MKS Instruments Reports First Quarter 2017 Financial Results

  • Achieved new quarterly records for total semiconductor revenue and Non-GAAP net earnings
  • Total quarterly revenue up 33% compared to Q1 2016 on a pro-forma basis
  • Completed an additional $50 million voluntary debt pre-payment on term loan

ANDOVER, Mass., April 26, 2017 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ:MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported first quarter 2017 financial results.

Quarterly Financial Results
(in millions, except per share data)
 Q1 2017Q4 2016
GAAP Results  
Net revenues$437 $405 
Gross margin 47.0% 45.3%
Operating margin 19.1% 15.4%
Net income$65.1 $45.5 
Diluted EPS$1.18 $0.83 
Non-GAAP Results  
Gross margin 47.0% 45.3%
Operating margin 22.5% 20.6%
Net earnings$70.0 $57.2 
Diluted EPS$1.27 $1.05 

First Quarter 2017 Financial Results  

Revenue was $437 million, an increase of 8% from $405 million in the fourth quarter of 2016 and an increase of 33% from $330 million in the first quarter of 2016 on a pro-forma basis.

Net income was $65.1 million, or $1.18 per diluted share, compared to net income of $45.5 million, or $0.83 per diluted share in the fourth quarter of 2016, and $17.6 million, or $0.33 per diluted share in the first quarter of 2016.

Non-GAAP net earnings, which exclude special charges and credits, were $70.0 million, or $1.27 per diluted share, compared to $57.2 million, or $1.05 per diluted share in the fourth quarter of 2016, and $20.1 million, or $0.38 per diluted share in the first quarter of 2016.

"We are very pleased with our strong start to 2017. We set a new record for quarterly revenue, continued to enhance our organizational strengths, and collaborated more closely and effectively with our customers," said Gerald Colella, Chief Executive Officer and President. Mr. Colella added, "Our strategic objective to drive sustainable and profitable growth has allowed MKS to not only leverage technology inflection points within the semiconductor market, but also to further drive growth in a number of adjacent markets.  In the first quarter, semiconductor revenue and sales to other advanced markets, on a pro-forma basis, increased 54% and 10% respectively from a year ago."

"We also continue to execute on our strategy to delever our balance sheet and reduce our interest cost. During the quarter, we completed a $50 million voluntary pre-payment on our term loan facility bringing our cumulative pre-payments to date to $200 million. Since origination on April 29, 2016, we have reduced our non-GAAP interest expense by $15 million or approximately 40% on an annualized basis," said Seth Bagshaw, Vice President and Chief Financial Officer.

Additional Financial Information

The Company had $416 million in cash and short-term investments as of March 31, 2017 and $575 million outstanding under its term loan. During the first quarter of 2017, MKS paid a dividend of $9.4 million or $0.175 per diluted share, a 3% increase from the fourth quarter of 2016.

In April, the Company completed the sale of its Data Analytics Solutions Business Unit and expects to recognize a net after tax gain of approximately $72 million in the second quarter.

Second Quarter 2017 Outlook  

Based on current business levels, the Company expects that revenue in the second quarter of 2017 may range from $440 to $480 million.

At these volumes, and including the gain on the sale of the Data Analytics Solutions Business Unit, GAAP net income could range from $2.12 to $2.37 per diluted share and non-GAAP net earnings could range from $1.26 to $1.50 per diluted share.

Primarily as a result of the sale of the Data Analytics Solutions Business Unit, GAAP net income in the second quarter is expected to be significantly higher than non-GAAP net earnings.

Conference Call Details

A conference call with management will be held tomorrow, Thursday, April 27, 2017 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 93351357, 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. 

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, flow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control technology, ozone generation and delivery, RF & DC power, reactive gas generation, vacuum technology, lasers, photonics, sub-micron positioning, vibration isolation, and optics.  Our primary served markets include semiconductor capital equipment, general industrial, life sciences, and research.  Additional information can be found at www.mksinst.com.

Use of Non-GAAP Financial Results

Non-GAAP amounts exclude amortization of acquired intangible assets, an asset impairment, costs associated with completed and announced acquisitions, acquisition integration costs, restructuring charges, certain excess and obsolete inventory charges, fees and expenses related to re-pricing of term loan, amortization of debt issuance costs, net proceeds from an insurance policy, costs associated with the sale of a business, the tax effect of a legal entity restructuring, other discrete tax benefits and charges, and the related tax effect of these adjustments.  These non-GAAP measures are not in accordance with generally accepted accounting principles 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.  Pro-forma revenue amounts assume the acquisition of Newport Corporation had occurred as of the beginning of 2016.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the future financial performance of MKS, our future business prospects, our future growth, and our expected synergies and cost savings from our recent acquisition of Newport Corporation.  These statements are only predictions based on current assumptions and expectations.  Actual events or results may differ materially from those in the forward-looking statements set forth herein.  Among the important factors that could cause actual events to differ materially from those in the forward-looking statements are the conditions affecting the markets in which we operate, including the fluctuations in capital spending in the semiconductor industry, and other advanced manufacturing markets, fluctuations in net sales to our major customers, our ability to successfully integrate Newport's operations and employees, unexpected costs, charges or expenses resulting from the Newport acquisition, the terms of the term loan financing, MKS' ability to realize anticipated synergies and cost savings from the Newport acquisition, our ability to successfully grow our business, potential adverse reactions or changes to business relationships resulting from the Newport acquisition, potential fluctuations in quarterly results, the challenges, risks and costs involved with integrating the operations of any other 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 the other factors described in MKS' Annual Report for the year ended December 31, 2016 on Form 10-K filed with the SEC.  MKS is under no obligation to, and expressly disclaims any obligation to, update or alter our forward-looking statements, whether as a result of new information, future events or otherwise after the date of this press release.

MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
       
       
       
  Three Months Ended 
  March 31, March 31 December 31,
   2017   2016   2016 
       
Net revenues:      
  Products $  392,922  $  153,621  $  359,765 
  Services    44,231     30,060     45,375 
    Total net revenues    437,153     183,681     405,140 
Cost of revenues:      
  Products    205,060     85,352     194,716 
  Services    26,546     20,416     27,016 
    Total cost of revenues    231,606     105,768     221,732 
       
Gross profit    205,547     77,913     183,408 
       
Research and development    33,282     17,227     32,870 
Selling, general and administrative    74,220     33,950     67,626 
Acquisition and integration costs    1,442     2,494     2,089 
Restructuring    522     -      618 
Asset impairment    -       -      5,000 
Amortization of intangible assets    12,501     1,683     12,691 
Income from operations    83,580     22,559     62,514 
       
Interest income    516     924     702 
Interest expense    8,832     44     10,085 
Other income (expense), net    2,021      366     (3,575)
       
Income from operations before income taxes    77,285     23,805     49,556 
Provision for income taxes     12,225     6,242     4,069 
Net income $  65,060  $  17,563  $  45,487 
       
Net income per share:      
  Basic $  1.21  $  0.33  $  0.85 
  Diluted $  1.18  $  0.33  $  0.83 
       
Cash dividends per common share $  0.175  $  0.17  $  0.17 
       
Weighted average shares outstanding:       
  Basic    53,769     53,235     53,617 
  Diluted    54,958     53,563     54,518 
       
The following supplemental Non-GAAP earnings information is presented       
to aid in understanding MKS' operating results:      
       
Net income $  65,060  $  17,563  $  45,487 
       
Adjustments:       
  Acquisition and integration costs (Note 1)    1,442     2,494      2,089 
  Expenses related to sale of business (Note 2)    423     -      -  
  Fees and expenses relating to repricing of term loan (Note 3)    -      -      526 
  Amortization of debt issuance costs (Note 4)    2,414     -      2,430 
  Restructuring (Note 5)    522     -      618 
  Tax benefit from legal entity restructuring (Note 6)    -      -      (6,570)
  Asset impairment (Note 7)    -      -      5,000 
  Withholding tax on dividends (Note 8)    -      -      1,362 
  Windfall tax benefit on stock based compensation (Note 9)    (6,650)    -      -  
  Amortization of intangible assets    12,501     1,683     12,691 
  Pro-forma tax adjustments    (5,718)    (1,593)    (6,437)
       
Non-GAAP net earnings (Note 10) $  69,994  $  20,147  $  57,196 
       
Non-GAAP net earnings per share (Note 10) $  1.27  $  0.38  $  1.05 
       
Weighted average shares outstanding    54,958      53,563     54,518 
       
Income from operations $  83,580  $  22,559  $  62,514 
       
Adjustments:      
  Acquisition and integration costs (Note 1)  1,442     2,494   2,089 
  Expenses related to sale of business (Note 2)    423     -      -  
  Fees and expenses relating to repricing of term loan (Note 3)    -      -      526 
  Restructuring (Note 5)    522     -      618 
  Asset impairment (Note 7)    -      -      5,000 
  Amortization of intangible assets    12,501     1,683     12,691 
       
Non-GAAP income from operations (Note 11)  $  98,468  $  26,736  $  83,438 
       
Non-GAAP operating margin percentage (Note 11)  22.5%  14.6%  20.6%
      
Interest expense $  8,832  $  44  $  10,085 
  Amortization of debt issuance costs (Note 4)  2,414     -    2,430 
       
Non-GAAP interest expense $  6,418  $  44  $  7,655 
      
Net Income $  65,060  $  17,563  $  45,487 
  Interest expense (income), net    8,316     (880)     9,383 
  Provision for income taxes    12,225     6,242     4,069 
  Depreciation    9,332     3,595     9,478 
  Amortization    12,501     1,683     12,691 
EBITDA (Note 12) $  107,434  $  28,203  $  81,108 
  Stock based compensation     8,782     4,152     5,402 
  Acquisition and integration costs (Note 1)    1,442     2,494     2,089 
  Expenses related to sale of business (Note 2)    423     -      -  
  Fees and expenses relating to repricing of term loan (Note 3)    -      -      526 
  Restructuring (Note 5)    522     -      618 
  Asset impairment (Note 7)    -      -      5,000 
  Other adjustments    747     -      817 
Adjusted EBITDA (Note 13) $  119,350  $  34,849  $  95,560 
      
Note 1: We recorded $1.4 million, $2.1 million and $2.5 million of acquisition and integration costs during the three months ended March 31, 2017, December 31, 2016 and March 31, 2016, respectively, related to the Newport Corporation acquisition, which closed during the second quarter of 2016.
       
Note 2: We recorded $0.4 million of legal and consulting expenses during the three months ended March 31, 2017 related to the sale of a business, which was completed in April of 2017.
        
Note 3: We recorded $0.5 million of fees and expenses during the three months ended December 31, 2016 related to the second repricing of our Term Loan Credit Agreement.
       
Note 4: We recorded $2.4 million of additional interest expense during the three months ended March 31, 2017 and December 31, 2016, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.
       
Note 5: We recorded $0.5 million and $0.6 million of restructuring costs during the three months ended March 31, 2017 and December 31, 2016, respectively, related to the restructuring of one of our international facilities and the consolidation of sales offices.
       
Note 6: We recorded a tax benefit of $6.6 million during the three months ended December 31, 2016 related to a legal entity restructuring.
       
Note 7: We recorded a $5.0 million impairment charge related to a minority interest investment in a privately held company during the three months ended December 31, 2016.
       
Note 8: We recorded $1.4 million for withholding tax on intercompany dividends during the three months ended December 31, 2016.
       
Note 9: We recorded a $6.6 million windfall tax benefit on the vesting of stock based compensation during the three months ended March 31, 2017, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
       
Note 10: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, expenses related to the sale of a business, fees and expenses related to the repricing of a term loan credit agreement, amortization of debt issuance costs, restructuring costs, the tax effect of a legal entity restructuring, an asset impairment charge, a withholding tax on dividends, a windfall tax benefit related to stock compensation expense, amortization of intangible assets and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.
       
Note 11: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, expenses related to the sale of a business, fees and expenses related to the repricing of a term loan credit agreement, restructuring costs, an asset impairment charge and amortization of intangible assets.
        
Note 12: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.
    
Note 13: Adjusted EBITDA excludes stock based compensation, acquisition and integration costs, expenses related to the sale of a business, fees and expenses related to the repricing of a term loan credit agreement, restructuring costs, an asset impairment charge and other adjustments as defined in our Term Loan Credit Agreement.

 

MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)
            
  Three Months Ended March 31, 2017 Three Months Ended December 31, 2016
 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 $  77,285  $  12,225   15.8% $  49,556  $  4,069  8.2%
             
Adjustments:            
  Acquisition and integration costs (Note 1)    1,442     -        2,089     -    
  Expenses related to sale of business (Note 2)    423     -        -      -    
  Fees and expenses relating to repricing of term loan (Note 3)    -      -        526     -    
  Amortization of debt issuance costs (Note 4)    2,414     -        2,430     -    
  Restructuring (Note 5)    522     -        618     -    
  Tax benefit from legal entity restructuring (Note 6)    -      -        -      6,570    
  Asset impairment (Note 7)    -      -        5,000     -     
  Withholding tax on dividends (Note 8)    -      -        -      (1,362)  
  Windfall tax benefit on stock based compensation (Note 9)    -      6,650       -      -    
  Amortization of intangible assets    12,501     -        12,691     -    
  Tax effect of pro-forma adjustments    -      5,443       -      6,437   
  Adjustment to pro-forma tax rate    -      275     -      -   
             
Non-GAAP $  94,587  $  24,593   26.0% $  72,910  $  15,714  21.6%
             
             
  Three Months Ended March 31, 2016      
  Income Before Provision (benefit) Effective        
  Income Taxes for Income Taxes Tax Rate      
             
GAAP  $  23,805  $  6,242   26.2%      
             
Adjustments:            
  Acquisition and integration costs (Note 1)    2,494  $  -          
  Amortization of intangible assets    1,683     -          
  Tax effect of pro-forma adjustments    -      1,503         
  Adjustment to pro-forma tax rate    -      90  
             
Non-GAAP $  27,982  $  7,835    28.0%      
             
              
             
Note 1: We recorded $1.4 million, $2.1 million and $2.5 million of acquisition and integration costs during the three months ended March 31, 2017, December 31, 2016 and March 31, 2016, respectively, related to the Newport Corporation acquisition which closed during the second quarter of 2016.
              
Note 2: We recorded $0.4 million of legal and consulting expenses during the three months ended March 31, 2017 related to the sale of a business, which was completed in April of 2017.
             
Note 3: We recorded $0.5 million of fees and expenses during the three months ended December 31, 2016 related to the second repricing of our Term Loan Credit Agreement.
             
Note 4: We recorded $2.4 million of additional interest expense during the three months ended March 31, 2017 and December 31, 2016, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.
             
Note 5: We recorded $0.5 million and $0.6 million of restructuring costs during the three months ended March 31, 2017 and December 31, 2016, respectively, related to the restructuring of one of our international facilities and the consolidation of sales offices.
             
Note 6: We recorded a tax benefit of $6.6 million during the three months ended December 31, 2016 related to a legal entity restructuring.
             
Note 7: We recorded a $5.0 million impairment charge related to a minority interest investment in a privately held company during the three months ended December 31, 2016.
             
Note 8: We recorded $1.4 million for withholding tax on intercompany dividends during the three months ended December 31, 2016.
             
Note 9: We recorded a $6.6 million windfall tax benefit on the vesting of stock based compensation during the three months ended March 31, 2017, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
             
 
MKS Instruments, Inc.    
Reconciliation of Q2-17 Guidance - GAAP Net Income to Non-GAAP Net Earnings     
(In thousands, except per share data)    
             
  Three Months Ended June 30, 2017    
  Low Guidance High Guidance    
  $ Amount $ Per Share $ Amount $ Per Share    
             
GAAP net income $  117,300  $  2.12  $  131,200  $  2.37     
             
Amortization  11,400     0.21   11,400     0.21     
             
Debt issuance costs  1,000     0.02   1,000     0.02      
             
Gain on sale of business  (75,000)    (1.36)  (75,000)    (1.36)    
             
Integration costs  2,300     0.04   2,300     0.04     
              
Tax effect of adjustments (Note 1)  12,600     0.23   12,200     0.22     
             
Non-GAAP net earnings $  69,600  $  1.26  $  83,100  $  1.50     
             
Q2 -17 forecasted shares    55,300     55,300     
              
Note 1: The Non-GAAP adjustments are tax effected at the applicable statutory rates and the difference between the GAAP and Non-GAAP tax rates.    

 

MKS Instruments, Inc.  
Unaudited Consolidated Balance Sheet  
(In thousands)  
          
     March 31, December 31,  
      2017   2016   
          
ASSETS         
          
Cash and cash equivalents  $  255,912  $  228,623   
Restricted cash      5,274     5,287   
Short-term investments     155,299     189,463   
Trade accounts receivable, net     267,249     248,757   
Inventories      285,518     275,869   
Other current assets      52,266     50,770   
          
 Total current assets     1,021,518     998,769   
           
Property, plant and equipment, net    169,833     174,559   
Goodwill       590,502     588,585   
Intangible assets, net     396,409     408,004   
Long-term investments     9,933     9,858   
Other assets      32,352     32,467   
          
Total assets   $  2,220,547  $  2,212,242   
          
          
LIABILITIES AND STOCKHOLDERS' EQUITY     
          
Short-term debt   $  10,623  $  10,993   
Accounts payable      70,493     69,337   
Accrued compensation     50,034     67,728   
Income taxes payable     27,469     22,794   
Other current liabilities     71,777     66,448   
 Total current liabilities    230,396     237,300   
          
Long-term debt, net      552,232     601,229   
Non-current deferred taxes     64,221     66,446   
Non-current accrued compensation    46,201     44,714   
Other liabilities      22,092      20,761   
 Total liabilities     915,142     970,450   
          
Stockholders' equity:        
Common stock      113     113   
Additional paid-in capital     783,371     777,482   
Retained earnings      550,385     494,744   
Accumulated other comprehensive loss    (28,464)    (30,547)  
 Total stockholders' equity    1,305,405     1,241,792   
          
Total liabilities and stockholders' equity $  2,220,547  $  2,212,242   

 

Company Contact: Seth H. Bagshaw

Vice President, Chief Financial Officer and Treasurer

Telephone: 978.645.5578



Investor Relations Contacts:

Monica Gould

The Blueshirt Group

Telephone: 212.871.3927

Email: monica@blueshirtgroup.com



Lindsay Grant Savarese

The Blueshirt Group

Telephone: 212.331.8417

Email: lindsay@blueshirtgroup.com

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Source: MKS Instruments, Inc.

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