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MKS Instruments Reports Second Quarter 2019 Financial Results

Jul 30, 2019
  • Quarterly revenue of $474 million, an increase of 2% compared to Q1 2019
  • Voluntarily prepaid $50 million towards our Term Loan Credit Facility
  • Non-GAAP net earnings of $59.9 million, or $1.09 per diluted share
  • GAAP net income of $37.7 million, or $0.69 per diluted share

ANDOVER, Mass., July 30, 2019 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported second quarter 2019 financial results.

“Another quarter of strong operational and financial execution drove our Non-GAAP operating margin and Non-GAAP net earnings above the mid-point of our guidance range in the second quarter despite the effects of uncertainty in the global trade environment,” said Gerald Colella, Chief Executive Officer.

Mr. Colella added, “The acquisition of ESI adds laser-based systems to our Advanced Markets portfolio, further expanding our ability to penetrate into these profitable and growing markets.  The long-term growth potential in our Advanced Markets remains robust and we are committed to continue to outperform these markets over the long term.  In the second quarter, we are pleased to report that, with the ESI acquisition, our revenue in Advanced Markets achieved a new record of over $260 million in the quarter, an increase of 10% from a year ago.”

“In the quarter, we completed a $50 million voluntary prepayment on our term loan as we are committed to reduce our leverage and interest costs.  This was our ninth voluntary prepayment since loan origination in April 2016,” said Seth Bagshaw, Senior Vice President and Chief Financial Officer. “Furthermore, we exited the quarter with a strong balance sheet and liquidity with $460 million of cash and short-term investments and trailing twelve-month net leverage ratio of under 1 times.”

 
Quarterly Consolidated Financial Results
(in millions, except per share data)
  Q2 2019 Q1 2019
GAAP Results    
Net revenues $ 474.1   $ 463.6  
Gross margin 44.5 % 42.7 %
Operating margin 13.5 % 5.0 %
Net income $ 37.7   $ 12.5  
Diluted EPS $ 0.69   $ 0.23  
Non-GAAP Results        
Gross margin 45.0 % 43.8 %
Operating margin 18.6 % 17.7 %
Net earnings $ 59.9   $ 61.3  
Diluted EPS $ 1.09   $ 1.12  
         

Second Quarter 2019 Financial Results  
Revenue was $474.1 million, an increase of 2% from $463.6 million in the first quarter of 2019 and a decrease of 17% from $573.1 million in the second quarter of 2018.

Net income was $37.7 million, or $0.69 per diluted share, compared to net income of $12.5 million, or $0.23 per diluted share, in the first quarter of 2019, and $122.9 million, or $2.22 per diluted share, in the second quarter of 2018.

Second quarter net income included acquisition and integration costs of $3.2 million associated with the ESI acquisition and $1.2 million of restructuring and other costs.

Non-GAAP net earnings, which exclude special charges and credits, were $59.9 million, or $1.09 per diluted share, compared to $61.3 million, or $1.12 per diluted share, in the first quarter of 2019, and $128.8 million or $2.33 per diluted share, in the second quarter of 2018.

Sales to Advanced Markets were $260 million, an increase of 7% compared to the first quarter of 2019, which was primarily attributed to the acquisition of ESI, as the first quarter only included two months of sales. Sales to Semiconductor customers were $214 million, a decrease of 3% compared to the first quarter of 2019.

Additional Financial Information
The Company had $460 million in cash and short-term investments and $947 million of term loan debt outstanding as of June 30, 2019, which is net of a $50 million prepayment made during the second quarter of 2019. MKS also paid a dividend of $10.9 million or $0.20 per diluted share during the second quarter of 2019. The Company has available an unused $100 million asset-based line of credit.

Third Quarter 2019 Outlook  
Based on current business levels, the Company expects that revenue in the third quarter of 2019 could range from $415 to $465 million.

At these volumes, GAAP net income could range from $0.39 to $0.72 per diluted share and non-GAAP net earnings could range from $0.69 to $1.02 per diluted share.

Conference Call Details
A conference call with management will be held on Wednesday, July 31, 2019 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 5483628, 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, along with the Company's earnings press release and supplemental financial information.  

About MKS Instruments
MKS Instruments, Inc. is a global provider of instruments, subsystems and process control solutions that measure, monitor, deliver, analyze, power and control critical parameters of advanced manufacturing processes to improve process performance and productivity for our customers.  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, power, reactive gas generation, vacuum technology, lasers, photonics, sub-micron positioning, vibration control, optics and laser-based manufacturing solutions.  We also provide services relating to the maintenance and repair of our products, installation services and training.  Our primary served markets include semiconductor, industrial technologies, life and health sciences, and research and defense. Additional information can be found at www.mksinst.com.

Use of Non-GAAP Financial Results
This release includes measures that are not in accordance with U.S. generally accepted accounting principles (“Non-GAAP measures”). Non-GAAP measures exclude amortization of acquired intangible assets, costs associated with completed acquisitions, acquisition integration costs, fees and expenses related to our term loan, amortization of debt issuance costs, restructuring and other costs, windfall tax benefits from stock-based compensation, accrued taxes on subsidiary distributions, the tax effects of the 2017 Tax Cut and Jobs Act, tax cost of the inter-company sale of an asset and the related tax effects of adjustments impacting pre-tax income. These Non-GAAP measures should be viewed in addition to, and not as a substitute for, MKS’ reported results, and may be different from Non-GAAP measures used by other companies. In addition, these Non-GAAP measures are not based on any comprehensive set of accounting rules or principles. MKS management believes the presentation of these Non-GAAP measures is useful to investors for comparing prior periods and analyzing ongoing business trends and operating results.

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, business prospects and growth of MKS, and MKS’ expected synergies and cost savings from its recent acquisition of Electro Scientific Industries, Inc (“ESI”).  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 MKS operates, including the fluctuations in capital spending in the semiconductor industry and other advanced manufacturing markets, fluctuations in net sales to our major customers, the ability of MKS to successfully integrate ESI’s operations and employees, unexpected costs, charges or expenses resulting from the ESI acquisition, MKS’ ability to realize anticipated synergies and cost savings from the ESI acquisition, the terms of our term loan, competition from larger or more established companies in MKS’ markets; MKS’ ability to successfully grow ESI’s business; potential adverse reactions or changes to business relationships resulting from the ESI acquisition, the challenges, risks and costs involved with integrating the operations of the other companies we have acquired, the Company’s 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, 2018 filed with the SEC.  MKS is under no obligation to, and expressly disclaims any obligation to, update or alter these 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
Email:  seth_bagshaw@mksinst.com

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

 
MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
           
           
           
  Three Months Ended
  June 30,   June 30,   March 31,
  2019   2018   2019
           
Net revenues:          
Products $ 401,326     $ 509,999     $ 397,363  
Services   72,784       63,141       66,198  
Total net revenues   474,110       573,140       463,561  
Cost of revenues:          
Products   226,213       266,890       229,710  
Services   36,870       31,373       35,733  
Total cost of revenues   263,083       298,263       265,443  
Gross profit   211,027       274,877       198,118  
Research and development   41,855       36,504       38,933  
Selling, general and administrative   83,236       76,181       82,455  
Fees and expenses related to term loan         378       5,847  
Acquisition and integration costs   3,240       (1,168 )     30,167  
Restructuring and other   1,242       790       1,923  
Amortization of intangible assets   17,552       10,901       15,727  
Income from operations   63,902       151,291       23,066  
Interest income   1,423       1,456       1,714  
Interest expense   12,674       3,922       9,119  
Other expense, net   788       281       325  
Income from operations before income taxes   51,863       148,544       15,336  
Provision for income taxes   14,124       25,682       2,881  
Net income $ 37,739     $ 122,862     $ 12,455  
Net income per share:          
Basic $ 0.69     $ 2.25     $ 0.23  
Diluted $ 0.69     $ 2.22     $ 0.23  
Cash dividends per common share $ 0.20     $ 0.20     $ 0.20  
Weighted average shares outstanding:          
Basic   54,815       54,719       54,147  
Diluted   55,089       55,274       54,848  
           
 
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:
 
  Three Months Ended
  June 30,   June 30,   March 31,
  2019   2018   2019
           
Net income $ 37,739     $ 122,862     $ 12,455  
Adjustments:          
Acquisition and integration costs (Note 1)   3,240       (1,168 )     30,167  
Acquisition inventory step-up (Note 2)   2,484             5,140  
Fees and expenses related to term loan (Note 3)         378       5,847  
Amortization of debt issuance costs (Note 4)   1,254       660       599  
Restructuring and other (Note 5)   1,242       790       1,923  
Amortization of intangible assets   17,552       10,901       15,727  
Windfall tax benefit on stock-based compensation (Note 6)   (790 )     (4,752 )     (1,389 )
Tax reform adjustments (Note 7)   2,731                  
Transition tax on accumulated foreign earnings (Note 8)         (659 )      
Pro-forma tax adjustments   (5,596 )     (200 )     (9,169 )
Non-GAAP net earnings (Note 9) $ 59,856     $ 128,812     $ 61,300  
Non-GAAP net earnings per share (Note 9) $ 1.09     $ 2.33     $ 1.12  
Weighted average shares outstanding   55,089       55,274       54,848  
           
Income from operations $ 63,902     $ 151,291     $ 23,066  
Adjustments:          
Acquisition and integration costs (Note 1)   3,240       (1,168 )     30,167  
Acquisition inventory step-up (Note 2)   2,484             5,140  
Fees and expenses related to term loan (Note 3)         378       5,847  
Restructuring and other (Note 5)   1,242       790       1,923  
Amortization of intangible assets   17,552       10,901       15,727  
Non-GAAP income from operations (Note 10) $ 88,420     $ 162,192     $ 81,870  
Non-GAAP operating margin percentage (Note 10)   18.6 %     28.3 %     17.7 %
           
Gross profit $ 211,027     $ 274,877     $ 198,118  
Acquisition inventory step-up (Note 2)   2,484             5,140  
Non-GAAP gross profit (Note 11) $ 213,511     $ 274,877     $ 203,258  
Non-GAAP gross profit percentage (Note 11)   45.0 %     48.0 %     43.8 %
           
Interest expense $ 12,674     $ 3,922     $ 9,119  
Amortization of debt issuance costs (Note 4)   1,254       660       599  
Non-GAAP interest expense $ 11,420     $ 3,262     $ 8,520  
           
Net income $ 37,739     $ 122,862     $ 12,455  
Interest expense, net   11,251       2,466       7,405  
Provision for income taxes   14,124       25,682       2,881  
Depreciation   9,892       8,984       9,484  
Amortization   17,552       10,901       15,727  
EBITDA (Note 12) $ 90,558     $ 170,895     $ 47,952  
Stock-based compensation   5,903       6,366       9,274  
Acquisition and integration costs (Note 1)   3,240       (1,168 )     30,167  
Acquisition inventory step-up (Note 2)   2,484             5,140  
Fees and expenses related to term loan (Note 3)         378       5,847  
Restructuring and other (Note 5)   1,242       790       1,923  
Other adjustments               3,337  
Adjusted EBITDA (Note 13) $ 103,427     $ 177,261     $ 103,640  
           
           
Note 1: Acquisition and integration costs for the three months ended June 30, 2019 and March 31, 2019, related to the acquisition of Electro Scientific Industries, Inc. ("ESI") which closed on February 1, 2019. During the three months ended June 30, 2018, we reversed a portion of costs recognized during previous periods related to the Newport acquisition, which closed during the second quarter of 2016, related to severance agreement provisions that were not met.
           
Note 2: Costs of revenues during the three months ended June 30, 2019 and March 31, 2019 includes the amortization of the step-up of inventory to fair value as a result of the ESI acquisition.
           
Note 3: We recorded fees and expenses during the three months ended March 31, 2019 related to Amendment No. 5 of our Term Loan Credit Agreement. We recorded fees and expenses during the three months ended June 30, 2018 related to the fourth repricing of our Term Loan Credit Agreement.
           
Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our Term Loan Credit Agreement.
           
Note 5: We recorded restructuring costs during the three months ended June 30, 2019 and March 31, 2019 which consisted primarily of severance costs related to an organization-wide reduction in workforce, the consolidation of service functions in Asia and the movement of certain products to low costs regions. We also recorded other expense during the three months ended March 31, 2019 related to a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the three months ended June 30, 2018 were primarily comprised of severance costs related to transferring a portion of our shared services functions to a third party as well as the consolidation of certain shared service functions in Asia.
           
Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation.
           
Note 7: We recorded tax adjustments resulting from additional guidance provided by the IRS related to 2017 tax reform.
           
Note 8: We adjusted the provisional transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three months ended June 30, 2018.
           
Note 9: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to our Term Loan Credit Agreement, amortization of debt issuance costs, restructuring and other costs, amortization of intangible assets, a windfall tax benefit related to stock compensation expense, tax reform adjustments, transition tax on accumulated foreign earnings and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.
           
Note 10: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to our Term Loan Credit Agreement, restructuring and other costs and amortization of intangible assets.
           
Note 11: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude the amortization of the step-up of inventory to fair value related to the acquisition of ESI.
           
Note 12: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.
           
Note 13: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs,  the amortization of the step-up of inventory to fair value, fees and expenses related to an amendment of our Term Loan Credit agreement, restructuring and other costs and other adjustments as defined in our Term Loan Credit Agreement.
           

 

       
MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
       
  Six Months Ended
  June 30,
    2019       2018  
Net revenues:      
Products $ 798,689     $ 1,006,676  
Services   138,982       120,739  
Total net revenues   937,671       1,127,415  
Cost of revenues:      
Products   455,923       528,211  
Services   72,603       61,472  
Total cost of revenues   528,526       589,683  
Gross profit   409,145       537,732  
Research and development   80,788       71,361  
Selling, general and administrative   165,691       159,130  
Acquisition and integration costs   33,407       (1,168 )
Restructuring and other   3,165       3,010  
Fees and expenses related to term loan   5,847       378  
Amortization of intangible assets   33,279       22,091  
Income from operations   86,968       282,930  
Interest income   3,137       2,561  
Interest expense   21,793       9,352  
Other expense, net   1,113       853  
Income from operations before income taxes   67,199       275,286  
Provision for income taxes   17,005       47,303  
Net income $ 50,194     $ 227,983  
Net income per share:      
Basic $ 0.92     $ 4.18  
Diluted $ 0.91     $ 4.12  
Cash dividends per common share $ 0.40     $ 0.38  
Weighted average shares outstanding:      
Basic   54,481       54,571  
Diluted   54,966       55,280  
       
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:
 
  Six Months Ended
  June 30,
    2019       2018  
Net income $ 50,194     $ 227,983  
Adjustments:      
Acquisition and integration costs (Note 1)   33,407       (1,168 )
Acquisition inventory step-up (Note 2)   7,624        
Fees and expenses related to term loan (Note 3)   5,847       378  
Amortization of debt issuance costs (Note 4)   1,853       2,491  
Restructuring and other (Note 5)   3,165       3,010  
Amortization of intangible assets   33,279       22,091  
Windfall tax benefit on stock-based compensation (Note 6)   (2,179 )     (7,788 )
Tax reform adjustments (Note 7)   2,731        
Deferred tax adjustment (Note 8)         878  
Transition tax on accumulated foreign earnings (Note 9)         (2,327 )
Pro-forma tax adjustments   (14,765 )     (2,447 )
Non-GAAP net earnings (Note 10) $ 121,156     $ 243,101  
Non-GAAP net earnings per share (Note 10) $ 2.20     $ 4.40  
Weighted average shares outstanding   54,966       55,280  
Income from operations $ 86,968     $ 282,930  
Adjustments:      
Acquisition and integration costs (Note 1)   33,407       (1,168 )
Acquisition inventory step-up (Note 2)   7,624        
Fees and expenses related to term loan (Note 3)   5,847       378  
Restructuring and other (Note 5)   3,165       3,010  
Amortization of intangible assets   33,279       22,091  
Non-GAAP income from operations (Note 11) $ 170,290     $ 307,241  
Non-GAAP operating margin percentage (Note 11)   18.2 %     27.3 %
Gross profit $ 409,145     $ 537,732  
Acquisition inventory step-up (Note 2)   7,624        
Non-GAAP gross profit (Note 12) $ 416,769     $ 537,732  
Non-GAAP gross profit percentage (Note 12)   44.4 %     47.7 %
Interest expense $ 21,793     $ 9,352  
Amortization of debt issuance costs (Note 4)   1,853       2,491  
Non-GAAP interest expense $ 19,940     $ 6,861  
Net Income $ 50,194     $ 227,983  
Interest expense, net   18,656       6,791  
Provision for income taxes   17,005       47,303  
Depreciation   19,376       18,286  
Amortization   33,279       22,091  
EBITDA (Note 13) $ 138,510     $ 322,454  
Stock-based compensation   15,177       16,792  
Acquisition and integration costs (Note 1)   33,407       (1,168 )
Acquisition inventory step-up (Note 2)   7,624        
Fees and expenses related to term loan (Note 3)   5,847       378  
Restructuring and other (Note 5)   3,165       3,010  
Other adjustments   3,337       772  
Adjusted EBITDA (Note 14) $ 207,067     $ 342,238  
       
Note 1: Acquisition and integration costs for the six months ended June 30, 2019, related to the acquisition of Electro Scientific Industries, Inc. ("ESI") which closed on February 1, 2019. During the six months ended June 30, 2018, we reversed a portion of costs recognized during previous periods related to the Newport acquisition, which closed during the second quarter of 2016, related to severance agreement provisions that were not met.
       
Note 2: Costs of revenues during the six months ended June 30, 2019 includes the amortization of the step-up of inventory to fair value as a result of the ESI acquisition.
       
Note 3: We recorded fees and expenses during the six months ended March 31, 2019 related to Amendment No. 5 of our Term Loan Credit Agreement. We recorded fees and expenses during the six months ended June 30, 2018 related to the fourth repricing of our Term Loan Credit Agreement.
       
Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our Term Loan Credit Agreement.
       
Note 5: We recorded restructuring costs during the six months ended June 30, 2019, which consisted primarily of severance costs related to an organization-wide reduction in workforce, the consolidation of service functions in Asia and the movement of certain products to low cost regions. We also recorded expense during the six months ended June 30, 2019 related to a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the six months ended June 30, 2018 were primarily comprised of severance costs related to transferring a portion of our shared services functions to a third party as well as the consolidation of certain shared service functions in Asia. We also recorded environmental costs during the six months ended June 30, 2018, related to an Environmental Protection Agency-designated Superfund site, which was acquired as part of our acquisition of Newport Corporation.
       
Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation.
       
Note 7: We recorded tax adjustments resulting from additional guidance provided by the IRS related to 2017 tax reform.
       
Note 8:  We recorded a provisional deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to U.S. tax reform legislation during the fourth quarter of 2017 and updated the provisional transition tax during the six months ended June 30, 2018.
       
Note 9: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the six months ended June 30, 2018.
       
Note 10: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to the repricing of the Term Loan Credit Agreement, fees and expenses related to an amendment to our Term Loan Credit agreement, amortization of debt issuance costs, restructuring and other costs, amortization of intangible assets, a windfall tax benefit related to stock compensation expense, tax reform adjustments, a deferred tax adjustment, transition tax on accumulated foreign earnings and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.
       
Note 11: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, fees and expenses related to the repricing of our Term Loan Credit Agreement, fees and expenses related to an amendment to our Term Loan Credit agreement, restructuring and other costs and amortization of intangible assets.
       
Note 12: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude the amortization of the step-up of inventory to fair value related to the acquisition of ESI.
       
Note 13: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.
       
Note 14: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to the repricing of our Term Loan Credit Agreement, fees and expenses related to an amendment to our Term Loan Credit Agreement, restructuring and other costs and other adjustments as defined in our Term Loan Credit Agreement.

 

       
MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)
       
       
       
       
  June 30,   December 31,
  2019   2018
ASSETS      
Cash and cash equivalents $ 366,935     $ 644,345  
Short-term investments   92,985       73,826  
Trade accounts receivable, net   313,530       295,454  
Inventories   479,497       384,689  
Other current assets   80,303       65,790  
Assets classified as held for sale   36,750        
Total current assets   1,370,000       1,464,104  
Property, plant and equipment, net   230,649       194,367  
Right-of-use asset   68,631        
Goodwill   1,058,667       586,996  
Intangible assets, net   599,372       319,807  
Long-term investments   10,401       10,290  
Other assets   44,228       38,682  
Total assets $ 3,381,948     $ 2,614,246  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Short-term debt $ 10,931     $ 3,986  
Accounts payable   88,046       83,825  
Accrued compensation   64,415       82,350  
Income taxes payable   12,811       16,358  
Lease liability   20,670        
Deferred revenue and customer advances   26,597       14,246  
Other current liabilities   61,686       62,520  
Total current liabilities   285,156       263,285  
       
Long-term debt, net   926,879       343,842  
Non-current deferred taxes   76,042       48,223  
Non-current accrued compensation   62,947       55,598  
Non-current lease liability   51,141        
Other liabilities   34,296       30,111  
Total liabilities   1,436,461       741,059  
Stockholders' equity:      
Common stock   113       113  
Additional paid-in capital   849,585       793,932  
Retained earnings   1,113,036       1,084,797  
Accumulated other comprehensive loss   (17,247 )     (5,655 )
Total stockholders' equity   1,945,487       1,873,187  
Total liabilities and stockholders' equity $ 3,381,948     $ 2,614,246  
       

 

           
MKS Instruments, Inc.
Unaudited Consolidated Statements of Cash Flows
(In thousands, except per share data)
           
  Three Months Ended
  June 30   June 30,   March 31
  2019   2018   2019
Cash flows from operating activities:          
Net income $ 37,739     $ 122,862     $ 12,455  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization   27,444       19,885       25,211  
Amortization of inventory step-up adjustment to fair value   2,484             5,140  
Amortization of debt issuance costs, original issue discount and soft call premium   1,751       868       1,202  
Stock-based compensation   6,929       6,366       27,838  
Provision for excess and obsolete inventory   6,990       4,959       5,063  
(Recovery) Provision for doubtful accounts   (251 )     261       (440 )
Deferred income taxes   (180 )     1,875       (2,445 )
Other   851       426       66  
Changes in operating assets and liabilities   (6,203 )     (47,891 )     (45,040 )
Net cash provided by operating activities   77,554       109,611       29,050  
Cash flows used in investing activities:          
Acquisition of business, net of cash acquired               (988,599 )
Purchases of investments   (73,707 )     (99,063 )     (44,212 )
Sales of investments   3,221       54,433       154,489  
Maturities of investments   21,702       41,138       18,684  
Proceeds from sale of assets               35  
Purchases of property, plant and equipment   (13,725 )     (12,428 )     (14,529 )
Net cash used in investing activities   (62,509 )     (15,920 )     (874,132 )
Cash flows (used in) provided by financing activities:          
Payments of short-term borrowings   (1,750 )     (17,788 )     (176 )
Net proceeds from short and long-term borrowings   2,301       25,082       638,638  
Payments of long-term borrowings   (51,625 )            
Dividend payments   (10,880 )     (10,942 )     (10,843 )
Net payments related to employee stock awards   (2,025 )     (4,131 )     (8,987 )
Net cash (used in) provided by financing activities   (63,979 )     (7,779 )     618,632  
Effect of exchange rate changes on cash and cash equivalents   (2,147 )     631       121  
(Decrease) increase in cash and cash equivalents   (51,081 )     86,543       (226,329 )
Cash and cash equivalents at beginning of period   418,016       340,888       644,345  
Cash and cash equivalents at end of period $ 366,935     $ 427,431     $ 418,016  
           

 

 
MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)
 
  Three Months Ended June 30, 2019   Three Months Ended March 31, 2019
  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 $ 51,863     $ 14,124       27.2 %   $ 15,336     $ 2,881     18.8 %
Adjustments:                      
Acquisition and integration costs (Note 1)   3,240                 30,167            
Acquisition inventory step-up (Note 2)   2,484                 5,140            
Fees and expenses related to term loan (Note 3)                   5,847            
Amortization of debt issuance costs (Note 4)   1,254                 599            
Restructuring and other (Note 5)   1,242                 1,923            
Amortization of intangible assets   17,552                 15,727            
Windfall tax benefit on stock-based compensation (Note 6)         790                 1,389      
Tax reform adjustments (Note 7)         (2,731 )                    
Tax effect of pro-forma adjustments         5,596                 9,169      
Non-GAAP $ 77,635     $ 17,779       22.9 %   $ 74,739     $ 13,439     18.0 %
                       
                       
  Three Months Ended June 30, 2018            
  Income Before   Provision (benefit)   Effective            
  Income Taxes   for Income Taxes   Tax Rate            
GAAP $ 148,544     $ 25,682       17.3 %            
Adjustments:                      
Acquisition and integration costs (Note 1)   (1,168 )                      
Fees and expenses related to term loan (Note 3)   378                        
Amortization of debt issuance costs (Note 4)   660                        
Restructuring and other (Note 5)   790                        
Amortization of intangible assets   10,901                        
Windfall tax benefit on stock-based compensation (Note 6)         4,752                  
Transition tax on accumulated foreign earnings (Note 9)         659                  
Tax effect of pro-forma adjustments         200                  
Non-GAAP $ 160,105     $ 31,293       19.5 %            
                       
                       
  Six Months Ended June 30, 2019   Six Months Ended June 30, 2018
  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 $ 67,199     $ 17,005       25.3 %   $ 275,286     $ 47,303     17.2 %
Adjustments:                      
Acquisition and integration costs (Note 1)   33,407                 (1,168 )          
Acquisition inventory step-up (Note 2)   7,624                            
Fees and expenses related to term loan (Note 3)   5,847                 378            
Amortization of debt issuance costs (Note 4)   1,853                 2,491            
Restructuring and other (Note 5)   3,165                 3,010            
Amortization of intangible assets   33,279                 22,091            
Windfall tax benefit on stock-based compensation (Note 6)         2,179                 7,788      
Tax reform adjustments (Note 7)         (2,731 )                    
Deferred tax adjustment (Note 8)                         (878 )    
Transition tax on accumulated foreign earnings (Note 9)                         2,327      
Tax effect of pro-forma adjustments         14,765                 2,447      
Non-GAAP $ 152,374     $ 31,218       20.5 %   $ 302,088     $ 58,987     19.5 %
                       
                       
Note 1: Acquisition and integration costs for the three months ended June 30, 2019 and March 31, 2019 and the six months ended June 30, 2019, related to the acquisition of Electro Scientific Industries, Inc. ("ESI") which closed on February 1, 2019. During the three and six months ended June 30, 2018, we reversed a portion of costs recognized during previous periods related to the Newport acquisition, which closed during the second quarter of 2016, related to severance agreement provisions that were not met.
                       
Note 2: Costs of revenues during the three months ended June 30, 2019 and March 31, 2019 and the six months ended June 30, 2019 includes the amortization of the step-up of inventory to fair value as a result of the ESI acquisition.
                       
Note 3: We recorded fees and expenses during the three months ended March 31, 2019 and six months ended June 30, 2019 related to Amendment No. 5 of our Term Loan Credit Agreement. We recorded fees and expenses during the three and six months ended June 30, 2018 related to the fourth repricing of our Term Loan Credit Agreement.
                       
Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our Term Loan Credit Agreement.
                       
Note 5: We recorded restructuring costs during the three months ended June 30, 2019 and March 31, 2019 and the six months ended June 30, 2019, which consisted primarily of severance costs related to an organization-wide reduction in workforce, the consolidation of service functions in Asia and the movement of certain products to low cost regions. We also recorded expense during the three months ended March 31, 2019 and six months ended June 30, 2019 related to a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the three and six months ended June 30, 2018 were primarily comprised of severance costs related to transferring a portion of our shared services functions to a third party as well as the consolidation of certain shared service functions in Asia. We recorded environmental costs during the six months ended June 30, 2018, related to an Environmental Protection Agency-designated Superfund site, which was acquired as part of our acquisition of Newport Corporation.
                       
Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation.
 
Note 7: We recorded tax adjustments resulting from additional guidance provided by the IRS related to 2017 tax reform.
 
Note 8:  We recorded a provisional deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to U.S. tax reform legislation during the fourth quarter of 2017 and updated the provisional transition tax during the six months ended June 30, 2018.
                       
Note 9: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three and six months ended June 30, 2018.
                       

 

MKS Instruments, Inc.
Reconciliation of Q3-19 Guidance - GAAP Net Income to Non-GAAP Net Earnings 
(In thousands, except per share data)
               
  Three Months Ended September 30, 2019
  Low Guidance   High Guidance
  $ Amount   $ Per Share   $ Amount   $ Per Share
               
GAAP net income $ 21,400     $ 0.39     $ 39,800     $ 0.72  
Amortization   17,200       0.31       17,200       0.31  
Deferred financing costs   800       0.01       800       0.01  
Integration costs   1,700       0.03       1,700       0.03  
Restructuring and other costs   1,800       0.03       1,800       0.03  
Tax effect of adjustments (Note 1)   (4,700 )     (0.08 )     (4,700 )     (0.08 )
Non-GAAP net earnings $ 38,200     $ 0.69     $ 56,600     $ 1.02  
Q3 -19 forecasted shares     55,300           55,300  
 
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.
 

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Source: MKS Instruments, Inc.