MKS Instruments 8K Reports Second Quarter 2019 Financial Results | MKSI 30 Jul 19


		EXHIBIT 99.1

MKS Instruments Reports Second Quarter 2019 Financial Results

•

Quarterly revenue of $474 million, an increase of 2% compared to Q1 2019

•

Voluntarily prepaid $50 million towards our Term Loan Credit Facility

•

Non-GAAP net earnings of $59.9 million, or $1.09 per diluted share

•

GAAP net income of $37.7 million, or $0.69 per diluted share

Andover, MA, July 30, 2019 — MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported second quarter 2019 financial results.

“Another quarter of strong operational and financial execution drove ourNon-GAAP operating margin andNon-GAAP net earnings above themid-point of our guidance range in the second quarter despite the effects of uncertainty in the global trade environment,” said Gerald Colella, Chief Executive Officer.

Mr. Colella added, “The acquisition of ESI adds laser-based systems to our Advanced Markets portfolio, further expanding our ability to penetrate into these profitable and growing markets. The long-term growth potential in our Advanced Markets remains robust and we are committed to continue to outperform these markets over the long term. In the second quarter, we are pleased to report that, with the ESI acquisition, our revenue in Advanced Markets achieved a new record of over $260 million in the quarter, an increase of 10% from a year ago.”

“In the quarter, we completed a $50 million voluntary prepayment on our term loan as we are committed to reduce our leverage and interest costs. This was our ninth voluntary prepayment since loan origination in April 2016,” said Seth Bagshaw, Senior Vice President and Chief Financial Officer. “Furthermore, we exited the quarter with a strong balance sheet and liquidity with $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)


	Q2 2019			Q1 2019
GAAP Results
Net revenues	$	474.1		$	463.6
Gross margin		44.5	%		42.7	%
Operating margin		13.5	%		5.0	%
Net income	$	37.7		$	12.5
Diluted EPS	$	0.69		$	0.23
Non-GAAP Results
Gross margin		45.0	%		43.8	%
Operating margin		18.6	%		17.7	%
Net earnings	$	59.9		$	61.3
Diluted EPS	$	1.09		$	1.12

Second Quarter 2019 Financial Results

Revenue was $474.1 million, an increase of 2% from $463.6 million in the first quarter of 2019 and a decrease of 17% from $573.1 million in the second quarter of 2018.

Net income was $37.7 million, or $0.69 per diluted share, compared to net income of $12.5 million, or $0.23 per diluted share, in the first quarter of 2019, and $122.9 million, or $2.22 per diluted share, in the second quarter of 2018.

Second quarter net income included acquisition and integration costs of $3.2 million associated with the ESI acquisition and $1.2 million of restructuring and other costs.

Non-GAAP net earnings, which exclude special charges and credits, were $59.9 million, or $1.09 per diluted share, compared to $61.3 million, or $1.12 per diluted share, in the first quarter of 2019, and $128.8 million or $2.33 per diluted share, in the second quarter of 2018.

Sales to Advanced Markets were $260 million, an increase of 7% compared to the first quarter of 2019, which was primarily attributed to the acquisition of ESI, as the first quarter only included two months of sales. Sales to Semiconductor customers were $214 million, a decrease of 3% compared to the first quarter of 2019.

Additional Financial Information

The Company had $460 million in cash and short-term investments and $947 million of term loan debt outstanding as of June 30, 2019, which is net of a $50 million prepayment made during the second quarter of 2019. MKS also paid a dividend of $10.9 million or $0.20 per diluted share during the second quarter of 2019. The Company has available an unused $100 million asset-based line of credit.

Third Quarter 2019 Outlook

Based on current business levels, the Company expects that revenue in the third quarter of 2019 could range from $415 to $465 million.

At these volumes, GAAP net income could range from $0.39 to $0.72 per diluted share andnon-GAAP net earnings could range from $0.69 to $1.02 per diluted share.

Conference Call Details

A conference call with management will be held on Wednesday, July 31, 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 5483628, 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 and other costs, windfall tax benefits from stock-based compensation, accrued taxes on subsidiary distributions, the tax effects of the 2017 Tax Cut and Jobs Act, tax cost of the inter-

company 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 Electro Scientific Industries, Inc (“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.

###

Company Contact: Seth H. Bagshaw

Senior Vice President, Chief Financial Officer and Treasurer

Telephone: 978.645.5578

Email: seth_bagshaw@mksinst.com

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
	June 30, 2019		June 30, 2018			March 31, 2019
Net revenues:
Products	$	401,326	$	509,999		$	397,363
Services		72,784		63,141			66,198

Total net revenues		474,110		573,140			463,561
Cost of revenues:
Products		226,213		266,890			229,710
Services		36,870		31,373			35,733

Total cost of revenues		263,083		298,263			265,443
Gross profit		211,027		274,877			198,118
Research and development		41,855		36,504			38,933
Selling, general and administrative		83,236		76,181			82,455
Fees and expenses related to term loan		—		378			5,847
Acquisition and integration costs		3,240		(1,168	)		30,167
Restructuring and other		1,242		790			1,923
Amortization of intangible assets		17,552		10,901			15,727

Income from operations		63,902		151,291			23,066
Interest income		1,423		1,456			1,714
Interest expense		12,674		3,922			9,119
Other expense, net		788		281			325

Income from operations before income taxes		51,863		148,544			15,336
Provision for income taxes		14,124		25,682			2,881

Net income	$	37,739	$	122,862		$	12,455

Net income per share:
Basic	$	0.69	$	2.25		$	0.23
Diluted	$	0.69	$	2.22		$	0.23
Cash dividends per common share	$	0.20	$	0.20		$	0.20
Weighted average shares outstanding:
Basic		54,815		54,719			54,147
Diluted		55,089		55,274			54,848

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


	Three Months Ended
	June 30, 2019			June 30, 2018			March 31, 2019
Net income	$	37,739		$	122,862		$	12,455
Adjustments:
Acquisition and integration costs (Note 1)		3,240			(1,168	)		30,167
Acquisition inventorystep-up (Note 2)		2,484			—			5,140
Fees and expenses related to term loan (Note 3)		—			378			5,847
Amortization of debt issuance costs (Note 4)		1,254			660			599
Restructuring and other (Note 5)		1,242			790			1,923
Amortization of intangible assets		17,552			10,901			15,727
Windfall tax benefit on stock-based compensation (Note 6)		(790	)		(4,752	)		(1,389	)
Tax reform adjustments (Note 7)		2,731			—			—
Transition tax on accumulated foreign earnings (Note 8)		—			(659	)		—
Pro-forma tax adjustments		(5,596	)		(200	)		(9,169	)

Non-GAAP net earnings (Note 9)	$	59,856		$	128,812		$	61,300

Non-GAAP net earnings per share (Note 9)	$	1.09		$	2.33		$	1.12

Weighted average shares outstanding		55,089			55,274			54,848
Income from operations	$	63,902		$	151,291		$	23,066
Adjustments:
Acquisition and integration costs (Note 1)		3,240			(1,168	)		30,167
Acquisition inventorystep-up (Note 2)		2,484			—			5,140
Fees and expenses related to term loan (Note 3)		—			378			5,847
Restructuring and other (Note 5)		1,242			790			1,923
Amortization of intangible assets		17,552			10,901			15,727

Non-GAAP income from operations (Note 10)	$	88,420		$	162,192		$	81,870

Non-GAAP operating margin percentage (Note 10)		18.6	%		28.3	%		17.7	%

Gross profit	$	211,027		$	274,877		$	198,118
Acquisition inventorystep-up (Note 2)		2,484			—			5,140

Non-GAAP gross profit (Note 11)	$	213,511		$	274,877		$	203,258

Non-GAAP gross profit percentage (Note 11)		45.0	%		48.0	%		43.8	%

Interest expense	$	12,674		$	3,922		$	9,119
Amortization of debt issuance costs (Note 4)		1,254			660			599

Non-GAAP interest expense	$	11,420		$	3,262		$	8,520

Net income	$	37,739		$	122,862		$	12,455
Interest expense, net		11,251			2,466			7,405
Provision for income taxes		14,124			25,682			2,881
Depreciation		9,892			8,984			9,484
Amortization		17,552			10,901			15,727

EBITDA (Note 12)	$	90,558		$	170,895		$	47,952

Stock-based compensation		5,903			6,366			9,274
Acquisition and integration costs (Note 1)		3,240			(1,168	)		30,167
Acquisition inventorystep-up (Note 2)		2,484			—			5,140
Fees and expenses related to term loan (Note 3)		—			378			5,847
Restructuring and other (Note 5)		1,242			790			1,923
Other adjustments		—			—			3,337

Adjusted EBITDA (Note 13)	$	103,427		$	177,261		$	103,640

Note 1: Acquisition and integration costs for the three months ended June 30, 2019 and March 31, 2019, related to the acquisition of Electro Scientific Industries, Inc. (“ESI”) which closed on February 1, 2019. During the three months ended June 30, 2018, we reversed a portion of costs recognized during previous periods related to the Newport acquisition, which closed during the second quarter of 2016, related to severance agreement provisions that were not met.

Note 2: Costs of revenues during the three months ended June 30, 2019 and 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. We recorded fees and expenses during the three months ended June 30, 2018 related to the fourth repricing 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 costs during the three months ended June 30, 2019 and March 31, 2019 which consisted primarily of severance costs related to an organization-wide reduction in workforce, the consolidation of service functions in Asia and the movement of certain products to low costs regions. We also recorded other expense during the three months ended March 31, 2019 related to a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the three months ended June 30, 2018 were primarily comprised of severance costs related to transferring a portion of our shared services functions to a third party as well as the consolidation of certain shared service functions in Asia.

Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation.

Note 7: We recorded tax adjustments resulting from additional guidance provided by the IRS related to 2017 tax reform.

Note 8: We adjusted the provisional transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three months ended June 30, 2018.

Note 9: 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 our Term Loan Credit Agreement, amortization of debt issuance costs, restructuring and other costs, amortization of intangible assets, a windfall tax benefit related to stock compensation expense, tax reform adjustments, 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 10: 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 our Term Loan Credit Agreement, restructuring and other costs and amortization of intangible assets.

Note 11: TheNon-GAAP gross profit amounts andNon-GAAP gross profit percentages exclude the amortization of thestep-up of inventory to fair value related to the acquisition of ESI.

Note 12: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.

Note 13: 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 and other costs and other adjustments as defined in our Term Loan Credit Agreement.

MKS Instruments, Inc.

Unaudited Consolidated Statement of Operations

(in thousands, except per share data)


	Six Months Ended
	June 30,
	2019		2018
Net revenues:
Products	$	798,689	$	1,006,676
Services		138,982		120,739

Total net revenues		937,671		1,127,415
Cost of revenues:
Products		455,923		528,211
Services		72,603		61,472

Total cost of revenues		528,526		589,683
Gross profit		409,145		537,732
Research and development		80,788		71,361
Selling, general and administrative		165,691		159,130
Acquisition and integration costs		33,407		(1,168	)
Restructuring and other		3,165		3,010
Fees and expenses related to term loan		5,847		378
Amortization of intangible assets		33,279		22,091

Income from operations		86,968		282,930
Interest income		3,137		2,561
Interest expense		21,793		9,352
Other expense, net		1,113		853

Income from operations before income taxes		67,199		275,286
Provision for income taxes		17,005		47,303

Net income	$	50,194	$	227,983

Net income per share:
Basic	$	0.92	$	4.18
Diluted	$	0.91	$	4.12
Cash dividends per common share	$	0.40	$	0.38
Weighted average shares outstanding:
Basic		54,481		54,571
Diluted		54,966		55,280

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


	Six Months Ended
	June 30,
	2019			2018
Net income	$	50,194		$	227,983
Adjustments:
Acquisition and integration costs (Note 1)		33,407			(1,168	)
Acquisition inventorystep-up (Note 2)		7,624			—
Fees and expenses related to term loan (Note 3)		5,847			378
Amortization of debt issuance costs (Note 4)		1,853			2,491
Restructuring and other (Note 5)		3,165			3,010
Amortization of intangible assets		33,279			22,091
Windfall tax benefit on stock-based compensation (Note 6)		(2,179	)		(7,788	)
Tax reform adjustments (Note 7)		2,731			—
Deferred tax adjustment (Note 8)		—			878
Transition tax on accumulated foreign earnings (Note 9)		—			(2,327	)
Pro-forma tax adjustments		(14,765	)		(2,447	)

Non-GAAP net earnings (Note 10)	$	121,156		$	243,101

Non-GAAP net earnings per share (Note 10)	$	2.20		$	4.40

Weighted average shares outstanding		54,966			55,280
Income from operations	$	86,968		$	282,930
Adjustments:
Acquisition and integration costs (Note 1)		33,407			(1,168	)
Acquisition inventorystep-up (Note 2)		7,624			—
Fees and expenses related to term loan (Note 3)		5,847			378
Restructuring and other (Note 5)		3,165			3,010
Amortization of intangible assets		33,279			22,091

Non-GAAP income from operations (Note 11)	$	170,290		$	307,241

Non-GAAP operating margin percentage (Note 11)		18.2	%		27.3	%

Gross profit	$	409,145		$	537,732
Acquisition inventorystep-up (Note 2)		7,624			—

Non-GAAP gross profit (Note 12)	$	416,769		$	537,732

Non-GAAP gross profit percentage (Note 12)		44.4	%		47.7	%

Interest expense	$	21,793		$	9,352
Amortization of debt issuance costs (Note 4)		1,853			2,491

Non-GAAP interest expense	$	19,940		$	6,861

Net Income	$	50,194		$	227,983
Interest expense, net		18,656			6,791
Provision for income taxes		17,005			47,303
Depreciation		19,376			18,286
Amortization		33,279			22,091

EBITDA (Note 13)	$	138,510		$	322,454

Stock-based compensation		15,177			16,792
Acquisition and integration costs (Note 1)		33,407			(1,168	)
Acquisition inventorystep-up (Note 2)		7,624			—
Fees and expenses related to term loan (Note 3)		5,847			378
Restructuring and other (Note 5)		3,165			3,010
Other adjustments		3,337			772

Adjusted EBITDA (Note 14)	$	207,067		$	342,238

Note 1: Acquisition and integration costs for the six months ended June 30, 2019, related to the acquisition of Electro Scientific Industries, Inc. (“ESI”) which closed on February 1, 2019. During the six months ended June 30, 2018, we reversed a portion of costs recognized during previous periods related to the Newport acquisition, which closed during the second quarter of 2016, related to severance agreement provisions that were not met.

Note 2: Costs of revenues during the six months ended June 30, 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 six months ended March 31, 2019 related to Amendment No. 5 of our Term Loan Credit Agreement. We recorded fees and expenses during the six months ended June 30, 2018 related to the fourth repricing 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 costs during the six months ended June 30, 2019, which consisted primarily of severance costs related to an organization-wide reduction in workforce, the consolidation of service functions in Asia and the movement of certain products to low cost regions. We also recorded expense during the six months ended June 30, 2019 related to a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the six months ended June 30, 2018 were primarily comprised of severance costs related to transferring a portion of our shared services functions to a third party as well as the consolidation of certain shared service functions in Asia. We also recorded environmental costs during the six months ended June 30, 2018, related to an Environmental Protection Agency-designated Superfund site, which was acquired as part of our acquisition of Newport Corporation.

Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation.

Note 7: We recorded tax adjustments resulting from additional guidance provided by the IRS related to 2017 tax reform.

Note 8: We recorded a provisional deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to U.S. tax reform legislation during the fourth quarter of 2017 and updated the provisional transition tax during the six months ended June 30, 2018.

Note 9: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the six months ended June 30, 2018.

Note 10: 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 the repricing of the Term Loan Credit Agreement, fees and expenses related to an amendment to our Term Loan Credit agreement, amortization of debt issuance costs, restructuring and other costs, amortization of intangible assets, a windfall tax benefit related to stock compensation expense, tax reform adjustments,a deferred tax adjustment, 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 11: TheNon-GAAP income from operations andNon-GAAP operating margin percentages exclude acquisition and integration costs, fees and expenses related to the repricing of our Term Loan Credit Agreement, fees and expenses related to an amendment to our Term Loan Credit agreement, restructuring and other costs and amortization of intangible assets.

Note 12: TheNon-GAAP gross profit amounts andNon-GAAP gross profit percentages exclude the amortization of thestep-up of inventory to fair value related to the acquisition of ESI.

Note 13: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.

Note 14: 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 the repricing of our Term Loan Credit Agreement, fees and expenses related to an amendment to our Term Loan Credit Agreement, restructuring and other costs and other adjustments as defined in our Term Loan Credit Agreement.

MKS Instruments, Inc.

Unaudited Consolidated Balance Sheet

(in thousands)


	June 30,			December 31,
	2019			2018
ASSETS
Cash and cash equivalents	$	366,935		$	644,345
Short-term investments		92,985			73,826
Trade accounts receivable, net		313,530			295,454
Inventories		479,497			384,689
Other current assets		80,303			65,790
Assets classified as held for sale		36,750			—

Total current assets		1,370,000			1,464,104
Property, plant and equipment, net		230,649			194,367
Right-of-use asset		68,631			—
Goodwill		1,058,667			586,996
Intangible assets, net		599,372			319,807
Long-term investments		10,401			10,290
Other assets		44,228			38,682

Total assets	$	3,381,948		$	2,614,246

LIABILITIES AND STOCKHOLDERS’ EQUITY
Short-term debt	$	10,931		$	3,986
Accounts payable		88,046			83,825
Accrued compensation		64,415			82,350
Income taxes payable		12,811			16,358
Lease liability		20,670			—
Deferred revenue and customer advances		26,597			14,246
Other current liabilities		61,686			62,520

Total current liabilities		285,156			263,285
Long-term debt, net		926,879			343,842
Non-current deferred taxes		76,042			48,223
Non-current accrued compensation		62,947			55,598
Non-current lease liability		51,141			—
Other liabilities		34,296			30,111

Total liabilities		1,436,461			741,059

Stockholders’ equity:
Common stock		113			113
Additionalpaid-in capital		849,585			793,932
Retained earnings		1,113,036			1,084,797
Accumulated other comprehensive loss		(17,247	)		(5,655	)

Total stockholders’ equity		1,945,487			1,873,187

Total liabilities and stockholders’ equity	$	3,381,948		$	2,614,246

MKS Instruments, Inc.

Unaudited Consolidated Statements of Cash Flows

(In thousands, except per share data)


	Three Months Ended
	June 30			June 30,			March 31
	2019			2018			2019
Cash flows from operating activities:
Net income	$	37,739		$	122,862		$	12,455
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		27,444			19,885			25,211
Amortization of inventorystep-up adjustment to fair value		2,484			—			5,140
Amortization of debt issuance costs, original issue discount and soft call premium		1,751			868			1,202
Stock-based compensation		6,929			6,366			27,838
Provision for excess and obsolete inventory		6,990			4,959			5,063
(Recovery) Provision for doubtful accounts		(251	)		261			(440	)
Deferred income taxes		(180	)		1,875			(2,445	)
Other		851			426			66
Changes in operating assets and liabilities		(6,203	)		(47,891	)		(45,040	)

Net cash provided by operating activities		77,554			109,611			29,050

Cash flows used in investing activities:
Acquisition of business, net of cash acquired		—			—			(988,599	)
Purchases of investments		(73,707	)		(99,063	)		(44,212	)
Sales of investments		3,221			54,433			154,489
Maturities of investments		21,702			41,138			18,684
Proceeds from sale of assets		—			—			35
Purchases of property, plant and equipment		(13,725	)		(12,428	)		(14,529	)

Net cash used in investing activities		(62,509	)		(15,920	)		(874,132	)

Cash flows (used in) provided by financing activities:
Payments of short-term borrowings		(1,750	)		(17,788	)		(176	)
Net proceeds from short and long-term borrowings		2,301			25,082			638,638
Payments of long-term borrowings		(51,625	)		—			—
Dividend payments		(10,880	)		(10,942	)		(10,843	)
Net payments related to employee stock awards		(2,025	)		(4,131	)		(8,987	)

Net cash (used in) provided by financing activities		(63,979	)		(7,779	)		618,632

Effect of exchange rate changes on cash and cash equivalents		(2,147	)		631			121

(Decrease) Increase in cash and cash equivalents		(51,081	)		86,543			(226,329	)

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

Cash and cash equivalents at end of period	$	366,935		$	427,431		$	418,016

MKS Instruments, Inc.

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

(In thousands)


	Three Months Ended June 30, 2019								Three Months Ended March 31, 2019
	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	$	51,863	$	14,124			27.2	%	$	15,336	$	2,881		18.8	%
Adjustments:
Acquisition and integration costs (Note 1)		3,240		—						30,167		—
Acquisition inventorystep-up (Note 2)		2,484		—						5,140		—
Fees and expenses related to term loan (Note 3)		—		—						5,847		—
Amortization of debt issuance costs (Note 4)		1,254		—						599		—
Restructuring and other (Note 5)		1,242		—						1,923		—
Amortization of intangible assets		17,552		—						15,727		—
Windfall tax benefit on stock-based compensation (Note 6)		—		790						—		1,389
Tax reform adjustments (Note 7)		—		(2,731	)					—		—
Tax effect ofpro-forma adjustments		—		5,596						—		9,169

Non-GAAP	$	77,635	$	17,779			22.9	%	$	74,739	$	13,439		18.0	%


	Three Months Ended June 30, 2018
	Income Before			Provision (benefit)		Effective
	Income Taxes			for Income Taxes		Tax Rate
GAAP	$	148,544		$	25,682		17.3	%
Adjustments:
Acquisition and integration costs (Note 1)		(1,168	)		—
Fees and expenses related to term loan (Note 3)		378			—
Amortization of debt issuance costs (Note 4)		660			—
Restructuring and other (Note 5)		790			—
Amortization of intangible assets		10,901			—
Windfall tax benefit on stock-based compensation (Note 6)		—			4,752
Transition tax on accumulated foreign earnings (Note 9)		—			659
Tax effect ofpro-forma adjustments		—			200

Non-GAAP	$	160,105		$	31,293		19.5	%


	Six Months Ended June 30, 2019								Six Months Ended June 30, 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	$	67,199	$	17,005			25.3	%	$	275,286		$	47,303			17.2	%
Adjustments:
Acquisition and integration costs (Note 1)		33,407		—						(1,168	)		—
Acquisition inventorystep-up (Note 2)		7,624		—						—			—
Fees and expenses related to term loan (Note 3)		5,847		—						378			—
Amortization of debt issuance costs (Note 4)		1,853		—						2,491			—
Restructuring and other (Note 5)		3,165		—						3,010			—
Amortization of intangible assets		33,279		—						22,091			—
Windfall tax benefit on stock-based compensation (Note 6)		—		2,179						—			7,788
Tax reform adjustments (Note 7)		—		(2,731	)					—			—
Deferred tax adjustment (Note 8)		—		—						—			(878	)
Transition tax on accumulated foreign earnings (Note 9)		—		—						—			2,327
Tax effect ofpro-forma adjustments		—		14,765						—			2,447

Non-GAAP	$	152,374	$	31,218			20.5	%	$	302,088		$	58,987			19.5	%

Note 1: Acquisition and integration costs for the three months ended June 30, 2019 and March 31, 2019 and the six months ended June 30, 2019, related to the acquisition of Electro Scientific Industries, Inc. (“ESI”) which closed on February 1, 2019. During the three and six months ended June 30, 2018, we reversed a portion of costs recognized during previous periods related to the Newport acquisition, which closed during the second quarter of 2016, related to severance agreement provisions that were not met.

Note 2: Costs of revenues during the three months ended June 30, 2019 and March 31, 2019 and the six months ended June 30, 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 and six months ended June 30, 2019 related to Amendment No. 5 of our Term Loan Credit Agreement. We recorded fees and expenses during the three and six months ended June 30, 2018 related to the fourth repricing 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 costs during the three months ended June 30, 2019 and March 31, 2019 and the six months ended June 30, 2019, which consisted primarily of severance costs related to an organization-wide reduction in workforce, the consolidation of service functions in Asia and the movement of certain products to low cost regions. We also recorded expense during the three months ended March 31, 2019 and six months ended June 30, 2019 related to a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the three and six months ended June 30, 2018 were primarily comprised of severance costs related to transferring a portion of our shared services functions to a third party as well as the consolidation of certain shared service functions in Asia. We recorded environmental costs during the six months ended June 30, 2018, related to an Environmental Protection Agency-designated Superfund site, which was acquired as part of our acquisition of Newport Corporation.

Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation.

Note 7: We recorded tax adjustments resulting from additional guidance provided by the IRS related to 2017 tax reform.

Note 9: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three and six months ended June 30, 2018.

MKS Instruments, Inc.

Reconciliation ofQ3-19 Guidance - GAAP Net Income toNon-GAAP Net Earnings

(In thousands, except per share data)


	Three Months Ended September 30, 2019
	Low Guidance						High Guidance
	$ Amount			$ Per Share			$ Amount			$ Per Share
GAAP net income	$	21,400		$	0.39		$	39,800		$	0.72
Amortization		17,200			0.31			17,200			0.31
Deferred financing costs		800			0.01			800			0.01
Integration costs		1,700			0.03			1,700			0.03
Restructuring and other costs		1,800			0.03			1,800			0.03
Tax effect of adjustments (Note 1)		(4,700	)		(0.08	)		(4,700	)		(0.08	)

Non-GAAP net earnings	$	38,200		$	0.69		$	56,600		$	1.02

Q3-19 forecasted shares					55,300						55,300

Note 1: TheNon-GAAP adjustments are tax effected at the applicable statutory rates and the difference between the GAAP andNon-GAAP tax rates.

MKS Instruments (MKSI) 8-KMKS Instruments Reports Second Quarter 2019 Financial Results