MKS Instruments Reports Q3 2015 Financial Results

MKS Instruments Reports Q3 2015 Financial Results 99.8 KB

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 Results			Non-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 11^th. 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

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

Source: MKS Instruments, Inc.

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MKS Instruments Reports Q3 2015 Financial Results