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MKS Instruments Inc  (NASDAQ:MKSI)
Q1 2019 Earnings Call
April 30, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to MKS Instruments First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Seth Bagshaw, Chief Financial Officer. Please go ahead, sir.

Seth H. Bagshaw -- Senior Vice President, Chief Financial Officer and Treasurer

Thank you. Good morning, everyone. I am Seth Bagshaw, Senior Vice President and Chief Financial Officer. I am joined this morning by Jerry Colella, our Chief Executive Officer and John Lee, our President and Chief Operating Officer. Thank you for joining our earnings conference call. Yesterday, after market close, we released our financial results for the first quarter of 2019. Our financial results and scheduled pro forma revenue by market have been posted to our website www.mksinst.com.

As a reminder, various remarks about future expectations, plans, and prospects for MKS comprise forward-looking statements. Actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release and in the most recent Annual Report on Form 10-K of the Company. 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, refer to certain pro forma measures as if the acquisition of Electro Scientific Industries, Inc., or ESI, which closed on February 1, 2019 had occurred at the beginning of the first quarter of 2018.

Now, I'll turn the call over to Jerry.

Gerald G. Colella -- Chief Executive Officer

Thanks, Seth. Good morning, everyone, and thank you for joining us today. I'll start with the results for the first quarter of 2019, followed by several business and market highlights and I will turn the call over to John to share additional details on our strategy, customers, and markets. Seth will then provide additional information on our financial results and second quarter 2019 guidance, before we open the call to questions.

On a reported basis, overall first quarter revenue was $464 million, which included two months of ESI results. On a stand-alone basis, MKS delivered first quarter revenue of $428 million, which was above the midpoint of our guidance range. On a reported basis, overall non-GAAP net earnings were $61.3 million or $1.12 per share, which included two months of ESI results. On a stand-alone basis, MKS first quarter non-GAAP net earnings were $64 million or $1.17 per share. This bottom line outperformance was driven primarily by another strong quarter of our advanced market business and our long-standing commitment to managing costs through the semiconductor market cycles.

For the first quarter, we continued to see strength in our advanced markets and in particular, our Surround the Workpiece offerings. Our laser business is the cornerstone of this strategy on which we deliver leading products and services to laser, photonics and optics markets and in turn grow our share. We also had a strong quarter in China in both the semiconductor and solar markets.

Due to the dynamic macroeconomic environment in China, we remain focused on positioning ourselves to take advantage of growth opportunities. Our long term strategies around technical localization and broadening our exposure to new customers and markets have positioned us well in China, much as we did in Korea over the past six years, where annual revenues have more than tripled. John will provide more details around the design wins and other successes in these areas.

I'm very pleased with our performance this quarter. As you know, semiconductor capital spending has moderated over the last few quarters. However, our business appears to have stabilized and we are preparing for recovery by building capacity to support us well into the future. Our acquisition of ESI closed on February 1, 2019. This acquisition is another significant step in executing our strategy, (inaudible) and physics exposure to new customers and markets and expand our addressable market by approximately $2.2 billion. Going forward, we will refer to the acquired ESI business as our Equipment and Solutions division and this will be a reportable revenue segment.

Over the last few years, we've outperformed our served markets. A key element of this success has been optimizing our sales model, including a strong emphasis on leveraging our customer relationships across both our Light and Motion and Vacuum and Analysis divisions. In 2018, we secured design wins that had potential to deliver over $50 million of annualized revenue. We will apply the same process and strategy to the Equipment and Solutions division. In terms of market drivers, we are excited about the prospects of the new 5G technology implementation. We anticipate this enabling technology will drive long-term growth of both our advanced markets and semiconductor markets, including in our new Equipment and Solutions division.

Turning to our Q2 2019 and earnings guidance, we estimate that our sales in the second quarter could range from $460 million to $510 million. Second quarter non-GAAP net earnings per share could range from $0.89 to $1.26 per share.

Seth will provide the balance of second quarter guidance in his remarks. At this point, I'd like to turn the call over to John.

John T.C. Lee -- President and Chief Operating Officer

Thanks, Jerry. We are very pleased with our progress on integrating ESI into our business. There is a very strong cultural fit and both companies share similar core values, which will help facilitate a smooth ongoing integration. As we have done with other acquisitions, we are applying the MKS business process and have begun to find areas for collaboration and leverage. For example, we are collaborating on the recently released flexible printed circuit board laser drilling solution, which incorporates our Spectra-Physics nanosecond pulsed laser. We have already received significant orders in Asia and Europe for this solution which provide unmatched productivity improvements that further solidifies our market leadership in the flexible PCB market.

In the first quarter, Career Technologies Corporation, one of the world's leading manufacturers of flexible PCBs honored ESI with its Principal Partner award in recognition of the outstanding operational support for Career's business ramp in 2018. Also, the ESI high density interconnect drilling solution was awarded the Printed Circuit Design & Fab Magazine's 2018 New Product Award for rigid printed circuit board fabrication.

As we discussed during our last call, the ESI acquisition further broadens our Surround the Workpiece offerings by adding advanced systems expertise and deep technical understanding of laser materials interactions. We expect ESI leadership and complex printed circuit board processing systems to provide MKS the opportunity to accelerate the roadmaps and performance of our laser, motion, and photonics portfolios.

While we managed through the cycles of the semiconductor market, we continued to emphasize the importance of design wins through uninterrupted support of our customers' development roadmaps. In the first quarter, we had noteworthy wins in our Power Solutions business. We continue to take share in RF power for memory applications, most recently, in conjuncture etch with our next generation 15.56 megahertz generator. We also received a significant volume order for RF generators to support etching processes for memory fab expansion in China. And, in Korea, we won an exclusive contract for our matching networks that enables improved uniformity in yet another etch application.

Our microwave power solutions continue to win business from multiple customers for synthetic diamond applications. In another microwave power design win, we received several orders for plasma-assisted atomic layer deposition application for the semiconductor market. Our lasers business was also strong in the first quarter. We secured design wins in China for a number of advanced market applications, including stem cutting for the life and health sciences market and glass cutting application for the industrial market and a number of scribing and drilling applications for the photovoltaic market.

As Jerry mentioned, we have strengthened our cross-selling capability and our customers appreciate the opportunity to work with a partner that has a broad range of end-to-end solutions. We won a key design for our optical subassemblies solution used for a semiconductor wafer inspection application. Our illumination and collection optics will be used to capture critical dimensions of nano structures and DRAM, Flash and logic devices and we had a number of precision motion design wins for various applications in wafer inspection and advanced packaging.

We are excited about the roll out of 5G and anticipate this will be a long-term growth driver for all of our divisions. In the short term, there will be a new wave of communications checks and a refresh cycle for mobile devices. There will also be new antenna designs and new materials required to enable 5G performance and will require new laser-based processes. Longer term, we expect new devices and broader IoT deployments that require the same 5G components for connectivity. This new connectivity and performance shift will enable more use cases, which we expect will provide MKS the opportunity to deliver new designs and innovative solutions across our portfolio,

Our outlook remains very optimistic. We continue to garner design wins in all of our markets and our strong position in advanced markets is bolstered by our ESI acquisition. This balance in growing portfolio of products and solutions uniquely positions us for the long-term growth.

At this point, I'd like to turn the call over to Seth.

Seth H. Bagshaw -- Senior Vice President, Chief Financial Officer and Treasurer

Thank you, John. I will cover our Q1 2019 financial results and discuss our Q2 2019 guidance. The GAAP and non-GAAP results for the first quarter include the combined results of the recent acquisition of ESI which closed on February 1.

During Q1, pro forma sales for the quarter were $471 million, a decrease of 11% sequentially. Pro forma sales for the semiconductor market were $221 million and pro forma sales for advanced markets were $250 million, both decreased by 11% sequentially. The decrease in pro forma sales were primarily driven by moderation in sales to the semiconductor industry, as well as the flexible PCB market as ESI's customers absorbed capacity additions over the last 18 months. On a pro forma basis, approximately 45% of our sales were to the semiconductor market and 53% to customers in the other advanced markets we serve.

Now moving to GAAP to non-GAAP results for the quarter, reported revenue for the quarter was $464 million and non-GAAP gross margin was 43.8%. Non-GAAP operating expenses and non-GAAP operating margin were $121 million and 18%, respectively. GAAP gross margin was 42.7%, include the impact of $5 million of inventory purchase accounting charges. GAAP operating expenses were $175 million, includes $16 million in amortization of intangible assets, $30 million in acquisition and integration costs, $1.7 million expenses related to fulfilling a customer obligation, and $6 million in transaction fees associated with the issuance of term loan debt to finance the acquisition of ESI. GAAP net interest expense was $7.4 million and non-GAAP net interest expense was $6.8 million. Our GAAP tax rate was 18.8% and our non-GAAP tax rate was 18%. GAAP net income was $12.5 million or $0.23 per share, and non-GAAP net earnings was $61.3 million or $1.12 per share.

With respect to MKS stand-alone results, excluding the impact of the ESI acquisition, revenue was $428 million, which was above the midpoint of our guidance range and decreased 7% compared to Q4 revenue of $461 million. Standalone GAAP and non-GAAP gross margin was approximately 45%. Non-GAAP operating expenses were $110 million and non-GAAP operating margin was 19% of sales, which is favorable to our expectations at this revenue volume. Standalone non-GAAP net earnings was $64 million or $1.17 per share, both of which were also at the higher end of our guidance range.

The integration of the ESI acquisition is proceeding very well. We've already begun to realize cost synergies, which in the second quarter is expected to be approximately $1 million or $4 million on an annualized basis. We are on schedule to realize the $15 million of announced total cost synergies in the 18 to 36 months subsequent to transaction closing.

Now, turning to the balance sheet, we financed the ESI acquisition with $650 million of incremental institutional term loan B and approximately $400 million of cash and investments. At quarter end, we had approximately $1 billion of total term loan B debt outstanding, which were rated BB+ by Standard & Poor's and BA1 by Moody's.

Our goal is continue to delever the balance sheet as we have done with the Newport acquisition. We have reduced term loan debt by over $430 million in the 24-month period post acquisition. Furthermore, at the end of the quarter, we maintained a strong balance sheet and liquidity with over $460 million of cash and investments, $100 million of available borrowing capacity under an asset-based line of credit and a modest trailing 12-month pro forma net leverage ratio of under 1 times.

Free cash flow for the quarter was $15 million, include the impact of acquisition, integration expenses, as well as variable compensation payments during the quarter. Capital additions for the quarter were $15 million. Depreciation and amortization expenses were $25 million and stock compensation expense was $28 million. Stock compensation included $18 million of charges for acceleration of vesting of stock awards for certain ESI employees related to the acquisition. And these stock compensation charges have been excluded from the non-GAAP results and are included in acquisition costs in the quarter.

We continue to demonstrate a balanced approach to capital deployment. In the quarter, we paid a cash dividend of $11 million or $0.20 per share. In terms of working capital, pro forma days outstanding were 66 days at the end of the first quarter compared to 60 days at the end of the fourth quarter and pro forma inventory turns were 2.2 times compared to 2.5 times in the fourth quarter.

Finally, I'll discuss our Q2 2019 guidance which includes the full quarter of the ESI results. Based upon current business levels, we estimate that our sales in the second quarter could range from $460 million to $510 million and the non-GAAP gross margin to range from 43.5% to 45.5%. Q2 non-GAAP operating expenses could range from $128.5 million to $135.5 million. R&D expenses could range from $42.2 million to $44.8 million and SG&A expenses could range from $86.3 million and $90.7 million. Non-GAAP net interest expense is estimated to be approximately $10.1 million and the non-GAAP tax rate to be approximately 20%. Given these assumptions, second quarter non-GAAP net earnings could range from $49.1 million to $69.1 million, or $0.89 to $1.26 per share.

In the second quarter, amortization of intangible assets is expected to be approximately $17.6 million. Inventory-related purchase accounting charges are estimated to be $3.2 million. Integration-related costs are expected to be $1.8 million and GAAP net interest expense is estimated to be approximately $10.9 million. As a result of these transaction-related charges, GAAP net income is expected to range from $30.7 million to $50.9 million, or $0.56 to $0.93 per share on approximately 55 million shares outstanding.

This concludes our prepared remarks and I will open the call for questions

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Patrick Ho with Stifel. Your line is now open.

Patrick Ho -- Stifel Nicolaus -- Analyst

Thank you very much and congrats on a nice quarter and closing the ESI acquisition. Jerry, in your prepared remarks, you said you believe that the semi business is stabilizing. Maybe on a qualitative basis, can you give a little more color on, one, why you believe it's starting to stabilize and maybe, two, do you believe that the March quarter represents -- the March or June quarter represents a bottom for MKS' semi business?

Gerald G. Colella -- Chief Executive Officer

Yeah. Thanks, Patrick, for the call -- the question. The reason why I made the comment about stabilizing is because we don't report on orders, we report on revenue. But when I look at, as you know, I look on bookings and shipments every day. I've done it every day, so it's like 36 years probably and the semi orders have really stabilized nicely and the advanced market orders look very strong. So, we don't comment about our order rate in terms of specifics. When I look at those things, I see that there is real good stability in the order rate that we have seen. We've had positive, more positive commentary about -- customers about what toward the end of the year looks like and they are preparing themselves hopefully for maybe things coming back to reflect a strong 2020. But you have to back-off with the '19 for our orders rates which backs further into us.

The other thing I do want to mention, though, is, there is always doom and gloom of the semi industry and even if we stay flat this year in semi, it will be the third highest revenue year in the Company's history. So we've been supplying the semiconductor industry well over 40 years and this will be the third highest year, and the run rate will be close to $900 million. People are sad about that. And on advanced markets, it's close $1 billion. Some are feeling bad about running a business that's close to $2 billion just because it looks a little down right now. We've adjusted our cost structure, we are continuing to look at cost for efficiency and productivity. But I feel very good about what our business prospect looks like even if we were flat because I've been through some pretty horrific downturns in the past and this feels, not that I'm happy about it, but if feels more consistent. And like I said, I think the order rates have stabilized. And as you know, Patrick, though, things can turn on a dime. If I was Nostradamus, I'd give you great predictions, but I feel that generally it seems to be coming together. People talked a little more about DRAM and maybe memory inventory side to stabilize a bit. When I look internally of the order rates, they appear to be pretty healthy at this point. Hope that answered the question.

Patrick Ho -- Stifel Nicolaus -- Analyst

No, that was helpful. Thank you, Jerry. Maybe as my follow-up question. John, when you describe the advanced markets and some of the opportunities and some of the design wins that you've got during the quarter, particularly in China, I think you mentioned glass cutting, scribing, markets like that, can you detail maybe some of the other applications that are driving another projected year of growth in your advanced markets business?

John T.C. Lee -- President and Chief Operating Officer

Sure, Patrick. So a lot of the solar market applications are what was referred to in the prepared remarks and so that's the scribing, et cetera. But if you look at ESI, that brings in whole another level of different kinds of laser applications such as the flexible PCB, which is certainly different than solar. And that's also strong in China as well as other Asian countries.

Patrick Ho -- Stifel Nicolaus -- Analyst

Great. And final question for me, for Seth. In terms of the gross margin outlook, ESI historically has had a volatile gross margin profile, driven primarily by product mix. How much of that is an influence, I guess, in the June quarter? How do you look at that variable as we go into the second half of 2019?

Seth H. Bagshaw -- Senior Vice President, Chief Financial Officer and Treasurer

Yeah, Patrick, so in Q2 again, the $485 million midpoint of guidance, it kind of assume that the stand-alone MKS business is pretty consistent on the revenue side, and so you get to ESI as kind of the difference in that $5 million I think for the quarter, give or take a little bit. And at those volumes, the gross margin is in the mid $40 million range. So even at a relatively modest flex spending environment in the mix we are seeing it right now, it is a pretty strong operating model. And then going forward what's interesting is, ESI on a stand-alone basis and MKS on a consolidated basis, the variable gross margin is still in that 50% range and variable operating margin at a 40% to 45% range. So what's interesting is, ESI with the robust model kind of is right in line with the MKS long-term operating model in terms of the profitability based on flow through additional revenue. So that's kind of how we are looking at the model going forward. You are right, mix is going to have an impact, obviously, but based on our projections in the second quarter, that's what we are seeing for gross margin, again a pretty healthy level. So we're pretty happy about that quite honestly.

Patrick Ho -- Stifel Nicolaus -- Analyst

Great, thank you very much.

Seth H. Bagshaw -- Senior Vice President, Chief Financial Officer and Treasurer

Okay, thank you, Patrick.

Gerald G. Colella -- Chief Executive Officer

Patrick, thank you.

Operator

Thank you. And our next question comes from the line of Sidney Ho with Deutsche Bank. Your line is now open.

Sidney Ho -- Deutsche Bank -- Analyst

Thanks for taking my question. I think you guys just talked about the ESI as the difference and -- for the Q1 guidance that the MKS itself is kind of consistent. Can you talk about the splits between the semi side and the advanced market side outside of ESI? What's baked into your guidance?

John T.C. Lee -- President and Chief Operating Officer

Yeah. This is John. So I would say that for semi, it's consistent. The MKS business, if that's what your question is. For the advanced markets, it's a little lumpy but it's been steady. So a lot of it is driven by lasers in the Surround the Workpiece portfolio. So we're pretty happy with the growth rates there. In our advanced markets, we still have publicly said and we're still very confident in growing at twice the rate of those advanced market growth rates. So that's what we're continuing to see.

Sidney Ho -- Deutsche Bank -- Analyst

Okay, that's fair. That's kind of my next question is, I think, Q1, if you look at it on an organic basis, I think the advanced market may be a little lighter than you guys have expected. Just wondering what is driving them? Is there some lumpiness and are you still expecting the 8% to 10% growth you're looking for this year?

Gerald G. Colella -- Chief Executive Officer

Yeah. No, Sidney, that advanced market business has always been a lumpy business. Some is project-based and that's been the calling card for MKS for ever, frankly. So like I said, I saw the order rates in -- coming in last quarter were strong for the advanced market. So you have to look at over the long run, over a year's time rather than quarter-to-quarter, because it can move up and down a little bit. And then we're back in the days when solar was hot and LED was hot and you get huge orders and that would be for a contract and then they back-off a bit, then you get six months later another huge order. So this is kind of the way that that business moves around. We expect that to remain relatively strong and consistent.

Sidney Ho -- Deutsche Bank -- Analyst

Okay. Maybe my last question is on the ESI. Clearly things are a little tough there in the first half of the year. How should we think about the growth projection over the next few quarters, especially related to PCB business, which I believe is dominated by one customer? And also just to finish up other parts, you previously talked about that you expect the deal to be accretive during your first 12 months post closing. Are you expecting that to happen given where revenue was at calendar Q1 and what kind of quarterly revenue do you expect ESI to be accretive to EPS and what margins level would you expect that to have?

Seth H. Bagshaw -- Senior Vice President, Chief Financial Officer and Treasurer

Yeah, so this is Seth. I'll take the accretive question first. So in the Q2 guidance, it actually is accretive now it's at that $55 million revenue give or take plus or minus 10%. At midpoint operating profit on a non-GAAP basis is kind of high single-digits and that will be accretive for the quarter. So again, in Q2, we only have about $1 million of cost synergies in those numbers and get more opportunity going forward as well. So we're pretty (inaudible) which is great.

Gerald G. Colella -- Chief Executive Officer

Yeah. And then, Sidney, for your other question about how to look at business, certainly flex PCB is where we wanted to secure our number one market position and now with the release of the CapStone tool, which is what I referred to in the prepared remarks and those are the ones that have been released and are already getting few orders. So we're really happy about and confident that we will maintain our number one position in flexible PCB via drilling. And then as we've talked about, we're getting ready to start delivering the geo tool which I, in my prepared remarks, have said about the magazines best product 2018 award. And so as those beta sites go out in the Q2, Q3 timeframe, that's kind of the next real market segment probably which we don't participate today and we hope to participate just as we do expect PCB going forward. So that's what you should look for going forward.

John T.C. Lee -- President and Chief Operating Officer

Yeah. I mean, we're really excited about the HDI opportunity. When we looked at the company, we looked at what they were doing in that business in the past. Virtually, there was no business there at all. We looked at the prospect of market share they (inaudible) it appears to be reasonable to us and now we are looking at the solution that they provided and seeing the fact that they have been awarded an award for that design gives us great confidence that that pickup up in their business in the future on HDI is on top of already this share they have in flex PCB along with just the organic growth of the market. So we think that's going to be very positive for the company over the next several years for sure, taking to the 5G.

Sidney Ho -- Deutsche Bank -- Analyst

Great. Thank you very much.

Gerald G. Colella -- Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Krish Sankar with Cowen & Company. Your line is now open.

Krish Sankar -- Cowen & Company -- Analyst

Yeah. Hi, thanks for taking my question. I have a few of them. Jerry or John, just trying to figure out on the core for the legacy MKSI business, is it fair to assume that semiconductor revenues are down Q-over-Q in June versus March?

John T.C. Lee -- President and Chief Operating Officer

Yeah. Krish, so, I think June versus March is flat. March was slightly down, maybe about 5% from a pretty high Q4 where we saw some pull-ins into Q4. So that's why we think it's -- let me characterize it as stable to flat.

Krish Sankar -- Cowen & Company -- Analyst

Got it. That's really helpful, John. And then, how do you see your customers' inventory, like where do you think they are in that inventory stabilization or rationalizing the inventory process today on the semiconductor side?

Gerald G. Colella -- Chief Executive Officer

Yeah, I think, it's a mixed bag, Krish. Unfortunately, I wish people weren't as irrational about what they thought this would be and they bought a little more than they needed to, but it does appear as though it weaned off a good segment of that inventory. And I think we're in a pretty deep place now compared to last six to seven months that we saw. So I think that's why we said the business is flattish at this point. I said I thought that the order rates have stabilized. There's been -- I didn't see another degradation in the orders, which is good, which would mean to me that the inventory has stabilized, because the order rate really is a reflection of a position they have in the inventory. And when I look at that, it appears as though we were in pretty good stead at this point and my team needs to tell me that they have pretty much consumed a large part of it. There will be parts of it where there is little more eat up and then most part appears to be pretty consistent and stable right now, Krish.

Krish Sankar -- Cowen & Company -- Analyst

Got it. I mean, just to follow up on that point, does that mean, in theory, if your customers, your semicap customers on inflection in their business upward, your shipment should follow in tandem without any kind of a quarter or two lag? Is it fair to assume?

Gerald G. Colella -- Chief Executive Officer

There is no question. So as an example, one of the things I mentioned was in my remarks, we are actually putting capacity in, we have one business unit, I am putting in $15 million worth of capital in anticipation of the next so that they can pickup, but our lead times are very, very short. Krish, we run a lot of JV programs with our customers. So we would see an immediate pickup. It's not a quarter lag. You'd probably see us -- our revenue pickup before you would see the OEM's revenue pickup, we are that fast.

Krish Sankar -- Cowen & Company -- Analyst

Got it. Thanks, Jerry. Very helpful. Then a follow-up question on ESI. My understanding was that on the flexible PCB side, ESI had almost 75% market share versus maybe under 5% or low single digits on the HDI PCB. A, is it correct and, B, if so, is there any kind of like I guess cross-selling opportunities between flexible and HDI or are they all completely different customer base?

John T.C. Lee -- President and Chief Operating Officer

Krish, this is John. Yes. So those numbers are right, but I would say the HDI number was even lower for the older tools. So we are starting at a low base. There are many of our customers, that PCB customers who do both, flex and HDI. Some who only do flex and some who only do HDI. So there are cross-selling opportunities because you are already in the factory with flex. And then of course, you know the relationship and you can leverage that.

Gerald G. Colella -- Chief Executive Officer

But there are other opportunities within semi discussions that we could have I think with end users about some potential for ESI longer term and we're already in those conversations. The minute we bought ESI, there were end users talking to us about, OK, we need to have roadmap meetings now. Then you come over and we've already have those. Very similar to what happened with Newport. Very similar.

Krish Sankar -- Cowen & Company -- Analyst

Got it. Thanks, Jerry. Thanks, John.

Gerald G. Colella -- Chief Executive Officer

Thanks, Krish.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Tom Diffely with D.A. Davidson. Your line is now open.

Thomas Diffely -- D.A. Davidson -- Analyst

Yeah, good morning. First question on ESI. The roughly $35 million for the quarter, which is with two of the three months, is that reflective of the business trends there? Was this somehow skewed because Chinese New Year was essentially when you assumed control?

Seth H. Bagshaw -- Senior Vice President, Chief Financial Officer and Treasurer

Yeah, John, Seth here. $35 million has got a couple of things. One, you're right, it's a partial quarter, so obviously only two months. And then they also had some purchase accounting revenue adjustments, which bring that revenue down. So I would say this, if ESI was a stand-alone company, the revenue would be more like the high $40 million range, trending up obviously as Q2 at the whole company. That's kind of a better metric.

Thomas Diffely -- D.A. Davidson -- Analyst

Okay, good. And then, Seth, you talked about creating a new category Equipment and Solutions, what else is in there besides ESI going forward?

Seth H. Bagshaw -- Senior Vice President, Chief Financial Officer and Treasurer

It's just ESI, it will just be that division at this point.

John T.C. Lee -- President and Chief Operating Officer

Yeah. We're going to have three divisions going forward. Vacuum and Analysis was with the stand-alone MKS business, Light and Motion that was Newport and Equipment and Solutions with ESI, Tom.

Thomas Diffely -- D.A. Davidson -- Analyst

Okay, great. And then, Gerry, obviously, we've been around ESI a peer for a long time and they've got a very deep bench of just core technology. How long do you think it will be before you can utilize some of that technology in your other products?

Gerald G. Colella -- Chief Executive Officer

Well, I mean, we've already had a lot of collaboration between Newport and ESI over the last year or two and actually had displaced an incumbent on the latest flex tool that we released. We came in with better technology more capable and we have a technology conference we're holding next few weeks. There will be a lot of opportunity for people from all the divisions to talk about a collaboration. We also have the office of the CTO. So we're already engaged in that already. My expectation is, we'll see how that comes out. You see those design cycles for a year or two, although in some cases, you can probably already displace a competitor because you don't have to copy exactly in the other advanced markets like you do in semi. So the opportunity to take more share or utilize our technology within our own system is a little easier in the advanced markets than it is on the semi side. John, if you want to add anything.

John T.C. Lee -- President and Chief Operating Officer

Yeah, Tom, I would add that, we had many, many tool roadmap meetings between the Light and Motion group and the ESI Group. And I think the capability on both sides was a little surprising to each side with some of the modeling capability and assistance capability of ESI was unknown to the Light and Motion side, some of the laser capability and motion capability was unappreciated or under-appreciated by the ESI folks. So there's been a lot of really good ideas and going forward, they just held a joint TRM together in Asia at the request of that customer as Jerry had mentioned. So when you can come to a customer and show the whole portfolio of Newport and the whole portfolio of ESI, no one else can do that. And so that was really greater bang for our customer as well.

Gerald G. Colella -- Chief Executive Officer

And, Tom, I know this is going to sound like self promotion, obviously I'm the CEO, I should. But I've sat in on these monthly business reviews for last number of decades and I am incredibly impressed the amount of technical horsepower this Company now has. It is absolutely incredible. What was more incredible to me is see people from multiple divisions that all understand each other's technology and the fact that they talked about how they can be engaged in developing more capable technology and integrated systems and helping to try and solve their -- the solutions to their problems. I was just blown away (inaudible) in how much technical firepower this Company now has. And I'm just glad that John is a PhD from MIT because he can help me understand what I don't understand. So that's really incredibly impressive.

Thomas Diffely -- D.A. Davidson -- Analyst

Yeah. Okay, great. Seth, one more question on the guidance. The EPS range is little wider than it has been recently. Is that strictly because of the volatility of the ESI business or is there something else behind that?

Gerald G. Colella -- Chief Executive Officer

No, we didn't, Tom. As we -- we have our own range as -- or MKS. And then we talked to the ESI team and said, if you are stand-alone what would you range your revenue, and it was like probably $5 million on both sides at the midpoint and we just added their range to our range, it was simple math like that. That was how we got it.

Thomas Diffely -- D.A. Davidson -- Analyst

Okay. And then finally, John, when you -- you talked about the 5G roll out as being a big driver and I assume that you're more leveraged to the handset part versus the base station. And it seems like the handset is more of a 2020, 2021 episode. So just kind of -- if you could just kind of go through what you think the opportunity is on a near-term basis versus what it could be in a couple of years that would be great.

Gerald G. Colella -- Chief Executive Officer

Yeah, sure, Tom. So on the near term basis, base stations, that's driving a lot of the chip, new chip technology. So that's where it would effect our core MKS business. And then going forward, though, the handsets that's where new materials are being adopted for enabling those handsets and that's when you start seeing the capabilities of ESI starting to help that kind of a market. So near term is more the V&A side and then longer term is more the E&S side.

Thomas Diffely -- D.A. Davidson -- Analyst

Okay. But is it fair to say that the longer term that the handset roll out is going to be a much bigger opportunity for you?

Gerald G. Colella -- Chief Executive Officer

Yes, because that has both the V&A side as well as the flexible PCB side.

Thomas Diffely -- D.A. Davidson -- Analyst

Okay. Thanks for your time.

Gerald G. Colella -- Chief Executive Officer

Thanks, Tom.

John T.C. Lee -- President and Chief Operating Officer

Thanks, Tom.

Operator

Thank you. And that does conclude today's question-and-answer session. I would now like to turn the call back to Jerry Colella, Chief Executive Officer for any further remarks.

Gerald G. Colella -- Chief Executive Officer

We are pleased with our results for the first quarter of 2019. We expect that our exposure to diverse end markets, our global leadership position in the semiconductor market and our focus on financial and operational excellence will continue to drive sustainable and profitable growth. I am more confident than ever that the strategy we've put in place have positioned us for long term outperformance within the markets that we serve.

Thanks for joining us on the call today and if you are interested in MKS, we look forward to updating you on our progress when we report our second quarter 2019 financial results. Thank you.

Operator

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

Duration: 40 minutes

Call participants:

Seth H. Bagshaw -- Senior Vice President, Chief Financial Officer and Treasurer

Gerald G. Colella -- Chief Executive Officer

John T.C. Lee -- President and Chief Operating Officer

Patrick Ho -- Stifel Nicolaus -- Analyst

Sidney Ho -- Deutsche Bank -- Analyst

Krish Sankar -- Cowen & Company -- Analyst

Thomas Diffely -- D.A. Davidson -- Analyst

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