Good day, ladies and gentlemen, and welcome to the MKS Instruments reports Q3 2013 results conference call. [Operator Instructions] I would now like to introduce your host for today's conference call, Mr. Seth Bagshaw. You may begin, sir.

Thank you. Good morning, everyone. I'm Seth Bagshaw, Vice President and Chief Financial Officer, and I'm joined this morning by Leo Berlinghieri, our Chief Executive Officer and Jerry Colella, our present Chief Operating Officer. Thank you for joining our Earnings Conference Call. Yesterday, after market close, we released our financial results for the third quarter of 2013. You can access this release at our website, www.mksinstruments.com. As a reminder, the various remarks that we may make about future expectations, plans and prospects for MKS comprise forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements, as a result of various important factors, including those discussed in yesterday's press release and in the company's most recent annual report on Form 10-K and most recent quarterly report on Form 10-Q, which are on file with the SEC. In addition, these forward-looking statements represent the company's expectations only as of today. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. Any forward-looking statements should not be relied upon as representing the company's estimates or views as of any date subsequent to today. Now I'll turn the call over to Leo.

Thanks, Seth. Good morning, everyone, and thank you for joining us on the call today. In a moment, I'll review third quarter and provide our outlook for the fourth quarter. Following me, Seth will provide details of our quarterly results and guidance, and then we'll open the call for your questions. First, however, I'd like to say a few words about my upcoming retirement and the announcement that Jerry Colella will succeed me as CEO at year end. It's been a terrific 33 years at MKS. I greatly enjoyed my time spent with our employees, our customers, suppliers and our shareholders. I'm immensely proud of how our organization has grown and performed during my tenure as CEO. Aside from meeting our growth and financial performance objectives, one of my personal goals has been to build the strongest possible executive team to lead the company after I retire. Jerry and I have worked together at MKS for nearly 31 years and in total, more than 33 years. He has been a key contributor in our combined efforts to cultivate a company culture centered around success in delivering results. His new role will bring additional leadership responsibilities and a greater role in guiding the strategic direction of the company. While he is new to many of you in the investment community, he has been the face of the company with our customers and suppliers for some time now. I know that each of you listening on the call today will enjoy hearing Jerry update you on our business during future conference calls. I shall look forward to that as well. Now to our third quarter results. Third quarter revenues were above the midpoint of our guidance at $166 million, up 6% from Q2. Over the course of the third quarter, we saw…

Thank you, Leo. First, I'll discuss the third quarter results before providing further details on our Q4 guidance. Revenue for the quarter was $166 million or a 6% increase compared to Q2 revenue of $157 million and an 18% increase from $141 million a year ago. Q3 gross margin was 37.4% and included a $6.4 million obsolete inventory charge for certain products that are for a key solar customer in China whose technology funding by the Chinese government has recently been reduced. Non-GAAP gross margin, excluding this inventory charge, was 41.2% within our expectations at this volume level. This compares to 39.5% in the second quarter. Non-GAAP operating expenses decreased in the third quarter and were $48.4 million compared to $51.7 million in the second quarter of 2013. Third quarter non-GAAP operating expenses reflect typically higher vacation schedules in addition to a 1-week shutdown in certain locations, a decrease due to timing of certain R&D projects and favorable foreign exchange. During the quarter, we also recorded approximately $1.1 million in restructuring charges in connection with the planned consolidation of certain facilities to allow for more effective service and support to our customers. Our non-GAAP operating margin was 12.2% of sales, up from 6.6% in Q2. Non-GAAP net earnings were $13.3 million or $0.25 per share compared to $7.3 million in the second quarter and $8.4 million in the third quarter of 2012. GAAP net income was $2.5 million or $0.05 per share. The GAAP tax rate for the quarter was 80.4%. In the quarter, we're able to take advantage of a favorable short-term tax election in a foreign location. This favorable election will permit the company to substantially reduce future income tax expenses when moving cash among foreign entities and resulted in a onetime income tax charge of $6.5 million.…

[Operator Instructions] Our first question comes from Jim Covello with Goldman Sachs.

This is Jack Sheng on behalf of Jim Covello. So I guess, last night, a major OEM client of yours, just guided to higher margins. How should we think about your longer-term margin structure given the recent wave of consolidation with your customers? I know you guys mentioned how Lam and Applied are currently about 30% of your sales.

I think if you're referring to the impact on us relative to pricing pressures, the industry's had pricing pressures for the 33 years I've been here. You work on improving your own cost structure. You work within the industry. We don't expect anything significant. You've got our numbers, estimates for the quarter, and we also show a model. We don't expect anything would change in both of those.

And as a follow-up, I was wondering if you guys can talk a bit more about your lead times. Have you guys have seen lead times stretch out given the pickup in the industry, particularly from the memory end market?

If you're talking about our ability to deliver to our customer lead time, I think that's what you're talking about.

Yes, that's right.

In our business, we are single source. So our customers count on us. One of the ways, aside from technology that we maintain that position, is through operational excellence. So we gear up as the industry gears up. We have a flexible workforce. We're able to bring in temporary workforce. We use over time to expand capacity. Our suppliers, we do long-term contracting with them, so they make commitments on materials that are available. So we don't anticipate -- we're happy to see the orders and don't anticipate anything changing in the lead time significantly.

Our next question comes from Krish Sankar with Bank of America.

Leo, couple of quick questions. Number one, in your guidance, how would you expect the semiconductor revenues to improve sequentially in December?

Yes, I think, in general, we have -- the non-semi business has been relatively stable. I think you can assume that most of that is in semi, although as you know, we -- we're sort of a turns business. So there can be some lumpiness in the quarter, and so I would say, in general, our thinking is that it's primarily semi.

Got it. And then you highlighted that you guys sold some -- sold a sapphire toolmaker [ph] . Kind of curious, was these sales for sapphire for mobile applications? Or was it for regular LED?

We prefer not to provide too much information on that. I think there's -- I don't think initially it's LED. Put it that way.

And are these shipments more than what you'd normally sell for LED segment? Or is it a brand-new opportunity that this would be difficult to be qualified [ph] ?

I didn't quite understand the question because you asked if these were shipments based on LED when I said likelihood is they're not going on LEDs. What -- can you repeat that again?

- Just the quality of shipment that is shipping for this application, is it -- is this the normal or...

No, higher than usual.

Our next question comes from Josh Baribeau with Canaccord.

Some of our -- some of your customers and some of their customers have started talking a little bit about equipment reuse, probably expect this trend to continue as each node gets much more expensive. Can you talk a little bit about how that affects you, if there's a services component or some of your subcomponents get swapped out or made more intensive as that happens?

Well, a piece of our both OEM and end-user business is upgrading existing tools, and we look forward to those kinds of things because typically what happens is they will upgrade a particular tool, prove out better performance and then upgrade a series of those tools that are doing the same thing. So we do that both directly with the fabs themselves and with OEMs who do some type of upgrade kits or refurbishments. It's been a trend for a while. I don't know that it -- the other thing we have seen is that with some of these new device structures, it's more difficult to reuse and needing some new tools. So I don't know that we're sitting here today expecting a major change in refurbishment or upgrades to tools, but we've been doing that for a number of years. It has grown, as you've said. There are more refurbishing, but we're not expecting at least in the near term anything unusual to change there. Typically, we get to put new products on exist -- older tools that they get to -- and it helps us get those components adopted on the next-generation tools as well.

Okay. And then are you able to quantify the increase in capital intensity for your business through some of these new processes, new structures, new nodes? A lot of your customers talk about what they think, let's say, the etch intensity would be or the deposition intensity. Would your component or subcomponent intensity mirror that? Would it -- might it be higher? Have you ever quantified that?

I think the only way we have quantified that, because you can imagine that we sell thousands of line items and various components, and different equipment companies migrate to that. So I don't go from where they are today to a completely different process at volume. So this happens over time. And so I think the way we've demonstrated that is if you look at our content, our dollar content as a percent of capital spend, that we've demonstrated has gone up over time. That's probably when you have thousands of line items with various customers with different acceptance and timing of acceptance within a process, that's probably the most concrete way we could measure that.

[Operator Instructions] Our next question comes from Patrick Ho, Stifel, Nicolaus. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: Leo, I want send my best wishes to you. Congratulations on your time at the company, as well as your CEO tenure. And Jerry, good luck on a going-forward basis.

Thank you.

Thanks. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: Leo, maybe just as a parting shot, you're departing as the semi-cap industry appears to be heading up. There's talk of the sustainability of these CapEx trends heading into the early parts of 2014. Can you give a little color and granularity in terms of your readiness and your ability to ramp, particularly as lead times and the equipment vendors tend to be shorter and shorter over these past several cycles? How ready are you? And how will you be able to react and keep your margin profile going up during this time?

I guess, first of all, I'll say that as the technology keeps advancing and we go to smaller nodes and newer structures, we are an enabler to that. So often if we can't provide technology to those customers, that -- the industry slows down. So first of all, from that standpoint, we're ready in terms of the products that we have available, the way we're adding features to products that can allow our customers to be able to keep advancing technology maps. I think as far as being able to produce, the other area is I think each -- as time has gone on, we get better and better able to meet these types of ramps, both in output and technology for a number of reasons. One is as we go through these, we discover where the weakest link is, and we fix that weakest link. And then we go to the next ramp, and we determine where the weakest link is, and we fix it. So I think over time, each area, with the global operation and the global design centers, every time we've gone through changes and ramps, we get better at doing what we do across more of the entire organization. So I think today, I'm confident we can meet the deliveries, we can meet the technology needs. I don't see that being the challenges. I think having -- I think as the lead times get tighter and shorter, I actually like the fact that we don't buffer this industry quite the same way with inventories because it sort of gives false demands up and down. So I think it's a healthier sort of overall industry model, and I think we get healthier as time goes on based on the things we do. We used -- we used to have used downturns to improve the business, either structurally or in the way we perform. So I'm very confident going forward. And Jerry has been doing that with me for many years with the whole team, and so I think it -- he'll bring another level of improvement to the organization. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: Great. That's helpful. And my final question is on the non-semi side of things. And I know it's very diverse. You have many markets that you participate in outside semiconductors, and they can be lumpy in some of those segments. But as you look forward to 2014, do you have any feelings about some of the other markets that could pick up and where you could see some tailwinds from those non-semi markets?

Yes. Well, I will say this. It's only as good as the forecast of the people that give them, but at least, from the data we see, while solar and LED are sort of at the very, very bottom of what we've seen in many, many years, both of those markets show double-digit expected growth from the experts that forecast those. And so as long as the experts are right, then those look like they would be growth areas for us. I think we still see gas analysis. I think we mentioned earlier in the year that we have been making investments in other parts of the world in our gas analysis and the combination of EPA regulation tightening, going across more type of engine manufacturing and putting some resources in other parts of the world. I think that has us optimistic that, that would be a growing segment of the business. So I think a lot of it will depend on the global economy as well when -- our business has been relatively stable, but when I read other reports from other companies and I talk to other CEOs, I think everyone's sort of surprised that it's been as stable as it is. In some cases, they've seen it down. So I think it's been low for a while, and so I'd have some expectations that eventually it has to come back. And certainly, the experts in those industries are forecasting it to be better.

I'm not showing any further questions at this time. I'd like to turn the conference back over to our host.

Great. Thank you. Thank you for joining us on the call today. Before concluding, I would like to thank both the company and all those who have been associated with it for the support I have received during my many years here at MKS. You've all been part of helping make us a successful company. I'm excited to begin to have time to enjoy some of the other aspects of my life while watching MKS continue to grow and be successful in the years to come. Thanks again.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.