MKS Instruments Reports Q2 2014 Financial Results

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| Source: MKS Instruments, Inc.

ANDOVER, Mass., July 23, 2014 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (Nasdaq:MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reports second quarter 2014 financial results.

  GAAP Results Non-GAAP Results
Net revenues ($ millions) $185 $185
Gross Margin 43.1% 43.4%
Operating margin 16.6% 17.6%
Net income ($ millions) $21.2 $22.6
Diluted EPS $0.40 $0.42

Second Quarter Financial Results

Sales were $185 million, a decrease of 10% from $206 million in the first quarter of 2014, and an increase of 18% from $157 million in the second quarter of 2013.

Second quarter net income was $21.2 million, or $0.40 per diluted share, compared to net income of $31.2 million, or $0.58 per diluted share in the first quarter of 2014, and $7.3 million, or $0.14 per diluted share in the second quarter of 2013.

Non-GAAP net earnings, which exclude special charges and benefits, were $22.6 million, or $0.42 per diluted share, compared to $27.2 million, or $0.51 per diluted share in the first quarter of 2014, and $7.3 million, or $0.14 per diluted share in the second quarter of 2013.

In the second quarter, the Company deployed $20.0 million of cash on hand to repurchase approximately 0.7 million shares of its stock. The board of directors also authorized an increase to the quarterly cash dividend, from $0.16 per share to $0.165 per share, and paid a dividend of $8.8 million on June 13. The Company also closed its previously announced $87 million acquisition of Granville-Phillips on May 30.  

Gerald Colella, Chief Executive Officer and President, said, "I am extremely pleased with our financial performance in the second quarter, with sales above guidance primarily due to better than anticipated demand in the semiconductor market, as well as continued growth into other advanced markets, which grew for the third consecutive quarter. We have favorable exposure to today's technology inflection points, especially those weighted to etch and deposition process steps, and we believe we will gain an increasing share of the incremental capital required to support these technology changes. We also have strong, high-level programs and relationships to support semiconductor device makers globally. As a result, we believe we are well positioned to benefit both from shifts as well as increases in capital equipment spending.

"Looking ahead, reports from the recent semiconductor industry tradeshow continue to project that third quarter OEM shipments may be down from the second quarter. In our other markets, the global economy continues to improve and we continue to search out and leverage growth opportunities in a strategic manner. Based on these factors, and looking at current business levels, we anticipate that sales in the third quarter may range from $170 million to $190 million, and at these volumes, our non-GAAP net earnings could range from $0.28 to $0.42 per share."

Conference Call Details

A conference call with management will be held on Thursday, July 24, 2014 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 56229335, 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, an inventory step-up adjustment related to an acquisition, restructuring charges, a benefit related to an insurance reimbursement, 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 
  June 30, June 30, March 31,
  2014 2013 2014
       
Net revenues:      
Products  $ 157,466  $ 132,541  $ 181,186
Services  27,231  24,387  25,167
Total net revenues  184,697  156,928  206,353
Cost of revenues:      
Products  87,513  79,206  100,211
Services  17,549  15,764  16,770
Total cost of revenues  105,062  94,970  116,981
       
Gross profit  79,635  61,958  89,372
       
Research and development  15,421  16,813  15,618
Selling, general and administrative  32,239  34,849  34,591
Insurance reimbursement  --   (1,071)  -- 
Acquisition costs  271  --   228
Restructuring  --   198  747
Amortization of intangible assets  1,044  742  410
Income from operations  30,660  10,427  37,778
       
Interest income, net  231  211  235
       
Income from operations before income taxes  30,891  10,638  38,013
Provision for income taxes  9,667  3,318  6,768
Net income  $ 21,224  $ 7,320  $ 31,245
       
Net income per share:      
Basic  $ 0.40  $ 0.14  $ 0.58
Diluted  $ 0.40  $ 0.14  $ 0.58
       
Cash dividends per common share  $ 0.165  $ 0.16  $ 0.16
       
Weighted average shares outstanding:      
Basic  53,361  53,054  53,411
Diluted  53,537  53,358  53,776
       
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:      
       
Net income  $ 21,224  $ 7,320  $ 31,245
       
Adjustments (net of tax, if applicable):      
Tax benefit (Note 1)  --   --   (5,079)
Acquisition costs (Note 2)  271  --   228
Acquisition inventory step-up (Note 3)  545  --   -- 
Insurance reimbursement (Note 4)  --   (1,071)  -- 
Restructuring (Note 5)  --   198  747
Amortization of intangible assets  1,044  742  410
Pro forma tax adjustments  (486)  61  (366)
       
Non-GAAP net earnings (Note 6)  $ 22,598  $ 7,250  $ 27,185
       
Non-GAAP net earnings per share (Note 6)  $ 0.42  $ 0.14  $ 0.51
       
Weighted average shares outstanding  53,537  53,358  53,776
       
Income from operations  $ 30,660  $ 10,427  $ 37,778
       
Adjustments:      
Acquisition costs (Note 2)  271  --   228
Acquisition inventory step-up (Note 3)  545  --   -- 
Insurance reimbursement (Note 4)  --   (1,071)  -- 
Restructuring (Note 5)  --   198  747
Amortization of intangible assets  1,044  742  410
       
Non-GAAP income from operations (Note 7)  $ 32,520  $ 10,296  $ 39,163
       
Non-GAAP operating margin percentage (Note 7) 17.6% 6.6% 19.0%
       
Gross profit  $ 79,635  $ 61,958  $ 89,372
Acquisition inventory step-up (Note 3)  545  --   -- 
       
Non-GAAP gross profit (Note 8)  $ 80,180  $ 61,958  $ 89,372
       
Non-GAAP gross profit percentage (Note 8) 43.4% 39.5% 43.3%
       
       
Note 1: The three months ended March 31, 2014 includes a tax benefit related to settlement of an audit and other discrete tax items.
 
Note 2: The three months ended June 30, 2014 and March 31, 2014 includes acquisition costs comprised mainly of legal fees related to the Granville-Phillips acquisition which closed during the second quarter of 2014.
       
Note 3: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014.
       
Note 4: 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 legal settlement.
       
Note 5: The three month period ended March 31, 2014 includes restructuring charges primarily for severance related costs associated with a reduction in work force throughout the Company. The three month period ended June 30, 2013 includes restructuring charges primarily for severance related costs related to the consolidation of two sites.
       
Note 6: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, restructuring costs, costs associated with completed acquisitions, an inventory step-up adjustment related to an acquisition, a benefit related to an insurance reimbursement, discrete tax benefits and charges, 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 amortization of intangible assets, restructuring costs, costs associated with completed acquisitions, an inventory step-up adjustment related to an acquisition and a benefit related to an insurance reimbursement.
       
Note 8: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment related to an acquisition.
 
 
 
MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
     
     
  Six Months Ended 
  June 30,
  2014 2013
     
Net revenues:    
Products  $ 338,652  $ 249,152
Services  52,398  49,421
Total net revenues  391,050  298,573
Cost of revenues:    
Products  187,724  149,781
Services  34,319  32,132
Total cost of revenues  222,043  181,913
     
Gross profit  169,007  116,660
     
Research and development  31,039  32,061
Selling, general and administrative  66,830  68,982
Insurance reimbursement  --   (1,071)
Acquisition costs  499  171
Restructuring  747  238
Amortization of intangible assets  1,454  1,176
Income from operations  68,438  15,103
     
Interest income, net  466  502
     
Income from operations before income taxes  68,904  15,605
Provision for income taxes  16,435  2,524
Net income  $ 52,469  $ 13,081
     
Net income per share:    
Basic  $ 0.98  $ 0.25
Diluted  $ 0.98  $ 0.25
     
Cash dividends per common share  $ 0.325  $ 0.32
     
Weighted average shares outstanding:    
Basic  53,386  52,914
Diluted  53,657  53,359
     
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:    
     
Net income  $ 52,469  $ 13,081
     
Adjustments (net of tax, if applicable):    
Tax benefit (Note 1)  (5,079)  (2,353)
Insurance reimbursement (Note 2)  --   (1,071)
Acquisition costs (Note 3)  499  171
Acquisition inventory step-up (Note 4)  545  -- 
Restructuring (Note 5)  747  238
Amortization of intangible assets  1,454  1,176
Pro forma tax adjustments  (852)  (120)
     
Non-GAAP net earnings (Note 6)  $ 49,783  $ 11,122
     
Non-GAAP net earnings per share (Note 6)  $ 0.93  $ 0.21
     
Weighted average shares outstanding  53,657  53,359
     
     
Income from operations  $ 68,438  $ 15,103
     
Adjustments:    
Insurance reimbursement (Note 2)  --   (1,071)
Acquisition costs (Note 3)  499  171
Acquisition inventory step-up (Note 4)  545  -- 
Restructuring (Note 5)  747  238
Amortization of intangible assets  1,454  1,176
     
Non-GAAP income from operations (Note 7)  $ 71,683  $ 15,617
     
Non-GAAP operating margin percentage (Note 7) 18.3% 5.2%
     
Gross profit  $ 169,007  $ 116,660
Acquisition inventory step-up (Note 4)  545  -- 
     
Non-GAAP gross profit (Note 8)  $ 169,552  $ 116,660
     
Non-GAAP gross profit percentage (Note 8) 43.4% 39.1%
     
Note 1: The six months ended June 30, 2014 includes a tax benefit related to the settlement of an audit and other discrete tax items during the first quarter of 2014. The six months ended June 30, 2013 includes a tax benefit related to the enactment of the American Taxpayer Relief Act of 2012 on January 2, 2013.
     
Note 2: 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 legal settlement.
     
Note 3: The six months ended June 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. The six months ended June 30, 2013 includes acquisition costs comprised of legal fees related to the Company's acquisition of Alter S.r.l., in March 2013.
     
Note 4: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014.
     
Note 5: The six month period ended June 30, 2014 includes restructuring charges primarily for severance related costs related to a reduction in work force throughout the Company. The six month period ended June 30, 2013 includes restructuring charges primarily for severance related costs related to the consolidation of two sites.
     
Note 6: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, restructurings, costs associated with acquisitions, an inventory step-up adjustment related to an acquisition, a benefit related to an insurance reimbursement the related tax effect of these adjustments and pro forma income tax adjustments to reflect the expected full year effective tax rate in the related period.
     
Note 7: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude amortization of intangible assets, restructuring costs, costs associated with completed acquisitions, an inventory step-up adjustment related to an acquisition and a benefit related to an insurance reimbursement.
     
Note 8: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude 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 June 30, 2014 Three Months Ended June 30, 2013 
  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  $ 30,891  $ 9,667 31.3%  $ 10,638  $ 3,318 31.2%
             
Adjustments:            
Acquisition costs (Note 3)  271  --     --   --   
Acquisition inventory step-up (Note 4)  545  --     --   --   
Restructuring (Note 5)  --   --     198  --   
Insurance reimbursement (Note 2)  --   --     (1,071)  --   
Amortization of intangible assets  1,044  --     742  --   
Tax effect of pro forma adjustments  --   642    --   (147)  
Adjustment to pro forma tax rate  --   (156)    --   86  
             
Non-GAAP  $ 32,751  $ 10,153 31.0%  $ 10,507  $ 3,257 31.0%
             
             
  Three Months Ended March 31, 2014      
  Income Before Provision (benefit) Effective       
  Income Taxes for Income Taxes Tax Rate      
             
GAAP  $ 38,013  $ 6,768 17.8%      
             
Adjustments:            
Tax benefit (Note 1)  --   5,079        
Acquisition costs (Note 3)  228  --         
Restructuring  747  --         
Amortization of intangible assets  410  --         
Tax effect of pro forma adjustments  --   468        
Adjustment to pro forma tax rate  --   (102)        
             
Non-GAAP  $ 39,398  $ 12,213 31.0%      
             
             
  Six Months Ended June 30, 2014 Six Months Ended June 30, 2013 
  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  $ 68,904  $ 16,435 23.9%  $ 15,605  $ 2,524 16.2%
             
Adjustments:            
Tax benefit (Note 1)  --   5,079    --   2,353  
Insurance reimbursement (Note 2)  --   --     (1,071)  --   
Acquisition costs (Note 3)  499  --     171  --   
Acquisition inventory step-up (Note 4)  545  --     --   --   
Restructuring (Note 5)  747  --     238  --   
Amortization of intangible assets  1,454  --     1,176  --   
Tax effect of pro forma adjustments  --   1,110    --   35  
Adjustment to pro forma tax rate  --   (258)    --   85  
             
Non-GAAP  $ 72,149  $ 22,366 31.0%  $ 16,119  $ 4,997 31.0%
             
             
Note 1: The six months ended June 30, 2014 includes a tax benefit related to the settlement of an audit and other discrete tax items during the first quarter of 2014. The six months ended June 30, 2013 includes a tax benefit related to the enactment of the American Taxpayer Relief Act of 2012 on January 2, 2013.
             
Note 2: 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 legal settlement.
             
Note 3: The three and six months ended June 30, 2014 includes acquisition costs comprised mainly of legal fees related to the Granville-Phillips acquisition which closed during the second quarter of 2014. The six months ended June 30, 2013 includes acquisition costs comprised of legal fees related to the Company's acquisition of Alter S.r.l., in March 2013.
             
Note 4: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014. 
             
Note 5: The six month period ended June 30, 2014 includes restructuring charges primarily for severance related costs associated with a reduction in work force throughout the Company. The six month period ended June 30, 2013 includes restructuring charges primarily for severance related costs related to the consolidation of two sites.
             
             
MKS Instruments, Inc.  
Reconciliation of Q3-14 Guidance - GAAP Net Income to Non-GAAP Net Earnings   
(In thousands, except per share data)  
             
  Three Months Ended September 30, 2014    
  Low Guidance High Guidance    
  $ Amount $ Per Share $ Amount $ Per Share    
             
GAAP net income  $ 12,200  $ 0.23  $ 19,900  $ 0.37    
             
Acquisition inventory step-up (Note 1) 1,800 0.03 1,800 0.03    
             
Amortization 1,800 0.03 1,800 0.03    
             
Tax effect of adjustments (Note 2) (1,100) (0.01) (1,100) (0.01)    
             
Non-GAAP net earnings  $ 14,700  $ 0.28  $ 22,400  $ 0.42    
             
Q3 -14 forecasted shares   53,400   53,400    
             
             
Note1: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014.    
             
Note 2: The Non-GAAP adjustments are tax effected at the estimated Q3-14 tax rate of 31%.    
 
 
MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)
     
     
  June 30, December 31,
  2014 2013
     
ASSETS    
     
Cash and cash equivalents  $ 262,789  $ 288,902
Short-term investments  202,128  300,715
Trade accounts receivable, net  101,487  116,744
Inventories  155,872  142,727
Deferred income taxes  10,618  13,428
Other current assets  28,707  16,715
Assets classified as held for sale  1,427  -- 
     
Total current assets  763,028  879,231
     
Property, plant and equipment, net  75,960  77,536
Long-term investments  80,912  60,405
Goodwill  193,050  150,909
Intangible assets, net  51,012  13,090
Other assets  33,939  31,847
     
Total assets  $ 1,197,901  $ 1,213,018
     
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
     
Accounts payable  $ 26,654  $ 40,074
Accrued compensation  22,443  43,662
Income taxes payable  4,168  10,444
Other current liabilities  39,507  34,242
Total current liabilities  92,772  128,422
     
Other liabilities  61,843  63,073
     
Stockholders' equity:    
Common stock  113  113
Additional paid-in capital  726,831  730,571
Retained earnings  303,277  278,966
Other stockholders' equity  13,065  11,873
Total stockholders' equity  1,043,286  1,021,523
     
Total liabilities and stockholders' equity  $ 1,197,901  $ 1,213,018
Seth H. Bagshaw
Vice President, Chief Financial Officer & Treasurer
Telephone: 978.645.5578