Q2 2024 MKS Instruments Inc Earnings Call

August 8, 2024

Operator: Welcome to the MKS Instruments second quarter 2024 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the call over to Paretosh Misra, Vice President of Investor Relations. Please go ahead.

welcome to the mks instrument second quarter two thousand and twenty four earnings conference call

Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star, one, one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the call over to Paritosh Mishra, Vice President of Investor Relations. Please go ahead.

Speaker Change: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star, one, one on your telephone. You will then hear an automated message advising your hand is raised.

to withdraw your question please press star one one again please be advised that to conference is being recorded i would now like to hand the call over to par mistraa vice president of investor relations please go ahead

Paritosh Mishra: Good morning, everyone. I'm Paritosh Misra, Vice President of Investor Relations, and I'm joined this morning by John Lee, President and Chief Executive Officer, and Michelle McCarthy, Vice President and Chief Accounting Officer. Yesterday, after market close, we released our financial results for the second quarter of 2024, which are posted on our investor website at investor.mks.com. As a reminder, various remarks about future expectations, plans, and prospects for MKS comprise forward-looking statements. Actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release and in our annual report on Form 10-K for the year ended December 31st, 2023.

Paretosh Misra: Good morning, everyone. I'm Paretosh Misra, Vice President of Investor Relations, and I'm joined this morning by John Lee, President and Chief Executive Officer, and Michelle McCarthy, Vice President and Chief Accounting Officer. Yesterday, after market close, we released our financial results for the second quarter of 2024, which are posted on our investor website at investor.mks.com. As a reminder, various remarks about future expectations, plans, and prospects for MKS comprise forward-looking statements. Actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release and in our annual report on Form 10-K for the year ended December 31st, 2023.

Paritosh Mishra: These statements represent the company's expectations only as of today and should not be relied upon as representing the company's estimates or views as of any date subsequent to today, and the company disclaims any obligation to update these statements. During the call, we will be discussing various non-GAAP financial measures. Unless otherwise noted, all income statement-related financial measures will be non-GAAP, other than revenue and gross margin. Please refer to our press release and the presentation materials posted to the investor relations section of our website for information regarding our non-GAAP financial reserves and a reconciliation of over-gap and non-gap financial measures. For a detailed breakdown of revenues by end market and division, please visit our investor website. Now, I'll turn the call over to John.

Paritosh Misra: Good morning, everyone. I'm Paritosh Misra, Vice President of Investor Relations, and I'm joined this morning by John Lee, President and Chief Executive Officer, and Michelle McCarthy, Vice President and Chief Accounting Officer.

Speaker Change: Yesterday, after market close, we released our financial results for the second quarter of 2024, which are posted to our investor website at investor.mks.com.

Paretosh Misra: These statements represent the company's expectations only as of today and should not be relied upon as representing the company's estimates or views as of any date subsequent to today, and the company disclaims any obligation to update these statements. During the call, we will be discussing various non-GAAP financial measures. Unless otherwise noted, all income statement-related financial measures will be non-GAAP, other than revenue and gross margin. Please refer to our press release and the presentation materials posted to the investor relations section of our website for information regarding our non-GAAP financial reserves and a reconciliation of our GAAP and non-GAAP financial measures. For a detailed breakdown of revenues by end market and division, please visit our investor website. Now, I'll turn the call over to John. Thanks, Paretosh.

Paritosh Misra: As a reminder, various remarks about future expectations, plans, and prospects for MKS comprise forward-looking statements.

Speaker Change: Actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release and in our annual report on Form 10-K for the year ended December 31, 2023.

Speaker Change: 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.

Speaker Change: During the call, we will be discussing various non-GAAP financial measures.

Speaker Change: Unless otherwise noted, all income statement-related financial measures will be non-GAAP , other than revenue and gross margin.

Speaker Change: please refer to over press release and the presentation materials posted to the investor relation section of our website for information regarding of our non-gaap financial results and a reconciliation of over gaap and non-thegaap financial measures

Speaker Change: For a detailed breakout of revenues by end market and division, please visit our investor website.

Paretosh Misra: Thanks Paretosh and good morning everyone. Let me start by welcoming Paretosh to MKS as our new vice president of investor relations. Paretosh brings strong experience of both investor relations and sell side research, where he covered MKS earlier in his career. I assume a number of you may already know him.

John Lee: Thanks, Paritosh, and good morning, everyone. Let me start by welcoming Paritosh to MKS as our new Vice President of Investor Relations. Paritosh brings strong experience of both investor relations and sell-side research, where he covered MKS earlier in his career. I assume a number of you may already know Paritosh.

Speaker Change: now i'll turn the call over to john thanks adaddressing good morning everyone let me start by welcoming parise to mks as our new vice president of investor relations

John: parta bring strong experience of both investor relations and cell-side research where he covered mks earlier in his career iassume a number of you may already no parashsh we've gl to have onboard you'll be hearing from him su

John Lee: We're glad to have him on board, and you'll be hearing from him soon. In addition, we are making very good progress in our search for MKS's next CFO. I hope to have news to share in the not-too-distant future. MKS delivered a strong second quarter with revenue of $887 million, at the high end of our guidance, and EPS of $1.53, exceeding the high end of our guidance. Our EPS included approximately $0.14 of interest expense benefit from our recent convertible note offering and term loan B paydown. But even without this tailwind, we still exceeded the high end of our guidance.

Speaker Change: In addition, we are making very good progress on our search for MKS's next CFO . I hope to have news to share in the not-too-distant future.

Speaker Change: and cant delivered a strong second quarter with revenue of eight hundred eighty seven million dollars at the high end of our guidance and epss of dollar fifty-three cents exceeding the high end of our guidance

Speaker Change: Our EPS included approximately $0.14 of interest expense benefit from our recent convertible note offering and term loan B paydown. But even without this tailwind, we still exceeded the high end of our guidance.

John Lee: Our results reflected continued excellent financial execution, which positions the company well for the eventual end market recovery. In addition to our revenue and earnings performance, we maintain strong gross margins above 47%, reflecting the value of our proprietary and differentiated solutions, as well as our consistent focus on cost control. Our operating expenses were better than guided as a result of lower-than-expected compensation and benefit costs, primarily related to the timing of due hires and prudent management of third-party spend.

John Lee: Our results reflected continued excellent financial execution, which positions the company well for the eventual end-market recovery. In addition to our revenue and earnings performance, we maintain strong gross margins above 47%, reflecting the value of our proprietary and differentiated solutions, as well as our consistent focus on cost control. Our operating expenses were better than guided as a result of lower-than-expected compensation and benefit costs, primarily related to the timing of due hires and prudent management of third-party spend.

Speaker Change: Our results reflect the continued excellent financial execution which positions the company well for the eventual end market recovery.

Speaker Change: In addition to our revenue and earnings performance, we maintain strong gross margins above 47%.

Operator: Welcome to the MKS Instruments Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.

Speaker Change: reflecting the value of our proprietary and differentiated solutions as well as our consistent focus on cost control.

Speaker Change: Our operating expenses were better than guided as a result of lower-than-expected compensation and benefit costs, primarily related to the timing of due hires and prudent management of third-party spend.

Operator: To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.

John Lee: Our solid execution extended to the balance sheet, where we continued our long-standing track record of proactively managing our leverage. During the quarter, we closed an upsized $1.4 billion convertible note offering at a fixed coupon rate of 1.25%. We used approximately $1.2 billion of the net proceeds to pay down our Term Loan B, which significantly reduced our cash interest expense.

Speaker Change: our solid execution extended to the balance sheet where we continued our longstanding trap record proactively managing our leverage

Operator: Please be advised that today's conference is being recorded.

Paretosh Misra: I would now like to hand the call over to Paretosh Misra, Vice President of Investor Relations. Please go ahead. Good morning, everyone.

Speaker Change: During the quarter, we closed an upsized $1.4 billion convertible note offering at a fixed coupon rate of 1.25%.

Speaker Change: We used approximately $1.2 billion of the net proceeds to pay down our Term Loan B, which significantly reduced our cash interest expense.

Paretosh Misra: I'm Paretosh Misra, Vice President of Investor Relations, and I'm joined this morning by John Lee, President and Chief Executive Officer, and Michelle McCarthy, Vice President, and Chief Accounting Officer. Yesterday, aftermarket close, we released our financial results for the second quarter of 2024, which are posted to our investor website at investor.nks.com. As a reminder, various remarks about future expectations, plans, and prospects for MKS comprise forward-looking statements. Actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release, and in our annual report on form 10K for the year rendered December 31, 2023.

John Lee: The transaction was also structured to mitigate potential dilution to our existing shareholders through kept call transactions, which Michelle will discuss in more detail. The convertible note offering also positioned us to reprice our Term Loan B in July, and we made a $110 million voluntary prepayment on that loan in connection with the repriced. While we are pleased with our financial execution, we continue to see muted market demand. Given our stronger-than-expected results in the second quarter, we are now expecting second-half revenue to be relatively in line with first-half revenue.

John Lee: The transaction was also structured to mitigate potential dilution to our existing shareholders through kept call transactions, which Michelle will discuss in more detail. The Convertible Note Offering also positioned us to reprice our Term Loan B in July, and we made a $110 million voluntary prepayment on that loan in connection with the repriced. While we are pleased with our financial execution, we continue to see muted market demand. Given our stronger-than-expected results in the second quarter, we are now expecting second-half revenue to be relatively in line with first-half revenue.

Speaker Change: the transaction was also a structured to mitigate potential dilution to our existing shareholders to capt call transactions which michelle will discuss in more detail

Michelle: The Convertible Note Offering also positioned us to reprice our Term Loan B in July , and we made a $110 million voluntary prepayment on that loan in connection with the repricing.

Speaker Change: While we are pleased with our financial execution, we continue to see muted market demand.

Michelle: Given our stronger-than-expected results in the second quarter, we are now expecting second-half revenue to be relatively in line with first-half revenues.

John Lee: We're very encouraged about our market positioning, and we believe we are continuing to gain share within a certain product category. Highlights include a strategic photonics win in our semiconductor market that we expect will ramp over the next several quarters. We also achieved some very early stage revenue synergies and design wins in our electronics and packaging businesses. The breadth and depth of our proprietary portfolio of products and solutions, combined with our strong customer relationships in the semiconductor and advanced packaging markets, put MKS in a great position when our markets recover. Now, I'll review our performance in our final three months.

John Lee: We're very encouraged about our market positioning, and we believe we are continuing to gain share within certain product categories. Highlights include a strategic photonics win in our semiconductor market that we expect will ramp over the next several quarters. We also achieved some very early stage revenue synergies and design synergies in our electronics and packaging business. The breadth and depth of our proprietary portfolio of products and solutions, combined with our strong customer relationships in the semiconductor and advanced packaging markets, put MKS in a great position when our markets recover. Now, I'll review our performance in our final three months.

Michelle: We are very encouraged about our market positioning and we believe we are continuing to gain share within certain product categories.

Paretosh Misra: 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 day subsequent to today, and the company disclaims any obligation to update these statements. During the call, we will be discussing various non-GAB financial measures. Unless otherwise noted, all income statement-related financial measures will be non-GAB other than revenue and gross margin. Please refer to our press release, and the presentation materials posted to the Investor Relations sections of our website for information regarding our non-GAB financial results, and a reconciliation of our GAAP and non-GAB financial measures. For a detailed breakout of revenues by NMarket and Division, please visit our investor website.

Speaker Change: highlights include a strategic forot tyides when in our semiconto market that we expect will ram up over the next several quarters

Speaker Change: we also achieved some very early stage revenue synergies and design lins in our electronics and packaging market

Speaker Change: the breadth and depth of our proprietary portfolio of products and solutions combined with our strong customer relationships in the semiconductor and advanced packaging markets put emc in a great position when our markets recover

John Lee: In our semiconductor market, revenue increased 5% sequentially. Similar to our first quarter results, the higher revenue trend was primarily driven by in-quarter demand conversion. Second quarter year-over-year comparisons are distorted given that the prior year quarter reflects recovery from the ransomware incident in Q1 2023. Starting in the third quarter, year-over-year comparisons should be largely normalized.

John Lee: In our semiconductor market, revenue increased 5% sequentially. Similar to our first quarter results, the higher revenue trend was primarily driven by in-quarter demand conversion. The second quarter year-over-year comparisons are distorted, given that the prior year quarter reflects recovery from the ransomware incident in Q1 2023. Starting in the third quarter, year-over-year comparisons should be largely normalized.

Speaker Change: now i'll review our performance in our three -end markets

Speaker Change: In our semiconductor market, revenue increased 5% sequentially.

Speaker Change: Similar to our first quarter results, the higher revenue trend was primarily driven by in-quarter demand conversion.

Speaker Change: The second quarter, year-over-year comparisons are distorted, given that the prior year quarter reflects recovery from the ransomware incident in Q1 2023.

John Lee: Now, I'll turn the call over to John. Thanks, Paratosh.

John Lee: Good morning, everyone. Let me start by welcoming Paratosh to MKS as our new Vice President of Investor Relations. Paratosh brings strong experience of both investor relations and sell-side research, where he covered MKS earlier in his career. I assume a number of you may already know Paratosh. We're glad to have him on board, and you'll be hearing from him soon. In addition, we are making very good progress on our search for MKS's next CFO. I hope to have news to share in the not-too-distant future.

Speaker Change: startrying the third quarter year-over-year comparisons should be largely normalized

John Lee: With the exception of NAND, we're seeing early signs of improvement, especially in DRAM and Logic Foundry, in support of artificial intelligence-related investments. As device makers step up investments in key areas such as high bandwidth memory and new logic architectures like Gate All Around, MKS is well positioned to leverage our broad technology capabilities to solve the most difficult challenges. Our vacuum solutions products enable the critical etch and deposition process that helps semiconductor manufacturers achieve high throughput and yield as chip architectures become more complex. In our photonic solutions, we provide key subsystems for lithography, metrology, and inspection applications, currently one of the highest growth areas of WFE.

John Lee: With the exception of NAND, we're seeing early signs of improvement, especially in DRAM and Logic Foundry, in support of artificial intelligence-related investments. As device makers step up investments in key areas such as high-bandwidth memory and new logic architectures like Gate All Around, MKS is well-positioned to leverage our broad technology capabilities to solve the most difficult challenges. Our vacuum solutions products enable the critical etch and deposition process that helps semiconductor manufacturers achieve high throughput and yield as chip architectures become more complex. In our photonic solutions, we provide key subsystems for lithography, metrology, and inspection applications, currently one of the highest growth areas of WFE.

Speaker Change: with the exception of mand we're seeing early signs of improvement especially in drram and logic foundry in support of artificial intelligence related investments

Speaker Change: as the vicemakers step up investments in key areas such as high bandwthmemory and new logic architectures like ateat all around mcash is well positioned to leverage our broad technology capabilities to solve the most difficult challenges

John Lee: MKS delivered a strong second quarter with revenue of $887 million at the high-end NARG guidance, and EPS of $53, exceeding the high-end of our guidance. Our EPS included approximately 14 cents of interest expense benefit from our recent convertible note offering and term loan be paid out. But even without this tailwind, we still exceeded the high-end of our guidance. Our results reflected continued excellent financial execution, which positions the company well for the eventual end market recovery.

Speaker Change: Our vacuum solutions products enable the critical etch and deposition processes that help semiconductor manufacturers achieve high throughput and yield as chip architectures become more complex.

Speaker Change: in our photox solutions we provide key subsystems to lithography metrology and inspection applications currently one of the highest growth areas of wf investment

John Lee: As I mentioned earlier, we had a strategic photonics win through our world-class optics, with initial unit production starting this year. This is a great win for us that highlights how we integrate multiple MKS technologies to create a unique solution that no one else can provide, and is an example of how we have continued to outperform WFE in this category. Until we fully ramp production of this product over the next several quarters, we are seeing some slight pressure on our photonic solutions division gross margin, which is reflected in our Q2 results.

John Lee: As I mentioned earlier, we had a strategic Photonis win through our world-class optics, with initial unit production starting this year. This is a great win for us that highlights how we integrate multiple MKS technologies to create a unique solution that no one else can provide, and is an example of how we have continued to outperform WFE in this category. Until we fully ramp production of this product over the next several quarters, we are seeing some slight pressure on our photonic solutions division gross margin, which is reflected in our Q2 results.

Speaker Change: as i mentioned earlier we had a strategic fortorona's winind through our world-class optics initiative

Speaker Change: with initial unit production starting this year. This is a great win for us. It highlights how we integrate multiple MKS technologies to create a unique solution that no one else can provide and is an example of how we have continued to outperform WFE in this category.

John Lee: In addition to our revenue and earnings performance, we maintained strong gross margins above 47%. Reflecting the value of our proprietary and differentiated solutions, as well as our consistent focus on cost control. Our operating expenses were better than guided as a result of lower than expected compensation and benefit costs, primarily related to the timing of new hires and prudent management of third-party spend. Our solid execution extended to the balance sheet, where we continued our long-standing track record proactively managing our leverage.

Speaker Change: until we fully ramp production of this product over the next several quarters we're seeing some slight pressure on our photonic solutions division gross margin which is reflected in our q two results

John Lee: That said, this is an exciting win for us that we believe will drive strong revenue over the long term and provides a great opportunity to showcase our unique innovation capability. In the third quarter, we expect semiconductor revenue to be down slightly on a sequential basis. This reflects our continued view that we are bouncing along the bottom of the industry cycle.

John Lee: That said, this is an exciting win for us that we believe will drive strong revenue over the long term and provide a great opportunity to showcase our unique innovation capabilities. In the third quarter, we expect semiconductor revenue to be down slightly on a sequential basis. This reflects our continued view that we are bouncing along the bottom of the industry cycle.

Speaker Change: That said, this is an exciting win for us that we believe will drive strong revenue over the long term. It provides a great opportunity to showcase our unique innovation capabilities.

Speaker Change: In the third quarter, we expect semiconductor revenue to be down slightly on a sequential basis.

John Lee: During the quarter, we closed an upsized $1.4 billion convertible note offering that a fixed coupon rate of 1.25%. We used approximately 1.2 billion dollars of the net proceeds to pay down our term loan being, which significantly reduced our cash interest expense. The transaction was also structured to mitigate potential delusion to our existing shareholders through kept call transactions, which Michelle will discuss in more detail. The convertible note offering also positioned us to reprice our term loan B in July, and we made a $110 million voluntary prepayment on that loan in connection with the repricing.

Speaker Change: This reflects our continued view that we are bouncing along the bottom of the industry cycle. We remain in a very good position for the next industry up-cycle, given that we are a critical enabler embedded with all key customers.

John Lee: We remain in a very good position for the next industry upcycle, given that we are a critical enabler embedded with all key customers and have the broadest exposure of any subsistence provider. Turning to electronics and packaging, we saw double-digit revenue growth quarter over quarter. Our revenue performance was led by chemistry sales with some seasonal strength relative to Q1, which included the Lunar New Year. Future results also include higher equipment sales. At present, demand is primarily driven by investment in AI servers, which represents a small but increasing proportion of the total server market.

John Lee: We remain in a very good position for the next industry upcycle, given that we are a critical enabler embedded with all key customers and have the broadest exposure of any subsistence provider. Turning to electronics and packaging, we saw double-digit revenue growth quarter over quarter. Our revenue performance was led by chemistry sales with some seasonal strength relative to Q1, which included the Lunar New Year. Q2 results also included higher equipment sales. At present, demand is primarily driven by investment in AI servers, which represents a small but increasing proportion of the total server market.

Speaker Change: and have the broadest exposure of any subsistence provider.

Speaker Change: Turning to electronics and packaging, we saw double-digit revenue growth quarter-over-quarter. Our revenue performance was led by chemistry sales with some seasonal strength relative to Q1, which included the Lunar New Year.

Speaker Change: Q2 results also included higher equipment sales sequentially.

Speaker Change: at present demand is primarily driven by investment in ai servers which represents a small but increasing proportion of the total server market

John Lee: We are expecting electronics and packaging revenue in Q3 to be down slightly on a sequential basis while we wait for stronger signs of PC and smartphone market recovery. We are excited about how our combined laser and chemistry capabilities can drive new growth. We will continue to make good progress in the LEO satellite space, including achieving a synergistic design win in copper plating in Q2. We've also notched an early synergy win in chemistry with a key player in the smartphone supply chain.

Speaker Change: we are expecting the rons and packing revenue in q three to be downslightly on a sequential basis while we wait for stronger signs of pc and smartphone market recovery

John Lee: While we are pleased with our financial execution, we continue to see muted market demand. Given our stronger than expected results in the second quarter, we are now expecting second half revenue to be relatively in line with first half revenues. We're very encouraged about our market positioning, and we believe we are continuing to gain share within certain product categories. Highlights include a strategic footage lend in our semiconductor market that we expect will wrap over the next several quarters.

Speaker Change: We are excited about how our combined laser and chemistry capabilities can drive new growth opportunities.

Speaker Change: We will continue to make good progress in the LEO satellite space, including achieving a synergistic design win in copper plating in Q2.

Speaker Change: We've also notched an early synergy win in chemistry with a key player in the smartphone supply chain.

John Lee: These are individually small deals from a revenue standpoint, but represent early proof points that our combined laser and chemistry capabilities are resonating with customers. We continue to believe that our electronics and packaging business will be increasingly driven by the same trends that drove our semi-business, namely, miniaturization, complexity, and chemistry. At this point, some of you attended a recent visit to our Tech Center in Berlin to learn more about our Optimize the Interconnect office, which underpins the strategic rationale of our combination with Atif.

John Lee: These are individually small deals from a revenue standpoint, but represent early proof points that our combined laser and chemistry capabilities are resonating with customers. We continue to believe that our electronics and packaging business will be increasingly driven by the same trends that drove our semi-business, namely, miniaturization, complexity, and chemistry. At this point, some of you attended a recent visit to our tech center in Berlin to learn more about our Optimize the Interconnect offering, that underpins the strategic rationale of our combination with Atif's legacy.

Speaker Change: These are individually small deals from a revenue standpoint, but represent early proof points that our combined laser and chemistry capabilities are resonating with customers.

John Lee: We also achieved some very early-stage revenue synergies and design loans in our electronics and packaging market. The breadth and depth of our proprietary portfolio of products and solutions combined with our strong customer relationships in the semiconductor and advanced packaging markets put MCAS in a great position when our markets recover.

Speaker Change: We continue to believe that our electronics and packaging business will be increasingly driven by the same trends that drove our semi-business, namely, miniaturization, complexity, and chemistry.

John Lee: Now all review our performance in our three end markets. In our semiconductor market, revenue increased 5% sequentially. Similar to our first quarter results, the higher revenue trend was primarily driven by in-quarter demand conversion.

Speaker Change: this point so you attended a recent visit to our te center inberlin to learn more about our optimize the interconnect offering that underpinss the strategic rationale of a combination with that asent

John Lee: We are the only player who combines laser drilling expertise with plating tools and chemistry to best enable key technology inflections at the substrate and PCB levels. And we are leveraging our broad combined relationships to increase customer engagement. In our specialty industrial market, revenues decreased about 7% sequentially.

Speaker Change: we are the only player who combines laser drilling expertise with playating tools and chemisistries to best enable key technology and inflections at the substrate and pcb levels and we are leveraging our broad combined relationships increased customer engagement

John Lee: The second quarter year over year comparisons are distorted, given that the prior year quarter reflects recovery from the ransomware incident in Q1 2023. Starting the third quarter year over year comparisons should be largely normalized. With the exception of NAND, we're seeing early signs of improvement, especially in DRAM and Logic Foundry, in support of artificial intelligence-related investments. As the vice-makers step up investments in key areas, such as high bandwidth memory and new logic architectures like GID all around, MCAS is well-positioned to leverage our broad technology capabilities to solve the most difficult challenges.

Speaker Change: In our specialty industrial market, revenues decreased about 7% sequentially.

John Lee: Softness in Vacuum and Photonics Products for Select Specialty Categories but Stable Automotive Revenues in our General Metal Finishing. As a reminder, our specialty industrial market is comprised of numerous applications that span several end markets and leverages our proprietary technologies and related R&D investments within semiconductor and electronics, providing strong incremental margins and cast generation. As we await the broader industrial market recovery, chemistry from our material solutions division provides a relatively steady, consumable-driven source of revenue with strong margins, contributing to both our electronics and packaging and specialty industrial markets.

John Lee: Softness in Vacuum and Photonics Products for Select Specialty Categories but Stable Automotive Revenues in our General Metal Finishing. As a reminder, our specialty industrial market is comprised of numerous applications that span several end markets and leverages our proprietary technologies and related R&D investments within semiconductor and electronics packaging, providing strong incremental margins and cast generation. As we await the broader industrial market recovery, chemistry from our Materials Solutions Division provides a relatively steady, consumable-driven source of revenue with strong margins, contributing to both our electronics and packaging and specialty industrial markets.

Speaker Change: with softness in vacuum and photonics products for select specialty categories but stable automotive revenues in our general metal finishing business.

Speaker Change: As a reminder, our specialty industrial market is comprised of numerous applications that span several end markets and leverages our proprietary technologies and related R&D investments within semiconductor and electronics and packaging, providing strong incremental margins and cash generation.

John Lee: Our vacuum solutions products enable the critical edge and depth position processes that help semiconductor manufacturers achieve high throughput and yield as chip architectures become more complex. In our Photonic Solutions, we provide key subsystems to lithography, metrology, and inspection applications. Currently one of the highest growth areas of WFE investment. As I mentioned earlier, we had a strategic Photonist win through our World Class Optics Initiative with initial unit production starting this year. This is a great win for us that highlights how we integrate multiple MKS technologies to create a unique solution that no one else can provide.

Speaker Change: as we wewait the broader industrial market recovery chemistry from our material solutions division provides a relatively steady consumable driven source of revenue with strong margins contributing to both our theelectrons and packaging and specialty industrial markets

John Lee: It's also an area of innovation for the company, as industrial customers increasingly seek sustainable and environmentally friendly solutions. A great example of this is the suite of solutions we have developed in trivalent chrome to provide the automotive market with a more sustainable path from the hexavalent chrome that has been used in automobiles for decades. We believe we are a leader in pioneering end-to-end solutions for OEMs that deliver sustainable surface processing through cost efficient applications.

John Lee: And is an example of how we have continued to outperform WFE in this category. Until we fully ramp production of this product over the next several quarters, we're seeing some slight pressure on our Photonic Solutions Division gross margin, which is reflected in our Q2 results. That said, this is an exciting win for us that we believe will drive strong revenue over the long term. It provides a great opportunity to showcase our unique innovation capabilities.

Speaker Change: It's also an area of innovation for the company, as industrial customers increasingly seek sustainable and environmentally friendly solutions.

Speaker Change: the great exampleof this is the ssuiteet of solutions we have developed in trivalillage chrome to provide the automotive market a more sustainable path from the hexofaviland roone has been used in automotive for a decades

Speaker Change: we believe we are leader in pioneering end-to-end solutions em that delivers sustainable surface processing through cost-efficient applications

John Lee: And we received two new orders in Q2 for our tri-chrome solution. Another innovation in general metal finishing is our equipment recycling solution, where we can extend the equipment life through chemistry reformulations and innovative equipment processing, creating investment savings and environmental benefits for our customers. We have had multiple design wins here.

Speaker Change: And we received two new orders in Q2 for our tri-chrome solutions.

Speaker Change: another innovation and generle menal finishing is our equipment recycling solutions

Speaker Change: we can extend the equipment life through chemistry reformulations and innovative equipvobit processing solutions

John Lee: In the third quarter, we expect semiconductor revenue to be down slightly on a sequential basis. This reflects our continued view that we are bouncing along the bottom of the industry cycle. We remain in a very good position for the next industry upcycle given that we are a critical enabler embedded with all key customers and have the broad exposure of any subsystem provider.

Speaker Change: creating investment savings and environmental benefits for our customers.

John Lee: Looking ahead to Q3, we expect revenue in our specialty industrial market to be in line with Q2. Let me wrap up by saying we are pleased with our execution and performance in the second quarter. We are taking the steps necessary to drive profitable growth and improve cash generation as demand remains fairly stable across our end market. Consistent with our historic performance, we're confident in our ability to outperform WFE when the market recovers.

Speaker Change: We have had multiple design wins here in recent months.

Speaker Change: Looking ahead to Q3, we expect revenue in our specialty industrial market to be in line with Q2.

Speaker Change: Let me wrap up by saying we are pleased with our execution and performance in the second quarter. We are taking the steps necessary to drive profitable growth and improve cash generation as demand remains fairly stable across our end markets.

John Lee: Turning to electronics and packaging, we saw double digit revenue growth quarter over quarter. Our revenue performance was led by chemistry sales with some seasonal strength relative to Q1, which included the Lunar New Year. Q2 results also included higher equipment sales sequentially. That present demand is primarily driven by investment in AI servers, which represents a small but increasing proportion of the total server market.

Speaker Change: Consistent with our historic performance, we're confident in our ability to outperform WFE when the market recovers.

John Lee: We have the broadest product portfolio spanning both the semiconductor and electronics and packaging markets, and we leverage our expertise across these markets to solve our customers' hardest problems. Our breadth gives us a unique view into upcoming inflections, and that makes us an important resource across the entire advanced electronics ecosystem. Now, John, I will turn it over to Michelle to cover our second quarter financial results in more detail. Thank you.

Speaker Change: We have the broadest product portfolio spanning both the semiconductor and electronics and packaging markets.

John Lee: We are expecting the Tronics and Packings Revenue in Q3 to be down slightly on a sequential basis while we wait for stronger signs of PC and smartphone market recovery. We are excited about how our combined laser and chemistry capabilities can drive new growth opportunities. We are contingently good progress in the LEO satellite space, including achieving a synergistic design win and copper plating in Q2. We've also notched an early synergy win in chemistry with a key player in the smartphone supply chain.

Speaker Change: And we leverage our expertise across these markets to solve our customers' hardest problems.

Speaker Change: Our breath gives us a unique view into upcoming inflections, and that makes us an important resource across the entire advanced electronics ecosystem.

John Lee: These are individually small deals from our revenue standpoint, but represent early proof points that are combined laser and chemistry capabilities are resonating with customers. We continue to believe that our electronics and packaging business will be increasingly driven by the same trends that drove our semi-business, namely, immunization, complexity, and chemistry.

Michelle: now let me turn it over to michelle to cover our second quarter financial results in more detailthank you john in the morning everyone

Michelle Mccarthy: Thank you, John, and good morning, everyone. For the second quarter, MKS reported revenue of $887 million, up 2% sequentially and at the high end of our guidance range, driven by better than expected semiconductor and electronics and packaging revenue. Second quarter semiconductor revenue was $369 million, up 5% sequentially and well ahead of our expectations, primarily driven by stronger-than-expected in-quarter demand conversion. As John mentioned, the year-over-year comparison for semiconductors is not meaningful, given our second quarter 2023 results include recovery from the ransomware incident in the first quarter of 2023. However, year-over-year comparisons should be largely normalized, starting with the third quarter.

Michelle Mccarthy: Thank you, John, and good morning, everyone. Second quarter semiconductor revenue was $369 million, up 5% sequentially and well ahead of our expectations. As John mentioned, the year-over-year comparison for semiconductor is not meaningful given our second quarter 2023 results include recovery from the ransomware incident in the first quarter of 2023. The benefit from the Convertible Note Offering and Term Loan Be Paydown represents only a partial quarter given our execution in mid-May and is expected to represent approximately $0.27 of earnings per share in the third quarter. Gross debt was $5 billion, and our net leverage ratio was 4.6 times based on our trailing 12-month adjusted EBITDA of $904 million.

Michelle: For the second quarter, MKS reported revenue of $887 million, up 2% sequentially and at the high end of our guidance range, driven by better-than-expected semiconductor and electronics and packaging revenue.

Michelle: Second quarter semiconductor revenue was $369 million, up 5% sequentially, and well ahead of our expectations.

Speaker Change: primarily driven by stronger-than-expected in-quarter demand conversion.

John Lee: At this point, some of you attended a recent visit to our tech center in Berlin to learn more about our optimized interconnect offering that underpins the strategic rationale of our combination with that attempt. We are the only player who combines laser drilling expertise with plating tools and chemistries to best enable key technology inflections at the substrate and PCB levels. And we are leveraging our broad combined relationships to increase customer engagement. In our specialty industrial market, revenue decreased about 7% sequentially, with softness and vacuum and photonics products for select specialty categories, but stable automotive revenues in our general mental finishing business.

John: as john mentioned the year-over-year comparison for semiconductor is not meaningful given our second quarter two thousand and twenty three results include recovery from the ransomw incident in the first quarter of two thousand and twenty-three

John: Year-over-year comparisons should be largely normalized, starting with the third quarter.

Michelle Mccarthy: Second quarter electronics and packaging revenue was $229 million, an increase of 10% quarter over quarter and 2% year over year. This result was led by seasonal strength in chemistry and higher equipment sales. Excluding the impact of foreign currency and palladium pass-through, chemistry sales grew 19% year-over-year, as we are seeing some recovery from industry-wide softness in the second quarter of 2023.

Speaker Change: Second quarter electronics and packaging revenue was $229 million, an increase of 10% quarter over quarter and 2% year over year. This result was led by seasonal strength in chemistry and higher equipment sales.

Speaker Change: Excluding the impact of foreign currency and palladium pass-through, chemistry sales grew 19% year-over-year, as we are seeing some recovery from industry-wide softness in the second quarter of 2023.

Michelle Mccarthy: In our specialty industrial market, second quarter revenue was $289 million, a decline of 7% sequentially and just below our guidance expectations. Revenue can fluctuate from quarter to quarter as a result of trends within the multiple end markets served but, overall, has been generally stable over the last four quarters. Similar to our semiconductor market, the year-over-year comparison is distorted as a result of recovery from the ransomware incident.

John Lee: As a reminder, our specialty industrial market is comprised of numerous applications that span several end markets and leverages our proprietary technologies and related R&D investments within semiconductor and electron and electrons of packaging, providing strong incremental margins and cash generous. As we await the broader industrial market recovery, chemistry from our material solutions division provides a relatively steady, consumable driven source of revenue with strong margins, contributing to both our electronics and packaging and specialty industrial markets.

Speaker Change: in our specialty industrial market set quarter revenue was two hundred and eighty-nine million dollars a decline of seven percent sequentially and just below our guidance expectations

Speaker Change: Revenue can fluctuate from quarter to quarter as a result of trends within the multiple end markets served, but overall has been generally stable over the last four quarters.

Speaker Change: Similar to our semiconductor market, the year-over-year comparison is distorted as a result of recovery from the ransomware incident.

Michelle Mccarthy: Turning to margins, we reported a second quarter gross margin of 47.3%, representing the high end of our guidance. Gross margin was down sequentially, as expected, due to favorable effects from the non-recurring items in the first quarter, as well as product mix, including the impact of startup costs related to the world-class optics win in our Photonic Solutions Division, as John discussed. Our margins continue to reflect the strength of our differentiated product portfolio. We continue to prudently manage our costs, with second quarter operating expenses of $227 million coming in well below our expectations. This was driven primarily by lower compensation and benefits expenses, especially with regard to the timing of planned new hires, as well as lower third-party spend.

Speaker Change: Turning to margins, we reported second quarter gross margin of 47.3%, representing the high end of our guidance.

John Lee: It's also an area of innovation for the company. As industrial customers increasingly seek, sustainable and environmentally friendly solutions. A great example of this is the suite of solutions we have developed in trivalent chrome to provide the automotive market a more sustainable path from the hexavalent chrome has been used in automotive for decades. We believe we are a leader in pioneering end-to-end solutions OEMs that deliver sustainable surface processing through cost-efficient applications. And we receive two new orders in Q2 for our tri-chrome solutions.

John Lee: Another innovation in general mental finishing is our equipment recycling solutions where we can extend the equipment life through chemistry reformulations and innovative equipment processing solutions, creating investments savings and environmental benefits for our customers. We have had multiple design wins here in recent months. Looking ahead to Q3, we expect revenue in our specialty industrial market to be in line with Q2.

Speaker Change: Gross margin was down sequentially, as expected, due to favorability from the non-recurring items in the first quarter, as well as product mix, including the impact of startup costs related to the world-class optics win in our Photonic Solutions Division, as John discussed.

Speaker Change: our margins continue to reflect the strength of our differentiated product portfolio

John: We continue to prudently manage our costs with second quarter operating expenses of $227 million, coming in well below our expectations.

Speaker Change: This was driven primarily by lower compensation and benefits expenses, especially with regard to the timing of planned new hires, as well as lower third-party spend.

Michelle Mccarthy: We are proud of our longstanding track record of managing our cost structure throughout market cycles, which allows us to balance investing in our business with near-term profitability and cash generation. Looking ahead, we expect operating expenses to increase from second-quarter levels but remain below our earlier expectations of a $240 to $250 million run rate for the balance of 2024. Second quarter operating income was $192 million, yielding an operating margin of 21.7% and above the high end of our guidance, driven by higher sales, a strong gross margin, and lower operating expenses.

Speaker Change: We are proud of our long-standing track record of managing our cost structure throughout market cycles, which allows us to balance investing in our business with near-term profitability and cash generation.

Speaker Change: Looking ahead, we expect operating expenses will increase from second quarter levels, but remain below our earlier expectations of a $240 to $250 million run rate for the balance of 2024.

John Lee: Let me wrap up by saying we are pleased with our execution and performance in the second quarter. We are taking the steps necessary to drive profitable growth and improve cash generation that the man remains fairly stable across our end markets. Consistent with our historic performance, we are confident in our ability to outperform WFE when the market recovers. We have the broadest product portfolio spanning both the assembly conductor and electronic and packaging markets and we leverage our expertise across these markets to solve our customers hardest problems. Our breath gives us a unique view into upcoming inflections and that makes us an important resource across the entire advanced electronics ecosystem.

Speaker Change: Second quarter operating income was $192 million, yielding an operating margin of 21.7% and above the high end of our guidance, driven by higher sales, strong gross margin, and lower operating expenses.

Michelle Mccarthy: Second quarter adjusted EBITDA was also above the high end of our expectations at $228 million with a 25.7% margin. Net interest expense was $69 million, below our guidance of $79 million, reflecting interest savings from the May closing of our $1.4 billion convertible note offering and Term Loan B paydown. As a result of entering into capped call transactions, we expect there will be no dilution to shareholders in the event of any conversion of the notes until our stock price exceeds $237.42, which was double our stock price when we announced the transaction.

Speaker Change: Second quarter adjusted EBITDA was also above the high end of our expectations at 228 million dollars with a 25.7 percent margin.

Speaker Change: that interest expense with sixty nine million dollars below our guidance of seventy nine million dollars reflecting interest savings from the may closing are one point four billion dollars convertible notede offering and term loan be pid down

Michelle Mccarthy: Now let me turn over to Michelle to cover our second quarter financial results in more detail. Thank you, John. Good morning, everyone. For the second quarter, MKS reported revenue of $887 million. Up 2% sequentially and at the high end of our guidance range driven by better than expected semiconductor and electronics and packaging revenue. Second quarter semiconductor revenue was $369 million. Up 5% sequentially and well ahead of our expectations. Primarily driven by stronger than expected in quarter demand conversion.

Speaker Change: As a result of entering into capped call transactions, we expect there will be no dilution to shareholders in the event of any conversion of the notes until our stock price exceeds $237.42.

Michelle Mccarthy: We used $1.2 billion of the net proceeds to repay borrowings under our Terminal B facility, which, based on current interest rates, will save over $75 million of annualized cash interest and reduce our effective interest rate by over 100 basis points. We expect those cash savings will accelerate the deleveraging of our balance sheet.

Speaker Change: which was double our stock price when we announced the transaction.

Speaker Change: We used $1.2 billion of the net proceeds to repay borrowings under our Terminal B facility, which, based on current interest rates, will save over $75 million of annualized cash interest and reduce our effective interest rate by over 100 basis points.

Michelle Mccarthy: As John mentioned, the year over year comparison for semiconductors not meaningful given our second quarter 2023 results include recovery from the ransomware incident in the first quarter of 2023. Year over year comparisons should be largely normalized starting with a third quarter. Second quarter electronics and packaging revenue was $229 million. An increase of 10% quarter over quarter and 2% year over year. This result was led by seasonal strength in chemistry and higher equipment sales.

Speaker Change: we expect those cash shshipt savings will accelerate the deleveraging of our balance sheet

Michelle Mccarthy: In addition, the convertible note offering positioned us to reprice the remaining balance of our term loan B in July, reducing the interest rate by 25 basis points and saving an additional $9 million of annualized cash interest. Second quarter net earnings were $103 million, or $1.53 per diluted share, well above our guidance ranges. These results reflect the strong operating performance in the quarter, as well as the $0.14 per share of interest expense reduction from our recent convertible note offering and term loan beat pay down, as well as a lower than expected tax rate of 20.5% for the quarter.

Speaker Change: in addition the convertible note offering positioned us to reprice the remaining balance of our term loan b in july reducing the interest rate by twenty-five basis points and saving an additional nine million dollars of annualized cash interest

Speaker Change: Second quarter net earnings were $103 million or $1.53 per diluted share, well above our guidance ranges.

Michelle Mccarthy: Excluding the impact of foreign currency and palladium pass through, chemistry sales grew 19% year over year as we are seeing some recovery from industry-wide softness in the second quarter of 2023, and our specialty industrial market, Seth Concorder Revenue, who is $289 million, a decline of 7% sequentially and just below our guidance expectations. Revenue can fluctuate from quarter to quarter as a result of trends within the multiple end markets served, but overall has been generally stable over the last four quarters.

Speaker Change: these results reflect the strong operating performance in the quarter as well as the fourteen cents per share of interest expense reduction from our recent convertible note offering and term loan beat paydown as well as a lower than expected tax rates of twenty point five percent for the quarter

Michelle Mccarthy: The benefit from the Convertible Note Offering and Term Loan Be Paydown represents only a partial quarter, given our execution in mid-May, and is expected to represent approximately $0.27 of earnings per share in the third quarter. Free cash flow was $96 million, and unlevered free cash flow was $156 million. We closed the second quarter with more than $1.5 billion of liquidity, comprised of cash, cash equivalents, and short-term investments of $851 million and our undrawn revolving credit facility of $675 million.

Speaker Change: The benefit from the Convertible Note Offering and Term Loan Be Paid Down represents only a partial quarter given our execution in mid-May and is expected to represent approximately $0.27 of earnings per share in the third quarter.

Michelle Mccarthy: Similar to our semiconductor market, the year-over-year comparison is distorted as a result of recovery from the ransomware incident. Turning to margins, we recorded second quarter gross margin of 47.3%, representing the high end of our guidance. Gross margin was down sequentially as expected due to favorability from the non-recurring items in the first quarter, as well as product mix, including the impact of startup costs related to the world-class optics win in our market.

Speaker Change: free cash flow was ninety-six million dollars and unlevered free cash flow with one hundred and fifty six million dollars

Speaker Change: We close the second quarter with more than $1.5 billion of liquidity, comprised of cash, cash equivalents, and short-term investments of $851 million and our undrawn revolving credit facility of $675 million.

Michelle Mccarthy: Gross debt was $5 billion, and our net leverage ratio was 4.6 times based on our trailing 12-month adjusted EBITDA of $904 million. We expect to continue to prioritize debt paydown with our excess free cash flow, as evidenced by the $110 million voluntary debt paydown made in July in parallel with our term loan repricing. This prepayment resulted in an $8 million reduction to our annualized cash interest based on current interest rates. To put perspective on the impact of our debt actions this year, we entered 2024 with an annual interest expense run rate of approximately $330 million.

Speaker Change: Gross debt was $5 billion and our net leverage ratio was 4.6 times based on our trailing 12-month adjusted EBITDA of 904 million dollars.

Michelle Mccarthy: Our margins continued to reflect the strength of our differentiated product portfolio. We continued to prudently manage our costs with second quarter operating expenses of $227 million coming in well below our expectations. This was driven primarily by lower compensation and benefits expenses, especially with regard to the timing of planned new hires, as well as lower third-party spend. We are proud of our longstanding track record of managing our cost structure throughout market cycles, which allows us to balance investing in our business with near-term profitability and cash generation.

Speaker Change: we expect to continue to prioritize debt piddown with our excess free cash flow as evidenced by the hundred and ten million dollar voluntary debt paydown made in july in parallel with our terminal and repricing

Speaker Change: this prepayment resulted in an eight million dollar reduction to our annualized cash interest based on current interest rates

Speaker Change: to put perspective around the impact of our deb actions this year we enteer two thousand and twenty four with an annual interest expense run rate of approximately three hundred and thirty million dollars

Michelle Mccarthy: With the actions we've taken year-to-date and the recent reduction in the year-over-year rates, that value has been reduced to approximately $240 million. In the second quarter, we paid a dividend of $0.22 per share, or $15 million.

Michelle Mccarthy: Looking ahead, we expect operating expenses will increase from second quarter levels, but remain below our earlier expectations of a $240 to $250 million run rate for the balance of 2024. Second quarter operating income was $192 million yielding an operating margin of 21.7% and above the high end of our guidance driven by higher sales, strong gross margin, and lower operating expenses. Second quarter adjusted EBITDA was also above the high end of our expectations at $228 million with a $25.7% margin.

Speaker Change: with the actions we've taken year-to-d and the recent reduction in the yearurable re that value has been reduced to approximately two hundred and forty million dollars

Speaker Change: During the second quarter, we paid a dividend of $0.22 per share, or $15 million. With that, I'd like to turn the call back over to John , who will review our outlook. John ?

John Lee: With that, I'd like to turn the call back over to John, who will review our Outlook. John? Thank you, Michelle.

John Lee: Michelle, let me now turn to our third-quarter outlook. We expect revenue of $870 million, plus or minus $40 million. Reflecting the better than expected second quarter and a continued slow path to market recovery as we continue to bounce along the bottom of this industry cycle, we now expect second half revenue to be relatively in line with first half.

Michelle Mccarthy: Michelle, let me now turn to our third quarter outlook. We expect revenue of $870 million, plus or minus $40 million, reflecting the better-than-expected second quarter and a continued slow path to market recovery as we continue to bounce along the bottom of this industry cycle. We now expect second half revenue to be relatively in line with first half.

John: Thank you, Michelle. Let me now turn to our third quarter outlook. We expect revenue of $870 million, plus or minus $40 million, reflecting the better-than-expected second quarter and a continued slow path to market recovery as we continue to bounce along the bottom of this industry cycle.

Michelle Mccarthy: That interest expense was $69 million below our guidance of $79 million, reflecting interest savings from the May closing or $1.4 billion convertible note offering and term loan be paydown. As a result of entering into CACT call transactions, we expect there will be no dilution to shareholders in the event of any conversion of the notes until our stock price exceeds $237.42, which was double our stock price when we announced the transaction. We used $1.2 billion as a net proceeds to repay borrowings under our term loan be facility, which based on current interest rates will save over $75 million of annualized cash interest and reduce our effective interest rate by over a hundred basis points.

Speaker Change: We now expect second half revenue to be relatively in line with first half levels.

John Lee: Buy and market, our third quarter outlook is as follows. Revenue from our semiconductor market is expected to be $360 million, plus or minus $15 million. Revenue from our electronics and packaging market is expected to be $220 million, plus or minus $10 million. And revenue from our special industrial market is expected to be $290 million, plus or minus $15 million, based on anticipated revenue levels and product. We expect a third quarter gross margin of 46.5%, plus or minus 100 basis points.

Michelle Mccarthy: Buy and market, our third quarter outlook is as follows. Revenue from our semiconductor market is expected to be $360 million, plus or minus $15 million. And revenue from our specialty industrial market is expected to be $290 million, plus or minus $15 million. We expect third quarter operating expenses of $235 million, plus or minus $5 million. We expect a tax rate of approximately 16.5% in the third quarter, and we expect to remain on track to achieve a tax rate of 20% for the full fiscal year.

Speaker Change: Buy-in market, our 3rd quarter outlook is as follows. Revenue from our semiconductor market is expected to be $360 million, plus or minus $15 million.

Speaker Change: Revenue from our electronics and packaging market is expected to be $220 million, plus or minus $10 million. And revenue from our specialty industrial market is expected to be $290 million, plus or minus $15 million.

Speaker Change: based on anticipated revenue levels and product mix we expect third quarter gross margin of forty-six point five percent customizede one hundred basis points

John Lee: We expect third-quarter operating expenses of $235 million, plus or minus $5 million. As we continue to manage expenses, we believe $235 million is an appropriate run rate for the fourth quarter as well. We estimate adjusted EBITDA of $206 million, plus or minus $23 million. As Michelle mentioned, the recent convertible note offering and term loan B paydown are expected to be accretive by roughly $0.27 per share in the third quarter. We expect a tax rate of approximately 16.5% in the third quarter, and we expect to remain on track to achieve a tax rate of 20% for the full fiscal year.

Speaker Change: We expect third quarter operating expenses of $235 million, plus or minus $5 million.

Michelle Mccarthy: We expect those cash to savings will accelerate the deleveraging of our balance sheet. In addition, the convertible note offering positioned us to reprise the remaining balance of our term loan be in July, reducing the interest rate by 25 basis points and saving an additional $9 million of annualized cash interest. 2nd quarter net earnings, $103 million, or $1.53 per diluted share, well above our guidance ranges. These results reflect the strong operating performance in the quarter, as well as the $0.14 per share of interest expense reduction from our recent convertible note offering and term-loan beat paydown, as well as a lower than expected tax rate of 20.5% for the quarter.

Speaker Change: As we continue to manage expenses, we believe $235 million is an appropriate run rate for the fourth quarter as well.

Speaker Change: We estimate adjusted EBITDA of $206 million plus or minus $23 million. As Michelle mentioned, the recent convertible note offering and term loan B paydown is expected to be accretive by roughly 27 cents per share in the third quarter.

Speaker Change: we expect a tax rate of approximately sixteen point five percent in the third quarter and we expect to remain on track to achieve a tax rate of twenty percent for the fill fiscal year

John Lee: Given these assumptions, we expect third quarter net earnings per diluted share of $1.43, plus or minus $0.28. I'm proud of how our team has navigated the cyclical softness in our end markets while delivering for our customers and our shareholders. This, along with our differentiated product and technology portfolio tied to key secular trends in our NMR, positions us well for the next cyclical. With that, Operator, please open the call for Q&

Michelle Mccarthy: Given these assumptions, we expect third-quarter net earnings per diluted share of $1.43, plus or minus $0.28. I'm proud of how our team has navigated the cyclical softness in our end markets while delivering for our customers and our shareholders. With that, Operator, please open the call for Q&A.

Speaker Change: given these assumptions we expect thir quarter net earnings for udued share of a dollar forty three cents plus minus twenty-eightgh cents

Speaker Change: I'm proud of how our team has navigated the cyclical softness in our end markets while delivering for our customers and our shareholders.

Michelle Mccarthy: The benefits from the convertible note offering and term-loan beat paydown represents only a partial quarter given our execution in mid-May and is expected to represent approximately 27 cents of earnings per share in the third quarter. Free cash flow was $96 million, and unlearned free cash flow was $156 million. To close the second quarter with more than $1.5 billion of liquidity, comprised of cash, cash equivalents, and short term investments of $851 million, and our undrawn revolving credit facility of $675 million.

Speaker Change: this along with our differentiated product and technology portfolio tied to key secular trends in our end markets

Speaker Change: positions as well for the next cyclical upturn.

Speaker Change: With that, Operator, please open the call for Q&A.

Operator: At this time, we will conduct the question and answer session. Again, as a reminder, to ask a question, you will need to press star one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Joseph Moore of Morgan Stanley. Your line is now open. Great, thank you. It looks like gross margins in the quarter were stronger than we expected, and your Q3 guidance was pretty good.

Operator: At this time, we will conduct the question and answer session. Again, as a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Joseph Moore of Morgan Stanley. Your line is now open. Great, thank you. It looks like gross margins in the quarter were stronger than we expected, and your Q3 guidance was pretty good.

Speaker Change: Thank you. At this time we will conduct the question and answer session. Again, as a reminder, to ask a question you will need to press star 1 1 on your telephone and wait for your name to be announced.

Speaker Change: to withdraw your question please press star one one again

John Lee: Good morning, Joe. You know, I think the gross margin is reflective of the proprietary nature of our products. I think there was a good product mix again, mainly MSD; chemistry revenue remained a good proportion of the revenue. But also, gross margin was, you know, improving as well in VSD as well as services. And we did note a little bit of gross margin headwind in PSD. So that kind of range of 46 to, you know, give or take 100 basis points, 46 and a half. That's really, you know, the right way to think about our gross margin with the current mix that we have. Great, thank you.

Michelle Mccarthy: Gross debt was $5 billion, and our net leverage ratio was 4.6 times based on our trailing 12-month adjusted EBITDA of $904 million. We expect to continue to prioritize debt paydown with our excess free cash flow, as evidenced by the $110 million voluntary debt paydown made in July in parallel with our term loan repricing. This prepayment resulted in an $8 million reduction to our annualized cash interest based on current interest rates. To put perspective around the impact of our debt actions this year, we enter 2024 with an annual interest expense run rate of approximately $330 million. With the actions we've taken year-to-date and the recent reduction in the yearable rates, that value has been reduced to approximately $240 million.

Speaker Change: Our first question comes from Joseph Moore of Morgan Stanley . Your line is now open.

Joseph Moore: Great, thank you. It looks like gross margins in the quarter were stronger than we expected and your Q3 guidance was pretty good. Can you talk about the puts and takes and what's driving that gross margin improvement?

John Lee: Good morning, Joe. You know, I think the gross margin is reflective of the proprietary nature of our products. I think there was a good product mix, again, mainly MSD; chemistry revenue remained a good proportion of the revenue. But also, gross margin was, you know, improving as well in VSD as well as service. And we did note a little bit of gross margin headwind in PSD. So that kind of range of 46 to, you know, give or take 100 basis points, 46 and a half, that's really, you know, the right way to think about our gross margin with the current mix that we have today. Great, thank you.

Speaker Change: good morning joe i think the gress margin is reflective of the proprietary nature of our products

Speaker Change: I think there was a good product mix again, mainly MSD, chemistry revenue, remained a good proportion.

Speaker Change: of the revenue. But also gross margin was, you know, improving as well in VSD as well service, and we did note a little bit of gross margin headwind in PSD.

Speaker Change: So that kind of range of 46 to, you know, give or take 100 basis points, 46 and a half, that's really, you know, the right way to think about our gross margin with the current mix that we have today.

Michelle Mccarthy: During the second quarter, we paid a dividend of $0.22 per share or $15 million.

John Lee: And as a follow-up, separately, can I ask about, on the semi-slide. Are you seeing any indications of NAN spending picking up, you know, either the second half this year or early next year? Yeah, I think, you know, it's hard, hard to predict that. But I think we have we read the same things you guys read.

John Lee: With that, I'd like to turn the call back over to John who will review our outlook. John? Thank you, Michelle.

Speaker Change: great thank you and as a followall-up separately to talk about on the semicside are you seeing any indications of nand spending picking up either second half to share or early next year

John Lee: Let me now turn to our third quarter outlook. We expect revenue of $870 million plus or minus $40 million. Reflecting the better than expected second quarter and a continued slow path to market recovery as we continue to bounce along the bottom of this industry cycle. We now expect second half revenue to be relatively in line with first half levels.

John Lee: And I think Nan does seem to be pushing out a little bit relative to maybe the industry's view early in the year. But I think we're still bouncing along the very bottom for Nan. And as you know, we have some great proprietary solutions there. So when that market picks up, we'll certainly enjoy that. But right now, Joe, I think we're a little more, you know, bouncing along the bottom a little longer. And I think that's consistent with the industry view.

John Lee: And I think NAND does seem to be pushing out a little bit relative to maybe the industry's view early in the year. But I think we're still bouncing along the very bottom for NAND. And as you know, we have some great proprietary solutions there. So when that market picks up, we'll certainly enjoy that. But right now, Joe, I think we're a little more, you know, bouncing along the bottom a little longer. And I think that's consistent with the industry view.

Speaker Change: yeah i think you knowit's hard hard to predict that but i think we have we read the same thing that you you guys read and nan does seem to be push out a little bit relative to maybe the industry view early in the year

John Lee: By-hand market, our third quarter outlook is as follows. Revenue from our semi-centre market is expected to be $360 million plus or minus $15 million. Revenue from our electronics and packaging market is expected to be $220 million plus or minus $10 million and revenue from our specially industrial market is expected to be $290 million plus or minus $15 million. Based on anticipated revenue levels and product mix, we expect third quarter gross margin of 46.5 percent plus or minus 100 basis points.

Speaker Change: so i think we're still bouncing along the very bottom of fer dand and as you know we have some great separproprietary solutions there so when that market picks up wewillll certainly enjoy that take up the right now jo i think we're a little more you oun one bottom a little longer and i think that's consistent with the industry view

Operator: Thank you. One moment for our next question. Our next question comes from Vivek Arya of Bank of America Securities. Your line is now open.

Speaker Change: Thank you.

Speaker Change: extra

Speaker Change: Thank you. One moment for our next question.

Speaker Change: our next question comes from vi vc ara of bans america securities your life is not open

Operator: Hi, this is Michael Mani on behalf of Vivek Arya. Thank you for taking a few of our questions. First off, I think some of your major customers in the segment market have reported so far, indicated relatively strong sequential growth into the second half. So I guess, how can we reconcile this with some of the more muted trends you're seeing in Q3. And what signs should we look for at these customers before a more sustained upturn can occur as largely a function of utilization? Are there other signs we should monitor?

John Lee: Hi, this is Michael Mani on behalf of Vivek Arya. Thank you for taking a few of our questions. First off, I think some of your major customers in the segment market have reported so far that there has been relatively strong sequential growth into the second half. So I guess, how can we reconcile this with some of the more muted trends we're seeing in Q3 and what signs should we look for at these customers before a more sustained upturn can occur as it's largely a function of utilization, or are there other signs we should monitor?

Speaker Change: Hi, this is Michael Mani on Furvevec Aria. Thank you for taking a few of our questions. First off, I think some of your major customers in the semi-market have reported so far indicated a relatively strong sequential growth.

John Lee: We expect third quarter operating expenses of $235 million plus or minus $5 million. As we continue to manage expenses, we believe $235 million is an appropriate run rate for the fourth quarter as well. We estimate adjusted EBDA of $206 million plus or minus $23 million. As Michelle mentioned, the recent convertible note offering and term loan be paid down is expected to be accreted by roughly 27 cents per share in the third quarter.

Speaker Change: into the second half. So I guess, how can we reconcile this with some of the more muted trends we're seeing in Q3? And what signs should we look for at these customs before a more sustained upturn can occur as largely a function of utilization? Or are there other signs we should monitor?

John Lee: Thank you. Yeah, Michael, I think one of the things that's happening now in the industry and with MKS is that our lead times have been pulled in, which is good. They pulled into kind of the normal historic lead times, which are pretty short, and that does limit our visibility a little bit. And as we noted in the call this time, as well as last quarter, there are a lot more of the, you know, unexpected, if you will, in-quarter conversions because our lead times are shorter.

John Lee: We expect a tax rate of approximately 16.5% in the third quarter, and we expect to remain on track to achieve a tax rate of 20% for the full fiscal year. Given these assumptions, we expect the third quarter net earnings per due due to share of $1.43 plus or minus 28 cents.

Speaker Change: Thank you. Yeah, Michael, I think, you know, one of the things that's happening now in the industry and with MKS is that our lead times have been pulled in, which is good. They've pulled into kind of the normal historic lead times, which are pretty short.

Speaker Change: And that does limit our visibility a little bit. And as we noted in the call this time, as well as the last quarter,

John Lee: I'm proud how our team has navigated the cyclical softness in our end markets while delivering for our customers and our shareholders. This along with our differentiated product and technology portfolio tied to key secular trends in our end markets positions as well for the next cyclical upturn.

Speaker Change: There is a lot more of the, you know, unexpected, if you will, in-quarter conversions because our lead times are shorter.

John Lee: And so I agree that some of our customers have indicated that there may be some, you know, better second half. And, you know, we'll see if that happens for us, but certainly if they do and they need our equipment, we'll see that. But right now, the best we can see is that kind of second half; the first half is relatively consistent. And I would note, as we said in the prepared remarks, that Q2 was, you know, much higher than we had expected coming into Q2.

John Lee: And so I agree that some of our customers have indicated that there may be some, you know, better second half. And, you know, we'll see if that happens for us, but certainly if they do and they need our equipment, we'll see that. But right now, the best we can see is that kind of second half. The first half is relatively consistent. And I would note, as we said in the prepared remarks, that Q2 was, you know, much higher than we had expected coming into Q2.

Speaker Change: and so I agree that some of our customers have indicated that there may be some, you know, better second half and, you know, we'll see if that happens to us.

John Lee: Got it. Thank you.

Operator: With that operator, please open the call for Q&A. Thank you. At this time, we will conduct the question and answer session. Again, as a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.

Speaker Change: for us but certainly if they do and they need our equipment we'll see that but right now the best we can see is that kind of second half first half is relatively consistent i would note as we said in the prepared remarks that q two was much higher than we ' expect to coming in six you two

John Lee: Got it. Thank you.

John Lee: And next, could you share any more color on strategic photonics within the quarter? Once it's fully ramped over the coming quarters, how much could this potentially contribute to growth next year? And is there any way to frame the long-term opportunity in the optics photonics market for MKS? Thank you.

Speaker Change: Thank you. And next, could you share any more color on this strategic?

Joseph Moore: Our first question comes from Joseph Moore of Morgan Stanley. Your line is now open. Great. Thank you. We look like Gross margins in the quarter. We're stronger than we expected. And your Q3 guidance was pretty good.

Speaker Change: toxics went in the quarter once is fully ramped over the coming quarters how much ofcould this potential that contribute to growth next year and is thereany way a frame the long-term opportunity the pics forhoproduxics market for and cast thank you

John Lee: Yeah, I think this is just the latest example of a multi-year strategy we've had of investing in world-class options. We believe that we have a unique capability in the industry because of our broad product portfolio. And we can integrate many things together that no one else can. And so this is a big win, and we're happy to have gotten it.

John Lee: Yeah, I think this is just the latest example of a multi-year strategy we've had of investing in world-class optics. We believe that we have a unique capability in the industry because of our broad product portfolio, and we can integrate many things together that no one else can. And so this is a big win, and we're happy to have gotten it.

John Lee: Can you talk about the what's in takes and what's driving that Gross margin improvement? Good morning, Joe. I think the Gross margin is reflective of the proprietary nature of our products. I think there was a good product mix again. Mainly MSD, chemistry revenue remained a good proportion of the revenue. But also, Gross margin was improving as well in VSD as well as service. And we didn't note a little bit of Gross margin headwind in PSD. So that kind of range of 46 to give or take 100 basis points, 46.5. That's really the right way to think about our Gross margin with the current mix that we have today. Great. Thank you.

Speaker Change: Yeah, I think this is just the latest example of a multi-year strategy we've had of investing in world-class optics.

Speaker Change: We believe that we have a unique capability in the industry because of our broad product portfolio.

Speaker Change: and we can integrate many things together that no one else can and so this is a big win and we're happy have gotten it there is always the start up costs youknow

John Lee: There are always startup costs. You know, cycle time is longer in the beginning, and manufacturing efficiency is a little less efficient in the beginning until you start making more units. As you order more parts, obviously, the price of the supply of the parts goes down. So we do have a little headwind on that in the beginning, but that's kind of normalized. So I think it's just part of our bigger effort in world-class updates. I think we should point out that our revenue in lithography, metrology, and inspection has continued to grow, even during this current down cycle. And that's part of the reason why we continue to believe we can outperform WFE growth.

John Lee: There is always the start-up cost. You know, cycle time is longer in the beginning, and manufacturing efficiency is a little less efficient in the beginning until you start making more units. As you order more parts, obviously, the price of the supply of the parts goes down. So we do have a little headwind on that in the beginning, but that's kind of normalized. So I think it's just part of our bigger effort in world-class optics, which I think we should point out that our revenue in lithography, metrology, and inspection has continued to grow even during this current down cycle. And that's part of the reason why we continue to believe we can outperform WFE growth.

Speaker Change: Cycle time is longer in the beginning and manufacturing efficiency is a little less efficient in the beginning until you start making more units.

Speaker Change: As you order more parts, obviously, pricing of the supply of the parts goes down. So, we do have a little headwind on that in the beginning, but that's kind of normalized.

Joseph Moore: And as a follow-up, separately, can I ask about on the semi-side, are you seeing any indications of man spending picking up, either second half this year or early next year? I think it's hard to predict that, but I think we read the same thing to you guys reading. I think NAN does seem to be pushing out a little bit relative to maybe the industry view early in the year. So I think we're still bouncing along the very bottom for NAN.

Speaker Change: So I think it's just part of our bigger effort in world-class optics which I think we'd point out our revenue in lithography, metrology, and inspection has continued to grow even during this current down cycle and that's part of the reason why you know we continue to believe we can outperform WFE growth.

Speaker Change: Thank you.

Speaker Change: Thanks.

Speaker Change: one moment for next question

Operator: One moment for our next question. Our next question comes from Melissa Weathers of DB. Your line is now open.

John Lee: One moment for our next question. Our next question comes from Melissa Weathers of DB. Your line is now open.

Joseph Moore: And as you know, we have some great proprietary solutions there. So when that market picks up, we'll certainly enjoy that pick up. But right now, Joe, I think we're a little more bouncing along bottom a little longer. And I think that's consistent with the industry view. Okay. Thank you. Thanks, Joe. Thank you.

melissa weather: your next question comes from melissa weather of db or line is now open

Operator: Hi there, thank you for letting me ask a question. I wanted to talk about the specialty industrial business. Can you summarize where you think we are cyclically in that business? I think it came in a little bit lighter than what I thought in the recent quarter. So how do we think about that business cyclically? I know there are a bunch of different moving parts within it.

John Lee: Hi there, thank you for letting me ask a question. I wanted to talk about the specialty industrial business. Can you summarize where you think we are cyclically in that business? I think it came in a little bit lighter than what I thought in the recent quarter. So how do we think about that business cyclically? I know there are a bunch of different moving parts within it.

Operator: One moment for our next question.

melissa weather: and it thank you for let me ask a question i wanted to talk about the specialty industrial business

melissa weather: Can you summarize where you think we are cyclically in that business? I think it came in a little bit lighter than what I thought in the recent quarter. So how do we think about that business cyclically? I know there are a bunch of different moving parts within it.

Michael Moni: Our next question comes from Vivek Arya of Bank of America Securities.

Speaker Change: thanks for the question luis i think we look at it is not cyclical it's made up of a bunch of different markets that tend to

John Lee: Your line is not open. Hi, this is Michael Moni on for Vivek Arya. Thank you for taking a few of our questions. First off, I think some of your major customers in the semi-market report so far indicated a relatively strong sequential growth into the second half. So I guess how can we reconcile this with some of the more muted trends? We're seeing Q3. And what signs should be looked for at these customers before or before a more sustained upturn can occur as a largely a function of fetalization or other other signs we should have. We should know.

Speaker Change: sum up to something pretty stable, and we've seen that over, you know, the past several quarters. It can be lumpy, and this quarter was down a little more than we had expected, as we said. I would look at this, I would kind of look at the longer term.

John Lee: I would kind of look at the longer-term revenue for specialty industrials. That's why we look at a year at a time. And when you look at it from that perspective, it is still very stable. But it can be lumpy depending on some segments of the market.

Speaker Change: of Revenue for specialty industrials. That's why we look at you know, kind of a year at a time. And when you look at it that perspective it is still very stable. So it can be lumpy depending on you know, substance sub segments, sorry of the markets.

John Lee: Got it. And then on the E&P side, I think last quarter you talked about an uptick in demand for high-density multilayer PCBs related to AI servers. How is that business trending? Are you still seeing momentum from AI? Yeah, I think we are.

John Lee: Got it. And then on the E&P side, I think last quarter you talked about an uptick in demand for high density multi-layer PCBs related to AI servers. How is that business trending? Are you still seeing momentum from AI? Yeah, I think we are.

John Lee: Thank you, Michael. I think, you know, one of the things that's happening now in the industry and with MKS is that our D times have been pulled in, which is good. They pulled in to kind of the normal historically times, which are pretty short. And that does limit our visibility a little bit. And as we noted in the call this time, as well as last quarter, there is a lot more of the unexpected, if you will, in quarter conversions, because our D times are shorter.

Speaker Change: um and then on the e and p side i think last quarter you talked about an uptick and demand for high density multtiilayer pcs related to a i servers how is that business trending or stillsinging momentum for may i

John Lee: Yeah, I think we do. Many of those customers that are more levered to AI are our customers, and we see that momentum. And many of them are public companies, so you can see what they're saying. And the good thing is that the proportion of the PCB market that is driven by AI is increasing. But, as we noted before, it's still relatively a small proportion of the PCB market. PCs and smartphones, and non-AI servers are still the largest part of it. And as you know, there's still a little bit of muted demand for PCs and smartphones.

John Lee: Yeah, I think we do. You know, many of those customers that are more levered to AI are our customers, and we see that momentum.

Speaker Change: Yeah, I think we do. Many of those customers that are more levered to AI are our customers, and we see that momentum. Many of them are public companies, so you can see what they're saying.

John Lee: And many of them are public companies, so you can see what they're saying. And you know, the good thing is that the proportion of the PCB market that is driven by AI is increasing. But as we noted before, it's still relatively a small proportion of the PCB market, PCs and smartphones, and non-AI servers are still the largest part of it. And, as you know, there's still a little bit of muted demand for PCs and smartphones.

John Lee: And so I agree that some of our customers have indicated that there may be some, you know, better second half. And you know, we'll see if that happens to us for us. But certainly if they do, and they need our equipment, we'll see that. But right now the best we can see is that kind of second half, first half is relatively consistent.

Speaker Change: and you know the good thing is that proportion of the PCB market that is driven by AI is increasing but as we noted before

Speaker Change: It's still relatively a small proportion of the PCB market. PCs and smartphones and non-AI servers are still the largest part of it. And as you know, there's still a little bit of muted demand in PCs and smartphones.

John Lee: I would note, as we said in the prepared remarks, that Q2 was much higher than we expected coming into Q2.

John Lee: Thank you.

Speaker Change: Got it. Thank you.

John Lee: And next, could you share any more color on the strategic photonics within the quarter, once it's fully ramped over the timing quarters, how much could this potentially contribute to grow next year? And is there any way to frame the long term opportunity, the optic photonics market for Rebecca?

Speaker Change: Thank you.

Operator: Our next question comes from Jim Ricchuti of Needham and Company. Your line is now open.

John Lee: Our next question comes from Jim Ricchuti of Needham & Company. Your line is now open.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Jim Ricchuti of Needham and Company. Your line is now open.

Operator: Hi, thanks. Good morning.

John Lee: Hi, thanks. Good morning.

Jim Ricchuti: Hi, thanks, good morning. Hey John , I wanted to go back to the E&P.

Jim Ricchuti: performance in Q2, which was a little better than expected. It sounds like it was both equipment and chemistry related. I wonder if you can give a little bit more color on which was the bigger driver to that performance. And then I have a follow-up question on E&P.

John Lee: Thank you. Yeah, I think this is just the latest example of a multi-year strategy we've had of investing in world-class optics. We believe that we have a unique capability in the industry because of our product portfolio, and we can integrate many things together that no one else can. And so this is a big win, and we're happy to have gotten it. There is always the start of costs, you know, cycle time is longer in the beginning and manufacturing efficiency is a little less efficient in the beginning until you start making more units.

John Lee: John, I wanted to go back to the EMP performance in Q2, which was a little better than expected. It sounds like it was both equipment and chemistry related. I wonder if you could give a little bit more color on which was the bigger driver of that outperformance. And then I have a follow-up question about EMP.

John Lee: Good morning, Jim. You're right. In Q2, the uptick in E&P was driven by both equipment and chemistry, but chemistry is by far the bigger driver, Jim. And as you know, our guidance for Q3 is slightly down, but just to give everybody a little more color, it's really because of the equipment that's slightly down. The chemistry is still, as we expect, Q3 being a little higher than Q2. So I just want to give everybody a little color that that's probably consistent with what the industry is seeing.

John Lee: Good morning, Jim. You're right, Q2, the uptick in EMP was driven by both equipment and chemistry, but chemistry is by far the bigger driver, Jim.

John Lee: Good morning, Jim. You're right, in Q2, the uptick in EMP was driven by both equipment and chemistry, but chemistry is by far the bigger driver, Jim, and as you know, our guidance for Q3 is slightly down, but just to give everybody a little more color, it's really because of the equipment that's slightly down. The chemistry is still, as we expect, Q3 being, you know, a little higher than Q2, so I just want to give everybody a little color that that's probably consistent with what the industry is seeing.

John Lee: And as you know, our guidance in Q3 is slightly down, but just to give everybody a little more color.

John Lee: It's really because of the equipment that's slightly down. The chemistry is still, as we expect, Q3 being, you know, a little higher than Q2. So I just want to give everybody a little color that that's consistent probably with what the industry is seeing.

John Lee: As you order more parts, obviously pricing of the supply that parts goes down. So we do have a little headwind on that in the beginning, but that's kind of normalized. So I think it's just part of our bigger effort in world-class optics, which I think we'd point out our revenue and lithography, metrology, and inspection has continued to grow, even during this current down cycle. And that's part of the reason why we continue to believe we can outperform WFE growth.

John Lee: Thank you.

John Lee: That's helpful. And, you know, there are expectations, as you know, that we could see a better refresh cycle for smartphones next year. I'm not going to ask you if you agree with that, unless you want to offer some perspective. But if that's accurate.

John Lee: That's helpful. And, you know, there are expectations, as you know, that we could see a better refresh cycle with smartphones next year. I'm not going to ask you if you agree with that, unless you want to offer some perspective. But if that's accurate.

Operator: Thanks.

Speaker Change: That's helpful. And there are expectations, as you know, that we could see a better refresh cycle with smartphones next year. I'm not gonna ask you if you agree with that, unless you wanna offer some perspective. But if that's accurate.

John Lee: I'm curious, which parts of the business are you going to lead that recovery from a booking standpoint? Is it going to be the PCB drilling business, followed by the chemistry? Or is chemistry more, it sounds like that's more book and ship? And, you know, when could you see a possible uptick in orders if we're in that kind of a scenario?

John Lee: I'm curious, which parts of the business are you going to focus on are going to lead that recovery from a booking standpoint? Is it going to be, you know, the PCB drilling business, followed by the chemistry or chemistry more? It sounds like that's more book and ship. And, you know, when could you see a possible uptick in orders if we're in that kind of a scenario?

John Lee: I'm curious, which parts of the business is going to lead that recovery from a booking standpoint? Is it going to be the PCB drilling business?

Melissa Weathers: A moment for our next question. Our next question comes from Melissa Weathers of DB, your line is now open. Thank you for letting me ask you a question. I wanted to talk about the specialty industrial business. Can you summarize where you think we are cyclically in that business? I think it came in a little bit lighter than what I thought in the recent quarter. So how do we think about that business cyclically? I know there are a bunch of different moving parts within it.

John Lee: Followed by the chemistry or is chemistry more it sounds like that's more book and ship and you know When could you see a possible uptick in orders if we're in that kind of a scenario?

John Lee: That's a great question, Jim. If there was just steady business and people weren't adding CapEx, obviously, the chemistry utilization and the chemistry bookings, which happened right when we shipped, by the way, so there's really not a lag would be the first indicator. But you raise a good point. If there was, you know, a big upcycle, if you will, in CapEx investments, we would have to see those bookings with the lead times that we have on laser systems.

John Lee: That's a great question, Jim. If there was just steady business and people weren't adding CapEx, obviously, the chemistry utilization and the chemistry bookings, which happened right when we shipped, by the way, so there's really not a lag, would be the first indicator. But you raise a good point. If there was, you know, a big upcycle, if you will, in CapEx investments, we would have to see those bookings with the lead times that we have on laser systems.

John Lee: That's a great question, Jim. You know, if there was just steady business and people weren't adding catbacks, obviously the chemistry utilization and the chemistry bookings, which happened right when we shipped, by the way, so there's really not a lag, would be the first indicator.

John Lee: Yeah, thanks for the question, Melissa. I think we look at it as not cyclical. It's made up of a bunch of different markets that tend to sum up to something pretty stable. And we've seen that over the past several quarters. It can be lumpy. And this quarter was down a little more than we had expected, as we said. I would look at this. I would kind of look at the longer-term revenue for specialty industrials. That's why we look at kind of a year at a time. And when you look at that perspective, it is still very stable. So it can be lumpy depending on some segments of the market.

John Lee: But you raise a good point. If there was, you know, a big upcycle, if you will, in CapEx investments...

John Lee: You know, and we don't report bookings. So I think, but to your point, you're right, if there is a buildup that requires new CapEx, we should see that in equipment sooner than just utilization rate. Okay, thanks a lot.

John Lee: we would have to see those bookings with the lead times that we have on laser system

John Lee: You know and we don't report bookings so I think but to your point you're right if there is a build-up that requires new CapEx we should see that in equipment sooner than just utilization rates.

John Lee: Thanks a lot.

John Lee: Okay, thanks a lot.

John Lee: And then on the E&P side, I think last quarter, you talked about an uptick in demand for high density multilayer PCBs related to AI servers. How is that business trending? Are you still seeing momentum from AI? Yeah, I think we do. Many of those customers that are more lever to AI are our customers and we see that momentum. And many of them are public companies because so you can see what they're saying.

John Lee: Thanks a lot.

Jim: Thanks, Jim.

John Lee: The next question comes from Krish Sankar of TD Cohen. Your line is now open.

Operator: The next question comes from Krish Sankar of TD Cohen. Your line is now open.

Krish Sankar: thank you

Speaker Change: next question comes from chris sancar of td colenin your line is now open

John Lee: Thanks for taking my question. I told them, one, John, you know, your kind of outlook for the September quarter, I mean, it kind of jives with kind of what your customers have said also, but I'm kind of curious, the biggest delta between them and now is the fact that Intel cut CapEx, and I'm just wondering how much of that has had any impact, especially in the second half of this year and, more realistically, in calendar 25.

Operator: Thanks for taking my question. I told them, one, John, you know, your kind of outlook for the September quarter, I mean, it kind of jives with kind of what your customers have said also, but I'm kind of curious, the biggest delta between them and now is the fact that Intel cut CapEx, and I'm just wondering how much of that has had any impact, especially in the second half of this year and, more realistically, in calendar 25.

John Lee: Thanks for taking my question. I told them, one, John , you know, your kind of outlook on September quarter, I mean, it kind of jives with kind of what your customers have said also, but I'm kind of curious, the biggest delta between them and now is,

Speaker Change: bes that inte thirdcapex and i'm just wondering how much of that has had any impact it's in the second half of this year and more elistically inteniate twenttyiffive

John Lee: And you know the good thing is that proportion of the PCB market that is during my AI is increasing, but as we know it before, it's still relatively a small proportion of the PCB market, PCs and smartphones and non-AI servers are still the largest part of it. And as you know, there's still a little bit of muted demand in PCs and smartphones. Got it.

John Lee: Yeah, you know, I think you're right, Intel did have their call, and it dragged CapEx down a little bit in 2024. I'm not sure that really impacted our view of the guidance. Our view, obviously, is made up of all the customers in the industry.

John Lee: Yeah, you know, I think you're right, Intel did have their call, and it dragged CapEx down a little bit in 2024. I'm not sure that really impacted our view of the guidance, though our view is obviously made up of all the customers in the industry.

John Lee: Yeah, you know, I think you're right. Intel did have their call and it died CapEx down a little bit in 2024. I'm not sure that really impacted our view of the guidance. Our view obviously is made up of all the customers in the industry. But I think in the, you know, when you think about the industry, everybody is kind of thinking

John Lee: But I think in the, you know, when you think about the industry, everybody is kind of thinking 2025 is going to be good, but the time in which it does turn up is pushed out a little bit. I think that's what we're seeing. And, you know, that's why we're looking at the second half kind of being very similar to the first half. I think coming into the year, Krish, we were all hopeful. We didn't know that there might be, you know, a stronger hockey stick towards the end of the year. And as the year progressed, I think that has gradually come down, and I think right now our best view is that the second half will be roughly the same as the first half.

Operator: Thank you.

John Lee: But I think in the, you know, when you think about the industry, everybody is kind of thinking 2025 is going to be good, but the time in which it does turn up is pushed out a little bit. I think that's what we're seeing. And, you know, that's why we're looking at the second half kind of being very similar to the first half. I think coming into the year, Krish, we were all hopeful; we didn't know that there might be, you know, a stronger hockey stick towards the end of the year. And as the year progressed, I think that has gradually come down. And I think right now that our best view is that the second half will be roughly the same as the first half.

John Lee: two thousand and twentyfive is going to be good but the

Jim Ricchiuti: Our next question comes from Jim Ricchiuti of Meet Him and Company, your line is now open. Hi, thanks. Good to go back to the E&P performance in Q2, which was a little better than expected. It sounds like it was both equipment and chemistry related. And I wonder if you can get a little bit more color on which was the bigger driver to that performance. And then I have a follow-up question on the E&P.

John Lee: The time in which it does turn up is pushed out a little bit. I think that's what we're...

John Lee: what we're seeing and you know that's why we're looking at second half kind of being very similar to first half. I think coming into the year, Krish, we're all hopeful. We didn't know.

John Lee: that there might be, you know, a stronger hockey stick towards the end of the year. And as the year progressed, I think that has gradually come down. And I think right now our best view is that second half is roughly the same as the first half.

John Lee: God, I mean, maybe let me ask the question another way, John. You know, Intel also gave a calendar 25 CapEx number, which is down 17% year-over-year. Baking that in, are you still in the camp that WSE will be a Strong Growth Year next year?

Jim Ricchiuti: Thank you, morning, Jim. You're right. Q2, the uptick and E&P was driven by both equipment and chemistry, but chemistry is by far the bigger driver, Jim. And as you know, our guidance in Q3 is slightly down, but just to give everybody a little more color, it's really because of the equipment that's slightly down. The chemistry is still, as we expect, Q3 being a little higher than Q2. So I just want to give everybody a little color that that's consistent probably with what the industry is seeing.

John Lee: god i mean maybe let me ask a question different way on inter also gave a cacalabin twent if i capex number which is down seventeen percent year over year baking that end are you still in the camp the wc will be a strong growth here next year

John Lee: Well, I think that is certainly, you know, a headwind to all WFE. But, as, as you know, if someone's not spending on WFE, as long as the chip revenues are needed, and the capacity is needed, someone else will be spending the capex as well.

John Lee: Well, I think that is certainly a headwind to all WFE, but as you know, if someone's not spending on WFE, as long as the chip revenues are needed.

Speaker Change: and the capacities needed someone else be spending the capex as well so i still think that two thousand and twenty five willll be better and know we don't really predict wfe going forward it's very hard to do

Jim Ricchiuti: Yeah, that's helpful. And yeah, there are expectations, as you know, that we could see a better refresh cycle with smartphones next year. I'm not going to ask you if you agree with that, unless you want to offer some perspective. But if that's accurate, I'm curious, which close to the business, are you going to need that recovery from the booking standpoint? Is it going to be, you know, that the PCB drilling business followed by the chemistry, or is chemistry more, it sounds like that's more book and shift.

Speaker Change: thank thankankly you guys have to we don't but i still think two thousand twenty five will be better but in terms of an impact on a my specific customer i don't think that could really really predict but that will be on two thousandand twenty five

John Lee: So I still think that 2025 will be better. And, you know, we don't really predict WFE going forward; it's very hard to do. And luckily, you guys have to, and we don't. But I still think 2025 will be better. But in terms of, you know, an impact on my specific customer, I don't think I could really, you know, really predict what that will be in 2025.

John Lee: Got it, got it. And then a quick follow-up on the Atrotech side, Don. You know, obviously, the Atrotech business does have some exposure to Intel, but you also have some exposure to some of these AI chips, which you're seeing some delays with Cobalt. I'm kind of curious, has that really changed your perspective on Atrotech's advanced packaging opportunity for next year?

John Lee: Got it, got it. And then a quick follow-up on the Atletec side, John . You know, obviously, the Atletec business does have some exposure to Intel, but you also have some exposure to some of these AI chips, which are seeing some delays with CoWalls.

Jim Ricchiuti: And, you know, when could you see a possible uptick in the orders if we're in that kind of a scenario? Yeah, that's a great question, Jim. You know, if there was just steady business and people weren't adding catbacks, obviously the chemistry, the relation and the chemistry bookings, which happened right when we shift, by the way, so it's really not a lag would be the first indicator. But you raised a good point, if there was, you know, a big upcycle, if you will, and catbacks investments, we would have to see those bookings with the lead times that we have on laser systems.

Speaker Change: corctke has it really change your perspective on itekes advance packeing opportunity next year

John Lee: Yeah, no, I think, you know, the next generation PCBs and substrate work that we're doing, you know, with our most advanced customers, that's still a couple years out anyway. And your commentary is really about, you know, utilization rates today and any impacts from, you know, any kind of specific customer commentary. But as we said in the answer to an earlier call, a question, we still see that the AI-driven chemistry business is good. It's just that, you know, we have to put that in perspective in terms of the proportion of AI chemistry relative to the chemistry for the entire PCB market. Got it, got it. Thank you, John.

Speaker Change: You know, I think, you know, the next generation PCBs and substrate work that we're doing, you know, with our most advanced customers, that's still a couple years out anyway.

Speaker Change: And your commentary is really about, you know, utilization rates today and any impacts from, you know, any kind of specific customer.

Jim Ricchiuti: You know, and we don't report bookings, so I think, but to your point, you're right, if there is a buildup that requires new catbacks, we should see that in equipment sooner than just Thanks a lot. Thank you.

Speaker Change: commentary but as we said in the in the answer to an earlier call a question you know we still see that AI driven chemistry business is good

Speaker Change: It's just that, you know, we have to put that in perspective in terms of the proportion of AI chemistry relative to the chemistry for the entire PCB market.

John Lee: Got it, got it. Thank you, Joe.

John Lee: Got it. Got it.

John Lee: Got it, got it. Thank you, John .

Krish: Thanks, Krish.

Operator: Our next question comes from Joe Quatrochi of Wells Fargo. Your line is now open.

John Lee: And then a quick follow-up on the Atrotech side, Don. You know, obviously, the Atrotech business does have some exposure to Intel, but you also have some exposure to some of these AI chips, which you're seeing some delays with CoWalls. I'm kind of curious, has that really changed your perspective on Atrotech's advanced packaging opportunity for next year?

Speaker Change: Thank you.

Speaker Change: Our next question comes from Joe Quatrochi of Wells Fargo. Your line is now open.

John Lee: Next question comes from Krish Sankar of TD Cohen, your line is now open? Yeah, thanks a big question. I told them one, John, you know, you kind of outlook on September quarter. I mean, it kind of drives the kind of what your customers have said also. But I'm very curious, the biggest delta between them and now is the fact that Intel has capex. And I'm just wondering how much of that has added me in fact, it's been in the second half of this year and more realistically in calendar 25.

John Lee: Yeah, thanks for taking the time to ask the question. I just wanted to kind of understand the second half versus the first half, now expecting it to be flat. I think, you know, as I think about the beat, the magnitude of the beat in 2Q and then kind of where the street previously was modeling kind of a low single-digit increase half on half for the second half, it seems like the, you know, flat half on half is a bigger change in the magnitude of the beat in 2Q. So I'm just kind of trying to understand, is there anything else that changed aside from, you know, the upside that you put up in 2Q, particularly in Semi?

Speaker Change: Yeah, thanks for taking the questions. I just wanted to kind of understand the second half versus first half now. I'm expecting flat. I think, you know, as I think about like the beat, the magnitude of the beat in T&Q and then kind of where the street producer was modeling kind of a low single digit increase half on half.

Speaker Change: for second half, it seems like the, you know, flat half-on-half is a bigger change in the magnitude of the beat in 2Q. So I'm just kind of trying to understand, is there anything else that changed aside from, you know, the upside that you could put up in 2Q, particularly in Simi?

John Lee: Our next question comes from Joe Quatrochi of Wells Fargo. Your line is now open.

John Lee: Yeah, you know, I think you're right until it had their call and it died capex down a little bit in 2024. I'm not sure that really impacted our view of the guidance, our view obviously is made up of all the customers in the industry. But I think in the, you know, everybody is kind of thinking 2025 is going to be good. But the, the time in which it does turn up is pushed out a little bit.

John Lee: Yeah, Joe, I don't think there was a big change. You know, we kind of looked at every quarter through the year as kind of bouncing along on the bottom. As I said earlier, coming into the year, we kind of expected with the industry that there would be more of an uptick in the second half, but slight, as we said. And now I think, you know, most of the industries have said that there is a bit of a push out.

John Lee: Yeah, Joe, I don't think there was a big change. You know, we kind of looked at every quarter through the years kind of bouncing along on the bottom.

Speaker Change: As I said earlier, coming into the year, we kind of expected, with the industry, that there would be more of an uptick in the second half.

John Lee: Yeah, Joe, I don't think there was a big change. You know, we kind of looked at every quarter through the year and it was kind of bouncing along on the bottom. And I said earlier, coming into the year, we kind of expected with the industry that there would be more of an uptick in the second half, but slight, as we said. And now I think, you know, most of the industries have said that there is a bit of a push out.

John Lee: But slight, as we said, and now I think, you know, most of the industries have said.

John Lee: And so whatever the consensus had for us and for the industry in Q3 and Q4 is probably more muted, that's for sure. And this is, you know, our best view right now. So I think, you know, not much change. I think we're just bouncing on the bottom. I think the only change is that we're probably bouncing on the bottom a little longer than we thought we might at the beginning of the year.

John Lee: And so whatever the consensus had for us and for the industry in Q3 and Q4 is probably more muted, that's for sure. And this is, you know, our best view right now. So I think, you know, not much change. I think we're just bouncing along the bottom. I think the only change is we're probably bouncing along the bottom a little longer than we thought we might at the beginning of the year.

John Lee: There is a bit of a push out, and so whatever the consensus had for us and for the industry.

John Lee: I think that's what we're, what we're seeing. And you know, that's why we're looking at second half kind of being very similar to first half. I think coming into the year, Krish, we're all hopeful. We didn't know that there might be, you know, a stronger hockey stick towards the end of the year. And as a year progressed, I think that has gradually come down. And I think right now our best view is that second half, roughly the same as the first half.

Speaker Change: in q three in q four is probably more mutic that's for sure and this is you our best view right now so i think not much change i thinkwere just oun on the bottom i think only changes we'll propride bouncing ong the btob a little longer and we thought we might at the beginning of the year

John Lee: Got it. And as a follow-up, can you talk a little bit about the early synergistic plating and chemistry design that you saw in the quarter? Was that, and does that include MKS, like laser drilling as well, or is it just on Appitex?

John Lee: Got it. And as a follow-up, can you talk a little bit about the early synergistic plating and chemistry design when that you you saw in the quarter. Was that and does that include MKS like laser drilling as well or is it just on the atomic side?

John Lee: God, I mean, maybe let me ask a question different way, John, you know, into also gave a calendar 25 capex number, which is down 17% year over year. Baking that end, are you still in the camp that WFE will be a strong growth year next year? Well, I think that is certainly, you know, a headwind to all WFE. But as, as you know, if someone's not spending on WFE, as long as the chip revenues are needed and the capacity is needed, someone else will be spending the capex as well.

John Lee: Yeah, we've talked in the past about laser drilling wins synergistically. The ones we mentioned this time were Atatek wins synergistically. And as you know, as we've said before, if Atatek and MKS were already in that customer and we both won, we don't count that as synergy. It's really the case where the legacy MKS laser guys were in, and Atatek wasn't. And if Atatek wins, then we count that as a synergy. And that's really what we're talking about with these two wins we called out.

John Lee: Yeah, we've talked in the past about laser drilling wins as synergistic. The ones we mentioned this time were Atatek wins synergistically. And as you know, as we've said before, if Atatek and MKS were already in that customer and we both won, we don't count that as synergy. It's really the case where the legacy MKS laser guys were in, and Atatek wasn't. And if Atatek wins, then we count that as a synergy. And that's really what we're talking about with these two wins we called out.

John Lee: Yeah, we've talked in the past about laser drilling wins, synergistic, the ones we mentioned this time were Atatek wins, synergistically, and as you know, as we've said before,

John Lee: If Atatek and MKS were already in that customer and we both won, we don't count that as synergy. It's really the case where either the legacy MKS LaserGuides were in and Atatek wasn't. And if Atatek wins, then we count that as a synergy. And that's really what we're talking about with these two wins we called out.

John Lee: So I still think that 2025 will be better. And, you know, we don't really predict WFE going forward. It's very hard to do. And thankfully, you guys have to and we don't. But I still think 2025 will be better. But in terms of, you know, an impact on a specific customer, I don't think I could really, you know, really predict what that will be on 2025. John, I'm going to quick follow up on the atlitex side.

John Lee: and so forth. Just to be clear, is that one of the first kind of MKS-led wins then? It is. It is. The other ones we've talked about in the past, as you know

John Lee: Just to be clear, is that one of the first MKS-led wins, then? It is. It is. The other ones we've talked about in the past, as you know

Speaker Change: Just to be clear, is that one of the first MKS-led wins then?

John Lee: It is, it is. The other ones we've talked about in the past, as you know, were Atitech bringing in the laser group. So these are the first two. Now, remember, it wouldn't take a while, right? Because you're qualifying, you're testing, etc. So we have been working on this for multiple quarters. And we have other things we're working on right now that, hopefully, in the future, will turn into wins as well. So yes, these are the first two Atitech chemistry wins because of the laser group, above all.

John Lee: It is, it is. The other ones we talked about in the past, as you know, were Atitech bringing in the Laser Group. So these are the first two. Now, remember, it wouldn't take a while, right? Because you're qualifying, you're testing, etc.

John Lee: It is. It is. The other ones we've talked about in the past, as you know, were the Atitech bringing in the Laser Group. So these are the first two. Now, remember, it wouldn't take a while, right, because you're qualifying, you're testing, etc. So we have been working at this for multiple quarters, and we have other things we're working on right now that hopefully in the future we'll turn into money.

John Lee: You know, obviously, the atlitex business does have some exposure to Intel, but you also have some exposure to some of these AI chips, which I've seen some delays at GoVos. I'm going to keep it as that really changed your perspective on atlitex advanced packaging, opportunity to next to you. Yeah, no, I think, you know, the the next generation, PCBs and substrate work that we're doing, you know, with our most advanced customers.

John Lee: So we have been working on this for multiple quarters, and we have other things we're working on right now that hopefully, in the future, will turn into WINS as well. So yes, these are the first two Atitech Chemistry WINS because of the Laser Group. April 15, 2011

John Lee: wins as well. So, yes, these are the first two Additech Chemistry wins because of the laser group.

Speaker Change: Thank you.

Joe: Thanks, Joe.

John Lee: That's still a couple of years out anyway. And your commentary is really about, you know, utilization rates today and any impacts from, you know, any kind of specific customer commentary. But as we said, in the answer to an earlier call, a question, you know, we still see that AI driven chemistry business is good. It's just that, you know, we have to put that in perspective in terms of the proportion of AI chemistry relative to the chemistry for the entire PCB market. Thank you, John. Thanks, Krish.

Operator: As a reminder, to ask a question, you will need to press star 1 1 on your telephone. One moment for our next question. Our next question comes from Steve Barger of KeyBank Capital Markets. Your line is now open.

Speaker Change: Thank you. As a reminder to ask a question you will need to press star 1 1 on your telephone. One moment for our next question.

Operator: Our next question comes from Steve Barger of KeyBank Capital Markets. Your line is now open.

John Lee: Thanks. I know there are a lot of variables in this question, but in general, if you sell a new plating system and it gets the full run rate, how can we think about what that adds to consumables in terms of percentage of the base chemistry business? Or maybe you can talk about it in terms of dollars per system. I'm just trying to understand the relationship between new equipment installs and consumable uptake.

Operator: Thanks. I know there are a lot of variables in this question, but in general, if you sell a new plating system and it gets the full run rate, how can we think about what that adds to consumables in terms of percentage of the base chemistry business? Or maybe you can talk about it in terms of dollars per system. I'm just trying to understand the relationship between new equipment installs and consumable uptake.

John Lee: Thanks.

John Lee: I know there's a lot of variables to this question but in general if you sell a new plating system and it gets the full run rate how can we think about what that adds to consumables in terms of percentage to the base chemistry business or maybe you can talk about it in terms of dollars per system. I'm just trying to understand the relationship between new equipment installs and consumable uptake.

John Lee: Steve, thanks for calling. I know you're probably on an airplane or somewhere, but I would say this: the ASPs of the equipment, the catbacks, depends on how big it is, number one. But if you take one, you know, one, maybe one of our biggest plating tools, and we're talking electronics versus GMF, could be a couple million dollars or so. Now the chemistry is, I would say, think of it as an order of magnitude less, per month.

John Lee: Steve, thanks for calling. I know you're probably on an airplane or somewhere, but I would say this: the ASPs of the equipment, the catbacks, depends on how big it is, number one. But if you take one, you know, one, maybe one of our biggest plating tools, and we're talking electronics versus GMF, could be a couple million dollars or so. Now, the chemistry is, I would say, think of it as an order of magnitude less, per month.

Joe Quatrochi: Thank you. Our next question comes from Joe Quatrochi of Wells Fargo. Your line is now open. Yeah, thanks for taking the question. I just wanted to kind of understand the second half or first half, now I'm expecting to fly. I think, you know, the thing about like the magnitude of the beat into Q and the kind of where the street producer was modeling kind of a low single digit increase half on half for second half.

John Lee: Yes, Steve, thanks for calling. I know you're probably on an airplane or somewhere, but I would say this.

John Lee: of the equipment, the catbacks, depends on how big it is, number one. But if you take one, you know, one, maybe one of our biggest plating tools, and we're talking electronics versus GMF, could be a couple million dollars or so.

Joe Quatrochi: It seems like the, you know, flat half on half is a bigger change in the magnitude of the beat into Q. So I'm just kind of trying to understand is that anything else that changed aside from, you know, the outside that you couldn't put up into Q particularly in Sydney. Yeah, Joe, I don't think there was a big change. You know, we kind of looked at every quarter through the year, it's kind of bouncing along the bottom.

John Lee: Now, the chemistry is, I would say, think of it as an order of magnitude less.

John Lee: And so, you know, there's chemistry in all these tanks, but that chemistry lasts forever. So that's kind of the way we think about it. We can give you a little more color on that going forward. So I just don't have it off the top of my head because it does vary by the chemistry and how much of the chemistry we have. And then, of course, the gross margins could vary slightly depending on the chemistry. So I think when we get the CapEx in, we're just really happy about the longer-term prospects of that chemistry. And that could be 30 years of chemistry revenue. Right?

John Lee: per month.

John Lee: So, you know, there's chemistry in all these tanks, but that chemistry lasts forever. So that's kind of the way we think about it. We can give you a little more color on that going forward. So I just don't have the top off the top of my head because it does vary.

Joe Quatrochi: I said earlier, coming into the year, we kind of expected with the industry that there would be more of an uptake in the second half, but slight as we said. And now I think, you know, most in the industries have said that there is a bit of a push out. And so whatever the consensus had for us and for the industry in Q3 and Q4 is probably more muted. That's for sure. And this is our best view right now. So I think, not much change. I think we're just bouncing along the bottom.

John Lee: by the chemistry, by how much of the chemistry we have.

John Lee: And then, of course, the gross margins could vary slightly depending on the chemistry.

John Lee: You know, I think when we get the CapEx in, we're just really happy about the longer-term prospects of that chemistry, and that could be 30 years of chemistry.

John Lee: Right. Yep. Great. That's a good start. And a lot of industrial end markets are soft right now, but are you seeing opportunities outside of automotive and the other established end markets in specialty that could give you a little revenue leverage on the cycle when it does improve? Yeah, I think it is lumpy.

John Lee: Great. That's a good start. And a lot of industrial end markets are soft right now, but are you seeing opportunities outside of automotive and the other established end markets in specialty that could give you a little revenue leverage on the cycle when it does improve? Yeah, I think it is lumpy.

John Lee: Right. Yep. Great. That's that's a good start. And a lot of industrial and markets are soft right now. But are you seeing opportunities outside of automotive and the other established and markets in specialty that could give you a little revenue leverage to the cycle when it does improve?

John Lee: I think the only change is we're probably bouncing along the bottom a little longer than we thought we might at the beginning of the year. Got it. And as a follow up, can you talk a little bit about the early synergistic plating and chemistry design when that you saw in the quarter? Was that and is that include MKS like laser drilling as well? Or is it just on the addent next slide?

John Lee: And

John Lee: Yeah, I think it is lumpy. And I would say, you're right, some of the industrial industrial customers outside of the automotive industry seem to be a little more hesitant, if you will. But I would say, in one of the special industrial markets, which seems to, you know, have been doing a little better was defense. And we probably mentioned that a couple of times over the last couple of quarters. But, you know, as I said, that's a small percentage of our business, but it has been doing well in the last couple of quarters. So that's one I would call out, but, as again, it's really made up of multiple, multiple markets, our specialty industrial revenue. Understood, thanks.

John Lee: Yeah, I think it is lumpy. And I would say, you're right, some of the industrial industrial customers outside of the automotive industry seem to be a little more hesitant, if you will. But I would say, in one of the specialty industrial markets, that seems to, you know, have been doing a little better was defense. And we probably mentioned that a couple of times over the last couple of quarters. But, you know, as I said, that's a small percentage of our business, but it has been doing well in the last couple of quarters. So that's one I would call out. But, as again, it's really made up of multiple, multiple markets, our specialty industrial revenue. Understandable, thanks.

John Lee: And

John Lee: Yeah, I think it is lumpy, and I would say you're right. Some of the industrial, industrial customers outside of automotive seem to be a little more hesitant, if you will. But I would say in one of the special industrial markets that seems to have been doing a little better was defense.

John Lee: Yeah, we've talked in the past about laser drilling wins as synergistic. The ones we mentioned this time were out of tech wins synergistically. And as you know, as we've said before, if out of tech and MKS were already in that customer and we both won, we don't count that as synergy. It's really the case where either the legacy MKS laser guides were in and out of tech wasn't. And if that took wins, then we count that as a synergy.

John Lee: And we've probably mentioned that a couple of times over the last couple quarters. But as I said, that's a small percentage of our business, but it has been doing well in the last couple quarters. So that's one I would call out, but as again, it's really made up of multiple, multiple markets, especially industrials revenue.

John Lee: And that's really what we're talking about with these two wins we called out. Just to be clear, is that one of the first kind of MKS wins then? It is. The other ones we talked about in the past, as you know, were the out of tech bringing in the laser group. So these were the first two. Now, remember, win take a while, right? Because you're qualifying, you're testing, et cetera. So we have been working at this for multiple quarters and we have other things we're working on right now that hopefully in the future we'll turn into wins as well.

Speaker Change: Understood. Thanks.

Steve: Thanks, Steve.

Operator: As a reminder, to ask a question, you need to press star 1 1 on your telephone. One moment, please. This concludes the question and answer session. I would now like to turn it back to Paretosh Misra for closing remarks.

Operator: As a reminder, to ask a question, you need to press star 11 on your telephone. One moment, please. This concludes the question and answer session. I would now like to turn it back to Paritosh Misra for closing remarks.

John Lee: So yes, these are the first two out of tech chemistry wins because of the laser group. Thanks, Joe. Thank you. As a reminder to ask a question, you will need to press star one, one on your telephone, one moment for our next question.

Speaker Change: Thank you. As a reminder, to ask a question, you need to press star 1 1 on your telephone.

Speaker Change: One moment, please.

Paritosh Misra: This concludes the question and answer session. I would now like to turn it back to Paritosh Mishra for closing remarks.

Paretosh Misra: Thank you all for joining us today and for your interest in MKS. Operator, you may close the call, please.

Paritosh Mishra: Thank you all for joining us today and for your interest in MKS. Operator, you may close the call, please.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Steve Barger: Our next question comes from Steve Barger of Keybank Capital Market. Your line is now open. Thanks. I know there's a lot of variables to this question, but in general, if you sell a new plating system and it gets the full run rate, how can we think about what that adds to consumables in terms of percentage to the base chemistry business, or maybe you can talk about it in terms of dollars per system?

Steve Barger: I'm just trying to understand the relationship between new equipment installs and consumable uptake. Yes, Steve, thanks for calling. I know you've probably on an airplane there somewhere, but I would say this, the ASPs of the equipment, the capbacks, depends on how big it is, number one. But if you take one, maybe one of our biggest plating tools, and we're talking about electronics versus GMF, it can be a couple million dollars or so.

Steve Barger: Now the chemistry is, I would say, think of it as an order of magnitude less per month or so. There's chemistry in all these tanks, but that chemistry lasts forever. So that's kind of the way we think about it. We can give you a little more color on that going forward. So I just don't have the top of my head because it does vary by the chemistry, by how much the chemistry we have.

Steve Barger: And then of course, the gross margins could vary slightly depending on the chemistry. So I think when we get the capbacks in, we're just really happy about the longer-term prospects of that chemistry. And that could be 30 years of chemistry revenue. Right. Yep, great. That's a good start. And a lot of industrial and markets are soft right now. But are you seeing opportunities outside of automotive and the other established end markets in specialty that could give you a little revenue leverage to the cycle when it does improve?

Steve Barger: Yeah, I think it is lumpy. And I would say you're right, some of the industrial and industrial customers outside of automotive seem to be a little more hesitant, if you will. But I would say in one of the specialty industrial markets that seems to have been doing a little better was defense. And we've probably mentioned that a couple of times over the last couple of quarters. But as I said, that's a small percentage of our business.

Steve Barger: But it has been doing well in the last couple of quarters. So that's one I would call out. But as again, it's really made up of multiple, multiple markets, our specialty industrial revenue. Understood. Thanks. Thanks, Steve. Thank you. As a reminder, task question, you need to press star one one on your telephone. One moment please. This concludes question and answer session.

Operator: I would now like to turn it back to Parrotosh, Mr. Ross, for closing remarks. Thank you all for joining us today and for your interest in MTS operator. You may close the call please. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. . John Lee, John Lee, John Lee, John Lee, John Lee John Lee, John Lee, John Lee, John Lee, John Lee, John Lee, John Lee, John Lee, John Lee, John Lee, John Lee,

Operator: whyway

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