Good day, ladies and gentlemen and welcome to the MKS Instruments First Quarter 2016 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 follow at that time. [Operator Instructions] I’d now like to introduce your host for today’s conference, Mr. Seth Bagshaw, Chief Financial Officer. Please go ahead.

Thank you. Good morning, everyone. I'm Seth Bagshaw, Vice President and Chief Financial Officer. 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 first quarter of 2016. You can access this release at our Web site, 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 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, which is on file with the SEC. These statements represent the Company’s expectations only as of today and should not be relied upon as representing the Company’s estimates or views as of any date subsequent to today, and the Company specifically disclaims any obligation to update these statements. With respect to share repurchases discussed in today’s call, the timing and quantity of such repurchases 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 and such repurchases maybe commenced, suspended or discontinued at any time without prior notice. In addition, today’s call also includes non-GAAP adjusted financial measures. Reconciliations to GAAP measures are contained in yesterday’s earnings release. Now, I’ll turn the call over to Jerry.

Thanks, Seth. Good morning, everyone, and thank you for joining us on the call today. This morning I will review our results for the first quarter of 2016, including some key highlights. Following that I will give some color and an update on our progress with the Newport acquisition and finally, I’ll provide our outlook for the second quarter of 2016. Seth will follow me with further details on our financial results and then we’ll open the call for your questions. Total first quarter revenue was $184 million, up 7% from last quarter and non-GAAP EPS was $0.38. Our results were at the high-end of our guidance range driven by strong revenue from our semiconductor customers. Conditions in the semiconductor market have improved and our first quarter revenue was up 18% as device manufacturers ramped 16 nanometer and smaller devices, utilizing 3D structures and multi-patterning. Both3D NAND and multi-patterning rely heavily on action deposition processes which require a high degree of content that MKS provides. We believe that the industry relied more and more on multi-patterning and 3D structures as features shrink to 10, 7, 8 and 5 nanometers. Double-patterning will advance to triple-patterning and even quad-patterning for some layers as features continue to shrink, doubling the number of etch, deposition, and cleanings steps required. This increase is a capital intensive in these processes which will drive growth opportunities for MKS for a number of years to come. As features get smaller and critical etch and deposition steps increase, achieving quality, uniformity, and repeatability become increasingly more difficult. In critical etch, one of the challenges our customers face is the ability to deliver energy to etch a deep, narrow space while maintaining etch productivity, selectivity, and smooth straight walls. To achieve this, OEMs increasingly are turning to RF pulsing. In…

Thank you, Jerry. I’ll start with the first quarter financial results, provide and update on the Newport acquisition financing, and finally I’ll discuss our Q2 2016 guidance. Revenue for the quarter was $184 million, an increase of 7% compared to Q4 revenue of $172 million, a decrease of 14% from Q1 2015. Revenue for the quarter was near the higher end of our guidance range, primarily due to strong demand from the semiconductor customers. GAAP and non-GAAP gross margin was 42.4%, which was within our expectations at the sales volume. Non-GAAP operating expenses were $51.2 million, also within our expectations for the quarter. Our non-GAAP operating margin was 14.6% of sales. GAAP operating expenses were $55.4 million and included $1.7 million in amortization of intangibles and $2.5 million in transaction costs associated with the Newport acquisition. Non-GAAP net earnings were $20.1 million or $0.38 per share compared to $18.4 million in the fourth quarter and $35.5 million in the first quarter of 2015. Our non-GAAP tax rate was approximately 28%, and our GAAP tax rate was 26%, which includes the U.S federal tax benefit related to the Newport acquisition related costs. GAAP net income was $17.6 million or $0.33 per share. Now turning to the balance sheet, cash and investments increased by $8 million in the quarter to $667 million or approximately $12.51 per share, all of which is classified as short-term. As of March 31, our cash and investments were about evenly split between the U.S and our international operations. Total book value, net of goodwill and intangibles increased to $928 million or approximately $17.42 per share. In terms of working capital, days sales outstanding were 56 days at the end of the first quarter, compared to 54 days at the end of the fourth quarter. This slight increase…

[Operator Instructions] And our first question comes from Dick Ryan with Dougherty & Co. Your line is open.

Thank you and congratulations on a good quarter guys.

Thank you.

Jerry and Seth, are you going to provide an updated target model, what your expectations may be post the close?

Yes, Dick we’ll probably do that -- we’re working at it right now, probably in the third quarter earnings call we’ll definitely do that, perhaps a little bit earlier. We hadn’t closed the transaction yet. We need to kind of get through that first, and so it may occur later in the quarter but it’s really no later than the Q3 earnings call.

Okay. Can you maybe talk a little early then on what you might be looking for de-leveraging any expected goals in the first 12 months post the close or 18 months, anything like that?

Yes, nothing we can kind of share in a public form. We’ve asked the internal models that we’re -- we have that equate extensively. But kind of going out a couple of quarters will be more or less giving guidance and I don’t think we’re ready to do that quite yet. We are going to delever the balance sheet and if you look at the combined companies on a pro forma basis looking back in history we generated about $1 billion of free cash flow in the last 10 or 12 years in a combined basis. So the cash generation is quite strong but I think I’ll wait till we get to the Q3 and kind of lay out little more of a Q3 model I think at that point in time.

Okay. In non semi it sounded like you said there was some project timing related issues, is that going to be coming in, in Q2? How are you looking at non semi revenues in Q2 versus Q1 and is this -- or is there something that has a little longer timing implications?

Actually, Dick we had seen the order rates start to improve in the quarter. So my expectation is that we would see improvement in Q2 on the revenue side on non semi. It’s really kind of a bit of a lumpy business, but we’re very excited about flat panel as an example and OLED and Solar. In the OLED we’re seeing this like a 16% CAGR through 2020. And with that -- with the Apple transition to the new iPhone late in ’16, the non-planar curve displays for TV and mobile we’re excited about the continued strength in OLED and its across the board, its great because Liquizon product is permanently used for cleaning and it’s a great product. It’s well embraced around the world, particularly strong in Asia. But then we have our residual gas analyzers, pressure products flow control. So we expect to see Q2 look better for non semi and hopefully continue on through the rest of the year. But it comes in ways and it’s kind of lumpy and we did see the orders pick up, but they were a longer booking then just a churns business as we expected.

Okay, one last one. On OLED, Jerry can you kind of handicap what your opportunity may be there in that growth as you look out to 2020, what sort of SAM you have there?

Well, I’d actually like to spend a little more time giving you some more specifics. I’d rather not answer it right now. But if you look at the concentration we have in firms of the equipment manufacturers and the position we have with people like Samsung and others, it’s a pretty significant opportunity. But I will -- I’ll give you the exact SAM at a later date.

Great. Thank you.

You are welcome.

You are welcome.

Thank you. Our next question comes from Patrick Ho with Stifel, Nicolaus. Your line is open.

Jerry, maybe first off on the -- your core semiconductor business, given what looks like a building equipment flow. Have you seen any discernable changes in your lead-times and I guess what I’m getting at, have you started seeing them extend somewhat and given all the commentary about a larger second half waiting in terms of equipment spending, how have you appropriately set up your manufacturing operations to handle this build?

Well, thank you Patrick. Well the lead-times have been constant. One of the things that we do every day, if you look at booking and shipments every single day that’s the first thing I do when I come to work, and its something I’ve done for over 30 years. And what it allows me to do is keep a pulse on the business rather than wait for a month or a quarter. And we run the plants 24/7, so we have full utilization of all the equipment which keeps the lead-time and cycle time short. We have a flexible workforce that we can bring in, in terms of temporary operators. We have the overtime that we use. And then if you look at our inventory return, some people might say, your inventory returns don’t turn that great and part of that is we have what we call storage capacity, which is because it’s a lumpy business and it turns on a dime, we’ll have pre-built inventory and whipped and in finished goods locations to adapt to an upturn in the business. So between keeping a pulse in the business every day, having a flexible workforce that we use in terms of temporary labor and overtime, the strategic investment in storage capacity and inventory, I don’t worry about turns of the business. It’s actually -- we can go up in a quarter in the last 60%, 70%, I used to run around with my hair on fire back in the day. So if we’re going up 20% in the quarter or 30%, that’s something that’s almost a yawn for MKS. So I mean I think people come to us because of the technology, but they stay with us because of the operational capability. So we’ve got a pretty good finger on the pulse of that.

Great. And maybe going to the Newport for a second, now that you’re about to close the deal. I’m sure you’ve been working on the integration as soon as you announced the deal. What have you incrementally learned since late February when you announced the deal in terms of kind of the integration and some of the combinations, I guess what I’m trying to get there, what gives you the confidence that you can hit a lot of the cost savings targets that you outline to date?

Well, first of all we bought about 20 companies since we went public in 1999. So I believe we’re really good at doing the due diligence and then outlining the integration strategy. We have established an integration steering committee which I sit on with my direct reports, then integration project teams report up into them -- up into the steering committee. So we have flights for all levels of integration, operations, supply chain, sales, product management. And I feel pretty comfortable that the actions that we’ve outlined in terms of integration and synergy attainment are well known. We like the -- on the sales side, we really like the diversity of the markets we’re in. We think it’s nice to support us and we have a little mild a reduction in the semi cycles. I’ve gotten some really good positive feedback from major customers about integrated sub systems, longer term they’d like to see. And what's even more interesting is, when after the deal was announced one of our largest end users called us and said, we want to talk about optical sensing. We think the combination of optics Newport provides and the sensing capability of MKS is a game changer in the fab and on the tool. And so, we see cross selling opportunities from the technology side. We see cross selling opportunities because they have a list of customers in analytical instruments areas and other areas that we don’t get to, they have a lot of feet on the street and we have connections at the end users that they do not. So I think between the alignment of the teams, the continued focus we have on a weekly basis in terms of the work they’re doing on the synergies and integration, and then the opportunities that we…

Great. Thank you very much.

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

Good morning. Maybe just following up on that last question. What do you think the timing is for something along the lines of the cross selling or the technology integration, is it couple of years down the road?

Well, I think the cross selling is immediate. I think the fact that we’re already working our strategic marketing, Marcon groups are already working on the sales resource for the necessary to go into alternative customers to cross sell. So if you can sell photonics and optics and lasers, you can sell flow controllers and valves and pressure measurement instrumentation. So it’s a matter of getting their sales people trained and up to speed quickly. I think the integrated solutions piece that could be a year or two out. That’s going to talk about cross development and working roadmap with customers, but the cross selling itself I think is almost immediate.

Okay. And then Seth, why $400 million of cash? That’s obviously a lot of cash you can have on hand after the acquisition. Is that for potential acquisitions as well or what is the $400 million bogie there for?

Yes, Tom so probably about three quarters of that mix is outside the U.S. or bringing that back, we’d obviously pay a tax bite. So that’s kind of bigger equation there. There is working on right now, there are -- we believe opportunities with this transaction to bring back a quantum that offshore cash we think was very minimal incremental tax and that’s not baked into the model right at this point. We think we can probably optimize the onshore cash with this model. But right now how I look at it is $400 million of cash plus about $100 million in the U.S. $300 million outside the U.S. was kind of a rough -- rough sizing right now.

Okay. When you look longer-term, the use of cash that’s offshore, is that acquisitions or is it your own manufacturing facilities? What -- what would you use that for?

Yes, so if we can again bring some of that cash back to the U.S. we mentioned a minute ago with kind of a very minimal tax bite we’ll do that, and that give us more flexibility, cash in the U.S. and we share buybacks, de-lever all those things obviously. And the cash offshore right now is to fund the international operations, and we have made some acquisitions outside the U.S. last couple of years. But I think you’ll see us really focusing on de-levering the balance sheet. So we’d like to bring that cash back to the U.S. for that -- kind of that purpose in the short-term next 12 months for sure.

I mean it’s possible we’ll do a small technology investment $8 million, $10 million and something we think that’s emerging technology. What we don’t want to do is not, you’re going to take advantage of the technical advances in semi. And if we see an organization or a business that has technology, we want to get our hands on. We would make in small -- in technology investments though, but in the range of $8 million to $10 million something like that.

Okay -- okay. And then when you look at the semiconductor business right now, obviously ramping pretty quickly here; is your business matching what you see as the shipments for your customers or do you think that the OEMs are building a little inventory at this point?

Yes, I mean probably a little bit of inventory. But for the most part it parallels pretty much what we see the customer is doing. And it matches what we are seeing from people in terms of prospecting the growth in the 3D NAND and FinFET side.

Okay. I know you did highlight 3D NAND as the driver. Are you seeing much 10 nanometer FinFET at this point or is that later in the year?

We’re seeing some, but we expect a little more of its part towards the later part of the year. But people are already involved -- we’re already involved in. The nice thing is, we’re already involved in 10 nanometer, but we’re also involved in 7 at this point too, it’s beyond road-mapping. But actually as they implement over time we’re already in practical application. So we’re already getting ahead of it.

Okay, great. And then finally, have you seen any impact from the recent Japanese earthquake on either customers or competitors?

No. No, I contacted -- I mean there was one facility for one of our Japanese customers that had some impact, but I don’t think it was anything that was significant. We contacted them and we heard that they were in pretty decent shape, but none that we’re aware of.

Okay. Good. Thank you.

You are welcome.

Thanks, Tom.

Thanks. Take care.

Thank you. [Operator Instructions] Our next question comes from Weston Twigg with Pacific Crest. Your line is open.

Thanks for taking my question. I just wanted to dig into this non semi revenue again. It looks substantially lower than typical. And I know you said that, it should improve through the year. But do you still think you can hit double digit growth and what gives you conviction I guess that, that it will recover substantially from the level we're at now?

Yes, so this is Seth. So in Q1, the order rate was substantially higher than the revenue rate, so definitely it’s a trend heading in the right direction. And the double-digit growth rates we had in the past had been over a period of time. We’ll have some quarter-to-quarter in various markets like solar is a good example. But we still feel very good with the long-term growth rates in those markets. And again the order rate we’re seeing now in Q1 is trending in the right direction, so we’re pretty positive about that.

Okay. That's helpful. And then, just the other question on guidance, I mean, I think the non semi probably explains the most of it. But I thought it would be a little higher given that Lam guided revenue up quite a bit, you have a lot of exposure there, presumably as you talked about the recovery in demand through the year. I thought maybe Q2 guidance would be just a little bit higher. Is there any -- maybe delay that we’re seeing or is it all just the non-semi softness?

Well, we did see, if you did notice we did come in on the high end of the guidance from in Q1, so we have a tendency sometimes to have people pull ahead of what they guided get ready for their production and we see a steady pace in the business but we think this is the best rate. I think people had us at an average like just under $200 million for a mid point we got it around $195 million. So plus or minus $4 million or $5 million in this business to me is just a matter of an order or two that people pull in or push out.

Okay, very helpful. Thank you.

You are welcome.

Thank you. [Operator Instructions] One moment while we wait for questions to queue up. And I’m showing no further questions at the queue at this time. I would like to turn the call back to Jerry Colella for any closing remarks.

Thank you. Thank you for joining us on the call today and for your continued interest in MKS. We look forward to updating you in our continued progress when we report our second quarter results in July. Additionally we hope to see you at some of our upcoming investment conferences which include KeyBanc, Pac Crest Industrial Conference in Boston and the D.A. Davidson technology firm in New York both on June 1. The Stifel technology conference in San Francisco on June 6, as well as the Stifel Industrial Conference in New York on June 13, and SEMICON West in San Francisco July 12 and 13. Thank you.

Thank you, ladies and gentlemen for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.