MKS Instruments Reports Fourth Quarter and Full Year 2013 Financial Results

Q4 Revenue up 23% Sequentially and up 53% From Q4 2012

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| Source: MKS Instruments, Inc.

ANDOVER, Mass., Jan. 29, 2014 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (Nasdaq:MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reports fourth quarter and full year 2013 financial results.

Fourth Quarter Financial Results

Sales were $204 million, an increase of 23% from $166 million in the third quarter of 2013, and an increase of 53% from $134 million in the fourth quarter of 2012.

Fourth quarter net income was $20.2 million, or $0.38 per diluted share, compared to net income of $2.5 million, or $0.05 per diluted share in the third quarter of 2013, and $4.1 million, or $0.08 per diluted share in the fourth quarter of 2012.

Non-GAAP net earnings, which exclude special charges, were $22.3 million, or $0.42 per diluted share, compared to $13.3 million, or $0.25 per diluted share in the third quarter of 2013, and $5.1 million, or $0.10 per diluted share in the fourth quarter of 2012.

Fourth Quarter Financial Results
     
  GAAP Results Non-GAAP Results
Net revenues ($ millions) $204 $204
Operating margin 15.1% 16.7%
Net income ($ millions) $20.2 $22.3
Diluted EPS $0.38 $0.42

Full Year Results

Sales were $669 million, an increase of 4% from $644 million in 2012. Net income was $35.8 million, or $0.67 per diluted share, compared to $48.0 million, or $0.90 per diluted share in 2012. Non-GAAP net earnings were $48.4 million, or $0.90 per diluted share, compared to $53.3 million, or $1.00 per diluted share in 2012. We ended the year with a strong balance sheet with $650 million in cash and investments, or approximately $12 per share. Total book value, net of goodwill and intangibles, was $857 million or approximately $16 per share.

Gerald Colella, Chief Executive Officer and President, said, "I'm very pleased with our strong financial and operational performance in 2013 and, in particular, with our strong finish to the year. The year culminated with December being the strongest month of the year, due in part to a significant first-phase semiconductor fab build-out in China. Business levels continue to be very healthy entering 2014. For the new year, we will continue to focus on exceeding customer requirements, leveraging growth in our existing and new markets, and increasing long-term shareholder value.  

"Based on current business levels, we expect that sales in the first quarter of 2014 may range from $190 to $205 million, and at these volumes, our non-GAAP and GAAP net earnings could range from $0.35 to $0.48 per share."

Conference Call Details

A conference call with management will be held on Thursday, January 30, 2014 at 8:30 a.m. (Eastern Time). 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 30134845, 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 net earnings and Non-GAAP net earnings per share amounts exclude amortization of acquired intangible assets, costs associated with completed acquisitions, restructuring charges, certain excess and obsolete inventory charges, litigation settlements and related insurance reimbursements, certain supplemental executive retirement costs, discrete tax benefits and charges and the related tax effect of any 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 (Note 6)
  December 31, December 31, September 30,
  2013 2012 2013
       
Net revenues:      
 Products  $ 179,319  $ 108,788  $ 139,846
 Services  25,075  25,008  26,607
 Total net revenues  204,394  133,796  166,453
Cost of revenues:      
 Products  99,874  66,535  87,809
 Services  16,840  14,660  16,410
 Total cost of revenues  116,714  81,195  104,219
       
Gross profit  87,680  52,601  62,234
       
Research and development  16,252  14,207  15,257
Selling, general and administrative  39,874  30,853  33,158
Restructuring  --   343  1,126
Amortization of intangible assets  602  583  361
Income from operations  30,952  6,615  12,332
       
Interest income, net  204  245  208
       
Income before income taxes  31,156  6,860  12,540
Provision for income taxes   10,919  2,751  10,082
Net income  $ 20,237  $ 4,109  $ 2,458
       
Net income per share:      
 Basic  $ 0.38  $ 0.08  $ 0.05
 Diluted  $ 0.38  $ 0.08  $ 0.05
       
Cash dividends per common share  $ 0.16  $ 0.16  $ 0.16
       
Weighted average shares outstanding:       
 Basic  53,251  52,707  53,165
 Diluted  53,695  53,217  53,513
       
The following supplemental Non-GAAP earnings information is presented       
to aid in understanding MKS' operating results:      
       
Net income  $ 20,237  $ 4,109  $ 2,458
       
Adjustments (net of tax, if applicable):      
 Income tax charge (Note 1)  --   --   6,481
 Credits on U.S. tax expense (Note 2)  --   --   (1,200)
 Executive retirement costs (Note 3)  2,581  --   -- 
 Excess and obsolete charge (Note 4)  --   --   6,423
 Acquisition inventory step-up  --   202  -- 
 Restructuring (Note 5)  --   343  1,126
 Amortization of intangible assets  602  583  361
 Pro forma tax adjustments  (1,100)  (132)  (2,355)
       
Non-GAAP net earnings (Note 6)  $ 22,320  $ 5,105  $ 13,294
       
Non-GAAP net earnings per share (Note 6)  $ 0.42  $ 0.10  $ 0.25
       
Weighted average shares outstanding  53,695  53,217  53,513
       
Income from operations  $ 30,952  $ 6,615  $ 12,332
       
Adjustments:      
 Executive retirement costs (Note 3)  2,581  --   -- 
 Excess and obsolete charge (Note 4)  --   --   6,423
 Acquisition inventory step-up  --   202  -- 
 Restructuring (Note 5)  --   343  1,126
 Amortization of intangible assets  602  583  361
       
Non-GAAP income from operations  $ 34,135  $ 7,743  $ 20,242
       
Non-GAAP operating margin percentage 16.7% 5.8% 12.2%
       
       
Gross profit  $ 87,680  $ 52,601  $ 62,234
 Excess and obsolete charge (Note 4)  --   --   6,423
       
Non-GAAP gross profit  $ 87,680  $ 52,601  $ 68,657
       
Non-GAAP gross profit percentage 42.9% 39.3% 41.2%
       
Note 1: In the third quarter of 2013, we incurred income tax charges of $6.5 million related to an election to pay currently, at a substantially reduced rate, taxes on certain accumulated earnings from the years 2001 to 2011 of one of our foreign subsidiaries.
 
Note 2: In the third quarter of 2013, we received $1.2 million in credits against U.S. tax expense on amended returns related to prior years.
 
Note 3: In the fourth quarter of 2013, the Company's Chief Executive Officer retired and $2.6 million of costs related to his supplemental executive retirement plan and other benefits were recognized and recorded in selling, general and administrative expenses for the three and twelve month periods ended December 31, 2013. 
 
Note 4: Cost of sales for the three month period ended September 30, 2013, include $6.4 million of special charges for obsolete inventory related to unique product in a solar application in which slowing market conditions provide uncertainty as to the net realizable value of this inventory.
 
Note 5: The three month periods ended September 30, 2013 and December 31, 2012 include restructuring charges primarily for severance related costs related to the consolidation of certain facilities. 
 
Note 6: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, restructurings, costs associated with completed acquisitions, certain supplemental executive retirement costs, a benefit related to an insurance reimbursement, excess and obsolete charge related to unique product in a solar application and the related tax effect of these adjustments and pro-forma income tax adjustments to reflect the expected full year effective tax rate in the quarter.
             
             
MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)
             
  Three Months Ended December 31, 2013  Three Months Ended September 30, 2013 
  Income Before Provision for Effective  Income Before Provision for Effective 
  Income Taxes Income Taxes Tax Rate Income Taxes Income Taxes Tax Rate
             
GAAP  $ 31,156  $ 10,919 35.0%  $ 12,540  $ 10,082 80.4%
             
Adjustments:            
 Income tax charge (Note 1)  --   --     --   (6,481)  
 Credits on U.S. tax expense (Note 2)  --   --     --   1,200  
 Executive retirement costs (Note 4)   2,581  --     --   --   
 Excess and obsolete charge (Note 6)  --   --     6,423  --   
 Restructuring (Note 8)  --   --     1,126  --   
 Amortization of intangible assets  602  --     361  --   
 Tax effect of pro forma adjustments  --   1,124    --   767  
 Adjustment to pro forma tax rate  --   (24)    --   1,588  
             
Non-GAAP  $ 34,339  $ 12,019 35.0%  $ 20,450  $ 7,156 35.0%
             
             
  Three Months Ended December 31, 2012       
  Income Before Provision for Effective       
  Income Taxes Income Taxes Tax Rate      
             
GAAP  $ 6,860  $ 2,751 40.1%      
             
Adjustments:            
 Acquisition inventory step-up  202  --         
 Restructuring (Note 8)  343  --         
 Amortization of intangible assets  583  --         
 Tax effect of pro forma adjustments  --  338        
 Adjustment to pro forma tax rate  --  (206)        
             
Non-GAAP  $ 7,988  $ 2,883 36.1%      
             
             
  Twelve Months Ended December 31, 2013 Twelve Months Ended December 31, 2012 
  Income Before Provision for Effective  Income Before Provision for Effective 
  Income Taxes Income Taxes Tax Rate Income Taxes Income Taxes Tax Rate
             
GAAP  $ 59,301  $ 23,525 39.7%  $ 75,136  $ 27,107 36.1%
             
Adjustments:            
 Income tax charge (Note 1)  --   (6,481)    --   --   
 Credits on U.S. tax expense (Note 2)  --   1,200    --   --   
 Tax benefit (Note 3)  --   2,353    --   --   
 Executive retirement costs (Note 4)  2,581  --     --   --   
 Insurance reimbursement (Note 5) (1,071)  --     --   --   
 Litigation (Note 5)  --   --     5,316  --   
 Excess and obsolete charge (Note 6) 6,423  --     --   --   
 Completed acquisition costs (Note 7) 171  --     1,258  --   
 Acquisition inventory step-up  --   --     303  --   
 Restructuring (Note 8) 1,364  --     343  --   
 Amortization of intangible assets 2,139  --     1,036  --   
 Tax effect of pro forma adjustments  --  1,923    --   2,948  
             
Non-GAAP  $ 70,908  $ 22,520 31.8%  $ 83,392  $ 30,055 36.0%
             
Note 1: In the third quarter of 2013, we incurred income tax charges of $6.5 million related to an election to pay currently, at a substantially reduced rate, taxes on certain accumulated earnings from the years 2001 to 2011 of one of our foreign subsidiaries.
 
Note 2: In the third quarter of 2013, we received $1.2 million in credits against U.S. tax expense on amended returns related to prior years.
 
Note 3: Tax benefit related to the enactment of the American Taxpayer Relief Act of 2012 on January 2, 2013.
 
Note 4: In the fourth quarter of 2013, the Company's Chief Executive Officer retired and $2.6 million of costs related to his supplemental executive retirement plan and other benefits were recognized and recorded in selling, general and administrative expenses for the three and twelve month periods ended December 31, 2013. 
 
Note 5: In the third quarter of 2012, we incurred $5.3 million in charges to settle litigation with former shareholders of one of our former subsidiaries. This litigation was long standing and the decision to reach a settlement was made to eliminate future legal expenses related to the suit. In the second quarter of 2013, we recovered $1.1 million from our insurance company relating to the prior year settlement.
 
Note 6: Cost of sales for the three month period ended September 30, 2013, include $6.4 million of special charges for obsolete inventory related to unique product in a solar application in which slowing market conditions provide uncertainty as to the net realizable value of this inventory.
 
Note 7: Costs related to the Company's acquisition of Alter Power Systems S.r.l., in March 2013, are comprised of legal fees. Costs related to the Company's acquisition of Plasmart, Inc. in August 2012, are comprised of investment banking fees, legal fees and due diligence fees.
 
Note 8: The three months ended September 30, 2013 and December 31, 2012 and the twelve month periods ended December 31, 2013 and 2012 include restructuring charges primarily for severance related costs related to the consolidation of certain facilities. 
     
 
MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
     
  Twelve Months Ended 
  December 31, (Note 9)
  2013 2012
     
Net revenues:    
 Products  $ 568,317  $ 536,774
 Services  101,103  106,734
 Total net revenues  669,420  643,508
Cost of revenues:    
 Products  337,464  310,485
 Services  65,382  63,544
 Total cost of revenues  402,846  374,029
     
Gross profit  266,574  269,479
     
Research and development  63,570  60,118
Selling, general and administrative  142,014  127,185
Insurance reimbursement  (1,071)  -- 
Litigation  --   5,316
Completed acquisition costs  171  1,258
Restructuring  1,364  343
Amortization of intangible assets  2,139  1,036
Income from operations  58,387  74,223
     
Interest income, net  914  913
     
Income before income taxes  59,301  75,136
Provision for income taxes   23,525  27,107
Net income  $ 35,776  $ 48,029
     
Net income per share:    
 Basic  $ 0.67  $ 0.91
 Diluted  $ 0.67  $ 0.90
     
Cash dividends per common share  $ 0.64  $ 0.62
     
Weighted average shares outstanding:     
 Basic  53,061  52,686
 Diluted  53,481  53,234
     
The following supplemental Non-GAAP earnings information is presented     
to aid in understanding MKS' operating results:    
     
Net income  $ 35,776  $ 48,029
     
Adjustments (net of tax, if applicable):    
 Income tax charge (Note 1)  6,481  -- 
 Credits on U.S. tax expense (Note 2)  (1,200)  -- 
 Tax benefit (Note 3)  (2,353)  -- 
 Executive retirement costs (Note 4)  2,581  
 Insurance reimbursement (Note 5)  (1,071)  -- 
 Litigation (Note 5)  --   5,316
 Excess and obsolete charge (Note 6)  6,423  -- 
 Acquisition inventory step-up  --   303
 Completed acquisition costs (Note 7)  171  1,258
 Restructuring (Note 8)  1,364  343
 Amortization of intangible assets  2,139  1,036
 Pro forma tax adjustments  (1,923)  (2,948)
     
Non-GAAP net earnings (Note 9)  $ 48,388  $ 53,337
     
Non-GAAP net earnings per share (Note 9)  $ 0.90  $ 1.00
     
Weighted average shares outstanding  53,481  53,234
     
     
Income from operations  $ 58,387  $ 74,223
     
Adjustments:    
 Executive retirement costs (Note 4)  2,581  -- 
 Insurance reimbursement (Note 5)  (1,071)  -- 
 Litigation (Note 5)  --   5,316
 Excess and obsolete charge (Note 6)  6,423  -- 
 Acquisition inventory step-up  --   303
 Completed acquisition costs (Note 7)  171  1,258
 Restructuring (Note 8)  1,364  343
 Amortization of intangible assets  2,139  1,036
     
Non-GAAP income from operations  $ 69,994  $ 82,479
     
Non-GAAP operating margin percentage 10.5% 12.8%
     
     
Gross profit  $ 266,574  $ 269,479
 Excess and obsolete charge (Note 6)  6,423  -- 
     
Non-GAAP gross profit  $ 272,997  $ 269,479
     
Non-GAAP gross profit percentage 40.8% 41.9%
     
Note 1: In the third quarter of 2013, we incurred income tax charges of $6.5 million related to an election to pay currently, at a substantially reduced rate, taxes on certain accumulated earnings from the years 2001 to 2011 of one of our foreign subsidiaries.
 
Note 2: In the third quarter of 2013, we received $1.2 million in credits against U.S. tax expense on amended returns related to prior years.
 
Note 3: Tax benefit related to the enactment of the American Taxpayer Relief Act of 2012 on January 2, 2013.
 
Note 4: In the fourth quarter of 2013, the Company's Chief Executive Officer retired and $2.6 million of costs related to his supplemental executive retirement plan and other benefits were recognized and recorded in selling, general and administrative expenses for the three and twelve month periods ended December 31, 2013. 
 
Note 5: In the third quarter of 2012, we incurred $5.3 million in charges to settle litigation with former shareholders of one of our former subsidiaries. This litigation was long standing and the decision to reach a settlement was made to eliminate future legal expenses related to the suit. In the second quarter of 2013, we recovered $1.1 million from our insurance company relating to the prior year settlement.
 
Note 6: Cost of sales for the three month period ended September 30, 2013, include $6.4 million of special charges for obsolete inventory related to unique product in a solar application in which slowing market conditions provide uncertainty as to the net realizable value of this inventory.
 
Note 7: Costs related to the Company's acquisition of Alter Power Systems S.r.l., in March 2013, are comprised of legal fees. Costs related to the Company's acquisition of Plasmart, Inc. in August 2012, are comprised of investment banking fees, legal fees and due diligence fees.
 
Note 8: The twelve month periods ended December 31, 2013 and December 31, 2012 include restructuring charges primarily for severance related costs related to the consolidation of certain facilities. 
 
Note 9: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, restructurings, costs associated with completed acquisitions, a litigation settlement, a benefit related to an insurance reimbursement, excess and obsolete charge related to unique product in a solar application, certain supplemental executive retirement costs and the related tax effect of these adjustments and pro-forma income tax adjustments to reflect the expected full year effective tax rate in the quarter.
     
 
MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)
     
  December 31, December 31,
  2013 2012
     
ASSETS    
     
Cash and cash equivalents  $ 278,502  $ 287,588
Short-term investments  311,115  327,653
Trade accounts receivable, net  116,744  82,060
Inventories  142,727  134,639
Deferred income taxes  10,629  8,194
Other current assets  16,715  28,048
Total current assets  876,432  868,182
     
Property, plant and equipment, net  77,536  80,516
Long-term investments  60,405  12,158
Goodwill  150,909  150,733
Intangible assets, net  13,090  11,561
Other assets  34,646  29,412
     
Total assets  $ 1,213,018  $ 1,152,562
     
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
     
Accounts payable  $ 40,074  $ 16,803
Accrued compensation  43,662  20,955
Income taxes payable  10,444  4,148
Other current liabilities  34,242  37,405
Total current liabilities  128,422  79,311
     
Other liabilities  63,073  61,095
     
Stockholders' equity:    
Common stock  113  113
Additional paid-in capital  730,571  718,005
Retained earnings  278,966  278,583
Other stockholders' equity  11,873  15,455
Total stockholders' equity  1,021,523  1,012,156
     
Total liabilities and stockholders' equity  $ 1,213,018  $ 1,152,562
     
Seth H. Bagshaw
Vice President, Chief Financial Officer & Treasurer
Telephone: 978.645.5578