MKS Instruments Reports Third Quarter 2017 Financial Results
Achieved new quarterly records for revenue and Non-GAAP net earnings
Total quarterly revenue up 28% compared to Q3 2016
Achieved new quarterly revenue record for Light and Motion Division
Andover, Mass., October 24, 2017 — MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported third quarter 2017 financial results.
Quarterly Financial Results
(in millions, except per share data)
Q3 2017
Q2 2017
GAAP Results
Net revenues
$
486
$
481
Gross margin
46.9
%
45.7
%
Operating margin
22.7
%
19.3
%
Net income
$
76.0
$
120.4
Diluted EPS
$
1.38
$
2.19
Non-GAAP Results
Gross margin
46.9
%
45.9
%
Operating margin
25.5
%
24.0
%
Net earnings
$
85.9
$
77.7
Diluted EPS
$
1.56
$
1.41
Third Quarter 2017 Financial Results
Revenue was $486 million, an increase of 1% from $481 million in the second quarter of 2017 and an increase of 28% from $381 million in the third quarter of 2016.
Net income was $76.0 million, or $1.38 per diluted share, compared to net income of $120.4 million, which included a net gain of $59.9 million resulting from the sale of the Data Analytics Solutions Business Unit, or $2.19 per diluted share in the second quarter of 2017, and $32.5 million, or $0.60 per diluted share in the third quarter of 2016.
Non-GAAP net earnings, which exclude special charges and credits, were $85.9 million, or $1.56 per diluted share, compared to $77.7 million, or $1.41 per diluted share in the second quarter of 2017, and $47.9 million, or $0.88 per diluted share in the third quarter of 2016.
“We are very pleased with our continued progress in 2017 in achieving our objectives of sustainable and profitable growth,” said Gerald Colella, Chief Executive Officer and President. Mr. Colella added, “This quarter, we again set new records for quarterly revenue and Non-GAAP net earnings which are a direct result of the strategic investments we have made, and will continue to make, in the areas of product development as well as sales and applications support functions. Looking ahead, we see a wide range of new opportunities to solve customer complex problems across the large and growing markets we serve.”
“We also continue to execute on our strategy to delever our balance sheet and significantly reduce our interest cost. During the third quarter, we completed our third successful re-pricing of our Term Loan and voluntarily pre-paid another $125 million of principal. Exiting the third quarter, our debt balance is $448 million down from $780 million at loan origination in April of 2016, our debt to Adjusted EBITDA ratio is below 1 times and we have reduced our non-GAAP interest expense by approximately 60% on an annualized basis,” said Seth Bagshaw, Senior Vice President and Chief Financial Officer.
Additional Financial Information
The Company had $535 million in cash and short-term investments as of September 30, 2017 and during the third quarter of 2017, MKS paid a dividend of $9.5 million or $0.175 per diluted share.
Fourth Quarter 2017 Outlook
Based on current business levels, the Company expects that revenue in the fourth quarter of 2017 may range from $480 to $520 million.
At these volumes, GAAP net income could range from $1.34 to $1.59 per diluted share and non-GAAP net earnings could range from $1.52 to $1.76 per diluted share.
Conference Call Details
A conference call with management will be held on Wednesday, October 25, 2017 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 90032404, which has been reserved for this call. A live and archived webcast of the call will be available on the company’s website atwww.mksinst.com.
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, flow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control technology, ozone generation and delivery, RF & DC power, reactive gas generation, vacuum technology, lasers, photonics, sub-micron positioning, vibration isolation, and optics. Our primary served markets include semiconductor capital equipment, general industrial, life sciences, and research. Additional information can be found at www.mksinst.com.
Use of Non-GAAP Financial Results
Non-GAAP amounts exclude amortization of acquired intangible assets, an asset impairment, costs associated with completed and announced acquisitions, acquisition integration costs, restructuring charges, certain excess and obsolete inventory charges, fees and expenses related to re-pricing of our Term Loan, amortization of debt issuance costs, net proceeds from an insurance policy, costs associated with the sale of a business, the tax effect of a legal entity restructuring, other discrete tax benefits and charges, and the related tax effect of these adjustments. These non-GAAP measures are not in accordance with generally accepted accounting principles 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. Annualized GAAP interest expense based upon $780 million principal outstanding and using the LIBOR based interest rate spread in effect on April 29, 2016, was $44.0 million. Annualized GAAP interest expense based upon $448 million in principal currently outstanding and LIBOR plus 200 basis points would be $19.5 million. Pro-forma revenue amounts assume the acquisition of Newport Corporation had occurred as of the beginning of 2016.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the future financial performance of MKS, our future business prospects, our future growth, and our expected synergies and cost savings from our recent acquisition of Newport Corporation. These statements are only predictions based on current assumptions and expectations. Actual events or results may differ materially from those in the forward-looking statements set forth herein. Among the important factors that could cause actual events to differ materially from those in the forward-looking statements are the conditions affecting the markets in which we operate, including the fluctuations in capital spending in the semiconductor industry, and other advanced manufacturing markets, fluctuations in net sales to our major customers, our ability to successfully integrate Newport’s operations and employees, unexpected risks, costs, charges or expenses resulting from the Newport acquisition or other acquisitions, the terms of the Term Loan financing, fluctuations in interest rates, MKS’ ability to realize anticipated synergies and cost savings from the Newport acquisition, our ability to successfully grow our business, potential fluctuations in quarterly results, 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 the other factors described in MKS’ most recent Annual Report on Form 10-K for the year ended December 31, 2016 filed with SEC. MKS is under no obligation to, and expressly disclaims any obligation to, update or alter our forward-looking statements, whether as a result of new information, future events or otherwise after the date of this press release.
###
Company Contact: Seth H. Bagshaw Senior Vice President, Chief Financial Officer and Treasurer Telephone: 978.645.5578
Investor Relations Contacts: Monica Gould The Blueshirt Group Telephone: 212.871.3927 Email:monica@blueshirtgroup.com
Lindsay Grant Savarese The Blueshirt Group Telephone: 212.331.8417 Email:lindsay@blueshirtgroup.com
1
MKS Instruments, Inc. Unaudited Consolidated Statements of Operations (In thousands, except per share data)
Three Months Ended
September 30, 2017
September 30, 2016
June 30, 2017
Net revenues:
Products
$
434,710
$
335,156
$
431,950
Services
51,557
45,504
48,807
Total net revenues
486,267
380,660
480,757
Cost of revenues:
Products
223,738
183,789
229,304
Services
34,534
28,486
31,870
Total cost of revenues
258,272
212,275
261,174
Gross profit
227,995
168,385
219,583
Research and development
32,548
32,268
33,680
Selling, general and administrative
71,839
68,016
71,979
Acquisition and integration costs
2,466
2,641
790
Restructuring
10
—
2,064
Asset impairment
—
—
6,719
Amortization of intangible assets
10,977
12,452
11,468
Income from operations
110,155
53,008
92,883
Interest income
873
404
507
Interest expense
7,172
12,007
6,997
Gain on sale of business
—
—
74,856
Other (expense) income, net
(2,485
)
843
(3,277
)
Income from operations before income taxes
101,371
42,248
157,972
Provision for income taxes
25,377
9,699
37,532
Net income
$
75,994
$
32,549
$
120,440
Net income per share:
Basic
$
1.40
$
0.61
$
2.22
Diluted
$
1.38
$
0.60
$
2.19
Cash dividends per common share
$
0.175
$
0.17
$
0.175
Weighted average shares outstanding:
Basic
54,282
53,574
54,178
Diluted
55,101
54,315
55,001
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
Net income
$
75,994
$
32,549
$
120,440
Adjustments:
Acquisition and integration costs (Note 1)
2,466
2,641
790
Acquisition inventory step-up (Note 2)
—
4,971
—
Expenses related to sale of a business (Note 3)
—
—
436
Excess and obsolete inventory charge (Note 4)
—
—
1,160
Fees and expenses relating to re-pricing of term loan (Note 5)
492
—
—
Amortization of debt issuance costs (Note 6)
2,314
2,838
694
Restructuring (Note 7)
10
—
2,064
Asset impairment (Note 8)
—
—
6,719
Gain on sale of business (Note 9)
—
—
(74,856
)
Net proceeds from an insurance policy (Note 10)
—
(1,323
)
—
Amortization of intangible assets
10,977
12,452
11,468
Windfall tax benefit on stock-based compensation (Note 11)
(594
)
—
(3,169
)
Taxes related to sale of business (Note 12)
—
—
15,007
Taxes related to legal entity restructuring (Note 13)
—
1,532
—
Pro-forma tax adjustments
(5,789
)
(7,790
)
(3,047
)
Non-GAAP net earnings (Note 14)
$
85,870
$
47,870
$
77,706
Non-GAAP net earnings per share (Note 14)
$
1.56
$
0.88
$
1.41
Weighted average shares outstanding
55,101
54,315
55,001
Income from operations
$
110,155
$
53,008
$
92,883
Adjustments:
Acquisition and integration costs (Note 1)
2,466
2,641
790
Acquisition inventory step-up (Note 2)
—
4,971
—
Expenses related to sale of a business (Note 3)
—
—
436
Excess and obsolete inventory charge (Note 4)
—
—
1,160
Fees and expenses relating to re-pricing of term loan (Note 5)
492
—
—
Restructuring (Note 7)
10
—
2,064
Asset impairment (Note 8)
—
—
6,719
Amortization of intangible assets
10,977
12,452
11,468
Non-GAAP income from operations (Note 15)
$
124,100
$
73,072
$
115,520
Non-GAAP operating margin percentage (Note 15)
25.5
%
19.2
%
24.0
%
Gross profit
$
227,995
$
168,385
$
219,583
Acquisition inventory step-up (Note 2)
—
4,971
—
Excess and obsolete inventory charge (Note 4)
—
—
1,160
Non-GAAP gross profit (Note 16)
$
227,995
$
173,356
$
220,743
Non-GAAP gross profit percentage (Note 16)
46.9
%
45.5
%
45.9
%
Interest expense
$
7,172
$
12,007
$
6,997
Amortization of debt issuance costs (Note 6)
2,314
2,838
694
Non-GAAP interest expense
$
4,858
$
9,169
$
6,303
Net income
$
75,994
$
32,549
$
120,440
Interest expense (income), net
6,299
11,603
6,490
Provision for income taxes
25,377
9,699
37,532
Depreciation
9,153
9,597
9,120
Amortization
10,977
12,452
11,468
EBITDA (Note 17)
$
127,800
$
75,900
$
185,050
Stock-based compensation
4,846
5,157
6,207
Acquisition and integration costs (Note 1)
2,466
2,641
790
Acquisition inventory step-up (Note 2)
—
4,971
—
Expenses related to sale of a business (Note 3)
—
—
436
Excess and obsolete inventory charge (Note 4)
—
—
1,160
Fees and expenses relating to re-pricing of term loan (Note 5)
492
—
—
Restructuring (Note 7)
10
—
2,064
Asset impairment (Note 8)
—
—
6,719
Gain on sale of business (Note 9)
—
—
(74,856
)
Net proceeds from an insurance policy (Note 10)
—
(1,323
)
—
Other adjustments
836
834
822
Adjusted EBITDA (Note 18)
$
136,450
$
88,180
$
128,392
Note 1: We recorded $2.5 million, $0.8 million and $2.6 million of acquisition and integration costs during the three months ended September 30, 2017, June 30, 2017 and September 30, 2016, respectively, related to the Newport Corporation acquisition, which closed during the second quarter of 2016.
Note 2: We recorded $5.0 million in cost of sales during the three months ended September 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition.
Note 3: We recorded $0.4 million during the three months ended June 30, 2017, related to the sale of a business, which was completed in April of 2017.
Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the three months ended June 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing sites.
Note 5: We recorded $0.5 million of fees and expenses during the three months ended September 30, 2017, related to the re-pricing of our Term Loan Credit Agreement.
Note 6: We recorded $2.3 million, $0.7 million and $2.8 million of additional interest expense during the three months ended September 30, 2017, June 30, 2017 and September 30, 2016, respectively, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.
Note 7: We recorded $2.1 million of restructuring costs during the three months ended June 30, 2017, related to the consolidation of two manufacturing plants.
Note 8: We recorded a $6.7 million asset impairment charge, primarily related to the write-off of goodwill and intangible assets during the three months ended June 30, 2017, in conjunction with the consolidation of two manufacturing plants.
Note 9: We recorded a $74.9 million gain during the three months ended June 30, 2017 on the sale of our Data Analytics Solutions business.
Note 10: We recorded net proceeds of $1.3 million during the three months ended September 30, 2016 from a company owned life insurance policy.
Note 11: We recorded a windfall tax benefit on the vesting of stock-based compensation of $0.6 and $3.2 million during the three months ended September 30, 2017 and June 30, 2017, respectively, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
Note 12: We recorded $15.0 million of taxes during the three months ended June 30, 2017 related to the sale of our Data Analytics Solutions business.
Note 13: We recorded a tax expense of $1.5 million during the three months ended September 30, 2016 related to a legal entity restructuring.
Note 14: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, amortization of debt issuance costs, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy, amortization of intangible assets, a windfall tax benefit related to stock-based compensation expense, taxes related to the sale of a business, taxes related to a legal entity restructuring and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.
Note 15: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge and amortization of intangible assets.
Note 16: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment and an excess and obsolete inventory charge.
Note 17: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.
Note 18: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy and other adjustments as defined in our Term Loan Credit Agreement.
2
MKS Instruments, Inc. Unaudited Consolidated Statements of Operations (In thousands, except per share data)
Nine Months Ended September 30,
2017
2016
Net revenues:
Products
$
1,259,582
$
774,248
Services
144,595
115,954
Total net revenues
1,404,177
890,202
Cost of revenues:
Products
658,102
433,134
Services
92,950
74,857
Total cost of revenues
751,052
507,991
Gross profit
653,125
382,211
Research and development
99,510
77,709
Selling, general and administrative
218,038
161,545
Acquisition and integration costs
4,698
25,190
Restructuring
2,596
24
Asset impairment
6,719
—
Amortization of intangible assets
34,946
22,990
Income from operations
286,618
94,753
Interest income
1,896
1,858
Interest expense
23,001
20,526
Gain on sale of business
74,856
—
Other (expense) income, net
(3,741
)
2,336
Income from continuing operations before income taxes
336,628
78,421
Provision for income taxes
75,134
19,099
Net income
$
261,494
$
59,322
Net income per share:
Basic
$
4.84
$
1.11
Diluted
$
4.75
$
1.10
Cash dividends per common share
$
0.525
$
0.51
Weighted average shares outstanding:
Basic
54,076
53,423
Diluted
55,020
53,895
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
Net income
$
261,494
$
59,322
Adjustments:
Acquisition and integration costs (Note 1)
4,698
25,190
Acquisition inventory step-up (Note 2)
—
15,090
Expenses related to sale of a business (Note 3)
859
—
Excess and obsolete inventory charge (Note 4)
1,160
—
Fees and expenses relating to re-pricing of term loan (Note 5)
492
713
Amortization of debt issuance costs (Note 6)
5,422
4,467
Restructuring (Note 7)
2,596
24
Asset impairment (Note 8)
6,719
—
Gain on sale of business (Note 9)
(74,856
)
—
Net proceeds from an insurance policy (Note 10)
—
(1,323
)
Amortization of intangible assets
34,946
22,990
Windfall tax benefit on stock-based compensation (Note 11)
(10,413
)
—
Taxes related to sale of business (Note 12)
15,007
—
Taxes related to legal entity restructuring (Note 13)
—
1,532
Pro-forma tax adjustments
(15,499
)
(21,279
)
Non-GAAP net earnings (Note 14)
$
232,625
$
106,726
Non-GAAP net earnings per share (Note 14)
$
4.23
$
1.98
Weighted average shares outstanding
55,020
53,895
Income from operations
$
286,618
$
94,753
Adjustments:
Acquisition and integration costs (Note 1)
4,698
25,190
Acquisition inventory step-up (Note 2)
—
15,090
Expenses related to sale of a business (Note 3)
859
—
Excess and obsolete inventory charge (Note 4)
1,160
—
Fees and expenses relating to re-pricing of term loan (Note 5)
492
713
Restructuring (Note 7)
2,596
24
Asset impairment (Note 8)
6,719
—
Amortization of intangible assets
34,946
22,990
Non-GAAP income from operations (Note 15)
$
338,088
$
158,760
Non-GAAP operating margin percentage (Note 15)
24.1
%
17.8
%
Gross profit
$
653,125
$
382,211
Acquisition inventory step-up (Note 2)
—
15,090
Excess and obsolete inventory charge (Note 4)
1,160
—
Non-GAAP gross profit (Note 16)
$
654,285
$
397,301
Non-GAAP gross profit percentage (Note 16)
46.6
%
44.6
%
Interest expense
$
23,001
$
20,526
Amortization of debt issuance costs (Note 6)
5,422
4,467
Non-GAAP interest expense
$
17,579
$
16,059
Net income
$
261,494
$
59,322
Interest expense (income), net
21,105
18,668
Provision for income taxes
75,134
19,099
Depreciation
27,605
20,767
Amortization
34,946
22,990
EBITDA (Note 17)
$
420,284
$
140,846
Stock-based compensation
19,835
19,826
Acquisition and integration costs (Note 1)
4,698
25,190
Acquisition inventory step-up (Note 2)
—
15,090
Expenses related to sale of a business (Note 3)
859
—
Excess and obsolete inventory charge (Note 4)
1,160
—
Fees and expenses relating to re-pricing of term loan (Note 5)
492
713
Restructuring (Note 7)
2,596
24
Asset impairment (Note 8)
6,719
—
Gain on sale of business (Note 9)
(74,856
)
—
Net proceeds from an insurance policy (Note 10)
—
(1,323
)
Other adjustments
2,405
1,495
Adjusted EBITDA (Note 18)
$
384,192
$
201,861
Note 1: We recorded $4.7 million and $25.2 million of acquisition and integration costs during the nine months ended September 30, 2017 and 2016, respectively, related to the Newport Corporation acquisition, which closed during the second quarter of 2016.
Note 2: We recorded $15.1 million in cost of sales during the nine months ended September 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition.
Note 3: We recorded $0.9 million during the nine months ended September 30, 2017, which is comprised of legal and consulting and compensation related expenses related to the sale of a business, which was completed in April of 2017.
Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the nine months ended September 30, 2017 related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants.
Note 5: We recorded $0.5 million and $0.7 million of fees and expenses during the nine months ended September 30, 2017 and 2016, respectively, related to re-pricings of our Term Loan Credit Agreement.
Note 6: We recorded $5.4 million and $4.5 million of additional interest expense during the nine months ended September 30, 2017 and 2016, respectively, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.
Note 7: We recorded $2.6 million of restructuring costs during the nine months ended September 30, 2017, related to the consolidation of two manufacturing plants, a restructuring of one of our international facilities and the consolidation of sales offices.
Note 8: We recorded a $6.7 million asset impairment charge, primarily related to the write-off of goodwill and intangible assets during the nine months ended September 30, 2017, in connection with the consolidation of two manufacturing plants.
Note 9: We recorded a $74.9 million gain during the nine months ended September 30, 2017 on the sale of our Data Analytics Solutions business.
Note 10: We recorded net proceeds of $1.3 million during the nine months ended September 30, 2016 from a company owned life insurance policy.
Note 11: We recorded a windfall tax benefit on the vesting of stock-based compensation of $10.4 million, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
Note 12: We recorded $15.0 million of taxes during the nine months ended September 30, 2017 related to the sale of our Data Analytics Solutions business.
Note 13: We recorded a tax expense of $1.5 million during the nine months ended September 30, 2016 related to a legal entity restructuring.
Note 14: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, amortization of debt issuance costs, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy, amortization of intangible assets, a windfall tax benefit related to stock-based compensation expense, taxes related to the sale of a business, taxes related to a legal entity restructuring and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.
Note 15: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge and amortization of intangible assets.
Note 16: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment and an excess and obsolete inventory charge.
Note 17: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.
Note 18: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy and other adjustments as defined in our Term Loan Credit Agreement.
3
MKS Instruments, Inc. Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate (In thousands)
Three Months Ended September 30, 2017
Three Months Ended June 30, 2017
Income Before
Provision
Effective
Provision (benefit)
Income Taxes
(benefit) for
Tax Rate
Income Before
for
Effective
Income Taxes
Income Taxes
Income Taxes
Tax Rate
GAAP
$
101,371
$
25,377
25.0%
$
157,972
$
37,532
23.8%
Adjustments:
Acquisition and integration costs (Note
2,466
—
790
—
1)
Expenses related to sale of a business
—
—
436
—
(Note 3)
Excess and obsolete inventory charge
—
—
1,160
—
(Note 4)
Fees and expenses relating to re-pricing
492
—
—
—
of term loan (Note 5)
Amortization of debt issuance costs
2,314
—
694
—
(Note 6)
Restructuring (Note 7)
10
—
2,064
—
Asset impairment (Note 8)
—
—
6,719
—
Gain on sale of business (Note 9)
—
—
(74,856
)
—
Amortization of intangible assets
10,977
—
11,468
—
Windfall tax benefit on stock-based
—
594
—
3,169
compensation (Note 10)
Tax related to sale of business (Note 11)
—
—
—
(15,007
)
Tax effect of pro-forma adjustments
—
5,789
—
3,047
Non-GAAP
$
117,630
$
31,760
27.0%
$
106,447
$
28,741
27.0%
Three Months Ended September 30, 2016
Provision
Effective
Income Before
(benefit) for
Tax Rate
Income Taxes
Income Taxes
GAAP
$
42,248
$
9,699
23.0%
Adjustments:
Acquisition and integration costs (Note 1)
2,641
—
Acquisition inventory step-up (Note 2)
4,971
—
Amortization of debt issuance costs (Note 6)
2,838
—
Net proceeds from an insurance policy (Note 12)
(1,323
)
—
Amortization of intangible assets
12,452
—
Taxes related to legal entity restructuring (Note 13)
—
(1,532
)
Tax effect of pro-forma adjustments
—
7,790
Non-GAAP
$
63,827
$
15,957
25.0%
Nine Months Ended September 30, 2017
Nine Months Ended September 30, 2016
Provision (benefit)
Provision
Effective
Income Before
for
Effective
Income Before
(benefit) for
Tax Rate
Income Taxes
Income Taxes
Tax Rate
Income Taxes
Income Taxes
GAAP
$
336,628
$
75,134
22.3%
$
78,421
$
19,099
24.4%
Adjustments:
Acquisition and integration costs
4,698
—
25,190
—
(Note 1)
Acquisition inventory step-up
—
—
15,090
—
(Note 2)
Expenses related to sale of a
859
—
—
—
business (Note 3)
Excess and obsolete inventory
1,160
—
—
—
charge (Note 4)
Fees and expenses relating to
492
—
713
—
re-pricing of term loan (Note 5)
Amortization of debt issuance
5,422
—
4,467
—
costs (Note 6)
Restructuring (Note 7)
2,596
—
24
—
Asset impairment (Note 8)
6,719
—
—
—
Gain on sale of business (Note 9)
(74,856
)
—
—
—
Amortization of intangible assets
34,946
—
22,990
—
Windfall tax benefit on
—
10,413
—
—
stock-based compensation (Note 10)
Taxes related to sale of business
—
(15,007
)
—
—
(Note 11)
Net proceeds from an insurance
—
—
(1,323
)
—
policy (Note 12)
��
Taxes related to legal entity
—
—
—
(1,532
)
restructuring (Note 13)
Tax effect of pro-forma adjustments
—
15,499
—
21,279
Non-GAAP
$
318,664
$
86,039
27.0%
$
145,572
$
38,846
26.7%
Note 1: Acquisition and integration costs during the three and nine months ended September 30, 2017, the three months ended June 30, 2017 and the three and nine months ended September 30, 2016, relate to the Newport Corporation acquisition, which closed during the second quarter of 2016.
Note 2: We recorded $5.0 million and $15.1 million in cost of sales during the three and nine months ended September 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition.
Note 3: We recorded $0.4 million during the three months ended June 30, 2017 and $0.9 million during the nine months ended September 30, 2017, related to the sale of a business, which was completed in April of 2017.
Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the three months ended June 30, 2017 and nine months ended September 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants.
Note 5: We recorded $0.5 million during the three and nine months ended September 30, 2017 and $0.7 million during the nine months ended September 30, 2016, of fees and expenses related to the re-pricing of our Term Loan Credit Agreement.
Note 6: Amortization of debt issuance costs for the three and nine months ended September 30, 2017 and 2016, respectively, and the three months ended June 30, 2017, are affiliated with our Term Loan Credit Agreement and ABL Facility.
Note 7: Restructuring costs for the three and nine months ended September 30, 2017 and the three months ended June 30, 2017 relate to the consolidation of two manufacturing plants, a restructuring of one of our international facilities and the consolidation of sales offices.
Note 8: We recorded a $6.7 million asset impairment charge, during the three months ended June 30, 2017 and the nine months ended September 30, 2017, primarily related to the write-off of goodwill and intangible assets, in conjunction with the consolidation of two manufacturing plants.
Note 9: We recorded a $74.9 million gain during the three months ended June 30, 2017 and the nine months ended September 30, 2017 on the sale of our Data Analytics Solutions business.
Note 10: We recorded a windfall tax benefit on the vesting of stock-based compensation of $0.6 million and $3.2 million during the three months ended September 30, 2017 and June 30, 2017, respectively, and $10.4 million for the nine months ended September 30, 2017, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
Note 11: We recorded $15.0 million of taxes during the three months ended June 30, 2017 and nine months ended September 30, 2017 related to the sale of our Data Analytics Solutions business.
Note 12: We recorded net proceeds of $1.3 million during the three and nine months ended September 30, 2016 from a company owned life insurance policy.
Note 13: We recorded a tax expense of $1.5 million during the three and nine months ended September 30, 2016 related to a legal entity restructuring.
MKS Instruments, Inc. Reconciliation of Q4-17 Guidance — GAAP Net Income to Non-GAAP Net Earnings (In thousands, except per share data)
Three Months Ended December 31, 2017
Low Guidance
High Guidance
$ Amount
$ Per Share
$ Amount
$ Per Share
GAAP net income
$
74,100
$
1.34
$
87,700
$
1.59
Amortization
10,900
0.20
10,900
0.20
Integration costs
400
0.01
400
0.01
Restructuring costs
800
0.01
800
0.01
Deferred financing costs
1,000
0.02
1,000
0.02
Tax effect of adjustments (Note 1)
(3,500
)
(0.06
)
(3,600
)
(0.07
)
Non-GAAP net earnings
$
83,700
$
1.52
$
97,200
$
1.76
Q4-17 forecasted shares
55,200
55,200
Note 1: The Non-GAAP adjustments are tax effected at the applicable statutory rates and the difference between the GAAP and Non-GAAP tax rates.
4
MKS Instruments, Inc. Unaudited Consolidated Balance Sheet (In thousands)
September 30, 2017
December 31, 2016
ASSETS
Cash and cash equivalents
$
305,977
$
228,623
Restricted cash
117
5,287
Short-term investments
228,631
189,463
Trade accounts receivable, net
280,302
248,757
Inventories
319,460
275,869
Other current assets
60,716
50,770
Total current assets
1,195,203
998,769
Property, plant and equipment, net
166,928
174,559
Goodwill
589,099
588,585
Intangible assets, net
376,334
408,004
Long-term investments
10,593
9,858
Other assets
32,188
32,467
Total assets
$
2,370,345
$
2,212,242
LIABILITIES AND STOCKHOLDERS’ EQUITY
Short-term debt
$
4,020
$
10,993
Accounts payable
77,842
69,337
Accrued compensation
75,725
67,728
Income taxes payable
38,609
22,794
Deferred revenue
17,812
14,463
Other current liabilities
68,604
51,985
Total current liabilities
282,612
237,300
Long-term debt, net
435,731
601,229
Non-current deferred taxes
71,110
66,446
Non-current accrued compensation
50,080
44,714
Other liabilities
23,107
20,761
Total liabilities
862,640
970,450
Stockholders’ equity:
Common stock
113
113
Additional paid-in capital
782,597
777,482
Retained earnings
727,835
494,744
Accumulated other comprehensive loss
(2,840
)
(30,547
)
Total stockholders’ equity
1,507,705
1,241,792
Total liabilities and stockholders’ equity
$
2,370,345
$
2,212,242
5
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