MKS Inc.

Thank you for standing by and welcome to the MKS Instruments 4th 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 this session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Paritosh Misra, Vice President, Investor Relations. Please go ahead, sir.

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, and Ram Mayamparat, Executive Vice President, Chief Financial Officer, and Treasurer. Yesterday, after market closed, we released our financial results for the fourth quarter and full year 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. Unless otherwise noted, all income statement related financial measures will be non-GAAP other than revenue. 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 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, Paritosh, and good morning, everyone.

Before I discuss our quarterly results, I'd like to take a moment to review 2024 which was a year of impressive execution in a challenging environment. Despite roughly flat year-over-year revenue of $3.6 billion, we achieved a 190 basis point expansion in gross margin. We managed our operating expenses effectively, increased earnings per share by 49%, and improved free cash flow by $178 million. Additionally, we took several actions to proactively manage our leverage and significantly reduce our interest expense. This included an upsized $1.4 billion convertible note offering, voluntary prepayments of $426 million on our term loan facility, and an opportunistic refinancing and repricing of our term loans. We took these steps while also maintaining investments in R&D and strategic initiatives, including delivering technology innovations in areas such as world-class optics, lasers and laser systems, and new chemistry solutions for advanced packaging in the AI era. We also upgraded and expanded our operations in Romania, broke ground on our new super center factory in Malaysia, and purchased the site in Thailand for a future chemistry factory and tech center. These investments add capacity and resiliency to our manufacturing footprint. We're proud of our accomplishments in 2024, and I want to acknowledge our teams across MKS who delivered these results despite muted end markets. I also want to thank our customers across our semiconductor, electronics and packaging, and specialty industrial markets for their support and engagement as we work to deliver unique solutions that enable their success. Entering 2025, MKAS is in a strong position with one of the broadest and deepest product portfolios that uniquely allow us to solve our customers' most complex challenges. These challenges are placing increasing pressure on traditional Moore's Law innovation cycles. MKS is enabling solutions to this more-than-more environment through design and production wins in areas like optical modules for the lithography, metrology, and inspection market, lasers for next-generation back-end applications, and chemistry equipment for multilayer substrates for advanced AI servers. These examples demonstrate the impact that technological innovations have on our industry, and we believe our position as a foundational enabler across semiconductors and electronics sets us up well as these trends accelerate. Now, let's discuss our fourth quarter results in more detail. We ended 2024 on a strong note, with revenue, gross margin, and earnings for diluted share above the midpoint of our Q4 guidance ranges. Revenue was up 5% year over year, driven by double-digit growth in both our electronics and packaging and semiconductor end markets. We continue to make good progress proactively managing our leverage, including another successful repricing of our term loans and a $100 million voluntary principal prepayment in January 2025. Combined with similar actions we took in 2024 and a slight improvement in the interest rate environment, we have reduced our annual interest expense run rate by over $130 million compared to the prior year. Looking at our performance in our three end markets, starting with our semiconductor market, revenue increased 6% sequentially, above the high end of our guidance range. Similar to the trend seen throughout the year, this higher revenue trend was mainly driven by better than anticipated in-quarter demand primarily related to DRAM and logic foundry applications for our vacuum product offerings. NAN has picked up from early 2024 and remains at historically low levels. We are well positioned for both upgrade activity as customers move to higher layer counts and potential new greenfield investments when that market recovers. We are achieving a healthy pace of design wins that create great opportunities for us when semiconductor investment recovers. including reactive gas solutions for leading-edge nodes. Additionally, we continue to advance our positions in lithography, metrology, and inspection, with another design wind supplying optical assemblies for a leading customer. We also maintain our momentum in the back-end applications related to high-bandwidth memory, with more orders for our lasers during the quarter. We have continued to invest in our laser business over the years, and we believe we are well-positioned for strong growth. In the first quarter, we expect semiconductor revenue to be flattish on a sequential basis. The guidance demonstrates continued stability in DRAM and Foundry logic demand, with NAND remaining at low levels. Overall, while demand remains low, it is higher than a year ago. The investments we're making, along with our design wins, strengthen our confidence and our ability to outperform as the market recovery gains momentum. Turning to electronics and packaging, revenue grew 10% sequentially, and above the high end of our guidance. The sequential increase was driven by increased equipment sales. We saw continued momentum in orders for our chemistry and equipment solutions for advanced MLB, HDI, and packaged substrates related to AI applications. This shows the key role our products and technologies play as advanced packaging, and specifically the interconnect, becomes more critical in enabling the manufacturing of increasingly complex electronic devices. Excluding the impact of FX and palladium pass-through, sales of chemistry increased 9% in the fourth quarter over the prior year. For the full year, chemistry sales finished up 12% and significantly outperformed the PCB industry in 2024. Looking ahead to Q1, we expect revenue from our electronics and packaging market to be down 4% on a sequential basis, primarily due to seasonality associated with the Lunar New Year. In our specialty industrial market, revenues decreased 2% sequentially and was at the lower end of our guidance range. While the life and health sciences and research and defense end markets were steady, we saw softness across the broader industrial market. As a reminder, our specialty industrial market consists of a variety of applications across multiple end markets. Looking ahead to Q1, we expect revenue in our specialty industrial market to decline 6% from Q4 mainly due to softness in the industrial market and Lunar New Year impacts, especially related to our general metal finishing business. Overall, we executed well and delivered solid financial performance in the fourth quarter and full year 2024. With green shoots emerging in a few key areas of our business and improving profitability, MCAS enters 2025 in a robust financial position. I mentioned the strength of our team earlier. Their efforts, coupled with our dynamic culture, are reflected in the industry accolades we received during the year. For the second consecutive year, we were named to U.S. News & World Report's Best Companies to Work For in our industry, as well as named by Newsweek and Statista as one of America's most responsible companies for 2025. Now, let me turn it over to Ram to run through the financial results and first quarter guidance in more detail. Ram?