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MKS Instruments Reports Q2 2014 Financial Results

MKS Instruments logo

ANDOVER, Mass., July 23, 2014 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (Nasdaq:MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reports second quarter 2014 financial results.

GAAP Results Non-GAAP Results
Net revenues ($ millions) $185 $185
Gross Margin 43.1% 43.4%
Operating margin 16.6% 17.6%
Net income ($ millions) $21.2 $22.6
Diluted EPS $0.40 $0.42

Second Quarter Financial Results

Sales were $185 million, a decrease of 10% from $206 million in the first quarter of 2014, and an increase of 18% from $157 million in the second quarter of 2013.

Second quarter net income was $21.2 million, or $0.40 per diluted share, compared to net income of $31.2 million, or $0.58 per diluted share in the first quarter of 2014, and $7.3 million, or $0.14 per diluted share in the second quarter of 2013.

Non-GAAP net earnings, which exclude special charges and benefits, were $22.6 million, or $0.42 per diluted share, compared to $27.2 million, or $0.51 per diluted share in the first quarter of 2014, and $7.3 million, or $0.14 per diluted share in the second quarter of 2013.

In the second quarter, the Company deployed $20.0 million of cash on hand to repurchase approximately 0.7 million shares of its stock. The board of directors also authorized an increase to the quarterly cash dividend, from $0.16 per share to $0.165 per share, and paid a dividend of $8.8 million on June 13. The Company also closed its previously announced $87 million acquisition of Granville-Phillips on May 30.

Gerald Colella, Chief Executive Officer and President, said, "I am extremely pleased with our financial performance in the second quarter, with sales above guidance primarily due to better than anticipated demand in the semiconductor market, as well as continued growth into other advanced markets, which grew for the third consecutive quarter. We have favorable exposure to today's technology inflection points, especially those weighted to etch and deposition process steps, and we believe we will gain an increasing share of the incremental capital required to support these technology changes. We also have strong, high-level programs and relationships to support semiconductor device makers globally. As a result, we believe we are well positioned to benefit both from shifts as well as increases in capital equipment spending.

"Looking ahead, reports from the recent semiconductor industry tradeshow continue to project that third quarter OEM shipments may be down from the second quarter. In our other markets, the global economy continues to improve and we continue to search out and leverage growth opportunities in a strategic manner. Based on these factors, and looking at current business levels, we anticipate that sales in the third quarter may range from $170 million to $190 million, and at these volumes, our non-GAAP net earnings could range from $0.28 to $0.42 per share."

Conference Call Details

A conference call with management will be held on Thursday, July 24, 2014 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 56229335, 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, an inventory step-up adjustment related to an acquisition, restructuring charges, a benefit related to an insurance reimbursement, 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,
2014 2013 2014
Net revenues:
Products $ 157,466 $ 132,541 $ 181,186
Services 27,231 24,387 25,167
Total net revenues 184,697 156,928 206,353
Cost of revenues:
Products 87,513 79,206 100,211
Services 17,549 15,764 16,770
Total cost of revenues 105,062 94,970 116,981
Gross profit 79,635 61,958 89,372
Research and development 15,421 16,813 15,618
Selling, general and administrative 32,239 34,849 34,591
Insurance reimbursement -- (1,071) --
Acquisition costs 271 -- 228
Restructuring -- 198 747
Amortization of intangible assets 1,044 742 410
Income from operations 30,660 10,427 37,778
Interest income, net 231 211 235
Income from operations before income taxes 30,891 10,638 38,013
Provision for income taxes 9,667 3,318 6,768
Net income $ 21,224 $ 7,320 $ 31,245
Net income per share:
Basic $ 0.40 $ 0.14 $ 0.58
Diluted $ 0.40 $ 0.14 $ 0.58
Cash dividends per common share $ 0.165 $ 0.16 $ 0.16
Weighted average shares outstanding:
Basic 53,361 53,054 53,411
Diluted 53,537 53,358 53,776
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:
Net income $ 21,224 $ 7,320 $ 31,245
Adjustments (net of tax, if applicable):
Tax benefit (Note 1) -- -- (5,079)
Acquisition costs (Note 2) 271 -- 228
Acquisition inventory step-up (Note 3) 545 -- --
Insurance reimbursement (Note 4) -- (1,071) --
Restructuring (Note 5) -- 198 747
Amortization of intangible assets 1,044 742 410
Pro forma tax adjustments (486) 61 (366)
Non-GAAP net earnings (Note 6) $ 22,598 $ 7,250 $ 27,185
Non-GAAP net earnings per share (Note 6) $ 0.42 $ 0.14 $ 0.51
Weighted average shares outstanding 53,537 53,358 53,776
Income from operations $ 30,660 $ 10,427 $ 37,778
Adjustments:
Acquisition costs (Note 2) 271 -- 228
Acquisition inventory step-up (Note 3) 545 -- --
Insurance reimbursement (Note 4) -- (1,071) --
Restructuring (Note 5) -- 198 747
Amortization of intangible assets 1,044 742 410
Non-GAAP income from operations (Note 7) $ 32,520 $ 10,296 $ 39,163
Non-GAAP operating margin percentage (Note 7) 17.6% 6.6% 19.0%
Gross profit $ 79,635 $ 61,958 $ 89,372
Acquisition inventory step-up (Note 3) 545 -- --
Non-GAAP gross profit (Note 8) $ 80,180 $ 61,958 $ 89,372
Non-GAAP gross profit percentage (Note 8) 43.4% 39.5% 43.3%
Note 1: The three months ended March 31, 2014 includes a tax benefit related to settlement of an audit and other discrete tax items.
Note 2: The three months ended June 30, 2014 and March 31, 2014 includes acquisition costs comprised mainly of legal fees related to the Granville-Phillips acquisition which closed during the second quarter of 2014.
Note 3: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014.
Note 4: In the third quarter of 2012, we incurred $5.3 million in charges to settle litigation with former shareholders of one of our former subsidiaries. This litigation was long standing and the decision to reach a settlement was made to eliminate future legal expenses related to the suit. In the second quarter of 2013, we recovered $1.1 million from our insurance company relating to the prior year legal settlement.
Note 5: The three month period ended March 31, 2014 includes restructuring charges primarily for severance related costs associated with a reduction in work force throughout the Company. The three month period ended June 30, 2013 includes restructuring charges primarily for severance related costs related to the consolidation of two sites.
Note 6: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, restructuring costs, costs associated with completed acquisitions, an inventory step-up adjustment related to an acquisition, a benefit related to an insurance reimbursement, 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 amortization of intangible assets, restructuring costs, costs associated with completed acquisitions, an inventory step-up adjustment related to an acquisition and a benefit related to an insurance reimbursement.
Note 8: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment related to an acquisition.
MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Six Months Ended
June 30,
2014 2013
Net revenues:
Products $ 338,652 $ 249,152
Services 52,398 49,421
Total net revenues 391,050 298,573
Cost of revenues:
Products 187,724 149,781
Services 34,319 32,132
Total cost of revenues 222,043 181,913
Gross profit 169,007 116,660
Research and development 31,039 32,061
Selling, general and administrative 66,830 68,982
Insurance reimbursement -- (1,071)
Acquisition costs 499 171
Restructuring 747 238
Amortization of intangible assets 1,454 1,176
Income from operations 68,438 15,103
Interest income, net 466 502
Income from operations before income taxes 68,904 15,605
Provision for income taxes 16,435 2,524
Net income $ 52,469 $ 13,081
Net income per share:
Basic $ 0.98 $ 0.25
Diluted $ 0.98 $ 0.25
Cash dividends per common share $ 0.325 $ 0.32
Weighted average shares outstanding:
Basic 53,386 52,914
Diluted 53,657 53,359
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:
Net income $ 52,469 $ 13,081
Adjustments (net of tax, if applicable):
Tax benefit (Note 1) (5,079) (2,353)
Insurance reimbursement (Note 2) -- (1,071)
Acquisition costs (Note 3) 499 171
Acquisition inventory step-up (Note 4) 545 --
Restructuring (Note 5) 747 238
Amortization of intangible assets 1,454 1,176
Pro forma tax adjustments (852) (120)
Non-GAAP net earnings (Note 6) $ 49,783 $ 11,122
Non-GAAP net earnings per share (Note 6) $ 0.93 $ 0.21
Weighted average shares outstanding 53,657 53,359
Income from operations $ 68,438 $ 15,103
Adjustments:
Insurance reimbursement (Note 2) -- (1,071)
Acquisition costs (Note 3) 499 171
Acquisition inventory step-up (Note 4) 545 --
Restructuring (Note 5) 747 238
Amortization of intangible assets 1,454 1,176
Non-GAAP income from operations (Note 7) $ 71,683 $ 15,617
Non-GAAP operating margin percentage (Note 7) 18.3% 5.2%
Gross profit $ 169,007 $ 116,660
Acquisition inventory step-up (Note 4) 545 --
Non-GAAP gross profit (Note 8) $ 169,552 $ 116,660
Non-GAAP gross profit percentage (Note 8) 43.4% 39.1%
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. The six months ended June 30, 2013 includes a tax benefit related to the enactment of the American Taxpayer Relief Act of 2012 on January 2, 2013.
Note 2: In the third quarter of 2012, we incurred $5.3 million in charges to settle litigation with former shareholders of one of our former subsidiaries. This litigation was long standing and the decision to reach a settlement was made to eliminate future legal expenses related to the suit. In the second quarter of 2013, we recovered $1.1 million from our insurance company relating to the prior year legal settlement.
Note 3: The six months ended June 30, 2014 includes acquisition costs comprised of legal fees and filing fees related to the Granville-Phillips acquisition which closed during the second quarter of 2014. The six months ended June 30, 2013 includes acquisition costs comprised of legal fees related to the Company's acquisition of Alter S.r.l., in March 2013.
Note 4: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014.
Note 5: 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. The six month period ended June 30, 2013 includes restructuring charges primarily for severance related costs related to the consolidation of two sites.
Note 6: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, restructurings, costs associated with acquisitions, an inventory step-up adjustment related to an acquisition, a benefit related to an insurance reimbursement the related tax effect of these adjustments and pro forma income tax adjustments to reflect the expected full year effective tax rate in the related period.
Note 7: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude amortization of intangible assets, restructuring costs, costs associated with completed acquisitions, an inventory step-up adjustment related to an acquisition and a benefit related to an insurance reimbursement.
Note 8: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment related to an acquisition.
MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)
Three Months Ended June 30, 2014 Three Months Ended June 30, 2013
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 $ 30,891 $ 9,667 31.3% $ 10,638 $ 3,318 31.2%
Adjustments:
Acquisition costs (Note 3) 271 -- -- --
Acquisition inventory step-up (Note 4) 545 -- -- --
Restructuring (Note 5) -- -- 198 --
Insurance reimbursement (Note 2) -- -- (1,071) --
Amortization of intangible assets 1,044 -- 742 --
Tax effect of pro forma adjustments -- 642 -- (147)
Adjustment to pro forma tax rate -- (156) -- 86
Non-GAAP $ 32,751 $ 10,153 31.0% $ 10,507 $ 3,257 31.0%
Three Months Ended March 31, 2014
Income Before Provision (benefit) Effective
Income Taxes for Income Taxes Tax Rate
GAAP $ 38,013 $ 6,768 17.8%
Adjustments:
Tax benefit (Note 1) -- 5,079
Acquisition costs (Note 3) 228 --
Restructuring 747 --
Amortization of intangible assets 410 --
Tax effect of pro forma adjustments -- 468
Adjustment to pro forma tax rate -- (102)
Non-GAAP $ 39,398 $ 12,213 31.0%
Six Months Ended June 30, 2014 Six Months Ended June 30, 2013
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 $ 68,904 $ 16,435 23.9% $ 15,605 $ 2,524 16.2%
Adjustments:
Tax benefit (Note 1) -- 5,079 -- 2,353
Insurance reimbursement (Note 2) -- -- (1,071) --
Acquisition costs (Note 3) 499 -- 171 --
Acquisition inventory step-up (Note 4) 545 -- -- --
Restructuring (Note 5) 747 -- 238 --
Amortization of intangible assets 1,454 -- 1,176 --
Tax effect of pro forma adjustments -- 1,110 -- 35
Adjustment to pro forma tax rate -- (258) -- 85
Non-GAAP $ 72,149 $ 22,366 31.0% $ 16,119 $ 4,997 31.0%
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. The six months ended June 30, 2013 includes a tax benefit related to the enactment of the American Taxpayer Relief Act of 2012 on January 2, 2013.
Note 2: In the third quarter of 2012, we incurred $5.3 million in charges to settle litigation with former shareholders of one of our former subsidiaries. This litigation was long standing and the decision to reach a settlement was made to eliminate future legal expenses related to the suit. In the second quarter of 2013, we recovered $1.1 million from our insurance company relating to the prior year legal settlement.
Note 3: The three and six months ended June 30, 2014 includes acquisition costs comprised mainly of legal fees related to the Granville-Phillips acquisition which closed during the second quarter of 2014. The six months ended June 30, 2013 includes acquisition costs comprised of legal fees related to the Company's acquisition of Alter S.r.l., in March 2013.
Note 4: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014.
Note 5: The six month period ended June 30, 2014 includes restructuring charges primarily for severance related costs associated with a reduction in work force throughout the Company. The six month period ended June 30, 2013 includes restructuring charges primarily for severance related costs related to the consolidation of two sites.
MKS Instruments, Inc.
Reconciliation of Q3-14 Guidance - GAAP Net Income to Non-GAAP Net Earnings
(In thousands, except per share data)
Three Months Ended September 30, 2014
Low Guidance High Guidance
$ Amount $ Per Share $ Amount $ Per Share
GAAP net income $ 12,200 $ 0.23 $ 19,900 $ 0.37
Acquisition inventory step-up (Note 1) 1,800 0.03 1,800 0.03
Amortization 1,800 0.03 1,800 0.03
Tax effect of adjustments (Note 2) (1,100) (0.01) (1,100) (0.01)
Non-GAAP net earnings $ 14,700 $ 0.28 $ 22,400 $ 0.42
Q3 -14 forecasted shares 53,400 53,400
Note1: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014.
Note 2: The Non-GAAP adjustments are tax effected at the estimated Q3-14 tax rate of 31%.
MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)
June 30, December 31,
2014 2013
ASSETS
Cash and cash equivalents $ 262,789 $ 288,902
Short-term investments 202,128 300,715
Trade accounts receivable, net 101,487 116,744
Inventories 155,872 142,727
Deferred income taxes 10,618 13,428
Other current assets 28,707 16,715
Assets classified as held for sale 1,427 --
Total current assets 763,028 879,231
Property, plant and equipment, net 75,960 77,536
Long-term investments 80,912 60,405
Goodwill 193,050 150,909
Intangible assets, net 51,012 13,090
Other assets 33,939 31,847
Total assets $ 1,197,901 $ 1,213,018
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 26,654 $ 40,074
Accrued compensation 22,443 43,662
Income taxes payable 4,168 10,444
Other current liabilities 39,507 34,242
Total current liabilities 92,772 128,422
Other liabilities 61,843 63,073
Stockholders' equity:
Common stock 113 113
Additional paid-in capital 726,831 730,571
Retained earnings 303,277 278,966
Other stockholders' equity 13,065 11,873
Total stockholders' equity 1,043,286 1,021,523
Total liabilities and stockholders' equity $ 1,197,901 $ 1,213,018

CONTACT: Seth H. Bagshaw Vice President, Chief Financial Officer & Treasurer Telephone: 978.645.5578

Source:MKS Instruments, Inc.