MKS Instruments Reports Q3 2014 Financial Results
| GAAP Results | Non-GAAP Results | |
| Net revenues ($ millions) |
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Gross Margin Operating margin |
42.5% 15.1% |
43.3% 17.5% |
| Net income ($ millions) |
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| Diluted EPS |
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Third Quarter Financial Results
Sales were
Third quarter net income was
Non-GAAP net earnings, which exclude special charges and credits, were
In the third quarter, the board of directors authorized a quarterly cash dividend of
"Technology changes continue to positively impact our business. As we look to the fourth quarter, we see continued strength in both our semiconductor and other advanced markets. As we operate within this healthy business environment, we continue to make refinements to our operating structure and improvements to our profitability - redeploying resources to strategic and high-growth areas and continuously finding ways to streamline our cost structure.
"Based on these factors, and looking at current business levels, we anticipate that sales in the fourth quarter may range from
Conference Call Details
A conference call with management will be held on
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, an excess and obsolete charge related to a unique product in a solar application, 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
About
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
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| Unaudited Consolidated Statements of Operations | |||
| (In thousands, except per share data) | |||
| Three Months Ended | |||
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2014 |
2013 |
2014 |
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| Net revenues: | |||
| Products | $ 158,520 | $ 139,846 | $ 157,466 |
| Services | 28,278 | 26,607 | 27,231 |
| Total net revenues | 186,798 | 166,453 | 184,697 |
| Cost of revenues: | |||
| Products | 89,181 | 87,809 | 87,513 |
| Services | 18,292 | 16,410 | 17,549 |
| Total cost of revenues | 107,473 | 104,219 | 105,062 |
| Gross profit | 79,325 | 62,234 | 79,635 |
| Research and development | 15,827 | 15,257 | 15,421 |
| Selling, general and administrative | 32,365 | 33,158 | 32,239 |
| Acquisition costs | -- | -- | 271 |
| Restructuring | 1,223 | 1,126 | -- |
| Amortization of intangible assets | 1,760 | 361 | 1,044 |
| Income from operations | 28,150 | 12,332 | 30,660 |
| Interest income, net | 394 | 208 | 231 |
| Income from operations before income taxes | 28,544 | 12,540 | 30,891 |
| (Benefit) provision for income taxes | (573) | 10,082 | 9,667 |
| Net income | $ 29,117 | $ 2,458 | $ 21,224 |
| Net income per share: | |||
| Basic | $ 0.55 | $ 0.05 | $ 0.40 |
| Diluted | $ 0.55 | $ 0.05 | $ 0.40 |
| Cash dividends per common share | $ 0.165 | $ 0.160 | $ 0.165 |
| Weighted average shares outstanding: | |||
| Basic | 53,054 | 53,165 | 53,361 |
| Diluted | 53,310 | 53,513 | 53,537 |
| The following supplemental Non-GAAP earnings information is presented | |||
| to aid in understanding MKS' operating results: | |||
| Net income | $ 29,117 | $ 2,458 | $ 21,224 |
| Adjustments (net of tax, if applicable): | |||
| Income tax charge (Note 1) | -- | 6,481 | -- |
| Tax credits (Note 2) | -- | (1,200) | -- |
| Release of tax reserves (Note 3) | (6,109) | -- | -- |
| Tax benefit (Note 4) | (3,343) | -- | -- |
| Excess and obsolete charge (Note 5) | -- | 6,423 | -- |
| Acquisition costs (Note 6) | -- | -- | 271 |
| Acquisition inventory step-up (Note 7) | 1,634 | -- | 545 |
| Restructuring (Note 8) | 1,223 | 1,126 | -- |
| Amortization of intangible assets | 1,760 | 361 | 1,044 |
| Pro forma tax adjustments | (1,500) | (2,355) | (486) |
| Non-GAAP net earnings (Note 9) | $ 22,782 | $ 13,294 | $ 22,598 |
| Non-GAAP net earnings per share (Note 9) | $ 0.43 | $ 0.25 | $ 0.42 |
| Weighted average shares outstanding | 53,310 | 53,513 | 53,537 |
| Income from operations | $ 28,150 | $ 12,332 | $ 30,660 |
| Adjustments: | |||
| Excess and obsolete charge (Note 5) | -- | 6,423 | -- |
| Acquisition costs (Note 6) | -- | -- | 271 |
| Acquisition inventory step-up (Note 7) | 1,634 | -- | 545 |
| Restructuring (Note 8) | 1,223 | 1,126 | -- |
| Amortization of intangible assets | 1,760 | 361 | 1,044 |
| Non-GAAP income from operations (Note 10) | $ 32,767 | $ 20,242 | $ 32,520 |
| Non-GAAP operating margin percentage (Note 10) | 17.5% | 12.2% | 17.6% |
| Gross profit | $ 79,325 | $ 62,234 | $ 79,635 |
| Excess and obsolete charge (Note 5) | -- | 6,423 | -- |
| Acquisition inventory step-up (Note 7) | 1,634 | -- | 545 |
| Non-GAAP gross profit (Note 11) | $ 80,959 | $ 68,657 | $ 80,180 |
| Non-GAAP gross profit percentage (Note 11) | 43.3% | 41.2% | 43.4% |
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Note 1: In the third quarter of 2013, we incurred income tax charges of |
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Note 2: For the three months ended |
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Note 3: For the three months ended |
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Note 4: For the three months ended |
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Note 5: For the three months ended |
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Note 6: The three months ended |
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| Note 7: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014. | |||
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Note 8: The three months ended |
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| Note 9: 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, an excess and obsolete charge related to a unique product in a solar application, 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 10: 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 an excess and obsolete charge related to a unique product in a solar application. | |||
| Note 11: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an excess and obsolete inventory charge related to a unique product in a solar application and an inventory step-up adjustment related to an acquisition. | |||
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| Unaudited Consolidated Statements of Operations | ||
| (In thousands, except per share data) | ||
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Nine Months Ended |
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| 2014 | 2013 | |
| Net revenues: | ||
| Products | $ 497,172 | $ 388,998 |
| Services | 80,676 | 76,028 |
| Total net revenues | 577,848 | 465,026 |
| Cost of revenues: | ||
| Products | 276,905 | 237,590 |
| Services | 52,611 | 48,542 |
| Total cost of revenues | 329,516 | 286,132 |
| Gross profit | 248,332 | 178,894 |
| Research and development | 46,866 | 47,318 |
| Selling, general and administrative | 99,195 | 102,140 |
| Insurance reimbursement | -- | (1,071) |
| Acquisition costs | 499 | 171 |
| Restructuring | 1,970 | 1,364 |
| Amortization of intangible assets | 3,214 | 1,537 |
| Income from operations | 96,588 | 27,435 |
| Interest income, net | 860 | 710 |
| Income from operations before income taxes | 97,448 | 28,145 |
| Provision for income taxes | 15,862 | 12,606 |
| Net income | $ 81,586 | $ 15,539 |
| Net income per share: | ||
| Basic | $ 1.53 | $ 0.29 |
| Diluted | $ 1.52 | $ 0.29 |
| Cash dividends per common share | $ 0.49 | $ 0.48 |
| Weighted average shares outstanding: | ||
| Basic | 53,276 | 52,998 |
| Diluted | 53,541 | 53,410 |
| The following supplemental Non-GAAP earnings information is presented | ||
| to aid in understanding MKS' operating results: | ||
| Net income | $ 81,586 | $ 15,539 |
| Adjustments (net of tax, if applicable): | ||
| Income tax charge (Note 1) | -- | 6,481 |
| Tax credits (Note 2) | -- | (1,200) |
| Release of tax reserves (Note 3) | (11,188) | -- |
| Tax benefit (Note 4) | (3,343) | (2,353) |
| Excess and obsolete charge (Note 5) | -- | 6,423 |
| Insurance reimbursement (Note 6) | -- | (1,071) |
| Acquisition costs (Note 7) | 499 | 171 |
| Acquisition inventory step-up (Note 8) | 2,179 | -- |
| Restructuring (Note 9) | 1,970 | 1,364 |
| Amortization of intangible assets | 3,214 | 1,537 |
| Pro forma tax adjustments | (2,569) | (3,121) |
| Non-GAAP net earnings (Note 10) | $ 72,348 | $ 23,770 |
| Non-GAAP net earnings per share (Note 10) | $ 1.35 | $ 0.45 |
| Weighted average shares outstanding | 53,541 | 53,410 |
| Income from operations | $ 96,588 | $ 27,435 |
| Adjustments: | ||
| Excess and obsolete charge (Note 5) | -- | 6,423 |
| Insurance reimbursement (Note 6) | -- | (1,071) |
| Acquisition costs (Note 7) | 499 | 171 |
| Acquisition inventory step-up (Note 8) | 2,179 | -- |
| Restructuring (Note 9) | 1,970 | 1,364 |
| Amortization of intangible assets | 3,214 | 1,537 |
| Non-GAAP income from operations (Note 11) | $ 104,450 | $ 35,859 |
| Non-GAAP operating margin percentage (Note 11) | 18.1% | 7.7% |
| Gross profit | $ 248,332 | $ 178,894 |
| Excess and obsolete charge (Note 5) | -- | 6,423 |
| Acquisition inventory step-up (Note 8) | 2,179 | -- |
| Non-GAAP gross profit (Note 12) | $ 250,511 | $ 185,317 |
| Non-GAAP gross profit percentage (Note 12) | 43.4% | 39.9% |
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Note 1: For the nine months ended |
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Note 2: For the nine months ended |
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Note 3: For the nine months ended |
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Note 4: For the nine months ended |
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Note 5: For the nine months ended |
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Note 6: In the third quarter of 2012, we incurred |
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Note 7: The nine months ended |
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| Note 8: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014. | ||
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Note 9: The nine months ended |
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| Note 10: 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, an excess and obsolete charge related to a unique product in a solar application, 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 period. | ||
| Note 11: 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, an excess and obsolete charge related to a unique product in a solar application, and a benefit related to an insurance reimbursement. | ||
| Note 12: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an excess and obsolete charge related to a unique product in a solar application and an inventory step-up adjustment related to an acquisition. | ||
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| Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate | ||||||
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Three Months Ended |
Three Months Ended |
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Income Before Income Taxes |
Provision (benefit) for Income Taxes |
Effective Tax Rate |
Income Before Income Taxes |
Provision (benefit) for Income Taxes |
Effective Tax Rate |
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| GAAP | $ 28,544 | $ (573) | -2.0% | $ 12,540 | $ 10,082 | 80.4% |
| Adjustments: | ||||||
| Income tax charge (Note 1) | -- | -- | -- | (6,481) | ||
| Tax credits (Note 2) | -- | -- | -- | 1,200 | ||
| Release of tax reserves (Note 3) | -- | 6,109 | -- | -- | ||
| Tax benefit (Note 4) | -- | 3,343 | -- | -- | ||
| Excess and obsolete charge (Note 5) | -- | -- | 6,423 | -- | ||
| Restructuring (Note 6) | 1,223 | -- | 1,126 | -- | ||
| Acquisition inventory step-up (Note 8) | 1,634 | -- | -- | -- | ||
| Amortization of intangible assets | 1,760 | -- | 361 | -- | ||
| Tax effect of pro forma adjustments | -- | 1,680 | -- | 767 | ||
| Adjustment to pro forma tax rate | -- | (180) | -- | 1,588 | ||
| Non-GAAP | $ 33,161 | $ 10,379 | 31.3% | $ 20,450 | $ 7,156 | 35.0% |
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Three Months Ended |
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Income Before Income Taxes |
Provision (benefit) for Income Taxes |
Effective Tax Rate |
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| GAAP | $ 30,891 | $ 9,667 | 31.3% | |||
| Adjustments: | ||||||
| Acquisition costs (Note 7) | 271 | -- | ||||
| Acquisition inventory step-up (Note 8) | 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% | |||
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Nine Months Ended |
Nine Months Ended |
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Income Before Income Taxes |
Provision (benefit) for Income Taxes |
Effective Tax Rate |
Income Before Income Taxes |
Provision (benefit) for Income Taxes |
Effective Tax Rate |
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| GAAP | $ 97,448 | $ 15,862 | 16.3% | $ 28,145 | $ 12,606 | 44.8% |
| Adjustments: | ||||||
| Income tax charge (Note 1) | -- | -- | -- | (6,481) | ||
| Tax credits (Note 2) | -- | -- | -- | 1,200 | ||
| Release of tax reserves (Note 3) | -- | 11,188 | -- | -- | ||
| Tax benefit (Note 4) | -- | 3,343 | -- | 2,353 | ||
| Excess and obsolete charge (Note 5) | -- | -- | 6,423 | -- | ||
| Insurance reimbursement (Note 9) | -- | -- | (1,071) | -- | ||
| Acquisition costs (Note 7) | 499 | -- | 171 | -- | ||
| Acquisition inventory step-up (Note 8) | 2,179 | -- | -- | -- | ||
| Restructuring (Note 6) | 1,970 | -- | 1,364 | -- | ||
| Amortization of intangible assets | 3,214 | -- | 1,537 | -- | ||
| Tax effect of pro forma adjustments | -- | 2,790 | -- | 802 | ||
| Adjustment to pro forma tax rate | -- | (221) | -- | 2,319 | ||
| Non-GAAP | $ 105,310 | $ 32,962 | 31.3% | $ 36,569 | $ 12,799 | 35.0% |
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Note 1: In the third quarter of 2013, we incurred income tax charges of |
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Note 2: For the three and nine months ended |
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Note 3: For the three and nine months ended |
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Note 4: For the three and nine months ended |
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Note 5: Cost of sales for the three months ended |
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Note 6: The three and nine months ended |
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Note 7: The nine months ended |
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| Note 8: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014. | ||||||
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Note 9: In the third quarter of 2012, we incurred |
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| Reconciliation of Q4-14 Guidance - GAAP Net Income to Non-GAAP Net Earnings | ||||
| (In thousands, except per share data) | ||||
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Three Months Ended |
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| Low Guidance | High Guidance | |||
| $ Amount | $ Per Share | $ Amount | $ Per Share | |
| GAAP net income | $ 21,000 | $ 0.39 | $ 27,000 | $ 0.50 |
| Amortization | 1,800 | 0.03 | 1,800 | 0.03 |
| Tax effect of adjustments (Note 1) | (500) | (0.01) | (600) | (0.01) |
| Non-GAAP net earnings | $ 22,300 | $ 0.42 | $ 28,200 | $ 0.53 |
| Q4 -14 forecasted shares | 53,500 | 53,500 | ||
| Note 1: The Non-GAAP adjustments are tax effected at the estimated Q4-14 tax rate of 31%. | ||||
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| Unaudited Consolidated Balance Sheet | ||
| (In thousands) | ||
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2014 |
2013 |
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| ASSETS | ||
| Cash and cash equivalents | $ 295,456 | $ 288,902 |
| Short-term investments | 140,042 | 300,715 |
| Trade accounts receivable, net | 106,290 | 116,744 |
| Inventories | 153,930 | 142,727 |
| Deferred income taxes | 12,422 | 13,428 |
| Other current assets | 28,735 | 16,715 |
| Total current assets | 736,875 | 879,231 |
| Property, plant and equipment, net | 73,642 | 77,536 |
| Long-term investments | 134,749 | 60,405 |
| Goodwill | 193,125 | 150,909 |
| Intangible assets, net | 48,812 | 13,090 |
| Other assets | 30,165 | 31,847 |
| Total assets | $ 1,217,368 | $ 1,213,018 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Accounts payable | $ 30,809 | $ 40,074 |
| Accrued compensation | 27,277 | 43,662 |
| Income taxes payable | 3,821 | 10,444 |
| Other current liabilities | 42,961 | 34,242 |
| Total current liabilities | 104,868 | 128,422 |
| Other liabilities | 53,940 | 63,073 |
| Stockholders' equity: | ||
| Common stock | 113 | 113 |
| Additional paid-in capital | 730,110 | 730,571 |
| Retained earnings | 323,639 | 278,966 |
| Other stockholders' equity | 4,698 | 11,873 |
| Total stockholders' equity | 1,058,560 | 1,021,523 |
| Total liabilities and stockholders' equity | $ 1,217,368 | $ 1,213,018 |
CONTACT:Seth H. Bagshaw Vice President, Chief Financial Officer & Treasurer Telephone: 978.645.5578
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