• Q4 Revenue and Earnings above expectations
  • Full Year 2015 revenue up 4%; Non-GAAP Net Earnings up 18%

ANDOVER, Mass., Jan. 27, 2016 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ:MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reports fourth quarter and full year 2015 financial results.
Financial Results
 
  Q4 2015   Full Year 2015
  GAAP Results Non-GAAP Results   GAAP Results Non-GAAP Results
Net revenues ($ millions) $ 172   $ 172     $ 814   $ 814  
Operating margin   12.9 %   14.4 %     19.3 %   20.1 %
Net income ($ millions) $ 25.5   $ 18.4     $ 122.3   $ 119.1  
Diluted EPS $ 0.48   $ 0.34     $ 2.28   $ 2.22  

Fourth Quarter Financial Results  

Sales were $172 million, a decrease of 18% from $209 million in the third quarter of 2015, and a decrease of 15% from $203 million in the fourth quarter of 2014.

Fourth quarter net income was $25.5 million, or $0.48 per diluted share, compared to net income of $29.8 million, or $0.56 per diluted share in the third quarter of 2015, and $34.2 million, or $0.64 per diluted share in the fourth quarter of 2014.

Non-GAAP net earnings, which exclude special charges and credits, were $18.4 million, or $0.34 per diluted share, compared to $31.5 million, or $0.59 per diluted share in the third quarter of 2015, and $29.1 million, or $0.54 per diluted share in the fourth quarter of 2014.

Full Year Results

Sales were $814 million, an increase of 4% from $781 million in 2014. Net income was $122 million, or $2.28 per diluted share, compared to $116 million, or $2.16 per diluted share in 2014. Non-GAAP net earnings were $119 million, or $2.22 per diluted share, compared to $101 million, or $1.89 per diluted share in 2014. Cash and investments at December 31 st were $658 million, or approximately $12.37 per share. Total book value, net of goodwill and intangibles, was $917 million or approximately $17.24 per share.

Commenting on the company's financial results, Gerald Colella, Chief Executive Officer and President, said, "The fourth quarter finished stronger than expected, as the softening we witnessed in the semiconductor market abated somewhat at the very end of the year.  With 4% sales growth for the full year, we achieved a significant increase in profitability, testament to the continued improvements we have made to our target operating model.  As we begin 2016, recent company reports and analyst estimates forecast a continued healthy environment in our served markets, which bodes well for continued strong financial results for MKS in the coming year.

"Based on current business levels, we expect that sales in the first quarter of 2016 may range from $165 to $185 million, and at these volumes, our non-GAAP net earnings could range from $0.25 to $0.38 per share and GAAP net income could range from $0.23 to $0.36 per share."

Conference Call Details

A conference call with management will be held on Thursday, January 28, 2016 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 11158287, 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, income related to the sale of excess and obsolete inventory previously written down to net realizable value, certain excess and obsolete inventory charges, an inventory step-up adjustment related to an acquisition, 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.
                         
MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
                         
                         
                         
                Three Months Ended 
                December 31,   December 31,   September 30,
                  2015       2014       2015  
                         
Net revenues:                        
  Products               $   143,286     $   176,647     $   179,441  
  Services                   29,101         26,374         29,891  
    Total net revenues                 172,387         203,021         209,332  
Cost of revenues:                      
  Products                   79,553         97,295         95,710  
  Services                   20,035         16,292         19,393  
    Total cost of revenues                 99,588         113,587         115,103  
                         
Gross profit                   72,799         89,434         94,229  
                         
Research and development                 16,841         16,022         17,217  
Selling, general and administrative               31,555         32,633         33,396  
Restructuring                   505         494         562  
Amortization of intangible assets               1,693         1,731         1,691  
Income from operations                 22,205         38,554         41,363  
                         
Interest income, net                 841         391         721  
                         
Income from operations before income taxes             23,046         38,945         42,084  
Provision (benefit) for income taxes                (2,476 )       4,753         12,315  
Net income               $   25,522     $   34,192     $   29,769  
                         
Net income per share:                      
  Basic               $   0.48     $   0.64     $   0.56  
  Diluted               $   0.48     $   0.64     $   0.56  
                         
Cash dividends per common share           $   0.17     $   0.165     $   0.17  
                         
Weighted average shares outstanding:                   
  Basic                   53,217         53,102         53,314  
  Diluted                   53,554         53,436         53,568  
                         
The following supplemental Non-GAAP earnings information is presented              
to aid in understanding MKS' operating results:                
                         
Net income       $   25,522     $   34,192     $   29,769  
             
Adjustments (net of tax, if applicable):            
  Income tax charges (Note 1)       -          1,422         -   
  Release of tax reserves (Note 2)       (7,692 )       (3,394 )       -   
  Tax benefit and tax credits (Note 3)       (1,378 )       (4,614 )       -   
  Excess and obsolete charge (Note 4)        488         -          -   
  Restructuring (Note 5)       505         494         562  
  Amortization of intangible assets       1,693         1,731         1,691  
  Pro forma tax adjustments       (761 )       (779 )       (543 )
             
Non-GAAP net earnings (Note 6)   $   18,377     $   29,052     $   31,479  
             
Non-GAAP net earnings per share (Note 6)   $   0.34     $   0.54     $   0.59  
             
Weighted average shares outstanding       53,554         53,436         53,568  
             
Income from operations   $   22,205     $   38,554     $   41,363  
             
Adjustments:            
  Excess and obsolete charge (Note 4)    $   488     $   -      $   -   
  Restructuring (Note 5)       505         494         562  
  Amortization of intangible assets       1,693         1,731         1,691  
             
Non-GAAP income from operations (Note 7)   $   24,891     $   40,779     $   43,616  
             
Non-GAAP operating margin percentage (Note 7)     14.4 %     20.1 %     20.8 %
           
Gross profit   $   72,799     $   89,434     $   94,229  
  Excess and obsolete charge (Note 4)        488         -          -   
           
Non-GAAP gross profit (Note 8)   $   73,287     $   89,434     $   94,229  
           
Non-GAAP gross profit percentage (Note 8)     42.5 %     44.1 %     45.0 %
           
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 2015, we recorded a tax benefit of $1.8 million from the reinstatement of the U.S. research tax credit, representing the full year benefit.  We are excluding the benefit applicable to the first three quarters of 2015, which is $1.4 million, from Non-GAAP net earnings. In the fourth quarter of 2014, we recorded a tax benefit of $3.2 million related to a German net operating loss 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.
                         
Note 4: In the fourth quarter of 2015, we incurred $0.5 million of excess and obsolete inventory charges, related to the discontinuation of a product line.
                         
Note 5: The third and fourth quarters of 2015, include restructuring charges related to the outsourcing of an international manufacturing operation and the consolidation of certain other foreign manufacturing locations. The fourth quarter of 2014 includes restructuring charges for severance costs related to a reduction in workforce, primarily at one of our foreign subsidiaries.
                         
Note 6: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude discrete tax benefits and charges, excess and obsolete inventory charges, restructuring costs, amortization of intangible assets 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 certain excess and obsolete inventory charges, restructuring costs and amortization of intangible assets.
                         
Note 8: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude certain excess and obsolete inventory charges.
                         

 
                       
MKS Instruments, Inc.  
Unaudited Consolidated Statements of Operations  
(In thousands, except per share data)  
                       
                       
                   
                Twelve Months Ended   
                December 31,  
                  2015       2014    
                       
Net revenues:                      
  Products               $   697,104     $   673,819    
  Services                   116,420         107,050    
    Total net revenues                 813,524         780,869    
Cost of revenues:                    
  Products                   373,764         374,200    
  Services                   76,888         68,903    
    Total cost of revenues                 450,652         443,103    
                       
Gross profit                   362,872         337,766    
                       
Research and development                 68,305         62,888    
Selling, general and administrative               129,087         131,828    
Acquisition costs                 30         499    
Restructuring                   2,074         2,464    
Amortization of intangible assets               6,764         4,945    
Income from operations                 156,612         135,142    
                       
Interest income, net                 2,856         1,251    
                       
Income from operations before income taxes             159,468         136,393    
Provision for income taxes                  37,171         20,615    
Net income               $   122,297     $   115,778    
                       
Net income per share:                    
  Basic               $   2.30     $   2.17    
  Diluted               $   2.28     $   2.16    
                       
Cash dividends per common share           $   0.675     $   0.655    
                       
Weighted average shares outstanding:                 
  Basic                   53,282         53,232    
  Diluted                   53,560         53,515    
                       
The following supplemental Non-GAAP earnings information is presented            
to aid in understanding MKS' operating results:              
                       
Net income               $   122,297     $   115,778    
                       
Adjustments (net of tax, if applicable):                  
  Income tax charges (Note 1)               -          1,422    
  Release of tax reserves (Note 2)               (7,692 )       (14,582 )  
  Tax benefit and tax credits (Note 3)               -          (7,957 )  
  Excess and obsolete charge (Note 4)              488         -     
  Sale of previously written down inventory (Note 5)           (2,098 )       -     
  Acquisition costs (Note 6)                 30         499    
  Acquisition inventory step-up (Note 7)             -          2,179    
  Restructuring (Note 8)                 2,074         2,464    
  Amortization of intangible assets               6,764         4,945    
  Pro forma tax adjustments               (2,790 )       (3,569 )  
                       
Non-GAAP net earnings (Note 9)           $   119,073     $   101,179    
                       
Non-GAAP net earnings per share (Note 9)         $   2.22     $   1.89    
                       
Weighted average shares outstanding               53,560         53,515    
                       
                       
Income from operations             $   156,612     $   135,142    
                       
Adjustments:                      
  Excess and obsolete charge (Note 4)              488         -     
  Sale of previously written down inventory (Note 5)           (2,098 )       -     
  Acquisition costs (Note 6)                 30         499    
  Acquisition inventory step-up (Note 7)             -          2,179    
  Restructuring (Note 8)                 2,074         2,464    
  Amortization of intangible assets               6,764         4,945    
                       
Non-GAAP income from operations (Note 10)         $   163,870     $   145,229    
                       
Non-GAAP operating margin percentage (Note 10)         20.1 %     18.6 %  
                       
Gross profit               $   362,872     $   337,766    
  Sale of previously written down inventory (Note 5)           (2,098 )       -     
  Excess and obsolete charge (Note 4)              488         -     
  Acquisition inventory step-up (Note 7)             -          2,179    
         
Non-GAAP gross profit (Note 11)   $   361,262     $   339,945    
         
Non-GAAP gross profit percentage (Note 11)     44.4 %     43.5 %  
                       
Note 1: In 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 2014, we recorded a tax benefit of $3.3 million related to a foreign intercompany dividend to the U.S. and a tax benefit off $3.2 million related to a German net operating loss resulting from a change in tax status. We also recorded a $1.4 million credit for the reinstatement of the U.S. research credit for the full year 2014.  
                       
Note 4: In the fourth quarter of 2015, we incurred $0.5 million of excess and obsolete inventory charges, related to the discontinuation of a product line.  
                       
Note 5: In the second quarter of 2015, we recorded income related to the sale of excess and obsolete inventory previously written down to net realizable value.  
                       
Note 6: In 2015, we incurred acquisition costs related to the Precisive LLC acquisition which closed during the first quarter of 2015. In 2014, we incurred acquisition costs comprising of legal fees and filing fees related to the Granville-Phillips acquisition which closed during the second quarter of 2014.   
                       
Note 7: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014.   
                       
Note 8:  In 2015, we incurred restructuring charges related to the outsourcing of an international manufacturing operation and the consolidation of certain other foreign manufacturing locations. In 2014, we incurred restructuring charges primarily for severance related costs related to a reduction in workforce at one of our foreign subsidiaries.  
 
                       
Note 9: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude discrete tax benefits and charges, an excess and obsolete inventory charge, income related to the sale of excess and obsolete inventory previously written down to net realizable value, acquisition costs, an inventory step-up adjustment related to an acquisition, restructuring costs, amortization of intangible assets and the related tax effect of these adjustments.  
                       
Note 10: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude an excess and obsolete inventory charge, income related to the sale of excess and obsolete inventory previously written down to net realizable value, acquisition costs, an inventory step-up adjustment related to an acquisition, restructuring costs and amortization of intangible assets.  
     
Note 11: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude income related to the sale of excess and obsolete inventory previously written down to net realizable value and excess and obsolete inventory charges.  
                       

 
                         
MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)
                       
    Three Months Ended December 31, 2015   Three Months Ended December 31, 2014
  Income Before   Provision (benefit)   Effective    Income Before   Provision (benefit)   Effective 
  Income Taxes   for Income Taxes   Tax Rate   Income Taxes   for Income Taxes   Tax Rate
         
GAAP   $   23,046     $   (2,476 )     -10.7 %   $   38,945     $   4,753       12.2 %
         
Adjustments:          
  Income tax charges (Note 1)       -          -          -          (1,422 )  
  Release of tax reserves (Note 2)       -          7,692         -          3,394    
  Tax benefit and tax credits (Note 3)       -          1,378         -          4,614    
  Excess and obsolete charge (Note 5)       488         -          -          -     
  Restructuring (Note 8)       505         -          494         -     
  Amortization of intangible assets       1,693         -          1,731         -     
  Tax effect of pro forma adjustments       -          761         -          779    
                     
Non-GAAP   $   25,732     $   7,355       28.6 %   $   41,170     $   12,118       29.4 %
         
         
    Three Months Ended September 30, 2015  
  Income Before   Provision (benefit)   Effective   
  Income Taxes   for Income Taxes   Tax Rate  
     
GAAP   $   42,084     $   12,315       29.3 %  
     
Adjustments:      
  Restructuring (Note 8)       562         -     
  Amortization of intangible assets       1,691         -     
  Tax effect of pro forma adjustments       -          543    
         
Non-GAAP   $   44,337     $   12,858       29.0 %            
                         
                         
    Twelve Months Ended December 31, 2015   Twelve Months Ended December 31, 2014
  Income Before   Provision (benefit)   Effective    Income Before   Provision (benefit)   Effective 
  Income Taxes   for Income Taxes   Tax Rate   Income Taxes   for Income Taxes   Tax Rate
         
GAAP   $   159,468     $   37,171       23.3 %   $   136,393     $   20,615       15.1 %
         
Adjustments:          
  Income tax charges (Note 1)       -          -          -          (1,422 )  
  Release of tax reserves (Note 2)       -          7,692         -          14,582    
  Tax benefit and tax credits (Note 3)       -          -          -          7,957    
  Sale of previously written down inventory (Note 4)       (2,098 )       -          -          -     
  Excess and obsolete charge (Note 5)       488         -          -          -     
  Acquisition costs (Note 6)       30         -          499         -     
  Acquisition inventory step-up (Note 7)       -          -          2,179         -     
  Restructuring (Note 8)       2,074         -          2,464         -     
  Amortization of intangible assets       6,764         -              4,945         -     
  Tax effect of pro forma adjustments       -          2,790         -          3,569    
                 
Non-GAAP   $   166,726     $   47,653       28.6 %   $   146,480     $   45,301       30.9 %
                         
                         
Note 1:  In 2014, we recorded $1.4 million of withholding tax related to a foreign intercompany dividend.
                         
Note 2: We recorded credits for reserve releases related to the settlement of audits and expiration of the statute of limitations.
                         
Note 3: In the fourth quarter of 2015, we recorded a tax benefit of $1.8 million from the reinstatement of the U.S. research tax credit, representing the full year benefit.  We are excluding the benefit applicable to the first three quarters of 2015, which is $1.4 million, from Non-GAAP net earnings. For the three and twelve months ended December 31, 2014, we recorded a tax benefit off $3.2 million related to a German net operating loss resulting from a change in tax status. We also recorded a $1.4 million credit for the reinstatement of the U.S. research credit for the three and twelve months ended December 31, 2014.  In the third quarter of 2014, we recorded a tax benefit of $3.3 million related to a foreign intercompany dividend to the U.S. 
                         
Note 4: In the second quarter of 2015, we recorded income related to the sale of excess and obsolete inventory previously written down to net realizable value.
                         
Note 5: In the fourth quarter of 2015, we incurred $0.5 million of excess and obsolete inventory charges, related to the discontinuation of a product line.
                         
Note 6: In 2015, we incurred acquisition costs related to the Precisive LLC acquisition which closed during the first quarter of 2015. In 2014, we incurred acquisition costs comprising of legal fees and filing fees related to the Granville-Phillips acquisition which closed during the second quarter of 2014. 
                         
Note 7: Inventory step-up adjustment related to the Granville-Phillips acquisition which closed during the second quarter of 2014. 
                         
Note 8:  The three and twelve months ended December 31, 2015 includes restructuring charges related to the outsourcing of an international manufacturing operation and the consolidation of certain other foreign manufacturing locations. The three and twelve months ended December 31, 2014 includes restructuring charges primarily for severance related costs related to a reduction in workforce at one of our foreign subsidiaries.
                         
                         
MKS Instruments, Inc.        
Reconciliation of Q1-16 Guidance - GAAP Net Income to Non-GAAP Net Earnings          
(In thousands, except per share data)        
                         
    Three Months Ended March 31, 2016  
    Low Guidance   High Guidance  
    $ Amount   $ Per Share   $ Amount   $ Per Share  
                   
GAAP net income   $   12,400     $   0.23     $   19,000     $   0.36          
                         
Amortization     1,700       0.03       1,700         0.03          
                         
Tax effect of adjustments      (500 )     (0.01 )     (500 )       (0.01 )        
                         
Non-GAAP net earnings   $   13,600     $   0.25     $   20,200     $   0.38          
                         
Q1 -16 forecasted shares         53,500           53,500          
                         

 
                 
MKS Instruments, Inc.  
Unaudited Consolidated Balance Sheet  
(In thousands)  
                 
                 
                 
                 
          December 31,   December 31,  
            2015       2014    
                 
ASSETS                
                 
Cash and cash equivalents     $   227,574     $   305,437    
Short-term investments (1)         430,663         286,795    
Trade accounts receivable, net         101,883         106,362    
Inventories           152,631         155,169    
Deferred income taxes         -          14,017    
Other current assets           26,760         27,512    
                 
  Total current assets         939,511         895,292    
                 
Property, plant and equipment, net       68,856         72,776    
Goodwill             199,703         192,381    
Intangible assets, net         44,027         46,389    
Other assets           21,250         17,206    
                 
Total assets       $   1,273,347     $   1,224,044    
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY        
                 
Accounts payable       $   23,177     $   34,166    
Accrued compensation         28,424         26,970    
Income taxes payable         4,024         6,702    
Other current liabilities         35,359         35,789    
  Total current liabilities       90,984         103,627    
                 
Other liabilities           21,482         38,595    
                 
Stockholders' equity:              
Common stock           113         113    
Additional paid-in capital         744,725         734,732    
Retained earnings           427,214         349,061    
Other stockholders' equity         (11,171 )       (2,084 )  
  Total stockholders' equity       1,160,881         1,081,822    
                 
Total liabilities and stockholders' equity   $   1,273,347     $   1,224,044    
                 
(1) In the fourth quarter of 2015, the Company started classifying all investments as short-term investments. Management has the ability and intent to liquidate long-term investments if needed and management and the Board of Directors view all investments as a single pool of funds available for operations. Prior year amounts have been reclassified to conform with this presentation.  
                 
Company Contact: Seth H. BagshawVice President, Chief Financial Officer and TreasurerTelephone: 978.645.5578Investor Relations Contact: Claire McAdamsHeadgate Partners LLCTelephone: 530.265.9899Email: claire@headgatepartners.com

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