CMC Materials, Inc. (CCMP) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cabot Microelectronics fourth-quarter and full fiscal-year 2015 earnings call. (Operator Instructions)

I would now like to introduce your host for today's program: Trisha Tuntland, Director of Investor Relations. Please go ahead.

Good morning. With me today are David Li, President and CEO, and Bill Johnson, Executive Vice President and CFO. This morning, we reported results for our fourth quarter and full fiscal year 2015, which ended September 30. A copy of our earnings release is available in the investor relations section of our website, cabotcmp.com, or by calling our investor relations office at 630-499-2600. A webcast of today's conference call and the script of the 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 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-K for the fiscal year ended September 30, 2014, our quarterly report filed on Form 10-Q for the quarter ended June 30, 2015, and our current reports filed on Form 8-K on October 22, 2015, and today. We assume no obligation to update any of this forward-looking information.

I will now turn the call over to David.

Thanks, Trisha. Good morning, everyone, and thanks joining us. This morning, we announced financial results for our fourth quarter and full fiscal year 2015. During the quarter, we achieved revenue of approximately $100 million, a gross profit margin of 52% of revenue, which is 290 basis points higher than in the same quarter last year, and diluted earnings per share of $0.50.

For full fiscal 2015, we reported revenue of approximately $414 million, including record annual revenue for our CMP slurries for polishing tungsten, which grew 10% year over year. We also achieved a gross profit margin of 51.3% of revenue or 350 basis points higher than last year. And we achieved record diluted earnings per share of $2.26 for the full year.

Based on the successful execution of our business initiatives in fiscal 2015, we expanded our gross margin percentage to its highest level since 2002 and achieved a record level of profit for our Company, representing approximately 11% earnings growth compared to the prior year. We achieved this increased profit and profitability within a challenging industry environment. Bill will provide more detail on our financial results later in the call.

On the topic of overall industry demand, let me offer our perspectives on the global semiconductor industry environment. As we have discussed with you previously, this year, seasonal demand trends differed from the trends the industry and our Company have experienced over the past three years. We experienced stronger-than-normal seasonal demand in the first half of our fiscal year, but weaker-than-normal seasonal demand during the second half of the year.

When we reported results for our third fiscal quarter in July, we mentioned that orders for our CMP consumables products through that time were trending in line with the average rate in our third fiscal quarter. When we spoke with you on September 28, as we announced our acquisition of NexPlanar Corporation, we confirmed that orders continued to track in line with what we were seeing in late July.

The softness in demand that we saw throughout our fourth fiscal quarter appears to be consistent with what a number of others in the semiconductor industry have been reporting. Further, reports from some industry analysts and strategic customers suggest that this soft demand environment will persist into our first quarter of 2016.

Semiconductor device inventory levels appear to generally remain above normal, likely due to continued sluggish demand for smartphones, particularly in China and other emerging markets. In addition, the strong US dollar and challenging macroeconomic conditions may be dampening broader demand for electronic devices.

In response to this, we believe IC manufacturers are carefully monitoring wafer output and in some cases are lowering utilization rates in order to decrease excess chip inventories. Based on the soft near-term demand environment, some industry experts have reduced their 2015 semiconductor market forecasts. Certain analysts currently forecast that the market will be flat to down 5% versus 2014, including price erosion related to the elevated inventories of some ICs.

Despite the potential for continued soft near-term demand, longer-term demand expectations for IC appear healthy. For calendar year 2016, industry analysts continue to forecast low double-digit growth for smartphones and for the automotive and industrial markets and low to mid single-digit growth for the enterprise and IT markets, driven by cloud computing and data center demand. In addition, analysts continue to look for signs of stabilization in the PC market after over two years of declining demand.

Within that semiconductor industry context, now let me turn to our IC CMP consumables business. For number of years, we have placed a high priority on growing our revenue in the CMP pads area, which is a large and very closely adjacent market to CMP slurries, where we are the leader. On September 28, we announced a significant step forward in executing our strategy to strengthen and grow our CMP consumables business, and in particular, our CMP pads product area, with our agreement to acquire NexPlanar.

NexPlanar is a US-based company that specializes in advanced CMP pad solutions for the semiconductor industry. And they have been very successful in recent years in winning meaningful supply positions with technology-leading customers, including 6 of the top 10 semiconductor manufacturers in the world. On October 22, less than a month after announcing our deal and ahead of our anticipated timeline for closing the transaction, we completed the acquisition.

We are excited about expanding our pads product offerings with NexPlanar's portfolio. NexPlanar's innovative technology is based on thermoset polyurethane, which we believe will complement our thermoplastic polyurethane pad technologies and enhance our capabilities to grow in an important material space that has traditionally relied on thermoset polyurethane offerings from one supplier.

Furthermore, NexPlanar's value proposition to customers is based on product performance and speed of iteration. This is closely aligned with our overall approach to business and with our vision to be a trusted industry partner, providing high-quality solutions with speed and delivering superior cost of ownership.

NexPlanar's trailing 4-quarter revenue is approximately $23 million and it has nearly tripled its revenue over the past 2 years. We believe that this acquisition will be accretive on a non-GAAP basis in fiscal 2016 and will accelerate growth in CMP pads and contribute to continued meaningful profitable growth for our Company.

Over the next several months, we will be integrating NexPlanar with our CMP consumables business. We are focused on leveraging our extensive global infrastructure, including our direct sales channel, supply chain capabilities, and quality systems, to speed the adoption of NexPlanar's advanced CMP pad solutions.

Combining NexPlanar into our CMP consumables business, we expect to deliver a broader range of innovative, high-quality, high-performing CMP solutions to better meet the needs of our customers around the world, including providing performance-differentiated slurry and pad consumable sets. We see an excellent strategic operational and cultural fit with NexPlanar and look forward to updating you in the future on our progress in CMP pads.

Turning to CMP slurries, during the fiscal year, we experienced strong demand for our tungsten slurry products across a wide range of applications and technology nodes. We achieved record revenue in our tungsten product area in the fourth fiscal quarter and for the full year. Over the past year, we have been working closely with our strategic customers to support their transitions to FinFET for advanced logic IC devices and 3D memory.

For fiscal 2015, approximately 13% of our tungsten revenue was driven by early production of these advanced technologies. These applications require additional CMP steps, in particular tungsten, which we have confidence will continue to drive profitable growth for our Company.

During the fiscal year, we remain focused on the broad transformation of our dielectric slurry product area. More specifically, we advanced the commercialization of a new family of much higher performing solutions which target around $100 million of new business opportunities. We are seeing validation of our efforts as a number of customers are evaluating and qualifying these solutions, and we are encouraged by the positive customer feedback on performance across a range of technology nodes and on both 200-millimeter and 300-millimeter platforms.

Our customers are seeing better performance through significantly improved effectivity and we believe they should also realize lower cost of ownership. As a result, during the fiscal year, we secured several new business opportunities and we look forward to supporting our customers' ramps.

Over time, we also look forward to securing more business opportunities in this product area, either through replacing our own legacy products or by displacing competitors. We expect this dielectrics transformation will be another driver of profitable growth for our Company.

In summary, we are confident that our leadership in CMP slurries, combined with an expanded CMP pad portfolio, will enable us to better serve the needs of our customers around the world. We continue to believe our global capabilities, resources, and infrastructure are unmatched and differentiate our Company as a leader within the industry. Looking ahead, our focus is on close collaboration with our technology-leading customers to deliver a broader range of innovative, high-quality, high-performing, and reliable CMP solutions, all of which we believe will fuel continued profitable growth for our Company.

Furthermore, we believe that our performance this year continues to demonstrate the strength of our business model and our ability to execute our strategies over a range of industry environments as we continue to provide value to our shareholders. Based on our achievements in fiscal 2015 to strengthen and grow our CMP consumables business along with our very recent acquisition of NexPlanar, I am confident that we enter fiscal 2016 as a stronger Company.

With that, I will turn the call over to Bill for more detail on our financial results.

Thanks, David, and good morning, everyone. Revenue for the fourth quarter of fiscal 2015 was $100.1 million, which represents a 13.9% decrease from the record revenue in the same quarter last year. Total revenue for the full fiscal year of $414.1 million represents a 2.5% decrease from the prior year.

Our fourth-quarter and full-year revenue results reflect continued soft global semiconductor industry demand, which David addressed, and business losses in slurries for dielectrics and data storage applications that we have previously discussed. Foreign exchange rate changes, primarily the weaker Japanese yen and Korean won versus the US dollar, reduced year-over-year revenue by $3 million for the quarter and $7.5 million for the full year.

Drilling down into revenue by product area, tungsten slurries contributed 46.4% of total quarterly revenue, with revenue up 3.1% from the same quarter a year ago. Our tungsten product area achieved record revenue during the quarter and year-over-year revenue growth for the seventh consecutive quarter. We also achieved record tungsten slurry revenue for the full year, with revenue up by 10.3% compared to the prior year, driven by strong demand from both logic and memory areas.

Dielectric slurries provided 22% of our revenue this quarter, with sales down 24.9% from the same quarter a year ago. For the full year, dielectric slurry revenue decreased by 18.4%. The revenue decreases primarily reflect the loss of lower performing legacy dielectrics business that we begin to see in the first quarter of fiscal 2015, which we have previously discussed.

As David mentioned earlier, during the fiscal year, we made notable progress on the commercialization of a new family of much higher performing dielectric slurry products, which we believe will enable us to profitably grow this product area in the future.

Sales of slurries for polishing metals other than tungsten, including copper, aluminum, and barrier, represented 16.5% of our total revenue and decreased 24.5% from the same quarter last year. For the full year, revenue decreased by 6.5%. We believe the revenue decreases are primarily due to customer efficiencies and repurposing capacity for the next technology node, particularly with respect to our aluminum slurries.

Sales of polishing pads represented 6.7% of our total revenue for the quarter and decreased 32.2% compared to the record revenue in the same quarter last year. Revenue per pads was down by 5.3% for the full year compared to last year's record revenue.

Data storage products represented 2.4% of our quarterly revenue. Our data storage revenue was down 41.3% from the same quarter last year and down 23.1% for the full year on continued soft PC demand and business losses we have previously discussed.

Finally, revenue from our engineered surface finishes, or ESF, area, which includes QED, generated 6% of our total quarterly sales. Our ESF revenue was down 0.9% from the same quarter last year and up 33.3% for the full year.

Our gross profit this quarter represented 52% of revenue. This is up 290 basis points from 49.1% in the same quarter a year ago. Compared to the year-ago quarter, our gross margin benefited from a richer product mix with relatively more tungsten revenue and less from legacy dielectrics products. Other factors affecting gross margin were benefits associated with foreign exchange rate changes, primarily the weaker Japanese yen, partially offset by lower sales volume.

For the full fiscal year, gross profit was 51.3% of revenue, which represents a 350 basis point improvement year on year. Our full fiscal-year 2015 guidance range was 50% to 51% of revenue. Gross profit margin increased from 47.8% of revenue in fiscal 2014, primarily due to product mix, foreign exchange rate changes, and the absence of an asset impairment charge we recorded last year.

These benefits were partially offset by higher costs associated with inventory write-offs related to raw material quality recorded during the third fiscal quarter, which we previously discussed. For full fiscal year 2016, we expect our gross profit margin to be between 49% and 51% of revenue, including NexPlanar.

Now I will turn to operating expenses, which include research, development, and technical, selling and marketing, and general and administrative costs. Operating expenses this quarter were $34.2 million, including approximately $0.5 million in professional fees related to the NexPlanar acquisition. Our operating expenses in the same quarter last year were $34.1 million.

For the full year, total operating expenses were $137.2 million. Our guidance range for full fiscal year 2015 was $135 million to $137 million. The 4.5% increase from the $131.3 million reported in fiscal 2014 was driven primarily by costs associated with certain executive officer transitions that occurred earlier in the fiscal year, which we previously discussed, and higher staffing-related costs, including incentive compensation costs, partially offset by lower travel costs and depreciation expense. We currently expect our operating expenses for the full fiscal year 2016 to be between $143 million and $147 million, including NexPlanar.

Diluted earnings per share were $0.50 this quarter, down from $0.65 in the same quarter last year. Earnings per share decreased primarily due to lower revenue, partially offset by a higher gross profit margin and lower effective tax rate. We achieved record diluted earnings per share of $2.26 for the full year, which represents an increase of 10.8% compared to $2.04 last year. Earnings per share increased primarily due to a higher gross profit margin and lower effective tax rate, partially offset by lower revenue and higher operating expenses.

Our effective tax rate for the fourth fiscal quarter was 23.5% and 21.1% for the full year. We currently expect our effective tax rate for full fiscal year 2016 to be between 21% and 24%, including NexPlanar.

Turning now to cash and balance sheet-related items, capital investments for the quarter were $4.9 million, bringing our full-year capital spending to $13.8 million, which is within our guidance range of $12 million to $15 million for the year. For full fiscal year 2016, we currently expect our capital spending to be within the range of $15 million to $20 million, including NexPlanar. Depreciation and amortization expense for the quarter was $4.8 million.

We generated cash flow from operations of $24.9 million in the fourth fiscal quarter and $98.7 million for the full year. We ended the year with a cash balance of $354.2 million and we have $164.1 million of debt outstanding.

As Dave mentioned and as we separately announced, on October 22, we completed our acquisition of NexPlanar and funded the acquisition price of approximately $142.3 million with our available cash balance. We believe the acquisition of NexPlanar represents an attractive opportunity to reinvest capital into our core CMP consumables business. Our balance sheet remains strong, with a post-acquisition cash balance of approximately $225 million, including approximately $15 million of cash from NexPlanar.

Given our highly profitable financial model and strong cash generation capabilities, we will continue to consider a range of capital deployment alternatives to create value for our shareholders.

I will conclude my remarks with a few comments on recent sales and order patterns. During the fourth fiscal quarter, we saw a slight increase in revenue for our CMP consumables products compared to the third quarter of fiscal 2015.

Orders to date in October for our CMP consumables products are trending approximately 3% lower than the average rate in our fourth fiscal quarter. In addition, orders for NexPlanar pads are slightly higher than in the September 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.

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

(Operator Instructions) Dmitry Silversteyn, Longbow Research.

A couple questions. First of all, if you look at the dielectric business or the dielectric product line that you're launching and getting some business in 2015 that you hope will ramp up in 2016, what sort of revenue should we be looking for for those businesses in 2016?

Obviously, you're not going to be able to recapture the full 20%-plus that you lost this year, but you talk about $100 million opportunity. Are we going to get $20 million, $30 million of that in 2016 as these businesses ramp up?

It's Dave. We mentioned $100 million of business opportunities for this dielectrics -- this new dielectrics product. That represents what we think is business that is currently being served by other suppliers. So that would be kind of position gains for us.

And we mentioned -- so I think as you know, the dielectrics market is a significant part of the slurry market overall. And so we think this product is applicable broadly across that application. And this year, we've made good progress. We talked about securing several business opportunities, that they are beginning to ramp up now.

But yes, I would not comment -- I could not comment on specific revenue numbers. But we are very encouraged by the feedback we've received from customers; the traction the product is getting throughout the industry.

And then the other thing I would mention is just related to our acquisition of NexPlanar. One of the things that we are also very encouraged by is their technology fit with our slurry technology. We've talked about offering consumable sets. So that is one of the other opportunities we see with the combination of NexPlanar's technology in pads with our slurries and also including this new dielectrics family of products.

Okay; all right. Secondly, on the data storage device slurry, it's obviously a very small part of your business. But we have seen it come down in revenues from something close to $30 million to [fall] down to less than half that in 2015.

How should we think about this business? I know you're in it and it probably doesn't cost too much to stay in it, but is this a sunsetting business? Or is there a secular or a cyclical growth story that we should be paying attention to that could happen in the next couple of years?

Yes, the data storage business serves the hard disk drive market. So in the past, that has been heavily reliant on personal computers. And then over time, more on data centers and servers and that sort of application that we've seen over two years of continued contraction of personal computers. And so that has really had an adverse effect on our data storage business.

Analysts are looking for a stabilization of the personal computer market, but I don't know that there are really any signs yet. In addition, we have talked about some business losses here. The data storage business is highly competitive and a bit different from the semiconductor industry in that supply positions are less sticky. And so the suppliers kind of trade positions more frequently, and we have seen some of that.

You're right; it is -- in our Company, the data storage operation is pretty standalone. And so to that extent, it continues to contribute to the Company. But we do -- we have some new products in development that we are beginning to commercialize and our expectation would be that we could win back some of the business that we lost. That is something that we can control.

The broader industry -- personal computer demand and then servers -- we will watch for that to grow over time. But it is -- that is a tough market to serve. But I would tell you it is not a drag on the Company right now at the current level of the business.

Just add from industry perspective, one of the things I think is also challenging the hard disk drive manufacturers is the penetration of 3D memory, particularly in NAND. So you see a lot more of the laptops using 3D memory in place of hard drives.

That is obviously positive for us, as that memory requires more tungsten and dielectrics CMP steps. So we are also watching the ramp up of 3D memory and I am sure that is having also some impact on the hard disk drive industry as well.

Okay. Switching gears to the ESF portion of the business -- again, another small business, but highly volatile. You had 30%-plus, I think you said, growth this year. And year over year, it followed about a 30%-some decline last year.

Do you have any -- I mean, it is a CapEx-driven business, I understand. But it also would imply that you'd have in order book that has some length to it in terms of time and some credibility in terms of your ability to predict sales. As you look into your fiscal 2016 and the orders that you have now for the capital equipment portion of the business, could this be a 30% down year or a 30% up year as you look into 2016?

Based on our current backlog, it is relatively limited. So we've got work to do in QED's operations going forward to find more orders. I think a year ago, we talked about a pretty significant backlog heading into fiscal 2015, but we don't have that kind of a backlog heading into 2016. So it will be challenging for QED going forward.

Like data storage, that is kind of a stand-alone operation within our Company and relatively high gross margin. But like the rest of our -- the CMP consumables business, relatively high operating expenses. So we need to go out and capture more orders in fiscal 2016 to sustain and grow the performance of that business.

Okay, helpful. That made sense. And then final question on the pad business and NexPlanar specifically, you mentioned that business grew from nothing to $22 million. A lot of that growth came from the last three years, which coincidentally coincided with your 3 years of flat growth in the pad business of around $32 million or so.

How should we think about that? Could they out-execute you in a marketplace if they have the right product when you didn't? Did they end up [leaving] you a launch and picking up the opportunities that were available from Dow? Or is it just coincidence and the customers that you've pursued were not making decisions as quickly as the customers that NexPlanar was pursuing?

It's Dave. I think from our standpoint, we see NexPlanar as being very complementary to our Company, our technology, and our business. And if you look at the way they have won business, first from the business model perspective, we mentioned they have 1 business with 6 of the top 10 semiconductor manufacturers in the world. We also support several.

But the business model that they have used is really based on performance differentiation rather than leading with price. They also are able to iterate very quickly. And then from a technology perspective, we feel they are also very complementary because their products are made primarily with polyurethane thermoset technology, which is the same as the incumbent.

And so one of the benefits of that is they have shown that it is easier to qualify, but also has better performance. So that is also a key part of their technology and the way they differentiate. I think it is very complementary to our thermoplastic technology.

So I think right now, given the acquisition of NexPlanar, we can offer our customers a full suite of pad products, and also it gives us more optimism and encouragement around consumable sets as well. So I think of it more as complementary rather than competitive, but that is how we look at NexPlanar versus our technology.

Right, I understand that, Dave. And thank you for that recap. But my point is, you guys have -- your business has flatlined and you've talked about all the issues facing or all the headwinds that are preventing you from getting business, with the customers being unwilling to commit the time and the money to changing, the competitor responding more aggressively with price, so on and so forth.

And yet in that same environment, a competitor of yours coming from nowhere, no reputation in the industry, unlike you, has tripled is revenues over the same time period.

I guess on the one hand, I am glad that you've acquired them because hopefully you'll pick up their sales acumen and be able to drive your business. On the other hand, I am sort of concerned that after a spurt of growth that they witnessed over the last three years that it is comparable to the spurt of growth that you witnessed in your first three years of existence of this business, they are going to flatline the same way you guys are. So how do you address those concerns?

I think just overall from the customer standpoint -- I just got back from a trip to Asia. I think customers clearly want an alternative pad. And I think from our standpoint, we have been in business in the pad area for a while. NexPlanar has also been around for a while. They started in 2003 and just recently, you mentioned, has had a really impressive growth.

So we look at this acquisition as really continuing our commitment. If you look at our pad growth trajectory, yes, we have been disappointed at the pace of growth there. We think NexPlanar is going to absolutely help that. That is why we acquired the company for the growth.

But I would also say, looking at their positions, they are really focused on advanced and leading edge. So if you look -- if you project forward, those technologies ramping, that should also be a positive momentum for pads growth for our Company going forward.

So I understand your question. It is definitely a competitive market; there's no doubt about it. But we are committed and we are really excited about this acquisition and what it brings to our Company, both from a pad portfolio but also from a consumable set standpoint.

Thank you.

Let me comment a little further on that. We have talked about our business in pads, where we have served approximately 30 customers. We have gone pretty broadly out to the market across a range of technology nodes and applications.

NexPlanar, given more limited resources, has targeted really advanced nodes and a more limited number of customers. So we have not necessarily been competing head-to-head with them a lot of different places, and we that think now there is the opportunity for us to take their products more broadly through our infrastructure and continue the growth that they have seen over the last several years.

Okay. All right. Thank you, Bill.

Amanda Scarnati, Citi.

Thanks for taking the question. Just want to continue on the NexPlanar acquisition and where you see OpEx trending. You said it was going to be at the midpoint about $145 million, which is about $8 million or so on year on year. Do you see a lot of that in general and administrative expenses? Or will some of that be in R&D as you work to kind of get consumable sets with the new NexPlanar products?

There are a number of -- when you look at the walk from fiscal year 2015 at $137 million of operating expense, and let's use the midpoint of the guidance range for 2016: $143 million to $147 million, with a midpoint of $145 million, there are a number of moving parts.

So think about fiscal year 2015, we had some higher costs of executive officer transition. That was, call it around $3 million or so, that you would not expect in fiscal 2016. In addition, we decreased the size of our leadership team. So we would expect actually lower costs in the administrative area from a smaller executive officer group on the order of several million dollars next year -- or in fiscal 2016. So kind of a swing of around $6 million just by virtue of that -- those officer changes.

Then, what you would want to consider to add in fiscal 2016 -- with the acquisition of NexPlanar, we would expect around $5 million to $6 of amortization expense. So that is not something that they have had in the past, nor we. But it will be an additional burden going forward, $5 million to $6 million and that is included in our guidance for fiscal 2016.

So then you would lay in NexPlanar's operating expense and then just net changes in our -- of the CMC side operating expenses of a number of millions of dollars. And you get to that $145 million. So there's a number of kind of puts and takes.

If you think about past 2016, we expect there to be some significant synergies as we combine the two businesses. We don't expect net synergies to be significant in fiscal 2016 because I think some of the cost of capturing the synergies will offset the synergies in that first year.

But into fiscal 2017, then you would expect something on the order of of $8 million to $10 million of synergies related to the combination of the businesses. Not necessarily all in operating expense, but some in cost of goods sold, operating expenses, and also some in tax rate, I think.

Great; thanks for that color. That really, really helped. And then David, just on the end-market dynamics and what you are seeing so far in the December quarter. I think you mentioned that there is some softness in demand continuing on in December.

But are you still seeing strength in tungsten relative to other areas? Or are there other areas in the slurries or pads businesses organically that you are seeing? Kind of right past this first one.

Sure. So Amanda, it is definitely -- like many others, what we are seeing is demand is stable, but definitely a little soft right now. As we mentioned, we have definitely seen a departure from the seasonality that we have seen in the past several years.

And again, just coming back from Asia, what a lot of the customers are talking about are similar to what the analysts are talking about, which is higher inventory levels, some related to smartphones. And I think generally, people are just waiting to see how the holiday season goes, what is the next big thing that is going to capture the mind of the consumer. No one is really sure what that is right now.

We do, as we have mentioned, see some encouragement from the ramping of some of these new technologies, like FinFET, 16 nanometer and 14 nanometer. That is in early stages of ramp. 3D memory -- all those require new CMP consumable slurries. So for us, we mentioned about 13% of our tungsten revenue this year came from supplying those technologies that are in early stages of ramp. So that gives us definitely some optimism and confidence about our future in tungsten.

And then the other comment I would make is sometimes during this period of lower utilization, it gives an opportunity for us to introduce more qualifications or more -- new consumables to our customers. So they are running their tools at lower utilization. They may have more tool time to do qualification. So we are certainly leveraging this opportunity to accelerate introduction of new pads and slurries to our customers as well.

Great. Thank you.

Jairam Nathan, Sidoti.

Thanks for taking my question. So with respect to NexPlanar's thermoset technology, is there a possibility as you move on, as you kind of -- in the future, if you notice their technology being a little more adopted more frequently, is there a possibility to kind of shift your capacity to their technology? Or is it difficult?

I think they are both -- I think the technologies are complementary. What I really like with the addition of NexPlanar is that we are able to offer a full suite. So we continue to support our D100 family of pads, our D200 family of pads, and now NexPlanar. So for me, it is really offering just like we do on the slurry side, where we offer solutions across different applications, different technology nodes. The same for pads.

This gives -- it kind of rounds out our pad portfolio. So I would not look at it as one or the other. We have had success growing our pads business. They have had tremendous success growing their pad business more recently. So it is a good combination.

And further to that, the production processes are quite different. So they are not really fungible, and so we need to manage kind of two different production processes. There are certainly parts of the supply chain and the overall operation where we can optimize and combine, but the specific production process is pretty different.

Okay. And with respect to -- I noticed that your CapEx is going up next year. Is that all related to NexPlanar? Or is there some Cabot CapEx also?

Yes, so the guidance is $15 million to $20 million for fiscal 2016. And historically, we have run within the range of $12 million to $15 million per year, and we did around $14 million in fiscal 2015. So it is higher and probably the most significant element of that would be NexPlanar.

We think there's some opportunities for capacity expansion there that we will plan on doing in fiscal 2016. So yes, that is -- most of the difference is based on NexPlanar.

Okay, and --

If you look at -- go ahead. I was just going to add a comment. If you look at NexPlanar's background, being a VC-backed company, they may have been in in a more capital-constrained environment. We certainly want to accelerate and encourage the growth anywhere we can. So the CapEx for us is just also funding what we see as really strong growth in the forecast.

Good. That is good to know. And my last question is 2016 is looking to be less of a transition year as far as foundry logic in the sense you won't see a lot of -- you saw a lot of transitioning from 28 nanometer, 20 nanometer, to 14nanometer, 16 nanometer last year. You are not going to see that from 14 nanometer, 16 nanometer to 10 nanometer into 16 nanometer. Does that impact your growth opportunities on the slurry side?

So when we look at -- so we have definitely been monitoring. For example, there has been some pushouts of CapEx from some of the industry leaders. As you know from our business, it is a consumables business. So we would grow with wafer starts, not necessarily immediately with CapEx.

In terms of the technology progression, I look at it as two different ways. On the memory side, we see continued adoption ramp up of 3D memory. And that should be -- we are really encouraged by that because it requires more dielectrics, more tungsten. So that presents a really great opportunity for us for growth, and you would expect 3D memory to continue to ramp up in the next couple of years.

And there has been a number of recent reports out there from Micron, Intel. Samsung, of course, is the leader. So that is all the memory side.

On the logic side, I think the foundries and the logic manufacturers are just getting started on 14 nanometer, 16 nanometer, and high volume. And they are working on their 10 nanometer processes. So that -- I think it continues to progress. It might be progressing slower on the shrink side, but we still think -- we still see a lot of activity, a lot of development work from our customers going into the next year.

Okay. Great. That is all I had. Thank you.

(Operator Instructions) Edwin Mok, Needham.

This is Kim Donovan on for Edwin Mok. Thanks for taking my question. So there was a 2 percentage point improvement sequentially in gross margin. Would you be able to quantify what percentage of the improvement is attributable to the weaker yen?

Yes, the weaker yen was around 100 basis points of the year over year -- a little over 100 basis points year over year in improvement. The other big factor was probably product mix.

Okay. And I believe you have $85 million remaining in authorization for the share repurchase program. How do you think about that going forward, given you have recently completed the NexPlanar acquisition?

If you look at recent history, in 2012, we repurchased $33 million worth of stock; in 2013, we repurchased $40 million; in 2014, $53 million; and then in fiscal 2015, around $40 million of stock repurchased. In our fourth fiscal quarter, we did not repurchase any stock. We were in the midst of the NexPlanar evaluation, negotiation, and so we were out of the market.

But you are right; we have $85 million of remaining authorization. And when you have seen us in the past, we have been relatively steady buyers of our stock, of on the order of $10 million or so per quarter. We still have a strong cash balance: $225 million gross and $60 million net. And we have the same strong cash generating model going forward that we have had in the past. So I think we will consider and continue to consider share repurchases as an important element of the capital deployment strategy.

Great, thank you.

That concludes our call this morning. Thank you for your time and your interest in Cabot Microelectronics.