MKS Instruments Reports Q3 2015 Financial Results

ANDOVER, Mass., Oct. 21, 2015 (GLOBE NEWSWIRE) — MKS Instruments, Inc. (NASDAQ:MKSI), a global provider of technologies that enable advanced processes and improve productivity; today reports third quarter 2015 financial results.

  GAAP Results Non-GAAP Results
Net revenues ($ millions) $ 209   $ 209  
Gross margin   45.0 %   45.0 %
Operating margin   19.8 %   20.8 %
Net income ($ millions) $ 29.8   $ 31.5  
Diluted EPS $ 0.56   $ 0.59  

Third Quarter Financial Results
Sales were $209 million, a decrease of 4% from $218 million in the second quarter of 2015, and an increase of 12% from $187 million in the third quarter of 2014.

Third quarter net income was $29.8 million, or $0.56 per diluted share, compared to net income of $33.2 million, or $0.62 per diluted share in the second quarter of 2015, and $29.1 million, or $0.55 per diluted share in the third quarter of 2014.

Non-GAAP net earnings, which exclude special charges and credits, were $31.5 million, or $0.59 per diluted share, compared to $33.1 million, or $0.62 per diluted share in the second quarter of 2015, and $22.8 million, or $0.43 per diluted share in the third quarter of 2014.

In the third quarter, the board of directors authorized a quarterly cash dividend of $0.17 per share, and paid a dividend of $9.1 million on September 11th.  In addition, during the quarter, the Company repurchased 129 thousand shares for $4.5 million for an average price of $35.21 per share.

Gerald Colella, Chief Executive Officer and President, said, “The third quarter came in largely as expected, with a modest decline in our semiconductor business off of a record second quarter, continued revenue growth in our other advanced markets, and operating performance aligned with the improved financial model targets announced in June. I am pleased to report that semiconductor revenue was up 11% for the first three quarters of 2015, however, recent capex reductions by some of the largest spenders in the semiconductor industry are affecting the near-term environment for our semiconductor business, as semiconductor OEMs adjust their inventory levels ahead of a downtick in industry spending. These swings in our semiconductor business are not new to us, and we anticipate that we will continue to deliver financial performance in line with our improved operating model targets.

“Based on these factors, and looking at current business levels, we anticipate that sales in the fourth quarter may range from $150 million to $170 million, and at these volumes, our non-GAAP net earnings could range from $0.21 to $0.33 per share and our GAAP net income could range from $0.18 to $0.30 per share.”

Conference Call Details
A conference call with management will be held on Thursday, October 22, 2015 at 8:30 a.m. (EDT).  To participate in the conference call, please dial (877) 212-6076 for domestic callers and (707) 287-9331 for international callers, and an operator will connect you.  Participants will need to provide the operator with the Conference ID of 39578407, which has been reserved for this call. A live and archived webcast of the call will be available on the company’s website at www.mksinst.com.

Use of Non-GAAP Financial Results
Non-GAAP amounts exclude amortization of acquired intangible assets, costs associated with completed acquisitions, income related to the sale of excess and obsolete inventory previously written down to net realizable value, an inventory step-up adjustment related to an acquisition, restructuring charges, discrete 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). 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.

About MKS Instruments
MKS Instruments, Inc. is a global provider of instruments, subsystems and process control solutions that measure, control, power, monitor and analyze critical parameters of advanced manufacturing processes to improve process performance and productivity. Our products are derived from our core competencies in pressure measurement and control, materials delivery, gas composition analysis, control and information technology, power and reactive gas generation, and vacuum technology. Our primary served markets are manufacturers of capital equipment for semiconductor devices, and for other thin film applications including flat panel displays, solar cells, light emitting diodes, data storage media, and other advanced coatings. We also leverage our technology in other markets with advanced manufacturing applications including medical equipment, pharmaceutical manufacturing, energy generation and environmental monitoring.

Forward-Looking Statements

This release contains projections or other forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27 of the Securities Act, and Section 21E of the Securities Exchange Act regarding MKS’ future growth and the future financial performance of MKS. These projections or statements are only predictions. Actual events or results may differ materially from those in the projections or other forward-looking statements set forth herein. Among the important factors that could cause actual events to differ materially from those in the projections or other forward-looking statements are the fluctuations in capital spending in the semiconductor industry, and other advanced manufacturing markets, fluctuations in net sales to MKS’ major customers, potential fluctuations in quarterly results, the challenges, risks and costs involved with integrating the operations of MKS and any 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 future growth subject to risks. Readers are referred to MKS’ filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for a discussion of these and other important risk factors concerning MKS and its operations. 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.

                           
MKS Instruments, Inc.      
Unaudited Consolidated Statements of Operations      
(In thousands, except per share data)      
                           
                           
                Three Months Ended   
                September 30,   September 30,   June 30,  
                  2015       2014       2015    
                           
Net revenues:                          
Products               $ 179,441     $ 158,520     $ 188,281    
Services                 29,891       28,278       29,685    
Total net revenues               209,332       186,798       217,966    
Cost of revenues:                        
Products                 95,710       89,181       99,849    
Services                 19,393       18,292       19,319    
Total cost of revenues               115,103       107,473       119,168    
                           
Gross profit                 94,229       79,325       98,798    
                           
Research and development               17,217       15,827       17,567    
Selling, general and administrative             33,396       32,365       33,269    
Restructuring                 562       1,223       219    
Amortization of intangible assets             1,691       1,760       1,709    
Income from operations               41,363       28,150       46,034    
                           
Interest income, net               721       394       790    
                           
Income from operations before income taxes           42,084       28,544       46,824    
Provision (benefit) for income taxes             12,315       (573 )     13,604    
Net income               $ 29,769     $ 29,117     $ 33,220    
                           
Net income per share:                        
Basic               $ 0.56     $ 0.55     $ 0.62    
Diluted               $ 0.56     $ 0.55     $ 0.62    
                           
Cash dividends per common share           $ 0.170     $ 0.165     $ 0.170    
                           
Weighted average shares outstanding:                    
Basic                 53,314       53,054       53,384    
Diluted                 53,568       53,310       53,589    
                           
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:                  
                           
Net income       $ 29,769     $ 29,117     $ 33,220    
               
Adjustments (net of tax, if applicable):              
Release of tax reserves (Note 1)           (6,109 )        
Tax benefit (Note 2)           (3,343 )        
Sale of previously written down inventory (Note 3)                 (2,098 )  
Acquisition inventory step-up (Note 4)           1,634          
Restructuring (Note 5)     562       1,223       219    
Amortization of intangible assets     1,691       1,760       1,709    
Pro forma tax adjustments     (543 )     (1,500 )     74    
               
Non-GAAP net earnings (Note 6)   $ 31,479     $ 22,782     $ 33,124    
               
Non-GAAP net earnings per share (Note 6)   $   0.59     $   0.43     $   0.62    
               
Weighted average shares outstanding       53,568         53,310         53,589    
               
Income from operations   $ 41,363     $ 28,150     $ 46,034    
               
Adjustments:              
Sale of previously written down inventory (Note 3)                 (2,098 )  
Acquisition inventory step-up (Note 4)           1,634          
Restructuring (Note 5)     562       1,223       219    
Amortization of intangible assets     1,691       1,760       1,709    
               
Non-GAAP income from operations (Note 7)   $ 43,616     $ 32,767     $ 45,864    
               
Non-GAAP operating margin percentage (Note 7)     20.8 %     17.5 %     21.0 %  
             
Gross profit   $ 94,229     $ 79,325     $ 98,798    
Sale of previously written down inventory (Note 3)                 (2,098 )  
Acquisition inventory step-up (Note 4)           1,634          
             
Non-GAAP gross profit (Note 8)   $ 94,229     $ 80,959     $ 96,700    
             
Non-GAAP gross profit percentage (Note 8)     45.0 %     43.3 %     44.4 %  
             
             
Note 1: For the three months ended September 30, 2014, we recorded $6.1 million in credits for reserve releases related to the settlement of audits and expiration of the statute of limitations.   
                           
Note 2:  For the three months ended September 30, 2014, we recorded a tax benefit of $3.3 million related to a one time foreign dividend to the U.S.   
                           
Note 3: Cost of sales for the three months ended June 30, 2015 includes income related to the sale of excess and obsolete inventory previously written down to net realizable value.  
                           
Note 4: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014.   
                           
Note 5: The three months ended September 30, 2015 and June 30, 2015, includes restructuring charges related to the outsourcing of an international manufacturing operation and the consolidation of certain other foreign manufacturing locations. The three months ended September 30, 2014 includes restructuring charges primarily for severance costs related to a reduction in work force at one of our foreign subsidiaries.   
                           
Note 6: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude discrete tax benefits, income related to the sale of excess and obsolete inventory previously written down to net realizable value, an inventory step-up adjustment related to an acquisition, restructuring costs, amortization of intangible assets and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related quarter.  
                           
Note 7: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude income related to the sale of excess and obsolete inventory previously written down to net realizable value, an inventory step-up adjustment related to an acquisition, restructuring costs and amortization of intangible assets.  
                           
Note 8: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude income related to the sale of excess and obsolete inventory previously written down to net realizable value and an inventory step-up adjustment related to an acquisition.  

 

MKS Instruments, Inc.  
Unaudited Consolidated Statements of Operations  
(In thousands, except per share data)  
                       
                       
                   
                Nine Months Ended  
                September 30,  
                  2015       2014    
                       
Net revenues:                      
Products               $ 553,818     $ 497,172    
Services                 87,319       80,676    
Total net revenues               641,137       577,848    
Cost of revenues:                    
Products                 294,211       276,905    
Services                 56,853       52,611    
Total cost of revenues               351,064       329,516    
                       
Gross profit                 290,073       248,332    
                       
Research and development               51,464       46,866    
Selling, general and administrative             97,532       99,195    
Acquisition costs               30       499    
Restructuring                 1,569       1,970    
Amortization of intangible assets             5,071       3,214    
Income from operations               134,407       96,588    
                       
Interest income, net               2,015       860    
                       
Income from operations before income taxes           136,422       97,448    
Provision for income taxes                39,647       15,862    
Net income               $ 96,775     $ 81,586    
                       
Net income per share:                    
Basic               $ 1.82     $ 1.53    
Diluted               $ 1.81     $ 1.52    
                       
Cash dividends per common share           $ 0.505     $ 0.49    
                       
Weighted average shares outstanding:                 
Basic                 53,304       53,276    
Diluted                 53,562       53,541    
                       
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:          
                       
Net income               $ 96,775     $ 81,586    
                       
Adjustments (net of tax, if applicable):                  
Release of tax reserves (Note 1)                   (11,188 )  
Tax benefit (Note 2)                     (3,343 )  
Sale of previously written down inventory (Note 3)         (2,098 )        
Acquisition costs (Note 4)               30       499    
Acquisition inventory step-up (Note 5)                 2,179    
Restructuring (Note 6)               1,569       1,970    
Amortization of intangible assets             5,071       3,214    
Pro forma tax adjustments             (1,241 )     (2,569 )  
                       
Non-GAAP net earnings (Note 7)           $ 100,106     $ 72,348    
                       
Non-GAAP net earnings per share (Note 7)         $ 1.87     $ 1.35    
                       
Weighted average shares outstanding             53,562       53,541    
                       
                       
Income from operations             $ 134,407     $ 96,588    
                       
Adjustments:                      
Sale of previously written down inventory (Note 3)         (2,098 )        
Acquisition costs (Note 4)               30       499    
Acquisition inventory step-up (Note 5)                 2,179    
Restructuring (Note 6)               1,569       1,970    
Amortization of intangible assets             5,071       3,214    
                       
Non-GAAP income from operations (Note 8)         $ 138,979     $ 104,450    
                       
Non-GAAP operating margin percentage (Note 8)           21.7 %     18.1 %  
                       
Gross profit   $ 290,073     $ 248,332    
Sale of previously written down inventory (Note 3)     (2,098 )        
Acquisition inventory step-up (Note 5)           2,179    
         
Non-GAAP gross profit (Note 9)   $   287,975     $   250,511    
         
Non-GAAP gross profit percentage (Note 9)     44.9 %     43.4 %  
                       
Note 1: For the nine months ended September 30, 2014, we recorded $11.2 million in credits for reserve releases related to the settlement of audits and expiration of the statute of limitations.   
 
                       
Note 2: For the nine months ended September 30, 2014, we recorded a tax benefit of $3.3 million related to a one time foreign dividend to the U.S.   
 
                       
Note 3: Cost of sales for the nine months ended September 30, 2015 includes income related to the sale of excess and obsolete inventory previously written down to net realizable value.  
 
                       
Note 4: The nine months ended September 30, 2015 includes acquisition costs related to the Precisive LLC acquisition which closed during the first quarter of 2015.  The nine months ended September 30, 2014 includes acquisition costs comprised of legal fees and filing fees related to the Granville-Phillips acquisition which closed during the second quarter of 2014.   
 
                       
Note 5: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014.   
                       
Note 6:  The nine months ended September 30, 2015 includes restructuring charges related to the outsourcing of an international manufacturing operation and the consolidation of certain other foreign manufacturing locations. The nine months ended September 30, 2014 includes restructuring charges primarily for severance related costs related to a reduction in work force at one of our foreign subsidiaries.  
 
 
                       
Note 7: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude discrete tax benefits, income related to the sale of excess and obsolete inventory previously written down to net realizable value, an inventory step-up adjustment related to an acquisition, restructuring costs, amortization of intangible assets and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related quarter.  
 
 
 
                       
Note 8: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude income related to the sale of excess and obsolete inventory previously written down to net realizable value, an inventory step-up adjustment related to an acquisition, restructuring costs and amortization of intangible assets.  
 
 
     
Note 9: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude income related to the sale of excess and obsolete inventory previously written down to net realizable value and an inventory step-up adjustment related to an acquisition.  
 
 

 

                         
MKS Instruments, Inc.  
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate  
(In thousands)  
                       
    Three Months Ended September 30, 2015   Three Months Ended September 30, 2014
  Income Before   Provision (benefit)   Effective   Income Before   Provision (benefit)   Effective
  Income Taxes   for Income Taxes   Tax Rate   Income Taxes   for Income Taxes   Tax Rate
         
GAAP   $ 42,084     $ 12,315       29.3 %   $ 28,544     $ (573 )     -2.0 %
         
Adjustments:          
Release of tax reserves (Note 1)                       6,109    
Tax benefit (Note 2)                       3,343    
Restructuring (Note 3)     562             1,223          
Acquisition inventory step-up (Note 4)                 1,634          
Amortization of intangible assets     1,691             1,760          
Tax effect of pro forma adjustments           755             1,680    
Adjustment to pro forma tax rate           (212 )           (180 )  
                 
Non-GAAP   $ 44,337     $ 12,858       29.0 %   $ 33,161     $ 10,379       31.3 %
         
         
    Three Months Ended June 30, 2015  
  Income Before   Provision (benefit)   Effective  
  Income Taxes   for Income Taxes   Tax Rate  
     
GAAP   $ 46,824     $ 13,604       29.1 %  
     
Adjustments:      
Restructuring (Note 3)     219          
Amortization of intangible assets     1,709          
Sale of previously written down inventory (Note 5)     (2,098 )        
Tax effect of pro forma adjustments           311    
Adjustment to pro forma tax rate           (385 )  
         
Non-GAAP   $ 46,654     $ 13,530       29.0 %            
                         
                         
    Nine Months Ended September 30, 2015   Nine Months Ended September 30, 2014
  Income Before   Provision (benefit)   Effective   Income Before   Provision (benefit)   Effective
  Income Taxes   for Income Taxes   Tax Rate   Income Taxes   for Income Taxes   Tax Rate
         
GAAP   $ 136,422     $ 39,647       29.1 %   $ 97,448     $ 15,862       16.3 %
         
Adjustments:          
Release of tax reserves (Note 1)                       11,188    
Tax benefit (Note 2)                       3,343    
Restructuring (Note 3)     1,569             1,970          
Acquisition inventory step-up (Note 4)                 2,179          
Sale of previously written down inventory (Note 5)     (2,098 )                    
Acquisition costs (Note 6)     30             499          
Amortization of intangible assets     5,071             3,214          
Tax effect of pro forma adjustments           1,883             2,790    
Adjustment to pro forma tax rate           (642 )           (221 )  
                 
Non-GAAP   $ 140,994     $ 40,888       29.0 %   $ 105,310     $ 32,962       31.3 %
                         
                         
Note 1: For the three and nine months ended September 30, 2014, we recorded $6.1 million and $11.2 million in credits, respectively, for reserve releases related to the settlement of audits and expiration of the statute of limitations. 
 
Note 2:  For the three and nine months ended September 30, 2014, we recorded a tax benefit of $3.3 million related to a one time foreign dividend to the U.S. 
                         
Note 3:  The three and nine months ended September 30, 2015 includes restructuring charges related to the outsourcing of an international manufacturing operation and the consolidation of certain other foreign manufacturing locations. The nine months ended September 30, 2014 includes restructuring charges primarily for severance related costs related to a reduction in work force at one of our foreign subsidiaries.
     
Note 4: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014.     
                         
Note 5: Cost of sales for the three months ended June 30, 2015 and nine months ended September 30, 2015 includes income related to the sale of excess and obsolete inventory previously written down to net realizable value.
 
Note 6: The nine months ended September 30, 2015 includes acquisition costs related to the Precisive LLC acquisition, which closed during the first quarter of 2015. The nine months ended September 30, 2014 includes acquisition costs comprised of legal fees and filing fees related to the Granville-Phillips acquisition which closed during the second quarter of 2014. 
MKS Instruments, Inc.  
Reconciliation of Q4-15 Guidance – GAAP Net Income to Non-GAAP Net Earnings   
(In thousands, except per share data)    
                         
    Three Months Ended December 31, 2015  
    Low Guidance   High Guidance  
    $ Amount   $ Per Share   $ Amount   $ Per Share  
                   
GAAP net income   $   9,800     $   0.18     $   16,300     $   0.30          
                         
Amortization     1,700       0.03       1,700         0.03          
                         
Restructuring     500       0.01       500       0.01          
                         
Tax effect of adjustments (Note 1)     (600 )     (0.01 )     (600 )       (0.01 )        
                         
Non-GAAP net earnings   $   11,400     $   0.21     $   17,900     $   0.33          
                         
Q4 -15 forecasted shares         53,500           53,500          
                         
Note 1: The Non-GAAP adjustments are tax effected at the estimated Q4-15 tax rate of 29%.  

 

MKS Instruments, Inc.  
Unaudited Consolidated Balance Sheet  
(In thousands)  
                 
                 
                 
                 
          September 30,   December 31,  
            2015       2014    
                 
ASSETS                
                 
Cash and cash equivalents     $   195,147     $   305,437    
Short-term investments         196,842         129,594    
Trade accounts receivable, net         115,988         106,362    
Inventories           168,079         155,169    
Deferred income taxes         14,412         14,017    
Other current assets           28,894         27,512    
                 
  Total current assets         719,362         738,091    
                 
Property, plant and equipment, net       69,193         72,776    
Long-term investments         240,908         157,201    
Goodwill             199,562         192,381    
Intangible assets, net         45,647         46,389    
Other assets           18,673         17,206    
                 
Total assets       $   1,293,345     $   1,224,044    
                 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY        
                 
Accounts payable       $   26,326     $   34,166    
Accrued compensation         29,172         26,970    
Income taxes payable         9,279         6,702    
Other current liabilities         42,835         35,789    
  Total current liabilities       107,612         103,627    
                 
Other liabilities           39,061         38,595    
                 
Stockholders’ equity:              
Common stock           113         113    
Additional paid-in capital         741,423         734,732    
Retained earnings           413,419         349,061    
Other stockholders’ equity         (8,283 )       (2,084 )  
  Total stockholders’ equity       1,146,672         1,081,822    
                 
Total liabilities and stockholders’ equity   $   1,293,345     $   1,224,044    
                   
CONTACT: Company Contact: Seth H. Bagshaw
Vice President, Chief Financial Officer and Treasurer
Telephone: 978.645.5578

Investor Relations Contact: Claire McAdams
Headgate Partners LLC
Telephone: 530.265.9899
Email: claire@headgatepartners.com

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