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MKS Instruments Reports Q2 2015 Financial Results

20:00 EDT 21 Jul 2015 | Globe Newswire

ANDOVER, Mass., July 22, 2015 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ:MKSI), a global provider of technologies that enable advanced processes and improve productivity; today reports second quarter 2015 financial results.

 GAAP ResultsNon-GAAP Results
Net revenues ($ millions)$218 $218 
Gross margin 45.3% 44.4%
Operating margin 21.1% 21.0%
Net income ($ millions)$33.2 $33.1 
Diluted EPS$0.62 $0.62 

Second Quarter Financial Results  

Sales were $218 million, an increase of 2% from $214 million in the first quarter of 2015, and an increase of 18% from $185 million in the second quarter of 2014.

Second quarter net income was $33.2 million, or $0.62 per diluted share, compared to net income of $33.8 million, or $0.63 per diluted share in the first quarter of 2015, and $21.2 million, or $0.40 per diluted share in the second quarter of 2014. 

Non-GAAP net earnings, which exclude special charges and credits, were $33.1 million, or $0.62 per diluted share, compared to $35.5 million, or $0.66 per diluted share in the first quarter of 2015, and $22.6 million, or $0.42 per diluted share in the second quarter of 2014.

In the second quarter, the board of directors authorized a 3% increase in the quarterly cash dividend, to $0.17 per share, and paid a dividend of $9.1 million on June 12th. The Company has increased its quarterly cash dividend by 13% since its inception in 2011. In addition, during the quarter, the Company repurchased 116,000 shares for $4.3 million for an average price of $37.55 per share. 

Gerald Colella, Chief Executive Officer and President, said, “The second quarter was another strong quarter financially for MKS. The favorable results were driven by a continued strong environment for our semiconductor business, which achieved another record high of $154 million, while sales to all other markets again grew sequentially for the seventh straight quarter. We also announced another increase in our quarterly cash dividend and repurchased shares as part of our ongoing share buyback program.

“Reports from the recent SEMICON trade show indicate a continued healthy market for semiconductor production equipment to support the technology inflections underway.  Our near-term visibility indicates a continued positive business environment in both our semiconductor and other advanced markets for the third quarter.

"Based on these factors, and looking at current business levels, we anticipate that sales in the third quarter may range from $195 million to $215 million, and at these volumes, our non-GAAP net earnings could range from $0.50 to $0.64 per share and our GAAP net income could range from $0.48 to $0.61 per share.”

Conference Call Details

A conference call with management will be held on Thursday, July 23, 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 68290658, 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, 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 
 June 30,June 30,March 31,
  2015  2014  2015 
    
Net revenues:   
  Products$  188,281 $  157,466 $  186,096 
  Services   29,685    27,231    27,743 
  Total net revenues   217,966    184,697    213,839 
Cost of revenues:   
  Products   99,849    87,513    98,652 
  Services   19,319    17,549    18,141 
  Total cost of revenues   119,168    105,062    116,793 
    
Gross profit   98,798    79,635    97,046 
    
Research and development   17,567    15,421    16,680 
Selling, general and administrative   33,269    32,239    30,867 
Acquisition costs   -     271    30 
Restructuring   219    -     788 
Amortization of intangible assets   1,709    1,044    1,671 
Income from operations   46,034    30,660    47,010 
    
Interest income, net   790    231    504 
    
Income from operations before income taxes   46,824    30,891    47,514 
Provision for income taxes    13,604    9,667    13,728 
Net income$  33,220 $  21,224 $  33,786 
    
Net income per share:   
  Basic$  0.62 $  0.40 $  0.63 
  Diluted$  0.62 $  0.40 $  0.63 
    
Cash dividends per common share$  0.170 $  0.165 $  0.165 
    
Weighted average shares outstanding:    
  Basic   53,384    53,361    53,214 
  Diluted   53,589    53,537    53,529 
    
The following supplemental Non-GAAP earnings information is presented  
to aid in understanding MKS' operating results:   
    
Net income$  33,220 $  21,224 $  33,786 
    
Adjustments (net of tax, if applicable):   
  Acquisition costs (Note 1)   -     271    30 
  Acquisition inventory step-up (Note 2)   -     545    -  
  Restructuring (Note 3)   219    -     788 
  Sale of previously written down inventory (Note 4)   (2,098)   -     -  
  Amortization of intangible assets   1,709    1,044    1,671 
  Pro forma tax adjustments   74    (486)   (773)
    
Non-GAAP net earnings (Note 5)$  33,124 $  22,598 $  35,502 
    
Non-GAAP net earnings per share (Note 5)$  0.62 $  0.42 $  0.66 
    
Weighted average shares outstanding   53,589    53,537    53,529 
    
Income from operations$  46,034 $  30,660 $  47,010 
    
Adjustments:   
  Acquisition costs (Note 1)$  -  $  271 $  30 
  Acquisition inventory step-up (Note 2)   -     545    -  
  Restructuring (Note 3)   219    -     788 
  Sale of previously written down inventory (Note 4)   (2,098)   -     -  
  Amortization of intangible assets   1,709    1,044    1,671 
    
Non-GAAP income from operations (Note 6)$  45,864 $  32,520 $  49,499 
    
Non-GAAP operating margin percentage (Note 6) 21.0% 17.6% 23.1%
    
Gross profit$  98,798 $  79,635 $  97,046 
  Acquisition inventory step-up (Note 2)   -     545    -  
  Sale of previously written down inventory (Note 4)   (2,098)   -     -  
    
Non-GAAP gross profit (Note 7)$  96,700 $  80,180 $  97,046 
    
Non-GAAP gross profit percentage (Note 7) 44.4% 43.4% 45.4%
    
    
Note 1: We recorded $0.03 million of acquisition costs related to the Precisive LLC acquisition, which closed during the first quarter of 2015. We recorded $0.3 million of acquisition costs comprising of legal fees related to the acquisition of the Granville-Phillips division of Brooks Automation, which closed during the second quarter of 2014.
    
Note 2: Inventory step-up adjustment related to the acquisition of the Granville-Phillips division of Brooks Automation, which closed during the second quarter of 2014. 
    
Note 3: We recorded restructuring costs related to the outsourcing of an international manufacturing operation.
    
Note 4: 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 5: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition costs, an inventory step-up adjustment related to an acquisition, restructuring costs, income related to the sale of excess and obsolete inventory previously written down to net realizable value, 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 6: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition costs, an inventory step-up adjustment related to an acquisition, restructuring costs, income related to the sale of excess and obsolete inventory previously written down to net realizable value and amortization of intangible assets.
    
Note 7:  The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment related to an acquisition and income related to the sale of excess and obsolete inventory previously written down to net realizable value.

 

MKS Instruments, Inc. 
Unaudited Consolidated Statements of Operations 
(In thousands, except per share data) 
    
    
   
 Six Months Ended  
 June 30, 
  2015  2014  
    
Net revenues:   
  Products$  374,377 $  338,652  
  Services   57,428    52,398  
  Total net revenues   431,805    391,050  
Cost of revenues:   
  Products   198,501    187,724  
  Services   37,460    34,319  
  Total cost of revenues   235,961    222,043  
    
Gross profit   195,844    169,007  
    
Research and development   34,247    31,039  
Selling, general and administrative   64,136    66,830  
Acquisition costs   30    499  
Restructuring   1,007    747  
Amortization of intangible assets   3,380    1,454  
Income from operations   93,044    68,438  
    
Interest income, net   1,294    466  
    
Income from operations before income taxes   94,338    68,904  
Provision for income taxes    27,332    16,435  
Net income$  67,006 $  52,469  
    
Net income per share:   
  Basic$  1.26 $  0.98  
  Diluted$  1.25 $  0.98  
    
Cash dividends per common share$  0.335 $  0.325  
    
Weighted average shares outstanding:    
  Basic   53,299    53,386  
  Diluted   53,559    53,657  
    
The following supplemental Non-GAAP earnings information is presented   
to aid in understanding MKS' operating results:   
    
Net income$  67,006 $  52,469  
    
Adjustments (net of tax, if applicable):   
  Tax benefit (Note 1)   -     (5,079) 
  Acquisition costs (Note 2)   30    499  
  Acquisition inventory step-up (Note 3)   -     545  
  Restructuring (Note 4)   1,007    747  
  Sale of previously written down inventory (Note 5)   (2,098)   -   
  Amortization of intangible assets   3,380    1,454  
  Pro forma tax adjustments   (698)   (852) 
    
Non-GAAP net earnings (Note 6)$  68,627 $  49,783  
    
Non-GAAP net earnings per share (Note 6)$  1.28 $  0.93  
    
Weighted average shares outstanding   53,559    53,657  
    
    
Income from operations$  93,044 $  68,438  
    
Adjustments:   
  Acquisition costs (Note 2)   30    499  
  Acquisition inventory step-up (Note 3)   -     545  
  Restructuring (Note 4)   1,007    747  
  Sale of previously written down inventory (Note 5)   (2,098)   -   
  Amortization of intangible assets   3,380    1,454  
    
Non-GAAP income from operations (Note 7)$  95,363 $  71,683  
    
Non-GAAP operating margin percentage (Note 7) 22.1% 18.3% 
    
Gross profit$  195,844 $  169,007  
  Acquisition inventory step-up (Note 3)   -     545  
  Sale of previously written down inventory (Note 5)   (2,098)   -   
    
Non-GAAP gross profit (Note 8)$  193,746 $  169,552  
    
Non-GAAP gross profit percentage (Note 8) 44.9% 43.4% 
    
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. 
    
Note 2: The six months ended June 30, 2015 includes acquisition costs related to the Precisive LLC acquisition, which closed during the first quarter of 2015. The six months ended June 30, 2014 includes acquisition costs comprised of legal fees related to the acquisition of the Granville-Phillips division of Brooks Automation, which closed during the second quarter of 2014.  
    
Note 3: Inventory step-up adjustment related to the acquisition of the Granville-Phillips division of Brooks Automation, which closed during the second quarter of 2014.  
    
Note 4: The six months ended June 30, 2015 includes restructuring charges related mainly to the outsourcing of an international manufacturing operation. 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. 
    
Note 5: Cost of sales for the six months ended June 30, 2015 includes income related to the sale of excess and obsolete inventory previously written down to net realizable value. 
    
Note 6: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition costs, an inventory step-up adjustment related to an acquisition, restructuring costs, amortization of intangible assets, income related to the sale of excess and obsolete inventory previously written down to net realizable value, 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 acquisition costs, an inventory step-up adjustment related to an acquisition, restructuring costs, income related to the sale of excess and obsolete inventory previously written down to net realizable value and amortization of intangible assets. 
    
Note 8: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment related to an acquisition and income related to the sale of excess and obsolete inventory previously written down to net realizable value. 

 

       
MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)
       
 Three Months Ended June 30, 2015Three Months Ended March 31, 2015
 Income BeforeProvision (benefit)Effective Income BeforeProvision (benefit)Effective 
 Income Taxesfor Income TaxesTax RateIncome Taxesfor Income TaxesTax Rate
     
GAAP$  46,824 $  13,604  29.1%$  47,514 $  13,728  28.9%
       
Adjustments:      
  Acquisition costs (Note 1)   -     -      30    -   
  Restructuring (Note 3)   219    -      788    -   
  Amortization of intangible assets   1,709    -      1,671    -   
  Sale of previously written down inventory (Note 5)   (2,098)   -      -     -   
  Tax effect of pro forma adjustments   -     311     -     817  
  Adjustment to pro forma tax rate   -     (385)    -     (44) 
       
Non-GAAP$  46,654 $  13,530  29.0%$  50,003 $  14,501  29.0%
       
       
 Three Months Ended June 30, 2014   
 Income BeforeProvision (benefit)Effective    
 Income Taxesfor Income TaxesTax Rate   
       
GAAP$  30,891 $  9,667  31.3%   
       
Adjustments:      
  Acquisition costs (Note 1)   271    -      
  Acquisition inventory step-up (Note 2)   545    -      
  Amortization of intangible assets   1,044    -      
  Tax effect of pro forma adjustments   -     642     
  Adjustment to pro forma tax rate   -     (156)    
       
Non-GAAP$  32,751 $  10,153  31.0%   
       
 Six Months Ended June 30, 2015Six Months Ended June 30, 2014
 Income BeforeProvision (benefit)Effective Income BeforeProvision (benefit)Effective 
 Income Taxesfor Income TaxesTax RateIncome Taxesfor Income TaxesTax Rate
     
GAAP$  94,338 $  27,332  29.0%$  68,904 $  16,435  23.9%
       
Adjustments:      
  Tax benefit (Note 4)   -     -      -     5,079  
  Acquisition costs (Note 1)   30    -      499    -   
  Acquisition inventory step-up (Note 2)   -     -      545    -   
  Restructuring (Note 3)   1,007    -      747    -   
  Amortization of intangible assets   3,380    -      1,454    -   
  Sale of previously written down inventory (Note 5)   (2,098)   -      -     -   
  Tax effect of pro forma adjustments   -     1,128     -     1,110  
  Adjustment to pro forma tax rate   -     (430)    -     (258) 
       
Non-GAAP$  96,657 $  28,030  29.0%$  72,149 $  22,366  31.0%
       
Note 1: The three months ended March 31, 2015 includes acquisition costs related to the Precisive LLC acquisition, which closed during the first quarter of 2015. The three and six months ended June 30, 2014 include acquisition costs comprising of legal and filing fees related to the acquisition of the Granville-Phillips division of Brooks Automation, which closed during the second quarter of 2014.
       
Note 2:  The three and six months ended June 30, 2014 includes an inventory step-up adjustment related to the acquisition of the Granville-Phillips division of Brooks Automation, which closed during the second quarter of 2014. 
       
Note 3:  The three and six months ended March 31, 2015 and the three and six month periods ended June 30, 2015 include restructuring charges related to the outsourcing of an international manufacturing operation. 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.
       
Note 4: The six months ended June 30, 2014 includes a tax benefit related to the settlement of an audit and other discrete items.
       
Note 5: 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.
       
 
MKS Instruments, Inc.  
Reconciliation of Q3-15 Guidance - GAAP Net Income to Non-GAAP Net Earnings   
(In thousands, except per share data)  
       
 Three Months Ended September 30, 2015  
 Low GuidanceHigh Guidance  
 $ Amount$ Per Share$ Amount$ Per Share  
       
GAAP net income$  25,700 $  0.48 $  32,900 $  0.61   
       
Amortization 1,700  0.03  1,700    0.03   
       
Tax effect of adjustments (Note 1) (500) (0.01) (400)   (0.01)  
       
Non-GAAP net earnings$  26,900 $  0.50 $  34,200 $  0.64   
       
Q3 -15 forecasted shares  53,600   53,600   
       
Note 1: The Non-GAAP adjustments are tax effected at the estimated Q3-15 tax rate of 29%.  

 

MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)
   
 June 30,December 31,
  2015  2014 
   
ASSETS  
   
Cash and cash equivalents$  178,319 $  305,437 
Short-term investments   177,433    129,594 
Trade accounts receivable, net   124,553    106,362 
Inventories   165,590    155,169 
Deferred income taxes   13,570    14,017 
Other current assets   28,203     27,512  
   
Total current assets   687,668    738,091 
   
Property, plant and equipment, net   69,898    72,776 
Long-term investments   256,855    157,201 
Goodwill   200,212    192,381 
Intangible assets, net   47,822    46,389 
Other assets   17,878     17,206  
   
Total assets$  1,280,333 $  1,224,044 
   
   
LIABILITIES AND STOCKHOLDERS' EQUITY  
   
Accounts payable$  34,054 $  34,166 
Accrued compensation   23,641    26,970 
Income taxes payable   8,615    6,702 
Other current liabilities   45,668     35,789  
Total current liabilities   111,978    103,627 
   
Other liabilities   38,919    38,595 
   
Stockholders' equity:  
Common stock   113    113 
Additional paid-in capital   739,567    734,732 
Retained earnings   395,455    349,061 
Other stockholders' equity   (5,699)   (2,084)
Total stockholders' equity   1,129,436     1,081,822  
   
Total liabilities and stockholders' equity$  1,280,333 $  1,224,044 
   

 

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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