MKS Instruments Reports Q2 2015 Financial Results

MKS Instruments Reports Q2 2015 Financial Results 81.6 KB

ANDOVER, Mass., July 22, 2015 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ:MKSI), a global provider of technologies that enable advanced processes and improve productivity; today reports second quarter 2015 financial results.

	GAAP Results			Non-GAAP Results
Net revenues ($ millions)	$	218		$	218
Gross margin		45.3	%		44.4	%
Operating margin		21.1	%		21.0	%
Net income ($ millions)	$	33.2		$	33.1
Diluted EPS	$	0.62		$	0.62

Second Quarter Financial Results

Sales were $218 million, an increase of 2% from $214 million in the first quarter of 2015, and an increase of 18% from $185 million in the second quarter of 2014.

Second quarter net income was $33.2 million, or $0.62 per diluted share, compared to net income of $33.8 million, or $0.63 per diluted share in the first quarter of 2015, and $21.2 million, or $0.40 per diluted share in the second quarter of 2014.

Non-GAAP net earnings, which exclude special charges and credits, were $33.1 million, or $0.62 per diluted share, compared to $35.5 million, or $0.66 per diluted share in the first quarter of 2015, and $22.6 million, or $0.42 per diluted share in the second quarter of 2014.

In the second quarter, the board of directors authorized a 3% increase in the quarterly cash dividend, to $0.17 per share, and paid a dividend of $9.1 million on June 12^th. The Company has increased its quarterly cash dividend by 13% since its inception in 2011. In addition, during the quarter, the Company repurchased 116,000 shares for $4.3 million for an average price of $37.55 per share.

Gerald Colella, Chief Executive Officer and President, said, "The second quarter was another strong quarter financially for MKS. The favorable results were driven by a continued strong environment for our semiconductor business, which achieved another record high of $154 million, while sales to all other markets again grew sequentially for the seventh straight quarter. We also announced another increase in our quarterly cash dividend and repurchased shares as part of our ongoing share buyback program.

"Reports from the recent SEMICON trade show indicate a continued healthy market for semiconductor production equipment to support the technology inflections underway. Our near-term visibility indicates a continued positive business environment in both our semiconductor and other advanced markets for the third quarter.

"Based on these factors, and looking at current business levels, we anticipate that sales in the third quarter may range from $195 million to $215 million, and at these volumes, our non-GAAP net earnings could range from $0.50 to $0.64 per share and our GAAP net income could range from $0.48 to $0.61 per share."

Conference Call Details

A conference call with management will be held on Thursday, July 23, 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 68290658, 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, 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
	June 30,			June 30,			March 31,
		2015			2014			2015

Net revenues:
Products	$	188,281		$	157,466		$	186,096
Services		29,685			27,231			27,743
Total net revenues		217,966			184,697			213,839
Cost of revenues:
Products		99,849			87,513			98,652
Services		19,319			17,549			18,141
Total cost of revenues		119,168			105,062			116,793

Gross profit		98,798			79,635			97,046

Research and development		17,567			15,421			16,680
Selling, general and administrative		33,269			32,239			30,867
Acquisition costs		-			271			30
Restructuring		219			-			788
Amortization of intangible assets		1,709			1,044			1,671
Income from operations		46,034			30,660			47,010

Interest income, net		790			231			504

Income from operations before income taxes		46,824			30,891			47,514
Provision for income taxes		13,604			9,667			13,728
Net income	$	33,220		$	21,224		$	33,786

Net income per share:
Basic	$	0.62		$	0.40		$	0.63
Diluted	$	0.62		$	0.40		$	0.63

Cash dividends per common share	$	0.170		$	0.165		$	0.165

Weighted average shares outstanding:
Basic		53,384			53,361			53,214
Diluted		53,589			53,537			53,529

The following supplemental Non-GAAP earnings information is presented
to aid in understanding MKS' operating results:

Net income	$	33,220		$	21,224		$	33,786

Adjustments (net of tax, if applicable):
Acquisition costs (Note 1)		-			271			30
Acquisition inventory step-up (Note 2)		-			545			-
Restructuring (Note 3)		219			-			788
Sale of previously written down inventory (Note 4)		(2,098	)		-			-
Amortization of intangible assets		1,709			1,044			1,671
Pro forma tax adjustments		74			(486	)		(773	)

Non-GAAP net earnings (Note 5)	$	33,124		$	22,598		$	35,502

Non-GAAP net earnings per share (Note 5)	$	0.62		$	0.42		$	0.66

Weighted average shares outstanding		53,589			53,537			53,529

Income from operations	$	46,034		$	30,660		$	47,010

Adjustments:
Acquisition costs (Note 1)	$	-		$	271		$	30
Acquisition inventory step-up (Note 2)		-			545			-
Restructuring (Note 3)		219			-			788
Sale of previously written down inventory (Note 4)		(2,098	)		-			-
Amortization of intangible assets		1,709			1,044			1,671

Non-GAAP income from operations (Note 6)	$	45,864		$	32,520		$	49,499

Non-GAAP operating margin percentage (Note 6)		21.0	%		17.6	%		23.1	%

Gross profit	$	98,798		$	79,635		$	97,046
Acquisition inventory step-up (Note 2)		-			545			-
Sale of previously written down inventory (Note 4)		(2,098	)		-			-

Non-GAAP gross profit (Note 7)	$	96,700		$	80,180		$	97,046

Non-GAAP gross profit percentage (Note 7)		44.4	%		43.4	%		45.4	%


Note 1: We recorded $0.03 million of acquisition costs related to the Precisive LLC acquisition, which closed during the first quarter of 2015. We recorded $0.3 million of acquisition costs comprising of legal fees related to the acquisition of the Granville-Phillips division of Brooks Automation, which closed during the second quarter of 2014.

Note 2: Inventory step-up adjustment related to the acquisition of the Granville-Phillips division of Brooks Automation, which closed during the second quarter of 2014.

Note 3: We recorded restructuring costs related to the outsourcing of an international manufacturing operation.

Note 4: 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 5: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition costs, an inventory step-up adjustment related to an acquisition, restructuring costs, income related to the sale of excess and obsolete inventory previously written down to net realizable value, 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 6: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition costs, an inventory step-up adjustment related to an acquisition, restructuring costs, income related to the sale of excess and obsolete inventory previously written down to net realizable value and amortization of intangible assets.

Note 7: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment related to an acquisition and income related to the sale of excess and obsolete inventory previously written down to net realizable value.

MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)



	Six Months Ended
	June 30,
		2015			2014

Net revenues:
Products	$	374,377		$	338,652
Services		57,428			52,398
Total net revenues		431,805			391,050
Cost of revenues:
Products		198,501			187,724
Services		37,460			34,319
Total cost of revenues		235,961			222,043

Gross profit		195,844			169,007

Research and development		34,247			31,039
Selling, general and administrative		64,136			66,830
Acquisition costs		30			499
Restructuring		1,007			747
Amortization of intangible assets		3,380			1,454
Income from operations		93,044			68,438

Interest income, net		1,294			466

Income from operations before income taxes		94,338			68,904
Provision for income taxes		27,332			16,435
Net income	$	67,006		$	52,469

Net income per share:
Basic	$	1.26		$	0.98
Diluted	$	1.25		$	0.98

Cash dividends per common share	$	0.335		$	0.325

Weighted average shares outstanding:
Basic		53,299			53,386
Diluted		53,559			53,657

The following supplemental Non-GAAP earnings information is presented
to aid in understanding MKS' operating results:

Net income	$	67,006		$	52,469

Adjustments (net of tax, if applicable):
Tax benefit (Note 1)		-			(5,079	)
Acquisition costs (Note 2)		30			499
Acquisition inventory step-up (Note 3)		-			545
Restructuring (Note 4)		1,007			747
Sale of previously written down inventory (Note 5)		(2,098	)		-
Amortization of intangible assets		3,380			1,454
Pro forma tax adjustments		(698	)		(852	)

Non-GAAP net earnings (Note 6)	$	68,627		$	49,783

Non-GAAP net earnings per share (Note 6)	$	1.28		$	0.93

Weighted average shares outstanding		53,559			53,657


Income from operations	$	93,044		$	68,438

Adjustments:
Acquisition costs (Note 2)		30			499
Acquisition inventory step-up (Note 3)		-			545
Restructuring (Note 4)		1,007			747
Sale of previously written down inventory (Note 5)		(2,098	)		-
Amortization of intangible assets		3,380			1,454

Non-GAAP income from operations (Note 7)	$	95,363		$	71,683

Non-GAAP operating margin percentage (Note 7)		22.1	%		18.3	%

Gross profit	$	195,844		$	169,007
Acquisition inventory step-up (Note 3)		-			545
Sale of previously written down inventory (Note 5)		(2,098	)		-

Non-GAAP gross profit (Note 8)	$	193,746		$	169,552

Non-GAAP gross profit percentage (Note 8)		44.9	%		43.4	%

Note 1: The six months ended June 30, 2014 includes a tax benefit related to the settlement of an audit and other discrete tax items during the first quarter of 2014.

Note 2: The six months ended June 30, 2015 includes acquisition costs related to the Precisive LLC acquisition, which closed during the first quarter of 2015. The six months ended June 30, 2014 includes acquisition costs comprised of legal fees related to the acquisition of the Granville-Phillips division of Brooks Automation, which closed during the second quarter of 2014.

Note 3: Inventory step-up adjustment related to the acquisition of the Granville-Phillips division of Brooks Automation, which closed during the second quarter of 2014.

Note 4: The six months ended June 30, 2015 includes restructuring charges related mainly to the outsourcing of an international manufacturing operation. The six month period ended June 30, 2014 includes restructuring charges primarily for severance related costs related to a reduction in work force throughout the Company.

Note 5: Cost of sales for the six months ended June 30, 2015 includes income related to the sale of excess and obsolete inventory previously written down to net realizable value.

Note 6: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition costs, an inventory step-up adjustment related to an acquisition, restructuring costs, amortization of intangible assets, income related to the sale of excess and obsolete inventory previously written down to net realizable value, discrete tax benefits and charges, and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related quarter.

Note 7: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition costs, an inventory step-up adjustment related to an acquisition, restructuring costs, income related to the sale of excess and obsolete inventory previously written down to net realizable value and amortization of intangible assets.

Note 8: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment related to an acquisition and income related to the sale of excess and obsolete inventory previously written down to net realizable value.


MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)

	Three Months Ended June 30, 2015									Three Months Ended March 31, 2015
	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	$	46,824		$	13,604			29.1	%	$	47,514		$	13,728			28.9	%

Adjustments:
Acquisition costs (Note 1)		-			-						30			-
Restructuring (Note 3)		219			-						788			-
Amortization of intangible assets		1,709			-						1,671			-
Sale of previously written down inventory (Note 5)		(2,098	)		-						-			-
Tax effect of pro forma adjustments		-			311						-			817
Adjustment to pro forma tax rate		-			(385	)					-			(44	)

Non-GAAP	$	46,654		$	13,530			29.0	%	$	50,003		$	14,501			29.0	%


	Three Months Ended June 30, 2014
	Income Before			Provision (benefit)			Effective
	Income Taxes			for Income Taxes			Tax Rate

GAAP	$	30,891		$	9,667			31.3	%

Adjustments:
Acquisition costs (Note 1)		271			-
Acquisition inventory step-up (Note 2)		545			-
Amortization of intangible assets		1,044			-
Tax effect of pro forma adjustments		-			642
Adjustment to pro forma tax rate		-			(156	)

Non-GAAP	$	32,751		$	10,153			31.0	%

	Six Months Ended June 30, 2015									Six Months Ended June 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	$	94,338		$	27,332			29.0	%	$	68,904		$	16,435			23.9	%

Adjustments:
Tax benefit (Note 4)		-			-						-			5,079
Acquisition costs (Note 1)		30			-						499			-
Acquisition inventory step-up (Note 2)		-			-						545			-
Restructuring (Note 3)		1,007			-						747			-
Amortization of intangible assets		3,380			-						1,454			-
Sale of previously written down inventory (Note 5)		(2,098	)		-						-			-
Tax effect of pro forma adjustments		-			1,128						-			1,110
Adjustment to pro forma tax rate		-			(430	)					-			(258	)

Non-GAAP	$	96,657		$	28,030			29.0	%	$	72,149		$	22,366			31.0	%

Note 1: The three months ended March 31, 2015 includes acquisition costs related to the Precisive LLC acquisition, which closed during the first quarter of 2015. The three and six months ended June 30, 2014 include acquisition costs comprising of legal and filing fees related to the acquisition of the Granville-Phillips division of Brooks Automation, which closed during the second quarter of 2014.

Note 2: The three and six months ended June 30, 2014 includes an inventory step-up adjustment related to the acquisition of the Granville-Phillips division of Brooks Automation, which closed during the second quarter of 2014.

Note 3: The three and six months ended March 31, 2015 and the three and six month periods ended June 30, 2015 include restructuring charges related to the outsourcing of an international manufacturing operation. The six month period ended June 30, 2014 includes restructuring charges primarily for severance related costs related to a reduction in work force throughout the Company.

Note 4: The six months ended June 30, 2014 includes a tax benefit related to the settlement of an audit and other discrete items.

Note 5: 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.


MKS Instruments, Inc.
Reconciliation of Q3-15 Guidance - GAAP Net Income to Non-GAAP Net Earnings
(In thousands, except per share data)

	Three Months Ended September 30, 2015
	Low Guidance						High Guidance
	$ Amount			$ Per Share			$ Amount			$ Per Share

GAAP net income	$	25,700		$	0.48		$	32,900		$	0.61

Amortization		1,700			0.03			1,700			0.03

Tax effect of adjustments (Note 1)		(500	)		(0.01	)		(400	)		(0.01	)

Non-GAAP net earnings	$	26,900		$	0.50		$	34,200		$	0.64

Q3 -15 forecasted shares					53,600						53,600

Note 1: The Non-GAAP adjustments are tax effected at the estimated Q3-15 tax rate of 29%.

MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)

	June 30,			December 31,
		2015			2014

ASSETS

Cash and cash equivalents	$	178,319		$	305,437
Short-term investments		177,433			129,594
Trade accounts receivable, net		124,553			106,362
Inventories		165,590			155,169
Deferred income taxes		13,570			14,017
Other current assets		28,203			27,512

Total current assets		687,668			738,091

Property, plant and equipment, net		69,898			72,776
Long-term investments		256,855			157,201
Goodwill		200,212			192,381
Intangible assets, net		47,822			46,389
Other assets		17,878			17,206

Total assets	$	1,280,333		$	1,224,044


LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable	$	34,054		$	34,166
Accrued compensation		23,641			26,970
Income taxes payable		8,615			6,702
Other current liabilities		45,668			35,789
Total current liabilities		111,978			103,627

Other liabilities		38,919			38,595

Stockholders' equity:
Common stock		113			113
Additional paid-in capital		739,567			734,732
Retained earnings		395,455			349,061
Other stockholders' equity		(5,699	)		(2,084	)
Total stockholders' equity		1,129,436			1,081,822

Total liabilities and stockholders' equity	$	1,280,333		$	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 Q2 2015 Financial Results