MKS Inc. (MKSI) Q2 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the MKS Instruments Second Quarter 2014 Earnings Conference Call [Operator Instructions] I would now like to introduce your host for today's conference, 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 Jerry Colella, our Chief Executive Officer and President. Thank you for joining our earnings conference call. Yesterday, after market close, we released our financial results for the second quarter of 2014. You can access this release at our website, www.mksinstruments.com. As a reminder, various remarks that we 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 to Jerry.

Thank you, Seth. Good morning, everyone, and thanks for joining us on the call today. As in the last call, I'll start with a progress update on our strategic initiatives, then I'll give a recap of the second quarter 2014 with some highlights on our business and finally provide our outlook for the third quarter. Following me, Seth will give further details on our financial results and then we'll open the call for your questions. Starting with the vision and goals we have for MKS. Specifically, we are on the path to continue to broaden our leadership in vacuum processing; measurably improve our profitability throughout the cycle; efficiently deploy capital to increase shareholder value; and aggressively pursue opportunities created by current technology inflections. In the second quarter, we continued to make progress against all of these goals. In the area of vacuum leadership, last quarter, we announced our acquisition of Granville-Phillips, or GP, a worldwide leader in the indirect gauging market. I'm very pleased to report that we successfully closed this strategic acquisition at the end of May. The combination of GP indirect gauging products with our leadership in direct measurement capacitance manometers gives MKS one of the strongest, broadest and most complimentary technology portfolios in the vacuum gauging market. The contribution of GP is immediately accretive to non-GAAP EPS and performs favorably on other key financial metrics. We have already identified and have begun capturing synergies within product development, as well as other operational improvements. For example, we have consolidated all MKS vacuum gauges under 1 General Manager, we are merging our existing indirect gauge product lines under GP, and GP now fully participates in our technology and road mapping process. We have also begun aligning our sales channels to minimize redundancy and provide a closer connection to both our OEM and end-user customers. With the acquisition of GP, we have added approximately $30 million of revenue and further improved our operating profitability, which we expect will increase annual non-GAAP earnings by $0.10 to $0.12 per share. Incremental to the positive financial contribution of GP, we have been taking additional measures to improve our profitability, resulting in substantial improvements to our operating model. We outlined the improvements we initiated in Q1, which we expect will generate improvements for our gross margin, operating margin and net income throughout the cycle. Additionally, we have a robust M&A pipeline and will continue to explore attractive M&A opportunities, and I am confident that we will continue to successfully identify, acquire and integrate other technology-based companies. Along with our vision of deploying capital in the best, long-term interest of our shareholders through strong M&A execution, we are also committed to returning capital to our shareholders. In the second quarter, our Board of Directors voted to further increase our dividends. Our goal is to increase cash dividend over time as a result, this is our second dividend increase, bringing the dividend level to 10% higher than what was initiated in 2011. Also during the quarter, we repurchased $20 million of stock. Since 2007, the combined return of capital from dividends and share buybacks has totaled $370 million. In 2014, year-to-date, we have deployed over $125 million in capital through the acquisition of GP, shareholder dividends and share repurchase. Moving to our second quarter results. Sales were above guidance at $185 million due to better-than-anticipated sales in the semiconductor market, as well as continued growth into other advanced markets. In the semiconductor market, we continue to work closely with all OEMs and device makers, as they design and optimize tools and increase the utilization and productivity in the fab. In semiconductor manufacturing, we are in the midst of a significant technology inflection point, the leading etch migration to 20-nanometer and smaller devices continues to propel technological changes. Scaling limits and the need to reduce power by driving 3D designs and as advanced lithography techniques continue to be delayed, device makers are increasingly relying on multi-patterning to achieve sub-20-nanometer geometries. These technology inflection points are significantly increasing capital intensity due to the increase number of critical steps required, and our major customers are estimating that spending to support these inflection points could double in the next 3 to 4 years. This is especially true in etch, deposition and critical cleaning, which are necessary technologies to achieve 20, 16 and 14-nanometer devices. We have very strong exposure to all etch, deposition and critical cleaning OEMs who rely on MKS technologies to enable their process tools. And this creates additional opportunity for the advanced power, reactive gas, control, flow, pressure and other technologies MKS develops. For example, we continued to gain acceptance for advanced pulse RF power products, which enable precision etch control for fine lines and high aspect ratio holes in leading edge 2D and 3D devices. Recent demonstration in this pulsing capability resulted in orders from major OEMs, both dielectric and poly-etch. We also continued to directly support device manufacturers as they optimize tool performance. Recently, our LIQUIZON PrimO dissolved ozone system was spec-ed in by a prominent logic device maker for leading etch, cleaning applications. This PrimO has been specifically designed to recirculate ozonated water rather than disposing between process steps. The recirculation of ozonated water, this customer will save an estimated 75% in water usage, thereby improving profitability and eliminating water waste. This quarter, we also had several significant sales to major Asian semiconductor manufacturers for power, remote plasma, flow and pressure products, as well as service support. At this same customer, we also displaced an incumbent of gas analysis for several monitoring applications, due to our superior performance and local technical support. We are excited to see continuing results from increased investments in Korea where we received significant follow-on orders for both remote plasma and microwave products for new, advanced strip processes from a major Korean strip OEM. Our localization strategy continues to pay dividends as we see deeper penetration there into OEMs and device makers, as well. Looking beyond the semiconductor industry sales, the global economy continues to recover. And this past quarter, our sales to all of the markets increased for the third consecutive quarter, coming in at $58 million. These markets include medical, thin films, bio and pharmaceutical manufacturing, LEDs, flat panel displays and other diverse applications. Building on the success in the semiconductor market, our LIQUIZON products have also become the standard for cleaning during flat-panel display manufacturing. This quarter, a large Chinese display manufacturer, which is starting production for an active-matrix OLED displays, placed a multisystem order for our LIQUIZON cleaning subsystems. We won this business because LIQUIZON is recognized as a leading technology for critical cleaning in active-matrix OLED production. In the medical market, this quarter, we saw strong follow-on orders for our Baratron capacitance manometers, for bench top medical sterilization equipment used to disinfect dental and surgical tools. In medical imaging, where we provide our power amplifiers to MRI OEMs, the market is expanding internationally, especially as healthcare improves in developing countries. One of our newer Chinese MRI OEM customers is seeing rapid acceptance of their MRI tool in China. And based on their success, they have applied for regulatory approval to expand their market, to sell into other growing Asian markets. As a corporate initiative, MKS has identified several key megatrends, which we anticipate will drive growth, and over the last 2 quarters, we have deliberately redeployed people and capital to fund activities in these growing areas. One of these megatrends is the environmental market where air quality and the impact of carbon emissions on global warming are growing concerns around the world. We believe our technologies are well-suited to address environmental monitoring challenges and have launched an initiative to further explore and extend our work in gas analysis to identify additional opportunities, to address this mega trend. This will build on our existing efforts where we continue to see further acceptance and increase sales of our FTIR gas analyzers for emissions and safety monitoring. With our recent TUV certification, which is required in the EU, additional opportunities are available to us in the continuous emissions monitoring of incinerator exhaust, where FTIR measurement is required to monitor pollutants. This quarter, we were awarded a new contract, displacing an incumbent, because of our superior monitoring capability and performance. There are just a few examples of the many diverse and growing customers and applications we serve, and to which provide growth opportunities for MKS. Looking ahead, reports following the recent semiconductor and trust industry tradeshow continue to project that third quarter OEM shipments maybe down from the second quarter, followed by a possible improvement in Q4 and into 2015. In our other markets, the global economy continues to improve and we continue to search out and leverage growth opportunities in a strategic manner. Based on these factors and looking at current business levels, we anticipate that sales in the third quarter may range from $170 million to $190 million. At these volumes, our non-GAAP net earnings can range from $0.28 to $0.42 per share. These ranges include a full quarter of GP results. At this point, I'll turn the call over to Seth to discuss our results, expand our guidance.

Thank you, Jerry. I'll first discuss the Q2 2014 financial results before providing further details on our Q3 2014 guidance. Revenue for the quarter was $185 million, which was $5 million above the high end of our guidance range due to better-than-anticipated sales to the semiconductor market, continued growth in other advanced markets and approximately, $2 million in revenue from the GP acquisition. Revenue decreased 10% compared to Q1 revenue of $206 million and increase 18% from $157 million a year ago. Non-GAAP gross margin was 43.4%, included a benefit of approximately 50 basis points from the prior year duty refund, and the impact of favorable foreign exchange. Non-GAAP operating expenses were $47.7 million, which was favorable to our guidance, primarily due to lower discretionary spending, foreign exchange gains, the timing of R&D project spending, most of which we expect to occur in the third quarter. Non-GAAP operating expenses in the quarter also included $400,000 of GP expenses. GAAP operating expenses were $49 million included $1 million of amortization in tangible assets and $300,000 of transaction costs associated with the acquisition of GP. Our non-GAAP operating margin was 17.6% of sales, which was ahead of our target model at these volumes. Non-GAAP net earnings were $22.6 million or $0.42 per share compared to $27.2 million in the first quarter, and $7.3 million in the second quarter of 2013. Our tax rate was 31% as expected. GAAP net income was $21.2 million or $0.40 per share. Now turning to the balance sheet. Cash and investments decreased by $101 million in the quarter to $546 million or approximately $10.29 per share. The decrease in cash and investments was due to payments made during the quarter for the purchase of GP of $87 million, a dividend payment of $9 million, share repurchases of $20 million and the vested retirement payment of $14 million to our former retired CEO, which was offset by strong cash flows from operations. As of June 30, approximately 48% of our cash and investments were in the U.S. and the balance was located throughout our international operations. Total book value, net of goodwill intangibles, was $799 million or $15.07 per share. In terms of working capital, days sales outstanding improved to 50 days at the end of the second quarter and compared to 53 days at the end of the first quarter. The inventory turns were 2.7 compared to 3.2 in the first quarter. Inventory turns decreased as a result of lower revenue and including inventory from the GP acquisition. Capital additions for the quarter were $4.2 million, depreciation and amortization expenses were $4.8 million and non-cash stock compensation was $2.8 million. During the quarter, as Jerry noted, our board increased our dividend to $0.165 per share, and we paid a cash dividend of $8.8 million in the quarter. Also during the quarter, we repurchased approximately 700,000 shares for $20 million at an average price per share of $28.53. As we stated in prior calls, the timing and quantity of any shares repurchased will depend upon a variety of factors, including business conditions, stock market conditions and business development activities, including but not limited to, merger and acquisition opportunities. These repurchases maybe suspended or discontinued any time without prior notice. The total deployment capital for share repurchases, dividends and the acquisition of GP has totaled $125 million year-to-date or 1/3 of our cash balance in the U.S. when we started the year. Our remaining cash balance in the U.S. is just over $260 million, which is about $75 million to $100 million above what we have estimated we need to operate the business at these levels. We are therefore, deploy more than half of excess cash in the U.S. during 2014, continue to seek ways to deploy capital and optimal long-term interest of our shareholders. We are also committed to making continuous improvements in our financial performance over the operating cycle. In the first quarter, we discussed a reduction workforce that was initiated in that quarter. The annualized net savings of these reductions is approximately $6 million in manufacturing overhead, research and development and SG&A expenses, which also include reinvesting approximately $2 million into various growth initiatives throughout the remainder of the year. These reductions are now substantially complete, as we mentioned in our last earnings call, we expect this will increase our net earnings per share of $0.06 to $0.07 per share on annualized basis by the end of the year. We expect the GP acquisition, at current business levels, to add approximately $30 million of annual revenue and further increase our non-GAAP earnings per share by $0.10 to $0.12 per share. We've immediately begun to implement cost synergies and coupled with a more focused sales channel strategy, we anticipate growing this business, its profitability as an integral part of our pressure measurement product portfolio. These actions, in connection with other opportunities, have improved our target operating model throughout the semiconductor cycle, we post an updated version of this model in Investor Presentation section of our website. We're also evaluating other opportunities that we believe continue to further improve our financial performance. Now, I'll go through a more detail regarding the composition of revenues for the second quarter. Sales to semiconductor market were $127 million, down from a record $150 million in Q1 and represented 69% of second quarter revenue. Within the semiconductor market, sales to semiconductor OEMs decreased 18% from the first quarter and comprised 55% of total sales. Sales to semiconductor fabs decreased 2% in the quarter and comprised 14% of total sales. We are continuing to see strong performance in our other advanced market, which increased by 3% from the first quarter of 2014 and 10% from the second quarter of 2013. Sales to these markets represented 31% of total revenue. Sales in these other markets can vary from quarter-to-quarter based on specific projects, but in general, have been growing with GDP improvements until such segments as LED, solar and display, start to see significant capacity additions. Geographically, sales in the U.S. were 59% of total sales, sales in Asia were 31% and sales in Europe were 10%. Sales to our top 10 customers represented 50% of total sales. Sales to Applied Materials and Lam Research comprised 19% and 14% of second quarter sales, respectively. Our headcount at the end of Q2 was 2,421, up from 2,326 at the end of Q1, primarily due to addition of GP employees. Now I'll turn to Q3 2014 guidance. Based upon current business levels, we estimate that our sales in the third quarter could range from $170 million to $190 million, which includes estimated $7 million to $8 million of revenue from GP. Based upon the expected sales range, our Q3 non-GAAP gross margin could range from 41.5% to 43%, reflecting these volumes and expected product mix. Q3 non-GAAP operating expenses could range from $49 million to $50 million. In the third quarter, R&D expenses could range from $15.9 million to $16.3 million and SG&A expenses could range from $33.1 million to $33.7 million. The range of operating expenses in the third quarter reflects a full quarter of GP, which we expect to be approximately $1.5 million in operating expenses, as well as certain R&D products expenses that are moved from Q2 into Q3. As I mentioned in previous calls, the timing of these projects depend upon a variety of factors and could vary from quarter-to-quarter. In the third quarter, the amortization of intangible assets is expected to be approximately $1.8 million, amortization of acquired inventory step-up can be with $1.8 million, and net interest income is estimated to be approximately $200,000. We expect our third quarter tax rate to be approximately 31%, reflecting anticipated geographical mix of taxable income. Given these assumptions, third quarter non-GAAP net earnings could range from $14.7 million to $22.4 million or $0.28 to $0.42 per share, and GAAP net income could range from $12.2 million to $19.9 million or $0.23 to $0.37 per share on approximately 53.4 million shares outstanding. This concludes our prepared remarks. We'll now open the call for questions.

[Operator Instructions] Our first question comes from Patrick Ho with Stifel, Nicolaus. Patrick J. Ho - Stifel, Nicolaus & Company, Incorporated, Research Division: Jerry, first, maybe aside from your top 2 OEM customers, can you, one, give us an idea of your exposure and presence with Tokyo Electron, particularly given the impending Applied Materials merger? And secondly, on a big picture basis, how do you see your opportunity, potentially improving going forward with that combined entity?

Thank you, Patrick. Well, I think, as far as we would tell, we never want to be presumptuous about our position with the customer, we are always working hard to prove ourselves to them. But TEL has been in the top 5 of our customers over the last several years. So I think just in that respect, we're in very good position. We've had a very significant presence for over 4 years in Japan in sales and service, and technical support. And I think a larger entity -- so I think in one stead that they would say, we're in a good position with TEL. I also have to believe that a larger entity is looking for a larger substantial supplier for the worldwide footprint with low-cost country capability, with vast technical resources, which MKS has versus smaller regional suppliers. I think, our opportunity could be even greater as the companies come together, but again, we have to work hard to continue to prove ourselves. As far as where the opportunities apply, I think, with this strong growth projected for the next number of years in etch and depth and given our technology, I think, I'm really excited about RF power in particular. With the capability that's needed for deep drilling accuracy. So I think that, that's a really big opportunity for us, and we continue to get acceptance of our products in the market. But then it's also pressure and pressure control, our flow control. And I think, given the fact that we've seen through deals [indiscernible] our market share has increased over the last year, I think we continue -- good evidence that we continue to see good opportunities ahead. So I'm excited about the opportunity to support a larger company in Applied and TEL. Patrick J. Ho - Stifel, Nicolaus & Company, Incorporated, Research Division: Great, that's really helpful. And then my second follow-up question regards the non-semis business. Can you give, I guess, a little bit of color of what market you'll see progress in 3Q versus, I guess, some of the ones that you saw in 2Q? Are you seeing some of the -- I guess, the market mix change or are the same markets that you saw a strength in Q2 carrying on into 3Q?

Yes, it's pretty much for the most, Patrick. I think what we see pretty much the same level of projection for what we saw in Q2 to Q3. We were -- had a nice increase again, 3% quarter-over-quarter in the non-semi markets. And we still -- start to see a little -- continued likely LED, which we're grateful, too. It's certainly not at the level that used it to be, but it's certainly is past life support called it in the past. But I think, it slow and steady wins the race in the non-semi stuff going forward.

Your next question comes from Josh Baribeau with Canaccord.

Are you guys starting to see the IDMs making some of their own equipment and diversifying away from the traditional equipment OEMs? And if so, how do you think you're positioned with them?

Well, I think that there are at least, we know 1 customer, and I don't want to get into specifics, that has been engaged in designing and build their own equipment. We have a very close relationship with the end users. Before the OEMs existed, MKS was supplying directly to the chip makers themselves. And a number of years ago, we started an end user champion council to go back to our end users, to make sure that we're providing the level of service and the technical capability needed. So I think, we're uniquely positioned with those device makers that are beginning to design and build their own equipment. Obviously, we make sure that there's a strong veil of IP that's shared between OEMs and end users, we make sure that we're careful about that. But we have seen more activity in that area and we've been very grateful to be part of it.

Okay. And then maybe as a follow-up, changing gears a little bit, obviously we talked mostly about front-end processing in the semiconductor space. But as the lines are starting to get a little bit blurred between front-end and back-end as more advanced packaging techniques are being used, are you participating in anything, lets call, it either traditional back-end or somewhere in the middle with some of those new structures?

Well, we do have some -- there's some vacuum content in TSV, through silicon vias, in area where we participate. One of the things we think is interesting though, is they are probably going to have to make more subsystems of chips. So chip stacking could be an interesting concept on the back-end. And if there be more need for metrology and measurement, there's a potential opportunity. One of the things we did talk about megatrends that we are pursuing, one, is environmental monitoring; the other one, is biopharm/biomed. The third one is new materials, down the path of graphene. But we do have a task team that's looking at the back-end, and where MKS could participate either organically or some other fashion going forward because we think that's a nice growth area. So we are having a team specifically looking in that area as well.

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

A quick one for Seth. Can you guys give color on how the different segments would trend in Q3, let's say [ph] for Q2, between semi and non-semi in May?

Yes, I'll try to give you some detail on that, Krish. Now, as you know we don't necessarily give guidance by markets because we ship to a lot of customers and we look at a lot of inputs to determine the guidance for Q3. But the way I look at it is we know that we did $185 million in Q2, GP is $2 million of ours, so call $183 million without GP. And you take the midpoint in the guidance, I'll call $180 million for Q3, which we think is $7 million to $8 million that is again, GP related. So call it $173 million without GP, compared to $183 million without GP. So that's down about 5%. Our other markets, as we said before, have been pretty steady growth rate. So if you assume that's going to be up a little bit in Q3, you sort of saw for what semi could be and that will be down about, at midpoint, about 8%. We think, 8% to 9%.

Got it. And then within GP, is the split equal, I mean, on semi? And do you plan to break it out going forward or no?

Yes. It does, it has tracking on 50-50. We would probably roll it into our semi numbers and non-semi going forward. Maybe for a couple of quarters, we can show that separately. We haven't really given that a lot of thought. But the -- we are integrating that business, as we said before, pretty quickly into the core MKS, to leverage some of the sales general opportunities and cost synergies. So it's going melt it in to be pretty quickly. And I think after a while, we're not going to able to get that visibility. We do tracking sort of offline internally to make sure we hit our targets. But for reporting outside the company, we hadn't really thought about doing that.

So then just a final question, perhaps it looks like 31% this year, would it start trending up in the out years, so should 31% a good proxy to use?

Yes, I think 31% -- the big mix -- the big factor is really the mix the income comes from. But I think 31% is what we would project going forward with these volumes and sort of where the current mix is. So it's probably a pretty good proxy going forward. We do have a number of activities that we're working on to sort of, I'll call them prove that rate. We will update as we kind of get those things completed. But 31% a pretty good rate at this point.

Our next question comes from Jairam Nathan with Sidoti. Jairam Nathan - Sidoti & Company, LLC: I just had a quick question on the adjacent market. Can you give us a better idea of what the breakdown looks like now given your strength in medical and environmental is? I just wanted to kind of see if you could give us that, a breakdown kind of, as far as industries?

Okay. It's a good question, Jairam. Just try to break out the non-semi [indiscernible]. So we have done that in the past at a high level and those markets, like the medical, the biopharm, have always been around sort of full 4% to 6% range. They've been sort of pretty steady eddy-- so we haven't given much more granularity underneath that quite honestly. They do tend to ebb and flow by quarter, so some go up or down. As Jerry mentioned, we're seeing really, again a very strong growth, I would say, sequential quarter-over-quarter again, 3% this past quarter, 10% since the year ago. And then LED and solar are still, I'll call more capacity driven, are actually showing a little bit of life in the last several quarters. But our belief is generally speaking, GDP plus growth rate is probably a good benchmark, the markets all sort of ebb and flow. So it's hard to pick one and really model it accordingly. Plus, we have the 3,000 to 4,000 customers around the world. So it's a very broad number of industries, just thinking the biggest ones probably run about 4%, 6%, maybe 7% of our revenue. So we're trying to get one that sort of a good model or benchmark. Its a -- we're so -- the good news is there's so many different chips on the table, that's a core strength for us, but not any one who is sort of a critical driver. Jairam Nathan - Sidoti & Company, LLC: Okay. And just to follow-up on the medical, in the MRI side, Jerry, you mentioned something about getting approvals and registrations also. Do you today sell mostly in the China and the U.S.? Or and you have not entered the other markets here? Or how should we think about that?

No, actually, we sell the MRI pulse supplies to all the large MRI equipment providers in the world, so Siemens, Phillips, GE. So wherever their markets are is where we are. So Europe, in the U.S. and in Asia. But specifically in China, there are a number of new MRI equipment manufacturing companies that have begun and we are selling directly in there. It's a new market for us, it's a technology that we have developed for the existing markets. But, it is a new and growing market. But we've been pretty well dispersed around the world due of the larger OEMs that we sell to.

[Operator Instructions] Our next question comes from Tom Diffely with D. A. Davidson. Thomas Diffely - D.A. Davidson & Co., Research Division: Maybe first touching on the upside you saw in the quarter versus your previous expectations. Is there any more color you can provide as far as where it came from? Was it the OEMs, the fabs? Or any particular product lines?

Yes. I would say, Tom, this is Seth. I am -- we had a look at our order rate and sort of revenue between OEMs and the end device manufacturers. The OEMs are more volatile revenue streams as you can imagine. We've saw it sort of trend down. We gave guidance last quarter, it was trending down and actually stabilized. And so I was kind of why we did a little better than we expected in the quarter, again not dramatically off, we're at higher in the range was. But it's been relatively healthy at these levels for most of this quarter, which is probably what we didn't expect coming into the quarter.

Yes. And we have very short lead times in the products that we sell direct through purchase orders. But we also have a larger amount of our orders that come through Pulse Systems. So if, where we to stock the material line side to the OEM and if they decide at towards the end of the quarter to resell con[ph] bonds and increase some inventory level, we'll see a preponderance of polls, which are booked in shipments in the last weeks of the quarter because they're looking to replenish inventory. So if you start between that and sometimes the short lead times its and the lumpiness of the quarter, sometime it get very difficult to predict the fineness of the revenue. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. So good news for you, but not necessarily an indicator of that ramp in the fourth quarter quite yet.

Well, I still think we're still riding our canoe, as I've said before. I'm not sure if we're in the middle canoe and tattling. But we have heard a lot of good things about what next year looks like, we're really excited about the mix even if the wafer fab spending was flat year-over-year but those are mixed due to supporting 3D NAND, the multi-patterning and FinFET, that's really good for MKS. So we are still bullish about what an upturn eventually, we're just riding away in our canoe. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And maybe a bit more on the potential for Korea, it sounds like you made some nice penetrations there. What is your penetration right now versus kind of your average worldwide? And are there other regions like Taiwan, Japan we can do a similar effort?

Well, Korea has surpassed all the other Asian markets, now it's our largest market, surpassing Japan. We believe that the Korean semiconductor equipment and chip market is fast-paced and growing. And so we're really bullish about that. We made a strategic acquisition over 1 year ago, a company called Plasmart, which had strong technical connections to all the OEMs and the end-users there. And we see our relationship in the technical road mapping strength that's developed there. So I think, it continues to be an emerging market for strength for the equipment industry in general, and it's a strong point for MKS. We've been in Korea for over 25 years or so and had a large concentration of people in the ground and sales, service and applications. And we've only strengthened our position with the acquisition of Plasmart. So we're really very excited about it.

Yes, Tom, just too kind of add to that, so we have a broad footprint in Korea, as Jerry mentioned, through Plasmart and we've been investing in our local operations, a subsidiary in Korea. And so it is the largest direct shipments sub in the world for MKS that surpassed Japan last year, which indicates kind of our content in Korea. Then that also to show all of the exposure we have to the Korean market because we will ship, as you know, the OEMs, United States, they try to ship into Korea. So we're very leveraged to big -- all the big device manufacturers and this is kind of one example that's coming through right now.

The other thing that we've seen more progress in the last couple of years is with the OEMs inquiry of themselves as well. So the suppliers, OEMs inquiry supply the end users, we've seen some tremendous penetration here and really happy about the progress we've made there, very excited about it. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And does that include the [indiscernible] other markets too, like the flat panel and LED?

The largest gain has been the semi side, I'd say. Some progress in the areas, but primarily the biggest penetration's been on semi.

Yes, I think OLED is pretty good.

Yes, OLED, right particularly. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And you've talk a bit about how the other markets there kind of bouncing off the bottom here and some of the near-term drivers. But which are those segments in the other category do you think has the biggest long-term potential for you?

Well, we still think that LED is a good market and we think it just a matter when the saturation of the equipment abates because it's -- obviously, the consumer's going to be in a position to be buying LED lighting over time, that's got to be a growth area. And like I said, this environmental monitoring its smallish comparatively, but we think that's got some tremendous potential. If you look at the local EPA concern about gas coal-fired plants and the emissions there alone, they're concerned about the pollutants around the world, then global warming. We think we're well-positioned, as well as in the area of terrorism because we have the best chemical weapon detection product in the market. It's deployed in places that we can't talk about around the world and gaining more acceptance. There are probably more to talk about when we can over time. So we think that's a really nice opportunity for MKS over time. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And Seth, is the tax rate, the 31% included in R&D tax credit this year?

No, it does not. And we think that's probably about another point at these volumes, Tom. So with the R&D, it be probably 30%. But 31% does not include the R&D credit. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And then last, with your share repurchasing, do you expect any kind of meaningful shift in the share count on a go-forward basis?

Again, we sort of report our share buybacks after they incur for a lot of different reasons and we look at that on an ongoing basis. A lot of factors drive that. So I would say that, can't comment looking forward. But we are committed to returning capital to shareholders. And again, we've got a fair amount of dry powder left on the authorized playing with no expiration date. So that is very much alive, front, center of our thought process.

And I'm not showing any further questions at this time.

Well, I'm extremely pleased with our financial performance in Q2. Our focus is to aggressively work to improve our operating model and efficiently deploy capital. We have great exposure to semiconductor OEMs and end users as they address today's technology inflection points, especially in etch and deposition, and we believe we will gain an increasing share of the incremental capital required to support these technology changes. Additionally, our initiatives to address megatrends are moving forward which alter and open up additional opportunities for MKS outside the semi. I look forward updating you on our continued progress in October. Thank you for joining us on the call today.

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