MKS Instruments Reports Q3 2013 Financial Results

ANDOVER, Mass., Oct. 23, 2013 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (Nasdaq:MKSI), a global provider of technologies that enable advanced processes and improve productivity; today reports third quarter 2013 financial results.
  GAAP Results Non-GAAP Results
Net revenues ($ millions) $166 $166
Gross margin 37.4% 41.2%
Operating margin 7.4% 12.2%
Net income/Net earnings ($ millions) $2.5 $13.3
Diluted EPS $0.05 $0.25

Third Quarter Financial Results

Sales were $166 million, an increase of 6% from $157 million in the second quarter, and an increase of 18% from $141 million in the third quarter of 2012.

Third quarter net income was $2.5 million, or $0.05 per diluted share, compared to net income of $7.3 million, or $0.14 per diluted share in the second quarter of 2013, and $2.6 million, or $0.05 per diluted share in the third quarter of 2012.

Non-GAAP net earnings, which exclude special items, were $13.3 million, or $0.25 per diluted share, compared to $7.3 million, or $0.14 per diluted share in the second quarter of 2013, and $8.4 million, or $0.16 per diluted share in the third quarter of 2012.  Non-GAAP net earnings in the third quarter of 2013 exclude certain excess and obsolete inventory charges, restructuring charges, amortization of acquired intangible assets, discrete tax adjustments, and the related tax impact of these adjustments.

In the third quarter, the Company paid a quarterly cash dividend of $0.16 per share which was paid on September 13 th.

Leo Berlinghieri, Chief Executive Officer, said, "We have seen a recent acceleration in order rates, particularly from our customers in the semiconductor industry, and anticipate continued sales growth in the fourth quarter. Semiconductor industry analysts are projecting that 2014 should be a good year for the industry, driven by ongoing transitions to smaller geometries and implementation of new device technologies in support of demand for full featured mobile devices.

"Given current business levels, we anticipate that sales in the fourth quarter may range from $185 million to $200 million, and, at these volumes, our GAAP net income per share could range from $0.28 to $0.38 and non-GAAP net earnings could range from $0.31 to $0.41 per share."

Conference Call Details

A conference call with management will be held on Thursday, October 24, 2013 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 68499581, 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 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.
       
MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
       
       
  Three Months Ended (Note 7)
  September 30, 2013 September 30, 2012 June 30, 2013
       
Net revenues:      
 Products  $ 139,846  $ 114,647  $ 132,541
 Services  26,607  26,800  24,387
 Total net revenues  166,453  141,447  156,928
Cost of revenues:      
 Products  87,809  68,304  79,206
 Services  16,410  16,572  15,764
 Total cost of revenues  104,219  84,876  94,970
       
Gross profit  62,234  56,571  61,958
       
Research and development  15,257  14,136  16,813
Selling, general and administrative  33,158  29,661  34,849
Insurance reimbursement  --   --   (1,071)
Litigation  --   5,316  -- 
Completed acquisition costs  --   851  -- 
Restructuring  1,126  --   198
Amortization of intangible assets  361  215  742
Income from operations  12,332  6,392  10,427
       
Interest income, net  208  267  211
       
Income before income taxes  12,540  6,659  10,638
Provision for income taxes   10,082  4,079  3,318
Net income  $ 2,458  $ 2,580  $ 7,320
       
Net income per share:      
 Basic  $ 0.05  $ 0.05  $ 0.14
 Diluted  $ 0.05  $ 0.05  $ 0.14
       
Cash dividends per common share  $ 0.16  $ 0.16  $ 0.16
       
Weighted average shares outstanding:       
 Basic  53,165  52,854  53,054
 Diluted  53,513  53,290  53,358
       
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:
       
Net income  $ 2,458  $ 2,580  $ 7,320
       
Adjustments (net of tax, if applicable):      
 Income tax charge (Note 1)  6,481  --   -- 
 Credits on U.S. tax expense (Note 2)  (1,200)  --   -- 
 Insurance reimbursement (Note 3)  --   --   (1,071)
 Litigation (Note 3)  --   5,316  -- 
 Excess and obsolete charge (Note 4)  6,423  --   -- 
 Acquisition inventory step-up  --   101  -- 
 Completed acquisition costs (Note 5)  --   851  -- 
 Restructuring (Note 6)  1,126  --   198
 Amortization of intangible assets  361  215  742
 Pro forma tax adjustments  (2,355)  (626)  61
       
Non-GAAP net earnings (Note 7)  $ 13,294  $ 8,437  $ 7,250
       
Non-GAAP net earnings per share (Note 7)  $ 0.25  $ 0.16  $ 0.14
       
Weighted average shares outstanding  53,513  53,290  53,358
       
Income from operations  $ 12,332  $ 6,392  $ 10,427
       
Adjustments:      
 Insurance reimbursement (Note 3)  --   --   (1,071)
 Litigation (Note 3)  --   5,316  -- 
 Excess and obsolete charge (Note 4)  6,423  --   -- 
 Acquisition inventory step-up  --   101  -- 
 Completed acquisition costs (Note 5)  --   851  -- 
 Restructuring (Note 6)  1,126  --   198
 Amortization of intangible assets  361  215  742
       
Non-GAAP income from operations  $ 20,242  $ 12,875  $ 10,296
       
Non-GAAP operating margin percentage 12.2% 9.1% 6.6%
       
       
       
Gross profit  $ 62,234  $ 56,571  $ 61,958
 Excess and obsolete charge (Note 4)  6,423  --   -- 
       
Non-GAAP gross profit  $ 68,657  $ 56,571  $ 61,958
       
Non-GAAP gross profit percentage 41.2% 40.0% 39.5%
       
       
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 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 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: 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 6: The three month periods ended September 30, 2013 and June 30, 2013, include restructuring charges primarily for severance related costs related to the consolidation of certain facilities.
 
Note 7: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, restructurings, costs associated with acquisitions, a litigation settlement, 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.
             
MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)
             
  Three Months Ended September 30, 2013  Three Months Ended June 30, 2013
  Income Before Income Taxes Provision for Income Taxes Effective Tax Rate Income Before Income Taxes Provision for Income Taxes Effective Tax Rate
             
GAAP  $ 12,540  $ 10,082 80.4%  $ 10,638  $ 3,318 31.2%
             
Adjustments:            
 Income tax charge (Note 1)  --   (6,481)    --   --   
 Credits on U.S. tax expense (Note 2)  --   1,200    --   --   
 Insurance reimbursement (Note 4)  --   --     (1,071)  --   
 Excess and obsolete charge (Note 5) 6,423  --     --   --   
 Restructuring (Note 7) 1,126  --    198  --   
 Amortization of intangible assets 361  --    742  --   
 Tax effect of pro forma adjustments  --   767    --  (147)  
 Adjustment to pro forma tax rate  --   1,588    --  86  
             
Non-GAAP  $ 20,450  $ 7,156 35.0%  $ 10,507  $ 3,257 31.0%
             
             
  Three Months Ended September 30, 2012       
  Income Before Income Taxes Provision for Income Taxes Effective Tax Rate      
             
GAAP  $ 6,659  $ 4,079 61.3%      
             
Adjustments:            
 Litigation (Note 4)  5,316  --         
 Completed acquisition costs (Note 6)  851  --         
 Acquisition inventory step-up  101  --         
 Amortization of intangible assets  215  2,390        
 Tax effect of pro forma adjustments  --  (1,764)        
             
Non-GAAP  $ 13,142  $ 4,705 35.8%      
             
             
  Nine Months Ended September 30, 2013 Nine Months Ended September 30, 2012 
  Income Before Income Taxes Provision for Income Taxes Effective Tax Rate Income Before Income Taxes Provision for Income Taxes Effective Tax Rate
             
GAAP  $ 28,145  $ 12,606 44.8%  $ 68,276  $ 24,356 35.7%
             
Adjustments:            
 Income tax charge (Note 1)  --   (6,481)    --   --   
 Credits on U.S. tax expense (Note 2)  --   1,200    --   --   
 Tax benefit (Note 3)  --   2,353    --   --   
 Insurance reimbursement (Note 4) (1,071)  --     --   --   
 Litigation (Note 4)  --   --     5,316  --   
 Excess and obsolete charge (Note 5) 6,423  --     --   --   
 Completed acquisition costs (Note 6) 171  --     1,258  --   
 Acquisition inventory step-up  --   --     101  --   
 Restructuring (Note 7) 1,364  --     --   --   
 Amortization of intangible assets 1,537  --     453  --   
 Tax effect of pro forma adjustments  --  802    --   2,611  
 Adjustment to pro forma tax rate  --  2,319    --   28  
             
Non-GAAP  $ 36,569  $ 12,799 35.0%  $ 75,404  $ 26,995 35.8%
             
             
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 accumulatd 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 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 5: 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 6: 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 7: The three and nine month periods ended September 30, 2013 and the three month period ended June 30, 2013, include restructuring charges primarily for severance related costs related to the consolidation of certain facilities.
             
MKS Instruments, Inc.
Reconciliation of Q4-13 Guidance - GAAP Net Income to Non-GAAP Net Earnings 
(In thousands, except per share data)
             
  Three Months Ended December 31, 2013     
  Low Guidance High Guidance    
  $ Amount $ Per Share $ Amount $ Per Share    
             
GAAP net income  $ 14,800 $ 0.28  $ 20,100 $ 0.38    
             
Executive retirement costs (Note 1) 2,300 0.04 2,300 0.04    
             
Amortization 400 0.01 400 0.01    
             
Restructuring (Note 2) 100 0.00 100 0.00    
             
Tax effect of adjustments (Note 3) (1,000) (0.02) (1,000) (0.02)    
             
Non-GAAP net earnings  $ 16,600  $ 0.31  $ 21,900  $ 0.41    
             
Q4 -13 Forecasted shares   53,600   53,600    
             
             
Note1: As of December 30, 2013, the Company's Chief Executive Officer will retire and this amount includes the estimated costs related to his supplemental executive retirement plan and other fringe benefits.
 
Note 2: The three month period ended December 31, 2013, includes the estimated remaining restructuring charges primarily for severance related costs related to the consolidation of certain facilities.
 
Note 3: The Non-GAAP adjustments are tax effected at estimated Q4-13 tax rate of 35%.
 
     
MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
     
  Nine Months Ended September 30, (Note 8)
  2013 2012
     
Net revenues:    
 Products  $ 388,998  $ 427,986
 Services  76,028  81,726
 Total net revenues  465,026  509,712
Cost of revenues:    
 Products  237,590  243,950
 Services  48,542  48,884
 Total cost of revenues  286,132  292,834
     
Gross profit  178,894  216,878
     
Research and development  47,318  45,911
Selling, general and administrative  102,140  96,332
Insurance reimbursement  (1,071)  -- 
Litigation  --   5,316
Completed acquisition costs  171  1,258
Restructuring  1,364  -- 
Amortization of intangible assets  1,537  453
Income from operations  27,435  67,608
     
Interest income, net  710  668
     
Income before income taxes  28,145  68,276
Provision for income taxes   12,606  24,356
Net income  $ 15,539  $ 43,920
     
Net income per share:    
 Basic  $ 0.29  $ 0.83
 Diluted  $ 0.29  $ 0.82
     
Cash dividends per common share  $ 0.48  $ 0.46
     
Weighted average shares outstanding:     
 Basic  52,998  52,679
 Diluted  53,410  53,240
     
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:
     
Net income  $ 15,539  $ 43,920
     
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)  -- 
 Insurance reimbursement (Note 4)  (1,071)  -- 
 Litigation (Note 4)  --   5,316
 Excess and obsolete charge (Note 5)  6,423  -- 
 Acquisition inventory step-up  --   101
 Completed acquisition costs (Note 6)  171  1,258
 Restructuring (Note 7)  1,364  -- 
 Amortization of intangible assets  1,537  453
 Pro forma tax adjustments  (3,121)  (2,639)
     
Non-GAAP net earnings (Note 6)  $ 23,770  $ 48,409
     
Non-GAAP net earnings per share (Note 6)  $ 0.45  $ 0.91
     
Weighted average shares outstanding  53,410  53,240
     
     
Income from operations  $ 27,435  $ 67,608
     
Adjustments:    
 Insurance reimbursement (Note 4)  (1,071)  -- 
 Litigation (Note 4)  --   5,316
 Excess and obsolete charge (Note 5)  6,423  -- 
 Acquisition inventory step-up  --   101
 Completed acquisition costs (Note 6)  171  1,258
 Restructuring (Note 7)  1,364  -- 
 Amortization of intangible assets  1,537  453
     
Non-GAAP income from operations  $ 35,859  $ 74,736
     
Non-GAAP operating margin percentage 7.7% 14.7%
     
     
Gross profit  $ 178,894  $ 216,878
 Excess and obsolete charge (Note 5)  6,423  -- 
     
Non-GAAP gross profit  $ 185,317  $ 216,878
     
Non-GAAP gross profit percentage 39.9% 42.5%
     
     
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 accumulatd 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 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 5: 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 6: 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 7: The nine month period ended September 30, 2013, includes restructuring charges primarily for severance related costs related to the consolidation of certain facilities.
 
Note 8: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, restructurings, costs associated with acquisitions, a litigation settlement, 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.
     
MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)
     
  September 30, 2013 December 31, 2012
     
ASSETS    
     
Cash and cash equivalents  $ 254,778  $ 287,588
Short-term investments  365,876  327,653
Trade accounts receivable, net  98,133  82,060
Inventories  136,060  134,639
Deferred income taxes  10,059  8,194
Other current assets  28,651  28,048
Total current assets  893,557  868,182
     
Property, plant and equipment, net  78,020  80,516
Long-term investments  5,183  12,158
Goodwill  150,700  150,733
Intangible assets, net  13,316  11,561
Other assets  31,198  29,412
     
Total assets  $ 1,171,974  $ 1,152,562
     
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
     
Accounts payable  $ 27,304  $ 16,803
Accrued compensation  25,190  20,955
Income taxes payable  7,768  4,148
Other current liabilities  35,899  37,405
Total current liabilities  96,161  79,311
     
Other liabilities  70,391  61,095
     
Stockholders' equity:    
Common stock  113  113
Additional paid-in capital  726,018  718,005
Retained earnings  267,246  278,583
Other stockholders' equity  12,045  15,455
Total stockholders' equity  1,005,422  1,012,156
     
Total liabilities and stockholders' equity  $ 1,171,974  $ 1,152,562
CONTACT: Seth H. Bagshaw         Vice President, Chief Financial Officer & Treasurer         Telephone: 978.645.5578

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