Q4 2024 MKS Instruments Inc Earnings Call
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Press Star one on your telephone if your question has been answered and you'd like to remove yourself from the queue simply press Star One again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Portage Mr. Al <unk>, Vice President Investor Relations. Please go ahead, Sir good morning.
Operator: As a reminder, today's program is being recorded.
Paretosh Misra: And now I'd like to introduce your host for today's program, Paretosh Misra, Vice President Investor Relations.
Paretosh Misra: Please go ahead, sir.
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 Ram Mayampurath, Executive Vice President, Chief Financial Officer, and Treasurer.
Everyone.
Josh Smith: Parent Josh Smith's route widespread Investor Relations and I'm joined this morning by John Lee.
John Lee: And then Chief Executive Officer, and Rob <unk> Executive Vice President Chief Financial Officer, and Treasurer, Yes.
Paretosh Misra: Yesterday, after market close, we released our financial results for the fourth quarter and full year 2024, which are posted to 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 most recent annual report on Form 10-K. 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.
Speaker Change: Yesterday after market close we released our financial results for the fourth quarter and full year 2024, which are posted to our investor website at Investor <unk> Dot com.
Speaker Change: As a reminder, lucas' 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 most recent annual report on Form 10-K.
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 <unk>.
Speaker Change: Any date subsequent to today.
Paretosh Misra: and the company disclaims any obligation to update the statement.
Speaker Change: And the company disclaims any obligation to update these statements.
Paretosh Misra: 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. Please refer to our press release and the presentation materials posted to the investor relations sections of our website for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures.
Speaker Change: During the call, we'll be discussing various non-GAAP financial measures.
Speaker Change: Unless otherwise noted all income statement related financial metrics will be non-GAAP other than revenue. Please.
Speaker Change: 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 results and a reconciliation to our GAAP measures.
Paretosh Misra: Our investor website also provides a detailed breakout of revenues by end market and division.
Speaker Change: Our Investor website also provides a detailed breakout.
Speaker Change: <unk> by end market and division.
John Lee: Now, I'll turn the call over to John. Thanks, Paretosh, and good morning, everyone. Before I discuss our quarterly results, I'd like to take a moment to review 2024, which was a year of impressive execution in a challenging environment. Despite roughly flat year-over-year revenue of $3.6 billion, we achieved a 190 basis point expansion in gross margin. We managed our operating expenses effectively. increased earnings per share by 49% and improved free cash flow by $178 million. Additionally, we took several actions to proactively manage our leverage and significantly reduce our interest in This included an upsized $1.4 billion convertible note office.
John Lee: Now I'll turn the call over to John.
John Lee: Thanks, Perry and good morning, everyone.
Before I discuss our quarterly results I'd like to take a moment to review 2024, which was a year of impressive execution in a challenging environment.
John Lee: Despite roughly flat year over year revenue of $3 $6 billion, we achieved a 190 basis point expansion in gross margin.
John Lee: We managed our operating expenses effectively increased earnings per share by 49% and improved free cash flow by $178 million.
John Lee: Additionally, we took several actions to proactively manage our leverage and significantly reduce our interest expense.
John Lee: This included an Upsized $1 4 billion convertible note offering voluntary prepayments of $426 million on our term loan facility.
John Lee: voluntary prepayments of $426 million on our term loan facility. and an opportunistic refinancing and repricing of our terminal. We took these steps while also maintaining investments in R&D and strategic initiatives, including delivering technology innovations in areas such as world-class optics, lasers and laser systems, and new chemistry solutions for advanced packaging in the AI era. We also upgraded and expanded our operations in Romania, broke ground on our new super center factory in Malaysia, and purchased the site in Thailand for a future chemistry factory in Texas. These investments add capacity and resiliency to our manufacturing. We're proud of our accomplishments in 2024, and I want to acknowledge our teams across MKS who delivered these results despite muted end marks.
John Lee: And an opportunistic refinancing and repricing of our term loans.
We took these steps while also maintaining investments in R&D and strategic initiatives, including delivering technology innovations in areas such as world class optics lasers, and laser systems, and new chemistry solutions for advanced packaging in the AI era.
John Lee: We also upgraded and expanded our operations in Romania.
John Lee: Roque ground on our new Supercenter factory in Malaysia, and purchased the site in Thailand for future Chemistry factory and Tech Center.
John Lee: These investments add capacity and resiliency to our manufacturing footprint.
John Lee: We're proud of our accomplishments in 2024, and I want to acknowledge our teams across MKS, who delivered these results despite muted end markets.
John Lee: I also want to thank our customers across our semiconductor, electronics and packaging, and specialty industrial markets for their support and engagement as we work to deliver unique solutions that enable their success. Entering 2025, MKS is in a strong position with one of the broader and Deepest Product Portfolios that uniquely allow us to solve our customers' most complex challenges. These challenges are placing increasing pressure on traditional Moore's law innovation cycles. MKS is enabling solutions to this more-than-more environment through design and production wins in areas like optical modules for the lithography, metrology, and inspection market. Lasers for Next Generation Backend Applications.
John Lee: I also want to thank our customers across our semiconductor electronics in packaging and specialty industrial markets for their support and engagement as we work to deliver unique solutions that enable their success.
John Lee: Entering 2025 MKS is in a strong position with one of the product.
John Lee: And deepest product portfolios that uniquely allow us to solve our customers' most complex challenges.
John Lee: These challenges are facing increasing pressure on traditional Moore's law innovation cycles.
John Lee: MKS enabled solutions to this more than more environment through design and production wins in areas like optical modules for the geography metrology and inspection market.
John Lee: <unk> the next generation backend applications and chemistry equipment from all Tyler substrates for advanced AI servers.
John Lee: and chemistry equipment for multi-list substrates for advanced AI servers. These examples demonstrate the impact that technological innovations have on our industry. And we believe our position as a foundational enabler across semiconductors and electronics sets us up well as these trends accelerate.
John Lee: These examples demonstrate the impact that technological innovations have on our industry and we believe our position as a foundational enabler across semiconductors and electronics sets us up well as these trends accelerate.
John Lee: Now let's discuss our fourth quarter results in more detail. We end 2024 on a strong note, with revenue, gross margin, and earnings per diluted share above the midpoint of our Q4 guidance range. Revenue was up 5% year-over-year, driven by double-digit growth in both our electronics and packaging, and semiconductor end markets. We continue to make good progress proactively managing our leverage. including another successful repricing of return loans and a $100 million voluntary principal prepayment in January 2025. Combined with similar actions we took in 2024 and a slight improvement in the interest rate environment, we have reduced our annual interest expense run rate by over $130 million compared to the prior year.
John Lee: Now, let's discuss our fourth quarter results in more detail.
John Lee: We ended 2024 on a strong note with revenue gross margin and earnings per diluted share above the midpoint of our Q4 guidance ranges.
John Lee: New was up 5% year over year, driven by double digit growth in both our electronics and packaging and semiconductor end markets.
John Lee: We continue to make good progress proactively managing our leverage.
John Lee: Including another successful repricing of our term loans.
John Lee: $100 million voluntary principal prepayment in January 2025.
John Lee: Combined with similar actions, we took in 2024 and a slight improvement in the interest rate environment, we have reduced our annual interest expense run rate by over $130 million compared to the prior year.
John Lee: looking at our performance in our 3N market. Starting with our semiconductor market, revenue increased 6% sequentially, above the high end of our guidance. Similar to the trends seen throughout the year, this higher revenue trend was mainly driven by better-than-anticipated in-quarter demand, primarily related to DRAM and logic foundry applications for our vacuum product offerings. NAN has picked up from early 2024 and remains at historically low level. We are well positioned for both upgrade activity as customers move to higher layer counts and potential new greenfield investments when that market recovers. We are achieving a healthy pace of design wins that create great opportunities for us when semiconductor investment recovers.
John Lee: Looking at our performance in our three end markets, starting with our semiconductor market.
John Lee: Revenue increased 6% sequentially above the high end of our guidance range.
John Lee: Similar to the trends seen throughout the year. This higher revenue trend was mainly driven by better than anticipated in quarter demand, primarily relates to DRAM and logic foundry applications.
John Lee: Vacuum product offerings.
John Lee: <unk> picked up from early 2024 remains at historically low levels.
John Lee: We are well positioned for both upgrade activity as customers move to higher layer counts and potential new greenfield investments when that market recovers.
John Lee: We are achieving a healthy pace of design wins that create great opportunities for us when semiconductor investment recovers.
John Lee: including Reactive Gas Solutions for Leading Edge Nodes. Additionally, we continue to advance our positions in lithography, metrology, and inspection, with another design wing supplying optical assemblies for leading customers. We also maintain our momentum in the back-end applications related to high bandwidth memory with more orders for our lasers during the quarter. We have continued to invest in our laser business over the years, and we believe we are well-positioned for strong growth. In the first quarter, we expect semiconductor revenue to be flattish on a sequential basis. The guidance demonstrates continued stability in DRAM and Foundry Logic to NAND, with NAND remaining at low level.
John Lee: <unk> reactive gas solutions for leading edge nodes. Additionally, we continue to advance our positions in lithography metrology and inspection with another design win supplying optical assemblies for leading customer.
John Lee: We also maintained our momentum in the backend applications related to high bandwidth memory with more orders for our lasers during the quarter.
John Lee: We have continued to invest in our laser business over the years and we believe we are well positioned for strong growth.
John Lee: In the first quarter, we expect semiconductor revenue to be flattish on a sequential basis the.
John Lee: The guidance demonstrates continued stability in DRAM and foundry logic demand with NAND remaining at low levels.
John Lee: Overall, while demand remains low, it is higher than a year ago. Investments we're making along with our design wins strengthen our confidence and our ability to outperform as the market recovery gains.
John Lee: Overall, while demand remains low it is higher than a year ago.
John Lee: <unk>, we're making along with our design wins strengthen our confidence in our ability to outperform as the market recovery gains momentum.
John Lee: Turning to Electronics and Packaging, revenue grew 10%... and above the high end of our guidance. Sequential increase was driven by increased equipment sales. We saw continued momentum in orders for our chemistry and equipment solutions for advanced MLB, HDI, and packaged substrates related to AI applications. This shows the key role our products and technologies play as advanced packaging, and specifically the interconnect, becomes more critical in enabling the manufacturing of increasingly complex electronic devices. Excluding the impact of FX and Palladium Pass. Sales of chemistry increased 9% in the fourth quarter over the prior year. For the full year, chemistry sales finished up 12% and significantly outperformed the PCB industry in 2020.
John Lee: Turning to electronics and packaging revenue grew 10% sequentially and above the high end of our guidance. The sequential increase was driven by increased equipment sales.
John Lee: We saw continued momentum in orders for our chemistry and equipment solutions for advanced MLB, HDI and packaged substrates related to AI applications.
John Lee: This shows the key role our products and technologies play is advanced packaging and specifically the interconnect becomes more critical and enabling the manufacturing of increasingly complex electronic devices.
John Lee: Excluding the impact of FX and Palladium pass through sales of chemistry increased 9% in the fourth quarter over the prior year.
John Lee: For the full year chemistry sales finished up 12% and significantly outperformed the PCB industry in 2024.
John Lee: Looking ahead to Q1, we expect revenue from our electronics and packaging market to be down 4% on a sequential basis, primarily due to seasonality associated with the Lunar New Year.
John Lee: Looking ahead to Q1, we expect revenue from our electronics packaging market to be down 4% on a sequential basis, primarily due to seasonality associated with the lunar new year.
John Lee: In our specialty industrial market, revenues decreased 2% sequentially, and it was at the lower end of our guidance. While the life and health sciences and research and defense end markets were steady, we saw softness across the broader industrial markets. As a reminder, our specialty industrial market consists of a variety of applications across multiple. Looking ahead to Q1, we expect revenue in our special industrial market to decline 6% from Q4, mainly due to softness in the industrial market and Lunar New Year impacts, especially related to our general metal finishing. Overall, we executed well and delivered solid financial performance in the fourth quarter and full year 2025.
John Lee: In our specialty industrial market revenues decreased 2% sequentially and was at the lower end of our guidance range.
John Lee: While our life and health Sciences, and research and defense end markets were steady we saw softness across the broader industrial market.
John Lee: As a reminder, our specialty industrial market consists of a variety of applications across multiple end markets.
John Lee: Looking ahead to Q1, we expect revenue in our specialty industrial market declined 6% from Q4, mainly due to softness in the industrial market and lunar new year impacts, especially especially related to our general metal finishing business.
John Lee: Overall, we executed well and delivered solid financial performance in the fourth quarter and full year 2024.
John Lee: With green shoots emerging in a few key areas of our business and improving profitability, MKS enters 2025 in a robust financial position. I mentioned the strengths of our team earlier. Their efforts, coupled with our dynamic culture, are reflected in the industry accolades we received during the year. For the second consecutive year, we were named to U.S. News & World Report's Best Companies to Work For in our industry. as well as named by Newsweek and Statista as one of America's most responsible companies for 2020.
John Lee: With green shoots emerging in a few key areas of our business and improving profitability.
John Lee: <unk> enters 2025, and a robust financial position.
John Lee: I mentioned the strength of our team earlier.
John Lee: Their efforts coupled with our dynamic culture are reflected in the industry accolades. We received during the year for the second consecutive year, we were named to the U S News and we'll reports best companies to work for in our industry as.
John Lee: As well as named by Newsweek as one of America's most responsible companies for 2025.
Ramakumar Mayampurath: Now let me turn it over to Ram to run through the financial results and first quarter guidance in more detail. Ram? Thank you, John, and good morning, everyone. As I've had a few months now to dive deeper into my role, I'm impressed with the level of execution that MKS... especially in light of the industry demand backdrop of the past couple of years. In the coming quarters, we will maintain our focus and discipline on managing costs while we make the necessary investments for long-term growth and business continuity.
John Lee: Now, let me turn it over to Rob to run through the financial results and first quarter guidance in more detail Rob.
Rob: Thank you John and good morning, everyone.
Speaker Change: I had a few months now to dive deeper into my role.
Speaker Change: First with the level of execution that MKS delivers especially in light of the industrial demand backdrop for the past couple of years.
Speaker Change: The coming quarters, we will maintain our focus on disciplined on managing costs, while we make the necessary investments for long term growth and business continuity.
Ramakumar Mayampurath: I will talk a little more about how we are looking at the coming quarters in a moment, but first, let me review our Q4 and full year performance in detail. For the fourth quarter, MKS reported revenue of $935 million, up 4% sequentially, and 5% year-over-year. The result was above the midpoint of our guidance range and was driven mainly by better-than-expected semiconductor and electronics and packaging revenue. Fourth quarter semiconductor revenue was 400 million up 6% sequentially and 10% year over year. The result was above the high end of our expectation as our team continued to execute on strong in-quarter demand, especially as related to DRAM and logic boundary application.
Speaker Change: I will talk a little more about how we're looking at the coming quarters in a moment.
Speaker Change: First let me review, our Q4 and full year performance in detail.
Speaker Change: For the fourth quarter, <unk> reported revenue of $935 million up 4% sequentially and 5% year over year. The result was above the midpoint of our guidance range and was driven mainly by better than expected semiconductor and electronics and packaging revenue.
Speaker Change: Fourth quarter semiconductor revenue was $400 million up 6% sequentially and 10% year over year. The result was above the high end of our expectation as our team continued to execute on strong in quarter demand, especially as related to DRAM and logic foundry applications.
Ramakumar Mayampurath: where we have seen relative normalization of inventory levels at our customers. NAND is bouncing off very low base, but we are seeing evidence that we are making good progress in burning through excess inventory at some customers. Fourth quarter electronics and packaging revenue was $254 million, an increase of 10% quarter over quarter, and also above the high end of our expectations. This result was led by higher flexible PCB drilling and chemistry equipment sales, partially offset by normal seasonal declines in chemistry. On a year-over-year basis, sales were up 13% driven by stronger performance in chemistry, flexible drilling equipment, and chemistry equipment.
Speaker Change: We have seen related to normalization of inventory levels at our customers.
Speaker Change: And it is bouncing off a very low base, but we're seeing evidence that we are making good progress and burning through excess inventory at some customers.
Speaker Change: Fourth quarter electronics, and packaging revenue was $254 million, an increase of 10% quarter over quarter and also above the high end of our expectations. This result was led by higher flexible PCB drilling and chemistry equipment sales, partially offset by normal seasonal declines in chemistry.
Speaker Change: On a year over year basis sales were up 13% driven by stronger performance in chemistry, flexible drilling equipment and chemistry equipment.
Ramakumar Mayampurath: Chemistry sales were up 9%, excluding the impact of FX and Palladium pass-through, continuing a gradual recovery trend from the industry-wide soft.
Speaker Change: Chemistry sales were up 9%, excluding the impact of FX and Palladium pass through continuing our gradual recovery trend from the industry wide softness.
Ramakumar Mayampurath: In our speciality industry markets, fourth quarter revenue was $281 million, a decline of 2% sequentially, and below our guidance midpoint, largely due to softness across the broader industrial market. Revenue was down 8% year-over-year basis, also primarily due to softness in the industrial market. The prior year result benefited from strong chemistry equipment sales within the general metal finishing business.
Speaker Change: In our speciality industrial markets fourth quarter revenue was 281 million a decline of 2% sequentially and below our guidance midpoint, largely due to softness across the broader industrial markets.
Speaker Change: Revenue was down 8% year over year basis also primarily due to softness in the industrial market. The prior year result benefited from strong chemistry equipment sales within the general metal finishing business.
Ramakumar Mayampurath: Turning to gross margin, we reported fourth quarter gross margin of 47.2 percent, which is above the midpoint of our guidance. Gross margin was down sequentially due to higher equipment mix in the fourth quarter and consistent with our expectations. We continue to prudently manage our costs, balancing investing in our business with near-term profitability and cash generation. Fourth quarter operating expenses were $242 million and within our guidance range. Fourth quarter operating income was nearly $200 million, yielding an operating margin of 21.3% and above our guidance driven mostly by higher gross profit. Adjusted EBITDA was $237 million and also above the midpoint of our expectations yielding a 25.3% margin.
Speaker Change: Turning to gross margin, we reported fourth quarter gross margin of 47, 2%, which was above the midpoint of our guidance gross margin was down sequentially due to higher equipment mix in the fourth quarter and consistent with our expectations.
Speaker Change: We continue to prudently manage our cost balancing investing in our business with near term profitability and cash generation.
Speaker Change: Fourth quarter operating expenses were $242 million and within our guidance range fourth quarter operating income was nearly $200 million, yielding an operating margin of 21, 3% and above our guidance driven mostly by higher gross profit.
Speaker Change: EBITDA was 237 million and also above the midpoint of our expectations, yielding a 25, 3% margin.
Ramakumar Mayampurath: Net interest expenses was $45 million lower than our guidance of $48 million as a result of a year-to-date reclassification of approximately $3 million of pension plan interest costs to other non-operating expenses. Net interest expenses was otherwise in line with our guidance. The fourth quarter effective tax rate was 4%, which was lower than our guidance due to certain favorable discrete items in the quarter. Fourth quarter net earnings were $146 million, or $2.15 per share, above the midpoint of our guidance reflecting strong operating performance and lower income taxes I just detailed. For the fourth quarter, free cash flow was $125 million, or 13% of revenue.
Speaker Change: Net interest expenses was $45 million lower than our guidance of $48 million as a result of a year to date reclassification.
Speaker Change: Approximately $3 million of pension plan interest costs to other nonoperating expenses net interest expenses was otherwise in line with our guidance.
Speaker Change: The fourth quarter effective tax rate was 4%, which was lower than our guidance due to certain favorable discrete items in the quarter fourth quarter net earnings were $104 6 million or $2 15 per share above the midpoint of our guidance, reflecting strong operating performance.
Speaker Change: And lower income taxes I just detailed.
Speaker Change: For the fourth quarter free cash flow was $125 million.
Speaker Change: 13% of revenue.
Ramakumar Mayampurath: We recorded capital expenditures of $51 million in the quarter, slightly above 5% of revenue. We expect CAPEX to average 4-5% of revenues for the foreseeable future.
Speaker Change: <unk> capital expenditures of 51 million in the quarter slightly above 5% of revenues.
Speaker Change: Expect capex to average, 4% to 5% of revenues for the foreseeable future.
Ramakumar Mayampurath: We close the quarter with approximately $1.4 billion of liquidity comprised of cash and cash equivalent of $714 million and our undrawn revolving credit facility of $675 million. We exited the quarter with gross debt of $4.6 billion and net leverage ratio of 4.3 times based on our trailing 12-month adjusted EBITDA of $914 million. We continue to prioritize deleveraging our balance sheet, which remains our top priority after investing in our business. As John mentioned, in 2024, we made a total of $426 million of voluntary prepayments on our term loan. In January 2025, we repriced our term loan, reducing credit spreads by an additional 25 basis points, and made another $100 million of voluntary principal prepayment.
Speaker Change: We closed the quarter with approximately $1 4 billion of liquidity comprised of cash and cash equivalent of $714 million and our undrawn revolving credit facility of $675 million.
Speaker Change: We exited the quarter with gross debt of $4 6 billion and net leverage ratio of four three times based on our trailing 12 month adjusted EBITDA of $914 million.
We continued to prioritize.
Speaker Change: Deleveraging, our balance sheet, which remains our top priority after investing in our business.
Speaker Change: As John mentioned in 2024, we made a total of $426 million of voluntary prepayments on our term loan.
Speaker Change: In January 2025, we repriced, our term loan reducing credit spreads by an additional 25 basis points in.
Speaker Change: <unk> made another $100 million voluntary principal prepayment based on the current interest rates. The combined effect of these recent actions will reduce our annual interest expense run rate by approximately $15 million.
Ramakumar Mayampurath: Based on the current interest rates, the combined effect of these recent actions will reduce our annual interest expense run rate by approximately $15 million. As the demand environment improves, alongside our continued focus on prudently managing working capital and gross margins, We expect to see stronger flow through to the bottom line and higher cash flows, allowing us to continue to make good progress on de-leveraging.
Speaker Change: As the demand environment improves alongside our continued focus on prudently managing working capital and gross margins.
Speaker Change: We expect to see stronger flow through to the bottom line and higher cash flows, allowing us to continue to make good progress on deleveraging.
Ramakumar Mayampurath: Finally, during the fourth quarter, we paid a dividend of $0.22 per share, or $15 million.
Speaker Change: Finally during the fourth quarter, we paid a dividend of <unk> 22 per share or $15 million.
Ramakumar Mayampurath: Moving to full year 2024 results, revenue was 3.6 billion down 1% year over year. Semiconductor revenue totaled $1.5 billion, up 1% year-over-year and up 2% excluding the impact of foreign exchange. We experienced growth in world-class optics and continued stability in DRAM and logic boundary applications. while NAND remained at low levels. Electronics and packaging revenue was $922 million in 2024, up 1% year-over-year, excluding the impact of FX and Palladium. Sales were up 7%, driven by strength in chemistry. Total chemistry sales increased 12% year-over-year, excluding the impact of foreign exchange and Palladium pass-through. Fisherity industrial revenue was $1.2 billion down 5% year over year, primarily driven by softness in the industrial market.
Speaker Change: Moving to full year 2024 results revenue was $3 6 billion down 1% year over year.
Speaker Change: Semiconductor revenue totaled $1 5 billion up 1% year over year and up 2%, excluding the impact of foreign exchange.
Speaker Change: We experienced growth in world class optics, and continued stability in DRAM and logic foundry applications.
Speaker Change: While demand remained at low levels.
Speaker Change: <unk> and packaging revenue was $902 million in 2024 up 1% year over year, excluding the impact of FX and Palladium sales were up 7% driven by strength in chemistry total chemistry sales increased 12% year over year, excluding the impact of foreign exchange and Palladium pass through.
Especially entity industrial revenue was $1 2 billion down 5% year over year, primarily driven by softness in the industrial market, excluding the impact of foreign exchange and Palladium pass through sales declined 3% year over year.
Ramakumar Mayampurath: Excluding the impact of foreign exchange and Canadian pass-throughs, sales declined 3% year-over-year.
Ramakumar Mayampurath: full year gross margin was 47.6% up 190 basis points year over year, driven by product mix, as well as operating efficiency. In addition to successfully capturing value through our truly differentiated product portfolio, we have also taken measures to manage our material and labor cost efficiently. Full year operating margin of 21.3% was up 180 basis points year over year, primarily as a result of higher gross margin, coupled with disciplined operating expense management. Turning to cash flow, we generated operating cash flow of $528 million, an improvement of $209 million year-over-year. Full-year pre-cash flow was $410 million, an increase of $178 million year-over-year.
Speaker Change: Full year gross margin was 47, 6% up 190 basis points year over year, driven by product mix as well as operating efficiencies.
Speaker Change: In addition to successfully capturing value through a truly differentiated product portfolio we have.
Speaker Change: Also taken measures to manage our material and labor cost efficiently.
Speaker Change: Full year operating margin of 21, 3% was up 180 basis points year over year, primarily as a result of higher gross margin coupled with disciplined operating expense management.
Speaker Change: Turning to cash flow, we generated operating cash flow of $528 million, an improvement of 209 million year over year full year free cash flow was $410 million, an increase of $178 million year over year free cash flow conversion of 11, 4% improved 500 base.
Ramakumar Mayampurath: Pre-cash flow conversion of 11.4% improved 500 basis points over the prior year.
Speaker Change: <unk> points over the prior year.
Ramakumar Mayampurath: We are pleased with our execution on the margins and the strength in the underlying cash generation in our business, despite a challenging demand environment in our end market.
Speaker Change: We are pleased with our execution on the margins and the strength in the underlying cash generation in our business. Despite the challenging demand environment in our end markets.
Ramakumar Mayampurath: Let me now turn to first quarter outlook. We expect revenue of $910 million, plus or minus $40 million, consistent with the guidance we provided last quarter, and consistent with our view that the market is relatively stable, albeit at a slightly higher run rate than what we saw a year ago. Buy-in market.
Speaker Change: Let me now turn to first quarter outlook, we expect revenue of $910 million, plus or minus $40 million consistent with the guidance, we provided last quarter and consistent with our view that the market is literally stable, albeit at a slightly higher run rate than what we saw a year ago.
Speaker Change: By end market, our first quarter outlook is as follows revenue from our semiconductor market is expected to be 400 million plus or minus $15 million.
Ramakumar Mayampurath: Our first quarter outlook is as follows. Revenue from our semiconductor market is expected to be $400 million plus or minus $15 million. Revenue from our electronics and packaging market is expected to be $245 million plus or minus $10 million. And revenue from our speciality industrial market is expected to be $265 million plus or minus $15 million. Based on anticipated revenue levels and product mix, including lower chemistry sales in the light of the Lunar New Year, we estimate first quarter gross margins of 46.5 percent, plus or minus 100 basis points. We expect first quarter operating expenses of $255 million, plus or minus $5 million.
Speaker Change: Revenue from our electronics and packaging market is expected to be $2 $45 million, plus or minus $10 million and revenue from our speciality industrial market is expected to be $265 million plus or minus $15 million.
Speaker Change: Based on anticipated revenue levels and product mix, including lower chemistry sales in the light of the lunar new year, we estimate first quarter gross margins of 4% to six 5% plus or minus 100 basis points.
Speaker Change: We expect first quarter operating expenses of $2 $55 million, plus or minus $5 million <unk>.
Ramakumar Mayampurath: We expect our op-ex spending to remain at this range of $250 to $260 million a quarter as we continue to invest in people and infrastructure. The estimated adjusted EBITDA of $217 million plus or minus $23 million. We expect tax rate of approximately 22% in the first quarter. For the year, we expect our tax rate to be in the range of 19 to 21 percent. Based on these assumptions, we expect first quarter net earnings per delivered share of $1.40, plus or minus 27 cents. Our execution has remained strong despite the cyclical challenges in our end markets.
Speaker Change: We expect our opex spending to remain at this range of $2 50 to 260 million linked quarter as we continue to invest in people and infrastructure.
Speaker Change: We estimate adjusted EBITDA of 217 million plus or minus $23 million.
Speaker Change: I expect tax rate of approximately 22% in the first quarter for.
Speaker Change: For the year, we expect our tax rate to be in the range of 19% to 21%.
Speaker Change: Based on these assumptions, we expect first quarter net earnings per diluted share of dollars 40, plus or minus 27.
Speaker Change: Our execution has remained strong despite the cyclical challenges in our end markets. We are confident that we are uniquely positioned to capitalize on the opportunities that lie ahead.
John Lee: We are confident that we are uniquely positioned to capitalize on the opportunities that lie ahead.
John Lee: With that, I will turn the call back over to John for concluding remarks. Thank you, Ram. I'll wrap up by saying I'm very pleased with the performance we delivered in 2024. We've leveraged our broad and deep product portfolio to capture opportunities across our businesses in a tough demand environment. And that's thanks to the deep engagement we enjoy with our customers. We've managed our costs well, maintained strong margins, and made progress on our deleveraging agenda. Going forward, we're well positioned on multiple fronts. Improvement in NAND when it comes, continued order and design wind traction in our world-class optics portfolio.
John Lee: I will turn the call back over to John for concluding remarks.
John Lee: Rob I'll wrap up by saying I'm very pleased with the performance we delivered in 2024, we've leveraged our broad and deep product portfolio to capture opportunities across our businesses and a tough demand environment and that is thanks to the deep engagement, we enjoy with our customers.
John Lee: Manage our costs well maintained strong margins and made progress on our deleveraging agenda.
John Lee: Going forward, we're well positioned on multiple fronts improvement in NAND. When it comes continued order and design win traction and our world class optics portfolio.
John Lee: and incremental design win and order activity in both chemistry and chemistry equipment, which are benefiting from increasing complexity for advanced packaging in the AI era. You also heard from Ram that we will invest incrementally both in growth and business continuity to ensure we're ready to capture exciting opportunities when markets return to growth. Of course, we'll do that while maintaining the prudent focus on profit and cash generation that investors know us for.
John Lee: And incremental design win and order activity in both chemistry, and chemistry equipment, which are benefiting from increasing complexity for advanced packaging in the AI era.
John Lee: You also heard from Rob that we will invest incrementally both in growth and business continuity to ensure we are ready to capture exciting opportunities when markets return to growth of.
John Lee: Of course, we will do that while maintaining the product in a prudent focus on profit and cash generation that investors know us for.
John Lee: We're looking forward to an eventful year ahead.
John Lee: We're looking forward to an eventful year ahead.
Operator: With that, operator, please open the call for Q&A. Certainly. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone.
John Lee: With that operator, please open the call for Q&A.
John Lee: Certainly.
John Lee: And as a reminder, ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone.
Krish Sankar: And our first question for today comes from the line of Krish Sankar from TD Calendar. Your question, please. Yeah, hi, thanks for doing my question. I had a couple of them. First one, Johnny mentioned how some of your NAND component inventory at your semi-cap customers is being burnt. I'm kind of curious, where do you think those levels are today versus before, and how much ahead would they start purchasing your components again when they anticipate a NAND upturn?
Speaker Change: First question for today comes from the line of Chris <unk> from TD Cowen Your question. Please.
Chris: Yes, hi, Thanks for taking my question a couple of them first one.
Johnny: Johnny mentioned how.
Johnny: Some of your NAND component <unk> semi cap customers is being burned.
Speaker Change: Is there do you think those levels are today versus before.
Speaker Change: And how much ahead would they start producing new components again.
Speaker Change: The anticipated NAND upturn.
John Lee: Yeah, good morning, Krish. Yeah, that's great question. So we have seen green shoots there. We've talked in the past about a lot of inventory being burned off. We started to see some of that happen. And we started to see some new orders for that. So it's already happening. So we're happy with that progress. It's just that it's still off of a low level.
Speaker Change: Yes, good morning, Chris Yes, it's great question. So we have seen green shoots there we've talked in the past about.
Speaker Change: A lot of our inventory.
Speaker Change: Being burned off we starting to see some of that happen and we're starting to see some new orders for that so it's already happening.
Speaker Change: So we're happy with that progress, it's just that it's still off of a low level. So good progress green shoots, but certainly not at the level, where it used to be.
John Lee: So good progress, green shoots, but certainly not at the level where it used So is it fair to assume, just given what your customers are seeing, what you're seeing, Sentinels Avenue should remain around these levels into even the June quarter? Well, we're not guiding out beyond that, as you know, but I would say this, because we're starting to see these orders coming in for NAN, it will depend on how much upgrade business occurs or whether there's a new greenfield. So if those happen, they would drive that part of our revenue up. And so we're in a good position, if and when that happens.
Speaker Change: So is it fair to assume just given what your customers are seeing what you're seeing.
Speaker Change: <unk> revenue should remain around these levels can do in the June quarter.
Speaker Change: Well, we're not guiding out beyond that as you know, but I would say this because we're starting to see.
Speaker Change: These orders coming in for NAND it.
Speaker Change: It will depend on how much upgrade business occurs or whether there's a new greenfield. So any of those happen that would drive that part of our revenue up.
Speaker Change: And so we're in a good position if and when that happens.
Ramakumar Mayampurath: And then just a quick follow-up for Ram, you kind of mentioned $250 million to $260 million in APEX. Is that the run rate you use for the rest of the year? I mean, and should it normalize because it seems like it's stepping up quite a bit from last year?
Speaker Change: And then just a quick follow up for Rob.
Speaker Change: As I mentioned $2 50 to 260 million in Opex.
Speaker Change: 100 deals for the rest of the year.
Speaker Change: And should it normalize because it seems like it's stepping up quite a bit from last year.
Ramakumar Mayampurath: Yeah, hi, good morning, Chris. So first of all, let me just say that we are very disciplined and focused on our OPEX spending. Our OPEX in 2024 was slightly less compared to the previous year. In 2025, we see some opportunities to invest. in long term growth, and to build some efficiencies within our, within our business. And that's why we are having the additional step up investment. Over the long term, we remain committed to a 40% incremental operating margins, which we'll see as the top line picks up. Got it.
Chris: Yes, hi, good morning, Chris.
Speaker Change: So first of all let me just say that we are very disciplined and focused on our opex spending.
Speaker Change: Our opex in 2024 was flat to slightly less compared to the previous year.
Speaker Change: In 2025, we see some opportunities to invest.
Speaker Change: In long term growth and to build some efficiencies within our.
Speaker Change: Within our business and Thats why we are having the additional step up investment or.
Speaker Change: Over the long term.
Speaker Change: We remain committed to a 40% incremental operating margins, which you'll see is the topline picks up.
Speaker Change: Got it thanks, John Thanks, Ron.
Krish Sankar: Thanks, John.
Ramakumar Mayampurath: Thanks, Ram. Thanks, Krish.
Chris: Thanks, Chris.
Operator: Thank you.
Peter Pung: And our next question comes from the line of Peter Pung from J.P. Morgan. Your question, please.
Thank you and our next question comes from the line of Peter Peng from Jpmorgan. Your question. Please.
Peter Pung: Hey, guys, thanks for taking my question. Just on your semiconductor segment, some of your customers and comparers are talking about a mid single digit growth for WFE. So I guess that back to just given some of the end market dynamics and some of your design wins, how are you thinking about your relative performance versus that level for the year?
Speaker Change: Hey, guys. Thanks for taking my question just on your semiconductor.
Speaker Change: Some of your customers in terms of talking about a mid single digit growth for for WSI. So against that backdrop can you just given some of the.
Speaker Change: And market dynamics in some of your design wins, how are you thinking about.
Speaker Change: Your relative performance versus that level for the year.
John Lee: Yeah, good morning, Peter. Well, you know, you know, we've been able to outperform WFE over the long term by 200 basis points through cycles. So, you know, we're really well positioned, the design wins, activities that we've seen are really helpful. Our focus on world class optics is another lever for us to gain share relatively. You're right, most of our peers and customers have said kind of, you know, mid single digit growth in WFE. And if that happens, we certainly will be enjoying that level of growth as well. As you know, during a strong upturn, we outperform, because, you know, our customers are pulling a lot more.
Peter: Yes, good morning, Peter.
Speaker Change: No.
Speaker Change: We've been able to outperform the <unk> over the long term by 200 basis points through cycles.
Speaker Change: So.
Speaker Change: We're really well positioned to design wins activities that we've seen a really helpful. Our focus on world class Opex is another lever for us to gain share relatively.
Speaker Change: Most of our peers and customers have said kind of mid single digit growth in WMC.
Speaker Change: And if that happens, we certainly will be enjoying that that level of growth as well as you know during a strong upturn, we outperform because our customers are pulling a lot more.
John Lee: And then downturn, you know, we underperform. And overall, we look through the cycle. And that's where we, you know, are still at that 200 basis points above the long term CAGR. on it.
Speaker Change: And then a downturn.
Speaker Change: We underperformed and overall as we look through the cycle.
Speaker Change: And that's where we are.
Speaker Change: Still at that 200 basis points above the long term CAGR.
Speaker Change: Got it Okay, and then and then on your.
Peter Pung: And then, and then on your Specialty industrial that business looks like it's kind of been steady declining over the last few quarters.
Speaker Change: Special key industrial and that business looks like it's kind of been steady declining over the last few quarters any idea of when you think that business with kind of bottom and start to recover.
John Lee: Any idea of when you know, you think that business would kind of bottom and start to recover? Yeah, and as we said on the call, Peter, it's made up of several different kinds of markets. And so we called out that general industrial is the area that is seeing weakness, which is not a surprise. I think if you read all the PMI data, that wouldn't be a surprise. And even organically, though, it's only down 3% year over year for the entire that segment of our market. So it's bouncing along the bottom.
Speaker Change: Yes, as we said on the call Peter it's made up of several different kinds of markets and so we called out that general industrial is.
Speaker Change: The area that is seeing weakness, which is not a surprise I think if you read all the PMI data that wouldn't be a surprise.
Speaker Change: And even organically, though it's only down 3% year over year for the entire that segment of our market. So.
Speaker Change: It sounds like along the bottom.
John Lee: And I think, you know, our best visibility is the guides we gave. And it can be lumpy because it's made up of several different markets. So I think steady and slightly down is how we see it right now.
And I think.
Speaker Change: Our best visibility is the guidance we gave.
Speaker Change: And it can be lumpy because it's made up of several different markets. So I think steady and slightly down is how we see it right now.
Speaker Change: Thank you.
Operator: Thank you, Peter. Thank you.
Peter: Thank you Peter.
Melissa Weathers: And our next question comes from the line of Melissa Weathers from Deutsche Bank. Your question, please. Heather, thank you for letting me ask a question. I wanted to go back to the NAND side. Can you talk about when we're seeing the spending happen in upgrades versus greenfield capacity? Where does MKS fit in that narrative? Do you have higher content in greenfield versus upgrades? Or how do we think about the upgrade dynamics this year?
Peter: Thank you and our next question comes from the line of Melissa whether it was from Deutsche Bank. Your question. Please.
Melissa: Hi, there. Thank you for letting me ask a question I wanted to go back to the NIM side.
Speaker Change: Can you talk about.
Melissa: When we're seeing the spending happening upgrade Christian Greenfield capacity.
Melissa: Okay and that narrative, you have higher content and greenfield versus upgrades or how do we think about that great Daniel makes sense here.
John Lee: Good morning, Mo. So yes, so certainly a greenfield requires brand new tools. And as you know, MKS has a broad portfolio around those tools. With upgrades, most of the benefit for us is in the power, the RF power. And as I've said before, it depends on what the upgrade is. And if it's going from 100 layers to 200 layers, there's certainly a lot of RF power that is needed. And so that's where we're starting to see some of the inventory burn off, as we talked about, and some of that pulls on certain particular product lines there.
Speaker Change: Hey, good morning mode. So, yes, so certainly a greenfield requires brand new tools and as you know MKS has a broad portfolio around those tools.
Speaker Change: With upgrades most of the benefit for US is in the power the RF power and as I've said before it depends on what the upgrade is and if it's going.
Speaker Change: Going from $100 to 200 layers.
Speaker Change: Certainly a lot of RF power that that is needed and so.
Speaker Change: And that's where we're starting to see some of the inventory burn off as we talked about and some of that pulls on certain particular product lines there.
Melissa Weathers: Got it.
Speaker Change: Got it. Thank you and then so on the semi side, but.
Melissa Weathers: Thank you. And then still on the semi side, but on the logic piece, this year, we're expecting some pretty healthy spending on the leading edge nodes, gate all around volumes are going to ramp throughout the year. So can you talk about what the impact of that trend is on MKS's business?
Speaker Change: On the logic piece this year, we're expecting some pretty healthy spending on the leading edge nodes gate all around volumes are going to ramp throughout the year. So can you talk about what the impact of <unk>.
Speaker Change: That trend is on Mps's business is there do you have any kind of content story with gate all around nodes or how should we think about that logic piece continuing to ramp Jacobs.
John Lee: Is there do you have any kind of content story with gate all around nodes? Or how should we think about that logic piece continuing to ramp through this year? Yeah, there are lots of things that that we play in and contribute to enabling this advanced logic capability. One thing we called out in the earnings call is advanced ozone applications for gate all around. And so, you know, we have a broad portfolio. So we are playing in that advanced node growth. But we have particular areas of product lines that enable that, that particular growth as well.
Speaker Change: Yes, there are lots of things that that we play in and contribute to enabling this advanced logic.
Speaker Change: Capability.
Speaker Change: One thing we called out in the earnings call is.
Speaker Change: Advanced.
Speaker Change: Ozone.
Applications for gate all around.
Speaker Change: So we have a broad portfolio so.
Speaker Change: We are playing in that.
Speaker Change: Advanced node growth, but we have particular areas or product lines that enable that that particular growth as well.
Speaker Change: Thank you.
Speaker Change: Thank you.
Jim Rickotti: And our next question comes from the line of Jim Rickotti from Needham & Company. Your question, please. Hi, good morning. Hey, John, besides NAND, which other areas, markets or subsectors are you Recovery, Green Shoes.
Speaker Change: And our next question comes from the line of Jim Mccarthy from Needham and company. Your question. Please.
Speaker Change: Hi, Good morning, guys, Hey, Jon.
Speaker Change: Besides that.
Speaker Change: Which other areas.
Speaker Change: Markets or Subsectors are you seeing some signs of recovery Green shoots since you pointed out.
John Lee: Good morning, Jim. Well, we are starting to see some of that chemistry recover in advanced packaging. You know, even though quarter on quarter can be lumpy, we did see year over year an increase in the PCB chemistry world and we grew 12% organically. We believe that is far outpaces the industry, by the way.
Speaker Change: Yes, good morning, Jim.
Speaker Change: While we are starting to see some of that chemistry recover in advanced packaging.
Speaker Change: Even though quarter on quarter. It can be lumpy, we did see year over year an increase.
Speaker Change: In the PCB chemistry.
Speaker Change: World and we grew 12% organically, we believe that is.
Speaker Change: Far outpaces the industry by the way.
John Lee: And the other green shoots that I would call out besides man, as you say, is the equipment, chemistry equipment for advanced packaging. We saw these orders pick up a couple quarters ago, they continue to pick up. And this is for MLB and HDI applications for AI. Got it.
Speaker Change: And the other green shoots that I would call out besides NAND as you say is the equipment chemistry equipment.
Speaker Change: For our advanced packaging, we saw these orders pick up a couple of quarters ago that continue to pick up.
Speaker Change: And this is for MLP and HDI applications or for AI.
Speaker Change: Got it.
John Lee: Hey, John, looking at that, that EMP business. Can you help us and maybe remind us again how much of that you would characterize as advanced pack? that you want to give it to us for the quarter. https://www.yilingsun.com Yeah, I think, you know, what we used to talk about for advanced packaging was really the IC substrate part, the one that, you know, is really enabling for things like AI servers and non AI servers and PCs. That's about a third of the PCB market. What's surprising and good for us is that because of the number of layers, and the complexity of the number of chips being packaged, we're starting to see AI drive growth in MLB and HDI.
Speaker Change: Looking at E&P.
Speaker Change: Business.
Speaker Change: Can you help us maybe remind us again, how much of that you would characterize as advanced packaging and whether you want to give it to us for the quarter.
Speaker Change: In some sense as to how that might have grown.
Speaker Change: For the year.
Speaker Change: Yes, I think.
Speaker Change: What we used to talk about for advanced packaging was really the IC substrate part the one that.
Speaker Change: Is really.
Speaker Change: Enabling for things like AI servers, and non AI servers, and Pcs, that's about a third of the PCB market, what's surprising and good for us is that because of the number of layers and the complexity of the number of chips being packaged we're starting to see AI drive growth in MLP and HDI.
John Lee: And so MLB is a third of the market, HDI is a third of the market, and IC substrates are a third of the market. And the equipment that we talked about is driven, the equipment orders is driven mostly by HDI and MLB. Packaged substrates remains, you know, the part for the AI servers is great, those customers are really ramping. But as we've talked about, that's still 10%, 15% of the entire IC substrate market. And so the other 85% of the market is still relatively muted, because that's driven by PCs and non AI servers.
Speaker Change: So MLB is a third of the market HDI as a third of the market and IC substrates or a third of the market and the equipment that we talked about has driven the equipment orders, that's driven mostly by HDI and MLP.
Speaker Change: Packet substrates remains.
Speaker Change: The part for the AI servers is great. Those customers are are really ramping but as we've talked about that's still 10% 15% of the entire IC substrate market and so the other 85% of the market is still relatively muted because that's driven by Tcs and non AI servers.
Jim Rickotti: Got it. Thanks.
Speaker Change: Got it thank you.
Vivek Arya: Thanks, Jim. Thank you. And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question, please.
Speaker Change: Thanks, Tim.
Speaker Change: Thank you and our next question comes from the line of Vivek Arya from Bank of America Securities. Your question. Please.
Michael Mani: Hey, this is Michael Mani on for Rebecca Aria. Thanks so much for taking our questions. To start maybe on gross margins. It seems like they're dipping into this quarter. That's related to higher equipment mix. But what are the puts and takes for gross margins as we go through the year? Should we expect the greater contribution from chemistry to help any other segment dynamics there? Appreciate any color. Thank you.
Michael: Hi, This is Michael <unk> on for Zach. Thanks, so much for taking our questions.
Speaker Change: To start maybe on gross margins.
Speaker Change: It seems like Theyre stepping into this quarter and thats related to higher equipment mix, but what are the puts and takes for gross margins as we go through the year should we expect on the greater contribution from chemistry to help any other segment dynamics there.
Speaker Change: Appreciate any color. Thank you.
Ramakumar Mayampurath: Yeah, hi, Michael, I'll take that. First of all, we're very, very happy with the improvements we have seen in gross margin year over year, we improved our gross margins by 190 basis points, 23 to 24. And a lot of that was due to the commercial actions and operational excellence programs in place. Most of those operational excellence programs will continue, which includes manufacturing excellence and procurement savings. and will continue to help our gross margin in the coming quarters. What we're seeing in Q1 is a higher concentration of equipment that we saw in Q4, that that is going to continue and that will impact our mix that combined with the impact of the Lunar New Year.
Michael: Yeah, Hi, Michael I'll take that.
Speaker Change: First of all we're very very happy with the improvements we have seen in gross margin year over year, we improved our gross margins by 190 basis points, 23% to 24.
Speaker Change: Lot of that was due to the commercial actions and operational excellence programs in place.
Speaker Change: Most of those operational excellence programs, we'll continue which includes manufacturing excellence and procurement savings.
Speaker Change: And we will continue to help our gross margin.
Speaker Change: The coming quarters.
Speaker Change: What we're seeing in Q1 is a higher concentration of equipment that we saw in Q4 that that is going to continue and that will impact our mix that combined with the impact of the.
Speaker Change: The lunar new year.
Ramakumar Mayampurath: Reducing our chemistry mix is the reason why we are guiding our gross margin slightly lower in Q1.
Speaker Change: Reducing our chemistry mix. This is the reason why we are a driver of your guide.
Speaker Change: <unk>, our gross margin slightly lower in Q1.
Ramakumar Mayampurath: So to your question, The actions that we control. to influence the gross margin will continue and the mix is seasonal. Yeah, now that too, Michael, that it is seasonal, the chemistry revenue for packaging, because we do have a consumer products component to our business. And Lunar New Year, where you know, many of our customers are shut down for a week or so doesn't occur going forward. And so we kind of expect if normal sickle cali happens that the proportion of our revenue that's chemistry returns. And so that's a that's a tailwind for Gross.
Speaker Change: So to your question.
Speaker Change: The actions that we control.
Speaker Change: To influence our gross margin will continue and the mix of seasonal.
Speaker Change: Yeah, and I'd add too Michael that it is seasonal the chemistry revenue for packaging because.
Speaker Change: Because we do have a consumer products component to our business.
Speaker Change: And lunar new year, where many of our customers are shut down for a week or so doesn't occur.
Speaker Change: Going forward and so we kind of expect if normal cyclicality happens that the proportion of our revenue that's chemistry returns.
Speaker Change: And so that's a that's a tailwind for gross margin.
Michael Mani: Great, thank you.
Speaker Change: Great. Thank you and then.
Michael Mani: And then for my follow-up, I just wanted to ask about your Design-Win Pipeline. So, you know, with Atatek, ElectroScientific, and all, how does your Design-Win Pipeline look based off the synergies you were able to generate from a customer revenue basis from these acquisitions? Has it grown? And, you know, when do you expect most of these revenues to kind of convert? Is that something we could see later this year? Is it more further out in 2026, 2027?
Speaker Change: For my follow up I, just wanted to ask about the <unk>.
Speaker Change: Design win pipeline so.
Speaker Change: Without attack water scientific and all how does your design win pipeline look.
Speaker Change: Based off the synergies we're able to generate.
Speaker Change: From a customer revenue basis from our from these acquisitions has it.
Speaker Change: Groan when do you expect most of these revenues to kind of convert is that something we could see later this year isn't more further out in 2026 27, and then finally on that were there any other were there any areas within that pipeline where they.
Michael Mani: And then finally on that, were there any other, were there any areas within that pipeline where maybe the company was surprised at how competitive it was, like areas that, you know, that maybe it didn't expect to land a win, but it was more competitive than initially anticipated?
Speaker Change: The company was surprising.
Speaker Change: Competitiveness logistic areas.
Speaker Change: But maybe it didn't expect to land a win but it was more competitive than initially anticipated. Thank you.
John Lee: Thank you.
John Lee: Yeah, no, we still have great engagement with many customers on this portfolio that we are able to provide, meaning laser systems, as well as the chemistry and chemistry So that engagement and the design wins that come from that remain strong. We have multiple design wins that we've talked about in the past. To your point, it does take one or two or three years, depending on the customer for that revenue to show up.
Speaker Change: Yes, no we still have great engagement with many customers on this portfolio that we are able to to provide meaning laser systems as well as the chemistry and chemistry systems.
Speaker Change: The engagement and the design wins that come from that remained strong.
Speaker Change: We have multiple design wins that we've talked about in the past.
Speaker Change: To your point it does take one or two or three years, depending on the customer for that revenue to show up.
John Lee: You had a question about, were there any headwinds and whatnot? I think most of the headwinds would be you win a design and then maybe that customer is not levered to AI and they may not grow as much. Maybe they're levered to PCs and so they would certainly not be adding volume. But once you win that design win and once that market returns, we expect them to be successful as well.
Speaker Change: Your other question about were there any headwinds and whatnot I think most of the headwinds would be you win a design and then maybe that customer is not levered to AI and they may not grow as much maybe they are levered to Pcs.
Speaker Change: And so they would certainly not be adding volume, but once you win that design win and once that market returns, we expect them to be successful as well.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Steve Barger: And our next question comes from the line of Steve Barger from Key Bank Capital Markets. Your question, please. Thanks, John, for your comment about a healthy pace of design wins for optical assemblies, are those coming from a product refresh? Or are those new programs that you haven't been?
Speaker Change: Thank you and our next question comes from the line of Steve Barger from Keybanc capital markets. Your question. Please.
Speaker Change: Thanks, John for your comment about the healthy pace of design wins for optical assemblies are those coming from a product refresh or those new programs that you haven't been on before.
John Lee: Yeah, both, Steve. Some are a program we're already on, but it's an upgrade, you know, the next generation of it. And some are literally new things that no one's ever done, including our customers. So it's exciting to do both.
Speaker Change: Yes, both Steve Sun our program, we're already on but its an upgrade the next generation of it and some are literally new things that no one's ever done, including our customers. So it's exciting to do both.
John Lee: You know, number one, you know, you're not losing share, you're actually being asked to upgrade what you already delivered. Number two, we're being asked to do things that are more and more complex, require more and more of our portfolio, and therefore, much stickier and fewer and fewer are competitors can actually do that. So it's a combination of both, Steve.
Speaker Change: Number one you are not losing share that youre actually being asked to upgrade what you already delivered number two we're being asked to do things that are more and more complex require more and more of our portfolio and therefore, much stickier and fewer and fewer of our competitors can actually do that so it's a combination of both Steve.
Steve Barger: Are you seeing the pace of RFQs or the conversion rate from, you know, that initial process to when change as the cycle starts to, you know, move forward?
Speaker Change: Are you seeing the pace of RF skus or the conversion rate from.
Speaker Change: That initial process to two wins change as the cycle starts to move forward or how would you characterize that process.
Steve Barger: Or how, how would you characterize that process? Well, I think for world-class optics, those design, the timing for designs is multiple years before they go into the market. So really no change because that pace has to continue no matter where you are in the cycle. I would say we are seeing more of it on average over time because of the investments we made in capability in world-class optics. So it's really long design cycles, difficult things to do, and they continue through cycles. Got it.
Speaker Change: Well I think for World class optics those design.
Speaker Change: Timing for designs is multiple years.
Speaker Change: Before they go into into the market. So.
Speaker Change: Really no change because that pace has to continue no matter, where you are in the cycle I would say we are seeing more of it on average over time because of the investments we've made in capability and world class optics. So it is really long design cycles difficult things to do.
Speaker Change: And they continue through cycle.
Speaker Change: Got it and then as you look at the progression of advanced packaging demand is there a meaningful difference across different variations like <unk> versus <unk>.
Steve Barger: And then as you look at the progression of advanced packaging demand, is there a meaningful difference across different variations like CoWATS S versus CoWATS L?
John Lee: I guess, is there an optical demand trend beyond just broader packaging proliferation? Well, packaging, to your point, is evolving quickly, and it's a very dynamic area, which we love, right, because that means new technology, new opportunities. I think, you know, to your point, COAS, S is moving to L to R and all that. You know, that's important, but really what we're talking about at MKS are the 50 layers below that, and the chemistry and the drilling and the equipment below that. So, that 50 layers used to be 40, and before that was 30.
Speaker Change: I guess is there an optical demand trend beyond just broader packaging proliferation.
Speaker Change: While packaging to your point is evolving quickly and it's a very dynamic area, which we love right because that means new technology new opportunities.
Speaker Change: Thank you.
Speaker Change: To your point <unk> S.
Speaker Change: Moving to al to our and all that.
Speaker Change: And that's important.
Speaker Change: But really what we're talking about MKS are the 50 layers below that and the canvas Jamie in the drilling and equipment below that and so that 50 layers used to be 40 and before that was 30. So that's an exciting area for us and Thats really why we thought.
John Lee: So, that's an exciting area for us, and that's really why we thought, you know, putting out of tech together with MKS makes a lot of sense, enabling that roadmap to go faster. Understood.
Speaker Change: Putting <unk> together with <unk> makes a lot of sense.
Speaker Change: Enabling that roadmap to go faster.
Speaker Change: Understood. Thanks.
Speaker Change: Thanks, Steve.
Tushar: Thank you. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star one one on your telephone. Our next question comes in line, though, to Shihari from Goldman Sachs. Your question, please. Hi, good morning. Thank you so much for taking the question.
Speaker Change: Thank you and as a reminder, ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone. Our next question comes from the line of tissue hiring from Goldman Sachs. Your question. Please.
Speaker Change: Hi, good morning. Thank you so much for taking the question.
Tushar: John, a couple of your customers have spoken to, you know, the recent export restrictions and how that's having an impact on on revenue and calendar 25. I know most of this should be indirect for you guys, but I'm curious if there's a way to quantify any negative hit from the recent restrictions.
Speaker Change: John a couple of your customers have spoken to the recent export restrictions and how that's having an impact on revenue in calendar 'twenty five I know most of this should be indirect for you guys, but im curious if theres a way to quantify any any negative hit from the recent restrictions.
Ramakumar Mayampurath: Yeah, maybe I'll let Ram take that.
Speaker Change: And <unk>, obviously, I mean, I'll, let Rob take that.
Ramakumar Mayampurath: Yeah, I can start. So our guidance reflects our best view. At this point, we don't see any material impact based on what's in place today.
Speaker Change: I can start.
Speaker Change: So our guidance reflects our best view at this point, we don't see any material impact based on what's in place today.
Ramakumar Mayampurath: Now, as you know, the situation is quite fluid and we are evaluating it closely.
Speaker Change: No as you know the situation is quite fluid and we.
Speaker Change: We are evaluating that closely.
John Lee: Tushar, I think you were asking about the BIS restrictions that came out at the end of the year, or you're asking about tariffs? at the end of the year, the BIS restrictions. Yeah, yeah. Well, yeah, as you know, you read KLA, LAM, everybody's come up with some new numbers. And we are, as Ram said, this is our best view because of what we see from our customers. Obviously, if their revenue goes down, we will see that. But I would say our direct sales to China for the semiconductor market is very, very low. The numbers that impacted us were occurred in October of 2022, and those numbers are out of our, that revenue is out of our numbers right now.
Speaker Change: Sure I think you are asking about the best restrictions that came out in the end of the year.
Speaker Change: Tariffs.
Speaker Change: And via the restrictions, yes, yes.
Speaker Change: Yes.
Speaker Change: As you read KLA Lam everybody has come up with some new numbers and we are as Rob said. This is our best view because of what we see from our customers. Obviously, if their revenue goes down we will see that.
Speaker Change: But I would say are direct sales to China for the semiconductor market is very very low.
Speaker Change: The numbers that impacted US were occurred in October 2022, and those numbers are out of our that revenue out of our numbers right now so.
John Lee: So it's still in direct impact on the same order as what it impacts our customers. Got it.
Speaker Change: It's still indirect impact.
Speaker Change: On the same order as what what it impacts our customers.
Ron: Got it that's helpful and then as my follow up maybe one for Ron.
Tushar: That's helpful.
Ramakumar Mayampurath: And then as my follow up, maybe one for Ram. So you've been with the company for, you know, a couple of months now. I'm curious, you know, I know you guys are very focused on paying down debt on the balance sheet, but curious if you've been able to identify any opportunities to sort of improve, you know, the operations of the company, how you guys think about working capital, you know, tax strategy, anything that you've been able to kind of, you know, identify and potentially improve going forward, if you can share that with us. That would be really helpful.
Speaker Change: So you've been with the company for a couple of months now Im curious I know you guys are very focused on.
Speaker Change: Paying down debt on the balance sheet, but curious if you've been able to identify any opportunities to sort of improve.
Speaker Change: The operations of the company, how you guys think about working capital.
Speaker Change: Talk strategy anything that you've been able to kind of identify and potentially improve going forward. If you can share that with us that would be really helpful. Thank you.
Ramakumar Mayampurath: Thank you.
Ramakumar Mayampurath: Yeah, certainly. You know, on cash flow itself, where you were going, you know, as John mentioned in his script, $410 million increase from $178 million year-over-year, strong free cash flow generation and a good link to the P&L. 11.4% of our revenue was final basis points improvement year-over-year. So, on debt repayment, our continued focus will be, start from the P&L, maintain and continue the actions we are working on now to keep the margin growth and profitability going. Pre-cash flow is about 92% of our non-GAAP net earnings. So that bridge is very good and we need to see that translate into the cash flow.
Speaker Change: Yes, certainly.
Speaker Change: On cash flow itself very already where you were growing universe John mentioned in his script.
Speaker Change: $410 million increase from 178 million year over year strong generating strong free cash flow generation and a good linked to the P&L 11, 4% of <unk>.
Speaker Change: Our revenue was 500 basis points improvement year over year. So two on debt repayment. Our continued focus will be stopped from the P&L maintain and continue the actions we are working on now too.
Speaker Change: Keep the margin growth and profitability growing free cash flow.
Speaker Change: 92%.
Speaker Change: Sure.
Speaker Change: non-GAAP net earnings so that bridge is very good and we need to see that translate into the cash flow.
Ramakumar Mayampurath: We continue to look at repricing and prepayment of our debt as you saw in January. Those opportunities will continue and In terms of P&L, I think the company is executing well. We are constantly looking at operational excellence programs, which we will continue to do. and then drive that cash flow to help with the. debt repayment and our capital allocation strategy has not changed. Prepayment of debt is our number one priority after we invest in the business.
Speaker Change: Continuing to look at.
Speaker Change: The repricing and prepayment of our debt that you saw in January those opportunities will continue.
Speaker Change: <unk>.
Speaker Change: In terms of P&L.
Speaker Change: I think the company is executing well we are constantly looking at the operational excellence programs, which we will continue to do.
Speaker Change: And then drive that cash flow to help with the.
Speaker Change: Yeah.
Speaker Change: Debt repayment and our capital allocation strategy has not changed.
Speaker Change: Prepayment of debt is our number one priority after we invest in the business.
Ramakumar Mayampurath: Thank you very much.
Speaker Change: Thank you very much.
Operator: Thank you.
Speaker Change: Thank you.
Shane Brett: And our next question comes from the line of Shane Brett from Morgan Stanley. Your question, please. Thank you for taking my question. So your balance sheet inventory is down 20 days, quarter over quarter. Is there anything worth noting here? And how should we think about your targets on days of inventory going forward?
Speaker Change: Our next question comes from the line of Shane from Morgan Stanley. Your question. Please.
Speaker Change: Thank you for taking my question. So your balance sheet inventory was down 20 days quarter over quarter is there anything worth noting here and how should we think about your targets on days of inventory going forward. The reason why I'm asking is that with what seems like within lead time orders, increasing our semi I'm just trying to understand how much longer can you support semi continuing to come higher than your expectations. Thank you.
John Lee: The reason why I'm asking this is that with what seems like within lead time orders increasing for SEMI, I'm just trying to understand how much longer can you support SEMI continue to come higher than your expectation? Yeah, so we're happy with the progress we made on inventory, Shane, you know, and I think as it starts burning down, we're getting to, you know, leaner, you know, normalized turns rates. And as you know, if there's a large ramp, obviously, we would use some working capital to prepare ahead of time for that. That's normal. But, you know, I think we have a little higher inventory than we have in the historic past, and that's because of certain strategic components that we have elected to keep, given what happened at the last ramp with shortages.
Speaker Change: Yes, So we know we're happy with the progress we've made on inventory Shane.
Speaker Change: And I think as it starts burning down when we're getting to.
Speaker Change: Leaner normalized turns rates and as you know if there is a large ramp obviously, we would use some working capital to prepare ahead of time for that as normal.
Speaker Change: But.
Speaker Change: I think we have a little higher inventory than we have in the historic past and thats because of certain strategic components that we have elected to keep.
Speaker Change: Given what happened at the last ramp with shortages so.
John Lee: So inventory is a little higher, but we're happy with the progress we've made in decreasing it.
Speaker Change: Inventory is a little higher but we're happy with the progress we've made in decreasing it.
Speaker Change: Okay.
Shane Brett: that answer your questions. Yep, thank you very much.
Speaker Change: Does that answer your questions.
Speaker Change: Yes, thank you very much.
Vijay Rakesh: Thank you. And our next question then comes from the line of Vijay Rakesh from Mizzou. Your question, please. Yeah, hey, John and Ram. Just on the AI side, you mentioned the tailwind in packaging. Can you talk to like, what percent is that AI makes as a percent of your total revenues? And how do you see that, let's say, growing in 2025? I know you mentioned that as a percent of the substrate market is pretty small. But if you walk through like, just for you, what the exposure is? Yeah, Vijay, yeah.
Speaker Change: <unk>.
Speaker Change: Our next question then comes from the line of Vijay Rakesh from Mizuho. Your question. Please.
Speaker Change: Yeah, Hi, John and Brian just on the AI side, you mentioned the team in packaging can you.
Speaker Change: What question.
Speaker Change: That makes sense I suppose the hotel revenues and how do you see that I would say going into 2025, I know you mentioned.
Speaker Change: Question.
Speaker Change: Substrate market is pretty small.
Speaker Change: But.
Speaker Change: <unk> just told you what the exposure limits.
Speaker Change: Yeah, Vijay yeah, so it's a little easier to say in certain submarkets like the IC substrate, part, which we talked about being kind of 10% 15%.
John Lee: So it's a little, it's easy to say in certain submarkets, like the IC substrate part, which we talked about, you know, being kind of 10-15% is driven by AI. It's harder to break that out with respect to MLB and HDI. You know, we see the tool orders, because those are big markets that are levered to other device types. I would say also, remember that AI is driven by semiconductors, a lot of semiconductors. And we have over 85% of every step in the process for making semiconductor chips. So, you know, if you, you know, you do understand, certainly, that AI is driven by Moore's Law.
Speaker Change: Driven by AI, it's harder to break that out with respect to.
Speaker Change: MLP in HDI, we see the two orders.
Speaker Change: Because those are big markets that are levered to.
Speaker Change: Other device types I would say also remember that AI is driven by semiconductors are lot of semiconductors, and so we have over 85% of.
Speaker Change: Every step in the process of making semi centric chip so.
If you.
Speaker Change: You do understand certainly that AI is driven by Moore's law Moore's.
John Lee: Moore's Law is driven by semiconductor progress and packaging progress. We address 85% of semiconductor processes, 70% of packaging processes. So, as a company, we're levered to AI as much as we always have, as much as we always have been to Moore's Law. So that's our best answer for you, because otherwise breaking it up is pretty difficult for us to do. Got it.
Speaker Change: Moore's law is driven by semiconductor progress and packaging progress, we address 85% of semiconductor processes, 70% of packaging processes. So as a company we're levered to AI as much as we always have as much as we always have been to Moore's law. So that's our best to answer for you because.
Speaker Change: Breaking it up is pretty difficult for us to do.
Ramakumar Mayampurath: And then, Ram, as you look at, you know, better free cash flow and driving faster, better prepayments, any thoughts on the leveraging from the Forex down to the two times your longer-term target? Are you, any time around that? Are you pulling it in? How do you look at that? Thanks.
Speaker Change: Got it and then.
Speaker Change: If you look at and a better free cash flow and driving.
Speaker Change: But if prepayments.
Speaker Change: Any thoughts on debt deleveraging from the.
Speaker Change: Forex.
Speaker Change: For the two two times.
Speaker Change: Longer term target.
Speaker Change: Any any family.
Speaker Change: Again.
Speaker Change: Thanks.
Ramakumar Mayampurath: Yeah, let's just go back to last year, just to drive the point home that, you know, we're very focused on what you're asking. In a year when we did not get much help from sales, we repaid close to $500 million, $476 million, including the $50 million mandate. That alone has brought our number down to 4.3 times. And all expectations are that with a little help from top line, we can accelerate that given our current cost structure. So the plan and the focus is exactly what you said, to get that down to acceptable levels, which we have said two times.
Speaker Change: Yes.
Speaker Change: Let's just go back to last year, just to drive the point home that are very.
Speaker Change: Very focused on what you are asking in a year when we did not get much help from sales.
Speaker Change: We repaid close to 500 million foreign $76 million, including the 50 million mandatory.
Speaker Change: That alone is BARDA brought our number down to four three times.
Speaker Change: And all expectations are that with a little help from top line, we can accelerate that given our current cost structure.
Speaker Change: So the plan and the focus is exactly what you said to get that down to acceptable levels, which we have said two times.
Speaker Change: Net.
Ramakumar Mayampurath: That's our focus. As for timing, I don't want to predict that now, but rest assured, our focus is to get it down to that level.
That's our focus as far time timing I don't want to predict that now, but rest assured our focus is to get it down to that level.
Speaker Change: Thanks.
Speaker Change: Thanks P J.
Joe Quatrochi: Thank you. And as a reminder, ladies and gentlemen, if you do have a question, please press star one one on your telephone. Our next question comes in the line of Joe Quatrochi from Wells Fargo. Your question, please. Yeah, thanks for taking the question. I think in the past, like during the December quarter call, you talked about like the growth that are in your optics business within the semis business. I was curious about how that did in 2024.
Speaker Change: Thank you and as a reminder, ladies and gentlemen, if you do have a question. Please press star one on your telephone. Our next question comes from the line of Joe <unk> from Wells Fargo. Your question. Please.
Speaker Change: Thanks for taking the questions.
Speaker Change: In the past.
Speaker Change: Number quarter call you talked about the growth that are in your optics business within the semi business I was curious on how that did in 2024 and how do you think about the opportunity for growth in 2025, given the outlook for some of those customers.
John Lee: And how do you think about the opportunity for growth in 2025, given the outlook for some of those customers?
John Lee: Yeah, Joe, good morning, it's John. You know, we've talked about optics, world-class optics, and we've talked about that revenue over a longer time period, you know, as you know, going from kind of the $150 million to the $300 million level run rates. So, over the last year or two, we've actually outgrown that segment of WFE, the lithography, metrology, inspection segment. So, 24 was a good year, strong year. Certainly, we're not immune to any cycles in that subsegment of WFE. But as we talked about earlier, it's really the design wins that really give us confidence that we will continue this effort, and it will lead us to outperform, certainly in that subsegment in WFE overall.
John Lee: Yes, Joe Good morning, it's John.
Speaker Change: We've talked about.
Speaker Change: Optics.
Speaker Change: Class optics, and we've talked about that revenue over a longer time period.
Speaker Change: As you know going from kind of the $150 million to the $300 million level.
Speaker Change: Run rates.
Speaker Change: So.
Speaker Change: Over the last year or two we've actually outgrown that segment of <unk> lithography metrology inspection second so.
Speaker Change: Four was a good year strong year.
Speaker Change: Certainly, we're not immune to any cycles.
Speaker Change: That subsegment of <unk>, but as we talked about earlier, it's really the design wins that really give us confidence that we will continue this effort and it will lead us to outperform certainly in that sub segment and <unk> overall.
Joe Quatrochi: Thanks.
Ramakumar Mayampurath: And this is a follow up, maybe a little bit more housekeeping. But, you know, I think you're guiding interest expense to be a slightly quarter of a quarter. I know it's a net number, but I would have thought I guess that would be down given the repricing and prepayment in January. Yeah, the main reason is because of, you know, there was two things, we clarified the pensionary class impact in Q4, right? Did you get that? So if you if you take that out, we are our interest in Q4 is 48 million, which is very close to what we guided.
Speaker Change: Thanks, and then just as a follow up maybe a little bit more housekeeping, but yes, I think youre guiding interest expense to be up slightly quarter over quarter.
Speaker Change: I know, it's a net number but I would have thought I guess that would be down given the repricing in prepayment in January.
Speaker Change: Yeah.
Speaker Change: The main reason is because of.
Speaker Change: There was two things we clarified the pension re class impact in Q4 did you guys said so if you take that out we are interest in Q4 is 48 million, which is very close to what we guided.
Ramakumar Mayampurath: The full impact of the $100 million prepayment and the 25 basis points of reduction that we got in January is not included in our Q1 guidance. Our Q1 guidance is 49 and a half. Which is, if you look at quarter over quarter, we have dropped our interest rates by 40% compared to Q1'24 versus Q1'25. So that's a good model for you to look at what we have done today, the impact of what we have done today.
Speaker Change: The full impact of the 100 million prepayment and a 25 basis points of.
Speaker Change: Reduction that we got in January is not included in our Q1 guidance. Our Q1 guidance is 495.
Speaker Change: Which is if you look at quarter over quarter, we have dropped our interest rates by 40% compared to Q1 24 versus Q1 'twenty five.
Speaker Change: So that's a good model for you to look at what.
What we have done to date impact of what we have done today and we will continue to look for additional opportunities to bring our interest rate down and also to accelerate our prepayments.
Ramakumar Mayampurath: And we will continue to look for additional opportunities to bring our interest rate down and also to accelerate our prepayments.
Speaker Change: Okay. Thank you.
Joe Quatrochi: Thanks, Joe.
Speaker Change: Thanks, Joe.
Speaker Change: Thank you.
Operator: That does conclude the question and answer session of today's program.
Speaker Change: Does conclude the question and answer session of today's program I'd like to hand, the program back to Pat <unk> for any further remarks.
Paretosh Misra: I'd like to hand the program back to Paretosh Misra for any further remarks. Thank you all for joining us today and for your interest in MKS Operator. You may close the call, please.
Speaker Change: Thank you all for joining us today and for your interest in MKS Operator, you may close the call. Please.
Operator: Certainly.
Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program.
Speaker Change: Certainly thank you ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Operator: You may now disconnect. Good day.
Speaker Change: Okay.
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