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…

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…

[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.