Good day, ladies and gentleman and welcome to the Cabot Microelectronics Third Quarter and Fiscal 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, there will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over Trisha Tuntland, Director of Investor Relations. Ma’am, you may begin.

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 third quarter of fiscal year 2016, which ended June 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, 2015. We assume no obligation to update any of this forward-looking information. Also, our prepared remarks this morning reference non-GAAP financial measures. Our earnings release includes a reconciliation of non-GAAP financial measures. I will now turn the call over to David.

Thanks Trisha, good morning everyone and thanks for joining us. This morning we announced strong results for our third quarter of fiscal 2016 which reflect improved semiconductor industry demand as expected and discussed during our second quarter conference call in April, as well as the continued successful execution of our strategic business initiatives. In particular, we continue to support our customer’s transitions to advance logic and memory applications using our tungsten slurries. Customer adoption of our CMP pad solutions and qualification of our new high performing dielectric slurries. We realized revenue of $108.2 million, approximately 11% higher than in the same quarter last year, including the benefit of our October 2015 acquisition of NexPlanar Corporation. We achieved record quarterly revenue on our tungsten slurry product area and also significant year-over-year revenue growth in our pads and dielectric slurry product areas. Our gross profit margin was 48.1% of revenue and 49.2% on a non-GAAP basis, excluding amortization expense related to NexPlanar. We achieved diluted earnings per share of $0.76 which represents an increase of approximately 95% compared to the prior year. Non-GAAP earnings per share were $0.79 excluding NexPlanar acquisition related costs and amortization expense. In addition, we continued our strong cash flow generation trend with cash flow from operations of $25.1 million. Bill will provide more detail on our financial results later in the call. Let me start with some perspectives on the global semiconductor industry environment. As forecasted by some of our customers and industry analysts, industry demand strengthen during the June quarter and our results are consistent with this. Reports suggest that the stronger demand was driven by inventory replenishments and preparation for new product launches. As a result, exiting the June quarter, most IC inventories related to smartphone, wireless, network, automotive and gaming markets were at normal…

Thanks, Dave and good morning, everyone. Revenue for the third quarter of fiscal 2016 was $108.2 million, which represents an 11.3% increase from the same quarter last year, including the benefit of our NexPlanar acquisition. We generated 12.8% year-over-year revenue growth from our IC CMP consumables products. Year-to-date revenue of $307.8 million represents a 2% decrease compared to fiscal 2015, this decrease reflects soft demand within the global semiconductor industry during the first half of the fiscal year, including continued soft demand for PCs and competitive dynamics and certain dielectrics and data storage applications, all of which we’ve previously discussed. Foreign exchange rate changes reduced year-to-date revenue by $2.4 million, mainly due to the weaker Korean one versus the U.S. dollar. Drilling down into revenue by product area, tungsten slurries contributed 43.1% of total quarterly revenue with revenue up 7% from the same quarter a year ago. Our tungsten product area achieved record revenue during the quarter. As Dave discussed, we continue to see strong demand for our tungsten slurries for advanced applications including FinFet and 3D memory. Dielectric slurries provide a 23.4% of our revenue this quarter with sales up 13.9% from the same quarter a year ago. During the quarter we saw strong demand for some of our new high performing colloidal silica and ceria-based dielectric slurry products. Sales of slurries for polishing metals other than tungsten including copper, aluminum and barrier represented 14.8% of our total revenue and decreased 5.2% from the same quarter last year. We believe this decrease was primarily due to our continued transition of customers from our legacy products to high performing lower cost copper solutions which are sold as concentrated products and customer efficiencies that impacted revenue from aluminum slurries both of which we’ve previously discussed. Sales of our polishing pads which…

Thank you. [Operator Instructions] Our first question is from Dmitry Silversteyn with Longbow Research. You may begin.

Good morning, Dmitry.

Good morning, Trisha, how are you?

Good.

A quick question or maybe a couple of questions if I may. First of all on your SG&A expenses which are as Bill mentioned came down quite significantly and I understand sort of the one timers used or the one time [indiscernible] with like the CEO transition which has been sort of in the numbers before. So if you look at the reduction in R&D expense and general industrial expense particularly, how much of that is sort of cost control, how much of that is delayed spending perhaps and will back, and how much of that is fundamental and you’re going to be able to run these levels even as your demand compared, your revenues compared?

So our operating expenses in total for the quarter were $29.9 million and $4.7 million lower than the prior quarter. You remember in the second fiscal quarter we talked about kind of [indiscernible] effect of operating expenses in our second fiscal quarter which is the first calendar quarter. Typically we see higher cost related to the new calendar year like higher payroll taxes and some vocation accruals and things like that. And then the subsequent usually that reverses and that’s what we saw, so we saw one benefit of our recurrence or reversion to kind of a more normal fringe benefit rate. We also saw lower incentive compensation cost and that’s where of an adjustment based on quarterly accruals based on expectations for performance against goals, so that’s not sort of an ongoing thing but was an effective – it was a cost reduction this quarter. And then from an operational standpoint, and R&D you saw some lower cost related to R&D lab expenses, there is a significant spend item in our business of wafer cost in our clean rooms and we’ve had a program to more discipline around these and there was a pretty significant reduction this quarter and those materials for lab, that should be something that persist. But if you look at our full year operating expense guidance, it would imply $33 million to $35 million in the fourth fiscal quarter. So we would not expect $30 million kind of the rate this quarter to be on going.

Okay, all right. Well that’s helpful. Thank you. Second question – you mentioned that building a direct sales force if I understood correctly for pads is that right and sort of how do you see that – if that is right and I understood you correctly how is that going to help you with driving revenues for pads and executing your strategy of kind of [indiscernible] the pads and slurries together?

Yeah thanks, Dmitry. So, what we are talking about there is when we acquired NexPlanar they had a very limited resource set in place to actually sell and support and in some regions they were actually or most regions they’re actually using agents or distributors. So one of the things we’re really looking forward to leveraging is our existing global sales channel and we’ve done that, so we’ve gone direct and selling the NexPlanar pads along with our slurries, so that’s just using and leveraging our existing sales channel so that our sales teams that are currently selling our slurries and supporting from a technical support standpoint are also able to promote support the NexPlanar pads.

Okay, so it’s more than incremental building the sales force it was just basically unleashing it on NexPlanar product?

Right. And so what we’ve seen is just the ability to touch more customers promote this solution at more customers as we talked about, we continue to expand our pipeline and we’re selling now to 8 of the top 10 and we continue to look forward and really pleased with the growth so far.

Got it, David. And then one final question on the growth in tungsten and dielectric slurries, let’s talk about tungsten specifically here. You mentioned the FinFet and the 3D memory of the drivers, how much do those – do products for those applications now may [indiscernible] tungsten revenue or the tungsten dielectric of revenue?

Yeah. So we talked about first, of course we’re proud with our accomplishments and tungsten including the record quarter we had this time but we’re far from satisfied but if you look at how our products are positioned within those advanced technologies as you mentioned like FinFet, like 3D NAND those are just starting to ramp up. So we talked about the end of last fiscal year was about 13% of our tungsten revenue came from products supporting those advanced technologies and we’ll continue to update that progress but as we mentioned those technologies are just starting to ramp up.

[Indiscernible] of your revenue, so that’s very encouraging. Thank you.

Just to make sure – just to clarify, what we talked about, that was at the end of our fiscal year 2015 and we haven’t provided information.

Also that was – 13% of our tungsten revenue.

Right, right, I got it. Thank you.

Thanks Dmitry.

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

Our next question is from Amanda Scarnati with Citi. You may begin.

Good morning, Amanda.

Good morning, thanks for taking my question. Just a quick clarification, I think it was mentioned that [indiscernible] 50% year-over-year growth in revenue. And is this a function of working with new customers as they’re building GAAP in China or is this working with the existing customer base as expanding [indiscernible] or is this new home grown Chinese customers?

Thanks, Amanda. So let me start it, it’s probably parts of both. So if you look at how we’re positioned in China we’ve historically had a very strong position in that region both with the domestic and international players. So for the folks as you mentioned that the Intel, the Samsung [indiscernible], and many cases what they’ll do is when they build a fab in China they’ll transfer existing processes to the facilities in China, so to the extent that we’re – the incumbent we get transferred over. And then for the domestic players like the SMICs we also had very strong relationship with them because I think they really appreciate the support that we provide the experience that we bring and for them really its’ knowing that we’re bringing proven technology and products – products that are proven in HVM or high volume manufacturing, so it reduces the risk for them. So when we talk about China growth it was really broad based and across all of our segments, and as mentioned – and I know as you’re following, there is a lot of developments happening in China so we definitely think this is a growth opportunity for us and we look forward to continue to grow in China.

Great, thanks. And moving into the pads business, are you seeing increased pressure from the incumbent supplier there as you’re coming to market with these new NexPlanar product that compete more directly with them or is there sort of a status close in terms of ASPs?

I think if you look at – I mean if you look at our value proposition for our pads it’s not to go in at a lower price point versus being incumbent. What we’ve demonstrated our customers as we have a very significant defect activity advantage in some cases that translates to improved yield and then for our customers what they’re showing is that the technology since it’s also thermoset is much easier to qualify. So as we mention six months we’re seeing qualifications complete in the six months versus 18. And then from a cost of ownership perspective we’re competitive. So I would say that in general we’re going – and again back for the reason why we really found the NexPlanar technology so appealing is that it’s very complimentary to how we position ourselves with slurry which is really on value and performance rather than on price. So we’re seeing that validated in the market today.

Great, thank you.

Thank you, Amanda.

[Operator Instructions] Our next question is from Edwin Mok with Needham. You may begin.

Good morning, Edwin.

Good morning. Good morning guys, this is Arthur [indiscernible] for Edwin. Congrats on the great quarter.

Thank you.

So first question is on gross margin, I saw that gross margin came in a little softer than expected this quarter and then you highlighted some factors that impacted it. Is there any way you can give us a sense of the impact of each of these factors and some of the driver that you have in place to bring gross margin back up?

Yeah, so our gross margin this quarter was 48.1% and then if you exclude NexPlanar amortization expense 49.2%. Since the NexPlanar acquisition – NexPlanar has been your gross margin headwind and we’ve said that from the start that pads gross margins are lower than the company average. So it could be – it would be somewhat dilutive but it’s a large adjacent market and a lot of growth opportunities, so a lot of growth margin dollars available, even if it’s at a lower gross margin percentage. So that was one factor, and that’ll continue to be a factor I think. In addition, we mentioned higher material cost based on some contracts we’re absorbing some higher prices in [indiscernible] we use and we’ll continue to see that as a headwind. But we did see the benefit of higher sales volume quarter-to-quarter with the higher revenue, higher sales volume, there is some better absorption of fixed cost. The other factor like I mentioned in the comments on operating expense was lower incentive compensation cost also had an effect on gross margin. But if you look going forward, three important initiatives for the company are growing pads, tungsten growth with 3D NAND and FinFet and then dielectrics our transformation from older lower performing products to new higher performing colloidal silica and ceria-based products. Now two out of three of those would be beneficial to gross margin, so tungsten will be positive, the transformation of the dielectric is positive – would be positive and then like I mentioned, pads is likely lower gross margin product. Even within pads though, we have lot of opportunities for operational improvements, efficiencies and in fact right now we’re investing an additional capabilities in supply chain quality systems things like that to improve yields and performance in the pad business. So I think we would expect to see improving yields within pads and then the benefits of tungsten growth and dielectrics transformation providing some additional tail winds. Overall for the full fiscal year we said guidance now at around 49% and then next quarter we would give some update on outlook for fiscal 2017.

Great, thank you. That was very great color. So my next question is on dielectric slurries, I saw that it had very good growth this quarter, you mentioned that you’ve completed qualification for the silica and ceria-based slurries. So I was wondering just if we can get a sense of when that qualification can potentially translate into revenues when those revenues will most likely be most meaningful. And do you have any other qualifications currently ongoing, I know you’ve mentioned some opportunities [indiscernible] customers?

Okay, thanks. So when we talked about both the colloidal and ceria, this is our efforts to transform our portfolio over an extended period of time and so for example, for ceria we’ve had products in the market for a while. The colloidal based products are newer family of products that we introduced in the last summer. And what we talked about in the past is just for the colloidal based products we think they can target up to a $100 million of business opportunity and we’re just getting started, so we’re seeing a lot of traction, a lot of qualifications ongoing and we are certainly seeing revenue from that. From a ceria perspective, we’ve had products in the market for a while these are primarily for memory manufacturers. And so we’ve had products with commercial sales for a while but what we’re really encouraged by is the overall progress on transforming the portfolio, one that was really based on a lower margin older [indiscernible] silica based technology into these two new particles and technology that we’ve developed and customer adoption is seems to be going very well.

Great, thank you.

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

Ladies and gentlemen, this concludes today’s conference. Thanks for your participation and have a wonderful day.