Earnings call transcript Q2 2023

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Operator

Good day and thank you for standing by. Welcome to the MKS Instruments' Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

to conference like speaker to now today. would hand over the your I President Investor Ryzhik, of David Vice Relations. ahead. go Please

David Ryzhik

Good morning, John everyone. Investor I Chief Seth am David Ryzhik, President Vice I'm Chief Officer and this Bagshaw and Executive Relations. Officer. Vice joined morning President by Lee, Financial Executive and And President of

which released our to investor at investor.mks.com. close, Yesterday results the posted after we market second are for financial our quarter of XXXX, website

Actual for various factors, reminder, expectations about may webcast a comprise as remarks statement. in including yesterday's important prospects a As press in plans result forward-looking Form on release the should XX represent as future Report only year XX-K results upon any company's And discussed various or materially differ and and of ended representing statements. Annual the for our statements These update company's disclaims company XXXX. today. as obligation subsequent December to be to date not these of estimates the any relied today the and views expectations as of those

During reflect XXXX. the references financial on which XX, various acquired company financial to of combined we noted, measures discussing Unless MKS otherwise measures. combined and Atotech all results August MKS Ltd, will the call, be

reconciliation revenue. measures and combined Also, company will our to for all our our regarding posted non-GAAP and website related of information presentation income GAAP measures. other to than results, unless results materials otherwise release statement Please the be noted, non-GAAP financial a and refer non-GAAP press financial our financial investor

reported our website. end and visit market detailed investor breakout by of division, For combined and revenues company a please

John. Now over I'll turn to call the

John Lee

quarter, by semiconductor results us everyone. for excellent in execution morning, margins. crude you expected our the cost market, than Good as and and joining David. our management, today. reflected better MKS Thanks, thank in delivered strong led in second And

expectations $X high of quarter despite $XXX second adjusted our of above end semiconductor Revenue delivered per the share from $X.XX. revenue publicized WFE decline diluted million market in net was of and EBITDA spending. earnings the of widely our billion, We

those delayed experienced first operations in Our executed the we well quarter. team to the due from backlog, ransomware including incident shipping products in

for Demand a for declined year trends, vacuum spending particularly etch our capital applications memory critical for considerably deposition with compared and ago, subsystems applications. equipment consistent to

lithography, solutions Photonics remain the inspection for demand some metrology resilient, and However, weakness. offsetting of

continued MKS demonstrating applications. these offers anticipate customers We strength Photonics and Design remains in areas. these unique the activity capabilities in robust, value that

grew fact, lithography, In revenue and ago. considerably to first inspection from same a the in XXXX half applications metrology the year period of compared

leadership across and product Our continue breadth our position applications spending over the our that most belief categories industry with we of serve, to diversity long-term. combined reinforces the can across WFE outperform WFE we

positioned deposition, critical well key inspection of and [indiscernible] and a points Aspect are as industry Ratio such capital equipment extreme in when High are spending recovers. enabler atomic advanced semiconductors, We inflection lithography layer Etch, for

to Looking sequentially. third market expect the our we decline to quarter, revenue semiconductor from

However, quarter as the ransomware to from with revenue quarter excluding revenue quarters, the levels. third consistent be third and expect incident we the second the second in of impact

the opportunity laser offset drilling for Packaging. very equipment continued including in amid Packaging demand in was a excited weakness, Despite spending, our and was such and by PCs weakness on remain the well-known softer for this softness about we Electronics improved but our solutions as for basis, expected to sequential Demand plating capital than our Electronics and electronics, cyclical and Revenue long-term we global equipment. chemistry Turning modestly market. in smartphones. the

and a One block critical high-performance packaged substrates, computing areas such key enabler which of are focus of applications particular is as building for the AI.

industry years, harder, seen over is of Just not in the past the that point, XX to getting like easier. package much we've on last manufacturing build the semiconductor what substrates

sizes our feature increase of Electronics laser drilling applications to density complexity and proprietary while interconnect and continue to equipment degree gives plating to in greater MKS solutions high require counts opportunity high-growth combination, our layer as with chemistry, Packaging or This unique segment computing market. shrink. the High-performance interconnect expand XX this of presence more our

reminder, reasons behind key opportunity investment this the will our MKS is which is focus advanced continue of be positioned Atotech one company. of for acquisition strongly a area to As an patching, the why of for is and

company Packaging represents packaging results, For of revenue. context, and full advanced based on Electronics under third combined XXXX just year

revenue smaller wafer our applications, advanced as meaningful by think bonding for more level long-term. substrate hybrid the Driven be to as portfolio our from we packaging, applications and a contributor foundational package packaging revenue other over well streams will solutions

electronics be improvement to expected production computing in package demand equipment high-performance a to AI. offset as substrate partially market third These in well due the anticipate improvement chemistry consumer an our expect from second as sales of with plating such cyclical consistent revenue seasonality downturn to applications to quarter, in quarter Looking sales. the improvements are to a due as slight Packaging we be We Electronics and levels. by

Turning in for incident. to our line to demand execution the market, the with our chemistry for expectations combined stable market. with and specialty was with automotive good delayed recovering ransomware industrial solutions due Revenue our revenue

third revenue to quarter the we second quarter, to expect be levels. Looking with consistent

third quarters, the of revenue quarter second be than expect from slightly levels. excluding after second the However, we ransomware impact higher the incident to and

some markets, expect our term, how are our muted pleased demand multiple secular in capitalize positioned reality quarter. on to continue foundational those half Despite the of very about to MKS' our first levels, just across Longer some trends. performance examples we the revenue the well. than second virtual XXXX, our drivers, we is executed possible and in improvements with of be business half AI, and we to electrification slightly of cloud, excited what electronics summary, are markets. end by modest we very by are to advanced three end of are all higher made the driven second of Thinking In second total we I'm across in about half

over And to now I'd the turn call like to Seth.

Seth Bagshaw

outlook guidance. results, and quarter. with quarter details the cover revenue second third Starting our John. of of above our for we billion you, Thank the $X midpoint quarter, the delivered I'll then provide second

from are Packaging by driven our market, better-than-expected soft revenue than offsetting results top-line Electronics more revenue. strong Our and to semiconductor

our the in-line impacted $XXX estimate from expectations. Revenue incident $XXX quarter. revenue recovered approximate ransomware by Industrial with million we of of million We in Specialty market was the the first

We expect to the of revenue remaining the in third recover substantially all quarter.

exceeding Turning quarter. million including from shipping ransomware semiconductor outlook growing $XXX the on those XX% to Revenue to backlog, that execution sequentially quarter delayed our was the products the market. our in strong first due first by in incident and

on we the sequential excluding first of incident the with revenue semiconductor and first of the ransomware the in quarter. for ransomware we million a incident by capital second In estimate the industry impact softer million of consistent quarter, revenue After equipment. semiconductor the recovered $XX second our approximately demand basis impacted from quarter, declined $XXX

sequentially with an Turning to of XX% $XXX combined year period. was X% XXXX, market. and Electronics prior declined Atotech year-over-year, million, increase company full and representing results including QX Packaging Revenue for the

second Excluding foreign revenue and basis. a platinum year-over-year on XX% pass-through, the of declined quarter impact exchange

and As a on incident impact reminder, market. Electronics the ransomware had Packaging minimal revenue a from

across first incident million of the in in sequentially, outlook market. to million, Moving demand our estimate revenue our $XX million to trends first submarkets. line the growing quarter. $XX the in quarter the $XXX recovered was due We we with approximately Industrial of ransomware XX% stable the impacted Revenue Specialty by

the and the quarters, flat excluding of a result, revenue Specialty was in our second impact sequentially. Industrial after ransomware first As relatively incident

consumables second impact service total the our company the end XX% revenue the In Excluding declined pass-through, year-over-year basis. foreign on comprised and of incident, and combined exchange quarter, approximately second of ransomware platinum our quarter X% X across three revenue. revenue a markets

margins. Turning our to

Second disciplined favorable high quarter the mix of cost basis management increased and was increase product gross contributed exceeding our points, to utilization, sequential end Higher performance. XX.X%, guidance. of factory volumes, margin strong a XXX the

our still Second sequential quarter low-end $XXX operating cost guidance, $X the but management. million, were million, reflecting of disciplined expenses below increase of a

quarter XX.X%. XX.X%, expectations EBITDA model. in Adjusted strong due both to Second margin leverage was exceeding the our margin operating operating was

to We quarter We is months Our million second $XX synergy exited progressing annualized our within well. target million. XX of close. cost remain post of Atotech achieving over synergies on XX the track achieve of cost to integration $XX

was and lower income Net interest our favorable rates to relative $XX to anticipated forecast. primarily quarter for interest due the expense lower interest second we slightly million, than

rate credits and tax was the XX.X%, to quarter mix due our timing second planning in the geographic tax expectations activities. of above changes tax for of Our income and

expect normalize We to in tax our rate the quarter. third

Net million earnings $XX or for second were $X.XX the share. quarter diluted per

and our cash balance to short-term investments the quarter We and first in $XXX million cash the with $XXX million of compared exited Turning quarter. second flow. sheet

the payments. of capital flow negative in was result the needs ransomware quarter a lingering of timing Free primarily of $XX tax million, income a incident on working effects and cash

undrawn We the with quarter third the more expect cash flow revolving our of improve return levels. million cash in quarter $XXX debt conversion an to billion. credit normalized exited and to to cycle $X.X facility of free We in gross maintain

net the quarter XX-month adjusted based ratio and EBITDA on Our a times, combined leverage trailing was exiting basis. on X.X company a second

of Existing or $X.XX made share. payment a with dividend $XX million we prior quarter, per

Materials quarter outlook, billion discuss which Atotech with to like and totaled the Equipment in Solutions touch I business, and the represents the goodwill business. noncash, $X.X I'd Electro-Scientific which our intangibles former former which business charges Before our third associated Industries our quarter, the upon division, represents Solutions impairment

higher is the demand softer rates interest of primary environment, analysis playing market role the smartphone The write-downs in current driver in and particularly Atotech both the well. with as market impairment PC markets significant the

remarks, about the Advanced Packaging. of As us his very we prepared John in in excited ahead indicated opportunity

Atotech our to is increasingly fact, computing how much it including In announced acquire critical since has over years we applications, intent two high-performance to just AI. Advanced recognized ago, Packaging

customers deep market challenges horizon. an position we capabilities see to the help and chemistry assembled we the broader the set of ahead allows inflection leading of we our equipment greatest as that as see attractive serve a points in solve us growth Our us. why across customer That's earlier on in relationships

now outlook. turn to third our quarter I'll

expect million, of Packaging Revenue in Electronics from this $XX of $XXX outlook of approximately plus We approximately essentially customer $XXX revenue the market, expect up million and or revenue deliveries we our of to million, we of minus By $XX the or our Revenue $XX caught to incident with first be from minus market of million, revenue plus includes follows: $XX quarter. the quarter, semiconductor ransomware This market million, by million. $XXX as third and end is the market $XXX expect plus approximately from recover $XX minus Industrial therefore, plus outlook of our quarter million. backlog end million. from Specialty minus approximately million, the or or

of John of Based markets. XX%, end plus levels, slightly on revenue in half margin the we mentioned, we revenue as third Moreover, percentage than product XXXX all X to anticipated second to higher and three point. minus across be quarter first the continue expect estimate half gross mix

expect second and expenses minus of plus $XXX operating consistent $X We million million, levels. with quarter

For EBITDA minus quarter, million, or million. we approximately adjusted estimate of the third $XXX plus $XX

million, net projected expected increases. quarter, be third reflecting to interest the For approximately expense interest $XX rate

Our share, $X.XX per assumptions, of third third $X.XX. tax rate XX% quarter. for be the to expected or quarter we And expect given earnings these net approximately diluted plus minus

In XXXX, This delivering solid incident backdrop soft the summary, Atotech business well to the market and resilient on despite first testament following MKS ransomware acquisition. in non-GAAP in model quarter profitability. a the of end the the is our recovered more diversified first half

strong portfolio solutions the our utilization and leading to factory cost and Our drive serve. ability essential management disciplined we foundational markets of to

cash QX, are the returned focused on further in generation delivered we and balance flow of high working sheet. our execution free maintaining forward, Moving to towards normalized level deleveraging we

it With Q&A. for that, back to the turn operator I'll

Operator

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

now Your open. line is

Unidentified Analyst

the is on is when guess, it last this Joe I additions, to return is customers on first additions? think services? Packaging. it come as first as follow-up. adding cycle, to memory a would And what guess, right Mark fair utilization your like [ph] the about where And This trying call a and capacity customers morning. And in capacity. step, Am have a is, then about I these see you guess thinking I way? question gauge then I and benefiting would start I would for is My back I'm capacity Sidney. right, first Good to upgrades, Electronics be would Guys, question

John Lee

John Lee. It's

semi question similar are capacity I the about additions. and dynamics up to Packaging then going your And rates I those Electronics think is very and think utilization market.

think I way to right is think So it. about that the

immediately that Utilization is something see we revenue. chemistry with

our QX certainly course, part Electronics the service, a and servicing be there on coming of after of in would next. consistent as equipment of the we In now. bit trends is that's terms our then, that additions. capacity little pointed with weakness equipment And right Packaging, have And of industry out, been and

Unidentified Analyst

right would of utilization clear, you staying a investors, I I half. Great. guys the are in trend, guess Can to where how I And those sense are and And should Electronics the where based us guess, Packaging. that, on And to as rates see second sort maybe trending customers, gauge through your John. where with conversations utilization now? to rates utilization within Very give rates add on just guess, you half? second to look

John Lee

Yeah.

we're with think certainly seeing incrementing utilization I customer what rates is our base are that upwards.

the why guide revenue. think cyclicality of first chemistry part half electronics I is than of that Electronics that's half. the Packaging second driven consumer and lot is And by of our the a slightly for higher the our

product consumer I cycle. And every with that's with the happens so consistent think what year

better than first half. why slightly that's second the And guiding so half to be we're

Unidentified Analyst

Thank you.

Operator

next you. for moment Thank our please question. One

Our & James from comes of the of Company. question next line Needham Ricchiuti

now open. is line Your

James Ricchiuti

good business. the about revenue talked and legacy synergies Atotech John, you've from Hi, morning. E&P

does With just further benefit this some market get in momentum are you indications into Or overall of the pushed weakness, at incremental that seeing any area? that 'XX? point,

John Lee

Thanks question. the for

blue a out combined interest think of think ago seeing is we're some remains than earlier you in our that a even would expect. the little that that coming quarter I are high. solutions birds I pointed And we we very in what getting

our plating where chemistry tool, have new about Yokohama talked We a tools. laser TechCenter, and new new we

that So high. remains very interest

prepared But the design whatever hopefully, eventuality synergy having combined the customers course, showing ramps we're is. revenue we're And XXXX. think in solution. and will focused our when happens of those I for wins Today, getting of certainly that just and come occur. on that that benefit

James Ricchiuti

what just in the have coming addressed And can may in a about that? mix? revenues But gross this. you bit drove coming bit follow-up the with more it little question. you little a above Was it Seth, elaborate a expected, better margins a than target? Was

Seth Bagshaw

remarks, those of very cost how kind in Yeah utilization, prepared a there's we a the all strong James. combination a it's of typical factory me, of to I mentioned execution, factors, well really mix, containment, on execute environment. testament

we fundamentally margins the I why up the drove we that's did. think way

I So great and DNA think done execution. speaking. has really our a really Team historically job happy that's of part

James Ricchiuti

guidance terms just midpoint. thinking your a just at And of the quarter, I'm mix? way you're to favorable Or is gross that it about this in trying less the margins -- reconcile

Seth Bagshaw

it way the That's as Yeah. I would about well. think

a little mix a it's think little quarter. as the normalized well to more QX, really the mix very revenue is in volumes. obviously, continue I QX light bit guidance, the side, in on a And again, piece is lower we fundamentally, well. But execute in

James Ricchiuti

you. Thank

Operator

comes next Krish of Our from of question Sankar the line Cowen.

now line is open. Your

Krish Sankar

taking Yeah, my hi. for question. Thanks

are industry which to for if makes customers own guidance like John, one, at your sequentially, it drawing where talking about First semi ex your inventory. going it's I ransomware, their looks be flat kind look of down but the also sense is,

assume to dip in potentially is together, I semi fair if two it December quarter? sequentially the those your So put could revenues

John Lee

that right inventory we're few reason customers for the Thanks now, I'd And a down not say drawing Krish. been have their is Krish. what already. quarters That's seeing

slightly guided And flat of so that's semi we've revenue. up in why kind our to

So I've are we've that drawing the that's have already. said I what and multiple heard for customers understand happening they're inventory. down quarters been But drawing seen some is down

Krish Sankar

the on like one side, one the which not than said at of growing, business side, it That's but even of it. you But that a packaging has revenue, the lot you business the part is inflected. advanced less makes if very there, Electronics Got looks helpful. then other a sense. similar it. PCB it's And Got Packaging on look third

packaging informs revenues that is market kind the the parts advanced you the to strength XQ be what your is like are weak. of pretty So I'm could XQ, just given similar curious, other of

John Lee

Yeah.

our you of about it, the be chiplets, most the especially overall going packaging I substrates think Advanced there's segment type that's business. E&P are to of if where And will. package substrates think of that's more the we kind and way think driving uptick advanced to the layer package packaging, XX-plus an area latest Krish. of

like areas kind MLB, and parts The other of muted. those HDI remain

think first second I So half it's really have a technologies we new helping be half than that will better about in E&P. these us think slightly

Krish Sankar

Got lower A, Term for $XXX housekeeping quick it. it Thanks. this Or than FET. that? million Loan then still And a is is left?

Seth Bagshaw

I'm sorry. What missed was that. the question Krish, again, I

Krish Sankar

On the term $XXX loan is Loan left than that? it A? A, million is it less in still Term Or

John Lee

that's That's Yeah, correct. right.

Krish Sankar

much. very you Thank it. Got

Operator

our One question. Thank you. next moment for please

up line question of Barger Capital Keybanc comes Markets. next from Our Steve

Your line is now open.

Steve Barger

Thanks.

staying theme. the Just on advanced packaging

laser on other know being -- you? mix? substrate that But talk of manufacturers I co-op think there's your think So scheme and would talk drilling you benefit packages I ramping more some substrate Or I too, how capacity on requires wafer sell plating volume [ph] packaging a right? you for is about about chip to now. of added lot been can better

John Lee

Steve. question. exposed a answer if the chip that substrate wafer Yeah, of great The short is the part, they substrate terms and That's yes, play, the part, that will less then us. on last will, in chip But chemistry. little where that's on a is you were part, benefit part. we The

then Atotech laser onto even and And are package drilling And exposed. that tools wafers, really where substrates. our so people eventually gets packaged chips that's onto as

be a So continues yes, beneficiary ramp we to we hope co-ops of and will it.

Steve Barger

co-op question, all on are I variation is to which guess, kind the part most are schemes packaging of Or any beneficial And beyond specific that second theme? you? a of which the to just

John Lee

variation on really It's a theme, Steve.

have a packaged, it put on get the eventually however to you substrate. So chip

going up on And so but depending to all are the other a on approach. is There approaches multiple end substrate. one they And co-ops need.

Steve Barger

share any about are to there? can makers? through And, you And there have this the those you for end of consolidation signs Or manufacturers? been conversations as with pick PCB gone any at able downturn, lower up we've talk

John Lee

I has Yes, theme that in industry. that think consolidation a been always

there's I it's customers good trends the in very, very pickup, bringing been, really there. package the -- certainly And don't has anything of of in them. think terms don't conversations So solutions terms but new of we've had, share in many with I we're to terms of

ends hope that's so market share And wins. what working turning we hard that we're on. into up, And

Steve Barger

mid-XX% can But run quick do tried fly. like the cap quarters, for one past a working of XX% in And in I down you've it? to of Got low or just range part seeing to, I Is the trailing the it revenue. the months on math comment the Seth. would the range that to primary metric normalizing cash for that? point watch come looks what to of us XX about three flow, get you

Seth Bagshaw

think question, a I Steve. Yeah, is good

half So the the And the as a first going first lot about. covered year in QX, were Ramps had of obviously we the that on. a of we lot in talked quarter.

little So the half the this sure. first free atypical the bit we capital working capital QX really in working was flow, negative, cash a metrics. year for those use metrics cash in free were And of normalized reason flow

the shape So be the the we mark, work third think as to relative believe QX capital revenue. on And quarter. cash is we good be and will in normalized, more that's pretty in normalized why on period we more midpoint said, our guide

go level think That's sure. a at detail. metric revenue. of requirements. that in move And I a QX. than back much decent how of at XX% Ben of on we Again, second history go XX%. or Again, of looking But around can working be that's better low in They'll You kind the probably capital way rate, probably quarter. about don't teens for for look that grows quarter kind cash saw that, free and flow it'd third

Steve Barger

Thank understood. I Yeah. you.

Seth Bagshaw

Yeah.

welcome. You're

Operator

question. Thank for One please moment, next you. our

Fargo. Joseph question comes last from the of Wells line Quatrochi of Our

now line open. is Your

Joseph Quatrochi

One Yeah, semi taking on thanks the the side. for question.

this into about, clarity you to semi I factored just you part on restrictions. to think also your that I results equipment And side quarter. China shipping we talked ship last that kind to customers, was Chinese Chinese think the export shipping customers can how quarter, curious further OEMs. or and then of I the upside their in then the in that's they

John Lee

Joe, thanks the question. for

terms of how revenue forward. China I think is going at look answer short change we the no the in

I customers. think their hasn't allowed in quarter the more customers, really to of about talked what's by our shipping Chinese we That clarity, to be last changed. terms shipped

We OEMs how also talked that about to there. we not Chinese and are the the exposed And a changed lot has restrictions either.

not China. of though change of it's any guiding to what the view even to can we're semi up, flat in And slightly be to can't and so because we dynamics our for ship

Joseph Quatrochi

it. about quarter. Got to cash follow that sort a about we of quarter. you in up, voluntary then payments see And is next talked on Should free starting flow debt, improving next That's the think looking a helpful. again to

Seth Bagshaw

aggressively. said many I probably on deleveraging pretty we times, we've Yeah, plan would --

there's So policy goals. no our in change, obviously, our and

back will into flow that the We to point. on cash a levels, debt. that generating -- wouldn't appropriate that the will lead will on But free when get cash third that -- this definitely levels be at guide quarter

Joseph Quatrochi

thank Okay, you.

John Lee

Yeah, I'll to The [ph]. ex comment the semi up comment flat add hey, to ransomware slightly Joe, guide ahead. maybe of is a

QX. in apples to apples So

make clear. to that's Just Thanks. understood sure and

Joseph Quatrochi

Yeah. Thank you.

Operator

turn I to conference David you. remarks. closing to would Ryzhik now back like Thank for the

David Ryzhik

and Thank joining please. us interest Operator, you for may for the your close call MKS. in you today

Operator

conference today's call. concludes Thank for you participating. This

now may disconnect. You

MKS Instruments (MKSI) 3 Aug 232023 Q2 Earnings call transcript