MKS Inc. (MKSI) Cash Flow Statement

The OCF/NI ratio of 0.63 in 2026Q1 was depressed by a $134M working capital outflow, likely reflecting inventory build-up or receivable timing ahead of the strong Q2. The subsequent recovery to 1.39 in Q2 suggests that the earnings beat was backed by cash generation, but the volatility across quarters implies that accruals and working capital swings can distort quarterly comparisons. Investors should monitor the sustainability of this conversion, as the 2024Q1 ratio of 4.47 was inflated by low net income, not exceptional cash flow.

The sequential jump in FCF from $28M to $189M is driven by a $190M increase in operating cash flow, far outpacing the modest $29M rise in capex. This suggests that the revenue acceleration noted in the income statement is translating into cash at a high incremental rate, likely due to fixed cost absorption and favorable mix. However, the 2026Q1 FCF margin of 2.6% highlights the cyclicality of cash generation, and the trailing twelve-month FCF margin of approximately 11% remains below the 17.3% of peer Entegris, indicating room for improvement as the Atotech integration matures.

Capex as a percentage of revenue has remained in a tight band of 1.9% to 5.5%, with no clear upward trend, indicating that MKSI is not in a heavy investment phase. The absolute capex of $54M in 2026Q2 is the highest in the period, but still modest relative to the $1.25B revenue base, implying that the company can generate significant FCF without aggressive capital spending. This may reflect the asset-light nature of the chemistry and services businesses, but investors should watch for any step-up in capex if the advanced packaging demand requires new capacity.

The $134M working capital outflow in 2026Q1 was the largest in the ten-quarter period, likely reflecting a build-up of inventory to support the strong Q2 revenue growth. The subsequent quarter's smaller outflow suggests that the company was able to convert that investment into cash, but the pattern of positive and negative swings (e.g., +$58M in 2025Q3, -$48M in 2024Q1) indicates that working capital is not a stable source of cash. Given the semiconductor industry's rapid technology changes, inventory obsolescence risk remains a concern, and the efficiency of collections and payables management should be monitored for signs of strain.

The consistent quarterly dividend of $14-17M is modest relative to FCF, and the absence of buybacks in most quarters (except a $45M repurchase in 2025Q1) indicates a conservative capital return policy. With a debt-to-equity ratio of 1.73 and net debt/equity around 130%, the company's priority appears to be deleveraging, which is consistent with the prior income statement analysis highlighting balance sheet strain. The $1M acquisition in 2025Q3 is negligible, suggesting that M&A is on hold while the company integrates Atotech and reduces leverage. Investors should expect continued debt paydown, which could limit upside from buybacks or dividends in the near term.

The cumulative OCF/NI ratio of approximately 1.93 over the period suggests that MKSI's earnings quality is high, with D&A and other non-cash items (like amortization from acquisitions) providing a cushion. However, the gap is partly due to the significant amortization of intangibles from the Newport and Atotech deals, which depresses GAAP net income but does not affect cash flow. This divergence supports the view that adjusted EBITDA or FCF is a better measure of performance than GAAP earnings, but investors should be aware that the cash flow is not entirely 'free' as it must service the debt taken on for those acquisitions.