MKSI - Earnings call transcript Q1 2018

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Operator

Good day, ladies and gentlemen, and welcome to MKS Instruments' First Quarter 2018 Earnings and 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 be provided at that time. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to MKS' Chief Financial Officer, Seth Bagshaw. Sir?

Seth Bagshaw

and everyone. service joined Seth Colella, for this Executive results and morning, Officer Chief our the joining Good Chief for we Officer I'm our released call. and morning President; market our you. earnings I Thank Yesterday Bagshaw, am Financial Chief Operating conference Thank Officer. Lee, historical after you closed, John by financial Jerry revenue revenue our we'll April of conform XXXX as operating which data been as XXXX, for spare reclassified We now aftermarket has quarter industry our first typical recorded revenue of our product certain to XXXX, to and practices. from as model. in service revenue. parts previously sale well Beginning the include

service to our www.mksinst.com. schedules, revenue April of and the in financial by website posted operating market schedules model been XXXX reclassified revenue had end Our

Actual date earnings measures. and and update obligation Company's non-GAAP includes Reconciliations to as These for which as As file expectations, any MKS ended including not annual contained any Today's be views today, comprise with financial a year of that important release representing or disclaims expectations relied and various in statements. about measures Company to the make represent those SEC. subsequent in to statements. statements Form on report are today, call XXXX, the of reminder, yesterday's adjusted as upon our as the may the December various only and should these release. factors, company's the discussed is GAAP also estimates plans yesterday's for prospects result XX, we of results press differ in on future remarks forward-looking XX-K a materially

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

Jerry Colella

highlights, our markets. with Good end morning, business open further the results who call in financial before followed our second for on John call our additional our quarter start us our share you Seth operating Seth. customer's results, I'll by for of joining I'll several information over and everyone, provide we to then will turn Lee will XXXX, details first updated guidance Thanks, model today. then questions. XXXX your the the for thank quarter and

$XXX revenue and of of ago. million, This end our from was the quarterly revenue. the guidance the quarter XX% an record above high marks increase seventh consecutive First for year

XX% in our even quarterly billion now We record last business. earnings and more for balanced semiconductor XX% both net share. $XXX markets also is quarter is our rate. model for semiconductor the and we five segments. per totaling now advanced million was revenue for approaching advanced $X.XX expansion revenue new semiconductor and revenue our $XXX with a the $XXX markets a have Furthermore, for which million; million Revenue years, the evolved non-GAAP set significant the We market achieved achieving business sales or run between first $X record market a annualized split respectively, of over and semiconductor was

base. exciting as a customer as advanced opportunity unique these presents to for exposure diversifying MKS growing Our well and our markets

broad will these imagined trends, laser in and new clear photonics lead it that market processing be today. opportunities study we and is As only can markets that to innovation

to drive combined the across that we is Newport in each last market legacy years, at over create did in a accelerate Motion our and XX semiconductor This of Light did for tremendous division. value businesses. we As terms substantial company. innovation the independently will with & unit same investments [ph] business opportunity with the integrating not the improvements made and We've growth. leverage Historically, operated strategic

team. our categories. units together advantages capabilities keen portfolio. customer served could entire unified utilize by of the We've the have opportunities business approach this of better addressed multiple helping focus customer them on sales the issue and bringing product across to that breadth we integrated Over the to then past two a We be also identifying with integrated years, fundamental

segment, As benefited business drive OEM owning we'll influence a to for as years, we our channel It processes, move of into clear asset XXXX, from and growth. growth extremely division perform our great Motion industrial more explore two after Newport has that very building the well, semiconductor Light less the is customers. than our operate with businesses MKS additional this & strategies continues in by driven sales well to is market that as efficiently

we earnings outlook to digit positive which see double XXXX, semiconductor are our in for now Turning the outlook, to last call. market from business more expect growth WFE, the

Given today, in demand strength outpace the data driven for data sustained with applications. and growth WFE market storage robust will opposition we processing we anticipate by

beyond. also strategic markets, am in manufacturing. pleased performance for XXXX market those applications advanced driven by laser significant and outperformance growth have us confident our strategies We and extremely especially segments first increasing our of anticipate and with positioned I quarter

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

John Lee

Jerry. Thanks,

for power past, deposition have our and a DRAM in and [ph]. logic driven highlights, technical vertical to advanced deliver requirements us are The the for customers. As complex for the we business V-NAND in processes increasingly solutions discussed challenges etching to enabling continues the unparalleled to be structures challenging capabilities by

strategic gain. first the in large which both will continued orders. design etch lead technologies platforms American Our and North wins early revenue. to etch in to wins paying investments for with generate etch deposition and strategy design will design longer that wins had In significant in growth to deposition in for we is are V-NAND have led beginning fuel bioelectric we The now we to OEM. conductor wins, transformative, recently, conductor term are starting knowing years design key off applications which that believe invest made More quarter, be and to expect the product key three revenue in investments we share future ago

our revenue power highest already the quarter. of quarter business from was an First for solutions ever, fourth strong XX%

our XXXX. solution's analysts, to that are market industry share basis in XXX according increased power We pleased has report points to

advanced our markets. Turning now to

beam past, and not beam also enabled techniques profiling for precise Demanding manufacturing solutions precise and only controllers the need as the a As surround by MKS' piece. capabilities. and is by profiling, capabilities more motion power ultra-fast the process measurement. how This uniquely faster, the ultra-fast the to unprecedented are we've management, through the that comprehensive vacuum in in to power lasers, chamber. delivery ability in marketing lasers, our us but control pulse laser provide innovations requires beam laser optics beam cutting, surround and control laser laser-processing instruments applications positions such to work analogous discussed scribing

quarter We received orders and XX% beam laser sequentially. in We Germany. revenue grew leaders beam are power industry the first laser measurement systems from in profiling profiling and our

The transmission first laser welding order was application. for an automotive

chose the was The industry's changes in size, in of time. location our complex beam for distribution which manufacturing is components. the real The new metal of second non-content energy order customer watch shows first and [ph] monitoring laser system the system the additive that beam

Finally, business an had In laser. wafer won order new our our application core laser our another using picosecond Japan, for strong dicing quarter. we

profile. where this in large laser orders than also laser opportunities to In turn I the offering film [ph] diversifies processing We XXXX, first of project glass and our We MKS' will market XXXX has film accelerated nanosecond higher revenue XX% this for grew call using billion won scribing, our to that revenue would cutting the and growth ultraviolet drilling business dye-attached applications quarter At that year $X.X lasers. approach materials XX% Seth. is growing for like for the the ago. point, year another a XXXX, over and

Seth Bagshaw

$XXX operating strong and first achieved in the record achieved advanced markets of record quarter million XXXX which our increase Light respectively. part the I broad-base $XX operating also quarter a and will revenue cover record strong a XX% semiconductor of division QX $XXX a results, of we was XX% X% increase of market our of Thanks, first income increased $XXX the The revenue guidance for quarterly an increase to financial $XXX the latter our very to updated the were the of X% of XXXX sequentially Motion April new first new new The both and million. and Revenue million, John. which then our quarter. Sales and Sales total for comprised XXXX. revenue compared remained & into and non-GAAP achieved in sequentially with particularly quarter. million quarter million to model.

operating During which XXX%. quarter the were $XXX In revenue the in has and and pro income acquired by million the $XX almost we million respectively. revenue increased XX% forma has non-GAAP Newport quarters, increased in XXXX, quarterly operating income over seven past

quarter the a second the in of Motion the result, double the XXXX XX.X% in division from we of & to Light more XXXX. operating margin than As XX.X% quarter first of

compensation. of growth additional $X XX%, were in incentive $XXX.X of rate $X.X $X.X the million non-GAAP markets to rate frame, has The a million our largely opportunities. operating tax expense to than GAAP Jerry also gross had Non-GAAP higher As range margin compensation the the performance were strong non-GAAP compensation increase in be GAAP point was higher million Due was quarter, margin and advanced was tax XX.X% compensation respectively and interest quarter. variable financial basis that impact the and expense. and expenses and million higher mentioned, a with million expense and incentive $X.X revenue then non-GAAP on incentive expected. related from XX.X% model to substantially the operating percentage approximately time expenses. was first providing for has to expected XX.X% operating was reductions quarter. XX non-GAAP acquisition our GAAP and interest was operating benefit gross stock income In we levels, expect for this tax margin increased due which

primarily At or During earnings $XXX XX% streamlining which non-GAAP structuring certain per share term we net in or short $XXX charges further was administrative and was were the per million of the and investments quarter, the income U.S. share. $X.X $XXX our GAAP functions. of international of net XX% had operations. first million, approximately the incurred in end $X.XX and million cash quarter, to of consolidation we $X.XX related million,

in pre-payment that last we since loan $XXX XX the our on origination. another now months made in term loan the During have over completed quarter, voluntary million payments

basis non-GAAP XXX XX, cash term interest an April The Free million. flow these interest March points XX $XXX a non-GAAP XX, $XX of effect fourth last Furthermore to our months. completed balance of of spread of debt which cash year. voluntary impact points, more net for was actions cash over rates a to the X.XX%. our LIBOR As on our reduce pre-payments XX% ended of by additional equates increased a rate position basis than which reduced the XX loan we quarter rate have plus million; the $XX reduced our cost net interest we term quarter repricing loan by the annualized the $XXX with four million. repricings interest our in by was in per almost will of cumulative non-GAAP cost The million $X recent the all interest million,

were working in increased of of revenue the the the capital, of and and XX the quarter quarter fourth quarter. share. end balance outstanding to primarily days In to the during days and Inventory continue $X.XX XX X.X, cash the of debt the terms timing to with slightly or the at deployment we compared sales of at provide turned fourth due at consistent the $X.X quarter with million capital per quarter to approach a day paid first end

margin to $XXX Turning could $XX to in the expenses to non-GAAP Non-GAAP Non-GAAP million, SG&A range interest $X reflecting continue markets. range could that million. and R&D expenses be expense $XX $XX estimated million $XXX second from product could range expenses strong quarter to million and could operating range We with we range end and be to XX.X%. mix. to estimate to a $XXX in our million growth $XXX million from million sales from expected gross see from to million XX% XX% approximately QX XXXX tax million approximately could guidance; rate $XX is our could

million estimated to million million expense from $XX the earnings income $X.XX per tangible these and range quarter on approximately to amortization interest assumptions, to second XX.X $XXX million expect GAAP second million to $XXX to expected and share. per net approximately share Given $X.XX be $X.XX In be arrange to from to million; GAAP could outstanding. assets $X.X quarter, net share $X.XX or non-GAAP or approximately $XXX $XXX million

term [indiscernible] XX% published from margin XXXX reflecting improvement which a operating of annualized could XX% January of an tax loan model we published the operating is fourth shows of model $X.XX. additional non-GAAP non-GAAP update the billion, an model In model of X% Projected debt April to from gross over in represents margin revenue January be an and model accretion XXXX and in last year voluntary quarter. quarter Finally, higher pre-payment illustrative impact could XX%. our levels This we potential our an be of level the estimate illustrated non-GAAP published repricing that our $X.X and EPS ago. non-GAAP an yesterday XX%

Lastly higher than first compensation. operating the expense model of call April The and anticipated variable remarks compensation. concludes due normalized year we'll half prepared our to incentive as in questions. our a for reminder, the are more this now reflects operating open This

Operator

you. Thank first from comes Our [Operator Sidney Bank. Deutsche with question Instructions] Ho

Your line is now open.

Sidney Ho

congratulations a on and guide. Thanks quarter great and

guidance, the start what you growth semis between Can that. maybe is markets? revenue the with quarter between second -- talk off the expectations about advanced and For your

Seth Bagshaw

markets. of slight in see to I consistent think we those improvement both solid Pretty both. a and for revenue expect

see so than we consistent both with just we markets. I is or so somewhere what think the achieved high X% this around mid-point

Sidney Ho

one that's and curious half year year time, lot in specifically fears obviously do business about half even of a of this how you has I'm the the more first that at peaked but this Okay, the the first you great. your understand been of the a guide year. half. market think quarter There have semiconductor versus I maybe second

that. to view want Just on hear your

Seth Bagshaw

know strong the X% and enough tell I'll question case. and it in Well, DRAM. that's go the supposed got same and was of that the in being to our are asked out the what fundamentals somewhere XX% second long see strong run was intact that far I've to team. and operations industry we year above back turn storage, as But be we the fast, networking, didn't of as over, up, D-NAND WFE And 'XX thing same as been to the has to half and the terms that [ph] forecast computing last

demand multiple can OEMs, changes, quarter-to-quarter. mix vary the We have of this

like to [ph] at at Micron commentary spending about Korean the be DRAM Fab investing Our customers business of and very Samsung. the XD, strong. [ph] We and end Singapore, still appears read all Hynix SK CMC within

we But it be it foot the with So the be company I sure a appears consistent on appears on the but business, brake Like to gas. certainly from from foot we'll positive, to make pretty a we see what we comfortable and comfortable pretty what see, Missouri. still operate but over see. I'm but I the we and it said, equipment. the about and demand, last are we're to projected so which and didn't very also the external year far turn was happens, still we'll drive feel to for where chips the demand

Sidney Ho

question Got you. Maybe me. last for

area QX. accelerating obviously the For than at you you growth to do in done do have How be better that with business that see nearly in that going you think rate sales XX% that least seasonality in -- a grow you market growth. the of forward? lumpy can tend year-over-year more of that and to well advanced GDP the business past Clearly you the said as really group, has done twice

Seth Bagshaw

it, has that it you Well, that with pilot typically market be intensity We a of business. see the in same of business, really at segment seasonality in non-semi don't look if research you if the lot seasonal.

any I their seasonality really have other difficult think well. they if but used to don't be business. used comments don't Newport John, quarter for know know them first any you we did one to the a over, very say said I although of

John Lee

growth. areas we're of Yes. resourced focused And of That part is I are of the industrial a where large the Sidney, on and driving what some is the think, advanced applications. the market

Sidney Ho

Okay, thank very you much.

Operator

Thank you.

comes from Ho Patrick with question next Our Stifel.

open. Your now line is

Patrick Ho

what your first a the core outlook. overall there business outperform color very the maybe the semiconductor to Jerry, the end. and or you vacuum catalyst segment? give rates. continues on much business you analysis congrats in and changes growth maybe in the industry semi for and one Can on quarter Thank growth Obviously also on little that profile the at

Jerry Colella

got because what half question saying. you Patrick, muted kind of it repeat the the second towards you're could of

Patrick Ho

Is I this better? apologize.

Jerry Colella

quite like was period second you It where couple Yes. It was hear I fine. said. a what couldn't

Patrick Ho

what your Newport since you acquired been drive growth you. that Basically the business? helped I you above acquired, you've for business semiconductor that catalyst average has wondering just was Got has that

Jerry Colella

John. that to turn I'll one Sure. over

John Lee

Newport Newport the design Patrick, what's similarly the are wins larger OEMs driving the semi and inspection, target as your just awarded they've years Yes. design would if The side growth, and vacuum's brought for wins of type will the business question. grown were a continue the ago as they expect in or ago semi, you that's OEMs. on years couple that

Patrick Ho

Great.

little -- the over of of I in of market prepared guess, additional question, follow of the bit some applications lot welding a or cutting, gave hard-giving the the these industrial marketplaces laser a growth next there, there described industrial with As laser heavy applications on with your business color that any is do your that the a years you are see you of type couple you in the remarks?

Jerry Colella

laser I I'd the that that's of in but color is to we add cutting also precision not a and that in industry finer of manufacturing welding strength the manufacturing laser are heavy where lasers. other like terms applications Patrick, types of the metal, of just of some pulse type processes and have only the think

even exciting those metal fine applications. and drilling, PCB in to applications. more A those cutting us So kinds that's of

Seth Bagshaw

actually more of and markets manufacturing we heavy types think displays. other it's just applications our we But our or June, going those in microelectronics put laser not certainly device highlight John, with going category the We've markets. those our in agree in highlight Yes. we're industrial mobile it's of our explanation win power deeper at to going Analyst where a we're are We're and of I and business going. also and to give amplify Day position in to business the side, why

Patrick Ho

in margin question Seth a maybe And for of the final terms line. Great. gross

You've to for on been kind market higher biggest levels the of product mixes at impact the quarter-to-quarter now? right are Or these your past. gross Is a relative there variable also line margin could mix that basis?

Seth Bagshaw

Yes.

driver Pat, think, volume. actually the I bigger is

in good -- a the close What at quarter-over-quarter. portfolio, as you & think, what a the That's as the and on is our variable I the see one. again pretty long well. pretty Motion get as say margin going Light we'll think other we margin number [ph] that little to better time. find, range Volume is well. well. get bit is markets, If a volume the gross forward driver average, Mix, a quite product look I do then side V&A a model would bigger you're I we'll little above I for corporate period applicable That's the XX% grow, over as in time there you'll margin advanced

Patrick Ho

you. Thank Great.

Seth Bagshaw

Okay. Thank you, Patrick.

Jerry Colella

Yes. Thanks, Patrick.

Operator

Thank you.

question comes Scarnati with Citi. from next Amanda Our

is open. line Your now

Amanda Scarnati

morning. Hi, good

that Just seasonality on a standalone because it of attacking business the touched how Are upon environment market on macro business? seeing in with business. seasonality you approach sales? think was was going with quick you then you're that different years today Newport up that fundamentally follow something semi do there's Or differently in than that two not and you

John Lee

laser like Hey, research Amanda. for really environment. demand in a really It's micro are growth larger by rate and John. processing. than are in I'll a the much And what those attacking iPhone. be higher seasonal -- seeing manufacturing because markets might That's in things advanced these take applications we are driven that capacity high-growth one. We're markets the seasonality not markets there

Amanda Scarnati

you're front-run Not in but side. you to Okay. on significant two Analyst saw going the to at And your then say what growth. power months, Day

Can you really to do on that the conductor XXX it bips the grow that you in share dialog think or of XXXX. that in the growth addition to said side? need X market order business power wins was you that just business I with continue in about have

Seth Bagshaw

Yes.

lot have go they don't etch still could by and dielectric dielectric. it sure the have market winning all We more V-NAND of a past. might use we think than for more things share in lot like I just a more DRAM certainly and

our just that. think it at and of also I winning position continued So there should and ones our dielectric in design itself grow

Amanda Scarnati

etch you have all right question, And confirming. just in now is at last in any then all just or Do revenue the just it conductor dielectric?

Seth Bagshaw

talked the we've of design conductor is Most etch ones. about

Amanda Scarnati

Okay, thank you.

Seth Bagshaw

Thanks, Amanda.

Operator

[Operator Our with D.A. Instructions] Davidson. comes you. Thank Tom next Diffely question from

open. now Your line is

Tom Diffely

hoping little particularly levels Yes. in the a Good seen bit get you've I was in terms OEM what morning. inventory in in the to of customers? channel, more

Seth Bagshaw

insight worry We can't our just for either the part. inventory But shrunk. the or been into consistent. what really own don't it's particular have the OEM, levels. commentary I We consistent their a has lot about from most has see. It we that grown been of see

Tom Diffely

their fewer, that have base? gains customers you're on further Some of getting you more they start the OEM fact Okay. to seen now players? supplier the based consolidate well-capitalized want share And the right

Seth Bagshaw

Yes.

to with always suppliers strategy think been that kind benefit deal that's confident years, larger, that. so more We technically more has few the the -- I the global, us. last from a of of customers

business. are we we support now world, things in not it's more because we As have far those for year.' support they provide the as might of because right, were But One of the know actively our XX about participating the your believe the seeing your and share can customers. their we of left, think that we gaining types that, guy them deep years. to I 'Look heard to be What's look strategy there type capability just the around commentary, have technology I've of next winning

Tom Diffely

seen there? Okay. And customers who what OEM are ranking China as the new as servicing of in far have terms fabs potential you new

Seth Bagshaw

John will tag-team I one. that on and

John Lee

Yes.

still China are in same OEMs the the think ones. I

we phase in are think pilot lines. think they putting and still know and I piloting, design tools who their they are don't I the into

lot a activity. in growth MOCVD of LED some but OEMs, hasn't more really seen types, semi, levels, for but type from we've it changed historic So certainly

Seth Bagshaw

Yes.

We good relationship. have a very

a strategy note you have we've like can had did Korea success the in we concentrated and there. We

[ph] we be lot on tools we it. how to that full and certainly share, small have sure picks again. a the in have contest or wanted our Korea how they from they that of we are to quarter we when approach great we want China may than will up, Another no for benefit customers greatly matter fudging this Same support make those

Tom Diffely

it In have China, representatives helps there? can it directly? is service market where Or or that you to Okay. local situation the local company

Seth Bagshaw

Well, all, in manufacture first China. of we

have Tian Shan [ph]. large a We operation in

years, thought where ground about for really XX there, or We was we the also China market well in the have SMAIC forming before probably been semiconductor only the really on had. ever more customer

So and we had for long we the Newport. on strong a when presence We a China in thought very that more time back photonics because in the that's China business. ground we put for laser acquired and of people was fertile ground optics,

are the ground have the by on we resource Chinese Shan. to a having support volume We presence and that in rating citizen large Tian

Tom Diffely

Okay, great.

Seth Bagshaw

well and everything else. sales As as service,

Tom Diffely

sheet, And Seth, of the balance next when of position, really are is a is get all good there a it that for pre-paying cash job building obviously done Yes, the the comfortable of goal level couple look nearly just debt you a certain net debt you've of that rid of okay. to you years? and at Or with? this

Seth Bagshaw

driving rate and keep We X.XX% A a while. is pretty to a and instrument. covenant flexible Tom. thing go of speak question, Good for really no can let cost the down. debt low There we this Yes. very debt is a

the we're kind more, the us right you the I quarter. here, -- but little now might from a see moving more, zip might X.XX% think in I for of last wouldn't capital do honestly. the right end bit. substantial you'll code We We and the for hang little very at now see EBITDA made of right structure quite ratios we modest. the ratios a leverage very, here a are and

Tom Diffely

morning. great. appreciate Okay, your this I time

Seth Bagshaw

Okay. Thanks, Tom.

John Lee

Thanks, Tom.

Operator

you. Thank

As for remarks. the Colella over back Mr. no I'm the I'd in turn to conference showing questions closing further to like queue,

Jerry Colella

stop Thank our we how of today the second on bounce about interest financial at results remain when very quarter the in NASDAQ Thank York strong well site both XX. call hope us in the and markets for advanced profitable we the to of We're with you look for are you you. you. and sustainable Day MKS our June growth. path joining many pleased in and to as on upcoming progress MKS. is for our in you and and of on your excited positioned Thank our see updating XXXX forward the year Analyst on report New market We at semiconductor

Operator

does and conclude conference. Thank your participation. that you. much Ladies gentlemen, for today's you Thank very

may Have all You day. disconnect. a wonderful

MKS Instruments (MKSI) 25 Apr 182018 Q1 Earnings call transcript