Andover, Mass., April 22, 2015 — MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity; today reports first quarter 2015 financial results.
GAAP Results
Non-GAAP Results
Net revenues ($ millions)
$
214
$
214
Gross margin
45.4
%
45.4
%
Operating margin
22.0
%
23.1
%
Net income ($ millions)
$
33.8
$
35.5
Diluted EPS
$
0.63
$
0.66
First Quarter Financial Results
Sales were $214 million, an increase of 5% from $203 million in the fourth quarter of 2014, and an increase of 4% from $206 million in the first quarter of 2014.
First quarter net income was $33.8 million, or $0.63 per diluted share, compared to net income of $34.2 million, or $0.64 per diluted share in the fourth quarter of 2014, and $31.2 million, or $0.58 per diluted share in the first quarter of 2014.
Non-GAAP net earnings, which exclude special charges and credits, were $35.5 million, or $0.66 per diluted share, compared to $29.1 million, or $0.54 per diluted share in the fourth quarter of 2014, and $27.2 million, or $0.51 per diluted share in the first quarter of 2014.
In the first quarter, the board of directors authorized a quarterly cash dividend of $0.165 per share, and the Company paid a dividend of $8.8 million on March 13th.
Gerald Colella, Chief Executive Officer and President, said, “The first quarter was another strong quarter financially for MKS. Sales were up 5% from the fourth quarter and at the high end of our guidance range, and profitability exceeded our expectations with non-GAAP earnings per share up over 20% sequentially. The favorable results were primarily driven by improvements to our operating model, as well as a continued strong environment for our semiconductor business, which increased 7% from the fourth quarter, while sales to all other markets grew for the sixth straight quarter.
“Recent reports for semiconductor capital spending are mixed, but continue to indicate a healthy market for wafer fab equipment in 2015. Our near-term visibility indicates a continued positive business environment in both our semiconductor and other advanced markets for the second quarter, which we expect will be stronger than the same period last year. As we operate within this healthy business environment, we continue to make refinements to our operating structure and improvements to our profitability, as well as redeploying resources to strategic and high-growth areas.
“Based on these factors, and looking at current business levels, we anticipate that sales in the second quarter may range from $200 million to $220 million, and at these volumes, our non-GAAP net earnings could range from $0.53 to $0.66 per share and our GAAP net income could range from $0.54 to $0.67 per share.”
Conference Call Details
A conference call with management will be held on Thursday, April 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 14695327, 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, 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.
###
Company Contact: Seth H. Bagshaw Vice President, Chief Financial Officer and Treasurer Telephone: 978.645.5578
MKS Instruments, Inc. Unaudited Consolidated Statements of Operations (In thousands, except per share data)
Three Months Ended
March 31, 2015
March 31, 2014
December 31, 2014
Net revenues:
Products
$
186,096
$
181,186
$
176,647
Services
27,743
25,167
26,374
Total net revenues
213,839
206,353
203,021
Cost of revenues:
Products
98,652
100,211
97,295
Services
18,141
16,770
16,292
Total cost of revenues
116,793
116,981
113,587
Gross profit
97,046
89,372
89,434
Research and development
16,680
15,618
16,022
Selling, general and administrative
30,867
34,591
32,633
Acquisition costs
30
228
—
Restructuring
788
747
494
Amortization of intangible assets
1,671
410
1,731
Income from operations
47,010
37,778
38,554
Interest income, net
504
235
391
Income from operations before income taxes
47,514
38,013
38,945
Provision for income taxes
13,728
6,768
4,753
Net income
$
33,786
$
31,245
$
34,192
Net income per share:
Basic
$
0.63
$
0.58
$
0.64
Diluted
$
0.63
$
0.58
$
0.64
Cash dividends per common share
$
0.165
$
0.160
$
0.165
Weighted average shares outstanding:
Basic
53,214
53,411
53,102
Diluted
53,529
53,776
53,436
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
Net income
$
33,786
$
31,245
$
34,192
Adjustments (net of tax, if applicable):
Income tax charges (Note 1)
—
—
1,422
Release of tax reserves (Note 2)
—
—
(3,394
)
Tax benefit and tax credits (Note 3)
—
(5,079
)
(4,614
)
Acquisition costs (Note 4)
30
228
—
Restructuring (Note 5)
788
747
494
Amortization of intangible assets
1,671
410
1,731
Pro forma tax adjustments
(773
)
(366
)
(779
)
Non-GAAP net earnings (Note 6)
$
35,502
$
27,185
$
29,052
Non-GAAP net earnings per share (Note 6)
$
0.66
$
0.51
$
0.54
Weighted average shares outstanding
53,529
53,776
53,436
Income from operations
$
47,010
$
37,778
$
38,554
Adjustments:
Acquisition costs (Note 4)
$
30
$
228
$
—
Restructuring (Note 5)
788
747
494
Amortization of intangible assets
1,671
410
1,731
Non-GAAP income from operations (Note 7)
$
49,499
$
39,163
$
40,779
Non-GAAP operating margin percentage (Note 7)
23.1
%
19.0
%
20.1
%
Note 1: In the fourth quarter of 2014, we recorded $1.4 million of withholding tax related to a foreign intercompany dividend.
Note 2: Reserve releases related to the settlement of audits and expiration of the statute of limitations.
Note 3: In the fourth quarter of 2014, we recorded a tax benefit of $3.2 million related to a German NOL resulting from a change in tax status and we recorded a $1.4 million tax credit for the reinstatement of the U.S. research credit for the full year 2014. In the first quarter of 2014, we recorded a tax benefit of $5.1 million related to the settlement of an audit and other discrete items.
Note 4: We recorded $0.03 million of acquisition costs related to the Precisive LLC acquisition, which closed during the first quarter of 2015. We recorded $0.2 million of acquisition costs comprising of legal and filing fees related to the Granville-Phillips acquisition, which closed during the second quarter of 2014.
Note 5: In the first quarter of 2015, we recorded restructuring charges related to the outsourcing of an international manufacturing operation. In the first and fourth quarters of 2014, we recorded restructuring charges primarily for severance costs related to a reduction in workforce and 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, restructuring costs, acquisition costs, 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, and acquisition costs.
2
MKS Instruments, Inc. Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate (In thousands)
Three Months Ended March 31, 2015
Three Months Ended December 31, 2014
Provision
Effective
Provision
Income Before
(benefit) for
Tax Rate
Income Before
(benefit) for
Effective
Income Taxes
Income Taxes
Income Taxes
Income Taxes
Tax Rate
GAAP
$
47,514
$
13,728
28.9%
$
38,945
$
4,753
12.2%
Adjustments:
Income tax charges (Note 1)
—
—
—
(1,422
)
Release of tax reserves (Note 2)
—
—
—
3,394
Tax benefit and tax credits (Note 3)
—
—
—
4,614
Acquisition costs (Note 4)
30
—
—
—
Restructuring (Note 5)
788
—
494
—
Amortization of intangible assets
1,671
—
1,731
—
Tax effect of pro forma adjustments
—
817
—
779
Adjustment to pro forma tax rate
—
(44
)
—
—
Non-GAAP
$
50,003
$
14,501
29.0%
$
41,170
$
12,118
29.4%
Three Months Ended March 31, 2014
Provision
Income Before
(benefit) for
Effective
Income Taxes
Income Taxes
Tax Rate
GAAP
$
38,013
$
6,768
17.8%
Adjustments:
Tax benefit and tax credits (Note 3)
—
5,079
Acquisition costs (Note 4)
228
—
Restructuring (Note 5)
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%
Note 1: In the fourth quarter of 2014, we recorded $1.4 million of withholding tax related to a foreign intercompany dividend.
Note 2: Reserve releases related to the settlement of audits and expiration of the statute of limitations.
Note 3: In the fourth quarter of 2014, we recorded a tax benefit of $3.2 million related to a German NOL resulting from a change in tax status and we recorded a $1.4 million tax credit for the reinstatement of the U.S. research credit for the full year 2014. In the first quarter of 2014, we recorded a tax benefit of $5.1 million related to the settlement of an audit and other discrete items.
Note 4: We recorded $0.03 million of acquisition costs related to the Precisive LLC acquisition, which closed during the first quarter of 2015. We recoded $0.2 million of acquisition costs comprising of legal and filing fees related to the Granville-Phillips acquisition, which closed during the second quarter of 2014.
Note 5: In the first quarter of 2015, we recorded restructuring charges related to the outsourcing of an international manufacturing operation. In the first and fourth quarters of 2014, we recorded restructuring charges primarily for severance costs related to a reduction in workforce and the consolidation of certain facilities.
3
MKS Instruments, Inc. Reconciliation of Q2-15 Guidance — GAAP Net Income to Non-GAAP Net Earnings (In thousands, except per share data)
Three Months Ended June 30, 2015
Low Guidance
High Guidance
$ Amount
$ Per Share
$ Amount
$ Per Share
GAAP net income
$
28,800
$
0.54
$
36,000
$
0.67
Amortization
1,700
0.03
1,700
0.03
Reversal of special one-time E&O charge (Note 1)
(2,300
)
(0.04
)
(2,300
)
(0.04
)
Tax effect of adjustments (Note 2)
200
0.00
200
0.00
Non-GAAP net earnings
$
28,400
$
0.53
$
35,600
$
0.66
Q2 - 15 forecasted shares
53,700
53,700
Note 1: Represents the estimated effect of the sale of inventory reduced to fair-market value in a prior period.
Note 2: The Non-GAAP adjustments are tax effected at the estimated Q2-15 tax rate of 29%.
4
MKS Instruments, Inc. Unaudited Consolidated Balance Sheet (In thousands)
March 31, 2015
December 31, 2014
ASSETS
Cash and cash equivalents
$
192,713
$
305,437
Short-term investments
158,631
129,594
Trade accounts receivable, net
124,445
106,362
Inventories
164,412
155,169
Deferred income taxes
13,560
14,017
Other current assets
21,580
27,512
Total current assets
675,341
738,091
Property, plant and equipment, net
70,908
72,776
Long-term investments
237,313
157,201
Goodwill
199,330
192,381
Intangible assets, net
49,553
46,389
Other assets
17,165
17,206
Total assets
$
1,249,610
$
1,224,044
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
$
37,549
$
34,166
Accrued compensation
21,349
26,970
Income taxes payable
6,455
6,702
Other current liabilities
38,513
35,789
Total current liabilities
103,866
103,627
Other liabilities
41,055
38,595
Stockholders’ equity:
Common stock
113
113
Additional paid-in capital
736,290
734,732
Retained earnings
374,063
349,061
Other stockholders’ equity
(5,777
)
(2,084
)
Total stockholders’ equity
1,104,689
1,081,822
Total liabilities and stockholders’ equity
$
1,249,610
$
1,224,044
5
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