MKS Instruments, Inc.
MKS INSTRUMENTS INC (Form: 8-K, Received: 10/24/2017 16:34:11)  

 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

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

     
Date of Report (Date of Earliest Event Reported):   October 24, 2017

MKS Instruments, Inc.
__________________________________________
(Exact name of registrant as specified in its charter)

     
Massachusetts 000-23621 04-2277512
_____________________
(State or other jurisdiction
_____________
(Commission
______________
(I.R.S. Employer
of incorporation) File Number) Identification No.)
      
2 Tech Drive, Suite 201, Andover, Massachusetts   01810
_________________________________
(Address of principal executive offices)
  ___________
(Zip Code)
     
Registrant’s telephone number, including area code:   978-645-5500

Not Applicable
______________________________________________
Former name or former address, if changed since last report

 

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

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

Emerging growth company [  ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]


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Item 2.02 Results of Operations and Financial Condition.

On October 24, 2017, MKS Instruments, Inc. announced its financial results for the quarter ended September 30, 2017. The full text of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

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





Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

99.1 Press Release dated October 24, 2017






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Exhibit Index


     
Exhibit No.   Description

 
99.1
  Press Release dated October 24, 2017


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SIGNATURES

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

         
    MKS Instruments, Inc.
          
October 24, 2017   By:   /s/ Seth H. Bagshaw
       
        Name: Seth H. Bagshaw
        Title: Sr. Vice President, Chief Financial Officer and Treasurer


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(MKS LOGO)

EXHIBIT 99.1

MKS Instruments Reports Third Quarter 2017 Financial Results

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

Total quarterly revenue up 28% compared to Q3 2016

Achieved new quarterly revenue record for Light and Motion Division

Andover, Mass., October 24, 2017 — MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported third quarter 2017 financial results.

                 
Quarterly Financial Results
(in millions, except per share data)
    Q3 2017   Q2 2017
GAAP Results                
Net revenues
  $ 486     $ 481  
Gross margin
    46.9 %     45.7 %
Operating margin
    22.7 %     19.3 %
Net income
  $ 76.0     $ 120.4  
Diluted EPS
  $ 1.38     $ 2.19  
Non-GAAP Results
               
Gross margin
    46.9 %     45.9 %
Operating margin
    25.5 %     24.0 %
Net earnings
  $ 85.9     $ 77.7  
Diluted EPS
  $ 1.56     $ 1.41  

Third Quarter 2017 Financial Results

Revenue was $486 million, an increase of 1% from $481 million in the second quarter of 2017 and an increase of 28% from $381 million in the third quarter of 2016.

Net income was $76.0 million, or $1.38 per diluted share, compared to net income of $120.4 million, which included a net gain of $59.9 million resulting from the sale of the Data Analytics Solutions Business Unit, or $2.19 per diluted share in the second quarter of 2017, and $32.5 million, or $0.60 per diluted share in the third quarter of 2016.

Non-GAAP net earnings, which exclude special charges and credits, were $85.9 million, or $1.56 per diluted share, compared to $77.7 million, or $1.41 per diluted share in the second quarter of 2017, and $47.9 million, or $0.88 per diluted share in the third quarter of 2016.

“We are very pleased with our continued progress in 2017 in achieving our objectives of sustainable and profitable growth,” said Gerald Colella, Chief Executive Officer and President. Mr. Colella added, “This quarter, we again set new records for quarterly revenue and Non-GAAP net earnings which are a direct result of the strategic investments we have made, and will continue to make, in the areas of product development as well as sales and applications support functions. Looking ahead, we see a wide range of new opportunities to solve customer complex problems across the large and growing markets we serve.”

“We also continue to execute on our strategy to delever our balance sheet and significantly reduce our interest cost. During the third quarter, we completed our third successful re-pricing of our Term Loan and voluntarily pre-paid another $125 million of principal. Exiting the third quarter, our debt balance is $448 million down from $780 million at loan origination in April of 2016, our debt to Adjusted EBITDA ratio is below 1 times and we have reduced our non-GAAP interest expense by approximately 60% on an annualized basis,” said Seth Bagshaw, Senior Vice President and Chief Financial Officer.

Additional Financial Information

The Company had $535 million in cash and short-term investments as of September 30, 2017 and during the third quarter of 2017, MKS paid a dividend of $9.5 million or $0.175 per diluted share.

Fourth Quarter 2017 Outlook

Based on current business levels, the Company expects that revenue in the fourth quarter of 2017 may range from $480 to $520 million.

At these volumes, GAAP net income could range from $1.34 to $1.59 per diluted share and non-GAAP net earnings could range from $1.52 to $1.76 per diluted share.

Conference Call Details

A conference call with management will be held on Wednesday, October 25, 2017 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 90032404, which has been reserved for this call. A live and archived webcast of the call will be available on the company’s website at www.mksinst.com .

About MKS Instruments

MKS Instruments, Inc. is a global provider of instruments, subsystems and process control solutions that measure, control, power, monitor, and analyze critical parameters of advanced manufacturing processes to improve process performance and productivity. 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, RF & DC power, reactive gas generation, vacuum technology, lasers, photonics, sub-micron positioning, vibration isolation, and optics. Our primary served markets include semiconductor capital equipment, general industrial, life sciences, and research. Additional information can be found at www.mksinst.com.

Use of Non-GAAP Financial Results

Non-GAAP amounts exclude amortization of acquired intangible assets, an asset impairment, costs associated with completed and announced acquisitions, acquisition integration costs, restructuring charges, certain excess and obsolete inventory charges, fees and expenses related to re-pricing 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 a legal entity restructuring, other discrete tax benefits and charges, and the related tax effect of these adjustments. These non-GAAP measures are not in accordance with generally accepted accounting principles in the United States of America (GAAP). MKS’ management believes the presentation of these non-GAAP financial measures is useful to investors for comparing prior periods and analyzing ongoing business trends and operating results. Annualized GAAP interest expense based upon $780 million principal outstanding and using the LIBOR based interest rate spread in effect on April 29, 2016, was $44.0 million. Annualized GAAP interest expense based upon $448 million in principal currently outstanding and LIBOR plus 200 basis points would be $19.5 million. Pro-forma revenue amounts assume the acquisition of Newport Corporation had occurred as of the beginning of 2016.

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 of MKS, our future business prospects, our future growth, and our expected synergies and cost savings from our recent acquisition of Newport Corporation. 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 we operate, including the fluctuations in capital spending in the semiconductor industry, and other advanced manufacturing markets, fluctuations in net sales to our major customers, our ability to successfully integrate Newport’s operations and employees, unexpected risks, costs, charges or expenses resulting from the Newport acquisition or other acquisitions, the terms of the Term Loan financing, fluctuations in interest rates, MKS’ ability to realize anticipated synergies and cost savings from the Newport acquisition, our 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 Form 10-K for the year ended December 31, 2016 filed with SEC. MKS is under no obligation to, and expressly disclaims any obligation to, update or alter our 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

1

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

                         
    Three Months Ended
    September 30, 2017   September 30, 2016   June 30, 2017
Net revenues:
                       
Products
  $ 434,710     $ 335,156     $ 431,950  
Services
    51,557       45,504       48,807  
 
                       
Total net revenues
    486,267       380,660       480,757  
Cost of revenues:
                       
Products
    223,738       183,789       229,304  
Services
    34,534       28,486       31,870  
 
                       
Total cost of revenues
    258,272       212,275       261,174  
Gross profit
    227,995       168,385       219,583  
Research and development
    32,548       32,268       33,680  
Selling, general and administrative
    71,839       68,016       71,979  
Acquisition and integration costs
    2,466       2,641       790  
Restructuring
    10             2,064  
Asset impairment
                6,719  
Amortization of intangible assets
    10,977       12,452       11,468  
 
                       
Income from operations
    110,155       53,008       92,883  
Interest income
    873       404       507  
Interest expense
    7,172       12,007       6,997  
Gain on sale of business
                74,856  
Other (expense) income, net
    (2,485 )     843       (3,277 )
 
                       
Income from operations before income taxes
    101,371       42,248       157,972  
Provision for income taxes
    25,377       9,699       37,532  
 
                       
Net income
  $ 75,994     $ 32,549     $ 120,440  
 
                       
Net income per share:
                       
Basic
  $ 1.40     $ 0.61     $ 2.22  
Diluted
  $ 1.38     $ 0.60     $ 2.19  
Cash dividends per common share
  $ 0.175     $ 0.17     $ 0.175  
Weighted average shares outstanding:
                       
Basic
    54,282       53,574       54,178  
Diluted
    55,101       54,315       55,001  
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:    
Net income
  $ 75,994     $ 32,549     $ 120,440  
Adjustments:
                       
Acquisition and integration costs (Note 1)
    2,466       2,641       790  
Acquisition inventory step-up (Note 2)
          4,971        
Expenses related to sale of a business (Note 3)
                436  
Excess and obsolete inventory charge (Note 4)
                1,160  
Fees and expenses relating to re-pricing of term loan (Note 5)
    492              
Amortization of debt issuance costs (Note 6)
    2,314       2,838       694  
Restructuring (Note 7)
    10             2,064  
Asset impairment (Note 8)
                6,719  
Gain on sale of business (Note 9)
                (74,856 )
Net proceeds from an insurance policy (Note 10)
          (1,323 )      
Amortization of intangible assets
    10,977       12,452       11,468  
Windfall tax benefit on stock-based compensation (Note 11)
    (594 )           (3,169 )
Taxes related to sale of business (Note 12)
                15,007  
Taxes related to legal entity restructuring (Note 13)
          1,532        
Pro-forma tax adjustments
    (5,789 )     (7,790 )     (3,047 )
 
                       
Non-GAAP net earnings (Note 14)
  $ 85,870     $ 47,870     $ 77,706  
 
                       
Non-GAAP net earnings per share (Note 14)
  $ 1.56     $ 0.88     $ 1.41  
 
                       
Weighted average shares outstanding
    55,101       54,315       55,001  
Income from operations
  $ 110,155     $ 53,008     $ 92,883  
Adjustments:
                       
Acquisition and integration costs (Note 1)
    2,466       2,641       790  
Acquisition inventory step-up (Note 2)
          4,971        
Expenses related to sale of a business (Note 3)
                436  
Excess and obsolete inventory charge (Note 4)
                1,160  
Fees and expenses relating to re-pricing of term loan (Note 5)
    492              
Restructuring (Note 7)
    10             2,064  
Asset impairment (Note 8)
                6,719  
Amortization of intangible assets
    10,977       12,452       11,468  
 
                       
Non-GAAP income from operations (Note 15)
  $ 124,100     $ 73,072     $ 115,520  
 
                       
Non-GAAP operating margin percentage (Note 15)
    25.5 %     19.2 %     24.0 %
 
                       
Gross profit
  $ 227,995     $ 168,385     $ 219,583  
Acquisition inventory step-up (Note 2)
          4,971        
Excess and obsolete inventory charge (Note 4)
                1,160  
 
                       
Non-GAAP gross profit (Note 16)
  $ 227,995     $ 173,356     $ 220,743  
 
                       
Non-GAAP gross profit percentage (Note 16)
    46.9 %     45.5 %     45.9 %
 
                       
Interest expense
  $ 7,172     $ 12,007     $ 6,997  
Amortization of debt issuance costs (Note 6)
    2,314       2,838       694  
 
                       
Non-GAAP interest expense
  $ 4,858     $ 9,169     $ 6,303  
 
                       
Net income
  $ 75,994     $ 32,549     $ 120,440  
Interest expense (income), net
    6,299       11,603       6,490  
Provision for income taxes
    25,377       9,699       37,532  
Depreciation
    9,153       9,597       9,120  
Amortization
    10,977       12,452       11,468  
 
                       
EBITDA (Note 17)
  $ 127,800     $ 75,900     $ 185,050  
 
                       
Stock-based compensation
    4,846       5,157       6,207  
Acquisition and integration costs (Note 1)
    2,466       2,641       790  
Acquisition inventory step-up (Note 2)
          4,971        
Expenses related to sale of a business (Note 3)
                436  
Excess and obsolete inventory charge (Note 4)
                1,160  
Fees and expenses relating to re-pricing of term loan (Note 5)
    492              
Restructuring (Note 7)
    10             2,064  
Asset impairment (Note 8)
                6,719  
Gain on sale of business (Note 9)
                (74,856 )
Net proceeds from an insurance policy (Note 10)
          (1,323 )      
Other adjustments
    836       834       822  
 
                       
Adjusted EBITDA (Note 18)
  $ 136,450     $ 88,180     $ 128,392  
 
                       

Note 1: We recorded $2.5 million, $0.8 million and $2.6 million of acquisition and integration costs during the three months ended September 30, 2017, June 30, 2017 and September 30, 2016, respectively, related to the Newport Corporation acquisition, which closed during the second quarter of 2016.

Note 2: We recorded $5.0 million in cost of sales during the three months ended September 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition.

Note 3: We recorded $0.4 million during the three months ended June 30, 2017, related to the sale of a business, which was completed in April of 2017.

Note 4: We recorded $1.2 million of 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 5: We recorded $0.5 million of fees and expenses during the three months ended September 30, 2017, related to the re-pricing of our Term Loan Credit Agreement.

Note 6: We recorded $2.3 million, $0.7 million and $2.8 million of additional interest expense during the three months ended September 30, 2017, June 30, 2017 and September 30, 2016, respectively, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.

Note 7: We recorded $2.1 million of restructuring costs during the three months ended June 30, 2017, related to the consolidation of two manufacturing plants.

Note 8: We recorded a $6.7 million asset impairment charge, primarily related to the write-off of goodwill and intangible assets during the three months ended June 30, 2017, in conjunction with the consolidation of two manufacturing plants.

Note 9: We recorded a $74.9 million gain during the three months ended June 30, 2017 on the sale of our Data Analytics Solutions business.

Note 10: We recorded net proceeds of $1.3 million during the three months ended September 30, 2016 from a company owned life insurance policy.

Note 11: We recorded a windfall tax benefit on the vesting of stock-based compensation of $0.6 and $3.2 million during the three months ended September 30, 2017 and June 30, 2017, respectively, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).

Note 12: We recorded $15.0 million of taxes during the three months ended June 30, 2017 related to the sale of our Data Analytics Solutions business.

Note 13: We recorded a tax expense of $1.5 million during the three months ended September 30, 2016 related to a legal entity restructuring.

Note 14: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, amortization of debt issuance costs, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy, amortization of intangible assets, a windfall tax benefit related to stock-based compensation expense, taxes related to the sale of a business, taxes related to a legal entity restructuring 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, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring 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 inventory step-up adjustment and an excess and obsolete inventory charge.

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 re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy and other adjustments as defined in our Term Loan Credit Agreement.

2

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

                 
    Nine Months Ended September 30,
    2017   2016
Net revenues:
               
Products
  $ 1,259,582     $ 774,248  
Services
    144,595       115,954  
 
               
Total net revenues
    1,404,177       890,202  
Cost of revenues:
               
Products
    658,102       433,134  
Services
    92,950       74,857  
 
               
Total cost of revenues
    751,052       507,991  
Gross profit
    653,125       382,211  
Research and development
    99,510       77,709  
Selling, general and administrative
    218,038       161,545  
Acquisition and integration costs
    4,698       25,190  
Restructuring
    2,596       24  
Asset impairment
    6,719        
Amortization of intangible assets
    34,946       22,990  
 
               
Income from operations
    286,618       94,753  
Interest income
    1,896       1,858  
Interest expense
    23,001       20,526  
Gain on sale of business
    74,856        
Other (expense) income, net
    (3,741 )     2,336  
 
               
Income from continuing operations before income taxes
    336,628       78,421  
Provision for income taxes
    75,134       19,099  
 
               
Net income
  $ 261,494     $ 59,322  
 
               
Net income per share:
               
Basic
  $ 4.84     $ 1.11  
Diluted
  $ 4.75     $ 1.10  
Cash dividends per common share
  $ 0.525     $ 0.51  
Weighted average shares outstanding:
               
Basic
    54,076       53,423  
Diluted
    55,020       53,895  
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
               
Net income
  $ 261,494     $ 59,322  
Adjustments:
               
Acquisition and integration costs (Note 1)
    4,698       25,190  
Acquisition inventory step-up (Note 2)
          15,090  
Expenses related to sale of a business (Note 3)
    859        
Excess and obsolete inventory charge (Note 4)
    1,160        
Fees and expenses relating to re-pricing of term loan (Note 5)
    492       713  
Amortization of debt issuance costs (Note 6)
    5,422       4,467  
Restructuring (Note 7)
    2,596       24  
Asset impairment (Note 8)
    6,719        
Gain on sale of business (Note 9)
    (74,856 )      
Net proceeds from an insurance policy (Note 10)
          (1,323 )
Amortization of intangible assets
    34,946       22,990  
Windfall tax benefit on stock-based compensation (Note 11)
    (10,413 )      
Taxes related to sale of business (Note 12)
    15,007        
Taxes related to legal entity restructuring (Note 13)
          1,532  
Pro-forma tax adjustments
    (15,499 )     (21,279 )
 
               
Non-GAAP net earnings (Note 14)
  $ 232,625     $ 106,726  
 
               
Non-GAAP net earnings per share (Note 14)
  $ 4.23     $ 1.98  
 
               
Weighted average shares outstanding
    55,020       53,895  
Income from operations
  $ 286,618     $ 94,753  
Adjustments:
               
Acquisition and integration costs (Note 1)
    4,698       25,190  
Acquisition inventory step-up (Note 2)
          15,090  
Expenses related to sale of a business (Note 3)
    859        
Excess and obsolete inventory charge (Note 4)
    1,160        
Fees and expenses relating to re-pricing of term loan (Note 5)
    492       713  
Restructuring (Note 7)
    2,596       24  
Asset impairment (Note 8)
    6,719        
Amortization of intangible assets
    34,946       22,990  
 
               
Non-GAAP income from operations (Note 15)
  $ 338,088     $ 158,760  
 
               
Non-GAAP operating margin percentage (Note 15)
    24.1 %     17.8 %
 
               
Gross profit
  $ 653,125     $ 382,211  
Acquisition inventory step-up (Note 2)
          15,090  
Excess and obsolete inventory charge (Note 4)
    1,160        
 
               
Non-GAAP gross profit (Note 16)
  $ 654,285     $ 397,301  
 
               
Non-GAAP gross profit percentage (Note 16)
    46.6 %     44.6 %
 
               
Interest expense
  $ 23,001     $ 20,526  
Amortization of debt issuance costs (Note 6)
    5,422       4,467  
 
               
Non-GAAP interest expense
  $ 17,579     $ 16,059  
 
               
Net income
  $ 261,494     $ 59,322  
Interest expense (income), net
    21,105       18,668  
Provision for income taxes
    75,134       19,099  
Depreciation
    27,605       20,767  
Amortization
    34,946       22,990  
 
               
EBITDA (Note 17)
  $ 420,284     $ 140,846  
 
               
Stock-based compensation
    19,835       19,826  
Acquisition and integration costs (Note 1)
    4,698       25,190  
Acquisition inventory step-up (Note 2)
          15,090  
Expenses related to sale of a business (Note 3)
    859        
Excess and obsolete inventory charge (Note 4)
    1,160        
Fees and expenses relating to re-pricing of term loan (Note 5)
    492       713  
Restructuring (Note 7)
    2,596       24  
Asset impairment (Note 8)
    6,719        
Gain on sale of business (Note 9)
    (74,856 )      
Net proceeds from an insurance policy (Note 10)
          (1,323 )
Other adjustments
    2,405       1,495  
 
               
Adjusted EBITDA (Note 18)
  $ 384,192     $ 201,861  
 
               

Note 1: We recorded $4.7 million and $25.2 million of acquisition and integration costs during the nine months ended September 30, 2017 and 2016, respectively, related to the Newport Corporation acquisition, which closed during the second quarter of 2016.

Note 2: We recorded $15.1 million in cost of sales during the nine months ended September 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition.

Note 3: We recorded $0.9 million during the nine months ended September 30, 2017, which is comprised of legal and consulting and compensation related expenses related to the sale of a business, which was completed in April of 2017.

Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the nine months ended September 30, 2017 related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants.

Note 5: We recorded $0.5 million and $0.7 million of fees and expenses during the nine months ended September 30, 2017 and 2016, respectively, related to re-pricings of our Term Loan Credit Agreement.

Note 6: We recorded $5.4 million and $4.5 million of additional interest expense during the nine months ended September 30, 2017 and 2016, respectively, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.

Note 7: We recorded $2.6 million of restructuring costs during the nine months ended September 30, 2017, related to the consolidation of two manufacturing plants, a restructuring of one of our international facilities and the consolidation of sales offices.

Note 8: We recorded a $6.7 million asset impairment charge, primarily related to the write-off of goodwill and intangible assets during the nine months ended September 30, 2017, in connection with the consolidation of two manufacturing plants.

Note 9: We recorded a $74.9 million gain during the nine months ended September 30, 2017 on the sale of our Data Analytics Solutions business.

Note 10: We recorded net proceeds of $1.3 million during the nine months ended September 30, 2016 from a company owned life insurance policy.

Note 11: We recorded a windfall tax benefit on the vesting of stock-based compensation of $10.4 million, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).

Note 12: We recorded $15.0 million of taxes during the nine months ended September 30, 2017 related to the sale of our Data Analytics Solutions business.

Note 13: We recorded a tax expense of $1.5 million during the nine months ended September 30, 2016 related to a legal entity restructuring.

Note 14: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, amortization of debt issuance costs, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy, amortization of intangible assets, a windfall tax benefit related to stock-based compensation expense, taxes related to the sale of a business, taxes related to a legal entity restructuring 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, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring 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 inventory step-up adjustment and an excess and obsolete inventory charge.

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 re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy and other adjustments as defined in our Term Loan Credit Agreement.

3

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

                                                 
    Three Months Ended September 30, 2017   Three Months Ended June 30, 2017
     Income Before    Provision    Effective        Provision (benefit)    
     Income Taxes    (benefit) for    Tax Rate    Income Before   for   Effective
             Income Taxes             Income Taxes     Income Taxes     Tax Rate 
GAAP                
  $          101,371     $         25,377          25.0%        $         157,972     $         37,532          23.8%     
Adjustments:
                                               
Acquisition and integration costs (Note
    2,466                     790                
1)
                                               
Expenses related to sale of a business
                        436                
(Note 3)
                                               
Excess and obsolete inventory charge
                        1,160                
(Note 4)
                                               
Fees and expenses relating to re-pricing
    492                                    
of term loan (Note 5)
                                               
Amortization of debt issuance costs
    2,314                     694                
(Note 6)
                                               
Restructuring (Note 7)
    10                     2,064                
Asset impairment (Note 8)
                        6,719                
Gain on sale of business (Note 9)
                        (74,856 )              
Amortization of intangible assets
    10,977                     11,468                
Windfall tax benefit on stock-based
          594                     3,169          
compensation (Note 10)
                                               
Tax related to sale of business (Note 11)
                              (15,007 )        
Tax effect of pro-forma adjustments
          5,789                     3,047          
 
                                               
Non-GAAP
  $          117,630     $       31,760          27.0%        $        106,447     $         28,741          27.0%     
 
                                               
                         
    Three Months Ended September 30, 2016
         Provision    Effective
    Income Before    (benefit) for    Tax Rate 
     Income Taxes     Income Taxes         
GAAP
  $       42,248     $       9,699         23.0%    
Adjustments:
                       
Acquisition and integration costs (Note 1)
    2,641                
Acquisition inventory step-up (Note 2)
    4,971                
Amortization of debt issuance costs (Note 6)
    2,838                
Net proceeds from an insurance policy (Note 12)
    (1,323 )              
Amortization of intangible assets
    12,452                
Taxes related to legal entity restructuring (Note 13)
          (1,532 )        
Tax effect of pro-forma adjustments
          7,790          
 
                       
Non-GAAP
  $       63,827     $       15,957       25.0%    
 
                       
                                                 
    Nine Months Ended September 30, 2017   Nine Months Ended September 30, 2016
         Provision (benefit)            Provision    Effective
    Income Before   for   Effective   Income Before   (benefit) for    Tax Rate 
     Income Taxes     Income Taxes     Tax Rate     Income Taxes     Income Taxes         
GAAP                
  $          336,628     $         75,134          22.3%        $          78,421     $         19,099          24.4%     
Adjustments:
                                               
Acquisition and integration costs
    4,698                     25,190                
(Note 1)
                                               
Acquisition inventory step-up
                        15,090                
(Note 2)
                                               
Expenses related to sale of a
    859                                    
business (Note 3)
                                               
Excess and obsolete inventory
    1,160                                    
charge (Note 4)
                                               
Fees and expenses relating to
    492                     713                
re-pricing of term loan (Note 5)
                                               
Amortization of debt issuance
    5,422                     4,467                
costs (Note 6)
                                               
Restructuring (Note 7)
    2,596                     24                
Asset impairment (Note 8)
    6,719                                    
Gain on sale of business (Note 9)
    (74,856 )                                  
Amortization of intangible assets
    34,946                     22,990                
Windfall tax benefit on
          10,413                              
stock-based compensation (Note 10)
                                               
Taxes related to sale of business
          (15,007 )                            
(Note 11)
                                               
Net proceeds from an insurance
                        (1,323 )              
policy (Note 12)
                                               
Taxes related to legal entity
                              (1,532 )        
restructuring (Note 13)
                                               
Tax effect of pro-forma adjustments
          15,499                     21,279          
 
                                               
Non-GAAP
  $          318,664     $        86,039          27.0%        $        145,572     $         38,846          26.7%     
 
                                               

Note 1: Acquisition and integration costs during the three and nine months ended September 30, 2017, the three months ended June 30, 2017 and the three and nine months ended September 30, 2016, relate to the Newport Corporation acquisition, which closed during the second quarter of 2016.

Note 2: We recorded $5.0 million and $15.1 million in cost of sales during the three and nine months ended September 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition.

Note 3: We recorded $0.4 million during the three months ended June 30, 2017 and $0.9 million during the nine months ended September 30, 2017, related to the sale of a business, which was completed in April of 2017.

Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the three months ended June 30, 2017 and nine months ended September 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants.

Note 5: We recorded $0.5 million during the three and nine months ended September 30, 2017 and $0.7 million during the nine months ended September 30, 2016, of fees and expenses related to the re-pricing of our Term Loan Credit Agreement.

Note 6: Amortization of debt issuance costs for the three and nine months ended September 30, 2017 and 2016, respectively, and the three months ended June 30, 2017, are affiliated with our Term Loan Credit Agreement and ABL Facility.

Note 7: Restructuring costs for the three and nine months ended September 30, 2017 and the three months ended June 30, 2017 relate to the consolidation of two manufacturing plants, a restructuring of one of our international facilities and the consolidation of sales offices.

Note 8: We recorded a $6.7 million asset impairment charge, during the three months ended June 30, 2017 and the nine months ended September 30, 2017, primarily related to the write-off of goodwill and intangible assets, in conjunction with the consolidation of two manufacturing plants.

Note 9: We recorded a $74.9 million gain during the three months ended June 30, 2017 and the nine months ended September 30, 2017 on the sale of our Data Analytics Solutions business.

Note 10: We recorded a windfall tax benefit on the vesting of stock-based compensation of $0.6 million and $3.2 million during the three months ended September 30, 2017 and June 30, 2017, respectively, and $10.4 million for the nine months ended September 30, 2017, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).

Note 11: We recorded $15.0 million of taxes during the three months ended June 30, 2017 and nine months ended September 30, 2017 related to the sale of our Data Analytics Solutions business.

Note 12: We recorded net proceeds of $1.3 million during the three and nine months ended September 30, 2016 from a company owned life insurance policy.

Note 13: We recorded a tax expense of $1.5 million during the three and nine months ended September 30, 2016 related to a legal entity restructuring.

MKS Instruments, Inc.
Reconciliation of Q4-17 Guidance — GAAP Net Income to Non-GAAP Net Earnings
(In thousands, except per share data)

                                 
    Three Months Ended December 31, 2017
    Low Guidance   High Guidance
    $ Amount   $ Per Share   $ Amount   $ Per Share
GAAP net income
  $ 74,100     $ 1.34     $ 87,700     $ 1.59  
Amortization
    10,900       0.20       10,900       0.20  
Integration costs
    400       0.01       400       0.01  
Restructuring costs
    800       0.01       800       0.01  
Deferred financing costs
    1,000       0.02       1,000       0.02  
Tax effect of adjustments (Note 1)
    (3,500 )     (0.06 )     (3,600 )     (0.07 )
 
                               
Non-GAAP net earnings
  $ 83,700     $ 1.52     $ 97,200     $ 1.76  
 
                               
Q4-17 forecasted shares
            55,200               55,200  

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.

4

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

                 
    September 30, 2017   December 31, 2016
ASSETS
               
Cash and cash equivalents
  $ 305,977     $ 228,623  
Restricted cash
    117       5,287  
Short-term investments
    228,631       189,463  
Trade accounts receivable, net
    280,302       248,757  
Inventories
    319,460       275,869  
Other current assets
    60,716       50,770  
 
               
Total current assets
    1,195,203       998,769  
Property, plant and equipment, net
    166,928       174,559  
Goodwill
    589,099       588,585  
Intangible assets, net
    376,334       408,004  
Long-term investments
    10,593       9,858  
Other assets
    32,188       32,467  
 
               
Total assets
  $ 2,370,345     $ 2,212,242  
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Short-term debt
  $ 4,020     $ 10,993  
Accounts payable
    77,842       69,337  
Accrued compensation
    75,725       67,728  
Income taxes payable
    38,609       22,794  
Deferred revenue
    17,812       14,463  
Other current liabilities
    68,604       51,985  
 
               
Total current liabilities
    282,612       237,300  
Long-term debt, net
    435,731       601,229  
Non-current deferred taxes
    71,110       66,446  
Non-current accrued compensation
    50,080       44,714  
Other liabilities
    23,107       20,761  
 
               
Total liabilities
    862,640       970,450  
 
               
Stockholders’ equity:
               
Common stock
    113       113  
Additional paid-in capital
    782,597       777,482  
Retained earnings
    727,835       494,744  
Accumulated other comprehensive loss
    (2,840 )     (30,547 )
 
               
Total stockholders’ equity
    1,507,705       1,241,792  
 
               
Total liabilities and stockholders’ equity
  $ 2,370,345     $ 2,212,242  
 
               

5