MKS Instruments Inc. ( MKSI )

Q2 2010 Earnings Call Transcript

July 21, 2010 4:30 pm ET

Executives

Ron Weigner – VP of Finance and Treasurer

Leo Berlinghieri – CEO and President

Seth Bagshaw – VP and CFO

Analysts

Krish Sankar – Banc of America/Merrill Lynch

Kate Kotlarsky – Goldman Sachs

Edwin Mok – Needham & Company

Shrini Sunder Ahuja [ph] – Barclays Capital

Michael Bertz – Kennedy Capital

Tim Carroll [ph] – Value Holdings

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the MKS Instruments' second quarter earnings conference call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, Wednesday, July 21, 2010. And at this time, I'd like to turn the conference over to Ron Weigner, VP of Finance and Treasurer. Please go ahead, sir.

Ron Weigner

Good afternoon, everyone. I'm Ron Weigner, Vice President of Finance and Treasurer and I am joined this afternoon by Leo Berlinghieri, Chief Executive Officer and President and Seth Bagshaw, Vice President and Chief Financial Officer. Thank you for joining our earnings call.

Today, after market close, we released our financial results for the second quarter of 2010. You can access this release at our website, www.mksinstruments.com. As a reminder, various remarks that we may make about future expectations, plans and prospects for MKS constitute forward-looking statements.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in today's press release and in the company's most recent Annual Report on Form 10-K and most recent Quarterly Report on Form 10-Q, which are on file with the SEC.

In addition, these forward-looking statements represent the company's expectations only as of today. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. Any forward-looking statements should not be relied upon as representing the company's estimates or views as of any date subsequent to today. Now, I'll turn the call over to Leo.

Leo Berlinghieri

Thanks, Ron. Good afternoon, everyone and thank you for joining us on the call today. I'll give an overview of the second quarter of 2010 as well as our outlook. Following me, Seth will review our financial results and guidance and then we'll open the call for your questions.

I'm pleased to report that we achieved record revenue in earnings for the second quarter. Revenue increased an additional 15% sequentially to $220.6 million, up nearly 200% from a year ago. As a result of our continued efforts to improve our financial performance during this upturn, our operating profit was approximately 23% and sequential non-GAAP net earnings increased by 15% to $0.66 per share.

During the quarter, our cash and short-term investments, net of debt, increased $35.9 million to $310.4 million. As discussed in prior calls, we are committed to growing the topline and improving the financial performance of the company.

After a thorough evaluation, we decided this quarter to divest two smaller product lines whose growth potential did not meet our strategic objectives. These product lines did not have a significant impact on our sales but their discontinuation will help improve our expense structure going forward. Their financial results have been reported as discontinued operations in our financial statements. Seth will provide further details later on in the call.

We continue to gain share and achieve critical design wins in SEMI and continue to execute our strategy of diversification into other advanced and growing markets. These efforts coupled with the increased demand in our served markets resulted in substantial revenue increases in the first half of this year in both SEMI and in our other markets.

The SEMI market has continued to ramp and sales to this market increased 82% for the first half of 2010 compared to an improved second half of 2009. And in addition to the excellent growth in SEMI, we also experienced strong growth in our other markets.

We continue to demonstrate our ability to leverage our technologies and expand our opportunities into many additional advanced and growing markets, including LED, medical, biopharm, thin film, environmental, solar and more. I am pleased to report that in the first half of 2010, we reached $148 million in sales to these additional markets, a 49% increase for the first half of 2010 compared to an also-improved second half of 2009.

Our continued strong growth here is a result of our sustained focus and sales efforts to apply our technology portfolio into these various markets. There are a lot of opportunities in these markets and I'd like to talk about a few of them here.

This quarter, I'll start with the solar market, where in the first six months of the year, our revenue exceeded $31 million. This significantly surpassed our expectations. And while the solar business can be lumpy, if this pace continues, we would exceed our record 2008 solar sales. We attribute our continued success and penetration of the solar market to the combination of our market-leading technology and our global infrastructure. And we continue to win new customers in both crystal and silicon and thin film solar segments of the market.

We are gaining new customers and increasing our share, especially in the rapidly-expanding China solar market. We now have nearly 250 worldwide solar customers, which is about four times the number of customers we had in 2008.

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