MKS INC Q4 FY2024 earnings call

• 2024 was a year of impressive execution in a challenging environment with roughly flat revenue of $3.6 billion, but achieved 190 basis point expansion in gross margin, increased EPS by 49%, and improved free cash flow by $178 million. • Took actions to manage leverage including an upsized $1.4 billion convertible note offering, voluntary prepayments, and refinancing. • Invested in R&D and strategic initiatives, including technology innovations in optics, lasers, and chemistry solutions, and expanded/manufactured in Romania, Malaysia, and Thailand. • Entering 2025, MKS is well-positioned with a broad product portfolio to address customer challenges in semiconductors, electronics, and packaging.

For the semiconductor segment, fourth quarter revenue was $400 million, up 6% sequentially and 10% year-over-year. Full year semiconductor revenue totaled $1.5 billion, up 1% year-over-year excluding foreign exchange. For electronics and packaging, fourth quarter revenue was $254 million, an increase of 10% quarter-over-quarter and 13% year-over-year. Full year electronics and packaging revenue was $922 million, up 1% year-over-year excluding foreign exchange and palladium. In the specialty industrial segment, fourth quarter revenue was $281 million, a decline of 2% sequentially and 8% year-over-year. Full year specialty industrial revenue was $1.2 billion, down 5% year-over-year excluding foreign exchange and palladium.

• Expect Q1 2025 revenue of $910 million plus or minus $40 million. • Semiconductor revenue expected to be $400 million plus or minus $15 million, Electronics and Packaging $245 million plus or minus $10 million, Specialty Industrial $265 million plus or minus $15 million. • First quarter gross margins estimated at 46.5% plus or minus 100 basis points. • First quarter operating expenses expected to be $255 million plus or minus $5 million. • Adjusted EBITDA expected to be $217 million plus or minus $23 million. • First quarter net earnings per diluted share expected to be $1.40 plus or minus $0.27.

• Potential impact from end market softness. • Cyclicality in various segments. • Geopolitical factors such as export restrictions could impact business.

Q: Krish Sankar asked about NAND component inventory levels and semi revenue outlook.

A: John Lee responded that inventory burn-off is happening but from a low level, and semi revenue depends on upgrade business and new greenfield.

Q: Peter Peng asked about semiconductor segment performance vs WFE.

A: John Lee stated MKS has outperformed WFE over the long-term by 200 basis points and design wins help with share gain.

Q: Melissa Weathers asked about NAND spending on upgrades vs greenfield and logic segment impact.

A: John Lee explained greenfield needs new tools and upgrades need RF power, and MKS plays in advanced logic node growth.

Q: Jim Ricchiuti asked about other recovery areas besides NAND.

A: John Lee mentioned chemistry recovery in advanced packaging and equipment orders for MLB and HDI.

Q: Michael Mani asked about design win pipeline and acquisition synergies.

A: John Lee said design wins take time to convert and there are both upgrades and new programs in optics.

Q: Steve Barger asked about optical assembly design wins.

A: John Lee said it's a combination of upgrades and new complex programs.

Q: Toshiya Hari asked about deleveraging and cash flow.

A: Ram Mayampurath discussed focus on P&L, free cash flow, and continued debt prepayment and re-pricing.

Q: Shane Brett asked about inventory days.

A: John Lee said inventory is down but higher due to strategic components.

Q: Vijay Rakesh asked about AI exposure and deleveraging.

A: John Lee said MKS is levered to AI via semiconductor and packaging, and Ram Mayampurath discussed deleveraging focus.

Q: Joe Quatrochi asked about interest expense guidance.

A: Ram Mayampurath explained pension re-class impact and ongoing efforts to reduce interest expense.