Ladies and gentlemen, thank you for standing by and welcome to the MKS Instruments Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. David Ryzhik, Vice President of Investor Relations. Please go-ahead sir.

Thank you. Good morning, everyone. I am David Ryzhik, Vice President of Investor Relations, and I’m joined this morning by Jerry Colella, our Chief Executive Officer; John Lee, our President; and Seth Bagshaw, our Senior Vice President and Chief Financial Officer. Thank you for joining our earnings conference call. Yesterday, after market close, we released our financial results for the third quarter of 2019. Our financial results and a schedule of revenue by market have been posted to our website, www.mksinst.com. As a reminder, various remarks about future expectations, plans and prospects for MKS comprise forward-looking statements. Actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release and in the most recent annual report on Form 10-K for the company and any subsequent quarterly reports on Form 10-Q. 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. Now, I’ll turn the call over to Jerry.

Thanks, David. Good morning, everyone, and thank you for joining us today. I’ll start with our results for the third quarter of 2019 followed by several business and market highlights than I’ll turn the call over to John who will share additional details in our strategy, customers and markets; Seth will then provide additional information on our financial results and fourth quarter 2019 guidance. Lastly, I’ll provide final remarks before we open the call for your questions. This quarter revenue is $462 million, which is at the high-end of our guidance range. Non-GAAP net earnings for the third quarter were $62 million, or $1.12 per diluted share, which was above our guidance range. This outperformance was driven by strong demand within our semiconductor market, as well as continued operational and financial execution. While timing of our full market remains uncertain, we are seeing improving conditions complemented by strong execution and production differentiation as evidenced by recent design wins. Our Advanced Markets remain impacted by macroeconomic headwinds, larger results of trade uncertainty, export restrictions and a softening in consumers electronics demand. While we expect these headwinds to remain an overhand in the fourth quarter, we are excited about the long-term opportunity for Advanced Markets and we believe our broad portfolio positions us well to benefit from key secular trends such as 5G. While trade, macroeconomics, and the semiconductor cycle maybe top of mind to many of us, we remain firmly committed to investing in growth and positioning MKS not just for a cyclical recovery in our markets, but more importantly for the vast growth opportunity we see ahead. Key catalysts (are expected to underpin MKS’ growth and in the long-term include explosion and data growth, which drives demand from memory and foundry capacity we are a key solution provider. Complex technology…

Thanks, Jerry. MKS remains well-positioned to benefit from secular trends across our semiconductor and Advanced Markets. Given our product portfolio, our uncompromising focus on innovation, our strong customer relationships, and our disciplined operational and financial execution. Exclusion of data and its impact on memory and larger chip demand combined with the increasing complexity of technology translations places MKS in an attractive position and the key solutions provider in the semiconductor manufacturing ecosystem. Moreover, 5G is expected to catalyze data growth even further for having additional demand in semiconductor manufacturing capacity. In the third quarter, we benefited from orders arising from our previously announced conductor edge design wins in our power solutions business for 13.56-megahertz RF generators and custom matching networks. In fact, we extended our momentum by displacing a competitor with yet another 13.56-megahertz RF power design win this time for dielectric etch applications. We also secured a number of design wins for our dissolved ozone systems. As we mentioned last quarter, ozone has proven to be an excellent and main alternative to chemicals that are used for cleaning in semiconductor and display manufacturing. MKS has been a leader in this area and our dissolved ozone systems continue to gain traction with key customers. As Jerry mentioned, demand from our advanced markets remains constrained due to macroeconomic and trade uncertainty, but we were pleased to secure a series of meaningful laser orders for PCB production, as well across added and manufacturing solar OLED applications. In addition, our newest diffraction grating product completed qualification at a large analytical instrument customer, and we receive multiple orders from other life and health sciences customers. Diffraction gratings are used to precisely separate light into distinct wavelengths and are commonly used in many optical instruments. We remain bullish about the opportunity that lies ahead from…

Thank you, John. I’ll cover our Q3 2019 financial results and discuss our Q4 2019 guidance. Sales for third quarter of $462 million at the high-end of the guidance range, a decrease of 2% sequentially compares to the second quarter. Sales to semiconductor customers with $223 million, an increase of 4% sequentially as we continue to see positive signs in the semi market. Sales for Advanced Markets were $239 million, a decrease of 8% sequentially was impacted by the general slowdown in industrial markets, as well as uncertainty caused by global trade tensions. Sales to life and health sciences in research and defense markets remain steady in the third quarter. 52% of our sales for the customers in our advanced markets were 48% with customers in the semiconductor market, consistent with our long-term goal achieving our balanced market mix. GAAP and non-GAAP gross margin were 44.3% within our expectations of this revenue volume, non-GAAP operating expenses were $124 million, which were favorable to the mid-point of our guidance due to continuing focus on managing our cost structure. Non-GAAP operating margin was 17.6%, which was almost 200 basis points favorable in the midpoint of our guidance range. This continued strong financial performance reflects our ability to effectively manage the company from all stages of the operating cycle. GAAP operating expenses were $138 million, include $17 million in amortization of intangible assets, $2.1 million in acquisitions and integration cost, $1.5 million in restructuring cost and $600,000 in transaction fees associated with the repricing of our term loan. In addition, we recorded a $6.8 million gain from sale of certain real estate holdings as we continue to streamline our geographic footprint. GAAP net interest expense was $13.5 million and non-GAAP net interest expense was $10.5 million. Our GAAP tax rate was 14.4%, and…

Thank you, Seth. Before I turn the call over to Q&A, I wanted to share some final thoughts as this would be my last earnings call where I stepdown from CEO role effective January 2020 – January 1, 2020 and assuming the role of Chairman of the Board in May of 2020. As you all know, John will be replacing me as CEO, and I could have not asked for a more qualified leader to succeed me. John has been with MKS for over 10 years and has played a significant role in that success. Needless to say, I am very excited about MKS' future. The company's accomplishment over the past six years has been astounding and I'm honored to have led – had the opportunity to lead such an extraordinary team through this transformation. Over this time, we have tripled our revenue and market cap, delivered a greater than 700% increase in non-GAAP EPS, raised our dividend multiple times, doubled our workforce, and acquired four companies while aggressively delivering our balance sheet following each major acquisition. If that's not enough, for the third year in a row, MKS was named one of Fortune magazine's 100 fastest-growing companies. I’m also proud to announce that two of the three winners of the 2019 Nobel Prize in Physics, use our proprietary gratings to discover the first planet orbiting a star other than the sun. This gives new meaning to the term, reach for the stars, and I cannot wait to see John take this company to new heights. This concludes our prepared remarks. We’d like to turn the call back to the operator for Q&A.

[Operator Instructions] And our first question is coming from the line of Sidney Ho from Deutsche Bank. Your line is open.

Great, thanks. Jerry, it’s been very nice working with you. So, you definitely will be missed.

Thank you.

My first question is, if I look at the 4Q guide, what is the relative growth rate by segment based on your guidance? I think I can just directionally, but just want to get a sense about the magnitude and whether that is some more downside in the Advanced Market?

Yes, Sidney it is John. So, we're looking at high single digits quarter-to-quarter growth rate in semi market. I think that’s consistent with probably what you have heard on with other customers. And it could be higher than that, but that’s what we see right now. And actually, for Advanced Markets it is down about 10 million, but all of that is due to the seasonality of the ENS as division. So, their Q4 is usually a seasonal low because of the cyclicality of that market, but the other part of it is the Light and Motion business, the Advanced Markets actually is steady quarter-over-quarter. And we’re actually pretty happy with that given all the uncertainty in the entire force and the macroeconomic kind of issues. So, hopefully that give you’re a little more color on how we look at the Advanced Markets, ex-ESI, with ESI and semi.

That’s great. My follow-up question is, I think last quarter you guys had alluded to some positive discussions with your semi customers, which seems to have materialized, can you give us a little sense about when you started to seeing that kind of inflection of demand, how broad-based that demand uptick was and then finally it is – I guess when revenue started coming down few quarters ago, you were negatively impacted by your customers cutting inventory, do you expect them to start building inventory again as the business starts coming back?

Yes. Sidney it is John, again. I think certainly when our customers see a ramp, they will start building inventory and that's normal, that’s part of the nature of the semi industry. We started seeing the uptick in orders probably in the middle of that quarter, middle of Q3. But a lot of it – and we thought a lot of it was driven by foundry and logic and I think that’s we’re still consistent with that thinking. I think what we’re seeing now is a little bit more additional upside now with a little bit of V-NAND as well. So, this is kind of what we’re seeing today.

This is Jerry. I’d like to also go back to amplify the commentary about the Advanced Market so I can bring people back to our historical performance, which to me is an indication of the future. So, for about a 13-year or plus period, we had an 8% compounded annual growth rate on the Advanced Markets. In 2017 and 2018, we saw about a 14% growth rate. So, we have no – so are still a buy-buy model of two times the growth rate of those markets and we believe that some part of this issue is also affecting the China trade issue. We have customers coming to us saying it’s not a matter of if it is a matter when, perhaps some of it was a bit muted compared to what they normally would be approaching us with orders. So, besides some of the seasonality, we do think there’s some impact and with the good news coming out of hopefully this geopolitical issue will abate over time, and we expect to see our growth rate to go back to normalized numbers. So, just for a little context on Advanced Markets so as we don’t put a pile over that business.

Wonderful. Last question if I could, Seth you guided to gross margin being 42.5% to 44.5% in Q4 and you said things will kind of get back to normal levels in Q1. Just for – if I look at 2020, how should we think about the gross margin progression?

Yes, so Sidney, what I'm going to say, again, tick the midpoint of the guidance in the fourth quarter of [$170 million] revenue, again I think normalized that will at least a point north of we’re currently at midpoint, so I think that’s a good jumping odd point. And then, what I would say is, you know, our model again has been [indiscernible] variable gross margin on a revenue increase, that’s still the assumption going forward. So, I think, I’d – you know that’s we use internally obviously. And the other wild card, which would be – it’s hard to quantify, but it’s actually helpful on the upside is, you know, right now, all our factored money are relative in lower levels based on historical activity. So, what happens when business comes back and you start, you know, generating more throughput to the factories, the absorption gets better as well. That will be additive to some levels than what we just gave you for a model. That’s my expectations going forward.

You know, and then, on top of that, as you know, six years ago, we started a team called the profit and cash recovery team, which has led to increase in the EPS that we talked about earlier. Those teams still exist; they meet every month; and John Lee leads them. There’s more work that they continue to pursue a higher profitability to the company. There’s also still a large segment of our business that we’re moving to a low-cost region, which over time will improve the profitability of the business. So, we haven’t taken foot off the pedal of improving the profitability of the company going forward, and John Lee’s been leading that charge and he will continue to push forward on things like low cost country migration, supply chain, maximization, all the things we've done in the last six years, that will continue.

Okay, thank you very much.

And our next question is coming from the line Amanda Scarnati with Citi. Your line is open.

Thanks, good morning. The first question is on the ESI side of the business. Can you talk a little bit about what normalized revenues look like in this business, you know, now they’ve come down a little bit? And how much of the revenue today are you seeing already from 5G? I mean how should that kind of track going forward?

Yes, Amanda, it's John. So, you know, ESI will probably end the year, you know, pro forma around the $200 million. And as I think we’ve about in the past, 2019 was a low year because of the overcapacity, over by off – two of the primary markets, meaning flex and the MLCC’s in 2018. So, going forward, I think we would expect that to be a bit higher. It all depends on, I think, a little bit about how much more inventory burn off there is in flex. But we’re excited about the fact that our new flex tool capstone is – continues to receive a very favorable results from our customers. Our HDI business, we – as we mentioned on the call, we have some very positive results today, and we expect that to add be additive since we no market share in that business. With respect to your question on 5G, I think, you know, some of the homemakers that are making 5G phones, obviously, have their sub-contractors using our tools to make flexible PCBs for 5G. I think as 5G continues to grow in market share, we know that the content of flex PCBs and MLCCs in 5G is significantly higher. And so, we expect that to continue to grow. I think they is a tailwind. I think everybody’s a bit surprised that 5G looks like it’s going to be adopted in a faster pace in 2020 for sure than the industry had thought maybe even just 90 days ago. So, I think that’s a nice tailwind for us. So, going forward, we expect that to continue to be more adopted by our customers from ESI.

Right. And then, on the semiconductor side of the business, can you just remind us what your percentage of revenue to the memory side of the business NAND and DRAM versus logic and foundry? Have you broken that out in the past, and just sort of what you are seeing in terms of orders this quarter? You know you saw some nice revenue in the semiconductor business and was that mostly tied to that sort of foundry CapEx boost that we saw over TSMC?

Yes, Amanda, this is John again. I think for sure we thought that the Q3 bump that we started seeing to pick up, that was pretty much tied to, you know, the foundry – logics foundry picking up their CapEx spend and then that flowing through the OEMs. It’s been difficult for us to figure out how much is memory, how much is logics since we’re sending, you know, tens and thousands of all kinds of parts to the OEMs and then, you know, they put all kinds of tools going forward. But I think from a macro-economic standpoint, we can see that the pickup in Q3 was foundry driven and we are guiding to be a little higher obviously in Q4. Because of foundry, we will continue to be strong, but we also, as I said, see that V-NAND, at least some initial buys of V-NAND could also be – will be an upside to the CapEx spend.

I think I’d add a little additional color to that too is, one of our largest customers surge with us over the last several years and they are very well positioned on the memory side of the business. We’re then surging into the Number 2s and the Number 1 spot, would give you a good indication of the position MKS has in memory when NAND comes back. So, expect to see acceleration through the foundry work, and then once when memory continues to accelerate, that should be a good positive effect for MKS over time.

Right. I just want to clarify, John, one thing that you said about NAND then could be upside in December quarter so you’re not sort of building that into expectations at this point, but any sort of fund is coming back?

No. We have built that in. So, we already built in the upside on NAND, yes.

Okay, thank you.

You’re welcome.

And our next question coming from the line of Patrick Ho with Stifel. Your line is open.

Thank you very much. And first off, I want to take to moment also to congratulate you, Jerry, for the work at MKS for many years, but particularly the last 5 plus years as CEO, I think the company has really transformed itself, and obviously, as the leader of the company, you should get a lot of credit for that.

Thank you. We have a great team by the way. Just to let you know. Same people will be here after I’m gone, but thank you, Patrick, I appreciate that.

Just like the patriots, I assume, right?

Yes. It’s Belichick and Brady, not just Belichick, just to let you know. Everybody else did a good job.

Let me start first on the semi side of things, some of the share gains that you talked about on the call, particular in the Power Solutions, but other areas I think I’ve seen in press releases in the mass flow controller side of things, are these applicable to tools that are being delivered in volume to-date for this upcoming up cycle? Or are these more on future nodes where you’ll see the higher volume adoption?

Hi, Pat, it’s John. So, let me just speak to the – our power part. You know we talked about several design wins over the last few quarters on conductor etch and what we said today was that some of those initial design wins are now turning into volume orders. So – and some other design wins are not yet, and so, it’s a mix, but this the first, hopefully ramp where some of our conductor etch design wins that we’ve talked about over the last six quarters are turning into volume, and then, we expect that the other design wins that have not turned the volume will eventually, perhaps the next cycle or this cycle, but this is the first quarter we’re seeing those volume orders for conductor etch design wins in the past.

Great. That’s helpful. And maybe following up on the Light and Motion business that you mentioned was holding steady. Can you just remind us about some of the differentiations in that business and the markets you serve relative to the broader industrial market where there’s clearly weakness, you know, say in the fiber laser market in terms of the Industrial segment? Can you just again give – remind investors about I guess the diversification and some of the different marketplaces your types of laser serve?

Yes, sure, Patrick. So, we’ve talked about it in the past when we talk about industrial lasers, we talk about micro processing. So, the powers are lower. This in contrast to micro processing where the power – the laser power is in the tens of kilowatts. But just because the power is low it doesn’t mean it’s easier to do, it actually more difficult because we’re actually pulsing. And so, this is the kind of finesse manufacturing that is allowing people to, for instance, make next generation of flexible PCBs for iPhones or if you use these lasers to get another 1% efficiency in solar cells or to cut OLED displays. And so, this is the kind of broad-based micro processing – industrial laser micro processing market that we address. And so, you know, the other part of it was the high power, macro processing market and we do participate in that with power leaders and diagnostics, but we do not make those lasers.

You know, Patrick, also I think the other thing I would like to add to this more of the thesis and strategy between a Newport Light and Motion and ESI is that we're excited about the technical collaboration between some of the best laser development minds and people who use them in the system side of the business and the fact that we can understand the applications in the systems side of ESI and we can develop lasers that will help them differentiate themselves as well they can provide technical feedback back to the Light and Motion laser equipment group and the people who develop those lasers to create more technical operation differentiation to the other providers of lasers. So, beyond just the current set of business that we see, we’re excited about the collaboration and the opportunity to continue differentiate both companies with collaboration on the design and application of lasers. I don’t want that to get lost. I think that’s a key point of that – both of those companies.

Great, that’s helpful. And maybe as a final follow-up question for John, I know earlier this year, at Photonics West, you talked about some of the introduction of new complementary products, especially for the Light and Motion business and how you quote we’re going to Surround the Workpiece. One, can you give us an update on the traction of some of those products, as well as some of the maybe qualitatively, what else you’re working on that you plan to introduce the further quote Surround that Workpiece?

Yes. I think one of the biggest gas we had in completing Surround the Workpiece strategy was our laser portfolio. So, while we’ve seen a lot of success in our laser group, we still did not address the Picosecond segment of lasers. And so, we’ve talked about two releases of the Picosecond lasers this year, one at 25 watts and one at 50 watts. And so, those are gaining good traction right now, and so, that’s another area that we’ll probably be able to talk about more going forward, especially as Photonics West rolls around again.

Great, thank you again.

Thank you, Patrick.

[Operator Instructions] And our next question coming from the line of Krish Sankar with Cowen & Company. Your line is open.

Yes, hi, thanks for taking my question, and Jerry, congrats on a terrific career. As everybody else mentioned, you’ll definitely be missed.

Thank you.

I had three questions, all three on share; either for Jerry or John. You guys spoke about how December quarter semis is going to be up sequentially like high-single digits. How much of that is driven by the conductor etch market share? And is that a way to segment it by saying we thought that when you’d be flat or down? Is there any kind of color on that?

And, Krish, this is John. No, I don't think we’d say that the conduct etch market share was driving all that. I think it’s really at a broader base – the broader based industry – semiconductor industry moving up because as you know we have, you know, the broadest portfolio of products. So, the pressure is going up, flow is going up, valves is going up, plasma is going up and power is going up. So, it's not driven all by one particular segment.

Got it, got it. And then, just the way your customers drew down their own inventory on the, you know, recent down cycle, do you expect they’re going to start building up inventory? And if so, is that eminent, do you think it’s the Q4, Q1 event? Or you think they’re going to be more cautiously in their approach building up inventory as the cycle approaches?

Yes. Well, you know, the history says, Krish that always buildup inventory fast and to your point, we believe that will happen in Q4 and Q1 because of some of the end-user announcements of what they expect to spend in CapEx and that’s pretty much all the visibility we can have. Now of course, some folks think that, you know, first half will continue into the second half, but as you know, predicting semi CapEx is full there. So, we’ll just be fast, but we do expect that there will be a built-up inventory to support shipments in Q4 for our OEM customers and shipments in Q1 for our OEM customers.

And customers have signaled that to us already.

Got it, got it. Just two quick question, one on ESIO, you know, the HDI PCBs spoke about a new order, you know, if I remember right, when ESIO was standalone, the HDI market share was under like 2% or 3%. Is it still the case? And where do you think HDI market share for PCBs would be exiting the year from now? And then I have a quick follow-up.

Yes, Krish. So, it was probably under 2%, how’s that for market share of HDI. So, we kind of look at it as zero because they had an older tool addressing HDI that’s been isolated, a while ago, many years ago. So, it’s really a legacy stuff. This is a new tool addressing the $5 million HDI market. So, we today have zero market share, and that new first order, by the way was a customer that didn't even take a beta site. Usually, you know, you take a beta site, you try it for a while then you pay for it and you order more, and we have two of those customers. So, there’s two separate individual customers in Asia that we have already shipped beta tools to. So, they will be trying on their fabs for the next, you know, three to six months. By the way, we also had a line of sight to a few more this quarter, beta shipments and we’ll update you on that at the next quarter’s call. But this other customer, quite unique. I’ll give you a little more color. So, they’d give us PO, we'll be shipping them the tool soon, but they’re materials developer, meaning they’re developing materials for next generation HDI PCBs, and for us, that’s very strategic because if and when they’re successful, when other customer say, okay, let’s use your material, then I ask how do you process it? How you do drill holes in it? Well, obviously, they will have a recipe and improve with our tool at that point.

Got it, got it. That’s very helpful, John. And then, just a final question, on the Newport industry laser business, is that recovery in the business going to be driven primarily by, you know, macro-China recovery? Or are there any market share-related headwinds or competitive challenges we need to worry about?

Well, there’s always competitors, Krish. But we’ve actually been taking share over the last couple of years and – in our lasers for that micro processing industrial. So, I think it’s – our view is it’s mostly constrained by the geopolitical issues and the trade war.

Got it. Thanks John, and congrats again, Jerry.

Thank you.

Thanks, Krish.

And our next question coming from the line of Tom Diffely with D.A. Davidson. Your line is open.

Yes, good morning, and Jerry, it's been a pleasure working with you and good luck in your next role as Chairman, but I’m guessing it’s not going to be a hands-off role.

Well, that’s this team, that’s why when John said, I’ll be missed, I said, it would probably be by some people and not a lot by others, we'll see.

Yes. Hey, John, I wanted to ask a little more question of HDI. It seems like a really big opportunity here. You know what is driving – what drove your win and what do you think is going to drive your wins going forward? Is it speed, accuracy, what does your tool have?

Yes. Tom, I think what we already – what we had designed a tool for was, you know, a 20% or 30% increase in productivity, so speed at the same accuracy relative to what was already out there. And so, I think that's we’re seeing this initial strong interest for it. Additionally, though, as you get into developing recipes, you know, we're starting to see they equip the other advantages to how we drill a hole. So, the primary differentiator is, you know, a 20% and 30% improvement in throughput, so that’s a huge cost of ownership for our customers. And then over time, it seems like we’ll be developing new recopies with, you know, the flexibility that we have and how we design the laser and that should allow us perhaps other advantages going forward, and as, you know, you can imagine, we’re not stopping there. there are other ideas and things being tried already in our development labs to move the HDI process forward, you know, even faster or to smaller dimensions or more accuracy than what’s already out there today.

Just to add to that too, Tom, the – our competing tool on HDI is about 80% lighter heating tool and about a third less area square foot in the factory environment. So, as John mentioned, it’s also faster and lower cost ownership. It’s actually small and lighter, so it’s helpful as well.

Yes. when people ask, you know, what's weight got to do with it, we have large operation in China and you don’t really get to expand horizontally, you have to expand vertically, and having a tool that’s significantly lighter in weight means that you don't have to have just go on a first floor install, you’re not talking about second and third floor of manufacturing operations which is, believe or not, a big deal in terms of this square footage that’s allowed in China.

Okay. And what are the buying cycles like in that space? I mean do you have to wait for capacity needs to open up? Or is it technology driven? When do your customers become right for you to have an insertion?

I think it’s a similar bicycle, its flex PCBs because you can imagine a lot of consumer products use both, right. And so, we look at it as the first half of a year is usually when the end-users, the iPhone maker, the – you know, the other smartphone makers sort of were in contracts to the sub-cons. And that’s when the sub-cons know how much capacity they are going to need and that’s when they start ordering. So, usually we see orders, you know, kind of end Q1 and then through Q2 and then certainly some follow-on in Q3 for, you know, any extra capacity and that’s the kind of cyclicality, and then Q4, as we talked about is, you know, a PCB cyclical low and that’s why we talked about that earlier.

Okay. And one more question on the flex side, you know, we've heard from other suppliers that, you know, there's two big drivers that’s moving to the most advanced technologies which increases complexity, but there is also kind of the tail of the older phones moving to their more advanced phones that upgrade cycle even though they are not new technologies, it's higher use of the technologies, and so, that's also a pretty good driver. I’m curious on your flex side, over the next couple of years; do you see that second point as being a nice driver of capacity for you?

It could be, but probably in a secondary fashion. So, you know, a secondary supplier of PCBs maybe using some of the older tools that they had been using for advanced smartphones, for instance, now. Maybe two or three years from now, they’ll be using it for the older phones. And then – but that’s all about the capacity for more advanced flex PCBs for the newest phones. So, we haven’t really thought about that as precisely as you thought about Tom. So, that can be a – you know a tailwind, but we haven’t analyzed that quantitatively yet.

Okay. And then, Seth, finally just on the R&D side, your guidance going forward, is the gap that R&D based on something like beta sites or tools going out the door? What’s the $3 million difference there?

It could be just normal fluctuations in R&D spending, Tom. It’s nothing that’s uniquely tied to any particular product or R&D effort. It can bounce around a little bit. It’s a – fair amount of R&D spending is a material-based, which, kind of comes in a lumpy fashion, so that’s probably driving the difference quite honestly.

You know sometimes, Tom, we will be building a lot of new units, let’s say, for our power. There would be materials charged R&D. you ship it and then of course, then it kind of rolls into cost and that could be very lumpy.

Okay. That makes sense. Alright, well thanks for your time and congratulations Jerry.

Thank you.

And I’m not showing any further questions. I would now like to turn the conference call back over to Jerry Colella for closing remarks.

Okay, well thank you. We are pleased with our results for the third quarter of 2019 with another quarter of strong operational and financial execution, which drove our top and bottom line of our performance. And we are confident that our exposure to diverse end markets has dragged to be put in place or positioned us for long-term success. Lastly, I want to thank you for joining us on the call today and for your interest in MKS. I have enjoyed working with many of you as CEO, I look forward to watching the company reach new heights as Chairman. We look forward to updating you on our progress when we report our fourth quarter 2019 financial results. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participation. You may now disconnect.