MKS Instruments Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 4, 2023

There are 9 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the MKS Instruments First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, David Ryzhik, Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning, everyone. I am David Ryzhik, Vice President of Investor Relations and I am joined this morning by John Lee, President and Chief Executive Officer and Seth Backshaw, Executive Vice President and Chief Financial Officer. Yesterday, after market close, we released our financial results for the Q1 of 2023, 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.

Speaker 1

Actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release and in our annual report on Form 10 ks for the year ended December 31, 2022. 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 combined company financial measures reflect the combined results of MKS and Ottotec Limited, which MKS acquired on August 17, 2022. Also, Unless otherwise noted, all income statement related financial measures will be non GAAP other than revenue.

Speaker 1

Please refer to our press release and the presentation materials posted to our investor website for information regarding our combined company results, non GAAP financial results and a reconciliation of our GAAP and non GAAP financial measures. For a detailed breakout of reported revenues by end market as well as ATA Tech and combined company revenues by end market, please visit our investor website. Now, I'll turn the call over to John.

Speaker 2

Thanks, David. Good morning, everyone,

Speaker 3

and thank you for joining us today. I'm very pleased to report that we have restored our global operations following the ransomware we identified in early February, we are on track to meet our commitment to substantially recover revenue by the end of the second quarter. I can't say enough about how proud I am of the entire MKS family. Thanks to the dedication, hard work and ingenuity of our 10,000 plus employees, We are a stronger and more resilient company today than we have ever been. I also want to take a moment to thank our customers and for their support and cooperation throughout this process, so that we continue to deliver as a critical enabler to the industries we serve.

Speaker 3

With that, I'll review our operating environment, including our Q1 results and the trends we are seeing in the Q2. We delivered 1st quarter revenue of $794,000,000 adjusted EBITDA of $142,000,000 and net earnings per diluted share of $0.48 We estimate the ransomware incident had a negative impact on revenue of approximately $160,000,000 for the quarter. As Seth will detail, revenue for the quarter excluding the impact of the ransomware incident was a little lower than we anticipated. The difference reflected softer demand that developed in the latter part of the quarter, which was relatively more pronounced in our electronics and packaging market. In our semiconductor market, business levels continue to soften in the Q1 consistent with a well publicized decline in industry wide WFE Spending in 2023.

Speaker 3

We remain very engaged with our customers across the spectrum of opportunities in deposition, etch, Lithography, Petrology and Inspection and our ability to invest through the cycles has been a key reason we have outperformed WFE and the critical subsystems market over the long term. In fact, as reported by Tech Insights, our share of the overall critical subsystems market grew in 2022 on top of the gains we made in 2021. Our performance in 2022 exemplified our technical leadership and the breadth of our surround the wafer portfolio, where we gain share in a number of categories, including remote plasma sources, Microwave power, liquid ozone, FTIR gas analysis, linear motion subsystems and optical fiber thermometry. Our broad portfolio positions us well for when WFE spending recovers. Now more than ever, we are reminded of how important semiconductors are to our daily lives, and we firmly believe they will become even more important over time.

Speaker 3

This reliance on semiconductors will require not just more equipment, but also solutions addressing increased miniaturization and complexity in semiconductor design and manufacturing. And MKS is uniquely positioned as the broadest critical subsystem solutions provider in the industry, enabling more process steps in the fab than anyone else in the world today. As we look into the Q2, we anticipate demand Turning to our electronics and packaging market, revenue was below our expectations, but consistent with softness in demand for global electronics such as PCs, servers and smartphones. Customers scaled back production, which impacted our chemistry sales as well as delayed delivery of plating equipment for PCB and substrate applications. That said, we expect demand to improve sequentially in the second quarter due to additional working days in the quarter and delivery of equipment pushed from the Q1.

Speaker 3

We are pleased with the progress of the integration of Adatech both from a cost perspective and in establishing the value proposition of our combined proprietary chemistry and laser drilling solutions, which positions us at the forefront of what we call optimized interconnect. This is the next frontier in the integration of semi and PCB design for Advanced Electronics. On our last earnings call, I noted that we had received our 1st HDI laser drilling order from a long time ATOTEC customer. Since then, we received our 2nd HDI order from another ATOTEC customer. These wins were a result of the combination of ATOTEC's long standing relationships in the HDI market and the reference wins that our GEO laser drilling tool had already achieved in an emerging market application.

Speaker 3

It's early in the game, but we are very pleased with customer interest in our combined capabilities as it provides initial validation of the potential for revenue synergy. At our Analyst Day in December, we discussed how packaged substrates are a critical building block for electronic devices and in particular, High Performance Computing Architectures. I'm pleased to announce that we recently held an expansion ceremony at our Yokohama Tech Center in Japan, which included the introduction of 2 new significant products. The first is an extension of our ESI GEO drilling platform, which is geared towards next generation package substrate applications such as ABF build up laminate processing. Our proprietary Via Drilling technology enables the highest throughput and lowest cost per part for advanced flip chip ball grid array packaging, which is critical for high performance computing applications.

Speaker 3

The second new product is our Adatech G Plate Vertical desmear and electroless copper plating tool for next generation package substrates. This new tool will support customers in their yield optimization and next generation process development for advanced packaging applications with lines of spaces below 5 microns. These product announcements further extend our capabilities as a foundational solutions provider for advanced PCB and substrate applications As we are the industry's only integrated provider of advanced laser drilling, proprietary chemistry and horizontal and vertical plating solutions. As the defining trends of miniaturization and complexity dominate advanced PCB and substrate manufacturing, the way they did in the semi industry, We are well positioned to become the industry's go to technology enabler. Turning to our Specialty Industrial market, Business levels softened slightly on a sequential basis in the quarter.

Speaker 3

However, our GEMF business held up well. Looking after the Q2, we expect demand to remain fairly steady. In summary, while the year got off to an unexpected start, we have rebounded well operationally and are delivering effective shipments to customers. We're also building early momentum with customers for our optimized interconnect offering. Overall business levels have softened entering the Q2, but we remain optimistic about the quarters to come.

Speaker 3

We expect Enghast's total revenue in the second half of twenty twenty three to be slightly higher than the first half levels, driven by a modest improvement across each of our 3 end markets. We will continue to keep a close eye on near term macro and industry specific conditions. Longer term, we are as bullish as ever on the secular tailwinds and attractive growth opportunities across our markets, and we intend to seize them. Now, I'd like to turn the call over to Seth. Thank you, John.

Speaker 3

I will cover our Q1 results and provide details on our outlook for the Q2 of 2023. Starting with the Q1, we delivered revenue of $794,000,000 As John mentioned, our global team executed well during a challenging period for the company as we work to restore operations following the ransomware incident. We estimate the negative impact to revenue was approximately $160,000,000 for the quarter And our team worked diligently to restore production relative to our initial expectations of at least $200,000,000 impact when we report our 4th quarter results. While recovery has gone well, we've seen a softening of business levels relative to our prior outlook, mainly in electronics and packaging market. As a result, excluding the impact of ransomware incident, we estimate Q1 revenue would have been lower than our original expectations.

Speaker 3

As our outlook indicates, we expect softness in overall business levels will continue in the second quarter. However, we see a slight improvement in the second half of the year. Turning to our end markets for the Q1. As a reminder, the ransomware incident only impacted our vacuum photonics solutions divisions. Therefore, we mostly felt an impact on our semiconductor and especially industrial markets and to a lesser extent electronics and packaging market.

Speaker 3

We expect to recover approximately 95% of this revenue, remaining 5% largely tied to our transactional catalog business in our specialty industrial market. With that as a backdrop, semiconductor revenue was $309,000,000 in the Q1, declining 38% sequentially and 37% year over year, primarily due to negative impact of ransomware incident as well as lower industry demand for semiconductor capital equipment. We estimate the ransomware incident impacted our semiconductor revenue by approximately $110,000,000 in the Q1. Excluding the impact of the ransomware incident, we estimate semiconductor revenue was down approximately 17% sequentially and 14% year over year. We expect to make up approximately 75% of that delayed revenue in the 2nd quarter, Virtually all the remaining balance made up in the Q3.

Speaker 3

While the Q1 was challenging, we have deep relationships with our customers We're closely with them to restore shipments as quickly as possible. Turning to electronics and packaging market, Revenue was $222,000,000 a decrease of 17% sequentially and 24% year over year, with Q1 2022 representing combined company results. Excluding the impact of foreign exchange and palladium pass through, 1st quarter revenue declined 20% on a year over year basis compared to combined company results. We estimate the ransomware incident has only normally impacted Electronics and Packaging revenue, we expect this to be substantially recovered in the Q2. As John mentioned, our chemistry and plate equipment sales were negatively impacted by the industry slowdown in global electronics demand.

Speaker 3

Our chemistry revenue declined 13% year over year, excluding the impact of foreign exchange and palladium pass through, reflecting the widely publicized slowdown in unit production volumes across PC, smartphone and server applications. To add some context, according to Gartner, overall PC shipments declined 30% year over year in the Q1, while pointing to Cantalists, smartphone shipments declined 12% year over year. Because there are more factory working days in the 2nd quarter due to the Chinese New Year holiday in the Q1, we expect electronics and packaging revenue to improve sequentially in the 2nd quarter. In addition, we expect revenue to grow in the second half compared to first half levels. Moving to our Specialty Industrial market, Revenue in the Q1 was $263,000,000 declining 17% sequentially and 18% year over year with Q1 2022 representing combined company results.

Speaker 3

We estimate the ransomware incident impact our Specialty Industrial revenue by approximately $45,000,000 in the Q1, of which we expect to recover approximately $20,000,000 in the second quarter and most of the remainder in the second half of the year. Excluding the impact of the ransomware incident in foreign exchange and palladium pass through, 1st quarter revenue declined approximately 2% year over year on a combined company basis. We do not expect to recover a nominal amount of revenue in this part of our business due to the transactional book and turn nature of orders that we generate through our catalog business. In the Q1, consumables Service revenue across our 3 end markets comprise 43% of our total revenue. Turning to our margins, Reported 1st quarter gross margin of 42.2 percent, a sequential decline of 370 basis points, primarily due to the underutilization of a factory associated with a ransomware incident.

Speaker 3

1st quarter operating expenses were $240,000,000 A sequential decline of $2,000,000 due to lower variable compensation associated with the reduced revenue levels in the Q1 as well as prudent cost control. 1st quarter operating margin was 12.1%. Adjusted EBITDA margin was 17.8%, both negatively impacted by lower revenue volumes as well as factory underutilization associated with the ransomware incident. Our integration of ADTECH is progressing well. We made on track to achieve our cost synergy target of $55,000,000 within 18 months to 36 months post close.

Speaker 3

We exited the Q1 achieving annualized synergies of $25,000,000 Net interest expense for the Q1 was $76,000,000 slightly lower than we had anticipated due to favorable interest income. Our tax rate for the Q1 was a benefit of 47% driven by the geographic mix of earnings in the quarter. Net earnings for the Q1 were $32,000,000 or $0.48 per diluted share. Turning to our balance sheet and cash flow. Despite the usual challenges we faced, we exited the quarter maintaining strong liquidity With cash and short term investments of $880,000,000 and revolving credit facility of $500,000,000 We exited the quarter with gross debt of $5,100,000,000 Our net leverage ratio exiting the 1st quarter, is calculated on a combined company basis, was 4.0x based on trailing 12 month adjusted EBITDA.

Speaker 3

For the Q1, operating cash flow was $37,000,000 and free cash flow was $20,000,000 both negatively impacted by the ransomware incident. Consistent with prior quarters, we made dividend payments of $15,000,000 or $0.22 per share. I'll now turn to our Q2 outlook. We expect 2nd quarter revenue of $980,000,000 Plus or minus $50,000,000 While we normally do not provide specific guidance by end market, given the different moving pieces such as recovery of ransomware revenue In underlying business levels, we believe a little more granularity will be helpful. With that, in the Q2, we expect revenue from a semiconductor market Approximately $400,000,000 plus or minus $20,000,000 revenue from our electronics and packaging market to be approximately $240,000,000 plus or minus $10,000,000 and Redwood Cross Specialty Industrial market to be approximately $340,000,000 plus or minus $20,000,000 Excluding the impact of ransomware incident from the 1st and second quarters, we estimate 2nd quarter revenue of approximately $870,000,000 which represents sequential decline from the Q1.

Speaker 3

We expect this to be primarily a result of softer revenue from a semiconductor market, reflecting declines in wafer fab equipment spending, partially offset by modest improvements in revenue, electronics and packaging in Specialty Industrial Markets. Based on anticipated product mix and revenue levels, we estimate 2nd quarter gross margin of 45%, a plus or minus 1 percentage point. We expect operating expenses of $255,000,000 plus or minus $6,000,000 The sequential increase in the Q1 levels is due to Higher revenue volumes, timing of annual merit increases, variable compensation and normalization of product spending following a ransomware incident. For the Q2, we estimate adjusted EBITDA of approximately $223,000,000 plus or minus $27,000,000 The Q2 net interest expense is expected to be approximately $82,000,000 reflecting slightly higher interest rates compared to the Q1 And our tax rate is expected to be approximately 27% for the 2nd quarter. Given the tax benefit recorded in the 1st quarter, Along with our guidance for the Q2, we expect our tax rate to be higher in the second half to arrive at an estimated full year rate of 27% is within our long term model range.

Speaker 3

To give you the assumptions, we expect 2nd quarter net earnings of $1.13 per diluted share, plus or minus $0.29 In summary, despite unusual challenges, we executed well on driving profitability in the Q1. Moving forward, we are focused on resuming strong free cash flow generation, realizing acquisition synergies and executing our disciplined strategy deleveraging our balance sheet. With that, I'll turn it back to the operator for Q and A.

Operator

Thank you. At this time, we'll conduct a question and answer session. And wait for your name to be announced. Our first question comes from the line of Steve Barger of KeyBanc Capital Markets. Your line is open, Steve.

Speaker 4

Hey, thanks. Good morning. Great to hear about that second system order from an ATC customer. Are you surprised by the timing of that given how tough the cycle has been? And can you talk about customer engagement around the combined advanced packaging applications Versus what you expected given current conditions?

Speaker 2

Hi, Steve, it's John. Thanks for the question. As I said last quarter, it's a bit of a bluebird, a little sooner than we'd expect for these, but I think it does validate The thesis for the acquisition, the synergy and combined capabilities of Adatech, chemistry solutions and chemistry equipment as well as laser drilling. You're right, the industry is a little more muted at this point, but at these times design wins continue And design work continues and that kind of interaction we have with our customers continues to be very strong. As we mentioned in the prepared remarks, We had a ceremony at Yokohama Tech Center and many customers are invited and we had great participation.

Speaker 2

We got to give them a tour of 2 brand new capital equipment, right, a laser tool and a wet clean tool, a vertical wet clean tool.

Speaker 4

For the Electronics, Chemistries and Plating business, can you remind us is it basically a one to one relationship between volume and fab utilization rates, Meaning as the cycle turns, you see an immediate increase in volume?

Speaker 2

I think that's how we look at it, especially the chemistry part, obviously, that is So very much utilization dependent. And so I think the latter half of Q1, we started seeing some of that slowing And that's what caused the slight down in Q1. And as we talk to customers, as we talk to and read about the industry and plans by our customers. That's why we think that number 1, Q2 will be a little better, more working days mostly. That is the assumption.

Speaker 2

And then the second half we think will be slightly better because we see the markets improving slightly in terms of utilization rates.

Speaker 3

Great. Thank you.

Speaker 2

Thanks, Steve.

Operator

Our next question comes from the line of Krish Sankar with TD Cowen. Krish, your line is now open.

Speaker 5

Yes. Hi. Thanks for taking my question. I have 2 of them. First one, Esther, Jean, if I look at your commentary on second half revenue slightly above, it does imply that September quarter revenue will be sequentially down from June of 980, but I understand June has like these some of the ransomware slip out.

Speaker 5

If I strip that out, it seems like September could be up from June ex ransomware. Is that the way to think about it?

Speaker 2

Chris, yes, I think that is the way to think about it. So I think your question is, is ex ransomware is Q2 kind of a trough and 12th quarter. And I think that's the way to think about it. And so the second half is going up, but slightly in all three markets. And so that's how we are seeing the market at this point.

Speaker 3

Just to add to that too, Chris, the second half, there will be obviously some revenue that we didn't ship in the Q1 that roll into the second half of the year. And we say slightly higher, That's above kind of those rollover revenue numbers. So it's actually increasing the markets.

Speaker 5

Got it. Got it. And then just out of curiosity, just as my follow-up, the argument that Q2 is a trough in semi revenues, I understand some of your customers also spoken about kind of running at these Q2 revenue levels into Q3 and Q4. But historically, like as they use of their inventory and it seems like coming out of a downturn or getting into like the first part of the down cycle, You should lag your customers because of the use of the inventory, but that doesn't seem to be happening based on what and some of the other subsystem folks have mentioned. I'm kind of curious why do you think that's going on where your bottom is kind of in tandem with your customers versus lagging them?

Speaker 2

Well, I think we tend to precede our customers, obviously, our semi equipment customers. And I think that's What we're seeing right now, I think the backlog was strong coming into Q1. And so there was a lot of that that maybe added a little more confusion to the normal cycles. But I think what we see right now is A lot of inventory burn off in the market and we can see from plans of our customers that it should be slightly up.

Operator

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

Speaker 6

Yes, thanks for taking the question. A question on the Material Solutions business. The improvement that you're expecting in the second half of the year. How much should we think about that being maybe more seasonally driven versus kind of a bottoming in 2Q of kind of in demand?

Speaker 2

Hi, Joe, it's John. I think maybe I'll address Q2 first. As I said earlier, Q2 is really about More working days relative to Q1 as Seth said in his prepared remarks. I think to your question in second half, There can be and is usually some seasonality, especially with the consumer products part of the portfolio. Remember that the chemistry business for ATOTEC addresses not just the consumer products, but also servers and industrials and all that.

Speaker 2

So it's a little broader. And when you look at all the markets and all the data we're getting from all the customers, that's how we kind of come up with a slightly better 2nd half versus first half. So it's not just the consumers only consumer markets only.

Speaker 6

Got it. That's helpful. And then just as a follow-up for Seth, how do we think about the cadence of voluntary debt pay down Now that we kind of have the ransomware attack behind us, should we expect that to start to pick back up this quarter?

Speaker 3

Yes. There's been no change in our approach here to delever the balance sheet pretty aggressively. And we're leaning into the Term Loan A, by the way. We've done that $100,000,000 The voluntary payment back in the Q4. And so that's kind of where we'll lean in going forward.

Speaker 3

We haven't kind of given a bright line of when that will occur. That's Certainly, our policy and our desire and our goals, that's kind of leading to that for sure. I think Q2, because of the Lower revenue we booked in the Q1 will catch up in Q2. There might be a little more working capital Required on the receivable side in Q2. So to kind of give you a full transparency there.

Speaker 3

But again, we think the back half of the year will be a little bit stronger, slightly up a little bit, We'll get back to that free cash flow generation. So once that cash is generated, that's what we're going to put back to work to take off the term loan A off the balance sheet. Got it. Thank you. Yes.

Speaker 3

You're welcome.

Operator

Thank you. One moment please. Our next question comes from the line of Sidney Ho of Deutsche Bank. Your line is now Open, Sidney.

Speaker 7

Great. Thank you. I guess if you strip out the impact of the ransomware, how do you think your That means revenue for the full year versus what you thought 2 months ago. I know there's a lot of moving parts with more production cuts in memory and foundry, but Your customers also talk about able to ship more to China and maybe lagging edge foundry and logic is a little bit stronger than they thought. Just want to get your thoughts on that.

Speaker 2

Yes, Cindy. It's John. So you're asking me to predict semi again. I know. But I would say this Cindy I would say we came into the year certainly expecting the well publicized downturn in memory CapEx I think that's not a surprise.

Speaker 2

I think we've been monitoring foundry and that's kind of been operating I guess as we kind of expected still As we expected in the beginning of the year. But to your point, lagging edge does seem to be a little stronger probably than We expected and the industry probably expected. And then as you've seen, obviously, China is what we can ship to China, what our customers can ship to China, There's a little more clarity to that. And I think we have said that the impact of the October 7, restrictions on our revenue in China was a range of $250,000,000 to $350,000,000 at kind of 20 22 run rates. And I would say our view now is that's probably towards the lower end of that is our view today.

Speaker 7

Okay, that's great. That's helpful. Maybe a second question on the gross margin. I think you guys Guide the Q2 to be 45%. Should we expect that to be at The normal fully normalized number and just start going up as revenue goes up in the second half of the year or there is some lingering impact from the underutilization coming from this, the rent and void events?

Speaker 7

Thanks.

Speaker 3

Yes. And this is Seth. Yes. So the volume is biggest driver for sure. So if you model revenue up, that would be the uptick on the overall margins as well because variable margin is higher than 45%.

Speaker 3

And then we've talked before, in the longer term, we have inflationary pressures as everybody else has faced. So we've taken some action to kind of mitigate Going forward as well, so our goal is always kind of drive gross margin improvement through those actions and Product development, high value offerings for our customers and so forth. So that will be our obviously continued our view on margins going forward. But For kind of short term modeling, I think the way you want to look at is the volume is the biggest driver.

Speaker 7

Okay. Thank you very much.

Speaker 3

Yes. Thanks, Sidney.

Operator

Thank you. One moment, please. Our next question comes from the line of Jim Ricchiuti of Needham and Company. Your line is now open, Jim.

Speaker 8

Hi. Thank you. Good morning. So Specialty Industrial X, the ransom Ware was down about 2% sequentially. Is that what you said?

Speaker 2

Yes, Jim, I think what we said is we had about a $45,000,000 impact from ransomware in Q1. And I believe that that number is right that you mentioned, but we'll triple check that for you.

Speaker 8

Yes. And I guess, John, where I'm going with this is, Yes, we don't have a lot of experience with the GMF portion of the business. And Obviously, we're seeing signs of slowing in different markets, different industrial markets. And I'm wondering How you guys are thinking about that part of the business as we look out to the second half of the year, not looking for guidance, but just In terms of has there been have there been some changes at all in the demand trends? You alluded to the fact that it's holding up relatively well.

Speaker 2

Yes. That's right. And Jim, just to answer your first question, that 2% is year over year For the Specialty Industrial, so okay. But as we said in the prepared remarks, as we look at all the Specialty Industrial markets, We do expect that market also to be slightly better in the second half than our first half. And so while it stayed pretty much Pretty stable in the first half ex ransomware.

Speaker 2

We do see that it will also looks like will improve slightly in the second half. And that's made up of many different markets as you can imagine. And that's what we're seeing today. And so I think it's a great stabilizing part of our revenue stream for the company now.

Speaker 8

Got it. Seth, You mentioned the synergies in Q1. Was that In line with your expectations going back to the December quarter or did things change, just given What happened with the ransomware and just the changing macro environment? I'm curious if that's been consistent and how do we think about synergies On a go forward basis?

Speaker 3

Yes. The $25,000,000 we've realized annualized for the first Well, it's probably better than we expected, I would say, 6 months ago. The team has done a really good job getting engaged and obviously finding opportunities. And obviously, the MSD, those division was not impacted by ransomware. So they had business usual for the quarter.

Speaker 3

So I would say that the takeaway is we feel very good about the $55,000,000 in 18 months to 36 months. Obviously, trying to pull that forward as best we possibly can. The $25,000,000 I think is a little bit above our expectations. And again, the teams have been really engaged and working on the right opportunities and we think there's more opportunity going forward as

Speaker 8

Thank you.

Speaker 3

Yes. Thanks, Jim.

Operator

Thank you. Our next question comes from the line of Steve Barger of KeyBanc Capital Markets, your line is open, Steve.

Speaker 4

Hi, thanks for letting me back in. Seth, you mentioned getting back to better free cash flow generation in the back half. Can you estimate what free cash flow could look like this year? And more broadly, where do you expect free cash flow margin will run as your operations in the cycle normalize?

Speaker 3

Yes. So, yes, thanks for the question, Steve. So, obviously, not giving guidance for the full year, but I think going back to typical volume that we had Pre ransomware, look at the cash flow off that those quarters will give you a good indication, but we expect going forward. There's really nothing unique looking forward to Q3 and Q4 based on our work capital requirements or profitability and our Expectations for sure that has any different impact on free cash flow than we saw kind Pre ransomware. So I think if you look at those back quarters, you get a pretty good sense of the free cash flow generation.

Speaker 3

There's always things we can do better, We're always going to challenge ourselves to drive more efficiency in working capital and certainly profitability. So consider those things always front and center how we want to run the business. But That's kind of how I was looking at it. Look at the historical kind of pre ransomware metrics, we kind of give you a good sense of the free cash flow generation we can pull off.

Speaker 4

Got it. And this has been a tough cycle even before the ransomware attack. Does anything you've seen from the cycle, from the integration Change how you think about the level of the 2027 revenue and EPS targets, whatever the timing may be?

Speaker 3

No, not at all. I mean, obviously, there's Cycles in any business and certainly in the semi space, we're well tuned to that. But everything we talked about Analyst Day and we're seeing today is exactly intact. We are well positioned across the markets we play in. We gained share this Past year in 2022 in a very challenging environment, that was on top of very substantial share gain in 2021.

Speaker 3

So we're kind of doubling down on that. The engagement customers is really strong. The interaction is very good. The R and D teams are fully engaged. So there's really no change in fundamental piece of the business and how we grow long term shareholder value.

Speaker 3

And as John mentioned in the prepared remarks, the team has done a fantastic job Navigating a very, very difficult supply chain environment in a ransomware incident and we did better than we expected coming Into this quarter. So no, no change in our view looking out 5 years, you'll have these fluctuations for sure, but we can manage these pretty well we think. Great to hear. Thanks. Okay.

Speaker 3

Thanks, Steve.

Operator

Thank you. I'd now like to turn the call back to David for closing remarks.

Speaker 3

Thank you for joining us today and for your

Operator

And thank you for your participation in today's conference. This does conclude the program and you may now disconnect.

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