MKS Inc. Q3 FY2025 earnings call

• MKS delivered solid third quarter with revenue and EPS in the upper half of guided ranges. Third quarter revenue of $988 million was up 10% year-over-year, driven by strong demand in semiconductor and electronics and packaging end markets. • Net earnings per diluted share totaled $1.93. • Took advantage of improved cash flow to reduce leverage with a $100 million voluntary prepayment of term loan in October. • Uniquely positioned at forefront of accelerating innovation and enabling AI era technologies. • Semiconductor market saw solid revenue growth despite sequential decline due to lower NAND upgrade activity, with expectations of flat fourth quarter semiconductor revenue sequentially but healthy double-digit year-over-year growth for 2025. • Electronics and Packaging market revenue exceeded midpoint of expectations, growing 25% year-over-year, driven by chemistry and equipment businesses, with confidence in proprietary chemistry as key revenue generator. • Specialty Industrial market revenue consistent with stable trends, with sequential improvement in industrial category and healthy design wins in research and defense.

Third quarter revenue of MKS was $988 million. Semiconductor market: Third quarter revenue was $415 million, down 4% sequentially but up 10% year-over-year, accounting for approximately 42% of total revenue. Electronics and Packaging market: Third quarter revenue was $289 million, up 9% sequentially and 25% year-over-year, accounting for approximately 29% of total revenue. Specialty Industrial market: Third quarter revenue was $284 million, up 3% sequentially but down 1% year-over-year, accounting for approximately 29% of total revenue.

• Expect fourth quarter revenue of $990 million, plus or minus $40 million. Semiconductor revenue expected to be $415 million, plus or minus $15 million; Electronics and Packaging revenue expected to be $295 million, plus or minus $10 million; Specialty Industrial market revenue expected to be $280 million, plus or minus $15 million. • Guide gross margin of 46%, plus or minus 100 basis points, with sequential decline due to higher chemistry equipment sales mix and seasonality in chemistry sales, but mitigation actions nearly offset tariff costs dollar for dollar starting in Q4 though tariff will still dilute gross margin by ~50 basis points. • Expect fourth quarter operating expense of $255 million, plus or minus $5 million. • Chemistry equipment revenue poised for record year in 2025, with chemistry revenue being steadier and more predictable.

• Tariff impacts: Although mitigation actions nearly offset tariff costs dollar for dollar starting in Q4, tariff will continue to dilute gross margin in Q4 and moving forward by approximately 50 basis points. • Market environment uncertainties: Changes in rules or market trends in regions like China could impact business performance.

Q: 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?

A: 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 4 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 even 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.

Q: Melissa Weathers: 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 chemistries flow-through into 2026 after all the strong equipment sales?

A: 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, single -- 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. 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 the chemistry that goes with it will help us get to those longer-term targets.