MKS Instruments (MKSI) 2 Nov 232023 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to the MKS Instruments Third Quarter 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 first speaker today, David Ryzhik.

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

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

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

results, we call, various on non-GAAP unless revenue. company otherwise all the will GAAP financial measures to discussing our the the company our XX, presentation and acquired regarding all Ltd, Also, results noted, financial During our statement-related information of Please materials and August measures. reconciliation income and investor other Unless be which non-GAAP will press combined combined XXXX. measures non-GAAP, combined reflect than our posted to the Atotech refer MKS release references and financial website financial of otherwise financial for noted, MKS to measures. results be

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

to over call the turn John. I'll Now

today. thank joining us everyone, you morning, and Good David. Thanks, for

key in quarter Middle to East past the Before results I'd occurred devastating the over business discuss like I month. the violence that has third trends, our on touch and

their can primary and families concern of our events unfolded, is describe and There words that employees safety region. are the have health the simply that in no the and our

As controls, you of know, team and has we may unmatched, to dedication all X quickly. of Israel our MKS and our facilities solutions, optics The of which for in return some peace a resilience is operational. some photonics and Israeli that manufacture hope remain

our results. continued despite to softness strong third million, end million, reported earnings $XXX delivered demand. per MKS EBITDA We diluted $X.XX. of Turning of quarter of revenue profitability share and market in adjusted net $XXX

Revenue industry from in was our line semiconductor continued. memory the with market expectations cyclical our in spending as downturn

subsystems our demand deposition expected, and etch for vacuum for As critical remained muted.

be lithography, demand metrology However, resilient. for to continues and our photonic for inspection solutions

semiconductor for and expect the to fourth which due market quarter, Looking historically where contain a weakness from more tools revenue leading-edge low MKS sequentially level to at content. relatively NAND, spending, industry in memory particularly we our continued is to the decline

adjust downs inventory current customers continued demand. at also work We as expect to they key

include The semi enhanced complexity. world miniaturization term have long cycles, are the with quite creating for will semiconductors connected drivers MKS but the The and actively need next-generation market such Examples solutions metrology more processes applications, as advanced with that lithography, subsystems engaged optical power precision bonding for for applications And inflections. high-bandwidth range inspection. of advanced broad across memory. its over need will is increased secular for a motion technology clear. the capabilities, enable customers growth etch and

the anyone with semiconductor playbook the over next subsystems us ourselves downturn to exact stronger to we else on deployed have become the critical to segment share past #X be us position to or supplier of the during industry industry. the upturn. That across a a foundational years, enabling XX-plus is more #X pride We even in investing than categories in

and as sequentially the quarter. the Packaging due with to package higher consumer expected normal ahead seasonality electronics substrate of & Turning market. market PCB production our the in Revenue fourth the Asia Golden slightly Week in associated holidays as than Electronics and beginning grew to better of slightly well

that we number space. laser or to a pleased I'm orbit, also satellite of the shipped announce LEO, HDI communications low systems Earth to

establishing is are the multiple supplier hardest HDI ability due LEO tool enables a record of industry's from serving one PCB the manufacturers. our solve of the of productivity technology unique customers fast-emerging and applications. to This key our a drilling capabilities technology space process via the increased the to for leadership validation our leading the unique We as problems, proprietary us which to

addition, deliver to plating this our approach. for market, integrated highlights and also we equipment proprietary an In which chemistry opportunities

be from sales. Electronics fourth expect the to to primarily well of as our as quarter, the due softer chemistry nature equipment market & sequentially, utilization Packaging Looking down our revenue we lumpy seasonally to

some seeing are and the smartphone in signs markets. PC of We stabilization

market, the market is softness the than in in Within server non-AI is AI strength but there server package continued applications, substrate offset for more broader by this applications.

was Turning specialty markets, favorable across solar weakness to our Overall LED business market. modest below some saw but was and applications. our expectations. industrial we the in our Revenue slightly

such We in in to made see health R&D semiconductor industrial sciences. into have in technology for where laser opportunities our Packaging solar example Electronics and micro-machining & in investment life drive leveraged portability market. markets applications, our advanced we our specialty industrial One as we expertise investments specialty and is and applications the

slightly revenue to down be Looking fourth quarter to from we specialty to levels. our third expect industrial the market compared quarter,

with markets the end our across for and positioned remains are cyclically we demand muted, upturn. well we are While customers believe highly engaged

for continues while execute how I'm efficiency proud discretionary team tight operational customers our to pursuing of solutions timely and through of deliver management our costs.

stewardship today throughout no cost We control business exception. conditions, is financial have our of and history long various market prudent a of and

the familiar secular a you semiconductor market. of with multi-decade are growth call the story on Many of

to market. been will continue and to foundational be that have We

portfolio chemistry more broadest of into the scaling an new uniquely across services. However, scaling this electronic and MKS devices of systems future scaling. technologies move transistor semiconductor packaging critical is equipment, positioned will of to need of today the as we era multichip than or era enable with just and

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

John. you, Thank

our for welfare and quarter provide cover results, fourth of details regarding in echo our the outlook employees I on health I to quarter, want the third Before Israel. our John's comments for concern

We as circumstances. and dedication difficult operate fortitude Israeli of are amazed team they our the in at extremely

point of a approximately reference, XX revenue months total represented revenue. operations our X% Israel last our of the manufacturing in from in Just

to Turning We our of midpoint $XXX million, third quarter results. our the delivered above just guidance. revenue of

excluding grew on which the a ransomware of estimated first As remaining second all expected, incident impact sequential million. is the revenue quarters, substantially, recovery basis. the the and from impacted ransomware slightly approximately in the revenue by at After our $XX the quarter, third

Revenue million After from quarter. relatively the market a third QX of our ransomware the semiconductor excluding a Turning was sequential declined for third quarter revenue to recovery in combined was Electronics results. year-over-year increase incident of impact semiconductor market. with impact on X% million, was second $XXX and X% the company played the our Exclude basis. flat & an basis, the Revenue revenue sequentially. of on foreign Packaging XXXX $XXX pass-through, third in exchange representing quarters,

specialty to was million, quarter sequentially. our industrial third in market. the Revenue Moving $XXX X% declining

ransomware a industrial relatively after third However, incident the basis. the on sequential excluding quarters, impact specialty in the stable revenue was and second of

automotive sales with the QX ransomware results. industry Within impact inflating company a Industrial to was Specialty flat, metal foreign representing our pass-through solutions of relatively revenue our industrial general incident, exchange year-over-year On market, of the XXXX basis. a were basis, sequential excluding combined specialty flat on finishing the

third also and a quarter, company In on consistent services year-over-year the consumables basis. overall revenue combined was

and impact the plating XX% Excluding comprised foreign exchange our it of of pass-through, total revenue.

going and consumables remain resilient profitability services forward. revenue source of a revenue We to and expect

to Turning our margins.

the Third outperformance. quarter gross and was increase guidance. end disciplined points, fact product our cost to this XX.X%, contributed exceeding management mix sequential a XX margin Efficient high basis and utilization, favorable of of

were a sequential $X guidance, decrease low Third quarter continued end million, and our cost reflecting of below management. operating of million, expenses disciplined $XXX

operating was reflecting exceeded margin and Third adjusted the in margin both expectations, EBITDA quarter operating our strength XX.X% XX.X%, was model. our

of Our close. to achieve very XX post progress within well. XX Atotech We track our continues to target $XX months to remain synergy on million of cost integration

was interest line million, achieving our the of $XX We $XX exited quarter in Net relatively the third million. for with synergies third annualized expense quarter nearly expectations.

the the the rate initiatives for tax XX%, favorable reflective third acquisition. the plan was of of tax following to of success expectations, Our closing Atotech our quarter certain

efforts, of be now we rate result XX%. expect full these to year XXXX tax a As

believe at this Looking it low think XXs fourth time. tax a beyond percent quarter, we rate about way to the right is the

We expect earnings our quarter to formal a update call. long-term to more our in provide tax fourth rate

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

was more We position the of exited sheet to with including quarter liquidity, $X.X an third short-term facility the The of investments cash Turning $XXX billion quarter. credit than undrawn cash million. revolving and $XXX cost primarily of cash million, and cash $XXX sequential flow. balance working the end of increase an improvement flow million represents result at in a quarter of Free -- second cash was the a capital. strong the control, strong in $XXX million,

with exited completed billion million, $X We balance by of strategy debt Also sheet. in quarter a which prepayment with the $XXX is deleveraging XXX credit current repricing debt voluntary our the spread B repricing. the basis SOFR of billion. SOFR which we In consistent term the eliminated of plus basis October, secured third to our we loan. gross of to our quarter, and from at the plus points The XX repricing successfully points had XXX adjustment Tranche our basis loan, on reduced the term spread was points, term loan also time respect $X.X

completed will model. of lenders by repricing demonstrate despite confidence the our our rates, challenging long-term managing and of combination the reduce practice in market annualized our our This have At prepayment current with $XX interest consistent leverage is expense estimate we conditions approximately repricing and million. the proactively operating

X.Xx ratio trailing quarter EBITDA. was our adjusted leverage the exiting net on third Our XX-month based

and made per net $XX includes other Consistent quarter, million the or dividend with leverage, the share. credit exiting a was several defined $X.XX the X.Xx prior agreement, we in adjustments, quarter. third payment as Our of

outlook. to our turn now I'll fourth quarter

We expect million, million. plus $XXX of $XX fourth or minus revenue quarter

of market, $XXX market million, of and or plus $XX of or outlook million million. million $XXX Revenue follows: Revenue market market or is Packaging & minus specialty semiconductor from minus Electronics $XX plus minus end million, our from as $XX million. $XXX from plus revenue By a industrial

Based higher is first expect it workdowns inventory a the midpoint in in expectation lower prior on the expectation semiconductor to slightly primarily first revenue compared that the This of be our now to slightly half. our guidance, half, customer of than short-term be we our of the than market. due will half XXXX to second

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

third expenses plus operating with levels. or quarter expect million, $X We consistent relatively of minus $XXX million,

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

is successful well as repricing to term as current rates quarter, voluntary expected net debt prepayment. recent For the be loan interest our interest B fourth expense reflecting million, $XX Tranche and

XX% for outlook mentioned with the be to XXXX of that year expected XX% full the fourth tax Our rate quarter, rate's tax consistent updated I earlier.

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

cash in very despite maintaining are across opportunities than in markets. in. remain things executed current long-term well and our we These environment flow profitability well we to closing, In generating we does from the the growth emerge our we in going cyclical stronger end bounce portfolio. can We back, were control. solid are segment softness confident market positioned If even

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

[Operator Cowen. Instructions] The question TD Sankar from comes at Krish first

peers. X happens looks your cyclical semi revenues worth had like WFE, I the your lower and first probably of I a which downturn. also It than tad understand them, some one, John, a than of during are

your something share front? I'm curious, I on, is etch there the a have market on exposure? follow-up. then So of because going And purely Or that else dep is

Krish, thanks question. Yes, for the

I simple. think pretty it's

vertical enabler are We an for NAND.

and of that And you've the particularly talked I past. is we've that's really about NAND heard the many one our in heard I of as from segments think we've down. customers, think WFE

maybe so And slightly is us really our of peers. there causing enablement be than our therefore, to some and, exposure there what's our worse

comes to the come anybody I It's won't cyclical again. want an back. it downturn. enjoying being remind we'll VNAND Power our And think VNAND when a we RF would But industry market leadership course, in But certainly enabler that I be say back, Solutions. don't in with everybody, love for of

I And to on it. Packaging. wanted then the of just up got some Advanced it. Got follow

you has You seeing XX% for from looks exposure been highlighted advanced of quarters. there. kind Are this in as packaging? of low But really like Or last benefits revenue is of couple it Atotech the it percentage for too of the range not any that? early Atotech a

days, early it's Krish. I Yes, think

I think is there, talk Packaging lots we is one substrates. of about. Lots high-performance the about we've Advanced that This things especially the in of talked of computing. package interest, acceleration

percentage, small of we grow lot but interest. still a as Advanced seeing Packaging that packaging that's percentage we're so and a But a overall. And expect relatively that to of

Quatrochi at from [Operator question comes Next Wells Fargo. Instructions] Joe

the if revenue or -- looks pass-through that was maybe nicely palladium your of how quarter. in up some sequentially seasonality much just It the like costs. chemicals normal is Wondering of

Yes, Joe.

part but a was seasonality, certainly, was than account it little we So seasonality. even taking expected, it of better into

our said was first in little bit of of week it as we've in just remarks, prepared the was Now better. little there pull-in holiday But quarter, QX. a the because a

so see to we're that. happy And

year? guess, it. how you maybe to NAND Got the side, one did about had kind And about XXXX you're flattish the how maybe, about their and talk semi then you're thinking thinking and curious the preparing peers of setup next definitely customers. on for context, talking I your talked weaker, that of being in into about

is you now. the the same we poor visibility Obviously, Yes. for the guys do, right and industry read things

we're is even meantime, supporting comes will be closely to what continue costs we're we so our numbers. customers watching see that, for the position. it And you I enjoying an can our from think when very R&D back, preparing in in stronger as

I of half the then the 'XX. as I kind the I same is after of industry varying of there's looking relatively that, kind at think And opinions. is of think first muted, think half second kind

So to say, I reading you that us few for it are. what pretty things as quarters And same the is kind that's we're of looks the flat would next well.

comes question at Markets. Capital Barger from next Steve The KeyBanc

there has risks bigger is challenging but John, all like and Thanks. acting been obviously think really I understand problems stock are we the here. a this cycle,

just and discuss can you're quarters maybe ATC better in further why the again see is portfolio? years? you with So you MKS this playing discuss how And in confident just coming out

question. Yes, Steve, thanks the for

talked and enable So we've to Packaging, electronics. the how we've generation Advanced of next critical to talked about be going about that's

enable prepared electronics. our just in it's said advanced I longer as will no the that So remarks, semiconductor

to chiplet the is think packaging as economic continue everybody industry Moore's I of talking going systems an If packaging. pushing or the Law. about concept we are concept,

has semiconductor love the we in that leadership of portfolio. critical as that's packaging company So market broad Atotech, technologies There's having as well the Atotech and of leadership as subsystems. set our market and a chemistry in part equipment, no other the

enables As we've metrology as talked etch, about and that in the lithography, well past, inspection. and dep as

for So we future. firmly up the combination both MKS the of that believe uniquely really sets

you go CapEx customers for what what has the and and the cycle translate that out been next And just can about you talk you feedback think year from MK? as can you how maybe see into

well solutions Well, customers are them certainly lasers very receptive to the concept of and that of MKS bringing as to types then more equipment solutions. chemistry as other include packaging

CapEx, similar think bit question, be Joe's something a to seems terms In of going it's that that's, muted. I to

as if next how be think is compares will good. I though, packaging, year, For your good to comes as stabilize, much things guess But as back. it mine the

you've There less CapEx, are in as seen that the is for semi I less cyclical. amplitude sure, numbers. but the But much comment would also is cycles packaging than us market for our

-- talk And Seth, if it. squeeze incremental expect the paydown quick flow Did in cash about of can missed And remainder I you I it. one? Can in a you we sorry this in XQ? can free Got year? debt

We give cash on flow QX. disclose Yes. or guidance free didn't in the

saw -- quite to flow up. that's it's You by our that QX forward drive certainly going way, goal was Steve, the cash free strong, and

-- give quarter. but we fourth type so working guidance that in of the needs, So will depend on it capital didn't really

plan progresses. million done that roll In And going terms forward, We that off as the to prepared saw and the did the repricing, of October. did of We that point million leverage table. will debt in remarks. took out year $XX a in $XXX deleverage of paydown, you we have lot our

down That's again to we've one we cost pulled. a million driven as term synergies rate the the Atotech, big then With that's lever So long And tax $XX well. a end. year value-driver. million $XX is

There's activities, the period to more So no the of done out. very philosophy things that flow, remarks, in a roll a short There's cash delever, time. find our already integration forward which drive in will we've control, well. change drive can as as free we well. prepared going we in actually opportunity And lot

And question comes Ricchiuti Company. the at & Jim Needham from next

to solutions, you talk hold I business, better. that optimistic area to photonics on maybe the cyclical which to John, portion focus visibility to of up of your up portion downturn? could this appears wanted in Are the be in more semi the is And sight holding business. the any able or of what that, that business line you of

I believe metrology do Jim, multiple of is out over we the semi the business. And in that that inspection Yes, quarters. less seen there think we've play part cyclicality lithography,

constant you well. what publicly contact about in And several the customers. see quarters those say next are their with We they revenue key over can as

believe more dep certainly the really an we So consistent that's much just just of that's part. that etch than area semi

visibility So continue. belief now, will our and right that's that's our that it

And on the are that business more about outlook of enter macro about overall words, we now near-term you. area for of XXXX? that environment in the area the you And specialty as In industrial, concerned potentially portion obviously, are it's impacting business? concerned more the a you newer the any other

comment Yes, the steady, such it. has key that Jim, watching of seen what is about some our revenue the we prepared the markets, and I as part that's But past mean, we're been in why in automotive automotive, pretty always our we've made in industrial the remarks.

are in is of I that said too, the certainly past cyclical our chemistry. less comment utilization-dependent world. semi-CapEx industrial a But much revenue industrials than the as Also,

the industrial Jim, little always how or to our a point, may may that watching not environment see that But So more we're to adds it. affect business. your stability macro to

seem you for How that a term? Geode, the some on thinking to about wondering be just was I in. in contributor to we be near more be potential bigger should one lob traction. the just getting I'll

Yes.

this the application, had was low we at And tool requirement call that on that both uniquely technology on as needed stations. are to satellites talked think was a about deliver earth this the I as positioned what the support PCBs to that. ground orbit well our that that,

of proof technology just that's we've that So the another developed. point

to in I other progress well. make think we that continue areas as

And we what unique. there to that technology so is really we've to we continue developed get that the wanted just and point out signs

The Ho Deutsche Sidney at next from question Bank. comes

it's be you in trying XXXX? cyclically for segment few are seasonally? quarters, whether guidance flattish sounds end about a be thinking Great. segments, market segment segments? kind semis first trajectory down other And any I'm of how It there year. think or step right like think specific by will what the or by you even How the in to be for now? you color Any each the a Do half not of will about for the will you revenue visibility have ask for next do but in another great.

as Yes. semi Thanks, kind Specialty of would we Sidney. said. semi, we very downturn. Yes, I this duration the whole about and bouncing I just on bottom, held up and think for the say Industrials has been of talked steady

expectation. that's of the kind So

Packaging well, Electronics utilization-dependent. it's some see is seen as certainly but And in some amplitude of than much seasonality you've as the in more to There the it semi & did business. quarter. terms cyclicality less cyclical

that that watch & that, servers demand So the that Electronics and I of for PCs and think and business. we macro Packaging drives some all

are think different the different amplitude between Semi -- hand recovery Electronics the but those I hand, go recovery So very much X & the markets. may of in and Packaging

That's fair. Okay.

good have deleveraging you track record guys of is a of my acquisition. second an Now question

of recover? ratio Given than the think we the the what to end be other is by 'XX? expecting waiting about And levers should gross demand, should realistic the leverage sluggish a business how for calendar we

Yes. Yes. Thanks.

in of guidance for 'XX. out So you kind asked looking

obviously, snapshot revenue kind type So can't of that the QX levels, business. I a give those comes of you probably But at flow of of sort what type cash off give details. you

So to that have mind. you're in view going

at levels NAND speaking, at As levels, certainly kind historically John the or mentioned, sure, low environment. we of in think semi least for is the trough

that us. think will time we So be opportunity an over for

it say, fundamentally, will revenue would be I driven. But

certain now. We the quite areas more efficiency. really hard the revenue, But we environment. And worked have and on on I results activity would in capital strong in pretty working hard it's management. that working think we're working QX driven hard given say to really results, profitability right deliver will you very capital then work We saw we

working historically would think I So on, I focus our And and we're hard. playbook that's pretty are those things of been speaking. things kind

further showing at am I no time. questions this

remarks. the David I concludes this question-and-answer turn back Ryzhik to it So would session. closing to like now with

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

may in conference. does you the disconnect. and Thank conclude you now This today's your for participation program,