萬機儀器 (MKSI) 2014 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the MKS Instruments Fourth Quarter 2014 Earnings Conference Call. (Operator Instructions) As a reminder, today's program is being recorded. I would now like to introduce your host for today, Seth Bagshaw, Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you. Good morning, everyone. I'm Seth Bagshaw, Vice President and Chief Financial Officer and I'm joined this morning by Gerry Colella, our Chief Executive Officer and President. Thank you for joining our earnings conference call. Yesterday aftermarket closed, released our financial results for the fourth quarter and full year 2014 as well as our improved 2015 operating model. You can access these releases at our website 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 forward-looking statements. As a result, there are various important factors including those discussed in yesterday's press release and in the company's most recent Annual Report on Form 10-K and the most recent quarterly report on Form 10-Q which are on file with the SEC.

In addition, these forward-looking statements represent the company's expectations only as of today. While the company may elect to update these forward-looking statements, specifically disclaims any obligation to do so. A forward-looking statements should not be relied upon as a representing the company's estimates or views as of any date subsequent to today.

Now, I will turn the call over to Gerry.

Thanks, Seth. Good morning, everyone, and thank you for joining us on the call today. This morning, I'll start with a recap of our results for full year as well as the fourth quarter of 2014. Following that, I'll give an update on our progress towards the strategic initiatives my team has been pursuing during 2014. And finally, I'll provide our outlook for the first quarter.

Seth will follow me with further details on our financial results and then we'll open the call for your questions. Starting with our 2014 results, our year-over-year business was up considerably from 2013 with annual revenue increasing 17% to $781 million while non-GAAP net earnings more than doubled.

Sales for the semiconductor market increased 19%, exceeding the recent industry projections of approximately 12% for the semiconductor wafer fab equipment market, reflecting the increased importance of etch and deposition processes and our leadership position with our customers. Sales to all other markets combined were also strong, increasing 12% from 2013. Fourth quarter revenue was above guidance at $203 million, up 9% from the third quarter, driven primarily by a 13% increase in the semiconductor market. I am fortunate to be supported by a strong management team and highly dedicated and hard working employees.

Looking back to 2014, I'm proud of the progress we've made against the goals we set for the company. The team and I are focused on strategic initiatives, with specific goals to continue to broaden our leadership in vacuum processing, measurably improve our profitability through the cycle, efficiently deploy capital to increase (inaudible) shareholder value and aggressively pursue opportunities created by current technology inflections.

I'm pleased to report that in 2014, we made significant progress towards achieving these goals. With the successful acquisition and integration of Granville-Phillips, we've increased our leadership in vacuum processing and we are now the worldwide market leader for both direct and indirect gauges for the semiconductor and related vacuum markets.

In the most recent critical subsystems market share report, MKS products gained nearly 2% market share in our served markets and we anticipate this trend to continue. We continue to work closely with OEMs and end-users around the world, as they develop new tools and address critical technical challenges. Throughout the year, we strengthened our leadership position in critical vacuum subsystems for the introduction of new products and pressure control, gauging, valves, flow, our power, remote plasma sources, microwave power, reactive gas, effluent management, heatings and controls and we're very committed to continuing the expansion of our market leadership year-over-year.

We're laser focused on managing the business for sustainable and profitable growth and have demonstrated our commitment to continually improving our profitability. In 2014, while revenue was up 17%, our non-GAAP net earnings more than doubled from 2013. This was driven by margin expansion and operating cost reductions. This improvement was accomplished while continuing to invest in other high-growth markets. We've updated our operating model to reflect the improvements we've already made, and we continue to identify opportunities to improve our financial performance.

We believe we can further improve our profitability despite the rapidly consolidating customer base. In fact, we see the consolidation of our customers as an opportunity to increase share and add scale to our business.

We continue to execute on our commitment to efficiently deploy capital and increase shareholder value. In the last 24 months, we successfully acquired and integrated three companies with critical technologies, which expand our portfolio. We are constantly seeking and evaluating additional M&A opportunities, and we have a robust M&A pipeline. We are confident that we will continue to successfully identify, acquire and integrate other technology-based companies. During the year, we re-repurchased $20 million of our stock and also increased the dividend. This is the secondincreasesince initiating regular dividend in 2011. In the semiconductor market, the industry is facing several technical inflection points as they address the challenges, delayed EUV lithography, the ensuing reliance on multi-patterning, and the rollout of 3D structures. I am pleased to report that in 2014, we achieved critical wins which address these technical inflection points for etch, strip, ALD, CBD, and EPI tools.

Our market-leading products are pulsed RF power, advanced solid state microwave, remote plasma generators, pressure, flow, analysis, and other products have hadsignificant wins in major OEMs in the US, China, Japan and Korea. Korea is an area of strong end-user growth in emerging OEMs. Our success in Korea has been bolstered by advancements in local application support, as well as our acquisition of Plasma, a technically respected Korea-based company developing advanced matching solutions, which complement our leading RF power supply products. We are proud of our execution, our major initiatives and our focus on what is needed to take MKS to the next level.

I'd like now to share some insights into our markets and applications and provide examples of some recent successes which help illustrate the breadth of opportunities and many of the exciting growing markets we serve. Consumer demand for fast and more capable portable devices, a lower power consumption and long battery life continue to provide a strong growth engine, the electronics industry and ultimately to our semiconductor business. To satisfy these demands, critical dimensions of semiconductor device must decrease, while patent density must increase significantly increasing the complexity and technical challenges of chip manufacturing.

Conventional lithography scaling has stalled and the industry is relying on multi-patterning to achieve sub-28 nanometer dimensions. The process of multi-patterning results fine lines and spaces using existing lithography capability, but with many additional deposition and next steps, the shift from planar to 3D devices is also progressing and we will also require more etch, deposition and process control.

MKS is a broad portfolio of leading technologies and strong content in etch, deposition and other key semiconductor manufacturing processes. Our customers recognize our wide and deep portfolio to address these challenges as well as MKS as the market leader. I am pleased to report that in the fourth quarter, we achieved multiple design wins including our new pulsed RF generators, flow control, pressure measurement control, as well as our new fiberglass heaters, and integrated (inaudible) with management subsystems and we continue to see follow-on orders, but numerous other products. In addition to growing our semiconductor business, our strategy is to leverage our technologies into other advanced and growing markets, which like semiconductor manufacturing require our technology in vacuum, power, pressure, flow, control and analysis.

These other adjacent markets include thin-film coatings, light emitting diodes, drug development and production, medical, industrial, energy, environmental, food and beverage, and other critical applications. I am pleased to report that sales of all these other markets increased for the fifth consecutive quarter and fourth quarter 2014 revenues were $61 million.

One of these markets, thin-film coating encompasses a vast array of end-users ranging from optical coating for glasses, (inaudible) coatings on windows, as well as coating for food packaging to maintain freshness. In the thin-film market, one application is deposition of durable materials such as diamond or diamond-like coatings to increase the wear and harness of product such as machine tools. Coating companies use plasma-based vacuum processing to create diamond coatings.

I am pleased to report that in the quarter, we had design wins with multiple diamond coating OEMs for our pressure measurement, flow and control products as well as for our microwave generators from our recent acquisition, Alter. We continue to make inroads in the environmental monitoring market. Applications here run the spectrum for continuous emissions monitoring for exhaust stack gases to engine development for reduced emissions, to safety monitoring for hazardous materials in the air.

This quarter I'm pleased to report that our multi-gas analyzer successfully displaced an incumbent supply of gas measurement instrument at a global leader in automotive catalysis. We were selective because the solution was complete and fully integrated because of the ability of the core multi-gas analyzer to rapidly examine both real and model exhaust gases.

In past calls, I've spoken about the success of our multivariate analysis, process monitoring, and design of experiment software in the biopharmaceutical market. We continue to expand penetration of this market. In this quarter, I'm pleased to report two instances of follow-on orders from two leading global biotech companies. The first company has concluded internal trials and initiated worldwide rollout of our real-time predictive process monitoring software with the biological manufacturing processes in both their upstream and downstream processing.

The second company has given us follow-on orders for their eighth installation of multivariate software to monitor and control their processes. This shows the strength and value of our multi-variate solutions. These are just a few brief examples, but they illustrate how our technologies are helping our customers solve challenges in the varied and exciting applications in markets we service. Looking ahead to the first quarter, demand from our core market continues to be healthy. Based on this and looking at current business levels, we anticipate the sales in the first quarter may range from $195 million to $215 million. At these volumes, our non-GAAP net earnings could range from $0.45 to $0.60 per share.

At this point, I'll turn the call over to Seth to discuss our results and expand our guidance.

Thank you, Gerry. I'll start with the fourth quarter and full-year financial results, then I'll provide details on further improvements to our operating model and finally discuss our Q1 2015 guidance. Revenue for the quarter was $203 million, increase of 9% compared to Q3 revenue of $187 million and similar to Q4 2013 revenue of $204 million.

Revenue for the quarter was above the high end of our guidance range, primarily due to shipments very late in the quarter to semiconductor OEM customers to meet their production schedules. Gross margin was 44.1%, which is slightly below what our guidance for the quarter would have implied at the sales volume, primarily due to unfavorable foreign exchange and charges for our foreign customs audit.

Non-GAAP operating expenses were $48.7 million, slightly favorable due primarily to timing of expected hiring in certain project expenses, most of which are expected to occur in Q1. As a reminder, non-GAAP operating expenses in the fourth quarter of 2014 were below what we expect for normalized levels due to seasonality -- seasonally higher vacations and the timing of certain project spending.

In the first quarter of 2015, we expect our operating expenses to be at more normalized levels. Our non-GAAP operating margin was 20.1% of sales, above our target operating model due to lower-than-normal operating expenses discussed above. In the fourth quarter, we completed another target reduction in workforce and incurred $500,000 in restructuring charges. Non-GAAP net earnings were $29.1 million or $0.54 per share, compared to $22.8 million in the third quarter and $22.3 million in the fourth quarter of 2013.

Our non-GAAP tax rate was approximately 30% for the quarter, our GAAP tax rate was 12% and reflects deposit impact of discrete tax credits as a result of favorable audit settlements, recognition of certain foreign tax credits, and a temporary reinstatement of the 2014 research credit in the fourth quarter. GAAP net income was $34.2 million or $0.64 per share.

Now turning to the balance sheet, cash and investments increased by $22 million in the quarter to $592 million or approximately $11.14 per share. Approximately 53% of our cash investments are in the US and the balances in our international operations. Total book value, net of goodwill intangibles increased to $843 million or approximately $15.86 per share.

In terms of working capital, days sales outstanding continued to improve and were 48 days at the end of the fourth quarter compared to 52 days at the end of the third quarter. Inventory turns also improved to 2.9 compared to 2.8 in the third quarter. Capital additions for the quarter were $3.8 million, depreciation and amortization expenses were $5.8 million and non-cash stock compensation was $2.6 million. During the quarter, we paid a cash dividend of $8.8 million or $16.5 per share.

Now, I'll go through a more detail regarding the composition of revenue for the fourth quarter. Sales for the semiconductor market were $142 million or increase of 13% compared to the third quarter and represented 70% of fourth quarter revenues. Within the semiconductor market, sales to semiconductor OEMs increased 11% from the third quarter and comprised 56% of total sales. Sales to semiconductor fabs increased 19% in the quarter and comprised 14% of total sales.

Sales to other advanced markets increased by 1% in the third quarter of 2014 and were $61.3 million representing 30% of total revenue. Sales of these markets have increased sequentially in each quarter in 2014 and in Q4 with the highest level since the second quarter of 2012. We mentioned before, sales in these markets can vary from quarter to quarter.

Geographically, sales in the US were 57% of total sales, sales in Asia were 33% and sales in Europe were 10%. Sales to our top 10 customers represented 50% of total sales. Sales to Applied Materials and Lam Research comprised 18% and 13% of fourth quarter sales respectively. Our headcount at the end of Q4 was 2,371, up slightly from 2,350 at the end of Q3, primarily due to increases in manufacturing-related labor. To recap our results for 2014. Sales for the full year was $781 million an increase of 17% from $669 million in 2013. Sales in the semiconductor market were $544 million increasing 19% reflecting the strong growth in semiconductor OEM spending in 2014. Sales to other advanced markets also increased by 12% and were $236 million.

The increase in these other advanced markets reflects increases across a number of markets and was further helped by our acquisition of Granville-Phillips that occurred late in the second quarter. Excluding our acquisition of Granville-Phillips, our sales in the semiconductor market increased 17% and sales to all other markets increased 8% from the previous year.

Sales to our top 10 customers totaled 50% of revenue in 2014, compared to 47% in 2013, and sales to Applied Materials and Lam Research comprised 19% and 13% of 2014 revenue respectively.

During the year, we deployed over $140 million in capital for the acquisition of Granville-Phillips, shareholder dividends, and share repurchases, and generated approximately $90 million in free cash flow. As Gerry mentioned, we stated before, we're committed to both making continuous improvements in our financial performance in all phases of the operating cycle as well as making additional investments to leverage high growth opportunities. Throughout 2014, when it took a number of actions including transferring additional manufacturing and service functions to lower-cost regions, target reductions in workforce, as well as other activities.

The annualized savings of these cost reductions is approximately $13 million in manufacturing overhead, research and development, as well as selling, general and administrative functions. Of these annualized savings, we will reinvest approximately $6 million into various growth initiatives that will further strengthen product development functions, marketing, development activities, as well as sales channels into other advanced markets.

The timing of these investments will vary, we've reduced our permanent cost structure by approximately $7 million in the last 12 months. As a result of this net reduction in our cost structure plus other profit improvement initiatives and a reduction in our effective tax rate in 2015, we've improved our non-GAAP earnings per share model by approximately 14% from our 2014 operating model and approximately 26% from our 2013 operating model assuming similar sales volumes.

Furthermore, with the acquisition of Granville-Phillips, we've both increased our market share and added $0.11 per share to 2015 operating model. We're confident these actions will position us to both improve our financial performance and to redeploy critical resources to fund our growth initiatives. We have posted the 2015 operating model in the Investor Presentation section of our website. We're also evaluating other opportunities that we believe continue to improve our financial performance.

Now, I'll turn into the Q1 2015 guidance. Based upon current business levels, we estimate that our salesinthefirst quarter could range from $195 million to $215 million.

Based upon this expected sales range, our Q1 gross margin could range from 43.5% to 44.5% reflecting these volumes and expected product mix. Q1 operating expenses could range from $50.5 million to $51.5 million. In the first quarter, R&D expenses could range from $17.1 million to $17.5 million and SG&A expenses could range from $33.4 million to $34 million.

The range of operating expenses in the first quarter reflects seasonally higher fringe costs in the quarter more normalized work schedules in the US and continued investment in certain key research and development projects.

As I mentioned in previous calls, the timing of these projects is dependent upon a variety of factors and could vary from quarter to quarter. In the first quarter, amortization of intangible assets expected to be approximately $1.7 billion and net interest income is estimated to be approximately $400,000.

We expect our first quarter income tax rate to be approximately 29% reflecting the anticipated geographical mix of taxable income and includes the impact of the expiration of the US research and development tax credit at the end of 2014.

Given these assumptions, first quarter non-GAAP net earnings could range from $24.3 million to $32 million or $0.45 to $0.60 per share and GAAP net income could range from $23.1 million to $30.8 million or $0.43 to $0.57 per share on approximately 53.6 million shares outstanding. This concludes our prepared remarks. We will now open the call for questions.

(Operator Instructions) Krish Sankar, Bank of America-Merrill Lynch.

Yes, thanks for taking my questions. I have two quick ones. Gerry, you said -- just quickly on the March quarter guidance, can you tell us how the composition looks like in terms of semi is going to be flat or slightly up, can you give some color on that? I also have a follow-up.

Krish, I would say that the other advanced markets tend to be relatively steady overall really sequentially, although we don't necessarily give that guidance level of detail in (inaudible) by market. So I would think that my expectation will be -- in the first quarter will be up a little bit again sequentially other advanced markets in the balance of fallout in semi.

Yes, I think though I'm more encouraged by recent information I'm hearing about increasing CapEx spending at Samsung with strengthening of position in memory, DRAM and NAND, more work involved in FinFET and increasing yields in 3D. And we'll start to see strengthening in our business. So -- and our lead times are very short. Part of the reason sometimes we surprise, because we're on a lot of pull systems with customers, our lead times are very short. So I'm very bullish on Q1 and beyond based on what I'm reading and what I'm seeing from our customers.

I think also Krish to mention, in the fourth quarter, we are a little above high end of our guidance. I mentioned in the prepared remarks, that was driven primarily by late polls in the quarter. So as Gerry mentioned, we're on these poll system with the major OEM customers. They'll poll based on the production requirements. We saw a sizable uptick towards the end of Q4 as well.

And we're getting the typical questions when you start to see an additional ramp of capacity planning. They're asking our operations teams to put a number of scenarios together about if we increase by X percent again through 2016, how we well positioned. So, I'm very positively biased to what's going on in the semi side as well as the other things.

Got it, got it. Thank you very much. And then I've a follow-up. Given your strong cash position and the fact (inaudible) dilutive acquisition to, I'm kind of curious. If you look at MKS historically, your acquisitions mostly have been bolt-on acquisitions rather than a big (inaudible) like a merger of peers kind of an acquisition mentality. So is there still the mentality that you're going to do focus on more bolt-on and non-semi focused acquisition or is it different this time around?

I think that we're open to any acquisition of any size that makes sense. We've looked at various models where we could even leverage if needed in order to buy something of significant size. I think on the non-semi side, you probably see us to be more moderate in our view. Companies that can help us continue to add incrementally build the business, whether the environmental monitoring or the other side of that, but if something significant in our space comes on that's transformational, we're more than ready and willing to take that on and prepared.

Patrick from Stifel Nicolaus.

Gerry, can you provide some color on how MKS is carrying some of the customer consolidation, for example the applied materials in Tokyo Electron deal? How this could work potentially to your benefit and what impact you made, what, you may believe has on your margin profit profile on the longer term and how do you deal with all of this industry consolidation it now go on for several years? And if anything your gross margins have actually improved since these deals have occurred. How do you deal with this longer term?

That's a great question. I think there's a multi-pronged deal, first the defense is being the experience and size matters. No one's going to be moving things around for 5% to 10% cost reduction, so if you've got the technology as we've had all along and proven to customers and providing superior quality and liability that's the first defense.

Secondly, integrated products which we offer, we have the luxury of a wide and deep portfolio. We combine technologies that provide a barrier to entry for competitors, and also allow us to offer a great solution to a customer at a very reasonable price point, which provides very good margins for us. Reduce the size, reduce the cost to the customer, and continue to make good margins.

And I think the larger the customers, the larger the supply base, they're going to want to have to support them globally. We are strong and we are everywhere where our customers are growing. I would believe it's difficult, although we are not taking our eye off competition, the smaller regional suppliers to compete with the capability of MKS. And we've also focused on our end users, we have a lot of with the endusers and they have a lot to say about our capability and the type of products. So I think that's kind of the way we look at it.

I am looking forward to larger customers to deal with. I think we've got the capabilities to support them unlike anybody else in our industry and our market share keeps growing. So while this consolidation has been happening our market share is going up. On the margin side, in the last number of years we have myopically focussed our engineering on cost competitive designs.

We've also significantly lowered our warranty cost to quality and reliability.

So we provide the customer a great solution, we provide good margin for your own well being and you also drop the cost of warranty. We also can do bundling with customers and bring in new integrated products that they see at good pricing ability while we can maintain margins. The other thing is we’re operationally excellent; we’ve significant low cost country operations. We have a large operation in Shenzhen; we expanded significantly our capability in Mexico.

And we have multistage approaches to moving products to low cost country. The other thing is we have exceptional procurement practices. I started the MKS 32 years ago in procurement, and we put in place a number of practices which enabled us to be a significant player on the supply side, and now we have scale and scope to go along with it and we have deep reaches into low cost region on the material side.

And lastly last year one of the things that I looked at was we need to reverse the trend of expenses and cost of the company and we put together our profit and cash recovery team. And you’re seeing the results of the doubling of the profit in single year, the improvement of margin, improvement of operating income, growing EPS and while we’re still investing. So I think we’re myopically focused on sustainable and profitable growth and we’ve got the resources and the focus and the initiatives in order to accomplish that. So, I’m very confident about both maintaining margin while helping our customers out and also increasing share as the evidence is proven out.

And my follow up question, I know it’s hard to look at kind of the full year perspective. But in your non-semi business, where do you see I guess potential growth opportunities kind of on a year-over-year basis? What markets do you see I guess optimism or where you’re encouraged at for the full year you can grow that segment of the business again in 2015.

Well first of all it comes to light, not -- this is probably solar, we're starting interesting enough, it's small base but it continues to appear to be strengthening so it looks like that’s a good opportunity. LED has been reasonable, not sure what that will look like next year but it’s come off -- as we said life support, the patients out of bed and now getting up and eating and drinking on their own. So hopefully that continues to strengthen. We’ve got great position in China on LED with the equipment companies there. And as the business in China grows for LED and equipment we think that will strengthen for us over time.

We’re also putting some investments in things like process and environmental monitoring. So things like stack emissions and cement plant emissions and chemical warfare detection. We're also making some investments in industrial microwave, so areas like food production and things like we’re now in the candy production business and pasta production business which is actually kind of cool. And so we think that’s some really good opportunity. But strength in semi too, but obviously that’s going to be a leader for us. But we keep building incrementally, quarter-over-quarter these are the markets and we’re pretty happy about all of them right now.

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

Couple more questions here. So first, when we looked at Lam’s results last night obviously very positive, so no surprise the OEM business is up 11% or so for you. What’s driving the fab business, there was a lot of strength in the quarter at that one?

Tom, its Seth. So primarily it was in an Asian geography, Korea was very strong for us in the quarter and we had strong growth with direct OEM to the direct fab sales and to also OEMs in Korea as well. And as you know a lot of the CapEx occurring last year and this year is in that marketplace. So, long story short Korea was strong for us in the quarter, very strong for the year, very strong last several years obviously, I think that way going forward as well.

We have products that are very strong in the OLED production that are unrelated to the end use of lot of direct sales to the end users which has been strengthening as well.

Is there seasonality in that number to the OEMs? Is there end of your contracts or budget flushes that you see?

No, nothing that we see.

No.

Were projects based and production volumes they need to support.

And when you look at the OEM business especially with Applied Lam. What is your sense of the inventory situation, are they building inventory in anticipation of ramp or they're burning down their inventory because things are growing so fast, any color there would be helpful.

Well, it kind of varies customer-by-customer. We have a lot of poll systems now with our OEM customers. So they’re on a pretty much -- as they build they consume on a regular basis. And then some other customers have a tendency to be lumpy, they’ll front end load a little bit, they don’t come back and take another chunk of product from the company. But I don’t get a sense that we’re seeing inventory build up because they’re continuing to develop, examine our capacity expansion, how we manage our supply chain for instability. So it's pretty steady. Again, it can take lumps of times. We got a fairly decent push at the very end of the quarter, but I don't think that has any material effect going forward. It's just lumpy in the way they consume the product.

Okay and then when you kind of step back and look at your semiconductor business growing 17% last year versus the industry at 11%, 12%, do you sense that you're kind of hitched up to the big gainers in the space. Lam grew by close to 20% or is it that you actually gaining share, getting slots along the way?

I think it's a combination of both. I think we said in the script that we saw about a 2% increase in market share in general and I think we're very well positioned with all of our customers and certainly with the move towards 3D NAND and multi patenting and FinFET were there is more etch and deps steps, which is in our investor presentation that also gives us much more opportunity as well. And it's across the board for our products, it's not a singular. We are not a Company that's a single product company. With a number one critical subsystem provider that has a very wide deep portfolio which -- and they're taking advantage that across the board.

Okay, good. And then when you look at the, I guess on the model side, when you look at the tax rate of 29% and coming down a little bit, what is the biggest driver for that decrease and is that sustainable over time?

Yes, Tom, so the answer is it is sustainable we believe. What's driving -- we've done a fare amount of tax planning frankly last 12 to 24 months. If you go back to even 2013 in the model you see a 33% rate, jumped down to 31% this year, and 29% going forward. So I call tax planning that's been implemented, that's achievable in 2015 going forward. Again, that rate does not include the R&D tax credit, which will be another point when that gets re-established and then you know we have other opportunities we think we're working on now and think we'll hopefully effect the rate going forward down again in 2016. But that's sort of in a project phase right now and we'll roll it out when that's achieved. But basically sure the answer is yes sustainable and it is based on the active we've done to optimize international tax planning.

Okay, and then just final question. When you look at the cash, you said 53% of it was US based. On a go forward basis as you generate cash, what is the breakdown between US based and foreign-based?

Yes, it's tough to say Tom, it depends on working capital and mix of customer. So we don't -- I know in the quarter I was probably 40% US, 60% outside perhaps, but it's really hard to say because all a different dynamics and we ship into a number of different deferred payment cycle. So through -- roughly 40, 60 is my rough guess right now.

(Operator Instructions) Jairam Nathan, Sidoti.

Just on the operating model, it does if I it's a kind of apply the percentages, the operating expense for the year did come much below I would say the model here put in so kind of wanted to kind of wanted to kind of understand how, I know you kind of talked about some seasonal changes in the fourth quarter. But overall for 2015, it looks like you have put have put in some very good cushion there?

Well, I would say Jiaram in terms of the (inaudible) expense reduction in 2014, I mentioned also we are going to reinvest a fairly sizable amount back into the business, so probably not all that's in the fourth quarter. It will take time to layer that in as we at resources in certain projects. I would say in Q1, the guidance is probably pretty consistent for the rest of the year in terms of quarterization, it will bounce around little bit due to normal variable comp or foreign exchange for example. But it takes sort of Q1 annualized, is probably pretty, pretty good model for 2015 at similar sales volumes.

Thanks. And you know just on -- my other question was regarding the EUV and you know it looks like the postponement of EUV has helped you guys and some of those in the industry. Now, what how would you call, what's your content in an EUV, kind of comes up, is there a way you can increase that content by making acquisitions and what's your thoughts there.

Well, there's not much vacuum content in EUV. I don't think it's going to overtake the whole industry in our business, there will be a percentage of our business and we're obviously looking at what other content we do there and while the other areas we are looking at, is the back-end. We think the back end could be a nice growth area. So we've got a team looking at organic or potential acquisitions on the back end to pick up whatever we would see as a small impact of EUV. But I don't think it's material or game changing, but we're are all if there is more content that we can put on the tool, but it is just not as much vacuum then, but again it's a small percentage compare we believe over time and it's always off (inaudible).

Okay. Thanks. Thanks a lot.

You're welcome. Thank you for the question.

Thank you. That's all the questions we have for today. I'd like to turn the call back over to the moderator for closer remarks.

Thank you everyone. 2014 was a great year for MKS and our team. We refined our vision, we defined our mission and we did deliver on our strategic initiatives and goals. We saw significant strengthening in our semiconductor business, the other advanced markets increased quarter-over-quarter through the year. We are also very proud of our superior operating model and still see more room for improvement over the coming year. Please be look out for an invitation to join us at our upcoming Analyst Day in New York on June 3. Thank you for joining us on the call today.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may all disconnect your telephone lines. Everyone have a great day.