Entegris Inc (ENTG) 2010 Q2 法說會逐字稿

Good day, everyone. And welcome to the Entegris second quarter 2010 earnings release conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Steve Cantor, Vice President of corporate relations. Please go ahead.

Thank you. Good morning. And thank you all for joining our call.

Earlier today we announced the financial results for our second quarter ended July 3, 2010. You can access the copy of our press release on our website www.entegris.com. Before we begin I would like to remind listeners that our comments today will include some forward-looking statements. These statements include a number of risks and uncertainties which are outlined in detail in our reports and filings with the SEC. On this call we will also refer to non-GAAP financial measures, as defined by the SEC in regulation G. You can find a reconciliation table in today's press release as well as on our website. On the call today are Gideon Argov, President and CEO, Bertrand Loy, Chief Operating Officer and Greg Graves, Chief Financial Officer.

Gideon will now begin the call.

Thank you, Steve. Good morning and thank you for joining the call.

I'll provide an overview of the quarter and then Greg will provide some detail on the financial results. There were a number of reasons to be very pleased with our second quarter results. First, $168 million reflected the sustained robustness of the semiconductor markets and our liquid filter sales exceeded record levels this quarter; second we achieved an adjusted operating margin of 17.8% which is ahead of our target profit expectations for that revenue level. This operating margin result is approaching the five-year high watermark for the company. Third we generated $28 million of cash from operations which enabled us to completely repay our credit facility in July, well ahead of schedule.

Before providing more detail on these points and discussing the near-term business trends, I want to take a moment to provide some context. This March at our analyst day we laid out a clear path for how Entegris can outgrow its markets and for how we can realize the operating leverage of the business. This growth strategy is built on three pillars. Growth in our core semiconductor markets, our fight back initiatives to take back share in a few key areas, and expansion into what we call new frontiers or adjacent markets. All three in aggregate provide us with a path to grow faster than the market. I'll provide a little more color regarding our progress in the second quarter on each of these fronts.

First, we have considerable room to grow in our core semiconductor market by virtue of the increasingly demanding contamination control requirements at leading edge technology nodes. The 11 new fab projects around the globe that are currently either underway or in planning stages will operate using advanced 45, 32 and sub 22-nanometer processes. For wet etch and clean applications at these nodes, our 20-nanometer and 15-nanometer filters are gaining traction and are helping to prevent contamination particles that are so small in some cases they are difficult to even measure. For lithography applications there is strong demand for our delivery and filtration products that handle the next generations of photochemicals and resists, as well as purification systems for eliminating contamination in and around the lithography bay.

We've been filling the pipeline with an increasing stream of qualifications and design wins that we believe will result in share gains as sales of new generation of OEM tools begin to ramp. In CMP we're not only growing our served market but we're taking share in the area of post CMP cleaning brushes. We've introduced a new line of brushes that use our surface modification technology to provide more effective cleaning for small geometries.

Secondly, we are fighting back in three key areas to claim share of market segments that we did not successfully penetrate over the course of several years. In 300 millimeter FOSB wafer shippers, in dispense pumps for lithography track tools and in the market for shippers used to track data storage components. These initiatives reflect the newly focused efforts we have put in place over the past 18 months to grow market share.

In the second quarter we continued to advance our sales in targeted shipping lanes in the 300 millimeter FOSB market. In our pump initiative our two-stage pump is increasingly being viewed by both device makers and OEM's as the most effective solution to a critical defect issue called microbridging. Our data storage business is now stabilized after being adversely impacted over number of years due to market consolidation and the emergence of low-cost, Asian competition.

Thirdly we're taking our technology into adjacent markets such as LED, alternative energy and energy storage and aerospace. These are new opportunities, some of them ("greenfield") that could add very meaningful growth to the company in the foreseeable future. In sum, such as LED, we are already getting traction with products like our purification systems. In others such as graphite products for jet aircraft engines, optics for aerospace and specially coated products for solar manufacturing, we are laying important groundwork today with key design wins.

In terms of industry trends the indicators for the semiconductor industry remain positive. Our second quarter semiconductor related revenues accounted for 70% of total revenues. Device makers continue to be capacity constrained. Utilization rates at the leading edge fabs continued to inch up in Q2 to around 97%. This was positive for our unit driven products such as liquid filters and 200 millimeter wafer handling products. In addition a number of 200 millimeter fabs have been returned to service which was also positive for us.

Sequential growth in our capital related sales moderated to 5% after outpacing the industry for four consecutive quarters since the bottom of the cycle. Looking at the performance across each of our divisions, sales for contamination control solutions of $104 million surpassed levels achieved in the prior 2007 peak. Sales of liquid filtration products were strong and reached a record high. These products continue to benefit from high fab utilization rates, particularly at foundry and memory customers. We shipped a number of LiquidLens systems used to deliver ultrapure water for immersion lithography steppers. The CCS division generated $29 million in operating income, excluding corporate costs or a 28% operating margin for the quarter.

Sales in our microenvironments division jumped 13% to $47 million, led by demand for 200 millimeter wafer handling products and shippers for finished wafers. [ME] reported a superb quarter financially. Operating income for the ME division increased 35% to $12 million, representing an operating margin of 26% of sales excluding corporate costs. Sales in our specialty materials division declined 7% from a strong Q1 of $17 million.

Now in Q1 certain customers restocked their inventory levels which they then drew down in the second quarter. I would point out that this business grew by 14% for the fourth quarter of 2009 to the second quarter of 2010, in line with our overall company growth. Operating margin for the specialty materials division was 12% in Q2, excluding corporate costs, reflecting continued investment in the long-term growth of this business.

In summary, we were very pleased with the quarter, particularly as we reap the results of work we've done to streamline the organization, revitalize our operations and build shareholder value. Our pipeline is filling with key design wins that we expect to drive share gains and future growth across a number of areas in both our core and adjacent markets.

We are executing well and achieving higher operating margins than in previous periods. We are generating strong, positive operating cash flow and our balance sheet continues to strengthen. And finally we're positive with regard to the industry environment. Demand trends point to continued steady sequential growth in Q3, and thus a stronger second half of the year. I'll now turn it over to Greg Graves for commentary on the financials.

Greg?

Thank you, Gideon.

I'll provide some detail on the second quarter financials and then add some commentary on business trends and our operating model. I'm very pleased with the results for the second quarter, and particularly with the operating margin approaching 18%, which exceeded our target profit expectations at this level of revenue. As previously discussed, we are operating our business using a model that targets a range of operating performance for specific levels of sales.

This model is an important tool for a number of reasons. First, it provides company-wide discipline and visible financial targets for the entire organization. Each of our divisions has its own target model that in aggregate support the consolidated operating model we have communicated to the investment community. Second, the target model demonstrates how we can flex our operations to preserve and maximize our profitability. And, third, it shows the leverage in the business and how the actions we have made over the past two years enable us to achieve higher profitability at comparable levels of revenues.

Looking beyond the margin performance, sales of $168 million were up 4% from Q1. By geography, sales for our largest region, Asia, grew 9% sequentially. Taiwan sales are on track to exceed 100 million in 2010, a record level for us. The US declined 4%, Japan grew 9% and Europe grew 7% versus Q1. Foreign exchange rate changes had a modest, unfavorable impact on sales.

Gross margin for the second quarter improved to 46% from 45.6% in Q1, as we continued to achieve high utilization and continued efficiencies in our manufacturing operations. Operating expenses, excluding amortization, were 47.3 million, this was up slightly in dollars from Q1 but down as a percentage of sales. R&D spending was even with the first quarter, while SG&A increased by less than $1 million. Our adjusted operating margin, which is GAAP operating income excluding 3.4 million of amortization, was 17.8%. This improved from 16.5% in Q1.

As I mentioned, this exceeded our target margin range at $168 million of sales due to the strong gross margin combined with continued tight control of operating expenses. To put the 17.8% in perspective, we achieved an operating margin of 14% on comparable quarterly revenues in Q2 of 2006. Said another way, on 167 million in revenue, the company was almost 4 points more profitable than we had been in prior cycles.

Other expense for the quarter was $2.4 million. This primarily reflected the impact of currency exchange rate changes on yen denominated liabilities and a write-off with debt issuance costs associated with reducing the size of our credit facility in the quarter. Earnings per share for Q2 were $0.14, non-GAAP EPS which excludes amortization was $0.16 per share.

We had another excellent quarter of cash flow performance, generating $27.8 million in cash from operations, adjusted EBITDA for the quarter was $37 million. Regardless of how the industry cycle unfolds, we are on track to generate more than $140 million of EBITDA and $100 million of cash from operations this year. This equates to free cash flow of close to $80 million or approximately $0.60 per share.

Turning to the balance sheet, we ended the quarter with $49 million of net cash. This is an increase of $27 million over Q1 and reflects a cash balance of $75 million and debt of $26 million. As Gideon mentioned, we have completely repaid the outstanding balance on our credit facility in July, and are now left with only a small amount of debt in Japan, which is scheduled to be repaid in Q4.

We continue to remain focused on cash and working capital management. Even with increasing sales and orders trends, we kept a tight hold on inventory in the quarter. Inventory turns were four times, flat with Q1. Depreciation expense was $7.2 million in Q2 and CapEx was $4.1 million. For 2010, we expect CapEx to be approximately $20 million.

Looking forward, business trends continue to remain strong, and we currently expect moderate growth in Q3. In Q3 we expect manufacturing fixed costs of approximately $26 million, variable manufacturing costs of about 38 to 40% of revenue and operating expense, exclusive of amortization, of approximately $49 million to $50 million. Interest expense will be approximately $300,000 in Q3, consisting primarily of debt issuance cost amortization. We continue to expect the 2010 tax rate to be in the low 20s.

In summary, we are executing well against our growth strategies. We see room for growth in our core markets and we are achieving design wins that position us to gain share. Our fight back initiatives are working, and we have reason to be optimistic about our new market initiatives. We are generating significantly higher margins and cash earnings on comparable revenues than in prior cycles and finally we are generating substantial free cash flow. Our net cash position continues to grow. And our credit facility has now been fully repaid. We are confident that the steps we are taking will continue to build value for our shareholders, value far beyond what is reflected in our current share price.

With that, we'll now take your questions.

Operator?

(Operator Instructions). Our first question is from Krish Sankar with Bank of America/Merrill Lynch.

Yes. Hi, thanks for taking my question. I have a couple of them. Number one, in terms of your September guidance of moderate growth. Can you just pass it down between the CapEx and units driven business and qualitatively or quantitatively, how do you think they are going to trend in September?

Krish, so moderate is what we're guiding. We're not giving hard guidance. We don't do that because it's -- it's difficult to do it in our business with the uncertainty in the economy. And -- I would say the only commentary I would make is we -- we do see device makers operating at very high utilization levels at this point in time, and this is something that we would expect to see continuing. And so -- by moderate growth you can read into that some combination of capital and unit-driven. But I'm not going to really divide it precisely for you because it is not feasible to do so in a way that would be helpful.

Got it, okay. And in terms of the specialty materials business, you said that there was a certain amount of inventory restocking. Can you quantify how much it was?

A significant amount of the decline in Q2 was due to inventory restocking, let's put it that way. And that business has very healthy growth, float prospects. We believe it's going to grow significantly over the next couple of years. We have a number of key design wins that we've achieved and, frankly, you know, it's operating as we would expect it to, given the fact that it is only 10% of our revenue. It is subscale from that standpoint and we are investing a significant amount in creating new products and expanding the reach of that business. And so a significant portion of the decline of that business was actually due to restocking by key OEMs, and we would expect that business to resume its growth over the balance of the year.

Yes, okay. And then a final question for Greg. Greg, if I look at your OpEx guidance the mid-point was roughly $2 million over from Q2 to Q3, what is driving it? Is it just the simple matter of improving sales or is there R&D or something else going on?

It is largely related to continued sales. We are making some modest investments in the R&D area that are at what I would say largely variable costs, in other words, project related costs and so we continue to be very focused on keeping the fixed costs of the business down, but if you think about on the sales side, I mean we do have variable costs around things like travel, like customer samples, and so those would be the primary areas and so it would be that and project-related expenses in the R&D.

Got it. Thank you.

And our next question will come from Avinash Kant joined DA Davidson and Company.

Good morning, a few questions for you. First, I don't know if Gideon broke down the unit and CapEx-driven businesses in the quarter.

The unit and CapEx CapEx-driven businesses, Avinash, this is Greg, it was 67% unit driven, 33% CapEx driven. And so our unit-driven business was up about 4.5% and our CapEx-driven business was up about 4%.

Okay. And I know you talked about in the regions you talked about sequential growth but could you give us the percentage of revenues from different regions or exact revenue from whichever way you want them, or it's in the filings maybe?

Sure. I can do that. For the most recent quarter, it was -- Asia was 39.6%, Japan was 18.3%, North America was 28.1% and Europe was 14.1%.

Okay. Thanks.

So it's largely, approximately 60% of the revenue is Asia and Japan.

Okay. And talking about, of course, you know, what you are seeing out there in the industry. There has been a lot of -- a lot of focus on how things are trending in the second half of the year and how capital spending is going to be going. Could you give us qualitatively some idea about what you think about second half of the CapEx side of the business and how do you think about the unit driven side of business in the second half of '10.

Yes, Avinash, this is Bertrand.

Hi, Bertrand.

On the wafer starts which is really the driver for our unit-driven business we've seen some fairly steady pace throughout Q2 and we've -- we have not seen any significant change in this trend going into Q3. And so, if you combine that with the fact that most leading edge fabs have been operating at very, very high capitalization and we also know from most of our foundry customers that 300mm capacity sold out for Q3 and about to be sold out for Q4 as well, you know, I think that that bodes well for continued -- continued steady growth in the low single digits for -- for the rest of the year in terms of wafer starts and -- and therefore, you know, unit driven for us.

In terms of CapEx, obviously we take great comfort on the fairly bullish estimates provided for the second half of the year. I think my -- my only caveat here would be really the ability of the overall supply chain and industry in general to shape and -- and face up with this significant ramp but CapEx seems to be fairly promising as well for the second half. We expect the second half CapEx business to exceed what we recorded in -- in the first half of the year.

Okay. And so it looks like people are not talking about any kind of a -- you know, pushouts or cancellations more so than it is the ability of the industry to actually be able to produce enough, right?

That would be -- that would be our read of the situation. Yes.

Okay. Perfect. Thank you so much.

And our next question is from Timothy Arcuri with CITI.

Hi, guys. Gideon, if I look to your unit driven business and I compare it to wafer starts - starts will be up as of the end of June 65% off the bottom something in that range and your unit driven business is up a lot more than that. Certainly there's some inventory effect there but, you know, seems like that business has sort of begun to outgrow wafer starts a bit where it used to grow more sort of inline with starts -- is there something more going on there or mere had I would you attribute the outgrowth off the bottom to sort of the whip in the supply chain? Thanks.

Sure, Tim. Thanks for the question. Number 1, part of it is growth off the bottom. Because what we did see at the very bottom of the cycle was -- was fabs doing things that were very unusual and we haven't seen them do that before, like stripping things off of one line and putting them on another line, behavior that is sort of unprecedented. However, what we do see as you know about 10% of the capacity this year is 45-nanometers and below in the industry.

As that increases as a proportion of total sort of square inches over time, that will have a positive -- it is beginning to have an impact, will have a positive impact. Because, number one, a lot of the new products, I would say a vast majority of the new unit driven products we have out there are actually geared towards the advanced nodes. And the intensity of the use of the filtration and purification of those products at those nodes will be higher. That will be somewhat of a tailwind. I frankly expected it to happen earlier in time but it is really 18 months to 24 months later because of the downturn. It is beginning to happen. The last thing I point out is -- Tim, that if you look at the capital side of our business, that is up four times since the bottom of the cycle. In fact, in the third and the fourth quarter of last year we actually increased our shipments to OEM's by 100% each of those quarters. Significantly in excess of what the industry saw and so that is similar behavior on that side as well.

Gideon, just -- just on that, I mean if -- you just take from the peak in your consumables revenue and you sort of assume that it fell in line with wafer starts. It didn't, it fell a bit more than starts but if you assume that it feel in line with wafer starts and if you grow it with starts, you're sort of $20 million ahead of where that -- sort of the wafer start trends since the last peak would sort of imply that that business should be so is that $20 million a sustainable gap that you think will grow from here? Or is that sort of going to actually normalize over time?

Tim, this is Bertrand, I think that some of that gap that you design is related to the Poco consumer group which is, you know, part of the acquisition that we made in 2007 or '08 so maybe you need to adjust your analysis with at that but, beyond that, you are right, we've been gaining share and as Gideon mentioned we've been taking share at the tighter geometries and the filtration products that we've been announcing in support of those most advanced processes.

Specifically if you look at our Torrento product line which is 20-nanometer filter which provides the best retention and the highest flow in the industry, this particular product line grew, actually doubled sequentially from Q1 to Q2 and has -- has had a really stellar results for the last -- the last four, five quarters. We've also -- have recorded similar wins and market share gains on our point of use filtration for photoresist applications, overall, you are right, we've -- we've launched a series of new products over the last 18 month and they are starting to really get traction in the marketplace. Now how -- how much can we extrapolate that growth rate going forward. At some point in time the growth of those product lines would have to migrate towards the overall industry growth but I think that we have some -- some headroom for additional growth in the next few quarters.

Thanks. And just lastly what were semiconductor revenues as a percentage?

70. 70%.

And our next question is from Kelly Anderson with Sidoti & Company.

Good morning, and thank you for taking my questions. Just first off in the micro-environment segment. Are there any specific milestones or is there anything that we can look to gauge progress that you are making on potential share gains in 300 millimeter shippers?

This is Bertrand. We -- we don't share necessarily a lot of specific milestones. I would -- I would only say that, as you know in this particular case our objective is to regain market share in our 300 millimeter shippers and we have set an objective of reaching about 25% market share in the next three years. If you look at our Q2 performance -- we have continued to make solid progress toward that goal and we enjoyed solid growth and continued to capitalize on our SB300 product.

As you know, at the heart of the strategy, we need to qualify our product with the wafer growers. We've completed that and now we are turning our attention to work with the device makers to pull their incoming silicon wafers in our shippers and I'm pleased to report that this strategy is working. We've continued to win additional shipping lanes as we -- as we call them during -- during Q2 so I think that we are in a very good, competitive situation as we exit Q2 but it's hard for me to really give you some specific milestones that we will be reporting on a quarterly basis.

Thanks. That's very helpful. And just in terms of the micro-E business is there any chance that you could sort of walk through what impact if any inventory ROE stocking would have on that particular business or shut we assume that micro-E can move in lock step with changes in capital spending levels?

Yes. Well, you know, you have two drivers for the micro environment business. One is still, you know, big size of this business is relating to wafer starts, so specifically the shipping box business is absolutely related to wafer starts and -- and really correlates relatively tightly with -- with wafer starts. On the CapEx side which would be our FOUP or 200-millimeter and below process carriers, this is a business that doesn't necessarily correlate very specifically to wafer fab equipment.

As a matter of fact, it's -- it's a relatively lumpy business over time and really depends more on the new fab capacity additions. And so as you start hearing positive news from all of the new projects that Gideon referred to in the prepared remarks, you should expect some -- some positive news for our full business.

Thanks. And then just a final one, clearly your margin execution in the contamination control and micro environments businesses has been -- has been terrific.

But in terms of the specialty materials business, correct me if I'm wrong. But I thought at the analysts day someone had mentioned that at a $20 million run rate you could possibly achieve margins at about a 20% level. Is there a piece that we're missing here? Do the margins just accelerate that quickly as you move closer to 20% or are there fundamental changes on how you operate that business that would improve the margins there?

Hey, Kelly. There is really no fundamental change in how we operate the business. It is just the fixed cost portion of that business related to new business development initiatives, new product initiatives as a percentage of revenue as these lower revenue levels is higher than in the other two businesses but that is not a variable cost. So what we're investing in that new market development, in that business will remain constant and so there's very significant operating expense leverage in that business.

Thank you.

Our next question is from Christian Schwab with Craig-Hallum Capital Group.

Great, thanks for taking my question. Greg, on the OpEx guidance of kind of -- OpEx guidance of kind of $49 million to $50 million for this quarter is a big chunk of that the variable cost with getting into these new adjacent markets and is it something as a run rate that you think is sustainable for the next few quarters? Or do you think if revenues continue to march up modestly that OpEx will follow?

There is a component of our selling expense Christian that's variable around things like travel and entertainment, customer samples, we do have some business that goes through manufacturers' reps and so there's a small portion of the selling expense that's variable.

I would say at a -- in a quarter like this as we look out as to what we can spend and still achieve our target model we are making some investments in the coming quarter in some ER&D initiatives, those are largely project-related. We've made very little change in permanent head count and continue to be very focused on keeping that break-even level and fixed-cost structure down but there is a variable component to selling expense.

Perfect. The operating margins this quarter came in towards the high end of your target range of 15% to 18%. Is -- do we need -- is that kind of the way we should be thinking about the business? Is kind of a steady state from this type of level as far as an operating margin?

We're -- we're very focused on maintaining that -- on this type of -- this level of revenue and higher, we're focused on maintaining the operating margin where we are or at higher levels.

Great. As you look out to 2011 and speaking to your customers and the high number of new fabs that are coming in. Do you guys have your own opinion of -- of in essence million square inches of wafers being produced or growth in '11 versus '10 as we look at your unit driven business?

Well, we don't -- we don't have a view of that simply because our business doesn't allow us to have a view of that. But if you - sort out the narrative -- what is logical is a narrative that says that capacity utilization remains high, and that in fact there is a need for additional capacity, particularly at the advanced nodes. And in order to satisfy that, what you have is a variety of either fab expansion or new fab projects. The number is anywhere between 11 and 13 or 14 depending on how you cut it. And this data is publicly available.

That will add, to my way of thinking, and this is a personal view, sort of a leg up in terms of capital spending as we go through the next sort of three quarters to four quarters. And at the same time what I believe is happening and I believe that the industry is being reasonably disciplined about avoiding some of the same -- of the pitfalls that it had in the past, a double ordering in inventory buildup and so it is not to say that that is going to happen but if you have to ask me that is what I believe will happen over the next few quarters.

Great, thank you.

And our next question will come from Dick Ryan with Dougherty Brokerage .

Good morning, guys. Greg, I didn't catch your comment there you said FX had an impact on sales. Did you quantify that? I did not catch it if you did.

I didn't but, Dick, it was about $2 million.

Okay. And looking at the non-- this non-semi space, can you give us a qualitative feel of the LED business? Where it stands currently and where-- where we could expect that to ramp in 2011?

Yes, this is Bertrand. I will not talk about 2011, we don't have that level of visibility but our LED and color initiatives continue to generate the returns that we were expecting. In some cases, actually in some cases we are ahead of -- actually we are ahead of our targets as we close the first half of the year.

So as you know we have invested in new markets and new applications for our core products during the downturn. We work very closely with customers, leading customers and -- and sponsors in those new markets. Throughout 2009 and this is starting to pay off and, again, this is not representing a meaningful portion of our revenues quite yet but we're seeing some -- some really nice growth and -- and good customer reception.

Okay, thank you.

(Operator Instructions). Our next question is from Steve Schwartz with First Analysis Good morning, everyone.

Good morning, Steve.

At SEMICON West a number of people were talking about a capital spending shift in the near term, more towards expanding capacity versus technology upgrades. And I'm just wondering if that had anything to do with CapEx driven sales weakening a little bit sequentially.

It's hard to know. It's hard to know. We tend to lead both on the unit-driven side but particularly on the component side because our components and subsystems do end up in tools that get shipped down the road. That could be an explanation. That is a logical explanation, Steve. But it -- it is hard to -- to pin it down specifically. It is a reasonable explanation -- yes.

Okay. And then Greg in the past-- just recently I think you've mentioned that the variable comp maxes out at $170 million in revenue, and I'm wondering if that -- that cap still exists and whether or not that would carry oaf into 2011 or if those caps elevate.

Well, right now, I mean our -- our variable comp is essentially maxed out for this year. So you will not see higher levels of variable comp in the back half of the year than you saw in the front half of the year. We really haven't done any planning around 2011, so I really don't want to comment on that.

Okay. Understandable. Thank you.

And our next question is from Avinash Kant with DA Davidson and Company.

Just a follow-up and wanted to check some things. And so on the unit driven and CapEx driven I believe that Greg mentioned that unit-driven was 67% of revenue in the quarter and cap next was 33%. Is that right, Greg?

Correct.

So if I look at that, that means on a --

I'm sorry, Avinash. It did not add up. It was -- the unit driven was 63%, the CapEx was 37%.

63% and 37%. Okay, okay. That was confusing me.

I do not know if I misspoke or if you misheard but it is 63% and 37%.

Okay, okay. Because, yes, if I plugged in those numbers it would have meant that CapEx, you know, was down sequentially and that is what I was --

No, no. The CapEx was up about 4% and the unit-driven was up 4.5%.

Now it works out finally. And also when you talk about -- you see sequential improvements in the third quarter going forward, of course you are expecting both unit and CapEx driven businesses to be up slightly, right?

I think we're saying in total we expect moderate growth. And I'd rather talk about that after the fact as to how the split is. But we're comfortable that we're positioned well on both fronts.

And let me just clarify, because we kind of went back and forth, so 63% unit driven, 37% CapEx driven, unit driven up 3.8%, CAPEX driven up 4.5%.

Yes, that's very clear. Thank you very much.

Thank you.

And there are no further questions, at this time Mr. Argov I'll turn the conference back over to you for closing remarks.

Thank you very much for joining your conference call and we look forward to updating you in the future. Have a good day.

And that concludes today's conference. We thank you for your participation.