Q1 2025 MKS Instruments Inc Earnings Call

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Misra: Please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, <unk> Misra, Vice President of Investor Relations. Please go ahead.

Misra: Good morning, everyone.

Speaker Change: Mr Al White, President of Investor Relations and I'm joined this morning by John Lee, President and Chief Executive Officer, and Rob <unk> Executive Vice President Chief Financial Officer, and Treasurer yesterday after market close we released our financial results for the first quarter of 2025, which are posted to our investor website.

Misra: At Investor that MKS Dot com.

Misra: As a reminder.

Misra: 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.

Misra: These statements represent the company's expectations only as of today and should not be relied upon as representing the company's estimates or views as of any date subsequent to today and the company disclaims any obligation to update these statements during the call we'll be discussing various non-GAAP financial measures.

Misra: Unless otherwise noted all income statement related financial measures will be non-GAAP.

Misra: Other than revenue and gross margin.

Misra: 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.

Misra: Our Investor website also provides a detailed breakout of revenues by end market and division.

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

John Lee: Thanks, Pat and good morning, everyone MKS delivered excellent results in the first quarter as we reported strong revenues executed well on cost management.

John Lee: Deliver to our customers production demand and continued our deep technology engagements with them.

John Lee: First quarter revenue of $936 million in gross margins of 47, 4% were both at the high end of our guidance.

John Lee: Earnings per diluted share of $1 71 exceeded the high end of our guidance.

John Lee: Our performance is a result of outstanding work by our team in a demand environment that has been showing early signs of improvement.

John Lee: The announcement of new and changing trade policies since February has injected uncertainty into our industry and our end markets are.

John Lee: Our team is working closely with our suppliers and our customers to mitigate adverse impacts from these trade policies.

John Lee: At present, we do not expect a material impact to revenue, but we do anticipate some near term impact on margins as we optimize supply chain and manufacturing activities in response to the dynamic geopolitical environment Rob.

Ron: Ron will provide more details later in the call.

John Lee: I'll turn now to Q1 performance and our three end markets.

Ron: Starting with our semiconductor market.

Ron: Revenue came in at the high end of our guidance and improved sequentially driven by modest increases in demand for our vacuum product offerings for NAND spin.

Ron: Specifically, our RF power solutions offerings in our plasma and reactive gas businesses performed well.

Ron: And picked up from prior year levels as customer inventories have largely normalized and system upgrades have increased.

Ron: We also saw a notable order activity in thermal sensors for etch applications and reactive gases for advanced what cleaning applications.

Ron: In the second quarter, we expect semiconductor revenue to be consistent on a sequential basis, but up low double digits year over year reflective of an environment that is steadily improving.

Ron: We are confident in our ability to outperform as the market recovery gains momentum.

Ron: And as our history has repeatedly shown during these upturns.

Ron: Electronics and packaging revenue. We're also at the high end of our guidance.

Ron: The better than expected results during the quarter that included the lunar new year was driven by increased sales of flexible PCB drilling equipment as well as rigid PCB chemistry equipment.

Ron: Some of our flexible PCB drilling equipment customers pulled forward purchases into Q1.

Ron: We also saw continued momentum in orders for our chemistry, and chemistry equipment for advanced multilayer boards high density Interconnects and packaged substrates related to AI applications.

Operator: They are in a listen-only mode.

Operator: After the speaker's presentation, there will be a question-and-answer session. To ask questions during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising you that your hand has been raised. To withdraw your question, please just press star 11 again.

As the market recovery gains momentum.

Ron: Our products and technologies play key roles in enabling the manufacturing of increasingly complex electronic devices in this era of heterogeneous integration.

And as our history has repeatedly shown during these upturns.

Electronics and packaging revenue. We're also at the high end of our guidance.

Ron: Additionally, we saw strong orders for laser equipment for low Earth orbit satellite applications, where we are the process tool of record for multiple customers validating our position as an innovator and advanced laser technologies.

The better than expected results during the quarter that included the lunar new year was driven by increased sales of flexible PCB drilling equipment as well as rigid PCB chemistry equipment.

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

Paretosh Misra: I would now like to hand the conference over to your first speaker today, Paretosh Misra, Vice President of Investor Relations. Please, go ahead.

Some of our flexible PCB drilling equipment customers pulled forward purchases into Q1.

Ron: Looking ahead to Q2, we expect revenue from our electronics and packaging market to be down mid single digits on a sequential basis, but up mid single digits year over year.

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.

We also saw continued momentum in orders for our chemistry, and chemistry equipment for advanced multilayer boards high density Interconnects and packaged substrates related to AI applications.

Ron: Assistant with prior years, we believe our chemistry revenue will increase sequentially. However, we anticipate this increase will likely be offset by lower sales in our flexible PCB drilling equipment business given the pull forward of shipments I mentioned earlier.

Paretosh Misra: Yesterday, after market close, we released our financial results for the first quarter of 2025, 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 and the company disclaims any obligation to update these statements.

Our products and technologies play key roles in enabling the manufacturing of increasingly complex electronic devices in this era of heterogeneous integration.

Ron: Our guidance implies a healthy low teens year over year growth rate for electronics packaging, the first half of the year.

Additionally, we saw strong orders for laser equipment from low Earth orbit satellite applications, where we are the process tool of record for multiple customers validating our position as an innovator in advanced laser technologies.

Ron: Q2 is expected to be the third consecutive quarter of strong chemistry equipment revenue, which is a good leading indicator for our consumable chemistry products.

Looking ahead to Q2, we expect revenue from our electronics and packaging market to be down mid single digits on a sequential basis, but up mid single digits year over year.

Ron: Our specialty industrial revenue was above the midpoint of our guidance within this market life and Health Sciences Research and defense end markets performed steadily.

Ron: We did see some softness across the broader industrial market, especially with automotive applications.

Assistant with prior years, we believe our chemistry revenue will increase sequentially. However, we anticipate this increase will likely be offset by lower sales in our flexible PCB drilling equipment business given the pull forward of shipments I mentioned earlier.

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 and gross margin. Please refer to our press release and the presentation materials posted to the investor relations sections of our website for information regarding our non-GAAP financial results and a reconciliation to our GAAP measure. Our investor website also provides a detailed breakout of revenues by end market and division.

Ron: As a reminder, our specialty industrial market consists of a variety of applications across multiple end markets that leverage existing MKS technologies.

Our guidance implies a healthy low teens year over year growth rate for electronics and packaging the first half of the year.

Ron: Looking ahead to Q2, we expect revenue in our specialty industrial market to remain flattish as the broader industrial market remains soft.

Q2 is expected to be the third consecutive quarter of strong chemistry equipment revenue, which is a good leading indicator for our consumable chemistry products.

Ron: Overall, we executed well and delivered strong financial results in Q1.

Ron: Our Q2 and market outlook and overall financial guidance reflect the increased uncertainty of the trade policies against what otherwise appears to be an early stage recovery in the end markets we serve.

Our specialty industrial revenue was above the midpoint of our guidance within this market life and health Sciences, and research and defense end markets performed steadily.

John Lee: Now, I'll turn the call over to John. Thanks, Paretosh, and good morning, everyone. MKS delivered excellent results in the first quarter as we reported strong revenues, executed well on cost management. Deliver it to our customers, production demand. and continued our deep technology engagements with them. First quarter revenue of $936 million and gross margins of 47.4% were both at the high end of our guidance. Net earnings per delivered share of $1.71 exceeded the high end of our guidance. Our performance is a result of outstanding work by our team in a demand environment that has been showing early signs of improvement.

We did see some softness across the broader industrial market, especially with automotive applications.

Ron: While we are actively working on mitigation strategies in the near term the situation remains fluid as our customers and the broader electronics ecosystem adapt to both tariffs and their potential macroeconomic implications.

As a reminder, our specialty industrial market consists of a variety of applications across multiple end markets that leverage existing MKS technologies.

Ron: That said, we believe MKS is in a strong position to manage through these uncertainties with the industry's broadest portfolio of leading technologies strong customer relationships, a strong financial operating model and a team that is battle tested now.

Looking ahead to Q2, we expect revenue in our specialty industrial market to remain flattish as the broader industrial market remains soft.

Overall, we executed well and delivered strong financial results in Q1.

Ron: Now, let me turn it over to Rob to run through the financial results and second quarter guidance in more detail Rob.

Our Q2 end market outlook and overall financial guidance reflect the increased uncertainty of the trade policies against what otherwise appears to be an early stage of recovery in the end markets we serve.

Rob: Thank you John and good morning, everyone. We delivered strong results in the first quarter driven by a continued recovery in demand in our semiconductor and electronics and packaging end markets, along with disciplined execution and cost management.

John Lee: The announcement of new and changing trade policies since February has injected uncertainty into our industry and our end market. Our team is working closely with our suppliers and our customers to mitigate adverse impacts from these trade policies.

While we are actively working on mitigation strategies in the near term the situation remains fluid as our customers and the broader electronics ecosystem adapt to both tariffs and their potential macroeconomic implications.

Rob: First quarter revenue was 936 million similar to last quarter and up 8% year over year. The result was at the high end of our guidance and reflects better than expected trends across all our end markets.

John Lee: At present, we do not expect a material impact to revenue, but we do anticipate some near-term impact on margins as we optimize supply chain and manufacturing activities in response to the dynamic geopolitical environment.

That said, we believe MKS is in a strong position to manage through these uncertainties with the industry's broadest portfolio of leading technologies strong customer relationships, a strong financial operating model and a team that is battle tested.

Rob: Excluding the impact of FX and Palladium pass through revenue grew 10% year over year first quarter semiconductor revenue was $413 million up 3% sequentially.

John Lee: Ram will provide more details later in the call. I turn now to Q1 performance in our 3N marker. starting with our semiconductor mark. Revenue came in at the high end of our guidance and improved sequentially driven by modest increases in demand for our vacuum product offerings for NAND. Specifically, our RF power solutions offerings in our plasma and reactive gas businesses performed well. and picked up from prior year levels as customer inventories have largely normalized and system upgrades have increased. We also saw notable order activity in thermal sensors for etch applications and reactive gases for advanced wet cleaning applications.

Now, let me turn it over to Rob to run through the financial results and second quarter guidance in more detail Rob. Thank.

Rob: 18% year over year, excluding FX revenue was up 20% year over year. The result was all at the high end of our expectations.

Rob: Thank you John and good morning, everyone.

Rob: We delivered strong results in the first quarter driven by a continued recovery in demand in our semiconductor and electronics and packaging end markets, along with disciplined execution and cost management.

Rob: As our team continued to capitalize on sequential demand recovery in NAND, DRAM and logic and foundry applications compared to last year, we saw a strong performance in our plasma and reactive gas and RF power solutions businesses, reflecting benefits of NAND upgrades as well as normalization of <unk>.

Rob: First quarter revenue was 936 million similar to last quarter and up 8% year over year.

Rob: <unk> was at the high end of our guidance and reflects better than expected trends across all our end markets.

Rob: Excluding the impact of FX and Palladium pass through revenue grew 10% year over year first quarter semiconductor revenue was $413 million up 3% sequentially.

Rob: Inventory.

Rob: First quarter electronics and packaging revenue was 253 million similar to last quarter and at the high end of our guidance.

John Lee: In the second quarter, we expect semiconductor revenue to be consistent on a sequential basis. but up low double digits year over year, reflective of an environment that is steadily improving. We are confident in our ability to outperform as the market recovery gains momentum. And as our history has repeatedly shown during these up Electronics and Packaging Revenue were also at the high end of our guide. The better-than-expected result during a quarter that included the Lunar New Year was driven by increased sales of flexible PCB drilling equipment as well as rigid PCB chemistry equipment. Some of our flexible PCB drilling equipment customers pulled forward purchases into Q1.

Rob: Sequential result was led by unusually strong flexible PCB drilling and chemistry equipment sales, partially offset by normal seasonal declines in chemistry.

Rob: And 18% year over year, excluding FX revenue was up 20% year over year.

Rob: So was all at the high end of our expectations.

Rob: On a year over year basis sales were up 22% and excluding the impact of FX and Palladium pass through sales were up 26%.

Rob: As our team continued to capitalize on sequential demand recovery in NAND, DRAM and logic and foundry applications.

Rob: Prior to last year, we saw a strong performance in our plasma and reactive gas and RF power solutions businesses, reflecting benefits of NAND upgrades as well as normalization of customer inventory.

Rob: Chemistry revenue was up 8%, excluding the impact of FX and Palladium pass through continuing the strong growth trend, we have seen from last year.

Rob: Flexible PCB drilling and chemistry equipment sales.

Rob: First quarter electronics and packaging revenue was 253 million similar to last quarter and at the high end of our guidance. The sequential result was led by unusually strong flexible PCB drilling and chemistry equipment sales, partially offset by normal seasonal declines in chemistry.

Rob: Also rendered strong growth over prior year.

John Lee: As John mentioned.

John Lee: We also saw continued momentum in orders for our chemistry and chemistry equipment for advanced multilayer boards, high-density interconnects, and packaged substrates related to AI applications. Our products and technologies play key roles in enabling the manufacturing of increasingly complex electronic devices. in this era of heterogeneous integration. Additionally, we saw strong orders for laser equipment for low Earth orbit satellite applications, where we are the process tool record for multiple customers, validating our position as an innovator in advanced laser technology. Looking ahead to Q2, we expect revenue from our electronics and packaging market to be down mid-single digits on a sequential basis.

John Lee: We see our strong equipment sales as a positive leading indicator for future chemistry sales given the historical attach rates.

John Lee: In our specialty industrial markets first quarter revenue was $270 million, a decline of 4% sequentially, but above our guidance midpoint.

Rob: On a year over year basis sales were up 22% and excluding the impact of FX and Palladium pass through sales were up 26%.

John Lee: Revenue was down 13% on a year over year basis, and down 11%, excluding the impact of FX and Palladium pass through.

Rob: <unk> revenue was up 8%, excluding the impact of FX and pillars and pass through continuing the strong growth trend, we have seen from last year.

John Lee: Primarily due to the continued softness in the general industrial and automotive markets.

Rob: Flexible PCB drilling and chemistry equipment sales.

John Lee: Moving down to the P&L first quarter gross margin was 47, 4%, which was at the high end of our guidance.

Rob: Also rendered strong growth over prior year.

John: As John mentioned.

John Lee: We are pleased with the gross margin performance, which was up sequentially. Despite higher mix of equipment. This demonstrates the value our products bring to our customers and our continued execution on manufacturing excellence and supply chain efficiency.

Rob: See our strong equipment sales as a positive leading indicator for future chemistry sales given the historical attach rates.

John Lee: but up mid-single digits year-over-year. Consistent with prior years, we believe our chemistry revenue will increase sequentially. However, we anticipate this increase will likely be offset by lower sales in our flexible PCB drilling equipment. given the pull forward of shipments I mentioned earlier. Our guidance implies a healthy, low-teens, year-over-year growth rate for electronics and packaging the first half of the year. Q2 is expected to be the 3rd consecutive quarter of strong chemistry equipment revenue, which is a good leading indicator for our consumable chemistry product. Our specialty industrial revenue was above the midpoint of our guidance. Within this market, life and health sciences and research and defense and markets performed steadily.

Rob: In our specialty industrial markets first quarter revenue was $270 million, a decline of 4% sequentially, but above our guidance midpoint revenue.

John Lee: First quarter operating expenses were 254 million near the midpoint of our guidance.

John Lee: <unk> committed to managing our opex carefully as we balance investing for growth with driving profitability.

John Lee: First quarter operating income was $189 million with an operating margin of 22%.

John Lee: This results.

John Lee: The strong revenue and gross margin that I highlighted.

John Lee: First quarter, adjusted EBITDA was $236 million and at the high end of our expectations and adjusted EBITDA margin of 25, 2%.

John Lee: Well, we did see some softness across the broader industrial market, especially with automotive applications. As a reminder, our specialty industrial market consists of a variety of applications across multiple end markets that leverage existing MKS technology. Looking ahead to Q2, we expect revenue in our specialty industrial market to remain flattish as the broader industrial market remains soft.

John Lee: Net interest expenses was $45 million just below our guidance of $4 6 million.

John Lee: The first quarter effective tax rate was 19, 9%, which was lower than our guidance of 22%.

John Lee: First quarter net earnings were 116 million or $1 71 per diluted share and above the high end of our guidance, reflecting the strong operating performance and lower income tax rates.

Rob: Grove with driving profitability.

Rob: First quarter operating income was hundred and 89 million with an operating margin of 20.2%. This results the strong revenue and gross margin that I highlighted first quarter adjusted EBITDA was 236 million and a the highest.

John Lee: Overall, we executed well and delivered strong financial results in Q1. Our Q2 End Market Outlook and overall financial guidance reflect the increased uncertainty of the trade policies against what otherwise appears to be an early stage recovery in the end markets we serve. While we are actively working on mitigation strategies in the near term, the situation remains fluid as our customers and the broader electronics ecosystem... That said, we believe MKS is in a strong position to manage through these uncertainties, with the industry's broadest portfolio of leading technologies, strong customer relationships. and a team that is battle-tested.

John Lee: First quarter free cash flow remained strong at one <unk>.

John Lee: And $23 million, which is over 100% of our net earnings in 13% of revenue.

John Lee: We invested 18 million and our capital expenditures in the quarter or slightly under 2% of revenue, we expect full year capex to fall within 4% to 5% of revenue.

John Lee: We closed the quarter with approximately $1 3 billion of liquidity comprised of cash and cash equivalents of 650 farmland in our undrawn revolving credit facility of $675 million.

Rob: First quarter net earnings were hundred and 16 million or dollars 71 for diluted share and above the high end of all guidance, reflecting the strong operating performance and lower income tax rates first quarter free cash flow remains strong at 123 million, which is our hundred.

John Lee: As we mentioned in our last earnings call in January 2025, we made a voluntary principal prepayment of 100 million in connection with the repricing of our term loans, which reduced our credit spreads by 25 basis points.

Ram Mayampurath: Now, let me turn it over to Ram to run through the financial results and second quarter guidance in more detail. Ram. Thank you, John, and good morning, everyone. We delivered strong results in the first quarter, driven by a continued recovery in demand in our semiconductor and electronics and packaging end markets, along with disciplined execution and cost management. First quarter revenue was $936 million, similar to last quarter, and up 8% year-over-year. The result was at the high end of our guidance and reflects better-than-expected trends across all our end markets. Excluding the impact of FX and Palladium pass-through, revenue grew 10% year over year.

John Lee: Exited the quarter with a gross debt of $4 6 billion and a net leverage ratio of four two times based on our trailing 12 month adjusted EBITDA of 933 million, our net leverage ratio improved slightly from the end of prior quarter, reflecting our strong year over year adjusted EBITDA results.

Rob: 13% of revenue, we invested 18 million in our capital expenditures in the quarter or slightly under 2% of revenue, we expect full year capex to fall within 4% to 5% of revenue we closed the quarter with approximately 1.3 billion of Liquidi.

Rob: Cash and cash equivalents of 655 million and our Undrawn revolving credit facility of 675 million.

John Lee: Also in the quarter, we repurchased approximately half a million shares under our existing share repurchase program.

Rob: As we mentioned in our last earnings call in January 2025, we made a volunteer principal prepayment of hundred million in connection with the repricing of our term loans, which reduced our credit spreads by 25 basis points, we exited.

John Lee: The repurchase was accretive and is expected to offset full year stock compensation dilution.

Ram Mayampurath: First quarter semiconductor revenue was $413 million, up 3% sequentially, and 18% year over year. Excluding FX, revenue was up 20% year over year. The result was all at the high end of our expectations. as our team continued to capitalize on sequential demand recovery in NAND, DRAM, and logic and foundry applications. Compared to last year, we saw a strong performance in our plasma and reactive gas and RF power solutions businesses, reflecting benefits of NAND upgrades as well as normalization of customer inventory. First quarter electronics and packaging revenue was $253 million, similar to last quarter, and at the high end of our guidance.

John Lee: In addition to this we expect to make another voluntary prepayment on our term loan in the current quarter.

John Lee: We remain focused on executing on our long term capital allocation priorities of investing in organic growth opportunities and reducing our leverage through principal prepayments and working with our banking partners to reduce our interest expenses as market opportunities arise.

Rob: Oh 4.6 billion and a net leverage ratio of 4.2 times based on our trailing 12 month adjusted EBITDA of 933 million, our net leverage ratio improved slightly from the end of prior quarter, reflecting our strong year over year adjusted.

John Lee: Finally during the quarter, we paid a dividend of <unk> <unk> per share or $15 million.

Rob: Also in the quarter, we we purchased approximately half a million shares under our existing share repurchase program. The repurchase was accretive and is expected to offset full year stock compensation dilution.

John Lee: We are very pleased with our performance in the quarter. The fundamentals of our business remained strong at our current cost structure, we expect significant improvements in cash generation as the demand environment improves which will allow us to accelerate our deleveraging efforts even further.

Ram Mayampurath: The sequential result was led by unusually strong, flexible PCB drilling and chemistry equipment sales, partially offset by normal seasonal declines in chemistry. On a year-over-year basis, sales were up 22%, and excluding the impact of FX and Palladium pass-through, sales were up 26%. Chemistry revenue was up 8%, excluding the impact of FX and palladium pass-through, continuing the strong growth trend we have seen from last year. Flexible PCB drilling and chemistry equipment sales also rendered strong growth over prior years. As John mentioned, we see our strong equipment sales as a positive leading indicator for future chemistry sales given the historical attachment.

Rob: In addition to this we expect to make another voluntary prepayment on our term loan in the current quarter.

John Lee: Let me now turn to our second quarter outlook.

Rob: We remain focused on executing on our long term capital allocation priorities of investing inorganic growth opportunities and reducing our leverage through principal prepayments and working with our banking partners to reduce our interest expenses as market opportunities arise.

John Lee: The guidance, we are providing represents our best estimates based on the dynamic environment in which we are operating.

John Lee: We expect revenue of 995 million, plus or minus $40 million, reflecting our view that underlying demand remained stable. Despite the trade related uncertainties.

Rob: You paid a dividend of 22 cents per share or $15 million.

John Lee: We believe our technology is integral to our customer success and we are designed into many of the advanced applications our product support.

Rob: We are very pleased with our performance in the quarter the fundamentals of our business remain strong at our current cost structure, we expect significant improvements in cash generation as the demand environment improves which would allow us to accelerate our deleveraging efforts even further.

John Lee: By end market, we expect semiconductor revenue to be $415 million, plus or minus $15 million revenue from our electronics and packaging market is expected to be 240 million plus or minus $10 million and revenue from our speciality industrial market is expected to be $270 million plus or minus $15 million.

Rob: Let me now turn to our second quarter outlook. The guidance. We are providing represents our best estimates based on the dynamic environment in which we are operating we expect revenue of 925 million plus or minus 40 million, reflecting our view that one.

Ram Mayampurath: In our specialty industrial markets, first quarter revenue was $270 million, a decline of 4% sequentially, but above our guidance midpoint. Revenue was down 13% on a year-over-year basis and down 11%, excluding the impact of FX and Palladium Parts. primarily due to the continued softness in the general industrial and automotive market. Moving down to the P&L, first quarter gross margin was 47.4%, which was at the high end of our guidance. We are pleased with the gross margin performance, which is up sequentially despite higher mix of equipment. This demonstrates the value our products bring to our customers and our continued execution on manufacturing excellence and supply chain efficiency.

John Lee: This guidance reflects relative stability in our business with the exception of slight downtick in flex PCB drilling equipment. Following the exceptional first quarter results.

Rob: Remain stable despite the trade related uncertainties, we believe our technology is integral to our customers' success and we are designed into many of the advanced applications our product support.

John Lee: We are guiding gross margin of 46, 5% plus or minus 100 basis points the guidance incorporates expectations for certain higher near term costs related to tariffs.

Rob: I.

John Lee: Our current estimate is that tariffs could be up 200 basis points.

John Lee: We will remain agile in light of the fluid trade and tariff environment to optimize our performance as we implement cost mitigation strategies.

John Lee: We expect second quarter operating expenses of 252 million, plus or minus $5 million and adjusted EBITDA of $216 million plus or minus $23 million.

Ram Mayampurath: First quarter operating expenses were $254 million near the midpoint of our guidance. We remain committed to managing our OPEX carefully as we balance investing for growth with driving profitability. First quarter operating income was $189 million with an operating margin of 20.2%.

John Lee: We expect tax rates of approximately 18% in the second quarter.

John Lee: Based on the progress we have made on our ongoing tax planning influence. We now expect our full year tax rate to be in the range of 18% to 20%.

Ram Mayampurath: This result... The strong revenue and gross margin that I highlight. First quarter adjusted EBITDA was $236 million and at the high end of our expectations, an adjusted EBITDA margin of $25.2%. Net interest expenses was $45 million, just below our guidance of $46 million. The first quarter effective tax rate was 19.9%, which was lower than our guidance of 22%. First quarter net earnings were $116 million or $1.71 per diluted share and above the high end of our guidance, reflecting the strong operating performance and lower income tax rate. First quarter free cash flow remains strong at $123 million, which is over 100% of our net earnings and 13% of revenue.

John Lee: We expect second quarter net earnings per diluted share of dollar 56, plus or minus 28.

John Lee: This includes our estimated impact of incremental tariff costs.

John Lee: We are pleased with the demand trends, we are seeing in key areas of our business and.

John Lee: And the overall encouraging start to the year.

John Lee: Our execution has remained strong and we have a longstanding track record of managing through uncertainty.

Rob: Expect the X rates of approximately 18% in the second quarter based on the progress we have made on our ongoing tax planning efforts. We now expect our full year tax rate to be in the range of 18% to 20%, we expect second quarter net earnings per.

John Lee: We remain confident in our position as a key provider of enabling technologies to our customers across the electronics ecosystem and in our ability to help them solve their most complex challenges.

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

Rob: 56, plus or minus 28 cents. This includes our estimated impact of incremental tariff costs.

Ram Mayampurath: We invested $18 million in our capital expenditures in the quarter, or slightly under 2% of revenue. We expect full-year CapEx to fall within 4-5% of revenue. We close the quarter with approximately $1.3 billion of liquidity comprised of cash and cash equivalents of $655 million and our undrawn revolving credit facility of $675 million. As we mentioned in our last earnings call in January 2025, we made a voluntary principal prepayment of $100 million in connection with the repricing of our term loans, which reduced our credit spreads by 25 basis points. We exited the quarter with a gross debt of $4.6 billion and a net leverage ratio of 4.2 times based on our trailing 12-month adjusted EBITDA of $933 million.

Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please just press star one again.

Rob: We are pleased with the demand transfer seeing in key areas of our business and the overall encourage start to the year. Our execution has remained strong and we have a longstanding track record of managing through uncertainty we remain contact.

Speaker Change: Please standby bolt, we compile the Q&A roster.

Speaker Change: Alrighty.

Rob: Position as a key provider of enabling technology to our customers across electronics ecosystem and in our ability to help them solve their most complex challenges with that operator. Please open the call for QA.

Speaker Change: Our first question today comes from the line of Steve Barger Keybanc capital markets. Your line is now open.

Steve Barger: Hey, Thanks, good morning.

Speaker Change:

Speaker Change: John You said system upgrades for memory tools have increased does it feel like that trend has some momentum and can you talk about size and timing of what that could look like.

Rob: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your questions. Please just press star one one again, please install b.

Steve Barger: Yes, good morning, Steve.

Speaker Change: I would say this too.

Ram Mayampurath: Our net leverage ratio improved slightly from the end of prior quarter, reflecting our strong year-over-year adjusted EBITDA results. Also in the quarter, we repurchased approximately half a million shares under our existing share repurchase program. The repurchase was accretive and is expected to offset full year stock compensation dilution. In addition to this, we expect to make another voluntary prepayment on our term loan in the current quarter. We remain focused on executing on our long term capital allocation priorities of investing in organic growth opportunities and reducing our leverage through principal prepayments and working with our banking partners to reduce our interest expenses as market opportunities arise.

Steve Barger: Two things one is that the inventory burn of.

Steve Barger: Of our inventory for the NAND market it looks like it's normalized so that's that's one factor.

Rob: Alrighty.

Steve Barger: But we are seeing the upgrades for NAND and that's really where we were mentioning about.

Speaker Change: Our first question today tons from the line of Steve Barger Keybanc capital markets. Your line is now open hey, Thanks. Good morning, John You said system upgrades for me.

Steve Barger: The improving.

Steve Barger: Semiconductor market.

Steve Barger: In terms of outlook.

Steve Barger: We kind of expect more upgrades to continue but certainly that can vary.

Steve Barger: And we can see a quarter out a little more and I think really it's going to depend on the customers the NAND customers and what their plans are but for right now we're pretty happy with the improvement in year over year and the fact that our inventory has now normalized.

Rob: Does it feel like that trend has some momentum and can you talk about size and timing of what that could look like.

Speaker Change: Yeah. Good morning, Steve Yeah, I would say this two things one is that the inventory burn of of our inventory for the NAND market looks like it's normalized so that's that's one factor, but we are seeing the upgrades for NAND and that's really where men.

Steve Barger: And just in terms of overall size like I know you are incumbent on a lot of the the machines that are out there is there any way to gauge what the size of it could be for upgrades.

Ram Mayampurath: Finally, during the quarter, we paid a dividend of $0.22 per share or $15 million. We are very pleased with our performance in the quarter. The fundamentals of our business remain strong. At our current cost structure, we expect significant improvements in cash generation as the demand environment improves, which would allow us to accelerate our deleveraging efforts even further.

Rob: The improving.

Steve Barger: Well I think the good thing is that upgrades means that.

Rob: In terms of outlook.

Steve Barger: It's you can I upgrade whats out there in the installed base and that is obviously.

Steve Barger: One large customer of ours and all of that's our RF power.

Ram Mayampurath: Let me now turn to our second quarter outlook. The guidance we are providing represents our best estimates based on the dynamic environment in which we are operating. We expect revenue of $925 million plus or minus $40 million, reflecting our view that underlying demand remains stable despite the trade-related uncertainty. We believe our technology is integral to our customers' success and we are designed into many of the advanced applications of product support. Buy-in market, we expect semiconductor revenue to be $415 million, plus or minus $15 million. Revenue from our electronics and packaging market is expected to be $240 million, plus or minus $10 million.

Steve Barger: Hard to gauge the size of that of course, we know the installed base, but it really will depend on which customers are upgrading.

Rob: Customers and what their plans are but for right now we're pretty happy with the improvement in then year over year and the fact that our inventory has now normalized.

Steve Barger: And certainly one customer has said that they see a lot of these customers are planning on upgrades, but I think they are probably going to have the best visibility.

And just in terms of overall size like I I know you're incumbent on a lot of the the machines that are out there is there any way to to gauge what the size of it could be for upgrades well I think the good thing is that upgrades me.

Steve Barger: Got it and then for my follow up really great to hear about momentum for the chemistry equipment solutions can you frame up what customers are telling you about to have visibility or what your second half visibility is there and maybe timing of installation and how that results or flow through to chemistry.

Rob: It's you can only upgrade what's out there the install base and that is obviously you know one one large customer of ours and all that's our RF power, it's hard to gauge the size of that of course, we know the install base, but it really will depend on which customers are.

Steve Barger: Sure the chemistry equipment bookings and now the revenue started about this is the third quarter of those increased bookings there.

Ram Mayampurath: And revenue from our specialty industrial market is expected to be $270 million, plus or minus $15 million. This guidance reflects relative stability in our business, with the exception of downtick in flex PCB drilling equipment following the exceptional first quarter results. We are guiding gross margin of 46.5% plus or minus 100 basis points. The guidance incorporates expectations of a certain higher near-term cost related to tariff. Our current estimate is that tariffs could be up to 100 basis. We will remain agile in light of the fluid trade and tariff environment to optimize our performance as we implement cost mitigation strategies.

Steve Barger: We've talked about in the past this is tied to HDI.

Rob: And certainly one customer has said they see a lot of these customers planning on upgrades, but I think they're probably going to have the best visibility.

Steve Barger: MLB for AI. So artificial intelligence is driving a lot of these are new equipment bookings.

Rob: Got it and then from my follow up really great to hear about momentum for the chemistry equipment solutions can you frame up what customers are are telling you about two half visibility or or what your second half visibility is there maybe timing of install.

Steve Barger: We see it steady right now.

Steve Barger: And of course, the bookings that occurred a quarter ago, our going in three quarters ago of going in now last quarter and we will go in next quarter. So that's the kind of lead time you can expect.

Steve Barger: And this quarter. We also saw continued strength there so and also as you know we have a very very high attach rate of our chemistry to that equipment and it portends very good future for.

Rob: So it flows through to chemistry.

Rob: Sure the chemistry equipment of bookings and now the revenue. It start about this is the third quarter of those increased bookings there. It we've talked about in the past. This is tied to H D I and M. L. B for a I so.

Steve Barger: Before that chemistry revenue now of course chemistry revenue is determined by market demand and the yen, but when we start with our equipment certainly beneficial for MKS.

Ram Mayampurath: We expect second quarter operating expenses of $252 million plus or minus $5 million and adjusted EBITDA of $216 million plus or minus $23 million. We expect tax rates of approximately 18% in the second quarter. Based on the progress we have made on our ongoing tax planning efforts, we now expect our full year tax rate to be in the range of 18 to 20 percent. We expect second quarter net earnings per diluted share of $1.56, plus or minus $0.28. This includes our estimated impact of incremental tariff costs. We are pleased with the demand trends we are seeing in key areas of our business.

Speaker Change: Yeah, Thanks sounds promising I'll pass it along.

Rob: Is driving a lot of these new equipment bookings.

Steve Barger: Thanks, Steve.

Rob: We see it steady right now and of course, the bookings that occurred a quarter ago are going in three quarters ago are going in now last quarter. We will go in next quarter. You know so that's the kind of lead time, you can expect and this quarter. We also saw continue.

Steve Barger: Thank you.

Speaker Change: Our next question comes from the line of ashamed of Morgan Stanley. Your line is now open.

Speaker Change: Thank you for letting me ask a question. So my first question is on tariffs. So you mentioned the tariffs will have an impact of 100 basis points on gross margin could you talk about how you think your customers are looking to mitigate or offset the impact and have you seen any change to customer order patterns from tariffs I'm asking really in the context of whether you see any signs of pollen like activity. Thank you.

Rob: And also as you know we have a very very high tax rate of our chemistry to that equipment and it potends a very good future for that chemistry revenue now of course chemistry revenue is determined by market demand in the end, but when we start with our equipment certainly benefit.

Ram Mayampurath: and the overall encouraging start to the year. Our execution has remained strong, and we have a longstanding track record of managing through uncertainty. We remain confident in our position as a key provider of enabling technologies to our customers across the electronics ecosystem.

Rob: Oh, Hi, Shane this is Rob I'll take that.

Rob: There were very closely engaged both with our customers and suppliers to find the best solution.

Rob: Yeah, Thanks sounds promising I'll pass it along thanks, Steve.

Rob: And in addition to that as you know, we have a global manufacturing and multi site manufacturing capabilities with their very recently and supply chain. So those are our mitigation actions that we are looking at you know the situation is still very fluid.

Speaker Change: Thank you. Our next question comes from the line of Shane Brett of Morgan Stanley. Your line of line is now open and you relying me ask your question. My first question is on tariff. So you mentioned the tariff will have an impact of 100 basis points on gross margins could you talk about how you and your customers.

Ram Mayampurath: and in our ability to help them solve their most complex challenges.

Operator: With that operator, please open the call for Q&A. Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please just press star 11 again. Please stand by while we compile the Q&A roster.

Rob: And then looking at a broad array of.

Rob: Mitigation plans.

Rob: Including selective.

Rob: Commercial actions when necessary.

Speaker Change: Get the impact and have you seen any change to customer order patterns from tariffs and I'm asking really in the context of whether you see any signs of pollen like activities. Thank you.

Rob: And on your question on the topline and so far we haven't seen any impact to the topline from the tariffs.

John: Ashish This is John I would clarify too.

Speaker Change: Oh, Hi, Shane this is from I'll take that.

Rob: We incorporated the effect of tariffs on our gross margin.

Speaker Change: We're very closely engaged both with our customers and suppliers to find the best solution.

Rob: We did say that that could be up to 100% of 100 basis points. We didn't say, we incorporate that whole amount and so I just want to make sure that was clear to everyone.

Speaker Change: In addition to that as you know, we have global manufacturing and Multiside manufacturing capabilities with a very resolient supply chain. So those are our mitigation actions that we're looking at do you know the situation is still very fluid and we're looking at a broad a.

Steve Barger: Our first question today comes from the line of Steve Barger of KeyBank Capital Markets. Your line is now open. Hey, thanks. Good morning. John, you said system upgrades for memory tools have increased. Does it feel like that trend has some momentum? And can you talk about size and timing of what that could look like?

Speaker Change: Got it. Thank you for the clarification and for my follow up is on this kind of a big picture question, but is there any preliminary outlook on the second half and sort of how has the stronger than expected first half of the impacted your outlook, maybe three months ago.

Speaker Change: Mitigation plans, including selective commercial actions when necessary.

Speaker Change: Yeah, you know I think we're happy with our first half performance and certainly in our semi market as well as our E&P markets.

John Lee: Good morning, Steve. I would say this, two things. One is that the inventory burn of our inventory for the NAND market looks like it's normalized. So that's, that's one factor. But we are seeing the upgrades for NAND. And that's really where we were mentioning about the improving semiconductor market. In terms of outlook, you know, we kind of expect more upgrades to continue. But certainly, that can vary. And, you know, we can see a quarter out a little more. And I think really, you know, it's going to depend on the customers, the NAND customers and what their plans are.

Speaker Change: When you take our guidance for Q2 and added to our results for Q1, you could see double digits.

Speaker Change: Increases year over year in semi as well as even in E&P.

Speaker Change: So really happy with those those developments and I think your question is what will happen in the second half I think in general if if all things.

Speaker Change: Basis points, we didn't say, we incorporate that whole amount and so I just want to make sure that was clear to everyone.

Speaker Change: Things are equal, we would kind of be happy with a stable demand and potentially increasing.

Speaker Change: Got it. Thank you for the clarification and from our follow up is this kind of a big picture question, but is there any preliminary outlook on the second half and sort of how has a stronger than expected first half, possibly impacted your outlook, maybe three months ago. Yeah, you know I think.

Speaker Change: Demand in those markets I think that the biggest issue now is what will happen with the macroeconomic Ah.

John Lee: But for right now, we're pretty happy with the improvement in NAND year over year, and the fact that our inventory has now normalized.

Speaker Change: Issues because of tariffs and so that puts a little more uncertainty into it but if everything else were the same we would certainly be happy with this pockets of improvements in our markets and then the year over year improvements in our markets.

Our first half performance and certainly in our semi market as well as our E. M. P markets. When you take our guidance for Q2 and add it to results for Q1, you could see double digit increases year over year in semi as well as even an EP. So.

John Lee: And just in terms of overall size, like I know you're incumbent on a lot of the machines that are out there, is there any way to gauge what the size of it could be for upgrades? Well, I think the good thing is that upgrades means that you can only upgrade what's out there, the install base, and that is obviously one large customer of ours, and all that's our RF power. It's hard to gauge the size of that. Of course, we know the install base, but it really will depend on which customers are upgrading. Certainly, one customer has said they see a lot of these customers planning on upgrades, but I think they're probably going to have the best visibility.

Speaker Change: Okay.

Speaker Change: Got it thanks very much.

Speaker Change: Thanks Shane.

Speaker Change: Thank you.

Speaker Change: Those those developments I think your question is what will happen. The second half I think in general if if ill things were equal we would kind of be happy with a stable demand and potentially increaseing demand in those markets I think the biggest issue.

Speaker Change: Our next question comes from the line of Christmas and car Cowen and company. Your line is now open.

Yeah, Hi, Thanks for taking my question I told them first one John you mentioned about non VIX with all that said there.

Speaker Change: Is that a function of just the overall industry upgrades.

Speaker Change: Happen with the macroeconomic.

Speaker Change: Your artist power supply share gains, helping incrementally I'm just trying to figure it out.

Speaker Change: Issues because of tariffs and so that puts a little more uncertainty into it but if everything else were the same we would certainly be happy with this pockets of improvements in our markets and then the year over year improvements in our markets.

Speaker Change: Any share gains how to is it just more of the industry cyclicality right now and then I have a follow up.

Speaker Change: Yeah, I would say this krish.

Steve Barger: Got it.

Steve Barger: And then for my follow up, really great to hear about Momentum for the chemistry equipment solutions.

Speaker Change: Upgrades are picking up and that's the real driver as well as the fact that our inventories burned off.

Speaker Change: Got it thanks very much.

Speaker Change: Actually thank you.

John Lee: Can you frame up what customers are telling you about two half visibility or what your second half visibility is there, and maybe timing of installation and how that results or flows through to chemistry? Sure. The chemistry equipment bookings and now the revenue, it started about, this is the third quarter of those increased bookings there. We've talked about in the past, this is tied to HDI and MLB for AI. So artificial intelligence is driving a lot of these new equipment bookings. We see it steady right now. And of course, the bookings that occurred a quarter ago are going in, three quarters ago are going in now, last quarter, we will go in next quarter, you know, so that's the kind of lead time you can expect.

Speaker Change: I don't know how you gain more share when you're at 100%. So I'm not sure that question is relevant at this point.

Speaker Change: R. Next question comes from the line of Krish Senkar of Cohen Company. Your line is now open.

Speaker Change: But we know we are 100% market share.

Speaker Change: This is on the auto side do you have any do you have any traction on the pulse D C side.

Speaker Change: Yes, I think we've talked in the past pulse DC something we work on as well and we're engaged with all the major players and pulse D C.

Speaker Change: And you know pulse DC is certainly something that may happen.

Krish Senkar: Has any share gains helped you is it just more the industry cyclicality right now and then I had a follow up.

Speaker Change: In volume production, but right now it has not so we're working on that with our customers I think depending on the customer and the applications. Some may adopted some may not.

Speaker Change: Yeah, I would say this krish. The upgrades are are picking up and that's real driver as well as the fact that our inventories burned off.

Speaker Change: Got it got it and then just as a follow up John you know if you go back three months ago.

Speaker Change: I don't know how you gain more share when you're 100%. So I'm not sure that question is relevant at this point, but we know we are 100% market share.

Speaker Change: A lot of people at the legacy athletic business is leveraged to smartphones.

Steve Barger: And this quarter, we also saw continued strength there. So, and also, as you know, we have a very, very high tax rate of our chemistry to that equipment, and it portends a very good future for that chemistry revenue. Now, of course, chemistry revenue is determined by market demand in the end, but when we start with our equipment, it's certainly beneficial for MKS. Yeah, thanks. Sounds promising. I'll pass it along. Thanks, Steve. Thank you.

Speaker Change: The smartphones record into the back half now that seems to have been pushed into next year and just kind of curious does that change the dynamics and how we look at deal or the second half for that to take business or is it too early to make that call.

Speaker Change: This is the auto side do you have any do you have any traction on the pubs D C side.

Speaker Change: Yeah, I think we've talked in the past post D C something we work on as well and we're engaged with all the major players in post D. C. And you know post D. C is certainly something that may happen in volume production, but right now it has not so we're working on that with.

Speaker Change: Yeah, I wouldn't make a couple of comments on that Krish.

Speaker Change: Actually saw a little bit of the improvement in our AR.

Speaker Change: AMETEK business related to smartphone builds an even little Pcs now not a lot right, but you can see that in the year over year numbers in our chemistry revenue thinking Q1 of 2025 chemistry organic growth was 8% over Q1 of last year.

Speaker Change: Applications some may adopt it some may not.

Shane Brett: Our next question comes to the line of Shane Brett of Morgan Stanley. Your line is now open. Thank you for letting me ask a question. So my first question is on tariffs. So you mentioned that tariffs will have an impact of 100 basis points on gross margins. Could you talk about how you and your customers are looking to mitigate or offset the impact? And have you seen any change to customer order patterns from tariffs? I'm asking really in the context of whether you see any signs of pull-in like activities. Thank you.

Got it got it and then just as a follow up John you know if you go by three months ago, you know a lot of your at your legacy Aftertech business is leverage to smartphones and those review the smartphones will recover in the back half now that seems to be pushed into next year and just kind of curious does that change the.

Speaker Change: So we're seeing some of that a lot of it also is driven by AI.

Speaker Change: But to your point the cyclicality of the consumer product cycle is typical.

Speaker Change: Q1 is the lowest for chemistry revenue Q2 starts to accelerate in Q3 is the peak and then Q4 it depends right depending on the demand. So I think we still are expecting that kind of pattern for the consumer markets related part of our chemistry business.

Speaker Change: Second half for the aggregate business or is it too early to make that call.

Speaker Change: That would make a couple of comments on that Krish, you know, we actually saw a little bit of improvement in our.

Ram Mayampurath: Oh, hi, Shane. This is Ram. I'll take that. We are very closely engaged both with our customers and suppliers to find the best solution. And in addition to that, as you know, we have global manufacturing and multi-site manufacturing capabilities with a very resilient supply chain. So those are our mitigation actions that we are looking at. As you know, the situation is still very fluid. And we're looking at a broad area of mitigation plans, including selective commercial actions when necessary. And on your question on the top line, so far we haven't seen any impact to the top line from the tariff.

Speaker Change: Got it thanks, a lot John Thank you.

Krish: Thanks Krish.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Jim Ricchiuti Needham <unk> company.

Speaker Change: Your line is open thanks, good morning.

Speaker Change: Some of that a lot of it also is driven by AI, but to your point the sicklity of the consumer product cycle is typical that Q1 is the lowest for chemistry revenue two two starts accelerating Q3's, a peak and then Q4 depends.

Speaker Change: John what do you what do you think drove the.

Speaker Change: All forward on the flex drilling side of the business any anticipation of tariffs or do you think it was just so some real underlying demand I mean, it sounded like you were seeing.

Speaker Change: Positive signs.

Speaker Change: As you alluded to in the last quarterly call.

Speaker Change: Man. So I think we still are expecting that kind of pattern for the consumer markets related part of our chemistry business. Okay. Thank you next Chris.

John Lee: Shane, this is John, I would clarify too, we incorporated the effect of tariffs on our gross margin. We did say that that could be up to 100 basis points. We didn't say we incorporated that whole amount. And so I just wanna make sure that was clear to everyone. Got it. Thank you for the clarification.

Speaker Change: Yeah, that's right Jim.

Speaker Change: As far as we could tell it's really just demand was needed a little earlier than what we typically see in the cycle and you've covered us a long time, you know that cycle.

Speaker Change: Thank you. Our next question comes from the line of Jim Rishuti of Needham Company. Your line is up.

Speaker Change: It wasn't because of tariffs are as far as we could tell it was just a demand Poland.

Speaker Change: Because our customers needed it so I'm really not tariff related.

Shane Brett: And for my follow up is, um, this is kind of a big picture question, but is there any preliminary outlook on the second half? And sort of how has the stronger than expected first half possibly impacted your outlook, maybe three months? Yeah, you know, I think we were happy with our first half performance, and certainly in our semi market, as well as our EMP markets. When you take our guidance for Q2, and add it to our results for Q1, you know, you can see double digits, increases year over year in semi as well as even in EMP.

Speaker Change: And does that include.

Speaker Change: John what do you think drove the the pull forward on the flex drilling side of the business any anticipation of tariffs or do you think it was just some some real underlying demand I mean, it sounded like you were seeing some positive signs at.

Speaker Change: Demand also as it relates HDI applications in that area for drilling.

Speaker Change: Sorry, you broke up a little bit Jim could you repeat that yes, John I just wanted to know if youre seeing how satisfied you are with the progress you're seeing in the HDI drilling portion of the business.

Speaker Change: Call Yeah, that's right Jim we as far as we could tell it's really just demand was needed a little earlier than what we typically see in the cycle you've covered us a long time, you know that cycle. It wasn't because of tariffs as far as we could tell it was just demand.

Speaker Change: Right, Yes, we mentioned again that so low earth orbit applications continue to grow more as you know more and more customers are are are getting.

John Lee: So really happy with those, those developments.

John Lee: I think your question is what will happen in the second half? I think in general, if all things are equal, we would kind of be happy with a stable demand and potentially increasing demand in those markets. I think that the biggest issue now is what will happen with the macroeconomic issues because of tariffs. And so that puts a little more uncertainty into it. But if everything else were the same, we would certainly be happy with this pockets of improvements in our markets and then the year over year improvements in our Got it.

Speaker Change: Getting into that market and being you.

Speaker Change: Production tool of record is very helpful. There.

Speaker Change: Because our customers needed it so really not terrif related.

Speaker Change: In general the HDI drilling market.

Speaker Change: And by that include demand also as it relates to H C. I applications in that area for Drolling.

Speaker Change: Still we made it a little muted in terms of Capex, but we have several design wins throughout the year and so we're still very happy with the progress there.

Speaker Change: Sorry, you broke up a little bit Jim could you repeat that yeah. John I just wanted to know if you're seeing how satisfied you are with the progress you're seeing in the HDI. Dr drilling portion of the business right, Yes, we mentioned again that.

Speaker Change: The point I would make about the Leo as we said in our prepared remarks is that as confirmation for us that the tool they make.

Speaker Change: Some customers definitely think it's a very very.

Shane Brett: Thanks very much. Thanks, Shane.

Speaker Change: Very much something that is competitive and maybe differentiating form a cost of ownership standpoint.

Operator: Thank you.

Krish Sankar: Our next question comes to the line of Krish Sankar of Cohen & Company. Your line is now open. Hi, thanks for taking my question. I have two of them. First one, John, you mentioned about land upgrades, etc. on the trend there. Is that a function of just the overall industry upgrade, or is your RF power supply share gains helping incrementally? I'm just trying to figure out, has any share gains helped you, or is it just more the industry cyclicality right now?

And then just one quick follow up I'm wondering.

Speaker Change: How youre thinking about.

Speaker Change: Mitigation actions as it relates to gross margins the headwind you're seeing if we look out to the second half.

Speaker Change: Remains a little muted in terms of Capex, but we have several design wins throughout the year and so we're still very happy with the progress there I think the point I would make about the L. E O. As we said in our prepared remarks is that's confirmation for us that.

Speaker Change: Do you anticipate having this.

Speaker Change: Behind you I know, there's you know it could be as much as 100 basis points in Q2, but how are you thinking about it in the back half.

John Lee: And then I have a follow-up. Yeah, I would say this, Krish, the upgrades are ticking up. And that's the real driver as well as the fact that our inventory is burned off.

Rob: Hi, Jim This is Rob.

Rob: Let me, let me start by saying that we are very pleased with the continued strength in our gross margin.

Speaker Change: Some customers definitely think it's very very much something that is competitive and maybe differentiating form cost of ownership standpoint.

Rob: Our gross margin has remained well above 4% to 7% for about five quarters now so the fundamentals of our business still remain very strong.

John Lee: I don't know how you gain more share when you're 100%. So I'm not sure that question is relevant at this point. But we know we are 100% market. This is the RF side. Do you have any traction on the pulse DC side? Yeah, I think we've talked in the past, Pulse DC is something we work on as well. And we're engaged with all the major players in Pulse DC. And, you know, Pulse DC is certainly something that may happen in volume production, but right now it has not. So we're working on that with customers, I think, depending on the customer and the applications, some may adopt it, some may not.

Speaker Change: I mean, just one quick follow up I'm wondering how you're thinking about mitigation actions as it relates to gross margins the headwind you're seeing if we look out to the second half do you anticipate having this.

Speaker Change: No. This is a very.

Speaker Change: On certain time, and we're working through mitigation actions. So we're watching the new cycle and the development is as they come.

Speaker Change: But one thing I can tell you is that we are committed to a 47 plus percent gross margin in the long term.

Speaker Change: Find you I know, there's you know it could be as much as 100 basis points in Q2, but how are you thinking about it in the back half.

Speaker Change: Okay. Thank you.

Chip: Thanks Chip.

Speaker Change: Hi, Jim This is from let me, let me start by saying that we're very pleased with the continued strength in our gross margin.

Speaker Change: Thank you. Our next question comes from the line of Vivek Arya Bank of America Securities. Your line is now open.

Speaker Change: Hi, This is Michael money on for Vivek Arya. Thanks, so much for taking our questions I just wanted to dive a little more into the specific pain points, you're seeing on the tariffs, so exactly which product areas, which segments are seeing the most impact and could you give us a sense of I know there's.

Speaker Change: Gross margin has remained well about 47% for about five quarters now so the fundamentals of our business still remain very strong as you know this is a very uncertain time and we're working through mitigation actions. So we're watching the new cycle and the development.

John Lee: Got it, got it.

Krish Sankar: And then just as a follow-up, John, you know, if you go back three months ago, you know, a lot of your legacy Attrotech business is leveraged to smartphones, and there's a view that smartphones will recover in the back half. Now that seems to have been pushed into next year, I'm just kind of curious, does that change the dynamics on how we look into your second half for the Attrotech business, or is it too early to make that call? Yeah, I would make a couple comments on that, Krish. We actually saw a little bit of improvement in our adtech business related to smartphone builds and even little PCs.

Speaker Change: Most significant manufacturing presence in China, I mean, how much about.

Speaker Change: One thing I can tell you is that we are committed to a four to seven plus percent gross margin in the long term.

Speaker Change: Back to the Washington, largely serving domestic China customers and then Conversely, like how much of what's what you produced in the U S is being sent to China. Thank you.

Speaker Change: Okay. Thank you.

Speaker Change: Thanks, Jim.

Speaker Change: Thank you. Our next question comes from the line of Vivic Arya of Bank of America Securities. Your line is now open.

Michael Money: Yeah, Michael Thanks for the question so.

John Lee: Now, not a lot, right? But you can see that in the year over year numbers in our chemistry revenue. I think in Q1 of 2025, chemistry organic growth was 8% over Q1 of last year. So we're seeing some of that. A lot of it also is driven by AI. But to your point, the cyclicality of the consumer product cycle is typical, that Q1 is the lowest for chemistry revenue, Q2 starts accelerating, Q3 is the peak, and then Q4 depends, right, depending on the demand. So I think we still are expecting that kind of pattern for the consumer markets related part of our chemistry business.

Speaker Change: I think the short answer is.

Speaker Change: Everything is it's occurring that you just called out and we're trying to mitigate all of that we do have footprints in China a lot of it is China for China, certainly in our chemistry business. So I would say in the chemistry business, there's very minimal impact from tariffs because of that localization most of the IB.

Speaker Change: Hi, This is Michael money on for Vivek ARIA. Thanks, So much for taking our questions I just wanted to have a little more into the specific pain points, you're seeing with regards to terrace, so exactly which product areas, which segments are are seeing the most impact.

Speaker Change: This is sense of I know, there's a significant manufacturing presence in China I mean, how much of that you know was being exported back to the U S is it largely serving domestic China customers and then Conversely, like how much of what's what you produce is being.

Speaker Change: Issue is coming from the vacuum side, because we do have some factories there.

Speaker Change: That said the ship worldwide and so this is the mitigation work, we're doing now is to minimize that.

Speaker Change: Some of it does come back to the United States a lot of it does not and and we're trying to work with our customers are.

Speaker Change: Thank you.

Krish Sankar: Thanks a lot, John.

Krish Sankar: Thank you.

Speaker Change: Yeah, Michael Thanks for the question. So I think the short answer is everything is occurring that you just called out and we're trying to mitigate all of that we do have footprints in China a lot of it is China for China, certainly in our team business.

Jim Ricchuti: Thanks, Krish. Thank you. Our next question comes to the line of Jim Ricchuti of Neatham & Company. Thanks. Good morning.

Speaker Change: To try to minimize that we.

Speaker Change: We also have as Ron said factories, all over the world and so well not every factory makes everything.

Speaker Change: Longer term, we can also make those kinds of changes and so to Jim Ricchiuti earlier point I think there is an impact from tariffs in the short term and that's why we are confident that longer term if the tariffs stay the way. They are we would be able to have our mitigation actions. So that we can commit to that 47% plus gross margin.

John Lee: John, what do you think drove the the pull forward on the flex drilling side of the business? Any anticipation of tariffs? Or do you think it would https://www.yiling.com Yeah, that's right, Jim. We, as far as we could tell, it's really just demand was needed a little earlier than what we typically see in the cycle. You've covered us a long time, you know, that cycle. It wasn't because of tariffs, as far as we could tell, it was just a demand pull in, because our customers needed it. So really not tariff related.

Speaker Change: I would say in the chemistry business, there's very minimal impact from tariffs because of that localization. Most of the issue is coming from the vacuum side, because we do have some factories there that the ship worldwide and so this is the mitigation.

Speaker Change: And long term.

Jim Ricchiuti: Great. Thank you and for my follow up just wanted to think a little more medium term about the yard the recovery you're seeing in semi market here. So if I look at where the business is running relative to maybe the peak in 'twenty, two youre down around 20% and I know that last peak.

Speaker Change: Now is to minimize that some of it does come back to the United States a lot of it does not and and we're trying to work with our customers to try to minimize that we also have as ROM said factories, all over the world and so well not every factor.

Speaker Change: Some customers you might have not been able to ship two obviously that was the.

Jim Ricchuti: And that includes and also as it relates to HDI applications in that area for Sorry, you broke up a little bit, Jim. Can you repeat that? Yeah.

Speaker Change: The peak of bullet philosophy in cycle. So as we think about getting back to that peak over the medium term.

Speaker Change: Would that would that be would that be would you need would you need a recovery in the NAND market to get back there or could the foundry and logic wins and progress in the fault trousers lithography. These other places help you get back to the peak, especially because I know with you know with the.

John Lee: John, I just wanted to know if you're seeing how satisfied you are with the progress you're seeing in the HDI drilling portion of the business. Right, yes. We mentioned, again, that low-earth orbit applications continue to grow. As you know, more and more customers are getting into that market. Production tool record is very helpful there. I think, in general, the HDI drilling market still remains a little muted in terms of cap-backs, but we have several design wins throughout the year, and so we're still very happy with the progress there. I think the point I would make about the LEO, as we said in our prepared remarks, is that's confirmation for us that the tool we make, some customers definitely think it's very much something that is competitive and maybe differentiating from a cost-of-ownership standpoint.

Speaker Change: Great. Thank you and for my follow up just want to think a little more medium term about the recovery you're seeing in semi market here. So if I look at where the business is running relative to maybe the peak in 22.

Speaker Change: But in an up cycle, you're seeing since a lot of that upgrade driven while it's still beneficial to you might not be as beneficial as greenfield ads. So how should we think about getting back to ops. Your former run rate. Thank you.

Speaker Change: You're down around 20% and I know that's last week. You know included some customers you might have not been able to ship to obviously that was the peakable at the last NAND cycle. So if you think about getting back to that peak over the medium term would that you know would that be would that be would you.

Speaker Change: Yeah, Michael I would say that we look at the wafer fab equipment market as a as a totality right and as we've talked about in the past and canceled addressing 85% of WMC.

Speaker Change: And then to your point there are sub segments of it is some driven by NAND, some driven by logic and DRAM.

Speaker Change: And while we have had that headwind of not being able to ship to many of our previous customers in China.

Speaker Change: And our non U S competitors are right and so that's a headwind whose market share just by math, we have taken the actions and controlling the things, we can which is up to double down on world class optics in and push the lithography metrology inspection.

Speaker Change: You might not be as beneficial as greenfield adds so how should we think about getting back to your former one rates. Thank you.

Ram Mayampurath: And just one quick follow up. I'm wondering how you're thinking about mitigation actions as it relates to gross margins the head when you're seeing if we look out to the second Do you anticipate having this? behind you. I know there's, you know, it could be as much as 100%. you too, but how are you thinking about it in the back?

Speaker Change: Renewing to push share gains wherever we can.

Speaker Change: Yeah, Michael I would say that we look at the wafer fab equipment market as a as a totality right and as we've talked about in the past M. C is addressing 85% of W. F E. And then to your point there are sub segments of it some driven by NAND, some driven by logic and Dr.

Speaker Change: And I think then of course, the natural growth of the wafer fab equipment market will also help us get a get back to that peak, but to your point I think NAND won't ever get back to that peak because that was quite a large peak, but other things can grow and so if you think about what people are talking about today.

Speaker Change: While we have had that headwind of not being able to shift to many of our previous customers in China and our non U S competitors are right and so that's a headwind to market share just by math, we have taken you know the actions and then.

Ram Mayampurath: Hi, Jim, this is Ram. Let me let me start by saying that we are very pleased with the continued strength in our growth margin. Our gross margin has remained well above 47% for about five quarters now. So the fundamentals of our business still remain very strong. As you know, this is a very uncertain time and we are working through mitigation action. So we are watching the new cycle and the developments as they come. One thing I can tell you is that we are committed to a 47 plus percent gross margin in the long term. Okay, thank you.

Speaker Change: All around and backside power.

Speaker Change: Lot of that is dep etch centric and that's still you know where were more levered versus socs, even metrology inspection.

Speaker Change: A lot of the other things that are going on like a packaging of putting chips together wafers together that drives vacuum processes as well and so you've seen some of our customers talk about that and then I would pivot more importantly is that are you know with advanced packaging, that's really another area for growth where MKS is uniquely positioned.

Speaker Change: Double down on World class optics, and and push the lithography metrology inspection continuing to push share gains wherever we can and and I think then of course, the natural growth of the wafer fabric equipment market will also help us get.

Speaker Change: <unk> to enjoy both the packaging growth as well as the chip growth.

Speaker Change: But to your point I think nan won't ever get back to that peak because that was quite a large peak, but other things can grow and so if you think about what people are talking about today get all around and backside power a lot of that is depth central.

Jim Ricchuti: Thanks, Jim.

Speaker Change: Yeah.

Speaker Change: Thanks, so much for the color.

Michael Mani: Thank you. Our next question comes from the line of Vivek Arya of Bank of America Securities. Your line is now open.

Speaker Change: Thank you. Our next question comes from the line of Matthew Prisco Cantor Fitzgerald. Your line is now open.

Michael Mani: Hi, this is Michael Mani on for Vivek Arya. Thanks so much for taking our questions. I just wanted to dive a little more into the specific pain points we're seeing with regards to tariffs. So exactly which product areas, which segments are seeing the most impact? And could you give us a sense of, I know there's a significant manufacturing presence in China. I mean, how much of that is being exported back to the US? Is it largely serving domestic China customers? And then conversely, how much of what you produce in the US is being sent to China?

Speaker Change: Delivered versus the photography metrology inspection I think a lot of the other things that are going on like packaging or putting chips together wafers together that drives back in processes as well and so you seen some of our customers talk about that and then I would pivot.

Matthew Prisco: Hey, guys. Thanks for taking the question wanted to start on maybe the photonics side of the business and just what type of traction you're seeing there today any changes over the last three months and maybe how you think about the ramp of the major wins here that you've previously announced anything around timing or impact the model would be helpful.

Speaker Change: With advance packaging, that's really another area for growth, where you know mkas.

Speaker Change: Yeah, Good morning, Matt and I think for Photonics, you're talking about the semi side of it or in general the broader photonics business.

Speaker Change: Talking about the semi side specifically.

Speaker Change: Thanks, so much for the color.

Speaker Change: Yeah.

John Lee: Thank you. Yeah, Michael, thanks for the question. So I think the short answer is, everything is, is occurring, that you just called out, and we're trying to mitigate all of that. We do have footprints in China, a lot of it is China for China, certainly in our chemistry business. So I would say in the chemistry business, there's very minimal impact from tariffs, because of that localization. Most of the issue is coming from the vacuum side, because we do have some factories there that ship worldwide. And so this is the mitigation work we're doing now is to minimize that.

Speaker Change: So I would say that are you know the design wins that we talked about in the past those remain high.

Speaker Change: [noise]. Thank you. Our next question comes from the line of Matthew Prisco of Cantor Fitzgerald. Your line is now open.

Speaker Change: Highly engaged technical engagements with our customers, we're continuing to work on new things as well with those customers.

Matthew Prisco: Hey, guys. Thanks for taking the question I wanted to start on maybe the photonic side of the business and just what type of traction you're seeing there today any changes over the last three months and maybe how you think about the ramp of the major wins here that you previously announced anything around timing or impact the model would.

Speaker Change: You know, we're not immune to the cycles for even lithography metrology inspection, but the lead times are much longer. So those cycles are a little more muted than.

Speaker Change: And you can see that in 2024, you know that segment of Wi Fi for US was $300 million, which is a much faster growth than the than the market.

Matthew Prisco: Yeah, Good morning, Matt and I think for Photonics, you're talking about the the semi side of it or in general the broader Photonous business talk about the semi side, specifically yeah. Yeah. So I would say that you know the design.

Speaker Change: I would say this some of the things that we have designed in we talked about in the past.

Speaker Change: Some complex integrated sub systems that only MKS can do because of our portfolio those are going into production on some of the most advanced.

John Lee: Some of it does come back to the United States, a lot of it does not. And we're trying to work with our customers to try to minimize that. We also have, as Ram said, factories all over the world. And so while not every factory makes everything, longer term, we can also make those kinds of changes. And so to Jim Rashidi's earlier point, I think there's an impact from tariffs in the short term. And that's why we are confident longer term, if the tariffs stay the way they are, we would be able to have mitigation actions so that we can commit to that 47% plus gross margin long term.

Matthew Prisco: In the past those remain a highly engaged technical engagements with our customers. We're continuing to work on new things as well with those customers you know, we're not immune to the cycles for even the metrology inspection, but the lead times are much cycles, a little more.

Speaker Change: Lithography.

Speaker Change: Lithography metrology inspection tools. So we're seeing that what we're doing is incredibly critical to some of the most incredibly critical tools in a fab. So we're really pretty pretty pleased with that momentum that.

Speaker Change: Oh Cool and then just a quick follow up how should we think about your ability and willingness to continue paying down debt within the uncertain backdrop, maybe if you can update us on a minimum cash balance and in the current prepayment strategy I know normally when you guys report you've already got the repayments for the quarter in the books.

Matthew Prisco: And you can see that in 2024, you know that segment of Wfee for US was 300 million, which is a much faster growth than than the market.

Matthew Prisco: I would say this some of the things that we have designed in we talked about in the past some complex integrated subsystems that only MKS can do because of our portfolio those are going into production on some of the most advanced.

Michael Mani: Great, thank you. And for my follow up, just want to think a little more medium term about the the recovery receipt and in semi market here. So if I look at where the business is running relative to maybe the peak in 22, you're down around 20%. And I know that last peak, you know, included some customers, you might have not been able to shift to obviously, that was the peak of the last NAN cycle. But if you think about getting back to that peak, over the medium term, would that, you know, would that be, would that be, would you need, would you need a recovery in the NAN market to get back there?

Speaker Change: Haven't seen that yet so what are we thinking for kind of magnitude.

Speaker Change: In this quarter and moving forward.

Speaker Change: Hi, Matt in General you can expect a similar pattern as we did last year with regard to our debt pay down as well.

Matthew Prisco: It's hard Misography metrology Inspector tools. So we're seeing that what we're doing is incredibly critical to some of the most incredibly critical tools in a fab. So we're really pretty pretty pleased with that momentum that.

Speaker Change: You said in the prepared remarks, we will do a prepayment in Q2.

Speaker Change: Our capital allocation strategy has not changed after we invest in capex and in the business our priority remains.

Speaker Change: Repayment of debt and we are very confident that we can operate our liquidity is very strong and at these levels of cash we are very confident given the systems and cash boardings. We have put in place we have a very flexible system to apply cash and need not maintained theres no need to maintain.

John Lee: Or can the foundry and logic wins and progress in metrology, lithography, these other places, help you get back to the peak, especially because I know with, you know, with the NAN upcycler scene, since a lot of that's upgrade driven, while it's still beneficial to you, might not be as beneficial as Greenfield ads. So how should we think about getting back to your former one rates? Thank you. Yeah, Michael, I would say that we look at the wafer fab equipment market as a as a totality, right. And as we've talked about in the past, MKS is addressing 85% of WFE.

Speaker Change: The levels of cash we did in the past.

Matthew Prisco: Hi, Matt in General you can expect a similar pattern as we did last year with regard to our debt pay down as we said in the prepared remarks, we will do a prepayment in Q2.

Speaker Change: So these levels that frees up a lot more cash for applying towards our debt.

Speaker Change: As you mentioned on the call and in the beginning of the quarter. We found we found an opportunity.

Speaker Change: To buy back some stock.

Matthew Prisco: For capital allocation strategy has not changed after we invest in Capex and in the business. Our priority remains repayment of debt and we appreciate that we can operate a liquidity is very strong and these levels of cash we are very co.

John Lee: And then to your point, there are subsegments of it, some driven by NAND, some driven by logic and DRAM. And while we have had that headwind of not being able to ship to many of our previous customers in China, and our non US competitors are, right. And so that's a headwind to market share just by math. We have taken, you know, the actions and controlling things we can, which is to, you know, double down on world class optics and, and push the lithography metrology inspection, continuing to push share gains wherever we can. And, and I think then, of course, the natural growth of the wafer fab equipment market will also help us get, get back to that peak.

Speaker Change: We have a lot of confidence in our business. It was a modest amount it was accretive to.

Speaker Change: And also offset the helped to offset the dilution in the year, but that does not reflect any shift in our capital allocation strategy. We are committed to paying down debt well one more prepayment in Q2 and that focus will continue.

Speaker Change: Helpful. Thank you.

Matt: Thanks, Matt.

Speaker Change: Thank you as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced against to withdraw. Your question. Please press star one again.

Matthew Prisco: You mentioned of the calling of the quarter, we found an opportunity to buy back some stock.

Speaker Change: Our next question comes from the line of Melissa <unk> of Deutsche Bank. Your line is now open.

John Lee: But to your point, I think NAND won't ever get back to that peak, because that was quite a large peak. But other things can grow. And so if you think about what people are talking about today, you know, get all around and backside power, a lot of that is depth edge centric. And that's still, you know, where we're more levered versus the lithography metrology inspection. I think a lot of the other things that are going on, like packaging or putting chips together, wafers together, that drives backing processes as well. And so you've seen some of our customers talk about that.

Matthew Prisco: Visit we have a lot of confidence in our business. It was a modest amount it was accretive to and also offset the helped offset the dilution in the year, but that does not reflect any shift in our capital allocation strategy. We are committed to paying down debt one more prepayment.

Melissa: Thank you for letting me ask a question I guess for my first one on the specialty industrial business.

Melissa: I know, there's a couple of moving pieces, you guys called out automotive being a bit worse in this most recent quarter and I guess could you talk a little bit more about what you're seeing in that segment what are the moving pieces, what kind of growth rate.

Matthew Prisco: And that focus will continue.

Speaker Change: Helpful. Thank you.

Matthew Prisco: Thanks Pat.

Melissa: Or what trends should we win.

Speaker Change: Thank you as a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced against withdraw. Your question. Just please press star one one again.

Melissa: We'd be expecting in 2025, just because it is so chunky and there are some different trends by different end markets.

Michael Mani: And then I would pivot more importantly, is that, you know, with advanced packaging, that's really another area for growth, where, you know, MCAS is uniquely positioned to enjoy both the packaging growth as well as the chip Thanks so much for the call.

Speaker Change: Yeah, Good morning, and thanks for the question, Yes, we called out a general industrial as well as automotive are.

Speaker Change: R. Next question comes from the line of Melissa Weathers of Deutsche Bank. Your line is now open Hello. Thank you for letting me ask a question I guess for my first one on the specialty industrial business.

Speaker Change: Being a muted and obviously down year over year, and causing the especially industrial markets to be down year over year and quarter on quarter. It was actually a little better than we thought but year over year, it's definitely down I would say there is even as his latest like yesterday.

Melissa Weathers: I know, there's a couple moving pieces you guys called out automotive being a bit worse in this most recent quarter I guess could you talk a little bit more about what you're seeing in that segment. What are the moving pieces, what like kind of growth rates should we be expect.

Matthew Prisco: Thank you. Our next question comes from the line of Matthew Prisco of Cantor Fitzgerald. Your line is now open. Hey, guys, thanks for taking the question. I wanted to start on maybe the photonic side of the business and just what type of traction you're seeing there today? Any changes over the last three months? And maybe how do you think about the ramp of the major wins here that you've previously announced? Anything around timing or impact the model would be helpful?

Speaker Change: Oh, sorry, our forecast for light vehicle production changed went down so.

Speaker Change: Automotive is really something that is.

Speaker Change: Is quite muted and then I think with the tariff environment that just added just a tremendous amount of more uncertainty to it.

Melissa Weathers: Because it is so chunky and there are some different trends by different end markets.

Speaker Change: You've seen many automotive companies come out with huge numbers of profitability impact because of the tariffs.

Melissa Weathers: Yeah. Good morning, Melissa Thanks for the question, Yes, we called out general industrial as well as automotive being muted and obviously down year over year, and causing the our specialist markets to be down year over year and quarter, a quarter was actually a little better.

John Lee: Yeah, good morning, Matt. And I think for photonics, you're talking about the the semi side of it or, in general, the broader photonics business. Talking about the semi-tides... Yeah, so I would say that, you know, the design wins that we talked about in the past, those remain, you know, highly engaged technical engagements with our customers, we're continuing to work on new things as well with those customers. You know, we're not immune to the cycles for even lithography metrology inspection, but the lead times are much longer, so those cycles are a little more muted. And you can see that in 2024, you know, that segment of WFE for us was 300 million, which is a much faster growth than the market.

Speaker Change: And.

Speaker Change: Obviously, you've seen a lot of folks by before the tariffs are now you know theyre not going to buy.

Speaker Change: So I think it's a very volatile and uncertain time for the automotive industry and that's certainly going to affect our customers who are down the supply chain. So where are we don't believe there's any share loss I think it's really just a market driven in a macro effect could it got worse.

Melissa Weathers: I would say this even you know as as late as like yesterday.

Melissa Weathers: Sorry, a forecast for light vehicle production changed went down so automotive is really something that is quite muted and then I think with the shariff environment that just added just a tremendous amount of.

Speaker Change: It could right I think that's the part of the tariffs that could make it worse.

And of course, if we get relief from tariffs or some deal is made and of course that but.

Melissa Weathers: You've talked you've seen many automotive companies come out with huge numbers of profitability impact because of the tariffs and obviously you've seen a lot of folks buy before the tariffs and now you know they're not gonna buy so I think it's a very.

Speaker Change: I put the market back into maybe a more normal.

Speaker Change: Normal seasonality. So just a lot of uncertainty right now Melissa I don't know if we can really tell you more than that.

John Lee: I would say this, some of the things that we have designed in, we talked about in the past, you know, some complex integrated subsystems that only MKS can do because of our portfolio, those are going into production on some of the most advanced We're seeing that what we're doing is incredibly critical to some of the most incredibly critical tools in a fab, so we're really pretty pleased with that momentum, Matt.

Speaker Change: Got it well thank you for attempting to show your Crystal ball with us.

Speaker Change: Because we all we all have the same question.

Melissa Weathers: Certain time for the automotive industry, and and that's certainly gonna affect our customers who are down the supply chain. So we're we don't believe there's any share loss I think it's really just a market driven in macro effect could it go worse it could right I think that.

Speaker Change: And then as my follow up on the I want to go back to the Chemistries side of the business specifically within E&P.

Speaker Change: You want to stay in the seasonality at in a prior question, which is really helpful. And can you just help us just remind us how we should think about like the.

Melissa Weathers: The tariffs that that could make it worse and of course, if we get relief from tariffs or some deal is made and of course that.

Speaker Change: The growth rate of that business like beyond just seasonality, but like is that a GDP plus type grower is there any like content applications. I know a is a nice driver and he's got that equipment sales there.

Ram Mayampurath: And then just a quick follow up. How should we think about your ability and willingness to continue paying down debt within the uncertain backdrop? Maybe if you can update us on minimum cash balance and the current prepayment strategy. I know normally when you guys report, you've already got the repayment for the quarter in the books. I haven't seen that yet. So what are we thinking for kind of magnitude this quarter and moving forward?

Melissa Weathers: Put the market back into maybe a more normal normal seasonality. So just a lot of uncertainty right now Melissa I don't know if we could really tell you more than that got it well. Thank you for attempting to share your crystal ball with us because we have.

Speaker Change: Getting pull then how do we think about like the growth rate of that chemistry is P. M. A C M P beyond just seasonality.

Speaker Change: Yeah. That's great question I think when you look at the entire PCB industry and the chemistry that goes with it.

Ram Mayampurath: For more information visit www.FEMA.gov Hi, Matt. In general, you can expect a similar pattern as we did last year with regard to our debt pay down. As we said in the prepared remarks, we will do a prepayment in Q2. Our capital allocation strategy has not changed. After we invest in CapEx and in the business, our priority remains. repayment of debt. And we are very confident that we can operate. Our liquidity is very strong. And at these levels of cash, we are very confident, given the systems and cash poolings we have put in place, we have a very flexible system to apply cash and need not maintain, there's no need to maintain the levels of cash we did in the past.

Melissa Weathers: And then as my follow up on the I want to go back to the Chemistry's side of the business specifically within E. N. P. You walked us through the seasonality in a prior question, which is really helpful. Can you just help us just remind us how.

Speaker Change: We have said in our long term model that its GDP plus 300 basis points now.

Speaker Change: It's broken up into three segments are the PCB industry, they're very difficult to high end packaged substrate segment. That's the the PCB right underneath the chips that is growing at a high single digits and maybe even double digits now low double digits. So that CAGR is.

Melissa Weathers: The the growth rate of that business like beyond just seasonality, but like is that a GDP plus type grower is there any like content applications I know ai's, a nice driver and you've got the equipment sales that are getting pulled in but how we think about like.

Speaker Change: Exciting area for growth.

Speaker Change: And then HDI that middle layer of technology is really driven more by things like smartphones and that has been a little muted, but we kind of thought mid single digit.

Melissa Weathers: Three of that Chemistry's piece in.

Melissa Weathers: Beyond just seasonality.

Speaker Change: Yeah. That's a great question I think when you look at the entire PCB industry and the chemistry that goes with it we have said in our long term model that its GDP plus 300 basis points now.

Speaker Change: BR.

Speaker Change: And then MLP the cause of the lower end, we thought it was GDP.

Ram Mayampurath: So these levels, it frees up a lot more cash for applying towards our debt. As we mentioned in the call in the beginning of the quarter, we found an opportunity. to buy back some stock because we have a lot of confidence in our business, it was a modest amount, it was accretive too, and also helped offset the dilution in the year. But that does not reflect any shift in our capital allocation strategy, we are committed to paying down debt one more prepayment in Q2, and that focus will continue. helpful.

Speaker Change: I think what we're seeing is the AI is actually even adding some incremental.

Speaker Change: It's broken up into three segments, the PCB industry, the very difficult to high end. So package substrate segment that the the PCB right underneath the the chips that is growing at high single digits, and maybe even double digits now double digits.

Speaker Change: Growth to MLP NH D I.

Speaker Change: As well as the packaged substrate, so but overall I think we kind of still subscribe to this GDP plus 300 basis points that we talked about five years ago or three years ago.

Speaker Change: But it's incrementally a little better just like AI has driven chips. The trillion dollar target in 2030 for for chip sales and I was just kind of added incremental positivity to that I think it's also doing the same for the PCB industry.

Speaker Change: Tagger is an exciting area for growth and then H D. I that middle layer of technology is really driven more by things like smartphones and that has been a little muted, but we kind of thought mid single digit Kagger and then M. L. B the lower end.

Matthew Prisco: Thank you. Thanks, Matt. Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you.

Operator: As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Again, to withdraw your question, just please press star 11 again.

Speaker Change: Alright. Thank you. Our next question comes from the line of David Loeb of Michelle.

Speaker Change: That was GDP and I think what we're seeing is that a is actually even adding some incremental.

Speaker Change: Alright.

Speaker Change: It is now open.

Speaker Change: Both to M. L. B N H D I as well as the package substrate. So, but overall I think we kind of still subscribe to this G. D plus 300 basis points that we talked about five years ago three years ago, but it's incrementally a little better just like AI has driven chips.

Speaker Change: Hi, Thanks for letting me ask a question I'm on for Vijay here, maybe another on second half I know a lot of customers and suppliers are pulling their full year.

Melissa Weathers: Our next question comes from the line of Melissa Weathers of Deutsche Bank. Your line is now open. Hi there. Thank you for letting me ask a question. I guess for my first one on the specialty industrial business, I know there's a couple of moving pieces. You guys called out automotive being a bit worse in this most recent quarter. I guess, could you talk a little bit more about what you're seeing in that segment? What are the moving pieces? What kind of growth rate? Or what trends would we be expecting in 2025, just because it is so chunky and there are some differing trends by different end markets?

Speaker Change: Okay, I'll look and not providing forecast, but I was wondering on the other side, where are you guys seeing customers maybe more strong in.

Speaker Change: Trillion dollar target in 2030 for for chip sales Ai's kind of added incremental positive doing the same for the PCB industry.

Speaker Change: Bullish maintaining that full year outlook and we're is MKS side benefiting there.

Speaker Change: So how that drives the specifically and maybe how the semiconductor business still growing above a 200 basis points about something I see thank you.

Speaker Change: Thank you. Thank you.

Speaker Change: Alright. Thank you. Our next question comes from the line of David Leo of Mizzero, I Hope I've answered that right. Your line is now open hi, Thanks for letting me ask a question I'm on for VJ here, maybe another one second half another.

Speaker Change: Hey, David Thanks for the question I guess are the way we would think about it as we you know we're very engaged with all of our semi customers for sure as well as our E&P customers and in general I think are the dep etch a customers in semi are relatively more positive I think for the second half.

John Lee: Good morning, Alyssa. Thanks for the question. Yes, we called out general industrial as well as automotive being muted and obviously down year over year and causing our specialty industrial markets to be down year over year. And quarter over quarter was actually a little better than we thought, but year over year, it's definitely down. I would say this, even as late as like yesterday, a forecast for light vehicle production changed, went down. So automotive is really something that is quite muted. And then I think with the tariff environment, that just added just a tremendous amount of more uncertainty to it.

Speaker Change: Primarily and suppliers are pulling there for your order outlook and not providing forecast, but I was wondering on the other side, where are you guys seeing customers, maybe more strong and bullish maintaining that for your outlook and where is MPS.

Speaker Change: There's puts and takes right, there's some constraints because of restrictions.

Speaker Change: And then there are some backside power and gate all around that are that are tailwind. So there's some puts and takes but in general I think most people are pretty positive on the.

Speaker Change: And also how that drives the specifically, maybe how does semiconductor business still growing above 200 basis points above that F. E. Thank you.

Speaker Change: The you know year over year growth and certainly many analysts think that a 2025 is a slight growth here relative to the 'twenty 'twenty four it now of course, we don't know if that's going to work out or not but that is what our what we're hearing from our customers and of course that is what they're ordering right. That's the order pattern we're seeing.

Speaker Change: Good David Thanks for the question I guess the way we would think about it is we're very engaged with all of our semi customers for sure as well as E. P customers and in general I think the depth etch customers in semi are.

John Lee: You've seen many automotive companies come out with huge numbers of profitability impact because of the tariffs. And obviously, you've seen a lot of folks buy before the tariffs and now they're not going to buy. So I think it's a very volatile and uncertain time for the automotive industry. And that's certainly going to affect our customers who are down the supply chain. So we don't believe there's any share loss. I think it's really just a market driven macro effect. Could it go worse? It could. I think that's the part of the tariffs that could make it worse.

Speaker Change: With respect to our packaging.

Speaker Change: You know we've talked about these equipment orders for three quarters in a row now.

Speaker Change: Yes, there there's puts and takes right. There's some constraints because of restrictions and then there's some backside power and get all around that are that are tailwinds. So there's some puts and takes but in general I think most people are pretty positive.

Speaker Change: Tied to AI applications and these equipment orders are for MLP and H D. I a very.

Speaker Change: Very very thick MLB theres, many layers and.

Speaker Change: The reason I think we're getting a lot of those equipment orders as well in the equipment industry for chemistry, our equipment is on the high end, we do the most difficult types of equipment and so when you're doing the most difficult kinds of packaging you need our equipment and so that's why I think we're seeing a little tailwind there. So those customers are very bullish obviously.

Speaker Change: Year over year growth and certainly many analysts think that 2025 is a slight growth year relative to 2024 no of course, we don't know if that's gonna work out or not but that is what we're hearing from our customers and of course that is what.

Melissa Weathers: And of course, if we get relief from tariffs or some deal is made, then of course, that would put the market back into maybe a more normal seasonality. So just a lot of uncertainty right now, Melissa.

Melissa Weathers: And I don't know if we could really tell you more than that. Got it. Well, thank you for attempting to share your crystal ball with us. Because we all we all have the same questions.

Speaker Change: They are investing very quickly they're pulling as fast as they can so that they can put that capacity in so they can either grow their share or or compete for share to support the industry.

Speaker Change: That's the order pattern, we're seeing respect to packaging.

Speaker Change: So we've talked about these equipment orders for three quarters in a row now tied to a I applications and these equipment orders are for MLP and HDI very very thick MLB theres, many layers and the reason I think we're getting.

Ram Mayampurath: And then as my follow up on the, I want to go back to the chemistries side of the business, specifically within E&P. You walked us through the seasonality in a prior question, which is really helpful. Can you just help us just remind us how we should think about like the the growth rate of that business, like beyond just seasonality, but like, is that a GDP plus type grower? Is there any like content applications? I know AI is a nice driver and you've got the equipment sales that are getting pulled in.

Speaker Change: Thanks.

Speaker Change: Did you go to some of the 25 or 26 W. E globally that's it.

Speaker Change: Yeah.

Speaker Change: As I've said many times in the past so I can do that I don't have to do this job, but I would say this we always turn it back to longer term.

Speaker Change: Orders is well in the equipment industry first chemistry, our equipment is on the high end, we do the most difficult types of equipment and so when you're doing the most difficult kinds of packaging you need our equipment and so that's why I think we're seeing a little tailwind there. So those customers are very.

Speaker Change: The wafer fab equipment industry is a great neighborhood, that's getting better.

Speaker Change: And that's because it's driven by a.

Speaker Change: Continued need for more semiconductors more complex semiconductors.

Ram Mayampurath: But how do we think about like the growth rate of that chemistries piece in BNP beyond just seasonality? Yeah, that's a great question. I think when you look at the entire PCB industry and the chemistry that goes with it, we have said in our long term model that it's GDP plus 300 basis points. Now, it's broken up into three segments, the PCB industry, the very difficult to high end package substrate segment that the PCB right underneath the chips, that is growing at high single digits, and maybe even double digits now, low double digits. So that CAGR is an exciting area for growth.

Speaker Change: They are investing very quickly they're pulling as fast as they can so that they can put that capacity and so they can either grow their share or or compete for share to support the AI industry.

Speaker Change: They require more steps and more equipment and you can see capex intensity trending over the decades.

Speaker Change: In a in a direction, where it's now may be in that 15% range.

Speaker Change: In terms of Capex intensity and so at a trillion dollar chip industry, That's 150 billion Wi Fi, which as you know 50% more than today right.

Speaker Change: Thanks, and do you guys have a view on 25 or 26th W. F E globally. Thanks, that's it.

Speaker Change: Yeah as I said many times in the past if I could do that I don't have to do this job, but I would say this we always put it back to longer term the way for fab equipment industry is is a great neighborhood, that's getting better and that's because it's driven by.

Speaker Change: And so I think a longer term trend, it's a great neighborhood, where we're incredibly proud of the fact that we are the market leader in terms of addressing 85% of every piece of equipment out there.

Speaker Change: Thank you.

Speaker Change: Four more semiconductors more complex semiconductors that require more steps and more equipment, you can see capex intensity trending over the decades.

Speaker Change: Thank you.

Ram Mayampurath: And then HDI, that middle layer of technology is really driven more by things like smartphones. And that has been a little muted, but we kind of thought mid single digit CAGR. And then MLB, the lower end, we thought was GDP. And I think what we're seeing is that AI is actually even adding some incremental growth to MLB and HDI, as well as the package substrate. So but overall, I think we kind of still subscribe to this GDP plus 300 basis points that we talked about five years ago, three years ago. But it's incrementally a little better, just like AI has driven chips, you know, the trillion dollar target in 2030.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question comes from the line of Steve Barger with Keybanc capital markets. Your line is now open.

Steve Barger: Hey, Thanks for the follow up a $123 million in free cash flow is the best first quarter I can see in my model and it looks like working cap was a smaller use than normal is that just timing and do you expect a normal kind of low double digit or low teens free cash flow margin this year.

Speaker Change: In terms of Capex intensity and so at a trillion dollar chip industry. That's 150 billion W fee, which is you know 50% more than today right and so I think longer term trend you know, it's a great neighborhood, where we're incredible.

Speaker Change: Well I can comment on the Q1 cash flow Steve.

Speaker Change: Yeah. The improvements we have made to working capital through last year clearly has helped.

Speaker Change: Thank you.

Speaker Change: We're able to operate at a much better level now in addition to that you know we also.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from the line of Steve Barger of Keybanc capital markets. Your line is now open hey, thanks for the follow up 123 million in free cash flows the best first quarter I can see in my model and it looks like.

Ram Mayampurath: For, for chip sales, AI has kind of added incremental positivity to that. I think it's also doing the same for the PCB industry.

Speaker Change: <unk> had a strong topline and good margin year Capex was a little light in Q1, but that's purely timing that will come back up.

Ram Mayampurath: Thank you.

Speaker Change: But we do see if you're very happy with the strength of our cash flow.

Melissa Weathers: All right, thank you.

David Liu: Our next question comes from the line of David Liu of Mizzou. I hope I've answered that right. Your line is now open. Hi, thanks for letting me ask a question. I'm on for Vijay here. Maybe another on second half. I know a lot of customers and suppliers are pulling their full year order outlook and not providing forecast. But I was wondering on the other side, where are you guys seeing customers maybe more strong and bullish maintaining that four-year outlook and where is MKSI benefiting there? And also, how that drives the specifically maybe how the semiconductor business still growing above 200 basis points above WFE.

Speaker Change: And where we shouldn't.

Speaker Change: I guess do you see anything unusual for the remainder of the year that we should be thinking about or would this be a you know.

Speaker Change: Well I can comment on the Q1 cash flow Steve the improvements we have made to working capital through last year. Clearly has helped we're able to operate at a much better level. Now in addition to that we also had.

Speaker Change: Kind of a normal year.

Speaker Change: So in the context Todd.

Speaker Change: Does.

Speaker Change: That's correct, that's what I was going to say it really goes back to the topline discussion right outside that we don't see anything abnormal this year other than capex ramp up in the coming quarters.

Speaker Change: Got it and so I know you're in primary fee. We also.

Speaker Change: And good margin here Capex was a little light in Q1, but that's purely timing that'll come back up but we do see we're very happy with the the strength of our cash flow.

Speaker Change: So to say it was the last comment that you know we did a guy a little bit of incremental improvement in our tax rates to which is helpful. As well that's right.

John Lee: Thank you. David, thanks for the question. I guess the way we would think about it is we, you know, we're very engaged with all of our SEMI customers, for sure, as well as EMP customers. And in general, I think the DepEtch customers in SEMI are relatively more positive, I think, for the second half. There's puts and takes, right? There's some constraints because of restrictions. And then there's some backside power and get all around, that are tailwinds. So there's some puts and takes. But in general, I think most people are pretty positive on the, you know, year over year growth.

Speaker Change: And there we go efficient I I guess are do you see anything unusual for the remainder of the year that we should be thinking about or would this be you know a kind of a normal year.

Speaker Change: Yeah.

Speaker Change: So I know your primary focus is debt reduction as it should be but with your strong free cash flow and the recent downside volatility in the stock why not be opportunistic when shares are trading at a at a sizable discount to <unk>.

Speaker Change: So in the context.

Speaker Change: However, you calculated intrinsic value.

Speaker Change: That's correct, that's what I was gonna say it really goes back to the top line discussion right outside that we don't see anything abnormal this year other than capex ramp up in the coming quarters got it. So I know your primary food.

Speaker Change: We did that.

Speaker Change: Well it was to offset dilution, but would you remain off I guess going forward.

Speaker Change: Yeah, and it's something which we are we look at it.

Speaker Change: It's a fair question, it's something that should be looked at in a.

Speaker Change: So say I was gonna also comment that you know, we did guy a little bit of a incremental improvement our tax rates too which is helpful. As well that's right. Yeah. So I know your primary focus is debt reduction as it should be but with your strong free cash flow and the recent.

Speaker Change: And it's accretive we certainly take that into consideration, we still have about little under 30 million left from our existing authorization.

John Lee: And certainly many analysts think that 2025 is a slight growth year, relative to 2024. Now, of course, we don't know if that's going to work out or not. But that is what we're hearing from our customers. And of course, that is what they're ordering, right? That's the order pattern we're seeing.

Speaker Change: So it's an evaluation that we do internally debt repayment as our.

Speaker Change: Strengthening the balance sheet to sell our primary focus, but it's an analysis, we do internally.

Speaker Change: You see I would also add that you know our debt reduction.

Speaker Change: Through Paydown is one Avenue.

John Lee: With respect to packaging, we've talked about these equipment orders for three quarters in a row now, tied to AI applications. These equipment orders are for MLB and HDI, very thick MLB layers, many layers. The reason I think we're getting a lot of those equipment orders is, well, in the equipment industry for chemistry, our equipment is on the high end. We do the most difficult types of equipment. And so when you're doing the most difficult kinds of packaging, you need our equipment. And so that's why I think we're seeing a little tailwind there. So those customers are very bullish, obviously.

Speaker Change: Certainly we're always looking at portfolio and you know staying focused on you know.

Speaker Change: We did that [laughter] well it was to offset dilution, but would you remain opposition I guess going forward, yeah, and it's something which we we look at it's a fair question, it's something which we look at and when it's a creative we certainly take that a conside.

Speaker Change: Our main markets and so you know it's a strategic planning season, it's a time when we refocus on that again and so I think there are other ways to of course accelerate debt repayment.

Speaker Change: And we're looking at all those ways.

Speaker Change: Five about still hundred 30 million left from our existing authorization.

Speaker Change: Good well, yeah, I would just urge the board to really consider that as an option given some of the volatility we've seen.

Speaker Change: So it's an evaluation that we do internally debt repayment is our strengthening the balance sheet is our primary focus but it's an analysis. We do internally you see I would also add that you know debt reduction through pay down is one Avenue.

Speaker Change: Thanks.

Thanks, Steve.

Speaker Change: As a reminder, if you have any questions. Please press Star then one on your telephone and wait for your name to be announced against withdraw. Your question. Please press star one again please.

John Lee: They are investing very quickly. They're pulling as fast as they can so that they can put that capacity in so they can either grow their share or compete for a share to support the AI industry.

Speaker Change: Certainly we're always looking at portfolio and you know staying focused on you know our our main markets and so it's a strategic planning season, it's that time, where we refocus on that again and so I think the other ways to.

Speaker Change: Please standby for any additional questions.

Speaker Change: I am showing no further questions at this time I will go ahead, and I will turn it back to her touch Uh huh.

John Lee: Thanks, and can you get us a view on 25 or 26 WFE globally? Yeah, as I've said many times in the past, if I could do that, I don't have to do this job. But I would say this, we always pivot back to longer term. The wafer fab equipment industry is a great neighborhood that's getting better. And that's because it's driven by continued need for more semiconductors, more complex semiconductors. that require more steps and more equipment. You can see CapEx intensity trending over the decades in a direction where it's now maybe in that 15% range in terms of CapEx intensity.

Speaker Change: For closing remarks.

Speaker Change: Thank you all for joining us today and for your interest in MKS Travis you may close the call. Please.

Speaker Change: Debt repayment and we're looking at all those ways.

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

Speaker Change: Good well, yeah, I would just search the board to really consider that as an option given some of the volatility we've seen thanks.

Speaker Change: Thanks, Steve.

Speaker Change: Thank you as a reminder, if you do have any questions. Please press star one one on your telephone and wait for your name to be announced against withdraw. Your question. Just please press star one one again, please stand by for any additional questions.

John Lee: And so at a trillion dollar chip industry, that's 150 billion WFE, which is 50% more than today, right? And so I think a longer term trend, it's a great neighborhood. We're incredibly proud of the fact that we are the market leader in terms of addressing 85% of every piece of equipment out there. Thank you.

Speaker Change: I am showing no further questions at this time I will go ahead, and I will turn it back to Peritosh Misra for closing remarks.

Speaker Change: Thank you all for joining us today and for your interest in Mcast Travis you may close the call. Please.

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

Steve Barger: Our next question comes from the line of Steve Barger of KeyBank Capital Markets. Your line is now open. Hey, thanks for the follow-up. $123 million in free cash flow is the best first quarter I can see in my model, and it looks like working cap was a smaller use than normal. Is that just timing, and do you expect a normal kind of low double-digit or low-teens free cash flow margin this year? Well, I can comment on the Q1 cash flow, Steve. The improvements we have made to working capital through last year clearly has helped. We are able to operate at a much better level now.

Ram Mayampurath: In addition to that, you know, we also had a strong top line and good margin here. CapEx was a little light in Q1, but that's purely timing that will come back up. But we do see we are very happy with the strength of our cash flow.

Steve Barger: and very- Yeah, like- I guess, do you see anything unusual for the remainder of the year that we should be thinking about or would this be a, you know, a kind of a normal year? In the context of whatever the topic is. That's correct. That's what I was going to say. It really goes back to the top line discussion, right? Outside that, we don't see anything abnormal this year other than CAPEX ramp up in the coming quarter. Got it.

Ram Mayampurath: So, I know you're the primary focus of... So I was going to also comment that, you know, we did guide a little bit of an incremental improvement in our tax rates too, which is helpful as well. So, I know your primary focus is debt reduction, as it should be, but with your strong free cash flow and the recent downside volatility in the stock, why not be opportunistic when shares are trading at a sizable discount to however you calculate intrinsic value? We did that. Well, it was offset dilution, but would you remain optimistic, I guess, going You see, I would also add that, you know, debt reduction through pay down is one avenue.

Ram Mayampurath: Certainly, we're always looking at portfolio and, you know, staying focused on, you know, our, our main markets. And so, you know, it's strategic planning season, it's the time where we refocus on that again. And so I think, you know, there are other ways to of course, accelerate a debt repayment. And we're looking at all those Good.

Steve Barger: Well, yeah, I would just urge the board to really consider that as an option, given some of the volatility we've seen. Thanks. Thanks Steve.

Operator: Thank you. As a reminder, if you do have any questions, please press star 11 on your telephone and wait for your name to be announced. Again, to withdraw your question, just please press star 11 again. Please stand by for any additional questions.

Operator: I am showing no further questions at this time.

Paretosh Misra: I will go ahead and I will turn it back to Paretosh Misra for a closing remark. Thank you all for joining us today and for your interest in MKS.

Operator: Travis, you may close the call, please. Thank you for your participation in today's conference.

Operator: This does conclude the program. You may now disconnect.

Speaker Change: [music].

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