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 ResultsNon-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  
          

            

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