Q2 2022 MKS Instruments Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Good day, and thank you for standing by and welcome to MKS instruments second quarter 2022 conference call.
At this time.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, David or is it vice president of <unk>.
The relations. Please go ahead.
Thank you good morning, everyone I am David Richard <unk>, Vice President of Investor Relations and I'm joined this morning by John Lee, President and Chief Executive Officer, and Seth Bagshaw, Senior Vice President and Chief Financial Officer.
Yesterday after market closed we released our financial results for the second quarter of 2022, which are posted to our website, which we recently changed to MKS dotcom.
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, and any subsequent quarterly reports on Form 10-Q.
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 financial measures unless otherwise noted all forward looking financial measures exclude any contribution from <unk> limited the acquisition of which is still pending.
Also 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 our website for information regarding our non-GAAP financial results and a reconciliation of our GAAP and non-GAAP financial measures now I'll turn the call over to John .
David Good morning, everyone and thank you for joining US today, we delivered exceptional results in the second quarter with record revenue of $765 million and strong profitability.
Net earnings per diluted share of $2.59.
Both metrics exceeded the high end of our guidance range as we manage through continued supply chain constraints and inflationary pressures.
These results are a testament to our ability to execute by managing costs and factory efficiency, while continuing to invest in our ambitious R&D plans for the future.
This performance is also the result of the hard work dedication and ingenuity of our employees as well as the collaboration with our valued supply chain partners and customers, who continue to place their trust in MKS.
Yes.
Now I'd like to provide more detail on our second quarter results and my thoughts on current demand trends.
We delivered record revenue from our semiconductor market in the second quarter, increasing 6% sequentially and exceeding our expectations.
Well, there's clearly a lot of focus on the current macro environment, our business levels remained strong in the second quarter.
Our operations and engineering teams executed extremely well navigating industry wide supply chain constraints to deliver to our customers.
Availability of certain components somewhat improved in the second quarter, but we continue to remain supply constrained in our ability to fully meet customer demand.
Our strong performance in the semiconductor market was the result of broad based success across our portfolio.
With record semiconductor revenue for both our vacuum and photonics solutions divisions.
These results highlight the value of our deep customer relationships and the engineering and development investments we've made to help solve their most complex problems at the most advanced technology nodes.
A good example of the return on our R&D investments is a strong demand for our market, leading RF power supplies, which is a critical enabler of vertical scaling in the semiconductor industry.
Our market share gain has been primarily driven by dielectric etch applications for <unk> NAND.
We're also continuing to gain traction in conductor etch solutions, where we see an attractive market share gain opportunity.
In addition, we see increasing opportunities in advanced deposition applications. For example, we displaced the incumbent for leading edge foundry deposition process because of our dual level pulsing capability.
As reported by Tech insights, we have taken market share leadership in RF power supplies over the past year.
We continue to see an attractive opportunity for further growth given the continued trend of vertical scaling semiconductor structures.
We also saw strong demand across our market, leading plasma and reactive gas portfolio, where we delivered record revenue in the quarter.
We received significant follow on orders for our dissolved ozone solutions from our large foundry for wet cleaning applications.
Our customers are increasing their use of our dissolved ozone solutions as an environmentally sustainable alternatives.
Traditional wet cleaning chemistries.
While traditional solutions use toxic chemicals that require careful disposal.
Our ozone solutions naturally breakdowns oxygen water after the cleaning process.
We believe we are well positioned to benefit not only from leading edge foundry fab expansions, but also from the semiconductor industry's growing need for Green solutions.
We also delivered record revenue pressure valves, and analytical control products and our vacuum portfolio.
Which is yet another proof point of our leadership in critical vacuum subsystems over an unmatched breadth of solutions.
Our solutions play a critical enabling role in the products that our customers provide to the marketplace.
For example, our flagship pressure measurement solutions.
We were able to measure gas pressure in the chamber with extreme precision, which is critical to quality and yield across deposition and etch applications.
Our market, leading Bertrand capacitance manometer enables unprecedented sensitivity and accuracy the cancer detecting a millimeter of movement from more than one kilometer away.
It's important to underscore that our strategy as a technology enabler in the semiconductor market extend it beyond the vacuum chamber.
And I'm pleased with the growing traction of our Photonics solutions Division.
The lithography metrology and inspection applications in.
In the second quarter, our photonic solutions revenue to a semiconductor market reached another record.
Considerably on a year over year basis.
We saw particular strength in our optical solutions and motion products.
Our precision motion solutions are worth highlighting as we've seen an acceleration in business levels and design win activity for our semiconductor customers over the past few quarters.
And advanced packaging metrology and inspection applications customers are using our motion solutions to enable rapid movement and precise placement of the wafer to win within the accuracy of a few atoms, which is critical to process performance and throughput.
As we look to the third quarter demand trends in our semiconductor market remains strong across our vacuum and photonics portfolios that serve deposition etch lithography metrology inspection and what clean applications.
Well our demand outlook is healthy we remain impacted by supply chain constraints and as such we expect revenue to be consistent with second quarter levels.
In short, we are executing well across our semiconductor business as a leading critical subsystem technology provider. We believe that nearly every chip manufacturer in the world today is made using MKS technology.
We are well positioned to capitalize on the long term secular growth in the semiconductor market.
We have the number one or number two position in nearly all of our major product categories in the semiconductor market.
We intend to grow even further.
And our lead in this space as we have done for more than 50 years.
Moving to our advanced electronics market revenue in the second quarter declined 6% sequentially.
With our expectations and as discussed in our Q1 earnings call industry demand for flexible PCB via drilling has continued to soften as customers have temporarily slowed capacity expansions due in part to softness in smartphone demand.
In addition to the flexible PCB market. We've also seen softness in other applications tied to consumer electronics.
While our advanced electronics market is soft right now we believe this is transitory.
And we remain very excited about the long term secular opportunity for laser based manufacturing and electronics applications.
The same trends that drive our semiconductor business miniaturization and complexity.
Our key drivers for advanced electronics as customers demand more processing power more features and new form factors for their devices.
We believe our flexible PCB HDI PCB and IC substrate via drilling solutions are all well positioned for the years ahead.
In the third quarter, we expect PCB industry demand to remain muted as such we expect revenue from our advanced electronics market to remain consistent with second quarter levels.
Turning to our specialty industrial market revenue grew 1% sequentially.
Distant with our expectations.
Steady demand across industrial.
Life, and health Sciences, and research and defense applications.
As a reminder, our specialty industrial market provides a more stable revenue stream comprised of a broad array of applications with good margins and cash flow.
For the third quarter, we expect revenue from our specialty industrial market to remain consistent with second quarter levels.
Moving to our pending acquisition of <unk>, we remain very excited and look forward to combining our capabilities in lasers optics motion and process chemistry to drive faster solutions and new innovations for our customers.
We expect that our adjacent expertise will uniquely position MKS to optimize the interconnect.
Which is a significant enabling point of next generation advanced electronics.
As for the status of the transaction I am pleased to announce that today, we received unconditional merger approval from China's state administration for market regulation.
The acquisition is anticipated to close on August 17th subject to obtaining required sanction sanction by the Royal Court of Jersey, and the satisfaction of customary closing conditions.
As many of you know MKS has a longstanding track record track record of technology leadership and operational excellence and we continue to execute well in today's challenging environment is clearly demonstrated in our second quarter results.
While we are closely monitoring the macroeconomic landscape.
Slide chain impacts on our business. Our overall demand environment is healthy and we are in an outstanding position to continue delivering for our customers.
With that I'd like to turn the call over to Seth.
Thank you John I will cover second quarter results, then provide additional detail on guidance for the third quarter.
Revenue for the second quarter reached a record $765 million up 3% sequentially.
Exceeding the high end of our guidance range.
Revenue from the semiconductor market reached a record at $515 million up 6% sequentially and up 19% year over year, reflecting broad based demand for our vacuum and photonic solutions.
Power solutions delivered another strong quarter in our plasma and reactive gas pressure valves and illiquid control product groups as well as our Photonics solutions division each delivered record revenue in the semiconductor market.
This is a strong validation of our consistent strategy of cultivating a broad and complex portfolio, both organically and through acquisitions that provide the fundamental building blocks essential.
Semiconductor manufacturing.
So I mean, I think customers are increasingly relying on MKS to enable that multi year product development roadmaps.
Moving to our advanced electronics market revenue second quarter was $77 million declined 6% sequentially and 44% year over year.
As expected we saw continued demand.
Demand for flexible PCB via drilling equipment.
We believe the long term secular trend the flexible PCB industry remain intact, given its growing importance in enabling new form factors and more features and next generation electronic devices.
Therefore, I believe the current softness we are seeing is transitory.
We continue to work closely with current and potential customers to drive growth in our HDI PCB via drilling platform.
One of our initial high volume manufacturing customers has continued to add capacity, while another customer that previously qualified our platinum platform has deployed additional units across other global sites.
Our ACI solution remains a strategic opportunity for MKS.
Excited about the potential cross selling opportunities the penny accident AD Tech brings us as the leading provider of electroplating in the HDI industry.
As we said before defining trends of mineralization complexity dominate the semiconductor market for decades have become increasingly critical to advanced electronics.
We're using the same playbook that they are successful in the semiconductor market become a foundational solution provider and advanced electronics.
We're delivering the key building blocks the next generation technologies.
We look forward to closing the <unk> acquisition to flex as a transformational step in our long standing strategy.
Turning now to our specialty industrial market revenue was $173 million in the second quarter growing 1% sequentially, but declining 5% year over year.
We saw a steady sequential demand across a wide array of applications.
Our strategy and specialty industrial is quite simple.
So we're able to leverage our innovative vacuum in photonics technology designed for semiconductor and advanced electronics applications.
By applying that technology to a broad array of applications across industrial life, and health Sciences and research and defense.
In the second quarter I am pleased to say, we also delivered record revenue in our services business growing 8% sequentially and 9% all year to surpass a $100 million level for the first time.
This success is result of a strategic decision years ago to operate our worldwide services business as a distinct business unit.
Dedicated leadership team and a customer centric focus.
With increasing installed base and further opportunities to drive new value added customer solutions, we are well positioned to continue to drive growth in the years ahead.
Our second quarter gross margin was 44 44, 2% exceeding the midpoint of our guidance by 70 basis points.
Given the well known inflationary pressures, we are very pleased with how we executed in the quarter.
Second quarter operating expenses, which included annual compensation increases were $154 million $2 million favorable mid point of our guidance.
We continue to prudently manage our cost structure, while invest a number of attractive organic growth opportunities.
Second quarter operating margin was 24, 1%.
Exceeding the high end of our guidance range by 70 basis points, reflecting strong execution in a challenging macroeconomic environment.
And strong operating leverage in our financial model.
Second quarter, adjusted EBITDA was $208 million, yes.
Adjusted EBITDA margin was 27, 2%.
Net interest expense for the second quarter was $6 million.
And our tax rate is approximately 18%.
Net earnings for the second quarter were $145 million with $2 59 per diluted share.
Exiting the second quarter, we maintained a strong balance sheet and liquidity position with cash and short term investments at a record of over $1 billion with.
Which positions us well ahead, well the pending <unk> acquisition.
Our term loan principal balance was $820 million at the end of the second quarter and.
And we exited the quarter with $246 million net cash balance.
In terms of working capital days outstanding were 54 days at the end of the second quarter compared to 59 days ended the first quarter.
Inventory turns were two five times at the end of the second quarter compared to two six times at the end of the first quarter.
For the second quarter operating cash flow was $105 million in free cash flow was $41 million.
Our capital expenditures in the quarter, including approximately $40 million investment to acquire and expand the facility in South Korea.
We have a long standing strategy to provide sales service and technical support the South Korean cassette detector industry.
Thats typically increased our direct sales to these local customers.
This investment will allow us to expand our capabilities and support our future growth objectives in this region.
Consistent with prior quarters, we had a dividend payment of $12 million or 22 per share.
I'll now turn to our third quarter outlook with this levels remain robust continue to face supply chain constraints as such we expect third quarter revenue of $770 million.
$30 million.
Based on anticipated product mix and revenue levels, we estimate third quarter gross margin of 44, 5% plus or minus one percentage point.
And we continue to take necessary steps to counteract inflationary impacts on our business.
We expect operating expenses of $155 million, plus or minus $4 million.
In the third quarter is expense expected to be approximately $6 million and our tax rate to be approximately 18%.
Given these assumptions, we expect third quarter net earnings of $2 66 per diluted share plus or minus 25.
In summary, we executed well delivering growth and profitability across a number of attractive market opportunities.
Despite macroeconomic inflationary headwinds our financial performance is very strong and we believe the pending acquisition of AMETEK.
<unk> long term value creation for our employees customers and shareholders.
I'd like to now turn the call back to the operator for Q&A.
And thank you as a reminder to ask a question you will need to press star one one on your telephone. Please standby we compile the Q&A roster.
Please keep in mind, we are asking that you limit yourself to one question and one follow up again that is one question and one follow up one moment for questions.
And our next first question comes from Amanda Scar Natty from Citi. Your line is now open.
Yes.
Hi, good morning.
I have is on the semiconductor side of the business Manuel Thank you talked about lowering the caveat the estimates for 2022 and supply constrained.
Can you just talk a little bit about sort of what's happening in your backlog.
Are you able to ship more than expected on the semiconductor market are you still seeing constraints there.
Hi, Matt This is John Thanks for the question.
We said, we still see supply chain constraints.
And that is something we factor into our guidance for Q3, our backlog, we don't really report on it but it's really been strong so as I mentioned in the prepared remarks.
<unk> is not the problem, we wish we could ship more.
So I think.
I think lambs commentary it was just reflective of the reality that all of us have been constrained throughout the year, so demand remains strong and.
But we are still constrained.
So the other question is on the PCB side of the market. Obviously, there is a lot of consumer constraints, particularly in the mobile and compute markets.
When do you see these headwinds in the PCB market share do you think it gets worse before it gets better.
Or do you think that there is a lot of stability that you're seeing from your customers.
Well I think that the PCB market is made up of multiple markets. So what's weak right now are some of the consumer electronics and smartphones, notably in Pcs, but.
The PC market also supplies data center type of market. So.
We believe that smartphones have been a little weak and that does affect our flexible portion of our market of our product line.
But utilizations have been pretty high in general because we have many of our tools out there in the field.
So I think we're just ready for the next <unk>.
Capex build out and this year was a digestion year as we've seen and we've talked about before but looking forward.
I'm very positive on the long term trends of the PCB market.
Perfect. Thank you.
Thank you Amanda and thank you and one moment for questions.
And our next question comes from Patrick Ho from Stifel. Your line is now open.
Alright, Thank you very much John maybe first off on the semiconductor side of things.
Good to hear the continued expansion of that business outlook can you talk about share wins in areas like RF power, maybe from a bigger picture perspective.
What are additional areas within your product portfolio, where youre, either seeing market expansion or the potential for additional share gains what are some of the semiconductor areas, where those opportunities still exist.
Thanks for the question Patrick well first off I think as we mentioned in the prepared remarks, we see additional opportunities just in RF power itself.
So that's one large opportunity we also see opportunities as the semiconductor industry and flex two more vertical structures and that drives.
Opportunities in atomic layer deposition, where our ozone products.
Have a lot of.
Potential growth as well.
And then more importantly, we've talked about our expansion into world class optics dressing.
The customers in lithography inspection and metrology, it's an area, where we haven't had as high market share in our vacuum products. We made multiyear investments in there we see some great design wins in that area as well so that's another area for growth.
Great that's helpful and maybe as a follow up question for Seth in terms of the supply chain issue.
Margins are holding up pretty well given everything thats going on are there specific areas, where the constraints are still.
I guess really persistent.
Those are the biggest challenge or have you seen improvements in certain areas.
In other places they haven't shown improvements yet.
Yes. Thank you Patrick yes, so I think we are.
I mean, it's a number of areas, but the component piece, we'll try to call. It is still an area we have the most.
Headwinds, we've seen which has been the case for a number of quarters. Obviously I think that's also true across the industry. So.
The good news is the operations team is really leaning into a number of inventory objectives. I think we're going to be you know.
Again, working through all of those supply chain with over time again, I think it will take a while to work through all those but you can tell in the quarter. We did go above the high end of guidance range on revenue.
<unk> were better than expected, so I really give a lot of high marks to the operational execution within the MKS team here, so, but again as John mentioned in the prepared remarks, we still see some headwinds there in supply chain, but I think.
Over time Im sure we'll gain on it like everybody else. So we're pretty happy with execution in the quarter for sure.
Great. Thank you again.
Thanks, Patrick.
And thank you and one moment for questions.
And our next question come from Joe <unk> from Wells Fargo. Your line is now open.
Yes, Thanks for taking my question and congrats on getting the China approval for that a tech deal.
Maybe one on the semi side can you talk about the linearity in terms of component.
Scalability you saw during the quarter and then I guess.
What are you embedding in your September quarter guidance from a component perspective relative to the June quarter.
Yes, it is John .
In terms of linearity on component supply I think that.
That's really not the issue, it's usually whether we have it or not so well.
When we get it its fine it could be linear or not but that's not really the cause.
Is concerned it's really the surprises when we think we're going to get it and we don't and then it causes a whole slew of.
Running around trying to account for it.
Going forward.
I think it is.
Still surprises I think we have line of sight to many things because we worked on it.
But we could have said that last quarter and quarter before it has gotten better there.
There are fewer surprises, but there are still surprises. So I think really that's the way I would characterize how how the.
<unk> and supply chain constraints seem to be working.
Over the last several quarters.
Got it that's helpful and then on the <unk> side can you guys from minuses.
How should we think about accretion from the deal given the moves that we've seen in interest rates over the last few months.
But yes, we're going to certainly have an analyst day.
At some point after close and at that point, we'll be very happy to share.
Financial models of the combined company, so I'd like to leave it till then.
One reminder is that.
The pro forma revenue.
When combining <unk> chemistry revenue the service revenue or service revenue.
MKS will be about 40% recurring revenue and Thats really a powerful financial foundation from which we can build in terms of supporting our customers R&D events products and projects over any kind of capex downturns.
Got it thank you.
Thanks, Joe.
And thank you.
And one moment for questions.
Okay.
And our next question.
Comes from James Ricchiuti from Needham <unk> Company. Your line is now open.
Hi, good morning.
Question on the specialty industrial business.
I was just wondering if youre seeing any change in customer behavior.
Just related to some of the increased macro uncertainty.
How would you how would you.
Characterize the demand that youre seeing in some of the larger verticals.
In that business.
Yes, thanks for the question Jim.
We really haven't seen a lot of change you can kind of see the numbers are very steady.
In all the verticals of what we call specialty industrials.
Theres always gives and takes defense is lumpy, but R&D is lumpy.
But when you combine it all Jim I can't really point to any kind of macro behavior in any of the verticals. It's just been very steady.
Got it thanks John .
Follow up question, just as it relates to advanced electronics.
No we don't talk a whole lot about it but yes.
We continue to see pretty healthy demand in the.
The MLC business and I'm wondering to what extent is that providing support to that part of the business as you go through this cyclical downturn.
Flex PCB drilling side.
Yes, the MLC C market is certainly strong and supports many of the electronics products markets that we play in but we're really as you know the capex part of it so it has been pretty.
Muted as well as we characterize it.
To flex.
The factories are running our tools with high utilization, but right now they don't seem to have a need for capex expansion. We think that will change next year. It typically when you have a down year in Capex investment next year, usually picks up now that's not a promise, but that's what we've seen in the past.
Got it thanks, and congratulations on the approval in China.
Thanks, Jim.
Thank you.
One moment for questions.
And our next question comes from Chris <unk> from Cowen. Your line is now open.
Yeah, Hi, Thanks for taking my question and congrats on getting the approval from China on agile take.
Two of them first one John just a hypothetical question you know when you look at prior cycles.
Like obviously one of your customers land reported last evening really good numbers.
But the inventory is also growing I'm just wondering if they start seeing a slowdown.
Would you see that a quarter earlier, because they are going to start using up from their inventory versus.
Are you shipping it to them is that the way to think about it like you would probably see.
But one quarter earlier decline in your semi revenue before your semi cap customers see it.
Hi, Christian Thanks for the question Yeah as you know we typically are.
Bit ahead of our OEM customers, that's natural since we supply to them and they supply to their customers.
Whether its a quarter or not and whether it's in particular product groups are not.
It can vary depending on the cycle, but we will always probably front run a little bit so thats fair, but really we like to think about performing through the cycles.
We outperform through the cycle is 200 basis points above <unk> and some of that's market share gains and some of it is in the markets that we play so but we do we do front run a little bit.
Got it got it very helpful. And then one other question.
Semiconductor product portfolio, you have a wide range, obviously, you're also gaining share.
And the power supply side I am curious if and when there is a slowdown most investors worry about maybe slowdown in memory, maybe slowdown in mature nodes later on.
Which product category of your you know.
Huge product portfolio in Chinese would you see that closed but would it be impacted across the board.
Yes, I think it's really.
It's going to be something that impacts us across the across the board. We are our strategy is to be a very broad portfolio supplier an enabler in the semiconductor market.
So every one of our products goes into all types of chip, making memory foundry.
Legacy types of chips, as well and it's a little more complex too because as we grow our photonics solutions division addressing lithography metrology and inspection as you know the dynamics there are a little different in the vacuum types of customers those tend to be much longer lead items and so.
You have a little less volatility there.
Then the vacuum components, so it's a mix, but we'd probably see all of them altogether up and down in terms of the breadth of our portfolio.
Okay. Thanks, a lot John .
Thanks, Chris.
Thank you.
One moment for questions.
And our next question comes from <unk> Misra from their environment.
Thanks, and good morning, guys.
A question on photonics, what sort of trends are you seeing in that market.
As it relates to your semiconductor business.
In other words, how does the dollar spending on photonics trending versus the WFAN.
You expect that to outperform WFAN, maybe by how much.
Thanks for the question <unk>.
As I said.
<unk> customers of ours.
Although lithography metrology and inspection customers and just by the nature of those tools and the long lead items of the critical subsystems of those tools.
There is certainly less volatility there.
Respect to your question of is it are they spending more or less in vacuum I think thats pretty difficult to say.
Certainly our major customers there are leaders.
So are the major customers that we havent vacuum.
And so they are all.
<unk> for the products I.
I would say that for sure and they're all saying there they don't see it.
Any kind of push outs or anything at least in the foreseeable future.
Thanks, Sean and then I was wondering if you could provide some more color on your power business as to what sort of growth rate you saw in Q1 and Q2.
I think I would say this we continue to be very pleased with the market share.
<unk> that we're seeing in power.
Probably don't want to break out by quarter FERC, one product group, but because it can be lumpy too as you can imagine <unk>, but overall year over year, we're really really pleased with how that group is performing.
Fair enough thanks, guys.
Thanks Pat.
And thank you and one moment for questions.
And our next question comes from Mark Miller from the Benchmark Company. Your line is now open.
Congrats on your record quarter.
Closure of that acquisition.
I'm just wondering if you maybe can I ask.
<unk>, one the impact of component availability, either on your margins and or sales.
If there were at normal levels, we would expect to see.
Yes, Hey, Mark it's Seth Thanks for the question.
We don't provide that level of detail because a lot of moving pieces, obviously, but what I'll I'll kind of say if you went back to.
Similar volume so the big impact for US is obviously, a supply chain headwinds inflationary pressure like everybody else experiencing but if you went back to kind of our margins a year ago at roughly these volumes gives you a good sense of kind of the impact overall.
Gas, both supply chain headwinds as well as inflationary pressure now.
We've got a longstanding track record of.
Working on profit and cash recovery activities. So mentioned in prior calls we saw this coming early we've leaned into it and we've done a number of activities that take a little while to roll through the P&L, but our goal is get backups those historical margins. They will take a little while for sure because you have large backlog and some things take a while to execute but there is a lot.
Long list of things, we're working on have been working on to get us back up to those historical levels, but thats kind of our goal for sure both intermediate long term.
And.
Just driving that those assets going forward.
Your inventories have been trending up over the last year or is that just tracking your backlog.
Yes, I would say it's more on the prepared remarks, we are seeing obviously supply chain challenges. So we've leaned into few areas. A couple of things are kind of at a high level. One is we've thoughtfully looked at long lead time parts and have gone out their secure though so that'll be a strategic investment if you will long term.
But probably the biggest portion of the growth has been the fact that.
Again, you can't bring in every part you need to complete a finished goods you bring in what you can get is available and we have the flexibility in our balance sheet and capability to kind of make that type of investment that type of.
Long term decision, but that's probably the bigger driver in some of the growth in the inventory, it's really not quite bringing in all of the parts to complete our finished goods now as the supply chain again starts to normalize over time and that should normalize the inventory levels back at historical.
Historical lows, if you will but it's really a.
Fundamentally an impact on our supply chain, we're addressing in that fashion.
Thank you.
Yes, thanks Mark.
Thank you.
And I am showing no further questions I would now like to turn the call back over to David <unk> for closing remarks.
Alright, Thank you for joining us today and for your interest in MKS Operator, you may close the call. Please.
This concludes the call.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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