MKSI - Earnings call 4 2023 | MKS Instruments, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, and thank you for standing by. Welcome to the MKS Instruments Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

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

David Ryzhik

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

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

differ statements. press materially discussed plans reminder, a and future prospects the Actual December XXXX. various results report comprise MKS in in year a various may As of XX, for annual expectations, forward-looking as those result Form important release remarks for including XX-K on ended our about factors, and yesterday's

should or relied company's and These to representing these the as not views the as obligation update statements subsequent the today statements. be company expectations represent upon to estimates company's any only of date as any today, disclaims and of

measures. will combined otherwise During measures results we XXXX XXXX. financial which the and combined all of the non-GAAP noted, references be MKS than Unless noted, other MKS call, otherwise August income Atotech all be financial reflect Also, XX, on to will statement-related Ltd, various company measures acquired revenue. discussing unless financial

and non-GAAP press results, our financial financial of the measures. Investor results our presentation a release Relations non-GAAP to refer company materials and Please of section our regarding website the and posted GAAP our combined to for reconciliation information

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

over to John. Now I'll call turn the

John Lee

solid results joining for thank challenging delivered Good in market MKS Thanks, a and David. morning, today. you everyone, XXXX against backdrop. us

net $X.XX. of delivered we $X.X million of adjusted share of year, diluted $XXX per billion, full the earnings EBITDA revenue For and

underlying cost we strength from proprietary to the demand portfolio broad prudent Packaging a combination but a Our of business. of performance in faced and Semiconductor and the solutions. our environment markets, controls solid softer Electronics profitability generated our resilience headwinds of We and our of highlighted due

who rely appreciate to the our their We employees challenges, toughest deliver the and relentlessly worked continued solve promise. to MKS of MKS on customers, our on on support who

also results global addition capabilities a industry-leading of consumables expanded equipment of combined, solutions higher The as with year a chemistry our revenue. Atotech with operating our capable broad Our company. of and reflect us Atotech's more and full plating first mix and services have provided range

synergies are We cost from to acquisition. our on track Atotech achieve targeted the

teams as we encouraged as with and Electronics in enabler package applications XXXX Packaging engaged a designs critical with made intelligence. artificial key on for customers our future in I'm are substrates, the advanced for such revenue new also progress actively next-generation opportunities positioning for their

a of expect in in year. recovery slowly observers industry second this our markets Most to unfold half the end

with ourselves critical packaging established have and We electronics, advanced enabler foundational as of markets. solutions semiconductor our for the a electronics and

focused growth on our to sheet years creation ahead. costs, and and design managing staying MKS with value in our By wins customers, generate positioning controlling key driving we are attractive innovation the roadmaps, balance

We detail. more the revenue of our end and adjusted per high of million of in results EBITDA delivered share $XXX quarter above fourth earnings guidance all $XXX our discuss diluted me $X.XX, of let range. Now million, net

in muted controls and NAND plasma for vacuum deposition for our a spending, expectations, our photonic better-than-expected as certain industry and solutions. downturn continued market at as low remains categories from product offset in applications, demand due Semiconductor such gas our to our investment That for reacted levels. the Solutions equipment solutions a XXXX, market which environment Revenue our exceeded we historically than to this Photonics saw analytical semiconductor growth and the area the in XX% remain demand at Demand year-over-year etch remained we and overall of for of business grew be it exited one applications key of inspection semiconductor and and more to drivers the our years metrology MKS, expect lithography, basis In on come. for an revenue. for important robust. year solutions

we [ semiconductor our sequentially fourth be muted. look of expect the first down XXXX, quarter revenue as our to overall we As quarter, to ] in demand market remains from better-than-expected

While memory levels customer we product continued of inventory spending. drawdown tied categories our eased, expect of some categories have in to

drilling than Packaging equipment to due as Turning market. Packaging of certain remain our the ever. for better Electronics long-term PC, lumpiness demand growth consistent That was production slightly stable and smartphone the but with as remained and Electronics markets expected said, muted, drivers sales. our Revenue and Overall server volumes. to laser strong

other We including of trends moving devices, are critical a how components substrates, advanced electronic architectures. key from block miniaturization the frequently to semiconductors advanced of packaged complexity building which of discussed are and packaging

which There of applications are CoWoS architectures many one. packaging chip-on-wafer-on-substrate today's TSMC's cutting-edge enabling architecture is or

that walk as a architecture. me through MKS, to Let you foundational enabler about

leading semiconductors chips which a For of as bonding deposition, that etch, other. COW, inspection to well metrology the portfolio each to individual as across of have chip-on-wafer, we manufacturing subsystems these a individual represents integral lithography, the applications and critical are semiconductor

have growing chemistry small for business but a this also We application.

W S step chips wafer, then the integrated substrate. O stacks package represents of CoWoS. a on These in last the silicon This and a top interposer, packaged which then which the on of or are is is

to laser XX% drilling, leading package substrates. than has the chemistry steps process in of and expertise plating equipment that manufacture more these critical MKS addresses

the is and scaling layers increase. to package lines, getting size continue spaces for are The package number in interconnecting substrate views the transistor Similar of the to getting smaller. a the of each larger, semiconductors, the of substrate

MKS creates and meet to customers portfolio the our complexity substrate and package All manufacturing uniquely broadest miniaturization, help of challenges. is positioned these these more with

and basis, slightly the to we revenue market sequential with we New first a to to Chinese be Year. seasonality Electronics associated due As XXXX, down Packaging look quarter expect from on primarily our typical of the

research Revenue weaker was modest in slightly market. than and expected, Specialty demand applications. to due our Turning Industrial defense primarily to for softness

fourth first in the to stable, to demand expect remain trends look with line relatively quarter revenue levels. we Specialty we quarter, market our in Industrial to As be with

leverage we a margins As revenue market, cash good our Industrial to Specialty in drive and Electronics Semiconductor and which our stable Packaging markets a is opportunities business our investments with in flow. incremental and reminder, more R&D

Wrapping up, I entire year. resilience want to dedication passion, the and team this for their thank MKS past

industry as our and In normal our ransomware named including from to end our team quarter addition year, weathering event recovered culture deliver softer the the of The the tirelessly we in received during reflected is we for of being the production MKS team a backdrop, worked to U.S. market resume customers, strength the first and accolades to XXXX. in

Report's being and News and Statista for inaugural by list, World industry well of Work as in Best one as the America's services and responsible Newsweek as named most companies Companies XXXX. industrials to for business

the has for navigate call our to to him respect financial distinguished service congratulate thank been stewardship hand privilege a of want retirement. alongside complex long Seth He dedication his him. who him his before Finally, to of MKS, and I the to career and at working to MKS. all and the has Seth, over have instrumental growth and to have I earned had transformation. and landscapes and foresight, financial him admiration Seth's on ability upcoming

Our updating Financial Chief to named have for you our Officer. when We next we replacement search his forward is underway. look well

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

Seth Bagshaw

Thank you, John.

have been privilege has period. It proud the past our and to MKS just Chief you say and Before years. partnership XX their company's to entire MKS. our want the I a of serve discuss thank results a of to Financial a as well in to outlook, and substantial over support as growth been Officer I part I transformation am heartfelt the as for team, that shareholders

and MKS following strong across capitalize success. continued I opportunities, about attractive a to the me excited and of company's operating model has look leaves to forward number very a MKS' secular position growth unique future

now Electronics cover quarter, guidance Starting the thoughts with million, quarter fourth range, from fourth me expected and results our ] high first and and revenue a Packaging of primarily of end on provide [ the delivered Let above Semiconductor to quarter we markets. our XXXX. of and revenue some due full year our than $XXX

and X% was Revenue sequentially year-over-year. XX% down down

end packaging was $XXX year-over-year. $XXX sequentially semiconductor million, XX% and Fourth our was and revenue of results. declining and year-over-year. sequentially revenue XX% quarter quarter electronics to X% Turning Fourth X% million, market a decrease

of the palladium Excluding foreign impact pass-through, revenue declined exchange fourth year-over-year a quarter in X% basis. on

specialty our industrial down million, Revenue to was Moving the down year-over-year. quarter sequentially fourth $X.XX $XXX X% market. and in

quarter exchange of revenue comprised foreign of end pass-through, year-over-year. In our impact the palladium our revenue and services fourth quarter, declined XX% market categories consumables X fourth the in revenue. across total Excluding X%

more The of as gross our favorable the margin a guidance We product exceeding margins. favorable were range. our as to quarter Turning unexpected midpoint of gross fourth of function XX%, well volumes mix. margins reported

problems the our the gross margins healthy Our complex we and value solve technological reflect for customers. of capabilities

expenses quarter resulting and cost favorable of $XXX quarter cost to Fourth control, leverage. high Fourth guidance margin end we XX.X%, to the our even operating million, guidance range well above low strong of expected revenue, control, revenue. robust below due better our in the had operating prudent range, than higher mix were though due was end operating

exiting cost synergies, the Atotech. almost achieve fourth to cost on of synergy annualized with $XX work delivering our the toward million continue second quarter exited of to cost of $XX quarter, rate target targets We our million synergy We run XXXX. track

EBITDA relative was EBITDA to quarter Net guidance million, XX%. our interest was rates adjusted expense anticipated was to lower $XXX fourth expectations. million, $XX for than above our favorable range. interest due margin Fourth more quarter also Adjusted the

the the Our for was XX%. fourth tax diluted million earnings $X.XX $XX share. was rate or per quarter for fourth Net quarter

with $X billion. quarter $XXX loans. B completed $XXX the term flow. revolving We cash A $X.X Turning refinancing investments credit euro and facility and than $XXX last And the Tranche the short-term million. liquidity, exited dollar by secured U.S. We debt million including and with Tranche successfully incremental of our of secured loans in exited sheet our raising quarter we balance of fourth term to month, more billion million an gross in cash of undrawn

covenant of extended was Tranche maturity our As refinancing, A consistent refinance financial term our with XXXX, while B loan maintenance a Tranche of debt existing we applied, that the loans. result eliminated the outstanding. term the It to

savings. interest rates, modest result on expect refinancing we current interest in Based the also

$XX fourth we debt of voluntary million quarter. the In we debt prepayment made in $XXX a addition, prepayment made this month, million earlier following voluntary the

investment We balance and business. the prioritize while of the managing our sheet to continue cash deleveraging needs

cash context, compensation that the payments. free due flow timing this quarter typically In to has lower it's first worth of noting variable

based net adjusted EBITDA of quarter exiting ratio on million. trailing XX-month X.Xx fourth the Our was leverage $XXX

flow $XXX free was and free quarter, unlevered flow million cash million. fourth the For $XXX cash was

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

was Revenue a Moving results. to combined XX% basis. decline down declined in ratio spending. XX% etching. Semiconductor a as spending, are enabler company due The a that a semiconductor revenue full decline year driver high equipment RF year-over-year XXXX significant for billion, power aspect on in largest $X.X was capital where global with generators of we to decrease year-over-year $X.XX certain such subsystems key NAND billion, totaled

Electronic XXXX. and in results XX% in $XXX down company compared was XXXX, million revenue year-over-year Packaging to combined

Excluding palladium of on in Electronics pass-through, basis. exchange Packaging the declined a year-over-year and revenue impact foreign XX%

company Packaging of total market, exchange basis. foreign XX% declined combined pass-through. year-over-year a Electronics and impact palladium When the chemistry excluding in on Within sales

a XXXX, was revenue billion Industrial on basis. X% down year-over-year Specialty combined $X.XX in company

pass-through, palladium impact the in Excluding exchange sales year-over-year. declined foreign X% of

the XXXX, XX%, respectively. between was Packaging, our XX% and XX%, Specialty Electronics split markets In Industrial and Semiconductor, revenue

differentiated gross the the well of reflection full as as operating XX% approximately disciplined technology value management. that of XX%. was margin margin is performance For our year, Again, and and proprietary a was cost approximately

to We are the on of margins, due softness. revenue given execution broader with industry pleased level lower

flow flow. cash XX% of Furthermore, unlevered revenue. flow of of million. cash free ] cash million flow to $XXX generated and $XXX We million we Turning generate total cash $XXX free [ operating or of

first quarter We are our as despite as event pleased end with ransomware in generation challenging well the strength a of business, markets, in XXXX. demand cash environment in the our of the the underlying

markets we enable which paydown. generation will recover, As to accelerate us improve, debt our expect end to cash our

let Now quarter turn outlook. me first to our

minus end market, first expect By quarter is million, plus million. outlook or revenue $XXX We million, from as follows: of or $XXX revenue of plus semiconductor our market our minus $XX or million. and $XX $XX plus revenue packaging of million. our million, million, minus or from plus of and industrial from million; market $XXX specialty electronics market $XX Revenue $XXX minus

and product anticipated gross on mix levels, plus estimate X XX.X%, we revenue percentage minus first margin Based quarter of point. or

to minus or investments million, first was expenses the increase we typical Sequential For due operating increase the continue plus quarter, of so we'll $X in expect million. expenses, $XXX business. into fringe

balance to rate a levels, expenses reasonable million we our due to fluctuate structure think cost XXXX. run the estimate $XXX about million We'll business underlying quarterly $XXX to believe manage a to continue carefully. OpEx of operating can While is for also

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

net made first rates, quarter, million, earlier $XX reflecting For interest we expense to the $XX expected refinancing and our current be prepayment recent voluntary month. million the this interest

first our expect quarter, rate be tax XX%. the we to approximately For

However, the our for to XX%. year, approximately full tax be we expect rate

are optimizing We acquisition very in our XXXX. with of of following Atotech the pleased execution rate tax August the close

represented rate in compared absent change in financial XXXX any long-term to tax fact, In XX% XX% tax now long-term Day. of our our be tax Analyst any we a rate expect model tax at our XX% -- to XX% legislation, to to approximately

quarter net of $X.XX expect Given these minus share, assumptions, $X.XX. earnings per we or diluted first plus

cost performed navigating optimized a sickle can B. through our We our of our margins. innovation. certain by we gross cash In markets simplified on through And our maintenance and of than to paydown. We -- XX% through remaining our our deployed prudently aggressive significantly reduced existing the as more structure, we initiatives. We liquidity series softness debt we We sickle by maturities, covenant planning tax focusing rate of in maintained tax by debt We balance our applied USD debt slowdown. on We manage our a eliminating well to product structure we free flow cost while maintained lowered sheet Loan closing, operating debt. what finally, Term strong repricing control. through down strong debt end financial manage extending that

made creation that All value these to translate and shareholders. our growth for a attractive stronger see positioned across company. opportunities MKS secular We're capture have we actions well portfolio into our long-term

now you up operator, for that, can open Q&A. With

Operator

first Our Instructions] Joe Quatrochi from [Operator comes question Wells with Fargo.

Joseph Quatrochi

we revenue your guidance think end businesses point as the start, of rest and to think kind how of view first total you year, of for just think as some for about I the quarter kind March for revenue low seasonality the the the year? first, Maybe the the and markets, about, your of about quarter do we should guess, of the

John Lee

Joe, I'll that. it's John. take

the certainly, our with as certainly in things view with usual. know, we But you is guide Visibility and with is our think then do one is customers. kind R&D I you the we As guidance. And better. continue of certainly focus our current only read is And do, kind quarter of customers. out. levels, to that we're consistent future with meaning the limited consistent contact the our our the for industry same the feels can constant industry, little first really the half to half second a And with projects be

to react know, you those been and And to in able changes any so assumptions. as MKS has very lean very always quickly

consistent talked about guided what that's at with looking first we are kind QX. and for of half we So a just

Joseph Quatrochi

I a plus lot been I number guys you in in think just the kind about the Atotech have pipeline. of Got talked That's your as driven helpful. on them by Atotech. MKS And think by opportunities number calendar just And follow-up, of there? And it. there still have number maybe then a of MKS? over the being if any curious as of color kind of we just the then just update year, are But that there's on opportunities turn any new driven the past,

John Lee

Joe. Yes, sure,

numbers And the double we've to digit. customer So that's different remains alluded of same. opportunities at of kind double-digit customers,

substrates because and next-generation As on time, work working package the we're customers. customers these with you the development with know, the takes

top space and customers. the industry As leading you their market Atotech customers are share in know, XX that has

of those that is laser in bringing Atotech And of has So there the and leadership it as is the had majority there also Atotech relationships, the group But bringing and over the into laser group laser synergy flex the groups. are customers examples there opportunity our share well where customer. drilling. market

Operator

next with Our TD Sankar Cowen. comes Krish from question

Sreekrishnan Sankarnarayanan

Seth, years. all thanks through help the your for

arguably, you be expected of business is be the missed. your This biased. semi to is, second seems WFE half about year, business flat, your when But curious in it Because think WFE about to business? underperformed definitely when to WFE. actually year last like your improves, think my historically, should years the how flat? WFE. how outperform WFE question You'll John, in the Kind first year, although is

John Lee

it That's WFE. of because, as analysts when performance down. Yes. Many as we know, question, for industry a over cycles, the WFE during to you thinking good going the Certainly, Krish. or XXXX are said, our up long-term look at you're being relative varies flat, you going

I a it's long, eventually is flat only finishes. that's say down inventory when that burn different think the the characteristic I'd little

And there's in that burn part less just so chain. even beneficial of down, if it's of those that flat, the should supply inventory to us because be

And versus in categories product down balance where our shipping did there completed, and we what our we're seeing shipping are a that remarks, what between many customers kind prepared inventory out them. to of has we're call burn have been

not done tied up. And semi is happen. memory market that product going it's There's we still, be called function that that fast inventory we a But memory. the categories -- of certainly out turns of yet. to specific part burn that believe, how down to has to some And

Sreekrishnan Sankarnarayanan

should one is, say that is And grows the smartphone to which is to material fair on the I pandemic year, still of PCB they're really get even side, smartphone if this peak below units volumes? be drilling going driven questions by And the levels. the it. the assume of business, your side, Is guess Atotech Got legacy side, on the then that PCB I your I business. this Atotech part

need PCB So equipment. there is buy really drilling to no

X question? can kind you of parts I'm help the curious, of PCB answer those So just

John Lee

Yes.

versus determined are expansion. think The no much utilization very I by dynamics capacity change. there's real

And rates point, in that first. see there. consumables and to part the change no as your increase, So immediately utilization we'll

customers a be in for like in also making equipment but drilling, the CapEx And the certain our hit laser rates then plans semi, once would then plating. for follow, level, just And would additions. chemistry just not utilization capacity

now we're is on in. focused making So what we're that sure designed

So that of consumable CapEx But to haven't volume. the our changed. we're really the when versus business going characteristics see part those part volumes of the occur, CapEx of that

Operator

Jim question Company. comes Ricchiuti from with next Needham Our &

James Ricchiuti

in the as business. to the back comment what you systems E&P business to go wanted lumpiness laser about I and the described

that words, flex other systems in -- in Geode are you laser you too? in So the the -- the it Or some you HDI drilling? did where some legacy Was see strength? did see business momentum and

John Lee

Yes, packaging Jim. the is you driven by for Yes, we little a give can that. lasers was business. better-than-expected drilling color result a little CapEx flex market. And the on laser QX in in the lumpy really for

James Ricchiuti

John, the what HDI you And seeing that how portion you're Okay. of for would business? characterize

John Lee

Yes.

think it's I muted, Jim. still

customers. I driven as the think see many And a rates our know, can you smartphones, lot of PCs and servers. you of by utilization that's

public And customers so some year-over-year. our of substrate have publicly been companies down -- XX%

utilization to see we'll as a rates And chemistry HDI answer then that my question, up, CapEx continues, see pick then So that Krish's little as right still CapEx now, we'll when seems that up. go happening. muted. those But investment

James Ricchiuti

Got it.

question. follow-up a Just

case weakness in of PSD overall in weakness may PSD, you've some more catching some portion seen business? Photonics On possibly just in we Solutions some in semi Division, to sequential of little decline a the understand semi the the the little that the be other other of I'm markets revenue? of a QX. that a Photonics impacted of that trying is business Is a Or bit up better. areas the saw it with that's

John Lee

the division, continued be outgrowth part question. is as in that's as long-term to has that's, in as bigger share of of that in And The WFE strong inspection. said, going the the -- to remarks. PSD, to lithography, good prepared we the be you one mentioned a of semi Yes, because PSD metrology and market drivers we of our exposure

in defense and PSD in really were. some was so our demand research expectations And slight muted relative downtick what to the

James Ricchiuti

think timing of seen in suggestive in Or issue, business? change non-semi any, is market any not dynamics the that's change that do But you in it the you Joe? more it's the a of -- Have of maybe market? in portion

John Lee

No.

pretty In can up the many up -- and fact, markets, we been and general, a -- industrials lumpy be of some a it's down. steady business. in specialty But little is made

And some automotive, very, like for actually of steady. instance, the have industrials, been very

and our steady, industrial quarter, research we're calling particular bit of rest expectations. than of That specialty actually. just a was a little this the out So very little defense. But lower the were markets

James Ricchiuti

question it any of business? And relates segue actually as in just to Are seeing we're automotive. headlines Atotech all last the I automotive the the Yes. impact seeing you from to about

John Lee

steady, companies, we really been as our playing throughout chip And the business Yes, is a of least automotive we lot well. at That Jim. the you see down. But same steady in right? seen expectation, see kind It's things that, guiding the a year. of QX haven't very

Operator

Steve Barger Markets. Capital And our next with question from KeyBanc comes

Steve Barger

Do My likely question semi different first expect in are cycle. is timeframe, is at a recovers? E&P where In other market the segment scenario past, participate as or related and less would not the similar one recovery? magnitudes. to or how the about or still talked a to more any Or there simultaneous you've lag but you the recover

John Lee

good Yes. Thanks, question. a Steve. It's

more you're them. to package chips, they are Because to you're making in if have think going correlated. I general,

I -- correlated. to that to so think -- going are our continuing view be continue they is

is is our exposure, exposure The difference that for to and semi really most CapEx consumables. our to about of MKS is E&P our exposure

the then sooner of see there would as in we'll the because as CapEx consumable question, earlier nature well. earlier we talked just of So about And E&P the that follow business.

Steve Barger

stabilizing that's working inventory? the through think and free Right. the more the could been flow and cash you be cap million levels these where as in last to couple it. $XXX around predictable in it you range feel has quarters. And the of about Do year point Got like go

Seth Bagshaw

question, Yes, take that obviously. Seth. is Steve, I'll this

talked chain one because any So really levels, before, I supply flow of think get has the -- constraints. the sticky the it's quarter. inventory in we been But as hard cash to

helpful see forward of peak we the will last level going started sort be in that well. to quarter, as So inventory

outlined revenue fundamentally, on cash OpEx. we're QX, robust. But margins and hitting working pleased through That at you very capital continued But because as which right flow, as very is more we're brought a on QX -- cash variable well. requirements XXXX becomes compensation strong certain with levels, quite flow here, of the little execution payments. now,

So cash it's cash be But hard more pick going to be exactly forward quarter. would I the flow flow to up. expect each as robust revenues

Operator

questions would Thank at you. closing to no like I'm showing now this time. further Ryzhik David I to turn it for back remarks.

David Ryzhik

thank Yes. for call. I'd joining like And call. the to close you the operator, everyone can

Operator

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

may You now disconnect.

MKS Instruments (MKSI) 8 Feb 242023 Q4 Earnings call transcript