- Revenue of $932 million, in-line with the midpoint of guidance
- GAAP gross margin of 45.7% and Non-GAAP gross margin of 47.1%, above the high-end of guidance
- GAAP operating margin of 12.6% and Non-GAAP operating margin of 21.8%, above the high-end of guidance
- GAAP net income per diluted share of $0.58 and Non-GAAP net earnings per diluted share of $1.46, above the high-end of guidance
- Operating cash flow of $160 million and free cash flow of $142 million
ANDOVER, Mass., Nov. 01, 2023 (GLOBE NEWSWIRE) — MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of enabling technologies that transform our world, today reported third quarter 2023 financial results.
“We executed well in delivering strong profitability in the third quarter, despite a muted demand environment across our end markets,” said John T.C. Lee, President and Chief Executive Officer.
Mr. Lee added, “We are actively engaged with customers across a broad range of technology inflections, and our unique capabilities to address next-generation device designs position us well to emerge from the current downturn in a stronger position with a stronger product portfolio.”
“We have a long history of managing our business through cycles, and the third quarter was no exception, as disciplined cost management along with favorable product mix enabled us to exceed the high-end of our guidance for Non-GAAP gross and operating margins in the third quarter,” said Seth H. Bagshaw, Executive Vice President and Chief Financial Officer. “In October, we successfully repriced our USD Term Loan B and made a voluntary prepayment of $100 million on our Term Loan A, demonstrating our commitment to optimizing our capital structure.”
Fourth Quarter 2023 Outlook
For the fourth quarter of 2023, the Company expects revenue of $840 million, plus or minus $40 million, Adjusted EBITDA of $185 million, plus or minus $20 million, and Non-GAAP net earnings per diluted share of $0.85, plus or minus $0.27.
Conference Call Details
A conference call with management will be held on Thursday, November 2, 2023 at 8:00 a.m. (Eastern Time). To participate in the call by phone, participants should visit the Investor Relations section of MKS’ website at investor.mks.com and click on Events & Presentations, where you will be able to register online and receive dial-in details. We encourage participants to register and dial in to the conference call at least 15 minutes before the start of the call to ensure a timely connection. A live and archived webcast and related presentation materials will be available on the Investor Relations section of the MKS website.
About MKS Instruments
MKS Instruments enables technologies that transform our world. We deliver foundational technology solutions to leading edge semiconductor manufacturing, electronics and packaging, and specialty industrial applications. We apply our broad science and engineering capabilities to create instruments, subsystems, systems, process control solutions and specialty chemicals technology that improve process performance, optimize productivity and enable unique innovations for many of the world’s leading technology and industrial companies. Our solutions are critical to addressing the challenges of miniaturization and complexity in advanced device manufacturing by enabling increased power, speed, feature enhancement, and optimized connectivity. Our solutions are also critical to addressing ever-increasing performance requirements across a wide array of specialty industrial applications. Additional information can be found at www.mks.com.
Use of Non-GAAP Financial Results
This press release includes financial measures that are not in accordance with U.S. generally accepted accounting principles (“Non-GAAP financial measures”). These Non-GAAP financial measures should be viewed in addition to, and not as a substitute for, MKS’ reported results under U.S. generally accepted accounting principles (“GAAP”), and may be different from Non-GAAP financial measures used by other companies. In addition, these Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. MKS management believes the presentation of these Non-GAAP financial measures is useful to investors for comparing prior periods and analyzing ongoing business trends and operating results.
MKS is not providing a quantitative reconciliation of forward-looking Non-GAAP net earnings per diluted share and Adjusted EBITDA to their most directly comparable GAAP financial measures because it is unable to estimate with reasonable certainty the ultimate timing or amount of certain significant items without unreasonable efforts. These items include, but are not limited to, acquisition and integration costs, amortization of intangible assets, ransomware remediation costs, restructuring and other expense, goodwill and intangible asset impairments or other asset impairments, debt refinancing, prepayments of term loan principal, and the income tax effect of these items. These items are uncertain, depend on various factors, including, but not limited to, our acquisition of Atotech Limited (“Atotech”) in August 2022 (the “Atotech Acquisition”), the timing of ransomware remediation, and the interest rate and refinancing environment, and could have a material impact on GAAP reported results for the relevant period.
For further information regarding these Non-GAAP financial measures, please refer to the tables presenting reconciliations of our Non-GAAP results to our GAAP results and the “Notes on Our Non-GAAP Financial Information” at the end of this press release.
Selected GAAP and Non-GAAP Financial Measures
(In millions, except per share data)
| Year to Date | |||||||||||||||||||
| Q3 2023 | Q2 2023 | Q3 2022 | Q3 2023 | Q3 2022 | |||||||||||||||
| Net Revenues | |||||||||||||||||||
| Semiconductor | $ | 367 | $ | 440 | $ | 535 | $ | 1,117 | $ | 1,538 | |||||||||
| Electronics and Packaging | 243 | 225 | 166 | 691 | 275 | ||||||||||||||
| Specialty Industrial | 322 | 338 | 253 | 922 | 648 | ||||||||||||||
| Total net revenues | $ | 932 | $ | 1,003 | $ | 954 | $ | 2,730 | $ | 2,461 | |||||||||
| GAAP Financial Measures | |||||||||||||||||||
| Gross margin | 45.7 | % | 46.9 | % | 40.8 | % | 45.1 | % | 43.1 | % | |||||||||
| Operating margin | 12.6 | % | (169.1 | %) | 12.4 | % | (57.8 | %) | 18.4 | % | |||||||||
| Net income (loss) | $ | 39 | $ | (1,769 | ) | $ | 6 | $ | (1,772 | ) | $ | 279 | |||||||
| Diluted income (loss) per share | $ | 0.58 | $ | (26.47 | ) | $ | 0.09 | $ | (26.53 | ) | $ | 4.84 | |||||||
| Non-GAAP Financial Measures | |||||||||||||||||||
| Gross margin | 47.1 | % | 46.9 | % | 44.9 | % | 45.6 | % | 44.7 | % | |||||||||
| Operating margin | 21.8 | % | 22.6 | % | 25.1 | % | 19.3 | % | 24.9 | % | |||||||||
| Net earnings | $ | 98 | $ | 88 | $ | 167 | $ | 218 | $ | 464 | |||||||||
| Diluted earnings per share | $ | 1.46 | $ | 1.32 | $ | 2.74 | $ | 3.25 | $ | 8.05 | |||||||||
Additional Financial Information
At September 30, 2023, the Company had $860 million in cash and short-term investments, $5.0 billion of secured term loan principal outstanding, and up to $500 million of additional borrowing capacity under a revolving credit facility, subject to certain leverage ratio requirements. During the third quarter of 2023, the Company paid a cash dividend of $15 million or $0.22 per diluted share.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 regarding the future financial performance, business prospects and growth of MKS Instruments, Inc. (“MKS”, the “Company”, “our”, or “we”). These statements are only predictions based on current assumptions and expectations. Any statements that are not statements of historical fact (including statements containing the words “will,” “projects,” “intends,” “believes,” “plans,” “anticipates,” “expects,” “estimates,” “forecasts,” “continues” and similar expressions) should be considered to be forward-looking statements. Actual events or results may differ materially from those in the forward-looking statements set forth herein. Among the important factors that could cause actual events to differ materially from those in the forward-looking statements that we make are the need to generate sufficient cash flows to service and repay the substantial indebtedness we incurred in connection with the Atotech Acquisition; the terms of our existing credit facilities under which we incurred such debt; our entry into the chemicals technology business through the Atotech Acquisition, in which we do not have experience and which may expose us to significant additional liabilities; the risk that we are unable to integrate the Atotech Acquisition successfully or realize the anticipated synergies, cost savings and other benefits of the Atotech Acquisition; the ongoing assessment of the ransomware incident we identified on February 3, 2023, including legal, reputational, financial and contractual risks resulting from the incident, and other risks related to cybersecurity, data privacy and intellectual property; competition from larger, more advanced or more established companies in our markets; the ability to successfully grow our business and the businesses of Atotech and Electro Scientific Industries, Inc., which we acquired in February 2019, and financial risks associated with those and potential future acquisitions, including goodwill and intangible asset impairments; manufacturing and sourcing risks, including those associated with limited and sole source suppliers and the impact and duration of supply chain disruptions, component shortages, and price increases; changes in global demand and the impact of COVID-19 or any other pandemic, including with respect to such supply chain disruptions, component shortages and price increases; risks associated with doing business internationally, including geopolitical conflicts, trade compliance, regulatory restrictions on our products, components or markets, particularly the semiconductor market, and unfavorable currency exchange and tax rate fluctuations, which risks become more significant as we grow our business internationally and in China specifically; conditions affecting the markets in which we operate, including fluctuations in capital spending in the semiconductor, electronics manufacturing and automotive industries, and fluctuations in sales to our major customers; disruptions or delays from third-party service providers upon which our operations may rely; the ability to anticipate and meet customer demand; the challenges, risks and costs involved with integrating or transitioning local and international operations of the companies we have acquired; risks associated with the attraction and retention of key personnel; potential fluctuations in quarterly results; dependence on new product development; rapid technological and market change; acquisition strategy; volatility of stock price; risks associated with chemical manufacturing and environmental regulation compliance; risks related to defective products; financial and legal risk management; and the other important factors described in MKS’ Annual Report on Form 10-K for the year ended December 31, 2022 and any subsequent Quarterly Reports on Form 10-Q, as filed with the U.S. Securities and Exchange Commission. MKS is under no obligation to, and expressly disclaims any obligation to, update or alter these forward-looking statements, whether as a result of new information, future events or otherwise after the date of this press release. Amounts reported in this press release are preliminary and subject to finalization prior to the filing of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023.
Company Contact:
David Ryzhik
Vice President, Investor Relations
Telephone: (978) 557-5180
Email: [email protected]
| MKS Instruments, Inc. | ||||||||||||||||||||
| Unaudited Consolidated Statements of Operations | ||||||||||||||||||||
| (In millions, except per share data) | ||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||
| 2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
| Net revenues: | ||||||||||||||||||||
| Products | $ | 818 | $ | 885 | $ | 841 | $ | 2,416 | $ | 2,153 | ||||||||||
| Services | 114 | 118 | 113 | 314 | 308 | |||||||||||||||
| Total net revenues | 932 | 1,003 | 954 | 2,730 | 2,461 | |||||||||||||||
| Cost of revenues: | ||||||||||||||||||||
| Products | 446 | 470 | 506 | 1,326 | 1,243 | |||||||||||||||
| Services | 60 | 63 | 58 | 173 | 156 | |||||||||||||||
| Total cost of revenues (exclusive of amortization shown separately below) | 506 | 533 | 564 | 1,499 | 1,399 | |||||||||||||||
| Gross profit | 426 | 470 | 390 | 1,231 | 1,062 | |||||||||||||||
| Research and development | 71 | 75 | 63 | 218 | 168 | |||||||||||||||
| Selling, general and administrative | 167 | 172 | 126 | 514 | 319 | |||||||||||||||
| Acquisition and integration costs | 3 | 5 | 31 | 14 | 41 | |||||||||||||||
| Restructuring | 1 | 11 | 5 | 13 | 10 | |||||||||||||||
| Amortization of intangible assets | 68 | 76 | 47 | 225 | 77 | |||||||||||||||
| Goodwill and intangible asset impairments | — | 1,827 | — | 1,827 | — | |||||||||||||||
| Gain on sale of long-lived assets | (2 | ) | — | — | (2 | ) | (7 | ) | ||||||||||||
| Income (loss) from operations | 118 | (1,696 | ) | 118 | (1,578 | ) | 454 | |||||||||||||
| Interest income | (4 | ) | (4 | ) | (1 | ) | (10 | ) | (2 | ) | ||||||||||
| Interest expense | 93 | 88 | 80 | 266 | 93 | |||||||||||||||
| Other expense (income), net | 7 | 11 | (1 | ) | 14 | (4 | ) | |||||||||||||
| Income (loss) before income taxes | 22 | (1,791 | ) | 40 | (1,848 | ) | 367 | |||||||||||||
| (Benefit) provision for income taxes | (17 | ) | (22 | ) | 34 | (76 | ) | 88 | ||||||||||||
| Net income (loss) | $ | 39 | $ | (1,769 | ) | $ | 6 | $ | (1,772 | ) | $ | 279 | ||||||||
| Net income (loss) per share: | ||||||||||||||||||||
| Basic | $ | 0.59 | $ | (26.47 | ) | $ | 0.09 | $ | (26.53 | ) | $ | 4.85 | ||||||||
| Diluted | $ | 0.58 | $ | (26.47 | ) | $ | 0.09 | $ | (26.53 | ) | $ | 4.84 | ||||||||
| Cash dividend per common share | $ | 0.22 | $ | 0.22 | $ | 0.22 | $ | 0.66 | $ | 0.66 | ||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||
| Basic | 66.9 | 66.8 | 61.0 | 66.8 | 57.4 | |||||||||||||||
| Diluted | 67.1 | 66.8 | 61.1 | 66.8 | 57.6 | |||||||||||||||
| MKS Instruments, Inc. | |||||||
| Unaudited Consolidated Balance Sheet | |||||||
| (In millions) | |||||||
| September 30, | December 31, | ||||||
| 2023 | 2022 | ||||||
| ASSETS | |||||||
| Cash and cash equivalents | $ | 859 | $ | 909 | |||
| Short-term investments | 1 | 1 | |||||
| Accounts receivable, net | 618 | 720 | |||||
| Inventories | 1,009 | 977 | |||||
| Other current assets | 288 | 187 | |||||
| Total current assets | 2,775 | 2,794 | |||||
| Property, plant and equipment, net | 761 | 800 | |||||
| Right-of-use assets, net | 227 | 234 | |||||
| Goodwill | 2,540 | 4,308 | |||||
| Intangible assets, net | 2,614 | 3,173 | |||||
| Other assets | 223 | 186 | |||||
| Total assets | $ | 9,140 | $ | 11,495 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
| Short-term debt | $ | 87 | $ | 93 | |||
| Accounts payable | 309 | 426 | |||||
| Other current liabilities | 442 | 433 | |||||
| Total current liabilities | 838 | 952 | |||||
| Long-term debt, net | 4,787 | 4,834 | |||||
| Non-current deferred taxes | 595 | 783 | |||||
| Non-current accrued compensation | 139 | 138 | |||||
| Non-current lease liabilities | 208 | 215 | |||||
| Other liabilities | 97 | 90 | |||||
| Total liabilities | 6,664 | 7,012 | |||||
| Stockholders’ equity | |||||||
| Common stock | — | — | |||||
| Additional paid-in capital | 2,180 | 2,142 | |||||
| Retained earnings | 455 | 2,272 | |||||
| Accumulated other comprehensive (loss) income | (159 | ) | 69 | ||||
| Total stockholders’ equity | 2,476 | 4,483 | |||||
| Total liabilities and stockholders’ equity | $ | 9,140 | $ | 11,495 | |||
| MKS Instruments, Inc. | |||||||||||||||||||
| Unaudited Consolidated Statements of Cash Flows | |||||||||||||||||||
| (In millions) | |||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | |||||||||||||||
| 2023 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||
| Net income (loss) | $ | 39 | $ | (1,769 | ) | $ | 6 | $ | (1,772 | ) | $ | 279 | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||||||||||
| Depreciation and amortization | 93 | 101 | 64 | 301 | 120 | ||||||||||||||
| Amortization of inventory step-up adjustment to fair value | — | — | 39 | — | 39 | ||||||||||||||
| Goodwill and intangible asset impairments | — | 1,827 | — | 1,827 | — | ||||||||||||||
| Unrealized loss (gain) on derivatives not designated as hedging instruments | 3 | 6 | (1 | ) | 23 | 6 | |||||||||||||
| Amortization of debt issuance costs and original issue discounts | 8 | 7 | 46 | 23 | 46 | ||||||||||||||
| Gain on sale of long-lived assets | (2 | ) | — | — | (2 | ) | (7 | ) | |||||||||||
| Stock-based compensation | 13 | 13 | 10 | 43 | 31 | ||||||||||||||
| Provision for excess and obsolete inventory | 24 | 12 | 3 | 54 | 10 | ||||||||||||||
| Deferred income taxes | (53 | ) | (109 | ) | 6 | (173 | ) | 4 | |||||||||||
| Other | 3 | 1 | 1 | 4 | 3 | ||||||||||||||
| Changes in operating assets and liabilities, net of acquired assets and liabilities | 32 | (148 | ) | 25 | (190 | ) | (186 | ) | |||||||||||
| Net cash provided by (used in) operating activities | 160 | (59 | ) | 199 | 138 | 345 | |||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||
| Acquisition of business, net of cash acquired | — | — | (4,473 | ) | — | (4,473 | ) | ||||||||||||
| Purchases of investments | — | — | — | — | (1 | ) | |||||||||||||
| Maturities of investments | — | — | — | — | 76 | ||||||||||||||
| Proceeds from sale of long-lived assets | 2 | — | — | 3 | 7 | ||||||||||||||
| Purchases of property, plant and equipment | (18 | ) | (18 | ) | (26 | ) | (53 | ) | (109 | ) | |||||||||
| Net cash used in investing activities | (16 | ) | (18 | ) | (4,499 | ) | (50 | ) | (4,500 | ) | |||||||||
| Cash flows from financing activities: | |||||||||||||||||||
| Proceeds from borrowings | — | — | 4,979 | 1 | 4,985 | ||||||||||||||
| Payments of borrowings | (22 | ) | (22 | ) | (826 | ) | (67 | ) | (835 | ) | |||||||||
| Dividend payments | (15 | ) | (15 | ) | (13 | ) | (44 | ) | (37 | ) | |||||||||
| Net (payments) proceeds related to employee stock awards | (1 | ) | 1 | — | (5 | ) | (5 | ) | |||||||||||
| Other financing activities | (1 | ) | 1 | — | (1 | ) | — | ||||||||||||
| Net cash (used in) provided by financing activities | (39 | ) | (35 | ) | 4,140 | (116 | ) | 4,108 | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (3 | ) | (11 | ) | (21 | ) | (22 | ) | (35 | ) | |||||||||
| Increase (decrease) in cash and cash equivalents | 102 | (123 | ) | (181 | ) | (50 | ) | (82 | ) | ||||||||||
| Cash and cash equivalents at beginning of period | 757 | 880 | 1,065 | 909 | 966 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 859 | $ | 757 | $ | 884 | $ | 859 | $ | 884 | |||||||||
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
| MKS Instruments, Inc. | ||||||||||||||||||||
| Schedule Reconciling Selected Non-GAAP Financial Measures | ||||||||||||||||||||
| (In millions, except per share data) | ||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||
| 2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
| Net income (loss) | $ | 39 | $ | (1,769 | ) | $ | 6 | $ | (1,772 | ) | $ | 279 | ||||||||
| Excess and obsolete charge from discontinued product line (Note 1) | 13 | — | — | 13 | — | |||||||||||||||
| Acquisition inventory step-up (Note 2) | — | — | 39 | — | 39 | |||||||||||||||
| Acquisition and integration costs (Note 3) | 3 | 5 | 31 | 14 | 41 | |||||||||||||||
| Restructuring (Note 4) | 1 | 11 | 5 | 13 | 10 | |||||||||||||||
| Amortization of intangible assets | 68 | 76 | 47 | 225 | 77 | |||||||||||||||
| Goodwill and intangible asset impairments (Note 5) | — | 1,827 | — | 1,827 | — | |||||||||||||||
| Gain on sale of long-lived assets (Note 6) | (2 | ) | — | — | (2 | ) | (7 | ) | ||||||||||||
| Amortization of debt issuance costs (Note 7) | 6 | 5 | 43 | 17 | 43 | |||||||||||||||
| Ransomware incident (Note 8) | 2 | 4 | — | 14 | — | |||||||||||||||
| Currency hedge gain (Note 9) | — | — | — | — | (5 | ) | ||||||||||||||
| Reversal of indefinite reinvestment assertion (Note 10) | — | — | 30 | — | 30 | |||||||||||||||
| Tax effect of Non-GAAP adjustments (Note 11) | (32 | ) | (72 | ) | (34 | ) | (131 | ) | (43 | ) | ||||||||||
| Non-GAAP net earnings | $ | 98 | $ | 88 | $ | 167 | $ | 218 | $ | 464 | ||||||||||
| Non-GAAP net earnings per diluted share | $ | 1.46 | $ | 1.32 | $ | 2.74 | $ | 3.25 | $ | 8.05 | ||||||||||
| Weighted average diluted shares outstanding | 67.1 | 67.0 | 61.1 | 66.8 | 57.6 | |||||||||||||||
| Net cash provided by (used in) operating activities | $ | 160 | $ | (59 | ) | $ | 199 | $ | 138 | $ | 345 | |||||||||
| Purchases of property, plant and equipment | (18 | ) | (18 | ) | (26 | ) | (53 | ) | (109 | ) | ||||||||||
| Free cash flow | $ | 142 | $ | (77 | ) | $ | 173 | $ | 85 | $ | 236 | |||||||||
| MKS Instruments, Inc. | ||||||||||||||||||||
| Schedule Reconciling Selected Non-GAAP Financial Measures | ||||||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||
| 2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
| Gross profit | $ | 426 | $ | 470 | $ | 390 | $ | 1,231 | $ | 1,062 | ||||||||||
| GAAP gross margin | 45.7 | % | 46.9 | % | 40.8 | % | 45.1 | % | 43.1 | % | ||||||||||
| Excess and obsolete charge from discontinued product line (Note 1) | 13 | — | — | 13 | — | |||||||||||||||
| Acquisition inventory step-up (Note 2) | — | — | 39 | — | 39 | |||||||||||||||
| Non-GAAP gross profit | $ | 439 | $ | 470 | $ | 429 | $ | 1,244 | $ | 1,101 | ||||||||||
| Non-GAAP gross margin | 47.1 | % | 46.9 | % | 44.9 | % | 45.6 | % | 44.7 | % | ||||||||||
| Operating expenses | $ | 308 | $ | 2,166 | $ | 272 | $ | 2,809 | $ | 608 | ||||||||||
| Acquisition and integration costs (Note 3) | 3 | 5 | 31 | 14 | 41 | |||||||||||||||
| Restructuring (Note 4) | 1 | 11 | 5 | 13 | 10 | |||||||||||||||
| Goodwill and intangible asset impairments (Note 5) | — | 1,827 | — | 1,827 | — | |||||||||||||||
| Ransomware incident (Note 8) | 2 | 4 | — | 14 | — | |||||||||||||||
| Gain on sale of long-lived assets (Note 6) | (2 | ) | — | — | (2 | ) | (7 | ) | ||||||||||||
| Amortization of intangible assets | 68 | 76 | 47 | 225 | 77 | |||||||||||||||
| Non-GAAP operating expenses | $ | 236 | $ | 243 | $ | 189 | $ | 718 | $ | 487 | ||||||||||
| Income (loss) from operations | $ | 118 | $ | (1,696 | ) | $ | 118 | $ | (1,578 | ) | $ | 454 | ||||||||
| Operating margin | 12.6 | % | (169.1 | %) | 12.4 | % | (57.8 | %) | 18.4 | % | ||||||||||
| Excess and obsolete charge from discontinued product line (Note 1) | 13 | — | — | 13 | — | |||||||||||||||
| Acquisition inventory step-up (Note 2) | — | — | 39 | — | 39 | |||||||||||||||
| Acquisition and integration costs (Note 3) | 3 | 5 | 31 | 14 | 41 | |||||||||||||||
| Restructuring (Note 4) | 1 | 11 | 5 | 13 | 10 | |||||||||||||||
| Goodwill and intangible asset impairments (Note 5) | — | 1,827 | — | 1,827 | — | |||||||||||||||
| Ransomware incident (Note 8) | 2 | 4 | — | 14 | — | |||||||||||||||
| Gain on sale of long-lived assets (Note 6) | (2 | ) | — | — | (2 | ) | (7 | ) | ||||||||||||
| Amortization of intangible assets | 68 | 76 | 47 | 225 | 77 | |||||||||||||||
| Non-GAAP income from operations | $ | 203 | $ | 227 | $ | 240 | $ | 526 | $ | 614 | ||||||||||
| Non-GAAP operating margin | 21.8 | % | 22.6 | % | 25.1 | % | 19.3 | % | 24.9 | % | ||||||||||
| Interest expense, net | 89 | 84 | 79 | 256 | 91 | |||||||||||||||
| Amortization of debt issuance costs (Note 7) | 6 | 5 | 43 | 17 | 43 | |||||||||||||||
| Non-GAAP interest expense, net | 83 | 79 | 36 | 239 | 48 | |||||||||||||||
| Net income (loss) | $ | 39 | $ | (1,769 | ) | $ | 6 | $ | (1,772 | ) | $ | 279 | ||||||||
| Interest expense, net | 89 | 84 | 79 | 256 | 91 | |||||||||||||||
| (Benefit) provision for income taxes | (17 | ) | (22 | ) | 34 | (76 | ) | 88 | ||||||||||||
| Depreciation | 25 | 25 | 17 | 76 | 43 | |||||||||||||||
| Amortization of intangible assets | 68 | 76 | 47 | 225 | 77 | |||||||||||||||
| EBITDA | $ | 205 | $ | (1,606 | ) | $ | 183 | $ | (1,291 | ) | $ | 578 | ||||||||
| Excess and obsolete charge from discontinued product line (Note 1) | 13 | — | — | 13 | — | |||||||||||||||
| Stock-based compensation | 13 | 13 | 10 | 43 | 31 | |||||||||||||||
| Acquisition inventory step-up (Note 2) | — | — | 39 | — | 39 | |||||||||||||||
| Acquisition and integration costs (Note 3) | 3 | 5 | 31 | 14 | 41 | |||||||||||||||
| Restructuring (Note 4) | 1 | 11 | 5 | 13 | 10 | |||||||||||||||
| Goodwill and intangible asset impairments (Note 5) | — | 1,827 | — | 1,827 | — | |||||||||||||||
| Ransomware incident (Note 8) | 2 | 4 | — | 14 | — | |||||||||||||||
| Gain on sale of long-lived assets (Note 6) | (2 | ) | — | — | (2 | ) | (7 | ) | ||||||||||||
| Currency hedge gain (Note 9) | — | — | — | — | (5 | ) | ||||||||||||||
| Adjusted EBITDA | $ | 235 | $ | 254 | $ | 268 | $ | 631 | $ | 687 | ||||||||||
| Adjusted EBITDA margin | 25.2 | % | 25.3 | % | 28.0 | % | 23.1 | % | 27.9 | % | ||||||||||
| MKS Instruments, Inc. | ||||||||||||||||||||||
| Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate | ||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||
| Three Months Ended September 30, 2023 | Three Months Ended June 30, 2023 | |||||||||||||||||||||
| Income Before Income Taxes | (Benefit) Provision for Income Taxes | Effective Tax Rate | (Loss) Income Before Income Taxes | (Benefit) Provision for Income Taxes | Effective Tax Rate | |||||||||||||||||
| GAAP | $ | 22 | $ | (17 | ) | (75.3 | %) | $ | (1,791 | ) | $ | (22 | ) | 1.2 | % | |||||||
| Excess and obsolete charge from discontinued product line (Note 1) | 13 | — | — | — | ||||||||||||||||||
| Acquisition and integration costs (Note 3) | 3 | 5 | — | |||||||||||||||||||
| Restructuring (Note 4) | 1 | — | 11 | — | ||||||||||||||||||
| Amortization of intangible assets | 68 | — | 76 | — | ||||||||||||||||||
| Goodwill and intangible asset impairments (Note 5) | — | — | 1,827 | — | ||||||||||||||||||
| Gain on sale of long-lived assets (Note 6) | (2 | ) | — | — | ||||||||||||||||||
| Amortization of debt issuance costs (Note 7) | 6 | — | 5 | — | ||||||||||||||||||
| Ransomware incident (Note 8) | 2 | — | 4 | — | ||||||||||||||||||
| Tax effect of Non-GAAP adjustments (Note 11) | — | 32 | — | 72 | ||||||||||||||||||
| Non-GAAP | $ | 114 | $ | 16 | 14.2 | % | $ | 137 | $ | 49 | 35.5 | % | ||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||||||||
| Income Before Income Taxes | Provision for Income Taxes | Effective Tax Rate | ||||||||||||||||||||
| GAAP | $ | 40 | $ | 34 | 85.5 | % | ||||||||||||||||
| Acquisition and integration costs (Note 3) | 31 | — | ||||||||||||||||||||
| Acquisition inventory step-up | 39 | — | ||||||||||||||||||||
| Restructuring (Note 4) | 5 | — | ||||||||||||||||||||
| Amortization of intangible assets | 47 | — | ||||||||||||||||||||
| Amortization of debt issuance costs (Note 7) | 43 | — | ||||||||||||||||||||
| Reversal of indefinite reinvestment assertion (Note 10) | — | (30 | ) | |||||||||||||||||||
| Tax effect of Non-GAAP adjustments (Note 11) | — | 34 | ||||||||||||||||||||
| Non-GAAP | $ | 204 | $ | 37 | 18.0 | % | ||||||||||||||||
| Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | |||||||||||||||||||||
| (Loss) Income Before Income Taxes | (Benefit) Provision for Income Taxes | Effective Tax Rate | Income Before Income Taxes | Provision for Income Taxes | Effective Tax Rate | |||||||||||||||||
| GAAP | $ | (1,848 | ) | $ | (76 | ) | 4.1 | % | $ | 367 | $ | 88 | 24.1 | % | ||||||||
| Excess and obsolete charge from discontinued product line (Note 1) | 13 | — | — | — | ||||||||||||||||||
| Acquisition inventory step-up (Note 2) | — | — | 39 | — | ||||||||||||||||||
| Acquisition and integration costs (Note 3) | 14 | 41 | ||||||||||||||||||||
| Restructuring (Note 4) | 13 | — | 10 | — | ||||||||||||||||||
| Amortization of intangible assets | 225 | — | 77 | — | ||||||||||||||||||
| Goodwill and intangible asset impairments (Note 5) | 1,827 | — | — | — | ||||||||||||||||||
| Gain on sale of long-lived assets (Note 6) | (2 | ) | (7 | ) | ||||||||||||||||||
| Amortization of debt issuance costs (Note 7) | 17 | — | 43 | — | ||||||||||||||||||
| Ransomware incident (Note 8) | 14 | — | — | — | ||||||||||||||||||
| Currency hedge gain (Note 9) | — | — | (5 | ) | ||||||||||||||||||
| Reversal of indefinite reinvestment assertion (Note 10) | — | — | — | (30 | ) | |||||||||||||||||
| Tax effect of Non-GAAP adjustments (Note 11) | — | 131 | — | 43 | ||||||||||||||||||
| Non-GAAP | $ | 273 | $ | 55 | 20.1 | % | $ | 565 | $ | 101 | 17.9 | % | ||||||||||
MKS Instruments, Inc.
Notes on Our Non-GAAP Financial Information
Non-GAAP financial measures adjust GAAP financial measures for the items listed below. These Non-GAAP financial measures should be viewed in addition to, and not as a substitute for, MKS’ reported GAAP results, and may be different from Non-GAAP financial measures used by other companies. In addition, these Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. MKS management believes the presentation of these Non-GAAP financial measures is useful to investors for comparing prior periods and analyzing ongoing business trends and operating results. Totals presented may not sum and percentages may not recalculate using figures presented due to rounding.
Note 1: We recorded an excess and obsolescence inventory charge related to a product line that is being discontinued.
Note 2: Costs of revenues during the three and nine months ended September 30, 2022 included the amortization from the step-up of inventory to fair value as a result of the Atotech Acquisition.
Note 3: Acquisition and integration costs primarily related to the Atotech Acquisition.
Note 4: Restructuring costs during the three months ended September 30, 2023 and June 30, 2023 and the nine months ended September 30, 2023 primarily related to severance costs due to global cost-saving initiatives. Restructuring costs during the three months ended September 30, 2022 primarily related to executive payments made in connection with the Atotech Acquisition. Restructuring costs during the nine months ended September 30, 2022 primarily related to executive payments made in connection with the Atotech Acquisition and severance costs due to a global cost-saving initiative and the closure of two facilities in Europe.
Note 5: During the three months ended June 30, 2023, we noted softer industry demand, particularly in the personal computer and smartphone markets and concluded there was a triggering event at our Materials Solutions Division, which represents the former Atotech business, and Equipment Solutions Business, which represents the former Electro Scientific Industries business and is a reporting unit of our Photonics Solutions Division. We performed a quantitative assessment which resulted in an impairment of $1.3 billion for our Materials Solutions Division and $0.5 billion for our Equipment Solutions Business.
Note 6: We recorded a gain on the sale of a minority interest investment in a private company.
Note 7: We recorded additional interest expense related to the amortization of debt issuance costs associated with our term loan facility.
Note 8: We recorded costs, net of recoveries, associated with the ransomware incident we identified on February 3, 2023. These costs were primarily comprised of various third-party consulting services, including forensic experts, restoration experts, legal counsel, and other information technology and accounting professional expenses, enhancements to our cybersecurity measures, and costs to restore our systems and access our data.
Note 9: We realized a gain from a euro currency contract used to hedge our financing in connection with the Atotech Acquisition. The contract expired on January 31, 2022.
Note 10: We no longer intend to indefinitely reinvest earnings of our foreign subsidiaries after the Atotech Acquisition. Additional income tax expense was recorded to reflect an estimate of withholding taxes that would be due on repatriation of prior period earnings.
Note 11: Non-GAAP adjustments are tax effected at applicable statutory rates resulting in a difference between the GAAP and Non-GAAP tax rates.
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