Executive Summary

Q2 revenue was $887M (high end of guidance), Non-GAAP diluted EPS $1.53 and Adjusted EBITDA $228M; results benefited from stronger in-quarter demand conversion in Semiconductor and Electronics & Packaging and lower OpEx versus plan .
Gross margin remained robust at 47.3% despite start-up costs in Photonics; GAAP EPS was $0.33, with ~$0.14/share tailwind from interest savings following the May convertible and Term Loan B paydown .
Q3 guidance: revenue $870M ± $40M, Adjusted EBITDA $206M ± $23M, Non-GAAP EPS $1.43 ± $0.28; segment mix guided to slight sequential declines in Semi and E&P; Specialty Industrial flat .
Balance sheet actions are a key stock catalyst: $1.4B 1.25% converts in May, $110M voluntary term loan prepayment and loan repricing in July, reducing annualized cash interest by ~$17M and positioning net leverage (4.6x) to improve as end markets recover .

What Went Well and What Went Wrong

What Went Well

Strong execution drove upside: revenue at the high end, Adjusted EBITDA above guidance, and OpEx below expectations due to lower compensation/benefit costs and third-party spend timing .
Management quote (CEO): “Revenues of $887 million were at the high end of our guidance while Adjusted EBITDA exceeded the upper end of that same guidance” .
Early synergy/design wins: strategic photonics win tied to world-class optics, plus initial chemistry design wins in E&P, showing the combined laser/chemistry value proposition .

What Went Wrong

Specialty Industrial revenue fell ~7% sequentially, below guidance expectations, reflecting softness in certain vacuum and photonics categories despite stable automotive GMF chemistry .
Photonics gross margin headwind from start-up costs for the strategic optics program; manufacturing efficiency and cycle times are expected to normalize as volumes ramp .
Market demand remains muted; NAND recovery pushed out, leaving Semi bouncing along the bottom and reducing visibility given shorter lead times and higher in-quarter conversions .

Financial Results

Consolidated P&L and Margins

Metric	Q2 2023	Q1 2024	Q2 2024
Total Net Revenues ($USD Millions)	$1,003	$868	$887
GAAP Diluted EPS ($)	$(26.47)	$0.22	$0.33
Non-GAAP Diluted EPS ($)	$2.71	$1.18	$1.53
Gross Margin % (GAAP/Non-GAAP)	46.9%	47.8%	47.3%
Operating Margin % (GAAP)	(169.1%)	12.2%	14.4%
Operating Margin % (Non-GAAP)	22.6%	20.2%	21.7%
Adjusted EBITDA ($USD Millions)	$265	$217	$228
Adjusted EBITDA Margin %	26.4%	25.0%	25.7%
GAAP Net Income ($USD Millions)	$37	$15	$23

Notes: Q2 2023 comparatives are distorted by the ransomware recovery and impairment charges; MKSI also updated Adjusted EBITDA definition in Q4’23 to exclude other (income) expense, net .

Segment Revenues

Segment Revenue ($USD Millions)	Q2 2023	Q1 2024	Q2 2024
Semiconductor	$441	$351	$369
Electronics & Packaging	$225	$208	$229
Specialty Industrial	$337	$309	$289
Total	$1,003	$868	$887

KPIs and Operating Items

KPI / Item	Q2 2023	Q1 2024	Q2 2024
Free Cash Flow ($USD Millions)	$(77)	$49	$96
Non-GAAP Operating Expenses ($USD Millions)	$243	$240	$227
Cash, Cash Equivalents & Short-term Investments ($USD Millions)	$757	$846	$851
Gross Debt ($USD Billions)	—	~$4.9	~$5.0
Net Leverage (x, TTM Adj. EBITDA)	—	4.3x	4.6x
Dividend per Share ($)	$0.22	$0.22	$0.22

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($USD Millions)	Q3 2024	N/A	$870 ± $40	New
Adjusted EBITDA ($USD Millions)	Q3 2024	N/A	$206 ± $23	New
Non-GAAP EPS ($)	Q3 2024	N/A	$1.43 ± $0.28	New
Gross Margin (%)	Q3 2024	N/A	46.5% ± 100 bps	New
Operating Expenses ($USD Millions)	Q3 2024	FY’24 run-rate $240–$250 per quarter	$235 ± $5 (Q3); $235 run-rate for Q4	Lowered run-rate
Tax Rate (%)	Q3 2024 / FY 2024	~23% (Q2 guide); ~20% FY	~16.5% Q3; ~20% FY	Lower Q3
Segment Revenue – Semiconductor ($USD Millions)	Q3 2024	N/A	$360 ± $15	New
Segment Revenue – E&P ($USD Millions)	Q3 2024	N/A	$220 ± $10	New
Segment Revenue – Specialty Industrial ($USD Millions)	Q3 2024	N/A	$290 ± $15	New
Dividend	Ongoing	$0.22 declared Q1/Q2	$0.22 declared Aug 6, 2024	Maintained

Additional balance sheet actions: $1.4B 1.25% converts (May) and $110M voluntary prepayment with repricing (July), reducing USD/EUR Term Loan B margins by 25 bps; annualized cash interest savings ≈$17M .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2023 and Q1 2024)	Current Period (Q2 2024)	Trend
AI-related Semi & Packaging demand	Logic/lithography/inspection remained robust; AI viewed as secular driver; HDI laser systems orders tied to AI began to appear	Early signs of DRAM/Logic/Foundry improvement; AI servers driving E&P chemistry/equipment sequential growth; AI PCB proportion rising but still small	Improving but gradual
NAND cycle & inventory	NAND WFE at historically low levels; inventory burn-down needed before CapEx returns	NAND recovery pushed out; still bouncing along the bottom; node upgrade could aid burn-down	Recovery delayed
World-class optics (Photonics)	Momentum in lithography/metrology/inspection optics; PSD semi strong	Strategic photonics win; start-up costs pressure PSD gross margin near term; ramp over several quarters	Positive LT; near-term margin headwind
E&P chemistry vs equipment	Q1: chemistry up YoY ex-FX/palladium; equipment lumpy; flex drilling muted; HDI slightly better	Q2: chemistry is main driver; equipment also higher sequentially; Q3 guide: chemistry up, equipment down slightly	Chemistry steady; equipment lumpy
Specialty Industrial stability	Q4: generally stable; some R&D/defense softness	Q2: sequential decline ~7%; guidance for Q3 in line; defense noted as a bright spot	Lumpy; broadly stable
Balance sheet, interest & leverage	Refinanced Term Loan A; voluntary prepayments; tax rate optimization to ~19–21% long-term	$1.4B converts; repriced USD/EUR TLB; $110M prepay; annualized cash interest down to ~$240M from ~$330M; net leverage 4.6x	Deleveraging; lower interest
Cybersecurity/ransomware impact	Recovery detailed in 2023; distortions in YoY comps	Q2 YoY comparables distorted; normalized from Q3 onward	Lapping distortion

Management Commentary

CEO on Q2 performance: “Our continued execution… drove strong financial results… Revenues of $887 million were at the high end of our guidance while Adjusted EBITDA exceeded the upper end of that same guidance” .
CFO on interest savings and dilution mitigation: “No dilution… until stock price exceeds $237.42… saved over $75M annualized cash interest… repricing in July saves an additional $9M annualized” .
CEO on Semi outlook: “With the exception of NAND, we're seeing early signs of improvement, especially in DRAM and Logic/Foundry in support of AI-related investments” .
CEO on Photonics: “This is a great win… we integrate multiple MKS technologies… slight pressure on our Photonics Solutions division gross margin… until we fully ramp” .
CFO on OpEx: “We expect operating expenses will increase from second quarter levels but remain below our earlier expectations of a $240–$250M run rate… $235M is an appropriate run rate for the fourth quarter as well” .

Q&A Highlights

Gross margin drivers: Product mix (MSD chemistry, VSD, services) supported margins; PSD faced start-up headwinds; Q3 gross margin guided at 46.5% ± 100 bps .
NAND timing: Management sees further delay; bouncing along the bottom; upside when node upgrades resume and inventory burn-down completes .
Visibility: Shorter lead times constrain visibility; Q2 upside reflected unexpected in-quarter conversions; H2 revenues now expected roughly in line with H1 .
E&P mix: Chemistry was the larger driver of Q2 outperformance; Q3 chemistry up slightly, equipment down slightly; AI server demand helping multilayer PCB activity .
Photonics ramp: Strategic optics program will ramp over several quarters; start-up costs normalizing improve margins over time .
Debt and interest: Actions reduce annualized interest from ~$330M to ~$240M; additional savings tied to July repricing .

Estimates Context

S&P Global consensus estimates were unavailable at the time of analysis due to a retrieval limit; therefore, detailed “vs. consensus” comparisons are omitted. Values retrieved from S&P Global.
As a proxy for expectations, MKSI’s Q2 results exceeded company guidance across revenue, Adjusted EBITDA, and Non-GAAP EPS; Q3 guidance implies slight sequential downtick consistent with muted demand and mix headwinds .

Key Takeaways for Investors

Execution and margin quality remained strong: 47.3% gross margin and 21.7% Non-GAAP operating margin in a muted demand environment; OpEx control provides earnings leverage into recovery .
Debt optimization is a material EPS/cash flow catalyst: Converts and repricing drive ~$90M reduction in annualized interest run rate versus start of year, supporting faster deleveraging (net leverage 4.6x) .
Near-term revenue cadence: Q3 guide modestly below Q2; Semi/E&P down slightly, Specialty Industrial flat; mix effects and photonics start-up costs may pressure gross margin near term .
AI benefits are real but gradual: DRAM/Logic uplift and AI server PCB complexity support Semi and E&P; absolute AI contribution still small in PCB relative to overall market .
Watch NAND and equipment orders: NAND inventory clearing and node upgrades are key to a sustainable Semi upturn; shorter lead times mean upside can appear via in-quarter conversions .
Photonics strategic win is a multi-quarter ramp with LT margin/revenue upside; near-term start-up costs should normalize with scale .
Dividend maintained at $0.22; ongoing free cash flow improvement supports deleveraging and potential capital returns as cycle turns .

MKS INSTRUMENTS INC (MKSI)·Q2 2024 Earnings Summary