MKS Instruments 8K Reports First Quarter 2019 Financial Results | MKSI 29 Apr 19

EXHIBIT 99.1

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MKS Instruments Reports First Quarter 2019 Financial Results

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Quarterly revenue of $464 million

•

GAAP net income of $12.5 million, or $0.23 per diluted share

•

Non-GAAP net earnings of $61.3 million, or $1.12 per diluted share

•

Successfully completed acquisition of Electro Scientific Industries, Inc. (“ESI”) in the quarter

Andover, MA, April 29, 2019 — MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported first quarter 2019 financial results.

“We’re very pleased with our continued strong execution across the standalone MKS business. Excluding the ESI acquisition, revenue andNon-GAAP net earnings were both above themid-point of our guidance range for the first quarter,” said Gerald Colella, Chief Executive Officer.

Mr. Colella added, “Our strong customer relationships and technical capabilities have also resulted in a number of important design wins, as we take full advantage of the current moderation in the semiconductor market. The acquisition of ESI further advances ourSurroundthe Workpiece^SMofferings and expands our solutions for Advanced Markets. We plan to leverage this advanced systems expertise and deep technical understanding of laser materials processing interactions to provide rich and robust solutions to meet the challenges of our customers’ evolving technology needs.”

“ESI integration efforts are proceeding ahead of schedule and we are on target to realize $15 million of annualized cost synergies over the next 18 to 36 months,” said Seth Bagshaw, Senior Vice President and Chief Financial Officer. “Furthermore, we exited the quarter with a strong balance sheet and liquidity with over $460 million of cash and short-term investments and trailing twelve-month net leverage ratio of under 1 times.”

Quarterly Consolidated Financial Results

(in millions, except per share data)


	Q1 2019			Q4 2018
GAAP Results
Net revenues	$	463.6		$	460.5
Gross margin		42.7	%		45.6	%
Operating margin		5.0	%		20.4	%
Net income	$	12.5		$	71.6
Diluted EPS	$	0.23		$	1.32
Non-GAAP Results
Gross margin		43.8	%		45.6	%
Operating margin		17.7	%		23.7	%
Net earnings	$	61.3		$	84.0
Diluted EPS	$	1.12		$	1.54

First Quarter 2019 Financial Results

Revenue was $463.6 million and included two months of results from the Company’s acquisition of ESI, which closed on February 1, 2019. Net income was $12.5 million, or $0.23 per diluted share, compared to net income of $71.6 million, or $1.32 per diluted share, in the fourth quarter of 2018, and $105.1 million, or $1.90 per diluted share, in the first quarter of 2018. First quarter net income included additional amortization of intangible assets of $5.1 million and aggregate acquisition and integration costs of $30.2 million associated with the acquisition.

Non-GAAP net earnings, which exclude special charges and credits, were $61.3 million, or $1.12 per diluted share, compared to $84.0 million, or $1.54 per diluted share, in the fourth quarter of 2018, and $114.3 or $2.07 per diluted share, in the first quarter of 2018.

Sales to Advanced Markets were $243 million, an increase of 8% compared to the fourth quarter of 2018, which was primarily attributed to the acquisition of ESI. Sales to semiconductor customers were $221 million, a decrease of 6% compared to the fourth quarter of 2018.

Additional Financial Information

The Company had $462 million in cash and short-term investments and $1 billion of term loan debt outstanding as of March 31, 2019 and during the first quarter of 2019, MKS paid a dividend of $10.8 million or $0.20 per diluted share. The Company has available a $100 million asset-based line of credit.

Second Quarter 2019 Outlook

Based on current business levels, the Company expects that revenue in the second quarter of 2019 could range from $460 to $510 million.

At these volumes, GAAP net income could range from $0.56 to $0.93 per diluted share andnon-GAAP net earnings could range from $0.89 to $1.26 per diluted share.

Quarterly ConsolidatedNon-GAAP Financial Results—Excluding ESI

(in millions, except per share data)


	Q1 2019			Q4 2018
Non-GAAP Results
Net revenues	$	428.8		$	460.5
Gross margin		44.6	%		45.6	%
Operating margin		18.9	%		23.7	%
Net earnings	$	64.0		$	84.0
Diluted EPS	$	1.17		$	1.54

Segment Results

In conjunction with the ESI acquisition, the Company has added a third business segment when reporting results. We refer to this new business segment as Equipment & Solutions and it represents primarily the legacy ESI business.

Conference Call Details

A conference call with management will be held on Tuesday, April 30, 2019 at 8:30 a.m. (Eastern Time). To participate in the conference call, please dial (877)212-6076 for domestic callers and (707)287-9331 for international callers, and an operator will connect you. Participants will need to provide the operator with the Conference ID of 7138019, which has been reserved for this call. A live and archived webcast of the call will be available on the Company’s website atwww.mksinst.com, along with the Company’s earnings press release and supplemental financial information.

About MKS Instruments

MKS Instruments, Inc. is a global provider of instruments, subsystems and process control solutions that measure, monitor, deliver, analyze, power and control critical parameters of advanced manufacturing processes to improve process performance and productivity for our customers. Our products are derived from our core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis,

residual gas analysis, leak detection, control technology, ozone generation and delivery, power, reactive gas generation, vacuum technology, lasers, photonics,sub-micron positioning, vibration control, optics and laser-based manufacturing solutions. We also provide services relating to the maintenance and repair of our products, installation services and training. Our primary served markets include semiconductor, industrial technologies, life and health sciences, and research and defense. Additional information can be found at www.mksinst.com.

Use ofNon-GAAP Financial Results

This release includes measures that are not in accordance with U.S. generally accepted accounting principles(“Non-GAAP measures”).Non-GAAP measures exclude amortization of acquired intangible assets, costs associated with completed acquisitions, acquisition integration costs, fees and expenses related to our term loan, amortization of debt issuance costs, restructuring charges, a customer contract obligation related to an acquisition, environmental costs related to an acquisition, windfall tax benefits from stock-based compensation, accrued taxes on subsidiary distributions, theone-time tax effects of the 2017 Tax Cut and Jobs Act, tax cost on the intercompany sale of an asset and the related tax effects of adjustments impactingpre-tax income. TheseNon-GAAP measures should be viewed in addition to, and not as a substitute for, MKS’ reported results, and may be different fromNon-GAAP measures used by other companies. In addition, theseNon-GAAP measures are not based on any comprehensive set of accounting rules or principles. MKS management believes the presentation of theseNon-GAAP measures is useful to investors for comparing prior periods and analyzing ongoing business trends and operating results.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the future financial performance, business prospects and growth of MKS, and MKS’ expected synergies and cost savings from its recent acquisition of ESI. These statements are only predictions based on current assumptions and expectations. 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 conditions affecting the markets in which MKS operates, including the fluctuations in capital spending in the semiconductor industry and other advanced manufacturing markets, fluctuations in net sales to our major customers, the ability of MKS to successfully integrate ESI’s operations and employees, unexpected costs, charges or expenses resulting from the ESI acquisition, MKS’ ability to realize

anticipated synergies and cost savings from the ESI acquisition, the terms of our term loan, competition from larger or more established companies in MKS’ markets; MKS’ ability to successfully grow ESI’s business; potential adverse reactions or changes to business relationships resulting from the ESI acquisition, the challenges, risks and costs involved with integrating the operations of the other companies we have acquired, the Company’s ability to successfully grow our business, potential fluctuations in quarterly results, dependence on new product development, rapid technological and market change, acquisition strategy, manufacturing and sourcing risks, volatility of stock price, international operations, financial risk management, and the other factors described in MKS’ most recent Annual Report on Form10-K for the year ended December 31, 2018 filed with the SEC. 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.

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Company Contact: Seth H. Bagshaw

Senior Vice President, Chief Financial Officer and Treasurer

Telephone: 978.645.5578

Investor Relations Contacts:

Monica Gould

The Blueshirt Group

Telephone: 212.871.3927

Email:monica@blueshirtgroup.com

Lindsay Grant Savarese

The Blueshirt Group

Telephone: 212.331.8417

Email:lindsay@blueshirtgroup.com

MKS Instruments, Inc.

Unaudited Consolidated Statement of Operations

(in thousands, except per share data)


	Three Months Ended
	March 31, 2019		March 31, 2018		December 31, 2018
Net revenues:
Products	$	397,363	$	496,677	$	402,271
Services		66,198		57,598		58,270

Total net revenues		463,561		554,275		460,541
Cost of revenues:
Products		229,710		261,321		221,766
Services		35,733		30,099		28,891

Total cost of revenues		265,443		291,420		250,657
Gross profit		198,118		262,855		209,884
Research and development		38,933		34,857		32,461
Selling, general and administrative		82,455		82,949		68,166
Fees and expenses related to incremental term loan		5,847		—		—
Acquisition and integration costs		30,167		—		4,245
Restructuring		223		1,220		193
Customer contract obligation		1,700		—		—
Environmental costs		—		1,000		—
Amortization of intangible assets		15,727		11,190		10,735

Income from operations		23,066		131,639		94,084
Interest income		1,714		1,105		1,698
Interest expense		9,119		5,430		3,871
Other expense, net		325		572		763

Income from operations before income taxes		15,336		126,742		91,148
Provision for income taxes		2,881		21,621		19,512

Net income	$	12,455	$	105,121	$	71,636

Net income per share:
Basic	$	0.23	$	1.93	$	1.33
Diluted	$	0.23	$	1.90	$	1.32
Cash dividends per common share	$	0.20	$	0.18	$	0.20
Weighted average shares outstanding:
Basic		54,147		54,423		54,005
Diluted		54,848		55,286		54,454

The following supplementalNon-GAAP earnings information is presented to aid in understanding MKS’ operating results:


Net income	$	12,455		$	105,121		$	71,636
Adjustments:
Acquisition and integration costs (Note 1)		30,167			—			4,245
Acquisition inventorystep-up (Note 2)		5,140			—			—
Fees and expenses related to incremental term loan (Note 3)		5,847			—			—
Amortization of debt issuance costs (Note 4)		599			1,831			711
Restructuring (Note 5)		223			1,220			193
Customer contract obligation (Note 6)		1,700			—			—
Environmental costs (Note 7)		—			1,000			—
Amortization of intangible assets		15,727			11,190			10,735
Windfall tax benefit on stock-based compensation (Note 8)		(1,389	)		(3,036	)		(202	)
Deferred tax adjustment (Note 9)		—			878			—
Accrued tax on MKS subsidiary distributions (Note 10)		—			—			(2,277	)
Tax cost on the inter-company sale of an asset (Note 11)		—			—			541
Transition tax on accumulated foreign earnings (Note 12)		—			(1,668	)		—
Pro-forma tax adjustments		(9,169	)		(2,247	)		(1,549	)

Non-GAAP net earnings (Note 13)	$	61,300		$	114,289		$	84,033

Non-GAAP net earnings per share (Note 13)	$	1.12		$	2.07		$	1.54

Weighted average shares outstanding		54,848			55,286			54,454
Income from operations	$	23,066		$	131,639		$	94,084
Adjustments:
Acquisition and integration costs (Note 1)		30,167			—			4,245
Acquisition inventorystep-up (Note 2)		5,140			—			—
Fees and expenses related to incremental term loan (Note 3)		5,847			—			—
Restructuring (Note 5)		223			1,220			193
Customer contract obligation (Note 6)		1,700			—			—
Environmental costs (Note 7)		—			1,000			—
Amortization of intangible assets		15,727			11,190			10,735

Non-GAAP income from operations (Note 14)	$	81,870		$	145,049		$	109,257

Non-GAAP operating margin percentage (Note 14)		17.7	%		26.2	%		23.7	%

Gross profit	$	198,118		$	262,855		$	209,884
Acquisition inventorystep-up (Note 2)		5,140			—			—

Non-GAAP gross profit (Note 15)	$	203,258		$	262,855		$	209,884

Non-GAAP gross profit percentage (Note 15)		43.8	%		47.4	%		45.6	%

Interest expense	$	9,119		$	5,430		$	3,871
Amortization of debt issuance costs (Note 4)		599			1,831			711

Non-GAAP interest expense	$	8,520		$	3,599		$	3,160

Net income	$	12,455		$	105,121		$	71,636
Interest expense, net		7,405			4,325			2,173
Provision for income taxes		2,881			21,621			19,512
Depreciation		9,484			9,302			9,212
Amortization		15,727			11,190			10,735

EBITDA (Note 16)	$	47,952		$	151,559		$	113,268

Stock-based compensation		9,274			10,426			5,257
Acquisition and integration costs (Note 1)		30,167			—			4,245
Acquisition inventorystep-up (Note 2)		5,140			—			—
Fees and expenses related to incremental term loan (Note 3)		5,847			—			—
Restructuring (Note 5)		223			1,220			193
Customer contract obligation (Note 6)		1,700			—			—
Environmental costs		—			1,000			—
Other adjustments		3,337			772			—

Adjusted EBITDA (Note 17)	$	103,640		$	164,977		$	122,963

Note 1: Acquisition and integration costs for the three months ended March 31, 2019 and December 31, 2018, respectively, related to the acquisition of Electro Scientific Industries, Inc. (“ESI”) which closed on February 1, 2019.

Note 2: Costs of revenues during the three months ended March 31, 2019 includes the amortization of thestep-up of inventory to fair value as a result of the ESI acquisition.

Note 3: We recorded fees and expenses during the three months ended March 31, 2019 related to Amendment No. 5 of our Term Loan Credit Agreement.

Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our Term Loan Credit Agreement.

Note 5: We recorded restructuring charges during the three months ended March 31, 2019 and December 31, 2018, respectively, which consisted primarily of severance costs related to an organization-wide reduction in workforce. We recorded restructuring costs during the three months ended March 31, 2018, primarily comprised of severance costs related to transferring a portion of our shared service functions to a third party as well as the consolidation of certain shared service functions in Asia.

Note 6: We recorded expense during the three months ended March 31, 2019 related to a contractual obligation we assumed as part of our acquisition of Newport Corporation.

Note 7: We recorded environmental costs during the three months ended March 31, 2018, related to an Environmental Protection Agency-designated Superfund site, which was acquired as part of our acquisition of Newport Corporation.

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

Note 9: The three months ended March 31, 2018 includes an update to the provisional tax adjustment recorded during the three months ended December 31, 2017 where we recorded a provisional deferred tax adjustment, which also included the reversal of a tax accrual on a French dividend, related to U.S. tax reform legislation.

Note 10: We recorded and adjusted tax accruals related to distributions from MKS subsidiaries.

Note 11: We recorded taxes on the inter-company sale of an asset during the three months ended December 31, 2018.

Note 12: We adjusted the provisional transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three months ended March 31, 2018.

Note 13: TheNon-GAAP net earnings andNon-GAAP net earnings per share amounts exclude acquisition and integration costs, the amortization of thestep-up of inventory to fair value, fees and expenses related to an amendment to our Term Loan Credit agreement, amortization of debt issuance costs, restructuring costs, a customer contract obligation, environmental costs, amortization of intangible assets, a windfall tax benefit related to stock-based compensation expense, a deferred tax adjustment, accrued tax on MKS subsidiary distributions, tax costs on the inter-company sale of an asset, transition tax on accumulated foreign earnings and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.

Note 14: TheNon-GAAP income from operations andNon-GAAP operating margin percentages exclude acquisition and integration costs, the amortization of thestep-up of inventory to fair value, fees and expenses related to an amendment to our Term Loan Credit Agreement, restructuring costs, a customer contract obligation, environmental costs and amortization of intangible assets.

Note 15: TheNon-GAAP gross profit amounts andNon-GAAP gross profit percentages exclude an inventorystep-up adjustment related to the acquisition of ESI.

Note 16: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.

Note 17: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, the amortization of thestep-up of inventory to fair value, fees and expenses related to an amendment of our Term Loan Credit agreement, restructuring costs, a customer contract obligation, environmental costs and other adjustments as defined in our Term Loan Credit Agreement.

MKS Instruments, Inc.

Unaudited Consolidated Balance Sheet

(in thousands)


	March 31, 2019			December 31, 2018
ASSETS
Cash and cash equivalents	$	418,016		$	644,345
Short-term investments		44,326			73,826
Trade accounts receivable, net		335,990			295,454
Inventories		475,633			384,689
Other current assets		86,387			65,790

Total current assets		1,360,352			1,464,104
Property, plant and equipment, net		251,424			194,367
Right-of-use asset		65,628			—
Goodwill		1,057,331			586,996
Intangible assets, net		619,091			319,807
Long-term investments		10,350			10,290
Other assets		48,562			38,682

Total assets	$	3,412,738		$	2,614,246

LIABILITIES AND STOCKHOLDERS’ EQUITY
Short-term debt	$	10,281		$	3,986
Accounts payable		95,317			83,825
Accrued compensation		61,523			82,350
Income taxes payable		14,355			16,358
Lease liability		19,459			—
Deferred revenue and customer advances		21,056			14,246
Other current liabilities		74,568			62,520

Total current liabilities		296,559			263,285
Long-term debt, net		976,823			343,842
Non-current deferred taxes		78,904			48,223
Non-current accrued compensation		60,337			55,598
Non-current lease liability		49,392			—
Other liabilities		29,862			30,111

Total liabilities		1,491,877			741,059

Stockholders’ equity:
Common stock		113			113
Additionalpaid-in capital		844,261			793,932
Retained earnings		1,086,409			1,084,797
Accumulated other comprehensive income		(9,922	)		(5,655	)

Total stockholders’ equity		1,920,861			1,873,187

Total liabilities and stockholders’ equity	$	3,412,738		$	2,614,246

MKS Instruments, Inc.

Unaudited Consolidated Statements of Cash Flows

(In thousands, except per share data)


	Three Months Ended
	March 31 2019			March 31, 2018			December 31, 2018
Cash flows from operating activities:
Net income	$	12,455		$	105,121		$	71,636
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		25,211			20,492			19,947
Amortization of inventorystep-up adjustment to fair value		5,140			—			—
Amortization of debt issuance costs, original issue discount and soft call premium		1,202			2,019			934
Stock-based compensation		27,838			10,426			5,257
Provision for excess and obsolete inventory		5,063			5,333			6,749
(Recovery) Provision for doubtful accounts		(440	)		335			576
Deferred income taxes		(2,445	)		(705	)		(13,249	)
Other		66			34			2,118
Changes in operating assets and liabilities		(45,040	)		(70,299	)		41,490

Net cash provided by operating activities		29,050			72,756			135,458

Cash flows (used in) provided by investing activities:
Acquisition of business, net of cash acquired		(988,599	)		—			—
Purchases of investments		(44,212	)		(49,753	)		(39,824	)
Sales of investments		154,489			8,930			139,674
Maturities of investments		18,684			49,596			46,410
Proceeds from sale of assets		35			—			—
Purchases of property, plant and equipment		(14,529	)		(9,390	)		(26,056	)

Net cash (used in) provided by investing activities		(874,132	)		(617	)		120,204

Cash flows provided by (used in) financing activities:
Payments of short-term borrowings		(176	)		(10,274	)		(9,299	)
Net proceeds from short and long-term borrowings		638,638			11,907			7,045
Payments of long-term borrowings		—			(50,000	)		—
Dividend payments		(10,843	)		(9,808	)		(10,797	)
Net (payments) proceeds related to employee stock awards		(8,987	)		(8,921	)		2,537

Net cash provided by (used in) financing activities		618,632			(67,096	)		(10,514	)

Effect of exchange rate changes on cash and cash equivalents		121			1,958			(653	)

(Decrease) Increase in cash and cash equivalents		(226,329	)		7,001			244,495

Cash and cash equivalents at beginning of period		644,345			333,887			399,850

Cash and cash equivalents at end of period	$	418,016		$	340,888		$	644,345

MKS Instruments, Inc.

Reconciliation of GAAP Income Tax Rate toNon-GAAP Income Tax Rate

(In thousands)


	Three Months Ended March 31, 2019							Three Months Ended December 31, 2018
	Income Before		Provision (benefit)		Effective			Income Before		Provision (benefit)			Effective
	Income Taxes		for Income Taxes		Tax Rate			Income Taxes		for Income Taxes			Tax Rate
GAAP	$	15,336	$	2,881		18.8	%	$	91,148	$	19,512			21.4	%
Adjustments:
Acquisition and integration costs (Note 1)		30,167		—					4,245		—
Acquisition inventory step up (Note 2)		5,140		—					—		—
Fees and expenses related to incremental term loan (Note 3)		5,847		—					—		—
Amortization of debt issuance costs (Note 4)		599		—					711		—
Restructuring (Note 5)		223		—					193		—
Customer contract obligation (Note 6)		1,700		—					—		—
Amortization of intangible assets		15,727		—					10,735		—
Windfall tax benefit on stock-based compensation (Note 8)		—		1,389					—		202
Accrued tax on MKS subsidiary distributions (Note 10)		—		—					—		2,277
Tax cost on the inter-company sale of an asset (Note 11)		—		—					—		(541	)
Tax effect ofpro-forma adjustments		—		9,169					—		1,549

Non-GAAP	$	74,739	$	13,439		18.0	%	$	107,032	$	22,999			21.5	%


	Three Months Ended March 31, 2018
	Income Before		Provision (benefit)			Effective
	Income Taxes		for Income Taxes			Tax Rate
GAAP	$	126,742	$	21,621			17.1	%
Adjustments:
Amortization of debt issuance costs (Note 4)		1,831		—
Restructuring (Note 5)		1,220		—
Environmental costs (Note 7)		1,000		—
Amortization of intangible assets		11,190		—
Windfall tax benefit on stock-based compensation (Note 8)		—		3,036
Deferred tax adjustment (Note 9)		—		(878	)
Transition tax on accumulated foreign earnings (Note 12)		—		1,668
Tax effect ofpro-forma adjustments		—		2,247

Non-GAAP	$	141,983	$	27,694			19.5	%