MKS Instruments 8K Reports Second Quarter 2018 Financial Results | MKSI 24 Jul 18

(MKS LOGO)

EXHIBIT 99.1

MKS Instruments Reports Second Quarter 2018 Financial Results

Achieved new quarterly records for revenue and Non-GAAP net earnings

Achieved new quarterly record for revenue to the semiconductor market

Quarterly revenue up 19% compared to Q2 2017

Light and Motion Division achieves new Non-GAAP operating income record

Andover, MA, July 24, 2018 — MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported second quarter 2018 financial results.


Quarterly Financial Results
(in millions, except per share data)
	Q2 2018			Q1 2018
GAAP Results
Net revenues	$	573		$	554
Gross margin		48.0	%		47.4	%
Operating margin		26.4	%		23.8	%
Net income	$	123		$	105
Diluted EPS	$	2.22		$	1.90
Non-GAAP Results
Gross margin		48.0	%		47.4	%
Operating margin		28.3	%		26.2	%
Net earnings	$	129		$	114.3
Diluted EPS	$	2.33		$	2.07

Second Quarter 2018 Financial Results

Revenue was $573 million, an increase of 3% from $554 million in the first quarter of 2018 and an increase of 19% from $481 million in the second quarter of 2017.

Net income was $123 million, or $2.22 per diluted share, compared to net income of $105 million, or $1.90 per diluted share, in the first quarter of 2018, and $120.4 million, or $2.19 per diluted share, in the second quarter of 2017, which included a gain of $72 million from the sale of its Data Analytics Business Unit.

Non-GAAP net earnings, which exclude special charges and credits, were $129 million, or $2.33 per diluted share, compared to $114.3 million, or $2.07 per diluted share, in the first quarter of 2018, and $77.7 million, or $1.41 per diluted share, in the second quarter of 2017.

Sales to semiconductor customers were a record $336 million, an increase of 19% compared to the second quarter of 2017, and sales to Advanced Markets were $237 million, an increase of 19% compared to the second quarter of 2017.

Sales in the Vacuum and Analysis Division were $368 million, an increase of 19% from the second quarter a year ago. Sales in the Light and Motion Division were $205 million, an increase of 20% from the prior year period.

“We are very pleased with our results for the second quarter of 2018, as we achieved new records for total and semiconductor revenue as well as Non-GAAP net earnings,” said Gerald Colella, Chief Executive Officer. “We set a strategy five years ago to augment our semi-focused business model with additional solutions that serve the industrial technology sector and other Advanced Markets. Our results demonstrate that this strategy is working, and we are confident that our diverse end markets, combined with our global leadership position in Semiconductor, will continue to drive sustainable and profitable growth for MKS.”

“Since acquiring Newport Corporation two years ago, we have expanded the portion of our revenue from Advanced Markets from approximately 25% to over 40%, a nearly $1 billion annual run rate, based on second quarter revenue,” said Seth Bagshaw, Chief Financial Officer. “At the same time, we more than doubled the Non-GAAP operating margin for our Light and Motion Division, from approximately 11% in the second quarter of 2016 to over 27% in the second quarter of 2018, demonstrating our ability to drive profitable growth.”

Additional Financial Information

The Company had $631 million in cash and short-term investments and $348 million of Term Loan Debt as of June 30, 2018 and during the second quarter of 2018, MKS paid a dividend of $10.9 million or $0.20 per diluted share, an 11% increase over the previous quarter.

Third Quarter 2018 Outlook

Based on current business levels, the Company expects that revenue in the third quarter of 2018 could range from $470 to $510 million.

At these volumes, GAAP net income could range from $1.40 to $1.66 per diluted share and Non-GAAP net earnings could range from $1.60 to $1.86 per diluted share. This financial guidance incorporates assumptions made based upon the Company’s current interpretation of the 2017 Tax Cut and Jobs Act and may change as additional clarification and implementation guidance is issued.

Conference Call Details

A conference call with management will be held on Wednesday, July 25, 2018 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 4876837, 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 and optics. 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, research and defense. Additional information can be found at www.mksinst.com.

Use of Non-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, asset impairments, costs associated with completed and announced acquisitions, acquisition integration costs, an inventory step-up adjustment related to an acquisition, restructuring charges, certain excess and obsolete inventory charges, fees and expenses related to the re-pricings of our term loan, amortization of debt issuance costs, net proceeds from an insurance policy, costs associated with the sale of a business, the tax effect of the 2017 Tax Cut and Jobs Act, the tax effect of legal entity restructurings, other discrete tax benefits and charges, and the related tax effect of these adjustments. These Non-GAAP measures should be viewed in addition to, and not as a substitute for, MKS’ reported results, and may be different from Non-GAAP measures used by other companies. In addition, these Non-GAAP measures are not based on any comprehensive set of accounting rules or principles. MKS management believes the presentation of these Non-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. 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 challenges, risks and costs involved with integrating the operations of the companies we have acquired, including our most recent acquisition of Newport Corporation, the Company’s ability to successfully grow our business, potential fluctuations in quarterly results, the terms of our term loan, 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 Form 10-K for the year ended December 31, 2017 filed with 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

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 Statements of Operations
(In thousands, except per share data)


	Three Months Ended
	June 30, 2018			June 30, 2017			March 31, 2018
				(Note 19)
Net revenues:
Products	$	509,999		$	426,317		$	496,677
Services		63,141			54,440			57,598

Total net revenues		573,140			480,757			554,275
Cost of revenues:
Products		266,890			230,706			261,321
Services		31,373			30,468			30,099

Total cost of revenues		298,263			261,174			291,420
Gross profit		274,877			219,583			262,855
Research and development		36,504			33,680			34,857
Selling, general and administrative		76,181			71,979			82,949
Acquisition and integration costs		(1,168	)		790			—
Restructuring		790			2,064			1,220
Environmental costs		—			—			1,000
Asset impairment		—			6,719			—
Fees and expenses related to repricing of term loan		378			—			—
Amortization of intangible assets		10,901			11,468			11,190

Income from operations		151,291			92,883			131,639
Interest income		1,456			507			1,105
Interest expense		3,922			6,997			5,430
Gain on sale of business		—			74,856			—
Other expense, net		281			3,277			572

Income from operations before income taxes		148,544			157,972			126,742
Provision for income taxes		25,682			37,532			21,621

Net income	$	122,862		$	120,440		$	105,121

Net income per share:
Basic	$	2.25		$	2.22		$	1.93
Diluted	$	2.22		$	2.19		$	1.90
Cash dividends per common share	$	0.20		$	0.18		$	0.18
Weighted average shares outstanding:
Basic		54,719			54,178			54,423
Diluted		55,274			55,001			55,286
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
Net income	$	122,862		$	120,440		$	105,121
Adjustments:
Acquisition and integration costs (Note 1)		(1,168	)		790			—
Expenses related to sale of a business (Note 2)		—			436			—
Excess and obsolete inventory charge (Note 3)		—			1,160			—
Fees and expenses related to repricing of term loan (Note 4)		378			—			—
Amortization of debt issuance costs (Note 5)		660			694			1,831
Restructuring (Note 6)		790			2,064			1,220
Environmental costs (Note 7)		—			—			1,000
Asset impairment (Note 8)		—			6,719			—
Gain on sale of business (Note 9)		—			(74,856	)		—
Amortization of intangible assets		10,901			11,468			11,190
Windfall tax benefit on stock-based compensation (Note 10)		(4,752	)		(3,169	)		(3,036	)
Tax adjustment related to the sale of a business (Note 11)		—			15,007			—
Deferred tax adjustment (Note 12)		—			—			878
Transition tax on accumulated foreign earnings (Note 13)		(659	)		—			(1,668	)
Pro-forma tax adjustments		(200	)		(3,047	)		(2,247	)

Non-GAAP net earnings (Note 14)	$	128,812		$	77,706		$	114,289

Non-GAAP net earnings per share (Note 14)	$	2.33		$	1.41		$	2.07

Weighted average shares outstanding		55,274			55,001			55,286
Income from operations	$	151,291		$	92,883		$	131,639
Adjustments:
Acquisition and integration costs (Note 1)		(1,168	)		790			—
Expenses related to sale of a business (Note 2)		—			436			—
Excess and obsolete inventory charge (Note 3)		—			1,160			—
Fees and expenses related to repricing of term loan (Note 4)		378			—			—
Restructuring (Note 6)		790			2,064			1,220
Environmental costs (Note 7)		—			—			1,000
Asset impairment (Note 8)		—			6,719			—
Amortization of intangible assets		10,901			11,468			11,190

Non-GAAP income from operations (Note 15)	$	162,192		$	115,520		$	145,049

Non-GAAP operating margin percentage (Note 15)		28.3	%		24.0	%		26.2	%

Gross profit	$	274,877		$	219,583		$	262,855
Excess and obsolete inventory charge (Note 3)		—			1,160			—

Non-GAAP gross profit (Note 16)	$	274,877		$	220,743		$	262,855

Non-GAAP gross profit percentage (Note 16)		48.0	%		45.9	%		47.4	%

Interest expense	$	3,922		$	6,997		$	5,430
Amortization of debt issuance costs (Note 5)		660			694			1,831

Non-GAAP interest expense	$	3,262		$	6,303		$	3,599

Net income	$	122,862		$	120,440		$	105,121
Interest expense, net		2,466			6,490			4,325
Provision for income taxes		25,682			37,532			21,621
Depreciation		8,984			9,120			9,302
Amortization		10,901			11,468			11,190

EBITDA (Note 17)	$	170,895		$	185,050		$	151,559

Stock-based compensation		6,366			6,207			10,426
Acquisition and integration costs (Note 1)		(1,168	)		790			—
Expenses related to sale of a business (Note 2)		—			436			—
Excess and obsolete inventory charge (Note 3)		—			1,160			—
Fees and expenses related to repricing of term loan (Note 4)		378			—			—
Restructuring (Note 6)		790			2,064			1,220
Environmental costs (Note 7)		—			—			1,000
Asset impairment (Note 8)		—			6,719			—
Gain on sale of business (Note 9)		—			(74,856	)		—
Other adjustments		—			822			772

Adjusted EBITDA (Note 18)	$	177,261		$	128,392		$	164,977

Note 1: We recorded acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016, during the three months ended June 30, 2017. During the second quarter of 2018, we reversed a portion of these costs related to severance agreement provisions that were not met.

Note 2: We recorded legal and consulting expenses during the three months ended June 30, 2017 related to the sale of a business, which was completed in April 2017.

Note 3: We recorded excess and obsolete inventory charges in cost of sales during the three months ended June 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing sites.

Note 4: 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 5: We recorded additional interest expense related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.

Note 6: We recorded restructuring costs during the three months ended June 30, 2018 and March 31, 2018 which 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 restructuring costs during the three months ended June 30, 2017, primarily related to the restructuring of one of our international facilities and the consolidation of sales offices.

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

Note 8: We recorded an asset impairment charge, primarily related to the write-off of goodwill and intangible assets during the three months ended June 30, 2017, in connection with the consolidation of two manufacturing plants.

Note 9: We recorded a gain during the three months ended June 30, 2017, related to the sale of our Data Analytics Solutions business.

Note 10: We recorded windfall tax benefits on the vesting of stock-based compensation related to an accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards update 2016-09).

Note 11: We recorded taxes related to the sale of our Data Analytics Solutions business during the three months ended June 30, 2017.

Note 12*: 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 three months ended June 30, 2018 and March 31, 2018.

Note 13*: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three months ended June 30, 2018.

Note 14: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the repricing of the Term Loan Credit Agreement, amortization of debt issuance costs, restructuring costs, environmental costs, an asset impairment charge, a gain on the sale of a business, amortization of intangible assets, a windfall tax benefit related to stock compensation expense, taxes related to the sale of a business, 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 15: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the repricing of the Term Loan Credit Agreement, restructuring costs, environmental costs, an asset impairment charge and amortization of intangible assets.

Note 16: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an excess and obsolete inventory charge related to the discontinuation of a product line.

Note 17: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.

Note 18: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the repricing of the Term Loan Credit Agreement, restructuring costs, environmental costs, an asset impairment charge, a gain on the sale of a business and other adjustments as defined in our Term Loan Credit Agreement.

*The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the “Tax Act”) as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time.

Note 19: We historically recorded the revenue and related cost of revenue for our spare parts within Products in our Statement of Operations for the Vacuum and Analysis Division. We have now determined that these items are better reflected within Services in our Statement of Operations and have revised the presentation of our previously issued financial statements as shown below:


	Three Months Ended June 30, 2017
	As previously reported		Adjustment			As revised
Net revenues:
Products	$	431,950	$	(5,633	)	$	426,317
Services		48,807		5,633			54,440

Total net revenues		480,757		—			480,757

Cost of revenues:
Cost of products		229,304		1,402			230,706
Cost of services		31,870		(1,402	)		30,468

Total cost of revenues	$	261,174	$	—		$	261,174

MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)


	Six Months Ended June 30,
	2018			2017 (Note 19)
Net revenues:
Products	$	1,006,676		$	814,255
Services		120,739			103,655

Total net revenues		1,127,415			917,910
Cost of revenues:
Products		528,211			436,540
Services		61,472			56,240

Total cost of revenues		589,683			492,780
Gross profit		537,732			425,130
Research and development		71,361			66,962
Selling, general and administrative		159,130			146,199
Acquisition and integration costs		(1,168	)		2,232
Restructuring		2,010			2,586
Environmental costs		1,000			—
Asset impairment		—			6,719
Fees and expenses related to repricing of term loan		378			—
Amortization of intangible assets		22,091			23,969

Income from operations		282,930			176,463
Interest income		2,561			1,023
Interest expense		9,352			15,829
Gain on sale of business		—			74,856
Other expense, net		853			1,256

Income from operations before income taxes		275,286			235,257
Provision for income taxes		47,303			49,757

Net income	$	227,983		$	185,500

Net income per share:
Basic	$	4.18		$	3.44
Diluted	$	4.12		$	3.37
Cash dividends per common share	$	0.38		$	0.35
Weighted average shares outstanding:
Basic		54,571			53,973
Diluted		55,280			54,979
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
Net income	$	227,983		$	185,500
Adjustments:
Acquisition and integration costs (Note 1)		(1,168	)		2,232
Expenses related to sale of a business (Note 2)		—			859
Excess and obsolete inventory charge (Note 3)		—			1,160
Fees and expenses related to repricing of term loan (Note 4)		378			—
Amortization of debt issuance costs (Note 5)		2,491			3,108
Restructuring (Note 6)		2,010			2,586
Environmental costs (Note 7)		1,000			—
Asset impairment (Note 8)		—			6,719
Gain on sale of business (Note 9)		—			(74,856	)
Amortization of intangible assets		22,091			23,969
Windfall tax benefit on stock-based compensation (Note 10)		(7,788	)		(9,819	)
Tax adjustment related to the sale of a business (Note 11)		—			15,007
Deferred tax adjustment (Note 12)		878			—
Transition tax on accumulated foreign earnings (Note 13)		(2,327	)		—
Pro-forma tax adjustments		(2,447	)		(9,710	)

Non-GAAP net earnings (Note 14)	$	243,101		$	146,755

Non-GAAP net earnings per share (Note 14)	$	4.40		$	2.67

Weighted average shares outstanding		55,280			54,979
Income from operations	$	282,930		$	176,463
Adjustments:
Acquisition and integration costs (Note 1)		(1,168	)		2,232
Expenses related to sale of a business (Note 2)		—			859
Excess and obsolete inventory charge (Note 3)		—			1,160
Fees and expenses related to repricing of term loan (Note 4)		378			—
Restructuring (Note 6)		2,010			2,586
Environmental costs (Note 7)		1,000			—
Asset impairment (Note 8)		—			6,719
Amortization of intangible assets		22,091			23,969

Non-GAAP income from operations (Note 15)	$	307,241		$	213,988

Non-GAAP operating margin percentage (Note 15)		27.3	%		23.3	%

Gross profit	$	537,732		$	425,130
Excess and obsolete inventory charge (Note 3)		—			1,160

Non-GAAP gross profit (Note 16)	$	537,732		$	426,290

Non-GAAP gross profit percentage (Note 16)		47.7	%		46.4	%

Interest expense	$	9,352		$	15,829
Amortization of debt issuance costs (Note 5)		2,491			3,108

Non-GAAP interest expense	$	6,861		$	12,721

Net income	$	227,983		$	185,500
Interest expense, net		6,791			14,806
Provision for income taxes		47,303			49,757
Depreciation		18,286			18,452
Amortization		22,091			23,969

EBITDA (Note 17)	$	322,454		$	292,484

Stock-based compensation		16,792			14,989
Acquisition and integration costs (Note 1)		(1,168	)		2,232
Expenses related to sale of a business (Note 2)		—			859
Excess and obsolete inventory charge (Note 3)		—			1,160
Fees and expenses related to repricing of term loan (Note 4)		378			—
Restructuring (Note 6)		2,010			2,586
Environmental costs (Note 7)		1,000			—
Asset impairment (Note 8)		—			6,719
Gain on sale of business (Note 9)		—			(74,856	)
Other adjustments		772			1,569

Adjusted EBITDA (Note 18)	$	342,238		$	247,742

Note 1: We recorded acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016, during the six months ended June 30, 2017. During the second quarter of 2018, we reversed a portion of these costs related to severance agreement provisions that were not met.

Note 2: We recorded legal and consulting expenses during the six months ended June 30, 2017 related to the sale of a business, which was completed in April 2017.

Note 3: We recorded excess and obsolete inventory charges in cost of sales during the six months ended June 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing sites.

Note 4: 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 5: We recorded additional interest expense related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.

Note 6: We recorded restructuring costs during the six months ended June 30, 2018, which 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 restructuring costs during the six months ended June 30, 2017, primarily related to the restructuring of one of our international facilities and the consolidation of sales offices.

Note 7: We recorded additional environmental costs during the six months ended June 30, 2018, related to an EPA-designated Superfund site, which was acquired as part of our Newport acquisition.

Note 8: We recorded an asset impairment charge, primarily related to the write-off of goodwill and intangible assets, during the six months ended June 30, 2017, in connection with the consolidation of two manufacturing plants.

Note 9: We recorded a gain during the six months ended June 30, 2017, related to the sale of our Data Analytics Solutions business.

Note 10: Windfall tax benefits on the vesting of stock-based compensation related to an accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards update 2016-09).

Note 11: We recorded taxes related to the sale of our Data Analytics Solutions business during the six months ended June 30, 2017.

Note 13*: 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 16: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an excess and obsolete inventory charge related to the discontinuation of a product line.

Note 17: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.


	Six Months Ended June 30, 2017
	As previously reported		Adjustment			As revised
Net revenues:
Products	$	824,872	$	(10,617	)	$	814,255
Services		93,038		10,617			103,655

Total net revenues		917,910		—			917,910

Cost of revenues:
Cost of products		434,364		2,176			436,540
Cost of services		58,416		(2,176	)		56,240

Total cost of revenues	$	492,780	$	—		$	492,780

MKS Instruments, Inc.
Unaudited Consolidated Statements of Cash Flows
(In thousands, except per share data)


	Three Months Ended
	June 30, 2018			June 30, 2017			March 31, 2018
Cash flows from operating activities:
Net income	$	122,862		$	120,440		$	105,121
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		19,885			20,588			20,492
Amortization of debt issuance costs and original issue discount		868			1,027			2,019
Asset impairment		—			6,719			—
Gain on sale of business		—			(74,856	)		—
Stock-based compensation		6,366			6,207			10,426
Provision for excess and obsolete inventory		4,959			5,971			5,333
Provision for doubtful accounts		261			195			335
Deferred income taxes		1,875			9,607			(705	)
Other		426			711			34
Changes in operating assets and liabilities		(47,891	)		12,807			(70,299	)

Net cash provided by operating activities		109,611			109,416			72,756

Cash flows from investing activities:
Net proceeds from sale of business		—			72,509			—
Purchases of investments		(99,063	)		(27,290	)		(49,753	)
Sales of investments		54,433			4,140			8,930
Maturities of investments		41,138			29,562			49,596
Purchases of property, plant and equipment		(12,428	)		(5,640	)		(9,390	)

Net cash (used in) provided by investing activities		(15,920	)		73,281			(617	)

Cash flows from financing activities:
Payments of short-term borrowings		(17,788	)		(7,863	)		(10,274	)
Proceeds from short and long-term borrowings		25,082			7,901			11,907
Payments of long-term borrowings		—			(1,571	)		(50,000	)
Dividend payments		(10,942	)		(9,484	)		(9,808	)
Net payments related to employee stock awards		(4,131	)		(10,519	)		(8,921	)

Net cash used in financing activities		(7,779	)		(21,536	)		(67,096	)

Effect of exchange rate changes on cash and cash equivalents		631			5,765			1,958

Increase in cash and cash equivalents and restricted cash		86,543			166,926			7,001

Cash and cash equivalents, including restricted cash at beginning of		340,888			261,186			333,887
period

Cash and cash equivalents, including restricted cash at end of period	$	427,431		$	428,112		$	340,888

MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)


	Three Months Ended June 30, 2018							Three Months Ended March 31, 2018
	Income Before			Provision		Effective				Provision
	Income Taxes			(benefit) for		Tax Rate		Income Before		(benefit) for			Effective
				Income Taxes				Income Taxes		Income Taxes			Tax Rate
GAAP	$	148,544		$	25,682		17.3%	$	126,742	$	21,621			17.1%
Adjustments:
Acquisition and integration costs		(1,168	)		—				—		—
(Note 1)
Fees and expenses related to		378			—				—		—
repricing of term loan (Note 4)
Amortization of debt issuance		660			—				1,831		—
costs (Note 5)
Restructuring (Note 6)		790			—				1,220		—
Environmental costs (Note 7)		—			—				1,000		—
Amortization of intangible assets		10,901			—				11,190		—
Windfall tax benefit on		—			4,752				—		3,036
stock-based compensation (Note 10)
Deferred tax adjustment (Note 12)		—			—				—		(878	)
Transition tax on accumulated		—			659				—		1,668
foreign earnings (Note 13)
Tax effect of pro-forma adjustments		—			200				—		2,247

Non-GAAP	$	160,105		$	31,293		19.5%	$	141,983	$	27,694			19.5%


	Three Months Ended June 30, 2017
				Provision			Effective
	Income Before			(benefit) for			Tax Rate
	Income Taxes			Income Taxes
GAAP	$	157,972		$	37,532			23.8%
Adjustments:
Acquisition and integration costs (Note 1)		790			—
Expenses related to sale of a business (Note 2)		436			—
Excess and obsolete inventory charge (Note 3)		1,160			—
Amortization of debt issuance costs (Note 5)		694			—
Restructuring (Note 6)		2,064			—
Asset impairment (Note 8)		6,719			—
Gain on sale of business (Note 9)		(74,856	)		—
Amortization of intangible assets		11,468			—
Windfall tax benefit on stock-based compensation (Note 10)		—			3,169
Tax adjustment related to the sale of a business (Note 11)		—			(15,007	)
Adjustment to pro-forma tax rate		—			3,047

Non-GAAP	$	106,447		$	28,741			27.0%


	Six Months Ended June 30, 2018								Six Months Ended June 30, 2017
				Provision			Effective					Provision (benefit)			Effective
	Income Before			(benefit) for			Tax Rate		Income Before			for			Tax Rate
	Income Taxes			Income Taxes					Income Taxes			Income Taxes
GAAP	$	275,286		$	47,303			17.2%	$	235,257		$	49,757			21.2%
Adjustments:
Acquisition and integration costs		(1,168	)		—					2,232			—
(Note 1)
Expenses related to sale of a		—			—					859			—
business (Note 2)
Excess and obsolete inventory		—			—					1,160			—
charge (Note 3)
Fees and expenses related to		378			—					—			—
repricing of term loan (Note 4)
Amortization of debt issuance		2,491			—					3,108			—
costs (Note 5)
Restructuring (Note 6)		2,010			—					2,586			—
Environmental costs (Note 7)		1,000			—					—			—
Asset impairment (Note 8)		—			—					6,719			—
Gain on sale of business (Note 9)		—			—					(74,856	)		—
Amortization of intangible assets		22,091			—					23,969			—
Windfall tax benefit on		—			7,788					—			9,819
stock-based compensation (Note 10)
Tax adjustment related to the sale		—			—					—			(15,007	)
of a business (Note 11)
Deferred tax adjustment (Note 12)		—			(878	)				—			—
Transition tax on accumulated		—			2,327					—			—
foreign earnings (Note 13)
Tax effect of pro-forma adjustments		—			2,447					—			9,710

Non-GAAP	$	302,088		$	58,987			19.5%	$	201,034		$	54,279			27.0%

Note 1: We recorded acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016, during the three and six months ended June 30, 2017. During the second quarter of 2018, we reversed a portion of these costs related to severance agreement provisions that were not met.

Note 2: We recorded legal and consulting expenses during the three and six months ended June 30, 2017 related to the sale of a business, which was completed in April 2017.

Note 3: We recorded excess and obsolete inventory charges in cost of sales during the three and six months ended June 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing sites.

Note 4: 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 5: We recorded additional interest expense related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.

Note 6: We recorded restructuring costs during the three and six months ended June 30, 2018 and three months ended March 31, 2018, 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 restructuring costs during the three and six months ended June 30, 2017, primarily related to the restructuring of one of our international facilities and the consolidation of sales offices.

Note 7: We recorded additional environmental costs during the three months ended March 31, 2018 and six months ended June 30, 2018, related to an EPA-designated Superfund site, which was acquired as part of our Newport acquisition.

Note 8: We recorded an asset impairment charge, primarily related to the write-off of goodwill and intangible assets during the three and six months ended June 30, 2017, in connection with the consolidation of two manufacturing plants.

Note 9: We recorded a gain during the three and six months ended June 30, 2017, related to the sale of our Data Analytics Solutions business.

Note 11: We recorded taxes related to the sale of our Data Analytics Solutions business during the three and six months ended June 30, 2017.

Note 13*: 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 of Q3-18 Guidance — GAAP Net Income to Non-GAAP Net Earnings
(In thousands, except per share data)


	Three Months Ended September 30, 2018
	Low Guidance						High Guidance
	$ Amount			$ Per Share			$ Amount			$ Per Share
GAAP net income	$	77,600		$	1.40		$	91,600		$	1.66
Amortization		10,800			0.20			10,800			0.20
Deferred financing costs		600			0.01			600			0.01
Restructuring		300			0.01			300			0.01
Tax effect of adjustments (Note 1)		(800	)		(0.02	)		(600	)		(0.02	)

Non-GAAP net earnings	$	88,500		$	1.60		$	102,700		$	1.86

Q3-18 forecasted shares					55,300						55,300

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

MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)


	June 30, 2018		December 31, 2017
ASSETS
Cash and cash equivalents, including restricted cash	$	427,431	$	333,887
Short-term investments		203,686		209,434
Trade accounts receivable, net		339,958		300,308
Inventories		384,929		339,081
Other current assets		61,720		53,543

Total current assets		1,417,724		1,236,253
Property, plant and equipment, net		174,054		171,782
Goodwill		588,718		591,047
Intangible assets, net		342,684		366,398
Long-term investments		10,476		10,655
Other assets		39,832		37,883

Total assets	$	2,573,488	$	2,414,018

LIABILITIES AND STOCKHOLDERS’ EQUITY
Short-term debt	$	12,511	$	2,972
Accounts payable		87,699		82,518
Accrued compensation		75,637		96,147
Income taxes payable		17,294		21,398
Deferred revenue		10,729		12,842
Other current liabilities		78,201		73,945

Total current liabilities		282,071		289,822
Long-term debt, net		342,096		389,993
Non-current deferred taxes		64,752		61,571
Non-current accrued compensation		55,627		51,700
Other liabilities		27,504		32,025

Total liabilities		772,050		825,111

Stockholders’ equity:
Common stock		113		113
Additional paid-in capital		793,384		789,644
Retained earnings		1,004,698		795,698
Accumulated other comprehensive income		3,243		3,452

Total stockholders’ equity		1,801,438		1,588,907

Total liabilities and stockholders’ equity	$	2,573,488	$	2,414,018

MKS Instruments (MKSI) 8-KMKS Instruments Reports Second Quarter 2018 Financial Results