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MKS Instruments(MKSI) - 2023 Q3 - Quarterly Report
MKSIMKS Instruments(MKSI)2023-11-08 20:39
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Ransomware Event Impact - Ransomware event negatively impacted Q1 2023 revenue by approximately 160million,with160 million, with 120 million recovered in Q2 and 30millioninQ3[123]−NetrevenuesforQ32023inthesemiconductormarketdecreasedby30 million in Q3[123] - Net revenues for Q3 2023 in the semiconductor market decreased by 74 million (17%) compared to the prior quarter, with 20millionattributedtodelayedordersfromtheransomwareevent[134]−Theransomwareeventincurrednetcostsof20 million attributed to delayed orders from the ransomware event[134] - The ransomware event incurred net costs of 2 million for Q3 2023 and 14millionfortheninemonthsendedSeptember30,2023,primarilyduetothird−partyconsultingservicesandcybersecurityenhancements[125]−Thecompanyhasrecoveredapproximately14 million for the nine months ended September 30, 2023, primarily due to third-party consulting services and cybersecurity enhancements[125] - The company has recovered approximately 110 million of revenue from orders delayed by the ransomware event from Q1 2023[134] - Net revenues in the specialty industrial market decreased by 15million(415 million (4%) for the three months ended September 30, 2023, compared to the prior quarter, with delayed orders due to a ransomware event impacting revenue by approximately 10 million[144] - Net product revenues decreased by 67millionforthethreemonthsendedSeptember30,2023,comparedtothepriorquarter,with67 million for the three months ended September 30, 2023, compared to the prior quarter, with 17 million recovered from the ransomware event[149] Semiconductor Market Performance - Net revenues for Q3 2023 in the semiconductor market decreased by 74million(1774 million (17%) compared to the prior quarter, with 20 million attributed to delayed orders from the ransomware event[134] - Net revenues for the nine months ended September 30, 2023, in the semiconductor market decreased by 421million(27421 million (27%) compared to the same period in the prior year due to softened demand[135] - Net revenues from VSD decreased by 426 million for the nine months ended September 30, 2023, compared to the same period in the prior year, due to volume decreases in the semiconductor market[154] Electronics and Packaging Market Performance - Net revenues for Q3 2023 in the electronics and packaging market increased by 18million(818 million (8%) compared to the prior quarter, driven by higher chemistry sales and increased PCB and package substrate production[138] - Net revenues for the nine months ended September 30, 2023, in the electronics and packaging market increased by 416 million (151%) compared to the same period in the prior year, primarily due to the Atotech Acquisition[139] Specialty Industrial Market Performance - The specialty industrial market net revenues for Q3 2023 were 322million,representing35322 million, representing 35% of total net revenues[131] - Net revenues in the specialty industrial market decreased by 15 million (4%) for the three months ended September 30, 2023, compared to the prior quarter, with delayed orders due to a ransomware event impacting revenue by approximately 10million[144]−Netrevenuesinthespecialtyindustrialmarketincreasedby10 million[144] - Net revenues in the specialty industrial market increased by 274 million (42%) for the nine months ended September 30, 2023, compared to the same period in the prior year, driven by the Atotech Acquisition[145] Atotech Acquisition Impact - Net revenues for the nine months ended September 30, 2023, in the electronics and packaging market increased by 416million(151416 million (151%) compared to the same period in the prior year, primarily due to the Atotech Acquisition[139] - Net revenues in the specialty industrial market increased by 274 million (42%) for the nine months ended September 30, 2023, compared to the same period in the prior year, driven by the Atotech Acquisition[145] - Net product revenues increased by 263millionfortheninemonthsendedSeptember30,2023,comparedtothesameperiodintheprioryear,drivenbytheAtotechAcquisition,withMSDnetproductrevenuesincreasingby263 million for the nine months ended September 30, 2023, compared to the same period in the prior year, driven by the Atotech Acquisition, with MSD net product revenues increasing by 710 million[150] - Net revenues from MSD increased by 737millionfortheninemonthsendedSeptember30,2023,comparedtotheprioryear,asMSDwasestablishedfollowingtheAtotechAcquisition[156]−Researchanddevelopmentexpensesincreasedby737 million for the nine months ended September 30, 2023, compared to the prior year, as MSD was established following the Atotech Acquisition[156] - Research and development expenses increased by 50 million for the nine months ended September 30, 2023, compared to the same period in the prior year, primarily due to the Atotech Acquisition[164] - Selling, general, and administrative expenses increased by 195millionfortheninemonthsendedSeptember30,2023,drivenbytheAtotechAcquisitionandransomware−relatedcosts[169]−AcquisitionandintegrationcostsfortheninemonthsendedSeptember30,2023,were195 million for the nine months ended September 30, 2023, driven by the Atotech Acquisition and ransomware-related costs[169] - Acquisition and integration costs for the nine months ended September 30, 2023, were 14 million, primarily related to the Atotech Acquisition[170] - Amortization of intangible assets decreased by 8millioninQ32023comparedtothepriorquarter,butincreasedby8 million in Q3 2023 compared to the prior quarter, but increased by 148 million for the nine months ended September 30, 2023, due to the Atotech Acquisition[172] - The Atotech Acquisition was completed on August 17, 2022, with a total net purchase price of 5.7billion,fundedbycashonhandandproceedsfromtheNewTermLoanFacility[190]U.S.ExportRegulationsImpact−Thecompanyexpectsanannualizedreductionofnetrevenuesintherangeof5.7 billion, funded by cash on hand and proceeds from the New Term Loan Facility[190] U.S. Export Regulations Impact - The company expects an annualized reduction of net revenues in the range of 250 million to 350millionduetonewU.S.exportregulations,withtheimpactcurrentlyexpectedtobeonthelowerendofthatrange[136]FinancialPerformanceandExpenses−TotalnetrevenuesforQ32023were350 million due to new U.S. export regulations, with the impact currently expected to be on the lower end of that range[136] Financial Performance and Expenses - Total net revenues for Q3 2023 were 932 million, with semiconductor, electronics and packaging, and specialty industrial markets contributing 39%, 26%, and 35% respectively[131] - Gross margin for products decreased to 45.4% for the three months ended September 30, 2023, from 46.9% in the prior quarter, due to lower revenue volumes and higher inventory charges[157] - Gross margin for MSD increased to 54.1% for the three months ended September 30, 2023, from 50.0% in the prior quarter, driven by favorable product mix and lower overhead costs[163] - Selling, general, and administrative expenses decreased by 5millioninQ32023comparedtothepriorquarter,primarilyduetolowercompensationandtravelcosts[168]−RestructuringchargesfortheninemonthsendedSeptember30,2023,were5 million in Q3 2023 compared to the prior quarter, primarily due to lower compensation and travel costs[168] - Restructuring charges for the nine months ended September 30, 2023, were 13 million, mainly due to severance costs from global cost-saving initiatives[171] - Non-cash goodwill impairments totaled 1,827millioninQ22023,with1,827 million in Q2 2023, with 826 million for the EL reporting unit, 428millionfortheGMFreportingunit,and428 million for the GMF reporting unit, and 372 million for the ESB reporting unit[175] - Interest expense increased by 5millioninQ32023comparedtothepriorquarter,primarilyduetohigherinterestratesonborrowingsrelatedtotheAtotechAcquisition[178]−Netcashprovidedbyoperatingactivitieswas5 million in Q3 2023 compared to the prior quarter, primarily due to higher interest rates on borrowings related to the Atotech Acquisition[178] - Net cash provided by operating activities was 138 million for the nine months ended September 30, 2023, despite a net loss of 1,772million,drivenbynon−cashchargesandworkingcapitalchanges[187]−Netcashusedininvestingactivitieswas1,772 million, driven by non-cash charges and working capital changes[187] - Net cash used in investing activities was 50 million for the nine months ended September 30, 2023, primarily due to 53millionincapitalexpenditures[188]−Netcashusedinfinancingactivitieswas53 million in capital expenditures[188] - Net cash used in financing activities was 116 million for the nine months ended September 30, 2023, including 67millionforpaymentsontheNewTermLoanFacilityand67 million for payments on the New Term Loan Facility and 44 million in dividend payments[188] - The company declared a cash dividend of 0.22pershareforeachofthefirstthreequartersof2023,totaling0.22 per share for each of the first three quarters of 2023, totaling 44 million for the nine months ended September 30, 2023[189] Research and Development - Research and development expenses increased by 50millionfortheninemonthsendedSeptember30,2023,comparedtothesameperiodintheprioryear,primarilyduetotheAtotechAcquisition[164]−Researchanddevelopmenteffortsfocusonimprovinginstruments,components,chemistry,subsystems,systems,andprocesscontrolsolutions,withprojectstypicallylasting3to36months[165]−Newproductsarebeingdevelopedtoaddressindustrytrendssuchasthetransitionto5G,largersubstratesizesinflatpaneldisplays,andtheshifttoelectricvehicles[166]FinancingandDebt−TheNewTermLoanFacilityincludesthreetranches:aUSD1billionloan(USDTrancheA),aUSD3.6billionloan(USDTrancheB),andaEUR600millionloan(EuroTrancheB)[191]−AsofSeptember30,2023,theoutstandingprincipalamountoftheNewTermLoanFacilitywas50 million for the nine months ended September 30, 2023, compared to the same period in the prior year, primarily due to the Atotech Acquisition[164] - Research and development efforts focus on improving instruments, components, chemistry, subsystems, systems, and process control solutions, with projects typically lasting 3 to 36 months[165] - New products are being developed to address industry trends such as the transition to 5G, larger substrate sizes in flat panel displays, and the shift to electric vehicles[166] Financing and Debt - The New Term Loan Facility includes three tranches: a USD 1 billion loan (USD Tranche A), a USD 3.6 billion loan (USD Tranche B), and a EUR 600 million loan (Euro Tranche B)[191] - As of September 30, 2023, the outstanding principal amount of the New Term Loan Facility was 5.0 billion with a weighted average interest rate of 7.9%[211] - The company made a voluntary prepayment of 100millionontheUSDTrancheAonOctober31,2023[213]−ThecompanyhaslinesofcreditandfinancingfacilitiesinJapan,providingforaggregateborrowingsofupto100 million on the USD Tranche A on October 31, 2023[213] - The company has lines of credit and financing facilities in Japan, providing for aggregate borrowings of up to 13 million, with no borrowings as of September 30, 2023[214] - The company uses derivative instruments, such as foreign exchange forward contracts and interest rate swaps, to manage foreign currency and interest rate exposure[215] - The company converted USD LIBOR-based interest rate caps and swaps to Term SOFR, effective June 30, 2023, with no material impact on results of operations[217] Market Risk and Contractual Obligations - No material changes in the company's exposure to market risk from December 31, 2022 to September 30, 2023[219] - No changes outside the ordinary course of business to the company's contractual obligations as disclosed in the Annual Report[218] International Revenues - International revenues accounted for 66% of total net revenues for the nine months ended September 30, 2023, up from 56% in the prior year, primarily due to the Atotech Acquisition[146]