growth rates in the upper single digits for electronic system sales during 2012.

Given the contraction that we believe the industry experienced in the first calendar quarter, this would imply stronger growth for the remainder of calendar year 2012. Industry reports also indicate that inventories of most types of IC devices have returned to normal levels and capacity utilization rates generally began to increase during the month of March. In addition, a number of semiconductor manufacturers continue to add capacity at advanced technology notes. Consistent with these industry views, we began to see demand for our CMP consumables business increase slightly toward the end of the quarter.

Although our view is limited, through the month of April to date, we are seeing a continuing strengthening in orders compared to last quarter. Longer term, we are optimistic regarding demand for our products going forward. For example, the industry experts are estimating that compound annual growth rate for smart phones and tablets to range between 40% and 80% from2010 to 2015.

Furthermore, cloud computing and the resulting need for larger and more powerful data centers and server farms are expected to strengthen the overall demand for hardware, including processors and hard disk drives. We believe we are well positioned with our customers to serve these growing needs, and the evolving marketplace over the long term. Turning now to our business highlights, I am pleased to report that our CMP polishing pads business grew approximately 15% during the quarter, on a sequential basis. We believe this is in result of our continued efforts and success in converting our pipeline of ongoing customer qualifications and evaluations across our pad product platform --

We apologize for the technical difficulties, if everyone will please stand by. Thank you for your patience, ladies and gentlemen. I will now turn the call over to Tricia Tuntland, Manager of Investor Relations. Please proceed.

Thank you, sorry for the interruption with the call. We'll start from the beginning. Good morning. With me today are Bill Noglows, Chairman and CEO and Bill Johnson, Chief Financial Officer. This morning we reported results for our second quarter of fiscal year 2012, which ended March 31. A copy of our earnings release is available in the Investor Relations section of our website, CabotCMP.com, or by calling our Investors Relations office at 630.499.2600. A webcast of today's conference call, and the script of this morning's formal comments will also be available on our website.

Please remember that our discussions today may include forward-looking statements, that involve a number of risks, uncertainties and other factors that can 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-K for the fiscal year ended September 30, 2011. We assume no obligation to update any of this forward-looking information. I will now turn the call over to Bill Noglows.

Thanks Tricia. Good morning, everyone, and thank you for joining us. This morning we announced financial results for our second fiscal quarter of 2012. Our financial results are consistent with the preliminary financial performance we discussed in our press release on April 16. As reported then, we experienced continued softness in semiconductor industry demand during the quarter, as well as seasonal weakness that we have periodically experienced during our second fiscal quarter of the year.

Over the past several quarters, we have discussed projections by some industry analysts for soft semiconductor industry demand to continue through the first half of our fiscal year. And our financial performance in our second quarter reflected these conditions. For the second fiscal quarter of 2012, we reported revenue of $99.2 million. Gross profit margin of 46.1%, operating expense of $36.7 million, and diluted earnings per share of $0.23. Including the adverse impact of a $3.7 million increase in bad debt expense associated with a customer bankruptcy.

Bill Johnson will provide more detail on our financial results later in the call. As I mentioned during our earnings discussion last quarter, some industry analysts are predicting strengthening in overall semiconductor industry demand during the second half of our fiscal year. Industry analysts consensus for IC unit growth in calendar 2012, is between 4% and 6%. Supported by forecasted growth rates in the upper single digits for electronic system sales during 2012.

Given the contraction that we believe the industry experienced in the first calendar quarter, this would imply stronger growth for the remainder of calendar year 2012. Industry reports also indicate that inventories of most types of IC devices have returned to normal levels and capacity utilization rates generally began to increase during the month of March. In addition, a number of semiconductor manufacturers continue to add capacity at advanced technology notes. Consistent with these industry views, we began to see demand for our CMP consumables business increase slightly toward the end of the quarter.

Although our view is limited through the month of April to date, we are seeing a continuing strengthening in orders compared to last quarter. Longer term we are optimistic regarding demand for our products going forward. For example, industry experts are estimating the compound annual growth rate for smart phones and tablets to range between 40% and 80% from 2010 to 2015. Furthermore, cloud computing and the resulting need for larger and more powerful data centers and server farms are expected to strengthen the overall demand for hardware, including processors and hard disk drives.

We believe we are well positioned with our customers to serve these growing needs and the evolving market place over the long term. Turning now to our business highlights, I am please to report that our CMP polishing pads business grew approximately 15% during the quarter, on a sequential basis. We believe this is the result of our continued efforts and success in converting our pipeline of ongoing customer qualifications and evaluations across our pad product platforms, into business wins and ultimately revenue.

During the quarter, we secured additional D100 and D200 customer wins, and we are now selling our pads to more than 30 customers. On a combined basis, we continue to have more than 50 opportunities for our D100 and D200 pad products around the world, in various stages of evaluation or qualification. We continue to expect our polishing pads business to be a significant long term growth driver for the Company, and we believe the revenue growth this quarter reflects progress in this area of our business.

Turning to our CMP slurry business, we continue to benefit from the investment we made in our new research, development, and manufacturing facility in South Korea. During the quarter, we continued to collaborate closely with key customers there, and I am proud to report that our efforts resulted in the qualification of our first new Advanced Dielectrics product from our Korean facility. We continue to engage with our customers and we expect to qualify additional products at this facility in the near future. Korea is a very important geographic area for us, since it represents the second largest CMP consumers market in the world.

Our close collaborations with our strategic memory customers in Korea, resulted in 25% revenue growth year to date. Our data storage business recorded approximately 15% sequential revenue growth over the previous quarter. We believe this is a clear indication that the hard disk drive industry is recovering from the severe flooding in Thailand, that significantly impacted the industry and more broadly the IT supply chain, and is returning to base line growth levels. We believe that additional opportunities for growth within data storage business, will occur as cloud computing activity continues and the need for server farms utilizing hard disk drive storage media increases.

Finally, we are delighted to have recently been awarded Intel's 2011 Preferred Quality Supplier award, or PQS award, for the third consecutive year. Out of thousands of suppliers to Intel, we were selected as one of only 19 companies to receive the PQS award. We believe this award is recognition of our ongoing commitment and ability to consistently deliver reliable, high quality, innovative solutions to our customers.

Concluding my remarks today, I would like to reiterate that we believe in the strength and quality of our business and the depth of our experience will allow us to continue our position as the leading CMP slurry provider. Based on industry trends and forecasts, we are optimistic regarding increased demand for our products in the second half of our fiscal year. I am confident that the combination of the forecasted strengthening and industry demand, along with our Company's focus and drive for high quality, innovative solutions to our customers, will continue to provide opportunities for near term and future profitable growth for our Company. And with that, I'll turn the call over to Bill.

Thanks, Bill, and good morning everyone. Revenue for the second quarter of fiscal 2012 was $99.2 million, which reflects continued soft demand within the global semiconductor industry, coupled with traditional seasonal weakness we periodically experience during our second fiscal quarter of the year. Revenue was down by 9.5% from the second quarter of last year, and down 2.8% from the prior quarter.

Despite the year-over-year decrease in total revenue, our revenue in Korea increased by approximately 23%. Year to date revenue of $201.4 million, represents a decrease of 10.1% from the prior year, reflecting generally softer industry demand conditions this year, compared to last. However, on the year to date basis, our revenue in Korea increased by approximately 25%.

Drilling down into revenue by business area, tungsten slurries contributed 38.5% of total quarterly revenue, with revenue down 5.1% from the same quarter a year ago, and down 6.2% sequentially. Sales of copper products represented 16.2% of our total revenue and decreased 17.6% from the same quarter last year, and were essentially flat sequentially.

Dielectric's flurries provided 27.4% of revenue this quarter, with sales down 8.5% from the same quarter a year ago, and down 2.8% sequentially. Data storage slurry products represented 5.8% of our quarterly revenue, this revenue was down 17.6% from the same quarter last year, and up 15.5% sequentially, as the hard disk drive industry began to recover from the floods in Thailand.

Sales of our polishing pads represented 8% of our total revenue for the quarter, and reflects an increase of 2.8% from the same quarter last year, and an increase of 14.6% sequentially. As Bill mentioned earlier, we are pleased with the revenue growth in this area of our business after several quarters of soft revenue.

Finally, revenue from our Engineered Surface Finishes business, which includes QED, generated 4.1% of our total sales, and was down approximately 25% from both the same quarter last year and sequentially. Volatility in our QED revenue is not surprising, given that it is primarily a capital equipment oriented business.

Our gross profit this quarter represented 46.1% of revenue, which is down from 48.1% in the same quarter a year ago, and 48.3% in the prior quarter. Compared to the year ago quarter, gross profit percentage decreased. Primarily due to lower production volumes, higher fixed manufacturing costs and selective price reductions, partially offset by lower variable manufacturing costs.

The decrease in gross profit percentage versus the previous quarter, was primarily due to lower production volumesand higher variable manufacturing costs. Year to date, gross profit represented 47.2% of revenue, this is consistent with our full year guidance range of 46% to 48% of revenue, and this guidance remained unchanged.

Now I'll turn to operating expenses which include research, development and technical, selling and marketing, and general and administrative costs. Operating expenses this quarter, of $36.7 million, were $3.4 million higher than in the second quarter of fiscal 2011. The increase was primarily due to a $3.7 million increase in our reserve for bad debt expense related to Elpida, a significant customer in Japan that recently filed for bankruptcy protection.

Operating expenses were approximately $2.7 million higher than in the previous quarter, primarily due to the increase in the reserve for bad debt expense, partially offset by lower professional fees, including costs associated with our recent leverage recapitalization with a special cast dividend. Operating expenses this quarter, include approximately $800,000 of costs associated with the leverage recapitalization, with the special cash dividend. Year to date total operating experiences were $70.7 million, which is 6.6% higher than during the same period last year. We continue to expect our full year operating expenses to be within a range of $135 million to $140 million, for fiscal 2012.

Diluted earnings per share were $0.23 this quarter, which includes the adverse impact of approximately $0.10 related to the increase in bad debt expense, and $0.02 due to costs associated with the leverage recapitalization for the special cash dividend. Diluted EPS this quarter was down from the $0.55 reported in the second quarter of fiscal 2011, primarily due to the bad debt expense and industry softness.

Our EPS was down from $0.45 in the prior quarter, mainly due to the bad debt expense and seasonal weakness and demand, partially offset by lower costs associated with the leverage recapitalization with the special cash dividend. Year to date, diluted earnings per share are down 46.1% compared to last year.

Turning now to balance sheet related items, during the quarter we implemented a significant change to our capital structure. On March 1, we paid a special cash dividend of $15 per share to our shareholders, or approximately $347 million in total. Approximately half of the dividend was funded from our cash balance, and the other half from a term loan that's part of the new credit facility that we closed in February. Reflecting the leverage recapitalization with a special cash dividend, we ended the quarter with a cash balance of approximately $155 million, down from approximately $294 million at the end of the prior quarter, and we now have $175 million of new debt outstanding.

Capital additions for the quarter were $3.8 million, depreciation and amortization expense was $5.9 million, and share base compensation expense was $4 million. I'll conclude my remarks with a few comments on recent sales and order patterns.

Examining revenue patterns within the three months of our second fiscal quarter, we saw demand for our CMP consumables products at a level approximately 2% below our first fiscal quarter. However, we did see a 3.5% increase in demand from February to March. As we observe orders for our CMP consumables products received to date in April, that we expect to ship by the end of the month, we see April results trending approximately 10% above the average rate in our first fiscal quarter. 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. I'll now turn the call back to the operator, as we prepare to take your questions.

(Operator Instructions). Your first question comes from the line of Jairam Nathan with Sidoti, please proceed.

Hi, thanks for taking my questions. Earlier today, TSMC indicated that their Q2, or their June quarter, revenues would be up 15% to 20%. I think UMC reported similar numbers a couple of days back. So given those two, being the biggest customers and what you are seeing in April, is there any reason why we should not, kind of, assume that the [tenth] person at least should, kind of, sequentially continue?

Jairam, thanks for the question. I think we have talked in the past about using the foundries in Taiwan as a pretty reasonable proxy for Cabot Microelectronics. Our results have tended to trend over several years now, pretty consistently. I think as you know, we have made a very significant investment in Taiwan, and we believe we are really well positioned to take advantage of the growth in the foundry sector there. So we're watching very carefully. I think Bill's prepared comments this morning, we saw a pretty good uptick in April, which we saw starting kind of middle March. So it looks pretty good. We are pretty optimistic about the second half of our fiscal year.

Thanks. My next question, just one more on -- as the pads business becomes a bigger portion of your revenues, did that have an impact on gross margins significantly?How should we think about gross margins going forward?

The pad business, as we have discussed before, we use continuous process technology, so we have like a raft of fixed costs that we can sort of consume as our volume grows. So right now, our gross margins for our pad business are running below the Company average. But as we win more business and our volume increases, we would expect that gross margins for our pad business to approach the gross margins we enjoy for the Company. But we continue to see the need to build infrastructure for our pad business as it grows. So we're going to be cautious about our comments about gross margins going forward, I think. But we would expect over time, that the pad gross margins would approach, or get darn close, to the 46% to 48% gross margins that we enjoy for the overall business.

Jairam, it's Bill Johnson. Another thing I would add, is we have talked in the past about as our business has grown in pads, we have seen pretty strong competitive pricing activity from the incumbent. And so depending upon how intense that is in the future, that could have an impact on gross margin.

Okay, just to follow up, so our -- has Cabot responded to these price reductions in any way? How do you maintain your pricing discipline?

Our approach is to sell the value of the pad that we are bringing. We think our pad tends to have a longer pad life and lower defectivity. So we want to be competitive on a per pad price, but really the value that we think we are bringing is a lower overall pad spend for our customers, given this longer pad life and the potentially higher yields with lower defectivity.

Thanks.

Thank you.

Thank you, Jairam. We will take our next question, please.

Your next question comes from the line of Avinash Kant with D.A. Davidson and Company, please proceed.

Good morning. A few longer term questions actually. In terms of pricing, what kind of trend have you seen over the last few years and what is the trend lately? Have you seen any declines lately?

Overall, our ASPs have been relatively flat for several years now, Avinash. Our strategy, as you know, has been to continue to bring new innovative products to the marketplace that tend to be higher margins and higher price points. As the life cycle of those products goes through the years, we tend to reduce the prices. We get on a cost map with our customers. We have been able to and we've been successful at continuing to bring new, leading edge, innovative products to the marketplace and maintain that ASP. That, as I said earlier, has been relatively flat over several years I think. Right, Bill?

Yeah.

Okay, and then sometime ago, not too long ago, there was this discussion about new CMP2's coming in and starting to use less material [probably] for -- could you comment on that it's been more than 69 months, I believe, at least? Have you seen any shift at this point?.

The short answer is no. The longer answer is you know, you know this, and we know it all too well, every couple years somebody comes to a market with new tool, that is going to reduce slurry flow or eliminate it. And my short answer stance, the answer is no. This CMP process is a critical process, and it's a critically enabling process. I think we have yet to see any indications or any data to suggest that our customers have an interest or a willingness to reduce slurry flow, other than their normal process to find ways to increase [dilusia], and all those kinds of things. At this point in time, we don't see any impact from a new tool technology at reducing slurry flow.

Avinash, this isn't the first time that something like this has been introduced. You may remember a few years back there was ECMP, ElectroCMP, which was kind of a reverse electroplating process, so as intended, was going to reduce -- significantly reduce the copper CMP process. As it turns out, that really didn't ever get any traction. So isn't unusual for these kind of things to come out, but we haven't seen any end roads from any of that kind of a technology.

Okay. Another thought, is historically you had a very good quarter with the foundries in Taiwan, and if you look at the numbers for the March quarter that was reported by them, you seem to have lagged a little bit. Now, is that primarily because there's a lag in materials? -- inventoryor we should start to suspect some share losses?

Well, we don't believe we have lost any position. So that will answer that question first. I don't know if our lag is in the noise of the correlation or not. I apologize, I didn't look at it before I got here. I'm guessing that our lag is a couple of percent, which might be just noise within that correlation, Avi.

But also in the guidance, you seem to be being a bit conservative.

We didn't provide guidance, we just said what we have seen through April. Just to be clear. We see an uptick in orders, I think the uptick increased from March to April. So we are beginning to see, what I described in my prepared comments as strengthening, in orders going forward.

Also, the correlation we have talked about in the past is -- we described in terms of the Taiwan foundries, TSMC and UMC. UMC down 2.7% sequentially, TSMC was up 0.8%, like Bill says, it's not a perfect correlation, but we think directionally it's pretty good. And then we have less visibility than TSMC would for their revenue during the quarter. I would suspect, because we are a make to order kind of business, and we have always said we don't have a lot of visibility, but we think the correlation, historically, has been strong. It isn't perfect, and we would expect that it may be -- may apply going forward as well.

And final question, of course, the pads business, of course, it seems to have again started to move up a little. But is there a major ramp, or a step up that we could expect sometime this year in the pads business?

Well, you know, we -- again, we're excited about where we are. At 15% sequential growth, if you look at where that growth has occurred, it is foundry growth, and some of it is at the leading edge, so we are excited by what we see. For us to predict a major step change, would be probability inappropriate, because we don't decide the timing of those and we work through these qualifications, and admittedly, they have taken longer than we have expected, Avinash.

But on this quarter, we've talked -- this is the first time we are more than 30 customers now, and we continue to have a lot of opportunities brewing for both the D100 and D200 technology. And we're very excited about the performance and value we are seeing in the D200 technology,to fill some gaps in our portfolio going forward. Again, the pad business continues to look very promising for us, and we are excited about what we see.

The way I was thinking is that -- because you are going to, in terms of qualification processes, are you aware of something that has already been qualified and is about to ramp, or something like that?

You know, Avinash, we will be delighted to tell you when that happens. But for us to get out in front of one of those would be just irresponsible, I think, at this point in time.

Perfect. Thanks always, Bill.

(Operator Instructions). Your next question comes from the line of Dmitry Silversteyn, with Longbow Research, please proceed.

Good morning guys. A couple of questions, if I may. First on the gross margin, if you had to look at the -- you mentioned some things like volume and variable costs and some discrete pricing concessions. If you look at mix and foreign exchange thrown in there, what was kind of the biggest one -- or two drivers of your sequential margin decline?

It was the biggest single driver, really was the lower production volume. We talked about variances year to date versus sequential, higher versus lower variable costs, and those kind of come and go. But it was really the lower production level that was probably the most significant factor. Foreign exchange, really was not. We are starting to see some weakening of the Yen, strengthening of the US dollar, that we had talked about quite a bit last year, but that's really only beginning. We didn't really see much effect of that during the quarter.

Okay. But it would be a positive effect at the beginning, correct.

Yes, yes. If the US dollar continues to strengthen verses the Yen, that would be favorable for our business.

Got it. Okay. Secondly, your share count went up about $1 million sequentially, I'm assuming that probably had to do something with the special dividend and the spike in the pricing of the stock that got some options into the money. What's your plans on share repurchases and the speed of execution, and getting the share count down below $23 million again?

Right, the count on an average shares outstanding basis for EPS purposes, went up about $850,000, about a third of that was due to the impact of -- sorry, $800 -- of $850,000, about a third of that was due to option exercises, about I think 65% of the exercises were -- had less than a year remaining on the term. The roast was the dilutive effect of the increase in the stock price. So we had more in the money options, then when you calculate weighted average shares outstanding, that comes into the calculation.

So -- more directly, with the end response to your question, we have $150 million of authority under our share repurchase program. We have been active in those programs over the past five or six years, so we have a lot of runway on that going forward. And that will be an important element of our capital allocation going forward.

We have never provided any guidance on, sort of plans, around that. When you have seen us active in the market in the past, it's been $10 million to $15 million per quarter and on a general regular basis, as opposed to any kind of opportunistic. That's the history. We have a lot of runway, so that can be an important element of our capital allocation going forward.

Okay. So it sounds like you did have is some calculations and options when the stock spiked on the special dividend. But now that it has retreated back into the $30's, assuming hopefully it isn't going to stay here for much longer, we may see a little bit of a decline in the share count in the June quarter, even without any repurchases. Is that right?

Yeah, the dilutive effect of those options, if you had a pull back on the share price that persisted, that would pull back. The option element is a weighted average factor. So you have half the impact of that in the current quarter, and you get the other half of that in the subsequent quarter.

Got it. Okay. Speaking of the debt you took on to pay the special dividend, are your plans to maintain it at these levels? Are you looking to pay it down? Is this going to be now a permanent feature of your balance sheet?

Yes, we like debt as an element of the balance sheet on a long term basis. So what we have now is $175 million, which represents a pretty modest amount. 1.75 times trailing EBITDA -- a 12 month EBITDA on a growth basis, if you continue the cash balance we have on a net basis, it is quite modest. But we think if we generate strong cash flow debt, it can be an on ongoing element of the balance sheet. We have a five year term loan, and the front end of those five years is pretty modest required debt repayment, it ramps up in the last several years. So we have got a lot of flexibility in the near term, and I think for now our intent would be to maintain some level of debt on the balance sheet long term.

Okay. There's been some changes in the competitive environment, with DA Nano materials now acquiring a single owner, have you seen any changes in the marketplace, as far as, behavior either from DA Nano or from just the general comment on competitive landscape? You talked about having to give up some targeted price declines, was that just a normal contract, or were there growing competitive pressures?

That was -- that comment was specifically related to pads, Dmitry. It wasn't related to the overall CMP slurry business or our data storage business. It was specific to pads and we have talked about that before, as we've become the number two supplier in the pad market, we have seen our competitor react.

I think in general, in the CMP slurry market, no change that we can see or no obvious change we can see, as a result of the air products acquiring the full 100% of DA Nano, it's clearly it's getting harder, and more challenging, it's getting more complex as our customers go to smaller and smaller technology nodes. And we think that favors companies like Cabot Microelectronics, that have the scale and the size and the experience, to react to those queries and opportunities with our customers. And I think it's going to become, as I have said before, I think it's going to become more and more difficult to some of the smaller CMP slurry providers, as we go forward.

Are some of these smaller guys willing to talk to you about taking it to the next level?

They may be. You know, we'll see. You know, Dmitry, this is supply -- the material supply side of the semiconductor industry has, in my opinion, I have said this before, has been slow to consolidate. There's been some pretty big moves on the equipment side. Materials, to me, continues to be slow, and we will see what happens going forward.

Bill, you also mentioned in the past, the past couple of conference calls that you are looking at acquisitions outside of slurry, but somewhat related, either in the semiconductor or electronic consumables, sort of the best of breeds products, to compliment your slurry portfolio. Is that initiative gone anywhere? Is there any updates you can provide for us?

No, only other than we continue to look for attractive target and attractive businesses that make sense, and sort of fit, that are a good fit with our technical expertise and our, sort of, infrastructure around the world. We continue to be active, we continue to have a number of interesting targets. It's -- you know this, Dmitry. It's been such a volatile world lately, that it's been difficult for, I think, for everyone on that side of micro now. It's just been difficult to come to some meaningful collaborative understanding of value in a lot of different cases. I think when things settle down, maybe we'll see some opportunities for M and A to open up again. It's just been so darn volatile in the last couple of years, that it's made it very difficult.

Okay, just to drill down a little bit further. You have had several months that this initiative has been underway, have you at least identified or narrowed down areas where you would like to be active?Are you still looking broadly at the electronic space, or have you narrowed it down to two or three interesting sub markets?

Well, it's been more than months, Dmitry, it's been years. And our focus is on electronic materials. So broadly speaking, electronic materials. So that would include solid state lighting, solar applications, you know, broad, more semiconductor materials. But I can't give you any more color than that, as we go forward.

Okay, got it. And then the final question, with Apple out there, with the regular dividend, have you guys given any thought to using your cash flow to initiate a regular dividend?

That -- I think going forward, we will continue to look at capital allocation, and that could be an element going forward. We have just completed this significant leverage recapitalization, so I think we have some debt to digest, and we will continue to generate cash, and I think we will always be evaluating what's the right split between share repurchases, MA, organic investment in the Company, and potential future dividends.

Nothing concrete to talk about right now.

Okay, guys thanks that's all I have.

Thank you, DmitryThat is all the questions we have this morning. Thank you for your time and your interest Cabot Microelectronics.

Ladies and gentlemen that concludes today's presentation. All parties may now disconnect, good day.