PART I. FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS (Unaudited)](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, detailing the company's financial position and performance [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%E2%80%93%20June%2030,%202022%20and%20December%2031,%202021) The condensed consolidated balance sheets show the company's financial position at June 30, 2022, and December 31, 2021, reflecting an increase in total assets and stockholders' equity, while total liabilities slightly decreased | Metric | June 30, 2022 (in millions) | December 31, 2021 (in millions) | Change (in millions) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------------- | | Total assets | $4,749 | $4,540 | $209 | | Cash and cash equivalents | $1,065 | $966 | $99 | | Trade accounts receivable, net | $481 | $443 | $38 | | Inventories | $689 | $577 | $112 | | Total liabilities | $1,620 | $1,653 | $(33) | | Total stockholders' equity | $3,129 | $2,887 | $242 | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%E2%80%93%20Three%20and%20six%20months%20ended%20June%2030,%202022%20and%202021) The statements of operations show a slight increase in net revenues for both the three and six months ended June 30, 2022, compared to the prior year, while net income decreased in the three-month period but increased over the six-month period | Metric | Three Months Ended June 30, 2022 (in millions) | Three Months Ended June 30, 2021 (in millions) | Six Months Ended June 30, 2022 (in millions) | Six Months Ended June 30, 2021 (in millions) | | :---------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net revenues | $765 | $750 | $1,507 | $1,444 | | Gross profit | $338 | $355 | $672 | $677 | | Income from operations | $164 | $186 | $336 | $342 | | Net income | $130 | $146 | $273 | $269 | | Diluted Net income per share | $2.32 | $2.63 | $4.89 | $4.83 | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20%E2%80%93%20Three%20and%20six%20months%20ended%20June%2030,%202022%20and%202021) The statements of stockholders' equity illustrate the changes in equity components, including net income, stock-based compensation, and cash dividends, resulting in an increase in total stockholders' equity from December 31, 2021, to June 30, 2022 | Metric | June 30, 2022 (in millions) | December 31, 2021 (in millions) | Change (in millions) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------------- | | Total Stockholders' Equity | $3,129 | $2,887 | $242 | | Retained Earnings | $2,240 | $1,991 | $249 | | Additional Paid-In Capital | $923 | $907 | $16 | | Accumulated Other Comprehensive Loss | $(34) | $(11) | $(23) | - The company declared a cash dividend of **$0.22 per common share** in both the first and second quarters of 2022, totaling **$24 million** for the six months ended June 30, 2022[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%93%20Six%20months%20ended%20June%2030,%202022%20and%202021) Cash flows from operating activities significantly decreased for the six months ended June 30, 2022, compared to the prior year, primarily due to increased working capital, while investing activities saw a reduced cash outflow and financing activities remained relatively stable | Cash Flow Activity | Six Months Ended June 30, 2022 (in millions) | Six Months Ended June 30, 2021 (in millions) | Change (in millions) | | :----------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------- | | Net cash provided by operating activities | $146 | $292 | $(146) | | Net cash used in investing activities | $(1) | $(100) | $99 | | Net cash used in financing activities | $(31) | $(41) | $10 | | Increase in cash and cash equivalents | $99 | $147 | $(48) | | Cash and cash equivalents at end of period | $1,065 | $755 | $310 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the unaudited condensed consolidated financial statements [1) Basis of Presentation](index=7&type=section&id=1)%20Basis%20of%20Presentation) This section outlines the basis for preparing the interim financial statements and updates to division names - The interim financial data as of June 30, 2022, is unaudited and includes normal recurring adjustments necessary for a fair statement of results[16](index=16&type=chunk) - MKS updated the names of its three divisions in the first quarter of 2022: Vacuum & Analysis Division to Vacuum Solutions Division (VSD), Light & Motion Division to Photonics Solutions Division (PSD), and Equipment & Solutions Division to Equipment Solutions Division (ESD)[18](index=18&type=chunk) [2) Revenue from Contracts with Customers](index=7&type=section&id=2)%20Revenue%20from%20Contracts%20with%20Customers) This section details the company's net revenues by division and changes in deferred revenue and customer advances Total Net Revenues by Division | Division | Three Months Ended June 30, 2022 (in millions) | Three Months Ended June 30, 2021 (in millions) | Six Months Ended June 30, 2022 (in millions) | Six Months Ended June 30, 2021 (in millions) | | :-------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Vacuum Solutions Division | $507 | $458 | $981 | $894 | | Photonics Solutions Division | $228 | $193 | $456 | $375 | | Equipment Solutions Division | $30 | $99 | $70 | $175 | | **Total Net Revenues** | **$765** | **$750** | **$1,507** | **$1,444** | Deferred Revenue and Customer Advances | Metric | June 30, 2022 (in millions) | June 30, 2021 (in millions) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Beginning balance, January 1 | $40 | $37 | | Additions to deferred revenue | $91 | $76 | | Recognized in income | $(78) | $(72) | | Ending balance, June 30 | $53 | $41 | [3) Investments](index=8&type=section&id=3)%20Investments) This section provides information on the company's available-for-sale investments, including short-term and long-term categories Available-for-Sale Investments | Investment Category | June 30, 2022 (Fair Value, in millions) | December 31, 2021 (Fair Value, in millions) | | :-------------------------------- | :-------------------------------------- | :---------------------------------------- | | Short-term investments | $2 | $76 | | Long-term investments (Group insurance contracts) | $6 | $6 | [4) Fair Value Measurements](index=9&type=section&id=4)%20Fair%20Value%20Measurements) This section presents assets measured at fair value, categorized by valuation input levels, for June 30, 2022, and December 31, 2021 Assets Measured at Fair Value (June 30, 2022) | Description | Total Fair Value (in millions) | Level 1 (in millions) | Level 2 (in millions) | | :------------------------------------ | :----------------------------- | :-------------------- | :-------------------- | | Money market funds | $306 | $306 | $— | | Available-for-sale investments | $2 | $— | $2 | | Derivatives | $42 | $— | $42 | | Pension and deferred compensation plan assets | $21 | $— | $21 | | **Total assets** | **$377** | **$306** | **$71** | Assets Measured at Fair Value (December 31, 2021) | Description | Total Fair Value (in millions) | Level 1 (in millions) | Level 2 (in millions) | | :------------------------------------ | :----------------------------- | :-------------------- | :-------------------- | | Money market funds | $55 | $55 | $— | | U.S. treasury obligations | $175 | $— | $175 | | Available-for-sale investments | $76 | $— | $76 | | Derivatives | $15 | $— | $15 | | Pension and deferred compensation plan assets | $20 | $— | $20 | | **Total assets** | **$347** | **$55** | **$292** | [5) Derivatives](index=11&type=section&id=5)%20Derivatives) This section describes the company's use of foreign exchange forward contracts and interest rate swaps for risk management, detailing their notional values and fair values - The Company uses foreign exchange forward contracts and interest rate swaps for risk management, not for trading or speculative purposes[33](index=33&type=chunk)[35](index=35&type=chunk) Foreign Exchange Forward Contracts (Cash-Flow Hedges) | Currency Hedged | Gross Notional Value (June 30, 2022, in millions) | Fair Value (June 30, 2022, in millions) | | :------------------------ | :------------------------------------------ | :------------------------------------ | | U.S. dollar/Japanese yen | $66 | $5 | | U.S. dollar/South Korean won | $111 | $5 | | U.S. dollar/euro | $17 | $1 | | U.S. dollar/Taiwan dollar | $45 | $2 | | **Total** | **$246** | **$13** | Interest Rate Swap Agreements | Notional Amount (June 30, 2022, in millions) | Fair Value Asset (June 30, 2022, in millions) | Fair Value Asset (December 31, 2021, in millions) | | :------------------------------------------- | :------------------------------------------ | :------------------------------------------------ | | $500 | $29 | $4 | - Net gains recognized in accumulated Other Comprehensive Income (OCI) from foreign exchange forward contracts were **$8 million** for the three months ended June 30, 2022, and **$26 million** for the six months ended June 30, 2022[41](index=41&type=chunk) - Net gains on derivatives not designated as hedging instruments were **$1 million** for the three months ended June 30, 2022, and **$7 million** for the six months ended June 30, 2022[43](index=43&type=chunk) [6) Inventories](index=14&type=section&id=6)%20Inventories) This section provides a breakdown of inventory components, including raw materials, work-in-process, and finished goods, and their changes over time Inventories Breakdown | Category | June 30, 2022 (in millions) | December 31, 2021 (in millions) | | :--------------- | :-------------------------- | :-------------------------- | | Raw materials | $490 | $394 | | Work-in-process | $92 | $83 | | Finished goods | $107 | $100 | | **Total** | **$689** | **$577** | - Total inventories increased by **$112 million** from December 31, 2021, to June 30, 2022, primarily driven by a **$96 million** increase in raw materials[44](index=44&type=chunk) [7) Leases](index=14&type=section&id=7)%20Leases) This section details the company's lease costs, operating lease liabilities, future lease payments, and weighted average lease terms and discount rates Total Lease Cost | Period | 2022 (in millions) | 2021 (in millions) | | :-------------------------- | :----------------- | :----------------- | | Three Months Ended June 30 | $8 | $7 | | Six Months Ended June 30 | $16 | $16 | - As of June 30, 2022, the total operating lease liabilities were **$198 million**, with future lease payments of **$246 million**[48](index=48&type=chunk) - The weighted average remaining lease term was **14.1 years** with a weighted average discount rate of **3.0%** as of June 30, 2022[46](index=46&type=chunk) [8) Goodwill and Intangible Assets](index=15&type=section&id=8)%20Goodwill%20and%20Intangible%20Assets) This section presents the net values of goodwill and intangible assets, discusses impairment evaluations, and reports amortization expenses Goodwill and Intangible Assets, Net | Asset Category | June 30, 2022 (in millions) | December 31, 2021 (in millions) | | :--------------------- | :-------------------------- | :-------------------------- | | Goodwill | $1,220 | $1,228 | | Intangible assets, net | $544 | $576 | - The Equipment Solutions Division (ESD) underwent an impairment evaluation due to softening industry demand for flexible PCB via drilling equipment, with fair value exceeding carrying value by **10%** as of June 30, 2022[51](index=51&type=chunk) - Aggregate amortization expense for acquired intangible assets was **$30 million** for the six months ended June 30, 2022, an increase from **$25 million** in the prior year[54](index=54&type=chunk) [9) Debt](index=16&type=section&id=9)%20Debt) This section outlines the company's outstanding debt, including term loan facilities and revolving credit facilities, and compliance with covenants Outstanding Debt | Debt Category | June 30, 2022 (in millions) | December 31, 2021 (in millions) | | :------------------ | :-------------------------- | :-------------------------- | | Short-term debt | $11 | $9 | | Long-term debt, net | $804 | $808 | | **Total Debt** | **$815** | **$817** | - The outstanding principal amount of the Senior Secured Term Loan Credit Facility was **$820 million** as of June 30, 2022, bearing an interest rate of **2.8%** and maturing on February 2, 2026[57](index=57&type=chunk)[59](index=59&type=chunk) - The company has a Senior Secured Asset-Based Revolving Credit Facility of up to **$100 million**, with no borrowings outstanding as of June 30, 2022[63](index=63&type=chunk)[64](index=64&type=chunk) - The company was in compliance with all covenants under the Term Loan Credit Agreement as of June 30, 2022[62](index=62&type=chunk) [10) Product Warranties](index=18&type=section&id=10)%20Product%20Warranties) This section details the changes in product warranty liabilities, including provisions and charges, for the six months ended June 30 Product Warranty Activities (Six Months Ended June 30) | Activity | 2022 (in millions) | 2021 (in millions) | | :-------------------------- | :----------------- | :----------------- | | Beginning of period | $21 | $18 | | Provision for product warranties | $12 | $22 | | Charges to warranty liability | $(14) | $(16) | | End of period | $19 | $24 | [11) Income Taxes](index=19&type=section&id=11)%20Income%20Taxes) This section presents the effective tax rates, factors influencing them, and information on unrecognized tax benefits Effective Tax Rates | Period | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | 17.0% | 15.1% | | Six Months Ended June 30 | 16.6% | 16.2% | - Effective tax rates were lower than the U.S. statutory rate primarily due to the U.S. deduction for foreign derived intangible income (FDII) and the geographic mix of income earned by international subsidiaries, offset by the U.S. global intangible low-taxed income (GILTI) inclusion[77](index=77&type=chunk)[78](index=78&type=chunk) - Gross unrecognized tax benefits totaled **$38 million** as of June 30, 2022, down from **$43 million** at December 31, 2021. The company expects to recognize approximately **$1 million** of these benefits over the next 12 months[79](index=79&type=chunk)[80](index=80&type=chunk) [12) Net Income Per Share](index=20&type=section&id=12)%20Net%20Income%20Per%20Share) This section provides basic and diluted net income per share for the three and six months ended June 30, 2022, and 2021 Net Income Per Share | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Basic EPS | $2.33 | $2.64 | $4.90 | $4.86 | | Diluted EPS | $2.32 | $2.63 | $4.89 | $4.83 | [13) Stock-Based Compensation](index=20&type=section&id=13)%20Stock-Based%20Compensation) This section details pre-tax stock-based compensation expense, unrecognized compensation expense, and changes in stock incentive plans Total Pre-Tax Stock-Based Compensation Expense | Period | 2022 (in millions) | 2021 (in millions) | | :-------------------------- | :----------------- | :----------------- | | Three Months Ended June 30 | $13 | $9 | | Six Months Ended June 30 | $21 | $19 | - As of June 30, 2022, total unrecognized compensation expense related to unvested stock-based awards was **$54 million**[87](index=87&type=chunk) - The company transitioned from the 2014 Stock Incentive Plan to the 2022 Stock Incentive Plan for granting Restricted Stock Units (RSUs) following shareholder approval on May 10, 2022[85](index=85&type=chunk) [14) Stockholders' Equity](index=21&type=section&id=14)%20Stockholders'%20Equity) This section discusses share repurchase programs and quarterly cash dividends declared by the Board of Directors - No share repurchases were made under the **$200 million** share repurchase program during the three and six months ended June 30, 2022, or 2021[89](index=89&type=chunk) - The Board of Directors declared a quarterly cash dividend of **$0.22 per share** for both the first and second quarters of 2022, totaling **$24 million** for the six months[90](index=90&type=chunk) - A quarterly cash dividend of **$0.22 per share** was declared on July 25, 2022, payable on September 9, 2022[91](index=91&type=chunk) [15) Acquisition (Photon Control)](index=21&type=section&id=15)%20Acquisition) This section provides details on the acquisition of Photon Control, including the purchase price and allocation of acquired assets and liabilities - The acquisition of Photon Control was completed on July 15, 2021, for a total purchase price of **$302 million** in cash, net of cash acquired[92](index=92&type=chunk)[93](index=93&type=chunk) Photon Control Purchase Price Allocation | Asset Category | Fair Value (in millions) | | :---------------------- | :----------------------- | | Intangible assets | $121 | | Goodwill | $168 | | Current assets | $51 | | Other non-current assets | $9 | | Current liabilities | $(14) | | Non-current deferred taxes | $(32) | | Other long-term liabilities | $(1) | | **Total purchase price, net** | **$268** | - Acquired intangible assets included **$110 million** in completed technology (9-year useful life), **$9 million** in customer relationships (10-year useful life), and **$2 million** in backlog (1.5-year useful life)[95](index=95&type=chunk) [16) Business Segment, Geographic Area, and Significant Customer Information](index=22&type=section&id=16)%20Business%20Segment,%20Geographic%20Area,%20and%20Significant%20Customer%20Information) This section outlines the company's reportable segments, net revenues by segment and geographic area, and identifies significant customers - MKS operates through three reportable segments: Vacuum Solutions Division (VSD), Photonics Solutions Division (PSD), and Equipment Solutions Division (ESD), serving semiconductor, advanced electronics, and specialty industrial markets[97](index=97&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk) Net Revenues by Reportable Segment (Six Months Ended June 30) | Segment | 2022 (in millions) | 2021 (in millions) | Change (in millions) | % Change | | :-------------------------- | :----------------- | :----------------- | :------------------- | :--------- | | Vacuum Solutions Division | $981 | $894 | $87 | 9.7% | | Photonics Solutions Division | $456 | $375 | $81 | 21.6% | | Equipment Solutions Division | $70 | $175 | $(105) | (60.0%) | | **Total Net Revenues** | **$1,507** | **$1,444** | **$63** | **4.4%** | Net Revenues by Geographic Area (Six Months Ended June 30) | Region | 2022 (in millions) | 2021 (in millions) | Change (in millions) | % Change | | :------------- | :----------------- | :----------------- | :------------------- | :--------- | | North America | $736 | $574 | $162 | 28.2% | | South Korea | $177 | $202 | $(25) | (12.4%) | | China | $140 | $183 | $(43) | (23.5%) | | Other Asia | $330 | $370 | $(40) | (10.8%) | | Europe | $124 | $115 | $9 | 7.8% | | **Total** | **$1,507** | **$1,444** | **$63** | **4.4%** | - Major customers for the six months ended June 30, 2022, included Lam Research Corporation (**16% of net revenues**) and Applied Materials, Inc. (**12% of net revenues**)[112](index=112&type=chunk) [17) Restructuring and Other](index=26&type=section&id=17)%20Restructuring%20and%20Other) This section details restructuring charges, primarily severance costs from global cost-saving initiatives and facility closures - Restructuring charges for the three and six months ended June 30, 2022, were **$3 million** and **$5 million**, respectively, primarily due to severance costs from a global cost-saving initiative and the closure of two facilities in Europe[113](index=113&type=chunk) Restructuring Activities (Six Months Ended June 30) | Activity | 2022 (in millions) | 2021 (in millions) | | :-------------------------- | :----------------- | :----------------- | | Beginning of period | $3 | $1 | | Charged to expense | $5 | $5 | | Payments and adjustments | $(6) | $(5) | | End of period | $2 | $1 | [18) Commitments and Contingencies](index=26&type=section&id=18)%20Commitments%20and%20Contingencies) This section covers legal proceedings, the pending Atotech acquisition, and related debt financing commitments - The Nevada Supreme Court affirmed summary judgment in favor of the defendants on March 30, 2022, in the Newport Corporation class action lawsuit[117](index=117&type=chunk) - The company entered into a definitive agreement on July 1, 2021, to acquire Atotech Limited for **$16.20 cash** and **0.0552 shares of MKS common stock** per Atotech share[119](index=119&type=chunk) - An amendment to the Implementation Agreement on April 1, 2022, extended the 'Long Stop Date' for the Atotech Acquisition to September 30, 2022, and secured new debt financing commitments totaling **$5.75 billion** (**$4.25B Term Loan B**, **$1.0B Term Loan A**, **$500M Revolving Credit Facility**)[121](index=121&type=chunk)[123](index=123&type=chunk) [19) Subsequent Events](index=28&type=section&id=19)%20Subsequent%20Events) This section reports on the final regulatory approval and anticipated closing date for the Atotech Acquisition - The Atotech Acquisition received unconditional merger approval from China's State Administration for Market Regulation on July 28, 2022, completing all required regulatory clearances[127](index=127&type=chunk) - The Atotech Acquisition is anticipated to close on August 17, 2022, subject to sanction by the Royal Court of Jersey and customary closing conditions[127](index=127&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.](index=29&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS.) This section provides management's perspective on the company's financial condition, operational results, and liquidity [Critical Accounting Policies and Estimates](index=29&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms no material changes in the company's critical accounting policies since December 31, 2021 - There have been no material changes in the company's critical accounting policies since December 31, 2021[132](index=132&type=chunk) [Overview](index=29&type=section&id=Overview) This section provides a general description of MKS Instruments, Inc. as a global provider of advanced manufacturing solutions - MKS Instruments, Inc. is a global provider of instruments, systems, subsystems, and process control solutions for advanced manufacturing processes, serving the semiconductor, advanced electronics, and specialty industrial markets[133](index=133&type=chunk) [Pending Acquisition of Atotech](index=30&type=section&id=Pending%20Acquisition%20of%20Atotech) This section details the pending acquisition of Atotech Limited, including the purchase terms, financing, and regulatory status - The acquisition of Atotech Limited, a process chemicals technology company, is pending, with a definitive agreement to pay **$16.20 per share** in cash and **0.0552 shares of MKS common stock**[134](index=134&type=chunk) - The 'Long Stop Date' for the acquisition was extended to September 30, 2022, and new debt financing commitments were secured, including a **$4.25 billion Term Loan B**, a **$1.0 billion Term Loan A**, and a **$500 million Revolving Credit Facility**[135](index=135&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) - All required regulatory clearances for the Atotech Acquisition have been received, and the closing is anticipated on August 17, 2022[141](index=141&type=chunk) [Segments](index=30&type=section&id=Segments) This section describes the company's three reportable segments and their updated naming conventions - The company's three reportable segments are the Vacuum Solutions Division (VSD), Photonics Solutions Division (PSD), and Equipment Solutions Division (ESD), with updated naming conventions as of Q1 2022[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) [Markets](index=31&type=section&id=Markets) This section discusses changes in revenue presentation by end market and analyzes net revenues across Semiconductor, Advanced Electronics, and Specialty Industrial sectors - The company changed its revenue presentation to better represent end markets, separating 'Advanced Markets' into 'Advanced Electronics' and 'Specialty Industrial' markets, while 'Semiconductor' remained unchanged[146](index=146&type=chunk) Net Revenues by Market (Six Months Ended June 30) | Market | 2022 (in millions) | % Total (2022) | 2021 (in millions) | % Total (2021) | Change (in millions) | % Change | | :----------------- | :----------------- | :------------- | :----------------- | :------------- | :------------------- | :--------- | | Semiconductor | $1,003 | 67% | $843 | 58% | $160 | 19% | | Advanced Electronics | $159 | 10% | $252 | 18% | $(93) | (37%) | | Specialty Industrial | $345 | 23% | $349 | 24% | $(4) | (1%) | | **Total Net Revenues** | **$1,507** | **100%** | **$1,444** | **100%** | **$63** | **4%** | - Semiconductor market net revenues increased by **19%** year-over-year for the six months ended June 30, 2022, driven by volume increases across VSD and PSD, despite supply constraints[150](index=150&type=chunk) - Advanced Electronics market net revenues decreased by **37%** year-over-year for the six months ended June 30, 2022, due to decreased demand for flexible PCB via drilling equipment and softness in smartphone demand[152](index=152&type=chunk) - International revenues accounted for approximately **52%** of total net revenues for the six months ended June 30, 2022, with a significant portion from China and South Korea[158](index=158&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) This section analyzes key financial ratios, revenue trends, gross margin changes, and expenses, including R&D, acquisition costs, and effective tax rates Key Financial Ratios (Percentage of Total Net Revenues) | Metric | Three Months Ended June 30, 2022 | Three Months Ended March 31, 2022 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------ | :------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Products | 86.8% | 87.4% | 87.1% | 87.4% | | Services | 13.2% | 12.6% | 12.9% | 12.6% | | Gross profit | 44.2% | 45.0% | 44.6% | 46.9% | | Income from operations | 21.4% | 23.1% | 22.3% | 23.7% | | Net income | 16.9% | 19.3% | 18.1% | 18.6% | - Total net revenues increased by **$23 million** quarter-over-quarter and **$63 million** year-over-year for the six months ended June 30, 2022, driven by product volume in the semiconductor market, partially offset by declines in advanced electronics[163](index=163&type=chunk)[164](index=164&type=chunk) - Total gross margin decreased by **0.8 percentage points** quarter-over-quarter and **2.3 percentage points** year-over-year for the six months ended June 30, 2022, primarily due to higher material and logistics costs and unfavorable overhead absorption[169](index=169&type=chunk) - Research and development expenses increased by **$8 million** for the six months ended June 30, 2022, mainly due to higher compensation-related costs and increased headcount[174](index=174&type=chunk) - Acquisition and integration costs were **$10 million** for the six months ended June 30, 2022, primarily related to the pending Atotech acquisition[178](index=178&type=chunk) - The effective tax rate for the six months ended June 30, 2022, was **16.6%**, lower than the U.S. statutory rate due to the geographic mix of income and FDII benefits, but potentially subject to material increase if proposed tax legislation is enacted[185](index=185&type=chunk)[186](index=186&type=chunk)[190](index=190&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This section reviews the company's cash position, operating, investing, and financing cash flows, and plans for funding the Atotech acquisition - Cash and cash equivalents and short-term marketable investments totaled **$1.1 billion** at June 30, 2022, up from **$1.0 billion** at December 31, 2021[191](index=191&type=chunk) - Net cash provided by operating activities was **$146 million** for the six months ended June 30, 2022, a decrease from **$292 million** in the prior year, primarily due to increased inventory and trade accounts receivable[192](index=192&type=chunk) - Net cash used in investing activities was **$1 million** for the six months ended June 30, 2022, significantly lower than **$100 million** in the prior year, with **$83 million** in purchases of property, plant and equipment, including a **$42 million** facility expansion in South Korea[193](index=193&type=chunk) - The company intends to fund the cash portion of the Atotech acquisition with available cash on hand and committed term loan debt financing, including new facilities totaling **$5.75 billion**[196](index=196&type=chunk) - As of June 30, 2022, the outstanding principal amount of the Term Loan Facility was **$820 million** at an interest rate of **2.8%**, with no borrowings outstanding under the **$100 million** ABL Facility[200](index=200&type=chunk)[205](index=205&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=41&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section states that there were no material changes in the company's exposure to market risk as of June 30, 2022, compared to December 31, 2021 - No material changes in the company's exposure to market risk were identified as of June 30, 2022, compared to December 31, 2021[217](index=217&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=41&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section reports on the effectiveness of the company's disclosure controls and procedures and confirms no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=41&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2022 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022[218](index=218&type=chunk) [Changes in Internal Control over Financial Reporting](index=41&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section states that no material changes occurred in the company's internal control over financial reporting during the quarter - There were no material changes in the company's internal control over financial reporting during the quarter ended June 30, 2022[219](index=219&type=chunk) PART II. OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=42&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section refers to the notes to the condensed consolidated financial statements for a description of the company's material legal proceedings - A description of the company's material legal proceedings is provided in Note 18 to the Condensed Consolidated Financial Statements[221](index=221&type=chunk) [ITEM 1A. RISK FACTORS](index=42&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section directs readers to the company's Annual Report on Form 10-K for a comprehensive discussion of risk factors affecting the business - Information regarding risk factors affecting the company's business is discussed in the Annual Report on Form 10-K for the year ended December 31, 2021[222](index=222&type=chunk) [ITEM 6. EXHIBITS](index=43&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed as part of the Form 10-Q, including key agreements and corporate documents - Exhibits include the Amendment to Implementation Agreement for Atotech Limited, the Commitment Letter for new debt financing, and the 2022 Stock Incentive Plan[224](index=224&type=chunk) [SIGNATURES](index=45&type=section&id=SIGNATURES) This section contains the required signatures, certifying the filing of the Form 10-Q - The report was signed on August 3, 2022, by Seth H. Bagshaw, Senior Vice President, Chief Financial Officer and Treasurer[230](index=230&type=chunk)

MKS Instruments, Inc. (NASDAQ:MKSI) Q2 2022 Earnings Conference Call July 28, 2022 8:30 AM ET Company Participants David Ryzhik - Vice President, Investor Relations John Lee - President & Chief Executive Officer Seth Bagshaw - Senior Vice President & Chief Financial Officer Conference Call Participants Amanda Scarnati - Citi Patrick Ho - Stifel Joe Quatrochi ??? Wells Fargo James Ricchiuti - Needham & Company Krish Sankar - Cowen Paretosh Misra - Berenberg Mark Miller - The Benchmark Company Operator Good d ...

MKS Instruments Overview - MKS Instruments is a leading critical subsystems supplier for semiconductor manufacturing and an emerging solutions provider for advanced electronics manufacturing[9] - In 2021, Semiconductor accounted for 62% of total revenue, Advanced Electronics 15%, and Specialty Industrial 23%[11] - From 2015 to 2021, MKS Instruments' total revenue increased from $08 billion to $29 billion, representing a compound annual growth rate (CAGR) of +24%[57] Semiconductor Market - MKS addresses >85% of Wafer Fabrication Equipment (WFE)[22] - Average WFE spending is projected to increase from $53 billion (2016-2020) to over $100 billion (2021-2025)[20] - MKS estimates that ~100% of all semiconductor chips manufactured in the world today are made possible by MKS[23] Advanced Electronics Market - Laser manufacturing is seeing broad adoption in electronics manufacturing due to increasing processes and complexity[32, 34] - MKS leverages its "Surround the Workpiece" strategy to drive growth in precision manufacturing[37] Acquisition of Atotech - MKS entered into an agreement to acquire Atotech Limited for ~$51 billion in cash and stock[46] - Pro forma with Atotech, the revenue mix is estimated to be approximately 41% Semiconductor, 27% Advanced Electronics, and 32% Specialty Industrial[67] - The acquisition of Atotech is projected to reduce MKS's exposure to the semiconductor market to ~40% and add recurring revenue with strong profitability[68] Financial Performance - MKS generated $18 billion in strong through-cycle free cash flow[60] - From 2017-2021, MKS allocated $32 billion in capital, with 41% towards acquisitions, 26% towards product development, 14% towards debt management, 10% towards CAPEX, 7% towards dividends and 2% towards share buybacks[62, 63]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q Commission file number 0-23621 MKS INSTRUMENTS, INC. (Exact name of registrant as specified in its charter) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | Massachusetts | 04-2277512 | | --- | --- | | (State or oth ...

MKS Instruments, Inc. (NASDAQ:MKSI) Q1 2022 Earnings Conference Call April 27, 2022 8:30 AM ET Company Participants David Ryzhik ??? Vice President-Investor Relations John Lee ??? President and Chief Executive Officer Seth Bagshaw ??? Senior Vice President and Chief Financial Officer Conference Call Participants Patrick Ho ??? Stifel Jim Ricchiuti ??? Needham & Company Scott Graham ??? Loop Capital Markets Joe Quatrochi ??? Wells Fargo Paretosh Misra ??? Berenberg Hans Chung ??? D.A. Davidson Operator Good ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission File number 0-23621 MKS INSTRUMENTS, INC. (Exact Name of Registrant as Specified in Its Charter) Massachusetts 04-22775 ...

Financial Data and Key Metrics Changes - The company reported revenue of $764 million for Q4 2021, which is a 16% increase year-over-year and a 3% increase sequentially [20] - Net earnings for Q4 were $168 million, translating to $3.02 per diluted share, both above the midpoint of guidance [10][24] - For the full year 2021, total sales reached a record $2.9 billion, up 27% year-over-year [28] - Gross margin for Q4 was 46.4%, exceeding guidance by 40 basis points and growing 70 basis points year-over-year [23] - Operating cash flow for Q4 was a record $194 million, and free cash flow was also a record at $171 million [26] Business Line Data and Key Metrics Changes - Semiconductor market sales for Q4 were $495 million, up 26% year-over-year and up 1% sequentially [20] - Advanced markets revenue was $269 million for Q4, up 1% year-over-year and up 6% sequentially [21] - Sales of photonic solutions grew organically more than 50% year-over-year, with a 90% increase including the Photon Control acquisition [20] Market Data and Key Metrics Changes - The revenue split between semiconductor and advanced markets for Q4 was 65% and 35% respectively [23] - Demand trends in the semiconductor market are expected to remain strong, although supply chain constraints will continue to impact near-term performance [12] Company Strategy and Development Direction - The company is focused on organic growth and strategic M&A opportunities, including the acquisition of Atotech, expected to close in Q1 2022 [8][15] - The integration of Atotech is anticipated to enhance the company's technology solutions across semiconductors and advanced electronics [15][17] - The company aims to leverage its expertise in high-density interconnect via drilling to accelerate customer roadmaps [14][22] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain constraints affecting both semiconductor and advanced markets, but emphasized strong demand remains [37][51] - The company expects Q1 2022 revenue to be around $750 million, with gross margin estimated at 45% due to higher input costs [32] - Management expressed confidence in the long-term growth model, projecting to outgrow WFE by 200 basis points [56] Other Important Information - The company issued its inaugural CSR report, highlighting commitments to diversity, equity, inclusion, and environmental management [9] - The company maintained a strong balance sheet with cash and short-term investments exceeding $1 billion [27] Q&A Session Summary Question: Trends in advanced markets for Q1 - Management indicated that supply constraints are affecting both semiconductor and advanced markets, but demand remains strong [37] Question: Component constraints affecting supply - Management confirmed that electronic components from legacy fabs are primarily causing supply constraints, affecting multiple industries [38] Question: Market inflection for HDI tools - Management noted that the HDI market continues to drive demand for smaller features and higher density, with tools already in high-volume production [46] Question: Operating expenses trajectory for 2022 - Management expects operating expenses to increase slightly in Q2, estimating around $160 million [58] Question: Sales expectations in the semiconductor portfolio - Management indicated that while overall semiconductor revenue may be flat, certain product categories like RF Power could continue to grow [63] Question: Supply chain issues and customer orders - Management stated that major customers continue to order at record levels despite supply constraints [77]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements (Unaudited)](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(Unaudited).) The unaudited financial statements show significant year-over-year growth in revenue, net income, and total assets [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to $4.37 billion, driven by acquisitions and strong retained earnings growth Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Total current assets** | $1,994.9 | $1,804.4 | | Goodwill | $1,226.2 | $1,066.4 | | Intangible assets, net | $589.5 | $512.2 | | **Total assets** | **$4,365.9** | **$3,903.8** | | **Total current liabilities** | $437.1 | $373.9 | | Long-term debt, net | $809.7 | $815.0 | | **Total liabilities** | **$1,637.3** | **$1,542.9** | | Retained earnings | $1,853.0 | $1,487.3 | | **Total stockholders' equity** | **$2,728.6** | **$2,360.9** | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) The company reported strong year-over-year growth in revenue and net income for both Q3 and the nine-month period Q3 2021 vs Q3 2020 Performance (in millions, except EPS) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Total net revenues | $741.9 | $589.8 | +25.8% | | Gross profit | $348.4 | $262.0 | +32.9% | | Income from operations | $175.3 | $116.4 | +50.6% | | Net income | $132.4 | $91.7 | +44.4% | | Diluted EPS | $2.38 | $1.66 | +43.4% | Nine Months 2021 vs 2020 Performance (in millions, except EPS) | Metric | Nine Months 2021 | Nine Months 2020 | % Change | | :--- | :--- | :--- | :--- | | Total net revenues | $2,185.7 | $1,669.8 | +30.9% | | Gross profit | $1,025.7 | $747.9 | +37.1% | | Income from operations | $517.1 | $307.1 | +68.4% | | Net income | $401.2 | $234.5 | +71.1% | | Diluted EPS | $7.21 | $4.24 | +69.9% | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased to $2.73 billion, primarily driven by net income of $401.2 million - Retained earnings grew from **$1,487.3 million** at December 31, 2020, to **$1,853.0 million** at September 30, 2021[13](index=13&type=chunk) - The company paid cash dividends totaling **$35.5 million** during the first nine months of 2021[13](index=13&type=chunk)[111](index=111&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow remained strong at $445.2 million, though investing activities increased due to an acquisition Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $445.2 | $366.0 | | Net cash used in investing activities | ($351.2) | ($172.3) | | Net cash used in financing activities | ($61.7) | ($115.3) | | **Increase in cash and cash equivalents** | **$25.0** | **$78.7** | - The acquisition of business, net of cash acquired, used **$268.4 million** in cash during the first nine months of 2021[18](index=18&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes detail revenue disaggregation, the Photon Control acquisition, and the pending $5.1 billion Atotech acquisition - On July 15, 2021, the Company completed its acquisition of Photon Control for aggregate consideration of **$302.7 million**, funded with cash on hand[113](index=113&type=chunk)[114](index=114&type=chunk) - On July 1, 2021, the Company entered into a definitive agreement to acquire Atotech Limited for approximately **$5.1 billion** in cash and stock, with the acquisition expected to close by the end of 2021[144](index=144&type=chunk) - The company's two largest customers, Lam Research Corporation and Applied Materials, Inc, represented **14.6%** and **10.7%** of net revenues, respectively, for the first nine months of 2021[133](index=133&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=33&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS.) Management attributes strong performance to semiconductor market demand and discusses recent and pending acquisitions [Overview and Recent Events](index=33&type=section&id=Overview%20and%20Recent%20Events) The company completed the acquisition of Photon Control and announced a definitive agreement to acquire Atotech - Completed the acquisition of Photon Control, a designer of optical sensors for semiconductor wafer fabrication, on July 15, 2021, for **CAD 378.6 million (USD 302.7 million)**[153](index=153&type=chunk) - Entered into a definitive agreement to acquire Atotech, a process chemicals technology company, for approximately **$5.1 billion**[155](index=155&type=chunk) - Secured a commitment for a new **$5.3 billion term loan facility** and a **$500 million revolving credit facility** to fund the Atotech acquisition and refinance existing debt[155](index=155&type=chunk) [Segments and Markets](index=34&type=section&id=Segments%20and%20Markets) The semiconductor market drove performance, accounting for 61% of revenue with 36% year-over-year growth in Q3 - The Semiconductor market accounted for approximately **61% of net revenues** for the nine months ended September 30, 2021[162](index=162&type=chunk) - Net revenues in the semiconductor market increased by **36% for Q3 2021** and **34% for the nine months ended Sep 30, 2021**, compared to the same periods in the prior year[164](index=164&type=chunk) - The company is experiencing supply chain disruptions and component shortages in its semiconductor market, which may negatively impact revenue for Q4 2021[168](index=168&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Q3 net revenues grew 25.8% year-over-year, with gross margin improving to 47.0% due to higher volumes Net Revenues by Segment (in millions) | Segment | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Vacuum & Analysis | $483.1 | $361.3 | $1,376.6 | $995.1 | | Light & Motion | $208.7 | $175.9 | $583.6 | $507.3 | | Equipment & Solutions | $50.1 | $52.6 | $225.5 | $167.4 | | **Total** | **$741.9** | **$589.8** | **$2,185.7** | **$1,669.8** | - Total gross margin increased to **47.0% in Q3 2021** from 44.4% in Q3 2020, primarily due to higher revenue volumes and favorable product mix[187](index=187&type=chunk)[189](index=189&type=chunk) - Acquisition and integration costs were **$8.6 million in Q3 2021**, primarily related to the Photon Control acquisition and the announced Atotech acquisition[200](index=200&type=chunk) - The effective tax rate for Q3 2021 was **20.4%**, compared to 15.7% in Q3 2020[96](index=96&type=chunk)[97](index=97&type=chunk)[206](index=206&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with $879.6 million in cash and robust operating cash flow - Cash and cash equivalents and short-term investments totaled **$879.6 million** at September 30, 2021[214](index=214&type=chunk) - Net cash provided by operating activities was **$445.2 million** for the nine months ended September 30, 2021[215](index=215&type=chunk) - The outstanding principal amount of the Term Loan Facility was **$826.7 million** as of September 30, 2021, with an interest rate of 1.8%[227](index=227&type=chunk) - The company declared dividends totaling **$0.64 per share ($35.5 million)** in the first nine months of 2021[221](index=221&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK.) There were no material changes in the company's market risk exposure since the last annual report - As of September 30, 2021, there were **no material changes** in the company's exposure to market risk from December 31, 2020[249](index=249&type=chunk) [Controls and Procedures](index=46&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES.) Management concluded that disclosure controls and procedures were effective as of the end of the quarter - The Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2021, the company's disclosure controls and procedures were **effective** at a reasonable assurance level[250](index=250&type=chunk) - **No changes occurred** in the company's internal control over financial reporting during the quarter ended September 30, 2021, that would have a material effect[251](index=251&type=chunk) [PART II. OTHER INFORMATION](index=47&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=47&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS.) The company is involved in an ongoing legal proceeding related to the 2016 Newport Corporation acquisition - The company is subject to a legal proceeding stemming from the **2016 Newport Corporation merger**, where plaintiffs allege breaches of fiduciary duty by Newport's former directors[141](index=141&type=chunk) - A Nevada District Court granted summary judgment in favor of the defendants in January 2020, but the plaintiffs have **appealed to the Nevada Supreme Court**[142](index=142&type=chunk) - Management believes the ultimate outcome of this and other ordinary course legal matters will **not have a material adverse effect** on the company's financial condition or results of operations[143](index=143&type=chunk) [Risk Factors](index=47&type=section&id=ITEM%201A.%20RISK%20FACTORS.) The report refers to risk factors previously disclosed in its 2020 Form 10-K and a prior Form 10-Q - For a discussion of risk factors, the report incorporates by reference the sections in the **Annual Report on Form 10-K** for the year ended December 31, 2020, and the **Quarterly Report on Form 10-Q** for the period ended June 30, 2021[254](index=254&type=chunk) [Exhibits](index=48&type=section&id=ITEM%206.%20EXHIBITS.) This section lists filed exhibits, including agreements for the Atotech acquisition and required officer certifications - Key exhibits filed include the **Implementation Agreement with Atotech Limited** dated July 1, 2021, and the associated debt Commitment Letter[256](index=256&type=chunk) - **Certifications from the CEO and CFO** pursuant to Rule 13a-14(a)/15d-14(a) and Section 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits[256](index=256&type=chunk) [Signatures](index=50&type=section&id=SIGNATURES)

MKS Instruments, Inc. (NASDAQ:MKSI) Q3 2021 Earnings Conference Call October 28, 2021 8:30 AM ET Company Participants David Ryzhik ??? Vice President-Investor Relations John Lee ??? President and Chief Executive Officer Seth Bagshaw ??? Senior Vice President and Chief Financial Office Conference Call Participants Jim Ricchuiti ??? Needham Patrick Ho ??? Stifel Krish Sankar ??? Cowen & Company Paretosh Misra ??? Berenberg Tom Diffely ??? D.A. Davidson Joe Quatrochi ??? Wells Fargo Sidney Ho ??? Deutsche Bank ...

Financial Data and Key Metrics Changes - Total revenue for Q2 2021 was $377 million, an increase of 44% year-over-year, including organic revenue growth of 32% and a favorable FX impact of 9% [20][21] - Adjusted EBITDA increased by 63% to a record $118 million, with an adjusted EBITDA margin of 31%, leading the industry [13][22] - Diluted earnings per share was $0.15, a significant recovery from a loss of $3.47 in Q2 2020, with adjusted EPS at $0.29 [25][26] Business Line Data and Key Metrics Changes - Electronics segment revenue was $248 million, up 33% year-over-year, with organic growth of 21% [27] - General Metal Finishing (GMF) segment revenue grew 71% to $129 million, driven by 59% organic growth in chemistry [32] - Organic growth in chemistry revenue for Electronics was 9%, supported by strong demand in the smartphone market and semiconductor-related businesses [28] Market Data and Key Metrics Changes - Strong demand in Asia, particularly for electronics, with significant growth in smartphone and computing sectors [62] - Automotive market remains below full capacity due to semiconductor shortages, but demand is expected to push into 2022 [33][99] - The company experienced sequential revenue declines in Europe and the Americas, attributed to supply chain issues and production ramp-up delays [96] Company Strategy and Development Direction - The company is focused on sustainability-related products, with a strong portfolio aimed at reducing environmental footprints [14][17] - Digitalization initiatives are being prioritized, with contracts signed for IIOT solutions to enhance customer energy efficiency [16] - The acquisition agreement with MKS Instruments is expected to enhance collaboration and innovation in advanced electronics markets [18][19] Management's Comments on Operating Environment and Future Outlook - Management noted that the recovery from the pandemic is ongoing, with strong demand trends expected to continue [8][37] - The company raised its full-year revenue growth guidance to 13% to 14%, reflecting confidence in operational improvements and cost discipline [38] - Supply chain disruptions and elevated raw material costs are anticipated to persist, but the company is working on procurement efficiency [24] Other Important Information - The company ended the quarter with net leverage of 3.2 times EBITDA, improving from 3.7 times at the end of Q1 2021 [36] - Strong free cash flow of $87 million was generated, aligning with long-term targets of over 60% cash flow conversion [35] - The company is investing in a new facility in Mexico and digitalization projects, with CapEx guidance unchanged at approximately 4.5% to 5% of total sales [39][116] Q&A Session Summary Question: Sequential sales and EBITDA change in Electronics - Management highlighted that growth was converted into profit through pricing stability and a lean cost structure, with no significant cost increases materializing [45] Question: Trends in automotive use of metallic coatings - Management expects increased use of metallic coatings in higher-end vehicles and anticipates about 30% more chemistry usage in EVs compared to ICE vehicles [55] Question: Performance of automotive segment - Management noted a strong rebound in automotive business, with good growth rates in all regions, particularly in China [61] Question: Q4 guidance and market trends - Management indicated that Q4 could see a stable or slightly declining automotive market, but they expect to outperform the market [72] Question: Equipment business visibility - Management confirmed strong orders in the equipment business, with good visibility into the first half of next year [66] Question: Update on capital projects - Management reported that the move of the factory from Mexico City to Carretero is progressing as planned, with a focus on digitalization and customer-oriented projects [115]