Good day, ladies and gentlemen, and welcome to the Cabot Microelectronics’ Fourth and Full Fiscal Year 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] I would now like to introduce your host for today’s program, Trisha Tuntland, Director of Investor Relations. Please go ahead.

Good morning. With me today are David Li, President and CEO, and Bill Johnson, Executive Vice President and CFO. This morning we reported results for our fourth quarter and full fiscal year 2015, which ended September 30. A copy of our earnings release is available in the Investor Relations section of our website, cabotcmp.com, or by calling our investor relations office at 630-499-2600. A webcast of today’s conference call and the script of this morning’s formal comments will also be available on our website. Please remember that our discussions today may include forward-looking statements that involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from these forward-looking statements. These risk factors are discussed in our SEC filings, including our report filed on Form 10-K for the fiscal year ended September 30, 2014, our quarterly report filed on Form 10-Q for the quarter ended June 30, 2015, and our current reports filed on Form 8-K on October 22, 2015 and today. We assume no obligation to update any of this forward-looking information. I will now turn the call over to David.

Thanks, Trisha. Good morning, everyone, and thanks for joining us. This morning we announced financial results for our fourth quarter and full fiscal year 2015. During the quarter, we achieved revenue of approximately $100 million, a gross profit margin of 52% of revenue, which is 290 basis points higher than in the same quarter last year, and diluted earnings per share of $0.50. For full fiscal 2015, we reported revenue of approximately $414 million, including record annual revenue from our CMP slurries for polishing tungsten, which grew 10% year-over-year. We also achieved a gross profit margin of 51.3% of revenue, or 350 basis points higher than last year. And, we achieved record diluted earnings per share of $2.26 for the full year. Based on the successful execution of our business initiatives in fiscal 2015, we expanded our gross margin percentage to its highest level since 2002, and achieved a record level of profit for our company, representing approximately 11% earnings growth compared to the prior year. We achieved this increased profit and profitability within a challenging industry environment. Bill will provide more detail on our financial results later in the call. On the topic of overall industry demand, let me offer our perspectives on the global semiconductor industry environment. As we have discussed with you previously, this year seasonal demand trends differed from the trends, the industry and our company have experienced over the past three years. We experienced stronger than normal seasonal demand in the first half of our fiscal year, but weaker than normal seasonal demand during the second half of the year. When we reported results for our third fiscal quarter in July, we mentioned that orders for our CMP consumables products through that time were trending in line with the average rate in our third fiscal…

Thanks, David, and good morning everyone. Revenue for the fourth quarter of fiscal 2015 was $100.1 million, which represents a 13.9% decrease from the record revenue in the same quarter last year. Total revenue for the full fiscal year of $414.1 million represents a 2.5% decrease from the prior year. Our fourth quarter and full year revenue results reflect continued soft global semiconductor industry demand, which David addressed, and business losses in slurries for dielectrics and data storage applications, that we have previously discussed. Foreign exchange rate changes, primarily the weaker Japanese yen and Korean won versus the U.S. dollar, reduced year-over-year revenue by $3 million for the quarter and $7.5 million for the full year. Drilling down into revenue by product are, tungsten slurries contributed 46.4% of total quarterly revenue, with revenue up 3.1% from the same quarter a year ago. Our tungsten product area achieved record revenue during the quarter, and year-over-year revenue growth for the seventh consecutive quarter. We also achieved record tungsten slurry revenue for the full year, with revenue up by 10.3% compared to the prior year, driven by strong demand from both logic and memory areas. Dielectrics slurries provided 22% of our revenue this quarter, with sales down 24.9% from the same quarter a year ago. For the full year, dielectric slurry revenue decreased by 18.4%. The revenue decreases primarily reflect the loss of lower performing legacy dielectrics business that we began to see in the first quarter of fiscal 2015, which we have previously discussed. As Dave had mentioned earlier, during the fiscal year, we made notable progress on the commercialization of a new family of much higher performing dielectrics slurry products, which we believe will enable us to profitably grow this product area in the future. Sales of slurries for polishing metals…

[Operator Instruction] Our first question comes from the line of Dmitry Silversteyn from Longbow Research. Your question, please?

Good morning, Dmitry.

Good morning, guys. Couple of questions. First of all, if you look at the dielectric business or the dielectric product line that you launched [indiscernible] ramp up in 2016, what sort of revenue should we be looking for those businesses in 2016, obviously you are not going to be able to recapture the full 20% plus this year, but you talked $100 million opportunity. Are we going to get $20 million, $30 million of that in 2016 as these businesses ramp up?

Hi, Dmitry, it’s Dave. We mentioned $100 million of business opportunities for this dielectrics, this new dielectrics product, that represents what we think is business that's currently being served by other suppliers. So that would be kind of position gains for us. And we mentioned -- so I think as you know, the dielectrics market is a significant part of the slurry market overall. And so we think this product is applicable broadly across that application. And this year, we made good progress, we talked about securing several business opportunities that they are beginning to ramp up now, but yeah, I wouldn't comment – I couldn’t comment on specific revenue numbers, but we're very encouraged by the feedback we received from customers, the traction of the products getting throughout the industry. And then the other thing I'd mention is just related to our acquisition of NexPlanar. One of the things that we're also very encouraged by is their technology fit with our slurry technology and we’ve talked about offering consumable set, so that's one of the other opportunities we see with the combination of NexPlanar’s technology in pads with our slurries and also including this new dielectrics family of products.

Okay, all right. Secondly on the data storage device slurries, obviously they are small part of your business, but we have seen it come down in revenues from something close to $30 million, while down to less than half of that in 2015. How should we think about this business? I mean, [indiscernible] but is it a trendsetting business or is there secular or cyclical growth story that we should be paying attention to that that doesn’t happen in the next couple of years?

Yeah, the data storage business serves the hard disk drive market and so in the past that’s been heavily reliant on personal computers and then over time more on data centers and servers and that sort of application that we’ve seen over two years of continued contraction of personal computers. And so that's really had an adverse effect on our data storage business. Analysts are looking for stabilization of the personal computer market, but I don't know that there are really any signs yet. In addition, we have talked about some business losses. Here, the data storage business is highly competitive and a bit different from the semiconductor industry and that supply positions are less sticky. And so the suppliers kind of trade positions more frequently and we have seen some of that. You’re right, it is – in our company, the data storage operation, it is pretty standalone and so to that extent, it continues to contribute to the company, but we do – we have some new products in development that we’re beginning to commercialize and our expectation would be that we could win back some of the business that we lost, that’s something that we can control. The broader industry personal computer demand and then servers will watch for that to grow over time, but it is, that’s a tough market to serve. But I’d tell you it’s not a drag on the company right now at the current level of business.

And Dmitry, just to add from the industry perspective, one of the things that I think is also challenging the hard disk drive manufacturers is the penetration of 3D memory, particularly a NAND, so you see a lot more of the laptops using 3D memory in place of hard drives. That’s obviously a positive for us as that memory requires more tungsten and CMP steps. So we're also watching the ramp up of 3D memory and I'm sure that's having some – also some impact on the hard disk drive industry as well.

All right. Switching gear to the ESF portion of the business again, another small business, but highly volatile, 30% plus I think growth this year year-over-year at about 37% [ph] decline last year. Do you have any – I mean, it’s a CapEx-driven business to understand, but it also would imply that you have an order book that have some [indiscernible] some credibility in terms of the ability to predict sales? As you look into fiscal 2016 and the orders that you have now for the capital equipment force [ph] should this be a 30% down year or 30% up here as you look at 2016?

Yeah, based on our current backlog, it’s relatively limited, so we have got work to do in QED operations going forward to buy more orders. I think a year ago, we talked about a pretty significant backlog heading into the fiscal ‘15, but we don't have that kind of a backlog heading into '16, so it will be challenging for QED going forward. Like data storage, that’s kind of a standalone operation within our company and relatively high gross margin, but like the rest of our – the CMP consumables business relatively high operating expenses, so we need to go out and capture more orders in fiscal '16 to sustain and grow the performance of that business.

Okay, that make sense. And then final question on sort of the fab business, the NexPlanar specifically, you mentioned that business grew from [indiscernible] to $22 million, a lot of that growth came in the last few years, which probably predominantly [ph] coincide with your three years of fab growth that you have had [indiscernible]. How should we think about that, I mean, the very outage [ph] that you see in the marketplace that they have the right products [indiscernible] and picking up the opportunities that were available from that or is it just coincident and the customers pursued, we are not making the [indiscernible].

Yeah, Dmitry, it’s Dave. I think from our standpoint, NexPlanar as being very complementary to our Company, our technology and our business, and if you look at the way, they have one business -- first from the business model perspective, we mentioned they have one business with six of the top 10 semiconductor manufacturers in the world. We also have support several. But the business model that they use is really based on performance differentiation. Rather than leading with price, they also are able to iterate very quickly. And then from a technology perspective, we feel they're also very complementary because their products are made primarily with polyurethane thermostat technology, which is the same as the incumbent. And so one of the benefits of that is they've shown that it's easier to qualify, but also has better performance, so that is also a key part of their technology and the way they differentiate. And I think it’s very complementary to our thermoplastic technology. So I think right now, given the acquisition of NexPlanar, we can offer our customers a full suite of pad products and also it gives us more optimism and encouragement around consumable set as well. So I think of it more as complementary rather than competitive, but that's how we look at NexPlanar versus our technology.

Right, and I understand David and Bill, thank you for that recap but my point is that you guys have -- your business has flat lined and you talked about all the issues sort of facing -- all the headwinds that preventing you from gaining business but the customers being unwilling to commit the time and the money to change in the competitor responding more aggressively to price, so and so forth, and yet in that same environment, a competitor of yours coming from nowhere with no reputation in the industry unlike you has tripled its revenues over the same time period. So I guess, on the one I'm glad that you've acquired them because hopefully you will pick up their sales acumens and be able to drive your business. On the other hand, I’m sort of concerned that after the growth that they witnessed over the last three years is comparable to the speed of growth that you witnessed your first three years of existence of the business, they’re going to flat line the same way you guys are. So how do you address those concerns?

I think just overall from the customer standpoint, Dmitry and I just got back from a trip from Asia, I think customers clearly want an alternative pad and I think from our standpoint we've been in business in the pad end area for a while, NexPlanar has also been around for a while, they started in 2003 and recently we mentioned they’ve had really impressive growth. So we look at this acquisition as really continuing our commitment, if you look at our pad growth trajectory, yes, we’ve been disappointed at the pace of growth there, we think NexPlanar is going to absolutely help that, that’s why we acquired the company for the growth. But I would also say looking at their position; they’re really focused on advanced and leading-edge. And so if you look, if you look project forward those technologies ramping that should also be positive momentum for pads growth for our company going forward. So, I understand your question, it is definitely competitive market, there is no doubt about it, but we’re committed and we’re really excited about this acquisition and what it brings to our company both from a pad portfolio but also from a consumable set standpoint.

Let me comment a little further on that, we've talked about our business in pads, where we served approximately 30 customers. We've gone pretty broadly out to the market across a range of technology nodes and applications, NexPlanar given its more limited resources has targeted for the advanced nodes and a more limited number of customers. So we haven't necessarily been competing head-to-head with them a lot of different places and we think that now there is the opportunity for us to take their products more broadly through our infrastructure and continue the growth that they've seen over the last several years.

Okay, alright thank you Bill.

Thank you Dmitry. We’ll take our next question please.

Our next question comes from the line of Amanda Scarnati from Citi.

Good morning for taking the question. Just continuing on the NexPlanar acquisition and where you see Opex trending, you said it’s going to be at the midpoint about 145, probably about 8 million or so on year-on-year. Do you see a lot of that in general and administrative expenses or some of that be in R&D as you work to kind of get consumables that are with the NexPlanar products.

Look there are a number of, when you look at the walk from fiscal year ’15 at $137 million of operating expense unless you use the midpoint of the guidance range for ’16, 143 to 147 with a midpoint of 145. There are a number of moving parts, so think about fiscal year 2015, we had some higher costs of executive officer transition that was, call it around $3 million or so that you wouldn't expect in fiscal ’16. In addition, we decreased the size of our leadership team and so we would expect actually lower cost in the administrative area from a smaller executive officer group on the order of several million dollars next year or in fiscal ’16. So kind of a swinging of around $6 million just by virtue of that those officer changes. Then what you want to consider to add in fiscal ‘16 with the acquisition of NexPlanar we would expect around $5 million to $6 million of amortization expense and so that's not something that they’ve had in the past nor we but it will be an additional burden going forward, $5 million to $6 million and that's included in our guidance for fiscal ’16. So then you’d lay in NexPlanar’s operating expense and then just net changes in our -- of the CMC side operating expenses of number of millions of dollars and you get to that 145. So there is some, a number of kind of puts and takes. If you think about past 2016, we expect there would be some significant synergies as we combine the two businesses. We don't expect net synergies to be significant in fiscal ‘16 because I think some of the cost of capturing the synergies will offset the synergies in that first year. But into fiscal ‘17 then you'd expect something on the order of $8 million to $10 million of synergies related to the combination of businesses not necessarily all-in operating excellence but some in cost to goods sold, operating expenses and also some in tax rate I think.

Great, thanks for the color that really helped. And then, David just kind of on the end market dynamics on what you're seeing so far in the December quarter and you mentioned that there is some softness in demand continuing on in December, but are you still seeing strength in tungsten relative to other areas or are there other areas in the pads business because organically that you're saying kind of some bright spots this first one.

Sure, so Amanda, it's definitely like many others what we’re seeing is, it's demand is stable but definitely a little soft right now. As we mentioned we’ve definitely seen a departure from the seasonality that we've seen in the past several years. And again just coming back from Asia, what the lot of customers are talking about are similar to what the analysts are talking about, which is higher inventory levels, some are related to smartphones. And I think generally people are just waiting to see how the holiday season goes, what's the next big thing that's going to capture the mind of the consumer and no one is really sure what that is right now. We do as we’ve mentioned see some encouragement from the ramping of some of these new technologies like FinFET, 16 and 14-nanometer, that's in early stages of ramp, 3D memory, all those require new CMP consumable slurry. So for us as we mentioned, about 13% of our tungsten revenue this year came from supplying those technologies that are at early stages of ramps. So that gives us definitely some optimism and confidence about our future in tungsten. And then the other comment I would make is, sometimes, during this period of lower utilization, it gives an opportunity for us to introduce more qualifications or more new consumables to our customers. So they have -- they are running their tools at lower utilization, they may have more tool times to do qualification. So we’re certainly leveraging this opportunity to accelerate introduction of pads and slurries to our customers as well.

Great, thank you.

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

Our next question comes from the line of Jairam Nathan from Sidoti.

Hi, thanks for taking my question. So with respect to NexPlanar, thermal set technology, you sense a possibility as you move on in the future, if you notice their technology being little more adapted more frequently, is there a possibility to kind of shift your capacity to their technology or is it difficult?

Yeah. Jairam, I think their technologies are complementary. What I really like with the addition of NexPlanar is that we’re able to offer a full suite. So we continue to support our D100 family of pads, our D200 family of pads and now NexPlanar. So for me, it’s really offering just like we do on the slurry side where we offer solutions across different applications, different technology nodes. The same for pads. This kind of rounds out our pad portfolio. So I wouldn't look at it as one or the other. We've had success growing our pads business. They’ve had tremendous success, growing their pad business more recently. So it’s a good combination.

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

Okay. And with respect to, I noticed that your CapEx is going up next year, is that all related to NexPlanar or is there some Cabot CapEx as well?

Yeah. So the guidance is $15 million to $20 million for fiscal 2016 and historically, we run within the range of $12 million to $15 million per year and we did around $14 million in fiscal ’15. So it is higher and probably the most significant element of that would be NexPlanar. We think there are some opportunities for capacity expansion there that we’ll plan on doing in fiscal ’16, so that is most of the difference is based on NexPlanar.

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

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

So when you look at -- we've definitely been monitoring for example, there has been some pushouts of CapEx from some of the industry leaders. As you know, from our businesses, the consumables business, so we would grow with wafer starts, not necessarily immediately with CapEx. In terms of the technology progression, I look at it as two different ways, on the memory side, we see continued adoption ramp up of 3D memory and that should be we are really encouraged by that because it requires more dielectrics, more tungsten, so that presents a really great opportunity for us for growth and you'd expect 3D memory to continue to ramp up in the next couple of years and there has been a number of recent reports out there from Micron, Intel, Samsung, of course is the leader. So that is on the memory side. On the logic side, I think the foundries and the logic manufacturers are just getting started on 14, 16 and high-volume and they are working on their 10 nanometer processes. So I think it continues to progress. It might be progressing slower on the shrink side, but we still think -- we still see a lot of activity, a lot of development work from our customers going into the next year.

Okay, great. That's all I had. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Edwin Mok from Needham. Your question please.

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

Yeah, the weaker Yen was around 100 basis points off the year over year -- a little over 100 basis points year-over-year improvement. The other big factor was probably product mix.

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

If you look at recent history in 2012, we repurchased $33 million worth of stock. In ‘13, we repurchased $40 million and 2014, $53 million and then in fiscal ’15, around $40 million of stock repurchase. In our fourth fiscal quarter, we did not repurchase any stock. We’re in the midst of the NexPlanar evaluation negotiation and so we’re out of the market, but you’re right, we have $85 million of remaining authorization and when you’ve seen us in the past, we've been relatively steady buyers of our stock on the order of $10 million or so per quarter. We still have a strong cash balance, $225 million gross and $60 million net and we have the same strong cash generating model going forward that we’ve had in the past. So I think we will consider and continue to consider share repurchases as an important element of the capital deployment strategy.

Great, thank you.