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MKS INSTRUMENTS INC (MKSI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $935M, GAAP diluted EPS $1.33, and non-GAAP diluted EPS $2.15; all exceeded the midpoints of prior Q4 guidance ranges, with adjusted EBITDA at $237M and margin 25.3% .
  • Mix-driven gross margin was 47.2% (down sequentially on higher equipment mix), while non-GAAP operating margin held at 21.3%; free cash flow was $125M (13% of revenue) .
  • Management introduced Q1 2025 guidance: revenue $910M ± $40M, GAAP EPS $0.63 ± $0.28, non-GAAP EPS $1.40 ± $0.27, adjusted EBITDA $217M ± $23M, gross margin ~46.5% ± 100bps, OpEx $255M ± $5M, tax rate ~22%, with semiconductor $400M ± $15M and specialty industrial $265M ± $15M; E&P expected down ~4% q/q on Lunar New Year seasonality .
  • Deleveraging continued: year-end cash $714M, long-term debt (net) $4.49B, and net leverage 4.3x TTM; January repricing and $100M prepayment further reduce interest expense run-rate by ~$15M annually .

What Went Well and What Went Wrong

What Went Well

  • Non-GAAP EPS ($2.15) and adjusted EBITDA ($237M, 25.3% margin) both came in above the guidance midpoints; revenue ($935M) was also above midpoint, driven by stronger semiconductor and E&P end markets .
  • Semiconductor revenue rose 6% q/q and 10% y/y on DRAM and logic foundry demand; optics design wins and back-end laser orders support future outperformance in lithography, metrology, inspection and HBM-related applications .
  • Deleveraging actions (repricings, voluntary prepayments) and improved operating efficiency reduced annual interest expense run-rate by >$130M vs prior year; January actions add ~$15M more annual interest savings .

What Went Wrong

  • Gross margin dipped sequentially to 47.2% on higher equipment mix and lower chemistry mix; management guided Q1 gross margin lower again (~46.5% ± 100bps) due to seasonality .
  • Specialty Industrial revenue declined 2% q/q and 8% y/y on broader industrial softness; Q1 guidance implies a further ~6% q/q decline .
  • NAND remains at historically low levels despite “green shoots”; recovery trajectory depends on upgrade activity and potential greenfield capacity additions, leaving near-term upside uncertain .

Financial Results

Quarterly Progression (oldest → newest)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$887 $896 $935
GAAP Diluted EPS ($)$0.33 $0.92 $1.33
Non-GAAP Diluted EPS ($)$1.53 $1.72 $2.15
Gross Margin (%)47.3% 48.2% 47.2%
Non-GAAP Operating Margin (%)21.7% 21.8% 21.3%
Adjusted EBITDA ($USD Millions)$228 $232 $237
Adjusted EBITDA Margin (%)25.7% 25.9% 25.3%
Free Cash Flow ($USD Millions)$96 $141 $125

Year-over-Year (Q4 2023 vs Q4 2024)

MetricQ4 2023Q4 2024
Revenue ($USD Millions)$893 $935
GAAP Diluted EPS ($)$(1.02) $1.33
Non-GAAP Diluted EPS ($)$1.17 $2.15
Gross Margin (%)46.0% 47.2%

Segment Revenues (oldest → newest)

Segment Revenue ($USD Millions)Q2 2024Q3 2024Q4 2024
Semiconductor$369 $378 $400
Electronics & Packaging$229 $231 $254
Specialty Industrial$289 $287 $281

KPIs (oldest → newest)

KPIQ2 2024Q3 2024Q4 2024
Cash & Equivalents ($USD Millions)$850 $861 $714
CapEx ($USD Millions)$26 $22 $51
Long-term Debt, net ($USD Millions)$4,832 $4,758 $4,488
Short-term Debt ($USD Millions)$50 $50 $50
Net Leverage (TTM, x)——4.3x

Guidance Changes

Q4 2024 Guidance vs Actual

MetricQ4 2024 Guidance MidpointQ4 2024 ActualResult
Revenue ($USD Millions)$910 $935 Beat
Non-GAAP Diluted EPS ($)$1.95 $2.15 Beat
Adjusted EBITDA ($USD Millions)$226 $237 Beat

Q1 2025 Guidance Introduced

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q1 2025N/A$910 ± $40 Introduced
GAAP Diluted EPS ($)Q1 2025N/A$0.63 ± $0.28 Introduced
Non-GAAP Diluted EPS ($)Q1 2025N/A$1.40 ± $0.27 Introduced
Adjusted EBITDA ($USD Millions)Q1 2025N/A$217 ± $23 Introduced
Gross Margin (%)Q1 2025N/A~46.5% ± 100bps Introduced
OpEx ($USD Millions)Q1 2025N/A$255 ± $5 Introduced
Tax Rate (%)Q1 2025N/A~22% (Q1); FY 19–21% Introduced
Semiconductor Revenue ($USD Millions)Q1 2025N/A$400 ± $15 Introduced
Electronics & PackagingQ1 2025N/A~4% q/q decline Introduced
Specialty Industrial Revenue ($USD Millions)Q1 2025N/A$265 ± $15 Introduced
Dividend ($/share)Q4 2024$0.22 (Q3 paid) $0.22 (Q4 paid) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
AI/technology initiatives (optics, lasers, chemistry)Emphasis on broad portfolio enabling chipmaking and advanced electronics; strong execution despite muted demand Increased customer engagement with world-class optics; back-end laser wins; chemistry solutions for advanced packaging in AI era Improving
Supply chain/inventory dynamicsFocus on prudent cost control and operating efficiency DRAM/logic normalizing at customers; NAND inventory burn “green shoots,” but still low base Stabilizing with early recovery signs
Tariffs/regulatory (BIS, import tariffs)Not highlightedQ1 guide assumes immaterial impact from new U.S. import tariffs; minimal direct China semi exposure; indirect impacts tied to customers Manageable risk
Product performance (world-class optics)Outperformance vs WFE subsegment over time Healthy pace of design wins; upgrades and new programs; capability investments driving stickier wins Strengthening
Regional/seasonality—E&P down ~4% q/q on Lunar New Year; chemistry seasonality reduces mix in Q1 Seasonal headwind
R&D/execution & capacityDebt reprofiling and capex discipline Footprint expansions (Romania, Malaysia, Thailand) to add capacity/resiliency Building capacity
Deleveraging/interest expenseConvertible notes, repricing, prepayments >$130M annual interest savings vs prior year; Jan repricing/prepay adds ~$15M run-rate reduction Improving

Management Commentary

  • “We ended 2024 on a strong note with revenue, gross margin and earnings per diluted share above the midpoint of our Q4 guidance ranges.”
  • “We have reduced our annual interest expense run rate by over $130 million compared to the prior year… [and] made a voluntary principal prepayment in January 2025.”
  • “We saw continued momentum in orders for our chemistry and equipment solutions for advanced MLB, HDI and package substrates related to AI applications.”
  • “We expect first quarter gross margins of 46.5% ± 100 bps… mix is seasonal with Lunar New Year reducing our chemistry mix.”

Q&A Highlights

  • NAND trajectory: New orders beginning; still off a low base; upside hinges on upgrades (higher layer counts) and potential greenfield capacity .
  • WFE outlook: Company historically outperforms WFE by ~200 bps through cycles; design wins and optics portfolio support relative outperformance if mid-single-digit WFE growth occurs .
  • Specialty Industrial: Broad industrial softness persists; near-term guide points to “steady and slightly down”; segment can be lumpy due to mixed end-markets .
  • China/BIS restrictions: Minimal direct China semi exposure; indirect impact tied to customers’ revenue; Q1 guide incorporates current view .
  • Inventory/working capital: Inventory days improving; some strategic component buffers maintained to support future ramps .

Estimates Context

  • Wall Street consensus (S&P Global Capital IQ) for Q4 2024 and Q1 2025 was unavailable at time of retrieval due to provider request limits; therefore, estimate comparisons are not presented. Management’s results and Q4 performance were assessed against the company’s prior guidance midpoints (not against consensus) .

Key Takeaways for Investors

  • Q4 was a clean execution quarter: revenue/EPS/EBITDA all above guidance midpoints; non-GAAP operating margin held above 21% despite mix headwinds; FCF generation remained solid at $125M .
  • Semiconductor momentum in DRAM/logic and optics design wins positions MKSI for relative outperformance as capex normalizes; NAND recovery remains the swing factor .
  • Near-term gross margin headwind in Q1 on seasonal chemistry mix; management points to tailwind as seasonality fades and chemistry proportion normalizes .
  • E&P secular tailwinds from advanced packaging (MLB/HDI/substrates) tied to AI workloads underpin orders; near-term seasonality (-~4% q/q) tempers Q1 .
  • Deleveraging and interest cost reductions are material drivers of EPS/FCF sensitivity; January actions alone reduce annual interest run-rate by ~$15M .
  • Specialty Industrial softness persists; guide implies additional q/q decline; exposure is diversified, making performance lumpy across sub-verticals .
  • Watch catalysts: optics program ramps, back-end laser adoption, chemistry equipment orders, and any signs of NAND greenfield/upgrades; these are likely narrative drivers for shares in 1H–2H 2025 .