CMC Materials, Inc. (CCMP) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cabot Microelectronics Second Quarter 2018 Earnings Conference Call. (Operator Instructions) And as a reminder, this conference call may be recorded. I would now like to turn the conference over to Ms. Colleen Mumford, Investor Relations Director. Ma'am, you may begin.

Good morning. My name is Colleen Mumford. I'm Cabot Microelectronics new Investor Relations Director. I've worked at CMP for over 20 years in various roles including R&D, quality and human resources. I'm excited to be in this role as we report our second quarter results. And I look forward to working with you in the future. With me today are David Li, President and CEO and Scott Beamer, Vice President and CFO.

This morning we reported results for our second quarter of fiscal 2018, which ended March 31, 2018. Whether you're joining us online or over the phone, we encourage you to review the investor presentation that we made available under the Investor Relations section of our website, cabotcmp.com. We made the slides available at approximately the same time as the issuance of our earnings release this morning. The webcast of today's conference call and the script of this morning's prepared comments will also be available on our website shortly after this live conference call. You may also request any other information by calling our Investor Relations office at (630) 499-2600.

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 Form 10-K for the fiscal year ended September 30, 2017. We assume no obligation to update any of this forward-looking information. Also, our remarks this morning reference non-GAAP financial measures. Our earnings release includes a reconciliation of our GAAP to non-GAAP financial measures.

I will now turn the call over to Dave.

Thanks Colleen. Good morning, everyone, and thanks for joining us. This morning we announced another quarter of very strong financial performance including record quarterly revenue, net income and earnings per share. This is the fourth consecutive

quarter, in which we have reported record revenue, which we believe demonstrates the continued strong execution of our strategic initiatives complemented by robust industry demand. Scott will provide additional details about our financial results later in the call.

Let me start by providing some details on the current operating environment and our view of global semiconductor industry demand.

During the March quarter, industry demand remained strong, particularly in the memory segment, where our customers continued their migration to 3D NAND. We currently estimate that approximately 50% of 2D-to-3D NAND wafer capacity conversion has occurred with the remainder expected to be completed over the next several years. We've also seen continued capacity expansions in 3D NAND underway primarily in Korea and China, which along with the expected tight supply of DRAM memory should provide growth opportunities for us in the future.

In the advanced logic and foundry segments, we've seen our customers' growth moderating a bit, as they get pass through traditional stronger periods associated with new smartphone launches. However, we continue to work closely with our customers to help them advance to smaller feature sizes and believe that new applications in mobile, artificial intelligence, autonomous vehicles and block chain should continue to drive demand for advanced logic semiconductors in the future.

Finally, we continue to see a robust demand environment in the legacy logic and foundry segment driven by Automotive, Internet of Things and Industrial Automation. We expect this demand environment to persist given the increasing connectivity requirements needed in these important applications. Now let me turn to company related matters. This quarter, we recorded strong results in all 3 key product areas, tungsten slurries, dielectrics slurries and CMP pads, primarily due to strong demand across a wide range of applications and technology nodes. Geographically, all regions were up this quarter compared to the same quarter last year.

Most notably revenue in Korea was up approximately 65% year-over-year, primarily due to our strong positions in the growing memory market in that region.

Turning to performance by product area, revenue in our tungsten slurries was 17% higher than in the same quarter last year. This growth was driven by the ramp of our customers advanced technologies in memory and logic including 3D NAND and FinFET. As mentioned earlier, we expect the memory area to remain strong and 3D NAND expansion to continue into the second half of this fiscal year and beyond.

In addition, during this quarter we achieved record revenue from our dielectrics slurries. This was primarily driven by increased demand and the benefit of customer wins for our ceria-based solutions at advanced memory customers. We continue to see a bright future for our refreshed portfolio dielectrics products in memory, logic and foundry and believe we are well positioned to continue growing revenue, while also improving profitability of this product area.

Turning to CMP pads, this quarter we also achieved record revenue. We are focused on capacity expansion in driving excellence throughout our supply chain to support our customers in both advanced and legacy applications. In addition, we are seeing increased rate of adoption at major advanced memory customers due to the lower defectivity performance benefits of our NexPlanar technology. We believe the combination of our technology, global technical support and the shorter qualification times we have experience with our NexPlanar pad solutions combined with the strong customer interest will keep us on the trajectory of our goal to grow our pads revenue to over $100 million in fiscal 2019.

I'm also pleased to report that during the quarter, we were awarded a Perfect Quality Award from ON Semiconductor, a leading supplier of semiconductor-based solutions, primarily focused on automotive, communications and computing applications. CMC has received this award for 3 consecutive years, which demonstrates our ongoing commitment to supply high quality, robust CMP solutions that enables our customers to advance their technology in the growing areas of the semiconductor industry, including Automotive.

Also of note this quarter, in March, we announced plans to collaborate with Fujimi Incorporated in the development of certain advanced IC CMP solutions for the semiconductor industry. We believe that by working together, we can leverage our respective expertise to meet and exceed customer requirements for innovative IC CMP solutions for an increasing number of advanced semiconductor applications. I'm delighted with the opportunities this initial collaboration is designed to provide for our

customers and respective companies.

Fujimi Incorporated and Cabot Microelectronics are both leaders in materials development with the track record of providing high quality leading edge IC CMP solutions to our customers. Together, I believe we are even better positioned to develop advanced IC CMP solutions for the semiconductor industry.

Finally, this quarter we also announced our refreshed Capital Deployment Program, which includes the doubling of our quarterly cash dividend as well as a commitment to returning at least 50% of our annual free cash flow to our shareholders. We believe this refreshed strategy demonstrates our confidence to continue profitably growing our business as well as our commitment to returning additional value to our shareholders.

Looking ahead, we feel confident about our ability to continue delivering on our long-term financial goals of growth faster than the industry and margin expansion. Although recent reports suggest that industry growth maybe beginning to moderate, especially in the logic and foundry areas, we believe our business model, which is primarily based on wafer starts will allow us to continue to profitably grow. As a result, we currently expect third fiscal quarter revenue for IC CMP consumables business to increase by low to mid-single digits compared to this quarter.

I'm confident of the continued momentum in our 3 key product areas, which we believe provide the foundation for profitable growth for our company. We remain focused on delivering innovative, high performing and high quality CMP solutions to our global customers. We believe our global resources, infrastructure and quality and supply chain excellence continue to differentiate us among leading suppliers of specialty materials to the semiconductor industry and position us well to deliver another year of strong performance.

And with that I will turn the call over to Scott for more detail on our financial results.

Thanks Dave, and good morning, everyone. My comments will generally follow the related slide presentation we posted on our website this morning. Let's start with an overview of our financial performance this quarter, which is provided on Slide 3. Revenue for the second quarter of fiscal 2018 was a record $143 million, which is approximately $24 million or 20% higher than the same quarter last year. This increase reflects continued strong global semiconductor industry demand and our focus on our key -- our 3 key product areas. Sequentially, revenue increased $3 million or approximately 2%, which is in line with the expectation shared on our previous conference call in January and at our annual meeting in March. This is notable since the March quarter has traditionally been a seasonally soft quarter for us.

Our net income of $29.7 million was also a record and represented an increase of $11.5 million or approximately 63% over the same quarter last year, driven by higher revenues and increased gross margin. Non-GAAP net income was $31.3 million. Dave mentioned our previously announced Capital Deployment Program and research collaboration with Fujimi. Later I will elaborate on the Capital Deployment Program.

Now let's drill into revenue, which is shown on Slide 4. As previously stated, we define tungsten slurries, dielectrics slurries and polishing pads as 3 key product areas that are strategically important to us. During the quarter, these accounted for approximately 80% of total revenue and I'll mention each in order. Tungsten revenue was $60 million, an increase of approximately 17% compared to the same quarter last year. Dielectric slurries delivered record revenue of $35 million, up approximately 24% from the same quarter a year ago. Sales of polishing pads delivered record revenue of $21 million, up approximately 23% compared to the same quarter last year. Sales of slurries for polishing metal other than tungsten, including copper, aluminum and barrier represented $17 million, an increase approximately 15% from the same quarter last year.

Finally, revenue from our engineered surface finishes products, which includes QED, data storage, electronics substrates and surface finishes was $10 million. During the quarter we divested our surface finishes business, which did not have a material impact on our second quarter financials.

Now please refer to the Slide 5, which provide some higher level P&L comparisons. Gross margin for the quarter was approximately 52.5%, compared to 50.4% in the same quarter a year ago. Excluding $1.3 million of amortization expense related to the NexPlanar acquisitions gross margin was approximately 53.4%. Higher sales volume and a higher value product mix were positive, but were partially offset by higher fixed manufacturing costs including higher incentive compensation expense.

Year-to-date, gross margin was approximately 52.7%, compared to 50.1% last year. We now expect our GAAP gross margin for the full fiscal year to be between 51% and 53%, increasing our guidance from the prior expectation. This includes an adverse impact of approximately 100 basis points related to the NexPlanar amortization expense.

Operating expenses, which includes research, development and technical, selling and marketing, and general and administrative costs were $38 million this quarter, an increase of $1.9 million over the same quarter a year ago. This primarily reflects higher incentive compensation and annual merit increases. As a percent of revenue, our operating expenses declined to 26.5% compared to 30.3% in the second quarter of fiscal 2017.

Our operating margin was 25.9% in the quarter, an increase of 580 basis points from the same quarter last year. This increase was driven by higher gross margin and prudent control of operating expenses. Diluted EPS was a $1.14 this quarter, which represents an increase of approximately 61% over the prior year quarter. Diluted EPS on a non-GAAP basis was a $1.19. This was primarily driven by higher revenue and higher gross margins.

Now please refer to Slide 6, which provides balance sheet and cash flow information. We generated cash flow from operations of $36.5 million. We ended the quarter with a cash balance of $461 million and $138 million of debt outstanding. We paid off this debt in April. Capital spending for the quarter was $4.6 million, bringing our year-to-date total to $8.8 million. Accordingly, our free cash flow was $31.9 million in the quarter.

Let me provide a few reminders about our Capital Deployment Program. As we reported in March, our Board of Directors declared a quarterly cash dividend of $0.40 per share on our common stock representing a 100% increase over our previous quarterly dividend in an annualized rate of a $1.60 per share or approximately $40 million in aggregate. This represents approximately 1/3 of our fiscal 2017 free cash flow of $120 million. We also announced our intention to distribute at least 50% of our prior year cash flow to shareholders on an ongoing basis through a combination of cash dividends and share repurchases.

This combination would represent at least $60 million to be paid in fiscal year 2018. We believe the increase in our regular quarterly cash dividend and our stated intention to distribute at least one half of our free cash flow, allows us to return a meaningful amount of capital to shareholders, while also reporting flexibility to execute M&A that leverages our core capabilities. As a reminder, our capital deployment priorities remain, investing in the organic needs of our business, paying dividends, executing mergers and acquisitions in related areas and repurchasing shares.

As of March 31, 2018, we had approximately $115 million of authorization remaining under our existing share repurchased program.

Separately, the passage of the U.S. Tax Cuts and Jobs Act facilitated our repatriation of approximately $200 million in overseas cash and short-term investments. We executed this in April and use some of this cash to pay off our term loan. As a result, we expect to save approximately $4 million of interest expense on an annualized basis.

We provide some closing remarks on Slide 8. From a financial perspective, we achieved strong performance in our fiscal year 2018 second quarter. Revenue increased $24 million from the prior year, while operating income increased $13 million, implying that approximately 54% of our incremental revenue dropped directly to operating income.

Finally, in the appendix on Slide 9, we provided a table, showing the updates to certain expectations. As we think about the second half of 2018, at present we expect continued solid industry demand. With that said and as Dave mentioned, we currently expect fiscal third quarter revenue for our IC CMP consumables to show a low to mid-single-digit increase compared to our second quarter.

As stated, we're raising our full year -- our full fiscal year gross margin guidance to 51% to 53%. We continue -- we intend to continue to manage our operating costs to provide strong operating leverage and income growth. We now expect our operating expenses for the full fiscal year to be between $148 million and $153 million, an increase from the prior range. This increase allows us to support additional revenue and primarily reflects higher incentive compensation and annual merit increases.

Our effective tax rate for this fiscal quarter was 19.6% and we continue to expect our effective tax rate for the remaining quarters to be between a range of 21% and 24%. Our capital spending expectation for the full fiscal year remains between $18 million and $22 million.

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

(Operator Instructions) And our first question will come from the line of Amanda Scarnati with Citi.

Just a question on China demand, seen some recent articles that one of the Mainland Chinese manufacturers started receiving orders for 3D NAND. Have you started to see any revenue from these new upcoming Mainland Chinese manufacturers? Or do you expect that revenue to start to build up in the second half of the year as they start ramping up full volume production versus perhaps maybe just pilot line production at this point?

Yes. Amanda, it's Dave. For China, obviously I spend a lot of time there and we follow same things you do. There are a lot of newer domestic players that are in various stages of start-up, and we have a very strong position in China with both the domestic customers as well as the international players. So we're really excited about the future growth there in China. Specific to your question about a memory customer starting up in China, we've seen a lot of activity there. I would just generally say most are still in pilot production at this time, except the established players like the SMICs and Huaweis, but we're supporting and watching closely.

And then one of your largest customers commented during their earnings call last week that there is significant weakness in smartphones in the second quarter. If there is a shift from TSMC, if Intel starts to win incremental modem revenue, how does that impact Cabot's business, i.e., do you have more content, better exposure at TSMC than you do at Intel? Or is it sort of relatively balanced between the 2?

Yes. As you know, Amanda, we sell -- our products are used in pretty much every fab that makes semiconductors today and so we also follow the TSMC announcement and more broadly kind of the concern around weakness in handsets. And obviously, smartphones drive a lot of demand in semiconductors. But there's a lot of other sectors that are also pulling demand things like automotive, industrial, high-performance computing, block chain, all those are really becoming more and more important for semiconductor demand. So lot more than just mobility. And I would say also for a customer like TSMC, they also have a wide range of different applications besides smartphone. For us, we really see a continued strong demand environment especially in memory, but also in those legacy, logic and foundry segments. So for us whether business shifts back and forth between customers, that doesn't affect us as much, but obviously we're watching the handset demand as well as the other sectors.

And then the last question I have, just kind of following up on that. In memory specifically, does it necessarily matter to you if it's DRAM, if it's NAND that's really producing? I would assume that there's better content on 3D NAND than there would be on DRAM, but how much of a difference is there for you?

We have strong positions in both NAND and DRAM as you know. Samsung is our #1 customer and they just reported overnight continued strong outlook that they talked about for memory. And just in terms of, between NAND and DRAM, just because of the current transition that's happening from 2D to 3D in the NAND space where there's a doubling of CMP steps when you go to 3D NAND, that presents a stronger growth opportunity for us than the continued technology migration in DRAM. We mentioned that we think about 50% of 2D has been converted to 3D. So there's still a lot of runway for that conversion going on, and we're really excited about the growth opportunities especially in NAND.

Next question will come from Edwin Mok with Needham & Company.

First question, just to follow up on Amanda's question. I guess, 2 parts, first is on the memory side. Do you think you can pass 50% of your sales this year given the growth in memory? And then on the trailing edge versus leading edge, is there a way to kind of think about your mix of trailing edge versus leading edge exposure for your foundry and logic?

Yes. Edwin, I missed the first part of your question around memory. Could you repeat?

Yes. The first part is just, I think last year -- last fiscal, you guys reported 46% of your sales come from memory customers, right? Just curious with the growth in memory, do you expect that to surpass 50%? Or is that growing even faster in the overall company?

Yes, and that's something we'll update at the end of the year. We did talk about around 45%, 46% from memory, and we also commented that memory was growing the fastest. So just based on that trajectory, you can make your assumptions there. And then in terms of split between advanced and legacy, what we're seeing is there's continued strong demand in some of the legacy, what I call like 35, 28, 20-nanometer technology and Scott actually commented about our non-tungsten metals business being up. One of the drivers was that more legacy aspect pulling products like aluminum into the mix. But as you know, we have a really good exposure across all the different technology nodes, both advanced and legacy. The one comment I make around advanced is especially on the logic and foundry side, with 10- and 7-nanometer still in ramp that's the FinFET structure that uses a tungsten gate. So that's a really important product for us and working closely with those customers and obviously that's still in fairly early stage ramp. So we feel like we've got a really good amount of exposure to both advanced and legacy. We just see a stronger demand environment in the near term for the legacy, logic and foundry.

Okay, great. Actually, that's very valuable color and a good segue for my next question -- I guess, next 2 questions. First is I noticed that your tungsten revenue while up year-over-year is actually down sequentially, is that just seasonal? And then I have a follow-up question on tungsten, too?

Yes, sure. So for tungsten, we are up year-over-year about 17%, down slightly sequentially and we see that is basically fluctuations in order demand. Nothing has changed from our perspective in the competitive environment, so really just order fluctuation, and obviously we see a really strong growth -- strong future for tungsten, especially given the 3D NAND and FinFET.

And then I guess, kind of a longer-term question probably not today, but I notice that there is more talk about tungsten plugs or some of the tungsten process being replaced by cobalt. Just wondering how that could affect your business or does that have any effect on your business and where do you guys stand in terms of providing slurry for polishing cobalt.

Yes, and obviously we work really closely with those advanced customers that are considering new and different materials at different stages. Cobalt is one material that's of interest, but for us the more challenging the application, I think the better it is for us, because that's obviously where we excel. We're the only one that has a focused business on CMP. So those materials challenges should really play into our strengths. We haven't seen on the road map a very strong adoption of cobalt right now, which is one of the materials being considered. But it's something that we're working closely with our customers as they look at material solutions.

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

Couple of questions if I may. First of all, on the Fujimi collaboration you announced, is that with their -- basically their slurry business that you're looking to develop something between your slurry operations? Or are there other parts of Fujimi technology that you're looking to access with this collaboration? And as a follow-up to that, is this a first step in a much closer relationship over time for you guys?

Dmitry, so we're excited and encouraged by the collaboration, but obviously it's just in the beginning stages. Just to clarify again, the collaboration at this stage is really based on collaborating on IC CMP applications on the slurry side and just -- really what we look at is leveraging our respective competencies in areas that we really don't participate in today, either companies. So an example of that would be some of the emerging materials that are being contemplated for 7-nanometer and below for advanced logic, so really niche applications. But I do think we have the opportunity to leverage both companies' expertises in this area. They're obviously the leader in the field. We're a leader in the field. So I think this will be good for our customers, but obviously just beginning, and our focus right now is just making that collaboration successful.

Okay. And then just looking at your capital deployment. Obviously, returning cash to shareholders either through dividends or share repurchases is commendable, but can you update us on what's going on with your M&A efforts, sort of how full is the (inaudible), where you are in kind of the final process of getting something across the finish line and what can we expect from you in terms of direction you're looking at for M&A deals?

Yes, Dmitry, this is Scott. We have a lot of efforts, a lot of activity going on in terms of building up that pipeline and continuing to build a robust pipeline. There's nothing for us to speak about here today. But from a deployment perspective and an actionability perspective, from a finance, we're going to make sure that we have the dry powder necessary. And we view our situation today and paying down the term loan and moving to zero debt as the right thing to do right now, but we hope that, that's a step along the path. And certainly, we'd like to use our strong balance sheet to enable future M&A going forward.

And just to echo Scott's comments, Dmitry, the type of opportunity we're looking for has not changed. We look for something in the material space, in a closely related area. And as Scott mentioned, even with our new capital deployment plan, we feel like we have plenty of flexibility to go after different opportunities in the M&A space.

So if I can sort of follow up at -- your inability to close the deal since the Planar Solutions deal -- I'm sorry not the Planar Solutions, the NexPlanar deal, is that a function of properties not being for sale? Is it a function of difficulty finding acquisition candidates? Or is it disagreement on the valuation that they may want? And also sort of what are the sizes of the deals that you're looking at? Are you looking at tens of millions of dollars in acquisitions, hundreds of millions, a billion plus? Can you just give us an idea of kind of how broadly your net is being cast?

Right, so just in terms of the -- you mentioned the NexPlanar acquisition, that's one we're really pleased with. That was an example of more of a bolt-on, where we saw a technology in sort of a start-up type of company where we took that technology, enhance the quality, supply chain and then leveraged our commercial channel to proliferate pads. And that's gone really, really well, as we mentioned another record quarter for pads and we're seeing a really strong pipeline behind that. In terms of just different opportunities, the list is limited because we are very -- we've always been very disciplined around acquisitions and we want to find something in the material space that's also financially compatible with us. So the list is not long. We would like -- and we look at all different types of sizes as well, depending on what it could add to our business. If it was more of a bolt-on, you think that would be more in the CMP space, something like NexPlanar. If it was a larger acquisition, that would be something that would have to leverage our capabilities, but also as mentioned in the material space, in a closely related area and financially compatible with us.

And the next question will come from the line of Chris Kapsch with Loop Capital Markets.

A couple of follow-ups. One on this up draft in sales for -- I guess, the other metals business if you will, the aluminum, copper and maybe even [STI], up 15%, can you characterize that? The outlook there is stronger near term. I'm just wondering, obviously that's partly tied to this whole Internet of Things phenomenon, but just wondering also if there is any sense that you're gaining share at those legacy nodes or is there any change in the competitive dynamic as those older nodes see a little bit broader strength from the macro trends?

Yes, Chris. So we've obviously in the background have a very healthy demand environment. We saw a pretty healthy increase in our non-tungsten metals. I commented earlier that some of that was driven by demand for our aluminum solutions, which as you know are used in the 28-, 20-nanometer node. And so -- and we also saw some increases in barrier and copper as well. I feel like in terms of competitive landscape, we feel like if there's an opportunity out there we should be winning them in the CMP space. So really no change there, but overall healthy demand and as I mentioned our earlier also the legacy, foundry and logic has shown some consistent strength and we see that continuing to be strong going forward.

And just a follow-up on the CMP pad business and obviously the thesis behind buying NexPlanar was that, they had a better performing pad for your customers and I think that's proving out. But it seems like given your formal comments about the adoption at the leading edge that your conviction around that outperformance is more definitive, which is a good thing obviously. What I'm curious about is though, given just how powerful this sort of lower defectivity and yield benefit that your customers derive using these pads, are you seeing or why aren't you seeing even more adoption at even legacy nodes, particularly given the strength that we just talked about, it some of those nodes and as semiconductor customers want to sweat those older fab assets. I would think this is a pretty capital efficient way for them to get more output from those fabs is to adopt a pad technology that results in greater yield. So just wondering just about the overall trends in your process of record wins, is it most concentrated in the advanced nodes as you talk about or is it really broad based?

Right, Chris. So, as you know, that the new nodes and advanced nodes are -- there's a window there, where if you win that, there is an opening, whereas a displacement might take a little bit of time. What we talked about in the prepared comments is, we are

really pleased about some increased proliferation with some memory customers at the advanced nodes. But our pipeline for pads opportunities, expands the whole gamut between displacement and new technology nodes as well. You mentioned sort of the legacy foundry and logic. We do see that as a really big opportunity not only just for pads, but also for consumables sets to bring both the pad and slurry together to those customers. So I think you'll see us be even more active in that area in the future.

And then if I could just follow up one more on Korea. I think you said 65% higher sales growth year-over-year and obviously that's tied to memory, but just wondering if there's something that's driving sort of that outsized sales gain. Is it just transition of a fab or 2? Or is it market share gains? Is it adoption of the pads that you just mentioned in the memory application or all the above?

Yes, I think it's a bit of all of the above. And just this past week both Samsung and SK hynix announced, and although there was some concern over memory pricing, their demand outlook for memory was very robust and continues that way and so obviously they're heavily concentrated in Korea. They also have facilities in China, but mostly in Korea. And I think that's primarily what drove the growth with just healthy demand in the memory market, I think for our company as a consumables, wafer start-based company, our positions in memory, I think are really differentiated and so when those key customers are doing well, that will definitely have a positive impact on our results.

(Operator Instructions) Our next question will come from the line of Mike Harrison with Seaport Global Securities.

This is Jacob on for Mike. I have a couple questions on pads. First, KFMI, how much did that contribute to the strong pad growth in the quarter?

Jacob, so for pads, again, we announced a record quarter. The KFMI collaboration is something that we are focused on to bring more business in the China market longer term. We did mention we saw first revenue already, but it's very early. So I would say not a significant driver of our pads revenue yet.

And then I saw a press release of your competitor in the pads, had a ribbon cutting ceremony for manufacturing expansion in Taiwan. They were highlighting new capabilities for pads, so is this just business as usual from the growing and evolving market in that space? Or are they trying to sort of catch up to where you guys are on the pads front?

Yes, I think, we're going to focus on what we can control. They're obviously the incumbent, really still throughout the industry. And so we're seeing a lot of good success with our pad products and so I would say that's more business as usual.

Thank you. And I'm showing no further questions at this time. I would now like to turn the conference back over to Ms. Colleen Mumford for any closing remarks.

Great. Thank you. That is all the questions that we have this morning. Thank you for your time and your interest in Cabot Microelectronics.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude your program. You may all disconnect. Everyone, have a great day.