萬機儀器 (MKSI) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2017 earnings conference call. (Operator Instructions)

I would now like to introduce your host for today's conference, Mr. Seth Bagshaw, Chief Financial Officer. Sir, you may begin.

All right. 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 close, we released our financial results for the third quarter of 2017 as well as updated our 2017 target operating model to reflect lower non-GAAP interest expense. You can access this information at our website at www.mksinst.com.

As a reminder, various remarks that we may make about future expectations, plans and prospects for MKS comprise forward-looking statements. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in yesterday's press release and in our annual report on Form 10-K for the year ended December 31, 2016, which is on file with the SEC.

These statements represent the company's expectations only as of today and should not be relied upon as representing the company's estimates or views as of any date subsequent to today, and the company 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 will refer to certain pro forma measures as if the acquisition of Newport Corporation, which closed on April 29, 2016, had occurred beginning in 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 the 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 on our financial results, and then we'll open the call to your questions.

Over the last 4 years, you've heard me talk about our strategy of managing the business for sustainable and profitable growth. We have done this by providing customers with innovative technology solutions that solve the most critical problems, continuing to streamline all facets of our 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 tactical localization. These long-term strategic investments have had a significant impact of 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 are a critical and deciding factor in our customers' long-term success.

With regard to our third quarter results, we are pleased to announce we 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 for 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's success. We are 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 operation for 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 am 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 37th for the total 3-year return.

Looking forward, we see continued strength in the semiconductor market, and we are well positioned to leverage our broad product portfolio and strong customer relationships in the other high-growth advanced markets we serve. Our integration activities with Newport are tracking ahead of plan, and we are 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 volumes, GAAP net income could range for $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'd like to turn the call over to John.

Thanks, Jerry. As Jerry mentioned, we are 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.

The past several years, we have made substantial investments in technology and people in this business, and we're seeing significant benefits of this strategy. For the first 3 quarters of 2017, Power Solutions revenue was up almost 90% compared to the first 3 quarters of 2016. This has 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 an increase in the number of layers 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 have also been focusing on the materials processing market, which includes applications 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 power measurement, laser beam profiling and precision motion control into this market.

In the third quarter, we won a very large 8-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 have 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 more than doubled 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 where the recent win in semiconductor fab is currently ramping production. In addition, our dissolved ozone delivery technology for cleaning substrates continues to be the 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 will cover our third quarter financial results and discuss our Q4 2017 guidance. Business levels remain very strong in the quarter, and revenue grew to $486 million, an increase of 1% compared to record Q2 2017 revenue of $481 million, an increase of 28% compared to revenue of $381 million in Q3 of 2016. Revenue for the quarter is at the high end of the guidance range due to continued strength from our semiconductor customers as well as growth in the other advanced 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 include $11 million in amortization of intangible assets, $2.5 million in integration costs and $500,000 in cost related to a most recent term loan repricing.

GAAP interest expense was $7.2 million, which includes $2.3 million of amortization of deferred financing costs, 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 U.S. and the 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 cost. In the third quarter, we completed a third successful repricing of our term loan and completed 2 voluntary principal repayments, 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 in additional $0.07 per share of non-GAAP net earnings on an annualized basis has now been reflected in our updated 2017 target operating model, which is posted to our website. Also since the loan origination on April 29 of last year, as a result of voluntary principal prepayments and reductions in our interest-rate spread, we've reduced our annual of non-GAAP interest expense by approximately $23 million or 60%. Adjusted EBITDA for the quarter was $136 million, and our trailing 12-month basis of gross debt to adjusted EBITDA ratio was under 1x.

During the quarter, we also received upgrades on both S&P and Moody's investor services, which both noted our 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 or $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 were 52 days compared to 51 days in the second quarter of 2017. And inventory turns were 3.2x compared to 3.4x in the second quarter of 2017.

Furthermore, we are very pleased with the strong financial results the Light and Motion Division generated this quarter. As Jerry mentioned, the Light and Motion Division achieved another new quarterly record for 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 Division's cost structure.

That's in the third quarter. We've completed $38 million of $40 million of annualized cost synergies and are now 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 $480 million to $520 million. Our Q4 GAAP and non-GAAP gross margin could range from 46% to 47%, reflecting these volumes in 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 our 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 and intangible assets are expected to be approximately $10.9 million. Integration-related costs are 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 is expected to range from $74.1 million to $87.7 million or $1.34 to $1.59 per share or approximately 55 million shares outstanding.

This concludes the prepared remarks. We will now open call for questions.

(Operator Instructions) And our first question comes from the line of Shek Ming Ho from Deutsche Bank.

So my question is for your semi business. If you look back at the last couple of years, you've been outgrowing the market on a pro forma basis. But this year, you really just picked it up another 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 versus the market base on the current run rate in design activities?

Yes. Thank you, Sidney. I think it's -- really, it goes back a number of years ago that we made investments in people on the ground in Korea as an example, more application support on 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 strategies certainly has paid off in a big way for us. We have wins across the board with all the major OEMs there as well as smaller ones we really localized at this point. We've also had some competitive programs internally in the company to look at places where we thought we could continue to grow 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've just -- we've won awards in the last 3 or 4 years. If you look at the awards we've won from end-users or from our OEMs, they're continuing to see the value that MKS has as a technology partner, a trusted partner, a financially capable partner, operationally excellent partner, worldwide-footprint partner, we're seeing gains in China. So I just think it's just the investment we made in people, technology, our customers, various markets, and it's all coming to bear in the last few years and, particularly, this year. And we continue to focus in on -- for next year. Our customers are reflecting continued growth. We see WFE maybe up 5%, whatever that is. We would be displeased if we didn't outpace that growth rate. Hopefully, the China strategy will continue to pay dividends, positioning ourselves with companies like AMEC and (inaudible). So I think it's just the whole investment and our reputation. I think we have a tremendous brand. We're well respected as a company and customers are coming to us, and we're providing them the capabilities that they need.

That's great. That's helpful. My follow-up question is, same with the semiconductor's, 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 sides? Do you think you have similar share with those customers as your dep and etch customers? And can help us understand -- follow-up to that, can you help us understand the opportunity in etch versus dep -- etch and dep versus litho and metrology. Market share aside, is it more beneficial for you having $1 billion increase in spend -- WFE spending in dep and etch or is it better to have $1 billion in litho and inspection?

Sidney, it's John Lee. So the litho and inspection customers that were brought in with the 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 bases. And then your question is with respect to, is it 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 the 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 segments grow. So we're planning on that.

And our next question comes from the line of Amanda Scarnati from Citi.

Can you just go a little bit more into detail on the lasers for mobile application that were awarded this quarter? Was it for kind of all other devices on mobile? Or was it something else there?

Well, there were a couple of opportunities. One, the 8-figure 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 print circuit boards. So both of those are in PCB construction, all related to the mobile device and, really, not related to 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 ozone -- clean ozone process. So there's continued business there. These just happen to be 2 new wins for our laser group that we wanted to amplify.

All right. And then can you just talk about kind of the trajectory expanding further into the OLED business either through excimer lasers or other new products through the Newport acquisition?

Got you. 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 the vacuum set of products. So we both have the ozonated clean, that was original MCAS, but we also have now a lot more of the optics and lasers that are also used in OLED manufacturing. So it's actually expanded our presence in the OLED sale -- OLED market.

We've been asked about the milling process for lasers in 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 division is important. So raising the power on a DIAL-based laser is an interesting opportunity. And frankly, that's what we did years ago on the -- our pulsing capability we have. We developed a pulsing capability for our generators that was a little bit before its 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 milling or other applications, the higher you raise the power, the more applications it will be. And we think that's an interesting area for us. So you'll continue to see us working on that, and eventually, you'll hear us talk about where we are with that.

And our next question comes from Krish Sankar from Bank of America.

I have a few questions. #1, 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 it for you, Krish.

We can do that.

Yes. So the $290 million in Q3, so the -- let's see, on the Vac and Analysis side, $247 million, Krish, and on the L&M side, Light and Motion, about $44 million.

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

Yes, I can give it to you. So $178 million of revenue, which we said in the call, was obviously a new record, another record for the division. And operating income was 21.5% of $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, call it, $15 million going to $38 million in 1 year. Of that growth, about $14 million is the volume piece and about $9 million in that quarter is based on all the cost structure activities that have been going in place, and again, we're not done with that, by the way, there's a little more to go. But 21.5% is what we had in the quarter.

Got it. That's very helpful. And then, can you give us an update on the Light and Motion side? I think, there, it was touched upon in the past about new products like excimer lasers with a different approach than an incumbent. Is there any update on that front at this point?

Yes, so the excimer lasers are not the capability that we have, that's a competitive product. Us, a more of a diode-based 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 manufacturing -- additive manufacturing capability. And we continue to pursue that. We see good results with our teams. We think that there's multiple opportunities beyond just the milling for OLEDs, that type of rise in the power of diode-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 are continuing to invest to pursue that technology. John, do you have anything else you want to add to that?

No, that's exactly right.

Got you. And then like 1 final question, either for Jerry or John. Is it -- today, your OLED exposure, is it all purely the ozonated water for cleaning the devices or do you have any other products, too?

Krish, it's John. Yes. Well, so the OLED process also has many vacuum steps and so -- for deposition, for instance, encapsulation. And so those vacuum chambers would have the typical kind of MKS vacuum kind of products on them as well.

And our next question comes from the line of Patrick Ho from Stifel.

Jerry, maybe first off to start, you guys had 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 a heads-up of, okay, this is what we need this quarter, but also be ready for "the next quarter". Any changes in those supply-demand dynamics with your customers?

Well, anyway, from our standpoint, receiving receipts from our suppliers are -- we've had -- we're in pretty good shape there. We don't really see any extending lead times. Our turnover is only 3.2. So part of our strategy is to have inventory as stored capacity. And so the fact that we can respond at any time. So some of it's in inventory, but most of it is 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's a long-term continued growth in all of our markets, and we want to ensure that our factories are rightsized and outsized for growth. We always stay ahead of the markets in terms of our capacity extrapolation. As far as the customers are concerned, I was at a customer about a month ago and they said, "You guys better be ready for the next growth phase 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 '18 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 in the ability to go from 0 to 60 in new products as well, beyond just the ones that were already in production. So our customers are saying, "Be ready." We are preparing ourselves, both 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 stead. It's been an operational weapon for a long time for us.

Great, that's helpful. And maybe as a follow-up question, I know I've 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. Can you -- one, 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 2 companies? Or is that 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 2 of the wins we talked about for our laser win, one for Material Processing for flexible PCB application and another one, we call it, for attenuation into laser marking, were both cross-sell wins. They were in Korea. Both of them are 7-figure wins, which were the result of a good cross-sell and relationship we have in Korea. So that's -- we continue to see -- we had another 7-figure win for our ISB group, which is -- was part of the Newport group, also for one of our large Korean customers last quarter. So we continue to see these coming in. And we know, Patrick, that there's more opportunity over time. I'll turn it over to John if there's any other color he wants to add.

So Patrick, I think the potential is what we're really excited about. So we already have a few examples, some of which we've shared, some of which we have not. And these are really crossed-designed opportunities that have been received. And so, as you know, when you design something into a capital equipment, 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.

And our next question comes from the line of Weston Twigg from KeyBanc.

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 the -- I love all our customers, but I think that our 2 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 the guidance that people like Gary and Martin give us. So I -- my guess is if he's saying he expects it to be up, we'd expect us to see a benefit from that.

Would you typically see that, say, a quarter earlier than your customers given that you're...

Yes. You're about right. Yes. They start to prime the pump about a quarter ahead of time, Wes, and we think we had a pretty good quarter this quarter versus what people were predicting to be somewhat down. I think we were relatively flat in semi versus the industry seeing minus 5%. So that's a good indication that people continue to prime the 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?

Yes. Wes, this is Seth. Yes, it's -- by market, we don't give level of granularity. We do inside of the company, but think giving that level of granularity going forward would be kind of challenging, I think, because things could move around quite a bit in the fourth quarter. But we think that the semi would be relatively consistent in Q4 versus Q3. We're not expecting any major deviations, but again we guide at a total company level. And then we expect the Light and Motion to continue to expand top line growth.

(Operator Instructions) And our next question comes from the line of Tom Diffely from D.A. Davidson.

I'd like to look a little bit more into Light and Motion side of the business. You talked about 18% growth year-over-year, record levels. 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 or you're seeing some nice growth on the laser side?

Well, the average growth of the total market is 3% to 4% typically. In the past, they've demonstrated the 1% growth rate in the last 4 years or so. So that is the average of all the markets aggregated together. So certainly, growing 4.5x that is pretty interesting. And I think the result of centralizing sales and centralizing operations, focusing on the customer, just being operationally excellent and just the great work of all the Light and Motion team members who have really gone onboard and believed in the MKS model. And the second part of the question, Tom? I'm sorry. I...

Yes, 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 the kind of our entitled market share growth from the litho and inspection market, 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, source optics and gradings and the whole portfolio of Newport products.

One of the things that, Tom, that we've strategically decided is we will surround the laser. Now that really was, 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 should have been because of de-centralizing the sales team. You see an optic sales team or laser sales team and the 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 are continuing to bring more and more opportunities as a group than 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 engine 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 are going to 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 was 18%. So my expectation is we will continue to see them outpace their markets as well. We've got some pretty interesting growth targets we've 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 take the Q3 of '17 for Light and Motion versus Q3 a year ago, it's up 18% of the revenue. It's actually 18% for semi and other non-semi markets that L&M participates in. So the growth is pretty broad-based, it's not all driven by semi.

This process in industrial market, out of manufacturing, for the lasers business and all the things that surround it 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 rate on your term loan. What's driving that? Is that part of the contract? Or is there some specifics?

Yes. So in the July time frame, we went and repriced the debt. We got 50 basis point reduction in that exercise. And part of that, we put into that amendment to once we achieve a trailing 12 months EBITDA ratio of 1.25 or lower, the term is going to step down 25 basis points. So we had the 50 we generated and captured in July and the 25 basis points we will get contractually per that amendment. And that will kick in, hopefully, in the November time frame.

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

Well, thank you. We are 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 have made and will continue to make in the areas of product development, sales, application support and service.

Looking ahead, we see a wide range of new opportunities to 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.