MKS INSTRUMENTS INC [MKSI] Filings

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Accelerated filer

Non-accelerated filer

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Emerging growth company

10-Q 1 mksi-20240930.htm 10-Q 10-Q

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 September 30, 2024


☐	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:

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 October 29, 2024, the registrant had 67,298,941 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 – September 30, 2024 and December 31, 2023	3

		Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) – Three and Nine Months Ended September 30, 2024 and 2023	4

		Condensed Consolidated Statements of Stockholders’ Equity – Three and Nine Months Ended September 30, 2024 and 2023	5

		Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2024 and 2023	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	42

	ITEM 4.	CONTROLS AND PROCEDURES	42

PART II. OTHER INFORMATION

	ITEM 1A.	RISK FACTORS	43

	ITEM 5.	OTHER INFORMATION	43

	ITEM 6.	EXHIBITS	44

SIGNATURES			45

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

MKS INSTRUMENTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

(Unaudited)


ASSETS	September 30, 2024			December 31, 2023
Current assets:
Cash and cash equivalents	$	861		$	875
Accounts receivable, net of allowance for doubtful accounts of $7 and $6 at September 30, 2024 and December 31, 2023, respectively		609			603
Inventories		940			991
Other current assets		258			227
Total current assets		2,668			2,696

Property, plant and equipment, net		770			784
Right-of-use assets, net		247			225
Goodwill		2,567			2,554
Intangible assets, net		2,443			2,619
Other assets		328			240
Total assets	$	9,023		$	9,118

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	50		$	93
Accounts payable		306			327
Other current liabilities		425			428
Total current liabilities		781			848

Long-term debt, net		4,758			4,696
Non-current deferred taxes		590			640
Non-current accrued compensation		154			151
Non-current lease liabilities		216			205
Other non-current liabilities		126			106
Total liabilities		6,625			6,646
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, $0.01 par value per share, 2,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, no par value, 200,000,000 shares authorized; 67,298,941 and 66,942,421 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively		—			—
Additional paid-in capital		2,053			2,195
Retained earnings		428			373
Accumulated other comprehensive (loss) income		(83	)		(96	)
Total stockholders’ equity		2,398			2,472
Total liabilities and stockholders’ equity	$	9,023		$	9,118

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

MKS INSTRUMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(in millions, except per share data)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Net revenues:
Products	$	776		$	818		$	2,301		$	2,416
Services		120			114			351			314
Total net revenues		896			932			2,652			2,730
Cost of revenues:
Products		410			446			1,220			1,326
Services		54			60			165			173
Total cost of revenues (exclusive of amortization shown separately below)		464			506			1,385			1,499
Gross profit		432			426			1,267			1,231
Research and development		70			71			206			218
Selling, general and administrative		167			167			498			514
Acquisition and integration costs		3			3			6			14
Restructuring and other		1			1			6			13
Fees and expenses related to amendments to the Term Loan Facility		2			—			5			—
Amortization of intangible assets		61			68			184			225
Goodwill and intangible asset impairments		—			—			—			1,827
Gain on sale of long-lived assets		—			(2	)		—			(2	)
Income (loss) from operations		128			118			362			(1,578	)
Interest income		(6	)		(4	)		(17	)		(10	)
Interest expense		64			93			230			266
Loss on extinguishment of debt		5			—			52			—
Other expense (income), net		5			7			(3	)		14
Income (loss) before income taxes		60			22			100			(1,848	)
(Benefit) provision for income taxes		(2	)		(17	)		1			(76	)
Net income (loss)	$	62		$	39		$	99		$	(1,772	)
Other comprehensive income (loss), net of tax:
Changes in value of financial instruments designated as cash flow hedges	$	(59	)	$	16		$	(27	)	$	45
Foreign currency translation adjustments		184			(96	)		18			(269	)
Change in net investment hedge		(28	)		21			—			8
Unrealized gain (loss) on investments		13			4			22			(7	)
Net unrecognized pension (loss) gain		(3	)		—			—			(5	)
Total comprehensive (loss) income	$	169		$	(16	)	$	112		$	(2,000	)
Net income (loss) per share:
Basic	$	0.92		$	0.59		$	1.48		$	(26.53	)
Diluted	$	0.92		$	0.58		$	1.47		$	(26.53	)
Weighted average common shares outstanding:
Basic		67.4			66.9			67.2			66.8
Diluted		67.6			67.1			67.5			66.8

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

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) Income			Equity
Balance at December 31, 2023		66.9	$	0.1	$	2,195		$	373		$	(96	)	$	2,472
Net issuance under stock-based plans		0.2				(9	)								(9	)
Stock-based compensation						15									15
Cash dividend ($0.22 per common share)									(15	)					(15	)
Comprehensive (loss) income (net of tax):
Net income (loss)									15						15
Other comprehensive (loss) income												(54	)		(54	)
Balance at March 31, 2024		67.1		0.1		2,201			373			(150	)		2,424
Net issuance under stock-based plans		0.2				(2	)								(2	)
Stock-based compensation						11									11
Purchase of capped calls related to Convertible Notes						(167	)								(167	)
Cash dividend ($0.22 per common share)									(15	)					(15	)
Comprehensive (loss) income (net of tax):
Net income (loss)									23						23
Other comprehensive (loss) income												(40	)		(40	)
Balance at June 30, 2024		67.3		0.1		2,042			381			(190	)		2,233
Net issuance under stock-based plans		—				(1	)								(1	)
Stock-based compensation						11									11
Cash dividend ($0.22 per common share)									(15	)					(15	)
Comprehensive income (loss) (net of tax):
Net income (loss)									62						62
Other comprehensive income (loss)												107			107
Balance at September 30, 2024		67.3	$	0.1	$	2,053		$	428		$	(83	)	$	2,398


	Common Stock				Additional Paid-In			Retained			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital			Earnings			(Loss) Income			Equity
Balance at December 31, 2022		66.6	$	—	$	2,142		$	2,272		$	69		$	4,483
Net issuance under stock-based plans		0.1				(6	)								(6	)
Stock-based compensation						18									18
Cash dividend ($0.22 per common share)									(15	)					(15	)
Comprehensive (loss) income (net of tax):
Net (loss) income									(42	)					(42	)
Other comprehensive income (loss)												13			13
Balance at March 31, 2023		66.7		—		2,154			2,215			82			4,451
Net issuance under stock-based plans		0.2				1									1
Stock-based compensation						13									13
Cash dividend ($0.22 per common share)									(15	)					(15	)
Comprehensive (loss) income (net of tax):
Net (loss) income									(1,769	)					(1,769	)
Other comprehensive (loss) income												(186	)		(186	)
Balance at June 30, 2023		66.9		—		2,168			431			(104	)		2,495
Net issuance under stock-based plans		—				(1	)								1
Stock-based compensation						13									13
Cash dividend ($0.22 per common share)									(15	)					(15	)
Comprehensive (loss) income (net of tax):
Net income (loss)									39						39
Other comprehensive (loss) income												(55	)		(55	)
Balance at September 30, 2023		66.9	$	-	$	2,180		$	455		$	(159	)	$	2,476

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

MKS INSTRUMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	Nine Months Ended September 30,
	2024			2023
Cash flows from operating activities:
Net income (loss)	$	99		$	(1,772	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		262			301
Goodwill and intangible asset impairments		—			1,827
Unrealized loss (gain) on derivatives not designated as hedging instruments		2			23
Amortization of debt issuance costs and original issue discount		23			23
Gain on sale of long-lived assets		—			(2	)
Loss on extinguishment of debt		52			—
Stock-based compensation		37			43
Provision for excess and obsolete inventory		41			54
Deferred income taxes		(168	)		(173	)
Other		5			4
Changes in operating assets and liabilities
Accounts receivable		(7	)		85
Inventories		11			(99	)
Other current and non-current assets		17			12
Accounts payable		(21	)		(110	)
Accrued compensation		(26	)		(11	)
Income taxes payable		53			(75	)
Other current and non-current liabilities		(28	)		8
Net cash provided by operating activities		352			138
Cash flows from investing activities:
Proceeds from sale of long-lived assets		1			3
Purchases of property, plant and equipment		(67	)		(53	)
Net cash used in investing activities		(66	)		(50	)
Cash flows from financing activities:
Proceeds from borrowings		2,161			1
Payments of borrowings		(2,198	)		(67	)
Purchase of capped calls related to Convertible Notes		(167	)		—
Payments of deferred financing fees		(33	)		—
Dividend payments		(44	)		(44	)
Net payments related to employee stock awards		(12	)		(5	)
Other financing activities		(10	)		(1	)
Net cash used in financing activities		(303	)		(116	)
Effect of exchange rate changes on cash and cash equivalents		3			(22	)
Decrease in cash and cash equivalents		(14	)		(50	)
Cash and cash equivalents at beginning of period		875			909
Cash and cash equivalents at end of period	$	861		$	859

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

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 September 30, 2024, and for the three and nine months ended September 30, 2024, 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, 2023 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, 2023 filed with the U.S. Securities and Exchange Commission on February 27, 2024.

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, allowance for doubtful accounts, inventory valuation, warranty costs, pension plan valuations, stock-based compensation, intangible assets, goodwill, other long-lived assets 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. As a result of rounding, there may be immaterial differences in amounts presented and certain calculations may not sum to the total number expressed in each category or tie to a corresponding schedule.

The Company has three reportable segments: the Vacuum Solutions Division (“VSD”), the Photonics Solutions Division (“PSD”) and the Materials Solutions Division (“MSD”) as described in Note 15. During the quarter ended March 31, 2024, the Company moved its Optical Sensing Products (“OSP”) product line from the PSD segment to the VSD segment. The purpose of this realignment was to group the OSP products with related semiconductor products within the VSD segment. Prior periods have been recast to reflect this change.

(2)

Recent Accounting Pronouncements

Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (“CODM”). The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the amendments in this ASU retrospectively to all prior periods presented in the financial statements. The Company continues to assess the effect on the Company’s consolidated financial statement disclosures; however, adoption will not impact the consolidated financial statements.

Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses on the rate reconciliation and income taxes paid. ASU No. 2023-09 requires a public business entity (“PBE”) to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local and foreign and by jurisdiction if the amount is at least 5% of total income tax

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

payments, net of refunds received. For PBEs, the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing the revised disclosures for all periods presented. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.

Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to financial statements. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.

(3)

Revenue from Contracts with Customers

Contract assets as of September 30, 2024 and December 31, 2023 were $23 and $26, respectively. A roll-forward of the Company’s deferred revenue and customer advances is as follows: