Q3 2025 MKS Inc Earnings Call

We're in a listen only mode. After the speakers present.

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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today Paradise Misra. Please go ahead.

Good morning, everyone.

Our documents Roth Vice President of Investor Relations and I'm joined this morning by John Lee, President and Chief Executive Officer, and Rob <unk> Executive Vice President and Chief Financial Officer.

Speaker #1: Good day and thank you for standing by . Welcome to the MBC's Third Quarter 2020 Conference call . I'm all participants are in a listen only mode .

Yesterday after market close.

We released our financial results for the third quarter of 2025, which are posted to our investor website at Investor Dot <unk> Dot com.

Speaker #1: After the speaker's presentation , question and answer session . To ask a question during the session , you'll need to press star one one on your telephone .

John Lee: We are differentiated in our ability to serve many critical applications with our comprehensive portfolio of semiconductor capital equipment subsystems, advanced packaging chemistries, and advanced packaging equipment systems. Our Q3 performance in our end market demonstrates how we are benefiting in this dynamic environment. Starting with our semiconductor market, we reported solid revenue growth year over year, driven by continued strength in our products supporting deposition and etching applications, which are increasingly critical for advanced memory and logic manufacturing. Our dissolved gas systems for advanced logic applications were also a solid contributor to our performance, and our services business continues to contribute steady year-over-year growth. Lower NAND upgrade activity, which was expected after a very strong second quarter, drove the sequential decline in semiconductor sales. However, our leadership and power delivery remains as strong as ever in this space.

As a reminder, various remarks about future expectations.

Speaker #1: You'll then hear an automated message advising your hand is raised . To withdraw your question , please press star one one again . Please be advised that today's conference is being recorded .

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.

Speaker #1: I would Earnings now like to hand the conference over to your first speaker today . Paretosh Misra , please go ahead .

Most recent annual report on Form 10-K.

And any subsequent quarterly reports on Form 10-Q.

These statements represent the company's expectations only as of today.

Speaker #2: Good morning everyone . I'm Paretosh Misra , vice president of investor relations , and I'm joined this morning by John Li . President and Chief Executive Officer and Ramakumar Mayampurath Executive Vice President and Chief Financial Officer .

And should not be relied upon as representing the companys estimates or views of any date subsequent to today.

And the company disclaims any obligation to update these statements.

Speaker #2: Yesterday , after market close , we released our financial results for the third quarter of 2025 , which are posted to our investor website at investor .

During the call we will be discussing various non-GAAP financial measures.

Otherwise noted all income statement related financial measures will be non-GAAP.

Other than revenue and gross margin.

Speaker #2: As a reminder , various remarks about future expectations , plans and prospects for MBC's comprise forward looking statements . Actual results may differ materially as a result of various important factors , including those discussed in yesterday's press release .

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.

John Lee: We expect fourth-quarter semiconductor revenue to remain flat on a sequential basis, which would translate into a healthy double-digit year-over-year growth for 2025. This underscores how well-positioned we are with the broadest portfolio of products and technologies to drive our industry's increasingly challenging technology roadmaps. In electronics and packaging, revenue exceeded the midpoint of our expectations, growing 25% year over year. This strong performance reflects continued momentum across our portfolio, driven by robust demand for our chemistry solutions and, in particular, our chemistry equipment. The investments we have made over the past several years to position MKS to optimize the interconnect in advanced electronics are now paying off as we gain momentum in AI-related applications. Today, our chemistry revenue growth reflects our position as a leader of the most advanced packaging technologies used in high-performance computing applications.

And a reconciliation to our GAAP measures of our Investor website also provides the detailed breakout revenues by end market and division now.

Speaker #2: Our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-q . These statements represent the company's expectations only as of today and should not be relied upon as representing the company's estimates or views as of any date .

Now I'll turn the call over to John.

Thanks, Josh and good morning, everyone.

MKS delivered a solid third quarter with revenue and EPS in the upper half of our guided ranges and healthy results across each of our three end markets.

Speaker #2: Subsequent to today . And the company disclaims any obligation to update these statements . During the call , we will be discussing various non-GAAP financial measures .

Third quarter revenue of $988 million was up 10% year over year, driven by strong demand in our semiconductor and electronics and packaging end markets.

Speaker #2: Unless otherwise noted , all income statement related financial measures will be non-GAAP other than revenue and gross margin . Please refer to our press release and the presentation materials posted to the Investor Relations section of our website .

We continue to demonstrate strong execution and delivering value to our customers most critical needs.

Net earnings per diluted share totaled $1 93.

We also continue to take advantage of our improved cash flow to reduce our leverage with another voluntary prepayment of $100 million.

Speaker #2: For information regarding our non-GAAP financial results and a reconciliation to our GAAP measures . Our investor website also provides a detailed breakdown of revenues by end market and division .

John Lee: Longer term, our chemistry equipment business highlights how critical we are to our customers as they rapidly build their next-generation infrastructure. The high attach rates from our equipment sales are a leading indicator of sustainable longer-term revenue from our proprietary chemistries. It's important to keep in mind that once we build and install the equipment, it can take 6 to 12 months for customers to qualify it and then put it into production. Once in production, chemistry provides a long-tail, steady, consumable revenue, generally for the life of that equipment. With high single-digit growth in chemistry revenues and strong equipment sales through Q3, we have confidence our proprietary chemistry will be a key revenue generator for us in the years ahead. In Q4, we expect revenue from our electronics and packaging market to be up on a sequential basis, enough double digits on a year-over-year basis.

On our term loan completed in October.

MKS is uniquely positioned forefront of accelerating innovation and enabling the advanced technologies that power of the AI era.

Speaker #2: Now , I'll turn the call over to John .

Speaker #3: Thanks and good morning , everyone . MKS delivered a solid third quarter with revenue and EPs in the upper half of our guided ranges .

Increasing device complexity is creating significant challenges and opportunities in both the semiconductor and advanced packaging markets.

Speaker #3: And healthy results across each of our three end markets . Third quarter revenue of $988 million was up 10% year over year , driven by strong demand in our semiconductor and electronics and packaging end markets .

We are differentiated in our ability to serve many critical applications with our comprehensive portfolio of semiconductor capital equipment subsystems.

Advanced packaging, Chemistries and advanced packaging equipment systems.

Speaker #3: We continue to demonstrate strong execution in delivering value to our customers most critical needs . Net earnings per diluted share totaled $1.93 . We also continue to take advantage of our improved cash flow to reduce our leverage with another voluntary prepayment of $100 million on our term loan completed in October .

Our Q3 performance and our end market demonstrates how we are benefiting in this dynamic environment.

Starting with our semiconductor market, we reported solid revenue growth year over year, driven by continued strength in our products supporting deposition and etch applications, which are increasingly critical for advanced memory and logic manufacturing.

John Lee: Our strong performance reflects our ability to capture emerging AI-driven demand, even as broader industry demand trends remain stable in markets such as smartphones and PCs. We anticipate continued strength in our chemistry equipment business, supported by AI, offset by modest sequential declines in chemistry due to seasonal factors consistent with prior years. Assuming the midpoint of our Q4 guidance, our electronics and packaging business is on track to deliver robust full-year growth of approximately 20%. Our specialty industrial market revenue was consistent with the stable trends we've seen over the past several quarters. Within this market, the industrial category showed sequential improvement, and life and health sciences and research and defense end markets remained steady. We had a healthy quarter of design wins, particularly in research and defense.

Speaker #3: MKS is uniquely positioned at the forefront of accelerating innovation and enabling the advanced technologies that power the AI era . Increasing device complexity is creating significant challenges and opportunities in both the semiconductor and advanced packaging markets .

Our dissolved gas systems for advanced logic applications were also a solid contributor to our performance in our services business continues to contribute steady year over year growth.

Lower NAND upgrade activity, which was expected after a very strong second quarter drove the sequential decline in semiconductor sales. However, our leadership in power delivery remains as strong as ever in this space.

Speaker #3: We are differentiated in our ability to serve many critical applications with our comprehensive portfolio of semiconductor capital equipment subsystems , advanced packaging chemistries , and advanced packaging equipment systems .

We expect fourth quarter semiconductor revenue to remain flat on a sequential basis, which would translate into a healthy double digit year over year growth for 2025.

Speaker #3: Our Q3 performance in our end markets demonstrates how we are benefiting in this dynamic environment , starting with our semiconductor market , we reported solid revenue growth year over year , driven by continued strength in our products , supporting deposition and etching applications , which are increasingly critical for advanced memory and logic manufacturing .

This underscores how well positioned we are with the broadest portfolio of products and technologies to drive our industry is increasingly challenging technology roadmaps.

In electronics and packaging revenue exceeded the midpoint of our expectations growing 25% year over year.

John Lee: This success highlights how MKS leverages its semi and electronics R&D investments to unlock new opportunities in specialty industrial markets that generate attractive incremental margins and cash flow. Looking ahead to Q4, we expect specialty industrial revenue to remain relatively flat sequential. Overall, MKS is continuing to perform at a high level in 2025, with year-over-year growth powered by our semiconductor and electronics and packaging markets. Our broad portfolio of differentiated products and technologies in areas such as vacuum, power, photonics, laser drilling, and advanced chemistries positions us favorably to win new opportunities in applications critical to enabling the AI transformation. Against this exciting backdrop, we are executing with financial discipline, aligning our business to win in our key markets and reducing our leverage.

Speaker #3: Our dissolved gas systems for advanced logic applications were also a solid contributor to our performance and our services business continues to contribute steady year over year growth .

This strong performance reflects continued momentum across our portfolio.

Driven by robust demand for our chemistry solutions and in particular, our chemistry equivalents.

Speaker #3: Lower Nand upgrade activity , which was expected after a very strong second quarter , drove the sequential decline in semiconductor sales . However , our leadership and power delivery remains as strong as ever in this space .

The investments we have made over the past several years to position <unk> to optimize the interconnect and advanced electronics are now paying off as we gained momentum in AI related applications.

Today, our chemistry revenue growth reflects our position as a leader of the most advanced packaging technologies used in high performance computing applications.

Speaker #3: We expect fourth quarter semiconductor revenue to remain flat on a sequential basis , which would translate into a healthy double digit year over year growth for 2025 .

Longer term, our chemistry equipment business highlights how critical we are to our customers as they rapidly build their next generation infrastructure.

Speaker #3: This underscores how well positioned we are with the broadest portfolio of products and technologies to drive our industry's increasingly challenging technology roadmaps in electronics and packaging .

The highest hatch rates from our equipment sales are a leading indicator of sustainable longer term revenue from a proprietary chemistries. It's important to keep in mind that once we build and install the equipment can take six to 12 months for customers to qualify it and then put it into production once in production chemistry provides that long tail steady.

Speaker #3: Revenue exceeded the midpoint of our expectations , growing 25% year over year . This strong performance reflects continued momentum across our portfolio , driven by robust demand for our chemistry solutions and in particular , our chemistry equipment .

John Lee: I'll close by extending my thanks to our MKS team for their tireless work driving the great results we are reporting today, and also to our customers and our suppliers across the globe for their collaboration and support. With that, let me turn it over to Ram to run through the financial results and fourth-quarter guidance in more detail. Ram.

Consumable revenue generally for the life of that equipment.

Speaker #3: The investments we have made over the past several years to position MKs to optimize the interconnect in advanced electronics are now paying off as we gain momentum in AI related applications .

With high single digit growth in chemistry revenues and strong equipment sales through Q3, we have confidence our proprietary chemistry will be a key revenue generator for us in the years ahead.

Ramakumar Mayampurath: Thank you, John, and good morning, everyone. We delivered strong results in the third quarter, driven by healthy demand in our semiconductor and electronics and packaging end markets, and continued stability in our specialty industrial end market. As in prior quarters, our execution remained strong, with healthy margins, robust free cash flow, and continued progress on our deliberating goals. Third-quarter revenue was $988 million, up 2% sequentially and up 10% year over year. The result was at the high end of our guidance and reflected better-than-expected trends in key end markets. Third-quarter semiconductor revenue was $415 million, down 4% sequentially but up 10% year over year. This result was at the high end of our expectations. The sequential decline was driven by lower RF power sales due to the timing of NAND upgrade activity, as expected.

Speaker #3: Today , our chemistry revenue growth reflects our position as a leader of the most advanced packaging technologies used in high performance computing applications .

In Q4, we expect revenue from our electronics and packaging market to be up on a sequential basis and up double digits on a year over year basis.

Speaker #3: Longer term , our chemistry equipment business highlights how critical we are to our customers as they rapidly build their next generation infrastructure . The high attach rates from our equipment sales are leading indicator of sustainable , longer term revenue from our proprietary chemistries .

Our strong performance reflects our ability to capture emerging AI driven demand.

Even as broader industry demand trends remained stable in markets, such as smartphones and Pcs.

We anticipate continued strength in our chemistry equivalent business supported by AI offset by modest sequential declines in chemistry due to seasonal factors consistent with prior years.

Speaker #3: It's important to keep in mind that once we build and install the equipment , it can take 6 to 12 months for customers to qualify it and then put it into production .

Speaker #3: Once in production , our chemistry provides a long tail , steady consumable revenue . Generally for the life of that equipment . With high single digit growth in chemistry , revenues and strong equipment sales through Q3 , we have confidence our proprietary chemistry will be a key revenue generator for us in the years ahead .

Assuming the midpoint of our Q4 guidance, our electronics and packaging business.

<unk> is on track to deliver a robust full year growth of approximately 20%.

Our specialty industrial market revenue was consistent with the stable trends, we've seen over the past several quarters.

Within this market the industrial category showed sequential improvement in life and Health Sciences, and research and defense end markets remained steady.

Speaker #3: In Q4 , we expect revenue from our electronics and packaging market to be up on a sequential basis and up double digits on a year over year basis .

Ramakumar Mayampurath: The year-over-year growth was driven by strength in many product categories, including our vacuum products and plasma and reactive gas businesses. The fundamentals of our semiconductor business remained strong. Third-quarter electronics and packaging revenue was $289 million, up 9% sequentially, driven by growth in our chemistry and equipment businesses. On a year-over-year basis, sales were up 25%, driven by growth in chemistry, chemistry equipment, and flexible PCB drilling equipment sales. These strong results underscore the strength of our electronics and packaging business as we deliver enabling technologies for high-growth emerging AI applications and today's advanced consumer electronics. Chemistry revenue was up 10% year over year, excluding the impact of FX and palladium pass-through. Continuing the strong growth trend over the last year. In our specialty industrial market, third-quarter revenue was $284 million, an increase of 3% sequentially, mainly due to the improvement in the industrial market.

We had a healthy quarter of design wins, particularly in research and defense.

Speaker #3: Our strong performance reflects our ability to capture emerging AI driven demand , even as broader industry demand trends remain stable in markets such as smartphones and PCs .

This success highlights how MKS leverages that semi and electronics R&D investments to unlock new opportunities and specialty industrial markets that generate attractive incremental margins and cash flow.

Speaker #3: We anticipate continued strength in our chemistry equipment business , supported by AI , offset by modest sequential declines in chemistry due to seasonal factors consistent with prior years .

Looking ahead to Q4, we expect specialty industrial revenue to remain relatively flat sequentially.

Speaker #3: Assuming the midpoint of our Q4 guidance . Our electronics and packaging business is on track to deliver robust full year growth of approximately 20% .

Overall <unk> is continuing to perform at a high level in 2025 with year over year growth powered by our semiconductor and electronics and packaging markets, our broad portfolio of differentiated products and technologies in areas such as vacuum tower photonics laser drilling and advanced chemistries positions us.

Speaker #3: Our specialty industrial market revenue was consistent with the stable trends we've seen over the past several quarters . Within this market , the industrial category showed sequential improvement in life and health sciences and research and defense end markets remained steady .

<unk> to win new opportunities in applications critical to enabling the AI transformation.

Against this exciting backdrop, we are executing with financial discipline aligning our business to win in our key markets and reducing our leverage.

Speaker #3: We had a healthy quarter of design wins , particularly in research and defense . This success highlights how MKS leverages its semi and electronics R&D investments to unlock new opportunities in specialty industrial markets that generate attractive incremental margins and cash flow .

I'll close by extending my thanks to our MKS team for their tireless work driving the great results. We are reporting today and also to our customers and our suppliers across the globe for their collaboration and support.

Ramakumar Mayampurath: Revenue was down 1% on a year-over-year basis. Overall, our specialty industrial business has remained steady for well over a year. Third-quarter gross margin was 46.6%, just above the midpoint of our guidance. Gross margin was stable relative to the prior quarter, with tariff impacts of about 80 basis points, 35 basis points better than last quarter, offset by a higher mix of chemistry equipment sales. As we have stated before, the strong equipment sales we have seen throughout 2025 are a good indicator of future high-margin chemistry revenues. Third-quarter operating expenses were $256 million, at the high end of our guidance and higher sequentially, primarily as a result of an increase in variable costs, mostly related to employee incentive compensation tied to stronger business performance. Third-quarter operating income was $205 million, with an operating margin of 20.8%.

Speaker #3: Looking ahead to Q4 , we expect specialty industrial revenue to remain relatively flat sequentially . Overall , MCAS is continuing to perform at a high level in 2025 with year over year growth , powered by our semiconductor and electronics and packaging markets .

With that let me turn it over to Rob to run through the financial results and fourth quarter guidance in more detail from.

Thank you John and good morning, everyone.

We delivered strong results in the third quarter, driven by healthy demand in our semiconductor and electronics and packaging end markets.

Speaker #3: Our broad portfolio of differentiated products and technologies in areas such as vacuum power , photonics , laser drilling and advanced chemistries positions us favorably to win new opportunities in applications .

And continued stability in our specialty industrial end market.

As in prior quarters, our execution remains strong with healthy margins robust free cash flow and continued progress on our deleveraging goals.

Speaker #3: Critical to enabling the AI transformation against this exciting backdrop , we are executing with financial discipline , aligning our business to win in our key markets and reducing our leverage .

Third quarter revenue was 988 million up 2% sequentially and up 10% year over year.

Both at the high end of our guidance and reflected better than expected trends in key end markets.

Speaker #3: I'll close by extending my thanks to our MKS team for their tireless work driving the great results we are reporting today , and also to our customers and our suppliers across the globe for their collaboration and support .

Third quarter semiconductor revenue was $415 million down, 4% sequentially and up 10% year over year.

Speaker #3: With that , let me turn it over to Rob to run through the financial results and fourth quarter guidance in more detail . Rob .

This result was at the high end of our expectations.

The sequential decline was driven by lower RF power sales due to the timing of NAND upgrade activity as expected.

Speaker #2: Thank you , John , and good morning , everyone . We delivered strong results in the third quarter driven by healthy demand in our semiconductor and electronics and packaging and markets , and continued stability in our specialty industrial and market .

Ramakumar Mayampurath: Third-quarter adjusted EBITDA was $240 million and above the midpoint of our expectations, with adjusted EBITDA margin of 24.3%. Net interest expenses were $45 million, in line with our guidance. Third-quarter effective tax rate was 17.9%, just below the midpoint of our guidance. Third-quarter net earnings were $130 million, or $1.93 per diluted share, and above the midpoint of our guidance. Pre-cash flow generation was very strong at $147 million, representing over 100% of our net earnings and 15% of our revenue. Through the first three quarters of 2025, we generated cumulative free cash flow of $405 million, nearly as much as we did in all of 2024. We invested $50 million in capital expenditure in the quarter. We expect CapEx to sequentially increase in Q4 but fall within the low end of our annual CapEx guidance of 4% to 5% of revenue.

The year over year growth was driven by strength in many product categories, including our vacuum products and plasma and reactive gas businesses. The fundamentals of our semiconductor business remained strong.

Speaker #2: As in prior quarters , our execution remains strong with healthy margins , robust free cash flow , and continued progress on our deleveraging goals .

Third quarter electronics, and packaging revenue was 289 million up 9% sequentially driven by growth in our chemistry and equipment businesses.

Speaker #2: Third quarter revenue was $988 million , up 2% sequentially and up 10% year over year . The result was at the high end of our guidance and reflected better than expected trends in key end markets .

On a year over year basis sales were up 25% driven by growth and demonstrated demonstrate equipment and flexible PCB drilling equipment sales.

Speaker #2: Third quarter semiconductor revenue was 415 million , down 4% sequentially , but up 10% year over year . This result was at the high end of our expectations .

These strong results underscore the strength of foreign electronics and packaging business as we deliver enabling technologies for high growth emerging AI applications and two days advance consumer electronics.

Speaker #2: The sequential decline was driven by lower RF power sales due to the timing of Nand upgrade activity . As expected . The year over year growth was driven by strength in many product categories , including our vacuum products and plasma and reactive gas businesses .

Chemistry revenue was up 10% year over year, excluding the impact of FX and Palladium pass through.

Continuing the strong growth trend for the last year.

Ramakumar Mayampurath: We closed the quarter with approximately $1.4 billion of liquidity, comprised of cash and cash equivalents of $697 million, and our undrawn revolving credit facility of $675 million. As John highlighted, we made a voluntary principal prepayment of $100 million in October. In total, we have made $400 million in voluntary payments thus far in 2025. We remain focused on executing our long-term capital allocation priorities of investing in organic growth opportunities while reducing our leverage through principal prepayments and working with our backing partners to reduce our interest expenses as market opportunities arise. We exited the quarter with a gross debt of $4.4 billion and a net leverage ratio of 3.9 times, based on our trailing 12-month adjusted EBITDA of $953 million. We continue to bring down our net leverage ratio as we generate strong free cash flow, make proactive principal prepayments, and deliver high year-over-year adjusted EBITDA.

In our specialty industrial market third quarter revenue was 284 million an increase of 3% sequentially, mainly due to the improvement in the industrial market.

Speaker #2: The fundamentals of our semiconductor business remain strong . Third quarter electronics and packaging revenue was 289 million , up 9% sequentially , driven by growth in our chemistry and equipment businesses on a year over year basis .

Revenue was down 1% on a year over year basis.

Overall, our specialty industrial business has remained steady for well over a year.

Speaker #2: Sales were up 25% , driven by growth in chemistry , chemistry , equipment and flexible PCB drilling equipment . Sales . These strong results underscore the strength of our electronics and packaging business .

Third quarter gross margin was 46, 6% just above the midpoint of our guidance.

Gross margins were stable relative to the prior quarter.

Speaker #2: As we deliver , enabling technologies for high growth , emerging AI applications and today's advanced consumer electronics chemistry . Revenue was up 10% year over year , excluding the impact of FX and palladium pass through , continuing the strong growth trend over the last year in our specialty industrial market .

Ericsson products of about 80 basis points 35 basis points better than last quarter offset by a higher mix of chemistry equipment sales.

As we have stated before the strong equipment sales we have seen throughout 2025 are a good indicator of future high margin chemistry revenues.

Third quarter operating expenses were $256 million at the high end of our guidance and higher sequentially, primarily as a result of an increase in variable costs, most related to employee incentive compensation tied to stronger business performance.

Speaker #2: Third quarter revenue was 284 million , an increase of 3% sequentially , mainly due to the improvement in the industrial market . Revenue was down 1% on a year over year basis .

Speaker #2: Overall , our specialty industrial business has remained steady for well over a year . Third quarter gross margin was 46.6% , just above the midpoint of our guidance .

Ramakumar Mayampurath: Finally, during the quarter, we paid a dividend of $0.22 per share, or $15 million. Let me now turn to our fourth-quarter outlook. The guidance we are providing represents our best estimate based on the dynamic trade environment in which we are operating. We expect revenue of $990 million, plus or minus $40 million. By end market, we expect semiconductor revenue to be $415 million, plus or minus $15 million, reflecting the continued strong fundamentals of our business. Revenue from electronics and packaging market is expected to be $295 million, plus or minus $10 million, which would be up 16% year-over-year at midpoint. As we look to model 2026, we would remind you that chemistry equipment revenue is poised to have a record year in 2025 and has historically varied significantly from year to year.

Third quarter operating income was 205 million with an operating margin of 28%.

Third quarter, adjusted EBITDA was $240 million and above the midpoint of our expectations.

Speaker #2: Gross margin was stable relative to the prior quarter , with tariff impacts of about 80 basis points . 35 basis points . Better than last quarter , offset by a higher mix of chemistry equipment sales .

Adjusted EBITDA margin of 24, 3%.

Net interest expenses was $45 million in line with our guidance.

Third quarter effective tax rate was 17, 9% just below the midpoint of our guidance.

Speaker #2: As we have stated before , the strong equipment sales we have seen throughout 2025 are a good indicator of future high margin chemistry revenues .

Third quarter net earnings were $130 million 93 per diluted share in above the midpoint of our guidance.

Speaker #2: Third quarter operating expenses were 256 million at the high end of our guidance and higher sequentially , primarily as a result of an increase in variable costs , mostly related to employee incentive compensation tied to stronger business performance .

Free cash flow generation was very strong at $147 million, representing over 100% of our net earnings and 15% of our revenue.

Through the first three quarters of 2025, we generated cumulative free cash flow of $405 million nearly as much as we did in all of 2024.

Speaker #2: Third quarter operating income was 205 million , with an operating margin of 20.8% . Third quarter adjusted EBITDA was 240 million and above the midpoint of our expectations , with adjusted EBITDA margin of 24.3% .

Ramakumar Mayampurath: Chemistry revenue, which is the majority of our EMP revenue, is much steadier and more predictable. Revenue from our specialty industrial market is expected to remain relatively steady at $280 million, plus or minus $15 million. We are guiding gross margin of 46%, plus or minus 100 basis points. The sequential decline is due to higher chemistry equipment sales in the mix and lower chemistry sales due to seasonality, partially offset by lower tariff-related impacts. We anticipate our mitigation actions will nearly offset tariff costs, dollar for dollar, beginning in Q4. However, these costs are passed through at zero margins, and we anticipate tariffs will continue to dilute our gross margin in Q4 and moving forward by approximately 50 basis points. With our mitigation initiatives in place, we remain confident in our plan to deliver our long-term gross margin objective of 47% plus.

We invested 50 million in capital expenditures in the quarter.

We expect Capex to sequentially increase in Q4, but fall within the low end of our annual Capex guidance of 4% to 5% of revenue.

Speaker #2: Net interest expenses were $45 million, in line with our guidance. The third quarter effective tax rate was 17.9%, just below the midpoint of our guidance.

We closed the quarter with approximately $1 4 billion of liquidity comprised of cash and cash equivalents of $697 million and our undrawn revolving credit facility of 67 to pharmacy.

Speaker #2: Third quarter net earnings were 130 million , or $1.93 per diluted share , and above the midpoint of our guidance . Free cash flow generation was very strong at 147 million , representing over 100% of our net earnings and 15% of our revenue through the first three quarters of 2025 .

As John highlighted we made a voluntary principal prepayment of $100 million in October.

In total we have made 400 million involuntary premiums thus far in 2025.

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

Speaker #2: We generated cumulative free cash flow of 405 million , nearly as much as we did in all of 2020 . For the invested 50 million in capital expenditure in the quarter .

We exited the quarter with a gross debt of $4 4 billion and net leverage ratio of three nine times based on our trailing 12 month adjusted EBITDA of $953 million.

Speaker #2: We expect CapEx to sequentially increase in Q4 , but fall within the low end of our annual CapEx guidance of 4 to 5% of revenue .

Ramakumar Mayampurath: We expect fourth-quarter operating expense of $255 million, plus or minus $5 million. As a reminder, OPEX is typically higher in Q1 as a result of higher stock-based compensation and fringe benefits consistent with prior years. We expect fourth-quarter adjusted EBITDA of $235 million, plus or minus $24 million. We expect tax rates of approximately 2% in the fourth quarter, benefiting from certain favorable discrete tax items in the quarter and bringing our full-year tax rate to just over 14%. We expect fourth-quarter net earnings per diluted share of $2.27, plus or minus $0.34. Wrapping up, MKS has executed at a high level through the third quarter, and we are expecting this momentum to continue in Q4. We are winning exciting opportunities across our semiconductor and electronics and packaging end markets, and we are focused on managing our business with discipline to drive profitability and free cash flow.

Speaker #2: We closed the quarter with approximately 1.4 billion of liquidity , comprised of cash and cash equivalents of 697 million , and our undrawn revolving credit facility of 675 million .

We continue to bring down our net leverage ratio as we generate strong free cash flow make proactive principal prepayments and deliver high year over year adjusted EBITDA.

Speaker #2: As John highlighted , we made a voluntary principle prepayment of 100 million in October . In total , we have made 400 million in voluntary payments thus far in 2025 , we remain focused on executing our long term capital allocation priorities of investing in organic growth opportunities , while reducing our leverage through principal prepayments and working with our banking partners to reduce our interest expenses .

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

Let me now turn to our fourth quarter outlook. The guidance. We are providing represents our best estimate based on the dynamic trade environment in which we're operating.

We expect revenue of 90, 90% plus or minus $40 million.

By end market, we expect semiconductor revenue to be $415 million, plus or minus with 10 million, reflecting the continued strong fundamentals of our business.

Speaker #2: As market opportunities arise . We exited the quarter with a gross debt of 4.4 billion and a net leverage ratio of 3.9 times , based on our trailing 12 month adjusted EBITDA of 9.53 million .

Revenue from electronics and packaging market is expected to be 295 million, plus or minus $10 million, which would be up 16% year over year at midpoint.

Speaker #2: We continue to bring down our net leverage ratio as we generate strong free cash flow , make proactive principal prepayments and deliver high year over year adjusted EBITDA .

As we look to model 2026.

Ramakumar Mayampurath: We remain focused on reducing our leverage. With our broad portfolio of products, strong secular tailwinds, and an improving balance sheet, MKS is in a great position as we look to 2026. With that, operator, please open the call for Q&A.

We would remind you that chemistry equipment revenue is poised to have a record year in 2025 and has historically very significantly from year to year.

Speaker #2: Finally , during the quarter , we paid a dividend of $0.22 per share , or $15 million . Let me now turn to our fourth quarter outlook .

Chemistry revenue, which is the majority of for E&ps revenue is much steadier and more predictable.

Speaker #2: The guidance we are providing represents our best estimate based on the dynamic trade environment in which we are operating . We expect revenue of 9.90 million plus or -40 million .

Operator: Yes, thank you. At this time, we'll conduct the question-and-answer session. As a reminder, to ask a question, you'll need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Please stand by while we compile our question-and-answer. Rust. Your first question comes from the line of Melissa Weathers with Deutsche Bank. Your line is now open.

Revenue from our speciality industrial market is expected to remain relatively steady at 280 million plus or minus $15 million.

Speaker #2: Buy and market . We expect semiconductor revenue to be 415 million plus or -15 million , reflecting the continued strong fundamentals of our business revenue from electronics and Packaging market is expected to be 295 million plus or -10 million , which would be up 16% year over year at midpoint .

We are guiding gross margin of 46% plus or minus 100 basis points. The sequential decline is due to higher chemistry equipment sales and the mix and lower chemistry sales due to seasonality, partially offset by lower tariff related impacts.

We anticipate our mitigation actions will nearly offset tariff cost dollar for dollar beginning in Q4.

Melissa Weathers: Hey, there. Thank you, guys, for letting me ask a question. I think first I want to touch on the E&P side. You said a couple of times in your commentary that. Equipment orders generally precede chemistry orders, and that can take about 6 to 12 months. You also mentioned that chemistries were at, I think, a record year in 2025. But I wasn't quite clear on how you were guiding 2026, whether or not that should maybe come down or be stable. So any color on how we should be thinking about the chemistry's flow-through into 2026 after all the strong equipment sales?

Speaker #2: As we look to model 2026 , we would remind you that chemistry , equipment revenue is poised to have a record year in 2025 .

However, these costs are passed through at zero margins and we anticipate <unk> will continue to dilute our gross margin in Q4 and moving forward by approximately 50 basis points.

Speaker #2: And has historically varied significantly from year to year . Chemistry revenue , which is a majority of our MPs revenue , is much steadier and more predictable .

With our mitigation initiatives in place we remain confident in our plan to deliver our long term gross margin objective of 47% plus.

Speaker #2: Revenue from our speciality industrial market is expected to remain relatively steady at 280 million plus or -15 million . We are guiding gross margin of 4 to 6% plus or -100 basis points .

We expect fourth quarter operating expense of two to two 5 million plus or minus $5 million.

As a reminder, opex is typically higher in Q1 as a result of higher stock based compensation and fringe benefits consistent with prior years.

Speaker #2: The sequential decline is due to higher chemistry equipment sales in the mix and lower chemistry sales due to seasonality , partially offset by lower tariff related impacts .

John Lee: Hi, Melissa. It's John. Thanks for the question. So we're not really guiding 2026, obviously, for chemistry or for the company. But I would say this. The equipment that we are building and installing now puts us in a very good position for additional chemistry revenue starting in '26 and forward. I would say this. We really look at the whole market and its growth, and we've kind of said in our E&P market, we would grow 300 basis points above GDP. And that was made up of that was what we said at the analyst day. And that was made up of higher growth, substrate business. Mid-single-digit HDI business, and GDP-type MLB business. And those numbers are what we're staying with for now. But obviously, when we gave those numbers, AI wasn't in the. Mix, right? And so I think, generally, things are better.

We expect fourth quarter, adjusted EBITDA of 235 million plus or minus 24%.

Speaker #2: We anticipate our mitigation actions will nearly offset tariff costs . Dollar for dollar . Beginning in Q4 . However , these costs are passed through at zero margins and we anticipate tariff will continue to dilute our gross margin in Q4 .

We expect tax rate.

Approximately 2% in the fourth quarter benefiting from certain favorable discrete tax items in the quarter and bringing our full year tax rate to just over 14%.

We expect fourth quarter net earnings per diluted share of $2 27, plus.

Speaker #2: And moving forward by approximately 50 basis points with our mitigation initiatives in place, we remain confident in our plan to deliver our long-term gross margin objective of 47% plus. We expect fourth quarter operating expenses of $255 million plus or minus $5 million.

Plus or minus 34.

Wrapping up MKS has executed at a high level through the third quarter and we are expecting this momentum to continue in Q4.

Really exciting opportunities across our semiconductor and electronics and packaging end markets and we are focused on managing our business with discipline to drive profitability and free cash flow.

Speaker #2: As a reminder , OpEx is typically higher in Q1 as a result of higher stock based compensation and fringe benefits . Consistent with prior years .

We remain focused on reducing our leverage.

John Lee: And I would say our ability to hit the 300 basis points above GDP, our longer-term target, is we're very confident in that fundamentally because we are shipping a lot of that equipment, and a lot of that chemistry that goes with it will help us get to those longer-term targets.

Speaker #2: We expect fourth quarter adjusted EBITDA of 235 million plus or -24 million . We expect tax rate of approximately 2% in the fourth quarter , benefiting from certain favorable discrete tax items in the quarter and bringing our full year tax rate to just over 14% .

With our broad portfolio of products strong secular tailwind and an improving balance sheet and gas is in a great position as we look to 2026.

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

Thank you at this time, we will conduct a question answer session. 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 to withdraw. Your question. Please press star one again, please standby lovely compile our question and answer.

Melissa Weathers: Great. Thank you. And then maybe on the semiconductor side, it seems we've seen some really positive pricing data points in memory in the last couple of weeks or months. And I think a lot of people are expecting a shortage situation in memory in 2026. So can you talk about the order patterns that you guys saw in the quarter? Have you seen an acceleration in orders ahead of maybe potential capacity additions in the memory space?

Speaker #2: We expect fourth quarter net earnings per diluted share of $2.27 , plus or -$0.34 . Wrapping up MKS has executed at a high level through the third quarter , and we are expecting this momentum to continue in Q4 .

Ross.

Your first question comes from the line of Melissa Weathers with Deutsche Bank. Your line is now open.

Speaker #2: We are winning . Exciting opportunities across our semiconductor and electronics and packaging and markets , and we are focused on managing our business with discipline to drive profitability and free cash flow .

Hi, there. Thank you guys for letting me ask a question.

John Lee: Yeah, we read those same reports as you do, Melissa. So I think, in general, we're happy that memory is recovering, pricing is recovering, and that. The industry is moving towards a more constrained, supply-constrained environment. And I think our customers probably better to answer whether they're going to be ordering more equipment from us. But certainly, in general, I think everything is positive in the trend towards memory equipment.

I think first I wanted to touch on the E&P side, you said a couple times in your commentary that our.

Speaker #2: We remain focused on reducing our leverage with our broad portfolio of products , strong secular tailwinds and an improving balance sheet . MKS is in a great position as we look to 2026 , with that .

Equipment orders generally precede chemistry orders and that can take about six to 12 months. He also mentioned that kind of shows were up I think a record year in 2025.

Speaker #2: Operator , please open the call for Q&A .

Speaker #1: Yes . Thank you . At this time , we'll conduct the question and answer session . As a reminder to ask a question , you'll need to press star one one on your telephone and wait for your name to be announced .

Right.

Wasn't quite clear on how you were guiding 2026.

Theyre not that should maybe come down or be stable. So any color on how we should be thinking about the chemistries flow through into 2026. After all the strong equipment sales.

Melissa Weathers: Thank you.

John Lee: Thank you, Melissa.

Operator: Thank you. Your next question comes on the line of Jim Rashidi with Needham & Company. Your line is now open.

Speaker #1: To withdraw your question , please press star one one again . Please stand by while we compile our question and answer .

Hi, Melissa Shawn Thanks for the question. So we're not really guiding 2026, obviously more chemistry or for the company, but I would say this.

Speaker #4: Session .

Speaker #1: Roster . Your first question comes from the line of Melissa Weathers with Deutsche Bank . Your line is now open .

Jim Rashidi: Hi, thanks. Good morning. I'm wondering if you could give us a little bit. Of a better sense within the E&P business. And you could comment on Q3 or nine months. How much of that growth is actually coming from equipment. Which admittedly has been strong and we know can be a little bit lumpy?

The equipment that we are building and installing now puts us in a very good position for additional chemistry revenues starting in 'twenty six and forward I would say this.

Speaker #5: Hey there. Thank you for letting me ask a question. I think first I want to touch on the E&P side.

Speaker #5: You said a couple times in your commentary that equipment orders generally precede chemistry orders , and that can take about 6 to 12 months .

We really look at the whole market and its growth and we've kind of said in our E&P market, we would grow 300 basis points above GDP and that was made up of that was what we said at the analyst day and that was made up.

John Lee: Yeah, thanks for the question, Jim. I think we've said historically, when we looked at the MSD business. Equipment can be anywhere from 5% of total revenue to 15%. And I would say, because of the last four quarters of really strong orders and therefore revenues, we're towards the higher end of that range and maybe a little higher than that. So it's really going to be probably a historic four quarters or a year for the equipment business.

Speaker #5: You also mentioned that chemistries were at , I think , a record year in 2025 . But I , I wasn't quite quite clear on how you were guiding 2026 , whether or not that should maybe come down or be stable .

Higher growth substrate business single mid single digit HDI business in GDP type MLP EBIT business.

And those numbers are what were staying with for now, but obviously when we gave those numbers AI was in the.

Speaker #5: So any color on how we should be thinking about the chemistries flow through into 2026 ? After all , the strong equipment sales .

And the mix right and so I think generally things are better.

Speaker #5: ?

Speaker #3: Melissa it's John . Thanks for the question . So we're not really guiding 2026 obviously for chemistry or for the company . But I would say this the equipment that we are building and installing now puts us in a very good position for additional chemistry revenues starting in 26 and forward .

And I would say our ability to hit the 300 basis points above GDP on a longer term target.

Jim Rashidi: And John. Also curious, there's another element of equipment in the PCB area. Are you seeing. Any signs of a cyclical pickup in the flex PCB drilling equipment business, just given somewhat improving. Smartphone shipments and, I guess, the potential that there may be some form factor changes coming in the market next year?

We're very confident that fundamentally because we are shipping a lot of that equipment and a lot of chemistry, where that goes with it will help us get to those longer term targets.

Speaker #3: I would say this , you know , we really look at the whole market and its growth and we've kind of said in our E&P market , we would grow 300 basis points above GDP .

Yeah.

Okay. Thank you and then maybe on the semiconductor side. It seems like we've seen some really positive pricing data points in memory in the last couple weeks or months.

Speaker #3: And that was made up of that was what we said at the Analyst Day . And that was made up of higher growth substrate business .

And I think a lot of people are expecting a shortage situation in memory. In 2020. So can you talk about like the order patterns that you guys saw in the quarter have you seen an acceleration in orders ahead of any potential capacity additions in the memory space.

John Lee: Yes, we are actually seeing a pickup in flex. The business there, as you know, we're market share leader in flex laser drilling. And so we have seen that pickup. And this is actually the second year where we've seen a healthy business there. It's not at the historic rates that we're in kind of in the 2000 timeframe, 2021 timeframe, but it has recovered to a very healthy level.

Speaker #3: Single mid-single digit HDI business and GDP type MLB business . And those numbers are what we were saying with for now . But obviously when we gave those numbers , AI wasn't in the in the in the mix , right .

Yes, we made the same reports as you do Melissa So I think in general we're happy that memory is recovering pricing is recovering and that industry is moving towards a more constrained supply constrained environment.

Speaker #3: And so I think . Generally things are better . And I would say our ability to hit the 300 basis points above GDP , our longer term target is we're very confident in that fundamentally because we are shipping a lot of that equipment and a lot of that chemistry that goes with it will help us get to those longer term targets .

And I think our customers probably better to answer whether theyre going to be ordering more equipment from us, but certainly in general I think.

Jim Rashidi: Thank you.

John Lee: Thanks, Jim.

Operator: Thank you. Your next question comes on the line of Shane Brett with Morgan Stanley. Your line is now open.

Speaker #5: Great . Thank you . And then maybe on the semiconductor side , it seems we've seen some really positive pricing data points in memory in the last couple weeks or months .

Everything is positive and that the trend towards memory equipment.

Shane Brett: Thank you for letting me ask a question. I want to follow up on that E&P question earlier, but considering that your chemistry sales for this year are up high single digits, some back-of-the-envelope math indicates that your tooling business could be almost doubling this year. One, is that kind of the right way to think about it? Is that in the right ballpark? And just how much visibility do you have on equipment sales on a go-forward basis? Thank you.

Thank you.

Thank you Melissa.

Thank you.

Speaker #5: And I think a lot of people are expecting a . Shortage situation in memory in 2026 . So can you talk about like the order patterns that you guys saw in the quarter .

Your next question comes from line of Jim Ricchiuti with Needham <unk> Company. Your line is now open.

Hi, Thanks, good morning.

Speaker #5: Have you seen an acceleration in orders ahead of maybe potential capacity additions in the memory space ?

I'm wondering if you could give us a little bit.

The better sense within the E&P business and you could comment on Q3 or nine months, how much of that growth is actually coming.

John Lee: Yeah, Shane, I think your math is roughly right with respect to the equipment business for chemistry equipment. And then I think what we can say is that we've had four strong quarters of bookings for that chemistry equipment. And we can look out, certainly, the lead times of our equipment are 4 to 12 months. And so we have added some capacity to some of our equipment factories, not new buildings, but just expanding within the space that we have. And so we look forward to a couple more quarters, at least, of. Large equipment builds. We know that we have the backlog for that.

Speaker #3: Yeah , we read those same reports as you do , Melissa . So I think in general we're happy that memory is recovering .

Speaker #3: Pricing is recovering . And that the industry is moving towards a more constrained , supply constrained environment , you know , and I think our customers are probably better to answer whether they're going to be ordering more equipment from us .

From equipment.

Which admittedly has been strong and we now can be a little bit lumpy.

Yes. Thanks for the question, Jim I think we've said historically when we looked at the MST business.

Speaker #3: But certainly in general , I think , you know , everything is positive in that in the trend towards memory equipment .

Equipment can be anywhere from 5% of total revenue to 15% and I would say because of the last four quarters of really strong revenues orders and therefore revenues.

Speaker #5: Thank you .

Speaker #3: Thank you . Melissa .

Speaker #1: Thank you . Your next question comes from the line of Jim Ricchiuti with Needham and Company . Your line is now open .

We're towards the higher end of that range and maybe a little higher than that so it's really going to be probably the historic four quarters or a year for the coated vessels.

Shane Brett: Got it. And for my follow-up, so your semi customers have spoken about a pickup in equipment shipments from the second half of next year. And I think your peers have been kind of cautiously optimistic towards a pickup from Q2. Just where are you guys in terms of your expectations towards semi revenue cadence through 2026? And if there's sort of any idiosyncratic tailwinds for MKS that should drive your shipments above WFE in 2026, that'd be very helpful. Thank you.

Speaker #6: I thanks . Good morning . I'm wondering if you could give us a little bit a better sense within the E&P business , and you could comment on Q3 or nine months .

Dan John.

But also curious.

There is another element of equipment in the PCB area are you seeing.

Speaker #6: How much of that growth is actually coming from equipment , which admittedly has been strong and we know can be a little bit lumpy .

Any signs of a cyclical pickup in the flex PCB drilling equipment business, just given somewhat improving <unk>.

John Lee: Yeah, Shane, certainly we read the same things. And yeah, a lot of folks are saying kind of the second half of '26 is where WFE really picks up. I think we're just focused on this quarter, next quarter, and the next six months. I would say this. Our semi revenue has improved. Double digits year over year on a quarterly basis, as well as year over year. And this is really not with a lot of NAN upgrade yet, right? We had a good NAN upgrade in Q2, not so much in Q3. And so that's still yet to come. Certainly, our customers think that's going to happen. I think we know and are very confident in our position and our power for the high aspect ratio dielectric etch. We're very confident that when those upgrades occur, that will be us.

Speaker #3: Yeah . Thanks for the question , Jim . I think we've said historically , when we looked at the MSD business , equipment can be anywhere from 5% of total revenue to 15% , and I would say because of the last four quarters of really strong revenues , orders , and therefore revenues , we're towards the higher end of that range and maybe a little higher than that .

Smartphone shipments in the I guess the potential that there may be some Morris actor changes coming in.

In the market next year.

Yes, we are actually seeing a.

Pick up and flex the business there as you know with market share leader and flex laser drilling and so we have seen that pick up.

And this is actually the second year, where we've seen a healthy business. There. It's not at historic rates that are in kind of in the two.

Speaker #3: So it's really going to be probably a historic four quarters or a year for the equipment business .

2000 timeframe 2021 timeframe, but it has recovered to a very healthy level.

Speaker #6: And John , the also curious there's another element of equipment in the PCB area . Are you seeing any signs of a cyclical pickup and the flex PCB drilling equipment business just given somewhat improving smartphone shipments ?

Yeah.

Thank you.

Thanks, Jim.

Thank you.

Your next question comes from the line of Shane Brad with Morgan Stanley. Your line is now open thank.

John Lee: And then certainly, even without the NAN upgrade, you can see the broad portfolio of semiconductor critical subsystems we have have continued to outgrow WFE even this year. And so we look forward to 2026 where if WFE. Follows the trend that people are expecting, another maybe high single-digit increase, we're going to enjoy some of that as well.

Thank you for letting me ask a question I wanted to follow up on the A&P question earlier, but considering that your chemistry sales for this year up high single digits. Some back of the envelope math indicates that your tooling business could be almost doubling this year.

Speaker #6: And I guess the potential that there may be some form factor changes coming in the market next year ?

Speaker #3: Yes , we are actually seeing pickup in flex , the business there , as you know , with market share leader in flex laser drilling .

One is that kind of the right way to think about it in the right ballpark and just how much visibility do you have on equipment sales on a go forward basis. Thank you.

Shane Brett: Great. Thank you very much.

Speaker #3: And so we have seen that pickup and this is actually the second year where we've seen a , you know , a healthy business there .

John Lee: Thanks, Shane.

Operator: Thank you. The next question comes on the line of Chris Sanker with TD Cowan. Your line is now open.

This year I think your math is roughly right with respect to the equivalent business or chemistry.

Speaker #3: It's not at the historic rates that we're in kind of in the 2000 timeframe , 2021 timeframe . But it has recovered to a very healthy level .

And then I think what we can say is that we've had four strong quarters of bookings for that chemistry.

Chris Sanker: Yeah, thanks for taking my question. I had two of them to. John, just to follow up on the previous question, if you do assume that. In the second half of next year, let's just pick a timeframe and say in Q3 of next year's inflection, in theory, should you not start seeing it one quarter earlier, or do you think there's something else different this cycle?

And.

We can look at certainly at lead times of our equivalent or four to 12 months.

Speaker #7: Thank you .

Speaker #3: Thanks , Jim .

And so we have added some capacity to some of our equipment factories, not new buildings, such as expanding within the.

Speaker #1: Thank you . Your next question comes from the line of Shane Brett with Morgan Stanley . Your line is now open .

John Lee: No, in general, I think that's still true, Chris. If our customers are shipping in Q3, for instance, to your assumption, then we would certainly see that at least a quarter ahead of time. Our lead times have come back to historically low lead times, anywhere from four to eight weeks, sometimes 12 weeks, depending on how complex the system is. But even a four-week timeframe and eight-week timeframe, we do see a lot of in-quarter turns, as we talked about in the last couple of quarters. So yes, I don't see any changes to that assumption, Chris.

Speaker #8: Thank you for letting me ask a question . I want to follow up on that E&P question earlier , but considering that your chemistry sales for this year are up high , single digits , some back of the envelope math indicates that your tooling business could be almost doubling this year .

The space that we have and and so we look forward to a couple more quarters at least of of large equipment builds and we know that we have the backlog for that.

Got it and can I follow up so your semi customers has spoken about a pick up in equipment shipments from the second half of next year and I think our peers have been kind of cautiously optimistic towards the pick up from Q2, just where are you guys in terms of your expectations towards semi revenue cadence through 2026, and if there's sort of any idiosyncratic tailwind for MKS that should drive your shipments above WFAN.

Speaker #8: One is that kind of the right way to think about ? Is then the right ballpark , and just how much visibility do you have on equipment sales on a go forward basis ?

Speaker #8: Thank you .

Speaker #3: Thank your math . Is roughly right with respect to the equipment business for chemistry equipment . And then I think what we can say is that we've had four strong quarters of bookings for that chemistry equipment and , you know , we can look out certainly the lead times of our equipment are 4 to 12 months .

2026 of them. Thank you very helpful. Thank you.

Chris Sanker: Got it, John. And then I just had a two-part question. One is. How much of your E&P sales was advanced packaging chemistry, and how much within that was AI? And then on the PCB drilling side, are drill bits a constraint, and is that impacting your business, or you're not seeing any of that?

Yes, yes, certainly we read the same things and.

A lot of folks are the same kind of second half 'twenty sixes, where Wi Fi really picks up.

Speaker #3: And so we have added some capacity even to some of our equipment factories—not new buildings, but just expanding within the space that we have.

I think we're just focused on this quarter next quarter next six months I would say this.

Revenue has improved.

John Lee: Yeah, maybe I'll talk about chemistry and how AI has played a part in that. In the past, we have talked about. AI servers driving the top third of the PCB industry. The PCB industry calls that the substrate, right? And that top third was the AI part of that top third was going from 5% to 10% to 15% of that top third of the PCB industry. Since then, though. As we now know. AI is also driving the equipment for HDI and MLB. This is the next third and the last third of the PCB industry. And of course, the chemistry that goes with those. So in general, our AI revenue has gone from, if you for the chemistry, kind of like 5% of the total PC business, not just the top third, to double that over the last year. So kind of 10%.

Double digits year over year.

Speaker #3: And and so we look forward to a couple more quarters , at least of , of large equipment builds . We know that we we have the backlog for that .

On a quarterly basis as well as year over year.

And this is really not with a lot of an upgrade yes, right. We had a good NAND upgrade in Q2, not so much in Q3, and so that's still yet to come certainly our customers I think that's going to happen I think we know and we're very confident in our position and our power for the high aspect ratio dielectric etch.

Speaker #8: Got it. From a follow-up, some of your semi customers have spoken about a pickup in equipment shipments from the second half of next year.

Speaker #8: And I think your peers have been kind of cautiously optimistic towards pickup from Q2 . Just where are you guys in terms of your expectations towards semi revenue cadence through 2026 ?

We're very confident that when those upgrades occur that will be us.

Speaker #8: And if there's sort of any idiosyncratic tailwinds for mix that should drive your shipments above W.F. in 2026 , very helpful . Thank you .

And then certainly even without the NAND upgrades you can see that broad portfolio of semiconductor critical subsystems. We have continue to outgrow WMC, even this year and so we look forward to 2026, where you have.

Speaker #3: Yes , certainly . We read the same things . And yeah , a lot of folks are saying kind of second half 26 is where we've really picks up .

Speaker #3: You know , I think we're just focused on this quarter , next quarter . In the next six months . I would say this , you know , our semi revenue has improved double digits year over year on a quarterly basis , as well as year over year .

<unk>.

<unk> is the trend that people are expecting you know another maybe high single digit increase we're.

We're going to enjoy some of that as well.

Great. Thank you very much.

John Lee: If you add equipment to that, of course, we're pushing the mid-teen percentage of the MSD business. Due to AI. I think your second question about maybe you can clarify your second question about drill bits.

Speaker #3: And and this is really not with a lot of an upgrade yet . Right ? We had a good upgrade in Q2 . Not so much in Q3 .

Thanks Shane.

Thank you.

The next question comes from the line of Krish Sanka with TD Cowen. Your line is now open.

Speaker #3: And so that's still yet to come . Certainly our customers think that's going to happen . I think we know and we're very confident in our position , in our power for the high aspect ratio , dielectric etch .

Yeah. Thanks for taking my question I had two of them too.

And then just a follow up on the previous question.

Chris Sanker: I was just wondering on the. PCB drilling side, is drill bits a constraint, and is it impacting your PCB drilling business?

We do assume that.

In second half of next year, let's just say could influence in Q3 of next year the infection.

Speaker #3: We're very confident that when those upgrades occur , that will be us . And then certainly even without the upgrade , you can see the broad portfolio of semiconductor critical subsystems .

In theory should you not start seeing at one quarter earlier, but do you think theres something that was different this cycle.

John Lee: Well, yeah, I don't know if I can comment on that. Drill bits, we don't do that. That's mechanical drilling, I think, what you're referring to. We're really doing laser drilling, but I have not heard that, that mechanical drilling is constraining the industry.

No in general I think that's still true krish.

Speaker #3: We have have continued to outgrow W.F. even this year . And so we look forward to 2026 , where , you know , we've follows the trends that people are expecting .

If our customers are shipping in Q3 for instance to your assumption then we would certainly see that.

Just a quarter ahead of time.

Our lead times have come back to historic historically low lead times anywhere from four to eight weeks, sometimes always depending on how complex. The system is but even that four week timeframe and eight week timeframe we.

Chris Sanker: Thanks, John.

Speaker #3: You know , another maybe high single digit increase . We're going to enjoy some of that as well .

John Lee: Thanks, Chris.

Operator: Thank you. Your next question comes on the line of Michael Manny with BOV Securities. Your line is now open.

Speaker #8: Great . Thank you very much .

Speaker #3: Thanks , Shane .

Speaker #1: Thank you . The next question comes in the line of Krish Sankar with TD Cowan . Your line is now open .

We do see a lot of ink quarter turns as we've talked about the last couple of quarters. So, yes, I don't see any changes to that.

Michael Manny: Hi, thanks for taking my question. On E&P, could you help us parse through. When you look at your growth drivers, what is exactly secular versus more idiosyncratic to MKS? So I mean, it seems like a lot of the HDI and MLB momentum reflects some of this secular uptake in the AI. But obviously, with AutoTech, you're able to go into many of these opportunities to sell in both equipment and chemistry. So is there a share gain overlay aspect to it that you're seeing? Can you attribute these wins to that deal, or is it mainly just broad-based secular growth? Thank you.

Speaker #9: Yeah . Thanks for taking my question . I had two of them to John just to follow up on the previous question . You know if you do assume that , you know , in the second half of next year , let's just pick a time frame and say in Q3 of next year , inflection in theory , should you not start seeing it one quarter earlier , or do you think there's something else different this cycle .

Assumption crush.

Got it John and then I just had a two part question one is.

How much of your E&P sales was advanced packaging Kenneth Lee.

How much of it and that was AI and then on the PCB drilling side, our drill bits of concern and is that impacting your business, we have not seen any of that.

Speaker #9: ?

Speaker #3: No . In general , I think that's still true . Krish . You know , we if if our customers are shipping in Q3 for instance , to your assumption , then we would certainly see that at least a quarter ahead of time .

Yes.

Maybe I'll talk about chemistry, and how AI is playing a part in that.

In the past, we have talked about AI servers, driving the top third of the PCB industry in <unk> recall that the substrate.

Speaker #3: Our lead times have come back to historic , historically low lead times , anywhere from 4 to 8 weeks , sometimes 12 weeks , depending on how complex the system is .

John Lee: Yeah, I think it's both, Mike. So the regular growth is. We're an industry leader in it. And so more square meters of PCB boards than the chemistry, we're going to just enjoy that. But I would say the thing that is different this time and that's beneficial for MKS is that AI is driving these incredibly thick boards, many, many layers of HDI boards, substrate boards, as well as MLB boards. And as we talked about, a lot of the equipment orders that we have gotten tied to AI for HDI and MLB. Are because our equipment is uniquely. Qualified to process much thicker boards. We had to make modifications to the equipment. We did. And then we got those orders. Now, as we said, we have very high attach rates of chemistry to our equipment.

And that top third was AI part of that top third was gone from 5% to 10% or 15% of that top third of the PCB industry. Since then though.

Speaker #3: But even that four week time frame and eight week time frame , we do see a lot of quarter turns . As we've talked about in the last couple quarters .

Speaker #3: So yes , I don't see any changes to that . That assumption , Krish .

As we now know.

AI is also driving the equipment or HDI in MLP and this is the next third and the last third of the PCB industry and of course, the chemistry that goes with us.

Speaker #9: Got it . John . And then I just had a two part question . One is how much of your E&P sales was advanced packaging chemistry and how much within that was AI ?

Speaker #9: And then on the PCB drilling side , our drill bits are constrained . And is that impacting your business or you're not seeing any of that ?

In general our AI revenue has gone from.

So the chemistry.

5% of the total PC business not just that's out there to double that over the last year. So it's kind of 10% and if you had equivalent to that of course, pushing the mid teen percentage.

Speaker #3: Yeah , maybe I'll talk about chemistry and how AI has played a part in that in the past . We have talked about AI servers driving the top third of the PCB industry .

The MST business due to AI.

John Lee: So if we are unique in being able to supply that equipment versus our competitors, we're also going to get that chemistry, as we talked about in the call. So I think that's unique this time around.

Speaker #3: The PCB industry calls that the substrate right and that top third was AI . Part of that top third was going from 5% to 10% to 15% of that top third of the PCB industry .

I think your second question about maybe clarify your second question about.

And then just wanted to work on.

On the PCB drilling side is deliberate or drill bits of constraint is it impacting your PCB drilling business.

Michael Manny: Great. Thank you. And maybe a question on gross margins. Given. This flow through from potentially higher chemistry revenues over the next couple of quarters, how should we be thinking about as a good baseline for gross margins through next year? It seems like volumes are trained the right way. You're having seen a little more of this margin equity business. But just any way to think about how to model margins through '26. Thank you.

Speaker #3: You know , since then , though , as as we now know , AI is also driving the equipment for HDI and MLB .

Oh, yes, I don't know if I can comment on that drill bits, we don't we don't do that.

Speaker #3: This is the next third and the last third of the PCB industry . And of course , the chemistry that goes with those .

The mechanical drilling I think what you're referring to were really doing laser drilling but.

I have not heard that.

Mechanical drilling is constraining the industry.

Speaker #3: So in general , our AI revenue has gone from if you for the chemistry kind of like 5% of the total PCB business , not just the top third to double that over the last year .

Thanks, John.

Thanks, Craig.

Thank you.

Chris Sanker: Hi, Michael. This is Ram. I take that. So if you look at the progress we have made in gross margin in 2024, all the way to Q1 of 2025. We were well over 47% in gross margin. Since then, a couple of things have happened. One is the impact of the mix that you talk about of very high fast-growing equipment sales and the impact of tariffs. As we said in our prepared remarks, we have offset the impact of tariffs dollar for dollar. But we'll see ongoing 50 basis points impact on our gross margin because we are not marking up the tariffs that we pass through, right? So in time, we'll offset that with efficiency and ongoing operational excellence programs. And in the long term, with a normalized mix, we are very confident we can get back to that 47-plus percent that we were having before.

Your next question comes from the line of Michael Manny with Bofa Securities. Your line is now open.

Speaker #3: So kind of 10% if you add equipment to that , of course , we're pushing the Mid-teen percentage of of the MSD business due to AI .

Hi, Thanks for taking my question.

On E&P could you help us parse through.

Speaker #3: I think your second question is about maybe clarify your second question about bit .

When you look at your growth drivers what is exactly secular versus more idiosyncratic to MKS.

Speaker #9: I was just on the on the PCB drilling side , is drill bits . Drill bits are constrained as it impacting your PCB drilling business .

So I mean, it seems like a lot of HCI and MLB momentum. It reflects some of this separate uptake in the AI, but.

Speaker #3: Well , yeah . I don't know if I can comment on that drill bits . We don't we don't do that . That's mechanical drilling .

Obviously without a tactic.

To go into many of these options selling both our equipment and chemistry. So.

Speaker #3: I think . What what you're referring to , we're really doing laser drilling . But I have not heard that . That mechanical drilling is constrained in the industry .

Is there a share gain overlay aspect to it that youre seeing can you attribute these wins to two.

That deal or is it mainly just.

Progress that correct, Rob Thank you.

Speaker #9: Thanks , John .

Speaker #7: Thanks , Chris .

Yes, I think it's both Mike.

Speaker #1: Thank you . Your next question comes to the line of Michael . Manni with B of A securities . Your line is now open .

So yes, the regular growth as industry leader in it and so more square meters of PCB boards and the chemistry.

Michael Manny: Thank you.

Just enjoy that but I would say the thing that is different this time and that's beneficial for MKS is that AI is driving these incredibly sticky boards. Many many layers of HDI boards substrate boards as well as MLP board and as we talked about it a lot of the equipment orders that we have gotten.

Speaker #10: Hi . Thanks for taking my question . I on E&P , could you help us parse through when you look at your growth drivers , what is exactly secular versus more idiosyncratic to to rmc's ?

Operator: Thank you. Your next call comes on the line of Matthew Prisco with Cantor. Your line is now open.

Michael Manny: Yeah, thanks for taking the question, guys. I guess to start, how do you see the NAN lumpiness playing out over the next handful of quarters? Kind of what are the primary moving parts you are focused on here as determinants for the linearity of that upgrade cycle?

Speaker #10: So , I mean , it seems like a lot of the HCI and MLB momentum is reflects some of this secular uptake in AI , but obviously with out of tech , you know , you're able to go into many of these opportunities in both equipment and chemistry .

And tied to AI for HDI and MLB.

Because our equipment is uniquely.

Qualified to process much thicker boards, we had to make modifications to the equipment we did.

Speaker #10: So is there a share gain overlay aspect to it that you're seeing ? Can you attribute these wins to to that deal , or is it mainly just broad based secular growth ?

John Lee: Yeah, Matt. I wish I knew. But I would say this. We have plenty of capacity, manufacturing capacity, to meet any kind of. Uptick in either upgrades or greenfields. And I think one of our key customers has said there is a large opportunity still of upgrades just in the '26 and maybe beyond timeframe. But they have said it's lumpy. But then I think overlay on top of that, the industry discussion of NAN pricing that I think Melissa asked earlier, that's just a tailwind. The discussion by many of the chipmakers that NAN is now constrained. And then what's exciting is potentially a new application for NAN, driven by AI again, of course, which is in the solid state replacing solid state, sorry, solid state drives. Using more NAN for AI. And that would drive another layer of. Growth. So I think we're ready.

And then we got those orders now as we said we have very high attach rates of chemistry to our equipment.

Speaker #10: Thank you .

Speaker #3: Yeah , I think it's both like so . Yes , the regular growth is , you know , industry leader in it . And so more square meters of PCB boards that need chemistry and to just enjoy that .

So if we are unique in being able to supply that equipment versus our competitors. We're also going to get that chemistry as we talked about in the call. So I think thats unique this time around.

Speaker #3: But I would say the thing that is different this time and that's beneficial for MCAS is that AI is driving these incredibly thick boards .

Great. Thank you and maybe a question on gross margin given.

This flow through from potentially higher kind of fee revenues over the next couple of quarters.

Speaker #3: Many , many layers of HDI boards , substrate boards , as well as MLB boards . And as we talked about , a lot of the equipment orders that we have gotten tied to AI for HDI and MLB are because our equipment is uniquely qualified to process much thicker boards .

How should we be thinking about as a good baseline for gross margins.

Through next year.

It seems like once you train the right way Youre getting youre, having seen a little more margin accretive business, but just.

Just any any way to think about automotive margins. After 26. Thank you.

Hi, Michael This is Rob I'll take that so so if you look at the progress we've made in gross margin in 2024, all the way to Q1 of 2025.

Speaker #3: We had to make modifications to equipment . We did . And and then we got those orders . Now , as we said , we have very high attach rates of chemistry to our equipment .

Speaker #3: So if we are unique in being able to supply that equipment versus our competitors , we're also going to get that chemistry . As we talked about in the call .

We were well over 47% gross margin.

John Lee: It's lumpy, can be lumpy. We will certainly try to guide you guys as best we can in terms of when we see that coming. And. But things can change, and things probably will change rapidly.

Since then a couple of things have happened one is the impact of the mix that you've talked about of a very fast growing equipment sales and the impact of tariffs.

Speaker #3: So I think that's unique this time around .

Speaker #10: Great . Thank you . And maybe a question on gross margins given this flow through from potentially higher chemistry revenues over the next couple quarters , how should we be thinking about as a good baseline for gross margins through next year ?

As we said in our prepared remarks, we have offset the impact of tariffs dollar for dollar.

Michael Manny: Great. Thanks. And then maybe you could talk about. Progress you've made in the lithium inspection and metrology part of your business. Maybe remind us of kind of year-to-date highlights and what success would look like for the team from a share gain perspective through next year. Thank you.

We will see ongoing 50 basis points impact on our gross margin because they are not marking up the tariffs that would be pass through right.

So in time, we'll offset that with efficiency and ongoing.

Speaker #10: You know , seems like , you know , volumes are trained the right way . You're getting you're having seen a little more of this , margin accretive business , but just any any way to think about how to model margins through 26 .

John Lee: Yeah, Matt. As we have talked about. World-class optics, this is our effort to gain more presence, obviously, in lithometrology inspection. And we've talked about in the past revenue from that sector kind of going from 150 million to 300 million. Because we invested in it. And as you know, lithometrology inspection is a little flatter this past year. And so we're not immune to the cycles, but the cycles are more muted than in depth etch. But we're really happy with some of the really difficult things that we have been asked to do and delivered on that are now integral to. Some of the most advanced lithographic machines in the world. So we will continue to invest there and continue to. Try to grow that share. I don't think anybody would say lithometrology inspection won't be important to Semi, right?

Operational excellence programs.

And in the long term with a normalized mix. We are very confident we can get back to that four to seven plus percent.

Speaker #10: Thank you .

Speaker #7: Hi , Michael , this is Rob . I'll take that .

Speaker #2: So if you look at the progress we have made in gross margin in 2024 all the way to Q1 of 2025 , we were well over 47% in gross margin since then .

That people are having.

Yeah.

Yes.

Thank you.

Yes.

Thank you.

Speaker #2: A couple of things have happened . One is the impact of the mix that you talk about , of very high , fast growing equipment sales and the impact of tariffs .

Your next call comes from the lineup Matthew Prisco with Cantor. Your line is now open.

Yes, thanks for taking the question guys I guess.

Start.

Speaker #2: As we said in our prepared remarks , we have offset the impact of tariffs dollar for dollar . But we will see an ongoing 50 basis points impact on our gross margin because we are not marking up the tariffs that we pass through right .

Do you how do you see the NAND lumpiness playing out over the next handful of quarters kind of what are the primary moving parts. We're focused on here at <unk>.

Permanent for the linearity of that upgrade cycle.

Yes, Matt.

Speaker #2: So in time , we'll offset that with efficiency and ongoing operational excellence programs . And in the long term , with the normalized mix , we're very confident we can get back to that 47 plus percent that we were having before .

I wish I knew.

But I would say this.

John Lee: It will always be important to Semi, always be a key component of Semi. And I think maybe stepping back a little bit, the strategy for MKS is to. Be a foundational technology supplier to the entire industry. So in one decade, depth etch is more important because it's multi-patterning. In the next decade, EUV takes over, and lithometrology inspection becomes a little more important. And from an MK standpoint, we kind of hope that. All the markets grow. But if something shifts, then we don't have to worry about it shifting away from what we're doing.

We have plenty of capacity manufacturing capacity to meet any kind of uptick in either upgrades or greenfield.

And I think one of our key customers as said there is a large opportunity still of upgrades just in the 26 and maybe beyond timeframe.

Speaker #7: Thank you .

But they have said it is lumpy.

Speaker #1: Thank you . Your next call comes in line of Matthew Prisco with Cantor . Your line is now open .

The day I think overlay on top of that the industry discussion of NAND pricing that I think Melissa asked earlier, that's just a tailwind.

Speaker #7: Yeah . Thanks for taking the question , guys . I guess to start , how do you how do you see the Nand lumpiness playing out over the next handful of quarters ?

The discussion by many of the chipmakers that NAND is now constrained.

Michael Manny: Thanks, John.

Speaker #7: Kind of what are the primary moving parts you are focused on here as determinants for the linearity of that upgrade cycle ?

And then what's exciting us.

John Lee: Thanks, Matt.

Potentially a new application for NAND driven by AI against of course, which is in the south state, replacing solid-state summit, sorry solid state drives.

Operator: Thank you. Your next question comes on the line of Steve Barker with KeyBank Capital Markets. Your line is now open.

Speaker #3: Yeah . Matt , you know , I wish I knew , but I would say this we have plenty of capacity , manufacturing capacity to meet any kind of uptick in either upgrades or greenfields .

Using more NAND for AI and that would drive another layer of.

Michael Manny: Thanks. Good morning. John, you alluded to some of this already, I think, but we've been reading that co-ops or other packaging formats are evolving from organic interposer to RDL. From your perspective, is that just switching from one format you enable to another, or is that evolution good for you due to more layers or smaller features?

So I think we're ready.

<unk> can be lumpy, we will certainly try to guide you guys as best we can in terms of when we see that coming.

Speaker #3: And I think , you know , one of our key customers has said there's a large opportunity still of upgrades just in the 26 and maybe beyond timeframe .

And.

But things can change and things probably will change rapidly.

Speaker #3: But they have said it's lumpy . But then I think overlay on top of that , the industry discussion of Nand pricing that I think Melissa asked earlier , that's a tailwind .

Okay. Thanks, and then maybe if you could talk about progress you've made in the litho inspection and metrology part of your business, maybe remind us of kind of year to date highlights and what success will look like the team from a share gain perspective through next year. Thank you.

John Lee: Yeah, I think the industry is certainly working hard on various configurations for. This redistribution layer, the RDL layer, using co-ops, co-ops R, co-ops L. And then even co-op, right, on PCB. So I would say this. That RDL layer is more complex as we move to organic layers. That's good for us. That's our traditional strength, organic layers versus silicon. And when you go to organic layers, the RDL layers increase a little bit, maybe from one layer to two or three. So that's good for us. But I think the bigger picture are the 40 layers beneath that that are all the substrates and PCBs. And that's really the largest growth factor for us. And that used to be 20 layers. Now it's 40. As we visit customers, as we work with our customers, they're already looking at 80 layers. So think about that.

Speaker #3: The discussion by many of the chipmakers that Nan is now constrained . And then , you know , what's exciting is potentially a new application for Nand driven by AI .

Yeah, Matt as we've talked about World class optics. This is our effort to gain more presence obviously in litho metrology inspection and we've talked about in the past revenue from that sector and kind of going from the $150 million of $300 million.

Speaker #3: Again , of course , which is in the solid state replacing solid state . Summit . Sorry , solid state drives using more Nand for AI .

Because we invested in it.

Speaker #3: And that would drive another layer of of growth . just So I think we're ready . It's lumpy , can be lumpy . We will certainly try to guide you guys as best we can in terms of when we see that coming .

And as you know litho metrology inspection is a little flatter this past year.

And so we're not immune to the cycles, but the cycles are more muted than in Dep etch.

But we're really happy with some of the really difficult things that we have been asked to do and delivered on that are now integral to some of the most advanced lithography machines in the world.

Speaker #3: And you know , but things can change and things probably will change rapidly .

Speaker #7: Great . Thanks . And then maybe you could talk about progress you've made in the inspection and metrology part of your business . Maybe remind us of year to date highlights and what success would look like for the team from a share game perspective through next year .

So we will continue to invest there and continue to.

John Lee: It's gone from 20 to 40 just in the last couple of years, and we're working on 80. And the one after that is. Three digits. Let's put it that way in terms of number of layers. Each of these layers is made one at a time. You can imagine the challenges of yield, making sure that when you put 100 layers on top of each other, that it still yields the same as if you had four. So those are great challenges for the industry and for opportunities for us. So that's the bigger picture. At the same time, to your point, there's a lot of co-ops, LR, S, co-op, and all that going on. We're involved in all of that. If it goes more towards organic, that's a tailwind for us. But the bigger picture is 40 layers going to 80, going to 100.

To try to grow that share.

I don't think anybody would say litho metrology, especially in won't be important to semi right. It will always be important to semi always be a key component of semi and I think maybe stepping back a little bit the strategy from Hess is too.

Speaker #7: Thank you .

Speaker #3: Yeah , we have talked about , you know , world class optics . This is our effort to gain more presence . Obviously in lithium metrology inspection .

Speaker #3: And we've talked about in the past revenue from that sector kind of going from 150 million to 300 million because we invested in it .

To be foundational technology supplier to the entire industry.

So in one decade Dep etch is more important because of the multi patterning. The next decade EV takes over and the film metrology, especially become a little more important and from an NK standpoint, we kind of hope that.

Speaker #3: And as you know , litho metrology inspection is a little flatter . This past year . And , you know , so we're not immune to the cycles , but the cycles are more muted than in deep etch .

All all the markets grow, but if something shifts there.

Speaker #3: But we're really happy with some of the really difficult things that we have been asked to do . And delivered on that are now integral to some of the most advanced lithography machines in the world .

And then we can we don't have to worry about it shifting away from what we were doing.

Thanks, Tom.

Michael Manny: Right. That's good detail. And. Just listening to some of the OSATs, this is being driven by compute right now, which is high growth, but smaller unit volume maybe. But at some point, this likely transitions to PC or mobile, higher volume applications. Is that your understanding? And any view on timeline of when that could happen?

Thanks, Matt.

Speaker #3: So we will continue to invest there and continue to to try to grow that share . I don't think anybody would say litho metrology and won't be important to semi right .

Thank you.

Your next question comes from the line of Steve Barker with Keybanc capital markets. Your line is now open.

Speaker #3: It will always be important to semi always be a key component of semi . And I think maybe stepping back a little bit , the strategy for Mxs is to to be a foundational technology supplier to the entire industry .

Thanks, Good morning.

John you alluded to some of this already I think but we've been reading that co los or other packaging formats are evolving from organic inner poser to RTL from your perspective is not just switching from one format you enable to another or is that evolution. Good for you due to more layers are smaller features.

John Lee: Yeah. I think our view is consistent with the industry is that as. Inferencing goes out to PCs and phones and whatnot, the chips will be bigger and more complicated. There'll be more chips that need to be integrated together. And therefore, there'll be more layers of PCBs or substrates underneath. So that still has not really happened much yet, Steve. And so. That's a huge potential growth driver for us. And I think everybody's working hard to make sure that things. That AI drives this inferencing need. So think TBD, but we're optimistic that that will happen or some form of that will happen.

Speaker #3: So in one decade , depth is more important because it's multi-patterning the next decade , EUV takes over and lithium inspection become a little more important .

Speaker #3: And , you know , from an MK standpoint , we kind of hope that , you know , all the all the markets grow , but if something shifts , then we can we don't have to worry about it shifting away from what we're doing .

Yes, I think the industry is certainly working hard on various configurations or.

This redistribution layer the RTL theyre using co op Cos Oracle upheld.

And then even co work right.

Speaker #7: Thanks , John .

So I would say this that Rd out layers more complex as we move to organic layers. That's good for us that's our traditional strength organic layers versus silicon.

Speaker #3: Thanks , Matt .

Speaker #1: Thank Thanks .

Speaker #1: you . Your next question comes in line of Steve Barker with KeyBanc Capital Markets . Your line is now open .

And when you go to organic layers, the <unk> increased a little bit maybe from.

Michael Manny: Got it. Thanks.

Speaker #11: Good morning John . You you alluded to some of this already . I think , but we've been reading that COAs or other packaging formats are evolving from organic Interposer to RDL from your perspective , is that just switching from one format you enabled to another , or is that evolution good for you due to more layers or smaller features ?

John Lee: Thanks, Steve.

Operator: Thank you. Your next call or excuse me, your next question comes on the line of David Lu with Mizuhu. Your line is now open.

One layer to two or three.

So that's good for us, but I think the bigger picture or the 40 layers beneath that that are all the substrates on pcbs and thats really the largest growth factor for us.

John Lee: Hi. I'm Farvijay. Thanks for letting me ask a question. Maybe the first one on. Revenue by geo. Can you just highlight what types of trends you're looking at. Split by geo? I know your customers mentioned some. Write-offs, but there's also maybe some tailwinds in the US. Yeah.

And that used to be 20 layers now its 40 as.

As we visit customers.

Speaker #3: Yeah , I think the industry is certainly working hard on various configurations for this redistribution layer . The RDL layer using Koas R L and then even co-op right on TV .

We work with our customers they are already looking at eight layers.

Players so think about that.

It's gone from 20 to 40, just in the last couple of years and we're working on 80.

And the one after that is you know three three digits, let's put it that way it took a number of layers. Each of these layers may one at a time.

John Lee: Hey, Dave, just to make sure I understand your question, you wanted some. Color on revenue by geography?

Speaker #3: So I would say this that RDL layer is more complex as we move to organic layers . That's good for us . That's our traditional strength .

John Lee: Yeah. Just what you're seeing in terms of the. Demand trends by geo. Yeah.

You can imagine the challenges of yield making sure that when you put 100 layers on top of each other that still yields the same as if you had four.

Speaker #3: Organic layers versus silicon . And when you go to organic layers , the RDL layers increase a little bit , maybe from one layer to 2 or 3 .

John Lee: Yeah. Well, certainly. A lot of. Asia is driving a lot of the growth, for sure. But as you know. Some of that's coming back to the United States as well as to Japan and Europe as people start onshoring chip fabs and packaging fabs for that matter. But I think the other larger geographic trend is. China plus one trend. As things move to. Southeast Asia. As you know, we are building. Some factories in Southeast Asia to meet that demand. Because our customers are moving there. So I think there is a lot of geographic movement. In the industry today, especially the packaging industry, but also the chip industry, as you see fabs coming up in the United States, Europe, Japan, and potentially India as well.

So those are great challenges for the industry and for opportunities for us.

So that's the bigger picture.

Speaker #3: So that's good for us . But I think the bigger picture are the 40 layers beneath that , that are all the substrates and PCBs .

At the same time to your point, there's a lot of co S. L. R. S co ops and all of that going on.

Speaker #3: And that's really the largest growth factor for us . And that used to be 20 layers . Now it's 40 . As we visit customers , as we work with our customers , they're already looking at 80 layers .

We are involved in all of that if it goes more towards organic.

That's a tailwind for us, but the bigger picture is 40 layers going to 80 going 100.

Right.

The detail and.

Speaker #3: So think about that . It's gone from 20 to 40 just in the last couple of years . And we're working on 80 .

And just listening to some of those that are this is being driven by compute right now which is high growth, but smaller unit volume, maybe but at some point this likely transitions to like PC or mobile higher volume applications is that your understanding.

Speaker #3: And the one after that is , you know , three , three digits , let's put it that way in terms of number of layers .

Speaker #3: Each of these layers is made one at a time . You can imagine the challenges of yield , making sure that you know , when you put 100 layers on top of each other , that it's still yields the same as if you had four .

Any view on like timeline of when that could happen.

Yes, I think our view is consistent with the industry is that as as inferencing goes out to Pcs and phones and whatnot.

Speaker #3: So those are great challenges for the industry and for opportunities for us . So that's the bigger picture . At the same time , to your point , there's a lot of co-ops LR s co-op and all that going on .

John Lee: Okay. And then, I don't know, any comment on the recent rumors of potentially selling the specialty coating divestiture?

The chips will be bigger and more complicated there'll be more chips that need to be integrated together and therefore there'll be more layers of pcbs are substrates underneath so that's still has not really happened much yet Steve.

Speaker #3: We're involved in all of that . If it goes more towards organic , that's a tailwind for us . But the bigger picture is 40 layers going to 80 , going to 100 .

John Lee: Well, we're aware of those articles, but we really don't comment on market speculation, Dave.

So.

So that's a huge potential growth driver for us and I think everybody is working hard to make sure that things.

John Lee: Got it. Okay. Thank you so much.

Speaker #11: Right . That's that's good detail . And and just listening to some of the stats are this is being driven by compute right now which is high growth .

AI drives this inferencing need so think TBD, but we're optimistic that that will happen or some form of that will happen.

Operator: Thank you. Your next question comes on the line of Joe Quattrocci with Wells Fargo. Your line is now open.

Speaker #11: But smaller , you know , unit volume maybe . But at some point this likely transitions to like PC or mobile . Higher volume applications .

Joe Quattrocci: Yeah. Thanks for taking the question. Maybe one on the Semi side. Given the entity list affiliate rule, looks like it's delayed. Have you seen any change in order patterns or discussions with your customers?

Got it thanks.

Thanks, Steve.

Thank you.

Speaker #11: Is that your understanding and any view on like timeline of when that could happen ?

Your next call excuse me. Your next question comes from line of David Loeb with Mizuho. Your line is now open.

Speaker #3: Yeah , I think our view is consistent with the industry . Is that as as inferencing goes out to PCs and phones and whatnot , the chips will be bigger , more complicated , they'll be more chips that need to be integrated together , and therefore there'll be more layers of PCBs or substrates underneath .

Hi, I'm, sorry, Vijay Thanks for letting me ask the question maybe the first one on revenue by geography, and just highlight.

John Lee: Yeah. Thanks for the question, Joe. Not really, because I think when that rule came out. We didn't have—I don't think the industry had time to react. But some of our customers have said the impact is X, Y, and Z. But now it's delayed. So as you know, the tariff environment is kind of a wake-up every day, and it changes. So we really haven't had any kind of different discussions with our customers based on that specific rule.

Types of trends Youre looking at.

Split by Geo I know your customers you mentioned some.

Write offs, but there's also maybe some pellets in the U S.

Speaker #3: So that's still has not really happened much yet . Steve . And so so that's a huge potential growth driver for us . And I think everybody's working hard to make sure that things that AI drives , this inferencing need .

Yes.

Hey, Dave just to make sure I understand your question you wanted.

Some color on revenue by geography.

Yes, just what youre seeing in terms of the demand Trans Nigeria.

Joe Quattrocci: Got it. And then just. Your, I guess, conservative comments in terms of looking at chemical growth into 2026. Is there a particular. End market that you're maybe a little bit more conservative in the outlook for, as it's smartphones or PCs, something like that?

Speaker #3: So I think TBD . But we're optimistic that that will happen or some form of that will happen .

Yes.

Well certainly.

A lot of.

Speaker #11: Got it . Thanks .

A lot of Asia is driving a lot of the growth for sure, but as you know.

Speaker #3: Thanks .

Speaker #7: Steve .

Speaker #1: Thank you . Your next call or excuse me , your next question comes a line of David Liu with Mizuho . Your line is now open .

Some of that is coming back to the United States as well as the Japan and Europe as people start onshoring chip Fabs and packaging staffs that matter.

John Lee: Yeah. I would say. The PC and smartphone markets have been stable, if you will, Joe. But there are some things that could drive it higher in the future. We're just not sure if they will. One of which is new form factors for phones, foldables, for instance, more foldables. And the other ones that we talked about earlier, I think when Steve asked the question about. If inferencing cut out to phones and PCs, that certainly would change the outlook in terms of. More of a growth outlook for PCs rather than kind of more stable, which is kind of our assumption.

Speaker #6: Hi , I'm .

Speaker #12: For Vijay . Thanks for letting me ask a question . Maybe the first one on revenue by Geo can just highlight what types of trends you're looking at .

But I think the other larger geographic trend is.

China, plus one trend.

As things move to southeast.

Speaker #12: Split by Geo . I know your customers mentioned some write offs , but there's also maybe some tailwinds in the US . Yeah .

South East Asia.

As you know we are building.

Some factories in southeast Asia to meet that demand.

Because our customers are moving there. So I think there is a lot of geographic movements.

Speaker #3: Just to make sure I understand your question , you wanted some some color on revenue by geography .

In the industry today.

Speaker #12: Yeah . Just what you're seeing in terms of the demand trends by Geo . Yeah , yeah .

The packaging industry, but also the chip industry as you see fabs coming up and I.

I'd say, it's Europe, Japan.

Speaker #3: Well , certainly , you know , a lot of a lot of Asia is driving a lot of the growth for sure . But as you know , some of that's coming back to the United States as well as to Japan and Europe , as people start Onshoring chip fabs and packaging fabs , for that matter .

John Lee: Thanks.

John Lee: Thanks, Joe.

And potentially India as well.

Operator: Thank you. Your next question comes on the line of Mark Miller with the Benchmark Company.

Okay.

And then I don't know of any comment on the recent rumors of potentially selling the specialty.

Mark Miller: Thank you for the question. You noted strengths in depth and etch. Are you getting share in those areas?

Coating divestiture.

Speaker #3: But I think the other larger geographic trend is China plus one trend as things move to Southeast Asia . As you know , we are building some factories in Southeast Asia to meet that demand because our customers are moving there .

Well, we're aware of those articles, but we really don't comment on market speculation David.

John Lee: Yeah. I think we've had a traditional strength there in depth and etch. That's kind of a legacy MKS. Business. I would say this. We've gained. Share in multiple areas. We talked a little bit about. Even dissolved gas. And. As the industry moves towards more advanced nodes like two nanometers, the ability to clean wafers, the ability to do soft etching. And soft cleaning, these are all things that are driving some of our subsystems in the reactive gas part of our business. So we've got a lot of good opportunities there that we've been capitalizing on. And of course. Power for NAND is something that. We are very confident we will hold that share as that grows into higher aspect ratio etching for things like DRAM. And then we're working hard on conductor etch.

Got it okay. Thank you so much.

Yeah.

Thank you.

Your next question comes from the line of Joe <unk> with Wells Fargo. Your line is now open.

Speaker #3: So I think there is a lot of geographic movement in the industry today , especially the packaging industry , but also the chip industry .

Yes, thanks for taking the question maybe one on the on the semi side given the the entity with the affiliate rule looks like it's delayed have you seen any change in order patterns or discussions with your customers.

Speaker #3: As you see fabs coming up in , you know , United States , Europe , Japan and potentially India as well .

Yeah. Thanks for the question Joe.

Not really because I think when that rule came out.

Speaker #12: Okay . And then I don't know any comment on the recent rumors of potentially selling the specialty coating divestiture .

We didn't have.

The industry had time to react.

But some of our customers have said the impact is X y and Z.

But now it's delayed so as you know the tariff environment is kind of a wake up every day and change.

Speaker #3: Well , we're aware of those articles , but we really don't comment on market speculation . Dave .

Changes so we really haven't had any kind of different discussions with our customers based on that specific rule.

Speaker #12: Got it . Okay . Thank you so much .

John Lee: And we have some great solutions there that our customers have told us are industry-leading.

Speaker #1: Thank you. Your next question comes from the line of Joe Quatrochi with Wells Fargo. Your line is now open.

Got it and then just.

Mark Miller: I was wondering if you could give us some color on lasers and your outlook for next year from the laser business.

Sure.

I guess conservative comments in terms of looking at like chemical growth into 2026 is there a particular end market that you're maybe a little bit more conservative in the outlook for the smartphones or <unk> something like that.

Speaker #12: Yeah . Hi .

Speaker #7: Thanks for .

Speaker #10: Taking the questions .

John Lee: Yeah. Lasers have been a little muted because, as you know, lasers are used in industrial applications, and industrial applications have been more muted in the last couple of years. PMI is still kind of hovering around that 50 or a little below. So I think we really have to see a change in that. Mark before we would kind of see the lasers part of our business grow.

Speaker #13: Maybe one on the on the semi side given the the entity List affiliate rule , looks like it's delayed . Have you seen any change in order patterns or discussions with your customers ?

Yes, I would say.

The PC and smartphone markets have been stable if you hold Joe.

Speaker #3: Yeah . Thanks for the question , you know , not really , because I think when that rule came out , you know , we didn't have I don't think the industry had time to react .

But there are some things that could drive it higher in the future. We're just not sure. If they will one of which is new form factors for phones multiples for instance, more foldable.

Speaker #3: But , you know , some of our customers have said , you know , the impact is X , Y and Z , but now it's delayed .

Mark Miller: Thank you.

And the other ones that we talked about earlier I think what Steve Steve asked the question about.

John Lee: Thanks, Mark.

Speaker #3: So as you know , the tariff environment is kind of a wake up every day . And you know , it changes . So we really haven't had any kind of different discussions with our customers based on that specific rule .

Operator: Thank you. As a reminder, if you'd like to ask a question, please press star 11 on your telephone and wait for your name to be announced. Thank you. Your next question comes on the line of Jim Schneider with Goldman Sachs. Your line is now open.

If inferencing cut out two phones and Pcs that certainly would be would change the outlook in terms of.

More of a growth outlook for Pcs, rather than kind of more stable, which is kind of our assumptions.

Speaker #13: Got it . And then just , you know , your I guess , conservative comments in terms of looking at like chemical growth into 2026 , is there a particular in market that you're maybe a little bit more conservative in the outlook for the smartphones or PCs ?

Thanks.

Jim Schneider: Good morning. Thanks for taking my question. I was wondering if you could maybe kind of comment on, given all the things we covered earlier with respect to tariffs, how you expect your direct China business to trend directionally heading into next year. What do you expect it to be, sort of up, down, or flat-ish?

Thanks, Joe.

Thank you.

Your next question comes from the line of Mark Miller with the benchmark company.

Speaker #13: Something like that ?

Thank you for the question.

Speaker #12: Yeah .

Speaker #3: I would say , you know , the PC and smartphone markets have been stable , if you will . Joe . They but there are some things that could drive it higher in the future .

You noted strength in depth in etch are you getting just getting share in those areas.

John Lee: Yeah. Well, in China, we have two markets that go to China. The semiconductor equipment direct to China, that's out of our numbers. We still sell a little bit there, what's allowed. That's been out of our numbers for a while. We do have the indirect exposure to China through our OEM customers, and that's well known. We also sell, obviously, advanced electronics packaging to customers in China, and that still remains a good portion of our business. Many of those customers are also building new capacity in Southeast Asia, as we talked about earlier. We see that trend. Probably China will be a big part of our business from the packaging standpoint, not so much from the semi-direct standpoint. Things start moving, I think, outside of China from the packaging standpoint.

Yes, I think we've had a traditional strength there in deposition etch, that's kind of our legacy MKS.

Speaker #3: We're just not sure if they will . One of which is , you know , new form factors for phones , foldables , for instance , more foldables and the other ones that we talked about earlier .

Our business I would say this we gained.

Speaker #3: I think what Steve's asked , Steve asked the question about if inferencing got to phones and PCs . That certainly would be would change the outlook in terms of more of a growth outlook for PCs rather than kind of more stable , which is kind of our assumption .

Sure and multiple areas, we talked a little bit about.

Even dissolved gas.

And as the industry moves towards more advanced nodes like two nanometer the ability to clean.

Wafers the ability to do saw itching.

And Sop cleaning. These are all things that are driving some of our subsystems.

Speaker #12: Thanks .

Speaker #3: Thanks , Joe .

Speaker #1: Thank you . Your next question comes in line of Mark Miller with

<unk> reactive gas part of our business.

<unk> got a lot of good opportunities there that we've been capitalizing on and of course.

Power for NAND is something Thats.

We are very confident we will hold our share and as that grows into higher aspect ratio, reaching for things like DRAM and then we're working hard on conductor etch.

Speaker #3: think we've had a traditional strength there in deposition Edge . That's kind of a legacy . Mxs business . I would say this , you know , we've gained share in out multiple areas .

Jim Schneider: Thank you. Maybe relative to your leverage target, you've talked consistently about two times in 2027. Maybe talk about sort of the level of urgency to get there. Could you achieve it perhaps a little bit earlier than that? Maybe talk about some of the levers you might pull to sort of achieve it. Thank you.

And we have some great solutions, there that our customers have told us are industry leading.

Speaker #3: We talked a little bit about , you know , even dissolved gas and as the industry moves towards more advanced nodes like two nanometer , the ability to clean wafers , the ability to do soft etching and soft cleaning , these are all things that are driving some of our subsystems in the reactive gas part of our business .

I was wondering if you can give us some color on lasers and your outlook for next year for the laser business.

Yes lasers has been a little muted because as you know lasers are used in industrial applications and industrial applications have been more muted in the last couple of years.

Ramakumar Mayampurath: Hi, Jim. This is Ram. I'll take that. We've made great progress in keeping our focus on deleveraging. We paid down $400 million in prepayment this year, following $426 million in prepayment we did last year. That remains our focus. Our capital allocation strategy has not changed: investing in our business and then paying our debt down. That's been our focus. In terms of accelerating that, the best way to do that will be with our current cost structures. When we see the top line come back to more normal levels, we will be able to generate more cash and accelerate our debt payment. 2.5, you're right, is the net leverage target we want to get to, and that's our goal. I don't want to speculate on a time when we'll get there, but 2.5 is our net leverage target.

PMI is still kind of hovering around the 50 or a little below.

So I think we really have to see a change in that mark before we would kind of.

Speaker #3: So we've got a lot of good opportunities there that we've been capitalizing on . And of course , you know , power for Nand is something that's , you know , we are very confident we will hold that share .

See the lasers are part of our business growth.

Thank you.

Thanks Mark.

Speaker #3: And as that grows into higher aspect ratio etching for things like Dram . And then we're working hard on conductor etch . And we have some great solutions there that our customers have told us are industry leading .

Thank you.

Reminder, if you'd like to ask a question. Please press star one on your telephone and wait for your name to be announced thank you.

Your next question comes from the line of Jim Schneider with Goldman Sachs. Your line is now open.

Speaker #14: I was wondering if you could give us some color on lasers and your outlook for next year from the laser business ?

Got it.

Good morning, Thanks for taking my question I was wondering if you could maybe kind of comment on given all the.

Speaker #3: Yeah , lasers has been a little muted because as you know , lasers are used in industrial applications and industrial applications have been more muted in the last couple of years .

Things recover earlier with respect to tariffs how do you expect your your direct China business to trend Directionally heading into next year, what do you expect it to be sort of up down or flat ish.

Jim Schneider: Thank you.

Speaker #3: PMI is still kind of hovering around that 50 or a little below . So I think we really have to see a change in that mark .

Operator: Thank you. I'm showing no further questions at this time. I would now like to turn it back to. Paratosh Mizra. For closing remarks.

While in China, we have two we have two markets that I go to China the semiconductor.

Speaker #3: Before we would kind of , you know , see the lasers part of our business grow .

Equipment direct to China that that's out of our numbers, we still saw a little bit there.

Joe Quattrocci: Thank you all for joining us today and for your interest in MKS. Kathy, you may close the call, please.

Speaker #14: Thank you .

Speaker #3: Thanks , Mark .

<unk>.

That's been out of our numbers for a while so we do have indirect exposure to China based through our OEM customers and that's well known.

Speaker #1: Thank you . As a reminder , if you'd like to ask a question , please press star one one on your telephone and wait for your name to be announced .

But then we also sell obviously.

Speaker #1: Thank you . Your next question comes from the line of Jim Schneider with Goldman Sachs . Your line is now open .

Advanced electronics packaging.

Two customers in China.

And that still remains a.

Speaker #15: Good morning . Thanks for taking my question . I was wondering if you could maybe kind of comment on , given all the things we covered earlier , with respect to to tariffs , how you expect your your direct China business to trend directionally heading into next year , what do you expect it to be sort of up , down or flat ish .

A good portion of our business, but many of those customers are also building new capacity in southeast Asia as we talked about earlier, so we see that trend probably China will be a big part of our business from.

From a packaging standpoint, not so much from the semi direct standpoint.

And then things start moving I think outside of China from a packaging standpoint.

Speaker #3: Yeah . Well in China we have two . We have two markets that go to China . The semiconductor equipment direct to China .

Thank you and then maybe.

Relative to your leverage target you've talked consistently about two times in 2027, maybe talk about sort of the level of urgency to get there could you achieve it perhaps a little bit earlier than that and maybe talk about some of the levers you might pull to sort of achieve thank you.

Speaker #3: That's out of our numbers . We still sell a little bit there . What's allowed . But that's not that's been out of our numbers for a while .

Speaker #3: So we do have the indirect exposure to China based through our OEM customers . And that's that's well known . But then we also sell obviously advanced electronics packaging to customers in China .

Hi, Jim This is Rob I'll take that so so we've made great progress.

In keeping our focus on deleveraging we paid down.

Speaker #3: And that still remains a good portion of our business. But many of those customers are also building new capacity in Southeast Asia.

$400 million prepayment this year, that's following 426 million prepayment we did last year.

Speaker #3: As we talked about earlier . So we see that trend probably China will be a big part of our business from the packaging standpoint , not so much from the semi direct standpoint .

And that remains.

Our focus on our capital allocation strategy has not changed investing in our business and then paying our debt down that's been our focus.

Speaker #3: And then things start moving . I think outside of China , from the packaging standpoint .

In terms of accelerating that's the best.

Way to do that will be.

Speaker #15: Thank you . And then maybe relative to your leverage target , you've talked consistently about two times in 2027 , maybe talk about sort of the level of urgency to get there .

With our current cost structures when received the top line come back to more normal levels, we will be able to generate more cash and accelerate our payments.

Speaker #15: Could you achieve it perhaps a little bit earlier than that ? And maybe talk about some of the levers you might pull to sort of achieve it ?

To find the right is the net leverage target, we want to get too.

And Thats our goal I don't want to speculate on a time when we will get there, but two five years, our net leverage target.

Speaker #15: Thank you .

Speaker #2: Hi , Jim , this is I'll take that . So , so we've made great progress in keeping our focus on deleveraging . We paid down $400 million in prepayment this year .

Yes.

Okay.

Thank you.

I'm showing no further questions at this time it seems like now like to turn it back to <unk> Misra.

Speaker #2: That's following 426 million prepayment we did last year . And that remains our focus . Our capital allocation strategy has not changed . Investing in our business and then paying our debt down .

For closing remarks.

Thank you all for joining us today and for your interest in MKS I can't see you may close the call. Please.

Speaker #2: That's been our focus in terms of accelerating that . The best way to do that will be with our current cost structures . When we see the top line come back to more normal levels , we will be able to generate more cash and accelerate our debt payment .

Speaker #2: 2.5 you're right , is the net leverage target we want to get to , and that's our goal . I don't want to speculate on a time when we'll get there , but 2.5 is our net leverage target .

Speaker #15: You .

Speaker #1: Thank you . I'm showing no further questions at this time . I would now like to turn it back to Paretosh Misra for closing remarks .