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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(MARK ONE)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission file number 0-23621

MKS INSTRUMENTS, INC.

(Exact name of registrant as specified in its charter)

 

Massachusetts

04-2277512

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

Identification No.)

 

 

2 Tech Drive, Suite 201, Andover, Massachusetts

01810

(Address of principal executive offices)

(Zip Code)

 

Registrant's telephone number, including area code (978) 645-5500

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, no par value

 

MKSI

 

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of April 21, 2022, the registrant had 55,659,383 shares of common stock outstanding.

 

 


 

MKS INSTRUMENTS, INC.

FORM 10-Q

INDEX

 

PART I. FINANCIAL INFORMATION

 

 

ITEM 1.

FINANCIAL STATEMENTS (Unaudited).

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets – March 31, 2022 and December 31, 2021

3

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income – Three months ended March 31, 2022 and 2021

4

 

 

 

Condensed Consolidated Statements of Stockholders' Equity – Three months ended March 31, 2022 and 2021

5

 

 

 

Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2022 and 2021

6

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

 

 

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

28

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

39

 

 

ITEM 4.

CONTROLS AND PROCEDURES.

39

 

PART II. OTHER INFORMATION

 

 

ITEM 1.

LEGAL PROCEEDINGS.

40

 

 

ITEM 1A.

RISK FACTORS.

40

 

 

 

 

 

ITEM 6.

EXHIBITS.

41

 

 

 

 

SIGNATURES

42

 

2


 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

MKS INSTRUMENTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)

(Unaudited)

 

ASSETS

 

March 31, 2022

 

 

December 31, 2021

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,011

 

 

$

966

 

Short-term investments

 

 

42

 

 

 

76

 

Trade accounts receivable, net of allowance for doubtful accounts of $3 and $4 at March 31, 2022 and December 31, 2021, respectively

 

 

480

 

 

 

443

 

Inventories

 

 

636

 

 

 

577

 

Other current assets

 

 

89

 

 

 

85

 

Total current assets

 

 

2,258

 

 

 

2,147

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

331

 

 

 

326

 

Right-of-use assets

 

 

180

 

 

 

184

 

Goodwill

 

 

1,227

 

 

 

1,228

 

Intangible assets, net

 

 

561

 

 

 

576

 

Other assets

 

 

92

 

 

 

79

 

Total assets

 

$

4,649

 

 

$

4,540

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Short-term debt

 

$

12

 

 

$

9

 

Accounts payable

 

 

173

 

 

 

168

 

Accrued compensation

 

 

72

 

 

 

132

 

Income taxes payable

 

 

32

 

 

 

25

 

Lease liabilities

 

 

19

 

 

 

18

 

Deferred revenue and customer advances

 

 

46

 

 

 

37

 

Other current liabilities

 

 

82

 

 

 

71

 

Total current liabilities

 

 

436

 

 

 

460

 

 

 

 

 

 

 

 

Long-term debt, net

 

 

806

 

 

 

808

 

Non-current deferred taxes

 

 

103

 

 

 

99

 

Non-current accrued compensation

 

 

48

 

 

 

49

 

Non-current lease liabilities

 

 

189

 

 

 

193

 

Other non-current liabilities

 

 

40

 

 

 

44

 

Total liabilities

 

 

1,622

 

 

 

1,653

 

Commitments and contingencies (Note 17)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred Stock, $0.01 par value per share, 2 shares authorized; none issued and outstanding

 

 

 

 

 

 

Common Stock, no par value, 200 shares authorized; 55.6 and 55.5 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

909

 

 

 

907

 

Retained earnings

 

 

2,122

 

 

 

1,991

 

Accumulated other comprehensive loss

 

 

(4

)

 

 

(11

)

Total stockholders' equity

 

 

3,027

 

 

 

2,887

 

Total liabilities and stockholders' equity

 

$

4,649

 

 

$

4,540

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

3


 

MKS INSTRUMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(in millions, except per share data)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Net revenues:

 

 

 

 

 

 

Products

 

$

648

 

 

$

605

 

Services

 

 

94

 

 

 

89

 

Total net revenues

 

 

742

 

 

 

694

 

Cost of revenues:

 

 

 

 

 

 

Products

 

 

360

 

 

 

323

 

Services

 

 

48

 

 

 

49

 

Total cost of revenues (exclusive of amortization shown separately below)

 

 

408

 

 

 

372

 

Gross profit

 

 

334

 

 

 

322

 

Research and development

 

 

52

 

 

 

47

 

Selling, general and administrative

 

 

92

 

 

 

96

 

Acquisition and integration costs

 

 

8

 

 

 

6

 

Restructuring and other

 

 

2

 

 

 

5

 

Amortization of intangible assets

 

 

15

 

 

 

12

 

Gain on sale of long-lived assets

 

 

(7

)

 

 

 

Income from operations

 

 

172

 

 

 

156

 

Interest expense

 

 

6

 

 

 

6

 

Other (income) expense, net

 

 

(5

)

 

 

2

 

Income before income taxes

 

 

171

 

 

 

148

 

Provision for income taxes

 

 

28

 

 

 

26

 

Net income

 

$

143

 

 

$

122

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

Changes in value of financial instruments designated as
cash flow hedges

 

$

17

 

 

$

11

 

Foreign currency translation adjustments

 

 

(10

)

 

 

(19

)

Total comprehensive income

 

$

150

 

 

$

114

 

Net income per share:

 

 

 

 

 

 

Basic

 

$

2.58

 

 

$

2.21

 

Diluted

 

$

2.57

 

 

$

2.20

 

Weighted average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

55.6

 

 

 

55.3

 

Diluted

 

 

55.8

 

 

 

55.6

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

4


 

MKS INSTRUMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in millions, except per share data)

(Unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance at December 31, 2021

 

 

55.5

 

 

$

 

 

$

907

 

 

$

1,991

 

 

$

(11

)

 

$

2,887

 

Net issuance under stock-based plans

 

 

0.1

 

 

 

 

 

 

(6

)

 

 

 

 

 

 

 

 

(6

)

Stock-based compensation

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

8

 

Cash dividend ($0.22 per common share)

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

Comprehensive income (net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

143

 

 

 

 

 

 

143

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

7

 

Balance at March 31, 2022

 

 

55.6

 

 

$

 

 

$

909

 

 

$

2,122

 

 

$

(4

)

 

$

3,027

 

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance at December 31, 2020

 

 

55.2

 

 

$

 

 

$

873

 

 

$

1,488

 

 

$

 

 

$

2,361

 

Net issuance under stock-based plans

 

 

0.1

 

 

 

 

 

 

(5

)

 

 

 

 

 

 

 

 

(5

)

Stock-based compensation

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

10

 

Cash dividend ($0.20 per common share)

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

 

 

 

(11

)

Comprehensive income (net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

122

 

 

 

 

 

 

122

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

(8

)

Balance at March 31, 2021

 

 

55.3

 

 

$

 

 

$

878

 

 

$

1,599

 

 

$

(8

)

 

$

2,469

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

5


 

MKS INSTRUMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

143

 

 

$

122

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

28

 

 

 

24

 

Unrealized loss on derivatives not designated as hedging instruments

 

 

3

 

 

 

 

Gain on sale of long-lived assets

 

 

(7

)

 

 

 

Stock-based compensation

 

 

8

 

 

 

10

 

Provision for excess and obsolete inventory

 

 

4

 

 

 

5

 

Deferred income taxes

 

 

(2

)

 

 

10

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade accounts receivable

 

 

(40

)

 

 

(33

)

Inventories

 

 

(66

)

 

 

(24

)

Other current and non-current assets

 

 

(5

)

 

 

6

 

Accounts payable

 

 

5

 

 

 

37

 

Current and non-current accrued compensation

 

 

(60

)

 

 

(42

)

Income taxes payable

 

 

15

 

 

 

 

Other current and non-current liabilities

 

 

15

 

 

 

12

 

Net cash provided by operating activities

 

 

41

 

 

 

127

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of investments

 

 

 

 

 

(185

)

Maturities of investments

 

 

35

 

 

 

95

 

Sales of investments

 

 

 

 

 

108

 

Proceeds from sale of long-lived assets

 

 

7

 

 

 

 

Purchases of property, plant and equipment

 

 

(19

)

 

 

(27

)

Net cash provided by (used in) investing activities

 

 

23

 

 

 

(9

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings

 

 

3

 

 

 

1

 

Payments of borrowings

 

 

(2

)

 

 

(8

)

Dividend payments

 

 

(12

)

 

 

(11

)

Net payments related to employee stock awards

 

 

(6

)

 

 

(5

)

Net cash used in financing activities

 

 

(17

)

 

 

(23

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(2

)

 

 

(3

)

Increase in cash and cash equivalents

 

 

45

 

 

 

92

 

Cash and cash equivalents at beginning of period

 

 

966

 

 

 

608

 

Cash and cash equivalents at end of period

 

$

1,011

 

 

$

700

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

6


MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

 

1)
Basis of Presentation

The terms "MKS" and the "Company" refer to MKS Instruments, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The interim financial data as of March 31, 2022, and for the three months ended March 31, 2022, are unaudited; however, in the opinion of MKS, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The condensed consolidated balance sheet presented as of December 31, 2021 has been derived from the consolidated audited financial statements as of that date. The unaudited condensed consolidated financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by United States generally accepted accounting principles ("U.S. GAAP"). The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the MKS Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission on February 28, 2022.

The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, inventory valuation, warranty costs, stock-based compensation, intangible assets, goodwill, other long-lived assets and other acquisition expenses and income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

In the first quarter of 2022, MKS updated the names of its three divisions in order to simplify its naming convention. These three divisions, formerly known as the Vacuum & Analysis Division, the Light & Motion Division and the Equipment & Solutions Division, are now referred to as the Vacuum Solutions Division ("VSD"), the Photonics Solutions Division ("PSD") and the Equipment Solutions Division ("ESD"), respectively. MKS' reportable segments continue to be its three divisions.

 

2) Revenue from Contracts with Customers

Contract assets as of March 31, 2022 and December 31, 2021 were immaterial. A roll-forward of the Company's deferred revenue and customer advances is as follows:

 

 

 

Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Beginning balance, January 1(1)

 

$

40

 

 

$

37

 

Additions to deferred revenue and customer advances

 

 

68

 

 

 

25

 

Amount of deferred revenue and customer advances recognized in income

 

 

(60

)

 

 

(22

)

Ending balance, March 31(2)

 

$

48

 

 

$

40

 

 

(1)
Beginning deferred revenue and customer advances as of January 1, 2022 included $16 of current deferred revenue, $3 of long-term deferred revenue and $21 of current customer advances. Beginning deferred revenue and customer advances as of January 1, 2021 included $18 of current deferred revenue, $6 of long-term deferred revenue and $13 of current customer advances.
(2)
Ending deferred revenue and customer advances as of March 31, 2022 included $17 of current deferred revenue, $2 of long-term deferred revenue and $29 of current customer advances. Ending deferred revenue and customer advances as of March 31, 2021 included $17 of current deferred revenue, $5 of long-term deferred revenue and $18 of current customer advances.

7


MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

 

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers:

 

 

 

Three Months Ended March 31, 2022

 

 

 

VSD

 

 

PSD

 

 

ESD

 

 

Total

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

416

 

 

$

210

 

 

$

22

 

 

$

648

 

Services

 

 

58

 

 

 

18

 

 

 

18

 

 

 

94

 

Total net revenues

 

$

474

 

 

$

228

 

 

$

40

 

 

$

742

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

VSD

 

 

PSD

 

 

ESD

 

 

Total

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

379

 

 

$

165

 

 

$

61

 

 

$

605

 

Services

 

 

57

 

 

 

17

 

 

 

15

 

 

 

89

 

Total net revenues

 

$

436

 

 

$

182

 

 

$

76

 

 

$