MKS Inc: Form 10-Q for the period ended Jun 30, 2025

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 regarding the future financial performance, business prospects and growth of MKS Inc., formerly known as MKS Instruments, Inc. (“MKS,” the “Company,” “our,” or “we”). These statements are only predictions based on current assumptions and expectations. 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 be considered forward-looking statements. 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 that we make are the level and terms of our substantial indebtedness and our ability to service such debt; our entry into the chemicals technology business through our acquisition of Atotech Limited (“Atotech”) in August 2022 (the “Atotech Acquisition”) which has exposed us to significant additional liabilities; the risk that we are unable to realize the anticipated benefits of the Atotech Acquisition; risks related to cybersecurity, data privacy and intellectual property; competition from larger, more advanced or more established companies in our markets; the ability to successfully grow our business, including through growth of the Atotech business and financial risks associated with that acquisition and potential future acquisitions, including goodwill and intangible asset impairments; manufacturing and sourcing risks, including those associated with limited and sole source suppliers and the impact and duration of supply chain disruptions, component shortages, and price increases; changes in global demand; risks associated with doing business internationally, including geopolitical conflicts, such as the conflict in the Middle East, trade compliance, trade protection measures, such as import tariffs by the United States or retaliatory actions taken by other countries, regulatory restrictions on our products, components or markets, particularly the semiconductor market, and unfavorable currency exchange and tax rate fluctuations, which risks become more significant as we grow our business internationally and in China specifically; conditions affecting the markets in which we operate, including fluctuations in capital spending in the semiconductor, electronics manufacturing and automotive industries, and fluctuations in sales to our major customers; disruptions or delays from third-party service providers upon which our operations may rely; the ability to anticipate and meet customer demand; the challenges, risks and costs involved with integrating or transitioning global operations of the companies we have acquired; risks associated with the attraction and retention of key personnel; potential fluctuations in quarterly results; dependence on new product development; rapid technological and market change; acquisition strategy; volatility of stock price; risks associated with chemical manufacturing and environmental regulation compliance; risks related to defective products; financial and legal risk management; and the other important factors described under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the U.S. Securities and Exchange Commission on February 25, 2025 (“Annual Report”), Part II, Item 1A of our Quarterly Report on Form 10-Q for the three months ended March 31, 2025 and any subsequent Quarterly Reports on Form 10-Q. We are under no obligation to, and expressly disclaim any obligation to, update or alter these forward-looking statements, whether as a result of new information, future events or otherwise, even if subsequent events cause our views to change.

The Management’s Discussion and Analysis of Financial Condition and Results of Operations describes principal factors affecting the results of operations, financial condition, cash flows and liquidity, as well as our critical accounting policies and estimates that require significant judgment and thus have the most significant potential impact on our condensed consolidated financial statements, and is intended to better allow investors to view the Company from management’s perspective. This section focuses on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of our future operating results or of our future financial condition. This section provides an analysis of our financial results for the three months ended June 30, 2025 compared to the three months ended March 31, 2025, and the six months ended June 30, 2025 compared to the six months ended June 30, 2024. As a result of rounding, there may be immaterial differences in amounts presented and certain calculations may not sum to the total number expressed in each category or tie to a corresponding schedule.

Overview

We enable technologies that transform our world. We deliver foundational technology solutions to leading edge semiconductor manufacturing, electronics and packaging, and specialty industrial applications. We apply our broad science and engineering capabilities to create instruments, subsystems, systems, process control solutions and specialty chemicals technology that improve process performance, optimize productivity and enable unique innovations for many of the world’s leading technology and industrial companies. Our solutions are critical to addressing the challenges of miniaturization and complexity in advanced device manufacturing by enabling increased power, speed, feature enhancement and optimized connectivity. Our solutions are also critical to addressing ever-increasing performance requirements across a wide array of specialty industrial applications.

Recent Developments

The U.S. administration has imposed a series of tariffs on U.S. trading partners to address trade imbalances, cross-border issues, and other foreign policy disputes that have been met with both real and threatened retaliatory measures by impacted countries. We continue to closely monitor these developments, modifications and responsive actions and have implemented contingency plans, including alternative sourcing strategies and supplier diversification, to support supply chain continuity, maintain operational efficiency, and help mitigate potential future impacts.

Segments

We have three divisions, which are our reportable segments: Vacuum Solutions Division (“VSD”), Photonics Solutions Division (“PSD”) and Materials Solutions Division (“MSD”).

VSD delivers foundational technology solutions to semiconductor manufacturing, electronics and packaging and specialty industrial applications. VSD products are derived from our core competencies in vacuum technologies, including pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, electronic control technology, reactive gas generation and delivery, power generation and delivery, and fiber optic temperature and position sensing.

PSD provides a broad range of solutions including lasers, beam measurement and profiling, precision motion control, vibration isolation systems, photonics instruments, opto-mechanical components, optical elements, laser-based systems for flexible printed circuit board (“PCB”) laser processing, laser-based systems for high density interconnect PCB and package substrate manufacturing.

MSD develops leading process and manufacturing technologies for advanced surface modification, electroless and electrolytic plating, and surface finishing. Applying a comprehensive systems-and-solutions approach, MSD’s portfolio includes chemistry, equipment and services for innovative and high-technology applications in our electronics and packaging and specialty industrial markets.

Markets

Net Revenues by End Market

(Dollars in millions)

Semiconductor Market

We are a critical solutions provider for semiconductor manufacturing. Our products are used in major semiconductor processing steps, such as deposition, etching, cleaning, lithography, metrology, and inspection. The semiconductor industry continually faces new challenges, as products become smaller, more powerful and highly mobile. Ultra-thin layers, smaller critical dimensions, new materials, 3D structures, and the ongoing need for higher yield and productivity drive the need for tighter process measurement and control, all of which we support. We believe we are the broadest critical subsystem provider in the wafer fabrication equipment ecosystem and address over 85% of the market. We characterize our broad and unique offering as Surround the Wafer® to reflect the technology enablement we provide across almost every major process in semiconductor manufacturing today.

The semiconductor market is subject to rapid demand shifts, which are difficult to predict, and we cannot be certain as to the timing or extent of future demand or any future softening in the semiconductor capital equipment industry. In addition to these rapid demand shifts, the semiconductor capital equipment industry has recently been subject to significant trade restrictions, especially in key markets, including China.

For the three months ended June 30, 2025, net revenues in our semiconductor market increased by $19 million, or 5%, compared to the prior quarter due to an increase in sales of our semiconductor capital equipment at VSD related to strength in logic and foundry applications, upgrades to support existing NAND memory production and increased service revenues. In addition, net revenues in the semiconductor market were also favorably impacted by foreign currency exchange rates as the U.S. dollar weakened against most major currencies.

For the six months ended June 30, 2025, net revenues in our semiconductor market increased by $126 million, or 18%, compared to the same period in the prior year. The increase was mainly due to an increase in sales of our semiconductor capital equipment at VSD related to strength in logic and foundry applications, upgrades to support existing NAND memory production and increased services revenues.

Electronics and Packaging Market

We are a foundational solutions provider for the electronics and packaging market. Our portfolio includes photonics components, laser drilling systems, electronics chemistries and plating equipment that are critical for the manufacturing of PCBs and package substrates, and critical to wafer level packaging (“WLP”) applications. Similar to the semiconductor industry, the PCB, package substrate and WLP industries demand smaller features, greater density, and better performance. In addition, the electronics and packaging market also includes sales of our vacuum and photonics solutions for display manufacturing applications. We characterize our complementary offering of laser systems and chemistry solutions as Optimize the Interconnect®, to reflect the unique technology enablement we provide at the Interconnect level within PCBs, package substrates and WLPs.

For the three months ended June 30, 2025, net revenues in our electronics and packaging market increased by $13 million, or 5%, compared to the prior quarter primarily due to an increase in chemistry sales in the electronics market at MSD, mainly as a result of seasonally lower sales in the first quarter due to the Lunar New Year, partially offset by lower sales of PCB via drilling systems at PSD. Net revenues were also favorably impacted by foreign currency exchange rates.

For the six months ended June 30, 2025, net revenues in our electronics and packaging market increased by $82 million, or 19%, compared to the same period in the prior year. This increase was primarily due to higher sales of PCB via drilling systems at PSD and an increase in both chemistry and equipment sales at MSD.

Specialty Industrial Market

Our strategy in the specialty industrial market is to leverage our domain expertise and proprietary technologies across a broad array of applications in industrial, life and health sciences, and research and defense markets.

Industrial

Industrial encompasses a wide range of diverse applications, including chemistries for functional coatings, surface finishing and wear resistance in the automobile industry, vacuum solutions for synthetic diamond manufacturing and photonics for solar manufacturing. Other applications include vacuum and photonics solutions for light emitting diode and laser diode manufacturing.

Life and Health Sciences

Our products for life and health sciences are used in a diverse array of applications, including bioimaging, medical instrument sterilization, medical device manufacturing, analytical, diagnostic and surgical instrumentation, consumable medical supply manufacturing and pharmaceutical production.

Research and Defense

Our products for research and defense are sold to government, university and industrial laboratories for applications involving research and development in materials science, physical chemistry, photonics, optics and electronics materials. Our products are also sold for monitoring and defense applications, including surveillance, imaging and infrastructure protection.

For the three months ended June 30, 2025, net revenues in our specialty industrial market increased by $5 million, or 2%, compared to the prior quarter mainly due to higher chemistry sales in the automotive market at MSD as a result of seasonally lower sales in the first quarter due to the Lunar New Year, as well as higher revenue in our general industrial market at MSD. Net revenues in the specialty industrial market were also favorably impacted by foreign currency exchange rates.

For the six months ended June 30, 2025, net revenues in our specialty industrial market decreased by $53 million, or 9%, compared to the same period in the prior year. This decrease was mainly due to lower chemistry sales in the automotive market at MSD, lower revenues in the general industrial market at VSD and MSD as well as lower revenues across the material processing, metrology and spectroscopy markets at PSD. These decreases were partially offset by higher revenue in the general industrial market at PSD.

International Markets

Starting in the second quarter of 2024, we changed our basis of reporting geographical net revenues from the location in which the sale originated to the shipped-to location of the end customer. Prior periods have been recast to reflect this change, which was made to better align with how management reviews geographical net revenues.

A significant portion of our net revenues is from sales to customers in international markets. For the six months ended June 30, 2025 and 2024, international net revenues accounted for approximately 81% and 76% respectively, of our total net revenues. A significant portion of our international net revenues was from customers in China, South Korea, Singapore, Taiwan and Japan. We expect international net revenues will continue to account for a significant percentage of total net revenues for the foreseeable future.

Long-lived assets located outside of the United States accounted for approximately 63% and 59% of our total long-lived assets as of June 30, 2025 and December 31, 2024, respectively. Long-lived assets include property, plant and equipment, net, right-of-use assets and certain other assets.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported. There have been no material changes in our critical accounting policies since December 31, 2024.

For further information about our critical accounting policies, please see the discussion of critical accounting policies in our Annual Report in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates.”

Results of Operations

The following table sets forth, for the periods indicated, the percentage of total net revenues of certain line items included in our condensed consolidated statements of operations and comprehensive income (loss) data:

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The following table sets forth our net revenues for products and services:

Net Revenues

(Dollars in millions)

For the three months ended June 30, 2025, net product revenues increased $29 million compared to the prior quarter primarily due to increases in sales in our semiconductor market at VSD, higher chemistry sales in the electronics and packaging and specialty industrial markets at MSD and the favorable impact of foreign currency exchange rates, partially offset by decreases in sales of PCB via drilling systems in the electronics and packaging market at PSD.

For the six months ended June 30, 2025, net product revenues increased $144 million compared to the same period in the prior year, as a result of increases in sales in our semiconductor and electronics and packaging markets, offset by decreases in sales in our specialty industrial market. The increase in net product revenues in the semiconductor market was mainly due to increases in sales in semiconductor capital equipment at VSD related to strength in logic and foundry applications and upgrades to support existing NAND memory production. The increase in product revenues in our electronics and packaging market was mainly due to higher sales of PCB via drilling systems at PSD and higher equipment and chemistry sales at MSD. The decrease in product revenues in our specialty industrial market was mainly due to lower chemistry sales in the automotive market at MSD as well as lower revenues in the general industrial market at VSD and MSD and lower revenues across the material processing, metrology and spectroscopy markets at PSD.

Net service revenues consisted mainly of fees for services related to the maintenance and repair of our products, sales of spare parts, and installation and training. For the three months ended June 30, 2025, net service revenues increased $8 million compared to the prior quarter mainly as a result of higher demand in our semiconductor market at VSD and the favorable impact of foreign currency exchange rates.

For the six months ended June 30, 2025, net service revenues increased $11 million compared to the same period in the prior year, primarily due to higher demand in our semiconductor market at VSD, partially offset by lower demand in our electronics and packaging market at PSD and MSD.

The following table sets forth our net revenues by reportable segment:

(Dollars in millions)

For the three months ended June 30, 2025, net revenues from VSD increased $21 million compared to the prior quarter mainly due to increased product revenues of our semiconductor capital equipment related to strength in logic and foundry applications and upgrades to support existing NAND memory production, as well as increased service revenues and favorable impacts of foreign currency exchange rates. For the six months ended June 30, 2025, net revenues from VSD increased $125 million compared to the same period in the prior year, mainly due to increased product revenues of our semiconductor capital equipment related to strength in logic and foundry applications, upgrades to support existing NAND memory production and increased service revenues. This was partially offset by decreases in sales in the specialty industrial market.

For the three months ended June 30, 2025, net revenues from PSD decreased $20 million compared to the prior quarter mainly due to lower sales of PCB via drilling systems in our electronics and packaging market partially offset by favorable impacts of foreign currency exchange rates. For the six months ended June 30, 2025, net revenues from PSD were flat compared to the same period in the prior year. Decreases in sales in material processing, metrology and spectroscopy within our specialty industrial market, as well as lower sales in the semiconductor market were offset by higher sales of PCB via drilling systems in our electronics and packaging market.

For the three months ended June 30, 2025, net revenues from MSD increased $36 million compared to the prior quarter mainly due to increased chemistry sales in our electronics and packaging market and automotive manufacturing sales in our specialty industrial market, mainly as a result of seasonally lower sales in the first quarter due to the Lunar New Year and favorable impacts of foreign currency exchange rates. For the six months ended June 30, 2025, revenues from MSD increased $30 million compared to the same period in the prior year, mainly due to higher chemistry and equipment sales in our electronics and packaging market partially offset by lower chemistry sales in our automotive manufacturing and general industrial markets as well as lower equipment service revenues in the electronics and packaging market.

The following table sets forth gross profit as a percentage of net revenues by product and service:

Gross Profit Excluding Amortization

Gross profit as a percentage of net product revenues decreased by 1.2 percentage points for the three months ended June 30, 2025 compared to the prior quarter, primarily due to higher duty and tariff costs and unfavorable product mix, partially offset by lower excess and obsolete inventory charges.

Gross profit as a percentage of net product revenues decreased by 0.9 percentage points for the six months ended June 30, 2025 compared to the same period in the prior year, primarily due to higher duty and tariff costs and unfavorable product mix, partially offset by higher revenue volumes.

Gross profit as a percentage of net services revenues increased by 1.8 percentage points for the three months ended June 30, 2025 compared to the prior quarter, primarily due to lower scrap and variances and lower excess and obsolete inventory charges, partially offset by higher duty and tariff costs.

Gross profit as a percentage of net services revenues increased by 1.8 percentage points for the six months ended June 30, 2025 compared to the same period in the prior year, primarily due to lower scrap and variances, favorable product mix, and higher revenue volumes, partially offset by higher duty and tariff costs.

The following table sets forth gross profit as a percentage of net revenues by reportable segment:

Gross profit as a percentage of net revenues for VSD decreased for the three months ended June 30, 2025 compared to the prior quarter, primarily due to higher duty and tariff costs and unfavorable product mix, partially offset by lower excess and obsolete inventory charges. Gross profit as a percentage of net revenues for VSD increased for the six months ended June 30, 2025 compared to the same period in the prior year, primarily due to higher revenue volumes and favorable factory utilization partially offset by higher duty and tariff costs.

Gross profit as a percentage of net revenues for PSD decreased for the three months ended June 30, 2025 compared to the prior quarter, primarily due to higher duty and tariff costs and lower revenue volumes, partially offset by favorable product mix. Gross profit as a percentage of net revenues for PSD decreased for the six months ended June 30, 2025 compared to the same period in the prior year, primarily due to higher duty and tariff costs.

Gross profit as a percentage of net revenues for MSD decreased for the three months ended June 30, 2025 compared to the prior quarter, primarily due to unfavorable product mix, partially offset by lower excess and obsolete inventory charges. Gross profit as a percentage of net revenues for MSD decreased for the six months ended June 30, 2025 compared to the same period in the prior year, primarily due to unfavorable product mix and higher excess and obsolete inventory charges.

The above gross profit percentages by division exclude an immaterial amount of unallocated corporate expense included in the total gross profit percentage.

Research and Development

(Dollars in millions)

32

Research and development expenses increased by $6 million for the three months ended June 30, 2025 compared to the prior quarter, mainly due to an increase of $2 million in compensation-related costs, including fringe and variable compensation, and a $2 million unfavorable impact of foreign currency exchange rates. Research and development expenses increased $9 million for the six months ended June 30, 2025 compared to the same period in the prior year, primarily due to an increase of $10 million in compensation-related costs, including fringe and variable compensation.

Our research and development efforts are primarily focused on developing and improving our instruments, components, chemistry, subsystems, systems and process control solutions to improve process performance and productivity. We have thousands of products, and our research and development efforts primarily consist of a large number of projects related to these products, none of which is individually material. Projects typically have a duration of 3 to 36 months but may be extended for development of new products.

We continue to make product advancements designed to meet our customers’ evolving needs. We have developed, and continue to develop, new products designed to address industry trends, such as the rising demand for more complex hardware architecture related to increasing investments in artificial intelligence, the shrinking of integrated circuit critical dimensions and technology inflections, and, in the flat panel display and solar markets, the transition to larger substrate sizes, which require more advanced processing and process control technology, the continuing drive toward more complex and accurate components and devices within the handset and tablet market, the transition to 5G for both devices and infrastructure, the growth in units and via counts in the high density interconnect PCB drilling market, and the transition from internal combustion to electric vehicles. In addition, we have developed, and continue to develop, products that support the migration to new classes of materials, ultra-thin layers, and 3D structures that are used in small geometry manufacturing. In our chemistry and equipment plating businesses, a majority of our research and development investment supports existing customers’ product improvement needs and their short-term research and development goals, which enables us to pioneer new high-value solutions while limiting commercial risk. Research and development expenses consist primarily of salaries and related expenses for personnel engaged in research and development, fees paid to consultants, material costs for prototypes and other expenses related to the design, development, testing and enhancement of our products.

We believe that the continued investment in research and development and ongoing development of new products are essential to the expansion of our markets. We expect to continue to make significant investment in research and development activities. We are subject to risks from products not being developed in a timely manner, as well as from rapidly changing customer requirements and competitive threats from other companies and technologies. Our success depends on many of our products being designed into new generations of equipment for the semiconductor, electronics and packaging, and specialty industrial markets. We seek to develop products that are technologically advanced so that they are positioned to be chosen for use in each successive generation of semiconductor capital equipment and advanced markets applications. If our products are not chosen to be designed into our customers’ products, our net revenues may be reduced during the lifespan of those products.

Selling, General and Administrative

(Dollars in millions)

Selling, general and administrative expenses decreased $10 million for the three months ended June 30, 2025 compared to the prior quarter, primarily due to a decrease of $10 million in compensation-related costs, mainly related to stock compensation, and $1 million of lower depreciation expense, partially offset by $4 million unfavorable impacts of foreign currency exchange rates.

Selling, general and administrative expenses increased $30 million for the six months ended June 30, 2025 compared to the same period in the prior year, primarily due to an increase of $35 million in compensation-related costs, mainly related to stock and other variable incentive compensation, and an increase of $3 million in information technology costs, partially offset by a decrease of $7 million in consulting and professional fees.

Acquisition and Integration Costs

(Dollars in millions)

Acquisition and integration costs incurred during 2024 were related to consulting and professional fees related to the Atotech Acquisition.

Restructuring and Other

(Dollars in millions)

Restructuring and other charges during the three and six months ended June 30, 2025 and the three months ended March 31, 2025 related primarily to severance costs incurred as a result of a global cost saving initiative implemented during the first quarter of 2025, mainly in the general metals finishing business within MSD. Restructuring and other charges during the six months ended June 30, 2024, primarily related to severance costs incurred as a result of a global cost saving initiative implemented in the fourth quarter of 2023.

Fees and Expenses Related to Amendments to the Term Loan Facility

(Dollars in millions)

During the three months ended March 31, 2025 and six months ended June 30, 2025, we recorded fees and expenses related to the Fifth Amendment to Credit Agreement, dated as of January 24, 2025, by and among us as parent borrower, the other loan parties party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and each lender party thereto (the “Fifth Amendment”). During the six months ended June 30, 2024 we recorded fees and expenses related to borrowing additional USD Tranche B and additional Euro Tranche B (each as defined and described further below under “Credit Facilities”) pursuant to the Second Amendment to Credit Agreement, dated as of January 22, 2024, by and among us as parent borrower, the other loan parties party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and each lender party thereto (the “Second Amendment”).

Amortization of Intangible Assets

(Dollars in millions)

Amortization of intangible assets for the three months ended June 30, 2025 increased $2 million compared to the prior quarter. Amortization of intangible assets for the six months ended June 30, 2025 decreased by $1 million compared to the same period in the prior year.

Interest Expense, Net

(Dollars in millions)

Interest expense, net increased by $1 million for the three months ended June 30, 2025 compared to the prior quarter, primarily as a result of the maturity of favorable interest rate swaps during the first quarter, partially offset by higher interest income.

Interest expense, net decreased by $54 million for the six months ended June 30, 2025 compared to the same period in the prior year primarily as a result of the issuance of $1.4 billion of Convertible Notes (as defined and described further below under “Convertible Notes,”) in May 2024 at a coupon rate of 1.25%, of which $1.2 billion of the proceeds were used to pay down our loans under the Term Loan Facility with an interest rate of approximately 7.8%. In addition, in July 2024, we entered into the Fourth Amendment to Credit Agreement, dated as of July 23, 2024 by and among us as parent borrower, the other loan parties party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and each lender party thereto, and in January 2025 we entered into the Fifth Amendment, each of which decreased the applicable margin for both the USD Tranche B and EUR Tranche B by 0.25%. In addition, interest expense, net was lower for the six months ended June 30, 2025 as compared to the same period in the prior year, as a result of the voluntary prepayments of $50 million in February 2024, $50 million in April 2024, $110 million in July 2024, $216 million in October 2024, $100 million in January 2025, and

$100 million in June 2025 on loans under the Term Loan Facility. The decrease in interest expense, net was partially offset by the maturity of favorable interest rate swaps compared to the same period in the prior year.

Loss on Extinguishment of Debt

(Dollars in millions)

For the three and six months ended June 30, 2025, we recorded a loss on extinguishment of debt in connection with the voluntary prepayment in June 2025. For the three months ended March 31, 2025 and six months ended June 30, 2025, we recorded a loss on extinguishment of debt in connection with the voluntary prepayment in January 2025 and the Fifth Amendment. For the six months ended June 30, 2024, we recorded a loss on extinguishment of debt in connection with the extinguishment of our senior secured tranche A term loans using proceeds from borrowing additional USD Tranche B and additional Euro Tranche B pursuant to the Second Amendment and the issuance in May 2024 of the Convertible Notes, as defined and described further below under “Credit Facilities” as well as voluntary prepayments in February 2024 and April 2024. In each period, the loss resulted from the acceleration of deferred financing and original issue discount costs associated with our loans under the Term Loan Facility.

Other Expense (Income), Net

(Dollars in millions)

Other expense (income), net for the three and six months ended June 30, 2025, three months ended March 31, 2025 and six months ended June 30, 2024 consisted primarily of net foreign exchange and fair value gains and losses.

Provision for Income Taxes

(Dollars in millions)

Our effective tax rates for the three months ended June 30, 2025 and March 31, 2025 were 13.6% and 12.3%, respectively. Our effective tax rates for the three months ended June 30, 2025 and March 31, 2025 were lower than the U.S. statutory tax rate, mainly due to the U.S. deduction for foreign derived intangible income (“FDII”) and research and development credits, partially offset by foreign withholding taxes and a waiver of deductions related to U.S. base erosion payments.

Our effective tax rates for the six months ended June 30, 2025 and 2024 were 13.0% and 8.9%, respectively. Our effective tax rate for the six months ended June 30, 2025 was lower than the U.S. statutory tax rate mainly due to the U.S. deduction for FDII and research and development credits, partially offset by foreign withholding taxes and a waiver of deductions related to U.S. base erosion payments. Our effective tax rate for the six months ended June 30, 2024 was lower than the U.S. statutory tax rate mainly due to the U.S. deduction for FDII and research and development credits, partially offset by an increase in foreign withholding taxes and U.S. base erosion and anti-abuse tax.

Our future effective tax rate depends on various factors, including the impact of tax legislation, further interpretations and guidance from U.S. federal and state governments on the impact of proposed regulations issued by the Internal Revenue Service, as well as the geographic composition of our pre-tax income and changes in income tax reserves for unrecognized tax benefits. We monitor these factors and timely adjust our estimates of the effective tax rate accordingly. While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from our accrued positions as a result of uncertain and complex application of tax laws and regulations. Additionally, the recognition and measurement of certain tax benefits include estimates and judgment by management. Accordingly, we could record additional provisions or benefits for U.S. federal, state, and foreign tax matters in future periods as new information becomes available.

The Organisation for Economic Co-operation and Development (“OECD”) and participating OECD member countries continue to work toward the enactment of a 15% global minimum corporate tax rate for large multinational enterprise groups, also known as “Pillar Two.” Many of the participating countries have enacted legislation that became effective beginning in 2024, while other countries continue to work on defining the underlying rules and administrative procedures. Although the enacted and effective legislation in some countries was applicable to us as of January 1, 2024, and increased our effective income tax rate, the increase did not have a material impact on our overall results of operations or cash flows. We will continue to monitor and evaluate the impact of the developing legislation.

On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was enacted into law. The OBBBA includes significant changes to the U.S. tax code, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework, and the restoration of favorable tax treatment for certain business provisions. The OBBBA has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We are currently assessing the impact of the OBBBA on our consolidated financial statements.

Liquidity and Capital Resources

Cash and cash equivalents at June 30, 2025 and December 31, 2024 totaled $674 million and $714 million, respectively. The primary driver of our current and anticipated future cash flows is, and we expect will continue to be, cash generated from operations, consisting primarily of our net income, excluding non-cash charges and changes in operating assets and liabilities.

Our total cash and cash equivalents at June 30, 2025 consisted of $97 million held in the United States and $577 million held by our foreign subsidiaries. We believe that our current cash and investments position and available borrowing capacity, together with the cash anticipated to be generated from our operations, will be sufficient to satisfy our estimated working capital, planned capital expenditure requirements, payments of debt, and any future cash dividends declared by our Board of Directors or share repurchases through at least the next 12 months and the foreseeable future.

In periods when our sales are growing, higher sales to customers will result in increased trade receivables, and inventories will generally increase as we build products for future sales. This may result in lower cash generated from operations. Conversely, in periods when our sales are declining, our trade accounts receivable and inventory balances will generally decrease, resulting in increased cash from operations.

Net cash provided by operating activities was $306 million for the six months ended June 30, 2025 and resulted from net income of $114 million, which included non-cash charges of $175 million, mainly the result of $172 million in depreciation and amortization, partially offset by $80 million in deferred income taxes and a net decrease in working capital of $17 million. The net decrease in working capital was primarily due to increases in accrued compensation of $31 million and income taxes payable of $19 million as well as a decrease of other current and non-current assets of $11 million, partially offset by increases in trade accounts receivable of $10 million and inventories of $24 million as well as a decrease in other current and non-current liabilities of $14 million.

Net cash used in investing activities was $45 million for the six months ended June 30, 2025 primarily related to capital expenditures.

Net cash used in financing activities was $309 million for the six months ended June 30, 2025, consisting primarily of normal quarterly debt payments and a voluntary debt prepayment that together totaled $225 million, as well as the repurchase of our common stock of $45 million and dividend payments of $30 million.

On July 25, 2011, our Board of Directors approved a share repurchase program for the repurchase of up to an aggregate of $200 million of our outstanding common stock from time to time in open market purchases, privately negotiated transactions or through other appropriate means. The timing and quantity of any shares repurchased depends upon a variety of factors, including business conditions, stock market conditions and business development activities, including, but not limited to, merger and acquisition opportunities. These repurchases may be commenced, suspended or discontinued at any time without prior notice. Any repurchased shares are held by us as authorized but unissued shares.

During the six months ended June 30, 2025, we repurchased approximately 546,000 shares of our common stock for total consideration of $45 million. During the three months ended June 30, 2025 and six months ended June 30, 2024, we did not repurchase any shares of common stock. We have repurchased approximately 3.1 million shares of common stock for approximately $172 million pursuant to the program since its adoption.

Holders of our common stock are entitled to receive dividends when and if they are declared by our Board of Directors. During each of the first and second quarters of 2025 and 2024, our Board of Directors declared a cash dividend of $0.22 per share, totaling $30 million for each of the six months ended June 30, 2025 and 2024. On August 4, 2025, our Board of Directors declared a quarterly cash dividend of $0.22 per share to be paid on September 5, 2025 to stockholders of record as of August 25, 2025. Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of our Board of Directors.

Credit Facilities

In connection with the completion of the Atotech Acquisition, on August 17, 2022 (the “Effective Date”) we entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, Barclays Bank PLC, and the lenders from time to time party thereto, which we have amended several times since including, most recently, in January 2025 (as amended, the “Amended Credit Agreement”). As of June 30, 2025, the Amended Credit Agreement provided for (i) a senior secured term loan facility comprised of two tranches: a $2.4 billion loan (the “USD Tranche B”) and a €591 million loan (the “Euro Tranche B” and together with the USD Tranche B, the “Term Loan Facility”) and (ii) a senior secured revolving credit facility of $675 million (the “Revolving Facility” and, together with the Term Loan Facility, the “Credit Facilities”), with the commitments under each of the foregoing facilities subject to increase from time to time subject to certain conditions. In each of January 2025 and June 2025, we made voluntary prepayments of $100 million principal amount to the USD Tranche B loan.

As of June 30, 2025, borrowings under the Credit Facilities bore interest at a rate per annum equal to, at our option, any of the following, plus, in each case, an applicable margin: (a) with respect to the USD Tranche B and the Revolving Facility, (x) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the prime rate quoted in The Wall Street Journal, or (3) a forward-looking term rate based on the variable secured overnight financing rate (“Term SOFR”) (plus an applicable credit spread adjustment) for an interest period of one month, plus 1.00%, and (y) a Term SOFR rate (plus an applicable credit spread adjustment) for the interest period relevant to such borrowing, subject to a rate floor of (I) with respect to the USD Tranche B, 0.50% and (II) with respect to the Revolving Facility, 0.0%; and (b) with respect to the Euro Tranche B, a Euro Interbank Offered Rate (“EURIBOR”) rate determined by reference to the costs of funds for Euro deposits for the interest period relevant to such borrowing adjusted for certain additional costs, subject to a EURIBOR rate floor of 0.0%. As of June 30, 2025, the applicable margins for borrowings under the Credit Facilities were (i) under the USD Tranche B, 1.00% with respect to base rate borrowings and 2.00% with respect to Term SOFR borrowings, (ii) under the Euro Tranche B, 2.50% and (iii) under the Revolving Facility, 1.50% with respect to base rate borrowings and 2.50% with respect to Term SOFR borrowings.

In addition to paying interest on outstanding principal under the Credit Facilities, we are required to pay a commitment fee in respect of the unutilized commitments under the Revolving Facility. The commitment fee is subject to adjustment based on our first lien net leverage ratio as of the end of the preceding fiscal quarter. We must also pay customary letter of credit fees and agency fees. As of June 30, 2025, the commitment fee was 0.25% per annum.

As of June 30, 2025, the principal outstanding on the Term Loan Facility was $3.1 billion, and the weighted average interest rate was 5.9%. The Revolving Facility has a maturity date in August 2027 while the USD Tranche B and Euro Tranche B have a maturity date in August 2029. As of June 30, 2025, there were no borrowings under the Revolving Facility.

We are required to make scheduled quarterly principal payments equal to approximately $10 million with respect to the USD Tranche B and approximately €2 million with respect to the Euro Tranche B, in each case with the balance due thereunder on the seventh anniversary of the Effective Date. There is no scheduled amortization under the Revolving Facility. Any principal amount outstanding under the Revolving Facility is due and payable in full on the fifth anniversary of the Effective Date.

Under the Amended Credit Agreement, we are required to prepay outstanding term loans, subject to certain exceptions, with portions of our annual excess cash flow as well as with the net cash proceeds of certain of its asset sales, certain casualty and condemnation events and the incurrence or issuances of certain debt. If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Revolving Facility exceeds the aggregate commitments under the Revolving Facility, we are required to repay outstanding loans and/or cash collateralize letters of credit, with no reduction of the commitment amount.

We may voluntarily prepay, and have voluntarily repaid, outstanding loans under the Credit Facilities from time to time, subject to certain conditions, without premium or penalty other than customary “breakage” costs with respect to Term SOFR or EURIBOR loans. Additionally, we may voluntarily reduce the unutilized portion of the commitment amount under the Revolving Facility.

On August 1, 2025, we made a voluntary prepayment of $100 million principal amount to the USD Tranche B loan.

All obligations under the Credit Facilities are guaranteed by certain of our wholly-owned domestic subsidiaries and are required to be guaranteed by certain of our future wholly-owned domestic subsidiaries, and are secured by substantially all of our assets and the assets of such subsidiaries, subject to certain exceptions and exclusions.

Under the Amended Credit Agreement, we have the ability to incur additional incremental debt facilities in an amount up to (x) the greater of (1) $1,011 million and (2) 75% of consolidated last 12 months earnings before interest, taxes, depreciation, and amortization, plus (y) an amount equal to the sum of all voluntary prepayments of term loans under the Term Loan Facility, plus (z) an additional unlimited amount subject to pro forma compliance with certain leverage ratio tests (based on the security and priority of such incremental debt).

The Amended Credit Agreement contains customary representations and warranties, covenants and provisions relating to events of default. As of June 30, 2025, we were in compliance with all covenants under the Amended Credit Agreement. The USD Tranche B and the Euro Tranche B are not subject to financial maintenance covenants.

Convertible Notes

On May 16, 2024, we completed a private offering of $1.4 billion aggregate principal amount of convertible senior notes due 2030 (the “Convertible Notes”).

We used approximately $167 million of the net proceeds from the offering to pay the cost of the capped call transactions described below. We used the remaining net proceeds from the offering to repay approximately $1.2 billion in borrowings outstanding under the USD Tranche B, together with accrued interest, as well as for general corporate purposes.

Indenture and the Convertible Notes

On May 16, 2024, we entered into an indenture (the “Indenture”) with respect to the Convertible Notes with U.S. Bank Trust Company, National Association, as trustee. Under the Indenture, the Convertible Notes are senior unsecured obligations of ours and bear interest at a coupon rate of 1.25% per annum, with interest payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2024. The Convertible Notes will mature on June 1, 2030, unless earlier converted, redeemed or repurchased in accordance with their terms.

Subject to certain conditions, on or after June 5, 2027, we may redeem for cash all or any portion of the Convertible Notes at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the trading day immediately preceding the date the notice of redemption is sent.

The conversion rate for the Convertible Notes is initially 6.4799 shares of our common stock per one thousand dollars principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $154.32 per share. The conversion rate is subject to adjustment upon the occurrence of certain events.

Upon conversion, we will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. Prior to March 1, 2030, noteholders may convert all or any portion of their Convertible Notes only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the second scheduled trading day immediately preceding the maturity date.

If we undergo a fundamental change (as defined in the Indenture) prior to the maturity date of the Convertible Notes, holders may require us to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Indenture contains customary terms and covenants, including that upon certain events of default that are occurring and continuing, either the trustee or the holders of at least 25% in aggregate principal amount of the outstanding Convertible Notes may declare 100% of the principal of, and accrued and unpaid interest, if any, on, all the Convertible Notes to be due and payable.

As of June 30, 2025, the Convertible Notes were classified as a long-term liability, net of issuances costs, on the condensed consolidated balance sheet. The Convertible Notes were issued at par and costs associated with the issuance of the Convertible Notes are amortized to interest expense over the contractual term of the Convertible Notes. As of June 30, 2025, the effective interest rate of the Convertible Notes was 1.56%.

Capped Call Transactions

On May 13, 2024, in connection with the pricing of the Convertible Notes, and on May 14, 2024, in connection with the exercise in full by the initial purchasers of their option to purchase additional Convertible Notes, we entered into privately negotiated capped call transactions with certain of the initial purchasers of the Convertible Notes or their respective affiliates and other financial institutions. The capped call transactions are expected generally to reduce the potential dilution to our common stock upon conversion of any Convertible Notes and/or offset any cash payments that we are required to make in excess of the principal amount of any converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap initially equal to $237.42 per share, which represents a premium of 100% over the last reported sale price of $118.71 per share of our common stock on The Nasdaq Global Select Market on May 13, 2024, and is subject to customary adjustments under the terms of the capped call transactions.

Lines of Credit and Borrowing Arrangements

Certain of our Japanese subsidiaries have lines of credit and a financing facility with various financial institutions, many of which generally expire and are renewed at three-month intervals with the remaining having no expiration date. The lines of credit and financing facility provided for aggregate borrowings as of June 30, 2025 and December 31, 2024 of up to an equivalent of $14 million and $19 million, respectively. There were no borrowings outstanding under these arrangements at June 30, 2025 and December 31, 2024.

Derivatives

We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments and those utilized as economic hedges. We operate internationally, and in the normal course of business, are exposed to fluctuations in interest rates and foreign exchange rates. These fluctuations can increase the costs of financing, investing and operating the business. We have used derivative instruments, such as foreign exchange forward contracts and net investment hedges, to manage certain foreign currency exposure, and interest rate swaps and caps to manage certain interest rate exposure. We do not enter into derivative instruments for trading or speculative purposes.

By nature, all financial instruments involve market and credit risks. We enter into derivative instruments with major investment grade financial institutions and no collateral is required. We have policies to monitor the credit risk of these counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties.

Interest Rate Swap

We have various interest rate swap agreements described further in Note 5 of the condensed consolidated financial statements. These interest rate swap agreements exchange the variable Term SOFR rate to a fixed rate in order to manage the exposure to interest rate fluctuations associated with the variable Term SOFR rate paid on the outstanding balance of the Term Loan Facility.

Contractual Obligations

There have been no changes outside the ordinary course of business to our contractual obligations as disclosed in our Annual Report.

Recent Accounting Pronouncements

Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which focuses on the rate reconciliation and income taxes paid. ASU 2023-09 requires a public business entity (“PBE”) to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. For PBEs, the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods or may apply the amendments retrospectively by providing the revised disclosures for all periods presented. We are currently evaluating the impact on the consolidated financial statement disclosures; however, adoption will not impact our consolidated balance sheets, cash flows or income statements.

Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires public companies to disclose, in interim and annual reporting periods, additional information about certain income statement expense line items in the notes to financial statements. The amendments in ASU 2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impact on the consolidated financial statement disclosures; however, adoption will not impact our consolidated balance sheets, cash flows or income statements.

Information concerning market risk is contained in the section entitled “Quantitative and Qualitative Disclosures About Market Risk” contained in our Annual Report. As of June 30, 2025, there were no material changes in our exposure to market risk from December 31, 2024.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2025. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2025, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in U.S. Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Information regarding risk factors affecting our business is discussed in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the U.S. Securities and Exchange Commission on February 25, 2025 and the section entitled “Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2025 filed with the U.S. Securities and Exchange Commission on May 8, 2025, which section is incorporated herein by reference.