MKS Instruments at Cantor Fitzgerald Conference: Strategic Insights on Market Leverage

On Tuesday, 11 March 2025, MKS Instruments (NASDAQ: MKSI) presented at the Cantor Fitzgerald Global Technology Conference, offering a strategic overview of its market position and future prospects. The company highlighted its strong performance in the semiconductor sector, particularly in dielectric etch, while acknowledging challenges such as emerging technologies and tariff impacts. The conference emphasized MKS’s commitment to deleveraging and strengthening its financial health.

Key Takeaways

• MKS Instruments has paid down $476 million in debt, exceeding mandatory payments by $426 million.
• The company experienced 12% growth in electronics chemistry revenue, surpassing the industry’s 5-6% growth.
• MKS anticipates continued growth in the wafer fabrication equipment (WFE) market, outperforming industry averages.
• Service revenue, accounting for 13% of total revenue, remains a profitable segment.
• MKS is focusing on developing Pulse DC solutions in response to technological shifts in the etching process.

Financial Results

• Gross margin improved by 190 basis points year over year.
• Operating income rose by 180 basis points year over year.
• The tax rate was reduced to below 15%.
• 92% of net earnings were converted into free cash flow.
• Earnings per share grew by 4% to 9% year over year.
• Interest rates decreased by 40% from Q1 2024 to Q1 2025.
• The company’s strategy includes investing in capital expenditures for growth and continued debt reduction.

Operational Updates

• The NAND market is stabilizing as inventory burn-through is nearly complete.
• Optical market revenue doubled over five years, reaching $300 million.
• Litho metrology and inspection sectors saw double-digit growth despite a generally flat market.
• Specialty industrial revenue declined by about 5% due to broader industrial, automotive, and solar market trends.
• Advanced packaging is evolving, with AI applications requiring significantly more PCB layers than traditional applications.

Future Outlook

• MKS expects to continue outperforming the WFE market, especially during economic upturns.
• The company is exploring new opportunities in gate all-around technology.
• Growth in the PCB market is expected to align with GDP, with HDI and IC substrates experiencing mid to high single-digit growth.
• MKS is actively assessing and mitigating the impacts of tariffs on its operations.

Q&A Highlights

• Pulse DC technology may replace RF solutions in etch chambers, with MKS developing competitive solutions.
• MKS reported three significant optical system upgrades.
• The company’s exposure to China is primarily indirect, managed through major OEMs, with minimal direct impact.

In conclusion, MKS Instruments is focusing on strategic growth and financial stability. For more detailed insights, please refer to the full conference transcript below.

Full transcript - Cantor Fitzgerald Global Technology Conference:

Matt Prisco, Kantor: Alright.

So we’ll get right to it. I’m Matt Prisco with Kantor. And today, we have the pleasure of chatting with John Lee, CEO of MKS, and Ram Mayim Parath, CFO. Perfect. Thank you both for joining us today.

Wanted to kick off with the the NAND market today given the early signs of life here and MKS’s leverage to the area. First, how are you thinking about the upgrade cycle through 2025, kind of the key drivers and the magnitude? And then how do we think about that cycle translating to growth for MKS’ power business?

John Lee, CEO, MKS: Yeah. No. Thank you for that question. I think thanks for having us here, by the way, your inaugural conference. Great to be here.

So as you know, we’ve talked about our RF Power market share in NAND. And this is a critical enabling subsystem that enables the high aspect ratio etch. And so we’re the only ones who supply that in the industry today. We’ve talked about inventory burn through for us for most of 2024. Most of that inventory is now burn through.

So as upgrades occur, we’re going to see the benefit of that. We’re already starting to see some of that. So we’ve talked about that. I think certainly, the pace at which we see that happen will depend on the end users, how many convert, when they convert. Certainly, we stay close to our But I think in general, it’s going to be better for us this year just because our inventory has burned down.

Okay.

Matt Prisco, Kantor: So do you now see maybe growth roughly in line with the market in NAND?

Unidentified speaker: Because I assume that’s a NAND comment and not just

John Lee, CEO, MKS: an overall. Right. That’s a NAND comment because even in 2024, most of the other inventory had burned down. So we were shipping to what our customers are shipping for the rest of our broad portfolio. So really, NAND was the only headwind at that time.

And now it will be just like every other product category. Perfect. Maybe you

Matt Prisco, Kantor: could talk about the competitive landscape today for the power products, specifically regarding Lam highlighting Conductor X system at its Analyst Day and PULSE DC being a primary topic of discussion today?

John Lee, CEO, MKS: Yes. So as many of you know, we are the strongest in dielectric etch versus conductor etch. We have had a couple of design wins in conductor etch, but still most of our revenue is in market share is in dielectric etch. Pulse DC is a new way to deliver power to an etch chamber. And this is something that’s new, that’s being adopted mostly in things like conductor etch.

Not yet, totally adopted in high aspect ratio dielectric etch yet. We’re working on that as our other competitors. I would say this. Today, every NAND etcher in the market is using RF power, not pulse DC. In the future, that could happen.

But right now, we’re all working hard to see if that is something that’s going to be differentiated, to be used in the market. Okay.

Matt Prisco, Kantor: And I think there’s a view that in that Pulse DC transition, when and if it happens more meaningfully, it happens about one of the three boxes within the system. So why one of three boxes? Why can’t it proliferate across all? And you said you’re also working on a product offering here potentially. Correct.

Where are you with customer conversations there? Where has been reception, early feedback, anything like that?

John Lee, CEO, MKS: Yeah. So we’re pretty happy with our reception through our Pulse DC solution. We’re working with all our usual suspects, if you want to put it that way. You know, people know that there’s only a couple of companies that can actually deliver the technology needed for the next generation power solutions. The reason there’s only one box is because you have several boxes inside a plasma etch chamber.

Some of those power boxes are generating the plasma, making these charged species. And some are controlling a uniformity. And some are putting the energy to have them move very quickly and rapidly into the hole. And that’s the bias generator. And that’s what Pulse DC is targeted to potentially replacing the RF solution that’s there today.

Matt Prisco, Kantor: If there is a move to Pulse DC and you see one of those boxes upgraded, does that favor your competitor on the other two boxes? Or do they stick with MKS on those other two boxes, and then that one could go elsewhere over there?

John Lee, CEO, MKS: I think in general, you know, you don’t change if you don’t have to. Right? And so if the other boxes have been designed in and there’s a long history of learning to integrate those in, you know, there’s no reason to change if you don’t have to. So I think really the battle is in that pulse DC part. And as I said, today, every NAND, Etcher, is made without pulse DC today.

In the future, that could change.

Matt Prisco, Kantor: Okay. I guess moving to the optical side, I believe you talked about three primary wins here to date. Can you maybe walk us through the timing, magnitude, and breadth of these ramps? And then what is what is it that is primarily driving the wins here for MKS?

John Lee, CEO, MKS: Yeah. So certainly, what we call this effort world class optics. So it’s an investment made by us in CapEx and process engineering to develop more sophisticated solutions for the lithography, metrology, and inspection market. We did that about five years ago. And, you know, just as a data point, five years ago, our revenue in this market was about $150,000,000 Now it’s $300,000,000 So we’re starting to see the numbers show up with that.

Now as we have developed capability, we’re getting asked to do more sophisticated things. And these are more difficult things that require that investment and innovation throughout the last several years. We’re also unique in that there’s no other company that has a portfolio of potential solutions that could be integrated for a lithography or a metrology or an inspection application. So we have optics. We have optical control.

We have motion. We have lasers. No one company has all of that together. And so we think we provide a broader portfolio of solutions to our customers.

Matt Prisco, Kantor: Okay. And now one of these wins, I believe, is for a optical system upgrade. That seems like a pretty big deal in terms of solidifying your position as optical market given you’re kind of newer to this market, newer to playing gear and really bolstering the portfolio. So with that said, now that we have these three wins under our belt, we have the upgrade, is there now a snowball effect in terms of driving new wins, new designs? Or are we still in the prove it phase that MKS is a real deal here?

John Lee, CEO, MKS: Yeah. I feel like we’re beyond the prove it phase. I think we’ve done a couple of very difficult things that are now in production. And that’s the proof point. And these customers are very demanding from a technical perspective.

And so when you can meet those kinds of criteria, I I think you’ve proven that you can do it. So in terms of Snowball, maybe, maybe not. But certainly, we are intending to continue to invest so that we become the first choice. I think when you look at the supplier market in lithography, metrology and inspection, there’s kind of a couple of big companies like us and then a lot of smaller companies. And so scale does matter because size allows you to invest during down cycles.

And some of these problems that we’re addressing, they take multiple years to fix, to solve. Right? And so you have to be able to invest through cycles. And it’s easier to do that when you have scale versus, you know, being a smaller company.

Matt Prisco, Kantor: Is there an opportunity for consolidation there given all these smaller players and to kind of bolster your portfolio to give a greater breadth of the ballroom?

John Lee, CEO, MKS: Yeah. I think there’s always possibilities there. I think, as I said, it’s kind of a dumbbell barbell kind of shape in terms of size of companies in this market. There’s a couple of big ones like us on one end, not a lot in between, and a lot of small ones. And it kind of reminds me of the semiconductor equipment industry, you know, thirty years ago, right?

Lots of small companies, great technology, but single point solutions. And I think at some point, you need to scale to be able to invest in manufacturing capability. You need to scale to invest in R and D through multiple cycles. So I think potentially that’s an opportunity for consolidation in the photonics optics market. Okay.

Matt Prisco, Kantor: And then given these wins that you’re now accruing, how do we think about MKS’ growth rate maybe versus the litho inspection and metrology markets in ’twenty five and ’twenty six as these wins ramp? Yeah.

John Lee, CEO, MKS: Yeah. Yeah. Ram, you could take that one.

Ram Mayim Parath, CFO, MKS: Yeah. So we are very happy with the growth in lithometrology and inspection. We’ve seen double digit growth in a flattish year, if you may. We are well differentiated with the both from the depth and the breadth of the offering we have. And we are investing in that area.

Actually, we’re happy to see the progress we’ve made so far and we’re happy with the design wins we are securing now, which will give us traction in the years to come as well.

John Lee, CEO, MKS: So this outgrowth of the subsegment of WFE with the metrology inspection is one of the ways we outgrow WFE over the long term. Right? This is about taking share. Other areas are about just the growth of, for instance, vNAND. Right?

Certain segments grow faster than others. Today, for instance, depth etch is becoming more and more important again as verticality comes to chips. Gate all around requires more depth etch processes, and that’s been our historic strength as well.

Matt Prisco, Kantor: Is there an area within that lithium spectrum metrology market that you guys are greater levered to today? Or are you providing a solution, optical solution that can kind of play across all markets?

John Lee, CEO, MKS: Yes. I think

Unidentified speaker: I would say this. The expertise in optical coatings and And

John Lee, CEO, MKS: then And then being able to fabricate the various hardware to enable you to do that. Those are really some of the differentiating areas that we have where it’s not just about optical design engineers. It’s about manufacturing engineers knowing how to make the optics so that the designers can actually use those differentiated capabilities. You have to have both. And if you have both, you have a differentiating portfolio versus someone who just has optical design or someone who has just the manufacturing

Matt Prisco, Kantor: design. Okay. Now I guess looking to broader semis now, any updates you can offer on customer utilization rates, spare parts, ordering patterns, really anything that helps inform your view on how 2025 dynamics play out for the business?

John Lee, CEO, MKS: Maybe I’ll start and Ron can take that too. I think in general, you’ve seen our service revenue become stronger for fab utilization. So that service business is something we focused on for the last several years, making a separate business. So we’re pretty happy with that progress. I think you have some numbers there.

Ram Mayim Parath, CFO, MKS: Yes. So service is about 13% of our overall revenue and a very profitable part of our business. We are happy to see growth continue in that. And to your question, Matt, utilization levels are high in the fabs and we see it in our service business. It’s a good indicator that to show the utilization levels when we service gives us an indication of that.

And going back to what John said earlier, it appears that we have burned through the inventory in the channel and we are starting to see orders. It’s off of a small base, but at least we are seeing it more real time now.

Matt Prisco, Kantor: And you guys typically talk about underperforming during a downturn and outperforming during an upturn. How should we think about this dynamic as we look at 2025

Unidentified speaker: and the moving parts if we are in

Matt Prisco, Kantor: a flat to plus mid single WFE environment? And then how does that change if we look to 2026 and say there’s growth of 15%? Yeah. And in that world, how do we think about MKS’s growth opportunity?

John Lee, CEO, MKS: Yeah. I think it’s not a surprise. I think as our customers think about the future, their future quarters, if they see a big uptick, they start ordering right away. We start seeing that over performance. If they see flat, like it has been for the last several quarters, then we’re kind of shipping to their demand.

And so right now, I think we would be saying we’re kind of shipping to the same demand and growing at the same rate as WFE now that our inventory has been mostly burned off. I think during an upturn, a fast upturn, that’s when we outperform. I think the other fact I’d say is if you took out China because we can’t sell to many of our semiconductor equipment customers, previous semiconductor equipment customers in China, we’ve actually outperformed WFE over the last two or three years. So but with China, that’s a big headwind. So we’re not backing off from our overperformance over a long time, but it gives me confidence that we’re that model still works.

Matt Prisco, Kantor: Okay. And in in the plus 15% world

Unidentified speaker: Yeah.

Matt Prisco, Kantor: How do you think about the leverage for your growth there? Because I know you you give overall through cycle how you outperform WFE. But in that upturn, is there typically rule of thumb we can use?

John Lee, CEO, MKS: Yeah. I don’t know if it’s a rule of thumb, but, you know, some data is that, you know, I think in 2021 or so, WFE grew 15%. We grew, like, 35%. Right? And so it is really and that was a ramp.

Right? So we could

Matt Prisco, Kantor: be, multiples times the growth rates of WFE depending on how steep that upturn comes. Okay. And will there be a restocking of inventory at that point as well? Will that help you? Or is inventory kind of at a healthy level right now that there doesn’t need to be a restocking?

Anything about that, Danica?

John Lee, CEO, MKS: Well, inventory levels are relative, right? So relative to where the market is. If it’s a flat market, it is healthy today. But in an upturn, certainly no one wants to be shorter parts, right? And so then you build a lot of inventory for that.

Our customers do. And they continue doing that as long as that market keeps going up. And for the last upturn, that kept going up for a long time, and there was a lot of inventory built. And therefore, the hangover is even longer as well. But in general, I think it’s a view of how steep the curve is as well as how long people think it’s going to sustain.

That will determine the inventory levels that our customers are comfortable with. I think in general, though, all of us in the industry are holding a little more inventory, including ourselves, than we have in the past. A lot of it is chip inventory because of the last, upturn. That was one of the constraining components for our ability to ship.

Matt Prisco, Kantor: Okay. And now with all the drama and leading edge foundry logic, how are you thinking about MKS’s position within this construct? And what would it potentially mean for MKS if we were to see consolidation of these leading edge players?

John Lee, CEO, MKS: Yeah. I think maybe the answer to that is going back to the fact that we address 85% of all WFE, right? No one else comes even close to that. So we’re shipping the big five OEMs. Obviously, all the growth in any one cycle is coming from the leading edge, right?

Three nanometer build out, two nanometer build out. And so we’re addressing all of that, most of that equipment, 85% of it. So I think whether it’s one company, three companies, whoever’s building, we really don’t care. We kind of care that the overall number is x. WFE is $100,000,000,000 or $110,000,000,000 or $90,000,000,000 That’s really going to set what we see.

Matt Prisco, Kantor: Okay. And then you recently touched on advanced ozone applications for gate all around as an incremental opportunity for MKS. Within this broader semi bucket, are there any other notable areas that could be incremental to the growth story versus overall WFE spend outside of the power and optical that could drive kind of outperformance?

John Lee, CEO, MKS: Yeah. I think, Gate All Round is this new structure, as a lot of you know, and it’s got a three d component to it. And it’s more sensitive. Things are smaller. And so you have to better precision and control of the etching process, the cleaning process, and the deposition process.

And because of that, there’s a lot more etch depth relatively than when there wasn’t gate all around. And so I think a lot of our etch and dep company customers are pretty happy that for the next little while, there’s a tailwind for them. Now if you step back, we care about dep etch. We also care about lithometrology. And the reason we have a broad portfolio in WFE is because in one decade, debt batch takes off relative to litho.

In another decade, it’s the reverse, right? We’re trying to position ourselves so that we really want to be levered at WFE, whether that’s more debt batch or less debt batch or more litho, we want to be make sure that we’re not lever too much to one type of process step or

Matt Prisco, Kantor: not. All right. So in your electronics and packaging market, about 25% of overall revenues, you saw stronger than expected uptick in equipment orders for both drilling and electroplating a couple of quarters ago, I believe still flowing through the P and L today. Will these be a headwind as they roll off? Or has there been further traction that will kind of result in some sustainability here moving forward?

John Lee, CEO, MKS: Yes. We talked about maybe two quarters ago, right, we got these relatively surprised orders for chemistry equipment for advanced packaging. And it was chemistry equipment tied to multilayer board and HDI level packaging, not even the most advanced PCB industry, substrates. And this is tied to AI. We continue in the next quarter.

We talked about that. The bookings continue to be strong. So far, they’ve been pretty steady, right? We haven’t seen this one time blip. And so we’re pretty excited about the fact that, you know, we’ll see how long this extends.

But the best part of delivering chemistry for us is that 100% of the equipment, sorry, that we deliver, 100% of the chemistry is ours for longer term too. And so that’s great for our chemistry business, which is the recurring part. And so it’s good to see the industry investing in equipment, in certain parts tied to AI.

Matt Prisco, Kantor: Maybe we could just dig a bit deeper into that AI opportunity specific to electronics and packaging. This used to be just substrates, to now benefiting more of that MLB and HDI. What changed here? Why are these other markets all of a sudden becoming growth drivers? And has this dynamic impacted your vision for growth for the MLB and HDI markets?

I think you previously talked about MLB less than 4% and HDI around 5% for the market. Yes. Is that vision now changed?

John Lee, CEO, MKS: Yes. I think the those growth rates of MLB being kind of GDP, GDP plus it’s probably GDP plus now. For HDI, the middle part of the PCB industry being single digit, mid single digit CAGR, probably a little incrementally better. And fundamentally, it’s all driven by AI. So MLB is washing machines and refrigerators.

We don’t need more of those. We have enough capacity for that. But what’s driving MLB and HDI now is, you know, when you make an AI chip and board, it goes through this most advanced IC substrate part, but it’s still not connected to the outside world. You’ve got to go through the HDI and the MLB boards. And those boards are now 30 to 40 to 50 layers.

So washing machine MLB board is four, right? AI, MLB is 25, and the HDI is 15 to 20. And so that’s what’s driving this equipment orders, these equipment orders that we see. So So as AI becomes a more and more important part of the entire packaging industry, the PCB industry, we’ll see more of the MLV growth, HDI growth as well as obviously the highest growth part, which is the package substrate. We think that grows at high single digit CAGR.

Matt Prisco, Kantor: Can that layer growth sustain from here? Or is that kind of a one time tick up to make these boards appropriate for AI and now we’re at a level that it can handle it? Or are we just guys AI performance improves, we’re just going to keep seeing higher and higher layers?

John Lee, CEO, MKS: Yeah. I think it’s it can sustain. So the idea here is the bigger idea is I need denser interconnections. I can do that by putting more layers, connecting more layers. I can do that by making the lines and spaces smaller.

Or I can do that by making the board bigger. Right? Kind of like SEMI, right? Wafer’s getting bigger. Smaller lines and features.

More layers. Right? It’s exactly the same thing. So all three are actually happening. And so while the number of layers is growing and has grown remarkably quickly, at some point, it becomes very expensive to grow it.

But people figure ways to thin each layer, for instance. People are making the boards bigger. And people are making lines of spaces smaller. And so all three have to happen. And what we care about is surface area because each layer is made one layer at a time.

The chemistry is applied one layer at a time. The holes are drilled with lasers one layer at a time. Then they’re glued together. So we think area is a big part of it and the size of the board as well. But not to be dismissed is the making the lines and the holes smaller.

That’s harder to do. Filling smaller holes, just like in semi, is harder to do. Making smaller lines of spaces, it’s harder to do. That is going to be an advantage for companies who have that technology, who have the infrastructure to continue developing that technology. You know, the 100 PhDs in Berlin doing all this, right?

And And of course, because it’s harder to do, it’s more differentiated. And so you can get to you can get paid for that,

Matt Prisco, Kantor: and there’s a moat around your solutions. Okay. Well, since we’re talking about the surface area, maybe it makes sense to talk chemistry for a second since you’re winning as you coat that surface area. How do you view the trends today in that market, especially as you have these secular trends plus a market that’s kind of not so great? So are you bouncing on the bottom here with kind of seasonal trends in chemistry?

Or is there some other dynamic we should be thinking of?

John Lee, CEO, MKS: Yeah. So in 2024, our electronics chemistry revenue grew 12% year over year. The industry grew 5%, five % or 6%. So we’re happy about that growth. This is organic growth, right?

A lot of it is driven by the AI applications. You’re right that a big part of the market is still driven by smartphones and PCs and non AI servers. And those markets have been muted. So our overall numbers have been relatively flattish. But the AI part is the part that’s growing very fast.

And so we’re happy about our traction there. So I think longer term, AI becomes a bigger and bigger part of the PCB packaging market. And as a result, I think the market will continue to grow faster. If smartphones came back and PCs came back with a refresh cycle or an AI application, that will continue to be tailwinds to the entire market.

Matt Prisco, Kantor: And as you maybe look towards the equipment orders, which have been doing pretty well, how does that help inform your view on chemistry sales maybe over the next twelve, twenty four months? As that equipment gets put in place, how do you think about the chemistry sales over the next year or two?

John Lee, CEO, MKS: Yes. Well, I think we’re very positive, very happy about it. So that equipment that’s being ordered, they’re ordering it because they need it, right? And they need it because and therefore, they’re going to use it 100%. And so the chemistry there becomes an annuity, if you will.

And that really allows us to continue growing chemistry sales relative to the market, especially because the equipment is ours as well. And therefore, the chemistry will be ours.

Matt Prisco, Kantor: Now you’ve talked about for that, laser business here, the interesting back end opportunity with the HBM win. I think you talked about maintaining momentum there last quarter. So can you talk about attraction maybe beyond this initial customers or more opportunity beyond that? And how do you think about just the size of this opportunity over the coming years?

John Lee, CEO, MKS: Yes. We talked about lasers, our lasers being used for HBM and dicing applications. I think the size of that market will probably depend on how the HBM market goes. Right? I think the reason why some of our most advanced lasers are being used is because when you’re stacking eight dyes of HBM on top DRAM on top of each other for HBM, you can’t have defects.

Because now eight dyes go away, right, instead of just one. And so the dicing of the edges of those dye have to have to be cleaner, produce less particles. And that’s why you need more precise lasers. And so I think that’s a good trend. When we get to 12 layers, 12 DRAMs and 16, that would be an even bigger challenge from a yield standpoint.

So I think we’re pretty happy with the progress we’ve had. It’s been multiple customers, by the way, not just one. And we have been working hard on developing new laser technologies that allow our customers to get that capability without much more power at the same cost. And some of the lasers that we’re delivering now have shown to the industry that we’re quite differentiated with respect to those two parameters.

Matt Prisco, Kantor: As you prove to be successful with this laser product in HBM, are you seeing other market opportunities open up where people are coming to you in other advanced packaging areas or anywhere else?

John Lee, CEO, MKS: Not necessarily for lasers. Lasers have been used for many kinds of micromachining. So HBM is the latest, but solar has already been used using lasers. Other areas, though, for packaging of HBM is motion. So bonding wafers together with each other.

You’re trying to precisely, you know, locate chips on top of wafers or chips on top of chips. And so precision motion becomes another area of opportunity we’ve talked about in the past as well. Alright. Great.

Matt Prisco, Kantor: And then maybe last question on this topic. How should we be thinking about the ramps of the MKS ATC synergy wins? And can you offer an update on where we stand today in terms of those wins and new customer traction over the past few months?

John Lee, CEO, MKS: Yes. I think it’s been about two point five years now since we closed the acquisition. I would say there’s probably a dozen synergy wins. So meaning, either one group was not in it or the other group wasn’t in it. Most of them have been from Adatech bringing in the Laser Group over.

But there have been some where the Laser Group brought Adatech into it. At some point, a lot of customers have both. And the synergy, though, is a different synergy. It’s not that one wasn’t there and one was. It’s just that together, we’re more valuable to that customer.

And so we don’t count that, right? But I think more and more, that’s really the real synergy going forward.

Matt Prisco, Kantor: Okay. And then moving to Specialty Industrial quick. Market recently came in a bit worse than expected. No huge shock given the industrial backdrop overall. But maybe you could walk us through the moving parts here.

How should we be thinking about the growth potential through the rest of the year? And are there areas of the business where you perhaps a bit more excited about the other areas which may be greater risk within

John Lee, CEO, MKS: today’s backdrop? Yes. As we talked about, our Specialty Industrial segment is made up of many different markets and different products.

Unidentified speaker: And I think the headwinds have been from a couple of markets that aren’t a surprise.

John Lee, CEO, MKS: The manufacturing, the manufacturing, the manufacturing, general industrial manufacturing, that’s been down for everybody. And so that’s been a big driver of the year over year decrement, about 5%, I would say. A little bit of solar too. Solar is not as good in ’twenty four as it was in ’twenty three. Everything else has been puts and takes.

And so automotive also has been a bit down as well. We are unit driven in automotive. We’re not a we supply chemistry there. So that’s very much utilization dependent. But overall, it’s down about 5% year over year, which is not a surprise driven by general industrial, a little bit of automotive and a little bit of solar.

Matt Prisco, Kantor: And how do you think about the growth potential this year kind of within today’s backdrop?

John Lee, CEO, MKS: Yeah. I think a lot of it is going to be macro dependent, I think. And that’s your guess is as good as mine what that’s going

Unidentified speaker: to do this year because I thought coming in was I

John Lee, CEO, MKS: had a different view than last week and certainly today. So I think certainly, if the macro economy picks up, that would be good. We’ll just see that. If it doesn’t, of course, we’ll see that as well. As we’ve said in the past, especially industrial market is really a way for us to leverage the that innovation in different markets.

Matt Prisco, Kantor: Great. So deleveraging, obviously, remains a key focus of MKS today.

Unidentified speaker: How should we be thinking about the debt, the pace

Matt Prisco, Kantor: of the debt pay down from here? Kind of what are what are guardrapping about the pace of the debt pay down from here? Kind of what are guardrails we should be thinking about maybe in terms of free cash flow allocation towards this goal or minimum cash balance or even the target interest rate reduction by the end of the year? I think last year, you paid down 130,000,000 on the annual reduction in interest rate expense throughout the year. Any help you can give us in the deleveraging story?

Ram Mayim Parath, CFO, MKS: So let’s, if you can take a step back and look at the P and L for a second, and the team executed very well in ’twenty four. Now if you think about a flat top line year, we improved gross margin by 190 basis points, kept OpEx flat, improved operating income by 180 basis points year over year, brought tax rate down below below 15%, all while executing in the CapEx and R and D requirements. Translated a lot of that to the cash, 92% of our net earnings was free cash flow, which helped us pay pay down $476,000,000 towards our debt. That’s $426,000,000 more than our mandatory payment and also grew EPS by 4% to 9% year over year. So it was a very strong year of execution.

Our interest rates, if you look year over year, Q1 twenty four to Q1 twenty five is down 40%. And that’s a combination of early pay downs and also pricing, repricing as market opportunities question on capital allocation, outside investing in CapEx that we need for growth and business continuity and the $60,000,000 we paid out pay as dividend, all focus is to pay down debt and make the balance sheet stronger.

Matt Prisco, Kantor: Okay. And do you still have a targeted minimum cash balance today so we can think of what portion of excess

Ram Mayim Parath, CFO, MKS: cash? It fluctuates a little bit quarter to quarter depending on our CapEx. Sometimes, you know, it picks up speed. Our CapEx is in the 4% to 5% now. It’s going to stay at that level for next eighteen months or so.

It used to be three to four, so we are investing in some large facilities in Southeast Asia in particular as we have disclosed publicly. So there’ll be a little bit of that, but a $650,000,000 is a decent number to keep in mind for cash balance. That’s helpful.

Matt Prisco, Kantor: And then Rob, you’ve been in the CFOC for nearly five months now. On a company level, any changes to operations, targets or strategies that have been implemented or you’re planning on implementing in the, you know, not so distant future? And, just kind of what’s your focus distant future? And, just kind of what’s your focus over

Ram Mayim Parath, CFO, MKS: the next twelve months for MKS? Yeah. It’s a good question. So there are a number of activities we are working on. John and I have discussed several ideas for improvement.

But the key is to continue the same pace of execution that the company has demonstrated, in order to continue to control what we can control, be quick in correcting costs as the top line changes, which MKS has proved to be very good at, and keep the focus on gross margin. So to manage both commercial actions and operational excellence activities, which is a combination of manufacturing excellence, procurement and design to manage your product costs, control your OpEx and drive continuously drive the EPS growth. So focus on executions. And once you correct that cost structure to where it is, as top line comes back to more normal levels, you’re going to see much more flow through, and we can accelerate our cash generation.

John Lee, CEO, MKS: It’s been great to not be the CFO.

Ram Mayim Parath, CFO, MKS: So,

John Lee, CEO, MKS: it’s great to have Ram on board, a really experienced CFO. He’s added a lot of value in a very short period of time. The team is strong under him, and he’s gonna be a great coach for them as well. Very good team.

Matt Prisco, Kantor: But we only have a few seconds left, so I want to sneak in one more question here. Sure. China. And I know you guys

Ram Mayim Parath, CFO, MKS: direct You’ve been going

Unidentified speaker: for a while.

Matt Prisco, Kantor: Yeah. Direct exposure at this point is relatively low. So how do you think about your exposure to the region just through the OEMs? How does that track maybe this year, next year? How do you view risk?

And then just tariffs, any comment you can make on how many you’re managing the situation today?

John Lee, CEO, MKS: Yes. I think our exposure to semi equipment in China is very low, as you said. So our exposure to semi in China is indirect through the OEM. So you can look at the big five and their percentage of China, that’s kind of our exposure. So it goes up and down depending on what they ship.

So that’s a pretty simple math. I think in terms of tariffs, yes, we have a couple of factories in China. Several of them are China for China, especially the chemistry factories. Factories. Several do produce for China but also outside of China.

Many of those are shipped to customers whose factories are not in The U. S. So kind of really no tariff issue there. But we do have a work stream of people looking at tariffs because they affect we’re global. We have lots of sites in different kind of countries.

So we’re looking at ways to look at where we have risk or not and then how to mitigate it. There are many ways to mitigate it. Short term, there are longer ways longer term approaches too, but those would take time. So I think right now, we’re in a pretty good position with respect to understanding where our exposure is. And remember, the tariffs haven’t really all gone in yet, right?

So we’re not doing something yet because we don’t have to. But we’re ready in case we have to.

Matt Prisco, Kantor: Wonderful. Well, thank you guys both so much for chatting today. Yes.

John Lee, CEO, MKS: Thank you, Matt. Thanks, Scott. Thanks, everybody. Thank you.

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