MKSI - Earnings call transcript Q1 2024

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Operator

Welcome to the MKS Instruments First Quarter 2024 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 first speaker today, David Ryzhik, Vice President of Investor Relations. Please go ahead.

David Ryzhik

Good morning, everyone. Vice Vice by Investor Chief John and McCarthy, Ryzhik, joined and Executive David Accounting Michelle morning Chief this Lee, our am President Relations, of I'm Officer; Officer. I and President President and Yesterday for first after posted our quarter results investor.mks.com. at are the investor which market website released XXXX, financial we to close, our of

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

press During to will be measures non-GAAP all other otherwise our various the margin. refer call, Unless than to income financial non-GAAP Relations be of our Please will we measures. and the financial noted, website gross materials presentation section of statement-related regarding release and non-GAAP for and Investor measures. information a results non-GAAP revenue financial the our financial reconciliation and GAAP posted our discussing

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

the turn call John. I'll Now to over

John Lee

in joining backdrop. muted first a today. Thanks, quarter market morning, David. MKS delivered thanks Good the strong results and us everyone, for despite

the our We're with share of control $X.XX EBITDA our execution. of offerings, end cost and high midpoint the earnings both reflect operational First Adjusted exceeded proprietary our value margins, $XXX guidance. per million the quarter net revenue exceeded $XXX gross which pleased guidance. our of million disciplined particularly strong of and diluted of of

memory half of the is unfold In trend and markets suppliers latest equipment expect and result devices in semiconductor and transformative that We beginning will believe we where compute We years upturn. of leading come. our history enter powerful transformative But poised key powerful to examples AI our secular market, leading-edge electronics semiconductor foundational packaging growth AI it's packaging in secular industry architectures. in in process example next continue centers a a have to that to on are long miniaturization are of we slowly and cases XXXX a in impact to to capitalize the the in and only are our an the second computers, drive semiconductors. of is recovery mobile the of use a to all trends time, this earlier market. Personal and when on era of data for our in their positions

etch deposition in Photonics, Vacuum challenges customers as Our well of are that as In processes optical memory our manufacturing semiconductors. and necessary DRAM, enable critical a inspection. solve array metrology and Solutions logic in high-bandwidth NAND help lithography, complex the and solutions our of broader

our to which our applications. Materials us positions chemistry packaging also and and used view vacuum, orbit the are attractive position challenges. positioning scaling in earth technology low opportunity where product key a us which and PCBs. to address key are we packaging required enable bonding we of are faced to high-density building opportunity were and these With our wafer a block in for flows. solutions our market, see ever-increasing specialty the addition, interconnect In precise packaged AR/VR complements broad novel in categories, a growth and growing and and these harness applications by expertise electronics solutions such of of unique control a our develop us leveraging Solutions. enabling hybrid architectures. In laser of smartphone motion deliver device strong our substrates, broad of combination of leadership holistic market, requirements margins array industrial This advanced in our application. In this for we and broad a markets, customers base applications a affords as Across specialized capabilities we a of to photonics integrated array cash addressed attractive proprietary where enabling the all technologies

the an developing development new in Performance Material package IC We that enhances Value recently a the recently Engineering by for and adhesive recognized new recognized production Electro-Mechanics of Supplier support their by Korea team was our products. our and were Microelectronics the As Award example, also Samsung for Innovation Award promoter reliability. automotive best trial ST in receiving in work technology

in We our customer decades that the relationships built MKS. I'll our our semiconductor several are deep over lie the the expectations market proud markets. from now to quarter. end opportunities we've excited about are ahead and the first exceeded of turn last Revenue that for

conversion historically pockets levels lithography, our customer demand revenue our a deposition improved demand few customer areas slightly of for tied portfolio Photonics are applications optical remained but our equipment primarily inspection from some saw We and low robust NAND. With spending. in for compared first applications in to state metrology division, a our we of and Solutions solutions ago, for due NAND today inventories etch work vacuum more overall, Solutions downs quarter. generally we balanced may to the muted As stronger quarters across remains of to additional see Vacuum and in backlog, broader believe

brings motion complex solve continue in world-class subsystems to transistor where optical coatings, a to lasers is and in scaling. momentum This challenges see We optics our stages, MKS initiative. offering unique optics,

the indicators, to half year. capital gradually XXXX, sequentially tied semiconductor increasing industry back first slightly the recovery But our spending return online, the from the idle the results. Early spending quarter to applications to equipment better-than-expected brings second of continued are as memory as AI expect revenue As market encouraging. in we to be as demand down capacity quarter second including in we we and expect in of pricing look first improved a well market

impact despite electronics PCB foreign palladium stable were Turning markets to package currency of muted Revenue and Sales and and substrate for unfavorable in smartphones with was PCs, our non-AI and in market our packaging servers. solutions lower of this line market. chemistry the for prices. expectations,

expected reflected due seasonal also holiday. Luna results to the Our softness New Year

However, growing we did by in equipment for our see plating server complex, PCB demand lines multilayer primarily demand. believe a was which slight high-density pickup we driven for AI production,

is onto AI a is large GPUs As then many mounted requires package substrate semiconductor which of advanced packaging mounted chemistry PCB know, in PCB. complex a growing puts a This PCB amount unique and an plating content solutions. of multilayer our to benefit and are AI and advanced content to substrate proprietary require mounted schemes. architectures equipment a drilling, and that Semiconductors position to high-density on with laser on turn afterwards, MKS you in

application additional laser market, process low-earth the for the record. orbit within demand for we We systems where are the fast-growing, drilling saw also PCB tool of

As first of quarter revenues in revenue and quarter on we electronics a be utilization. look we our typically second increase chemistry lower packaging seasonal revenues equipment due increase up and to XXXX, to the following in a market from to basis planting expect an sequential

slightly general market in remained sequential metal Life Turning the a better to defense our improvement expected, Health business overall automotive our than and and basis. the modest from finishing in market, Sciences was and flat markets. sequential industrial revenue our driven on by research specialty Revenue

in As demand delivered revenue market we our first second to up, in strong first look end trends specialty quarter remain the quarter, a with the line in a to MKS soft we with expect profitability stable continued environment. despite industrial demand levels. Wrapping relatively market quarter

to demand driving the investments our secular industry feel the on end muted positioning our overall good very remain the expect we've we term, markets. portfolio trends we While capitalize near to of and key made about

detail. we our like post recently next who our our Turning it outstanding don't President financial Chief you job I'd the to doing and more for it complement our Michelle now strong our to walk take why McCarthy, joined and to team on public Officer finance results will we Financial is will progress. Michelle, search company in a here? an to Officer, background discussion. and Accounting MKS accounting team. introduce finance conduct Michelle to brings continue Vice through from deep as This Chief you MKS'

Michelle McCarthy

to It's quarter, the of due of the better-than-expected revenue to above Thanks, our million, we the $XXX a be part first delivered midpoint MKS from guidance, market. primarily team. In semiconductor revenue privilege John. our of

our by quarter the February. Revenue as was conversion is ransomware revenue was $XXX Photonics high distorted robust and Solutions last of year-over-year as led First Vacuum the The guidance our semiconductor better-than-expected million, end incident sequentially. declining the sales well above backlog was by continued of it in segment meaningful Solutions. quarter as in performance not of the comparison X%

the with of packaging midpoint sequentially. a our and X% was revenue electronics relatively quarter million, guidance $XXX line in and decrease of First

pass-through, year-over-year basis, this of solutions from impact a Excluding of our as business ago. bounced year market the palladium back softness and a our chemistry sales foreign on grew industry exchange XX% in

year-over-year Revenue ransomware X% services our our up end XX% to sequentially. Similar guidance business, industrial to of above our across Moving first distorted revenue the of X in is market categories specialty $XXX the our our and and quarter comprised was by comparison market. the midpoint revenue. semiconductor incident. million, total the Consumables

and of XX.X%, margins. product guidance reported end control. better-than-expected strong results first range. our quarter of high to We The cost the continued favorable our function of a Turning mix margin gross exceeding were volumes,

points from items. basis certain nonrecurring also by We approximately benefited XX

quarter on of expenses while us. managing we million see for line customers MKS operating with structure prudently to invest the First on capitalize our focused innovate were in expectations. Throughout cycle, the we and $XXX ahead attractive cost is current opportunities ensuring our

the is the XX.X% performance, leverage XX XX track to the first that our expected M&A Atotech exiting cost the gross been first we end the has $XX and that earlier reflecting point, margins. Further guidance margin months, coupled meaningful of our on million, Our and accomplished to It continuing we noteworthy in synergy contributor at our was our of of strong high quarter a record operating range, Atotech of business. our natural operating margin strong our time target in exceeded with to both executing of synergies. this frame operating end exceeded performance of acquisition and quarter, well gross

to approximately First the expectations. our range. compared guidance expense Net was quarter of our was million, million, high first slightly quarter exceeding representing and XX% interest end the for EBITDA favorable margin adjusted $XXX $XX a

a $XX As refinanced first the a we quarter, million our loan and prepayment. term voluntary in debt reminder, completed

elimination A incremental was covenants borrowings refinancing our loan term the paydown included our A our Our the with applied loan term B outstanding. of while loan and maintenance term of financial the against that

We in made be approximately Also million quarter net second expect $XX early expense million. April, another prepayment. we voluntary $XX interest will debt

XX%, quarter rate quarter. the as approximately for first to compared slightly was the Our entering expectations favorable our tax

and XX% about expect full rate We be XX%. our for rate quarter our the second approximately be year tax tax to to

$XX cash $X.X with exceeding First of diluted undrawn million or net end at was per of We guidance. earnings more quarter million of first and Gross billion end were an $X.X liquidity, exited debt quarter. including facility than $X.XX million. our share, the quarter the $XXX investments and short-term credit of of $XXX the revolving billion the high

ratio XX first Our months exiting flow million of adjusted X.Xx EBITDA free net unlevered was trailing the on was based flow million. cash and leverage was quarter $XXX approximately million. Free cash $XX $XXX

John? call cash compensation quarters, As $XX $X.XX payments. back that, of with made per we due our share. With John. prior let free payment quarter of the or to flow a reminder, dividend variable to lower is timing a million me first typically turn Consistent

John Lee

Thank you, Michelle.

Let turn to outlook. me second now our quarter

our revenue expected the the to the with packaging expected $XXX million, of to calls. or is as be the recovery view plus or our $XX to from minus and electronics we million. million, plus market from outlook is We have year. Revenue $XX is the plus market to follows: recovery our in million, minus market continues Specialty modest market discussed expected million, our bounce a our Industrial plus revenue expect $XXX be bottom reflecting or path end to market $XX that expected million reflecting slow semiconductor is $XXX recent or that $XX By along be million, from $XXX market, half second and minus on revenue of million, minus

our than Looking and in the to higher second typical seasonality reflecting slightly in of half XXXX, market. improvement the half we combined a modest with revenue ahead expect semiconductor first market, our electronics packaging to be

we plus to relatively XX.X%, Our global trends. margin anticipated Specialty expected revenue or remain X market levels, GDP mix is on quarter consistent, minus Industrial gross Based product second mirroring and estimate of the we percentage point. The do as mix not to to in step second that margin reflects compared in down quarter the recur expect gross quarter. anticipated as as items first certain well product

$XXX $X We quarter operating plus minus second million, expenses expect of or million.

to adjusted of run XXXX. $XXX $XXX an to We for or of million, estimate is minus continue appropriate balance $XXX believe plus the rate $XX million We million EBITDA million.

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

in to tied end profitability strong in with continue our very to for our and navigating in differentiated our and upturn. with I'm profile markets. execute end cyclical We of well key the business. This, the well next portfolio along softness the markets pleased very trends technology our cyclical positions us secular margin product

that, operator, please open the With for Q&A. call

Operator

Steve first Instructions] [Operator Our Barger Markets. question from KeyBanc comes from Capital

Steve Barger

you the don't recovery a unfold hearing half, but they get strong next when for year back the transition to more start. come. quickly positioning expect to can and in ahead, you XXXX inflections know X-nanometer being but slowly to happen too I about far want we're year initial memory know for John, I commentary

for So you're about about inflection? that edge capacity and thinking how can talk and you timing customer to just memory and leading support conversations

John Lee

memory very question. our these our we a there slowly X-nanometer unfolding support I and still second you signs is factories Yes, to discussions to Steve, great too. your Logic them. up. remains Certainly, with pricing used as But intimate customers getting and utilization the we're expect and say to are picking up need with X-nanometer that prepare strong, capacity half. good Obviously, have out, we would time. all pointed point,

right, Steve. at can that change pretty think the XX know, good all you it's are we're quickly. -- on timing, is are about the bottom, And I the been for bouncing you at But things And very as along discussions really So We've that. MKS bottom. years. about this

had that capacity years. the past have in we rate to We the few much support, run obviously, higher already

So for happens. we're just waiting and that ready whenever that

Steve Barger

question And on it. substrate. Got similar

orbit. through will benefit layers talked some like tolerances earth more you road low AI given map those position complexity your how or other the chemistry. drilling, about tighter substrates you and and on talk plating and equipment opportunities You in for Can increasing

John Lee

Yes.

electronics So, we're boards also not lines only to and layers packaging. really the excited in now. are driving about course, of smaller. the and VS but And the AI the things spaces like AI going up semiconductors, XX are

chemistry. us. in It's It's drilling, for laser difficult chemistry, laser difficult good all layers various that's layers So that It's difficult more PCB. the drilling. it's more more it's more bonding more between

better the have just these you toggle, laser solving And the tough equipment, equipment solution customers chemistry chemistry, for set so when challenges. really and you to ability and have a

we packaging that to So MKS the is in believe uniquely industry problems. positioned solve these advanced really

Steve Barger

And quick one just follow-up.

are a So chemistry? customers, and equipment as drilling they conversations you've prepare -- that the you spending telling plating had capital to higher for the with for in environment

John Lee

in AI. But it uptick high-density as to, earnings this seen in I script, have actually the for we Well, is pointed believe, orders we out varies. think This tied board. equipment we multilayer the

board of goes a packages: goes high-density then about So chips in complex to different as stuff the to types this connects very that multilayer X and talked calls, we The board. the on earnings there's advanced on

part where first increases the CapEx And we've for actually with is some associated seen chain food AI. of so the this sign

Operator

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

James Ricchiuti

margins? I of demand market is And business? market regions. that specialty One might the would your a couple the -- pricing consistent the talked chemistry helping how and seeing about think, in you're be last in the general, improving to you Atotech in wondering, also competitors electronics of characterize environment month. that extent John, within with what the I'm geographic the recently, your

John Lee

think with Yes, Jim. we would that, agree I

I think it's slowly improving.

XX%. gradual electronics is significantly year-over-year, that our in It's in it year and commentary last tune our improving. chemistry been to than our of better was saw You the QX

good a that's sign. So

for about they're significantly gross about of to improvement talked margin just not want I argue, in of obviously I gross gross Atotech the customers. Atotech margin comes that's gross In margins really divisions, the gross to terms margins X of certainly indicative with, we Atotech and point value that business. out talked so those we adding margin saw would all to the industry-leading profile the pricing, MKS. also bringing but we

we then We're been see improvement, the And has and for that pricing a continues. that we So hope paid we value bring. getting strong. slight

James Ricchiuti

Got it.

from On those any in with you more seeing occasionally to, is we've that that side, are the the still seasonality drilling quarter bottom consistent still application that we're this application, business. parts of apart of lift bookings that of in part something that you along alluded in the the orbit seen the the March the Or business? lower that bouncing kind

John Lee

Yes.

we slight as a think of but see at right trend now. look improvement, any I I Jim, can kind don't it

laser laser it's is still different. flex I drilling But bouncing of the along HDI versus muted, bottom. drilling, course, think still

So certainly just slightly still the better. as it the muted. HDI is Jim. bottom, I along very characterize bouncing flex is would still

Operator

next from Our question comes Cowen. from TD Sankar Krish

Sreekrishnan Sankarnarayanan

John, better I that in rig have you basis. calendar That terms them. reconcile your I'm 'XX than down just or would should few half be could half on second slightly year-over-year a statement revenues for that to slightly imply of be a of revenues. down. first

true? kind down is packaging expect that to down or one Just curious of both electronic so, other? and semi do more be than If you the

John Lee

slight whether being we're obviously, they earlier, out as Well, of better expect -- case also QX, revenue, but uptick the planning or second accelerates. but half respect year what in think ready depends whole be versus We're are still things on the a quickly. uncertainty change for a first we it up on half. yes, planning in down. do these is the there's can half, pointed QX I and And your it slightly But with second in assumptions to was lot to on

year. terms the in year-over-year TBD still full comparison So I would of say that's for

Sreekrishnan Sankarnarayanan

what what be year packaging it Got then year? an think you give learnings you was it. this our it. just and can last advanced of And estimate Got would

John Lee

Yes.

sorry. But that companies -- being that's -- course, are in about it's in and XX% can are talked you of that think of advanced And that business. significantly. vary. -- normalized. kind And year revenues And probably can advanced see This is our our customers when the phones and read servers I obviously, public were more who can of we've X/X PCs you about packaging more the packaging. XX%, down

with So consistent that. that's

Sreekrishnan Sankarnarayanan

John. Got it. just one I it. could Got more, squeeze If

packaging glass impact moving Just Atotech benefiting or your the customers curious or panels how advanced do think when to some the Atotech you of road? about of start down

John Lee

Yes. in a to and more industry. about the discussions, certainly would industry talking No, industry it they X I working are advanced obviously, people of something it this, for rest next long enable that the is leader say are, and processes generation. glass what we developing has packaging, along of certainly is I would the in need and the those always time, just certainly talked an is about at with things that the looking now. characterize as Atotech always the glass necessary customers' needs we're our and on what are packaging

By that's package, of electronics and Chris, just about the advanced XX% not statement MKS. I packaging, my XX% way, XX% wanted clarify to of

Sorry.

Operator

comes Fargo. question Joe Wells Quatrochi from from next Our

Joseph Quatrochi

node the sounds wanted recovery you -- on think to on you and going spending be system what's more in upgrades just I the the driving NAND recovery demand memory transitions. the about be just NAND is industry, side? as to to to or going It think like the related in about side,

the to greenfield going you think like when a about it MKS versus maybe So be to how is bit migration for revenue more new little tied net the WAP do ad? of opportunity curious sounds

John Lee

the those upgraded, certain you Joe. customers have the do to are Thanks, next And the the power is upgrading be the there node, critical X RF decks. The on -- chambers subsystems when node. of otherwise, can't for next Yes.

every obviously etcher. one from get biggest to decks may is know, part or not all to X the VNAND have that you're X power may you as other. if upgraded there's So our of And chamber for on spend. moving node And the

But the equally, RF-power tools, entire entire the difference really I upgrade when other go the they're but So there. may upgrade products they're chamber versus parts the of doing we in chamber don't guess, see doing the standpoint. tool, notice we when from us MKS benefits obviously, really

Now having little and did said burn market. still bit about inventory that, the a NAND talk down left we there's in

the some good stuff at a about So off point, some that this -- but will customers us upgrades when burning sign well. inventory are new node that as then the they'll of because from and start is talking need

Joseph Quatrochi

a you to out burn kind play as out that, we And that do is some maybe half more helpful. to expect to of inventory the just, play quarter? extent? still I guess, second That's year it as this this is look Or of NAND to follow-up into starting that down

John Lee

Yes.

it I think that people It depends, the I now is think right? nodes, upgrading still many on But slowly view nodes. changing depends how our are it's unfolding.

we're unfolding. why saying that's So that, slowly

more to go. So I think there's still

as think the or I whether inventory second about accelerate, could And NAND that has but change of so only happen, us. can earlier, -- that, some still talked that burn for fast, happens it's to for not. right? half, down we And that and in that we're ready But there's it

Joseph Quatrochi

Got just a it. follow-up as question. And

strength On margin onetime was in had gross help you Or drove the quarter, that that? was? you the what just can understand us item services where the that

Michelle McCarthy

Yes, I Michelle. question. take can This is that

points. favorable recoveries. the and prepared as That's That's So it. nonrecurring. related in to have bulk in in really of It's basis favorability cost referenced favorability remarks, about we material XX as the yes, duty as the well really we quarter, freight variances

John Lee

Yes.

record, with to margin I of guess, gross tied well. performance But we're a Joe. you I that with the necessarily it as were call not our improved So margins really the that. happy But had the group But last service probably divisions gross out service, would all quarter. service, did point

Joseph Quatrochi

anything Is drove there that? out point to what

John Lee

mix. some there. And no been are pressures past product that through the pricing have good and has cost in certainly, rolled There some was a longer

bunch mix a of of things, kind whole Joe. So of

Operator

comes KeyBanc Markets. [Operator Instructions] from Barger Steve next question from Our Capital

Steve Barger

Yes.

a follow-up. Just quick

leverage cash can Or too think free modeled get out EBITDA below is by you've aggressive? year-end? you to or As and net that flow how do X progresses,

John Lee

we aggressive were very obviously, deleveraging. Steve, in Yes,

we $XX saw $XX and April, -- voluntarily million, -- added another another voluntarily -- yet QX, As about we talked we in we paid paid we million. down added you

ability of prepay and to delever Steve. our profitability, going think be a to I function is really

So not I'm you, news to sure.

I flow-through. leverage depends through, model margin model. of you But a lot the flow gross operating how year as think is in And So still know, XX% have the unfolds. it on our XX% margin we

does so you'll able revenue up, And we'll when be and pick delever cash lot a see flow of quicker. to then

Operator

I am to no for to now the closing call I showing questions. further like would turn David remarks. over

David Ryzhik

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

Operator

This you. Thank program. does conclude the

now You may disconnect.

MKS Instruments (MKSI) 9 May 242024 Q1 Earnings call transcript