MKS Instruments Reports Q1 2016 Financial Results

ANDOVER, Mass., April 25, 2016 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ:MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reports first quarter 2016 financial results.

   GAAP Results  Non-GAAP Results
Net revenues ($ millions)$184 $184 
Gross margin 42.4% 42.4%
Operating margin 12.3% 14.6%
Net income ($ millions)$17.6 $20.1 
Diluted EPS$0.33 $0.38 
       

First Quarter Financial Results   

Sales were $184 million, an increase of 7% from $172 million in the fourth quarter of 2015, and a decrease of 14% from $214 million in the first quarter of 2015.

First quarter net income was $17.6 million, or $0.33 per diluted share, compared to net income of $25.5 million, or $0.48 per diluted share in the fourth quarter of 2015, and $33.8 million, or $0.63 per diluted share in the first quarter of 2015.

Non-GAAP net earnings, which exclude special charges and credits, were $20.1 million, or $0.38 per diluted share, compared to $18.4 million, or $0.34 per diluted share in the fourth quarter of 2015, and $35.5 million, or $0.66 per diluted share in the first quarter of 2015.

During the quarter we also paid a dividend of $9.1 million or $0.17 per share and repurchased 45 thousand shares for $1.5 million

Commenting on the company's financial results, Gerald Colella, Chief Executive Officer and President, said, "We are pleased with our first quarter performance, which was marked by stronger than anticipated revenue from our semiconductor customers. These results were driven by improving industry fundamentals and MKS' strong position in 3D NAND.  Moreover, we continue to make progress in broadening our technology and product portfolio and expanding our served available markets.  Our pending acquisition of Newport Corporation has passed all necessary regulatory reviews, we successfully secured financing for the acquisition, and subject to approval by the Newport stockholders, we anticipate closing the transaction this Friday.

"Based on current business levels, we expect that sales in the second quarter of 2016 may range from $185 to $205 million, and at these volumes, our non-GAAP net earnings could range from $0.41 to $0.54 per share and GAAP net income could range from $0.27 to $0.41 per share."  

Guidance for the second quarter excludes the effect of the closing of the acquisition of Newport Corporation

Conference Call Details 

A conference call with management will be held on Tuesday, April 26, 2016 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 79005155, 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 and announced acquisitions, income related to the sale of excess and obsolete inventory previously written down to net realizable value, certain excess and obsolete inventory charges, 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, failure to obtain the required approval from the stockholders of Newport Corporation, or other unforeseen impediments to closing that acquisition, 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 
         March 31, March 31, December 31, 
         2016   2015   2015  
              
Net revenues:             
Products       $153,621  $186,096  $143,286  
Services        30,060   27,743   29,101  
Total net revenues       183,681   213,839   172,387  
Cost of revenues:            
Products        85,352   98,652   79,553  
Services        20,416   18,141   20,035  
Total cost of revenues       105,768   116,793   99,588  
              
Gross profit        77,913   97,046   72,799  
               
Research and development       17,227   16,680   16,841  
Selling, general and administrative      33,950   30,867   31,555  
Acquisition costs       2,494   30   -  
Restructuring        -   788   505  
Amortization of intangible assets      1,683   1,671   1,693  
Income from operations       22,559   47,010   22,205  
              
Interest and other income, net      1,246   504   841  
              
Income before income taxes      23,805   47,514   23,046  
Provision (benefit) for income taxes      6,242   13,728   (2,476) 
Net income       $17,563  $33,786  $25,522  
              
Net income per share:            
Basic       $0.33  $0.63  $0.48  
Diluted       $0.33  $0.63  $0.48  
              
Cash dividends per common share     $0.17  $0.165  $0.17  
              
Weighted average shares outstanding:           
Basic         53,235   53,214   53,217  
Diluted        53,563   53,529   53,554  
              
The following supplemental Non-GAAP earnings information is presented       
to aid in understanding MKS' operating results:         
               
Net income   $17,563  $33,786  $25,522  
        
Adjustments (net of tax, if applicable):       
Release of tax reserves (Note 1)   -   -   (7,692) 
Tax benefit and tax credits (Note 2)  -   -   (1,378) 
Excess and obsolete charge (Note 3)  -   -   488  
Acquisition costs (Note 4)  2,494   30   -  
Restructuring (Note 5)  -   788   505  
Amortization of intangible assets  1,683   1,671   1,693  
Pro forma tax adjustments  (1,593)  (773)  (761) 
        
Non-GAAP net earnings (Note 6) $20,147  $35,502  $18,377  
        
Non-GAAP net earnings per share (Note 6) $0.38  $0.66  $0.34  
        
Weighted average shares outstanding  53,563   53,529   53,554  
        
Income from operations $ 22,559  $47,010  $22,205  
        
Adjustments:       
Excess and obsolete charge (Note 3)  -   -   488  
Acquisition costs (Note 4)  2,494   30   -  
Restructuring (Note 5)  -   788   505  
Amortization of intangible assets  1,683   1,671   1,693  
        
Non-GAAP income from operations (Note 7) $26,736  $49,499  $24,891  
        
Non-GAAP operating margin percentage (Note 7)  14.6%  23.1%  14.4% 
       
Gross profit $77,913  $97,046  $72,799  
Excess and obsolete charge (Note 3)  -    -   488  
       
Non-GAAP gross profit (Note 8) $77,913  $97,046  $73,287  
       
Non-GAAP gross profit percentage (Note 8)  42.4%  45.4%  42.5% 
       
        
Note 1: We recorded credits for reserve releases related to the settlement of audits and expiration of the statute of limitations. 
       
Note 2: In the fourth quarter of 2015, we recorded a tax benefit of $1.8 million from the reinstatement of the U.S. research tax credit, representing the full year benefit.  We excluded the benefit applicable to the first three quarters of 2015, which was $1.4 million, from Non-GAAP net earnings. 
 
  
Note 3: In the fourth quarter of 2015, we incurred $0.5 million of excess and obsolete inventory charges, related to the discontinuation of a product line. 
              
Note 4:  In 2016, we incurred acquisition costs related to the announced acquisition of Newport Corporation, which is expected to close during the second quarter of 2016. In 2015, we incurred acquisition costs related to the Precisive LLC acquisition which closed during the first quarter of 2015. 
 
              
Note 5: The three months ended December 31, 2015 and March 31, 2015 include restructuring charges related to the outsourcing of an international manufacturing operation and the consolidation of certain other foreign manufacturing locations. 
 
              
Note 6: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude discrete tax benefits and charges, excess and obsolete inventory charges, acquisition costs, restructuring costs, amortization of intangible assets and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related quarter. 
                     
Note 7: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude certain excess and obsolete inventory charges, acquisition costs, restructuring costs and amortization of intangible assets. 
 
              
Note 8: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude certain excess and obsolete inventory charges. 
              


             
MKS Instruments, Inc.  
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate 
(In thousands) 
            
  Three Months Ended March 31, 2016 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 $23,805  $6,242   26.2%  $47,514  $13,728   28.9%
     
Adjustments:     
Acquisition costs (Note 1)   2,494   -   30   -  
Restructuring (Note 2)  -   -   788   -  
Amortization of intangible assets  1,683   -   1,671   -  
Tax effect of pro forma adjustments  -   1,503   -   817  
Adjustment to pro forma tax rate  -    90   -   (44) 
           
Non-GAAP $27,982  $7,835   28.0% $50,003  $14,501   29.0%
     
     
  Three Months Ended December 31, 2015 
 Income Before Provision (benefit) Effective 
 Income Taxes for Income Taxes Tax Rate  
   
GAAP $23,046  $(2,476)  -10.7% 
   
Adjustments:    
Release of tax reserves (Note 3)  -   7,692   
Tax benefit and tax credits (Note 4)  -   1,378   
Excess and obsolete charge (Note 5)  488   -   
Restructuring (Note 2)  505   -   
Amortization of intangible assets  1,693   -   
Tax effect of pro forma adjustments  -   761   
     
Non-GAAP $25,732  $7,355   28.6%      
             
Note 1: In 2016, we incurred acquisition costs related to the announced acquisition of Newport Corporation, which is expected to close during the second quarter of 2016. In 2015, we incurred acquisition costs related to the Precisive LLC acquisition which closed during the first quarter of 2015.
             
Note 2: The three months ended December 31, 2015 and March 31, 2015 include restructuring charges related to the outsourcing of an international manufacturing operation and the consolidation of certain other foreign manufacturing locations.
                     
Note 3: We recorded credits for reserve releases related to the settlement of audits and expiration of the statute of limitations.
             
Note 4: In the fourth quarter of 2015, we recorded a tax benefit of $1.8 million from the reinstatement of the U.S. research tax credit, representing the full year benefit.  We excluded the benefit applicable to the first three quarters of 2015, which was $1.4 million, from Non-GAAP net earnings.
             
Note 5: In the fourth quarter of 2015, we incurred $0.5 million of excess and obsolete inventory charges, related to the discontinuation of a product line.
             


          
MKS Instruments, Inc.
Reconciliation of Q2-16 Guidance - GAAP Net Income to Non-GAAP Net Earnings
(In thousands, except per share data)
          
  Three Months Ended June 30, 2016 
  Low Guidance High Guidance 
  $ Amount $ Per Share $ Amount $ Per Share 
          
GAAP net income $14,500  $0.27  $21,700  $0.40  
          
Acquisition costs (Note 2)  6,600   0.12   6,600   0.12  
          
Integration costs (Note 2)  1,900   0.04   1,900    0.04  
          
Amortization  1,700   0.03   1,700   0.03  
          
Tax effect of adjustments (Note 1)  (2,900)  (0.05)  (2,900)  (0.05) 
          
Non-GAAP net earnings $21,800  $0.41  $29,000  $0.54  
          
Q2 -16 forecasted shares    53,700     53,700  
          
Note 1: The Non-GAAP adjustments are tax effected at the estimated Q2-16 tax rate of 28%.     
 
Note 2: These costs relate to the announced acquisition of Newport Corporation, which is expected to close in the second quarter of 2016. 
 


         
MKS Instruments, Inc. 
Unaudited Consolidated Balance Sheet 
(In thousands) 
         
         
     March 31, December 31, 
      2016   2015  
         
ASSETS        
         
Cash and cash equivalents  $357,855  $227,574  
Short-term investments   308,768   430,663  
Trade accounts receivable, net   113,472   101,883  
Inventories    151,650   152,631  
Other current assets      27,388     26,760  
         
 Total current assets   959,133   939,511  
         
Property, plant and equipment, net  67,561   68,856  
Goodwill      199,999   199,703  
Intangible assets, net   42,575   44,027  
Other assets      21,392     21,250  
         
Total assets   $1,290,660  $1,273,347  
         
         
LIABILITIES AND STOCKHOLDERS' EQUITY    
         
Accounts payable   $28,076  $23,177  
Accrued compensation   20,983   28,424  
Income taxes payable   3,510   4,024  
Other current liabilities     45,372     35,359  
 Total current liabilities  97,941   90,984  
         
Other liabilities    21,650   21,482  
         
Stockholders' equity:       
Common stock    113   113  
Additional paid-in capital   745,840   744,725  
Retained earnings    434,803   427,214  
Other stockholders' equity     (9,687)     (11,171) 
 Total stockholders' equity    1,171,069     1,160,881  
          
Total liabilities and stockholders' equity $1,290,660  $1,273,347  
         
Company Contact: Seth H. Bagshaw

Vice President, Chief Financial Officer and Treasurer

Telephone:  978.645.5578



Investor Relations Contact: Monica Gould

The Blueshirt Group

Telephone:  212.871.3927

Email:  monica@blueshirtgroup.com

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Source: MKS Instruments, Inc.

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