<<  Back

MKS Instruments Reports Third Quarter 2019 Financial Results

Oct 23, 2019
  • Quarterly revenue of $462 million
  • Non-GAAP net earnings of $62 million, or $1.12 per diluted share
  • GAAP net income of $47 million, or $0.86 per diluted share
  • Completed $50 million voluntary principal prepayment and repriced secured term loan to Libor + 175 basis points

ANDOVER, Mass., Oct. 23, 2019 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported third quarter 2019 financial results.

“We are very pleased with our financial results for the quarter, as we delivered sequential growth in our Semiconductor end-market, driven by strong product differentiation and execution, combined with an improving demand backdrop. Although our Advanced Markets remain constrained due to global macro-economic and trade uncertainty, we remain very excited about our product and market offerings into 2020 and beyond.” said Gerald Colella, Chief Executive Officer.

Mr. Colella added, “We are also very proud that MKS has been selected to the Fortune® 100 Fastest-Growing Companies List for the third year in a row, ranking #21. Our strong operational and financial execution, combined with our commitment to innovation, have underpinned our ability to thrive as a global leader in the markets we serve – and we are just getting started.”

“In the quarter, we completed our tenth voluntary principal prepayment and fifth repricing of our secured term loan since loan origination in April 2016. These actions have lowered our annualized non-GAAP interest costs by almost $6 million based on current interest rates, and our goal is to continue to execute on de-levering the balance sheet. We exited the quarter with $475 million in cash and short-term investments, and $895 million of secured term loan debt,” said Seth H. Bagshaw, Senior Vice President and Chief Financial Officer.

Quarterly Consolidated Financial Results
(in millions, except per share data)
  Q3 2019 Q2 2019
GAAP Results    
Net revenues $462.5 $474.1
Gross margin 44.3% 44.5%
Operating margin  14.4%  13.5%
Net income $47.4 $37.7
Diluted EPS $0.86 $0.69
Non-GAAP Results    
Gross margin 44.3% 45.0%
Operating margin  17.6%  18.6%
Net earnings $ 61.6 $59.9
Diluted EPS $1.12 $1.09

Third Quarter 2019 Financial Results  

Revenue was $462.5 million, a decrease of 2% from $474.1 million in the second quarter of 2019 and a decrease of 5% from $487.2 million in the third quarter of 2018.

Net income was $47.4 million, or $0.86 per diluted share, compared to net income of $37.7 million, or $0.69 per diluted share, in the second quarter of 2019, and $93.3 million, or $1.70 per diluted share, in the third quarter of 2018.

Third quarter GAAP net income included a gain from the sale of long-lived assets of $6.8 million, acquisition and integration costs of $2.1 million associated with the acquisition of Electro Scientific Industries, Inc., or ESI, and $1.5 million of restructuring and other costs.

Non-GAAP net earnings, which exclude special charges and credits, were $61.6 million, or $1.12 per diluted share, compared to $59.9 million, or $1.09 per diluted share, in the second quarter of 2019, and $103.2 million or $1.88 per diluted share, in the third quarter of 2018.

Sales to Semiconductor customers were $223 million, an increase of 4% compared to the second quarter of 2019. Sales to Advanced Markets were $239 million, a decrease of 8% compared to the second quarter of 2019.

Additional Financial Information

The Company had $475 million in cash and short-term investments and $895 million of secured term loan debt outstanding as of September 30, 2019, which is net of a $50 million voluntary principal prepayment made during the third quarter of 2019. MKS also paid a dividend of $10.9 million or $0.20 per diluted share during the third quarter of 2019. The Company has available an unused $100 million asset-based line of credit.

Fourth Quarter 2019 Outlook  

Based on current business levels, the Company expects that revenue in the fourth quarter of 2019 could range from $445 to $495 million.

At these volumes, GAAP net income could range from $0.58 to $0.91 per diluted share and non-GAAP net earnings could range from $0.85 to $1.19 per diluted share.

Conference Call Details

A conference call with management will be held on Thursday, October 24, 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 9980809, 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 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, a gain from the sale of long-lived assets, windfall tax adjustments from stock-based compensation, accrued taxes on subsidiary distributions, the tax effects of the 2017 Tax Cut and Jobs Act, deferred tax adjustments 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.

Non-GAAP interest expense excludes amortization of debt issuance costs. On an annualized basis, GAAP interest savings, at the current interest rate, is approximately $7 million, which includes approximately $1 million of amortization of deferred financing costs.

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. 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 and any subsequent Quarterly Reports on Form 10-Q, as 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: 
David Ryzhik
Vice President, Investor Relations
Telephone: (978) 557-5180
Email: david.ryzhik@mksinst.com



             
MKS Instruments, Inc.    
Unaudited Consolidated Statements of Operations    
(In thousands, except per share data)    
             
             
             
    Three Months Ended
    September 30,   September 30,   June 30,
      2019       2018       2019  
             
Net revenues:            
Products   $ 386,173     $ 426,255     $ 401,326  
Services     76,278       60,897       72,784  
  Total net revenues     462,451       487,152       474,110  
Cost of revenues:            
Products     216,238       219,311       226,213  
Services     41,209       35,981       36,870  
  Total cost of revenues     257,447       255,292       263,083  
Gross profit     205,004       231,860       211,027  
Research and development     41,566       31,898       41,855  
Selling, general and administrative     82,101       70,822       83,236  
Fees and expenses related to term loan     642              
Acquisition and integration costs     2,103       36       3,240  
Restructuring and other     1,525       1,364       1,242  
Amortization of intangible assets     17,020       10,695       17,552  
Gain on sale of long-lived assets     (6,773 )            
Income from operations     66,820       117,045       63,902  
Interest income     1,230       1,516       1,423  
Interest expense     13,542       3,719       12,674  
Other (income) expense, net     (914 )     326       788  
Income from operations before income taxes     55,422       114,516       51,863  
Provision for income taxes     7,994       21,239       14,124  
Net income   $ 47,428     $ 93,277     $ 37,739  
Net income per share:            
Basic   $ 0.86     $ 1.71     $ 0.69  
Diluted   $ 0.86     $ 1.70     $ 0.69  
Cash dividends per common share   $ 0.20     $ 0.20     $ 0.20  
Weighted average shares outstanding:            
Basic     54,945       54,476       54,815  
Diluted     55,204       54,954       55,089  
             
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:
    Three Months Ended
    September 30,   September 30,   June 30,
      2019       2018       2019  
Net income   $ 47,428     $ 93,277     $ 37,739  
Adjustments:            
Acquisition and integration costs (Note 1)     2,103       36       3,240  
Acquisition inventory step-up (Note 2)                 2,484  
Fees and expenses related to term loan (Note 3)     642              
Amortization of debt issuance costs (Note 4)     3,053       682       1,254  
Restructuring and other (Note 5)     1,525       1,364       1,242  
Amortization of intangible assets     17,020       10,695       17,552  
Gain on the sale of long-lived assets (Note 6)     (6,773 )            
Windfall tax expense (benefit) on stock-based compensation (Note 7)     256       (287 )     (790 )
Tax reform adjustments (Note 8)     38             2,731  
Accrued tax on subsidiary distribution (Note 9)           (2,756 )      
Transition tax on accumulated foreign earnings (Note 10)           863        
Pro-forma tax adjustments     (3,709 )     (659 )     (5,596 )
Non-GAAP net earnings (Note 11)   $ 61,583     $ 103,215     $ 59,856  
Non-GAAP net earnings per diluted share (Note 11)   $ 1.12     $ 1.88     $ 1.09  
Weighted average shares outstanding     55,204       54,954       55,089  
             
Income from operations   $ 66,820     $ 117,045     $ 63,902  
Adjustments:            
Acquisition and integration costs (Note 1)     2,103       36       3,240  
Acquisition inventory step-up (Note 2)                 2,484  
Fees and expenses related to term loan (Note 3)     642              
Restructuring and other (Note 5)     1,525       1,364       1,242  
Amortization of intangible assets     17,020       10,695       17,552  
Gain on the sale of long-lived assets (Note 6)     (6,773 )            
Non-GAAP income from operations (Note 12)   $ 81,337     $ 129,140     $ 88,420  
Non-GAAP operating margin (Note 12)     17.6 %     26.5 %     18.6 %
             
Gross profit   $ 205,004     $ 231,860     $ 211,027  
Acquisition inventory step-up (Note 2)                 2,484  
Non-GAAP gross profit (Note 13)   $ 205,004     $ 231,860     $ 213,511  
Non-GAAP gross margin (Note 13)     44.3 %     47.6 %     45.0 %
             
Interest expense   $ 13,542     $ 3,719     $ 12,674  
Amortization of debt issuance costs (Note 4)     3,053       682       1,254  
Non-GAAP interest expense   $ 10,489     $ 3,037     $ 11,420  
             
Net income   $ 47,428     $ 93,277     $ 37,739  
Interest expense, net     12,312       2,203       11,251  
Provision for income taxes     7,994       21,239       14,124  
Depreciation     10,188       8,834       9,892  
Amortization     17,020       10,695       17,552  
EBITDA (Note 14)   $ 94,942     $ 136,248     $ 90,558  
Stock-based compensation     5,795       5,213       5,903  
Acquisition and integration costs (Note 1)     2,103       36       3,240  
Acquisition inventory step-up (Note 2)                 2,484  
Fees and expenses related to term loan (Note 3)     642              
Restructuring and other (Note 5)     1,525       1,364       1,242  
Gain on the sale of long-lived assets (Note 6)     (6,773 )            
Adjusted EBITDA (Note 15)   $ 98,234     $ 142,861     $ 103,427  
             
Note 1: Acquisition and integration costs for the three months ended September 30, 2019 and June 30, 2019, related to the acquisition of Electro Scientific Industries, Inc. ("ESI") which closed on February 1, 2019. Acquisition and integration costs for the three months ended September 30, 2018, related to the Newport acquisition, which closed during the second quarter of 2016.
             
Note 2: Costs of revenues during the three 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 September 30, 2019, related to Amendment No. 6 which included the fifth repricing of our Secured Term Loan Credit Agreement and the combination of the two existing tranches of the Secured Term Loan Credit Agreement with a maturity date in February 2026.
             
Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our Secured Term Loan Credit Agreement.
             
Note 5: We recorded restructuring costs during the three months ended September 30, 2019 and 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. Restructuring costs during the three months ended September 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: During the three months ended September 30, 2019, we recorded a net gain on the sale of two of our buildings in Boulder, CO and three of our buildings in Portland, OR.
             
Note 7: We recorded windfall tax expense (benefits) on the vesting of stock-based compensation.
             
Note 8: We recorded tax adjustments during the three months ended September 30, 2019 and June 30, 2019 resulting from additional guidance provided by the IRS related to 2017 tax reform.
             
Note 9: During the three months ended September 30, 2018, we recorded an adjustment to a tax accrual related to a planned distribution of an MKS subsidiary.
             
Note 10: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three months ended September 30, 2018.
             
Note 11: The Non-GAAP net earnings and Non-GAAP net earnings per diluted 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 and amendment of our Secured Term Loan Credit Agreement, amortization of debt issuance costs, restructuring and other costs, amortization of intangible assets, a gain on the sale of long-lived assets, windfall tax adjustments related to stock compensation expense, tax reform adjustments, an accrued tax on subsidiary distribution, 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 12: The Non-GAAP income from operations and Non-GAAP operating margin exclude acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to the repricing and amendment of our Secured Term Loan Credit Agreement, restructuring and other costs, amortization of intangible assets and a gain on the sale of long-lived assets.
             
Note 13: The Non-GAAP gross profit amounts and Non-GAAP gross margin exclude the amortization of the step-up of inventory to fair value related to the acquisition of ESI.
             
Note 14: EBITDA excludes net interest expense, income taxes, depreciation and amortization of intangible assets.
             
Note 15: 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 and amendment of our Secured Term Loan Credit Agreement, restructuring and other costs and a gain on the sale of long-lived assets.
             



         
MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
         
         
         
    Nine Months Ended
    September 30,
      2019       2018  
Net revenues:        
Products   $ 1,184,862     $ 1,432,931  
Services     215,260       181,636  
  Total net revenues     1,400,122       1,614,567  
Cost of revenues:        
Products     672,161       747,522  
Services     113,812       97,453  
  Total cost of revenues     785,973       844,975  
Gross profit     614,149       769,592  
Research and development     122,354       103,259  
Selling, general and administrative     247,792       229,952  
Acquisition and integration costs     35,510       (1,132 )
Restructuring and other     4,690       4,374  
Fees and expenses related to term loan     6,489       378  
Amortization of intangible assets     50,299       32,786  
Gain on sale of long-lived assets     (6,773 )      
Income from operations     153,788       399,975  
Interest income     4,367       4,077  
Interest expense     35,335       13,071  
Other expense, net     199       1,179  
Income from operations before income taxes     122,621       389,802  
Provision for income taxes     24,999       68,542  
Net income   $ 97,622     $ 321,260  
Net income per share:        
Basic   $ 1.79     $ 5.89  
Diluted   $ 1.77     $ 5.82  
Cash dividends per common share   $ 0.60     $ 0.58  
Weighted average shares outstanding:        
Basic     54,636       54,539  
Diluted     55,045       55,171  
         
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:
    Nine Months Ended
    September 30,
      2019       2018  
Net income   $ 97,622     $ 321,260  
Adjustments:        
Acquisition and integration costs (Note 1)     35,510       (1,132 )
Acquisition inventory step-up (Note 2)     7,624        
Fees and expenses related to term loan (Note 3)     6,489       378  
Amortization of debt issuance costs (Note 4)     4,906       3,173  
Restructuring and other (Note 5)     4,690       4,374  
Amortization of intangible assets     50,299       32,786  
Gain on sale of long-lived assets (Note 6)     (6,773 )      
Windfall tax benefit on stock-based compensation (Note 7)     (1,923 )     (8,075 )
Tax reform adjustments (Note 8)     2,769        
Accrued tax on subsidiary distribution (Note 9)           (2,756 )
Transition tax on accumulated foreign earnings (Note 10)           (1,464 )
Deferred tax adjustment (Note 11)           878  
Pro-forma tax adjustments     (18,474 )     (3,106 )
Non-GAAP net earnings (Note 12)   $ 182,739     $ 346,316  
Non-GAAP net earnings per diluted share (Note 12)   $ 3.32     $ 6.28  
Weighted average shares outstanding     55,045       55,171  
Income from operations   $ 153,788     $ 399,975  
Adjustments:        
Acquisition and integration costs (Note 1)     35,510       (1,132 )
Acquisition inventory step-up (Note 2)     7,624        
Fees and expenses related to term loan (Note 3)     6,489       378  
Restructuring and other (Note 5)     4,690       4,374  
Amortization of intangible assets     50,299       32,786  
Gain on sale of long-lived assets (Note 6)     (6,773 )      
Non-GAAP income from operations (Note 13)   $ 251,627     $ 436,381  
Non-GAAP operating margin (Note 13)     18.0 %     27.0 %
Gross profit   $ 614,149     $ 769,592  
Acquisition inventory step-up (Note 2)     7,624        
Non-GAAP gross profit (Note 14)   $ 621,773     $ 769,592  
Non-GAAP gross margin (Note 14)     44.4 %     47.7 %
Interest expense   $ 35,335     $ 13,071  
Amortization of debt issuance costs (Note 4)     4,906       3,173  
Non-GAAP interest expense   $ 30,429     $ 9,898  
Net Income   $ 97,622     $ 321,260  
Interest expense, net     30,968       8,994  
Provision for income taxes     24,999       68,542  
Depreciation     29,564       27,120  
Amortization     50,299       32,786  
EBITDA (Note 15)   $ 233,452     $ 458,702  
Stock-based compensation     20,972       22,005  
Acquisition and integration costs (Note 1)     35,510       (1,132 )
Acquisition inventory step-up (Note 2)     7,624        
Fees and expenses related to term loan (Note 3)     6,489       378  
Restructuring and other (Note 5)     4,690       4,374  
Gain on sale of long-lived assets (Note 6)     (6,773 )      
Other adjustments     3,337       772  
Adjusted EBITDA (Note 16)   $ 305,301     $ 485,099  
         
Note 1: Acquisition and integration costs for the nine months ended September 30, 2019, related to the acquisition of Electro Scientific Industries, Inc. ("ESI") which closed on February 1, 2019. Acquisition and integration costs for the nine months ended September 30, 2018, related to the Newport acquisition, which closed during the second quarter of 2016. During the second quarter of 2018, we reversed a portion of these costs related to severance agreement provisions that were not met.
         
Note 2: Costs of revenues during the nine months ended September 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 nine months ended September 30, 2019, related to Amendment No. 6 which included the fifth repricing of our Secured Term Loan Credit Agreement and the combination of the two existing tranches of the Secured Term Loan Credit Agreement with a maturity date in February 2026. We also recorded fees and expenses during the nine months ended September 30, 2019 related to Amendment No. 5 of our Secured Term Loan Credit Agreement. We recorded fees and expenses during the nine months ended September 30, 2018 related to the fourth repricing of our Secured Term Loan Credit Agreement.
         
Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our Secured Term Loan Credit Agreement.
         
Note 5: We recorded restructuring costs during the nine months ended September 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 nine months ended September 30, 2019 related to a legal settlement from a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the nine months ended September 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 nine months ended September 30, 2018, related to an Environmental Protection Agency-designated Superfund site, which was acquired as part of our acquisition of Newport Corporation.
         
Note 6: During the nine months ended September 30, 2019, we recorded a net gain on the sale of two of our buildings in Boulder, CO and three of our buildings in Portland, OR.
         
Note 7: We recorded windfall tax benefits on the vesting of stock-based compensation.
         
Note 8: We recorded tax adjustments during the nine months ended September 30, 2019 resulting from additional guidance provided by the IRS related to 2017 tax reform.
         
Note 9: During the nine months ended September 30, 2018, we recorded an adjustment to a tax accrual related to a planned distribution of an MKS subsidiary.
 
Note 10: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the nine months ended September 30, 2018.
         
Note 11: During the nine months ended September 30, 2018, 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.
 
Note 12: The Non-GAAP net earnings and Non-GAAP net earnings per diluted 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 and amendment of our Secured Term Loan Credit Agreement, amortization of debt issuance costs, restructuring and other costs, amortization of intangible assets, a gain on the sale of long-lived assets, windfall tax benefits related to stock compensation expense, tax reform adjustments, an accrued tax on subsidiary distribution, transition tax on accumulated foreign earnings, a deferred tax adjustment and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.
         
Note 13: The Non-GAAP income from operations and Non-GAAP operating margin excludes acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to the repricing and amendment of our Secured Term Loan Credit Agreement, restructuring and other costs, amortization of intangible assets and a gain on the sale of long-lived assets.
         
Note 14: The Non-GAAP gross profit amounts and Non-GAAP gross margin exclude the amortization of the step-up of inventory to fair value related to the acquisition of ESI.
         
Note 15: EBITDA excludes net interest expense, income taxes, depreciation and amortization of intangible assets.
         
Note 16: 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 and amendment of our Secured Term Loan Credit Agreement, restructuring and other costs, a gain on the sale of long-lived assets and other adjustments as defined in our Term Loan Credit Agreement.
         



 
MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)
         
         
         
         
    September 30,   December 31,
      2019       2018  
ASSETS        
Cash and cash equivalents   $ 386,281     $ 644,345  
Short-term investments     88,847       73,826  
Trade accounts receivable, net     327,983       295,454  
Inventories     463,263       384,689  
Other current assets     94,011       65,790  
Total current assets     1,360,385       1,464,104  
Property, plant and equipment, net     236,124       194,367  
Right-of-use asset     67,632        
Goodwill     1,054,091       586,996  
Intangible assets, net     580,880       319,807  
Long-term investments     10,146       10,290  
Other assets     45,286       38,682  
Total assets   $ 3,354,544     $ 2,614,246  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Short-term debt   $ 12,623     $ 3,986  
Accounts payable     88,078       83,825  
Accrued compensation     87,045       82,350  
Income taxes payable     11,048       16,358  
Lease liability     20,575        
Deferred revenue and customer advances     22,363       14,246  
Other current liabilities     68,925       62,520  
Total current liabilities     310,657       263,285  
         
Long-term debt, net     873,450       343,842  
Non-current deferred taxes     69,190       48,223  
Non-current accrued compensation     43,704       55,598  
Non-current lease liability     47,294        
Other liabilities     36,718       30,111  
Total liabilities     1,381,013       741,059  
Stockholders' equity:        
Common stock     113       113  
Additional paid-in capital     856,437       793,932  
Retained earnings     1,149,457       1,084,797  
Accumulated other comprehensive loss     (32,476 )     (5,655 )
Total stockholders' equity     1,973,531       1,873,187  
Total liabilities and stockholders' equity   $ 3,354,544     $ 2,614,246  
         



 
MKS Instruments, Inc.
Unaudited Consolidated Statements of Cash Flows
(In thousands, except per share data)
             
    Three Months Ended
    September 30   September 30   June 30
      2019       2018       2019  
Cash flows from operating activities:            
Net income   $ 47,428     $ 93,277     $ 37,739  
Adjustments to reconcile net income to net cash provided by operating activities:                        
Depreciation and amortization     27,208       19,529       27,444  
Amortization of inventory step-up adjustment to fair value                 2,484  
Amortization of debt issuance costs, original issue discount and soft call premium     3,601       897       1,751  
Stock-based compensation     7,373       5,213       6,929  
Provision for excess and obsolete inventory     6,546       5,283       6,990  
Provision (recovery) for doubtful accounts     917       263       (251 )
Deferred income taxes     (6,442 )     (4,695 )     (180 )
Gain on sale of long-lived asset     (6,773 )            
Other     (553 )     71       851  
Changes in operating assets and liabilities     (18,647 )     (23,882 )     (6,203 )
Net cash provided by operating activities     60,658       95,956       77,554  
Cash flows provided by (used in) investing activities:            
Purchases of investments     (53,397 )     (64,958 )     (73,707 )
Sales of investments     4,705       4,505       3,221  
Maturities of investments     52,958       44,605       21,702  
Proceeds from sale of assets     41,179              
Purchases of property, plant and equipment     (16,499 )     (15,067 )     (13,725 )
Net cash provided by (used in) investing activities     28,946       (30,915 )     (62,509 )
Cash flows used in financing activities:            
Payments of short-term borrowings     (2,001 )     (29,803 )     (1,750 )
Net proceeds from short and long-term borrowings     1,241       23,635       2,301  
Payments of long-term borrowings     (52,244 )     (2 )     (51,625 )
Repurchase of common stock           (75,000 )      
Dividend payments     (10,898 )     (10,858 )     (10,880 )
Net payments related to employee stock awards     (716 )     (589 )     (2,025 )
Net cash used in financing activities     (64,618 )     (92,617 )     (63,979 )
Effect of exchange rate changes on cash and cash equivalents     (5,640 )     (5 )     (2,147 )
Increase (decrease) in cash and cash equivalents     19,346       (27,581 )     (51,081 )
Cash and cash equivalents at beginning of period     366,935       427,431       418,016  
Cash and cash equivalents at end of period   $ 386,281     $ 399,850     $ 366,935  
             



   
MKS Instruments, Inc.  
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate  
(In thousands)  
                         
    Three Months Ended September 30, 2019   Three Months Ended June 30, 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   $ 55,422     $ 7,994       14.4 %   $ 51,863     $ 14,124     27.2 %
Adjustments:                        
Acquisition and integration costs (Note 1)     2,103                 3,240            
Acquisition inventory step-up (Note 2)                     2,484            
Fees and expenses related to term loan (Note 3)     642                            
Amortization of debt issuance costs (Note 4)     3,053                 1,254            
Restructuring and other (Note 5)     1,525                 1,242            
Amortization of intangible assets     17,020                 17,552            
Gain on sale of long-lived assets (Note 6)     (6,773 )                          
Windfall tax (expense) benefit on stock-based compensation (Note 7)           (256 )               790      
Tax reform adjustments (Note 8)           (38 )               (2,731 )    
Tax effect of pro-forma adjustments           3,709                 5,596      
Non-GAAP   $ 72,992     $ 11,409       15.6 %   $ 77,635     $ 17,779     22.9 %
                         
                         
    Three Months Ended September 30, 2018            
    Income Before   Provision (benefit)   Effective            
    Income Taxes   for Income Taxes   Tax Rate            
GAAP   $ 114,516     $ 21,239       18.5 %            
Adjustments:                        
Acquisition and integration costs (Note 1)     36                        
Amortization of debt issuance costs (Note 4)     682                        
Restructuring and other (Note 5)     1,364                        
Amortization of intangible assets     10,695                        
Windfall tax (expense) benefit on stock-based compensation (Note 7)           287                  
Accrued tax on subsidiary distribution (Note 9)           2,756                  
Transition tax on accumulated foreign earnings (Note 10)           (863 )                
Tax effect of pro-forma adjustments           659                  
Non-GAAP   $ 127,293     $ 24,078       18.9 %            
                         
                         
    Nine Months Ended September 30, 2019   Nine Months Ended September 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   $ 122,621     $ 24,999       20.4 %   $ 389,802     $ 68,542     17.6 %
Adjustments:                        
Acquisition and integration costs (Note 1)     35,510                 (1,132 )          
Acquisition inventory step-up (Note 2)     7,624                            
Fees and expenses related to term loan (Note 3)     6,489                 378            
Amortization of debt issuance costs (Note 4)     4,906                 3,173            
Restructuring and other (Note 5)     4,690                 4,374            
Amortization of intangible assets     50,299                 32,786            
Gain on sale of long-lived assets (Note 6)     (6,773 )                          
Windfall tax (expense) benefit on stock-based compensation (Note 7)           1,923                 8,075      
Tax reform adjustments (Note 8)           (2,769 )                    
Accrued tax on subsidiary distribution (Note 9)                           2,756      
Transition tax on accumulated foreign earnings (Note 10)                           1,464      
Deferred tax adjustment (Note 11)                           (878 )    
Tax effect of pro-forma adjustments           18,474                 3,106      
Non-GAAP   $ 225,366     $ 42,627       18.9 %   $ 429,381     $ 83,065     19.3 %
                         
                         
Note 1: Acquisition and integration costs for the three months ended September 30, 2019 and June 30, 2019 and nine months ended September 30, 2019, related to the acquisition of Electro Scientific Industries, Inc. ("ESI") which closed on February 1, 2019. Acquisition and integration costs for the three and nine months ended September 30, 2018, related to the Newport acquisition, which closed during the second quarter of 2016. During the second quarter of 2018, we reversed a portion of these costs related to severance agreement provisions that were not met.
                         
Note 2: Costs of revenues during the three months ended June 30, 2019 and nine months ended September 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 and nine months ended September 30, 2019, related to Amendment No. 6 which included the fifth repricing of our Secured Term Loan Credit Agreement and the combination of the two existing tranches of the Secured Term Loan Credit Agreement with a maturity date in February 2026. We also recorded fees and expenses during the nine months ended September 30, 2019 related to Amendment No. 5 of our Secured Term Loan Credit Agreement. We recorded fees and expenses during the nine months ended September 30, 2018 related to the fourth repricing of our Secured Term Loan Credit Agreement.
                         
Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our Secured Term Loan Credit Agreement.
                         
Note 5: We recorded restructuring costs during the three months ended September 30, 2019 and June 30, 2019 and the nine months ended September 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 nine months ended September 30, 2019 related to a legal settlement from a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the three and nine months ended September 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 nine months ended September 30, 2018, related to an Environmental Protection Agency-designated Superfund site, which was acquired as part of our acquisition of Newport Corporation.
                         
Note 6: During the three and nine months ended September 30, 2019, we recorded a net gain on the sale of two of our buildings in Boulder, CO and three of our buildings in Portland, OR.
                         
Note 7: We recorded windfall tax (expense) benefits on the vesting of stock-based compensation.
 
Note 8: We recorded tax adjustments during the three months ended September 30, 2019, June 30, 2019 and nine months ended September 30, 2019 resulting from additional guidance provided by the IRS related to 2017 tax reform.
 
Note 9: During the three and nine months ended September 30, 2018, we recorded an adjustment to a tax accrual related to a planned distribution of an MKS subsidiary.
                         
Note 10: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three and nine months ended September 30, 2018.
                         
Note 11: During the nine months ended September 30, 2018, 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.
                         
                         
                         
MKS Instruments, Inc.  
Reconciliation of Q4-19 Guidance - GAAP Net Income to Non-GAAP Net Earnings  
(In thousands, except per share data)    
                         
    Three Months Ended December 31, 2019        
    Low Guidance   High Guidance        
    $ Amount   $ Per Share   $ Amount   $ Per Share        
GAAP net income   $ 32,200     $ 0.58     $ 50,400     $ 0.91          
Amortization     17,100       0.31       17,100       0.31          
Deferred financing costs     200       0.00       200       0.00          
Acquisition and integration costs     1,900       0.03       1,900       0.03          
Tax effect of adjustments (Note 1)     (4,100 )     (0.07 )     (4,100 )     (0.07 )        
Non-GAAP net earnings   $ 47,300     $ 0.85     $ 65,500     $ 1.19          
Q4 -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.        
                         

MKS Instruments logo

Source: MKS Instruments, Inc.