MKS Instruments Reports Fourth Quarter and Full Year 2013 Financial Results
Q4 Revenue up 23% sequentially and up 53% from Q4 2012
Andover, Mass., January 29, 2014 — MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reports fourth quarter and full year 2013 financial results.
Fourth Quarter Financial Results
Sales were $204 million, an increase of 23% from $166 million in the third quarter of 2013, and an increase of 53% from $134 million in the fourth quarter of 2012.
Fourth quarter net income was $20.2 million, or $0.38 per diluted share, compared to net income of $2.5 million, or $0.05 per diluted share in the third quarter of 2013, and $4.1 million, or $0.08 per diluted share in the fourth quarter of 2012.
Non-GAAP net earnings, which exclude special charges, were $22.3 million, or $0.42 per diluted share, compared to $13.3 million, or $0.25 per diluted share in the third quarter of 2013, and $5.1 million, or $0.10 per diluted share in the fourth quarter of 2012.
Fourth Quarter Financial Results
GAAP Results
Non-GAAP Results
Net revenues ($ millions)
$
204
$
204
Operating margin
15.1
%
16.7
%
Net income ($ millions)
$
20.2
$
22.3
Diluted EPS
$
0.38
$
0.42
Full Year Results
Sales were $669 million, an increase of 4% from $644 million in 2012. Net income was $35.8 million, or $0.67 per diluted share, compared to $48.0 million, or $0.90 per diluted share in 2012. Non-GAAP net earnings were $48.4 million, or $0.90 per diluted share, compared to $53.3 million, or $1.00 per diluted share in 2012. We ended the year with a strong balance sheet with $650 million in cash and investments, or approximately $12 per share. Total book value, net of goodwill and intangibles, was $857 million or approximately $16 per share.
Gerald Colella, Chief Executive Officer and President, said, “I’m very pleased with our strong financial and operational performance in 2013 and, in particular, with our strong finish to the year. The year culminated with December being the strongest month of the year, due in part to a significant first-phase semiconductor fab build-out in China. Business levels continue to be very healthy entering 2014. For the new year, we will continue to focus on exceeding customer requirements, leveraging growth in our existing and new markets, and increasing long-term shareholder value.
“Based on current business levels, we expect that sales in the first quarter of 2014 may range from $190 to $205 million, and at these volumes, our non-GAAP and GAAP net earnings could range from $0.35 to $0.48 per share.”
Conference Call Details
A conference call with management will be held on Thursday, January 30, 2014 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 30134845, 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 net earnings and Non-GAAP net earnings per share amounts exclude amortization of acquired intangible assets, costs associated with completed acquisitions, restructuring charges, certain excess and obsolete inventory charges, litigation settlements and related insurance reimbursements, certain supplemental executive retirement costs, discrete tax benefits and charges and the related tax effect of any 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.
1
MKS Instruments, Inc. Unaudited Consolidated Statements of Operations (In thousands, except per share data)
Three Months Ended (Note 6)
December 31, 2013
December 31, 2012
September 30, 2013
Net revenues:
Products
$
179,319
$
108,788
$
139,846
Services
25,075
25,008
26,607
Total net revenues
204,394
133,796
166,453
Cost of revenues:
Products
99,874
66,535
87,809
Services
16,840
14,660
16,410
Total cost of revenues
116,714
81,195
104,219
Gross profit
87,680
52,601
62,234
Research and development
16,252
14,207
15,257
Selling, general and administrative
39,874
30,853
33,158
Restructuring
—
343
1,126
Amortization of intangible assets
602
583
361
Income from operations
30,952
6,615
12,332
Interest income, net
204
245
208
Income before income taxes
31,156
6,860
12,540
Provision for income taxes
10,919
2,751
10,082
Net income
$
20,237
$
4,109
$
2,458
Net income per share:
Basic
$
0.38
$
0.08
$
0.05
Diluted
$
0.38
$
0.08
$
0.05
Cash dividends per common share
$
0.16
$
0.16
$
0.16
Weighted average shares outstanding:
Basic
53,251
52,707
53,165
Diluted
53,695
53,217
53,513
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
Net income
$
20,237
$
4,109
$
2,458
Adjustments (net of tax, if applicable):
Income tax charge (Note 1)
—
—
6,481
Credits on U.S. tax expense (Note 2)
—
—
(1,200
)
Executive retirement costs (Note 3)
2,581
—
—
Excess and obsolete charge (Note 4)
—
—
6,423
Acquisition inventory step-up
—
202
—
Restructuring (Note 5)
—
343
1,126
Amortization of intangible assets
602
583
361
Pro forma tax adjustments
(1,100
)
(132
)
(2,355
)
Non-GAAP net earnings (Note 6)
$
22,320
$
5,105
$
13,294
Non-GAAP net earnings per share (Note 6)
$
0.42
$
0.10
$
0.25
Weighted average shares outstanding
53,695
53,217
53,513
Income from operations
$
30,952
$
6,615
$
12,332
Adjustments:
Executive retirement costs (Note 3)
2,581
—
—
Excess and obsolete charge (Note 4)
—
—
6,423
Acquisition inventory step-up
—
202
—
Restructuring (Note 5)
—
343
1,126
Amortization of intangible assets
602
583
361
Non-GAAP income from operations
$
34,135
$
7,743
$
20,242
Non-GAAP operating margin percentage
16.7
%
5.8
%
12.2
%
Gross profit
$
87,680
$
52,601
$
62,234
Excess and obsolete charge (Note 4)
—
—
6,423
Non-GAAP gross profit
$
87,680
$
52,601
$
68,657
Non-GAAP gross profit percentage
42.9
%
39.3
%
41.2
%
Note 1: In the third quarter of 2013, we incurred income tax charges of $6.5 million related to an election to pay currently, at a substantially reduced rate, taxes on certain accumulated earnings from the years 2001 to 2011 of one of our foreign subsidiaries.
Note 2: In the third quarter of 2013, we received $1.2 million in credits against U.S. tax expense on amended returns related to prior years.
Note 3: In the fourth quarter of 2013, the Company’s Chief Executive Officer retired and $2.6 million of costs related to his supplemental executive retirement plan and other benefits were recognized and recorded in selling, general and administrative expenses for the three and twelve month periods ended December 31, 2013.
Note 4: Cost of sales for the three month period ended September 30, 2013, include $6.4 million of special charges for obsolete inventory related to unique product in a solar application in which slowing market conditions provide uncertainty as to the net realizable value of this inventory.
Note 5: The three month periods ended September 30, 2013 and December 31, 2012 include restructuring charges primarily for severance related costs related to the consolidation of certain facilities.
Note 6: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, restructurings, costs associated with completed acquisitions, certain supplemental executive retirement costs, a benefit related to an insurance reimbursement, excess and obsolete charge related to unique product in a solar application and the related tax effect of these adjustments and pro-forma income tax adjustments to reflect the expected full year effective tax rate in the quarter.
2
MKS Instruments, Inc. Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate (In thousands)
Three Months Ended December 31, 2013
Three Months Ended September 30, 2013
Income Before
Provision for
Effective
Income Before
Provision for
Effective
Income Taxes
Income Taxes
Tax Rate
Income Taxes
Income Taxes
Tax Rate
GAAP
$
31,156
$
10,919
35.0%
$
12,540
$
10,082
80.4%
Adjustments:
Income tax charge (Note 1)
—
—
—
(6,481
)
Credits on U.S. tax expense (Note 2)
—
—
—
1,200
Executive retirement costs (Note 4)
2,581
—
—
—
Excess and obsolete charge (Note 6)
—
—
6,423
—
Restructuring (Note 8)
—
—
1,126
—
Amortization of intangible assets
602
—
361
—
Tax effect of pro forma adjustments
—
1,124
—
767
Adjustment to pro forma tax rate
—
(24
)
—
1,588
Non-GAAP
$
34,339
$
12,019
35.0%
$
20,450
$
7,156
35.0%
Three Months Ended December 31, 2012
Income Before
Provision for
Effective
Income Taxes
Income Taxes
Tax Rate
GAAP
$
6,860
$
2,751
40.1%
Adjustments:
Acquisition inventory step-up
202
—
Restructuring (Note 8)
343
—
Amortization of intangible assets
583
—
Tax effect of pro forma adjustments
—
338
Adjustment to pro forma tax rate
—
(206
)
Non-GAAP
$
7,988
$
2,883
36.1%
Twelve Months Ended December 31, 2013
Twelve Months Ended December 31, 2012
Income Before
Provision for
Effective
Income Before
Provision for
Effective
Income Taxes
Income Taxes
Tax Rate
Income Taxes
Income Taxes
Tax Rate
GAAP
$
59,301
$
23,525
39.7%
$
75,136
$
27,107
36.1%
Adjustments:
Income tax charge (Note 1)
—
(6,481
)
—
—
Credits on U.S. tax expense (Note 2)
—
1,200
—
—
Tax benefit (Note 3)
—
2,353
—
—
Executive retirement costs (Note 4)
2,581
—
—
—
Insurance reimbursement (Note 5)
(1,071
)
—
—
—
Litigation (Note 5)
—
—
5,316
—
Excess and obsolete charge (Note 6)
6,423
—
—
—
Completed acquisition costs (Note 7)
171
—
1,258
—
Acquisition inventory step-up
—
—
303
—
Restructuring (Note 8)
1,364
—
343
—
Amortization of intangible assets
2,139
—
1,036
—
Tax effect of pro forma adjustments
—
1,923
—
2,948
Non-GAAP
$
70,908
$
22,520
31.8%
$
83,392
$
30,055
36.0%
Note 1: In the third quarter of 2013, we incurred income tax charges of $6.5 million related to an election to pay currently, at a substantially reduced rate, taxes on certain accumulated earnings from the years 2001 to 2011 of one of our foreign subsidiaries.
Note 2: In the third quarter of 2013, we received $1.2 million in credits against U.S. tax expense on amended returns related to prior years.
Note 3: Tax benefit related to the enactment of the American Taxpayer Relief Act of 2012 on January 2, 2013.
Note 4: In the fourth quarter of 2013, the Company’s Chief Executive Officer retired and $2.6 million of costs related to his supplemental executive retirement plan and other benefits were recognized and recorded in selling, general and administrative expenses for the three and twelve month periods ended December 31, 2013.
Note 5: 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 settlement.
Note 6: Cost of sales for the three month period ended September 30, 2013, include $6.4 million of special charges for obsolete inventory related to unique product in a solar application in which slowing market conditions provide uncertainty as to the net realizable value of this inventory.
Note 7: Costs related to the Company’s acquisition of Alter Power Systems S.r.l., in March 2013, are comprised of legal fees. Costs related to the Company’s acquisition of Plasmart, Inc. in August 2012, are comprised of investment banking fees, legal fees and due diligence fees.
Note 8: The three months ended September 30, 2013 and December 31, 2012 and the twelve month periods ended December 31, 2013 and 2012 include restructuring charges primarily for severance related costs related to the consolidation of certain facilities.
3
MKS Instruments, Inc. Unaudited Consolidated Statements of Operations (In thousands, except per share data)
Twelve Months Ended
December 31, (Note 9)
2013
2012
Net revenues:
Products
$
568,317
$
536,774
Services
101,103
106,734
Total net revenues
669,420
643,508
Cost of revenues:
Products
337,464
310,485
Services
65,382
63,544
Total cost of revenues
402,846
374,029
Gross profit
266,574
269,479
Research and development
63,570
60,118
Selling, general and administrative
142,014
127,185
Insurance reimbursement
(1,071
)
—
Litigation
—
5,316
Completed acquisition costs
171
1,258
Restructuring
1,364
343
Amortization of intangible assets
2,139
1,036
Income from operations
58,387
74,223
Interest income, net
914
913
Income before income taxes
59,301
75,136
Provision for income taxes
23,525
27,107
Net income
$
35,776
$
48,029
Net income per share:
Basic
$
0.67
$
0.91
Diluted
$
0.67
$
0.90
Cash dividends per common share
$
0.64
$
0.62
Weighted average shares outstanding:
Basic
53,061
52,686
Diluted
53,481
53,234
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
Net income
$
35,776
$
48,029
Adjustments (net of tax, if applicable):
Income tax charge (Note 1)
6,481
—
Credits on U.S. tax expense (Note 2)
(1,200
)
—
Tax benefit (Note 3)
(2,353
)
—
Executive retirement costs (Note 4)
2,581
—
Insurance reimbursement (Note 5)
(1,071
)
—
Litigation (Note 5)
—
5,316
Excess and obsolete charge (Note 6)
6,423
—
Acquisition inventory step-up
—
303
Completed acquisition costs (Note 7)
171
1,258
Restructuring (Note 8)
1,364
343
Amortization of intangible assets
2,139
1,036
Pro forma tax adjustments
(1,923
)
(2,948
)
Non-GAAP net earnings (Note 9)
$
48,388
$
53,337
Non-GAAP net earnings per share (Note 9)
$
0.90
$
1.00
Weighted average shares outstanding
53,481
53,234
Income from operations
$
58,387
$
74,223
Adjustments:
Executive retirement costs (Note 4)
2,581
—
Insurance reimbursement (Note 5)
(1,071
)
—
Litigation (Note 5)
—
5,316
Excess and obsolete charge (Note 6)
6,423
—
Acquisition inventory step-up
—
303
Completed acquisition costs (Note 7)
171
1,258
Restructuring (Note 8)
1,364
343
Amortization of intangible assets
2,139
1,036
Non-GAAP income from operations
$
69,994
$
82,479
Non-GAAP operating margin percentage
10.5
%
12.8
%
Gross profit
$
266,574
$
269,479
Excess and obsolete charge (Note 6)
6,423
—
Non-GAAP gross profit
$
272,997
$
269,479
Non-GAAP gross profit percentage
40.8
%
41.9
%
Note 1: In the third quarter of 2013, we incurred income tax charges of $6.5 million related to an election to pay currently, at a substantially reduced rate, taxes on certain accumulated earnings from the years 2001 to 2011 of one of our foreign subsidiaries.
Note 2: In the third quarter of 2013, we received $1.2 million in credits against U.S. tax expense on amended returns related to prior years.
Note 3: Tax benefit related to the enactment of the American Taxpayer Relief Act of 2012 on January 2, 2013.
Note 4: In the fourth quarter of 2013, the Company’s Chief Executive Officer retired and $2.6 million of costs related to his supplemental executive retirement plan and other benefits were recognized and recorded in selling, general and administrative expenses for the three and twelve month periods ended December 31, 2013.
Note 5: 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 settlement.
Note 6: Cost of sales for the three month period ended September 30, 2013, include $6.4 million of special charges for obsolete inventory related to unique product in a solar application in which slowing market conditions provide uncertainty as to the net realizable value of this inventory.
Note 7: Costs related to the Company’s acquisition of Alter Power Systems S.r.l., in March 2013, are comprised of legal fees. Costs related to the Company’s acquisition of Plasmart, Inc. in August 2012, are comprised of investment banking fees, legal fees and due diligence fees.
Note 8: The twelve month periods ended December 31, 2013 and December 31, 2012 include restructuring charges primarily for severance related costs related to the consolidation of certain facilities.
Note 9: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, restructurings, costs associated with completed acquisitions, a litigation settlement, a benefit related to an insurance reimbursement, excess and obsolete charge related to unique product in a solar application, certain supplemental executive retirement costs and the related tax effect of these adjustments and pro-forma income tax adjustments to reflect the expected full year effective tax rate in the quarter.
4
MKS Instruments, Inc. Unaudited Consolidated Balance Sheet (In thousands)
December 31, 2013
December 31, 2012
ASSETS
Cash and cash equivalents
$
278,502
$
287,588
Short-term investments
311,115
327,653
Trade accounts receivable, net
116,744
82,060
Inventories
142,727
134,639
Deferred income taxes
10,629
8,194
Other current assets
16,715
28,048
Total current assets
876,432
868,182
Property, plant and equipment, net
77,536
80,516
Long-term investments
60,405
12,158
Goodwill
150,909
150,733
Intangible assets, net
13,090
11,561
Other assets
34,646
29,412
Total assets
$
1,213,018
$
1,152,562
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
$
40,074
$
16,803
Accrued compensation
43,662
20,955
Income taxes payable
10,444
4,148
Other current liabilities
34,242
37,405
Total current liabilities
128,422
79,311
Other liabilities
63,073
61,095
Stockholders’ equity:
Common stock
113
113
Additional paid-in capital
730,571
718,005
Retained earnings
278,966
278,583
Other stockholders’ equity
11,873
15,455
Total stockholders’ equity
1,021,523
1,012,156
Total liabilities and stockholders’ equity
$
1,213,018
$
1,152,562
5
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