MKS Inc.

Welcome to the MKS Instruments first quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one one on your telephone and wait for your name to be announced. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. 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 Rizek, Vice President of Investor Relations. Please go ahead.

Good morning, everyone. I am David Rizek, Vice President of Investor Relations, and I'm joined this morning by John Lee, President and Chief Executive Officer, and Michelle McCarthy, our Vice President and Chief Accounting Officer. Yesterday, after market closed, We released our financial results for the first quarter of 2024, which are posted to our investor website at investor.mks.com. As a reminder, various remarks about future expectations, plans, and prospects for MKS comprise forward-looking statements. Actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release and in our annual report on Form 10-K for the year ended December 31, 2023. These statements represent the company's expectations only as of today and should not be relied upon as representing the company's estimates or views as of any date subsequent today, and the company disclaims any obligation to update these statements. During the call, we will be discussing various non-GAAP financial measures. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than revenue and gross margin. please refer to our press release and the presentation materials posted to the investor relations sections of our website for information regarding our non-GAAP financial results and a reconciliation of our GAAP and non-GAAP financial measures. For a detailed breakout of revenues by end market and division, please visit our investor website. Now, I'll turn the call over to John.

Thanks, David. Good morning, everyone, and thanks for joining us today. MCAS delivered strong results in the first quarter, despite a muted market backdrop. First quarter revenue of $868 million exceeded the midpoint of our guidance. Adjusted EBITDA of $217 million and net earnings per diluted share of $1.18 both exceeded the high end of our guidance. We're particularly pleased with our strong gross margins, which reflect the value of our proprietary offerings, discipline cost control, and operational execution. We continue to expect a recovery in our semiconductor and electronics and packaging markets to unfold slowly in the second half of 2024 and are poised to capitalize on our leading positions when we enter the next upturn. In our semiconductor market, we are foundational to key suppliers of leading-edge process equipment in an era where AI is beginning to have a transformative impact on compute and memory architectures. We believe that AI is a powerful secular trend that will drive growth in our industry for years to come. but it's only the latest example in the long history of powerful secular trends in this market. Personal computers, mobile devices, and data centers are earlier examples of transformative use cases in their time, all a result of the miniaturization and packaging of semiconductors. Our vacuum solutions enable critical deposition and etch processes that are necessary in the manufacturing of high bandwidth memory, as well as a broader array of DRAM, NAND, and logic semiconductors. In photonics, our optical solutions help our customers solve complex challenges in lithography, metrology, and inspection. In addition, our motion control solutions are used to enable precise positioning of the wafer in hybrid bonding applications. In our electronics and packaging market, our unique combination of laser and chemistry expertise positions us for attractive growth in packaged substrates. which are a key building block of advanced packaging architectures. This complements our opportunity in high-density interconnect PCBs, which are required for smartphone and AR, VR applications, and where we also see a growing opportunity in the low Earth orbit application. In our specialty industrial market, we address a broad array of specialized applications where we are leveraging our proprietary technology to deliver strong margins and attractive cash flows. Across all these markets, we harness a broad base of capabilities and key enabling technologies, such as vacuum, photonics, and materials solutions. With a leadership position in a broad array of product categories, this affords us a holistic view of the ever-increasing device scaling requirements faced by our customers, enabling us to develop integrated, novel solutions to address these challenges. As an example, our team in Korea was recently recognized by Samsung Electromechanics for their support in the development and trial production of new products. We were also recently recognized by ST Microelectronics, receiving the Best Performance Material Supplier Award and the Innovation Value Engineering Award for our work in developing a new adhesion promoter technology that enhances automotive IC package reliability. We are proud of the deep customer relationships that we've built over the last several decades and are excited about the opportunities that lie ahead for MKS. I'll turn now to our end markets. Revenue from our semiconductor market exceeded our expectations in the first quarter, as we saw slightly stronger demand and improved conversion of customer backlog. Overall, demand for our vacuum solutions for deposition and edge applications remains muted. primarily due to historically low levels of NAND equipment spending. We believe broader customer inventories across our vacuum portfolio are generally in a more balanced state today compared to a few quarters ago, but we may see some additional pockets of workdowns in areas tied to NAND. With our photonics solutions division, revenue from our optical solutions for lithography, metrology, and inspection applications remained robust in the first quarter. we continue to see momentum in our world-class optics initiative. This is a unique offering where MCAS brings optics, coatings, motion stages, optical subsystems, and lasers to solve complex challenges in transistor scaling. As we look to the second quarter of 2024, we expect revenue in our semiconductor market to be slightly down sequentially from a better than expected first quarter results. Early memory market indicators, including improved pricing and increasing demand, well as continued spending tied to ai applications are encouraging but as the industry first brings idle capacity back online we expect the recovery and capital equipment spending to return gradually in the second half of the year turning to our electronics and packaging market revenue was in line with expectations despite the unfavorable impact of foreign currency and lower palladium prices sales of our chemistry solutions for pcb and packaged substrate markets were stable in this immuted market for PCs, smartphones, and non-AI servers. Our results also reflected expected seasonal softness due to the Lunar New Year holiday. However, we did see a slight pickup in demand for our plating equipment lines for complex, high-density, multi-layer PCB production, which we believe was primarily driven by growing AI server demand. As many of you know, AI GPUs require a large amount of advanced semiconductor content, which in turn requires complex packaging schemes. Semiconnectors are mounted onto a package substrate that is then mounted onto a high-density PCB and afterwards is mounted onto an advanced multi-layer PCB. This growing substrate and PCB content in AI architectures puts MKS in a unique position to benefit with our proprietary laser drilling, chemistry, and plating equipment solutions. We also saw additional demand for laser drilling systems for the fast-growing low earth orbit application within the PCB market, where we are the process tool of record. As we look to the second quarter of 2024, we expect revenue from our electronics and packaging market to be up on a sequential basis due to an increase in plating equipment revenues and a seasonal increase in chemistry revenues following typically lower first quarter utilization. Turning to our specialty industrial market, revenue was slightly better than expected, driven by the modest sequential improvement in our life and health sciences and research and defense markets. Revenue from our general metal finishing business in the automotive market remained flat overall on a sequential basis. As we look to the second quarter, we expect demand trends in our specialty industrial market to remain stable, with revenue relatively in line with first quarter levels. Wrapping up, NKF delivered a strong profitability in the first quarter, despite a continued soft end market demand environment. While we expect overall industry demand to remain muted near term, we feel very good about the positioning of our portfolio and the investments we've made to capitalize on the key secular trends driving our end markets. Turning now to the finance discussion, I'd like to introduce you to Michelle McCarthy, our Vice President and Chief Accounting Officer, who will walk through our financial results in more detail. Michelle recently joined MKS and brings a strong public company accounting background to complement our deep finance team. This team is doing an outstanding job as we conduct our search for MKS's next chief financial officer, and we will keep you posted on our progress. Michelle, why don't we take it from here?