MKS Inc Q3 2025 Earnings Call Summary

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

Question: James Ricchiuti - Needham & Company LLC - Analyst : Wondering if you could give us a little bit of a better sense within the E&P business, and you can comment on Q3 or nine months? How much of that growth is actually coming from equipment, which admittedly has been strong, and we know it can be a little bit lumpy?

Question: James Ricchiuti - Needham & Company LLC - Analyst : Then, John, the -- also curious, there's another element of equipment in the PCB area. Are you seeing any signs of a cyclical pickup in the flex PCB drilling equipment business, just given somewhat improving smartphone shipments and I guess, the potential that there may be some form factor changes coming in the market next year?

Question: Shane Brett - Morgan Stanley - Analyst : I want to follow up on the E&P question earlier, but considering that your chemistry sales for this year up high single digits, some back-of-envelope math indicates that your tooling business could be almost doubling this year? One, is that kind of the right way to think about it is that in the right ballpark? And just how much visibility do you have on equipment sales on a go-forward basis?

Question: Shane Brett - Morgan Stanley - Analyst : Got it. And for my follow-up, so your semi customers have spoken about a pickup in equipment shipments from the second half of next year. And I think your peers have been kind of cautiously optimistic towards the pickup from Q2. Just where are you guys in terms of your expectations towards semi revenue cadence through 2026? And if there's sort of any idiosyncratic tailwinds for MKS that should drive your shipments above WFE in 2026, they are very helpful.

Question: Sreekrishnan Sankarnarayanan - TD Cowen - Analyst : John, just to follow up on the previous question. If you do assume that in the second half of next year, let's just pick a time frame and say, in Q3 of next year's inflection, in theory, should you not start seeing it one quarter earlier? Or do you think there's something else different in this cycle?

Question: Sreekrishnan Sankarnarayanan - TD Cowen - Analyst : Got it. And then I just had a two-part question. One is, how much of your E&P sales was advanced packaging chemistry? And how much you think that was AI? And then on the PCB drilling side, are drill bits a constraint? And is that impacting your business? Or you're not seeing any of that?

Question: Sreekrishnan Sankarnarayanan - TD Cowen - Analyst : I was just wondering on the PCB drilling side, is drill bits are constraint -- and is it impacting your PCB drilling business?

Question: Michael Mani - Bofa Merrill Lynch Asset Holdings Inc - Analyst : On E&P, could you help us parse through when you look at your growth drivers, what is exactly secular versus more idiosyncratic to MKS. So I mean, it seems like a lot of the HCI and MLB momentum reflects some of this secular uptake in the AI. But Obviously, without a tech, you're able to go into many of these opportunities in both equipment and chemistry. So is there a share gain overlay aspect to it that you're seeing? Can you attribute these wins to that deal? Or is it mainly just broad-based secular growth?

Question: Michael Mani - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Great. And maybe a question on gross margins. Given this flow-through from potentially higher chemistry revenues over the next couple of quarters, -- how should we be thinking about as a good baseline for gross margins through next year? It seems like volumes are training the right way you're getting -- you're having seen a little more of this margin accretive business. But -- just any way to think about auto model margins through '26? Ramakumar Mayampurath - MKS Inc - Chief Financial Officer, Principal Financial Officer, Executive Vice President and Treasurer Michael, this is Rom. I'll take that. So if you look at the progress we have made in gross margin in 2024, all the way to Q1 of 2025, we were well over 47% in gross margin. Since then, a couple of things have happened. One is the impact of the mix that you talked about of very high fast growing equipment sales and the impact of 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. NOVEMBER 06, 2025 / 1:30PM, MKSI.OQ - Q3 2025 MKS Inc Earnings Call As we said in our prepared remarks, we have offset the impact of tariffs dollar per dollar, but we'll see ongoing 50 basis points impact on our gross margin because we are not marking up the tariffs that we pass through, right? So in time, we'll offset that with efficiency and ongoing operational excellence programs. And in the long term, with a normalized mix, we are very confident we can get back to that 47%-plus that we were having before.

Question: Matthew Prisco - Cantor Fitzgerald LP - Analyst : I guess to start, how do you see the NAND lumpiness playing out over the next handful of quarters? Kind of what are the primary moving parts you are focused on here as determinants for the linearity of that upgrade cycle?

Question: Matthew Prisco - Cantor Fitzgerald LP - Analyst : And then maybe you can talk about progress you've made in the litho inspection and metrology part of your business, maybe remind us of kind of year-to-date highlights and what success would look like to the team from a share gain perspective through next year?

Question: Steve Barger - KeyBanc Capital Markets Inc - Analyst : John, you alluded to some of this already, I think, but we've been reading that CoWoS or other packaging formats are evolving from organic interposer to RDL. From your perspective, is that just switching from 1 format you enable to another? Or is that evolution good for you due to more layers or smaller features?

Question: Steve Barger - KeyBanc Capital Markets Inc - Analyst : Right. That's good detail. And just listening to some of the OS, this is being driven by compute right now, which is high growth, but smaller unit volume maybe -- but at some point, this likely transitions to like PC or mobile, higher-volume applications. Is that your understanding? And any view on like time line of when that could happen?

Question: David Lu - Mizuho - Analyst : On for Vijay. Maybe the first one on revenue by GE. Can you just highlight what types of trends you're looking at split by geo? I know your customers mentioned some write-offs, but there's also maybe some tailwinds in the US.

Question: David Lu - Mizuho - Analyst : Just what you're seeing in terms of the demand trends, yeah.

Question: David Lu - Mizuho - Analyst : Okay. And then I don't know any comment on the recent rumors of potentially selling the specialty coating divestiture.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Yes. Maybe one on the semi side. Given the entity list affiliate rule, it looks like it's delayed. Have you seen any change in order patterns or discussions with your customers? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2025 / 1:30PM, MKSI.OQ - Q3 2025 MKS Inc Earnings Call

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Got it. And then just your, I guess, conservative comments in terms of looking at like chemical growth into 2026. Is there a particular end market that you're maybe a little bit more conservative in the outlook for the smartphones or PCs, something like that?

Question: Mark Miller - Benchmark Company LLC - Analyst : Thank you for the question. You noted strength in dep and etch. Are you getting share in those areas?

Question: Mark Miller - Benchmark Company LLC - Analyst : I was wondering if you can give us some color on lasers and your outlook for next year from the laser business. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2025 / 1:30PM, MKSI.OQ - Q3 2025 MKS Inc Earnings Call

Question: James Schneider, Ph.D. - Goldman Sachs Group Inc - Analyst : I was wondering if you could maybe kind of comment on -- given all the things we covered earlier with respect to tariffs, how you expect your direct China business to trend directionally heading into next year? What do you expect it to be sort of up, down or flat-ish?

Question: James Schneider, Ph.D. - Goldman Sachs Group Inc - Analyst : And then maybe relative to your leverage target, you've talked consistently about 2 times in 2027. Maybe talk about sort of the level of urgency to get there. Could you achieve it perhaps a little bit earlier than that? And maybe talk about some of the levers you might pull to sort of achieve it. Ramakumar Mayampurath - MKS Inc - Chief Financial Officer, Principal Financial Officer, Executive Vice President and Treasurer Jim, this is Ram. I'll take that. So we've made great progress in keeping our focus on deleveraging. We paid down $400 million in prepayment this year that's following $426 million of prepayment we did last year. And that remains our focus. Our capital allocation strategy has not changed, investing in our business and then paying our debt down. That's been our focus. In terms of accelerating that, the best way to do that will be with our current cost structures when we see the top line come back to more normal levels, we will be able to generate more cash and accelerate our debt payment. 2.5, you're right is the net leverage target we want to get to, and that's our goal. I don't want to speculate on a time when we'll get there, but 2.5 is our net leverage target. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2025 / 1:30PM, MKSI.OQ - Q3 2025 MKS Inc Earnings Call