MKS Inc. (MKSI) Q3 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Third Quarter 2017 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] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference Mr. Seth Bagshaw, Chief Financial Officer, sir you begin.

Great, thank you. Good morning, everyone. I'm Seth Bagshaw, Senior Vice President and Chief Financial Officer, and I'm joined this morning by Jerry Colella, our Chief Executive Officer and President and John Lee, our Senior Vice President and Chief Operating Officer. Thank you for joining our earnings conference call. Yesterday after market closed, we released our financial results for the third quarter of 2017 as well as updated our 2017 target operating model, which reflect lower non-GAAP interest expense. You can access this information at our website www.mksinst.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 our annual report on Form 10-K for the year ended December 31, 2016, which is on file with 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 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. I'll begin with results of our third quarter 2017, provide several highlights on the business in our markets and then provide an outlook for our fourth quarter. Following that, I'll turn over the call to John Lee, Senior Vice President and Chief Operating Officer to provide additional information on specific customer applications and how we apply our technology to solve complex customer problems. Seth will provide further details in our financials results and then we'll open the call for your questions. Over the last four years, you heard me talk about our strategy of managing the business but sustainable and profitable growth. We have done this by providing customers with innovative technology solutions that solved the most critical problems, continuing to streamline our facets over operations, improving our financial performance and investing in high growth solutions. We've also invested in customer facing areas such as application support as well as sales and technical resources putting these resources in close proximity to our customers, what we call technical localization. These long-term strategic investments have had a significant impact helping us achieve our strategic goals, as a result this quarter we continue to generate strong financial results. We are encouraged that across the company we see a number of additional opportunities to invest in our broad technology portfolio with particular emphasis on our laser and power solutions families. We will always seek to ensure we're critical and deciding factor and our customer's long-term success. With regard to our third quarter results, we're pleased to announce we've achieved record quarterly revenue of $486 million an increase of 28% from a year ago. Additionally, we set a new quarterly record for non-GAAP net earnings totaling $85.9 million or $1.56 per share. We continue to see strength across our semiconductor business. Third quarter revenue was $290 million an increase of 38% from a year ago. Year-to-date our semiconductor revenue was up over 50% which is almost double the consensus estimates that WFE growth rates for calendar year 2017. Our light and motion division also continues to perform extremely well. I'm pleased to report that this division's third quarter revenue was $178 million another new all-time record this year and an increase of 18% from a year ago. We are providing focus on operational improvements and applying the MKS approach to customer engagement. Operational excellence and strong customer focus have always been instrumental to MKS' success we're leveraging these core competencies across all aspects of the light and motion division. In Q3, MKS was selected and honored by one of our largest customers Lam Research for this 2017 Supplier Excellence Award for our RF Power Solutions business. This award acknowledged our outstanding operational excellence ensuring the successful launch of Lam's new products in the marketplace. This follows the 2016 award we received for technology collaboration. Additionally I'm very proud to announce that MKS was named one of the 100 fastest growing global companies by Fortune magazine for 2017. In addition to our overall ranking of 89th, MKS was ranked 37 for their total three-year return. Looking forward, we see continued strength in the semiconductor market and we're well positioned to leverage our broad product portfolio and strong customer relationships and the other high growth advanced markets we serve. Our integration activities of Newport are tracking ahead of plan and we're seeing excellent growth opportunities from this strategic acquisition. Finally, turning to outlook. Based on current business levels, we expect that revenue in the fourth quarter of 2017 may range from $480 million to $520 million, at these lines GAAP net income could range from $1.34 to $1.59 per diluted share and non-GAAP net earnings could range from $1.52 to $1.76 per diluted share. And now I would like to turn the call over to John.

Thanks Jerry. As Jerry mentioned we're seeing strong growth in the semiconductor market across our entire portfolio. We believe that the combination of our innovative technologies, our collaborative approach to solving our customers most difficult problems and our ability to support them operationally has contributed to our outperformance of the overall market. One particular area of note is the power solutions business. For the past several years, we've made substantial investment in technology and people in this business and we're seeing significant benefits of this strategy. For the first three quarters of 2017, power solutions revenue was up almost 90% compared to the first three quarters of 2016. This is more than tripled the consensus estimates for 2017 WFE growth. The increasing challenges for etching and deposition processes driven by the continued use of multiple patterning for logic and DRAM and the increase in the number of layers for 3D NAND are accelerating the need for innovative power solutions. We will continue to invest and build on our technology leadership to ensure that these advanced processes and devices are realized. In addition to our core semiconductor market, we've also been focusing on the materials processing market, which includes application such as fabrication of discrete components, modification of surfaces and precision cutting and drilling. These advanced manufacturing applications require a broad portfolio of technology solutions. MKS is the only company that can provide lasers. Laser powered measurement, laser beam profiling and precision motion control into this market. In the third quarter, we won a very large eight figure order in Japan for our ultraviolet lasers used in mobile phone manufacturing. In Korea, we won a significant order for lasers used to fabricate flexible printed circuit boards, that same customer also selected our laser power measurement and motion control solutions for a laser marking application. We continue to focus on expanding our strong customer support and technical capabilities to high growth geographic markets. Over the last several years, we've implemented a technical localization strategy in China similar to the one we successfully deployed in Korea. The impact of our Korea strategy has been significant, as our direct revenue from this region will more than double in 2017. In fact since 2012, our annual revenue from Korea is expected to increase more than 250%. Our investments in China position us well to support the growing opportunities within this market. For example our residual gas analysis products continue to see strong market acceptance. For the recently semiconductor fab is currently ramping production. In addition, our dissolved ozone delivery technology for cleaning substrates continues to be a solution of choice for all major display fabs. At this point I'd like to turn the call over to Seth, who will provide further details on our financial results.

Thank you, John. I'll cover our third quarter financial results and discuss our Q4, 2017 guidance. Business levels remained very strong in the quarter and revenue grew to $486 million in increase of 1% compared to record Q2, 2017 revenue of $481 million an increase of 21% compared to revenue of $381 million in Q3, 2016. Revenue for the quarter at the high end of guidance range, due to continued strength to from our semiconductor customers as well as growth in other advance markets we serve which grew 5% sequentially. Non-GAAP gross margin was 46.9% and non-GAAP operating expenses were $104 million both within our expectations at this revenue level. Non-GAAP operating margin was 25.5% reflecting the strong operating leverage at these revenue levels. GAAP expenses included $11 million in amortization of intangible assets, $2.5 million in integration cost and $500,000 in cost related to the most recent term loan repricing. GAAP interest expense was $7.2 million which includes $2.3 million of amortization of deferred financing cost and non-GAAP interest expense was $4.9 million. The non-GAAP and GAAP tax rates were 27% and 25% respectively also both within our expectations for the quarter. GAAP net income was $76 million or $1.38 per share. And non-GAAP net earnings were $85.9 million or $1.56 per share which also represents a new quarterly record. On September 30, we had cash and short-term investments of $535 million of which approximately 40% was in the US and remainder in our international operations and the balance of our term loan was $448 million. We continue to execute on our financial strategy to delever our balance sheet and reduce our interest costs. In the third quarter, we completed the third quarter successful repricing of our term loan and completed two voluntary principal prepayment totaling $125 million. Furthermore, we also are projecting an additional 25 basis point reduction in interest rate spread in the fourth quarter as we achieve a targeted leverage ratio in accordance with the most recent amendment to the term loan. The net impact of these recent actions results an additional $0.07 per share of non-GAAP net earnings an annualized basis is now being reflected in our updated 2017 target operating model, which is posted to our website. Also since loan origination on April 29, 2016 as result of voluntary principal prepayments and reductions in our interest rate spread, we reduced our annual non-GAAP interest expense by approximately $23 million or 60%. Adjusted EBITDA for the quarter was $136 million and our trailing 12-month basis, our gross net adjusted EBITDA ratio was under one times. During the quarter, we also received upgrades of both S&P and Moody's investor services which both noted a strong financial performance and continued delevering as the basis for these upgrades. We continue to provide a balanced approach to capital deployment and during the quarter we paid a cash dividend of $9.5 million with $0.175 per share. Capital additions for the quarter were $8 million, depreciation and amortization expenses were $20 million and stock compensation was $4.8 million. We also generated strong free cash flow which for the quarter was $91 million or 19% of sales. In terms of working capital, day sales outstanding with 52 days compared to 51 days in the second quarter of 2017 and inventory turns were 3.2 times compared to 3.4 times in the second quarter of 2017. Furthermore we are very pleased with the strong and financial results the light motion division generated this quarter. as Jerry mentioned the light motion division achieved another new quarterly record revenue in the third quarter and non-GAAP operating income more than doubled from a year ago reflecting the strong revenue growth and significant improvements in the light and motion divisions cost structure. Existing the third quarter, we completed $38 million of the $40 million of annualized cost synergies and are projecting to complete the remainder of these synergies in the next several quarters. Finally turning to Q4, 2017 guidance. Based upon current business levels we estimate that our sales in the fourth quarter could range from $80 million to $520 million, our Q4 GAAP and non-GAAP gross margin could range from 46% to 47% reflecting these volumes and expected product mix and our Q4, non-GAAP operating expenses could range from $103 million to $108 million. Non-GAAP interest expense is estimated to be approximately $4.1 million and a non-GAAP tax rate could be approximately 27%. Given these assumptions, our fourth quarter non-GAAP net earnings could range from $83.7 million to $97.2 million or $1.52 to $1.76 per share. In the fourth quarter, amortization intangible assets expected to be approximately $10.9 million. Integration related costs expected to be approximately $400,000. Restructuring charges are expected to be approximately $800,000. GAAP interest expense estimated to be approximately $5.1 million. And interest income estimated to be approximately $900,000. Our GAAP net income expected to range $74.1 million, $87.7 million or $1.34 to $1.59 per share are approximately 55 million shares outstanding. This concludes the prepared remarks and we now open the call for questions.

[Operator Instructions] and our first question comes from the line of Sidney Ho from Deutsche Bank. Your line is now open.

My question is for your semi business. If you look back at last couple of years, you've been outgrowing the market on a pro forma basis, but this year you really just to get up another and then a notch probably up like 20 points or something like that. Can you talk about what is the main difference this year? I know you talked about some strategic areas like the power solutions business. And more importantly how do you think about next year in terms of your performance. First instant market base on the current rate and design activities.

Yes, well thank you Sidney. I think it really goes back and numbers of years ago that we made investments and people on the ground and Korea was an example more application support in the West Coast and really focusing on really the type of technology that is enabling our customers to make significant advancements in their own product development. So I think the Korea strategy certainly is paid off in a big way for us, we are - have wins across the board with all the major OEMs there as well as the smaller ones, we really localize at this point. We also had some competitive programs internally in the company to look at places where we thought we continue to roll the business in a significant way, I won't get into all of them those are something that we keep close to the vest here, but those targets that we've had in terms of growing the business and gaining share appear to be paying dividend and I think we just, we won awards the last three or four years if you look, there was one from end users or from our OEMs. They're continuing to see the value that MKS' has a technology partner, a trusted partner, a financial capable partner, operationally excellent partner, a worldwide footprint partner. We're seeing gains in China. So I just think it's just the investment made in people, technology, our customers, various markets and it's all coming to there in the last few years in particular in this year. We continue to focus in on for next year, our customers are reflecting continued growth. We see WFE maybe up 5%, whatever it is we would be displeased if we didn't outpaced that growth rate, hopefully that China strategy will continue to pay dividends positioning ourselves with companies like AMEC [indiscernible], so I think it's just the whole investment and our reputation. I think we have a tremendous brand, we're well respected a company and customers are coming to us and we're providing them the capability that they need.

That's great. That's helpful. My follow-up question is thing with the semiconductor is, you're clearly benefiting from your customers in etch and deposition. How should we think about your position with your new set of customers in lithography and metrology inspection side. Do you think you have similar share with those customers as your dep and etch customers. And can you help us understand follow-up to that. Can you help us understand the opportunity in etch and dep versus litho and metrology, market share aside, is it more beneficial for you having a $1 billion increase in spend WFE spending in dep and etch or is it better to have $1 billion investment in inspection.

Sidney, this is John Lee. The litho and inspection customers that were brought in within Newport acquisition we have good share with them, but I would say that the potential to gain more share with them relative to our customers in dep and etch, is there as well. So actually we see, good share, but we see opportunity for even more share gains in those customer base. And then your question is, with respect to is better for dep and etch to grow versus litho and that's of course certainly when dep and etch grow because EUV has been pushed out last couple of years, that's been a great benefit to our business, but right now we see both growing the litho as well as The dep and etch and so we would prefer that both OEMs grow and both of those segment grow, so we're planning on that.

Great. Thank you very much.

And our next question comes from the line of Amanda Scarnati from Citi. Your line is now open.

Can you just go a little bit more into detail on the latest from mobile applications that were awarded this quarter, was it for kind of OLED devices on mobile or was it something else there? Thank you.

Well there were couple of opportunities. One eight figured win was for material processing for mobile device application, related to PCB manufacturing. As well as the other win that we had in Korea for construction of flexible printed circuit boards. So both of those are in PCB construction are related to the mobile device and really not related to the OLED manufacturing.

And then can you just talk a little bit about the?

Although I will tell you though Amanda, we do have business in the OLED construction area with our clean ozone process, so there's continued business there. These just happened to be two new wins for our laser that we wanted to amplify.

All right and then can you just talk about kind of trajectory of the expanding further into OLED business, either the XML [ph] lasers or other new products through the Newport acquisition.

I'll tag team with John on this one.

Yes, Amanda certainly the fact that we have the portfolio of products that Newport brought into the MKS family that certainly opens up additional opportunities in OLED manufacturing that weren't available to us with just vacuum set of products. So we both have the ozonated clean that was the original MKS, but we also have now a lot more of the optics and lasers that are also used in OLED manufacturing. So and it's actually expanded our presence in the OLED market.

We've been asked about the kneeling process for lasers and OLEDs and we think that's a very interesting area for the company. And always trying to invest in improving the technical level of our divisions is important. So raising the power on a dial based laser is an interesting opportunity and frankly what we did years ago on the RF pulsing capability, we had, we developed a pulsing capability for our generators that was a little bit before it's time and at the time customers weren't really interested in it, but it ended up becoming a strategic investment which has led our business in 3D NAND for etch and dep. And we look at the continued investments in the laser side of the business, whether it's for kneeling or other applications about how you raise the power, the more applications it will be and we think that's an interesting area for us. So you will continue to see us working on that and eventually hear us talk about where we are with that.

Great. Thank you.

And our next question comes from Krish Sankar from Banc of America. Your line is now open.

I had a few questions, number one Jerry you said your semi revenue was $290 million. Is there a way to break it down between vacuum and light and motion?

Yes, I can get that for you Krish. Yes so the $290 million in Q3, so the - let's see on the vac analysis side, $247 million Krish and on the L&M side, light and motion about $44 million.

Got it. That's very helpful. And did you guys say what the operating margin for L&M was in September?

Yes, so $170 million of revenue which we said in the call was obviously a new record another record for the division and the operating income was 21.5%, $38 million and it went back a year ago, that division was doing $151 million of revenue and probably a 10%, 11% operating profit so I'll call it $15 million going to $38 million in one year, of that growth about $14 million was the volume pace and about $9 million in that quarter is based on all the cost structure activities have been going in place and again we're not done with that yet by the way, there is little more to go. But 21.5% is we're on the quarter.

Got it, that's very helpful and then can you give us update on the light and motion side I think you guys have touched upon in the past about new products like XML [ph] lasers with the different approach then incumbent is there any update on that front at this point.

The XML [ph] lasers are not the capability that we have, that's a competitive product. Ours is more of a dial based, is going from low power to high power and I kind of alluded to this with Amanda that we continue to invest in raising the power level of the lasers to look at other industrial and added manufacturing capability and we continue to pursue that, we see good results with our teams. We think that there is multiple opportunity beyond just the kneeling for OLEDs that type of rise and the power of dial based lasers can provide to us. So you'll hear - over the next number of quarters you'll hear us probably a little more specific about that Krish but we're continuing to invest and pursue that technology. John, do you have anything else you want to add that?

That's exactly right.

Got you and then one final question either for Jerry or John. Today your OLED exposure is it all purely the ozonated water for cleaning the devices or do you have any other products due?

Krish it's John. Yes, well so the OLED process also had many vacuum steps and so for deposition for instance and capsulation and so those vacuum chambers would have the typical kind of NTS [ph] vacuum kind of products on them as well.

Got it, thanks John and Jerry and Seth congrats again.

And our next question comes from the line of Patrick Ho from Stifel. Your line is now open.

Jerry maybe first off to start, you guys have done really well in the supply chain and managing your customers expectation in this very high demand semi environment. Have you seen any of those dynamics change where you're getting potentially longer lead times or the customers themselves are giving you maybe more of heads up of, okay this is what we need, this quarter but also be ready for “next quarter”. Any changes in those supply demand dynamics with your customers?

Well anyway from our standpoint, our receiving receipt from our suppliers, we're in a pretty good shape there, we don't really see any extending lead times. Our turn is only 3.2, so part of our strategy is had inventory is storage capacity and so the fact that we can respond at any time, so some of its [indiscernible] but most of its through supply chain management and lead time execution. We're continuing to increase our capacity. Probably next year you'll see a pretty good jump in capital because we think there is a long-term continue growth in all of our markets and we want to make sure that our factories are right sized and outsized for growth. We always stay ahead of the markets in terms of our capacity extrapolation. As part of the customers are concerned, I was at a customer about a month ago and they said you guys are getting ready for the next growth pace and make sure you're staying ahead of us and they gave us some numbers they thought that we should be looking for, so we've gotten some pretty positive feedback from our customers about continued growth in 2018 and always asking us to be ready and we always are. I mean the award we won from Lam in 2017 was because of our operational execution and the ability to go from zero to 60, in new products as well beyond just the ones that are already in production. So our customers are saying, be ready. We're preparing ourselves both for short-term and long-term and we're very grateful to our suppliers and our supply chain managers and our procurement people for the excellent job they do, keeping us in good step. It's been a operational weapon for a long time for us.

Great, that's helpful and maybe as a follow-up question. I know I have asked this before in the past but kind of want to get an update. You talked about new products, but you've also talked in the past about potential revenue synergies following the Newport deal and particularly on the semiconductor side of things. One thing, can you give us an update on that? and two, how much are some of the new products that you've introduced part of that revenue synergy or that kind of combination of the two companies or is that's still a big opportunity that's forthcoming for the company over the next few years.

I'll tag team with John on this one. So the two of the wins that we talked about for our laser win, one for matured processing for flexible piece to be application and another one we call it for attenuation in the laser marking were both cross sell wins, they were in Korea. Both of them are seven figured wins which were the result of a good cross sell and the relationship we have in Korea, so that's we continue to see. We had another seven figured win for our ISP group which was part of the Newport group also for one of our large Korean customers last quarter. So we continue to see these coming in. We know Patrick that there is more opportunity overtime. I'll turn over to John if there's any other color he wants to add.

Yes, so Patrick I think the potential is what we're really excited about. So we already have a few examples of some of which we share, some of which we have not. And these are really cross design opportunities that have been received and so as you know when you design something into a capital [indiscernible] there's some period of time before it gets qualified and you start ramping, so actually those are happening now and we believe that, that's going to be reflected in a larger volume of revenue later on, so that's really what we're excited about the design wins now.

Great, thank you very much.

Another next question comes from the line of Weston Twigg from KeyBanc. Your line is now open.

I just had a couple of questions, first Lam noted that March shipments would likely be up from December and I'm just wondering if you could give us a look ahead into March, if you see those same kind of pattern for your own semi business?

Well that's a little far out for us. But I can tell you that our customers keep telling us to be prepared for a higher level of business and frankly out of all - I love all our customers, but I think our two largest customers are always pretty accurate about their prediction. I track what they say versus what they do. I have a lot of faith in their guidance that people like Gary and Martin give us. So my guess is that, if he's saying it expected to be up, we expect to see a benefit from that.

Would you typically see that say a quarter earlier than your customers, given that yours?

Yes, [indiscernible] about a quarter ahead of time, Wes. I think we had a pretty good quarter this quarter versus what people were predicting to be somewhat down. I think we're relatively flat in semi versus the industry saying minus 5%, so that's a good indication that people [indiscernible] pump with us.

Got it, okay. And then in the guidance for Q4, can you help us understand the mix between vacuum and analysis and light and motion and also the mix between semi and non-semi?

Wes, this is Seth. It's by market, we don't get lot of granularity we do inside the company, but I think that level of granularity going forward be kind of challenging I think because things can move around quite a bit in the fourth quarter. But we think that semi to be relatively consistent in Q4 versus Q3, yes we weren't expecting any major deviations, but again we guide at a total company level. And then we expect the light and motion continue to expand top line growth.

Very helpful. Thank you.

[Operator Instructions] and our next question comes from the line of Tom Diffely from D.A. Davidson. Your line is now open.

I'd like to look a little more in the light and motion side of the business. You talked about 18% growth year-over-year record level. Just kind of curious, what do you think the market growth was for that space and is the growth coming just from the semi side? It seems nice growth on laser side.

Well the average growth of total markets is 3% to 4% typically, in the path they've demonstrated 1% growth rate in the last four years or so, so that does a bit average of all their markets aggregated together, so certainly growing 4.5 times that is pretty interesting and I think the result of centralizing sales and centralizing operations focusing on the customers just being operationally excellent and just the great work of all the light and motion team member have really got onboard and believe in the MKS model. In the second part of the question, Tom sorry I.

I'm wondering if the growth is coming from the semiconductor part of light and motion or the more traditional laser side.

Tom, it's John Lee, so it's both. It's actually kind of our entitled market share growth from the litho and inspection markets, so that's a semi side. And in addition the industrial materials processing market which is led by lasers but as we mentioned on the call, also draws in many of the other products within Newport such as laser power measurement and motion control, so it optics and gratings and whole portfolio of Newport products.

One of things that Tom that we've strategically decided we will surround the laser, now that really was a - I think a strategy of the prior Newport executives when they went acquiring the different companies they bought, all really good brand names. I think the execution wasn't as it shouldn't have been because of decentralizing the sales team. So we had an optics sales, laser sales team and photonics sales team all great people working very, very hard. But when we centralized the sales team under a leadership and had a really strong view of surrounding laser they're continuing to bring more and more opportunities as a group then perhaps they would have done individually. And I said before that I think the laser part of our business with Spectra-Physics which is a well-known and well respected brand, will be a growth end for the company over the next number of years. I really believe that, that's the reason why we bought the company and I think they will continue to demonstrate that.

Okay and I know you talked about 5% growth in the semiconductor market. It sounds like you still kind of expect that low single-digit growth in the laser plus market.

Well I would expect the growth to be higher than that. I mean the 5% was just what I see WFE going from 43 to 45 or whatever the number is, we're just following what external resources tell us about, WFE growth. And the general industries for light and motion is about 4%, my guess is if we can't beat that by a significant amount, I would be disappointed. Given the fact that, the light and motion growth year-to-date is 13%, last quarter it was 18%, so my expectations we will continue to see them outpace their markets as well. We've got some pretty interesting growth, targets we put on the business unit that we're challenging them to do and we're all focused on that.

It's interesting too Tom, you think the Q3, 2017 to light and motion versus Q3 a year ago it's up 18% in the revenue, it's actually 18% for semi and another non-semi markets that L&M participates in, so the growth of the pretty broad based it's not all driven by semi.

Yes, this process in industrial market added manufacturing for the lasers business and all the things that surround is very interesting to us.

Okay, great. And then Seth one last question for you. I think you mentioned the 25 basis point reduction in your rates on your term loan, what's driving that, is that part of the contract or is it some specifics?

Yes, so in the July timeframe when we reprice the debt and we got 50 basis reduction in that exercise and a part of that, we put into that amendment to once we achieve a trailing 12-month EBITDA ratio of 1.25 or lower it would ultimately step down 25 basis points, so we had 50 we generated and captured in July and the 25 basis points will get contractually for that amendment and that will kick in and we believe in November timeframe.

Great. Thank you.

At this time I'm showing no further questions. I'd like to turn the call back over to Jerry Colella, CEO for any closing remarks.

Well, thank you. We're very pleased with our continued progress in 2017 in achieving our objectives of sustainable and profitable growth. This quarter we again set new records for revenue and non-GAAP net earnings which are a direct result of the strategic investments we've made and we'll continue to make in the areas of product development, sales, application support and service. Looking ahead we see a wide range of new opportunities that our solve our customers complex problems throughout the large and growing markets we serve. 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 2017 financial results. Thank you.

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