MKS Instruments(MKSI) - 2025 Q1 - Quarterly Report

Part I. Financial Information Financial Statements (Unaudited) For Q1 2025, MKS Instruments reported $936 million in net revenues, an 8% year-over-year increase, and net income of $52 million, significantly up from $15 million in the prior year, with total assets slightly decreasing to $8.56 billion and operating cash flow increasing to $141 million Condensed Consolidated Balance Sheets As of March 31, 2025, total assets were $8.56 billion, a slight decrease from $8.59 billion at year-end 2024, primarily due to reduced cash and cash equivalents, while total liabilities decreased and stockholders' equity increased Condensed Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $655 | $714 | | Total current assets | $2,426 | $2,474 | | Goodwill | $2,496 | $2,479 | | Intangible assets, net | $2,238 | $2,272 | | Total assets | $8,556 | $8,590 | | Liabilities & Equity | | | | Total current liabilities | $781 | $775 | | Long-term debt, net | $4,409 | $4,488 | | Total liabilities | $6,202 | $6,268 | | Total stockholders' equity | $2,354 | $2,322 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2025, net revenues increased to $936 million from $868 million, with gross profit rising to $444 million from $415 million, and net income substantially improving to $52 million, or $0.77 per diluted share, driven by higher revenues and lower interest expense Q1 2025 vs. Q1 2024 Statement of Operations (in millions, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total net revenues | $936 | $868 | | Gross profit | $444 | $415 | | Income from operations | $111 | $106 | | Interest expense | $53 | $87 | | Net income | $52 | $15 | | Diluted EPS | $0.77 | $0.22 | Condensed Consolidated Statements of Cash Flows In Q1 2025, net cash provided by operating activities more than doubled to $141 million, while net cash used in financing activities was $180 million, primarily due to debt repayments and common stock repurchases, resulting in a $59 million decrease in cash and cash equivalents Q1 2025 vs. Q1 2024 Cash Flow Summary (in millions) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $141 | $67 | | Net cash used in investing activities | ($18) | ($18) | | Net cash used in financing activities | ($180) | ($72) | | Decrease in cash and cash equivalents | ($59) | ($30) | Notes to Financial Statements Key notes detail revenue disaggregation, debt structure, and segment performance, with Semiconductor market revenue growing 18% year-over-year to $413 million, total debt comprising a $3.2 billion Term Loan Facility and $1.4 billion in Convertible Notes, and a Q1 2025 restructuring initiative incurring $16 million in severance costs Revenue by End Market (in millions) | End Market | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Semiconductor | $413 | $351 | | Electronics and Packaging | $253 | $208 | | Specialty Industrial | $270 | $309 | | Total net revenues | $936 | $868 | Debt Outstanding (in millions) | Debt Instrument | March 31, 2025 (Net) | December 31, 2024 (Net) | | :--- | :--- | :--- | | Term Loan Facility, net | $3,034 | $3,114 | | Convertible Notes, net | $1,375 | $1,374 | | Total long-term debt, net | $4,409 | $4,488 | - The company recorded restructuring charges of $16 million in Q1 2025 related to severance costs from a cost-saving initiative, primarily in the general metal finishing business within the MSD segment[103] Management's Discussion and Analysis (MD&A) Management attributes the 8% year-over-year revenue growth to strength in the Semiconductor and Electronics & Packaging markets, offsetting a decline in the Specialty Industrial market, while maintaining a relatively stable gross margin of 47.4% and continuing deleveraging efforts through debt prepayments and refinancing Market and Segment Performance In Q1 2025, Semiconductor market revenue grew 18% year-over-year to $413 million, Electronics and Packaging increased 22% to $253 million, while Specialty Industrial declined 13% to $270 million, with segment revenues showing VSD up 16%, PSD up 4%, and MSD up 2% year-over-year Net Revenues by End Market - YoY Change (in millions) | End Market | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Semiconductor | $413 | $351 | 18% | | Electronics and Packaging | $253 | $208 | 22% | | Specialty Industrial | $270 | $309 | (13)% | Net Revenues by Reportable Segment - YoY Change (in millions) | Segment | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Vacuum Solutions Division (VSD) | $386 | $332 | 16% | | Photonics Solutions Division (PSD) | $263 | $254 | 4% | | Materials Solutions Division (MSD) | $287 | $282 | 2% | Results of Operations Analysis Total gross margin for Q1 2025 slightly decreased to 47.4% due to higher inventory charges and freight costs, while R&D expenses remained flat at $70 million, SG&A expenses increased by $15 million primarily from compensation costs, and net interest expense significantly decreased by $31 million due to debt repayments and refinancing - VSD gross margin increased to 45.3% from 43.5% year-over-year due to higher volumes and operational efficiencies[145] - PSD margin decreased to 44.0% from 46.4% year-over-year due to unfavorable product mix and higher costs[146] - MSD margin decreased to 54.5% from 55.6% year-over-year due to higher inventory charges and unfavorable mix[147] - SG&A expenses increased by $15 million year-over-year, primarily due to a $13 million increase in compensation-related costs, mainly from stock and other variable incentive compensation[154] - Net interest expense decreased by $31 million year-over-year, mainly due to the May 2024 issuance of $1.4 billion of 1.25% Convertible Notes used to repay higher-rate term loans, and subsequent amendments that lowered loan margins[160] Liquidity and Capital Resources The company ended Q1 2025 with $655 million in cash and cash equivalents, having made a $100 million voluntary debt prepayment, $45 million in share repurchases, and $15 million in dividend payments, while also refinancing its Term Loan Facility to reduce interest rates, with total principal debt outstanding at approximately $4.6 billion - Generated $141 million in cash from operations in Q1 2025[170] - Financing activities in Q1 2025 included $113 million in debt payments (including a $100 million voluntary prepayment), $45 million in share repurchases, and $15 million in dividends[171][173][174] - In January 2025, the company entered into the Fifth Amendment to its Credit Agreement, which refinanced its term loans and decreased the applicable interest margin for the USD Tranche B to 2.00% (Term SOFR) and the Euro Tranche B to 2.50%[55][175] Quantitative and Qualitative Disclosures About Market Risk The company states that as of March 31, 2025, there were no material changes in its exposure to market risk from the levels disclosed at year-end December 31, 2024 - There were no material changes in the company's exposure to market risk from December 31, 2024 to March 31, 2025[204] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of March 31, 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level[205] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[206] Part II. Other Information Risk Factors A new significant risk factor was disclosed regarding tariffs and trade restrictions, including a 145% U.S. tariff on Chinese imports and a 125% retaliatory tariff from China, expanded U.S. export controls (BIS Rules) impacting semiconductor-related products, and China's export curbs on critical raw materials, all of which could disrupt supply chains, increase costs, and adversely affect business results - In April 2025, the U.S. government imposed a 145% tariff on Chinese imports, and China responded with a 125% tariff on U.S. goods, creating significant risk[209] - The U.S. Department of Commerce's BIS Rules have resulted in an estimated annual loss in net revenues of approximately $200 million to $250 million, mostly realized in 2023, due to restrictions on sales to China[211] - China has implemented export curbs on critical materials, including a new ban in April 2025 on certain rare earth minerals like yttrium, a critical component for the company's lasers, which is expected to create sourcing challenges and higher costs[214] Use of Proceeds and Issuer Purchases of Equity Securities During the three months ended March 31, 2025, the company repurchased 546,142 shares of its common stock for a total of $45 million under its publicly announced program, with approximately $28 million remaining for future purchases as of the end of the quarter Share Repurchases in Q1 2025 | Period | Total Shares Purchased | Average Price Paid per Share | Total Cost (in millions) | | :--- | :--- | :--- | :--- | | Jan 2025 | — | — | — | | Feb 2025 | — | — | — | | Mar 2025 | 546,142 | $82.81 | ~$45 | | Total Q1 | 546,142 | $82.81 | $45 | - As of March 31, 2025, approximately $28 million remained available for repurchase under the company's share repurchase program[218] Other Information During the first quarter of 2025, three company executives and directors adopted Rule 10b5-1 trading arrangements for the potential sale of company securities - Three insiders adopted Rule 10b5-1 trading plans in Q1 2025: Elizabeth A. Mora (Director), David P. Henry (EVP), and James A. Schreiner (EVP & COO)[219]