Investor Presentation February 26, 2018

Transcription

1 Investor Presentation February 26, 2018

2 Safe Harbor Statements in this presentation regarding the future financial performance of MKS, MKS future business prospects, MKS future growth, MKS expected synergies and cost savings from its recent acquisition of Newport Corporation, and any other statements about MKS management s future expectations, beliefs, goals, plans or prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Any statements that are not statements of historical fact (including statements containing the words will, projects, intends, believes, plans, anticipates, expects, estimates, forecasts, continues and similar expressions) should also be considered to be forward-looking statements. 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 costs, charges or expenses resulting from the Newport acquisition, the terms of our term loan, MKS ability to realize anticipated synergies and cost savings from the Newport acquisition, our ability to successfully grow our business, potential adverse reactions or changes to business relationships resulting from the Newport acquisition, potential fluctuations in quarterly results, the challenges, risks and costs involved with integrating the operations of any other acquired companies, 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 Annual Report on Form 10-K, for the period ended December 31, 2017, filed with the SEC. MKS is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events or otherwise after the date of this presentation. MKS PROPRIETARY 2

3 Non-GAAP Measures This presentation contains results that are not generally accepted accounting principles measures ( Non- GAAP ). Non-GAAP amounts exclude amortization of acquired intangible assets, asset impairments, costs associated with completed and announced acquisitions, acquisition integration costs, an inventory step-up adjustment related to an acquisition, restructuring charges, certain excess and obsolete inventory charges, fees and expenses related to re-pricing of term loan, amortization of debt issuance costs, net proceeds from an insurance policy, costs associated with the sale of a business, the tax effect of the 2017 Tax Cut and Jobs Act, the tax effect of a legal entity restructuring, other discrete tax benefits and charges, and the related tax benefits and charges, and the related tax effect of these adjustments. These non-gaap measures are not in accordance with Accounting Principles Generally Accepted in the United States of America ( GAAP ) and should be viewed in addition to, and not as a substitute for, MKS reported results. 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. Pro-forma revenue amounts assume the acquisition of Newport had occurred as of the beginning of Please see the Appendix provided at the end of this presentation entitled Reconciliation of Non-GAAP to GAAP Measures for reconciliations of our Non-GAAP measures to the comparable GAAP measures and the definitions of terms used in the presentation. MKS PROPRIETARY 3

4 MKS is a leading global provider of process control solutions based on these critical technologies MEASURE DELIVER POWER MONITOR ANALYZE CONTROL PRECISE CONTROL of pressure, flow, composition, position, motion and automation GENERATION & DELIVERY of reactive gases, laser power and electrical power INTEGRATED SOLUTIONS For process, inspection and lithography MKS PROPRIETARY 4

5 Enabling Technology for 50+ Years Early focus... solving complex technology challenges of the Semiconductor industry Today... applying our expertise to additional growing technologyintensive markets Well positioned for sustainable and profitable growth $3M $12M $67M $327M $853M $1.9B MKS PROPRIETARY 5

6 Investment Highlights Market Leadership Deep Customer Relationships Multiple Growth Opportunities Long Standing Track Record of Financial Performance MKS PROPRIETARY 6

7 Market Leadership

8 Extended Leadership in the Semiconductor Market FRONT END BACK END LITHOGRAPHY & INSPECTION DEPOSITION, ETCH & CLEAN PACKAGING & INSPECTION MKS PROPRIETARY 8

9 Market Leader with Broad Technology Portfolio Source: Company Information MKS CONFIDENTIAL 9

10 Attractive and Balanced End Markets Combined by End Market $1.9B in % 11% Life & Health Sciences Semiconductor Research & Defense 23% 57% Industrial Technologies MKS PROPRIETARY 10

11 Deep Customer Relationships

12 Deep, Collaborative Customer Relationships Long term trusted partner Strong executive and technical relationships Excellent technical collaboration Strong history of operational excellence and support Samsung Shared Growth Collaboration Award Lam Research Supplier Excellence Award Lam Research Supplier Excellence Award SEMES Supplier of the Year Award MKS PROPRIETARY 12

13 Differentiated Technical Capability Market and portfolio-based product development roadmaps Significant R&D investment Annual spending >$130M Leverage portfolio across multiple markets >1,500 Patents worldwide >600 Patents pending WAFER FABRICATION SEMICONDUCTOR BIOIMAGING LIFE & HEALTH SCIENCES Deep technical capability ~750 R&D engineers and scientists Competencies in Power Plasma Lasers Pressure Flow Automation Motion Photonics LASER LIGHT EXPERIMENTS RESEARCH & DEFENSE MATERIAL PROCESSING INDUSTRIAL TECHNOLOGIES MKS PROPRIETARY 13

14 Global Presence Supports Technical Localization Strategy SALES SERVICE Localized technical expertise across the globe MKS PROPRIETARY 14

15 Global Service Capabilities GLOBAL SERVICE REVENUE HIGHLIGHTS $220 $200 $180 +9% CAGR $212M Drivers for service market growth Installed base expansion for both semi and industrial laser processing Longer node lifecycles Chip technology driving increased number of vacuum process steps $160 $140 $120 $212 $186 $175 $164 $151 FY13 FY14 FY15 FY16 FY17 Global footprint with highly trained technical resources located close to customers Trusted service provider, integral to helping solve our customer s complex problems MKS PROPRIETARY 15

16 Multiple Growth Opportunities

17 Enabling Advanced and Growing Markets 6-8% CAGR (1) 3-6% CAGR (1) 4-6% CAGR (1) 1-3% CAGR (1) SEMICONDUCTOR INDUSTRIAL TECHNOLOGIES LIFE & HEALTH SCIENCES RESEARCH & DEFENSE Deposition Equipment Etch Equipment Lithography Inspection Packaging Electronics Thin Film Industrial Manufacturing Electronic Component Manufacturing Process Industries Telecom/Datacom Analytical & Medical Instrumentation Bio-Pharmaceutical Medical & Bioimaging Medical Devices Ophthalmic Surgery Atomic & Molecular Physics Spectroscopy High Energy Physics Ultrafast Laser Studies (1) Based on external data sources and MKS internal segment analysis MKS PROPRIETARY 17

18 Strong Growth Drivers DATA GENERATION, TRANSPORT and STORAGE DATA PROCESSING IoT: >20B connected devices by 2020 Mobile: 7X increase in mobile data by 2021 Smart Car: 4,000GB per day/per car Network: 22% CAGR IP traffic growth ZETTABYTES 22% CAGR Source: Seagate Data Age 2025 March 2017 Artificial Intelligence: 12X performance increase Visual Computing: 30% CAGR in mobile data by 2021 Servers: 26% CAGR data center growth CLOUD WORKLOADS (MILLONS) 26% CAGR Source: Cisco Global Cloud Index: Forecast and Methodology, BIG DATA SOCIAL MEDIA MOBILE ARTIFICIAL INTELLIGENCE SMART EVERYTHING MKS PROPRIETARY 18

19 Increasing Capital Intensity BIT GROWTH PERFORMANCE More Chips Increasing area of silicon Higher Density Increasing number of layers Process/Watt Increasing new materials and driving chip design Higher Performance Increasing number of process steps MEMORY VNAND 32L VNAND 64L VNAND 128L LOGIC 28NM 14NM 7NM M$/1KWSPM $35.5M $41M $58M M$/1KWSPM $78M $101M $180M MULTIPLE 1X 1.2X 1.6X MULTIPLE 1X 1.3X 2.3X BIG DATA SOCIAL MEDIA MOBILE ARTIFICIAL INTELLIGENCE SMART EVERYTHING MKS PROPRIETARY 19

20 SAM Growth in Key Applications DEPOSITION Strong position across products in deposition Advance solutions for plasma processing on wafer ETCH Expanding solutions for high power, high aspect ratio dielectric etch New solutions in conductor etch LITHOGRAPHY Existing content on DUV Existing EUV solutions Increasing EUV content with integrated optical and vacuum solutions FY18 SAM +8% FY18 SAM FY18 SAM +9% FY18 SAM +9% BIG DATA SOCIAL MEDIA MOBILE ARTIFICIAL INTELLIGENCE SMART EVERYTHING MKS PROPRIETARY 20

21 Industrial Key Segments SEGMENT DEFINITION TOP SEGMENTS PRODUCTS ELECTRONIC THIN FILM Thin film applications with similar manufacturing requirements to semi Display Solar LED Lasers Pressure, Flow, Valves Power, Plasma, Ozone ELECTRONICS MANUFACTURING Electronics and electrical component manufacturing including flexible circuits, printed circuit boards and all electrical components PCB Manufacturing Electronic Components Lasers Power Vibration Control INDUSTRIAL MANUFACTURING Material processing in applications such as cutting, welding, stamping; discrete assembly operations Manufacturing Assembly Operations (non-electronics) Power Lasers Motion Pressure, Flow ADVANCED MATERIALS MICRO-MACHINING ADDITIVE MANUFACTURING SURFACE MODIFICATION LASER MANUFACTURING MKS PROPRIETARY 21

22 Industrial Laser Processing Drivers Advanced Power Delivery Programmable pulse repetition Pulse shape selection High repetition rate Precise Laser Measurement High power measurement Precise beam profiling Improved Improved Throughput Precision throughput Motion Higher power at multiple wavelengths Increase repetition rate Advanced motion control ADVANCED MATERIALS MICRO-MACHINING ADDITIVE MANUFACTURING SURFACE MODIFICATION LASER MANUFACTURING MKS PROPRIETARY 22

23 Long Standing Track Record of Financial Performance

24 Disciplined Financial Management OPTIMIZE FINANCIAL MODEL Continually improved financial performance Significant leverage in our financial model Strong free cash flow generation MANAGE LONG-TERM CAPITAL STRUCTURE Voluntary prepayments and three debt re-pricings resulted in ~65% reduction in annualized interest costs since loan origination in 2016 Maintain liquidity with on-shore and off-shore cash balances BALANCED CAPITAL DEPLOYMENT STRATEGY Balanced shareholder return of capital philosophy Over 15 year history of successful M&A execution MKS PROPRIETARY 24

25 Strong Balance Sheet, Cash Flow & Financial Results Non-GAAP Results (1) Balance Sheet & Cash Flow ACTUAL GUIDANCE Q4 17 Q1 18 Q4 17 REVENUE $512M $510M - $550M CASH & INVESTMENTS $543M GROSS MARGIN 46.6% 47% - 48% TERM LOAN OUTSTANDING (2) $398M OPERATING EXPENSES $105.6M $110M - $116M TOTAL LEVERAGE RATIO (3) 0.8X OPERATING PROFIT 25.9% DAYS SALES OUTSTANDING 53 NET EARNINGS $94.6 $102.9M - $117.7M INVENTORY TURNS 3.2X EPS $1.71 $ $2.12 FREE CASH FLOW (4) $67M DILUTED SHARES 55.2M 55.4M (1) See Appendix for reconciliations from GAAP to Non-GAAP Results. (2) Total Consolidated Debt is $402 million and includes $398 million of Term Loan and $4 million in foreign line of credit balances. (3) Total Leverage Ratio is defined by our Term Loan credit agreement as Consolidated Total Indebtedness divided by trailing twelve months Adjusted EBITDA. A reconciliation from Net Income to Adjusted EBITDA is included in the appendix to this presentation. (4) Free Cash Flow is defined as net cash provided by operating activities less purchases of property, plant and equipment. MKS PROPRIETARY 25

26 Substantially Improved Target Operating Model FULLY SYNERGIZED WITH NEWPORT ACQUISITION 2013 MKS MODEL ACQUISITION MODEL (2) October 2017 MODEL (3) January 2018 MODEL (3) ILLUSTRATIVE REVENUE LEVELS (1) NON-GAAP GROSS MARGIN NON-GAAP OPERATING MARGIN NON-GAAP TAX RATE $ 800M 42% - 44% 15% - 17% 33% IMPROVED OPERATING MODEL 8X OVER 4 YEAR PERIOD $1,430M 45% - 47% 18% - 20% 27% IMPROVED OPERATING MODEL 4X SINCE ACQUISITION $2,000M 46% - 48% 24% - 26% 27% $2,200M 47% - 49% 26% - 28% 19% NON-GAAP EPS $1.60 $3.08 $6.42 $8.55 CUMULATIVE IMPROVEMENT NON-GAAP EPS FROM 2013 (2) 93% ~300% ~435% NON-GAAP ADJUSTED EBITDA $155M $340M $563M $660M CUMULATIVE IMPROVEMENT NON-GAAP ADJUSTED EBITDA FROM 2013 (2) 119% 235% 326% (1) Annual revenue for illustrative purposes only. (2) At midpoint of model range Fully synergized combined Newport model includes $40M of announced cost synergies. (3) At midpoint of model range Fully synergized combined Newport models include $40M of announced cost synergies.. Additional revenue assumes incremental gross margin of 50% MKS PROPRIETARY 26

27 Continued to Increase the Dividend $0.185 Quarterly Cash Dividend Per Share $0.180 $0.175 $0.170 $0.165 $0.160 $0.155 $0.150 $0.145 $0.140 $0.135 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 20% increase in quarterly dividend since inception Dividend payout reflection of confidence in Free Cash Flow generation MKS PROPRIETARY 27

28 Strong, Free Cash Flow & Balanced Deployment of Capital From 2007 through December 31, 2017 Cumulative Free Cash Flow (1) Balanced Deployment of Capital $1,300 $1,352B $1,200 $1,100 $1,000 $900 Acquisitions (3) 29% Debt Repayments $800 28% $M $700 $600 $500 $400 $300 Net Capital Retained 5% 20% 18% Dividends $200 $100 $0 Share Repurchases (1) Free Cash Flow is defined as net cash provided by operating activities less purchases of property, plant and equipment. (2) From 2007 through Nearly $1.4 Billion Free Cash Flow generated (2) 38% Free Cash Flow returned to shareholders (2) 29% Free Cash Flow utilized for acquisitions (3) 28% Free Cash Flow utilized for debt repayments (2) (3) The Company utilized approximately $240M of cash on hand for its acquisition of Newport and financed the remainder with a term loan. MKS PROPRIETARY 28

29 Experienced Management Team Gerald G. Colella Chief Executive Officer and President CEO and President since 2014 Served as COO from 2010 to 2013 and Chief Business Officer from 2005 to 2010 Over 35 years of experience within the Company B.A. Secondary Education, University of MA M.B.A. Southern New Hampshire University John T.C. Lee Senior Vice President and Chief Operating Officer SVP of Business Units since 2014, COO since years at MKS and 25 years in the industry Prior to MKS, held management positions at Applied Materials, Lucent Tech and Bell Labs B.S. Princeton University M.S.C.E.P and Ph.D. MIT Seth H. Bagshaw Senior Vice President, Chief Financial Officer and Treasurer VP and CFO since 2010, Treasurer since years at MKS and over 20 years in the industry Prior to MKS, held senior financial positions at Waters Corp, Varian Semi, Palo Alto Products Int l, PwC B.S.B.A. Boston University, Summa Cum Laude M.B.A. Cornell University, Certified Public Accountant MKS PROPRIETARY 29

30 Why MKS Instruments MARKET LEADERSHIP History of addressing and solving the complex technical challenges of the Semiconductor, Industrial Technologies, Life & Health Sciences, and Research & Defense markets DEEP CUSTOMER RELATIONSHIPS Long-term trusted partner that delivers the broadest portfolio of innovative and reliable solutions, with a strong legacy of design wins MULTIPLE GROWTH OPPORTUNITIES Core technologies applied across diverse market segments and a successful history in acquisition integration LONG-STANDING TRACK RECORD OF FINANCIAL PERFORMANCE Disciplined financial and operational management with strong balance sheet, cash flow and financial results INCREASE YIELD & THROUGHPUT Customer value proposition DRIVE MORE PREDICTABILITY IMPROVE PRODUCTIVITY ENHANCE UPTIME Solve Together. Succeed Together. MKS CONFIDENTIAL 30

31 Appendix GAAP to Non-GAAP Reconciliations

32 Appendix GAAP to Non-GAAP Reconciliations (in millions, except per share amounts) Actual Q4-17 GAAP gross margin $238.3 Adjustments: Non-GAAP gross margin $238.3 Non-GAAP gross margin percentage 46.6% GAAP operating expenses $118.3 Adjustments: Integration costs (Note 1) 0.6 Restructuring (Note 6) 1.3 Amortization of intangible assets 10.8 Non-GAAP operating expenses $105.6 GAAP income from operations $120.0 Adjustments: Integration costs (Note 1) 0.6 Restructuring (Note 6) 1.3 Amortization of intangible assets 10.8 Non-GAAP income from operations $132.8 Non-GAAP operating margin percentage 25.9% Net income $77.6 Adjustments: Integration costs (Note 1) 0.6 Amortization of debt issuance costs (Note 2) 4.0 Restructuring (Note 6) 1.3 Amortization of intangible assets 10.8 Windfall tax benefit on stock based compensation (Note 3) (0.7) Tax adjustment related to sale of business (Note 8) (12.1) Deferred tax adjustment (Note 10) (24.5) Transition tax on accumulated foreign earnings (Note 11) 28.7 Accrued tax on MKS subsidiary distribution (Note 12) 14.0 Pro forma tax adjustments (Note 13) (5.1) Non-GAAP net earnings $94.6 Non-GAAP net earnings per share $1.71 Diluted shares (in millions) 55.2 MKS PROPRIETARY 32

33 Appendix GAAP to Non-GAAP Reconciliations Last 12 Actual Months Non-GAAP adjusted EBITDA reconciliation Q4-17 Q4-17 Net Income $77.6 $339.1 Interest expense (income), net Provision for income taxes Depreciation Amortization EBITDA $137.9 $558.2 Stock based compensation Integration costs (Note 1) Expenses related to sale of business (Note 4) Excess and obsolete inventory charge (Note 5) Restructuring (Note 6) Fees and expenses relating to repricing of term loan (Note 9) Asset impairment (Note 7) Gain on sale of business (Note 8) - (74.9) Other adjustments Non-GAAP adjusted EBITDA (Note 14) $145.2 $529.4 Consolidated Total Indebtedness $402.1 Total Leverage Ratio 0.8x MKS PROPRIETARY 33

34 GAAP to Non-GAAP Footnote Disclosures Note 1: Integration costs related to the Newport Corporation acquisition, which closed during the second quarter of Note 2: Additional interest expense related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility. Note 3: Windfall tax benefit on the vesting of stock based compensation relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update ). Note 4: Legal and consulting expenses related to the sale of a business, which was completed in April of Note 5: Excess and obsolete inventory charges in cost of sales related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants. Note 6: Restructuring costs related to one of our international facilities and the consolidation of sales offices. Note 7: $6.7 million impairment charge related to the goodwill and intangible assets in conjunction with the consolidation of two manufacturing plants in the three months ended June 30, Note 8: We recorded a $74.9 million gain with a $15.0 million tax on the sale of our Data Analytics Solutions business during the six months ended June 30, We recorded a tax adjustment of ($12.1) million resulting from the 2017 Tax Cut and Jobs Act related to this sale during the three months ended December 31, Note 9: We recorded fees and expenses related to re-pricings of our Term Loan Credit Agreement. Note 10*: We recorded a deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to the 2017 Tax Cut and Jobs Act during the twelve months ended December 31, Note 11*: We recorded a transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the twelve months ended December 31, Note 12*: We recorded an accrual for tax expense on a potential distribution to a subsidiary, related to the 2017 Tax Cut and Jobs Act during the twelve months ended December 31, Note 13: The pro forma tax adjustment represents the adjustments of the listed items broken down by jurisdiction and tax effected at the applicable statutory income tax rate. Note 14: Adjusted EBITDA as defined in our Term Loan Credit Agreement. * The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the "Tax Act") as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time. MKS CONFIDENTIAL 34

35 We help the most innovative companies in the world SOLVE COMPLEX PROBLEMS MARKET LEADER MKS is a leading global provider of process control solutions for Semiconductor & Electronic Thin Films Life & Health Sciences Process & Industrial Technologies Government & Research STRATEGIC GROWTH Acquired Newport Corporation, April 2016, a leader in sophisticated light & motion products Adds 3 global brands to the MKS portfolio INNOVATIVE SOLUTIONS Vacuum Processing Pressure measurement & control, flow solutions Power & reactive gas solutions Automation, gas analysis Laser Solutions Precision laser applications Motion, Photonics & Optics Performance motion control & positioning Gratings & optics Vibration control & optomechanical components Laser measurement KEY FACTS Founded: 1961 HQ: Andover MA IPO: 1999 (NASDAQ MKSI) In 2017 Sales: $1.9B Employees: ~5,000, R&D: 670 R&D Spend: $133M Patents US: 517 International: 1041 Pending: 97 MKS PROPRIETARY 35