Good day, ladies and gentlemen and welcome to the MKS Instruments Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] I would now like to introduce your host for today’s conference, Mr. Seth Bagshaw, Vice President and Chief Financial Officer. Sir, you may begin.

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 fourth quarter and full year 2015. You can access these releases at our website, www.mksinstruments.com. As a reminder, 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 were 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, specifically disclaims any obligation to do so. Any forward-looking statements should not relied upon as representing the company's estimates or views as of any date subsequent to today. Now, I will turn the call over to Jerry.

Thanks, Seth. Good morning, everyone, and thank you for joining us on the call today. In my prepared remarks this morning, I will provide results for the fourth quarter of 2015 as well as for the full year. Following that I will give an update on our progress toward the strategic and operational initiatives my team has been pursuing and finally, I will provide our outlook for the first quarter of 2016. Seth will follow me with further details on our financial results and then we will open up the call for your questions. Fourth quarter revenue was above the high-end of our guidance at $172 million as a result of better than anticipated semiconductor revenue. Total revenue was down 18% from the third quarter and down 15% from the same quarter a year ago, primarily as a result of an industry-wide slowdown in capital spending which occurred during the quarter. We are pleased especially that our initiative to significantly improve our profitability throughout the cycle continues to demonstrate excellent results. In the fourth quarter, our non-GAAP net earnings were over 50% higher than we would have generated on similar revenue volumes within our operating model only 24 months ago. Since we began this initiative in 2013, we improved our target model four times and twice during 2015 alone. These results were achieved by the collective efforts of all the hard work of our employees and I want to personally thank them for helping us achieve a best in class operating model. Going forward, the profitability of our model has further improved the reinstatement of the Federal Research tax credit and additional tax planning opportunities. We will continue the work of our profit and cash [ph] team to pursue further improvements and enhance free cash flow throughout 2016. For the…

Thank you Jerry. I’ll start with the fourth quarter and full year financial results and then discuss our Q1 2016 guidance. Revenue for the quarter was $172 million, a decrease of 18% compared to Q3 revenue or $209 million. A decrease of 15% from Q4 2014. Revenue for the quarter was above the high-end of our guidance range, primarily due to improved demand late in the quarter from our semiconductor customers. Non-GAAP gross margin was 42.5%, which is below our expectations at this sales volume, primarily due to lower factory utilization as we focused on reducing our inventory levels. Non-GAAP operating expenses were $48.4 million, favorable to our expectations primarily due to favorable foreign exchange and the timing of certain project expenses. Our non-GAAP operating margin was 14.4% of sales within our target operating model range at these sales volumes. In the fourth quarter, we also completed a targeted reduction in headcount to better align our direct labor workforce and to further consolidate manufacturing operations which resulted in $500,000 of restructuring charges. Non-GAAP net earnings were $18.4 million or $0.34 per share compared to $31.5 million in the third quarter and $29.1 million in the fourth quarter of 2014. Our non-GAAP tax rate was approximately 29%, which reflects the quarter's impact of the reinstatement of the federal research tax credit for 2015 and a geographical mix of taxable income. Our GAAP tax rate was a benefit of 11% and includes the impact of discrete tax credits as a result, the favorable audit settlements and the full year's impact of the 2015 research credit. GAAP net income was $25.5 million or $0.48 per share. Now, turning to the balance sheet, cash and investments increased by $25 million in the quarter to $658 million or approximately $12.37 per share, all of which…

[Operator Instructions] And our first question comes from the line of Patrick Ho with Stifel Nicolaus. Your line is now open.

Thank you very much and congratulations on a nice year guys. First off, in terms of the pick-up that you’re starting to see now on the semiconductor side of things, obviously the OEMs are now starting to talk about that same pick-up you are talking about. How do you see I guess both in terms of the – some pickup in terms of your end-users in the past and what sustainability or what kind of trends are your seeing from that angle?

Yes, so thank you, Patrick. Excuse me, little cough here. We saw – continue to see some really good work with the end-users on the direct equipment business we are doing with them directly. That was pretty strong throughout the year, continued towards the fourth quarter. I think we are all, I think watching what Samsung is going to say about spending. I think they are probably the company that we are most interested in seeing from based on our direct business with them plus the business to our customers. But we hear, it looks like other people would be spending in the areas like 3D NAND whether it’s Hynix or Intel at Dalian, so hearing some pretty good pickup. So in general, it seems like it’s positive. We have the OEMs pick up a little bit at the end on some of the poll systems, could run, just in time systems, a lot of these customers now when we enter a quarter. So it’s a little activity towards the end of the quarter there. So my guess is, we talked about this canoe [ph] a long time ago and people asked me the size of the canoe. So I think we are probably towards the front-end of the canoe, with maybe the curve starting up and I expect the recovery through the year. But that’s really about it that we can tell right now.

All right, that’s helpful. And maybe as a follow-up in terms of your non-semi markets, the advanced markets, you gave a few of the markets that you saw growth in 2015 in terms of life sciences and environmental. As you look at 2016 as a whole, I guess, where are you looking in terms of prospects for the year in terms of I guess specific sub-segments within the non-semi market, where are you expecting growth this year in that area?

Well, I think solar will still continue to be lumpy and LED would dance around the bottom. So I think things like medical, the general industrial business that we have, pharma, bio-pharma, things on that line, the process and environmental business can be a little challenging given the cost of gasoline right now, although there are still investments being made, my guess is we need see that and again, it’s not really material to the company, yet it will be over time. But I think we need to see a little better recovery in gas prices for that to pick up a little more because it’s capital intensive. So I’d say the life sciences, biopharma, continued strength in medical and general industrial would look good. And then you will have solar pop in and out as it does and LED I still think from what we see is late in the year maybe into next year, but we're really lucky to be well-positioned with lot of the producers particularly in China, so we will see how that goes.

Great. Thank you very much.

All right, Patrick. Take care. Thank you.

[Operator Instructions] Our next question comes from the line of C.J. Muse with Evercore. Your line is now open.

Yeah. Good morning and thank you for taking my question. I guess first question, I guess I was hoping you could talk about your lead times. I know you are on a just-in-time delivery, but curious what kind of inventory you're seeing at your customers and how you should see your business tracking your key customer shipments trends through calendar ’16.

Well, we really don't have a lot of visibility to our customers’ inventory, only from an aggregate sense. Again, as you had stated, we are on a lot of pull systems just-in-time basis, so all we can do is most of the time buy what they tell us they see as trends in their business. I think one of our larger customers has released yesterday, talked about improving, maybe a little slower the March quarter and then improving throughout the year. And my expectation is that’s what we would see. And from what we've seen, they are actually trending exactly as they had forecasted to us. So my guess is, it’s a nice recovery through the year and I think we projected relatively flattish right now and I think that’s what the wafer fab equipment spending is, $33 billion plus or minus 5%. And that would mean that it has to be trending towards the back end of the year if we are going to see a recovery. But that's really about the extent of the visibility we have. I wish I could give you more guidance but –

And then I guess the other question, it sounds like mix shift will be far greater, I shouldn’t say far, incrementally better foundry logic as opposed to memory in ’16, so can you talk about your intensity at leading players there both at the fab level and on the OEM level and what that should mean for your shipment trends in '16 versus '15?

Yeah. So we are kind of agnostic and you know really – it doesn’t really matter much to us in terms of would the shift between logic and memory in the fact that we really don't have visibility as to where and I am not trying to be evasive, we really don’t have lot of great visibility as to where our products end up, but although we are on every tool, not 100%, market share in every tool, but on every tool with every equipment provider. So we really just look at the wafer fab equipment spending. However, the thing that's quite positive for MKS is the trend towards 3D NAND multi-patterning FinFET. And again if UV stalls towards 7 nanometer and it goes to quadruple patterning that's even better. So the best way to gauge us is to watch how our largest customers spend in terms of their expenditure on the 3D NAND and FinFET multi-patterning and that type of wafer mix and that’s a good judge for us. And again the other thing that's nice for us is, we do have a nice position within Samsung in their equipment group. And we're seeing increasing opportunities with them. And if Lam's ALD business continues to improve, we have great position in power which we won a year ago, chamber cleaning and also vacuum measurement. And again if they see some additional support in their wafer clean, obviously we have a large position in LIQUOZON. So it’s really the best way to judge us is to watch the wafer fab equipment spend, see that we track very closely to our largest customers and recognize we have significantly more opportunity in 3D NAND FinFET and multi-patterning.

Very helpful. If I could sneak one last one in, in your prepared remarks, you talked about packaging opportunities and it also looks like OLED is going to ramp this year, so curious those two efforts what kind of incremental revenue growth could we see here in calendar ’16.

Well, we don’t give a lot of specific guidance by technology, but OLED is an example. We have a large presence for cleaning that. So our liquid systems which are a very nice product, we are very heavily involved in OLD production. And on the packaging side, that’s a relatively new area for us. A little bit of the through silicon VO [ph] work that we've been doing but we've got opportunities on primarily power on the advanced packaging side. And it's not necessarily significantly material but it is an area for us that we see as a growth area and continued opportunity in the future.

Thank you. And our next question comes from the line of Tom Diffely with D.A. Davidson. Your line is now open.

Yes, good morning. So first question, we’re hearing a lot more about the build over the next year or two in a few years in China. And I’m curious from your vantage point, what are your plans as far as infrastructure or ways to serve that market as it grows beyond just obviously serving the tool companies?

That's a great question. We've been in China for a prolonged period of time now and we have a very large infrastructure in our Shenzhen operation that's where a majority of our power products and medical products are build. So we already have an operation and service presence in Shenzhen as well as we have sales and service capability in Beijing. So we already have a pretty good size infrastructure there and we are looking at potentially even other service center elsewhere in China, we are looking at the details in terms like free trade zones in the light getting product in and out because we think there is more opportunity. So we are really already pretty well positioned for – and our semiconductor business is really modest compared to the other business we have already but we’re well positioned for China.

Do you think it is still a ways away before you start working with local equipment makers?

We already have a position with a company called AMAC, they were first down the path of semiconductor equipment and they went to LED. There is another company that was outcropping of that called [indiscernible] just on the LED side. We have positions servicing SMAIC directly and we pretty well positioned with some of the other smaller non-descript equipment providers. There is one other company and their name changed a bit used to be Seven Star and right now on the call it eludes but they are also a Chinese company, I think originally started by the government that we've been involved with for a period of time. So we're really well positioned. And my guess is too is that you're also going to see some of the other OEMs particularly in Korea that will be providing tools into these Chinese companies or assisting them as we see fit.

And the next and a lot of equipment guys occasionally have a revenue recognition delay when they build with some customers in Japan. I’m curious do have any exposure along those regards?

No Tom. If they have deferrable at their customer level, we ship to them and book upon shipment.

Okay. So, your business with the fabs in Japan would not fall into that category?

No, it might be a case with like title changes hands when it arrives at the customer site that’s not deferral that’s just higher reported revenue but in terms of shipping to a customer, there is really no deferral to speak.

In occasion they might have been some small delay because for inspection to start up but that’s very minimal at desk, pretty much what you see for us is what you get.

Finally, looking at the solar market obviously it’s a very lumpy business for you but what is your view of solar through 2016?

Jim. Yeah, there is a lot of it came out of China they've already got their problems in their market as you know, one of our larger customer there had a lot of value and their business dropped due to stock price. So, I think it just comes and goes, and we take it almost as a project base business now but don't necessarily count on it as a steady flow, it's kind of like these blue birds that fly in and out of the window. But I mean well positioned with everybody, it’s just when they need the equipment, we’re there for them.

I guess one more for Seth. When you look at the SG&A levels in the first quarter, historically you do see a little bit of bump for composition and whatnot. But I'm curious a year ago, it actually came down in the first quarter, what happened last year that may be made us all very little too conservative or not conservative enough this year?

It's a year ago, Tom. It could have been, not sure, it could be foreign exchange or maybe seasonal vacation, I really don't recall back then. If we do see a step-up in Q1, if the FICA gets reset in the US, low classification typically in some other fringes [ph] occurring this quarter in Q1 that wouldn't have happened a year ago, but I don't recall a year ago, why it was down off the top of my head.

Okay. I assume that this year, there weren't much in the way of shutdowns over the Christmas break with increasing activity?

They were minimal, we had some kind of soft shutdowns between the holidays, which we did.

We always have reserved the right to have the operations working for customers during shutdowns, so you see a mixed bag of support people that are on or off and then some of the manufacturing people. So with a little bit of a pickup, we had to bring some additional people back in.

Okay. Great. Thank you.

Okay. Thanks Tom.

Our next question comes from the line of Weston Twigg with Pacific Crest Securities. Your line is now open.

Hi. Thanks, guys. Couple of questions here. First, just on the equipment side, you mentioned a few times that you’re seeing an increase or at least having more participation in developing the equipment collaborations with your end partners. Could you help us understand the revenue opportunity with that, and especially with respect to whether it’s incremental or cannibalistic to your overall opportunity?

Well, I don't think it's cannibalistic because I think that particularly a lot of the work is with Samsung and it's not cannibalistic, I don't think overall for us because if it wasn't us, it would be local Korean OEMs and actually we’re getting that business. And along with that by having a strong position with Samsung and semis, we've gained a position in the Korean OEMs that supply to them. So I don't think it's overall cannibalistic to us, it's actually more opportunity for us directly. I don't think its material against larger customers, but I think it's more opportunity for us against the Korean competition. And right now, we're kind of in a position we really can't talk about that based on the contracts we have with the customer. We are able to talk about our relationship. We are able to talk about the opportunity. I can tell you that the business tripled in the last year and we’re expecting to see another additional pickup over 2016, even though the overall spending may be down. So it is a nice opportunity that continues to improve and I was actually in Korea and Japan last week, visiting with our customers and was very pleased to see about the long-term progression of the business with Samsung and semis, particularly on their equipment division. It's a nice business.

Okay, good. That's helpful. The other question I had was just in the non-semi business, I think in the past you've indicated that that could be a 10% annual growth type of business and is that where you expect this year, or do you see any potential risk to that number, given some of the industrial softness?

Yes. Depending on what happens with China, I guess a little bit of it, depending on what happens in terms of GDP, we’re proud of the significant growth we keep seeing and our internal target is to push for double-digit growth, but it could be, if there is a bit of a softening, we could see some of that as affected, but our internal growth is, look, what I tell my sales team is we don't have 100% market share anywhere. So the existing customers, if they slow down, go find more of them and we've got this investment we made in strategic marketing and business development several years ago is uncovering opportunities for us with either existing customers or new customers in spaces like analytical instruments as an example. So our push is still to get double-digit growth in the other markets, and then maybe some headwinds with maybe some slowdown in certain areas of the world, but we’re going to keep pushing on it.

I think one other point too Wes is, if you look at the -- so we grew 6% ‘15 versus ’14. If you kind of normalize the foreign exchange rates, we probably grew about 11% plus local currency terms. So we have some headwinds and kind of the FX, strong dollar is not to our advantage and so the local currency growth, we are actually quite good in 2015.

Very helpful. Thank you guys.

You’re welcome.

Thank you, take care.

Thank you. And our next question comes from the line of Krish Sankar with Bank of America Merrill Lynch. Your line is now open.

[Technical Difficulty]

Hello. Chelsea?

Thank you. And I am not showing any further questions at this time. I would now like to turn the conference --

Chelsea, we didn’t hear any of that, it sounded like a broadcast from space, but there was no voice or no question on the line, was it – you hear anything?

I heard the same thing, sir. I will have one of our operators access him and let him know.

Okay, great. Well, thank you.

You’re welcome. And I would now like to turn the call back to Mr. Jerry Colella, President and Chief Executive Officer for closing remarks.

Thank you, everyone. Well, I am proud of our achievements in 2015, where we have set a new record in semiconductor revenue. And if you exclude revenues into solar and LED markets, which were at cyclical highs several years ago, we reached record in other advanced markets as well. We are reshaping MKS to be closer to our customers, both geographically and technically, targeting the right opportunities and focusing on being even more efficient in profitable. I look forward to updating you on our continued progress in April. Thank you for joining us on the call today.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.