MKS Inc. (MKSI) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the MKS Instruments Third 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 be given at that time [Operator Instructions]. I would now like to introduce your host for today’s conference Mr. Seth Bagshaw. 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 third quarter of 2016. You can access this release at our website, at 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 in the most recent quarterly report on Form 10-Q, which are 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 disclaims any obligation to update these statements. Today’s call also includes non-GAAP adjusted financial measures. Reconciliations to GAAP measures are contained in yesterday’s earnings release. In addition, we’ll refer to certain pro-forma measures as if the acquisition of Newport Corporation, which closed on April 29, 2016, had occurred at the beginning of the first quarter of 2016. Now, I’ll 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’ll start this morning with a review of our results for the third quarter of 2016, including key business highlights and an update on our integration of Newport Corporation. Following that, I’ll provide an outlook for the fourth quarter of 2016. Seth will then follow me with further details on our financial results, and then we’ll open the call for your questions. Revenue for the third quarter was $381 million and on a pro forma basis was up 6% in the second quarter. Sales of semi conductor market were $210 million which was a 15% increase from pro forma second quarter revenue. Looking at semi conductor revenue for only the vacuum analysis division, we are very pleased to report a new quarterly sales record of $173 million a [ph] percent higher than our previous record set in the second quarter of 2015. Year-to-date semiconductor revenue was also very strong setting a new record as well. In our semiconductor business we continue to benefit from the technology reflections of driving strong growth in a number of areas. The progression toward finer geometries continue and leading device manufacturers are starting to implement 10 nanometer processes in production. The feature of the 10 nanometer devices require increasing use of multi patenting and the subsequent increase in etching and deposition equipment we have discussed in the past. In addition, 3D NAND customers are progressing to larger numbers of stack memory cells going from 48 to 64 layers. This requires additional deposition layers as well as longer, more difficult etching processes. The multi patented inflection has been great for MKS due to the increasing demand for deposition etched tools, but multi patenting can also require additional lithography exposures. The acquisition of Newport has allowed us participate in the multibillion dollar lithography segment. Additionally, the current build out in 10 nanometer is a rising tide for metrology and inspection tools since the chip [Indiscernible] must come up the yield curve rapidly. The Newport acquisition also provides us additional exposure to this market segment. We continue to focus on providing additional solutions to solve the complex problems our customer’s experience. As a result, this quarter we had a number of [Indiscernible] design wins especially with Korean OEMs for ALD, Etch, [Indiscernible] OLED against cleaning or [Indiscernible] and other processes. These wins stand numerous MKS products, including pressure, remote plasmas, flow and ozone. Our localization strategy in which we provide technical and application resources close to our customers around the world has enabled us to outpace a number of competitors in the semi space with multiple design wins. One win I’d like to share is for advanced etching application where we supplied both the RF power and matching network that enables improve process control through more accurate power delivery. In selecting this advanced technology, the OEM improved overall through performance for critical process and replace the generators and matches from three incumbent suppliers. This is yet another example of MKS combining multiple technologies from across the company; capability is unique to our broad and deep product portfolio. The Newport acquisition enhances this unique capability as you begin to integrate product development roadmaps. Being one of the most respected technology providers in our state [Ph] is not just about having the most advanced technology. Customer relationships are key and we have a history of working closely with our customers as they tackle some of the most technically difficult challenges across a multiple of markets. We are proud to count leaders such as Applied Materials, ASML, KLA-Tencor, Lam Research, Samsung, [Indiscernible] and many others as our customers. Last year we received the share growth of collaboration award from Samsung. And we are especially pleased to report that we recently received the Lam Research 2016 supplier excellence award for technology, collaboration and innovation. This is further validation of the valuable impact of our collaborative approach with our customers. We recognize that our success comes through our customer success maintaining this level of recognition of my customers is a proud achievement for our team. In addition to supporting semi conductor industry, we have a goal to more deeply diversify into other advanced and growing markets including electronic thin films, life and health sciences, process and industrial technologies, research and defense. I have spoken in previous call about our success and extending our [Indiscernible] keys in semiconductor affluent management, solutions into industrial applications. This quarter we received follow on orders from a major aviation engine manufacturer and integrated F1 [ph] management sub system to control exhaust and coding reactors used to manufacture their new composite fiber engine. The Newport acquisition provides a multibillion dollar increase to our addressable market outside of semi which we have begun to aggressively target with a plan for growth. For example, we now have technologies to measure light in many applications including laser power and being [Indiscernible]. We are expanding beyond lasers to other light sources and in this quarter, we introduced a new product, the first photometric measurement system designed to quantify and analyze LED light running LED luminary production, end market with double digit growth forecast. Additionally, this quarter we received a significant follow on order for imaging optics for the defence market from both European and Asian customers. We’ve also made significant progress on our industrial laser portfolio with several major design wins this past quarter and precision manufacturing applications. Our new industrial laser products have seen strong interest with customers in a wide range of applications including mobile diverse manufacturing, energy, cutting welding and other advanced manufacturing processes. We’ve been working diligently to integrate Newport and have already begun to see significant progress. We’ve realigned the organization to bring a large portion of the semiconductor products together under common leadership. This brings additional resources, focus and best practise of MKS to support the Newport semiconductor products. We’ve also been working on focus sales efforts and have completed joint meetings on common customers including those in the analytical instrumentation market. We’ve held corporate technology reviews and implemented our cross selling. MKS was also able to engage one of Newport’s key semiconductor OEM customers to develop and build a custom gas delivery system. We are pleased that we won this order as it also presents additional follow on opportunities. In product development, we’ve shared customer role maps, initiate strategic planning as one company and have identified numerous opportunities for technical collaboration, provide unique solutions for our customers in the markets we serve. We will continue to evolve integration plans to focus on improving financial results, capitalizing on synergies, extending our expertise and high quality, low cost manufacturing and leveraging our product portfolio. Our multidisciplinary team is well on their way with integration activities and we remain confident in our ability to achieve our synergy targets of $35 million within 18 to 36 months after closing. We are steadfast in our dedication to the sustainable and profitable growth of MKS. Our capital deployment strategy remains centered on delevering the balance sheet while maintaining our strong commitment to our dividend. This quarter we made another voluntary prepayment on our term loan, bringing our total voluntary prepayments to $110 million since the acquisition was completed only five months ago. At this point I’d like to turn our outlook to the fourth quarter. Last quarter was another excellent quarter for MKS with increasingly strong sales into the semiconductor market. 3D NAND implementation continues and we anticipate growth will continue in the fourth quarter. We are seeing healthy demand in the OLED market driven by consumer interest and sharper images and flexible displays. Industrial application, we see increasing penetration in growth in the industrial laser application such as trimming and cutting and welding. Additionally, we expect to further capitalize on our cross selling opportunities. Based on these factors and looking at current business levels, we anticipate sales in the fourth quarter may range from $370 million to $410 million as these volumes; our non-GAAP net earnings could range from $0.87 to $1.10 per share. With that, I’ll turn the call over to Seth to discuss our financial results and expand on our guidance.

Thank you, Jerry. I’ll cover the third quarter financial results, provide an update on integration of Newport and lastly I will discuss our Q4, 2016 guidance. As mentioned earlier, certain pro forma financial metrics include Newport as if the acquisition occurred at the beginning of the first quarter of 2016. Turning to Q3, we are very pleased with our strong financial results this quarter. Sales for the quarter were $381 million, an increase of 6% sequentially on a pro forma basis compared to revenue in the second quarter. Revenue for the quarter was near the high end of our guidance range due to continued strong demand from our semi conductor customers which benefitted both our vacuum analysis and light motion divisions. Approximately 55% of our sales were to semiconductor customers, 45% with customers in other advanced markets we serve. Sales to the semiconductor market were $210 million, an increase of 15% sequentially on a pro forma basis compared to second quarter results. As a leading technology provider, we continue to benefit from both positive semi conductor market trends as well as new design wins that Jerry discussed. Pro forma sales for other advanced markets moderated slightly and decreased by 3% sequentially or $6 million. Shipments into certain of these markets are project based and can vary from quarter to quarter. Order rates for these markets in this quarter and year-to-date have exceeded the shipment rates. Now, moving to GAAP and non-GAAP financial results for the quarter. Non-GAAP gross margin was 45.5% which was slightly above our expectations at this revenue level to a favourable product mix. Non-GAAP operating expenses were $100.3 million and non-GAAP operating margin was 19.2%. GAAP gross margin was 44.2% and include the final impact of inventory purchase accounting charges relating to the Newport acquisition which totalled $5 million in this quarter. GAAP operating expenses were $115 million and included $12.5 million in amortization of intangible assets, and $2.6 million in transaction and integration costs. GAAP net interest expense was $11.6 million and non-GAAP net interest expense was $8.8 million and which excludes approximately $2.8 million of deferred financing amortization. The GAAP tax rate was 23% and our non-GAAP tax rate was 25% and was lower than anticipated due to the geographical mix of taxable income. GAAP net income was $32.5 million, or $0.60 per share and non-GAAP net earnings were $47.9 million or $0.88 per share. Now, turning to the balance sheet. As we have stated, our goal is to continue to delever the balance sheet and minimize our cost of capital. In the third quarter, we made a $60 million voluntary principal prepayment on our term loan. In the last four months, we have reduced our term loan to both voluntary and scheduled principal repayments that totalled $112 million. At the end of the third quarter, the balance of the term loan was $668 million. Furthermore, the company also entered into an interest rate swap agreement to fix the rate on approximately 50% remaining outstanding balance. This aligns with our strategy to prudently manage our interest rate risk. In the last five months the cumulative effect of these actions as well as the impact of a favourable interest rate repricing which was completed on June 09 we have been able to reduce our annual non-GAAP interest expense by $9 million or more than 20%. Also during the quarter, we repatriated in a tax efficient manner approximately $160 million from international operations. Since the acquisition, we repatriated total of approximately $210 million and an effective net tax cost of less than 4%, s compared to a more typical 20% effective tax rate through its company dividend. As a result of this repatriation, we have substantially improved our onshore liquidity and increased our U.S. cash balances by approximately $140 million in the quarter. At the end of the third quarter, we had cash and short term investments of $426 million of which approximately 50% is in the U.S. as compared to 20% at the end of the second quarter. We believe these actions demonstrate our commitment to delever, prudently manage our balance sheet and minimize interest expense. Capital additions for the quarter were $4.7 million, depreciation and amortization expenses were $22 million and stock compensation was $5 million. Free cash flow for the quarter was $71 million. In terms of working capital for comparison purposes, I’ll provide a metrics on a pro forma basis. Day’s sales outstanding were 58 days at the end of the third quarter, compared to 59 days at the end of the second quarter. And inventory returns increased slightly to 3.0 turns versus compared to 2.9 times in the second quarter. We continue to provide a balanced approach to capital deployment and during the quarter in addition to the $62 million of debt repayments we paid a cash dividend of $9.1 million or $0.17 per share. Turning to Newport acquisition, integration is proceeding very well and we are on schedule to realize $35 million of total cost synergies and 18 to 36 months subsequent to the transaction closing. Exiting the third quarter, we have realized $16 million of annualized cost savings which exceeded our original expectations of approximately $12 million in annualized savings in this quarter. In the fourth quarter, we expect to complete an additional $2 million to $3 million annualized cost savings for a total of $18 million to $19 million at cumulative annualized cost savings exiting the fourth quarter. Now finally, I’ll discuss our Q4 2016 guidance. Based upon current business levels, we estimate that our sales in the fourth quarter could range from $370 million to $410 million. At this expected sales range, our Q4 gross margin could range from 45.5% to 46.5% reflecting these volumes and expected product mix. Q4 non- GAAP operating expenses could range from $98 million to $103 million. In the fourth quarter R&D expenses could range from $32 million to $34 million and SG&A expenses could range from $66 million to $69 million. Non-GAAP net interest expense is expected to be approximately $7.7 million and our non-GAAP tax rate to be approximately 25%. Given these assumptions, fourth quarter non-GAAP net earnings could range from $47 million to $60 million or $0.87 to $1.10 per share. In the fourth quarter, amortizations of intangible expect to be approximately $12.3 million. Integration related costs are expected to be approximately $1.8 million and GAAP net interest expense is estimated to be approximately $8.5 million. GAAP net income expected to be in such a range from $36.8 million to $50 million or $0.68 to $0.92 per share or approximately 54 million shares outstanding. This concludes the prepared remarks and now open the call for questions.

Thank you. [Operator instructions] Our first question is Patrick Ho from Stifel. You may go ahead.

Thank you very much and congratulations, guys, on a really nice quarter. Jerry, first off in terms of the OLED business or the displays business that you are starting to see pick up, one can you comment on the type of ramp you are seeing and secondly, is it just based on volume that you are seeing the increase or are there more yes available market opportunities in the OLED business that you don’t get say in semi?

Yes, it’s a good question. So let me maybe talk about the widespread reception of the MKS product lines around the world. We have customers in the U.K., we have customers in China, we have customers in the U.S. multiple customers in China and the U.S. customers in Japan, customers in Korea. We have strong position in OLED and also AMOLED [ph] across the product lines whether its residual gas analyzers, mass flow controllers, pressure and pressure control, liquid zone for cleaning. So the opportunity is not just regional highs in the U.S. but it’s global. And the nice thing about MKS is that we’ve had engineers that have worked with us in the semiconductor or OEMs in the U.S. for many years that sometimes go back home, whether its Korea or China, or they were graduate students at Universities or research labs and they have worked with the MKS equipment. So it’s an expanding growing market, you know I think that overall it is expected to continue expands in terms of the market I think there is record revenue for OLED and for flat P&L it looks like 2017 will be strong again, which we see rising tide in the overall market. But more importantly for MKS uniquely, it’s such a great adoption across the world for a whole sundry [ph] of products. You know MKS is unique to a lot of competitors that have a single technology that they offer. And having such a wide and deep portfolio clearly opens the doors to us beyond just the large accounts, particularly when you look at a region like China or Korea where they are looking for one supplier that can do one stop shopping for them. So we are very fortunate that it was a great rise in the market overall and a great job by our sales team around the world to get more share around the world and then obviously the benefit of having a large portfolio that can be applied to different applications, Patrick.

Great. That’s really helpful, Jerry. And maybe a question for you Seth in terms of the integration and the progress you’ve made there. Obviously a lot of the savings you immediately get are on the expense side of things. Can you comment a little bit about some of the near term and maybe even over the next 12 to 18 months on the cost of goods side of things and where you are working on and getting the cost synergies on that front?

Yes, sure absolutely Patrick. You’re right, so so far today the $60 million we realized additional in the fourth quarter exit the year you know the $3 [ph] million pick up in Q4. Most of that is in the operating expense line. You know we’ve done some things on [Indiscernible] Newport, streamlined some of the organization you know try and consolidate some of the spend that was higher on two company basis. And there was more work that did happen there as well, but I’d say that’s ahead of schedule. On the cost of goods sold line, the real drivers they are going to be consolidating supply chain spend. So we have a very multiyear approach in MKS here historically speaking where we have relatively fewer suppliers who try to focus the spend on for quality and for leveraging and pricing and delivery and so forth. And Newport over the year’s centralized function had a very wide and sort of a broad supply chain. So, that takes a little more time to kind of drive that to one common platform, but that will be obviously a goal going forward. The spending we have as you can imagine is doubled now, as combined company that we had as standalone MKS, so we think it will be pricing there on, really leveraging that opportunity. And new product development will go to – you've got a couple of low cost, high volume, you mean that facilities actually three [Indiscernible] for light and motion and vacuum analysis respectively and we want to move our content over there over time as well. And those things take a little bit longer, Patrick, but we've done this many times with MKS. We've got a very good team in place. The operation side for light and motion has been very helpful in that area. So, that's why we gave a little longer timeframe on the total synergies and next stage we has the biggest bang for the buck, so it’s hard to say when and what quarter in 2017 they will roll out, but it is working pretty hard and its progressing as we expected.

Great. And final question from me, Jerry, I know you briefly talked about some of the potential revenue synergies and how you're starting to get product development integrated between the two companies, without putting timeframe on it. What's your goal in terms of bringing both these revenues synergies to the company where you have new products kind of integrate both of the product lines yourself and Newport?

Well, first of all, some of the revenue synergies just comes from the cross-selling that we've engaged in. So in the metrology inspection areas we were really glad to get it some when we did on a gas system to a customer that we never had access to. And there are optical opportunities, optical sensing opportunities for the light and motion, we now call light and motion from a Newport in the OEM tools which they never had this opportunity for and we're aggressively looking at other laser applications. As far as integrating the technology together, so there's lot of opportunities where we can take the existing products from both companies with little to no R&D expenditure and sell into market and customers and that's already begun. A residual gas analyzer, when we talked about last quarter to another company in the metrology inspection area which we had nothing, really nothing to speak of in that business, but it will take a few quarters for some of the application of the technologies together, so let me give an example. We do a lot of work on emissions monitoring and there are some opportunities from the optic side to enhance the capability of the lenses and management capability within the emissions work that we do. So, there's a bunch of – there's probably six specific opportunities that – we have this thing called strap planning, strategic planning, and each business unit have the strategic planning. So, like most motion comes with the list of projects they're working on both short and long term that give an analysis to us. We now had an integrated technology strap planning session of the combined technology groups. And they came up with six opportunities that they want to engage in, and sometime some are very short term for combining with different technologies in the company. So I think the short term will be the cross-selling of the existing technology, and introducing Newport to end users which they've never done before and introducing MKS into lithography, metrology inspection and there's a deep dive into analytical instrumentation, and then longer term within next several quarters looking at more opportunities on conventional integration of the technology of product development.

Great. Thanks. Congrats again.

Thank you.

Thank you. Our next question is from Amanda Scarnati with Citi. You may begin.

Thanks for taking my questions. Just two questions on gross margins and how that progress throughout the quarter. You said it was mostly based on better mix – better stronger mix MKS, organic products or was that more light and motion? And was there any revenue or any synergies that we're able to be achieved in the gross margin line that were to help?

Yes. I'll take that, Amanda. This is Seth. So, what really drove the positive expected gross margin in the quarter is just frankly mix of existing product portfolio, mostly on light and motion side quite honestly, and they've got some pretty high NV [ph] as well on the vacuum side, pretty margin across the board at different product groups. But I think it's really the mix of how that product was sold during Q3 for light and motion, that's the big driver on that. We did have some cost synergies as well on the gross margin line in the quarter, but that wasn't the bigger driver of the positive gross margin, its really the mix of existing products.

Okay. And then Seth, you also mentioned on the non-semi side the sales decreased about 3% sequentially on the pro forma basis. Is this just normal seasonality in the business that you would expect? Or would you expect to see that grow kind of going forward?

Yes. I think from quarter-to-quarter we have literally thousands of customers across both sides of the vacuum analysis in light and motion. In some of the [Indiscernible] frankly very lumpy shipment patterns and that's more prevalent in the kind of solar and some the display business. So I would say fundamentally it’s a lumpiness in the quarter. We had real strong growth in Q2 from Q1 on the vacuum analysis side and these things would have bounce from quarter-to-quarter. I did mention in the prepared remarks that the order rate actually has exceeding the shipment rate. So point being, it’s a pretty healthy business, just to where the shipments go out revenue gets recorded, it really can vary quarter-to-quarter.

Great. Thank you.

You're welcome. Thank you.

Thank you. Our next question is from Tom Diffely with D.A. Davidson. Your question please.

Yes. Good morning. So first I guess follow-up on Patrick's question on the integrated solutions. So, long term is a big opportunity with costs selling or is it really creating these new integrated systems for you?

I think it’s a combination of both actually. Certainly the thing that's easier to see right now being new into the acquisition is the opportunity to cross-sell. And we are reorganizing light and motion sales organization. We have realigned the vacuum analysis sales organization. We never had a dedicated work stream to analytical instrumentation of the industrial market. And we do now with leaders specifically assigned to go after those two markets and the customers within there, looking at customer at we do business with, but we should do more with or looking at the competitors that we yet to approach. So first surge really from the synergies is really the cross-selling, and then it takes time as you integrate the technologies into the different between two companies and the solutions for the customers. But we believe that the lithography, metrology inspection area is a great area for opportunities for us for that older time. And that's the reason why we moved the management of that business segment as we mentioned in the script under the MKS – vacuum analysis, all MKS leadership. So I think it’s a matter of few quarters over the next year as we look at opportunities design wins take time to work for the customer then they become tested, then they become implemented. So, I think you'll see the cross-selling to be the biggest opportunity. And then as we get integrated subsystems released we will talk about them.

Okay. And then I guess when you look at the -- your historically largest customers Lam and Applied, are they still 10% customers or they drop below that threshold at this point?

Yes, Tom. AMAT will still be 10%, 12% for the quarter actually as where Applied rolls in and Lam is below 10%, but I can say its 9% range.

But they are surging, Lam is surging with us.

Yes.

We also had a very strong growth sequentially on Applied, it's actually the question about OLED. We shipped AMAT had very strong OLED [ph] orders. Sequentially speaking from Q1 to Q2 our AMAT revenue surge by 27% up again this quarter by another incremental 7%, so obviously the semi space is effecting that quite well, we're well positioned on that customer and also think some of the OLED orders will roll into it as well.

And we'll see strength across the board from customers like Samsung and TSMC that we have a strong position with Tel [ph] whereas the Wafer fab equipment spending looks like it’s still should be healthy in 2017 with a strong component that being 3D NAND. DRAM picking up which is good for our Korean OEMs which will assist our business, 10-nanometer, the China investments we have strong position with people like AMAT, NMC and Peltech [ph] so its all – all the customers in that segment should be very strong fiscal into next year.

Okay. We're very well aware of the very bullish story for 3D NAND going forward, curious, what is your relative exposure for your newer customers ASML and KLA on the Newport side?

They were both Top Two customer for Newport. They are still significant customers of MKS. We have turned those into key accounts for MKS because of the fact that they are semiconductor related. And we do believe that they have a lot of growth for both those companies. And the reason I say that is I think that MKS brings to the table an operational excellence that both KLA and ASML has noted in meetings with us. Sometimes companies really wanted to do business technological reasons, but they're radisant [ph] because they unsure whether you can ramp or supply them on an ongoing basis, an interruption of supply is a real guess now to do a business. Both these customers have recognized the operational capability of MKS, the superior technology of Newport or Newport and MKS together. So we think that actually this is a great opportunity for expansion. We do motion for lithography on backend packaging which is an area that we wanted to get into. We do optical subsystems for wafer alignment which is a growing business which we think is healthy for Newport. We do work on conventional UV steppers in UV. And in metrology inspection we're involved in optical subsystems for a number of different tools as well as laser applications. So, between there's also companies like UltraTech which are great companies that our customers in MKS. So we think just between ASML and KLA but that's whole ecosystem in lithography and metrology and the inspection has tremendous growth areas for the company.

Okay, great. As obviously if you looked at a year or two would you expect 35/45 split to maintain itself or would you expect at some point the other non-semi business to ramp up?

Well, we love both. But we are pleased with the balance that light and motion provides MKS. We were unique before with the mix we had between semi and non-semi. We're even more unique than some of our competitors in our space, people get some concern long term about, the turn of the business in semi. We have a great addition to our business. So, if we can continue to grow them at the same pace and keep them 50/50, I'll be fine with it. But if one horse race wins over the other, we won't take any time or tension away from one market or that other, so fiscal 50/50 year from now or two years from now because both have grown perceptibly. Our non-semi business had grown in 8% CAGR. We are proud of that. We'd like to apply that saying energy to the light and motion group and we get this great growth for semiconductor. We use to grow 4%, 6% then you grow double-digits when the business takes off. Although I think 3D NAND is more of a long term evolution in the industry than just a cyclical growth. It's actually replacing a lot of technology. And then comes ALD and ALD and all the other stuff. And then you have OLED stuff that comes along. So they both, semi, non-semi and they compete for love and attention and we're going investing in both of them.

All right. Sounds good. And there's couple of quick tough questions here. Is there any kind of prepayment penalty for the debt that you're paying off earlier?

No. No, it' very flexible. That's why we like that type of debt, so no prepayment.

Okay. And then also on the repatriated side, is there room to do more or you run up against some limits there?

I would say. we always looking out to do additional opportunities both on the repatriation side and I'll call tax rate in long term and frankly our model as well, this kind of been a DNA for number of years. You're not going to see the magnitude we've accomplished in the last four months. I mean, $210 million at 4% rate is – I think is outstanding frankly. So you'll see a negative going forward. But there is opportunity we think and working it pretty hard and we achieve those. We'll announce those, but not at the magnitude we have done in the past fore sure.

Okay. And then on the go forward basis what is your U.S. versus offshore cash generation?

I think at roughly current volume there's probably about 50/50 split onshore versus outside the U.S.

All right. Thanks for your time.

Thanks Tom.

Thank you. Our next question is from Weston Twigg with Pacific Crest. Your question please.

Yes. Hi. Just wondering, can you give us a more color on your non-semi business as you look into next year and why you think the demand profile might be since it’s a newer business for you?

Well, the non-semi in general has been the business that MKS started within 1961, so it's always been there. But we see strong opportunity in the analytical instrumentation market particularly as we focus on it. When we look at the industrial market with the opportunity to look at Photonics and Optics and pressure and pressure control is a strong opportunity. We just noted a nice win we had for optics for security market in Europe and Asia for nigh vision lenses for home and security. So, we just think that there is plenty of opportunity in the other markets based on the width and depth of the portfolio that we have. And we would expect that the same type of growth that we've been having over the last and years plus years by applying the same focus and attention on it with light and motion as we do with vacuum analysis group. We research a university business, is a nice business for us. We expect that will continue. We're going to put more resources on within research labs and universities, a few more cross-selling. So there's a whole wide array rest of the non-semi business that we think could be very strong for the company.

Okay. I guess what I was trying to get at is some of the industrial numbers haven't been great this earning period and I was wondering that impacts your view on next year's demand profile or if you should have in more advance markets that wouldn't really be as concerning?

It’s probably a mix, I mean, I think anytime you look at any market we find that stuff and there might be some level, but again that's if you have a 100% market share and every time I look at our sales team, I say, we don't have 100%market share. In part of the way that we have grown the business in no small part is by going after places where we don't have 100% market share. And looking at opportunities where we have strength or perhaps someone else hasn't had a stronger position. So, their markets come and go and MKS continues to just look for more opportunities and applications and cross-sells against it. There are other areas for the laser application for ultraviolet, ultrafast lasers which we expect to spend a lot of time on an investigating. There's additional defense spending, that's a nice part of the business from both vacuum analysis and light and motion, so we're lucky that there's so many markets and so many application and we don't have understand market share that our focus like we've done over the last 50 plus years is just to grow the business by going after the market, even if the market shrink themselves.

Okay. That's helpful. And then I guess similarly on the semiconductor side you said you expect strong WIT [ph] demand, but do you expect reasonably good growth in 2017 or do you have a view on just the general semiconductor demand profile on 2017?

Well, I think of a DRAM, additional DRAM is helpful for us. That helps our clean business very strong position. People like PSK and [Indiscernible] those are all customers in ecosystem when DRAM picks up and we expect that design wins that we've had over the last several years contributes significantly to that. If the investments in China continue to pick up, positions with AMAT and NMC and Peltech are very strong and we expect that to continue. And obviously the mix as it continues to favour 3D NAND and [Indiscernible] and multi-patenting, those all appear to be very strong for us. I looked at the semi book-to-bill, it’s still about one and continue to go above one which is always a good situation. And our customers I can't share them, but all of our customers have presented to us build -- look very healthy going into next year. Now that could turn on the dim, I'd been long enough where things turn it dim, so we still manage the business with the foot on the brake and the foot on the gas, but right now I get little more on the gas than have on the brake then shifting into another gear, so I'm very happy about and the relationships mean a lot. You know wining that award from Lam is no small effort. When they talk about innovation and technology and collaboration what that says is you're providing solution to them to help them grow their business. You have the ability to ramp when they need you. You collaborate as a partner as they can share, we can share. So, between the customers positioning the places are picking up 10 nanometer of DRAM the mix of WFE to 3D NAND and fits that multi-patenting it just strengthen all that, it just gives me great confidence. And on the mobile device manufacturing side with lasers we're involved in display such as glass cutting and drilling and pixel and cell repair and lithium-ion batteries for foil and tap cutting and so in enclosures metal marking on PC boards as these drilling and patterning, so there's a lot think about that will be good for the business over the next year.

Okay, good. And just one clarification on the DRAM outside in 2017, is there something you are projecting or something that you're seeing demand for already?

I have been reading a lot about the DRAM pickup and when I met with some of our key customers at Semicon West, they were more bullish towards the end of the year and into 2017 on DRAM as they were hearing from their customers, they expected to see a pickup in spending and we've seen little bit already some advanced orders from customers that typically benefit from DRAM.

Very helpful. Thank you.

You're welcome Weston. Thanks a lot. Take care.

[Operator Instructions] Our next question is from Dick Ryan with Dougherty. Sir, your question please.

Hey, Jerry I know you give total company guidance, but can you give us a rough parsing of your view of Newport's contribution in Q4 maybe and compared that what they brought in Q3?

Yes. Dick, this is Seth. I think you're right. We don't give guidance at that level of granularity because it can move round quite a bit. But obviously for Newport, the light and motion side revenue in Q3 was about a 152 million-ish our expectation and they have a little seasonality in the third quarter, little bit softer third quarter. And I wouldn't initially give guidance per say for Q4, but usually fourth little stronger for them.

Yes. We would expect this strengthening in both of them.

Okay. And Seth, on debt pay down, what should we look at for 2017 either voluntary or required?

Yes. Dick, the required payments are about $8 million for the year. Its 1% required paydown on the original 789 [ph] of debt. So that it was schedule on obviously. I think in terms of voluntary prepayments we are aggressive on delever. I can't give granularity on when and how much in 2017 because obviously a lot of other factors sort of fall into that equation. But that is something obviously wants to keep front center, and continue to move on.

Okay. Jerry, appreciate the commentary on the display and all that side there was sort of good detail there, can you maybe do a little bit on the memory and specific 3D NAND side what the contribution you see from 3D NAND specifically for you guys?

The OLED stuff is a little more clear for us, because it goes to specific customers and we can see it where it's going. People had a very dedicated in that side of that business. When it comes to the 3D NAND stuff, its very difficult for us to determine where it ultimately ends up, because a lot of the similar equipment that we sell for conventional applications is very similar to 3D NAND with the exception of power but with that seems to have a more amplified position. But once it goes off to Lam's and AMAT, often times it's very difficult to tell us where the spend is going. But we've seen the track on the 3D side the lot of what Lam's seems to be doing, there seem to good parameter for MKS.

Okay, great. Thank you.

You're welcome.

I'm not showing any further questions. I would now like to turn call back over to Mr. Colella.

Yes. Thank you. The semiconductor market is in the period of high demand; 3D NAND is replacing 2D as solid state memory continues to be adopted for many applications. The build out of advanced technology nodes is driving strong and increased need for [Indiscernible] position and lithography to support multi patterning and this is expected to continue. This and the semiconductor strength as well as our focus on other markets we expect the fourth quarter and into 2017 to be a period of continued growth for MKS. Thank you for joining us on the call today and for your continued interest in MKS. We look forward to updating you on our continued progress when we report our fourth quarter and full year results in January. Thank you.

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