MKS Instruments Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Hey, thanks. Good morning. John, you said system upgrades for memory tools have increased. Does it feel like that trend has some momentum and can you talk about size and timing of what that could look like?

Question: Steve Barger - KeyBanc Capital Markets - Analyst : And just in terms of overall size, I know you're incumbent on a lot of the machines that are out there. Is there any way to gauge what the size of it could be for upgrades?

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Got it. And then for my follow-up, really great to hear about momentum for the chemistry equipment solutions. Can you frame up what customers are telling you about two-half visibility or what your second-half visibility is there and maybe timing of installation and how that results or flows through to chemistry? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 12:30PM, MKSI.OQ - Q1 2025 MKS Instruments Inc Earnings Call

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Yeah, thanks. Sounds promising. I'll pass it along.

Question: Shane Brett - Morgan Stanley - Analyst : Thank you for letting me ask a question. So my first question is on tariffs. So you mentioned that tariffs will have an impact of 100 basis points on gross margins. Could you talk about how you and your customers are looking to mitigate or offset the impact? And have you seen any change to customer order patterns from tariffs? And I'm asking really in the context of whether you see any signs of Poland-like activity? Thank you.

Question: Shane Brett - Morgan Stanley - Analyst : Thank you for the clarification. And for my follow-up, this is kind of a big-picture question, but is there any preliminary outlook on the second half?

Question: Shane Brett - Morgan Stanley - Analyst : Got it. Thanks very much.

Question: Krish Sankar - Cowen & Company - Analyst : Hi, thanks for taking my question. I have two of them. First one, John, you mentioned about land upgrades, et cetera, on the trend there. Is that a function of just the overall industry upgrades or is your RF power supply share gains helping incrementally? I'm just trying to figure out, has any share gains helped you or is it just more the industry cyclicality right now? And then I have a follow up.

Question: Krish Sankar - Cowen & Company - Analyst : This is on the RF side. Do you have any traction on the pulsed DC side?

Question: Krish Sankar - Cowen & Company - Analyst : Got it. And then just as a follow-up, John, if you go back three months ago, a lot of your legacy Atotech business is leveraged to smartphones, and there's a view that smartphones are recovering the back half. Now that seems to have been pushed into next year, I'm just kind of curious, does that change the dynamics on how you look into your second half for the Atotech business, or is it too early to make that call?

Question: Krish Sankar - Cowen & Company - Analyst : Thanks a lot, John. Thank you.

Question: James Ricchiuti - Needham & Company - Analyst : Good morning. John, what do you think drove the pull forward on the flex drilling side of the business? Any anticipation of tariffs, or do you think it was just some real underlying demand? I mean, it sounded like you were seeing some positive signs, which you alluded to in the last quarterly call.

Question: James Ricchiuti - Needham & Company - Analyst : And did that include demand also as it relates to HDI applications in that area for drilling?

Question: James Ricchiuti - Needham & Company - Analyst : Yeah. John, I just wanted to know how satisfied you are with the progress you're seeing in the HDI drilling portion of the business.

Question: James Ricchiuti - Needham & Company - Analyst : And just one quick follow-up. I'm wondering how you're thinking about mitigation actions as it relates to gross margins ahead when you're seeing, if we look after the second half. Do you anticipate having this behind you? I know it could be as much as 100 basis points in Q2, but how are you thinking about it in the back half?

Question: James Ricchiuti - Needham & Company - Analyst : Okay, thank you.

Question: Vivek Arya - Bank of America - Analyst : Hi, this is Michael Mani on for Vivek Arya. Thanks so much for taking our question. I just wanted to dive a little more into the specific pain points you're seeing with regards to tariffs. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 12:30PM, MKSI.OQ - Q1 2025 MKS Instruments Inc Earnings Call So, exactly which product areas, which segments are seeing the most impact? Could you give us a sense of-- I know there's a significant manufacturing presence in China. I mean, how much of that is being exported back to the US? Is it largely serving domestic China customers? And then, conversely, how much of what you produce in the US is being sent to China? Thank you.

Question: Vivek Arya - Bank of America - Analyst : Great. Thank you. And for my follow-up, I just want to think a little more medium term about the recovery we're seeing in semi-market here. So, if I look at where this is running relative to maybe the peak in 2022, you're down around 20%. And I know that last peak included some customers you might have not been able to ship to. Obviously, that was the peak of the last NAND cycle. So, as we think about getting back to that peak over the medium term, would you need a recovery in the NAND market to get back there? Or could the foundry and logic wins and progress in metrology, lithography, these other places, help you get back to the peak? Especially because I know with the NAND upcycle you're seeing, since a lot of that's upgrade driven, while that's still beneficial to you, it might not be as beneficial as Greenfield ads. So, how should we think about getting back to your former rates? Thank you.

Question: Vivek Arya - Bank of America - Analyst : Thanks so much for the call.

Question: Matthew Prisco - Cantor Fitzgerald - Analyst : Hey, guys. Thanks for taking the question. I wanted to start on maybe the photonic side of the business and just what type of traction are you seeing there today? Any changes over the last three months? And maybe how do you think about the ramp of the major wins here that you've previously announced? Anything around timing or impact of the model would be helpful.

Question: Matthew Prisco - Cantor Fitzgerald - Analyst : Talking about the semi side specifically.

Question: Matthew Prisco - Cantor Fitzgerald - Analyst : And then just a quick follow up. How should we think about your ability and willingness to continue paying down debt within the uncertain backdrop? Maybe if you can update us on a minimum cash balance and the current prepayment strategy. I know normally when you guys report, you've already got the repayment for the quarter in the book. I haven't seen that yet. So what are we thinking for kind of magnitude this quarter and moving forward? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 12:30PM, MKSI.OQ - Q1 2025 MKS Instruments Inc Earnings Call

Question: Matthew Prisco - Cantor Fitzgerald - Analyst : Thank you.

Question: Melissa Weathers - Deutsche Bank - Analyst : Hi there. Thank you for letting me ask a question. I guess for my first one on the specialty industrial business, I know there's a couple moving pieces. You guys called out automotive being a bit worse in this most recent quarter. Could you talk a little bit more about what you're seeing in that segment? What are the moving pieces? What kind of growth rate or what trend would we be expecting in 2025? Just because it is so chunky and there are some differing trends by different end markets.

Question: Melissa Weathers - Deutsche Bank - Analyst : Got it. Well, thank you for attempting to share your crystal ball with us because we all have the same questions. And then as my follow up on the, I want to go back to the chemistries side of the business, specifically within E&P. You walked us through the seasonality in a prior question, which is really helpful. Can you just help us, just remind us how we should think about the growth rate of that business beyond just seasonality? But is that a GDP plus type grower? Is there any content applications? I know AI is a nice driver and you've got the equipment sales that are getting pulled in. But how do we think about the growth rate of that chemistries piece in E&P beyond just seasonality?

Question: David Liu - Mizuho Securities - Analyst : Hi, thanks for letting me ask a question. I'm on for DJ here. Maybe another on second half, I know a lot of customers and suppliers are pulling their four-year outlook and not providing forecast, but I was wondering on the other side, where are you guys seeing customers maybe more strong and bullish maintaining that four-year outlook? And where is MKSI benefiting there? And also, how that drives the, specifically, maybe how the semiconductor business still growing above 200 basis points, above WFE? Thank you.

Question: David Liu - Mizuho Securities - Analyst : Thanks. And can you give us a review on `25 or `26 WFE globally? Thanks. That's it.

Question: David Liu - Mizuho Securities - Analyst : Thank you.

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Hey, thanks for the follow up. $123 million in free cash flow is the best first quarter I can see in my model. And it looks like working cap was a smaller use than normal. Is that just timing? And do you expect a normal kind of low double digit or low teens free cash flow margin this year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 12:30PM, MKSI.OQ - Q1 2025 MKS Instruments Inc Earnings Call

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Do you see anything unusual for the remainder of the year that we should be thinking about? Or would this be kind of a normal year in the context of whatever the top line does?

Question: Steve Barger - KeyBanc Capital Markets - Analyst : I know your primary focus is debt reduction, as it should be, but with your strong free cash flow and the recent downside volatility in the stock, why not be opportunistic when shares are trading at a sizable discount to however you calculate intrinsic value?

Question: Steve Barger - KeyBanc Capital Markets - Analyst : It was offset dilution, but would you remain opportunistic going forward?

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Good. I would just urge the board to really consider that as an option, given some of the volatility we've seen. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 12:30PM, MKSI.OQ - Q1 2025 MKS Instruments Inc Earnings Call