MKS Instruments Inc

NASDAQ:MKSI

Earnings Call Transcript 2022-Q3

[Operator]

Good day ladies and gentlemen, and thank you for standing by. Welcome to MKS Instruments Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. David Ryzhik. Mr. Ryzhik, you may begin sir.

[David Ryzhik, Vice President, Investor Relations]

Good morning, everyone. I am David Ryzhik, Vice President of Investor Relations and I'm joined this morning by John Lee, President and Chief Executive Officer; and Seth Bagshaw, Senior Vice President and Chief Financial Officer.

Yesterday, after the market closed, we released our financial results for the third quarter of 2022, which are posted to our website. 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 current report on Form 8-K filed with the SEC on August 17, 2022 and any subsequent quarterly reports on Form 10-Q.

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 financial measures. Unless otherwise noted, all references to pro forma financial measures reflect MKS and Atotech Limited, which MKS acquired on August 17, 2022 on a U.S. GAAP basis and include adjustments to confirm the accounting policies of MKS.

Also, unless otherwise noted, all income statement related financing measures will be non-GAAP other than revenue. For a detailed breakout of reported revenues by end market, as well as Atotech and combined company revenues by end market, please visit the Investor Relations section of our website. Please refer to our press release and the presentation materials posted to our website for information regarding our non-GAAP financial measures and a reconciliation of our GAAP and non-GAAP financial measures.

Now, I'll turn the call over to John.

[John Lee, President and Chief Executive Officer]

Thanks, David. Good morning, everyone, and thank you for joining us today. The third quarter marked a major advancement in MKS' long-term strategy as we completed the acquisition of Atotech Limited. Atotech further broadens MKS' capabilities by bringing leadership in critical chemistry solutions for advanced electronics and specialty industrial applications and we are pleased to welcome the talented global team of over 4,000 new employees to the MKS family.

We delivered strong results in the third quarter with record revenue and strong profitability. On a pro forma basis for the third quarter, we delivered revenue of $1.1 billion of which over $360 million was from Atotech. Excluding the partial quarter contribution from Atotech, our revenue exceeded the midpoint of our guidance range and was another quarterly record.

We continue to execute in a challenging environment of supply chain constraints and inflationary pressures. While we have overcome numerous constraints throughout the quarter, we are still facing shortages of a small number of components that are impacting shipments of some high value solutions. We are also operating in an environment of increasing macroeconomic uncertainty and an anticipated decline in wafer fabrication equipment spending. And I'll provide our perspective on these factors shortly.

Next, I want to share an update on our organizational structure and divisional reporting following the closing of our acquisition of Atotech. In the third quarter, our Equipment Solutions Division was consolidated into our photonics solutions division. This consolidation aligns with our broader portfolio of photonics solutions and further enhances synergies between our critical photonics subsystems and our laser systems.

As a result, going forward and in our third quarter 10-Q, the financial results of the equipment solutions division will be combined with the photonics solutions division. And the Atotech business operates as a separate division, which we refer to as the Materials Solutions division.

As a reminder, earlier this year, we introduced our three end-market categories: semiconductor, advanced electronics, and specialty industrial, These market categories will remain the focus of our external reporting. Now, I'd like to provide more detail on our third quarter results and my thoughts as we look into the fourth quarter.

Semiconductor market revenue reached another record in the third quarter. We saw broad-based demand across our portfolio. Our market leadership in RF Power for dielectric etch continues to be a significant driver and we delivered another record quarter benefiting from investments into leading edge 3D NAND. We also continue to gain traction in RF Power for conductor etch where we see an attractive market penetration opportunity.

Demand for our remote plasma sources remained very strong, driven by both on wafer and chamber cleaning applications. We also had a record quarter in our analytical and control solutions led by growth in physical vapor deposition chambers as interconnect density increases for logic devices.

Photonics solutions revenue for the semiconductor market reached another record as we continue to gain traction in our optical solutions and motion businesses for advanced lithography, metrology, and inspection applications. We continue to gain significant design wins and our engagement with key customers in this important market segment continues to strengthen.

In fact, when excluding the inorganic contribution from the Photon Control acquisition, we delivered more than 35% year-over-year organic growth in our photonics solutions for the semiconductor market. Overall, our semiconductor market results in the third quarter were exceptional, even as we continue to face supply chain constraints in the quarter.

Given nearly every semiconductor chip manufacturer in the world today is made possible by MKS' technology, I'm excited about how well-positioned we are to continue to leverage the attractive long-term secular opportunities in this market.

While these long-term secular trends remain unchanged, recently issued U.S. export restrictions on advanced semiconductor equipment sales to China are immediately impacting our direct customers who rely on our subsystems. In addition, as I mentioned earlier, we continue to see shortages of components needed for certain high value products.

As a result, we expect revenue from our semiconductor market to decline sequentially by approximately 20% in the fourth quarter, compared to pro forma revenue for the third quarter. We have also seen a moderation in order rates in the fourth quarter and we expect wafer fabrication equipment spending to decline in 2023 as the industry scales back investments to restore supply demand balance.

Turning to our Advanced Electronics market, revenue from our flexible PCB via drilling systems remain muted in the quarter as expected. Demand for our chemistry solutions moderated in the quarter, due to weakening end market demand for electronics such as smartphones and PCs.

However, we saw strong demand for our plating equipment in the quarter. And overall, pro forma Advanced Electronics revenue grew slightly on a year-over-year basis when excluding the impact of foreign exchange and palladium pricing. Since the closing of the Atotech acquisition, our teams have been in active discussions with customers outlining the unique value proposition behind our combined laser drilling and chemistry expertise to optimize their interconnect.

We believe this is an increasingly critical focal point in enabling the integration of Advanced Electronic devices. In addition to our HDI market, our capabilities are focused increasingly on packaged substrates, which is the fastest growing segment of the advanced PCB market. Package substrates have become a critical building block of heterogeneous computing architectures such as [indiscernible], as well as other advanced computing applications.

Today, we occupy uniquely differentiated position by virtue of our market leadership and chemistry solutions along with the laser drilling capabilities of our geo platform. Our positive engagements with customers thus far confirm the strong value proposition of our combined laser drilling and chemistry solutions as a path to enhancing yield and reducing time to market.

In the immediate term, we expect that macroeconomic headwinds in electronics end markets will negatively impact our performance with revenue from our Advanced Electronics market expected to decline sequentially in the fourth quarter, compared to pro forma results for the third quarter. It is worth noting that the fourth quarter is typically seasonally lower than the third quarter.

Moving to our specialty industrial market, we saw relatively stable demand across our industrial, life and health sciences, and research and defense applications. Within the specialty industrial market, our general metal finishing business continued to be impacted by supply chain constraints in the automotive market.

Nonetheless, demand was steady in the third quarter and we expect GMF to benefit once supply chain constraints ease though growth will ultimately be anchored by end demand. For the fourth quarter, we expect revenue from our specialty industrial market to remain consistent pro forma results for the third quarter.

In short, I'm very pleased with how MKS executed in the third quarter. While the macroeconomic backdrop is a factor we are closely watching, I'm very excited about our long-term positioning for the numerous secular trends supporting MKS' business opportunities. Finally, we will host an Analyst Day on December 14, where we will provide updates on our strategy, market opportunities, and long-term financial model for the new combined company.

With that, I'd like to turn the call over to Seth.

[Seth Bagshaw]

Thank you, John. I'll cover third quarter results and provide additional detail on guidance for the fourth quarter. In the third quarter, we delivered revenue of $954 million and net earnings per share of $2.74, which includes a partial quarter contribution from Atotech following the close of the acquisition. So, in the Atotech acquisition, we delivered record revenue in the third quarter and exceeded the midpoint of our guidance range led by record revenue from our semiconductor market.

On a pro forma basis for the third quarter, we delivered revenue of $1.1 billion. In an adjusted pro forma basis, we delivered just EBITDA of $327 million. Furthermore, even though we delivered strong financial results, recent foreign exchange volatility resulted in approximate mid-single-digit headwind to overall year-over-year revenue growth on a pro forma basis. Following the acquisition, our revenue mix is more balanced by end market.

On a pro forma basis for the third quarter, revenue from our semiconductor market was 48%. It was 26% each from our advanced electronics in specialty industrial markets. In addition, we now possessed a higher mix of more consistent consumables in service revenue, which made up about 37% of overall pro forma revenue for the third quarter.

Now, turning to end market results, while be commenting on pro forma revenue in change from prior periods on a pro forma basis, we delivered record pro forma revenue from our semiconductor market in the third quarter, increasing 4% sequentially to $552 million and growing 9% year-over-year. We saw a broad-based strength from across our vacuum portfolio, while growth in our photonics solutions products continues to be strong outpacing overall industry growth.

As John mentioned, recent U.S. export control restrictions on products sold for advanced semiconductor applications are impacting our sales to certain China customers. Based upon our preliminary assessment of sales through our direct sales channel and through our OEMs, we estimate the overall annualized impact could be in the range of $250 million to $350 million. That amounts to approximately 6% to 8% of our projected pro forma revenue for 2022, assuming the midpoint of our guidance for the fourth quarter.

Moving to advanced electronics market, pro forma revenue in the third quarter was $296 million, growing 1% sequentially and declining 9% year-over-year. As you may be aware, the cost of palladium makes a significant portion of overall cost of goods sold for Atotech’s chemistry business. In order to [insulate sale] [ph] from typical market based price fluctuations in palladium, Atotech has implemented an effective pass-through pricing mechanism to customers.

In this context, assuming the effects of palladium pricing pass-through revenue, as well as foreign exchange headwinds, pro forma advanced electronics revenue was up 1% on a year-over-year basis. In our specialty industrial market, we delivered pro forma revenue of $292 million in the third quarter, declining 1% sequentially and flat on a year-over-year basis. Excluding the effects of palladium pricing pass-through and foreign exchange headwinds, pro forma [specialty industrial] [ph] revenue grew 7% year-over-year.

On a standalone basis for MKS, excluding the partial quarter contribution from the Atotech acquisition, we executed very well. Revenue and operating margin exceeded the midpoint of our guidance with operating expenses favorable to the midpoint of our guidance, reflecting strong cost controls.

Turning to our margins. We reported third quarter gross margin of 44.9%. Given well-known supply chain inflationary pressures, we are pleased with [how we exit] [ph] in the quarter and continue to work hard in addressing these macroeconomic factors. Third quarter operating expenses were $189 million, up $35 million sequentially, primarily due to the partial quarter contribution from Atotech.

Third quarter operating margin was 25.1%, up 100 basis points sequentially. We can prudently manage our cost structure while maintaining our commitments to invest in organic growth opportunities that we believe absorb attractive long-term returns. In addition, our integration of Atotech is progressing very well. We are on track to achieve our cost hedging target of $55 million within 18 to 36 months post close.

We recently marked the one-year anniversary of the acquisition of Photon Control. We delivered synergies and profitability improvements ahead of our own internal expectations, [indiscernible] strong track record of M&A integration. Third quarter adjusted EBITDA was $268 million and adjusted EBITDA margin was 28%.

Net interest expense for the third quarter was $36 million, a sequential increase of $30 million, reflecting the incremental debt associated with the Atotech acquisition. In the quarter, we implemented interest rate hedges such that approximately 50% of our total debt outstanding is at a fixed rate.

Our tax rate for the third quarter was approximately 18%, which benefited from transaction related expenses. Net earnings for the third quarter were $167 million or $2.74 per diluted share. Exiting the third quarter, we maintained strong liquidity with cash and short-term investments of $885 million and revolving credit facility of $500 million. We exited the quarter with gross debt of $5.2 billion and our net leverage ratio to be calculated on a combined company basis with 3.3x.

For the third quarter, operating cash flow was $199 million, and free cash flow was $173 million. Each inclusive of $36 million in acquisition, integration, and restructuring costs. Our capital expenditures in third quarter were $26 million. Consistent with prior quarters, we had dividend payment of $12 million or $0.22 per share.

I'll now turn to our fourth quarter outlook for the combined company. On a pro forma basis, we expect revenue from semiconductor in advanced electronics markets to decline sequentially, while revenue from our specialty industrial market expect to remain consistent with third quarter levels.

Overall, we expect fourth quarter revenue of $1 billion, plus or minus $50 million. Based on anticipated product mix and revenue levels, we estimate third quarter gross margin of 44.5%, plus or minus 1 percentage point and we continue to take necessary steps to counteract inflationary impacts on our business. We expect operating expenses of $240 million, plus or minus $6 million.

For the fourth quarter, we estimate adjusted EBITDA of approximately $240 million, plus or minus $27 million. The sequential decline in adjusted EBITDA on a pro forma basis is a function of lower projected revenues, as well as a $20 million foreign exchange gain recorded by Atotech in the pro forma third quarter period, which is not expected to repeat in the fourth quarter.

For the fourth quarter, net [interest expense] [ph] is expected to be approximately $81 million, reflecting a full quarter of net interest expense associated with the Atotech acquisition. As we've stated, our primary folks de lever our balance sheet, which we have demonstrated strong track record of doing so, following the last two debt finance acquisitions, Newport in 2016 and ESI in 2019.

Our tax rate is expected to be approximately 27% for the fourth quarter. This increase is due primarily to the mix of geographical income associated with the Atotech acquisition for the [fourth quarter] [ph]. Given the assumptions, we expect fourth quarter net earnings of $1.34 per diluted share, plus or minus $0.27.

In closing, we are very excited to close the Atotech acquisition, provides us with critical chemistry solutions for advanced electronics in specialty industrial markets. Today, we are a more scaled company with a higher proportion of more consistent consumables in service revenues. Our integration activities are well underway and we're well-positioned to adapt to changing market conditions, continue to execute on a long standing strategy of sustainable long-term growth and profitability.

Let me now turn the call back to the operator for Q&A.

[Operator]

[Operator Instructions] Our first question or comment comes from the line of Sidney Ho from Deutsche Bank. Your line is open.

[Sidney Ho, Deutsche Bank]

Great. Thank you very much. My first question is on semiconductors, you're guiding Q4 semi's revenue down 20%, but when I look at your largest customer, they're guiding roughly flat quarter-over-quarter for Q4. And even if you back out the deferred revenue, they're not down nearly as much, can you help us reconcile the difference? And to the extent that you think that delta is driven by inventory adjustments at the customers, do you think that will complete by the end of the quarter and maybe you can start shipping to demand starting in Q1?

[John Lee, President and Chief Executive Officer]

Yes. Thanks for the question. Fundamentally, there are two drivers for the guide down for semi in Q4. Most of it is still driven by supply chain constraints. So, nothing to do with demand. As I've mentioned before, the number of components that are constrained is fewer or fewer. However, the components that we're seeing constrained are tied to some of our high value products. And so, that's the majority of it. There's a little bit from the China export restrictions, but mostly it's still a supply chain constraint issue.

[Sidney Ho, Deutsche Bank]

Okay. Maybe a follow-up question. I want to talk about gross margin. To guide the gross margin down for – to 44.5% to down 50 basis points, can you walk us through some of the puts and takes that's impacting Q4? And more importantly, as we look beyond Q4, not asking for specific guidance, are there any one-time charges that would come out in first quarter or should we think about using incremental margins of 50% with the 4Q as the base going forward, that's the right way you're thinking about it? Thank you.

[Seth Bagshaw]

Yes. This is Seth. I'll take that question. So yes, so on the guide for the fourth quarter, you'll probably well know, Atotech’s margins are above our typical margins. So, that's helpful in the quarter, be helpful going forward for sure, but really the primary change in the margins on a combined company basis is just lower volumes like in the MKS business.

So, that's really the driver there quite honestly is the biggest factor. Going forward in terms of guiding for margins, well the Analyst Day in December 14, we'll kind of walk through that a little more detail by growth by markets and gross margins. And on a combined company basis, we'll be able to articulate, kind of how to look at the growth and the margins and operating margins going forward. So, I'd kind of wait for that Analyst Day to, kind of lay out that model in more detail.

[Sidney Ho, Deutsche Bank]

Okay, great. Thank you.

[Seth Bagshaw]

Sorry, Sidney. So, for the first quarter, we'll have normal amortization of purchasing accounting cost and cost of goods sold, but we'll non-GAAP those items out, otherwise, really nothing that we’re are aware of as usual in the first quarter.

[Sidney Ho, Deutsche Bank]

Thanks, Seth.

[Seth Bagshaw]

Yes. Thanks, Sidney.

[Operator]

Thank you. Our next question or comment comes from the line of Jim Ricchiuti from Needham & Company. Mr. Ricchiuti, your line is open.

[Jim Ricchiuti, Needham & Company]

Hi, thank you. Good morning. So, yes, we don't have a lot of history about how the Atotech business performs during periods of economic weakness? I guess with the exception of 2020, but I wonder if you can give us a little color on how you're thinking about the electronics and the GMF business, during potentially or recessionary cycle, including that consumer loans business that gives it, I guess, some support?

[John Lee, President and Chief Executive Officer]

Hi, Jim. It's John. Yes, that's a great question. So, we have some history when we look back at Atotech that during any kinds of recessionary time frames, because they have so much more of the revenue being consumables that they do not see the levels of decline that we typically see in the CapEx environment. And so, I think that's really going to help support the entire company during any, kind of recessionary downturns or even semi-cyclical downturns.

As, I think we all know, the automotive market has been constrained as well. And I think as those constraints ease, that should also be helpful for that side of the Atotech business as well.

[Jim Ricchiuti, Needham & Company]

And John, a follow-up question just on supply chain, particularly in the semi-business. It's still a headwind, but what are your expectations as you look out over the next one to two quarters. Is that going to be largely behind you? And then you're just dealing with these other factors, including the weaker WFE, I mean the export controls?

[John Lee, President and Chief Executive Officer]

Jim, I think it's – my expectation is that we're in for still a couple of more quarters at least constraints, but it has been getting better even in our prepared remarks, I did mention that it's a fewer number of components actually that we're chasing. So, that's helpful. And we just happen to be in a particular quarter where some of those components are tied to some of our high value products.

Obviously, we're looking very hard to overcome those obstacles. And then we are able to do that within the quarter, of course, that's upside, but our guidance is basically based on what we see today.

[Jim Ricchiuti, Needham & Company]

Thank you.

[John Lee, President and Chief Executive Officer]

Thanks Jim.

[Operator]

Thank you. Our next question or comment comes from the line of Krish Sankar from Cowen & Co.. Standby.

[Krish Sankar, Cowen & Co.]

Hi, thanks for taking my question. I had a couple of them. First one, I just want to double check, maybe my math is strong given you guys have re-segmented the divisions, but is your vacuum solution, which I believe is primarily the semiconductor business? Is that undergoing or outgoing WFE this year?

[John Lee, President and Chief Executive Officer]

I think you're asking about 2022, Krish?

[Krish Sankar, Cowen & Co.]

Yes.

[John Lee, President and Chief Executive Officer]

Yes, I think it's slightly under growing WSE. And I think as you know, when we're in a upcycle we tend to outgrow as it flattens out and we are kind of flattish. Then when there's a downturn, of course, we underperform, but as we look at the long-term performance of our semiconductor business with respect to WFE, we plotted it 5 years, 10 years, 15 years, we are still above 200 basis points higher than WFE over the long-term.

[Krish Sankar, Cowen & Co.]

Got it. And I mean, John, just out of curiosity, but undergoing WFE this year, I mean, you’ve spoken about market share wins and power supplies, are you seeing any share losses in other parts of your semi business, like vacuum components or pumps and things like that?

[John Lee, President and Chief Executive Officer]

Yes, Krish, no, we're not. In fact, a you mentioned, RF Power Supplies shipments in Q3 were a record for that division again. And when you look at the market share data from third parties, we either have held our own or gained in many of the categories that we have for vacuum. So, right now, we're pretty happy with how each of the product groups are performing.

[Krish Sankar, Cowen & Co.]

Got it. And then a quick question for Seth. Just for modeling purposes. In 2022, how should we think about interest expense, tax rates and then also OpEx, if you're assuming similar revenue levels as [December quarter] [ph]?

[Seth Bagshaw]

Yes. So, tax rate, again, we’ll outline this more in the Analyst Day in a couple of months, but I'll give you some high level thoughts on that. So, tax rate should be in that, kind of mid-20% range, mid-up to [20%] [ph] range going forward. It's kind of our goal there as well. I think you asked on interest rates. I mean, right now, we're looking at for Q4 like little over 6% weighted average rate on our debt. We've hedged half of that as we mentioned in the prepared remarks.

So, you can kind of look at the rate curves going out in the future, but that gives you a sense of how best to kind of model that. And then, again, OpEx, I would say that we'll always be prudent in managing our cost structure. You say in the third quarter, we're favorable on the legacy MPS side. And so, as John mentioned, we're seeing some potential slowdown in the semi-cap space next year.

So, we'll respond to that as we've always done many times before, but I think if you were to say steady state run rate business, you probably see some inflationary impact on OpEx you can take to Q4 and annualize that. Usually first half of the year, we have wage increases. However, we've had a longstanding policy and program to reduce and be more efficient in our cost structure.

So, that will kind of drive those costs down on a steady state business. So, I think you can rely on us to be pretty prudent on our cost structure going forward, but there's nothing I see out there right now in the Q4 run rates that would drive that up substantially for sure, even our steady state business.

[Krish Sankar, Cowen & Co.]

Got it. Thanks a lot, Seth. Thanks John.

[Seth Bagshaw]

Yes. Thanks, Krish.

[John Lee, President and Chief Executive Officer]

Thanks, Krish.

[Operator]

Thank you. Our next question or comment comes from the line of Joe Quatrochi from Wells Fargo. Mr. Quatrochi, your line is open.

[Joe Quatrochi, Wells Fargo]

Yes. Thanks for taking the question. Post the acquisition, just how should we think about the right level of cash that you need on the balance sheet to run the day to day operations? And I guess, how do you think about balancing that with debt reduction during the cyclical downturn?

[Seth Bagshaw]

Yes, Joe, so I'll take that question. So, we modeled, as I said before, in the acquisition, $800 million of cash on the balance sheet and we're going to revolve our 500 million on top of that. So, we thought – very thoughtful doing a number of modeling back. We announced transaction, the summer of 2021. Obviously, again, when the rates were higher in the March, April time frame. So, we feel very comfortable that quantum of cash can take us through any cycle. And so that's kind of how we look at it.

We can certainly run the company a little leaner than that, but our view is to be again pretty [high build] [ph] liquidity in the balance sheet. So, we'll kind of maintain that level of cash going forward. And then, kind of pivot to our goal going forward, we had the same [indiscernible] but we ran many times before with other debt financed transactions to de-lever pretty rapidly. And again, that's our goal going forward as well.

That's always been our view with the rates being higher for sure. That just doubles down our strategy as well. So, I think to kind of wrap it up, we're well tuned of the rate environment. We do want to de-lever very aggressively. That is our goal and always has been, and the amount of liquidity we have in the cash and the balance sheet is pretty substantial, frankly, to weather through any potential slowdown in the business. But we look at that on a quarterly basis and we put the high beams on. We're always kind of reassessing that position as well.

[Joe Quatrochi, Wells Fargo]

Got it. And then maybe as a quick follow-up. You talked about 40% of the combined company now having a revenue basis somewhat recurring. I guess is that the right way still to think about it? And then maybe, is there any way you can help us kind of understand how does that translate into maybe like EBITDA or free cash flow?

[John Lee, President and Chief Executive Officer]

Yes, Joe, I think that is the right way to think about it. So, that 37%, 40% of the quarter's revenue was recurring or resilient if you will, service revenue and chemistry consumables. And as Seth mentioned, the gross margins for the Atotech business is actually higher than legacy MKS business. The operating margins of the MKS Service Business, which we publish, is actually very high as well. And so, not only are those resilient revenues, but the profitability that comes off of them is marginally higher than the rest.

[Seth Bagshaw]

And just to add to that, those revenues are not tied to the semi-cap cycle. So, if you look forward and if you have a view on semi-cap softening, that percentage could actually increase the total company. That's part of the theme on, kind of the acquisition as well. We thought about that recurring revenue is very important to us going forward.

[Joe Quatrochi, Wells Fargo]

Got it. Thank you.

[Operator]

Thank you. Our next question or comment comes from the line of Mark Miller from Benchmark Company. Mr. Miller, your line is open.

[Mark Miller]

I just wanted to clarify, you are talking about for 2023 in terms of semi-sales impact will be around $250 million to $350 million from slowing. Is that correct?

[John Lee, President and Chief Executive Officer]

Mark, that's just what we view as the impact from the potential sanctions of China business. So, that includes both our direct business, as well as any impacts from our – indirectly through our OEM customers.

[Mark Miller]

Okay. Interest expense for the December quarter, is that around 80 million?

[Seth Bagshaw]

81 million correct, give or take, yes.

[Mark Miller]

And in terms of these impacts, what percent of the total terms of semi-spending, what percent of your semi-spending the impact will be coming from the restrictions versus just general slowing? Will it be mainly driven by the impact of restrictions?

[John Lee, President and Chief Executive Officer]

Yes. Well, if you take the midpoint of that range of 250 to 350, 300, call it, our semi-revenue in 2022 is on that order of 2 billion. So, we're talking about 10% to 20% to [15%] [ph].

[Mark Miller]

Thank you.

[Mark Miller]

Thanks Mark.

[Operator]

Thank you. This concludes our Q&A session. I would like to turn the conference back over to Mr. David Ryzhik for any closing comments.

[David Ryzhik, Vice President, Investor Relations]

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

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.