Good day and thank you for standing by. Welcome to the MKS Instruments' Third Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Paretosh Misra, Vice President of Investor Relations. Please go ahead.

Good morning, everyone. I am Paretosh Misra, Vice President of Investor Relations, and I'm joined this morning by John Lee, President and Chief Executive Officer; Ram Mayampurath, Executive Vice President, Chief Financial Officer and Treasurer; and Michelle McCarthy, Vice President and Chief Accounting Officer. Yesterday, after market close, we released our financial results for the third quarter of 2024, which are posted to our Investor website at investor.mks.com. As a reminder, various remarks about future expectations, plans and prospects for MKS comprise forward-looking statements. Actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release and in our most recent annual report on Form 10-K. These statements represent the company's expectations only as of today, and should not be relied upon as representing the company's estimates or views as of any date subsequent to today, and the company disclaims any obligation to update these statements. During the call, we will be discussing various non-GAAP financial measures. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than revenue and gross margin. Please refer to our press release and the presentation materials posted to the Investor Relations section of our website for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures. Our Investor website also provides a detailed breakout of revenues by end market and division. Now I'll turn the call over to John.

Thanks, Paretosh, and good morning everyone. I'm pleased to introduce and welcome our new CFO, Ram Mayampurath to MKS. Ram joined MKS in October and is actively diving into the business, engaging with our business leaders and already contributing to our strategic initiatives. We're excited to have him on board, and I'm confident his leadership will be instrumental, as we continue to drive growth and execute on our long-term strategy. Ram will share some brief remarks later on this call, and he'll take the lead in discussing our financial results next quarter. Michelle will handle the financial results today, and I'd add that she's done a terrific job for MKS during this transition period. MKS delivered a strong third quarter, with all key financial metrics at or above the high end of our guidance ranges. Our gross margin strength reflects the value of our broad and differentiated product portfolio, including our chemistry revenues, which have supported profitability during a period of muted semiconductor demand. Additionally, our operating margin profile demonstrates our continued cost discipline resulting in continued strong cash flows. We have also made meaningful progress on our highest priority, proactively managing our leverage. During the quarter, we repriced our U.S. dollar at euro term loan Bs, reducing our interest rate by 25 basis points, and we continue to actively pay down our debt supported by our strong free cash flow generation, of over $140 million in the third quarter. These actions bring our year-to-date 2024 prepayments to $426 million. During my recent travels to Asia to meet with customers, we discussed many of the key trends and challenges they must overcome to execute their technology roadmaps, especially as many of them prepare for the next generation challenges in AI-related advancements. As node sizes continue to shrink and technology grows more complex, the importance of our broad portfolio of critical technologies has never been more important, and our customers recognize this. As a result, I came away from these conversations even more confident that our differentiated capabilities will accelerate our customers' roadmaps and lead to their market success. Now I'll review our performance in our three end markets. In our semiconductor market, revenue increased 3% sequentially, and above the high end of our guidance range. Similar to our first half results, this higher revenue trend was primarily driven by in-quarter demand conversion, related to DRAM and logic foundry applications. NAND has remained relatively stable, albeit at historically low levels, and we remain well positioned when that market recovers. Our teams are engaged with equipment OEMs and leading semiconductor fabs in addressing a broad range of technology inflections, such as atomic layer deposition in both logic and memory applications, high aspect ratio etching for memory devices, and selective removal processes for logic gate all-around transistors. Additionally, we continue to advance our strategy to grow segment share in lithography, metrology and inspection. Following the strategic photonics win we talked about last quarter, we recently achieved a design win for our world-class optics initiative, with another customer that further highlights our increasingly differentiated technology capabilities in this attractive segment of the WFE market. In our laser business, we also received an order for a back-end application related to high bandwidth memory, validating the important role that MKS solutions play in AI-related applications. In the fourth quarter, we expect semiconductor revenue to be flattish on a sequential basis. The guidance demonstrates continued stability in DRAM and logic foundry demand, with NAND remaining at low levels. Overall, we remain confident that the work we have been doing in the development of innovative solutions for the next wave of technological advancements positions us well for future success. Turning to electronics and packaging, revenue grew 1% sequentially driven by chemistry sales. Equipment sales were down sequentially in line with our expectations and reflecting typical quarter-to-quarter variations. While demand overall remains muted, we are seeing encouraging order activity including inflexible PCB drilling used in smartphone applications, and for our chemistry and equipment solutions for advanced MLB, HDI and packaged substrates related to AI applications. Our combined expertise in laser drilling, chemistries and chemistry equipment enables our unique role in optimizing the interconnect, which is central to addressing increasingly complex packaging needs in the AI era. These wins are expected to support higher electronics and packaging revenue in Q4, with growth anticipated to be in the low single digits on a sequential basis. In our Specialty Industrial market, revenues decreased approximately 1% sequentially with steady performance in the industrial and research and defense end markets, offset by softness in the life and health sciences market. As a reminder, our Specialty Industrial market consists of a variety of applications across multiple end markets. We leverage our proprietary technologies and R&D investments in the semiconductor and electronics and packaging sectors to provide unique solutions that yield strong incremental margins, and cash generation. Looking ahead to Q4, we expect revenue in our Specialty Industrial market to increase slightly from Q3. In conclusion, we are pleased with our execution and financial performance in the third quarter. Given our strong third quarter results and our fourth quarter outlook, we now expect second half revenue to be up low to mid single digits compared to the first half. Although signs of a recovery have not yet emerged across our end markets, our execution remains solid in the areas we can control. Our strong gross and operating margins have led to solid cash flow generation to support debt reduction throughout a year where our major end markets have been soft. This, along with our design wins and continuous innovation gives me confidence that we are well positioned as markets recover. Now let me turn it over to Ram, to provide some brief remarks, and then Michelle will run through the third quarter financial results in more detail. Ram?

Thank you, John and good morning everyone. I'm very excited to be a part of the MKS team, and I look forward to working with John and the leadership team to execute our strategic plan. It's obviously early days at this point, but let me share a few comments and my initial observations. MKS is a technology-driven secular growth company. The breadth of our product offering and early engagement strategy with customers, combined with the execution capabilities of the MKS team puts the company in an enviable position. We are focused on attractive growth areas that enable today's advanced electronics devices. In the past few weeks I have had a chance to meet many of our employees, and I have tremendous respect for their knowledge of the business and ability to execute. I see great value in the talent, culture and discipline here at MKS. As for my own team, we have a deep bench of finance and accounting professionals, with a mosaic of talent. We have a good mix of several recent hires, with new ideas and capabilities and veterans with in-depth knowledge of MKS. In the coming quarters my focus will be on maintaining our cost discipline and driving profitability. We will continue to maximize cash generation to support our capital allocation strategy, which will primarily be centered around debt management and investing in CapEx to support our business strategy. We will remain focused on improving our overall cost structure to ensure that we are well positioned to take full advantage as the semiconductor and electronics market returns to normal levels of growth. With that, let me turn it over to Michelle to review our financial results for the quarter.

Thank you Ram, and good morning everyone. For the third quarter, MKS reported revenue of $896 million, up 1% sequentially and at the high end of our guidance range, driven by better than expected semiconductor and electronics and packaging revenue. Third quarter semiconductor revenue was $378 million, up 3% both sequentially and year-over-year. The result was above the high end of our expectations. Consistent with the first half of the year we executed on strong in-quarter demand, especially as related to DRAM and Logic/Foundry applications. Third quarter electronics and packaging revenue was $231 million, an increase of 1% quarter-over-quarter and also above the high end of our expectations. This result was led by seasonal strength in chemistry, partially offset by lower equipment sales which were in line with our expectations. On a year-over-year basis, sales were down 5% primarily due to palladium prices as well as natural variability in our equipment business. Excluding the impact of FX and palladium pass-through chemistry, sales grew 7% year-over-year, continuing a gradual recovery trend from industry-wide softness. In our specialty industrial market, third quarter revenue was $287 million, a decline of 1% sequentially and just below our guidance midpoint. Revenue was down 11% on a year-over-year basis, primarily due to general industrial weakness. Consistent with the prior quarter we observed minor and mostly offsetting fluctuations throughout the multiple end markets served within specialty industrial. Turning to margins, we reported third quarter gross margin of 48.2% above the high end of our guidance. Gross margin was up sequentially due to product mix as well as operating leverage on higher revenues. We continue to prudently manage our costs with third quarter operating expenses of $237 million coming within our guidance range. We have a strong track record of managing our cost structure throughout market cycles which allows us to balance investing in our business with near-term profitability and cash generation. Looking ahead, we expect operating expenses will increase modestly from third quarter levels due to compensation costs including the timing of new planned hires as well as certain third-party spend. Third quarter operating income was $195 million yielding an operating margin of 21.8%, both well above our guidance driven by strong sales, higher gross margin and prudent operating expense management. Third quarter adjusted EBITDA was $232 million and also above the high end of our expectations with a 25.9% margin. Net interest expense was $53 million, slightly favorable to our guidance of $54 million reflecting a decrease in Euribor rates in the quarter. Third quarter net earnings were $116 million or $1.72 per diluted share, well above our guidance range reflecting the strong operating performance I just detailed and a lower than expected tax rate. Free cash flow was $141 million or nearly 16% of revenue demonstrating the cash flow generation potential of the business. As the top line expands and we continue to prudently manage working capital and operating costs, we expect to see strong flow through to the bottom line and higher cash flows allowing us to accelerate our deleveraging. We closed the third quarter with more than $1.5 billion of liquidity comprised of cash and cash equivalents of $861 million and our undrawn revolving credit facility of $675 million. We exited the quarter with gross debt of $4.9 billion and a net leverage ratio of 4.5 times based on our trailing twelve month adjusted EBITDA of $895 million. We continue to prioritize deleveraging our balance sheet while managing the cash and investment needs of the business. In July we made a $110 million voluntary prepayment on our term loan B in connection with our repricing. Additionally, in October we made another voluntary prepayment of $216 million on our euro-denominated term loan B. These actions underscore our continued focus on debt reduction. To put perspective around the impact of our debt actions this year we entered 2024 with an annual interest expense run rate of approximately $330 million. With the actions we've taken year-to-date and favorable movements in Euribor rates, we have reduced our annual interest expense run rate by one-third for over $100 million to approximately $220 million. Finally, during the third quarter, we paid a dividend of $0.22 per share or $15 million. With that, I'd like to turn the call back over to John who will review our outlook. John?

Thank you, Michelle. Let me now turn to our fourth quarter outlook. We expect revenue of $910 million plus or minus $40 million. By end market, our fourth quarter outlook is as follows: Revenue from our semiconductor market is expected to be $380 million plus or minus $15 million. Revenue from our electronics and packaging market is expected to be $240 million, plus or minus $10 million, and revenue from our specialty industrial market is expected to be $290 million plus or minus $15 million. Based on anticipated revenue levels and product mix, we estimate fourth quarter gross margin of 47%, plus or minus 100 basis points. We expect fourth quarter operating expenses of $240 million, plus or minus $5 million. We estimate adjusted EBITDA of $226 million, plus or minus $23 million. We expect a tax rate of approximately 6% in the fourth quarter, benefiting from certain favorable discrete tax items in the quarter and bringing our full year tax rate to just under 16%. Based on these assumptions, we expect fourth quarter net earnings per diluted share of $1.95, plus or minus $0.32. Our execution has remained strong despite the cyclical challenges in our end markets. We are confident that we are uniquely positioned to capitalize on the opportunities that lie ahead with that. Operator, please open the call for Q&A.

Thank you. At this time, we will conduct the question and answer session. Our first question comes from the line of Matthew Prisco of Cantor. Your line is now open.

Hi, guys. Thanks for taking the questions. I guess maybe to start on your semiconductors business. Can you maybe add some more color on what you're seeing in terms of customer utilization rates, spare business ordering patterns, or anything else that may help inform an early view into 2025 dynamics?

Yes, hi Matt. It's John. Thanks for the question. I think we've continued to see utilization rates pick up. Certainly HBM DRAM utilizations have been great. So we're seeing the same things that many people have talked about. Logic and Foundry at certain customers remain very strong. And then NAND remains muted. So I think, when you think about 2025, I think the views have come down over the year, but it's still generally an up year. And that's not necessarily our opinion. That's what we're seeing from many of our customers and what they're telling us. So I think NAND still remains muted and depends on when that turns. But Foundry logic DRAMs seem to be holding up well and the expectation is that it will hold up well in 2025 as well.

Great. That's helpful. And then would love to hear a little bit more color on your progress in the photonics initiatives. And then also given the pushouts experienced by the largest litho player, how does this change your ramp expectations around your new photonics win and subsequent duration of that margin headwind? Thanks.

Right. So, we talked about last quarter a photonics win. This quarter we talked about another photonics win with a different customer. So this is in the lithography metrology inspection space as you know. Certainly the lead times for those kinds of subsystems as well as of course the systems are much longer than in the vacuum area for WFE. And so short term I don't think there's really any effect, because the lead times are quite long for our stuff as well as their stuff. So longer term, of course market demands will determine what the long-term needs are for critical lithography tools, metrology tools and inspection tools. So I think our point is there's lots of opportunity there to gain share with the technology we provide. We think we're unique because we can bring more tools to the toolbox. Integrating different kinds of technologies together that makes us unique. So longer term, we're still very excited about our growth in the world-class optics initiative as well as the market share gain opportunities in this segment of WFE.

Very helpful. Thank you.

Thank you. Our next question comes from the line of Steve Barger of KBCM. Your line is now open.

Hi, good morning everyone. Looking at the guidance at the midpoint gross margin steps down about 120 basis points sequentially. Is that mix or can you talk through what the swing factors are around that range?

Yes, Steve, thanks for the question. You know it is mix. We expect electronics and packaging revenue to be a little higher next quarter, as we just said, and that a lot of that is driven by equipment. So we did see some promising orders in Q3 for equipment related to AI. And this is equipment that's servicing all segments of the PCB industry. The HDI, the MLB and then the packaged substrate. And as we've talked about in the past, to make an AI board you need the package substrate. Of course, that's the highest density type of most advanced part of the PCB industry. But then you've got to put it on HDI and MOP boards. And so it was quite interesting for us to see some of our customers start ordering for those applications. And so that equipment revenue will flow through into Q4. And as you know, our equipment gross margin is slightly lower than the chemistry. So that's really part of it. That's really that mix.

Got it. So encouraging, but a little lower margin on the equipment. That's good. And maybe a question for Ram. You're coming into a situation where end markets are recovering, but there's still some uncertainty. How are you going to balance cost control versus the market share initiatives that we're talking about inventory levels, just to make sure that service levels are high? Maybe just talk about what you're prioritizing as you go through the next few quarters?

Yes, thanks Steve, that's a great question. I think it's always a balance between meeting your current quarter and forecast guidance and making sure your long-term strategic plan initiatives are well funded and resourced. So we have done a good job in maintaining our cost discipline, and my immediate focus will be to make sure that continues. The margin progression continues and the cash generation that we have demonstrated keeps going, so that we can strengthen our balance sheet with debt management. So those priorities don't change, will remain our focus.

Yes, I would add too Steve, that we're really investing where we think the best opportunities are. So R&D is not starved. We expanded even field service to service, you know, the growing base of equipment as well. So to Ram's point, it's always a balance. But we are certainly very aggressive in putting money into opportunities as we see them. And some examples were RF Power five years ago and world-class optics more recently as well as lasers and other opportunities that come about as the markets change.

Yes, and just to add one more thought to what John just said, we are not starving our CapEx, or we continue to invest in the business both in CapEx and in the P&L like John said. So those activities and focus will continue.

Appreciate the detail. Thanks.

Thank you. Our next question comes from the line of Jim Ricchiuti of Needham & Company. Your line is now open.

Hi, good morning. This is Chris Grenga on for Jim. Thank you for taking the questions. Could you elaborate on what you're seeing from a demand standpoint in some of the primary industrial end markets, in particular automotive? And could you remind us what share of revenue is exclusively for enabling EV type applications?

Thank you. Thanks for the question, Chris. So what we've seen in automotive is certainly more muted and that's not a surprise. It's well documented. Our automotive revenue has been pretty stable though, even in this muted environment. And this is really the GMF business. The kind of brake calipers and decorative type of things that go into cars, both ICE and EV. We haven't broken out EV versus ICE. I think there's a lot of opportunities that arise with EV, such as all the components that go into the battery that require metal coating. So those are opportunities, tailwinds. And then some things go away, such as perhaps as much chrome on the front of the grill. So there are puts and takes. But right now we think that EVs offer a slightly better opportunity for our GMF business. And that's not even adding to the electronics part. So the electronics part for automotive, it's really still not categorized in the automotive part of our business. It's really part of our electronics business. So automotive units are down worldwide, but our business there seems to be holding up pretty steadily.

Thank you. And given some of the concerns that we're reading about in terms of WFE spend in China prospectively, can you offer any sense of how much your business in semiconductor either directly or indirectly is exposed to that region?

Sure. In 2022, October 2022, that's when it affected us the most, because it restricted our ability to sell directly to specific equipment OEM customers in China. We had talked about that publicly to the order of $200 million that was at risk. So those numbers are out of our numbers now. They've been out for two years now. So there's no additional risk besides just the normal WFE market of China. And we're selling indirectly, we're selling to the five big equipment OEMs as well as others. And as they ship to China, then that's where our revenue comes from. So we really look at the exposure as much more in line with the market exposure, not anything particular to MKS.

Great. Thank you very much.

Thanks, Chris.

Thank you. Our next question comes from the line of Jay Rakesh of Mozingo. Your line is now open.

Yes, hi. Thanks for letting me ask a question. Just a couple of questions. When you look at the March quarter, just wondering how you are thinking about the seasonality and then just big picture on 2025 on WFE, based on the puts and takes between the China restrictions and the CHIPS Act, especially the new administration, how are you thinking?

Yes, I think your first part was about any cyclicality or seasonality. Sorry in Q3. There is always a little seasonality to our chemistry business for electronics, because it has that consumer product cycle to it. So chemistry was higher, but it was even higher year-over-year in Q3 as well. So there was that normal seasonality. We kind of expect chemistry to kind of moderate a little bit in Q4 just, because of seasonality. But as you as we just talked about, EMP is up and a lot of that is driven by EMP equipment. So those are the puts and takes of seasonality. With respect to 2025 WFE, I think your question was does the election change anything? And certainly there's a lot of smarter people that can have opinions on that. I would say this: specifically in terms of how the geopolitics will shake out. We have been of the opinion that that's been a bipartisan agreement in terms of how the United States treats that. And so we don't expect any change from the particular semiconductor restrictions. So whatever that was going to be going forward, we don't expect that to change too much.

Got it. And then on the debt side, what are you planning in terms of pay down through '25? I guess in terms of leverage on the balance sheet? Thanks.

Yes, well, we'll certainly be. That's still our number one priority. We will be using excess free cash flow focused to delever. We'll certainly do other things such as repricing and whatnot if it makes sense, if the market allows. So our focus for the next 12 to 18 months, as we've said before, is to really focus on delevering with any excess free cash flow. How much that is, of course, will depend on the markets. As you can see in 2024, with a very muted market for semiconductors and electronics and packaging, our two main markets, we were still able to prepay $426 million. And so there's a lot of leverage in our model. Certainly if revenue were to go up significantly, a lot of that would flow through the free cash flow. As Michelle said, this quarter, it was 16% of revenue free cash flow.

Got it. Thank you.

Thank you. Jay.

Thank you. Our next question comes from the line of Krish Sankar of TD Cowen. Your line is now open.

Hi, thanks for taking my question. John, one of the things you mentioned was you saw strength in semi business in DRAM, Logic and Foundry, not in NAND. Kind of figured out when do you expect to see NAND strength? Because some of your other component peers like Icore said that they're beginning to see NAND strength for their business. I'm kind of curious, is that a lag effect? Have you begun to see anything or is it more of a 2025 event?

Thanks for the question, Krish. Certainly can't comment on what other peers are seeing. We can comment on what we're seeing. And I think what we're saying is still feels very muted. Some customers have talked about upgrades and things like that. And upgrades come in a couple different flavors, right? To upgrade significant increases in layer count, you really need new RF power. But you can also upgrade with smaller changes and that might not require a new RF tech, it might just require chemistry or cryo. So I think that all depends on what the customers see and what their customers want them to do. But right now we see NAND is still pretty muted. So that's all we can say about what we see.

Got it, got it. That's very helpful. A little quick follow up, John, if I remember right, you said that the EMP strength was in flex PCB drilling. I hope I heard it right. Because the question was mainly I thought Flex PCB is mainly used for smartphone end markets, but it seems like that end market hasn't quite recovered. So I'm trying to figure out what drill that strength for you in the quarter on the EMP side and then just wanted to also say that welcome to the team Ram. Hope to interact with you more in the future. Thank you.

Thank you, Krish. Look forward to more conversations.

To answer your question, Krish, there are actually two things that are driving EMP up quarter-on-quarter. It is both the flex equipment, so for smartphones. You're right there. So we did see an increase there in bookings and that's going to turn into revenue in the next quarter or so. And in addition to that we saw an increase in bookings for rigid PCB equipment for chemistry related to AI. So it's actually both that are happening.

Got it. Thank you.

Thank you. Our next question comes from the line of Joseph Moore of Morgan Stanley. Your line is now open.

Hi, this is Shane on behalf of Joe. Thank you for letting me ask a question. My first question is how should we think about the idiosyncratic gross margin, tailwinds and headwinds that you're envisioning for 2025? Thank you.

Yes. Gross margins in 2025, certainly you can see that our gross margins are slightly different by division. Chemistry and the Atotec acquisition has really helped keep profitability up even during a down cycle. So we're really happy about that. And it's improved under MKS the last two years. The gross margin for a particular volume of business at Atotec has improved. That's also the case with PSD, as is the case with VSD. Volume will improve all of them. And so, if 2025 volume is higher, we should expect that 50% gross margin flow through that we talked about in our model. And then of course, the inflationary costs have come down over this year, so the PPV is pretty much balanced now. It's not back to where it used to be, where we can always count on some kind of 1% or 2% lower PPV year-on-year, but some parts of the supply chain and some parts of the materials are getting to that point as well. So right now it's still in balance. And so that could be a tailwind. Of course, if inflation goes up, it's a headwind. So those are the things we think about in terms of gross margin drivers going forward.

Got it. Thank you. My follow up is, so a non-CapEx eventually returns, how is MKSI positioned that customer tools sort of relative to the last up cycle in 2023, 2022? Thank you very much.

Yes. We believe we still have the leadership position for certainly some of the most critical etch in VNAND with ARP power. And so we're pretty confident that the next up cycle that we will enjoy that with our ARP power business. I think you're probably talking about new kinds of power such as Pulsed DC. We're working on that as well as others and that will remain to be seen as to when that gets put into production, but certainly not probably the next cycle.

Thank you.

Thank you. Our next question comes from the line of Joe Quatrochi of Wells Fargo. Your line is now open.

Yes, thanks for taking the questions. I know you guys announced kind of a new semiconductor factory you're building in Malaysia. I'm wondering if you could talk about one, maybe the CapEx kind of requirements there over the next two quarters as we think about excess free cash flow for debt pay down. And then also how do we think about the mix of production? I think a lot of your semi related production capacities located in China.

Yes, Joe. That's a great question. So we announced the groundbreaking in Malaysia for another factory target towards our semiconductor and maybe even photonics types of products. And that's expansion for capacity that we think we will need. It's certainly putting less risk in our footprint, our manufacturing footprint and that's certainly something our customers want to see. So those are the two reasons why we're doing that. In terms of CapEx, I think the way to think about it, Joe, is we've always been in that 3% to 5% level in terms of CapEx spend. So very, very low. Maybe the next year or two it might edge up towards the five because we've got a couple of factories being built for good reasons. But this past year I think we'll be in that 3% range and then it could oscillate between 3 to 5. But still quite a low CapEx intensity model that we have.

That's helpful. And then I guess, I know you guys obviously guided December, but how do we think about it? Is there anything to call out in terms of seasonality into the March quarter?

The March quarter typically sees a slight decline due to consumer product cycles, which is expected in our MSD Atotec business, similar to the increase we observed in Q3. While this is the general expectation, circumstances can shift, particularly with the launch of a new product. Equipment, on the other hand, does not fall under the consumer product cycle; it is more about investment and capacity cycles. This is why we anticipate a rise in Q4 for EMP, driven by both flex and rigid equipment. It remains uncertain what the situation will be in Q1.

Got it. Thank you.

Thanks Joe.

Our next question comes from the line of Melissa Weathers of DB. Your line is now open.

Hi there. Thank you for letting me ask a question and look forward to working with you, Ram. I think I heard in your preamble that you talked about a back-end win for HBM. Can you give us any more color on what that is? How big it can be? And if you expect any other similar wins?

Yes, thanks, Melissa. The HBM win we talked about was lasers. And so lasers can be used, are used to do cutting of chips. That's not news. But HBM type of die, you're putting dyes on top of each other. And so precision and the fineness of the edges, and all that are giving laser makers us opportunities because the more precise you can make those cuts, the better yield you're going to have on those kinds of chips. So. And we called out one particular customer and it's pretty significant, but MKS is pretty big, so. But for the laser group, it's significant and it's not just one customer, so it's multiple customers doing this.

Got it. And then on the advanced logic side, you guys said you saw strength in the quarter there. It's pretty clear that the main player there is seeing strength, but the two kind of second-tier foundries are struggling. So any way that we should think about if that market recedes to just one major player, how would that impact MKS, and how are you de-risking for that dynamic?

Yes, I think we're not too worried about that, Melissa. I think the reason is because we've been in a consolidating industry for 30 years. And so you could argue that, there were 30 chip companies, now they're five, there were dozens of OEMs, now there are five. So, and certainly we want to provide the best value to our customers, but we also want to get paid for the fair value that we bring. And as you can see, our gross margins are in the same zip code, if you will, as our customers and our customers, customers. And I think that's just a corroboration of the value of technology that we bring. And I think all companies that bring this kind of technology, you need those kinds of gross margins so you can invest in the next generation. So we've been able to demonstrate that over 50 years. And so yes, there could be consolidation and whatnot throughout the industry, but we feel that the value of our portfolio is really going to be what determines the gross margin.

Thank you.

Thank you, Melissa.

Hi, thanks for the follow-up. John, when you think about the initiatives around photonics or litho or some of the other growth areas you're targeting, can you talk about how this affects the market opportunity for you, whether it's growth rates or how this affects the TAM longer term?

Yes, I think it's really back to the playbook we've demonstrated over the last 10, 15 years, Steve. The there's only so many ways you can outgrow WFE. And we've demonstrated that we could do that by 200 basis points. And more recently, we've had headwinds. China, right. A lot of that business got removed, and so we had to make it up somewhere else. And so, I think lithography, metrology inspection, that was a great area where as a company, we were less indexed to that than our contribution to the vacuum part of WFE. So that's where we made the investment. And we've demonstrated that we can continue to outgrow even that sub-segment of WFE, and we have been over the last couple of years. So that's just an example of the plan and the playbook of outgrowing WFE. We have to move to where the opportunities are. And I think that is also really the strength, leveraging the strength of having a broad portfolio. You can move to those areas much faster because you're already in them. Thanks, Steve.

I am showing no further questions at this time. I would now like to turn it back to Paretosh Misra, Vice President of Investor Relations, for closing remarks.

Thank you all for joining us today and for your interest in MKS. Operator, you may close the call, please.

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