Good day ladies and gentlemen and welcome to the MKS Instruments Second Quarter 2015 Earnings Conference Call. At this time, all participant lines are in a listen-only mode to reduce background noise. Later we will be holding a question-and-answer session and instructions will follow at that time. [Operator Instructions] I’d now like to introduce your first speaker for today, Seth Bagshaw, Chief Financial Officer. You have the floor sir.

Great. Thank you. Good morning, everyone, I'm Seth Bagshaw, Vice President and Chief Financial Officer and I'm joined this morning by Gerry Colella, our Chief Executive Officer and President . Thank you for joining our earnings conference call. Yesterday after market close, released our financial results for the second quarter of 2015. You can access this release at our Web site www.mksinstruments.com. As a reminder, various remarks 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 the various important factors including those discussed in yesterday's press release and the Company's most recent annual report on Form 10-K, most recent quarterly report on Form 10-Q which were on file with the SEC. In addition, these forward-looking statements should not -- represent the Company's expectations only as of today. While the Company may elect to update these forward-looking statements, it simply 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 Gerry.

Thanks, Seth. Good morning, everyone and thank you for joining us on the call today. In my prepared remarks I will give an overview of the second quarter financial results, provide a brief update on our strategic initiatives, discuss the recent highlights and achievements in our various end markets, and conclude with our outlook for the third quarter. I’ll then turn the call over to Seth for his detailed review of our financial results, after which we will open-up the call for your questions. I’m pleased to report that our second quarter sales increased to $218 million at the high end of our guidance, up 2% from last quarter and up 18% from the same quarter last year. Non-GAAP earnings were $31.1 million or $0.62 per share, compared to $35.5 million in the first quarter. In the semiconductor market we achieved another best in quality -- quarterly revenue, $154 million. These strong results reflect the technology inflection points that particularly favorable for MKS, as well as the impact of a number of strategic investments we’ve made and are continuing to make. Confirming the results of the team’s hard work and customer focus over the last 18 months, I’m also proud to report that in 2014 MKS achieved 200 basis points of overall market share gain and 250 basis points within our RF power product groups in our served semi markets. These strong gains reflect the continued emphasis we’ve placed on working closely with our customers, help solve complex problems with their technology roadmaps. Within our other advanced markets, revenue increased sequentially for the seventh consecutive quarter. I’ll provide additional examples of both design wins and new opportunities in some of these markets later in the call. I’ve spoken in past calls about our goal to broaden our leadership in our…

Thank you, Gerry. I'll first discuss our Q2 2015 financial results before providing further details on our Q3 2015 guidance. Revenue for the quarter was $218 million, an increase of 2% compared to Q1 revenue of $214 million, an increase of 18% from $185 million a year-ago. Our Q2 revenue was the higher end of our guidance range due to better anticipated sales in the semiconductor market and continued growth in our other advanced markets. Our non-GAAP gross margin was 44.4% and was impacted by unfavorable product mix. Our GAAP gross margin was 45.3% included a gain of $2.1 million from the sale of inventory previously reduced this net realizable value. Non-GAAP operating expenses were $50.8 million, which is slightly above our guidance range primarily due to timing of research and development project spending, which can vary from quarter-to-quarter. GAAP operating expenses were $52.8 million and included $1.7 million of amortization of intangible assets and $200,000 of restructuring costs. Restructuring costs relate to the strategic outsourcing of a select manufacturing operation in China, recently completed in the second quarter. This will allow us to both improve our long-term cost structure and provide additional manufacturing flexibility. Our non-GAAP operating margin was 21% of sales which was in line with our updated 2015 target model at these sales volumes. Non-GAAP net earnings were $33.1 million or $0.62 per share compared to $35.5 million in the first quarter and $22.6 million in the second quarter of 2014. Our non-GAAP tax rate was 29% as expected. GAAP net income was $33.2 million or $0.62 per share. As we’ve discussed in previous calls, we’ve been very focused on achieving continuous improvements in our operating model. The impact of these improvements is clearly reflected in our continued strong financial performance. At our Analyst Day on June…

[Operator Instructions] Our first question for the day comes from the line of Krish Sankar from Bank of America. Your line is open.

Yes. Hi. Thanks for taking my question, I have two quick ones. It is said that Gerry, on the September quarter guidance, is it fair to assume your semi sales will be down in the high single digits or is [indiscernible]?

No, I think that’s not about right Krish, we don’t give guidance by other markets. But if you assume at the midpoint of guidance that the other advanced markets are really consistent, that will imply a downward in the semi market by 8%. Now also just so you know in Q2, the semi market was very strong for us. So quarter-over-quarter you have a lot of variation based on customer pull patterns, the manufacturing location. So, to us it’s not substantial difference in the business.

Yes, it really just becomes a matter of peoples inventory positioning and we build schedules, we have a lot of stuff that are on pull systems in [indiscernible]. So it’s not unusual to see slight variations quarter-over-quarter. We had couple of strong quarters in a row and we expect -- we see continued healthy environment, maybe a small perturbation this quarter, nothing that is a concern at all.

Got it. And then, in the June quarter, can you just tell us how the semiconductor shipment linearity was, and how much was GP? Was it around $3 million, is it a fair assumption? Thank you.

Let me find out the GP.

It was pretty -- it’s pretty linear. We have a tendency, people at the end of a month or end of quarter just they -- the way they pull inventory, Krish have a tendency to have a little bit of an uptick, but it’s a typical pattern that we’ve seen for a long time. Nothing seemed to be unusual from what we could see.

Yes. In the quarter, GP was about $4 million of [indiscernible] revenue.

Got it. Thanks, Gerry.

Thank you.

Thank you. Our next question comes from the line of Jairam Nathan from Sidoti. Your line is open.

Hi. Thanks for taking my question. Just wanted to kind of, if you could expand on your strategy to kind of localize your efforts, is that involve more hard assets or is it more sales and service kind of -- what's the plan there?

Yes, sure. So, in the past we thought that we saw Korea as a growing equipment base. And we had already had a large presence there in service and sales. And then obviously we did the acquisition of plasma which has turned out to be a great acquisition in terms of technology leaders, are well connected in this space. And so, as an example we think there’s an opportunity to expand Matchwork’s business in the United States which is a lot of what plasma does in Korea. And so, we took a couple of openings that we had and we converted them, existing openings into applications and engineering people on the West Coast to look at Matchwork’s capability and sales for plasma. Once we felt comfortable that we had integrated them well, they were working very well with local Korean OEMs and end users. We said great, we can then start to expand their capability in the U.S. And we’ve just taken a look at the same perspective globally, perhaps in Japan and in non-semi markets. But what we will do is look at existing resources and reshuffle the deck. We’re kind of looking at a zero based inventory in terms of our people or zero based budget in terms of our people globally and saying, there are better places for assets, different assets or different position around the world. So I don’t think you see anything substantial impacting the financials of the company. I think we’re just looking for a better way to utilize the technical talent with different talent than we have today. And we’ve seen the results of doing that in Korea, and we think there’s other places in the world we can do that.

Thanks. And just one more on adjacent markets now. If I kind of think about organic growth year-over-year it probably wasn’t at 5% range. So, given the new initiative or at least success in new channels, how should we think about growth in the adjacent markets going forward longer term?

Jairam, we kind of look at kind of a 2x GDP long-term growth rate, and I think if you look at the last several years, even organically we tend to overachieve that. I mean, from 2003 last 10 years, it’s grown about 8% to 10% CAGR. So, I think long-term it will be 2x GDP.

Okay.

Long-term goals were a little higher obviously, that’s how to look at it kind of long-term growth rate in those markets.

Thank you. That’s all I have.

Yes.

Okay. Thank you.

Thank you. Our next question comes from the line of Tom Diffely from D.A. Davidson. Your line is open.

Yes. Good morning. [Indiscernible] for the question on the share gains, you talked about a 200 basis point improvement over the last year. Are those share gains from kind of direct head-to-head competitions or is it that you’re exposed to some of these faster growing end markets?

It’s probably a combination of both. In some of these faster growing end markets we have had that competition which we’re winning in. So, its actually I think just a combination of both, I mean, there were -- there are some places where we’re displacing competitors in other markets outside of the fastest growing markets. So, it’s a combination of all three.

Okay. And then, I guess based on the fact that, you’re very well positioned with applied LAM and the segments they have that are growing over the next few years, you would expect this trend to continue?

We would. We’re grateful to our customers for the opportunity they’re providing to us. We may need to remain cost competitive in high technology providers which we believe we are as validated by external speakers on our behalf. But yes, we would expect that as long as we continue to serve our customers well in our cost competitive and provide the same level of technology we have in more that we would expect to see that upward momentum to the right with these customers, but we have to earn it every day.

Sure. And have you seen signs that these customers are decreasing or consolidating their supply base?

Well we’ve read about it -- we’ve read about it. I will tell you there have been some discussions I won't tell you with who about things like exclusivity for us in some high growth areas which is interesting conversation. We have those things now and then. But yes, I think so.

Okay. And then similarly, when you look at the Korean market and your increased presence there. Does that manifest itself in better direct sales to them or is there a pull through the OEMs that you see with your equipment?

Well, we work directly with a lot of high profile Korean OEMs who serve the end users. So what we’re seeing is a combination of a strong relationship with the end users as evidenced by our key note speaker at our Analyst Day, and you can look on the web to see what that was. Plus our strong position with those Korean OEMs who’re serving that market, in addition to the work that our OEMs in the U.S. and in Japan are providing to Korea. So it’s a multi-facet approach and we’re very fortunate that all three strategies are working quite well.

Okay. So a lot of that is with the local OEM supplier base, the equipment companies that are based in Korea?

Yes, a fair amount of it. We’ve won a lot of business on Korean OEMs who are supplying directly to the end users there. That’s correct.

Okay. And then moving over to the industrial vacuum, the new partner you announced. Is there a reason you can't name who that partner is? Is it going to be private labeled under their product line?

It is private labeled, and they just asked us to respect their right to privacy. Over time I’m sure we’d be able to come out and say who it is, but we’re in the beginning stages of our relationship. The thing that’s nice about it, we’re starting on the gauging side, but the opportunities are really wide and deep. And once we prove ourselves on the gauging side as a viable supply, which I know we will, because that’s our strength. Then we’re going to talk about an expanded portfolio offering. And at some point in time when they feel comfortable and we feel comfortable, we’ll most likely say who the customer is. You would recognize him immediately. They’re well respected. But they just prefer that we just keep it quite for the time being.

Okay.

I’m not going to tell you who they are. It would be great if we can tell you.

Yes, okay. And then finally, I guess, Seth when you look at this, the quarterly variability. Is there really any seasonality left in this business or is it really just driven by the large technology projects that are out there?

Yes, Tom, I think it’s more of the later [ph], I mean if there is any seasonality it’s hard to see at our levels. I would say, no. I’m sure there might be a little bit of it. But fundamentally it’s fully driven by the timing of customer projects and that can't bounce around quarter-to-quarter, but that’s the biggest driver.

Okay. Thanks for your time.

Yes. Thanks, Tom.

Thank you.

Our next question comes from the line of Patrick Ho from Stifel Nicolaus. Your line is open.

Thank you very much. Gerry, maybe the first on the semiconductor side of things and you’re doing the strong results in the June quarter and the sustainability in September. Did you see any kind of pull-ins or given the upside to the June quarter, what kind of drove that? Was that kind of a building momentum as the June quarter progressed or did you see pull-ins given some of the, I guess, the CapEx spending trends that are out there right now?

Yes, [indiscernible] pretty much as planned, Patrick. There was little surprise to the upside, kind of towards the end of the quarter. And from what we’ve seen its really just, from my level what we see it is more like just the way that people consume inventory in their ordering patterns. We have a unique blend of customers. We have some customers that were on pull systems with them, so its booking and shipment immediately and some will have the tendency to accelerate the pulls for some reason. We have other customers that are traditional, place and PO and order the material and they have a tendency to buy in bulk at one time. It’s just the way the materials management systems are handled. But it wasn’t pretty much of an unusual trend other than the fact that, it was a little bit of surprise to the upside for us, which is great. And typically it’s because people just, at the end of a month have a tendency to, that’s why they do their materials planning. But nothing [multiple speakers] is like some trend of any kind. It just seemed really healthy still.

Great. Maybe moving to the adjacent markets, you mentioned solar as being a driver against the June quarter growth. What are some of the market trends that we should look at for that segment in the September quarter?

Well, it’s pretty lumpy and I’ll tell you that. I would expect that we would see some additional opportunities there. But its really project based and the ordering patterns are a little bit awkward. So it’s just lumpy Patrick, and I’m not trying to be evasive, it’s just -- it’s not like a steady state business we see with some of the other markets, it just comes in batches. And fortunately for us, one of the things we’ve been able to do is, we have reduced the lead time on all the products that go to solar. That’s the good news. That means we can take business from other people. The bad news is people wait till the last minute to order their stuff, so it gives us muted visibility.

I mean the good news is, we’re well positioned in these customers, but they tend to drop in large POs and large shipments, that being multi-million dollar type dynamics and I think they’ll continue going forward. So this is pretty lumpy, hard to say in Q3 at this point.

Great. And a final question and maybe for Seth in terms of the operating model. Given the strength that you’re seeing in semis this year, the upside you’ve already posted. You’ve done a lot to streamline and enhance the business model. How should we look at it going forward, are there the possibilities that you may need to increase workforce, the supply chain, given some of this upsize from particularly as we go into 2016. How do you manage, I guess or balance the need to have growing the business versus maintaining the model that you’ve listed a few times already over the last 18 months?

Yes, sure. Okay, so we have made -- I mentioned in previous calls of the cost such as we made in 2014, we aren’t reinvesting about $5 million to $6 million back into the business high growth areas, and that’s not always volume dependant. So I’ll call those investments to really service customers in semi markets and other adjacent markets. And those costs are fully baked into the model that’s -- that we’re operating on right now. So I feel very comfortable of those investments are well on the run rates and kind of well on the model going forward. So, that’s really good. If any volume uptick above current levels, typically we’ll see it’s just more direct labor and we have a lot of leverage in the manufacturing arena. We have little more capacity that we can absorb from. So, I really wouldn’t think an uptick on our revenue is going to generate really any little change for the model. I would expect our variable gross margin to still remain around 50% plus or minus five points as we’ve run the past; that should continue through 2016. And we’ve said in the past too, as we have been working hard on a 2016 model, and typically we don’t update them all until we get to a point we feel very comfortable with it. And so, the model we just updated last month is in place for the rest of this year, but we are working on opportunities going forward as well. So that was the [indiscernible] we have here within the company.

Yes, and I would like to amplify another area, Patrick. One of the reasons we made a significant improvement to our operating model is to -- this team that we put in place well over 18 months ago called the Profit and Cash Recovery team. And I’ve continued to have that team meet every single month and we will continue to meet on a monthly basis. And what we’re looking at is all elements of business of cost, are there ways we can improve. Such an example was asked about this localization project we’re looking at. My expectation is, I will re-look at the recess we have and can they be applied in a different way. So grow the business without adding resources, just attacking it differently. And on the Profit and Cash Recovery team, those are the things we talk about. But we think there’s still opportunity to focus on other cost in the company that we can reduce to continue to support the model or improve the model going forward. And that Profit and Cash Recovery team stays in place as far as I’m concerned under my administration forever.

Great. Thanks, Gerry.

Okay, Patrick.

Thank you.

Thank you. Our next question comes from the line of James Covello from Goldman Sachs. Your line is open.

Hi. This is Chelsea Jurman on behalf of, Jim. Thanks for letting me ask the question. You mentioned 250 basis points in RF product share gain in 2014. Can you talk more about what areas you’re gaining share in within that market and where you think that market share level can go?

Well, I think we’ve got leading technology in pulsing capability, our pulsing capability which is key to this whole 3D NAND and multi-patenting progression. So etch and dep and the 3D NAND we think is, we’ve seen as a nice area of growth to the pulsing capability of our power generators.

Sure. And then, it seems like some industrial companies have been reporting weak results. So can you talk a little bit more about what the different end markets are within your advanced markets group and if you’re seeing a slow down in any of those segments?

Well, I think that it varies from market-to-market. We see nice opportunities in the analytical instruments. So, I don’t know if we’ve seen any particular significant weakness, maybe a leveling of some markets, but overall -- the overall is pretty consistent. And again we said the solar part of it is rather lumpy which gets lumped into the advanced markets. So it’s pretty steady for the most part.

Great. Thank you.

Thank you. That’s all the questions that we had in the queue for today. So I’d like to turn the call back over to management for closing remarks.

Thank you. Well I’m proud of our improved operating model and our record performance again this quarter and year-to-date. Increases in market share validate our position as the technology leader and our advanced products enabled the semiconductor industry to address the technology inflections they face. We will continue to invest in our leadership in executing our strategies. We see many exciting opportunities for continued profitable growth both in semiconductor and other advanced markets we serve. Thank you for joining us on the call today.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may all disconnect the telephone lines. Everyone have a great day.