MKS Inc. (MKSI) Earnings Call Transcript & Summary

Good morning. This is Jim Ricchiuti with the equity research department at Needham & Company. Welcome to day 4 of the 23rd Annual Needham Virtual Growth Conference. The next presentation is going to be a fireside chat with MKS Instruments, a fairly well-known provider of systems, subsystems, instruments, lasers, laser manufacturing systems for the semiconductor, industrial, life science research and defense markets. We are delighted to have with us from the management team the company's CFO, Seth Bagshaw. And David Ryzhik is going to head up -- who heads up the company's IR, is going to go through some forward-looking disclosure information, and then we'll jump right into the Q&A. David, would you go ahead, please?

Yes, Jim. Thanks, Jim. So because we're in our quiet period, any comments we make during our fireside chat or during the day today regarding the fourth quarter of 2020 are based solely on the guidance that we provided in our third quarter earnings release on October 27 and our third quarter 2020 earnings call on October 28. We're not reiterating that guidance nor are we providing any updates or comments on that guidance. Our comments will solely focus on the long-term growth and opportunities for MKS. In addition, any forward-looking statements that we may make today are subject to our risk factors in our SEC filings. Any non-GAAP numbers that we may talk about, you can find the GAAP reconciliation on the IR page of our website. And I'll kick it back to you.

Okay. David, thanks for that.

So I'll dive right into the Q&A, Seth, and I thought I'd start, just because this has been a heavy news day in the semi land. So I wanted to know if you can share us any perspective that you might have on some of the news as it relates to Intel, and more importantly, TSMC CapEx plans. Obviously, there are some puts and takes as it relates to potential CapEx for -- at Intel as well as this large increase plan for TSMC?

Yes. Thank you, Jim, and good morning, everyone. Yes. So I would view the -- certainly the CapEx now for TSMC positive. About -- over half of our revenue is the semi cap industry, about 60%. We're in a number of different applications. We support a large portion of the WFE environment. And so overall, CapEx increase is obviously beneficial for MKS in the long term. And any chip that's made in the world, we touch at some level. So as WFE increases, we benefit from that as well as transition inflection nodes. So that, I think, is positive. On -- certainly, Intel, if they were to, perhaps, outsource their manufacturing, our belief is we would support whatever CapEx required to where that production is perhaps moved into, if that's going to happen. Again, we are well exposed to every chip manufacturer in the world, whether it's foundry, logic, DRAM, obviously, memory. So we're pretty agnostic to where that would go, if that, in fact, does move to TSMC, for example, or a different provider. So again, we are well exposed to overall WFE spending, and it's exactly where we want to be. That's been our long-term core strategy in the semi market.

And maybe we could also take a step back to the first 9 months of last year, and you clearly showed a great deal of growth in the semi cap business also then -- as it relates to some of the systems business that touches that market. And I'm wondering if you could, Seth, maybe just talk to some of the growth that you saw through the first 3 quarters in terms of the biggest drivers to that?

Yes, yes. So semi has been obviously on a tier in 2020. We have outgrown the market. We believe, this year, that's been a long-term strategy to grow 200 basis points above WFE growth rates in the long term. And so again, our portfolio is well exposed to all types of applications and customers. So again, we enjoy that growth that -- associated with the overall growth in WFE. The year we've mentioned in earnings calls I spent time at the Analyst Day back last month in December was really the RF power business. So a number of years ago, we saw an inflection point where if we invested more R&D dollars and developed on a strategy to add more product development activities in the Power Solutions part of our business, we saw us grow that quite dramatically in 2020. We're up about 110% the first 3 quarters versus a year ago, well above overall WFE estimates, well above our overall semi growth rates. It's really being exposed to those applications in the memory sector that requires very advanced Power Solutions products. And again, the strategy we did a number of years ago, we invested heavily. We're committed to that vertical going forward as well. And that's been a big growth driver above normal growth rates we saw in 2020. So we're very happy with the performance in that group.

So the -- you guys are going to be reporting later this month and providing Q1 guidance. But obviously, there are forecasts out there for the WFE market with the expectations that WFE, if the cycle goes into a third -- of course, we have the TSMC news today. But without getting too deeply into an outlook for the business, which, obviously, you're not able to do. The forecast out there, including Needham's, are talking about slower growth in the NAND portion of the WFE, strong growth in DRAM. And if we look at the business, your business through the first 9 months, question is, yes, how big a driver was NAND? And how would you characterize that exposure to DRAM?

Yes, yes, yes. Good question, Jim. So again, kind of reiterate, we are on virtually every application to manufacture chips around the world. So our view, in many cases, we'll ship a product to an OEM. And because that product is used on NAND, DRAM, logic, foundry, the visibility to where that product goes, even we don't know. So we can be pretty agnostic if it goes to ultimately TSMC or Intel or Samsung, for example, again, we get pretty agnostic where that end product shows up. What we'd like to see is inflection points, complexity, higher CapEx. Those secular drivers are much bigger impact on our overall semi business than a typical one vertical. Now when you look at the VNAND market, our Power Solutions group, which is a portion of the total semi, is a little more levered towards that vertical. We have a product that does high-aspect ratio etching. We've got very high share in that process step, which enabler for our 3D NAND, obviously. So a little more leverage there. What we've seen is, in 2021, the estimates for VNAND spending is still quite robust. Again, I would agree, the essence we've seen -- and we're not predicting 2021 by segment, but there's still elevated levels off a really strong 2020. So our view is that is a good place to be. We like to elevate spending. We are on the right applications. We mentioned about long-term investments, strategic investment made a number of years ago in that vertical. So those things are all beneficial to MKS. So if VNAND is relatively flattish next year, it's still at a very good clip and we'll benefit from that. The other markets that will go up based on the forecasts, we have a lot of exposure to those markets as well. So we're feeling what happens based on the estimates right now, 2021 should be a beneficial year for MKS.

Okay. And historically, at least going back over the last number of years, you guys have clearly outgrown the market and that you exceeded, I think, some of the goals you've outlined. I think your semi business grew, what, 17% organically, I think, the last 5 years. So I guess the question, though, I have is, given that track record, which has been certainly very strong, how difficult does it become going forward to continue that over performance because you're still targeting to outgrow the WFE market, what, 200 basis points is what you're targeting? And what gives you that confidence?

Yes. So you're right. Over the years, we've outperformed that metric quite dramatically, and it's through the cycle. So we look for organic growth opportunities where we can apply our technology and customer interactions to really leverage inflection points as they come up. The semi industry, our view, has -- it's always had inflection points, some you can predict, some come up. They're always a dynamic industry. We've been the semi cap industry for decades and decades, and our core competency has always been to be close to the customer and develop road maps that kind of support their solutions and solve their problems, and we've done that organically and through acquisitions. So if you look at our Surround the Chamber concept that was put in place, again, probably over 20 years ago, where we've added more content through acquisitions, expand the portfolio, it allows us to see those inflections and leverage those as they come in. And again, 3D NAND is a good example. A number of years ago, we saw that inflection point coming down the road. We have the scale and the breadth and the desire to make investments in certain areas that you may not see revenue for 3, 5 years down the road. We're more than happy to make those bets, make those investments because when the scale and again, the expertise and type of background we have in the company, you can kind of make those choices and kind of make a number of bets, if you will, on the chess table and something will pay off and some may not. And that's kind of been our DNA for a number of years. We also have a unique process at MKS where, every year, the team comes in at the product development level, pull together kind of the critical development activities that could range from short-term to more long-term greenfield type of projects. And we kind of rack and stack those across the whole company, the whole portfolio. And every GM is in the room. Everybody has a chance to hear those presentations. There's a lot of marketing input. You can imagine, we've got a wealth of expertise through interaction with customers over a number of years, a lot of PhDs, a lot of bright individuals. And then that whole process, we can boil it down to areas you could kind of make bets on inflection points. So unlike maybe some companies where you may have a product group that's kind of a siloed, who make investments along different parameters, look at the whole portfolio, the whole R&D spend, when you look at those on a regular basis and say we make choices that I think will benefit the whole company. And because all these GMs, the people in the room are all compensated on overall growth in the business, satisfying customer requirements, everybody's in the same desirable position to fund the right opportunities to kind of grow the business. So it's really a process in place. It's looking at inflection points. It's the scale. It's the depth of our technology. We have a unique structure where, we talked to this on the Analyst Day, we don't have one CTO in the business. We have a -- called the office of the CTO. They're individuals from all the product groups who kind of get together on a regular basis and share technology, share ideas, share inflection points. The marketing input, the sales inputs are on a regular basis as well. So it's a pretty unique process, we believe. We have the best and brightest, looking across the whole playing field and figure out what the best play is to put in motion. And every year, I think, we get better at that. We learn. We make choices. We have a closed-loop process to kind of, again, prove that funding vehicle, if you will, every year. And again, I think the real proof statement is over the years, we've overachieved that 200 basis points performance. So our internal goals are more aggressive than that. But obviously, that is the right target, I think, going forward to be prudent, but our goal is to kind of overachieve on that as well. And again, track record would indicate we've done that.

Thank you for that. I wanted to turn the attention maybe to the business outside of traditional, the legacy semi business, which you obviously continue to do very well, and focus a little bit about some of the initiatives that you've undertaken over the last several years to diversify the business. Newport, the acquisition on May 2016; ESI, Electro Scientific Industries, back in, what, 2019. I wanted to focus a little bit on that. And so if we went back to 2020, and obviously, the Q4 numbers aren't out, but just through the first 9 months, I think it's fair to say that the Newport business was probably most impacted by COVID. And maybe you could talk a little bit about where you saw some of the demand disruptions and to what extent maybe that pandemic overshadowed some of the -- what I think were some -- are some market share gains that you're seeing in operational improvements in that part of the business?

Yes, yes. You're absolutely right. So Newport acquisition, for us, was a little bit of a game changer back in 2016. And again, we talked about this in the Analyst Day. If you looked at our Advanced Markets revenue in like 2015, total company, it's about $300 million of revenue. This year, 5 years later, in 2020, again at the Analyst Day, we talked about probably $900 million business in the Advanced Markets. So we really changed the company quite dramatic in the last 5 years. Another data point is the semi revenue in 2015 was probably in that $600 million range for the full year. Again, this year, based on the data on the Analyst Day, we showed kind of estimates midpoint on the guidance. It's more like a $1.4 billion, so the company today is much different than it was back in 2015. And Advanced Markets was a big strategic effort on our part in 2016 with the Newport acquisition. So we've been very happy with the acquisition. We've taken costs out of the business. We've grown that business. The team there in both E&S division, ESI acquisition and Newport have done a great job. If you look in the short term about what COVID-19 impacts we've had, we started mostly in the research market, in -- probably the tail end of Q1, calendar Q1, Q2, for sure. That has come back in the third quarter. It was actually back to pre-COVID levels, so we're very happy with that. That COVID-19 headwind in the research markets, you can imagine universities are shut down, spending has been slowed down, and the government agencies as well. So -- but again, in Q3, we're really happy that kind of came back to pre-COVID levels. The other piece of the Advanced Markets, which is really in Light and Motion, would be life and health sciences. So what we do there is our pulse lasers. If you have ophthalmic surgery, cataracts, LASIK, for example, a lot of elective surgeries were deferred, obviously, in Q2 of this year and Q3. So those are the kind of 2 major areas that had COVID-19 headwinds, if you will. And so again, research has come back, and life health science seems to be coming back as well. Even with that headwind in COVID-19, we've managed, I think, very well as a company through the whole pandemic, some of our products I use in COVID-19 fight. We also have a real strong operations team. In the first quarter, a lot of our peers had kind of pulled guidance late in March for obvious reasons. Our ops team really just pushed forward, and we kept the shipments going to our customers. And in Q2, we did a great job managing through really the worst at this point in terms of the headwinds because, unfortunately, a lot of our locations are deemed essential by local government agencies. So they were able to stay up and running and work the supply chain. So COVID-19 had a lot of headwinds for MKS, I would say on the revenue side. I talked about the research and life health sciences. But operationally and across the whole company on a global basis, I really could not have asked for more dedicated efforts and success across all functions in MKS to kind of navigate in a very difficult environment.

And Seth, is it fair to say that Light and Motion business in terms, as we look out, the easier comparison is clearly going to be in the June quarter, right? And potentially, as we see more activity on the vaccine front, that should be relatively easy comparison for that part of the business?

I would -- yes. I would think that the -- with the vaccine being rolled out, obviously, we're all hoping that will be successful and as fast as practical. Obviously, that would have, I think, a big impact on the macroeconomic environment. I think we benefit from that as well. So I'm optimistic that rollout will occur. Obviously, we're in the early innings there. But I think those kind of activities would be beneficial to a lot of companies and sort of for MKS as well. Back that new normal, whatever that may be, would definitely be kind of our view looking through 2021.

Then I would also add that our Light and Motion business actually delivered year-over-year growth in Q3.

No. David, thanks for pointing that out. I'm sorry, I mean, you guys did see signs of clearly of the recovery taking shape in that business. It's a good point. Wanted to talk a little bit about the ESI business because it's a company I used to follow. And some points, it seemed like there was some confusion around the strategy and you're acquiring that business, which happened I think was a pretty good acquisition. But if we -- it's a cyclical business. We know that. But other parts of your business is cyclical. And I wonder if you could talk about some of the biggest drivers to that business, which, from my standpoint, smartphones are always a big driver. And right now, we've got a pretty healthy -- what looks like a pretty healthy replacement cycle. We've got 5G coming on. You've got more OLED-driven handsets. And talk about that business as it relates to the demands brought on by increased flex. IC is a big part of that business.

Yes. Exactly right, Jim. It's leveraged towards the handset market. 5G is beneficial for us as a company, for sure, among a number of different product categories, especially on the E&S division. If you look at the flex content and smartphone, and you're taking smaller form factors and you kind of cram more capability in a smaller form factor, flex PCB is a requirement to make sure that smartphones can actually operate. And we believe in a 5G environment. The amount of flex content could be up to 30% higher than a 4G phone. So we like the inflection point of 5G. In the flex market for the E&S division, we are #1 in that market. And we released a product in the last 18 months to kind of solidify our leadership in the flex PCB market. So it is a handset leveraged. 5G is a driver. We mentioned last earnings call, we're seeing a little more interest in the flex order rates, which is a little unusual late in the calendar year. It's more front-end loaded, if you will, to meet manufacturing requirements the last part of the calendar year. So that's really good. And then one of the key thesis is for that acquisition was entering the HDI market. And again, that's about a $500 million market, we believe, growing mid-single digits over -- for the long term, and we have no share there. And one of the critical, again, thesis for that acquisition was really to roll out product in that market to really capture between probably 10% share over a couple of year period. 2019 and early '20 was really a year where you roll out demo units, data units, getting in the hands of the high-volume production manufacturers to see if that tool perform the way we think it's going to perform. We believe it's a low-cost of ownership. It's lighter. It's smaller, has compelling opportunities to take share. And then in 2020, we had a couple of POs, orders from well-established, leading material manufacturers to use that Geode product on new material applications, which is pretty unique. And then we announced a couple of high-volume orders that came in, again in 2020, and started to ship those during the quarter. So we're gaining tracks in the HDI market. That business, flex were well positioned. We think that will be long-term secular drivers with 5G and handsets, for other applications as well. And the HDI market has a -- really opportunity for us in the long term to gain share in that market with a compelling, differentiated tool that's now in the marketplace today. So we're very bullish on that acquisition.

And just with respect to HDI, yes, you've had some early traction there. How important is '21 to -- in 2021 in terms of really seeing broader acceptance? The market share targets seem fairly modest. Certainly, you have to see some additional acceptance and larger volume orders.

Yes. So we've been, I think, pretty thoughtful on the market share targets. Obviously, there are a number of variables in there. Our internal goals are much more aggressive than we've talked about externally. It is not a change on our external view. But obviously, we're going to run pretty hard on that. Again, the fact we have 2 orders in high-volume manufacturing from different customers, I think, is very encouraging. We've already shipped products in place. They were installed relatively easily, and they're in production today. So we're very happy with the progress in that business. 2021 will be -- continue that playbook. There are a number of -- in that HDI market, there's probably 15 or 20 major manufacturers, so you can get to those individuals relatively quickly. And so our plan is continue to roll that out to existing high-volume manufacturers. We don't want to go out all at once because you want to make sure you support the tool. It gets installed. You can kind of run demo panels and make sure the production levels and yield are appropriate. So that's just the thoughtfulness of how we want to make sure we can roll this product out in the marketplace to be as successful as possible. So 2021, we have momentum. Our plan is, again, continue down that path to roll out to other high-volume manufacturers and hopefully capture more orders in 2021.

And there are some other parts of that ESI portfolio, too, that has exposure to some of the advanced manufacturing for electronics, things like ceramic capacitor chips, MLCCs. I'm wondering if you can just elaborate on some of that. Sometimes people don't even really think about that, but that's also a pretty interesting one.

Yes. We think the MLCC market is an area also where ESI, over the years, has had very good penetration. The competitors in that market are usually internal testers for our end customers, but we're investing in that market as well. That could be obviously a little cyclical as time -- throughout the quarters and throughout the year. There's a big build-out prior to the closing of that acquisition. But you're right. If you look at the major revenue drivers for the E&S division, flex market, again, 5G, there's a lot of capacity digestion that came in 2017, '18 which did not work its way through. So we're very bullish about that. MLCC, again, we got high concentration in that market as well. That will, over time, drive growth. The HDI market, talked about that. And then the service component in E&S is about a $60 million year business because we're now in the systems business. And MKS has spun out, or at least internally, spun out the service group as a separate business unit with its own P&L, management team, metric and so forth. That was done a couple of years ago. And the E&S service division is part of that whole global service BU for MKS. So the service piece is a very sticky business. And with systems, you kind of have a follow-on normal recurring revenue in the E&S group with that service business. So a number of drivers here to grow that division.

Got it. And Seth, you referenced the December Analyst Day. And at that time, you guys -- MKS established a new, long-term target that included, among other things, incremental non-GAAP operating margin of approximately 40%. I think you've indicated you hope to exceed that target. It seems like you guys always try to exceed targets that you put out there. But I'm wondering, to the extent that you can, if you can give us a better sense as you think about your target model -- your longer-term target model, what areas of the business, what are the areas where you might be able to overachieve?

Yes. It's a good question. It makes my job a little bit easier in the sense of if you look at the total company, I said before, our variable gross margin is kind of 50% on volume, and then the operating margin is 40%. I don't get too worried about what division. It's pretty consistent across all 3 groups, Light and Motion, which is old Newport acquisition, E&S is ESI acquisition. And that analysis is core MKS, which is mostly the semi group. So when I do my internal modeling, it's pretty consistent across all 3 divisions. We don't get into a level of detail beneath that for competitive reasons. There are certain product groups which you could have a margin or quarter-to-quarter change. That metric may not be -- it might be higher or lower, depending on what product groups may have a higher mix in any 1 quarter. But generally speaking across the board, that 40% operating margin is kind of how I model the business, both externally and internally. The biggest lever for that would be volume, obviously. We do have a robust process. We're obviously next-generation products which have high value. What we see by the marketplace, we try to have higher gross margin because the market will pay for that technology. We do always try to reduce the cost in our business, be more efficient. We've got a team in place that meets on a monthly basis to kind of go through that. We've got great success there over the years. So there are a number of other levers that kind of work on that model to drive it up a little bit over time. But really, across all divisions, total company, I would just say the 40% is a pretty good model to use. And you could have a 1 or 2 quarter higher or lower depending on the mix that usually normalize over time.

Okay. Moving -- and I wanted to talk as well about capital deployment. I mean the company has had a long history and a successful one on the M&A side. So I'm wondering if you can talk to -- obviously, you can't be specific, but whether you can tell us about how active that M&A pipeline is at the moment?

Yes. It's been one of our core competencies to kind of grow the business through acquisitions, and we have a couple of kind of diagrams in the Analyst Day presentation which are kind of illustrative is. We have a Surround the Chamber strategy. We're in the semi market. We have acquired technologies to kind of provide more content on manufacturing chips, and that's been very successful. And the Surround the Workpiece is kind of that advanced markets strategy. We have a laser portfolio. Other product sets support the ecosystem, measuring laser beams in terms of energy levels and kind of the digital diameter of a laser, if you will. So there's number of applications we've built the portfolio through inorganic M&A activity, so it's one of our core competencies. The pipeline is always active. I tell investors, again, we're always looking at something. We can't obviously be too transparent to kind of what those are, but there are no gaps in the portfolio. There's nothing we see in terms of either advanced markets or in the semi market that we don't think we're already serving that market to, to a large extent, successfully. We do want to add more capabilities. And I think the advanced market has certainly more ability thing for acquisitions given the relatively fraction nature of that whole ecosystem, and there are probably more available targets, if you will, for acquisitions. So it's something we look at on a regular basis. We have a disciplined approach. We make sure it makes sense strategically, if there's a financial payback to it and that it fits on a cultural basis or that we can add value over time to the acquisition. So again, I can't give you a real bright line, but there are -- again, it's a very active piece of our strategy. And again, I think we've done about 15 to 18 deals since we're public 20 years ago in different sizes, some bolt-ons, some larger, all those type of either sizes or the semi advanced markets are opportunities for us, we think.

And if we think about some of the areas that of -- are of interest to you, I mean, you alluded to the fact that, that laser photonics market is still fairly fragmented. And I guess it's, in some respects, similar to what you guys saw in the semi market years and years ago. But you're a bigger company today. And I guess the question is, as you weigh out, doing these smaller deals which we often hear from companies or just -- as you require just as much and sometimes is the larger deals, how do we think about that balance?

Yes. It's a great point, Jim. You're right. Some of these smaller deals, they're like 1/10th the size of a large deal. They're not 1/10th of the effort or something more than that. So in a perfect world, you want to have some critical size acquisitions that kind of move the needle, things that make sense in the portfolio. That would be obviously a desirable choice. We have done bolt-ons in the past. I mean one good example is we acquired a company called Granville-Phillips back in 2014 time frame, indirect gauging, a great business, easy bolt-on, not a heavy lift, quite honestly, and really slipped in nicely and done a performance for us. We have also bought a smaller company that supports our entry into synthetic diamond manufacturing. And the revenue in that group was low single-million-dollar levels, which, past year, it's probably north of $15 million. So some of these smaller deals, you may not see them move the needle at a $2.3 billion or $2.5 billion level, but they do fill a nice little portfolio, not a heavy lift, and they can add a lot of value to the portfolio. But ideally, we'd like to get the larger ones. Those, again, to your point, is $2.3 billion company. If you did $20 million deal, you're not going to really move the deal that much. So our bias is to do something larger, and logic could be -- you could take a number. It could be $100 million or it could be multibillion at this point in time, depending on the economics of the deal.

Sure. And right now, I mean, exiting Q3, the balance sheet looks great. I think, what, net leverage was, what, 0.2x or something. So I guess the question is, if the opportunity were to come along for something of real significance in size, and it just made sense and is compelling. You hit all the hurdles. What level of leverage are you guys comfortable?

Yes. It's -- we've not been -- put a bright line. But I've said in the past, we can go -- we usually keep a fair amount of cash on the balance sheet, just to be thoughtful on kind of that aspect of our business. The leverage ratio, 3%, 3.5%, depending where in the business could be easily achievable. Probably you can go higher if we wanted to, but I would say there's no bright line. What I -- what we have said in the past is we are quite prudent on the balance sheet. There is some volatility and cycles in our business to make sure that we can manage throughout the cycle. We've been very aggressive on delevering the 2 acquisitions. For Newport, we went from $900 million -- $90 million of debt down to $350 million pretty quickly and then did the same thing for ESI. So we'll always kind of be pretty aggressive on delevering to create additional powder, if you will, for next acquisition. But we have got cash in the balance sheet to use. We've got the ability to borrow. The markets are very open to us. We've got a lot of credibility with the leverage loan markets. We kind of executed like we said we were, and that's got some -- obviously helps us next fundraising activity. And then you can always plug a hole with equity as well, if the economics made sense, the valuation makes sense. So we have quite a bit of flexibility, I guess, for acquisition, is what I would say, but we will be prudent.

And yes, going back to ESI, it seemed to surprise folks because, yes, MKS is not -- doesn't get into full systems, which ESI, clearly, has a pretty good market position in flex and we think in HDI coming up. But is that still an area that you look at a potential acquisition that would involve a portion of the business that may provide some systems capability -- full system. Obviously, you're not competing with your OEM.

Yes. Exactly. No. I think the way I'd kind of answer that question is if we have an acquisition that we think we can really bring value to the table as MKS, on a combined basis, that will meet a complex customer requirement, that we can kind of get compensated for that, if you will, in margins, that's kind of a major criteria, I think, for acquisitions. And again, there'll be adjacencies. I think -- nothing that will seem to work with now to kind of leverage where we are, if you will, more acquisitions. It could be a system. It could be a component, just depending on what's available. We have said in the past, what's really interesting is -- well, ESI, to me, is a couple of things. We bought Newport in 2016. We got into the lasers, that ecosystem Surround the Workpiece strategy. And ESI acquisition was really kind of going up the food chain a little bit. I mean they're very similar, using lasers and photonics to really do high-precision manufacturing, driving 5,000 vehicles a second, which is very difficult to do. So that -- there's a lot of overlap and complementary synergies there, if you will. And then also, the fact that we now have really top caliber of technologists who know how to build and design lasers and then know how that laser is used in material processing all under the MKS umbrella, you can kind of get together in the room and really share ideas. And that's kind of a qualitative piece of that strategy. What I did in some of those meetings and the dialogue is robust, a lot of energy, a lot of excitement, a lot of good exchange of ideas. And that could not occur if you had 2 separate companies that were not under the same kind of umbrella, if you will, for -- as MKS. So there's been a lot of great things that come out of that acquisition on a qualitative level. But really, in terms of what we're looking for, it could be systems. It could be a component. It really depends on the other criteria I've talked about.

Okay. And I think we're going to have to end it there. But Seth and David, thank you. Thanks for joining us today.

Great. Thank you, Jim. Appreciate it.