MKS Instruments Reports Second Quarter 2019 Financial Results

• Quarterly revenue of $474 million, an increase of 2% compared to Q1 2019
• Voluntarily prepaid $50 million towards our Term Loan Credit Facility
• Non-GAAP net earnings of $59.9 million, or $1.09 per diluted share
• GAAP net income of $37.7 million, or $0.69 per diluted share

ANDOVER, Mass., July 30, 2019 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported second quarter 2019 financial results.

“Another quarter of strong operational and financial execution drove our Non-GAAP operating margin and Non-GAAP net earnings above the mid-point of our guidance range in the second quarter despite the effects of uncertainty in the global trade environment,” said Gerald Colella, Chief Executive Officer.

Mr. Colella added, “The acquisition of ESI adds laser-based systems to our Advanced Markets portfolio, further expanding our ability to penetrate into these profitable and growing markets.  The long-term growth potential in our Advanced Markets remains robust and we are committed to continue to outperform these markets over the long term.  In the second quarter, we are pleased to report that, with the ESI acquisition, our revenue in Advanced Markets achieved a new record of over $260 million in the quarter, an increase of 10% from a year ago.”

“In the quarter, we completed a $50 million voluntary prepayment on our term loan as we are committed to reduce our leverage and interest costs.  This was our ninth voluntary prepayment since loan origination in April 2016,” said Seth Bagshaw, Senior Vice President and Chief Financial Officer. “Furthermore, we exited the quarter with a strong balance sheet and liquidity with $460 million of cash and short-term investments and trailing twelve-month net leverage ratio of under 1 times.”

Quarterly Consolidated Financial Results
(in millions, except per share data)
	Q2 2019			Q1 2019
GAAP Results
Net revenues	$	474.1		$	463.6
Gross margin	44.5		%	42.7		%
Operating margin	13.5		%	5.0		%
Net income	$	37.7		$	12.5
Diluted EPS	$	0.69		$	0.23
Non-GAAP Results
Gross margin	45.0		%	43.8		%
Operating margin	18.6		%	17.7		%
Net earnings	$	59.9		$	61.3
Diluted EPS	$	1.09		$	1.12

Second Quarter 2019 Financial Results  
Revenue was $474.1 million, an increase of 2% from $463.6 million in the first quarter of 2019 and a decrease of 17% from $573.1 million in the second quarter of 2018.

Net income was $37.7 million, or $0.69 per diluted share, compared to net income of $12.5 million, or $0.23 per diluted share, in the first quarter of 2019, and $122.9 million, or $2.22 per diluted share, in the second quarter of 2018.

Second quarter net income included acquisition and integration costs of $3.2 million associated with the ESI acquisition and $1.2 million of restructuring and other costs.

Non-GAAP net earnings, which exclude special charges and credits, were $59.9 million, or $1.09 per diluted share, compared to $61.3 million, or $1.12 per diluted share, in the first quarter of 2019, and $128.8 million or $2.33 per diluted share, in the second quarter of 2018.

Sales to Advanced Markets were $260 million, an increase of 7% compared to the first quarter of 2019, which was primarily attributed to the acquisition of ESI, as the first quarter only included two months of sales. Sales to Semiconductor customers were $214 million, a decrease of 3% compared to the first quarter of 2019.

Additional Financial Information
The Company had $460 million in cash and short-term investments and $947 million of term loan debt outstanding as of June 30, 2019, which is net of a $50 million prepayment made during the second quarter of 2019. MKS also paid a dividend of $10.9 million or $0.20 per diluted share during the second quarter of 2019. The Company has available an unused $100 million asset-based line of credit.

Third Quarter 2019 Outlook  
Based on current business levels, the Company expects that revenue in the third quarter of 2019 could range from $415 to $465 million.

At these volumes, GAAP net income could range from $0.39 to $0.72 per diluted share and non-GAAP net earnings could range from $0.69 to $1.02 per diluted share.

Conference Call Details
A conference call with management will be held on Wednesday, July 31, 2019 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 5483628, 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, along with the Company's earnings press release and supplemental financial information.  

About MKS Instruments
MKS Instruments, Inc. is a global provider of instruments, subsystems and process control solutions that measure, monitor, deliver, analyze, power and control critical parameters of advanced manufacturing processes to improve process performance and productivity for our customers.  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, power, reactive gas generation, vacuum technology, lasers, photonics, sub-micron positioning, vibration control, optics and laser-based manufacturing solutions.  We also provide services relating to the maintenance and repair of our products, installation services and training.  Our primary served markets include semiconductor, industrial technologies, life and health sciences, and research and defense. Additional information can be found at www.mksinst.com.

Use of Non-GAAP Financial Results
This release includes measures that are not in accordance with U.S. generally accepted accounting principles (“Non-GAAP measures”). Non-GAAP measures exclude amortization of acquired intangible assets, costs associated with completed acquisitions, acquisition integration costs, fees and expenses related to our term loan, amortization of debt issuance costs, restructuring and other costs, windfall tax benefits from stock-based compensation, accrued taxes on subsidiary distributions, the tax effects of the 2017 Tax Cut and Jobs Act, tax cost of the inter-company sale of an asset and the related tax effects of adjustments impacting pre-tax income. These Non-GAAP measures should be viewed in addition to, and not as a substitute for, MKS’ reported results, and may be different from Non-GAAP measures used by other companies. In addition, these Non-GAAP measures are not based on any comprehensive set of accounting rules or principles. MKS management believes the presentation of these Non-GAAP measures is useful to investors for comparing prior periods and analyzing ongoing business trends and operating results.

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, business prospects and growth of MKS, and MKS’ expected synergies and cost savings from its recent acquisition of Electro Scientific Industries, Inc (“ESI”).  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 MKS operates, including the fluctuations in capital spending in the semiconductor industry and other advanced manufacturing markets, fluctuations in net sales to our major customers, the ability of MKS to successfully integrate ESI’s operations and employees, unexpected costs, charges or expenses resulting from the ESI acquisition, MKS’ ability to realize anticipated synergies and cost savings from the ESI acquisition, the terms of our term loan, competition from larger or more established companies in MKS’ markets; MKS’ ability to successfully grow ESI’s business; potential adverse reactions or changes to business relationships resulting from the ESI acquisition, the challenges, risks and costs involved with integrating the operations of the other companies we have acquired, the Company’s 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, 2018 filed with the SEC.  MKS is under no obligation to, and expressly disclaims any obligation to, update or alter these 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
Email:  seth_bagshaw@mksinst.com

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
	June 30,				June 30,				March 31,
	2019				2018				2019
Net revenues:
Products	$	401,326			$	509,999			$	397,363
Services		72,784				63,141				66,198
Total net revenues		474,110				573,140				463,561
Cost of revenues:
Products		226,213				266,890				229,710
Services		36,870				31,373				35,733
Total cost of revenues		263,083				298,263				265,443
Gross profit		211,027				274,877				198,118
Research and development		41,855				36,504				38,933
Selling, general and administrative		83,236				76,181				82,455
Fees and expenses related to term loan		—				378				5,847
Acquisition and integration costs		3,240				(1,168	)			30,167
Restructuring and other		1,242				790				1,923
Amortization of intangible assets		17,552				10,901				15,727
Income from operations		63,902				151,291				23,066
Interest income		1,423				1,456				1,714
Interest expense		12,674				3,922				9,119
Other expense, net		788				281				325
Income from operations before income taxes		51,863				148,544				15,336
Provision for income taxes		14,124				25,682				2,881
Net income	$	37,739			$	122,862			$	12,455
Net income per share:
Basic	$	0.69			$	2.25			$	0.23
Diluted	$	0.69			$	2.22			$	0.23
Cash dividends per common share	$	0.20			$	0.20			$	0.20
Weighted average shares outstanding:
Basic		54,815				54,719				54,147
Diluted		55,089				55,274				54,848
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:
	Three Months Ended
	June 30,				June 30,				March 31,
	2019				2018				2019
Net income	$	37,739			$	122,862			$	12,455
Adjustments:
Acquisition and integration costs (Note 1)		3,240				(1,168	)			30,167
Acquisition inventory step-up (Note 2)		2,484				—				5,140
Fees and expenses related to term loan (Note 3)		—				378				5,847
Amortization of debt issuance costs (Note 4)		1,254				660				599
Restructuring and other (Note 5)		1,242				790				1,923
Amortization of intangible assets		17,552				10,901				15,727
Windfall tax benefit on stock-based compensation (Note 6)		(790	)			(4,752	)			(1,389	)
Tax reform adjustments (Note 7)		2,731				—				—
Transition tax on accumulated foreign earnings (Note 8)		—				(659	)			—
Pro-forma tax adjustments		(5,596	)			(200	)			(9,169	)
Non-GAAP net earnings (Note 9)	$	59,856			$	128,812			$	61,300
Non-GAAP net earnings per share (Note 9)	$	1.09			$	2.33			$	1.12
Weighted average shares outstanding		55,089				55,274				54,848
Income from operations	$	63,902			$	151,291			$	23,066
Adjustments:
Acquisition and integration costs (Note 1)		3,240				(1,168	)			30,167
Acquisition inventory step-up (Note 2)		2,484				—				5,140
Fees and expenses related to term loan (Note 3)		—				378				5,847
Restructuring and other (Note 5)		1,242				790				1,923
Amortization of intangible assets		17,552				10,901				15,727
Non-GAAP income from operations (Note 10)	$	88,420			$	162,192			$	81,870
Non-GAAP operating margin percentage (Note 10)		18.6	%			28.3	%			17.7	%
Gross profit	$	211,027			$	274,877			$	198,118
Acquisition inventory step-up (Note 2)		2,484				—				5,140
Non-GAAP gross profit (Note 11)	$	213,511			$	274,877			$	203,258
Non-GAAP gross profit percentage (Note 11)		45.0	%			48.0	%			43.8	%
Interest expense	$	12,674			$	3,922			$	9,119
Amortization of debt issuance costs (Note 4)		1,254				660				599
Non-GAAP interest expense	$	11,420			$	3,262			$	8,520
Net income	$	37,739			$	122,862			$	12,455
Interest expense, net		11,251				2,466				7,405
Provision for income taxes		14,124				25,682				2,881
Depreciation		9,892				8,984				9,484
Amortization		17,552				10,901				15,727
EBITDA (Note 12)	$	90,558			$	170,895			$	47,952
Stock-based compensation		5,903				6,366				9,274
Acquisition and integration costs (Note 1)		3,240				(1,168	)			30,167
Acquisition inventory step-up (Note 2)		2,484				—				5,140
Fees and expenses related to term loan (Note 3)		—				378				5,847
Restructuring and other (Note 5)		1,242				790				1,923
Other adjustments		—				—				3,337
Adjusted EBITDA (Note 13)	$	103,427			$	177,261			$	103,640
Note 1: Acquisition and integration costs for the three months ended June 30, 2019 and March 31, 2019, related to the acquisition of Electro Scientific Industries, Inc. ("ESI") which closed on February 1, 2019. During the three months ended June 30, 2018, we reversed a portion of costs recognized during previous periods related to the Newport acquisition, which closed during the second quarter of 2016, related to severance agreement provisions that were not met.
Note 2: Costs of revenues during the three months ended June 30, 2019 and March 31, 2019 includes the amortization of the step-up of inventory to fair value as a result of the ESI acquisition.
Note 3: We recorded fees and expenses during the three months ended March 31, 2019 related to Amendment No. 5 of our Term Loan Credit Agreement. We recorded fees and expenses during the three months ended June 30, 2018 related to the fourth repricing of our Term Loan Credit Agreement.
Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our Term Loan Credit Agreement.
Note 5: We recorded restructuring costs during the three months ended June 30, 2019 and March 31, 2019 which consisted primarily of severance costs related to an organization-wide reduction in workforce, the consolidation of service functions in Asia and the movement of certain products to low costs regions. We also recorded other expense during the three months ended March 31, 2019 related to a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the three months ended June 30, 2018 were primarily comprised of severance costs related to transferring a portion of our shared services functions to a third party as well as the consolidation of certain shared service functions in Asia.
Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation.
Note 7: We recorded tax adjustments resulting from additional guidance provided by the IRS related to 2017 tax reform.
Note 8: We adjusted the provisional transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three months ended June 30, 2018.
Note 9: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to our Term Loan Credit Agreement, amortization of debt issuance costs, restructuring and other costs, amortization of intangible assets, a windfall tax benefit related to stock compensation expense, tax reform adjustments, transition tax on accumulated foreign earnings and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.
Note 10: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to our Term Loan Credit Agreement, restructuring and other costs and amortization of intangible assets.
Note 11: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude the amortization of the step-up of inventory to fair value related to the acquisition of ESI.
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,  the amortization of the step-up of inventory to fair value, fees and expenses related to an amendment of our Term Loan Credit agreement, restructuring and other costs 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)
	Six Months Ended
	June 30,
		2019				2018
Net revenues:
Products	$	798,689			$	1,006,676
Services		138,982				120,739
Total net revenues		937,671				1,127,415
Cost of revenues:
Products		455,923				528,211
Services		72,603				61,472
Total cost of revenues		528,526				589,683
Gross profit		409,145				537,732
Research and development		80,788				71,361
Selling, general and administrative		165,691				159,130
Acquisition and integration costs		33,407				(1,168	)
Restructuring and other		3,165				3,010
Fees and expenses related to term loan		5,847				378
Amortization of intangible assets		33,279				22,091
Income from operations		86,968				282,930
Interest income		3,137				2,561
Interest expense		21,793				9,352
Other expense, net		1,113				853
Income from operations before income taxes		67,199				275,286
Provision for income taxes		17,005				47,303
Net income	$	50,194			$	227,983
Net income per share:
Basic	$	0.92			$	4.18
Diluted	$	0.91			$	4.12
Cash dividends per common share	$	0.40			$	0.38
Weighted average shares outstanding:
Basic		54,481				54,571
Diluted		54,966				55,280
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:
	Six Months Ended
	June 30,
		2019				2018
Net income	$	50,194			$	227,983
Adjustments:
Acquisition and integration costs (Note 1)		33,407				(1,168	)
Acquisition inventory step-up (Note 2)		7,624				—
Fees and expenses related to term loan (Note 3)		5,847				378
Amortization of debt issuance costs (Note 4)		1,853				2,491
Restructuring and other (Note 5)		3,165				3,010
Amortization of intangible assets		33,279				22,091
Windfall tax benefit on stock-based compensation (Note 6)		(2,179	)			(7,788	)
Tax reform adjustments (Note 7)		2,731				—
Deferred tax adjustment (Note 8)		—				878
Transition tax on accumulated foreign earnings (Note 9)		—				(2,327	)
Pro-forma tax adjustments		(14,765	)			(2,447	)
Non-GAAP net earnings (Note 10)	$	121,156			$	243,101
Non-GAAP net earnings per share (Note 10)	$	2.20			$	4.40
Weighted average shares outstanding		54,966				55,280
Income from operations	$	86,968			$	282,930
Adjustments:
Acquisition and integration costs (Note 1)		33,407				(1,168	)
Acquisition inventory step-up (Note 2)		7,624				—
Fees and expenses related to term loan (Note 3)		5,847				378
Restructuring and other (Note 5)		3,165				3,010
Amortization of intangible assets		33,279				22,091
Non-GAAP income from operations (Note 11)	$	170,290			$	307,241
Non-GAAP operating margin percentage (Note 11)		18.2	%			27.3	%
Gross profit	$	409,145			$	537,732
Acquisition inventory step-up (Note 2)		7,624				—
Non-GAAP gross profit (Note 12)	$	416,769			$	537,732
Non-GAAP gross profit percentage (Note 12)		44.4	%			47.7	%
Interest expense	$	21,793			$	9,352
Amortization of debt issuance costs (Note 4)		1,853				2,491
Non-GAAP interest expense	$	19,940			$	6,861
Net Income	$	50,194			$	227,983
Interest expense, net		18,656				6,791
Provision for income taxes		17,005				47,303
Depreciation		19,376				18,286
Amortization		33,279				22,091
EBITDA (Note 13)	$	138,510			$	322,454
Stock-based compensation		15,177				16,792
Acquisition and integration costs (Note 1)		33,407				(1,168	)
Acquisition inventory step-up (Note 2)		7,624				—
Fees and expenses related to term loan (Note 3)		5,847				378
Restructuring and other (Note 5)		3,165				3,010
Other adjustments		3,337				772
Adjusted EBITDA (Note 14)	$	207,067			$	342,238
Note 1: Acquisition and integration costs for the six months ended June 30, 2019, related to the acquisition of Electro Scientific Industries, Inc. ("ESI") which closed on February 1, 2019. During the six months ended June 30, 2018, we reversed a portion of costs recognized during previous periods related to the Newport acquisition, which closed during the second quarter of 2016, related to severance agreement provisions that were not met.
Note 2: Costs of revenues during the six months ended June 30, 2019 includes the amortization of the step-up of inventory to fair value as a result of the ESI acquisition.
Note 3: We recorded fees and expenses during the six months ended March 31, 2019 related to Amendment No. 5 of our Term Loan Credit Agreement. We recorded fees and expenses during the six months ended June 30, 2018 related to the fourth repricing of our Term Loan Credit Agreement.
Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our Term Loan Credit Agreement.
Note 5: We recorded restructuring costs during the six months ended June 30, 2019, which consisted primarily of severance costs related to an organization-wide reduction in workforce, the consolidation of service functions in Asia and the movement of certain products to low cost regions. We also recorded expense during the six months ended June 30, 2019 related to a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the six months ended June 30, 2018 were primarily comprised of severance costs related to transferring a portion of our shared services functions to a third party as well as the consolidation of certain shared service functions in Asia. We also recorded environmental costs during the six months ended June 30, 2018, related to an Environmental Protection Agency-designated Superfund site, which was acquired as part of our acquisition of Newport Corporation.
Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation.
Note 7: We recorded tax adjustments resulting from additional guidance provided by the IRS related to 2017 tax reform.
Note 8:  We recorded a provisional deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to U.S. tax reform legislation during the fourth quarter of 2017 and updated the provisional transition tax during the six months ended June 30, 2018.
Note 9: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the six months ended June 30, 2018.
Note 10: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to the repricing of the Term Loan Credit Agreement, fees and expenses related to an amendment to our Term Loan Credit agreement, amortization of debt issuance costs, restructuring and other costs, amortization of intangible assets, a windfall tax benefit related to stock compensation expense, tax reform adjustments, a deferred tax adjustment, transition tax on accumulated foreign earnings 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, fees and expenses related to the repricing of our Term Loan Credit Agreement, fees and expenses related to an amendment to our Term Loan Credit agreement, restructuring and other costs and amortization of intangible assets.
Note 12: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude the amortization of the step-up of inventory to fair value related to the acquisition of ESI.
Note 13: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.
Note 14: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to the repricing of our Term Loan Credit Agreement, fees and expenses related to an amendment to our Term Loan Credit Agreement, restructuring and other costs and other adjustments as defined in our Term Loan Credit Agreement.

 

MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)
	June 30,				December 31,
	2019				2018
ASSETS
Cash and cash equivalents	$	366,935			$	644,345
Short-term investments		92,985				73,826
Trade accounts receivable, net		313,530				295,454
Inventories		479,497				384,689
Other current assets		80,303				65,790
Assets classified as held for sale		36,750				—
Total current assets		1,370,000				1,464,104
Property, plant and equipment, net		230,649				194,367
Right-of-use asset		68,631				—
Goodwill		1,058,667				586,996
Intangible assets, net		599,372				319,807
Long-term investments		10,401				10,290
Other assets		44,228				38,682
Total assets	$	3,381,948			$	2,614,246
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt	$	10,931			$	3,986
Accounts payable		88,046				83,825
Accrued compensation		64,415				82,350
Income taxes payable		12,811				16,358
Lease liability		20,670				—
Deferred revenue and customer advances		26,597				14,246
Other current liabilities		61,686				62,520
Total current liabilities		285,156				263,285
Long-term debt, net		926,879				343,842
Non-current deferred taxes		76,042				48,223
Non-current accrued compensation		62,947				55,598
Non-current lease liability		51,141				—
Other liabilities		34,296				30,111
Total liabilities		1,436,461				741,059
Stockholders' equity:
Common stock		113				113
Additional paid-in capital		849,585				793,932
Retained earnings		1,113,036				1,084,797
Accumulated other comprehensive loss		(17,247	)			(5,655	)
Total stockholders' equity		1,945,487				1,873,187
Total liabilities and stockholders' equity	$	3,381,948			$	2,614,246

 

MKS Instruments, Inc.
Unaudited Consolidated Statements of Cash Flows
(In thousands, except per share data)
	Three Months Ended
	June 30				June 30,				March 31
	2019				2018				2019
Cash flows from operating activities:
Net income	$	37,739			$	122,862			$	12,455
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		27,444				19,885				25,211
Amortization of inventory step-up adjustment to fair value		2,484				—				5,140
Amortization of debt issuance costs, original issue discount and soft call premium		1,751				868				1,202
Stock-based compensation		6,929				6,366				27,838
Provision for excess and obsolete inventory		6,990				4,959				5,063
(Recovery) Provision for doubtful accounts		(251	)			261				(440	)
Deferred income taxes		(180	)			1,875				(2,445	)
Other		851				426				66
Changes in operating assets and liabilities		(6,203	)			(47,891	)			(45,040	)
Net cash provided by operating activities		77,554				109,611				29,050
Cash flows used in investing activities:
Acquisition of business, net of cash acquired		—				—				(988,599	)
Purchases of investments		(73,707	)			(99,063	)			(44,212	)
Sales of investments		3,221				54,433				154,489
Maturities of investments		21,702				41,138				18,684
Proceeds from sale of assets		—				—				35
Purchases of property, plant and equipment		(13,725	)			(12,428	)			(14,529	)
Net cash used in investing activities		(62,509	)			(15,920	)			(874,132	)
Cash flows (used in) provided by financing activities:
Payments of short-term borrowings		(1,750	)			(17,788	)			(176	)
Net proceeds from short and long-term borrowings		2,301				25,082				638,638
Payments of long-term borrowings		(51,625	)			—				—
Dividend payments		(10,880	)			(10,942	)			(10,843	)
Net payments related to employee stock awards		(2,025	)			(4,131	)			(8,987	)
Net cash (used in) provided by financing activities		(63,979	)			(7,779	)			618,632
Effect of exchange rate changes on cash and cash equivalents		(2,147	)			631				121
(Decrease) increase in cash and cash equivalents		(51,081	)			86,543				(226,329	)
Cash and cash equivalents at beginning of period		418,016				340,888				644,345
Cash and cash equivalents at end of period	$	366,935			$	427,431			$	418,016

 

MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)
	Three Months Ended June 30, 2019												Three Months Ended March 31, 2019
	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	$	51,863			$	14,124				27.2	%		$	15,336			$	2,881			18.8	%
Adjustments:
Acquisition and integration costs (Note 1)		3,240				—								30,167				—
Acquisition inventory step-up (Note 2)		2,484				—								5,140				—
Fees and expenses related to term loan (Note 3)		—				—								5,847				—
Amortization of debt issuance costs (Note 4)		1,254				—								599				—
Restructuring and other (Note 5)		1,242				—								1,923				—
Amortization of intangible assets		17,552				—								15,727				—
Windfall tax benefit on stock-based compensation (Note 6)		—				790								—				1,389
Tax reform adjustments (Note 7)		—				(2,731	)							—				—
Tax effect of pro-forma adjustments		—				5,596								—				9,169
Non-GAAP	$	77,635			$	17,779				22.9	%		$	74,739			$	13,439			18.0	%
	Three Months Ended June 30, 2018
	Income Before				Provision (benefit)				Effective
	Income Taxes				for Income Taxes				Tax Rate
GAAP	$	148,544			$	25,682				17.3	%
Adjustments:
Acquisition and integration costs (Note 1)		(1,168	)			—
Fees and expenses related to term loan (Note 3)		378				—
Amortization of debt issuance costs (Note 4)		660				—
Restructuring and other (Note 5)		790				—
Amortization of intangible assets		10,901				—
Windfall tax benefit on stock-based compensation (Note 6)		—				4,752
Transition tax on accumulated foreign earnings (Note 9)		—				659
Tax effect of pro-forma adjustments		—				200
Non-GAAP	$	160,105			$	31,293				19.5	%
	Six Months Ended June 30, 2019												Six Months Ended June 30, 2018
	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	$	67,199			$	17,005				25.3	%		$	275,286			$	47,303			17.2	%
Adjustments:
Acquisition and integration costs (Note 1)		33,407				—								(1,168	)			—
Acquisition inventory step-up (Note 2)		7,624				—								—				—
Fees and expenses related to term loan (Note 3)		5,847				—								378				—
Amortization of debt issuance costs (Note 4)		1,853				—								2,491				—
Restructuring and other (Note 5)		3,165				—								3,010				—
Amortization of intangible assets		33,279				—								22,091				—
Windfall tax benefit on stock-based compensation (Note 6)		—				2,179								—				7,788
Tax reform adjustments (Note 7)		—				(2,731	)							—				—
Deferred tax adjustment (Note 8)		—				—								—				(878	)
Transition tax on accumulated foreign earnings (Note 9)		—				—								—				2,327
Tax effect of pro-forma adjustments		—				14,765								—				2,447
Non-GAAP	$	152,374			$	31,218				20.5	%		$	302,088			$	58,987			19.5	%
Note 1: Acquisition and integration costs for the three months ended June 30, 2019 and March 31, 2019 and the six months ended June 30, 2019, related to the acquisition of Electro Scientific Industries, Inc. ("ESI") which closed on February 1, 2019. During the three and six months ended June 30, 2018, we reversed a portion of costs recognized during previous periods related to the Newport acquisition, which closed during the second quarter of 2016, related to severance agreement provisions that were not met.
Note 2: Costs of revenues during the three months ended June 30, 2019 and March 31, 2019 and the six months ended June 30, 2019 includes the amortization of the step-up of inventory to fair value as a result of the ESI acquisition.
Note 3: We recorded fees and expenses during the three months ended March 31, 2019 and six months ended June 30, 2019 related to Amendment No. 5 of our Term Loan Credit Agreement. We recorded fees and expenses during the three and six months ended June 30, 2018 related to the fourth repricing of our Term Loan Credit Agreement.
Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our Term Loan Credit Agreement.
Note 5: We recorded restructuring costs during the three months ended June 30, 2019 and March 31, 2019 and the six months ended June 30, 2019, which consisted primarily of severance costs related to an organization-wide reduction in workforce, the consolidation of service functions in Asia and the movement of certain products to low cost regions. We also recorded expense during the three months ended March 31, 2019 and six months ended June 30, 2019 related to a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the three and six months ended June 30, 2018 were primarily comprised of severance costs related to transferring a portion of our shared services functions to a third party as well as the consolidation of certain shared service functions in Asia. We recorded environmental costs during the six months ended June 30, 2018, related to an Environmental Protection Agency-designated Superfund site, which was acquired as part of our acquisition of Newport Corporation.
Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation.
Note 7: We recorded tax adjustments resulting from additional guidance provided by the IRS related to 2017 tax reform.
Note 8:  We recorded a provisional deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to U.S. tax reform legislation during the fourth quarter of 2017 and updated the provisional transition tax during the six months ended June 30, 2018.
Note 9: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three and six months ended June 30, 2018.

 

MKS Instruments, Inc.
Reconciliation of Q3-19 Guidance - GAAP Net Income to Non-GAAP Net Earnings
(In thousands, except per share data)
		Three Months Ended September 30, 2019
		Low Guidance								High Guidance
		$ Amount				$ Per Share				$ Amount				$ Per Share
GAAP net income		$	21,400			$	0.39			$	39,800			$	0.72
Amortization			17,200				0.31				17,200				0.31
Deferred financing costs			800				0.01				800				0.01
Integration costs			1,700				0.03				1,700				0.03
Restructuring and other costs			1,800				0.03				1,800				0.03
Tax effect of adjustments (Note 1)			(4,700	)			(0.08	)			(4,700	)			(0.08	)
Non-GAAP net earnings		$	38,200			$	0.69			$	56,600			$	1.02
Q3 -19 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.

 

Source: MKS Instruments, Inc.