MKS Instruments Reports Third Quarter 2017 Financial Results

  • Achieved new quarterly records for revenue and Non-GAAP net earnings
  • Total quarterly revenue up 28% compared to Q3 2016
  • Achieved new quarterly revenue record for Light and Motion Division

ANDOVER, Mass., Oct. 24, 2017 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ:MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported third quarter 2017 financial results.

Quarterly Financial Results
(in millions, except per share data)
 Q3 2017Q2 2017
GAAP Results   
Net revenues $486  $481 
Gross margin 46.9% 45.7%
Operating margin 22.7% 19.3%
Net income$76.0  $120.4 
Diluted EPS$1.38  $2.19 
Non-GAAP Results   
Gross margin 46.9% 45.9%
Operating margin 25.5% 24.0%
Net earnings  $85.9   $77.7 
Diluted EPS $1.56  $1.41 

Third Quarter 2017 Financial Results  
Revenue was $486 million, an increase of 1% from $481 million in the second quarter of 2017 and an increase of 28% from $381 million in the third quarter of 2016.

Net income was $76.0 million, or $1.38 per diluted share, compared to net income of $120.4 million, which included a net gain of $59.9 million resulting from the sale of the Data Analytics Solutions Business Unit, or $2.19 per diluted share in the second quarter of 2017, and $32.5 million, or $0.60 per diluted share in the third quarter of 2016.

Non-GAAP net earnings, which exclude special charges and credits, were $85.9 million, or $1.56 per diluted share, compared to $77.7 million, or $1.41 per diluted share in the second quarter of 2017, and $47.9 million, or $0.88 per diluted share in the third quarter of 2016.

"We are very pleased with our continued progress in 2017 in achieving our objectives of sustainable and profitable growth," said Gerald Colella, Chief Executive Officer and President.  Mr. Colella added, "This quarter, we again set new records for quarterly revenue and Non-GAAP net earnings which are a direct result of the strategic investments we have made, and will continue to make, in the areas of product development as well as sales and applications support functions.  Looking ahead, we see a wide range of new opportunities to solve customer complex problems across the large and growing markets we serve."

"We also continue to execute on our strategy to delever our balance sheet and significantly reduce our interest cost. During the third quarter, we completed our third successful re-pricing of our Term Loan and voluntarily pre-paid another $125 million of principal. Exiting the third quarter, our debt balance is $448 million down from $780 million at loan origination in April of 2016, our debt to Adjusted EBITDA ratio is below 1 times and we have reduced our non-GAAP interest expense by approximately 60% on an annualized basis," said Seth Bagshaw, Senior Vice President and Chief Financial Officer.

Additional Financial Information
The Company had $535 million in cash and short-term investments as of September 30, 2017 and during the third quarter of 2017, MKS paid a dividend of $9.5 million or $0.175 per diluted share.

Fourth Quarter 2017 Outlook  
Based on current business levels, the Company expects that revenue in the fourth quarter of 2017 may range from $480 to $520 million.

At these volumes, GAAP net income could range from $1.34 to $1.59 per diluted share and non-GAAP net earnings could range from $1.52 to $1.76 per diluted share.

Conference Call Details
A conference call with management will be held on Wednesday, October 25, 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 90032404, 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 our 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.  Annualized GAAP interest expense based upon $780 million principal outstanding and using the LIBOR based interest rate spread in effect on April 29, 2016, was $44.0 million.  Annualized GAAP interest expense based upon $448 million in principal currently outstanding and LIBOR plus 200 basis points would be $19.5 million. 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 risks, costs, charges or expenses resulting from the Newport acquisition or other acquisitions, the terms of the Term Loan financing, fluctuations in interest rates, MKS' ability to realize anticipated synergies and cost savings from the Newport acquisition, our ability to successfully grow our business, potential fluctuations in quarterly results, 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' most recent Annual Report on Form 10-K for the year ended December 31, 2016 filed with 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.

Company Contact: Seth H. Bagshaw
Senior 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

 

 

MKS Instruments, Inc.  
Unaudited Consolidated Statements of Operations  
(In thousands, except per share data)  
             
             
             
        Three Months Ended 
        September 30, September 30, June 30,
          2017   2016   2017 
              
Net revenues:            
Products       $434,710  $ 335,156  $ 431,950 
Services          51,557     45,504     48,807 
Total net revenues       486,267   380,660   480,757 
Cost of revenues:           
Products           223,738   183,789   229,304 
Services          34,534     28,486     31,870 
Total cost of revenues       258,272   212,275   261,174 
             
Gross profit         227,995   168,385   219,583 
             
Research and development         32,548     32,268     33,680 
Selling, general and administrative        71,839     68,016     71,979 
Acquisition and integration costs        2,466     2,641     790 
Restructuring          10     -      2,064 
Asset impairment         -      -      6,719 
Amortization of intangible assets        10,977     12,452     11,468 
Income from operations         110,155     53,008     92,883 
             
Interest income          873     404     507 
Interest expense         7,172     12,007     6,997 
Gain on sale of business         -      -      74,856 
Other (expense) income, net        (2,485)    843     (3,277)
Income from operations before income taxes     101,371   42,248   157,972 
Provision for income taxes          25,377     9,699     37,532 
Net income       $75,994  $32,549  $120,440 
             
Net income per share:           
Basic       $  1.40  $  0.61  $  2.22 
Diluted       $  1.38  $  0.60  $  2.19 
             
Cash dividends per common share     $  0.175  $  0.17  $  0.175 
             
Weighted average shares outstanding:          
Basic          54,282     53,574     54,178 
Diluted          55,101      54,315     55,001 
              
The following supplemental Non-GAAP earnings information is presented 
to aid in understanding MKS' operating results:		      
             
Net income   $  75,994  $  32,549  $  120,440 
       
Adjustments:      
Acquisition and integration costs (Note 1)    2,466     2,641     790 
Acquisition inventory step-up (Note 2)    -      4,971     -  
Expenses related to sale of a business (Note 3)       -      -       436 
Excess and obsolete inventory charge (Note 4)       -      -      1,160 
Fees and expenses relating to re-pricing of term loan (Note 5)    492     -      -  
Amortization of debt issuance costs (Note 6)       2,314     2,838     694 
Restructuring (Note 7)         10     -      2,064 
Asset impairment (Note 8)        -      -      6,719 
Gain on sale of business (Note 9)         -      -    (74,856)
Net proceeds from an insurance policy (Note 10)      -      (1,323)    -  
Amortization of intangible assets     10,977     12,452     11,468 
Windfall tax benefit on stock-based compensation (Note 11)     (594)    -      (3,169)
Taxes related to sale of business (Note 12)       -      -      15,007 
Taxes related to legal entity restructuring (Note 13)      -      1,532     -  
Pro-forma tax adjustments      (5,789)    (7,790)    (3,047)
        
Non-GAAP net earnings (Note 14)  $  85,870  $  47,870  $  77,706 
        
Non-GAAP net earnings per share (Note 14)  $  1.56  $  0.88  $  1.41 
       
Weighted average shares outstanding    55,101     54,315     55,001 
       
Income from operations $ 110,155  $  53,008  $  92,883 
       
Adjustments:      
Acquisition and integration costs (Note 1)    2,466     2,641     790 
Acquisition inventory step-up (Note 2)    -      4,971     -  
related to sale of a business (Note 3)    -      -      436 
Excess and obsolete inventory charge (Note 4)    -      -      1,160 
Fees and expenses relating to re-pricing of term loan (Note 5)    492     -      -  
Restructuring (Note 7)    10     -      2,064 
Asset impairment (Note 8)    -       -      6,719 
Amortization of intangible assets    10,977     12,452      11,468 
       
Non-GAAP income from operations (Note 15) $124,100  $ 73,072  $115,520 
       
Non-GAAP operating margin percentage (Note 15)  25.5%  19.2%  24.0%
      
Gross profit $ 227,995  $168,385  $ 219,583 
Acquisition inventory step-up (Note 2)    -      4,971      -  
Excess and obsolete inventory charge (Note 4)    -       -      1,160 
      
Non-GAAP gross profit (Note 16) $ 227,995  $ 173,356  $ 220,743 
       
Non-GAAP gross profit percentage (Note 16)  46.9%  45.5%  45.9%
      
Interest expense $  7,172  $  12,007  $  6,997 
Amortization of debt issuance costs (Note 6)  2,314   2,838   694 
       
Non-GAAP interest expense $  4,858  $  9,169  $  6,303 
      
Net Income $ 75,994   $ 32,549  $ 120,440 
Interest expense (income), net    6,299     11,603     6,490 
Provision for income taxes    25,377     9,699     37,532 
Depreciation    9,153     9,597     9,120 
Amortization    10,977     12,452     11,468 
EBITDA (Note 17) $127,800  $75,900   $ 185,050 
Stock-based compensation     4,846      5,157     6,207 
Acquisition and integration costs (Note 1)    2,466     2,641     790 
Acquisition inventory step-up (Note 2)    -      4,971     -  
Expenses related to sale of a business (Note 3)    -       -      436 
Excess and obsolete inventory charge (Note 4)    -      -      1,160 
Fees and expenses relating to re-pricing of term loan (Note 5)    492     -      -  
Restructuring (Note 7)    10     -      2,064 
Asset impairment (Note 8)    -      -      6,719 
Gain on sale of business (Note 9)   -      -    (74,856)
Net proceeds from an insurance policy (Note 10)      -      (1,323)    -  
Other adjustments    836     834     822 
Adjusted EBITDA (Note 18) $ 136,450  $ 88,180  $ 128,392 
       
Note 1: We recorded $2.5 million, $0.8 million and $2.6 million of acquisition and integration costs during the three months ended September 30, 2017, June 30, 2017 and September 30, 2016, respectively, related to the Newport Corporation acquisition, which closed during the second quarter of 2016.
 
Note 2: We recorded $5.0 million in cost of sales during the three months ended September 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition.
 
Note 3: We recorded $0.4 million during the three months ended June 30, 2017, related to the sale of a business, which was completed in April of 2017.
 
Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the three months ended June 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing sites.
 
Note 5: We recorded $0.5 million of fees and expenses during the three months ended September 30, 2017, related to the re-pricing of our Term Loan Credit Agreement.
 
Note 6: We recorded $2.3 million, $0.7 million and $2.8 million of additional interest expense during the three months ended September 30, 2017, June 30, 2017 and September 30, 2016, respectively, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.
 
Note 7: We recorded $2.1 million of restructuring costs during the three months ended June 30, 2017, related to the consolidation of two manufacturing plants.
 
Note 8: We recorded a $6.7 million asset impairment charge, primarily related to the write-off of goodwill and intangible assets during the three months ended June 30, 2017, in conjunction with the consolidation of two manufacturing plants.
 
Note 9: We recorded a $74.9 million gain during the three months ended June 30, 2017 on the sale of our Data Analytics Solutions business.
 
Note 10: We recorded net proceeds of $1.3 million during the three months ended September 30, 2016 from a company owned life insurance policy.
 
Note 11: We recorded a windfall tax benefit on the vesting of stock-based compensation of $0.6 and $3.2 million during the three months ended September 30, 2017 and June 30, 2017, respectively, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
 
Note 12: We recorded $15.0 million of taxes during the three months ended June 30, 2017 related to the sale of our Data Analytics Solutions business.
 
Note 13: We recorded a tax expense of $1.5 million during the three months ended September 30, 2016 related to a legal entity restructuring.
 
Note 14: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, amortization of debt issuance costs, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy, amortization of intangible assets, a windfall tax benefit related to stock-based compensation expense, taxes related to the sale of a business, taxes related to a legal entity restructuring and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.
 
Note 15: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge and amortization of intangible assets.
 
Note 16: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment and an excess and obsolete inventory charge.
 
Note 17: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.
 
Note 18: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy and other adjustments as defined in our Term Loan Credit Agreement.

 

            
MKS Instruments, Inc. 
Unaudited Consolidated Statements of Operations 
(In thousands, except per share data) 
            
            
          
        Nine Months Ended 
        September 30, 
         2017   2016  
             
Net revenues:           
Products       $  1,259,582  $  774,248  
Services          144,595     115,954  
Total net revenues         1,404,177     890,202  
Cost of revenues:          
Products           658,102     433,134  
Services          92,950     74,857  
Total cost of revenues         751,052     507,991  
            
Gross profit          653,125     382,211  
            
Research and development         99,510     77,709  
Selling, general and administrative        218,038     161,545  
Acquisition and integration costs         4,698     25,190  
Restructuring          2,596     24  
Asset impairment          6,719     -   
Amortization of intangible assets        34,946     22,990  
Income from operations         286,618     94,753  
            
Interest income          1,896     1,858  
Interest expense         23,001     20,526  
Gain on sale of business         74,856     -   
Other (expense) income, net        (3,741)    2,336  
Income from continuing operations before income taxes       336,628     78,421  
Provision for income taxes           75,134     19,099  
Net income       $  261,494  $  59,322  
            
Net income per share:          
Basic        $  4.84  $  1.11  
Diluted       $  4.75  $  1.10  
            
Cash dividends per common share     $  0.525  $  0.51  
            
Weighted average shares outstanding:         
Basic          54,076     53,423  
Diluted          55,020     53,895  
            
The following supplemental Non-GAAP earnings information is presented      
to aid in understanding MKS' operating results:       
            
Net income       $  261,494  $  59,322  
             
Adjustments:            
Acquisition and integration costs (Note 1)       4,698      25,190  
Acquisition inventory step-up (Note 2)       -       15,090  
Expenses related to sale of a business (Note 3)       859     -   
Excess and obsolete inventory charge (Note 4)       1,160     -   
Fees and expenses relating to re-pricing of term loan (Note 5)     492     713  
Amortization of debt issuance costs (Note 6)       5,422     4,467  
Restructuring (Note 7)         2,596     24  
Asset impairment (Note 8)        6,719     -   
Gain on sale of business (Note 9)        (74,856)    -   
Net proceeds from an insurance policy (Note 10)      -      (1,323) 
Amortization of intangible assets        34,946     22,990  
Windfall tax benefit on stock-based compensation (Note 11)     (10,413)    -   
Taxes related to sale of business (Note 12)       15,007     -   
Taxes related to legal entity restructuring (Note 13)      -      1,532  
Pro-forma tax adjustments        (15,499)    (21,279) 
            
Non-GAAP net earnings (Note 14)      $  232,625  $  106,726  
            
Non-GAAP net earnings per share (Note 14)    $  4.23  $  1.98  
            
Weighted average shares outstanding        55,020     53,895  
            
Income from operations      $  286,618  $  94,753  
            
Adjustments:           
Acquisition and integration costs (Note 1)       4,698     25,190  
Acquisition inventory step-up (Note 2)       -      15,090  
Expenses related to sale of a business (Note 3)       859     -   
Excess and obsolete inventory charge (Note 4)       1,160     -   
Fees and expenses relating to re-pricing of term loan (Note 5)     492     713  
Restructuring (Note 7)          2,596     24  
Asset impairment (Note 8)        6,719     -   
Amortization of intangible assets        34,946     22,990  
             
Non-GAAP income from operations (Note 15)    $  338,088  $  158,760  
            
Non-GAAP operating margin percentage (Note 15)    24.1%  17.8% 
            
Gross profit $  653,125  $  382,211  
Acquisition inventory step-up (Note 2)    -      15,090  
Excess and obsolete inventory charge (Note 4)    1,160     -   
     
Non-GAAP gross profit (Note 16) $  654,285  $  397,301  
      
Non-GAAP gross profit percentage (Note 16)  46.6%  44.6% 
            
Interest expense      $  23,001  $  20,526  
Amortization of debt issuance costs (Note 6)       5,422     4,467  
            
Non-GAAP interest  expense     $  17,579  $  16,059  
            
Net Income $  261,494  $  59,322  
Interest expense (income), net    21,105     18,668  
Provision for income taxes    75,134     19,099  
Depreciation    27,605     20,767  
Amortization    34,946     22,990   
EBITDA (Note 17) $  420,284  $  140,846  
Stock-based compensation     19,835     19,826  
Acquisition and integration costs (Note 1)    4,698     25,190  
Acquisition inventory step-up (Note 2)    -      15,090  
Expenses related to sale of a business (Note 3)    859     -   
Excess and obsolete inventory charge (Note 4)    1,160     -   
Fees and expenses relating to re-pricing of term loan (Note 5)    492     713  
Restructuring (Note 7)    2,596     24  
Asset impairment (Note 8)        6,719     -   
Gain on sale of business (Note 9)         (74,856)    -   
Net proceeds from an insurance policy (Note 10)      -      (1,323) 
Other adjustments    2,405     1,495  
Adjusted EBITDA (Note 18) $  384,192  $  201,861  
            
Note 1: We recorded $4.7 million and $25.2 million of acquisition and integration costs during the nine months ended September 30, 2017 and 2016, respectively, related to the Newport Corporation acquisition, which closed during the second quarter of 2016.
 
Note 2: We recorded $15.1 million in cost of sales during the nine months ended September 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition.
 
Note 3: We recorded $0.9 million during the nine months ended September 30, 2017, which is comprised of legal and consulting and compensation related expenses related to the sale of a business, which was completed in April of 2017.
 
Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the nine months ended September 30, 2017 related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants.
 
Note 5: We recorded $0.5 million and $0.7 million of fees and expenses during the nine months ended September 30, 2017 and 2016, respectively, related to re-pricings of our Term Loan Credit Agreement.
 
Note 6: We recorded $5.4 million and $4.5 million of additional interest expense during the nine months ended September 30, 2017 and 2016, respectively, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.
 
Note 7: We recorded $2.6 million of restructuring costs during the nine months ended September 30, 2017, related to the consolidation of two manufacturing plants, a restructuring of one of our international facilities and the consolidation of sales offices.
 
Note 8: We recorded a $6.7 million asset impairment charge, primarily related to the write-off of goodwill and intangible assets during the nine months ended September 30, 2017, in connection with the consolidation of two manufacturing plants.
 
Note 9: We recorded a $74.9 million gain during the nine months ended September 30, 2017 on the sale of our Data Analytics Solutions business.
 
Note 10: We recorded net proceeds of $1.3 million during the nine months ended September 30, 2016 from a company owned life insurance policy.
 
Note 11: We recorded a windfall tax benefit on the vesting of stock-based compensation of $10.4 million, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
 
Note 12: We recorded $15.0 million of taxes during the nine months ended September 30, 2017 related to the sale of our Data Analytics Solutions business.
 
Note 13: We recorded a tax expense of $1.5 million during the nine months ended September 30, 2016 related to a legal entity restructuring.
 
Note 14: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, amortization of debt issuance costs, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy, amortization of intangible assets, a windfall tax benefit related to stock-based compensation expense, taxes related to the sale of a business, taxes related to a legal entity restructuring and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.
 
Note 15: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge and amortization of intangible assets.
 
Note 16: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment and an excess and obsolete inventory charge.
 
Note 17: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.
 
Note 18: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy 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 September 30, 2017 Three Months Ended June 30, 2017
 Income Before
Income Taxes
 Provision (benefit)
for Income Taxes
 Effective 
Tax Rate
 Income Before
Income Taxes
 Provision (benefit)
or Income Taxes
 Effective
Tax Rate 
                    
GAAP $  101,371  $  25,377   25.0% $  157,972  $  37,532  23.8%
             
Adjustments:            
Acquisition and integration costs (Note 1)    2,466     -        790     -    
Expenses related to sale of a business (Note 3)    -      -        436     -    
Excess and obsolete inventory charge (Note 4)    -      -        1,160     -    
 Fees and expenses relating to re-pricing of term loan (Note 5)    492     -        -      -    
Amortization of debt issuance costs (Note 6)     2,314     -        694     -    
Restructuring (Note 7)    10     -        2,064     -    
Asset impairment (Note 8)    -      -        6,719     -    
Gain on sale of business (Note 9)    -      -        (74,856)    -    
Amortization of intangible assets    10,977     -        11,468     -    
Windfall tax benefit on stock-based compensation (Note 10)    -      594       -      3,169   
Taxes related to sale of business (Note 11)    -      -       -      (15,007) 
Tax effect of pro-forma adjustments    -      5,789       -      3,047   
             
Non-GAAP $  117,630  $  31,760   27.0% $  106,447  $  28,741  27.0%
             
             
  Three Months Ended September 30, 2016      
  Income Before  Provision (benefit) Effective       
  Income Taxes for Income Taxes Tax Rate      
             
GAAP $  42,248  $  9,699   23.0%      
             
Adjustments:            
Acquisition and integration costs (Note 1)    2,641     -          
Acquisition inventory step-up (Note 2)    4,971     -           
Amortization of debt issuance costs (Note 6)    2,838      -          
Net proceeds from an insurance policy (Note 12)    (1,323)    -          
Amortization of intangible assets    12,452     -          
Taxes related to legal entity restructuring (Note 13)    -      (1,532)         
Tax effect of pro-forma adjustments    -      7,790          
             
Non-GAAP $  63,827  $  15,957   25.0%      
             
             
  Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
 Income Before
Income Taxes
 Provision (benefit)
for Income Taxes
 Effective 
Tax Rate
 Income Before
Income Taxes
 Provision (benefit)
for Income Taxes
 Effective
Tax Rate
     
GAAP  $  336,628  $  75,134   22.3 % $  78,421  $  19,099  24.4%
             
Adjustments:            
Acquisition and integration costs (Note 1)    4,698     -        25,190     -    
Acquisition inventory step-up (Note 2)    -      -        15,090     -    
Expenses related to sale of a business (Note 3)    859     -        -      -    
Excess and obsolete inventory charge (Note 4)    1,160     -        -      -    
Fees and expenses relating to re-pricing of term loan (Note 5)    492     -        713     -    
Amortization of debt issuance costs (Note 6)    5,422     -        4,467     -    
Restructuring (Note 7)    2,596     -        24     -    
Asset impairment (Note 8)    6,719     -        -      -    
Gain on sale of business (Note 9)    (74,856)    -         -      -     
Amortization of intangible assets    34,946     -         22,990     -    
Windfall tax benefit on stock-based compensation (Note 10)    -      10,413       -      -    
Taxes related to sale of business (Note 11)     -      (15,007)      -      -    
Net proceeds from an insurance policy (Note 12)     -      -        (1,323)    -    
Taxes related to legal entity restructuring (Note 13)    -      -        -      (1,532)  
Tax effect of pro-forma adjustments    -      15,499       -       21,279   
             
Non-GAAP $  318,664  $  86,039   27.0% $  145,572  $  38,846  26.7%
                         
Note 1: Acquisition and integration costs during the three and nine months ended September 30, 2017, the three months ended June 30, 2017 and the three and nine months ended September 30, 2016, relate to the Newport Corporation acquisition, which closed during the second quarter of 2016.
 
Note 2: We recorded $5.0 million and $15.1 million in cost of sales during the three and nine months ended September 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition.
 
Note 3: We recorded $0.4 million during the three months ended June 30, 2017 and $0.9 million during the nine months ended September 30, 2017, related to the sale of a business, which was completed in April of 2017.
 
Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the three months ended June 30, 2017 and nine months ended September 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants.
 
Note 5: We recorded $0.5 million during the three and nine months ended September 30, 2017 and $0.7 million during the nine months ended September 30, 2016, of fees and expenses related to the re-pricing of our Term Loan Credit Agreement.
 
Note 6: Amortization of debt issuance costs for the three and nine months ended September 30, 2017 and 2016, respectively, and the three months ended June 30, 2017, are affiliated with our Term Loan Credit Agreement and ABL Facility.
 
Note 7: Restructuring costs for the three and nine months ended September 30, 2017 and the three months ended June 30, 2017 relate to the consolidation of two manufacturing plants, a restructuring of one of our international facilities and the consolidation of sales offices.
 
Note 8: We recorded a $6.7 million asset impairment charge, during the three months ended June 30, 2017 and the nine months ended September 30, 2017, primarily related to the write-off of goodwill and intangible assets, in conjunction with the consolidation of two manufacturing plants.
 
Note 9: We recorded a $74.9 million gain during the three months ended June 30, 2017 and the nine months ended September 30, 2017 on the sale of our Data Analytics Solutions business.
 
Note 10: We recorded a windfall tax benefit on the vesting of stock-based compensation of $0.6 million and $3.2 million during the three months ended September 30, 2017 and June 30, 2017, respectively, and $10.4 million for the nine months ended September 30, 2017, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
 
Note 11: We recorded $15.0 million of taxes during the three months ended June 30, 2017 and nine months ended September 30, 2017 related to the sale of our Data Analytics Solutions business.
 
Note 12: We recorded net proceeds of $1.3 million during the three and nine months ended September 30, 2016 from a company owned life insurance policy.
 
Note 13: We recorded a tax expense of $1.5 million during the three and nine months ended September 30, 2016 related to a legal entity restructuring.  
             
             
             
MKS Instruments, Inc. 
Reconciliation of Q4-17 Guidance - GAAP Net Income to Non-GAAP Net Earnings  
(In thousands, except per share data)  
             
  Three Months Ended December 31, 2017    
  Low Guidance High Guidance    
  $ Amount $ Per Share $ Amount $ Per Share    
             
GAAP net income $  74,100  $  1.34  $   87,700  $  1.59     
             
Amortization  10,900     0.20   10,900     0.20     
             
Integration costs  400     0.01   400     0.01     
             
Restructuring costs  800     0.01   800     0.01     
             
Deferred financing costs  1,000     0.02   1,000     0.02     
             
Tax effect of adjustments (Note 1)  (3,500)     (0.06)  (3,600)    (0.07)    
             
Non-GAAP net earnings $  83,700  $  1.52  $  97,200  $  1.76     
             
Q4 -17 forecasted shares    55,200     55,200     
             
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)  
          
           
          
          
     September 30, December 31,  
      2017   2016   
          
ASSETS         
          
Cash and cash equivalents  $  305,977  $  228,623   
Restricted cash      117     5,287   
Short-term investments     228,631     189,463   
Trade accounts receivable, net     280,302     248,757   
Inventories      319,460     275,869   
Other current assets      60,716     50,770   
          
 Total current assets     1,195,203     998,769   
          
Property, plant and equipment, net    166,928      174,559   
Goodwill       589,099     588,585   
Intangible assets, net     376,334     408,004   
Long-term investments     10,593     9,858   
Other assets      32,188     32,467   
          
Total assets   $  2,370,345  $  2,212,242   
          
          
LIABILITIES AND STOCKHOLDERS' EQUITY     
          
Short-term debt    $  4,020  $  10,993   
Accounts payable      77,842     69,337   
Accrued compensation     75,725     67,728   
Income taxes payable     38,609     22,794   
Deferred revenue      17,812     14,463   
Other current liabilities     68,604     51,985   
 Total current liabilities    282,612     237,300   
          
Long-term debt, net      435,731     601,229   
Non-current deferred taxes     71,110     66,446   
Non-current accrued compensation    50,080     44,714   
Other liabilities      23,107     20,761   
 Total liabilities     862,640     970,450   
           
Stockholders' equity:        
Common stock      113     113   
Additional paid-in capital     782,597     777,482    
Retained earnings      727,835     494,744   
Accumulated other comprehensive loss    (2,840)    (30,547)  
 Total stockholders' equity    1,507,705     1,241,792   
          
Total liabilities and stockholders' equity $  2,370,345  $  2,212,242   
          

 

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Source: MKS Instruments, Inc.

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