false000104950200010495022022-11-022022-11-02

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 02, 2022

 

 

MKS INSTRUMENTS, INC.

(Exact name of Registrant as Specified in Its Charter)

 

 

Massachusetts			000-23621	04-2277512
(State or Other Jurisdiction of Incorporation)			(Commission File Number)	(IRS Employer 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

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

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. ☐

 

 

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Item 2.02 Results of Operations and Financial Condition.

On November 2, 2022, MKS Instruments, Inc. announced its financial results for the quarter ended September 30, 2022. The full text of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

 

The information in this Form 8-K and the Exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

 

99.1 Press Release dated November 2, 2022

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

			MKS Instruments, Inc.
Date:	November 2, 2022	By:	/s/ Seth H. Bagshaw
			Name: Seth H. Bagshaw Title: Senior Vice President, Chief Financial Officer and Treasurer

 

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	EXHIBIT 99.1

 

MKS Instruments Reports Third Quarter 2022 Financial Results

 

Andover, MA, November 2, 2022 -- MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported third quarter 2022 financial results.

"We delivered a strong third quarter driven by robust demand for our vacuum and photonics solutions," said John T.C. Lee, President and Chief Executive Officer. "While end market demand in our Semiconductor and Advanced Electronics markets is expected to soften in the fourth quarter and into 2023, we believe our market leadership in critical technologies for advanced device manufacturing, our operational track record, and our significant base of consumables and services revenue position MKS to emerge from this changing market landscape even stronger than when we entered into it."

Mr. Lee added, "The third quarter also marked a major advancement in MKS' long-term strategy, as we completed the acquisition of Atotech Limited. Atotech broadens MKS' capabilities by adding leadership in critical chemistry solutions for advanced electronics and specialty industrial applications. We are thrilled to welcome the talented global team of over 4,000 new employees to the MKS family."

"We delivered revenues above the midpoint of our guidance range, and are especially pleased with the 100 basis point sequential improvement in Non-GAAP operating margin," said Seth H. Bagshaw, Senior Vice President and Chief Financial Officer. "This performance is a testament to our track record of prudent cost management."

Mr. Bagshaw added, "We exited the third quarter with a net leverage ratio of 3.3. We have a well-established history of rapidly paying down debt following each major acquisition, and will be focused on doing so again in the coming quarters."

Fourth Quarter 2022 Outlook

Based on current business levels, regulatory environment, and certain supply chain constraints, the Company expects revenue in the fourth quarter of 2022 of $1.00 billion, plus or minus $50 million. At these volumes, the Company expects Non-GAAP net earnings per diluted share of $1.34, plus or minus $0.27.

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Conference Call Details

A conference call with management will be held on Thursday, November 3, 2022 at 8:30 a.m. (Eastern Time). To participate in the call by phone, participants should visit the Investor Relations section of MKS' website at www.mks.com and click on Calendar of Events, 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 MKS' website.

About MKS Instruments

MKS Instruments, Inc. enables technologies that transform our world. We deliver foundational technology solutions to leading edge semiconductor manufacturing, advanced electronics 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 and feature enhancement for 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.

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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 gross margin, operating expenses, interest expense, net, income tax rate, net earnings, net earnings per diluted share and adjusted EBITDA to the 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, acquisition inventory step-up, amortization of intangible assets, restructuring and other expense, asset impairment, and the income tax effect of these items. These items are uncertain, depend on various factors, including, but not limited to, our recent acquisition of Atotech 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.

 

 

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Selected GAAP and Non-GAAP Financial Measures

(In millions, except per share data)

 

													Year to Date
	Q3 2022				Q2 2022				Q3 2021				Q3 2022				Q3 2021
Net Revenues
Semiconductor	$	541			$	515			$	488			$	1,545			$	1,331
Advanced Electronics		185				77				90				344				342
Specialty Industrial		228				173				164				572				513
Total net revenues	$	954			$	765			$	742			$	2,461			$	2,186
GAAP Financial Measures
Gross margin		40.8	%			44.2	%			47.0	%			43.1	%			46.9	%
Operating margin		12.4	%			21.5	%			23.6	%			18.4	%			23.7	%
Net income	$	6			$	130			$	132			$	279			$	401
Diluted EPS	$	0.09			$	2.32			$	2.38			$	4.84			$	7.21
Non-GAAP Financial Measures
Gross margin		44.9	%			44.2	%			47.0	%			44.7	%			46.9	%
Operating margin		25.1	%			24.1	%			27.1	%			24.9	%			26.9	%
Net earnings	$	167			$	145			$	155			$	464			$	466
Diluted EPS	$	2.74			$	2.59			$	2.79			$	8.05			$	8.36

 

Additional Financial Information

At September 30, 2022, the Company had $885 million in cash and short-term investments, $5.2 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 2022, the Company paid a cash dividend of $12 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" or the "Company"). 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 are the need to generate sufficient cash flows to service and repay the substantial indebtedness MKS has incurred in connection with the acquisition of Atotech, the terms of the existing term loans under which MKS incurred such debt, MKS' entry into the chemicals technology business through its acquisition of Atotech, in which MKS does not have experience and which may expose MKS to significant additional liabilities, the risk of litigation relating to the Atotech acquisition, the risk that disruption from the Atotech acquisition

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materially and adversely affects MKS' businesses and operations, MKS' ability to realize the anticipated synergies, cost savings and other benefits of the Atotech acquisition, competition from larger, more advanced or more established companies in MKS' markets, MKS' ability to successfully grow its business and the businesses of Atotech, which MKS acquired in August 2022, and Electro Scientific Industries, Inc., which MKS acquired in February 2019, and financial risks associated with those and potential future acquisitions, including goodwill and intangible asset impairments, potential adverse reactions or changes to business relationships resulting from the completion of the Atotech acquisition, manufacturing and sourcing risks, including those associated with limited and sole source suppliers and the impact and duration of supply chain disruptions and component shortages, and changes in global demand and the impact of COVID-19 or any other pandemic with respect to such disruptions, shortages and increases, risks associated with doing business internationally, including trade compliance, regulatory restrictions on MKS' products or components and unfavorable currency exchange and tax rate fluctuations, which risks become more significant as MKS grows its business internationally and in China specifically, conditions affecting the markets in which MKS operates, including fluctuations in capital spending in the semiconductor industry and other advanced manufacturing markets, and fluctuations in sales to MKS' major customers or 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 MKS has 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 MKS' products resulting from defects, which would increase MKS' costs and seriously harm the business, financial condition, operating results and customer relationships, financial and legal risk management, risks related to cybersecurity and data privacy threats and the challenges associated with intellectual property protection, and the other factors described in Exhibit 99.1 to MKS' Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on August 17, 2022, and any subsequent Quarterly Reports on Form 10-Q. MKS is under no obligation to, and expressly disclaim 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.

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Company Contact:

David Ryzhik

Vice President, Investor Relations

Telephone: (978) 557-5180

Email: david.ryzhik@mksinst.com

 

 

 

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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,
	2022				2022				2021				2022				2021
Net revenues:
Products	$	841			$	664			$	649			$	2,153			$	1,911
Services		113				101				93				308				275
Total net revenues		954				765				742				2,461				2,186
Cost of revenues:
Products		506				377				345				1,243				1,012
Services		58				50				49				156				148
Total cost of revenues		564				427				394				1,399				1,160
Gross profit		390				338				348				1,062				1,026
Research and development		63				53				52				168				149
Selling, general and administrative		126				101				95				319				289
Acquisition and integration costs		31				2				9				41				21
Restructuring and other		5				3				2				10				10
Amortization of intangible assets		47				15				15				77				40
Gain on sale of long-lived assets		—				—				—				(7	)			—
Income from operations		118				164				175				454				517
Interest income		1				1				—				2				1
Interest expense		80				7				6				93				19
Other (income) expense, net		(1	)			2				3				(4	)			12
Income before income taxes		40				156				166				367				487
Provision for income taxes		34				26				34				88				86
Net income	$	6			$	130			$	132			$	279			$	401
Net income per share:
Basic	$	0.09			$	2.33			$	2.39			$	4.85			$	7.24
Diluted	$	0.09			$	2.32			$	2.38			$	4.84			$	7.21
Cash dividend per common share	$	0.22			$	0.22			$	0.22			$	0.66			$	0.64
Weighted average shares outstanding:
Basic		61.0				55.7				55.5				57.4				55.4
Diluted		61.1				55.8				55.7				57.6				55.7

 

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MKS Instruments, Inc.

Unaudited Consolidated Balance Sheet

(In millions)

 

 

		September 30,				December 31,
		2022				2021
ASSETS
Cash and cash equivalents		$	884			$	966
Short-term investments			1				76
Trade accounts receivable, net			730				443
Inventories			961				577
Other current assets			215				85
Total current assets			2,791				2,147
Property, plant and equipment, net			655				326
Right-of-use assets			235				184
Goodwill			3,851				1,228
Intangible assets, net			3,653				576
Other assets			187				79
Total assets		$	11,372			$	4,540
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt		$	95			$	9
Accounts payable			410				168
Accrued compensation			92				132
Income taxes payable			92				25
Lease liabilities			27				18
Deferred revenue and customer advances			103				37
Other current liabilities			192				71
Total current liabilities			1,011				460
Long-term debt, net			4,893				808
Non-current deferred taxes			893				99
Non-current accrued compensation			131				49
Non-current lease liabilities			220				193
Other liabilities			75				44
Total liabilities			7,223				1,653
Stockholders' equity
Common stock			—				—
Additional paid-in capital			2,124				907
Retained earnings			2,233				1,991
Accumulated other comprehensive loss			(208	)			(11	)
Total stockholders' equity			4,149				2,887
Total liabilities and stockholders' equity		$	11,372			$	4,540

 

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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,
	2022				2022				2021				2022				2021
Cash flows from operating activities:
Net income	$	6			$	130			$	132			$	279			$	401
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		64				28				27				120				76
Amortization of inventory step-up adjustment to fair value		39				—				—				39				—
Unrealized (gain) loss on derivatives not designated as hedging instruments		(1	)			4				(8	)			6				(1	)
Amortization of debt issuance costs and original issue discounts		46				—				1				46				2
Gain on sale of long-lived assets		—				—				—				(7	)			—
Stock-based compensation		10				13				9				31				28
Provision for excess and obsolete inventory		3				3				5				10				14
Deferred income taxes		6				—				(2	)			4				7
Other		1				2				1				3				1
Changes in operating assets and liabilities, net of acquired assets and liabilities		25				(75	)			(12	)			(186	)			(83	)
Net cash provided by operating activities		199				105				153				345				445
Cash flows from investing activities:
Acquisition of business, net of cash acquired		(4,473	)			—				(268	)			(4,473	)			(268	)
Purchases of investments		—				(1	)			(100	)			(1	)			(497	)
Maturities of investments		—				41				138				76				342
Sales of investments		—				—				—				—				135
Proceeds from sale of long-lived assets		—				—				—				7				—
Purchases of property, plant and equipment		(26	)			(64	)			(21	)			(109	)			(63	)
Net cash used in investing activities		(4,499	)			(24	)			(251	)			(4,500	)			(351	)
Cash flows from financing activities:
Net proceeds from borrowings		4,979				3				—				4,985				1
Payments of borrowings		(826	)			(6	)			(2	)			(835	)			(13	)
Dividend payments		(13	)			(12	)			(12	)			(37	)			(36	)
Net proceeds (payments) related to employee stock awards		—				1				(7	)			(5	)			(14	)
Net cash provided by (used) in financing activities		4,140				(14	)			(21	)			4,108				(62	)
Effect of exchange rate changes on cash and cash equivalents		(21	)			(13	)			(3	)			(35	)			(7	)
(Decrease) increase in cash and cash equivalents		(181	)			54				(122	)			(82	)			25
Cash and cash equivalents at beginning of period		1,065				1,011				755				966				608
Cash and cash equivalents at end of period	$	884			$	1,065			$	633			$	884			$	633

 

 

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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,
	2022				2022				2021				2022				2021
Net income	$	6			$	130			$	132			$	279			$	401
Acquisition and integration costs (Note 1)		31				2				9				41				21
Acquisition inventory step-up (Note 2)		39				—				—				39				—
Restructuring and other (Note 3)		5				3				2				10				10
Amortization of intangible assets		47				15				15				77				40
Amortization of debt issuance costs (Note 4)		43				—				—				43				1
Gain on sale of long-lived assets (Note 5)		—				—				—				(7	)			—
Currency hedge loss (gain) (Note 6)		—				—				3				(5	)			10
Reversal of indefinite reinvestment assertion (Note 7)		30				—				—				30				—
Windfall tax benefit on stock-based compensation (Note 8)		—				—				—				(1	)			(4	)
Withholding tax related to Brexit (Note 9)		—				—				—				—				3
Tax effect of Non-GAAP adjustments (Note 10)		(34	)			(5	)			(6	)			(42	)			(16	)
Non-GAAP net earnings	$	167			$	145			$	155			$	464			$	466
Non-GAAP net earnings per diluted share	$	2.74			$	2.59			$	2.79			$	8.05			$	8.36
Weighted average diluted shares outstanding		61.1				55.8				55.7				57.6				55.7
Net cash provided by operating activities	$	199			$	105			$	153			$	345			$	445
Purchases of property, plant and equipment		(26	)			(64	)			(21	)			(109	)			(63	)
Free cash flow	$	173			$	41			$	132			$	236			$	382

 

 

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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,
	2022				2022				2021				2022				2021
Gross profit	$	390			$	338			$	348			$	1,062			$	1,026
Acquisition inventory step-up (Note 2)		39				—				—				39				—
Non-GAAP gross profit		429				338				348				1,101				1,026
Non-GAAP gross margin		44.9	%			44.2	%			47.0	%			44.7	%			46.9	%
Operating expenses	$	272			$	174			$	173			$	608			$	509
Acquisition and integration costs (Note 1)		31				2				9				41				21
Restructuring and other (Note 3)		5				3				2				10				10
Gain on sale of long-lived assets (Note 5)		—				—				—				(7	)			—
Amortization of intangible assets		47				15				15				77				40
Non-GAAP operating expenses	$	189			$	154			$	147			$	487			$	438
Income from operations	$	118			$	164			$	175			$	454			$	517
Acquisition and integration costs (Note 1)		31				2				9				41				21
Acquisition inventory step-up (Note 2)		39				—				—				39				—
Restructuring and other (Note 3)		5				3				2				10				10
Gain on sale of long-lived assets (Note 5)		—				—				—				(7	)			—
Amortization of intangible assets		47				15				15				77				40
Non-GAAP income from operations	$	240			$	184			$	201			$	614			$	588
Non-GAAP operating margin		25.1	%			24.1	%			27.1	%			24.9	%			26.9	%
Interest expense, net		79				6				6				91				18
Amortization of debt issuance costs (Note 4)		43				—				—				43				1
Non-GAAP interest expense, net		36				6				6				48				17
Net income	$	6			$	130			$	132			$	279			$	401
Interest expense, net		79				6				6				91				18
Provision for income taxes		34				26				34				88				86
Depreciation		17				13				12				43				36
Amortization of intangible assets		47				15				15				77				40
EBITDA	$	183			$	190			$	199			$	578			$	581
Stock-based compensation		10				13				9				31				28
Acquisition and integration costs (Note 1)		31				2				9				41				21
Acquisition inventory step-up (Note 2)		39				—				—				39				—
Restructuring and other (Note 3)		5				3				2				10				10
Gain on sale of long-lived assets (Note 5)		—				—				—				(7	)			—
Currency hedge loss (gain) (Note 6)		—				—				3				(5	)			10
Adjusted EBITDA	$	268			$	208			$	222			$	687			$	650
Adjusted EBITDA margin		28.0	%			27.2	%			29.9	%			27.9	%			29.7	%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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MKS Instruments, Inc.

Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate

(In millions)

 

 

		Three Months Ended September 30, 2022										Three Months Ended June 30, 2022
		Income Before Income Taxes				Provision (benefit) for Income Taxes				Effective Tax Rate		Income Before Income Taxes				Provision (benefit) for Income Taxes				Effective Tax Rate
GAAP		$	40			$	34			85.5%		$	156			$	26			17.0%
Acquisition and integration costs (Note 1)			31				—						2				—
Acquisition inventory step-up (Note 2)			39				—						—				—
Restructuring and other (Note 3)			5				—						3				—
Amortization of intangible assets			47				—						15				—
Amortization of debt issuance costs (Note 4)			43				—						—				—
Reversal of indefinite reinvestment assertion (Note 7)			—				(30	)
Tax effect of Non-GAAP adjustments (Note 10)			—				34						—				5
Non-GAAP		$	204			$	37			18.0%		$	176			$	31			18.0%

 

								Three Months Ended September 30, 2021
								Income Before Income Taxes				Provision (benefit) for Income Taxes				Effective Tax Rate
GAAP								$	166			$	34			20.4%
Acquisition and integration costs (Note 1)									9				—
Restructuring and other (Note 3)									2				—
Amortization of intangible assets									15				—
Currency hedge loss (gain) (Note 6)									3				—
Tax effect of Non-GAAP adjustments (Note 10)									—				6
Non-GAAP								$	195			$	40			20.4%

 

		Nine Months Ended September 30, 2022										Nine Months Ended September 30, 2021
		Income Before Income Taxes				Provision (benefit) for Income Taxes				Effective Tax Rate		Income Before Income Taxes				Provision (benefit) for Income Taxes				Effective Tax Rate
GAAP		$	367			$	88			24.1%		$	487			$	86			17.6%
Acquisition and integration costs (Note 1)			41				—						21				—
Acquisition inventory step-up (Note 2)			39										—
Restructuring and other (Note 3)			10				—						10				—
Amortization of intangible assets			77				—						40				—
Amortization of debt issuance costs (Note 4)			43				—						1				—
Gain on sale of long-lived assets (Note 5)			(7	)			—						—				—
Currency hedge loss (gain) (Note 6)			(5	)			—						10
Reversal of indefinite reinvestment assertion (Note 7)							(30	)
Windfall tax benefit on stock-based compensation (Note 8)			—				1						—				4
Withholding tax related to Brexit (Note 9)			—				—						—				(3	)
Tax effect of Non-GAAP adjustments (Note 10)			—				42						—				16
Non-GAAP		$	565			$	101			17.9%		$	569			$	103			18.2%

 

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MKS Instruments, Inc.
Reconciliation of Net Leverage Ratio

(In millions)

 

	Three Months Ended
	September 30,				June 30,				March 31,				December 31,
	2022				2022				2022				2021				Total
Combined Company
Net income	$	(12	)		$	150			$	187			$	175			$	500
Interest expense, net		105				21				20				19				165
Provision for income taxes		33				51				46				46				176
Depreciation and amortization		73				65				67				69				274
Stock-based compensation		13				17				11				13				54
Acquisition and integration costs		71				2				9				15				97
Acquisition inventory step-up		39				—				—				—				39
Restructuring and other		5				3				3				4				15
Gain on sale of long-lived assets		—				—				(7	)			—				(7	)
Currency hedge loss (gain)		—				—				(5	)			—				(5	)
Management fee		—				1				1				1				3
Adjusted EBITDA	$	327			$	310			$	332			$	342			$	1,311
Principal outstanding on New Credit Agreement at September 30, 2022																	$	5,189
Less: Cash & Short Term Investments at September 30, 2022																		885
Net debt at September 30, 2022																	$	4,304
Net leverage ratio at September 30, 2022																		3.3	x
MKS
Net income	$	54			$	130			$	143			$	150			$	477
Interest expense, net		79				6				6				6				97
Provision for income taxes		44				26				28				29				127
Depreciation and amortization		28				28				28				28				112
Stock-based compensation		10				13				8				9				40
Acquisition and integration costs		30				2				8				9				49
Restructuring and other		—				3				2				1				6
Gain on sale of long-lived assets		—				—				(7	)			—				(7	)
Currency hedge loss (gain)		—				—				(5	)			—				(5	)
Adjusted EBITDA	$	245			$	208			$	211			$	232			$	896
Atotech
Net income	$	(66	)		$	20			$	44			$	25			$	23
Interest expense, net		26				15				14				13				68
Provision for income taxes		(11	)			25				18				17				49
Depreciation and amortization		45				37				39				41				162
Stock-based compensation		3				4				3				4				14
Acquisition and integration costs		41				—				1				6				48
Acquisition inventory step-up		39				—				—				—				39
Restructuring and other		5				—				1				3				9
Management fee		—				1				1				1				3
Adjusted EBITDA	$	82			$	102			$	121			$	110			$	415

Combined Company combines the results of MKS (excluding Atotech/Materials Solutions Division for the three months ended September 30, 2022) and the results of Atotech (including full quarter results for the three months ended September 30, 2022).

 

 

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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 due to rounding.

 

Note 1: Acquisition and integration costs during the three and nine months ended September 30, 2022 and the three months ended June 30, 2022 primarily related to the Atotech Acquisition. Acquisition and integration costs during the three and nine months ended September 30, 2021 primarily related to our acquisition of Photon Control and the Atotech Acquisition. Acquisition and integration costs during the nine months ended September 30, 2021 also included costs related to a proposed acquisition that was not consummated.

 

Note 2: Costs of revenues during the three and nine months ended September 30, 2022 include the amortization from the step-up of inventory to fair value as a result of the Atotech Acquisition.

 

Note 3: Restructuring and other costs during the three months ended September 30, 2022 primarily related to executive payments made related to the Atotech Acquisition. Restructuring and other costs during the three months ended June 30, 2022 primarily related to severance costs due to a global cost-saving initiative and the closure of two facilities in Europe. Restructuring and other costs during the nine months ended September 30, 2022 primarily related to executive payments made related to the Atotech Acquisition and severance costs due to a global cost-saving initiative and the closure of two facilities in Europe. Restructuring and other costs during the three and nine months ended September 30, 2021 primarily related to duplicate facility costs attributed to entering into new facility leases, severance costs due to a global cost saving initiative, costs related to the closure of two facilities in Europe and movement of certain products to low-cost regions.

 

Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our new and prior term loan facilities.

 

Note 5: We recorded a gain on the sale of a minority interest investment in a private company.

 

Note 6: We realized a gain in the nine months ended September 30, 2022 from a euro currency contract used to hedge our financing in connection with the acquisition of Atotech. The contract expired on January 31, 2022. We recorded a fair-value loss in the three and nine months ended September 30, 2021 from Canadian dollar contracts used to hedge the funding of our acquisition of Photon Control.

 

Note 7: 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 8: We recorded windfall tax benefits on the vesting of stock-based compensation.

 

Note 9: We recorded additional withholding taxes on intercompany undistributed earnings following the United Kingdom’s withdrawal from the European Union.

 

Note 10: 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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