MKS Inc.

Good day and thank you for standing by. Welcome to the MKS Instruments third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 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, Paritosh Misra, Vice President of Investor Relations. Please go ahead.

Good morning, everyone. I'm Paritosh Misra, Vice President of Investor Relations, and I'm joined this morning by John Lee, President and Chief Executive Officer, Ram Mayamparat, Executive Vice President, Chief Financial Officer and Treasurer, and Michelle McCarthy, Vice President and Chief Accounting Officer. Yesterday, after market close, we released our financial results for the third 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 most recent annual report on Form 10-K. 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 to today. And the company disclaims any obligation to update these statements. During the call, we will be discussing various non-GAAP financial measures. And if 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 reserves and a reconciliation to our GAAP measures. Our investor website also provides a detailed breakout of revenues by end market and division.

Now, I'll turn the call over to John. Thanks, Prakash, and good morning, everyone. I'm pleased to introduce and welcome our new CFO, Ram Mayankarath, to MKS. Ram joined MKS in October and is actively diving into the business, engaging with our business leaders and already contributing to our strategic initiatives. We're excited to have him on board, and I'm confident his leadership will be instrumental as we continue to drive growth and execute on our long-term strategy. Ron will share some brief remarks later on this call, and he'll take the lead in discussing our financial results next quarter. Michelle will handle the financial results today, and I'd add that she's done a terrific job for MCAS during this transition period. MCAS delivered a strong third quarter with all key financial metrics at or above the high end of our guidance ranges. Our gross margin strength reflects the value of our broad and differentiated product portfolio. including our chemistry revenues, which have supported profitability during a period of muted semiconductor demand. Additionally, our operating margin profile demonstrates our continued cost discipline, resulting in continued strong cash flows. We have also made meaningful progress on our highest priority, proactively managing our leverage. During the quarter, we repriced our U.S. dollar at Euro term loan Bs, reducing our interest rate by 25 basis points. And we continue to actively pay down our debt, supported by our strong free cash flow generation of over $140 million in the third quarter. These actions bring our year-to-date 2024 prepayments to $426 million. During my recent travels to Asia to meet with customers, we discussed many of the key trends and challenges they must overcome to execute their technology roadmaps. especially as many of them prepare for the next generation challenges in AI-related advancements. As node sizes continue to shrink and technology grows more complex, the importance of our broad portfolio of critical technologies has never been more important, and our customers recognize this. As a result, I came away from these conversations even more confident that our differentiated capabilities will accelerate our customers' roadmaps and lead to their market success. Now I'll review our performance in our three end markets. In our semiconductor market, revenue increased 3% sequentially and above the high end of our guidance range. Similar to our first half results, this higher revenue trend was primarily driven by in-quarter demand conversion related to DRAM and logic foundry applications. NAND has remained relatively stable, albeit at historically low levels, and we remain well positioned when that market recovers. Our teams are engaged with equipment OEMs and leading semiconductor fabs in addressing a broad range of technology inflections, such as atomic layer deposition in both logic and memory applications, high aspect ratio etching for memory devices, and selective removal processes for logic gate all-around transistors. Additionally, we continue to advance our strategy to grow segment share in lithography, metrology, and inspection, Following the strategic photonics win we talked about last quarter, we've recently achieved a design win for our world-class optics initiative with another customer that further highlights our increasingly differentiated technology capabilities in this attractive segment of the WFE market. In our laser business, we also received an order for a back-end application related to high bandwidth memory, validating the important role that MKS solutions play in AI-related applications. In the fourth quarter, we expect semiconductor revenue to be flattish on a sequential basis. The guidance demonstrates continued stability in DRAM and logic foundry demand, with NAND remaining at low levels. Overall, we remain confident that the work we have been doing in the development of innovative solutions for the next wave of technological advancements positions us well for the future success. Turning to electronics and packaging, revenue grew 1% sequentially, driven by chemistry sales. equipment sales were down sequentially in line with our expectations and reflecting typical quarter-to-quarter variations. While demand overall remains muted, we are seeing encouraging order activity, including in flexible PCB drilling used in smartphone applications and for our chemistry and equipment solutions for advanced MLB, HDI, and packaged substrates related to AI applications. Our combined expertise in laser drilling, chemistries, and chemistry equipment enables our unique role in optimizing the interconnect, which is central to addressing increasingly complex packaging needs in the AI era. These wins are expected to support higher electronics and packaging revenue in Q4, with growth anticipated to be in the low single digits on a sequential basis. In our specialty industrial market, revenues decreased approximately 1% sequentially, with steady performance in the industrial, and research and defense end markets offset by softness in the life and health sciences market. As a reminder, our specialty industrial market consists of a variety of applications across multiple end markets. We leverage our proprietary technologies and R&D investments in the semiconductor and electronics and packaging sectors to provide unique solutions that yield strong incremental margins and cash generation. Looking ahead to Q4, we expect revenue in our specialty industrial market to increase slightly from Q3. In conclusion, we are pleased with our execution and financial performance in the third quarter. Given our strong third quarter results and our fourth quarter outlook, we now expect second half revenue to be up low to mid single digits compared to the first half. Although signs of a recovery have not yet emerged across our end markets, our execution remains solid in the areas we can control. Our strong gross and operating margins have led to solid cash flow generation to support debt reduction throughout a year where our major end markets have been soft. This, along with our design wins and continuous innovation, gives me confidence that we are well positioned as markets recover. Now, let me turn it over to Ram to provide some brief remarks, and then Michelle will run through the third quarter financial results in more detail.