MKS Instruments, Inc.
Jul 25, 2017

MKS Instruments Reports Second Quarter 2017 Financial Results

ANDOVER, Mass., July 25, 2017 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ:MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported second quarter 2017 financial results.

Quarterly Financial Results
(in millions, except per share data)
 Q2 2017Q1 2017
GAAP Results  
Net revenues$481 $437 
Gross margin 45.7%  47.0% 
Operating margin  19.3%  19.1% 
Net income$120.4 $65.1 
Diluted EPS$2.19 $1.18 
Non-GAAP Results  
Gross margin 45.9%  47.0% 
Operating margin  24.0%  22.5% 
Net earnings$ 77.7 $70.0 
Diluted EPS$1.41 $1.27 

Second Quarter 2017 Financial Results  
Revenue was $481 million, an increase of 10% from $437 million in the first quarter of 2017 and an increase of 34% from $359 million in the second quarter of 2016 on a pro-forma basis.

Net income was $120.4 million, or $2.19 per diluted share, compared to net income of $65.1 million, or $1.18 per diluted share in the first quarter of 2017, and $9.2 million, or $0.17 per diluted share in the second quarter of 2016.

Non-GAAP net earnings, which exclude special charges and credits, were $77.7 million, or $1.41 per diluted share, compared to $70.0 million, or $1.27 per diluted share in the first quarter of 2017, and $38.7 million, or $0.72 per diluted share in the second quarter of 2016.

"We are very pleased with our continued progress in 2017 in achieving our objective of sustainable and profitable growth," said Gerald Colella, Chief Executive Officer and President. Mr. Colella added, "This quarter, we set new records for quarterly revenue and Non-GAAP net earnings and our focus on integrating the Newport Corporation acquisition into our organization has produced both excellent results and new growth opportunities. We achieved our initial cost synergies ahead of plan, while also substantially improving the revenue growth profile and profitability of the Light and Motion Division."

"We also continue to execute on our strategy to delever our balance sheet and significantly reduce our interest cost. I am pleased to report that as of June 30, the Company was in a net cash position. In addition, in early July, we completed our third successful re-pricing of our Term Loan and completed another $50 million voluntary pre-payment on our Term Loan facility, which brought our cumulative pre-payments to date to $250 million. Since origination on April 29, 2016, we have reduced our non-GAAP interest expense by $20 million or approximately 50% on an annualized basis," said Seth Bagshaw, Senior Vice President and Chief Financial Officer.

Additional Financial Information
The Company had $577 million in cash and short-term investments as of June 30, 2017 and $573 million outstanding under its Term Loan (reduced to $523 million on July 11, 2017). During the second quarter of 2017, MKS paid a dividend of $9.5 million or $0.175 per diluted share.

In April, the Company completed the sale of its Data Analytics Solutions Business Unit and recognized a net after tax gain of $72 million in the second quarter.

Third Quarter 2017 Outlook  
Based on current business levels, the Company expects that revenue in the third quarter of 2017 may range from $450 to $490 million.

At these volumes, GAAP net income could range from $1.12 to $1.37 per diluted share and non-GAAP net earnings could range from $1.32 to $1.56 per diluted share.

Conference Call Details
A conference call with management will be held on Wednesday, July 26, 2017 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 40213368, 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.

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, flow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control technology, ozone generation and delivery, RF & DC power, reactive gas generation, vacuum technology, lasers, photonics, sub-micron positioning, vibration isolation, and optics. Our primary served markets include semiconductor capital equipment, general industrial, life sciences, and research. Additional information can be found at www.mksinst.com.

Use of Non-GAAP Financial Results
Non-GAAP amounts exclude amortization of acquired intangible assets, an asset impairment, costs associated with completed and announced acquisitions, acquisition integration costs, restructuring charges, certain excess and obsolete inventory charges, fees and expenses related to re-pricing of our Term Loan, amortization of debt issuance costs, net proceeds from an insurance policy, costs associated with the sale of a business, the tax effect of a legal entity restructuring, other discrete tax benefits and charges, and the related tax effect of these adjustments. These non-GAAP measures are not in accordance with generally accepted accounting principles 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. Annualized GAAP interest expense based upon $780 million principal outstanding and using the LIBOR based interest rate spread in effect on April 29, 2016, was $44.0 million. Annualized GAAP interest expense based upon $523 million in principal currently outstanding and LIBOR plus 225 basis points would be $24.1 million. Pro-forma revenue amounts assume the acquisition of Newport Corporation had occurred as of the beginning of 2016.

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 of MKS, our future business prospects, our future growth, and our expected synergies and cost savings from our recent acquisition of Newport Corporation. 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 we operate, including the fluctuations in capital spending in the semiconductor industry, and other advanced manufacturing markets, fluctuations in net sales to our major customers, our ability to successfully integrate Newport's operations and employees, unexpected risks, costs, charges or expenses resulting from the Newport acquisition or other acquisitions, the terms of the Term Loan financing, fluctuations in interest rates, MKS' ability to realize anticipated synergies and cost savings from the Newport acquisition, our 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, 2016 filed with SEC. MKS is under no obligation to, and expressly disclaims any obligation to, update or alter our forward-looking statements, whether as a result of new information, future events or otherwise after the date of this press release. 

              
MKS Instruments, Inc.   
Unaudited Consolidated Statements of Operations   
(In thousands, except per share data)   
              
              
               
        Three Months Ended 
        June 30, June 30, March 31, 
         2017   2016   2017  
               
Net revenues:             
  Products        $  431,950  $  285,471  $  392,922   
  Services          48,807     40,390     44,231  
  Total net revenues         480,757     325,861     437,153  
Cost of revenues:            
  Products          229,304     163,993     205,060  
  Services          31,870     25,955     26,546  
  Total cost of revenues         261,174     189,948     231,606  
               
Gross profit          219,583     135,913     205,547  
               
Research and development         33,680     28,214     33,282  
Selling, general and administrative        71,979     59,579     74,220  
Acquisition and integration costs        790     20,055     1,442  
Restructuring          2,064     24     522  
Asset impairment         6,719      -      -   
Amortization of intangible assets         11,468     8,855     12,501  
Income from operations         92,883     19,186     83,580  
              
Interest income          507     530     516  
Interest expense         6,997     8,474     8,832  
Gain on sale of business         74,856     -      -   
Other (expense) income, net        (3,277)    1,126     2,021  
Income from operations before income taxes       157,972     12,368     77,285  
Provision for income taxes         37,532     3,158     12,225  
Net income       $  120,440  $  9,210  $  65,060  
              
Net income per share:            
  Basic       $  2.22  $  0.17  $  1.21  
  Diluted       $  2.19  $  0.17  $  1.18  
               
Cash dividends per common share     $  0.175  $  0.17  $  0.175  
              
Weighted average shares outstanding:          
  Basic          54,178     53,461     53,769  
  Diluted          55,001     53,806     54,958  
              
The following supplemental Non-GAAP earnings information is presented         
to aid in understanding MKS' operating results:         
              
Net income       $  120,440  $  9,210   $  65,060  
              
Adjustments:             
  Acquisition and integration costs (Note 1)       790     20,055     1,442  
  Acquisition inventory step-up (Note 2)       -      10,119     -   
  Expenses related to sale of a business (Note 3)       436     -      423  
  Excess and obsolete inventory charge (Note 4)       1,160     -      -   
  Fees and expenses relating to re-pricing of term loan (Note 5)     -      713     -   
  Amortization of debt issuance costs (Note 6)       694     1,629     2,414   
  Restructuring (Note 7)         2,064     24     522  
  Asset impairment (Note 8)        6,719     -      -   
  Gain on sale of business (Note 9)        (74,856)    -      -   
  Amortization of intangible assets        11,468     8,855     12,501  
  Windfall tax benefit on stock-based compensation (Note 10)     (3,169)    -      (6,650) 
  Taxes related to sale of business (Note 11)       15,007     -      -   
  Pro-forma tax adjustments        (3,047)    (11,896)    (5,718) 
              
Non-GAAP net earnings (Note 12)     $  77,706  $  38,709  $  69,994  
              
Non-GAAP net earnings per share (Note 12)    $  1.41  $  0.72  $  1.27  
               
Weighted average shares outstanding        55,001     53,806     54,958  
               
Income from operations      $  92,883  $  19,186  $  83,580  
              
Adjustments:             
  Acquisition and integration costs (Note 1)       790     20,055     1,442  
  Acquisition inventory step-up (Note 2)       -      10,119     -   
  Expenses related to sale of a business (Note 3)        436     -      423  
  Excess and obsolete inventory charge (Note 4)       1,160     -      -   
  Fees and expenses relating to re-pricing of term loan (Note 5)     -      713     -   
  Restructuring (Note 7)         2,064     24     522  
  Asset impairment (Note 8)        6,719     -      -   
  Amortization of intangible assets        11,468     8,855     12,501  
              
Non-GAAP income from operations (Note 13)    $  115,520  $  58,952  $  98,468  
              
Non-GAAP operating margin percentage (Note 13)    24.0%  18.1%  22.5% 
               
Gross profit       $  219,583  $  135,913  $  205,547  
  Acquisition inventory step-up (Note 2)       -      10,119     -   
  Excess and obsolete inventory charge (Note 4)       1,160     -      -   
               
Non-GAAP gross profit (Note 14)     $  220,743  $  146,032  $  205,547  
              
Non-GAAP gross profit percentage (Note 14)     45.9%  44.8%  47.0% 
              
Interest expense      $  6,997  $  8,474  $  8,832  
  Amortization of debt issuance costs (Note 6)      694     1,629   2,414  
              
Non-GAAP interest expense     $  6,303  $  6,845  $  6,418  
              
Net Income        $  120,440  $  9,210  $  65,060  
  Interest expense (income), net        6,490      7,944     8,316  
  Provision for income taxes        37,532     3,158     12,225  
  Depreciation          9,120     7,575     9,332  
  Amortization          11,468     8,855     12,501  
EBITDA (Note 15)      $  185,050  $  36,742  $  107,434  
  Stock-based compensation         6,207     10,517     8,782  
  Acquisition and integration costs (Note 1)       790      20,055     1,442  
  Acquisition inventory step-up (Note 2)       -      10,119     -   
  Expenses related to sale of a business (Note 3)       436      -      423  
  Excess and obsolete inventory charge (Note 4)        1,160     -      -   
  Fees and expenses relating to re-pricing of term loan (Note 5)     -      713     -   
  Restructuring (Note 7)         2,064     24     522  
  Asset impairment (Note 8)        6,719     -      -   
  Gain on sale of business (Note 9)        (74,856)    -      -   
  Other adjustments         822     661     747  
Adjusted EBITDA (Note 16)      $  128,392  $  78,831  $  119,350  
              
Note 1: We recorded $0.8 million, $1.4 million and $20.1 million of acquisition and integration costs during the three months ended June 30, 2017, March 31, 2017 and June 30, 2016, respectively, related to the Newport Corporation acquisition, which closed during the second quarter of 2016. 
              
Note 2: We recorded $10.1 million in cost of sales during the three months ended June 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition. 
              
Note 3: We recorded $0.4 million during the three months ended June 30, 2017 and March 31, 2017, respectively, related to the sale of a business, which was completed in April of 2017. 
              
Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the three months ended June 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing sites. 
                    
Note 5: We recorded $0.7 million of fees and expenses during the three months ended June 30, 2016, related to the re-pricing of our Term Loan Credit Agreement. 
              
Note 6: We recorded $0.7 million, $2.4 million and $1.6 million of additional interest expense during the three months ended June 30, 2017, March 31, 2017 and June 30, 2016, respectively, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility. 
                     
Note 7: We recorded $2.1 million of restructuring costs during the three months ended June 30, 2017, related to the consolidation of two manufacturing plants and $0.5 million of restructuring costs during the three months ended March 31, 2017, related to the restructuring of one of our international facilities and the consolidation of sales offices. 
                    
Note 8: We recorded a $6.7 million asset impairment charge, primarily related to the write-off of goodwill and intangible assets during the three months ended June 30, 2017, in conjunction with the consolidation of two manufacturing plants. 
              
Note 9: We recorded a $74.9 million gain on the sale of our Data Analytics Solutions business during the three months ended June 30, 2017.  
               
Note 10: We recorded a windfall tax benefit on the vesting of stock-based compensation of $3.2 million and $6.6 million during the three months ended June 30, 2017 and March 31, 2017, respectively, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09). 
                     
Note 11: We recorded $15.0 million of taxes related to the sale of our Data Analytics Solutions business during the three months ended June 30, 2017. 
              
Note 12: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, amortization of debt issuance costs, restructuring costs, an asset impairment charge, a gain on the sale of a business, amortization of intangible assets, a windfall tax benefit related to stock-based compensation expense, taxes related to the sale of a business 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 percentages exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge and amortization of intangible assets. 
                    
Note 14: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment and an excess and obsolete inventory charge. 
                    
Note 15: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.     
              
Note 16: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge, a gain on the sale of a business 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, 
         2017   2016  
            
Net revenues:           
  Products       $  824,872  $  439,092  
  Services           93,038     70,450  
  Total net revenues         917,910      509,542  
Cost of revenues:          
  Products          434,364     249,345  
  Services          58,416     46,371  
  Total cost of revenues         492,780     295,716  
            
Gross profit          425,130     213,826  
            
Research and development          66,962     45,441  
Selling, general and administrative        146,199     93,529  
Acquisition and integration costs        2,232     22,549  
Restructuring          2,586     24  
Asset impairment          6,719     -   
Amortization of intangible assets        23,969     10,538  
Income from operations         176,463     41,745  
            
Interest income          1,023     1,454  
Interest expense         15,829     8,519  
Gain on sale of business         74,856     -   
Other (expense) income, net        (1,256)    1,493  
Income from continuing operations before income taxes      235,257      36,173  
Provision for income taxes          49,757     9,400  
Net income       $  185,500  $  26,773  
            
Net income per share:          
  Basic       $  3.44  $  0.50  
  Diluted        $  3.37  $  0.50  
             
Cash dividends per common share     $  0.35  $  0.34  
            
Weighted average shares outstanding:         
  Basic          53,973     53,348  
  Diluted          54,979     53,685  
            
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:     
            
Net income       $  185,500  $  26,773  
             
Adjustments:           
  Acquisition and integration costs (Note 1)       2,232     22,549  
  Acquisition inventory step-up (Note 2)       -      10,119  
  Expenses related to sale of a business (Note 3)       859      -   
  Excess and obsolete inventory charge (Note 4)       1,160     -   
  Fees and expenses relating to re-pricing of term loan (Note 5)     -      713  
  Amortization of debt issuance costs (Note 6)       3,108     1,629  
  Restructuring (Note 7)         2,586     24  
  Asset impairment (Note 8)        6,719     -   
  Gain on sale of business (Note 9)        (74,856)    -   
  Amortization of intangible assets        23,969     10,538  
  Windfall tax benefit on stock-based compensation (Note 10)     (9,819)    -   
  Taxes related to sale of business (Note 11)       15,007     -   
  Pro-forma tax adjustments        (9,710)    (13,489) 
            
Non-GAAP net earnings (Note 12)      $  146,755  $  58,856  
            
Non-GAAP net earnings per share (Note 12)    $  2.67  $  1.10  
            
Weighted average shares outstanding        54,979     53,685  
            
Income from operations      $  176,463  $  41,745  
            
Adjustments:           
  Acquisition and integration costs (Note 1)       2,232     22,549  
  Acquisition inventory step-up (Note 2)       -      10,119  
  Expenses related to sale of a business (Note 3)       859     -   
  Excess and obsolete inventory charge (Note 4)        1,160     -   
  Fees and expenses relating to re-pricing of term loan (Note 5)     -      713  
  Restructuring (Note 7)         2,586     24  
  Asset impairment (Note 8)        6,719     -   
  Amortization of intangible assets        23,969     10,538  
            
Non-GAAP income from operations (Note 13)    $  213,988  $  85,688  
            
Non-GAAP operating margin percentage (Note 13)    23.3%   16.8% 
            
Gross profit $  425,130  $  213,826  
  Acquisition inventory step-up (Note 2)    -      10,119  
  Excess and obsolete inventory charge (Note 4)    1,160     -    
     
Non-GAAP gross profit (Note 14) $  426,290  $  223,945  
     
Non-GAAP gross profit percentage (Note 14)  46.4%  44.0% 
            
Interest expense       $  15,829  $  8,519  
  Amortization of debt issuance costs (Note 6)       3,108     1,629  
            
Non-GAAP interest  expense     $  12,721  $  6,890  
            
Net Income $  185,500  $  26,773  
  Interest expense (income), net    14,806     7,065  
  Provision for income taxes    49,757     9,400  
  Depreciation     18,452     11,170  
  Amortization    23,969     10,538  
EBITDA (Note 15) $  292,484  $  64,946  
  Stock-based compensation      14,989     14,668  
  Acquisition and integration costs (Note 1)    2,232     22,549  
  Acquisition inventory step-up (Note 2)    -      10,119  
  Expenses related to sale of a business (Note 3)    859     -   
  Excess and obsolete inventory charge (Note 4)     1,160     -   
  Fees and expenses relating to re-pricing of term loan (Note 5)    -      713  
  Restructuring (Note 7)    2,586     24  
  Asset impairment (Note 8)        6,719     -   
  Gain on sale of business (Note 9)        (74,856)    -   
  Other adjustments    1,569     661  
Adjusted EBITDA (Note 16) $  247,742  $  113,680  
            
            
Note 1: We recorded $2.2 million and $22.5 million of acquisition and integration costs during the six months ended June 30, 2017 and 2016, respectively, related to the Newport Corporation acquisition, which closed during the second quarter of 2016.  
                
Note 2: We recorded $10.1 million in cost of sales during the six months ended June 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition. 
  
Note 3: We recorded $0.9 million during the six months ended June 30, 2017, which is comprised of legal and consulting and compensation related expenses related to the sale of a business, which was completed in April of 2017. 
  
Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the six months ended June 30, 2017 related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants. 
  
Note 5: We recorded $0.7 million of fees and expenses during the six months ended June 30, 2016, related to the re-pricing of our Term Loan Credit Agreement.  
  
Note 6: We recorded $3.1 million and $1.6 million of additional interest expense during the six months ended June 30, 2017 and 2016, respectively, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility. 
  
Note 7: We recorded $2.6 million of restructuring costs during the six months ended June 30, 2017, related to the consolidation of two manufacturing plants, a restructuring of one of our international facilities and the consolidation of sales offices. 
  
Note 8: We recorded a $6.7 million asset impairment charge, primarily related to the write-off of goodwill and intangible assets during the six months ended June 30, 2017, in connection with the consolidation of two manufacturing plants. 
  
Note 9: We recorded a $74.9 gain on the sale of our Data Analytics Solutions business during the six months ended June 30, 2017. 
  
Note 10: We recorded a windfall tax benefit on the vesting of stock-based compensation of $9.8 million, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09). 
  
Note 11: We recorded $15.0 million of taxes related to the sale of our Data Analytics Solutions business during the six months ended June 30, 2017. 
  
Note 12: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, amortization of debt issuance costs, restructuring costs, an asset impairment charge, a gain on the sale of a business, amortization of intangible assets, a windfall tax benefit related to stock-based compensation expense, taxes related to the sale of a business 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 percentages exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge and amortization of intangible assets. 
  
Note 14: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment and an excess and obsolete inventory charge. 
            
Note 15: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.  
  
Note 16: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge, a gain on the sale of a business and other adjustments as defined in our Term Loan Credit Agreement. 
   

 

             
MKS Instruments, Inc.  
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate 
(In thousands) 
            
  Three Months Ended June 30, 2017 Three Months Ended March 31, 2017
 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 $  157,972  $  37,532   23.8% $77,285  $12,225 15.8%
             
Adjustments:            
  Acquisition and integration costs (Note 1)    790     -        1,442     -   
  Expenses related to sale of a business (Note 3)    436     -        423     -   
  Excess and obsolete inventory charge (Note 4)    1,160     -        -      -   
  Amortization of debt issuance costs (Note 6)    694     -        2,414     -   
  Restructuring (Note 7)    2,064     -        522     -   
  Asset impairment (Note 8)    6,719     -        -      -    
  Gain on sale of business (Note 9)    (74,856)    -        -      -   
  Amortization of intangible assets    11,468     -      12,501     -   
  Windfall tax benefit on stock-based compensation (Note 10)    -      3,169       -       6,650  
  Taxes related to sale of business (Note 11)    -      (15,007)    -      -  
  Tax effect of pro-forma adjustments    -      3,047       -      5,718  
             
Non-GAAP $106,447  $28,741   27.0% $94,587  $24,593 26.0%
             
             
  Three Months Ended June 30, 2016      
  Income Before Provision (benefit) Effective       
  Income Taxes for Income Taxes Tax Rate      
             
GAAP $  12,368  $  3,158   25.5%      
             
Adjustments:             
  Acquisition and integration costs (Note 1)    20,055     -          
  Acquisition inventory step-up (Note 2)    10,119     -          
  Fees and expenses relating to re-pricing of term loan (Note 5)    713     -          
  Amortization of debt issuance costs (Note 6)    1,629     -          
  Restructuring    24     -          
  Amortization of intangible assets    8,855     -          
  Tax effect of pro-forma adjustments    -      11,896          
             
Non-GAAP $  53,763  $  15,054    28.0%      
             
              
  Six Months Ended June 30, 2017 Six Months Ended June 30, 2016
 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 $  235,257  $  49,757   21.2% $  36,173  $  9,400 26.0%
             
Adjustments:            
  Acquisition and integration costs (Note 1)  2,232     -      22,549     -   
  Acquisition inventory step-up (Note 2)   -      -      10,119     -   
  Expenses related to sale of a business (Note 3)    859     -        -      -   
  Excess and obsolete inventory charge (Note 4)    1,160     -        -      -   
  Fees and expenses relating to re-pricing of term loan (Note 5)    -      -        713     -   
  Amortization of debt issuance costs (Note 6)    3,108     -        1,629     -   
  Restructuring (Note 7)    2,586     -        24     -   
  Asset impairment (Note 8)    6,719     -        -      -   
  Gain on sale of business (Note 9)    (74,856)    -        -      -   
  Amortization of intangible assets    23,969     -      10,538     -   
  Windfall tax benefit on stock-based compensation (Note 10)    -       9,819       -      -   
  Taxes related to sale of business (Note 11)    -      (15,007)      -      -   
  Tax effect of pro-forma adjustments    -      9,710       -    13,489  
             
Non-GAAP $  201,034  $  54,279   27.0% $81,745  $22,889 28.0%
   
             
Note 1: Acquisition and integration costs during the three and six months ended June 30, 2017 relate to the Newport Corporation acquisition, which closed during the second quarter of 2016.      
             
Note 2: We recorded $10.1 million in cost of sales during the three and six months ended June 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition.       
             
Note 3: We recorded $0.4 million and $0.9 million during the three and six months ended June 30, 2017, respectively, and $0.4 million for the three months ended March 31, 2017, related to the sale of a business, which was completed in April of 2017.      
              
Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the three months ended June 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants.      
             
Note 5: We recorded $0.7 million of fees and expenses during the three and six months ended June 30, 2016, related to the re-pricing of our Term Loan Credit Agreement.      
             
Note 6: Amortization of debt issuance costs for the three and six months ended June 30, 2017 and 2016, respectively, and the three months ended March 31, 2017, are affiliated with our Term Loan Credit Agreement and ABL Facility.      
                    
Note 7: We recorded $2.1 million and $2.6 million of restructuring costs during the three and six months ended June 30, 2017, respectively,  and $0.5 million for the three months ended March 31, 2017, related to the consolidation of two manufacturing plants, a restructuring of one of our international facilities and the consolidation of sales offices.      
             
Note 8: We recorded a $6.7 million asset impairment charge, primarily related to the write-off of goodwill and intangible assets during the three and six months ended June 30, 2017, in conjunction with the consolidation of two manufacturing plants.       
             
Note 9: We recorded a $74.9 million gain on the sale of our Data Analytics Solutions business during the three and six months ended June 30, 2017.      
                   
Note 10: We recorded a windfall tax benefit on the vesting of stock-based compensation of $3.2 million and $9.8 million during the three and six months ended June 30, 2017, respectively, and $6.6 million for the three months ended March 31, 2017, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).      
             
Note 11: We recorded $15.0 million of taxes related to the sale of our Data Analytics Solutions business during the three and six months ended June 30, 2017.      
             
MKS Instruments, Inc. 
Reconciliation of Q3-17 Guidance - GAAP Net Income to Non-GAAP Net Earnings  
(In thousands, except per share data)  
             
  Three Months Ended September 30, 2017    
  Low Guidance High Guidance    
  $ Amount $ Per Share $ Amount $ Per Share    
             
GAAP net income $  62,200  $  1.12  $   75,600  $  1.37     
             
Amortization  10,800     0.20   10,800     0.20     
             
Integration costs  1,700     0.03   1,700     0.03     
             
Deferred financing costs  2,300     0.04   2,300     0.04     
             
Tax effect of adjustments (Note 1)  (4,000)    (0.07)  (4,000)    (0.07)    
             
Non-GAAP net earnings $  73,000  $  1.32  $  86,400  $  1.56     
             
Q3 -17 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, Inc. 
Unaudited Consolidated Balance Sheet 
(In thousands) 
         
          
         
         
     June 30, December 31, 
      2017   2016  
         
ASSETS        
         
Cash and cash equivalents  $  422,830  $  228,623  
Restricted cash      5,282     5,287  
Short-term investments     149,016     189,463  
Trade accounts receivable, net     268,544     248,757  
Inventories      304,707     275,869  
Other current assets      51,721     50,770  
         
 Total current assets      1,202,100     998,769  
         
Property, plant and equipment, net    167,212     174,559  
Goodwill       586,865     588,585  
Intangible assets, net     386,075     408,004  
Long-term investments     10,329     9,858  
Other assets      32,102     32,467  
         
Total assets   $  2,384,683  $  2,212,242  
         
         
LIABILITIES AND STOCKHOLDERS' EQUITY    
         
Short-term debt   $  9,810  $  10,993  
Accounts payable      73,291     69,337  
Accrued compensation     65,243     67,728  
Income taxes payable     42,142     22,794  
Deferred revenue      9,975     14,463  
Other current liabilities     57,795     51,985  
 Total current liabilities    258,256      237,300  
         
Long-term debt, net      551,846     601,229  
Non-current deferred taxes     71,895     66,446  
Non-current accrued compensation    48,560     44,714  
Other liabilities      24,370     20,761  
 Total liabilities     954,927     970,450  
         
Stockholders' equity:       
Common stock      113     113  
Additional paid-in capital     779,058     777,482  
Retained earnings      661,341     494,744  
Accumulated other comprehensive loss    (10,756)    (30,547) 
 Total stockholders' equity    1,429,756     1,241,792  
         
Total liabilities and stockholders' equity $  2,384,683  $  2,212,242  
         


Company Contact:  Seth H. Bagshaw

Senior Vice President, Chief Financial Officer and Treasurer

Telephone:  978.645.5578



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

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Source: MKS Instruments, Inc.

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