Entegris Inc (ENTG) 2010 Q3 法說會逐字稿

Good day, and welcome to the Entegris third quarter 2010 earnings release conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Steve Cantor, Vice President of Corporate Relations. Please go ahead, sir.

Thank you, Alan, and good morning, and thank you all for joining our call. Earlier today we announced the financial results for our third quarter ended October 2, 2010. You can access a copy of our press release on our website at www.entegris.com.

Before we begin, I would like to remind listeners that our comments today will include some forward-looking statements. These statements involve 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 Gregory Graves, Chief Financial Officer. Gideon will now begin the call.

Good morning, and thank you for joining our call this morning. We had an excellent quarter. We executed well against our strategies, achieving growth in both our core markets and our new-market initiatives. We generated significantly higher margins and cash earnings on comparable revenues than in past cycles, and our strong cash flow allowed us to improve the net cash position on our balance sheet.

Our sales of $178 million in the third quarter were higher than those experienced during the previous industry peak and only $3 million shy of our record high as a Company. While we are clearly benefiting from continued strength in our core semiconductor markets, we're also gaining momentum in a number of initiatives in the form of share gains and design-ins of products for advanced technology nodes. We believe these will drive our growth above and beyond the industry's cycles. I'll talk more about this in a moment.

But first, we had excellent operating performance. Growing our adjusted operating margins to 18% and our non-GAAP profits to the highest levels since our merger in 2005. These results reflect the leverage we have in the business and the leaner, more efficient organization that we have in place. At the same time we maintained our R&D spending and even stepped up investments in long-term initiatives in both our core semiconductor markets, such as EUV and lithography technologies, as well as in new adjacent markets.

Our cash flow continues to be very strong as we generated $45 million of cash from operations in the third quarter. With our debt fully paid off, this strong cash flow has enabled us to build a net cash position, approaching $100 million well ahead of our schedule.

Now, as we have discussed previously, we put in place a strategy that is intended to grow this Company organically to levels approaching $1 billion over the next three years. This growth is predicated on four drivers. Growth in our industry and in our customers' sub-30 nanometer process requirements for our Contamination Control Solutions, share gains as we fight back to capture share in specific markets, share gains in new core markets where we can use our breadth of technology as a competitive weapon to gain new business that we did not have before, and finally growth in what we call new frontiers or adjacent markets such as photovoltaic or LED. All of these in aggregate will enable us to outgrow the industry and, we believe, to achieve attractive returns to our investors.

I'm pleased with our progress in the third quarter. In terms of industry trends, our third quarter semiconductor-related revenues grew 12% sequentially and accounted for 74% of total revenues. Underlying this was sustained capital spending by semiconductor fabs, which drove our capital-related sales to 39% of total sales, up slightly in proportion to the second quarter. Customer fab utilization rates ticked down slightly from the high 90% range in Q2, but remained high at the advanced technology processes. In our other markets, data storage products softened as disk drive customers reported slower demand for 95-mm drives. Flat panel related sales were also lower in Q2, as their industry was. And we were very pleased with the performance of our LED as well as our solar-related products.

Looking at the performance across each of our divisions. Sales for Contamination Control Solutions, or CCS, were $113 million, or 9% over the prior quarter. This growth was driven by record quarters for our liquid filtration and gas purification BUs as well as strong demand for our fluid-handling products. This growth also reflected an 11% increase in new product sales. The CCS division generated $31 million in operating income, excluding corporate costs, which amounts to a 28% operating margin for the quarter for this business.

Sales in our Microenvironment division, or ME, were $47 million, essentially flat after the surge in demand for legacy 200mm process products in the June quarter. We had a good quarter for 300-mm wafer handling products, and with a number of new fab products underway in the industry, we are well positioned to capture share. The ME division continued to generate strong cash flow and solid margins. Operating income for this division excluding corporate costs was $12 million, which is a 25% operating margin.

Sales in our Specialty Materials division grew 6%, reflecting modest growth in the industrial side of this business, which continues to be impacted by trends in the general industrial economy worldwide. However, our operating margin was improved in the Specialty Materials division to 13% in Q3, excluding corporate costs, despite continuing long-term investments in new-market developments in this business.

Now thus far into Q4 the demand trends from our customers remain stable, even with the uncertain pace of economic recovery across the world. It has been a good year for the industry, as fabs have invested in capacity to support a healthy global appetite for electronics. As usual, specific trends bear watching, particularly for some memory makers. However, one thing remains clear, our customers are continuing to invest in next-generation technologies and Entegris is in an excellent position to capitalize on those investments.

I'll now turn it over to Gregory Graves for commentary on the financials as well as our outlook for the fourth quarter.

Thank you, Gideon.

I'm very pleased with our financial results for the third quarter. Our sales remain strong throughout the quarter, and our operating margin was at the high end of the target model. Sales of $178 million were up 6% from Q2 and reflected solid growth in each region. In Asia, our largest region, sales grew 6% sequentially. The US grew 7%, Japan was up 7%, and Europe grew 5% versus Q2. Foreign exchange rates had a $3 million favorable impact on sales, largely related to the appreciation of the yen.

The unit driven / capital driven split for our revenue was 61% unit driven, 39% capital driven. Our capital driven sales were up approximately 12%, and our unit driven sales were up approximately 4%. Third quarter gross margin of 45% was in line with our target model. The decrease from 46% in Q2 was primarily due to a shift in product mix.

Q3 operating expense of $48 million were up slightly. R&D expense was a record $11 million and reflects our continued commitment to invest in new applications and technologies. This investment allows us to keep our products on the leading edge and develop new products for both current and emerging markets.

Our adjusted operating margin was 18%, this level of performance continues to be significantly higher than what we would have achieved during the last industry cycle. Other expense for the quarter was $1.6 million. This includes the impact of currency exchange rate changes on yen denominated liabilities, a small amount of interest expense, and amortization of bank fees related to our credit agreement. Non-GAAP EPS, which excludes amortization, was $0.18 per share, and GAAP EPS was $0.17.

We had another excellent quarter of cash flow performance, generating $45 million in cash from operations. Adjusted EBITDA for the quarter was $39 million. Regardless of how the industry cycle unfolds, we are on track to generate more than $140 million of EBITDA for the year.

Turning to the balance sheet, we ended the quarter $93 million net cash positive. This is an increase of $44 million over Q2. We have continued to see strong cash flow in Q4, and I am pleased to report that our cash balance today is in excess of $100 million, an amount we had initially hoped to achieve by year end. 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 improved slightly to 4.1 times. Depreciation expense was $6.8 million in the quarter, and CapEx was $4.5 million.

Looking forward, business trends continue to be favorable, and we currently expect sales of $173 million to $183 million in Q4. At these revenue levels, our target model is for gross margins in the 45% to 46% range, operating margins of 17% to 19%, and non-GAAP EPS of $0.17 to $0.19 per share.

To provide a little more granularity, in Q4 we expect manufacturing fixed costs of approximately $26 million and variable manufacturing costs of about 39% to 40% of revenue. We expect operating expenses of $48 million to $50 million, up slightly from Q3. The increase reflects project-related costs for several key initiatives, but a de minimis increase in fixed costs. The tax rate should again be in the 20% range.

In summary, we are executing well against our growth strategies. We see room for growth in our core markets and are achieving design wins, both with device manufacturers and OEMs, that position us to continue to gain share. Our fight-back initiatives have good momentum, and we have good reason to be optimistic about our new market initiatives. We are generating significantly hire margins and cash earnings on comparable revenues than in past cycles, and finally, we are generating substantial free cash flow, our cash position continues to grow, and we are essentially debt free.

In short, we are confident that the steps we are taking to drive growth and ensure solid execution 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.

Thank you, Mr. Graves. Today's question-and-answer session will be conducted electronically. (Operator instructions). And our first question comes from Avinash Kant from D.A. Davidson and Company.

Good morning, Gideon and Greg.

Good morning, Avinash. How are you?

Very good. Very good. Questions regarding Q4. In the Q4 revenue guidance that you are giving us, what kind of mix assumptions do you have from unit and CapEx driven businesses?

We would expect the unit and CapEx to be pretty similar to what they were in Q3, Avinash. So in Q3 it was 61% unit driven, 39% capital driven.

Should we expect a similar mix from the -- in the semi and non-semi side? 74%, 26%?

I would expect that mix to be relatively comparable, yes.

Right. And you talked about your buyback initiatives and share gain initiatives. Can you give us some idea in terms of the magnitude of traction you have seen. Like in terms of share gains, where are you compared to the last few quarters? Or in terms of absolute business from some of those products, how much are you generating right now versus a few quarters ago?

Well, Avinash, we don't break these individually on a quarterly basis, but I will tell you year to date our fight-back initiatives are up 161% versus the Company being up 101%. So that gives you some idea of how successful we're being in the fight-back initiatives. So good traction, growing significantly faster than the overall business.

And could you give similar numbers for maybe the share gain initiatives that you have?

The share gain initiatives that we have really are a result of the fact that we did not reduce our investment in advanced technology nodes during the downturn, and that has resulted in winnings of print position or being on a number of new tools that are now ramping up. Now, the best example I can give you is the fact that in our CCS business, a lot of the growth of the capital side of that business, which was significant this last quarter, relates to fluid handling platforms that are new for us, and that are part of what you are describing as share gain. I would also tell you that many of the FOUP opportunities we're looking at over the next two to four quarters, related to both fab expansion or fab improvement as well as new fabs, the -- is really related to platforms that incorporate new technology that we invested in during the downturn. For example, our barrier materials and others.

Okay, perfect. And then another question on CapEx and depreciation. I'm just double checking the numbers. CapEx is $4.5 million, and depreciation is $4.3 million. Am I right there?

Depreciation was $6.8 million.

$6.8 million. And how should we model it for the rest of the year and maybe the next year?

I think for the next year I would model depreciation relatively flat. Our amortization, which was $2.8 million in this quarter, will track down slightly as we move in to next year.

And CapEx for the next year?

CapEx for the next year will be up slightly from where we are this year, and we'll give some more specific guidance on that in our year-end call. Today we're just finalizing our budgets and looking at a number of key initiatives, but we'll give some granularity on that at year end.

Final question, if you can talk about the LED and solar businesses that you have been talking about lately. How big it is and where is it going?

Avinash, this is Bertrand. We won't quantify those markets for you. We have not done that. But in aggregate those two markets were growing very nicely quarter-over-quarter, and they are starting to represent a greater portion of our total revenues. So we like the momentum that we see in those applications and those markets, and we are continuing to invest in derivative technologies to better meet the contamination challenges that those industries are facing. So we believe we have a very relevant portfolio of technologies for those industries.

Thank you so much, Bertrand. Thanks very much.

Our next question comes from Kelly Anderson from Sidoti & Company.

Good morning. Thanks for taking my questions, and congratulations on the strong results here. First off, I just wanted to ask about the Specialty Materials group. Revenue in that segment seemed to be very, very strong this quarter. I'm just wondering if this is all related to industrial growth, or whether there were any significant design wins that hit during the quarter that you would be willing to share with us?

Well, the sales of coatings products that's within Specialty Materials were record sales for the quarter. And that was a very good quarter. In fact we had both -- sort of a trifecta. We had a record quarter for that business, we has a record month for that business, and a record day for that business. It did very well. And there certainly design wins that are in there. Sales of graphite products did grow modestly, and some markets more than others, but we think we're gaining some decent traction in some of those as well. But coatings really was the outstanding performer there, Kelly.

Okay, great. And just a follow-on to that. If you look at the pipeline of new opportunities in that business with the design wins, would you expect to see continued growth in that segment, or is it going to be lumpy going forward?

It's not going to be lumpy in the same way that an OEM business, a FOUP business is lumpy, but it is a business that will, like much of our business have growth rates that are not exactly the same in every quarter. I would expect this business to grow demonstrably over the next three to four quarters, and as it does, it will grow into a level of profitability that will be commensurate with the other businesses that we have.

Okay, great. That's very helpful. And then just also touching on the LED and solar initiatives there, can you give us any specific milestones in that area? Are there recent or expected product introductions that will help drive additional growth in the business? And just given the recent concerns about equipment sales to the LED market, can you talk about how you feel you are positioned there in light of those concerns?

Right. So this is Bertrand. I will only say that we have a couple of product introductions that we will be in a better position to describe and discuss as we release our Q4 earnings, but let me put it this way. I think what we're seeing in both solar and LED is a conversion of very positive factors for us. One, both of those industries are realizing that there's a direct correlation between their years, the quality of their products, and the contamination challenges that they are facing. That's number one. Number two, both of those industries are also working on automating their processes, and that could also represent a whole new series of opportunities for us. And our teams have been working on those two fronts with a fairly high degree of success. So some of those opportunities are already translating in to revenues today, but some of those opportunities -- some of the other opportunities may only translate in to revenues in the next 12 to 18 months.

Fantastic. Thanks for taking my questions.

Our next question comes from Tim Arcuri from Citi. Go ahead.

Hi, this is Wenge Yang; I'm working for Tim. Couple of questions. First of all, what have you seen in terms of wafer starts and utilization rate for Q4 and maybe a little bit beyond, Q1?

Weng, your question is about wafer starts for trend information?

Yes.

Yes.

That's correct.

Yes, so, Wenge, we don't forecast wafer starts, as you know. We -- I would say we see continued high utilization at the advanced node. That's first of all the case. In some cases some perturbations around that. Potentially in some cases a little bit lower utilization, particularly the less advanced nodes, the more mature parts of the business. Nothing that I would describe as a dramatic deviation from what we have seen over the past quarter.

Okay. So your guidance indicates flat kind of revenue, and you just mentioned you will have similar mix. So following your unit revenue, you don't see any decline. Does that mean you are shifting more towards leading-edge kind of technology node, and also any indication that you may gain some shares, despite all utilization may come down a little bit.

Wenge, it's Bertrand, I will only tell you as of right now, as we get in to Q4, the velocity of our unit-driven business is very strong, and we are not seeing any sign of weakness in terms of unit-driven revenues. You are right that the biggest growth rates are seen in product lines that are used in the leading-edge technologies. In particular, I can give you the example of our Torrento filters, which is used in wet etch and clean applications, for some of the most demanding chemistry use. And that particular product line enjoyed a 30% growth rate, quarter-over-quarter in Q3, and we expect this product line to continue to do really well in Q4.

Okay. In terms of OpEx, you did a great job in controlling OpEx despite on the revenue growth. Is this sustainable next year, and what kind of OpEx trend you are seeing for 2011?

I would say the OpEx trend is sustainable, in part because this year recall every quarter we have got approximately $3 million of, what I'll call excess incentive comp, above targets. Next year we would expect to operate closer to target with regard to variable compensation. And we have the organization really focused on managing to these target operating models and focused on variable costs, not adding much in the way of fixed cost, so I would not expect to see OpEx move up as we move in to next year. There are a number of major projects. We have an SAP upgrade next year. We are doing some things around our supply chain that are one-off costs, but as we look at kind of the base cost moving into next year, we should be pretty constant.

Great. Just a couple more. One is regarding cash flow. My model says you going to have about $150 million cash by the end of the year. That's quite a difference compared to a year ago, so with more cash flows coming from operation, do you ever think about what to do with those cash? Are there any plans in terms of buybacks or other usage of the new cash coming from operation?

At this point, Wenge, we are happy with the cash flow, and we will continue to at this point put that on the balance sheet. If you look at the level of cash that we have relative to any group of peers that -- the percentage of cash relative to our revenue level is still lower than we want it to be, and so that's our view. Call it conservative view if you wish, but that's what we're doing at the current time.

Okay. Just allow me one last question. Yesterday one of your peers in the subsystem space discussed some of the push-outs by their key customers in the end of Q3 that caused some miss on the revenues. So have you seen similar kind of push-outs from your key customers in the CapEx side? And what is your latest discussion with them in terms of Q4 push-outs or delays in shipments?

Yes, we have seen some level of push-outs, but in the grand scheme of things it was not very meaningful to the overall trend of our business, and -- again, so we have not seen cancellations. We have seen some slightly delayed projects.

Okay. Thanks.

Wenge, we saw very strong revenue growth to the OEMs during the quarter.

And any kind of last-minute weakness that was reported by your -- one of your peers yesterday?

No.

No, our business actually continued to strengthen through the quarter.

Okay. That's great. Thank you.

Our next question comes from Krish Sankar from Bank of America, Merrill Lynch.

Yes, hi. I had a couple of questions. It looks like your break -- your CCS level was pretty strong. Should we expect the same level to continue into Q4?

Our CCS business grew 9%. Both our liquid filtration and gas microcontamination businesses reached record levels, and as Bertrand was saying, I think we'll continue to do very well against our competition, and that business is running on all cylinders. Bertrand?

Yes, again, we posted all-time records for those two big components of the CCS business, gas purification and liquid filtration. Those markets -- those product lines enjoy very solid business trends in both semiconductor and LED markets for the case of gas filtration systems, and again, I don't expect any significant change in those trends going into Q4.

Got it. And your CapEx sales has been pretty much tracking in line with the OEM shipments trend. In the scenario like what Lamb had said the first half of 2011 being flat for shipment, what does it mean for Entegris's CapEx-driven sales business? Do you think you can do better than that, and if so, why?

Well, we have done better so far this year. You say we're tracking, but our CapEx sales for the year are up -- nine months over nine months or up 177%. I think that's probably better than wafer front end equipment. We do, I think as you pointed out, there's an early-cycle element to that. But I don't see any reason to think that we wouldn't continue to track, in part because we continue to do very well on the share front. We continue to do very well with regard to our fight-back initiatives, one of which is capital driven.

Right. And can you tell us where your wafer shipper market share is today? I remember like six months ago at the analyst's day you said it was under 10%, and the goal was to get it to 30%. Where is it today?

The market share is still around 10% as of right now. We were particularly pleased this quarter with some new wins in terms of shipping lanes. But we also had some headwinds with some of our largest DRAM Taiwanese customers were operating at reduced capacity in Q3 as they were transitioning to 15 nm processors, so it did hurt us a little bit during the quarter. But as we get in to Q4, I think we are really well positioned for growth.

And in the past, Greg, you said that net cash position of $100 million is when you are going to start looking at other use of cash. Is it still the idea, or do you want to actually increase that net cash balance to like more than $100 million at this point?

Today, Krish, we're very comfortable continuing to increase that cash balance. And we've done some work really and compared ourselves to some of the comparable companies. And we're still -- while we feel good about our balance sheet, it's still not really in line with the other peers in the industry. So today we're going to continue to take the conservative approach and build cash.

So what -- where do you think that cash has to be before you get more -- before you increase appetite for other things? It's going to be like $125 million, $150 million, or more than that?

Today, if you pin me on a number, I would say $150 million, but that doesn't mean the quarter after we hit $150 million, you can expect any kind of magical change. But I would like to see us drive toward $150 million in cash.

Got it. Got it. What is -- I didn't get it -- what is the breakdown of sales by geography?

The breakdown by geography -- I have got that right in front of me -- was 39% Asia, 18% Japan, 28% North America, and 14% Europe.

Got it. Thanks, guys.

(Operator Instructions). Our next question comes from Christian Schwab with Craig-Hallum Capital Group. Please go ahead.

Great. Thanks for taking my question. Actually all of my questions have been answered, but I would like to congratulate you as a management team returning to precise guidance for the next quarter. That's it. Thanks.

We were thinking of you Christian.

Our next question comes from Steve Schwartz with First Analysis. Go ahead.

Hey, good morning, guys. Let me echo Christian's comments. Nice -- it's a nice quarter. I guess the first question I have is on incremental gross profit. Looks like it was about 30%, and through most of this recovery, you guys were running at 55% or higher. Greg, can you give us any color on what the higher costs might have been there?

Yes, really -- first I would say we continue to operate our manufacturing facilities at very efficient levels. We did have a shift in mix for the quarter. It's not a shift they would expect to be permanent, but that had an impact on our revenue for the quarter. The last piece is that as we came in to Q3, we did not have -- the value of our inventory created in Q2 was a little bit higher than what we brought in from Q1 into Q2. So I would not expect to see the same type of margins on the same type of revenue next quarter as we saw last quarter. We -- the margins should be stronger.

Should be stronger. Okay. You had this gain on the sale of equity investment. Can you just tell me what line that falls under for adjustment purposes?

It's in the other income.

In other income.

And [that's] -- I talked to about three items that were expenses. I should have mentioned its $500,000 net against those.

Okay. And you did, Greg, you did address the higher spending in ER&D, it is maybe $0.01 a share this quarter versus in the quarters in the first half of the year. Do you expect that higher level at $11.5 million to continue?

We -- with regard to operating expense, I think we expect operating expenses to continue to move at a pretty consistent level to where they are (inaudible -- line noise) similar to mix to what we have today. If you look at most of the investment that we have made, as we come off of the bottom, all of what I would call kind of the permanent headcount adds, or the vast majority have been on the ER&D line. We do have some tailwinds on the operating expenses as we come in to next year, in that this year we do have very significant compensation above the target model, variable comp of about $3 million a quarter. So I feel very good about the fixed component of OpEx and our ability to manage that as we move in to next year.

Okay. And then your credit facility, the current one expires in November, right? Of next year?

Yes.

Okay. Okay, so you've got [one]. So if you could just give us some color, for you sitting in your chair, what -- how does that effect your approach to managing the balance sheet and resetting that facility?

It really doesn't -- given our cash position, it really doesn't have any impact on my thinking. I mean, at some point we'll need to put a new facility in place. It will probably be a relatively small facility. But we need to keep the facility, because we do a lot of things on letters of credit, and we need a facility to back those up. But from a needing $60 million of additional liquidity in a facility, which is what we have today, that's not something we are going to need going forward. So I would expect some time in the first half of next year we'll replace this facility, like I said, with a smaller facility.

Okay. And then just one last one, and I'm going to lob this out there for you guys. You have got a strengthening balance sheet. As the previous analyst highlighted, you are generating $30 million to $40 million in free cash a quarter. Balance sheets out there in the industry generally are strong. Debt markets are getting better. Are you guys a take-out candidate? Do you think about that? Do you talk about that? Can you give us any color on your thoughts there?

Yes, well, we really don't think or talk about that. We think we have a business that's undervalued. Greg mentioned that in his talk today. We think the best way to get that business valued properly is to keep doing exactly what we're doing, because these things are self-correcting in the end. So we don't spend a lot of time either worrying about this or thinking about it for sure.

Okay. That's great. Thanks, Greg and Gideon.

Our next question comes from Dick Ryan from Dougherty. Go ahead, please.

Thanks for take my question. Say, Greg, I think you mentioned your trends in Q3 strengthened throughout the quarter. Is that correct?

That's correct.

Okay. Going now with fourth quarter, month in, how should we look at the trends in Q4? Are there any headwinds there that you are seeing? Or how should that trend?

I think we said our business continues to be quite firm, and we've laid out pretty specific guidance that says we really expect the quarter to be flattish, plus or minus $5 million.

Okay. Okay. Thanks. Gideon, on the talk -- on the discussion of Specialty Materials, I didn't catch your profit growth. I thought you said something that you could expect to see that -- the profit expectations come up to the other two segments? Are you kind of insinuating low to mid-20% range?

I think you need to think, Dick, of that as a business with operating margins moving into the high teens. I mean, we think at $25 million in revenue a quarter, that's a 20% operating margin business.

At $25 million what?

$25 million in quarterly revenue, it's a 20% operating margin business.

Okay. And on Microenvironments, is there -- can those margins approach Contamination margins?

They -- actually, we have had some months within the quarters where they have. The Microenvironment business is operating very well. Clearly as we see volumes in the 300 mm shipper and we see additional volumes in the FOUP area, we could see some improvement in those margins, but today if somebody said to me, I expect that the CCS business will continue to be our most profitable business.

Great. Thanks, guys. Good quarter.

(Operator instructions). Our next question comes from [Chris Sigala] with B. Riley and Company.

Yes, good morning, this is Chris Sigala in for Mike Crawford. Thanks for taking my call. Congratulations on the quarter. Just wanted to kind of touch on the fact that your business appears to be pretty strong right now. My question is what sort of things can you point to now and maybe provide some color on that would signal a change in the business from the strength you are seeing now to potential softening?

Ladies and gentlemen, please stand by.

That was so weird.

Ladies and gentlemen, again, please stand by. We will resume momentarily. Thank you for your patience. Ladies and gentlemen, again, thank you for your patience. We will resume momentarily. Thank you. Okay. Mr. Cantor, I'm showing the next question comes from Chris Sagala with B. Riley and Company.

Hi.

Hi, Chris, I just wanted to apologize. Apparently we had some technical difficulties here, but please go ahead with your question.

Yes, thanks. I'm just calling in for Mike Crawford. Just wanted to say congratulations on the quarter. The business appears to continue to be strong. My question is what sort of signs can you point to and hopefully provide some color on that would signal a change in the business from the strength you are seeing now to some potential softening?

Hi. It's Gideon Argov. I think we have been pretty clear throughout this call that our business continues to be fairly robust. We have guided up or down 5% for the next quarter, and we have even said in the fourth quarter, which is now ongoing, we don't see any signs of a dramatic deceleration of the business. That would be my answer.

Right. I wasn't insinuating that that would be forthcoming, but if there's any sort of signs that you can point to further out that would tell you that there is some potential softening?

I don't see those signs. I mean, typically what you are talking about is tool cancellation orders, and we said we don't see those cancellations.

Okay. Thanks a lot.

This concludes today's question-and-answer session. At this time, I would like to turn the conference back over to Gideon Argov for additional comments.

Thank you for joining our call. We look forward to updating you in the future.

That concludes today's conference call. Thank you for your participation.