MKS Instruments, Inc. (NASDAQ:MKSI) Q1 2024 Earnings Call Transcript

Michelle McCarthy: Yeah, I can take that question. This is Michelle. So yeah, we have favorability in the quarter, as we referenced in the prepared remarks, about 60 basis points. That’s nonrecurring. It’s really related to favorable material variances as well as favorability in freight and duty cost recoveries, that’s really the bulk of it.

John Lee: Yeah. So, not necessarily tied to service, Joe. But you did point out our service gross margins were probably a record, I guess, I would call it that. But all the divisions had improved gross margin as well. But service, we’re really happy with the performance of that group with the last quarter.

Joe Quatrochi: Is there anything to what drove that?

John Lee: There was a good product mix. And certainly, some pricing has rolled through and some cost pressures that have been in the past are no longer there. So kind of a mix a whole bunch of things, Joe.

Joe Quatrochi: Thank you.

John Lee: Thanks, Joe.

Operator: Thank you. [Operator Instructions] Our next question comes from Steve Barger from KeyBanc Capital Markets. Please go ahead.

Steve Barger: Yeah. Thanks. Just a quick follow-up. As you’ve modeled out free cash flow and how EBITDA progresses, do you think net leverage can get to four or below by year-end? Or is that too aggressive?

John Lee: Yeah, Steve, obviously, we were very aggressive in deleveraging. As you saw Q1, we added — we voluntarily paid another $50 million, and we talked about — in April, we added — we voluntarily paid down yet another $50 million. I think our ability to delever and prepay is really going to be a function of profitability, Steve. So not news to you, I’m sure. So I think it depends on how the year unfolds. And our model still is 50% gross margin flow through 40% operating margin flow-through. But as you know, we have a lot of leverage in the model. And so when revenue does pick up, you’ll see a lot of cash flow and then we’ll be able to delever quicker.

Steve Barger: Great. Thanks.

John Lee: Thanks, Steve.

Operator: Thank you. I am showing no further questions. I would now like to turn the call over to David for closing remarks.

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

Operator: Thank you. This does conclude the program. You may now disconnect.